Annual Report 2013-2014 of the Agricultural Research Institute of Ontario (ARIO)

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Ministry mandate and role of the Agricultural Research Institute of Ontario

The Government of Ontario's priorities during 2013-14 included Investing in Infrastructure, Investing in People, and Helping Business Succeed.

Ministry mandate

The Ministry of Agriculture and Food [prior to January 2013 and currently as of July 2014 known as the Ministry of Agriculture, Food and Rural Affairs], works to advance the government's priorities through its efforts to promote a more competitive and productive agri-food and agri-products sector, economic growth and opportunities for rural Ontario.

The Ontario Ministry of Agriculture and Food ["OMAF"] invests significantly in agri-food research, education, technology transfer and analytical and diagnostic services to achieve their vision. A strategic and coordinated research priority setting system, combined with modern world-class research infrastructure/facilities are keys to delivering research results that help drive innovation.

The Agricultural Research Institute of Ontario ("ARIO"), is a body corporate whose duties and responsibilities are defined within the Agricultural Research Institute of Ontario Act R.S.O. 1990, c A.13. ARIO is an agency of the Crown reporting to the Minister of Agriculture and Food. The ARIO contributes by promoting economic growth, sustainability and profitability of the agri-food and agri-products sector across the entire province by providing strategic advice on research and continuing implementation of the research infrastructure strategy. The ARIO is an important component of the agri-food research and innovation system in the province.

Role of the Agricultural Research Institute of Ontario (ARIO)

ARIO fills a unique role in providing advice on strategic directions for research priorities/activities that contribute to prosperous, competitive and sustainable agricultural, food and rural sectors in Ontario. In addition, ARIO owns the provincial government's agriculture & food research and education infrastructure (currently 17 research stations), and has the responsibility for operating and managing these assets in support of Ontario's agriculture and food sector. The Institute was created in 1962 and continues its mandate under the Agricultural Research Institute of Ontario Act R.S.O. 1990, C.A. 13 as amended ("the Act"). ARIO's mandate, as defined by the Act, is to select and recommend areas of research for the betterment of agriculture, veterinary medicine and household sciences and to increase production efficiency and marketing of agricultural products by stimulating interest in research.

ARIO mission statement

ARIO, is an Operational Services Agency reporting to the Minister of Agriculture and Food, and is dedicated to the strategic use of science and innovation to enhance the sustainability and profitability of Ontario's agri-food and rural sectors.

2013-14 ARIO Members

ARIO is comprised of up to 15 members appointed by the Minister of Agriculture and Food.

Member Appointment Date Expiry Date
Mr. Stewart Cressman (Chair) August 31, 2005 August 31, 2015
Dr. Larry Milligan (Vice-Chair) July 13, 2007 July 13, 2016
Dr. Rebecca Baker October 26, 2009 November 19, 2015
Dr. Om P. Dangi December 1, 2008 December 1, 2013
Dr. Moni Eino July 17, 2007 December 23, 2015
Mr. Greg Hannam December 14, 2004 May 30, 2014
Mr. Paul Henderson December 23, 2008 December 23, 2016
Ms. Elizabeth Johnston September 22, 2009 September 22, 2015
Dr. Gord Surgeoner June 2, 2005 November 14, 2016

AAFC ex officio representative:

  • Mr. Richard Seguin
  • Dr. Denis Petitclerc from November 2013

Director of Research, ARIO:

  • Karen Chan to October 1, 2013
  • Rena Hubers from October 1, 2013

Comptroller

  • Rob Cunnington, CPA, CA to April 14, 2014
  • Heather Harrison, CPA, CMA from April 14, 2014

Secretariat support to ARIO is provided by the Research and Innovation Branch staff of OMAF:

  • Mike Toombs, Director
  • Debbie Ramsay, Manager - Research Program Coordination
  • Jeff Schieck, Manager - Finance, Infrastructure and Administration
  • Oswald Zachariah, Manager - Knowledge Transfer and Translation

Letter from the Chair

Guelph, Ontario
July 30, 2014

The Honourable Jeff Leal
Minister of Agriculture, Food and Rural Affairs
Legislative Buildings
Toronto, Ontario M7A 1A3

Dear Minister Leal,

I am pleased to submit the 50th annual report of the Agricultural Research Institute of Ontario (ARIO) for the fiscal year April 1, 2013 to March 31, 2014. Over the past year ARIO has seen considerable progress on several significant milestones that are detailed in this annual report.

One of the most visible and important achievements this past year was the start of construction of the new dairy research barn at Elora which is planned for completion in the fall of 2014. This project is the first stage in the redevelopment of the Elora research station and the implementation of the ARIO Infrastructure Strategy.

During the past year ARIO has continued to work to advance the Infrastructure Strategy, build partnerships both across the value chain and between sectors, and improve the industry's understanding of the importance of research and innovation as the way to build and maintain competitive advantage and move the sector forward. The agri-food and agri-products sector continues to be one of the largest manufacturing sectors in the province and remains a cornerstone of Ontario's economic strength and success.

Together, with industry partners and the research community, we can drive targeted research and innovation that will benefit Ontario's economy, position us as a global leader in our sector, and bring high-quality safe agri-food products to the rest of the world.

Sincerely,

Stewart Cressman,
Chair, Agricultural Research Institute of Ontario

Chair and Director's report

We are pleased to provide some highlights from the 2013-14 fiscal year for the Agricultural Research Institute of Ontario (ARIO) and agri-food research and innovation in Ontario.

Research Infrastructure Strategy

ARIO's research infrastructure strategy provides an approach for modernizing Ontario's aging network of agri-food and agri-products research infrastructure. ARIO's infrastructure strategy will result in a system of modern, state of the art, integrated, multi-disciplinary research and innovation platforms focused on consumer, market and economic outcomes. Benefits include, driving innovation through the creation of new and value-added products, developing solutions to current and emerging issues, and validating new technologies and approaches to Ontario conditions. ARIO's strategy encourages industry participation and leadership where industry works with government to deliver the sectors highest research priorities and needs. Research and innovation are critical to maintaining and strengthening the agri-food and agri-products sectors competitiveness both provincially and globally. Modernized, relevant research infrastructure enables scientific excellence, knowledge dissemination and industry adoption all of which are necessary to the economic growth of the agri-food and agri-products sector for the province.

