Tribunal hearing tackles Dairy Farmers of Ontario quota policies

Friday, October 31, 2014

by SUSAN MANN

If eastern Ontario dairy farmers Andy Senn and Franz Suter were to buy the 186 kilograms of quota on the provincial quota exchange that they obtained through the purchase of a nearby farm two years ago it would take them 39 years to get all of it.

That's because of other policies at play which restrict how much can be bought at any one time – despite assurances from the Dairy Farmers of Ontario when the policies were introduced in 2009 that it would only take a few months for farmers wanting to expand their operations to acquire their quota on the exchange, says lawyer Alyssa Tomkins.

Those were some of the many facts to emerge during a weeklong (Oct. 27-31) hearing before the Ontario Agriculture, Food and Rural Affairs Appeal Tribunal in Ottawa.

The two St-Bernardin-area farmers, who are brothers-in-law and business partners, had asked the tribunal to grant them an exemption to Dairy Farmers’ policies limiting the use of shared facilities to only times of exceptional circumstances and for only up to one year and prohibiting the relocation of quota bought as part of purchasing an ongoing farm operation for five years.

Tomkins and Anne Tardif, both of Caza Saikaley LLP in Ottawa, represented the two farmers. In arguing for the exemption, Tomkins says part of what they contend is the Dairy Farmers’ policy on moving quota obtained through purchasing an ongoing farm is unsound. “We have challenged its reasonableness and its wisdom as part of the exemption argument.”

They also raised the matter that the Dairy Farmers’ board doesn’t have the authority under the Milk Act and its regulations to restrict quota transfers, Tomkins says. They based their argument on case law covering how public bodies get their power and their jurisdiction. “The case law is quite clear that it has to be either express or it can be necessarily implied. We’ve said there’s no express power here.”

In other cases where quota movement restrictions have been upheld, public bodies were given specific powers to regulate quota transfers between farmers, she says. But the power Dairy Farmers has to fix and allot quota “says nothing about transferring quota.”

Graham Lloyd, Dairy Farmers of Ontario general counsel and communications director, says “we believe the policies are in the best interest of the industry. We believe the tribunal will accept that evidence in which case the policies will continue to achieve the desired outcomes, which is essentially to ensure there is sufficient and adequate quota for all producers in Ontario available from the (provincial quota) exchange.”

For his part, Senn is glad the week of the hearing is over and he’s back on the farm doing chores.

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 planned to go into dairy farming after finishing post secondary degrees. The Gauthier farm needed renovations and Senn and Suter applied to Dairy Farmers for and received a shared facility permission to temporarily produce milk to fill the 186 kilograms and their own quota both at the home farm.

In September 2013, Senn and Suter requested permission from the Dairy Farmers quota committee to:

• Transfer the quota from the Gauthier farm to their sons and to treat the transfer as if Lucas and David bought the farm and its milk-producing license. Dairy Farmers granted this request.
• Exempt them from the prohibition on 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.
• Extend the shared facility permission to enable them to build modern facilities on the newly acquired property.

In 2013 at both a hearing and a reconsideration hearing, Dairy Farmers denied the relocation of quota request and extended the shared facility permission only to Jan. 31, 2014.  

Tomkins says there were two barns on the Gauthier property, a free stall and a tie stall, and when Senn and Suter started getting estimates to renovate “they realized it was going to be a lot more expensive than they had intended.” The tie stall barn was in very poor shape and needed to be torn down, while renovating the free stall barn would have cost the same as building an entirely new barn.

But they decided it would make more sense to build the new barn at a better site, she says. It would be located either adjacent to the home farm or across the street. Senn was going to flip the Gauthier land for property owned by a neighbour adjacent to his land, she says. One of the reasons for their decision was the Gauthier property purchase only came with 80 acres, which is an insufficient amount of land for their nutrient management needs. “They were going to have to truck feed from the home farm to the Gauthier property as well as dealing with the manure.”

Another factor is Senn and Suter recently set up a bio-digester at their home farm that they’re using to pump energy back into the electricity grid and the treated manure from the digester “is not as harsh for the soil,” she says.

Tomkins says Senn originally intended to operate the quota from the Gauthier property as a second farm operation at the new property. “It would just be much closer (than the Gauthier property) and more convenient.” Senn needed the exemption to relocate the quota from the Gauthier property.

