Evidence of meeting #3 for Special Committee on Cooperatives in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cooperatives.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Claude Carrière  Associate Deputy Minister, Agriculture and Agri-Food Canada
John Connell  Associate Assistant Deputy Minister, Strategic Policy Sector, Department of Industry
Jeremy Rudin  Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance
Denyse Guy  Executive Director, Canadian Co-operative Association
Marion Wrobel  Vice-President, Policy and Operations, Canadian Bankers Association
Stephen Fitzpatrick  Vice-President, Corporate Services and Chief Financial Officer, Credit Union Central of Canada
Nicholas Gazzard  Executive Director, National Office, Co-operative Housing Federation of Canada
Frank Lowery  Senior Vice-President, Senior Counsel and Secretary, The Co-operators Group
John Taylor  President, Ontario Mutual Insurance Association
Michael Barrett  Chief Operations Officer, Gay Lea Foods Cooperative Ltd.
Bob Friesen  Farmers of North America

2:10 p.m.

Conservative

Joe Preston Conservative Elgin—Middlesex—London, ON

Sure. It gets us talking about it, one way or the other.

Going back to associations and things that happen, I mean, the government isn't always a silver bullet either. I've learned through my time here that we seldom carry the silver bullet. The bullet is out there with the group that knows the situation best.

Mr. Lowery, you've been great today in being able to share that with us, and Mr. Gazzard, the same thing. It's sharing what you do best with the passion that your group has.

Mr. Taylor, I had a hundred questions for you about small mutuals, but I think my time is gone.

2:10 p.m.

Conservative

The Chair Conservative Blake Richards

You have about five seconds.

2:10 p.m.

Conservative

Joe Preston Conservative Elgin—Middlesex—London, ON

Oh, let's see. Small questions about mutuals. That won't work.

2:10 p.m.

Conservative

The Chair Conservative Blake Richards

All right. Given that, I do want to thank all three of our witnesses.

Again, we've had some great witnesses today, and this panel is certainly no exception. We appreciate your expertise and your information being provided to the committee.

2:10 p.m.

Liberal

Mauril Bélanger Liberal Ottawa—Vanier, ON

Mr. Chair, will Mr. Taylor send us his notes as well?

2:10 p.m.

Conservative

The Chair Conservative Blake Richards

Mr. Taylor, did you hear that request?

2:10 p.m.

President, Ontario Mutual Insurance Association

John Taylor

No, I'm sorry.

Mr. Bélanger has asked whether you would be willing to share your notes with the committee.

2:10 p.m.

President, Ontario Mutual Insurance Association

John Taylor

Yes. They're handwritten.

Would you like a direct copy or a transcription?

2:10 p.m.

Conservative

The Chair Conservative Blake Richards

They are, of course, available in the blues, but if you'd like to send in your notes to the committee, we would certainly be....

2:10 p.m.

President, Ontario Mutual Insurance Association

John Taylor

Shall I do that to the clerk?

2:10 p.m.

Conservative

The Chair Conservative Blake Richards

Yes. Thank you very much.

I'm now going to suspend the meeting until 2:30.

2:25 p.m.

Conservative

The Chair Conservative Blake Richards

I'll call the meeting back to order. I'll ask members to take their chairs.

We have with us here, for our final panel of the day, two members: one from the Farmers of North America, Mr. Bob Friesen; and from Gay Lea Foods Cooperative Limited, Mr. Michael Barrett.

Which one of you would like to go first for opening remarks?

Mr. Barrett, the floor is now yours for up to 10 minutes for your opening statement.

2:30 p.m.

Michael Barrett Chief Operations Officer, Gay Lea Foods Cooperative Ltd.

Thank you very much. I appreciate the opportunity to be able to come forward.

Gay Lea Foods' story is going to be a little different, I think, from that of some of the other associations that have come forward. I'm not representing an association; I am representing a singular co-op, but a co-op that lives by the same principles and the same values that certainly Frank Lowery was espousing.

