Special Committee on Cooperatives Committee on July 26th, 2012

[An hon. member]

I can understand that.

[Vic Huard]

I don't mean to diminish the importance of the meetings, but you have to provide good business, good services, good products, but also let people know that the community matters and the mission of the organization matters. As they mature in the cooperative, their family grows up and they have a bit more time on their hands, they become more involved.

I think one of our great competitive advantages is that it's almost impossible for our competitors to match that kind of personal commitment and passion.

[The Chair, Conservative, Blake Richards]

Thank you very much.

We have concluded the second round of questioning, but we do have time for one more round. We will go to Mr. Preston.

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

Thank you very much.

Mr. Tully, you talked about how you moved up and were elected to the board of directors system by being at a meeting. That occurred to most of us because we missed a meeting.

I want to talk a bit about the decision-making process. You've seen it from the absolute grassroots through to the head of an organization the size of yours. One of the things we're hearing a lot from the cooperative movement is on the ability to manage risk in a far different way from most for-profit organizations, if you will, or other corporations would do it, that a one-member, one-vote system truly gives you a built-in cushion on a risk factor because there are that many minds thinking about the risk each time a decision is made. I'll ask you to verify that.

Obviously you've taken decisions up to a board level to try to get something moved, and then sometimes it doesn't happen because the one-person, one-vote system tells you that was the second-best idea that day. Is that a typical pattern? Does that happen?

[Glen Tully]

I would like to make one point of clarification. Certainly at our retail levels it is one person, one vote. But as you move up to what we call second and third tier cooperatives, which we are, there is a democratic representation on the basis of their purchases from us. So even though it's not one member—

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

But it's still—

[Glen Tully]

--it still brings more minds to the table, exactly. It is very much driven by the community. Co-ops exist to provide benefits to their membership. By benefits, I mean products, goods and services that maybe are not attainable in the community without that cooperative, or at a price the members are willing to pay. That's the reason cooperatives exist.

I operated a farm. Why did I belong to my local co-op? It's because they provided the goods and services I required when I needed them. The head office was in my local community, so I had a direct line to say “I need this today”.

The responsiveness of a cooperative model to the community I think is underestimated. In being part of that democratic process, it's phenomenal.

[Vic Huard]

You touched on risk management. If I may take a moment to speak to this, from the operational side, separate and apart from the democratic side, as you can appreciate, with an operation of our scope, we have a comprehensive enterprise risk management framework we work within.

One of the advantages we have as a cooperative—and again I will reflect on something Lyndon Carlson, from FCC, was saying—is we're not beholden in our system to the tyranny of the quarterly forecasts and reports. We're not beholden to analysts in certain financial sectors. We're certainly cognizant of doing well, but we can take a longer time horizon on a number of our investments. The refinery complex is an example of that. We're not being judged by a group of shareholders or directors who are saying we didn't meet a quarterly....

I will reflect on a headline I saw recently that Apple disappointed its analysts because it only had a $8.8 billion profit in the last quarter. I confess to being somewhat befuddled by that, but it's an example of the tyranny of the quarterly, as we call it. We're not beholden to that tyranny, nor are other cooperatives.

I think that's a very important distinction. It allows us to take a very different time horizon on risks, investments, and operations that other organizations don't have.

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

It would also reflect risk in the sense that had the decision by a good group of brains in a room.... And Mr. Tully, you mentioned that your board of directors is right there in your own home town sometimes, and I'll give you that five guys meeting in your drive shed gives you a board of directors meeting sometimes too. But the real piece here is your risk. Even at that level, if a group of people had said no, we're not moving forward with the refining process, and because they were in the majority they had said no, that's too much risk for us, cooperatives are able to deal with that. They're able to deal with the disappointment of the group of people saying no, it's too much for us at this moment, maybe in another year or two, or maybe something else. So you move on to another decision and continue to make dividend profits for your members in a different way, with perhaps less of their equity at risk.

[Glen Tully]

Yes, I would agree that not every project that comes to the board of directors is necessarily approved in the form that maybe our operational people wanted, and it's because of that reflection back on what do our member-owners expect. It might be they expect less of a return, or they might expect more service.

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

As you mentioned, Mr. Huard, that—

[The Chair, Conservative, Blake Richards]

I'm sorry, time has expired.

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

I didn't even look back this time.

[The Chair, Conservative, Blake Richards]

I saw the eyes in the back of your head, though, so those ones I got.

That does conclude the time for this panel as well. I want to thank all three of our panellists, Mr. Morrison, Mr. Tully, and Mr. Huard. Thank you very much. It was very informative for all of us and it was much appreciated. I appreciate your taking the time to be here today.

Now we will suspend the meeting until 1:45.

[The Chair, Conservative, Blake Richards]

I call the meeting back to order.

We have a fairly full panel, and it looks as if we have a good group here as witnesses this afternoon. We're looking forward to hearing from all of you.

First of all, we have with us, from Encorp Pacific, Mr. Neil Hastie, the president and CEO. We have, from Mountain Equipment Co-op, Ms. Shona McGlashan, chief governance officer, and Ms. Margie Parikh, vice-chair of the board of directors. Joining us by video conference from lovely Olds, Alberta—the birthplace of many notable individuals and some not so notable, such as yours truly—from the Alberta Association of Co-operative Seed Cleaning Plants, Mr. John McBain, who is the vice-president.

Can you hear us all right, Mr. McBain?

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

Yes, loud and clear.

[The Chair, Conservative, 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.

[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.

[The Chair, Conservative, 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.

[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.

[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.

[The Chair, Conservative, 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.

[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.

[The Chair, Conservative, 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.

[Hélène LeBlanc, NDP, 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?