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:

Karan v Chicken Farmers of Ontario

Karan v CFO 2002 ONAFRAAT 7

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

February 22, 2002

DATE OF DECISION:

February 28, 2002

2002-07

NEUTRAL CITATION:

2002 ONAFRAAT 7

Karan v Chicken Farmers of Ontario

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 Flora Karan, Fonthill, ON from decisions of the Chicken Farmers of Ontario dated August 29, 2001 and September 27, 2001, denying the appellant’s request for a reduction in a monetary penalty assessed to her, due to the over-marketing of chicken in Quota Period A-39.

Before:

Murray Cardiff, Chair; Andy Koopal, Member; Tim Sutton, Member.

Appearances:

Andy Karan, representing the appellant

Geoffrey Spurr, counsel to the respondent

Tom Posthuma, Chairman, Chicken Farmers of Ontario, respondent

Kim Slack, Grand River Poultry, witness for the respondent

Shannon Churchward, Grand River Poultry, witness for the respondent

Jackie Bomberry, Sun Valley Foods, witness for the respondent

DECISION OF THE TRIBUNAL

This appeal was heard in Guelph, Ontario on February 22, 2002. Mrs. Flora Karan appealed from decisions of the Chicken Farmers of Ontario (CFO) in which it denied her requests for a reduction in the monetary penalty assessed to her as the result of over-marketing chicken.

The Background

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

The Issue

The issue before the Tribunal is:

Should the excess production levy of $2,642.53 assessed to Mrs. Flora Karan in relation to chicken produced in Quota Period A-39 be reduced?

The Evidence

Andy Karan

Mr. Andy Karan told the Tribunal that both the producer, Flora Karan, and the processor, Grand River Poultry, were partially responsible for the over-production in Quota Period A-39 and both should share in the penalty levied by the CFO.

Mr. Karan said that there was a grey area in the CFO rules and regulations and he submitted that the regulations should be changed so that both producers and processors can be penalized. He said that he had never heard of a processor refusing to pay monetary penalties generated as a result of unforeseeable circumstances. He said he was acting through his District Committee to try to have the regulations made more specific to ensure that this never happens again.

Mr. Karan said the appellant did not object to the quota penalty that was assessed by the CFO, as Mrs. Karan had been paid for the chicken that was over-produced. He indicated the appellant agreed with the CFO that the financial penalty was needed to prevent over-production, but said that the processor should pay a portion of the levy. Mr. Karan said he had considered taking civil action against the processor, but was advised he could not pursue this, as their contract was not specific enough. Mr. Karan said Mrs. Karan was willing to pay the monetary penalty that reflects her actions, but not the actions of the processor. He said she had no recourse but to ask the Tribunal for relief.

In response to questions, Mr. Karan indicated:

• If the Tribunal does not have the authority to order the processor to pay a portion of the penalty, the appellant will pay the entire penalty and try to get the regulations changed.

• He felt that reducing the penalty would undermine the CFO’s authority.

• He felt the penalty was fair and would deter producers from over-producing.

• Processors have always reimbursed producers in the past.

• He and Mrs. Karan produced approximately 115% of the quota in the period in question.

• Prior to placing the chicks, the producer and processor agreed the chicks were to be grown for 41 days. The processor could not slaughter them on the 41st day and they were kept on the farm for 43 days.

• The two extra days spent on the farm contributed to the over-production. The processor agreed to pay the penalty generated from one extra day on the farm.

• The appellant contracted for a 2.1 kg bird but it was understood the producer would ship birds with a target weight of 1.85 kg. He had grown this size bird for approximately six years.

• The birds shipped in Quota Period A-39 weighed 2.09 kg on average.

• The rate of growth of chickens at that age was at least 0.07 kg/day.

• He and Mrs. Karan had placed extra chicks due to concerns with mortality and this contributed to the over-production.

• The crop immediately preceding the Quota Period A-39 crop had a mortality rate of 9.5%; the problem was resolved in A-39 and the mortality was only 5.2% in that period.

