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    EFFECTIVE AUGUST 1, 2009

     SASKATCHEWAN MILK CONTROL BOARD

     CONTINUOUS DAILY QUOTA POLICY

PART I - Definitions

    For the purpose of the policies outlined in this document, the following definitions apply:

a) Board means the Saskatchewan Milk Control Board;

    b) catastrophe includes severe illness or death of the registered quota holder; destruction

    of the production facilities; severe infection of the producing herd by an uncontrollable

    disease or by a disease which results in a requirement from health authorities that the

    herd be slaughtered; or any hardship suffered by a quota holder that the Board considers

    to be similar in nature to the ones listed above;

c) complete dairy unit” means a continuously operative dairy farm business, including all

    lands and buildings and milking cows used in the operation of the business;

d) credit days” are calculated by dividing a producer’s cumulative credits by daily quota;

e) credits” means the difference between a producer’s actual production and daily quota

    allocation, (in kgs of butterfat);

    f) cumulative creditsare the total credits accumulated by a producer, including transfer

    credits;

    g) daily quota means a fluid and market sharing quota in kilograms of butterfat allocated

    to a producer by the Board, per day;

    h) direct transfer means the transfer of daily quota directly between two producers; it

    excludes transfers through the Quota Exchange. In all cases, direct transfers require

    Board approval;

    i) immediate family means a grandfather, grandmother, father, mother, husband, wife,

    son, daughter, brother, sister, grandson, granddaughter, son-in-law or daughter-in-law;

    j) incentive day credits” are temporary quota allocations that are intended to stimulate

    production for a specific month;

k) monthly quota allocation” is daily quota multiplied by pick-up days;

l) negative credit limit” is the maximum negative cumulative credits that may be

    accumulated by a producer;

m) positive credit limit” is the maximum positive cumulative credits that may be

    accumulated by a producer;

n) pick-up days” are used to determine a producer’s monthly quota allocation. Pick-up

    days are calculated by determining the number of days from the last pick-up of the

    previous month to the last pick-up of the current month;

    o) pro-ratameans calculated on a proportionate share, based on kilograms of butterfat;

p) producer means:

     (i) an individual who maintains cattle for the purpose of producing qualifying milk

    and has obtained any approvals and licenses that may be required pursuant to the

    regulations made pursuant to The Animal Products Act and The Public Health Act, 1994;

    or

     (ii) a partnership, association or corporation whose members or shareholders are

    personally engaged in the day to day operation of a production unit that maintains cattle

    for the purpose of producing qualifying milk and has obtained any approvals and

    licenses that may be required pursuant to the regulations made pursuant to The Animal

    Products Act and The Public Health Act, 1994;

q) total production quota” (TPQ) see “daily quota”;

    r) transfer credits are negative credits that are transferred from one producer to another

    to change each producer’s cumulative position.

PART II - Registration

    Page 2 of 13

    All producers must register with the Board. Only one registration number shall be allotted to each complete dairy unit, even if there are multiple owners.

PART III - Continuous Daily Quota Maintenance Policy

; On August 1, 2009, each producer’s annual quota allocation will be converted to a daily

    quota as follows:

    Annual Total Production Quota ? 365 days = daily quota

    This conversion does not change a producer’s total production quota, just the basis on

    which it is measured.

    ; Daily quota will be allocated on a monthly basis, by multiplying daily quota by pick-up

    days:

    daily quota × pick-up days = monthly quota allocation

    ; Monthly quota allocation will be measured against actual butterfat production to

    determine a producer’s credit position. Over-production will be referred to as positive

    credits, while under-production will be referred to as negative credits.

    actual butterfat production monthly quota allocation

    = credits for the month

    Credits accumulated on a monthly basis, both positive and negative, will be combined to

    determine a producer’s cumulative credit position which is carried forward indefinitely;

    there is no dairy year end.

    ; The cumulative credit position will be divided by the current month daily quota

    allocation to determine the credit day position.

    cumulative credit position ? current month daily quota

    = credit days

PART IV - Credit Days

    Page 3 of 13

Positive Credit Days

    ; The positive credit day limit +10 days.

