Agriculture, Food and Rural Affairs Appeal Tribunal

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:Tribunal@OMAFRA.gov.on.ca

1, chemin Stone Ouest Guelph (Ontario) N1G 4Y2 Tél.: (519) 826-3433, Téléc.: (519) 826-4232 Email:Tribunal@OMAFRA.gov.on.ca

AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL

APPEAL: Osztrovics v Ontario Flue-Cured Tobacco Growers’ Marketing Board Osztrovics v OFCTGMB 2004 ONAFRAAT 01

STATUTE: Ministry of Agriculture, Food and Rural Affairs Act

HEARING: January 12, 2004

DATE OF DECISION: January 19, 2004

2004-01

NEUTRAL CITATION: 2004 ONAFRAAT 01

Osztrovics v Ontario Flue-Cured Tobacco Growers’ Marketing Board

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

AND IN THE MATTER OF: An Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by Victor Osztrovics, Burford, Ontario from a decision of the Ontario Flue-Cured Tobacco Growers’ Marketing Board to 1. Seize and destroy carryover tobacco; and 2. Seize and destroy tobacco grown in 2003.

Before: John Taylor, Vice Chair; George Klosler, Member; Bill Olson, Member

Appearances:

Barry Bresner, counsel to the respondent, the Ontario Flue-Cured Tobacco Growers’ Marketing Board (OFCTGMB)

Victor Osztrovics, appellant

Vicky Malcolm, Secretary to the OFCTGMB, witness for the respondent

Cheryl Lamont, Inspector, OFCTGMB, witness for the respondent

Steve Baum, Assistant Manager – Warehouse, OFCTGMB, witness for the respondent

Theo Schonberger, Committeeman, OFCTGMB, witness for the appellant

DECISION OF THE TRIBUNAL

This appeal was heard in Guelph, Ontario on January 12, 2004. Mr. Victor Osztrovics appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal (the Tribunal) from decisions of the Ontario Flue-Cured Tobacco Growers’ Marketing Board (OFCTGMB). The OFCTGMB had seized tobacco stored on Mr. Osztrovics’ farm and ordered it destroyed.

Statutory Context

The appeal comes to the Tribunal by way of Subsection 16(2) of the Ministry of Agriculture, Food and Rural Affairs Act, which states:

Idem

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.

Subsection 4 allows for the Tribunal to refuse to hear the appeal under certain circumstances. Subsection 5 requires that appellants first apply to the marketing board for a hearing, unless both parties waive their right to a hearing.

Under the Farm Products Marketing Act, the OFCTGMB is delegated the power to make regulations to control the production and marketing of flue-cured tobacco. The marketing board requires tobacco producers to be licensed and to hold basic production quota (BPQ) in order to produce tobacco. It also requires producers to hold marketing quota in order to sell tobacco.

The Issues

The issues before the Tribunal were:

1. Should carryover tobacco grown by the appellant under a sharegrower arrangement in 2001 or prior years be destroyed?

2. Should tobacco grown by the appellant in 2003 be destroyed?

The Evidence

Carryover Tobacco

Mr. Victor Osztrovics told the Tribunal he started growing tobacco with his parents in 1985 and that he and his wife purchased his parents’ quota in 1997 but sold most of it in the winter of 2001 to finance a broiler operation. He said he also sharecropped with his neighbours from 1992-2001. He explained that his sharegrower agreement was a handshake deal, whereby he paid his neighbours a set price per pound to grow tobacco. He said he also incurred the cost of producing and marketing the crop. Mr. Osztrovics indicated he believed this was the norm for sharegrower agreements in the industry, but acknowledged this was based on what other people had told him.

Mr. Osztrovics said a problem arose in early 2002 when his sharegrower partners sold their quota, despite having a significant amount of carryover tobacco in the barn. He stated that he had informed the OFCTGMB of the problem but that no one had inspected the neighbours’ farm or inquired about carryover before allowing the quota to be sold. He said he spoke to Chris Jacobs, an OFCTGMB employee, at least twice in February 2002 and she informed him there was nothing the OFCTGMB could do, and that the carryover tobacco was the property of the quota holders, not the sharegrower. Mr. Osztrovics stated that governments and banks took the opposite view as to the ownership of tobacco.

