Special Committee on Cooperatives Committee on July 10th, 2012

[Michael Barrett]

Yes, you certainly are correct, and certainly Denyse Guy, executive director of CCA, also was the executive director of the On Co-op, and she would be one of the first to say that the On Co-op used to meet very frequently with FISCO on the Ontario level. The sad part is that the individuals on the cooperative panel changed probably at least every six months or 12 months, and therefore you had to go through the education process. I dare say Denyse has probably educated at least 10 sets of individuals.

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

I would say she has, because she has educated some MPs, so I'll give her credit for that too. I know it happens.

I can't take blame for those, and I won't take blame for those, but I will take blame when governments of any level don't understand the cooperative sector and are offering services to it much like the development agency, so you've hit a nerve there. We'll talk. We'll see what happens there.

I have just a couple of quick questions. If I get into something that's proprietary or too much off your balance book, let me know.

You said you give 40% of your profit back to your members. That's a pretty good number each year. I take it the other 60% goes back into your business.

[Michael Barrett]

Correct.

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

So basically you're investment funding and paying off whatever you borrow. I think one of my colleagues asked you about this. I'm a dairy farmer and you're buying my milk, or DFO, I guess, in fact is buying my milk and then selling it to you. So I'm making money as a dairy farmer, but I'm also making money as a member of the cooperative. I have an ethanol plant in my riding, and many corn farmers are members. I think some days they think they make more money from the ethanol plant than they make on selling their corn. That may very well be the case.

In your case, where is that in the mix? Is the farmer's income in selling you milk, or is their income from being a member of your cooperative?

[Michael Barrett]

Certainly, the farmer's income is in selling the milk. That's for sure.

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

But it's a pretty good piece, the money made on the dividend?

[Michael Barrett]

Yes, the money made on the dividend is certainly a very good return for the investment. I wish my RRSPs were making as much as my farmers are making on the patronage.

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

You need to invest more in your own co-op, apparently.

[Michael Barrett]

I need to become a dairy farmer.

[Voices]

Oh, oh!

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

See, you'll learn each industry as you go through it. You know how they're doing now.

Mr. Friesen, on your piece, you talked a bit about your suggestion of taking that top tier off AgriInvest or pot B or plan A, or whatever we call it, and making it tax free, provided it is going into something. Who are you suggesting makes the decision on which investments would be tax free and which ones wouldn't be?

[Bob Friesen]

I think the projects should be pre-approved by, say, the agriculture department, together with agricultural organizations.

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

You're suggesting keeping it within Agriculture—

[The Chair, Conservative, Blake Richards]

I'm sorry, Mr. Preston, but your time has unfortunately expired. We'll have to let you have another chance another time.

I have in this second round of questioning Mr. Butt for five minutes.

[Brad Butt, Conservative, Mississauga—Streetsville, ON]

Thank you very much. I've learned a lot. It's certainly not a sector, the agriculture sector anyway, that I have any great knowledge about, so I appreciate learning a lot more about how you operate.

Mr. Friesen, would it be fair to say that the way the NFA works, you're basically a bulk purchaser for farmers? Is that really how the system works? You go out and you negotiate buying x tonnes of fertilizer, which then your members would avail themselves of, at, I'm assuming, a better price than they would get if they were going to a supplier directly on their own to get it. Is that generally how the concept works?

[Bob Friesen]

Conceptually, that's how it works, but it doesn't technically work exactly like that because FNA, the farmer membership organization, is basically the tool that negotiates. FNA itself did not import fertilizer from Russia. That arrangement was made together with an input supply partner. So farmers' money was never put at risk with the ship of fertilizer coming over. The FNA organization does the negotiation, but then the financial transaction is done directly between the farmer and that input supplier.

We also have a whole host of preferred suppliers. If you go to Rona, you get an FNA discount. If you go to, say, NAPA, you get an FNA discount. We're also affiliated, or we have a partnership, with a generic pesticide input supply partner. They have registered some generic pesticides.

So conceptually, yes, but there are some intricate differences in how you describe it.

[Brad Butt, Conservative, Mississauga—Streetsville, ON]

Gay Lea has been telling us essentially that they pay a dividend back out to their members. Is that the same in your organization, or is it just on getting a better price for the input side of it? Does your organization work in a similar way? Are there dividends at the end of the day? Is there actual money flowing back to your members from the work you are doing?

[Bob Friesen]

Typically, the way it works is they get the discount upfront, immediately. In the case I used earlier, when that generic was introduced, our members got Aurora for $10.75 an acre, when Horizon, the original pesticide, was selling for $21 an acre. So they got the discount right upfront. Again, that was not related to the discount that a farmer who was using fertilizer would get. They're all specific.

There was a problem, however, and what we're now doing is we're going to an empower reward system, and I'll tell you why. What happened is the farmers with all the skin in the game were also creating discounts for farmers who had no skin in the game. So in the case of this $10.75 for Aurora, we found out that over a period of 30 days, $60 million in discounts happened in related projects, so farmers who weren't members also got the benefit of what was happening at FNA. We're being less price-transparent now. We are giving a certain amount of discount right upfront, so the farmer members know they're getting a discount, but then the rest of it accrues back in empower rewards. So it's a little less transparent. If you want the benefit of the discount, you have to become a member.

[Brad Butt, Conservative, Mississauga—Streetsville, ON]

My last question, for Mr. Barrett, will be about how Gay Lea operates.

When I walk into the grocery store, I can get Gay Lea or I can get Nestlé or I can get Neilson, or whatever the competitors are. As far as how they operate in a for-profit traditional business model versus yours—I guess you're for-profit too—is there any difference in how you operate as a corporate entity versus those competitors in the dairy business? Or is it strictly just the co-op model that is different?

[Michael Barrett]

Certainly, first of all, I hope you wouldn't be reaching for those other products. Second, we are still governed by the same business laws, etc. Where the difference comes is in the governance model we operate and where the profits go. These profits don't go offshore to nameless investors. They go directly into the rural community.

[The Chair, Conservative, Blake Richards]

Thank you, Mr. Butt.

That concludes our second round of questioning. We still have a little bit of time, so what I'm going to do is move into a third round of questioning. There will be time, obviously, for two members. I have, first on the list, Mr. Hoback.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair.

Again, thank you, witnesses—

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

Mr. Chairman, if you do three, we'd have three minutes each.

[The Chair, Conservative, Blake Richards]

This is what I have as the order we followed in the second round. We could provide the Conservatives with two minutes for three and the NDP with one for three, but I'm sure they wouldn't agree to that. I think it's probably best that we stick with what we have. We have Mr. Hoback and then Madame LeBlanc for five minutes each. Well, it's probably only about four minutes each at this point.

I'll allow four minutes for you, Mr. Hoback, and four minutes for Madame LeBlanc.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair. I'll try to be quick.