Since its recommendations in 2008, ARIO continues to advance the strategy and has achieved several significant milestones. Considerable progress has been made and continues on the first two centres of the modernization strategy for Ontario's network of agri-food and agri-products research; the Vineland Research and Innovation Centre (VRIC) located at the Vineland research station, and the Livestock Research and Innovation Centre at Elora. Construction of the new research greenhouse at Vineland station is expected to begin in the first quarter of 2014-15 and construction of the new dairy facility at Elora is well underway with construction completion expected in the fall of 2014.

Progress continues to be made on the possible future relocation of the Guelph Research Station facilities and programs. We continue to work closely with stakeholders from the Guelph Turfgrass Institute (GTI), the University of Guelph (U of G) the Ministry of Infrastructure (MOI) and its agency Infrastructure Ontario (IO) as there is significant interest by the U of G and GTI to relocate elements of the GTI to the U of G's arboretum.

In addition, industry consultations to identify needs and preliminary development planning continues for up to three additional centres for Bioeconomy, Field Crops, and Food and Health as put forward in ARIO's infrastructure strategy recommendations to the Minister of OMAF.

Infrastructure

Construction of the new dairy research facility at the Elora research station began in the summer of 2013 followed by an official launch event in October. Construction was well advanced by the spring of 2014 and is expected to be completed by the fall of 2014.

VRIC is an incorporated research organization. VRIC assumed responsibility from the University of Guelph (U of G) for the operation and management of the Vineland research station effective November 1, 2013.

VRIC has made significant progress in the revitalization of the Vineland research station. In March 2013, VRIC was given approval in principle for the construction of the new greenhouse complex. During 2013-14 VRIC worked to finalize the design and meet the conditions for approval. Final approval and signing of the agreement for the new greenhouse is expected in the first quarter of 2014-15 with the start of construction expected to begin immediately thereafter. Completion is expected in the spring of 2015.

VRIC and ARIO have completed negotiations on a land lease for the land occupied by the former Agriculture and Agri-Food Canada (AAFC) building now owned by VRIC. Approval and a fully signed agreement is expected in the first quarter of 2014-15.

Minor capital

The minor capital program allocates funds across the ARIO portfolio for repairs, life cycle renovations and program-related improvements. The program is funded through an annual transfer payment from OMAF and is supplemented by revenues generated by the ARIO. External stakeholders continue to contribute funding to several of the large renovation and capital projects and to some dedicated research field equipment purchases. The minor capital funding from OMAF continues to allow ARIO to make significant headway in addressing accumulated deferred maintenance and ongoing life cycle building and program maintenance upgrades.

Program focus for the 2013-14 was on completing a number of existing large renovation projects. Safety (human and animal), regulatory, and equipment failure issues that affected building and program operations were addressed on a case by case basis as they arose throughout the year.

The U of G continues to deliver ARIO's annual minor capital program at all locations except the Vineland research station. VRIC has taken over administration of the minor capital program for the Vineland research station as part of their assumption of the responsibility for overall operations and site management.

ARIO supports renewal and refurbishment of the physical infrastructure on its properties and enhancement of capacity through the minor capital program and other funding. The University of Guelph and other stakeholders are strongly encouraged to seek out additional funding to support these construction projects. For example, the $3.8 million Reek building rebuild at Ridgetown completed in 2013-14, was made possible by $2.6 million in contributions from other stakeholders.

Research

ARIO's open research programs (New Directions and Food Safety) continue to be highly responsive to emerging, high priority research needs. For example, 2013-14 saw the launch of a separate New Directions call for proposals related to Bee Health and Best Management Practices in Field Crop Production, to help provide new knowledge related to bee health and the potential role and management of neonicotinoid insecticides. Other exciting research is underway in 2014 related to climate change, rural, antimicrobial resistance and food safety.

The VRIC has become the voice of the horticulture industry in Ontario and their efforts in research priority setting have been very influential in the ministry's priority setting process under the OMAF Research Advisory Network. The Livestock Research Innovation Corporation is likewise engaging their industry partners and will play an increasing role in supporting the ministry's research programming.

The Research Management System (RMS) continues to be an effective platform for research program administration. Several important enhancements this past year include the development of a Subject Matter Specialist Workbench to improve the capture of research project information and support technology transfer across the ministry. In addition, new ways of cataloguing funded research and supporting training and continuous improvement to the RMS software platform have been implemented.

Alfred and Kemptville campuses

In March 2014, the U of G announced that they would be ending diploma education program delivery at the Alfred and Kemptville campuses effective May 2015. This decision may have long term implications for these sites. The province retained two consultants in July 2014 to explore options for sustainable paths forward for each campus. No final decisions will be made until after identification and review of all possible sustainable options.

Staffing changes

Rena Hubers was appointed as Director of Research in October 2013 replacing Karen Chan who accepted another assignment in the Ontario public service.

ARIO has no staff of its own. Secretariat support for the institute is provided by ministry staff. A realignment of responsibilities resulted in the transfer of controllership functions to the ministry financial administration staff. As a result of this realignment, Heather Harrison was appointed Comptroller of ARIO replacing Rob Cunnington.

We would like to thank all those who support agri-food research and innovation across the province - industry, academia and various levels of government. Together, we can, and are, making a difference.

This past year saw the start of several key initiatives that will have a significant impact on agri-food research and innovation in Ontario and we look forward to continuing down this path in the year ahead.

