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:

Elite Swine Inc. et al. v Ontario Pork Producers' Marketing Board

Elite Swine Inc. et al. v Ontario Pork Producers' Marketing Board

2005 ONAFRAAT 01

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

DATE OF DECISION:

January 7, 2005

2005-01

NEUTRAL CITATION:

2005 ONAFRAAT 01

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

AND IN THE MATTER OF: Appeals to the Agriculture, Food and Rural Affairs Appeal Tribunal by Elite Swine Inc. (ESI), Cold Springs Farm Ltd. (CSF), Progressive Pork Producer’s Co-operative Inc. (3P), Selves Farms Limited (SFL) and Synergy Services Inc. (SSI) from a decision of the Ontario Pork Producers' Marketing Board (OPPMB) not to rescind its decision to increase the service charge on all Ontario hogs by $0.80 per hog in its Board Regulation 9-2004 Schedule B.

Before: Tim Sutton, Member; Doug Flook, Member

Appearances:

Rob Shapiro, representing the appellants, ESI, CSF, 3P, SFL, SSI

Sean Foran, counsel to the respondent, OPPMB

Phil Dykstra, ESI, appellant

Bob Hunsberger, 3P, appellant

Mark Yungblut, SSI, appellant

Giacomino (Jack) Slibar, Executive Director, OPPMB, respondent

Larry Skinner, Chair, OPPMB, respondent

DECISION OF THE TRIBUNAL

These appeals were heard in Guelph, Ontario on OC 28 04, OC 29 04, NO 04 04, NO 24 04, NO 25 04, DE 15 04 and DE 16 04. The five appellants all appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal (the Tribunal) from a decision of the Ontario Pork Producers’ Marketing Board (OPPMB) which resulted in an 80 cent per hog increase in its service charge. At a pre-hearing conference, the parties agreed that the appeals be heard together.

A panel of three Tribunal Members was selected to hear this matter, but one Member became ill and was forced to withdraw part way through the proceeding. That Member had no input into this decision.

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 local board for a hearing, unless both parties waive their right to a hearing.

Preliminary Matter

Mr. Elbert van Donkersgoed of the Christian Farmers’ Federation of Ontario (CFFO) sought standing at the hearing. He told the Tribunal the CFFO had a committee of pork producers who marketed hogs through a variety of marketing structures offered by the OPPMB. He said the CFFO was concerned that the outcome of the hearing could set a precedent as to how the Farm Products Marketing Act is used in the future and that it did not wish to see the legislation eroded. He said the CFFO could provide the views of family farmers in the pork industry. The Tribunal ruled that the CFFO would not have standing at the hearing. The Tribunal noted that the OPPMB represents family farmers in the pork industry and stated that it did not believe it would be appropriate to hear from the CFFO as well. The Tribunal also noted that the parties had the ability to call Mr. van Donkersgoed as a witness.

Key Rulings Made in the Course of the Hearing

Mr. Sean Foran asked the Tribunal to extend a restricted access order to apply to any recording evidence being taken down by the court reporter on information contained in 29 specific documents on file with the Tribunal. He also asked that the hearing be closed to the public. Mr. Robert Shapiro did not object to the request to extend the restricted access order. However, Mr. Shapiro was of the view that it was only necessary to hold portions of the hearing in camera. The Tribunal issued a written ruling on these matters on OC 28 04. The hearing was closed to the public, but a transcript of portions of the hearing was made available to the public. The Tribunal accepted Mr. Foran's argument that there may be serious legal consequences with respect to the U.S. trade action should privileged information related to the trade action be inadvertently disclosed. The Tribunal felt that because of the volume of information before it, there was a high possibility of witnesses inadvertently disclosing privileged information to the public through testimony.

The Tribunal subsequently ruled on DE 17 04 that undertakings signed by participants in the hearing would remain in effect as long as privileged documents were in their possession. It also clarified procedures for ensuring that confidential documents will be destroyed or returned to the OPPMB once they are no longer needed.

Mr. Robert Shapiro asked the Tribunal to order the OPPMB to provide the appellants with invoices and variance reports depicting the amount of money actually spent on the trade defense compared to the amount budgeted for specific items at various points in time. Initially the Tribunal ruled that actual invoices that related to costs incurred to date did not have to be produced. Upon a further request, the Tribunal ordered the OPPMB to provide the variance reports to the appellants. Mr. Shapiro asked that variance reports be introduced into evidence. However, the Tribunal ruled that they would not be accepted into evidence as the decision to impose the 80-cent service charge was based on budgetary information obtained by the OPPMB which dealt with expenses to be incurred over one year. The Tribunal felt that information on expenditures on specific dates within that year would not necessarily reflect the overall cost of the trade defense.

