Special Committee on Cooperatives Committee on July 27th, 2012

[The Chair, Conservative, Blake Richards]

I'll call the meeting to order.

We've got three groups with us today, one of them here directly, and that is the Federation of Alberta Gas Co-ops Ltd. We've got Mr. Peter Harty, who is one of the directors, and we have Kevin Crush, the manager of communications.

Then we have joining us by video conference, the Red Hat Co-operative Limited. There's been a change to the individuals appearing for that group. We have Mr. Albert Cramer, the chairman, and then Mr. Doyle Brandt, who is on the board of directors.

We also have the Assiniboine Credit Union, including Mr. Nigel Mohammed, who is one of the directors, and then Mr. Dale Ward, the corporate secretary.

We'll move straight to our witnesses. I have the Assiniboine Credit Union listed first, so I'll move to them.

I'll turn it over to you, gentlemen. Can you hear us?

[Dale Ward, Corporate Secretary, Manitoba Central, Assiniboine Credit Union]

Yes, we can.

[The Chair, Conservative, Blake Richards]

Okay.

I will turn it over to you. You have 10 minutes to make opening remarks. I'm not sure which one of you will be making them, or whether both of you will, but the floor is yours for 10 minutes to do with as you choose.

Thank you.

[Nigel Mohammed, Director, Business and Community Financial Centre, Assiniboine Credit Union]

Thank you very much. I'll take over here.

Thank you, Mr. Chair, and committee members. First, I'd like to thank the Special Committee on Cooperatives for inviting the Assiniboine Credit Union to participate in this very important study into the status of cooperatives in Canada and what the Canadian government can do to strengthen the cooperative sector.

My name is Nigel Mohammed, and I am the director of the community financial centre at the Assiniboine Credit Union in Winnipeg, Manitoba. With me today is Mr. Dale Ward, who is actually the corporate secretary of Credit Union Central of Manitoba and is not with the Assiniboine Credit Union. I just want to correct that. But I will be speaking from Assiniboine's perspective as a financial cooperative, whereas Dale is here joining me today and will be able to answer any questions that may be related to a broader Manitoba perspective.

First, let me start by telling you a little bit about the Assiniboine Credit Union. Like most credit unions, we were started by a small group of people who wanted to help themselves. In 1943, 15 electric company employees formed a credit union where they could save their money and, most importantly, get access to loans when they needed them. In those days, there was no safety net when it came to unemployment insurance, social assistance, or medical care.

At the first credit union meeting, members invested $100 in the new cooperative. The first loan underlined the credit union's social mission. A member at that time borrowed only $50 to pay an outstanding medical bill. Over the years, Assiniboine attracted more members and grew through both sound financial performance and a series of amalgamations with other credit unions here in Manitoba. But we never lost sight of our commitment to our members and to our communities. Today we're one of the largest credit unions in Manitoba and the eighth largest credit union outside of Quebec by asset size. Assiniboine holds over $3.2 billion in assets and employs more than 570 people to provide financial services for more than 108,000 members through 23 branches in Winnipeg and 2 additional branches in northern Manitoba.

As a financial cooperative, we are owned by those who use our products and services. Our member-owners elect, from among themselves, representatives to the board of directors. Each member has one vote when it comes to the board elections and voting on important matters put before the membership. As we are a cooperative, profits may be reinvested into the credit union, distributed to members in the form of patronage dividends, and/or shared with the general community. While it's important for us to be profitable to be sustainable over the long term, as a socially responsible cooperative, our core purpose is to provide financial services for the betterment of our members, employees, and communities.

In March of this year, Assiniboine joined the Global Alliance for Banking on Values, or GABV as it's known, which is a membership organization of 19 financial institutions from around the world who share a genuine commitment to build a more sustainable future for underserved people, communities, and the environment. We have in common a business model that measures success by a triple bottom line approach. That is, measuring people, profits, and the planet in our decision-making. We are proud to be one of three Canadian credit unions to be accepted for membership in GABV. The other two Canadian members are Vancity, based in Vancouver, and the Affinity Credit Union in Saskatoon.

Like other Global Alliance for Banking on Values members, and like many credit unions, we stretch to provide access to financial services for people and communities not well served by the mainstream. That includes financing for community projects and business start-ups delivering social, environmental, and economic value to our communities. We know that financing can be the bridge between people who want to do something and having the resources to actually make something happen.