Stewart Cressman, Chair
Agricultural Research Institute of Ontario

Rena Hubers, Director of Research
Agricultural Research Institute of Ontario

Management's responsibility for financial reporting

The accompanying financial statements of the Agricultural Research Institute of Ontario (ARlO) have been prepared in accordance with Canadian generally accepted accounting principles. Management is responsible for the accuracy, integrity, and objectivity of the information contained in the financial statements.

The preparation of financial statements necessarily involves the use of estimates based on management's best judgment, particularly when transactions affecting the current accounting period cannot be finalized with certainty until future periods. These financial statements have been prepared within reasonable limits of materiality with information available up to and including June 18, 2014.

In discharging its responsibility for the integrity of the financial statements, management maintains financial and management control systems and practices designed to provide reasonable assurance that transactions are authorized, assets are safeguarded, and proper records are maintained.

The financial statements have been examined by RLB LLP, independent external auditors appointed by the Ontario Ministry of Agriculture and Food on behalf of ARlO. The external auditors' responsibility is to express an opinion on whether the financial statements are presented fairly in accordance with generally accepted accounting principles. The Auditors' Report outlines the scope of their examination and opinion.

On behalf of management:

  • Rena Hubers, Director of Research
  • Heather Harrison, CPA, CMA

Independent auditor's report

logo for RLB chartered accountants

To the members of: Agricultural Research Institute of Ontario

We have audited the accompanying financial statements of Agricultural Research Institute of Ontario, which comprise the statement of financial position as at March 31, 2014 and the statements of revenues and expenditures and changes in fund balances, remeasurement losses and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management's responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, these financial statements present fairly, in all material respects, the financial position of Agricultural Research Institute of Ontario as at March 31, 2014 and the results of its operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.

Guelph, Ontario
June 13, 2014

RRp LL

Chartered Accountants, Licensed Public Accountants

Statement of financial position

As at March 31, 2014

Assets

Item $ 2014 (schedule 1) $ 2013
Cash
1,494,683
3,985,879
Investments
29,856,175
12,327,500
Accounts receivable
154,906
172,045
Subtotal
31,505,764
16,485,424
Capital assets under construction
22,155,506
24,790,842
Capital assets (note 5)
59,059,056
57,375,167
Total Assets
112,720,326
98,651,433

Liabilities

Item $2014 (schedule 1) $2013
Current Accounts payable and accruals
1,736,885
1,520,026
Current holdbacks payable
458,609
417,773
Current unclaimed expenditures
5,798,706
2,882,327
Current deferred revenue
381,091
3,065
Subtotal
8,375,291
4,823,191
Defferred captial funded contributions (note 6)
49,273,486
37,063,396
Defferred captial contributions (note 7)
32,188,072
34,242,104
Total Liabilities
89,836,849
76,128,691

Net Assets

Net Asset $ 2014 (schedule 1) $2013
Fund balances
8,879,681
8,542,270
Accumulated remeasurement losses
(33,487)
(56,811)
Contributed assets
14,037,283
14,037,283
Total Net Assets
22,883,477
22,522,742

Total liabilities plus net assets

Item $ 2014 (schedule 1) $2013
Total Liabilities plus net assets
112,720,326
98,651,433

Statement of revenues and expenditures and changes in fund balances

For year ended March 31, 2014

Research revenues

Item $ 2014 (schedule 2) $2013
Grants - provincial (note 9)
2,980,000
3,500,000
Grants - other
378,000
280,000
Intellectual property
1,117,877
1,085,306
Total research revenues
4,475,877
4,865,306

Property revenues

Item $ 2014 (schedule 2) $2013
Grants - provincial minor capital (note 9)
4,131,184
3,218,581
Rental income provincial
834,302
865,909
Rental income private industry
677,380
661,289
Transfer payments - payments in lieu of taxes
750,000
750,000
Payments in lieu of taxes
187,754
252,175
Amortization of deferred capital contribution
2,394,158
2,393,613
Total property revenues
8,974,778
8,141,567

Other revenues

Item $ 2014 (schedule 2) $2013
Investment income
207,631
271,241

Total revenues

Item $ 2014 (schedule 2) $2013
Total research revenues
4,475,877
4,865,306
Total property revenues
8,974,778
8,141,567
Total investment income
207,631
271,241
Total Revenues
13,658,286
13,278,114

Research expenditures

Item $ 2014 (schedule 2) $2013
Research project\program
2,303,064
1,948,406
Intellectual property
708,370
731,496
Total research expenditures
3,011,434
2,679,902

Property expenditures

Item $ 2014 (schedule 2) $2013
Payments in lieu of taxes
884,271
797,685
Minor capital
3,368,690
3,058,824
Operations and maintenance
733,495
772,330
Amortization of capital assets
2,394,158
2,393,613
Total property expenditures
7,380,614
7,022,452

Other expenses

Item $ 2014 (schedule 2) $2013
Other expenses
12,448
10,110

Total expenditures

Item $ 2014 (schedule 2) $2013
Total research expenditures
3,011,434
2,679,902
Total property expenditures
7,380,614
7,022,452
Total other expenditures
12,448
10,110
Total expenditures
10,404,496
9,712,464

Fund balances

Item $ 2014 (schedule 2) $2013
Excess of revenue over expenditures for the year
3,253,790
3,565,650
Net Amount transferred (to)/from unclaimed expenditures
(2,916,379)
1,657,393
Fund Balances, beginning of year
22,522,742
17,360,306
Net remeasurement gains (losses) for the year
23,324
(56,811)
Land transferred to township of Alfred
0
(3,796)
Fund balances end of year
22,883,477
22,522,742

Statement of remeasurement losses

For year ended March 31, 2014

Item $ 2014 $2013
Accumulated remeasurement losses, beginning of year
(56,811)
0
Adjustment upon adoption of financial instruments section
0
0
Unrealized gains (losses) attributable to temporary investments
69,483
(56,811)
Amounts reclassified to the statement of operations:
Realized losses on temporary investments
(46,159)
0
Net remeasurement gains (losses) for the year
23,324
(56,811)
Accumulated remeasurement losses, end of year
(33,487)
(56,811)

