Good morning. It's a pleasure to appear before the Special Committee on Cooperatives on behalf of Farm Credit Canada.
My name is Lyndon Carlson. I'm the senior vice-president of marketing at FCC. With me today is Michael Hoffort, our senior vice-president of portfolio and credit risk.
We appreciate the opportunity to talk to you about the cooperative sector in Canada. Cooperatives have a proud heritage. They have played a major role in Canada in rural communities for more than 150 years. FCC is pleased to be able to partner with cooperatives and their members, who operate in every region in Canada.
From our perspective and observation, the spirit and values cooperatives represent are alive and well in rural Canada. They provide an opportunity for producers to work together towards a shared vision of cooperation and positive business outcomes.
Before I share more with you about the role we play with cooperatives and the many productive partnerships we have established over the years, l'd like to tell you a little bit more about FCC.
FCC is a commercial crown corporation. We offer a combination of financing, insurance, information and learning products, and management software.
Our sole focus is agriculture. We lend to agriculture in all sectors, in all geographic regions, and to all sizes of operations and business models. Our mandate is to ensure that the agriculture industry has ready access to capital to withstand the unique challenges and opportunities facing producers over the long term, through good times and challenging times.
More than 100,000 customers choose to do business with FCC. Our offices are located in a hundred communities across Canada, where we are accessible to customers and close to all aspects of agriculture. Many of these customers are clients of cooperatives.
While the majority of our customers are primary producers, we also have customers whose businesses provide products and services throughout the agriculture value chain.
Many of our customers are cooperatives, and they represent an important part of our lending program. The cooperatives we work with operate in most of the agricultural sectors, including crop inputs, beef, dairy, and agrifood. I would like to highlight a few of them, as follows: Federated Co-operative Limited, United Farmers of Alberta, La Coop fédérée, Co-op Atlantic, and Agropur. These five cooperatives are among the largest cooperatives in Canada, serving millions of Canadians. Combined, FCC has credit facilities in place for these cooperatives in excess of $185 million.
In western Canada, through our partnership with Federated Co-operative Limited, FCC works with retailers in 194 locations to help Federated Co-op provide crop inputs to customers across western Canada.
United Farmers of Alberta provides crop inputs through 38 locations in Saskatchewan and Alberta. UFA has over 120,000 active owners.
In Quebec, La Coop fédérée has 90,000 customers who have access to financing to purchase crop inputs through FCC.
Co-op Atlantic is the second-largest regional cooperative wholesaler in Canada and the largest cooperative in Atlantic Canada. It is owned by more than 100 cooperatively owned businesses across the Atlantic provinces and the Magdalen Islands.
Agropur in Quebec serves more than 3,300 dairy farmers, who produce more than 3 billion litres of milk that is processed annually in 27 plants spread throughout Canada, the United States, and Argentina.
In addition to these larger co-ops, smaller cooperatives also play an essential role in advancing agriculture across the country. Over the years many of these smaller cooperatives have approached FCC in search of the right partner to meet their unique financing needs. We listened, recognized the gap in the marketplace, and responded with a lending approach designed specifically for them and their members. As a result, they and their members have been able to grow and prosper.
A great example of these small cooperatives are those that represent Canadian cattle producers. Cooperative members are able to access financing through FCC to purchase cattle at the point of sale.
I would like to share a few examples of such cooperatives that we finance.
Foothills Cattle Co-op is located in Alberta and has a membership of 318 producers and extends into British Columbia and Saskatchewan. Over the life of its involvement with FCC, $184 million has been advanced to assist its members in purchasing cattle.
Similarly, Athabasca Heifer Co-op, in Nestow, Alberta, has accessed $24 million to assist 65 members.
In Ontario, members of the Eastern Ontario Feeder Cattle Co-operative have accessed $31 million through FCC to advance the cattle operations of its 18 members. These are significant dollars on a per-member basis.
In a little over a decade FCC has provided over $1 billion to members of over 30 partner cooperatives located across Canada, from Prince Edward Island to British Columbia, to facilitate member purchases of primarily livestock and crop inputs.
This represents a sample of the network of co-ops that FCC serves across the country. These examples demonstrate there is a clear need among cooperatives and their members for specialized financing. Because agriculture is our sole focus, unlike any other financial institution, we have taken the time to understand the needs of cooperatives big and small and responded to their specific lending needs. We believe these financing options have helped them strengthen and grow their businesses.
Credit unions are also an integral part of the Canadian financial system and continue to have a strong presence in rural Canada. FCC is working actively to develop a closer relationship with the Credit Union Central of Canada, provincial central organizations, and individual credit unions. We currently are part of a national liaison committee that includes credit union representatives from Ontario, Saskatchewan, and Manitoba. The committee shares information, works to resolve issues, and discusses opportunities to work together.
At this point, I would like to respond to the comments made by the Credit Union Central of Canada on July 10 to this committee with respect to FCC's mandate. FCC does not believe the Credit Union Central of Canada's request for a legislated mandate review is necessary. We believe this because we have heard first-hand from our customers and others across the industry that agriculture as a whole benefits from FCC's presence in the market in a competitive role.
FCC's mandate is to ensure that producers have sufficient access to capital to take advantage of the opportunities and withstand challenges over the long run. We are fulfilling our mandate and meeting the needs of our customers. This is why 100,000 customers across Canada choose to do business with us. Customers say they choose FCC because of our industry knowledge, the strong focus on building relationships, and the flexibility we provide. We take time to listen to our customers' ideas and concerns. Finally, FCC products and services are tailored to meet the unique needs of agriculture.
We believe that healthy marketplace competition and a choice of financing options is good for all Canadian farmers. Even those who are not FCC customers tell us that FCC's presence provides producers with more financing choices. They know FCC is a strong and stable financial partner who will support the industry over the long term. In the end, the agriculture industry, other financial institutions, and the Canadian economy benefit.
