:
Mr. Chair, with me is Jeremy Rudin, assistant deputy minister of the financial services branch from Finance Canada, and John Connell, associate assistant deputy minister of strategic policy at Industry Canada.
My colleagues are here with me today as the responsibility for cooperatives is shared among the three departments. I welcome this opportunity to address this committee and contribute to your discussions on this vital sector of our economy. Before I do so, I would like to place the issue in the wider context of our department's contribution to the government's overall deficit reduction strategy as part of economic action plan for 2012.
As we all know, the government is moving to a smaller footprint and is asking departments to focus on their core mandates. Much of what our department does is of direct benefit to rural Canada. Our core stakeholder groups remain agricultural producers and processors. This is the end of a cycle in which programs were automatically renewed and the start of an ongoing objectives-based evaluation process, a process in which certain initiatives will also be gradually eliminated.
The programs of the rural and cooperative secretariat have achieved their objectives, and like many of the programs in other departments, they have not been renewed. There is no question that the rural and cooperatives secretariat has laid solid groundwork for communities to more effectively interact and take advantage of opportunities that exist to advance their interests. That said, we believe that virtually every department of government has a responsibility for rural development, particularly economic development. Every department needs to ensure that its programs and policies reflect the unique circumstances of rural Canadians. In other words, they should be viewed through what has been called the rural lens. In that spirit, we are committed to working with other government departments to ensure rural concerns are integral to policy and programming decisions.
To facilitate that, we will have a small but focused policy coordination and research group, the role of which will be to leverage the resources and influence the decisions of other government departments. This dedicated group will be able to draw resources from across the department and will assist in integrating the work of Agriculture and Agri-Food Canada in its portfolio agencies in the interests of rural Canadians.
[Translation]
Of course, cooperatives will continue to play a critical role in this new approach. I am sure members around this table are fully aware of the important contribution that cooperatives make to Canada's economy, providing goods, services and jobs for Canadians from small communities to large cities.
The co-op sector continues to show that it can be a competitive—and profitable—business structure in today's economy, responding to the needs and drivers of the markets in the communities it serves. Canadian farmers can count on a very strong network of agricultural cooperatives that provide them with good production cost control, market access, and skills and expertise transfer.
There are a number of ways that the government has shown its support cooperatives over the years. One example is the Canadian Agricultural Loans Act, a financial loan guarantee program that gives cooperatives easier access to credit. Under CALA, agricultural cooperatives can access loans of up to $3 million to process, distribute or market farm products. Agriculture and Agri-Food Canada and portfolio organizations continue to provide a wide variety of programs for agricultural cooperatives.
This also gives me a chance to talk about AgPal. AgPal is a new web-based discovery tool developed by AAFC to help producers and others in the agriculture and agri-business sector find the federal, provincial and territorial programs and services that specifically apply to them. Agricultural cooperatives can use this tool to find a wide variety of programs.
There are programs such as the agriculture education program and agri-opportunities available to existing and start-up cooperatives that reflect the sectors in which they are operating, the needs of the people who are running the cooperatives, and the needs of the people who are accessing cooperatives' services.
All of this information is made available through the Guide of Government Programs Available to Cooperatives, a copy of which has been provided to thousands of cooperatives across Canada. The guide is also available on the web.
The provinces and territories also play an important role in developing innovative ways to capitalize cooperatives and cooperative development.
The government is pleased to be supporting the International Year of the Cooperatives, declared by the United Nations for 2012. We are working with the Canadian Cooperatives Association and the Conseil canadien de la coopération et de la mutualité to promote this international year and make it a success, including the international summit in October in Quebec. As part of our commitment, AAFC will work with the sector to prepare a final report to the United Nations on 2012 in Canada.
In summary, while our department sharpens its focus on its core mandate, the needs and potential of rural Canada and the cooperative sector will continue to inform our policies and programs, both at AAFC and across government.
Thank you once again for the opportunity to be part of this discussion.
Thank you, Mr. Chair.
I’d like to thank the witnesses for being here this morning.
There are over 9,000 cooperatives in Canada with 18 million members. We know that, historically, it began very modestly in the early 1900s. Each community had specific people, needs and services. There were a lot of agricultural and financial groups, in particular. In Quebec, insurance cooperatives, including Promutuel, also really played an important role in our country.
There is a marked trend for cooperatives to be in small communities, but also in much larger ones, too. They competed with some services that the cities offered. If we will recall a bit of history, we know that the banks were located mainly in the cities and large communities. They did not necessarily go and provide services to small communities, like the one where the Mouvement Desjardins began, which provided more of a local service.
Then, 25 or 30 years ago, we noted the trend of cooperatives to group into federations to provide services for one another. They needed expertise and buildings to manage themselves and audit one another. In 25 years, we have also seen a lot of mergers. Previously, we often saw two cooperatives merge. Today, 10, 12, 15 and sometimes as many as 20 cooperatives merge to provide services.
Do you think that trend will continue? Or will it stop? What challenges might it present for cooperatives? People are generally proud to be members of a cooperative, to have an active share. But when they become larger, this feeling of belonging from members may be lost. We are starting to feel it in the community. Members are finding that their cooperative is becoming so large, but so far from what the basic initiative was.
:
Thank you, Mr. Chair and committee members. My name is Denyse Guy, and I am the executive director of the Canadian Co-operative Association, which is referred to as CCA.
I wish to begin by thanking you for inviting CCA to participate in these historic committee hearings into the cooperative sector. It is fitting that these hearings are taking place in 2012, as this year has been declared the International Year of Cooperatives by the United Nations General Assembly.
The UN has asked all member states to take measures that will create a supportive environment for the development of cooperatives. The committee overseeing Canada's participation in the International Year of Cooperatives, which includes leaders of the Canadian cooperative sector, as well as the executive director with the federal government's rural and cooperatives secretariat, has established three goals for 2012: the first is to increase public awareness of cooperatives and the economic and social contribution of the cooperative business model; the second is to support the growth and sustainability of cooperatives; and the third is to create legacy initiatives that will live beyond December 31, 2012.
The Canadian Co-operative Association is a national organization representing cooperatives and credit unions in Canada. These hearings will hopefully provide an answer to the question of why the co-op sector needs a strong partnership with the federal government.
As you know, there are 9,000 cooperatives in Canada, representing 18 million members and over 150,000 jobs. The cooperative sector is well entrenched in our Canadian landscape and touches every corner of our country. Cooperatives can be found in different regions and different sectors in Canada.
I want to share with you some well-established cooperatives across this country who are members of CCA and who are not represented here today.
Arctic Co-operatives Limited—and you may have seen them on the CTV morning news in the last two days—is a service federation that is owned and controlled by 31 community-based cooperative business enterprises located in Nunavut and Northwest Territories. Arctic Co-operatives coordinates resources, consolidates purchasing power, and provides operational and technical support to the community-based cooperatives that provide food retail stores, gas bars, hotels, and arts and crafts marketing.
Federated Co-operatives Limited is a multi-faceted organization. It is owned by approximately 235 retail cooperatives located throughout western Canada. These co-ops are the member owners. Federated Co-op provides central wholesaling, manufacturing, marketing, and administrative services to its member owners, in the form of feed plants, food stores, petroleum operations, and a refining facility.
