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 ON N1G 4Y2 Tel: 519 826-3433, Fax: 519 826-4232 Toll Free: 1 888 466-2372 Ext. 6-3433 Email: appeals.tribunal.omafra@ontario.ca
Guelph ON N1G 4Y2 Tél. : 519 826-3433, Téléc. : 519 826-4232 Sans frais : 1 888 466-2372 poste 6-3433 Courriel : appeals.tribunal.omafra@ontario.ca
AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL
APPEAL: Double J. Poultry Ltd. v Chicken Farmers of Ontario
Double J. Poultry Ltd. v CFO 2012 ONAFRAAT 35
STATUTE: Ministry of Agriculture, Food and Rural Affairs Act
HEARING: October 9 and 16, 2012
DATE OF DECISION: November 28, 2012
2012-35
NEUTRAL CITATION: 2012 ONAFRAAT 35
Double J. Poultry Ltd. v Chicken Farmers of Ontario
IN THE MATTER OF SECTION 16 THE MINISTRY OF AGRICULTURE, FOOD AND RURAL AFFAIRS ACT, R.S.O. 1990, CHAPTER M.16, AS AMENDED.
AND IN THE MATTER OF: An Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by Double J. Poultry Ltd., of Newmarket, Ontario, from the decision of The Ontario Broiler Hatching Egg & Chick Commission denying requests with respect to Policy Direction #59 (Section A).
Before: Paula Lombardi, Vice-Chair; Richard Smelski, Member; Doug Flook, Member
Appearances: James M. Gilmore, Counsel for the Appellants Paul Trudell, Counsel for the Respondent James Patton, Double J. Poultry Ltd., Appellant James Dowling, Double J. Poultry Ltd., Appellant Ed Mosterd, Hampstead Poultry Inc, Witness John Kraay, Witness John Groen, Operations Manager OBHECC, Witness Ralph Harris, OBHECC, Witness Cheryl Firby, OBHECC, Witness
DECISION OF THE TRIBUNAL
Background
Mr. Dowling and Mr. Patton are equal shareholders of Double J. Poultry Ltd. (“Double J”). Currently Double J has a grower right quota with an indexing of 17,253 pullets.
The Ontario Broiler Hatching Egg & Chick Commission (“Commission”) is responsible for the control, marketing and regulation of production and marketing in Ontario of breeder chicks, breeder cockerels, breeder hens, breeder pullets, chicks, fowl and hatching eggs. The Commission consists of four appointed members from the production side of the industry and four members from the hatchery association.
In February 2011, the Commission adopted Policy Direction 59 (“Policy 59”). The industry was given approximately seventeen (17) months to comply with the requirements of Policy 59.
On March 16, 2012 Double J requested that the Commission exempt it from the requirements of Policy 59, or alternatively, to find a solution to the application of Policy 59 without penalty. The Commission denied the exemption in March 2012 and provided written reasons for the denial. On April 17, 2012 Double J requested that it be permitted to appeal the Commission’s decision directly to the Farm Products Appeal Tribunal. This request was denied by the Commission on April 30, 2012. The Commission conducted a hearing on June 21, 2012 to hear reasons why Double J requested an exemption from the application of Policy 59 and proceeded to deny Double J’s request for an exemption resulting in this appeal to the Tribunal.
The issue raised by the Appellants with Policy 59 is that it revoked a long-standing exemption provision from having to comply with the quota requirements in certain circumstances as set out previously in Policy Direction 46 (“Policy 46”). In March 2004, the Commission passed Policy 46 in an attempt to achieve a better balance between chick placement relative to demand. The movement of quota between farms increased the amount of excess quota in existence and the producers that were buying pullet quota resulted in the displacement of some independent pullet growers. This raised a concern about the potential for the displacement of Breeder Growing Contracts (“BPC”), resulting in uncertainty in the industry. Policy 46 changed the calculation for each BPC in 2004 by moving to a Bird Based Growing Right index as opposed to the existing Egg Based index.
Policy 46 contained an exemption clause for thirteen (13) growers that did not change or alter their operations from that which existed at the time Policy 46 was adopted. The exemption under clause 5, meant that those growers, including Double J, that were placed in a deficiency under the new index calculation would not have to obtain additional Growing Rights, unless the grower either sold a unit of quota or expanded their operation. Clause 5 became referred to in the industry as the “grandfather” clause.
On February 2, 2011, the Commission approved Policy Direction 59, referred to as Non-Contracted 20 Week Growing Rights, (“Policy 59”) which, among other things, rescinded the grandfather clause established by paragraph 5 of Policy 46 resulting in those growers that did not have to obtain additional Growing Rights under Policy 46 now had to comply with provisions of the policy and obtain additional Growing Rights if in a deficiency situation. The revocation of the grandfather clause impacted Double J and two other breeder-growers in Ontario.
