Special Committee on Cooperatives Committee on July 25th, 2012

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

Yes.

Alan, on your side, I've been involved in many purchasing cooperatives and business cooperatives, and whether they were formal cooperatives, which most of them are now, in the sense of one member, one vote, and a corporation set up to do the purchasing.... There's so much money to be saved by people in like businesses working together even if in fact they're competitors. You're creating an equal playing field, because those competitors are now buying power or advertising or product at a same price. Now you can beat them just by how good a business person you are.

This is not a new phenomenon, the people working together, but it seems to be growing exponentially. In the sense of what you've done in Owen Sound, or what you're now branching out and doing, can you talk about the size? How much money do you think you've saved a group of manufacturers in a medium-sized community like Owen Sound by their getting together to do either purchasing together or health training together? Can you throw some numbers out as to what you think they're saving?

[Alan Diggins]

It's hundreds of millions of dollars, definitely, over a 15-year period in Owen Sound alone.

It's not something we've done personally.

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

No, no.

[Alan Diggins]

We've just facilitated that happening.

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

Yes. So the dividend—

[The Chair, Conservative, Blake Richards]

Is it related? If it's related, I'll allow it, just very briefly.

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

No, it's not.

[The Chair, Conservative, Blake Richards]

Okay. Thank you. The time has expired.

We've concluded our second round of questioning. We have just a few minutes remaining. I will start a third round. There are only about three minutes, I believe, and I'll allow you to utilize those three minutes.

Mr. Boughen, you're next on my list. You have three minutes.

[Ray Boughen, Conservative, Palliser, SK]

Okay. Thanks, Chair.

We've heard from a number of witnesses about the successes of different operations they've been involved in. I'm just wondering what happens when an operation that you have funded starts to go sideways. Are there steps in place to help pull the project back onto the rails? Are there some formalized operations that take place? When do you get to the point where you say, “This one isn't going to fly, guys; it's buried in the hangar someplace here, and we'll have to get back to it”?

Perhaps you could comment on that.

[John Lahey]

Our policies are very similar to the policies of the banks in terms of when and under what circumstances we would intervene on a loan. It's how we apply the policy that's different.

You know, our last wish is to actually foreclose or to call a loan. We'll do most everything we can, including with residential mortgages, before we'll do that. I had a lady on the phone last night; this is about the tenth time we've tried to intervene on her behalf, and we just can't do it. But in lots of other cases we're actually able to find ways to either defer payments or capitalize interest—not always, but in most cases. Our delinquency rates are very, very low, mostly because we work with our members.

[Alan Diggins]

In our case, you heard me speak about old-fashioned bankers, and I gave up on that route, with all due respect.

[A voice]

Are you calling me an old-fashioned banker?

[Alan Diggins]

Oh, oh! That's right.

So I did, after five years, come up with a couple of fellows, one of whom has bought and sold 27 manufacturing facilities. You buy ones that are in trouble, make the adjustments to make them successful, and then sell them. I coupled him together with a young fellow who came out of the Deloitte group. Unfortunately, I do get a lot of calls from plant managers asking for help. When you bring in the kind of expertise in manufacturing that the fellow who'd bought and sold has, and you couple that with the kind of banking finesse that the Deloitte fellow has, you can come up with a lot of really novel ways, and good ways, to correct a balance sheet or to pick out an operational issue that is upside down. That seems to be working very well.

So we've taken a different approach as opposed to the banking.

I've sat in your chair, too, in having to call loans and that kind of stuff.

So it seems to be working well that way.

[Ray Boughen, Conservative, Palliser, SK]

Thank you.

Thanks, Chair.

[The Chair, Conservative, Blake Richards]

Thank you very much. You're just about right on time. I appreciate that.

We will close out this panel. Thank you very much, both of you. It's been excellent, very informative. We very much appreciate your time.

I'll suspend the meeting until 3:30.

[The Chair, Conservative, Blake Richards]

I call the meeting back to order.

For our second panel this afternoon we have with us two organizations. From Agropur cooperative, we have Madame Lorraine Bédard and Monsieur Serge Riendeau; and from the Fédération des coopératives de développement régional du Québec, we have Madame Francine Ferland.

I will first turn it over to Agropur for ten minutes for opening statements. Because there are only two groups, I'll once again allow a little leeway if I see that you're coming close to the end of your remarks, but please try to keep it as close to ten minutes as possible.

Madame Bédard, you have the floor for the next ten minutes to make your opening remarks. Thank you.

