Thank you very much. I'll take over here.
Thank you, Mr. Chair, and committee members. First, I'd like to thank the Special Committee on Cooperatives for inviting the Assiniboine Credit Union to participate in this very important study into the status of cooperatives in Canada and what the Canadian government can do to strengthen the cooperative sector.
My name is Nigel Mohammed, and I am the director of the community financial centre at the Assiniboine Credit Union in Winnipeg, Manitoba. With me today is Mr. Dale Ward, who is actually the corporate secretary of Credit Union Central of Manitoba and is not with the Assiniboine Credit Union. I just want to correct that. But I will be speaking from Assiniboine's perspective as a financial cooperative, whereas Dale is here joining me today and will be able to answer any questions that may be related to a broader Manitoba perspective.
First, let me start by telling you a little bit about the Assiniboine Credit Union. Like most credit unions, we were started by a small group of people who wanted to help themselves. In 1943, 15 electric company employees formed a credit union where they could save their money and, most importantly, get access to loans when they needed them. In those days, there was no safety net when it came to unemployment insurance, social assistance, or medical care.
At the first credit union meeting, members invested $100 in the new cooperative. The first loan underlined the credit union's social mission. A member at that time borrowed only $50 to pay an outstanding medical bill. Over the years, Assiniboine attracted more members and grew through both sound financial performance and a series of amalgamations with other credit unions here in Manitoba. But we never lost sight of our commitment to our members and to our communities. Today we're one of the largest credit unions in Manitoba and the eighth largest credit union outside of Quebec by asset size. Assiniboine holds over $3.2 billion in assets and employs more than 570 people to provide financial services for more than 108,000 members through 23 branches in Winnipeg and 2 additional branches in northern Manitoba.
As a financial cooperative, we are owned by those who use our products and services. Our member-owners elect, from among themselves, representatives to the board of directors. Each member has one vote when it comes to the board elections and voting on important matters put before the membership. As we are a cooperative, profits may be reinvested into the credit union, distributed to members in the form of patronage dividends, and/or shared with the general community. While it's important for us to be profitable to be sustainable over the long term, as a socially responsible cooperative, our core purpose is to provide financial services for the betterment of our members, employees, and communities.
In March of this year, Assiniboine joined the Global Alliance for Banking on Values, or GABV as it's known, which is a membership organization of 19 financial institutions from around the world who share a genuine commitment to build a more sustainable future for underserved people, communities, and the environment. We have in common a business model that measures success by a triple bottom line approach. That is, measuring people, profits, and the planet in our decision-making. We are proud to be one of three Canadian credit unions to be accepted for membership in GABV. The other two Canadian members are Vancity, based in Vancouver, and the Affinity Credit Union in Saskatoon.
Like other Global Alliance for Banking on Values members, and like many credit unions, we stretch to provide access to financial services for people and communities not well served by the mainstream. That includes financing for community projects and business start-ups delivering social, environmental, and economic value to our communities. We know that financing can be the bridge between people who want to do something and having the resources to actually make something happen.
I'd like to give you a few examples of how we at the Assiniboine use our skills and resources as a financial cooperative to make good things happen in our community.
First, we bring financial services to an underserved neighbourhood. In January of this year, Assiniboine opened a branch in the north end of our city. The north end is a lower-income neighbourhood that has seen the closure of 10 bank branches and the rise of 16 financial outlets—for example, payday loans and cheque cashers—since 1996. We are working with community partners in the north end of our city to open accounts for unbanked, as well as underbanked, residents through our new branch, which is at the corner of McGregor and Mountain here in our city.
Another example of how we use our skills is through our asset-building programs.
We are one of the founders of the growing network of asset-building programs in Winnipeg as well as the northern community of Thompson. People living on low income receive money management training from non-profit partners and their saving is supported using our specially designed matched savings account. Savings are matched 3:1 by the United Way as well as by other funders. Since 2000, participants have purchased over $2.4 million in assets to improve their lives.
Another example of how we use our resources is through an Islamic financial product.
Several years ago, we were approached by leaders from within the Islamic community here in the city and asked if we would consider developing products for their community, as there was a lack of acceptable financial services. We worked closely with the community and an advisory board to design a home-financing arrangement that would be acceptable to members of the Islamic faith. We're proud that our Islamic mortgage is the first of its kind in Canada.
We also use our resources to deliver community financing. Through our community financial centre, we provide financing specifically dedicated to non-profits, social enterprises, and cooperatives so they have the resources they need to carry out their social or environmental mission. We also provide microcredit for business start-ups that would otherwise not qualify for conventional financing. We offer loans and mortgages and bridge financing, whether the latter is to bridge grants, pledges, or accounts receivables, as well as letters of credit and construction financing. We often work with community and government partners to reduce barriers to making financing available.
I would like to focus specifically on how our credit union supports the development and success of non-financial cooperatives. Like credit unions, they were formed by people who came together to address a shared concern. Owned and democratically controlled by their members, cooperatives play an important role in Manitoba's economy. Beyond simply creating jobs, they collectively address important social and environmental issues and ensure affordable access to essential goods and services in many sectors. Many serve the needs of specific, economically marginalized groups, such as aboriginal people, immigrants, as well as youth. In 2007, there were over 260 non-financial cooperatives in Manitoba. Of these, 70% were providing housing, daycare, and other important services.
Recognizing the important contributions that these cooperatives make to the local economy and to our communities, Assiniboine looks for opportunities to support their success.
I'm going to quickly cover some of the barriers to financing cooperative development that we've observed at the Assiniboine Credit Union, as well as summarize and conclude by giving specific examples and suggestions of how we think the Government of Canada can support cooperative development.
While Assiniboine supports cooperatives in a variety of ways, I would like to share our experiences when it comes to financing and suggest ways that the government can help to strengthen the sector and facilitate access to credit. Recognizing that there is a wide range of cooperatives, including those that are well established, such as Red River Co-op here in Manitoba, I would like to focus on financing smaller, early-stage co-ops, including those at the start-up phase.
The role of any lender is to assess the risk associated with a financing request, taking into account the strength of the cooperative's management and governance, the capacity to repay, as well as the adequacy of collateral security. In our experience, there are two significant barriers we've observed to financing small and early-stage cooperatives—first their internal capacity, and second their lack of assets for security.
In terms of internal capacity, as in any organization, strong management is vital to the overall success of cooperatives. Having the right skills and systems in place, whether it's financial, marketing, human resources, or inventory management skills, is essential to a cooperative's long-term viability. It gives us confidence, as lenders, to know that the cooperative's ability to manage and repay the debt is viable and tested through some of these criteria. However, we find that many small and start-up cooperatives lack these technical skills.
The Government of Canada could address this barrier by providing capacity-building grants or other support for cooperatives to acquire the technical skills or to establish the management systems necessary to be successful in achieving their social, economic, and environmental mission.
The second barrier we see to cooperatives accessing financing is their lack of assets to provide as collateral. It is difficult for the Assiniboine to provide financing when there are no assets to pledge as collateral. For example, many non-profit co-ops, such as day care centres, are limited in their ability to secure financing because they do not have adequate assets on their balance sheets that would be deemed acceptable for security purposes.
In the absence of these tangible assets, such as real estate, and with their break-even budgets, which are often necessary and are dictated by the funding agreements—
Good morning, panel. I'll give you some history of the Red Hat Co-operative. It will give you some idea of what we're about.
The Red Hat Co-operative grades, packages, distributes, and markets greenhouse-grown vegetables for grower members. At present, Red Hat Co-operative Ltd. has 52 shareholders. It represents greenhouse owners and operators in southeast Alberta.
In 2012, Red Hat Co-operative will market over five million cases of greenhouse vegetables, representing over $55 million in annual sales. Each year our growers produce over 20 million cucumbers, 14 million pounds of tomatoes, and four million pounds of peppers. Within our packaging facility, we employ over 200 employees. As well, an additional 600-plus work in the greenhouses.
Red Hat Co-operative was established in 1966 by 10 growers who saw the importance of coming together as producers and of sharing resources. Not only have they been able to jointly operate a 100,000-square-foot packaging plant, but they have been able to invest in grading and handling equipment that is the first of its kind in North America.
This ability to grow together has also helped in marketing to large national retailers that demand quality and service. Today, Red Hat brand products can be found in Safeway, Loblaws, Costco, Sobeys, Overwaitea, and many other grocery chains.
The success of Red Hat Co-operative can be attributed to our providing value to our grower shareholders. In addition to providing an efficient method of marketing the produce, Red Hat also purchases bulk inputs for all of its members. It trains people, monitors food safety programs, and supports research projects to drive innovation in our industry.
Over the last five years, the greenhouse industry has seen extensive growth and competition from domestic producers as well as from the U.S. and Mexico. Because of the increased competition, it is important that co-ops similar to ours be given all the opportunities traditional companies are granted.
One example of where we see an unfair advantage for our competition within Canada is in temporary foreign worker programs. These programs have proven critical for our industry, since we are faced with seasonal labour demands as well as a hot and agriculture-based working environment.
Our competitors that operate similar packaging facilities on their farms are able to hire temporary foreign workers under the farm program, whereas Red Hat is unable to apply, since our operation is not considered farming, even though we can argue that our growers cannot market their produce unless it is graded and packaged. This process is considered agricultural, and is thus farming. So in this case, we feel that we are being penalized for forming a cooperative to collectively grade and market our agricultural product.
