A.  INTRODUCTION

On September 29, 2010, the House of Commons Standing Committee on Aboriginal Affairs and Northern Development (hereinafter the Committee) passed a motion to study the terms and conditions of the new Nutrition North Canada (NNC) program that is being gradually phased-in to replace the existing Food Mail program. As part of its study, the Committee held meetings in November and December 2010, in which it heard from a broad range of witnesses, including: government officials; the transportation industry; retailers; and representatives from northern communities. This report summarizes the testimony from these hearings and presents the Committee’s observations and recommendations.

B.  BACKGROUND

On May 21, 2010, the Government of Canada introduced the planned phase-in of the NNC program as a replacement to the existing Food Mail program based on the findings of a series of reviews and evaluations of the Food Mail Program that began in November 2006 and ended in March 2009. The purpose of the new program is to make nutritious and perishable food more accessible and affordable to Canadians living in isolated northern communities. Phase 1 of the new program started on October 3, 2010 when a reduced eligibility list was introduced, which excluded non-food items, most non-perishable food items and some perishable food of little nutritional value (see Appendix A). The program will be fully implemented as of April 1, 2011, with further exclusions for other food items and all non-perishable items (e.g. camping equipment, snowmobile parts, all-terrain vehicle parts, outboard motor parts, hunting supplies, etc.; see Appendix B), along with the introduction of new subsidy rates by community and food category (note: rates to be updated on a regular basis as new information on community pricing and cost becomes available; see Appendix C).[1]

As announced by the government, the new program moves to a retail level model from the existing transportation subsidy, the goal of which is to “shorten the supply chain and reduce the handling of fresh foods destined for the North.”[2] The new delivery structure of the program is based most notably on an assessment of options provided through an Indian and Northern Affairs Canada (INAC) report, released in March 2009, as well as through the findings and recommendations of Graeme Dargo (Minister's Special Representative) in his report of December 31, 2008.[3]

The government plans on providing funding directly to retailers and wholesalers who already ship large volumes of food and goods to the North, based on weight of eligible foods shipped to each participating community. According to INAC, moving to a retail subsidy “will enable [retailers] to negotiate the best possible prices for their consumers.”[4] In terms of accountability and transparency, INAC states that “the new program will require retailers to demonstrate the subsidy is being passed on to consumers” through a claims processing system to verify shipping invoices and documents, along with audit and financial controls.[5]

According to INAC, the key features of NNC are:

• Revised food eligibility list that gives priority to subsidizing the most nutritious perishable food at a higher rate, including commercially-produced country foods, and promotes more cost-efficient transportation methods;
• Revised community eligibility list that will be based on shipments in prior years, adjusted for seasonal use (see Appendix D):[6]
• Full subsidy provided to extensive program users—i.e. communities that received over 15,000 kg of Food Mail shipments in 2009-2010 and for which the per capita subsidy was over $48 per year;
• Nominal $0.05/kg subsidy provided to communities that are considered low Program users—i.e. communities that received between 100 and 14,999 kg of Food Mail shipments in 2009-2010 and for which the per capita subsidy was below $48 per year;
• Community eligibility levels (full vs. nominal) will be re-evaluated annually by INAC based on analysis of food prices in the communities;
• Communities that did not use the Food Mail Program in 2009-2010 (less than 100 kg) will not be eligible under the new Program, but could be added to the list through further reviews on a case-by-case basis.[7]
• Retention of personal orders, to preserve a measure of competition for Northern retailers and provide consumers with flexibility related to special dietary needs (note: see illustrative example in Appendix E); 
• New delivery method that “gives retailers and suppliers the flexibility to seek cost-effective and innovative solutions that will help make nutritious food more accessible;”[8]
• Increased involvement of Health Canada, which will work with isolated northern communities, in partnership with the retail sector, to offer a “community-based, culturally-appropriate nutrition education component” through funding, training and coaching.[9]  Program activities will focus on “improving consumption of healthy foods by improving the quality of food available in stores and increasing those skills which influence the demand for and consumption of healthy foods;”[10]
• Enhanced program governance through the creation of an Inter-Departmental Oversight Committee, and an external Advisory Board—currently composed of seven members from Nunavut (2), Northwest Territories, Yukon, Manitoba, Nunavik and Labrador[11]—tasked to ensure regular monitoring and evaluation, flexibility in the list of eligible foods, and to review and assess how a country foods component can be expanded and implemented in the North. Specifically, the mandate of the Advisory Board will be to:[12]
• Represent the perspectives and interests of northern residents and communities in relation to the management and effectiveness of the Program;
• Collect, analyze, and integrate relevant information regarding the operational effectiveness and shortcomings of the program, and consider policy or management changes with budgeted resources or alternative measures to enable its more effective and efficient delivery;
• Explore options to support the management of the program within its approved budget;
• Draw from the experience and expertise of organizations and individuals involved in transportation, distribution, nutrition, public health, government agencies, community development, retailers, wholesalers, and others engaged in the provision of food to northern communities, by obtaining information from them through briefings, research, and discussions;
• Review and consider matters including, but not exclusive to, program performance (e.g. food quality and availability), communications and public awareness, health and nutrition strategies, transportation systems, food supply chain management, food pricing, and product subsidy eligibility, in terms of the ways in which they are serving the interests of northern residents or could be improved;
• Develop consensus positions and strategic advice on matters related to the program, and communicate those views to the Minister and senior departmental officials on an annual and as-needed basis; and
• Alert the Minister to matters related to the program that may require action or management decisions on a priority basis.
• Increased level of transparency for the subsidy resulting in accountability for the parties involved (note: see illustrative example in Appendix E):[13]
• Each retailer will negotiate its own freight rate for food cargo and other cargo with the air carrier of its choice;
• The retailer will determine a freight cost to be applied to the food products landed in its community by subtracting the subsidy per kilogram from the negotiated freight rate per kilogram and then adding in the cost of local transport;
• At the end of each month or quarter, the retailer will submit its claim for the subsidy, based on waybills and supporting invoices.
• INAC will provide advance payments to retailers/suppliers to minimize the up-front and ongoing financing requirements faced by northern retailers with the introduction of the new retail subsidy;[14]
• Small independent northern retailers in eligible communities, who may not have the capacity to manage claims processing and the other requirements, will have the option of entering into an arrangement with INAC to receive the subsidy directly (need to meet the requirements for northern retailers as mentioned below) or ordering subsidized eligible items from eligible suppliers[15] registered with the Program (note: see illustrative example in Appendix E);
• Under the contribution agreements to be signed between the Government of Canada and retailers, the government has the right to audit all recipients under the Federal Accountability Act and other terms and conditions set out by Treasury Board that apply (note: see illustrative example in Appendix E).[16]
• As well, terms and conditions of the contribution agreements will require retailers to support in-store communications about the NNC program and the dollar value of the subsidy in each community to show savings are being passed on to the consumer.[17]

