Special Committee on Cooperatives Committee on July 25th, 2012

[The Chair, Conservative, Blake Richards]

I call the meeting to order. I apologize that we're getting started a few minutes late. We were having a little bit of technical difficulty with our video conference, and our witness there is waiting for some logistics.

Nonetheless, one of our witnesses who was to appear this afternoon on our first afternoon panel, the Desjardins Group, is here and has indicated that he would be comfortable sitting in on this morning's panel instead. Given that we may or may not have our initial witness appearing by video conference, I think that would be a wise idea. If I don't hear any objection from the committee, I'm going to ask him to join us this morning.

Does anyone have a concern with that? I don't hear any, so I will invite Mr. Brun from the Desjardins Group to come to the table as well.

Our panel this morning will consist of Brigitte Gagné from the Conseil canadien de la coopération et de la mutualité, and Mr. Brun from the Desjardins Group. We are expecting our witness by video conference from the Quality Deer Management Association to join us as well. We will start off with Ms. Gagné and then move to Mr. Brun, and if our video conference witness is able to join us we'll have him go third.

I will now turn the floor over to Ms. Gagné to make opening remarks. You have up to 10 minutes.

[Brigitte Gagné, Executive Director, Conseil canadien de la coopération et de la mutualité]

Thank you, Mr. Chair.

In this, the International Year of Cooperatives, we wish to start by thanking all the committee members for meeting with us this morning and for agreeing to undertake a comprehensive study of the cooperative formula this summer. We would like to express our support for the brief submitted by the Canadian Co-operative Association, an organization representing a number of Canada’s cooperatives, on July 10, 2012. In addition, we support the federal government’s priorities regarding job creation, economic growth and the effort to bring down the budget deficit. Consequently, we wish to offer our recommendations to the committee to help achieve these priorities. Their common objective is to position the cooperative and mutual movement as an important partner for the federal government.

Cooperatives were born of the desire of a group of individuals to fulfill a collective need, and who pooled their skills and resources to that end. In so doing, they acquired means and expertise to which they would not otherwise have had access. In Canada, this practice was historically one of the cornerstones on which French-language communities, including those constituting official language minorities, were built. Indeed, the cooperative formula provided access to credit and savings, two critical economic development tools the banks had denied them. And so, the caisses populaires were created.

In rural settings, cooperative enterprises gave farmers access to markets by creating means of production under their control, while many insurance mutuals were founded based on the principle of cooperation in hardship. The “cooperative and mutual reflex” was thus born in Canada, and it continues to be very active to this day.

For francophones, the cooperative model is one of the keys to their economic vitality, and sometimes even their survival. Whether in terms of culture, housing, health care or access to local services, the cooperative formula is part of French-Canadian DNA. French-language cooperatives generate over two thirds of all Canadian cooperative jobs and account for 41% of the country's cooperatives. Often, they are the largest employers in their communities.

Today they are diverse, operating in a variety of sectors, and are often bilingual. They are active in every economic sphere. They can be recognized by their adherence to the seven fundamental cooperative principles that govern them, foster good corporate citizenship, and inspire confidence among members and clients alike—all of which are essential to their long-term success.

The Conseil canadien de la coopération et de la mutualité, or CCCM, was founded in 1946. It comprises 8 provincial councils, representing 3,800 French-language cooperatives and 54 French-language mutuals, and bringing together some 9 million Canadian members. Firmly rooted in its values of autonomy and intercooperation, the Canadian cooperative movement has over time put the necessary structure in place to ensure its development. It comprises three types of organizations. First, provincial councils represent each province's cooperatives and provide consulting services for business start-ups, the creation of new cooperatives and emerging projects. I would like take a moment to stress the importance of setting up new cooperatives. They are the ones in need of assistance and support.

Next are the 15 provincial sectoral federations and 2 pan-Canadian federations, which focus on market development, sectoral expertise pooling and group buying. For its part, and in conjunction with the Canadian Co-operative Association, the CCCM provides the entire Canadian cooperative movement with coordination, consensus-building and networking assistance in promoting the Canadian cooperative enterprise formula.

Embracing the sixth cooperative principle with its focus on intercooperation, French-language cooperatives and mutuals invest in creating new businesses. In addition to their own regular activities, they provide direct support for the activities of cooperative development organizations through direct investments totalling millions of dollars a year. However, those contributions alone would be insufficient to ensure the continuity and consistency of the advisory services provided to date in both languages to developers across the country, much less to strengthen them.

