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:

Moffat v Dairy Farmers of Ontario

Moffat v DFO 2001 ONAFRAAT 3

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

December 20, 2000

DATE OF DECISION:

January 15, 2001

2001-03

NEUTRAL CITATION:

2001 ONAFRAAT 3

Moffat v Dairy Farmers of Ontario

IN THE MATTER OF THE FARM PRODUCTS MARKETING ACT AND SECTION 16 OF THE MILK ACT.

AND IN THE MATTER OF: An Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by Dave Moffat, Indian River of the decision of Dairy Farmers of Ontario (DFO), dated October 29, 1999, not to ‘grandfather’ his dairy operation as “counter-seasonal”.

Before:

James Rickard, Chair; Denis O’Connor, Vice Chair; Murray Cardiff, Member

Appearances:

Dave Moffat, appellant

Astrid Manske, on behalf of the appellant

Gordon Coukell, Vice Chair of the Board of Directors of the DFO

Grant Kennedy, Manager Quota Administration-Production, DFO

DECISION OF THE TRIBUNAL

This appeal was heard in Guelph, Ontario on December 20, 2000. Dave Moffat appealed a decision of the DFO in which it denied his request to be considered a counter-seasonal dairy producer.

The Background

The Dairy Farmers of Ontario (DFO) is a marketing board which has the authority to require that milk be marketed on a quota basis. Prior to August 1, 1997 the DFO quota system was an annual system whereby producers were able to market their prescribed allotment of milk on a monthly basis through the course of the dairy year, which ran from August 1st to July 31st. Incentives were also provided to encourage producers to ship milk at times when it was needed in the marketplace. Some milk producers were seasonal or counter-seasonal at the time. Effective August 1, 1997, the DFO adopted a daily quota system. Under the new system, producers were required to make regular milk shipments throughout the dairy year, or to forfeit the use of a portion of their quota. However, quota credits were provided which allowed all producers some flexibility in making milk shipments.

At the time the daily quota system was adopted the DFO ‘grandfathered’ approximately 25 seasonal and counter-seasonal producers and provided extra quota credits to these producers, for a limited time. DFO defined seasonal and counter-seasonal producers as those who had been out of production for at least 30 consecutive days in each of the 1995-96 and 1996-97 dairy years. The special consideration given to these producers was to end on July 31, 2001.

The Issue

The issue before the Tribunal is whether Dave Moffat should be ‘grandfathered’ as a counter-seasonal producer.

The Evidence and the Findings

Mr. Moffat stated he and Ms. Manske and their family farmed in Peterborough County and that they had been dairy producers since 1990, and counter-seasonal producers since 1993. Number of cows and amount of daily quota he has 55-60 cows

Mr. Moffat suggested that the DFO definition of 30 days out of production did not accurately identify all seasonal and counter-seasonal producers. He explained that counter-seasonal was term coined to describe producers who ship a large portion of their annual milk shipments in the first six months of the dairy year, to alleviate seasonal shortages at that time. He quoted a definition published in Hoard’s Dairyman that said “Seasonal dairying is a breeding program that causes all of the cows to freshen in a short time frame of about eight weeks.” He noted that advantages of seasonal production were a narrow calving date range, more consistency in calves, one feed ration for all cows, and the same vaccination and breeding times for all cows.

Mr. Moffat and Ms. Manske referred to Herd Management Reports by the Ontario Dairy Herd Improvement Corporation and graphs, which they had prepared to show that their herd met the DFO definition of seasonal/counter-seasonal in dairy years 1994-95 and 1995-96. They noted the herd reports showed their cows calved in concise groups and they noted that their chart of production patterns indicated counter-seasonal production in each of 1994-95, 1995-96, 1996-97 and 1998-99. Letters from their veterinarian and feed supplier were also submitted to support their position.

Mr. Moffat explained that the discrepancy with DFO policy was in the 1996-97 dairy year.

