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:
Zantingh Direct Inc. v Ontario Pork Producers’ Marketing Board
Zantingh Direct Inc. v OPPMB [January 20 Decision] 2004 ONAFRAAT 02
STATUTE:
Ministry of Agriculture, Food and Rural Affairs Act
HEARING:
June 24, 2003
January 20, 2004
2004-02
NEUTRAL CITATION:
2004 ONAFRAAT 02
Zantingh Direct Inc. v Ontario Pork Producers’ Marketing Board
IN THE MATTER OF THE FARM PRODUCTS MARKETING ACT AND SECTION 16 AND SECTION 16(4) 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 Zantingh Direct Inc. from decisions of the Ontario Pork Producers’ Marketing Board whereby it rejected Zantingh Direct Inc.’s recommendations for changes to its framework for buying/selling “off-sort” or “lightweight” hogs.
Before:
Murray Cardiff, Chair; Elwood Quaile, Member; Ralph Huckle, Member
Appearances:
Scott Snider, counsel to Zantingh Direct Inc., appellant
Sean Foran, counsel to Ontario Pork Producers’ Marketing Board
Brad Zantingh, Business Manager, Zantingh Direct Inc.
Peter Zantingh, Marketing Manager, Zantingh Direct Inc.
Andy Marks, Director of Sales and Logistics, Ontario Pork Producers’ Marketing Board
Larry Skinner, Chairman, Ontario Pork Producers’ Marketing Board
DECISION OF THE TRIBUNAL
This matter was heard in Guelph, Ontario on Tuesday, June 24, 2003, Wednesday, June 25, 2003, Thursday, June 26, 2003, Monday, December 8, 2003, Tuesday, December 9, 2003 and Wednesday, December 10, 2003. Zantingh Direct Inc. (ZDI), a company that assembles and sells hogs, appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal (the Tribunal) from decisions of the Ontario Pork Producers’ Marketing Board (OPPMB) by which it declined to amend its policies related to the marketing of “lightweight” or “off sort” hogs.
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.
Preliminary Matters
The parties asked that specific documents submitted to the Tribunal which related to business transactions be marked “confidential”. The Tribunal agreed that these documents be marked “confidential” and that the public should have no access to these documents.
Both parties asked to submit additional documentation to the Tribunal at the hearing. The Tribunal allowed the documents to be filed.
Facts Not in Dispute
The OPPMB has the authority to control and regulate the production and marketing of hogs produced and marketed in Ontario, and hogs sold inter-provincially or for export. The policy of the OPPMB at the time of the hearing was to regulate the marketing of all hogs sold for slaughter between 215 and 300 pounds liveweight (market weight hogs) and collect a service charge ($1.85/hog) for all hogs sold for slaughter in this weight range.
ZDI was involved in marketing sows and boars, market hogs and barbecue pigs. ZDI and the OPPMB were involved in a legal dispute regarding the marketing of hogs and the collection of OPPMB service charges. That action was effectively on hold while the matter before this Tribunal was decided. The parties had agreed that ZDI would continue to operate its business, as before the legal dispute, under conditions ordered by the Ontario Superior Court.
The matter before the Tribunal related to a framework for the buying and selling of “lightweight” or “off sort” hogs by persons other than the OPPMB. The OPPMB had adopted the framework in April 2002; ZDI had requested six changes to the framework; the OPPMB accepted two recommended changes but denied the other four.
The Issues
The issues before the Tribunal were:
Should the OPPMB be directed to modify its policy to allow hogs up to 225 lbs. liveweight to be sold through pork assemblers, such as ZDI?
Should the OPPMB be directed to modify its policy to allow hogs between 275 lbs. liveweight and 300 lbs. liveweight to be sold through pork assemblers, such as ZDI?
Should the OPPMB be directed to expand its definition of “off sort” hogs to include market hogs between 230 lbs. liveweight and 270 lbs. liveweight where it was not the intention of the producers to produce regular weight market hogs (“chance hogs”)?
As an alternative to the above three recommendations, should the Tribunal allow “off sort” buyers to fill 5% of their total slaughter hog purchases with market weight hogs?
Should the OPPMB be directed to allow ZDI to deduct an administration fee from the service charges it collects from producers and remits to the OPPMB?
The Evidence and Submissions
Weight Categories/Chance Hogs
Mr. Peter Zantingh, Marketing Manager, ZDI and Mr. Brad Zantingh, Business Manager, ZDI presented their evidence as a panel. They told the Tribunal that their business was the export of boars and sows, and the sorting and sale of ‘off-sort’ hogs. Mr. P. Zantingh explained that the company received mixed loads of hogs of different sizes and quality and that the company had expertise in sorting hogs into marketable lots which were then sold at a higher price than would otherwise have been obtained. He said ZDI had developed its own grading system to better service their customers.
