Dairyland Transport Co-operative v Dairy Farmers of Ontario, 2006 ONAFRAAT 17

Agriculture, Food and Rural Affairs Appeal Tribunal

1Stone Road West

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:appeals.tribunal@omaf.gov.on.ca

Guelph (Ontario) N1G 4Y2

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

Email: appeals.tribunal@omaf.gov.on.ca

AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL

APPEAL:

Dairyland Transport Co-operative v Dairy Farmers of Ontario

Dairyland Transport Co-operative v Dairy Farmers of Ontario

2006 ONAFRAAT 17

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

May 2, 2006

DATE OF DECISION:

June 20, 2006

2006-17

NEUTRAL CITATION:

2006 ONAFRAAT 17

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

AND IN THE MATTER OF:

An Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by Dairyland Transport Co-operative, Caledon, Ontario from a decision of the Dairy Farmers of Ontario (DFO) dated October 28, 2005 by which it did not support DTO’s displaced milk volume proposal. The appellant seeks a change to the DFO Assignment Policy to incorporate displaced milk volume and milk volume replacement/reflective market value. The DFO Assignment Policy determines how it assigns milk producers to milk transporters.

Before:

Rod Stork, Chair; John Rudics, Member; Denis Perrault, Member.

Appearances:

Bill Reid, representing the appellant and witness for the appellant, Dairyland

Nancy Reid, representing the appellant, Dairyland

Doug Burrell, witness for the appellant, Dairyland

Roy Billialb, witness for the appellant, Dairyland

Stan Pepper, witness for the appellant, Dairyland

Bill Siebarth, witness for the appellant, Dairyland

Dave Nolan, representing the respondent and witness for the respondent, Dairy Farmers of Ontario

Doug Endicott, witness for the respondent, Dairy Farmers of Ontario

DECISION OF THE TRIBUNAL

This appeal was heard in Guelph, Ontario on Tuesday, May 2, 2006. Dairyland Transport Co-operative (Dairyland) appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal (Tribunal) from the decision of the Dairy Farmers of Ontario (DFO) not to support its proposal for the market value commensurate, compensation to milk transporters for displaced milk volume.

Statutory Context

Appeal to Tribunal

16. (1) Subject to subsection (4), if a person is aggrieved by an order, direction, policy or decision of the Commission or Director, made under the Farm Products Marketing Act or the Milk Act, that person may appeal to the Tribunal by filing with the Tribunal and sending to the Commission or Director written notice of the appeal. R.S.O. 1990, c. M.16, s. 16 (1).

Idem

(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. R.S.O. 1990, c. M.16, s. 16 (2).

The Issue

Should the DFO assignment policy be amended to incorporate “displaced milk” volume as defined by Dairyland?

Preliminary Matters

Corrections to the document brief submitted by the DFO were made to tab 6. At tab 18 of the DFO document brief, a corrected volume shipping chart replaced the incorrect chart. A reference within the Dairyland brief was corrected.

The Evidence

Mr. Bill Reid made his opening statement on behalf of Dairyland. He stated that due to a DFO policy, milk transporters lose milk volume that is not replaced. He stated that no compensation commensurate with market value is paid for the displaced milk volume. Mr. Reid defined displaced milk volume as: that volume of milk that is removed from a transporters route due to producers on the route quitting the dairy industry or reducing their quota holdings. He explained that displaced milk volume is distributed to other milk transporters through redistribution of milk quota on the quota exchange.

Mr. Reid told the Tribunal that, in his presentation he sought to: identify the issue, explain the effect of current DFO policy relative to the issue and how the current policies adversely affects milk transporters.

Mr Reid explained to the Tribunal that Dairyland had prepared a proposal for compensation to transporters for displaced milk volume. He stated that the proposal was presented to the DFO and rejected on the basis that transporters who owned routes where milk volume is increasing would be unfairly prejudiced. Mr. Reid stated that Dairyland’s proposal was the only solution advanced by the industry, in an effort to address displaced milk volume.

Mr. Dave Nolan, representing the DFO stated in his opening address, that displaced milk volume is an inherent business fluctuation. He stated that the DFO found that Dairyland’s proposal was not in the best interest of the milk producers whom it represents. He explained that the issue of displaced milk volume should be addressed by the milk transport industry.