He suggested that the DFO policy that a producer must be out of production for 30 days to be deemed counter-seasonal was incorrect as this was not critical to the management style. He said that 30 days out of production was a flag to identify seasonal and counter-seasonal producers but that it was not the only indicator. He pointed out that non-seasonal producers could be out of production for more than 30 days due to herd health problems.

Mr. Moffat explained that the reason that all the cows in his herd had not been completely dried up in 1996-97 was that the family had decided to go overseas for a few months to pursue an educational opportunity. He said he had consulted with Alphonse Poitras, his DFO Field Service Representative, Don Anderson, Agricultural Account Manager CIBC; Wayne Kay, Financial Advisor in preparation for this sabbatical. Mr. Moffat stated that he was informed that he would have to sell his quota in order to remain out of production long enough to pursue this opportunity. Mr. Moffat noted that in order to sell his quota without penalty in September 1997, and re-purchase it in the same dairy year, he could not be out of production for more than 6 days. He submitted that this was the reason the cows in his herd was not all dried up as a group in 1997, as they had been in previous years. He submitted that based on his calving and production patterns, he should still be considered a counter-seasonal producer.

Mr. Moffat stated that when he returned from sabbatical he purchased quota on the June 1998 exchange, then purchased cows, which freshened in the fall. He then resumed his normal production pattern. Mr. Moffat and Ms. Manske testified that they did not realize that when they started shipping milk again that they were not receiving the same consideration that other counter-seasonal producers received, until June 1999, when they noticed irregularities in their milk payment cheque.

Mr. Moffat and Ms. Manske stated that they were informed by DFO that they had ceased being producers and thus did not qualify to be ‘grandfathered’. They said that they appealed that decision to the DFO and were informed immediately before their hearing that the issue was that they had not been out of production 30 days in the 1996-97 dairy year. Mr. Moffat noted that he had not received a copy of the seasonal/counter-seasonal production policy as the DFO had said there was no printed policy available. Ms. Manske pointed out that they had the same producer number after returning from sabbatical as they had before leaving on sabbatical.

Mr. Moffat noted that the introduction of a daily quota system caused his family to lose the use of a portion of their quota. He said in the current dairy year they would lose 30 days worth of quota usage, with a financial loss equal to the difference between the DFO price and export contract prices. He said that he had been penalized more financially than other seasonal and counter-seasonal producers as a result of the quota policy change and said that he wanted to be reimbursed for these losses and to be ‘grandfathered’ as a counter-seasonal producer.

In response to questions Mr. Moffat indicated that:

1. He believed that 30 days out of production should only be used as a flag, not a definition, as it was common sense not to consider producers out of production due to herd health reasons as seasonal producers and as the crux of counter-seasonal production was calving in groups.

2. His practice was to cull cows who did not calve with the group and to replace them with incoming heifers to maintain the counter-seasonal system.

3. His herd reports showed the consistency in his practices between years that the DFO considered him counter-seasonal with the year that they were not considered counter-seasonal.

4. Each year prior to resuming production, he had his farm inspected. It was pointed out that this was a DFO requirement for producers who are out of production for more than 30 consecutive days.

5. No ‘grandfathering’ was necessary prior to their leaving on sabbatical as there was a yearly quota at the time and the only requirement was that 45% of their milk be shipped in the first six months of the dairy year. The new quota policy allows producers to over-ship 30 days worth of production and borrow 20 days production from the next dairy year.

6. He talked to his Field Service Representative and George MacNaughton, DFO before selling his quota as he knew he was returning to his farm. No formal letter was sent to DFO about the planned trip. The only reason the sabbatical was an issue was that the DFO had used it as a reason for saying he was no longer considered a producer.

7. He could buy cows in August, milk them for several months and sell them in June and be counter-seasonal.

8. He had only had a minor variation in the drying up period in 1997. He did not dry all the cows in the herd, just the ones that he wanted to breed. He said he had to do this in order to keep producing through the summer so that they would not lose their quota under the no more than 6 days out of production policy.

9. He did not request an exemption before leaving as he had received no indication that the quota policy change was underway and no idea that there was a problem with their counter-seasonal status until near the end of the dairy year. It was at that point, that he requested that he be ‘grandfathered’. He was first told he could not be ‘grandfathered’ because they were not producers, then that it was because they were not counter-seasonal.

