2018–2019 Agricultural Research Institute of Ontario annual report

Ministry mandate and role of ARIO

Ministry mandate

The Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA) works to advance the government's priorities through its efforts to promote a more competitive and productive agri-food and agri-products sector, economic growth and opportunities for rural Ontario.

Ministry priorities in the 2018–19 year included a focus on:

• protection and assurance in the agri-food system (food safety, animal, plant and human health)
• stewardship of Ontario's capacity to produce food (soil & water quality, climate change)
• fostering economic sustainability and growth of the agri-food sector and rural Ontario

Role of the Agricultural Research Institute of Ontario

The Agricultural Research Institute of Ontario (ARIO) is a corporate body whose duties and responsibilities are defined within the Agricultural Research Institute of Ontario Act, R.S.O. 1990, c A.13. reporting to the Minister of Agriculture, Food and Rural Affairs.

ARIO's mandate remains strongly aligned to the Government of Ontario's goals and priorities:

1. Providing strategic advice to the Minister on agri-food and agri-products research and innovation by continuing to advise the Minister on research priorities and issues related to the ministry's mandate;
2. Leading the ARIO's Infrastructure Strategy initiative to modernize the province's agri-food and agri-products research and innovation infrastructure platforms; which are key to delivering research and innovation that drives economic sustainability and growth;
3. Promoting the Ontario agri-food and agri-products research and innovation system; and,
4. Providing administrative and managerial oversight of Ontario research programs (for example, New Directions, Food Safety), and the 17 ARIO-owned research properties.

In March 2018, the ARIO initiated a strategic planning process to look at ways in which the ARIO might better support the Minister and government priorities in the agri-food sector going forward. This review looked at both the mandate and make-up of the agency.

2018-19 ARIO members

Agriculture and Agri-Food Canada ex officio representative: Dr. Javier Garcia-Garza

Director of Research, ARIO: Christine Primeau

Comptroller: Sue Mihelchic

Secretariat support to ARIO is provided by the Research and Innovation Branch staff of OMAFRA:

• Jen Liptrot, Director
• Cassandra Lofranco, Manager — Research Program Coordination
• Kelli Rice, Manager — Finance, Infrastructure and Administration
• Oswald Zachariah, Manager — Innovation and Knowledge Management

Letter from the chair

October 24, 2019

The Honourable Ernie Hardeman
Minister of Agriculture, Food and Rural Affairs
Legislative Buildings, Toronto, Ontario M7A 1A3

Dear Minister Hardeman,

I am pleased to share the 55^th annual report of the Agricultural Research Institute of Ontario (ARIO) for the 2018–19 fiscal year.

During the past year, ARIO has continued advancing components of its research infrastructure renewal strategy, building partnerships across the agri-food value chain, and emphasizing the importance of research and innovation as the way to build and maintain competitive advantage in the agri-food and the agri-products sector moving forward. Some highlights of our work in the past year include:

• construction of the new beef research facilities at Elora is nearing completion
• signed agreement with Ontario Pork to begin design and construction planning for the Ontario Swine Research Centre
• continued the relocation of the Guelph Turfgrass Institute (GTI) and accompanying research plots from the Guelph Research Station to the University of Guelph Arboretum and the Elora Research Station, as part of the broader disposal (in-progress) of the Guelph Research Station
• continued disposal of surplus assets at Alfred, Kemptville, and New Liskeard
• continued with investments in field crops research capacity at the Winchester and New Liskeard research stations

We are very pleased with progress to date and continue to identify opportunities to create efficiencies while modernizing the research infrastructure. Together, with industry partners and the research community, the ARIO focuses on targeted investments in the agri-food research sector that benefit Ontario's economy and ensure continued growth and sustainability in the years ahead.

ARIO continues to advocate on behalf of the agri-food sector and provide advice on research and innovation priorities in support of its mandate, including the renewed OMAFRA–University of Guelph Agreement and the ministry research priorities.

