Agriculture, Food and Rural Affairs Appeal Tribunal

1Stone Road West Guelph, Ontario

Tribunal d’appel de l’agriculture,

de l’alimentation

et des affaires rurales

N1G 4Y2

Tel: (519) 826-3433, Fax: (519) 826-4232

Email:Tribunal@OMAF.gov.on.ca

1, chemin Stone Ouest

Guelph (Ontario) N1G 4Y2

Tél.: (519) 826-3433, Téléc.: (519) 826-4232

Email:Tribunal@OMAF.gov.on.ca

AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL

APPEAL:

Georgian Bay Milk Company Ltd. v Dairy Farmers of Ontario

Georgian Bay Milk Company Ltd. v DFO [Extension] 2004 ONAFRAAT 12

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

November 27, 2003, December 4, 2003, December 5, 2003 and February 18, 2004

DATE OF DECISION:

March 28, 2004

2004-12

NEUTRAL CITATION:

2004 ONAFRAAT 12

Georgian Bay Milk Company Ltd. v Dairy Farmers of Ontario [Extension]

IN THE MATTER OF THE MILK 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 Georgian Bay Milk Company Ltd. from decisions of Dairy Farmers of Ontario to revoke the licences of milk producers currently shipping to Georgian Bay Milk Company Ltd., effective December 1, 2003; and to deny a request that the transition period to allow milk producers currently shipping to Georgian Bay Milk Company Ltd. be extended beyond November 30, 2003 to such time as a national dairy export system is up and running, and the BSE border closures affecting culled dairy cows and replacement heifers have been resolved.

Before:

Murray Cardiff, Chair; Tom Hall, Member: George Klosler, Member.

Appearances:

James McIlroy, counsel to Georgian Bay Milk Company Ltd, appellant

Geoffrey Spurr, counsel to the Dairy Farmers of Ontario, respondent

Chris Birch, President of Georgian Bay Milk Company Ltd, witness for the appellant

Peter Gould, Director, Marketing and Production Division, Director of Raw Milk Quality Program, witness for the respondent

Gordon Coukell, Chair, Dairy Farmers of Ontario, witness for the respondent

DECISION OF THE TRIBUNAL

This appeal was considered in Guelph, Ontario on Thursday November 27, 2003, Thursday December 4, 2003, Friday December 5, 2003 and Wednesday February 18, 2004. Georgian Bay Milk Company Ltd. (GBMC) appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal (Tribunal) from a decision of the Dairy Farmers of Ontario (DFO) denying its request to extend the transition period for producers currently shipping milk with GBMC beyond November 30, 2003, to such time as a national dairy export system is up and running, and the BSE border closures affecting culled dairy cows and replacement heifers have been resolved.

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.

The Background

The DFO is a marketing board established pursuant to the Milk Act and derives its authority from Reg. 760 (RRO 1990), as amended, (Milk and Farm-Separated Cream – Plan). The DFO administers a supply managed marketing system and requires milk producers to hold quota in order to market milk. As well producers must be licensed by the DFO in order to market milk.

Prior to December 31, 2002, Ontario milk producers could contract to produce milk for the export market, to be exported in fluid form or as processed dairy products, under a mechanism known as the Export Contract Exchange (ECE). ECE contracts were administered by a non-government, independent body. Both quota holding and non-quota holding producers produced milk for export contracts under the ECE system. Quota holding producers also sold milk on the domestic market, whereas non-quota holding producers sold milk only on the ECE. In Ontario, the Director of Regulatory Compliance, an official of the DFO, administered the raw milk quality aspects of Regulation 761 (RRO 1990) under the Milk Act, for both quota holding and non-quota holding producers in Ontario, regardless of their participation in the ECE. The DFO administered the licensing and quota allocation system for all milk producers in Ontario, regardless of their participation in the ECE.

On December 20, 2002 the World Trade Organization (WTO) made a ruling which excluded Canadian dairy producers from exporting to the world market. The decision was made in response to challenges from the United States and New Zealand alleging that Canadian dairy products were subsidised by the income earned from the sale of milk by quota holders in the domestic market. The WTO panel recognized the existence of non-quota holding milk producers in Canada but it didn’t make a special exception for them because they constituted less than 2 per cent of all producers.

As a result of the WTO ruling, the Canadian Department of Foreign Affairs and International Trade (DFAIT) coordinated the 'wind-down' of the export program and took on the responsibility of monitoring Canadian compliance with the ruling. Canada agreed that no new contracts would be negotiated under the ECE and the United States and New Zealand agreed that producers could continue to produce milk until April 30, 2003 against any contract that existed prior to December 31, 2002. The DFO required that non-quota holding producers purchase at least 5 kilograms of quota by July 31, 2003.

All producers who shipped milk to GBMC were non-quota holding producers. GBMC held ECE export contracts as of December 31, 2002, to supply milk for export long after the stipulated 'wind down' phase had passed. GBMC appealed to the Tribunal from decisions of the DFO and the Ontario Farm Products Marketing Commission related to a proposed export system which would be exclusive to non-quota holding producers. The Tribunal’s decision in the matter was rescinded by the Honourable Helen Johns, Minister of Agriculture and Food (Minister) on July 23, 2003. The Minister’s letter to the parties reads as follows:

“After carefully considering the submissions made in this matter, I have decided to rescind the Tribunal’s decision of June 4, 2003. I have the highest concern for the continued well being of Ontario’s supply managed dairy industry. To proceed in the manner and within the time frame ordered by the Tribunal would create anxiety and uncertainty in an industry that has just recently concluded a round of protracted trade challenges.

However, I am mindful of the dairy export trade opportunities that appear to exist and believe strongly that these should be pursued. My preference would be to have a national dairy export system in place, operating in harmony with the national supply managed system. To achieve this, I will instruct my officials, working in consultation with stakeholders and with their counterparts across the country, to seek to develop such a system that conforms to our international trade obligations.

Meanwhile, I am requesting that the Dairy Farmers of Ontario allow those milk producers currently shipping to Georgian Bay Milk Company a transition period, ending November 30, 2003 to make the necessary business decisions.”

Subsequently, DFO allowed GBMC producers to continue to produce and ship export milk until November 30, 2003. The GBMC asked the DFO to extend the transition period; the DFO declined to hold a hearing on the matter and the Tribunal was asked to resolve the matter. A separate panel of the Tribunal heard a pre-hearing motion on this matter and determined the Tribunal had jurisdiction to hear the appeal.

Preliminary Matters

Mr. McIlroy, counsel to GBMC, told the Tribunal that he was not satisfied that the DFO had made full disclosure of all necessary documents which it was ordered to disclose. He stated that he had not received a letter from the Secretary of the Board, indicating that the DFO had complied thoroughly with the disclosure order. He stated that he believed that a few pages from sections seven and eleven of the DFO brief were missing.