Co-op Atlantic is the second largest regional cooperative wholesaler in Canada and the largest co-op in Atlantic Canada. Based in Moncton, New Brunswick, Co-op Atlantic is owned by more than 100 cooperatively owned businesses. Co-op Atlantic provides food, agriculture, energy, social housing, and real estate services to organizations and businesses in more than 150 communities.
These are the large, established cooperatives, and when we talk about cooperatives there are all different sizes and shapes. If you look in your ridings, we see many co-op forms, from agriculture to housing, day care to groceries, health services to water supply, to radio stations and manufacturing. The list is long. The possibilities are endless. They are already working in your backyards.
With regard to innovation, it happens in cooperative models every day. Not only are co-ops working in your ridings and helping your constituents, they are developing innovative ways and meeting unmet needs for your communities and the citizens you represent. The cooperative model of ownership is flexible, resilient, responsive, and adaptable enough to respond to the concerns of local communities.
One example of this innovation is Aashiana day care, in Ajax. This co-op provides day care to members who are new Canadians, and it allows women to achieve economies of scale through purchasing food in bulk, sharing administrative and marketing costs, and accessing professional development.
HealthConnex, which is in Truro, Nova Scotia, is changing the focus of doctor–patient relationships from sickness care to actual health care. Through various web-based services, HealthConnex is providing doctors with more time to concentrate on wellness and keeping people healthy.
Modo, the car co-op in Vancouver, which is the largest in Canada, is now 15 years old. It's a not-for-profit car sharing cooperative, which was incorporated in 1997 to foster car sharing and raise awareness about the benefits of sharing cars over individual ownership.
These are just some examples of innovation. Cooperatives are economic engines of the Canadian economy, and we heard that previously in our three other talks.
Cooperatives have a unique governance model, but they are also businesses. As businesses, they provide needed services to their members and to all Canadians. They employ Canadians: 150,000 jobs. They contribute to job creation. There are at least 2,000 communities with at least one credit union or caisses populaires, and more than 1,100 communities in which a financial cooperative is the only financial service provider.
Cooperatives make money. They have $330 billion in assets. They pay taxes. The Income Tax Act does not favour cooperatives over other types of corporations. Whether you are a wheat pool, a dairy co-op, a retail co-op or a co-op wholesaler—all pay income tax at the same rates and with the same rules.
Cooperatives foster and create innovation—I have shared with you lots of different types of models. Cooperatives share good governance. They are democratically controlled enterprises designed to meet the economic and social needs of their members.
Cooperatives are non-partisan. Cooperatives are a proven tool for mutual self-help, allowing people to work together towards common goals. Members are from all political parties.
Co-ops are a unique form of enterprise. They have been an economic force for over 100 years. They built Canada. They have been instrumental in building communities from coast to coast to coast. A cooperative is a business—a business with a difference. They are community-based and values-driven enterprises that care not only about the bottom line but also about the needs of their members and the quality of life in their communities. A cooperative is jointly owned by the members who use its services. All members of co-ops are equal decision-makers in the enterprise, using a democratic system of one member, one vote. These are values we cherish as Canadians.
In turn, all members share the benefits of cooperation based on how much they use the cooperative service.
The development process for a co-op is not an easy one, believe you me. I have been involved with it for years. There is no single co-op development guide that will answer all questions. Unfortunately, available federal business services are not meeting the needs of the sector. Yes, we have a book and lots of services, but it's not meeting the needs of the sector.
The cooperative model as a way of doing business is not readily recognized within the government's language on business. However, the survival rate of co-ops is higher than that of traditional businesses—we heard that previously. Two studies done in Quebec and studies done in B.C. and Alberta have given the statistics for the survival rate of cooperatives.
Our sector is not looking for handouts or special treatment. Our sector simply wants to access what other Canadian businesses already have available to them. At the same time, understand that our business model is unique.
Cooperatives have positive relationships with the government. The cooperative landscape has recently changed, and so has our way of thinking. As part of the deficit reduction action plan rolled out in Budget 2012, Agriculture and Agri-Food Canada reduced spending by 10%. We all know this. It has cut the CDI program and downsized Canada's role in the cooperatives secretariat.
The cooperatives sector understands why these cuts were needed and supports the government's efforts to balance the budget. These cuts do not signify an end to the cooperative sector's relationship with the federal government but rather an opportunity for a new direction.
So what are the difficulties for cooperatives trying to obtain federal financing? Because of its unique ownership, a cooperative is distinct from other small and medium-sized businesses. When we compare the two models, we see where the difficulties present themselves for co-ops when trying to access current federal funding and programs available to SMEs. Newly developing co-ops don't have access to equity or established business track records, and as a result they tend to fall through the cracks. This is also partly due to the fact that people managing the mainstream business support programs have limited knowledge and understanding of co-ops and how they operate.
Access to financing for cooperative enterprises has been an age-old problem. So much so that many cooperatives have given up trying to work with the federal government. Some of the main issues that impede cooperatives from accessing federal funding and programs are a lack of understanding among government staff as to what a co-op is. Most don't see it as a serious business model. In its language, current federal programming refers to corporations, partnerships, sole proprietorships, and not-for-profits, but rarely cooperatives.
There is a lack of understanding of ownership. A cooperative is an enterprise owned by the members who use its services, purchase its goods, transform its products, or who are employed there. The inability of co-op members to provide personal guarantees is seen as lacking in security. Co-op applications don't fit easily in the boxes of government programs, which are mainly designed for private businesses. If you don't fit the box, you don't qualify.
A new home is needed at Industry Canada. Agriculture and Agri-food Canada has historically been the federal department responsible for cooperatives. The cooperative sector would like to see Industry Canada as the federal department responsible for cooperatives. The diversity of the cooperative sector aligns much better with Industry Canada compared to its current home at Agriculture.
The partnership between Agriculture Canada and Canada's cooperative sector has been a good one, but the sector goes far beyond agriculture and farming. Cooperatives operate and employ many different industries, such as retail, manufacturing, financial services, insurance, housing, health care, social services, natural services, utilities, energy and water, transportation, professional technical services, and cultural and tourism sectors.
A partnership between Industry Canada and the cooperatives sector is a natural fit. The cooperative model can help not only Industry Canada but all federal departments, agencies, and crown corporations to implement their policies. We suggest applying a cooperative lens to policies and/or programs to see how cooperatives can be better used within the government.
Good morning. I would like to thank the committee for this opportunity to provide the banking industry's perspective on the status of cooperatives in Canada.
For the purposes of my appearance today, I'm going to focus my remarks on financial cooperatives.
The Canadian Bankers Association represents 54 banks operating in Canada, banks that are well managed and well capitalized and that operate in a competitive market with strong, prudential oversight. A strong and healthy financial system is the cornerstone of a strong economy, and the CBA believes that credit unions are an integral part of a strong and competitive financial system.
Just to be clear, when I speak of credit unions, I'm also referring to caisses populaires, whether in Quebec or outside of Quebec.
A strong and healthy financial sector helps businesses grow and thrive and helps Canadians buy homes and save for education and retirement. Canadian consumers and businesses enjoy a wide range of affordable and accessible financial products and services, such as chequing and savings accounts, insurance, investments, commercial financing, and mortgages. Competition to provide these financial services is fierce. Not only do banks compete aggressively against each other to provide these financial products and services; they compete against a wide range of providers, including credit unions. These institutions offer products and services similar to those of banks.