In order to maximize its role in providing advice and supporting the Minister and the ministry's priorities going forward, ARIO initiated a strategic planning exercise in March 2018 to confirm the strategic and operational objectives, and essential member skills/expertise essential for success in the future.

The agri-food sector continues to be a cornerstone of Ontario's economic strength and success and we continue to be excited about the investments we are making that will support agriculture in this province long into the future.

Sincerely,

Lorne Hepworth, chair
Agricultural Research Institute of Ontario

Chair and director's report

We are pleased to provide an update and some highlights from the 2018–19 fiscal year for the Agricultural Research Institute of Ontario (ARIO) and its continuing support of agri-food research and innovation in Ontario.

The ARIO initiated a strategic planning process in March 2018 to take stock on what ARIO has achieved and determine the desired function of the organization given the authority provided under the current mandate. This strategic planning process looked at the strategic and operational objectives, member skills/expertise necessary for success in the future and communications opportunities that will enhance the profile of ARIO. This strategic planning process has guided the direction of the organization over the past year.

Research infrastructure strategy

ARIO's research infrastructure strategy provides a plan for modernizing Ontario's aging network of agri-food research infrastructure and platforms. Implementation of the ARIO infrastructure strategy is resulting in a system of modern, state of the art, integrated, multi-disciplinary research and innovation platforms focused on consumer, market and economic outcomes. Benefits include, driving innovation through the creation of new and value-added products, developing solutions to current and emerging issues, and validating new technologies and approaches to Ontario conditions. A cornerstone of ARIO's infrastructure strategy is financial participation where industry works directly with government and academia to address the highest research priorities and needs of the Ontario agri-food sector. Research and innovation are critical to maintaining and strengthening the competitiveness and sustainability of the sector both provincially and globally. Modernized, relevant research infrastructure enables scientific excellence, knowledge dissemination and industry adoption all of which are necessary to the economic growth of the agri-food and agri-products sector for the province.

As the government moves forward with its plan to return Ontario to a stronger fiscal footing, the ARIO as an agency of the province, continues to plan and make strategic infrastructure investments through the ARIO Infrastructure Strategy . The strategy is supported by industry which provides capital dollars to projects (typically 20%) and is guided by two key pillars which seeks to modernize research infrastructure as well as drive operational efficiencies across the research station portfolio through consolidations of facilities and livestock.

Modernization of the portfolio and consolidations work hand-in-hand when implementing the strategy. By investing in new and modern research facilities supporting the livestock, field crops, greenhouse/horticulture, aquaculture and turf grass sectors, the ARIO is able to elevate the capacity for cutting-edge research in the province into modern and efficient buildings while reducing the overall footprint of an older building stock which no longer adequately serves the needs of research and are costly to operate and maintain.

Evidence of this reinvestment in research infrastructure in a time of restraint can be seen in various ARIO projects across the province:

• Completion of construction of a new Agronomy Research Services building at the Ontario Crops Research Centre — Winchester in Spring 2019 which supports the field crops research needs of eastern Ontario while allowing ARIO to dispose of a wide range of older field crops buildings within the ARIO portfolio which were expensive to maintain and past their useful lifecycle for research.
• Site preparation at the Ontario Crops Research Centre — New Liskeard for an Agronomy Research Services building with construction expected to start in Spring 2020. This build will also allow ARIO to dispose of a wide range of older field crops buildings within the ARIO portfolio which were expensive to maintain and past their useful lifecycle for research.
• Relocation of the Ontario Turfgrass Research Centre and accompanying research plots to the University of Guelph arboretum where construction is currently underway and anticipated to be complete in fall 2020.
  • Relocation of turf grass research allows for the disposition of old facilities and lands within the City of Guelph to a single modern and efficient facility co-located in closer proximity to the University of Guelph.
• Construction of the new Ontario Beef Research Centre is nearing completion and anticipated to be operational by September 2019.
  • Completion of this state-of-the-art build will allow for the consolidation of the province's beef research herd to Elora and for the ARIO to dispose of several older beef buildings no longer suitable for research due to the age of many of the former beef structures.
• Advanced design of the new Ontario Swine Research Centre commenced in September 2019.
  • The new centre at Elora will replace the present facilities at Arkell which are well past their useful lifecycle, costly to operate and maintain and prohibitive to retrofit due to age.
  • The planned research facilities will more closely resemble to current state of industry production taking place in Ontario, leading to better applied research outcomes for the sector.