Mr. Spurr, counsel to the DFO, submitted a letter written by Mr. Karn, Secretary, DFO in which he confirmed that the DFO brief complied with the Tribunal Order. He agreed to look into the matter of the page collations in the identified sections of the DFO brief during the morning break. The parties resolved this matter.

Mr. Spurr objected to statements contained in the witness statement of Mr. Birch, the president of GBMC. He based his objection on the principle that there were numerous substantial references to the findings and decision of the Tribunal dated June 4, 2003 in the matter of the first appeal by GBMC. Mr. Spurr argued that the Minister had rescinded the Tribunal's June 4, 2003 decision, therefore, it should be viewed as non-existent. Mr. Spurr submitted that bringing the rescinded decision into evidence in the present proceeding would present a risk that the non-existent decision would be weighed in the consideration of the Tribunal in the matter presently under appeal.

Mr. McIlroy argued that references to the rescinded decision were necessary; as it served as a contextual understanding of the implications of the Minister's July 23, 2003 decision, and that the Minister had not rescinded the decision in its entirety. He said that an understanding of the Tribunal's June 4, 2003 decision was a necessary prerequisite for understanding the context and direction given by the Minister in her July 23, 2003 decision.

The Tribunal adjourned to consider the status of the rescinded decision. The Tribunal decided that the Minister's decision to rescind and replace the Tribunal's June 4, 2003 order with her own meant, insofar as the current proceeding was concerned, that the Tribunal must treat that decision as if it had not been made. The Tribunal determined that the Minister rescinded the decision in its entirety. The Tribunal ruled that all references to the rescinded decision should be removed from the submissions of the parties and that neither party should seek to elicit testimony regarding the rescinded Tribunal decision.

The Issues

1. Should the transition period for producers shipping to GBMC be extended until such time as the closure of the U.S. Canadian border due to Bovine Spongiform Encephalitis (BSE) affecting culled dairy cows and replacement heifers has been resolved and a national milk export program is in place?

2. Should GBMC producers be exempt from a DFO requirement to hold at least 5 kg of quota?

The Evidence

Chris Birch

Mr. Chris Birch, the president of GBMC, told the Tribunal that he is a dairy producer and that he fits the definition of a non-quota holding producer as it was interpreted from the WTO ruling regarding the sale of subsidized milk on the world market.

Mr. Birch told the Tribunal that he understood the Minister delegated the issue of a transition period for GBMC to the DFO in her July 23, 2003 decision. He said the Minister expressed concern about the method of implementing the transition and expressed her belief that a system for dairy exports should be set up. Mr. Birch said that the Minister stated that she would instruct her officials to develop an export system. Mr. Birch told the Tribunal that the Minister requested that the DFO extend the transition period, which is to say that the Minister did not order that the transition be completed by November 30, 2003. The DFO determined that date. He said that no one from the DFO gave an indication about what GBMC should be doing during the transition phase.

Mr. Birch explained to the Tribunal that the DFO advised GBMC on August 19, 2003 that its producers would be required to purchase a minimum of 5 kg of quota on the November 2003 quota exchange; and that they would be allowed to ship milk through GBMC without quota until November 30, 2003. Mr. Birch stated that the DFO also advised GBMC producers that the purchase of quota and mandatory marketing of milk through DFO was a condition of continuing their licenses in Ontario. Mr. Birch said that GBMC did not believe that the Minister had indicated, in any fashion, that the DFO should revoke the licenses of GBMC producers without remuneration.

Mr. Birch said that the transition period referred to in the Minister's decision was a time frame in which GBMC was to make the ‘necessary business decisions’. He told the Tribunal that the parameters of making the ‘necessary business decisions’ left GBMC producers with the options of: selling all dairy cattle and leaving the industry; participating in the dairy export system without DFO quota; or, purchasing DFO quota which limited production to the domestic market only. Mr. Birch stated that it is impossible to exit the dairy industry due to closure of the U.S. border in response to the BSE crisis. He said that there is no market for cull cows and the crisis has caused the prices for all classes of dairy cattle to fall to approximately 20% of the pre May 2003 prices. Mr. Birch submitted records related to the sale of show cattle from his farm. He said that the BSE crisis virtually ended any possibility of gain from showing cattle, as international buyers did not attend because cattle could not be exported.

Mr. Birch told the Tribunal that the Dairy Farmers of Canada (DFC) issued a press release on August 7, 2003 that indicated there is no market for Canadian culled dairy cows due to border closures and there are too few slaughter houses in Canada to accommodate the backlog of cattle. He said Mr. Coukell, the Chair of DFO, recognized the increasing financial difficulties for producers and had acknowledged that a plan was needed to deal with the situation.

Mr. Birch told the Tribunal that the Deputy Minister of Agriculture and Food, Mr. Frank Ingratta, had held a teleconference with industry stakeholders in September 2003, to discuss a national dairy export mechanism in Canada. He did not know if plans for an export system had progressed since the assumption to office of the new government in October 2003.

Mr. Birch submitted that the WTO ruling addressed subsidized or quota produced milk. He said that the ruling was not intended to capture milk produced by non-quota holders.

Mr. Birch said purchasing quota limited producers to producing on the domestic market only. He submitted statistics on quota market clearing prices over 24 months, and loan amortization schedules. He said that the over supply of dairy cattle will prompt quota purchases to cover the extra milk produced which will continue to drive up the price of quota. Mr. Birch said that producers purchasing quota would have to finance their purchases by borrowing large sums of money amortized over many years. He said that the DFO cannot offer any assurances to producers that quota will retain its value.

Mr. Birch told the Tribunal that it was not possible for GBMC producers to comply with the DFO imposed time limit for making the 'necessary business decisions'. He asked that the Tribunal extend the transition period until such time as Canada had an operating dairy export system and the BSE related strictures on the market for culled dairy cattle had been resolved.

Mr. Birch responded to questions that:

• GBMC is an Ontario corporation with 4 shareholders. GBMC purchases milk form 24 producers and 3 of its 4 shareholders are also producers.

• He knew very little about the circumstances surrounding the withdrawal of a few producers from the GBMC export marketing scheme. He could not state with certainty whether the producers who quit were compelled to cease producing milk by order of the DFO.

• He believed all GBMC producers were notified by way of letter from the DFO dated October 10, 2003 that they had one remaining opportunity to purchase quota if they intended to ship milk beyond November 30, 2003.

• GBMC required that its producers did not hold quota during their tenure with GBMC; though the company had never concerned itself with whether producers had held quota at any time previous to signing on with GBMC.

