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:
Earlvale Farms v Dairy Farmers of Ontario
Earlvale Farms v DFO 2004 ONAFRAAT 09
STATUTE:
Ministry of Agriculture, Food and Rural Affairs Act
HEARING:
March 2, 2004
DATE OF DECISION:
March 9, 2004
2004-09
NEUTRAL CITATION:
2004 ONAFRAAT 09
Earlvale Farms v Dairy Farmers of Ontario
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 Bob Early, Earlvale Farms, Caledon East, Ontario from a decision of the Dairy Farmers of Ontario to rationalize the transportation of milk produced by Earlvale Farms to a different milk transporter.
Before:
Murray Cardiff, Chair; Elwood Quaile, Member; Doug Flook, Member
Appearances:
Bob Early, appellant
Peter Gould, for the respondent
Joseph Gray, witness for the appellant
David Nolan, witness for the respondent
DECISION OF THE TRIBUNAL
This matter was considered in Guelph, Ontario on March 2, 2004. Mr. Bob Early, Earlvale Farms, appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal (the Tribunal) from a decision of the Dairy Farmers of Ontario (DFO) whereby it required milk produced on Earlvale Farms to be picked up by a different transporter than had been picking it up, effective September 1, 2003.
Statutory Context
The appeal comes to the Tribunal by way of Subsection 16(2) of the Ministry of Agriculture, Food and Rural Affairs Act, which states:
Idem
16.(2) Subject to subsections (4) and (5), if a person is aggrieved by an order, direction, policy, decision or regulation made under the Farm Products Marketing Act by a local board or under the Milk Act by a marketing board, that person may appeal to the Tribunal by filing with the Tribunal and sending to the local board or marketing board written notice of the appeal.
Subsection 4 allows for the Tribunal to refuse to hear the appeal under certain circumstances. Subsection 5 requires that appellants first apply to the marketing board for a hearing, unless both parties waive their right to a hearing.
Under the Milk Act, the DFO is delegated certain powers and authorities, including the authority to control and regulate the marketing of milk and the authority to require that milk be marketed to or through the marketing board.
Preliminary Matters
Mr. Gould sought to introduce additional documents on the day of the hearing. Mr. Early objected, noting that the documents should have been disclosed before the hearing, as per the Notice of Hearing. The Tribunal offered to adjourn the proceeding, but the parties ultimately agreed that two short documents could be submitted and the Tribunal allowed this.
Mr. Early requested that witnesses be excluded from the hearing until they had testified, to ensure independent testimony. Mr. Gould objected and said that it was important for him to have Mr. Nolan available during his cross-examination of Mr. Early. Mr. Early indicated that would be fair. The Tribunal ordered that witnesses be excluded from the hearing until the completion of Mr. Early’s evidence in chief.
The Issues
The issues before the Tribunal were:
Should the Tribunal order the DFO to require that milk produced by Earlvale Farms be transported by the Dairyland Transport Co-operative (DTC)?
If the Tribunal does not order that Earlvale Farms milk be transported by the DTC, should the Tribunal order that Mr. Early be compensated by the DFO?
The Evidence
Bob Early, appellant
Mr. Bob Early told the Tribunal he was a dairy farmer and also a member and Director of the DTC. He said he objected to the DFO decision because the rationalization of milk transport routes in his area meant his milk would no longer be picked up by his co-operative. He said that if he did not ship milk through the DTC for two years, his membership could be revoked and he would lose patronage payments and equity in the co-operative. He explained that he had purchased the right to these benefits when he joined the DTC and the DFO had taken away these rights when it rationalized his transport route.
Mr. Early said that the DFO policy regarding rationalization was unfair, as it did not compensate transporters who lost volume. He pointed to documents submitted by the respondent to show that DTC had lost volume as the result of a rationalization affecting seven milk transport companies, which came into effect on September 1, 2003. Mr. Early also pointed out that the DFO did not provide compensation to transporters who received older producers in place of younger ones, or who had to lay off employees. Further, he stated that the DFO policy did not address the concern of DTC that a minimum number of owner-shippers be retained by DTC in order to meet its requirements as a co-operative.
Mr. Early suggested the DFO should take into account the quality of producers or longevity in business in making rationalization decisions. He said he was aware of two producers – Mr. Joe Gray and Mr. Don Maddison – who had been threatened with being rationalized off a DTC route, but who had ultimately been allowed to continue to have their milk picked up by the co-operative. He explained a third producer – Mr. Malcolm Watson – was no longer served by DTC but still received patronage payments. He said Mr. Watson was the only non-shipper to receive patronage payments and it was a sore point with DTC members.
