Vanden Elzen Farms Ltd. v Ontario Flue-Cured Tobacco Growers’ Marketing Board, 2006 CanLII 84254

Agriculture, Food and Rural Affairs Appeal Tribunal 1 Stone Road West

Tribunal d’appel de l’agriculture, de l’alimentation et des affaires rurales 1, chemin Stone Ouest

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:

Vanden Elzen Farms Ltd. v Ontario Flue-Cured Tobacco Growers’ Marketing Board

Vanden Elzen Farms Ltd. v Ontario Flue-Cured Tobacco Growers’ Marketing Board 2006 ONAFRAAT 01

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

December 20, 2005

DATE OF DECISION:

January 17, 2006

2006-01

NEUTRAL CITATION:

2006 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:

An Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by Vanden Elzen Farms Limited (VEFL), Mount Brydges, Ontario from a decision of the Ontario Flue-Cured Tobacco Growers’ Marketing Board (OFCTGMB) to deny its request for an exemption from Section 11(2) of its General Regulations 2005-2006, permitting the rental of 100% of its 2005 Marketing Quota (MQ).

Appearances:

Scott Campbell, counsel to the appellant, VEFL Gordon Toth, counsel to the appellant, VEFL Barry Bresner, counsel to the respondent, OFCTGMB Joseph Vanden Elzen, President VEFL, appellant Laurie Vanden Elzen, Principal VEFL, appellant Lorraine Moir, witness for the appellant Doug Magee, witness for the appellant Henry Gubbels, witness for the appellant Robert Vegso, witness for the appellant Jason Lietaer, General Manager, OFCTGMB, respondent Harry Vergeer, witness for the respondent Jerry Van De Velde, witness for the respondent

DECISION OF THE TRIBUNAL

This appeal was heard in Guelph, Ontario on Tuesday, December 20, 2005. Vanden Elzen Farms Limited (VEFL) appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal (Tribunal) from the decision of the Ontario Flue-Cured Tobacco Growers’ Marketing Board (OFCTGMB) to deny a request that the company be exempt from Section 11 of its regulations, and allowed to rent out 100% of its 2005 MQ. Mr. Joseph Vanden Elzen and Mrs. Laurie Vanden Elzen were the principals of the company.

Statutory Context

This appeal comes to the Tribunal by way of Section 16 of the Ministry of Agriculture, Food and Rural Affairs Act. Subsection 16(2) reads as follows:

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

Subsection 4 outlines conditions under which the Tribunal may refuse to hear an appeal. Subsection 5 requires that appellants first apply to the local board for a hearing, unless both parties waive their right to a hearing.

The OFCTGMB is a local board empowered to make regulations under the Farm Products Marketing Act. The 2005-06 OFCTGMB general regulations provide that:

11. (2) All rentals of marketing quota are prohibited, except for:

(a) such spring and fall rentals as are permitted under Sections 19 and 20 hereof; (b) such rentals between members of an immediate family as are permitted under Section 12 hereof; (c) such rentals between a partnership and a partner thereof as are permitted under Section 13 hereof, provided that the partnership was an allottee of basic production quota and was in existence on or before March 17, 2004; and (d) such rentals between a corporation and a shareholder thereof as are permitted under Section 13 hereof, provided that the corporation was an allottee of basic production quota and that the shareholder was a shareholder of that corporation on or before March 17, 2004.

Section 20 of the regulations allow for tobacco producers who are marketing a crop in 2005-06 to rent out MQ after SE 06 05. Section 19 of the regulations allow for tobacco producers who were eligible to rent out MQ in the Fall of 2004, to rent out MQ in the Spring of 2005.

Ontario Regulation 435 under the Farm Products Marketing Act, as amended to Ontario Regulation 115/05, provides that the OFCTGMB may make regulations with respect to tobacco. Section 4, paragraph (h) allows it to exempt producers from its regulations.

4. The Commission delegates to the local board its powers to make regulations with respect to tobacco, … (h) providing for the exemption from any or all of the regulations, orders or directions under the plan of any class, variety or grade of tobacco, or any person or class of persons engaged in the producing or marketing of tobacco or any class, variety or grade of tobacco;

The Evidence

Both parties submitted written documentation in advance of the hearing.

Appellant’s Case

Mr. Joseph Vanden Elzen told the Tribunal he was 48 years old and had been a tobacco farmer all his life. He said he grew his first crop in 1981 and that after he married he purchased shares in his family farm and eventually bought the entire farm. Mr. Vanden Elzen testified that he had also worked as a sales representative and worked his way up to regional sales manager in the agricultural chemical business. He held a degree in crop science with a minor in business.

Mr. Vanden Elzen said his farm was on the forefront of technology in the tobacco industry with newer bulk kilns, an automatic harvester and a hydroponics float system in the greenhouse. He said he ran the farm but his wife assisted in decision making on financial matters and they relied on advice from his father who still lived on the farm in the original farmhouse. He explained that VEFL actually held three farms with a total of 285 acres, of which 215 acres were workable. In addition to tobacco VEFL grew rye as a rotation crop, corn, soybeans, pumpkins and chrysanthemums. Cauliflower had been grown in the past.

Mr. Vanden Elzen testified that farming in general and the tobacco industry in particular were in difficulty in early 2005. He said the amount of growable tobacco was shrinking each year and it was difficult to decide whether or not to purchase additional basic production quota (BPQ). He said he heard about the Tobacco Adjustment Assistance Program (TAAP) in 2004 but nothing became of it, then in late March 2005 an announcement was made that it would be in place for 2005 and would remove growers from the industry.

