Special Committee on Cooperatives Committee on July 26th, 2012

[Lyndon Carlson]

As a federal crown corporation, ultimately, we have only one shareholder: the Government of Canada.

[Mauril Bélanger, Liberal, Ottawa—Vanier, ON]

So there is the guarantee by the government.

Okay, thank you.

[The Chair, Conservative, Blake Richards]

Thank you. So that should clarify your question.

That concludes the panel. I'll now suspend the meeting until 10:45.

[The Chair, Conservative, Blake Richards]

I call the meeting back to order.

For our second panel of the day, we have with us Federated Co-operatives Limited. We have Vic Huard, the vice-president, and Mr. Glen Tully, the president of the board. We also have with us Arctic Co-operatives Limited. We have Mr. Andy Morrison, who's the CEO. We're looking forward to hearing from both groups.

I will start with the Federated Co-operatives Limited. Is it you, Mr. Tully, who will be giving the presentation? Okay. You have ten minutes to make opening remarks. I'll try to give you a signal when you have about a minute remaining, just so you're aware of that. But because we only have the two groups here today, I'll be a little bit flexible and give you a minute or two extra if you need it.

I'll turn the floor over you now, and you can make your opening remarks.

[Glen Tully, President of the Board, Home Office, Federated Co-operatives Limited]

Thank you very much.

Good morning, Mr. Chair and committee members. My name is Glen Tully, president and chair of Federated Co-operatives Limited, Canada's largest consumer cooperative. With me, as already mentioned, is Vic Huard, vice-president of corporate affairs. We will share our presentation this morning. He will speak with you in a few minutes.

Thank you for asking us to participate in the committee hearings into the cooperative sector.

FCL is a multi-faceted organization. It is owned by approximately 235 retail co-ops throughout western Canada. These co-ops are member-owners. We provide central wholesaling, manufacturing, marketing, and administrative services for our member-owners across a wide range of business lines that feed, fuel, and build individuals and communities across the cooperative retailing system, or as we call it, the CRS. Home office is in Saskatoon, Saskatchewan. Regional offices operate there as well as in Winnipeg, Regina, Calgary, and Edmonton.

Vic will be speaking to you about the scope and scale of our operations. But as a retired farmer, I feel compelled to point out that two of Canada's largest annual megaprojects—seeding and harvesting in western Canada—simply could not happen without the fuel production and distribution system provided by the cooperative retailing system.

As a consumer cooperative, we believe that we have the responsibility to provide goods and services to our member-owners who remain committed to the over 500 communities in which our members operate.

A uniqueness of our consumer co-op sector is the link between consumers and producers in providing goods and services that each requires. Whether it is crop inputs in Birtle, Manitoba, or ethnic foods in Calgary, Alberta, or fuel to support the forestry harvest in northern British Columbia, we continue to be responsible to our member-owners.

I'd like to conclude my remarks by commenting on two unique aspects of our business model: our democratic structure and our cooperative's role in leadership development.

The directors of FCL represent 15 districts across western Canada. These districts are not dissimilar to the constituencies that each of you represents. Each director brings the knowledge of the cooperative structure, but more importantly, the knowledge of what goods, services, and community support their constituents will require now and for the future.

If I use myself as an example, I hail from Marquette, Manitoba, where my family farmed. Our family had always supported the local co-op. After being elected to the Marquette Co-op board, I began to participate in the leadership development offered by Federated Co-operatives Limited. In 1995, when the director from my district retired, I was encouraged to let my name stand, and I was chosen to represent our district. After ten years of service, some as vice-chair, I was elected president and chair in 2005. Having the president and chair position be full-time and located at home office allows much better communication between the democratic and operational components of the cooperative. I should point out that general managers of local co-ops are not allowed to be FCL directors, so our board truly comprises democratic representatives from our respective communities.

The leadership development aspect of my path is an example of one of the most underestimated value-adds cooperatives provide to communities. What I'm talking about is the training and leadership development of people. By developing the leadership potential and capacity of people, cooperatives build community capacity. This capacity then strengthens the community. Whether it's the local rink committee, the health district, or local government, co-ops build community capacity that allows communities to thrive and succeed.

