Evidence of meeting #6 for Special Committee on Cooperatives in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was co-ops.
A video is available from Parliament.
Conservative
The Chair Conservative Blake Richards
I call the meeting to order.
We have with us this morning representatives of Farm Credit Canada and also Mr. Malli from Vancity Credit Union. We'll probably start off with Farm Credit Canada, who are listed first on my order.
Mr. Carlson, the floor is yours for the next ten minutes to make some opening remarks to the committee.
Lyndon Carlson Senior Vice-President, Marketing, Farm Credit Canada
Thank you, Mr. Chair.
Good morning. It's a pleasure to appear before the Special Committee on Cooperatives on behalf of Farm Credit Canada.
My name is Lyndon Carlson. I'm the senior vice-president of marketing at FCC. With me today is Michael Hoffort, our senior vice-president of portfolio and credit risk.
We appreciate the opportunity to talk to you about the cooperative sector in Canada. Cooperatives have a proud heritage. They have played a major role in Canada in rural communities for more than 150 years. FCC is pleased to be able to partner with cooperatives and their members, who operate in every region in Canada.
From our perspective and observation, the spirit and values cooperatives represent are alive and well in rural Canada. They provide an opportunity for producers to work together towards a shared vision of cooperation and positive business outcomes.
Before I share more with you about the role we play with cooperatives and the many productive partnerships we have established over the years, l'd like to tell you a little bit more about FCC.
FCC is a commercial crown corporation. We offer a combination of financing, insurance, information and learning products, and management software.
Our sole focus is agriculture. We lend to agriculture in all sectors, in all geographic regions, and to all sizes of operations and business models. Our mandate is to ensure that the agriculture industry has ready access to capital to withstand the unique challenges and opportunities facing producers over the long term, through good times and challenging times.
More than 100,000 customers choose to do business with FCC. Our offices are located in a hundred communities across Canada, where we are accessible to customers and close to all aspects of agriculture. Many of these customers are clients of cooperatives.
While the majority of our customers are primary producers, we also have customers whose businesses provide products and services throughout the agriculture value chain.
Many of our customers are cooperatives, and they represent an important part of our lending program. The cooperatives we work with operate in most of the agricultural sectors, including crop inputs, beef, dairy, and agrifood. I would like to highlight a few of them, as follows: Federated Co-operative Limited, United Farmers of Alberta, La Coop fédérée, Co-op Atlantic, and Agropur. These five cooperatives are among the largest cooperatives in Canada, serving millions of Canadians. Combined, FCC has credit facilities in place for these cooperatives in excess of $185 million.
In western Canada, through our partnership with Federated Co-operative Limited, FCC works with retailers in 194 locations to help Federated Co-op provide crop inputs to customers across western Canada.
United Farmers of Alberta provides crop inputs through 38 locations in Saskatchewan and Alberta. UFA has over 120,000 active owners.
In Quebec, La Coop fédérée has 90,000 customers who have access to financing to purchase crop inputs through FCC.
Co-op Atlantic is the second-largest regional cooperative wholesaler in Canada and the largest cooperative in Atlantic Canada. It is owned by more than 100 cooperatively owned businesses across the Atlantic provinces and the Magdalen Islands.
Agropur in Quebec serves more than 3,300 dairy farmers, who produce more than 3 billion litres of milk that is processed annually in 27 plants spread throughout Canada, the United States, and Argentina.
In addition to these larger co-ops, smaller cooperatives also play an essential role in advancing agriculture across the country. Over the years many of these smaller cooperatives have approached FCC in search of the right partner to meet their unique financing needs. We listened, recognized the gap in the marketplace, and responded with a lending approach designed specifically for them and their members. As a result, they and their members have been able to grow and prosper.
A great example of these small cooperatives are those that represent Canadian cattle producers. Cooperative members are able to access financing through FCC to purchase cattle at the point of sale.
I would like to share a few examples of such cooperatives that we finance.
Foothills Cattle Co-op is located in Alberta and has a membership of 318 producers and extends into British Columbia and Saskatchewan. Over the life of its involvement with FCC, $184 million has been advanced to assist its members in purchasing cattle.