I'd like to give you a few examples of how we at the Assiniboine use our skills and resources as a financial cooperative to make good things happen in our community.

First, we bring financial services to an underserved neighbourhood. In January of this year, Assiniboine opened a branch in the north end of our city. The north end is a lower-income neighbourhood that has seen the closure of 10 bank branches and the rise of 16 financial outlets—for example, payday loans and cheque cashers—since 1996. We are working with community partners in the north end of our city to open accounts for unbanked, as well as underbanked, residents through our new branch, which is at the corner of McGregor and Mountain here in our city.

Another example of how we use our skills is through our asset-building programs.

We are one of the founders of the growing network of asset-building programs in Winnipeg as well as the northern community of Thompson. People living on low income receive money management training from non-profit partners and their saving is supported using our specially designed matched savings account. Savings are matched 3:1 by the United Way as well as by other funders. Since 2000, participants have purchased over $2.4 million in assets to improve their lives.

Another example of how we use our resources is through an Islamic financial product.

Several years ago, we were approached by leaders from within the Islamic community here in the city and asked if we would consider developing products for their community, as there was a lack of acceptable financial services. We worked closely with the community and an advisory board to design a home-financing arrangement that would be acceptable to members of the Islamic faith. We're proud that our Islamic mortgage is the first of its kind in Canada.

We also use our resources to deliver community financing. Through our community financial centre, we provide financing specifically dedicated to non-profits, social enterprises, and cooperatives so they have the resources they need to carry out their social or environmental mission. We also provide microcredit for business start-ups that would otherwise not qualify for conventional financing. We offer loans and mortgages and bridge financing, whether the latter is to bridge grants, pledges, or accounts receivables, as well as letters of credit and construction financing. We often work with community and government partners to reduce barriers to making financing available.

I would like to focus specifically on how our credit union supports the development and success of non-financial cooperatives. Like credit unions, they were formed by people who came together to address a shared concern. Owned and democratically controlled by their members, cooperatives play an important role in Manitoba's economy. Beyond simply creating jobs, they collectively address important social and environmental issues and ensure affordable access to essential goods and services in many sectors. Many serve the needs of specific, economically marginalized groups, such as aboriginal people, immigrants, as well as youth. In 2007, there were over 260 non-financial cooperatives in Manitoba. Of these, 70% were providing housing, daycare, and other important services.

Recognizing the important contributions that these cooperatives make to the local economy and to our communities, Assiniboine looks for opportunities to support their success.

I'm going to quickly cover some of the barriers to financing cooperative development that we've observed at the Assiniboine Credit Union, as well as summarize and conclude by giving specific examples and suggestions of how we think the Government of Canada can support cooperative development.

While Assiniboine supports cooperatives in a variety of ways, I would like to share our experiences when it comes to financing and suggest ways that the government can help to strengthen the sector and facilitate access to credit. Recognizing that there is a wide range of cooperatives, including those that are well established, such as Red River Co-op here in Manitoba, I would like to focus on financing smaller, early-stage co-ops, including those at the start-up phase.

The role of any lender is to assess the risk associated with a financing request, taking into account the strength of the cooperative's management and governance, the capacity to repay, as well as the adequacy of collateral security. In our experience, there are two significant barriers we've observed to financing small and early-stage cooperatives—first their internal capacity, and second their lack of assets for security.

In terms of internal capacity, as in any organization, strong management is vital to the overall success of cooperatives. Having the right skills and systems in place, whether it's financial, marketing, human resources, or inventory management skills, is essential to a cooperative's long-term viability. It gives us confidence, as lenders, to know that the cooperative's ability to manage and repay the debt is viable and tested through some of these criteria. However, we find that many small and start-up cooperatives lack these technical skills.

The Government of Canada could address this barrier by providing capacity-building grants or other support for cooperatives to acquire the technical skills or to establish the management systems necessary to be successful in achieving their social, economic, and environmental mission.

The second barrier we see to cooperatives accessing financing is their lack of assets to provide as collateral. It is difficult for the Assiniboine to provide financing when there are no assets to pledge as collateral. For example, many non-profit co-ops, such as day care centres, are limited in their ability to secure financing because they do not have adequate assets on their balance sheets that would be deemed acceptable for security purposes.