FCC is proud of the contributions we have made to support the agriculture industry for more than 50 years. We believe the main reason we've experienced success and enjoy strong customer support, growth, and retention is the customer experience we provide. Many of our employees have agriculture backgrounds, and they are passionate about the industry and deeply committed to the success of our customers. As a result, the satisfaction of our customers is second to none. We know they have choices and we must continue to do an outstanding job every day to earn their business.
The Canadian cooperative movement has and will continue to play an important role in rural Canada. FCC is well positioned to provide financing approaches that are flexible, innovative, and adaptable to the evolving needs of cooperatives and their members. As a leading provider of agriculture financing in Canada, FCC is an important and critical financial partner to the agriculture industry. Ultimately, the sustained health of Canadian agriculture and the producers who bring it to life is what is important to FCC. We believe in agriculture, we stand for the success of our customers and producers across Canada, and we stand ready to serve the industry for the long term.
Thank you for the opportunity to speak to you today. I look forward to any questions.
Thank you, Mr. Chair and members, for inviting Vancity to be part of this important study into the opportunities and challenges facing the cooperative sector in Canada.
My name is Rob Malli, and I am the chief financial officer and current acting CEO of Vancity, based in Vancouver, British Columbia. Today I will be speaking from the perspective of credit unions at the national and provincial levels as well as Vancity. Please allow me to begin by spending a few moments talking about credit unions in general.
It is clear that your constituents find value in cooperatives through the growth that has been achieved throughout Canada. With membership currently at 5.2 million, and membership growth surpassing population growth, assets in financial cooperatives reached $140 billion by the end of 2011. This is roughly the same size as that of the National Bank of Canada, the sixth-largest bank in Canada.
We see this as positive from a market competition standpoint and in terms of being a significant contributor to the current health of our financial services industry. This is an important distinction in the cooperative operating model. We grow to support the communities and members we serve, which in turn sustains the long-term viability of the credit union.
Since 1946 Vancity has known that members make us who we are. This started with the provision of banking services to those in the community who weren't served by existing financial institutions. As a cooperative, Vancity is driven by the needs of its members, which has resulted in the provision of many firsts in its early beginnings, including being the first in Vancouver to write mortgages east of Main Street, at the time a working-class community that wasn't considered a desirable place to lend, and being the first financial institution in Canada to underwrite mortgages to women without a male co-signer.
This ability to work with the needs of the community serves us well today, and has allowed Vancity to be an innovator in providing real-time solutions to community issues in such areas as affordable housing, local food systems, social enterprises, energy and the environment, and financial literacy, just to name a few.
One recent example is a real estate development in downtown Vancouver. In 2010 we took over this real estate development as collateral when the developer went bust. We worked with a local partner to create 60 West Cordova, an innovative development that is a prototype for affordable home ownership in Vancouver. It was geared towards those who had modest incomes but were restricted by Vancouver's housing prices. With prices up to $150,000 less than nearby properties, we took a different approach to design, development, and financing, and used specialized mortgage solutions and preferred rates to increase affordability while still adhering to sound risk management principles.
By keeping our focus local, we invest our capital in the same locality where we earn it. This concept resonates well for our membership, and has made the Vancity brand very appealing. Our focus on making impact in the community has attracted a lot of members. Roughly one in six people in our market choose to do business with us. Of note, the majority of them would be welcomed by traditional financial institutions. They choose Vancity as a banking alternative not only because of our products and services, many of which would be termed mainstream, but also because of our innovative model and connection to the places where they live and work.
With this support over the last six and a half decades, Vancity has grown to become Canada's largest credit union, with assets of $16.1 billion, and 59 branch locations serving over 479,500 members and employing about 2,500 people.
But at Vancity, these members are not just the people we serve. These members are the people at the helm who guide us on our journey by electing members to sit on our board of directors or by becoming directors themselves. This democratic approach has been successful in driving Vancity's focus in providing our members with an opportunity to voice their concerns and have a say in the running and focus of the credit union, which is unique in the banking sector and exclusive to cooperatives.
Ultimately, Vancity believes that banking with the community in mind doesn't mean giving up product quality or value. We maintain our commitment to financial sustainability, social inclusiveness, and environmental responsibility while holding ourselves accountable to the member owners and ethical commitments.
On behalf of the British Columbia credit union system, I would like to thank the Government of Canada for introducing as part of the budget in 2010 a federal credit union option. While B.C. credit unions are successful financial institutions under provincial jurisdiction, we view the federal charter option as another means for interested credit unions to achieve their business objectives and enhance member services.
We are also pleased to see that the draft complementary regulations required to bring the federal credit union framework into effect were recently published in the Canada Gazette. However, the move to build upon our past success must also be measured against what we are required to surrender. Historically our strength has been the ability to take the credit union charter and leverage it to build communities and support local needs in both good times and periods of stress.
We share the government's concern about the conversion of equity to shareholders, which could be of short-term benefit to specific stakeholders, such as directors and management, and could water down the democratic processes that have made credit unions so successful in the past. We want to preserve this relationship with the community as a stakeholder, not as a single shareholder, to keep the Canadian financial institutional landscape strong.
One example of a somewhat different approach is the divisible versus indivisible capital structure seen in other countries, such as France and Italy. In this structure, capital is restricted and cannot be accessed by members or investors if it is privatized at a certain point in time. In essence, the concept of indivisible capital helps maintain a good capital base in times of systemic stress and/or credit losses, and it supports good governance that extends beyond the current membership and/or management.
In 2011 the United Nations recognized 2012 as the International Year of Cooperatives. To celebrate this distinction, Desjardins, Saint Mary's University, and the International Co-operative Alliance are hosting the 2012 International Summit of Cooperatives, in Quebec City, in October. Vancity is a sponsor. This event celebrates the success of cooperatives worldwide and promotes the development of sustainable solutions, including the potential for community-based cooperatives to deliver social services with better outcomes.
As an organization, we have learned from the impressive accomplishments of the Emilia Romagna region of northern Italy, where cooperatives account for one-third of the GDP. For the past ten years we've been participating in the cooperative studies program at the University of Bologna to learn about the potential the cooperative model offers and to enable staff to incorporate the cooperative values and principles into our strategies and everyday work.
