COOP Committee Report

Building Co-operatives, Building Canada

Special Committee on Co-operatives – NDP Dissenting Report

Rationale for the NDP Report:

The NDP presents this dissenting report because, while we appreciate the work on detailing the testimonies during the committee hearings, the government recommendations fail to address the concerns of the co-operative sector following the Government`s decision to end the successful Co-operative Development Initiative (CDI) program and to largely dismantle the Co-operatives Secretariat. Furthermore, the Government recommendations fail to establish concrete measures that would confirm the role of the federal government as an active partner with co-operatives in the development of the sector, as well as recognizing the role of co-operatives in creating jobs in communities all across Canada and in building a thriving people-centered economy.

2012 has been designated by the United Nations to be the International year of Co-operatives (IYC). Rather than developing policy celebrating Canadian co-operatives, particularly in light of the IYC 2012, this year the present government has instead:

• Cancelled the Co-operative Development Initiative, a successful program that has helped create over 300 new co-operatives. Although the program was to last until 2013, the government abruptly cancelled all new projects in 2012 (even though funds had been allocated for this program).
• Reduced the role and functioning of the Rural and Co-operatives Secretariat in the Department of Agriculture and Agrifood from 100 staff to only 15 in the next fiscal year--of which only  a handful of  who will  deal with co-operatives.
• Signalled it has no programs presently to help co-operatives and has no prospective of any in the future.
• Failed to incorporate any recommendations in this report that involve funding programs to help co-op development.

In response, New Democrats are now putting forward an alternative vision for supporting co-operatives in Canada.  

Background

The NDP found the hearings on co-operatives to have been overall very useful and allowed the people of Canada to watch and read the testimonies of some 46 witnesses and received 60 written reports. However, we had hoped that the hearings could have been scheduled during the regular parliamentary sessions when they would have received more media attention, and that the final report could have been written and tabled after the International Summit on Co-operatives in Québec City in early October. Incorporating the input of co-operatives and co-operative spokespersons at the Summit could have served to enrich the final report.

That the Special Committee on Co-operatives of the House of Commons was held this year is not unconnected to the fact that 2012 has been declared by the United Nations to be the International Year of Co-operatives.  Co-operatives in Canada are an amazing success story with over 9000 co-ops, some 18 million co-op members, 155,000 employees, and assets totalling above $330 billion. Co-operatives are active in many sectors of the economy including finance (insurance and credit unions), retail, housing, health care, agriculture, and food production.  Co-operatives have contributed much in the past to Canada`s economy and can contribute more in the future.

The special committee heard testimonies of the success stories of co-operatives across Canada. These presented an important record of the achievements of the co-operative sector, detailing how co-operatives have many distinct and valuable features as part of a mixed economy.

• In economic uncertainty, they are resilient. In fact, a study conducted by the Quebec government in 2008 has shown co-operatives last twice as long on the average as traditional private enterprises. 
• They keep jobs in Canada. They do not relocate jobs to foreign locations and this helps us to better weather economic downturns.
• They are training schools for economic management and democracy. Thousands of Canadians have got their start in business and in politics by being elected to a co-op board of administration as co-ops function by one member one vote.  
• Particularly in the difficult economic times that we are now going through, where in many regions of the country unemployment rates are still too high and many people are under employed, co-operatives can play an important role as local engines of economic growth and job creation.

As Bryan Inglis, Vice-President of the Agriculture Division of Co-op Atlantic, said during the hearings: “Due to these economic realities, we believe that co-operatives can play an important and strategic role. Given that co-operatives are enterprises that seek to meet member and community needs, which can be both economic and social, they're ideally positioned to meet the needs of both rural and urban communities. When conditions worsen, citizens look for opportunities to work together to come up with workable solutions.”[1]

This sentiment was echoed by John Lahey, CEO of Alterna Savings, who noted, "I think credit unions and co-operatives, because they don't have the drop-dead profit motive, are much better positioned to support social innovation and community economic development.”[2]

Co-operatives also have an important role in building our democracy in an economic sense. As Dave Whiting, Executive Director of the Prince Edward Island Co-operative Council, notes: “In the modern sense of the word, a co-operative is a business or a service owned and operated by the people who buy its products or use its service. It is truly a democratic organization open to all. Each member has an equal say in how the organization is run.”[3]

Jodie Stark, VP Legal and Corporate Affairs for Concentra Financial, notes that some of the more doubtful practices of contemporary high-finance are absent from the co-operative sector, adding stability: “Scandals continue to erupt, involving executives of large banks and investment firms, something that is unheard of in the credit union system.”[4]

Many of the co-operatives which testified, from Federated Co-operatives Limited and VanCIty to the Desjardins Group and Coop féderée, are very successful business enterprises. New and emerging co-operatives, however, face distinct barriers.