Mr. Osztrovics explained to the Tribunal that the quota holders had been paid and had no further interest in the carryover tobacco. He said he was asked to remove the carryover from the neighbours’ barn in 2003, as they wanted to sell their property. He said he moved the tobacco to his own farm between July and September 2003. He submitted that this was not an unusual practice, and that sharegrowers often mix carryover from their sharegrower crop with their own tobacco crop. Mr. Osztrovics said it was not necessary to destroy the carryover tobacco. He said the OFCTGMB was accountable for it.

Mr. Osztrovics said the OFCTGMB regulations were complicated and producers did not truly understand them unless they ran into a problem with the OFCTGMB. He said he had signed an OFCTGMB inspection form in June 2003, as he had in past years, but that he was not fully aware of the details on the form.

Mr. Osztrovics also said:

• He had 7,400 lbs. of carryover tobacco grown on his farm.

• In 2003 he could market only 154 lbs. of that tobacco under his quota, but he intended to purchase more quota.

• He did acquire an additional 10,000 lbs. BPQ in 2003. In total he could market approximately 3,000 lbs. of tobacco in 2003.

• With that amount of quota it would take approximately 10 years to market all his tobacco.

• By September 10, 2003 there was approximately 29,000 lbs. of carryover tobacco on his property. All but 7,400 lbs. was grown on his neighbours’ farm, under his sharegrower arrangement. Some of that tobacco was poor quality but he estimated approximately 20,000 lbs. was saleable and would bring between $0.80 and $1.35 per pound.

• He was not aware the OFCTGMB required tobacco growers to obtain a permit to move tobacco between farms.

• All tobacco he grew was dried on his farm; it was moved to his neighbours’ barn and his father’s barn for storage.

• He could not afford to buy enough quota to market all his carryover tobacco; he intended to buy small amounts as he could afford it.

• When he found out his sharegrowing partners, Mr. and Mrs. Ozsvari, had sold their quota, he did not keep his own quota to market the carryover, as he needed money to finance a broiler operation.

• The method of storage affects the length of time tobacco can be stored.

• He did not accept the OFCTGMB position that the tobacco he grew under a sharegrower agreement was the property of the quota owners, Mr. and Mrs. Ozsvari.

• The OFCTGMB inspector did not ask him about additional carryover tobacco on June 24, 2003.

Ms. Cheryl Lamont testified that she was an OFCTGMB inspector and had visited the Osztrovics farm on June 24, 2003. She said she estimated carryover at 7,400 lbs. based on her inspection of bales stored in a barn, and that she had filled in a section that said no tobacco was to be grown that year. She stated that she asked Mr. Osztrovics if that was it for carryover and he said yes. She did not remember if she asked him if any fields were planted or not. Ms. Lamont said Mr. Osztrovics signed the inspection form.

Mr. Steve Bohm told the Tribunal he was the Assistant Manager of the OFCTGMB warehouse, and that he also conducted farm inspections each Spring. He said he was directed to conduct a complete inventory of all tobacco on Mr. Osztrovics’ farm and that he did so on September 10, 2003. He verified that he had written a report detailing new crop and old crop on the farm on that date. Mr. Bohm said he did not discuss carryover tobacco with Mr. Osztrovics at that time, as he did not know how much carryover he had declared in the Spring. He said he returned to the Osztrovics farm on September 15, 2003 to discuss a discrepancy between carryover declared and carryover in the barn. He said at that time Mr. Osztrovics told him he had transferred the tobacco he had sharegrown from Mr. and Mrs. Ozsvaris’ farm and that accounted for the discrepancy. Mr. Bohm said he seized the tobacco and taped it off. He said Mr. Osztrovics was cooperative with OFCTGMB employees and did not try to prevent access to the property.

Ms. Vicky Malcolm said she was the Secretary of the OFCTGMB and that she had been with the organization for 29 years. She said she had been present at Mr. Osztrovics’ initial hearing before the OFCTGMB on September 23, 2003 and a second hearing on the same matters held December 9, 2003. She explained that six of eleven board directors were replaced with new directors in an election between these dates and Mr. Osztrovics had asked for a second hearing. She said at both hearings the OFCTGMB ordered that all undeclared tobacco be seized and destroyed.

Ms. Malcolm also indicated:

• The OFCTGMB registered sharegrowers for the purposes of including their names on cheques issued for the payment of tobacco.

• She understood that most sharegrower arrangements were true sharegrowing arrangements, not quota rentals.