The same fundamental elements can be found in our relationship with the Global Alliance for Banking on Values. In 2011 Vancity joined the Global Alliance for Banking on Values, a membership organization made up of 19 of the world's leading sustainable banks, from Asia and Latin America to the United States and Europe. These banks are bound by a shared commitment to finding global solutions to international problems and to promoting a positive viable alternative to the current financial system. These organizations believe that we must improve the quality of life for everyone on the planet, recognizing that we are economically interdependent and are responsible to current and future generations. We are proud to mention that two other Canadian credit unions have since joined: Affinity Credit Union, from Saskatchewan, and Assiniboine Credit Union, in Winnipeg. Together these organizations will work towards building momentum around sustainable banking, as it is our view that it has consistently delivered products, services, and social, environmental, and financial returns to support local economies.
Like credit unions, sustainable banks have played a positive role in supporting small and growing businesses over the long term, which has proven to be quite comparable to the financial returns of traditional banking models. The idea that you don't have to choose between your financial well-being and the health of your community is at the heart of our sustainable banking model. It is our hope and desire that the federal government recognizes the significance of this values-based business model and supports the movement as it becomes more widespread in the Canadian landscape.
Vancity has had the unique opportunity of working within a provincial regulatory environment, influenced by our favourable experience working with OSFI through our wholly owned subsidiary, Citizens Bank, which is a federal schedule I bank under the Bank Act, which we've had since 1997.
Although not required to do so, we have adopted additional risk management standards that go beyond provincial requirements in many areas, including in capital and liquidity management, as that complements our view on long-term sustainability in the best interests of our members.
What we do recognize is the inability or difficulty of remaining unique using a compliance-based regulatory approach to supervisory oversight. It is our desire to see government tailor their oversight programs to support and encourage our uniqueness, while adhering to a sound regulatory and risk-management framework. Recognition needs to be given to the fact that we are different. An appropriate OSFI-like framework needs to be created to preserve our capacity to deliver on community impact; we should not be forced into a regulatory landscape tailored to the banking industry. With this in mind, we believe that Vancity is a positive example of our ability to leverage the best of both worlds into a successful operating model: impact-based lending focused on community and the environment, driven by long-term viability.
Our relationship with the Kettle Friendship Society is an example of this in action. For decades, the Kettle Friendship Society has supported people with mental health issues with a drop-in centre; outreach and advocacy services; an on-site health clinic; and recreational, life skills, housing, and employment programs. When the society outgrew its rented facilities, it approached Vancity about purchasing a property of its own. Using a creative mix of first-mortgage financing and subordinated debt, Vancity helped the society purchase a 5,100-square-foot property. As a result, the Kettle Friendship Society has built its asset base for long-term sustainability and its peace of mind.
In conclusion, Mr. Chair, on behalf of Vancity I wish to thank this committee and your colleagues for undertaking this important study. Canadian cooperatives, including credit unions, are celebrating the 2012 International Year of Cooperatives. This reaffirms the fact that they play a vital role in building our country.
We hope that the insights provided in your final report will continue to promote and support cooperative contributions to our communities and ensure that our operating model is preserved for the enjoyment of future generations.
When you are in Vancouver, I encourage you to come by and let us show you the direct impact our activities are making in the community.
I thank you very much for the opportunity to present to you today, and I would be pleased to respond to any questions you may have.
I think what's important, and my advice to this committee and the government, is to look at other models that are operating effectively in terms of promoting, especially in the promotion of cooperative models. That's why I've pointed to Emilia Romagna in Italy, to France, and to other areas that have embedded the role of cooperatives in their constitution and have instituted legislation, etc., in a way that respects how cooperatives need to be governed, and they need to be understood and entrenched, to make them a viable alternative without issues or obstacles in the way. It also promotes the literacy of the general population in terms of the role they play.
There are certain sectors, especially the social enterprises, especially as government continues to reduce social services in certain respects, whether they're budget-constraint-related or whether it's fundamentally methodology-related. Social enterprises being cooperatives is a great example of where a cooperative model is more aligned at the governance level, at the mission level, to deliver those types of services that are truly in the interests of the people and you don't want to compromise with a shareholder model, which may provide adverse incentives and not the right level of service, etc.
Those are examples where I think it's extremely important that we understand before we develop a framework and structure.
The other thing is I think that cooperatives themselves, to be successful going forward, need to make sure they're using their governance structure and their mission in the proper way and not trying to be like somebody else. I think some cooperative credit unions are trying to be like banks, and that's not helpful to the cooperative movement or the system. With this legislation there's an opportunity to do that, which I don't think is the right thing to do. I think it has to be grounded in its roots.
Well, we wouldn't use it literally as collateral, because it's not a security instrument, so to speak, but we would certainly work with our customers on an individual basis to come up with a solution that will work for them.
We know that one weather event—for instance, this summer in southern Ontario—does not change the overall viability of that operation long term. If we need to make a loan to those people so that they can put in a new crop, through our crop input program, which is available to our customers, that's one thing we would do as a normal matter of course.
I also want to let you know about a couple of other things we've done, illustrating flexibility. One of our products that is utilized by farmers across Canada all the time is a thing called a “flexi” feature. What that permits a customer to do, at their choice, if they choose that feature, is to ask for a payment holiday, and we will grant it. We don't have to debate them over that. We build the feature right in. That customer does not have to come to us with hat in hand, asking us about this. It's a feature of the product. If they need to have a payment holiday for this fall, we would grant that payment holiday and they'll make their payment next year.
The other thing we've done, with weather events in particular, whether it be flooding in western Manitoba and eastern Saskatchewan, where crops could not get planted.... Multiple times in the last decade we have proactively sent out letters to our customers granting them a payment adjustment without their having to come in and ask for it. We proactively say that we know what they're facing and we're there to support them in difficult times.
When we look at southern Ontario, we haven't introduced at this point what we call our customer support program, but once we see the impact, if it's across a larger area where we need to take a general action.... We've done that many times in the past.