For instance, when it comes to chequing and savings accounts, Canada has one of the most accessible financial systems in the world, with 99% of Canadians having an account with a financial institution. Banks alone offer more than 100 accounts packages in the marketplace. Youth, students, and seniors, as well as not-for-profit organizations can access discounted or free accounts. Indeed, 30% of Canadians pay no service fees at all for their banking, and credit unions also offer their own accounts packages to Canadians.
Canadians are well aware of the role of credit unions and of the level of competition and choice in financial services in Canada, and 92% of Canadians agree that there is good choice in financial services for consumers. In fact, credit unions account for 15% of deposits, 12% of residential mortgage originations, and 19% of lending to small and medium-sized enterprises across the country.
I would like to comment on the substantial evolution that we are observing among Canada's credit unions. In order to continue to provide a high level of competition and choice for Canadian consumers and businesses, there has been significant restructuring in the credit union movement. Credit unions, and correspondingly the credit union centrals that serve them, are amalgamating to support expansion in the marketplace and to take advantage of economies of scale.
Credit unions are increasingly moving away from the traditional one-branch or two-branch model. Across the credit union system, while the actual number of credit unions has declined, the size of the branch networks has increased. In Canada, there is one credit union that has nearly 100 branches, three that have between 50 and 75 branches, 12 with between 20 and 50 branches, and 28 that have between 10 and 20 branches. The size of some of these branch networks is comparable to that of small and medium-sized banks.
Consistent with this growth in branch networks is the growth of balance sheets. Over the past decade, the size of the average credit union's balance sheet has tripled. Not only is the average credit union growing, but the largest credit unions make up a significant share of the credit union system in some provinces. In Alberta, the two largest credit unions make up 73% of the credit union assets in the province, and the largest institution accounts for 58% of assets. In British Columbia, Saskatchewan, and Ontario, the figures are 51%, 40%, and 37% respectively for the two largest institutions.
In order to provide liquidity management, payments processing, and other support services to these growing credit unions, credit union centrals in various provinces are amalgamating as well. The credit union centrals of British Columbia and Ontario merged into Central One Credit Union in 2008, while credit union centrals in P.E.I., New Brunswick, and Nova Scotia joined together to form Atlantic Central in 2011. Discussions have taken place for additional consolidation at the central level. I would like to note that these centrals are federally regulated, even as the credit unions themselves are provincially regulated.
I would now like to turn to the federal government's initiative to permit the creation of federal credit unions.
As credit unions continue to evolve in order to provide further competition and choice in the financial marketplace across provincial boundaries, it is important that there be an appropriate supervisory and regulatory framework that supports growth while ensuring safety and soundness for individual credit unions and for the national financial system as a whole.
It is for this reason that the CBA strongly supports the federal government's efforts to establish a legal framework for credit unions to be incorporated and regulated at the federal level if they so choose.
The draft regulatory framework, which is currently the subject of ongoing consultations, subjects federal credit unions to the same prudential capital and liquidity standards and business and investment powers that banks are subject to. At the same time, it provides an opportunity for credit unions to broaden choices for consumers by improving services to existing members and by attracting new members across provincial borders.
While provincial credit unions can incorporate a banking subsidiary or establish a retail association, these options are cumbersome and do not effectively take advantage of economies of scale. The federal credit union legislation provides a more straightforward, simple, and seamless vehicle to operate across provincial borders. It is the view of the CBA that the addition of a federal option provides a tremendous amount of flexibility to the way in which credit unions operate and are supervised and regulated in Canada.
Credit unions can continue to operate under a provincial regulatory regime, but doing so means they will continue to be limited to the province of incorporation. For those credit unions that wish to grow larger by serving members in more than one province, the federal framework offers a good option.
It is important that there be no overlaps or gaps in the regulatory framework for credit unions. For instance, provincial regulators have raised some concerns about some credit unions taking advantage of gaps in provincial legislation and regulation to solicit cross-border deposits. This can ultimately lead to confusion about the nature of and responsibility over these institutions as well as about the nature of deposit guarantee. The federal framework, on the hand, provides a simple, clear, unambiguous means to reach out to members across the country.
Federal credit union legislation is an appropriate model to address the statutory and regulatory gaps. Credit unions incorporated under the federal model will benefit from oversight by the Office of the Superintendent of Financial Institutions and the Canada Deposit Insurance Corporation deposit insurance, while Canadian consumers and businesses will benefit from greater financial choice and competition.
In short, the federal credit union regime goes a long way to creating an appropriate, efficient, and effective regulatory regime for a modern credit union movement in Canada.
Thank you very much. I look forward to your questions.
:
Thank you, Mr. Chair and committee members, for inviting us to be part of this very important study into the current opportunities and challenges facing the cooperative sector in Canada.
My name is Stephen Fitzpatrick. I'm the vice-president of corporate services and chief financial officer at Credit Union Central of Canada. As such, I'll be speaking from the perspective of credit unions, full-service financial institutions that are cooperatively owned by their individual and commercial members.
I will touch on a couple of the topics my colleague discussed, but as you may expect, we may have a slightly different perspective on some of those matters.
I was to have been accompanied by Monsieur Denis Laframboise, who's the president and CEO of Ottawa-based Your Credit Union. However, he had to deal with a personal matter this morning. He may be here a little later, but we will carry on.
I'd like to start by just providing you some contextual information about credit unions. The Canadian credit union system is a vital competitor in the financial services industry. Credit Union Central of Canada, known as Canadian Central, is the national trade association for its member organizations, which are the centrals, and through them 363 Canadian credit unions.
Canada's credit unions operate a branch network with more than 1,700 locations. These branches serve more than five million members and employ almost 26,000 people across Canada. Almost one-quarter of credit union locations serve small communities where the credit union is the only financial services provider.
As member-owned financial cooperatives, service continues to be our number one motivation. That commitment to service is gaining recognition. For the seventh consecutive year, Canadians ranked credit unions first in overall customer service excellence among all financial institutions, surpassing all the Canadian banks in Synovate Canada's 2011 best banking awards. Credit unions also took sole honours in the categories of “values my business” and “branch service excellence”. In addition, credit unions tied for first place among Canadian FIs in the categories of “financial planning and advice” and “telephone banking excellence”.
I'd now like to highlight for you some of the current trends in the Canadian credit union system. First of all, credit unions continue to be strong performers. Even through the economic crisis, Canada's credit union system has performed extremely well. Canadian credit unions ended 2011 with assets that were 10.1% higher than in 2010, reaching $140.2 billion, while generating record profitability. For comparison, this asset size, $140 billion, is roughly comparable to that of the National Bank of Canada.
Our cooperative model is a key reason for our solid financial performance. Direct accountability to our members, each of whom has an equal say in our operations, means that credit unions are prudent lenders and naturally inclined towards productive investment in our local communities. This strong financial performance has resulted in continued growth in membership. Today more than 5.2 million Canadians belong to a credit union. Our membership growth has slightly outpaced population growth. Despite competition from the large banks and other financial services providers, credit union membership has grown at an average annual rate of 1.2% over the last 10 years. During that same period, Canada's population grew at an annual rate of 1%.
Consolidation in the credit union system is a continuing trend. For decades, some credit unions have responded to increased complexity, to compliance costs, and to changing demographics through consolidation. Mergers between neighbouring like-minded credit unions offer effective solutions to meet the competitive challenges of our rapidly changing financial services industry, while at the same time permitting growth and diversification opportunities in a larger market.