In conclusion, we continue to be strong advocates for cooperatives and the value they provide for smaller producers in marketing their goods in a market dominated by large retail buyers. We ask that the committee not restrict cooperatives but give them the same opportunities traditional companies get.
Agriculture cooperatives have been the backbone of our nation for many years, since they place ownership and control with the producer. We ask that policies that encourage and strengthen cooperatives continue to be a priority for the federal government in the future.
That's a bit of the history. We want to stress the part about the cooperatives not being considered farms and not being able to hire foreign workers. That's probably our biggest issue as a co-op, and it is quite substantial.
We were a little unprepared for this whole meeting, so we don't have a whole lot more. We're relying more on your questions for us, if that's what it takes.
That's probably one of our biggest issues. I don't know if Doyle wants to add to that.
Good morning, Chairman Richards, and members of the committee.
Thank you for allowing us to make a presentation today on behalf of the Federation of Alberta Gas Co-ops. We are excited to be here because we want to demonstrate for you what cooperatives are able to achieve.
Alberta is a great example because we have something that is virtually unheard of anywhere else in the world. Anywhere you live in Alberta, whether it is a farm, a town, or a cabin by the lake, a flick of a switch brings natural gas heating to your home. There are parts of our country where to get this service you have to be living in a city or be lucky enough to have a major natural gas pipeline running past your yard. Having heating fuel or propane trucked in to have heat is the norm in much of rural Canada. Rural Alberta is different. Over the past 50 years a spiderweb of low-pressure natural gas pipelines has been constructed throughout all inhabited parts of the province. Just about any Albertan has the ability to have natural gas piped directly into his or her home. Indeed, it is almost considered to be a right by Albertans.
The reason Albertans enjoy this privilege is that 50 years ago this year a group of farmers south of Calgary got together around a kitchen table and decided to build the very first gas co-op. They were tired of natural gas companies saying it was uneconomical to build a pipeline to a farmer's house. They were tired of seeing small communities die because their kids wanted to live where they could have city comforts, like easily accessible heating. Instead, they built the Meota Gas Co-op for themselves.
What they started became the gas co-op movement. Natural gas co-ops began forming across Alberta for the very same reason that prompted the farmers at Meota. Volunteers signed up customers, they got an administration running, and they started constructing pipelines. A decade later, the province got involved, and since 1973 they have been providing grants to offset the costs of installing and upgrading pipelines. They even made it law that gas co-ops and private gas companies in rural areas had a duty to provide natural gas to anyone who asked for it within a franchise area. Today, what started from a kitchen table has evolved into the world's largest rural natural gas system, with over 100,000 kilometres of pipeline—enough to circle the earth almost eight times.
The federation, as an umbrella organization overseeing Alberta's gas co-ops, now includes 53 gas co-ops, as well as 22 municipally owned gas utilities and six first nations systems. We have over 115,000 services spread from the B.C. to Saskatchewan borders, and from the Dene Tha, in far northern Alberta, right down to the American border. In fact, we even serve just south of the border at a U.S. crossing point. We estimate that between 350,000 and 400,000 Albertans young and old are kept warm by our gas co-ops.
Just as important, our gas co-ops have been a key instrument in the economic development and sustainability of rural Alberta. We have kept people in their homes, we have made it possible for people and businesses to move into rural communities. Gas co-ops have made it possible for grain dryers to operate more economically and for farms in arid areas to survive because gas powers their irrigation pumps.
Collectively, our co-ops directly provide approximately 850 jobs based in rural communities. Our offices and workshops are in the very communities that our co-ops serve. Their corporate structure is that they are locally owned by their own neighbours. These are workers who shop locally, live locally, and play locally. Their presence helps sustain Alberta's rural communities and keeps them vibrant.
Our co-ops invest $12 million to $14 million in construction in Alberta's pipeline infrastructure every single year. Our gas co-ops alone, not including the municipalities and first nations, possess over $243 million in assets. In 2010 these co-ops sold over $112 million in gas and another $32 million in secondary services such as furnace installations. Our utilities also own a gas brokerage firm called Gas Alberta Inc., which buys and sells gas for our member utilities. Each year they sell 25 million gigajoules of natural gas to Albertans.
Some of our co-ops have taken the original goal of the gas co-ops to help rural communities one step further, by expanding into providing Internet. Their wireless broadband Internet company is following the goal that rural residents deserve similar services as urban residents and are bringing high-speed Internet to regions where it was either not available or not reliable.
These are progressive co-ops. We're looking forward to the future, with projects such as taking 50 years of infrastructure history and moving it on to a web-based geographic information system database.
In 2011, we were one of the first in Canada to gain approval to install wireless meter reading devices. After just over a year, we are now able to read approximately 40,000 gas meters from remote readers. We are collecting these readings by driving, by flying over, or through wireless Internet. We have eliminated thousands of kilometres of driving on the road every month, thereby reducing pollution, time, accidents, and helping to prevent the spread of agricultural diseases.
The federation remains the only gas utility in the country to have Measurement Canada accreditation to inspect and re-verify RMO station meters in the field. Every other utility must send its station meters to a meter shop to have them re-verified.
What the gas co-ops have been able to achieve is nothing short of remarkable. We have helped to build a better Alberta and created a system that people elsewhere envy.
To be fair, we did it with help from the Alberta government. In the 1970s, when most of our co-ops were formed, we needed that help to get us started. Its rural gas program grant, which today is worth $3 million per year, has been instrumental in offsetting the cost of installing new pipeline and upgrading old systems to handle larger populations.
We believe our gas co-op system can be emulated in other parts of Canada, giving more Canadians the same privileges that rural Albertans enjoy, while reducing their energy costs and giving them a cleaner alternative than some of the options they currently must use. We believe the cooperative model is the best option to help build gas systems, as there is little economic benefit for private companies to take on the expense of servicing rural customers.
But just as the gas co-ops in Alberta required help, so too would other areas of the country. We believe the federal government can play a powerful role in the formation of not just gas of co-ops but any kind of cooperative.
The federal government needs to recognize that the cooperative sector is a sustainable and viable economic model with the potential for economic growth, diversification, and community sustainability. The federal government should take a more active role in the formation and development of cooperatives.
Staff at the regional economic diversification offices should be trained on the nature of the cooperative sector, including their economic potential. This training should also include how to form a cooperative. This knowledge can then be used to help establish cooperatives across Canada, or connect fledgling co-ops to existing cooperatives that provide a similar service.
A fund should be started to help initiate co-ops, potentially through the regional economic diversification offices. Seed funding is often difficult to gather, but once a co-op has begun then its economic potential will be a benefit to its community. These steps would allow the federal government to help the Canadian cooperative sector grow.
As you can see from the example of Alberta's gas co-ops, allowing co-ops to thrive can create achievements that can't be accomplished any other way. With the assistance of the federal government, we truly believe co-ops can help to build a better and stronger Canada.
And thank you to all the witnesses for coming in today via video conference and in person.
It was interesting to hear the witnesses this morning talk about the role the federal government can play in helping new cooperatives start up and in helping with mentoring and training so that they know what they're doing so that they'll be successful. We think that was a product offered through the CDI and that we would have liked to have seen renewed and possibly expanded or modified to meet some of the growing needs.
I just want to commend the Alberta Gas Co-ops for bringing high-speed Internet access to the rural areas. That is absolutely the greatest barrier to business and economic prosperity that rural regions face. Congratulations, and keep up the good work.
I wanted to actually speak to Assiniboine.
First off, near the end of your presentation, Nigel, you were talking about two of the barriers for smaller and early start-up co-ops. One is internal capacity, and of course, the second is assets. That's where you talked about federal government capacity-building grants, potentially. Perhaps you could expand on that.
As well, a really important issue for me, being in an urban area, is that I have over 600 co-op housing units, and many of those buildings are in that 30- to 35-year range, where they're facing some rather hefty infrastructure needs and are having troubles refinancing their mortgages. It's exactly what you were saying about the issues to do with CMHC and perhaps excessive penalties.
Now, I believe that the co-ops all expect to pay some form of penalty, but I think they're looking for middle ground. Do you have any suggestions with respect to how we can work with CMHC to get that done?
On the first question, around the grants and capacity-building, one of the things we've observed in financing co-ops is this imbalance, if you will, between some of the senior leaders within the co-ops tending to have more of a focus on the cooperative values and principles as opposed to having some of the core business acumen that's needed to develop or make an enterprise viable.
The grants that I referenced that may come from the federal government would be to provide the training and the technical assistance needed to ensure that the right skill sets are developed, trained, and identified within the credit unions and cooperative sector so that they can recruit the right sort of management to develop and make these enterprises viable, both at the management level and the governance level. It's important, with the structure of the co-op, that the governing body or the board of directors also understand the limitations as well as the opportunities that govern co-ops, in terms of the act and so on, for them to be able to take decisions to be able to take advantage of the market opportunities.
The federal grants that I referenced are really to provide technical assistance and training, to balance the management skills and acumen that's needed to make an enterprise viable, rather than simply just focusing on cooperative development information and technical assistance.
On the other issue, the co-op housing and the expiring subsidies, we have a few co-ops in Winnipeg that are section 95 co-ops that are going to be having to deal with infrastructure maintenance issues. The 30- and 35-year maturity dates on these CMHC mortgages is making it a challenge for these co-ops to come to a credit union like ours, for example, to, number one, pay off that penalty to be able to refinance, and then take equity out to be able to do the upgrades and capital requirements. I think the hope here is that if those penalties could be eliminated to give those social housing co-ops more capacity to take on debt to deal with the capital requirements, the capital upgrades, rather than adding those penalties in there...or to your point, to find some way of determining what is a reasonable, affordable, and viable debt level that they would need to take on that may incorporate some level of penalties.