Thank you for being here today.
I would just like to follow on with the financial-type questions, because I think we're fortunate to have two financial institutions here that are involved in lending.
One of the repeated comments we've heard from a number of different witnesses concerns access to capital financing for co-ops. There's been sort of a general impression that co-ops are disadvantaged over perhaps small businesses when they go to seek loans. It seems to be, in a general sense, because there's a misunderstanding of what co-ops are. There's a misunderstanding of how they're organized, what their structure is, etc. My feeling is that it's probably a bit more than just a misunderstanding. My guess is that there might be some legalities involved here in terms of access to capital.
My question kind of follows up on a question I asked yesterday. If you have a small business, you don't have a lot of capital either. It's a high-risk endeavour for a bank, perhaps, or a lending institution to finance a small business. What I want to get a sense of, from each of your respective institutions, is whether you see co-ops as being disadvantaged in some way because they are co-ops. Or is it more that we assess risk based on a number of different factors, and those factors are applied equally as much as possible, whether it's a small business or a co-op? In other words, there's no sort of built-in institutional bias against co-ops just because they're co-ops. It's not that they don't understand co-ops, so are not lending to them.
Mr. Malli, I'll start with you, because as a co-op, you would understand co-ops. You would understand their structures. We've had some people say that yes, co-ops do help co-ops. But I'm assuming, as well, that there's very much a business decision made in terms of risk analysis, capital you have access to should something not work out well, etc. Perhaps you could comment on that.
Thank you very much, Chair.
Mr. Mali, we've been listening to some folks from different credit unions. Mr. Lahey was here yesterday, from Alterna, talking about how in this particular province roughly 6% of financial institutions are actually credit unions.
It's interesting to look across the country...and this is a broad-brush approach to how they have developed, if you will. We have Vancity, in the lower mainland, Vancouver area, which is a heavily urban-based area these days in its growth. As you go across the prairies, you see credit unions being more rural-based in their initiation, if you will.
You come to Ontario, and it tends to be an employer base, through the employees. In other words, the credit unions are attached to a particular employment place, whether it be, in my case, with the auto workers, or civic credit union, for civic employees who work for the City of St. Catharines. There was another one in Welland and another one elsewhere, and they were very small.
In Quebec, obviously there are the caisses populaires, with the Desjardins Group. It's a totally different piece altogether. It's a huge chunk of the market.
How do we help folks understand that credit unions are a viable alternative for them, in places like Ontario, where it's only 6%? Is a federal model, where it allows you...? Because I absolutely agree with you about keeping that vision of community first. By your simply having another branch like TD, you just become another TD with a different name.
Is there a way for us to structure federal legislation that allows you an opportunity to look at Ontario—not to simply have another branch, but to actually help grow the credit union movement, rather than a credit union branch?
To make sure we have the right facts, Vancity is only one representative of a credit union in British Columbia. British Columbia has numerous credit unions, which are in urban and rural areas. They're employment-based. They're sometimes religious-based. They're across the gamut. There are 40% of British Columbians who belong to a credit union, in one way or another. I believe it's about a 25% market share in terms of banking, somewhere around that range.
We believe that the way to strengthen the credit union system nationally is what the legislation should be focused on, not for an individual institution to be able to exercise its focus on just geographic reach. In order to do that, we believe it should enable us to work together, as a cooperative system, in a stronger way.
We could look at the Ontario credit unions, for example, from the B.C. perspective, and how do we help them learn from and extend our business models in a way that's relevant for their communities, make sure they have the capital means that they need, and the infrastructure means?
You hear credit unions talking about regulations around infrastructure, banking systems, regulatory burdens, etc., that are becoming too costly. Well, there are different ways we could structure ourselves. Again, I point to Desjardins as another model, using a federated model that has accomplished that. The caisses populaires could be effective in their own right, while still allowing a structure where they could deal with the burden of scale, etc.
I think we need to look at structures and regulations that support that type of model, or do more research. There's definitely research that needs to be done. I wish I could take you all to Italy, on our program to Bologna, so you could see first-hand...or even come to Vancouver to see how we've done it with Vancity. Vancity really is a collection of 59 different branches that are communities. I think that is what needs to be considered, not approaching the same regulations that are relevant and applicable and necessary for banks, which operate differently, and say we can basically transport that over with some minor tweaks. I think it needs to be a fundamental look at what it would take to support that structure.
The question in Ontario is that it's also the home place for the major banks. If you look at the statistics, that's the place that has the least amount of penetration in the credit union system, versus the rest of the country, which is very different. Are people satisfied? When I come to Ontario and talk to people, they are not necessarily satisfied. If you look at the data on bank satisfaction with consumers, it's telling as well.
There are ways, but you're on the right track, in that you have to be able to see how we could organize ourselves and solve our own problems and meet the needs of our consumers in a way that doesn't limit us to geographic reach. It doesn't mean applying a model that means we can go national just for the sake of going national.
From our beginnings, people came around a kitchen table to create Vancity in 1946, to pool their money together because at that time the banks weren't lending east of Main Street. They just pooled their money together to lend to one person and created it. Ever since then, that's how Vancity has operated.
The one thing we do work on with governments is to help them execute on their mandates. We've worked in the past with Western Economic Diversification Canada to be able to exercise their mandate to be effective because it aligns to our mission. So we could work in partnership and say if you were trying to get access to put this money out and provide it as a safeguard to make loans that otherwise wouldn't be made in places, we could help you do that and execute that. In fact, anytime we've done that in partnership we've shown a return. They haven't had to spend those pools of money that they've put aside because we have such trust in the community in the way we do it and we are able to do it at a much lower cost. So it saves government money, at the end of the day, by doing it, and a lot of it we just adopt as our normal practice.
We've partnered where appropriate, but we don't get it directly. It's our members or the community at large that would get the benefit of those types of things.
We've done other things on partnership around social housing issues, etc., but we work with agencies, not getting money for ourselves.
So absolutely, we're a product of self-funded.