Many small and medium-sized credit unions, and lately larger credit unions, continue to join forces to reduce overhead costs, afford new technology, and offer a broader range of better products. As a result, between 1992 and 2011 the number of credit unions has decreased by 726, declining at an average rate of about 36 credit unions per year.
While mergers have reduced the total number of credit unions, the network of branches, combined with the range of electronic banking services available to members, remains strong. As an example, over the last 20 years the number of ATMs in the system has increased by approximately 50%.
Overall, credit union mergers have contributed to our vibrancy, and they've strengthened our commitment to local and community banking. The result is a combination of locally owned small, medium, and large credit unions that reflect the individuality and character of the communities they serve.
I'd like to talk about the federal credit union option just briefly. The consolidation and growth of the system has implications for the traditional geographical scope of credit unions. For instance, in British Columbia, the three largest credit unions hold 61.5% of the assets in that province. Similarly, in Alberta, the largest credit union holds 59.6%, and in Newfoundland and Labrador, the largest holds 52%. For these credit unions the greatest potential for growth and expansion is beyond the borders of their province of incorporation. For this reason, among others, Canadian Central welcomed the federal credit union legislation that was adopted as part of Budget 2010. We were pleased to hear last week that draft regulations have been released for comment, and we look forward to the coming into force of this legislation that will enable credit unions to choose a new option to address growth opportunities and enhance service to their members.
As we manage growth and the growing expectations of our members in the communities we serve, credit unions do face marketplace and regulatory challenges where the federal government has a role. There are two in particular I would like to draw to the committee's attention today.
First is in relation to small business. Credit unions appreciate the role we play within a strong regulatory framework to protect the savings and security of Canadians. However, we share the concerns of many members of Parliament that regulations are being applied in the same manner for financial institutions with 2,000 employees as they are for those with a dozen or fewer, the result being relatively high compliance costs for credit unions. In their recent final report, the government's red tape reduction commission emphasized that a “one size fits all” approach to regulation tends to disproportionately burden smaller businesses like credit unions.
We urge the federal government to follow through on its commitment in Budget 2011 to require regulators to examine current and future regulation through a small business lens to ensure that new and existing rules do not adversely affect credit unions while creating unintended advantages for larger financial institutions.
Another issue of concern to credit unions is the legislative mandate of Farm Credit Canada. Credit unions value the role of Farm Credit Canada, the role it plays as a committed partner that supports Canadian agriculture in good times and bad. However, the FCC is in an anomalous position relative to other crown financial institutions. It does not face a requirement to lend in the manner that complements the activities of private sector FIs, but instead it can aggressively compete head to head with credit unions while enjoying marked advantages that are related to its status as a crown corporation.
It is also unique in that unlike Export Development Canada and the Business Development Bank of Canada, FCC is not subject to a regular parliamentary mandate review. Canadian Central recommends that the government undertake a public review of the Farm Credit Canada Act to ensure that FCC continues to play a relevant role in a competitive marketplace. We also recommend that the government consider amending FCCs legislation and operating principles to bring them into closer alignment with those of the Business Development Bank and Export Development Canada. Specifically, this would mean that the legislation governing FCC would be subject to a regular parliamentary review, and second, that this legislation would be amended to require FCC to operate in a manner that complements rather than competes with the activities of private sector lenders.
Mr. Chair, Canadian Central wishes to thank this committee and your colleagues for undertaking this important and timely study. Across Canada this year, credit unions are taking part in celebrations to mark the 2012 International Year of Cooperatives. This is an ideal time to reflect upon the vital role that cooperatives have played in building our country and upon how together we can continue to promote and grow cooperatives and credit unions as democratic, responsive, and successful businesses.
I thank you very much for the opportunity to provide some thoughts to you today. We're here to take any questions.
Thank you.
Well, I'll go back too to where we were on that. I'm not looking for a missed opportunity; I'm expecting this committee to do its work, as we are here in the summer. We'll continue to talk to all the experts we can find. Ms. Guy and I have spoken a number of times on cooperatives. We'll just continue to do that. We'll put together a great report from this committee in time for that conference.
Anyone who would like to attend certainly can attend. I haven't seen shackles under the desks yet. I think they're all loose and free and able to do it. I think it's important that the government's response could then also come with information gathered from the conference. I think that's pretty important.
You talked about the cooperative and the way it works, with one member, one vote. We have the same thing. That works here at Parliament too.
I want to talk a little bit about the financial institutions.
First of all, I'll apologize at the beginning, Mr. Wrobel. I'm going to compare the Canadian banking association to the credit unions on a service level, and you're not going to win.
Voices: Oh, oh!
Mr. Joe Preston: I learned early in my life as a business entrepreneur, from a great mentor, that the second-best relationship I need to have—excluding the one I have with my wife—is with my lender, my financial institution, as a business person.
There are times when my wife has to have that same relationship, too.
An hon. member: But not your leader?
Mr. Joe Preston: It's somewhere in the ranking.
But it's true, and I have found... I mean, I'll toot the horn of credit unions again. My lender at my credit union is also the baseball coach and a member of the service club I'm a member of—those types of things. That's not saying it doesn't happen in the bank business, but thank you very much for pointing out that service is your motto. That's a really great way to go.
One of the documents here says that 19% of lending to small and medium-sized businesses comes through the credit union business. What would the size of credit union be as a percentage of banking in Canada? Is this 19% well above the average?
:
Good afternoon, everybody, first of all, and thank you for inviting us here.
I am the executive director of the Co-operative Housing Federation of Canada, and I also serve as the vice-president of the housing group of the International Co-operative Alliance.
I'd like to talk, to begin with, about cooperative housing and the roles that cooperatives have played in housing Canadians over the past generation. Then I'd like to also make a few remarks about cooperatives generally and their role in the Canadian economy and what I think might be a reasonable and practical role for the government going forward.
You should have in your documents something called Co-operative Housing in Canada. It will have, probably in a more logical order, most of what I'm about to say and more. I'm just going to confine my remarks to a brief overview.
Almost all of the housing cooperatives in Canada have been created on a non-profit, affordable rental model. They began in the early 1970s under three government programs as a response to increasing concern that the model for housing Canadians affordably using public funds, while well-intentioned to begin with, was not serving the purpose it was intended to serve. It was creating, instead of communities, ghettos and no-go areas, and the government felt—with some persuasion from our sector and others—that it was time to look at a different model.
Cooperatives were initially used to create affordable, mixed-income communities—fairly small, not the monolithic, 100% targeted communities that are typical of public housing projects and unfortunately typical of public housing blight.
Over the years there were three major federal programs. The first one was delivered in 1973. The last one was cancelled in 1992. They delivered more than 60,000 units of cooperative housing under those three programs.
In addition, there was a significant program in Ontario that ran for 10 years, lasting from 1986 to 1995, and there have been smaller but effective programs in Quebec and British Columbia. These are unilateral programs, which have altogether delivered approximately 100,000 units of cooperative housing in this country.
By and large it has been very successful. Cooperatives are businesses, and in some cases these cooperative businesses have struggled, but by and large they've been very successful at doing two things: first, being sustainable businesses; second, housing Canadians affordably and building a sense of community, not merely within the co-ops themselves but in the communities in which those co-ops are situated. Typically, members of co-ops are not merely engaged civically in their own co-ops but are also engaged in the broader community; you'll find that many people coming from cooperative housing backgrounds have run for civic office, have held civic office, and have played very important roles of different kinds in our communities.