We've already had preliminary discussions that having to deal with the entire penalties associated with those CMHC early renewals would make it prohibitive for them to take on the level of debt they need to deal with their capital improvement requirements.
I do hope your socially minded clientele is paying attention, because what you're saying is important.
There are also sound business decisions that come into effect. Just as you must borrow money from other institutions, other people—bond-holders, etc.—so does the CMHC. If they break their terms with them, there are penalties involved.
I understand what you're saying, but from a business perspective, Canadians expect CMHC to operate under sound business principles, just as your members would expect you to operate. I wanted to make that point.
The other one I want to pursue is the access to financing by co-ops. Over these three days, we've heard generalities that co-ops feel they are somewhat biased against when it comes to accessing financing. But it's hard to determine whether it's the nature of their project, that is, because they're a co-op, or if it's.... As I've asked this question, I've received different responses.
Let me give you the scenario you brought up, of a day care, for example. You have a co-op day care that doesn't have a lot of assets. You're quite right that because they don't have assets or capital as collateral, they're considered perhaps to be a high-risk loan so it's hard for them to seek financing. I see that.
I'm thinking, too, that there are non-co-op day cares that are in exactly the same position. It's not really the fact they would do it for the non-co-op but not for the co-op; I think it's in the nature of the field in which they are operating. Whether or not you're a co-op, you're going to have a struggle finding financing in that field.
I've also made this point with previous witnesses with respect to new businesses. They don't have a lot of collateral either. Finding financing is probably the number one challenge of any non-co-op business as well.
Am I correct in what I'm saying, in that, as a lending institution, there isn't a built-in bias against co-ops but it very much depends on the nature of their business? If they were compared to a non-co-op business in the same type of scenario, they would be treated equally.
It's interesting, of course, that we've had some discussions now this morning about the Business Development Bank of Canada. That's an institution, of course, that does a lot of lending to small and medium enterprises, start-ups, and small businesses. But what I'd perhaps like, through the chair, to ask the analysts is whether cooperatives have access to that money in the same way that a sole proprietorship or a traditional business, because that could be one of the barriers. When we speak about cooperatives being misunderstood, and the education required around it, they are a viable alternative business model. And that needs to be recognized throughout our financial systems, as well as in the general public, so that more people perhaps look to that avenue when they're looking to start up a small business or to engage in community endeavours.
In community economic development, especially in rural areas, co-ops have been critical in fulfilling that need, and the Alberta gas co-ops would be an example of that.
Mr. Ward, I noticed right at the end of one of your statements a few minutes ago you spoke about the broadness of cooperatives and how perhaps they should be moved over to Industry. As we know, they're currently under the purview of Agriculture, and that made a lot of sense when cooperatives were first founded. They were largely in agriculture areas, but we've heard from several witnesses now that perhaps while there is still a very strong agricultural component within many co-ops, there are many other cooperatives that have outgrown that. They also feel that Industry would be the appropriate place for them to fall under.
Could you perhaps expand upon your statement earlier in regard to why you think that change should be made?
It's a good example. It's a classic example of what we said earlier about almost normalizing this structure, called the co-op structure, within the financial sector. There seems to be such ambiguity about the decision-making process and how decisions are made within co-ops that traditional banks or lenders, and even some statutory government boards, such as the BDC, because of their unfamiliarity with the decision-making process, may feel that there is more risk attached to it.
If a business, as you've just expressed, comes to us for financing, we focus on two things. One is the viability of that business idea and whether the numbers make sense. The other important aspect, of course, is security.
Peter mentioned earlier, in his example, that one of the individuals has to provide a personal guarantee for $5,000. If a lender is satisfied with the viability issue and the business case, then the question is about security. Lenders want to tie in someone or something, in terms of a guarantee, even if it's an unincorporated company. With a co-op structure, there are a number of owners. Therein lies the challenge for a traditional lender, who says, “I'm going to have a hundred personal guarantors, because they're all legally owners of this co-op”.
That is a role that perhaps the government can play. In the absence of having each individual personal member provide a guarantee for security purposes, perhaps that's the role the government can play. It can provide a loan guarantee to negate the need for individual members providing personal guarantees for a start-up or for an expansion project.
To your question, we would assess the viability, the business case, and of course, the collateral. But before any decision were made and executed legally, in terms of a document, we would need to know that resolutions to enter into that legal contract with the co-op had been passed appropriately. That would mean a board decision in most cases.
Mr. Chair, committee members, my name is Jodie Stark, and I'm vice-president of legal and corporate affairs at Concentra Financial. Our head office is located in Saskatoon, Saskatchewan. I'm please to have the opportunity to present to all of you today.
Concentra Financial is a successor of the Co-operative Trust Company of Canada, which has been operating since 1952. Concentra Financial is the only federal retail association in Canada operating under the Cooperative Credit Associations Act. Concentra has the broad powers of a national bank and is federally regulated by OSFI, CDIC, and FCAC. Concentra was designated as one of Canada's 50 best managed companies for the ninth consecutive year in 2012, and employs 287 staff across Canada.
Concentra exists to enable credit unions to optimize their financial performance and to provide full service offerings to their members. Recently, the federal regulators have expressed concerns that regionally based credit unions may be at greater risk than banks, as their operations are local and subject to the economic conditions within that region. Concentra is able to mitigate that risk, by acting as a financial intermediary through offering syndicated loans and investment opportunities for mortgage pools to credit union partners, which in turn diversifies their investment portfolio. In addition, Concentra offers advisory services to assist our credit union partners in managing their operations. We also operate a liquidity bulletin board, which allows credit unions the ability to post and acquire liquidity when it is available within the system.
Concentra Financial's wholly owned subsidiary, Concentra Trust, provides trustee services to almost 80% of Canada's credit unions outside of Quebec, so that registered-plan programs can be offered to credit union members. The credit union system supports the initiatives of the federal government in developing these savings programs so that Canadians can save for the future and be self-sufficient. Concentra enables credit unions to service these registered programs. Concentra Trust also provides trust and estate services to members of credit unions. Concentra's profits are returned to the system through charitable donations to community-based initiatives across Canada and through dividend payments to its owners, who are credit unions, centrals, and other cooperative entities.
SaskCentral has provided to you a brief that outlines the statistics showing the strength of the credit union system in Saskatchewan. I'd like to take this opportunity to share with you the importance of credit unions and cooperatives to Saskatchewan residents.
Before the formation of our province, our land was populated by first nations, Métis, and Inuit. These cultures were governed primarily by the same principles as today's cooperatives, with an emphasis on self-government and self-sufficiency. It has been said that they were the first cooperators to exist in North America.
By 1910, the first credit union in western Canada was developed in Wapella, Saskatchewan. From there, the cooperative movement blossomed and provided insurance, financial services, and retail products. Throughout the Great Depression and the drought of the 1930s, consumer and producer cooperatives ensured the survival of many Saskatchewan communities.
In 1928, the Saskatchewan Co-operative Youth Program was formed. Remarkably, that youth camp continues even today, and my daughter attended their program just last summer. The Federated Co-op was also formed that same year, and is now one of the most profitable businesses in Saskatchewan.
One of the advantages that cooperatives and credit unions have over larger traditional institutions is the ability to be innovative and creative in finding solutions. The Co-operative Commonwealth Federation, or CCF party, formed in the 1930s, was instrumental in the development of the universal medicare program, which was launched in our province in 1962. Coincidentally, my family was one of the first in Saskatchewan to be issued a health card at that time.
The Centre for the Study of Co-operatives was established at the University of Saskatchewan in 1984. In 1985, the first debit card in the world was piloted in Swift Current, and I recall my father explaining to me how to use the new ATM machine at our local credit union. He told me that electronic banking would change the way we do business, and how true that is. Three years later, my father walked me down the aisle, and I was wearing a wedding gown purchased from our local Pioneer Co-op.
Credit unions and cooperatives not only provide innovation to benefit Canadians, but, for many communities, they also provide the infrastructure. From gas stations to grocery stores and retail outlets to credit unions, cooperatives are the very heart of so many communities. Many of my friends graduated from college and went on to be employed by cooperative entities, enabling them to remain in their home province. I do my banking at a credit union that is managed by people I personally know and trust. My groceries and fuel also come from co-ops. In Saskatchewan, credit unions build buildings and operate the only financial institution in many communities. They sponsor sports teams and arenas, and almost every major centre has a credit union name attached to it.
It is no wonder that 5.2 million Canadians are members of credit unions, which represent community, giving back, and a sense of belonging.
Not only have credit unions been instrumental in establishing an infrastructure in developing nations, along with the early settlers in western Canada, they have also survived and flourished in the face of economic crises. From the stock market crash in 1929 to the recent economic crisis in 2008, banks and shareholders suffered great losses. However, credit union members took comfort in knowing that their money was safe and being managed locally by people they know and trust.
Scandals continue to erupt, involving executives of large banks and investment firms, something that is unheard of in the credit union system. Saskatchewan credit unions do not rely on government funding or bailouts, and these credit unions provide a 100% guarantee on members' deposits. Credit unions also offer financing to farmers and small business owners when traditional banks turn them away.