Bill Reid

Mr. Reid told the Tribunal that he is the First Vice President of Dairyland Transport Co-operative. He explained to the Tribunal that the dairy industry is highly regulated; producers ship milk according to their quota holdings. He stated that the milk transport industry is also regulated; producers are assigned to milk transporters.

Mr. Reid told the Tribunal that:

• In circumstances where a producer exits the industry, quota is sold on the exchange and redistributed to wherever it may be purchased across the province. This is displaced volume as defined by Dairyland.
• The regulations do not permit milk transporters to solicit the business of transporting a producers’ milk
• In circumstances where a producer moves his dairy production facility the current policy provides compensation to the transporter where the shipping of that volume of milk has been lost from a route, however, there is no compensation for milk that a transporter loses due to displaced volume.
• Dairyland prepared and presented a proposal to the DFO that provided for the credit or debit of milk shipping volumes to transporters. The proposal provided for the monetary reimbursement to transporters for displaced volume and the right to trade credits for shipping.
• DFO policy for rationalization of milk transport provides for the distribution of milk shipments among transporter routes that is most cost effective to DFO.
• The current DFO policy for rationalization of milk shipments contains a provision for the DFO to replace volumes to transporters in circumstances where producers are reassigned to another transporter. This provision in DFO policy indicates that the DFO recognizes that transporters lose milk volume and that there must be a mechanism in place whereby lost volume can be replaced.
• In the current rationalization policy there is a provision for compensation to transporters for volume lost due to the movement of a producer from one transporter to another, however, there is no provision for compensation to transporters if producers leave the industry.
• According to his charted calculations; from 1998 through 2002, Dairyland lost 7,105,804 liters of milk due to displaced milk volume.
• In 2003 and 2004, Dairyland purchased additional volume from other transporters.
• Due to the DFO rationalization policy, Dairyland’s route area was compressed. Dairyland routes are located north of the Greater Toronto Area (GTA).
• In comparison to Dairyland, Oxford Milkway Transport Co-operative gains shipping volumes each year.
• DFO rationalization was completed in 2003. The DFO has saved $92,000 per year due to rationalization.
• Pursuant to the DFO rationalization policy, Dairyland was required to replace volume because a producer left the industry within 365 days of having been re-assigned.
• Trucks that do not carry full loads of milk are inefficient. DFO may require that transporters take trucks off the road if they are not carrying full loads.
• Dairyland removed a truck from its routes effective April 1, 2005.
• Under the current rationalization policy, the Ontario Milk Transport Association (OMTA) may be required to insist that delinquent transporters pay the appropriate compensation to another transporter who has lost volume due to reassignment. However, it is the duty of DFO to compel a delinquent transporter to pay the appropriate compensation to another transporter. If a transporter refuses to pay compensation, the DFO has the authority to reduce the number of producers assigned to a delinquent transporter.
• The OMTA maintains guidelines for resolving compensation disputes between transporters. The agreement is among transporters only.
• Dairyland asked the OMTA to review its proposal for displaced volume in June, 2004. The OMTA decided to retain its compensation agreement; it rejected Dairyland’s proposal in February 2005.
• A producer who was re-assigned but wanted to remain on Dairylands route took his appeal to the Tribunal because the DFO maintained that the issue should be determined by the OMTA.
• Only the DFO has the authority to re-assign producers to transporters.
• Under the OMTA Compensation Agreement remuneration to transporters is set at a value that is not market responsive.
• Under the current policy, the DFO attempts to reassign volume to transporters who lose volume, however, if this is not practical, the transporter gaining volume must monetarily reimburse the transporter losing volume. The system would be more efficient if volume only, was re-assigned.
• All producers in Ontario pay the same rate for milk transportation.
• Milk volume and distance traveled are significant factors that affect Dairyland’s income.
• It is advantageous for transporters who are gaining displaced volume lost by Dairyland to remain with the current OMTA Compensation Agreement; they will continue to gain due to losses of other transporters.
• Under Dairyland’s proposal some transporters would lose volume but that is to be expected in any business where changes occur.
• Dairyland proposes a volume credit system similar to the quota system where dairy farmers are permitted over production and under production credits. Under the proposal, transporter volume credits would be published therefore it would become known where quota was bought or sold and/or moved within the province. Credits could be bought and sold among transporters.
• Under the Dairyland proposal, there would be more fairness to transporters and increased efficiency. Transporters would not be stigmatized for purchasing routes in declining areas.
• Dairyland presented its proposal to the DFO Peel Milk Committee. The Peel Milk Committee supported the proposal.
• Dairyland surveyed milk transporters; several transporters agreed with the need for a proposal to deal with displaced volume. Some milk transporters who responded to the survey indicated that they had sustained losses due to displaced volume.
• The dairy industry has undergone major changes over time, including the move toward fewer but larger farms. In step with industry changes, the DFO has had to implement policies to address emerging issues. Similarly the DFO must implement new policies to address displaced milk volume.