Unfortunately, cooperative housing right now is not well advantaged by the way governments spend money on housing. The federal government is out of the housing business. I am not back here today suggesting that it get directly back into the retailing of housing programs, but I do urge the government to continue to fund affordable housing development and to make sure that funding is sustainable and can be depended on by the provinces and territories. It is up to me and like-minded people to persuade the provinces and territories to spend some of that money on cooperative housing development, because our own members are anxious to see more.
That's essentially the model of co-op housing that has developed in this country, rather in contrast to some of the European models, which have favoured what we call the “equity” model of co-ops. I'm going to talk briefly about that. You have a one-pager that I prepared.
There is very little equity co-op housing in Canada. The job that an equity co-op model might do has been mostly done by condominiums. But there is now an increasing desire by a couple of provinces to look at equity co-ops as a way of delivering affordable home ownership programs. As probably no provinces are open to using federal transfers to develop affordable home ownership programs, they want to do that and are looking at the equity co-op model described in this piece—and I won't go into any detail with you—as a way of doing it.
We think it's a logical way to do it, because what we're looking at here is first-time home owners with no experience of home ownership. This is a way for them to work together to make sure they understand and learn the risks and responsibilities of home ownership. We are going to be working with a couple of the provinces to see how that is adaptable.
In the United Kingdom right now they are looking at what is called a “shared equity” model. House prices remain very high in large population centres in the U.K., as is the case in Vancouver, Toronto, Montreal, and Calgary, and I could keep going down the list.
The shared equity model is a way for people who can't raise enough capital through mortgages to become outright owners right away to access home ownership. Shared equity typically involves a partial ownership model, and then essentially renting the rest of your housing from a housing association with the option to increase your equity stake up to 100%.
We think that potentially has possibilities here as well, perhaps with the adaptation of what's called a multi-stakeholder co-op. It's not merely the members, in this case of a housing co-op, who are entitled to run for governance positions; it's perhaps people from the community with different kinds of skills to bring along, but always in a minority position so the actual members of the co-op who are receiving the benefits of membership are still in control.
That's what I want to say about housing cooperatives. I will say it's been a great success story. It's been a community builder. We would love to see more. We would love to see this committee recommend that there be more.
I want to turn briefly to a couple of the objectives of the committee itself. One of those is to identify the strategic role of cooperatives in our economy. You've probably heard this already today. I know CCA has been here. The fundamental difference is that we're talking about people-centred cooperations—people-centred rather than profit-centred.
I'm not here to call profit a dirty word; by no means am I doing that. If the focus is on the people who either supply or use the services, you're going to have an enormously adaptable model that helps to create jobs and sustainable growth, but in the concept of values. I think there's no better time than now for us to be looking at a corporate model that offers a values-driven alternative to some of the practices of the free market over recent years.
The subject of banks came up just before I began my remarks. I won't say that Canadian banks have been terribly bad. They haven't been terribly bad compared with the European ones. It's interesting to observe what's happened very recently in Britain with the interest-rate-fixing scandal at Barclays Bank. What's happening there is a flight of bank deposits into cooperative banking institutions.
I think more and more you're going to see people looking, not to displace the traditional free enterprise capitalist model—I think rumours of its death are being greatly exaggerated—but to finding alternative models that do focus on people and the things that matter, as I said, like jobs and like growth.
I don't expect the government to guarantee co-ops. I don't expect the government to guarantee co-op jobs. I do think there should be a level playing field for cooperatives in the Canadian economy.
That brings me to a remark I heard from Professor Watson, who was supposed to be here today but unfortunately is not. I would like to have met him. Essentially what he said was that cooperatives work and they don't need any additional or favourable support from government.
I remember Mr. Bélanger agreed with that, and I agree with Mr. Bélanger. They don't. But before we start getting into that, I think we need to determine exactly what a level playing field means.
If anybody is under the impression that there are significant breaks through the Canadian tax system and direct grant systems to private enterprises of all kinds, then we need to rethink it. I have a partial list of what is offered by way of breaks to tourism, to the auto industry—remember the bailouts—and to the oil and gas sectors.
Generally speaking, you can find—through the tax expenditure report of the Government of Canada, which the finance department released this year on January 9—the amount of money put out by way of so-called tax expenditures, essentially tax breaks that assist different parts of the economy according to what are considered to be the economic strategic interests of the country.
I'm not going to comment on whether those are real strategic interests. That's for others to decide. What I am saying, though, is that co-ops deserve a fair place at the table. If business is going to be assisted, then there's no reason that co-ops shouldn't be assisted as well. In particular I'd like to see some of the benefits provided by way of resources from Industry Canada also made available to cooperatives.
I would say this is an extremely good time for the Government of Canada to consider the creation of a centre for excellence in cooperative enterprise. It would be a remarkable and fitting legacy for the International Year of Cooperatives, 2012.
Thank you.
Good afternoon, Mr. Chairman and members of the House of Commons Special Committee on Cooperatives, and thank you for this opportunity.
My name is Frank Lowery. I am senior vice-president, general counsel, and secretary of The Co-operators Group Limited.
One in three Canadians is a member of a cooperative or a credit union, and over 10,000 Canadian cooperatives and credit unions employ in excess of 150,000 people and have combined assets of approximately $167 billion.
The Co-operators Group is one of these cooperative organizations.
We are owned by 45 cooperatives, credit union centrals, federations of caisses populaires, representative farm organizations, and like-minded organizations, with a combined underlying membership of 4.5 million Canadians. As one of Canada's most prominent financial services organizations, we are proud to provide insurance and financial services to more than two million Canadians. We strive to be the insurer of choice for Canadian cooperatives and credit unions, but we serve all Canadians
Just as many cooperatives spring from unfulfilled social and economic needs, The Co-operators was formed by a group of farmers who sought insurance protection that the private capital market would not provide. Despite our humble beginnings, we are an excellent example of how the cooperative model is a thriving form of enterprise.
Inherent in our cooperative values is a commitment to the communities in which we operate through employment, philanthropy, community economic development, and cooperative development. For example, our co-op development fund provides grants to small, emerging co-ops throughout the country. We also support the cooperative development infrastructure in Canada. Last year alone we provided more than $650,000 in fees and dues to various co-op associations across Canada. Our charitable foundation and associated non-profit provides support for sustainable and community-based development. We provide pro bono and in-kind services for cooperative development both in Canada and abroad.
We are also very proud this year that our CEO, Kathy Bardswick, is Canada's representative on the International Co-operative Alliance.
Let me talk about the role of cooperatives in Canada.
As cooperators, we know that cooperatives contribute to Canada's social fabric and the survival of communities because they are formed to meet common needs and are democratically run. The cooperative model is a form of business enterprise that is most adapted to accomplishing social and public policy objectives. That uniqueness of form has been most particularly recognized during the economic crisis of the last four years when public share and private capital corporations have been bailed out at public expense, while cooperatives generally have not. Public confidence in the financial sector and all of its related activities has been shaken, but as cooperatives, we have confidence in the ethical value base of cooperative enterprises that has never been stronger. Cooperatives, like all business enterprises, require a regulatory environment that is efficient and that does not deter investment or productivity, but they also need an environment that takes into account the uniqueness of the cooperative form.