Cooperatives ensure that cultural traditions are sustained, while still engaging the youth, and they provide opportunities for development of first nations communities, small towns, and large urban centres. They are all encompassing and are embedded in the very fibre of what makes Saskatchewan the successful province it is today.
It is no coincidence that Saskatchewan has grown stronger in the last few years while many other provinces have struggled to survive the crippling economic crisis. Our reliance on our own people—our greatest natural resource—guarantees resilience in the face of diversity. It is our spirit of co-operation and self-sufficiency that creates our own success.
On behalf of Concentra and our partners in the credit union system, I ask the federal government to support the unique governance principles that make up the framework of credit unions. Now that we have the ability to form federal credit unions, I ask that the government refrain from considering and treating these credit unions simply as banks. To do so would be to threaten the very structure that has provided members with stability in the system for the last century
I also ask that the government consult with the credit union system on all matters relating to financial legislation. Although we have 5.2 million members, we are not always recognized as having a collective voice. However, we do have trade associations that represent us and are available for consultative purposes.
It is critical that we be considered when legislation is being developed or amended. I will provide a more detailed brief for this committee's review, which is being prepared.
Mr. Chair, Concentra Financial wishes to thank this committee for undertaking this study in recognition of the International Year of Cooperatives.
In conclusion, I want to thank you for this opportunity to provide a Saskatchewan perspective, and I would be happy to respond to any questions you might have.
Thank you for the opportunity to present to you.
We're representing the Saskatchewan Community Health Co-operative Federation. We're a federation of Saskatchewan's four cooperative community health centres.
The community health centres are not-for-profit, citizen-owned health centres. We provide multi-disciplinary primary health care services to about 70,000 people in the province of Saskatchewan. We have a particular focus on the vulnerable in our society: the poor, first nations persons, the frail elderly, and persons with disabilities.
We've been in operation since the introduction of medicare in Saskatchewan.
We're not only here to talk about the cooperative health centres in Saskatchewan but also about cooperatives in Canada that provide health care services. There are about 117 cooperatives in Canada offering services that range from health centre services like ours to home care service delivery and paramedic services. About 65% of these organizations operate out of Quebec.
There are three provincial federations of health care cooperatives. Two of them are centred in Quebec. One represents home care service delivery. The second represents paramedic services in Quebec. And then there is our federation, representing the health centres.
We believe that the cooperative model has great potential for the provision of health care services across Canada. In Canada and other countries, cooperatives have had great success in the delivery of health care services.
While there are only 117 cooperatives in Canada, in other countries in the world, such as France, Japan, Spain, Scandinavia, and in South America, they are very involved in the delivery of a broad range of services. I'll give you a sense of the breadth of the services that health care cooperatives are engaged in.
There are professional group cooperatives where groups of physicians are involved in the direct delivery of planning health care services through the cooperative model. In Spain and Japan, there are hospital services delivered through the cooperative model. In Scandinavia, there is often long-term care delivered through the cooperative model. There are other multi-disciplinary health care centres in other countries of the world like ours. There are holistic health centres. Frequently, health insurance is provided in the cooperative model, and in fact, in Canada, The Co-operators market a multi-dimensional health insurance that people purchase across Canada.
Finally, cooperatives are very much involved in special needs housing, including housing for the elderly, long-term care, and housing for low-income persons.
We believe the cooperative model is an ideal vehicle to help health care delivery into the next millennium. And Tim is going to talk to you a bit about what kinds of opportunities and strengths we bring to the table in the delivery of health care.
Essentially, we believe that what health care is looking for and what the cooperative model is so strong at providing is a patient and family-centred approach. Based on the core values and principles of cooperatives, organizations that offer health services through cooperatives are inherently patient-centred because they are member-owned. Our members actually have a vote and take part and are engaged in providing services based on what they feel are needs.
This is creating a buzz in health care organizations, be they regional health authorities or local health integration networks in Ontario, that patient and family-centred care is what we should be operating. Cooperative health organizations have actually been doing that for years.
Secondly, the citizen ownership is, again, by definition, a way of participating in the design and delivery of health services. We have built-in mechanisms to make sure that we're engaging our membership on a regular basis and responding to their needs.
The cooperatives also have increased capacity to engage citizens to take responsibility for their own health, which is an inherent part of improving the health of our population.
We have a great capacity to creatively respond to unique community needs. We are often filling in the cracks in the system. So for the cracks that are not addressed through other formal health care processes, cooperatives are able to address more nimbly and devise programs and services to address those needs.
And of course, we are supportive of the cooperative family, so cooperatives help support other cooperatives, both in development and in sustenance.
We have a strong organizational capacity due to the various governance models involved in setting up and establishing co-ops. We also have a great capacity to support various health disciplines to form effective working relationships in the delivery of health services. So for instance, physician group practices that are remunerated on a salary basis reduce some of the competition that is often inherent in a fee-for-service model and allow us to work more collaboratively with other disciplines to provide the care that people need to address the social determinants of health.
I want to shift now and talk a little bit about what the federal government can do to support health care cooperatives, because this is essentially why we're here, to try to give you some ideas or some food for thought about what the government can do to support cooperatives, because we see this as an efficient and effective model.
First of all, work toward ensuring education about the cooperative model is in the curricula of law, commerce, business schools, and even right down to basic public education. We are publishing a graphic novel, also called a comic book, about the birthplace of medicare, but also about the creation of community clinics 50 years ago in Saskatchewan as a way of getting that information out to youth.
Secondly, we want to ensure that the cooperative model is considered and advocated for in federal and provincial economic development and health service delivery initiatives.
Thirdly, we believe it's important to support provincial and federal cooperative associations to educate the public about the advantages of cooperative model, and to assist groups to form cooperatives through the development of business plans, incorporation, and through access to developmental funding.
Finally, we believe it's important to sponsor the study and dissemination of information about successful cooperative health delivery in other countries, because there are lots of excellent examples out there that we can emulate and we have much to share and much to learn in terms of the development and sustenance of cooperatives.
I want to thank you for the opportunity to address the committee. We'd be pleased to answer questions.
Thank you, Mr. Chairman.
Following up on the sources of revenue for the community health co-op, I would point out that in the film industry, product placement is a fairly substantive way of getting revenue. I was wondering if you are getting revenues from the product placement of your coffee cup in front of you.
Mr. Patrick Lapointe: I was going to put that away, actually.
Voices: Oh, oh!
Hon. Mauril Bélanger: Mr. Chairman, I want to use some of my time here for a business matter.
I was the instigator of this motion in the House, and I have to admit that the last four days—five, if you include July 10—have been rather instructive in our getting a better understanding of the breadth and importance of co-ops in our country.
I want to raise a couple of questions, which may be addressed later, dealing with the draft report. One is about its timing. Since the resolution, we've adopted calls for the final report to be finalized in the week of August 28. I am hoping that we could confirm that the draft report will be available the week before, perhaps no later than August 22. I've had discussions with the analysts to that effect, and they'd be prepared to do that. I'd like confirmation of that.
Second, in terms of the structure of the report, there are two things I would say. One is that I would hope it would contain—and I would imagine this wouldn't be of any controversy—a very thorough reporting of what we've heard, and perhaps a reflection of the submissions we'll have received by August 7. The document itself would become a sort of reference document for anybody who may have an interest in cooperatives.
It would also address the five items that were itemized in the resolution that Parliament unanimously adopted on May 30, which are the following: identifying the strategic role of cooperatives in our economy; outlining a series of economic, fiscal and monetary policies for strengthening Canadian cooperatives as well as for protecting the jobs they create; exploring the issue of capitalization of cooperatives, its causes, effects and potential solutions; exploring whether the Canada Cooperatives Act of 1998 requires updating; and identifying what tools the government can use to provide greater support and a greater role to Canadian cooperatives.
Finally, I would hope that we will also include the recommendations we've heard. Whether, as a committee, we agree with them or not is something else, and I respect that.
I just wanted to make those points.
I have a quick question for Madam Stark. You mentioned in your statement, and I quote you here, that “the federal regulators have expressed concerns that regionally based credit unions may be at greater risk than banks...”. Can you comment a bit more on that, in maybe a minute?
I'd like to thank the chair and the vice-chairs and the rest of the committee for this invitation. We really appreciate it.
Rural electrification associations, known as REAs, are unique to Alberta. The Alberta Federation of REAs represents an entity that exists nowhere else in Canada. It is one of pride, but can also be one of specialization and sometimes uncertainty.
The story of rural electrification was slow to develop in Alberta compared to other provinces in Canada. Our story begins in the mid-1940s, when 90% of the farmers interviewed were still waiting for power. Grassroots spirit and passion for a cause ignited an electrification movement. Public power was the force behind rural electrification in other provinces, but Alberta farmers had to find a way to work with the government and the utility companies. The government did not want to be labelled as a socialist government by providing public power, and the utility companies didn't see it as a way of making any money. Farmers just wanted what was an expected service by rural consumers. Electrification changed rural life.
Leaders in electrification formed a cooperative to satisfy requirements. They pooled not only their financial resources but also their human resources, working side by side in cooperative fashion to build the lines needed to bring power to the remote farms.
Many things have changed over the years, but it remains the case that a farm still requires the necessary power to operate and sustain its livelihood. In fact, in order to keep up with the growing market trends, power is even more crucial to the agricultural operation that exists today.
Cooperatives have a long-running history in Canada, building our nation and building our provinces. They were formed because there was a need, and nobody else came forward. There is a wide diversity in cooperative awareness, from those who have patronized several co-op businesses over the course of many years to those who have never heard of co-ops.