The ongoing work and completion of these major projects is evidence of how the ARIO infrastructure strategy is working effectively to modernize the research station portfolio and establish state-of-the-art research infrastructure in the province with strong industry participation in research planning, program oversight and capital investment.

Minor capital program

The ARIO minor capital program is an ongoing multi-year program that allocates funds across the ARIO property portfolio to support the renewal for repairs, life cycle renovations and program-related improvements. The program is funded through an annual transfer payment from OMAFRA and is supplemented by revenues generated by the ARIO (for example, tenant revenues). The minor capital funding from OMAFRA continues to allow ARIO to maintain and manage its network of research properties across the province, addressing repairs, maintenance and ongoing life cycle building and program upgrades.

The University of Guelph continues to deliver ARIO's annual minor capital program at all locations except the Vineland research property where Vineland Research and Innovation Centre (VRIC) continues to administer the minor capital program as part of their responsibility for overall operations and site management.

The minor capital program continued to fund a wide range of maintenance and upgrade projects to maintain and improve the capability and research capacity of the entire ARIO infrastructure portfolio. Safety (human and animal), regulatory, building integrity and equipment failure issues that affected building and program operations across the network of ARIO facilities were addressed on a case-by-case basis throughout the year.

Property management

The University of Guelph and the Vineland Research and Innovation Centre (VRIC), in addition to providing program delivery, have operated the ARIO-owned research infrastructure portfolio and provided property management services under agreements with ARIO. New agreements have been negotiated for the OMAFRA University of Guelph agreement and a complementary agreement for VRIC property management. Both agreements took effect April 1, 2018 upon the expiry of the previous agreements.

Research programs

The ministry's open research programs (New Directions and Food Safety) are administered by ARIO and continue to be responsive to emerging and high-priority research needs.

The Food Safety Research Program supports a science-based, food safety system within Ontario and program priorities support research areas within the emergency management research theme. No call for proposal was launched in the year 2018–19.

The New Directions Research Program provides targeted research funding for key ministry priority areas and emerging issues in support of a profitable and sustainable agri-food sector and strong rural communities. One research call was launched in 2018–19 for the two research priorities given below.

• Innovations for Ontario's agricultural systems and soils to reduce phosphorus loss: two protect were funded.
• Disruptive technologies: three projects were funded.

In addition, the Quebec Ontario Cooperation for Agri-Food Research competition issued a call in 2018–19 focused on the following two priority areas:

• Research to evaluate climate change impact on soil health and develop best practices: three research projects were funded.
• Research to determine climate change impacts on food processing and food safety including development of adaptation and mitigation strategies: three research projects were funded.

Access to ARIO research infrastructure

Researchers continue to benefit greatly from access to the ARIO network of research stations through the Ontario Agri-food Innovation Alliance. Researchers are provided subsidized access to the ARIO research stations to provide a platform for research that drives innovation in Ontario's agri-food sector. This is a highly valued resource for researchers and helps maximize the utilization of ARIO's research infrastructure. Examples of projects that began in 2018–19 include:

• Plant production systems:
  • genetic improvement of asparagus for yield, quality and disease traits
  • developing an optimal strategy for agricultural bio-surveillance using DNA barcoding
• Animal production systems:
  • development of a dynamic lying platform for dairy cattle to improve cow comfort
  • use of organic acids as a replacement for antibiotics in swine feed
  • application of feed enzymes to improve nutrients utilization to optimize growth performance and carcass quality in pigs
  • management strategies to reduce weaning stress, and improve the health and productivity of newly weaned calves

Research priority setting

In 2019, OMAFRA launched a new internal research governance and process to guide research priority setting. The process involved OMAFRA's experts to identify agri-food and rural research priorities and to integrate stakeholder's research need into OMAFRA's priority setting process.

