Special Committee on Cooperatives Committee on July 25th, 2012

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

Since world output determines grain prices, not Canada individually, what do you suggest in terms of regulations or measures? The market often determines grain prices, and there are a lot of speculators out there right now.

Does that impact farms? Farmers don't necessarily receive the profits this speculation can generate.

[Denis Richard]

It dramatically increases the risks involved with managing a farm in Canada, because input costs hinge on grain prices. A farmer may see a highly volatile market with very swift peak periods as a great opportunity to make a profit. But, as they say, what goes up must come down. When grain prices come down, as they did in 2009, farmers end up paying input costs that are too expensive in relation to grain prices. So the economic impact is significant. Farmers can no longer be satisfied to run their operation; they also have to engage in speculation. And that increases the risks.

On the Chicago stock market, back in 2008, at the height of the financial crisis, grains were traded back and forth between the producer and the user 60 times. So that means 60 back and forth possession acquisitions between the producer and the user. That means greater risk for farmers not speculators because that is their business. If I am a farmer, more and more, I have to play the role of speculator.

[The Chair, Conservative, Blake Richards]

Thank you.

Next we have Monsieur Bélanger for five minutes.

[Mauril Bélanger, Liberal, Ottawa—Vanier, ON]

Thank you, Mr. Chair. Good morning, ladies and gentlemen.

Mr. Richard, I had the pleasure of attending the official opening of one of your cooperatives in Notre-Dame-de-Montauban, a village northeast of Shawinigan. I was with some fellow committee members. The village was about to lose its grocery store, its gas station and its hardware store. Now, they have a coop with a grocery store, a hardware store and even a Desjardins bank machine. They also have a gas station. Ultimately, the municipality brought the public library into the fold. Everyone is glad, and if I understand correctly, more than 80% of the families there have joined the coop. That's an incredible example of a project that delivers community services. I saw it with my own eyes.

That brings me to the other point that you mentioned, the Internet. To get to the village, I used the map on my iPad, but my service cut out on the way there. That's when I realized what life was like for residents in the area. What is La Coop fédérée doing, aside from the $30-million injection you talked about, to ensure local service and create a new business? I saw similar situations in Alberta and other rural areas. Is there truly a future in the movement for a new crop of cooperatives?

[Denis Richard]

I think there is room for the cooperative movement. When people take matters into their own hands, they manage to do some pretty great things.

The Notre-Dame-de-Montauban example shows that La Coop fédérée's board of directors has been willing to sacrifice a portion of its revenue for many years in order to help the communities that take control of their destiny in the sectors it is involved in. It will not create a concept. La Coop fédérée would have never created a concept like the one in Notre-Dame-de-Montauban. If community members agree to form a cooperative and take charge of the situation, we support them and take risks. That is not a business decision. In a business decision, La Coop fédérée would have never created a concept similar to the one in Notre-Dame-de-Montauban. However, as we are part of a cooperative, we agree to take a bit more of a risk for the benefit of those who come together in a cooperative.

Regarding the Internet, in order to have a network of cooperatives affiliated to La Coop fédérée—as in the Notre-Dame-de-Montauban example—it is important to have permanent and effective communications. I say “permanent” because communications are often not permanent; they are often temporary and fluctuating in the regions. The data absolutely must be centralized so that a large business can work with our network. That requires easy access to Internet communications that are always reliable and fast, so that everyone can constantly be online in order to lower the administrative costs to a minimum. Communications, around the world, help reduce companies' administrative costs. That entails a minimum critical mass. It is possible to create a federation with small cooperatives like it's been done in Notre-Dame-de-Montauban, but means of communication are required.

[Mauril Bélanger, Liberal, Ottawa—Vanier, ON]

Ms. Simard, during your presentation—and I want to thank you very much for it—you provided very specific figures on the additional taxation of vertically integrated cooperatives, if I have understood correctly.

You said that, in the case of capital gains, taxation may be up to 21% higher than it is for a private share-capital business. We are talking about 4.5% on investment income and 15% on income from subsidiaries.

Is that the case for your subsidiary, Mr. Richard? You do have a subsidiary, right?

[Denis Richard]

Yes, we have several.

Olymel is the most well-known of them, but we have several.

[Mauril Bélanger, Liberal, Ottawa—Vanier, ON]

Is that the case, or do you have to take endless detours to not get there?

[Denis Richard]

The first principle that applies to us is the obligation to follow the rules. However, major companies can create subsidiaries to adapt to the regulations. The study shows that, for most cooperatives, the tax burden is greater than it is for share-capital businesses.

La Coop fédérée, owing to its sales figures—the company has tax experts—may create and own other companies so that it can follow the rules. That can happen. However, generally speaking, cooperatives are penalized in terms of taxes.

[Mauril Bélanger, Liberal, Ottawa—Vanier, ON]

Mrs. Simard, what do you have to say about that?

[Hélène Simard]

That's right....

[The Chair, Conservative, Blake Richards]

I'll just ask you to make it very brief, if you can, as the time has expired.

[Hélène Simard]

As Mr. Richard was saying, the study carried out by tax experts focused on general cases related to the direct status of active cooperatives.