In several cases, with the recent abolishment of the cooperative development initiative program, maintaining that expertise is rendered more difficult, or even questioned. Cooperatives and mutuals, whose chief characteristics are autonomy, accountability, legitimacy, equality and confidence, are effective and resilient. The difference between them and traditional businesses lies in collective investment, accumulated through the joint efforts of the individuals, clients, workers and citizens that make up their members, in meeting an economic, social or cultural need.

Traditionally, members have a legal relationship with their cooperative, get personally involved, and contribute to it financially. These cooperatives and mutuals operate according to different accounting rules, different management principles, different laws and regulations, and different financing techniques. Collective ownership, participatory governance and a culture of cooperation serve to protect members’ and employees’ interests, while continuing to target surpluses that will be invested to stimulate business growth, community involvement and intercooperation. As a result, cooperatives are able to grow and carry on against all odds and are better positioned to weather economic crises.

However, they encounter a number of obstacles, including the complexity and time involved in launching a cooperative enterprise; the scarcity or, in some cases, complete lack of appropriate knowledge and expertise in start-up assistance, both in the private and public sectors; and uncertainty regarding traditional investors’ access to capital owing to cooperatives’ capital structure, control or profitability objectives. The fact that the cooperative difference is not recognized by some government programs is another obstacle.

We also note that these obstacles are greater during the early stages of development of cooperative enterprises and tend to diminish over time as enterprises grow stronger. We believe that consulting services and capitalization tools tailored to cooperatives’ needs and specificities would help foster the creation and emergence of a greater number of these kinds of enterprises. A number of fields can serve as models in this regard.

Consider a work cooperative, for example: saving jobs is a mandate that is necessary, if not imperative to such a business. Winding up operations is a last resort, and offshoring will never be considered.

This example clearly illustrates why cooperatives are forced to innovate and be resilient. In recent years, we have seen cooperative enterprises pop up in fields as varied as health care, funeral services, energy, local transit and communications. Innovation is a matter not only of developing new products and production methods, but also of exploring new cooperative business models—such as solidarity cooperatives—and learning about new fields of activity.

The work of consultants and researchers at sectoral federations and provincial councils fans that spirit of innovation by creating an environment conducive to the cooperative difference. Over 60% of all cooperatives created in Canada, and many of those innovations, saw the light of day in Quebec, where the provincial government and cooperative movement have maintained a rewarding business relationship for many years.

[Réjean Laflamme, Assistant General Manager , President, Federation of Funeral Cooperatives of Québec, Conseil canadien de la coopération et de la mutualité]

Many Canadian laws have an impact on cooperatives. Last April, accounting firm Malette published a study pointing to major disparities in the tax treatment of Quebec cooperatives compared with traditional businesses.

The study showed that owing to a failure of the integration principle, their level of taxation was higher, particularly for investment income, income from subsidiaries and capital gains. This poses an obstacle to the development of Quebec cooperatives.

In its 2011 budget, the federal government proposed extending the notion of “prohibited investment” to include RRSPs. This amendment, set out in Bill C-13, has an impact on the use of RRSPs to invest in cooperatives. A shareholder who, alone or with a related person, holds 10% or more of a given category of shares in a cooperative is considered to hold a “prohibited investment”. That is the case of many small work cooperatives with fewer than 10 workers who are owner-members.

This situation poses a risk for many small cooperatives, especially, as I mentioned, work cooperatives, which are now forced to contend with yet another obstacle to their capitalization.

In our opinion, these two situations demonstrate the importance of maintaining an ongoing dialogue between the cooperative movement and the federal government. We believe that it would be advantageous in such situations for a body representing cooperatives and having adequate resources to be able to have a monitoring role.

[The Chair, Conservative, Blake Richards]

I'm sorry to interrupt. The time has expired.

I will give 20 or 30 seconds to whoever of the two of you who would like to wrap things up for the group, but you have to make it brief.

[Réjean Laflamme]

Okay. So we'll go with the recommendations.