As a result of this new priority setting process, OMAFRA reorganized former research theme priorities into 10 new research priority areas (food safety, animal health and welfare, plant health and protection, soil health, water quality and quantity, sustainable production systems, competitive production systems, innovative products and products improvement and, trade, market, targeted sector growth opportunities).

These priorities will inform the call for research proposals under the Ontario Agri-Food Innovation Alliance and the Open Research Programs in 2019–20 and going forward.

Knowledge Translation and Transfer

Knowledge Translation and Transfer (KTT) supports and accelerates research knowledge into use by working with researchers to development and implement KTT Plans. Every OMAFRA open research program proposal is required to have a KTT plan which identifies key target audiences for research outcomes and outlines methods of engagement to share research processes and results with industry stakeholders. KTT plans are monitored annually by OMAFRA staff to ensure that they are implemented successfully. This process helps drive results into action faster. Ministry KTT activities also include inviting speakers to give presentations to staff, sharing results with other stakeholders and organizing open knowledge sharing events. Additional enhancements to the ministry's KTT processes and overall strategy are anticipated as a result of the implementation of the RTTR Phase III work underway.

The Research Management System (RMS) is a key ministry tool for OMAFRA's research processes. The RMS is the electronic system used to track and manage the entire process from calls, to applications, to awards, to financial administration and close out. As such it is the main vehicle for knowledge creation and transfer within the ministry's network of research partners. The RMS enables OMAFRA staff to have quick and easy access to current and past (archived) research projects, proposals and research findings.

Summary

This past year saw several significant milestone accomplishments related to the ARIO infrastructure strategy , along with continued effective property management and research program delivery. Next year promises more of the same and we are very much looking forward to the year ahead.

We would like to thank all those who support agri-food research and innovation across the province — industry, academia and the various levels of government.

Lorne Hepworth,
Chair, Agricultural Research Institute of Ontario

Christine Primeau,
Director of research, Agricultural Research Institute of Ontario

Financial information

Performance measures

In its business plan and in accordance with the performance measures framework outlined in the MOU between ARIO and the ministry, ARIO has identified performance measures in the area of infrastructure planning and management.

Performance measure 1: increased third party investment/collaboration in R&D infrastructure renewal

Target: Minimum of 20% of capital investment for new capital projects to come from non-government sources.

• The industry has accepted the need to contribute 20% of capital projects to rebuild research infrastructure. For current projects, the Beef Farmers of Ontario and Ontario Pork have committed to contributing 20% of the capital cost of new facilities. For beef, total project costs are to be $15.5M, with $3M from industry. For swine, the estimated budget is $15M (pending completion of the design phase).

Performance measure 2: research station utilization (percentage of utilization and available capacity at each ARIO property)

Target: In 2018–19 a new methodology has been developed to track the utilization at the stations that captures the unique requirements and nuances of assessing the utilization rates for plant and animal production. 2018–19 will be used as a baseline to asses future targets.

• Crop related research is generally conducted on small field plots, or in the case of tree fruit, small orchard blocks, and are based on a full growing season. Capacity is calculated by determining the area of land within a station suitable for land-based trials. It excludes service building areas, laneways, non-arable lands (wet lands, steep slopes buffer areas), as well as areas suitable for general cropping but not suitable for research plots, such as areas of non-uniform soil condition, slopes, and areas under influence by adjacent uses. It also does not include the land-base for farm operations, i.e. to produce livestock feed.

• The unit of tracking for livestock research station use is the animal research day. Animal use is strictly controlled by animal use protocols required under the Animals for Research Act and through the Canadian Council on Animal Care. Station management reports on actual number of animals used for each trial and for what period each animal was part of that trial, measured in days. It is possible for animals to be used on concurrent trials if the parameters of the trial do not interfere with each other. The overall utilization rate is calculated by adding actual animal research days, replacement animal days (in the case of breeding herds and flocks), and usage days for spaces where down time is required for clean-up and preparation for the next research cycle.