I can't emphasize enough how important this grassroots leadership development is for individuals and communities. People from all political stripes come together with a common purpose—to support their cooperative. And many of these people take advantage of the development opportunities to become leaders in their communities and beyond. This is one aspect of the co-op's role in Canadian society that is not well enough understood. And it is one I feel should be explored together to determine if there's a role for government and cooperatives to work together to support and enhance it.

Thank you for your attention.

I'll now pass it over to Mr. Huard, who will finish the presentation. I look forward to your questions.

[Vic Huard, Vice-President, Corporate Affairs, Home Office, Federated Co-operatives Limited]

Thank you, Glen.

Members of the committee, I'm honoured to be here today to represent FCL and its member owners, who together make up the Co-operative Retailing System. For more than 85 years, the CRS has been a key player in the economic growth of western Canada. Our cooperative federation provides goods and services across a wide range of business lines, including retail, commercial, and bulk fuels; food stores; home centres; crop protection products and seed and feed for agriculture; pharmacies; and wines and spirits in the province of Alberta.

We are deeply committed to ensuring that communities across western Canada grow and prosper. We believe strongly that investment for the long term will ensure that people living in those communities have an opportunity to participate in, and contribute to, their own success.

Investment in the economy of the west, in local communities, and in people is at the core of who we are as a company and as a cooperative.

FCL itself is the largest non-financial cooperative in Canada. In the most recent Financial Post 500 survey, it ranks as the 51st largest company by revenue in the country, comparable to companies such as General Motors of Canada and Encana, and larger than the Potash Corporation of Saskatchewan. We like saying that. In our last fiscal year we had top-line sales of $8.3 billion and realized a net profit of $835 million. Most of that profit was returned to our 235 member owners. The 2011 patronage allocation was just the latest installment in the more than $2.2 billion that FCL has returned to our member-owners over the past five years.

But let's look deeper into the numbers and into the individuals and communities that are affected by them.

FCL itself has approximately 3,000 employees across the region; our retail member-owners employ another 16,000 people. These 19,000 employees represented a payroll of approximately $800 million in 2011. This is an enormous investment in the more than 500 communities across the west where the CRS has a presence. We are determined to continue to invest in communities, large and small, across the region.

While others disinvest from rural and smaller communities, our cooperative has chosen to reinvest in many of those communities through the jobs we provide and the facilities we build. Over the past five years we have invested almost $4 billion in capital projects, including almost $3 billion in our petroleum manufacturing and distribution system alone.

Earlier I mentioned that FCL had paid out $2.2 billion in patronage allocation to our member retails over the past five years. The redistribution of earnings, however, does not stop there. Each year local retail co-ops distribute their earnings to individual members by paying out cash allocations as well as by investing in members' equity accounts.

Over the past five years, western Canadian co-op members have received more than $1.1 billion in cash back from their local co-ops. This represents a significant reinvestment in people and communities across the west and in the western Canadian economy as a whole. But the story doesn't stop there.

A portion of members' allocations are deposited in members' equity accounts, to be redeemed when those members retire or move away from their co-op's trading area. As of today, individual co-op members across the west hold more than $1.5 billion in equity accounts, an amount that continues to grow year after year, even as those equity investments are redeemed. That represents significant and growing future income for individuals and potential reinvestment across the region.

The moneys that are redistributed by FCL and our member retails stay in western Canadian communities and are, in turn, reinvested in all manner of community and individual development. This includes the development of new cooperative ventures, if that is where people choose to put their financial and human resources.

That is the essence of the cooperative model: people at the community level choose to develop themselves and their communities in the ways they see fit. We at FCL and our member-owners believe that we have always made, and will continue to make, these investments in people and their communities.

