Van De Slyke et al. v Ontario Flue-Cured Tobacco Growers’ Marketing Board, 2001 ONAFRAAT 46

Agriculture, Food and Rural Affairs

Appeal Tribunal

1Stone 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:

Van De Slyke et al. v Ontario Flue-Cured Tobacco Growers’ Marketing Board

Van De Slyke et al. v OFCTGMB 2001 ONAFRAAT 46

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

August 31, 2001

DATE OF DECISION:

October 11, 2001

2001-46

NEUTRAL CITATION:

2001 ONAFRAAT 46

Van De Slyke et al. v Ontario Flue-Cured Tobacco Growers’ Marketing Board

IN THE MATTER OF THE FARM PRODUCTS MARKETING 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 Jerome Van De Slyke and Andre Zei from the decision of the Ontario Flue-Cured Tobacco Growers’ Marketing Board dated July 10, 2001, whereby it decided to market the 2001 tobacco crop exclusively through the Delhi Auction Exchange

Before:

Paul Gillen, Vice Chair; Bill Olson, Member; Jim Gibb, Member.

Appearances:

Andre Zei, appellant.

Jerome Van De Slyke, appellant.

Douglas Gunn, counsel for the appellants.

Craig Bryson, counsel for the appellants.

George Gilvesy, witness for the respondent.

Barry Bresner, counsel for Ontario Flue Cured Tobacco Growers’ Marketing Board.

William Dunsmore, witness for the appellants.

Robert Howes, witness for the appellants.

Alvin Lindsay, witness for the appellants.

Irv Horton, witness for the appellants.

Frances Bell, witness for the respondent.

Ron Moreland, witness for the respondent.

DECISION OF THE TRIBUNAL

This appeal was heard in Guelph Ontario on Friday August 31^st, 2001. Jerome Van De Slyke and Andre Zei appealed the decision of the Ontario Flue Cured Tobacco Growers’Marketing Board decision to market the 2001 tobacco crop exclusively through the Delhi Auction Exchange.

Preliminary Matter

Mr. Barry Bresner, counsel to the Tobacco Board made a motion to dismiss the appeal based on grounds that the appellants had an insufficient interest in the matter, as they did not constitute a group of 10% or more of all tobacco producers. The motion was denied as the Tribunal decided that the appellants had sufficient interest in the matter. The Tribunal decided that the determination of the interests of the appellants, was not to be made by comparing the interests of any other possible parties. The Tribunal makes reference to Section 16 (2) of the Ministry of Agriculture, Food and Rural Affairs Act which is outlined below.

The Tribunal denied the Motion to dismiss and decided to hear the appeal.

The Background

Section 16 (2) of the Ministry of Agriculture, Food and Rural Affairs Act states:

16(2) Subject to subsections (4) and (5), if a person is aggrieved by an order, direction,

policy, decision or regulation made under the Farm Products Marketing Act by a local Board or under the Milk Act by a marketing board, that person may appeal to the Tribunal by filing with the Tribunal and sending to the local board or marketing board written notice of the appeal.

The relevant section of Regulation 435 Amended to Ontario Regulation 549/00 is Section 4(m). It states:

4. The Commission delegates to the local board its powers to make regulations with respect to tobacco,………

4 (m) providing for the control and regulation of the marketing of tobacco, including the times and places at which tobacco may be marketed;

The Ontario Flue Cured Tobacco Growers’ Marketing Board decided to close the Tillsonburg Tobacco Exchange and market the 2001 crop solely through the Delhi Exchange. Due to a decline in the tobacco market, the TAC directed that it was economically expedient to operate only one auction exchange for the 2001 crop year.

The Issues

The issue before the Tribunal is did the Board make a fair decision, based on efficiency and economic factors, when it decided to close the Tilsonburg Auction Exchange for the 2001 marketing season and market the 2001 tobacco crop only through the Delhi Exchange.

