In this, the International Year of Cooperatives, we wish to start by thanking all the committee members for meeting with us this morning and for agreeing to undertake a comprehensive study of the cooperative formula this summer. We would like to express our support for the brief submitted by the Canadian Co-operative Association, an organization representing a number of Canada’s cooperatives, on July 10, 2012. In addition, we support the federal government’s priorities regarding job creation, economic growth and the effort to bring down the budget deficit. Consequently, we wish to offer our recommendations to the committee to help achieve these priorities. Their common objective is to position the cooperative and mutual movement as an important partner for the federal government.
Cooperatives were born of the desire of a group of individuals to fulfill a collective need, and who pooled their skills and resources to that end. In so doing, they acquired means and expertise to which they would not otherwise have had access. In Canada, this practice was historically one of the cornerstones on which French-language communities, including those constituting official language minorities, were built. Indeed, the cooperative formula provided access to credit and savings, two critical economic development tools the banks had denied them. And so, the caisses populaires were created.
In rural settings, cooperative enterprises gave farmers access to markets by creating means of production under their control, while many insurance mutuals were founded based on the principle of cooperation in hardship. The “cooperative and mutual reflex” was thus born in Canada, and it continues to be very active to this day.
For francophones, the cooperative model is one of the keys to their economic vitality, and sometimes even their survival. Whether in terms of culture, housing, health care or access to local services, the cooperative formula is part of French-Canadian DNA. French-language cooperatives generate over two thirds of all Canadian cooperative jobs and account for 41% of the country's cooperatives. Often, they are the largest employers in their communities.
Today they are diverse, operating in a variety of sectors, and are often bilingual. They are active in every economic sphere. They can be recognized by their adherence to the seven fundamental cooperative principles that govern them, foster good corporate citizenship, and inspire confidence among members and clients alike—all of which are essential to their long-term success.
The Conseil canadien de la coopération et de la mutualité, or CCCM, was founded in 1946. It comprises 8 provincial councils, representing 3,800 French-language cooperatives and 54 French-language mutuals, and bringing together some 9 million Canadian members. Firmly rooted in its values of autonomy and intercooperation, the Canadian cooperative movement has over time put the necessary structure in place to ensure its development. It comprises three types of organizations. First, provincial councils represent each province's cooperatives and provide consulting services for business start-ups, the creation of new cooperatives and emerging projects. I would like take a moment to stress the importance of setting up new cooperatives. They are the ones in need of assistance and support.
Next are the 15 provincial sectoral federations and 2 pan-Canadian federations, which focus on market development, sectoral expertise pooling and group buying. For its part, and in conjunction with the Canadian Co-operative Association, the CCCM provides the entire Canadian cooperative movement with coordination, consensus-building and networking assistance in promoting the Canadian cooperative enterprise formula.
Embracing the sixth cooperative principle with its focus on intercooperation, French-language cooperatives and mutuals invest in creating new businesses. In addition to their own regular activities, they provide direct support for the activities of cooperative development organizations through direct investments totalling millions of dollars a year. However, those contributions alone would be insufficient to ensure the continuity and consistency of the advisory services provided to date in both languages to developers across the country, much less to strengthen them.
In several cases, with the recent abolishment of the cooperative development initiative program, maintaining that expertise is rendered more difficult, or even questioned. Cooperatives and mutuals, whose chief characteristics are autonomy, accountability, legitimacy, equality and confidence, are effective and resilient. The difference between them and traditional businesses lies in collective investment, accumulated through the joint efforts of the individuals, clients, workers and citizens that make up their members, in meeting an economic, social or cultural need.
Traditionally, members have a legal relationship with their cooperative, get personally involved, and contribute to it financially. These cooperatives and mutuals operate according to different accounting rules, different management principles, different laws and regulations, and different financing techniques. Collective ownership, participatory governance and a culture of cooperation serve to protect members’ and employees’ interests, while continuing to target surpluses that will be invested to stimulate business growth, community involvement and intercooperation. As a result, cooperatives are able to grow and carry on against all odds and are better positioned to weather economic crises.
However, they encounter a number of obstacles, including the complexity and time involved in launching a cooperative enterprise; the scarcity or, in some cases, complete lack of appropriate knowledge and expertise in start-up assistance, both in the private and public sectors; and uncertainty regarding traditional investors’ access to capital owing to cooperatives’ capital structure, control or profitability objectives. The fact that the cooperative difference is not recognized by some government programs is another obstacle.
We also note that these obstacles are greater during the early stages of development of cooperative enterprises and tend to diminish over time as enterprises grow stronger. We believe that consulting services and capitalization tools tailored to cooperatives’ needs and specificities would help foster the creation and emergence of a greater number of these kinds of enterprises. A number of fields can serve as models in this regard.
Consider a work cooperative, for example: saving jobs is a mandate that is necessary, if not imperative to such a business. Winding up operations is a last resort, and offshoring will never be considered.
This example clearly illustrates why cooperatives are forced to innovate and be resilient. In recent years, we have seen cooperative enterprises pop up in fields as varied as health care, funeral services, energy, local transit and communications. Innovation is a matter not only of developing new products and production methods, but also of exploring new cooperative business models—such as solidarity cooperatives—and learning about new fields of activity.
The work of consultants and researchers at sectoral federations and provincial councils fans that spirit of innovation by creating an environment conducive to the cooperative difference. Over 60% of all cooperatives created in Canada, and many of those innovations, saw the light of day in Quebec, where the provincial government and cooperative movement have maintained a rewarding business relationship for many years.
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Mr. Chair, the entire Desjardins Group hails the creation of the Special Committee on Cooperatives. We would like to thank the committee members for this opportunity to express our views and opinions on this topic. We wholeheartedly believe that this initiative is all the more timely given that the UN has declared 2012 the International Year of Cooperatives.
That is also true, primarily because cooperatives are first and foremost an expression of a tremendous business model, albeit less well-known as compared with the more traditional corporate business model, with which people are more familiar.
I would like to introduce you to the Desjardins Group and explain where it fits in Canada's cooperative landscape. Desjardins Group is celebrating 112 years in business, so it is safe to say it's a success story. The mission undertaken by Desjardins Group is quite unique when compared with that of traditional businesses. Our mission is first to contribute to the economic and social development of people and communities. To that end, it is important to recognize that Desjardins Group is a movement, as its French name suggests. It is not a group of specific or centralized members, such as those that make up traditional business structures. It is a network of individual, secure, profitable cooperatives that have come together, coupled with a network of subsidiaries offering competitive returns. Desjardins Group is also very involved in education as regards finance, the economy, democracy, solidarity, and individual and collective responsibility.
Now I will give you an overview of the components that make up Desjardins Group. Currently, it comprises nearly 400 caisses across Canada, 1,300 service outlets and almost 2,600 banking ATMs in Quebec. With 5.6 million members in Quebec and Ontario, Desjardins Group serves an estimated 70% of Quebeckers. Desjardins Group holds $200 billion in Canadians' assets, which are managed through this cooperative union. We consider this to be an excellent example of what cooperatives can do, how they can grow and what they can contribute.
We especially wish to emphasize the fact that cooperatives and mutuals fuel job creation, innovation, financial stability and access to community-based services. Cooperatives and financial cooperatives often operate in sectors and communities that are underserved by traditional businesses. We do, however, face certain challenges and issues, the main ones having already been addressed by those who appeared before me. Generally speaking, access to capital and reserve protection for cooperatives are areas of concern that must be addressed through government assistance and an appropriate legislative and regulatory regime.
Like traditional businesses, cooperatives and mutuals are confronted with these issues, but solutions do exist. Desjardins Group has submitted a relatively detailed brief on the issue and has attached an in-depth economic study conducted in late 2011, which we urge you to read. To get an idea of the size of the economic sector and the position that cooperatives can hold, you need only think of Quebec. The first and fifth largest private sector employers are cooperatives: respectively, Desjardins Group and La Coop fédérée, whom you will also be hearing from a little later.
Cooperatives are present in communities and exist to fuel job creation and the economy. In terms of spinoff, Desjardins Group offers businesses venture capital and helps maintain more than 35,000 jobs.
Furthermore, cooperatives are known around the world as well as here at home. And that is a key message that must be understood.
Financial stability or safety is frequently mentioned. It is important, then, to remember that Desjardins Group is not only the 6th largest financial institution in Canada, but also the 4th safest financial institution in North America and the 18th safest in the world, according to international ranking.
That standing is proof that the cooperative management style can go a long way towards financial stability and safety.
Generally speaking, the cooperative model is an excellent counterbalance to the traditional capital-share business model. It drives the economy, while adding value to it, and that is something that should be encouraged.
I will now hand the floor over to Mr. Adams.
I would be delighted to answer your questions.
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Thank you, Mr. Chairman, and thank you for the opportunity to be here this morning and present to the committee.
The organization that I work for, the Quality Deer Management Association, does cooperatives from a little different end than what we've heard so far this morning. We're dealing with natural resources. I do live on the United States' side but work regularly in Canada. Essentially, the cooperatives that we work with are either landowner cooperatives or deer management cooperatives, bringing hunters, sportsmen and women, and agencies—your Ministry of Natural Resources, for example—together to manage the natural resources.