Mr. Early said it was important for DTC to have members, not just investors, and that rationalization of its milk routes threatened its viability. He said that of seven producers removed from DTC milk routes, six were members. He acknowledged that DFO had assigned some producers to DTC routes at the same time producers were lost; but said there was no guarantee these producers would become members of DTC.
With respect to his particular situation, Mr. Early noted that Earlvale Farms is 11 km north of Parmalat Dairy, and located on the same road as two other producers. He said that prior to the September 1, 2003 rationalization, DTC picked milk up from all three producers in one pass. He said his new transporter, W. J. Lawrence Transport Ltd., picked his milk up on one day and the other two producers’ milk up on the next day. He suggested this was less efficient. Mr. Early acknowledged that his new transporter provided adequate service.
Mr. Early said that the rationalization of the routes of seven transporters had been difficult, transporters had objected, and DFO staff had acknowledged that mistakes were made. He also said that cost savings could have been achieved if computerized routing had been undertaken on the original routes of the seven transporters, rather than after rationalization.
Mr. Early also raised several concerns with his treatment by DFO staff.
In response to questions, Mr. Early indicated:
He understood the DFO wanted more North-South routes and fewer East-West routes.
DFO is responsible for assigning producers to routes, and producers do not have the authority to select their transporter.
Three producers affected by rationalization had accompanied him to his hearing before the DFO on this matter.
He could not provide DTC’s current position on the September 1, 2003 rationalization.
The Ontario Milk Transport Association (OMTA) had an agreement which provided for compensation when milk producers were transferred from one transporter to another.
DFO has no input into DTC decisions as to who is eligible to receive patronage payments. Each co-operative establishes its own by-laws.
DFO does not treat co-operative transporters differently than other transporters; he believed it should.
DTC had previously suggested an arrangement whereby they would give up nine producers in exchange for three producers to facilitate rationalization. He was not familiar with the details of that proposal.
He agreed the DFO had the responsibility to achieve cost savings and he understood the September 1, 2003 rationalization would save $92,000 per year.
He understood that transporters were appointed by DFO board order and that the DFO had the authority to reassign producers.
He was not informed that he was being reassigned until the day before it was to come into effect.
He blocked access to his farm for one day in protest, as he understood that producers who did not wish to be reassigned had used this tactic with some success in the past.
The DFO should not tamper with milk routes that have co-operative members on them.
DTC operated two trucks which were filled to or above capacity.
He loaned money to DTC when he became a member; if he were to cease to be a member that money would be returned but he would lose his equity in the co-operative.
Transporters were paid by the kilometre and by volume.
He was not sure how he first became aware of the proposal to reassign him to W. J. Lawrence Transport Ltd.
Joseph Gray, witness
Mr. Joseph Gray testified that he was a former dairy farmer and had significant experience with a number of co-operatives, including DTC. He recalled that approximately 30 years before, he had learned at a Milk Committee meeting that there was a rationalization of milk routes planned in his area. He said he was concerned because he was the only DTC producer on his road, and he thought he would lose his membership in the DTC if he was picked up by the transporter who served his neighbours. He said he threatened to block his laneway and at the last minute he and his neighbours were put on a DTC route. Mr. Gray said he was aware of one other producer – Mr. Maddison – who was in a similar situation and who was able to continue to be served by the DTC.
In response to questions, Mr. Gray indicated:
He was not certain how he learned of the proposed realignment of producers in his situation; it could have been through DTC as he was a Director at the time.
He received the principal of his loan back when he ceased being a member of the DTC.
Patronage payments were based on the volume of milk shipped.
David Nolan, witness
Mr. David Nolan, Transportation Manager, DFO told the Tribunal he was responsible for all matters pertaining to milk transport, from farm to processing plant, and that he had been in this position for 27 years. Mr. Nolan said the September 1, 2003 transport rationalization involved seven transporters and the reassignment of approximately 70 producers. He said the DFO would immediately save $92,000 per year as the result of the rationalization, and an additional $40,000-$50,000 per year once computerized routing was completed for all affected transporters.
Mr. Nolan said DTC was satisfied with the rationalization. He said that of seven DTC producers affected, Mr. Early was the only one to raise any concerns since the routes were changed. He acknowledged several copies of a form letter objecting to the changes were sent to DFO in February 2003.
Mr. Nolan explained that rationalization of milk routes was an ongoing function of the DFO as the industry was dynamic. He said there were currently 5,500 milk producers, as compared to 10,000 producers ten years ago; 61 transporters versus 120 ten years ago; and 70 processing plants, half the number of plants10 years ago. He said that DFO required its staff to achieve efficient milk transportation and the final objective was to minimize the cost of transportation. Mr. Nolan said his counterparts across the country were also involved in rationalizing milk routes. He expected that the industry would continue to change at the same pace in the future.