[Lorraine Bédard, Corporate Secretary, Vice-President, Members Relations, Agropur cooperative]

I want to begin by saying that Agropur wishes to thank the committee for its invitation and its interest in Canadian cooperatives. I am a corporate secretary and am joined by Serge Riendeau, who is the president of Agropur's board of directors. I see that you have received our brief, which I will discuss briefly in order to stay within my allocated time.

Before I go ahead with my presentation, I want to invite you to visit our web site at www.agropur.com. There, you can learn about Agropur's main trademarks, the many awards and honours our products have received, our mission, our values, the highlights of our history and the annual report for the most recent fiscal year. We take great pride in that document because it has much to say about cooperation and the manner in which Agropur expresses its cooperative pride.

The 13,000 Canadian dairy farms produce about 8.4 billion litres of milk annually. That milk makes its way to 455 processing plants, with combined sales of an estimated $13.4 billion, or 15% of total sales in the Canadian food and beverage industry. The Canadian milk-processing sector provides employment for almost 24,000 people in every region of Canada.

Our industry is rationalized. Three major processors—Saputo, Lactalis-Parmalat and Agropur—share slightly over 75% of Canadian milk production in approximately equal shares. It is interesting to note that cooperatives have a very strong presence in the Canadian dairy sector. In addition to Agropur, which processes 25% of Canadian milk, other major dairy cooperatives are Agrifoods, Gay Lea Foods, Scottsburn, Amalgamated Dairies, Farmers Dairy, Dairy Town, Nutrinor, Northumberland, Agrilait, Fromagerie St-Albert, Organic Meadow and the Société coopérative agricole de l’Isle-aux-Grues.

The cooperative was founded in 1938. Agropur is a major player in the Canadian dairy industry. We process almost 2 billion litres of milk per year in Canada; our 3,349 members produce slightly more than 1.7 billion litres of milk; and we provide competitive and attractive jobs for 4,600 Canadians in every region of the country.

The dairy industry operates under a supply management system. We believe that this system has provided a stable environment over the years, within which the dairy industry has been able to develop while coping with the challenges arising from changing conditions in domestic markets and from international trade rules. The industry has been successful in providing consumers with quality dairy products at competitive prices. Our partners in this industry are the producer marketing boards and their national organization, the Dairy Farmers of Canada.

We strongly believe that everyone must play their role in the industry if it is to retain its balance. The government must be careful not to take any actions or adopt any programs or structures that affect the balance between producers and processors, or that allow foreign processors to gain access to the Canadian market without being bound by the same regulations as Canadian processors.

Agropur is a major player in the dairy industry, and it is also the third largest non-financial cooperative in the country. Considering all economic sectors together, Agropur ranks among the six largest national cooperatives. Agropur has a real and significant impact on the agricultural sector. Thanks to its management style and leadership, the cooperative distributed $482 million to its members in patronage dividends in the five fiscal years from 2007 to 2011, with 25% having been paid out in each corresponding fiscal year and 75% having been distributed in the form of capital issued by the cooperative to all its members.

This capital is redeemable by decision of the board of directors after a minimum period of five years. This means that, over that same five-year period, Agropur members received $230 million—the cash portion of the patronage dividends and the repurchase of shares that were previously issued by Agropur.

Agropur also plays a significant role in the Canadian cooperative movement. It is a member of the Conseil québécois de la coopération et de la mutualité—Quebec council on cooperation and mutual plans—and is working to promote the creation of a bilingual national body that will represent all Canadian cooperatives before various authorities, including the Government of Canada.

It is also a member of SOCODEVI, which works in the area of international development to encourage populations to take their respective situations in hand through the creation of cooperatives. Agropur provides financial support to these cooperative organizations in order to promote recognition of the cooperative movement and cooperatives as a viable business model that offers an alternative to the dominant model.

Like all large cooperatives, Agropur receives numerous requests to support the cooperative movement. It has been responding positively to these requests for a long time. However, like any other cooperative, our organization must ensure its own profitability. There is a limit to how much support can be provided from within the sector. That support must not serve as justification for the government to disengage from assisting and supporting the development of cooperatives and the cooperative sector.

We must not forget that Canadian cooperatives belong to Canadians, that they are active in every sector and every region, and that they contribute to the collective well-being through the cooperative values of self-determination, equity, equality, and solidarity. All Canadians, including the Canadian government, should take pride in their cooperatives, and the government should renew its support for this economic sector.

Previously subject to Quebec's cooperatives act, Agropur decided in 2000 to place itself under the Canada Cooperatives Act, which would better reflect its business situation and put it in a position to take on members from other Canadian provinces if the opportunity arose.

