Evidence of meeting #6 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 co-ops.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

  • Lyndon Carlson  Senior Vice-President, Marketing, Farm Credit Canada
  • Rob Malli  Chief Financial Officer, Vancouver City Savings Credit Union
  • Michael Hoffort  Senior Vice-President, Portfolio and Credit Risk, Farm Credit Canada
  • Glen Tully  President of the Board, Home Office, Federated Co-operatives Limited
  • Vic Huard  Vice-President, Corporate Affairs, Home Office, Federated Co-operatives Limited
  • Andy Morrison  Chief Executive Officer, Arctic Co-operatives Limited
  • John McBain  Vice-President, Alberta Association of Co-operative Seed Cleaning Plants
  • Shona McGlashan  Chief Governance Officer, Mountain Equipment Co-op
  • Margie Parikh  Vice-Chair, Board of Directors, Mountain Equipment Co-op
  • Neil Hastie  President and Chief Executive Officer, Encorp Pacific (Canada)
  • Kenneth Hood  President, Kootenay Columbia Seniors Housing Cooperative
  • Darren Kitchen  Director, Government Relations, Co-operative Housing Federation of British Columbia

July 26th, 2012 / 1:55 p.m.

John McBain Vice-President, Alberta Association of Co-operative Seed Cleaning Plants

Yes, loud and clear.

1:55 p.m.

Conservative

The Chair Blake Richards

Okay.

Well I have you first, so I'll turn the floor to you now. You have ten minutes to make your opening remarks, and the floor is all yours.

1:55 p.m.

Vice-President, Alberta Association of Co-operative Seed Cleaning Plants

John McBain

Thank you very much. Good afternoon.

My name is John McBain. I'm vice-president of the Alberta Association of Co-operative Seed Cleaning Plants. We represent 71 member plants: 69 in Alberta and two in the Peace River region of B.C. Each plant is a locally owned co-op run by a board of directors who come from the surrounding communities.

Our member plants play an important role in the agricultural communities. We clean seeds to exacting standards. We facilitate the testing of seeds for germination and disease. We educate about disease prevention. We provide seed treatments. We act as a source of information on new and old seed varieties and seed treatments. We act as a link between pedigreed-seed growers and the producer looking for that one particular variety of seed.

Each area of the province has different needs, in addition to seed cleaning. Individual co-op plants are able to identify the unique needs of their communities and to then provide services to meet those needs. In areas where ergot on wheat is an issue, plants use coloured sorters to segregate infected wheat seeds. Some plants specialize in the processing and marketing of peas or oats for speciality markets. Plants with access to rail lines facilitate the loading of producer cars. Some plants have been marketing feed, tarps, and veterinary supplies to producers in areas that have no local supplier. With their entrepreneurial spirit, these local boards and managers try to meet the needs of their agricultural communities.

Many of these plants are aging and need to be upgraded or replaced. Some of the older co-ops have also been enclosed by ever growing towns, and it becomes necessary to relocate outside of urban areas. Also, to stay competitive in the global market, substantial capital investment is required for new technologies and specialized equipment. New updated facilities will be able to comply with new environmental and safety regulations and protocols. Upgrading is also necessary to deal with the increasing need for disease monitoring and control. However, being run as cooperatives, these plants try to run as efficiently as possible in order to provide great service at an affordable rate.

When plants need to raise capital for new technologies, such as colour sorters, or to replace aging plants, they have difficulties. Few co-ops qualify for government grants or incentives. Farm Credit and banks are a source of loans, but we're looking for a way that would allow local investment by the community. Local co-op members and other businesses would be potential sources of investment if given the right incentives.

At our 2010 annual general meeting, we passed a resolution that the provincial board would lobby for refundable investment tax credits and RRSP investment status for agriculture investors who invest in co-ops. This would allow co-ops to raise the required capital to acquire depreciable assets. The existence of such a tax credit would give members and other agriculture investors benefits comparable to other Canadian investments. An example would be the oil and gas industry's flow-through-shares tax incentive.

Agriculture investors will support a business they know and understand rather than being forced to seek investment opportunities in other Canadian corporations.

Investing in the stock market draws capital from our local communities. Local investment has the potential to attract workers and keep young people in a community by providing new technologies and challenges.

In some communities that have lost their elevators and rail lines, the local co-op seed plant is the one thing helping to keep the community alive. Allowing a tax credit would enable these communities to invest in their own futures instead of having their investment money leave the community for other sectors. Our proposal would encourage local capital investment and would treat agriculture investors like oil and gas investors.

