Milk board faces legal challenge

Thursday, August 21, 2014

Two eastern Ontario dairy farmers have launched an appeal of some Dairy Farmers of Ontario quota policies saying the marketing board lacks the jurisdiction to enact those rules because they conflict with federal laws.

Brothers-in-law and long time business partners, Andy Senn and Franz Suter, who farm in St-Bernardin, are challenging Dairy Farmers’ rules limiting a farmer’s ability to share facilities with another farmer to only times of exceptional circumstances and only for up to a year. They are also challenging a rule prohibiting farmers from relocating quota bought as part of purchasing an ongoing farm operation for five years.

The hearing before the Ontario Agriculture, Food and Rural Affairs Appeal Tribunal is scheduled for Oct. 27 to 31 in Ottawa. Senn and Suter are appealing a Dairy Farmers’ 2013 decision denying them permission to relocate the 186 kilograms of quota they bought in October 2012 though the purchase of a St-Bernardin-area farm and to continue the shared facilities permission they obtained after buying that farm. That permission enabled them to temporarily produce milk using the purchased 186 kilograms of quota and their own quota all at their home farm.

Andy Senn says they decided to appeal their matter to the tribunal because “Dairy Farmers basically didn’t leave us any other choice. It was the middle of December (2013) that we go the results from the reconsideration hearing and they gave us until the end of January (2014) to move the cows back (to the home farm) or sell the quota by the end of April or take a 20 per cent quota cut.”

Graham Lloyd, Dairy Farmers general counsel and communications director, says this is the first time Dairy Farmers of Ontario rules are being challenged using the argument they conflict with federal laws. It’s also the first time there is a constitutional challenge of Dairy Farmers’ authority to enact policies, he says.

Senn and Suter have filed a notice “of constitutional challenge” of Dairy Farmers of Ontario’s quota rules and the Ontario Milk Act, Lloyd says. The challenge questions Dairy Farmers and the Ontario Farm Products Marketing Commission’s rights “to make policies that interfere in the business or competition of carrying on milk production.” The provincial farm products marketing commission has regulatory authority over the dairy industry in Ontario.

Senn and Suter are represented by the Ottawa law firm Caza Saikaley LLP. One of their lawyers Alyssa Tomkins says the governing statute, the Milk Act, doesn’t expressly authorize the regulations dealing with shared facilities and quota relocation. The authorization Dairy Farmers has under the Milk Act is “very vague,” she adds. “It becomes a question of how do you interpret that provision. Does it authorize this policy?”

In their August 12 notice outlining the challenge that was sent to Dairy Farmers, the tribunal, and the attorneys general for Ontario and Canada, lawyers Anne Tardif and Tomkins say sections of Dairy Farmers’ quota policies “constitute an arrangement between competitors that contravenes” a subsection of the Competition Act.

Tomkins says for a provincial law like the Milk Act, “you can’t imply that it takes precedence over the (federal) Competition Act. That can only happen if it was done expressly.” The Milk Act is very broad and gives Dairy Farmers powers to enact regulations “over a lot of things,” she says. “We are alleging that discretion is limited by any applicable federal legislation.”

 Lloyd says Dairy Farmers strongly “disputes any suggestion that its powers are unconstitutional or somehow conflict with any federal laws. We view this as a challenge of our fundamental authority and jurisdiction to properly manage the dairy system.”

The situation arose after Senn and Suter bought the 186 kilograms of quota through the purchase of an ongoing farm near St-Bernardin in October 2012, called the Gauthier farm. They bought the farm for their sons, Lucas Senn and David Suter, who are both finishing post secondary agriculture degrees but plan to continue their families’ tradition of dairy farming.

The purchased Gauthier farm needed renovations. Senn and Suter applied for and received a shared facility permission to temporarily produce milk to fill the 186 kilograms of quota and their own quota both at the home farm.

In September 2013, Senn and Suter put in a request to Dairy Farmers’ quota committee asking:

• To transfer the quota from the Gauthier farm to their sons and to treat the transfer as if Lucas and David initially bought the farm and its milk producing license.
• To get an exemption from the requirement prohibiting transferring quota bought through an ongoing farm purchase for five years so they could transfer milk production to a property better suited to their situation that was to be bought near the Gauthier farm.
• To get an extension of the shared facility permission to allow modern facilities to be built on the newly acquired property.

In October 2013, Dairy Farmers told Senn and Suter in a letter their first request was granted and the quota bought with the Gauthier farm purchase was deemed to have been transferred to Lucas and David in October 2012. But Dairy Farmers denied the request to relocate the quota and it said the shared facility permission would only be extended to Jan. 31, 2014.

Dairy Farmers told Senn and Suter if milk wasn’t shipped from the Gauthier farm by Feb. 1, 2014 the quota held under that license would be ordered to be sold this spring and a 20 per cent reduction of the saleable quota would be applied before the quota was put on the exchange. Furthermore, if the quota wasn’t sold before the April quota exchange, Dairy Farmers would cancel it.

After a reconsideration hearing in November 2013, Dairy Farmers upheld its original decision, saying in a Dec. 3, 2013 letter to Senn and Suter the board was denying the requests because they weren’t allowed under current Dairy Farmers’ quota policies and Senn and Suter’s situation wasn’t considered to need an exemption.

Tomkins says there’s a stay of proceedings against Senn and Suter while the appeal is ongoing and that means the farmers haven’t yet had to sell the quota or produce milk from the Gauthier property.

Senn and Suter’s lawyers say in their Aug. 12 notice that Dairy Farmers wasn’t entitled to rely on sections of the quota policies to deny the requests because it lacked “jurisdiction to enact them.” The sections in question, B-4, which deals with the shared facilities rules, and C-5, which prevents farmers from relocating quota obtained by purchasing an ongoing farm for five years, “constitute a limitation on the appellant’s (Senn and Suter) right to engage in a lawful business and to engage in competition,” the notice says.

There is nothing in the Ministry of Agriculture, Food and Rural Affairs Act or the Milk Act that enables the farm products marketing commission or Dairy Farmers to create policies “that have the effect of law,” the notice says. In addition, those two sections of the quota policies (B-4 and C-5) are not authorized by statute or regulation and exceed the “delegated authority of the DFO,” the notice says. BF