In the absence of these tangible assets, such as real estate, and with their break-even budgets, which are often necessary and are dictated by the funding agreements—

[The Chair, Conservative, Blake Richards]

Pardon me, Mr. Mohammed, but the time has lapsed. I will give you about 30 seconds to wrap up briefly.

[Nigel Mohammed]

Okay. Thank you very much.

The one point maybe I would finish on is that one of the areas we think would be important for the government to support cooperatives in accessing financing has to do with section 95 co-ops. These are co-ops, particularly in the social housing area, whose funding agreements are expiring and who are limited in their ability to refinance their existing mortgages with CMHC due to penalties when they refinance those mortgages. The Assiniboine Credit Union would like to be able to support and assist the financing needs of these co-ops, bearing in mind that if they're able to refinance their mortgages in the absence of any penalties—ordinarily charged through CMHC—it would make it easier for the financing arrangements and would assist these credit unions' capacity to refinance and meet their capital requirements as these housing stocks become older and require more maintenance.

Thank you very much for this opportunity. We are certainly in a position to answer any questions you may have.

[The Chair, Conservative, Blake Richards]

Great. Thank you very much for your presentation, and we certainly will look forward to hearing some of your responses to some of the questions.

We'll move next to our other video conference witness, the Red Hat Co-operative, coming to us from Medicine Hat.

Our folks joining us from the Red Hat Co-operative, would one of you just say a word or two so we can get you on the video screen.

[Albert Cramer, Chairman, Red Hat Co-operative Ltd.]

Yes, good morning.

[The Chair, Conservative, Blake Richards]

Good morning. You have 10 minutes to make opening remarks, so I will turn the floor to you now and you can make your opening presentation.

[Albert Cramer]

Thank you.

Good morning, panel. I'll give you some history of the Red Hat Co-operative. It will give you some idea of what we're about.

The Red Hat Co-operative grades, packages, distributes, and markets greenhouse-grown vegetables for grower members. At present, Red Hat Co-operative Ltd. has 52 shareholders. It represents greenhouse owners and operators in southeast Alberta.

In 2012, Red Hat Co-operative will market over five million cases of greenhouse vegetables, representing over $55 million in annual sales. Each year our growers produce over 20 million cucumbers, 14 million pounds of tomatoes, and four million pounds of peppers. Within our packaging facility, we employ over 200 employees. As well, an additional 600-plus work in the greenhouses.

Red Hat Co-operative was established in 1966 by 10 growers who saw the importance of coming together as producers and of sharing resources. Not only have they been able to jointly operate a 100,000-square-foot packaging plant, but they have been able to invest in grading and handling equipment that is the first of its kind in North America.

This ability to grow together has also helped in marketing to large national retailers that demand quality and service. Today, Red Hat brand products can be found in Safeway, Loblaws, Costco, Sobeys, Overwaitea, and many other grocery chains.

The success of Red Hat Co-operative can be attributed to our providing value to our grower shareholders. In addition to providing an efficient method of marketing the produce, Red Hat also purchases bulk inputs for all of its members. It trains people, monitors food safety programs, and supports research projects to drive innovation in our industry.

Over the last five years, the greenhouse industry has seen extensive growth and competition from domestic producers as well as from the U.S. and Mexico. Because of the increased competition, it is important that co-ops similar to ours be given all the opportunities traditional companies are granted.

One example of where we see an unfair advantage for our competition within Canada is in temporary foreign worker programs. These programs have proven critical for our industry, since we are faced with seasonal labour demands as well as a hot and agriculture-based working environment.

Our competitors that operate similar packaging facilities on their farms are able to hire temporary foreign workers under the farm program, whereas Red Hat is unable to apply, since our operation is not considered farming, even though we can argue that our growers cannot market their produce unless it is graded and packaged. This process is considered agricultural, and is thus farming. So in this case, we feel that we are being penalized for forming a cooperative to collectively grade and market our agricultural product.

In conclusion, we continue to be strong advocates for cooperatives and the value they provide for smaller producers in marketing their goods in a market dominated by large retail buyers. We ask that the committee not restrict cooperatives but give them the same opportunities traditional companies get.

Agriculture cooperatives have been the backbone of our nation for many years, since they place ownership and control with the producer. We ask that policies that encourage and strengthen cooperatives continue to be a priority for the federal government in the future.