[Brigitte Gagné]

Our recommendations are as follows. Establish a new business relationship between the Canadian cooperative movement and the federal government under the umbrella of Industry Canada, and create an organization responsible for all cooperative affairs. Create an interdepartmental committee on cooperative affairs that would see to an ongoing, constructive dialogue with the movement, in particular to review all existing programs, laws and regulations and ensure they are fair and accessible to cooperatives, not excluding any other mandate. Transfer the statistical data compiled by the Rural and Co-operatives Secretariat to Industry Canada or to national cooperative associations. Create a cooperative co-investment fund, like the one just created in Quebec, and put in place capitalization tools similar to those found across Canada. Rectify the definition of “prohibited investments” to encourage the capitalization of cooperative enterprises through the use of RRSPs. Preserve and strengthen cooperative development expertise to give all Canadians access to cooperative consulting services in both official languages. Acknowledge and apply the cooperative formula as a means of revitalizing official language minority communities in keeping with the Roadmap for Canada’s Linguistic Duality.

Those are the things we recommend.

Thank you.

[The Chair, Conservative, Blake Richards]

Great. Thank you very much.

I do apologize. Time does go quickly, I know. Obviously, as members have an opportunity to question you later, some of the other things that you have in your package will be drawn out.

I will just point out that we have our witness, Mr. Adams, appearing by video conference.

Hello, Mr. Adams. Can you hear us?

[Kip Adams, Director, Education and Outreach, Quality Deer Management Association]

I sure can.

Good morning. Thank you for having me.

[The Chair, Conservative, Blake Richards]

Good morning.

We have one other group that will be presenting, and then we'll have you present in about 10 minutes or so. But I just wanted to welcome you and to make sure that the committee members were aware that you are with us.

I also neglected to thank Monsieur Laflamme for being here as well. Thank you. I'm sure we'll have more opportunity to hear from you as members move into their lines of questioning.

I'll move next to the Desjardins Group.

Monsieur Brun, the floor is yours for 10 minutes to make opening remarks.

[Bernard Brun, Director, Government Relations, Desjardins Group]

Mr. Chair, the entire Desjardins Group hails the creation of the Special Committee on Cooperatives. We would like to thank the committee members for this opportunity to express our views and opinions on this topic. We wholeheartedly believe that this initiative is all the more timely given that the UN has declared 2012 the International Year of Cooperatives.

That is also true, primarily because cooperatives are first and foremost an expression of a tremendous business model, albeit less well-known as compared with the more traditional corporate business model, with which people are more familiar.

I would like to introduce you to the Desjardins Group and explain where it fits in Canada's cooperative landscape. Desjardins Group is celebrating 112 years in business, so it is safe to say it's a success story. The mission undertaken by Desjardins Group is quite unique when compared with that of traditional businesses. Our mission is first to contribute to the economic and social development of people and communities. To that end, it is important to recognize that Desjardins Group is a movement, as its French name suggests. It is not a group of specific or centralized members, such as those that make up traditional business structures. It is a network of individual, secure, profitable cooperatives that have come together, coupled with a network of subsidiaries offering competitive returns. Desjardins Group is also very involved in education as regards finance, the economy, democracy, solidarity, and individual and collective responsibility.

Now I will give you an overview of the components that make up Desjardins Group. Currently, it comprises nearly 400 caisses across Canada, 1,300 service outlets and almost 2,600 banking ATMs in Quebec. With 5.6 million members in Quebec and Ontario, Desjardins Group serves an estimated 70% of Quebeckers. Desjardins Group holds $200 billion in Canadians' assets, which are managed through this cooperative union. We consider this to be an excellent example of what cooperatives can do, how they can grow and what they can contribute.

We especially wish to emphasize the fact that cooperatives and mutuals fuel job creation, innovation, financial stability and access to community-based services. Cooperatives and financial cooperatives often operate in sectors and communities that are underserved by traditional businesses. We do, however, face certain challenges and issues, the main ones having already been addressed by those who appeared before me. Generally speaking, access to capital and reserve protection for cooperatives are areas of concern that must be addressed through government assistance and an appropriate legislative and regulatory regime.

Like traditional businesses, cooperatives and mutuals are confronted with these issues, but solutions do exist. Desjardins Group has submitted a relatively detailed brief on the issue and has attached an in-depth economic study conducted in late 2011, which we urge you to read. To get an idea of the size of the economic sector and the position that cooperatives can hold, you need only think of Quebec. The first and fifth largest private sector employers are cooperatives: respectively, Desjardins Group and La Coop fédérée, whom you will also be hearing from a little later.

Cooperatives are present in communities and exist to fuel job creation and the economy. In terms of spinoff, Desjardins Group offers businesses venture capital and helps maintain more than 35,000 jobs.

Furthermore, cooperatives are known around the world as well as here at home. And that is a key message that must be understood.