Mr. Reid responded to questions that:

• The problem of displaced volume has existed for approximately 20 years, however, its cause is not related to any policy or regulation put in place by DFO. The emergence of the problem coincided with the introduction of producer quota.
• He does not know what DFO’s intent was when it implemented its policy that provided for reassignment of volume to transporters from new producers or producers who have moved.
• Dairyland is located close to Brampton, it purchased transporters in King City and Caledon: both transporters are located in areas where volume may decline however, the establishment of the greenbelt may halt decline on one of the routes.
• Price is not the only consideration when transporters are offered for sale. In some cases vendors have a preference for non co-operative purchasers.
• The DFO pays transporters based on a complex scale. Distance traveled by trucks on routes and the rate per hectoliter affect transporter profits.
• In general milk transporters were not in favour of the DFO’s rationalization policy, but they had no choice but to operate under the policy.
• Dairyland believed initially, that the issue of volume displacement should be handled by the OMTA because the DFO had determined that it was an OMTA matter.
• Dairyland’s proposal to resolve the issue of displaced volume is not based on milk quota.
• DFO has the authoritative jurisdiction to assign milk volume to transporters.
• DFO attempts to re-distribute volume to transporters when it has been lost due to its rationalization policy.
• Under Dairyland’s proposal transporter volumes that are lost due to displacement would be compensated. Dairyland’s volume would possibly increase over time if the proposal was adopted.
• If Dairyland’s proposal were adopted, transporters that were located in areas where volume was increasing would tend to lose any value that was based on speculation.
• Under Dairyland’s proposal there may be more occurrences of producer re-assignment to cover seasonal production fluctuations.
• Equipment will be better utilized under Dairyland’s proposal because any costs incurred by increased distances between producers will be recouped by the increased volume.
• DFO does not guarantee milk volume to transporters.
• DFO has a responsibility to implement policies that address existing problems fairly.
• In a regulated industry such as the dairy industry, transporters are not able to replace lost volume by contracting with individual producers.
• Dairyland surveyed approximately 60 transporters, 10 of whom responded in support of a proposal to address displaced volume. It is not known if those transporters who did not respond would be in favour of the proposal or not.
• High volume transport companies have correspondingly higher market values.
• It is not necessarily the case that the purchase of a high volume transporter would cost more than the purchase of a low volume transporter; many factors influence the price of a transport business.
• Displaced volume may not be an issue with some transporters.
• He does not know which body is responsible for preparing the complex payment schedule for transporters.
• DFO must approve the purchase of transporters. Approval criterion includes the suitability of a transport depot and its proximity to assigned producers and processors.
• The market value of a route is partially based on the milk volume transported on the route. The market value of transporter routes is also influenced by supply and demand.
• There is no correlation between displaced volume occurring on any given route and the market value of a route.
• He conceived the phrase “displaced volume”; a term was needed to describe the loss of business that occurs when a producer leaves the industry or reduces quota holdings. No compensation is paid to transporters for losses due to displaced volume.
• Displaced volume is not recognized under any of the legislation governing the production and transportation of milk.
• Transporters are compensated if producers move their dairy farm to another location within Ontario.

Doug Burrell

Mr. Doug Burell testified before the Tribunal. He stated that he has been the Truck Manager at Dairyland since 1988. Mr. Burrell told the Tribunal that Dairyland was competitively disadvantaged by the DFO’s rationalization policy; Dairylands route area was compressed. Mr. Burrell stated that:

• Milk transporters were not in favour of the DFO rationalization plan.
• Due to DFO rationalization, Dairyland was required to purchase volume from Glenview Transport Ltd. because the balance of trade from producer volumes was not equal.
• Under the DFO rationalization two producers who were re-assigned from Dairyland to another transporter exited the industry within the first year of being assigned to another transporter. Dairyland was required to compensate the transporter for the two re-assigned producers.
• Transporters would prefer to retain producers on their routes rather than be compensated for lost volume. Compensation under the OMTA agreement is below market value.
• Several factors such as supply, demand, geography and age of producers are considered when a route is evaluated prior to purchase. There may be more incentive to purchase routes where trucks are not running at full capacity.
• As volume decreases truck loads shrink. If loads become very small trucks may have to be taken off the road.
• Under Dairyland’s proposal, the cost to DFO to replace volume would not increase.