I think that's the issue I wanted to raise as well with social enterprises—the way to transition. There's a transition period we have to consider here. What we're granting now is provided to a lot these entities or social services. They were given by government. There's a way to wean them off that, but you have to have the right structure in place. This is where we believe that social enterprise, the social cooperatives, can play a big role. There's probably a transition period when they take great pride in being self-sufficient and viable.
Atira Women's Resource Society in Vancouver is a great example of this. We've worked with them from the beginning, originally granting, etc., and now they run their own enterprises to self-fund their operations. They have hired women who used to be clients or participants, who would otherwise be in their shelters, and now have them working for them.
These are the types of innovations that get created in social cooperatives that help fuel them in the future without government money.
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.
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.
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.
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?
Thanks, folks, for coming.
Mr. Tully and Mr. Huard, clearly you're of a scale that is extremely large in comparison to most co-ops many of us would be familiar with, especially in the eastern part of the country, where there aren't nearly as many folks, especially the vertical integration you talked about earlier, especially on the fuel side. I just wish some of our private sector refineries in the province of Ontario had decided to take your longer view and kept them open and expanded them, rather than winding them down and closing them.
Perhaps when you are finished with this particular piece and are successful, as I have no doubt you will be, you may want to gaze over your shoulder to us poor folks in the east and come help us with that refinery capacity and send that stuff east. It would be extremely welcome, to say the least, especially to somebody like me, who's been a co-op member and a credit union member all my entire life, basically.
Mr. Tully, earlier you talked a little bit about leadership, and I know Mr. Preston asked you a couple of questions. I want to talk more on the governance side, because I believe that's where you said you come from.
My sense is the difference between the governance model of a co-op versus a shareholder investor, which has a board of directors, is the board of directors in that group tends to be invited—sometimes they're voted, but they tend to be invited—and then shareholders are supposed to vote on it. I get those things in the mail. I usually never send them back, so proxy somebody's forming, no doubt. We actually have direct elections for those, and I'm sure your co-op's the same.
Can you talk to me just a tiny bit about the really important factor of how that leadership development program that you have instils in those directors, who are ultimately owners, and how it reinforces their sense of why they should be owners and continue to spread that message that it's a great thing to be in a co-op?
Thank you very much, Mr. Chair.
Coming from a business background, I'm always curious to know what businesses, co-ops in this particular case, you consider to be the competition, or whether you really have competition.
Mr. Morrison, I think you essentially said that the reason you're there is because it was the grassroots community, the public, who said they needed this type of cooperative arrangement in their communities. Perhaps that was out of necessity, or perhaps there was not adequate private sector competition that could provide those services.
Let me ask both of your organizations, do you have competitors? If so, what would you say is the main advantage for your clients, your members, who have chosen to be part of your cooperative rather than going down the street and buying what they need from the competition?
I don't know which organization wants to start, but I'd be curious to know. Certainly not knowing the far north very well, and not really knowing the sector as strongly as I should, probably one of the reasons I volunteered to serve on this committee is that I wanted to learn more about what the cooperative sector is doing across the country.
Mr. Morrison, do you want to start?
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.
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.
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.
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 very much, Chair.
Thank you for being here.
I have been a member of Mountain Equipment Co-op since the early days, the early 1980s—so way back when.
I want to follow up on a comment that Margie made about co-ops having difficulty accessing financing. We've been asking this question—I, in particular, have been asking this question—to a number of different witnesses, particularly financial institutions, a good number of which have been financial co-ops.
The impression I have is that there are always challenges in start-ups seeking financing but that the system and decisions are not biased against co-ops. In other words, there are always challenges. There are always high-risk ventures. There are always problems in terms of collateral for loans that financial institutions, including financial co-ops, can access.
We've had a number of people, on the other end, who say that it's hard to access financing and the system is biased against them. But then we've had financial institutions say there's no real bias; they do a risk assessment and they treat businesses like they treat co-ops.
There are a few unique challenges, but it didn't strike me as being very untoward, meaning that they had hurdles that couldn't be surmounted.
This brings me to Mountain Equipment Co-op.
Shona, you mentioned that you started in 1971 with six members and $65 in the bank account. I think you were saying today that you have $261 million in annual sales. That's a tremendous growth in the organization and impact on the ground. Tell us how you did that. Tell us how Mountain Equipment Co-op grew into what it is today. I think you might reveal to us, and to Canadians—because this is televised—the model of success. Could you fill us in?
Of course the experience with recycling varies from coast to coast to coast in terms of the programs and availabilities and the costs and the differences between single-family dwellings and apartment buildings, for instance, many of which were built before recycling programs came into being, and they recycle at much lower rates.
I want to spend all my time with Mountain Equipment Co-op. I've been a member now for almost 17 years. I've still got the first backpack I bought from MEC, which I still use regularly, although this one's a little better for committee business.
I wanted to touch on Ms. Gallant's comments. It's actually very easy to find on the website if you go to the home page and go to “Sustainability”, and then from there you have a link to “Partnerships and Affiliations”, where all the national and regional partnerships are listed, as well as the “1% for the Planet”. There's an incredible amount of information on MEC's website, things that you would never see on a traditional business website in terms of the governance of the organization, in terms of how you stack up versus other organizations and companies.
I was very happy to see you come today and say you're doing okay and you don't need any help, but that where the help is needed is with the start-ups, with structural and financial supports. Yes, of course, governments have to make decisions, and this government, unfortunately, in our opinion has made decisions to provide large corporate tax cuts with absolutely no incentives towards job creation, but they can't find a few million dollars to help start-ups and cooperatives come together to actually build communities. We've been hearing time and time again from people that this is what co-ops are. They are in the community, they're for the community, they help grow the community, and they're about developing the economies of those local areas.
There's a strange phenomenon that often exists with MEC. For instance, in Toronto, when the store first located on Front Street, every outdoor outfitter in Toronto moved in next door. It then moved to Spadina and King and the same thing happened, where you kind of create a microclimate of everything to do with outdoors.
