Agriculture, Food and Rural Affairs Appeal Tribunal

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:

Chicken Farmers of Ontario v Ontario Farm Products Marketing Commission

Chicken Farmers of Ontario v OFPMC [Decision] 2001 ONAFRAAT 48

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

DATE OF DECISION:

October 12, 2001

2001-48

NEUTRAL CITATION:

2001 ONAFRAAT 48

Chicken Farmers of Ontario v Ontario Farm Products Marketing Commission [Decision]

IN THE MATTER OF THE FARM PRODUCTS MARKETING ACT AND SECTION 16 OF THE MINISTRY OF AGRICULTURE, FOOD AND RURAL AFFAIRS ACT.

AND IN THE MATTER OF: An Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by Chicken Farmers of Ontario from a decision of the Ontario Farm Products Marketing Commission, dated December 1, 1999 relating to the system for the allocation of live chicken to Ontario processors.

AND IN THE MATTER OF: An Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by the Association of Ontario Chicken Processors from a decision of the Ontario Farm Products Marketing Commission, dated December 1, 1999 relating to the system for the allocation of live chicken to Ontario processors.

AND IN THE MATTER OF: An Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by the Ontario Independent Poultry Processors from a decision of the Ontario Farm Products Marketing Commission, dated December 1, 1999 relating to the system for the allocation of live chicken to Ontario processors; and from a decision of the Chicken Farmers of Ontario made in December 2000 regarding the slaughter rule aspect of the chicken allocation system.

AND IN THE MATTER OF: An Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by the Canadian Restaurant and Foodservices Association from orders, directions, policies and decisions of the Chicken Farmers of Ontario that have resulted in Ontario producers and processors not meeting consumer demand.

Before:

Denis O’ Connor, Vice Chair Murray Cardiff, Chair

Doug Flook, Member Andy Koopal, Member

Appearances:

Howard Goldblatt, counsel to the CFO; Geoffey Spurr, counsel to the CFO

Robert Shapiro, for the Association of Ontario Chicken Processors

Arlen Sternberg, counsel to the Ontario Independent Poultry Processors

James McIlroy, counsel to the Canadian Restaurant and Foodservice Association

Robert de Valk, for the Further Processors Poultry Association of Canada

Henry Bos, broiler chicken producer

DECISION OF THE TRIBUNAL

These appeals were heard in Guelph, Ontario on FE 26 01– MR 02 01 inclusive,

MR 05 01–MR 09 01 inclusive, AP 02 01–AP 06 01 inclusive, AP 17 01-AP 20 01 inclusive, AP 30 01, MY 01 01, JN 22 01, JL 04 01-JL 06 01 inclusive, JL 10 01, JL 11 01, OC 04 01, OC 05 01, OC 11 01, OC 24 01 and OC 25. The appeals related to a decision of the Ontario Farm Product Marketing Commission (the Commission) which provided direction to the Chicken Farmers of Ontario (CFO) regarding the allocation of chicken to processors and to the CFO’s actions subsequent to the release of the Commission decision.

Statutory Context

The appeals are made pursuant to Section 16 of the Ministry of Agriculture, Food and Rural Affairs Act which reads in part:

Appeal to Tribunal

16. (1) Subject to subsection (4), if a person is aggrieved by an order, direction, policy or decision of the Commission or Director, made under the Farm Products Marketing Act or the Milk Act, that person may appeal to the Tribunal by filing with the Tribunal and sending to the Commission or Director written notice of the appeal.

Idem

(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.

Powers of Tribunal on appeal

(11) Upon an appeal to the Tribunal under subsection (1) or (2), the Tribunal may by order direct the Commission, the local board, the marketing board or the Director, as the case may be, to take such action as it or he or she is authorized to take under the Farm Products Marketing Act or the Milk Act and as the Tribunal considers proper, and for this purpose the Tribunal may substitute its opinion for that of the Commission, the local board, the marketing board or the Director.

Acronyms

AAFC Agricultural and Agri-Food Canada

AOCP Association of Ontario Chicken Processors

APD Aggregate Processor Demand

CCGD Canadian Council of Grocery Distributors

CFC Chicken Farmers of Canada

CFIA Canadian Food Inspection Agency

CFO Chicken Farmers’ of Ontario

COP Cost of Production

CPEPC Canadian Poultry and Egg Processors Council

CRFA Canadian Restaurant and Foodservices Association

DFAIT Department of Foreign Affairs and International Trade

DFO Dairy Farmers of Ontario

EICB Export and Import Controls Bureau

FPA Federal Provincial Agreement

FPMA Farm Products Marketing Act

FPPAO Further Poultry Processors Association of Ontario

FPPAC Further Poultry Processors Association of Canada

GATT General Agreement on Tariffs and Trade

HACCP Hazard Analysis Critical Control Point

HSE Highest Stakeholder Estimate

ICL Import Control List

KFC Kentucky Fried Chicken

NAA National Allocation Agreement

NFPC National Farm Products Council

OABA Ontario Agri Business Association

OBHECC Ontario Broiler Hatching Egg and Chick Commission

OFPMC Ontario Farm Products Marketing Commission (the Commission)

OIPP Ontario Independent Poultry Processors

OMAFRA Ontario Ministry of Agriculture, Food and Rural Affairs

PSQ Plant Supply Quota

SM Supply Management

TRQ Tariff Rate Quota

USDA United States Department of Agriculture

WTO World Trade Organization

The Background

A number of different methods have been used to allocate live chicken to processors under the supply management system. These include the following: AP 1994 to AU 1996: “Unrestricted bottom-up” allocation system.

SE 1996 to SE 1998: Supply Setting Agreement where the CFO determined the Ontario supply based primarily on the recommendations of the AOCP. Each processor was provided a base level of supply equivalent to its A-08 level. The agreement also provided smaller processors with an accelerated rate of growth.

SE 1998 to present: Current system which revised the allocation process and included an export policy.

In 1998, the Honourable Noble Villeneuve, Minister of Agriculture, Food and Rural Affairs (the Minister) intervened to allow new entrants a larger allocation of chicken than the CFO had provided them. He also expressed concerns about the supply setting process.

The Commission established a “Visioning Committee” to allow chicken industry stakeholders to resolve dissatisfaction with pricing, volume setting, the allocation agreement and the export policy.

The industry was unable to reach consensus on a resolution to these issues and the Commission held a Hearing in SE 1999 and OC 1999. The Commission issued its decision on DE 01 99. The CFO and the Commission communicated regarding the implementation of this decision in FE 2000, MR 2000 and AP 2000. In MY 2000, the CFO appealed the Commission’s decision to the Tribunal. Subsequently, the three other appellants filed their appeals.

Preliminary Matters

Several preliminary matters were dealt with in pre-hearing conferences. Procedural orders of the Tribunal dated JN 12 00, SE 25 00, JA 29 01, and FE 06 01 are appended to this decision.

At the outset of the Hearing, the Tribunal addressed a number of additional preliminary matters as follows:

Intervenors

Mr. John Vanderzanden, a chicken producer and Mr. Ron Campbell on behalf of the Ontario Agri Business Association (OABA) applied for intervenor status. The CFO and the AOCP objected. Mr. Goldblatt took the position that the only participants in the Hearing should be parties identified at the pre-hearing conferences as these parties had exchanged information on their positions prior to the start of the Hearing. Other parties had no objection to allowing intervenors. Mr. Sternberg noted that both these parties gave brief evidence at the Commission hearing and that it was the usual practice of the Tribunal to allow intervenors.

The Tribunal granted intervenor status to Mr. Vanderzanden and to the OABA. The Tribunal noted that it is deciding a policy question and it believed the intervenors had information that may be useful to it. The Tribunal also noted that the wording of its Notice of Hearing provided for the possibility of additional parties or intervenors. The Tribunal decided to treat the intervenors’ testimony before the Commission as their disclosure, but it also ordered them to provide the parties to the Hearing with a statement of their evidence by 9:00 a.m., FE 27 01. The Tribunal restricted the intervenors’ participation in the Hearing to making a statement and being cross-examined on that statement.

Consolidation of Appeals

By Procedural Order dated JA 29 01, the CRFA appeal was consolidated to be heard together with the CFO appeal. That Order was made without prejudice to the right of the CFO to challenge the CRFA’s status and the proper scope of matters that may be addressed in the CRFA appeal.

Mr. Goldblatt submitted that the appeal by the CRFA made pursuant to Section 16(2) of the Ministry of Agriculture, Food and Rural Affairs Act should not be consolidated with the CFO appeal. He said that as the CRFA appeal did not reference a specific order, direction, policy or decision of the CFO, it did not meet the criteria of an appeal and the CFO could not adequately identify the issue and respond. He said the CFO submitted that the CRFA appeal was frivolous or vexatious and asked the Tribunal to dismiss it.

Mr. McIlroy stated that the CRFA appeal was filed in response to the SE 25 00 order of the Tribunal which he submitted was very broad. He said that the matters under appeal were policy issues, not specific decisions, directions, orders or policies. He said that the CRFA appeal related to a number of decisions of the CFO, which resulted in an under-supply of chicken. He said this conflicted with a direction of the Minister.

The Tribunal was not persuaded that the CRFA appeal is frivolous or vexatious and it accepts that the scope of the appeal is adequately described in its notice of appeal.

The parties did not object to the consolidation of appeals by the AOCP and the OIPP with the CFO and CRFA appeals and the Tribunal so ordered.

Reference to the Decision of the Commission

Mr. Goldblatt reminded the Tribunal that it was conducting a hearing de novo and said this was important as the CFO took the position that the Commission decision was tainted due to the participation of a member, which raised a reasonable apprehension of bias. He also noted that the JA 29 01 procedural order of the Tribunal indicated that evidence before the Commission was not to be admitted unless it is properly evidence before the Tribunal, and no weight was to be given to the Commission decision. In light of this, he argued that parties could not make reference to the Commission decision. He submitted that the FE 06 01 procedural order of the Tribunal was in conflict with its earlier order in this regard.

Mr. Shapiro submitted that the FE 06 01 procedural order was a clarification of the JA 29 01 procedural order and that the Tribunal was clear that the submission of the Commission decision and evidence that was brought before the Commission would not violate the JA 29 01 Tribunal order.

The Tribunal ruled that parties could make any reference to the Commission decision as allowed in its procedural orders of JA 29 01 and FE 06 01. The Tribunal said it would hear the evidence that was in the Commission report and that was now before it. However, the Tribunal said it would have no regard for the decision of the Commission.

Other

The Tribunal also made rulings with regard to a question of whether a panel member had a reasonable apprehension of bias; with regard to the status of the representative of the AOCP; and with regard to the Tribunal’s jurisdiction on the pricing issue. Rulings on those matters were issued separately and are appended to this decision.

Interlocutory Rulings

The Tribunal made several rulings on issues raised during the course of the Hearing. The Tribunal does not believe it is necessary to report each of these rulings, but a few key rulings are outlined below.

Submission of Additional Documents

Mr. Goldblatt asked the Tribunal to order that any party who intended to advance a live price formula with different factors and/or ratios than contained in the CFO proposal be required to provide it to the CFO and other parties before it was put before the Tribunal. Other parties were in general agreement with this proposal and, notwithstanding its JA 29 01 order regarding the exchange of documents, the Tribunal agreed with the CFO request and so ordered.

The Tribunal subsequently ordered that parties could submit updated versions of their exhibits so that it would have the most recent data available to it. It also allowed the submission of a few additional documents. The Tribunal denied requests by parties to submit additional documents where it was of the view that it would be unfair to other parties, as the subject matter that the document related to could reasonably have been anticipated, and the document could have been provided to the other parties in advance of the Hearing, as per its JA 29 01 order.

The Tribunal also denied a request by Mr. Shapiro that he be allowed to introduce a past decision of the Tribunal into evidence. The Tribunal determined that this would not be appropriate but ruled that the decision could be referenced in argument.

Addition/Substitution of Witnesses

Mr. Bos asked that he be permitted to call a witness that he had not disclosed to the other parties within the time prescribed in the Tribunal’s order of JA 29 01. The Tribunal ordered him to provide information on the proposed witness to the other parties. After reviewing that information, the other parties had no objection to the addition of Mr. Ken Holstein as a witness for Mr. Bos. Mr. Sternberg noted that Mr. Holstein was an OIPP member and said he was not concerned with Mr. Holstein being a witness provided he could still cross-examine him. The Tribunal allowed Mr. Bos to add Mr. Holstein as a witness.

Mr. Sternberg asked that he be permitted to add a witness as well. He proposed to call Mr. John Hoover to explain the details of the OIPP proposal. He said this evidence was not new or unexpected and indicated he would provide a witness statement. He said that he was originally going to have a different witness cover this material but felt it would be more efficient for Mr. Hoover to do so. He noted that the Tribunal had accommodated other parties by admitting new documents.

After reviewing a witness statement provided by Mr. Sternberg, Mr. Spurr objected to the addition of Mr. Hoover as a witness. He pointed out that the CFO had concluded its case and would not have the opportunity to present evidence in response to Mr. Hoover. He submitted that, as the General Manager of the OIPP, Mr. Hoover was not a peripheral witness and it was unfair of the OIPP to call him without going through the disclosure required by the Tribunal in its order dated JA 29 01. Mr. Shapiro concurred with Mr. Spurr.

The Tribunal understood that Mr. Sternberg wished Mr. Hoover to provide an overview of the OIPP position that would have been provided by one of his other witnesses. The Tribunal found that there was no undisclosed material to be presented and ruled that Mr. Sternberg could substitute Mr. Hoover for one of his other witnesses.

Reply Evidence

The Tribunal directed all parties wishing to enter evidence in reply to disclose the names of witnesses and the nature of their evidence to the other parties by OC 09 01. One party, the CFO, indicated it wished to call reply evidence.

Mr. Spurr told the Tribunal that the CFO sought to call reply evidence on the narrow issue of whether or not parties are able to track wholesale prices, either through the AOCP or through a third party. He indicated this would be relevant in the event that a market component is included in the live price of chicken. Mr. Spurr said he would recall Dr. Groenewegen to speak to a wholesale price study which he had conducted, and which had already been entered into evidence.

Mr. Spurr submitted that this proposed evidence met the Tribunal’s test that the issue must be something unforeseen. He pointed out that the FPPAC was the only party to raise any question about this issue. He said that while the FPPAC stated that it was not possible to track wholesale prices in a disclosure to parties made in January 2001, it revised its submission in February 2001 to indicate that it understood that using reconstituted whole bird data as a proxy for wholesale price has been agreed to by some parties. Mr. Spurr said that, as a result, the CFO approached the Hearing concluding that no one questioned the ability to track wholesale price data. He said that no one suggested to any CFO witnesses that it was difficult or impossible to track this data. Mr. Spurr said that the issue was not raised in the Hearing by the FPPAC until after the CFO case was concluded. He reminded the Tribunal that the wholesale price study was produced, at Mr. de Valk’s request, and that Mr. de Valk questioned whether the wholesale figures in the study were reflective of sales of all wholesalers and whether there was a possibility of processors adjusting the wholesale price. Mr. Spurr said the evidence before the Tribunal was not the best evidence and that the author of the wholesale price study should be recalled to provide the best evidence.

Mr. Spurr suggested another way to resolve the matter would be for all parties to stipulate to the position that they will not say that wholesale price data is too problematic and cannot be tracked. All parties could not provide him with this assurance.

Mr. McIlroy argued that the CFO was not entitled to split its case, as other parties were entitled to know the case of CFO when they put their cases forward. He submitted that the purpose of reply was not to allow a party to raise something that they could have raised during their case.

Mr. McIlroy pointed out that a procedural ruling of the Tribunal required parties to exchange documents by JA 19 01 and required parties to exchange copies of their response and supplementary documentation three weeks later. He said that the FPPAC clearly stated that wholesale market price data was not available and the market was too complex to track on JA 19 01. He submitted that the CFO had an opportunity to file a reply to that statement but chose not to exercise it at that time. Mr. McIlroy did not agree that the amendment the FPPAC made to its submission on FE 09 01 indicated that its concerns regarding wholesale price data had been resolved. He said the second FPPAC document stated that if two parties agreed to accept wholesale price data, the FPPAC would not object to its inclusion. He took the position that this did not imply a blanket acceptance of wholesale price methodology and pointed out that the FPPAC clearly stated in both its submissions that there are difficulties in managing both prices and volume. Mr. McIlroy submitted that the CFO had ample opportunity to deal with this issue and that the issue could have been foreseen.

The Tribunal accepts the submissions of Mr. McIlroy. The issue is not new

or unexpected. For this reason, the CFO will not be permitted to call Dr.

Groenewegen in reply.

The Issues

The issues to be addressed in this appeal are outlined in item five of the Tribunal’s procedural order dated JA 29 01 and are repeated below:

The issues to be addressed in this appeal are broadly summarized as follows:

Total Ontario Domestic Supply Determination, including issues relating to volume setting

Individual Processor Allocation, including what constitutes a processor and who can purchase live chicken

Category Requirements

Price Determination

Export Policy

This list resembles a similar list that appears in the decision of the Commission that is now under appeal. Nothing should be read into that similarity which derogates from the requirement of item 1 that the hearing is a de novo hearing of similar issues.

This list of issues should not be interpreted restrictively. The nature and scope of the hearing is policy based and generic in nature though, of necessity, it will ultimately result in and include detail relating to implementation. This list of issues is intended to assist in the organization and focus of the hearing and is subject to the control of the panel hearing the appeals.

In summary, the Tribunal is to design a methodology for determining the amount of chicken to be grown in Ontario, the allocation of chicken to existing and new processors, the fulfillment of market needs within categories of chicken, the pricing of live chicken and an export policy.

Summary of the Evidence

CFO Case

Kevin Thompson Testimony

Mr. Thompson stated he had been employed by the CFO since 1989 and that he was currently the Operations Manager. He explained that he administered the quota system for chicken and implemented board policy for monitoring and enforcement of the quota policies and assisted the CFO in policy development. He said he had worked in the live chicken procurement field for Maple Lodge, a chicken processor, for over ten years prior to taking a position with the CFO.

Mr. Thompson provided a brief overview of the quota system by which the CFO managed the supply of live chicken, and the manner in which chicken was marketed to individual processors. He explained that producers contracted with processors using a standard form – CFO Form 101 and that there were penalties to producers who over and under produced their quota allotment. He explained that processors required an allocation of supply from the CFO and a licensed slaughter facility, and that processors must file an irrevocable letter of credit for 12% of value of chicken they have allocated to them in order to receive Ontario grown chicken. Processors who contract to buy more chicken than they are allocated are required to transfer a portion of their Form 101 contracts to processors who are ‘under-signed’ by way of CFO Form 121.

Mr. Thompson also gave a brief overview of the national supply management system and a synopsis of past methods by which the CFO allocated chicken to Ontario processors. He explained that the CFO had been trying to develop a new allocation process, in consultation with industry stakeholders, since 1998. He explained that the CFO understood the Minister was frustrated that individual processors were unable to acquire sufficient Ontario-grown chicken and that Ontario was lagging other provinces in growth in the industry. He said this led to a series of industry meetings, the retention of facilitators and ultimately a hearing before the Ontario Farm Products Marketing Commission.

With regard to the issues before the Tribunal, Mr. Thompson explained that the CFO proposals regarding the setting of total supply, allocation to individual processors and pricing were inextricably linked. He said the CFO wanted to have certainty and predictability with regard to the impact of wholesale prices on the producer price.

Mr. Thompson explained that the system that CFO proposed for determining the total supply was a ‘bottom-up’ system whereby individual processors submitted their requests, and the aggregate processor demand (APD) was compared to estimates of market growth provided by industry stakeholders. He said that if the APD was no more than 2% higher than the highest stakeholder estimate (HSE), that volume of chicken would be requested from the Chicken Farmers of Canada (CFC). However, if the APD was more than 2% higher than the HSE, the HSE would be requested instead. Other features of the total supply determination proposal included:

• An all industry meeting 18 weeks before each 8-week quota period. Information and stakeholder estimates would be provided in advance of the meeting on a standard template.

• Individual processor supply requests would be supplied in confidence to CFO staff.

• Individual processor supply requests would be limited to the processor’s ‘base’ allocation if the processor had utilized less than 90% of its allocation in the previous three periods.

• Processors would be required to submit a letter of credit, equivalent to 12% of the purchase price of chicken requested, with their supply requests.

• The CFO would not submit a supply request that would cause the province to exceed growth caps agreed upon by the CFC through the National Allocation Agreement (NAA).

• The CFO would disregard any stakeholder estimate that was clearly unrealistic, made in bad faith or designed to undermine the supply setting process.

• The CFO would retain the ability to revise the provincial allocation request, based on the actions of the CFC or competitive actions by other provinces.

Mr. Thompson explained that there were two methods of allocating supply to individual processors that the CFO found acceptable. He made it clear that these allocation methods would only be required when the provincial allocation was less than the APD. Under this type of ‘cut-back’ period, the CFO proposed that processors be assigned a ‘base’ by means of averaging the product of each processor’s average approved supply in the 5th, 6th and 7th period prior to the ‘cut-back’ period and the average utilization of the processor in the same periods. Each processor’s base would then be divided by the total of all processors’ bases to determine each processor’s market share. Mr. Thompson said the CFO took the view that production allocated to processors by way of a special request panel should not be included in the calculation of the bases.

Mr. Thompson explained that the CFO supported an approach, Option A, whereby the provincial supply would be multiplied by each processor’s market share to determine the amount of chicken that each processor would be allocated. However, he said that if a processor’s individual request was less than its market share, the processor would be allocated the amount of chicken initially requested. He said that this option allowed for differential growth of processors as they could consolidate market share through mergers or acquisitions.

Mr. Thompson said that the CFO also supported an approach, Option B, whereby 97% of the provincial supply would be allocated as per Option A and the remainder would be distributed through a bid pool. He suggested that the monetary proceeds of the bid pool should accrue to the CFO, that the marketing board would reduce its producer levy accordingly and that the reduction in levy could lead to a lower chicken price. Specifics of the proposed bid pool were:

• Any processor that requested an amount of chicken equal to or less than the product of its market share and the provincial supply, would receive the amount of chicken requested and the amount of chicken in the bid pool would be reduced accordingly.

• Any processor that was allocated all the chicken it requested would be ineligible to participate in the bid pool.

• Processors would bid by sealed bid, with the highest bid(s) receiving the allocation requested.

• In the event of equal high bids, the allocation would be assigned to the processor with the smallest volume bid first, and the remainder would be allocated to the next highest volume bidder(s). If the two highest bidders both bid for the total amount of chicken in the bid pool, they would be asked to re-submit their bids.

• Any chicken allocation not bid upon would be distributed pro rata according to market share, as in Option A.

Mr. Thompson testified that the bid pool was designed to encourage realistic bids and that it was biased in favour of smaller requests in order to encourage bidders to ask for only what they need. He said that Option B provided greater opportunity for differential growth between chicken processors. He said the CFO philosophy was that if there was to be a ‘cut-back’, this allocation methodology should discourage further ‘cut-backs’ and should provide for differential growth.

Mr. Thompson told the Tribunal that the CFO supported the use of a pricing formula whereby the price of chicken would be adjusted as the price of feed, the price of chicks and the wholesale price fluctuated. He said the CFO suggested that:

• Each 1-cent change in the price of chicks would trigger a 0.5 cent change in the live price.

• Each 5-dollar per tonne change in the price of feed would trigger a 1 cent change in the live price.

• Each 6-cent per kilogram change in the wholesale price would trigger a 1 cent change in the live price.

Mr. Thompson said that competitive forces, such as the live price in other provinces, and significant unforeseen events could result in a different price than the formula price being used, or in a change in the formula. He suggested that arbitration be used if parties could not agree to deviations from the formula in these circumstances.

Mr. Thompson pointed out that it was necessary to establish a starting price before the formula could be used. He said the CFO could accept a starting price that gave both producers and processors the same percentage share of their historical margin, calculated over approximately four years, starting in Period A-12. He said the CFO could also accept a negotiated starting price, or an arbitrated starting price provided that no party to the arbitration introduced unusual evidence or testimony to the arbitrator. He said that indicating to the arbitrator that his/her pricing decision would have far-reaching consequences would be considered unusual.

With regard to export policy, Mr. Thompson stated that the CFO believed its current system was working well and should be retained. He explained that processors tendered bids for a volume of chicken to be exported, and, if more than half of Ontario producers determined they wanted to grow chicken for export at the weighted average of the prices offered, the chicken would be provided. He explained that if fewer than half the producers wished to participate, the processor(s) would not receive all the chicken requested.

With regard to category requirements, Mr. Thompson submitted that an allocation system which allows processors more opportunity for variable market growth, combined with a new CFO policy which rewarded producers who shipped within their contracted weight specifications, would result in production more geared toward market needs. He explained that the CFO incentive program provided producers with the ability to ship extra chicken in a future quota period if they substantially met the 1.66-1.75 kg category requirements.

Mr. Thompson said the CFO proposed that new entrants to the chicken processing industry could purchase an existing processor, and obtain its base, or build a new plant and request an allocation of up to 300,000 kg/period from the CFO. He said that if the new processors wanted to process more than 50,000 kg/period the CFO felt the plant should be required to be federally inspected and meet HACCP standards. He outlined a number of other requirements that the CFO proposed for new entrants.

Mr. Thompson said that the CFO would guarantee each new entrant their maximum requested supply for six 8-week periods, and after that time they would be treated as any other processor. However, he said the marketing board proposed that the total supply available to new entrants be limited to 1% of the provincial allocation and that new entrant applications be treated on a first come, first served basis. He also explained that the CFO believed that existing processors currently processing less than 300,000 kg/period may be treated as new processors and given priority treatment in the event the demand for new entrant allocations exceeded 1% of the provincial allocation.

Mr. Thompson also provided the Tribunal with his views on proposals put forth by other parties to the appeal.

Additional information provided by Mr. Thompson in response to questions of the other parties and the Tribunal included:

• In the previous 14 quota periods, the CFC had asked provinces to reconsider their supply requests 12 times and the CFO had changed the Ontario request four times.

• The CFO proposal allowed for a ‘made in Ontario’ cap that was lower than the caps set in the NAA.

• He did not interpret a letter from the Minister to the CFO as a direction to achieve provincial self-sufficiency in the industry. He saw it as a general direction to grow more chicken. He agreed that the Minster believed the CFO was setting the provincial allocation request to the CFC at too low a number.

• The CFO had requested a lower allocation than the NAA caps would allow in each period in the 2.5 years since the Minister provided his direction to increase supply.

• The CFO would like to increase its market share if it could be done in an orderly fashion.

• The NAA was signed by provincial marketing boards, but not Ministers.

• The NAA allowed for the region comprised of Ontario and Quebec to increase production by 5% over the same period the year before. Neither province could increase production more than 8% under the NAA.

• He did not agree that the APD was the best measure of market needs as he felt that individual processors may ‘double count’ the same customer. He did agree that processors knew their markets best.

• It was possible some stakeholders would not share their total anticipated sales volume with their industry associations, due to confidentiality concerns.

• The CFO expected that its proposal would prevent market shortages.

• Industry associations never agreed on projected market needs.

• The CFO generally requested a lower allocation from the CFC than associations representing grocery distributors and the food service industry recommended.

• The industry was growing at a rate of approximately 4% per year.

• An open sign up allocation system would be favourable to producers and would be market-based, but the CFO does not support it, as it is not endorsed by other stakeholders. The CFO had used such a system in the past and it resulted in price premiums for producers.

• A common feature of the industry is trading of allocation between processors. The CFO supports trading allocation from period to period, but not the outright sale of allocation. He did not believe that requiring processors to slaughter 100% of their allocation, averaged over three periods would discourage the trading of allocation.

• There was no penalty for under-slaughtering requested supply in the current marketing system. The CFO proposal would provide a penalty. It believed this would encourage processors to submit realistic allocation requests.

• The proposed allocation policy essentially allocated supply pro rata according to historic market shares, but processors were required to slaughter their historic share or they would lose base. This would ensure that chicken was allocated to processors who would use it.

• Both large and small processors complain they cannot get as much chicken as they need under the current system and this was not conducive to market development.

• There would likely continue to be ‘cut-backs’ in the short term, under any of the parties proposed allocation systems.

• The CFO felt that allowing the sale of individual processors’ allocations would be a less efficient allocation method than the ‘bottom-up’ method. It was also concerned that the government would not support a plant supply quota system in the chicken industry.

• Niche market processors would be treated the same as other processors under the CFO proposed allocation system.

• As under the current system, CFO decisions regarding how much supply to request from the CFC would be subject to appeal.

• Under the current system it was difficult for small Ontario processors to expand unless they could source chicken from out-of-province.

• The current allocation system was not designed to judge processors’ efficiency. He felt the new system should allow processors to fill the needs of an expanding customer base.

• The CFO proposal would allow processors to grow by requesting more supply in ‘cut-back’ periods through the bid pool. They could also grow by purchasing another processor.

• There was historically only a small proportion of producers who switched processors.

• In 10 of the previous11 quota periods, the total processor requests for export chicken were not filled because less than half of producers wished to grow for the export market.

• He agreed Quebec processors were more active in the export market than Ontario processors.

• Chicken exports are predominantly dark meat. Increasing the volume of exports would increase the volume of white meat on the domestic market. He did not believe this would have much impact on the domestic price.

• There was no mechanism in the CFO proposal to link a reduction in producer levies resulting from the proceeds of the bid pool, to lower prices.

• The price determination ratios in the proposal were somewhat subjective as a different time frame for the regression analysis could have been used. The CFO chose A-12 because effective this period the industry changed its pricing methodology.

• Feed prices of all feed mills followed the same general trend.

• The CFO did not consider using the wholesale price as a trigger, rather than an element of the pricing formula.

• Including the wholesale price in the formula protected producers from the impact of lower prices due to over-supply. The CFO felt this was needed, if its supply setting authority were to be weakened.

• The wholesale price was provided by processors and was widely circulated, though not published in a journal. It was a trend indicator, not an actual price.

• The CFO size category price grid was under review. This grid was based on the negotiated price for chicken. It provided for different sizes of chicken to be priced differently. The CFO goal was to have the price include the extra costs and risks in growing each size category.

• The CFO has six size categories of chicken. The 1.60-1.77 kg bird is used by Kentucky Fried Chicken (KFC); the 1.95-2.15 kg bird is used by Swiss Chalet.

• There was generally a considerable difference in the amount of chicken contracted in the KFC weight category and the amount of chicken delivered in this category.

• There were price penalties for delivering out of category, but it was at the processor’s discretion as to whether or not to apply them.

• The market weight incentive program was only available for the KFC category.

• Maple Leaf Poultry had obtained supplemental import quota and imported live chicken to meet a market shortage in a particular weight category.

• Canada has agreed to allow the industry to import 7.5% of its previous year’s chicken production under tariff rate quotas (TRQ). In 2000 there were 63.34 million kg of TRQ issued. It was generally agreed that much of this chicken is imported to Ontario. It was not economically feasible to import chicken without TRQ.

• The CFO did not discuss its proposals with producers prior to submitting them to the Tribunal. Board members were elected from 9 geographic districts.

Mr. Thompson also provided clarification on past industry practices, the CFO proposal and the marketing board’s rationale for its position.

Michael Nailor Testimony

Mr. Nailor testified that he was an economist, that his field was Agricultural Economics and that he had worked for the CFO for approximately two years. He explained his duties included the preparation of price briefs and arbitration briefs as well as general policy analysis. He said he had input into the pricing formula in the CFO proposal.

Mr. Nailor explained that chicken producers and processors met to negotiate price approximately four weeks prior to the beginning of each quota period, and that if negotiations failed they underwent final offer arbitration. He indicated the pricing methodology was imperfect as arbitrators did not have expertise in the industry. He said the CFO supported a price formula as it would provide more certainty and transparency to the industry.

Mr. Nailor explained that the CFO proposed formula included the chick price set by the Ontario Broiler Hatching Egg and Chick Commission (OBHECC), feed cost and wholesale price as these were factors parties relied upon in negotiations/arbitration. He said the wholesale price affects consumer demand and the other two factors affected the cost of producing chicken. Mr. Nailor indicated:

• The wholesale price was a blended price based on information processors provided on specific cuts of chicken. He said it had been used as a reference point by producers and processors for some time and was considered reliable.

• The CFO used data from two feed mills in its model to ensure accurate representation. Together these mills provide 25-30% of chicken feed in Ontario.

• Chick prices were set by OBHECC.

• The price ratio for the wholesale price was set after consideration of the results of regression analysis over three different time periods. The price ratios for feed and chicks were based on the direct price relationships between the inputs and the end product.

• The starting price could be determined by assessing the relative welfare of producers and processors since period A-12.

• The A-12 period marked a change from top down to bottom-up allocation and from pricing 18 weeks in advance of a period to 4 weeks in advance of a period.

• An annual review of the CFO formula would be a forum for discussing changes in heating and catching costs, but not of items included in the formula.

Additional information provided by Mr. Nailor in response to questions included:

• During industry stakeholder meetings on pricing, typically the stakeholders submit their market projections. Grocery distributor estimates are calculated by CFO staff based on data submitted by their industry association.

• He provides information on exports, storage stocks and year-over-year changes in consumption at industry meetings.

• The CFO wanted industry stakeholders to provide data on a common template.

• There was a significant difference in the calculated starting price when different time frames were used in comparing relative welfare. He agreed there was no single correct time frame for comparison.

• It would be essential that the arbitration proceed as though it was an ordinary 8-week pricing decision that was being made, if an arbitrated price was to be used as a starting price.

• The CFO did not support the use of the corn:soy index in a pricing formula as it believes that feed prices are more accurate.

• One feed supplier from which the CFO collected price data had approximately twice the market share of the other feed supplier. A simple average of their prices was calculated.

• It was possible to survey producers to obtain actual feed prices.

• Changes in chick prices affect the chicken size categories differently; but the differences are minor.

• The CFO supports a formula that calculates one single base price. Stakeholders could negotiate changes to the pricing grid if the price spreads become inappropriate over time.

• The CFO proposal assumed the current pricing grid spread would be used.

• Category profitability to producers affects processors ability to sign producers in each category.

• His analysis showed no direct relationship between the wholesale price and the live chicken price.

• Approximately 35% of the market was priced at the wholesale price; but 65% of the market tracks the wholesale price of chicken.

• He understood a large volume of imports were fronts. Fronts were not one of the parts included in the wholesale price calculation. However, he still felt the wholesale price reflected the impact of imports.

• He had written of a market shortage of Ontario-grown chicken in period A-38, but this was in the context of explaining to one stakeholder why the CFO chose to request a higher allocation from the CFC than that stakeholder felt was warranted.

• Particular processors may be short chickens when the market as a whole is not.

• Other factors than wholesale price, feed cost and chick price have been relevant in setting live price in the past; producer levies have been relevant. He did not include levies in his regression analysis.

• The industry estimated that 75% of chicken imported under TRQs was used in Ontario.

• The bid pool would require processors to pay premiums for a portion of their allocation. These monies would reduce producer levies and eventually lead to a lower live price.

• Traditionally, Quebec producers accept the Ontario price, Atlantic Canada producers receive 2 cents/kg more and Alberta producers receive 2 cents/kg less.

• The Ontario population was growing faster than the national average and Ontario chicken production was growing slower than the national average.

• He includes the demand for chicken by consumers in restaurants when he analyzes Ontario demand.

Mr. Nailor also provided his view on opinions expressed by the Competition Bureau on the chicken industry and he explained his statistical analysis.

Mike Dungate Testimony

Mr. Dungate said he was the General Manager of the CFC, that he had been with the organization since 1996 and that prior to that he worked for the federal government in its Trade Commission. He said it was his responsibility to ensure that chicken farmers meet market needs, and to represent farmers on national and international issues.

Mr. Dungate gave an overview of the composition of the CFC and its functions. He also spoke to the rationale for replacing earlier chicken allocation systems with the NAA.

He provided the Tribunal with a brief explanation as to how the NAA worked. He explained that it was only possible for a province to exceed its 8% growth cap under exceptional circumstances, and that Ontario could only exceed the 5% regional cap if Quebec were to agree to grow much more slowly.

With regard to setting supply, Mr. Dungate explained that the CFC compiled the allocation requests of each province and made an assessment as to whether the sum of these requests produced a reasonable number. He said the CFC would then either set the allocation at that point. or would ask provinces to reconsider their requests. This process was repeated until the sum of provincial requests reached a reasonable number. He explained that the process commenced 14 weeks prior to production. He explained British Columbia was not a participant in this process.

Mr. Dungate told the Tribunal that the CFC had an export policy that provided a framework and that provincial programs could vary within that framework. He explained the CFC worked with provincial boards as agents, that processors signed export commitment forms with the CFC and that the CFC set the total chicken allocation with that export volume included. He said his staff ensured that chicken contracted for export was actually marketed outside Canada.

Mr. Dungate also provided comments on specific proposals that were before the Tribunal. He confirmed that the industry was growing faster in Western Canada than in Ontario and theorized that the complexity of the industry in Ontario may be a factor. He explained that most provinces had only one or two processors and relatively few imports.