Double J appealed from the decision of the Commission denying its request for an exemption from the application of Policy 59 on July 27, 2012, to this Tribunal pursuant to section 16 of the Ministry of Agriculture, Food and Rural Affairs Act. The Tribunal conducts a hearing de novo and “stands in the shoes” of the Commission meaning that it has the authority to make any decision that the Commission could have made.
Issues
Should Policy 59(A) be struck down resulting in Policy 46(5) continuing in full force and effect?
Alternatively, if Policy 59(A) is not struck down,
the Commission should be required to allot, without charge, sufficient quota to Double J to replace the Policy 46(5) grandfathered quota deficiency; or
Double J should be exempted from Policy 59(A).
The Evidence
Double J Poultry Ltd. (“Double J”) is a mid-sized pullet growing operation that is owned and operated by Mr. Dowling and Mr. Patton.
Mr. Dowling and Mr. Patton indicated that they are both active in the industry and have sat on the board of the Commission and the Ontario Broiler Hatching Egg and Chick Association (“Association”) respectively. Mr. Dowling testified that he was a director of the Commission for approximately seven (7) years from 1994 – 2001. The Commission is the statutory body who has the delegated authority to regulate marketing and quota in the industry. The Association is an industry group whose members raise issues and concerns with the Commission. The Association only influences the Commission to react to any industry changes through the development of regulations, policies, or guidelines. Mr. Patton is a board member of the Association and prior to that was the Chair of the Association until approximately 2010.
Mr. Harris is an employee of the Commission since 1990 and considered the person responsible for matters dealing with the regulations and for overseeing any quota trading. Mr. Harris indicated to the Tribunal that since 2011 there has been over twenty (20) changes in the Commission’s regulations and/or policies. The rationale for the majority of these changes varied from minor housekeeping matters to major issues such as fluctuations in the market place, or a change in the needs of the producers within the three different sections; breeder growers, hatching egg producers, and hatcheries.
Prior to implementing a change in policy the Commission engages in discussion with the two associations, the producers and hatcheries. The reason provided for this consultation is because a change in a policy can have different impacts on the two associations. The staff of the Commission will often conduct background research into issues raised by the Commission, any changes being proposed to the policy directions or applicable regulations. Mr. Harris indicated that it was his understanding that in 2011 there were only three (3) producers remaining that continued to fall within the grandfathering exemption set out in clause 5 of Policy 46.
Mr. Groen is the Operations Manager for the Commission and is responsible for recording and circulating to the membership the minutes of each meeting. According to Mr. Groen the reason the Commission decided to review Policy 46 was due to a request the Commission received from the Association.
In or around August 2010, the Commission established the Committee of the Whole (“Committee”) to review non-contracted growing rights by looking at the issues, opportunities, options and impact of any potential action or changes taken by the Commission on the issues relating to growing contracts, and placement regulations and policies. The Committee consisted of all members of the Commission and did not include staff.
Between August 2010 and December 2010, the Committee: reviewed the history of non-contracted growing rights; conducted a survey of its membership on the issue; considered the responses received to the survey; and, heard presentations from the industry on any concerns or issues relating to the Committee’s review of breeder growing contracts, and breeder placement regulations and policies. The minutes from the Commission indicated that it was looking into this issue and identified the steps being taken to seek consultation from the industry on this matter.
The draft letter and survey to be circulated to the membership was reviewed by the Committee at its meeting on October 13, 2010. The survey clearly indicated that members would be provided an opportunity to comment on its ongoing review through the survey and if interested could make a presentation directly to the Committee on December 8, 2010.
The survey indicated that the review of the current status of breeder growing contracts, and breeder placement regulations and policies was being conducted in two stages. Stage one being the survey allowing members to set out their views on the current regulations and policies and to offer suggestions to the Commission for improvement. Stage two was a meeting of the Commission on December 8, 2010 providing members an opportunity to present their views on the current status of breeder growing contracts and breeder placement regulations and policies to the Commission.
Double J indicated that the survey did not contain any specific questions relating to the grandfather clause. However, Mr. Dowling acknowledged that the survey did indicate that the Commission was reviewing the overall policy relating to non-contracted growing rights and any policies or regulations. Double J’s response to the survey identified that it was concerned with the issue of grandfathering but did not feel that its concern warranted appearing at the meeting on December 8, 2010 to make a presentation.
Mr. Groen reviewed the responses received to the survey and attempted to summarize the information for the Commission. The information given to the Committee included all of the actual survey responses along with the summary prepared by Mr. Groen. Mr. Harris testified that he was not surprised that in the responses received to the survey that the issue of grandfathering was raised.
