Agriculture, Food and Rural Affairs Appeal Tribunal 1 Stone Road West

Tribunal d’appel de l’agriculture, de l’alimentation et des affaires rurales 1 Stone Road West

Guelph, (Ontario) N1G 4Y2 Tel: (519) 826-3433, Fax: (519) 826-4232 Email: AFRAAT@ontario.ca

Guelph (Ontario) N1G 4Y2 Tél.: (519) 826-3433, Téléc.: (519) 826-4232 Email: AFRAAT@ontario.ca

AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL

APPEAL:

Cumming v Dairy Farmers of Ontario

Cumming v DFO 2001 ONAFRAAT 11

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

January 26, 2001

DATE OF DECISION:

February 23, 2001

2001-11

NEUTRAL CITATION:

2001 ONAFRAAT 11

Cumming v Dairy Farmers of Ontario

IN THE MATTER OF THE MILK ACT AND SECTION 16 OF THE MINISTRY OF AGRICULTURE AND FOOD ACT.

AND IN THE MATTER OF: An Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by Alexander and Mary Cumming, Lancaster, Ontario of the decision of Dairy Farmers of Ontario (DFO) of July 28, 2000 denying their request that a DFO producer number be issued to them without their being required to transfer Quebec quota held by Glen Malcolm Farms Ltd. to Ontario.

Before:

Jim Rickard, Chair; Gertrude Levac, Member; Arden Schneckenburger, Member

Appearances:

Alexander Cumming, appellant.

Bob Tolhurst, counsel to the appellant.

Gordon Coukell, Chair DFO, on behalf of the respondent.

Grant Kennedy, Quota Manager DFO, on behalf of the respondent.

Alex Hamilton, Fieldman DFO, on behalf of the respondent.

Geoffrey Spurr, counsel to the respondent.

DECISION OF THE TRIBUNAL

This appeal was heard in the Ottawa Room, The Southway Inn, Ottawa, Ontario on January 26, 2001. Mr. and Mrs. Cumming appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal (the Tribunal) from the July 28, 2000 decision of the Dairy Farmers of Ontario (DFO) denying their request that a DFO producer number be issued to them without their being required to transfer Quebec quota held by Glen-Malcolm Farm Inc. to Ontario.

The Background

Prior to the creation and empowerment of the DFO (then the Ontario Milk Marketing Board) in the 1960s, there existed a group of producers with premises located in eastern Ontario that shipped milk to the Montreal market. These shipments received a premium price. Therefore, when the DFO came into being, a special arrangement was made for such producers which enabled them to continue to supply the Montreal market. Although situated in Ontario, these producers were not required to hold marketing quota from the DFO. Instead, they were licensed and held quota from the Quebec Milk Marketing Board (referred to hereinafter as the “Federation”). The Federation was responsible to regulate these producers and they were beyond the jurisdiction of the DFO. Thus, the producers in question were able to continue to service the Montreal market and receive a premium price even though supply management for milk and pooling had been introduced in the province in which their farms were located.

Effective February 1, 1988, the DFO approved a policy provision that pertained to milk producers with their premises located in Ontario that nonetheless held quota issued and allotted by another provincial marketing board. At that time, milk was divided into two markets – fluid and industrial or Market Share Quota (MSQ) – each province controlled its own fluid market but the industrial market was a shared Canadian market. Initially, Ontario-based Quebec producers who wanted to move from shipping to Quebec to shipping to Ontario had to sell their Quebec fluid quota before they would be allowed to change markets, but they had to bring their MSQ to Ontario since this quota represented a share of the Canadian market. As time passed and quota changed to one pool the policy evolved to where an Ontario-based Quebec producer had to bring all of his Quebec based quota with him if he transferred to the Ontario market.

The applicable section of the policy is Part I, Section H of the DFO’s quota policy – New Producer Requirements. Section H (k) is as follows:

“Ontario-based producers transferring to the Ontario market from another province must bring to Ontario the total quota allotted for their use in the previous year. Any individual wanting to be licensed at an Ontario farm from which a family member is (or was) shipping to another province must transfer to Ontario the total quota allotted at that farm in the previous year.”

Mr. Alexander and Mrs. Mary Cumming own a farm in Eastern Ontario on which they wish to produce milk. Mr. Alexander Cumming owns a 40% share in Glen-Malcolm Farm Inc., an Ontario company that produces milk in Ontario, under quota issued by the Federation. Mr. Cumming’s brother Malcolm and his parents hold the balance of the shares in Glen-Malcolm Farm Inc. Mr. Alexander Cumming does not wish to transfer his quota holdings in Glen-Malcolm Farm Inc. to the new venture that he and Mrs. Cumming hope to start. Quebec quota issued by the Federation is more expensive than Ontario quota issued by the DFO.