Just to put it into context—and I have provided this, so I'm not going to read it to you, I'm only going to touch on some salient points—Gay Lea is Canada's second largest co-op. It's the largest co-op in Ontario. It was the eighth largest non-financial cooperative in 2010. We have 1,200 dairy farms across Canada, 3,300 members, and our members not only consist of dairy farmers but employees as well.

Our members produce some 800 million litres of milk, which is about 30% of all the milk that's processed in Ontario. Our annual revenues this year will be over $500 million. We are the fourth largest processor in Canada, based on volume. We certainly have many sites across southern Ontario.

We have 650 full-time and part-time employees. We are a major processor in a niche market. If you eat cottage cheese, sour cream, butter, or partake in the sins of aerosol whipped cream, it likely has been produced in my facilities across southern Ontario—there's just a good chance.

With all due respect, we produce the best cheese south of St. Albert.

2:30 p.m.

Voices

Oh, oh!

2:30 p.m.

Chief Operations Officer, Gay Lea Foods Cooperative Ltd.

Michael Barrett

In the past decade our cooperative has invested $170 million in capital expansion. We are, except for one small capital lease, debt-free. This has been funded by our members and our members only.

Not only are we a good cooperative, but we are also a good employer. We have been in the top 100 employers in 2010-11 and the top employer for employees over 50 in 2011. In the GTA, from 2009-2011, we received excellence in governance awards. We were nominated for a grand prix for product innovators three years running, and we also won a Global Co-operator Award. Our values and principles are very important to us.

We are governed by the Co-operative Corporations Act. Like many other cooperatives, we have a full slate of farmer-member directors. We have a governance model that certainly is one member, one vote. Over the last five years we've invested hundreds of thousands of dollars in being able to develop training in governance models and leadership training, not only for our own cooperative, which has won awards in the cooperatives sector, but also we offer that through the other agricultural cooperatives.

One of the important elements of being in a cooperative is ensuring it's a good business, but also being able to understand how to have good governance and making sure you relate to your membership.

Gay Lea Foods puts 40% of its profits back to its members, so it goes back to our farmers. It goes back to be reinvested in capital goods, whether it's tractors or farms, or to ensure there's economic rural sustainability. It's very important for us in order to support the rural community.

Why do farmers belong to a dairy cooperative? Certainly it's the ability to own part of the processing sector. It's being able to have influence as a collective group, and also being able to share in the profitabilities of a vertically integrated industry. Also, one cannot own the industry, but 1,200 can own part of the industry. Just to put it into perspective, our members have $80 million invested in a cooperative that has about $230 million of assets.

Cooperatives certainly are an element for change. If you look at what's happening with the challenges happening to global trade, certainly the supply management industry is under pressure from a global perspective. I'm not going to take all the time to talk about how a strong cooperative is a very strong, viable alternative to supply management, but if you look at three countries in particular.... New Zealand has always being touted as the goal and the model for change. New Zealand has a very strong national cooperative, supported by the federal government and legislation in order to make sure it is a viable entity. If you look also both in Denmark and Holland, the cooperatives are supported very strongly through legislation in order to ensure there's a viable dairy industry.

In countries where there is not strong legislation for the co-op movement—if you look at Australia, Germany, and Great Britain—the economics of dairy within those three countries are of farmers going bankrupt, lower milk costs, and higher costs of production. Britain, for example, has become a net dairy importer when it was a net dairy exporter.

The cooperative model does provide an alternative to differing economic trade models that have been suggested.

The greatest loser through all these changes that have taken place economically certainly has been the farmer. Why does the dairy sector need a cooperative? Certainly it is about being able to sustain itself. It's also being able to ensure it has economic resilience. Gay Lea and someone like Agropur have been a demonstration of that.

In the cooperative sector we don't ask for special treatment, just equality of opportunity. We ask not for favours but for fairness, and we look not for unqualified support but for qualified investment.

The cooperative sector needs the following, according to Gay Lea's perspective. We need recognition that the cooperative sector is a viable economic and social alternative. We need the same access to the same level of economic, legislative, and business support. We have to be able to recognize the role the cooperatives already play within society. We have to understand that the governance model and its values are critically important and that transparency is an important component, and there is a difference in being able to have that as a model.