Additional information provided by Mr. Dungate in response to questions included:

• Free movement of chicken across provincial borders was fundamental to supply management. Provincial self-sufficiency is not necessarily a goal of supply management.

• He believed that provincial self-sufficiency was a goal of the Minister but that it was not realistic, given Canada’s commitment to import 7.5% of the market.

• The NAA caps were not production targets. He would be concerned if some judgement was not applied in determining whether or not the province should request an allocation equivalent to the APD.

• The CFC could ‘get around’ the NAA when necessary. One method was to increase all provinces’ ‘base’, to allow for one to grow more than 8%. Saskatchewan’s growth rate had been consistently higher than 8% for the past two years.

• There was nothing in the NAA to prevent a province from increasing its supply request when the CFC asked that all requests be reconsidered, but the CFO would not submit a higher request.

• The NAA caps were not set arbitrarily, and they can be changed if necessary.

• The NAA does not protect market share.

• The CFC rules for granting a higher allocation under exceptional circumstances were broadened in 2000.

• The CFC received its authority from federal legislation. A federal-provincial agreement signed by the Minister and the Commission allowed it to set the amount of chicken allocated to be grown in Ontario. The NAA was the mechanism the CFC used to determine provincial allocations; it was not signed by the Minister or the Commission.

• The CFC is funded by farmers but has both farmer and non-farmer members on its board. It takes all industry stakeholders’ views into account.

• The CFO cannot fetter the discretion of a CFC director.

• An ineffective Ontario pricing system would have national repercussions, but other provinces consider market conditions as well as the Ontario price in their pricing decisions.

• The CFC has no direct authority over category sizes. It does not allocate quota directly to processors.

• In Quebec, the marketing board does not intervene in export arrangements between producers and processors.

• There were clear distinctions between the chicken and dairy regulated marketing systems and he did not believe the chicken industry should react to trade rulings affecting the dairy industry. He said no country had yet taken issue with Canada’s compliance with trade agreements in the chicken industry.

• He estimated that 99% of the export market was for dark meat.

• Import quota could be traded. He estimated that TRQ was trading for $1/kg in March 2001. Some chicken products were not on the import control list and could be imported without TRQ.

• The CFC delegates to the CFO the ability to allocate federal quota to Ontario chicken producers, and the ability to allocate export quota within the CFC framework. He clarified that there were two separate allocation decisions made under the same authority.

Mr. Dungate also provided information on specific allocation requests by Ontario and other provinces. He told the Tribunal that the NAA was to be replaced with a new federal-provincial agreement.

Dr. John Groenewegen Testimony

Dr. Groenewegen told the Tribunal he held the following degrees: Ph.D. Economics, M.Sc. Economics and B.Sc. Agriculture. He said he had written a number of reports on the ‘bottom-up’ allocation system used in the supply managed chicken industry and that he had appeared as an expert witness before the Canadian International Trade Tribunal on cases related to import quota allocation, dumping of apples and mergers. Dr. Groenewegen said he had been asked to review the CFO proposal and that he had also read some of the other proposals and had been in attendance at the hearing before the Commission.

Dr. Groenewegen told the Tribunal that to have effective supply management (SM), an industry must be able to match supply with market requirements, have a pricing mechanism and control imports. He said that the point of the SM marketing strategy was to set the market clearing price at an amount that provides fair and reasonable returns to producers, and that as a result, SM markets are not customarily normal commodity markets. He explained that under SM, demand was considered, then a desired price was established and the product that was desired at that price was produced. He commented that if the market was over-supplied at the desired price, processor margins would be reduced.

With respect to the CFO proposal, Dr. Groenewegen said he liked the aspect that required that individual processor market requirements be considered along with other factors in determining the allocation request to be submitted to CFC. He commented that this linked the estimates of individual processors with the market requirements, except under a ‘cut-back’ provision. Dr. Groenewegen expressed the view that the CFO proposed system was an improvement over the current system and that it preserved or enhanced the benefits of a SM marketing system.

Dr. Groenewegen agreed that with or without a regulated marketing system, there will be potential users of a product who will not be able to obtain it as they will be unwilling to pay the market price. He explained that these customers may have part of their needs filled but that they would not be the preferred customer.

With regard to the option of using an open sign up of producers to allocate supply to processors, Dr. Groenewegen said he was not opposed to this from an economic perspective. However, he pointed out that it was not compatible with the other aspects of the CFO proposal.

Dr. Groenewegen said that the important considerations in CFO exercising its responsibility to set the proper level of production are that it:

• Meet all market needs that return a fair price, after accounting for imports.

• Be consistent with the CFC so that the price is fair to both producers and processors.

• Supply enough chicken to fill all market needs at that price.

• Provide fair and reasonable returns from that price.

• Communicate market opportunities.

• Allow for the development of new markets.

Dr. Groenewegen said that good communication was critical in SM markets as price is not as good an indicator tool as it is in unregulated markets. He said industry meetings and market analysis could be used as coordinating mechanisms instead of price. He said that supply and price must be dealt with together in a regulated system.

Dr. Groenewegen said that each processor had the best knowledge of its own market and that industry associations may not be aware of new markets processors were pursuing. He said there was clearly some subjectivity involved in comparing the APD with the industry association estimates but he opined that this methodology was preferable to simply comparing the APD with a pre-determined growth target.

Dr. Groenewegen said he had concluded that:

• The CFO needs to manage supply to be a responsible partner in the SM system.

• The CFO proposal is an improvement as it allows processor to submit expected market needs, and has active collaboration of industry stakeholders.

• The CFO proposal was more market responsive in requesting volumes and allocating supply to processors.

• Using a price formula to determine the market-clearing price was superior to establishing that price first.

• The CFO proposal assigned allocations to processors based on their market requirements.

• The use of the 3% bid pool was more market responsive than the CFO allocation option A.

Additional information provided by Dr. Groenewegen in response to questions included:

• In some instances the APD would provide a better estimate of market needs than the highest stakeholder estimate. In other instances the HSE would be more accurate. With good communication between parties the two estimates should be the same. In the absence of perfect communication, it was necessary to balance the estimates.

• The CFO proposal to use the HSE rather than the APD, if the APD exceeded the HSE by more than 2% was arbitrary. He would prefer that where the APD is more than 2% greater than the HSE, the HSE plus 2% would be the volume submitted, or that the CFO have some discretion in setting this volume.

• It was preferable that the CFO be restricted to an advisory role rather than have the ability to disregard a stakeholder estimate as unreasonable.

• Without the 2% sleeve, smaller processors would not have an opportunity to grow.

• The APD was a good measure of derived demand. He said that the derived demand in Ontario must include the demand for further processed product shipped out-of-province, and that the APD would include this demand.

• The APD should be used in conjunction with industry meetings in order to get the Ontario supply number right.

• The payment of premiums by Ontario processors and the inter-provincial movement of chicken into Ontario could be symptoms of market shortages.

• If a specific province was allocated insufficient quota, even though nationally the correct supply was established, there would be lost opportunities as the market would not be fully served.

• Part of the problem with the SM system was that production had been allocated according to historic patterns, rather than with consideration to market requirements.

• The foodservice industry and further processors tended to be most affected by supply shortages. He believed that this was related to the price customers in these industries were prepared to pay.

• He supported clarifying the conditions under which the CFO could adjust the provincial supply request, from the number derived through consideration of the APD and HSE.

• Primary processors do not differentiate between chicken required for the further processing sector and other sectors in their requests for allocation from the CFO.

• An open sign up allocation system would not be as effective as the CFO proposal in supplying specific category needs.

• The bid pool allocation method would give large processors an advantage over small processors as they have a larger volume over which to spread the cost of the volume obtained through the bid pool.

• It was possible there would be periods where there was no chicken available in the proposed bid pool, in a ‘cut-back’ situation.

• With the proposed bid pool, a third party audit would be required each period.

• If a processor requested a rate of growth at or less than the rate of growth of the province, the volume of chicken in the bid pool would be reduced, and they would not be permitted to bid. There would be a small volume of chicken in the bid pool if the six largest processors were to request growth at the provincial growth rate.

• The current allocation system did not always work well in establishing the provincial supply. He suggested that the price customers were willing to pay may be a factor.

• The allocation system chosen should not affect the aggregate supply grown.

• He agreed that the current SM system prevented some processors from growing to meet market needs, but submitted this was a natural consequence of SM.

• The CFO proposal would only allow processors to meet their growth objectives in periods where there was no ‘cut-back’.

• Only primary processors may contract for live chicken under the current policy. Further processors only access to Ontario-grown chicken is through primary processors.

• Allowing further processors to directly contract for live chicken would decrease the stability of the system. Further processors needed guaranteed supply from primary processors in order to ensure their demand is considered in setting supply.

• Vertical integration in the turkey industry prevented independent further processors from obtaining product required. He did not see a parallel in the chicken industry due to the larger number of suppliers in that sector. He acknowledged that he did not know where further processors of chicken sourced their product.

• At least two-thirds of further processing of chicken in Canada is undertaken in Ontario.

• A “lock in” policy whereby producers were assigned to specific processors had not worked as it prevented growth of individual companies unless they purchased product from their competitors. Under the CFO proposal, processors may need to purchase product from competitors in order to grow in a ‘cut-back’ period, but otherwise would get their market share.

• Premiums were paid by chicken processors to increase market share, defend market share, achieve efficiencies, retain producer loyalty and attract supplies due to an industry shortage. He did not object to the payment of premiums per se.

• The CFO new entrant policy would set aside approximately 1% of the total supply for potential new entrants.

• A pricing formula would provide predictability. He did not review the CFO formula in detail and could not comment on its fairness.

• Producers had two interests – to get fair returns and to maximize production at the price that will generate fair returns.

• A stable wholesale price was important to producers as it prevents large shifts in demand between periods.

• Forward contracting could be implemented in the chicken industry, but hedging would be more complicated than it is in the pork industry.

• A problem with the current system is that supply is determined before price, a pricing formula would resolve this. All markets should be supplied at the formula price and there should be an opportunity for new markets to be developed.

• Market factors other than the Ontario supply of chicken affect the wholesale price.

• As supply is restricted, the wholesale price increases, and under the CFO proposal the live price would also increase. But, it was still in producers’ best interests to grow the industry, due to the 6:1 sharing of the wholesale price.

• Processor margins should be protected as they purchase from a regulated market and sell into an unregulated market. Supply should be managed to provide an acceptable price to primary processors and producers.

• It is important to have reliable wholesale price data.

• The CFO proposed price formula covered major costs of chicken production; it did not include energy costs. The formula did not have a mechanism to account for extraordinary circumstances.

• Producers need to be part of the solution to problems in filling category requirements.

• Processors’ preferred customers are not necessarily the customers using the size categories priced higher than the base price for live chicken.

• Canada allows 7.5% of the chicken market to be filled with imported chicken. In addition, supplemental imports may be permitted. He confirmed that 14.2 million kg of supplemental imports had been imported to Canada. He pointed out that most of that chicken was imported for re-export, approximately four truckloads were imported due to market shortages, and there were also imports permitted for competitive reasons.

• There could be more than $60 million in economic rent achieved each year by holders of TRQ import paper.

• Governments may not direct exports, under international trade rules.

• It is difficult for the industry to market dark and white meat in the same proportions that chickens produce these meats so it is important to have an effective export system.

• Differential pricing is used in the export policy.

AOCP Case

Robert Shapiro Testimony

Mr. Shapiro told the Tribunal he represented the AOCP, which was an association of chicken processors whose annual slaughter ranged from 1.5 million kg/year to 90 million kg/year. He said that cumulatively, AOCP members slaughtered 95% of the chicken grown in Ontario and that some members were also the largest further processors in Canada. Mr. Shapiro pointed out that, by regulation, the AOCP is responsible for negotiating live chicken prices with the CFO. He submitted that the AOCP represented the processing sector, whereas the OIPP represented special interests.

Mr. Shapiro told the Tribunal that live chicken grown in Ontario is the largest source of supply for AOCP members. He said that the AOCP was comfortable with the current allocation agreement, implemented in May 1998, which provided processors with an assurance of supply by category, and allocated growth pro rata according to the share of supply held by each processor. He referenced written documents in evidence before the Tribunal to show that small processors could grow disproportionately under the current allocation system.

Mr. Shapiro told the Tribunal that the AOCP had changed its position on two items, following discussions with the CFO. He said:

• The AOCP no longer supported a processor allocation pool (set aside pool) as it would be complex to administer.

• The AOCP no longer objected to a 100% slaughter rule in order for a processor to maintain its base, provided the base was calculated on a rolling three period basis.

Mr. Shapiro said that key elements of the AOCP proposal were:

• A cap for the total supply volume to be requested of the CFC would be set on a consensus basis, at a meeting of industry stakeholders. Stakeholders would need to reach a general consensus, not unanimity. The default cap would be Ontario’s historic growth over a three-year period. At the same time, processors would submit individual requests to the CFO. If the APD was near the cap or below the cap, it would be submitted; if not the cap would be submitted and ‘cut-backs’ to processor requests would be required.

• ‘Cut-backs’ would be made on a pro rata basis according to the processors’ bases. Bases would be calculated on a rolling three period basis. The AOCP expected frequent ‘cut-backs’.

• If a processor is sold, its allocation goes with the sale. As well, partial sales of base allocation would be permitted.

• It supported the new entrant policy detailed in the Commission decision.

• One-on-one contracts between producers and processors interested in serving the export market.

• Pricing would be by way of a live chicken price formula.

Mr. Shapiro said the principles underlying the AOCP position were that there should be:

• Opportunity for differential growth provided to processors with investment and commitment, not on request.

• Fair and equal opportunity for growth within a SM framework.

• A low cost system.

• Maintenance of Ontario’s share of national growth.

• A strong chicken industry.

• A market responsive system.

• Opportunity for new entrants with clear rules to entry.

• A mechanism to address inter-provincial supply arrangements.

• Fair treatment for all processors.

With regard to supply setting, Mr. Shapiro said the AOCP agreed with other parties that processors submit confidential, unlimited bottom-up requests to the CFO. He said it did not agree that these be subject to the NAA caps as it preferred a ‘made in Ontario’ cap. He submitted that an analysis of the APD each period is essential to responsible supply setting. Mr. Shapiro said that the AOCP could support the industry stakeholder consultation process proposed by the CFO, provided the AOCP participated as an equal and provided information to the industry. He said that all sectors of the industry should be able to participate in industry meetings, but that they must be represented by associations.

Mr. Shapiro stated that his association was able to reach consensus despite differing interests and he believed the chicken industry could as well. He said the industry stakeholders should develop a consensus on the allocation cap every quota period or the default is that the historic growth rate would be used as a cap. He said the CFO should have no discretion to change the default position. He said that processors should be informed of the caps before they are required to submit their individual requests. Mr. Shapiro submitted that the NAA caps were inappropriate as they were arbitrary and as historically there has been little relation between allocation and the national cap. He submitted that the market had not been shorted as prices had been depressed between quota periods A-22 and A–36. He said there had only been a small volume of supplemental imports.

Mr. Shapiro noted that Ontario had lost market share, relative to the rest of the provinces but submitted that this was due to the CFC giving special deals to Newfoundland and Saskatchewan to try to maintain their support for the national system. He said that Ontario’s export program was not as flexible as Quebec’s program and that this was a contributing factor. As well, he said provinces that had temporarily exited the national SM system were able to grow faster than others were.

With regard to allocation to individual processors, Mr. Shapiro submitted that pro rata ‘cut-backs’ based on supply share were fair as they reflect the investment that each company has made in the industry. He said he believed that processors would ask for at least the provincial cap as they will not want to risk losing market share. He said that differential growth could be achieved through processors purchasing other processors or through purchases of partial allocation from other processors. Mr. Shapiro said this would mirror the system used in the production sector.

Mr. Shapiro stated that it was essential for processors who built businesses in a SM system to have assurance of supply. He said the AOCP completely opposed the open sign up concept as it would not provide an assurance of supply, it would lead to premium wars and it would make it difficult to have chicken grown in certain size categories.

Mr. Shapiro said that Ontario had 26 primary processors whereas most other provinces had no more than three processors. He said the province does not need more processing capacity. Nonetheless he agreed that a new entrant policy was needed and said the AOCP basically supports the CFO position on new entrants. He said the new entrant policy should:

• Require that new entrants meet HACCP standards; although new entrants slaughtering less than 50,000 kg/period should be exempt from this requirement.

• New entrants or existing small processors should be able to request up to 300,000 kg/period.

• New entrant status should be terminated after one year and new entrants be treated the same as other processors at that time.

• New entrants should not be able to enter and exit in the start up year.

• Both the CFO and a neutral, knowledgeable third party should be required to approve new entrants.

Mr. Shapiro indicated that the AOCP believed the new entrant process had been abused in the past and this is why its members want third party monitoring of the program. Mr. Shapiro also noted that the AOCP opposed the notion of further processors being able to contract directly with producers as they can submit their requirements through primary processors.

With regard to export policy, Mr. Shapiro said the AOCP supported the principal of direct determination of price and volume between Ontario processors and producers. He said that was the system used in Quebec and he pointed out Quebec processors have exported significantly more chicken than Ontario processors. He said that the current CFO policy requires at least half Ontario producers to offer to export before it will fill the entire export demand. He said that ‘cut-backs’ were frequent and pointed to evidence that indicated there had been ‘cut-backs’ from the requested export volume in 10 of the past 11 quota periods.

On category requirements, Mr. Shapiro said a disparity in relative returns to producers between categories makes it difficult to get adequate supply in certain categories. He said the AOCP had developed a new pricing grid that it felt would encourage producers to grow chicken in the size categories desired by the marketplace. He referred the Tribunal to a pricing grid which provided premiums and discounts from the base live chicken price. He said the AOCP also supported monetary and non-monetary incentives, including quota incentives, to encourage producers to supply the needed product. He said AOCP members would also agree to pay quality incentives.

Mr. Shapiro also commented on the proposals of several other parties. He indicated the AOCP position on pricing would be presented at a later date by a panel of witnesses.

In response to questions, Mr. Shapiro indicated:

• In total the Ontario industry slaughtered approximately 60 million kg of chicken each period. Five processors had over 75% of that business.

• Rules could be developed to determine how consensus is to be reached at industry stakeholder meetings. He did not have a definition as to what would constitute consensus.

• Industry stakeholders should be the ones to decide who can come to their meetings.

• He was not sure the Minister was aware that the NAA caps were not designed to be targets.

• NAA caps cannot be ignored but they should not be the basis of the system.

• He agreed there was generally an inverse relationship between total supply allocated to Ontario and processor margins.

• The ‘made in Ontario’ cap overrides the APD in the AOCP proposal.

• Processors would have the right to appeal the ‘made in Ontario’ cap to the Tribunal.

• He agreed that the SM system resulted in lost market opportunities, but said that its benefits included stability for producers and processors.

• Processors know market conditions better than an industry association; but processors do not have commitments from all buyers, so part of their supply request are based on expectations of sales.

• He believed the industry would reach consensus on the total supply to be requested, as stakeholders would want to avoid the fallback position.

• The AOCP preferred ‘cut-backs’ if the alternative were to be having too much chicken grown.

• Ontario has between 30-35% of the national production and 60-70% of further processors so it cannot fill the entire demand of this sector. Also, further processors only purchase parts, not entire birds.

• The CRFA may have an over-supply bias, whereas the other associations represented at the Hearing would not.

• Under the current system niche processors are entitled to receive all the chicken they request, subject to the CFO’s agreement.

• He was aware that OIPP members were unhappy with their allocation of supply. He submitted that every processor in Canada was concerned about its individual market share.

• The AOCP believed it was a business decision as to where to buy supply, and whether to buy live or eviscerated chicken.

• He was not aware of any Ontario processors selling other processors live chicken at a premium.

• Small processors should have no greater rights than large processors.

• The Ontario chicken processing industry is the most competitive in the country.

• AOCP members would still support a 90% slaughter rule, but in the interest of trying to reach consensus with other parties they agreed to support the 100% slaughter rule.

• The use of a bid pool to allocate a portion of supply provides a clear advantage to larger processors.

• He believed more than half Ontario processors would be for sale for the right price.

• He agreed further processors did not have an assured supply of chicken.

• Transfers of allocation between processors would have to be approved by the CFO as processors do not own the allocation. The AOCP was comfortable that the CFO would not withhold this approval without good reason.

• There would be a cost to purchase plant supply allocation, but it may be a good business decision to pay it.

• If a buyer in the foodservice industry were cutoff by its supplier, it would have to re-evaluate its pricing structure.

• The AOCP believed that investment in the industry is required before an allocation of chicken is granted. This principle refers to investment in primary processing, not further processing.

• The rationale for sales of plant supply allocation is that if one processor grows disproportionately, it is taking supply away from another processor, in a supply-constrained environment.

• He was aware of no legal impediment to allowing further processors to contract with producers for supply, but said that this was unworkable.

• Further processors would be unwise to build a processing facility to attempt to obtain an assurance of supply, given the constraints of the SM system.

• The AOCP proposed system would encourage consolidation and efficiencies in the industry.

• A stable allocation system would improve Ontario’s competitiveness because it is now at a disadvantage to provinces with few processors, due to the time spent on allocation.

• Requiring a letter of credit equivalent to 12% of the purchase price would not deter processors from making unrealistic supply requests.

• The AOCP did not believe that an open sign up system would provide assurance of supply in specific categories. He agreed that producers would likely have more opportunity to switch processors in an open sign up system.

• He had seen premiums paid when supply was short and when it was long under a previous open sign up system used in Ontario.

• Under the AOCP’s recommended 100% slaughter rule, a processor’s base would be determined as its actual slaughter on a rolling three period average, as adjusted by marketed kilograms. The base would be utilized in ‘cut-back’ situations.

• Over time, a 100% slaughter rule would allow for differential growth; partial plant supply assurance sales would allow for faster changes in the volumes processed by different companies.

• A 100% slaughter rule would not be a hardship to AOCP members, but it was less flexible than the 90% rule originally proposed.

• With a 100% slaughter rule a processor would not contract with another processor to have a portion of its purchases custom slaughtered.

• Adopting a 100% slaughter rule should be done in a manner that does not disadvantage existing processors.

• Size limits are necessary to limit new entrants to prevent disrupting the industry. A 100% slaughter rule would assist in preventing misuse of the new entrant program.

• The third party that would evaluate requests for new entrants should be knowledgeable about the Ontario chicken processing industry. The AOCP did not have confidence in the CFO’s ability to assess new entrants.

• It was difficult to reach consensus on the live price of chicken.

• Category pricing issues are distinct from quality issues.

• Revenue neutrality was one of the principles the AOCP considered when it developed its proposed new pricing grid.

• He agreed that processors received between 38% and 65% of product within specifications in periods A-30-A-33 in the KFC category (1.60kg – 1.77kg) and that producer sign up in this category dropped significantly in the following three periods.

• All stakeholders with an interest, including the CFRA and the FPPAC should participate in discussions to develop incentive programs to encourage greater compliance with category specifications.

• Revising the pricing grid may increase the amount of birds grown in desired categories and/or the proportion of those birds that meet specifications. The AOCP believed that the relative return between categories was out of line.

• The disagreement between the AOCP and the CFO regarding the appropriate pricing grid for the industry had not yet gone to arbitration. There had been some discussions between the two parties on the issue, but they had been derailed.

• A new market weight incentive program appeared to be encouraging producers to meet category specifications.

• The current export policy had resulted in reduced requests by processors for export chicken.

• There are lower prices on the export market but companies export dark meat as this facilitates a better mix of product for the domestic market.

• The AOCP was not recommending that producers participating in the export market must hold quota but Mr. Shapiro said it made sense for processors to contract with quota holders. The AOCP anticipated the CFC would continue to audit exports to ensure that product grown for this market was actually exported.

• He understood that direct contracting between producers and processors for export chicken was more acceptable to those concerned about world trade than the current program.

• The AOCP proposal was not a package position; some elements could stand alone.

• He did not believe the Competition Bureau had good knowledge of the chicken industry.

• There are two processors on the board of the CFC; they do not necessarily support Ontario as they take a national perspective.

• Production quota was worth approximately $40/unit.

• Four AOCP members have hatchery operations.

• The AOCP reaches consensus on 96% of its decisions. If a vote has to be taken, two-thirds of members collectively slaughtering at least half the total chicken slaughtered by AOCP members are required to carry the question.

Craig Richardson Testimony

Mr. Craig Richardson stated that he was the President of Grand River Poultry and that the company had two slaughter facilities, having recently purchased L and V Poultry. He said both plants were HACCP approved and federally inspected. Mr. Richardson said his company purchased $50 million worth of live chicken annually and was the fourth largest processor in Ontario. Mr. Richardson said his background was in the frozen vegetable industry and that he bought two existing chicken processors to enter the chicken industry.

Mr. Richardson said he supported the AOCP position. He said he invested in the chicken industry based on the rules in place at that time, and that he had assumed he would continue to have a volume of chickens to slaughter. He said he objected to changes in the marketing system that would impair his ability to access live chicken and give his competitors an unfair advantage. Mr. Richardson specifically objected to the OIPP supply setting ‘cut-back’ proposals as he said these would reward processors who made overly aggressive supply requests. He submitted that differential growth in the industry must come from long term investment, not by allowing processors to simply ask for more supply. He said he objected to the open sign up concept as he did not think he could get financing without a guarantee of supply. He was also concerned that a ‘premium war’ would cause unpredictability in costs; he said live chicken purchases represented 60% of his costs.

Mr. Richardson said that he would be interested in purchasing part of another processor’s plant supply allocation as he would like to replace his Quebec purchases with Ontario chicken, for economic reasons. He said Grand River Poultry did not need more plants or equipment but did need more chicken. He said that a processor that lost a customer or that was paying overtime to process its current supply may be willing to sell part of its allocation. He indicated he did not anticipate difficulties with the CFO approval process.

In response to questions, Mr. Richardson indicated:

• Grand River Poultry began processing chicken in the early 1980s under the name Cayuga. It was started by a chicken producer who built a plant on his farm.

• He bought Grand River Poultry in 1999 and L & V Poultry in 2000. Over 20% of the purchase price of Grand River Poultry was paid for the right to continue to slaughter the volume of chicken slaughtered by the previous owner. This is recorded as goodwill on the balance sheet and amortized over 40 years.

• The company was not vertically integrated and rarely participated in the export market.

• There had been many sets of rules in the industry in the past 15 years. He was not aware what rules were in place when the company was founded.

• Grand River Poultry slaughters over 7 million kg/period. Over 10% of this chicken is purchased from Quebec producers.

• He pays a premium to Quebec producers and incurs extra shrink and higher transportation costs on Quebec chicken.

• He purchases eviscerated product as well as live birds from other processors.

• He considered cash flow and the regulated system before buying his plants; he counted on being able to continue to slaughter the volume slaughtered by the previous owners. He understood he had also purchased the plants’ market shares into the future.

• Chicken producers are extremely loyal to his company; customers are overall very loyal.

• SM does not reduce competition in the Ontario chicken processing industry.

• As the volume of chicken increases, processor costs decrease; this may not be the case if an extra shift has to be added.

• On balance he would rather forgo new business opportunities, than open up the marketing system.

• He recognized that a bottom-up system was based on processors asking for supply; he said this was acceptable provided there was a fair ‘cut-back’ mechanism.

• He agreed it made sense to balance industry associations’ views with the APD in determining a growth cap.

• Customers that want to run special promotions give very little notice to processors.

• He agreed that initially and for some time there would be ‘cut-backs’ every period.

• He agreed that neither processor associations proposed cutting back processors below their current base.

• He agreed that building a plant, buying equipment and developing and marketing products were also investments in the industry.

• His plants are under-utilized. His company has been able to source extra Ontario-grown chicken due to the flexibility of the current 90% slaughter rule.

• He had a commitment from Quebec producers to supply him with chicken for a three-year period.

• Even if he were guaranteed supply in an open sign up allocation system he would not support it due to concerns about premiums. He can afford to pay premiums to Quebec producers because he buys an additional volume of chicken from Quebec.

• If chicken is allocated to the wrong processors they may process chicken without a market and flood the marketplace with chicken products, lowering the market for all processors.

• Under the AOCP ‘cut-back’ proposal, he would ignore the marketplace when submitting his request for supply and ask for the maximum his plants could accommodate. In the short term, the wholesale prices would drop but this would not be sustainable.

• He agreed a bid pool would enhance opportunities for differential growth.

• He agreed processors should slaughter the volume of chicken they requested.

• He was aware that a processor may be allocated more chicken than needed to supply its customers and that this is one reason for sales of chicken between processors. Other reasons could include mechanical breakdowns in plants and labour disruptions.

• He believed new entrants should have to purchase an existing processor, rather than build a new slaughter facility.

• HACCP was related to food safety, not quality.

Anthony Tavares and Robin Horel Testimony

Mr. Anthony Tavares and Mr. Robin Horel presented their evidence as a panel. Some parties cross-examined the witnesses separately, due to constraints with one witness’ schedule.

Mr. Tavares stated he was the Chief Executive Officer of Maple Lodge Farms and had been involved in the chicken industry in Ontario and Quebec since May 1987. He said he was an accountant and sat on the boards of various industry associations.

Mr. Tavares told the Tribunal that overriding principles to ensure the marketing system is consistent with SM principles were that it should:

• Create a stable market with fair returns to producers, considering the needs of other stakeholders.

• Set supply based on sound economic principles, using a system of risk and reward as much as possible.

• Promote efficiency, quality, fulfilling market demands and competitiveness.

Mr. Tavares submitted that it was essential to review the total supply required before processor requests are submitted. He said this would meet the objective of creating a stable market to allow for fair returns. He said that demand estimates can be misleading as the chicken market is a fresh market and everything produced will be sold; it is just a question of what wholesale price will be in effect. He stressed it was important to keep the wholesale supplies stable.

Mr. Tavares suggested that an underlying motive of parties proposing a bottom-up approach without a parallel industry estimate was to move to a more free market system. He said that the letter of credit required in Ontario was not equivalent to the permanent investment needed in the U.S system and an unrestricted bottom-up system would not have the same results in Ontario as in the U.S.. He said the letter of credit does not require the same commitment to permanent growth and that it was not valid for processors to ask for growth without a permanent up front investment. He argued that the fact that most parties included a ‘cut-back’ mechanism in their proposals supported his contention that the APD will be higher than market requirements and therefore not a good method for determining the total supply.

With regard to setting the total supply, Mr. Tavares said the AOCP proposal would result in a realistic preliminary number that would not have to be ‘cut-back’ as frequently as it would under the other parties’ proposed systems. He said that by timing an industry meeting before processors submit individual requests, the industry view would affect their requests. He submitted that it was not impossible to reach consensus at the industry meeting, as the default position will force parties to come to an understanding for the good of the industry.

Mr. Tavares said there was a large volume of chicken entering Ontario due to the size of its further processing industry, but that this did not mean there was a shortage of chicken. He noted that specific parts such as boneless breast, thighs, tenders and wings are needed in Ontario. He said he expected growth in the further processor sector to continue to outstrip growth in Ontario supply. He said that Quebec will not agree to lower growth so Ontario can grow faster and it is contrary to the spirit of SM to increase the national caps every time a province wants to grow more chicken.

With regard to allocation to individual processors, Mr. Tavares noted that the AOCP proposal was similar to the FPPAC and CFO proposals. He said it made sense to ‘cut-back’ requests on the basis of investment in the industry and that it was unfair to disadvantage large processors in favour of small processors. He said differential growth could be achieved by acquisition, as is done in the U.S.. He said that the current requirement to buy an entire company was a significant barrier, and that buying partial shares of plant allocation would be more efficient and flexible. He said the AOCP proposal would not lock in processors’ existing market shares.

Mr. Tavares said he believed Ontario’s loss of market share was due to more aggressive governments in Western Canada and a less flexible export program in Ontario. He said that he did not believe that the domestic price supports a lower export price and he said he had no doubt that the one-on-one export policy proposed by the AOCP would lead to higher exports.

Mr. Tavares acknowledged that the Ontario industry needs to increase the proportion of chicken delivered within specifications and said it was a joint responsibility of producers and processors. He said that the KFC category had traditionally been less profitable than other categories and this contributed to low compliance with specifications. He told the Tribunal that delivering out-of-specification product generated significant costs for his company.

Mr. Tavares also commented on proposals made by other parties.

Mr. Horel told the Tribunal he was the General Manager of Ontario agricultural operations for Maple Leaf Poultry and had been with the company for 25 years. He said that in addition to overseeing breeder flocks, a hatchery and chicken procurement, he was the principle contact representing the company on regulatory groups and industry associations. Mr. Horel said he wanted the Tribunal to understand that Maple Leaf Poultry fully supports the AOCP position.

Mr. Horel reiterated Mr. Tavares’ points regarding the need to get the total supply number correct from the beginning and that the default position would encourage industry consensus. He agreed that the AOCP proposal on ‘cut-backs’ to individual processor requests was fair and pointed out there would be uncertainty in supply if he had to go through a bid pool to meet the growth needs of his customers. He said he believed ‘cut-backs’ would occur, particularly immediately after the introduction of a new allocation system.

Mr. Horel said that meaningful differential growth could occur through acquisition. He said that his company had to give up KFC as a customer when its own product sales grew, and that partial allocation purchases may have allowed it to source more chicken and retain its customer. He said that a three-period rolling average, with a 100% slaughter rule, would also allow for differential growth in the industry.

Mr. Horel suggested the Tribunal direct the industry to develop a pricing formula, to eliminate the need to negotiate price every few weeks. He also suggested that the Tribunal put rules in place to ensure better live category compliance with changes in category pricing and incentives for delivering product within specifications. Mr. Horel said he was pleased with a recent quota incentive program used in the KFC category and suggested something similar was needed in the Swiss Chalet category. He said that tighter specifications were also needed within existing categories.

In response to questions, Mr. Tavares and Mr. Horel indicated:

• It was not the mandate of SM to allow Ontario to be self-sufficient in chicken.

• In order to increase market share, Ontario would have to negotiate at the national level, or enter a price war.

• There was an incentive to source product close to further processing facilities as most further processors require fresh product and include limits on the number of hours since kill in their product specifications. This is related to food safety.

• If broilers were more available, Maple Lodge would likely use less fowl.

• There are no SM limits on the amount of fowl that can be purchased but there are geographical constraints to importing it.

• In making their allocation requests, processors know the needs of some customers much better than other customers. Generally, the retail market is less predictable. Some of the retail market is pre-sold, but all processors compete for a portion of this market.

• Processors share general information on their needs with industry associations but give no information that would give their competitors an advantage.

• If a processor asked for more chicken than needed, and received it, then no processor would make money as all would likely be in the same circumstance. It is better to make a little money on a large volume than a little money on a small volume in a long market.

• With a fresh product market, everything that is produced will sell but if too much is produced the price will be lower.

• The AOCP default cap could be viewed as a penalty or an incentive. The default may be the wrong volume to produce in Ontario.

• Both would be comfortable leaving it up to the CFO to determine the default number, under certain circumstances.

• Freezing chicken in times of over-supply is a last resort as it is generally more profitable to take a low price on the fresh product.

• Generally no more than three weeks notice is received of retail promotions; the foodservice sector is more predictable.

• The CFO was expected to organize and chair the industry stakeholder meeting as it has the most resources.

• Both supported the idea of having stakeholders provide information using a common template.

• The proposed AOCP allocation methodology was similar to the current system in that it proposed that growth be allocated according to existing base share.

• Maple Leaf Poultry trades live chicken from period to period with another processor, and is a net buyer of live chicken from other processors. Maple Lodge also trades with other processors but it is not a consistent practice. A 100% slaughter rule would discourage permanent sales of live chicken, while still allowing for trades.

• Both were happy with either a 90% slaughter rule or a 100% slaughter rule.

• A bid pool is one way to allow for differential growth.

• They philosophically agreed that competition at the wholesale level should determine processor growth, but Mr. Horel said that this was not realistic under a SM system.

• There is a parallel between the producer quota system and the AOCP proposed allocation system.

• They did not believe that investments in plants, innovative product development or brand awareness should necessarily allow processors to gain access to more chicken.

• They did not know what plant supply allocation was worth.

• Maple Leaf had to choose between supplying its own growth needs and continuing to supply KFC. After Maple Leaf stopped supplying KFC, the producers signing up to grow this category of chicken dropped by 15%.

• In a soft market, it would be easier to buy plant supply assurance. This would provide a permanent growth in allocation, as a percentage of industry allocation. The requirement to purchase this supply guarantee was not seen as a competitive disadvantage.

• Producers can contract with any processor under the current system and the AOCP does not propose to change that. If processors over-sign producers, producers have no choice but to be reassigned to a different processor.

• Producers and processors should both be given the opportunity to develop branded product. Further processors should not be able to form alliances with producers.

• A requirement that a producer buy plant supply allocation in order to market a branded product would be a barrier to entry.

• Mr. Tavares was not aware of a formal allocation system in Western Canada but understood ‘cut-backs’ were pro rata when needed. The relative share of Quebec processors only changed when other companies purchased companies.

• The market was over-supplied under a true bottom-up system implemented in the early 1990s as processors did not have to make an up-front investment.

