Victor Osztrovic vs Chicken Farmers of Ontario (CFO)

In the matter of Section 16 of the Ministry of Agriculture, Food and Rural Affairs Act, R.S.O. 1990

And in the matter of: An Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by Victor Osztrovics, Burford, Ontario, from a decision of Chicken Farmers of Ontario denying his request for relief from section 2.22 of Quota Policy 170-2005 to re-grow chicken in excess of 10% of allotted crop quota due to undermarketing by Osztrovics Farms Ltd. in quota period A-89 (January 4 - February 28, 2009).

Before:
John O'Kane, Vice-Chair; Mary Field, Member; Corry Martens, Member

Appearances:
Victor Osztrovics, appellant
Robert Shapiro, counsel for the appellant
Geoffrey Spurr, counsel for the respondent, Chicken Farmers of Ontario
Frank Fortuna, witness for the respondent

Decision of the Tribunal

Overview

On November 9th, 2010, the Tribunal heard the appeal of Victor Osztrovics (Victor).

Victor, a life-long farmer, together with his wife farm in the Burford area. The farm is a mixed cash and specialty crop operation (including tobacco) and since 2002 Victor has been a chicken producer holding production and marketing quota of 66,841 kilograms (kgs.) in each quota period. The quota is issued to him by the provincial regulator, Chicken Farmers of Ontario (CFO).

Early in 2009, Victor experienced higher than usual bird mortality and as a result, he ended that quota period marketing 12,783 kgs. below his quota of 66,841 kgs.

The chicken industry describes the marketing result Victor experienced as "undermarketing". Undermarketing is significant to chicken producers because in the usual course of business they cannot make up the lost opportunity represented by that 12,783 kgs. due to the operation of the quota system. As an example, in the usual course of business Victor could not simply increase his production in a future quota period by the lost 12,783 kgs. since doing so would put him over his quota and expose him to penalty levies on his excess production and a corresponding quota reduction.

However, CFO has enacted Quota Policy 170-2005 that addresses undermarketing. Section 2.22 of that Policy permits an undermarketed producer like Victor to re-grow up to 10% of his quota allocation, or 6,684 kgs., spread over two future quota periods. The Policy operates to "exempt" that 10% production "re-grown" from the otherwise strict operation of the quota, which would entail penalty levies and a quota reduction.

Victor however wanted the opportunity to re-grow all 12,783 kgs. that he lost, so he applied to CFO seeking relief above and beyond the 10% allowed in section 2.22 of the Policy.

CFO denied Victor's requested policy relief and he then appealed to the Tribunal under section 16(1) of the Ministry of Agriculture, Food and Rural Affairs Act (MAFRAA).

The Issue

Should the Tribunal grant Victor relief above and beyond the 10% re-grow allowed in section 2.22 of Quota Policy 170-2005, so that in some future quota periods he can produce an additional 6,099 kgs. of chicken?

Evidence

Victor provided the evidence supporting his appeal and CFO lead evidence through Frank Fortuna, CFO's Quota Management Administrator. There was no dispute between the parties about the material facts in evidence.

CFO's "Production Summary" report for the relevant quota period disclosed that Victor placed the chicks in the barn December 1st, 2008 and sold the mature chickens to his processor on January 8th, 2009. CFO designated that particular quota period as A-89.

At the start of quota period A-89, Victor brought about 28,000 chicks into his barn. On January 2nd, 2009, part way through the growing cycle, the Burford area experienced a temperature change from -28° to +10° in less than 48 hours. Victor described the weather change as "extreme". That temperature change brought rain, dew and fog that settled into the low-lying area around Victor's farm. The dampness from the rain, dew and fog was drawn into the barn through the ventilation system and caused the chicken waste material (litter) to become increasingly sloppy and eventually mud-like. As the litter deteriorated, it became increasingly difficult for the chickens to feed, to get water, to move, and eventually to breathe. These conditions eventually lead to the deaths of about 3,000 chickens.

Victor discovered the air in the barn changing and fog being drawn in through the ventilation outlets on his morning walk-through the day the weather began changing. Victor altered the ventilation inlets from automatic to manual to correct the air quality in the barn. He followed up to check a few hours later and found the litter becoming extremely sloppy and the fog still being drawn into the barn. Victor immediately began to use the barn heaters in an attempt to dry the litter. He also contacted his feed supplier and the hatchery that supplied his chicks to elicit their advice about managing the situation. The advice he received was consistent with the efforts he was employing. The next day the situation in the barn had not improved and birds were dying. He then contacted other chicken producers and his processor representative for advice. The advice was consistent with his efforts. The only remedy was going to be time and weather improvement.

Victor then enlisted his family and four hired hands to spread straw by hand in the barn. That work took 3 ½ days to complete since they had to clear the chickens from five-foot sections at a time, spread the dry straw over the litter and then move the chickens back. That time needed to spread the dry straw is understandable given the barn is over 200 feet long and there were as many as 28,000 chickens in the barn.

