Special Committee on Cooperatives Committee on July 26th, 2012

[Dan Harris, NDP, Scarborough Southwest, ON]

There is always room for improvement, so if that program had continued, do you have any suggestions for ways in which it could have been improved?

[Andy Morrison]

I know the cooperative sector has looked at a number of different options in terms of one being a capital pool or co-op development fund. We have first-hand knowledge of the benefits of a pool of capital to develop businesses, particularly in areas that are underserved from a financial institution standpoint, or areas that are challenged from a capital standpoint. The most recent version of the co-op development initiative we thought was an improvement over the initial years of the program. We thought that just with ongoing tweaking and working with the cooperative system constant improvements could be made in the program. I'm not suggesting anything dramatic, but just through use you can improve things.

[Dan Harris, NDP, Scarborough Southwest, ON]

We should always be looking at tweaking government programs that exist to make them better and serve our communities and Canadians in a better way. Thank you very much for that.

Another point that you mentioned was how cooperatives bring stability to the economy. In rural and northern and very remote areas, one little thread comes out and everything can fall apart. Can you elaborate perhaps on the type of stability that co-ops bring to northern communities?

[Andy Morrison]

A good analogy, a good example, is the Inuit art marketing. Many of our member cooperatives began as producer cooperatives marketing the art produced by their owner-members. The cooperative network has been involved in art marketing for more than 50 years, and we have been the constant throughout that process. Unfortunately, art marketing is something that when the economy goes up the market goes up, and when the economy goes down we see the market going down. But because cooperatives have been there, we have been able to provide that stability in the market. If we weren't there, we don't know that the industry would be in the position it's in today. It is experiencing difficult times because of the economic conditions, but it continues. Would it have continued if there was not stability?

[The Chair, Conservative, Blake Richards]

Thank you very much.

[Dan Harris, NDP, Scarborough Southwest, ON]

Thank you very much.

[The Chair, Conservative, Blake Richards]

We'll now move to the government side. Mr. Boughen, you have the floor for the next five minutes.

[Ray Boughen, Conservative, Palliser, SK]

Thank you, Mr. Chair.

Let me add my voice of welcome to my colleagues, and thank you folks for being with us this morning sharing your expertise.

Vic, let's start with what's happening in Saskatchewan. Perhaps you and Glen could share with the committee the position you've taken with the University of Saskatchewan in looking at the community perspective in terms of what's happening to the environment and how we're dealing with it, and all of those good things.

[Vic Huard]

We have relationships with a number of universities across the west, but specifically with the University of Saskatchewan. It's very multi-faceted, actually.

We're one of the largest funders, the second-largest funder, I believe, of the Centre for the Study of Co-operatives at the University of Saskatchewan. We believe that it's a very important program. It is a significant value-add to the understanding of cooperatives and cooperative infrastructure across Canada, and even internationally. It's an internationally recognized institution. It's an area where we think there's an opportunity for further partnerships with governments.

We have a very robust relationship with the Edwards School of Business at the University of Saskatchewan. We hire a lot of their students on our cooperative program. And we're the lead sponsor of the students' society there.

On the environment and technical services side, which I happen to be responsible for, we have a very comprehensive relationship with the Canadian Light Source Synchrotron. We're working on a number of very innovative projects on bio-remediation on the petroleum piece. In fact, we just entered into a very exciting partnership on a new anaerobic process that we believe is going to be leading-edge worldwide, and that will be a technology that can be exported. We're working very closely with the University of Saskatchewan garnering NSERC grants and SR and ED grants, which is a program we partner with extensively with the federal government. We're very grateful for it. We think it's an excellent program.

So yes, we have a high-level relationship with the University of Saskatchewan, as we do with several other universities across the west.

[Ray Boughen, Conservative, Palliser, SK]

Sure.

Glen, can you talk to us a little bit about carbon capture and what's happening with that program?

[Glen Tully]

It's probably not an area I'm most comfortable talking about, because it's very much on the operation side.