10. His family did not stop being milk producers. They sold their quota on the December 1997 exchange, then bought more within the same dairy year on the June 1998 exchange and were not considered new producers at that time. They had the same inspection they always had before recommencing milk shipments, the same producer number, the same facility and they were not required to go through an application process.

11. Their last shipment before their sabbatical was September 12. 1997. The milking herd was sold five days later but the heifers were not sold.

12. There was a financial gain by selling quota in December and re-purchasing it in June. This was offset by losses on the sale and re-purchase of cows and the net effect was fairly even.

13. When he returned from sabbatical, he heard from neighbors that counter-seasonal producers had been ‘grandfathered’ and he assumed he was included in that group of producers.

14. He had wanted to buy and sell quota in same fiscal year for tax purposes and the DFO policy that he could not be out of milk production more than 6 consecutive days to do so was the reason he changed his milking patterns in 1997. Mr. Moffat’s fiscal year was the same as the dairy year.

Mr. Gordon Coukell testified on behalf of the DFO. He indicated that the DFO was not in the business of determining counter-seasonal producers by production patterns. He said that the DFO adopted the daily quota system in 1997 and that some historic counter-seasonal and seasonal producers asked DFO for some consideration to allow them some time to adjust to the new system. As a result the DFO put a policy in place that covered producers who were seasonal or counter-seasonal at the time. Those producers were accommodated under a 90-day production credit accumulation policy. He pointed out that the special policy would expire on July 31, 2001 and that the ‘grandfathered’ producers were now using on average 45 days of production credits. Mr. Coukell testified that DFO was the only marketing board in the five province P5 marketing group that had made allowance for seasonal and counter-seasonal producers.

Mr. Coukell stated that the policy which allows producers to over-ship 30 days worth of production and borrow 20 days production from the next dairy year was designed to accommodate special circumstances due to herd health issues; it was not adopted specifically to accommodate seasonal producers.

Mr. Coukell said that because Mr. Moffat had continuous production in the 1996-97 dairy year he was not eligible for the special exemption from the daily quota shipping requirements. He explained that DFO used the 1995-96 and 1996-97 dairy years to determine which producers were historic seasonal producers at the time the quota policy was changed. He said the 30 days out of production requirement was the criteria used to determine this specific exemption.

Mr. Coukell suggested that Mr. Moffat may not have had to sell his quota as the DFO had held quota in abeyance in the past when asked ahead of time for special consideration.

Mr. Coukell explained that the DFO policy was to cancel a producer’s licence if he sold all of his quota. However, he said that if the producer re-entered the industry within 13 months, with the same name and at the same location then the producer would be assigned the same licence number as before they sold the quota. He stated that the Moffat licence was definitely cancelled.

In response to questions Mr. Coukell indicated that:

1. There were 12 of the original 25 ‘grandfathered’ seasonal/counter-seasonal producers still in production. They used 45-day quota credit days on average. There was no differentiation made between seasonal and counter-seasonal producers when that average was calculated. The average quota holding of these 12 producers was 15 kg, as compared to 35 kg for all Ontario milk producers.

2. By participating in the P5 marketing group, Ontario had a commitment to produce milk on a daily basis. The market served is bigger than the Ontario market.

3. New producers needed to meet Grade A requirements, have at least 5 kg of quota to ship in the domestic market and fill out a license application.

4. Mr. Moffat had shipped milk for 12 months before his sabbatical and he did not fit the exemption criteria, as he was not out of production for more than 30 consecutive days in the qualifying years.

5. The policy requiring producers to not be out of production for more than 6 consecutive days before selling their quota was designed to keep producers exiting the industry from speculating on the quota market. It was not related to the seasonal/counter-seasonal producer policy.

6. The current DFO policy was that as of August 1, 2001 there was to be no more seasonal credits, but all producers will still have access to 50 days of production credits. Under the special exemption, ‘grandfathered’ seasonal producers were allowed 110 days of production credits.

