June 5, 2000

1.0 Introduction

Under The Agri-Food Act, any person aggrieved by an act or omission of an agency established under the Act may file an appeal within 45 days after the act or omission. On April 17, 2000, Mr. Jim Armstrong filed a notice of appeal against the actions of the Chicken Farmers of Saskatchewan (CFS) and a hearing was convened. A decision of the Agri-Food Act Appeal Committee (Committee) is binding on all parties. The decision may be appealed to a judge of the courts on a question of law or jurisdiction.

2.0 Background

Saskatchewan has a regulated marketing system for production of commercial quantities of chicken. Persons producing and marketing over 1000 birds per year are required by regulation to be registered with the CFS. Registered producers are required to be licensed and to hold quota allocated by the CFS. These regulations have been in place since 1978 and the CFS has been vested with substantive powers to administer the regulated marketing system. As such, the Board is obliged to act in compliance with its regulations and orders in fairness to both existing and potential producers.

As a result of industry stability, the rights attributed to the holding of quota have attracted considerable value and many non-producers have expressed an interest in obtaining quota. The mechanism for obtaining quota to enter the industry is either through purchase of a licensed production unit or by having received quota by being uppermost on a quota waiting list (QWL) maintained by the CFS.

Board Order #7/87: "Expansion", requires that at least 1/3 of new quota be allocated to persons uppermost on the QWL.

3.0 Events Leading up to the Appeal

Over the past 20 years, the industry has more than doubled in production level. In 1980, the reported production level (CFS Annual Report) was approximately 10.9 million kgs (live) from 61 registered producers. In 1999, the reported marketings (CFS Annual Report) were approximately 26.5 million kgs (live) from 73 registered producers. By 1999, 87 persons were on the QWL. Over the course of this time a significant turnover had taken place in ownership of production units. While some of today's producers have been brought into the industry off the QWL, most have either inherited their units or have bought a unit from a producer retiring from the industry.

On December 31, 1999, the CFS and the Saskatchewan Agri-Food Council signed a Memorandum of Understanding (MOU) establishing new policy guidelines for the allocation of chicken quota in Saskatchewan. Key elements of the agreement were:

• The MOU recognized the intrinsic value of a recent expansion agreement with the Chicken Farmers of Canada to double Saskatchewan's production allocation over four years. The MOU laid the policy foundation for an investment fund mandated to ensure that Saskatchewan's potential in primary processing is realized. The investment fund transfers approximately 1/3 the value of the expansion quota into investment leverage for Saskatchewan producers.
• The MOU would move the allocation system to a full auction in three years. An auction system would ensure transparency and allow quota to be traded at fair market value.

The MOU was endorsed by producer vote at the end of February 2000 and the CFS proceeded with an allocation of 9000 birds to each existing grower, as scheduled under the MOU, on March 1, 2000.

Mr. Armstrong had been on the QWL since 1982. When Mr. Armstrong heard of the MOU, he wrote the CFS asking for both a copy of the MOU and full disclosure of allocations for the past twenty years. Mr. Armstrong was not satisfied with the information provided by the CFS and on April 17, 2000, an appeal notice was filed. The notice expressed concern about the MOU's direction to require new producers to pay to enter the industry, instead of receiving free quota as per the current regulations. The notice also expressed concern about the performance of the CFS with respect to what appeared to be a lack of quota allocation to persons on the QWL since the early 1980's.

4.0 Attendance

The hearing was conducted on June 5, 2000 in Saskatoon, Saskatchewan beginning at 10:00 a.m. with the following members of the Agri-Food Act Appeal Committee sitting on the appeal.

Mr. Jim Long, Chairperson
Mr. Murray Fulton, Vice-Chairperson
Mr. Ray Riviere, Member
Mr. Harold Greyeyes, Member

Mr. Roy White, Secretary
Mr. Brian Machin, Assistant-Secretary

Representing the Appellant:

Mr. Jim Armstrong

Representing CFS board:

Mr. Charles Steuck, Chairperson
Mr. Nick Sloboshan, Vice-Chair
Mr. Dean Sully, Member, CFS board
Mr. Van Stewart, Manager, CFS Board
Mr. Wayne Bernakavitch, Legal Council

5.0 Salient Points

Mr. Armstong's Submission

• Order 7/87 "Expansion" states that

  "at least 33 1/3% of new or re-issued quota shall be issued as stipulated in the Quota Waiting List Order. Persons whose names appear uppermost on the Quota Waiting List shall be offered a minimum quota choice of either 12,000… unless the new entrant specifically requests a smaller quota."

