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REPORT OF THE COMMITTEE
ESTABLISHED TO INQUIRE INTO THE COMPLAINT BY
THE SASKATCHEWAN SIGNATORIES
TO THE FEDERAL-PROVINCIAL AGREEMENT
RESPECTING THE COMPREHENSIVE MARKETING PROGRAM
FOR EGGS IN CANADA
AGAINST
THE CANADIAN EGG MARKETING AGENCY'S (CEMA)
PROPOSED QUOTA ALLOCATIONS FOR THE
PERIOD DECEMBER 28, 2003 TO DECEMBER 25, 2004
INTRODUCTION
A hearing was held in Ottawa, on March 17th and March 18th by a Complaints
Committee (Committee) established by the National Farm Products Council
(Council) in response to complaints received in late December 2003 from
both the Saskatchewan and British Columbia egg signatories. Both complaints
were with regard to the Canadian Egg Marketing Agency's (CEMA) proposed
quota order for the period December 28, 2003 to December 25, 2004.
Section 7(1)(f) of the Farm Products Agencies Act (Act) requires that
the Council inquire into complaints received by it from any person who
is directly affected by the operations of an agency. The Council decided
to hold separate hearings into these complaints. The Council sent out
Notices of Hearing on December 23, 2003 announcing that the hearings would
take place on March 17 and
March 18, 2004. Both the Saskatchewan and British Columbia signatories
were asked to provide their written complaint to the Council by February
25, 2004. The Agency provided its response to these complaints on March
10th. All interested persons were invited to make submissions to the Council
by March 10, 2004. All documentation was circulated to all of the parties
in advance of the hearings.
Pursuant to its Guidelines for Complaints, the Council established a
Complaints Committee to hear the complaints, comprised of Cynthia Currie,
Committee Chairperson and Chairperson of the Council and Anne Chong Hill
and Maurice Giguère, Council members.
The Committee held a pre-hearing teleconference call with each of the
parties to discuss procedural matters before the hearing. A Notice of
Pre-Hearing Teleconference was sent to all signatories and two separate
teleconferences were held on February 27th. These conferences, while not
intended to discuss any of the substantive matters surrounding the complaints,
assisted the parties in understanding the process to be followed at the
hearing.
At the hearing on March 17, 2004, two procedural matters were dealt
with by the Committee. The first was with respect to the Saskatchewan
complaint. The CEMA and the Québec signatories had requested during
the pre-hearing teleconference call that all submissions and transcripts
of the hearing be tabled directly with all Council members. The Committee
Chairperson announced that the Committee would make the hearing transcript
available to Council members and would table the submissions with members.
The second matter dealt with an allegation in the complaint by the British
Columbia signatories that certain members of the Canadian Egg Marketing
Agency were in a conflict of interest situation when the decision was
made by the Agency with respect to the proposed quota order for 2004.
In order to protect the integrity of the hearing process, the Committee
had advised all parties by letter of March 11, 2004 that it would seek
the views of the parties on this matter, at the commencement of the hearing.
The Committee wanted to know whether the parties believed that the Agency
had breached section 43 of its by-laws by allowing processor members to
take part in the discussions surrounding the allocation of eggs for processing
quota, and thereby nullifying the decision.
After hearing the parties' views, the Committee decided that, in the
face of a serious allegation of a conflict of interest in the agency decision
on which the proposed quota order was based, it would decline to make
any recommendations in respect to the proposed CEMA quota order and ruled
that it was not competent to determine whether the agency decision which
authorized the order was tainted due to an alleged breach of CEMA by-law
No. 43 (relating to prescribed requirements in relation to the conduct
of board members and conflicts of interest). The suggestion was made by
the parties that, as part of its review function under Section 7(1)(d)
of the Act, the Council could determine that the proposed order was one
which it was required to review and that it therefore had jurisdiction
to review the validity of the agency decision behind the order and it
would be irresponsible for the Council to delay the review process until
this issue was resolved.
In the presentations at the hearing, it was emphasized that the agency
was a creature of statute and could only act in accordance with the specific
authorities granted to it under the Act. In the Committee's view, the
Council is likewise a statutory entity and is similarly constrained in
its activities which must also be explicitly found under the provisions
of the Act.
The hearing was constituted under subsection 7(1)(f) of the Act which
states
"7. (1) In order to fulfil its duties, the Council....
(f) shall make such inquiries and take such action within its powers
as it deems appropriate in relation to any complaints received by it from
any person who is directly affected by the operations of an agency and
that relate to the operations of the agency;" Subsection 7(1)(f)
makes explicit reference to the Council making inquiries and taking "....such
action within its powers as it deems appropriate..." in relation
to any complaints it receives from persons affected by the operations
of an agency. The scope of the inquiries which Council may make are therefore,
extremely broad while the remedies which Council may effect are limited
to taking actions "... within its powers". In the Committee's
view it is accordingly incumbent upon Council to determine which power
prescribed for it under the Act may be applicable to assist in the resolution
of any bona fide complaint.
In respect to the bylaws of an agency, Section 25 of the Act is the primary
provision to be examined.
25. An agency may make by-laws
(a) respecting the calling of meetings of the agency;
(b) respecting the conduct of business at meetings of the agency and
the establishment of committees thereof, the delegation of duties to those
committees and the fixing of quorums for meetings of the agency and any
committee thereof;
(c) subject to the approval of the Council, fixing the fees to be paid
to members of the agency other than any members who are paid salaries,
for attendances at meetings of the agency or any committee thereof, and
the travel and living expenses to be paid to the members of the agency
and the members of any consultative or advisory committee of the agency;
(d) subject to the approval of the Council, respecting the establishment,
management and administration of a pension fund for the members, officers
and employees of the agency and their dependants, the contributions thereto
to be made by the agency and the investment of the pension fund moneys
thereof;
(e) respecting the duties and conduct of the members of the agency;
(f) prescribing the duties of officers and employees of the agency and
the terms and conditions of their employment including the remuneration
to be paid to them by the agency;
(g) for the establishment of consultative or advisory committees consisting
of members of the agency or persons other than members or both; and
(h) generally for the conduct and management of the affairs of the agency.
It is to be noted that only in subsections 25(c) (i.e. fixing fees to
be paid to members of the agency) and 25(d) (i.e. respecting the establishment
and operation of a pension fund for members and employees) is there a
prescribed requirement that Council must approve a proposed bylaw before
it can be enacted by the Agency.
Bylaws establishing rules for members relating to conflicts of interest
on the other hand, would be authorized under subsection 25(e) (i.e. respecting
duties and conduct of agency members) and do not require Council approval.
The Council therefore has no role to play in the creation of such bylaws
as the Act has left this matter as one which lies within the Agency's
sole and exclusive jurisdiction. The omission of a Council approval requirement
would also mean that the interpretation and application of any such bylaw
is also similarly a matter over which the Council has no prescribed "power".
It was also suggested by parties to the hearing that the Council had
an implied power to interpret CEMA bylaw No. 43 as part of the Council's
review function under subsection 7(1)(d) of the Act which states:
"7. (1) In order to fulfil its duties, the Council
(d) shall review all orders and regulations that are proposed to be
made by agencies and that are of a class of orders or regulations to which
the Council, by order, provides that this paragraph is applicable and,
where it is satisfied that the orders and regulations are necessary for
the implementation of the marketing plan or promotion and research plan
that the agency proposing to make the orders or regulations is authorized
to implement, the Council shall approve the orders and regulations;"
The language of subsection 7(1)(d) indicates that the Council has a prescribed
"duty" to review "...all orders that are proposed to be
made by agencies..." which come under the subsection. There is no
discretion afforded to the Council within this language. Should an agency
propose any regulation, then the Council is required to review it. Parliament
has mandated and required the Council to perform this function to emphasize
the importance of a second look before an agency, which is deemed under
Section 26 of the Act not to be an agent of Her Majesty, may enact a regulation
which affects the production and marketing rights of producers of the
regulated product defined under the marketing plan.
Where however, as in the case of the British Columbia complaint, a serious
question of law arises as to whether the proposed regulation is one which
has been duly approved by a decision of the agency made in accordance
with the agency's bylaws, then the prescribed review authority of the
Council is also put into question. Further, in the Committee's view, the
Council has no authority under the Act either expressed or implied to
make a final determination of this issue. Where the bylaws contain no
provisions for the resolution of disputes pertaining to their meaning
and interpretation then, in the Committee's view, the alternatives for
a final resolution are limited to either a unanimous agreement of the
members of the agency who created the bylaw, or, failing any such agreement,
by any affected party having resort to a duly constituted court of law.
For the Council to make such a determination in order to recognize that
its duties under subsection 7(1)(d) of the Act are thereby required to
be performed would make the Council party to a regulatory process which
it knew or ought to have known was defective and therefore beyond or outside
the scope of its prescribed "powers" under the Act.
The Committee believes it acted properly in indicating to the parties
to the hearing that the primary subject of the hearing and most of the
relief being sought by parties relating to the purported proposed agency
regulation, may in fact and in law be found to be a nullity as being void
ab initio and, given that no party indicated they wished to amend the
relief they were seeking from the Council, advising parties at the outset
of the hearing that the Committee would decline to make any specific recommendations
to Council on whether it should approve the proposed agency quota order
until the issue of the validity of the agency decision underlying the
order was finally resolved.
The Committee noted it was willing to proceed with the hearings and issue
a report with observations and findings, but without recommendations.
The Committee asked parties to indicate whether they wished to proceed
on those terms.
The parties then recessed for further discussion amongst themselves and
returned on March 18th with a proposed resolution of the matter. An agreement
had been reached with both the British Columbia and Saskatchewan signatories
as well as all the interveners present that, subject to certain conditions
(see copy of the agreement annexed to this report), the major one of which
was that the Council immediately prior-approve an interim quota order
(which would include the 2003 EFP allocation to British Columbia) and
an interim levy order, the British Columbia signatories would withdraw
their complaint and the Saskatchewan signatories would proceed with their
hearing before the Committee. The Agreement also referred to certain commitments
of the Agency with respect to the setting of quota allocation for the
remainder of 2004. The principal commitment bound the CEMA Board, when
setting quota allocation and levies effective August 1, 2004, to take
into account the results of an independent study of British Columbia's
Eggs for Processing (EFP) allocation issues.
The Committee agreed with the terms of the agreement and announced that
the Council would meet on March 23, 2004 to consider, for prior-approval
purposes, an interim quota and levy order for the period ending July 31,
2004.
The hearing into the Saskatchewan complaint then proceeded.
POSITION OF THE SASKATCHEWAN SIGNATORIES
At the outset, it is important to cite that Saskatchewan's complaint
relates only to the allocation of overbase quota, i.e. quota relative
to the production of eggs destined for the table market in excess of the
levels set out in section 3 of CEMA's Proclamation. That having been said,
Saskatchewan's position can best be summarized under five headings: (1)
the legal framework governing quota allocation, (2) history of quota allocation
issues, (3) supportive arguments against the prior-approval by Council
of CEMA's proposed 2004 quota order, (4) comparative advantage and (5)
requested resolution.
Legal Framework Governing Quota Allocation
Saskatchewan initially commented on the role of Council vis-a-vis approval
of agency orders and regulations. Council has a statutory obligation to
ensure CEMA's operations are consistent with the Act, Proclamation and
Federal-Provincial Agreement (FPA). Section 7(1) (d) of the Act stipulates
that when granting approval to an order, Council must be satisfied that
the order is necessary for the implementation of the marketing plan. Where
the order is inconsistent with the marketing plan, Council must not approve
it.
Council has no authority to act outside of the terms of the Act, Proclamation
and FPA nor has it the authority to permit CEMA to do likewise. Council
cannot create or grant exceptions from the terms of these instruments
despite arguments that the decision being exempted is good policy, that
the decision is a compromise solution, or that the decision is only short
term in nature. The content and effect of these instruments can only be
changed by way of formal amendment, and until such time as formal change
has been finalized, the terms of these instruments must be honoured.