• He had held quota on several occasions in the past.

• GBMC arranges for licensed bulk tank grader/transporters to sample and pick up milk from its producers, pursuant to Regulation 761 (RRO 1990) under the Milk Act. GBMC keeps its milk separate from the fungible domestic supply.

• GBMC ships only to Ontario and U.S. processors.

• The DFO maintains records for shipment volumes and processor purchases for GBMC milk.

• GBMC wishes to expand its business but it is facing opposition from the DFO.

• He believed that the process of setting up a mechanism for Canadian milk export had begun because the Minister indicated she would instruct her officials to work with industry stakeholders to develop an export program.

• There is no indication of a date when a national dairy export program might be in place.

• There is industry wide agreement that the present situation with regard to prices and marketability of cull dairy cows is dire. Dairy cattle at all stages of their productive lives are worth only 20% of their price from the same time last year.

• The industry would still be in financial difficulty even with an operative export system, because the BSE crisis prevents sales of cull cattle and replacement heifers.

• A dairy herd that is sold as a group is usually sold at an agreed upon price per head, rather than being priced directly proportionate to the production potential of each individual animal.

• The current industry practice is to cull and sell dairy cows after six or seven lactations.

• The DFO has extended the deadline for GBMC to export in accordance with its most recent interpretation of Canada's obligation with regard to the WTO ruling. The first deadline for GBMC to cease operating was February 15, 2003 and this was extended to April 2003.

• The transition period to November 30, 2003 was not adequate for GBMC to make the 'necessary business arrangements'.

• The DFO has no way to export surplus milk.

Peter Gould

Mr. Gould told the Tribunal that his position with the DFO as Director of Marketing involved overseeing the quota exchange, policy making, transportation and allocation of milk to processing plants. He said he reports to the General Manager of DFO, Mr. Bob Bishop.

Mr. Gould explained that there are different types of processing plants in Ontario; some use fluid milk for beverage production only, while others manufacture industrial milk products such as yogurt, cheese and ice cream. He explained fluid milk plants require the freshest milk and as such, receive priority delivery; and industrial plants receive shipments of milk that is available after fluid plants receive their allocations. He said that industrial processors hold quota for specific volume purchases of milk, but they are not obligated to use the total of their allotted quota. Mr. Gould said that in the case of increased fluid demand, DFO policy provides for an increase in allocation to fluid processors, but that the DFO will add producer quota to the system to accommodate increased demand for industrial milk products. Mr. Gould told the Tribunal that GBMC markets milk to Ontario processors to be made into cheese for export.

Mr. Gould explained that the Canadian Milk Supply Management Committee (CMSMC) holds meetings six times a year in Ottawa and the national allocation of milk is reviewed and adjusted to suit demand. He stated that the allocation of milk to be produced by Ontario dairy farmers is calculated as a percentage of the total national production.

Mr. Gould said he was also the Director of Regulatory Compliance, Ontario Raw Milk Quality Program, and that he was appointed to that position under the Milk Act. Mr. Gould explained that in that role, he administers and enforces the raw milk quality provisions in Ontario Regulation 761, under the Milk Act. He said that prior to 1998 the Ontario Ministry of Agriculture and Food carried out this function, but that it was delegated to the DFO after monetary cutbacks made it unfeasible for the Ministry to continue. He explained that farms are inspected every other year and milk samples are routinely quality tested.

Mr. Gould indicated producers could be shut off from the market if their facilities or milk quality were sub-standard, but said this was not related to licensing. He explained the DFO General Milk Regulation 08/03 defines the conditions for licensing, and licensing producers is a function of the DFO. He outlined the procedure for licensing new producers. He said that producers who cease marketing milk for any period beyond 30 days and up to 150 days, for any reason, must have their premises inspected, and meet regulatory requirements in order to resume milk shipments. He said that after 150 days of not marketing milk, producer licenses and quota are cancelled by the DFO.

Mr. Gould stated that his authority to administer Regulation 761 under the Milk Act is defined in an agreement with OMAF that was drawn up in 1998. He stated that his office provides a summary of events to the Ontario Farm Products Marketing Commission (OFPMC) on an annual basis. He stated that OMAF made a third party review of the records of the Director of Regulatory Compliance.

Mr. Gould told the Tribunal that the 24 producers who ship milk to GBMC are all licensed with Grade A premises; with no outstanding quality infractions. He said that the DFO wished to cancel GBMC producer's licenses due to its policy that stipulates that producers must hold at least five kg of quota. He stated that the Minister had upheld the DFO policy, therefore, GBMC producers were obligated to comply with DFO policy. Mr. Gould told the Tribunal that the DFO exempted GBMC producers from holding a minimum of five kg of quota until November 30, 2003. Mr. Gould said that licenses have no commercial value and that producers whose licenses are revoked may re-apply to be licensed without prejudice.

Mr. Gould told the Tribunal that prior to the establishment of the ECE, and since its closure, the only way to market milk in Ontario is through the DFO. He said that the demand for quota has increased by about 5% since the termination of the ECE, as some non-quota holding producers have purchased quota. He explained that due to export restrictions resulting from the WTO ruling, over quota production can no longer be accommodated and the DFO had amended its policies accordingly. Mr. Gould said that the excess production can be managed by culling cows, drying-off cows and feeding milk to other livestock. He stated that cow prices are significantly reduced due to the BSE crisis but that there are several on farm practices that can be adopted to curtail production.

Mr. Gould said the DFO had notified all producers affected by the closure of the ECE in a letter dated February 25, 2003 that they would have until July 31, 2003 to purchase at least 5 kg of quota. Mr. Gould said he recalled that several producers who did not hold quota signed letters of intent to purchase at least 5 kg of quota, and all but one of the producers followed through and purchased the quota. He said those producers had a four month time frame in which to make the transition. He explained that producers who shipped milk to GBMC were given until November 30, 2003 to either purchase quota or cease milk shipments, as a result of the Minister’s letter requesting that DFO give them this transition period.

Mr. Gould told the Tribunal that there was a 9% increase in quota effective December 1, 2003, which was helpful in off-setting the effects of BSE and subsequent loss of the U.S market for cattle.

Mr. Gould responded to questions stating that:

• He has worked on the DFO senior management team since 1981.

• He was appointed Director of Regulatory Compliance in 1998.

• Dairy licensing is a joint effort of field staff and the finance and administration division of DFO. The finance and administration division has the responsibility for the administrative procedures associated with canceling licenses.

• The decision to cancel licenses is that of the DFO Board. A producer license is cancelled the day after the producer's last milk shipment.

• As DFO Director of Marketing and Production he reports to Mr. Bob Bishop, General Manager and he supervises the activities of Mr. Grant Kennedy, Manager of Quota Administration and Field Services.