I'm speaking specifically about the Canada Cooperatives Act. Today I would like to focus most of my remarks on the uniqueness of the cooperative form and the need for legislation that recognizes it. For cooperatives to better succeed—for there to be more and better cooperators in the future—the enabling cooperative statute needs to be modified. Without these changes, the many varieties of cooperatives in all sectors of the economy that will significantly contribute to Canada's future by providing good jobs and stability will be held back. The Canada Cooperatives Act must more appropriately recognize the unique nature of the cooperative form of enterprise.
Modernization of the Canada Cooperatives Act in 1998 drew upon the Canada Business Corporations Act for guidance. The CBCA is a statute governing share capital-based business organizations rather than membership-based or values-based organizations such as cooperatives, fraternal benefits societies, or mutuals.
As might be expected, provisions that make sense for publicly traded capital corporations do not necessarily make sense for member-based cooperative organizations.
In this vein, there are really three issues that I want to bring to your attention with respect to the Canada Cooperatives Act. The first is carrying on business on a cooperative basis. Subsection 18(2) of the act allows an interested person to make an application to the court if the person believes the cooperative is not organized, operated, or carrying on business on a cooperative basis. “Cooperative basis” is defined in section 7 of the act and is basically consistent with the statement on cooperative identity maintained by the ICA, which guides all cooperative organizations.
Section 329 of the act gives a court in the area in which the cooperative has its registered office the ability to have a very wide investigation and gives it a wide range of remedies. Paragraph 313(1)(a) of the act then gives a court the power to order the liquidation and dissolution of the cooperative if the court is of the view that the cooperative no longer carries on business on a cooperative basis.
Think carefully about what that means. It means that a person, including a person who might not like cooperatives or who might have any number of motives to wind up a cooperative, has the ability to access a remedy to dissolve the co-op without going to the membership and without really accessing the democratic process within the cooperative, which is the whole essence of a cooperative. When that person applies, they apply to a judge, who normally would have had little exposure to co-ops or to cooperative law and who will likely, in rendering a decision and making a judgment, bring to bear public share company principles and precedents.
Without going into any more detail on this specific issue, this is a very draconian remedy, and though to the best of my knowledge it has not yet been utilized by anyone, it is a disincentive to many large organizations not yet under the Canada Cooperatives Act to use this act. So the bigger you become, the less likely you would want to use the Canada Cooperatives Act.
To correct this, it is our respectful view that the determination as to whether or not a cooperative continues to operate on a cooperative basis should be made by a panel of experts appointed by the CCA and CCCM, rather than a court, which normally applies public share capital company law. In addition, the test should be modified such that a cooperative needs to “substantively” operate on a cooperative basis. Sanctions, if it doesn't meet this test, should begin with giving the cooperative a period of time, something like six months, to rectify its failings with respect to this test.
The second issue really relates to the broader act itself. Because it was drafted based on a statute designed for stock companies and not membership-based entities, it has sections within it that might make sense for a publicly traded share capital company that are not truly democratic, given that differential votes are attached to different classes of shares or that minority shareholders have no rights, but it does not necessarily make sense for a democratically controlled cooperative enterprise.
There is a large body of law around the so-called oppression remedy that exists in public corporations to protect minority shareholders, but no such body of law exists for cooperatives. One really wonders why or how such a provision made it into a cooperative act, but it did. We think this needs to be reviewed and, if doing so is considered appropriate, removed.
The dissent right, as it is known in public company law, is also a concept that makes great sense in public share capital corporations that have minority shareholders who have no real influence, but in cooperatives it is an article of faith that votes are tied to membership and not to capital. First-tier co-ops, by definition, must have one member to one vote.
Finally, in corporations that are really capital vehicles, where the owners of capital have a disproportionate share and where occasionally one owner wants to take out another owner, the compulsory acquisition rules also make sense—the majority of a minority, and so on—but in cooperatives this does not necessarily make sense.
Cooperative entities are inherently, and by definition, democratic institutions.
In a democracy, while people have a right to disagree, the majority ultimately decides, and the minority needs to follow the common decision. I heard that earlier this morning: it's one person, one vote. We do not, for example, have the right to dissent with respect to how our taxes are spent, or with respect to other public policy decisions that are made on our behalf by people who are popularly elected. Cooperatives are autonomous groups of people who are brought together for a common purpose and who participate with respect to that common purpose in a democratic way—just as it is in our own democracy.
In a truly democratic organization or society, once the majority has chosen the path that is to be followed, all of the members of that cooperative or society follow. They may disagree with it, but inherent in democratic theory is the right of the popularly elected to set public policy. If in time they don't do this, they will likely be defeated and someone else will be elected. But that is the sanction, not an oppression or dissent right.
The last part is actually not in the act but is a suggestion we would make. This concept should be considered and, once properly drafted, should be included.
In the last year or so there has been a lot of discussion regarding demutualization measures for property and casualty insurance companies in Canada. There are currently no rules governing the demutualization of property and casualty insurance companies in Canada, but it is the expressed intention of the government to issue such regulations for public consultation some time this summer.
About 10 years ago there was a wave of demutualizations that occurred in the life insurance sector. The government of the day developed regulations to govern those demutualizations. We all know how that worked out.
When a company demutualizes, what really happens—and this is my view, since I have been around and have worked for mutual companies—is that the company is converted into a stock company with shares that ultimately find their way onto public markets. There are winners and losers, and those who have tended to win are a small minority of policyholders, board members, senior managers, brokers, and professional consultants who receive windfall benefits. This was less so in the life sector due to the comparatively larger group of participating policyholders but will be much more evident in the P and C sector if the government adopts rules similar to those for life company demutualization.
The mutual, the cooperative, and the fraternal benefit forms of business do not really benefit from this. In addition, all of the ordinary Canadians who have contributed over time to the wealth and surplus of these companies do not benefit. Only those who are current or relatively recent participating policyholders benefit, even if they didn't really create the vast majority of the wealth and surplus.
The windfalls generated by this type of activity ensure that mutuals, cooperatives, and fraternal benefit organizations as a group will never get to a size that can compete with the private sector capital companies. Though many generations contributed to create the surplus and to support the democratic form of enterprise, there are always a few who are happy to take it and get rid of the democratic form.
This should actually provide an advantage for other member-based organizations in a world where consolidations appear to be essential to retain competitiveness, but in fact quite the opposite is true.
For a company like The Co-operators, if we wanted to keep a mutual in the mutual sector, under regulations similar to those for life company demutualization, we would basically have to have it demutualized, take away all of the benefits of membership, and effectively purchase it as an asset. That means that those with access to large amounts of capital are the ones who our system permits—
:
My opening remarks won't take 10 minutes, but I would like to thank the committee for the invitation to speak.
I am the president of the Ontario Mutual Insurance Association. We are composed of 44 property and casualty mutual insurers incorporated in Ontario. Each of our companies is in excess of 100 years old, the oldest being over 150 years old. The genesis of mutual companies in Ontario, and for the most part in other parts of Canada as well, was the lack of availability of insurance in rural areas of Ontario during the 1830s, 1840s, and 1850s, up until well into the 19th century. Groups of farmers came together and pledged to support each other in the event of a loss, and basically the mutual insurance industry was born out of that.
We're very proud to continue that tradition today. In contrast to some of the mutuals that Mr. Lowery referred to, each of our member companies is a 100% participating company. By that I mean that if you purchase a policy from a mutual insurer in our association, you are a voting member of the mutual and you exercise the full democratic rights of any other policyholder. We do not have a split ownership structure.