Since that time, Agropur has had the opportunity to consider entering into strategic alliances with other cooperatives. The fact that it is already governed by the federal act was clearly advantageous and could have facilitated the execution of any such plans. We have been operating under this legislation for 10 years and have had the opportunity to examine it more closely at various times, especially during the consolidation of our by-laws in 2000 and 2009.

In general, Agropur is of the opinion that the act provides a suitable framework for the development of our organization. We greatly appreciate the fact that the legislator has incorporated section 159, which recognizes the distinctive cooperative nature of agricultural cooperatives operating under a supply management system. That allows them to continue to express their specific cooperative nature despite the existence of the legislative framework for supply management.

We understand that, at this time, the special committee has adopted a mandate to examine the situation of cooperatives in Canada, and not to amend the act. We ask that the committee, the government and the legislator devote the necessary time and effort to conducting a proper consultation process with the cooperative sector and Agropur in the event that amendments to the act are contemplated.

You can rely on our organization to contribute to the assessment of the potential impacts of any such amendments on the cooperative sector, on our organization, and on our way of doing business. Similarly, we can only encourage the legislator to take into consideration the specific characteristics of cooperatives when it undertakes to amend any legislation. It must ensure that any legislation that is adopted by the government includes the cooperative business model instead of excluding it.

For a long time, Agropur’s cash flow from operations has been sufficient to meet its needs in terms of reinvesting in its existing infrastructure. The real problem for large cooperatives arises when a major acquisition or investment project presents itself. The fact that our members have already contributed to their cooperative's capital by having the discipline to reinvest a significant portion of the surplus earnings that it has generated each year—combined with the financial demands placed on them by their own farms—limits the additional amount or effort we can ask of them.

Agropur has welcomed the federal government's decision to introduce the program for deferred taxation of patronage dividends, which gives members the option of deferring the taxation of the value of the investment shares issued at the time of the patronage dividend until the time of their disposition.

We would be pleased to be able to announce to our members that this program will not only be renewed when it expires in 2016, but that it will be made permanent. We would also look favourably upon the federal government’s creation of a program based on the example of Quebec's Cooperative Investment Plan. Programs of that kind, which do not come at high cost to the government, favour the capitalization of cooperatives by encouraging members to be disciplined or patient, and to reinvest in their cooperatives.

A number of unpublished studies prepared by large firms will be released to participants during the International Summit of Cooperatives, which will be held in Quebec City in October. One of these studies, prepared by Deloitte, will examine the productivity, financing, and capitalization of cooperatives. It would be worthwhile for your committee to take note of the results of this study.

The government has announced the cancellation of the Co-operative Development Initiative program. This program constituted a minimal effort on the part of the government to promote cooperatives. Similarly, the downsizing of the Rural and Co-operatives Secretariat may indicate that the government underestimates the role of cooperatives in Canada. It is important to re-establish these support structures. We invite the committee to recommend that the government renew that program and provide adequate support for the Rural and Co-operatives Secretariat.

Cooperatives are associations of persons who own democratically managed economic enterprises and share in the surplus earnings. As such, cooperatives are not like other enterprises, but they are indeed enterprises, and therefore, they must be viable and prosperous.

Toward this end, we would like to draw the committee's attention to government financial and tax assistance for enterprises, be they cooperatives or not. Regular support programs usually favour applicants who announce the creation of jobs.

However, for already-established enterprises, it is important that the government distinguish between the creation of wealth and the transfer of wealth. Job creation should not be the main factor considered in connection with financial assistance because this adversely affects Canadian companies, be they cooperatives or not.

The government should incorporate a criterion related to increasing the productivity of the applicant into its financial assistance programs, in order to favour investment in Canada as well as improvement of the competitiveness of enterprises with respect to foreign competition and in international markets. A certain degree of simplification of the requirements attached to the assistance provided would also be helpful to enterprises, whether they are cooperatives or not. All Canadian enterprises, including cooperatives, would benefit from these improvements.

Thank you very much.

[The Chair, Conservative, Blake Richards]

Ms. Bédard, thank you for your contribution.

We are now welcoming Ms. Ferland, from the Fédération des coopératives de développement régional du Québec

The floor is yours for the next 10 minutes.

[Francine Ferland, President, Fédération des coopératives de développement régional du Québec]

Ladies and gentlemen members of the committee, good afternoon.

I am happy to see you. Thank you for striking this committee to study cooperatives.

I am the President of the Fédération des coopératives de développement régional du Québec—Quebec's federation of regional development cooperatives, commonly referred to as CDRs. During my presentation, I will discuss CDRs.