From a governance and board of directors aspect, we're very conscious of the regulations around carbon and carbon footprints. It is our policy and our instruction to our operational people that we keep the environment first and foremost in mind as we move forward. From the governance side, that's about all I can say.

I know that we have very innovative programs. We have great relations, usually, with the provincial environmental organizations. We are back and forth daily on how we can improve this, how we can reduce the usage of fuels, and how we can be environmentally responsible.

[Ray Boughen, Conservative, Palliser, SK]

Andy, I have a question for you.

The revenue stream in the north is much different from revenue streams in the south. Can you tell us how that's working out for you in terms of the phenomenal growth of co-ops and credit unions in the north? Is there a secret formula you're using to make that happen? Can you let us in on that?

[Andy Morrison]

First off, there are no credit unions in the north. There are just cooperatives. One of the challenges of the north is the lack of financial services.

I certainly don't believe that we have a secret formula. The north is somewhat of a captive market in terms of the shopping and so on that takes place. The communities of the north are highly dependent on government and government employment. But most recently they have become very dependent on resource development. There are a number of major projects taking place in communities across the Arctic that are having a very positive impact on cooperatives in particular.

Cooperatives are service entities. We meet the needs of community residents. We meet the needs of government. We meet the needs of business, and we meet the needs of the resource industry. It is adapting to try to be there to meet those needs. That's what we strive for on an ongoing basis.

[Ray Boughen, Conservative, Palliser, SK]

Sure. Thank you.

Thanks, Mr. Chair.

[The Chair, Conservative, Blake Richards]

Thank you very much.

We'll move now to Madame Brosseau, for five minutes.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

I'd like to thank you all for being with us this afternoon.

We touched briefly on the cuts to CDI. I was just wondering how the Federated Co-operatives see the cuts to CDI. Is this something that could be more difficult for up-and-coming cooperatives in the future?

[Glen Tully]

I'll make some comments, and then Vic can add to them if he wants.

We didn't participate in the funds from CDI. As Vic indicated, we represent the consumer cooperative movement. We feel, from Federated Co-operatives, that we're, as he used the term, “all in” in developing consumer cooperatives in western Canada. That's our core. That's our strength. That's our knowledge.

We never accessed funds from CDI, and really don't see, as a consumer cooperative movement in the west, that we would. That is why we belong to organizations such as the Canadian Co-operative Association and the provincial organizations in the four western provinces that look at the greater cooperative movement and what their requirements are.

I would suggest that what CCA is suggesting to you would be our position on CDI for the greater cooperative movement. For the consumer cooperative movement, we don't see that we require CDI.

[Vic Huard]

If I may, I would add only one thing, and it's to reflect somewhat on your questions for Andy. This is certainly something I know our apex organization, the CCA, and certainly the Saskatchewan Co-operative Association are aware of. There are significant opportunities, whether it's a consumer cooperative or any other type of cooperative, to work with first nations and Métis communities across the west in cooperative development. It's similar to what's happened in the north. When I spoke about possible frameworks and regulatory environments, that's one I would urge you to look at, however the program evolves. And we recognize that programs evolve and change, but I think that's one area of significant opportunity around economic and personal development we'd like to see explored. I suspect that you'll be hearing from the CCA on that one.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

Thank you.

Mr. Morrison, we really see the positive impacts of co-ops in the north. They are very successful. I was just wondering if you could comment on some of the barriers facing traditional businesses in the north.

[Andy Morrison]

Certainly the greatest challenges we face are just our distance, our conditions, the lack of infrastructure in communities, and transportation networks. There are many, many challenges.

Some of our other challenges are education levels. Education levels are increasing all the time in the north, but there's lots more to be done. Certainly part of the role we play in the development of co-op employees and co-op leaders is to try to address some of the needs as far as education and training are concerned. Those are some of the challenges.