We have the saying “the 98% rule”, which is that 98% of the information in the cooperatives should be shared. My salary and my bonus are transparent to my members, because they own the cooperative.

Also, there has to be a recognition that the cooperative sector is not only an economic model for domestic growth but also an economic model for international aid. I've spent a great deal of time overseas through Gay Lea's support of international development. I have walked the streets of Kathmandu, and I have seen the good intentions of many nations built into buildings that are closed; they are closed because they are not sustainable. What I see happening in third world countries and developing nations is that cooperatives go in and they create an infrastructure for sustainable economic development and they last. They don't last three years. They don't last 10 years. They last for a lifetime.

We built a school in Nepal for 300 children. Today it has 1,200 children. We built three classrooms. The community built another 12, a computer lab, a science lab, a well, and indoor washrooms. It's through the common goal of an economic model, the cooperative model, that makes this happen.

But not only does it occur in the international field, it also occurs in the rural field as well. Gay Lea Foods gives probably about $350,000 to the development of cooperatives within Canada. We have been able to help support things like the development of local grocery stores where the only grocery store is being closed and the large retail organizations are not supporting the local grocery store. We have made donations and given governance support through the Ontario Co-operative Association in order to make sure that where a community has no grocery store for 80 kilometres, that community is self-sustained.

The cooperative model is a very important thing. Gay Lea is a model of how that works. We have been able to build our cooperative. We have been able to triple our sales. We have been able to quintuple our profitability, not based upon an economic handout but because of a model that works and is sustainable through our community.

Thank you.

2:35 p.m.

Conservative

The Chair Conservative Blake Richards

Thank you very much.

We now have Mr. Friesen. You also have 10 minutes for opening remarks.

2:35 p.m.

Bob Friesen Farmers of North America

Thank you very much, Mr. Chair, and thank you for the invitation to be here.

I'm here on behalf of Farmers of North America. I'll tell you a little bit more about that organization later on. Suffice it to say for the moment that it's an organization that has as its number one mandate improving farm profitability. To that end, in fact, I would like to thank the current government for some of the things they have already done that have provided our members with the tools to be more profitable. Of course, if I were to go into those, this discussion would be a lot longer.

I do want to take a bit of a different approach this afternoon when it comes to co-ops.

I believe the reason, possibly, that FNA was invited to this forum was that very often people say that we have co-op-like concepts in our organization. To that end, I'll explain a little bit about how we operate. My focus is also going to be very narrow, in that we deal primarily with farm inputs. Certainly farm inputs are very important. The way our organization is structured, with some co-op concepts, has ended up saving farmers hundreds of millions of dollars on the input side. What I am going to do, of course, is express support for co-ops.

I want to talk a little bit about our own unique innovative organization. Then I would like to throw an idea on the table that I believe has the potential to free up a billion dollars for investment in agricultural projects, whether they are co-op agricultural projects or any other organizational projects that help to improve farm profitability.

Let me say, first of all, that among the whole gambit of co-ops, certainly our focus is more on the agriculture or farmer co-ops, and, as I said earlier, on the input side. Of course, we also know that there are very successful marketing co-ops, as my colleague from Gay Lea has just talked about. We know that we have had co-ops that weren't at all successful. They started out very successfully but suddenly lost their direction, and they are no longer in the hands of farmers. Then we have other input supply co-ops that have been very successful.

Suffice it to say that we believe that co-ops should not be supported for ideological reasons but rather for a very pragmatic and on-the-ground reason, which is that they need to help introduce competition. If a co-op or a farmer co-op doesn't help to introduce competition in the market, then we believe that it's there more for ideological reasons. We think that's simply the wrong approach. As I said earlier, there certainly are co-ops that have been very successful in doing it.

We do know that farmers need a leg up, given the consolidation in the downstream and upstream industries. One of our goals at FNA is to get farmers to the point where they can go to lower-cost, more profitable options because they can.

In a meeting I had with a fertilizing industry a few years ago, they basically said they were increasing prices because they could.