Overall we believe that mutual ownership as a structure is extremely important to a diverse financial services sector. We recognize that there need to be different forms of ownership, and we do have concerns about potential demutualizations basically pushing the insurance sector into being either fully publicly traded, and in many cases foreign controlled, or held as private equity. We believe that companies that provide an alternative form of ownership are important.
Right now in Canada, there really aren't any issues concerning the availability of insurance to policyholders. That being said, things have a habit of changing, and it may well be that down the road, due to global conditions, you could see a lack of availability of coverage. In that case, locally owned and controlled mutuals certainly would provide a very viable alternative.
I think that some of the greater threats to smaller companies like our own.... Here I guess I should be clear that we are a fairly small part of the overall P and C sector—although in Ontario, overall, we do rank more or less in the top ten in direct written premium. The largest member of our association writes about $80 million in premium and our smallest member writes only half a million dollars in premium. By being part of an association we're able to support a wide range or scope of these 44 different companies.
We work closely with our provincial regulator. We do have issues concerning the prevalence of regulatory initiatives springing from global circumstances, which can have an adverse effect on smaller entities. We believe there needs to be strong regulation, but we also believe that all regulation, including the need for capital requirements for insurers, needs to take into account special circumstances that may go with smaller-scale entities such as our own.
Overall we support the idea of mutual and cooperative types of ownership, and we think it's an important part of the Canadian economy. We think where we are today is in large part due to the people who were willing to take on the burdens of ownership when others weren't willing to come forward.
That concludes my opening remarks.
Thank you.
:
Thank you very much. I appreciate the opportunity to be able to come forward.
Gay Lea Foods' story is going to be a little different, I think, from that of some of the other associations that have come forward. I'm not representing an association; I am representing a singular co-op, but a co-op that lives by the same principles and the same values that certainly Frank Lowery was espousing.
Just to put it into context—and I have provided this, so I'm not going to read it to you, I'm only going to touch on some salient points—Gay Lea is Canada's second largest co-op. It's the largest co-op in Ontario. It was the eighth largest non-financial cooperative in 2010. We have 1,200 dairy farms across Canada, 3,300 members, and our members not only consist of dairy farmers but employees as well.
Our members produce some 800 million litres of milk, which is about 30% of all the milk that's processed in Ontario. Our annual revenues this year will be over $500 million. We are the fourth largest processor in Canada, based on volume. We certainly have many sites across southern Ontario.
We have 650 full-time and part-time employees. We are a major processor in a niche market. If you eat cottage cheese, sour cream, butter, or partake in the sins of aerosol whipped cream, it likely has been produced in my facilities across southern Ontario—there's just a good chance.
With all due respect, we produce the best cheese south of St. Albert.
Voices: Oh, oh!
Mr. Michael Barrett: In the past decade our cooperative has invested $170 million in capital expansion. We are, except for one small capital lease, debt-free. This has been funded by our members and our members only.
Not only are we a good cooperative, but we are also a good employer. We have been in the top 100 employers in 2010-11 and the top employer for employees over 50 in 2011. In the GTA, from 2009-2011, we received excellence in governance awards. We were nominated for a grand prix for product innovators three years running, and we also won a Global Co-operator Award. Our values and principles are very important to us.
We are governed by the Co-operative Corporations Act. Like many other cooperatives, we have a full slate of farmer-member directors. We have a governance model that certainly is one member, one vote. Over the last five years we've invested hundreds of thousands of dollars in being able to develop training in governance models and leadership training, not only for our own cooperative, which has won awards in the cooperatives sector, but also we offer that through the other agricultural cooperatives.
One of the important elements of being in a cooperative is ensuring it's a good business, but also being able to understand how to have good governance and making sure you relate to your membership.
Gay Lea Foods puts 40% of its profits back to its members, so it goes back to our farmers. It goes back to be reinvested in capital goods, whether it's tractors or farms, or to ensure there's economic rural sustainability. It's very important for us in order to support the rural community.
Why do farmers belong to a dairy cooperative? Certainly it's the ability to own part of the processing sector. It's being able to have influence as a collective group, and also being able to share in the profitabilities of a vertically integrated industry. Also, one cannot own the industry, but 1,200 can own part of the industry. Just to put it into perspective, our members have $80 million invested in a cooperative that has about $230 million of assets.
Cooperatives certainly are an element for change. If you look at what's happening with the challenges happening to global trade, certainly the supply management industry is under pressure from a global perspective. I'm not going to take all the time to talk about how a strong cooperative is a very strong, viable alternative to supply management, but if you look at three countries in particular.... New Zealand has always being touted as the goal and the model for change. New Zealand has a very strong national cooperative, supported by the federal government and legislation in order to make sure it is a viable entity. If you look also both in Denmark and Holland, the cooperatives are supported very strongly through legislation in order to ensure there's a viable dairy industry.
In countries where there is not strong legislation for the co-op movement—if you look at Australia, Germany, and Great Britain—the economics of dairy within those three countries are of farmers going bankrupt, lower milk costs, and higher costs of production. Britain, for example, has become a net dairy importer when it was a net dairy exporter.
The cooperative model does provide an alternative to differing economic trade models that have been suggested.
The greatest loser through all these changes that have taken place economically certainly has been the farmer. Why does the dairy sector need a cooperative? Certainly it is about being able to sustain itself. It's also being able to ensure it has economic resilience. Gay Lea and someone like Agropur have been a demonstration of that.
In the cooperative sector we don't ask for special treatment, just equality of opportunity. We ask not for favours but for fairness, and we look not for unqualified support but for qualified investment.
The cooperative sector needs the following, according to Gay Lea's perspective. We need recognition that the cooperative sector is a viable economic and social alternative. We need the same access to the same level of economic, legislative, and business support. We have to be able to recognize the role the cooperatives already play within society. We have to understand that the governance model and its values are critically important and that transparency is an important component, and there is a difference in being able to have that as a model.
We have the saying “the 98% rule”, which is that 98% of the information in the cooperatives should be shared. My salary and my bonus are transparent to my members, because they own the cooperative.
Also, there has to be a recognition that the cooperative sector is not only an economic model for domestic growth but also an economic model for international aid. I've spent a great deal of time overseas through Gay Lea's support of international development. I have walked the streets of Kathmandu, and I have seen the good intentions of many nations built into buildings that are closed; they are closed because they are not sustainable. What I see happening in third world countries and developing nations is that cooperatives go in and they create an infrastructure for sustainable economic development and they last. They don't last three years. They don't last 10 years. They last for a lifetime.
We built a school in Nepal for 300 children. Today it has 1,200 children. We built three classrooms. The community built another 12, a computer lab, a science lab, a well, and indoor washrooms. It's through the common goal of an economic model, the cooperative model, that makes this happen.
But not only does it occur in the international field, it also occurs in the rural field as well. Gay Lea Foods gives probably about $350,000 to the development of cooperatives within Canada. We have been able to help support things like the development of local grocery stores where the only grocery store is being closed and the large retail organizations are not supporting the local grocery store. We have made donations and given governance support through the Ontario Co-operative Association in order to make sure that where a community has no grocery store for 80 kilometres, that community is self-sustained.
The cooperative model is a very important thing. Gay Lea is a model of how that works. We have been able to build our cooperative. We have been able to triple our sales. We have been able to quintuple our profitability, not based upon an economic handout but because of a model that works and is sustainable through our community.