Another very significant challenge to any kind of a business in the north is utilities. Particularly in the territory of Nunavut, electricity is diesel-generated, and the cost of electricity can be as much as $1 per kilowatt hour. Consider that the cost of electricity in Ottawa is, I believe, probably 10¢ to 15¢ per kilowatt hour. It's about 7¢ or 8¢ in Manitoba. When you pay $1 or 75¢ a kilowatt hour, it is a huge barrier to food security. The cost of electricity has to be passed on to the consumer, and the availability of food is threatened as a result of that. That's just one example of infrastructure challenges in the north.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

I can say that some of my colleagues met with the UN special rapporteur when he did a tour, and food security was a great concern. We did hear of that specifically in the north—access to food and transportation.

I was looking on your website. It said that when people think of co-ops, they think of retail co-ops, because that's how they get their food. You have a merchandising division that provides procurement services to help reduce the cost of buying groceries. It ensures that members have access to fresh food, milk, and some meat.

How do you see the future relationship with the federal government? We would think that consultation is very important and necessary. There wasn't much consultation done before the cuts to the CDI at all, was there?

[Andy Morrison]

Well, certainly there wasn't at our level. I can't speak for the consultation that took place with the Canadian Co-operative Association. Certainly we felt that the CDI program was offering value or benefits, particularly in the area we serve, which is rural and aboriginal communities, and we thought the program was beneficial.

[The Chair, Conservative, Blake Richards]

Okay, thank you very much. Time has expired.

We'll move now to Mr. Lemieux.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Thanks, Chair.

Just to follow up on your last comment, Andy, we felt that CDI was extremely valuable too. It ran for two five-year terms, was funded, and I think we've seen the fruit of it. When we spoke with Quebec cooperatives yesterday, we learned they had 595 new cooperatives form over a five-year period. We've heard sort of a similar story across Canada. When we hear about the financial stability and financial strength of cooperatives and how they create jobs and are embedded within our local communities, this is all extremely positive.

Madame Brosseau said we cut the program, but the program just arrived at its natural end. Programs have a term, and it's at the end of its five-year term. It was not renewed, it's true. But to echo a comment I made yesterday, the government finds itself in a $23.5 billion deficit, and I know that many of the co-ops that have come in front of us do not operate in deficits. If they did operate in a significant deficit like that, which is somewhere in the range of 7% to 10% of government revenues, I know that their membership—and each member has a vote—would demand that the cooperative review its expenditures and get out of deficit. Actually, Canadians ask the same of us. One Canadian over the age of 18 has one vote too, so we're very responsive to our membership in a sense—Canadians—and they are demanding that we review our programming. We do realize the value, and we also see the fruit that has come, and the government is unable to sustain all the expenditures it made in the past.

I do want to move on, though, to a question to Mr. Tully about some of your capital investments. It was in the billions of dollars. I don't have the number at hand, so you can remind me during your answer. But the question I'd like to ask is where did that capital funding come from? The funding to invest in expanding your operations, was it partly taking some of the revenue and putting it aside in a capital fund, allowing it to grow, reinvesting it? Did you seek funding from alternate sources, like financial institutions? Could you remind us of the magnitude of your investments and perhaps where you sought the needed capital?

[Glen Tully]

Thank you for the question.

I guess this started out with a request for expenditure to increase the capacity of the refinery, and that started out as a $1.9 billion project that has now grown to a $2.6 billion project. As we moved forward, we knew that our reserves and the earning potential wouldn't cover that, so we had to outsource. We actually have a syndicated loan with chartered banks and some of the other participants you've had around this witness table, to fund that expansion. That was fine. We're large enough and the project is going to be significant enough that they're willing to participate in that, so we're quite excited.

With regard to the other capital projects, we're probably going to put in close to $3.5 billion with that refinery expansion. And then of course you have to have some place to send that product to, so you have to build corporate bulk plants all across the west; you have to have facilities and the equipment to be able to deliver it out to the consumer, so there's a significant investment. Some of that is of course being funded through reserves, profitability, through our member retails who also have reserves and profitability. They make investments.

So together, that's the size and scope of our operations.