• Mr. Armstrong presented figures suggesting that annual production has increased from approximately 5.9 million kilograms per annum to approximately 14.1 million kilograms per annum. It was Mr. Armstrong's view that of this annual increase of 8.2 million kilograms, 2.7 million kilograms (or one third of the production) should have gone to new producers.
• Mr. Armstrong submitted that the Board did not follow board orders by issuing one-third of new quota to new producers. As well, Mr. Armstrong submitted that the MOU was also contrary to board orders. The expansion agreement enables an increase in production by 2,369,000 units per cycle. Of this, 376,000 units per cycle was going to new producers, or approximately 15.8%. In Mr. Armstrong's view, to be in compliance with board orders, the CFS would have had to issue approximately 800,000 quota units per cycle to new producers.
• The interpretation of the term "Quota" was raised as an issue. It was Mr. Armstrong's view that the board was "stretching" the meaning of the term and that the board was using this interpretation as a basis to ignore issuance of new quota to new producers while increasing production to existing producers.

CFS Submission

• Mr. Bernakavitch opened with two points:

  a. The appeal by Mr. Armstrong did not fall within the 45 day time frame in which an appeal must be launched under section 5(2) The Agri-Food Act Regulations which states as follows:

"Every person who brings an appeal pursuant to subsection (1), within 45 days after the Act or omission mentioned in that subsection shall: a) give notice in writing to the council of his or her intention to appeal; and (b) ensure that the notice mentioned in clause (a) sets out concisely the reasons for the appeal."

b. The Agri-Food Act Appeal Committee is composed of the same members of the Agri-Food Council. Since these members were intimately involved with negotiations of the MOU it was Mr. Bernakavitch's view that it would be improper for the Committee to sit in judgement.

• The CFS acknowledged that the last QWL entrants to the industry were in 1985 when four persons accepted a combination of roaster/broiler quota. The CFS submitted that there had been no "new" quota to be issued over the past 15 years and that increased production on farms was due to increased efficiencies in production, including an increase in the number of production periods.
• The CFS held the view that quota should not be looked at on an annual basis because that is not how it is allocated. The CFS submitted that quota was issued on a per production period basis. The fact that the number of production periods has been almost doubled per annum was secondary. The number of production periods per year has increased from four to approximately seven in the past twenty years. The CFS also claimed it was ensuring that Saskatchewan was staying competitive with the rest of Canada and that other provincial chicken boards use the same policy.
• The increased production efficiency had come from increased density factors, innovations that allow for increased number of cycles per annum and advanced technology and genetics that allowed producers to be more productive.
• The CFS board submitted it also had to increase the average farm size. In order to be competitive with other provinces, a producer should have approximately 200,000 birds per annum, or approximately 30,000 birds per cycle. When negotiating the MOU, the CFS argued that new producers should start operations with no fewer than 14,000 birds.
• The CFS acknowledged that many new producers are holding quota that were not brought off the QWL and this was a result of retiring producers having transferred title upon sale of their production units when they retired from the industry.
• Quota has developed a value in Saskatchewan. Production units that have changed hands over the years in Saskatchewan have not done so without some extra value being attached to the sale of the farm in recognition of the business value of having quota attached to the site. It was the CFS view, that it was unreasonable in this day and age for persons on the QWL to expect to enter the industry for "free".
• The CFS supported the MOU policy where new entrants should be required to demonstrate clear commitment through purchase of quota rights by auction.

6.0 Conclusions

There are two key issues that shape the context of this decision.

The first question is whether the Committee is in a position to rule with respect to Mr. Armstrong's concerns regarding the MOU. The Committee considered closely the view of the CFS and finds that it would not be appropriate to render a decision on this issue.

The Committee is of the view that the MOU represents a general change in policy for the chicken industry. The MOU has evolved over the course of almost two years with the full knowledge and participation of stakeholders. The MOU, having being developed as the means for industry to achieve its expansion goals, represents fairly the policy direction that best serves the interests of industry development. The Committee acknowledges concerns of those who feel disadvantaged by such changes in policy. The Committee concludes it has neither the jurisdiction or authority to unilaterally change such basic policies.

The second issue affecting the direction of the decision relates to the regulations under which the Committee must operate when asked to intervene. Certain boundaries have been established within which the Committee is required to operate. Section 5 of The Agri-Food Act Regulations is one such boundary. It is the Committee's view that Mr. Armstrong has been on the QWL for many years and as such has had ample time to draw attention to any concerns he may have regarding the way the CFS had been allocating quota. For instance, Mr. Armstrong certainly would have been reminded of his position on the QWL as a result of the update process undertaken on more than one occasion since 1982. The Committee is therefore not in a position to make a ruling on the CFS allocations because of the 45 day limit imposed by regulation.

7.0 Decision

The Committee accepts the position of the CFS. The Committee allows the CFS national allocation agreement and the MOU to stand as is and for the industry expansion plans to occur as scheduled.