There was much discussion by the Association and Committee about whether or not the survey referred specifically to Policy 46 and the grandfather clause. While the survey did not specifically refer to Policy 46 or the grandfather clause, the letter attached to the survey stated as follows: “... the Commission has established the Non-Contracted Growing Rights Committee to review the current status of breeder growing contracts and breeder placement regulations and policies. The goal of the committee is to ensure regulations and / or policies are in place to provide long-term stability to all stakeholders.” Question 2 of the survey asked the members if they do not wish to see any changes to the present regulations or policies regarding breeder growing to indicate why they do not want to see any change. The membership was given an opportunity through both verbal and written consultation to identify any areas where they did not wish to see any changes to the existing policies or regulations.
Mr. Dowling testified that he completed the survey on behalf of Double J and that his response was for both entities - grower and hatchery. In response to question 4 of the survey, Mr. Dowling indicated: “Any program not applicable to grandfathered “under” quota holders, growing rights & holders of less than 5 years.” Although it was agreed that Policy 46 and the grandfather clause was not referenced specifically in the survey Mr. Dowling on behalf of Double J did consider it important to refer to the grandfathering clause in the response. Also the membership was requested to identify any policies where they did not want to see any changes.
Double J choose not make a presentation to the Committee at the meeting held on December 8, 2010 to express its concern with respect to any possible changes to the grandfathering clause contained in Policy 46.
Over the course of the past several years, the Commission has adopted numerous policy directions dealing with the issue of quota. Policy 46, dated March 9, 2004, was intended to address the issue of increasing excess of indexed 20 Week Growing Right, by changing from an index factored on global egg allocations to an index factored on day old breeders need per Breeder Placement Cycle by the formula set out in the policy. It is Policy Direction 46, clause 5, that provided Double J an exemption for the deficiency arising from the implementation of the formula in the hatching egg market share (“HEMS”) provided there is no change in Double J’s operation.
Policy Direction 51 dated June 28, 2006 recognized a sector of the industry that was using different breeds and graded quota to this sector. The impact of the policy was to add quota to the market and dilute market shares for other hatcheries. Policy Direction 52, dated July 26, 2007, implemented a two and a half year plan of production managed egg allocation where day old placements January 1, 2007 through June 30, 2008 are based on bird numbers as determined by each producer in conjunction with the contracting hatchery. Policy Direction 54, dated January 9, 2008, dealt with hatching egg payments and returned to a hatching egg price per payable chick factored from a 12 rolling average productivity of all flocks in production.
On February 2, 2011 the Commission adopted Policy Direction 59, which is the subject of this appeal. Policy 59 rescinds clause 5 of Policy 46 which is the exception or grandfathering clause. Policy Direction 59 requires that no later than July 1, 2012 a Breeder Grower must hold sufficient 20 Week Growing Right. The effect of this policy was that Double J would be required to purchase 3,660 additional units of hatching egg market share (“HEMS”).
Double J had a total of seventeen (17) months from the implementation of Policy 59 to purchase the additional HEMS required. After the adoption of Policy 59, Double J wrote the Commission in February 2011. However, it was not until thirteen (13) months after the passing of Policy 59 in March 2012, that Double J sought an exemption from the application of Policy 59. The explanations for Double J’s delay in pursing the exemption were that it was seeking alternative solutions, trying to decide how to proceed, and that time had “slipped away”. In an attempt to accommodate Double J the Commission indicated that it would provide Double J additional time, to the summer of 2013, to comply with Policy 59.
Double J’s rationale for the request for an exemption from being required to purchase additional HEMS as required by Policy 59 was that the policy places an unreasonable financial obligation on the business. The evidence presented to the Tribunal indicated that there were a total of three (3) growers who continued to fall within the exemption clause of Policy 46 at the time that Policy 59 was adopted. Two of these growers had resolved the situation and complied with the requirements of Policy 59. No evidence relating to the financial resources of Double J was presented to the Tribunal in support of the allegation that the purchase of additional growing rights to comply with Policy 59 would be an unreasonable financial burden on Double J.
The evidence presented did indicate that the price of HEMS had increased as it is the market that regulates price and not the Commission. Although it is recognized that changes in policies can, at times, result in an increased demand resulting in an increase in price.
Double J indicated that it did review the classified advertisements published by the Commission but stated that none of the HEMS for sale met Double J’s needs exactly. Mr. Dowling admitted that an advertisement was placed selling up to 3,000 HEMS but he was not willing to pursue this due to a concern that Double J was required to purchase 3,660 HEMS and finding an additional 660 HEMS would be difficult.
Decision
After considering the facts and legal argument presented, the Tribunal dismisses the appeal of Double J.