Similarly, Athabasca Heifer Co-op, in Nestow, Alberta, has accessed $24 million to assist 65 members.
In Ontario, members of the Eastern Ontario Feeder Cattle Co-operative have accessed $31 million through FCC to advance the cattle operations of its 18 members. These are significant dollars on a per-member basis.
In a little over a decade FCC has provided over $1 billion to members of over 30 partner cooperatives located across Canada, from Prince Edward Island to British Columbia, to facilitate member purchases of primarily livestock and crop inputs.
This represents a sample of the network of co-ops that FCC serves across the country. These examples demonstrate there is a clear need among cooperatives and their members for specialized financing. Because agriculture is our sole focus, unlike any other financial institution, we have taken the time to understand the needs of cooperatives big and small and responded to their specific lending needs. We believe these financing options have helped them strengthen and grow their businesses.
Credit unions are also an integral part of the Canadian financial system and continue to have a strong presence in rural Canada. FCC is working actively to develop a closer relationship with the Credit Union Central of Canada, provincial central organizations, and individual credit unions. We currently are part of a national liaison committee that includes credit union representatives from Ontario, Saskatchewan, and Manitoba. The committee shares information, works to resolve issues, and discusses opportunities to work together.
At this point, I would like to respond to the comments made by the Credit Union Central of Canada on July 10 to this committee with respect to FCC's mandate. FCC does not believe the Credit Union Central of Canada's request for a legislated mandate review is necessary. We believe this because we have heard first-hand from our customers and others across the industry that agriculture as a whole benefits from FCC's presence in the market in a competitive role.
FCC's mandate is to ensure that producers have sufficient access to capital to take advantage of the opportunities and withstand challenges over the long run. We are fulfilling our mandate and meeting the needs of our customers. This is why 100,000 customers across Canada choose to do business with us. Customers say they choose FCC because of our industry knowledge, the strong focus on building relationships, and the flexibility we provide. We take time to listen to our customers' ideas and concerns. Finally, FCC products and services are tailored to meet the unique needs of agriculture.
We believe that healthy marketplace competition and a choice of financing options is good for all Canadian farmers. Even those who are not FCC customers tell us that FCC's presence provides producers with more financing choices. They know FCC is a strong and stable financial partner who will support the industry over the long term. In the end, the agriculture industry, other financial institutions, and the Canadian economy benefit.
FCC is proud of the contributions we have made to support the agriculture industry for more than 50 years. We believe the main reason we've experienced success and enjoy strong customer support, growth, and retention is the customer experience we provide. Many of our employees have agriculture backgrounds, and they are passionate about the industry and deeply committed to the success of our customers. As a result, the satisfaction of our customers is second to none. We know they have choices and we must continue to do an outstanding job every day to earn their business.
The Canadian cooperative movement has and will continue to play an important role in rural Canada. FCC is well positioned to provide financing approaches that are flexible, innovative, and adaptable to the evolving needs of cooperatives and their members. As a leading provider of agriculture financing in Canada, FCC is an important and critical financial partner to the agriculture industry. Ultimately, the sustained health of Canadian agriculture and the producers who bring it to life is what is important to FCC. We believe in agriculture, we stand for the success of our customers and producers across Canada, and we stand ready to serve the industry for the long term.
Thank you for the opportunity to speak to you today. I look forward to any questions.
Conservative
The Chair Conservative Blake Richards
Thank you very much, Mr. Carlson.
We'll move now to Vancity Credit Union and Mr. Rob Mali.
You have ten minutes now to make opening remarks, and following that we'll of course take questions from the members. The floor is yours.
Rob Malli Chief Financial Officer, Vancouver City Savings Credit Union
Thank you, Mr. Chair and members, for inviting Vancity to be part of this important study into the opportunities and challenges facing the cooperative sector in Canada.
My name is Rob Malli, and I am the chief financial officer and current acting CEO of Vancity, based in Vancouver, British Columbia. Today I will be speaking from the perspective of credit unions at the national and provincial levels as well as Vancity. Please allow me to begin by spending a few moments talking about credit unions in general.