Financial performance highlights

In a review of ARIO's financial statements for the year, the following significant items are noted:

Statement of financial position (balance sheet)

1. Completion of construction of a new Agronomy Research Services building at Winchester (Eastern Ontario).
2. Construction for new beef research facilities at Elora research station is nearing completion and anticipated to be operational by September 2019.

Statement of revenues and expenditures (income statement)

1. Revenue — Research (Provincial Grants). Funds for competitive research were received in 18/19 (see Note 9). Two research calls were held under New Directions.
2. Revenue — Research (Intellectual Property). Administration of the plant germplasm portfolio was moved from the ARIO to the University of Guelph under the new tripartite Ontario Agri-Food Innovation Alliance agreement signed in April 2018. Accordingly, revenues and expenditures are greatly reduced from the prior year (see Note 8).

Management's responsibility for financial reporting

The accompanying financial statements of the Agricultural Research Institute of Ontario (ARlO) have been prepared in accordance with Canadian generally accepted accounting principles. Management is responsible for the accuracy, integrity, and objectivity of the information contained in the financial statements.

The preparation of financial statements necessarily involves the use of estimates based on management's best judgment, particularly when transactions affecting the current accounting period cannot be finalized with certainty until future periods. These financial statements have been prepared within reasonable limits of materiality with information available up to and including June 27, 2019.

In discharging its responsibility for the integrity of the financial statements, management maintains financial and management control systems and practices designed to provide reasonable assurance that transactions are authorized, assets are safeguarded, and proper records are maintained.

The financial statements have been examined by RLB LLP, independent external auditors appointed by the Ontario Ministry of Agriculture, Food and Rural Affairs, on behalf of ARlO. The external auditors' responsibility is to express an opinion on whether the financial statements are presented fairly in accordance with generally accepted accounting principles. The Auditors' Report outlines the scope of their examination and opinion.

On behalf of management:

Christine Primeau
Director of research

Sue Mihelchic
Comptroller

Independent auditor's report

To the Members of: Agricultural Research Institute of Ontario

Opinion

We have audited the accompanying financial statements of Agricultural Research Institute of Ontario, which comprise the statement of financial position as at March 31, 2019 and the statements of revenues and expenditures and changes in fund balances, remeasurement losses and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, these financial statements present fairly, in all material respects, the financial position of Agricultural Research Institute of Ontario as at March 31, 2019 and the results of its operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.

Basis of opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Agricultural Research Institute of Ontario in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of management and those charged with governance for the financial statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with Canadian public sector accounting standards and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the organization's ability to continue as a going concern, disclosing, as applicable, matters related to a going concern and using the going concern basis of accounting unless management either intends to liquidate the organization or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the organization's financial reporting process.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements, as a whole, are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of the auditor's responsibilities for the audit of the financial statements is located at RLB LLP's website. This description forms part of our auditor's report.

Guelph, Ontario
June 27, 2019

Chartered Professional Accountants
Licensed Public Accountants

Statement of financial position as at March 31, 2019

Statement of revenues and expenditures and changes in fund balances for year ended March 31, 2019

Statement of remeasurement losses for year ended March 31, 2019

Statement of cash flows for year ended March 31, 2019

Notes to the financial statements

Note 1 — Nature of organization

The Agricultural Research Institute of Ontario (ARIO) is a non-profit corporate body reporting directly to the Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA). ARIO is a non-profit organization within the meaning of the Income Tax Act (Canada) and is exempt from income taxes. It was created by the ARIO Act with specific responsibilities over the co-ordination and direction of agricultural research programs in Ontario. These programs relate to a broad range of commodities and disciplines, covering all aspects of the agri-food system.

Funding for programs supported by ARIO is available from various sources. The Ontario Government, through the Ministry of Agriculture, Food and Rural Affairs, is the primary source of funding. The Ontario Government also provides funding for open research programs. Under the ARIO Act, ARIO may accept grants and donations for research. Other funds usually come from commercial sources (such as agri-business, marketing boards, and producer associations) and can be either designated for specific projects or non-designated. In addition, ARIO reinvests royalties earned from Ministry funded research.