When it comes to taxing income from a subsidiary, we are told that cooperatives, like share-capital businesses, do not have a mechanism that avoids double taxation—such as when a subsidiary pays a dividend, which it then distributes to its members.

A share-capital business can use that mechanism to avoid double taxation, while cooperatives cannot. Naturally, as Mr. Richard was saying, small and medium-sized cooperatives cannot structure their company so as to avoid those problems.

[The Chair, Conservative, Blake Richards]

Thank you.

That closes out the first round of questioning. We'll move to the second round now.

We have Mr. Boughen first, for five minutes.

[Ray Boughen, Conservative, Palliser, SK]

Thank you, Chair.

Welcome to the panel and to Bill and Rose. It's good to have you folks with us. We appreciate your taking the time to share your knowledge with us.

Speaking of knowledge, there are 14 items, Rose, you put together with your folks. If you had to pick the top three out of the 14, what would they be, and why would they be?

[Rose Marie Gage]

I think if we were to look at the largest, most overarching opportunity, it would really be providing cooperatives with parity with other types of corporate structures, whether they're privately held or publicly held entities.

If you could do that, whether it incorporates grant structures or support services or tax applications or all of those aspects, that would be one. And that's a fairly big ask.

Another one would be opening up the co-op sector to be across all boundaries and across all industries. And provide some form of an innovation centre. That would be comparable to point 14. That would be a good area to focus in on for future advancement from a for-profit perspective, because profits will, in turn, ripple through the Canadian economy and will make substantial improvements.

Last, but I think also formidable, is the reduction of red tape. There is a federal program looking at red-tape reduction right now. I would suggest some effort to look into how to deal with the co-op structures and the co-op entities that are supported and to further enhance the red-tape reduction program to incorporate cooperatives.

I believe that if you were to embrace those three, it would be a formidable change for the co-ops represented here today and for those across Canada.

[Ray Boughen, Conservative, Palliser, SK]

Okay, thank you for that.

Turning to the panel, I have one of your quotes here, Madam Gagné. I'm wondering if you can put this in a bottle and we can take it home with us.

You say here that “co-ops continued climbing in 2009, to a total $11.5 billion, for an overall 85.5% surge from 1999 to 2009”. We have to get some of that and spread it around this country. That's phenomenal. How do you account for that? Share with us your secret.

[Hélène Simard]

That figure concerns employment growth. It comes from a study carried out by the ministère du Développement économique, de l'Innovation et de l'Exportation du Québec. That department has asked us the exact same question. What is the magic secret?

I would say that the secret is in the cooperative's very structure. A cooperative is created to meet its members' needs. When it goes through a good period of growth, it considers reinvesting in order to create jobs and provide its members with enhanced services. It does not generate those revenues to invest them in a tax haven or to speculate in another area of activity. It is dedicated to its original mission.

The mission to create jobs is part of companies' willingness—across Canada—to create economic prosperity and employment. The goal is not to create wealth for the sake of wealth itself. The goal is to create wealth in order to distribute it and make it work, so that it can be used to develop our territories, regions, communities and workers. It is in this spirit that members govern cooperatives.

However, that would be impossible if companies were unsustainable. They are sustainable because, in accordance with their governance rules, administrators manage them like real companies.

People sometimes think that a cooperative is not administered like a company because it starts out small or because it is created based on the need of a single member. A cooperative is truly a company whose members, general assembly and board of directors care about having a sustainable company at the end of the year that can save money for the future, invest in equipment, innovate and improve working and living conditions.

[Ray Boughen, Conservative, Palliser, SK]

Thank you.

How are we doing, Chair?

[The Chair, Conservative, Blake Richards]

You have 10 seconds.

[Ray Boughen, Conservative, Palliser, SK]

I have 10 seconds? Okay.

To the gentlemen, how did you establish outlets outside of Quebec with the ag services? You talk about B.C. and some other outlets. I'm wondering how you set that up.

[The Chair, Conservative, Blake Richards]

I'll ask that the response be a brief one, please.

[Denis Richard]

Outside Quebec, it is a matter of acquiring companies. We are very present in southern Ontario in the farm input business, but that has been achieved through company acquisition.

We are also present in Alberta, in Red Deer. Once again, we acquired a slaughter house in Alberta.

Outside Quebec, we don't really have meetings with members of the cooperative movement. That's unfortunate, but it has to do with opportunity. Had we been able to merge with current cooperatives, we would have favoured that method. In reality, we acquire private businesses sold by people who are often retiring.

[The Chair, Conservative, Blake Richards]

Before we move forward with the next round, you just mentioned that you had acquired a slaughterhouse. Was it in Red Deer, Alberta? Okay. Was that one that was formerly a Fletcher's plant? Is that correct? Okay. Well, I've been there many times. We used to haul our hogs from our farm there every week, so that's a little personal note there anyway.

We'll move on to Madame Brosseau for the next five minutes.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

Good morning, everyone.

My question is for the whole panel.

The government recently eliminated the Co-operative Development Initiative. That initiative provided $4 million annually and helped young cooperatives start up. Do you think that decision will affect young cooperatives that want to start up or are beginning to come together? Could you give us any specific examples of the impacts those cuts will have on cooperatives or your own members?