Saskatchewan argues that administrative agencies like CEMA have no independent
source of authority. Rather, their powers must be found in the legislation
and other legal instruments establishing and regulating their operations,
that is, in CEMA's case, the Act, Proclamation and FPA.
The Act provides for the creation, by Proclamation, of marketing agencies
with powers relating to the marketing of farm products. The Act also specifies
that a Proclamation shall set out the terms of a marketing plan that an
agency is empowered to implement (s.17 (1) (c)), and provides for the
objects of an agency (s.21), and the powers of agencies (s.22). In addition,
S.23 prescribes how a marketing plan is to make the initial allocation
of quota and requires that, in allocating additional quota, an agency
must consider the principle of comparative advantage of production.
The Proclamation includes as part II, the terms of the marketing plan,
i.e. elements relating to quotas and quota allocation, levies, licensing,
pricing and general matters. Most importantly, s.2 (4) sets out how quota
for production above base levels is to be allocated. That subsection lists
five criteria which CEMA must take into account when allocating overbase
quota: (1) the principle of comparative advantage of production, (2) any
variation in the size of the market for eggs, (3) any failures by egg
producers in any province or provinces to market the number of dozens
of eggs authorized to be marketed, (4) the feasibility of increased production
in each province to be marketed, and (5) comparative transportation costs
to market areas from alternative sources of production.
Finally, Saskatchewan describes the FPA as a legally binding agreement
which can only be amended by unanimous approval of its signatories. The
Saskatchewan signatories note that Part II of the Schedule to the FPA
set out the same criteria as listed in the Proclamation for the allocation
of overbase quota.
History of Quota Allocation Issues
The Saskatchewan signatories maintain that the egg industry has evolved
in directions not contemplated in the Act, Proclamation and FPA despite
the fact that appropriate amendments to these instruments have not been
made. Furthermore, the system is vulnerable to challenge, CEMA has in
the past and intends in the future to allocate quota based on factors
not listed in the Act, Proclamation and FPA, CEMA has continued quota
allocation practices in 2001, 2002, 2003 and 2004 which Council warned
against using in 2000 and CEMA has not resolved allocation problems as
per the directions of Council. Saskatchewan also noted that the National
Association of Agri-Food Supervisory Agencies (NAASA), in June 1998, was
of the view that the FPA had not kept pace with changes in the industry
and that CEMA was operating in a manner which diverged from the strict
requirements of that Agreement. Subsequently, in July 1998, Federal-Provincial-Territorial
Ministers of Agriculture agreed to seek revisions to the FPAs for poultry
and eggs and directed NAASA to undertake an appropriate process.
Saskatchewan set out, in chronological order, a series of events respecting
quota allocation beginning with the Agency's decision to allocate an additional
430,000 layers for 1999 based on hen-to-population ratios. Again, for
the year 2000, CEMA decided to increase the national regulated flock by
810,274 layers using a formula contained in the St. Andrew's Accord that
specified the use of hen-to-population ratios. Signatories from both Saskatchewan
and Manitoba filed complaint notices with Council early in 2000 stating
that CEMA had failed to consider the criteria in the FPA. It was noted
that Council, following receipt of a report from its Committee established
to inquire into the complaint dated May 2000, decided to approve CEMA's
proposed quota order amendment albeit somewhat reluctantly. It was pointed
out that the arrangement, i.e. use of hen-to-population ratios, was to
be "one-time" only and that it should be seen as a means of
fostering stability for the remainder of the year.
In November 2000, CEMA directors approved recommendations from its Quota
Allocation Committee (QAC), namely that increases for the table egg market
would be on a 50-50 basis with half being allocated to provinces and territory
whose hen-to-population ratio in the previous year is less than the national
weighted average and the other half pro-rata to all provinces. The Saskatchewan
signatories wrote to CEMA on December 14, 2000 noting their concerns that
the allocation of an additional 810,274 layers in 2000 was being treated
as a new base for domestic quota as well as that CEMA intended to use
the QAC's recommendations for future quota allocation increases. Council
subsequently prior-approved the 2001 quota order although CEMA was advised
that the Agency itself could not determine a new base level for eggs destined
for the table market. Rather, this is a factor that required the consensus
of all provincial and territorial signatories to the egg plan.
Subsequent quota orders for 2002 and 2003 reflecting no change from 2000
levels were prior-approved by Council with no explanation from the Agency
as to how the criteria in the Act, Proclamation and FPA were taken into
account. With respect to the 2003 quota order, Saskatchewan had requested
Council not to prior-approve on the basis that it had been developed in
the context of CEMA quota orders for the years 2000 and following and
that such orders were not consistent with the allocation procedures in
the FPA.
Despite opposition from the Saskatchewan member, the CEMA board of directors
agreed to a quota allocation for 2004 at the same level as 2003 with no
discussion or consideration of the criteria listed in the FPA. Further,
CEMA's letter to Council requesting prior-approval made no reference to
the allocation criteria.
Arguments Against Prior-Approval of the 2004 Quota Order
Saskatchewan maintains the proposed 2004 quota order is defective for
four reasons which are set out below.
(a) CEMA based its allocation of overbase quota on factors that it was
not entitled to consider i.e. factors other than those included in the
Act, Proclamation and FPA. The only factors CEMA is entitled to take into
account are the ones listed in these instruments. The order is invalid
since it allocates overbase quota using hen-to-population ratios and market
shares, factors not included in the Act, Proclamation and FPA.
Saskatchewan states that supply management rests on two key principles.
Firstly, the problems created by unbridled competition are unacceptable
and must be guarded against and secondly, resources should be allocated
effectively as possible across the country. To ensure the economically
efficient allocation of production, the Act recognizes comparative advantage
of production as the basis on which overbase quota is to be allocated.
The various factors enumerated in the Proclamation and FPA dovetail closely
with the concept of comparative advantage. The Saskatchewan signatories
provide examples of this dovetailing relationship in their submission.
Although CEMA does enjoy a measure of discretion, (i.e. it is not directed
to allocate specific amounts of quota to specific provinces), it does
not follow that it can allocate quota in any manner it sees fit. CEMA
may allocate quota only by reference to the criteria expressly listed
in the Act, Proclamation and FPA.
Saskatchewan notes that the law requires that an administrative agency
must make decisions consistent with its objects and purposes and based
on consideration of relevant factors and criteria. Although some discretion
may be afforded to consider other factors depending on the legislative
scheme involved, those factors must be consistent with its objects. The
manner in which an agency's power is to be exercised is a function of
the specific language of the legal instruments under which the agency
is constituted and operates. In this regard, the FPA is the defining feature
of CEMA's situation and distinguishes CEMA from typical administrative
agencies. CEMA's decision making criteria are specifically set out in
the FPA and there is no provision for CEMA to act on the basis of other
factors that it might consider relevant.
On the question of an opinion provided by Mr. Henry Molot, a federal
Justice Department lawyer, in 1988, Saskatchewan notes that opinion dealt
only with the weight that an agency is required to place on the various
allocation criteria listed in the Act, Proclamation and FPA. It did not
address the issue of whether CEMA may consider criteria other than those
listed in these instruments. Therefore, the Molot opinion has no bearing
on whether CEMA can use factors like hen-to-population ratios and market
share to allocate quota.
In concluding this argument, CEMA's 2004 overbase allocation can be
seen as grounded on hen-to-population ratios, a criterion not listed in
the Act, Proclamation or FPA. As well, CEMA's year-to-year extension of
the 2000 allocation can be characterized as being a series of overbase
allocations based on market share, i.e. each overbase allocation decision
since 2000 has been based on the allocation in place for the previous
year. Market share is not an overbase allocation criterion listed in the
Act, Proclamation or FPA. Hence, CEMA's 2004 quota allocation decision
in invalid.
(b) CEMA's 2004 quota order is not based on a legally proper consideration
of the criteria specified in the Act, Proclamation and FPA. CEMA proceeded
as if the 430,000 layers added to the national flock in 1999 and the 810,274
layers added in 2000 were somehow part of a new base quota. It failed
to consider the criteria in the Act, Proclamation and FPA.
Saskatchewan claims that the briefing materials prepared for CEMA members
for their November 12, 2003 meeting contained no analysis of any of the
factors in the Act, Proclamation or FPA. Further, there was no discussion
of them at the meeting. As well, CEMA's December 10, 2003 letter to Council
seeking prior-approval made no reference to the allocation criteria. All
of this amounts to a failure to act lawfully. To consider or to take into
account cannot be satisfied by disregarding the criteria or by mere passing
reference to them. A decision-maker must undertake a genuine substantive
consideration before it can be considered to have met its obligations.
The criteria for overbase allocation cannot be considered in a meaningful
way in the absence of data. They are not criteria in the nature of factors
such as "fairness" which might lend themselves to a kind of
intuitive assessment. They can only be understood and assessed against
the background of data and analysis. Although CEMA prepared detailed data
for the use of the hen-to-population criterion, to Saskatchewan's knowledge,
no similar analysis was ever prepared with respect to comparative advantage
and the other criteria in the Act, Proclamation and FPA. Furthermore,
the impact of each of the mandated criterion is not static or constant
over time. For example, the comparative advantage of production of one
province versus another is subject to change. Accordingly, CEMA must give
the criteria ongoing consideration in order to discharge its obligations.
It cannot look at them once and then ignore them.
Saskatchewan points out that Council itself was aware of problems inherent
in CEMA's approach when in a letter dated December 18, 2000, Council warned
CEMA that, with respect to the table egg market, the approach constituted
a new base for the provinces and territory. Council's view was that CEMA
alone cannot determine a new base but rather this is a factor requiring
the consensus of all provincial and territorial signatories to the egg
plan. By extending its earlier allocations through 2004 without any analysis
of overbase criteria, CEMA has ignored the prescribed criteria and treated
its earlier allocations as a new base level for quota. This is contrary
to the Act, Proclamation and FPA.
(c) CEMA's use of hen-to-population ratios and market shares criteria
to allocate overbase quota is inconsistent with its objects as stated
in s. 21 of the Act. More specifically, allocating overbase quota on either
hen-to-population ratios or on market share contradicts the statutory
objective of promoting strong, efficient and competitive production and
marketing. Similarly, use of these factors is inconsistent with the objective
of having due regard for the interests of consumers and producers.
CEMA is required to act in a manner which is consistent with its objects.
As a matter of law, it cannot make decisions which contradict those objects.
Council itself, in its May 2000 appeal report, commented that "regardless
of its present status or past practices though, the discretion afforded
to any Agency, as with that of the Council, cannot be said to be unlimited.
In every instance it must be viewed as circumscribed by the objects prescribed
in s.21 of the Act". Further, Council in that same report, expressly
warned against the continued use of hen-to-population ratios and held,
in effect, that such use would be inconsistent with CEMA's objects as
set out in the Act. Council also made it clear that the approach taken
by CEMA was to be a "one-time arrangement only" and that it
was a means of fostering stability "for the remainder of the year".
CEMA's approach clearly frustrates s. 21(a) of the Act, to promote a strong,
efficient and competitive production and marketing industry. The reference
to "efficient" is most significant. It refers to the allocation
of production in the market place in the manner which maximizes production
of all goods and services in the national economy. In this case, "efficiency"
necessarily refers to the allocation of egg production among provinces
in the fashion which is consistent with maximum overall production of
goods and services in the national economy.
A fundamental principle underlying efficiency is comparative advantage
of production. Comparative advantage refers to the concept whereby production
is allocated among "trading units" in the manner which most
effectively engages the resources of each trading unit. But, comparative
advantage does not mean cost advantage. Any allocation which equates "comparative
costs" with "comparative advantage" is both inconsistent
with the concept of comparative advantage and with the promotion of efficiency
as required by the Act. The allocation of production using non-economic
factors such as hen-to-population ratios and market shares do not have
any necessary relationship with the highest and best use of resources
and with a degree of certainty, will not reflect an efficient allocation
of resources.
CEMA's quota allocation approach also conflicts with the object of having
"due regard for the interests of producers and consumers as set out
in s.21 (b) of the Act. If production is based on factors such as hen-to-population
ratios and market shares, consumers will suffer since resources are not
allocated in the most effective fashion and the cost of supply management
becomes unacceptably high. The interests of producers in jurisdictions
like Saskatchewan are also harmed because they are denied a proper opportunity
to participate in the market.