Preliminary Matter

Mr. Geoff Spurr raised a jurisdictional issue at the onset of the Hearing. He pointed out that the appeal was of a decision in which Mr. and Mrs. Cumming were denied a licence to produce milk, as described in the Notice of Hearing. He objected to a potential expansion of the scope of the appeal to consider whether or not the DFO policy was legal. He said that the DFO had not heard arguments on the appropriateness or legality of the policy, and that these arguments must be made to the DFO before an appeal may be made to the Tribunal. He stated that he was willing to proceed on the facts of case and whether or not the policy was applied fairly to Mr. and Mrs. Cumming.

Mr. Tolhurst submitted that the issue of whether the DFO had the right to make this policy was appropriately before the Tribunal. He stated that in order for the Tribunal to determine if the DFO decision in July 2000 was the proper one, it would need to consider whether or not the DFO had a proper policy. He submitted that Mr. Spurr should have been aware that this issue would be raised as he had attended at a Hearing on a similar matter in September 2000 (Keurentjes vs. DFO).

Mr. Spurr replied that he was prepared to argue the reason for this DFO policy, but not whether or not DFO had the right to make this policy. He said the jurisdictional issue had not been raised in the Keurentjes case. He submitted that the DFO was entitled to notice as to what issues were under appeal, so that they could prepare their case, rather than defend on the fly.

Mr. Tolhurst stated that this argument was a significant part of his case and that he did not want his clients to be disadvantaged.

The Tribunal opted to hear the facts of the case and leave the argument of the jurisdictional issue until later in the day.

The Issue

The issue before the Tribunal is:

Should Alexander and Mary Cumming be issued a licence to produce milk in Ontario, without being required to transfer Quebec quota held by Glen-Malcolm Farm Inc. to Ontario?

The Evidence and the Findings

Mr. Alexander Cumming told the Tribunal that:

• His grandfather had begun milking cows in the early 1900’s, that his family had been milk producers ever since and that his son was very interested in the business. He explained that he farms with one brother and his father on the original family farm. Another brother had originally been a partner in Glen-Malcolm Farm Inc. but he had started his own farm in 1981, taking cows and cash from Glen-Malcolm Farm Inc. That brother had been issued a licence by the Ontario Milk Marketing Board (now DFO).

• He is a director in Glen-Malcolm Farm Inc., he owns 40% of the shares of the company and his main function is milking cows. The corporation milks approximately 90 cows on land owned by his father, Mr. MacNaughton Cumming. There is no room to expand at that location. He owns a nearby farm, which he purchased in 1986 with the intention of milking cows on it. However, his plans to start up his own business were delayed until debt incurred by the corporation was repaid. He feels that in the long run it would be better to have his own farm, as it would facilitate a transfer of the business to the next generation. He said he needs to expand his farming operation in order to give his children the same opportunity his father gave to him.

• The Cumming family was producing milk for the Montreal market when the supply management system was implemented in Canada. The company continued to ship milk to the Quebec market where they achieved higher returns. The corporation expanded through the purchase of additional Quebec quota over the years. Quebec quota was usually significantly more expensive than Ontario quota. The corporate structure allowed the brothers to opt out of the family business to establish their own farms.

• Early in 1999, he spoke with Mr. Grant Kennedy of the DFO who told him that he could not get a milk producer licence issued in his own name by the DFO. He did not think that was right but he took no immediate action. Mr. Kennedy also told him that he could be licensed on his own farm as a separate Quebec producer. He did not feel that was an attractive option, as he did not have access to Quebec subsidies, as the milk price was no longer better in Quebec and as the quota price in Quebec was still higher than that in Ontario.

• In January 2000 he asked that he be issued an Ontario milk producer licence, without bringing any Glen-Malcolm Farm Inc. quota to Ontario. His application was denied, he appealed to DFO and it upheld its original decision. He felt that the DFO did not believe that people should be allowed to make money in free enterprise. He noted that he was asked if he would be applying for this licence if the price of Ontario quota were higher than the price of Quebec quota. He was told the reason for the DFO policy is to prevent the sale of Quebec quota and the purchase of Ontario quota for monetary gain. If its rationale was to prevent profits on quota, the DFO could have a policy such that everyone who retires has to sell quota back to the board at the price they paid for it. He said it was not fair to centre out 31 Ontario-based Quebec milk producers.

• After his hearing before DFO in July 2000 he was informed that there were other ways to accomplish his goal but he was not comfortable with them.

• He was aware of several instances in the past, where Quebec producers switched to Ontario and made a monetary gain. He had visited a farm near St. Eugene, owned by Simon and Bertrand Villeneuve. These producers used to ship in Quebec but they purchased Ontario quota and built the farm with the proceeds of the sale of Quebec quota. They remained Quebec residents. He noted that the DFO policy did not apply to the Villeneuves and he felt that it was therefore a discriminatory policy. Also, he was aware of at least two exemptions to the DFO policy in 1999.