Messrs. Zantingh said there had been a shift in production practices and large hog producers now emptied their entire barn at one time, and that there was less conformity in the hogs than when they were sorted on the farm. They said ZDI also served small hog producers who did not have weigh scales and who needed to ship various sized hogs in one load to fill a truck. They explained that hog processors had very specific weight requirements and “off sort” hogs were deeply discounted. By mixing hogs from several suppliers, ZDI could fill loads of approximately 200 hogs of similar size and quality. Mr. P. Zantingh explained that in order to ship full truck loads ZDI had to include some market weight hogs (215 lbs. – 300 lbs.) in their shipments.
Messrs. Zantingh referred the Tribunal to a number of invoices and settlement statements which they said showed that:
In April 2002, light hogs of similar weight were sold for $87 by ZDI and $9 by the OPPMB, on the Ontario grid,
A 280 lb. heavy weight hog was sold for a gross price of $98.13 by the OPPMB; ZDI sold similar hogs that week and would have obtained a gross price of $123.20.
A 190 lb. hog that was sold for a gross price of $9.14 by the OPPMB would have been sold for $84.50 by ZDI.
Messrs. Zantingh told the Tribunal that ZDI consistently received higher prices than the OPPMB for hogs that were 215 lbs. and less and that ZDI received comparable prices to the OPPMB on hogs in the 215 lb. – 225 lb. range. For heavy hogs, they said that producers could obtain prices from the OPPMB that were similar to ZDI prices for these hogs, but that this required proper sorting and segregation. They submitted that producers either did not have the expertise to sort these hogs or preferred to ship all hogs on one truck due to biosecurity concerns.
Messrs. Zantingh explained that they often received hogs in the 230 lb. to 270 lb. weight category that had not been intended to be market hogs. They said some of these were culls from sow herds and some were shipped unintentionally. They said they wanted these “chance” hogs to be exempt from the marketing board regulations. They said Ontario Pork could distinguish between “chance” hogs and regular market hogs as it knew which producers grew market hogs and which grew only sows.
Messrs. Zantingh said they also purchased hogs in the 230 lb. to 270 lb. weight range that were grown specifically to be market hogs. They said they needed these hogs to fill up loads of heavy hogs and chance hogs in order to spread transportation costs over the maximum number of hogs. They estimated 15-20% of their loads were filled with hogs grown specifically as market hogs. It was reported that the transportation cost would increase by approximately $7.50 per hog if half loads, rather than full loads, were shipped to U.S. packers.
Messrs. Zantingh said they dealt with approximately 1,500 hog producers. Letters from customers were filed with the Tribunal.
Mr. B. Zantingh said the company was willing to become a licensed assembly yard for the OPPMB but that the principals were concerned that ZDI would be blamed for any problems with hogs sold via the OPPMB, and that the company would lose customers as a result. He said they were also concerned that producers would receive two cheques for hogs shipped on the same load – one from ZDI and one from Ontario Pork.
Mr. P. Zantingh presented information on heavy hogs and “chance” hogs marketed by ZDI in the period April 11, 2003 – May 30, 2003 and compared them to prices received by the OPPMB in the same period. He concluded that the OPPMB got better prices than ZDI on hogs under 270 lbs.; that ZDI fared somewhat better with hogs in the 270 lb. to 300 lb. weight range; and that ZDI received much higher prices for hogs over 300 lbs. in that time period.
In response to questions, Mr. Peter Zantingh indicated:
He was not aware that hogs over 215 lbs. liveweight were covered by OPPMB regulations in 1999 when the business started marketing lightweight hogs.
In general, ZDI’s shipments of light hogs were 50% hogs under 215 lbs and 50% hogs over 215 lbs..
A U.S. processor paid ZDI a base price with a positive adjustment based on leanness of hogs and a negative adjustment on weight where hogs weighed less than 228 lbs. liveweight or more than 287 lbs. liveweight.
Since early 2001, ZDI was required to take all hogs in each truck to one U.S. plant; previously exporters were able to split loads and ship to two plants.
Of the invoices submitted as evidence, market weight hogs made up more than half the hogs in the majority of shipments to the U.S.. Several of these market weights hogs were “chance” hogs.
Five producers shipped hogs that were intended to be grown as market weight hogs to ZDI.
He believed ZDI could get a better index value on market weight hogs than the OPPMB.
It was not unusual in the pork industry for pork producers to receive two separate cheques for one load of hogs.
ZDI did not receive enough hogs between 200-215 lbs. to efficiently truck to U.S. processors. Slightly heavier hogs were used to fill out loads and minimize per hog transportation costs.