As we take a look at some of these, we can improve wildlife management programs and habitat management programs by far, benefiting all citizens throughout the province, if we can do a better job managing wildlife habitat. What we have seen by forming these landowner cooperatives—which are essentially groups of landowners or hunters who work collectively together on these small parcels of land to better manage the wildlife that's there and, importantly, the habitat that's there.... If we do a good job of managing that habitat, a multitude of wildlife species will benefit from that. What we see by putting some of these together and forming these neighbourhood or landowner cooperatives is far-improved habitat and wildlife management programs, which certainly benefit the hunting industry, the habitat industry, and the ministry overall with regard to province-wide natural resources. This is important on the United States' side, but it's certainly important on the Canadian side, where you have such abundant natural resources and beautiful scenery, etc.
We have worked with private individuals, state agencies, provincial agencies, and federal agencies throughout the U.S. and much of Canada to help align and provide this model for allowing these landowners and sportsmen and women to come together to create these cooperatives to then enhance their ability to manage these natural resources. We have literally worked with thousands of landowners to do this. We have worked with the U.S. Fish and Wildlife Service to form a model for developing these cooperatives around federal lands, and with states to develop the same thing around state lands. We are currently in negotiations with a couple of states to develop a cooperative position, whose sole purpose would be to work with these landowners and sportsmen and women to develop wildlife management cooperatives throughout different parts of these states to enhance exactly what we're talking about from the natural resources end.
One thing that's nice about it is that you can take a look at your Ministry of Natural Resources, which oversees the wildlife management within the province and is responsible for setting bag limits, season dates, etc. However, it's the sportsmen and women who have to buy into those programs and play their part to have a full impact on what you have from a wildlife management end, whether you're talking white-tailed deer, moose, bear, waterfowl, etc. The more of those people you can get on board with the ministry officials and the managers of that—buying into what they're doing and allowing that to happen on all of that private land throughout the province—the more successful those programs can be. We see hundreds of thousands of acres on the United States' side now in these landowner cooperatives, which are working cooperatively with the state agencies—in your case those would be the provincial agencies—and allowing the programs to be far more successful. There are literally hundreds of individual cooperatives here in the northeastern U.S. where I live. There are thousands of them throughout the United States, and they are just beginning in Canada.
On our part, QDMA Canada was incorporated in 2006, so we are an educational organization that helps teach people the value of managing habitat wisely, managing wildlife wisely, and the idea of these cooperatives and how they can benefit all.
This is a very new concept in Canada, but it is a concept that is growing and has spread rapidly throughout the last decade across the United States. It's what we see as the future of wildlife conservation on our side, and I'm guessing that the same thing is going to happen on your side. The model is a proven model. It works extremely well and will certainly apply to the situation you have on your side with private versus public land, the number of sportsmen and women that you have, and the natural resources industry.
This fits in well with what the committee is discussing in the talks today. It's something that's been proven here and will work extremely well in Canada as well. As an organization we look forward to being part of that and improving wildlife management and natural resource management in Canada.
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Small cooperatives, of course, have the challenge of acquiring a small amount of financing in the beginning, because they can't always use their equity or property as a traditional business would.
When it comes to large cooperative enterprises, it is true that all financial institutions do not necessarily have a good understanding of cooperative structures or an awareness of that model. We are probably better informed at Desjardins. So there are educational challenges, but there are legal ones as well.
If we look at the legal challenges, I can use Desjardins Group as an example. This past spring, we were able to launch an issue of capital shares worth over a billion dollars. To make that happen, however, we had to work hand in hand with both levels of government, just to be able to structure that capital share issue, which will mean permanent shares in the cooperative and will generate some dividends.
So a capital share issue can happen, but only after close coordination with the authorities in order to comply with requirements. When done right, the results can be tremendous. Just consider the fact that this cooperative-issued capital is Tier 1-ranked under the requirements of what is commonly called the Basel III reform, for financial capitalization.
Cooperatives also enjoy greater stability because of their structure. They have a more loyal following and deeper roots in the community, but they have more trouble accessing capital quickly because they cannot issue shares. Therefore, they often maintain an extra cushion. This capitalization is much more secure. As a result, Desjardins has a capitalization rate of over 17%, which is considerably higher than that of Canada's other major banks.
What is necessary, then, is a very close working relationship with the government to make adjustments possible and to adapt legislation, not simply to the traditional business model, but also to the cooperative enterprise structure.
Is there any information you would like in more detail?
And thanks to the witnesses.
It's interesting to hear, because the credit union I belong to, FirstOntario in the province of Ontario, obviously started out as an auto workers' credit union, with one branch. And now I think it is the third or fourth largest in the province and has moved along. In fact, their ex-CEO, Mr. Lahey, is here this afternoon. He is now the CEO of Alterna.
Madam Gagné, and I believe Monsieur Brun, as well, talked about this idea that folks are innovating and changing, because in many places, at least on the financial side or the credit union side, many small industries would have had a one-branch credit union. Whether that be places like Ferranti-Packard, for instance, that used to be open in St. Catharines and is now closed, that credit union had to find a place to go when those employees no longer had a place to work. They ended up merging with different ones. I think they went to Meridian, actually, which is the largest in Ontario.
You started to talk about innovation and the sense that the visions, perhaps, and the mission statements are changing, especially on the financial side. But I think you were also alluding to the sense that the visions, and perhaps the mission statements, were changing on the non-financial side of cooperatives. They are looking at a broader picture that, yes, can sometimes be within a province and sometimes not, and in fact, I think, can be international.
I'm interested as to how policy-makers can help with that type of innovation for those who wish to choose it. Cooperatives are about decision-makers on the ground deciding that they wish to change their vision. They are not about having someone tell them that they must change their vision. It's the opposite view of for-profits or the investment style whereby someone at the top says that we're going to buy this or go buy that. Cooperatives are grassroots organizations that say, “What do the members want to do?” Basically, if you change your vision, you go and ask your members what they want to do.
Are there things we can help with when members decide that they want to change that vision? Or should we just leave you to do it on your own?
I'll certainly take an answer from whomever.
We will both be presenting.
It's a privilege for us to be here with other cooperatives as change agents for growth and sustainability of cooperatives and to be representatives of a viable alternative to standard Canadian business models.
My name is William Ravensbergen and I'm the chair of the board of directors for Ag Energy Co-operative Ltd. I've held the position of chair for the last three years and the position of director for an additional three years. P. Ravensbergen & Sons Ltd. is a founding member of Ag Energy, is a user of its services, and has been since its inception in 1988. Therefore I have an intimate knowledge about our governance and the mechanics of the organization, a member's/user's perspective. I have personally invested my time, energy, and funds to ensure that Ag Energy is a successful member-based service organization that deals with solutions that are sustainable for our members and customers.
Ag Energy is an Ontario-based cooperative representing members in Ontario and serves more than 1,000 customers in Ontario, Quebec, and British Columbia. We are a services-based cooperative that provides natural gas and electricity solutions to its members and customers.
We were incorporated in Ontario 24 years ago. Our beginnings served as cost-effective procurement of natural gas for greenhouses as a result of energy deregulation, as energy typically is one of the largest input costs for our sector.
Ag Energy is a for-profit cooperative with annual sales in excess of $20 million. Our primary focus is to provide cost-effective energy commodity and investment opportunities to our membership.
We are a lean organization of 10 employees, serving agriculture, agritech, and agrifood. We are expanding our offering to include managed cooperative services for other co-ops. Our board of directors is accountable for our governance and is currently eight directors and two trainees, all of whom are from member organizations or are members. Our board represents entrepreneurs, owners, and member staff with ties to the ag sector.
For our members, we operate on a break-even philosophy so that they may procure their energy at wholesale prices. For our other consumers—that is, non members—we provide competitive solutions. Our focus is the delivery of natural gas solutions of greater than 50,000 metres cubed and 150,000 kilowatts of electricity consumption per year.
We are a member of and actively participate in the Ontario Co-operative Association and depend on policy and support from federal and provincial governments to ensure that co-ops are a supported business alternative.
We expect that government will support its constituents and embrace the cooperative principles to ensure growth and sustainability of the co-op sector as a means of investment, employment, job creation, tax base, etc.
Some of the obstacles we have faced are limited policy reform and education; affordable financing structures or reasonable financial covenants; grant structures or government funding, which sometimes excludes co-ops as a standard; and excessive red tape in dealing with government or support services.
At this point I'd like to pass on the presentation to Rose Marie Gage, the CEO of Ag Energy and the chair of Guelph Energy Co-operative, a co-op established by three founding members, one of which is Ag Energy. The Guelph Energy Co-operative was created to provide green energy solutions in the community of Guelph, Ontario, where Ag Energy is headquartered.
Thank you.
Dear committee chair and committee, sincerest thanks for the opportunity to share our thoughts regarding enhancing cooperatives and their support structures across Canada.
We are presenting a number of ideas that may be advantageous for future job creation and the growth of the Canadian economy by Canadians and for Canadians. Ag Energy's recommendations for your consideration are as follows.
First, recognize that cooperatives are a vital and viable means of business as a model for Canadians to supplement the existing definitions of business structures—for example, sole proprietor, partnership, joint venture, and so on.