Statement of cash flows

For year ended March 31, 2014

Cash provided by (used in) operating activities

Item $ 2014 $2013
Excess of revenue over expenditures for the year
3,253,790
3,565,650

Items not requiring an outlay of cash

Item $ 2014 $2013
Amortization
2,394,158
2,393,613
Deferred capital contributions
(2,054,032)
(2,053,488)
Loss on disposal of capital
126,104
0
Accumulated remeasurement losses
23,324
(56,811)
Total of items not requiring an outlay of cash
3,743,344
3,848,964

Changes in non cash working capital

Item $ 2014 $2013
Accounts receivable
17,139
(13,912)
Investments
(17,528,675)
(4,819,689)
Accounts payable and accruals
216,859
111,419
Deferred capital funded contributions
12,210,090
18,627,888
Holdbacks payable
40,836
46,331
Deferred revenue
378,026
(24,722)
Total changes in non cash working capital
(922,381)
17,776,279

Cash provided by (used in) investing activities

Item $ 2014 $2013
Additions to capital assets
(1,568,815)
(475,563)
Proceeds on transfer of land
0
2
Capital assets under construction
0
(16,300,000)
Total cash provided by (used in) investing activities
(1,568,815)
(16,775,561)

Net change in cash for the year

Item $ 2014 $2013
Net (decrease) increase in cash for the year
(2,491,196)
1,000,718
Cash, beginning of the year
3,985,879
2,985,161
Cash, end of year
1,494,683
3,985,879

Notes to the financial statements

Note 1 - Nature of business

The Agricultural Research Institute of Ontario (ARIO) is a non profit corporate body reporting directly to the Ministry of Agriculture and Food (OMAF), formerly the Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA). ARIO is a non profit organization within the meaning of the Income Tax Act (Canada) and is exempt from income taxes. It was created by the ARIO Act with specific responsibilities over the co ordination and direction of agricultural research programs in Ontario. These programs relate to a broad range of commodities and disciplines, covering all aspects of the agri food system.

Funding for programs supported by ARIO is available from various sources. The Ontario Government, through the Ministry of Agriculture and Food, is the primary source of funding. The Ontario Government also provides funding for the open research programs. Under the ARIO Act, ARIO may accept grants and donations for research. Other funds usually come from commercial sources (such as agri business, marketing boards, and producer associations) and can be either designated for specific projects or non designated. In addition, with the approval of the Minister of Agriculture and Food, ARIO is able to hold patents and earn royalties on research developments.

All receipts are held in trust by the Director of Research and are allocated in accordance with the terms of the funds.

The current research trust funds managed by the secretariat to ARIO are as follows:

  • Agricultural Research Institute of Ontario (ARIO)
  • New Directions Research Program (New Directions)
  • Food Safety Research Program (Food Safety)
  • Infrastructure

Note 2 - Summary of significant accounting policies

The financial statements have been prepared in accordance with Canadian public sector accounting standards for government not for profit organizations, including the 4200 series of standards, as issued by the Public Sector Accounting Board ("PSAB for Government NPOs") and include the following significant accounting policies:

Basis of accounting

ARIO follows the deferral method of accounting for contributions. Restricted contributions are recognized as revenue of the appropriate research trust fund in the year in which the related expenses are incurred. Unrestricted contributions are recognized as revenue of the appropriate research trust fund when received or receivable if the amount to be received can be reasonably estimated and collection is reasonably assured.

Financial Instruments
  1. Measurement of financial instruments:

The organization initially measures its financial assets and liabilities at fair value, except for certain non arm's length transactions.

The organization subsequently measures all its financial assets and financial liabilities at amortized cost, except for investments, which are measured at fair value. Changes in fair value are recognized in the statement of remeasurement losses.

Financial assets measured at amortized cost include cash and accounts receivable. Financial liabilities measured at amortized cost include accounts payable and accruals, holdbacks payable, unclaimed expenditures, deferred capital funded contributions and deferred capital contributions.

The organization's financial assets measured at fair value include the investments.

  1. Impairment:

Financial assets measured at amortized cost are tested for impairment when there are indicators of impairment. If an impairment has occurred, the carrying amount of financial assets measured at amortized cost is reduced to the greater of the discounted future cash flows expected or the proceeds that could be realized from the sale of the financial asset. The amount of the write down is recognized in the statement of revenues and expenditures. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in the statement of revenues and expenditures.

  1. Transaction costs:

The organization recognizes its transaction costs in expenditures in the period incurred. However, financial instruments that will not be subsequently measured at fair value are adjusted by the transaction costs that are directly attributable to their origination, issuance or assumption.

Unclaimed expenditures

Unclaimed expenditures are defined as the total approved budget for open research projects less expenses incurred to date.

Capital assets

Capital assets are recorded at cost and are amortized using the following annual rates and method: Buildings and components 25 to 40 years straight line.

Impairment of long lived assets

Long lived assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognized when the carrying value exceeds the total undiscounted cash flows expected from their use and eventual disposition. The amount of the impairment loss is determined as the excess of the carrying value of the asset over its fair value.

Deferred capital contributions

Deferred capital contributions are amortized at the same rate as the buildings to which they relate.

Restrictions on the expenditure of funds

The purpose, funding, terms and conditions and duration of each research trust fund are stipulated in the relevant Order in Council, memorandum of understanding or Ministry correspondence.

Use of estimates

The preparation of financial statements in accordance with PSAB for Government NPOs requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Significant areas requiring the use of management estimates and assumptions relate to the valuation of accounts payable and accruals and the useful life of capital assets. Actual results could differ from those estimates.