Mr. Burrell responded to questions. He stated that a neighbouring transporter picked up milk from producers who were located closer to Dairyland’s depot than to its own depot. Mr. Burrell said that, if the DFO rationalization policy were not in place, the distance between producers might be increased.

Roy Billialb

Mr. Billialb told the Tribunal that he has been a milk transporter since the 1950’s. He stated that the company he works for is a milk transport co-operative. He said that his company has not been significantly affected by displaced volume. He stated that he had responded to the survey from Dairyland. He explained to the Tribunal that in 1989 the company made 32 stops within two days to pick up milk from producers: today the company makes 16 stops within 2 days. Mr. Billialb explained that years ago there were more farms with smaller herds, whereas today there are fewer farms with larger herds. He said that his company transports milk in an area just outside of Hamilton. He stated that displaced volume may be predictable if factors such as location of routes and the age of the producers are considered. He said that there are several young producers on his routes. Mr. Billialb told the Tribunal that he does not believe that producers on his route will exit the industry however, if one of the largest producers on his routes exits the industry, one third of the co-operative’s volume would be lost. He stated that the co-operative depended on the volume from one of its largest producers.

Mr. Billialb responded to questions that:

• He believed the current system should be reviewed by the DFO and the appropriate changes should be made by the DFO if necessary.
• It is the DFO’s responsibility to manage the system.
• He is familiar with the OMTA compensation agreement though he cannot say if the DFO approved the OMTA compensation agreement.
• Transporters have never been guaranteed volume by any agency.
• Though producers have exited the industry, volume has remained stable due to the trend for keeping larger herds.

Stan Pepper

Mr. Stan Pepper testified before the Tribunal stating that he has been the Secretary Treasurer of the Brant Milk Co-op for 20 years. Mr. Pepper explained that since 2001, the Brant Milk Co-op lost 20 percent of its volume due to displaced volume. He stated that none of the lost volume was compensated. Mr. Pepper stated that there is no way of predicting the occurrence of displaced volume. He said that the purchase of additional routes may not necessarily result in recouped losses due to displaced volume. Mr. Pepper told the Tribunal that within the transport industry, issues such as displaced volume, the OMTA Compensation Agreement and DFO producer assignment are issues that must be resolved.

Mr. Pepper responded to questions that:

• The issue of displaced volume could be addressed by amending the OMTA Compensation Agreement.
• Within the dairy industry, there is a trend toward fewer but larger farms.
• Volume is decreasing in the area where the Brant Milk Co-op transports milk.
• There has never been an understanding that the DFO guarantees volume to milk transporters.
• Transporters are gaining volume is some areas due to the increase of new farms.

Bill Siebarth

Mr. Bill Siebarth submitted to the Tribunal that he has been in the milk transport industry for 35 years. He stated that he operates a family business that has transported milk for the DFO since 1965. He stated that he has lost 50 percent of the volume on his routes due to displaced volume. Mr. Siebarth explained to the Tribunal that he has made arrangements with the DFO to rent shipments of milk from a neighbouring transporter. He stated that:

• Two large barn fires at the farms of producers on his route have resulted in those producers ceasing to ship milk.
• The DFO assignment policy contains no reference to displaced volume.
• There is no way of predicting the occurrence of displaced volume.
• When business losses occur due to displaced volume, transporters are not in a position to purchase new routes to recoup losses.
• Due to significant losses, the DFO has advised him to close his business within one year. The present system is partly to blame for these circumstances.
• There are two or three transporters who would bid to purchase his routes. The sale of the volume to the successful bidder will be subject to DFO approval.

Mr. Siebarth responded to questions that:

• He transports two loads of milk on alternate days.
• Nine of eleven producers for whom he transports milk are permanently assigned to his routes.
• He has never understood that the DFO guarantees volume to transporters, however, he believes that the policies affecting transporters should be revised to reflect the numerous changes within the dairy industry.
• The current DFO policies are more restrictive; transporters have less control over expansion of their businesses.