CDRs are well-established in Quebec. For over 30 years, they have been playing an important role in our province's economic development. Their mission is to promote the cooperative approach, support promoters in starting up any type of a cooperative and ensure support following the start-up process.

Eleven CDRs cover all seventeen of Quebec's administrative regions. They are brought together in one federation, which provides them with support and assistance in the carrying out of their mandate.

It is in that capacity, and following the invitation extended to us, that I will tell you about what we think about the importance of cooperatives in Quebec, and about CDRs' contribution to their development.

I would like to begin with a recommendation. We recommend that the Canadian government establish a partnership for cooperative development to support the creation of cooperatives across Canada.

I will present three separate elements in support of our request: evidence of cooperatives' stimulation of Quebec's economy; the importance of an effective network to support cooperative start-ups; and effective support measures for the creation of cooperatives.

I will begin by talking about cooperatives' stimulation of Quebec's economy. As it has been mentioned, cooperatives are present in some 40 economic sectors. Aside form the major sectors that everyone is familiar with and that have been discussed to an extent today—agricultural, funeral, forestry, school or food cooperatives—there are also cooperatives in renewable energy, housekeeping and home care, day-care centres, transportation, tourism, health, local services—an example was provided this morning—cultural industries, the manufacturing industry and many others.

Cooperatives are present in all of Quebec's regions, both in urban—which may be surprising—and rural settings. They have done very well economically. They are socially responsible and redistribute the generated wealth, while providing services to meet their members' needs by creating quality jobs.

We feel that promoting different company types is important for building a strong economy. Collective businesses—and especially cooperatives—are added to the mix of private and public companies.

We are thoroughly convinced that stimulating cooperative development and encouraging innovation in new areas of activity will help Canada's economy become stronger and contribute even further to the country's prosperity, while helping prepare for the future.

In addition, cooperatives are an excellent way to ensure the sustainability of companies and to avoid their relocation. A number of studies point out that the lack of a new generation owing to the aging of business managers is currently a key challenge for our economy. Of course, there are several solutions, but one of them is business succession through the cooperative approach.

That business succession based on the cooperative approach encourages worker mobilization and the maintenance of local jobs. It also helps keep capital in our country and encourages community revitalization.

When it comes to the performance and sustainability of cooperatives, a recent study by the ministère du Développement économique, de l'Innovation et de l'Exportation du Québec—which has already been mentioned, I am sure—indicates that cooperatives' survival rate is significantly higher than that of traditional companies. We are talking about double the survival rate of other companies. That's not insignificant.

After three years of existence, three out of four cooperative are still there, compared with one out of two for all Quebec companies. Six out of ten cooperatives reach the five-year mark, compared with slightly under four out of ten for other companies. We are talking about 62%, compared with 35% for all of Quebec's companies.

After 10 years, 4 out of 10 cooperatives are still active, compared with 2 out of 10 in the case of all other companies. That works out to 44% and 19.5%, respectively. This study was carried out twice, and both times, the results were the same after five and ten years. There are certainly some explanations for that.

That performance of the cooperative model can be partially explained through the actual structure of the cooperative business model, the legislative framework of its governance, the existence of a board of directors made up of members, the democratic operation and the obligation to establish a reserve to ensure the company's sound management. In addition, the technical or specialized assistance cooperatives receive when they are created and during their development is certainly a sure value. That is why making sure those specialized services are provided to support cooperatives is key. So we can say that the amazing survival rate of Quebec cooperatives is not unrelated to the joint efforts by the cooperative movement and the Quebec government. Those same statistics clearly show that stimulating and supporting the development of new cooperatives in the spirit of economic sustainability is a strong economic incentive.

I also want to emphasize how important an efficient network is for supporting cooperative start-ups. Regionally speaking, regional development cooperatives are a gateway for people who want to create a cooperative. They take on the stimulation of the regional cooperative life and promote the approach. They provide advisory services for start-up cooperatives and business support for existing cooperatives.

Here are some figures. The CDR network is made up of more than 1,100 cooperatives and member organizations, as well as 1,500 cooperatives created over the past 20 years. During the 2011-2012 fiscal year, 140 new cooperatives were started up, leading to the creation and maintenance of 375 jobs. The Fédération des coopératives de développement régional du Québec—which brings together CDRs and of which I am president—aims to encourage concerted efforts, help highlight and share good practices, and develop growth areas for the network. CDRs or sector federations—organizations dedicated to creating and supporting cooperatives—may be very present in Quebec, but there is another CDR elsewhere in Canada. A regional development cooperative has been operating in New Brunswick for almost 10 years. In addition, CDRs' operation and impact on cooperative development favourably attract the attention of other Canadian provinces, which are currently adopting exploratory measures on the feasibility of implementing such a model in their area.