Mr. Vanden Elzen said he attended information meetings on the TAAP sponsored by the OFCTGMB on April 11, 2005 and April 12, 2005 but that growers were not told the minimum bid price. He said government officials attended further information meetings in the week of April 18, 2005 and informed tobacco growers there would be a buy out via a reverse auction to be held at the end of April. He said the minimum bid price was still not known at that time but that he did hear it would be 85 cents/lb at a district meeting on April 26, 2005. He said his OFCTGMB Director encouraged everyone to put in a bid but told them that growers who wanted to stay in the industry should be sure to put in a high bid. He said he was also told that extraordinarily high bids would not be considered.

Mr. Vanden Elzen said the last day for submitting bids to participate in the TAAP was April 30, 2005. He said he and his wife discussed the matter and decided to submit a bid of $1.20/lb as they wanted to stay in the industry and thought that would be a high enough bid. He said he delivered the bid to Tillsonburg on April 30, 2005 but almost immediately asked for it back. He said he thought about it and then lowered the bid to 90 cents/lb but that when he returned home his wife asked him to change the bid back to $1.20/lb. He explained it was too late to drive back to Tillsonburg at that point as the bid office was to close at 5:00 p.m.. He later learned it had stayed open until 6:30 p.m.

Mr. Vanden Elzen said he made over twenty calls on the morning of Sunday, May 1, 2005 to attempt to withdraw his bid and eventually reached his Director, the OFCTGMB Chair and Mr. George Barkwell, the accountant who ran the TAAP auction. He said he spoke to federal officials the next day. Mr. Vanden Elzen told the Tribunal he was unable to retrieve his bid and on May 3, 2005 he was informed by the OFCTGMB that his bid had been accepted.

Mr. Vanden Elzen stated that he had heard of a federal appeal process from his Director on May 1, 2005 but that he was told he did not have much chance at winning an appeal. He said he appealed through that process, following directions listed on the TAAP application form. He said he assumed his appeal would be heard on May 27, 2005 and he would be told the results of his appeal on June 3, 2005 based on the information on the form. He said his appeal was actually heard on May 26, 2005 and he was told he was successful and would get his BPQ back that same evening.

Mr. Vanden Elzen testified that by the time his BPQ was returned it was too late to grow a crop as he had sold his tobacco plants, had not applied fumigant and had allowed his fumigant tank to be removed, and had cancelled the arrangements he had made for offshore labour. He said before the announcement of the TAAP he had planned to grow a crop and that was why he had plants in his greenhouse – they had been planted on April 1, 2005. He stated he had also worked his soil in mid-April.

Mr. Vanden Elzen said that fumigant was normally applied in the first few days of May and should be in the ground for 2.5 to 3 weeks before planting. He said he would never plant a tobacco crop without fumigating first as the fumigant reduced nematodes and inhibited black root rot; black root rot could be a problem with his soil type. He said his yield would be harmed if he did not use fumigant or if he planted late. Normally he planted between May 18 - May 24 each year. Mr. Vanden Elzen pointed the Tribunal to documentary evidence filed regarding the impact of planting dates on yield.

Mr. Vanden Elzen said when he learned his BPQ was truly gone and that he did not have much chance of winning an appeal he decided not to grow a crop. He said that he did not want to waste $15,000 on fumigant if his appeal was not going to be successful and that he thought he would not know the results of his appeal until June 3, 2005 when it would be too late to start fumigating and planting. He said the quality of his tobacco seedlings would deteriorate if left that long. He said he had originally intended to plant 60 acres of tobacco in 2005. He explained that he could not have legally planted a crop before learning the outcome of his appeal, as growers must hold BPQ in order to plant tobacco. Marketing quota (MQ) was used to market tobacco.

Mr. Vanden Elzen said if he had tried to plant a tobacco crop once his BPQ was restored on May 26, 2005 it would be May 30th before he could have obtained a fumigant tank and June 14th or 15th before he could start planting. He testified that he could plant 8-9 acres per day. He said the latest he had ever started planting was June 11th and that crop did not do well as the plants did not have enough time to mature. He said he would have been three weeks to a month behind other growers and his tobacco would be poorer quality and difficult to sell. He was not aware of any growers in his area still planting on June 7, 2005. Mr. Vanden Elzen said it was not economically viable to grow a tobacco crop under these conditions. He pointed out that AGRICORP required tobacco to be planted by June 20th and it would not insure tobacco crops if planting did not commence before June 14th.

Mr. Vanden Elzen said he normally would make more money growing a tobacco crop than renting out MQ.

Mr. Vanden Elzen testified that he was shipping carryover tobacco on MQ that the OFCTGMB had issued him but that it was poorer than average quality and he was receiving less than his cost of production. He said he got his costs out of tobacco plants he sold to neighbours but did not make a profit on them. He indicated returns on his 2005 soybean crop were poor.

Mr. Vanden Elzen said he was preparing for his 2006 tobacco crop and had taken steps to hire back his overseas labourers. He explained he had sold his harvester and would need a new one.