The Evidence and the Findings

Mr. Douglas Gunn, counsel to the appellants, told the Tribunal that the Board made a wrong and unfair decision not to grant the appeal of the producers committee to close the Delhi Exchange and market the 2001 crop through the Tillsonburg Exchange. Mr. Gunn said that the Board stated in its reasons, a reliance on the findings of the Tobacco Advisory Committee and the Finance Committee. Mr. Gunn told the Tribunal that the decision of the Board to deny the appeal was not based on these findings alone but also on political bias. Mr. Gunn said that “other reasons” stated in the decision itself were not defined. Mr. Gunn said that the decision was unreasonable and that the hearing was not conducted in a fair manner.

Mr. Gunn said that members of the Board were not equally apprised of all the information. Mr. Gunn said that the Board stated that one reason for closing the Tillsonburg Exchange was that the property would be easier to lease or sell than the Delhi property. Mr. Gunn submitted that this was irrelevant reasoning on behalf of the Board.

Mr. Barry Bresner, counsel to the Board stated in his opening arguments that the Tobacco Advisory Commission (T.A.C.) Report which was referenced in the Board’s reasons for its decision to deny the appeal, was issued in 1999. Mr. Bresner said that the proposal in that report to build at Tillsonburg was taken out of context and was irrelevant as the report was not commissioned to assess the issue presently under appeal.

Mr. Bresner told the Tribunal that the Board weighed both the narrow and broad economic factors when making its decision. He said that the economic impact that the closing of an exchange would have on a community was considered, as well as the expenditures on physical modifications that would be necessary to accommodate the trading of approximately 1.2 million pounds of tobacco per day. Mr. Bresner explained to the Tribunal that tobacco markets had been declining and that politically, tobacco is not a popular crop. He said that the support of the people of the town of Delhi and the local MPP was helpful in obtaining financial assistance from the government to retrofit drying kilns. The support of politicians as it directly relates to financial assistance may be viewed as political capital, but, Mr. Bresner contended, the Board may make decisions based on these factors as they are within its jurisdictional powers as a statutory board as continued under Section 8 (1) (a) (i) of The Farm Products Marketing Act

Mr. Andre Zei, appellant, told the Tribunal that he has been a tobacco farmer for 50 years and he is a Committeeman for District 7. He said the function of a Committeeman is to liase with the Directors and the producers. He explained that he has served as both Director and Committeeman. He testified that:

• He has marketed the bulk of his crop over the years through Tilsonburg, with a few shipments to Delhi and Aylmer.

• He buys irrigation equipment in Delhi, fertilizer in Stratford and his accounting service is in Delhi.

• He would not change his suppliers regardless of which exchange stays open.

• The parking lot at the Tilsonburg Exchange is larger which streamlines the flow of traffic and the exchange is accessible by highways 19 and 3.

• The Delhi Exchange is difficult to access as traffic must go through the town itself.

• He was not aware of a provision of the regulations whereby a petition containing the signatures of 10% of the membership, could be used to initiate a special meeting to discuss the closing of the Tilsonburg Exchange.

• Producers were not informed of the vote to close one exchange before it took place.

William Dunsmore told the Tribunal that he is the Secretary and General Manager of Lake Erie Farms Inc., with 452 acres of tobacco being grown over 8 farm properties. He told the Tribunal that most of the tobacco crop from Lake Erie Farms Inc. is normally shipped to Tilsonburg, though some has been marketed at Delhi. Mr. Dunsmore said that he had been approached by the appellant committee to make a list of points for discussion regarding the merits of the Delhi Exchange versus the Tilsonburg Exchange. Mr. Dunsmore submitted to the Tribunal that:

• The Delhi Exchange has a smaller floor space which would create flow problems, as fewer pallets can be displayed in the sale lines at the start of trade each day and the home tobacco would take up some of this space as it waits to be removed.

• He was told by a trucking company representative that in the smaller land base at Delhi, it is more difficult to maneuver the trucks. He was not advised as to whether the trucking firm was adjusting its fee schedule.