• In August 2003, Mr. Kennedy advised GBMC producers that they must purchase a minimum of five kg of quota by November 30, 2003 if they wished to continue shipping milk after November 30, 2003. Reminder letters were sent in October 2003.

• As Director of Regulatory Compliance his activities are reported to Dr. Tom Baker and Ms Rena Hubers at OMAF.

• He generally divides his time between his two jobs on ratio of about 1/3 as Director, Regulatory Compliance and 2/3 Director of Marketing and Quota Administration.

• Most employees who report to him as Director, Regulatory Compliance also have other duties with the DFO.

• Every effort is made to keep the functions of the DFO Board and the Office of Director, Regulatory Compliance separate at all times.

• The Director of Regulatory Compliance has no authority with regard to licensing.

• The DFO intends to revoke the licenses of producers who ship to GBMC based on the General Regulation 08/03.

• The Milk Act contains an Agreement for the Marketing of Milk, which sets out the requirements for the handling of milk from farm to marketplace.

• Quota costs approximately $27,000 per unit (one unit is equivalent to the butterfat produced by one cow over one year).

• Quota is transferable but licenses are not transferable.

• DFO Regulation 08/03 does not compel a producer to comply with any quota purchasing policy as a condition of being licensed.

• He believes that the DFO Board proposed to cancel the licenses of GBMC producers based on a broad interpretation of its discretion to make orders or give direction.

• He does not believe that any terms or conditions of licensing were violated by GBMC producers, nor was the proposal to revoke their licenses a result of any licensing infraction penalty.

• Production and marketing are not synonymous, quota represents a share of the market and quota policy applies to marketing.

• The DFO did not hold a hearing for GBMC prior to the proposed license cancellation.

• The DFO policy book links the holding of at least 5 kg of quota to licensing. The policy also states that producers without quota must have export contracts. GBMC held valid export contracts through 2003.

• The minimum 5 kg quota policy was introduced in May 1996. Prior to that date, the DFO did not exercise its discretion to require that all producers hold quota. In June 1996, non-quota holding producers were ‘grandfathered’ into the milk marketing system.

• He is not aware of any ‘grandfathering’ clause being extended to GBMC producers, to accommodate their situation when the policy was changed. He believes there was no ‘grandfathering’ clause applied to GBMC producers because the DFO was trying to comply with the WTO ruling.

• GBMC has shipped milk to the U.S since May 2003 without any border crossing issues. In 2002 GBMC shipped all of its milk to the U.S. market.

• It was stated in The Gain Report, approved for publication by the U.S. Embassy, that the WTO ruling did not address non-quota holding dairy producers.

• It was the DFO's prerogative to re-regulate the system regardless of the WTO ruling.

• The number of licensed producers has fallen from 10,000 to 6,000 over the last 10 years.

• The shut-down of the ECE means a better supplied domestic market.

• The purchase of quota represents a significant monetary investment for new producers. The high cost of quota is indicative of confidence in the industry.

• Milk prices are based on the end use of the raw milk. Special milk classes allow Canadian producers to compete with imports. Special milk price classes are established for exported milk and milk that is imported, processed and re-exported (IREP Class).

• DFO does not know of any specific instances of leakage of IREP Class products into the domestic market, however, it is hoped that proper practices prevent leakage. IREP products that never leave the country are re-classed and monetary penalties are applied.

• New entrants to the market average about 1% annually.

• In September 2003 there was an increase in the number of producers shipping over quota milk. The reasons included the BSE situation, which resulted in more cows remaining on farm and the usual fall production incentives.

• Export records indicate that there has been some growth in the market since the shut down of the ECE though it is unlikely that there is an increased demand for fluid milk and cream.

• Canada's largest processor, Saputo, has closed plants in Canada since the shut down of the ECE.

• It is the intention of the Canadian government and the WTO to stop all Canadian exports.

• The DFO was very supportive of the ECE when it was in existence and it would be supportive of any future export program if such a program was WTO compliant.

• If the DFO gives relief to GBMC it cannot oblige GBMC to pass the same consideration on to its producers. It is possible that GBMC may find new producer members and leave the present members without a market.

• None of the GBMC producers signed letters of intent to buy quota.

• GBMC had special permission to arrange milk transportation with licensed Bulk Tank Graders; however, GBMC was not permitted to arrange its own quality testing and grading.

• GBMC's request for an extension to the transition deadline of July 31, 2003 was granted. During the time that the Board was considering the request to extend the transition deadline the Minister's decision was published. The Minister's decision stated that the transition time should be extended to November 30, 2003.

• GBMC ships to three processors that make cheese that is exported to the U.S. Auditing reports confirm that the cheese leaves Canada. The same three companies also purchase milk from DFO.

• It is possible that milk that is not marketed through the DFO may enter the domestic market. Audits take place four to six months after an activity; there is some indication that there are problems as the preliminary audit result indicates low yield. As the audit process continues, more precise findings can be made. He does not believe that GBMC is the cause of the low yields.

• At the processing plants, milk marketed through DFO is not segregated from milk marketed through other parties.

Mr. Gordon Coukell

Mr. Coukell testified that he had been the Chair of the DFO for the past three years, a Board Member since 1986 and a milk producer for 32 years. Mr. Coukell stated that the DFO Board is made of up 12 representatives of geographical regions; each representative is a licensed producer elected by producers in a specific region.

Mr. Coukell explained that prior to the BSE crisis, 70% of culled dairy cows from Ontario were marketed in Pennsylvania, U.S.; now the bulk of culled cows are marketed in Montreal. He stated that the average cull rate in the dairy industry is 25% of the total number in the herd and that cattle prices were very low at the time of the hearing.

Mr. Coukell told the Tribunal he had written to the Canadian Food Inspection Agency, to convey the interests of the dairy industry in the plan to re-open the former MGI meat processing plant in Kitchener, Ontario. He also commented on the lack of slaughter facilities to accommodate cull dairy cattle in the September 2003 issue of the Ontario Milk Producer. He suggested that producers apply on farm management practices to reduce milk production from the excess cull cows that remain on farms by drying off cows and feeding poorer quality fodder. He stated that he encourages producers to cull their herds as much as possible to avoid the accumulation of large numbers of unproductive dairy cattle. Mr. Coukell stated that the value of cull cows as well as the value of cows at the peak of their productive lives had declined.

Mr. Coukell said he also wrote to the Federal Minister of Agriculture in October 2003 to request financial assistance and to explain how the BSE crisis affects cull dairy cattle. He said there were concerns that financial assistance is benefiting processors far more than producers.