As we look ahead, as not only rural electrification associations but as every cooperative business will do, our concerns involve sustainability. We realize that our decisions of today will impact generations of consumers tomorrow. When the REAs consider our sustainability plans, it's necessary to build our future directions on the foundational pillars of society, the social, economic, and environmental aspects that create a solid base on which to build not only a business but also a better community and world.
The AFREA is proud to represent our member rural electrification associations across the province of Alberta. In 2011 we completed our own sustainability strategy document that encourages our member associations to get out into their communities and create awareness. If you combine our promotional efforts to increase our community presence alongside the historic United Nations declaration of 2012 as the International Year of Cooperatives, you have a formidable match. Replace any of the references to the rural electrification and the REA advantage sustainability document with any cooperative and you have a general plan that encompasses a business willing to incorporate community-building values.
Sustainability is cooperatives getting back to their roots. It's also creating awareness that involves education, inclusion, and encouragement. It's also about offering services above and beyond, without worry of profit. Sustainability is an acceptance that might involve redefining a purpose to ignite the passion that brought the organization to the forefront when the need arose. Rediscover that passion, and cooperatives will continue to prosper.
This International Year of Cooperatives provides opportunities for cooperative businesses to shine while in the global limelight. It brings cooperatives together, with a chance to create a common bond with themselves. It truly promotes cooperatives working together as defined in the seven cooperative principles. The year provides a means to showcase a co-op business, a product and/or service, while exemplifying the cooperative business model. The celebration encourages communities to come together as one, remembering those who led the way, but also celebrating those people who continue to make a difference in the cooperative world. The year is not a means to an end; it must be a renewed beginning.
As the provincial federation representing member REAs, the AFREA has a duty to explore and discover new ways to continue our own existence through the prosperity of our membership.
The demographics of rural Alberta are constantly changing. The power industry is a dynamic one. However, we do not operate in isolation. It is imperative that we work in unison with those around us. We must not only provide for today’s consumers but also look ahead to the consumers of the future.
It is our belief that the International Year of Cooperatives 2012 should be just the beginning of what needs to be a renewed campaign of cooperative support. A constant program, with financial outlets, public awareness, and government support, will go a long way toward maintaining a strong cooperative movement.
Cooperatives give back to the communities where they exist, and their contribution to local economics, through job creation and community investment, sums up their value.
We applaud the federal government for the committee's mandate and the directives identified in the recent House of Commons motion. We are honoured to contribute our input to this committee through this presentation, which shares with you the story behind the REA cooperative business.
We also represent the future of all co-ops by confirming that sustainability issues, funding issues, and renewed regulatory considerations are required so that cooperative businesses continue to build a better community and a better world.
On behalf of the Alberta Federation of REAs and our member REAs, thank you.
Now, Dan is more than willing to answer any questions.
Some hon. members: Oh, oh!
Mr. Merv Rockel: I will too.
Thank you, Mr. Chair, and members, for inviting me to be part of this important study of the opportunities and challenges facing the cooperative sector in Canada.
My name is Robert Marshall, and I am the president and chief executive officer of Mountain View Credit Union. As such, I will be speaking from the perspective of our credit union and, more generally, credit unions in Alberta. Please allow me to begin by spending a few moments talking about Mountain View Credit Union.
Headquartered in Olds, Alberta, Mountain View Credit Union has assets exceeding $550 million. Our 11 rural branches, soon to be 12, provide service to over 15,000 members. Mountain View takes great pride in giving back to the communities in which it operates. For the past five years, Mountain View has consistently contributed approximately 3.5% of its pre-tax income in scholarships, donations, and sponsorships. Our employees also show their commitment to their communities by volunteering a significant amount of their time to various local events and organizations. In 2011, Mountain View Credit Union staff contributed over 4,500 hours in volunteer time to everything from 4-H to minor hockey. We also very pleased to have paid our members over $15 million in profit sharing since 1988.
I would now like to take this opportunity to provide the committee with further context on the credit union system in Alberta. The Alberta credit union system is an important provider of financial services to Albertans and a key contributor to the provincial economy. Today, 34 independent credit unions operate in Alberta, with over 650,000 Albertans as members. Province-wide, credit unions have over 200 branches and employ nearly 3,500 Albertans.
During the first quarter of 2012, the Alberta credit union system’s total assets surpassed the $19-billion mark, growing by $740 million over the past year. The profitability of the Alberta credit union system remains strong, with net income of $33 million for the first quarter of 2012.
Consistent with the national trend taking place within the Canadian credit union system, several credit unions in Alberta have chosen to consolidate in order to remain competitive. This consolidation is in response to several factors, such as: changing regulatory standards; increased competition from banks, insurers, and non-conventional financial service intermediaries; and significant technological advancements in the financial services sector.
One notable example was in 2008, when three Alberta credit unions consolidated to form Servus Credit Union, one of the largest credit unions in Canada. We expect the consolidation trend to continue in Alberta as credit unions strive to remain competitive in the rapidly changing financial services marketplace.
As mentioned by the Credit Union Central of Canada when they appeared before you on July 10, the consolidation and growth of our system has implications for the traditional scope of credit unions, which has always been provincial. For instance, Servus Credit Union, which I mentioned earlier, holds almost 60% of the provincial system’s assets. Similar situations exist in other provinces. For these credit unions the greatest opportunity for growth exists outside their provincial boundaries.
On behalf of the Alberta credit union system, I would like to thank the Government of Canada for introducing, as part of the budget in 2010, a federal credit union option. While Alberta credit unions are successful financial institutions under provincial jurisdiction, we view the option of a federal charter as another means for interested credit unions to achieve further growth opportunities and enhance services to their members.
We were pleased to see that the complementary regulations required to bring the federal credit union framework into effect were recently published in the Canada Gazette.
As you heard earlier from Canadian Central, credit unions are very concerned about the extensive and unbalanced competition we experience from crown financial institutions. In Alberta, we are subject to this unbalanced competition from both federal and provincial crown institutions. This is particularity evident in the agricultural lending market in Alberta. Despite the fact that Alberta credit unions have thousands of rural members and play an integral role in many rural communities throughout the province, our market share of Alberta’s approximately $15 billion in outstanding agricultural debt is only around 5%. Meanwhile, Farm Credit Canada holds approximately 25%, and two provincial crown institutions, ATB Financial and the Agriculture Financial Services Corporation, combined hold close to 20%.
The primary cause for low credit union market share in Alberta’s agricultural lending market is the fact that crown financial institutions, such as FCC, are not subject to the same regulatory and legislative requirements as credit unions and banks. This translates into market advantages for crown financial institutions.
For example, FCC completes their own in-house appraisals and then lends up to 100% of the value of the security, which no private sector financial institutions are permitted to do. Given FCC's ability to access funds using the federal government's AAA credit rating, they are able to offer lending interest rates below what credit unions and banks can offer. In Alberta, we have heard of instances where FCC has competed with credit unions beyond the agricultural marketplace by extending favourable financing to commercial ventures that have very little involvement in agriculture.
Unbalanced competition from crown financial institutions is such a significant issue in Alberta that many credit unions are questioning whether they will play a role in the future in providing agricultural financing or services to rural communities. Accordingly, we fully support Canadian Central’s position that the government amend FCC's legislation and operating principles to bring them into closer alignment with those of the Business Development Bank of Canada and Export Development Canada. Specifically, this would mean that the legislation governing FCC would be subject to a regular parliamentary review and, second, be amended to require FCC to operate in a manner that complements rather than competes with the activities of private sector lenders.
One last point I wish to raise is with respect to the ever-growing regulatory burden on financial institutions. As noted by Canadian Central, credit unions agree that a strong regulatory framework is important in protecting the savings and security of Canadians. However, we are concerned that the regulations are being applied in the same manner to all financial institutions, whether they have 2,000 employees or only 110 employees, as is the case with Mountain View Credit Union. The result is much higher relative compliance costs 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 smaller businesses, such as credit unions. We agree with that conclusion and urge the 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.
Mr. Chair, on behalf of Mountain View Credit Union, I wish to thank this committee and your colleagues for undertaking this important study.
Across Canada this year, cooperatives, including credit unions, are celebrating the 2012 International Year of Cooperatives. Cooperatives have played a vital role in building our country, and we hope the insight provided in your final report will continue to promote and support cooperatives' contributions to our communities.
I thank you very much for the opportunity to present to you today, and I would be pleased to respond to any questions you may have.
Thank you very much, Mr. Chair.
Gentlemen, thank you for being with us this afternoon.
I've quite enjoyed the week. I have learned a lot about cooperatives that I certainly didn't know before. I certainly knew about housing cooperatives, and credit unions a little bit, but I didn't know about.... I'm learning a lot and I'm really appreciating it.
There's one thing I am finding difficult to understand, and maybe from each of your perspectives you can explain it. We certainly have had some cooperatives making deputations today that they certainly don't view themselves as being traditional businesses. And we've heard from others, I would suggest to you, that are really no different from what I would consider to be a regular.... I was in the private sector for 20-plus years before I became a member of Parliament, in private-sector companies that were driven by lots of private-sector motives versus what the motives of cooperatives often are around social enterprise, and so on. But how do you identify yourself?
Certainly, Mr. Marshall, you talked about “competition”. To me, that's a private business. That's what we deal with. We compete, and if we're the best, we're going to get the customers. So how would you say your two organizations compare with traditional business versus how you are obviously uniquely different in what you are doing?