• Delhi is situated on the eastern edge of the tobacco growing region, whereas Tilsonburg is more central.

• He was not a member of the committee that appealed the decision to the Board.

• He was not aware of any plans for modification at Delhi, to accommodae the 2001 crop.

• He was familiar with the recommendations of the 1999 Tobacco Advisory Committee Report.

Jerome Van De Slyke appellant, testified before the Tribunal that:

• He had been a tobacco producer for over 40 years and he markets most of his crop through the Tilsonburg Exchange

• He makes his purchases related to tobacco growing in Delhi and will continue to shop there, regardless of which exchange remains open.

• The Delhi Exchange is more difficult to access than Tilsonburg, as one must drive into a residential area to get to it.

• He was not aware of the planned modifications at Delhi, nor that the town of Delhi had closed Windham St. in order to provide more land for parking at the exchange.

• He was not aware of the provision in the Regulations for a petition to convene a special meeting.

Robert Howes explained to the Tribunal that Ron Moreland, Board Treasurer, had asked him to prepare a proposal and diagrams for a 40,000 square foot expansion and expanded parking at both exchanges. He said he was also asked to draw up plans for a 42,000 square foot building separate to the existing structures. Mr. Howes testified before the Tribunal that:

• He is the Manager of the Tilsonburg warehouse and has been employed by the Tobacco Board for 43 years. Currently he was working on the kiln retrofits, but had the assurances of the Board that they would continue to employ him regardless of which exchange remained open.

• He was not informed of the reason for the the proposal at the time it was requested.

• Tractor trailer parking is a major consideration for the smooth running of the exchange. There is adequate land at the Tilsonburg Exchange to accommodate the increased number of trucks that he has calculated will be needed to handle the targeted 1.2 million pounds of tobacco per day.

• The Tilsonburg Exchange is 40 feet longer than the Delhi Exchange.

• The Tilsonburg Exchange is more conveniently appointed, as it is a one storey building whereas Delhi has two storeys.

• The Tilsonburg Exchange is located on 18 acres whereas the Delhi Exchange is situated on 11 acres.

• The Tilsonburg Exchange has facilities to store and service the lift trucks and ground maintenance equipment on the premises. The Delhi Exchange does not.

• The cafeteria at the Tilsonburg Exchange has recently been remodeled, and the layout is very efficient.

• Technical support staff are located in the head office building at Tilsonburg. They can respond to calls for repairs to telecommunications and computer equipment sooner at the Tilsonburg Exchange, than they could at the Delhi Exchange which is further away.

Mr. Howes told the Tribunal that he was not asked by the Board for his personal opinion regarding which exchange he thought could best handle the 2001 crop. He said that he had very little experience with the Delhi Exchange. Mr. Howes said that he thought the Tilsonburg Exchange was more efficient than the Delhi Exchange. Mr. Howes told the Tribunal that the Tilsonburg Exchange was used for trade shows and community events in the off season.

Mr. Alvin Lindsay testified before the Tribunal that he is a tobacco producer and Director on the Board. He said he has served also as Chair of the Board. Mr. Lindsay explained that during his tenure as Chair, Everett Biggs Associates was commissioned to report on the operation and organization of the Board. Mr. Lindsay said that he believed the report was commissioned as a result of the decision to close the Aylmer Exchange. Mr. Lindsay told the Tribunal that the report presented details about the locations of the warehouses, the efficiencies, land base and the future changes. The recommendation in that report was that the Tilsonburg Exchange was recommended to stay open.

Mr. Lindsay told the Tribunal that:

• On June 13, 2001 he voted against keeping the Delhi Exchange open.

• He was present on June 29, 2001 when the committee of producers appealed the decision to close the Tilsonburg Exchange.

• The references made to the Biggs report were taken out of context as it was commissioned as a means of sorting through the turmoil in the tobacco industry at the time.

• The Biggs report was commissioned after allegations were made that the decision to close the Aylmer Exchange was made unfairly and without study or regard for efficiencies.