• The OFCTGMB did not allow quota rentals, except on a limited basis in the Spring and Fall. The OFCTGMB did investigate new sharegrower arrangements and if it deemed them to be rentals they would not issue marketing quota to the individuals involved.

• Mr. Osztrovics was a registered sharegrower up to 2001. Three names would be issued on cheques for the tobacco he grew under that agreement – his name and the two quota owners.

• A permit is required to transport cured tobacco between farms, from a farm to the OFCTGMB warehouse, and from the warehouse to a farm. This was a longstanding policy of the OFCTGMB and it did enforce this requirement.

• The OFCTGMB mails its regulations to growers annually.

• Board directors receive written documentation related to hearings approximately 1-1.5 hours in advance of the hearing.

• If a sharegrower has no crop of his own, and no written agreement, the OFCTGMB normally investigates to ensure it is not a rental.

• In 2003 there were several hearings on sharegrower arrangements, one was monitored but found to be bona fide.

• Sharegrowers are registered with the OFCTGMB for one year at a time.

• Before transferring BPQ, the OFCTGMB requires a number of forms to be filled out by the quota holder’s solicitor, then posts the intended transfers on the 8th of every month to allow encumbrancers to object; quota transfers are approved/disapproved on the 15th of every month.

• Sharegrowers are not notified when tobacco quota of their partners is to be transferred.

• Proposed transfers are available for anyone to check and people do check them.

• The OFCTGMB was not aware of Mr. Osztrovics sharegrowing partners having any other sharegrowers.

Mr. Theo (Ted) Schonberger told the Tribunal he had been born and raised on a tobacco farm, had grown tobacco for several years and had been an OFCTGMB committeeman for approximately one year. He said the OFCTGMB rules and regulations were very complex and could be confusing. He said it was common for tobacco to be moved between farms to an open kiln and that a permit was not required. He said the OFCTGMB was interested in tracking the movement of bales of tobacco. He also said that rental type sharegrower agreements were becoming more common as interest in traditional sharegrower arrangements where both parties shared in costs and proceeds of the crop declined. He said he had not personally been involved in either type of sharegrower arrangement.

Mr. Schonberger said it was not unusual for a producer to grow a large crop one year and plant nothing the next year but sell carryover tobacco. However, he said it was usual to sell the best tobacco in the year it was grown. He explained tobacco could be stored for several years if stored properly. He said that tobacco was grown under a supply management system, but it was a provincial system rather than a national one so had different rules than some of the other supply managed commodities.

Mr. Schonberger also indicated:

• He was aware quota rentals were not allowed, other than between family members and in the Spring and the Fall. These rentals had to be registered with the OFCTGMB.

• There was a grey area in the regulations and quota could be rented in special circumstances, such as a hailstorm damaging a crop.

• There was no limit to how much tobacco could be grown; the OFCTGMB limited the amount that could be marketed.

• The lion’s share of Canadian tobacco is grown in Ontario; a small amount is grown in Quebec.

• BPQ was selling for $1.50 per pound in 2003 and perhaps 10 cents per pound more in 2002.

Tobacco Grown in 2003

Mr. Osztrovics told the Tribunal he had planted a small amount of tobacco on June 17 or 18, 2003. He said he had not planned to plant tobacco when he applied for marketing quota in May 2003. He explained that he needed to provide additional work for his offshore labourers, or they would leave and he would have to pay to fly them home. He said he needed them to help with the harvest of other crops in the Fall. Mr. Osztrovics said he planned to purchase BPQ with 2003 marketing quota attached, so that he could market the crop. He said he had tried to purchase quota at planting time but was unsuccessful. Mr. Osztrovics said the OFCTGMB knew he was trying to get back into tobacco in a small way because he had explained this to the directors at a hearing in 2002.

Mr. Osztrovics told the Tribunal that he made a second application for marketing quota and a licence to grow in December 2003, by which time he had acquired additional BPQ and had planted a crop. He acknowledged his timing was off but said this was because he had difficulty acquiring quota. He said the OFCTGMB did not accept his application as it was the second one he made in one year, and as the appeal was outstanding. He submitted it was the OFCTGMB’s normal practice to accept late applications if accompanied by a $100 late fee.

Mr. Osztrovics also indicated:

• He knew he had to have a licence in order to plant tobacco and he knew he did not have one when he planted his crop.

• He obtained extra tobacco plants from producers who had finished planting.