That's a bit of the history. We want to stress the part about the cooperatives not being considered farms and not being able to hire foreign workers. That's probably our biggest issue as a co-op, and it is quite substantial.

We were a little unprepared for this whole meeting, so we don't have a whole lot more. We're relying more on your questions for us, if that's what it takes.

That's probably one of our biggest issues. I don't know if Doyle wants to add to that.

[Doyle Brandt, Red Hat Co-operative Ltd.]

Yes. Our industry relies heavily on the foreign labour program. Basically, without the foreign labour, we wouldn't have an industry.

I'm not sure what you guys are looking for, but we would like support for the cooperative in this manner. If there's anything relevant you can help us with....

It would be interesting to know what more we could utilize as a collective group. Other than this one small issue, the Cooperatives Act works really well for us so far. It would be nice if we could get some direction from you people, as well, today.

Thank you.

[The Chair, Conservative, Blake Richards]

Thank you very much for your presentation.

We'll now move to the Federation of Alberta Gas Co-ops Ltd.

Mr. Harty, are you making the presentation? Okay.

You have 10 minutes to make your opening remarks.

[Peter Harty, Director, Federation of Alberta Gas Co-ops Ltd.]

Thank you.

Good morning, Chairman Richards, and members of the committee.

Thank you for allowing us to make a presentation today on behalf of the Federation of Alberta Gas Co-ops. We are excited to be here because we want to demonstrate for you what cooperatives are able to achieve.

Alberta is a great example because we have something that is virtually unheard of anywhere else in the world. Anywhere you live in Alberta, whether it is a farm, a town, or a cabin by the lake, a flick of a switch brings natural gas heating to your home. There are parts of our country where to get this service you have to be living in a city or be lucky enough to have a major natural gas pipeline running past your yard. Having heating fuel or propane trucked in to have heat is the norm in much of rural Canada. Rural Alberta is different. Over the past 50 years a spiderweb of low-pressure natural gas pipelines has been constructed throughout all inhabited parts of the province. Just about any Albertan has the ability to have natural gas piped directly into his or her home. Indeed, it is almost considered to be a right by Albertans.

The reason Albertans enjoy this privilege is that 50 years ago this year a group of farmers south of Calgary got together around a kitchen table and decided to build the very first gas co-op. They were tired of natural gas companies saying it was uneconomical to build a pipeline to a farmer's house. They were tired of seeing small communities die because their kids wanted to live where they could have city comforts, like easily accessible heating. Instead, they built the Meota Gas Co-op for themselves.

What they started became the gas co-op movement. Natural gas co-ops began forming across Alberta for the very same reason that prompted the farmers at Meota. Volunteers signed up customers, they got an administration running, and they started constructing pipelines. A decade later, the province got involved, and since 1973 they have been providing grants to offset the costs of installing and upgrading pipelines. They even made it law that gas co-ops and private gas companies in rural areas had a duty to provide natural gas to anyone who asked for it within a franchise area. Today, what started from a kitchen table has evolved into the world's largest rural natural gas system, with over 100,000 kilometres of pipeline—enough to circle the earth almost eight times.

The federation, as an umbrella organization overseeing Alberta's gas co-ops, now includes 53 gas co-ops, as well as 22 municipally owned gas utilities and six first nations systems. We have over 115,000 services spread from the B.C. to Saskatchewan borders, and from the Dene Tha, in far northern Alberta, right down to the American border. In fact, we even serve just south of the border at a U.S. crossing point. We estimate that between 350,000 and 400,000 Albertans young and old are kept warm by our gas co-ops.

Just as important, our gas co-ops have been a key instrument in the economic development and sustainability of rural Alberta. We have kept people in their homes, we have made it possible for people and businesses to move into rural communities. Gas co-ops have made it possible for grain dryers to operate more economically and for farms in arid areas to survive because gas powers their irrigation pumps.

Collectively, our co-ops directly provide approximately 850 jobs based in rural communities. Our offices and workshops are in the very communities that our co-ops serve. Their corporate structure is that they are locally owned by their own neighbours. These are workers who shop locally, live locally, and play locally. Their presence helps sustain Alberta's rural communities and keeps them vibrant.