Second, ensure that the federal cooperative corporations act is a flagship or leading-edge model for all provinces to use as a template for progressive improvements to the respective provincial co-op corporations acts and to ensure future viability, innovation, and competitive enhancements.
Third, reduce all forms of red tape in the processes that govern and support all cooperatives, irrespective of co-op type or industry served.
Fourth, eliminate all boundaries or hurdles for cooperatives in gaining access to capital financing, innovation centre support, government programming, and so on that are currently open to other businesses and excluded for co-ops. For example, create something akin to an affirmative action program or co-op equity program, with explicit guidelines, a positive outreach program and accessibility to all. The program should report tangible metrics that prove it is effective and provides benefit to the co-op sector. Another example is to modify existing programs that appear arbitrarily closed to co-ops due to a lack of understanding or a narrow scope by program custodians. Here, for example, I refer to angel investor matching programs by FedDev—with up to $1 million that can be raised—that are matched and provided by FedDev for accredited investors.
Fifth, consider supporting co-op ventures by requiring all, or at least many more, funding programs to include broader community benefit and community support among the funding criteria. While other entities could also meet such criteria, co-ops would be particularly well positioned precisely because they are community-based, locally owned enterprises. Many programs already do require applicants to demonstrate broader community benefits. Extending such criteria to more programs would truly provide a boost to cooperatives.
Sixth, move the co-op secretariat to Industry Canada or Service Canada to ensure wider representation for all cooperatives across all industries, while ensuring that all expertise is maintained or improved upon.
Seventh, create two advisory committees for the co-op secretariat that represent all provinces and territories and a wide variety of co-op industries. It is desirable that this be represented by the co-op sector and not government employed. It is suggested that one represent for-profit and the other not-for-profit, and report to an executive committee that is comprised of both.
Eighth, establish a web-enabled presence for co-ops with tools to assist growth and development, the ability to share successes and best practices, and a means to ensure continuous learning for the co-op community. This can have the look and feel of a co-op learning and sharing centre complete with resources and details, but without the expense of bricks and mortar of traditional centres or institutes.
Ninth, create a director or board development program that enhances or builds upon existing training material akin to the Institute of Corporate Directors, which will be funded from future user fees. Please ensure that this is an affordable model relative to the current ICD structure.
Tenth, enhance means to capitalize cooperatives, whether it is through tax credits, use of self-directed RRSPs, or other incentives as they create jobs and provide taxes to the communities that they support.
Eleventh, amend the Income Tax Act to clarify that co-ops may raise more than 10% of their member equity in the form of investments through self-directed RRSPs.
Twelfth, eliminate the sunset clause around the deferred preference shares that is in place for 2016, or extend it for another decade to lapse at 2026. This would further assist in the continued capitalization of cooperatives.
Thirteenth, consider extending tax deferred preference shares beyond the agricultural co-op sector so that all cooperatives are able to utilize this means of retaining member capital within the cooperative.
Fourteenth, create an entity similar to Sustainable Development Technology Canada that supports the commercialization of for-profit cooperatives. This can be focused around the for-profit co-op sector to bring broader benefits to communities. This organization could be governed and funded in a similar manner to the Sustainable Development Technology Canada entity. The federal government could provide the seed moneys for the original structure, and the board of governors or directors could come from various co-op corporations and reflect various industries. This would serve two purposes: one would be to ensure that profits and ownership are maintained within Canada; and two, it would assist the co-op movement to have a shared financing vehicle that would consider innovation and potential investment outreach internationally.
One behalf of the board, the staff, and the member of Ag Energy Co-operative, we thank you for your time and consideration today. We look forward to your questions and also to your report, and would welcome the potential improvements that you will make along the way as a result of this review today.
Thank you.
La Coop fédérée is the second largest non-financial cooperative in Canada. We are a federation of agricultural and agri-food cooperatives that is 106 members strong, representing a total of nearly 90,000 members.
With total sales of more than $6 billion, La Coop fédérée and its network of affiliated cooperatives provide employment for nearly 16,000 Canadians in 4 Canadian provinces for the most part. Our activities are concentrated mainly in Quebec, New Brunswick and Ontario, but through our subsidiary, Olymel L.P., limited partnership, we are also active in Alberta and have sales offices in Japan and Australia.
The main industries in which La Coop fédérée and its affiliated cooperatives operate are farm input supplies and hardware materials and petroleum products distribution. La Coop fédérée is therefore the largest distributor of agricultural fertilizers in eastern Canada and one of the largest independent petroleum products distributors.
La Coop fédérée and a few of its member-cooperatives are also involved in the food processing industry, and several of our member-cooperatives are also present in the food distribution market. Through its subsidiary, Olymel L.P., La Coop fédérée is one of the largest pork and poultry processing companies in Canada and exports more than half a billion dollars of pork meat to over fifty countries worldwide.
La Coop fédérée is at the heart of an organizational model that brings together agricultural producers, citizen-consumers, food processing entities and distributors. I believe this provides us with a unique viewpoint on our sectors of activity.
How can the Canadian cooperative sector innovate to meet the needs of its members? By their very nature as cooperatives, La Coop fédérée and its network of affiliated cooperatives represent a natural partner for people who have their community’s development at heart. Deeply rooted throughout the Quebec countryside, eastern Ontario and New Brunswick, La Coop network has perfected a business model designed for communities on the brink of decline. This model allows them to maintain basic services for their fellow citizens.
These combination service-stations, hardware and convenience stores are now the modern equivalent of yesteryear’s general store. There are now more than 15 of these businesses currently in operation, providing the community with basic services, thus helping to stop the decline of these communities.
We intend to continue developing this new formula wherever possible. As one of Canada’s largest employers, La Coop fédérée and its network of affiliated cooperatives are significant agents of economic development in rural areas. For nearly five years, La Coop network has been involved in a wide-ranging restructuring process named the “Chrysalide” project.
The process is intended to pool the production assets and agricultural services of participating cooperatives to ensure that they can operate as a single unified body. This new approach is very innovative in management terms since it paves the way for economies of scale and critical mass, which are usually generated by corporate mergers. The approach, however, preserves the community’s local involvement and feeling of belonging.
It should produce several tens of millions of dollars in recurrent savings that will benefit our members and, indirectly, each region’s economic status. Unsurprisingly, restructuring usually means closing businesses and job losses. The “Chrysalide” project does in fact include the closure of several establishments, but they will generally be replaced with other, more employment-generating activities.
In this respect, La Coop network has reiterated its commitment to sustainably developing its activities and to converting agricultural biomass into energy production. There are several pilot projects currently under way to produce bioenergy from agricultural biomass. And we have recently joined forces with a group of Manitoba researchers, Prairie Bio-Energy Inc., to market technologies they have developed and to create a division dedicated to producing and distributing energy from agricultural and forestry biomass.
In terms of innovation, La Coop fédérée is involved in numerous projects, particularly through its participation in Cooperative Research Farms, the largest privately owned livestock and poultry research network in North America, as well as its own research farms. We are also involved in an ethanol fuel cell project and are partners in the fractionation of agricultural biomass molecules to manufacture bio-products.
Keeping within the framework of its commitment to sustainable development, La Coop fédérée has partnered with the Association québécoise pour la maîtrise de l’énergie and other major players in the Quebec economy. Together, we are working on implementing a cooperative to collect carbon credits and allow Canadian businesses who wish to take part in this upcoming new carbon economy to benefit from economies of scale.
This project is the result of the commitment of La Coop network leadership in response to the Quebec government’s pledge regarding climate change. The network is readying itself to seize any opportunity that may arise in a future carbon market, as well as educating and preparing La Coop network regarding climate change and energy efficiency.
As part of its “Chrysalide” project, La Coop network also invested in a comprehensive program to modernize its information technology infrastructure. In doing so, there is additional pressure on telecommunications firms to modernize their own networks and introduce the latest technologies in rural areas. We are currently living in a knowledge-based economy, and delays in updating and upgrading communication technology infrastructures in rural areas are a huge impediment to their development.
La Coop fédérée believes that concerted action on the part of all major economic players in these rural areas, in combination with a dynamic financial incentive policy from both governments, would be required to accelerate the deployment of high-speed Internet and digital telephony throughout all of these regions.
For our part, La Coop network will have invested almost $30 million to modernize its computer and communications infrastructure over a 5-year period. All of these actions and projects are proof of the commitment of La Coop fédérée and La Coop network to the sustainable development of rural and peri-urban communities.
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Mr. Chair, what means are at the government’s disposal to provide added support and greater opportunities and visibility for Canadian cooperatives?
We believe that a healthy and balanced economy rests on three fundamental pillars: a dynamic and highly productive private sector; a competent and efficient public sector; and a social cooperative economic sector that allows for individual and group accountability and empowerment so individuals can satisfy their own needs.
Besides coaching its own network of affiliated cooperatives, La Coop fédérée plays an active role in developing the cooperative movement in Quebec through financial support for structuring activities. Those activities include the Montreal issue table on cooperatives and mutuals, and a support program for the implementation of new cooperatives, in partnership with the Quebec government.
However, the federal government also has a role to play in the development and implementation of cooperatives in Canada, as it does with private enterprise.