I would like to tell you about effective support measures for cooperative development. You may know this already, but in 2008, 63.1% of new cooperatives based in Canada were from Quebec. Did you know that, from 2004 to 2010, 595 new cooperatives were started up in Quebec, thus creating or maintaining 2,845 jobs? That economic dynamism is largely due to a partnership agreement between the Government of Quebec and the Quebec cooperative movement. For the government, the purpose of such an agreement is to encourage the development of existing cooperatives' business operations, create or maintain jobs in the regions and meet the new needs of Quebeckers. We estimate that such a model of government support for cooperative development could be put forward across Canada based on a partnership with provincial cooperative boards and their partners.

In closing, we would like to remind you that cooperatives have a significant impact on the economy, that they are incredibly sustainable and efficient, and that, in Quebec, they are helped by organizations dedicated to supporting them—a key to their development success. Consequently, I want to repeat the recommendation of the Fédération des coopératives de développement régional du Québec to establish a partnership for cooperative development to ensure the creation of cooperatives across Canada.

There are some amazing cooperatives across Canada and some very nice large cooperatives. However, those nice large cooperatives have not always been big. They started out small, 50, 60 or 80 years ago. If we want to have more nice big cooperatives in 25 or 50 years, we must start structuring and supporting the cooperative movement now, and stimulate the creation of new cooperatives. The Canadian government certainly has a role to play when it comes to creating and supporting those cooperatives. Let's work together on building a better future.

Thank you for your attention.

[The Chair, Conservative, Blake Richards]

Ms. Ferland, thank you for your presentation.

We will begin our first round with Ms. Leblanc, who has five minutes.

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

I want to thank the witnesses for this very useful testimony on the cooperative movement.

Ms. Ferland, you just made a very helpful presentation. You mentioned the role the federal government could play in boosting the cooperative movement across Canada. We see that the government will have a role to play in that. How do you think those measures could boost the cooperative movement and help emerging cooperatives?

[Francine Ferland]

Far be it for me to put words into the mouths of politicians who are here to make decisions on implementation mechanisms. Any support measures and any programs that can help existing organizations better structure their actions could be used as leverage. At times, provinces have means and ideas, but they sometimes lack leverage.

I think the federal government could easily create that leverage in other provinces, so that the movement can spread. There are some very nice cooperative results across Canada. I think they should be used as inspiration to facilitate the creation of new major cooperative networks.

I think the Co-operative Development Initiative was a good example of measures that provided tremendous support for cooperative development. I sat on the steering committee for six years—from the beginning, in 2003, until 2009. Projects from all over—although priorities were still already targeted—resulted in the creation of alliances around those projects. Without the CDI's financial support, some of those projects would not have existed. People do not lack ideas, but they often lack the means to bring them to fruition. I think that is an area where the federal government could easily play a role.

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

Ms. Bédard and Mr. Riendeau, how do you view the challenges emerging cooperatives face? What kinds of challenges do they have to meet? Agropur is well-established, but as Ms. Ferland pointed out, cooperatives start out small and grow. As a well-established cooperative, you say that cooperatives often want to develop. What are the major challenges those cooperatives must face, be they part of the agricultural or the industrial sector?

[Serge Riendeau, President, Board of Directors, Agropur cooperative]

That is an excellent question. I would like to begin by specifying that Agropur is a cooperative, but it is not a cooperative federation. Agropur's members are directly related to the cooperative. Our members are not related to a local cooperative, which is in turn related to Agropur through a federation.

To answer your question directly, we help emerging cooperatives through our provincial or national associations, whether we are talking about the Conseil canadien de la coopération et de la mutualité or the Conseil québécois de la coopération et de la mutualité. We provide them with a fairly high level of financial support. We invest over $300,000 in those organizations. We provide $50,000 a year in support for a research chair at the Université de Sherbrooke.

As for the International Year of Co-operatives, we are putting up $300,000 for the upcoming International Summit of Cooperatives. I would like to thank the government for supporting the UN resolution that designated 2012 as the International Year of Co-operatives. That shows that pretty much everyone is interested in that business model.

I think that smaller emerging cooperatives sometimes need financial support. They may also need administrative support so that they can generate maximum start-up power. Things are always the most difficult in the beginning. Once those start-ups grow a bit and acquire some experience, they can have more staff. They can stand on their own two feet a bit more.

[The Chair, Conservative, Blake Richards]

Sorry, Ms. LeBlanc, your time is up.