It is clear that your constituents find value in cooperatives through the growth that has been achieved throughout Canada. With membership currently at 5.2 million, and membership growth surpassing population growth, assets in financial cooperatives reached $140 billion by the end of 2011. This is roughly the same size as that of the National Bank of Canada, the sixth-largest bank in Canada.
We see this as positive from a market competition standpoint and in terms of being a significant contributor to the current health of our financial services industry. This is an important distinction in the cooperative operating model. We grow to support the communities and members we serve, which in turn sustains the long-term viability of the credit union.
Since 1946 Vancity has known that members make us who we are. This started with the provision of banking services to those in the community who weren't served by existing financial institutions. As a cooperative, Vancity is driven by the needs of its members, which has resulted in the provision of many firsts in its early beginnings, including being the first in Vancouver to write mortgages east of Main Street, at the time a working-class community that wasn't considered a desirable place to lend, and being the first financial institution in Canada to underwrite mortgages to women without a male co-signer.
This ability to work with the needs of the community serves us well today, and has allowed Vancity to be an innovator in providing real-time solutions to community issues in such areas as affordable housing, local food systems, social enterprises, energy and the environment, and financial literacy, just to name a few.
One recent example is a real estate development in downtown Vancouver. In 2010 we took over this real estate development as collateral when the developer went bust. We worked with a local partner to create 60 West Cordova, an innovative development that is a prototype for affordable home ownership in Vancouver. It was geared towards those who had modest incomes but were restricted by Vancouver's housing prices. With prices up to $150,000 less than nearby properties, we took a different approach to design, development, and financing, and used specialized mortgage solutions and preferred rates to increase affordability while still adhering to sound risk management principles.
By keeping our focus local, we invest our capital in the same locality where we earn it. This concept resonates well for our membership, and has made the Vancity brand very appealing. Our focus on making impact in the community has attracted a lot of members. Roughly one in six people in our market choose to do business with us. Of note, the majority of them would be welcomed by traditional financial institutions. They choose Vancity as a banking alternative not only because of our products and services, many of which would be termed mainstream, but also because of our innovative model and connection to the places where they live and work.
With this support over the last six and a half decades, Vancity has grown to become Canada's largest credit union, with assets of $16.1 billion, and 59 branch locations serving over 479,500 members and employing about 2,500 people.
But at Vancity, these members are not just the people we serve. These members are the people at the helm who guide us on our journey by electing members to sit on our board of directors or by becoming directors themselves. This democratic approach has been successful in driving Vancity's focus in providing our members with an opportunity to voice their concerns and have a say in the running and focus of the credit union, which is unique in the banking sector and exclusive to cooperatives.
Ultimately, Vancity believes that banking with the community in mind doesn't mean giving up product quality or value. We maintain our commitment to financial sustainability, social inclusiveness, and environmental responsibility while holding ourselves accountable to the member owners and ethical commitments.
On behalf of the British Columbia credit union system, I would like to thank the Government of Canada for introducing as part of the budget in 2010 a federal credit union option. While B.C. credit unions are successful financial institutions under provincial jurisdiction, we view the federal charter option as another means for interested credit unions to achieve their business objectives and enhance member services.
We are also pleased to see that the draft complementary regulations required to bring the federal credit union framework into effect were recently published in the Canada Gazette. However, the move to build upon our past success must also be measured against what we are required to surrender. Historically our strength has been the ability to take the credit union charter and leverage it to build communities and support local needs in both good times and periods of stress.
We share the government's concern about the conversion of equity to shareholders, which could be of short-term benefit to specific stakeholders, such as directors and management, and could water down the democratic processes that have made credit unions so successful in the past. We want to preserve this relationship with the community as a stakeholder, not as a single shareholder, to keep the Canadian financial institutional landscape strong.