The Tribunal also ordered the OPPMB to produce additional minutes of board meetings and board policies when it felt the information would be helpful. In the interest of getting the best information before it, the Tribunal allowed late submissions of documents by both parties. Parties were first required to share these documents with each other. Further rulings were made regarding the admissibility of specific documents.

Mr. Shapiro asked that the OPPMB be required to produce any documentation that may exist related to a risk analysis undertaken before it decided to volunteer to become a mandatory respondent to the anti-dumping action. The Tribunal did not order these documents to be produced.

Mr. Shapiro asked the Tribunal to allow him to recall one of his witnesses and call an additional witness after his case was closed but before the OPPMB case was concluded. He wanted to recall Mr. Yungblut and call Mr. Alderman to provide information regarding a meeting at the OPPMB offices in June 2004. The Tribunal did not believe this was an appropriate time to have these witnesses testify. The appellants had an opportunity to call reply evidence after the OPPMB completed its case.

After the appellants' case was complete, Mr. Shapiro asked the OPPMB to voluntarily call two specific witnesses - Beverly Devries and Mary Lou McCutcheon. In the alternative he asked the Tribunal to summons these witnesses. Mr. Shapiro wanted to question Ms. Devries on an affidavit she prepared for a pre-hearing conference. He wanted to question Ms. McCutcheon as she was managing the trade defense for the OPPMB (Mr. Slibar prepared the estimates). The Tribunal ruled that it was not appropriate for it to direct the OPPMB as to how to present its case.

Written rulings issued in the course of the hearing are appended to this decision.

The Evidence

Background:

Mr. Foran gave a brief overview of the legislation and regulations that provided the OPPMB the authority to levy service charges. He explained the Canadian pork industry was the subject of two investigations - countervail and anti-dumping - initiated by agencies of the U.S. government. He said the OPPMB was the largest single exporter of hogs to the U.S. and its service fee was increased to generate funds to fight the trade challenges.

Mr. Shapiro provided a brief overview of the history of the dispute and explained his clients objected to the OPPMB fee increase because it was implemented without consultation with producers; the OPPMB already had a relatively high service fee, and funds in reserve; the cost of the trade defense was excessive; and hog producers were just coming off two exceptionally bad years. He explained the appellants included a pork production company (ESI), an integrated agri-food business (CSF), a co-operative (3P), a family farm (SFL) and a contract marketing group (SSI). Mr. Shapiro said that the combined operations of the appellants accounted for 32% of total hog production in Ontario. He calculated that the service charge increase would generate $1.36 million in extra fees to the OPPMB in one year from these producers; or $4.2 million dollars when calculated on all Ontario producers.

Cost of Defense Issue:

Messieurs Phil Dykstra, ESI, Mark Yungblut, SSI, Bob Hunsberger, 3P, testified for the appellants as a panel. The witnesses supported a written submission filed with the Tribunal. In addition, they told the Tribunal:

• There was general support for a defense against the US trade actions but Ontario hog producers had not been consulted as to what approach to take or how much to pay.

• The appellants were concerned that the OPPMB was not careful with funds collected from hog producers. The OPPMB did not provide good value for the base service fee that it collected.

• A national defense would be more effective.

• ESI had spent over $400,000 to defend against the trade actions.

• 3P had structured its operations to insulate its members against the risk of countervail duties.

• Representatives of SSI and 3P requested financial assistance for producers who were selected as cost respondents by the U.S.; the OPPMB agreed to provide up to $25,000 per cost respondent.

• The appellants understood the OPPMB proactively sought to become a mandatory respondent to the US trade action.

Mr. Giacomino Slibar, Executive Director, OPPMB, told the Tribunal:

• The countervail trade challenge would largely require a government defense; the dumping investigation would have to be defended by the OPPMB and hog producers.

• Individual firms are selected as cost respondents in the dumping investigation.

• The OPPMB retained independent legal advice from a lawyer in the U.S..

• The trade challenges involved intensive litigation and experts had to be retained.

• A national approach to defending the industry was preferred but not achieved.