(d) CEMA, by failing to take into account comparative advantage of production
and by failing to comply with s.21 of the Act, is invalidating the "social
contract" which underpins the national egg supply management system
and is thereby threatening the longer term viability of the system. CEMA
is wrong in thinking that overbase quota allocation issues can be satisfactorily
addressed through an agreement or consensus among its members. The longer
term viability of supply management depends on the willingness and ability
of the system to respect the interests of downstream stakeholders and
of consumers.
When supply management was introduced, consumers were very concerned
about the impact of eliminating competition. Key compromises were made
and those compromises formed the basis of a kind of "social contract"
which underpins Canadian supply management. Prices were to be based on
cost of production rather than being market driven, growth in production
was to be allocated to those provinces with a comparative advantage and
a supplementary import system was designed to prevent shortages and unreasonable
price levels. Neither the designers of supply management nor the stakeholders
expected that overbase quota would be allocated equally to provinces or
that it would be allocated on the basis of provincial populations. That
would run totally contrary to the "social contract" in that
it would not ensure efficient production.
Comparative Advantage
Given that CEMA has not undertaken analysis to operationalize the concept
of comparative advantage of production, the Saskatchewan signatories did
the work necessary to develop a reasonable and practical methodology.
A paper dated April 22, 2003 explaining Saskatchewan's methodology was
included with the materials filed. Saskatchewan invites Council to review
the paper and to endorse it as a reasonable and acceptable basis for taking
account of comparative advantage of production in the allocation process.
Requested Resolution
Saskatchewan submits that the issues can be best resolved as follows:
(a) Council should confirm that hen-to-population ratios and market
shares are criteria which cannot be used by CEMA to allocate quota unless
and until the Act, Proclamation and FPA are amended to expressly provide
that they may be considered;
(b) Council should advise CEMA that it must allocate overbase quota
by reference only to those criteria listed in the Act, Proclamation and
FPA. In this regard, Council should confirm:
(i) that "comparative advantage" does not mean "comparative
cost of production", and
(ii) that the formula operationalizing comparative advantage of production
developed by Saskatchewan is reasonable and acceptable;
(c) Council should confirm that the 430,000 birds added to the national
layer flock in 1999 and the 810,274 birds added in 2000 are not part of
a new base quota and must all be allocated in accordance with the criteria
listed in the Act, Proclamation and FPA;
(d) Council should establish a deadline by which CEMA must have met
with the Saskatchewan signatories and worked out an overbase quota allocation
which is consistent with CEMA's legal obligations under the Act, Proclamation
and FPA; and
(e) Council should make any further recommendations that it believes
would be useful in resolving the current situation.
RESPONSE BY THE CANADIAN EGG MARKETING AGENCY
Preliminary Comments
CEMA maintains that Saskatchewan's real objective is to receive not only
an increased quota allocation for 2004 but also the leverage to compel
a commitment from CEMA to guarantee Saskatchewan a fixed, disproportionate
market share of future growth. For CEMA to provide such guarantee would
be contrary to its statutory objects and would threaten the stability
of the system.
In preliminary comments, CEMA regrets that this complaint has gone forward
to Council noting that Saskatchewan, having been unable to secure support
from any of the other signatories, now is turning to Council for additional
bargaining leverage. These are matters for negotiation with the other
provinces, not litigation. Council itself, has acknowledged that Saskatchewan's
concerns should be addressed through the process to revise the FPA. Furthermore,
through the RANA process, the QAC process and the FPA negotiations, Saskatchewan
has had a full and equal opportunity to participate.
CEMA maintains it is in a difficult position because of Council's refusal
to consider the possibility of interim quota and levies orders. Currently,
CEMA is without the legal framework necessary to support its core functions.
In circumstances where provisions in the regulation that implement core
functions of an agency have an expiry date, it cannot have been the intention
of Parliament that Council would refuse to exercise its powers in order
to foster stability and certainty in the industry during an interim period
while Council inquires into a complaint. Without quota allocations and
levies, CEMA has no enforceable means to regulate interprovincial and
export trade.
Role of Council
It is not Council's role to make quota decisions, but rather to be satisfied
that an agency is acting in accordance with the Act and Proclamation as
a condition for prior-approving amendments to quota regulations. Council
has, over the years, stressed the need to accord agencies a considerable
degree of flexibility and independence in quota policy matters. CEMA cites
a number of past Council complaint decisions supporting this position.
The Agency further contends that Council should be cautious about intervening
in a quota allocation decision that is based on a consensus achieved through
a carefully structured balance of interconnected and competing interests.
Legal Framework for Making Overbase Quota Allocation Issues
CEMA maintains that Saskatchewan views the criteria set out in the Proclamation
as factors subsidiary to the principle of comparative advantage of production
and has elevated this principle to the primary, if not ultimately the
sole, criterion to be considered when making overbase quota allocation
decisions. Saskatchewan's view is not supported by the Act, Proclamation
or the FPA.
Under section 23(2) of the Act, CEMA is required to consider the principle
of comparative advantage of production in the making of overbase allocation
decisions. Parliament has not directed CEMA in the manner in which or
the degree to which it must undertake that consideration. Secondly, s.23(2)
does not prohibit the consideration of other factors by an agency. CEMA
was given the mandate of working with industry partners to manage the
egg industry in a manner consistent with the objects of the Act, not the
task of acting as a testing ground for economic theories.
Consistent with the flexibility accorded to agencies under s.23(2) of
the Act, the CEMA Proclamation does not prohibit consideration of factors
other than those listed in s.4(1) of the Proclamation. By s.4(1), signatories
agreed that CEMA was required to take into account certain specified criteria.
Therefore, the position of Saskatchewan that the criteria listed in the
Act, Proclamation and FPA are exhaustive is not supported by the Act,
Proclamation or the current FPA.
CEMA has both discretion and flexibility in making overbase quota allocation
decisions, a view that is supported by a number of prior decisions of
Council. Not only CEMA, but all the national agencies have been guided
by these decisions of Council, which in CEMA's view, are consistent with
the Act and FPA. They are also consistent with the legal advice the Agency
has received from the federal Department of Justice. CEMA further notes
the characterization by Council of quota allocations as "policy"
matters also accords with the original intent of the FPA signatories.
Notably, section 13 of Schedule "C" to the FPA in part states
that "the Plan would provide criteria by which the national agency
would determine policy with respect to provincial shares of the national
market, but would not provide a formula for such adjustment, leaving this
as a matter of policy determination from time to time".
Finally, in the matter of flexibility, CEMA refers to a legal opinion
provided by Henry Molot, Q.C. of the Department of Justice wherein the
Agency is vested with discretion and flexibility when making overbase
quota allocations. CEMA also refers to the findings of the Supreme Court
of Canada (Oakwood Development Limited vs St. François Xavier)
wherein the Court held that a body exercising a statutory decision-making
function must take into account all relevant considerations.
Saskatchewan Approach To Comparative Advantage of Production Is Inconsistent
With Council's Views
Saskatchewan has asked Council to declare (1) that comparative advantage
does not mean comparative cost of production and (2) that the formula
operationalizing comparative advantage of production developed by Saskatchewan
is reasonable and acceptable. CEMA cites a number of past Council decisions
referencing comparative advantage which in its opinion are contrary to
the view held by Saskatchewan. In particular, CEMA refers to a Council
decision in April 1994 wherein Council stated "production should
take place with reference to comparative advantage and that production
should be related to identified market requirement in various areas of
the country. In other words, the allocation system should be market responsive,
to supply the right amount and kind of product, at the time it is required
in the places that it is required".
The Proposed Quota Allocation is Reasonable and Consistent with CEMA's
Legal Obligations
The decision on November 12, 2003 establishing the federal quota allocations
to the provinces was the result of numerous meetings, discussions and
consultations leading up to that meeting. Moreover, there were four components
to that quota allocation decision, namely: (1) the projected total demand
for eggs in 2004 for both federal and EFP quota, (2) an adjustment to
registered hen inventory levels resulting from Statistics Canada data
on non-registered production, (3) the allocation of federal quota, and
(4) the allocation of EFP quota. CEMA acknowledges that Saskatchewan is
challenging only the third component, i.e. the allocation of federal quota,
but states that all the components must be viewed as a package and not
treated in isolation. CEMA then commented on the nature of the three unchallenged
components.
CEMA fails to understand how Saskatchewan can claim that the overbase
criteria were disregarded in the process leading to the federal quota
allocation decision. The criteria were in fact, specifically as construed
by Saskatchewan, discussed at length at a series of meetings involving
CEMA and CEMA Committees. Other provincial perspectives on the criteria,
including comparative advantage, were also discussed at various meetings
in the context of considering Saskatchewan's views and proposals.
The process CEMA has followed since June 2000 has been one of consensus-building
to address challenges facing the industry. The concerns voiced by Saskatchewan
in respect of quota allocation issues have been among the many challenges
facing the industry. In November 2002, the CEMA Board determined that
given the nature and scope of the issues raised by Saskatchewan that they
were most appropriately dealt with at the CEMA FPA Committee that had
been formed in 2001. Progress reports were provided to the CEMA Board
by the Committee regularly from 2001 through 2003.
Saskatchewan submitted a detailed Position Paper dated April 22, 2003
to the FPA Committee setting out its views on the role that comparative
advantage should play in the allocation process. Subsequently, at the
June 18, 2003 meeting of the Committee, the Saskatchewan representative
made a presentation requesting additional quota for Saskatchewan over
a five year period beginning in 2004 plus a guarantee of a fixed share
(12.9%) of future growth based on Saskatchewan's interpretation of the
overbase criteria. In addition, Saskatchewan proposed that the 810,274
layers initially allocated in 2000 should be reallocated so as to provide
Saskatchewan with a higher percent of the growth. Saskatchewan claimed
they ought to have received roughly 100,000 more layers than were initially
allocated to the province. However, the request to the June FPA Committee
meeting was not to reduce the allocations to other provinces, but to provide
a special increase to Saskatchewan of 100,000 layers plus the further
guarantee of a fixed (12.9%) portion of future growth.
Saskatchewan did not succeed in convincing other provincial and territorial
representatives at the August 12th, 2003 FPA Committee meeting that federal
quota should be allocated on the basis Saskatchewan proposed. At that
meeting, the CEMA Chairman presented a counter-proposal that would have
provided for a 100,000 layer increase to Saskatchewan to be allocated
over a period to be determined, including the non-registered production
adjustment (50,963 layers). Responding to one of Saskatchewan's concerns,
this proposal would have restored Saskatchewan's quota to its original
1972 market share. However, Saskatchewan turned down the offer stating
that it did not address their concerns stemming from the allocation. Further,
there was unanimous agreement amongst other Committee members that there
was no basis to justify going back to their boards and governments with
the Saskatchewan proposal.
In correspondence from the Saskatchewan Egg Producers (SEP) Chairman
to the CEMA Chairman on August 23, 2003, Saskatchewan proposed to give
equal weight to hen-to-population ratios, market shares and its theory
of comparative advantage to justify a fixed 12.9 percent of all future
quota to Saskatchewan and to reconfigure the 2000 allocation to give an
additional 100,000 layers to Saskatchewan. The proposal was not supported
by any of the other CEMA Board members at their September 24, 2003 meeting.
There are four reasons why Saskatchewan has been unsuccessful at convincing
its FPA partners of the merits of its views. First, Saskatchewan continues
to look backward, particularly to the 2000 quota that it unsuccessfully
challenged before Council, as opposed to looking forward in a manner that
can realistically foster a consensus. Second, Saskatchewan has built its
position around what provincial signatories view as a contradictory and
flawed concept of comparative advantage. Third, Saskatchewan has repeatedly
compromised its position by bringing extraneous considerations into the
negotiations eg. federal government initiatives relating to grain transportation
rates. Fourth, other provincial organizations have understandable difficulty
accepting Saskatchewan's suggestions that it alone should be able to re-open
the 810,274 layer overbase allocation and should tie the industry's hands
by guaranteeing Saskatchewan 12.9 percent of all future table growth irrespective
of provincial market considerations.