Did you want to start, Mr. Marshall? Then Mr. Rockel and Mr. Astner can answer.
And thanks to our witnesses for being here.
Actually, I want to provide a little bit of a preamble on how impressed I think each committee member is here by the strength of co-ops. We've been receiving a very positive and cohesive message from all of the different-sized co-ops involved in all of different sectors of the economy. The growth has been impressive. I'm thinking of growth in balance sheets. I'm thinking of growth in assets. I'm thinking of growth in membership. We now have 9,000 co-ops, with 18-million members across Canada. So it's very encouraging.
Of course, I think Mathieu mentioned that a co-op is more than twice as likely to survive an economic downturn or difficult economic circumstance as a business, which is also quite remarkable when you think about it.
I just want to touch on what Madame Blanchette-Lamothe was talking about because there was tough talk about the CDI, or the co-op development initiative. Just to correct the record, it wasn't cut, it wasn't cancelled. It just wasn't renewed. It's important to understand the difference because it's been running for two terms of five years, and it simply reached its natural conclusion at the end of its second term of five years. So it simply expired, like all programming does, especially when it's achieved its goals. This is, I think, what we have heard, as a committee, in terms of co-ops. They have grown. We had a witness here just yesterday, I think, saying that in Quebec over the last five years 595 new co-ops have entered the scene. That's astounding.
The challenge we have as government is that we find ourselves in a $23.5 billion deficit, which is roughly 8% to 10% of the revenues of government. This is a very important factor because difficult decisions must be made. I don't think anyone recommends running with a 10% deficit.
In fact, that is my question. I already know the answer, but I'll put the question to you, Mr. Marshall.
Do you operate at a 10% deficit? If you did, would your members demand that you rectify this situation, look at your expenses and balance that budget?
I suspected that. I think it's the same for Merv and Dan. Your association doesn't run at a 10% deficit. My guess is that if you did, your members would demand that it be rectified.
Just as your membership has one vote per member—one member, one vote—one Canadian over the age of 18 has one vote, too. We're responsive to Canadians, and this is what they're demanding. Difficult decisions have to be made, and all three of you know about difficult decisions that have to be made throughout the life of your particular groups and associations.
I did want to touch on education because I think it is really important. We've had a number of witnesses talk about education. I'm thinking of education of the public now. Canadians have a concept of a co-op. It might not be as expansive as it should be, and they certainly might not know the successes that I was just outlining and that we've heard about from you.
I'm wondering about your work with higher level cooperative associations, for example, the Canadian Co-operative Association. Is there basically a budget for advertising education, informing Canadians about co-ops, the success of co-ops, the strength of co-ops?
Just to give an example, I'm in agriculture. I'm watching the Dairy Farmers of Canada. They're running a very strong campaign to educate people about farmers, milk production, all of those types of things. I think it's paying off, as Canadians want to know more about local agriculture. They want to know more about Canadian farmers. They're open to this. I have a feeling they'd be very open to learning more about co-ops—what you bring to the table, what your strengths are, what your successes are.
I'll start with Mr. Marshall again. Do you have a budget for that or, in your discussions with higher entities, do they have a budget for that? And what do you think about that?
Good afternoon, Mr. Chairman, and members of the special committee on cooperatives.
My name is Bill Dobson, and I am a member of the board of directors of United Farmers of Alberta Co-operative Limited, also known as UFA. With me is Bob Nelson, president and chief executive officer of UFA. I will be skipping over some of the things in the original brief that may have been sent to you, so it will cut some of the fluff out to make the timeline.
Thank you very much for the opportunity to address this special committee. We consider your work critical, and we both look forward to answering your questions after our presentation.
The Government of Canada has always taken a keen interest in the role of cooperatives. Co-ops are supported and utilized by people from all parts of Canada, regardless of their political interests or economic status. Those of us who spend a lot of our time in the cooperative sector greatly appreciate the relationship that has existed for so many years.
This year has been a time to celebrate and showcase cooperatives and credit unions around the world, as the United Nations has designated 2012 as the International Year of Cooperatives. It has also been a time of reflection and self assessment. It is very appropriate that the federal government also take this opportunity to examine their role in assisting the cooperative sector to flourish. Cooperatives and credit unions provide economic activity and employment throughout all of Canada. Having the most effective and efficient business environment ensures the financial health of the sector.
Today, UFA is a well-established cooperative that serves nearly 120,000 members through an extensive network of 113 petroleum agencies, 35 farm and ranch supply stores, and 25 outdoor adventure stores operating under the wholesale sports banner. We have grown from a small-scale local cooperative into a comprehensive enterprise, with $2.1 billion in sales in 2011.
Improving the economic and social well-being of our agricultural owners and their communities is our core purpose. Every day we work toward enabling rural success by supplying agricultural products and services, by protecting our members' investments in the cooperative, and by championing and supporting local causes, rural programs, and job development.
Currently, UFA proudly employs almost 1,200 people, and 65 independent petroleum agents. Approximately 500 people are further employed by the UFA petroleum agents.
UFA probably has the most interesting evolution story of any business in Canada. A look at our history provides living proof of the agility and the endurance of a cooperative enterprise. We take great pride in learning from our heritage, but we are cognizant that we will only be viable in the future if we are relevant to the needs of our owners and customers.
We say that we have been around for over 100 years, which is true, but we have not actually been a cooperative for over 100 years. Formed in 1909, UFA’s core purpose was to improve the livelihood of farmers in the province of Alberta. That purpose remains much the same today, although it is met in a much different manner than at that time.
Originally, UFA was a rural social and lobby organization. In 1918, UFA began to purchase farm supplies collectively, to distribute to community locals. As a farm organization, United Farmers of Alberta was seeking the most effective way to lobby the provincial government. They felt it would be a good idea to elect some members of the legislature to have direct access to the governing Liberals.
Thus, in 1921, UFA ran candidates in 45 out of 61 ridings. Before they realized what had happened, they had elected 38 MLAs and formed a majority government. I'm sure everyone would like to get a hold of their campaign manager.
Voices: Oh, oh!
Mr. Bill Dobson: UFA governed Alberta until 1935, at which time they were defeated. During this period, UFA's farm supply business was also flourishing. In 1932, it was felt that the formation of a centralized cooperative would be the most effective way of serving the needs of agriculture in Alberta. Today, the political involvement and farm lobby efforts are long gone, but the cooperative business continues to grow and improve the livelihoods of rural Albertans.
The UFA sees three areas of focus, quite distinct from one another, that should be of significant interest to the federal government: the business environment for larger existing cooperatives; support in rural Canada for emerging cooperatives; and cooperative-based foreign aid.
Of most significant interest to UFA is the business environment for larger existing cooperatives, and therefore today's comments will be largely directed towards this point. However, we'll make a few observations on the other two at the end of our presentation.
It is certainly our belief that being a cooperative should provide neither an advantage nor disadvantage to a Canadian business. Co-ops have a unique way of operating that needs to be recognized and respected. UFA operates through its own, specific provincial charter, but federal taxation rules have a profound influence on our business. Also, the raising of capital in a cooperative structure continues to be a significant challenge.
Historically, cooperatives started small, from a common need, and gradually grew over a long period of time. In today’s corporate world, it is vital that a business quickly be of a certain scale to be competitive and relevant. This is true in the cooperative world. We would like to see the federal government re-establish a permanent interdepartmental cooperative committee. The unique nature of cooperatives needs to be understood and leveraged so that rural communities succeed. We would also recommend that a small group of financial experts be assembled to determine if there are areas of inequity that could be rectified to ensure that cooperatives and corporations operate on a level playing field.
Our chief financial officer offered us the following suggestions as to how tax rules might be modified to simplify and clarify reporting.
First, exempt cooperatives from part VI.1 tax. Part VI.1 tax tends to be an additional tax burden for most cooperatives that are carrying on business in limited or constrained jurisdictions. It is based on an assumed combined federal and provincial tax, which deviates from the specific provincial tax rate where the cooperative is doing business. In addition, paying out this extra tax reduces the ability of the cooperative to pay out more patronage dividends to its members, whom it is mandated to serve. And it is an added burden when co-ops are operating at a loss.
Second, classify the cooperative as a unique business model, for tax purposes. We would recommend that cooperatives be uniquely defined to avoid having to amend sections of the tax laws where there is an intention for a cooperative benefit.
Finally, extend the tax deferred cooperative share, the TDCS. The TDCS was set up by the 2005 budget reforms to assist agricultural cooperatives in their capitalization needs by deferring patronage dividends paid by way of the TDCS to the members. This program is scheduled to end in 2016, but we believe that it is worth extending, as capitalization remains a crucial challenge in the coming years. We also request that other measures be considered to ensure that there are no barriers for cooperatives that are seeking capitalization outside of their member base.
Hopefully these ideas could be given consideration and discussed with other cooperatives across Canada.
UFA is concerned not only about the cooperative but about our member-owners, as well. The third of seven International Co-operative Alliance principles is entitled “Member Economic Participation”. We feel that it's vital that we live up to that obligation. It is very important that our members receive fair tax treatment in regard to patronage allocations and that they also have the ability to invest in their own cooperatives.
The third point, regarding co-op shares, is advantageous both for the cooperative and the member. We would recommend working with our national cooperative associations to ensure that together we create the optimum environment for member support and investment in the co-op sector.