Note 3 - Financial Instruments

Fair value

For certain of ARIO's financial instruments, the carrying amounts of cash, accounts receivable and accounts payable and accruals, approximate fair value due to the short term maturity of these financial instruments.
PS3450, Financial Instruments Disclosures requires disclosures about the inputs to fair value measurements, including their classification within a hierarchy that prioritizes the inputs to fair value measurement. The three levels of the fair value hierarchy are:

  1. Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities.
  2. Level 2 - inputs other than quoted prices that are observable for the asset or liability either directly or indirectly.
  3. Level 3 - inputs that are not based on observable market data.

ARIO's financial instruments are all classified as Level 1 as at March 31, 2014 and 2013.

There were no transfers in or out of Level 1 for the years ended March 31, 2014 and 2013.

Associated risks
  1. Market price risk:

Market price risk is the risk that the value of an instrument will fluctuate as a result of changes in market prices, whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. As all of ARIO's financial instruments are carried at fair value with fair value changes recognized in the statement of remeasurement losses, all changes in market conditions will directly affect the increase (decrease) in accumulated remeasurement losses. Market price risk is managed by the Investment Manager through construction of a diversified portfolio of instruments traded on various markets and across various industries.

A 1% increase (decrease) in the value of the investments would increase (decrease) the asset value and the change in unrealized gains in investments by $298,562 (2013 $123,275). The price of the investments is affected by changes in market values, foreign exchange rates and interest rates impacting the underlying financial instruments held within the individual investments managed by the Investment Manager.

  1. Interest rate risk:

Interest rate risk refers to the adverse consequences of interest rate changes on the Institute's cash flows, financial position and income. Interest rate changes have an indirect impact on the investment assets in ARIO. ARIO uses investment diversification to manage this risk.

  1. Liquidity risk:

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.

All of ARIO's fixed income securities are considered to be readily realizable as they can be quickly liquidated at amounts close to their fair value in order to meet liquidity requirements.

  1. Foreign currency risk:

Foreign currency risk is the risk that fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. ARIO is not exposed to significant foreign currency risk.

  1. Credit risk:

Credit risk is the risk that a customer or counterpart may be unable or unwilling to meet a commitment that it has entered into with ARIO. ARIO is not exposed to significant credit risk.

Note 4 - Contributed assets

Contributed assets of $14,037,283 (2013 - $14,037,283) are recorded in the Infrastructure Fund and represent the cost of the land transferred to ARIO from the Government of Ontario.

Note 5 - Capital Assets

Land assets

Item Cost $ Accumulated Amortization $ Net 2014 $ Net 2013 $
Simcoe railway line
9,793
0
9,793
9,793
Regional campuses
3,092,104
0
3,092,104
3,092,104
Research stations
10,967,029
0
10,967,029
10,967,029
Total land assets
14,068,926
0
14,068,926
14,068,926

Building assets

Item Cost Accumulated Amortization Net 2014 Net 2013
Regional campuses
38,410,502
9,109,601
29,300,901
26,703,249
Research stations
22,037,911
6,348,682
15,689,229
16,602,992
Total building assets
60,448,413
15,458,283
44,990,130
43,306,241

Total land and building assets

Item Cost Accumulated Amortization Net 2014 Net 2013
Total land assets
14,068,926
0
14,068,926
14,068,926
Total building assets
60,448,413
15,458,283
44,990,130
43,306,241
Total assets
74,517,339
15,458,283
59,059,056
57,375,167

As at March 6, 2007, the titles for capital assets (land and buildings) with a carrying value of approximately $60.9 million were transferred to ARIO from the Government of Ontario. Carrying value is being used as the transfer value since the transfer took place between non arm's length parties, is non monetary in nature and does not have commercial substance. As an agency of the Government of Ontario, ARIO reports these capital assets (and other assets and liabilities) in consolidation with the Ministry of Agriculture and Food on an annual basis.

During the year, capital additions with a carrying value of $1,200,000 (2013 $72,294) were contributed to the organization by external stakeholders. Carrying value is determined as the cost of the contributed assets to the contributors which approximates fair value due to the relatively short period between the date of purchase by the contributor and the asset being contributed to the organization.

Note 6 - Deferred capital funded contributions

Deferred capital contributions relating to construction of capital funded projects represents the amount of grants and other restricted funding received by ARIO for construction projects.

Item 2014 $ 2013 $
Balance, beginning of the year
37,063,396
18,435,508
Less amortization for the year
(340,125)
(340,125)
Add contributions received for capital purposes
12,550,215
18,968,013
Balance, end of the year
49,273,486
37,063,396

The funding sources are as follows:

Item 2014 $ 2013 $
Federal
1,312,500
1,347,500
Provincial
43,440,544
32,335,236
Industry
4,520,442
3,380,660
Total funding sources
49,273,486
37,063,396

Note 7 - Deferred capital contributions

Deferred capital contributions represent the unamortized amount of the net book value of the buildings transferred to ARIO from the Government of Ontario in 2007. The amortization of capital contributions is recorded as revenue in the statement of revenues and expenditures. The changes in the deferred capital contributions are as follows:

Item 2014 $ 2013 $
Balance, beginning of the year
34,242,104
36,295,592
Less amortization for the year
(2,054,032)
(2,053,488)
Balance, end of the year
32,188,072
34,242,104

Note 8 - ARIO research fund

Revenue ($)

Item Seed Royalty Technology Royalty Unpledged Equity Total 2014 Total 2013
Intellectual property
948,613
169,264
0
1,117,877
1,085,306
Investment income
54,889
45,987
0
100,876
116,129
Total revenue
1,003,502
215,251
0
1,218,753
1,201,435

Expenses ($)

Item Seed Royalty Technology Royalty Unpledged Equity Total 2014 Total 2013
Expenses
700,692
20,126
0
720,818
741,606

Fund balances ($)

Item Seed Royalty Technology Royalty Unpledged Equity Total 2014 Total 2013
Net surplus
302,810
195,125
0
497,935
459,829
Fund balance, beginning of year
1,653,492
1,991,799
0
3,645,291
3,200,851
Remeasurement losses
2,770
1,822
0
4,592
(15,389)
Fund balance, end of year
1,959,072
2,188,746
0
4,147,818
3,645,291