• An open sign up system is not compatible with assurance of supply to processors, even with five-year contracts between producers and processors. Also, there would be lower quality and poorer meeting of product specifications under an open sign up system.

• Sales of partial plant supply allocation could be made under a system using the 100% slaughter rule, but the transfer would take six periods, whereas a direct sale of a portion of supply allocation could be implemented immediately.

• Small processors would have less opportunity to slaughter more than they are allocated under a system with a 100% slaughter rule.

• A profitable processing industry is needed to ensure that producers receive fair returns. Stability in the processing sector provides stability for producers.

• Swiss Chalet and KFC pay for chicken on the basis of a formula price related to the live price, not the wholesale price.

• Less than one-third of Maple Leaf sales are made at the wholesale price.

• In the U.S. chicken is priced relative to the cost of feed and other inputs and processors can hedge and fix prices all the way through the foodservice market. In Ontario there is more variability and it is not possible to lock in prices. A live price formula would be a slight improvement but processors cannot truly hedge without control of both the production and processing functions.

• Frequent price changes were frustrating to the foodservice industry.

• The within specifications compliance rate for KFC product was lower in Ontario than in Atlantic provinces due to problems with producers and the processing facility in Ontario.

• Maple Leaf has imported live chicken from the U.S. in the Swiss Chalet category.

• In period A-33, producers signed up to produce 25 million kg in the Swiss Chalet category, but only supplied16.9 million kg. On occasion Maple Leaf still paid producers a premium when they did not deliver within specifications due to no fault of the processor. This was done to prevent the loss of a producer.

• Maple Leaf had difficulty with an out-of-province processor reneging on a deal to supply it with KFC size product. It preferred to deal with Ontario industry stakeholders.

• They did not know the initial volume of chicken slaughtered by their companies; but both companies pre-dated the regulatory system in the chicken industry. Both plants had acquired at least one other processor in the past.

• Approximately 40% of the industry capacity is dedicated to soft scald processing. Most rotisserie chicken, the Prime brand and some other retail product is processed with soft scald technology.

• Maple Lodge is competitive within Canada; but not with processors in the U.S. and Brazil.

• The Ontario industry is fiercely competitive at the wholesale level.

• The Competition Bureau does not understand the SM system.

• It was agreed that premiums are a problem and affect competitiveness.

• The Canadian market has greater variety in chicken products than the U.S. market.

AOCP Pricing Panel - Mr. Robert Shapiro and Mr. Louie Vassilakos

The AOCP opted to present its pricing proposal after its evidence on the other issues under appeal. Mr. Robert Shapiro and Mr. Louie Vassilakos presented their evidence as a panel. Mr. Vassilakos told the Tribunal he ran Riverview Poultry, a processor that had been in business in Ontario for several years and was currently operating at 50% capacity, based on one shift.

Mr. Shapiro said a proposed pricing formula and a proposed pricing grid are closely linked. He said the AOCP believed it was critical to get the pricing grid right in order to meet category specifications.

Mr. Shapiro said that all parties agreed there should be a pricing formula. He said this would remove costs from the marketing system and reduce adversarial relationships. He said the AOCP believed that the formula should include a market component so that producers will continue to play a role in supply setting and will share market risk. He submitted that the Hearing before the Tribunal was not the forum to decide pricing issues.

Mr. Shapiro noted that to have a pricing formula there had to be a starting price. He submitted that the AOCP proposal for establishing a starting price was superior to the methodology submitted by the CFO. Mr. Vassilaokos said the AOCP objected to using the last arbitrated price as a starting price.

Mr. Shapiro referenced written documentation provided to the Tribunal to demonstrate that there was a relationship between the corn:soy index and the live chicken price and he stated that in the past the live price was set off the corn:soy index. He said the index was preferable to feed mill prices, as it was public data.

Mr. Shapiro said the AOCP proposed that a relative welfare approach be taken to set the live price. He explained that relative welfare was a concept the CFO uses to equalize the gross margins between processors and producers. He said under the AOCP proposal, there would be target gross margins of 65 cents/kg for processor and 40 cents/kg for producers. The formula would adjust to equalize the parties to these relative margins over time. He said this would eliminate the possibility of ‘producer double dipping’ by increasing the live price in response to a feed price increase, and the resulting wholesale price increase.

Mr. Vassilakos explained that in making its calculations, the AOCP used feed conversion and liveability data used by the CFO in arbitration hearings, and an eviscerated yield of 1 kg live weight to 0.7376 kg meat. He said the AOCP totaled all cost components and added the desired gross margins to reach a desired price for producers and processors. He said the desired price was compared to the actual selling price and the difference was split between producers and processors on a 55:45 ratio, based on their relative margins. He used a numerical example to illustrate the AOCP proposal. Mr. Vassilakos pointed out that in his example the gross margins increased for both parties, in a similar ratio to the initial desired margins of processor and grower.

Mr. Shapiro added that the AOCP formula works with the CFO feed conversions built into it and chick cost conversions similar to the CFO proposed system. He said that once a formula is in place it would have to be reviewed periodically. He said the AOCP agrees with CFO that an annual review is appropriate but would want to reserve the right to review the formula between annual reviews, for any reason.

Mr. Vassilakos said the AOCP believed that consideration must be given to the live price in other provinces, particularly Quebec, and that the CFO proposal did not adequately address this factor.

With regard to the pricing grid, AOCP representatives indicated that four key changes to the existing grid were suggested:

• The 1.77 kg-1.84 kg and 1.84 kg-1.95 kg categories be combined to one category and the price be reduced for this category as the chicken is an undesirable weight.

• The Swiss Chalet category (1.95 kg-2.15 kg) be made the new base category as it is the largest signed category.

• The 2.15 kg – 2.45 kg and 2.45 kg - 2.65 kg categories be changed to 2.15 kg -2.30 kg and 2.30 kg – 2.65 kg categories to better meet the needs of Horizon Chicks and Cuddy Foods. Also, put price increases in place for these categories.

• Reduce the price in roaster categories, as these are less desirable weights.

The AOCP representatives said that no changes in prices or weight ranges were required in the KFC category and smaller weight categories. Mr. Shapiro said the goal was to have a more market responsive pricing grid but that a secondary concern was to try to make proposed changes revenue neutral to producers. He used numerical examples to demonstrate the impact of the proposed new pricing grid. Mr. Vassilakos explained where the AOCP sourced its data for these analyses. He pointed out that under the current pricing grid, roaster margins are significantly higher than fryer or broiler margins. He said the AOCP tried to improve margins in the Swiss Chalet and KFC categories and put a financial penalty on adjacent categories to encourage compliance with specifications. Mr. Shapiro said the rationale for the proposed new pricing grid was to encourage producers to produce the sizes of chicken needed. He suggested the grid could be reviewed annually at the same time the proposed pricing formula is reviewed.

In response to questions, Mr. Shapiro and Mr. Vassilakos indicated:

• The AOCP was not comfortable that the APD will get the right number for the total Ontario supply, as it is rational to try to maximize individual plant supply even though the total market is in decline.

• Industry stakeholders may consider gross margins when determining the appropriate total supply volume.

• The AOCP proposal provided greater stability in processor margins than the CFO proposal.

• The proposed producer and processor margins were developed as a result of studying 5-6 years of data on average margins and discussions with AOCP members as to what was fair and reasonable.

• The AOCP pricing proposal would lock in relationships between margins of producers and processors, not historic margins.

• Key differences between the AOCP and CFO pricing proposals were the determination of producer margin and the determination of the starting price.

• They disagreed that producers were guaranteed they would receive their cost of production under a SM system. They felt that the fundamental principle is that producers are to achieve a reasonable return over time.

• The AOCP did not propose either a cap on producer returns or a minimum base producer return.

• It was normal for the wholesale price to rise in response to an increase in feed prices, provided there was no reason for the wholesale market to deteriorate.

• The amount of time taken to grow chickens to the desired weight affects profitability. This was not taken into account in the AOCP formula.

• The AOCP formula would self-correct to remove the potential for double dipping in response to a change in one factor in the pricing formula, as the volume of chicken produced would change in response to price changes.

• Feed is the largest cost component for chicken producers. It was not unusual for the feed price to drive the live chicken price.

• Feed company data is publicly available but is subject to influence if it is to be included in a price formula. The AOCP believes the list price could be impacted.

• It would not be simple to survey producers as to their actual feed prices.

• The corn:soy index is the most neutral data source available for feed prices. Hedging is more plausible when using the corn:soy index as the commodities are traded on public exchanges.

• The AOCP recognized that there can be significant swings between the live price and the corn:soy index but noted there was a very close relationship between the corn:soy index and the Wallenstein feed index.

• A concern with regard to using feed companies’ prices was that some feed mills are owned by processors and it is not known if they would sell feed at the list price or not.

• Chick prices are set every eight weeks by OBHECC; it uses a pricing formula.

• It was important to retain a market component in the pricing formula because processors do not determine the provincial supply under the AOCP proposal. Also the AOCP did not think it would be sustainable to have a live price based solely on cost, as when processors lose enough money they will not support SM.

• The AOCP wholesale price is based on a composite of 42.1% backs and legs, 33.2% breasts, 11.2% wings, 2% shrink, and the balance as necks and giblets; this composite price is weighted with the price of whole grade A broilers in the ratio 82:18, composite:broiler.

• The AOCP wholesale price is not public but is widely circulated each week to governments and poultry industry associations.

• There is a potential conflict of interest with the AOCP wholesale price as information is collected directly from processors; periodic audits would provide greater confidence in the wholesale price series.

• Boneless meat is not accounted for in the AOCP wholesale price series.

• The wholesale price formula could be reviewed annually, with the proposed live price formula and pricing grid.

• There is a wholesale component in the current price negotiation system.

• A study found that wholesale average price data, based on a carcass reconstituted from parts, were an appropriate trend predictor, notwithstanding that the majority of chicken is not sold at the wholesale price.

• The AOCP cannot tolerate the CFO proposed formula and existing pricing grid.

• The AOCP did not consider updating the pricing formula any more often than once per period. Updating every two weeks would remove lag time but increase administration costs.

• The purpose of having a pricing formula would be defeated if parties opted to re-open discussions on the formula every quota period. But, there must be flexibility to adjust to exceptional circumstances.

• The traditional level of price variation between provinces is not well defined and should be reviewed before a new pricing regime is established. Generally other provinces set price relative to the Ontario live price of chicken.

• Under the AOCP proposal, the pricing formula would not change in response to competitive pricing by other provinces, but the base price could be adjusted after an industry meeting.

• The AOCP proposed formula would operate the same way regardless of whether the market was growing or shrinking.

• It was fair to say that the AOCP proposal was that risk be shared 55% processor and 45% producer, regardless of market conditions, but the AOCP characterized this as a risk ratio.

• It hurts business relationships if processors have to try to force producers to grow an undesirable category; the proposed new pricing grid should alleviate this pressure.

• Additional measures besides the pricing grid could be used to encourage producers to grow chicken within specifications. Processors make higher returns if they deliver product within specifications.

• Producers in Western Canada use more wheat and barley in their rations than Ontario producers who tend to use corn and soybeans.

• Riverview Poultry had not acquired any other processors. It sourced some chicken from Quebec. Mr. Vassilakos also held production quota.

OIPP Case

John Hoover Testimony

Mr. John Hoover told the Tribunal he was the General Manager of the OIPP and had held that position for two years. He said he had worked in the chicken industry since 1974, first in his family-owned broiler hatchery and then as an executive at Maple Lodge where he was involved with strategic planning, financial operations and long term supply issues.

He said he had also had a private consulting business and had sat on the boards of the Veterinary Infectious Diseases Organization, OBHECC and the Ontario Poultry Council.

Mr. Hoover said the OIPP was an organization of chicken processors formed in Spring, 1999 by processors who felt the principle of allocating chicken to processors based on historic market share was inhibiting their businesses. He said these processors wanted differential growth in the industry and felt their concerns were not being heard. He said that OIPP members collectively purchase 7.4% of Ontario-grown chicken, that two members were federally inspected and that some members had air chill systems while others used water chill systems. He noted that one new member had joined the OIPP during the course of the Hearing, and that member was not listed in documents provided to the Tribunal.

Mr. Hoover told the Tribunal that under the current allocation system in Ontario the industry meets and make recommendations on the volume required to the CFO and is later informed of the CFO decision as to what volume will be requested of the CFC. He stated that the system is not market responsive as OIPP members have not been able to purchase the volume of chickens they need in Ontario. He said that Ontario’s market share has declined relative to the rest of Canada. Mr. Hoover said there had been an opportunity for differential growth through a special request pool, but that it had been discontinued and growth was allocated pro rata on historic market share. He said five large processors receive 75-80% of Ontario chickens produced to fill growth in the market.

Mr. Hoover said the allocation system has forced OIPP members to find other sources of chicken and that these included:

• Purchasing live supply from other processors with allocation.

• Purchasing live supply from out of province.

• Purchasing line run eviscerated product and re-selling this to their customers.

He said the proposed 100% slaughter rule reduced the availability of live supply from other Ontario processors.

Mr. Hoover said OIPP members were frustrated, as they have a market but cannot source sufficient live chickens in Ontario to fill it. He said the OIPP wants a transparent marketing system that provides a sufficient volume of chicken to meet market needs and gives all processors an equal opportunity to obtain chicken to meet customers’ needs.

With respect to volume setting, Mr. Hoover said the OIPP suggested that individual processor requests be aggregated and that if the APD is less than 8% growth, that volume will be submitted to the CFC. He said that if the APD is above 8% growth, the CFO should have the discretion, after consultation with industry stakeholders, to submit that volume or submit a number equal to 8% growth to the CFC. He suggested that the 8% NAA cap was appropriate as the NAA was signed by the CFO, the Commission and the Minister, and as this rate of growth would not imperil the national supply management (SM) system.

Mr. Hoover stated that the benefits to the OIPP proposal were:

• It was market responsive as processors are most aware of what the market requires.

• Processor requests would be submitted in confidence to protect their business interests from competitors.

• It was simple and transparent.

• It promoted aggressive growth for Ontario as the chicken would be supplied to the processors who could sell it.

• It would reduce industry stakeholder complaints of being constrained by insufficient product.

Mr. Hoover said that a financial penalty and possibly a subsequent volume penalty could be used to ensure that processors slaughter the volume of chicken requested. He said Minister Villeneuve supported aggressive growth in the industry.

Mr. Hoover stated that under the current system, recommendations on the volume of chicken to be grown are based on assumptions of historic growth patterns, population changes and storage stocks, rather than market demand. Mr. Hoover said it was not critical that the CFO have the right to set volume and that this function has already been partially delegated to the CFC.

Mr. Hoover explained that the OIPP proposal on allocating chicken to individual processors was that all processors receive the volume they requested if the CFC approves the APD. He said in a ‘cut-back’ situation, the OIPP proposed that each individual processor request be ‘cut-back’ by the same percentage, so that each receives the same share of the growth that was requested. He clarified that each processor would continue to receive their historic volume of chicken, if requested, as the ‘cut-back’ mechanism would only apply to sharing of market growth. He provided numerical examples to illustrate the OIPP proposal.

Mr. Hoover explained that the rationale behind the OIPP proposal is to provide equal opportunities to processors to grow, and to aggressively develop markets. He said that the slaughter rule should be close to 100% plus penalties, to prevent processors from artificially inflating their requests. He also said that there must be a commitment to buy the volume of chicken requested and a significant monetary penalty if the chicken is not purchased.

Mr. Hoover said the benefits of the OIPP individual processor allocation system proposal were:

• It was fair to all processors; all have an equal opportunity to grow.

• If there is no ‘cut-back’, processors receive exactly what they ask for.

• It does not prevent small processors from growing their business.

• It rewards processors who have built up market share by guaranteeing they will receive their historic volume.

• It provides an incentive for processors to compete, be innovative and efficient, and to develop new products.

• It supports longer term growth and competitiveness.

• It alleviates individual processor disputes such as requests to the Minister for increased allocation.

• It will result in downstream customers having more suppliers to choose from.

Mr. Hoover stated that the Competition Bureau criticized the straight pro rata approach to allocation. He said that large processors receiving more chicken than they need can sell their unneeded birds to a processor that needs them.

Mr. Hoover said the OIPP could accept an open sign up allocation method as all processors would have an equal opportunity to freely contract with producers to obtain chicken. But he said that open sign up is a free for all with no guarantee that processors would receive their historic volume.

Mr. Hoover said that OIPP members had invested in bricks and mortar to participate in the industry and he believed the AOCP proposal that they be required to purchase the right to be allocated chicken was self serving. He said OIPP members were prepared to directly participate with large processors. Mr. Hoover said he believed financial penalties would discourage ‘game playing’ when processors made their individual supply requests and he submitted that processors would not survive if they cannot market the product they request.

On the other issues, Mr. Hoover said:

• The OIPP supported formula pricing for live chicken with a formula that includes feed price, chick price, producer margin and wholesale price. He said the OIPP supported the AOCP pricing principles and supported having an arbitration process.

• The OIPP had no specific proposal regarding category requirements but supported the concept of incentives to encourage producers to grow the right product at the right time.

• The OIPP supported the CFO proposal regarding the export policy. OIPP members were very concerned about the de-coupling proposed by the AOCP and FPPAC.

• The OIPP endorsed the Commission decision regarding a new entrants policy, and supported the suggestion that current small processors could be classified as new processors.

Mr. Hoover told the Tribunal that two OIPP members that depended on Quebec producers – Cericola Farms and Sargent Farm – had concerns about the stability of that source of supply and wanted to be served by Ontario producers instead. He said the Quebec producer board and Quebec processors were undergoing a legal process to attempt to reduce or eliminate the amount of live chicken exported from that province.

Mr. Hoover also commented on the CFO and AOCP proposals.

In response to questions, Mr. Hoover indicated:

• He understood the NAA required Ontario and Quebec to negotiate with each other if both provinces requested growth in excess of the 5% regional cap. He said there were mechanisms – such as adjusting the provincial base - which would allow that cap to be exceeded, but acknowledged that it was unlikely that Ontario could consistently receive more than 5% to 6.5% growth.

• He believed there is a gentleman’s agreement to give 54% of market growth to Ontario and 46% to Quebec.

• Under the national SM system, the Ontario market may not necessarily be filled with Ontario-grown chicken, regardless of the system chosen to allocate chicken to individual processors.

• Under the OIPP proposal, there would be no increase in inter-provincial shipments of chicken to Ontario, and over time he expected there to be greater opportunity to grow chicken in Ontario.

• The OIPP proposed method of establishing the volume to be requested from the CFC is market-driven and the industry would have more confidence in the number, than in a number generated by other methods. If Ontario has a good case the national marketing system should fill its requirements.

• Processors would use the best information from a variety of sources to determine their needs. A portion of their request is an estimate of their needs. If a processor asks for too much, and receives it, that processor will be responsible for the consequences.

• The OIPP assumed that the CFO would chair an industry meeting to come up with a consensus on changing the volume requested of the CFC.

• The OIPP ‘cut-back’ mechanism would be activated if the volume of chicken allocated to Ontario is less than its initial request. It is a ‘cut-back’ based on the growth portion of processors’ requests.

• The current system has disadvantaged smaller processors. The OIPP proposed system provides an opportunity for all processors to grow.

• Ontario’s market share of the chicken market was trending downward since the inception of SM; from 38% to 33%. Ontario does not have a team Ontario approach and product may enter Ontario because the price is set too high.

• Ontario’s market share has slipped as other provinces have known that Ontario is the lynchpin and cannot withdraw from the SM system without bringing the entire system down. Ontario is not good at hardball on the national court.

• Trade associations tend to look at history and general publicly available data, but do not look hard enough at what individual processors are willing to slaughter and market.

• In a true open sign up system the volume would be set according to processor requests. If less than the APD is supplied, processors have to move fast to obtain a supply.

• He could not predict the province’s gain in market share under the system proposed by the OIPP, but said that there was more new products and greater chicken consumption in the U.S. He said that some companies may grow exponentially while others do not survive under the OIPP proposal.

• Under the current system, a financial commitment is made on the basis of allocation received from the CFO, the OIPP suggestion is that it be put forward with the allocation request instead.

• The bottom-up supply setting system is similar to open sign up as it does not restrict the supply to processors. The national SM system acts to restrict supply.

• Under a traditional open sign up system, there are no parameters around a company’s ability to sign up producers.

• If unfettered, OIPP members felt that in one year, they could achieve 1.5-1.8 million kg additional chicken sales, over and above their 4.8 million kg base, without displacing other processors’ sales. Members were told to make predictions on the understanding they would have to prove their volume requests were legitimate to an independent third party.

• Stability is important and will come under the OIPP proposed system, but it might take a few periods for industry stakeholders to understand the new system.

• An OIPP member, Sargent Farms, would like an assurance that Ontario’s base would increase and Quebec’s base decrease if Quebec stops shipping live birds to Ontario.

• Interactions between people on both provincial and national level and interventions by governments all influence production decisions made by the CFC.

• The current allocation system was partially responsible for increased purchases of chicken from Quebec producers. But, volume setting was also an issue.

• Under the OIPP proposal, processors will take responsibility for their actions; under the current system they are simply receivers of chicken.

• The OIPP does not believe that processors should lose their historic market base, but if ‘cut-backs’ below the base are necessary, these should be made pro rate on market share of the base.

• The OIPP believes that the allocation system should serve primary processors only, and further processors can develop relationships with primary processors. They can negotiate an assurance of supply, or enter into processing.

• Further processors without a primary processing plant have had limited access to chicken under the current system. OIPP members would be more willing to develop necessary commercial relationships under an allocation system that allowed for differential growth.

• The OIPP can accept a three period average for the base, with a 100% slaughter rule, but the base should be the same derived period the prior year and plus or minus that period.

• The 100% slaughter rule should be implemented immediately, but it should not be retroactive, as the current slaughter rule has never been enforced. The OIPP could accept a small sleeve.

• The penalty for not slaughtering 100% is processors’ historic bases will be reduced. Financial penalties could also be imposed, with the proceeds to the CFO.

• Buying another processor is one way to achieve differential growth but only 4 or 5 sales had occurred in the past 6-8 years. In several cases, the purchased plant was mothballed and all that was purchased was market share. This added costs to the industry.

• Large processors appeared to be content to grow at a rate of 4.2% per year. The difference between that rate of growth and the maximum growth that can be obtained from the CFC could be made available to aggressive smaller processors. In his view, smaller and newer processors are more flexible than established large processors.

• Under the current allocation system, small processors cannot compete for large contracts, as they cannot obtain the chicken needed to fill them.

• Every system can be manipulated if that is the intent of the processors.

• The OIPP would like to be involved in a process to develop under-slaughter penalties.

• He had no personal knowledge of large processors selling off their live chicken supply.

• Under open sign up, once the total supply volume is set, a processor can sign as much chicken as it thinks it needs. The chicken may have to be transported across the province.

• In the past, the volume was not set high enough and that led to premiums being paid to producers.

• New processors slaughtering up to 50,000 kg per period should have a business plan and acceptable facilities. Deemed new entrants and processors slaughtering a higher amount should be required to meet CFIA/HACCP requirements or the equivalent provincial standards.

• New entrants should be CFIA/HACCP approved or meet equivalent provincial standards.

• A pricing formula will protect chicken producers from low prices if the market is over-supplied as the result of processor decisions.

• He did not believe the AOCP wholesale price data was a publicly available, credible third party source for wholesale prices.

• He suspected the wholesale price would decline initially under the OIPP proposal.

• He expected OIPP members would provide wholesale data to improve the AOCP wholesale price series.

• He has confidence in AOCP’s ability to develop a reasonable process for determining the wholesale price. He does not agree that an independent third party should determine the wholesale price, but believes the process should be audited.

• He did not think all cuts and all value-added products needed to be considered in the determination of wholesale price.

• Premiums should be paid to producers shipping in required categories.

• Only two OIPP members export chicken.

• A one-on-one export policy would give added leverage to integrated processors at the expense of independent processors and input suppliers.

• The OIPP supported the inclusion of a wholesale price component in a live bird pricing formula because the provincial market is influenced by the national SM system and processors do not have full control of the wholesale market.

• There is tremendous capacity in the chicken processing industry in Ontario.

• The OIPP was incorporated in 1999 and has by-laws. Members vote on each new application for membership. There is one vote per member. All members pay dues. Consensus is normally used to reach decisions. Several meetings were held to develop the OIPP position. The substance of the position was approved by the membership.

• Some OIPP members slaughter more than they are allocated and some slaughter less; this is not necessarily related to their size.

• It is unusual to receive supplementary imports of chicken. Product is usually sourced within Canada instead but not necessarily in a manner beneficial to the processor that requested it.

Robert Beliak Testimony

Mr. Robert Beliak testified that he is a principal of Niagara Country Fresh, the latest new entrant to the Ontario chicken processing industry. He said he had a Bachelor of Arts (Economics) and 20 years experience in the chicken industry, in both chicken production and processing. He said he entered the chicken processing sector in 1997, investing $4 million in a federally inspected HACCP recognized plant. He said that the CFO did not advise him that his allocation of chicken would be limited at that time.

Mr. Beliak said he was not granted an allocation of chicken by the CFO and he described the appeal process that followed. He said he wanted to slaughter 1.6 million kg/period initially, but had a plant capacity of 3.2 million kg/period. He said he was ultimately granted an allocation of 500,000 kg/period, which allowed him to run the plant one day per week. He said he understood he would be able to grow from that initial allocation, but submitted he had achieved little or negative growth. Mr. Beliak described his attempts to achieve growth to the Tribunal and said all attempts had failed and a visioning committee that was to develop a new allocation system had disbanded.

Mr. Beliak stated that he believed the CFO was not concerned with who supplies the market as it produces an aggregate volume, hoping the markets will all be filled. He said that because some companies will not work with others the market demand was not met.

Mr. Beliak said his company was able to slaughter more than its allocation because it purchased product and live birds from other Ontario processors and out of province. He said he generally paid a premium to other processors for chicken and that part of the premium was for producers. He said that he incurred high transportation costs and shrinkage in addition to paying a premium for Quebec chicken.

Mr. Beliak told the Tribunal that the current allocation system locked in historic market shares and prevented his company from growing. In addition he said the current system did not give him a fair chance or an incentive to compete for new customers. Mr. Beliak also provided his comments on the AOCP and CFO proposals.

Mr. Beliak said he did not believe the CFO should have the discretion to request a lower volume than the APD, if the APD was within the NAA safeguard cap. He said he personally believed that the CFO should try to obtain more than 8% growth if the market demanded the product, but this was not the OIPP position. He said the benefits of the OIPP position were:

• Aggressive growth with economic benefits.

• Swiss Chalet and other large customers would be supplied.

• Individual businesses would be allowed to grow.

• It is straightforward and would require little administration.

• It meets the Minister’s direction for growth.

Mr. Beliak presented numerical examples to demonstrate the OIPP proposal. He said that ideally there would be no ‘cut-backs’ needed but if ‘cut-backs’ are needed it was fair to ‘cut-back’ pro rata on growth requests because it would move processors away from historic bases they did not ask for and give all the opportunity to grow. He also pointed out that all processors did not necessarily want to grow at the same rate. He said the following safeguards would be in place to prevent manipulation of the system:

• A 100% slaughter rule with a financial penalty.

• The need for processors to post a letter of credit.

• Processors would have to have the capacity to slaughter the increased volume requested.

• Processors would need their line of credit extended to increase their volume.

He said that processors would not know the volume that other processors requested, but the aggregate number would likely be known.

Mr. Beliak said he had no objection to one processor buying another processor and obtaining its base, as there may be many business reasons to support the decision. But he said he objected to being required to buy an allocation from another processor in order to grow. He submitted the large processors did not pay for the allocation they currently receive and it was not fair that they be allowed to sell it to small processors.

Mr. Beliak explained that under an open sign up system the OIPP would expect that a processor could only sign up as much chicken as it requested. He said that some processors would be unable to sign up as much chicken as requested in a ‘cut-back’ situation. He said that the open sign up system used in the past encouraged premiums as the market was under-supplied at the time.

In response to questions, Mr. Beliak indicated:

• The chicken market is cyclical; there is more demand from restaurants in summer months.

• He agreed that if Ontario’s total supply request was denied by the CFC, the CFO should have some discretion to adjust the number. He said the goal should be to try to get the highest possible number to achieve the growth the processors need.

• The OIPP proposal does not envision a comparison of industry stakeholder demand estimates. It is an aggressive, bottom-up plan.

• If the APD indicates more than 8% growth, the OIPP believes industry stakeholders should meet. They should also meet to consider why the CFC is not approving a national number, with Ontario’s total supply request.

• There is a potential to over-supply the market when a request-based mechanism is used to generate the total supply volume to be requested. It is possible that some stakeholders may not survive if this occurs and wholesale prices fall. All parties’ proposals included an element of bottom-up requests in them.

• He could not say if processors would act in good faith or not, but a 100% slaughter rule coupled with financial penalties would make processors aware of the risks of inflating their demand requests.

• All parties’ proposals for setting the total supply number were apt to encourage ‘cut-backs’. Over time there will be a good volume setting process and processors will get the product they need. He estimated it would take ten years for the proposed changes to be implemented.

• Processors would have no way of knowing the amount of the ‘cut-back’ before they submit their individual requests for chicken.

• If the Minister’s direction to pursue aggressive growth had been followed Niagara Farm Fresh may have benefited, but only if the large processors could not market their historic share of the growth.

• He agreed import quota is another source of supply. He said he had never applied for supplemental import quota as he was unfamiliar with the application process, he understood it was used to import eviscerated birds, and he understood it was difficult to obtain.

• For the past 20 periods he did not get the volume he wanted and his business would lose money if he had to rely solely on Ontario supply. He was aware that other processing plants were under-utilized at the time he entered the industry.

• The current allocation system is not working. No one should own future growth in the industry.

• He has never been able to achieve significant growth under the current pro rata allocation system. There was no benefit to the OIPP in requesting a larger volume of chicken be grown under the current system, as its members would not receive the chicken they needed.

• The current marketing system does not allow for customers’ needs to be filled, as when the chicken is allocated to the wrong processors, they do not supply his customers. He relies on out-of-province chicken to supply his customers. It would be better to get the volume number right and put the chicken in the right hands. Clients are not served in the further processor, foodservice and retail markets.

• If a 100% slaughter rule is adopted he did not expect to be able to continue to source live birds from other Ontario processors. This supply had already dwindled, as processors realize that a 100% rule is being discussed.

• Protecting market share was not an issue with his company as it is very small. He understood that market share was very important to his competitors, but said that this did not make it right that they be guaranteed this share. He did not agree that his competitors would be forced to inflate their volume requests under the OIPP proposal, in order to protect market share.

• The percentage of growth was not as critical as the volume of growth. Processors need to receive enough chicken to fill customer’s needs.

• He was comfortable with the Tribunal setting penalties for failure to buy/slaughter 100% of allocated supply. He was equally comfortable with the industry developing these proposed penalties.

• If ‘cut-backs’ were made pro rata on market share, large processors could ensure a ‘cut-back’ each period in order to preserve market share.

• The proposed financial penalty for not buying and slaughtering the requested amount must be substantial enough to ensure compliance. Other forms of penalties, such as denying growth for a number of periods, could also be considered.

• He would prefer to see the current problems with the allocation system resolved before considering allowing further processors to buy direct from producers.

• Under the current system, a processor who over-signs producers, above its allocated supply, must develop a list of producers to be passed on to other processors. He agreed that producers can be forced to do business with processors they prefer not to deal with. It can be a problem if the category of chicken grown does not meet the category required, but a new policy is expected to minimize these occurrences.

• Under open sign up there is a risk that processors with deep pockets would lure away his current producers, but he has a good rapport with his suppliers and producers are generally very loyal. A short market would increase the risk of losing producers.

• He agreed the CFO should not determine which processors grow and which do not.

• He had paid premiums; generally premiums are higher in a short market.

• Under open sign up, he would anticipate penalties for processors who over-sign their initial requested volume of chicken.

• The OIPP proposed that an allocation up to 300,000 kg be available to new entrants and small processors. Niagara Farm Fresh would not be financially viable at that volume. There would not likely be many new entrants under this policy if plants had to be federally inspected and meet HACCP requirements.

• He believes plant capacity of new entrants should be considered in determining their initial allocation of chicken.

• He did not believe it would be any more difficult to source birds in the category desired under an open sign up system.

• His company could potentially benefit from a change in the export policy, but the OIPP supports the current policy.

• Only 47% of the whole bird is exported and the difference is made up from domestic supply. Niagara Country Fresh has such a small domestic base that it would be difficult to expand its exports.

• Niagara Farm Fresh imports fowl as it is not covered by SM.

Mr. Beliak provided details of his entry into the chicken processing business. Mr. Beliak also provided his views on the evolution of allocation policies in the chicken industry and the meaning of several letters by the Minister that were in evidence.

CRFA Case

Eric Anderson Testimony

Mr. Eric Anderson testified he was the Director of Purchasing for CARA Food which owns the Harveys and Swiss Chalet restaurant chains. He said he had been with the company for approximately 12 years and that he worked on the protein side.

Mr. Anderson said that there are 167 Swiss Chalet stores in total, 137 are in Ontario, 6 are in the U.S. and the balance are in other parts of Canada. He said that the Ontario stores were supplied by Maple Leaf (65%), Maple Lodge (34%) and Farm Fresh (1%). Mr. Anderson said that compliance with specifications is very important to Swiss Chalet as they cook fresh product only, and cook in large batches. He explained that birds that are too small will be over-cooked, and birds that are too large will not fit in the ovens without incurring wing damage and skin tearing. He said that damaged birds could not be sold as rotisserie chickens; rather they must be peeled and used in soups, wraps and the like. Mr. Anderson also explained that the restaurant chain had a large investment in its brand and out-of-specification birds led to dissatisfied customers and damaged the brand image.

Mr. Anderson testified that Swiss Chalet has had problems with out-of-specification chicken since he had worked there. He said there was up to a 30% size difference between underweight and overweight chicken. He said he has participated in industry stakeholder committees since 1998 but the situation has not been resolved. He said that he receives 50% of his product within specifications from Maple Leaf, 62% within specifications from Maple Lodge and 100% within specifications from Farm Fresh. But he said Farm Fresh had only been supplying the chain for three months.

Mr. Anderson told the Tribunal he purchases product from Maple Leaf plants in Nova Scotia, Alberta and Ontario. He said that the proportion of birds received within specifications had improved between 1995 and 1999 in Nova Scotia and Alberta but not Ontario. He testified the compliance rates in 1999 were 69% in NS, 78% in AB 52% in ON. He said that Maple Lodge had shipped within specifications 89% of the time in 1995 but this had dropped to 62% in 2000, with lower compliance in the summer months.

Mr. Anderson said that there was a general industry trend to a supply a lower proportion of customer needs within specifications. He said that the weight of birds was the key issue but that there were other specifications that were not met as well. He said that the CFC had been asked to address the problem but that there has been no significant improvement.

Mr. Anderson also said:

• He would like a market weight incentive program for Swiss Chalet-size birds, as he understands this is working in another size category.

• He has concerns that extending SM to processors through a PSQ system would increase the costs of the marketing system. Also, he was assured that compliance with specifications would improve when supply assurance was introduced and this did not happen.

• He has concerns with an open sign up allocation system as no long term planning would be possible.

• His preference is a true bottom-up system that is compliant with the NAA.

• He understands that a supplier had imported U.S. chicken to try to meet Swiss Chalet’s needs.

In response to questions, Mr. Anderson said:

• If he had a more consistent supply he could strengthen the brand and have more repeat business. He believed supply problems are holding the company back.

• The increase in non-chicken items at Swiss Chalet is not related to the supply issue.

• Purchasing chicken from out-of-province is not an option for the Swiss Chalet chain as it uses fresh product and shelf life is a concern.

• The objective of a true bottom-up system is to have the product needed to service customers. In a true bottom-up system processors get the volume of chicken they request.

• Processors should know their business and the APD is the number that should be put forward to the CFC. If the APD exceeds the NAA cap then the CFC can be asked to consider it an exceptional circumstance. If the CFC thinks the total national requests are too high, all provinces can be asked to review their requests.

• If the APD is over-inflated in one period it will adjust to what the industry requires in later periods. Processors will request what they need and can process.

• He would have added comfort if industry associations supported the APD figure but he was not in favour of using a stakeholder meeting to determine the supply needed.

• CARA’s demand for chicken is related to its promotion strategies and he is not comfortable sharing these with competitors. CARA does share projected demand data with processors and trade associations but prefers to work solely with the processor.

• He agreed Ontario should continue to work within a national system.

• In his view an assured supply to processors is not quota as quota can be bought and sold and supply allocation cannot be traded. He did not support the concept of PSQ.

• CARA should be able to move chickens between suppliers. In a bottom-up system, a processor should be able to ask for the volume they require and the CFO should not be able to allot a maximum volume to individual processors.

• He did not have an opinion on how chicken should be allocated in a ‘cut-back’ situation.

• He liked the idea of signing producers for multiple periods.