One example of a somewhat different approach is the divisible versus indivisible capital structure seen in other countries, such as France and Italy. In this structure, capital is restricted and cannot be accessed by members or investors if it is privatized at a certain point in time. In essence, the concept of indivisible capital helps maintain a good capital base in times of systemic stress and/or credit losses, and it supports good governance that extends beyond the current membership and/or management.
In 2011 the United Nations recognized 2012 as the International Year of Cooperatives. To celebrate this distinction, Desjardins, Saint Mary's University, and the International Co-operative Alliance are hosting the 2012 International Summit of Cooperatives, in Quebec City, in October. Vancity is a sponsor. This event celebrates the success of cooperatives worldwide and promotes the development of sustainable solutions, including the potential for community-based cooperatives to deliver social services with better outcomes.
As an organization, we have learned from the impressive accomplishments of the Emilia Romagna region of northern Italy, where cooperatives account for one-third of the GDP. For the past ten years we've been participating in the cooperative studies program at the University of Bologna to learn about the potential the cooperative model offers and to enable staff to incorporate the cooperative values and principles into our strategies and everyday work.
The same fundamental elements can be found in our relationship with the Global Alliance for Banking on Values. In 2011 Vancity joined the Global Alliance for Banking on Values, a membership organization made up of 19 of the world's leading sustainable banks, from Asia and Latin America to the United States and Europe. These banks are bound by a shared commitment to finding global solutions to international problems and to promoting a positive viable alternative to the current financial system. These organizations believe that we must improve the quality of life for everyone on the planet, recognizing that we are economically interdependent and are responsible to current and future generations. We are proud to mention that two other Canadian credit unions have since joined: Affinity Credit Union, from Saskatchewan, and Assiniboine Credit Union, in Winnipeg. Together these organizations will work towards building momentum around sustainable banking, as it is our view that it has consistently delivered products, services, and social, environmental, and financial returns to support local economies.
Like credit unions, sustainable banks have played a positive role in supporting small and growing businesses over the long term, which has proven to be quite comparable to the financial returns of traditional banking models. The idea that you don't have to choose between your financial well-being and the health of your community is at the heart of our sustainable banking model. It is our hope and desire that the federal government recognizes the significance of this values-based business model and supports the movement as it becomes more widespread in the Canadian landscape.
Vancity has had the unique opportunity of working within a provincial regulatory environment, influenced by our favourable experience working with OSFI through our wholly owned subsidiary, Citizens Bank, which is a federal schedule I bank under the Bank Act, which we've had since 1997.
Although not required to do so, we have adopted additional risk management standards that go beyond provincial requirements in many areas, including in capital and liquidity management, as that complements our view on long-term sustainability in the best interests of our members.
What we do recognize is the inability or difficulty of remaining unique using a compliance-based regulatory approach to supervisory oversight. It is our desire to see government tailor their oversight programs to support and encourage our uniqueness, while adhering to a sound regulatory and risk-management framework. Recognition needs to be given to the fact that we are different. An appropriate OSFI-like framework needs to be created to preserve our capacity to deliver on community impact; we should not be forced into a regulatory landscape tailored to the banking industry. With this in mind, we believe that Vancity is a positive example of our ability to leverage the best of both worlds into a successful operating model: impact-based lending focused on community and the environment, driven by long-term viability.
Our relationship with the Kettle Friendship Society is an example of this in action. For decades, the Kettle Friendship Society has supported people with mental health issues with a drop-in centre; outreach and advocacy services; an on-site health clinic; and recreational, life skills, housing, and employment programs. When the society outgrew its rented facilities, it approached Vancity about purchasing a property of its own. Using a creative mix of first-mortgage financing and subordinated debt, Vancity helped the society purchase a 5,100-square-foot property. As a result, the Kettle Friendship Society has built its asset base for long-term sustainability and its peace of mind.
In conclusion, Mr. Chair, on behalf of Vancity I wish to thank this committee and your colleagues for undertaking this important study. Canadian cooperatives, including credit unions, are celebrating the 2012 International Year of Cooperatives. This reaffirms the fact that they play a vital role in building our country.
We hope that the insights provided in your final report will continue to promote and support cooperative contributions to our communities and ensure that our operating model is preserved for the enjoyment of future generations.