Note 9 - Grants received from provincial government

The following grants have been received from the Ontario Ministry of Agriculture, Food and Rural Affairs and successor ministries:

Research programs

Program 2014 $ 2013 $
New Directions
2,480,000
3,000,000
Food Safety
500,000
500,000
Total research programs
2,980,000
3,500,000

Capital

Item 2014 $ 2013 $
Minor capital
4,500,000
4,500,000
Elora Livestock Environmental and Energy Complex
10,981,400
16,214,300
Payments in lieu of taxes
750,000
750,000
Total capital
19,211,400
24,964,300

The following Provincial Government capital transfer payment grants have been partially capitalized as Deferred Capital Funded Contributions and partially recognized as Revenues as follows:

Minor capital

Item 2014 $ 2013 $
Funding received
4,500,000
4,500,000
Capitalized deferred Capital funding contribution
(368,816)
(1,281,419)
Net revenue
4,131,184
3,218,581

Elora Livestock Environmental and Energy Complex

Item 2014 $ 2013 $
Funding received
10,981,400
16,214,300
Capitalized deferred Capital funding contribution
(10,981,400)
(16,214,300)
Net revenue
0
0

Schedule 1 - Research trust funds: financial position

As at March 31, 2014

Assets

Item ARIO $ Infrustructure $ New Directions $ Food Safety $ Eliminations $ 2014 $
Current cash
1,494,683
0
0
0
0
1,494,683
Current investments
29,856,175
0
0
0
0
29,856,175
Due from ARIO
0
19,416,476
5,843,938
1,198,462
(26,458,876)
0
Accounts receivable
93,667
57,717
2,889
633
0
154,906
Subtotal
31,444,525
19,474,193
5,846,827
1,199,095
(26,458,876)
31,505,764
Capital assets under construction
0
22,155,506
0
0
0
22,155,506
Capital assets (note 5)
9,793
59,049,263
0
0
0
59,059,056
Total Assets
31,454,318
100,678,962
5,846,827
1,199,095
(26,458,876)
112,720,326

Liabilities

Item ARIO $ Infrustructure $ New Directions $ Food Safety $ Eliminations $ 2014 $
Current liability due to other research trust funds
26,458,876
0
0
0
(26,458,876)
0
Accounts payable and accruals
847,624
110,955
590,459
187,847
0
1,736,885
Holdbacks payable
0
0
336,213
122,396
0
458,609
Unclaimed expenditures
0
0
4,785,810
1,012,896
0
5,798,706
Deferred revenue
0
3,091
378,000
0
0
381,091
Subtotal
27,306,500
114,046
6,090,482
1,323,139
(26,458,876)
8,375,291
Deferred capital funded contributions (note 6)
0
49,273,486
0
0
0
49,273,486
Deferred capital contributions (note 7)
0
32,188,072
0
0
0
32,188,072
Total liabilities
27,306,500
81,575,604
6,090,482
1,323,139
(26,458,876)
89,836,849

Fund balances

Item ARIO $ Infrustructure $ New Directions $ Food Safety $ Eliminations $ 2014 $
Fund balances
4,158,615
5,081,639
(237,811)
(122,762)
0
8,879,681
Accumulated remeasurement (losses)
(10,797)
(15,564)
(5,844)
(1,282)
0
(33,487)
Contributed assets (note 4)
0
14,037,283
0
0
0
14,037,283
Total
4,147,818
19,103,358
(243,655)
(124,044)
0
22,883,477

Total liabilities plus fund balances

Item ARIO $ Infrustructure $ New Directions $ Food Safety $ Eliminations $ 2014 $
Total liabilities
27,306,500
81,575,604
6,090,482
1,323,139
(26,458,876)
89,836,849
Total fund balances
4,147,818
19,103,358
(243,655)
(124,044)
0
22,883,477
Total
31,454,318
100,678,962
5,846,827
1,199,095
(26,458,876)
112,720,326

Schedule 2 - Research trust funds: revenues and expenditures

For the year ended March 31, 2014

Research revenues

Item ARIO (note 8) New Directions $ Food Safety $ 2014 $
Research grants - provincial (note 9)
0
2,480,000
500,000
2,980,000
Research grants - other
0
378,000
0
378,000
Intellectual property
1,117,877
0
0
1,117,877
Total research revenue
1,117,877
2,858,000
500,000
4,475,877

Property revenues

Item Infrastructure $ 2014 $
Grants - provincial - minor capital (note 9)
4,131,184
4,131,184
Rental income - provincial
834,302
834,302
Rental income - private industry
677,380
677,380
Transfer payments - payments in lieu of taxes
750,000
750,000
Payments in lieu of taxes
187,754
187,754
Amortization of deferred capital contribution
2,394,158
2,394,158
Total property revenues
8,974,778
8,974,778

Other revenues

Item ARIO (note 8) Infrastructure $ New Directions $ Food Safety $ 2014 $
Investment income
100,876
70,329
29,710
6,716
207,631

Total revenues

Item ARIO (note 8) Infrastructure $ New Directions $ Food Safety $ 2014 $
Total research revenue
1,117,877
0
2,858,000
500,000
4,475,877
Total property revenues
0
8,974,778
0
0
8,974,778
Investment income
100,876
70,329
29,710
6,716
207,631
Total revenues
1,218,753
9,045,107
2,887,710
506,716
13,658,286

Research expenditures

Item ARIO (note 8) New Directions $ Food Safety $ 2014 $
Research project/program
0
1,827,896
475,168
2,303,064
Intellectual property
708,370
0
0
708,370
Total research expenditures
708,370
1,827,896
475,168
3,011,434

Property expenditures

Item Infrastructure $ 2014 $
Payments in lieu of taxes
884,271
884,271
Minor capital
3,368,690
3,368,690
Operations and maintenance
733,495
733,495
Amortization of capital assets
2,394,158
2,394,158
Total property expenditures
7,380,614
7,380,614