• He did not tell the OFCTGMB inspector that he had planted 6-7 acres of tobacco when she inspected the farm on June 24, 2003. He was afraid the OFCTGMB would cut the field down as he had not yet purchased quota at that time.

• He signed the inspection form even though it was not accurate, as it did not mention the 2003 planting or the carryover tobacco from the sharegrower arrangement.

Mr. Steve Bohm said he visited the Osztrovics farm on September 9, 2003, with his supervisor, Mr. Chuck Emre. He said they had been informed by a representative of AGRICORP that there was a small field of tobacco on the Osztrovics farm which he claimed to own. Since Mr. Osztrovics had not declared that he was growing tobacco at his inspection on June 24, 2003, he and Mr. Emre were instructed to visit the farm and speak with Mr. Osztrovics. He said he did not believe they telephoned Mr. Osztrovics to let him know they were coming.

Mr. Bohm said he and Mr. Emre measured the field of tobacco and told Mr. Osztrovics he needed a licence to grow it. Mr. Bohm said that Mr. Osztrovics acknowledged it was his field of tobacco and said he had received something from the OFCTGMB but could not recall what it was. He said Mr. Osztrovics told them the inspector was likely out before the field was planted, then did not say much else once they pointed out Ms. Lamont had been on the farm on June 24, 2003, a week after it had been planted.

Mr. Bohm said AGRICORP does not routinely report the results of their inspections to the OFCTGMB and he understood the employee in question had checked with his supervisor before reporting the field to the OFCTGMB.

Summations

Mr. Osztrovics told the Tribunal he wanted it to order that his tobacco did not have to be destroyed. He said he intended to buy more quota in the future and that he could eventually sell all the tobacco he had in storage. He said that the OFCTGMB now knew where the tobacco was located, that it had all been accounted for and that the OFCTGMB could now keep track of it.

With regard to the carryover tobacco he transferred from his neighbours’ farm, Mr. Osztrovics submitted he was in a difficult position because the OFCTGMB allowed his sharegrowing partners to sell their quota, knowing that over 20,000 lbs. of carryover tobacco would be stranded. He said Mr. and Mrs. Ozsvari had no interest in the carryover tobacco, and had asked him to move it to his farm. He told the Tribunal he could not sue his neighbours over the matter as they lived right next door and it was not done.

On the question of the tobacco grown in 2003, Mr. Osztrovics said he agreed that he should have applied for a licence to grow sooner but was fearful that it would not be approved. He said he hoped that once he purchased quota, the OFCTGMB would re-assess or confirm his licence to grow. He said he only planted the 2003 tobacco to provide work for his offshore labourers and that he would have to send them home if he could not provide them with work.

Mr. Osztrovics said he felt the OFCTGMB had made an example of him, and that everyone moves tobacco without a permit. He said there should be better accountability.

Mr. Osztrovics also said he had learned during the course of the hearing that his bank was laying claim to some of the tobacco in question.

Mr. Bresner told the Tribunal the OFCTGMB had no personal interest in picking on Mr. Osztrovics and that it was not doing so. He said the OFCTGMB was working in the best interests of all tobacco producers, most of whom adhere to its regulations.

Mr. Bresner submitted that Mr. Osztrovics had illegally grown a crop of tobacco, and did not disclose it at any time until he was caught. He said that it was not an excuse that he had to break the law to keep his employees busy or that he would have bought extra quota when the time was right, as that may never occur. Mr. Bresner submitted that the worst thing that can be done in the flue-cured tobacco industry was to grow a crop without a licence.

Mr. Bresner said the OFCTGMB general regulations are clear that the onus is on the producer to point out all the fields where he is growing tobacco. He said Mr. Osztrovics admitted that he did not tell the OFCTGMB inspector about the field planted in 2003, as he was afraid it would be cut down. He said this indicated Mr. Osztrovics knew what he was doing was wrong.