• Swiss Chalet’s choice of suppliers was limited, as it requires its chicken to be processed in federal plants with air chill capacity. The volume it requires is also a limiting factor. He agreed he would like to be able to move volume to processors who can meet the product specifications, but if his current suppliers could supply the product within specifications, he would stay with them.

• Swiss Chalet will buy chicken fronts but prefers not to for quality reasons. There were fronts delivered to the restaurant chain which did not meet its specifications.

• A disproportionate percentage of customers ask for front quarters. When product is under-weight the back quarters are noticeably smaller and customers send them back to be replaced with fronts.

• He had problems with out-of-specification chicken at other restaurant chains as well.

• His supplier told him the SM system was responsible for the lower specification fill rate in Ontario, relative to Nova Scotia and Alberta. The situation has worsened since the current supply assurance system was implemented.

• There has been some improvement in the physical characteristics of birds but there are problems with sizing.

• He understands that the St. Hubert restaurant chain does not have a major problem with off-specification chicken. He understands there are not problems with off-specification chicken in the U.S. Swiss Chalet restaurants.

• He agreed the Ontario Swiss Chalet restaurants required a larger volume of chicken than those in other provinces and that the volume supplied by each plant may have some impact on the specifications fill rate.

• He would like to have at least 85% of chicken delivered within specifications.

• Receiving off-specification chicken was preferable to not receiving enough chicken.

• He wanted the quickest and easiest solution to the problem of off-specification chicken being delivered to Swiss Chalet.

• He supports the use of monetary and non-monetary disincentives and incentives to encourage producers to ship chickens that meet specifications.

• Swiss Chalet did have a strong brand despite its product specification issues.

• He agreed that increasing the supply of birds in Ontario would not necessarily mean there would be a higher proportion delivered within specifications. But, he said if the current proportion of birds delivered within specifications is maintained, a larger volume would mean there would be more chickens available that meet the specifications of Swiss Chalet.

• It is not customary for Swiss Chalet to be compensated for chicken delivered off-specifications. The company pays by weight, not number of birds. It does have an arrangement with one company such that it does not pay for over-weight birds, but the company still receives a product it does not want.

• He agreed that a cross-industry solution was required to resolve the category specification issue. He said it was important to talk to people with expertise in each area to resolve the issue.

Gary Principe Testimony

Mr. Gary Principe told the Tribunal he works for Unified Purchasing Group of Canada where he heads the purchasing arm of Kentucky Fried Chicken (KFC), Taco Bell and Pizza Hut restaurants in Canada. He said his company buys $150 million/year of chicken for 1500 restaurants. He said that 826 of the restaurants are KFC, and 336 KFC restaurants are in Ontario.

Mr. Principe told the Tribunal the CRFA supports the following principles:

• Free market forces and consumer demand should shape the industry.

• Policy should promote competitiveness.

• Non-value added costs should be removed.

• The marketing system should allow for flexibility.

He also testified that:

• It was important to KFC to receive product within its specifications. More detailed specifications were developed recently as new owners of the chain are focused on brand development now. KFC needs to provide a consistent product to customers.

• KFC’s cooking process is designed around a specific size product. The product is over-cooked and too dry if the chickens are under-weight. Both under-weight and over-weight chicken can damage restaurant equipment.

• KFC has a significant investment in advertising its products.

• KFC is supplied by Maple Lodge Farms and Port Colborne Poultry in Ontario. They also purchase some product from Flamingo and a couple of smaller processors and have been approached by Western processors.

• KFC used to be supplied by Maple Leaf but it changed its processing techniques and can no longer service KFC. This caused problems for KFC in Atlantic Provinces, Alberta and Ontario. They tried to find a new domestic supplier but ultimately had to import from the U.S. for the Atlantic region.

• Port Colborne wants to supply more chicken to KFC but it cannot obtain additional live supply without displacing its other customers.

• The specification compliance rate for supplying KFC restaurants in Ontario was 62.6% in 2000, and 58.7% in 1999. In comparison the compliance rate is 77.3% in Quebec and over 95% in the U.S.

• KFC has raised this issue repeatedly in Ontario. He participated on an industry visioning committee in Ontario. He had seen some improvements in early 2001 but the problem is not yet solved.

• The CRFA understood that the CFO was to consult with industry partners to implement the Commission decision. The CRFA asked the CFO to consult with it, but was not consulted on the proposed price formula with a wholesale component.

• The CFO implemented a market incentive program for the KFC size category in period A-32. It uses a price grid and a quota incentive. The fill rate was 53% the first period the incentive program was in place, then it increased for two periods (A-33, A-34) before dropping for two periods (A-35, A-36), then increasing the next two periods (A-37, A-38). The fill rate ranged between 44.3% and 75.1% in these quota periods.

• The fill rate was higher when KFC requested a lower volume of chicken.

• Since the market weight incentive program has been in effect the volume of chicken signed in the KFC category has declined by approximately 3 million kg, which is significant. As a result, even though the specification fill rate has improved, there are fewer birds available to KFC in the product category they need.

• An improvement to the incentive program would be a stipulation that quota granted must be used to grow KFC category birds.

• The fill rate for meeting KFC needs by Maple Leaf ranged from 30% to 70% over the past three years. The fill rate by Maple Lodge ranged from 40-85% in a similar time frame. The fill rate by Port Colborne ranged from the low seventies to the high eighties since it has supplied KFC.

• Demand by KFC for chicken follows the industry seasonal demand; it is higher in the summer but Mothers Day is their highest volume day each year.

• The fill rates of both Maple Lodge and Port Colborne Poultry were low in May 2001.

• Any supply allocation proposal that includes PSQ would lead to further inflexibility. Any policy that extends SM beyond producers will add non-value added costs to the marketing system.

• The current system allocates supply according to existing bases which results in large purchasers having limited options. He believes competitive forces should drive allocation and that every processor should be assured the supply they want. The industry should consider what consumers are willing to buy and that should drive the allocation system.

• Minister Villeneuve said Ontario has not been aggressive in pushing for growth in the chicken industry.

• The CRFA believes in the bottom-up approach to supply determination. He believes this is consistent with the principles of the NAA. Other provinces have been able to grow beyond the provincial caps and Ontario should strive to do so if it has sufficient demand for chicken.

• Ontario has never pushed to the limits of NAA and over 70% of the time it has not achieved 5% growth.

• The pricing grid must be included in a pricing formula as it is integral to prices paid in Ontario. The formula should be transparent and incorporate data that is verifiable, credible, measurable and able to be tracked. Ideally the data would publicly be available like the corn:soy index.

• His company needs the ability to forecast price so it can decide whether or not to hedge. It makes menu plans wells in advance of the 8-week quota cycles as there is a long lead time to introduce an advertising campaign. If it could accurately forecast price it could be more aggressive on promotion.

• He believed the chick component in the live price is published and fairly consistent but the feed component provides an opportunity for hedging.

• The CRFA would like consistency in the producer return portion of price and this could be determined on a yearly basis. All participants in the Hearing and representatives of the grocery industry should be participants in the consultation regarding producer returns. An unbiased body such as the Commission should chair these consultations and there should be an appeal process.

• The CRFA is fundamentally opposed to including the wholesale price in a formula, as that provides an incentive for the two largest processors to keep the market tight. It was also concerned about who measures wholesale price, what chicken parts are included in it and how it could be forecast.

• A provision to set supply by category must be a key part of any system that is adopted. It is not enough to meet the volume requirements of customers; category requirements must also be met. Non-monetary incentives and disincentives could be considered.

• If specification compliance rates fall below 80% in three consecutive quota periods, the customers should have the right to import product with supplemental imports without opposition.

• A new system should also provide the opportunity for large customers to switch suppliers, or get a new supplier if cut off from a traditional supplier.

• The CRFA prefers that producers and processors directly determine the price and volume of export contracts, to avoid a trade dispute such as that seen in the dairy industry. There should be no requirement that a producer holds domestic quota in order to ensure there is no cross-subsidization in the industry.

• There are many opportunities to sell more dark meat in Ontario at the prices paid for export chicken

• He was aware that Canada lost a WTO challenge and there was a ruling that it failed to comply with a WTO decision regarding dairy exports.

• The CRFA position on allocation to individual processors is that processors make individual requests based on what they can market, their knowledge of industry and discussion with customers. The CFO submits the aggregate of these requests to the CFC. If the requests exceed the NAA caps, the CFO should pursue the larger volume.

• The CFO and the CRFA both have seats on the CFC.

• The CRFA believes a policy on new entrants should promote competitiveness and efficiency and should not raise additional barriers to entry.

In response to questions, Mr. Principe indicated:

• The CRFA allegation that Ontario producers and processors are not meeting consumer demand flows from: a specific statement in a letter by Minister Villeneuve; the issuing of supplemental import permits for Ontario; an acknowledgement by the CFO that there is a shortage of Ontario grown chicken; CRFA data which indicates the consumption of chicken is growing faster than the supply; and Ontario’s declining share of the market relative to population growth.

• Other provinces are gaining market share at the expense of Ontario. The ability for a province to get what it wants from the CFC is a function of how aggressive each province is. The NAA ensures producers will get a reasonable return and provides a mechanism to consolidate processor requests. If the return is reasonable, supply is not the issue.

• Ontario’s share of chicken consumed in restaurants in Canada is relatively high and the growth trend in Ontario is higher than that in Canada.

• Ontario has not pushed the limits of the NAA. A restricted environment is not necessary if producers are receiving a reasonable return.

• Industry stakeholders should be told the APD.

• Individual processor requests are the best information available. The APD incorporates industry views without the need for a stakeholders’ meeting. Stakeholder discussions on market conditions are undertaken by individual processors as they develop their position. The CFO can discuss market conditions with processors. All discussions should take place in confidence. Individual customers’ requirements should not be discussed at national meetings.

• The APD number was preferred over a number devised by an industry committee because information is more credible when it comes with a firm commitment to buy the product. Individuals or associations participate in stakeholder meetings without any financial risk, whereas processors are required to purchase what they request. Also, his company operates in an intensely competitive business and he cannot have one of his competitors knowing he has an incidental increase in volume.

• He did not believe that the use of industry meetings makes the job of persuading the CFC the number is right any easier. If the number promoted is sent back, this will be done on a Canada-wide basis.

• The CFO role within the NAA should be to consolidate requests from processors and put those forth to the CFC. The requests should be handled on a confidential basis. If producers are receiving a reasonable return, the CFO does not need the discretion to change the request.

• No one can be perfect in forecasting but he tries to advise suppliers of upcoming promotions and peaks in demand.

• Individual processors make decisions based on their economics, what they can market, and what risks they are willing to take. Market forces will decide where the product goes. The processor bears the risk of that supply decision if live price is de-coupled from the wholesale price.

• There may be an adjustment period but competitive forces will ensure that processors evolve to make reasonable requests based on an assessment of the marketplace.

• The KFC menu reflects the supply problems. The company cannot aggressively market chicken, so it promotes fries, salads and desserts. It is now considering adding other proteins besides chicken to the menu.

• The CRFA does not know if ‘cut-backs’ will be an issue as Ontario has never tested the limits of the NAA. If customers have the ability to move from one supplier to another there should not be ‘cut-backs’.

• He is concerned with the time spent on supply issues and hopes the CRFA proposal will reduce the costs of procurement.

• Processors should request chicken by category. Producers should receive a reasonable return and then there is no rationale for them to switch processors, other than incremental premiums.

• His company knows its chicken needs approximately one year in advance.

• There has been an increase in supplemental imports of chicken to Canada.

• He had raised concerns with the allocation system and the specification issue at an industry visioning committee.

• The current marketing system freezes processor market shares and this makes it difficult to switch suppliers.

• The CRFA did not accept that processors have an inherent ownership of supply. His supplier should not be required to purchase chicken from another processor to fill his needs.

• He feels an open sign up allocation process would lead to greater premiums which do not add value to the industry. Also he believes it would be more difficult to get product within specifications under an open sign up system, as processors may not have a consistent group of producers supplying them.

• The marketing system is giving KFC the volume it needs, but it has no flexibility and no safeguards. As a large customer, KFC is precluded from working with other processors, as they cannot access sufficient chickens. In Ontario a new processor would have to drop other customers to supply KFC. That is not the case in Saskatchewan.

• The price he pays for chicken is related to the live price only. There is no impact from changes in wholesale prices. He cannot hedge his price if an unknown variable such as wholesale price is included in the live price formula.

• He does not want an incentive for the CFO and AOCP to short supply to generate a higher wholesale price, and live price.

• Anyone in the supply chain could hedge against the feed component in a pricing formula. Under the current system, there is no tangible relationship between price and measurable factors.

• The NAA provides for a review of growth caps if producers are not getting reasonable prices. The essence of the NAA is to have a market responsive, growth industry with a bottom-up allocation system.

• He agreed that the wholesale price has to be recognized and dealt with, but said this could be done at the processor level when they determine their requests, rather than through a pricing formula.

• Historic returns received by producers could be used to select a benchmark for the producer return component to be included in the proposed pricing formula.

• Reasonable return for producers should be related to risk of growing, not storage stocks. Consideration of seasonality and competitive meats could be included in determining what is a reasonable return.

• Some of the product he purchases for further processing is easy to get within specifications and other products such as whole breasts are less consistent.

• KFC currently pays a premium to receive birds in their size category so he prefers non-monetary incentives to improve compliance with specifications.

• At this point he would be happy to have 80% of product delivered within specifications to Ontario restaurants. But the industry should strive to continually improve beyond an 80% fill rate, once it is reached.

• The status quo is not acceptable as his company is trying to grow its business and needs consistent product to do it. Also the problems experienced when Maple Leaf dropped it as a customer demonstrate the need for a more flexible system.

• With a new allocation system he hoped to see a higher fill rate and less variation in the fill rate.

• KFC requires approximately 4 million kg of chicken each period. They compete with other buyers for their size category.

• He would support a safeguard provision for further processors who do not receive at least 80% of their orders within specifications.

• The CRFA believes the category fill rate for each size category is important. It is likely that customers will have a higher proportion of product within specifications when the fill rate is higher. For KFC, the important factor is what is delivered to restaurants. But, KFC is concerned that the volume of birds grown in its category is declining.

• Without a safety valve which allows for supplemental imports, restaurants are less likely to have their needs met. If the industry will work together to meet the customer needs, the safety valve would not be used.

• There could be a cost to processors in not meeting customers’ product specifications. He understood producers are paid a category premium whether they meet the specifications or not.

• A more flexible export policy would not help processors meet KFC needs, as it is a whole bird customer. KFC does buy leg quarters as well but the whole bird cut into 9 pieces is its core business.

• Dark meat should first be offered to domestic buyers at the international price before it can be exported. Otherwise there is a subsidization of the export market.

• The CRFA members have over 60,000 restaurants. Its position was developed by a subcommittee and endorsed by its board of directors. He was involved in the development of the position.

• In his view, the vision of the chicken industry is a consumer driven industry with opportunities for growth. If producers are receiving a reasonable return for their product, and processors are willing to buy it at that price, they should get the supply they request. If the consumer is willing to pay enough to generate a reasonable return, the requirements of SM are met.

FPPAC Case

Jeff McHaffie Testimony

Mr. Jeff McHaffie told the Tribunal that upon graduating from university in 1984 he worked for Maple Lodge in procurement, then from 1986-1999 he worked for Cuddy Foods, mostly in procurement for its further processing needs. He said that since 1999 he has been with Puddy Bros. Ltd. a further processor with primarily retail customers in Ontario. He said that for most of his work experience he has dealt with supply issues.

Mr. McHaffie testified that in his view:

• It was difficult to obtain enough chicken to meet the demands of his production company.

• Allocation of Ontario chicken is less flexible than in other provinces, but all operate under the same national system.

• Primary processors in Ontario were either unable or unwilling to sell to Puddy Brothers Ltd. so approximately 80% of its supply comes from out of province. In total it purchases 200,000 kg (eviscerated) per week, which is equivalent to 280,000 kg live weight. Most of its out-of-province purchases are made in Quebec.

• He speaks to Ontario processors every week but cannot achieve long-term commitments from Ontario processors, whereas he can get these commitments from several firms in Quebec. He prefers to buy from Ontario suppliers, but they do not have the available supply.

• Other independent further processors face similar supply challenges. Independent further processors are those who do not own slaughter facilities. Most independent further processors have a primary supplier from out of province.

• Puddy Brothers Ltd. has over $5 million invested in a new facility and employs over 130 people.

• Ontario has the same opportunity as Quebec to supply these customers as both provinces are signatories to the NAA.

• When he worked for Cuddy Foods it was always a challenge trying to satisfy McDonalds Restaurants when new products were introduced. Typically, sales were dramatically increased for a period of time after a new product was introduced and obtaining sufficient supply to meet this need was problematic. The allocation system was not flexible enough to assign sufficient additional live birds to Cuddy Foods. Out of province supply allowed the company to meet new product needs.

• Under the current allocation system, a processor is given a share of chickens based on historic shares of processing. Service to the consumer, innovation and new product development are not taken into account.

• A new entrant has no guarantee of a market share arrangement and cannot get enough supply to run a processing plant efficiently.

• The current system is turning historic processing shares into plant supply quota; this removes the competitive pressure from processors that the bottom-up approach has provided.

• The system is counterproductive, because if a processor cannot grow, producers cannot grow more chicken. Producers in other provinces are growing at a faster rate than Ontario chicken producers.

• Several end users of chicken are quite large. Small buyers can move between suppliers but Cuddy Foods, Kentucky Fried Chicken and Swiss Chalet have great difficulty changing suppliers as they cannot switch without requiring their new processor to desert a huge customer base. Puddy Brothers is in a similar situation, as processors prefer to supply long time customers over new clients.

• Integrated further processors – those with slaughter facilities – may be unwilling to sell to independent further processors as they compete with each other in the marketplace. This is unfair as primary processors have an assured supply and further processors do not.

• The new allocation system should maintain the benefits of SM for producers, but the market end of the business should be shaped by consumer demand. Those companies that are more successful at servicing customers should receive the growth in supply.

• A true bottom-up system is simply supplying the sum of processor requests for chicken without any adjustments or constraints. In a true bottom-up system, every processor receives the volume of chicken they requested.

• A bottom-up system is the only way to get a flexible system with differential growth. A market share-based system does not allow for differential growth. Differential growth is needed in order to service all Ontario’s needs.

• Processors know their customers best. Processors and further processors provide growth estimates to their industry associations but do not share significant details of their requirements. Supply requests provided in confidence to CFO staff would be more reliable.

• He had attended national agency meetings and in his view, if the CFO requested the APD volume, that is as strong an estimate of market needs as they can get as the number represents what customers need and as processors would have letters of credit on the line. A number generated at a stakeholder meeting represents a compromise, not market demand.

• He did not support the inclusion of a wholesale component in a live chicken pricing formula as this would cause producers to be concerned about the volume of chicken to be grown, and they may try to limit volume to improve their price. They could put their own interests before market interests.

• Producers should get a fair return and let downstream users take the risk on how the volume of chicken affects wholesale price.

• Feed and chick prices could be set off a fixed formula and the producer return portion of the price could be fixed annually. But there should be a provision to re-open negotiations on price under extreme circumstances, such as a quadrupling of the cost of propane.

• Independent further processors should be able to request quantities of live chicken and get a guaranteed supply, similar to integrated further processors. They had that opportunity in the 1990s but did not act on it at the time. Independent further processors would have their supply custom slaughtered.

• Some criteria could be developed to limit the number of further processors who could contract for live birds. Those with a HACCP system and a federally inspected plant have a substantial investment in the industry.

• New entrants should be able to request amounts of live chicken, but they should be a substantial size, be serious about participating in the industry, have a HACCP system and a solid business plan.

• He supports a 95% slaughter rule as this would allow some trading of chicken between processors, but it is high enough that processors will not become live bird brokers.

• Under the current system, when a processor receives an allocation he signs Form 101 with individual producers to the maximum amount he is allocated. Processors and producers have the right to decide whom they deal with. The plant allocation is a guaranteed supply.

  Mr. McHaffie commented on the FPPAC position as follows:

• The FPPAC proposal was drafted in February 2001. FPPAC generally uses a consensus approach to resolve issues; every member will not agree with every single statement in its position, but as an overriding policy they are for the most part in agreement. However five members, all of them integrated further processors, do not support the FPPAC position that further processors should have the right to be guaranteed live product supply.

• The FPPAC has over 40 members who cumulatively account for over 67% of the total further processed products market. That market has sales of approximately $1.4 billion per year. Most further processing of chicken in Canada is undertaken in Ontario.

• The FPPAC was founded in the early 1980’s by independent further processors and its biggest concern was achieving supply of product for members’ plants. The membership is more varied now but supply is still the number one issue. Approximately 60-70% of FPPAC meeting time is spent on supply issues.

• The further processed product market is growing faster than the overall chicken market.

• De-boning is considered a separate industry from processing and further processing. De-boners also have supply problems and he believed their main source of chicken is now Quebec.

• The FPPAC believes the Tribunal should establish a flexible allocation system which allows the industry to meet demand with Ontario grown chicken, while at the same time ensuring that producers receive fair returns.

• Many studies have found that large amounts of live and dressed chicken used in Ontario are purchased from out of province. Also, an analysis of demand verses chicken grown shows that Ontario producers are not growing enough chicken to meet demand. The facts that the bulk of chicken imports come into Ontario and that premiums have been paid to producers to obtain live chicken provide further evidence of market shortages

• Demand for chicken has grown quickly in Ontario because it has the most developed food service sector and more variety in food service outlets. The population of the province may also be growing more rapidly than that of other provinces.

• The FPPAC has three guiding principles for regulation - regulations should promote performance; when there is a choice of regulatory options, the approach that provides the most competition should be adopted; when regulatory changes are made, there should first be a common vision, then the changes should help achieve that vision.

• The chicken industry vision statement should guide the Tribunal.

• SM was developed to provide producers with reasonable prices for product they grow. De-coupling the acts of pricing and setting supply is key to the FPPAC position as the FPPAC believes if these are not de-coupled, producers will influence market forces.

• The FPPAC prefers a pricing formula with a feed, chick and producer return component. The advantages of a formula approach are that it provides consistency in price, the ability to hedge the price, the security to lock up supply and price arrangements and the ability of producers to hedge feed costs.

• Under the current system of pricing every 8 weeks, the live price fluctuates with market conditions, not producers’ costs.

• Downstream users of chicken are affected by wide price fluctuations because they sell to chains at a fixed price for each year, based on the cost of chicken and cost of processing. But, if market prices fall, competitors can buy the lower price product and under-cut them with cheaper product. The further processor market is very competitive.

• Further processors with better supply arrangements are apt to be more successful. The supply assurance system should be the same for all.

• The FPPAC wants growth to go to those companies that are more successful at the consumer end of the business.

• The FPPAC would prefer a pricing formula with no wholesale component, but would look at a pricing formula with a market component if it was agreed to by other parties. Even then, it would want the wholesale component to have a minimal impact on price.

• A key component of the supply determination policy is it should be a bottom-up approach, using the simple sum of processor requests. The bottom-up approach is not working in the current system. The FPPAC proposes that the CFO authority be amended so that it must accept the APD, because processors know their market best.

• Demand for raw materials is driven by demand from the customer.

• It is critical that processor requests be confidential, as it is easier to accommodate differential growth if processors have to concentrate on their own customers’ requirements.

• The FPPAC approach allows for differential growth.

• There is no need for industry meetings under a true bottom-up approach where no adjustment is made to the APD.

• The market will not be over-supplied as each processor knows what it has traditionally marketed and knows that its competitors will receive the volume they need. They must be careful to see that their request is reasonable, as 100% of the chicken price will be affected if the wholesale price varies. Also, with a fixed formula live price there will be no opportunity to go back to producers to get a lower live price.

• In 1994, there was a pent up demand for chicken and most processors overestimated what they could market. This caused a significant fall in the wholesale price and producers gave them price concessions. Processors have learned from that experience and are more reasonable now.

• Also, in 1994 other provinces increased in lock step with Ontario without any justification, as they wanted to maintain their market share.

• The NAA now provides safeguards. FPPAC proposes that the NAA limits be followed in Ontario. If the APD is less than the NAA limit, all processors will have their full request met. If the APD is greater than the NAA cap, a ‘cut-back’ will be necessary.

• The FPPAC does recommend the use of an industry stakeholder meeting if the APD represents more than 5% growth. If there is a consensus that a higher growth rate is needed then the APD should still be submitted to the CFC. If there is a consensus the APD is too high and a consensus is reached on a different volume that should be submitted, then that number should be proposed to the CFC. If there is no industry consensus, the CFO should be able to determine the number that is to be submitted.

• The FPPAC would also like allocation to be set 16 weeks at a time.

• The FPPAC was not recommending any change to the system by which processors sign up producers to their guaranteed supply.

• He has been involved with the FPPAC off and on for 15 years and continuously for the last 4 years. In his view no single member can force a policy change.

• If the requested allocation is not granted to Ontario by the CFC, the FPPAC recommends that ‘cut-backs’ be on pro rata basis based on the most recent period that data is available. It anticipates this would be data from 3-4 periods earlier. The ‘cut-back’ should be based on allocation, not slaughter.

• A one-period base was preferred to a three-period base, as the three-period base could reduce the amount needed to fill the needs of processors who are growing aggressively. These processors cannot market new products if they do not have a guaranteed supply.

• The FPPAC supports a 90% slaughter rule. It does not support partial sales of plant supply allocation or quota. The 90% rule would allow for trading between processors.

• There should never be a case where a company receives more product than requested. If some processors are growing more slowly, that allows others to expand more rapidly.

• The FPPAC rejected a ‘cut-back’ proposal based on volumes requested rather than pro rata market share as it believed that this could lead to inflated processor requests.

• The FPPAC recommends that further processors be able to contract for live supply as this will give independent further processors the same assurance of supply that primary processors have.

• Primary processors will be more willing to sign long-term contracts if they are assured of a supply of chicken. If further processors could contract directly for live chickens this would encourage primary processors to sign long term contracts with them.

• The FPPAC believes its bottom-up supply determination proposal is the best way to ensure that category requirements are improved. It believes processors will only sign producers who will provide the right size and quality of birds.

• Under a bottom-up system, a new entrant is open to requesting a volume of live chicken. However, food safety issues are a concern and a HACCP program should be mandatory for new entrants to be able to obtain a supply allocation. The FPPAC would likely support a provincial HACCP inspection system, as long as it is equivalent to the federal system.

• The FPPAC is concerned that the current export policy is not WTO-consistent and it would prefer that the CFO be directed to establish a system that allows for individual price negotiation between producers and processors.

• White meat is in demand and an export program assists in providing white meat as dark meat is exported, whereas white meat is retained.

• The Quebec export program has led to increased exports and that has provided extra white meat for Ontario further processors.

• In a bottom-up system, a company that is getting more white meat from the export program may ask for less of an increase in whole birds from the domestic market.

• The FPPAC supports removing chicken exports totally from the CFO control.

In response to questions, Mr. McHaffie provided additional information as follows:

• A true bottom-up system required unlimited supplies.

• The need for supply assurance at the plant level is evidence of a shortage of Ontario chicken. Supply assurance means that the marketing system will provide that volume of chickens to the plant. In contrast, PSQ implies a share of the total live chickens in the province. The current system is similar to a quota system for processors.

• The CFO may have difficulty championing the APD at the CFC in some circumstances, but if the growth is under 5% there would have to be an extraordinary reason why the volume would not be granted.

• The CFO should have the discretion to request an amount that is different from the APD, if the APD will result in 5% - 8% growth, unless industry stakeholders reach consensus on a different number. However, the CFO should not have the discretion to select a number that is below 5% growth.

• In order to fill customer needs when insufficient chicken was available he bought dressed birds or meat and other alternatives sources of raw material. This product was not what was wanted and usually cost more than purchasing live birds. When he bought live birds from other processors he paid a premium, but he did not buy a substantial amount of live birds.

• A contract is the best assurance of supply that a further processor can get. The ability to sign directly with producers would give them improved supply assurance.

• It is possible that a drive for market share contributed to the oversupply problem in 1994, particularly a drive for market share between provinces but also among processors.

• He did not have a list of stakeholders who would attend an industry meeting if one were necessary. He expected it would be the same associations who currently attend industry stakeholder meetings. This would include the CFO, the AOCP, Ontario further processors, the CRFA and grocery retailers. He estimated consensus could be reached 30% -50% of the time. He defined consensus as an absence of disagreement.

• The FPPAC believed the industry meeting should only be used to take a second look at the APD in periods where processors are pursuing aggressive growth. Over the long term, the APD will provide a better estimate of market demand as the industry stakeholder meeting number is a compromise, whereas the APD is actual demand.

• With regard to ‘cut-backs’, the base period to start the new system should be the most recent period that data is available, regardless of when the new system is implemented. If there is any unfairness in this approach due to different processors having positioned themselves differently under the current system, it would be limited to the first few periods. Also, the 90% slaughter rule is generous.

• If Ontario starts to get more aggressive with its volume requests it is possible that there will be more requests from the CFC to reconsider its requests.

• He agreed that initially there would be ‘cut-backs’ every quota period but said in the long term there would be fewer ‘cut-backs’.

• He agreed it would be a dangerous practice for processors to ask for more supply than needed regardless of whether ‘cut-backs’ were based on market share or requests.

• He agreed that it would be possible for a processor to predict the volume of chicken he would receive under a ‘cut-back’ based on market share, using the provincial limits.

• The initial FPPAC position on ‘cut-backs’ was to ‘cut-back’ based on processor requests rather than market share, but there was a cap to the amount of growth each processor could request. This provided more opportunity for differential growth. That position was abandoned and the current FPPAC position was adopted.

• The FPPAC believes that a ‘cut-back’ based upon request system could encourage irrational requests.

• In his experience, chicken processors have a very good understanding within 5-10% of what they will sell to retail clients. He agreed that little notice is given of feature sales. He expected that 10% of his product sales would move through features each year.

• Processors know their business 16 weeks further out, so allocation could be set two periods at a time. Fewer meetings would make the marketing system more efficient. Processors will have plenty of advance notice of any new contract that will drive a big change in production.

• The current allocation system provides little incentive to obtain new customers or develop new products.

• The FPPAC does not support the partial sale of plant allocation or PSQ.

• FPPAC members see open sign up as the ability to sign whichever producers are desired, not as the ability to sign as much volume of chicken as desired.

• While it may be difficult for chicken producers to change processors, they can do so and they are assured a market. Large further processors are in a somewhat different situation as they are not guaranteed a supply if they try to change suppliers.

• In his experience there is some fluctuation between producers shipping to a processor.

• If Puddy Brothers Ltd. were able to contract directly with producers for live chicken it would first need a contract with a primary processor. It could then sign producers itself or contract with the processor to do so. He is prepared to sign producers but would also accept over-signed producers from other buyers. Weight tickets would need to be signed by primary processors.

• FPPAC members with a dissenting view on whether further processors should be able to contract directly with producers were all vertically integrated and members of AOCP. Cumulatively they have a large portion of the chicken processing activity in Ontario.

• Differential growth will take some time to achieve under the FPPAC proposal but it will occur as processors will not all ask for the same percentage increase.

• A higher percentage slaughter rule would allow for faster differential growth.

• His position on behalf of Puddy Brothers Ltd. is that a 95% slaughter rule is appropriate but the FPPAC supports a 90% slaughter rule. The FPPAC position takes precedence.

• The FPPAC proposal assumed growth but if a processor requested less volume than in the past, he will receive less. No processor would ever receive more chicken than requested. He recognized it was a seasonal market.

• Anyone who can purchase and utilize the whole bird from a processor should have the ability to buy direct from producers. Possibly 20 further processors would be in a situation to directly sign contracts with producers.

• He was not aware of any contracts between further processors and producers in Canada, but knew of one company that had these contracts in the U.S..

• Puddy Brothers Ltd. believes that new entrants should be limited to 1 million kg in their first period. For new entrants, their first period volume would be their base until slaughter data is available.

• De-coupling price setting from supply setting will allow two SM objectives to be met – a fair return to producers and a market supply that meets demand.

• The FPPAC supports a system with formula based pricing with no wholesale component; the supply to be set as the APD plus approved new entrant requests; and processor requests which are contractual obligations.

• The proposed fixed price formula would reduce price fluctuations. That, along with the confidentiality requirement for submitting processor requests will prevent the 1994 situation from recurring.

• CFO should not be able to arbitrarily set the producer return. The producer return should be negotiated or arbitrated. The price should be based solely on producers’ costs. The feed cost component will rise and fall with prices so there is no need for producers to hedge their feed purchases.

• He had authority from the FPPAC to vary from the written brief with regard to the inclusion of the wholesale price in a live price formula. On that matter his testimony takes precedence.

• The FPPAC has no position on whether further processors would want to be directly involved in determining the producer component of the live price formula. But, large buyers may want to be involved.

• The producer price should not be adjusted due to an oversupply of chicken. But, in the long run the Ontario price must be competitive with live prices in other provinces.

• Processors and further processors will be affected by the wholesale price and that will encourage them to make reasonable supply demands.

• Production in other provinces affects the Ontario wholesale price. He was not convinced that the price of U.S. breast meat impacted the Ontario wholesale price, as U.S. price changes are reflected in the price of import quota.

• The FPPAC envisioned an export policy where deals were made on a period by period basis through direct negotiation between producers and exporters.

• There is no need for the 50% participation rule in the current export policy and it may limit exports.

• In Quebec, processors get the supply of chicken they request. They also have a more flexible export policy.

• Processors’ slaughter records are audited to ensure they are reporting correct data to the CFO.

• He agreed the pricing grid could be used to ensure category needs are met. FPPAC believed that the bottom-up system would lead to better filling of category requirements.

• Demand for white meat grew 7% annually in 1990’s while overall demand grew at slightly less than 5% per year. White meat imports are a critical supply source for the hotel, restaurant and institutional (HRI) sector. Without imports, 80% of the supply would be needed for restaurants. The HRI sector is growing faster than the total market.

• Price was not the issue preventing Puddy Brothers from obtaining more Ontario grown chicken. Long term business relations with existing customers and a lack of additional supply prevents Ontario processors from serving new clients. Processors who may be selling all their chicken at a loss will not sign a long-term profitable contract with a new client. Also, there may be competitive reasons that integrated further processors do not want to sell to independent further processors.

• The majority of FPPAC members are independent further processors. The FPPAC has 7 directors who are elected on a one member, one vote basis. Decisions are made by consensus. If there are large differences in opinions, the FPPAC adopts one main position with a minority position outlined as well.

• He did not have an accurate estimate of the number of further processors in Ontario not affiliated with the FPPAC. He thought there were 40-80 small volume further processors who were not members of his association.

• Import data is collected when the product crosses the border. The high proportion of total chicken imports in Ontario is not a function of the location of head offices of companies. Further processors buy import quota across the country and use it to bring product into Ontario.

Mr. McHaffie also commented on the similarities and differences between the FPPAC proposal and proposals put forward by other parties.

Henry Bos Case

Henry Bos Testimony

Mr. Henry Bos told the Tribunal he was a third generation poultry farmer and that his only income was from his poultry operation. He said he held degrees in science and business. Mr. Bos explained that he grew chicken using non-medicated feed and no growth promoters. He said he sells a small amount of processed chicken to restaurants and stores under a custom slaughter arrangement, and the bulk of his production is sold to AOCP members.

Mr. Bos submitted that the status quo is not sufficient. He said he had proposals for all six issues under appeal but that the issue of allocation is the most important to him.

Mr. Bos explained that the current marketing system severely restricted producers’ ability to have their flocks custom slaughtered, as processors are now required to reduce their own purchases in order to custom kill for someone else. He said that under a previous allocation system this was not the case. Mr. Bos stated the status quo was not desirable because:

• The CFO effectively sets the amount that a processor can slaughter and the processor cannot contract above that amount, which in effect is giving plants PSQ. As a producer, he may not be able to ship to his processor of choice as that processor would have to drop another producer to accept the Bos chickens.

• The onus is on the producer to find a processor with available PSQ. This can result in undesirable splitting of flocks between several processors. If the Tribunal allows partial sales of PSQ, his birds will have to follow the PSQ around the province.

• Processors who have over-signed their allocation must transfer producers to another processor. The recipient processor does not necessarily need the size of birds that the producer is growing for the initial processor. It also leads to the splitting of flocks and he may have one flock of chickens being grown for two different size categories. This hurts the efficiency of the farm.

• The PSQ system distorts normal industry rivalry and inhibits participants in other sectors of the industry from integrating into processing.

• It is difficult to develop long-term relations with processors, as the CFO may not allow them a consistent supply of chicken from period to period. Producers may be reassigned more than once for the same quota period. The producer has little control of where his birds are shipped, as processors can freely trade signed producers between themselves.

Mr. Bos provided the Tribunal with examples to demonstrate his critique of the current marketing system.

Mr. Bos told the Tribunal that he favoured an open sign up system which allows competition to determine how much chicken each processor can purchase. He said he could also support a bottom-up system where processors are allocated all the chicken they request. But he noted that these two options are mutually exclusive.

Mr. Bos also told the Tribunal that:

• The industry was currently protected from international competition but this is changing as now up to 7.5% of the market is filled with imports. The volume of imports allowed is increasing due to NAFTA changes and a new policy which allows extra imports due to shrinkage.