Other expenditures

Item ARIO (note 8) Infrastructure $ New Directions $ Food Safety $ 2014 $
Other expenses
12,448
0
0
0
12,448

Total expenditures

Item ARIO (note 8) Infrastructure $ New Directions $ Food Safety $ 2014 $
Total research expenditures
708,370
0
1,827,896
475,168
3,011,434
Total property expenditures
0
7,380,614
0
0
7,380,614
Other expenses
12,448
0
0
0
12,448
Total expenditures
720,818
7,380,614
1,827,896
475,168
10,404,496

Fund balances

Item ARIO (note 8) Infrastructure $ New Directions $ Food Safety $ 2014 $
Excess of revenues over expenditures
497,935
1,664,493
1,059,814
31,548
3,253,790
Net amoundt transferred (to) from unclaimed expenditures
0
0
(2,283,722)
(632,657)
(2,916,379)
Subtotal
497,935,
1,664,493
(1,223,908)
(601,109)
337,411
Fund balances, beginning of year
3,645,291
17,431,313
971,386
474,752
22,522,742
Net remeasurement gains (losses) for the year
4,592
7,552
8,867
2,313
23,324
Fund balances, end of year
4,147,818
19,103,358
(243,655)
(124,044)
22,883,477

ARIO Highlights for 2013-2014

General

Business Plans

The annual multi-year business plan serves as a framework for ARIO's business activities. Four key areas of activity continue to be:

  • Leadership - leading the Infrastructure Investment Strategy to modernize the province's agri-food and agri-products research and innovation physical and virtual infrastructure
  • Strategic Advice - providing strategic advice to the Minister on agri-food and agri-products research and innovation
  • Advocacy - promoting the Ontario agri-food and agri-products research and innovation system
  • Managerial Oversight - providing managerial and administrative oversight of open competitive research programs (New Directions and Food Safety) and the portfolio of properties (17 locations) comprised of over 6,500 acres and 300+ buildings with an asset book value of approximately $82M with over 45 tenants including government, not for profits, industry and private individuals

Portfolio Administration

The ARIO, with the University of Guelph (U of G) as its primary service provider, continues to provide effective and efficient property management of the province's agri-food research infrastructure (6,500 acres 300+ buildings and over 45 tenants) providing the platforms necessary to support implementation of agri-food research programs and projects addressing ministry and industry partner priorities.

ARIO as a crown agency is exempt from paying municipal property tax on its portfolio and makes payments in lieu of taxes to the municipalities in recognition of municipal services provided. The municipality filed an appeal of the assessment of the Vineland research station. This appeal is likely to have a minor impact on the ARIO's payment in lieu of tax obligations overall.

Effective November 1, 2013 VRIC assumed the responsibility for the operation and management of the Vineland research station from the U of G.

The Order in Council that authorized the transfer of the ownership of the AAFC owned building at the Vineland research station from AAFC to VRIC in 2011 provided that VRIC would occupy the land under the same terms and conditions as AAFC and required that ARIO and VRIC complete a lease agreement for the use of the land within five (5) years. VRIC and ARIO have completed negotiations on a land lease with approval and signature expected in the first quarter of 2014-15.


Infrastructure Strategy

The infrastructure investment strategy is a plan for modernizing the province's agri-food research infrastructure. This strategy aims to provide Ontario with state of the art modern research platforms necessary to support new and improved products, technological innovation as well as the commercialization of these products.

  • ARIO has begun reinvesting in its research infrastructure portfolio to better support current and future research needs of the agri-food and agri-products sectors. At present, there are five (5) modern physical and/or virtual innovation centres proposed under the Infrastructure Strategy.
  • VRIC at the Vineland research station and the Livestock Research and Innovation Centre at Elora (phase 1 dairy research facility) are currently well underway.
  • The other three priorities/centres proposed under the strategy were identified based on input from industry leaders and criteria developed by ARIO in 2010. These are:
    • Bioeconomy
    • Field Crops
    • Food and Health
Livestock Research and Innovation Centre - Elora
  • Construction began on the new dairy research facility in the summer of 2013. Completion is expected in the fall of 2014.
  • The Livestock Research and Innovation Corporation (LRIC) held a public launch event at the site in the fall of 2013 that was well attended by the dairy industry and the media.
Vineland Research and Innovation Centre (VRIC) at Vineland Station
  • As the first centre to be developed under ARIO's reinvestment strategy, VRIC has continued to direct research priorities as well as lead the development of a comprehensive Master Plan for the Vineland research station site.
  • VRIC engaged in several research priority setting exercises including one for the edible and non-edible horticulture sectors. Vineland provided its 2013 Ontario Horticulture Research Priority Report to OMAF. Their report provided very valuable input into research priority setting under ORAN in 2013. Other priority setting initiatives/reports include floriculture and nursery landscape.
  • The ARIO approved, in principle, a proposal from VRIC to construct a new greenhouse complex, which will be the only pre-commercial scale research greenhouse in Ontario. Construction cost is estimated to be $8.9 million and will be funded by VRIC and industry stakeholders/partners. There were a number of conditions imposed by ARIO that VRIC had to meet before getting final approval for the project that included:
    • ensure that the proposed greenhouse complex complies with all applicable legislation, codes or other requirements of law, assume any and all costs related to the construction, operation, maintenance, upgrades and decommissioning of the greenhouse
    • enter into an agreement for construction of the project and a land lease/license for the land occupied by the building prior to commencing the actual construction of the complex
    • provide a final detailed design for the project to the Director of Research

During 2013-14 VRIC worked to meet all conditions imposed by ARIO and as a result final approval of the new greenhouse complex and signature of the agreement is expected in the first quarter of 2014-15.