Reinstating a fund dedicated to establishing new cooperatives would be a step in the right direction. Transferring the Rural and Co-operatives Secretariat to Industry Canada could also be a positive initiative if it were supported by sufficient resources to ensure that it could fully perform its role. The department's development policies must encourage, or at the very least not discourage, the cooperative movement and ensure that it becomes a priority for the department going forward.
In order for the movement to develop efficiently, Canadian cooperatives must be adequately monitored. Moreover, cooperatives are a model of economic organization that is different from share-capital businesses. Therefore, a well-organized cooperatives secretariat would ensure that regulations and legislation are not adopted without consideration for their impact on the cooperative sector.
As it pertains specifically to our sector of activity, a recent OECD study confirmed that the proportion of total household spending by Canadian families on food is relatively low, as compared with that of other countries. The proportion is evaluated at 9% in Canada and 7% in the U.S., while in France it is estimated at 14%, and in China it is 35%. That shows that Canadians have a fairly efficient food system.
From the consumer’s point of view and despite recent price increases related to market hypervolatility, we can say with certainty that our agricultural and agri-food sectors are quite efficient.
However, the performance of our agricultural and agri-food sectors, which are at the core of regional economies, could significantly deteriorate if we persist in liberalizing the trade of agricultural foodstuffs without taking into consideration the unique features of this sector. Agriculture and food cannot just be bargaining chips in the liberalization of world trade.
As an agri-food cooperative, La Coop fédérée wants to make our position clear when it comes to the importance of agri-food in the Canadian economy. Agricultural cooperatives have a tremendous presence in this sector. In fact, cooperatives account for a significant share of the agri-food sector. You will be hearing more about the nomenclature over the next few days. We believe that the agri-food sector must remain partially regulated.
La Coop fédérée believes that liberalizing the trade of agricultural foodstuffs is desirable, but must be the subject of an explicit negotiation between all the countries that take into account the population’s food security and sovereignty issues.
Ladies and gentlemen, members of the committee, I want to thank you for meeting with us today.
It is extremely important for all of Canada's regions that you have a clear understanding of where things stand and that we all support the creation of a tool that will help strengthen the economy and society.
The Conseil québécois de la coopération et de la mutualité brings together about 40 major cooperative and mutual organizations and associations throughout Quebec and Canada. We represent 3,300 cooperatives and mutuals across Quebec, which employ over 92,000 people and provide services to more than 8.8 million members. Together, these cooperatives generate $25 billion in revenues and hold assets estimated at over $173 billion. In 2009 alone, Quebec's cooperatives and mutuals paid out more than $800 million in dividends. When you know that 75% of operations take place in the regions, you realizes that this money goes back to our communities. It represents $85 million in donations, sponsorships and community involvement. That is the incredible power of cooperatives.
In Quebec, more than 30 provincial organizations from all sectors and the Quebec government have endorsed the Declaration on the International Year of Cooperatives. These organizations represent labour, management, economic development, environmental and academic groups, as well as municipal federations. They advocate the creation of conditions conducive to the development of coops and mutuals, tailored to their features and functions and respecting their autonomy. This vast backing clearly demonstrates the strong support of Quebec's socio-economic stakeholders. They recognize the roles that coops and mutuals play in social and economic development, and their ability to contribute to sustainable prosperity by meeting the public's social and economic needs.
A strong economy requires the same kind of diversity in business that occurs in nature. We are absolutely convinced that the Canadian economy will become stronger and contribute to national prosperity if we spur innovation by stimulating the growth of cooperatives in additional fields. Coops in new economic niches address growing needs of Canadians in urban and rural environments. Those needs include renewable energy, domestic assistance and home care, daycare, new immigrant integration, transportation, recreation and tourism, health care, community services, cultural industries and manufacturing industries.
Cooperatives are also an important means of ensuring the survival of businesses confronted by the absence of a younger workforce to replace leaders who are getting older. With a survival rate twice that of other businesses, coops constitute a strong incentive to stimulate and support such undertakings.
The largest coops are now reaping the benefits of globalization as they market Canadian products around the globe. Coops have become thriving economic hubs for thousands of Canadians across the nation. In 2008, some 63% of new coops in Canada were established in Quebec, as compared with 43% in 2004. What happened? Joint efforts by Quebec's cooperative movement and the Quebec government to support cooperatives in their various stages of development have boosted the coop survival rate. That is why the cooperative network must continue offering specialized services to coops as part of its effort to promote intercooperation and the development of viable and sustainable businesses.
This model for supporting cooperative development could indeed be implemented throughout Canada, by relying on relationships with provincial cooperative boards and their partners. The Cooperative Development Initiative was the first step in the right direction. In coordination with provincial measures, the initiative helped the cooperative movement innovate and grow stronger, while giving it leverage.
In Quebec, for that matter, all provincial program administrators sat on a committee overseen by the Conseil québécois de la coopération et de la mutualité to ensure coordination with CDI measures. Thanks to that mechanism, it was possible to avoid all the problems that can arise with program duplication. The stakeholders were able to consider all the projects, providing an efficient way of seeing the big picture.
The fact that cooperatives are owned by their members and that their shares cannot be traded, as with private corporations, is a critical issue in capitalizing coops. The cooperative business model with its “one member, one vote” principle promotes the ownership and control of cooperative businesses. Members, rather than outside investors, hold coop shares.
Coops also typically distribute their profits among their member-owners based on the size of their transactions, in other words, their transactional relationship, rather than the number of shares they hold. These differences make coops stronger: in periods of market fluctuation when the situation is not quite so rosy, coop members have a level of patience that shareholders subject to what we call quarterly tyranny do not. Every three months, shareholders can read about the company's performance in the paper and check whether share prices have gone up or down, and capital levels respond in kind. While coops are much more stable, they are less attractive to venture capital investors.
According to a report by Ernst & Young, globalization, consolidation, technology, environmental protection imperatives and increased competitiveness have boosted coops' capital requirements. They must acquire additional investments from their members to obtain the funds they need. Governmental policies promoting such capital inputs could have a decisive impact on the development of cooperatives, communities and regional economies.
Because Canadian tax laws fail to adequately consider their unique features, cooperatives have to deal with certain fiscal disparities. Take, for example, the flawed application of the integration principle, which has been mentioned already. The integration principle serves as the foundation of our tax system. The choice of legal structure through which taxpayers earn their revenue should have no impact on the amount of taxes they pay. Since cooperatives are not eligible to employ some of the existing integration mechanisms, tax inequities adversely affect cooperative members. Such factors may also deter investment in cooperatives. This is the case with capital dividends, taxation of investment income and taxation of revenue from a subsidiary.
This flaw results in major taxation inequities when it comes to capital gains, for instance. The maximum rate of additional taxation for a cooperative on capital gains is 21%. For investment income, it's 4%, and for income from a subsidiary, that rate is 15%. We have the study done by tax experts at the Mallette firm, which Ms. Gagné mentioned. It points to these exact problems. Given that 2012 is such a milestone year for our movement, we are using this opportunity to call on our governments to examine the situation and rectify these problems.
In addition, holding cooperative shares in an RRSP is turning into a very problematic issue. In the 2011 federal budget, the government made significant changes to the rules for holding cooperative shares in a registered plan. Now, a member of a cooperative is no longer allowed to hold over 10% of a cooperative's capital and is subject to heavy penalties, when it comes to RRSPs. This rule is designed to prevent the circulation of capital and the misuse of measures, situations that do not normally apply to cooperatives because the transfer of RRSP shares is not tied to the organization's decision-making authority. This legislation clearly illustrates the difficulty lawmakers and regulators have when it comes to taking into account cooperatives' unique features.
We have a few recommendations that I would like to call your attention to.
Firstly, we recommend that the government create an environment conducive to the development of cooperatives, tailored to their features and functions.
Secondly, we recommend that the government consider the specific nature of cooperatives in all of its programs, laws and initiatives for business, unless it has specific reasons not to do so. The Government of Quebec recently undertook such a commitment as part of its entrepreneurship strategy. I think the outcome would be very positive if the Government of Canada were to adopt a similar approach.
Thirdly, we are calling on the government to forge a partnership for developing cooperatives to support the creation of cooperative businesses throughout Canada.
Fourthly, we are asking the Canadian government to review the overall fiscal environment for cooperatives to reduce or eliminate inequitable taxation.
I didn't have enough time to go over it in detail, but I will end by underscoring the findings of the Ernst & Young study I referred to earlier. The report mentioned the implementation of a federal cooperative investment plan, similar to Quebec's. Our research shows that this would be an extremely lucrative measure in terms of federal government revenues. So it would not be an expenditure, but an investment.
Thank you.
[Translation]
I want to thank the witnesses for joining us today.
I think it's very important to hold meetings on cooperatives because, this week, Canadians have an opportunity to learn about cooperatives and their success stories. We have heard a lot of testimony highlighting the successes and the strength of cooperatives in communities across Canada.
[English]
I would like to ask a question about some of the comments we've received on a number of days regarding government programming and the challenges that co-ops sometimes face in accessing the government programming.
I was going through some examples yesterday. There seems to be fair treatment between businesses and co-ops. For example, both co-ops and businesses benefit from the lower business tax rates that are now in effect, and from accelerated capital depreciation, particularly if they're in the manufacturing industry. The preferred dividend tax rates apply to businesses as they apply to co-ops. So there didn't seem to be any disconnect there.