1. Evolution of the Food Mail Program[18]

The need for a system to deliver nutritious food to isolated northern communities developed originally through observations in the 1960s that Aboriginal peoples in the North were transitioning from their traditional nomadic hunting and gathering lifestyle to more permanent, sedentary communities.[19] Along with that transition, it was noted that access to a stable supply of nutritious food for Aboriginal northerners was becoming more of a challenge. These concerns over food insecurity—a common definition of which is “...inability to acquire or consume an adequate quality or sufficient quantity of food in socially acceptable ways or the uncertainty that one will be able to do so”[20]—prompted the federal government to offer a subsidized food mail service for communities accessible only by air transport through Canada Post’s Northern Air Stage Program, which also provided support for various non-food items (e.g. personal hygiene products, machinery and equipment, etc.). The program was also offered in northern Ontario, and shortly after in various isolated northern communities in other provinces. An extension of the program to service the Baffin region (in present-day Nunavut) was made possible in 1969 through a change in Canada Post’s rate structure.

In the years that followed, the federal government applied various cost containment and accountability strategies in the delivery of this program. Soon after the creation of Canada Post Corporation (CPC) in 1981, a for-profit crown corporation, concerns started to be raised in terms of program viability, as the CPC had been delivering this service at below cost. The federal government began to provide transfers to CPC to aid in the delivery of this program, worth $19 million in 1986 (or about $33 million in 2009 dollars); this base funding was scheduled to be reduced by $1 million annually in following years. In addition to limited base funding, weight restrictions began to be imposed on shipments and disclosure was required related to mailing statements from consumers. Further restructuring occurred in January 1990, when the government imposed a limit on the content of food items being shipped to isolated northern communities (e.g. exclusion of less healthy food items such as pop, potato chips and candy), followed in 1991 by a transfer in responsibility for management of the program from CPC to INAC. Along with the introduction of uniform rates for nutritious perishable food, and higher rates for non-perishable food and non-food items, in October 1991 the government extended the program to service all isolated northern communities that did not have access to year-round surface transportation (i.e. by road, rail, or marine), although communities that were isolated for short periods of time within a year (e.g. due to unsafe transport conditions as a result of inclement weather) continued to be excluded from the program.[21] By 1996-1997, the base funding level had been set at $15.6 million (or about $20 million in 2009 dollars).

Further changes occurred in the years that followed, including an increase in base funding to $27.6 million as of 2002-2003 (or about $32 million in 2009 dollars). In December 2002, the Auditor General of Canada released a report which recommended that the federal government conduct a review of the program’s entry point system to explore improvements in program efficiency and effectiveness.[22] The federal government followed suit in November 2006, and decided that Winnipeg would be introduced as the main entry point for the Kivalliq region (in Nunavut), as this would allow shorter transit times and reduce the need for loading and unloading operations that were previously conducted in non-temperature controlled environments.[23]

The need for top-up funding, appropriated through the supplementary estimates, has grown each year since 2000-2001, with actual requirements increasing by an annual average of 12.4% while the base funding level remained fixed at $27.6 million up until 2009-2010.[24] The government has attributed these cost increases mainly to strong increases in fuel prices and demand over this same period. Figure 1 below provides an illustration of Food Mail program spending over time, comparing base with actual, and the corresponding shortfall between the two.

Figure 1: Food Mail Program Expenditures

Source: Calculations using data from INAC, communication on December 3, 2010.

In response to concerns related to these escalating program costs, due mainly to increasing fuel costs and rising demand, the government launched a comprehensive review of the program in November 2006 to determine if the program was meeting its objectives.

Over time, INAC and Health Canada have played a collaborative role in monitoring and evaluating the degree of access to affordable, nutritious food and its effectiveness on the health conditions of northerners. Various evaluations conducted by the federal government have found in general that the existence of the Food Mail program, and its various enhancements over time, have increased access by reducing prices for nutritious food.[25] As well, it has been found that nutritional problems are generally less serious in communities where food is more affordable and for families that can afford a more nutritious diet.

There is also a capacity under the existing Food Mail program for personal orders, which allow direct shipments to households and individuals, healthcare institutions, day care services for breakfast and lunch programs. This allows consumers in isolated northern communities to satisfy specific dietary needs, or to allow access to a wider variety of food items than available through local retailers. As well, direct shipments are also supported through the Food Mail program for restaurants, hotels and other tourism operations that offer food services.[26]

Although various enhancements have been applied to the Food Mail program over time, its basic operation has remained relatively unchanged:[27]