When you are in Vancouver, I encourage you to come by and let us show you the direct impact our activities are making in the community.
I thank you very much for the opportunity to present to you today, and I would be pleased to respond to any questions you may have.
Conservative
The Chair Conservative Blake Richards
Great, thank you. Well, we'll certainly give you the opportunity to do that right away here.
We're going to move to our first round of questioning, and first up we have Madame LeBlanc.
You have five minutes.
NDP
Hélène LeBlanc NDP LaSalle—Émard, QC
Thank you.
Thank you for your testimony, which I find very beneficial. I also want to thank Vancity for its contribution to the Quebec City summit.
My first question is for Farm Credit Canada.
I would like to know how you are related to cooperatives. If my understanding is correct, you are not a cooperative.
Senior Vice-President, Marketing, Farm Credit Canada
You are correct, we are not a cooperative ourselves. But as I said in my remarks, what we've found is that co-ops of all sizes, small and large, have unique financing needs. There are many co-ops that serve farmers exclusively in rural Canada. In many of the communities where we have offices, the co-op would be often not just a business in that community, but a flagship business in that community, providing for our customers crop inputs such as fertilizer, crop protection products, fuel, building materials--you name it. So as we've partnered with some of the large co-ops that feed those networks, that's where we've really found a great opportunity to support our customers with greater access to financing for their crop inputs. Of course in this day and age a critical element in modern agriculture is feeding your crop properly.
On the other side—
NDP
Hélène LeBlanc NDP LaSalle—Émard, QC
I would like to know what makes Farm Credit Canada different from a caisse populaire, especially when it comes to the rules that govern other cooperative financial institutions.
Senior Vice-President, Marketing, Farm Credit Canada
FCC has governance with the Financial Administration Act, our own legislation, the Farm Credit Canada Act, as well as supervision from the Auditor General of Canada. So we have multiple layers of scrutiny that are undertaken with us. On an annual basis, the Auditor General examines our practices annually, with a special examination every five years that goes into greater detail.
We also know that we're only as strong as the prudence we have in the lending practices that we offer. So we're very careful to adhere to good practices. In fact, if you look at the strength of our portfolio, that's both on the lending practices we have, in terms of our credit scrutiny, and then also on the governance we have of our corporation.
You will see through our recently tabled annual report that we're enjoying very good profitability, very good reserves for future potential losses, and also very good retained earnings. So we do certainly, I would say, stand up to the same level of scrutiny that other FIs do, for the good of our customers and for the good of our shareholder, the Government of Canada.
NDP
Hélène LeBlanc NDP LaSalle—Émard, QC
Could you tell me why your clients choose Farm Credit Canada over a caisse populaire? Is there any competition between those two institutions?
Senior Vice-President, Marketing, Farm Credit Canada
For sure, one thing I would say right off the bat is that because FCC has great products and flexible products, we attract a lot of customers. At the same time, I want to remind you that of course almost all of our customers, I would say somewhere between 96% and 98% of our customers, also deal at another financial institution, that being a caisse populaire or a bank or credit union, as the case may be. We in almost every case share that customer with another financial institution. So oftentimes we might be doing the mortgage financing, and that other FI might be doing some of the short-term credit, operating loan needs, some of the personal property needs, which we would do some of as well. So I would say it's a combination of who serves those customers.
The thing I would say is that all of our customers have choice. So no customer of ours has to do business with us. They only do business with us because they chose us from what's available to them.
We believe we offer a team dedicated exclusively to agriculture, so our agricultural expertise at the front line is second to none, and I think our customers appreciate that.
Conservative
The Chair Conservative Blake Richards
Sorry, but your time is up.
We will move now to Mr. Preston, who has the floor for five minutes.
Conservative
Joe Preston Conservative Elgin—Middlesex—London, ON
Thank you very much.
I'm going to go quickly to where we just were and then see if we can get other questions in.
We've certainly heard from a number of co-ops, certainly through briefs and even anecdotally, that for the most part there's a belief that lending institutions don't always understand the needs of a cooperative in the same way as they might understand the needs of a corporation or a business any other way.