• The estimated cost of the OPPMB defense was $6.3 million; $4.7 million of this would be incurred in the 2003-04 fiscal year.

• One person was hired to manage the defense of the trade action.

• The 2004 trade action was the first time the OPPMB had been sent a U.S. questionnaire and named as a respondent to a trade action.

Mr. Slibar spoke to privileged documents and explained the OPPMB budget for the trade defense, the source of the cost estimates and rationale for the budgeted items.

Mr. Larry Skinner, Chair, OPPMB testified that:

• If Canada did not win the U.S. trade action a duty would be charged on all hogs shipped to the U.S. and this would harm the domestic market. This is what happened in the early 1990s when a countervail duty was charged.

• A higher percentage of hogs are currently marketed through direct contracts than was the case in the 1990s.

• The OPPMB needed the U.S. market in the event of domestic plant closures; it was active in the U.S. market but had no plans to expand its U.S. sales.

• The OPPMB and the Canadian Pork Council (CPC) wanted a coordinated national defense but all provinces did not agree on a common approach.

• A previous countervail trade action was largely defended by governments and cost over $10 million.

• The OPPMB was advised it would likely be chosen as a mandatory respondent as it was the largest single exporter to the U.S.

• The OPPMB board of directors decided to hire outside experts, on the recommendation of staff.

• As a mandatory respondent, the OPPMB would be subject to its own duty rate, rather than the 'all others rate' which is calculated using the costs and prices of all respondents.

Alternate Funding Mechanism Issue:

The appellants' witness panel indicated:

• The OPPMB held $1 million cash and $6.2 million in temporary investments and these funds could be used to fund the trade defense.

• At $1.75 per hog, Ontario producers had the highest service fee in Canada before the OPPMB increased it by 80 cents per hog.

• The base service fee in Manitoba was 80 cents per hog; an additional 70 cents per hog was charged if hogs were marketed through the Manitoba Pork Council (MPC). A similar additional fee was paid to brokers on hogs not sold through the MPC.

• The MPC was charging a fee of 50 cents per hog to fund its defense to the U.S. trade actions - this applied to weaner hogs and slaughter hogs. The MPC charged its fee on a larger number of hogs than the OPPMB would collect its increased fee on.

• If it used its reserves and cut operating costs, the OPPMB would only need to increase the service fee by 55 cents per hog.

Mr. Slibar testified that:

• The OPPMB would market approximately 5,273,000 hogs in 2004, of which 305,000 would be exported to the U.S.

• The OPPMB collected its service charge on market weight hogs sold for slaughter; no fee was collected on feeder or weaner hogs.

• The OPPMB working capital was $6,372,664 at the start of the current fiscal year but some of the funds were tied up in an insurance fund for in transit losses. The OPPMB had access to $5,402,971.

• The OPPMB restricted itself to using a special fund to finance projects that met specific criteria. A Japanese market development program required an additional $216,788; a traceability project that was underway required approximately $400,000 more.

• Defense of the trade actions did not meet the criteria for funding from the internally restricted special fund.

• The OPPMB required approximately $4.1 million for an operating reserve - to cover costs for six months in the event that no service fees could be collected. If these funds were used to fund the trade defense its current ratio would fall to an unacceptable level.

• The Ontario Farm Products Marketing Commission expected the OPPMB to remain fiscally sound.

• The OPPMB negotiated its credit lines based on its financial position.

• The OPPMB required computer upgrades and monies to fund other initiatives that may arise. Approximately $500,000 was needed for computer upgrades in the next few years.

• Gutting the regular OPPMB activities in order to fund the trade defense would in effect be giving the U.S. challengers a win.

• The OPPMB was using its reserves to fund its trade defense while the matter of the fee increase was under appeal. Staff had been terminated as well.

• In 15 of the past 20 years, Ontario hog producers had been involved in some form of U.S. trade action.

• It was commonly known by producers that 20 cents of the OPPMB service fee was set aside for research.

• Premium Pork was a bankrupt respondent that operated in both Manitoba and Ontario. It opted to be represented by the MPC. It did not provide funds to the OPPMB.

• Pork producers generally were not pleased with the service fee increase but understood it was necessary to vigorously defend against the trade action.

Mr. Skinner told the Tribunal:

• He believed that all hog producers in Alberta paid their association a fee of $1 per hog and those that marketed through the association paid an additional $1 per hog.

