COOP Committee Report

Supplementary Report by the Liberal Party of Canada to the Special Committee on Co-operatives’ Main Report

1-Putting the study in context with a brief history and highlights of the committee’s calendar and the importance of the 2012 International Summit of Co-operatives (IYC)

Given the declaration by the United Nations of 2012 as the International Year of Co-operatives, the Liberal Party of Canada appointed in early May 2012, The Honourable Mauril Bélanger, Member of Parliament for Ottawa—Vanier, as Liberal Advocate for Co-operatives.

On Friday, May 18^th Mr. Bélanger asked a question to the Minister responsible for co-operatives, the Honourable Gerry Ritz. Here is his question along with the minister’s response.

FROM HANSARD

CANADIAN CO-OPERATIVES

Hon. Mauril Bélanger (Ottawa—Vanier, Lib.):

Mr. Speaker, on January 12, 2012, to launch the International Year of Co-operatives, the Minister of Veterans Affairs said on behalf of the government that the International Year of Co-operatives is a perfect opportunity to raise public awareness about co-operatives and their ability to meet the needs of Canadians, and that the common goal was to help co-operatives gain recognition in order to ensure they have more support and more exposure.

Can the government tell us what it has done since then to give Canadian co-operatives more support and more exposure?

Hon. Gerry Ritz (Minister of Agriculture and Agri-Food and Minister for the Canadian Wheat Board, CPC):

Mr. Speaker, with some 9,000 co-ops, 18 million members and some net worth of $350 billion or $360 billion, I think co-ops have a great foundation to continue this work on their own.

This response and the fact that the two national associations representing co-operatives have not been able to meet with the minister responsible for co-operatives in the last 4 years, convinced our Liberal advocate that something had to be done.

On May 30^th 2012, Mr. Bélanger introduced a motion in the House of Commons on behalf of the Liberal Party of Canada proposing the creation of a Special Committee of the House to look into the situation of co-operatives in Canada and to report no later than November 30th. The motion carried unanimously.

The Liberal Party finds it unfortunate that the Conservative members of the committee have used their majority on the committee to require that the committee submit its report before the 2012 International Summit of Cooperatives takes place in Quebec City in early October; a meeting to which the committee members have all been invited. At the Summit, commissioned studies providing an update on the co-operative movement in Canada and around the world are to be released.

It would have been useful for the Committee to consult these studies before arriving at its conclusions.

Despite this unfortunate situation, the creation of the committee and the hearings that it has conducted have been beneficial.   Members of Parliament learned about the diversity, the nature and the importance of our co-operatives, as well as their resilience --almost twice as many co-operatives as private start-ups survive after 5 years. In a world which is more and more concerned with growing income inequalities and the relocation of jobs, co-operatives are proving to be a substantial contributor of solutions.

2-Summary of some of the highlights heard in the context of the Special Committee on Co-operatives’ study of the Status of Co-operatives in Canada.

A-Co-operatives are resilient and they respond to a need that other forms of businesses might not fill

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.[1] This is supported by witness testimony and suggested in recent reports. This is the reason why co-operatives 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.[2] Reports indicate that co-operatives offer economic stability and often offer better performance than other organisations or enterprises.[3] Furthermore, as previously mentioned, the survival rate of co-operatives is almost twice that of investor-owned companies (62% compared to 35% for investor-owned businesses after five years).[4] Once established, the co-operatives become self-sustaining and do not require ongoing support from the government.

The co-operative model enables projects where the private sector does not anticipate sufficient return on equity. In contrast to private sector businesses where the owners may be a mix of foreign and local investors, the vast majority of co-operatives are owned by community members. Locally owned co-operatives are committed to their communities and as a result are better suited to balance economic and social considerations.[5]

B-Lack of knowledge on co-operatives within federal institutions

There are two federal programs dedicated to co-operatives in Canada. One is the Co-operative Development Initiative (CDI) established in 2003, renewed in 2008 and its non-renewal has been announced by the government in this, the IYC.  The other program is the Rural and Co-operative Secretariat which has been decimated, going from close to 100 employees to a mere 12.   

The Liberal Party had hoped that the government would renew the CDI and signal to the sector that it will continue to be there to help, especially during the International Year of Co-operatives. As for the Rural and Co-operative Secretariat, we find it very unfortunate that the Conservative government decided to reduce it so drastically.

It has been repeated numerous times during the committee hearings that there is a lack of knowledge within government and within society of the co-operative business model. This lack of knowledge results in co-operatives having difficulty accessing financing from financial institutions and even from the federal government. In accessing financing from financial institutions the main obstacle seems to be the risk assessment resulting from the lack of knowledge of the co-operative business model, its structure and governance.