ZDI also needs “chance” hogs to fill out loads to minimize transportation costs. The OPPMB and ZDI received similar prices for “chance” hogs.
The OPPMB would have to develop an audit system to ensure that hogs identified as “chance” hogs were actually not intended to be grown as market hogs.
He considered a shipment of hogs with a total weight of 45,000-47,000 lbs. to be a full load.
Any Ontario producer can enter a contract to ship market weight hogs to a U.S. processors. But, producers shipping “chance” hogs do not have sufficient numbers to make it worthwhile for a processor to enter into a contract with them. Also, the producers do not always know they are shipping hogs in the market weight range.
“Chance” hogs can arise from sorting mistakes when light hogs are intended to be shipped to ZDI and larger hogs are included in the load.
ZDI has customers who prefer lightweight hogs.
He did not disagree that the OPPMB marketed heavy hogs at an index of over 100 but said that the heavy hogs ZDI handled would typically receive an index of 70.
He was not familiar with heavy hog grids available through the OPPMB although he was aware of them.
ZDI received heavy hogs in small lots and its costs to assemble a load to ship through the heavy hog grids were higher than that for standard assembly yards.
ZDI handled approximately 4,000 hogs per week. 500-800 of these hogs were “off sort” hogs. Of these, approximately 20-60 per week were over 300 lbs.
The majority of their sales were sows and boars.
Hogs were normally kept 12-24 hours at the ZDI facility but hogs received on Fridays were shipped on Mondays.
There was a free market in hogs between Canada and the U.S. but health certificates were required for hogs shipped to the U.S. which were not destined for slaughter.
ZDI’s customer discounted hogs weighing over 300 lbs. by 12 cents/lb.; a further discount of 10-15 cents/lb. would be applied if these heavy hogs were sold via the OPPMB.
ZDI would lose 20-25% of its business if it had to ship all market weight hogs it receives, except for “chance” hogs, through the OPPMB but it could pass additional freight costs onto producers.
If ZDI could not directly ship “chance” hogs or other market weight hogs to its customers it would have to ship heavy hogs with sows and would receive 10-15 cents/lb less for them.
Producers are paid by ZDI based on the weight of their hogs when delivered to ZDI’s assembly yard.
In response to questions, Mr. Brad Zantingh indicated:
He agreed ZDI could refer producers who shipped hogs that are condemned to the OPPMB market relations desk, but said this would not be good for ZDI market relations.
He agreed that producers shipping to ZDI could receive two cheques for hogs shipped in one load.
Assembly yard fees are set by the assembler.
Typically assembly yards sort loads as market hogs and sows. ZDI sorts sows for the end use market.
If the OPPMB framework were to be modified to allow for “chance” hogs to be exempt from regulations, this should apply to all assemblers, not just ZDI.
He had in the past asked the OPPMB if ZDI could sell market weight hogs and the OPPMB denied the request.
Messrs. Zantingh said the most important issues to them were the heavy hogs and chance hogs issues, followed by the light hog issue and then the administrative fee issue.
Mr. Peter Zantingh was recalled later in the hearing and indicated:
ZDI would be satisfied if the Tribunal ordered that ZDI be allowed to ship market weight hogs to a maximum of 5% of the total number of hogs they sold directly for slaughter.
The 5% proposal was an alternative to their proposals regarding “chance” hogs, hogs weighing between 215-225 lbs. and hogs weighing between 270–300 lbs.
ZDI did not want to erode the market power of the OPPMB.
He believed ZDI handled 50-60% of off sort hogs. Industry wide he estimated 400-800 market weight hogs per week would be exempt from OPPMB regulations under the 5% proposal.
Enforcement of a percentage cap would be mathematical and would not require the OPPMB to determine a producer’s intent.
The OPPMB would need to perform an audit function.
He did not believe a regulatory exemption for hogs over 300 lbs., sows and boars needed to be lifted in order for the OPPMB to audit the proposed 5% program.
Animals that were assembled, but not sold directly for slaughter would not be counted in terms of calculating the percentage of market weight hogs that could be shipped.
ZDI would participate in any functional program that meets the needs of traceability and disease control.
Mr. Andy Marks testified that he had been employed by the OPPMB for 17 years, was currently the Director of Sales and Logistics and had previously held the position of Director of Assembly and Logistics. He said his duties had included scheduling hog deliveries, licensing, maintaining a database of hog assembly yards, dealing with small processors, in transit hog delivery and enforcing OPPMB regulations. Mr. Marks said his current duties included negotiating a base price for hogs and creating and maintaining alternate marketing options.
Mr. Marks said there were approximately 4,000 pork producers in Ontario and they collectively shipped 5 million hogs per year. He said the OPPMB was made up of 14 directors, all of whom were hog producers. He explained producers elected councilors, and councilors elected board members.