• The OPPMB had a policy to try to keep its working capital at or above $5 million.

• The OPPMB working capital was slightly higher than $5 million in late October 2004.

• The MPC 50 cent per hog fee increase was to be in effect for 18 months.

• The OPPMB had the discretion to release reserves that were voluntarily restricted for specific uses. It could also revise its spending plans.

Consultation Issue:

The appellants' witness panel indicated to the Tribunal:

• In Manitoba, cost estimates and payment options were discussed with producers.

• The OPPMB met with weaner and feeder pig producers in March 2004 to discuss funding of the trade defense but did not meet with market hog producers.

• Key customers should have been consulted before the decision was made to increase the service fee.

• The OPPMB did not try to discuss issues of concern to the appellants, once the ESI appeal to the marketing board was made on JN 11 04. It took 60 days to release its decision.

• It was difficult to communicate with the OPPMB (appellants' counsel described communications as excessively formalistic and legalistic).

• The 3P Board of Directors did not consult with members before joining the appeal. A straw vote was taken at a recent meeting and approximately 65% of members in attendance supported the decision to join the appeal.

• The SSI Board of Directors did not consult with all its clients before initiating its appeal; it consulted with some of its key clients.

• Two of the witnesses attended a meeting with OPPMB staff and U.S. legal counsel on JN 01 04, to discuss the trade action; the possibility of their being a cost respondent was discussed. ESI was invited but did not send a representative to the meeting.

• The service fee increase was discussed at the JN 01 04 meeting.

• Mr. Yungblut invited himself to an OPPMB-run meeting held SE 14 04, at which the trade action was discussed.

• It was not until the appeals were initiated that the appellants received information as to how the cost of the OPPMB defense was estimated.

• The timing of the OPPMB annual meeting in March 2004 was not convenient to some of the appellants.

Mr. Slibar told the Tribunal:

• The OPPMB issued a press release about the trade challenges on MR 05 04; it was later posted on the OPPMB web site.

• The OPPMB had to act quickly and decisively to respond to the trade challenges.

• The OPPMB's U.S. legal counsel spoke to producers at the OPPMB annual general meeting on MR 17 04 or MR 18 04 and explained the legal process around the trade challenges.

• The fee increase was formally announced in the OPPMB June newsletter; news of the increase had traveled by word of mouth before that.

• In August 2004 the OPPMB released a question and answer package on the trade challenges.

• The OPPMB's U.S. legal counsel spoke to councilors and industry stakeholders about the trade actions in September 2004. Some other producers and the farm press were in attendance.

• The OPPMB needed to balance the need to keep producers informed with the need to keep confidential information away from its opponents.

• The OPPMB held a hearing on the ESI request regarding the increased service fee on JL 28 04. The hearing process was formal and not conducive to a broad discussion of the issues. The Board decision was released on AU 11 04.

• The hearing was conducted in 15-30 minutes.

• The JN 11 04 letter from ESI was more formal and confrontational than producer letters usually received by the OPPMB; ESI wanted the service fee increase reversed - it did not appear to want a discussion of the fee increase.

• Councilors were paid to attend the OPPMB's SE 14 04 meeting; other producers were welcome to attend but were not paid to attend.

• Councilors are expected to communicate with the producers in their districts.

Mr. Skinner told the Tribunal:

• The trade actions were discussed at monthly councilor meetings in Perth County, his home county, starting in April 2004. From conversations with OPPMB board members, he understood that similar discussions took place at county meetings in other districts.

• The Perth County committee recommended a fee increase of $1 per hog to defend against the trade actions.

• Usually 20-30 of Perth County's 500-600 pork producers attend county meetings.

Timing of Fee Increase Issue: The appellants' witness panel indicated to the Tribunal:

• Figures generated by John Bancroft, a swine specialist with the Ontario Ministry of Agriculture and Food (OMAF) showed that hog producers had negative returns in 2002 and 2003; the average net return in the years 1999-2003 was $2.13 per hog. This was not enough to provide re-investment in the industry.

• Hog producers had negative incomes in four of the last six years.

• 3P producers took a lower price for live hogs to ensure they would have a processor for their hogs - they were facing financial pressures.

• Ontario producers were required to sell hogs through the OPPMB and pay its service fees on market weight hogs.

• Hog prices had been terrific in 2004; net return was expected to be $17-$18 per hog in 2004.