I noticed in reading this document that it actually reminded me of the magazines we used to get, which of course used to contain your members' ballots as well as information about board of directors. To be better for the environment, of course, that's where the e-mail came in instead. So that was a move MEC made so it would have less of an impact on the environment, and congratulations on that.
One of the statements made under “Returns and Redemptions” was that “member capital is MEC's main source of funding for future growth, given its limited access to other sources of funding due to its co-operative structure”. That statement sounds as if perhaps you had some problems seeking financing in the past. Do those kinds of structural challenges still exist, or does MEC prefer to self-fund everything?
I want to thank all the panel members for coming out today.
I just want to talk a little bit about some of the finance stuff and what is available to co-ops as well as to small business. If you look at the dividends, your membership dividends are handled no differently, on a tax basis, than any other corporation's. You have low tax rates, which is the same as small business. So really, there's not any difference there.
Other co-ops have had an opportunity to invest in equipment for their organizations, in terms of manufacturing and production, and they also get accelerated depreciation. There are a lot of things that are very similar to other businesses.
In terms of start-ups, certainly there might be some funding available to smaller organizations or to co-ops for training, for example. There are a number of those things one could say are available to co-ops, are available to small business, and are available to large business. To that point, I think we can say that there is some opportunity for co-ops and not exclusively for small business or for large business.
Those are a couple of points I wanted to make there.
In terms of Mountain Equipment Co-op, I was looking at your $9-million patronage payment. Did that go out to individual members? How does that work? Or is it just on a redemption of your memberships once they're surrendered? How do you do that?
I guess I'll make the declaration that I'm not a member. I knew that would break your heart, Pierre. It probably has something to do with the fact I'm a Glaswegian and don't want to pay the extra five bucks, and I believe you are as well. The accent sounded very familiar to one I had when I was a small boy.
Let me talk to you a bit about the governance piece. As my colleague and friend Mr. Harris said, at one point in time you used to notify your members. My credit union notifies. They don't have millions of members, they have 86,000, but their ballots are sent to every single member, along with a bio of all of their board of directors, because they believe the board of directors is extremely important to the organization, and I think you would as well. The difficulty is that when you have as many members as you do, and you rely on sending folks an e-mail, that quite often ends up in the junk mail, quite frankly. They've spammed you out because they don't necessarily want to get it from you, because they've just simply set it up that way. Or in the case of someone like my mother, they don't have one, or it's someone who just doesn't have a computer, or has moved, or has changed their hotmail address or their g-mail is totally different from the one they gave you two years ago. How do they participate?
I don't come to the store, for instance, for a long period of time. I have a vested interest in the sense of I actually want to participate, but the engagement process has now been turned back at me and it's being said to me, if you want to buy this from me you better become a member. So there's a piece of thou must: if you want this, give me the five bucks and you'll be a member. And then you want to have a governance model that says that all folks are engaged, yet you're somewhat disengaged yourself as a corporation away from your members as a co-op. It may be for altruistic measures of greening things up and not having paper, but is there any other way to engage folks that you are thinking about but you're not doing yet beyond the simple e-mail, or if I come into the store I'll see there's a board of directors and you can find out something about it, or visiting your website constantly to find out? Is there a way to do this differently?
Thank you very much, Mr. Chair.
Thank you all for coming today.
First of all, I was discussing our panel today with the staff in my office, and JoAnna says you rock.
I'm not a member of MEC either. I spend time outdoors; I just have not visited one of your stores.
Mr. Dan Harris: It's your loss.
Mr. Joe Preston: Yes. I'm now going to have to hunt one down, I think.
Mr. Brad Butt: Here's the five bucks.
Voices: Oh, oh!
Mr. Joe Preston: Five bucks. Thanks. It's good that I'm getting a contribution from my friend.
This is great. I'm going to have to tell the Ethics Commissioner about this.
We've had many cooperatives here over the last couple of days. We discussed it yesterday, and I thought I'd come to the magic solution of why cooperatives are successful.
I'll use Mr. McBain's group as an example. They discover that there's a need in a local community and they fill it. Because it's owned by members, they're very motivated to be heavily involved, and it works really well.
MEC, you've stepped outside of my model now. Although I'm certain there's a need out there for the goods you sell, there are others already fulfilling that need. How are you still successful?
Thanks to the committee.
In 2005, after three years of looking into the feasibility of building seniors housing, a meeting was called. One hundred people showed up. At the end of the meeting, 50 people signed up, and Kootenay Columbia Seniors Housing Cooperative was formed.
A 40-acre parcel located in Castlegar was chosen, with a price of $400,000. We required about $7 million in infrastructure. Where was this kind of money going to come from? The seniors joined together and raised about $4.4 million, with the rest coming from credit unions, and the project was under way.
Grandview Housing, which is the co-op part of it, has bungalows and duplexes. Forty-three units have been sold and are being lived in, and six duplexes are under construction.
Calamida Estates, a separate section of the 40-acre parcel, has fee-simple lots for sale to the public. There have been 38 lots sold. Ten homes have been built, and 18 lots are still for sale.
The Château Grandview future site is a 4.3-acre parcel of land. The plan is to subdivide to permit maximum usage. Strata 1, phase 1, will have 63 units of supportive living. Strata 2 will have 72 units of supportive and assisted living. Strata 3, for residential living, will have 16 pods, with 76 beds. Strata 4 will be sold as a fundraiser for Kootenay Columbia Senior Housing Cooperative, KCSHC. And a parcel of land, lot 59, a future 37-lot residential subdivision, is listed for sale as an immediate fundraiser.
How can senior governments assist? It appears to us that current governmental agencies are involved in supporting housing that has as a basic criterion subsidizing rental housing. From our experience, this approach is not efficient or economical, from the standpoint that the delivery of rental housing has the following steps:
First, usually a society or a cooperative is required to be the source of this housing as a sponsor.
Second, a developer of some sort will be required to assemble and deliver the construction. This requires a fee for service and a profit margin for the risk.