• The chicken industry is still growing but it is approaching maturity on the product life cycle.

• There has been considerable vertical integration in the industry from feed mills through to further processing.

• CFO is a machine organization which means it is highly specialized, performs routine operating tasks, has formal communication methods, has an elaborate administrative structure with a sharp distinction between line and staff and has relatively centralized power for decision making. He submitted that this organizational structure was suitable for a simple and stable environment, but was generally not desirable when working in complex environments. He said the CFO is working in a changing environment and it is acting predictably in trying to return to stability by expanding its control.

Mr. Bos said his proposal is an allocation system called mutual adjustment. He said that mutual adjustment achieves coordination of work by the simple process of informal communication. He said that the direct supervision system failed as the national agency could not meet market needs with the old top-down allocation system. He suggested that the current system used to allocate live chickens to processors in Ontario is identical to the system that failed at the national level. He said the system is failing here for the same reason it failed nationally – it is not allowing for differential growth. Mr. Bos said that convoluted CFO regulations were trying to compensate for a poor fit between the organization and its coordinating mechanism, and that this poor fit is one of the root causes of the conflict over allocation.

Mr. Bos said he recommended:

• Establishing the supply to be grown in Ontario using the APD up to and including the national cap. Adjustments to the APD should only be allowed at the request of the CFC. Requested supply must be purchased.

• That the live price be based on costs only, not supply. A live price formula based on feed, chicks and producer margin be adjusted every 2 weeks, not every 8 weeks.

• That the mechanisms suggested by the CFO for measuring feed and chick costs is acceptable. Alternatively, actual feed costs could be determined by surveying farms. The producer margin should be determined by collecting cost data from farms.

• Moving to a 100% mutual adjustment system by gradually increasing the over-signing sleeve to 100% or more. He said as this sleeve increases, processors will have an opportunity to buy more chickens and eventually will be able to buy as much as they request through open sign up with producers.

• Continuing to set individual plant allocations but with the understanding that is an authority to purchase, not a guarantee to receive.

• Alternatively, guarantee 90% of processor requirements and allow them to contract with producers for the rest of their supply needs.

• Retaining the mechanism for processors to trade with other processors but also allowing processors to buy from producers directly.

• Producers be required to sign up three periods at a time to give processors some assurance of supply.

• Further processors be able to contract directly with producers.

• One-on-one relationships be allowed between producers and exporters. He said he preferred that only producers who grow for the domestic market be eligible to grow for export, but he would not object to allowing other producers to grow for export if they provide guarantees the chicken grown will all be exported.

• New entrants should be given the authority to purchase chicken but not a guaranteed supply. New entrants should be required to provide a letter of credit for more than 12% of the purchase price.

In response to questions Mr. Bos indicated:

• A true bottom-up system is an unconstrained system.

• He recommends that supply setting be de-coupled from price setting.

• He could support a true bottom-up system as long as price is de-coupled from supply. He believed that SM would survive growth as he assumes that processor requests are going to be genuine.

• Taking into account the NAA caps, an open sign up system has its own ‘cut-back’ system inherent. There would be no limit to what a processor can request, but if there is a ‘cut-back’ then supply would be allocated via open sign up. Over time there will be enough supply.

• His position is that the total Ontario supply number should be set as the APD, subject to the NAA limits. But, if the CFC asks the province to reconsider its number, the CFO should have the discretion to change the volume requested. To prevent premiums, supply should be set high rather than low.

• In a three-way deal with a processor, a producer sells the processor chicken and buys chicks and feed from the processor. Feed is a lower price for producers with three-way deals. There was no provision for measuring the impact of three-way deals in his proposed price formula.

• He agreed processors know their own needs best and they should influence the total supply number.

• Supply assurance for further processors who signed contracts with producers could be achieved with longer-term contracts.

• His proposal does have the potential to lead to oversupply unless CFO retains its discretion to modify the APD number submitted to the CFC. But, the CFC will not approve allocations that will over-supply the market.

• His recommended changes to the allocation system were not intended to extract larger premiums. With a large enough supply of chicken, there will be no premiums.

• The amount of premiums paid is not related to the number of buyers in the market. Premiums are a result of a short supply.

• There are producer premiums paid under the current marketing system. Access premiums are a function of supply. There are other premiums that are paid in the industry for producers growing birds with specific genetics or other desired traits.

• He understood that there are also premiums paid by one processor to another to obtain a reassignment of live chickens.

• An open contract sleeve of 100% is an open sign up system. But a processor could not sign up more volume of chicken than he requested. That differs from the current system in which a processor cannot sign up more volume than he is allocated. With 100% open sign up processors have no assurance of supply, a smaller percentage sleeve would give them a guarantee of supply for a portion of their needs.

• In the transition to a 100% sleeve, processors’ base allocations would be used to determine their guaranteed supply allocations in a ‘cut-back’ situation. Chicken would be re-directed to processors who have a guaranteed supply but did not sign enough producers to fill it. The portion of their supply that is not guaranteed would not be filled. Processors who over-signed producers would be able to retain the amount of chicken over-signed up to the sleeve amount, or the volume requested. The sleeve would gradually be increased to 100%.

• Customers should compete for supply in a supply-constrained environment.

• He preferred a policy that is flexible enough to accommodate custom processing rather than one that requires exemptions.

• The issue of allocation to individual processors is most important to him, but the method for determining total supply is most important to the industry.

• He agreed the current system freezes market shares and provides little incentive to compete. He agreed with the Competition Bureau criticism of the current system. The Competition Bureau endorsed the open sign up concept.

• A true open sign up system gives all processors an equal opportunity to make contracts with growers. He agreed the most competitive processors are likely to obtain chicken in this environment.

• Longer length contracts between producers and processors will provide some assurance of supply, but he recommends that there be no regulated assurance of supply in the new marketing system, when fully implemented.

• A benefit of an open sign up system is that producers would not have forced business arrangements; they would not be restricted to shipping to the same processor in the same category. The processors would benefit from their potential to achieve differential growth to meet growing market needs.

• He recommend a 100% slaughter rule, but is comfortable with a 90% slaughter rule.

• He did not expect that more than 10-30 further processors would be interested in contracting directly with producers.

• He would not object to the inclusion of a penalty for processors who over-sign their requested supply.

• He wants a competitive and profitable processor industry. This does not necessarily mean more processors are needed. But, more buyers may enhance competition.

• Inclusion of wholesale price in the live chicken price formula would negate de-coupling of price setting and supply setting. He is distrustful of processor wholesale price data as it is not collected by an independent party.

• He wants to grow the type of birds that the market requires. He pointed out that he had contracted with a processor that wanted the light roaster birds he was growing and he submitted that he should be able to ship to that processor, rather than be transferred to a processor who did not want that category of chicken.

• He agreed he needs to meet the sizing, timing and gender needs of processors and submitted that an open sign up system would allow producers to reach business arrangements that work best for both producers and processors.

• It is the marketing system that is creating problems in meeting category requirements, not producers. He has difficulty finding a processor with sufficient plant allocation to purchase his chicken.

• Under open sign up a producer will always sign a contract with a processor who wants his category of chicken. Producers should still be guaranteed a customer under an open sign up system.

• He agreed that a pricing grid could entice producers to grow in specific categories but did not have any specific recommendation as to what price differentiation was needed between categories. He understood the intent of the current pricing grid was to try to get the producer returns in different categories closer, recognizing the different risks of growing different categories.

• He believed that producers will look at economics and that therefore price spread manipulation is a good tool. He said that relative value of penalties for missing targets or rewards for hitting them would determine their effectiveness.

• Trade decisions in other supply management sectors could have an impact on the chicken sector. His recommendation for one-on-one export contracts was influenced by a WTO decision in the dairy sector. The CFO should not be involved in these contracts except to ensure the CFC requirement that the product be exported is followed.

• He held 44,000 units of quota and produced in two weight categories for four processors. He promotes his birds as drug free but not organic.

• When he entered the industry in 1986 quota was worth $12-15 per unit. It was now worth approximately $40-42/unit, on paper.

• He has changed his production practices to accommodate different size categories.

• He was unclear on CFO regulations regarding exemptions for personal consumption.

• He was able to retain his negotiated premium when his flock was transferred from one processor to another, but he understood that part of the premium was paid by the original processor. He pointed out that the recipient processor did not receive the product in the size category it wanted and he did not ship the chicken in the size category he preferred.

• He believed an extra million kilograms of chicken would be imported each year as a result of a pending policy change related to shrinkage. A loss of control over supply was one reason that producers need price to be de-coupled from supply setting.

• The CFO is immune to external influences, including producers. As a producer he was not consulted on the position the CFO put to the Tribunal.

Mr. Bos also provided his views on provisions in other parties’ positions under cross-examination.

Ken Holstein Testimony

Mr. Ken Holstein testified that he owns Sunnybrook Farms which produces cash crops and chickens and which operates a provincially licensed processing plant. He said he markets at a local farmers market. Mr. Holstein said he worked in the corporate world for 14 years before buying Sunnybrook Farms. He said he started buying chicken quota in 1991.

Mr. Holstein told the Tribunal he tries to increase his margins by giving his customers added value. He said he used a special feed formula with no medication and no animal by-products and that he used an air chill process in his plant. He said his chicken has more taste and a longer shelf life than his competitors’ products. He said he buys chicken from another producer with a similar feed program but that producer is responsible for marketing his own product. He said they do occasionally buy each other’s chicken for their own businesses.

Mr. Holstein explained that he has a problem with the current plant allocation system as he is currently only receiving enough allocation to fill two-thirds of his market, and as his market has the potential to double. He said he needs to grow to be profitable. Mr. Holstein said he had been writing to the CFO for approximately one year and had been unable to obtain more allocation. He explained that he typically over-signed production and had to relinquish some supply to other processors, as there were financial penalties for not relinquishing over-signage. He told the Tribunal he supports Mr. Bos’ open sign up allocation system proposal.

In response to questions, Mr. Holstein indicated:

• His plant is 20 years old but three-quarters of it was retrofitted within the last 5 years and it meets HACCP requirements. He is running two 3-hour shifts per week. He can run 1800 chickens/hour with a hard scald or 800/hour with a soft scald. He could double his kill without any extra investment.

• He sells branded chicken. He has a niche market and wants to expand to meet demand for his product but does not intend to compete directly with large processors.

• He joined the OIPP as a result of his problems with the plant allocation system.

• He was familiar with Mr. Bos’ operation. It was possible they could achieve some synergies but the distance between their facilities was an issue. He had custom killed for Mr. Bos approximately five years earlier, on a short term basis.

• He had requested a board hearing to explain his concern and demonstrate his past, present and future needs. The CFO denied his request for a higher allocation.

• He has achieved better growth than the provincial average. He worked closely with the CFO on this. The CFO has not applied penalties to him for not relinquishing his over-signed production, to date.

• The current allocation system was not providing Sunnybrook Farms with the chicken it needs. Margins are lower and the company needs more growth to stay competitive and get a return on the investment in the processing facility.

• Because his base allocation is very small, 50,000 kg, he needs a much higher than average percentage increase to remain viable, even though his needs are relatively small. It is unlikely he will ever achieve 75,000 kg under a pro rata growth based system.

• He has had to pass up business opportunities with a retail chain, and a local butcher chain specializing in kosher and halal products.

• Large processors in the industry could never have grown to the size they are if they had been operating under the same restrictions he faces today.

• He welcomes the opportunity to compete and grow. He would object to any allocation system based on pro rata growth according to current market shares

• Allocation should be a marketplace decision with the customer as the determining factor. As a small processor he can service his customers with the quality and reliability they demand.

• An allocation system based on requests could accommodate him.

• He objects to the concept of processors being required to purchase PSQ to increase their allocation. This does not support free enterprise and the requirement would put a financial stress on his business.

• He did not anticipate growing beyond 300,000 kg in the near future and the CFO new entrant proposal could accommodate his needs; but his plant is provincially inspected and it is not feasible to have it federally inspected.

• The SM system should try to accommodate all business sizes in the industry.

• He supports Mr. Bos’ pricing proposal.

• As a producer, he was not consulted by the CFO when it developed its proposal.

Intervenors

Ron Campbell Testimony

Mr. Ron Campbell told the Tribunal he worked for the Ontario Agri Business Association (OABA), a voluntary trade association comprised of feed, fertilizer and country elevator operators. He said that the feed sector employed 3000 people and had approximately $1 billion per year in sales, of which $180 million is feed sales to broiler chicken producers. He said that the cost of feed was the largest cost component in growing chicken and that the Ontario feed price is competitive with feed prices in other provinces.

Mr., Campbell explained that OABA had formed an ad hoc chicken committee and he told the Tribunal that the committee no longer supports the position it developed in 1999.

He said OABA believes that to use a COP formula with a feed element input cost, either the corn:soy index or actual feed costs must be used, and there were pros and cons to both. He said there was no official OABA position as to which methodology was better but he said OABA members had the following concerns:

• Differences in rations developed for different production technologies must be accounted for when feed costs are established.

• An independent third party must conduct the survey if elevators feed prices are to be used.

• The price of feed should be collected in a time frame as close as possible to the price setting period.

• OABA wants to be part of any group that will determine the feed component of a live chicken pricing formula.

In response to questions, Mr. Campbell clarified that: the OABA had no position on non-feed elements in a COP formula, or any other pricing formula; the same companies were represented on the current ad hoc committee as were represented on the committee in 1999; the position of the ad hoc committee had not been taken to the OABA board; and futures contracts could be used if the corn:soy index was adopted, but this would entail some risk as most feed companies do not hedge.

John Vanderzanden Testimony

Mr. John Vanderzanden told the Tribunal he had been active in the chicken industry for approximately 20 years in feed sales, as a processing representative, working for a hatchery, and as a producer with experience as a District Committee Representative and as a Director of the CFO. He said he held degrees in sociology and business economics.

Mr. Vanderzanden said he saw three interests arise at the Hearing - bureaucratic concerns over power; processors’ concerns to either lock up market share or have a competitive market; and downstream users who want a competitive market. Mr. Vanderzanden told the Tribunal:

• A pro rata sharing of industry growth amounts to the elimination of competition.

• He did not believe the proposed 3% bid pool would allow for competition as he submitted that it would be a sound business principle for large processors to out-bid small processors to tie up the supply.

• Allowing processors to buy each other’s plant supply allocation would allow the industry to consolidate into one or two large buyers.

• All previous systems with locked in processor shares have failed.

• Various tribunals have overturned fixed market share arrangements and the Minister has intervened to obtain more chicken for individual processors.

• The Competition Bureau has said that market shares should not be fixed as this removes the ability to compete.

• Ontario is losing market share in Canada because the current chicken allocation system locks in market shares.

• Support for a fixed market share system in the processing sector is waning, as the AOCP has fewer members than it had in 1990, and as the OIPP and FPPAC do not support a fixed market share system.

• Having production quota and processing quota in the same industry may lead to contradictions.

• SM is for the protection of farmers and nothing else; it is to be used to ensure fair and reasonable returns to producers. There is no jurisdiction in the FPMA for processors to be covered by SM. The CFO should continue to limit farm size.

• Quota value is a black mark on the chicken industry. The system should not be extended to require processors to purchase quota to enter the industry.

• The CFO proposal indicates it wants to continue to be in charge, determine the size of the market and who processes the chickens.

• The FPMA does not require farmers to fix supply.

• Historically, the CFO never determined supply; this was the role of the national agency (Chicken Farmers of Canada), until a bottom-up system was adopted.

• The basic economics of the CFO report were flawed, as the CFO does not properly define the market. The CFO derived its supply curve as a fixed supply in a vertical line, then set the price needed to sustain that supply. A better supply curve is a horizontal line at the COP price. Supply is then set where the demand curve crosses the supply curve. If demand increases at that price the demand curve will shift to increase supply.

• Supply should be set at the aggregate processor demand at the COP price, subject to the NAA caps. The NAA caps provide protection from processors with a market share mindset.

• He expected the industry will have ‘cut-backs’ for 1-1.5 years, but that once it hit the NAA cap a few times, then processors will start to consider market issues in making their requests, rather than trying to maintain market share.

• He also supported a ‘made in Ontario’ cap to prevent the oversupplies seen in 1994. He submitted that the cap used depended on how steep a learning curve you want to use to get processors to the point where they make requests based on market needs.

• There is no need for a market clearing price as the processors are protected by a closed border. There should be no guaranteed price for processors.

• COP pricing is used in other poultry industries. If processors think producers are making too much money, they can argue the components in the COP.

• Processors must know their price when they make their supply requests. This is not possible if the pricing formula includes the wholesale price.

• If producers’ income were to be tied to the wholesale price, this would provide an incentive for the producers to cut supply, rather than grow the industry.

• If processors have the right to set supply, they should take the risk of the wholesale price.

• Arguments on wholesale prices have been used in the past to reduce the live price, but the two are not closely linked.

• Locking in processor shares would also tend to lock in chick market shares. Maple Leaf is already indicating their producers have to buy their feed; this policy could be extended to chicks.

In response to questions, Mr. Vanderzanden indicated:

• He agreed the APD should be grown, if it is within the NAA caps.

• In the long run, once the provincial volume is increased, ‘cut-backs’ will not be needed as processors will limit their individual requests to prevent over-supplying the market.

• He supported pro rata ‘cut-backs’ in the short term.

• The current marketing system was one reason Ontario chicken producers were losing market share within Canada.

• It is wrong to allow processors to purchase a supply and be guaranteed that purchased volume forever.

• He did not support either CFO proposal for differential growth.

• The current allocation system was essentially a plant supply quota system which eliminates effective competition.

• The effect of both the CFO and the AOCP proposals would be to freeze current market shares.

• Introduction of new products was key to growth, but an entrepreneurial industry is needed. A system which fixes market shares does not allow for entrepreneurs. A fundamental change is required to allow the industry to grow.

• He could support an open sign up system as, in the long-term, when the provincial volume is increased, there will be less fighting for production as processors will have the supply they need.

• He agreed that technically, every processor has to re-sign all its producers each quota period. But, he said that few producers switched processors. He understood that the CFO had a new Form 101 policy and processors no longer have to sign producers each period.

• It took 2-3 years for processors to produce a wholesale price study. The CFO had been concerned that the wholesale price would increase immediately after the live price was set.

• The export market will be lost if the US re-establishes relations with Cuba.

• He believed the current export program was fair but in the long run a two price system will not be viable. Also, if only one producer wants to export, he should be allowed to do so.

• He is not affiliated with the OIPP or any other group.

• He still attends district committee meetings. He was in attendance when the Commission decision was discussed at one such meeting. He did not recall being present at any meetings where the CFO proposals were discussed.

Summation

CFO

Mr. Goldblatt told the Tribunal that the CFO proposal provided a detailed, comprehensive system that will address the concerns of the parties and entire industry. He submitted that the CFO was the only party to the Hearing that put forth a proposal that was not predicated on self interest. Further, he stressed that only the CFO and the AOCP had made suggestions which addressed all six issues under appeal. He said the CFO proposal addressed problems with the current marketing system and was flexible enough to meet the challenges of the future while being, at the same time, sufficiently transparent to ensure that the participants in the system have a high degree of certainty

Mr. Goldblatt said all parties agreed on a bottom-up approach to supply setting, a formula pricing approach, and the need to create an environment to grow Ontario’s market share, subject to the NAA. He said that the CFO was the only party to develop a workable system based on these principles. He submitted that the AOCP proposal did not address the flaws in the current system and said that the status quo is not an option. He submitted that the other parties’ proposals were designed to give them specific benefits such as increased bargaining power or lower chicken prices.

Mr. Goldblatt submitted that the Tribunal should give little weight to letters by a former Minister as that Minister was two times removed, as the letters had followed a political appeal, and as no action had been taken after a deadline set by that Minister had passed.

Mr. Goldblatt submitted that the CFO proposal was superior on the issue of supply setting as it provided for an industry meeting which would result in a rational supply figure. He criticized the AOCP and FPPAC consensus-based industry meeting proposals as he said consensus would be difficult to achieve. He said the OIPP, CRFA and FPPAC systems will be consistently frustrated because they will inevitably force ‘cut-backs’ at the national level. Mr. Goldblatt also submitted that any system that enables processors or other stakeholders to determine provincial allocation requests in an unfettered manner does not comply with the NAA. He said that the NAA required provinces to consult with processors using a “bottom-up” approach to determine market requirements. He also submitted that any proposal that does not contemplate a ‘cut-back’ provision does not comply with the NAA and suggested that the CRFA proposal would amount to the elimination of supply management.

With regard to individual processor supply, Mr. Goldblatt said that the CFO proposal would lead to differential growth over time, as processors would be allocated supply on the basis of how much chicken they actually slaughtered rather than their historic supply. He said the bid pool option, although more complex, was consistent with the principle that those processors who want growth should have to make an investment to achieve it. Mr. Goldblatt submitted that the OIPP proposal for ‘cut-backs’ based on supply requests would encourage ‘game playing’ by processors and result in unrealistic supply requests. He said the AOCP proposal would not allow for differential growth. Mr. Goldblatt submitted that the open contracting position put forth by Mr. Bos was beneficial to producers but unacceptable to the rest of the industry.

With regard to price determination, Mr. Goldblatt said that a price formula would bring stability and predictability to the live price of chicken and eliminate delays related to arbitration. He said that there was no question that supply impacts on live price and submitted that the wholesale price must be included in the formula. He suggested that the government would not allow producers to be isolated from the effects of over-supply, if that over-supply resulted in losses in the processing sector. Mr. Goldblatt pointed out that producers and processors were both comfortable with the wholesale price data collected by the AOCP and suggested the objections of other stakeholders should be discounted. Mr. Goldblatt urged the Tribunal to use its discretion to establish a price formula, while leaving open the possibility of future ‘fine-tuning’ by the parties. He said that the CFO did not believe it was necessary for the Tribunal to adopt a specific pricing grid as part of the pricing formula. Mr. Goldblatt criticized the ‘relative welfare’ component of the AOCP price formula proposal.

Mr. Goldblatt told the Tribunal the CFO disagrees with the other parties’ positions with regard to export policy. He said it would be inadvisable to use the dairy export policy as a model as it had been challenged under the WTO, whereas the chicken export policy had not been challenged. He also said that the issue of non-quota holders producing for export was less a concern in the dairy industry due to quality controls and a different licensing system. Mr. Goldblatt asked the Tribunal to maintain the provision that chicken producers growing for the export market must be quota holders and must be licensed by the CFO.

Mr. Goldblatt said the CFO had introduced an incentive program to encourage producers to grow chicken in the KFC category. He said the board was open to extending this program to other categories.

Mr. Goldblatt submitted that there was little disagreement between the parties with respect to the question of a new entrant policy. He said that the CFO proposal would allow existing small processors to opt to be classified as new entrants and be eligible to receive up to 300,000 kg of chicken per period.

AOCP

Mr. Shapiro told the Tribunal that chicken producers, represented by the CFO, and processors, represented by the AOCP and the OIPP, were the parties who would be most directly affected by its decision. He suggested that the CRFA and FPPAC members would be affected to a significantly lesser degree. He suggested that Mr. Bos’ position be given less weight than the CFO position, as he was one producer whereas it represented all producers.

Mr. Shapiro submitted that other parties had overstated market shortages in Ontario. He said that the evidence was that supplemental import quota for live chicken had only been accessed once in four years and that the CFO had only acknowledged there was a supply shortage in one period. He agreed with the CFO submission that statements of the former Minister should be disregarded. He suggested there could be negative growth in the chicken industry in the future, and in that case, there was no need to be concerned about a ‘cut-back’ mechanism. Mr. Shapiro said the industry had never tried to reach consensus on volume setting in the past and submitted that the AOCP proposal would encourage them to do so. He also said there should be a ‘made in Ontario’ process to determine supply needs, rather than a bottom-up system to the limit of the NAA caps.

Mr. Shapiro said that the AOCP was comfortable with the CFO proposal for supply setting, except that it gave too much weight to the APD and the AOCP objected to its suggested procedure when the APD is greater than 2% higher than the highest recommendation by an industry association. He said the proposals by the OIPP and FPPAC had generic safeguard levels not related to market conditions and the CRFA proposal provided no safeguards to ensure that the SM system could be maintained.

Mr. Shapiro told the Tribunal that the AOCP generally represented large, federally inspected processors while the OIPP members are mainly small, provincially inspected processors. He said the key OIPP concern was clearly the allocation of chicken to processors. He reminded the Tribunal that Mr. Hoover had testified that his company wanted to expand by 30-40% in one year. Mr. Shapiro said that as the industry growth rate was only 3-4% per year, the growth desired by Mr. Hoover would have to come at the expense of other processors and this would de-stabilize the marketing system. He said if companies want rapid growth, they should buy that growth from an existing processor. He urged the Tribunal to reject the OIPP proposal. He submitted it would lead to excessive processor requests. Mr. Shapiro also asked the Tribunal to find that allocation by open sign up is unacceptable. He said that processors need a guaranteed supply in order to develop markets and he said open sign up did not provide supply assurance.

With regard to new entrants, Mr. Shapiro said that the AOCP generally supports the position adopted by the Commission, but that it now agrees with some other parties that there should be a 300,000 kg threshold, but no 50,000 kg threshold. He also said new entrants should be federally inspected and HAACP approved.

With regard to price setting, Mr. Shapiro argued that the CFO, the AOCP and the OIPP represented the buyers and sellers of chicken and all agreed there should be a price formula which included the cost of feed and chicks and wholesale prices. He urged the Tribunal to allow the parties some time to negotiate the specific details of a pricing formula, and to specify how a formula is to be developed if the parties fail to reach a negotiated agreement.

Alternatively, Mr. Shapiro asked that the pricing formula proposed by the AOCP be adopted. He submitted that the concept of relative welfare of producers and processors used in developing the AOCP position was well understood in the industry. He said it had been the approach used in price negotiations for the past four years. He explained the point of the relative welfare methodology was to equalize returns to an agreed upon base level. Mr. Shapiro said the AOCP disputes the CFO submission that its regression analysis reflected the way in which the industry had been pricing. He also submitted that it would be retroactive to use the current live price as a starting point as it was settled in a different environment and costs have changed. He said the AOCP could accept an arbitrated price as the starting point for a formula, but objected to restrictions being placed on what the arbitrator can be told.

Mr. Shapiro submitted that if the Tribunal has jurisdiction on pricing it also has the jurisdiction to set the specifics on the pricing grid. He said the pricing formula and the grid are closely linked and the pricing grid was key to ensuring category requirements are met. Mr. Shapiro said the AOCP proposed adding new categories to the grid as well as changing the values in the existing categories. He asked that the Tribunal adopt this pricing grid proposal. However, he also suggested that the pricing grid could be negotiated at the same time the pricing formula is negotiated, should the Tribunal order further negotiations on these points. Mr. Shapiro submitted that the CRFA proposal regarding supplemental imports was impractical and outside the Tribunal’s jurisdiction.

On the question of an export policy, Mr. Shapiro said the AOCP supported the policy outlined by the Commission in its decision. He said the AOCP could accept the current CFO export policy if the 50% participation rule were removed.

OIPP

Mr. Sternberg told the Tribunal that the evidence was that the current system was not working. He said that the CFO sets the supply in a discretionary manner and this has led to a decline in Ontario’s market share. He said processors had no incentive to compete with new supply allocated pro rata based on market share, as there was not an equal opportunity to access chicken for new markets. He also said the evidence was that the AOCP, CFO and FPPAC proposals would not sufficiently change the status quo to allow Ontario to regain market share. He said the OIPP proposal would improve the status quo to correct deficiencies in volume setting and individual processor allocation.

Mr. Sternberg submitted that the CFO had indicated there is a chicken shortage and the Minister had directed that the province take advantage of growth opportunities allowed under the NAA. He said the Minister’s directive had not been revoked and should be heeded, as the Minister’s directive was in the province’s best interest.

Mr. Sternberg said the objective for volume setting should be to produce the volume required by the market, within the national SM framework. He said that processors will guarantee they will buy a volume of chicken at the prescribed price and will provide letters of credit to the CFO. He said the evidence was that the CFC goal is to satisfy the processor requests in each province, and that this is done in some other provinces.

He also said that Ontario should not arbitrarily reduce growth due to worries about what stakeholders in other provinces might think.

Mr. Sternberg said that the AOCP proposal was most at odds with the objective, as it placed the least amount of emphasis on individual processor requests, and as it imposed a further cap on Ontario production, regardless of the volume of chicken processors request. Mr. Sternberg objected to the imposition of an extra cap, beyond the NAA caps, but he said if the Tribunal was inclined to add one it should not be the historic rate of growth. He said this would result in Ontario continuing to have chicken shortages and a declining market share. He agreed with Mr. Goldblatt that it would be difficult to reach an industry consensus on the volume of chicken required. Mr. Sternberg said the FPPAC proposal also imposes an additional growth cap on Ontario, barring an agreement to exceed it.

Mr. Sternberg said the CFO proposal has the potential to create a more market responsive system, but that it allows the CFO significant discretion to set the supply number. He said the evidence was clear that the CFC asked the provinces to reconsider their volume requests in most quota periods, and he said the CFO proposal would give it the discretion to set volume in these instances. Mr. Sternberg suggested to the Tribunal that clauses 1.7 and 1.8 of the CFO proposal be struck out, if it opted for the CFO proposal. However, he said the OIPP position was that the CFO should be provided the discretion to limit the supply to 8% growth, in the event that the APD exceeds the provincial growth cap in the NAA.

Mr. Sternberg said the method of allocation of supply to individual processors was the heart of the dispute. He said that there was evidence that processors had little incentive to develop new markets or serve existing customers better as the supply of chicken was locked up on the basis of historic market shares. He said the Competition Bureau was opposed to the pro rata system as it prevents new entrants, prevents the exit of inefficient firms from the industry and gives an advantage to integrated further processors who can restrict the supply of chicken available to independents. Mr. Sternberg submitted that the current system was unfair, as it does not give all processors the same opportunity to purchase the chicken they need. He said the current system effectively created quota for processors.

Mr. Sternberg said the AOCP, CFO and FPPAC proposals all maintained a system with pro rata allocation based on market share. He said using actual slaughter data, rather than base allocation, as the CFO proposed, would not be a significant change because processors would start to slaughter 100% of their base. He said the slightly different calculation of the base suggested by the FPPAC was not significant.

Mr. Sternberg submitted that a new processor allocation system should allow for differential growth and promote competition amongst processors. He said the evidence was that the industry would be in a ‘cut-back’ position every period immediately following the introduction of a new system, and more often than not after that. He submitted that the OIPP ‘cut-back’ proposal was simple, straightforward and transparent and was designed to allow all processors to have an equal opportunity to obtain chicken. He said that this would provide processors with an incentive to develop new markets and improve service to existing customers. Mr. Sternberg said the OIPP proposal would not take away existing supply from processors, as it was designed to allocate growth in the market.

Mr. Sternberg said that concerns regarding ‘game playing’ under the OIPP proposal were unwarranted as ‘game playing’ was possible in any system and as financial penalties could be used to discourage it. He said the Tribunal should assume that processors would act in good faith. Mr. Sternberg said it was important that the Tribunal choose an allocation system that will allow for differential growth. He told the Tribunal that the open sign up method proposed by Mr. Bos was acceptable to the OIPP, as it met that objective.

CRFA

Mr. McIlroy told the Tribunal that the Minister had identified three concerns with the chicken marketing system – Ontario demand was not met by Ontario producers; Ontario’s share of national chicken production is declining; and Ontario production is not growing to limits of the NAA while consumer demand is not met. He said the Minister was clear in his direction that the Ontario industry grow to the limits of the NAA and submitted that the barriers to meeting that directive were in the provincial system, not the national system.

Mr. McIlroy said it was important to understand the hierarchy in the chicken marketing system. He said that the top of the hierarchy was the Legislature, followed by the Minister, the Commission, and then the CFO. He said that the CFO has no inherent power as it is subject to directions of the Commission. He noted the Tribunal has the power to direct the Commission, which in turn has the power to direct the CFO. But, he pointed out that the Minister’s position in the hierarchy was such that he is the decision-maker. He said that it did not matter that the current Minister was not the same Minister that issued a direction to the chicken industry, as the direction had not been rescinded. He submitted that the failure of the CFO and the AOCP to heed this direction was the reason for the appeal.

Mr. McIlroy asked the Tribunal to order specific changes to the chicken marketing system, as he submitted that a general directive such as the Commission ordered, would not work. He said that the CFO did not consult with the CRFA when it tried to implement the Commission decision and he submitted that it was a special interest group just like the other parties. He said that neither the CFO nor the AOCP represented other stakeholders. Mr. McIlroy suggested that, if there were details the Tribunal would not rule on, that it should direct the Commission to resolve them, within clear deadlines. He said the Commission would look out for the entire industry and the broader public interest whereas the other parties would not.

With regard to supply setting, Mr. McIlroy submitted that the APD provided the best information, as competitive issues prevent industry stakeholders from providing accurate information to associations. He criticized the CFO proposal as he said it allows association views to trump the APD, and as it prohibited growth higher than 8% even though higher growth was attainable under the NAA. Mr. McIlroy submitted that Ontario must be more aggressive in requesting supply from the CFC. He also submitted that the CFO had not used its discretionary power to comply with the Minister’s direction. Mr. McIlroy criticized the AOCP proposal as he said it maintained the status quo. He asked the Tribunal to reject any proposal that is subject to any limits or escape clauses other than those contained in the NAA.

On the subject of price setting, Mr. McIlroy asked that the Commission be directed to amend the regulations to provide fair returns to producers. He said the CRFA strongly opposed the status quo, which places risks regarding falling wholesale prices on Ontario chicken producers. He submitted that this may induce producers to short supply to drive up prices.

Mr. McIlroy told the Tribunal that Dr. Groenewegen did not review all parties’ positions and determine that the CFO position was the best. He said Dr. Groenewegen did not say that the CFO proposal would address the problems identified by the Minister. He submitted that the expert witness only went so far as to say that the CFO proposal would be an improvement to the current system. Mr. McIlroy submitted that this is not good enough, as the solution chosen by the Tribunal must solve the problem.

Mr. McIlroy asked the Tribunal to direct the parties to develop an effective market weight incentive program for live birds in the 1.95 – 2.15 kilogram range immediately. He said this should encompass both incentives and disincentives for producers so that category requirements will be met. He also suggested that the Tribunal rule that if Ontario producers and processors do not achieve a 90% rate of specification compliance on a consistent basis, they should not be allowed to oppose CRFA member requests to DFAIT for supplementary import quota. He acknowledged that this was outside the jurisdiction of the Tribunal.

Mr. McIlroy said it was important that export policy not be developed in vacuum and he urged the Tribunal to respect Canada’s WTO obligations. He said the current export policy amounted to cross subsidization as domestic buyers could not purchase chicken at the same price as foreign buyers.

FPPAC

Mr. de Valk told the Tribunal that the FPPAC submission addresses all the issues under appeal. He said he believed the ‘cut-back’ proposals are the key issue as the ‘cut-back’ mechanism will determine which processors get a supply of Ontario-grown chicken. He pointed out that no party was asking that the existing supply be re-allocated; the issue is how to divide growth.

Mr. de Valk said the FPPAC proposal would fulfill the Minister’s directive with regard to maximizing Ontario’s production within the limits of the NAA. He said further processors want to buy more raw material in Ontario and that the status quo will not allow them that opportunity. He said that the most weight should be given to individual requests in determining the volume of chicken to be grown. He said the testimony of Mr. Dungate of the CFC was that processor driven bottom-up systems were used in other provinces and were envisioned by the NAA. He submitted that this refuted the CFO argument that the Ontario supply request should be vetted by the CFO in order to have weight with the CFC. Mr. de Valk stressed that it was important that the APD be the volume requested from the CFC, unless there was an industry consensus to put in a different amount.

With regard to allocation to individual processors, Mr. de Valk said the evidence was that the OIPP proposal would not work as every processor would ask for more chicken than needed, to maximize the amount actually received. He said that the ‘cut-back’ proposals suggested by the CFO and AOCP would effectively maintain the status quo. He submitted that the FPPAC proposal, which used the most recent slaughter data as the base, would better accommodate growing companies. He said that while the FPPAC had suggested a 90% slaughter rule to allow for processor-to-processor trading, it was persuaded that a smaller sleeve could accommodate the trading objective. He stressed that the market should determine which processors should grow, not the CFO.

Mr. de Valk said the FPPAC supported a new entrant policy similar to the one detailed by the Commission in its decision. He said it did not want business plans referenced in the policy. Mr. de Valk told the Tribunal that the evidence was that further processors had at one time been allowed to contract with producers for a supply of live chicken and he asked that this policy be reinstated. He said the definition of further processor used in the old regulation could be used.

Mr. de Valk said the FPPAC believed that progress will be made on meeting category size and quality requirements if the allocation system is fixed. However, he agreed that specific steps could be taken to improve compliance as well.