• Ontario had opted out of an inter-provincial quota exchange with Quebec after quota moved to Quebec. Quebec producers had more buying power due to their subsidy programs such as low interest rate mortgages, the amortization of quota loans over 15 years at residential mortgage rates, subsidies on manure storage and veterinary care and much richer market revenue programs. He thought DFO was using this policy to recover a small portion of the quota that was lost over the inter-provincial quota exchange.

• He did not know what he would do with his Quebec quota if the appeal were granted, but he wanted to be free to decide if he wanted to sell it or not, depending on market forces. He submitted that it was not reasonable to expect he and Mrs. Cumming to reduce their asset base.

• The DFO policy is defective because the DFO is overstepping its boundaries as the Quebec market is out of its jurisdiction. The policy is also defective as it was discriminatory to 31 Ontario-based Quebec producers in that it prevents them from achieving monetary gain that they are entitled to without addressing the issue of monetary gain through speculation in the Ontario quota market.

In response to questions from Mr. Spurr, Mr. Cumming stated that:

• He is a full time dairy producer with no full time off-farm job. He and his brother Malcolm made all the critical decisions with regard to the operation of Glen-Malcolm Farm Inc. He agreed that their shares were a proxy for control and that if they separated their interests they would split their assets (cows, equipment, quota etc.) in proportion to their shares in the company.

• There was an advantage to shipping to Quebec when the marketing boards were established.

• The Villeneuves were not asked if information on their farming operation could be filed with the Tribunal. He had not asked Mr. Villeneuve whether he was a resident of Quebec or Ontario, but it was obvious too him that Mr. Villeneuve lived in Quebec. Mr. Villeneuve was not asked to testify at the Hearing.

• Glen Malcolm Farm Inc. held quota that allowed the production of approximately 80 kg/day of milk. The difference in the corporation’s quota value in Ontario and Quebec was approximately $480,000 and his share was worth approximately $220,000.

• He agreed that the thrust of his argument was that he should be entitled to transfer assets. He agreed the DFO had said he would be licensed if he brought his Quebec quota to Ontario, but he pointed out that he would be required to reduce his asset base to do so.

• He wanted to acquire quota on the Ontario exchange. He might bring 40% of the Glen-Malcolm cows to his farm. The sale of Quebec quota would generate extra funds to allow him to bid on the Ontario exchange such that he could replace the quota sold and acquire more quota. He agreed that the issue was that he wanted to trade quota and realize on the difference in values between Quebec quota and Ontario quota. He thought that if he purchased quota at Quebec prices he should be able to sell quota at Quebec prices.

• He could ship the same amount of milk under the Ontario system as he did under the Quebec system if he transferred his quota to Ontario, but his equity would be reduced and that would affect his ability to obtain financing.

• He agreed the corporation had the benefits of the Quebec market but noted that it also incurred higher costs. He did not view the difference in quota values as a windfall profit. He did not agree that the proceeds from the replacement of Quebec quota with Ontario quota would give him an unfair advantage over Ontario producers. He pointed out that he would have no more equity the day after he sold his Quebec quota than he did the day before. He agreed that the DFO was not preventing him from splitting away from his family business.

• He did not believe it was viable to split his quota from Glen-Malcolm Farm Inc. and remain licensed as an Ontario-based Quebec milk producer. He said this was not viable because of subsidies available to Quebec producers that he could not receive.

In response to questions from the Tribunal, Mr. Cumming stated:

• The Glen-Malcolm Farm Inc. facilities were inspected by Quebec officials. He had no dealings with the DFO other than being an Ontario-based Quebec shipper and receiving the DFO magazine. He and his brother Malcolm manage the farm.

• The farm he owns would need significant modification in order to be suitable for milk production. If he were to start his own business, Glen-Malcolm Farms Inc. would have to be dissolved, for tax and legal reasons. He would like to milk 80 or 90 cows at his own farm, perhaps more if his son joins the business. He would start the new farm as a corporation.

• The Villeneuves in St. Eugene had sold Quebec quota and purchased Ontario quota. The farm was visited by him, his brother Malcolm, his father and Mr. Tolhurst.

• He did not recall if Glen Malcolm Farms Inc. bought quota when the inter-provincial quota exchange was in operation. He estimated that his grandfather received the equivalent of 30 kg of quota when the marketing boards were established and that the family had purchased the equivalent of 50 kg of quota on the Quebec exchange over the years.

• His bank had his balance sheet and bank officials routinely asked about quota. Quebec-based producers’ subsidy advantage over Ontario-based producers had increased in the past few years.