But there was a comment here from the Ag Energy Co-operative. Rose Marie, you made a comment about modifying existing programs that appear arbitrarily closed to co-ops due to a lack of understanding or a narrow scope by custodians.
We've had a number of co-ops make, I'll say, general comments, but not really specific examples. I understand it's difficult, because if you discuss a particular project, it just may not have ranked high enough. I can tell you from programs in my riding that oftentimes there's a certain amount of money available and the demand usually exceeds the money available by a factor of seven to 10 times. So if there's $1 million available, you get demands for somewhere between $7 million and $10 million worth of projects, and you simply can't approve them all.
I'm wondering if you could perhaps provide us with some concrete examples, with or without naming particular projects, of what you perceive to be roadblocks. I would think that government programming would not set out to exclude co-ops. I would think it would be open to any business enterprise, that they would be evaluated in a comparable manner and then ranked, and then funded where possible.
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Thank you, Mr. Chair, and members of the committee, for inviting me to be part of this important study on the opportunities and challenges facing the cooperative sector here in Canada.
My name is John Lahey, and I am president and chief executive officer of Alterna Savings and Credit Union Ltd., headquartered here in Ottawa.
My objective today is to broaden your appreciation of the positive impact financial cooperatives or credit unions have on the lives of underserved or marginalized Canadians.
Alterna's history is proud and dates back more than a century. In 1908, banks were not in the business of lending money to average citizens, and in those days, there was no legitimate alternative Canadians could to turn to. The Civil Service Co-operative Credit Society, the first Canadian credit union established outside of Quebec, was founded in Ottawa in response to loan sharks who were charging people an astronomical interest rate of 200% a year, and doing business, we are told, right here on Parliament Hill.
Perhaps the where of where they did business makes for an interesting myth. But what's true is that credit union members pooled resources to support each other and in so doing were able to deliver far more affordable deposit and credit services. In 2005, the Ottawa-based Civil Service Co-operative Credit Society and the Toronto-based Metro Credit Union merged to form Alterna Savings.
Alterna Savings, which today holds over $2.3 billion in assets and employs some 450 people, provides financial services to members through 22 branches located in greater Toronto, the national capital region, Kingston, North Bay, and Pembroke. Our Quebec clients are served, through two branches in Gatineau, by our wholly owned subsidiary, Alterna Bank.
Like most cooperatives, we're also consistently strong supporters of the communities we serve. In 2011, we invested 4.24% of pre-tax earnings in community economic development, more than double our minimum targeted commitment of 2%.
I know that the committee has heard and will continue to hear from presenters the merits of cooperatives and how government can use legislation, regulation, and subsidies to help Canada's cooperatives maintain their enviable record of success. I'd love to spend an hour supporting each and every one of these suggestions, but given the time limitation, I've chosen to focus my remarks on sharing with you two concrete examples of how cooperatives positively impact the lives of underserved and marginalized Canadians.
Cooperatives, through a proven business model, are known the world over as an effective means of positively enhancing local economic development. Credit unions, in fact, were formed for precisely this purpose. It was to provide access to the financial services local citizens and entrepreneurs needed to build strong lives and enviable communities. Over Alterna's 100-plus years, the challenges of access have continually changed, but remarkably, there have always been people in our communities who have struggled to gain access to our financial system. Credit unions have always been about access—people helping people—and Alterna Savings is no exception.
A case in point is our long-standing status as a pioneer in microfinance. The objective of our microfinance program is to promote entrepreneurship, foster job creation, and aid in the economic growth of our communities. To do this we partner with leading community organizations to provide much needed financing to entrepreneurs who simply do not qualify at their local banks. Our experience is that this lack of access is particularly acute for new Canadians, high-risk Canadians, and marginalized individuals.
We wanted to measure how well our microfinance work was doing, so we engaged Carleton's Centre for Community Innovation to do an evaluation. Going into that work, we already knew one thing for sure: our financial cooperative makes no money on microfinance. At best, we break even. That's, of course, why the banks don't do it.
What we wanted to know, however, and what Carleton's study confirmed, was that the program delivers the kind of quantifiable social benefit that makes the effort worthwhile. Microfinance helps individuals contribute more meaningfully to their communities through higher quality of life, reduced reliance on government assistance, increased job creation, and business expansion.
I have brought copies of the Carleton study for you to look at later. It documents why this program is so important to Alterna's community economic development efforts.
However, the impact of our program is best appreciated by telling you a story. One of the amazing facts the Carleton study unearthed is that 95% of the businesses financed by the Alterna microfinance program over the past decade are still operating. One of those entrepreneurs was a single mother, working two jobs to support four children, who was struggling to provide even the basic necessities for her family. With the assistance of a $5,000 Alterna microloan to get a health-care service business started, we're happy to report that the business now employs close to 40 local citizens, generates over $1 million in annual revenue, and is a strong contributor to our economy.
Those businesses are real. They pay taxes, they buy goods and services, and they employ people in meaningful jobs. Our communities are better off every day because of this program.
The second example I wanted to share with you today comes to us as a result of our banking work in the broader cooperative sector. In this example Alterna is a proud participant in an effort that demonstrates the power created when cooperatives cooperate.
The Co-operative Housing Federation of Toronto, or CHFT, partners with 31 local Toronto housing cooperatives. A few years ago its executive director set out to make a difference. He and several colleagues had a dream that young people growing up in these housing cooperatives should have a chance to attend university and develop successful careers.
Through sponsorships from individuals and cooperatives such as Alterna Savings, as well as groundbreaking local academic partnerships with every university and community college in the Toronto area, CHFT has now been able to provide almost 200 young people financial scholarships to pursue post-secondary education. Many of these young people come from low-income and/or immigrant families. In fact, in many cases they are the first in their family to attend college or university. These opportunities for continuing education are opening important new doors for their future.
By the end of 2013, CHFT expects to have awarded more than $1 million in post-secondary financial scholarships to deserving young people who have not only achieved academically, but have been actively involved in the development of their cooperative housing communities. These awards are concrete examples of how a combined cooperative effort can have a real impact on the lives of those living in our local communities.
Alterna Savings, through its financial services business efforts, also supports other cooperatives through strategic financing as well as the supply of cost-effective products and services. As an example, we're proud to support organizations like Toronto's Centre for Social Innovation. CSI, as it's known—not the TV show—is an organization that provides shared workplaces, safe opportunities for socially minded business people to network, as well as shared business services.
The future promises to be challenging for financial institutions, particularly small financial cooperatives. Alterna Savings, formed by the merger of two smaller credit unions in 2005, is a prime example of the consolidation trend in Canadian credit unions over the last two decades. The practical reality is that financial cooperatives, in Ontario at least, and to a lesser extent across Canada, will need to consolidate an increase in sophistication if they are to survive in the emerging financial services marketplace.
Alterna Savings was pleased when the federal government announced a proposed regulatory framework for federally incorporated credit unions. We see that as a positive and progressive development for cooperative financial banking in Canada.
Canadians are spoiled when it comes to banking. They're used to national institutions they can access any time, anywhere. Today credit unions fill most of those needs very effectively, but as technology shrinks our world and consumer expectations continue to evolve, some credit unions will want, and perhaps even need, to move outside their provincial boundaries and expand extra-provincially.
This new legislation will allow that to happen. It will provide credit unions a strong option for enhancing service to members, and as a result, support the long-term growth of cooperative financial institutions in Canada. We're excited about the prospects for a reinvigorated financial services industry that includes a strong and growing credit union alternative for our members and all Canadians.
One last point I wish to touch on before closing is the increasing regulatory burden being placed on financial institutions, particularly small organizations.
Alterna Savings acknowledges and agrees that a strong regulatory framework is critical to protecting the safety and security of Canadians; however, collectively we are concerned that increased regulations may be swamping small financial cooperatives unnecessarily. Regulations are in most cases being applied consistently, regardless of an institution's size or complexity. The result is a much higher relative compliance cost for credit unions.
The government's Red Tape Reduction Commission emphasized in its final report that a one-size-fits-all approach to regulation tends to disproportionately burden small business. Credit unions are small businesses. Most cooperatives are, in fact, small businesses.
We agree with this conclusion and urge the government to follow through on its commitment to require regulators to examine current and future regulation through a small-business lens. This modified perspective is needed if we are to ensure that new and existing rules do not unnecessarily affect credit unions adversely. Credit unions provide strong competition to the big banks in local communities across Canada. We're not looking for special rules; we're simply looking for the small-business lens that was promised in the Red Tape Reduction Commission.
In fact, in many communities across Canada, credit unions are the only provider of financial services.
Banks are already heavily advantaged in terms of size and scale. Let's not provide an additional unintended advantage for the larger banks by making regulatory compliance unnecessarily difficult for the financial industy's small businesses.
Mr. Chair, that concludes my remarks.
On behalf of Alterna Savings and Credit Union, I wish to commend the government for undertaking this important study.
Across Canada this year, cooperatives, including credit unions, are celebrating the 2012 International Year of Cooperatives. Cooperatives have played, and continue to play, a vital role in building our country. We hope that the insights provided in your final report will serve to further promote and support the contribution of cooperatives to our communities.