Mr. Marks said 70-75% of all Ontario-produced hogs were shipped to the two largest buyers – Maple Leaf and Quality Meats – and that the next two largest buyers each purchased 10% of Ontario hogs. He said Maple Leaf was also active in pork production, feed production and rendering. Mr. Marks stated the Ontario hog industry had been growing since 2000.
Mr. Marks explained Ontario pork producers’ marketing options. He said:
75-80% of market hogs were sold through direct contracts between producers and processors. He said the OPPMB was a party to all contracts. He said processors could be in Ontario or outside the province/country.
4-5% of hogs were sold through the OPPMB pool. The pool is a spot price established by bid and ask and producers are paid the average weekly price of the spot market. He said producers using this option were not required to enter into contracts but did have to book their hogs into an assembly point.
The balance of hogs were marketed through the OPPMB pool-plus system. These producers signed agreements with the OPPMB and he was responsible for marketing the hogs to processors.
Mr. Marks said producers could market under more than one contract at once, and use more than one marketing option; but he said a producer could not ship in the pool and pool-plus streams at the same time. He said most hog producers sold 1000 hogs over two-three weeks in order to maximize returns.
Mr. Marks explained that contract prices were set as a percentage of a base price that the OPPMB negotiates with processors. He said market weight, grade or yield, and premiums all affected the ultimate price paid per hog. He explained that weight and yield class were combined to determine each hog’s index, which affects the producer price. He said there were 58 pricing grids in use in Ontario and that similar hogs would receive a different index depending on which grid they were shipped under. He said that normally the producer decides which grid to ship under, sometimes with the assistance of a hog assembler. He referred the Tribunal to invoices which he said showed producers shipping small numbers of hogs from the same loads on different grids. Mr. Marks stated, that with the exception of one contract offered by Maple Leaf, there was no minimum number of hogs that could be shipped under any marketing option.
Mr. Marks explained that the services offered by assembly yards varied. He said at a minimum, assemblers separated sows and boars from market hogs. He said other services offered included weighing hogs, tattooing hogs and providing computers to be used to check grading data. He said yard fees ranged from zero to $4/hog.
Mr. Marks said producers who ship sows and boars together with market hogs would typically receive two different cheques. He was not aware of any producer complaining about this system. He said hogs that were condemned in a processing plant would be marked as condemned on the settlement statement. He said the OPPMB could obtain copies of signed condemnation certificates for producers.
Mr. Marks stated the market for hogs over 300 lbs. liveweight was limited, but that there was a market for hogs in the 270 – 300 lb. range. He referenced U.S. pricing forms which he submitted showed that U.S. processors discounted hogs over 300 lbs. Mr. Marks said heavy hogs could be marketed through heavy hog grids in Ontario or to U.S. processors. He said the OPPMB also marketed hogs to U.S. processors. He explained the OPPMB would sell an occasional hog over 300 lbs., but that it was not active in that market as the returns were poor.
Mr. Marks explained that for hogs sold in Ontario and Quebec, processors paid the freight charges. He said that for U.S. sales the OPPMB normally paid the freight. He said 99% of its shipments to the U.S. were full loads. He said there were two payment options on U.S. sales – dollar in/dollar out and 80% of liveweight on a four-quarter rolling average index.
Mr. Marks referenced a number of documents which he said indicated:
3,500 hogs shipped to ZDI which received an average return of $158.82, would have sold for an average of $164.41 on the Ontario Pool or $167.95 on the Pool Plus program.
The OPPMB sold 383,751 hogs weighing between 270-300 lbs. in 2002
The OPPMB received higher prices than ZDI for hogs weighing between 270-300 lbs.
The OPPMB would have obtained approximately $8/hog more than ZDI on sales of hogs under 270 lbs. liveweight.
With regard to chance hogs, Mr. Marks said that hogs between 215 lbs. and 300 lbs. were all market hogs. He said the ZDI terms “for production hogs” and “chance hogs” were not industry terms. He said it would be difficult to determine a producer’s intent and that intent could not be determined from settlement statements submitted by ZDI. He said that theoretically, all female hogs could be marketed as “chance hogs” under the ZDI proposal. Mr. Marks indicated that ZDI could ship hogs in the 215-225 lbs and 270-300 lbs. range to the marketing board, and continue to offer its “one stop shopping” service if it became a licensed assembly yard. He said ZDI customers could still choose to ship hogs to the U.S..
Mr. Marks said changing the weight range for hogs required to be marketed through the OPPMB would not improve or stimulate the industry. He said that the OPPMB could lose market clout if the ZDI proposals were to be implemented.