• It was not viable for him to sell his Quebec quota, stay out of production for one year, then become licensed as an Ontario producer, due to tax considerations.

In response to questions from Mr. Tolhurst, Mr. Cumming indicated that a Quebec truck picked up milk from Glen Malcolm Farms Inc. and that there was a monetary gain to selling quota and retiring. He stated that he understood that he had to own quota in order to produce milk in Ontario, if he were to be licensed. Mr. Coukell clarified that he could sell milk on the export market, without owning quota but that the price of this milk would be approximately half the domestic price.

Mr. Grant Kennedy testified that he had been the DFO Quota Manager for 18 years. He explained that his job was to enforce quota policies, manage the quota exchange, answer producers’ questions and explain the quota policy.

Mr. Kennedy told the Tribunal that:

• The DFO had approved the appellants’ proposal to operate as dairy producers, on the condition that they transfer Mr. Cumming’s share of the Quebec quota held by Glen-Malcolm Farm Inc. to Ontario.

• The policy requiring Ontario-based Quebec producers to transfer their quota holdings to Ontario in order to be licensed as Ontario producers was implemented on February 1, 1988. At that time the only quota that could be transferred was Market Sharing Quota (MSQ), used to market milk in the industrial market. Fluid milk quota could not be transferred out of Quebec. The catalyst for the policy was the decisions of two Ontario-based Quebec producers to sell their quota and purchase less expensive Ontario quota with the proceeds of sale. The DFO was concerned that more such producers would do the same and that they would have an advantage over Ontario producers.

• Historically, Ontario-based Quebec producers had been given special consideration to allow them the opportunity to make extra money by shipping into the Quebec market.

• The DFO believed that Ontario-based Quebec producers should be required to bring MSQ with them, if they wanted to market in the Ontario market. A letter was sent to all Ontario-based Quebec producers in 1988 to inform them of the new policy. Since the policy was introduced, 68 Ontario-based Quebec producers had transferred to the Ontario market. The Tribunal was referred to a table in the DFO written submission.

• The DFO also has a policy to prevent the movement of quota out of province. This prevents Ontario producers from selling quota at higher Quebec prices. Ontario had briefly participated in an inter-provincial quota exchange with Quebec and Nova Scotia when it entered a price pooling arrangement. Ontario withdrew from the exchange in March 1998 after losing 5,150 kg of milk quota, primarily to Quebec.

• Without an anti-speculation policy, Ontario-based Quebec producers would profit by selling Quebec quota and replacing it with Ontario quota.

• Quota is not property. He does not view it as appropriate that producers should be able to profit from quota transactions.

• He did not recall discussing with Mr. Cumming the possibility of splitting the quota of Glen- Malcolm Farms Inc. between two farms and licensing the second as an Ontario-based Quebec producer. But, he understood that this was permissible under the Quebec quota policy. The 1999 proposal that would have Alexander and Mary Cumming licensed at their farm as Ontario producers and Malcolm continuing at his father’s farm under an Ontario licence would have been acceptable, provided the Quebec quota was transferred to Ontario.

• The DFO had received no further inquiries from Malcolm Cumming.

• DFO requires that the names of all partners in partnerships and all shareholders in corporations that are licensed Ontario producers be provided to the DFO. They use this information to determine ownership. It was his view that both Alexander and Malcolm Cumming were Quebec producers living in Ontario, as they were both shareholders in Glen Malcolm Farm Inc. The DFO received no information from Mr. Tolhurst to substantiate his position that the brothers were new producers.

• The DFO licence is attached to shareholders. Even though it licenses corporations, the individual shareholders are the producers. DFO owns the quota but if a corporate producer were to assign proceeds of quota sales to a bank, one or all of the shareholders with signing authority would sign the documents. The DFO would not transfer quota held by a corporation on the request by a single shareholder; these situations would be treated on a case by case basis.

• He agreed that the purpose of the DFO policy Part I (H) (k) was to prevent the selling of quota in Quebec and buying of quota in Ontario for monetary gain. In the 1980’s part of the rationale for introducing the policy was that Quebec producers were driving up the price on the Ontario quota exchange, with the profits from the sale of Quebec quota.

• Since the implementation of a price pooling agreement, milk prices were essentially the same in Ontario and Quebec. Transportation costs were also similar.

• The procedure for licensing an Ontario-based Quebec producer in Ontario is: 1) Fieldman gives an application for a licence to a potential producer. 2) DFO head office staff contacts the Federation to confirm information received by the fieldman and determine if any quota had been sold in Quebec in the past 12 months. 3) The farm is inspected. The application is then put before the DFO board.