It should be noted that Budget 2012 recognized that many start-up companies have similar problems accessing financing through traditional methods.  Specifically the budget stated that “Young knowledge-based firms often have difficulty in accessing capital from traditional financial institutions because they have few tangible assets beyond their ideas.”[6] The budget provided a $400 million dollar fund to help them access capital.

This kind of active government support is just as important for the co-operative sector which faces the added challenge of not being able to sell shares on the stock market to raise early stage funding.

We will have recommendations addressing these issues.

C-Lack of awareness about co-operatives within the general public

In Canada, co-operatives employ in excess of 150,000 people; worldwide, they employ 100 Million which is more than all multinationals combined. Yet, according to an Abacus poll conducted for the Canadian Co-operative Association only 5% of Canadians were aware that 2012 is the International Year of Co-operatives. Indeed some representatives of co-operatives commented that at times even members of co-operatives themselves are not fully aware of what it is they are a member of. Clearly there is a need for more and better dissemination of information among and about co-operatives.

3- Key Recommendations from the Main Report supported by the Liberal Party

We do not have objections to the recommendations included in the main report; however most do not go far enough, or are too vague.

Recommendation 2C of the main report deals with the need for regional economic development agencies to do a better job vis-à-vis co-operatives. By itself the recommendation is laudable. Its implementation however would require maintaining or even increasing the budgets of these agencies. Instead some of their budgets have been dramatically reduced. We hope that the government will revisit this situation.

4-Capitalisation

As mentioned previously, many witnesses spoke on the issue of capitalization of co-operatives, especially start-ups.

Even if the CDI program never had the explicit objective to capitalize cooperatives, it assisted start-up co-operatives including providing funding to conduct market research as well as developing a business plan, which are often required steps for a fledgling business. In this sense, CDI can be seen as a program that gave "people that little boost to get started”, as stated by Mr. Bill Dobson (Director, United Farmers of Alberta) at a meeting of the Special Committee.[7]

A program which seems to be quite successful is the Community Economic Development Investment Funds (CEDIFs) experience in Nova Scotia. CEDIFS, managed by the Nova Scotia Co-operative Council along with the province of Nova Scotia are a pool of capital, raised through the sale of shares that are invested in new or existing local businesses. This is an innovative way to support communities, create jobs and stimulate economic growth.

Recommendations on Capitalisation

The CDI program has been shown to be extremely successful in helping new co-operatives get off the ground, as well as providing value money and return on investment. Witness testimony has clearly demonstrated co-operatives to be job creators; often in communities where some services are nonexistent.  Given this, and the fact that co-operatives contribute significantly to the Canadian economy through employment, taxes and community cohesion, the Liberal Party finds it unfortunate that the program was not renewed.

We believe the Government of Canada should look at alternatives to the CDI program to better assist in the development of co-operatives.

R1-We recommend that the Government of Canada create a Canadian Co-operative Investment Plan (CCIP) modeled on Québec’s Régime d’investissement cooperatif and as detailed in the brief submitted by La Coopérative fédérée..

R2-We recommend that the Government of Canada create a federal program similar to Nova Scotia’s Community Economic Development Investment Funds (CEDIFs) and that this program be managed by Canadian Co-operative Association (CCA) and the Conseil canadien de la coopération et de la mutualité (CCCM) along with the Government of Canada.

R3-It has been mentioned by numerous witnesses that limits to investing RRSP funds in co-operatives was a problem following the changes made to the Income Tax Act in 2011 by the Government of Canada. Therefore, the Liberal Party recommends that the 2011 restrictions against self-directed RRSPs be relaxed for owners of co-operative shares. This will especially be beneficial to small co-operatives and worker’s cooperatives.

R4-Many European countries have created programs and enacted legislations in support of co-operatives and their development. We recommend, as a starting point, that the Government of Canada study the programs and laws pertaining to co-operatives in four countries, Great Britain, France, Spain and Italy, and table the results of this study in Parliament before the end of 2013.

R5-We also recommend that the federal government work in collaboration with the co-operative sector in order to educate lenders so that reasonable solutions to the issue of capitalisation are found.  Witness testimony has clearly demonstrated that lender’s lack of knowledge of the cooperative business model often results in faulty risk assesments of projects generated by the co-operative sector.

5-Co-operative Housing

Housing co-operatives are much more than a simple place to live. Housing co-operatives are legal associations based on co-operative principles that are formed to provide members with permanent housing. In Canada, approximately a quarter of a million people live in housing co-operatives.

Co-operative housing is one area where the work of the committee is incomplete. The problem most frequently mentioned was the substantial penalties associated with the cancellation of a closed mortgage. It would have been useful to hear from and question representatives of the Canadian Mortgage and Housing Corporation (CMHC) or from The Agency for Co-operative Housing, yet neither appeared as witnesses in front of the committee.