Mr. Marks also indicated:
Sows and boars are exempt from the OPPMB marketing regulations.
ZDI had been selling market weight hogs under a court order, with the consent of the parties for almost two years.
If the ZDI proposals were implemented as policy, this would allow anyone wanting to sell market hogs to make direct sales. Any assembler could apply for an off-sort buyer licence.
Having more marketers selling hogs to a few buyers could have a negative impact on price.
Producers voted in a single desk selling agency.
If the OPPMB allowed a fixed percentage of market weight hogs to be sold through off-sort buyers there would still be an erosion of market power.
Producers received less money shipping market hogs to ZDI than they would have if they shipped to the OPPMB.
Less than 100,000 hogs per year were sold directly to small processors.
The OPPMB recognized ZDI provided a beneficial service for shippers of hogs under 215 lbs. and over 300 lbs.
All else being equal, additional marketing options for producers were desirable.
The OPPMB can set hog prices but currently negotiates a base price.
Approximately 10,000 of 383,000 heavy hogs shipped in Ontario in 2002 were sold on the Ontario grid, with an index of 70. Less than 5,000 were sold on the Ontario heavy grid.
The OPPMB received on average 12% more than ZDI for hogs in the 270-300 lbs. weight range.
ZDI generally does more detailed sorting than a typical assembly yard.
The OPPMB would receive fees and data on ZDI hogs regardless of the way the Tribunal rules.
For spot sales, OPPMB staff determine where hogs will be shipped; assemblers are consulted as to the consistency of the loads.
It was important to monitor the movement of hogs in case of a disease outbreak. Sows and boars were not tracked.
Mr. Larry Skinner testified that he was the Chair of the OPPMB, had held that position since April 2003, had been on the board since 1998 and had previously been an OPPMB councilor. He told the Tribunal the OPPMB’s mission was to create the most favourable environment for producing and marketing hogs, and maximizing benefits to producers through industry interaction. He said the OPPMB’s primary function was to market hogs but it also represented producer interests to government and industry stakeholders. He said the OPPMB provided benefits to all producers regardless of size, and producers were not penalized when shipping small numbers of hogs.
Mr. Skinner said hogs were sorted on farm, at assembly yards and at co-operative facilities. He said the OPPMB no longer owned and operated assembly yards but that it licensed others to run hog assembly yards. He said the OPPMB decided to develop a framework for marketing off sort hogs as it was aware there was activity in that area and wanted to monitor the number of off sort hogs sold and provide price transparency for producers. He said traceability for disease control was also a concern.
Mr. Skinner said that the OPPMB actively marketed hogs in weight ranges desired by processors, and it was against allowing any others to market hogs in this range. He acknowledged that the 215-225 lbs. and 270-300 lbs. hogs were on the fringe of the ideal weight ranges, but pointed out that the market weight range can shift with consumer demand. He said the OPPMB received a better price than ZDI in the 215-300 lbs weight range. He submitted that allowing any additional sellers in that weight range would prevent the OPPMB from negotiating the best price for producers. He said that even if the volume of market weight hogs shipped through ZDI were small, it could expand as other off-sort buyers wanted into this weight range. He stated the OPPMB’s control of information and traceability of hogs would also suffer from an influx of additional sellers in the market weight range.
Mr. Skinner stated that it would be difficult to determine the intent of producers if “chance” hogs were to be allowed and the costs of such a system would be borne by all hog producers. He said the only way to effectively define market hogs is with weight ranges. He said the market weight range could encompass what are now off-sort hogs in the future, in response to market conditions. He emphasized that the off-sort framework would be a living document, subject to change.
Mr. Skinner said allowing off-sort buyers to ship in the market hog weight range would not stimulate or improve the marketing of hogs in Ontario. He said that the chance hog proposal could erode marketing authority, marketing clout and lead to a fragmentation of producers.
In response to questions, Mr. Skinner clarified:
Sows, boars and hogs over 300 lbs. were presently exempt from reporting requirements but the OPMB reserved the right to regulate those hogs in the future. Sow and boar sales had been regulated in the past.
Small processors were exempt from purchasing hogs through the OPPMB.
Off-board sales of 80,000 – 100,000 hogs per year would not unduly harm market clout.
Processors favoured a narrow weight range for market hogs; each processor had specific market preferences.
The farrow-to-finish model was the predominant type of hog farm in Ontario, but the number of three site pork farms was increasing.
Mr. Skinner was recalled later in the hearing and indicated:
He had not heard of the ZDI percentage proposal until it was raised before the Tribunal.
The OPPMB normally had staff assess implications to its current practices and procedures, consult with potentially affected industry people and prepare options when it considered new proposals.
It might be difficult to audit a percentage cap that was based in part on hogs that the OPPMB was not currently regulating, such as sows and boars.