I thank you very much for the opportunity to present to you today, and I'd be pleased to respond later to any questions you may have.
Good afternoon.
We're not a cooperative. The Excellence in Manufacturing Consortium is a membership organization and the consortium is a registered, federally chartered, not-for-profit organization. We're not a cooperative, so I'm still trying to figure out how we got invited here to respond to this, but I'll tell you our little story.
Certainly our business is cooperative in nature. We have endorsed the formation of a true cooperative, a purchasing cooperative, the first one in Canada, but I'll just give a little bit of history to maybe understand who we are.
While I was working with a college system up in Owen Sound, Ontario, which is two-and-a-half hours north of Toronto, we had a lot of opportunity to have the manufacturers working together in that community. One of the reasons we focused on manufacturing was that manufacturing has got the biggest advantage to create wealth in any community—in any small community, in a province, or in the country. So I focused on that activity, working with the manufacturers, and got to know them all very well.
About that time, in the mid-1980s, we had a plant close, a 500-person facility, and that was devastating for a community of 19,000 people. So we got together with all the plant managers and said, okay, what can we do here to offset this? Now we're not going to have another 500-person facility located in rural Ontario—that was true then and it's certainly true today—so we asked if we could work together and continue to help each other out and share each other's resources. We did the math, and we said if we did this for three years, and each one of us grew by 5% over three years, we'd replace that 500-person facility. That was eighteen manufacturers, three of them fairly large in size.
That, then, led into a lot of really interesting activity. We call it sharing and stealing with pride, in an informal way, but it's really about having the manufacturers share their resources, share their ideas, share their problem-solving. And we facilitate that. We get manufacturers together. We've got 55 geographically regional consortiums across Ontario and the east coast, where we pull manufacturers together on a regular basis and get them working together. When you drive down any street in an industrial area and you see buildings with hundreds of people in them, problems have been solved, and they're staying in their own buildings and staying quiet. What we do is draw them out of the buildings and get them working together and again helping each other out.
So we've grown through the years, again, to now have 55 regional consortiums across eastern Canada. We have recently launched a manufacturing portal, if you will, an online manufacturing portal, which will take us right across Canada and help manufacturers through the age of online learning.
In Alberta they call what we do in Ontario and the east coast “clustering”, and that is getting together, helping each other out. The other thing that has happened just recently is that, through the Province of Alberta and Productivity Alberta, a branch of the government out there, we have been invited to take our activity to Alberta, to create that ability for communities—small communities in particular—to draw their manufacturers out and help them work together and get better at what they're doing, be more competitive and keep jobs in Canada.
One thing we have done as a membership organization in Ontario, because Ontario has unregulated energy rules—Alberta and Ontario are the only two provinces that have unregulated opportunities—is that we formed a purchasing group, if you will, not a co-op, where we've grouped together manufacturers to buy electricity and natural gas. The power of that has been phenomenal. I've got some results here, if you want to see them, where we've got medium sized manufacturers who, by working together and by our doing the due diligence on finding a third party to manage this, are easily saving $100,000 a year just by having the power of working together in a co-op type of fashion.
From the very beginning, going back more than 15 years, we were always involved with purchasing people from the buildings in the various communities we were in, and they always wanted us to get together and try to save money buying this and that—a very complicated arrangement. We listened to this for a lot of years, then last year we didn't incorporate, but we licensed our name to a co-op, a not-for-profit cooperative. We're in the EMC Purchasing Co-operative. It's owned by the members. It just launched a year ago and it's just nicely getting going. It is the only one of its kind in Canada—for manufacturing, that is. It's the only one of it's kind in Canada, and in the United States there's only one small one that is struggling along.
There's been great uptake on this purchasing cooperative, which may be of interest to you folks. Again, by working together.... I'll give you a very simple example of the power of that group. The example is one of our members, a little manufacturer, an assembler really. We went into his building and asked, what do you spend your money on, where's your biggest cost, other than payroll and that kind of stuff? He went around and he looked at all of the little pieces and said, I don't spend a lot of money anywhere. I spend a little bit here, a little bit here, a little bit here, a little bit here. We asked, what's the biggest cheque you write each year? He said, I assemble these little things and I ship them. I spend $500,000 a year on couriers. The lights came on, and we got some of our other members together, who formed a committee and went out and got all of the couriers in Canada together, and as we sit here now, some four months later, that young fellow and his business is now saving 45%. So he's paying about $200,000 less in shipping than he was before, and that's the power of cooperatives.
I could go on for about 45 minutes on what EMC is about, but substantially it's a membership organization working together—
On that note, when they come up with ideas that we like, we vote for them.
Mr. Lahey, and Mr. Diggins, thank you for coming today.
Mr. Diggins, thank you for your candour, and perhaps confusion, on why you're here. But still, I think you made a relevant presentation about working together and, frankly, the power of economies of scale—about how, when you group together in a collective in varying forms, you're able to get better rates for yourselves, or, in the case of employees, they're able to get more favourable deals with their employers. So thank you for still coming today.
My questions are going to be for Mr. Lahey and Alterna Savings. When I was younger and treasurer of the Ontario New Democratic Youth, we were a member of the Metro Credit Union, and it was always great to deal with them. They provided services that weren't available at the big banks, and we were certainly thankful for that.
As I understand it, Alterna is part of a pilot project that's working with some housing cooperatives. Of course, housing cooperatives are dealing with a number of challenges right now—primarily with buildings that are 20 to 30 to 40 years old, with roofs that need replacing, with capital infrastructure costs. Many of them still have mortgages left over, and as a result they're looking to, in many cases, blend and extend in order to refinance and be able to pay for these capital projects.
I understand Alterna is involved in some of those pilot projects. Are you familiar with them? Could you explain a little bit about what that project is and why it's going to be beneficial to co-ops?
Thank you both for coming.
As Mr. Boughen was asking the question and Mr. Lahey was explaining—we were conversing earlier—I thought I would point out that Mr. Lahey used to be the CEO of FirstOntario, where I've been a member for a long time. But it goes back to the auto workers actually, and specifically to General Motors and not auto workers in St. Catharines or in Niagara, but actually to one plant. We had what we used to call CU-men—because they were men at the time, not women—who would come around and sign you up, as a new employee when you entered the work force, to join the credit union. That's how they drove their membership base.
I think of my late brother, who worked at Ferranti-Packard and also belonged to a credit union at Ferranti-Packard, which John would remember, of course. It made electrical equipment. When that plant and other plants closed, the credit unions closed as well. So the history of Ontario credit unions is driven by small manufacturers and large manufacturers. At one point in time they couldn't merge in Ontario, so when they died, they died.
One of our branches, while you were CEO, Mr. Lahey, was Holy Rosary in Thorold, which was actually a credit union to the parish. It wasn't attached to an industry or a company; it was Holy Rosary parish of Thorold. The credit union was for the parishioners, and you had to be a member of the parish to belong to the credit union. So it was a different dynamic, I think.
I want to actually get to both of you, and time will run short.
Can you compare the first 55% of your career, Mr. Lahey, with the second part of your career, which is now ongoing, and the banking aspects of where you were? You were there for a substantial period of time. Your CV correctly points out—and I already knew this—that you were a senior executive there for a long time. Can you compare what you saw coming into the credit union movement and what you've seen subsequently? Can you give us a sense of the importance of why credit unions are truly needed, not only in this province but across the country?
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The primary way we get them working together is to get into a community, a geographic grouping of manufacturers, and we invite them, in a facilitated way, to help each other out. That's the primary methodology we use. After we do that to them two or three times in the community on a regular basis, they learn to understand the power of helping each other out.
We don't consult to or train to our manufacturers; we work for our manufacturers. Through the years we've listened to them and we've developed many programs and services that they need. We provide the due diligence ahead of time.
For example, with the energy program I mentioned earlier, we did a whole year of searching and due diligence, finding out what the best approach was, finding the best facilitators there were in the province to make that happen, and then brought that to our members. As we've grown, those trusted relationships we've developed with other programs have paid off well.
For anything the manufacturers need, they tend to come to us now. We listen and if it's something we can help them with and help more than one or two of our members, or help the group collectively, then we'll start pursuing that. That takes a lot of work.
In terms of capitalization, we have done a lot of work ahead of time for any of the programs we bring to our members. It takes a lot of our time, a lot of our capital, and a lot of our manpower to make sure we get the best of the best that we can present to our manufacturers.
The energy program was one. The purchasing cooperative, although we're just a member of it, took similarly the same due diligence, finding the right company to run that for them. In many other programs, from training to consulting to 360-degree health and safety programs, and environmental programs and that kind of stuff, we have a very heavy investment at the front end before we bring anything to the manufacturers.
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I want to begin by saying that Agropur wishes to thank the committee for its invitation and its interest in Canadian cooperatives. I am a corporate secretary and am joined by Serge Riendeau, who is the president of Agropur's board of directors. I see that you have received our brief, which I will discuss briefly in order to stay within my allocated time.
