Dairy: The Schmidt raw milk case - a 'crack' in supply management

Tuesday, March 2, 2010

That's one conclusion from a court decision dismissing charges against raw milk producer Michael Schmidt. But others believe it won't stand up on appeal

by MARY BAXTER

If an Ontario Court of Justice decision to dismiss charges against Grey County raw milk advocate Michael Schmidt stands, it would hold grave implications for supply management, warns one of Ontario's largest dairy producers.

"It could end our marketing system's supply management," says Tommy Faulkner, who owns London Dairy Farm, which milks about 900 cows, and who is also a lawyer.

The Jan. 21 decision follows the 2006 Ministry of Natural Resources raid on Schmidt's biodynamic farm north of the town of Durham.

There were 19 charges levied against Schmidt – 17 under the Health Protection and Promotion Act (HPPA) and two under the Milk Act – for illegally operating a milk processing plant; selling, promoting, transporting and distributing raw milk; and breaching previous orders.

Schmidt successfully argued that he ran a co-operative, distributing milk to about 150 people who owned shares in the cows and charging them a management fee. He did not have a quota or a license from Dairy Farmers of Ontario (DFO), the provincial marketing board that regulates milk production.

In his 40-page ruling, justice of the peace Paul Kowarsky compared cow shareholders to members of a private club and concluded that the provincial legislation was intended to protect the public at large. Schmidt did not attempt to market the milk to the general public and those who held cow shares were well informed of the risks of raw milk consumption. Kowarsky considered that the arrangement conformed to the spirit of the HPPA, existed outside of the purview of the Milk Act that would require Schmidt to obtain a licence from DFO, and was legal.

Faulkner says the ruling paves the way for other farmers to sign people up to similar agreements and provide them with milk and related products. And it wouldn't apply only to raw milk – the concept could be used to distribute pasteurized milk and other products: "Now people would be having a safe product (and) the farmer wouldn't need quota."

"It would seem to open the door for others to follow Schmidt's lead," agrees Al Mussell, a senior research associate with the George Morris Centre, a Guelph-based agricultural policy think tank. But selling raw milk comes with a huge liability because of associated health risks. "The first case of E. coli O157:H7 or listeria, or go down the list of potential illnesses – some of which can be serious or fatal – and guess where the liability goes?" he says.

Alfons Weersink, a professor with the University of Guelph's department of food, agricultural and resource economics, describes the decision as a "crack" in supply management. Certainly, the volume involved wouldn't be large, he says, since raw milk is a niche market, and he doubts toppling the country's supply management system is raw milk advocates' goal. But the idea paves the way for others to think about what type of milk could be sold outside of the system.

Elisa Vanderhout, Schmidt's wife, notes the decision is specific to what "we are doing on this farm." She says they test their milk regularly to make sure there are no pathogens. "We even test the manure to see if E. coli O157:H7 is there." Samples from bottled milk are frozen to establish traceability, should a problem occur.

Vanderhout thinks others should be able to produce raw milk for consumers in Ontario as long as due diligence is observed. Vanderhout and Schmidt are spearheading the development of a national association to establish production standards for Canadian producers, as well as the development of a "cow share college." The association will use the services of an independent dairy inspector to qualify producers.

Vanderhout doesn't see DFO playing a role, noting that because the milk is not being sold or marketed, it's outside DFO's jurisdiction.

Vanderhout says the approach she and Schmidt have evolved complements the locally grown movement. She finds it interesting that the government challenges their approach but encourages local food production. "In the dairy industry, there's no way you can get local organic," she says. "It (the milk) is all pooled."

Vanderhout says she is aware of others applying the cow-share principle to different supply-managed commodities, such as eggs. (See Short Takes, page 12.) And she believes there's room enough for both approaches.

Schmidt and Vanderhout recently restructured their farm into a worker-owned co-operative that offers farm shares to consumers. The farm share replaces the cow share and gives consumers a stake in the business, as well as the opportunity to acquire all of the farm's produce, but participants have no voting say in the farm's management.

Farm shareholders would still have to pay a service fee for products. "We hope it can be a model for other farms to bring in new generations of farmers without them needing large amounts of money," she says.

Faulkner is convinced that the Schmidts' cow-share partnership contravenes Ontario securities legislation. But, says Schmidt, "nobody has ever approached me with that." He notes that the decision made it clear that what Schmidt was doing was private contracting and did not fall under legislation that governs commercial operations. The farm co-operative is registered with the Financial Services Commission of Ontario, he adds.

Robert Merrick, a spokesperson for the Ontario Securities Commission (OSC), told Better Farming he didn't know if the commission had investigated Schmidt's operation and, if so, whether he could speak about it. He said he would find out, but failed to respond to that question by this issue's deadline. He did note that registration with the commission, which regulates public security trade, is triggered only when someone is in the business of selling a security.

Faulkner has also scrutinized the justice of the peaces' decision line by line and says it's fraught with contradictions. One example he uses is how the decision overlooks the marketing aspect of activities such as public speaking about raw milk. "I would think this thing is easily appealable."

So does DFO. The provincial marketing organization won't speculate about the decision's implications for supply management.

Karen Lewis, treasurer for the Durham Region dairy producers committee, says she's concerned about the ruling's implications: "We (supply managed producers) are just worried about what's going to happen to everybody as a whole. When people strike out for themselves, they're not acting in the best interests of everybody."  Moreover, she says, if anyone does get sick from the milk, the whole industry will take the hit in sales and credibility because of the bad publicity.

The public health risk raw milk poses is the main issue, adds Bill Mitchell, DFO's spokesperson. He refers to a study published in a Grey Bruce Health Unit report that indicates there have been about 90 health incidents involving raw milk between 2005 and 2007. "I think what the government saw here was the potential for another Walkerton," he says.

Raw milk advocates counter that raw milk consumption is safe as long as precautions in production are followed.

In 2008, 29 U.S. states permitted raw milk sales, either through cow shares or direct to consumers. But its production is monitored. California, for example, regularly tests for coliform bacteria in raw milk and applies the same limits as those used for pasteurized milk. Cheese made from raw milk can be sold in Ontario if it is aged at least 90 days. Mitchell says the aging process is a substitute for pasteurization.

Mitchell acknowledges that many producers drink raw milk (a national survey indicates more than 88 per cent of Canadian dairy producers or their relatives consume raw milk). While the odds of problems occurring may be lower because the milk is fresher, they are present. When the milk is put "in a mason jar" and consumed days later, "it's a very different risk than the risk when it's drunk on-farm and very fresh. There's a risk in both cases, don't get me wrong."

He notes the decision is not intended to challenge supply management. Kowarsky emphasized his decision does not support marketing raw milk in the province, invalidate milk marketing legislation, draw conclusions about the health risks or benefits to consuming raw milk or condone activities that disobeys a "valid order" from provincial authorities.

Mitchell says DFO does not anticipate the ruling will stand. The judge's concept of marketing is "not the concept that's defined clearly in the legislation." This legislation has been upheld "on numerous occasions." Previous precedents in higher courts have ruled "completely opposite to this lower court ruling."

Vanderhout welcomes the opportunity an appeal would provide to address questions about constitutional rights. Schmidt had raised these in his defence, but Kowarsky had set them aside.

The non-profit Canadian Constitution Foundation will defend Schmidt for free if the appeal the government has filed proceeds. In a November news release, the foundation's litigation director, Karen Selick, states that the issue is about the "rights of Canadians to choose a product that is safely consumed by tens of thousands of people around the world. It's also about the right to earn an honest living free from government regulations that are unnecessary, unreasonable and unfair." BF

With files from Don Stoneman.