Mr. de Valk asked the Tribunal to make a determination as to whether or not the wholesale price should be included in a pricing formula, even if it did not rule for a specific formula. He stressed that the FPPAC does not support the inclusion of the wholesale price and pointed out that while the existing wholesale price series may be a good indicator of the value of bulk chicken, that product may represent only 30% of the Ontario market. He said that a feed component in a price formula should be based on the corn/soy ingredient pricing approach, as these commodities can be hedged and as it has been used in Ontario in the past. Mr. de Valk said the FPPAC supported fixing producer returns for a one-year period to provide price stability. He said the NAA had safeguards to prevent a flood of chicken from Quebec undercutting the Ontario market.

Mr. de Valk told the Tribunal that it should pay attention to developments in international trade. He suggested that it put a time frame around the process of amending the export policy and that it direct the CFO to amend the policy to allow producers to provide chicken to a processor of choice. He said the export policy is an important way of increasing supply, as NAA caps do not apply to chicken grown for export.

Mr. de Valk asked the Tribunal to disregard arguments of other parties that the FPPAC position was influenced by AOCP members as he said the evidence does not support this contention. He also said that while it was difficult for large buyers to switch suppliers, he had no recollection of the FPPAC witness indicating that a large buyer was locked in to a specific processor.

Henry Bos

Mr. Bos submitted that the manner in which the total provincial supply is set is a critical issue for the Tribunal to determine. He said that the methodology outlined in the Commission decision could work like unrestricted supply setting mechanism, as there had been testimony that processors would always request the maximum growth allowed by the NAA, and this would over-supply the market. However, he said that the NAA could cause the Ontario system to function like a restricted supply, as the CFC frequently asks the provinces to lower their requests. Mr. Bos submitted that if the Tribunal were to adopt a system with no provincial flexibility to revise the volume requested as a result of the APD, there would be confrontation between the province and the CFC. He suggested that there was a need for provincial industry stakeholders to retain some discretion to amend the volume requested, even though this would lead to restricted supplies.

Mr. Bos submitted that in a restricted supply environment an open sign up method is the best way to allocate that supply. Mr. Bos referenced testimony of several witnesses in support of the open sign up concept and noted that it was put forward as an acceptable alternative by the OIPP. He said that the argument that open sign up leads to the payment of premiums was untrue. He said the open sign up system had not been in place in Ontario since 1994 but there were still premiums paid. He submitted that premiums are a function of supply and that premiums in and of themselves do not increase costs to the consumer.

Mr. Bos urged the Tribunal to consider that proposals that guarantee supply to processors would result in producers being apathetic as to what size chicken they grow as they will be reassigned and pigeonholed. He said that apathy breeds mediocrity and Ontario consumers deserve an entrepreneurial, competitive and vibrant industry. He asked that an open sign up method be adopted.

Mr. Bos criticized the CFO proposal as he said that although the CFO represents producers, its proposal was not circulated to producers, they did not have an opportunity to vote on it, and none of the CFO witnesses were producers.

Mr. Bos said the CFO, AOCP and OIPP positions all guarantee a volume of chicken for processors and this is essentially giving processors PSQ. He said that PSQ reduces competition in the processing sector.

With regard to pricing, Mr. Bos argued that the CFO proposal misused regression analysis to create cause and effect, when this mathematical tool is not intended to show cause and effect. He said the AOCP provided contradictory testimony as it said that cost based formula pricing is not sustainable, yet also testified that the OBHECC price formula which does not include a market factor was stable. Mr. Bos said that including a wholesale component in the live price would effectively extend SM beyond the farm gate.

Mr. Bos said that the CRFA proposal could be a good policy but he had two reservations about it. He said it could lead to confrontations between the province and the CFC and it could lead to over-supplies. He urged the Tribunal to reject the FPPAC proposal as he said it would restrict supply.

Analysis and Conclusions

Ontario is a signatory to a federal-provincial agreement requiring that chicken be marketed through a supply management (SM) system. Under this system, the CFO cooperates with the CFC and other provincial marketing boards as signatories to the NAA to grow sufficient chicken to meet market needs, while at the same time maintaining a fair return for producers. The Tribunal’s decision is made in the context of the SM system in Ontario.

All parties made reference over the course of the Hearing to statements and directions regarding growth targets for the industry, which were made by the Minister in correspondence with some industry stakeholders. The Tribunal as an independent body serving agriculture in Ontario does take note of the concerns of the Minister of the day as reported in his correspondence. The Tribunal notes that there has historically been growth in the chicken industry and it believes its decision should encourage this growth to continue. It is apparent that there is unfilled demand for specific categories of Ontario-grown chicken and there is provision in the NAA to allow this market need to be met. The orders of the Tribunal in this matter are intended to allow for the necessary growth in the industry to occur in an orderly manner, such that the processors desiring to meet market demand are able to source chicken from producers who can grow the required chicken in Ontario.

The chicken industry is a dynamic industry and the Tribunal recognizes that it has developed its pricing and supply mechanisms over many years into the supply managed marketing system used today. The Tribunal is encouraged that this industry is able to supply a safe and high quality product. The Tribunal encourages all stakeholders to continue to work in co-operation and to implement changes as required to meet the challenges which come with new technology, changing consumer attitudes/appetites, and animal welfare issues.

The Tribunal finds this Hearing to be a step in this development. The panel has heard the evidence from the stakeholders in the industry and seeks to assure the supply of quality products to markets in a fair and reasonable manner.

Total Ontario Domestic Supply

All parties accepted the need to collect individual processor requests and total these requests to determine the aggregate processor demand (APD) each quota period. The Tribunal is convinced that individual processors, restrained from speculation by means of a mandatory 100% slaughter rule, are the individuals who best know what their market needs are. The Tribunal will order that individual processor requests be made in confidence to a designated employee of the CFO, 16-18 weeks before the start of each quota period. The Tribunal will order that each individual request be added to all other processors’ requests to form the APD. The Tribunal agrees with the suggestion by the CFO that each individual processor request is to be accompanied by an irrevocable letter of credit in the amount of 12% of the value of the requested volume of live chicken.

Parties had disparate views regarding the setting of a total supply volume for Ontario in the event that the APD exceeds pre-determined growth caps and indeed disagreed on what those caps should be. The FPPAC argued that NAA caps should be used, the AOCP preferred a ‘made in Ontario’ cap and the CRFA took the view that Ontario should push the limit of the NAA caps, if the APD exceeds 8% growth. The Tribunal finds that the CFO shall forward the APD to the CFC for approval provided it falls within the 8% provincial cap established in the NAA. The Tribunal agrees with the AOCP that the NAA cap should not be a target. However, it believes that Ontario processors must not be disadvantaged relative to processors in other provinces with respect to achieving growth to fulfill the needs of their customers.

In the event the CFC does not accept or approve the aggregate request, the CFO shall convene a meeting of industry stakeholders to reconsider the request. Industry stakeholder meetings are to be convened by the CFO when a request to the CFC is returned as unacceptable and when the APD is greater than the 8% provincial cap. The stakeholders expected to participate include: OBHECC, OABA, CFO, AOCP, OIPP, FPPAO, CRFA and CCGD. A representative of the Commission is also to be invited to attend. The Tribunal does not preclude the inclusion of additional individuals or groups in the future, should the present stakeholders wish to expand the consultation process.

A representative of the CFO is to chair the industry stakeholder meetings. All stakeholders are encouraged to contribute to a consensus on the volume to be requested of the CFC. This consensus-approach was supported by the AOCP and Mr. Bos. In the event that stakeholders do not reach a general consensus, the chair, as the leader of the consensus-building exercise, will have the discretion to set the volume to be requested of the CFC. The CFO shall submit to the CFC the requested volume determined at the industry meeting.

The Tribunal finds that this process of determining the volume of chicken to be requested of the CFC will provide the province with a strong position for defending its market needs.

The CFO and the AOCP supported the use of a standardized information template to be completed by participants in industry stakeholder meetings on the determination of supply. The Tribunal feels this is a positive suggestion and it encourages industry stakeholders to develop a template.

Allocation to Individual Processors

The question of what volume of chicken to allocate to each individual processor is considered by the Tribunal to be the most contentious and the most important issue under its consideration.

In situations where the CFC sets the total Ontario domestic supply at a volume equivalent to the APD for that period, all parties agreed that each individual processor should have an allocation equal to its request. The Tribunal concurs with this view. Where the total supply is set at less than the APD, there will be what has become known as a ‘cut-back’ situation. In this situation there is an apparent need to allocate the growth portion of aggregate request volume in a way that will satisfy the variable growth needs of the industry stakeholders. Some processors may require little growth over their regular or base supply. Others may need to supply new customers or existing customers with new products at higher levels than their regular basic allocation can supply.

Processor associations held fundamentally different views as to how chicken should be allocated when the demand exceeds the supply. The AOCP took the position that chicken should be allocated pro rata on the basis of historic shares, with some adjustments based on actual slaughter. The OIPP preferred a system whereby ‘cut-backs’ are made to the growth requested by each processor, in the same percentage as the Ontario domestic volume is below the APD. The OIPP indicated it could also support an ‘open sign-up’ method. The FPPAC proposal was similar to the AOCP proposal but it proposed a different means of determining the historic share.

The Tribunal is persuaded by the CFO argument that processors should be assigned a base which is to be used in the determination of individual processor’s allocations under a ‘cut-back’ scenario. The Tribunal also finds merit in the OIPP position and it will order an allocation system which contains elements of both proposals. The Tribunal also adopts the position put forward by most parties that a processor’s allocation is not to exceed its requested total volume. The Tribunal rejects the positions put forward by the AOCP and FPPAC as it is persuaded this methodology would provide an unfair advantage to larger processors and would not allow for meaningful differential growth without the consolidation or purchase of processors.

Each processor’s base will be calculated as follows:

1. The amount of chicken actually processed by each processor in each quota period will be measured as a percentage of the actual production of that processor’s signed Ontario producers in the quota period. The resulting figure will be referred to as a processor’s utilization percentage.

2. Each processor’s utilization percentage for the 5^th, 6^th and 7^th periods prior to each quota period will be averaged to obtain an average utilization percentage.

3. Each processor’s average utilization percentage will be applied to that processor’s average available Ontario supply during the same three quota periods. The resulting amount will be the processor’s base for the period.

In periods where the total Ontario domestic volume is less than the APD, the allocation is to be divided into two parts – a Base Volume, using the individual processor bases as calculated above, and a Growth Portion which is defined as the volume of chicken allocated in excess of the Base Volume. The sum of a processor’s Base Volume and the Growth Portion is the allocation of chicken to which it will be entitled.

In a ‘cut-back’ situation the Base Volume of all processors will always be allocated to the extent that supply is available, with the exception that processors requesting less than their Base Volumes for that period will not receive more than they requested. If the total Ontario domestic volume is less than the sum of all Ontario processors’ Base Volumes (total base), then there will be no Growth Portion allocated to processors.

If there is a volume of chicken available to meet a portion of the growth needs of the industry, the Growth Portion of each processor’s allocation will be allocated such that each individual processor’s request for that period will be ‘cut-back’ by the same percentage of the growth requested. Growth requested is the difference between a processor’s individual volume request and its base. This is illustrated by the following numerical example:

• A processor has a base of 1,000,000 kg of chicken for a period and makes an allocation request for 1,040,000 kg of chicken. The growth requested is 40,000 kg and the percentage of growth requested is 4%.

• In the same period the APD is 6% higher than the total base of all processors and this volume is requested of the CFC. But the CFC approves a total Ontario volume that is only 2% higher than the total base. The province receives one third of the growth it requested. This is a reduction of 0.6667% of the growth requested by the province.

• The percentage of growth requested by the processor is reduced by 0.6667% to 1.3333% and the processor receives 13,333 kg of Growth Portion allocation. This is added to its base to give a total allocation of 1,013,333 kg.

• The percentage of growth requested by all other processors is reduced by the same percentage, 0.6667%.

In the event that the total Ontario domestic volume is less than the total base and less than the APD, processors will not receive their base. In these situations, the total Ontario domestic volume of chicken is to be allocated pro rata on the basis of processor bases, with the exception that no processor will receive more allocation than was requested. If there is any additional allocation available due to processors having requested less than they would be entitled to, this volume will be allocated pro rata on the basis of processor bases.

This is illustrated by the following numerical example: The CFC approves a total Ontario Domestic volume that is 5% less than the total base. Processor C has a base of 500,000 kg; Processor D has a base of 100,000 kg. Each processor is allocated 5% less than its base. Processor C receives 475,000 kg and Processor D receives 95,000 kg. If all other processors have had their requests met and there is an additional 100,000 kg to be allocated, Processor C will be allocated 83.3333% of the additional volume (83, 333 kg) and Processor D will receive 16.6667% of the additional volume (16,667 kg).

The Tribunal believes that the methodology for allocating growth in the industry proposed by the OIPP will best provide for differential growth in the industry and improvements in servicing the further processing sector. With regard to ‘cut-backs’ below Base Volume, the Tribunal accepts the position put forward by several parties that it would be unfair to allow for differential growth at the expense of established markets and it believes that pro rata cuts on the Base Volumes is the most equitable means of sharing reductions in total supply.

Most parties either supported or were not opposed to a requirement that processors be required to slaughter 100% of the volume of chicken they have been allocated. However, the Tribunal also heard that it should not permit the CFO to regulate activities that occur in the industry after chickens leave the farm. The Tribunal is of the view that processors who request and receive an allocation of chicken must slaughter the volume of chicken they are allocated. The Tribunal will order that:

1. All processors receiving an allocation of live chicken from the CFO will be required to slaughter 100% of that chicken; the slaughter percentage is to be calculated on a three-period rolling average, as proposed by the CFO.

2. Failure to slaughter at least 100% of the allocation will result in a reduction in the processor’s base; the base will be reduced by the same volume that the processor failed to slaughter.

In addition, the Tribunal will direct the CFO to implement an appropriate financial penalty to processors who slaughter more or less than 100% of the volume of chicken they requested.

To allow the industry time to adjust to the new system, for the seven periods prior to the period in which this system is implemented, each processor’s utilization percentage will be deemed to be 100%.

Also, the Tribunal confirms that the CFO will retain the discretion to vary penalties under catastrophic circumstances.

Apprehension was expressed by the AOCP, the CFO, the FPPAC and Mr. Bos that processors may engage in ‘game playing’ in making their individual requests in order to disrupt the allocation process for several periods after the implementation of a new allocation system. The Tribunal expects the use of a 100% slaughter rule with careful audits and suitable penalties to be a strong deterrent to this potential activity. The Tribunal strongly urges industry stakeholders to co-operate to allow a vibrant and dynamic industry to continue to flourish.

The Tribunal finds that the current industry practice by which the CFO consolidates the allocations of two processors in the event that one processor purchases the other should be continued. In these situations, the base of the purchased company may be added to the base of the purchasing company. This will allow for consolidation in the industry. The AOCP proposed that partial sales of processor allocation be allowed in order to provide for variable growth within the processing sector. The Tribunal does not believe this method of differential growth is in the best interests of the industry at this time. The Tribunal feels that is in inappropriate to allow allocation to processors to be sold separately from the business. The methodology for allocating growth adopted by the Tribunal is expected to allow for differential growth, in the long term.

The FPPAC, the CRFA and Mr. Bos all supported a position that further processors be permitted to contract directly with producers to source chicken, which they would then have custom-processed. The Tribunal believes this is not in the best interests of the industry at this time. The Tribunal is of the opinion that live birds should only be allocated to companies/individuals who have the capacity to slaughter.

The Tribunal accepts the definition of a processor provided in CFO Regulation No. 1556-1998 which states:

“processor” means a person who slaughters chicken and who holds a valid and subsisting licence to engage in the business of operating a registered establishment under the [Meat Inspection Act ](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-25-1st-supp/latest/rsc-1985-c-25-1st-supp.html)(Canada) and Regulations thereto or a plant under the Meat Inspection Act (Ontario) and Regulations thereto and includes a new processor.

Late in the Hearing, evidence was introduced to the effect that the CFO changed its policies to allow processors to sign producers for more than one period at a time. The Tribunal expects the CFO to coordinate any changes in its policies regarding the assignment of producers to specific processors with its orders contained in this decision.

New Entrants

The Tribunal accepts the positions put forward that potential new entrants to the chicken processing sector may request an allocation of up to 300,000 kg (live weight) of chicken per period. The Tribunal finds that new entrants to the industry must have access to a plant that is licensed either federally or provincially and that meets the regulatory standards that are in place at the time it applies for new entrant status. In addition, if the new entrant plans to ship chicken out of Ontario it must meet CFIA standards and be HACCP approved. The Tribunal notes that the CFO, the AOCP, the OIPP and the FPPAC all requested that new entrants be required to meet HACCP standards.

The Tribunal finds that existing Ontario chicken processors allocated less than 300,000 kg (live weight) of chicken per period shall be eligible to request up to 300,000 kg of chicken per period under the new entrant policy if they declare themselves to be new entrants.

Once a processor has declared itself to be a new entrant and has been approved by the CFO, it will be considered a new entrant for 6 periods and may request an increase in its supply in any of those 6 periods.

The increase in base associated with allocations pursuant to the new entrant policy may not be sold or transferred for 12 periods from the date the last such allocation is awarded to a new entrant.

The total supply available to processors designated as new entrants is capped at 1% of the total provincial allocation from the CFC for the most recent prior period. A processor designated a new entrant that receives an allocation of chicken under the new entrant program is to be assured of that supply amount for six quota periods, subject to the new entrant slaughtering 100% of its requested volume, and subject to there being sufficient volume available within the 1% cap.

In the event that the industry is in a ‘cut-back’ situation where the total Ontario domestic supply is less than the total base of all Ontario processors, there is to be no additional allocation set aside for the new entrant program in that period.

If the demand for allocations of chicken under the new entrant program exceeds the available supply, the CFO shall determine which new entrants receive the supply. The CFO is to give preference to existing small processors (slaughtering less than 300,000 kg per period) who have asked to be designated as new entrants, and is to consider the new entrant’s business plan and the order of receipt of the applications.

If a new entrant achieves a supply of 300,000 kg at any time within the first six periods of its existence, it may opt out of the new entrant program for the purposes of requesting allocations of chicken. However, in this case the restrictions on transfer of base obtained through the new entrant program will continue to apply. Also, a processor may only be a new entrant once, it cannot opt out then back into the new entrant program.

New entrants that are not existing processors must submit the following to the CFO:

• A business plan which includes a marketing plan.

• Verification of CFIA or provincial inspection approval, including verification that the plant will operate under HACCP standards if this becomes a requirement in the future.

These applications must be accompanied by written confirmation from a financial institution of the applicant’s ability to provide a letter of credit in the amount required. The CFO will have the discretion to refuse to allow a processor to be a new entrant under this policy based on its analysis of the potential new entrant’s application.

The Tribunal recognizes that the AOCP has concerns about the volume of chicken that other parties asked be made available to new entrants. The Tribunal finds in favour of the other parties in this regard. The Tribunal believes the marketing system must provide an opportunity for niche markets to be developed by smaller processors.

The Tribunal agrees with the CFO and most other parties that a new entrant program should be made available to existing small provincially inspected plants in order to allow them to satisfy their differential growth aspirations.

Price Determination

The Tribunal notes that the Commission has the authority under Section 7(1)25 of the FPMA to establish negotiating agencies to settle, among other things, prices to be paid for regulated products, such as live chicken. The Commission by regulation set out in Sections 17 and 18 of Regulation 402 (as amended by 443/97) has established a negotiating agency and by Section 19 of the same regulation has established a mechanism for arbitration. In its interlocutory decision of OC 12 01, the Tribunal concluded it does have the authority to direct the Commission to amend this regulation.

The Tribunal supports the establishment of price by negotiation/arbitration. The Tribunal notes that the parties have been setting price through a sophisticated negotiation/arbitration process for some time. However, the Tribunal wishes the regulation to be changed in order to provide greater stability and predictability in the industry. The parties agreed that the Tribunal should establish variables to be included in a pricing formula which could be further negotiated by the parties. This pricing formula is then to be applied in negotiations/arbitration.

The regulation shall be amended to require that the price of live chicken shall be set for two consecutive periods at one time. This price will be set 16 -18 weeks prior to the first day of every second period. The pricing formula to be applied by the negotiating agency/arbitration board is discussed below. The parties to pricing negotiations/arbitration proceedings are to be determined by the Commission.

The Tribunal believes that a two period price interval will provide stability in price and allow processors an opportunity to better plan for supplying their customers’ needs. The Tribunal is allowing for a two-week interval for the price to be set to provide flexibility which may be needed in order to obtain data and calculate the price. The negotiating agency/arbitration board is expected to set the price in a consistent manner within this two-week interval.

The Tribunal has decided to use its authority to direct the Commission to amend its regulations to require the negotiating agency/arbitration board to determine price in accordance with a live price formula.

The Tribunal will by order set the basic parameters for the establishment of a pricing formula. There are many more details to work out. Parties assured the Tribunal that they could negotiate the details of a pricing formula within a framework established by the Tribunal. The Tribunal is content to allow the parties to do so, but if a formula is not agreed upon within the time allowed by the Tribunal, this panel will reconvene and will provide a more detailed pricing formula.

The parties agreed the following three variables should be applied in establishing the live price formula:

• chick price

• feed price

• producer margin.

The Tribunal does not accept arguments that the wholesale price of chicken should be one of the variables considered in the live price formula. The Tribunal was persuaded by the arguments of the FPPAC, the CRFA, Mr. Bos and Mr. Vanderzanden to the effect that the SM system was designed to provide a fair return for producers. This fair return should cover their costs and a reasonable profit. The Tribunal believes that the SM system was put in place to offer producers stability and the opportunity to obtain a reasonable return on their investment. As well, the Tribunal believes the risk related to the wholesale market price, should rest with the processors as they are in effect determining the supply of chicken through their individual requests. The Tribunal was also concerned with the appropriateness of the wholesale price series proposed, as it is not publicly available and not compiled by a neutral third party.

The chick price will be measured as the regulated live price established by the Ontario Broiler Hatching Egg and Chick Commission. All parties concurred that the most appropriate measure of chick price was the price set by OBHECC.

The feed price will be measured as the weighted average of the feed prices of a minimum of three independent feed mills with the largest volume sales of broiler chicken feed. An independent feed mill is one that does not have a financial interest in the production and/or processing of broiler chicken. The Tribunal believes that using feed mills’ prices for a complete broiler chicken feed will be more accurate than using the corn:soy index to determine the feed component of the pricing formula. The feed price is more comprehensive because it includes all components of chicken feed, whereas the corn:soy index only measures the two major components of feed.

OABA requested that it be made a party to any negotiations as to the measurement of the feed component in the proposed pricing formula. The Tribunal is concerned that the OABA may be in a conflict of interest position, as some members of OABA are not independent feed mills. OABA also requested that an independent third party conduct the survey if elevators feed prices are used. The Tribunal leaves it to the parties to determine how the data will be collected.

If necessary the chick price and feed price in this formula will be adjusted every other period using the adjustment ratios proposed by the CFO. The adjustment ratios will be:

Each one cent change in the price of chicks will result in a one-half cent change in the live price of chicken.

Each five dollar per tonne change in the price of chicken feed will result in a one cent change in the price of live chicken.

The adjustments are to be made such that an increase in the price of chicks or feed is reflected as an increase in the live price of chicken, and a decrease in the price of chicks or feed is reflected as a decrease in the live price of chicken.

Producer margin in the formula is to be determined by using a starting figure derived from the recorded historical producer margins from Period A-34-A-43 inclusive. The producer margin may be adjusted through negotiation and/or arbitration once every six quota periods. The parties may negotiate or undergo arbitration on producer margin more often than once every six periods in exceptional and unforeseen circumstances.

The CFO and the AOCP both had strong views as to what time period should be used to determine the historic producer margin which is to influence the starting price in a producer formula. The Tribunal was not persuaded by either party of the superiority of their chosen time periods. The Tribunal believes it is reasonable that the producer margin used in the starting price be based on the recorded historical producer margins from period A-34 to A-43 inclusive. This will also preclude any attempt to manipulate the starting price after the release of this decision.

Category Requirements

Meeting sizing and category specifications is very important to the entire chicken industry. This is most evident from the testimony of the witnesses called by the CRFA. The Tribunal is encouraged that work done on the 1.60-1.77 kg category has resulted in some improvement in this regard. The Tribunal agrees with the parties that compliance must be improved in the 1.95-2.15 kg category. The Tribunal will order that incentives and penalties be introduced to encourage compliance in category as required.

The Tribunal finds that the grid pricing by category is a necessary part of the pricing mechanism in the industry, as modern marketing and consumer demand requires product to meet more specific needs than in the past. The Tribunal agrees with the AOCP that grid pricing should be used to encourage producers to meet category requirements and supply chicken in the desired categories. The CFO in their summation indicated that a pricing grid by category is in place and in use. The Tribunal directs the parties to work together to develop a new pricing grid by category to complement a pricing formula which includes the components of: chick price, feed cost and producer margin. The Tribunal will require that this pricing formula and pricing grid be completed by February 15, 2002. The Tribunal expects that all parties to this Hearing will cooperate in these negotiations. In the event that parties cannot agree on a common pricing formula and/or pricing grid by category, this panel of the Tribunal will reconvene and will rule on the specifics of the matters in dispute.

The Tribunal heard that the existing pricing grid and penalties/incentives are insufficient to ensure that certain category requirements are met and it believes that parties can improve upon the pricing methodology.

Export Policy

The CFO export policy - Supplementary Quota Policy 142-1999 – includes a requirement that the grower of the chicken designated for the export market be a CFO quota holder. The Tribunal finds that this is appropriate. This confirms that each part of the industry is regulated under SM.

The Tribunal agrees with the submissions made by several parties that the requirement that 50% of producers grow for export in order for the full demand to be met is restrictive and inhibits the development of export markets. The Tribunal finds that the policy should be changed in this regard. The Tribunal expects that an auditing system be maintained to ensure that the contracted chicken is exported.

Additional Issues

There were many side issues touched upon by the four appellants, two other parties and two intervenors in the course of the Hearing.

In the opinion of the Tribunal the mandate of the CFO is to control the production and marketing of chicken through the authorities granted to it by regulation under the Farm Products Marketing Act. The Tribunal expects that the CFO will manage the production and marketing of chicken to meet the requirements of the legislation, the vision of the industry and the needs of the marketplace. A report of the Competition Bureau filed with the Tribunal found that poultry is a commodity at the farm level under SM, but becomes a product in the market place. Mr. Bos took the view that live chicken can be differentiated through production practices. The Tribunal considers the supply management system to be best suited to the management of this commodity. The Tribunal recognizes that this causes difficulties for producers trying to add value to their product by developing niche markets. The Tribunal urges the processing sector and the CFO to work with these entrepreneurial producers to allow for new markets to be serviced through custom processing arrangements.

The CRFA asked the Tribunal to rule on issues related to the federal import quota system. The Tribunal does not have jurisdiction in this matter.

The Tribunal’s decisions and orders given to governing bodies are to be implemented with the care required to suit the industry and comply with all regulations federal and provincial, affecting the chicken industry. There must also be care taken to co-operate with other provinces in the production, processing and further processing of chicken in Canada.

ORDER OF THE TRIBUNAL

After due consideration to the evidence presented and the submissions made, the Tribunal orders:

1. The CFO is ordered to make a policy or regulation to require that:

• Chicken processors submit, in confidence to a designated employee of the CFO, their requested allocation of chicken 16-18 weeks prior to the first day of the period in which the chicken is required.

• Processors include a letter of credit equivalent to 12% of the value of the chicken requested.

• The individual processor requests are totaled by a designated employee of the CFO to produce the APD for each period.

2. The CFO is ordered to request from the CFC a volume of chicken equivalent to the APD, provided this volume of chicken falls within the 8% provincial growth cap contained in the NAA.

3. In the event that the APD volume exceeds the NAA provincial cap, or in the event that the CFC does not approve the volume of chicken requested by the CFO, the CFO is ordered to convene a meeting of industry stakeholders for the purpose of determining a volume of chicken to request of the CFC. Stakeholders invited to participate in these meetings are to include: OBHECC, OABA, CFO, AOCP, OIPP, FPPAO, CRFA and CCGD. A representative of the Commission is also to be invited to attend. A representative of the CFO is to chair the industry stakeholder meetings. If a general consensus on the volume of chicken to be requested of the CFC is not reached, the chair of the meeting is to establish this volume. In these circumstances, the CFO is ordered to request from the CFC the volume of chicken established as a result of industry stakeholder meetings.

4. The Tribunal orders that the above orders (Points 1-3) are to be implemented as soon as practical, but in any event no later than the first day of quota period A-46.

5. The CFO is ordered to modify its system of allocation of chicken to processors so as to incorporate the following principles:

• Each processor is to be allocated its requested allocation of chicken in periods where the APD is the same as the volume of chicken approved by the CFC to be grown in Ontario.

• No processor is to be allocated more chicken than it requested.

• In periods where the total Ontario domestic supply is less than the APD but greater than the total base (sum of all processors’ bases):

- Each processor is to receive a volume equivalent to its base (Base Volume) and a volume reflecting its share of growth (Growth Portion).

- Each processor’s base is to be calculated as the product of the processor’s average utilization percentage in the 5^th, 6^th and 7^th period prior to the target quota period and its average available Ontario-grown supply during the same three quota periods.

- A processor’s utilization percentage is measured as the amount of chicken it actually processed in each quota period divided by the actual production of that processor’s signed Ontario producers in the same quota period, multiplied by 100.

- The Growth Portion is to be allocated such that each processor’s request is ‘cut-back’ by the same percentage of the growth requested.

• In periods where the total Ontario domestic supply is less than the APD and less than the total base:

- Chicken is to be allocated pro rata on the basis of processor bases, with the exception that no processor will receive more allocation than was requested.

- If there is any additional allocation available due to processors having requested less than they would be entitled to, this volume will be allocated pro rata on the basis of all other processors’ bases.

• All processors receiving an allocation of chicken from the CFO are required to slaughter 100% of the volume of the chicken they are allocated, but this is to be calculated on a three-period rolling average.

• For the seven periods prior to the period in which this system is implemented, each processor’s utilization percentage is to be deemed to be 100%.

• Financial penalties are to be established by the CFO to be applied to processors who slaughter more or less than 100% of their allocation. A processor that fails to slaughter 100% of its allocation will also be penalized by a reduction to its base.

• The Tribunal orders that these changes are to be implemented as soon as practical, but in any event no later than the first day of quota period A-46.

6. The CFO is ordered to implement a program to allow for new entrants to the chicken processing sector to obtain an allocation of live chicken. The policy is to incorporate the following:

• To obtain chicken under this policy the new entrant must have access to a processing facility that is either federally or provincially licensed and that meets the regulatory standards that are in place at the time it applies for new entrant status. If the new entrant plans to ship chicken out of Ontario the plant must be licensed by CFIA and HACCP approved.

• The total supply available for the new entrants program is to be capped at 1% of the total Ontario domestic supply of the previous period.

• New entrants are to be guaranteed the supply of chicken allocated under this program for six consecutive periods, subject to their meeting the requirements of the 100% slaughter rule described above and subject to the aforementioned 1% cap. In the event that the allocation of chicken to new entrants is to be reduced due to a lack of available supply due to the 1% cap, the allocation to each new entrant is to be reduced pro rata on the basis of their guaranteed volumes.

• A new entrant may access a maximum of 300,000 kg chicken per period under this policy.

• Existing processors who receive less than 300,000 kg chicken per period may be designated as new entrants and access additional chicken under this policy.

• Existing small volume processors are to be given preference over other new entrants if the demand for chicken under this policy exceeds the available supply. The CFO is also to consider the new entrant’s business plan and the order of receipt of applications.

• Any allocation received under the new entrant policy may not be sold or transferred to another processing facility for 12 periods after the last period in which the last allocation is awarded to a new entrant.

• A processor may opt out of the new entrant program but the restriction on the sale or transfer of quota will still apply. A processor may not re-enter the new entrant program once it has opted out.

• In a ‘cut-back’ situation where the allocation of additional chicken through the new entrant policy would result in existing processors not receiving their base (i.e. total Ontario domestic supply is less than total base), there is to be no additional allocations made under the new entrant program in that period.

7. The CFO is to require that applicants to the new entrant policy that are not existing processors submit to the CFO:

• A business plan which includes a marketing plan.

• Verification of CFIA or provincial inspection approval.

• Verification that the plant will operate under HACCP standards if product is to be shipped outside of Ontario.

• Written confirmation from a financial institution that the applicant is able to provide a letter of credit in the amount required.

8. The Tribunal orders that the new entrant program be implemented as soon as practical, but in any event no later than the first day of quota period A-46.

9. The Ontario Farm Products Marketing Commission is ordered to amend Section 17, 18 and 19 of Regulation 402 (as amended by 443/97) under the Farm Products Marketing Act to provide for the following:

• The live price is to be established for two periods at a time. It is to be established and announced 16-18 weeks before the first period for which it is in effect.

• The live price of chicken is to be determined by way of a pricing formula, established in accordance with this order.

• Producer margin, in accordance with the pricing formula, may be negotiated or determined by arbitration every six quota periods. Producer margin may be renegotiated/arbitrated more frequently under exceptional and unforeseen circumstances.

10. The parties to negotiations/arbitrations are to be determined by the Commission.

11. The pricing formula is to be established in accordance with the following parameters:

• It is to include three components – chick price, feed price and producer margin.

• The chick price is to be measured as the regulated live chick price established by the OBHECC. Each one-cent change in the price of chicks will result in a one-half cent change in the live price of chicken.

• The feed price is to be measured as the weighted average of the feed prices of a minimum of three independent Ontario feed mills with the largest volume sales of broiler chicken feed. Each five-dollar per tonne change in the price of broiler chicken feed will result in a one-cent change in the price of live chicken.

• The adjustments are to be made such that an increase in the price of chicks or feed is reflected as an increase in the live price of chicken, and a decrease in the price of chicks or feed is reflected as a decrease in the live price of chicken.

• The starting figure for producer margin is to be determined using the recorded historical producer margins from period A-34 to A-43 inclusive.

12. Parties to the Hearing are to develop the pricing formula in accordance with the parameters established by the Tribunal in this decision. Parties are also to calculate the starting price after which the formula pricing is to take effect. The pricing formula and the starting price are to be submitted to the Tribunal by February 15, 2002.

13. A pricing grid which provides for prices above or below the base price for specific categories of chicken shall be negotiated by the parties and submitted to the Tribunal by February 15, 2002. An incentive/disincentive program shall be developed by the CFO by February 15, 2002 in order to encourage greater specification compliance in the categories where this is required.

14. In the event that parties are unable to concur on the pricing formula or the starting price after which formula pricing is to take effect or are unable to reach a negotiated agreement on the pricing grid by February 15, 2002, parties are ordered to submit a list of items on which consensus has been reached and a list of items in dispute. Parties may make written submissions outlining their positions on the items in dispute which must be submitted to the Tribunal office by 5:00 p.m., February, 20, 2002. This panel of the Tribunal is seized of the matter and shall make a ruling after consideration of written submissions of the parties received at that time. Any party requesting to withdraw from the negotiations described in Point 12 and Point 13 (above) must do so in writing to the CFO and the Tribunal before January 15, 2002.

15. The Tribunal orders that the orders described in Points 9-14 (inclusive) are to be implemented as soon as practical, but in any event no later than the first day of quota period A-45.

16. The CFO is ordered to amend its export policy - Supplementary Quota Policy 142-1999 – to remove references to “sufficient producer participation” in Section 4.4, to delete Section 4.5 in its entirety and to make any additional changes required to ensure that the proportion of quota holding producers growing for the export market has no impact on the amount of chicken which may be grown for export. The Tribunal orders that the amendments to the export program are to be implemented as soon as practical, but in any event no later than the first day of quota period A-46.

Dated at Guelph, this 2^nd day of January, 2002.

Attachments:

Decision of Pre-Hearing Conference JN 12 00

Decision on CFO Preliminary Motions SE 25 00

Procedural Order SE 25 00

Procedural Order JA 29 01

Procedural Order FE 06 01

Decision on Preliminary Matter FE 27 01

Decision on Procedural Matter AP 04 01

Interlocutory Decision Pertaining to Jurisdiction OC 12 01

DECISION OF PRE-HEARING CONFERENCE

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 the Chicken Farmers of Ontario (the CFO) from the December 1, 1999 decision of the Farm Products Marketing Commission relating to the system for the allocation of live chicken to Ontario processors.

AND IN THE MATTER OF:

A pre-hearing to determine procedural matters with respect to the appeal of the CFO.