• The requirement that producers selling their entire quota in Quebec stay out of production for 12 months before they may purchase Ontario quota is to some extent an anti-speculation policy. The policy requires Ontario-based Quebec producers to transfer all quota they held in the past year to Ontario.

• The DFO had no information that the Villeneuve family was living in Quebec. The producer was licensed in Ontario and mail was sent to an Ontario address. The house on the farm was furnished. The DFO did not require producers to be Ontario residents.

• There were 35 Ontario-based Quebec shippers when he last checked with the Federation, but it was possible that four had sold quota in Quebec since that time.

• Ontario merged MSQ and fluid quota into a single quota in 1994, Quebec created a single quota at some time after that. The current DFO policy requires that all Quebec quota held by Ontario-based producers has to be transferred to Ontario in order for them to be licensed as Ontario producers.

• Two Ontario-based Quebec producers transferred quota to Ontario in 1995, 14 transferred in 1996, 3 transferred in 1997, 2 transferred in 1998 and 4 transferred in 1999. It was not known how many of the producers in 1996 transferred before and after August 1st. He understood there was some concern in 1996 with regard to Quebec sovereignty, and that this was the impetus for some of these transfers. He had not heard any reports that they were due to concerns about the single quota. He assumed the producers who transferred in 1997 did so before the inter-provincial quota exchange was implemented. Two producers who transferred in 1999 were exempt from the DFO policy.

• There was no quota transfers from Ontario-based Quebec producers to Ontario in 2000. When Ontario dropped out of the quota exchange, there was some interest in Ontario producers transferring quota to Quebec but the DFO put in a policy to prevent this. He was not aware of any Ontario-based Quebec producers who stayed out of production for one year and were then licensed as Ontario producers but he had not made any inquiries on this.

• The DFO policy was changed in 1999 to include Quebec quota that is held by family members in the quota that new Ontario producers were required to bring to Ontario. There were reports that Ontario-based Quebec producers perceived a loophole in the longstanding policy. The DFO definition of “immediate family” is applied to the policy.

• If quota has been sold in Quebec by an Ontario-based producer, the producer must either buy the equivalent amount of quota to transfer to Ontario, or stay out of production for 12 months before being licensed as an Ontario producer.

• DFO has little contact with Ontario-based Quebec producers.

• He considered that Mr. Cumming’s 40% share of Glen-Malcolm Farm Inc. gave him the power to make decisions and as much authority as anyone else in the corporation.

• He saw a continued need for the DFO policy Part I Section (H)(k). He estimated there were 2-3 new producers licensed each month by DFO. Quebec producers can enter the Ontario market without transferring Quebec quota. He was not aware of a producer named René DesLaurier.

• There were no extra charges for an Ontario dairy producer to be out of production for 12 months. The purchase of quota was the start up cost. Mr. Cumming could be licensed in Ontario if he was out of production for one year.

• Approximately 7000-8000 kg units of quota were transferred on the DFO quota exchange each month.

Mr. Gordon Coukell testified that he represented Region 6 producers on the DFO, that he was the Chair of DFO and of its quota committee. He stated that he had been the Vice Chair of DFO for 2 years prior to being elected Chair. Mr. Coukell told the Tribunal:

• It had always been difficult for DFO to deal with the issue of speculative gains on quota when producers retire and when they buy and sell quota. Many options had been considered but none had been workable. He understood that from a new producer perspective the price of quota was high. Quota was not designed to allow producers to make a profit from it but he was aware that they did.

• DFO regulations allow for partnerships, corporations and joint ventures.

• Ontario is part of a five-province market pooling arrangement (the P5). Returns from domestic milk sales are pooled amongst producers in these provinces. Over-quota milk is sold at an export price set by the Canadian Dairy Commission, based on the animal feed market. Milk prices are approximately $10/hl at the base export price, $30/hl for export under contract and $60/hl for domestic use. Producers are not obliged to export milk; export contracts are outside the DFO authority.

• DFO considers Alexander Cumming to be an existing producer. He is an Ontario milk producer shipping into Quebec. These producers were allowed to keep that market for a number of years but times have changed and now all producers share that market. He did not believe there should be a change in a producer’s assets just because he moves from one marketing board to another.

• If there is a problem with Quebec producers moving into Ontario and disadvantaging Ontario producers, the DFO could examine the issue, and possibly expand its Part I Section H (k) policy to cover any producer from any province.

• The number of producers affected by the policy was not an issue. Ontario producers who transferred their Quebec quota to Ontario in the past have abided by the policy. There is no reason to change the policy on the basis there were few Ontario-based Quebec producers remaining. There is no reason for special consideration in this case.

• If Mr. and Mrs. Cumming were allowed to be licensed without the transfer of the Quebec quota, they could buy more quota and increase their income potential. This would give them an advantage over other producers in Ontario.