Mr. Coukell told the Tribunal that following the Minister’s revocation of the Tribunal decision, which included her comments regarding a national export plan, the DFO concentrated on its responsibilities in the domestic market. He stated that he had not been informed of any developments regarding a national export system beyond an update from the Deputy Minister of Agriculture and Food dated September 10, 2003 when he was informed that the Deputy had held a teleconference call with stakeholders regarding dairy exports. He said that letter stated that there was consensus that a program should be developed, however, the industry focus was on competing priorities such as the BSE crisis. Mr. Coukell explained that the current Doha round of WTO discussions was ongoing and that no directives have been issued concerning Canada's participation in the international market. Mr. Coukell said in any new export plan, there should be some assurance milk exports cannot negatively influence the domestic price.

Mr. Coukell told the Tribunal that the DFO prescribed a transition period for GBMC that permitted its producers to purchase the minimum 5 kg of quota over four months on the quota exchange. He said that the DFO complied with the request of the Minister in her July 23, 2003 decision. He stated that the DFO did not believe that it had any latitude with regard to complying with the Minister’s request. Mr. Coukell confirmed that Mr. Grant Kennedy Manager, Quota Administration and Field Services, DFO, informed the GBMC producers by way of letter dated August 19, 2003 of the deadline for marketing milk without purchasing the minimum of quota and the process for acquiring quota on the quota exchange. He said that Mr. Kennedy's letter did not mention any proposed cancellation of licenses, but it did state that the last date upon which DFO would pick up non-quota milk, would be December 1, 2003.

Mr. Coukell said that none of the individual producers supplying GBMC responded to Mr. Kennedy's August letter, but that counsel to GBMC asked for relief from the DFO's decision and stated that they wished the transition period to be extended. Mr. Coukell said that the DFO replied to the request for relief by stating that the DFO viewed the transition period as being the decree of the Minister. He said that the DFO informed counsel to GBMC that it was not prepared to go against the Minister’s stated preference for transition time.

Mr. Coukell told the Tribunal that the DFO policy regarding minimum quota was first introduced in 1996. He explained that at that time Canada did not have the trade challenges and export restrictions that exist now. He explained that an over quota levy had supported the shortfall between the domestic and the world price. He verified that at the time the new minimum quota purchase policy was implemented, a small number of producers were permitted to continue marketing milk without quota.

Mr. Coukell stated that the BSE crisis affects both non-quota holding and quota holding producers. He said 39 milk producers had exited the industry in the past three months.

Mr. Coukell said that the meaning of Section 4(3) of DFO Regulation 08/03, is that: cessation of production will result in the revocation of a license. He stated that there is no provision for the revocation of a license, should a producer fail to purchase the minimum 5 kg of quota by July 31, 2003. He said that the Board reallocates quota that becomes available on a monthly basis.

In response to questions Mr. Coukell stated that:

• If GBMC continues to market milk in Ontario, without the protective mechanism of the stay by virtue of its appeal to the Tribunal, it will be in violation of Subsections 3(1), (2) and Section 7 of DFO policy.

• If GBMC had existed during the time period of 1996 to 2000, its producers would have been obligated to purchase quota.

• When the minimum quota policy was implemented the quota committee rationalized the policy in part by requiring non-quota holding producers to pay part of the handling and transportation costs that were available by virtue of the supply managed system.

• Producers were afforded a complete 'dairy' year (August 1 to July 31) to comply with the new policy. Producers with production of less than the equivalent of 5 kg of quota were 'grandfathered' into the new policy system, indefinitely, as they had been producing under the old policy for five years or more. Producers with production equivalents of 18 to 25 kg of quota were not 'grandfathered' into the new policy as they had not been in the industry for more than two years. Sales barns, fairs and exhibitions are exempt from the policy.

• New entrants to the industry were aware of the new policy.

• The 'grandfathering' clause was also extended to cream producers who would be entitled to consideration in the event that they converted from cream production to milk production.

• There was no BSE crisis in 1996.

• The minimum quota purchase policy, implemented in 1996, was not a prerequisite for licensing at the time.

• The DFO never considered applying a 'grandfathering' clause to GBMC because the system cannot accommodate its volume of production.

• He agreed with a statement of Eric Johannsen, Strategic Policy Advisor, Agriculture and Agrifood Canada that the WTO ruling with regard to subsidized milk was not intended to govern production by non-quota holding producers. The WTO ruling does not state specifically that non-quota holding producers may not export milk.

• He is aware that GBMC ships milk to the U.S. with no apparent border issues.

• The minimum 5 kg of quota necessary under the policy, is equivalent to the annual production of five cows. A dairy herd of five cows would not constitute an economically viable operation.

• The average herd size is 56 cows.

• Quota for 60 cows would cost approximately $1,000,000.

• Butter and oil blend products are imported; they erode domestic market share.

• Import restrictions and high tariffs have been set in place to discourage imports.

• A new policy of zero payment for over-quota milk beyond 103% of quota holdings is a strong incentive for producers to stay within quota.

• Purchasing additional quota to cover increased production is a viable method for marketing over quota milk.

• He is uncertain that tariffs will decline, and could not speculate on whether the DFO would ever seek government assistance if declining tariffs caused the devaluation of quota. If the tariff on butter were reduced by 10% or more, the domestic price would fall drastically.

• If the U.S. border opened up to Canadian cattle exports and all quota was put on the exchange, the quota price would fall.

• He agreed that in the event that WTO Negotiations Chair, S. Harbinson's trade proposal was implemented, there would be serious negative repercussions for Ontario's dairy supply management system.

• He is confident that Canada will eventually sign a trade agreement.

• He would not advise a producer to buy quota with no regard for the outcome of continuing the WTO discussions. Despite the uncertainty surrounding WTO talks, 177 producers purchased quota in December 2003.

• GBMC producers have two choices: sell cows and exit the industry; or, purchase quota to cover production.

• DFO cannot guarantee that large sums of borrowed money amortized over long terms, will be secured against increased quota values.

• Dairy producer returns are calculated as a function of the support price and trade tariffs. If tariffs are reduced the support price must be lowered. The system could continue in a climate where tariffs were lower, however, domestic prices and quota values would decrease.

• Any new rulings by the WTO would not necessarily have a negative impact on Canadian commodities immediately, but more severe consequences to the industry might be felt into the future.

• The price of quota has remained static since the BSE crisis began; he expects that increased demand to cover production will drive the price upward.

• In his opinion the end result of the programs presently in place to deal with the BSE crisis was that money intended for relief to producers was eventually flowing to processors.

• He expected that a new slaughter facility would open within a few months; it could relieve the oversupply of cull dairy and beef cattle on Ontario farms.

• Milk produced in excess of quota is picked up by DFO and processed. He understands that processors are building cheese and milk powder stocks.