    ; Producers may accumulate up to +10 credit days and receive full payment for those

    shipments.

    ; Credit days produced in excess of the +10 credit day limit (excess kilograms of butterfat)

    will receive zero payment, with the revenue from this excess production being shared by

    all producers in the monthly pool. This excess production will be subject to all relevant

    deductions. The credit day position carried forward to the next month will be capped at

    +10 days. Producers cannot recoup these dollars in future months.

Negative Credit Days

    ; The negative credit day limit is -30 days.

    ; Producers may accumulate up to -30 credit days without penalty.

    ; Credit days accumulated in excess of -30 days are deemed to be lost production

    opportunity and cannot be carried forward by a producer. There is no opportunity to

    recoup lost negative credit days in future months. This lost production will not be

    reallocated to other producers.

PART V - Incentive Day Credits

    To stimulate production, the Board may issue incentive day credits. Incentive day credits are used after a producer’s monthly quota allocation is used, and cannot be carried forward to the next month. Incentive day credits cannot be transferred to other producers. Incentive day credits do not affect a producer’s cumulative credit position.

PART VI - Private Transfer Credit Transactions (replaces swapping)

    Page 4 of 13

    Private transfer credit transactions enable producers to transfer credits (negative credits/underproduction) from one licensed producer to another licensed producer. This policy allows producers the opportunity to transfer credits to change a producer’s cumulative credit

    position.

    Example #1 transfer credit transaction of -500 credits from Producer A to Producer B:

Prior to the transfer:

    Producer A has a cumulative credit position of -1900 credits

    Producer B has a cumulative credit position of +400 credits

After the transfer:

    Producer A has a cumulative credit position of -1400 credits

    Producer B has a cumulative credit position of -100 credits

    Producer A has transferred -500 credits (negative credits) to Producer B

    Example #2 transfer credit transaction of -1200 credits from Producer C to Producer D:

Prior to transfer:

    Producer C has a cumulative credit position of -1200 credits

    Producer D has a cumulative credit position of -100 credits

After the transfer:

    Producer C has a cumulative credit position of 0 credits

    Producer D has a cumulative credit position of -1300 credits

    Producer C has transferred -1200 credits (negative credits) to Producer D

Application forms for transfer credit transactions must be submitted to the Board office by thst of each month to be effective on the 1 of that same month. midnight of the 20

    There is no limit on the amount of transfer credits that a licensed producer may transfer in; however each producer must stay within the positive and negative credit day limits by the end of each month.

There are two limits on the amount of transfer credits that a licensed producer may transfer out:

    Page 5 of 13

    1. Producers may transfer credits out (negative credits), up to a zero credit position; and

    2. Producers are limited to an amount of transfer credits that may be transferred out during

    the most recent 12-month period (rolling 12-month period). This limit will not include

    any months prior to August 2009. This limit is calculated as follows:

Transfer Credit Transfer Out Limit = (daily quota × 365 days × 15%)

    Ex. 100 kgs/day × 365 days × 15% = 5,475 kgs that may be transferred out during the most recent 12-month period. Each producer’s limit is available on the Quota Management Sheet.

As a producer’s daily quota is adjusted (up or down), that producer’s limit is adjusted

    accordingly. If a reduction in daily quota causes a producer to exceed the transfer out limit, that producer will not be able to transfer out additional transfer credits until the limit is no longer exceeded.

PART VII - Transitional Provisions into Continuous Daily Quota

    1. Any kilograms of butterfat that have been produced in excess of the total production

    quota allocated to Saskatchewan producers by the Board, as a whole, for the 2008-2009

    iry year are deemed to be pre-fill as of August 1, 2009. da

    These pre-fill kilograms of butterfat will be shared, on a pro-rata basis, by those

    producers who have finished the 2008-2009 dairy year in an over-production position.

    An equivalent amount of 4m dollars will be withheld by the Board.