• There is no monetary penalty for shipping up to 5% higher than the producers’ quota allotments; there is a 30 cents/kilogram penalty for shipping 5-10% over-quota; there is a 60 cents/kilogram penalty for chicken that is more than 10% over-quota.

Kim Slack

Ms. Kim Slack told the Tribunal that she had worked for Grand River Poultry for five years and that she was responsible for scheduling the slaughter of chicken and arranging transport from farms to processing plants. She said that Grand River Poultry acquired L & V Poultry in November 1999 and she began to work with Mr. Karan at that time.

Ms. Slack said she knew there was a potential problem with the Karan flock due to the number of chicks placed. She said the appellant was growing in the 1.95 kg – 2.15 kg category, which had a target weight of 2.0 kg in 41 days. She said Grand River Poultry did not target any producers at 1.85 kg as it needed a larger bird for its customers. She said L & V Poultry might have wanted a smaller bird in the past.

Ms. Slack said she spoke to Mr. Karan the week before the flock was shipped and he requested either a Monday or Tuesday pick-up date. She said that it was not possible to slaughter the Karan chicken until Wednesday, 43 days after the chicks were placed. She said she informed him that Grand River Poultry would pay the penalty related to a one-day hold and he agreed. She said he estimated the chicken would weigh 2.05 kg on average by the shipping date.

Ms. Slack explained her calculation of the amount of penalty owed by Grand River Poultry to Mrs. Karan, using the number of birds marketed and an average daily gain of 0.06 kg/day. She said the processor prepared a cheque in the amount of $502.49 but that it was not cashed, as Mr. Karan was dissatisfied with the amount and maintained the payment should be for a two-day hold.

In response to questions, Ms. Slack indicated:

• Since there is no penalty for shipments that are within 5% of quota, Grand River Poultry did not compensate for that amount of over-production.

• She had no records of her conversation with Mr. Karan.

• Priorities are set for kill dates giving consideration to the total number of birds that can be slaughtered in one day; customer needs and a desire to keep producers within their quota allotment.

• The other producer was moved ahead of Mrs. Karan because his chick placement date had been changed and he estimated his birds would be 2.5 kg or greater.

• It is not uncommon for producers to be penalized, but many financial penalties were small.

• She calculates the compensation to be paid by the processor using the same methodology for all producers in a penalty situation.

• Grand River poultry aimed for production at 100% of producers’ allotments as targeting for 105% leaves no latitude for weight variation.

• She believed Mr. Karan wanted to aim for 105% of Mrs. Karan’s allocation in Quota Period A-39.

Sharon Churchward

Ms. Sharon Churchward told the Tribunal that she worked for Grand River Poultry and that she set up chick placements with producers and drew up preliminary schedules. She said she calculates the number of chicks required based on growth rates, target weight, mortality and available quota. She said she did this for Mr. Karan prior to the placement of chicks in Quota Period A-39. She said that she advised Mr. Karan she thought he was placing too many chicks, but that he told her he had a mortality problem and that he later added 700 chicks to his order. She said the producer is responsible for deciding how many chicks to place.

Ms. Churchward testified that Grand River Poultry needed chicken in the 1.95-2.15 kg category but that it would probably accept chickens with an average weight of 1.90 kg.

Ms. Churchward said she mailed a cheque for $502.49 to Mrs. Karan. She said the processor later agreed to pay approximately $200 more but this was not acceptable to the appellant.

In response to questions, Ms. Churchward said:

• She spoke to a hatchery representative on behalf of Mr. Karan after he indicated he wanted to place extra chicks. She felt that if both she and he spoke to the hatchery representative he would have a better chance of obtaining extra birds.

• She did not keep a written record of her conversations with Mr. Karan or the hatchery representative.

• She was aware of the amount of kilograms that Mrs. Karan needed to ship to stay within her quota allotment.

Jackie Bomberry

Ms. Bomberry testified that she worked for Sun Valley Foods and that she coordinated the hatchery’s chick sales. She said Mrs. Karan purchases chicks from Sun Valley Foods and she verified that some documents in evidence were generated by the hatchery.