Dave Nolan

Mr. Dave Nolan testified before the Tribunal. He said that he was the former Transportation Manager for DFO. He stated that the DFO appoints milk transporters by way of a Transport Board Order. He submitted that the Transport Board Order names the producers assigned to a transporter. He submitted that the Transport Board Order also names the processing plants to which the transporter will deliver the milk. He submitted that the Transport Order was appended with schedules of allowances and provided that the transporter shall comply with all DFO orders, policies and regulations. Mr. Nolan told the Tribunal that milk transporters must maintain sufficient volume on their routes in order to maximize the efficiency of their trucks. Mr. Nolan submitted that:

• The transporters who continue to lose volume become financially insolvent. Insolvency may lead to a transporter exiting the industry.
• Transporter milk volume is based on the number of assigned producers and the amount of quota held by the assigned producers.
• In some geographic regions milk production is declining, however, milk production is increasing in other areas.
• There are approximately 5,000 producers in Ontario who are served by 61 milk transport companies.
• At present the DFO has an assignment policy in place. The policy provides for the assignment of new and existing producers to milk transporters.
• The OMTA Compensation Agreement governs how transporters will be remunerated for volume that is transferred to other transporters due to re-assignment. The DFO assignment policy and the OMTA Compensation Agreement have never attempted to address volume losses to transporters due to producers leaving the industry or the redistribution of milk volume due to quota sales.
• Dairyland requested that DFO implement a policy under which transporters would be assigned an annual base volume. At years end the annual base volume would be compared to actual volume. Volume in excess of base would place the transporter in an over credit position and volume below base would place the transporter in an under credit position. Dairyland’s proposal provided for the trading of volume among transporters according to their over/under credit position or provide transporters with a mechanism whereby they could request reassignment by DFO to provide volume against under credits.
• Dairyland has routes located north of the Greater Toronto Area.
• The re-assignment of producers under Dairyland’s proposal is impractical. It may not always be possible to find adjoining transporter routes to transfer volumes owing under the proposed under credit or over credit system.
• Dairyland’s proposal is not efficient; reassignment based on transporter requests would result in the presently compacted routes effected by rationalization becoming spread out and transporters would have to travel unnecessary distances.
• Transport routes have value that is tied to the expected income that may be generated. Routes located on the periphery of urban areas will continue to have declining volume as urban spread overtakes farmland, however, processors are more likely to be located in urban areas which means shorter distances to the processing plant for transporters
• Rural areas will continue to have better potential for route volume increases, however, traveling distances to the processing plant will remain longer.
• Dairyland’s proposal if implemented would erode the value of some transport routes.
• Devaluing of routes is unfair to transporters because routes are purchased in accordance with the transporters business plan.
• Devaluing of routes gives an unfair advantage to transporters who purchase routes of lower value or routes that are located in areas where milk production is declining.
• Under the Dairyland proposal re-assigned producers may not be able to participate in their co-operative of preference. Under the proposal, producers would be subjected to more frequent occurrences of reassignment. Producers prefer to remain with the same transporter.
• Administratively, the recording of transporter credits under Dairyland’s proposal would be unmanageable.
• The Dairyland proposal provides no increased benefits to the producers that DFO serves.

Mr. Nolan responded to questions that:

• He understands that Dairyland’s proposal does not include a provision for adjustment to transporters based on the quota held by the producers assigned to a transporter.
• Under the current DFO policy, transporters are given monetary compensation if a producer moves to a new area and stays in production.
• Under the OMTA agreement the DFO may approve the exchange of volume between transporters with adjoining routes.
• There is no intent on the part of DFO to force transporters out of business due to its rationalization policy.
• He was the DFO Transportation Manager at the time that rationalization was first introduced. He brought the issue of a need for greater efficiency to the Board’s attention.
• Rationalization was implemented as a means of consolidating producers closer to the depots of their assigned transporters and to reduce overlap of transporter territories.
• In some circumstances, consolidation of territory may result in volume loss to transporters.
• Dairyland’s operation would become more efficient if its trucks were full, but, an increase in efficiency in Dairyland’s operation does not translate into increased efficiency within the whole transport system.
• DFO uses computer mapping of transport territories to maximize efficiency. Efficiencies are achieved by decreasing the distances traveled by trucks and ensuring that trucks are hauling full loads.
• Trucks are taken off the road if significant volume is lost.
• The DFO’s practice of re-assigning producers ensures that trucks carry full loads.
• All producers in Ontario are charged the same rate for milk transportation. The proximity of a producer to a transport depot or processing plant has no bearing on the rate charged to producers for transportation.
• The value of routes fall as the occurrence of displaced volume increases.
• The occurrence of displaced volume is unpredictable, however route purchases based on speculation of increased volume is possible.
• Only the DFO can assign producers to transporters.
• Approximately 40 producers were re-assigned on Dairyland’s routes, due to rationalization. There were some complaints among the re-assigned producers.
• The DFO does not choose to apportion volume for the convenience of milk transporters; its mandate is to provide its producers with the most cost effective method of transporting milk.
• The DFO records data for over and under credit production of approximately 5,000 producers in Ontario: there are in comparison, only 61 milk transporters in the province.
• The Chair of the DFO Transportation Committee is a transport co-operative member. Self interest may be a factor in the decisions of any board. The OMTA Board of Directors is constituted of member transporters.
• When milk volume is displaced under Mr. Reid’s definition, pick up of the milk is assigned to the transporter with the nearest route to where the producer is located.
• It is not the DFO’s responsibility to negotiate fairness among transporters. The DFO’s mandate is to provide cost effective milk transportation for its producers.
• The DFO evaluated Dairyland’s proposal through the process of assessing benefits to producers, discussions with the OMTA and discussions with the DFO Transportation Committee. Recommendations were then made to DFO Board of Directors.
• Though he cannot precisely recollect when it occurred, he understands that Dairyland’s proposal was amended at some point after it was first presented.
• DFO Transportation Committee is constituted of two Board Members and three staff members. It meets approximately 4 times per year to discuss issues. A working committee of three DFO staff members meets with the OMTA every three weeks. If disputes are not resolved between the DFO committees and OMTA, issues are referred to the DFO Board for resolution.
• The number of milk transporters has declined from 150 to 61. The decline is mostly due to attrition, however, in two situations that he is aware of, the DFO has advised transporters to cease operations when they became inefficient.
• DFO staff review all transport route purchase offers. Offers are evaluated for efficiency. Efficiency is evaluated at it pertains to cost effectiveness for producers, not milk transporters. The DFO Board makes the decision to approve route purchases.
• Volume fluctuation, due to seasonal variation, is not an issue.
• Milk transporters are not employees of DFO.
• There is continuous direct communication between milk transporters and DFO with respect to delivering loads of milk to processors.

Doug Endicott

Mr. Doug Endicott testified before the Tribunal. He stated that he is the President of the OMTA and represents its Board of Directors. Mr. Endicott told the Tribunal that he owns a transport company with routes in the Stayner area. He explained that he is familiar with Diaryland’s proposal and that he sat on the committee that reviewed it when it was first presented to the OMTA. Mr. Endicott told the Tribunal that:

• The OMTA found that Dairyland’s proposal would create inequities among transporters. Transporters who have invested in the purchase of valuable routes would see the value of their routes erode under the proposal.
• Under Dairyland’s proposal it is estimated that milk volume valued at about $2.5 million per year would have to be exchanged among transporters.
• At present, under the OMTA Compensation Agreement the transportation rate is $2.30 per hectoliter.
• All milk transporters in Ontario are members of the OMTA. There are 60 OMTA members.
• The OMTA decided not to accept Dairyland’s proposal. It recommended that its board not accept the proposal either.
• The OMTA decided that Dairyland’s proposal should be incorporated into the OMTA Compensation Agreement if something would have been gained in terms of recognizing displaced volume.
• He is personally not in favour of Dairyland’s proposal. If it were implemented transport companies such as the one he owns would suffer more losses. His company routes are located in an area where milk production is declining.
• Dairyland is the only milk transport company that takes issue with the OMTA’s Compensation Agreement.
• He can not remember an occasion where the DFO has had to use its authority to enforce payment among transporters under the OMTA’s compensation agreement.
• All producer re-assignment and monetary reimbursement among transporters is pursuant to the OMTA’s Compensation Agreement.