Guelph Research Station
  • Progress continues to be made on the possible future relocation of the Guelph Research Station facilities and programs. OMAF's Research and Innovation Branch (RIB) worked closely with stakeholders from the Guelph Turfgrass Institute (GTI), the University of Guelph (U of G), the Ministry of Infrastructure (MOI) and its agency Infrastructure Ontario (IO). There is significant interest by the U of G and GTI to relocate elements of the GTI to the U of G's Arboretum.
  • The U of G, working with RIB, engaged a consultant to develop a preliminary relocation plan and cost analysis with the following components:
    • New consolidated infrastructure development on Arboretum lands (new GTI Centre, some dedicated turfgrass plots and nursery space and renewed operational infrastructure)
    • Relocation of other elements (e.g., agroforestry and turf) to the Elora research station (including purchase of additional land to accommodate expanded research activities)
    • Potential partnering with local municipalities for sports turf fields (using community soccer fields as a living laboratory).

This initiative is expected to be a major focus for 2014 and beyond as the City of Guelph approves and implements its secondary plan for the Guelph Innovation District.

New Centres
  • Consulting and working with industry and academic stakeholders to further refine and develop concepts for centres in Bioeconomy, Field Crops and Food & Health continued in 2013-14:
    • In Bioeconomy, the focus is on improving industry coordination and continuing with strategic investments in scientific expertise utilizing existing and emerging physical capacity rather than in building new physical infrastructure that could well be outdated before being completed
    • In Field Crops, recognizing the importance of different soil and climate types from across the province, the focus is on bringing all stakeholders together to develop a governance model that utilizes existing geographic locations across the province with limited need for investment in hard physical capital (buildings, etc.)
    • In Food and Health, the focus is on defining the opportunities/needs for functional foods and food processing and the role that OMAF can and should play in this area

Minor Capital

The ARIO minor capital program is an ongoing multi-year program for maintenance, life cycle replacement, repair and improvement of ARIO's infrastructure assets. It is administered and managed by the U of G and VRIC on ARIO's behalf working closely with the ARIO Secretariat. Projects may extend beyond the end of a fiscal year and range in scope from minor repairs through to major renovations and new construction. The program is funded by an annual transfer payment from OMAF and from ARIO revenues.

In 2013-14, OMAF provided $4.0 million in base funding for the ARIO minor capital program, an additional $500,000 was provided to support planning and development for ARIO's infrastructure reinvestment strategy.

The minor capital program has permitted ARIO to make significant progress since 2007 in reducing the deferred maintenance and life cycle replacement needs across the entire property portfolio (17 locations). Projects continue to be evaluated and prioritized against the following criteria:

  • animal care
  • human health and safety
  • code compliance
  • building integrity
  • life cycle replacement
  • efficiency / conservation (utilities, labour, resources)
  • program capacity

The focus of the minor capital program in 2013-14 continued to be on the completion of existing projects. In 2013-14, a total of 85 projects were supported. Safety, regulatory, or equipment failure issues that significantly affected building or program operations were addressed on a case by case basis as they arose, throughout the year.

Significant investments were made in facility improvements, energy efficiency upgrades and upgrades for human health and safety and code compliance. Examples of projects include: greenhouse refurbishment; replacement of heating boilers with new high efficiency units; asbestos remediation and management; new equipment purchases, and the Reek Building reconstruction (office and classroom space at Ridgetown).

ARIO supports renewal and refurbishment of the physical infrastructure on its properties and enhancement of capacity through the minor capital program and other funding. The U of G and other stakeholders are strongly encouraged to seek out additional funding to support these construction projects. For example, the $3.8 million Reek building rebuild, completed in 2013-14, was supported by the minor capital program and $2.6 million in contributions from other external stakeholders.

Research Programs

Improvements in the Research Management System

Enhancements continue to be made in the ministry's on-line Research Management System (RMS). Developments over the past year include:

  • The creation of a Subject Matter Specialist Workbench which allows designated staff throughout the ministry to manage their own research activities it the RMS as well as access research reports of OMAF-funded research so they can stay abreast of current research activity in their field and support knowledge and technology transfer
  • Enhanced tracking and reporting of funded research via new project-level fields in the RMS related to geography and commodity/industry classification based on the North American Industry Classification System (NAICS) standard
  • A new RMS 'test-site' that allows easier training and onboarding for new staff as well providing research program administrators a robust platform to test changes to the system in support of continuous improvement
Open Research Programs

The Food Safety Research Program supports a science-based food safety system within Ontario. Program priorities support research areas within the Emergency Management research theme. Six projects were approved this year. Project highlights include:

  • Detection and Surveillance - Validation of a Salmonella detection tool to support risk assessment
  • Prevention and control of disease - Food safety training for youth and the implementation of a food safety system for fruity and leafy green processing
  • Economic analysis - Investigation of the economic benefits of traceability

The New Directions Research Program provides targeted research funding for key ministry priority areas and emerging issues in support of a profitable and sustainable agri-food sector and strong rural communities. Six projects were funded in three priority areas. Highlights include:

  • Antimicrobial Resistance (AMR) - Research characterizing the relationship between agricultural use of antibiotics and AMR in human health
  • Climate Change - Development of models and methodology that evaluate climate change risks and vulnerabilities in the agri-food sector
  • Rural - Research supporting regional collaboration (e.g., food hubs) as well as rural community emergency preparedness with a goal of understanding the nature of the changes, challenges and opportunities facing rural Ontario

In addition, a separate New Directions call for proposals related to Bee Health and Related Best Management Practices in Field Crop Production was launched in response to concerns about bee mortality and the use of neonicotinoid insecticides. Five projects were funded evaluating the effects of neonicotinoids and other factors on bee health, as well as the verification of new tools to mitigate the risk of exposure from neonicotinoid seed treatments in field crop production.

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For more information:
E-mail: research.omafra@ontario.ca
Author: Wilma Macfarlane, ARIO Liason/RIB
Creation Date: 10 February 2015
Last Reviewed: 26 May 2015