Special Committee on Cooperatives Committee on July 27th, 2012

[The Chair, Conservative, Blake Richards]

Thank you very much.

Ms. Blanchette-Lamothe, you have five minutes.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

Thank you.

We heard from many people this week. Today was the only day I was able to be here, but I want to share one of my concerns.

I am concerned about the fact that the report indicates that the cooperative sector is flourishing and that things are going well. Many cooperatives have been created and have been successful. This could provide justification for the federal government to withdraw its support for cooperatives.

What do you think about this type of statement being made in a committee report. I am putting the question out there. Do not be shy about providing your comments.

[Hazel Corcoran]

I would like to respond.

One of the things that goes on as well is that certain provinces—Quebec being by far the strongest, but Manitoba as well and Nova Scotia—are actually doing quite a bit to support co-op development. So if you see the co-op emerging sectors doing well, a very big percentage of the new co-ops are in the provinces where the province has been doing something. I think, by and large, the other seven provinces are not doing very much. So that is part of the answer.

Of course, to some degree, I think we've seen some failures in the other more conventional business models, and so people are tending to look for different solutions. So they're finding the co-op model, even if the government isn't doing what it could be doing to meet them, as well, along the way.

Those are a couple of responses, and there might be others.

Go ahead.

[Bob Nelson]

If I may, I'm actually going to go back to one of the recommendations that we talked about. It was the tax implication, but I want to extend it more broadly. It was in relation to private versus public treatment in terms of taxation. Here, cooperatives fit nicely in that category called “other”—neither here nor there, with a lot of ambiguities, etc.

To your question, as I understood it, of the government opting out from supporting cooperatives, I would actually come right back and say that this would, in my view, be very much the same as the federal government saying that it wished to opt out of creating an environment to stimulate growth and development, or growth and development in rural communities. I would almost make those two statements in parallel.

Again, I certainly would have significant difficulty with that.

[Vera Goussaert]

From the Manitoba Cooperative Association's perspective, we do have a very supportive and good relationship with our provincial government, as we've seen increased support for co-ops at the provincial level. That being said, it only came about because of the increased capacity that the sectors saw with the announcement of the CDI and its launch back in 2003 and subsequent funding flowing to Manitoba in 2005. That was really critical to the growth of our movement in Manitoba. It has given us the capacity to mobilize on a lot of initiatives. If we want to see continued growth, I think it is critical that there be support, in some way, from all levels of government. I think all levels of government need to be at the table.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

Thank you.

A little bit earlier, we spoke about the fact that the government provides assistance to small business support programs.

Do you think that the government is justified in improving a small business loan program and thereby potentially doing away with support programs that are specifically designed for cooperatives?

Could all cooperatives benefit from a program for small businesses? Is there a gap that needs to be filled? Do other programs have to be maintained in order to support cooperatives specifically?

[Vera Goussaert]

I think co-ops are businesses at their core. So they need to access the same programs that businesses access.

But in addition to the whole business element that co-ops have, they also have this whole governance and social development and community development aspect. That's where we need to see specific supports to cooperatives to assist that kind of development. We've talked about and have heard from all the panellists about the needed extra supports for start-ups, whether it's because there's burnout and you need to find the right entrepreneur, the right champion to champion your project.... There are all kinds of dynamics at play when you're working in a group and trying to develop a collective enterprise. So that's something in addition to what I think co-ops need to be able to access. And they need to be able to access existing business programs, as well, absolutely.

[Bill Dobson]

I'm a farmer and I live in rural Alberta. I certainly see the stress that exists in rural Canada. I think everyone in this room, regardless of other thinking, needs to think of ways whereby we're going to sustain rural Canada.

I don't have any problem with making the same things available to other companies, but we just happen to know that cooperatives are the ones that will survive in these rural communities where others won't.

[The Chair, Conservative, Blake Richards]

Thank you very much.

We'll move now to Mr. Payne for five minutes.

[LaVar Payne, Conservative, Medicine Hat, AB]

Thank you, Mr. Chair.

I want to thank the witnesses for coming today.

There's more and more information, and in some cases it's almost an overload, but we really appreciate the input you're providing us.

First of all, Bill, you talked about challenges with raising capital. I'm assuming that you're a bigger organization and require bigger dollars to raise.

I'm not sure what that looks like in terms of numbers. Is it a million, or $10 million, or is it $100 million? What are the difficulties that UFA is having?