Financial stability or safety is frequently mentioned. It is important, then, to remember that Desjardins Group is not only the 6th largest financial institution in Canada, but also the 4th safest financial institution in North America and the 18th safest in the world, according to international ranking.

That standing is proof that the cooperative management style can go a long way towards financial stability and safety.

Generally speaking, the cooperative model is an excellent counterbalance to the traditional capital-share business model. It drives the economy, while adding value to it, and that is something that should be encouraged.

I will now hand the floor over to Mr. Adams.

I would be delighted to answer your questions.

[The Chair, Conservative, Blake Richards]

Thank you very much.

We will now move to Mr. Adams, who is appearing by video conference. You will have the floor for up to 10 minutes to make some opening remarks to the committee as well. The floor is now yours for up to 10 minutes.

[Kip Adams]

Thank you, Mr. Chairman, and thank you for the opportunity to be here this morning and present to the committee.

The organization that I work for, the Quality Deer Management Association, does cooperatives from a little different end than what we've heard so far this morning. We're dealing with natural resources. I do live on the United States' side but work regularly in Canada. Essentially, the cooperatives that we work with are either landowner cooperatives or deer management cooperatives, bringing hunters, sportsmen and women, and agencies—your Ministry of Natural Resources, for example—together to manage the natural resources.

As we take a look at some of these, we can improve wildlife management programs and habitat management programs by far, benefiting all citizens throughout the province, if we can do a better job managing wildlife habitat. What we have seen by forming these landowner cooperatives—which are essentially groups of landowners or hunters who work collectively together on these small parcels of land to better manage the wildlife that's there and, importantly, the habitat that's there.... If we do a good job of managing that habitat, a multitude of wildlife species will benefit from that. What we see by putting some of these together and forming these neighbourhood or landowner cooperatives is far-improved habitat and wildlife management programs, which certainly benefit the hunting industry, the habitat industry, and the ministry overall with regard to province-wide natural resources. This is important on the United States' side, but it's certainly important on the Canadian side, where you have such abundant natural resources and beautiful scenery, etc.

We have worked with private individuals, state agencies, provincial agencies, and federal agencies throughout the U.S. and much of Canada to help align and provide this model for allowing these landowners and sportsmen and women to come together to create these cooperatives to then enhance their ability to manage these natural resources. We have literally worked with thousands of landowners to do this. We have worked with the U.S. Fish and Wildlife Service to form a model for developing these cooperatives around federal lands, and with states to develop the same thing around state lands. We are currently in negotiations with a couple of states to develop a cooperative position, whose sole purpose would be to work with these landowners and sportsmen and women to develop wildlife management cooperatives throughout different parts of these states to enhance exactly what we're talking about from the natural resources end.

One thing that's nice about it is that you can take a look at your Ministry of Natural Resources, which oversees the wildlife management within the province and is responsible for setting bag limits, season dates, etc. However, it's the sportsmen and women who have to buy into those programs and play their part to have a full impact on what you have from a wildlife management end, whether you're talking white-tailed deer, moose, bear, waterfowl, etc. The more of those people you can get on board with the ministry officials and the managers of that—buying into what they're doing and allowing that to happen on all of that private land throughout the province—the more successful those programs can be. We see hundreds of thousands of acres on the United States' side now in these landowner cooperatives, which are working cooperatively with the state agencies—in your case those would be the provincial agencies—and allowing the programs to be far more successful. There are literally hundreds of individual cooperatives here in the northeastern U.S. where I live. There are thousands of them throughout the United States, and they are just beginning in Canada.

On our part, QDMA Canada was incorporated in 2006, so we are an educational organization that helps teach people the value of managing habitat wisely, managing wildlife wisely, and the idea of these cooperatives and how they can benefit all.

This is a very new concept in Canada, but it is a concept that is growing and has spread rapidly throughout the last decade across the United States. It's what we see as the future of wildlife conservation on our side, and I'm guessing that the same thing is going to happen on your side. The model is a proven model. It works extremely well and will certainly apply to the situation you have on your side with private versus public land, the number of sportsmen and women that you have, and the natural resources industry.

This fits in well with what the committee is discussing in the talks today. It's something that's been proven here and will work extremely well in Canada as well. As an organization we look forward to being part of that and improving wildlife management and natural resource management in Canada.

[The Chair, Conservative, Blake Richards]

Thank you very much. I appreciate the opening remarks of all our witnesses here today, and I now look forward to the questions.

We'll move to the first round. Up first we have Madame LeBlanc for up to five minutes.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Thank you kindly.