After these efforts, Victor noticed a change for the better in the birds, however, he had lost almost 3,000 chickens. Victor had no insurance coverage for the crop loss due to the extreme weather change.

Victor then contacted his processor to arrange a delay in the scheduled marketing date. Victor felt that a few additional days in the barn would bring up the weight of the surviving chickens, which he hoped would avert an undermarketing situation. However, the processor was unable to accommodate Victor's request for a delayed marketing date. When that sale to the processor was completed, the total weight of the chickens was 54,057 kgs., which was 12,783 kgs. below Victor's quota.

In March 2009, Victor wrote to CFO requesting permission to produce "these extra kilos that were lost over my allowable 10%" . He provided CFO with a detailed written explanation about what he considered extreme circumstances to support his request for relief from section 2.22 of CFO Quota Policy 170-2005. Victor also filed a letter of support from his feed supplier. At the monthly CFO Board of Directors meeting on May 7th, 2009, the CFO denied Victor's requested relief.

Victor asked that CFO reconsider its denial decision and Victor submitted an additional letter of support he obtained from his processor that explained Victor's efforts to delay marketing the birds and explained the processor's inability to accommodate Victor. At the monthly CFO Board of Directors meeting on June 18th, 2009, the CFO denied Victor's requested relief.

Victor then asked the CFO to hold a hearing to reconsider his requested relief. On January 21st, 2010, the CFO Board of Directors held a hearing where Victor was present to give evidence and make submissions. On January 28th, 2010, CFO issued a letter to Victor denying the requested relief.

On April 16th, 2010, Victor hired a lawyer who wrote to CFO asking that CFO provide written reasons explaining its January 21st, 2010 hearing decision to deny Victor's requested relief. On June 14th, 2010, CFO issued written reasons for its hearing decision.

Victor testified that the loss of the opportunity to re-grow the 6,099 kgs. will not affect his farm business or lifestyle in any way.

Since becoming a chicken producer in 2002, Victor had experienced one previous situation where he marketed below his allowable quota. In 2007, during quota period A-82, Victor experienced a mechanical failure in part of his barn equipment that resulted in high chicken mortality. In that situation, Victor lost approximately 17% of his chicken production. Victor understood that under section 2.22 of Quota Policy 170-2005 he could re-grow 10% of the loss in two future quota periods. He did not apply for relief from the Quota Policy in that instance because he had insurance coverage for the mechanical failure that provided compensation for the additional 7% crop loss.

Frank Fortuna (Frank) testified as CFO's representative. Frank has been employed with CFO for thirty-four years. He testified that there are about 1,025 licensed chicken producers in Ontario. He explained that in every quota period, there are about 25 chicken producers undermarketed more than 10% of their quotas. He calculated that in the past three years, there would have been about 500 instances where producers have undermarketed more than 10% of their quotas. He explained that in the past three years there have been five other requests made to CFO for relief to re-grow above and beyond the 10% allowed in section 2.22 of Quota Policy 170-2005.

Frank explained that CFO adopted an undermarketing re-grow policy in 1994. Initially the policy cap on re-grow was limited to 5% of quota but CFO enlarged the cap to 10% in 1999. He explained that CFO moved from 5% to 10% because it felt the 5% band was rather narrow. He testified that many factors could cause an undermarketing including weather conditions, chick quality and feed quality and, as a result, the CFO Board felt 10% was the appropriate cap, given that any of those factors could cause an undermarketing. He confirmed that CFO does not conduct any examination of the reasons a producer undermarketed. Essentially, producers can re-grow up to 10% of their quota where an undermarketing arises for any reason. Therefore, the undermarketing reasons are irrelevant to that 10% re-grow entitlement.

Before CFO developed the undermarketing policy in 1994, it was required to deal with each undermarketing that produced a re-grow request by evaluating the reasons advanced by the producer, with as many as 120-150 undermarketing situations arising annually. Part of the CFO's rationale behind the policy in 1994 was to relieve it from dealing with exemptions requests that might flow from that many undermarketing situations. Part of the CFO's rationale behind the policy was to relieve it from the need to evaluate the merits of each producer's reasons in all cases of undermarketing.

Frank reviewed the five other requests for relief above and beyond the 10% re-grow entitlement that CFO had received over the last three years. All previous five requests arose in 2007.

CFO denied three requests from chicken producers based on undermarketing due to an electrical fire, a power failure and heat stress.

CFO granted two requests for relief. In one instance, a fire destroyed a poultry processor's facility resulting in scheduling issues that lead to both undermarketing and overmarketing situations. In the other instance, a snowstorm prevented a chicken processor's trucks from making scheduled chicken pick-ups to certain snow bound areas. As a result, the processor asked a producer outside the snow bound area to market his chickens early so the processor could keep its facility operational. While that put the one chicken producer in an undermarketing situation, other producers were in an overmarketing situation. In both cases, CFO granted relief to the producers that were undermarketed and overmarketed.