Mr. Slibar indicated to the Tribunal:

• He learned of the U.S. trade challenges on MR 05 04. He contacted the OPPMB Chair in Japan and they put together a crisis management team.

• He received a lengthy questionnaire from a U.S. agency in March 2004. It was collecting information to use in the trade challenges.

• It was important to focus on the injury determination stage of the U.S. investigation because if no injury was demonstrated, the trade challenges effectively end.

• On MY 19 04, the OPPMB decided to increase its service fee by 80 cents per hog, effective JN 14 04. It was felt the fee would need to be in place for 12 months in order to finance the defense to the trade actions.

• The OPPMB service fee had been $1.85 per hog but was reduced to $1.75 per hog in 2004. The fee increase raised it to $2.55 per hog.

Mr. Skinner indicated the OPPMB had no choice as to when the U.S. trade actions were initiated and had to respond to the challenges when they were made.

Summation:

Mr. Shapiro told the Tribunal the appellants were not challenging the OPPMB's legal right to fund its activities through a mandatory fee on market hogs. He said the appellants recognized a plebiscite was not required before a fee increase, but questioned the lack of consultation with producers by the OPPMB on the 80 cent per hog increase. He said the appellants also questioned the OPPMB methods of obtaining experts and felt the OPPMB had not adequately considered alternatives to funding its defense to the trade actions.

Mr. Shapiro pointed out the Ontario Farm Products Marketing Commission required marketing boards to be accountable to producers in making expenditures. He suggested the OPPMB had not been accountable to the appellants, who marketed a significant portion of Ontario's hogs. Mr. Shapiro said the OPPMB had shown a lack of respect to the appellants because it took 60 days to respond to the initial appeal by ESI.

Mr. Shapiro submitted that the OPPMB had demonstrated during the course of the hearing that it could continue to operate while using its reserves to fund the trade action, as it had not been collecting the increased fee while the matter was under appeal. He said the OPPMB had overstated its immediate need for additional funds.

Mr. Shapiro pointed out that, in addition to the testimony of the appellants' three witnesses, a letter by Mrs. Selves, SFL, spoke to a concern about the OPPMB's lack of communication and consultation with producers on the issue. He submitted it was not enough to provide general information on the trade actions to county councilors, or to say that any producer was welcome to attend information meetings. He said the appellants had not been given the information they requested with regard to the fee increase until they appealed to the Tribunal. He said Mr. Hunsberger's testimony showed the OPPMB was overly formalistic and legalistic.

Mr. Shapiro told the Tribunal the OPPMB relied upon Mr. Slibar to develop a budget for the trade defense despite his lack of experience in managing a trade action. Mr. Shapiro questioned the appropriateness of the OPPMB practices regarding the hiring of legal counsel and other consultants. He said the OPPMB did not try to renegotiate fees when it became apparent only four cost respondents would be chosen in Ontario. Mr. Shapiro said it was not clear whether or not the OPPMB had volunteered to become a mandatory respondent, or if a risk analysis was taken before this was considered.

Mr. Shapiro explained that the appellants were not suggesting that the OPPMB fund its trade defense in perpetuity out of its reserves, but that they did want some of the reserves used for this purpose. He argued that the OPPMB could use $2.3 million of internally restricted funds, or some of its other non-committed monies, to pay a portion of the costs of the defense. In particular, he suggested that monies refunded to the OPPMB by the U.S. Treasury after a previous trade action were an appropriate source of funds for the current trade defense. Mr. Shapiro said the OPPMB policy regarding its target working capital was not justified.

Mr. Shapiro asked the Tribunal to order that:

• The OPPMB rescind Regulation 9-2004, Schedule B and return money collected between JN 14 04 and AU 30 04 from the increased fee to producers; or that the regulation be replaced with a regulation providing for a lesser fee increase, with the difference to be found in operating reserves, working capital or ongoing service charge levies.

• The OPPMB provide producers with an ongoing accounting regarding its expenditures in relation to its budget; and that it return any monies in excess of those collected under its regulations.

• The OPPMB carry on its activities with greater regard in future for the welfare of its constituents, with improved communication, consultation and proper governance practices.

Mr. Shapiro referenced a 1996 decision of the Tribunal and asked that it bear in mind there had been significant changes in the hog industry since the 1990s. Mr. Shapiro told the Tribunal the appellants should not be faulted for not identifying exactly which cuts the OPPMB should make to its operating expenses as they did not have access to information on all of the operations.