We would like, and have been successful in certain areas already, to continue to get farmers to the point, through our organization, where they are choosing the co-op or the other organizations or lower-cost and more profitable options because they can. I believe the co-op organization has this as a mandate, too. That would clearly aggregate farmer power and help to empower farmers in the marketplace.

Again, let me say, and I can't emphasize this enough, that whether we're talking about co-ops or whether we're talking about innovative organizations such as the FNA, it has to result in more competition in the marketplace. And the benefits of that added competition have to accrue back to farmers.

Now you may wonder why I emphasize the area of input for farmers so much. Farm Credit Canada, in their 2009 client survey, asked farmers what their top concerns were. The top three concerns for farmers in that year were, number one, input costs; number two, profitability; and number three, market prices.

It's interesting. I'm not a psychologist, but since input costs are their concern, and then profitability and then market prices, that tells me that they consider input costs to be a greater obstacle to profitability than market prices. That's why we're focusing so much on input cost. That's really the very reason that Farmers of North America started.

As I describe our organization, I'll let you pick up on where we may be similar to a co-op. We are not a co-op, but we certainly adopt some of the same concepts.

FNA is simply a farmers' business alliance. It's a membership-based organization of farmers that has as its mandate to improve farm profitability. We have around 10,000 farmer-members across Canada. We have members in every province except Newfoundland.

FNA, and I'll refer to it as FNA from here on in, does not retail any products. FNA develops relationships with input suppliers, negotiates lower prices for farmers, and then has the farmer deal directly with those input supply partners. We're a membership-based organization that creates a strong crosswalk between input suppliers and our farmer members.

Now, if there are input suppliers that aren't interested in dealing with FNA, we simply create our own suppliers. One of the things we haven't found nearly as evident in the upstream industry as in the downstream industry is the fact that everybody in the value chain believes they should partner together to make sure every part of the value chain can be profitable.

As I said, one of the things we've done is to develop relationships and partnerships with input suppliers. If they're not willing to do that, say in the fertilizer industry or the pesticide industry, we simply create our own input supply partner and operate it in the same way we would if we dealt with any other input supplier. FNA will negotiate a price for its farmers, and the farmer will deal directly with that input supplier.

Where it is similar to a co-op is that the benefits of the low prices accrue to the farmer-members. In some cases what we've done, to prevent the price transparency that will allow every farmer in Canada to benefit from reduced prices, is to accrue those benefits back in what we call “empower awards”. Our farmer-members will receive a discount up front, as a member, and then any other benefits and savings accrue back to those members in what we call empower awards.

The difference between FNA and co-ops is that our members receive a discount on each specific product and program they're involved in. In other words, we don't average out what you would call profits and losses and then simply accrue benefits back. A farmer who uses fertilizer specifically would get all the savings available in fertilizer. It's not averaged out with any other savings in any other product.

The other difference between FNA and their organization is in governance. We have an advisory board, but we have a governance structure of one person. The reason we've kept the governance that simple is because we know we need to deal quickly.

I don't know how many of you have seen the Sharon Stone/Gene Hackman movie, The Quick and the Dead, but you will remember the tag line for that movie was, “In this town you're either one or the other.” We know that if you're not where the need is in the time you need to be there, the need is gone. We have a very simple governance structure that makes decisions very quickly. A decision can be made today based on whatever input we get from an advisory board or from our members.

Having said that, and having described what we consider to be a very innovative organization, let me go to the suggestion I have. I know there has been a lot of talk about eliminating funding for certain organizations, etc. We believe there is a structure in place where, if we create an incentive for farmers to invest, we think farmers will invest a lot of their own money in the agricultural industry. I would propose this suggestion—and I have copies here in both English and French, which I'll give to the secretariat later on and it can be distributed.

In our current business risk management structure that we have in Agriculture, we have what we refer to as a top 15% tier—

2:45 p.m.

Conservative

The Chair Conservative Blake Richards

I'm sorry to interrupt. You have about 10 seconds.

I'll give you a little more leeway to wrap up.

2:45 p.m.