Third, financing will always be necessary, and part of this may come from the provincial housing corporation. This usually involves a project manager who knows the requirements of all the agencies. And that person will be paid a fee for this service.
Fourth, other moneys will involve private financing, which will involve a fee to prepare the documentation and registration of mortgages.
Fifth, no financing will take place unless there is mortgage insurance, which usually comes from Canada Mortgage and Housing. This fee must be paid in the initial proposal.
Sixth, no financing can move forward without a mortgage broker. This also requires a fee.
When all of the above is added together, the cost of delivering this housing has an enormous hidden cost, even if it is supported by a not-for-profit organization. The end result is that any government subsidy is higher because of the above costs to render a project affordable.
The option now is that a for-profit developer undertakes a project, with subsidies from governments at different levels, which almost equates to the not-for-profit option.
The alternative is to have the above costs removed as a result of a seniors group managing the housing project. In the instance of Grandview, the following has taken place:
First, the project was developed with seniors' cash.
Second, the designs and concepts are those visualized by seniors who understand seniors' needs.
Third, the developer's fees and profits could be eliminated, because the project is managed by seniors' collective expertise.
Fourth, seniors will recycle their homes to others when they become owners in the project. This is a saving in energy and resources, as active seniors are occupying houses that are too large for them; they are more useful to young families starting out.
Fifth, land and buildings can be set aside for subsidized housing as part of any development, providing the needed support for these projects. This does not isolate these citizens, as is the usual current instance.
Even though we were 8% below their affordability criteria, the refusal of B.C. Housing to interim finance the construction of Château Grandview phase one shows the current misunderstanding of this agency to such a seniors' initiative. Its stance has had the effect of increasing construction interim financing, from the current 1% from B.C. Housing, to 5% and more in the private finance sector.
An 80% reduction in financing costs would do wonders to the resulting seniors' purchase price. The entire cost of this support would be paid back, not from subsidy but from the project itself.
The reluctance of CMHC to guarantee strata title condos, as in this instance, in permitting the public to own their seniors accommodations, rather than renting from a developer who is receiving a return on investment due to a subsidy, is another misunderstanding by government.
With regard to how cooperative associations can assist, we are not informed enough as to how the provincial and federal cooperative associations are constituted and operated.
A recent grant of $15,000 was received by the KCSHC for project development funding for the Château Grandview portion of the overall Grandview development from the federal cooperative agency. This is a huge contribution for a part of the project that is most difficult, as this is where funding usually is in short supply. Perhaps construction interim financing from the national cooperative body may be another area that would greatly assist future projects, as was experienced by the KCSHC.
I am not sure of the services provided by the Co-operative Housing Federation of Canada, but obviously the Grandview project did not take advantage of these services if they were available.
What has become evident to the KCSHC in this project is the following:
Lease ownership is not a favourite with government agencies. The Land Title Office refused to register a life lease, SRE has difficulty with filing disclosure statements with lease ownership, financing is not possible for a lease ownership, and CMHC will not guarantee lease ownership interim financing.
Financing a lease by members of KCSHC only became possible when the Heritage Credit Union undertook an investigation to determine a method to do so. By instructing their lawyers accordingly, the lease document was amended and HCU now finances lease ownership.
The cooperative movement could perhaps take an active role to alleviate these hurdles.
By way of synopsis, housing continues to be a fundamental concern to all of us. Providing shelter to all citizens is a difficult task, which all of us need to become involved with.
The KCSHC found that the lease ownership model is a strong handicap in the development process, and it became necessary to eliminate it.
The experience with design guidelines, as to inclusions and exclusions to ensure a minimal economic impact on sales for those planning a subdivision, is a serious issue. It has become an economic issue in the end analysis.
What the KCSHC members have been able to achieve in a short time is something that can provide lessons to those who are in the process of developing their own project. That may be a benefit to other cooperatives in their future successful ventures.
Good afternoon, everyone. Thank you very much for inviting us to speak to your committee. l'm Darren Kitchen. I'm the government relations director at the Co-operative Housing Federation of B.C.
I think—in fact I know, because he told me so—that Nicholas Gazzard from CHF Canada has already talked to you a fair bit about the history and community benefits of housing cooperatives, so I don't want to bore you by going over all that stuff again. What I'd like to do instead is talk to you a little bit about what it is that CHFBC does and why we do it, and so give some context to some of the main challenges and opportunities that are facing housing co-ops in B.C. and how we are planning to address those challenges and maybe seize some of those opportunities.
There are about 260 non-profit housing co-ops in B.C., and about 90% of those are members of the federation. The federation provides education for co-ops and advocacy for co-ops, but we also provide things like group-buying programs that lessen the expense of roofing, flooring, commercial services, office supplies, and that kind of thing. We also have a pooled investment fund with some of the local B.C. credit unions, which allows co-ops to gain a higher return on their operating accounts than they would usually get on regular chequing accounts. The federation also makes some money from those, because we don't get and don't actually want government funding. So fees from those services and dues from our members are what fund the federation.
Our latest venture is a partnership with Terra Housing Consultants and Vancity, who I believe was here speaking to you earlier today. Social Purpose Development Partners Incorporated is a development company, and it has two main purposes. It's a cumbersome name, but that's the registrar of companies for you—he's a pretty literal-minded guy.
The first of these purposes is to address what I think we all know is a huge need for new affordable housing. That need is key in Vancouver, which I'm sure you've seen in the papers and such. It is one of the most expensive cities on the planet to live in—not only in Canada but anywhere you'd like to go. Condominium prices are sky high. Single-family homes are beyond the reach of all but the very wealthiest. Vacancy rates are low. Rents are rising. And very little new rental housing is being built, for reasons I won't go into here. So affordable housing is a real challenge for families in the lower mainland and Victoria areas of B.C.
That's the kind of challenge that co-op housing has been meeting for a very long time. That's why we started. It's why we do what we do: provide affordable housing to families. We think we have a role in doing that in a challenging market like Vancouver in the future.