On emerging cooperatives, UFA has not always been a large, successful co-op. Like any other business, we had a beginning. That start was, at many times, challenging and difficult. Through experience, we are confident that the cooperative business model is a very effective way of doing business. It creates a good working atmosphere for owners and employees. There is a sense of loyalty among members, who are also customers.
There is certainly a public interest and benefit in maintaining a strong rural Canada. We would hope that your committee will examine ways the federal government can assist in stimulating growth in rural communities through the development of the cooperative system. Although the cooperative development initiative, CDI, was designed to foster this type of partnership, we understand the need for fiscal restraint and the efficient use of tax dollars. We are not here to complain about the end of that program but rather to encourage an examination of just what the role of the federal government should be in the future. We would be pleased to further discuss ideas on how government and industry could partner in the development of emerging cooperatives, especially in rural Canada.
Also, our membership in the Canadian Co-operative Association is an avenue that we utilize to forward our ideas for such initiatives.
Although cooperative foreign aid may not be the primary focus of this committee, we feel that it is worth briefly mentioning. Canada has a proud history of providing foreign aid to those who are born into circumstances beyond their control. We are probably all in agreement that the wisest use of aid money is to help people help themselves. Canadian cooperatives and credit unions fund several international development programs that partner with others, including CIDA, to provide funding for people who face extraordinary challenges. Cooperative enterprises definitely help people help themselves. We are willing do our part, and we invite you to work with us. We encourage you to continue partnerships that will provide cooperative-based foreign aid programs.
In conclusion, we thank you for the opportunity to address this special committee on the future of cooperatives. We are pleased to answer any questions you may have.
Thank you very much for inviting us to appear before the Special Committee on Co-ops to represent the worker cooperative movement.
Thank you for inviting us to appear before this committee.
And that's the last French I'll speak.
My name is Hazel Corcoran, and I am executive director of the Canadian Worker Co-operative Federation.
Worker cooperatives are employee-owned businesses, and generally small businesses that operate according to the cooperative principles. Worker co-ops are a form of collective entrepreneurship whereby people come together to become entrepreneurs in a co-op framework. They are present in many different industry sectors, such as forestry, IT, food production and services, fair trade, and more. Examples include: Taxi Co-ops; the Multicultural Health Brokers Co-op of Edmonton; the Big Carrot Natural Food Market in Toronto; La Siembra Co-operative in Ottawa, which makes Cocoa Camino chocolates and is one of our most popular members; Promo-Plastik of St. Jean-Port-Joli, Quebec; and Just Us! Coffee Roasters Co-op in Wolfville, Nova Scotia.
Today, there are about 350 worker cooperatives in Canada employing over 13,000 people. An estimated two-thirds of these are in Quebec. The Canadian Worker Co-operative Federation is their national, bilingual federation and it includes many members in Quebec. CWCF provides services, including support for start-up and ongoing management, a small worker co-op investment fund called the Tenacity Works Fund, research, and an RRSP program that allows our members to invest in their own businesses.
We have four main points to present: first, the distinction between the established and emerging sectors; second, the challenge of capitalization; third, the problematic changes in the RRSP rules; and fourth, worker co-ops and succession planning.
Our first point is that the co-op sector is neither monolithic nor homogeneous. There are the large, well-established parts of the sector, such as the credit unions, the large consumer co-ops, agricultural co-ops, UFA, etc. In contrast, worker co-ops and other emerging-sector co-ops are basically small business start-ups or conversions that have no operational ties to the established cooperatives. These two broad categories bring completely different sets of needs and present distinct opportunities to Canadians and warrant a different understanding by government.
To become involved with a credit union or large consumer co-op, one simply has to take out a membership and start using their services and buying their goods. To start a worker co-op, one must develop a market-driven business, develop the legal structure, and help develop the worker-members all at the same time. This is not an easy task and is best accomplished with the support of an experienced co-op business developer.
It is also important to note that many of the larger and very successful co-ops did receive this kind of support at their start-up stages 40, 50, or even more than 100 years ago. The challenges for emerging co-ops are exacerbated by the fact that lawyers, accountants, and others are usually not familiar with this business model. In parts of the world where knowledgeable support is made available for worker co-op starts-ups through direct government support or favourable regulatory environments, the sector has hundreds of thousands of employees and tens of thousands of worker co-ops. So although our sector has been one of the fastest growing co-op sectors in Canada, we think it still has huge potential for employment creation in the future.
I would now like to have our financial officer, Peter Hough, present about our second point, capital.
Under most cooperative acts, and in conformity with the cooperative principles, capital receives a limited financial return. Most shares have a par value, that is, the value of the share is the same on the date of purchase and on the date of redemption. So there is no potential for capital gains. In a corporation, the primary goal is to maximize return on capital for the owners and to generate an increase in the value of their shares. In many cases, on the selling of these shares, the small business owners are eligible for the capital gains exemption, which encourages them to invest retained earnings in their enterprise.
In seeking capitalization, emerging cooperatives have two barriers that conventional corporations do not face. First, the democratic structure of one member, one vote, and the limited returns on capital mitigate against the usual sources of venture capital, which require high returns and significant control of the enterprise. Second, because co-op par value shares do not generate capital gains, members do not receive the same tax incentive from the government to reinvest in their enterprises.
There are various approaches that are designed to address these barriers.
The Canadian Co-operative Association is currently leading an initiative to develop a national co-op development fund to invest in cooperative expansions, conversions, and in the emerging cooperatives as a legacy project for the international year. The fund to attract co-op sector capital is designed to provide a market rate to its investors. Hence, it will have to manage its portfolio risk carefully. This means that it will have to limit its involvement in the emerging co-ops and focus primarily on expansions and conversions. Because of this limitation in the fund's ability to address the needs of the emerging co-ops, the CCA had discussions with the Government of Canada requesting a $70-million contribution, which would give the fund, in combination with its sector investments, the capacity to meet the needs of the emerging co-ops in Canada, and in the long term to generate a constantly growing pool of capital.
With the wish to return to a balanced budget after the recent recession, such a large investment is now unlikely. However, I would urge this committee to recommend to the government a more modest investment of at least $20 million. This contribution by the government would eventually be returned to the government treasury through increased employment via personal and corporate taxes. As one of the key legacy projects for the International Year of Cooperatives, this is an opportunity for the Government of Canada to invest in the future of cooperatives all across this country.
Another opportunity to support the development of co-ops is to balance the capital gains exemption with a cooperative investment program. This would be essentially an investment tax credit for the investment into equity shares in the cooperatives.
Hazel will now speak about the RSP issue.
Unfortunately, there's been one recent change that has hurt the capacity of worker co-ops to capitalize themselves through member investment. The measures regarding self-directed RSPs in the 2011 budget have rendered co-op shares ineligible for RSPs for members who hold more than 10% of any class of shares issued by the cooperative. This has eliminated a pool of members' capital that used to be available to help capitalize their co-ops. Many worker co-ops have fewer than 10 members. Whereas it used to be perfectly fine to hold more than 10% of a class of shares in a co-op within an RSP, if under $25,000, it is no longer acceptable. If an individual is affected, there are very high penalty taxes—even higher than for deliberate fraud in some cases. We believe these provisions are putting jobs at risk.
CWCF objected strongly last summer to the Ministry of Finance regarding these changes, as did CCA, CCCM, the Canadian Institute of Chartered Accountants, and the Canadian Bar Association. We implore the federal government to revoke these measures enacted in the 2011 federal budget.
Our fourth and last point is business succession using worker cooperatives. As we are sure you understand, there's a wave of business-owner retirements coming. The Canadian Federation of Independent Business has estimated that number to be 200,000. Although the process is already under way, we are currently witnessing only its earliest beginnings, and retirements should reach their peak between 2017 and 2020. This phenomenon will also likely manifest itself earlier in rural areas.
The social and economic risk is substantial and many companies risk closure, as a result of which tens of thousands of jobs could disappear. However, we also know that a solution is available, namely, that the employees of these companies can mobilize to save their jobs and communities by creating worker cooperatives. In Europe, this process is already well under way. The European Commission, and particular countries within the European Union, are actively encouraging the cooperative solution in the transfer of companies to their employees.
We strongly feel that the Canadian government needs to develop programs and approaches similar to those elsewhere so we can maintain locally owned jobs and services. Specifically, any development in this area should ensure that employee-owned co-ops are included and supported as one of the key options.
I will now turn it back to Peter Hough to give an example of a conversion and to conclude our presentation.
Thank you, Mr. Chairman.
Mr. Chairman and members of the special committee, thank you for the opportunity to speak to you today. I compliment you for your efforts to review and explore the important role of cooperatives in this International Year of Cooperatives.
My name is Vera Goussaert, and I am the executive director of the Manitoba Cooperative Association, or MCA. The Manitoba Cooperative Association is a provincial association of cooperative organizations, created by our members to enhance and support the development of a united, growing, and influential cooperative movement in Manitoba.
MCA has been around, informally, since the 1970s and 1980s, when a small group of cooperators would meet to discuss issues of importance to the cooperative movement. However, MCA formalized in the late 1980s and early 1990s, with the creation of two key programs that are still in existence today: the Manitoba Cooperative youth leadership program and the Manitoba Cooperative awards program.
While MCA has been around for a number of years, it was not until 2005 that the organization was able to hire its first full-time executive director and begin delivering cooperative development services. This was thanks to the federal co-operative development initiative advisory services funding that was received by our association.
With increased capacity at the association, in 2007 MCA entered into partnership with the Government of Manitoba and
the Conseil de développement économique des municipalités bilingues du Manitoba.
