Special Committee on Cooperatives Committee on July 25th, 2012

[Bernard Brun]

In terms of business transfers, I believe other witnesses have already mentioned the Capital régional et coopératif Desjardins program, which was set up in partnership with the Government of Quebec. This tool not only provides access to capital, but also addresses the matter of business succession, especially as it pertains to the cooperative environment.

As regards demutualization, looking at the big picture is key. In other words, it still involves an adequate legislative or regulatory regime. Cooperatives are defined by the protection that a reserve affords. Previous witnesses have told you that cooperatives have a higher survival rate. Why do they have a better survival rate than other types of businesses? Because they are more stable. Perhaps they follow a more prudent management style. Over time, they accumulate surpluses and build up reserves stemming from market success. Those reserves are supposed to help them grow and should not serve as an incentive for demutualization. That means, then, that current members should not be entitled to that money.

In terms of demutualization, it is acceptable for a business to improve its structure. That being said, if its structure changes, it is not acceptable for that change in structure to generate undue wealth, whether for current members, or for the leadership of the mutual or the cooperative.

[The Chair, Conservative, Blake Richards]

Okay. Thank you very much.

We'll move to our second round of questioning now.

Up first I have Mr. Lemieux for five minutes.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Thank you kindly.

I want to thank our witnesses for being here this morning.

Mr. Brun, since you represent Desjardins Group, I have a few financial questions for you.

We, the committee members, have repeatedly heard from a number of witnesses that cooperatives are up against numerous challenges when seeking financing for project development. We were told that the reason they have trouble getting the financing they need may be a lack of education in the financial sector. As I see it, the problem is a bit more complicated than that, just as complicated as the matter of demutualization. Perhaps it is also unique to cooperatives.

Can you describe the challenges that arise when a cooperative is looking for financing to grow its operations?

Is a lack of education to blame? Is it a poor understanding of cooperatives? Is it a legal barrier? What happens to the guarantees if the cooperative fails to make a payment?

Since financial cooperatives are more familiar with the reality that cooperatives face, is it easier for cooperatives to work with a financial cooperative when they need money?

[Bernard Brun]

Thank you, Mr. Lemieux.

That's an excellent question. As you mentioned, the matter is rather complicated. I will try to stick to the main points. But if you need additional information on the more technical aspects or other elements, I want to say right off the bat that we would be delighted to provide the entire committee with those details.

When we talk about financing, I think we need to distinguish between financing for small cooperatives, in other words, seed money, and financing, or access to capital, for large cooperatives.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

That's what I wanted to discuss.

[Bernard Brun]

Small cooperatives, of course, have the challenge of acquiring a small amount of financing in the beginning, because they can't always use their equity or property as a traditional business would.

When it comes to large cooperative enterprises, it is true that all financial institutions do not necessarily have a good understanding of cooperative structures or an awareness of that model. We are probably better informed at Desjardins. So there are educational challenges, but there are legal ones as well.

If we look at the legal challenges, I can use Desjardins Group as an example. This past spring, we were able to launch an issue of capital shares worth over a billion dollars. To make that happen, however, we had to work hand in hand with both levels of government, just to be able to structure that capital share issue, which will mean permanent shares in the cooperative and will generate some dividends.

So a capital share issue can happen, but only after close coordination with the authorities in order to comply with requirements. When done right, the results can be tremendous. Just consider the fact that this cooperative-issued capital is Tier 1-ranked under the requirements of what is commonly called the Basel III reform, for financial capitalization.

Cooperatives also enjoy greater stability because of their structure. They have a more loyal following and deeper roots in the community, but they have more trouble accessing capital quickly because they cannot issue shares. Therefore, they often maintain an extra cushion. This capitalization is much more secure. As a result, Desjardins has a capitalization rate of over 17%, which is considerably higher than that of Canada's other major banks.

What is necessary, then, is a very close working relationship with the government to make adjustments possible and to adapt legislation, not simply to the traditional business model, but also to the cooperative enterprise structure.

Is there any information you would like in more detail?

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

That's fine. Thank you.

