Hello, bonjour, aaniin. Thank you for inviting me to speak with you today on behalf of the co-operative food sector. This is my first opportunity to speak to any federal committee, so I am truly honoured.
In coming here today, I would like to explain to you, from the co-operative food and farming sector, the state of agriculture and how it is translating into the impact on the co-op sector as a whole. Linked to that, I would like to share with you how co-operatives are addressing challenges raised by agricultural debt through co-operation.
Local Food and Farm Co-ops is a second-tier co-operative that supports the growth and development of co-operatives with the shared purpose to increase production, sale, and marketing of local foods. We work with more than 90 businesses, from farms, to stores, distributors, and processors. All are unique, but all share the common purpose to support local food producers.
As a result, my work in the food and agriculture sector has been mainly involved in the subsector of crops produced for human consumption. It is from this perspective that I will speak to you today.
As you well know, there's been an increasing demand for regionally produced foods across North America in the last 10 years. This increase has been confirmed as not only a trend in consumer spending, but also a change in consumer patterns as people become more aware of the impact of food on the health of themselves, their families, and the planet.
In response to this increasing consumer demand, we're seeing farm start-ups and transitions to direct marketing of food for human consumption, which is a positive reflection of growth in the ag sector. However, there are a couple of key challenges that exist, which put these new businesses at risk.
We are seeing many new entrants starting up these farms coming from non-farming backgrounds, many coming from an urban upbringing, with non-related post-secondary degrees and pre-existing debt. While we encourage the entrepreneurship of these new farmers, they come to the sector at a disadvantage due to a lack of business management knowledge and weak financial start-up as they purchase and develop their farm enterprises.
The second key challenge is that access to capital and financing for these new entrants can be very challenging or impossible due to risk assessments of non-commodity-based food and agriculture ventures. New models of agriculture are not tracked and valued in the same way as commodity markets, leaving them to be assessed as high risk. Therefore, new entrants are forced to pay large down payments on land with high values and use high-interest financial vehicles, such as credit cards and lenders, to finance their expansion. This lack of access is compounded by pre-existing debt. In a sector with small margins, this creates a challenging environment for sustainable business growth and development.
I think it's also important to note that these new entrants are not always accessing the business start-up resources that are available to them. This includes business guidance and advice, management training, advisers, business mentorship, and programs. As agriculture is a unique field of work with specific risks and constraints, a lack of knowledge around best management practices puts these new operations at risk.
Unless new entrants are coming into the sector with pre-existing business management knowledge, there is an increased likelihood of developing financial management practices that may not be in the best long-term interest of the farm, including acquiring debt.
The third key challenge is that the middle infrastructure that supported food-producing farmers in previous decades has degraded due to the import-export-focused food industry. This infrastructure included distribution channels, wholesale markets, and value-added processing. Since this middle infrastructure isn't present, these enterprising farms are forced to develop these channels, while also producing food, which can result in the farm business being spread thin as they try to find the appropriate market channels for the volume of food that they need to sell to be at a scale that is financially sustainable.
Therefore, pre-existing debt, compounded with a lack of access to financial capital and middle-market infrastructure, creates an environment for risk for new farmers and expanding entrants into the food and value-added agriculture sector.
How does this relate to co-operatives?
Co-operatives are developing across the country to strengthen these farm enterprises while addressing these three factors: lack of knowledge, lack of finances, and lack of infrastructure. Food and farm co-operatives are developing at such a rapid rate that the subsector is the fastest growing co-operative sector in the country.
Co-operatives are playing an important role as they allow members to pool resources to have accumulated capital, including social and financial, for shared value. This can translate into the development of shared infrastructures such as storage and processing, land ownership as we're seeing in farm worker co-operatives, and market, such as retail and distribution co-operatives. These new co-ops are responding to community needs of farmers, and are doing so in a structure that reduces risks and increases long-term sustainability of the business models, as co-ops have a higher rate of success compared to any other business model.
The development of co-operatives allows farmers to avoid taking on debt to service these business expansion needs of their businesses by pooling resources. An example of this is the development of a new grain storage and handling co-operative in the Algoma region of Ontario, where farmers are jointly investing in storage infrastructure that will meet all of their needs at an economy of scale rather than individually purchasing small-scale, high-cost infrastructure for their own farms. By jointly investing, they have the scale-appropriate infrastructure that will allow the regional sector to expand; whereas, should they work independently, the regional economic impact may not be as great purely due to the fact that the farms have to access debt to finance their expansion, and that return on investment would be over a longer period.
Food and agriculture sectors across Canada are also developing financial co-operatives to create pool loans specifically designed to meet the needs of food and farm enterprises to address those who have a lack of access to capital. FarmWorks Investment Co-op in Nova Scotia is an investment vehicle for Nova Scotians to invest in regional food enterprises through loans that are disbursed by FarmWorks. In five years FarmWorks has disbursed $1.4 million to over 60 businesses at favourable interest rates.
The value of financial co-operatives in rural communities is important as they may be serving not only as an economic driver, but also as a moderately priced lending mechanism. As financial co-operatives are not profit-driven as banks or investors, they may be able to offer lower interest rates than other agencies. For farm and food enterprises, this is important.
Another advantage that co-operatives have in supporting these new enterprises is the embedded philosophy to educate their members. Through working within a co-operative, farmers are able to learn from each other through business learning initiatives. This allows them to learn as many businesses together, reducing isolation and improving regional sector capacity.
As these co-operatives are developing to meet the needs of their communities, it requires the tenacity of their members to overcome the barriers to establishment. Co-operatives still face many barriers through the life cycle due to a lack of common understanding of the co-operative model. This creates challenges in incorporation, reporting, government relations, and access to matching capital.
We have seen through the co-operatives that have been developing over the last 10 years, as well as those long-standing co-operatives that have continued to serve the sector for over 50 years, such as Federated, FS, Arctic Co-ops, and many more, that co-operatives can play an important role in supporting farm enterprises to store, process, market, and finance their businesses. Without the appropriate supports, co-operatives are less likely to develop. In the province of Quebec, we are seeing a strong growth of food and agricultural co-operatives due to strong support by the provincial government as a means to increase economic sector growth. Through appropriate supports within government and regional development agencies, we can encourage the growth of co-operatives to meet the needs of communities and farmers.
Looking forward, to support the financially sustainable start-up and expansion of farm enterprises, co-operatives can play an important role in increasing community wealth, mitigating risk, and increasing economic stimulation through shared assets. If we look at how to increase the knowledge of the co-operative model within regional economic development agencies and to support the development of co-operatives through programs, supports, and funding, we will see an increase in these initiatives that will improve the well-being of communities across Canada.
I look forward to any questions from the committee. Thank you. Merci.Meegwetch.