Nova Scotia Court upholds cap on dairy quota prices

Some Nova Scotia dairy producers applied to the Supreme Court of Nova Scotia challenging the authority of the Dairy Farmers of Nova Scotia (DFNS) to decrease the price of quota in the province.  DFNS regulations provide mechanisms to adjust a producer’s non saleable and saleable milk quota. They also create a capped price for the exchange of saleable milk quota. The capped price is being phased in over the period commencing in August 2009 through July 2012 and eventually will set a maximum value that is below the value currently being obtained in trading on the quota exchange.

The applicants’ principle challenge was to the purported authority to decrease the quota price. While they maintain support for a supply management system, they favor a quota exchange price that is market driven and not capped. They also seek to ensure that they do not otherwise lose valuable saleable quota already acquired.

At the heart of the dispute was a conflict between some dairy producers who seek to preserve the value of their investment in the dairy industry through unrestricted quota pricing, and those who fear that an unregulated quota price will render the financial structure of the industry unsustainable in the long term.  It is suggested, among other things, that an unrestricted quota price exchange will make it prohibitively expensive for new entrants to the industry.

The Court examined two issues: 1) whether the quota regulation was, prima facie, a proper exercise of the DFNS authority; and, 2) whether the effect of the regulations was to expropriate property without compensation (which can be done, but only where the legislation expressly permits expropriation without compensation) - de facto expropriation.  With respect to these issues, the Court ruled:

• the power to adjust quota has been properly delegated to the DFNS under the Dairy Industry Act (DIA);
• Regulation 21, fixing a price cap, is authorized by section 14(1)(e) of the DIA,  and in particular clause (iii) which authorizes  “...setting the terms and conditions on which the transfer [of quota among producers] may take place”;
• Milk quota is not "property" for the purposes of the de facto expropriation argument;
• Alternatively, if quota is "property", it has not been expropriated because the uses of quota have not been destroyed by the price cap;
• Further in the alternative, if quota is property and has been expropriated, the legislation expressly provides for the price cap without any compensation (i.e. expropriation without compensation).

Read the decision at: Taylor v. Dairy Farmers of Nova Scotia.