• A retailer (or individual consumer) living in a designated northern community can place an order with a wholesaler in the South who has a contract with Canada Post to supply food or eligible products under the Food Mail program.
• The wholesaler must deliver the item to a designated entry point, which is located at the airport in the designated community—this delivery is generally done by road or rail transport.
• Traditionally, shipping contracts have been negotiated between CPC and air carriers to deliver food mail to the north—the administrator of Canada Post offers a request for proposals, which generally identifies the volume of the different products to be tendered at the different entry points, and all of the carriers make a proposal, give their unit price per kilo, and present their value proposition to Canada Post. CPC then takes those different submissions and chooses the best value proposition for them. Shipping contracts have been typically entered into for a fixed term of three to five years.[28]
• Upon arrival at the entry point, Canada Post verifies that the package conforms to program eligibility requirements, such as applicable weight and size limitations and packaging quality, and performs random checks[29] of the package contents.
• Items are charged the same subsidized postage rate of $0.75 per package, plus three different per-kilogram postage rates—$0.80 (nutritious perishable food), $1.00 (non-perishable food and non-food items in northern parts of provinces), and $2.15 (non-perishable food and non-food items in the territories).[30]
• Canada Post is responsible for delivering the product to one of the 140 final destinations from one of 20 entry points, with a service standard[31] that the item will be delivered to the eligible community in the North within 48 hours for perishable items, and 72 hours for non-perishable items.
• A shipment must be picked up at the airport within 15 minutes of its arrival, with a requirement that the carrier notify the retailer or individual customer who placed the order when the plane is scheduled or anticipated to arrive.
• The retailer or individual pays the wholesaler the full cost for the item, which includes the cost of packing the product for delivery, the cost of getting it to the entry point, and the subsidized postage rate that Canada Post charges for the service.
• The federal government pays Canada Post the difference between the subsidized postage rate and the rate that would be charged if there was no subsidy.

2. Transition to the New Program

The most recent evaluation of the Food Mail program was initiated by INAC in November 2006, and completed with the release of a final report on March 31, 2009 (Summative Evaluation of INAC’s Food Mail Program). In the lead-up to the release of this evaluation, various reviews and audits were published throughout 2008[32] and in March 2009[33]. As well, various pilot projects in select northern communities were conducted to gauge the potential impact on consumption of nutritious food for northerners through a reduction in food pricing.[34] In general, these studies were unanimous in their findings that the existence of a program for northerners in isolated communities enables better availability and affordability for nutritious food, contributes to healthier eating practices, and increases northern economic activity by supporting local, Aboriginal employment and businesses (e.g. in the transport and retail sectors).

These assessments of the impacts of the Food Mail program reveal in general that, as a result of the transportation subsidy, prices for the most nutritious perishable foods are reduced by an average of 15-20% of their non-subsidized prices, although this impact varies widely by community depending on degree of isolation and the types of food offered by retailers.[35] As well, INAC estimates that an average of 62% of the subsidy is passed on to consumers in the isolated northern communities eligible for the program. It has been estimated that, in 2007-2008 a total of 18 million kilograms of cargo was shipped to eligible communities through the Food Mail program, of which 82% was nutritious perishable, 13% non-perishable foods, and 5% essential non-food items—Nunavut and Nunavik received 80% of total volume shipped.[36]

Over the review period, the government indicated that INAC officials held over 80 engagement meetings across the country, from Nain, Labrador to Old Crow, Yukon. These meetings included sessions with leaders, stakeholders and residents of eligible communities as well as meetings with program stakeholders located in Winnipeg, the Montreal region, Val-d’Or, Yellowknife and Ottawa. INAC officials also visited multiple communities and stakeholders during an internal audit,[37] and as part of the summative evaluation of the Food Mail Program[38] in 2008-2009.[39]

The main issues related to the operation of the Food Mail program consistently suggested in the various studies mentioned above include the following:

• Food eligibility, in that a greater focus on subsidizing the shipment of foods that achieve the maximum nutritional benefit is needed, as food items eligible under the Food Mail program include less nutritious and non-perishable foods, as well as non-food items[40] (see Appendix B for details on eligible food items under NNC as of April 1, 2011).
• Claims process, as current program guidelines do not allow for guarantees on such things as on-time delivery, coverage against loss or damage, or delivery confirmation, and there are no requirements that CPC inspect shipments while in transit from entry point to destination.
• Awareness, in that no formal mechanism exists to ensure awareness of the program and its impacts on food availability and affordability, such as requirements that retailers advertise the cost savings of the program to its consumers.
• Accountability, as no requirements exist for retailers or transporters to provide their sales or cost information to INAC to allow the government to better track program effectiveness.
• Logistics, as there is a lack of monitoring and compliance over quality control due to the complexities of supply chain management in the delivery of Food Mail shipments.[41]
• Cultural appropriateness, in that the distribution of country food among northern communities, which supports traditional hunting practices and healthy living for northerners, is effectively not supported through the Food Mail program. As explained by Minister of Health Leona Aglukkaq, although country food is technically covered under the existing Food Mail program, the time and costs involved in shipping a food package from its source in the North to an entry point for redistribution back to a given northern community effectively make such a transaction impossible.[42]

As stated in the Summative Evaluation of INAC’s Food Mail Program, “[n]o evidence-based support was provided to suggest that any of [a number of]... alternatives would be more successful, cost effective, or have a greater impact on end users than the current transportation subsidy.” Various other recent INAC evaluations, however, point to a retail subsidy as a possible alternative to better achieve the objectives of the Food Mail program.[43] Indeed, as described above, the government has opted to transition to a retail subsidy model—the NNC program—as of April 2011. In support of the transition to the new program, however, INAC has recently estimated that allowing market negotiated shipping rates through a retail subsidy is expected to result in savings of over $7 million per year. Through its analysis, INAC determined that, on average, the CPC pays about 36 cents per kilogram more than what retailers pay to ship to eligible communities. It was argued by INAC that these cost savings are made possible through greater bargaining power of retailers in negotiating shipping rates relative to the CPC, as major retailers, who account for about 90% of the grocery stores in the North, already ship large volumes of freight[44] (note: see illustrative example in Appendix E).

Under NNC, the total funding envelope will remain essentially unchanged from previous years. Incremental funding of $45 million was announced in Budget 2010 in part to facilitate the transition to and implementation of the NNC program. This investment in base funding ($12.4 million in 2009-2010 and $32.4 million in future years) brings the program’s on-going budget to $60 million per fiscal year. Although the new base funding level is currently capped at $60 million, roughly matching total program spending in recent years, it provides more certainty to the government for budget planning by eliminating the need for mid-year funding appropriations through the supplementary estimates. Of the $12.4 million in 2009-2010:

• $9.4 million is used to cover the Food Mail Program’s shortfall;
• $1.5 million is used by INAC to prepare for the implementation of the new program; and
• $1.5 million is used by Health Canada to support nutrition promotion and education activities.

