WRITTEN SUBMISSION BY NCT FORESTRY CO-OPERATIVE LTD TO THE PARLIAMENTARY PORTFOLIO COMMITTEE REGARDING THE DRAFT NEW CO-OPERATIVES ACT

March 2005

 

1. INTRODUCTION

Great progress has been made with the development of the original concept drafts of a new Co-operatives Act to the document we now have before us.

It is obvious that cognisance has been taken of the many submissions by affected and interested parties to produce as balanced a piece of legislation as possible.

One of the earlier policy documents on co-operatives made an important statement in that it stated that recognition must be given to the dual nature of co-operatives in South Africa. In other words the commercial as well as the emerging sectors.

Our submission relates to this aspect of the Bill and although we don’t carry a mandate to speak on behalf of other existing commercial co-operatives, they will no doubt face a similar dilemma to what we do.

We represent NCT Forestry Co-operative Ltd, which has been operating successfully and on pure co-operative principles for 55 years in South Africa. NCT has functioned very successfully under the previous, as well as the present Co-operatives Act and has shown sustained growth in that it is now an organisation handling some 2,4 million tons of timber on behalf of its 2000+ members. As such NCT has over the years become a powerful instrument of negotiation in the hands of the private timber farmers of the R.S.A. It has been the policy of NCT for many years prior to BEE legislation not only to grant membership to the previously disadvantaged timber farmers but also to encourage black entrepreneur contractors to harvest timber on behalf of the co-operative.

Presently, black farmers make up 24% of the NCT member base and in the 2003/2004 year 37% of all new members were black small-scale timber farmers. This has accelerated in recent years as more and more black small-scale timber growers enjoy the advantages available to them of access to world markets, cutting edge technology and leading prices for their products by being equal members in the co-operative.

The reason this growth in overall timber volume and membership could take place is due largely to the fact that the co-operative principles embodied in the provisions of the Co-operatives Act have made it an attractive, viable and transparent institution for all our members to belong to.

The proposed Co-operatives Bill however, if passed in its present form, could have the effect of splintering the membership where larger growers form companies and could, of necessity, force the co-operative as a whole to consider converting to a company for reasons we will expand on. We fear that this will not be to the advantage of especially our smaller members and will no doubt be a dilemma faced by other similar commercial organisations.

2. DETAILS OF PROBLEM SECTIONS OF PROPOSED CO-OPERATIVES BILL

2.1 Our first concern deals with the failure of the new Bill to take the important principle of patronage voting into account.

Section 14(1)(e) provides that each member of a co-operative shall only have one vote.

This provision applies only to primary co-operatives.

 

 

From as far back as 1939 when the previous Co-operative Societies Act was promulgated, provision was made for additional votes to be allowed to members. This principle was also embodied in the present Co-operatives Act and is permissible in terms of the International Co-operative Alliance’s co-operative principles. The principle concerned is Member Economic Participation by which is meant that a member’s participation in his co-operative is determined by the amount of business done by him with his co-operative. This principle manifests itself in the patronage proportion which is utilised not only for determining the bonus (ie: patronage return) of the member but also the amount of "say" a member has in his co-operative’s affairs; ie: the number of votes a member may have. The reasons why the retention of this provision is important to NCT are the following:

(i) The larger members are the backbone of NCT as they deliver the majority of timber to the co-operative which means that they contribute very effectively to increasing the bargaining power of NCT which in turn is of paramount importance to the income of the smaller members. They also carry a proportionately larger share of the costs of running the co-operative. If the Bill goes through in its present form, the larger members could easily decide to resign from NCT and market their timber elsewhere, thereby leaving the co-operative with a much smaller tonnage to handle, considerably less bargaining power (which will have a detrimental effect on the incomes of the smaller farmers), and to unemployment (the co-operative would be forced to retrench many of its employees).

(ii) NCT has acquired strategic interests in various processing undertakings that directly benefit all its members. The continued involvement in future important ventures is reliant on the necessary capital being available.

In terms of the co-operative principle mentioned above, larger members of co-operatives are effectively obliged to contribute a greater portion of the capital to the co-operative than the smaller members. This can be affected in two ways, viz by introducing either a scale of shareholding based on patronage or by a members’ fund. In NCT’s case moves are afoot to fund its further capital requirements by way of a members’ fund to which members are bound to contribute a proportion of the value of the timber they deliver to NCT. This fund therefore amounts to a compulsory investment by members to the co-operative. The larger members therefore are compelled to contribute more to this fund than the smaller members. The larger members therefore have a greater interest in maintaining the smooth functioning and growth of NCT. For this reason, the larger members also have more to lose in the event of members taking a decision which is detrimental to them; eg: a decision to sell a major asset such as a chipping plant of NCT which would mean that these members would have to look for other outlets for the bulk of their timber sales.

The retention of additional votes for members of primary co-operatives in the Bill is therefore imperative to enable the larger members to protect their interest in NCT. The existing sliding scale of patronage voting is based on a five year moving average of patronage and has a ceiling to the number of qualifying votes. Our concern is that if this provision is not inserted it could lead to the larger members resigning from NCT, withdrawing their capital and forming a marketing company to market their timber in competition to NCT, thereby emasculating NCT to the detriment not only of the smaller white and black farmers but to all emerging farmers. We are all timber farmers or timber producers, but the small developing farmer will be seriously prejudiced if he or she does not have the larger and more established farmer in the same camp.

 

 

 

 

(iii) We submit that this concern of established commercial co-operatives could be addressed in two ways:

Either a) As was contained in a previous version of the draft Bill, where a provision for patronage voting exists in a co-operative’s statute prior to the promulgation of the Bill, the co-operative in question be allowed to retain this provision;

Or b) Re-introduce a section for Optional provisions for all Co-operatives and move the requirement for each member to have only one vote from being a Compulsory provision to being an Optional provision.

2.2 (i) Our second concern is with Section 22 (i) where members are permitted access to records of Board Minutes, personal information on each member as well as details of directors’ interests in other undertakings. Members are, in terms of this section, also permitted to make copies of this information.

(ii) This provision will definitely lead to confidential information becoming available to members/outsiders which could not only cause hardship to members but could also give rise to cases of defamation against directors. Not only is it essential to keep strategic information confidential in order to be able to operate competitively in the best interests of its members, but confidential information on, for instance the co-operative’s marketing strategies could fall into the hands of the co-operative’s competitors (some of whom are, paradoxically, members) with dire consequences for all the co-operative’s members.

(iii) This provision, if retained, would in effect place all co-operatives at a very definite competitive disadvantage to the other forms of business undertaking, thereby making co-operatives less attractive as a form of business undertaking. It is for these reasons that the Companies Act as well as the present Co-operatives Act limit the inspection of the minutes of board meetings to the directors of the co-operative concerned.

We therefore appeal to you to essentially retain the principle of patronage voting that has been shown to be an essential component in the statute of successful commercial co-operative enterprises.

We also appeal to you to review the restrictions on access to the co-operative’s confidential records.

 

 

 

NCT Forestry Co-operative Ltd

P O Box 1445

Pietermaritzburg

3200

 

3 March 2005