Under cross-examination, Mr. Vanden Elzen stated:

• Crop insurance for tobacco was changed in 2003. Half the coverage is available if planting commences after June 14th
• He agreed that AGRICORP was not telling growers when to plant a crop.
• The AGRICORP documents showed that if a grower plants late he will not receive the benefits it normally pays out for crop damage.
• His crop insurance average for tobacco is approximately 2700 lbs/acre.
• He realized that AGRICORP could require tobacco growers to replant if a crop was damaged early in the growing season.
• He and his wife were directors of VEFL. Both had signing authority for the company. Cheques did not have to be signed by both of them.
• He signed Part A of the TAAP application form which indicated he had signing authority for VEFL.
• He was not told to bring his TAAP forms in early in the process. He had them filled out on April 29, 2005 but did not deliver them until April 30, 2005 because he had agreed to take in a neighbour’s forms and was waiting for them.
• The TAAP bid form came in three parts and was submitted in two envelopes.
• By the time he drove home after submitting his amended bid he was having second thoughts. He thought through the ramifications that night and starting calling people the next morning.
• He did not realize he would be informed of the results of his TAAP appeal as soon as he was. The form said he would be notified by June 3, 2005 and he assumed that was when he would be notified.
• He had decided before his appeal was heard that he would not grow a crop in 2005.
• In ideal conditions he could plant his crop in 6-7 days but it usually took at least eight days and often ten days due to equipment failure or weather problems.
• He applies 100 litres of fumigant per acre. One week of aeration time is needed at that application rate, in addition to the treatment time.
• He agreed aeration could be hastened by plowing but that risked bringing untreated soil in contact with the treated area.
• Beans or corn would not benefit from fumigant although they could be planted on fumigated land. He did plant soybeans on 60 acres that would have been used for tobacco, had he grown a crop.
• He obtained $6.05/Bu and 40 Bu/acre on the soybeans he grew in 2005.
• If he had fumigated his land, he probably could have obtained tobacco plants on May 26th, from another grower. He agreed in principle to sell his plants on May 5th and reached an agreement on price the following week.
• He rented out 41,805 lbs of MQ in the spring of 2005 for $22,602.24. He received $13,656 for MQ he rented out in the fall of 2005, for a total rental income of $36,258. He had received approximately $6,000 for carryover sales as of the date of the hearing before the Tribunal.
• He received $6,700 for the sale of his tobacco plants.
• His cost of production for tobacco for the year ending April 30, 2005 was $1.78/lb according to his accountant. The direct costs were actually less as he had fixed costs such as municipal taxes which had to be paid regardless of what crop is grown. His direct cost of growing tobacco was closer to $1.39/lb for the 2004 crop. Gas and hydro costs were higher in 2005.
• He knew the tobacco price was down in 2005, but the price varied a great deal according to the quality of tobacco shipped. Historically, he received the average price.
• Rental income was obtained without the risk of growing a crop.

Mr. Vanden Elzen also indicated:

• The rental price for MQ varied somewhat with the market. The current rental price was 20 cents per lb less than the October 2005 price.
• Tobacco plants available in June are not as good as plants taken earlier in the year as they have been in the greenhouse more than 60 days.
• He made very little profit on his 2005 soybean crop.
• He expected his 2005 taxes to be higher.

In response to questions from the Tribunal, Mr. Vanden Elzen clarified:

• It was not necessary for both he and his wife to initial a change to the bid price under the TAAP program.
• He was not aware of any fumigant that would act faster than Telone; he estimated that Telone had about 95% of the market.
• He did not recall the exact date his fumigant tank was removed but believed it was after May 5, 2005.
• The spring of 2005 was cool but hot weather arrived on June 4th or 5th. The aeration time required for fumigant varied with soil temperature, weather and soil type. Warm and dry weather accelerates the process.
• He would never plant a tobacco crop without fumigating.
• His wife left it to him to select the best price for the TAAP bid, on the understanding he would select a price that would keep them in the industry. He consulted with his father before selecting $1.20/lb. He later lowered it to 90 cents/lb. His wife was not happy with that bid.

Ms. Lorraine Moir testified that she was Mr. Vanden Elzen’s sister and that she was a cash crop farmer but did not grow tobacco. She said she spoke to her brother often and was aware that he had been considering entering the TAAP program. She said Mr. Vanden Elzen was distraught and anxious for approximately 10 days before he had to put his bid in, and that she had never seen him like that before. Ms. Moir said her brother was usually self confident.

Under cross examination, Ms. Moir indicated there were a lot of factors to consider to determine the most financially viable course of action.

In response to questions from the Tribunal, she said her brother had been worried about the future of the tobacco industry for some time but in the days leading up to the TAAP bid he was worried about the TAAP program. She said she had not noticed any change in his personality as a result of the declining industry over the previous five years. She was not aware of his seeking help to deal with stress.

Mrs. Laurie Vanden Elzen told the Tribunal she was married to Mr. Vanden Elzen. She recalled that they first discussed the TAAP bid process in April 2005, they discussed their options almost constantly and ultimately decided it made more sense to stay in tobacco than to exit as they were making money from the crop and they had no alternate plan. She agreed that it was not necessary to put in any bid. She said she left it to Mr. Vanden Elzen to select the bid to put in to the TAAP that would keep them in the industry. Mrs. Vanden Elzen said her husband was very upset when he returned from submitting the TAAP bid as he felt strongly that his 90 cents/lb bid would take them out of the industry. She said she suggested he return to try to change the bid but he said there was no time. She said she encouraged him to make the calls the following morning.

Under cross examination, Mrs. Vanden Elzen said her primary role with VEFL was as the bookkeeper but that she also helped seed the trays and helped with planting as needed. She also worked part time off the farm. Mrs. Vanden Elzen said her husband made the hands on decisions in the company.