Mr. Endicott responded to questions that:

• Rationalization was implemented by the DFO. It was not an OMTA initiative.
• Under the rationalization policy and the OMTA Compensation Agreement, milk transporters located in areas where milk production is increasing are gaining volume on their routes.
• Previous to Dairyland presenting its proposal there have not been any transporter requests for amendments to the OMTA Compensation Agreement.
• The OMTA Compensation Agreement was prepared by the OMTA with the approval of the DFO.
• The OMTA Compensation Agreement is fair and it provides monetary compensation to transporters for loss of volume due to the movement of producers. If the OMTA membership do not support the Compensation Agreement it will not work.
• The OMTA Compensation Agreement sets out a procedure for addressing reimbursement disputes among transporters. The DFO is the final arbiter for reimbursement disputes among transporters.
• In his tenure with the OMTA, there has never been a dispute among transporters with respect to reimbursement for volume due to producers moving or new entrants to the industry.
• The OMTA Compensation Agreement does not provide transporters with any remuneration in circumstances where a producer quits the industry.
• Transporters may notice volume fluctuations in circumstances where producers exit the industry or move their operations.
• The OMTA Board of Directors rejected Dairyland’s proposal. The proposal was not circulated among the OMTA membership at large.
• The OMTA member transporters prepared the OMTA Compensation Agreement among themselves specifically for their industry, however, it was not reviewed by the DFO for approval before implementation.
• Amendments to the OMTA Compensation Agreement must first be approved by the OMTA Board of Directors and then agreed upon by the transporter membership at the annual general meeting. The OMTA Board of Directors has the authority to make decisions on behalf of its transporter membership.
• He was not with the OMTA at the time the OMTA Agreement was prepared.

Summations

In his summation, Mr. Reid reminded the Tribunal that the current DFO policy addressed the movement of milk volume due to producer movement and new entrants to the industry but that a policy addressing the negative impact of displaced volume should be prepared. He told the Tribunal that the DFO is the body responsible making policy that addresses the concerns of transporters losing volume due to displacement. He asked the Tribunal to order the DFO to implement Dairland’s proposal or some similar proposal that provided for compensation to transporters for lost volume due to displacement.

Mr. Nolan summarized the position of the DFO stating that, while the DFO understands the circumstances that Dairyland’s proposal seeks to address, the DFO does not agree with the proposal. He maintained that the DFO has no responsibility to ensure that the milk transport industry remains viable. He stated that the DFO has a mandate to ensure that its producers have access to transportation for their milk at reasonable cost. Mr. Nolan said that the DFO does not wish to implement Dairyland’s proposal; it is of no benefit to dairy producers. He requested that the Tribunal reject the proposal.

The Findings

After carefully considering the evidence, the Tribunal made the following findings.

1. The OMTA membership and Board of Directors do not support Dairyland’s proposal for remuneration to transporters for loss of milk volume due to producers exiting the industry: this lost volume is defined by Dairyland as “displaced volume”.

2. The Tribunal heard differing opinions about who has the responsibility to address the issue of displaced milk volume, as defined by Dairyland. In the opinion of the DFO, the responsibility lies with the OMTA and in the opinion of Dairyland, the responsibility lies with the DFO. There is no statutory provision requiring the DFO to provide for the improvement, expansion or maintenance of business returns for milk transporters. The DFO assignment policy was instated according to DFO’s mandate, which is to best serve the needs of its milk producers.

3. Remuneration for transporting milk is an issue that should be addressed by the DFO in co-operation with the OMTA not as an agreement between DFO and an individual milk transporter. The Tribunal was not convinced that Dairyland’s proposal would serve the best interests of all milk transporters.

4. Dairyland has lost volume from its transport routes, which has affected its business returns. However, the Tribunal finds that changes within the dairy industry such as the trend toward larger herds and fewer farms, the impact on land use by increased urbanization and the decline in the number of transporters are normal fluctuations that occur in business. The Tribunal heard the evidence of Mr. Siebarth that the decline in volume on his routes may lead to the sale of his transport company, however he can expect to receive competitive bids for his business should he offer it for sale. The DFO introduced its rationalization policy to increase efficiency for transporting milk from its producers. The Tribunal accepts that there are market and production fluctuations within each industry and that stakeholders must take the necessary steps to adjust themselves accordingly.

5. The Tribunal is not convinced that the DFO’s role as final arbiter in payment disputes among transporters necessarily confers upon DFO the responsibility for ensuring that milk transporters are not affected by market fluctuations or normal risks associated with business enterprise.

Decision and Reasons

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

1. The appeal by Dairyland is denied.

The DFO assignment policy was prepared to govern the most efficient cost effective transport of milk for DFO producers.

Dairyland’s proposal is not fair and equitable to all transporters.

There was no clear indication of transporter support for this proposal.