CEMA maintains that it carefully considered the views advanced by Saskatchewan
and all relevant issues, including the prescribed criteria before arriving
at the four elements of the proposed quota allocation. Furthermore, CEMA
cannot be faulted for declining to reallocate the shares of the federal
quota. To do so, in the context of no overall growth in federal quota,
would be the very antithesis of market responsiveness and stability. Nor
can it be said that CEMA has treated the 2003 federal quota allocation
as a "new base". More accurately, the 2004 federal quota allocation
is reflective of a decision taken in the context of no material change
in circumstances since 2003 which would warrant a change from the 2003
federal quota allocation.
EFP Quota Allocation
Although the distribution of EFP quota was not subject to challenge,
CEMA notes that, consistent with the guidance of Council, it continues
to refine its EFP Policy with a view to being market responsive and responsible.
Response to Additional Points Made by Saskatchewan
CEMA addressed several points made by Saskatchewan which warrant comment.
Following are some of these points (not exhaustive).
- Saskatchewan says that Council must confirm the status and validity
of the FPA. CEMA does not consider the validity of the FPA to be in question.
- While Saskatchewan maintains Council must not approve a quota order
which is inconsistent with the marketing plan, Council did approve CEMA's
quota allocations for 2001, 2002 and 2003.
- Saskatchewan indicates in its submission that CEMA must give the criteria
ongoing and active consideration to discharge its obligations. This is
precisely what CEMA has done.
Concluding Remarks
CEMA has faced financial pressures associated with the Industrial Product
Program but has taken a number of steps to address these problems including
developing an alternative reporting system for production and shell egg
disappearance as past production data was not accurate. As well, the Agency
is improving its Early Fowl Removal Program to reduce seasonally high
levels of industrial product and developing a cap on the amount of industrial
eggs eligible for levy support.
CEMA has also been committed to develop a new FPA that will modernize
and update the contractual underpinnings of the egg marketing system and
bring an added measure of both stability and sustainability to the industry.
The FPA process is nearing completion with a package of documents distributed
to FPA signatories in December 2003. However, FPA issues can only be resolved
through good faith and face-to-face dialogue at the FPA negotiating table.
FPA problems cannot be solved through litigation.
To grant Saskatchewan the relief it is seeking has a number of significant
impacts. One immediate impact will be to significantly heighten the vulnerability
of the egg industry to challenge by extending the lapse of the quota and
levies orders. Another impact would be to force CEMA to pursue one of
four options, all of which are problematic:
- CEMA could engage in a reallocation for 2004 of the overbase quota
- an option that would be disruptive in the market place and contrary
to sound management practices;
- CEMA could make a special allocation of federal quota to Saskatchewan
that would put further pressure on levies;
- CEMA could tie its hands by committing to give Saskatchewan a fixed
amount of quota or a fixed proportion of growth in future years; or
- CEMA could attempt to develop a new quota allocation methodology to
satisfy Saskatchewan's concerns that would be contrary to the developing
consensus surrounding the new draft FPA.
The most serious impact would be the likely destruction of the federal-provincial
cooperation that underpins the supply management system for eggs.
For all these reasons, CEMA requests that Council:
(a) prior-approve the proposed amendments to the quota regulations providing
for the federal quota allocation and federal EFP quota allocation for
2004; and
(b) prior-approve the proposed amendments to the levies order providing
for $0.25 levy accrual.
SUMMARY OF INTERVENER POSITIONS
La Régie des marchés agricoles et alimentaires du Québec
The Régie notes that for many years, CEMA did not apply certain
provisions of its FPA. However, all signatories continued to subscribe
to the Marketing Plan and, de facto accepted this way of proceeding while
recognizing the need for updating it to reflect CEMA's current practices
and the new realities in the market place.
The quota allocation methodology and the levy setting mechanism proposed
by CEMA reflect the recommendations of the Quota Allocation Committee
as well as the proposals made by the FPA Revision Committee. The proposed
new FPA resulted from a consensus of nearly all provincial producer boards
which assessed the advantages and disadvantages of changes to the allocation
of quotas and to the financing of the industrial products program. This
agreement represents the best compromise solution towards improving the
operations of the egg marketing system.
Any amendment to the major pillars of this agreement may lead to questioning
the consensus reached by the FPA Revision Committee. The Régie
believes this element has to be taken into account for any decision to
revise the quota allocation methodology.
The Régie believes that the CEMA's proposed amendments to its
quota and levies orders should receive the approval of the Council.
Egg Producers of P.E.I., P.E.I. Marketing Council, and the P.E.I.
Minister of Agriculture, Fisheries, Aquaculture and Forestry
P.E.I. continues to respect its 2004 quota and levy obligations in the
absence of a federal quota and levy order in place because P.E.I. believes
the actions of CEMA were and continue to be in the best interests of the
Canadian egg industry. P.E.I. outlined the benefits derived from the Federal-Provincial
Agreement for eggs to industry stakeholders and the reasons for success
over the years. The P.E.I. signatories also note that the industry has
evolved dramatically over the past thirty years and that the changes which
have occurred were not, nor could not, have been envisioned when the Act,
Proclamation and FPA were written.
Recognizing the need for change, CEMA has established a committee to
renew the FPA. This committee completed its work late in 2003 and awaits
comments from signatories.
Although the decision to allocate 430,000 layers in 1999 was on the basis
of hen-to-population ratios, this decision was taken only after long discussions
with stakeholders and took into account a demonstrated increase in demand
for eggs. Similarly, discussion prior to reaching the St. Andrew's Accord
was intense albeit the Accord probably did not fall within the Act, Proclamation
and FPA. However, CEMA's efforts to resolve differences associated with
future quota growth must be commended. The Agency's Quota Allocation Committee
discussed allocation issues with stakeholders and made recommendations
and although not unanimously accepted, they were in the best interests
of the egg industry.
The P.E.I. signatories argue that consideration of comparative advantage
only applies when allocating additional quota for anticipated growth to
market demand, not demonstrated growth as was the case in 1999 and 2000.
Further, comparative advantage is only a principle and when applying the
principle, considerable latitude in judgement must be applied. P.E.I.
contends that the Agency should consider other elements when anticipated
growth is being considered e.g. investment in facilities, market location
and demographics.
Although Saskatchewan has developed a credible interpretation of comparative
advantage, that is not to say other signatories could not develop a different
interpretation. It is doubtful that the writers of the Act, Proclamation
and FPA envisioned a debate among all signatories trying to apply the
principle of comparative advantage to egg production compared to production
in all other goods and services.
The 2004 proposed quota order is consistent with the Agency's by-laws
and is consistent with the 2003 quota order approved by Council. CEMA
did not violate the Act, Proclamation and FPA when it allocated quota
in 1999 and 2000. Therefore, P.E.I. asks Council to dismiss Saskatchewan's
complaint and approve the 2004 quota order or alternatively to prior-approve
an extension to the 2003 quota and levies orders for 2004.
Ontario Egg Producers (OEP)
Ontario Egg Producers supports CEMA's request for Council's prior-approval
of the quota and levies orders for 2004 and shares CEMA's concern about
Saskatchewan's abuse of the Council Complaint Procedure. Saskatchewan's
real purpose is to carve out a special deal for more federal quota for
its producers at the expense of producers elsewhere in Canada.
Saskatchewan has used every opportunity to put forth its views on comparative
advantage of production but has consistently failed to convince anyone
of the validity of their position. In OEP's view, the Saskatchewan position
on comparative advantage is simply wrong. The Quota Allocation Committee
process and ensuing recommendations were a demonstration of the consensus
building approach which the Agency has fostered to allow the system to
operate in achieving its objects under the Act. Saskatchewan was a full
participant in that process.
Out of concern for Saskatchewan's position on comparative advantage,
the OEP commissioned a study on its implications by JRG Consulting Group.
The consultants could find no clear meaning or application for comparative
advantage and recognized that this criteria is open to any manner of different
interpretations. Furthermore, Saskatchewan's assertion that "comparative
advantage does not mean comparative cost of production" is a faulty
stretch of economic principles. Comparative advantage has everything to
do with relative efficiency of input usage which is about using the fewest
scarce resources to produce output and when applied, is about comparative
costs.
Saskatchewan's formula for applying comparative advantage is neither
reasonable nor acceptable. It is a self-serving assessment of the value
of agriculture to the Saskatchewan economy, it has nothing to do with
the comparative advantage of egg production. The OEP submission also provides
a summary of analysis prepared by its consultants which concluded that
Saskatchewan's allocation would likely have been less than the actual
allocation received by Saskatchewan today. However, the OEP notes that
it is not relying on this analysis and is not advocating any particular
definition or application of the principle of comparative advantage of
production. As well, the OEP notes that its May 2000 submission to Council
which provided an analysis of how the principle of comparative advantage
supported the CEMA allocation, remains valid for the 2004 allocation period.
Ontario has consistently been prepared to consider and give weight to
additional factors seen necessary by CEMA and the other provinces to maintain
a viable egg industry and to achieve the objects of the Act. It is these
extra considerations, previously recognized by Council and endorsed by
CEMA, which form an important part of the 2004 allocation that is under
attack through this complaint. The OEP does not agree with Saskatchewan's
position which would effectively prohibit CEMA from giving any consideration
to other factors in the allocation process. CEMA moved past the stated
criteria several years ago. These criteria were not ignored, rather, they
were considered as part of the process and given the weight they deserve.
This complaint is essentially an attempt by Saskatchewan to continue
its opposition to CEMA's 2000 allocation and to obtain a special deal
for its own producers. These same issues were dealt with by Council at
that time and hence, this proceeding is an unnecessary repetition.
The OEP support CEMA's acceptance of the consensus achieved by the provinces
on the appropriate weighting of different criteria and is prepared to
work with CEMA and the other signatories to improve the transparency of
how various criteria are considered in the future. The OEP also supports
CEMA's submissions respecting Council's previous rulings on the Agency's
application of the criteria and urges Council to apply those guiding principles
in reaching a decision.
La Fédération des producteurs d'oeufs de consommation
du Québec (The Federation)
The Federation initially outlined the history of the enactment of the
Act and Quebec's role therein particularly noting that the criteria in
subsection 2 of section 23 is vague, imprecise, discretionary, arbitrary
and liable to dispute. The Federation also takes issue with Council not
promptly dismissing the complaint due to the lateness of filing the complaint
pursuant to Council's guidelines for complaints. The Federation has criticized
Council's decision not to hold discussions with CEMA representatives at
Council's December 16th, 2003 meeting but rather to postpone consideration
of CEMA's proposed quota and levies orders pending the outcome of the
appeal hearing process. Particular information sought by the Federation
under the Access to Information Act has yet to be received. The Federation
also argues that since the approval of quota and levies orders is the
responsibility of the Council itself, the entire Council should have all
the documents and itself assess all the evidence provided.
The Federation concludes that Council endangered the supply management
system, in circumstances that did not in any way justify it, by not approving
the quota and levies regulations submitted by CEMA in December 2003. In
particular, the absence of legislation since December 28, 2003 means that
anyone who refuses to pay levies is justified in so doing, and that anyone
who wishes to produce without quota for interprovincial movement cannot
be stopped or sanctioned.
As a result of the above, according to the Federation, Council must immediately
approve, on an interim basis, the quotas and levies adopted by CEMA on
November 12, 2003 and immediately end the danger to which producers are
being subjected.
The Federation notes that Saskatchewan has a quota of 971,000 layers,
a single grading station and no processing industry. By making a complaint,
Saskatchewan has not only succeeded in endangering the supply management
system, but it does not make any precise suggestion as to what its 2004
quota should be.
There is no doubt that Saskatchewan's aim is to obtain a higher quota
with no clear study of the effect of such an increase on industrial product
costs, on the movement of eggs in interprovincial trade and on the compromise
the provinces had reached in setting quotas for 2004. To grant the relief
sought will mean the destruction of the egg supply management system.
