Tribunal denies dairy farmers' appeal

Thursday, February 12, 2015

by SUSAN MANN

Two Eastern Ontario dairy farmers plan to meet with their lawyers before considering if they will appeal an agricultural tribunal decision denying their request to merge their quota with quota from a neighbouring dairy farm they bought three years ago.

In its Feb. 12 written ruling, the Ontario Agriculture, Food and Rural Affairs Appeal Tribunal said the brothers-in-law, Andy Senn and Franz Suter of St-Bernardin, must return the cows from the neighbouring Gauthier farm they bought in 2012 back to that property no later than May 15 and continue milking them there until May 14, 2019. They had been milking the Gauthier-property cows along with the ones from their home farm at the home farm since getting permission from Dairy Farmers to do so in 2012.

If they miss the  deadline set by the tribunal, the farmers must sell all of the 177 kilograms of quota they got as part of the Gauthier farm purchase. Before the quota goes on the exchange it will be reduced by 10 per cent and that amount will be returned to Dairy Farmers of Ontario, the tribunal said in its 18-page decision.

The pair have been dairy farmers since the late 1980s and between their two numbered companies they own and rent 2,400 acres, milk 400 cows and have 425 kilograms of quota, the decision said.
Asked for his opinion of the decision, Andy Senn said “it is what it is. For now there’s not much to say. I need to go over the facts a couple more times and see what is really going on.”

Senn and Suter sought an exemption to Dairy Farmers of Ontario policies dealing with quota transfers and were challenging Dairy Farmers authority to enact quota policies restricting transfers. They alleged Dairy Farmers didn’t have the express or implied authority under the Milk Act and its regulations to restrict quota transfers. They also alleged parts of Dairy Farmers’ policies were unconstitutional, invalid and shouldn’t apply.

The tribunal disagreed with their view saying the language in the Milk Act and its regulations “bestow broad and discretionary powers on the DFO (Dairy Farmers of Ontario) to regulate milk production and marketing via a quota system.” It doesn’t make sense to give Dairy Farmers the authority to fix and allot quota to each farmer “but not the authority to restrict the transfer of quota between them,” the decision said.

Graham Lloyd, Dairy Farmers general counsel and communications director, said the organization is “pleased the tribunal agreed DFO has the authority to make quota policy decisions. We are equally pleased the tribunal found it’s the intention of the Milk Act to delegate to DFO broad and flexible quota powers.”

The tribunal decision is important because it recognizes the Ontario Legislature and the Ontario Farm Products Marketing Commission “in their collective wisdom saw fit to grant DFO a range of tools to exercise its powers, including the (Milk Act) regulations, orders, policies and decisions,” he said.

The tribunal decision also recognized the quota policy-making process Dairy Farmers follows, which included several farmer meetings and reports, and concluded “there was no basis for a finding that the quota policies were unsound, unwise or bad,” Lloyd said.

The Gauthier farm purchase was listed as having 187 kilograms of quota but the tribunal noted 10 kilograms of every quota holding is not saleable.

The farm was listed for sale at $10.5 million in March 2012. Senn and Suter bought it for $6.55 million but with only 80 acres of the 400 acres of available land. Their previous offers of $9.5 million and $9.6 million for the entire farm were rejected.

In addition to the 80 acres and the quota, the farm purchase came with 260 cows, a tie stall and a free stall barn, other buildings and some equipment, the decision said. Seventy per cent of the purchase price, $4.425 million, was allotted to the 177 kilograms of saleable quota at $25,000 per kilogram, according to the decision.

Senn and Suter planned to renovate the Gauthier farm. They received permission in August 2012 from Dairy Farmers through the shared facilities section of its policies to move the Gauthier cows to their home farm while renovations were to be done. The home farm had space for 450 cows “so the move bought the home farm facility up to capacity,” the decision said.

They could keep the Gauthier cows at the home farm for one year, Dairy Farmers said. The shared facilities provision of Dairy Farmers quota policies enables farmers to temporarily relocate cows bought as part of an ongoing operation to another facility for up to one year.

Dairy Farmers quota policies also prohibit farmers who buy quota through ongoing dairy farms from merging that quota with their own, and they must ship milk from the purchased location for five years before being able to transfer or relocate the quota.

By August 2013 Senn and Suter concluded the renovations were too expensive and could hit upwards of $1 million for the barn and to install a robotic milking system. They applied for a quota policy exemption in October 2013 so they could move the quota from the purchased farm before the five years had elapsed. They wanted to build a new barn at a new permanent site in the spring of 2014, the decision said.

They had planned to relocate to a piece of property adjacent to the home farm and build a new barn within walking distance of the home farm so they could share storage and make use of their bio-digester. Building a barn on a new site would have enabled them to pipe the cows’ manure to their bio-digester on the home farm rather than trucking it three kilometres from the Gauthier farm, the decision says.

As of the time of the tribunal hearing, Oct. 27 to 31, 2014, renovations at the Gauthier farm hadn’t started, the tribunal noted.

Dairy Farmers granted Senn and Suter’s request to transfer the quota obtained by buying the Gauthier farm to their sons, Lucas Senn and David Suter, who were completing post secondary agriculture degrees and planned to go into dairy farming. It also extended the shared facilities permission but only until Jan. 31, 2014. It denied the request to relocate the quota to another farm. The farmers had until Feb. 1, 2014 to start shipping milk from the Gauthier farm otherwise a 20 per cent reduction would be applied before the quota was put on the exchange.

The tribunal said that 20 per cent amounted to a penalty of $885,000 and that seems “disproportionate.” The tribunal reduced it to 10 per cent if Senn and Suter don’t start milking the cows included in the Gauthier farm purchase at the Gauthier property by May 15.

At hearing and reconsideration proceedings before Dairy Farmers, the organization’s board considered Senn and Suter’s request for an exemption to quota transfer policies but refused that request.

The tribunal noted Senn and Suter “believed they are entitled to an exemption (to Dairy Farmers of Ontario quota policies) for efficiency, to achieve economies of scale and to allow their operation to be more profitable,” the decision said. “The tribunal agrees with DFO that these are not the basis on which to grant an exemption. On that basis the appeal fails.” BF