In response to questions of clarification from the Tribunal, Mrs. Vanden Elzen said:

• They were encouraged by Directors at meetings to put in high bids to send a signal to the government. They thought a very high bid of $2.00/lb would be thrown out.
• The final price for BPQ surrendered was the total of federal and provincial funding.
• When the TAAP program was announced they took it as a sign the industry was declining faster than they had anticipated.
• They definitely wanted to stay in the industry as it was their major source of income and had been her husband’s life.

Mrs. Vanden Elzen clarified that she had not attended any producer meetings but had heard what occurred from her husband.

Mr. Doug Magee told the Tribunal that he lived in St. Thomas and had been selling agricultural chemical products for 38 years. He said he had known Mr. Vanden Elzen since the 1970s and originally dealt with his father. He said he accepted an order for the fumigant Telone from Mr. Vanden Elzen by February 2005 but that he did not take delivery of the product. He said the purpose of the fumigant was to control nematodes and other soil borne pathogens and it was used in high value crops. Mr. Magee said he had only ever seen one grower plant tobacco without using a fungicide and that it was not a successful crop.

Mr. Magee said Telone should be applied to soils with at least a 50 degree soil temperature and injected 6-8 inches into the soil. He said it was usually applied the first week of May and most farmers, including Mr. Vanden Elzen, used their own equipment. Mr. Magee said it took 7-10 days for nematodes to be killed and the land should be aerated for a further 1-2 weeks. He said if fumigant had been applied on May 26th, it would be a minimum of two weeks before tobacco could be planted. He testified that it was not usual to start planting tobacco in the first week of June.

Mr. Magee said he called Mr. Vanden Elzen when he heard that he had accepted the TAAP buyout as he was short on fumigant tanks; he arranged to pick up Mr. Vanden Elzen’s tank in early May 2005. He said everyone was holding off on fumigation in 2005 until they knew who was in and who was out of the industry.

Mr. Magee said tobacco plants in float trays are normally kept 50-55 days in the greenhouse. He said they could be kept an additional 2-3 days but that the quality would deteriorate after that due to disease. He explained that tobacco plants could be trimmed to keep them small but that this adds stress and makes them more susceptible to disease.

Mr. Magee said the tobacco industry was in slow decline and he never knew who would be in it from year to year.

Mr. Magee said it would cost $240/acre to apply fumigant to Mr. Vanden Elzen’s fields. He said the fumigant would not benefit soybeans and would in fact kill soybeans if they were planted when it was still active in the soil. He said running equipment through treated soil would accelerate aeration.

In response to questions from Mr. Bresner, Mr. Magee indicated:

• He did not have a formal degree in chemistry or agricultural science but had completed several courses on greenhouse and field crop production.
• It was common knowledge within a day or two of the TAAP buyout, which growers were exiting the industry. He phoned Mr. Vanden Elzen for confirmation after hearing at a coffee shop that he was taking the buyout. His intent was to get the fumigant tank back from him. The tank was owned by Dow Agri-Services.
• He made his chemical orders to his supplier based on the orders he received from growers. Fumigant was normally delivered in bulk to a tank stored on farm, anytime after April 1st.
• He had never grown tobacco himself.
• He was not aware of any greenhouse fungicides that were approved for use on tobacco in Canada. It was difficult to change environmental factors in a greenhouse to minimize the risk of fungal diseases.
• Many growers who would have normally accepted fumigant in early April waited until late April 2005 to take delivery.
• People would not take fumigant if they were not going to use it as there would be no return on the product.
• Aeration can be accelerated by opening the hill. If aeration is not accelerated soybeans could still be planted on treated soil, 2 to 3 weeks after the treatment.

Mr. Magee also indicated:

• Usually tanks are left on farms year round and are only picked up if the farm is sold.
• It normally took less than a week to get a tank to a new customer; a tank could be delivered the same day it is ordered if there is one available in storage in Tillsonburg.
• He was not aware of any tobacco grower who delayed application of fumigant, even though several delayed accepting delivery of the product.

Mr. Henry Gubbels told the Tribunal that he was a cousin of Mr. Vanden Elzen who grew approximately 120 acres of tobacco with his brother near Delhi. He said all tobacco growers had difficulty in the spring of 2005, whether they chose to exit the industry or stay in it. He said he started applying fumigant on April 30, 2005 and started planting May 19, 2005. He said he would never wait less than two weeks between applying fumigant and planting. He had never tried to grow without fumigant.

Mr. Gubbels said he intended to continue in the tobacco industry but had participated in the TAAP with a bid of $1.40, which he thought would be high enough to stay in. He said he had 20 acres fumigated before the TAAP bids were accepted. Mr. Gubbels said he had not discussed his bid amount with Mr. Vanden Elzen but was aware that Mr. Vanden Elzen also intended to participate in the TAAP.

Mr. Gubbels said May 19th was not an early planting date for growers in his area. He said he completed planting by June 1, 2005. Most people in his area were finished planting by June 3,2005. He said if Mr. Vanden Elzen had not fumigated until May 26, 2005 his crop would never catch up with everyone else’s crops and his tobacco quality would be inferior.

Mr. Gubbels said he obtained tobacco plants from a neighbour who sold out. He said he used both float plants and plants grown in a muck greenhouse. He said that by the end of June most of his plants were removed from their greenhouse.