    Example: If Saskatchewan has three producers that over ship by a total of 100,000

    kgs as of July 31, 2009, and Saskatchewan as a whole over ships by 10,000 kgs, then

    those three producers will have to absorb the 10,000 kgs as pre-fill on a pro-rata

    basis based on their individual over production. If Producer A over ships by 50,000

    kgs, Producer B over ships by 30,000 kgs and Producer C over ships by 20,000 kgs,

    those producers will, on August 1, 2009, have accumulated positive credits of 5,000,

    3,000, and 2,000 kgs of butterfat, respectively.

    Producers who are in pre-fill as of August 1, 2009 must be in a cumulative credit position

    of not more than ZERO credit days as of July 31, 2010, or they will forgo ALL of the

    4m dollars being withheld by the Board. Any forgone 4m dollars will go into the

    monthly Saskatchewan pool.

    This money will be refunded to the producer in 4m in whole, in October 2010, provided

    that the producer is at, or below, 0 credit days on July 31, 2010. Any money not refunded

    will be allocated to the monthly pool. There will not be any partial refunds of 4m dollars.

    Page 6 of 13

    Producers who have in excess of +10 credits days as of August 1, 2009 will be permitted

    to maintain that credit day position until July 31, 2010; however these producers may not

    accumulate positive credits until they reduce their credits below +10 days.

    If a producer exits the industry during the August 1, 2009 to July 31, 2010 period and has

    dollars in 4m, that producer will forgo any 4m refund. Those 4m dollars will go into the

    monthly Saskatchewan pool.

    2. If Saskatchewan producers, as a whole, have not produced in excess of the total

    production quota allocated to Saskatchewan producers, by the Board, for the 2008-2009

    dairy year, the producers who have 4m dollars will be refunded those dollars in full.

PART VIII - Quota Transfer Procedure

    In Saskatchewan, all sales of daily quota must be made through the Quota Exchange managed by the Milk Control Board, except for:

    ; transfers of daily quota within the immediate family; or

    ; private sales where the entire daily quota is transferred to a single

     producer (as defined in Definitions).

It is the producer’s obligation to fill their daily quota until such time as the effective date of

    the transfer.

Direct transfers are subject to the following conditions:

    Approval of the transfer of daily quota in a private sale will not be approved by the Board unless the application for direct daily quota transfer form is accompanied by a letter from the seller’s

    lawyer addressed to the Board confirming that the conditions of the sale will be subject to appropriate trust conditions so that when all conditions of the sale are met, the sale proceeds are available to the seller.

PART IX - Quota Exchange Operational Guidelines

There will be one quota exchange per month.

The following general rules apply to the operation of the Exchange:

    1. All offers to sell and bids to purchase must be made by sending a completed Quota

    Exchange Application Form to the Board office.

     All offers to purchase must be accompanied by a letter from a financial institution or lender

    confirming funds. Bids to purchase will not be part of the exchange unless accompanied by

    this letter.

    Page 7 of 13

     All offers to sell must be accompanied by a letter of consent to sell daily quota from each

    lender or other secured party that has a security interest in the daily quota being offered for

    sale. Bids to sell will not be part of the exchange unless accompanied by the letter(s) of

    consent.

    2. Daily quota must be sold, or bid for, in terms of dollars per kilogram of daily quota.

3. All offers to sell and bids to purchase quota through the Quota Exchange must be received th of each calendar month to become effective on the at the Board office by midnight of the 6

    first day of the following month. The Board strongly recommends that offers and bids be

    placed on the Quota Exchange well in advance of this deadline date to ensure adequate time thfor corrections if necessary. Any bid or offer received on or after the 7 of the month will

    be entered on the next months Quota Exchange, unless the Board is advised, in writing, to

    change or cancel the bid.

    4. A producer who wishes to cancel or change an offer or bid may do so by advising the Board

    office of the changes by sending a letter that must be received at the Board office prior to ththe 7 day of the same month.

    5. There is a service charge of $20 for listing an offer to sell, or bid to purchase daily quota.

    There will be an additional charge of $20 for changing or cancelling a bid or offer on the

    same Quota Exchange.