Our co-ops invest $12 million to $14 million in construction in Alberta's pipeline infrastructure every single year. Our gas co-ops alone, not including the municipalities and first nations, possess over $243 million in assets. In 2010 these co-ops sold over $112 million in gas and another $32 million in secondary services such as furnace installations. Our utilities also own a gas brokerage firm called Gas Alberta Inc., which buys and sells gas for our member utilities. Each year they sell 25 million gigajoules of natural gas to Albertans.

Some of our co-ops have taken the original goal of the gas co-ops to help rural communities one step further, by expanding into providing Internet. Their wireless broadband Internet company is following the goal that rural residents deserve similar services as urban residents and are bringing high-speed Internet to regions where it was either not available or not reliable.

These are progressive co-ops. We're looking forward to the future, with projects such as taking 50 years of infrastructure history and moving it on to a web-based geographic information system database.

In 2011, we were one of the first in Canada to gain approval to install wireless meter reading devices. After just over a year, we are now able to read approximately 40,000 gas meters from remote readers. We are collecting these readings by driving, by flying over, or through wireless Internet. We have eliminated thousands of kilometres of driving on the road every month, thereby reducing pollution, time, accidents, and helping to prevent the spread of agricultural diseases.

The federation remains the only gas utility in the country to have Measurement Canada accreditation to inspect and re-verify RMO station meters in the field. Every other utility must send its station meters to a meter shop to have them re-verified.

What the gas co-ops have been able to achieve is nothing short of remarkable. We have helped to build a better Alberta and created a system that people elsewhere envy.

To be fair, we did it with help from the Alberta government. In the 1970s, when most of our co-ops were formed, we needed that help to get us started. Its rural gas program grant, which today is worth $3 million per year, has been instrumental in offsetting the cost of installing new pipeline and upgrading old systems to handle larger populations.

We believe our gas co-op system can be emulated in other parts of Canada, giving more Canadians the same privileges that rural Albertans enjoy, while reducing their energy costs and giving them a cleaner alternative than some of the options they currently must use. We believe the cooperative model is the best option to help build gas systems, as there is little economic benefit for private companies to take on the expense of servicing rural customers.

But just as the gas co-ops in Alberta required help, so too would other areas of the country. We believe the federal government can play a powerful role in the formation of not just gas of co-ops but any kind of cooperative.

The federal government needs to recognize that the cooperative sector is a sustainable and viable economic model with the potential for economic growth, diversification, and community sustainability. The federal government should take a more active role in the formation and development of cooperatives.

Staff at the regional economic diversification offices should be trained on the nature of the cooperative sector, including their economic potential. This training should also include how to form a cooperative. This knowledge can then be used to help establish cooperatives across Canada, or connect fledgling co-ops to existing cooperatives that provide a similar service.

A fund should be started to help initiate co-ops, potentially through the regional economic diversification offices. Seed funding is often difficult to gather, but once a co-op has begun then its economic potential will be a benefit to its community. These steps would allow the federal government to help the Canadian cooperative sector grow.

As you can see from the example of Alberta's gas co-ops, allowing co-ops to thrive can create achievements that can't be accomplished any other way. With the assistance of the federal government, we truly believe co-ops can help to build a better and stronger Canada.

Thank you.

[The Chair, Conservative, Blake Richards]

Thank you very much.

That concludes all the opening remarks. I appreciate the contribution of all of our witnesses from all the groups this morning.

We'll move now to the questioning. In the first round, first up, we have Mr. Harris.

You have the floor for the next five minutes.

[Dan Harris, NDP, Scarborough Southwest, ON]

Thank you, Mr. Chair.

And thank you to all the witnesses for coming in today via video conference and in person.

It was interesting to hear the witnesses this morning talk about the role the federal government can play in helping new cooperatives start up and in helping with mentoring and training so that they know what they're doing so that they'll be successful. We think that was a product offered through the CDI and that we would have liked to have seen renewed and possibly expanded or modified to meet some of the growing needs.

I just want to commend the Alberta Gas Co-ops for bringing high-speed Internet access to the rural areas. That is absolutely the greatest barrier to business and economic prosperity that rural regions face. Congratulations, and keep up the good work.

I wanted to actually speak to Assiniboine.

First off, near the end of your presentation, Nigel, you were talking about two of the barriers for smaller and early start-up co-ops. One is internal capacity, and of course, the second is assets. That's where you talked about federal government capacity-building grants, potentially. Perhaps you could expand on that.