7. The DFO felt it was legitimate to give seasonal and counter-seasonal producers time to change their breeding patterns, even though the other boards in the P5 marketing group did not agree.

8. The daily quota policy did not apply to cream producers.

9. Mr. Moffat was not sent two letters that were sent to all counter-seasonal and seasonal producers as they were not identified as counter-seasonal by the DFO.

10. There were no conditions on the licences of seasonal and counter-seasonal producers. The DFO had an internal coding system to identify these producers.

Mr. Kennedy elaborated that the rationale for the minimum 6 days out of production policy was to prevent producers who were leaving the industry from holding their quota for more than 3 quota exchanges after they ceased shipments. He also confirmed that the DFO did not have any program in place to encourage the 25 ‘grandfathered’ seasonal/counter-seasonal producers to conform with the daily quota policy. Mr. Kennedy stated that historically most producers were borderline seasonal as cows were bred to calve in the spring, but as DFO needs milk all year, it had encouraged even production. He did not believe this historic shipment pattern was a problem as he said there was a tendency to bring milk to Ontario from Eastern Canada to fill the province’s fall milk needs. He observed that milk shipments balanced out in the long run. Mr. Kennedy confirmed that the DFO had maintained a fall incentive program to encourage all producers to ship more milk in the fall for several years. He also noted that historically the blended price of milk was higher in the fall and that this acted as an additional incentive.

Mr. Kennedy and Mr. Coukell confirmed that seasonal and counter-seasonal producers would have to ship milk under export contracts in order to maximize their quota usage after August 1, 2001. They felt that the 13 seasonal producers that had left the industry had likely done so due to age.

Neither Mr. Kennedy nor Mr. Coukell could recall an instance where a producer had applied to the DFO for special consideration to take an educational sabbatical. They indicated that usually requests made to hold quota to be held in abeyance were due to poor health of individual producers. Mr. Coukell recalled one instance where quota was held in abeyance until a producer’s child finished university as the producer had become incapacitated.

In summary, Mr. Moffat stated that he had clearly documented his case with as many facts as possible. He noted that the original letter from DFO to seasonal producers stated that “You have been identified as a seasonal producer based on your past production patterns” and he suggested that his past production patterns also indicated seasonal production. He submitted that DFO had put a policy in place so that counter-seasonal and seasonal producers were not penalized and asked that his family be treated fairly under that policy and be ‘grandfathered’ as they should have been when they returned to production after their sabbatical.

In summary, Mr. Coukell indicated that the DFO granted a special provision to producers who were out of production for at least 30 consecutive days in both the 1995-96 and 1996-97 dairy years, and that Mr. Moffat did not qualify because of his continuous production n 1996-97.

Decision and Reasons

After careful consideration of the evidence presented and submissions made, the Tribunal decided to grant the appeal of Dave Moffat that he be ‘grandfathered’ as a seasonal producer under the DFO policy that gave special consideration in the form of extra quota credits to seasonal and non-seasonal producers. Mr. Moffat is to receive the same benefits as the original 25 ‘grandfathered’ producers and his special status is to expire at the same time as the special status of the remaining ‘grandfathered’ seasonal and counter-seasonal producers.

The Tribunal found that the DFO acted within its rights to limit the seasonal/counter-seasonal policy to producers who had not shipped milk for 30 consecutive days within each of dairy years 1995-96 and 1996-97. However, the Tribunal accepted that the reason that Mr. Moffat did not cease production in the 1996-97 dairy year as was his custom, was due to his desire to comply with a DFO policy that required him to stay in production in order to sell his quota in the fall. The Tribunal felt that the interaction of these two policies resulted in a unique circumstance whereby a producer that would otherwise have been ‘grandfathered’ under this policy did not qualify.

ORDER OF THE TRIBUNAL

1. The Tribunal orders that the Dairy Farmers of Ontario ‘grandfather’ Dave Moffat as a seasonal milk producer, retroactive to the date he recommenced milk shipments after returning from his educational sabbatical.

Dated at Guelph, Ontario this 15th day of January, 2001.