• He was aware of the contents of the Biggs report and knew that it contained a far more in depth analysis of the industry than the reference to it that the Committee submitted in its appeal to the Tobacco Board.

• The crop size that could be handled at Tilsonburg as found in the Biggs report was 1.2 million pounds per day in 1987.

• The Biggs Report estimated the crop size in 1987 to be 1.7 million pounds per day, which would have to be marketed in the Delhi and Tilsonburg Exchanges.

• He believed that the Biggs Report had some relevance, even today.

In response to questions about the T.A.C. Efficiencies Project, excerpts of which were quoted by the appellants in their rationale for opposing the closure of the Tilsonburg exhange, Mr. Lindsay said that:

• He was familiar with the T.A.C. Efficiencies Report, as he was a member of the committee.

• The T.A.C. is made up of industry stake holders and federal and provincial representatives who meet with the purpose of coming to agreement on direction and procedures within the industry.

• The T.A.C. Efficiencies Report, though recently published, had been set aside, as the more pressing issue of kiln retrofitting was being addressed.

• The T.A.C. Committee works well and is a good forum for addressing issues within the tobacco the industry.

Mr. Irv Horton, Mayor of Tilsonburg said that he had concerns about the economic impact of the

closure of the Tilsonburg exhchange on the municipality. Mr. Horton testified that:

• In the spring of 2001 George Gilvesy had contacted him by telephone to inform him that a decision would be made to close one of the two exchanges. Mr. Gilvesy told him that the Mayor of Norfolk, Rita Kalmbach, was being informed of the situation also.

• He was under the impression that the decision would be based on economic factors only.

• He and the Chair of the Tilsonburg Ecomomic Development Committee met with Gary Godelie and George Gilvesy at the Boards head office to emphasize the importance of the industry to the town.

• The town of Tilsonburg had always supported the tobacco industry and the former Mayor of Tilsonburg had been instrumental in obtaining a reduction of federal taxes on tobacco.

• At a second meeting at the Tilsonburg Exchange a tour of the facility was conducted, and Mr. Howes listed some of the efficiencies of the Tilsonburg Exchange.

• He told the Board delegation that the town would happily give up the use of the baseball diamonds located on the exchange property if it meant that the exchange would remain open.

• He would have circulated petitions if he thought that their submission might influence the Board’s decision.

• He realized that most of the jobs lost from the Tilsonburg Exchange would be seasonal or part time and that some positions would continue at Delhi.

In response to questions from Barry Bresner, counsel to the Tobacco Board, Mr. Horton told the Tribunal that:

• Mr. Gilvesy left notice on June 13 that the Board had decided to close the Tilsonburg Exchange.

• He does not know exactly upon what criteria the Board based its decision.

• The town of Tilsonburg has approximately 15,000 people whereas Delhi has about 5,000.

• Tilsonburg has a diversified economy despite some recent business closures.

• The economy of Delhi is far more dependent on tobacco than the economy of Tilsonburg.

Frances Bell testified before the Tribunal that:

• She had been employed as the Economic Development Officer for the County of Norfolk since January of 2001.

• It was her job to retain business in, and attract business to, the Municipality.

• In her experience downsizing and business closures were most easily facilitated with community involvement.

• She drafted a petition to keep the Delhi Exchange open and delivered it to John Stanczyk, President of the Delhi Chamber of Commerce for distribution.

• Delhi business taxes are 29% less than Tilsonburg business taxes.

• She met with Rita Kalmbach, a Councilor from the town of Delhi, George Gilvesy and Vicki Malcolm at the Board offices on April 20, 2001 to discuss which factors the Board would consider in making its decision.

• The town of Delhi passed a by-law in mid April to close Windham St. so that there would be more property available for expanding the parking at the Delhi Exchange.

• The street was to be closed and the property conveyed to the board without cost to the Board.

• To date the street property has not been conveyed to the Board because of a disagreement of one property owner.