Mr. Foran told the Tribunal it should be concerned with what is in the best interests of hog producers, and that this may not necessarily be the most popular option. He submitted that the OPPMB decision to increase its service fee to finance the trade action was in the best interest of producers. He said the industry had suffered as a result of a previous trade challenge and the OPPMB knew it had to act quickly to respond to the 2004 trade challenges.

Mr. Foran reminded the Tribunal the OPPMB was an elected body which had been delegated the authority to regulate the slaughter hog market. He said the Board was accountable to county councilors and through them to the entire producer body. He disputed the volume of hog production represented by the appellants.

Mr. Foran argued that the OPPMB had communicated with producers about the trade actions and the increased service charge, but that the appellants had not taken advantage of opportunities to become informed. He pointed out that the OPPMB had no legal obligation to consult with producers.

Mr. Foran told the Tribunal the nature of the dumping investigation was such that the OPPMB had to mount its own defense, but it did try to achieve national coordination on some issues. He said there was no evidence that the OPPMB seeking to be a mandatory respondent was not a good tactic. He said as the largest exporter, the OPPMB would likely have been chosen anyway.

Mr. Foran argued that the OPPMB had justified the cost of its trade defense and its methodology in obtaining experts. He pointed to testimony by Mr. Slibar regarding the need to obtain good advice without giving away the OPPMB strategy to support this argument. He said the OPPMB - not its staff - approved the budget, approved the hiring of experts and increased the service fee. Mr. Foran asked the Tribunal to disregard cost estimates provided by the appellants as he said the evidence could not be tested. He said comparisons between Ontario and Manitoba were unfair as the MPC could levy its fee on more hogs, and as other parties were contributing to its defense.

With regard to alternative funding options, Mr. Foran said the OPPMB did not dispute that it could use its reserves or cut some of its services to finance the trade defense. He argued that it would not be in the best interests of producers to stop pursuing other markets, delay its traceability initiative, or deplete its working capital. He asked the Tribunal to accept Mr. Slibar's evidence regarding the cost of initiatives that were planned or underway. Mr. Foran reminded the Tribunal that the OPPMB had cut its operating expenses by $1 million per year before the trade challenges were made. He suggested there was little room for further cuts.

Mr. Foran said the OPPMB did not choose the timing of the trade challenges but had to respond to them when they arose. He said there was no question that 2002 and 2003 were tough years for hog producers, but that prices had recovered in 2004. He submitted it was fortunate the trade challenges were launched in 2004 as producers could better afford it.

Mr. Foran argued that the OPPMB had made a fiscally prudent decision in the best interests of all producers. He asked the Tribunal to dismiss the appeals.

The Findings

The issue before the Tribunal is should OPPMB Regulation 9-2004, Schedule B - which increased the OPPMB service charge by 80 cents per hog - be rescinded, amended to increase the service charge by a lesser amount, or left unchanged. The questions of how much money is needed to pay for the trade defense; what to do with funds already collected; and where funds should be obtained in order to pay the outstanding costs of the trade defense - a lower fee collected over a longer period, OPPMB reserves and/or cuts to operating expenses - also need to be addressed.

The Tribunal found all of the witnesses in this proceeding to be forthright and credible. It was brought out at the hearing that Mr. Skinner was not active in the market hog business, but that he had been in the past and had plans to re-enter that segment of the market. Mr. Skinner was clearly knowledgeable about the hogs-for-slaughter market and the Tribunal did not discount his testimony because he was not active in this market sector in 2004. Mr. Foran suggested that the appellants did not truly represent 32% of market hog production in the province because not all 3P members supported the appeal and SSI was a service provider, not a producer. The Tribunal was not impressed with this argument and accepts that the appellants represented a significant portion of the market hog production in Ontario, directly or indirectly.

Mr. Slibar provided the Tribunal with a table of estimated costs of the OPPMB defense to the trade actions, broken down into broad categories (Exhibit 11). The appellants suggested the estimates were over-stated as Mr. Slibar had no experience defending against trade challenges, governments were expected to defend the countervail action, fewer cost respondents than anticipated had been selected, and the process used to obtain quotes was flawed. The appellants provided an estimate of the total cost of defending against the trade actions in Ontario and Manitoba (Exhibit 1, tab 18).

The Tribunal finds the cost estimates presented by Mr. Slibar to be believable. The estimates were supported by documentation in most cases. The fee increase was commensurate with the estimated costs to be incurred for the trade defense over a one year period.