TO:

Chicken Farmers of Ontario

3380 South Service Rd., P.O. Box 5035, Burlington, Ontario, L7R 3Y8

Attn: Bill Brears

And to their counsel

Geoffrey Spurr

Daniel Wilson, P.O. Box 24022, 39 Queen Street, St. Catharines Ontario L2R 7P7

Howard Goldblatt

Sack, Goldblatt, Mitchell, 20 Dundas St. W., Suite 1130, Toronto Ontario M5G 2G8

AND TO:

The Chairman, Ontario Farm Products Marketing Commission

Ontario Ministry of Agriculture, Food and Rural Affairs, 1 Stone Road West, 5^th Floor SW

Guelph, Ontario, N1G 4Y2

And to their counsel

Stephen Stepinac,

Director, Legal Service Branch, Ontario Ministry of Agriculture, Food and Rural Affairs, 5^th Floor NE, 1 Stone Road, Guelph Ontario N1G 4Y2

AND TO:

The Association of Ontario Chicken Processors

250 The Esplanade, Suite 310, Toronto M5A 1J2

Attention Mr. Robert Shapiro

AND TO:

The Ontario Independent Poultry Processors Association

104 Martin Street, Milton Ontario L9T 2R2

Attention Mr. John Hoover, General Manager

And to their counsel

Mr. Arlen Sternberg

Torys

Suite 3000, Maritime Life Tower

79 Wellington Street West, Box 270, TD Centre, Toronto, Ontario M5K 1N2

AND TO:

Further Poultry Processors Association of Canada

2525 St. Laurent Blvd., Suite 203, Ottawa, Ontario K1H 8P5

Attention Mr. Robert DeValk

AND TO:

The Canadian Restaurant and Foodservices Association

316 Bloor Street West, Toronto Ontario M5S 1W5

Attention: Stephanie Jones

And to their counsel

James P. McIlroy

McIlroy & McIlroy Inc.

155 University Avenue Suite 1410, Toronto, Ontario M5H 3B7

AND TO:

T & R Sargent Farms Limited

c/o Mr. Ron Folkes

14 Nelson Street West Unit 1

Brampton Ontario L6X 1B7

AND TO:

Henry Bos

4443 Koabel Road, RR 1 Stevensville, Ontario, L0S 1S0

Before :

Andrew C. Wright, Vice-Chair.

Appearances:

Howard Goldblatt, counsel for the appellant, the Chicken Farmers of Ontario.

Geoff Spurr, counsel for the appellant, the Chicken Farmers of Ontario.

Mr. Ron Folkes, counsel to T & R Sargent Farms Limited.

James P. McIlroy, counsel to the Canadian Restaurant and Foodservices Association.

Mr. Arlen Sternberg, counsel to the Ontario Independent Poultry Processors Association

Stephen Stepinac, counsel to the Farm Products Marketing Commission.

Henry Bos, chicken producer.

Robert DeValk, on behalf of the Further Poultry Processors Association of Canada.

Robert Shapiro, on behalf of the Association of Ontario Chicken Processors.

Background

This pre-hearing conference was held in Guelph, Ontario, on June 9^th, 2000, to establish the procedures for a hearing by the Agriculture, Food and Rural Affairs Appeal Tribunal of the appeal by CFO. The Tribunal identified those in attendance who wished to participate in the prehearing conference.

Counsel for CFO indicated that there were three jurisdictional issues he wished to raise with the Tribunal as jurisdictional questions, as follows:

1. The decision under appeal is a nullity because the Farm Products Marketing Commission (the Commission) made a decision about supply management in the chicken industry in Ontario in circumstances that proper notice of and a fair opportunity to be heard about that issue was not given to CFO and the other participants in the Commission hearing.

2. The Commission made a decision which exceeded its jurisdiction having regard for the legislative context within which the Commission’s hearing was held and decision made.

3. The Commission’s decision was a nullity by reason of the participation of members of the Commission who were biased.

Counsel for the CFO asked the Tribunal to divide the hearing so that the preliminary jurisdictional matters could be addressed and disposed of before a hearing of the substantive issues took place. Counsel for CFO indicated that, if the hurdles of the preliminary jurisdictional matters were overcome and a hearing of the substantive issues was to proceed, then CFO would refine the issues the CFO intended to address as part of that hearing.

Those in attendance who wished to be heard were given an opportunity to comment upon the proposal to divide the hearing. Some, particularly counsel for the Ontario Independent Poultry Processors (OIPP), expressed concern that the division of the hearing would delay the process and would give CFO two separate opportunities to argue the same point. The concern was that the evidence in support of the jurisdictional arguments was going to be the same evidence that would be led in support of the substantive arguments. A division of the hearing would duplicate the time and effort, and if the hearing panel were different, could risk different results.

Others supported CFO’s desire to divide the hearing because it would bring to a head the jurisdictional questions quickly without the cost and delay associated with a protracted, complicated hearing of evidence from the numerous stakeholders who could be involved.

The Tribunal is concerned about an efficient hearing process. If the jurisdictional issues can be dealt with quickly and efficiently as questions of law rather than as a matter of controversial evidence, then the most efficient way to proceed is to have the jurisdictional matters heard and disposed of in the first instance. That is the decision of the Tribunal. In making this decision, the Tribunal reserves the discretion to refer to a hearing of substantive issues any of the preliminary motions in connection with which material evidence becomes controversial. The point is if it becomes necessary to have cross-examination on affidavits before being able to argue the preliminary motions, the object of the exercise will have been defeated. In that eventuality, hearing efficiency will be better served by having all of the viva voce evidence joined in one comprehensive hearing.

As counsel are preparing materials for these preliminary jurisdictional motions, they should bear in mind the Tribunal’s concerns and should seek, to the extent possible, to develop an agreed statement of facts upon which the preliminary motions could be argued.

For the purposes of this preliminary hearing all those who have appeared at the pre-hearing are to be regarded as parties. They may elect not to be parties by notifying the Tribunal and others identified in this Order. If there is to be a hearing of the substantive issues, there will be a second pre-hearing conference following disposition of the preliminary jurisdictional motions. At that time issues will be identified, including any issues that may arise out of any other appeals from the December decision of the Commission. The parties to the preliminary jurisdictional motions will not necessarily be parties to any hearing of substantive issues. The question of party status for any such hearing will be decided as part of any second prehearing conference.

Order of the Agriculture, Food and Rural Affairs Appeal Tribunal

1. CFO will serve on the parties and file with the Tribunal the notices of its motions and supporting materials by 4 o’clock p.m. on July 14, 2000.

2. The other parties are to serve on all other parties and file with the Tribunal any responding material by 4 o’clock p.m. on August 11^th, 2000 with the exception of the Canadian Restaurant and Food Services Association which will have until 4 o’clock p.m. August 18^th, 2000 to file their material.

3. The hearing of argument for the preliminary jurisdictional motions will begin at 9:30 a.m. on September 8^th, 2000 at the Tribunal Boardroom, 1 Stone Road West Guelph and, if necessary, will continue for a second day on September 15^th, 2000 commencing at 9:30 a.m.

4. In the event that it is determined there is to be a hearing of the substantive issues there will be a second prehearing conference to determine parties and issues at a time and date to be determined following disposition of the preliminary jurisdictional motions.

This panel of the Tribunal may be spoken to if there are procedural difficulties in connection with this decision by making arrangements for that purpose through the office of the Tribunal’s General Manager.

Andrew Wright

Vice-Chair

Dated at London, this 12^th day of June, 2000

DECISION ON CFO PRELIMINARY MOTIONS

IN THE MATTER OF the Farm Products Marketing Act and section 16 of the Ministry of Agriculture, Food and Rural Affairs Act;

AND IN THE MATTER OF: an appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal (the “Tribunal”) by the Chicken Farmers of Ontario (“CFO”) from the December 1^st, 1999 decision of the Farm Products Marketing Commission (the “Commission”) following a hearing under Section 3(1)(a) of the Farm Products Marketing Act for the purpose of allocating live chicken to Ontario Processors;

TO: Chicken Farmers of Ontario,

3380 South Service Road,

Post Office Box 5035,

Burlington, ON L7R 3Y8

AND TO: counsel to Chicken Farmers of Ontario

Mr. Howard Goldblatt,

Sack, Goldblatt, Mitchell,

Barristers & Solicitors,

Suite 1130, 20 Dundas Street, West,

Toronto, ON M5G 2G8

AND TO: counsel to Chicken Farmers of Ontario

Mr. Geoffery P. Spurr,

Daniel, Wilson,

Barristers & Solicitors,

39 Queen Street,

Post Office Box 24022,

St. Catharines, ON L2R 7P7

AND TO: The Chairman, Ontario Farm Products Marketing Commission,

Ontario Ministry of Agriculture, Food and Rural Affairs,

5^th Floor SW, 1 Stone Road, West,

Guelph, ON N1G 4Y2

AND TO: counsel to the Ontario Farm Products Marketing Commission,

Mr. Stephen Stepinac,

Director, Legal Services Branch,

Ontario Ministry of Agriculture, Food and Rural Affairs,

5^th Floor NE, 1 Stone Road, West,

Guelph, ON N1G 4Y2

AND TO: Mr. Robert Shapiro,

The Association of Ontario Chicken Processors,

Suite 310, 250 The Esplanade,

Toronto, ON M5A 1J2

AND TO: Mr. John Hoover, General Manager,

The Independent Poultry Processors Association,

104 Martin Street,

Milton, ON L9T 2R2

AND TO: counsel to The Independent Poultry Processors Association,

Mr. Arlen Sternberg,

Torys,

Suite 3000, Maritime Life Tower,

Post Office Box 270,

Toronto-Dominion Centre,

Toronto, ON M5K 1N2

AND TO: Mr. Robert DeValk,

Further Poultry Processors Association of Canada,

Suite 203, 2525 St. Laurent Boulevard,

Ottawa, ON K1H 8P5

AND TO: Ms. Stephanie Jones,

The Canadian Restaurant and Foodservices Association,

316 Bloor Street, West,

Toronto, ON M5S 1W5

AND TO: counsel to The Canadian Restaurant and Foodservices Association,

Mr. James P. McIlroy,

McIlroy & McIlroy,

Suite 1410, 155 University Avenue,

Toronto, ON M5H 3B7

AND TO: Mr. Henry Bos,

4443 Koabel Road,

R.R. # 1,

Stevensville, ON L0S 1S0

AND TO: T&R Sargent Farms Limited,

c/o Ron Folkes,

Unit 1, 14 Nelson Street, West,

Brampton, ON L6X 1B7

DECISION

The CFO appeal comes to the Tribunal from a decision of the Commission pursuant to subsection 16(1) of the Ministry of Agriculture, Food and Rural Affairs Act. Subsection 16(1) provides as follows:

16. (1) Subject to subsection (4), if a person is aggrieved by an order, direction, policy or decision of the Commission or Director, made under the Farm Products Marketing Act or the Milk Act, that person may appeal to the Tribunal by filing with the Tribunal and sending to the Commission or Director written notice of the appeal.

Subsection 16(4) deals with the dismissal of an appeal on the basis that it is trivial, frivolous, vexatious or is not made in good faith or that the appellant does not have a sufficient interest in the subject matter of the appeal. Despite the suggestions of Mr. McIlroy to the contrary on behalf of The Canadian Restaurant and Foodservices Association, the Tribunal is satisfied that subsection 16(4) is irrelevant to the Tribunal’s jurisdiction under subsection 16(1) in this case. Clearly the CFO has a substantial interest in the Commission’s decision which has a material impact upon the way it operates.

The decision of the Commission was issued on December 1^st, 1999 and was made after several days being heard under clause 3(1)(a) of the Farm Products Marketing Act. The purpose of the hearing was to determine a process for allocating live chicken to Ontario processors. Clause 3(1)(a) of the Farm Products Marketing Act provides as follows:

3. (1) The Commission may,

(a) subject to the regulations, investigate, adjust or otherwise settle any dispute relating to the marketing of a regulated product between producers and persons engaged in marketing or processing the regulated product;

In the course of a pre-hearing conference held on June 9^th, 2000, CFO raised three grounds upon which the December 1^st, 1999 decision of the Commission should be set aside and sent back to the Commission for a re-hearing. The Tribunal decided to have these questions argued as a preliminary motion. The CFO motion was argued on September 8^th and September 15^th, 2000.

At the conclusion of the submissions, the Tribunal dismissed the preliminary motion. The reasons for that decision were summarized for those then present. That summary was substantially in accordance with the following formal decision.

In this decision the Tribunal will address the three preliminary issues raised in the CFO motion in the following order:

• the Commission’s jurisdiction to make the decision it did,

• the adequacy of the notice given to CFO about the subject matter of the Commission’s hearing and

• the propriety of Mr. Dover sitting on the Commission panel hearing the case in the circumstances of his association with one of the parties appearing before the Commission at its hearing.

Jurisdiction

CFO asserts that the Commission had no authority to make the decision it did.

This submission is advanced on the basis that the Commission’s jurisdiction is bounded by the “dispute” that is before it under clause 3(1)(a). In its Notice of Hearing the Commission said it was dealing with a process for allocating live chicken to Ontario processors. Because, it seems, there were concerns about the scope of such hearing, i.e. a process for allocating live chicken to Ontario processors, the Commission Chairman, at the opening of the hearing, clarified that the Commission would not be dealing with supply management.

Because the Commission’s jurisdiction under clause 3(1)(a) depends upon a dispute, the scope of the Commission’s decision-making jurisdiction depends upon the scope of the dispute. In this case the dispute has to do with a process for allocating live chicken to Ontario processors but not the supply management authority of CFO.

Within that framework, CFO contends that the Commission exceeded its authority by eliminating CFO’s discretion to establish the amount of live chicken to be produced in any quota period. This volume setting is said by CFO to be a fundamental aspect of CFO’s supply management authority. Because the Commission, through the Chairman’s remarks at the opening of the hearing, had excluded supply management from the scope of the dispute, CFO asserts that the issue of volume setting was excluded from the scope of the dispute and, therefore, from Commission’s jurisdiction under clause 3(1)(a) in this case.

To advance this proposition CFO reviewed its submission to the Commission that the live chicken allocation system should be a “bottom-up” system that involves CFO taking orders from the processors. CFO proposed that CFO would set a price for live chicken. The price would be based on producer cost, plus a reasonable return to the producers. With the price thus established by CFO, processors would place orders and, by doing so would become committed to purchasing the ordered volume at the established price for the quota period. The placing of orders, being sensitive proprietary information, would be cloaked in procedures to preserve confidentiality but, with that information, CFO would aggregate the orders placed to determine the live chicken volumes to be produced. CFO would then have in reserve a discretion to adjust the aggregate amount if, in CFO’s judgement, the aggregate volume was inappropriate. CFO said before the Commission that CFO would exercise such discretion only in extreme situations.

The Commission’s decision has, in effect, eliminated CFO’s residual discretion and it is the removal of that discretion that CFO argues goes beyond its jurisdiction in the circumstances of this case.

CFO claims that this discretion is a necessary element of supply management which was not before the Commission. CFO relies upon the statements made at the beginning of the Commission’s hearing for the proposition that supply management was not part of the dispute. Furthermore, because volume setting is a part of supply management, given the way the Commission Chairman prescribed the scope of the “dispute”, volume setting was not part of the dispute, which is the foundation of the Commission’s jurisdiction under clause 3(1)(a).

CFO also submits that the volume setting issue was not part of the “dispute” because there was agreement between the relevant parties on the issue. The basis of this contention is that CFO and those representing the processors were in agreement that CFO should have a residual discretion to adjust the final live chicken volume. The contention is that CFO and the processors are the only parties to any dispute about the allocation of live chicken and that, with respect to issues which have been resolved between them, there is no “dispute” and the Commission jurisdiction under clause 3(1)(a) to alter that consensus.

Other parties contend that volume setting is a fundamental aspect of the allocation system and that they have the necessary status to put that volume setting issue in dispute before the Commission regardless of any deal that may have been made between the processors and CFO.

As to the question of whether volume setting is a part of the allocation system or part of the supply management system, the Tribunal has, by way of evidence, the affidavit of Mr. Geoffrey Spurr filed in support of the Motion and the affidavit evidence of Mr. Henry Bos filed in reply. Mr. Spurr says that volume setting is part of the supply management system. Mr. Spurr does not say that supply setting is not part of the allocation system, he merely says that it is part of the supply management system. Mr. Bos says that “supply setting mechanisms were understood to form an integral part of the allocation system.”

Based on the evidence, the Tribunal is satisfied that supply setting is an essential element of both supply management and allocation to processors. Volume setting is the product of supply management and is the foundation of the allocation process. It is where the two processes meet and is essential to both. The Tribunal is satisfied that volume setting comprised a significant part of the “dispute” before the Commission.

With respect to CFO’s contention that only CFO and the parties representing processors could create a dispute for the purposes of clause 3(1)(a) of the Farm Products Marketing Act, that issue turns upon a consideration of clause 3(1)(a) and the definition of “marketing” as found in the Farm Products Marketing Act. Clause 3(1)(a) is repeated here and the definition of “marketing” is reproduced below:

3. (1) The Commission may,

(a) subject to the regulations, investigate, adjust or otherwise settle any dispute relating to the marketing of a regulated product between producers and persons engaged in marketing or processing the regulated product;

"marketing" includes advertising, assembling, buying, financing, offering for sale, packing, processing, selling, shipping, storing and transporting and "market" and "marketed" have corresponding meanings;

In the Tribunal’s view, the definition of marketing is cast very broadly and is not exhaustive. The Tribunal is therefore satisfied that, for the purposes of clause 3(1)(a), “persons engaged in marketing” include not only processors but also all down-stream stakeholders who are affected. Whatever the processors and CFO might have devised about volume setting, it was within the right of other persons engaged in marketing to put it in dispute for the purposes of

clause 3(1)(a). They did so, and the result, in the Tribunal’s opinion, is that the Commission’s jurisdiction is not constrained by what the processors and CFO may have agreed upon amongst themselves.

In the view of the Tribunal, the Commission decision was within the scope of the “dispute” before the Commission under clause 3(1)(a) of Farm Products Marketing Act and the Commission was therefore within its jurisdiction in this case.

Notice

The second and third issues raised by CFO are more procedural matters and are founded upon the principles of natural justice.

It is an essential aspect of the principles of natural justice that a party such as CFO in a proceedings such as this, which deals with their mandated jurisdiction, should have ample notice of the matters which are in issue and a full opportunity to address those matters.

CFO contends that, when the Chairman of the Commission excluded considerations of supply management, CFO understood that volume setting was not an issue with respect to which they needed to be concerned. CFO submits that there was a denial of natural justice because CFO was not given notice of and, therefore, a fair opportunity to prepare for and to address the issues upon which the Commission ultimately made its decision.

The Tribunal believes that CFO could possibly have misunderstood the extent of the issues with which the Commission was prepared to deal. Whether it was reasonable for CFO to have misinterpreted the scope of the Commission’s hearing in 1999, the Tribunal need not decide because, even if there was a procedural defect which amounted to a denial of natural justice, as to which the Tribunal expresses no opinion, the Tribunal is satisfied that any such procedural defect can be cured by a de novo hearing of the merits on this appeal.

In this connection, the Tribunal was referred to the Supreme Court of Canada decision in Harelkin v. University of Regina, [1979 CanLII 18 (SCC)](https://www.minicounsel.ca/scc/1979/18), [1979] 2 S.C.R. 561. This leading case was first brought to the attention of the Tribunal by Commission counsel and was discussed by him and by counsel for CFO. The case involved a student who was required by University authorities to discontinue his studies. Within the University there were internal processes and appeals procedures for dealing with such matters. These processes and procedures culminated in a statutory final right of appeal by way of a hearing before the University Senate. Serious procedural errors were made in the early stages of these internal processes. Without taking recourse to an appeal hearing before the University Senate, the student went to Court to quash the decision-making process on the basis of that he was denied procedural natural justice. While the Court found that the student had been denied natural justice by the lower echelons of the University procedures, the Court determined that the student ought to have gone to the University Senate with his appeal rather than to the Courts.

For the majority, Beetz, J., adopts portions of the decision of the Supreme Court of Canada in King v. University of Saskatchewan, [1969 CanLII 89 (SCC)](https://www.minicounsel.ca/scc/1969/89), [1969] S.C.R. 678, by quoting Spence J., for a unanimous Court:

Any possible failure of natural justice before the special appeal committee, the executive committee, or the full faculty council, is quite unimportant when the senate, the appeal body under the provisions of The University Act, and also the body in control of the granting of degrees, has exercised its function with no failure to accord natural justice. If there where any absence of natural justice in the inferior tribunals, it was cured by the presence of such natural justice before the senate appeal committee.

Beetz, J., continues with a discussion of the legal effect of a denial of natural justice and, in particular, whether the impugned decision is void ab initio, a nullity or voidable, after which he says the following:

In the case at bar, it cannot be doubted that the committee of the council had jurisdiction to hear and decide upon appellant’s application or memorial. There was no want of jurisdiction. In the exercise of this jurisdiction, the committee of the council erred in failing to observe the rules of natural justice. While it can be said in a manner of speaking that such an error is “akin” to a jurisdictional error, it does not in my view entail the same type of nullity as if there had been a lack of jurisdiction in the committee. It simply renders the decision of the committee voidable at the instance of the aggrieved party and the decision remains appealable until quashed by a superior court or set aside by the senate.

To hold otherwise would produce undesirable practical effects. For instance, an aggrieved student who had less time than appellant and who cared more about the expenditure could not appeal directly to the senate; he would have to seek relief in the courts, go back before the committee of the council, and from there to the senate, if need be. A purely conceptual view of absolute nullity which would, in this type of case, cause such inconvenient and impractical results cannot, in my view, be theoretically sound.

Comparable to the University Senate in the Harelkin case, the Tribunal’s jurisdiction in this matter is de novo. The Tribunal’s function is not to review the Commission’s decision in the way that an appellate Court reviews the correctness, or otherwise of a lower Court’s decision. On an appeal under subsection 16(1) of the Farm Products Marketing Act the Tribunal is to hear the case afresh and, based on the evidence and submissions before the Tribunal, the Tribunal may substitute its decision for that of the Commission pursuant to subsection 16(11). Subsection 16(11) is as follows:

16(11) Upon an appeal to the Tribunal under subsection (1) or (2), the Tribunal may by order direct the Commission, the local board, the marketing board or the Director, as the case may be, to take such action as it or he or she is authorized to take under the Farm Products Marketing Act or the Milk Act and as the Tribunal considers proper, and for this purpose the Tribunal may substitute its opinion for that of the Commission, the local board, the marketing board or the Director.

The Tribunal doubts that the manner in which the Commission gave CFO notice of and an opportunity to address issues at its hearing gave rise to a procedural defect that amounted to a denial of natural justice. Even if it did, on the authority of King and Harelkin, the Tribunal is satisfied that any such defects will be cure by its hearing of the CFOs appeal under

subsection 16(1).

In this connection the Tribunal found to be persuasive the comments by the Court in Harelkin about considerations of timeliness and expense and about the balance of theoretical legal concepts against the inconvenience and impracticality of the results of applying them in practise. The Tribunal is convinced that sending the case back to the Commission for a re-hearing, as requested by CFO, will produce not only much expense and delay for all involved but also a further appeal to the Tribunal from the Commission’s decision on the re-hearing. The Tribunal is satisfied that CFO’s entitlement to procedural natural justice can be satisfied by an appropriate hearing by the Tribunal on the merits of the CFO appeal.

One final comment is warranted about the Harelkin decision. Counsel for CFO laid particular emphasis upon the following part of the above quoted decision of Beetz, J.:

the decision of the committee [is] voidable at the instance of the aggrieved party and the decision remains appealable until quashed by a superior court or set aside by the senate.

He says that, by analogy, the Tribunal in this appeal is the counterpart to the University Senate in Harelkin and, on that basis, he contends that, on this appeal, the only decision available for the Tribunal to make is to set aside the voidable decision of the Commission. With respect, the Tribunal does not agree. The gist of the Court’s decision was that, if the University Senate proceeded in accordance with the principles of natural justice in the course of its de novo hearing, the procedural failings of the lower echelons in the process would be cured. It is incomprehensible that the Supreme Court of Canada intended the Senate to hold a thorough and procedurally appropriate hearing and then tie its hands as to the result it could reach. The Tribunal’s jurisdiction is not so fettered. The Tribunal has all of the authority the Commission could have exercised after a procedurally correct hearing.

Appearance of Bias

The final submission made by CFO is that there was a reasonable apprehension of bias with respect to Mr. Bill Dover when he sat as a member of the panel of the Commission.

This matter has caused the Tribunal considerable concern.

The evidence is that, at the opening of the Commission hearing, the Chairman of the Commission advised those present that Mr. Dover had a relationship with one of the parties to the hearing, namely The Canadian Restaurant and Foodservices Association (CRFA). The Chairman continued that, insofar as Mr. Dover was engaged in the business of a food consultant, a relationship did exist between him and some members of CRFA. The Chairman distinguished between Mr. Dover being an “associate” member of CRFA, as opposed to an “active” member, and advised the hearing that associate status entitled Mr. Dover to attend meetings but not to vote. The Chairman then asked the parties if there was any objection to Mr. Dover continuing to participate in the hearing. Several of the significant parties to the hearing before the Commission, including CFO, objected to Mr. Dover’s continuing. Despite this, Mr. Dover continued as a member of the Commission panel.

The Tribunal is satisfied that the Commission Chairman acted entirely correctly in raising the matter of Mr. Dover’s involvement with CRFA. However, having raised matter and having invited any of the parties to the hearing to object to Mr. Dover’s continuing as a member of the panel, when faced with the objection of some of the parties, it would have been reasonable for the Commission to have concluded that some of the parties had an apprehension of bias in the circumstances.

While this is troublesome, the Tribunal need not make a decision as to whether the apprehension of bias was reasonable in the circumstances because, whether or not there was a denial of natural justice, the issue of bias is a procedural defect that is amenable to being cured by the Tribunal’s de nova hearing of CFO’s appeal under subsection 16 (1) of the Ministry of Agriculture, Food and Rural Affairs Act. In this connection the Tribunal again finds authority in the decisions of the Supreme Court of Canada in the King and Harelkin cases.

Following the delivery of these reasons, counsel for CFO sought clarification of the status of the Commission’s December 1^st, 1999 decision and invited the Tribunal to indicate whether it was void ab initio, a nullity or voidable. The response was and is that the Tribunal has made no legal determination in that regard. From the Tribunal’s perspective, the status of the Commission’s decision is that it is under appeal by CFO under subsection 16(1) the Ministry of Agriculture, Food and Rural Affairs Act and will be dealt with as such.

A separate and subsequent decision will issue shortly in connection with the next pre-hearing conference scheduled for November 21^st, 2000.

Andrew Wright

Vice-Chair

Dated at London, the 25^th day of September, 2000.

PROCEDURAL ORDER

IN THE MATTER OF the Farm Products Marketing Act and of Section 16 of the Ministry of Agriculture And Food And Rural Affairs Act;

AND IN THE MATTER OF an Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal (the “Tribunal”) by the Chicken Farmers of Ontario (“CFO”) from the December 1^st, 1999 decision of the Farm Products Marketing Commission (the “Commission”) following a hearing under Section 3(1)(a) of the Farm Products Marketing Act for the purpose of allocating live chicken to Ontario Processors:

TO: Chicken Farmers of Ontario,

3380 South Service Road,

Post Office Box 5035,

Burlington, ON L7R 3Y8

AND TO: counsel to Chicken Farmers of Ontario

Mr. Howard Goldblatt,

Sack, Goldblatt, Mitchell,

Barristers & Solicitors,

Suite 1130, 20 Dundas Street, West,

Toronto, ON M5G 2G8

AND TO: counsel to Chicken Farmers of Ontario

Mr. Geoffery P. Spurr,

Daniel, Wilson,

Barristers & Solicitors,

39 Queen Street,

Post Office Box 24022,

St. Catharines, ON L2R 7P7

AND TO: The Chairman, Ontario Farm Products Marketing Commission,

Ontario Ministry of Agriculture, Food and Rural Affairs,

5^th Floor SW, 1 Stone Road, West,

Guelph, ON N1G 4Y2

AND TO: counsel to the Ontario Farm Products Marketing Commission,

Mr. Stephen Stepinac,

Director, Legal Services Branch,

Ontario Ministry of Agriculture, Food and Rural Affairs,

5^th Floor NE, 1 Stone Road, West,

Guelph, ON N1G 4Y2

AND TO: Mr. Robert Shapiro,

The Association of Ontario Chicken Processors,

Suite 310, 250 The Esplanade,

Toronto, ON M5A 1J2

AND TO: Mr. John Hoover, General Manager,

The Independent Poultry Processors Association,

104 Martin Street,

Milton, ON L9T 2R2

AND TO: counsel to The Independent Poultry Processors Association,

Mr. Arlen Sternberg,

Torys,

Suite 3000, Maritime Life Tower,

Post Office Box 270,

Toronto-Dominion Centre,

Toronto, ON M5K 1N2

AND TO: Mr. Robert DeValk,

Further Poultry Processors Association of Canada,

Suite 203, 2525 St. Laurent Boulevard,

Ottawa, ON K1H 8P5

AND TO: Ms. Stephanie Jones,

The Canadian Restaurant and Foodservices Association,

316 Bloor Street, West,

Toronto, ON M5S 1W5

AND TO: counsel to The Canadian Restaurant and Foodservices Association,

Mr. James P. McIlroy,

McIlroy & McIlroy,

Suite 1410, 155 University Avenue,

Toronto, ON M5H 3B7

AND TO: Mr. Henry Bos,

4443 Koabel Road,

R.R. # 1,

Stevensville, ON L0S 1S0

AND TO: T&R Sargent Farms Limited,

c/o Ron Folkes,

Unit 1, 14 Nelson Street, West,

Brampton, ON L6X 1B7

PROCEDURAL ORDER

The CFO appeal comes to the Tribunal from a decision of the Commission pursuant to subsection 16(1) of the Ministry of Agriculture, Food and Rural Affairs Act. Subsection 16(1) provides as follows:

16. (1) Subject to subsection (4), if a person is aggrieved by an order, direction, policy or decision of the Commission or Director, made under the Farm Products Marketing Act or the Milk Act, that person may appeal to the Tribunal by filing with the Tribunal and sending to the Commission or Director written notice of the appeal.

The decision of the Commission was issued on December 1^st, 1999 and was made after a several day hearing under clause 3(1)(a) of the Farm Products Marketing Act. The purpose of the hearing was to determine a process for allocating live chicken to Ontario processors.

Clause 3(1)(a) of the Farm Products Marketing Act provides as follows:

3. (1) The Commission may,

(a) subject to the regulations, investigate, adjust or otherwise settle any dispute relating to the marketing of a regulated product between producers and persons engaged in marketing or processing the regulated product;

In the course of a pre-hearing conference held on June 9^th, 2000, CFO raised three grounds upon which the December 1^st, 1999 decision of the Commission should be set aside and sent back to the Commission for a re-hearing. The Tribunal decided to have these questions argued as a preliminary motion. The CFO motion was argued on September 8^th and September 15^th, 2000. That motion was dismissed on September 15^th for reasons then summarized for those present. A formal decision reflecting that summary was issued on September 25^th, 2000.

Following the dismissal of the CFO preliminary motion, arrangements were made to get on with the hearing on its merits.

To that end there will be a further pre-hearing conference on November 21^st, 2000 commencing at 9:30 in the morning at the Tribunal Boardroom, 1 Stone Road, West, in Guelph.

On that day parties will be identified, issues will be identified and, to the extent possible, refined, and a hearing date will be set.

As indicated in the Procedural Order arising from the June 9^th pre-hearing conference, parties to CFO’s preliminary jurisdictional motion will not necessarily be parties to the hearing of the substantive issues.

Some involved at the June 9^th pre-hearing conference indicated an intention to file their own appeals of the December 1^st, 1999 decision of the Commission. At that time, the Tribunal concluded that the filing of any such appeals should be deferred pending the outcome of the CFO preliminary motion. In the circumstances of the dismissal of the CFO preliminary motion, any additional appeals of the Commission’s decision must now be filed with the Tribunal by

4:00 o’clock on Monday, November 6^th, 2000. Any such additional appeals are be served on those listed at the top of this decision.

At the November 21^st, 2000 pre-hearing conference, submissions will be invited and decisions made as to whether any such additional appeals should be consolidated to be heard with the CFO appeal.

In the same vein, if there are any appeals under subsection 16(2) of the Ministry of Agriculture, Food and Rural Affairs Act, from the handling by CFO of the allocation of live chicken to Ontario processors, those appeals must be filed with the Tribunal by 4:00 o’clock on Monday, November 6^th, 2000 and are to be served in the same manner above described in connection with appeals under subsection 16(1).

Subsection 16(2) of the Ministry of Agriculture, Food and Rural Affairs Act is as follows:

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

Again, at the November 21^st, 2000 pre-hearing conference, submissions will be invited and decisions made as to whether any such appeals under subsection 16(2) should be consolidated to be heard with the CFO appeal of the Commission’s decision.

Counsel for CFO has been asked to prepare and circulate a draft Procedural Order for discussion purposes on November 21^st. This draft Procedural Order should include a list of issues, a list of parties and the order in which parties would proceed; it should also include a timetable for the exchange of documents, including witness statements, and of supplementary material in reply. Needless to say, this assistance by the CFO to the Tribunal and its hearing process should not be taken as limiting or otherwise fettering CFO’s submissions as to the contents of the Order.

It will assist the Tribunal if those intending to be at the November 21^st pre-hearing conference would advise the Tribunal in advance of the issues they intend to raise and any challenges they intend to make concerning party status. It would be preferable if the Tribunal were to receive this advice by November 6^th and it would be helpful if that advice was circulated to those listed at the top of this Procedural Order.

At the pre-hearing conference on November 21^st, parties should be in a position to indicate the number of witnesses they intend to call and the length of the time they anticipate will be required for their case.

As to all foregoing, the Tribunal so Orders.

This panel of the Tribunal may be spoken to if there are procedural difficulties in connection with this decision by making arrangements for the purpose through the office of the Tribunal’s General Manager.

Andrew C. Wright

Vice-Chair

Dated at London, the 25^th day of September, 2000.

PROCEDURAL ORDER

IN THE MATTER OF the Farm Products Marketing Act and of Section 16 of the Ministry of Agriculture And Food And Rural Affairs Act;

AND IN THE MATTER OF an Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal (the “Tribunal”) by the Chicken Farmers of Ontario (“CFO”) from the December 1^st, 1999 decision of the Farm Products Marketing Commission (the “Commission”) following a hearing under Section 3(1)(a) of the Farm Products Marketing Act for the purpose of allocating live chicken to Ontario Processors:

TO: Chicken Farmers of Ontario,

3380 South Service Road,

Post Office Box 5035,

Burlington, ON L7R 3Y8

AND TO: counsel to Chicken Farmers of Ontario

Mr. Howard Goldblatt,

Sack, Goldblatt, Mitchell,

Barristers & Solicitors,

Suite 1130, 20 Dundas Street, West,

Toronto, ON M5G 2G8

AND TO: counsel to Chicken Farmers of Ontario

Mr. Geoffery P. Spurr

Wilson, Spurr LLP

261 Martindale Road, Unit 16B

St. Catherine’s, ON L2W 1A2

AND TO: The Chairman, Ontario Farm Products Marketing Commission,

Ontario Ministry of Agriculture, Food and Rural Affairs,

5^th Floor SW, 1 Stone Road, West,

Guelph, ON N1G 4Y2

AND TO: counsel to the Ontario Farm Products Marketing Commission,

Mr. Stephen Stepinac,

Director, Legal Services Branch,

Ontario Ministry of Agriculture, Food and Rural Affairs,

5^th Floor NE, 1 Stone Road, West,

Guelph, ON N1G 4Y2

AND TO: Mr. Robert Shapiro,

The Association of Ontario Chicken Processors,

Suite 310, 250 The Esplanade,

Toronto, ON M5A 1J2

AND TO: Mr. John Hoover, General Manager,

The Independent Poultry Processors Association,

104 Martin Street,

Milton, ON L9T 2R2

AND TO: counsel to The Independent Poultry Processors Association,

Mr. Arlen Sternberg,

Torys,

Suite 3000, Maritime Life Tower,

Post Office Box 270,

Toronto-Dominion Centre,

Toronto, ON M5K 1N2

AND TO: Mr. Robert DeValk,

Further Poultry Processors Association of Canada,

Suite 203, 2525 St. Laurent Boulevard,

Ottawa, ON K1H 8P5

AND TO: Ms. Stephanie Jones,

The Canadian Restaurant and Foodservices Association,

316 Bloor Street, West,

Toronto, ON M5S 1W5

AND TO: counsel to The Canadian Restaurant and Foodservices Association,

Mr. James P. McIlroy,

McIlroy & McIlroy,

Suite 1410, 155 University Avenue,

Toronto, ON M5H 3B7

AND TO: Mr. Henry Bos,

4443 Koabel Road,

R.R. # 1,

Stevensville, ON L0S 1S0

AND TO: T&R Sargent Farms Limited,

c/o Ron Folkes,

Unit 1, 14 Nelson Street, West,

Brampton, ON L6X 1B7

Before:

Andrew C. Wright, Vice-Chair

Appearances:

Howard Goldblatt, Counsel for Chicken Farmers of Ontario

Geoffrey Spurr, Counsel for Chicken Farmers of Ontario

Robert Shapiro, for The Association of Ontario Chicken Processors

Arlen Sternberg, Counsel for the Ontario Independent Poultry Processors

James P. McIlroy, Counsel for the Canadian Restaurant and Foodservices Association

Robert G. de Valk, for the Further Poultry Processors Association of Canada

Neil Palmer, for Grand River Poultry

K. Robin Horel, for Maple Leaf Poultry

Paul Bulman, for Port Colborne Poultry

Henry Bos

PROCEDURAL ORDER

The CFO appeal comes to the Tribunal from a decision of the Commission pursuant to subsection 16(1) of the Ministry of Agriculture, Food and Rural Affairs Act. Subsection 16(1) provides as follows:

16. (1) Subject to subsection (4), if a person is aggrieved by an order, direction, policy or decision of the Commission or Director, made under the Farm Products Marketing Act or the Milk Act, that person may appeal to the Tribunal by filing with the Tribunal and sending to the Commission or Director written notice of the appeal.