Under cross examination, Mr. Gubbels indicated:

• Growers in his area start planting tobacco earlier than most growers. By his area, he meant the road he lived on.
• He did hear of other growers planting into June 2005.
• The TAAP program resulted in more than the usual number of tobacco plants being available in 2005 as growers could not let their greenhouses go until they knew if their bids were accepted or not. Even so, there were a couple of greenhouses of plants sold before he was able to purchase them.
• Tobacco is harvested at the same time regardless of whether it is planted in May or June. Late planted tobacco does not have the same quality as tobacco planted earlier.

Mr. Gubbels also indicated that:

• Late May is on the late side to start planting tobacco; mid-June is way too late to start planting tobacco.
• He bought a greenhouse of plants within a day or two of May 19, 2005. He wanted a back-up greenhouse.
• He did not know what the availability or quality of tobacco plants would have been in mid-June 2005.

Mr. Robert Vegso told the Tribunal he had been a tobacco grower since 1978, lived 8-10 miles from Mr. Vanden Elzen and had known him for 25 years although they were not close friends.

Mr. Vegso said he and his brother heard that Mr. Vanden Elzen had accepted the TAAP buyout and approached him on May 4th or 5th to try to buy his tobacco plants as their own seedlings were planted in muck and they could save on labour costs if they used plants growing in a float system. He said Mr. Vanden Elzen had a good greenhouse and they were confident in the quality of his plants. He thought Mr. Vanden Elzen would have broken even on his greenhouse, based on what they paid for his plants.

Mr. Vegso said he and his brother started applying fumigant on May 3, 2005 and started planting on May 24, 2005, which was usual for their area. He said to start planting on May 28-30th would be risky and that it would not be feasible to grow a crop if the fumigant was not applied before late May. Mr. Vegso explained that there would not be enough heat units and the crop would have poor weight and poor leaf colour.

Mr. Vegso said there would not have been many tobacco plants available in mid-June 2005 as there was a fairly early planting season. He abandoned his plants in the muck beds on June 8th or 9th as he had to water them and they would not have been useable in three or four more days.

Mr. Vegso said he and his brother put in a protest bid to the TAAP program at $1.50/lb but that it was rejected on a technicality.

In response to questions from Mr. Bresner, Mr. Vesgo indicated:

• He started planting on May 24th and it took him 10 days to plant his tobacco crop in 2005.
• It was faster to plant with float tray plants than with muck plants, but since he used less labour it did not take him any less time to plant his tobacco crop using Mr. Vanden Elzen’s plants.
• He plants 8-9 acres per day.
• He gave away the plants in one of his greenhouses and kept the others until June 8th or 9th before abandoning them.

Mr. Vesgo also indicated:

• Everyone has a set goal in mind as to when they want to finish planting. In the old days planting was done by June 6th or 7th and replanting completed by June 10th.
• He always plants more tobacco than he has MQ for, as there is always the risk of getting poor grades that cannot be sold.
• He had never rented in MQ but he had been a sharegrower.
• The market for MQ varied from year to year. The rental price varied from 5 cents/lb to $1.00/lb over the years.
• His Director had indicated that growers should make a protest bid so the government would know there were others left in the industry that were in trouble.
• He takes account of carryover when calculating his crop size if it is substantial.
• The tobacco price was low in 2005.

Respondent’s Case

Mr. Harry Vergeer said he was a Director on the OFCTGMB and had been for seven years. He said he farmed in the same district as Mr. Vanden Elzen and his wife was a first cousin to Mr. Vanden Elzen. He said he did not participate in the OFCTGMB hearing of VEFL’s appeal.

Mr. Vergeer said he recalled having a lengthy and emotional conversation with Mr. Vanden Elzen on the morning of April 30, 2005. He recalled that Mr. Vanden Elzen was looking for a way to retract the bid he made under the TAAP program, that Mr. Vanden Elzen had told him he had spoken with his Member of Parliament, Rosemary Ur, and that he was trying to reach the auction organizer to see if he could retract his bid.

Mr. Vergeer said he did not recall if he spoke to Mr. Vanden Elzen about the TAAP appeal process that day or not, but that he did recall speaking to him about it at some point. He recalled that Mr. Vanden Elzen’s only argument was that he had made a mistake and that he told him if that was all he had to bring it might be difficult to win an appeal. He said he did not try to discourage Mr. Vanden Elzen from appealing as he thought he had nothing to lose by appealing since his bid had been accepted.

Mr. Vergeer agreed that OFCTGMB Directors had encouraged tobacco growers to put in high bids to send a message to the government. He said he was aware that Mr. Vanden Elzen had his bulk kilns and combine listed for sale at the end of May 2005.

In response to questions from Mr. Campbell, Mr. Vergeer indicated:

• He lived in West Lorne.
• Mr. Vanden Elzen was very emotional when he spoke with him on the morning of May 1, 2005.
• He agreed Mr. Vanden Elzen is generally logical.
• He did not know who would be hearing the TAAP appeals. He did not think simply making a mistake was a good reason, if that was the only reason he had for wanting the TAAP appeal board to return his BPQ.
• The OFCTGMB wanted growers to participate in the TAAP so that a message was sent to the government. It did not encourage growers to put in bids at specific price levels.
• Mr. Vanden Elzen had a modern, well set up farm and should be capable of growing tobacco in 2006.
• He knew Rosemary Ur; she lived in Strathroy.

In response to questions of clarification, Mr. Vergeer said tobacco growers knew there would be an appeal process with the TAAP.

Mr. Jason Lietaer told the Tribunal he had been the General Manger of the OFCTGMB for approximately three years and that he managed its operations, oversaw the auction facilities, obtained information for the directors and implemented the OFCTGMB decisions. He said he grew up on a tobacco farm, obtained a degree in Management Economics and worked in politics before accepting his position with the OFCTGMB.