Mr. Nolan said the DFO had undertaken four or five milk route rationalization exercises in the past five years; the September 1, 2003 rationalization was the largest. He also told the Tribunal:
DFO does not treat co-operative transporters any differently than other transporters.
He had not been asked for input by transport co-operatives developing their by-laws.
Two milk transport co-operatives had been affected by rationalization eight or nine years before; both had lost members from their routes.
DFO gets its authority from the Milk Act. It can reassign producers to a different transporter at any time. Longstanding DFO regulations allow it to reassign an individual producer with no notice to transporters; and two or more producers with 15 days notice to transporters. Producers are not entitled to notice by regulation but are routinely informed of reassignments 15 days in advance.
Producers may be reassigned to balance loads.
Producers affected by the September 1, 2003 rationalization were notified by letter dated August 13, 2003.
Co-operatives can make patronage payments to members who are no longer served by the co-operative. DFO staff provide the volume of milk shipped by co-operative members through other transporters to these co-operatives. He understood this data was used to calculate patronage payments. Excerpts from by-laws of two transport co-operatives were entered into evidence.
At least one of nine producers DTC offered to trade with another transporter was a DTC member.
DTC would receive less milk as a result of the rationalization, but the volume impact on transporters resulting from this rationalization was relatively small.
He considered the September 1, 2003 rationalization a success notwithstanding that the original proposal by staff would have achieved greater savings. There could be more savings in the future if transporters replace their equipment with larger equipment.
Two of the seven affected transporters have been sold.
DTC had recently purchased a one-truck transporter. He estimated there were 15-18 producers on its milk route.
Transporters may purchase additional routes anywhere in the province but may not operate out of the same depot unless they have adjoining routes.
In response to questions from Mr. Early, Mr. Nolan indicated:
DFO initiated the rationalization exercise.
He did not believe Mr. Early was punished for blocking his laneway.
He did not respond to form letters from producers who objected to rationalization as he thought they were just expressing their opinions. He did not know what he could have told them.
He recalled Mr. Early speaking about displaced volume at the DFO hearing.
He believed he could learn something from each big rationalization that the DFO undertook.
The steps DFO takes in rationalizing milk routes are to: develop compact collection territories; balance the milk volume; establish new routes with computerized routing.
DFO could not guarantee that producers reassigned to DTC would join the co-operative; at the time of rationalization, more than 50% of producers being served by DTC were members.
He was not familiar with Mr. Gray’s situation. He agreed that it sounded like Mr. Gray should have been reassigned to a different transporter.
He asked for but did not receive a copy of the DTC constitution.
Mr. Nolan also indicated:
DFO must approve the rationalization of transporters.
DFO treats all transporters and producers equally, whether they are members of a co-operative or not.
Producers all pay the same per hectolitre transportation charge. There are additional charges for every day pick up and low volume pick up.
DFO does not prevent a producer from physically relocating his farm.
Summations:
Mr. Early told the Tribunal he wanted it to order the DFO to have his milk picked up by DTC. He said he hoped he had shown that DFO staff had not been helpful to himself, DTC or the DFO Board. He pointed out that in the past producers that should have been rationalized off DTC routes, but who objected, were allowed to continue to ship through their transporter of choice. Mr. Early submitted that a precedent had been set and he should be treated the same as those producers and allowed to have DTC as his transporter. In the alternative Mr. Early asked that he be compensated for the loss of the right to transport his own milk through DTC.
Mr. Gould submitted that the DFO had the clear authority to assign transporters to producers and reassign producers to achieve efficiencies. He said the DFO was able to save producers money through rationalization of milk routes; computerized routing; the opportunities to use fewer trucks; and in the September 1, 2003 case, through consolidation of transporters. Mr. Gould said Mr. Early did not dispute that DFO had the authority to rationalize milk routes.
Mr. Gould stated that DTC was willing to trade producers, including members for non-members, at their own volition without input from the DFO. He said that co-operatives with similar operations made by-laws that allowed them the discretion of paying or not paying patronage to non-using members. He noted that DTC did have one member who received patronage payments but whose milk was not picked up by DTC trucks. He said DFO had no influence over DTC in this regard and said Mr. Early could approach DTC with his concerns.
Mr. Gould said he was not prepared to comment on what may have happened at some time in past with other producers.
Mr. Gould acknowledged that some producers and transporters had expressed concerns about the September 1, 2003 rationalization prior to its implementation. He said Mr. Early was the only one DFO heard from after the changes were made. He said the rationalization was done with the interests of all producers in mind, and that DFO acted within its authority.