Our recommendations

Recommendation 1

Establish a joint sector–government co-operative development fund for capitalization of new and emerging co-ops.  This fund would be a loan fund capitalized by both the federal government and the co-op sector in equal parts.

Co-operatives do not have access to traditional share or venture capital investment. This is why we recommend that the government partner with the co-operative sector to address these issues. As Bernard Brun, Government Affairs Director of the Desjardins Groups, Canada’s largest co-operative financial group, said, “We especially wish to emphasize the fact that co-operatives and mutuals fuel job creation, innovation, financial stability and access to community-based services. Co-operatives and financial co-operatives often operate in sectors and communities that are underserved by traditional businesses. We do, however, face certain challenges and issues, the main ones having already been addressed by those who appeared before me. Generally speaking, access to capital and reserve protection for co-operatives are areas of concern that must be addressed through government assistance and an appropriate legislative and regulatory regime.”[5]

The Ontario Co-operative Association notes in a brief submitted to committe, “Co-operatives face challenges when starting up because they cannot rely on investment capital and venture capital in the same way as businesses backed by investors. For that reason, they need the support of the federal government in order to leverage additional resources from members of the co operative, the overall co operative sector, the community and other levels of government.”

Witnesses often raised the difficulty of access to capitalization for new and emerging coops, indicating obtaining loans was challenging since financial institutions were not accustomed to their structure and functioning.

New Democrats propose the federal government partner with the co-op sector to create a co-operative development fund which would be a loan and not a grant fund for cross-Canada co-op capitalization. The creation of a new loan fund has been supported by many major co-operative organizations such as the two national co-op organizations, the Canadian Co-operative Association (CCA) and le Conseil canadien de la coopération et de la mutualité (CCCM)

The present federal government has already funded a social economy trust fund in Québec in 2006 which has supported many co-ops in that province. 

Recommendation 2

Develop a co-operative investment plan modeled on the Quebec plan (the Régime d`investissment coopératif, which has existed since 1985) with a federal tax credit. This plan encourages members and employees to invest in their own co-ops (either producer or worker co-operatives).

This recommendation has been unanimously approved by several previous House of Commons Finance Committees. In its report “A Prosperous and Sustainable Future for Canada: Needed Federal Actions” tabled in December 2009, the Finance Committee recommended unanimously: “As well, the government should implement a co-operative investment plan that would include the creation of a tax credit for members or employees of agricultural and employee-owned co-operative businesses that invest in their co-operatives.”[6]

Here we propose to build on the success of the program Régime d`investissement coopératif that has existed in Quebec since 1985 and which encourages investment in producer owned co-operatives such as agriculture, forestry and fishery as well as employee owned co-ops.  A tax credit is given to co-op members and employees who invest in their own co-op.  The average investment in the program is between $3000 and $4000. The plan delivers between $18 and $36 million per year in new investments. This plan has been supported for many years by the Canadian Federation of Agriculture. For the federal government, there is an opening here to encourage the participation of other provinces in the roll out of this plan. The Canadian Federation of Agriculture estimates the costs of a national plan would be $17-20 million per year in foregone taxes, and it would result in some $120 million of new investment[7]

La Coop fédérée, the largest agrcicultural co-op in Canada, is also one of the consistent backers of this program being established at the federal level.[8]

Hélène Simard, CEO of the Conseil québecois de la coopération et de la mutualité, stated in her testimony that the CQCM believes that federal version of the RIC would return a net benefit to the government: “Our research shows that this would be an xtremely lucrative measure in terms of federal government revenues. So it would not be an expenditure, but an investment.”[9]

Recommendation 3

Renew the Co-operative Development Initiative: ensure small grants to help new and emerging co-operatives, and provide small grants to provincial co-operative associations to support co-operative development in all provinces and territories.