[Bill Dobson]

We just went through a capital structure review, and I was part of the committee. Part of it is internal, maintaining your cooperative identity and perhaps going outside of a traditional model, finding something that preserves your cooperative identity and yet lets you access capitalization.

I'm going to turn it over to Bob to talk about the one specific item. But when you talk about magnitude, it's all about the magnitude of the cooperative. For our cooperative, depending on our strategy, our movement to be competitive in the future, we could be looking at $100 million, $200 million, $300 million. Other cooperatives are bigger and they might need a billion dollars.

There's lots of money. We hear these billion-dollar figures that are being invested in private companies. Cooperatives need to have a way of accessing that type of funding as well, if they're going to be competitive.

I'm going to turn it over to Bob about the one item that I think is important, and that is the tax deferral item. We want to make sure we drive that point home.

[Bob Nelson]

I think we simply wanted to add on to that. This is the TDCS program that is scheduled to end in 2016, and it does reference patronage to our members. What it effectively does is to enable the issue of eligible shares that defer members' obligations to the time of the actual cashing of those shares. In our case, that could be any time subsequent to 65, or exiting the business, or any number of other triggers.

It would encourage our owners, our members, to leave their capital in the cooperative rather than pulling it out at the first opportunity. As a business, we obviously need to be generating returns on those invested shares, and that becomes a management challenge.

When you talk size and order of magnitude, in terms of Bill's comments, we're actually in a very unique position as a large cooperative. We are a cooperative with in excess of $2 billion. We're too large to be small and too small to be really large. We're kind of in a no-man's land and looking to try to compete with some very large global players, which requires some very significant investment. The past investments that we've talked about, of $20 million or $30 million annually, are the tip of the iceberg. We're thinking in terms of multiples of 10 of that now.

[LaVar Payne, Conservative, Medicine Hat, AB]

Okay.

I'm assuming you've got machinery and equipment and there are tax rules so you can write these off, as with any other organization.

[Bob Nelson]

Yes.

[LaVar Payne, Conservative, Medicine Hat, AB]

Okay.

One of the things I'll maybe touch on with all of the organizations is about investments in terms of training and helping out other organizations.

Bill, I think you said your organization is prepared to step up. What about the central credit organizations in each of the provinces? Are they putting any funding into training programs to help in governance or start-ups?

I'll let Bill start, and we'll work our way across.

[Bill Dobson]

Very quickly, we certainly invest in cooperative management programs. There's the CMEC program in Dalhousie, I believe. We have a co-op chair in Alberta. We have a Goldeye Centre's program for youth. We have been doing that on an ongoing basis. We're always trying to develop at that level. We invest in all of those programs.

I'll turn it over to Peter.

[Peter Hough]

One of the things that a number of us at the table here have emphasized is the need for supports in the development of cooperatives. A key person in that development is somebody who has the background, skills, and knowledge of how to do that. One thing we've done, through the support of CDI, is develop an online training program. We trained 17 developers across Canada in the past year, and we expect somewhere between 20 and 30 people in our training program again this year. So that's one aspect of training, in this case training co-op developers to work with groups.

The challenge for small groups and training is that large organizations focus on the training that's going to move their cooperative forward. Just as we don't go to a typical small business and say, “We should all get together, and you should provide funds to train other small businesses you're going to compete with”, I don't believe we should expect large cooperatives to be funding the development of new businesses that don't directly benefit them, any more than we expect other large corporations to provide that kind of funding for businesses they're not related to.

So although we share very common value and principles, I think sometimes there's a misunderstanding of the cooperative sector in seeing it as monolithic. Each one of our cooperatives is an autonomous, independent business that is responsible to its members. So our training is often focused on our membership, on that management side. We do collaborate with Master's programs and those kind of things to enhance management training, but there is still a huge gap in resources for the kind of training really required at the start-up level.

[The Chair, Conservative, Blake Richards]

Thank you.

Next up is Monsieur Ravignat, for five minutes.

Mr. Ravignat, you have five minutes.

[Mathieu Ravignat, NDP, Pontiac, QC]

Thank you, Mr. Chair.

I would like to thank you for coming. I enjoyed spending the afternoon with you. It gave me the opportunity to learn many things.

My first question is directed to the Canadian Worker Co-op Federation.

I guess I'd like to dig a little bit deeper with you. All of us here are in the business of improving public policy. When public policy gets in the way of actions that might help local workers and local industry, I think we all need to ask ourselves some questions about why that is. I'm particularly interested in getting your opinion on the legislative framework, which discourages the formation of the Canadian worker co-op federations. I'm thinking particularly about bankruptcy rules.