• Consumption of fluid and special class milk has risen because the ECE is no longer a purchasing source for processors.

• Leakage of export products into the domestic market is a concern of the DFO because it affects the price of domestic products. There is an audit system in place as a check against leakage but it may not indicate a problem if it exists until nine months after the leakage occurred. He was concerned about leakage occurring during the time that the ECE was open.

• Poor prices for cull cows will negatively influence producers’ net incomes.

• If the U.S. border does open, it will probably be limited to the export of cattle under the age of 30 months.

• GBMC delivers milk to Keith Henry Foods, an award-winning dairy.

• The Minister did not mention the licenses of DFO producers in her July 23, 2003 decision.

• If GBMC had continued to ship milk without quota, the DFO would have held a hearing and subsequently cancelled the GBMC producers' licenses.

• The DFO has no provisions for ‘grandfathering’ any producers during the re-regulation of 2003 as it did when policy was changed in 1996, because the situation today is not the same as it was in 1996. GBMC came into existence in June 2002.

Summations

Mr. McIlroy submitted official transcriptions of the cross-examination of Mr. Gould and Mr. Coukell to the Tribunal. Mr. Spurr objected, as he was not aware that they were ordered. He conceded that, beyond professional courtesy, Mr. McIlroy was not compelled to inform him that they were prepared. Mr. Spurr argued that the Tribunal’s Rule 28 was intended to provide for the recording and submission of an entire transcript and not selected portions. Mr. Spurr said that the submission of a partial transcript was unfair to the parties and to the Tribunal. The Tribunal determined that the partial transcripts were acceptable as submitted. The parties were reminded that the panel members make their own detailed notes of the proceedings.

Mr. McIlroy submitted that the Minister in her July 23, 2003 decision did not dismiss the notion of a WTO compliant export program, but rather supported the development of an export trade plan. He said the Minister did not indicate that GBMC should cease its operations, but did request that GBMC be permitted a transition period ending November 30, 2003. Mr. McIlroy submitted the necessary business decisions that GBMC was to make over a four-month period were not going to be made in a void.

Mr. McIlroy told the Tribunal the tenets of GBMC's appeal to the Tribunal were that:

• The Minister did not decide the length of the transition period.

• The Minister asked the DFO to set a limit of November 30, 2003 for GBMC to make the 'necessary business decisions'.

• The Minister's decision did not suggest that GBMC should be shut down.

Mr. McIlroy said the evidence was that on August 19, 2003 the DFO informed GBMC producers that they must market their milk through the DFO if they wish to continue to be licensed producers, and stated the November 30, 2003 transition deadline. He said GBMC did not agree with the DFO that this decision was an order of the Minister. He submitted there was no indication that the Minister wanted the DFO to revoke the GBMC producer licenses without compensation.

Mr. McIlroy argued the Tribunal had ruled in response to pre-hearing motions that it was not the Minister who decided the transition period and that GBMC's appeal was not frivolous. He said it was apparent that the DFO had the authority to decide to extend the transition period to allow GBMC producers to make the necessary business decisions.

Mr. McIlroy told the Tribunal that the DFO had not responded to requests by GBMC that it be provided with a copy of the document that gave the DFO the authority to revoke their licenses.

Mr. McIlroy reminded the Tribunal that Mr. Coukell had agreed that the Minister made no reference to revoking the licenses of GBMC producers in her July 23, 2003 decision. He submitted that Mr. Coukell also acknowledged that the DFO would have cancelled the licenses of the GBMC producers if they had continued to operate in the same manner beyond the November 30, 2003 deadline. Mr. McIlroy argued that when questioned, Mr. Coukell could not refer to any specific documentary authority for the proposed revocation of GBMC producer licenses. He submitted that no contravention or violation of the Milk Act, the Regulations, the Plan, or an order or direction of the DFO had occurred where the DFO could justifiably exercise its jurisdiction to revoke any producer licenses. He submitted that the DFO decisions to cancel the licenses of GBMC producers were unwarranted and outside of its authority.

Mr. McIlroy argued that none of Mr. Gould's professional responsibilities, either in his position as Director of Regulatory Compliance or his position with DFO, conferred the authority to administer licenses. He submitted that Mr. Kennedy, the author of letters advising GBMC producers that their licenses would be cancelled if they failed to purchase quota, worked in a division of the DFO over which Mr. Gould held charge. He said that any statement that the DFO did not make a decision to cancel licenses was to deny the evidence.

Mr. McIlroy stated that it is necessary to hold quota if one wishes to market milk, but it is not a requirement to produce milk. Mr. McIlroy said that there is no evidence to indicate that GBMC marketed milk in Canada. He stated that it is not GBMC's intention to market milk in Canada.

Mr. McIlroy submitted the business alternatives available to GBMC within the transition period were untenable. He reminded the Tribunal that Mr. Birch had testified that the BSE crisis had caused a considerable drop in the price of cattle and that a forced sale of his herd would have catastrophic results for his livelihood. Mr. McIlroy said that Mr. Coukell stated that cattle prices had fallen to 30% of their previous value. Mr. McIlroy told the Tribunal that it would not be a good business decision for GBMC shippers to sell their herds and exit the industry in the current economic climate.

Mr. McIlroy told the Tribunal that, if GBMC producers were to purchase quota they would have no alternative but to cease exporting and participate only in the domestic market. He reminded the Tribunal that the testimony of Mr. Coukell indicated that the minimum DFO quota purchase of 5 kg would not constitute a viable dairy operation and that the average herd size was 56 cows. Mr. McIlroy argued that in order for GBMC producers to have an average size herd they would have to spend $1,500,000 per producer to purchase quota. He said the evidence was that the assumption of debt to finance quota was risky in an environment where it was not known what the conclusion of WTO trade talks would bring. Mr. McIlroy argued that high import tariffs were no guarantee that exports will not be competing with domestic products. He said that GBMC producers were cognizant of these risks at a time when they are considering making the investment to purchase quota. Mr. McIlroy stated that it would be senseless for GBMC producers to purchase quota in today's market, where even the DFO Chair cannot guarantee the prosperity of the supply-managed system.

Mr. McIlroy said there is no option for GBMC to participate in an export milk program because no program exists. He pointed out that GBMC had successfully exported unsubsidized milk to the U.S. in the months of May 2003 through October 2003, without protest from the U.S. government. He said there are no concerns with GBMC's operation at the federal level. Mr. McIlroy submitted that there is no compelling evidence that GBMC's operation was adversely affecting domestic supply management, nor did GBMC seek to supply milk to the domestic market.