We know very well that there's a lot of demand out there for co-op housing. We recently did the Athletes Village Housing Co-op in partnership with the City of Vancouver on the site of the 2010 Olympic village. There are 84 units in that co-op. Before we actually stopped accepting applications—because we were getting so many—we had literally hundreds of applications from people who wanted to live there. So we know there are people who want to live in co-op housing. Through SPDP, the development partnership, we hope to develop more homes to meet that demand and to meet that need for affordability.
Athlete's Village, like most housing co-ops in Canada, is a kind of rental co-op model, unlike Kenneth's equity co-op model. It's purely rental. We'd like to work with other municipalities. What makes the Athlete's Village work is the fact that it is on city land and the city leases the land to us, which reduces the costs and helps to make it affordable.
Vancouver is unusual in having a fair amount of land, and it levers land from developers. Not all municipalities are able to do that.
So to do this kind of model of affordable housing outside of Vancouver, in municipalities that don't have those resources, more help is going to be required. I know that we can't turn the clock back to the late 1970s and have the feds do a big unilateral co-op housing program. Housing is now a provincial responsibility, but I don't think that means the federal government doesn't have a role to play in this. We strongly think that the federal government, in partnership with the provinces and us, should continue to provide support for the development of affordable housing—in B.C., as far as we're concerned, but across Canada, too—and that funding should come in a stable and predictable way. Housing development is a fairly long-term process, three to five years from “we think we can do this” till “we've got it built”. So the funding needs to be stable.
The second major issue we're facing is that the co-ops are getting old. They were mostly built in the mid-1980s, so they're a quarter of a century old, and more. A lot of the critical building systems have a lifespan. A roof lasts 20 or 25 years, that's what it's designed for, and you need to replace it after that. Also, many of the co-ops weren't built to what today we would regard as satisfactory environmental standards. There are a lot of single-pane windows out there in co-op land. It's really energy inefficient.
Planning for these repairs isn't easy. There are a lot of studies, engineering studies, environmental reviews, you name it, that have to be commissioned, paid for, and understood by somebody who knows about these issues. If you need a loan of a few million dollars, that's not necessarily all that easy either. It's not like going to your local credit union, talking to the credit officer and getting a couple of grand to buy a laptop. It's a much more involved process than that.
This is where SPDP comes in, the development partnership. We can help from soup to nuts, from “we know we've got a leaky roof” till “we're fixed”, the whole nine yards. When you think about it, it's a very natural partnership. We have co-ops that need money for repairs. Terra Housing Consultants has a lot of expertise on the technical side of the business and Vancity has money, capital that it would like to use to make high-impact, as they call it, social development loans.
We've hit a bit of a barrier. The best way to refinance these construction projects depends on the co-op. If you're a long way into your first mortgage, just got a couple or three years left or something, it would probably make sense to take a second mortgage on top of the first, pay out the first, and then the first turns into a second, and you get lower. If the loan's big and you've still got quite a few years left on your first mortgage, it makes more sense to roll up the existing mortgage with the new repair costs and finance the thing out over another 20 or 25 years, where the repairs are sufficient to justify that.
Usually a private lender, if you wanted to break the first mortgage and refinance it, would charge you something like a penalty of three months interest. CMHC have taken the position that a co-op exiting its first mortgage will pay a penalty equal to the entire interest that would have been paid on the mortgage, even though the mortgage no longer exists.
I've been doing some math and I'll give you a real-world example. We're working with a co-op that has about four years left in its current mortgage term, and a total of nine years left on the first mortgage. A three-month interest penalty for that co-op would be about $12,000. With four years left, the CMHC penalty to exit the first mortgage would be $218,000. That's about 7.5% of the outstanding balance on the mortgage. Needless to day, we think this is unreasonable. Whatever you think of it, it's certainly not helping the preservation of affordability in Canada's least affordable city.
The last thing I'd like to mention is a challenge that's perhaps more difficult for us in B.C. to address, in terms of forming a company or starting an initiative, and that's the end of the federal operating agreements. With the end of those operating agreements, the expiry of the subsidy that allows the co-ops to subsidize lower-income and modest-income members, this is becoming a growing concern. I've been working with the staff of Metro Vancouver, which is the regional government for most of the lower mainland, and they're very worried about it. I think we need to work together to come to some way to allow the lower-income and modest-income members to remain in their homes.
That's what I came here to say today. Thank you again for listening.
Thank you very much, Mr. Chair.
Mr. Kitchen and Mr. Hood, thank you for making the long trek from the Vancouver area to come and see us today. We very much appreciate your taking the time. Particularly, Mr. Hood, congratulations for your particular project. I found that quite interesting, and if I get enough time I will ask you a couple of questions about your project in particular.
Just for everybody's benefit, and some around the table will certainly be aware of this—Mr. Kitchen, you may be as well—it was actually a decision in 1994 by the Chrétien government to basically get the federal government out of the business of direct provision of housing. So the decision was made a long time ago that the federal government wasn't going to be involved in the direct provision or direct construction of any sort of housing on a go-forward basis. In that government's defence, it was really the lobbying from the provinces that pushed a lot of that, including Quebec in particular, which told the federal government to get out of its backyard because its jurisdiction provincially is housing. It's not a federal area of jurisdiction.
So this fiscal year this federal government will transfer more than $1 billion to the provinces, with a lot of flexibility in those affordable housing agreements as to what each province can do, province by province. British Columbia, I'm sure you would agree, is a heck of a lot different from Newfoundland and Labrador, versus Alberta, versus Ontario. The needs are different; the communities are different; the housing is different.
Let me just ask this of you, as a provincial representative, because I had an opportunity to ask Mr. Gazzard a number of federal questions when he was here. As a provincial representative, do you think that is good housing policy? Does that not make sense that the federal government transfers a blanket amount of money and then says to the provinces, “You're the experts on housing; you know what the needs are on the ground; you spend that money as you see fit”—rent subsidies, building co-op housing, whatever those provincial governments decide to do? Is that not really the right model for an efficient way of dealing with affordable housing in the country?