Mr. Lietaer said he was very involved in developing the TAAP program. He explained that the program was delayed for one year due to a federal election but that the OFCTGMB had lobbied to have it in place for the 2005 crop year. He explained that it was a reverse auction program, with growers’ bids multiplied by the pounds of BPQ offered at each price level, and the total added to that of the next highest price level until a set amount of federal funding was used. No bids of less than 85 cents per lb were accepted. Mr. Lietaer said growers with bids of $1.05/lb or less exited the industry through the TAAP program. They received $1.37/lb for BPQ when provincial money was used to top up the payments. He said 230 producers exited the industry through the TAAP, retiring approximately 51 million lbs of BPQ.

Mr. Lietaer said the OFCTGMB administered the federal TAAP program, and, in consultation with the federal government, hired G.D. Barkwell to run the reverse auction. He said he did not recall Directors encouraging growers to participate in the TAAP at the information meetings he attended, but acknowledged that the OFCTGMB did not want to discourage bids as it wanted to send a message. He said he was aware that bids in excess of $7.00/lb were made under the TAAP.

Mr. Lietaer said the federal government wanted a three day window for growers to submit their TAAP bids so that any mistakes with the forms – such as not having all company shareholders sign the appropriate forms – could be resolved. He said growers were encouraged to make their bids in the first two days as there was a concern that people would not be notified of such errors if a rush of bids came in at the end.

Mr. Lietaer said he had heard that some growers delayed fumigating until after May 3, 2005, when the results of the TAAP reverse auction were known.

Mr. Lietaer testified that if there was frost damage to a tobacco crop before June 13th in any year, AGRICORP, the crop insurer, could require the grower to re-plant the tobacco or could pay 50% of the claim amount. He said AGRICORP required the crop to be planted by June 20th in order to be insured.

Mr. Lietaer said the 2005 market was flat and the prices were poor. He said this was due to weak export demand. He said the target export price was $1.53/lb and the market was at $1.45 per pound. He told the Tribunal the overall target price (blend of export and domestic sales) was $2.25/lb but that it would end up in the $2.17-$2.21 per lb range, barring a turnaround in the export market.

Under cross examination, Mr. Lietaer stated:

• The tobacco market had never been below the target price before.
• A turnaround was possible but the export price had been declining for three years and he was not optimistic about the market. There were more than two months to go on the market for the 2005 crop.
• The domestic price is guaranteed. He expected relatively high make up payments and relatively low payouts for the 2005 crop.
• Mr. Vanden Elzen would have been growing without a licence if he had tried to plant tobacco between May 3, 2005 and May 26, 2005. He agreed that had Mr. Vanden Elzen planted in that timeframe, then lost his TAAP appeal, he would not have been able to market his crop.
• There was an attempt to encourage growers to submit their TAAP bids early to allow for mistakes to be rectified. There was no amnesty from mistakes for growers who submitted bids on the third day.
• All but four tobacco growers in Quebec had sold out through their equivalent to the TAAP program.
• There was very little time between the announcement of details of the TAAP program and the dates that bids had to be made. Growers had about a week to make their decisions. It would have been better if the federal decision had been made earlier.

Mr. Lietaer also indicated:

• There was nothing preventing Mr. Vanden Elzen from fumigating between May 3, 2005 and May 26, 2005.
• If he had fumigated his land nothing would have prevented him from planting a crop after May 26, 2005.
• The OFCTGMB pressured the federal government to hear appeals as soon as possible but May 26th was the earliest possible date. The OFCTGMB efforts led to the appeal results being known earlier than the federal government had anticipated.
• Mr. Vanden Elzen had two quota holdings under different farm numbers but VEFL was the owner of both.
• The TAAP process required all BPQ holdings to be sold.
• There was 271-272 million lbs of BPQ left in Ontario.
• Most errors in the TAAP bids were dealt with in the first two days.
• There were only three appeals under the TAAP appeal process.
• The OFCTGMB called tobacco producers together in early April 2005 in an attempt to pressure the federal government to announce a minimum bid price.
• The TAAP program was announced almost at the last minute before planting decisions had to be finalized.
• Information on the TAAP appeal process was sent out to quota holders once the auction was completed.

Mr. Jerry Van De Velde testified that he had been a tobacco grower all his life and was an OFCTGMB committeeman. He said he grew 50 acres of tobacco in 2005. He explained that committeemen acted as a liaison between growers and their OFCTGMB director. He said each district had two committeemen.

Mr. Van De Velde told the Tribunal that:

• Tobacco is normally planted between May 22nd and the first week of June.
• Fumigation usually occurs the first week of May, but weather and crop size affect the fumigation date.
• He started planting on May 22, 2005 and finished on June 3, 2005, using plants grown in a muck bed. There were a few replants after that date.
• He normally kept additional plants in his greenhouses to June 15th - June 18th, depending on weather conditions and maintenance needs.
• He seeded his greenhouse on March 22, 2005 and March 23, 2005 and started watering on March 25, 2005; this was earlier than growers who use float plants.
• He knew of growers who were still planting on June 5th in his area.
• 2005 was not a particularly unusual year; he agreed there had been a cold snap in the spring.
• The norm was two weeks between fumigation and planting tobacco under 80% of the weather conditions. He had planted as little as ten days after fumigating. Moisture and soil temperature has an impact and late May fumigation may work faster than early May fumigation.
• If he had been in Mr. Vanden Elzen’s position on May 26th, he would have considered the minimum crop size he could grow and remain eligible to rent out MQ. He calculated that to be 32 acres on his farm. He said he would probably try to grow that size of crop.
• If he were to grow a crop late in the season his first priority would be to get the fumigant on, then to obtain plants if he did not have any. The earliest planting could start would have been June 4th or 5th It was more likely that planting would commence on June 7th or 8th
• There was a plant pool at Delhi where growers can get the names and phone numbers of other growers who have plants for sale or who are looking for plants.
• If he were given the option to rent out 100% of his MQ he would consider it, as financially it was not a bad risk and he would avoid the work of putting in a crop.