Before I go ahead with my presentation, I want to invite you to visit our web site at www.agropur.com. There, you can learn about Agropur's main trademarks, the many awards and honours our products have received, our mission, our values, the highlights of our history and the annual report for the most recent fiscal year. We take great pride in that document because it has much to say about cooperation and the manner in which Agropur expresses its cooperative pride.
The 13,000 Canadian dairy farms produce about 8.4 billion litres of milk annually. That milk makes its way to 455 processing plants, with combined sales of an estimated $13.4 billion, or 15% of total sales in the Canadian food and beverage industry. The Canadian milk-processing sector provides employment for almost 24,000 people in every region of Canada.
Our industry is rationalized. Three major processors—Saputo, Lactalis-Parmalat and Agropur—share slightly over 75% of Canadian milk production in approximately equal shares. It is interesting to note that cooperatives have a very strong presence in the Canadian dairy sector. In addition to Agropur, which processes 25% of Canadian milk, other major dairy cooperatives are Agrifoods, Gay Lea Foods, Scottsburn, Amalgamated Dairies, Farmers Dairy, Dairy Town, Nutrinor, Northumberland, Agrilait, Fromagerie St-Albert, Organic Meadow and the Société coopérative agricole de l’Isle-aux-Grues.
The cooperative was founded in 1938. Agropur is a major player in the Canadian dairy industry. We process almost 2 billion litres of milk per year in Canada; our 3,349 members produce slightly more than 1.7 billion litres of milk; and we provide competitive and attractive jobs for 4,600 Canadians in every region of the country.
The dairy industry operates under a supply management system. We believe that this system has provided a stable environment over the years, within which the dairy industry has been able to develop while coping with the challenges arising from changing conditions in domestic markets and from international trade rules. The industry has been successful in providing consumers with quality dairy products at competitive prices. Our partners in this industry are the producer marketing boards and their national organization, the Dairy Farmers of Canada.
We strongly believe that everyone must play their role in the industry if it is to retain its balance. The government must be careful not to take any actions or adopt any programs or structures that affect the balance between producers and processors, or that allow foreign processors to gain access to the Canadian market without being bound by the same regulations as Canadian processors.
Agropur is a major player in the dairy industry, and it is also the third largest non-financial cooperative in the country. Considering all economic sectors together, Agropur ranks among the six largest national cooperatives. Agropur has a real and significant impact on the agricultural sector. Thanks to its management style and leadership, the cooperative distributed $482 million to its members in patronage dividends in the five fiscal years from 2007 to 2011, with 25% having been paid out in each corresponding fiscal year and 75% having been distributed in the form of capital issued by the cooperative to all its members.
This capital is redeemable by decision of the board of directors after a minimum period of five years. This means that, over that same five-year period, Agropur members received $230 million—the cash portion of the patronage dividends and the repurchase of shares that were previously issued by Agropur.
Agropur also plays a significant role in the Canadian cooperative movement. It is a member of the Conseil québécois de la coopération et de la mutualité—Quebec council on cooperation and mutual plans—and is working to promote the creation of a bilingual national body that will represent all Canadian cooperatives before various authorities, including the Government of Canada.
It is also a member of SOCODEVI, which works in the area of international development to encourage populations to take their respective situations in hand through the creation of cooperatives. Agropur provides financial support to these cooperative organizations in order to promote recognition of the cooperative movement and cooperatives as a viable business model that offers an alternative to the dominant model.
Like all large cooperatives, Agropur receives numerous requests to support the cooperative movement. It has been responding positively to these requests for a long time. However, like any other cooperative, our organization must ensure its own profitability. There is a limit to how much support can be provided from within the sector. That support must not serve as justification for the government to disengage from assisting and supporting the development of cooperatives and the cooperative sector.
We must not forget that Canadian cooperatives belong to Canadians, that they are active in every sector and every region, and that they contribute to the collective well-being through the cooperative values of self-determination, equity, equality, and solidarity. All Canadians, including the Canadian government, should take pride in their cooperatives, and the government should renew its support for this economic sector.
Previously subject to Quebec's cooperatives act, Agropur decided in 2000 to place itself under the Canada Cooperatives Act, which would better reflect its business situation and put it in a position to take on members from other Canadian provinces if the opportunity arose.
Since that time, Agropur has had the opportunity to consider entering into strategic alliances with other cooperatives. The fact that it is already governed by the federal act was clearly advantageous and could have facilitated the execution of any such plans. We have been operating under this legislation for 10 years and have had the opportunity to examine it more closely at various times, especially during the consolidation of our by-laws in 2000 and 2009.
In general, Agropur is of the opinion that the act provides a suitable framework for the development of our organization. We greatly appreciate the fact that the legislator has incorporated section 159, which recognizes the distinctive cooperative nature of agricultural cooperatives operating under a supply management system. That allows them to continue to express their specific cooperative nature despite the existence of the legislative framework for supply management.
We understand that, at this time, the special committee has adopted a mandate to examine the situation of cooperatives in Canada, and not to amend the act. We ask that the committee, the government and the legislator devote the necessary time and effort to conducting a proper consultation process with the cooperative sector and Agropur in the event that amendments to the act are contemplated.
You can rely on our organization to contribute to the assessment of the potential impacts of any such amendments on the cooperative sector, on our organization, and on our way of doing business. Similarly, we can only encourage the legislator to take into consideration the specific characteristics of cooperatives when it undertakes to amend any legislation. It must ensure that any legislation that is adopted by the government includes the cooperative business model instead of excluding it.
For a long time, Agropur’s cash flow from operations has been sufficient to meet its needs in terms of reinvesting in its existing infrastructure. The real problem for large cooperatives arises when a major acquisition or investment project presents itself. The fact that our members have already contributed to their cooperative's capital by having the discipline to reinvest a significant portion of the surplus earnings that it has generated each year—combined with the financial demands placed on them by their own farms—limits the additional amount or effort we can ask of them.
Agropur has welcomed the federal government's decision to introduce the program for deferred taxation of patronage dividends, which gives members the option of deferring the taxation of the value of the investment shares issued at the time of the patronage dividend until the time of their disposition.
We would be pleased to be able to announce to our members that this program will not only be renewed when it expires in 2016, but that it will be made permanent. We would also look favourably upon the federal government’s creation of a program based on the example of Quebec's Cooperative Investment Plan. Programs of that kind, which do not come at high cost to the government, favour the capitalization of cooperatives by encouraging members to be disciplined or patient, and to reinvest in their cooperatives.
A number of unpublished studies prepared by large firms will be released to participants during the International Summit of Cooperatives, which will be held in Quebec City in October. One of these studies, prepared by Deloitte, will examine the productivity, financing, and capitalization of cooperatives. It would be worthwhile for your committee to take note of the results of this study.
The government has announced the cancellation of the Co-operative Development Initiative program. This program constituted a minimal effort on the part of the government to promote cooperatives. Similarly, the downsizing of the Rural and Co-operatives Secretariat may indicate that the government underestimates the role of cooperatives in Canada. It is important to re-establish these support structures. We invite the committee to recommend that the government renew that program and provide adequate support for the Rural and Co-operatives Secretariat.
Cooperatives are associations of persons who own democratically managed economic enterprises and share in the surplus earnings. As such, cooperatives are not like other enterprises, but they are indeed enterprises, and therefore, they must be viable and prosperous.
Toward this end, we would like to draw the committee's attention to government financial and tax assistance for enterprises, be they cooperatives or not. Regular support programs usually favour applicants who announce the creation of jobs.
However, for already-established enterprises, it is important that the government distinguish between the creation of wealth and the transfer of wealth. Job creation should not be the main factor considered in connection with financial assistance because this adversely affects Canadian companies, be they cooperatives or not.
The government should incorporate a criterion related to increasing the productivity of the applicant into its financial assistance programs, in order to favour investment in Canada as well as improvement of the competitiveness of enterprises with respect to foreign competition and in international markets. A certain degree of simplification of the requirements attached to the assistance provided would also be helpful to enterprises, whether they are cooperatives or not. All Canadian enterprises, including cooperatives, would benefit from these improvements.
Thank you very much.
:
Ladies and gentlemen members of the committee, good afternoon.
I am happy to see you. Thank you for striking this committee to study cooperatives.
I am the President of the Fédération des coopératives de développement régional du Québec—Quebec's federation of regional development cooperatives, commonly referred to as CDRs. During my presentation, I will discuss CDRs.
CDRs are well-established in Quebec. For over 30 years, they have been playing an important role in our province's economic development. Their mission is to promote the cooperative approach, support promoters in starting up any type of a cooperative and ensure support following the start-up process.
Eleven CDRs cover all seventeen of Quebec's administrative regions. They are brought together in one federation, which provides them with support and assistance in the carrying out of their mandate.
It is in that capacity, and following the invitation extended to us, that I will tell you about what we think about the importance of cooperatives in Quebec, and about CDRs' contribution to their development.
I would like to begin with a recommendation. We recommend that the Canadian government establish a partnership for cooperative development to support the creation of cooperatives across Canada.
I will present three separate elements in support of our request: evidence of cooperatives' stimulation of Quebec's economy; the importance of an effective network to support cooperative start-ups; and effective support measures for the creation of cooperatives.