Of the $32.4 million in 2010-2011 and future years:

• $26.3 million will be used to complement existing funding of $27.6 million for direct subsidies to program recipients (retailers and suppliers);
• $3.2 million will be used by INAC to operate the new program (accountability, communications, advisory board, claims processing, etc.); and
• $2.9 million will be used by Health Canada to support nutrition promotion and education activities.

Once INAC receives all of the required government authorities to proceed, departmental officials will contact retailers and suppliers to open detailed discussions on the arrangements that will be put in place to operate and deliver the NNC Program beginning in April 2011.

C.  KEY ISSUES IDENTIFIED BY WITNESSES

The presentation that follows compares and contrasts the varying views and expectations expressed by witnesses who participated in Committee hearings on this subject during November 2010, and concludes with some observations and recommendations on key issues raised.

1. General Observations

a.   Overall program operation

A general theme that emerged from witness testimony was the concern that not enough was known about the implementation of the new program, and the process used to develop the criteria and conditions for determining program eligibility. Although information available through INAC’s web site provided a general overview of key elements of the new system, witnesses stated that many more details were needed so that interested parties could more fully comprehend the implications of the move to a retail subsidy and its likely impacts on access to affordable, nutritious perishable food. In addition to these issues, concerns were raised by witnesses in relation to a lack of sufficient time to fully anticipate and transition to the new system, impacts of the change in supply chain management, how monitoring and evaluation exercises would operate, the degree of health promotion and outreach planning, and to what extent the government could accurately evaluate the links between changes in food prices, program effectiveness and community health outcomes.[45]

b.   Comparisons with Food Mail program

According to testimony provided by the Honourable Leona Aglukkaq, Minister of Health, the existing Food Mail program was transitioned to NNC following a comprehensive review that revealed a lack of accessibility and affordability to nutritious perishable food in isolated northern communities. According to Minister Aglukkaq:

At the end of the day, I think people forget that this is to provide people...the seniors who live on fixed income, who don't have credit cards, who are unilingual, who cannot access the program through personal orders or through the stores because oftentimes... [t]here was a perceived view that the subsidy was not being passed on.[46]

In addition to deficiencies related to the existing Food Mail program, the lack of food security and sufficient nutrition is compounded by limited employment opportunities, increasing food and fuel costs and changing wildlife migration patterns. As mentioned by Minister Aglukkaq, the lack of a nutritional diet for northerners is causing increasing health problems for northerners, such as tooth decay in infants, and increased incidence of obesity and chronic diseases such as diabetes.[47]

During the engagement phase of the Food Mail review, the government notes that consumers and stakeholders agreed that the program should target its funding towards nutritious perishable food that is flown-in rather than on non-perishable items that do not require expensive air transportation. In general, INAC thought this would be the most effective way to promote healthy eating by northerners, which is consistent with the findings and recommendations of Graeme Dargo (Minister's Special Representative) in his report of December 31, 2008.[48]

Some retailers who appeared before the Committee identified several advantages of the new program over existing methods. In particular, it was thought that NNC will eliminate inefficiencies that exist as a result of the current food mail program by creating more efficient processes and operations that will enable retailers to provide better quality products, better service, and better value to consumers in the North.[49]

Some retailers, especially those from the larger chain operations, also agreed that several basic improvements would occur through application of NNC:

• Supply chain streamlining, through more efficient and cost effective delivery methods as a result of the elimination of requirements for such things as dedicated delivery days, middlemen, and staging points;
• Transparency and accountability, through the combined programs of INAC and the retailers to ensure communication to consumers on subsidy rates, through monitoring, and regular audit and evaluation exercises;
• Health focus, such that there will be an elevated focus on both healthy people and healthy communities through the partnership with Health Canada. This will encourage and support healthy eating on a community by community basis; and
• Competition and growth, by working directly with all wholesalers and retailers in the north to ensure a stable economic environment.[50]

Smaller retailers, meanwhile, were concerned that their bargaining power under the new program would be substantially diminished. As explained below in the section on Competition, compared with major retailers, it is likely that smaller retailers will experience difficulties in trying to set competitive prices, which would jeopardize the viability of their businesses in the long run. For this reason, it was thought by some northerners that the Food Mail program presented important advantages over the new NNC program.

Some organizations associated with the transport industry have noted that the major deficiencies of the Food Mail program summarized above could have been addressed through relatively minor adjustments and additions to the existing program, rather than through a complete restructuring of the delivery system. They explain that moving to an entirely different delivery system makes it difficult to evaluate changes in cost, efficiency and effectiveness. As Scott Bateman (First Air) stated:

I find that the process is difficult to quantify at this stage of the game when we can't baseline these changes against anything concrete. What were the costs and issues that the changes to this program are trying to address? What have we accomplished with these changes? Where have we qualified the conditions that warranted these changes? Where have we quantified all of these comments that are included in the two major reports? How can we possibly address the issue of what we've accomplished with the new program?[51]

Other witnesses have commented that the introduction of the new NNC program could have a negative effect on northerners' access to affordable nutritious food due to the elimination of non-perishable food items from the program eligibility list. It has been noted that, in addition to nutritious perishable foods, many northerners have also included nutritional non-perishable food items as a part of their normal diets, similar to the practice applied by southerners (e.g. dried goods such as pasta, frozen meals, etc.). Some witnesses commented that it remains uncertain to what extent redirecting a significant portion of funding away from subsidizing the delivery of non-perishable food items towards increasing administrative expenditures (e.g. new operational budget of the Advisory Board, additional operational requirements from INAC, etc.) will enhance the health of northerners. As stated by Jose Kusugak of Nunavut Tunngavik Inc.:

Inuit must not suffer because of price increases resulting from NNC. There is a real possibility that the prices of many items will increase dramatically in coming months. Because of sealift timing, storage, and other issues, retailers have not necessarily adequately stocked newly non-eligible items through other transportation methods.[52]

At the same time, other transport organizations were fully supportive of the NNC program, as it was felt that the changes under the new system would help to level the playing field among competitors in the air transport industry. As Tracy Medve (President, Canadian North), explained:

Under the old food mail program, granting a sizeable government-funded contract, which allowed a single airline to provide discounted air freight rates for most of Canada's north for a five-year term and blocked the entry of competitive airlines, was market disruptive.[53]

Furthermore, some suggested that increased competition through the new NNC program would lead to lower costs and improvements in efficiency, which would lead to better availability and freshness of nutritious perishable food in the North. As stated by James Ballingall (Vice-President, Business Development, Air Cargo Transportation, Cargojet Canada Ltd.):

...changes made to the old food mail program will allow market forces to determine the lowest possible air cargo transportation cost options. Savvy retailers and other shippers will take advantage of these cost reduction opportunities to grow market share and improve reliability and freshness of products to their customers in the north.[54]

Some witnesses expressed concerns that insufficient time has been provided in the transition to the new program, since significant changes will have to be made to adjust supply chain requirements and transportation logistics. This has made an impact on the operations of some air carriers, who have stated that they will need to amend their product offerings and reinvest in additional infrastructure.[55] However, other airlines, such as Canadian North, have also stated they are ready to implement ground based infrastructure products that will help them participate in the new program.[56]

Some have described the merits of focusing the new subsidy on the most nutritious perishable food, which holds the potential to help ensure that these products can reach their destinations in shorter periods of time. This in turn promotes freshness and quality, which can reduce costs to the consumer as the incidence of spoilage would generally decrease.[57] Although differences in opinion on the preferred delivery method have been expressed—from more direct air transport to a mix of surface-based transport with air shipments—some agree that the new program would better enable these decisions to be made as market forces would be more directly at play.[58]

Representatives of northern communities have been generally supportive of the government’s efforts to improve program efficiency and effectiveness, but have expressed concerns that not enough is known about the intended operation of the new program and to what extent input from northerners will be provided in its long-term management. Main issues of concern expressed by Aboriginal organizations relate to how the external Advisory Board will operate, how food prices will be monitored and its potential impacts on Aboriginal health, to what extent communication practices will be effective, and how the government plans on developing appropriate health promotion tools.[59]

2. Implementation

a.   Delivery Logistics

i.    Nutritious, Perishable Food

Richard Brouillard (Airport of Val d’Or and Valpiro Inc.) described to the Committee how existing operational efficiencies and knowledge in supply chain techniques for perishable food that have been gained over time through designated entry points offers an advantage over other systems. He suggests that the existing system could be made more accountable by creating a body charged with managing the program and entering into contract agreements with suppliers that would include conditions on reporting and accountability.[60]

Others have disputed the claims of cost and efficiency gains of staging in the current designated entry points, however, referring to advantages of managing operations at larger air facilities located closer to major southern markets where nutritious food items generally originate (e.g. Montreal, Ottawa, Toronto, etc.). In particular, some argued that staging in major urban centres in the South increases product freshness as it lowers the need to use surface transportation, while economies of scale would help to reduce costs.[61]

Many others in the air transport industry point to the relative equality that is offered for consumers and retailers through the existing Food Mail program, in that “the delivery schedules allow for equality in the delivery of food to all retailers... [a]ll retailers are equal and benefit from the same product freshness, since the food is delivered at the same time... [and] they all pay the same transportation rates.”[62]

ii.   Non-Perishable Food and Non-Food Items

As the delivery of non-perishable food items and non-food items will no longer be subsidized through the new program as of April 2011, most users of the program will need to seek transportation methods other than air shipment, due to the prohibitive costs involved. In general, some form of surface transportation will need to be applied, depending on seasonal availability (i.e. all-season or seasonal road systems, summer barges and sealifts, etc.). It remains unclear in the thoughts of many what impacts this change in delivery system will have on affordability, access and quality.

Some witnesses expect that this program change will not introduce very significant differences in affordability, access and quality for northerners, as it was mentioned that, in many cases, these forms of transportation are already applied. As Andy Morrison of Arctic Co-operatives Ltd. explained:

Certainly with the cost of air we try to reduce the amount of non-perishable products by air. A real challenge in the food industry today is dating on product, so we maximize the amount of product that we can ship by sea to take advantage of... best-before dates... Only then do we start flying in dated product.[63]

Patrick Borbey, an INAC official, also added that although additional storage expenses will be incurred by northern retailers due to the changes in program eligibility, various factors would serve to mitigate these increased expenses, such as:

• Offers by shipping companies to leave storage containers for the use of a northern retailer for “less than $1,000,... to add to the storage capacity of the business”[64]; and
• Evidence of sufficient capacity in northern retail establishments for storing additional inventory, as it was stated that a majority of “retailers in the [N]orth have made the necessary changes to make room for products that will no longer be covered...”[65]

Other witnesses believe, however, that due to the increased use of the sealift and the extra costs related to adding storage capacity, this program change will result in substantially higher prices paid by northern consumers for a wide range of non-perishable items, especially for those in more isolated northern communities.[66]

Some witnesses also pointed out that the timing of the announcement on May 21, 2010 in relation to the full implementation of the program by April 1, 2011 did not allow sufficient time for many of the smaller retailers to adjust their supply chain systems and address needs related to extra storage capacity, as goods can only be shipped by sealift mainly during the summer months in any given year.[67] An example of this was provided by Mary Simon of Inuit Tapiriit Kanatami:

...in my home community of Kuujjuaq, in northern Quebec, in Nunavik the local independent store began implementing price increases of 40% on items such as disposable diapers and canned vegetables, after subsidies were removed from these items in early October.[68]

Elena Labranche, of the Nunavik Regional Board of Health and Social Services, expressed similar concerns:

The change to the food mail program is way too fast, in our opinion. There is not enough time in the transition period for the northerners to adjust and for the retailers to prepare for the changes. For example, there is no time to build the warehouses to stock up on dried goods. Also, in the homes of the people, there is no room to stock up on foods, for those who would be able to afford to stock up.[69]