The Federation questions how it can be explained that with such a free
market and such comparative advantages, Saskatchewan at present has no
processor and a processing quota of 4,880,000 dozen eggs that is only
partly used.
The Federation requests Council to dismiss the Saskatchewan complaint
and to approve the proposed 2004 quota and levies orders.
Alberta Egg Producers Board
The Alberta Board does not comment on the argument presented by the Saskatchewan
complainants.
The Alberta Board says that the effect of Council's decision to not prior-approve
the requested quota and levies order for 2004 is an improper response
as it:
a) effectively jeopardizes the entire egg marketing system in Canada
in that there is no national quota or levies order in effect;
b) places all producers and stakeholders in the industry at risk due
to uncertainty and any enforceable means (sic) to protect against unauthorized
interprovincial marketing; and
c) places into question the legality of funds collected by provincial
boards for remittance to CEMA.
The Board says Council should have approved the orders for 2004 on an
interim basis. Given the wide discretion provided to Council under s.7(1)(f)
of the Act, a more appropriate response would have been to ensure that
the system is stable by granting the interim order and thereafter, to
deal with complaints.
The quota and levies orders are necessary for the implementation of the
marketing plan and Council must approve them. To hold a contrary view
means there is no marketing plan at all and this is unacceptable.
New Brunswick Egg Producers (NBEP)
The New Brunswick Egg Producers do not support Saskatchewan's argument
that the criteria in the FPA are the only factors CEMA is entitled to
take into account when allocating overbase quota. NBEP believe that the
criteria are intended to be considered in a much less arbitrary manner
in the development of allocation policies. Section 13 of Schedule C to
the FPA in part reads, "the Plan would provide criteria by which
the national agency would determine policy with respect to provincial
shares of the national market, but would not provide a formula for such
adjustment, leaving this as a matter of policy determination from time
to time". NBEP believe that the authors of the FPA did not intend
to provide absolute and unquestionable rules for quota allocation, but
rather guidelines to be considered when developing future policy.
NBEP questions Saskatchewan's isolation of the criterion of comparative
advantage from the five listed in Schedule A of the Proclamation and further
questions the intent of their argument when the result of their proposal
for calculating comparative advantage is an allocation that favours Saskatchewan
more than any other province. It is not Council's role to determine that
the formula developed by Saskatchewan is reasonable and acceptable. That
is a policy determination that rests with CEMA. Further, the use of comparative
advantage in determining allocations is problematic in that the principle
is applied to one single product rather than all goods produced. This
is not consistent with the theory of comparative advantage as an economic
principle.
NBEP does not support the 1999 and 2000 allocations being reallocated
using the FPA criteria. Whether referred to as "interim" or
"one time", NBEP does not believe there to be one province which
considered the most recent allocations to be temporary or open to retroactive
reallocation. Given the long term nature of an egg production cycle as
well as the long-term investment required, it would be irresponsible of
CEMA to reconsider allocations already made to producers who have made
those investments.
CEMA is required by law to submit a quota order each year regardless
of any changes in allocations. Unless there is additional overbase quota
to be allocated, industry does not consider it to be a new allocation.
The 2004 proposed allocation is not a new allocation and Saskatchewan
should not be allowed to use the 2004 quota order as the means to re-open
discussion on the allocation methodologies established for the 2000 quota
allocation. Saskatchewan's challenge to the allocation criteria has an
optional forum for resolution in the current FPA renewal process and all
three levels of signatories should be encouraged to participate.
Where Council declines to approve a levy or quota order, the egg industry
is left in both legislative and operational jeopardy. In such cases, NBEP
believes there should be an extension of the expired order so that agency/boards
can continue operations, in the interim, in a non-threatening environment.
Nova Scotia Egg Producers and Nova Scotia Natural Products Marketing Council
CEMA's 2000 Quota Allocation Committee's process must be respected by
all signatories. It is the basis on which CEMA has been operating since
2000 and is currently being incorporated into a revised FPA. Failure to
respect this fragile agreement could re-open the question of provincial
allocations and impair the Agency's ability to focus on the future of
the system and the new FPA.
The substance of the complaint differs little from that filed by the
Saskatchewan and Manitoba signatories in 2000. Nova Scotia believes that
provincial differences are best dealt with at the Agency table and there
are processes in place to permit this.
Mr. Tim Wiens, Egg Producer from Saskatchewan
Going back on the quota allocations made over the last years, ie. the
430,000 layers and 810,274 layers, would be totally wrong for our national
and provincial industries. The above-mentioned allocations are a part
of the new base suggested in the FPA proposal. Although difficult to swallow,
it does reflect a reality to the ongoing nature of how we do business
in this country.
Comparative advantage is a great tool to allocate extra production but
why hasn't it been successfully used in the past?
Mr. Wiens questions whether the negotiation process has truly been fully
utilized. A new team is leading the charge in Saskatchewan and they may
not have had the chance to understand their fellow producers from across
the country. When Saskatchewan's comparative advantage paper was added
into the overall process, this new team expected immediate results to
a concept they believed was irrefutable. History shows that provincial
and national interests seldom fall in place overnight, especially when
there is a possibility of clawing back gains made in other provinces.
Saskatchewan has been greatly disadvantaged over the last years in agriculture.
It is not realistic that Saskatchewan egg producers can sign on to any
deal that compounds the problem. It is incumbent on producers across the
country to analyse what parts of the Saskatchewan position would be acceptable
for a new FPA to be signed. There is room for negotiation between the
parties to achieve the objects of both our provincial and national industries.
Ontario Farm Products Marketing Commission
The Commission supports the position of the Ontario Egg Producers for
the following reasons. First, although Saskatchewan alleges that the only
factors CEMA is entitled to take into account when allocating overbase
quota are the ones listed in the Act, Proclamation and FPA, it cannot,
nor has it been, interpreted or applied as being restrictive to such criteria.
The Commission cites passages in the May 2000 report of the Council in
concluding that overbase allocation is not restricted to the criteria
contained in the Proclamation or the Act.
Secondly, Saskatchewan alleges that the methodology used by CEMA is inconsistent
with its objects as stated in s.21 of the Act. In July 1998, Ministers
of Agriculture indicated that national agencies require FPAs to effectively
operate the supply management system. CEMA then, through its working committee,
proceeded with the formidable task of developing a draft FPA. Although
this work is not complete, the Commission is supportive of and committed
to working with CEMA and other signatories to finalize an FPA that will
be functional for years to come.
The Commission recommends that Council extend the 2003 quota and levy
orders to provide a legal basis for CEMA's operations.
Manitoba Minister of Agriculture, Food and Rural Initiatives, Manitoba
Farm Products Marketing Council, and Manitoba Egg Producers
The Manitoba signatories contend that certain actions and decisions of
the Council, as a result of the complaint filed in 2000 by the Saskatchewan
and Manitoba signatories, have contributed to uncertainty and confusion
with respect to the appropriate considerations for subsequent quota allocations.
The Manitoba signatories referenced their submission to the May 2000
complaint hearing. In a letter to CEMA dated March 13, 2000 respecting
the proposed allocation of 810,274 hens for processing market growth using
a hen-to-population formula, Council stated it was not satisfied the order
is appropriate for the implementation of the marketing plan nor was it
satisfied that the Agency has demonstrated how the overbase criteria in
s.4(1) of the Proclamation were taken into account. Furthermore, it does
not believe that the proposed amendment is consistent with the objects
of an agency as set out in s.21 of the Act. Notwithstanding the above
and following the May 2000 complaint hearing, Council agreed to prior
approve the proposed quota order.
During the 2000 complaint hearing, Manitoba asked Council to refuse to
prior-approve the amendment to the quota order and to direct CEMA to address
processor demand through alternative programs (EFP) which would respect
s.21 of the Act. However, Council approved the order, in part it seemed,
on account of concern about the uncertainty that might have resulted from
a refusal to do so. Manitoba maintains that any such uncertainty could
have easily been removed by further extending the existing quota order
as the Council did for the January 1 to February 27, 2000 period.
Manitoba provides a number of extracts from the May 2000 hearing report
relating to allocation procedures and discretion afforded an agency in
making allocations and cautioning CEMA as to the continued used of hen-to-population
ratios for allocating overbase quota. Council also expected the Agency
to address these concerns in terms of any future quota order brought forward
for prior-approval. Notwithstanding the above, Council went on to prior-approve
CEMA's quota orders in 2001, 2002 and 2003.
The Manitoba signatories request that the Council:
• confirm the status of the continued use of hen-to-population
ratios when allocating above base quota,
• clarify what factors the Council considers reasonable for "maintaining
and promoting an efficient and competitive industry",
• clarify the decision not to prior-approve CEMA's levy and quota
orders for 2004 even though similar conditions of uncertainty prevail
in the absence of these orders, as was the case in 2000, and
• clarify what constitutes a given threshold appropriate to the criteria
in the plan that Council requires to "satisfy itself" that a
proposed order complies with the marketing plan and the Act.
Finally, Manitoba notes that a national Egg for Processing program is
now in place to enable provinces such as Saskatchewan to participate in
the growth of the domestic processing market.
COMMITTEE FINDINGS
In view of the number of issues raised during the course of the hearing
respecting various provisions of the Act and the marketing plan, the Committee
will take this opportunity to provide its observations on the Council's
role in reviewing Agency orders and regulations and the requirements of
the CEMA marketing plan for allocating overbase quota. This will be followed
by commentary respecting the alleged inconsistency of the proposed quota
order with the Agency's objects, interpretation of the principle of comparative
advantage of production, the proposed methodology for quantifying comparative
advantage and finally some concluding remarks.
Role of Council in Reviewing Agency Orders
The parties to the hearing made extensive reference to previous complaint
hearing decisions of Council and quoted references to the Council's review
function under subsection 7(1)(d) of the Act with respect to proposed
agency orders or regulations.
Section 7(1)(d) provides
"7. (1) In order to fulfil its duties, the Council
(d) shall review all orders and regulations that are proposed to be
made by agencies and that are of a class of orders or regulations to which
the Council, by order, provides that this paragraph is applicable and,
where it is satisfied that the orders and regulations are necessary for
the implementation of the marketing plan or promotion and research plan
that the agency proposing to make the orders or regulations is authorized
to implement, the Council shall approve the orders and regulations;"
In the Committee's view, the language of subsection 7(1)(d) is phrased
in terms of a "duty" for Council to perform rather than as a
"power" of Council to be exercised over an agency. This is an
important distinction as it is consistent with the overall scheme of the
Act which, while including requirements for Council approvals for certain
agency bylaws and all regulations or orders, does not explicitly provide
to Council a directory or supervisory authority or "power" over
an agency.
Where the Council declines to give its approval it may provide its reasons
for doing so and may even suggest appropriate changes which an agency
may wish to consider. In any such event though, the final determination
of whether or when to follow the Council's suggestions is solely within
the authority of an agency to make and an agency may ultimately decide
upon another course of action to deal with the Council's concerns.
Subsection 7(1)(d) clearly provides that the Council must review any
order or regulation which an agency proposes to make and which is of a
type that the Council, by order, has required to be made subject to this
subsection. The Council must then determine or "satisfy itself"
that the proposed order or regulation is "necessary for the implementation
of the ....plan". Should an agency provide a questionable rationale
for the proposed regulation or order, the Council is still required to
conduct its own independent review to determine whether the order or regulation
is "necessary" for the implementation of the plan.
The test of "satisfaction" under subsection 7(1)(d) is, in
the Committee's view, a subjective test to be determined solely by the
Council. The Committee believes it is also for the Council to determine
what the words "necessary for the implementation of the ...plan"
mean. In making this latter determination the Council should review the
prescribed terms of the authorized plan and the rationales or justifications
provided by an agency and should also consider whether the proposed order
or regulation is consistent with the objects of the agency pursuant to
Section 21 of the Act.
Other than these general guidelines, it is the Committee's view that
the Council has broad discretion when conducting its review. It may choose
to rely exclusively upon an agency's supporting submissions or, alternatively,
may decide to conduct its own independent assessment. The Council may
have due regard to previous similar orders or regulations and whether
the proposed order provides relevant continuity and stability for the
regulated industry. Ultimately though, the Council must be satisfied that
the proposed order or regulation is one which may be justified within
the terms of the Act and the plan.