With regard to the carryover tobacco grown under the sharegrower arrangement, Mr. Bresner said the appellant knew in 2002 that as far as the OFCTGMB was concerned, that tobacco belonged to Mr. and Mrs. Ozsvari, the people who held the quota at the time it was grown. He said he understood Mr. Osztrovics was frustrated that Mr. and Mrs. Ozsvari sold the quota out from under him, leaving him no way to market the carryover. However, he submitted Mr. Osztrovics’ remedy was with his neighbours and that he ought not to have taken that tobacco and treated it as his own. Mr. Bresner said Mr. Osztrovics did not tell the OFCTGMB that he was really renting Mr. and Mrs. Ozsvaris’ quota, and said that if it had known that it would not have allowed it. He said the OFCTGMB does not inquire into the terms of sharegrower agreements, as it depends on tobacco growers to obey the regulations. He said if they do not, and they are caught, they face the consequences. He said the fact that there might be other tobacco growers who are renting, rather than entering true sharegrower arrangements who had not been caught did not excuse Mr. Osztrovics.

Mr. Bresner said the original quota owners, Mr. and Mrs. Ozsvari, no longer owned quota and there was no way for the carryover to be marketed unless they purchased more quota. He said they had been informed the tobacco was to be destroyed and given 30 days to object, but had not done so. Mr. Bresner said tobacco could not be transferred between farmers. He said it could only be sold through the OFCTGMB warehouse and the tobacco in question could not be sold so it should be destroyed. He submitted there would be anarchy if all producers did what Mr. Osztrovics had done.

The Findings

The Tribunal finds that the arrangement the appellant, Mr. Osztrovics, had with his sharegrower partners, Mr. and Mrs. Ozsvari, was nothing more than a loose quota rental arrangement, but notes that there is no hard and fast rule as to the form that sharegrower arrangements should take. The OFCTGMB had registered the sharegrowing arrangements between Mr. and Mrs. Ozsvari and Mr. Osztrovics for several years and there was no evidence that the arrangements had changed over the years. The OFCTGMB could have investigated the terms of this arrangement, as it did others. The lack of a true sharecropping arrangement between the appellant and Mr. and Mrs. Ozsvari is not the foundation of the Tribunal’s decision.

Also, while the OFCTGMB alleged that the transport of carryover crop between the Ozsvari and Osztrovics farms was illegal, the Tribunal finds that this same crop had been transported during the harvest period as well, when it was green tobacco. The Tribunal appreciates that the transport of the tobacco arose out of necessity when Mr. and Mrs. Ozsvari planned to sell their farm and wanted the carryover tobacco removed. While the appellant should have obtained a permit before transporting the tobacco, the Tribunal did not give his failure to do so any weight in reaching its decision.

The Tribunal finds that the carryover tobacco grown by the appellant under the sharegrower arrangement he had with Mr. and Mrs. Ozsvari should be destroyed. The Tribunal accepts the OFCTGMB argument that this tobacco could not be marketed, once the quota holders under whose name it was grown sold their quota and exited the industry. The Tribunal notes that the appellant was aware of this problem before he sold his own quota, but that he proceeded to sell his own quota, to finance his broiler operation, knowing that there would be a problem marketing the carryover tobacco he had grown with Mr. and Mrs. Ozsvari. Accordingly, the disappointment and frustration that he experienced in not being able to rely on the Ozsvari quota to market the carryover, he had it within his power to keep his own quota to accomplish that path, provided he obtained an exemption from the OFCTGMB to market the carryover under his quota, rather than the Ozsvari quota.

With respect to the six or seven acres of tobacco grown in 2003, the Tribunal finds this was done entirely without the benefit of BPQ and carried out by the appellant in a surreptitious manner. It was clear that the appellant was trying to grow this tobacco out of sight and without the knowledge of the OFCTGMB. The Tribunal relies on the evidence that Mr. Osztrovics signed a crop inspection report one week after planting this crop, in which he denied having any planted crop. The Tribunal finds that this tobacco should be destroyed.

The Tribunal received no evidence under oath as to whether a bank had any interest in this tobacco. In any event the Tribunal notes that a bank cannot sell this tobacco without quota anymore than the appellant can. Quota is a licence to sell tobacco; the carryover tobacco in question and the tobacco grown in 2003 are not attached to any quota.

Decision and Reasons

After careful consideration of the evidence filed and the submissions made the Tribunal orders:

1. All the carryover tobacco on Mr. Osztrovics’ farm, except for 7,400 lbs., is to be destroyed by the OFCTGMB, in accordance with its regulations.

2. All the tobacco grown by Mr. Osztrovics in 2003 is to be destroyed by the OFCTMB in accordance with its regulations.

The reasons for this decision are apparent in the aforementioned findings.

Dated at Tilbury, Ontario this the 19th day of January 2004.