In response to these concerns, the government suggested that the relatively few cases where prices for such items have increased substantially are likely due to a lack of planning from a small number of affected retailers. The government explained that most retailers in the North were able to accommodate their need to order extra inventory for non-perishable goods in anticipation of the transition to the new program, as four months’ notice had been provided before the last scheduled sealift for 2010.[70]

b.   Community Eligibility

Communities that are more isolated and lack choice in terms of available retailers and/or transporters would like to see more flexibility in the system to opt for alternative means of obtaining nutritious perishable food at lower costs. In particular, it was generally argued that, for communities that lack retail competition, the main benefits of the retail subsidy under NNC are effectively negated as there would be little incentive for retailers to offer food items at the lowest prices, with the best quality and variety.[71]

An illustration of this issue can be drawn from Old Crow, an isolated community in Yukon with no regular access to surface transportation. It was proposed by some witnesses that the community of Old Crow receive an exemption from the new program, such that the existing transportation subsidy would be maintained directly by Air North (rather than CPC). Under this proposal, accountability would be maintained through a contractual arrangement between Air North and INAC.[72]

In response to this request, the government has stated in its testimony that since this community is eligible under the new program, as it does not have access to seasonal surface transportation, it will continue to be eligible for the full retail subsidy for perishable and non-perishable food items, as well as for essential non-food items. Although witnesses responded positively to this recent development, it remains unclear, however, to what extent this would lead to improvements in quality and price for food items offered at the retailer in Old Crow, Yukon, and how this would compare in terms of outcomes in relation to a transportation subsidy. Specifically, although INAC stated “[t]here’s a strong interest in signing up a number of retailers [in major Yukon communities such as Whitehorse and Dawson] under the program so that the services continue,”[73] some witnesses remained concerned that there will be less retailers and less competition with NNC than with the existing program, where all retailers are automatically eligible and don't have to sign up.[74]

It was generally recognized, however, that the continued availability of personal orders would serve to somewhat mitigate these concerns, such that it would offer a form of competition with the single retailer. As well, INAC officials stated that mechanisms established through contribution agreements with participating retailers in eligible communities will give the government leverage to enforce accountability. As stated by Jamie Tibbetts (Director General, Devolution and Territorial Relations Branch, INAC):

[Participating retailers will]...submit those invoices and other documents so we can do the accounting and cross-checking... Those levels of internal controls will be built into this.[75]

Other examples of how communities have been coping with a lack of competition were also mentioned by various Aboriginal organizations during the Committee’s study. For example, Darryl McDonald provided an account of the experiences in dealing with the Food Mail program in his community of Fond du Lac Denesuline First Nation, in northern Saskatchewan:

The disadvantage we have as individuals is the high cost of groceries. We're forced through seasonal roads and other means during the summer, to take our own vehicles and shop down south for our groceries, which may lower costs and provide means for others, because the local Northern Stores company is the only company that's providing groceries to the community, and their groceries are way up.[76]

Eligibility criteria were also seen as an issue in relation to the development of the new program. For example, Richard Jock, Chief Executive Officer of the Assembly of First Nations stated the following:

We also need to ensure that communities not currently eligible because of lack of participation in their previous food mail program can be eligible in the future and may be able to apply for the subsidy.[77]

INAC official, Jamie Tibbetts, stated that “[t]he eligible communities were selected based on the 2009-10 data from Canada Post... The communities that received 15,000 kilograms of shipments through the food mail program last year are automatically eligible.”[78] INAC further clarified that it will continue to collect data from the communities that required less than 15,000 kilograms, and that the advisory committee will conduct annual reviews to reassess community eligibility based on usage of the new program. As well, INAC indicated that it would also evaluate the need for emergency assistance to cover short-term interruptions in surface transportation. In particular, the following information was provided by INAC through a follow-up communication:

Exceptions and emergency provisions are included in NNC to ensure communities without any sealift or winter road access or communities that could potentially face restricted sealift or winter road access on a temporary basis due to climate conditions, would continue to have access to nutritious non-perishable foods and essential non-food items at reduced prices.[79]

In remains uncertain, however, what methods would be applied by INAC to assess eligibility for a community not originally participating under the new program as of April 2011, or to assess the need for temporary emergency assistance.[80] This lack of clarity continues to be a cause of concern for community and Aboriginal representatives in general.

c.   Food Eligibility

Many witnesses believed that the government should reconsider allowing various food and non-food items to be eligible for the subsidy under the new program. These items related mainly to the following general categories:

• Child care products (e.g. diapers, baby food, etc.);
• Traditional hunting and related food supplies (e.g. gasoline and ammunition, food items high in fat for protection in extreme weather conditions); and
• Various dried goods which serve as affordable and convenient complements to traditional meals (e.g. rice, noodles, soup mixes, pasta, etc.).

3.   COMPETITIVENESS

In general, a majority of the witnesses thought that larger grocery chains would have an advantage over smaller, local stores in the move to a retail subsidy due to their purchasing and marketing power. It was argued by many witnesses that since larger retailers have the capacity to purchase in bulk and therefore likely negotiate better shipping rates and receive first priority in timing of shipments, smaller retailers are likely to be at a competitive disadvantage in attempting to offer the same food items at similar prices and quality. In general, witnesses thought that this would introduce greater uncertainty as to the long-term viability of their businesses.[81]

In response to these concerns, Jamie Tibbetts, Director General of the Devolution and Territorial Relations Branch at INAC, stated that smaller retailers would be able to compete more closely with the larger retailers with operations in the North by ordering its goods through a larger southern-based retailer by using the personal order feature of the new program (note: this would be the only option for retailers in the North who are either ineligible under program requirements, or decide to not register for the new program). In general, the government official stated that the success of smaller northern retailers is dependent on their ability to manage their operations in an efficient and effective manner.[82]

In terms of the transport industry, similar to the retail industry, competitiveness issues vary depending on the circumstances of a given community. In general, larger, more centralized communities in the North such as Iqaluit have a relative abundance of choice in airlines, and so it can be expected that retailers and consumers will be able to reduce their costs for food items by negotiating freight charges across different air freight service providers. On the other hand, many of the smaller communities that are more isolated have access to relatively few carriers, and often only one choice can be available as a result of constraints on demand.