Thank you.
:
Thank you very much, Mr. Chair, and thank you for the invitation to be here.
I'm here on behalf of Farmers of North America. I'll tell you a little bit more about that organization later on. Suffice it to say for the moment that it's an organization that has as its number one mandate improving farm profitability. To that end, in fact, I would like to thank the current government for some of the things they have already done that have provided our members with the tools to be more profitable. Of course, if I were to go into those, this discussion would be a lot longer.
I do want to take a bit of a different approach this afternoon when it comes to co-ops.
I believe the reason, possibly, that FNA was invited to this forum was that very often people say that we have co-op-like concepts in our organization. To that end, I'll explain a little bit about how we operate. My focus is also going to be very narrow, in that we deal primarily with farm inputs. Certainly farm inputs are very important. The way our organization is structured, with some co-op concepts, has ended up saving farmers hundreds of millions of dollars on the input side. What I am going to do, of course, is express support for co-ops.
I want to talk a little bit about our own unique innovative organization. Then I would like to throw an idea on the table that I believe has the potential to free up a billion dollars for investment in agricultural projects, whether they are co-op agricultural projects or any other organizational projects that help to improve farm profitability.
Let me say, first of all, that among the whole gambit of co-ops, certainly our focus is more on the agriculture or farmer co-ops, and, as I said earlier, on the input side. Of course, we also know that there are very successful marketing co-ops, as my colleague from Gay Lea has just talked about. We know that we have had co-ops that weren't at all successful. They started out very successfully but suddenly lost their direction, and they are no longer in the hands of farmers. Then we have other input supply co-ops that have been very successful.
Suffice it to say that we believe that co-ops should not be supported for ideological reasons but rather for a very pragmatic and on-the-ground reason, which is that they need to help introduce competition. If a co-op or a farmer co-op doesn't help to introduce competition in the market, then we believe that it's there more for ideological reasons. We think that's simply the wrong approach. As I said earlier, there certainly are co-ops that have been very successful in doing it.
We do know that farmers need a leg up, given the consolidation in the downstream and upstream industries. One of our goals at FNA is to get farmers to the point where they can go to lower-cost, more profitable options because they can.
In a meeting I had with a fertilizing industry a few years ago, they basically said they were increasing prices because they could.
We would like, and have been successful in certain areas already, to continue to get farmers to the point, through our organization, where they are choosing the co-op or the other organizations or lower-cost and more profitable options because they can. I believe the co-op organization has this as a mandate, too. That would clearly aggregate farmer power and help to empower farmers in the marketplace.
Again, let me say, and I can't emphasize this enough, that whether we're talking about co-ops or whether we're talking about innovative organizations such as the FNA, it has to result in more competition in the marketplace. And the benefits of that added competition have to accrue back to farmers.
Now you may wonder why I emphasize the area of input for farmers so much. Farm Credit Canada, in their 2009 client survey, asked farmers what their top concerns were. The top three concerns for farmers in that year were, number one, input costs; number two, profitability; and number three, market prices.
It's interesting. I'm not a psychologist, but since input costs are their concern, and then profitability and then market prices, that tells me that they consider input costs to be a greater obstacle to profitability than market prices. That's why we're focusing so much on input cost. That's really the very reason that Farmers of North America started.
As I describe our organization, I'll let you pick up on where we may be similar to a co-op. We are not a co-op, but we certainly adopt some of the same concepts.
FNA is simply a farmers' business alliance. It's a membership-based organization of farmers that has as its mandate to improve farm profitability. We have around 10,000 farmer-members across Canada. We have members in every province except Newfoundland.
FNA, and I'll refer to it as FNA from here on in, does not retail any products. FNA develops relationships with input suppliers, negotiates lower prices for farmers, and then has the farmer deal directly with those input supply partners. We're a membership-based organization that creates a strong crosswalk between input suppliers and our farmer members.
Now, if there are input suppliers that aren't interested in dealing with FNA, we simply create our own suppliers. One of the things we haven't found nearly as evident in the upstream industry as in the downstream industry is the fact that everybody in the value chain believes they should partner together to make sure every part of the value chain can be profitable.
As I said, one of the things we've done is to develop relationships and partnerships with input suppliers. If they're not willing to do that, say in the fertilizer industry or the pesticide industry, we simply create our own input supply partner and operate it in the same way we would if we dealt with any other input supplier. FNA will negotiate a price for its farmers, and the farmer will deal directly with that input supplier.
Where it is similar to a co-op is that the benefits of the low prices accrue to the farmer-members. In some cases what we've done, to prevent the price transparency that will allow every farmer in Canada to benefit from reduced prices, is to accrue those benefits back in what we call “empower awards”. Our farmer-members will receive a discount up front, as a member, and then any other benefits and savings accrue back to those members in what we call empower awards.
The difference between FNA and co-ops is that our members receive a discount on each specific product and program they're involved in. In other words, we don't average out what you would call profits and losses and then simply accrue benefits back. A farmer who uses fertilizer specifically would get all the savings available in fertilizer. It's not averaged out with any other savings in any other product.
The other difference between FNA and their organization is in governance. We have an advisory board, but we have a governance structure of one person. The reason we've kept the governance that simple is because we know we need to deal quickly.
I don't know how many of you have seen the Sharon Stone/Gene Hackman movie, The Quick and the Dead, but you will remember the tag line for that movie was, “In this town you're either one or the other.” We know that if you're not where the need is in the time you need to be there, the need is gone. We have a very simple governance structure that makes decisions very quickly. A decision can be made today based on whatever input we get from an advisory board or from our members.
Having said that, and having described what we consider to be a very innovative organization, let me go to the suggestion I have. I know there has been a lot of talk about eliminating funding for certain organizations, etc. We believe there is a structure in place where, if we create an incentive for farmers to invest, we think farmers will invest a lot of their own money in the agricultural industry. I would propose this suggestion—and I have copies here in both English and French, which I'll give to the secretariat later on and it can be distributed.
In our current business risk management structure that we have in Agriculture, we have what we refer to as a top 15% tier—
Thank you, witnesses, for being here today. It's great to see you out in the middle of July, coming here to talk about your associations and your businesses and how they function, and giving us some insight on how they work.
I come from Prince Albert, Saskatchewan, and we have lots of cooperatives in the area. The Saskatchewan Wheat Pool used to be one of the cooperatives in Saskatchewan, so there's definitely a history of cooperatives and of how they worked, and worked very well, in our province for sure.
In my hometown of Canwood, the co-op is the mainstay, if you want to get eggs and milk and groceries and stuff like that. You can go to Canwood and go to the co-op and you know all that stuff is there, readily available, always fresh, always good. And it employs local people, so it's always positive too. Plus, they also have fuel and stuff like that.
I find interesting the business models you have both chosen to operate your associations.
Mr. Friesen, your model is a little different from that for an average cooperative. I have a couple of questions that come from the last witnesses we had before regarding demutualization in the insurance sector. I wish there had been a question on that, because one of the concerns I've heard about is with regard to cooperatives merging. You see one co-op merge with another co-op, and there is a loss of that independent or local flavour on the board.
Mr. Barrett, maybe I'll start with you on that. Your cooperative is province-wide, is it not? You have representation right across the province? How do you go about selecting your delegates, and who sits on your board?