To use a poker analogy, we believe that the CRS and our individual member-owners have already paid our table stake in the growth of western Canadian communities. That includes our continued investments into the cooperative model that has proven its worth as an efficient and sustainable model for community and business development. Indeed, we believe that the CRS is invested well past table stakes; put simply, we believe that we're "all in". We invite you, as parliamentary leaders, to consider carefully ways that governments at all levels can design and implement appropriate policies, regulations, programs, services, and yes, even fiscal resources, when appropriate, to ensure that cooperatives can continue to thrive and contribute to this great nation.

Thank you for your attention, and we welcome your questions.

[The Chair, Conservative, Blake Richards]

Okay, thank you for your presentation.

We now will move to the Arctic Co-operatives Limited.

Mr. Morrison, you have the floor for ten minutes to make opening remarks.

[Andy Morrison, Chief Executive Officer, Arctic Co-operatives Limited]

Thank you. Good morning.

Mr. Chairman, members of the special committee, thank you for the opportunity to speak to you today. I compliment you on your efforts to review and explore the important role of co-ops, especially in this International Year of Co-operatives.

My name is Andy Morrison. I am the chief executive officer of Arctic Co-operatives Limited. Arctic Co-ops is a service federation owned and democratically controlled by 31 community-based cooperatives located in communities across the Northwest Territories and Nunavut. These 31 multi-purpose cooperatives are locally owned and democratically controlled by more than 20,000 individual owner-members in the north.

The first local co-ops in the Arctic were incorporated more than 50 years ago, at a time when many communities were established in the north. At that time the aboriginal people in the north lived a traditional lifestyle: they lived on the land, they hunted and fished for survival. Inuit and Dene people who lived in what was then the Northwest Territories were encouraged to move into permanent settlements. These settlements were very basic and may have included only a religious mission or a trading post. No housing or other services were available.

In these new settlements people continued to do what they had always done: they lived off the land. The difference was that the new settlements became a home base. In the new communities aboriginal people continued their tradition of working together and supporting each other. Gradually, they began to build their communities. They provided themselves with services. Ultimately, these services became the foundation for local businesses. The business structure adopted in many communities was the cooperative model, a model that was consistent with the traditional way of life of the Inuit and Dene people of the north.

The co-ops in the Arctic developed slowly. They struggled with a serious lack of capital, limited experience in business, and the great challenges of living in a part of Canada with virtually no infrastructure, extreme costs of operation, harsh weather conditions, and great distances. Co-ops persevered, however, in part with support and encouragement from government, and also with support and encouragement from cooperatives in other parts of Canada.

In addition to their efforts at the community level, local co-ops joined together to form service federations, enabling the co-ops to pool their buying power and develop common support services. Arctic Co-operatives Limited is that type of service federation. This year we are celebrating 40 years of local cooperatives working together through a federation they own and control.

To partially address the very serious lack of capital, the co-ops in the north also developed a financial arm, the Arctic Co-operative Development Fund. In 1986 the co-ops in the north, in partnership with the Government of Canada, represented by the Department of Indian Affairs and Industry Canada, along with participation from the Government of the Northwest Territories, helped to establish the Arctic Co-operative Development Fund. By working together locally, working together through their service federation, Arctic Co-ops, and working together through their financial arm, the Arctic Co-operative Development Fund, ordinary people across the north have built a successful network of local business enterprises. As multi-purpose enterprises, the local co-ops in the Arctic provide a wide range of essential services to their communities. Retail services are the largest business activity of the local co-ops. Full-service hotels are an essential part of the infrastructure in remote communities. Co-ops also provide services in the area of fuel distribution, cable television, Inuit art marketing, residential and commercial property rental, construction, heavy equipment, and various agency-type services.

The co-op system in the Arctic is a model of community economic development. These co-ops, while small in comparison to businesses in other parts of Canada, are major economic engines in the communities of the north. The early years were very difficult and development of the local co-ops was very slow and the network struggled to survive. But consistent with the experience of co-ops in other parts of Canada, the survival rate for co-ops in the Arctic is exceptional. If we look at the 26 co-ops that signed the incorporation documents of Arctic Co-operatives in 1972, 40 years ago, 77% of those co-ops continue in business today.