Ms. Bomberry said Ms. Churchward had informed her that Mr. Karan wanted an extra 1000 chicks for Quota Period A-39, but that Mr. Karan told her that only 700 extra chicks were needed. She explained that she agreed to provide 700 extra chicks, if they were available on the day they were hatched. She said the chicks were available and were delivered.

Tom Posthuma

Mr. Tom Posthuma said he was the Chairman of the CFO and the Director for District 6. He explained that the CFO board is comprised of nine chicken producers elected by producers. He said he had grown chicken since 1973. He estimated there were 1,150 chicken producers in Ontario.

Mr. Posthuma explained that the CFO determined how much chicken each producer could grow in each 8-week quota period based on their individual quota holdings and the amount of chicken Ontario was allowed to grow. He explained that Ontario was a signatory to a national supply management agreement and that the CFO is penalized if Ontario shipments exceed the provincial allotment by more than 2%. He said the CFO provided a 5% sleeve to producers as chicken production is an inexact science and it wants to allow for unforeseen circumstances.

Mr. Posthuma said that a penalty of 30 cents/kilogram was quite expensive to chicken producers and that 60 cents/kilogram was onerous. He said over-production levies collected from producers were used to offset the penalty that must be paid to the Chicken Farmers of Canada when the province exceeded its allocation. He said the CFO collected approximately $500,000 in revenue per year through excess production levies.

Mr. Posthuma said when he is asked to hold chickens longer than contracted, his processor agrees to pay the over-production penalty. He said if the processor ever reneged he would talk to them and possibly ask the CFO to mediate the dispute. He said he might decide not to ship to that processor again, or might go to the court over the matter. Mr. Posthuma said that he orders his own chicks and signs for them.

Mr. Posthuma said the CFO did not reduce the amount of the monetary penalty it assessed to Mrs. Karan as all producers know the regulations and the regulations are necessary to encourage producers to target and produce 100% of their allotment. He said that it was not practical to enact a regulation with very specific, inflexible placement and slaughter dates. He said that both producers and processors require flexibility to allow for production variances and problems in the processing plants. He said producers and processors must work out the best schedule for both.

In response to questions, Mr. Posthuma said there was no monetary penalty for under-producing, but that the amount of chicken that could be grown in future periods is reduced for producers shipping more than 10% below their allocations. He also provided minutes of the CFO meetings held to discuss Mrs. Karan’s requests to the Tribunal, at its request.

Summations

Mr. Karan reiterated that the appellant did not object to the concept of financial penalties for overproduction but that the responsibility must be equitably shared between producers and processors. He suggested the appellant also objected to the amount of flexibility in the regulations.

Mr. Spurr submitted that this was a private dispute between the producer and her processor and that it was outside of the jurisdiction of the Tribunal to resolve it. He said that Mr. Karan had conceded that the CFO levy was reasonable and that the relief originally sought by the appellant was no longer desired. Mr. Spurr said the CFO took the position that flexibility was required in its regulations to allow for the different circumstances of its 1,150 producers.

The Findings

The Tribunal was persuaded by the evidence and by Mr. Spurr’s argument that the dispute in this case is a private matter between Mrs. Karan and Grand River Poultry. Both the appellant and representatives of the processor admitted to some responsibility for the over-production penalties assessed to Mrs. Karan. The appellant asked that the processor be required to pay a portion of the penalty. The Tribunal has no authority to adjudicate disputes over contracts made between individual producers and processors.

The appeal to the Tribunal was from decisions of the CFO not to reduce the monetary penalty it charged Mrs. Karan. The evidence before the Tribunal is that the producer believed the monetary penalty was fair and necessary and was willing to pay the full amount if it could not be recovered from the processor. In this circumstance, the Tribunal finds in favour of the CFO.

Decision and Reasons

After careful consideration to the evidence presented and submissions made, the Tribunal decided to deny the appeal for the following reasons:

1. Both parties agreed that the amount of the monetary penalty was fair.

2. The Tribunal does not have the jurisdiction to require Grand River Poultry to pay a portion of the penalty charged to Mrs. Karan.