[Réjean Laflamme]

I just want to add one thing. Mr. Bélanger mentioned the Federation of Funeral Cooperatives of Québec, which I am the president of. All of the funeral cooperatives are Desjardins caisse customers. So the caisses agreed to finance our network and the individual funeral cooperatives. Desjardins' credit cooperatives are doing their part when it comes to financing existing small and medium-size businesses.

[The Chair, Conservative, Blake Richards]

Thank you very much.

We'll now move to Madame Brosseau, for five minutes.

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

Thank you, everyone.

I just have a brief question for Mr. Brun.

Obviously, Desjardins Group has been a shining light in the rich and dynamic history of Quebec's cooperative movement. Can you describe what Quebec is doing to allow its cooperative movement to flourish? Could the government adopt similar measures to stimulate the cooperative movement outside Quebec?

[Bernard Brun]

The simple answer is that it stems from a close relationship between the cooperative sector and the government. The sector has a direct relationship and an ongoing dialogue with government officials, so that rules can be adapted swiftly in response to cooperatives' needs.

As for Quebec, it has a long history of cooperative development. Earlier I mentioned that Desjardins Group was celebrating 112 years in business. But beyond that, we have an ongoing dialogue with the government, and a perfect example of what that exchange can do is our newly acquired ability to issue capital shares. You need to consult with the government and the department, as well as the regulatory authorities.

The same applies to the protection of the cooperatives' reserve, since a cooperative's reserve cannot be shared in Quebec. What that means is control of those assets, which have accumulated over time, cannot simply be handed over to private financial interests, new members, newcomers or the cooperative's executives overnight.

What that does is ensure the stability and continuity of the entire cooperative movement. I would say those are the two main features. Since the issue is now under federal consideration, it should also influence property and casualty insurance mutuals, and—as far as the potential for cooperative bank development goes—even federal credit cooperatives. The issue of reserve protection will also have to be examined in that regard.

[Brigitte Gagné]

I want to add this. When the federal government set up the Co-operative Development Initiative, the small sums that were distributed throughout each of the provincial councils and each province, to help with the start-up costs of an advisory service, did provide a boost.

A number of provinces had absolutely no support mechanisms whatsoever, either for the movement or for cooperative development. The program gave the movement leverage with the provincial governments. What that little bit of funding also did was make the governments aware of the cooperative movement and cooperative development. They saw the involvement of the federal government in that arena. Should we not examine how economic development takes shape within our jurisdiction and how it takes shape elsewhere? So you saw an increasing commitment by the provinces towards cooperative development from that point forward.

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

The cancellation of programs, the recent changes and the termination of the CDI will have repercussions, possibly for those looking to start a new cooperative. There could be serious repercussions. Starting a cooperative will be more difficult. Those people need support from their province or the federal government. So program cancellations will certainly have an impact on all that.

[Brigitte Gagné]

As we see it, the possibility of accessing start-up advice across Canada in both official languages hangs in the balance because the CDI has been terminated. There is no doubt that it has a direct impact, especially in official language minority communities. So it is extremely important to us to find a solution and an alternative to the mechanism that is gradually fading away and will disappear altogether in March 2013. We need to think about how we can get things back on track. Those services are vital to communities.

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

If we think about the future, I think we need open communication and an appropriate level of support on the federal government's part. How do you see the future in light of the cutbacks and changes?

[The Chair, Conservative, Blake Richards]

As you've noticed, the time has expired, but a question has been put. If you would like to answer it, make it brief, please.

[Brigitte Gagné]

As I said at the beginning of my opening statement, I don't think it is our job to tell the government what to do or what approach to take. But we do think the government should continue providing leverage to the cooperative movement so it can take charge of its growth and development.

The federal government also has to provide that leverage when it comes to the provinces and within its own departments, in order to foster understanding, knowledge and expertise around cooperative development. It must ensure a tangible presence across the various departments responsible for drafting legislation and regulations.

[The Chair, Conservative, Blake Richards]

Thank you.

We'll now move back across to the government side. We have Mr. Payne, for up to five minutes.