Mr. Shapiro told the Tribunal the appellants questioned the OPPMB's corporate governance practices in contracting for services in the millions of dollars in the absence of policies or tendering requirements. Mr. Foran argued that tendering the work might have harmed the OPPMB defense of the trade action, that the nature of the work required was not conducive to tendering, and that there was a detailed budget presented to the OPPMB and ultimately to the Tribunal. The Tribunal agrees with the respondent that the litigious nature of the trade challenges requires that the OPPMB keep its defense strategy confidential. The Tribunal is of the view that a good defense is not necessarily the cheapest defense and the Tribunal accepts the OPPMB view that it had no choice in the timing of the challenge. The cost of the defense can be directly related to the quality of experts retained.

The Tribunal acknowledges that the full budgeted cost of the trade action may never be incurred. A lesser than anticipated number of cost respondents, improvements in the relative value of the Canadian currency and the potential that producers in other provinces may assist in the injury portion of the trade challenge could reduce the OPPMB's actual costs. Mr. Shapiro asked the Tribunal to order the OPPMB to provide producers with an ongoing accounting of its expenditures in relation to its budget and that any monies collected but not needed be returned to producers. The Tribunal agrees that producers should be kept informed and will order the OPPMB to provide annual updates. The Tribunal will also order that the increased fee will be kept in effect until the defense of this trade action is paid. Once the trade defense is completed and paid for, there will be no further need to collect the fee.

Testimony on the relative merits of the OPPMB being a mandatory respondent to the trade actions was not helpful to the Tribunal. Hearsay evidence suggested that because the OPPMB was the largest exporter of hogs to the U.S., it would have been selected as a mandatory respondent in any case (the Tribunal recognizes that the OPPMB was the largest exporter of hogs from Canada to the U.S.). The respondents argued that there was some advantage to proactively self-identifying. In any event, the evidence was that an agency of the U.S. government determined who would be a mandatory respondent and that the decision had been made before the matter was before the Tribunal. It does not matter how the OPPMB became a mandatory respondent. The fact was that as a mandatory respondent, it had to incur some costs to defend Ontario hog producers. The question the Tribunal had to decide was whether the fee increase was an appropriate method for funding the defense and whether an appropriate amount of money was being raised through the fee increase.

Similarly, the option of participating in a national defense, rather than having a separate provincial defense was not a possibility at the time of the hearing. The Tribunal was persuaded by Mr. Skinner's testimony that the OPPMB and CPC did make their best efforts to achieve national cohesion, but that the provinces could not agree upon a common strategy.

Evidence regarding the amount of money it was anticipated the MPC would collect was not particularly valuable as that fee was applicable to different categories of hogs and was to be in place for a different time period. That is not relevant to what this Tribunal has to consider. The Tribunal was set the task of considering the appropriateness of the OPPMB fee increase to fund its trade defense.

The appellants suggested that part of the OPPMB trade defense could be paid for by using its financial reserves and/or by reducing its operating cost. The Tribunal finds that the OPPMB could not use funds held in its 'in transit loss' account to finance the defense against the U.S. trade challenges as these funds were held in partnership with others.

Based on Mr. Slibar's testimony and the OPPMB's last annual report, the OPPMB had $5,402,971 in usable reserves. The Tribunal finds it is reasonable that the OPPMB hold at a minimum, the equivalent of six months of operating expenses in reserve ($4.1 million), in case of a major problem in the industry that impedes its ability to levy fees. This is simply prudent fiscal management. It would be helpful to the agricultural industry if specific standards or criteria for establishing the proper level of reserves for local boards could be recommended. The OPPMB witnesses testified that some of the balance of its reserves was needed for market development, traceability programs and computer upgrades. The Tribunal was persuaded that these were valuable initiatives that should not be indefinitely delayed. With regard to operating costs, the uncontested evidence was that the OPPMB had recently cut $1 million out of its operating costs and that further cuts would affect core services. The Tribunal was not convinced that monies should be diverted from the OPPMB regular operations to fund its trade defense.