The test of "satisfaction" should not necessarily be viewed
as an exact science and the Council need only strive to determine whether
proposed agency orders or regulations meet the objectives of the Act and
the plan. Once the Council has determined that the threshold test of "satisfaction"
has been met then it is directed under subsection 7(1)(d) to approve the
proposed agency order or regulation. This is a mandatory requirement and
it is not open for the Council to direct that the agency must not proceed
with completing the process of enacting the order or regulation into law
until it has met Council instructions for changes or implementation. On
the other hand, the Committee believes it can also be said that unless
and until the Council is "satisfied" with the order or regulation,
the Council has no authority to give its approval for it to be enacted
into law.
As for the agency, even where its proposed order or regulation has received
Council approval, the agency may nevertheless decide not to proceed with
it and may elect to take some other action or perhaps even submit a new
proposed order for Council consideration. Thus while the Council's approval
may be a necessary interim step for an order or regulation subject to
subsection 7(1)(d), the final determination of whether the regulation
is to be enacted into law is solely the responsibility of the agency.
In the Committee's view therefore, the Council approval function under
subsection 7(1)(d) of the Act establishes a statutory check or balance
on the exercise of the authority delegated to an agency to enact orders
or regulations but does not thereby imbue the Council with any directory
or supervisory "powers" over an agency. The Committee believes
that each body is a "creature of statute" and has a distinct
role and independent responsibilities under the Act particularly in respect
to the enactment of subordinate legislation.
Requirements of the CEMA Marketing Plan for Allocating Overbase Quota
In their written submission Saskatchewan emphasized that, as an administrative
body created by a duly enacted Proclamation, the CEMA was obliged to operate
only within the limits of its statutory authority. The Saskatchewan signatories
also asked the Committee (and ultimately the Council) to confirm that
hen-to-population ratios and market shares are criteria that cannot be
used by CEMA to allocate overbase quota unless and until the Act, Proclamation
and egg marketing plan have been appropriately amended and that the only
criteria which may be used are the five criteria listed in the current
egg marketing plan. During their oral presentation Saskatchewan further
suggested that while CEMA might use hen-to-population ratios and market
shares to determine "whether" to allocate overbase quota it
could not use these same criteria in the actual allocation process but
was restricted to the five criteria in the plan.
Given the emphasis placed during the hearing upon the enabling legislative
instruments under which CEMA was created in preparing this report, the
Committee therefore concluded it would be essential for it to review in
some detail the applicable provisions in these instruments in order to
examine the degree of flexibility which may be available to CEMA for making
overbase allocations.
Section 23 of the Farm Products Agencies Act provides as follows
"23. (1) A marketing plan, to the extent that it allocates any
production or marketing quota to any area of Canada, shall allocate that
quota on the basis of the production from that area in relation to the
total production of Canada over
a period of five years immediately preceding the effective date of the
marketing plan.
23(2) Idem
(2) In allocating additional quotas for anticipated growth of market
demand, an agency shall consider the principle of comparative advantage
of production."
Despite the fact they are contained within one section of the Act, each
of the subsections in Section 23 comprises a separate prescriptive text
with the result, in the Committee's view, that they may be susceptible
to different interpretations as to whether or when subsection 23(2) must
be applied.
Subsection 23(1) does not appear, on its terms (i.e. when it prescribes
that "A marketing plan, to the extent that it allocates any production
or marketing quota to any area of Canada,....") to require that every
marketing plan must include allocations of quota.
What subsection 23(1) does indicate though, is that where the terms of
a marketing plan have the effect of allocating a production or marketing
quota to any area of Canada, any such allocation shall be based upon the
proportion of production in that area in relation to the total production
in Canada during the five year period immediately preceding the effective
date of the marketing plan.
Accordingly therefore, ss. 23(1) establishes a formula which, while not
requiring that the terms of a marketing plan must include an allocation
to any area of Canada, requires that if any such allocation is made it
must be done subject to the "pro rata" formula prescribed in
the terms of the subsection. Hypothetically speaking, the Committee believes
it could be possible to create a marketing plan with terms that only allocate
50% of the production of the defined regulated product. The division of
this allocation would have to be made in a proportional manner as prescribed
in subsection 23 (1) of the Act. The remaining 50% market requirement
would be left subject to open competition amongst producers.
Subsection 23(2) then provides that " In allocating additional quotas..."
(presumably beyond those which may be made in the marketing plan in accordance
with the formula prescribed by ss. 23(1)) "...for anticipated growth
of market demand, an agency shall consider the principle of comparative
advantage of production".
While not "explicit" in its terms, ss.23(2) may therefore
"implicitly" mean that any allocation made by an agency beyond
the quota amounts provided in the terms of the plan must be for an "...anticipated
growth of market demand..." and that therefore the agency must consider
comparative advantage of production for any such additional amount of
quota to be allocated. It may even be suggested that where a marketing
plan makes no allocation whatsoever in its terms then any and all allocations
by an agency must always include the consideration of comparative advantage
of production.
On the other hand, because ss. 23(2) clearly indicates that it only applies
where the additional allocation is for an "...anticipated growth
of market demand..." it may be suggested that the consideration of
comparative advantage is only necessary where the additional allocation
proposed is beyond the market requirements when the plan was brought into
effect (which latter amount, in the example indicated above, would have
included both the 50% market requirements allocated in the plan plus the
additional previously unallocated 50% portion).
Contrary to the first line of reasoning indicated above, it may perhaps
also even be suggested that if subsection 23(1) has no application to
a plan (i.e. a plan which makes no allocations whatsoever in its terms),
then neither does subsection 23(2) (which refers back to subsection 23(1)
when it speaks of "...allocating additional quotas..." to those
allocated in the plan). In other words, it may be
reasonable to suggest that an agency administering a plan which makes
no allocations in its terms is not ever required to follow the requirements
of ss. 23(2) (to consider comparative advantage of production) when allocating
quotas.
As the preceding arguments attest and given the potential for such contradictory
interpretations, the only secure conclusion the Committee believes one
can reach respecting section 23 is that it was only intended to establish
prescribed requirements once certain conditions are met in the terms set
out in the marketing plan and does not, by itself, impose under the Act,
a specific statutory requirement on an agency. In order therefore, to
determine the degree and nature of the applicability of Section 23, and
more specifically subsection 23(2), the Committee believes one needs to
closely examine the terms set out in the CEMA plan.
In particular, Part II of the CEMA marketing plan provides as follows;
"Quota System"
• (1) The Agency shall, by order or regulation, establish a quota
system by which quotas are assigned to all members of classes of egg producers
in each province to whom quotas are assigned by the appropriate Board
or Commodity Board.
(2) The Agency, in establishing a quota system, shall assign quotas in
such manner that the number of dozens of eggs produced in a province and
authorized to be marketed in interprovincial and export trade in the year
1973, when taken together with the number of dozens of eggs produced in
the province and authorized to be marketed in intraprovincial trade in
the same year, pursuant to quotas assigned by the appropriate Board or
Commodity Board, and the number of dozens of eggs produced in the province
and anticipated to be marketed in the same year, other than as authorized
by a quota assigned by the Agency or by the appropriate Board or Commodity
Board, will equal the number of dozens of eggs set out in section 3 of
this Plan for the province.
(3) For the purposes of subsection 2(2) of this Plan, the number of
dozens of eggs set out in this section for a province is the number of
dozens set out in Column II of an item of the following table in respect
of the province set out in Column I of that item, such number of dozens
representing the percentage set out in Column III of that item.
TABLE
==================================================
| Column I |
Column II |
Column III |
| Province |
Number of Dozens of Eggs |
Percentage of Global Allocation
|
| 1. British Columbia |
57,250,000
|
12.055 %
|
| 2. Alberta |
41,344,000
|
8.704 %
|
| 3. Saskatchewan |
22,611,000
|
4.760 %
|
| 4. Manitoba |
54,189,000
|
11.408 %
|
| 5. Ontario |
181,267,000
|
38.161 %
|
| 6. Quebec |
78,647,000
|
16.556 %
|
| 7. New Brunswick |
8,683,000
|
1.828 %
|
| 8. Nova Scotia |
19,504,000
|
4.106 %
|
| 9. Prince Edward Island |
3,028,000
|
0.637 %
|
| 10. Newfoundland |
8,477,000
|
1.785 %
|
————————————————————————————————————————
4. (1) No order or regulation shall be made where the effect thereof
would be to increase the aggregate of
(a) the number of dozens of eggs produced in a province and authorized
by quotas assigned by the Agency and by the appropriate Board or Commodity
Board to be marketed in intraprovincial, interprovincial and export trade,
and
(b) the number of dozens of eggs produced in a province and anticipated
to be marketed in intraprovincial, interprovincial and export trade other
than as authorized by quotas assigned by the Agency and by the appropriate
Board or Commodity Board
to a number that exceeds, on a yearly basis, the number of dozens of
eggs set out in section 3 of this Plan for the province unless the Agency
has taken into account
(c) the principle of comparative advantage of production;
(d) any variation in the size of the market for eggs;
(e) any failures by egg producers in any province or provinces to market
the number of dozens of eggs authorized to be marketed;
(f) the feasibility of increased production in each province to be marketed;
and
(g) comparative transportation costs to market areas from alternative
sources of production.
(2) No order or regulation shall be made where the effect thereof would
be to decrease the aggregate of
(a) the number of dozens of eggs produced in the Province of New Brunswick,
Prince Edward Island or Newfoundland and authorized by quotas assigned
by the Agency and by the appropriate Board or Commodity Board to be marketed
in intraprovincial, interprovincial and export trade; and
(b) the number of dozens of eggs produced in the Province of New Brunswick,
Prince Edward Island or Newfoundland and anticipated to be marketed in
intraprovincial, interprovincial and export trade other than as authorized
by quotas assigned by the Agency and by the appropriate Board or Commodity
Board.
(3) No order or regulation shall be made where the effect thereof would
be to decrease the aggregate of
(a) the number of dozens of eggs produced in a province and authorized
by quotas assigned by the Agency and by the appropriate Board or Commodity
Board to be marketed in intraprovincial, interprovincial and export trade,
and
(b) the number of dozens of eggs produced in a province and anticipated
to be marketed in intraprovincial, interprovincial and export trade other
than as authorized by quotas assigned by the Agency and by the appropriate
Board or Commodity Board,
to a number that, on a yearly basis, is less than the number of dozens
of eggs set out in section 3 of this Plan for the province unless at the
same time the number of dozens of eggs produced in each of the provinces,
other than the
Provinces of New Brunswick, Prince Edward Island and Newfoundland, and
so authorized to be marketed in intraprovincial, interprovincial and export
trade is decreased proportionately.
(4) Subsection 4(3) does not apply to the Northwest Territories.
(5) Pursuant to section 23 of the Act, the Agency has determined that
the number of dozens of eggs produced in the Northwest Territories and
authorized to be marketed in interprovincial and export trade in a twelve
month period, when taken together with the number of dozens of eggs produced
in the Northwest Territories and authorized to be marketed in intraprovincial
trade in the same twelve month period, pursuant to quotas assigned by
the appropriate Board or Commodity Board, and the number of dozens of
eggs produced in the Northwest Territories and authorized to be marketed
under quota exemptions in the same twelve month period, will equal 2,725,500
dozens of eggs, except for the period commencing on the day this subsection
comes into force and terminating on December 31, 1999, when the number
of dozens of eggs produced in the Northwest Territories and authorized
to be marketed, either by quotas or by quota exemptions, shall be the
product of the number of days in this period multiplied by 7,467.
(6) No order or regulation shall be made where its effect would be to
increase the number of dozens of eggs produced in the Northwest Territories
and authorized to be marketed in a twelve month period to more than 2,725,500
dozens of eggs, unless the Agency has taken into account the criteria
set out in paragraphs (1)(c) to (g).