The OPPMB considered ZDI’s recommended changes to its off sort hog framework. It adopted two ZDI recommendations and rejected four others.
He understood the new ZDI proposal was developed in an attempt to resolve the OPPMB concerns with the rejected ZDI recommendations.
Administration Fee
Messrs. Zantingh said they would incur a cost if they were to administer the collection of a service fee for the marketing board. They told the Tribunal they would like it to order that ZDI be able to retain 25 cents/hog from all service charges it collected for the OPPMB, as an administration fee. They noted that the OPPMB allowed small processors a 25 cents/hog fee. Mr. B. Zantingh said small processors were ZDI’s competitors for off sort hogs and he believed they should be treated the same way.
In response to questions Mr. B. Zantingh told the Tribunal that ZDI had asked the OPPMB to change its original framework for selling lightweight hogs to allow the company to settle the payments for these hogs directly with producers, rather than have them shipped through the marketing board. Mr. B. Zantingh agreed that ZDI would need to provide price information to the OPPMB on lightweight hogs sold through ZDI. He agreed that ZDI would not have the cost of administrating the OPPMB service fee if these hog sales were settled through the marketing board. He agreed that small processors handled less than 20 hogs per week. He said ZDI was not similar to a large packer as the OPPMB collected its service fee direct from producers who ship to large packers.
Mr. Marks said normally financial transactions flow through the OPPMB and that this gave the industry price transparency, slaughter data and information needed to traceback hogs to assist in disease prevention. He said the OPPMB would have preferred to follow this mechanism with off-sort hogs as well, but that it agreed to accommodate ZDI’s request to settle their own financial transactions, with weekly reporting. He said the OPPMB would be willing to revert to the normal system of settlement.
Mr. Marks told the Tribunal that the OPPMB received no information from small processors prior to 1993. He said that the service fee was paid to them so they would collect slaughter data for the OPPMB. He said small processors were those that buy less than 1,040 hogs per year. He agreed that functionally what ZDI would be doing is similar to what small processors do.
Mr. Skinner said price transparency was very important to Ontario hog producers. He said the OPPMB used a computerized system to settle hogs and track prices. He said data received from ZDI could be administered manually.
Summations
Mr. Snider told the Tribunal that in making its decision it should consider that the OPPMB has the power to stimulate, increase and improve the marketing of hogs. He said that hogs that fall outside the specific criteria that processors have developed are severely discounted and producers were in need of other marketing options. He submitted that 1,500 hog producers had used ZDI services and that they would not do so if it did not improve hog marketing.
Mr. Snider acknowledged that there was a risk that producers could act in their own best interests, at the expense of the interest of the entire industry. However, he submitted that the OPPMB did not demonstrate that the ZDI proposal would cause harm.
Mr. Snider said the pricing evidence on hogs in the market weight class was inconclusive but that it was undisputed that ZDI received better prices than the OPPMB on hogs weighing under 215 lbs. He said these higher returns would not be possible without market weight hogs to fill out the loads shipped to the U.S..
Mr. Snider argued the OPPMB had not submitted any expert evidence that the ZDI proposals would erode its marketing clout. He pointed out ZDI had been operating under its proposed off sort framework for over two years, under a court order. He said there was no evidence that ZDI’s activities harmed the hog marketing system. Further, he said ZDI’s 5% proposal would limit the volume of market weight hogs that could be sold through off-sort buyers to less than 1% of the total market weight hogs sold. He also pointed out that ZDI was mainly interested in hogs that were in ‘fringe’ weight ranges.
Mr. Snider argued that the OPPMB concern regarding enforcement of the “chance” hog proposal was unfounded, as both the broiler hatching egg/chick and chicken industries employed systems based on producers’ intent. Further, he said that the ZDI 5% proposal would remove the need to monitor intent.
Mr. Snider said the parties could agree on measures to ensure traceability and control of foreign animal diseases.
Mr. Snider submitted that ZDI fills a specific market need for its clients and that its ‘one-stop shopping’ approach was an important service. He said it would be inefficient for ZDI to act as a standard yard and that its clients needs would not be met by such an approach.
On the question of the proposed administration fee, Mr. Snider submitted that, functionally, what the OPPMB was requiring of ZDI was similar to what was required of small processors. He argued that logically ZDI should be treated the same way as small processors and receive the fee.
Mr. Foran told the Tribunal the OPPMB is a single entity local board established by regulation to control the production and marketing of hogs in Ontario. He said the OPPMB had been given considerable powers, including the power to be the single desk for marketing hogs. He said the OPPMB had developed a framework for off-board marketing of off-sort hogs as it was not marketing a significant quantity of off sort hogs. He submitted the OPPMB had been flexible in accepting two of ZDI’s recommended changes to the framework.