Findings and Analysis

CFO's treatment of previous similar requests for relief is useful background context for the Tribunal, but those previous matters do not create any binding precedent that controls the outcome of the Tribunal. Furthermore, while the background facts supplied about those cases are relatively thin, those five cases do not appear to develop any clear criteria about CFO's exercise of its discretion to grant relief from the undermarketing policy.

In any event, the Tribunal "stands in the shoes" of the CFO under subsection 16(11) of the MAFRAA, therefore, this is a new hearing and not an appeal on the record from the CFO's decisions denying Victor's requests for relief.

In submissions, counsel for Victor criticised CFO for not providing Victor with written reasons for denying his requests for relief. However, we note that he supplied no authority supporting any legal requirement that CFO provide written reasons for its decision. CFO's practice is to supply written reasons for a decision when requested. When Victor requested written reasons through counsel, CFO provided written reasons for its denial decision. Victor's counsel also criticised CFO for not communicating to the producer community more clearly that farm management practices are irrelevant under section 2.22 of Quota Policy 170-2005. However, that issue, like the issue about CFO issuing written reasons for decision are not the issues on appeal before the Tribunal. In addition, they are not material to the issue before the Tribunal.

As noted previously in these reasons, there was no dispute between the appellant and respondent on any of the evidence material to the issue on appeal. Therefore, the Tribunal makes the following findings of fact:

• CFO initially introduced the undermarketing policy in section 2.22 of Quota Policy 170-2005 in 1994.
  • The undermarketing policy initially granted producers who undermarketed relief from the quota policy to a maximum 5% of their quota allotment. In 1999, CFO enlarged the relief to 10%.
  • CFO created the undermarketing policy in part to relieve CFO from dealing with a large number of producer exemption requests.
  • CFO created the undermarketing policy in part to relieve CFO from the need to evaluate the merits of producer exemption requests because there are a number of factors that routinely can result in undermarketing.
  • The factors that routinely lead to undermarketing include weather conditions, chick quality and feed quality.
• Requests for relief above and beyond the 10% undermarketing policy are rare:
  • About 120-150 producers annually undermarket more than 10% of their quota allotment.
  • Despite the relatively high number of undermarketing circumstances, in the past three year period there have been only five additional requests for relief made to CFO.
• In January 2009, Victor experienced an extreme weather event that resulted in the loss of about 3,000 chickens.
  • Victor did everything reasonable and appropriate on the farm in an attempt to avoid the loss of the chickens.
  • Victor did everything reasonable and appropriate to try to delay his contracted marketing date so that he could add weight to the surviving birds, and thereby minimize his undermarketing.
  • Despite Victor's reasonable and appropriate efforts, at the end of quota period A-89 he was undermarketed by 12,783 kgs.
• Under section 2.22 of Quota Policy 170-2005, Victor will be able to re-grow 10% or 6,684 kgs. in the sixth and seventh quota periods following period A-89.
• Victor's inability to re-grow the 6,099 kgs. sought will not affect his farm business or lifestyle.

In the circumstances and facts of this case, the Tribunal declines to grant Victor the requested relief.

CFO developed the undermarketing policy as a "fault free" entitlement. Producers can access the 10% re-grow entitlement if they undermarket for any reason [emphasis added]. The evidence is clear that CFO developed that policy to address undermarketing arising from weather conditions, among other factors. However, the policy contains no threshold criteria. Producers who undermarket due to laziness or negligence or poor chick quality or bad feed or mechanical failures or weather conditions can all access the undermarketing policy and re-grow up to 10% of their quota.

In a quota based regulatory system, exemptions are the exception rather than the norm. In the case of chicken quotas, the CFO has created a standing exemption arising from undermarketing through its Quota Policy 170-2005, section 2.22. That Policy allows producers who undermarket to re-grow the lost kilograms to a maximum of 10% of quota over two future quota periods.
If everything that happened to cause undermarketing gave rise to an exception, the quota policy would become meaningless and that would undermine the regulatory regime. That is even more so where there is a standing exemption as in section 2.22 of the Quota Policy.

Therefore, the Tribunal concludes that to obtain relief above and beyond the undermarketing Policy, Victor must satisfy us, on a balance of probabilities, that something truly unique and exceptional occurred to cause the undermarketing.

Probably more than any other businesses, farmers are particularly at the mercy of the weather. However, weather conditions, even extreme weather conditions such as Victor experienced, are not unique and exceptional in Ontario.

The Tribunal is not satisfied that there was anything truly unique and exceptional about the weather event that resulted in the barn conditions that caused Victor's crop loss.

Order of the Tribunal

Therefore, the Tribunal Orders that Victor Osztrovics' request for relief from section 2.22 of CFO Quota Policy 170-2005, to re-grow 6,099 kgs. in future quota periods is denied.

 

Dated at Brampton, Ontario this 16th day of November, 2010