Compared to other types of small business in Canada, this is a remarkable achievement. It is especially remarkable when you consider the extreme conditions under which the co-ops in the Arctic developed and have continued to operate. Why is this survival rate so strong? We believe that it is because local co-ops chose to work together through federations that they own and control. Pooling their buying power, developing common support services, and supporting each other in good times and difficult times has enabled local co-ops to become the most important locally owned and controlled businesses in the communities they serve.

The co-ops in the Arctic provide much-needed employment. The local co-ops in the north employ about 1,000 people. Co-ops train and develop employees and elected officials. Co-ops build essential community infrastructure. Cooperatives invest in their communities. They return their profits to their owner-members. And co-ops provide ordinary people with a voice in the economy.

The cooperatives in the Arctic and in other parts of Canada are an important part of our national economic framework. Co-ops bring stability to our economy.

In addition to our business operations, we also provide support to groups that want to develop new cooperatives. We don't do this for economic gain; we do it to support ordinary Canadians as they build a better world for themselves and their families.

Cooperatives are ideal partners for government. We ensure stability and growth in our economy. The co-ops in the Arctic often partner with government to achieve common goals. I mentioned a few moments ago the highly successful partnership between the co-ops and various levels of government in the development and very successful operation of our financial arm of the co-ops in the north, the Arctic Co-operative Development Fund.

We are active partners with Aboriginal Affairs and Northern Development Canada in the development and delivery of the new Nutrition North Canada program.

We are currently partnering with the Canadian Co-operative Association, Gay Lea Foods Co-operative, and the Financial Consumer Agency of Canada to develop and deliver a financial literacy program in the Canadian Arctic.

We are partnering with Human Resources and Skills Development Canada in the skills and partnership fund for the development and delivery of a new, comprehensive training program for aboriginal co-op employees in the Arctic. And until next March we will continue to be an advisory services partner under the federal cooperative development initiative, or CDI.

Mr. Chairman, the co-ops in the Arctic are a unique and very successful part of the Canadian cooperative movement. Through the years, we have overcome many obstacles to become an important part of the economy in the north. We believe that cooperatives are an important option for developing our economy and for providing long-term employment. We believe that this is especially true in aboriginal communities across Canada. We are committed to partnering with the Government of Canada to build strong, self-reliant communities.

Thank you.

[The Chair, Conservative, Blake Richards]

Thank you both for your presentations.

We'll move right into questioning now.

In our first round of questioning we have up first Madame LeBlanc, for five minutes.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Thank you.

I want to begin by thanking you, gentlemen, as you have brought us very good news on cooperatives in these current economic conditions. It is encouraging to know that the cooperative movement is creating sustainable employment, helping to build communities and continuing to survive and provide communities with what they need—even in regions with sometimes extreme conditions.

You also talked about the new generation of cooperatives, which is necessary for companies to work. New cooperatives must be created. Could you tell me what kinds of challenges cooperatives are currently facing?

Perhaps Mr. Morrison could begin.

[Andy Morrison]

Thank you.

Certainly in our area of operation, the challenges are many. We operate, as I indicated, in very remote parts of Canada, and just everyday business is a challenge. However, that's life. That's our role, and we're committed to meeting it.

Some of the challenges we face include the development of people. You talked about succession. In a cooperative, we have, I believe, a greater opportunity for positive succession planning, whether it's in a leadership role or at the employment level. We have a constant pool of people we can draw on, from the leadership standpoint. Co-op members become the next leaders of a cooperative. Our challenge is to have training and education programs that will enable them to fulfill their roles and represent all of the members of their cooperative. We have a training program, and we support local leadership development.

We also are very committed to the development of co-op employees. In the north there is great competition for competent and stable employees.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

I have to interrupt you so that Mr. Tully or Mr. Huard can comment. Thank you.

[Glen Tully]

Sure.

From our standpoint, leadership development is one of our challenges going forward. Even as we try to create that leadership development, in many of the areas in which we operate in western Canada high-speed Internet is not available. So we have difficulty training potential leaders.