As well, a really important issue for me, being in an urban area, is that I have over 600 co-op housing units, and many of those buildings are in that 30- to 35-year range, where they're facing some rather hefty infrastructure needs and are having troubles refinancing their mortgages. It's exactly what you were saying about the issues to do with CMHC and perhaps excessive penalties.

Now, I believe that the co-ops all expect to pay some form of penalty, but I think they're looking for middle ground. Do you have any suggestions with respect to how we can work with CMHC to get that done?

[Nigel Mohammed]

It's really this—

[The Chair, Conservative, Blake Richards]

Pardon me, Mr. Mohammed. There was a little bit of technical difficulty. Could you maybe start over?

We'll give you an extra 20 seconds or so, Mr. Harris.

[Nigel Mohammed]

Thank you.

On the first question, around the grants and capacity-building, one of the things we've observed in financing co-ops is this imbalance, if you will, between some of the senior leaders within the co-ops tending to have more of a focus on the cooperative values and principles as opposed to having some of the core business acumen that's needed to develop or make an enterprise viable.

The grants that I referenced that may come from the federal government would be to provide the training and the technical assistance needed to ensure that the right skill sets are developed, trained, and identified within the credit unions and cooperative sector so that they can recruit the right sort of management to develop and make these enterprises viable, both at the management level and the governance level. It's important, with the structure of the co-op, that the governing body or the board of directors also understand the limitations as well as the opportunities that govern co-ops, in terms of the act and so on, for them to be able to take decisions to be able to take advantage of the market opportunities.

The federal grants that I referenced are really to provide technical assistance and training, to balance the management skills and acumen that's needed to make an enterprise viable, rather than simply just focusing on cooperative development information and technical assistance.

On the other issue, the co-op housing and the expiring subsidies, we have a few co-ops in Winnipeg that are section 95 co-ops that are going to be having to deal with infrastructure maintenance issues. The 30- and 35-year maturity dates on these CMHC mortgages is making it a challenge for these co-ops to come to a credit union like ours, for example, to, number one, pay off that penalty to be able to refinance, and then take equity out to be able to do the upgrades and capital requirements. I think the hope here is that if those penalties could be eliminated to give those social housing co-ops more capacity to take on debt to deal with the capital requirements, the capital upgrades, rather than adding those penalties in there...or to your point, to find some way of determining what is a reasonable, affordable, and viable debt level that they would need to take on that may incorporate some level of penalties.

We've already had preliminary discussions that having to deal with the entire penalties associated with those CMHC early renewals would make it prohibitive for them to take on the level of debt they need to deal with their capital improvement requirements.

[The Chair, Conservative, Blake Richards]

Thank you very much. Time has expired on that round.

We'll move now to Ms. Rempel for the next five minutes.

[Michelle Rempel, Conservative, Calgary Centre-North, AB]

Thank you, Mr. Chair.

My questions are also for the Assiniboine Credit Union.

As a proud former Manitoban and a once member of your illustrious cooperative, I'm really glad to see you here today.

It's interesting to note that your net income—I have your figures from 2007 through to 2011—has actually increased. My understanding is that in 2007 your net income was $11.7 million, and as of last year you were up to $17.4 million. Is that correct?

[Nigel Mohammed]

I'm going to have to trust those numbers. I don't have the financials in front of me. My apologies.

[Michelle Rempel, Conservative, Calgary Centre-North, AB]

Looking through your annual reports, I also noted that your assets in the same time period increased from $2.1 billion to $3.1 billion. Is that correct?

[Nigel Mohammed]

Yes, that is correct.

[Michelle Rempel, Conservative, Calgary Centre-North, AB]

That's a really great success story, especially for an organization in Manitoba, and you're to be congratulated for that.

Since we're talking about government assistance, was the Assiniboine Credit Union ever given federal funding to support your asset or income growth?

[Nigel Mohammed]

I can't think of that offhand in terms of federal funding to support our assets or growth. What I can say is that we have had support from the federal government related to specific programs and partnerships that we deliver. For example, the asset building program that I mentioned was a 3:1 match. That program started initially with federal dollars and we've now expanded to include the United Way, for example.

I am stretching to think specifically, in our history, whether there have been federal dollars to assist our overall growth and assets.