Under cross examination, Mr. Van De Velde indicated:

• He did not know what the chances were of the OFCTGMB allowing growers to rent out 100% of their MQ.
• By late May most people would be finished fumigating and it would likely take no more than a day for a supplier to get a fumigant tank to the farm.
• There is a better chance of good weather conditions at the end of May, but a two inch rain could delay the process by four days.
• He would not plant 200 acres of tobacco late in the season, but would plant 32 acres as that was the size needed to comply with the regulations.
• He agreed that even if planting conditions were optimum, a late planted crop would be behind the other growers’ crops.
• He agreed that plants pulled late were not always good quality but said that in muck green houses some of his last pulled plants are sometimes better than early pulled plants.
• He removed the last of his plants from his greenhouse on June 19, 2005.
• If he had access to plants and the right weather he would pencil it out and decide whether or not to plant late, even in the absence of OFCTGMB regulations.
• He was not in the same district as Mr. Vanden Elzen and farmed some distance from him.

Mr. Van De Velde also indicated:

• Mr. Vanden Elzen would need to plant 50-52 acres if his crop yields 2,700 lbs/acre.
• Labour availability is definitely a factor that needs to be considered. In his area neighbours tend to share plants, equipment and labour when necessary.
• Committeemen are elected by producers; he had been a committeeman since 1993.
• He would consider renting out MQ in the spring, in Mr. Vanden Elzen’s situation. His next step would be to grow 70% of his allotted MQ and he would not consider fall rentals until he knew the size and condition of his crop after harvest.
• All growers were allowed to rent in or out 20% of their MQ in the fall; the OFCTGMB has the discretion to allow fall rentals for producers who did not grow a crop.

Summations:

Mr. Campbell told the Tribunal that Mr. and Mrs. Vanden Elzen had decided to submit a bid in the TAAP program that would not get them out of the industry, that Mr. Vanden Elzen had lowered the bid to one that would be accepted but that he had misgivings and immediately took steps to try to withdraw the bid. He argued that by the time the TAAP appeal process was completed, Mr. Vanden Elzen had decided not to grow a crop and it was too late to change that decision as it would not be economically feasible to fumigate and plant at that late date. He pointed out that while Mr. Van De Velde had said he would try to grow a tobacco crop in these conditions, Mr. Vanden Elzen, Mr. Magee, Mr. Vesgo and Mr. Gubbels all thought it was too late in the season.

Mr. Campbell submitted that it would not have been reasonable for Mr. Vanden Elzen to spend $15,000-$16,000 on fumigant on the chance that his TAAP appeal would be granted. He reminded the Tribunal that Mr. Vergeer, a trusted advisor and OFCTGMB director, was not giving him any encouragement that his appeal might be accepted. He said Mr. Vanden Elzen had every reason to believe he was out of the tobacco industry on May 3, 2005.

Mr. Campbell said Mr. Vanden Elzen sought an exemption from OFCTGMB regulations to rent out 100% of his MQ in order to remain in financial circumstances that would allow VEFL to continue in tobacco in 2006. He said the OFCTGMB seemed to be of the view that growers made more money by renting tobacco than by growing a crop. He pointed out that Mr. Vanden Elzen had testified to the contrary and had indicated his desire to grow tobacco in 2006. He said the financial information filed by Mr. Vanden Elzen established that VEFL needed rental income to remain active in the tobacco industry. He said that while direct input costs would be substantially reduced in 2005, there were still indirect administrative costs that needed to be covered.

Mr. Campbell acknowledged that Mr. Vanden Elzen had made an error in judgment which led to the surrender of his BPQ. He pointed out that with the industry in decline it was not surprising that he made an unfortunate decision. He said Mr. Vanden Elzen tried to correct his error at the earliest opportunity. Mr. Campbell submitted that it was not appropriate to penalize growers for errors in judgment. He asked the Tribunal to grant the appeal, as to deny it would have the effect of penalizing VEFL for this error.

Mr. Bresner told the Tribunal that the OFCTGMB agreed that planting tobacco in or around the middle of June is not the optimum time and that there was no dispute as to the time required for fumigant to work. He submitted that it was possible to plant tobacco in mid-June and grow a crop and pointed out that AGRICORP could require growers to replant their crop if it is damaged before June 14th. Mr. Bresner argued that it was not unreasonable for the OFCTGMB to use the same timeframes as the crop insurer. He acknowledged that an optimal crop might not be grown if it is planted late, but said that VEFL could have planted a crop in June 2005 to make the best of the situation it was in.

Mr. Bresner argued that Mr. Vanden Elzen was not the victim of hard times or the slip of the pen but instead had made the decisions to put in a low bid to TAAP, sell his tobacco plants, put his equipment up for sale and cancel his orders of off-shore labour and fumigant. He pointed out that Mr. Vanden Elzen could have tried to have his bid withdrawn on the evening of April 30, 2005 but opted to wait until the next morning. He said Mr. Vanden Elzen should be responsible for the consequences of his own actions and should not rely on the OFCTGMB to exempt him from a longstanding no rental policy in order to obtain a better income in 2005.