I want to thank all of our witnesses. We heard a lot of information, but we don't have much time. So I am going to take advantage of our question period to delve a bit deeper.

First off, Ms. Gagné, you talked about how the cooperative formula helped revitalize communities, particularly minority communities, in the rest of Canada. I think one of the federal government's objectives is to encourage community development across the country, from coast to coast to coast.

Could you speak to the importance of federal government involvement in the growth of Canada's cooperative movement?

[Brigitte Gagné]

Through the Department of Canadian Heritage, the Government of Canada is currently holding public consultations, pretty much across the country, on the government's role and on the outcome of the roadmap, the strategic plan for official languages. The consultation process will wrap up in March 2013. The possibility of another iteration is under consideration.

Mr. Moore is travelling throughout the country and talking to people. The outcome seems to be quite positive. Keep in mind that francophones, historically speaking, have always come together to strengthen their community.

That is all the more important for them when they live in minority communities. Take Nova Scotia for example. Cheticamp is a very small and very remote minority community. Residents have joined forces to enhance their economic development.

Without federal support for these communities, I think they will have trouble surviving, and I am not alone in that view. The people who are there think so as well.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

If I understand correctly, you believe the federal government should get involved, particularly to help new cooperatives enter the market and provide them with assistance and support. You believe that the federal government should play a key role in the cooperative movement.

[Brigitte Gagné]

Absolutely, but I don't necessarily want to say what the federal government will decide to do. However, for a few years now, it has been involved in terms of cooperative development, in other words, new cooperatives and start-ups. Without federal government support, we will never attain that level of success, even if the entire cooperative movement is willing and financially supportive. It would be impossible.

We really need the assistance of the federal government and its capacity to enact laws and make regulations that support cooperative development, so cooperatives can thrive in the long run.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Thank you very much.

My next question is for Mr. Brun.

The Jenkins report on federal support for innovation, a project that Monique Leroux of Desjardins Group worked on, states that Canadian businesses must innovate in order for Canada to maintain its standard of living.

How do you think the cooperative movement can contribute to innovation? Can you give us any examples?

[Bernard Brun]

Thank you for the question.

It is quite clear that by their very nature, cooperatives are often drivers of development and innovation. They are firmly entrenched in community life. As a result, cooperatives are very attuned to people's needs and take advantage of that local expertise, which is highly valuable and specialized.

That is commonplace, which, by the way, is why Desjardins Group adopted a network-based operating style: to allow stakeholders to be as involved as possible. That being said, access to financing and capital is crucial.

To answer your second question, I would say that to foster development and innovation, you need mechanisms that make it possible to access seed money so these initiatives can bear fruit.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

In that respect, cooperatives contribute to innovation in response to the needs of their members.

Thank you, the bell has rung.

[The Chair, Conservative, Blake Richards]

Thank you very much.

We will now move to Monsieur Gourde for five minutes.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Thank you, Mr. Chair.

I want to thank our witnesses for joining us this morning.

Since we have only five minutes, my first question is for Mr. Brun. You said that Desjardins Group was extremely safe. I believe that is thanks to the reserve fund. In fact, year after year, the caisses have built it up and it has gone from 2% to 3%.

Could you tell us about that reserve fund, which every caisse has set up to safeguard its financial security? The results have been quite positive, as you mentioned in your opening statement.

[Bernard Brun]

Yes, that's an excellent point. I'm glad you brought that up. I touched on Desjardins Group's structure. It is network-based, meaning a group of independent financial institutions have joined forces. Being a financial institution, a deposit-taking institution, government agencies do provide a certain degree of protection. That involves deposit insurance.

Despite that, Desjardins Group introduced an intermediary contingency, the stability fund that every caisse contributes to. What that does is keep the entire group financially stable, while fostering solidarity among the caisses. In the event of trouble within the network, a form of intervention is possible to safeguard the stability of the group as a whole.

If you like, I could give you more technical details on how it works, but basically it is a layer of contingency within the group, where reserves are built up. That is quite typical of cooperatives. They do indeed function democratically because members vote and elect the leadership. They likely operate in a slightly less aggressive and much more secure fashion, counterbalancing the attitudes and behaviour of traditional businesses.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

In addition to contributing to a cooperative reserve fund, each caisse has its own reserve fund.

[Bernard Brun]

To my knowledge, the stability fund is managed by the entire group, for the benefit of all the cooperatives. That said, every cooperative, every caisse, can provide for its own cushion separately.