Farmers of North America

Bob Friesen

Thank you.

I will finish on this. We have a 15% tier called AgriInvest. Currently there is over $1 billion in AgriInvest, which consists of fund 1 and fund 2. Farmers can withdraw that money any time they want.

However, they have to withdraw out of fund 2 first, and that money is taxable. We know that farmers won't withdraw that money if they're in a taxable situation. We believe that's why there is over $1 billion languishing in these funds. Farmers will typically wait for a year when they're not taxable to withdraw that money.

We're simply suggesting to create an incentive. If a farmer invests that money in a prior-approved project, whether it's a project that a co-op wants to initiate or another organization, then a farmer would have the taxes waived for that withdrawal. That would free up the $1.3 billion currently in funds 1 and 2 and would be a tremendous stimulus for the agricultural industry across Canada.

Thank you very much.

2:45 p.m.

Conservative

The Chair Conservative Blake Richards

Thank you.

Now we'll move to our first round of questioning. First up we have Madam Brosseau.

2:45 p.m.

NDP

Ruth Ellen Brosseau NDP Berthier—Maskinongé, QC

Thank you very much for taking the time and having this presentation and interaction with us today. It's really important. I always find it very hard, because we hear the presentation for ten minutes and then we get our five minutes, and it's so hard to base our questions.... I find that we are just scratching the surface, because we have so much to learn. It's an important sector, so I'll get going on my questions.

Mr. Barrett, you talked about the dairy sector being threatened by a great deal of change when it comes to the end of supply management, or the potential end of supply management, in some trade agreements, and how successful the cooperatives are and how resilient they are. I think it's really tried and true because of their democratic process, how they are just built on really building a better community and life. It's not just profits; it's making a better place and environment for all.

I wonder if you could elaborate a little bit more on that, please.

2:50 p.m.

Chief Operations Officer, Gay Lea Foods Cooperative Ltd.

Michael Barrett

Thank you.

Certainly for all the examples that I've given you...I've actually travelled to all those countries, and in fact have taken directors as part of our director development program. I have been to Europe, New Zealand, Australia, etc., and I've been able to spend literally weeks with government officials and have been able to examine the structures. We have primarily done that as a cooperative, in order to understand the nature of the beast, if and when—and I'm not advocating for the end of supply management by any stretch—supply management does come to an end, to understand what Gay Lea and the dairy sector will encounter and what is the best model.

Certainly it's been very clear that the nations that have been very successful in being able to develop what I would call a secondary dairy market, in the sense of life after supply management, have been the countries that have very strong cooperatives as the centrepiece of their dairy sector. Where there are multiple, weak, regionalized cooperatives, the country struggles in the transition. Certainly the ones that I have mentioned, New Zealand, Denmark, and Holland, have very strong cooperative sectors, which again, as I mentioned, are very much supported by government policy. The dairy sector has been able to make that transition and grow that dairy sector and has been able to ensure that they put a livelihood back into the dairy sector, whereas the countries that do not still struggle today, understanding that legislatively there is support but financially there is no support. So they have been able to do it independently. But the cooperatives, the strong, central cooperatives, are always the commonality in the successes.

2:50 p.m.

NDP

Ruth Ellen Brosseau NDP Berthier—Maskinongé, QC

Do you believe that the federal government does still have a role in cooperatives, in fostering and in education, and that when it comes to legislation it does have a role to play?

2:50 p.m.

Chief Operations Officer, Gay Lea Foods Cooperative Ltd.

Michael Barrett

I believe it does have a role to play. Certainly I've been reading articles and magazines as well. I'm not asking you for any favours; I'm just asking for fairness and equity, so that we have the same.... I guess the quick answer is yes.

2:50 p.m.

NDP

Ruth Ellen Brosseau NDP Berthier—Maskinongé, QC

Mr. Friesen, would you also agree that the federal government does have an active role to play when it comes to cooperatives and legislation, and even when just thinking about our future? We know that cooperatives are very successful, they are resilient, and they build jobs and better communities. Would you agree that the federal government still has a role to play in working with cooperatives and embracing them?