(7) No order or regulation shall be made where its effect would be to
decrease the number of dozens of eggs produced in the Northwest Territories
and authorized to be marketed in a twelve month period to less than 2,725,500
dozens of eggs, unless the unanimous consent of the members of the Agency
has been obtained.
(8) No order or regulation shall be made pursuant to subsection (1),
(3) or (6) unless the Agency is satisfied that the size of the market
for eggs has changed significantly."
N.B.: some of the text has been highlighted and underlined here for ease
of reference.
The first point to note is that, except for the year 1973, the CEMA marketing
plan does not contain terms which actually allocate quota. Rather, what
the plan does is require that the CEMA must establish a "quota system"
subject to and in accordance with the rules laid out in the plan. There
is also nothing in the plan which suggests that once established the Agency's
quota system cannot evolve or be varied over time to meet changing industry
circumstances.
In an indirect sense though, in paragraph 4(3) of the marketing plan,
by prescribing a prohibition on any decrease in the annual quotas for
N.B., P.E.I., or NFLD., it may be suggested that the plan has, if not
expressly then by implication, made an allocation in its terms to these
provinces and that such allocations, having been made on a pro rata basis
based on the requisite five year production period, comply with the requirements
of subsection 23(1) of the Act.
Paragraphs 2 and 3 of the plan establish the foundation on which the
agency is to operate in making allocations for the 1973 production year
and the table in paragraph 3 establishes what are often referred to by
parties as the base quota numbers and proportional or pro-rata percentages
by province related to the total national production during the applicable
five year period prescribed in subsection 23(1).
Paragraph 4(1) of the Plan then provides that if an annual allocation
to "any province" is to exceed the amount in the table for that
province, then the Agency must have "taken into account" the
five criteria listed in the same paragraph (one of which is comparative
advantage of production). The plan therefore differs from subsection 23(2)
(which requires that there must be an additional allocation to that in
the plan for an "...anticipated growth of market demand...")
by providing a more restrictive and less ambiguous requirement for the
agency to "...take into account..." comparative advantage of
production and the other four criteria whenever an allocation to any province
is to exceed the amount in the table for that province.
There is though, no other indication in the plan as to how the five "overbase"
criteria in the plan are to be defined or applied by the Agency (i.e.
what weighting should be applied to each one). The requirement that they
be "taken into account' is, in the Committee's view, a mandatory
statement that in any system or deliberations of the Agency involving
"overbase" quota allocations to any province these five criteria
as a group must play an important role. Further, in examining alternative
definitions or applications for each of the criteria, the Committee believes
that the Agency is required to choose those definitions or terms which
best accord with the objects for an agency prescribed under Section 21
of the Act.
At the hearing, questions raised for the Committee to consider included
whether the list of criteria was to be regarded as open or closed and
whether the Agency could attribute a weighting of zero to the listed criteria
and use other criteria which it believed were more applicable to the business
considerations underlying allocation decisions. Questions were also asked
whether the Agency could even consider criteria which may be inconsistent
with its objects in Section 21 of the Act.
In the Committee's view, by always phrasing the discussion in terms of
labeled "criteria" the parties are thereby placing inappropriate
limitations upon the options otherwise available to the CEMA in establishing
a quota system as mandated under the plan. It is not, in the Committee's
opinion, a question of whether hen to population ratios or market shares
are to be viewed as criteria which can or cannot be employed in the allocation
process of the agency. By proceeding in this fashion the Agency would
be precluded from the opportunity to consider and include what it believes
may be relevant information for making its allocation decisions. The Committee
believes that the hen-to-population ratios, while they should not be used
exclusively for the overbase allocations, may nevertheless constitute
relevant information which may be considered and applied in terms of part
or all of the five criteria listed in the plan when determining the necessary
provincial allocations.
Rather, the Committee suggests that the focus of the parties should be
directed more towards examining the purpose to which any information is
to be put. In other words, to what extent should the CEMA use such information
to formulate useful proxies for each of the criteria listed in the plan
and how may they be reasonably employed in concert with other proxies
or information relevant to each of those prescribed criteria. The primary
questions then become more a matter of degree (or weighting) of employing
appropriate information with the objects prescribed in Section 21 of the
Act serving as general guidelines and limiting factors in evaluating and
applying various alternative methodologies. In the final analysis though,
the Committee believes the Agency should be prepared to clearly demonstrate
in its supporting rationale what information it is relying upon and how
it has adapted and applied the five criteria to meet changing industry
circumstances when making quota allocations.
Alleged Inconsistency of the Proposed Quota Order with the Agency's
Objects
The Saskatchewan signatories argue that the use of hen-to-population
ratios in allocating quota is inconsistent with CEMA's objects as set
out in the Act. Specifically, the use of such ratios do not promote a
strong, efficient and competitive production and marketing industry for
eggs in Canada. In pursuing this argument, substantial reference was made
to Council's May 2000 complaint hearing report.
The Committee would reiterate the findings of the 2000 complaint hearing
in cautioning the Agency with respect to the continuing use of hen-to-population
ratios for purposes of allocating above base quota to member provinces.
It must be remembered however, that the subject of the 2000 complaint
involved the allocation of production from 810,274 additional layers designed
to meet the increasing requirements of the domestic egg processing market,
not the table egg market. In that particular case, Council questioned
the wisdom of making an allocation based on provincial self-sufficiency
proxies given the fact that the locational characteristics of the domestic
processing market might mitigate against it. In that respect, Council
noted that this was to be a one-time only arrangement. Should the Agency
continue to use the hen-to-population ratios, the Committee is of the
opinion that it is the Agency's responsibility to supply supportive quantitative
analysis to show that the ratios demonstrate more efficient production
and marketing and is therefore in furtherance of its objects.
There are two distinct markets for eggs in Canada, a table or shell egg
market and a processed egg market. Although the existing FPA refers only
to the "market for eggs", the Committee is aware that Council
has long since recognized that the overbase criteria listed in the marketing
plan may not necessarily be the most effective or efficient ones to address
growth in both of these markets. In particular, Council has encouraged
the Agency to develop allocation methodologies to meet increasing domestic
requirements of egg processors which would have minimal impact on the
industrial products levy. CEMA cannot view the quota system in isolation
of the levy structure. In making allocations which are subject to the
industrial products levy, the Agency must take full account of the level
and the possible impact of that levy. The Committee is of the belief that
while supplying the table market with sufficient product, the maintenance
of a reasonable industrial product levy rate is one measure as to whether
the Agency is achieving the objects set out in s.21 of the Act.
To the Agency's credit, an "eggs for processing" (EFP) program
has been established and implemented, albeit the terms for allocations
made under this program do not explicitly reference most of the listed
criteria. Obviously, the second criterion listed in the Proclamation,
"any variation in the size of the market for eggs", is by definition
considered as no EFP allocation would be made in the absence of a proven
increase in demand. Although not the subject of this complaint, the Committee
views the EFP program as a significant step toward fostering a strong,
efficient and competitive egg industry. The Committee further notes that
the Council has already gone on record to this effect. The EFP program
provides opportunities for producers to increase production if such production
makes good business sense without placing undue burdens on the industrial
products program. The development and operation of the EFP program only
underscores the pressing need to get a renewed FPA in place as soon as
possible.
On the question of re-allocating the overbase quota increases made in
1999 and 2000, CEMA submitted that would be the very opposite of something
conducive to the objects of the Act and would be destabilizing and unreasonable.
The Saskatchewan signatories replied that any adjustment would not be
undertaken in a draconian manner where flocks need be destroyed but rather
such adjustment can be negotiated and managed in a sensible way over time.
Again it should be emphasized that each quota order is a stand alone instrument,
it is independent from those coming into force before or indeed following
it. Each time an order is made by the Agency, the criteria in the marketing
plan must be taken into account when allocations are made above base levels
set out in the Proclamation. In this way, the previous year's allocation
does not establish a new base for the current year. However, the Committee
submits that it would be unrealistic to implement radically differing
allocations for each quota period. Presumably, there are long-term underlying
factors that influenced past decisions, and should continue to influence
future ones. To stray from this would introduce considerable instability
to the industry.
Long-term investment decisions by producers, graders and processors alike
hinge upon predictable provincial quota allocations. This is not to say
that provincial allocations can never change disproportionally, but rather
that adjustments should be made on a gradual longer term basis based on
an agreed-upon practical, consistent, measurable and transparent set of
criteria. As such and to re-emphasize, there is an urgent need for the
egg signatories to negotiate a marketing plan that enshrines such concepts
under a new FPA. It is the Committee's view that the industry, represented
by CEMA, is best suited to make such decisions, and to the extent possible,
governments should stand ready to support them.
In light of the foregoing, the Committee strongly recommends to the Council
that each time the CEMA presents a quota order for prior-approval purposes
to Council, it be required to provide a comprehensive justification including
a detailed analysis outlining how the Agency took into account the criteria
listed in the marketing plan. In addition, the Agency's justification
must demonstrate how the quota order it submits meets the Agency's objects
set out in section 21 of the Act. It is the Committee's position that
should this requirement not be met that the Council consider convening
a mini-signatories meeting comprised of provincial commodity and supervisory
boards, the Agency and Council to determine how best to deal with the
allocation issue.
Interpretation of the Principle of Comparative Advantage of Production
In support of their request to Council that "comparative advantage"
does not mean "comparative cost of production", Saskatchewan
submits their concept of the comparative advantage of production and an
example of why comparative advantage does not mean cost advantage. For
Saskatchewan, the comparative advantage of production is a concept whereby
production is allocated among trading units in the manner which most effectively
engages the resources of each trading unit. The submission then provides
a hypothetical example where two products are generated more cheaply in
one area than in another area. But both areas will gain if they each specialize
in the production to which their resources may best be put to use.
The methodology to operationalize their interpretation of the comparative
advantage of production was set out originally in a Saskatchewan Position
Paper dated April 22, 2003. In the paper, Saskatchewan constructs an index
of comparative advantage by province using the following methodology:
calculate the percentage of provincial GDP generated by crop and animal
agriculture as a share of provincial GDP for the period 1984-2001 (average);
total these provincial shares; divide each of the shares by the total
of the shares; and multiply the results by 100 to convert these provincial
shares to percentages. Saskatchewan then labels the generated provincial
numbers as the index of comparative advantage by province.
At the hearing, Saskatchewan submitted two additional notes on the meaning
of comparative advantage and the methodology being proposed to operationalize
comparative advantage. In the first note, Professor Joel Bruneau of the
University of Saskatchewan concurs with the assessment of the meaning
of comparative advantage as set out in the Saskatchewan paper of April
2003. He is of the opinion that comparative advantage is always discussed
in relative terms. It is the relative productivity (and hence costs) between
industries within a country that determines whether or not an area enjoys
a comparative advantage. A focus on the costs for one industry cannot
establish the presence of a comparative advantage. Professsor Bruneau
is of the opinion that the methodology used by Saskatchewan to operationalize
the principle of comparative advantage of production appears to be a sensible
and reasoned approach. He indicates that the use of GDP shares may not
always be an appropriate proxy for relative export shares that are generally
used in the economic literature to estimate whether an area has a revealed
comparative advantage.
In the second note, Professor Andrew Schmitz of the University of Florida
supports the Saskatchewan position that the principle of comparative advantage
does not refer to comparative costs. It is wrong to interpret comparative
advantage by comparing costs of production or by comparing processing
capabilities between economies. He is of the opinion that additional work
is needed on the Saskatchewan methodology to operationalize the theory
of comparative advantage, although the methodology is a reasonable and
acceptable step in the right direction. In his view, comparative advantage
should be assessed in the context of a general equilibrium Heckscher-Ohlin
model and not the Ricardian model used by Dr. Groenewegen in his support
of the CEMA position.
In reply, CEMA submits that Saskatchewan has built its position around
what other provincial signatories view as a flawed concept of comparative
advantage. CEMA contends that the flaws in the methodology are the use
of the proportion of GDP devoted to crops and livestock as a proxy for
comparative advantage without regard to other important factors such as
transportation costs, proximity to markets, cost of production and past
utilization of marketing opportunities.