• The town of Delhi was willing to assume the cost of upgraded signs for the railway line that had to be crossed in order to access the additional parking.

• At no time did the Board indicate to her what the town of Delhi should do to influence its decision.

George Gilvesy, Chair of the Tobacco Board told the Tribunal that:

• He represents district 7 of the 10 geographic areas for which the tobacco board has divided it’s tobacco producing regions.

• He voted against the closure of the Tilsonburg Exchange.

• He ships most of his crop to Tilsonburg with one shipment per season to Delhi.

• Producers are usually directed to ship the bulk of their crop to the exchange closest to them.

• There has been a decrease in the size of the crop across all districts.

• Upon the directive of the T.A.C. the Board decided to market the 2001 crop through only one exchange.

• He asked the Finance Committee to collect information regarding the operations and efficiencies of each exchange so that the Board could make an informed decision.

• Ron Moreland the Board Treasurer co-ordinated the efforts of the Finance Committee and liased with the Board during the fact-finding stage prior to the June 13^th decision.

• The Finance Committee was not asked to make a recommendation but to gather information only.

• He met separately with delegations from both Delhi and Tilsonburg in mid-April, to discuss the process to be taken by the Board in reaching a decision.

• He outlined the factors such as utilities, property taxes, repairs and political capital that would be considered by the Board at the mid-April meeting.

• Political capital could be defined as maintaining the balance of support in the community of a political nature. An example being the success of the MPP for Haldimand-Norfolk in obtaining $20 million dollars from the provincial government to be used in the kiln retro-fit initiative.

• Either exchange would need modifications to handle the 2001 crop; some of the modifications were presently underway at the Delhi Exchange.

• The Tilsonburg Exchange closure is planned for 2001 only; the issue will be opened again for the marketing of the 2002 crop.

• The Board does not wish to carry over inventory, as it anticipates a nitrosamine free crop for the 2002 market.

With regard to the Biggs Report Mr. Gilvesy told the Tribunal that:

• He believes the Biggs Report is an accurate analysis of the industry for its time

• It was his opinion, in concurrence with the Biggs Report, that the Board should not concern itself with local economics.

• The Biggs Report was based on the marketing of 110 million pounds whereas the target for 2001 is 117 million pounds.

Mr. Gilvesy explained to the Tribunal that allocation of shipments to an exchange, is based on the weight of each producer’s crop. He said that it is not a matter of dividing the number of producers evenly and instructing one half to ship to Delhi and the other to Tilsonburg. He said that the Board issues each producer a shipping number and for each 100,000 pounds over the base poundage, another shipping number is issued. He told the Tribunal that the producer may, at that point, select a shipping number corresponding with the exchange to which he would prefer to ship his tobacco. Mr. Gilvesy reiterated Mr. Lindsay’s testimony that the implementation of the T.A.C. Efficiencies Report was shelved due to the more pressing issue of nitrosamines and kiln retrofitting. Mr. Gilvesy told the Tribunal that the two significant factors that the Board considered in its decision, were economic efficiencies and political capital.

Ron Moreland, Treasurer of the Tobacco Board testified to the Tribunal that:

• The evidence before the Tribunal contained a submission of the Tobacco Board comparing the savings of operating Tilsonburg and Delhi; the cost of upgrading the telecomunications system was included.

• He and the Finance Committee were presently negotiating with servers of high speed tele-communications lines.

• Fibre Optic lines were not available in Delhi.

• The financial information gathered by the Finance Committee is based on the premise of closing one exchange for one year only.

In his closing statements, Mr. Gunn submitted that there were two main reasons why the Boards’ decision to market the 2001 crop through Delhi was wrong. He submitted that, based on the information before the Board at the time, the decision was unreasonable and that the views of the majority of producers were not represented. Mr. Gunn submitted excerpts of case law wherein lay his references to: the legislated authority of a Tribunal with regard to its jurisdictional powers and his contention that there was procedural unfairness in the Board’s decision making process. He also told the Tribunal that:

• The Tribunal has the jurisdiction to act as the Tobacco Board in deciding which exchange is to remain open.