All receipts are held in trust by the Director of Research and are allocated in accordance with the terms of the funds. Transactions between OMAFRA and the below programs are recorded at the exchange value.

The current funding managed by the secretariat to ARIO includes:

• Open Competitive Research (incl. New Directions, Food Safety, other)
• Infrastructure

Note 2 — Summary of significant accounting policies

The financial statements have been prepared in accordance with Canadian public sector accounting standards for government not for profit organizations, including the 4200 series of standards, as issued by the Public Sector Accounting Board ("PSAB for Government NPOs") and include the following significant accounting policies:

Basis of accounting

ARIO follows the deferral method of accounting for contributions. Restricted contributions are recognized as revenue of the appropriate research trust fund in the year in which the related expenses are incurred. Unrestricted contributions are recognized as revenue of the appropriate research trust fund when received or receivable if the amount to be received can be reasonably estimated and collection is reasonably assured.

Financial instruments

Measurement of financial instruments

The organization initially measures its financial assets and liabilities at fair value, except for certain non-arm's length transactions.

The organization subsequently measures all its financial assets and financial liabilities at amortized cost, except for investments, which are measured at fair value. Changes in fair value are recognized in the statement of remeasurement (losses) gains.

Financial assets measured at amortized cost include cash and accounts receivable.

Financial liabilities measured at amortized cost include accounts payable and accruals, holdbacks payable and unclaimed expenditures.

The organization's financial assets measured at fair value include the investments.

Impairment

Financial assets measured at amortized cost are tested for impairment when there are indicators of impairment. If an impairment has occurred, the carrying amount of financial assets measured at amortized cost is reduced to the greater of the discounted future cash flows expected or the proceeds that could be realized from the sale of the financial asset. The amount of the write down is recognized in the statement of revenues and expenditures. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in the statement of revenues and expenditures.

Transaction costs

The organization recognizes its transaction costs in expenditures in the period incurred. However, financial instruments that will not be subsequently measured at fair value are adjusted by the transaction costs that are directly attributable to their origination, issuance or assumption.

Unclaimed expenditures

Unclaimed expenditures are defined as the total approved budget for open research projects less expenses incurred to date.

Tangible capital assets

Tangible capital assets are recorded at cost and are amortized using the following annual rates and method:

• buildings and components 25 to 40 years straight line

Impairment of long-lived assets

Long lived assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognized when the carrying value exceeds the total undiscounted cash flows expected from their use and eventual disposition. The amount of the impairment loss is determined as the excess of the carrying value of the asset over its fair value.

Deferred capital contributions

Deferred capital contributions are recognized in the same period as the related impairment and amortized at the same rate as the buildings to which they relate.

Restrictions on the expenditure of funds

The purpose, funding, terms and conditions and duration of each research trust fund are stipulated in the relevant Order-in-Council, memorandum of understanding or Ministry correspondence.

Use of estimates

The preparation of financial statements in accordance with PSAB for Government NPOs requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Significant areas requiring the use of management estimates and assumptions relate to the valuation of accounts payable and accruals and the useful life of capital assets. Actual results could differ from those estimates.

Note 3 — Financial instruments

Fair value

For certain of ARIO's financial instruments, the carrying amounts of cash, accounts receivable and accounts payable and accruals, approximate fair value due to the short term maturity of these financial instruments.

PS3450, Financial Instruments Disclosures requires disclosures about the inputs to fair value measurements, including their classification within a hierarchy that prioritizes the inputs to fair value measurement. The three levels of the fair value hierarchy are:

• Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities.
• Level 2 — Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly.
• Level 3 — Inputs that are not based on observable market data.

ARIO's financial instruments are all classified as Level 1 as at March 31, 2019 and 2018.

There were no transfers in or out of Level 1 for the years ended March 31, 2019 and 2018.