In response to questions from Mr. Tolhurst, Mr. Coukell indicated:

• He was aware of the regulatory structure that allowed DFO to operate. He had been involved in the DFO quota committee since 1988 or thereabouts. As a board member he was involved in establishing this policy in 1988. He was aware of the distinction between inter-provincial and intra-provincial powers over quota. The DFO’s powers originate from legislation administered by the Ontario Farm Products Marketing Commission.

• The Milk Act allows the DFO to refuse to issue licences for any reason the board considers proper. The board has been delegated the authority to establish quota policy. Other than the authority it receives by regulation, the DFO had no other authority specific to licensing.

• To his knowledge no one had ever moved quota from Saskatchewan to Ontario, but there was nothing in the DFO policies or regulations to prevent this from happening. He did not know how many producers had moved into Ontario from other provinces.

• He did not know how many of the Ontario-based Quebec producers who transferred quota to Ontario in 1996 did so before and after Quebec introduced a single quota. He did not think it likely that they all transferred before August 1, 1996. As long as there were two quotas in Quebec, producers only had to transfer MSQ to Ontario. There was no way to transfer fluid quota until the P5 was introduced. The policy was expanded to include all quota in 1998. The introduction of a single quota in Quebec did not coincide with the implementation of the P5 agreement.

• He agreed the DFO had other ways of controlling quota to prevent market distortion. The DFO had used transfer assessments in the past to discourage speculation but it was not sure that they were effective. The concept of quota is that it is a share of the market. Money should be made through the milk market, not the quota sale.

• Ontario has a set amount of MSQ issued by the federal government, equal to approximately 60-61% of the total quota in the province. He did not think it would be feasible for the DFO to ask the federal government to transfer all the Ontario-based Quebec producers’ quota to Ontario at one time. The milk from these farms is currently being used to fill specific markets in Quebec. There would be no impact on producers’ incomes from such a change, but it would affect milk distribution in the provinces. The Canadian Milk Supply Management Committee sets the amount of quota in the system.

• He agreed there was no restriction on chicken producers who sell their quota and wish to enter the Ontario dairy market. He said Ontario-based Quebec milk producers were in a unique situation in Ontario because they shipped to the Montreal market at one time. He did not agree that Mr. and Mrs. Cumming were being told they had to lose equity. He said the Cumming farm was not analogous to a chicken producer buying quota as the Cumming family already had a production system in place.

• The DFO made no distinction between quota holders who were given quota when the marketing system was implemented and those who purchased quota.

• An influx of Quebec producers would affect the Ontario quota price. He was not aware of such an influx. The number of new producers varies from year to year. There are over 6000 dairy producers in Ontario. If all 31 Ontario-based Quebec producers transferred to Ontario, they could influence the quota price and they would have a competitive advantage over all other Ontario producers.

• There is no guarantee of profit on quota sales, but historically the price has trended upward on the Ontario exchange. Quebec producers had a different mindset than Ontario producers in that they were more reluctant to produce over-quota milk. Ontario has no plans to rejoin an inter-provincial quota exchange in the near future.

• A policy which prohibited producers from buying and selling quota on the same monthly exchange was designed to discourage speculation on Ontario dairy quota. The DFO was considering re-instituting a policy that required continuous milk production, to prevent producers from holding quota that was not in use. The loss of income from quota that was not being used was a big deterrent to quota speculation. The DFO also reserved the right to refuse to accept bids and offers on the quota exchange where the transactions did not appear to be related to milk production on the dairy farm, and to prohibit specific producers from using the quota exchange without the permission of the DFO.

• He agreed Glen-Malcolm Farms Inc. was not licensed by DFO. The Cummings were Quebec producers, operating in Ontario. Mr. Cumming was required to transfer Quebec quota held by the corporation in order to become licensed in Ontario. Ontario quota cannot be transferred to Quebec.

• When the DFO changes its policies, changes are communicated through its magazine and/or by letters to producers. The change to the policy in question made in 1998 was published in the magazine and the DFO Policies booklet, which was distributed to Ontario-based Quebec producers. As well, a letter was sent to these producers to announce this particular policy change. The letter was sent only to these producers as the policy addressed their situation. DFO has jurisdiction over all dairy producers in Ontario. They have no jurisdiction over dairy producers operating in Quebec.

• Mary Cumming would not qualify as a new producer under the current policy. She would have qualified as a new producer under the previous policy, if she were the sole owner of the new enterprise. A letter from DFO to Ontario-based Quebec producers dated May 28, 1999 was read into the record. The policy was changed at approximately that time; the exact date of the change would be reflected in the DFO minutes. This policy change was published in the DFO Policies Booklet in January 2000.