Mr. McIlroy submitted that through the process of ‘grandfathering’ the DFO had accommodated the operation of producers who would have otherwise been in difficulty when minimum quota policy was introduced. He said that it was appropriate that the DFO extend similar consideration to the GBMC producers. Mr. McIlroy stated that in the case of the GBMC producers the DFO has linked licensing with quota, yet these were not linked for producers who were ‘grandfathered’ at the introduction of the new quota policy in 1996.

Mr. McIlroy pointed out that if the DFO has an authority, that same authority is vested in the Tribunal, whether it be exercised for the extension of the transition period or the ‘grandfathering’ of producers to accommodate operational changes that occur when policy changes are instituted. Mr. McIlroy said the matter before the Tribunal was serious as the livelihoods of families were at stake.

Mr. McIlroy asked the Tribunal to decide in the appellant’s favour and order the DFO to ‘grandfather’ the GBMC and allow it to:

• Ship milk to U.S. and ship milk to Canadian processors for manufacture into export products;

• Directly contract with DFO approved milk transporters.

• Grow its business in the amount equal to 15% of its previous year's volume, based on its current production of 1.3 million litres per month.

• Add new producers to its roster to accommodate any expansion in its production base.

He also asked that the Tribunal order that GBMC producers be allowed to remain licensed producers without holding any quota.

Mr. Spurr told the Tribunal the relief sought by GBMC under the appeal as stated by Mr. Birch, is not the same as the relief requested by Mr. McIlroy in his summation. Mr. Spurr said that Mr. Birch asked the Tribunal to permit GBMC to operate during a transition period until a national dairy export system is up and running and the BSE border closure issues are resolved. He said Mr. McIlroy was now asking that GBMC be allowed to increase its production base and add to the number of producers currently shipping milk with GBMC. Mr. Spurr stated GBMC had proposed a transition period without a deadline and had proposed the Tribunal allow limitless export volumes and export milk producers.

Mr. Spurr said that if GBMC were granted the relief it sought, it would result in a separate dairy marketing system in Ontario. Mr. Spurr said the DFO has the exclusive authority to market milk in Ontario and submitted the Tribunal should not grant the appellant’s request for a separate milk marketing system in Ontario. He stated that the DFO's authority is to be found in Sections 2 (a), (b) and (c) of the Milk Act.

Mr. Spurr told the Tribunal that the DFO considered that it had no authority to modify or deny the Minister's requested deadline for the transition period for GBMC producers. He said the Minister intended that GBMC cease its operation at some time, and requested a transition deadline of November 30, 2003. Mr. Spurr said the transition period was to allow the GBMC to wind down from the terminated ECE program. Mr. Spurr submitted that GBMC had begun its operation under the ECE, a legal program but that, by virtue of re-regulation due to the WTO ruling, there was no longer an export program. Mr. Spurr cited a case where the Tribunal had upheld a DFO decision to maintain a transition deadline.

Mr. Spurr asked the Tribunal to rely on the testimony of Mr. Coukell and Mr. Gould. He said that Mr. Gould had explained how the quality aspects of regulations under the Milk Act depend on the licensing and quota policy of the DFO. Mr. Spurr reminded the Tribunal that Mr. Coukell had expressed concerns that milk destined for export was finding its way back into the domestic market. He said that the DFO was chiefly concerned with displacement of milk that it might otherwise have the opportunity to market.

Mr. Spurr submitted that GBMC is selling milk to Canadian processors at a more competitive price than the DFO could offer. He stated that GBMC was only exporting very small volumes of milk the U.S. and it was in fact shipping 91.5% of its total volume to Ontario processors. He submitted that it was the processors who were the experienced exporters and not GBMC.

Mr. Spurr said that the DFO had observed that the ECE had a detrimental effect on the growth of the domestic market. He pointed out that there was an increase in demand for domestic milk and an increase in quota since the ECE program was shut down.

Mr. Spurr submitted that since the WTO ruling all producers have had to make similar adjustments to their operations as the DFO required of GBMC producers.

Mr. Spurr told the Tribunal that GBMC already had a transition period of 10 months in which to make the appropriate business decisions. He said there can be no guarantees that the BSE situation will be resolved to the subjective satisfaction of the GBMC producers. He stated that to end a transition period coincidental with the resolution of the BSE crisis and the implementation of a national dairy export program was to permit the present operation of GBMC to go on forever. Mr. Spurr said that cattle prices were low but sales were still being made. He observed that GBMC producers had pursued the appeal, which was their right, but suggested they had perhaps complicated their positions by pursuing the appeal as opposed to using the transition time to make and implement business plans and adjustments.

Mr. Spurr said that there were 50 new entrants to the industry in 2002 and that this demonstrates confidence in the industry in a situation where risks must be carefully assessed. Mr. Spurr stated that Mr. Birch was familiar with risk analysis as he had testified that he had previously held quota but that he sold it and participated in the export market. He argued that GBMC producers had no more right than quota holding producers to be exempt from business risks. Mr. Spur stated that the DFO Regulation 03/03 was in place at the inception of GBMC's business operations, when the ECE was operating. He said that that regulation was revoked at the termination of the ECE.

Mr. Spurr stated that benefits of ‘grandfathering’ would not accrue to the GBMC producers if such a scheme were offered to them, because it was necessary to hold quota in order to benefit from an increase in quota value. He submitted that what GBMC sought was to be exempt from holding quota.

Mr. Spurr argued that the cancellation of producer licenses was a non-issue because of the stay in place by virtue of the appeal. He said that were it not for the appeal, GBMC producers would have been expected to cease production by November 30, 2003 or purchase quota, and their actions would have preempted any decision by the DFO to revoke their producer licenses. Mr. Spurr told the Tribunal that no decision was made by the DFO to cancel the licenses of the GBMC producers because the deadline for making the necessary business decisions, which may have included the purchase of quota, had not yet passed. Mr. Spurr told the Tribunal that Mr. Kennedy wrote to the GBMC producers to inform them how to purchase quota on the exchange.

Mr. Spurr said that DFO quota policy and DFO General Regulation 08/03 are consistent one with the other concerning minimum quota and licensing because it is nonsensical to contemplate producing milk but not marketing it. He submitted that the holding of quota confers upon the producer the right to market milk and that licensing pertained to the premises where milk is produced.

Mr. Spurr said the DFO has exercised its legal authority under its Regulation 08/03 and argued that the Tribunal should uphold its decision. Mr. Spurr reminded the Tribunal that GBMC had already had a lengthy transition period. He said the DFO wished the Tribunal to deny the appeal.

Mr. McIlroy responded that the DFO's supposition that GBMC was usurping DFO domestic marketing opportunities was without basis in fact. He said the records indisputably indicated that GBMC marketed milk to Ontario processors for manufacture into cheese for export. He reminded the Tribunal that processors may not purchase special class milk from DFO for making export cheese. He indicated that this further demonstrated that GBMC was not competing with DFO in the domestic market.