[LaVar Payne, Conservative, Medicine Hat, AB]

Thank you, Chair.

My question is to the witnesses through you.

First of all, I'd like to thank the witnesses for coming today. I'd also like to thank Mr. Adams for joining us by video conference.

I'm going to have a few questions, but I want to start with the Desjardins Group. In terms of the umbrella group, how does that play right across the country? What regulations are you faced with from province to province? Then thirdly, what federal regulations are helping you to move from province to province and to have these organizations as part of the umbrella?

[Bernard Brun]

That is quite a large question for a group such as Desjardins. The caisses populaires are incorporated under the provincial, Quebec legislation and under the federation. As I mentioned before, there is the subsidiaries side, consisting basically of share capital companies owned by the group. On the insurance side those companies are also provincially incorporated, so you would need a licence to operate in the other provinces.

On the banking side, the caisses populaires can act within their own province. That's why Desjardins has mainly caisses populaires in Quebec. It also has the caisses populaires of Ontario that are under their own federation, which is affiliated to the Desjardins Group. Of course, there's always a challenge because of those multiple jurisdictions in which Desjardins is operating. So this is always the kind of challenge we are facing. But we try to serve members throughout Canada. So on the banking services side, sometimes you will help them through virtual tools like the Internet, but our banking services to our individual members are mainly in Quebec—or in Ontario under the federation of the caisses of Ontario. In the rest of Canada, Desjardins is mostly active on the insurance side, meaning general insurance and life insurance, and the wealth management sector.

[LaVar Payne, Conservative, Medicine Hat, AB]

I also have some questions for Mr. Adams.

I found it interesting that you would have cooperatives, but I'm not certain how that actually works in terms of membership, what kinds of fees there are, and how that helps provincial.... And secondly, where exactly in the provinces is it? Is it in Quebec, is it in Ontario, that your organization is working and developing these cooperative land deals?

[Kip Adams]

Most of the cooperatives we work with are informal ones through the landowners. Some of them will have an actual contract that they sign, or an agreement, but most are informal in that they are handshake deals where the parties agree to follow a loose set of guidelines that are developed by the cooperative members to better manage the habitat and the wildlife there.

Where the provincial and the federal governments come into this is through making this information available to the sportsmen and women of Canada, promoting those cooperatives as a model for managing wildlife. It's less in the way of a monetary end or an oversight end, and more in the way of a promotion and teaching end from the agency side. We work throughout Canada, mostly eastern Canada. We spend more time in Ontario and Quebec than the other provinces, mostly because we're a membership-based organization and have more members in Ontario, Quebec, and New Brunswick than we do in western Canada.

We have a volunteer base of members who help teach, because we're an educational organization that provides information on how to manage deer and other wildlife habitat. And we work cooperatively with the Ministry of Natural Resources and other managers to work together to make sure we can improve this. Because of that more of our membership base is in Ontario than anywhere else, which helps to facilitate the movement and grow it. And just as we've seen on the United States' side, it leads to an increase in the numbers of members, which then facilitates cooperatives throughout the whitetail's range, as we work with deer more than anything else. We're starting to see that same thing on the Canadian side, starting mostly out of Ontario and to a lesser extent in Quebec.

[LaVar Payne, Conservative, Medicine Hat, AB]

I'm a still a bit vague about what happens in terms of the membership. Do land groups become the membership? Do any fees have to be paid?

[Kip Adams]

There is no fee. The membership whom I spoke of was the membership of our organization, the QDMA. Fees are not required for these cooperatives. Many times it's the information that we provide that has been the impetus for people to become involved in the cooperatives. But there is no membership fee; there's no membership base. It's open to anybody who wants to be involved and to learn more about wildlife and habitat management, to teach others about it, and then collectively to bring these smaller properties together so that you have a larger acreage base to have a bigger impact on those habitat and wildlife programs. There's zero fees, and certainly nothing to us, and it's all voluntary and in most cases informal.

[LaVar Payne, Conservative, Medicine Hat, AB]

Thank you.