In support of its position on the interpretation of comparative advantage,
CEMA referred to the intervention of the Ontario Egg Producers which included
analysis by Dr. John Groenewegen of J.R.G. Consulting Group. Dr. Groenewegen
disagrees with the Saskatchewan submission that comparative advantage
does not mean comparative cost of production. In his view, comparative
advantage has everything to do with relative efficiency of input usage
and when operationalized is about comparative costs. He is of the opinion
that Saskatchewan's formula for operationalizing comparative advantage
is not reasonable and acceptable. Saskatchewan's use of GDP ratios measures
the value of agriculture to the provincial economy, not the comparative
advantage of egg production.
When academic and consulting economists put forward alternative theoretical
models and interpretations of the meaning of the principle of comparative
advantage of production, the Committee can only conclude, in light of
the fact that papers were tabled during the complaint hearing and not
discussed in detail, that considerable effort still needs to be made by
the parties if they wish to adapt this economic concept to the domestic
supply-managed egg industry. It is the Committee's view that experts in
the field and the Agency are best suited to deal with this issue. These
models are an attempt to highlight the key issues but can seldom be applied
completely to an actual industry due to the nature of the simplifying
assumptions underlying the models. This is particularly the case when
an attempt is made to apply a theoretical pure-competition model to an
industry operating under supply management.
Based on the evidence it received, the Committee cannot confirm Saskatchewan's
request that comparative advantage does not mean comparative cost of production.
The Committee is of the view that the principle of comparative advantage
of production is initially an assessment process that may be used as part
of an allocation process. An assessment may suggest that one type of production
be emphasized rather than another type but various obstacles may prevent
additional production from taking place. Comparative assessments are normally
based on data and may include available cost data. As well, the example
submitted by Saskatchewan is driven by a comparison that finds one area
producing "more cheaply" than the other. This type of comparison
surely involves an estimate of some measure of cost. The need for a comparison
of relative productivities or costs is also set out by Professor Bruneau.
For interpreting the principle of comparative advantage of production,
the Committee understands Saskatchewan's position to be that the phrase
should be primarily interpreted using economic concepts applied in international
trade. In general, however, the principle is located in legislative provisions
for industries operating under supply management, more specifically, s.
23(2) of the Act. When supply management was introduced for these industries,
it was "understood" by participants that prices were to be based
on the cost of production rather than being market driven. This is another
reason to include cost data in comparative assessments.
The Committee is of the view that the principle of comparative advantage
of production is still open to interpretation in the application of the
Act and Proclamation. It is the responsibility of CEMA to interpret this
phrase within the objects of an agency, as set out in Section 21 of the
Act:
a) To promote a strong, efficient and competitive production and marketing
industry for the regulated product or products in relation to which it
may exercise its power; and
b) To have due regard to the interests of producers and consumers of
the regulated product or products.
The Committee is willing to provide some considerations for CEMA if it
decides to turn to the task of interpreting the principle of comparative
advantage of production for the egg industry. First, the textbook definition
of the principle of comparative advantage is sometimes referred to as
the principle of comparative cost. In the textbook referred to in the
Saskatchewan submission, Professors Samuelson and Scott twice refer to
the theory of comparative advantage or comparative cost before they restate
the principle as quoted in the submission by Saskatchewan. Thus, it appears
that the authors are suggesting that cost may be substituted for advantage
in interpreting the principle of comparative advantage of production.
Second, in economics, cost has two basic definitions. One definition
refers to opportunity cost which is the value of the alternatives or other
opportunities that have to be foregone in order to achieve another object.
The other definition is the total money expenditure or outlays necessary
to achieve an object.
These two concepts of cost can be distinguished and they may, but need
not, be equivalent. CEMA may want to consider incorporating both concepts
of cost into its interpretation of the principle of comparative advantage
of production.
Proposed Methodology for Quantifying Comparative Advantage
Saskatchewan requests that Council confirm that the formula to operationalize
comparative advantage of production set out in their Position Paper of
April 2003 is reasonable and acceptable. Saskatchewan further submits
that it is not the only methodology, it is not finely tuned, but it is
an illustration of how it is possible to make comparative advantage a
working criterion. Both Professors Bruneau and Schmitz support this methodology,
but with some qualifications.
CEMA submits that the flaws in the methodology proposed by Saskatchewan
were pointed out to Saskatchewan's representatives at various meetings.
The flaws are the use of GDP ratios as a proxy for comparative advantage
without including transportation costs, proximity to markets, cost of
production, and past utilization of marketing opportunities. Dr. Groenwegen
is of the opinion that the methodology is not reasonable and acceptable
because it measures the value of agriculture to the economy, rather than
the comparative advantage of egg production.
The Committee confirms the need to be transparent in estimating the comparative
advantage of production and commends Saskatchewan for proposing a methodology
that would be transparent.
The Committee realizes the need to use proxy statistical data in a methodology
designed to reflect comparative advantage of production. The Committee
further suggests that more effort is needed to indicate how proxy data
might reflect comparative advantage especially in the sense of opportunity
costs.
Finally, the Committee considers the final calculation in the Saskatchewan
methodology to be a set of unweighted provincial proportions. They are
not an index in the statistical sense of having a base period and subsequent
current values relative to the base period. As a consequence, the Committee
accepts the parties' views that further work is needed to operationalize
the methodology.
Summary and Conclusion
Set out below is a brief summary of the Committee's findings and some
concluding remarks.
• Subsection 7(1)(d) of the Act provides that Council must review
any order or regulation which an agency proposes to make and must satisfy
itself that the proposed order is necessary for the implementation of
the marketing plan. The test of satisfaction is a subjective test to be
determined solely by the Council. Further, the Council has broad discretion
when conducting its review.
• Section 23 of the Act was only intended to establish prescribed
requirements where certain conditions are met in the terms of the marketing
plan and does not, by itself, impose a specific statutory requirement
on an agency.
• There is nothing in the marketing plan which suggests that once
established, the Agency's quota system cannot evolve or be varied over
time to meet changing industry circumstances.
• Although there is no indication in the marketing plan as to how
the listed criteria are to be defined or applied, there is a mandatory
requirement that they be taken into account. In determining definitions
or applications of the criteria, the Agency is required to choose those
which best accord with the objects of the Agency prescribed under section
21 of the Act.
• In the year 2000, the Complaint Committee was concerned that the
hen-to-population ratios were being used exclusively for the overbase
allocation at that time. The current Committee believes that the hen-to-population
ratios, while they should not be used as the "exclusive" basis
for an overbase allocation, may nevertheless constitute relevant information
which may be considered and applied in terms of part or all of the five
criteria listed in the plan when determining the necessary provincial
allocations.
• There is a pressing need to complete the FPA renewal process if
only to explicitly recognize the existence of two distinct markets for
eggs, table and processing, and to set out appropriate allocation methodologies
to deal with demand changes in both of these markets.
• Until such time as the FPA and Proclamation are amended, a comprehensive
justification is required from the Agency respecting usage of the listed
criteria in the Proclamation in support of any request for Council's prior-approval
of a quota order. Otherwise, it is recommended that Council convene a
mini-signatories meeting to deal with the allocation issue.
• In the matter of a difference of meaning between comparative advantage
and comparative cost of production, when academic and consulting economists
put forward alternative theoretical models and interpretations of the
meaning of the principle of comparative advantage of production, the Committee
can only conclude, in light of the fact that papers relating to this concept
were tabled during the complaint hearing and not discussed in detail,
that considerable effort still needs to be made by the parties if they
wish to adapt this concept to the supply-managed egg industry. It is the
Committee's view that experts in the field and the Agency are best suited
to deal with this issue.
• The Committee accepts the parties' views that further work is
needed to operationalize the methodology to define and quantify comparative
advantage of production.
The Committee notes that considerable reference was made during the hearing
to the May 2000 Complaints Committee report, the 2000 quota order which
was subsequently approved by the Council and a multitude of previous Council
decision reports over the past twenty years. Although some reference is
made herein to the May 2000 report, the Committee would emphasize that
given the evolving nature of the industry, past decisions, while useful
for providing important contextual information on the roles of Council
and the Agency, the Act and the Plan, should not be treated strictly as
constituting precedents binding upon Council. This hearing is not simply
a continuation of the 2000 complaint hearing. Obviously, circumstances
can change over time as well as the Council members appointed to hear
and decide on these complaints. Also, the particular nature and structure
of the egg industry plays an important role in formulating complaint decisions
i.e. the existence of an industrial products program fully funded by downstream
stakeholders in the egg industry may impact heavily on decisions relating
to quota allocation disputes, a factor which would not otherwise be considered
when hearing similar complaints related to the chicken, turkey and broiler
hatching egg industries.
As a concluding comment, the Committee submits that the supply management
system for eggs has been very beneficial to producers as well as downstream
stakeholders. The system has contributed significantly to the economies
of all provinces and the Northwest Territories. However, if left unresolved,
challenges to the system particularly in the areas of quota allocation
and levies will inevitably weaken the system that all egg producers want
to preserve. The Committee was encouraged to hear comments from the Chairman
of CEMA that: "the will is there from the signatories to get a resolution
that will serve the interests of the whole industry, including the egg
producers of Saskatchewan". The Committee recommends in the strongest
way that the CEMA and Saskatchewan Egg Producers meet on an urgent basis
to seek that "resolution".
With respect to the work CEMA is doing to redraft its Federal/Provincial/Territorial
Agreement (FPTA), the Committee is of the view that if the issues between
Saskatchewan and CEMA remain unresolved there can be no substantive progress
on finalizing the FPTA. The allocation policy of the Agency is the core
of this Agreement and as such the development of an allocation policy
agreeable to all parties must be the Agency's highest priority. The Committee
was encouraged that none of the parties to the complaint hearing objected
to Council prior-approving interim quota and levies orders. The Committee
encourages the CEMA and Saskatchewan to pick up on this spirit of cooperation
during the period that these quota and levies orders are in place.
ANNEX
Agreement of the Parties and Attending Intervenors to the Complaints
by the Signatories to Saskatchewan and British Columbia
Read into the Record of the Proceedings Conducted By the Complaints Committee
on March 18, 2004.
1. The B.C. Signatories withdraw their complaint to Council on the understanding
that the CEMA Board will present for prior approval an interim allocation
and interim levies for a period ending on July 31, 2004. The interim allocation
will be based on an extension of the 2003 quota allocation until July
31, 2004, including the non-registered production adjustment and the 25,000
layer EFP allocation to Alberta. The B.C. non-registered production adjustment
will be postponed as previously agreed.
2. As a consequence, the conflict of interest allegation is no longer
being pursued by B.C. and is not a live issue before the Complaints Committee.
3. Except for Saskatchewan, the parties and interveners in attendance
would ask that Council prior approve the interim quota allocation and
levy order forthwith. Saskatchewan will not object to Council granting
interim prior approval, but it is understood that Saskatchewan is not
conceding the validity of CEMA's interim quota allocation.
4. The terms of this Agreement are contingent upon the Complaints Committee:
(a) agreeing to recommend that Council prior approve the interim quota
allocation and levies order by (date to be provided to the parties and
interveners by the Committee, that is satisfactory to the parties and
interveners), assuming they are made by the CEMA Board on the basis described
above;
(b) making a preliminary determination that the Saskatchewan complaint
will not be rendered moot if Council grants prior approval of the interim
quota allocation and levies, and
(c) agreeing to then proceed to hear the complaint. As provided in Council's
Complaint Guidelines, following the oral hearing the Committee will deliberate
and present its written findings to Council as soon as possible.
5. The CEMA Board will set quota allocation and levies, effective August
1, 2004, taking into account the results of the independent study of B.C.
EFP allocation issues. The independent study will present conclusions
based on data from: (a) the date of the commencement of EFP utilization
in B.C. until January 31, 2003, and (b) February 1, 2003 to January 31,
2004.
6. In setting the quota allocation and levies to be effective August
1, 2004, CEMA will duly consider, in good faith, the findings and recommendations
of Council, if any, respecting the Saskatchewan complaint.
7. This Agreement shall not preclude judicial review or appeal routes
concerning the Saskatchewan complaint being pursued.
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