Being able to invest in local co-ops would allow us to upgrade equipment and plants for improvements in efficiency, quality, and food safety. As producers invest in new seed varieties, and with the increasing movement toward identity preservation, it's important that our plants are able to use the new technologies to protect the purity of these new varieties. It is also very important in the control of crop diseases, such as fusarium. Our plants go to great lengths to test seeds and to educate producers about the necessity of preventing the spread of this and other diseases.

There are new machines currently being tested in Saskatchewan that use near-infrared technology to sort seeds based on various parameters, such as protein content, the presence of disease, etc. Such technologies will be more and more necessary with the increasing demand for identity preservation.

We look forward to the results of your committee on cooperatives. I think raising capital for expansion and new equipment is difficult for everyone, but we hope you will look at our proposal, which would encourage local investment and economic diversity in rural areas, and enable producers to invest in their own industry as we move into a marketplace increasingly focused on food quality and safety.

Thank you for this opportunity.

2 p.m.

Conservative

The Chair Blake Richards

Thank you very much, Mr. McBain.

We'll go next to Mountain Equipment Co-op. I'm not sure who is giving the presentation, or maybe both of you are, but I'll turn the floor over to you and let you make that decision. You have ten minutes, and we're looking forward to hearing your opening remarks.

2 p.m.

Shona McGlashan Chief Governance Officer, Mountain Equipment Co-op

Good afternoon, everybody.

Good morning, ladies and gentlemen.

First of all, I'd very much like to thank the committee for giving Mountain Equipment Co-op the opportunity to come and contribute to your inquiry.

My name is Shona McGlashan, and I'm the chief governance officer at Mountain Equipment Co-op. I've been employed at MEC for nearly two months now. With me is Margie Parikh, who is the vice-chair of our board of directors, and Margie has been one of our directors since 2010.

We have also provided a written submission, which I've given to the clerk, to supplement this presentation, so you may find some additional information that will be of interest to you there.

First of all, I'd like to start by giving you a brief overview of Mountain Equipment Co-op. Some of you will be quite familiar with us, and indeed I understand that a number of you are our members.

Mountain Equipment Co-op was founded in 1971 in Vancouver, and it's incorporated under the B.C. Cooperative Association Act. It was founded by six friends to provide equipment for outdoor activities such as hiking, camping, and climbing. Famously, its initial retail operations were out of the back of a VW van.

Fast-forward 40 years, and we're a vibrant and successful retail cooperative. We exist to inspire and enable all Canadians to lead an active outdoor lifestyle, and we do this by providing great products and services related to activities such as hiking, camping, canoeing, stand-up paddle boarding, yoga, running, and cycling. We now have 3.75 million members, mostly in Canada and some overseas. We have 15 retail stores, from Victoria in the west to Halifax in the east, and an increasing part of our business is now web-based as well. We generated $270 million in revenue last year, in 2011; we employ 1,600 people; and we are responsible for over half a percent of all retail sales in Canada.

I would like to briefly touch on some of the governance and financial aspects of our cooperative structure.

We sell our products exclusively to our members. A lifetime membership share in MEC costs $5 today, just as it did in 1971. We operate on the cooperative principle of one member, one vote. All our members can participate in the election that elects our board of directors from among the membership, and our board must be active members of the co-op.

At the end of the financial year, after paying our suppliers, our employees, and covering our operating costs, Mountain Equipment Co-op returns any surplus at the end of the year to its members in the form of a patronage return. Our members have directed that this return be used to purchase additional patronage shares in the cooperative. Each year the board of directors assesses whether to issue a share redemption and buy back some of those shares from some of our members. But aside from the share redemption, you can see that member capital in the organization builds up and up over time. Over the course of 40 years, our members' combined equity in Mountain Equipment Co-op now amounts to about $160 million. We use this capital to invest in inventory and new stores and infrastructure, all with the aim of serving our members better.

You can find more information on the financial aspects in the written submission, and of course we'd be very happy to take questions on that if the committee wishes.

I also want to talk about how being a cooperative is integral and fundamental to the way Mountain Equipment Co-op does business, and how it's necessary for our success. We are a retailer, and we operate in an increasingly complex and competitive environment with other retailers who are not necessarily based on a cooperative structure. Because we're a co-op, we are not driven by a profit motive. We aim to make a small surplus target and we have reinvestment of member equity. This allows us to do two things. The first is that we can provide products to our membership that are on average 7% cheaper than the retail market average. The second is that because of this, we have headroom, if you like, to expand some of our energy and some of our efforts on areas that are very important to us as an organization, and important to our membership. Margie is going to speak to some of those.

2:05 p.m.

Margie Parikh Vice-Chair, Board of Directors, Mountain Equipment Co-op

Thanks, Shona.

What are those areas that are important to our members? Sustainability is critical in terms of facilities and green buildings but also in terms of our products and our supply chain. We are continually working to reduce our environmental footprint.