Certainly we face the same challenges any business in western Canada faces: the changing landscape, rural depopulation, and the fact that communities are changing. We very much focus our efforts on community. Community used to be how far you could ride your horse in two hours. Now community is how far your car will travel. Communities are getting much larger. We face these challenges as that landscape changes. We have to react to it.

I'd be remiss if I didn't say competition, competition, competition. Certainly in the food industry, where we operate, there are many more players. That makes us sharpen our pencils. Competition is good, and we'll deal with it. But that's a challenge.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Did you want to add anything, Mr. Huard?

[Vic Huard]

I think Mr. Tully covered it off. Thank you.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Okay.

What kind of a role do you think the government could play to help the cooperative movement—as a business model—continue that good work?

[Glen Tully]

I can speak to that a little bit.

All we're looking for is a level playing field. We'll deal with the competition, as I said, as a strategy, as long as we have the same rules and regulations the rest of industry has and as long as they are clearly defined so that we know when to make investments in certain areas and when not to make investments in certain areas. From our standpoint, as legislation or regulations begin to be changed or as changing them is thought about, all we're asking for is a voice at the table.

[The Chair, Conservative, Blake Richards]

Thank you very much. That concludes the round.

We'll move now to Mr. Preston. You have five minutes.

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

Thank you very much.

It was great to hear from all of you today.

I'm going to go a little bit further from where my colleague was on leadership development.

All businesses, of course, must spend time developing their next leaders. Mr. Tully, you told a great story about yourself. You started off at a local co-op in your own hometown and moved up through the chain, if you will. You made a great comparison that I hadn't thought of. In some of your co-ops, like yours, they are constituencies, much like ours, aren't they? Maybe they like you better than they like us. But you have to get there with the support of your friends. You're sent there with the support of your friends.

You talked a bit about leadership development. Mr. Morrison, you also talked about leadership development being a huge part. I don't think you were talking only about leadership development in terms of training employees in the co-op. I'm hoping that you were also talking about leadership development and training for other co-ops and the management of them.

You're a co-op made up of other co-ops. Am I correct? Your members are actual co-ops themselves. Tell me a bit about that leadership program and how you help other co-ops grow and strive.

I'll hear a little bit from Mr. Tully and then from Mr. Morrison.

[Glen Tully]

Thank you.

Yes, through our HR department we provide leadership training both on the employee side and the democratic side.

We like to think of our organization as two distinct groups. We have the operations people, who need to be at the top of the game. We have to have the best people running our cooperatives. On the governance side we have to have those individuals.

Of course we belong to CCA and our provincial organizations that support things like the co-op chairs at universities, etc. So we're developing a whole basis of leadership.

I think where we get frustrated the most is sometimes with the lack of knowledge of the cooperative model in the greater workplace.

Through co-op chairs at universities, through education through CCA, and through our own education programs at our grassroots level, we continue to develop that democratic understanding.

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

Super.

Mr. Morrison, you said you started off and you certainly struggled with many problems in the starting of the cooperatives in the north, because you start with other problems. Any business starting in the north, cooperative or non-cooperative, starts with those same types of problems. You went through your struggles; you worked together cooperatively to help solve them. You're now at the point where you have solved this level and are trying to grow still, and I imagine the training situation is the same. You're having to train your own employees to be good employees at what you do. Are you helping train other cooperatives to be as good as yours?

[Andy Morrison]

First off, I wouldn't say we've solved all of our problems.

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

No, but you've solved them to today's level.

[Andy Morrison]

We've progressed, certainly.

As a federation, we are very similar to Federated Co-operatives. Our members are other cooperatives, and our role is to support our member cooperatives in the development of employees and the development of their leaders, their elected officials, boards of directors. We have training programs in both areas to develop boards of directors to oversee the governance structure, and it is an ongoing process. It's a constant regeneration and development of leaders, as it is with co-op employees.

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

You said many other government agencies are also cooperatively helping. You mentioned HRSDC, there's certainly Aboriginal Affairs and Northern Development Canada, and I know you even mentioned Gay Lea Foods as somebody who's helping you do other projects. What other government agencies are you also dealing with in some way?