Mr. McIlroy asserted that insubstantial arguments had been advanced that the hand of the DFO had been forced by the WTO ruling.

Mr. McIlroy said that he did not accept the argument that the DFO was not going to cancel the GBMC producers' licenses.

The Findings

Extension of Transition Period

The Appellant in this matter has asked that a transition period for GBMC to allow its producers to make the ‘necessary business decisions’ be extended. The Respondent takes the view that it did not have the option of extending the transition period beyond a date it says was established by the Minister. The Tribunal is in the position of needing to determine if GBMC should remain in the export business, supplied by its current producers, or others, for a period of time, and if so, what that period of time should be.

The Tribunal finds that it is not appropriate to extend the transition period until such time as a national export program is in place. The export system through which GBMC initially established its business has been discontinued. The Minister’s decision makes it clear that the government preference is that any new export system that may be developed, be a national system. There was evidence that some initial steps had been taken to establish a new national export system, but that the Deputy Minister of Agriculture and Food had informed industry stakeholders that competing interests in the industry were more pressing. The Tribunal was not persuaded that a national export system for milk or dairy products was imminent.

While it would be possible to allow GBMC to continue to export milk, directly and through Ontario dairy processors, until such time as a national system is in place, the Tribunal is of the view that a parallel milk marketing system is not desirable. One purpose of the Milk Act is “to provide for the control and regulation in any or all respects of the producing or marketing within Ontario of milk, cream or cheese, or any combination thereof, including the prohibition of such producing or marketing in whole or in part”. The Tribunal was persuaded by the evidence of the DFO witnesses that having two entities marketing milk to the same processors was potentially detrimental to quota holding producers. The Tribunal finds that producers who supply GBMC would have an unfair competitive advantage over producers shipping to DFO as they would not be required to purchase quota. The Appellant did not persuade the Tribunal that GBMC and DFO have different markets. The evidence was that three Ontario processors who purchase milk from GBMC also purchase milk from the DFO. Milk producers who ship through the DFO still participate in the export market, although the volume of exports has been curtailed as a result of the WTO decision.

The Tribunal agrees with Mr. McIlroy that there is no evidence of any milk shipped by GBMC entering the domestic market and displacing milk produced by quota holders. It does recognize there are concerns about the ability of the current auditing system to accurately track milk used in the domestic and export markets, in light of Mr. Coukell's testimony. However in the absence of concrete evidence of leakage, the Tribunal gave no weight to this argument.

Mr. Birch and Mr. Coukell both testified that the cow market has been severely depressed as a result of the BSE crisis. Under cross examination Mr. Birch had no expectation of when the BSE crisis would end, and Mr. Coukell testified that he was optimistic that additional slaughter facilities would soon open which would relieve somewhat, the pressures of the back log of cull cows. It was not evident from testimony of the parties that the BSE crisis and its accompanying devastating effects on the industry would be resolved at any time in the foreseeable future.

It is clear to the Tribunal that all dairy producers, quota holding and non-quota holding, are suffering because of the border closure. The Tribunal is of the view that future value of cattle is a risk factor that all dairy producers must consider in the course of making their business decisions. Individual producers must deal with the consequences of their own business decisions. However, the Tribunal is sympathetic to the position that the GBMC producers are in. The Tribunal recognizes it would have been difficult to predict that the value of their herds would drop to the extent they have, between February 2003 when the DFO announced its intention to re-regulate all export milk, and November 2003 when their transition period was to end. While the Tribunal was not persuaded that GBMC producers should be given an indefinite amount of time to adjust to the changed circumstances in the industry, it will order that their transition period be extended to the end of the current dairy year.

In his summation, Mr. McIlroy asked the Tribunal to allow GBMC to expand its milk volume and producer base. The Tribunal does not find this would be appropriate given that under its order producers will only be permitted to continue to supply milk to GBMC until July 31, 2004. The Tribunal notes the growth issue was raised for the first time late in the hearing.

Licensing Issue

Evidence was presented that the DFO proposed to revoke the licenses of the GBMC producers where it had no authority and argument was heard that the requisite authority need not be considered until a licensing decision was actually taken. The Tribunal finds that the DFO did not make any decision to revoke the producer licences of GBMC producers. The letters by Mr. Grant Kennedy indicate that the DFO would not pick up milk from GBMC producers if the producers did not comply with a requirement to purchase a minimum of 5 kg of quota.

The key question before the Tribunal is should the GBMC producers be exempt from a DFO requirement that they hold 5 kg of quota in order to ship milk to the DFO. Mr. McIlroy argued that they should be exempt from this requirement as the DFO had ‘grandfathered’ non-quota holding producers in 1996 when it first introduced its the minimum quota requirement. He suggested GBMC producers should be ‘grandfathered’ as well. The Tribunal notes that in 1996 there was a policy change, and that all new producers wanting to ship milk to the DFO since then have been required to purchase 5 kg of quota. The Tribunal was not persuaded that GBMC milk producers should be treated any differently than any other new entrants to that marketing system. While GBMC producers were not required to hold quota to ship export milk through the ECE, that avenue will no longer be open to them. If these producers want to continue to market milk in Ontario, it will be through the DFO and it is the Tribunal’s view that they should meet the same requirements as other new entrants have, since 1996.

Decision and Reasons

After careful consideration of the evidence filed and the submissions made the Tribunal has decided to deny the appeal subject to the following conditions.

The Tribunal orders:

1. The DFO is to continue to exempt non-quota holding milk producers who have been continuously shipping milk to GBMC since the ECE program was discontinued, from requirements that they market milk through the DFO, and hold quota in order to market milk, provided that these milk producers do not ship more milk each month than their average monthly milk shipments to GBMC made between July 2003 and November 2003 inclusive. These producers are to be exempt from these requirements until the end of the current dairy year on July 31, 2004.

2. The DFO continues to have the authority to review the licences of these producers after July 31, 2004. The DFO is not required to exempt GBMC producers from a requirement that they hold 5 kg of quota.

Reasons

The reasons for this decision are:

1. The Tribunal is convinced that to allow a second marketing stream for milk would be detrimental to the existing quota-based marketing system.

2. The Tribunal believed it would be appropriate to allow GBMC producers a few more months to adjust to the termination of the ECE program, in light of the BSE crisis. This extension will allow these producers time to make a business decision to either purchase quota or exit the industry.

3. The Tribunal was not persuaded there were any mitigating circumstances such that GBMC producers should not be required to hold a minimum of 5 kg of quota to participate in the provincial milk market, after the transition period.