Associated risks

Market price risk

Market price risk is the risk that the value of an instrument will fluctuate as a result of changes in market prices, whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. As all of ARIO's financial instruments are carried at fair value with fair value changes recognized in the statement of remeasurement losses, all changes in market conditions will directly affect the increase (decrease) in accumulated remeasurement losses. Market price risk is managed by the Investment Manager through construction of a diversified portfolio of instruments traded on various markets and across various industries.

A 1% increase (decrease) in the value of the investments would increase (decrease) the asset value and the change in unrealized gains in investments by $275,491 (2018 — $272,137). The price of the investments is affected by changes in market values, foreign exchange rates and interest rates impacting the underlying financial instruments held within the individual investments managed by the Investment Manager.

Interest rate risk

Interest rate risk refers to the adverse consequences of interest rate changes on the Institute's cash flows, financial position and income. Interest rate changes have an indirect impact on the investment assets in ARIO. ARIO uses investment diversification to manage this risk.

Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.

All of ARIO's fixed income securities are considered to be readily realizable as they can be quickly liquidated at amounts close to their fair value in order to meet liquidity requirements.

Foreign currency risk

Foreign currency risk is the risk that fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. ARIO is not exposed to significant foreign currency risk.

Credit risk

Credit risk is the risk that a customer or counterpart may be unable or unwilling to meet a commitment that it has entered into with ARIO. ARIO is not exposed to significant credit risk.

Note 4 — Contributed assets

Contributed assets of $11,681,691 (2018 - $12,682,174) are recorded in the Infrastructure Fund and represent the cost of the land transferred to ARIO from the Government of Ontario. During the year, the fair value of the land in Alfred was adjusted by an impairment of $0 (2018 -$460,194) and the fair value of the land in Kemptville was adjusted by $0 (2018 — $64,915) due to a sale (see note 11). Additionally, the land in Alfred was sold this year for $1,010,000, which was the residual value of the Alfred land in contributed surplus, and part of the land in New Liskeard was sold for $25,000, with cost base of $473, reducing contributed surplus by the cost base in contributed surplus of $473. In the prior year, contributed surplus was reduced by $9,990 more than intended and, accordingly, the amount was corrected in the current year. As a result, the net change to contributed surplus at year end was $1,000,483.

Note 5 — Tangible capital assets

As at March 6, 2007, the titles for capital assets (land and buildings) with a carrying value of approximately $60.9 million were transferred to ARIO from the Government of Ontario. Carrying value is being used as the transfer value since the transfer took place between non arm's length parties, is non-monetary in nature and does not have commercial substance. As an agency of the Government of Ontario, ARIO reports these capital assets (and other assets and liabilities) in consolidation with the Ministry of Agriculture, Food and Rural Affairs on an annual basis.

During the year, there was $0 (2018 — $460,194) impairment taken on land and $0 (2018 — $305,716) impairment taken on buildings for a total impairment of $0 (2018 — $765,910).

Note 6 — Deferred capital funded contributions

Deferred capital contributions relating to construction of capital funded projects represents the amount of grants and other restricted funding received by ARIO for construction projects.

Note 7 — Deferred capital contributions

Deferred capital contributions represent the unamortized amount of the net book value of the buildings transferred to ARIO from the Government of Ontario in 2007. The amortization of capital contributions is recorded as revenue in the statement of revenues and expenditures. The changes in the deferred capital contributions are as follows:

Note 8 — ARIO research fund

Note 9 - Grants received from the provincial government

The following grants, recorded at the exchange value, have been received from the Ontario Ministry of Agriculture, Food and Rural Affairs and successor ministries:

The following grants, recorded at the exchange value, have been received from the Ontario Ministry of Advanced Education and Skills Development (MAESD):

The following Provincial Government capital transfer payment grants have been partially capitalized as Deferred Capital Funded Contributions and partially recognized as Revenues as follows:

Note 10 — Transfer payments to the University of Guelph

During 2016, ARIO entered into a funding agreement with the University of Guelph. Under the agreement, ARIO would provide maximum funds of $12,000,000 to be combined with up to $3,000,000 in industry contributions to fund the construction of a new Turfgrass Research facility on the University of Guelph's Arboretum land. The ARIO funds for this agreement come from deferred capital funded contributions which were previously received by ARIO from the Ontario Ministry of Agriculture, Food and Rural Affairs and successor ministries. At March 31, 2019 funding milestones have been met and ARIO has provided the University with $12,000,000 in funding.