Mr. Alex Hamilton testified that he was a fieldman for DFO, that he had held this position for 13 years and that his territory was Eastern Ontario. He explained that he had handled requests by Ontario-based Quebec producers to transfer to Ontario and that it was his job to deliver forms to applicants and inspect their premises. He said that the procedure did not change after the Federation introduced a single quota. He explained that the DFO head office verifies the producers’ Quebec quota holdings.

Mr. Hamilton also stated:

• In 1996 he recalled that there were five transfers in one month. He had no recollection as to how many transfers occurred before and after August 1, 1996.

• He was aware of two exceptions being made to the DFO policy in 1999.

• He was involved in licensing Mr. Villeneuve as a new producer. He was aware of four Quebec-based producers who had transferred to Ontario in the past five years.

• He did not know how many new producers were licensed in his area in 2000.

• Part of his job is to act as an information conduit to the DFO board.

• He had not inspected the premises where Alexander and Mary Cumming want to establish a new milk herd.

• He recalled that some Ontario-based Quebec producers were anxious due to the Quebec referendum. But he believed the primary motivation for switching to the Ontario market was the ability to purchase cheaper quota.

• Ontario producers in his area were aware of the DFO policy with regard to Ontario-based Quebec producers. They saw the transfer of these producers to the Ontario market as a way for them to generate extra cash and he believed they were jealous. He had heard no comments on the issue of Quebec-based Quebec producers transferring to Ontario. He noted that there were fewer of them.

Summations

Mr. Tolhurst asked that the Tribunal direct the DFO to issue a licence to Alexander and Mary Cumming to allow them to produce milk at their own farm, without transferring quota from Quebec, as they initially requested. He also asked that the Tribunal find that the DFO policy Part I, Section H (k) was an invalid policy.

Mr. Tolhurst noted that DFO receives its powers from both the federal and the provincial government and submitted that those powers were only valid if they were used in accordance with the legislation. He told the Tribunal that the Canadian Dairy Commission Act directed that efficient producers be provided a fair return. He stated that the Milk Act (Ontario) provided specific provisions as to when DFO could refuse to grant a licence to an aspiring producer and he submitted that there was no justifiable reason for it to deny a licence to Mr. and Mrs. Cumming. He acknowledged that the DFO had control over the milk marketing system, but he submitted that the policy with regard to Ontario-based Quebec producers transferring to the Ontario market was not within its jurisdiction.

Mr. Tolhurst asked that if the Tribunal found that DFO did have the right to maintain Policy Part I, Section H (k), that they direct that Mr. and Mrs. Cumming be granted a licence under an exemption to this policy. He pointed out that Alexander Cumming was a minority shareholder in Glen-Malcolm Farm Inc., that the Cummings’ milk production would be at a separate location than the family business and that they had no plans to retire. He said it was not feasible for an Ontario-based dairy farmer to expand by buying Quebec quota due to its high price.

Mr. Tolhurst submitted that the policy was out of date as DFO was allowing Quebec-based producers to transfer to Ontario without transferring their quota. He argued that the DFO was not preventing anyone else from getting financial gain from quota in the dairy industry and that it was unfair to prevent 31 Ontario-based Quebec producers from profiting as well. He quoted the federal Constitution Act and the Canadian Human Rights Act to support an argument that the DFO could not discriminate on family status.

Mr. Spurr submitted that what the appellants were proposing was a quota switch whereby Quebec quota was sold and replaced with Ontario quota. He submitted this proposal had nothing to do with operating a viable dairy farm and everything to do with realizing on the considerable difference of quota value between provinces. Mr. Spurr asked the Tribunal to consider that the historical reason for allowing Ontario-based Quebec producers to continue to ship to Quebec was to give them a financial advantage. He suggested that the appellants had lost sight of that historic advantage since the price of milk was equalized between the provinces.

Mr. Spurr argued that the Milk Act (Ontario) gave the DFO the authority to regulate Ontario-based Quebec producers. He said that since Mr. Cumming produced milk in Ontario there was a fundamental distinction between him and Quebec producers. He reminded the Tribunal that the policy Part I Section H (k) applied to all Ontario-based Quebec producers, when they purport to engage in production and marketing of milk in Ontario.

Mr. Spurr argued that this was a quota matter and that fixing and allotting quotas is clearly under the DFO’s authority. He agreed with Mr. Tolhurst that the conditions DFO put on quota transactions and licensing must relate to the marketing legislation. But he submitted that there was no doubt that the DFO’s power was extremely broad with regard to quota. He pointed to a judgement in Sanders v. British Columbia (Milk Board) to support his argument. He also reminded the Tribunal of its decision in an appeal by Wim Keurentjes of a DFO decision related to the policy in question. He submitted that the difference in that case was that the transfer had already been completed before the producer appealed.