    6. Producers who listed offers to sell or bids to purchase daily quota on the Exchange will be

    advised by letter of whether or not their offer or bid was successful. Only after written

    notice is received, should the settlement for daily quota be completed.

    7. A producer cannot offer to sell and bid to purchase daily quota on the Exchange in the same

    month.

     8. A producer may bid to purchase varying amounts of daily quota at varying prices on the

    Exchange. However, all successful bids must be honoured.

     9. Producers who sell daily quota on the Quota Exchange can expect payment from the Board

    during the month following the Exchange.

10. A producer purchasing daily quota on the Quota Exchange must make payment to the Board thby the 25 of the month in which the Quota Exchange is held.

    11. The minimum amount, which can be purchased, sold or transferred, is 0.25 kilograms of

    daily quota.

12. All producers will be advised of the results of the Quota Exchange.

    Page 8 of 13

Determining the Market Clearing Price (M.C.P.)

    The Board sets the clearing price after the Quota Exchange closes. The clearing price is set at the price where the smallest difference exists between the accumulated volume offered for sale and the accumulated volume bid to purchase.

Allocation

    Daily quota will be allocated to each successful bidder when the daily quota available on the Quota Exchange is sufficient to meet the requests. If there is not sufficient daily quota to meet the amount requested, producers will receive a pro-rata share of available daily quota. Allocations will not exceed a producers bid.

Notification

The Quota Exchange clearing price will be established on the first regular business day following ththe 14 day of each month.

    The Board will send letters to all participants after the Quota Exchange closes to notify them of the status of their bid or offer.

Payment

    Successful purchasers must pay the Board by cheque, money order, or electronic transfer by the date specified in the notification letter from the Board. Failure to make payment will result in loss of the daily quota which was bid on, as well as Quota Exchange privileges for twelve months.

    Producers who sell daily quota on the Quota Exchange can expect payment from the Board during the month following the Exchange.

PART X - Producers Leaving the Industry/Ceasing Shipments

    1. Existing producers that do not ship milk for three consecutive months, based on the

    day following the last shipment, are required to sell their daily quota, either privately

    or on the Quota Exchange, in accordance with the Quota Transfer Procedure stated in

    this Policy. New daily quota holders that have not begun shipping milk for three

    consecutive months after the effective transfer date are also subject to this policy.

    2. Producers who do not sell their daily quota within the three consecutive month period

    will be required to list all daily quota on the next Quota Exchange.

    Page 9 of 13

    o The producer will continue to have the opportunity to sell the daily quota

    privately in accordance with Board policy; however the Board must receive th day of the month to ensure the direct daily quota transfer form prior to the 7

    that the daily quota is withdrawn from that month’s Quota Exchange.

    3. If a portion, or all, of the daily quota listed on the quota exchange fails to sell in

    accordance with point #2 of this section, including if the producer fails to list the

    daily quota on the exchange, the Board, on behalf of the producer, will list the daily

    quota on subsequent Quota Exchanges, priced at 90% of the previously established

    market clearing price. The Board will continue to list this daily quota on the

    exchange until the entire amount of daily quota is sold.

    4. When a producer ceases production, any milk shipped or recorded after the last day of

    the month will automatically be transferred to the purchaser.

Personal Property Registry Searches

    All daily quota sales and dairy operation name changes require that the Board obtain written searches through the Personal Property Registry to ensure that the daily quota is free and clear of all encumbrances.

    The Board will be assessing the producer a fee for this service equivalent to the amount charged to the Board by the Registry. Producers will be invoiced on a monthly basis.

Producers wishing to re-enter the Industry once they have ceased shipping milk

    1. Producers that have stopped shipping and have not sold all daily quota within the

     permitted three consecutive months time period will be permitted to restart shipments

     within the same period.

    2. The producer must ship milk for at least 60 days at a level consistent with the daily average

     production quota held for that year to qualify under this section.

3. The producer must adhere to the Board’s Continuous Daily Quota Policy.

    Page 10 of 13

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