Mr. Foran submitted that the Tribunal should consider what is in the best interests of all pork producers in Ontario. He submitted ZDI could not demonstrate that its proposals were in the best interests of the industry, and the fact that they were in the best interests of ZDI was irrelevant. Mr. Foran said the OPPMB opposed allowing any other sellers into any weight range of hogs where it actively markets hogs.
With respect to the ZDI proposal that it be allowed to buy/sell hogs weighing 215-225 lbs., Mr. Foran submitted ZDI’s own evidence was that the OPPMB received higher prices in that weight category. He said freight costs should not be a concern, as producers shipping hogs in this weight range shipped through the OPPMB did not pay freight costs. Mr. Foran said the evidence was that U.S. packers did not pay ZDI a price premium for hogs in the 200-215 lbs. weight range so he did not agree that market weight hogs could be used to fill out loads to achieve a premium for lighter hogs. He acknowledged that ZDI may receive a superior price for hogs weighing less than 200 lbs., but submitted that most of the light hogs shipped through ZDI were in the 200-215 lbs. weight range.
Mr. Foran said the OPPMB did not dispute that ZDI customers occasionally shipped hogs in the 215-225 lbs. weight range to ZDI. He noted ZDI had indicated it would apply to be a licensed assembly yard. He said that given that ZDI did not achieve higher returns for hogs in this weight range, and that the OPPMB was active in this market it was logical for ZDI to market these hogs through the OPPMB.
With respect to the ZDI proposal that hogs in the 270-300 lbs. weight range be included in the “off sort” framework, Mr. Foran submitted that the OPPMB was actively marketing hogs in this weight range. He said the uncontradicted evidence was that hogs weighing over 300 lbs were unwanted and significantly discounted by processors. He suggested the Tribunal should not protect a market for hogs that are not wanted. Mr. Foran also argued that ZDI could not demonstrate that it received a higher return than the OPPMB for hogs weighing between 270 lbs. and 300 lbs.. He said if ZDI received hogs in this weight range, a simple solution would be to market them through the OPPMB.
On the “chance” hog proposal, Mr. Foran submitted that ZDI had not provided any evidence as to how other marketing boards determined intent. He also noted that the concept of intent is included in the legal definition of broiler hatching eggs/chicks but not in the legal definition of animals regulated by the OPPMB. He submitted there was no clear way to determine the intent of a hog producer, and that there would be significant expense incurred in attempting to enforce a “chance hog” proposal. He suggested that the number of hogs that could be claimed to be “chance” hogs could be quite large, based on Mr. Peter Zantingh’s identification of “chance” hogs in documents submitted into evidence. Mr. Foran told the Tribunal the OPPMB was agreeable to allowing other entities to buy and sell hogs in markets that it was not actively pursuing, but that it was careful to do this under the regulatory framework and was a party to all such agreements. Mr. Foran submitted that, given the nature of the industry, it was important to maintain a single desk selling agency. He said both Mr. Marks and Mr. Skinner were extremely knowledgeable about marketing hogs and reminded the Tribunal they had testified that the OPPMB market clout could be harmed by an influx of additional sellers. He acknowledged he could not demonstrate any harm from ZDI activities to date, but submitted the “off sort” framework would apply to everyone. He said any erosion in the OPPMB’s market power would be to the detriment of all Ontario producers.
Mr. Foran argued that the ZDI percentage proposal was a completely new proposal which the OPPMB had not had the opportunity to consider. He said the fact that unregulated hogs are a factor in the proposed equation could lead to difficulties in enforcing a 5% cap.
On the question of the proposed administrative fee, Mr. Foran submitted that the OPPMB was willing to settle the payments for ZDI hog sales, it had accommodated ZDI by allowing it to settle its own accounts, but that this required that ZDI provide it with data the OPPMB would have received if it settled the accounts. He said the OPPMB objected to paying for this information when it was easier for it to settle the accounts and gather the information itself.
Mr. Foran asked the Tribunal to dismiss all four aspects of the appeal. He submitted that the ZDI proposals were a threat to the regulated marketing system and that it was possible for ZDI to continue to serve its clients’ ‘one-stop shopping’ needs by becoming a licensed assembly yard.