With the move to a retail subsidy, although many expect that various markets will remain small enough such that only one air freight provider would continue to be viable, some witnesses expect that new markets will begin to emerge across the North, resulting in increased competitiveness among air freight providers and likely lower prices for nutritious perishable food. As mentioned by Tracy Medve of Canadian North:

With the kinds of volumes that the food mail program can generate, we will see now adding service to communities that we do not serve presently and that have a monopoly service. We know there are complaints about lack of access and high prices to those communities.[83]

Potential benefits of the new program are also being observed through interest expressed by traditionally southern-based air freight providers, such as Cargojet, based out of Hamilton, Ontario. As noted by James Ballingall (Vice-President of Business Development):

...the business model in the south works very well. Those assets are paid for, so the costs we can provide—subcontract to other carriers—would be economically beneficial to them. The assets we employ down south are already 100% paid for.[84]

4.   FEATURES AND ATTRIBUTES

a.   Monitoring, evaluation and enforcement

i.    Performance Management

Witnesses questioned the degree to which transparency and accountability would be maintained through the delivery of the new program, such that consumers can be assured that they are receiving the lowest prices possible for nutritious perishable food. To this end, witnesses urged that the federal government establish and provide a fully transparent control mechanism, and communicate this with the public, to ensure that all retailers are passing on the full value of the subsidy.[85] As well, witnesses stated that the government should enhance its efforts to quantify the impacts of the new program by developing indicators on food security and health and nutritional status for northerners.[86] In response, INAC officials indicated that, unlike food mail, under the new program INAC will work directly with retailers who will provide data needed to measure the program’s impact and to provide assurances that the subsidy has been passed on to consumers.[87]

Although most agree that the monitoring techniques presented above are desirable, as they would lead to certainty in the evaluation of program effectiveness, due to the integrated nature of the retail grocery sector, concerns were expressed that it would be difficult to determine precisely how much of an observed price change for a given food item is due solely to the effects of the new program, rather than through such factors as inventory shrink, product spoilage, changes in transportation costs, changes in exchange rates for imported food items, general market conditions, etc. For instance, as explained by Michael McMullen of the Northwest Company:

The major fluctuation that I hope everybody in the room is aware of in produce, and it extends to meat, is the Canadian dollar versus the U.S. dollar. Most of the retailers in this room that I know of—because we don't grow bananas in Whitehorse or anyplace else—get their supply from the U.S. in produce. If that dollar value changes substantially, you will see an increase in the price of produce. That has nothing to do with either the old food mail program or the Nutrition North program.[88]

ii.   Advisory Board

In terms of the creation and operation of the external Advisory Board, although all appointments were announced recently by INAC,[89] questions still remain on the degree of involvement by northerners to develop the terms of reference and general operational mandate of the Board.[90] As well, concerns have been raised in relation to the degree to which funding for Board operations will be stable and adequate to meet the ongoing need to monitor program effectiveness.[91]

In response to these concerns, the government pointed to the mandate of the Advisory Board which, as explained in the Background section above, will work with northerners to ensure regular monitoring and evaluation and flexibility in the list of eligible foods, and review and assess how a country foods component can be expanded and implemented in the North. As well, the government indicated that it will provide support for the administrative operations of the Advisory Board, as required.[92]

b.   Program Communication and Health Promotion

i.    Communication with Northerners

Federal government representatives stated that sufficient communication was conducted with a broad range of witnesses in the lead-up to the transition to the NNC. As indicated in the background section to this report, and as shown in Appendix F, the government has held 80 engagement meetings across the country, including sessions with leaders, stakeholders and residents of eligible communities as well as meetings with various program stakeholders, as well as through various internal audit and evaluation exercises.

From the point of view of community representatives, although most expressed appreciation for the government’s efforts to develop a more effective program, and reacted positively to the engagement sessions that were held in the lead up to the new program, many felt that more communication was required so that the impacts of the new system could be more commonly and completely understood.

The perception that communication was less than sufficient was echoed by First Nations and Inuit groups across the North. These Aboriginal organizations described how some communities knew relatively little about the government’s efforts, as preliminary communications tended to focus on preparing retailers and wholesalers for the transition to the new program.[93] As well, Aboriginal organizations mentioned that it would have been helpful if more time had been provided to allow northerners to transition to the system. These Aboriginal groups suggested that a more complete understanding and appropriate delivery of the new program and its operations could have been accomplished through further information exchanges with the government, and efforts to include these organizations in the development of a coordinated plan.[94]

Moreover, community representatives such as Jose Kusugak of Nunavut Tunngavik Inc. thought that a more formal partnership should be developed with the government on the ongoing management and development of the program—in particular as it relates to eligibility lists, accountability to consumers, and communication strategies—accompanied by quarterly reports after April 2011.[95]

ii.   Promotion and advertising of subsidy to consumers

Promotion and advertising strategies to be applied by northern retailers, to communicate with its customers on the value and impact of the subsidy, will include such initiatives as posters that illustrate cost savings for various key nutritional products, printing of aggregate subsidy rates available to the community directly on cash receipts, and various other community outreach activities.[96]

In terms of the subsidy rates to be shown on cash receipts, Jamie Tibbetts, Director General of the Devolution and Territorial Relations Branch of INAC explained that:

[The community subsidy rate]... will be on the cash register receipt, the amount of...the rate per community. It will not do the math for you, but you'll be able to know that your community is receiving $3, or whatever the amount might be, of subsidy for goods.[97]

iii.  Health promotion

Educating and guiding northerners in the pursuit of healthy eating was touted by the government as a key pillar to ensuring program success. In collaboration with regional and local health authorities, the federal government intends on facilitating the promotion of healthy lifestyles and nutritious eating for northerners. Witnesses throughout the study agreed with this view, and stated further that a holistic approach was required to incorporate healthy living and exercise as an integral part of the daily lives of northerners, with a special emphasis on elderly and youth.[98]

c.   Country foods

Finally, to better reflect the special dietary needs of Aboriginal northerners, along with the introduction of NNC the government announced its support for expanding the commercial production and shipment of country food throughout the North. The government decided to focus its initial efforts on commercial facilities as a first step to enhancing the availability of country foods. This effort was deemed more feasible as a starting point due to the advantages of presently existing facilities in Cambridge Bay, Rankin Inlet, Iqaluit and Pangnirtung.[99]

As a next step, the government intends on working with the Advisory Board to explore various methods to expand the shipment of country foods by supporting sharing networks and harvesters, such as those through the hunters and trappers organizations.