Our third recommendation involves supporting the renewal of the Co-operative Development Initiative which was recently cancelled by the Government. The CDI has run from 2003 and was renewed and expanded in 2009. This program has helped to start over 300 new co-operatives and has helped support development programs in all provinces in both English and French. Both the present government and civil servants have admitted in the course of these past hearings that this was a successful program. The end of this program will also put into peril the work of many provincial co-operative development programs across the country. In the last three years alone (2009-2012) of the CDI, the Advisory Services component of the CDI to have started “181 new co-ops (which) created an average of 6.4 jobs per co-op, resulting in a total of 1,158 new jobs.  Using the total cost of Advisory Services over the three years, this amounts to a cost of approximately $4,500 per job.”[10] This shows the cost effectiveness of this program in producing sustainable jobs.  

Tom Webb, academic and specialist on the co-op sector at St. Mary’s University in Halifax testified very favourably concerning the CDI: “We were seeing the start-up of lots of new co-ops through the CDI initiative. I think it was solid co-operative development and job creation.”[11]

Cancelling a successful program which is a job creator and cost only $4 million a year makes no sense. It is not the time, as Bryan Inglis of Co-op Atlantic , said to `”take your foot  off the gas pedal” and as MP Dan Harris continued,  “ It would seem that not only have we taken the foot off the gas pedal, but we've actually slammed on the brakes. This is the case of a successful program that's been bearing fruit. We believe that it should continue to be allowed to bear fruit and to grow new co-operatives.” [12]

As Dianne Keldermann, CEO of the Nova Scotia Co-operative Council noted: “When is a good time for government to end programs? I'll tell you when is not a good time for government to end programs, and that is during an economically challenging time. I wouldn't say it's an economic crisis. But an economically challenging time is not a good time for the government to entrench, and it's particularly not a good time to disengage a sector that is really responding, is making moves, and is trying to be productive and be part of the solution.  I would also suggest that it's not a good time to do it when you do it without consultation....”[13]

Not only has this been a successful program, it has improved since 2003 and the 2009 version built on the success of the earlier version. As Andy Morrison, CEO of Arctic Co-operatives Limited, explained, “The most recent version of the Co-op Development initiative we thought was an improvement over the initial years of the program. We thought that just with ongoing tweaking and working with the co-operative system constant improvements could be made in the program. I'm not suggesting anything dramatic, but just through use you can improve things.”[14]

Recommendation 4

Reverse changes to RRSP regulations, again allowing worker owners to hold more than 10% of the ownership shares worth under $25,000 of their co-operative.

Our fourth recommendation involves reversing changes which were made in the 2011 budget to RRSP regulations that directly affect many small co-operatives. In the 2011 budget, the Conservative government prohibited RRSPs being made up of 10% or more of the shares of a business, including co-operatives, and declared this to be a “prohibited investment”. This change will particularly affect many small co-operatives of 10 or less employees or worker owners.  It is yet another obstacle to capitalization.

The Canadian Worker Co-operative Federation has noted in its brief to this committee:

“Whereas it used to be perfectly fine to hold more than 10% of a class of shares in a co-op or other entity within an RRSP if under $25,000, it no longer is acceptable.  If an individual is affected (which is possible even through no action of their own, if another member, or other members, redeem shares), there are very high penalty taxes, even higher than for deliberate fraud in some cases. We believe that these provisions are unreasonable, and further that they are putting jobs at risk.  CWCF objected strongly last summer with the Ministry of Finance regarding these changes, as did CCA, CCCM, the Canadian Institute of Chartered Accountants and the Canadian Bar Association.   We implore the federal Government to revoke these measures enacted in the 2011 federal Budget.”[15]

Recommendation 5

Affirming Canada's Commitment to Co-operatives by Strengthening the Government infrastructure to support the sector by:

a)   transferring the Co-operatives Secretariat (part of the Rural and Co-operatives Secretariat) from Agriculture and Agri-food Canada to Industry Canada

b)   establishing a Federal interdepartmental government committee to deliver advice and recommendations for co-operative support across sectors. 

c)   ensuring necessary resources including adequate staffing such as is given to the Minister of State (Small Business and Tourism).