Operating according to an ethical sourcing policy is important to our members. We have a policy that aims to improve the working conditions of those who produce our products, whether they be in Canada or elsewhere in the world.

In terms of community investment, we are a member of “1% for the Planet”, and over the last ten years we have put back approximately $16 million into outdoor activity and environmental organizations.

As Shona mentioned, our democratic governance model means that I and the other eight directors are directly elected by the membership—any member over the age of 15 has an equal say in electing us—and then we are accountable to the membership.

Finally, we aim to be an exceptional employer. We're proud to have been recognized as one of Canada's top 100 employers. We have policies around salaries so that our floor staff are paid above market. Conversely, our CEO and our senior management are not to exceed market. We create working conditions and provide training to our staff so that they can live the talk, inspiring and enabling everyone to live active outdoor lifestyles.

What are we looking for? We are looking for recognition that the cooperative is a sustainable and healthy business model that contributes to the Canadian economy and to Canadian communities and international communities, and that serves the needs of ordinary Canadians. We are successful, not only as a retailer with over a quarter of a billion dollars in revenues but also as an entity serving more than 3.5 million individual members. In other words, we are successful as a business and a cooperative.

Do we need capital from the government? No, but we are in our 41st year. Recognizing that cooperatives are an important, sustainable, and healthy business model, we ask that you support the Canadian Co-operative Association's goals, which may include structural or financial support for start-ups.

Why do cooperatives succeed? Our members are invested—in our terms minimally, in terms of their $5 shares, but certainly emotionally through support of our mission and our model. Without the profit motive, as Shona alluded to, we can offer great products and exceptional service that our members want—an excellent value.

We succeed because we serve our members and our communities, including the community of Canada. We also support each other locally, nationally, and internationally through active participation and governance in other cooperatives.

We succeed because we are a member-mission-driven organization. We strive to enable and inspire everyone to be active outdoors. We understand the power of community and cooperative principles. Together we are stronger and can do more for one another.

We look forward to your questions.

2:05 p.m.

Conservative

The Chair Blake Richards

Thank you very much.

We have one more presenter, and that is, of course, Mr. Hastie from Encorp Pacific. I'll now turn the floor over to you. You have up to ten minutes to make some opening remarks for the committee.

2:05 p.m.

Neil Hastie President and Chief Executive Officer, Encorp Pacific (Canada)

Thank you, Mr. Chairman.

I am an orphan here before you. We are not a cooperative. I'm here to set out the potential use of the cooperative structure—listening to my colleagues from the coast and the kind of energy that cooperatives can generate—and I'm here to brief the committee on a potentially significant opportunity that would, however, require some adjustments to the act itself. So that's my intent: to outline the nature of the opportunity in an area that you may not have thought of and talk a little bit about what might have to be adjusted in the act for this opportunity to be unleashed.

My company, Encorp Pacific, has been in business since 1994. We're a product stewardship corporation operating in the province of British Columbia. We are organized under the Canada Corporations Act, part II. We operate a recycling system in British Columbia for beverage containers and for end-of-life electronics. So I'm going to actually be talking to you about the idea of what I would call a resource recovery cooperative, a cooperative organized to generate improved recycling performance in Canada.

Here is some background. The Canadian government, along with all the ministers of the environment, in 2009 adopted an official policy to manage recycling in the country, called extended producer responsibility, or EPR for short. That's the official position of the Canadian Council of Ministers of the Environment, and therefore of the federal government as well. The essence of EPR is it turns over the responsibility and obligation for recycling of consumer products to the manufacturers of those products. There are currently between 50 and 75 organizations in Canada that are in fact EPR organizations. It's a growing sector, and I'm here to talk to you about the potential unleashing of more consumer participation in recycling to improve performance in the country, and doing that through the Canada Cooperatives Act.

I'll focus on one particular part of recycling. Everybody has a part they are particularly keen on, but I'll focus on packaging and printed paper, of which we are all large consumers. Currently, in this country we send to landfill about 60% of all the packaging and printed paper. It's a perfectly good resource, and we send it to landfill. The challenge, of course, is to start creating a circular economy and using that material, because it is very valuable material. EPR, as a policy position, is intended to do exactly that.

I want to give you a point of reference. The recycling performance in Canada is at about 40%. It varies a bit from province to province. Belgium, for example, is at 80% and Germany is at 85%, essentially operating the same kinds of systems we have here. But what we don't quite yet have in Canada is the engagement of the citizen, and I want to speak to you about that.

But looking at the economic impact, if we were able to increase our recycling rate, which has been growing but at a very modest pace, from the current 40% recycling up to 75% recycling, which is still not world-scale, it would create an economic value of between $500 million and $1 billion. That's jobs and that's economic value.