The Ontario Farm Products Marketing Commission (“Marketing Commission”) is established under the Ministry of Agriculture, Food and Rural Affairs Act. The authority of the Marketing Commission is set out in the Farm Products Marketing Act (“FPMA”). Under section 7(1)15 of the FPMA, the Marketing Commission is empowered to make wide ranging regulations authorizing a local board:
… to cancel or reduce, or refuse to increase, a quota fixed and allocated to any person for the marketing of a regulated product for any reason that the local board considers proper.
Ontario Regulation 396 (“O.Reg. 396”) governs the control and regulation of the production and marketing in Ontario of breeder chicks, breeder cockerels, breeder hens, breeder pullets, chicks, foul and hatching eggs. It is through this piece of legislation that the Marketing Commission delegates to the Ontario Broiler Hatching Egg & Chick Commission the power to regulate quota and marketing, among other matters, in the industry.
Sections 9 and 10 of O.Reg. 396 provides the Commission with broad legislative authority to deal with matters relating to quota. Double J did not raise an issue with respect to the legislative authority of the Commission to regulate quota, among other matters, through regulations, orders and directions. Section 4(j) of O.Reg. 396 grants the Commission the authority to provide an exemption from any of its regulations, orders or directions.
The Tribunal finds that the Commission was open and transparent in its consideration and review of the issue of non-contracted growing rights and any possible changes to the existing policies. Mr. Dowling on behalf of Double J acknowledged that the Commission’s consultative process was fair. The Commission sought out the position of its membership through a survey and verbal presentations. The Commission was provided with a copy of the survey comments received from Double J, and other members, about the grandfathering rights established by Policy 46. Policy 59 was developed on a rational basis after the Commission engaged in consultation with the membership, planning and review.
Any questions that Double J had with respect to any possible change with the grandfathering clause could have been brought forward to the Commission either in it its response to the survey or through a presentation on December 8, 2010. It is clear that Double J was, and continues to be, involved in the industry and had ample opportunity to raise any issues, questions or request clarification from the Commission with respect to Policy 59. Double J appears to be well versed on the policies impacting its operations and the process associated with amending, changing or altering policies.
Counsel for the Appellant referred to several policy exemption cases from this Tribunal. Both parties agreed that those decisions are not binding as the Tribunal is not bound by the principle of stare decisis. However, the Tribunal is careful when departing from a body of Tribunal jurisprudence to provide an explanation to work towards developing a body of consistent jurisprudence in the area. The decisions cited in our view are not persuasive on this issue and can be distinguished. Several of the cases, look to whether or not “special considerations” existed that warranted an exemption from a change in quota or changes to a transfer assessment. There are no special considerations put forward in this case that would warrant an exemption from the changes to the application of Policy 59.
Both parties agreed that there was nothing in Policy 46 indicating that it would be in effect in perpetuity. Such a statement would not be in keeping with the regulatory authority of the Commission which is, in part, to react to changes in the industry and update industry regulations, policies and directions accordingly. There is no basis upon which the breeder growers can show that they were led to believe that the exemption in Policy 46, clause 5, was intended to continue in perpetuity, particularly in light of the numerous on-going regulatory and policy changes undertaken by the Commission. Further, there was no evidence to show that Double J was being targeted by, and/or being discriminated against, by the Commission. In these circumstances, the Commission revoked one of its policies after engaging in consultation with the industry to address what appeared to be an ongoing debate in the industry.
As a trial de nouvo the Tribunal is asked by Double J to exempt it from the application of Policy 59. Based on all of the evidence we find that Double J has not shown that Policy 59 is unfair, discriminatory, and unreasonable to warrant it being struck down by the Tribunal.
The Tribunal answers the issues raised by Double J as follows:
- Should Policy 59(A) be struck down resulting in Policy 46(5) continuing in full force and effect?
No. The policy should not be struck down in whole or in part. The Tribunal finds that Policy 59 should continue in full force and effect and upholds the decision of the Commission to refuse an exemption to Double J.
Alternatively, if Policy 59(A) is not struck down,
- the Commission should be required to allot, without charge, sufficient quota to Double J to replace the Policy 46(5) grandfathered quota deficiency; or
The Tribunal finds that Double J has not shown that the Commission should be required to allot, without charge, sufficient quota to Double J to replace the Policy 46, clause 5, being the grandfathered quota deficiency.
- Double J should be exempted from Policy 59(A).
The Tribunal finds that Double J should not be exempted from Policy 59 in whole or in part.
ORDER OF THE TRIBUNAL
The Tribunal hereby orders the appeal by Double J Poultry Ltd. is dismissed.
Dated at London, Ontario this 28^th^ day of November, 2012