Does FCC have a separate department for cooperatives? You do a lot of agriculture business where there are a lot of cooperatives. Tell us how you deal with that, and what your knowledge base is in dealing with cooperatives.
Michael Hoffort Senior Vice-President, Portfolio and Credit Risk, Farm Credit Canada
From a departmental perspective, or even a special program perspective, at the FCC at this time we don't have a special program that would be specifically designed for the cooperative sector. What we do with all of our customers is really try to look at their financial needs, what they're trying to achieve from a business objective perspective, and then tailor a package that would meet those needs.
In our opening remarks we discussed some of the small livestock co-ops we deal with, and by looking at what they were trying to accomplish the cooperative structure allows us to offer a product that would allow us to finance livestock with a smaller down payment than they might be able to achieve if they came in directly from us. And through administration that they provide, that kind of collaboration from a cooperative perspective, we've been able to be a very active participant in that marketplace. So it's looking at what they need and then developing a structure that will work for those.
Conservative
Joe Preston Conservative Elgin—Middlesex—London, ON
But you're having success with that, you're having success dealing with cooperatives.
Senior Vice-President, Portfolio and Credit Risk, Farm Credit Canada
Absolutely.
Conservative
Joe Preston Conservative Elgin—Middlesex—London, ON
You mentioned you're not a financial institution in the truest sense of the word; you're a lender. Most people have to have a relationship with another financial institution also. There's a lot of thought out there that sometimes Farm Credit Canada takes the low-hanging fruit and doesn't leave it for the local credit union or caisse populaire, or a bank. What do you say to that?
Senior Vice-President, Marketing, Farm Credit Canada
I would say that when you look at our day-to-day practices we survey our staff, our front-line sales force, on a weekly basis to find out what is the lay of the land in terms of who is out there competing for the business. Based on our surveys, we would say that 75% of the time there's not another financial institution involved. That customer has approached us and there's no other financial institution that's actually trying to win that business. So in those cases we're just serving the customer's needs as best we are able. At the same time, we would say that if you look at our portfolio we're serving customers of all sizes. In fact, in the last five years our number of customers in the smallest category, which we would put with total income, top-line income, of less than $100,000, grew at a significant rate, as well as did other levels.
Conservative
Joe Preston Conservative Elgin—Middlesex—London, ON
What proportion of your lending portfolio—if it's just off the top of your head, I'll take it—would be cooperatives versus other corporations, or single producers? How heavy are you into the cooperative business? I guess that's what I'm asking. You had mentioned some.
Senior Vice-President, Marketing, Farm Credit Canada
We have a portfolio now that exceeds $23 billion. So when you look at our total lending, the cooperatives as an exclusive group would be less than 10%, but it would be a significant portion at that level.
Conservative
Joe Preston Conservative Elgin—Middlesex—London, ON
So it's a significant portion. Thank you.
Vancity has grown from a very small credit union by doing some very good basic stuff and putting the need on the street—fixing needs that are there. How involved are you in helping other cooperatives or other smaller credit unions become what Vancity is now?
Chief Financial Officer, Vancouver City Savings Credit Union
Very much so, in a few different ways. One way Vancity has grown has been through a number of combinations with credit unions. We've grown through mergers and acquisitions. Over our 65-year history, I believe we've had a combination of 52 mergers and acquisitions. Some of those have occurred voluntarily, where we saw opportunities; some have occurred because it's in support of the system. That's one way.
The other way is that now we've created alliances. I referred to two different credit unions we're working closely with: Affinity, and Assiniboine. Because of our values-based model, we share a lot of our efficacy work together, especially investment in research and development in terms of how we serve underserved markets, etc.
We're big supporters, both at the provincial and national levels, with the cooperative movement. We share models and experiences. We've had alliances with Desjardins for many, many years, and we continue to make that strong.
I want to stress, though, that the way we organize and cooperate is unique within the cooperative structure, unlike banks. We even have relationships with banks on a regular basis. We're part of the—