I will begin by talking about cooperatives' stimulation of Quebec's economy. As it has been mentioned, cooperatives are present in some 40 economic sectors. Aside form the major sectors that everyone is familiar with and that have been discussed to an extent today—agricultural, funeral, forestry, school or food cooperatives—there are also cooperatives in renewable energy, housekeeping and home care, day-care centres, transportation, tourism, health, local services—an example was provided this morning—cultural industries, the manufacturing industry and many others.
Cooperatives are present in all of Quebec's regions, both in urban—which may be surprising—and rural settings. They have done very well economically. They are socially responsible and redistribute the generated wealth, while providing services to meet their members' needs by creating quality jobs.
We feel that promoting different company types is important for building a strong economy. Collective businesses—and especially cooperatives—are added to the mix of private and public companies.
We are thoroughly convinced that stimulating cooperative development and encouraging innovation in new areas of activity will help Canada's economy become stronger and contribute even further to the country's prosperity, while helping prepare for the future.
In addition, cooperatives are an excellent way to ensure the sustainability of companies and to avoid their relocation. A number of studies point out that the lack of a new generation owing to the aging of business managers is currently a key challenge for our economy. Of course, there are several solutions, but one of them is business succession through the cooperative approach.
That business succession based on the cooperative approach encourages worker mobilization and the maintenance of local jobs. It also helps keep capital in our country and encourages community revitalization.
When it comes to the performance and sustainability of cooperatives, a recent study by the ministère du Développement économique, de l'Innovation et de l'Exportation du Québec—which has already been mentioned, I am sure—indicates that cooperatives' survival rate is significantly higher than that of traditional companies. We are talking about double the survival rate of other companies. That's not insignificant.
After three years of existence, three out of four cooperative are still there, compared with one out of two for all Quebec companies. Six out of ten cooperatives reach the five-year mark, compared with slightly under four out of ten for other companies. We are talking about 62%, compared with 35% for all of Quebec's companies.
After 10 years, 4 out of 10 cooperatives are still active, compared with 2 out of 10 in the case of all other companies. That works out to 44% and 19.5%, respectively. This study was carried out twice, and both times, the results were the same after five and ten years. There are certainly some explanations for that.
That performance of the cooperative model can be partially explained through the actual structure of the cooperative business model, the legislative framework of its governance, the existence of a board of directors made up of members, the democratic operation and the obligation to establish a reserve to ensure the company's sound management. In addition, the technical or specialized assistance cooperatives receive when they are created and during their development is certainly a sure value. That is why making sure those specialized services are provided to support cooperatives is key. So we can say that the amazing survival rate of Quebec cooperatives is not unrelated to the joint efforts by the cooperative movement and the Quebec government. Those same statistics clearly show that stimulating and supporting the development of new cooperatives in the spirit of economic sustainability is a strong economic incentive.
I also want to emphasize how important an efficient network is for supporting cooperative start-ups. Regionally speaking, regional development cooperatives are a gateway for people who want to create a cooperative. They take on the stimulation of the regional cooperative life and promote the approach. They provide advisory services for start-up cooperatives and business support for existing cooperatives.
Here are some figures. The CDR network is made up of more than 1,100 cooperatives and member organizations, as well as 1,500 cooperatives created over the past 20 years. During the 2011-2012 fiscal year, 140 new cooperatives were started up, leading to the creation and maintenance of 375 jobs. The Fédération des coopératives de développement régional du Québec—which brings together CDRs and of which I am president—aims to encourage concerted efforts, help highlight and share good practices, and develop growth areas for the network. CDRs or sector federations—organizations dedicated to creating and supporting cooperatives—may be very present in Quebec, but there is another CDR elsewhere in Canada. A regional development cooperative has been operating in New Brunswick for almost 10 years. In addition, CDRs' operation and impact on cooperative development favourably attract the attention of other Canadian provinces, which are currently adopting exploratory measures on the feasibility of implementing such a model in their area.
I would like to tell you about effective support measures for cooperative development. You may know this already, but in 2008, 63.1% of new cooperatives based in Canada were from Quebec. Did you know that, from 2004 to 2010, 595 new cooperatives were started up in Quebec, thus creating or maintaining 2,845 jobs? That economic dynamism is largely due to a partnership agreement between the Government of Quebec and the Quebec cooperative movement. For the government, the purpose of such an agreement is to encourage the development of existing cooperatives' business operations, create or maintain jobs in the regions and meet the new needs of Quebeckers. We estimate that such a model of government support for cooperative development could be put forward across Canada based on a partnership with provincial cooperative boards and their partners.
In closing, we would like to remind you that cooperatives have a significant impact on the economy, that they are incredibly sustainable and efficient, and that, in Quebec, they are helped by organizations dedicated to supporting them—a key to their development success. Consequently, I want to repeat the recommendation of the Fédération des coopératives de développement régional du Québec to establish a partnership for cooperative development to ensure the creation of cooperatives across Canada.
There are some amazing cooperatives across Canada and some very nice large cooperatives. However, those nice large cooperatives have not always been big. They started out small, 50, 60 or 80 years ago. If we want to have more nice big cooperatives in 25 or 50 years, we must start structuring and supporting the cooperative movement now, and stimulate the creation of new cooperatives. The Canadian government certainly has a role to play when it comes to creating and supporting those cooperatives. Let's work together on building a better future.
Thank you for your attention.
I may get back to that last bit, but I wanted to ask some other questions first.
You mentioned that in general, rural Canada or rural areas may be more impacted by cooperatives, or cooperative enterprises, than urban, but you gave some great examples of some urban enterprises, cultural enterprises, that are now working in a cooperative sense and moving forward that way too.
I come from a rural area of southern Ontario, and we really do see the value, from a cooperative point of view, replacing enterprises that may otherwise have been there and that we would no longer have. I think we saw some examples yesterday, whether it was a credit union starting up because the bank was leaving a community or those types of things. So we really do see the imperative to rural Canada, the fill-in that cooperatives bring.
You mentioned also the success rate of cooperatives—which we keep talking about and I'm quite pleased that we're repeating for those who may be watching this—including the successful start-up rate at five years or ten years, or even one or two years, versus the standard corporation or sole proprietorship or any other form of business start-up, and how much more successful cooperatives are at the benchmarks you've mentioned.
I keep asking this question, because I really want to get it in a bottle, if I can: what's making them more successful than the start-ups of regular businesses? I do some mentoring from an entrepreneurial point of view, and if we can try to capture some of this....
But I think you hit it on the head—and I'm going to give you credit here, although maybe I heard it earlier today and it didn't sink in—that cooperatives are based on a need, and then the business forms around the need, whereas an awful lot of other businessmen.... Even me, if I have an idea and I start a business based on that idea, I'm not sure there's a need. I just think I'm better, maybe, or hope that at the end of the day I'm better than the other guy who is in the same job as I am. But cooperatives start with an advantage when they are starting with a need. Something is missing, so cooperatively people get together and address that.
Would you say that's a fairly good assessment of why cooperatives are more successful? I mean, it's pretty hard to fail if you're filling a need. If there isn't a need, it may be harder.
Thank you to our friends who are here today to talk to us.
As my colleague, Madam Freeman, said earlier, it is about choices.
I thank you for your recommendation 8, which talks about a renewal of a program. I have to agree with my friend, Mr. Lemieux, that it's not about taking something away, but about something that's coming to an end.
Do you want to do it again?
Mr. Preston and I agree that there are our lovely spouses who we put as number one. When you had that first dance with your soon-to-be spouse, you wanted to have another dance with that soon-to-be spouse. It seems to me that this is a program that when we had our first dance with it and saw how wonderful it was, why wouldn't we dance again with it rather than simply say no?
But it is about choices. If we renewed it for 10 years and we sold the gazebos, we'd have the money. But it seems to me that somebody built gazebos instead and spent tens of millions of dollars building gazebos rather than four million dollars a year for the next 10 years, which would have given us a program that's renewable. So it is about those choices.
From what I've heard from you this afternoon and what we've heard in the past two days—and my colleagues across the way have actually agreed—it seems that that you're successful in more ways than just being profitable. You actually keep jobs in communities and create jobs in communities where jobs have been lost. Members of a cooperative won't usually vote their jobs to Mexico or to China, but companies whose share value might drop a tiny bit in a quarter or two quarters will, because they have to appease the shareholder, who isn't necessarily the worker. In a cooperative on the other hand, in your case at Agropur, your dairy farmers aren't about to vote to have your dairy sent somewhere else to process their milk when they're actually still here. Rather than say they'll send the dairy somewhere else and make it cheaper, perhaps getting a cheaper quart of milk as a result, they're saying, I'm part of it and I'm not actually going to vote ourselves away.
This brings us back to this whole issue of why, if it's a successful model, as I think everyone here has said it is—though it's obviously not the only model, the only thing we should do in an economy—we wouldn't take that success and try to emulate and nurture it so that we can improve and expand it? Would we not want to do that as policy-makers, from your perspective? I recognize that you have a vested interest, which is okay, as we can take it from that perspective, but wouldn't that be something you'd want to encourage us to do as policy-makers?
You're free to jump in or not.
I can certainly make a question of something else or I'll just make another statement.
It's okay. I'm not trying to trap you, by the way.
A voice: What time is it?
Mr. Malcolm Allen: Mr. Chair will cut us off. Don't worry.