The Findings
Weight Categories/Chance Hogs
The Tribunal finds that to alter the single desk status of the OPPMB would be contrary to the intent of the marketing plan under which it is established. Regulation 419 under the Farm Products Marketing Act, (amended to O. Reg. 113/97) provides that all hogs produced for slaughter are to be marketed to or through the OPPMB. It is clear to the Tribunal that the purpose of the regulation is to provide bargaining power to the OPPMB in selling hogs for their producers. The Tribunal accepts the testimony of Mr. Marks that there are 4,000 hog producers in Ontario, 70-75% of all hogs are shipped to the two largest buyers and the next two largest buyers each purchase 10% of all hogs. The Tribunal accepts the argument of the OPPMB that its marketing power would be eroded if additional hog sellers were licensed to market hogs in the categories in which it markets hogs. As well, the Tribunal finds that it would be difficult to identify “chance” hogs, based on the intent of their producers. The Tribunal agrees with Mr. Marks’ testimony that all female hogs could be identified as “chance” hogs under the definition provided by Messrs. Zantingh. The Tribunal therefore dismisses the appeals of ZDI from decisions of the OPPMB not to modify its framework to allow off-sort buyers to market “chance” hogs, hogs weighing 215-225 lbs., and hogs weighing 275-300 lbs.
The Tribunal is satisfied that ZDI is serving an important need for a segment of the pork industry. The uncontradicted evidence is that some 1,500 hog producers utilize its services and it markets approximately 4,000 hogs per week. A great deal of evidence on prices received for hogs by ZDI and the OPPMB on specific dates and over specific periods of time was provided. The Tribunal has evaluated this evidence and finds that the pricing data is inconclusive. The Tribunal did not find that ZDI achieved any better prices than the OPPMB for hogs weighing 215-300 lbs. liveweight. Messrs. Zantingh testified that ZDI used hogs in this weight range to fill out loads so as to reduce the per hog transportation costs of larger and smaller hogs. The Tribunal agrees that there is some reduction in ZDI transportation costs, as a result of shipping full truck loads. However, this benefit to ZDI and its suppliers does not outweigh the benefit to all producers from having a marketing system with a single desk seller.
With regard to the 5% proposal introduced by the appellant late in the hearing, the Tribunal is not prepared to grant the request nor to dismiss it. The Tribunal was convinced that the respondent had not had an opportunity to consider the proposal. The Tribunal will order the OPPMB to consider the 5% proposal and respond to ZDI no later than April 15, 2004. In the interim ZDI is to be allowed to continue to operate as it has been under a court order until April 30, 2004.
If the parties do not reach an agreement on the ZDI 5% proposal, and a further appeal to this Tribunal is made, this panel is seized of the matter. Further the panel will hold the week of April 19-23, 2004 open for this matter. The Tribunal is concerned with the length of time that this matter has stretched out. The appeal was received in February 2003; the parties were not available until June 2003; further dates in July 2003 were reserved but the parties sought an adjournment and the hearing was not concluded until December 11, 2003.
Administration Fee
On the question of the ZDI request that it be able to retain $0.25 per hog of the service charges it collects for the OPPMB on off-sort hogs, the Tribunal finds for the appellant. The Tribunal notes that the OPPMB is not actively marketing off-sort hogs, ZDI will incur a cost to provide data related to off-sort hogs to the OPPMB and there is no benefit to ZDI from providing this information to the OPPMB.
The administration fee may be retained for off-sort hogs only – those hogs that are not sows or boars and that are below 215 lbs. liveweight or over 300 lbs. liveweight. If ZDI becomes a licensed assembly yard, hogs in the 215-300 lbs. weight will be marketed through the OPPMB and it will have direct access to the information it requires.
The Tribunal was convinced that both parties are committed to ensuring that information to assist in the traceability of hogs for the control of foreign animal disease is collected. The Tribunal believes this is an important ongoing concern, but for the purposes of its decision, the health issues were not very relevant.
Decision and Reasons
After careful consideration of the evidence filed and the submissions made the Tribunal orders:
The appeals of ZDI from the OPPMB decision not to amend its policy framework on off-sort hogs to allow hogs up to 225 lbs. liveweight and hogs between 275 lbs. liveweight and 300 lbs. and liveweight to be sold through pork assemblers are denied.
The appeal of ZDI from the OPPMB decision not to expand its definition of “off sort” hogs to include market hogs between 230 lbs. liveweight and 270 lbs. liveweight where it was not the intention of the producers to produce regular weight market hogs (“chance hogs”) is denied.
The OPPMB is ordered to hold a hearing to consider the ZDI 5% proposal and to render a decision on ZDI’s request no later than April 15, 2004. If there is a further appeal to this Tribunal on that decision, this panel is seized of the matter.
The OPPMB is ordered to allow ZDI to continue to operate as it has been operating under a court order until April 30, 2004.
The OPPMB is to allow ZDI to retain $0.25 per hog of the service charges it collects for the OPPMB on off-sort hogs, to offset ZDI’s cost in providing data on these hogs to the OPPMB.
Dated at Islamorada, Florida the 20th day of January, 2004.