The appellants' panel of witnesses pointed out that hog producers had been suffering from low returns for five or six years and said that the timing of the service charge increase was poor. It was acknowledged that 2004 had been an exceptionally good year in terms of hog producer returns. The OPPMB took the view that it had no choice in the timing as it had no control over the timelines in the U.S. investigation. The Tribunal finds that, given that the 2004 hog market was relatively strong, 2004 and 2005 are not bad years to collect a higher service charge. The Tribunal is concerned that delaying collecting monies needed for the trade defense would require the OPPMB to borrow money and the cost of financing would be added to the overall cost. The Tribunal notes that the OPPMB had been using its reserves to finance the trade defense in the short term. That is not sustainable over the long term, without delaying or canceling other initiatives.

The parties agreed that the OPPMB has the authority under the Farm Products Marketing Act to establish and enforce Regulation 9-2004, Schedule B. The legislation was developed for the benefit of the industry. The Tribunal agrees with the respondent that a swift conclusion to the U.S. trade actions will benefit hog producers. The Tribunal accepts that the fee increase was needed to fund a vigorous defense to the trade challenges.

On the question of communications, the Tribunal agrees with the appellants that the OPPMB could have done a better job of sharing information with producers. A question and answer bulletin that was prepared in response to the ESI appeal could have been made available earlier. The historic system of the OPPMB communicating with councilors who are then expected to communicate to other producers may not be effective in the current industry environment. The OPPMB may wish to investigate ways to create a sustainable dialogue with hog producers.

The Tribunal also agrees with Mr. Foran that communication is a two-way street and producers cannot complain about poor communication if they do not take advantage of opportunities to become informed. It appears to the Tribunal that there is a mutual lack of confidence between ESI and the OPPMB which pre-dates the OPPMB decision to increase its service fee. Notwithstanding this, the OPPMB could have made more of an effort to understand Mr. Dykstra's concerns once he wrote to it to appeal its decision.

Mr. Slibar testified that the OPPMB had cut over $1 million from its operating budget and reduced its service fee by 10 cents per hog in 2004. The Tribunal finds this illustrates an effort by the OPPMB to be fiscally responsible.

The Tribunal was asked to consider the propriety of the actions of the OPPMB in dealing with the appellants' concerns. The appellants questioned the equity of the process used by the OPPMB in hearing the ESI appeal. The appellants submitted it was inappropriate that the OPPMB only held one 15 minute hearing at which no questions were asked or answered. The respondent argued that it complied with the relevant legislation. This Tribunal heard the appeals by way of a hearing de novo. This means the Tribunal looks at all the evidence with fresh eyes; it does not rely upon findings made by another body. The Tribunal gave no regard to arguments made regarding the equity or lack thereof of the proceeding before the OPPMB.

Mr. Shapiro raised as an issue the lack of detailed information recorded in the OPPMB minutes of its meetings. The Tribunal agrees the minutes were not detailed. The Tribunal did not find that this was a problem as it had sufficient evidence before it to make its decision in this case.

Decision and Reasons

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

1. The appeals of ESI, CSF, 3P, SFL and SSI are dismissed.

2. Monies collected by the OPPMB between JN 14 04 and AU 30 04 through its increased service charge may be used to pay expenses related to its defense against the U.S. trade challenges.

3. The OPPMB is to provide annual updates to Ontario pork producers which include at a minimum the amount of monies collected through the increased service charge and the total expenditures to date on the trade defense. The updates may be contained in the OPPMB annual report or its newsletter or in some other document that is distributed to all producers. The OPPMB may provide these updates more frequently than once per year, at its discretion. The updates are to continue for as long as the OPPMB is collecting the increased service charge and a final update is to be provided no later than 90 days after the service charge related to the trade defense is discontinued.

4. The OPPMB is to continue to collect the increased service fee until the expenses it incurs as a result of the trade challenge are paid. At that time, it is to discontinue collecting the higher fee.

The reasons for this decision are:

1. The Tribunal is convinced that a vigorous defense by the OPPMB to the U.S. trade actions is necessary.

2. The Tribunal is convinced that the OPPMB acted within its authority to establish a fee to fight the trade challenges.

3. The OPPMB sought out and obtained appropriate advice and estimates on how and whether or not to proceed with its defense of the trade action. The 80 cent service fee increase was an appropriate fee increase based on the budgeted cost of the defense to the trade actions.

4. The Tribunal was convinced that it was not appropriate to fund the trade defense from the OPPMB established reserves, because it is in the best interests of hog producers to continue with other initiatives such as the traceability and GPS programs as well as information technology systems upgrades. If these initiatives were delayed, they would still need to be paid for in the future, possibly through a fee increase.