The decision of the Commission was issued on December 1^st, 1999 and was made after a several day hearing under clause 3(1)(a) of the Farm Products Marketing Act. The purpose of the hearing was to determine a process for allocating live chicken to Ontario processors. Clause 3(1)(a) of the Farm Products Marketing Act provides as follows:

3. (1) The Commission may,

(a) subject to the regulations, investigate, adjust or otherwise settle any dispute relating to the marketing of a regulated product between producers and persons engaged in marketing or processing the regulated product;

In the course of a pre-hearing conference held on June 9^th, 2000, CFO raised three grounds upon which the December 1^st, 1999 decision of the Commission should be set aside and sent back to the Commission for a re-hearing. The Tribunal decided to have these questions argued as a preliminary motion. The CFO motion was argued on September 8^th and September 15^th, 2000. That motion was dismissed. The following is a synopsis and consolidation of the Procedural Orders made in the course of a pre-hearing conference on November 21^st, 2000:

ORDER

1. The Appeal will proceed as a hearing de novo. Any evidence that was before the Commission shall not be regarded as evidence before the Tribunal unless and until it is admitted in evidence by the Tribunal for the purposes of its hearing de novo. In its hearing de novo the Tribunal will have no regard for the substance of the Decision of the Commission. The Decision of the Commission, as the decision from which this appeal has been launched, is merely the event from which flows the Tribunal’s jurisdiction to hold a de novo hearing.

2. The appeal of the Canadian Restaurant and Foodservices Association under subsection 16(2) of the Ministry of Agriculture, Food and Rural Affairs Act will be consolidated to be heard with the CFO appeal under subsection 16(1) of the same Act. This Order is made without prejudice to CFO addressing the Tribunal panel hearing the appeals upon the issue of whether the Canadian Restaurant and Foodservices Association has status as an aggrieved person to launch a subsection 16(2) appeal and upon the issue of the scope of the matters that may be addressed in the context of this subsection 16(2) appeal.

3. The appeal of the Ontario Independent Poultry Processors under subsection 16(1) of the Ministry of Agriculture, Food and Rural Affairs Act from the December 1^st, 1999 Decision of the Commission will also be consolidated to be heard with the CFO appeal of the same Decision under subsection 16(1) of the same Act.

4. The appeals of Grand River Poultry and Port Colborne Poultry under subsection 16(2) of the Ministry of Agriculture, Food and Rural Affairs Act will not be consolidated with the other appeals. The subsection 16(2) appeals by Grand River Poultry and Port Colborne Poultry will be consolidated and scheduled to be heard subsequent to the release of the decision of the Tribunal with respect to the originating CFO appeal and from the other appeals now consolidated to be heard therewith.

5. The issues to be addressed in this appeal are broadly summarized as follows:

Total Ontario Domestic Supply Determination, including issues relating to volume setting

Individual Processor Allocation, including what constitutes a processor and who can purchase live chicken

Category Requirements

Price Determination

Export Policy

This list resembles a similar list that appears in the decision of the Commission that is now under appeal. Nothing should be read into that similarity which derogates from the requirement of item 1 that the hearing is a de novo hearing of similar issues.

This list of issues should not be interpreted restrictively. The nature and scope of the hearing is policy based and generic in nature though, of necessity, it will ultimately result in and include detail relating to implementation. This list of issues is intended to assist in the organization and focus of the hearing and is subject to the control of the panel hearing the appeals.

This issues list should not be construed as restricting the authority of the hearing panel to limit the scope of the Canadian Restaurant and Foodservices Association appeal under subsection 16(2) the Ministry of Agriculture, Food and Rural Affairs Act should they be persuaded so to do on application by CFO as contemplated by item 2 above.

6. The parties to the appeals, in order of presentation, are:

(i) Chicken Farmers of Ontario

(ii) The Association of Ontario Chicken Processors

(iii) The Ontario Independent Poultry Processors

(iv) The Canadian Restaurant and Foodservices Association;

(v) Further Poultry Processors Association of Canada

(vi) Henry Bos

7. With respect to the party status of Grand River Poultry, Maple Leaf Poultry and Port Colborne Poultry, they are entitled to party status if they elect to do so by giving notice to the other parties and to the Tribunal on or before the close of business on Friday, December 1^st, 2000. If they do not given notice, they will not be parties to the hearing.

8. All parties shall provide to the other parties of copies of their respective documents, including witness statements, by Friday, January 19^th, 2001.

9. All parties shall provide to the other parties copies of their response and supplementary documentation, including new or amended witness statements by February 9^th, 2001.

10. All parties are expected to make disclosure to the other parties in order that there will have been a fair exchange of information and positions before the hearing so that all have a fair opportunity to understand the issues to be addressed. The admissibility in evidence at the hearing of documentation and evidence not previously disclosed will be in the discretion of the panel hearing the appeals.

11. The Hearing will commence on and will continue on the following dates:

Monday, February 26^th, 2001 through Friday, March 2^nd, 2001;

Monday, March 5^th, 2001 through Friday, March 9^th, 2001.

The Tribunal will adjourn from Monday, March 12^th, 2001 until Friday, March 30^th, 2001 and resume sitting:

Monday, April 2^nd, 2001 through Friday, April 6^th, 2001;

Tuesday, April 17^th, 2001 through Friday, April 20^th, 2001.

12. Despite the suggestions of some that the hearing be held outside of Guelph, post November 21^st, it has been determined that the hearing will convene in the Conference Centre, 1 Stone Road West, in Guelph. Thereafter the location of the hearing will be in the discretion of the panel hearing the appeals.

Dated at London this 29^th day of January, 2001.

Andrew C. Wright

ViceChairman

PROCEDURAL ORDER

IN THE MATTER OF the Farm Products Marketing Act and of Section 16 of the Ministry of Agriculture And Food And Rural Affairs Act;

AND IN THE MATTER OF an Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal (the “Tribunal”) by the Chicken Farmers of Ontario (“CFO”) from the December 1^st, 1999 decision of the Farm Products Marketing Commission (the “Commission”) following a hearing under Section 3(1)(a) of the Farm Products Marketing Act for the purpose of allocating live chicken to Ontario Processors:

TO: Chicken Farmers of Ontario,

3380 South Service Road,

Post Office Box 5035,

Burlington, ON L7R 3Y8

AND TO: counsel to Chicken Farmers of Ontario

Mr. Howard Goldblatt,

Sack, Goldblatt, Mitchell,

Barristers & Solicitors,

Suite 1130, 20 Dundas Street, West,

Toronto, ON M5G 2G8

AND TO: counsel to Chicken Farmers of Ontario

Mr. Geoffery P. Spurr

Wilson, Spurr LLP

261 Martindale Road, Unit 16B

St. Catherine’s, ON L2W 1A2

AND TO: The Chairman, Ontario Farm Products Marketing Commission,

Ontario Ministry of Agriculture, Food and Rural Affairs,

5^th Floor SW, 1 Stone Road, West,

Guelph, ON N1G 4Y2

AND TO: counsel to the Ontario Farm Products Marketing Commission,

Mr. Stephen Stepinac,

Director, Legal Services Branch,

Ontario Ministry of Agriculture, Food and Rural Affairs,

5^th Floor NE, 1 Stone Road, West,

Guelph, ON N1G 4Y2

AND TO: Mr. Robert Shapiro,

The Association of Ontario Chicken Processors,

Suite 310, 250 The Esplanade,

Toronto, ON M5A 1J2

AND TO: Mr. John Hoover, General Manager,

The Independent Poultry Processors Association,

104 Martin Street,

Milton, ON L9T 2R2

AND TO: counsel to The Independent Poultry Processors Association,

Mr. Arlen Sternberg,

Torys,

Suite 3000, Maritime Life Tower,

Post Office Box 270,

Toronto-Dominion Centre,

Toronto, ON M5K 1N2

AND TO: Mr. Robert DeValk,

Further Poultry Processors Association of Canada,

Suite 203, 2525 St. Laurent Boulevard,

Ottawa, ON K1H 8P5

AND TO: Ms. Stephanie Jones,

The Canadian Restaurant and Foodservices Association,

316 Bloor Street, West,

Toronto, ON M5S 1W5

AND TO: counsel to The Canadian Restaurant and Foodservices Association,

Mr. James P. McIlroy,

McIlroy & McIlroy,

Suite 1410, 155 University Avenue,

Toronto, ON M5H 3B7

AND TO: Mr. Henry Bos,

4443 Koabel Road,

R.R. # 1,

Stevensville, ON L0S 1S0

Before:

Andrew Osyany, Vice-Chair

Appearances:

Laurel Baig, Sack, Goldblatt, Mitchell, Counsel for Chicken Farmers of Ontario

Arlen Sternberg, Torys, Counsel for the Ontario Independent Poultry Processors

James P. McIlroy, McIlroy and McIlroy, Counsel for the Canadian Restaurant and Foodservices Association

Robert Shapiro, for The Association of Ontario Chicken Processors

Henry Bos

PROCEDURAL ORDER

This is a pre-hearing application by Chicken Farmers of Ontario (CFO) for an order requiring the parties to exclude from the materials placed before the Tribunal prior to the commencement of the proceedings the actual decision of the Farm Products Marketing Commission, dated December 1, 1999 (“Decision”) and any reference to the Decision or the evidence before the Commission. In fact, some of the parties, other than the CFO have included the Decision and references to it in their pre-hearing filing of documents and witness statement.

This is the fourth pre-hearing order in this matter. In the last pre-hearing conference this matter was placed before Vice-Chair Wright by the CFO, in asking for an order in the following terms:

“The appeal will proceed as a hearing de novo. No reference will be made to or reliance placed on the decision of the Commission or the evidence or pleadings before the Commission.”

The order actually made by Vice-Chair Wright on January 29, 2001 reads as follows:

“The Appeal will proceed as a hearing de novo. Any evidence that was before the Commission shall not be regarded as evidence before the Tribunal unless and until it is admitted in evidence by the Tribunal for the purposes of its hearing de novo. In its hearing de novo the Tribunal will have no regard for the substance of the Decision of the Commission. The Decision of the Commission, as the decision from which this appeal has been launched, is merely the event from which flows the Tribunal’s jurisdiction to hold a de novo hearing.”

The CFO is taking the position that Vice-Chair Wright’s order in fact adopts and amplifies the CFO request. Furthermore, the CFO has alleged bias in the Decision. This allegation of bias is being cured by a special kind of de novo hearing, therefore the normal practice of the Tribunal in receiving the Commission order should be disregarded. Because it is a de novo hearing, the Decision has no probative value, and the only reason to put it before the Tribunal is to suggest some probative value. The Tribunal’s reception of the Decision would also taint the Tribunal with the bias issue.

The other parties are taking the position that Vice-Chair Wright specifically rejected the CFO’s position on this point, as can be seen from the obvious comparison of the decision wording with the request. Furthermore, the Ministry of Agriculture and Food and Rural Affairs Act, s. 16 (7) provides as follows:

Upon receipt of a notice under subsection (1) or (2), the Tribunal shall forthwith notify the Commission, the local board, the marketing board or the Director where any such body or the Director has an interest in the subject-matter of the appeal and such body or the Director, as the case may be, shall thereupon forthwith provide the Tribunal with all relevant by-laws, documents or other materials, of any kind whatsoever, in its or his or her possession. R.S.O. 1980, c. 270, s. 13 (6); 1988, c. 13, s. 1 (12).

The statute clearly means that all the materials, including the decision itself should be placed in front of the Tribunal. As well, there is the convenience and efficiency issue, in that parties are free to suggest any regime to the Tribunal, and it is convenient and efficient to adopt parts of the Decision in making these presentations. Furthermore, some of the parties’ appeals are consolidated only in regard to variation of some items in the Decision; and the adoption of the CFO’s position would lead to their asking for these variations without being able to tell the Tribunal what the decision is.

The normal practice of the Tribunal is to receive the Commission decisions along with all the materials, and the Tribunal is well able to make a decision de novo, without being constrained by the Commission decision.

In the normal course of preparation, it is possible that some of the panel members will have read the Decision. Does that “taint” them, does it mean that panel members will have to be polled and the “readers” disqualified? (In response to this issue, counsel for CFO indicated that this was not a problem, that panel members will not have to be polled and that counsel had confidence in the panel’s ability to discharge its quasi-judicial role).

I accept the submissions of the parties in opposition to the CFO. The inclusion of the Decision, references to the Decision and the evidence before the Commission in the pre-hearing filings of documents and witness statements does not violate the order of Vice-Chair Wright, dated January 29, 2001.

The application of CFO is dismissed.

Andrew Osyany

Vice Chair

Dated at Shelburne this 6^th day of February, 2001.

DECISION ON PRELIMINARY MATTER

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 Chicken Farmers of Ontario from a decision of the Ontario Farm Products Marketing Commission dated December 1, 1999 relating to the system for the allocation of live chicken to Ontario processors.

TO: Chicken Farmers of Ontario,

3380 South Service Road,

Post Office Box 5035,

Burlington, ON L7R 3Y8

AND TO: Counsel to Chicken Farmers of Ontario

Mr. Howard Goldblatt,

Sack, Goldblatt, Mitchell,

Barristers & Solicitors,

Suite 1130, 20 Dundas Street, West,

Toronto, ON M5G 2G8

AND TO: Counsel to Chicken Farmers of Ontario

Mr. Geoffery P. Spurr,

Daniel, Wilson,

Barristers & Solicitors,

39 Queen Street,

Post Office Box 24022,

St. Catharines, ON L2R 7P7

AND TO: The Chairman, Ontario Farm Products Marketing Commission,

Ontario Ministry of Agriculture, Food and Rural Affairs,

5^th Floor SW, 1 Stone Road, West,

Guelph, ON N1G 4Y2

AND TO: counsel to the Ontario Farm Products Marketing Commission,

Mr. Stephen Stepinac,

Director, Legal Services Branch,

Ontario Ministry of Agriculture, Food and Rural Affairs,

5^th Floor NE, 1 Stone Road, West,

Guelph, ON N1G 4Y2

AND TO: Mr. Robert Shapiro,

The Association of Ontario Chicken Processors,

Suite 310, 250 The Esplanade,

Toronto, ON M5A 1J2

AND TO: Mr. John Hoover, General Manager,

The Independent Poultry Processors Association,

104 Martin Street,

Milton, ON L9T 2R2

AND TO: Counsel to The Independent Poultry Processors Association,

Mr. Arlen Sternberg,

Torys,

Suite 3000, Maritime Life Tower,

Post Office Box 270,

Toronto-Dominion Centre,

Toronto, ON M5K 1N2

AND TO: Mr. Robert DeValk,

Further Poultry Processors Association of Canada,

Suite 203, 2525 St. Laurent Boulevard,

Ottawa, ON K1H 8P5

AND TO: Ms. Stephanie Jones,

The Canadian Restaurant and Foodservices Association,

316 Bloor Street, West,

Toronto, ON M5S 1W5

AND TO: Counsel to The Canadian Restaurant and Foodservices Association,

Mr. James P. McIlroy,

McIlroy & McIlroy,

Suite 1410, 155 University Avenue,

Toronto, ON M5H 3B7

AND TO: Mr. Henry Bos,

4443 Koabel Road,

R.R. # 1,

Stevensville, ON L0S 1S0

AND TO: Mr. John Vanderzanden

158 Dalewood Crescent

Hamilton, ON L8S 4B7

AND TO: Mr. Ron Campbell

Ontario AgriBusiness Association

160 Research Lane, Suite 104

Guelph, ON N1G 5B2

Ruling

Just before parties were to commence making opening submissions, Mr. McIlroy, counsel for the CFRA advised the Tribunal that his client had an apprehension of bias concerning panel member, Mr. Andy Koopal. Mr. McIlroy assured the Tribunal that he did not question the integrity of Mr. Koopal. However, he reminded the Tribunal of the allegation of bias that had been made against Mr. Bill Dover, a member of the Ontario Farm Products Marketing Commission (OFPMC). Mr. Dover had a business association with the CFRA who was a party before the OFPMC. This hearing de novo will cure that problem.

Mr. McIlroy pointed to the list of witnesses delivered by counsel for the Chicken Farmers of Ontario (CFO). One of the CFO’s proposed witnesses is Mr. John Core, former chair of the Dairy Farmers of Ontario (DFO). Tribunal member, Mr. Koopal, is a dairy farmer and as such is a producer licensed by the DFO.

None of the other parties objected to Mr. Koopal’s participation on this panel.

In the Tribunal’s view the situation of Mr. Koopal is different from that of Mr. Dover. The DFO is not a party to this proceeding. Mr. Koopal is licensed by the DFO because law requires that every dairy farmer be a licensed producer. Mr. Koopal is not and has never been on the board of the DFO. The Tribunal is satisfied the Mr. Koopal will approach the issues in this hearing with an open mind.

The nature of the hearing and the decision to be made by the Tribunal must be kept in mind. The purpose of this hearing is to determine a process for allocating live chicken to Ontario processors. The issues to be addressed in this appeal, which is to be by way of hearing de novo, have been listed by Vice Chair Andrew C. Wright in his Procedural Order dated January 29, 2001:

• Total Ontario Domestic Supply Determination, including issues relating to volume setting
• Individual Processor Allocation, including what constitutes a processor and who can purchase live chicken
• Treatment of New Entrants
• Category Requirements
• Price Determination
• Export Policy

Vice Chair Wright pointed out that the nature and scope of the hearing is policy based and generic in nature.

The test to be applied in these circumstances has been stated by the Court of Appeal in TransCanada Pipelines Ltd. v. Beardmore (Township) (2000), [2000 CanLII 5713 (ON CA)](https://www.minicounsel.ca/oca/2000/5713), 186 D.L.R. (4th) 403 at 463:

“Since the commissioner was not engaged in an adjudicative process, the test, therefore, is not whether bias can be reasonably apprehended, but whether, as a matter fact, the requirement of open-mindedness had been lost to the extent that it can reasonably be said that he had predetermined the nature of the restructuring proposal he was by statute mandated to develop.”

The Tribunal has not been persuaded that the requirement of open-mindedness has been lost to the extent that it can reasonably be said the Mr. Koopal has predetermined the nature of the process for allocating live chicken that the Tribunal is by statute mandated to develop.

The Supreme Court of Canada, in Newfoundland Telephone Co. Ltd. v. Newfoundland (Board of Commissioners of Public Utilities) (1992), [1992 CanLII 84 (SCC)](https://www.minicounsel.ca/scc/1992/84), 89 D.L.R. (4th) 289, recognized that members of a tribunal are more often drawn from among persons experienced in the subject that is regulated by the tribunal. This alone does not disqualify a member of a tribunal. The fact that Mr. Koopal is licensed by the DFO, which is an organization similar to the CFO, does not disqualify him, particularly as he is not a member of the board of the DFO. As the Supreme Court said,

“No doubt many boards will operate more effectively with representation from all segments of society who are interested in the operations of the board. Nor should there be undue concern that a board which draws its membership from a wide spectrum will act unfairly. It might be expected that a board member who holds directorships in leading corporations will espouse their viewpoint. Yet I am certain that although the corporate perspective will be put forward, such a member will strive to act fairly. Similarly, a consumer advocate who has spoken out on numerous occasions about practices which he, or she, considers unfair to the consumer will be expected to put forward the consumer point of view. Yet that same person will also strive for fairness and a just result. Boards need not be limited solely to experts or to bureaucrats.”

All members of this panel, including Mr. Koopal, will strive for fairness and a just result. The Tribunal is not persuaded that a reasonable person, knowing the facts, would hold a reasonable apprehension that Mr. Koopal is biased.

Denis O’Connor

Vice-Chair

Dated the 27 day of February, 2001.

DECISION ON PROCEDURAL MATTER

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 Chicken Farmers of Ontario from a decision of the Ontario Farm Products Marketing Commission dated December 1, 1999 relating to the system for the allocation of live chicken to Ontario processors.

TO: Chicken Farmers of Ontario,

3380 South Service Road,

Post Office Box 5035,

Burlington, ON L7R 3Y8

AND TO: Counsel to Chicken Farmers of Ontario

Mr. Howard Goldblatt,

Sack, Goldblatt, Mitchell,

Barristers & Solicitors,

Suite 1130, 20 Dundas Street, West,

Toronto, ON M5G 2G8

AND TO: Counsel to Chicken Farmers of Ontario

Mr. Geoffery P. Spurr,

Daniel, Wilson,

Barristers & Solicitors,

39 Queen Street,

Post Office Box 24022,

St. Catharines, ON L2R 7P7

AND TO: The Chairman, Ontario Farm Products Marketing Commission,

Ontario Ministry of Agriculture, Food and Rural Affairs,

5^th Floor SW, 1 Stone Road, West,

Guelph, ON N1G 4Y2

AND TO: counsel to the Ontario Farm Products Marketing Commission,

Mr. Stephen Stepinac,

Director, Legal Services Branch,

Ontario Ministry of Agriculture, Food and Rural Affairs,

5^th Floor NE, 1 Stone Road, West,

Guelph, ON N1G 4Y2

AND TO: Mr. Robert Shapiro,

The Association of Ontario Chicken Processors,

Suite 310, 250 The Esplanade,

Toronto, ON M5A 1J2

AND TO: Mr. John Hoover, General Manager,

The Independent Poultry Processors Association,

104 Martin Street,

Milton, ON L9T 2R2

AND TO: Counsel to The Independent Poultry Processors Association,

Mr. Arlen Sternberg,

Torys,

Suite 3000, Maritime Life Tower,

Post Office Box 270,

Toronto-Dominion Centre,

Toronto, ON M5K 1N2

AND TO: Mr. Robert DeValk,

Further Poultry Processors Association of Canada,

Suite 203, 2525 St. Laurent Boulevard,

Ottawa, ON K1H 8P5

AND TO: Ms. Stephanie Jones,

The Canadian Restaurant and Foodservices Association,

316 Bloor Street, West,

Toronto, ON M5S 1W5

AND TO: Counsel to The Canadian Restaurant and Foodservices Association,

Mr. James P. McIlroy,

McIlroy & McIlroy,

Suite 1410, 155 University Avenue,

Toronto, ON M5H 3B7

AND TO: Mr. Henry Bos,

4443 Koabel Road,

R.R. # 1,

Stevensville, ON L0S 1S0

AND TO: Mr. John Vanderzanden

158 Dalewood Crescent

Hamilton, ON L8S 4B7

AND TO: Mr. Ron Campbell

Ontario AgriBusiness Association

160 Research Lane, Suite 104

Guelph, ON N1G 5B2

Ruling

Mr. Goldblatt asked the Tribunal to provide clarification as the process to be used by Mr. Shapiro in presenting his evidence as a member of a panel. Mr. Goldblatt was of the view the Mr. Shapiro should be treated as counsel to the Association of Ontario Chicken Processors and he said that it would be improper for him to have an opportunity to question himself, as a member of a panel. He also objected to Mr. Shapiro presenting his evidence on pricing after his evidence on the other five issues under consideration.

Mr. Shapiro stated that he had been presenting evidence before the Tribunal as a member of a panel for twenty years and that there had been no objection in all that time. He said that this would expedite the process of presenting evidence. He also pointed out that Mr. de Valk would be in the same position in that he would be both giving evidence and leading his other witnesses.

Mr. Sternberg agreed with Mr. Goldblatt that it was unusual to have counsel act as a witness. He said he had no objection to the use of panels of witnesses or the order in which Mr. Shapiro chose to present his case. Mr. McIlroy concurred with Mr. Sternberg.

Mr. de Valk observed that he had also acted as a witness and directed other witnesses in proceedings in the past and that he may wish to do so in this hearing as well. He said that he recognized that would not have the ability to redirect himself but he felt he should still be able to redirect his witnesses.

Mr. Bos said he was in the same situation as Mr. Shapiro and Mr. De Valk. He said he had no objection to the use of panels of witnesses and that parties should be permitted to present their case in the order they see fit.

It is the Tribunal’s view that Mr. Shapiro and others are to be considered as representatives of their Association. They may give evidence in the case, and be cross examined. They are then allowed to lead evidence from a panel to elaborate on the issues they wish to bring forth in this hearing.

As to the matter of pricing, Mr. Shapiro will be allowed to be a part of that panel, but may not lead the other members of the panel. Evidence given by Mr. Shapiro on pricing must be given with his opening evidence if he intends to lead the panel on pricing.

Denis O’Connor

Vice-Chair

Dated this 4^th day of April, 2001.

INTERLOCUTARY DECISION PERTAINING TO JURISDICTION

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 Chicken Farmers of Ontario from a decision of the Ontario Farm Products Marketing Commission, dated December 1, 1999 relating to the system for the allocation of live chicken to Ontario processors.

TO: Chicken Farmers of Ontario,

3380 South Service Road,

Post Office Box 5035,

Burlington, ON L7R 3Y8

AND TO: Counsel to Chicken Farmers of Ontario

Mr. Howard Goldblatt,

Sack, Goldblatt, Mitchell,

Barristers & Solicitors,

Suite 1130, 20 Dundas Street, West,

Toronto, ON M5G 2G8

AND TO: Counsel to Chicken Farmers of Ontario

Mr. Geoffery P. Spurr,

Wilson, Spurr

261 Martindale Road, Unit 16B

St. Catharines, ON L2W 1A2

AND TO: The Chairman, Ontario Farm Products Marketing Commission,

Ontario Ministry of Agriculture, Food and Rural Affairs,

5^th Floor SW, 1 Stone Road, West,

Guelph, ON N1G 4Y2

AND TO: Counsel to the Ontario Farm Products Marketing Commission,

Mr. Stephen Stepinac,

Director, Legal Services Branch,

Ontario Ministry of Agriculture, Food and Rural Affairs,

5^th Floor NE, 1 Stone Road, West,

Guelph, ON N1G 4Y2

AND TO: Mr. Robert Shapiro,

The Association of Ontario Chicken Processors,

Suite 310, 250 The Esplanade,

Toronto, ON M5A 1J2

AND TO: Mr. John Hoover, General Manager,

The Independent Poultry Processors Association,

104 Martin Street,

Milton, ON L9T 2R2

AND TO: Counsel to The Independent Poultry Processors Association,

Mr. Arlen Sternberg,

Torys,

Suite 3000, Maritime Life Tower,

Post Office Box 270,

Toronto-Dominion Centre,

Toronto, ON M5K 1N2

AND TO: Mr. Robert DeValk,

Further Poultry Processors Association of Canada,

Suite 203, 2525 St. Laurent Boulevard,

Ottawa, ON K1H 8P5

AND TO: Ms. Stephanie Jones,

The Canadian Restaurant and Foodservices Association,

316 Bloor Street, West,

Toronto, ON M5S 1W5

AND TO: Counsel to The Canadian Restaurant and Foodservices Association,

Mr. James P. McIlroy,

McIlroy & McIlroy,

Suite 1410, 155 University Avenue,

Toronto, ON M5H 3B7

AND TO: Mr. Henry Bos,

4443 Koabel Road,

R.R. # 1,

Stevensville, ON L0S 1S0

AND TO: Mr. John Vanderzanden

158 Dalewood Crescent

Hamilton, ON L8S 4B7

AND TO: Mr. Ron Campbell

Ontario Agri Business Association

160 Research Lane, Suite 104

Guelph, ON N1G 5B2

Ruling

Mr. Shapiro, counsel for the Association of Ontario Chicken Processors, argued that the Tribunal has no authority, in these appeals, to establish a specific pricing formula. Two other parties supported this position. They accepted that the Tribunal may, if it considers it appropriate, decide that there should be a formula pricing approach and may, if it considers it appropriate, identify generally what the components of the formula should be. However, they argued that the exact nature and details of any pricing formula must be negotiated by the parties and, if negotiations are not successful, arbitrated.

They stated that these negotiations and/or arbitration are mandated by sections 17, 18 and 19 of Regulation 402 under the Farm Products Marketing Act, which state:

Negotiating Agencies

17. (1) There shall be a negotiating agency of eight members for each quota period fixed by the local board. O. Reg. 194/92, s. 3.

(2) The local board and the voluntary group of processors known as the Association of Ontario Chicken Processors shall each appoint four members to the negotiating agency. O. Reg. 194/92, s. 3; O. Reg. 560/92, s. 1 (1).

(3) The local board and the Association of Ontario Chicken Processors shall notify each other and the Commission in writing of the name and address of their appointees at least twenty-three days before the beginning of the quota period. O. Reg. 194/92, s. 3; O. Reg. 560/92, s. 1 (2).

(4) If the Commission is not notified, it shall appoint the members necessary to complete the negotiating agency. O. Reg. 194/92, s. 3.

(5) If a member of a negotiating agency dies, resigns or is unable or unwilling to act, the local board, the Association of Ontario Chicken Processors or the Commission, as the case may be, shall appoint a replacement. O. Reg. 194/92, s. 3; O. Reg. 560/92, s. 1 (3).

18. The negotiating agency may settle by agreement minimum prices for chickens or for any class, variety, grade or size of chickens. O. Reg. 194/92, s. 3.

Arbitration

19. (1) If the negotiating agency does not arrive at an agreement by 4 p.m. on the sixteenth day before the beginning of the quota period on all matters that it may settle by agreement or decides before that date that an agreement cannot be reached, it shall submit in writing to the Commission,

(a) a signed agreement concerning any matters agreed to; and

(b) a statement of the final position of each of the parties on each matter in dispute.

(2) The Commission shall refer the matters in dispute to an arbitration board.

(3) The arbitration board shall be composed of one member, who shall be appointed by the members of the negotiating agency.

(4) If the member of the arbitration board has not been appointed at least twelve days before the beginning of the quota period, the Commission shall make the appointment.

(5) If the member of the arbitration board dies, resigns or is unable or unwilling to act before he or she has made an award, the negotiating agency or the Commission, as the case may be, shall appoint a new member and the new member shall continue and complete the arbitration.

(6) The arbitration board shall make its award by 4 p.m. on the third day before the beginning of the quota period by selecting without modification one of the final positions on each matter submitted by the parties, and shall provide written reasons for the selection at least two days before the beginning of the quota period. O. Reg. 194/92, s. 3.

(7) The arbitration board shall not make an award if the parties reach an agreement on all matters in dispute and inform the board of that fact before an award is made. O. Reg. 443/97, s. 2.

These regulations were enacted by the Farm Products Marketing Commission (the Commission) pursuant to its authority under section 7(1) 25 of the Farm Products Marketing Act, which states:

7. (1) The Commission may make regulations generally or with respect to any regulated product,

25. providing for the establishment in connection with any plan, of negotiating agencies that may be empowered to adopt or settle by agreement any or all of the following matters:

i. minimum prices for the regulated product or for any class, variety, grade or size of the regulated product,

ii. terms, conditions and forms of agreements relating to the producing or marketing of the regulated product,

iii. any charges, costs or expenses relating to the production or marketing of the regulated product,

iv. the minimum amount of rental to be paid by or on behalf of a person engaged in processing a regulated product to lease land from an owner or tenant for the production of the regulated product and the terms and conditions of lease that shall apply in respect of the leasing of any such land;

[R.S.O. 1990, c. F.9, s. 7 (1)](https://www.canlii.org/en/on/laws/stat/rso-1990-c-f9/latest/rso-1990-c-f9.html).

Mr. Shapiro argued that the Tribunal has no authority to amend these regulations, citing section 16(1) of the Ministry of Agriculture, Food and Rural Affairs Act, which states:

Appeal to Tribunal

16. (1) Subject to subsection (4), if a person is aggrieved by an order, direction, policy or decision of the Commission or Director, made under the Farm Products Marketing Act or the Milk Act, that person may appeal to the Tribunal by filing with the Tribunal and sending to the Commission or Director written notice of the appeal.

He pointed out that that section does not authorize an appeal from a regulation made by the Commission. It authorizes an appeal only from an “order, direction, policy or decision of the Commission.” They distinguished this from section 16(2), which authorizes an appeal from an “order, direction, policy, decision or regulation made under the Farm Products Marketing Act by a local board.” The list of what may be appealed under section 16(1) does not include a regulation. The list under section 16(2) does include a regulation. We note that, while two of the appeals before us are under section 16(1), the other two are under section 16(2), but do not regard this as determinative of the issue.

Mr. Goldblatt, counsel for the Chicken Farmers of Ontario, took the contrary position. He stated that the establishment of a pricing formula is an essential component of the proposal put forward on behalf of his client. They argued that the Tribunal should replace the system of price negotiation and arbitration with a system of formula pricing. They submitted a price setting formula is essential to the CFO proposal. They submitted that the Tribunal should direct the Commission to amend or revoke the regulations and cited section 16(11) as authority to do so. That subsection states

Powers of Tribunal on appeal

16. (11) Upon an appeal to the Tribunal under subsection (1) or (2), the Tribunal may by order direct the Commission, the local board, the marketing board or the Director, as the case may be, to take such action as it or he or she is authorized to take under the Farm Products Marketing Act or the Milk Act and as the Tribunal considers proper, and for this purpose the Tribunal may substitute its opinion for that of the Commission, the local board, the marketing board or the Director.

In analyzing this issue, it is important to keep in mind the nature of these appeals from the decision of the Commission. It was described in the Procedural Order of Vice Chairman Wright dated January 29, 2001, as follows:

5. The issues to be addressed in this appeal are broadly summarized as follows:

Total Ontario Domestic Supply Determination, including issues relating to volume setting

Individual Processor Allocation, including what constitutes a processor and who can purchase live chicken

Category Requirements

Price Determination

Export Policy

This list resembles a similar list that appears in the decision of the Commission that is now under appeal. Nothing should be read into that similarity which derogates from the requirement of item 1 that the hearing is a de novo hearing of similar issues.

This list of issues should not be interpreted restrictively. The nature and scope of the hearing is policy based and generic in nature though, of necessity, it will ultimately result in and include detail relating to implementation. This list of issues is intended to assist in the organization and focus of the hearing and is subject to the control of the panel hearing the appeals.

The authority of the Commission to make the decision under appeal is set out in section 3(1)(a) of the Farm Products Marketing Act, which states:

Authority of Commission

3. (1) The Commission may,

(a) subject to the regulations, investigate, adjust or otherwise settle any dispute relating to the marketing of a regulated product between producers and persons engaged in marketing or processing the regulated product;

It is our view that in exercising its authority under this provision the Commission could have amended its regulations made under section 7(1) 25, if it thought it appropriate to do so.

Section 16(11) of the Ministry of Agriculture, Food and Rural Affairs Act authorizes the Tribunal to direct the Commission to take such action as it is authorized to take under the Farm Products Marketing Act and the Tribunal may substitute its opinion for that of the Commission. On its face, this provision authorizes the Tribunal to direct the Commission to amend its regulation made under the Farm Products Marketing Act. The only issue, then, is whether the omission of the word “regulation” from the list, “order, direction, policy or decision”, contained in section 16(1) restricts the scope of the Tribunal’s authority under section 16(11).

The Supreme Court of Canada, in Baker v. Canada (Minister of Citizenship & Immigration) (1999), [1999 CanLII 699 (SCC)](https://www.minicounsel.ca/scc/1999/699), 174 D.L.R. (4^th) 193, at p. 207, considered whether the Court, on appeal, was restricted to deciding the issue that had been certified to it as a question of general importance under the Immigration Act. It held that it was not. It stated that the certification of a question of general importance was the trigger by which the appeal was justified. The object of the appeal is the judgment itself, not the certified question. Once a question has been certified, all aspects of the appeal may be considered by the Court of Appeal within its jurisdiction. The Court of Appeal is not confined to answering the stated question or issues directly related to it. All issues raised by the appeal may be considered.

Applying this reasoning to the appeals before this Tribunal, it is our view that sections 16(1) and 16(2) are merely the triggers that allow the Tribunal to hear these appeals. The scope of the Tribunal’s jurisdiction is prescribed by section 16(11). It is not circumscribed by section 16(1). Accordingly, this Tribunal does have authority to direct the Commission to amend or revoke its regulations made under section 7(1) of the Farm Products Marketing Act. This conclusion is particularly apt given the purpose of these appeals, which is to establish a new supply management system for the chicken industry. It is inappropriate that this Tribunal be prevented from altering a component of the system, if advisable to do so.

Having come to the conclusion that the Tribunal does have jurisdiction to direct the Commission to amend or revoke its regulations, we have made no decision as to whether this jurisdiction will be exercised in the circumstances of these appeals. Having not yet heard closing arguments, we have not, at this stage, come to any conclusion as to whether it would be appropriate to establish a pricing formula or whether to continue the pricing negotiation/arbitration system in accordance with the regulations or whether to establish some other system.

Dated the 12^th day of October, 2001.