The Findings
The Tribunal finds that the milk of Bob Early/Earlvale Farms should continue to be picked up by W. J. Lawrence Transport Ltd., as directed by the DFO in its rationalization of milk routes that came into effect on September 1, 2003. The Tribunal gave considerable weight to Mr. Nolan’s testimony that $92,000 per year was being saved immediately by the rationalization and up to an additional $50,000 per year savings could be achieved through computerized routing of the new milk routes. The Tribunal finds that the benefits of a cost efficient milk transportation system to all dairy producers outweigh the personal preference of Mr. Early.
Mr. Early testified that under the new milk transportation routes, he was picked up on one truck, and two neighbours on another truck, and that this was less efficient than the previous milk pick-up system. The Tribunal was not persuaded that this re-routing was less cost effective than the previous system. The impact on the cost of milk transportation in the total milk pick-up area under consideration, not just three farms, is the key consideration.
The impact of the milk transportation rationalization on Mr. Early’s membership in a co-operative is not relevant to the efficient functioning of the industry. As well, the Tribunal accepted the argument of Mr. Gould that it is within DTC’s power to allow Mr. Early to continue as a member of the co-operative or not, and to receive patronage payments or not. If Mr. Early is dissatisfied with the position taken by DTC on these issues, he can raise his concerns with DTC.
The Tribunal finds that it is appropriate that the DFO give no special consideration to milk transporters that are also co-operatives. It would not be fair to transporters with a different business structure, or to producers who are not members of transport co-operatives, if the co-operatives were given special treatment. In this particular rationalization, the Tribunal notes that the DTC was able to keep over 50% of the producers it serves as members and thus retain its cooperative status.
Mr. Early and Mr. Gray both testified to the fact that some years ago producers who were dissatisfied with proposed changes to milk routes were able to stay with their preferred transporter. Mr. Early argued that this set a precedent and he should also be allowed to stay with his transporter of choice. This Tribunal looks at each case before it on its own merits, rather than relying on past actions of a marketing board as precedent setting. It is not appropriate to restrict a marketing board to past practices in light of a changing industry. Mr. Nolan’s testimony indicated that there had been considerable consolidation in the number of producers, transporters and processors in Ontario in the past 10 years. The Tribunal recognizes that because this industry is changing, rationalization is necessary. The Tribunal accepts that in looking at the whole industry, each individual preference cannot be accommodated.
Mr. Early made a number of points on the equity of the DFO policy in general to transporters, with both co-operative and other business structures. The mechanisms for compensating transporters for lost volume, change in age of producers and the like, were not the subject of this appeal. Also, the Tribunal notes that none of the seven affected transporters objected to the final rationalization of the milk routes.
Mr. Early also raised concerns about his treatment by DFO staff during the period that the rationalization of milk routes was under consideration. The failure of staff to return phone calls, the late notice given to Mr. Early of the transporter change, and the staff decision to answer two letters with one letter do not figure in the Tribunal’s reasoning for denying the appeal.
On the question of whether or not Mr. Early should be compensated for loss of income and equity, the Tribunal finds that Mr. Early provided no evidence that his income had changed. At the time of the hearing he was still a member of the DTC and was still receiving patronage payments. While he was clearly concerned that these payments would cease if he did not use the transporter for two years, the Tribunal was not persuaded that this was the case. Even if the change in transporter does eventually result in lost income and equity to Mr. Early/Earlvale Farms, the Tribunal finds there is no justification to order compensation. Under the dairy marketing system, individual producers have no right to select their own milk transporter; that is a function and right of the marketing board. As well, Mr. Early acknowledged that service provided by his new transporter was equivalent to that provided by the DTC.
Decision and Reasons
After careful consideration of the evidence filed and the submissions made the Tribunal orders:
The appeal of Mr. Bob Early, Earlvale Farms from a decision of the Dairy Farmers of Ontario to rationalize the transportation of milk produced by Earlvale Farms to a different milk transporter is denied.
The request by Mr. Bob Early that the DFO be ordered to compensate him for the loss of the ability to have his milk picked up by DTC is denied.
The reasons for this decision are:
The rationalization will result in savings to the dairy industry of at least $92,000 per year. Savings of an additional $40,000 - $50,000 per year are likely to be achieved. These savings to the industry outweigh the individual preference of Mr. Early.
The Tribunal was not convinced that it was the DFO decision that was detrimental to Mr. Early. There was evidence that DTC had the power to maintain Mr. Early’s membership and patronage payments and evidence that it did pay patronage to one non-shipper member.
The DFO acted within its legislated authority when it rationalized milk routes effective September 1, 2003.
Dated at Guelph, Ontario this 9th day of March, 2004.