Mr. Spurr said that the DFO was not preventing Glen-Malcolm Farm Inc. from changing its corporate structure. He said that the ownership structure of farms was immaterial to the DFO as it is concerned with the individuals involved in milk production. He submitted that it did not matter what share of the corporation Mr. Cumming held. Since he was actively engaged in the production of milk in Ontario, he was an existing producer who had a quota and the policy stated that he had to bring that quota with him in order to ship into the Ontario market. Mr. Spurr referred to a federal case – Villetard’s Eggs Ltd. and Canadian Egg Marketing Agency – to support his contention that the idea of a corporation as separate identity did not have much relevance in the context of an administrative law scheme.

Mr. Spurr also pointed to the Sanders v. British Columbia (Milk Board) case to support his submissions that the DFO policy was related to supply management, that quota is not property and that differentiation between family members of producers and non-family members did not constitute discrimination.

Mr. Spurr submitted that there was nothing presented by the appellants to suggest that they were special or unique or warranting special consideration. He mentioned that a host of producers had already transferred to Ontario under this policy and he speculated that there were others waiting in the wings. He suggested it was unfair to say that because a large number of producers have already transferred, the policy should be changed. Mr. Spurr submitted that producers cannot make financial decisions that will distort the marketing system. He reminded the Tribunal that the DFO had approved a licence for Mr. and Mrs. Cumming with one condition, and that the appellants had chosen not to follow through on this. He submitted that if the Tribunal were to grant the appeal, it would give the appellants an inappropriate windfall.

In response to Mr. Spurr’s summary, Mr. Tolhurst reminded the Tribunal that since 1996, only nine Ontario-based Quebec producers had transferred to the Ontario market and that two of those were exempt from the quota transfer policy. He pointed out that Villetard’s Eggs Ltd. and Canadian Egg Marketing Agency related to a board refusing to issue a license in a case of dishonesty; and that the Sanders v. British Columbia (Milk Board) referred to assessment on quota that was applied to all the producers in that pool, not specific producers.

With regard to Mr. Spurr’s contention that this was only a financial issue, Mr. Tolhurst pointed out that financial decisions are made every day by all business people, including dairy farmers. He submitted that the DFO supported the use of quota as a marketable commodity.

Mr. Tolhurst also reiterated that the appellants were qualified, good producers and that it was not feasible for them to expand their operation with Quebec quota.

The Tribunal examined the evidence filed and submissions made and drew the following conclusions.

The DFO has been delegated broad powers to fix and allot quota to producers. The DFO is within its rights to maintain policy Part I Section H (k). The DFO communicated the policy to affected producers and distributed its policy booklet to Ontario-based Quebec producers every year.

The Tribunal has no doubt that Alexander and Mary Cumming are long term, committed dairy farmers who want to stay in the industry. Mr. and Mrs. Cumming have the opportunity of being licensed as Ontario producers and acquiring quota that allows them to market milk in Ontario under DFO Policy Part I Section H (k).

Upon questioning from the Tribunal, DFO representatives acknowledged that if Alexander Cumming had not been a shareholder in Glen-Malcolm Farms Inc. he would have qualified as a new producer without conditions. However, as he was a shareholder in this corporation, the requirement that he transfer his Quebec quota to Ontario applies. The Tribunal finds that his position as a minority shareholder in Glen-Malcolm Farm Inc. was not relevant. The evidence suggested that Mr. Cumming could extricate himself from his family’s business if he so chose. The Tribunal finds that there was no attempt to use the ‘corporate veil’ to distort the issue.

The Tribunal did not find that Mr. and Mrs. Cummings’ situation was unique, or that it warranted an exemption from the DFO policy. The evidence was that there were other producers licensed by the Federation operating in Ontario. These producers were in a similar position to Mr. and Mrs. Cumming in that in order to expand they would need to either purchase additional Quebec quota or convert their Quebec quota to Ontario quota and purchase additional Ontario quota.

The Tribunal notes that the quota prices in Ontario and Quebec have not equalized, despite the harmonization of milk prices through the P5 price pooling arrangement. The Tribunal recognizes that the disparity in quota prices acts as an incentive for Quebec-based producers to sell their Quebec quota holdings and physically relocate in order to produce milk for the Ontario market. Ontario-based Quebec producers are required to stay out of milk production for one year if they wish to sell their Quebec quota, rather than transfer it to Ontario. The Tribunal notes that there appears to be some inequities between these two types of producers.

Decision and Reasons

After careful consideration of the evidence filed and submissions made the Tribunal decided to deny the appeals of Alexander and Mary Cumming.

The reason for this decision is that the Tribunal found no evidence of special circumstances in this case that warrants an exemption to the policy.

Dated at Guelph, Ontario this 23rd day of February, 2001.