• The factors considered in making the decision should have followed closely the findings of the T.A.C. Report.

• The Committeemen from each district should have been included in a full fact finding exercise before the decision was made.

• The 1986 decision of the Tobacco Board to close Aylmer was based on sound economic reasons, which resulted in savings to the Board and reduced marketing fees to the producers.

• Reducing marketing/licensing fees should have been a factor considered by the Board in its decision to close the Tilsonburg Exchange.

• The testimony of the Messieurs Zei and Van De Slyke should carry weight as they are both longstanding producers and Mr. Zei is presently serving as a Committeeman.

• Similarly, Mr. Howes’ testimony should be carefully weighed as he is the present Manager of the Tilsonburg Exchange and has managed the exchange for 18 years.

• Mr. Horton, Mayor of Tilsonburg should have been informed of the efforts of the town of Delhi in lobbying the Board.

• It was improper for the Board to give consideration to political support in its decision.

• The decision was made before Windham St. in Delhi, had been closed and the property upon which it is situated has not yet been conveyed to the Board.

• The Board stated in its reasons for denying the appeal that long term considerations were among the factors considered. This is inconsistent with the previously stated closure of Tilsonburg for the 2001 year only.

Mr. Barry Bresner presented his summation to the Tribunal, he submitted that:

• The appellants were criticizing the Board in 2001, for considering the very factors that the Board was criticized for neglecting to consider, in the 1986 appeal regarding the closure of the Aylmer Exchange.

• The Tobacco Board had the jurisdictional authority under the Farm Products Marketing Act, to make the decision to close the Tilsonburg Exchange, based on the factors it had considered, namely; economic efficiencies, political capital and the economic impact to the community.

• The Tobacco Advisory Committee is itself a politicized body, with members from both provincial and federal governments.

• The Board did not make the decision lightly; it went to some length and discussion before the Directors voted on the closure.

• The producers were well represented in the results of the vote to close the Tilsonburg exchange as the mandate of the Board is to represent the producers.

• The modest savings advantage of $12,000 to keep the Tilsonburg Exchange open, over the Delhi Exchange, is, a minor consideration in comparison to the total operating budget.

• Submissions of the appellants taken from excerpts of the Biggs Report are unreliable as most are taken out of context and the report is based on assumptions that are not valid in 2001.

The Findings

The Tribunal finds that the decision of the Tobacco Board was made based upon the consideration of several economic factors. The decision was reached after a study of efficiencies, broad range economic impact and political capital.

The Board by the nature of its composition is charged with the responsibility of representing the interests of the tobacco producers. The Tribunal did not find evidence that the Board failed to meet its obligation in this regard.

The Tribunal agrees with the findings of the Board that Delhi is a much smaller town than Tilsonburg and with less diversified industry and it would be more economically disadvantaged by a business closure. However, the Tribunal understands from the testimony of Mr. Zei and Mr. Van De Slyke that the Delhi suppliers and retailers to the tobacco industry, would continue to have the current volume of business regardless of which exchange remained open.

The Tribunal acknowledges there are marginally more cost savings to be had by operating the Tilsonburg Exchange, but it accepts the argument of the Board that political capital translates into an economic factor.

Decision and Reasons

After carefully considering the evidence presented and the submissions made, the Tribunal decided to deny the appeal of Jerome Van De Slyke and Andre Zei.

The reasons for this decision are:

1. The Board did not make an unfair decision, nor did it err in the procedure it followed in arriving at the decision to close the Tilsonburg Exchange and market the 2001 tobacco crop through the Delhi Exchange.

2. The Board’s decision was based upon the consideration of a range of economic factors as submitted into evidence before the Tribunal.

3. The Board properly gave less weight to long term economic factors as the Board’s decision to close the Tilsonburg Exchange applies singularly to the 2001 crop year.