Our fifth recommendation involves supporting the transfer of the Co-operatives Secretariat to the Department of Industry.  While, for historical reasons, the Co-operatives Secretariat, as part of the Rural and Co-operatives Secretariat, has been in the Department of Agriculture and Agrifood, times have changed.  The diversity of the co-operative sector and its large presence in both urban and rural Canada and in sectors as diverse as finance (credit unions and insurance), retail, housing, and many other sectors as well as agriculture and agri-food make the case for a renewed and reinvigorated Co-operatives Secretariat to be moved to the Department of Industry. At the same time, we are asking the government to restore the very significant cuts to personnel at the Co-operatives Secretariat, which have reduced the personnel working on co-operatives to a skeleton staff, and accord the Co-operatives Secretariat the same kind of resources such as is given to the Small Business and Tourism.

Denis Richard, President of La coop féderée, and Rose Marie Gage, CEO of AG-Energy Co-operative, Ltd., agree:

“Transferring the Rural and Co-operatives Secretariat to Industry Canada could also be a positive initiative if it were supported by sufficient resources to ensure that it could fully perform its role. The department’s development policies must encourage, or at the very least not discourage, the co-operative movement and ensure that it becomes a priority for the department going forward.”[16]

“Move the co-op secretariat to Industry Canada or Service Canada to ensure wider representation for all co-operatives across all industries, while ensuring that all expertise is maintained or improved upon.”[17]

In the recommendations to the report on the service sector, The Goods on Services, from the Standing Committee on Industry, Science and Technology with James Rajotte, M.P. Chair in June 2008, the committee unanimously recommended the transfer of the Co-operatives Secretariat to the Department of Industry.

“The Committee also found that often overlooked in the services sector is the contributions made by the co-operative movement. Canada’s economy includes more than 9,000 co-operatives, with more than 170,000 employees and total assets of over $260 billion. Indeed, 13 million Canadians, or 40% of the population, are members of a co-operative. Canada’s co-operatives are found in many services sub-sectors such as financial services, retail, housing, daycare, recreational facilities, electricity and water supply. Despite this diversity of business activities, the federal government provides oversight of co-operatives through its Co-operatives Secretariat, which has been organized within Agriculture Canada since it was established in 1987. The Committee questioned the placement of the Secretariat within Agriculture Canada, given the strong engagement of the movement in the services sector. Indeed, representatives of co-operatives were the first to question this organizational structure, as they believe that it does not accurately reflect the diversified nature of the co-operative movement. They suggested moving the Co-operatives Secretariat to Industry Canada. The Committee agrees. Although the Committee recognizes the historical dominance of agricultural co-operatives within the co-operatives movement in Canada, it believes that the Secretariat’s placement within Agriculture Canada does not reflect the diversified character of co-operatives in Canada.

The Committee, therefore, recommends: That the Government of Canada move the responsibility for the Co-operatives Secretariat from Agriculture Canada to Industry Canada.”[18]

Recommendation 6

Work with co-operative movement to identify barriers in Federal regulations, and address accessibility of federal programs to co-operatives.

a)   Identify key needs in different co-operative sectors, including but not limited to: retail, financial, agricultural, food processing, housing, and health co-operatives.

b)    Assure education about co-operatives to all civil servants who administer programs which could be used by co-operatives.

Finally we propose that all barriers to co-operatives accessing federal programs and services be lifted.  It also means that educational programs are carried out to assure that all civil servants who potentially deal with co-operatives are aware of the particular needs of the sector.

There is still at least one program such as grants from the Status of Women which are not available for co-operatives[19]. The wider issue is that many federal departments and agencies do not understand the specific nature and needs of co-operatives in order to help co-operatives access existing programs.

Several financial co-operatives testified to the difficulties they have encountered concerning regulatory requirements.

John Lahey, President and CEO of Alterna Savings, described the challenges his his institution has faced with requirements from the Canada Deposit Insurance Corporation:

“The new CDIC […] fast-tracks deposit arrangements, which are designed to allow CDIC to take quick control of an organization that’s in trouble. They’re quite substantial for a small organization like ours to put in. We have met their requirements — we used some chewing gum and baling wire to do it — and we’re in full compliance, but it was a significant effort. We think it’s a bit like trying to kill a fly with a sledgehammer. The requirements were really designed for a large organization.”[20]

Rob Maili, Chief Financial Officer of VanCity (the largest credit union in Canada), describes a similar situation vis-à-vis the Office of the Superintendent of Financial Institutions Canada (OSFI):

“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.”[21]

Co-operatives themselves can identify key barriers, and we recommend a collaborative approach with a variety of co-operative sectors to develop priority areas and recommendations for improvement.