Along with this partnership, the Government of Manitoba announced $1.25 million to be spent on cooperative development over five years. What followed was the co-creation of a vision and a strategy for the cooperative community in Manitoba.
The implementation of this strategy is ongoing today, but we are very proud of the work we have already accomplished.
Some of the initiatives include, for one, the introduction of resources on cooperatives for high school teachers, in both French and English. These resources, known as the All 4 Each program, were developed by the Ontario Co-operative Association in partnership with provincial associations across Canada.
We've also been successful in the introduction of a course on the management of cooperatives at the University of Winnipeg's Faculty of Business and Economics. We are continuing to work with the university to strengthen our relationship and to pursue other activities to enhance cooperative education at the post-secondary level.
We also have been successful in the creation of an interdepartmental co-op group within the provincial government, recognizing that cooperatives operate in many industries and within many sectors of our economy and should not fall under the responsibility of just one government department.
We have seen changes to our Manitoba Cooperatives Act to allow for the creation of multi-stakeholder co-ops. And we've seen some other changes to our act that have made it easier for existing cooperatives to operate.
Finally, one of the more notable initiatives that resulted from the strategy was the creation of a co-op development tax credit, the first of its kind. It allows co-ops and credit unions across Manitoba to make contributions to a fund managed by MCA. In turn, they receive a substantial tax credit. MCA then uses the funds we receive from these co-ops to deliver technical assistance and to offer small grants to new and existing co-ops.
MCA has been actively working with groups and providing technical assistance to co-ops since 2005. In that time, capacity at MCA has increased. We now have a full-time co-op developer on staff who works with groups to help them develop their co-ops.
MCA also delivers small grants for co-op development. They come from three pools of funding. The first is CDI advisory services funding. The second is co-op tax credit funds, and the third is co-op assistance funds, which we receive from the Province of Manitoba. These grants assist with things such as group development, technical expertise, incorporation fees, the development of business plans and feasibility studies, and small capital expenses.
One of the groups we have been able to assist is the Peg City Car Co-op in Winnipeg. This co-op has been operational for just over one year. They received grants and technical assistance from MCA. They also received a large grant through the cooperative development initiative innovative cooperative projects program. Peg City currently has over 80 members, three vehicles on the road, and employs two people. This co-op is growing and has visions of operating across Winnipeg, with numerous cars and serving numerous members.
Another example is the Western Manitoba Seniors Non-Profit Housing Co-op in Brandon. It received small grants and some technical assistance from MCA. It is currently under construction, building a 34-unit, mixed-income housing complex for seniors.
The Mondragon Worker Co-op in Winnipeg is another example. It received small grants from MCA to expand its business into a restaurant, bookstore, and organic grocer. This co-op has been operating since 1996 and employs 16 to 20 youths in downtown Winnipeg.
Finally, another example is the Compo-stages Manitoba Services Co-op out of La Broquerie, which received small grants and technical assistance. It is currently in development to provide composting consultancy and services to livestock operators and municipal waste departments.
As you can see, there's a variety of areas in which these cooperatives are starting.
We encounter many challenges working with groups trying to start and grow cooperatives. First and foremost, there's a general lack of understanding of the cooperative model. Economic development officers, lawyers, accountants, and the people who generally assist in business start-ups, are not familiar enough with the co-op model and often discourage groups from pursuing that model of incorporation, even though it might be the most suitable for the project.
Also, given that co-ops are groups of people working together for a common purpose, typically a lot of time needs to be spent on group development, and this can take a lot of patience and resources.
Finally, access to capital has been a long-time struggle of cooperatives. We have seen some co-ops dissolve in order to meet the capital requirements needed to grow their businesses.
Moving forward, we would like to build on the success and momentum we have achieved in Manitoba. This work has been a direct result of working in partnership and having ongoing and open dialogue between government and members of the cooperative community. Working in partnership, we can develop strategies to address the needs of the co-op sector, as well as the needs of government.
We also need to see that co-ops can access relevant programs at all levels of government. Co-ops are often excluded from the vernacular of government programs. But even if they are included, sometimes they are discouraged from accessing programs due to lack of understanding and awareness of the co-op model.
Finally, we would like to see the creation of a national co-op development fund, developed by the sector in partnership with government. This could address some of our needs for access to capital.
I want to thank you again for giving me this opportunity to be with you today. I am open to any questions you might have.
And thank you all for coming. It's great to have you here today, too.
As I've said to other panels, I'm learning something from each panel. So thank you again for helping an old guy like me still learn.
Ms. Goussaert, you mentioned teaching high school teachers and teaching about co-ops from a knowledge point of view even at that level, preparing kits and so on. You said it was the Ontario cooperative group that brought that together. I would love to see one of these kits. If you have one, I honestly would love to see it.
And I'm not going to hand it out to high school teachers. I think we'll go and hand it out to banks. We keep saying that the knowledge of what a cooperative is or why the structure is the way it is what's maybe getting in the way of some of this working.
I might also suggest—in your case, the western economic development that the federal government offers to business, from microloans to help for start-ups—that you were right about it not always being there in the vernacular in the programs. We need to make sure that cooperatives are included and recognize that this is available to them, too. That would be a huge part. So it's some of that education, whether it's the federal development agency in Ontario, FedDev, or Western Economic Diversification, or any of those.
There are programs out there for business start-ups. We don't have to put a new head on this horse. We already have this. We need to make sure people know where it is and where to go to get it. Would you agree with that?
I should come clean that I'm actually the vice-president of the Canadian Co-operative Association, as well, so I don't....
In my remarks, I said that we're not here to talk about the CDI. I understand the theory that these programs come to a conclusion and that it's time to assess whether it's a good idea to start a new one.
In terms of money, I don't think we really would be asking for the type of funds that would capitalize a cooperative. That's not the issue. The issue is that when you start a business, and someone mentioned this, maybe a cooperative is even more difficult to understand. First, you have to have the entrepreneurial spirit of someone to actually lead the cooperative. Quite often, those people, if they have that ability, go and have their own businesses somewhere else.
You need some money at the beginning, and I think that's where we can play a role. Your question was bang on. When we're talking about mentorship, whether it's business as business or personal mentorship, we could play that role.
We can put some money into capitalization. The kind of money CDI, realistically.... It's a lot of money, sure, anytime you're talking about $1 million. But overall, it's just seed money to give people that little boost to get started.
I don't know whether to say that those kinds of dollars are small or large. But it takes some money. I think some of those grants were $75,000, or maybe they were loans, or whatever. They're small numbers that give people at least a little bit of a start. So many of these cooperatives that try to begin, by the time they get the business plan and get their structure in place and then raise all the capital, they're burned out. It's not just about money. It's about a program that cooperates. If we can come up with something together that's better than CDI, I'd certainly be in favour of that.
Thank you for being here and adding to the great story of co-ops that we've been hearing. Certainly, just to follow up on what Mathieu was saying, financing has certainly been a key issue that's come up over the past three days. I think we've been trying to probe that a little bit because there is a difference of information depending on who is giving the information.
I'll just give you an example. Sometimes when we're talking with co-ops, we'll hear that start-up co-ops have difficulty accessing financing, which I believe to be true.
I also think, though, that small businesses face the same types of challenges. They're high risk. Access to capital is very much a challenge for them. They're in their infancy, really. I'm sure there are many small businesses that are just ready to launch but they can't get the capital funding.
We've had a number of financial institutions here, including the Bankers Association, the FCC, and a number of credit union and credit co-op types of financial institutions, too. I've been asking them this question consistently throughout our meetings, and the answer we've been receiving from them is that although co-ops have certain challenges, when it comes to applications for financing certainly, whether they're a co-op or a business isn't part of the lending institution's decision-making. It seems to be more about the specific type of risk analysis that a lending institution does. Whether you're a small business or a co-op, you will be evaluated based on what you're asking for and what you're offering. That is very much a factor and plays a role in whether they can access credit financing when they're in their infancy.
So I'm wondering if you could comment on that.
Vera, I don't know if you see the business side of that and if you can make that kind of comparison. Is that accurate, what we've been told by financial institutions, including co-ops?
Let me thank folks for being here this afternoon. And of course, to be on the record, I thank all the folks who have come here over these five days of testimony. Indeed, as many of my friends across the way have said, it's been a learning experience for some, and maybe less for others, depending on one's experience with cooperatives and credit unions, etc. Some of us have been around them a lot longer.
Mr. Nelson, if I could, there are some rather specific things you and Mr. Dobson have in your package. My friend, Mr. Lemieux, has been talking about the financial end, back and forth, trying to find a reason for saying, aren't they just the same?
It seems to me that near the end of your piece, you talked about classifying cooperatives as a unique business model for tax purposes. Let me just read the entire paragraph, because I know that Mr. Dobson paraphrased some of it, realizing that his 10 minutes was about to end:
Co-operatives are currently not defined as private corporations for tax purposes, but are allowed certain deductions and credits available to private corporations. We would recommend co-operatives be uniquely defined to avoid having to amend sections of the tax laws where there is an intention for a co-operative benefit. Currently, when tax rules change, there are significant uncertainties for how those rules are intended for cooperatives.
If I'm reading that correctly, when I listen to myself say that, you're suggesting that cooperatives don't quite fit exactly the same way, in the tax code at least, as something that would define itself as a corporation, per se.
Perhaps you could speak to that, because there's some significance, at least for me, in what that piece says.