There are also larger issues looming. According to the Co-operative Housing Federation, by 2020, some 55,000 co-op households will no longer be covered by a CMHC operating agreement.

R6-We therefore recommend that a Co-op Housing Taskforce be established and mandated to take a detailed look at i) the current situation of co-operative housing and it's financing challenges, ii) the near future as mortgages and operating agreements mature and iii) ways of upgrading and increasing the co-operative housing stock.

6-Lack of knowledge of co-operatives and the co-operative model within federal institutions

Harold E. Chapman, in his 2012 book "Sharing My Life, Building the Co-operative Movement", eloquently persuades his reader of the danger in neglecting the 5th of the 7 principles of co-operatives. This principle, "Education, training and information", he further elaborates as follows: "Co-operatives provide education and training for their members, elected representatives, managers and employees, so they can contribute effectively to the development and operations of their co-operatives. They also inform the general public of the nature and benefits of co-operation."[8]

This principle on the need to educate and inform applies to governments also and, as previously mentioned, there appears to be a lack of knowledge of co-operatives and the co-operative model within the institutions of the federal government which disadvantages co-operatives.

Access to funding from Canadian organizations that support business development is uneven.  As demonstrated by the experience of both La Cooperative de solidarité le Bercail in Rimouski and la Coopérative Méduse du Québec and outlined in a brief from the Conseil canadien de la cooperation et de la mutualité, the general tendency is to reject funding for co-operatives and this is a major problem. This is a failure to see and acknowledge economic contribution of co-operatives to Canada’s agricultural, financial and housing development. It reflects a lack of economic vision that is harmful. This tendency and the practice of federal organizations to exclude co-operatives from their various programs represent a repudiation of the co-operative approach.

As highlighted in the committee’s main report, witnesses felt that federal institutions’ lack of knowledge of the co-operative system directly impacted access to government funding.

R7-Therefore, the Liberal Party recommends that the Government of Canada review its current federal programming language and mandate, to make sure they refer to co-operatives whenever warranted. We strongly believe that the co-operative sector should not be penalized by this lack of knowledge by federal institutions.

To remedy this situation, the Liberal Party recommends:

R8-Transferring the responsibility for co-operatives to Industry Canada.

R9-Strengthening the Rural and Co-operative Secretariat (RCS).

R10-Ensuring the ongoing collection, analyses and sharing of data on co-operatives.

R11-Creating an Inter-departmental Committee on Co-operatives including Industry Canada, Finance Canada, Agriculture and Agri-Food Canada, Natural Resources, Fisheries & Oceans, Indian Affairs and Northern Development, the Canada International Development Agency, Health Canada, Public Works and Government Services, Veteran Affairs, Human Resources and Skills Development, Statistics Canada, CMHC, BDC and all the regional economic development agencies.

R12-Creating an Advisory Committee reporting to the Minister responsible for Co-operatives.

R13-Adding a co-operative component to the Interchange Canada Program.

R14-Setting up a Network of Co-operative Champions in all relevant departments and agencies modeled on the Official Languages Champion’s Network.

7-Official Languages

R15-Given the importance of co-operatives in the development and vitality of official language minority communities, the Liberal Party recommends that a “co-operative development” component be added to the next Roadmap for Canadian Linguistic Duality.

8-Mandatory Review

R16-As it is the case with the Bank Act, the Liberal Party recommends that the Co-operative Act be submitted to a mandatory legislative review every 10 years, starting with a review by 2015.

9- Business Succession Planning

As the baby boomers approach retirement over the next decade it is expected that a high percentage of business owners will retire and may have difficulty finding buyers.  As mentioned by Ms. Francine Ferland from the Fédération des coopératives de développement régional du Québec during the committee hearings “business succession based on the co-operative approach encourages worker mobilization and the maintenance of local jobs. It also helps keep capital in our country and encourages community revitalization”.[9]

R17-We recommend that studies be undertaken by the Government of Canada in collaboration with the co-operative sector on the capacity and potential of the co-operative model to tackle the business succession challenges in order to help keep jobs in our communities.

10-IYC Legacy in Canada

During his testimony, Mr. Nicholas Gazzard, Executive Director of the Co-operative Housing Federation of Canada, made an excellent suggestion and we wish to add it has our final recommendation.

R18-As a fitting legacy for the International Year of the Co-operative, we recommend that the Government of Canada create a centre of excellence in co-operatives and co-operative enterprises.

11-Conclusion

The Liberal Party of Canada appreciates the important contribution of co-operatives to the development of communities and of our country and reaffirm its will to work in a positive manner with the co-operative community, the other federal political parties and Canada’s provincial and territorial partners.