But then Senn learned late in 2013 Dairy Farmers had granted a farming couple permission to merge quota from their two farms. That case did not come before the tribunal, she says. “When he realized that happened” he questioned why he couldn’t merge his quota too. “What he really wanted was an effective merger,” Tomkins says, adding that became the focus of their appeal. In addition, they asked for an indefinite time for use of shared facilities.

“Even through we call it an effective merger, the quota would remain separate. It would just be farmed together at the home farm under a shared facilities permission,” she says.

If the Senn/Suter side wins the case, Lloyd says “we believe it would undermine the primary objective of the policy, which is fair and equitable access of quota for all producers and it could result, therefore, in much greater mergers and producers getting an unfair advantage to quota.”

Senn says if they win the case some farmers won’t like it but “in my opinion for the longer term future of the dairy industry in Ontario it will be a gain. The way it is now the system benefits the ones who want the status quo but for the guys who want to progress they can’t.”

Delaying improvements to the quota exchange will put progressive dairy farmers in jeopardy, he adds, adding he knows of one of the biggest dairy farms in Ontario being listed for sale. “Guys are going to start saying there’s no future in Ontario.”

Dairy Farmers operations director George MacNaughton and consultant John Groenewegen, who has a PhD in agricultural economics with a specialty in supply management, testified on behalf of the marketing board. Lloyd says Groenewegen has worked extensively with Dairy Farmers and other supply-managed commodities to develop agricultural policies.

Tomkins says agricultural economists, Al Mussell, George Morris Centre senior research associate, and Prof. Alfons Weersink of the University of Guelph testified on their behalf. They also had an accountant from Deloitte, John Saunders, who did a study outlining the incremental costs and capital outlay required to run a second farm operation. “We were quantifying the inefficiencies that are resulting from the board’s current policies,” she says.

Saunders “calculated there was an annual incremental cost of $186,000 and then an annual incremental capital outlay of $96,000,” she says. “The extent of the inefficiency is very significant.” But the policy considerations Dairy Farmers raised to justify the inefficiency “are minimal,” she adds, noting especially when one takes into account how important efficiency is to the dairy industry.

As for how things went compared to how he expected they would go, Lloyd says they were very pleased with the tribunal panel. “We felt the panel was extremely engaged and understood the issue.”

The panel heard evidence most days from at least 9 a.m. to 5 p.m. “We believe the evidence went in as expected,” he says. “We didn’t have any unexpected evidentiary issues.”

Tomkins says “we were very happy with how things went. They went just as well or better than we expected.”

She agreed with Lloyd that the tribunal members were very engaged. “They acknowledged this was not a typical tribunal proceeding. The amount of evidence was significantly more than is typically before them.”

What impact did the Dairy Farmers of Ontario arguments have on the tribunal? Lloyd  says “we’re confident that the policies and procedures that Dairy Farmers has implemented and the regulations that it has followed are accurate and appropriate. We think the evidence will be accepted.”

Lloyd notes their arguments included that the goals and objectives of the organization’s quota transfer rules “are to have as much quota driven through and available through the exchange to ensure fair and equitable access. I believe the tribunal understands those are the legitimate goals and objectives.”

Tomkins says it’s very difficult to say what impact the arguments from their side had on the tribunal. “They keep poker faces.”

Senn agrees, saying he found it hard to judge the impact. “One minute you think you’re doing really great and the next minute it looks different again.”

He says he didn’t have much expectation going into the hearing but “we’re still hoping for the best.”

In an earlier interview this summer, Lloyd said the Dairy Farmers rules were being challenged using the argument they conflict with federal Competition Act rules and that Dairy Farmers lacks the jurisdiction to make policies that interfere “in the business or competition of carrying on milk production.”

Dairy Farmers met the constitutional challenge of Senn and Suter to the organization’s ability to enact policies that may conflict with the federal Competition Act by using a long-standing defense to anti-Competition Act allegations called the “regulated market defense,” Lloyd says. “The long-standing principle (within the Act) recognizes provincial authorities can have regulations where deemed appropriate and necessary within the provincial jurisdiction to regulate certain markets. In those situations the Competition Act does not apply. We’re confident that supply management is one of those situations.”

Tribunal decisions are normally handed down within about 30 days but Tomkins says this one will likely take longer because of the amount of evidence panel members will have to sift through and the amount of analysis they’ll have to complete. BF