A number of sawmills in my riding have been bought by foreign companies. Seemingly, their only interest is stealing pensions from workers, taking off and selling the assets, and opening sawmills somewhere else.

What are the built-in impediments, from a legislative and a policy point of view?

[Hazel Corcoran]

The biggest impediment has been capital. We've been involved in a few cases of attempted buyouts of sawmills by the workers and find that the legislative environment is actually reasonable. I would say that some 20 or more years ago it wasn't, but that's one area where we have done quite a bit of work with government. At least the cooperative legislation is reasonable for worker ownership in a way that it wasn't previously. The stumbling block we most hit on is capital, and that's not a legislative issue, so it doesn't directly answer your question.

The other issue, frankly, is that it's so much easier to deal with orderly business succession and transitions to worker cooperatives that we've begun to focus more on that crises or “save the plant” sort of situations—although sometimes that does work, as long as you can make the business at least break even. Sometimes you can't do that, and so it's not a good idea for anybody to own it. It's just going to have to go under.

Anyway, I'm not sure what else to say on that.

Do you have anything to add, Peter?

[Peter Hough]

I think what you're alluding to, perhaps, is that if the workers had some sort of rights within that context, then they could actually look at the worker co-op as an opportunity. I think that legislative changes relating to workers having more rights within those kind of bankruptcy situations may at least encourage the exploration of employee ownership in those situations.

[Mathieu Ravignat, NDP, Pontiac, QC]

Let's talk about the access to capital issue then. Is that risk averse? Is it because there's risk averse reactions to providing capital to this kind of initiative?

[Peter Hough]

There are a number of reasons. Basically, initially, you're not starting with a large corporation with a capital base. If we're talking about buying a significant enterprise from the beginning, that's who buys them. If you're on the financial end of things, you suddenly have a group of a hundred employees in a sawmill in front of you who want to take over the business. Their personal assets are probably relatively limited, and certainly in terms of the scale of what the alternative would be. And so they have to be able to find some of their own resources and there's not a pool of capital backing them up.

From a risk profile from a conventional financing point of view, that really becomes a problem. When we're talking about creating a national co-op development fund, the point of the fund is not to provide 100% financing for any enterprise. The point of that particular fund in the kind of proposal that we've talked about is that we would basically create subdebt, basically meaning quasi-equity capital for those kinds of employees.

The employees would come up with, say, 15% or 20%, and the fund would be able to come up with another 20% to 30%. Then you'd be able to get the rest of the financing in a conventional way because there would be enough assets to actually mitigate the risks so that whether it's a credit union, or the Royal Bank, or whoever it happens to be, they would come to the table.

That would address the gap in those kinds of situations, as well as start-ups, by really helping people have enough equity or patient capital at the beginning of the development process so that they can get over that obstacle, and have positive cash flow and get their business rolling.

[The Chair, Conservative, Blake Richards]

Thank you. Your time is up.

We'll move now to Mr. Lemieux for five minutes.

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

Thank you very much.

Thank you for being here and adding to the great story of co-ops that we've been hearing. Certainly, just to follow up on what Mathieu was saying, financing has certainly been a key issue that's come up over the past three days. I think we've been trying to probe that a little bit because there is a difference of information depending on who is giving the information.

I'll just give you an example. Sometimes when we're talking with co-ops, we'll hear that start-up co-ops have difficulty accessing financing, which I believe to be true.

I also think, though, that small businesses face the same types of challenges. They're high risk. Access to capital is very much a challenge for them. They're in their infancy, really. I'm sure there are many small businesses that are just ready to launch but they can't get the capital funding.

We've had a number of financial institutions here, including the Bankers Association, the FCC, and a number of credit union and credit co-op types of financial institutions, too. I've been asking them this question consistently throughout our meetings, and the answer we've been receiving from them is that although co-ops have certain challenges, when it comes to applications for financing certainly, whether they're a co-op or a business isn't part of the lending institution's decision-making. It seems to be more about the specific type of risk analysis that a lending institution does. Whether you're a small business or a co-op, you will be evaluated based on what you're asking for and what you're offering. That is very much a factor and plays a role in whether they can access credit financing when they're in their infancy.

So I'm wondering if you could comment on that.

Vera, I don't know if you see the business side of that and if you can make that kind of comparison. Is that accurate, what we've been told by financial institutions, including co-ops?