The other thing about recycling, of course, is that it reduces greenhouse gas emissions. Things that go into landfill produce greenhouse gases. Tremendously important for the industry, the companies, is that recycling creates a secondary source of materials, the recycled materials, as opposed to virgin materials that require extraction from the earth. So those are very, very high civic values and economic values as well.

What I believe could occur with a resource recovery cooperative is a significant engagement of the citizen. I think my colleagues to the left would be able to speak eloquently about the kind of engagement that is generated when you're participating as a partner in a cooperative.

That's going to be a fundamental driver of improved recycling performance in the country, because essentially that recycling performance relies exclusively on the consumer. It relies on the individual to do it. And engaging an individual by having that be an individual member of a cooperative whose purpose is in fact to generate the resource recovery economy I believe is a huge opportunity.

You can understand that my familiarity with the act may not be as intensive as my colleagues'. I have some general observations in terms of the adjustments that would be required. You would need to permit single-province operation, as opposed to, I understand, requiring that the cooperative operate in more than one province. The membership would have to be open to a broader classification than just individuals. It would have to create a structure in which it would permit access to capital markets. Much of what Canada will need is enhanced infrastructure for recycling, and that takes capital. Access to capital markets is fundamental.

The revisions of the act need to embed alternate dispute resolution mechanisms in what appears to be a highly judicial orientation to dispute resolution. It needs to in fact embed alternate dispute resolution mechanisms.

Finally, I would suggest that consideration needs to be given to integrating it with some of the powerful attributes of the Canada Corporation Act, part II. That is the reason we chose it as a corporation. It was because it brings with it some very high and fundamental governance standards, which I think are necessary when you're pursuing a public policy good.

In summary, I believe that there is an opportunity in a growing segment called the “extended producer responsibility” segment. There are currently about 60 organizations operating in that segment, and that segment is growing every year, literally, in the country.

There's a tremendous opportunity to improve our recycling performance in Canada. I think it drives sustainability. It drives economic growth. And it is simply the right thing to do.

Thank you.

2:15 p.m.

Conservative

The Chair Blake Richards

Thank you very much.

We will move to our first round of questioning for the witnesses. Madame LeBlanc, you have the floor for the first five minutes.

2:15 p.m.

NDP

Hélène LeBlanc LaSalle—Émard, QC

Thank you, Mr. Chair.

Thank you for your very useful presentations. This helps us become familiar with different types of cooperatives—even some emerging ones.

Mr. McBain, you mentioned RRSPs—a mechanism that could make investing in cooperatives easier. Could you tell us more about that? You talked about RRSPs, but you also discussed tax credits.

Why do you think members are unable to take advantage of mechanisms that would facilitate investing in cooperatives?

2:15 p.m.

Vice-President, Alberta Association of Co-operative Seed Cleaning Plants

John McBain

The biggest thing is that we have lots of members. They can invest now in the co-op, but they don't really get any kind of tax incentive or that sort of thing, as other Canadian corporations might get when you make an investment in such a corporation.

We have lots of farmers who are members. They have RRSP money that's been invested in the stock market or elsewhere. I think they would like to have that kind of money put into something they support in their community, rather than have it go out of their area. Those are some of the things we're sort of looking at.

We have access to loans, just like everybody else, through Farm Credit or Alberta Financial Services types of things, but those are just loans. We're looking at having membership participation in investing in these co-ops. We sell memberships. Each co-op sells its own memberships at each plant. So they have membership capital that way. We're just looking for more investment from other businesses in the communities.

2:20 p.m.

NDP

Hélène LeBlanc LaSalle—Émard, QC

If I have understood properly, that would require changes to federal regulations.

2:20 p.m.

Vice-President, Alberta Association of Co-operative Seed Cleaning Plants

John McBain

Yes, it would be some changes to the regulation, as well as the Income Tax Act.

2:20 p.m.

NDP

Hélène LeBlanc LaSalle—Émard, QC

Thank you very much.

My next question is for the Mountain Equipment CO-op representatives.

Your company is well-established, but I would like to know what challenges you think the cooperative movement as a whole is facing.

2:20 p.m.

Vice-Chair, Board of Directors, Mountain Equipment Co-op

Margie Parikh

We have many, many co-ops, and they are varied in size, structure, and mission. It is challenging to speak on behalf of all cooperatives, but certainly what I've been hearing through the Canadian Co-operative Association is that access to capital, in some cases, is a challenge, especially with the smaller organizations. We don't have individual shareholders. We can't have a public offering. As we heard this morning, as well, sometimes financial institutions are reluctant to lend to cooperatives. I think that is a barrier for many co-ops, especially smaller ones.

There are many good things that being a cooperative entails—as we heard a few minutes ago on the engagement of our members—but sometimes that can't overcome some of these structural barriers.