Witnesses expressed widespread support for a subsidy to facilitate the shipment of local country food, but thought that government efforts should be targeted more specifically to non-commercial trade, as this was the more common form of distribution for Aboriginal northerners.[100] In particular, some witnesses were concerned that they would not receive the full benefit of the commercial shipment of traditional foods as they did not have commercial facilities within their communities. For example, as stated by Mary Simon (Inuit Tapiriit Kanatami):

...we don't have facilities in our communities to package our caribou and other country food in a way that is acceptable to, let's say, the Agriculture Canada standards.[101]

Several airline representatives explained that they currently offer discounted rates on shipping country foods to help northerners deal with the high distribution costs of shipping fresh meat across the North. Without some form of support for such activities, it was explained that it would not be economically feasible in many cases to establish and maintain sharing networks for food like char, caribou, narwhal and beluga, as they tend to be spread across thousands of kilometres.[102]

Although a general consensus was achieved on the need for expanded federal support for country food, a few witnesses expressed some reservations in providing an increased emphasis on traditional hunting in the light of dwindling stocks and changing migratory patterns. As stated by Grand Chief Ron Evans of the Assembly of Manitoba Chiefs:

The other thing I just wanted to caution on, when I hear what's being said around encouraging traditional food, is that some of the communities are experiencing a decline in some of that traditional food. So if we're encouraging thinking that our people can go back to the land, which will save the government money, I think that's wrong. I think we should do what we can to ensure we can get all the nutritious food into the communities. If you're going to cut, I think you need to really meet with those communities, make sure that they fully understand they're going to get cut from these programs.[103]

One method that was proposed by several witnesses to facilitate the storage and distribution of country foods was federal support for the establishment of community walk-in freezers or other similar forms of infrastructure to provide year-long access to caribou and other traditional meats. This was seen by some witnesses as an investment opportunity that would pay dividends through increased health outcomes and would lower costs related to health care.[104]

D.  COMMITTEE OBSERVATIONS AND RECOMMENDATIONS

The government decided to conduct a review of the Food Mail program as a result of escalating costs observed over time, and to develop a new program to address concerns expressed by northern communities and businesses regarding program awareness, transparency and accountability on shipping and food prices, food quality and delivery logistics, and the need for a focus on access to nutritious perishable food, as well as culturally appropriate food in the North. During its study of the new Nutrition North Canada program, the Committee heard from witnesses on a range of concerns related to the transition to the new system. The main theme that emerged from these discussions was the concern that not enough was known about the implementation of the new program, the process used to develop the criteria and conditions for determining program eligibility, and the impact of the new program on access to affordable, nutritious food. Witnesses also expressed concerns related to the relatively short timeframe for transition to the new program, and thought that more time should be provided to allow all interested parties to more effectively plan; this issue was especially relevant to communities and businesses in the smallest, most isolated northern communities.

Witnesses also expressed concerns related to a lack of understanding of how the monitoring and evaluation exercises would operate, the degree of health promotion and outreach planning to be conducted by the government and how northerners would be involved in the development of this process, and to what extent the Government of Canada could accurately evaluate the links between changes in food prices, program effectiveness and community health outcomes.

The Committee therefore makes the following recommendations:

• That Indian and Northern Affairs Canada consider amending the parameters of community eligibility under the Nutrition North Canada program, including the definition of “isolated northern community” as it relates to the condition that these communities “must have availed themselves of the Food Mail Program and ordered at least 100 kg of food mail shipments in 2009-2010.”
• That Indian and Northern Affairs Canada consider a mechanism to amend the subsidy rates under the Nutrition North Canada program so that the External Advisory Board would have the ability to make recommendations based on the real costs (e.g. distance, geography etc.) rather than the historical usage under the Food Mail program.
• That the Standing Committee on Aboriginal Affairs and Northern Development conduct a comprehensive review of the Nutrition North Canada Program after three years.
• That Indian and Northern Affairs Canada, upon full implementation of the Nutrition North Canada program, establish tracking and evaluation tools to assess the impact of the program on food security and nutritional status.
• That Indian and Northern Affairs Canada, as part of its tracking and evaluation tools, conduct a survey of the quality and cost of nutritious perishable foods derived under the Nutrition North Canada program one year after its full implementation, compare the findings of that survey to quality and cost derived under the Food Mail program, and that said comparison be reported back to the Standing Committee on Aboriginal Affairs and Northern Development.
• That Indian and Northern Affairs Canada, Health Canada, and regional health authorities work collaboratively to ensure that the benefits of the program are effectively communicated.
• That Aboriginal organizations, the External Advisory Board, and the Inter-Departmental Oversight Committee communicate effectively and regularly on the maintenance and development of the Nutrition North Canada program.
• That Indian and Northern Affairs Canada, through the External Advisory Board, be flexible in the delivery of the Nutrition North Canada program, including the determination of community and food eligibility lists, to allow for special circumstances.
• That Indian and Northern Affairs Canada focus any surplus funding derived through the transition to the Nutrition North Canada program on maximizing the subsidy for nutritional perishable foods.
• That Indian and Northern Affairs Canada assess and address the additional storage costs that may be required from the changes made on October 3, 2010.
• That Indian and Northern Affairs Canada develop and implement transparent monitoring mechanisms for retailers and transporters to ensure consumers receive the full benefits of the Nutrition North Canada program.
• That Indian and Northern Affairs Canada, in conjunction with the External Advisory Board, review the country food component of the program to consider options to expand and support the sharing networks and harvesters making up traditional, non-commercial Aboriginal food systems.
• That the Nutrition North Canada food subsidy program include an exemption for the community of Old Crow, Yukon, and that it have flexibility to maintain the personal shipping transportation subsidy from Whitehorse to Old Crow, Yukon, for nutritious perishable food, non-food items, non-perishable foods, and essential non-food items.