Mr. Bresner stated that the evidence showed that VEFL earned approximately $14,000 in income on soybeans, $6,700 on the sale of tobacco plants, $6,000 to date on carryover tobacco sales and $36,258 in rental from the MQ that the OFCTGMB had allowed him to rent out. He suggested that VEFL would make approximately $70,000 income when the sale of the balance of its carryover tobacco is completed. He said that using the cost of production data supplied by Mr. Vanden Elzen’s accountant it would be difficult to come up with $70,000 very easily. He said that granting the appeal would put VEFL in a better position than that of a grower who planted tobacco but had to replant due to crop damage early in the year.

Mr. Bresner argued that the OFCTGMB was not penalizing producers by enforcing its regulations. He pointed out that the OFCTGMB had allowed VEFL to rent out more MQ than it would normally be able to, given that no tobacco crop was grown in 2005. He said the OFCTGMB had to be fair to all producers, and allowing Mr. Vanden Elzen to rent out MQ meant that other producers who grew a crop had to pay to rent it in. Mr. Bresner suggested that VEFL sought to have all producers bear the consequences of decisions made solely by Mr. Vanden Elzen. He asked the Tribunal to deny the appeal.

Mr. Campbell replied that VEFL incurred costs in growing soybeans which Mr. Bresner had not accounted for in his calculation. He said that Mr. Vanden Elzen had made the best decisions he could in the circumstances and pointed out that Mr. Vergeer had not been optimistic as to the ability of Mr. Vanden Elzen to win his TAAP appeal. He argued that the crop insurance data showed that it was futile to plant tobacco beyond certain dates.

The Findings

The Tribunal recognizes that the timing of the TAAP program was unfortunate in that it gave tobacco producers very little time to make decisions as to whether or not to participate and came at a time when they would have already started their preparations for the 2005 crop. Notwithstanding the timing of the program, the evidence was that many producers submitted bids and 230 producers left the industry as a result of the TAAP program.

The Tribunal heard evidence from Ms. Moir that Mr. Vanden Elzen was under considerable stress and acting unlike his usual self in the days leading up to the TAAP bid dates. Other family members testified that he was very emotional after his bid was submitted and he realized he could lose his BPQ. This panel of the Tribunal considered that this was a very stressful time for Mr. Vanden Elzen but it gives little weight to this finding. The Tribunal heard no medical evidence to suggest that Mr. Vanden Elzen’s judgment was impaired. Mrs. Vanden Elzen was confident in his ability to make a sound decision regarding the bid price that would keep VEFL in the tobacco business.

The Tribunal heard conflicting evidence as to whether or not VEFL could have grown tobacco in 2005, after learning its TAAP appeal was granted and its BPQ was reinstated effective May 26, 2005. The Tribunal puts little weight on the evidence that AGRICORP may require growers to replant if a crop is damaged before June 14th. The question is could VEFL have planted a crop. While the Tribunal acknowledges that the timelines for planting a crop, including the application of fumigant, were tight after VEFL learned the outcome of its TAAP appeal on May 26, 2005, the Tribunal was not convinced that VEFL could not have planted a tobacco crop in 2005. The Tribunal heard evidence that growers have access to a tobacco plant pool that existed at Delhi where producers could get the names and phone numbers of growers with plants for sale. The Tribunal acknowledges that there would be some question as to the quality of the tobacco planted in mid-June. The Tribunal was not convinced that this would preclude the planting of a crop.

With regard to the financial arguments, the Tribunal disregards the evidence related to the soybean crop as it is peripheral to this appeal which relates to tobacco. While the Tribunal heard testimony with regard to the finances of VEFL from the standpoint of not having a tobacco crop in 2005, the Tribunal was not convinced that the financial situation is relevant. The Tribunal acknowledges there was a financial impact to not growing a crop but was not convinced that this resulted in financial hardship to the extent that an exception to the regulations in the industry should be made.

The Tribunal believes that VEFL has to be accountable for the decisions made by Mr. Vanden Elzen to submit a bid then withdraw the bid and change the bid amount. Mr. Campbell suggested that Mr. Vergeer contributed to the decision by Mr. Vanden Elzen to not grow a crop in 2005. It is the opinion of the Tribunal that in the circumstances it is ultimately the responsibility of the grower with the decision making authority for the company to be accountable for his actions.

Decision and Reasons

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

1. The appeal by Vanden Elzen Farms Limited for an exemption to OFCTGMB regulations such that it could rent out 100% of its 2005 MQ is denied.

The Tribunal notes that the OFCTGMB did grant VEFL some consideration in providing him MQ for his carryover tobacco and allowing him to rent out MQ in the fall of 2005 on compassionate grounds. This decision does not alter actions taken by the OFCTGMB in this regard.

The reasons for this decision are that:

1. It is ultimately the grower’s responsibility to be accountable for the actions he took. VEFL was given some relief by the OFCTGMB, notwithstanding that it was Mr. Vanden Elzen’s own actions that led to the company’s predicament.

2. The Tribunal was not convinced that a tobacco crop could not be grown in 2005 despite the apparent tight time lines that had been imposed on VEFL as a result of the application and appeal process for the TAPP.

Dated at Guelph, Ontario this 17th day of January, 2006.