During 2017, ARIO entered into a funding agreement with the University. Under the agreement, ARIO would provide maximum funds of $800,000 to fund equipment for the Guelph Food Innovation Centre. At March 31, 2019, funding milestones have been met and ARIO has provided the University with $800,000 in funding.

During 2018, ARIO entered into funding agreements with the University of Guelph for the construction of a new swine research facility at Elora and a new Agronomy Research Services building at New Liskeard. ARIO will provide maximum funds of $12,000,000 to be combined with up to $3,000,000 in industry contributions to fund the construction of the new Swine Research facility. ARIO will provide up to $4,000,000 for the New Liskeard Agronomy building project. No industry contribution is anticipated for this project. In 2018-19, ARIO provided the University with $3,000,000 for the new swine facility and $1,000,000 for the New Liskeard agronomy building. As of March 31, 2019, ARIO has received $100,000 in industry contributions for the new swine facility from Ontario Pork. The ARIO funds for these agreements come from deferred capital funded contributions which were previously received by ARIO from the Ontario Ministry of Agriculture, Food and Rural Affairs and successor ministries.

Note 11 — Gain on disposal of tangible capital asset

March 31, 2019 — Sale of Alfred and New Liskeard land

During the prior year, the organization sold parcels of land in two locations, one in Alfred and one in New Liskeard (2018 - parcels in Kemptville). All parcels of land were originally transferred to the organization and capitalized to assets and contributed surplus. There was no impairment taken on either of the assets during the year.

During the 2019 fiscal year, the Municipality of North Grenville paid $4,000,000, satisfying the terms of their promissory note and closing the final payment on the sale of the property.

Note 12 — Funding agreements with third parties

The Agricultural Research Institute of Ontario (ARIO), Her Majesty the Queen in right of Ontario as represented by the Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA) and the Integrated Grain Processors Co-operative Inc. (IGPC) have jointly signed an agreement whereby, pursuant to a Capital Grant Agreement effective June 2006 between OMAFRA and IGPC, IGPC agreed to contribute to a research and development fund in exchange for the capital grant support provided by OMAFRA through the Ontario Ethanol Growth Fund. IGPC has agreed to contribute $280,000 annually for 10 years (for a total of $2,800,000) starting in April 2012 and ending with the final payment in April 2021. These funds are being paid directly to ARIO to be used to support research priorities in the agri-food sector in Ontario. Funds recognized to date are $1,960,000. See schedule 2.

Her Majesty the Queen in right of Ontario as represented by the Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA) and Kawartha Ethanol Inc. have signed a Capital Grant Agreement effective August 1, 2008 between OMAFRA and Kawartha Ethanol Inc. whereby Kawartha Ethanol Inc. agreed to contribute to a research and development fund in exchange for the capital grant support provided by OMAFRA through the Ontario Ethanol Growth Fund. Kawartha Ethanol Inc. has agreed to contribute $98,000 annually for 10 years (for a total of $980,000) starting April 2013 and ending with the final payment in April 2022. These funds are to be paid directly to ARIO to be used to support research priorities in the agri-food sector in Ontario. Funds recognized to date are $588,000. See schedule 2.

Note 13 — Investment income

Investment income is comprised of interest and dividend income, realized activity from sales of assets, realized activity from financial exchange, and management fees paid. The activity for the year is as follows:

Note 14 — Corresponding figures

Prior year's figures have been reclassified to conform to the current year's presentation.

Schedule 1 — Research trust funds: Financial position as at March 31, 2019

Schedule 2 — Research trust funds: Revenues and expenditures and changes in fund balances for the year ended March 31, 2019