Thank you, Mr. Chairman.
I was just going to say that it's perhaps not my role to comment on the motion.
But perhaps I can provide additional information and answer questions that may help us to understand the implications of the motion.
Mr. Chairman, over the past few weeks, the committee has heard from several witnesses during its study of the new Nutrition North Canada Program.
Mr. Jamie Tibbetts, director general of Devolution and Territorial Relations, and I are pleased to join you once again to answer any additional questions you may have about the program.
We would also like to provide information that may be helpful in clarifying some issues or matters that have been raised by witnesses during the previous meetings.
One of the key what I will call misconceptions about the new program is that we will lose the economies of scale and the negotiating power of Canada Post and that this will trigger increases in shipping costs and, ultimately,in food prices.
Based on the volumes that northern retailers and southern suppliers ship to the north, this does not appear to be the case. The reality is that with the exception of the work that is carried out under the food mail program, Canada Post is not in the freight business; it is in the business of shipping mail and small parcels.
On the other hand, major retailers, which account for about 90% of the stores in the north where people buy basic groceries, already ship very large volumes of freight. Consequently, this volume gives them greater bargaining power than Canada Post when it comes to negotiating rates for this type of cargo.
To that extent, we did an analysis of the shipping rates Canada Post has negotiated with airlines versus the rates major retailers pay to ship their freight. The results of this analysis are presented on the table that was distributed.
I believe it's available in both languages.
There are 69 fully eligible communities in which at least one major retailer operates. In 54 of these 69 communities, the rate the retailer negotiated is lower than the rate Canada Post is able to obtain.
The weight of perishable foods shipped to these 54 communities under the food mail program represents 91% of the total weight shipped to the 69 communities mentioned above. Canada Post's rate is lower in only 14 communities that represent 8% of the total volume. The shipping rate is the same for both Canada Post and the retailers in one community--Norman Wells, in the Northwest Territories--which represents about 1% of the volume.
On average, we have determined that Canada Post pays about 36¢ per kilogram more than what retailers pay to ship to eligible communities. When you extrapolate that over the total program, this represents an extra cost of over $7 million per year for the program. These are funds that are not available to reduce the price of nutritious food for northern consumers or to invest in health promotion and nutrition education activities.
In addition to the larger volumes and stronger incentives, the new model gives retailers and suppliers the flexibility to seek cost-effective and innovative solutions that will help make nutritious food more accessible.
The new model affords the department greater flexibility to respond on a timely basis to the concerns of northern consumers and stakeholders. There is greater leeway to make necessary adjustments to improve the program on an on-going basis.
Such an example was recently brought to our attention with respect to Quebec North Shore communities that only use the program for three months of the year, when there is no regular marine service. In this case, the communities were to be eligible for a nominal subsidy because the weight shipped to them fell under the program's minimum threshold.
However, given the seasonal usage of the Food Mail Program in these communities, their shipments should have been annualized. Based on this information, it was determined that the communities of Harrington Harbour, La Tabatière and Tête-à-Ia-Baleine will be eligible for a full subsidy as of April 1, 2011.
Also, as noted during our November 15 appearance before this committee, the department on December 1 released the subsidy rate schedule for communities. These rates were developed by each community and make it possible to allocate the program budget fairly and equitably.
This schedule was developed using a comparative analysis of actual market shipping costs by community and estimates of the weights of eligible goods that are projected to be shipped to each community under Nutrition North Canada.
These rates are introductory and, as updated information on shipping costs and food prices becomes available, they may be adjusted prior to April 1, and periodically thereafter, to ensure that eligible communities are treated fairly and equitably.
These are two examples where the program's flexibility allows us to respond more quickly to make necessary adjustments when new information is brought to our attention. While staying within the program's national scope and authorities, we anticipate that this program model will allow for ongoing improvements. The external advisory board, now composed of seven northerners following the announcement on November 25, will also help keep this program responsive to the needs of residents of isolated northern communities.
On the other hand, the food mail program in place since the 1960s provided little flexibility or incentive for innovation, leading to ever-increasing costs. Nutrition North Canada offers a more cost-effective and flexible model that will enhance accountability and transparency in ways that cannot be addressed within the current food mail model.
It has been suggested that the implementation of Nutrition North Canada be postponed by one year. In addition to delaying the expected benefits of the new program, such a delay could have significant negative impacts on northerners, stakeholders, and the costs for Canadian taxpayers.
Northerners could feel the sharpest impact of the proposed delay if we find ourselves in a position on April 1, 2011, where we are unable to offer any subsidy program. Based on the May 21 announcement of the Nutrition North Canada program, Canada Post is already transitioning out of the food mail program.
It's our understanding that Canada Post is winding down its current contracts with the air carriers that ship food mail and does not anticipate having such contracts in place come April 1. It is also working to reassign the existing employees who had helped carry out the program.
I cannot speak for the crown corporation, but we believe that revisiting the decision to implement Nutrition North Canada as scheduled could be very expensive and in fact might not even be possible. Moreover, supply chain stakeholders, from food suppliers to air carriers and retailers, have begun to make alternative arrangements to adjust to the new program model. A decision to delay implementation could translate into financial losses for many of these stakeholders, which could potentially trigger legal actions against the crown.
To conclude, Mr. Chairman, what the committee heard during its study was not unlike what officials heard from stakeholders during the review of the Food Mail Program. There were divergent opinions and views, often contradictory, on the best way to support northerners' access to healthy, perishable food. As the committee's work helps to illustrate, these views are often shaped by corresponding financial interests, those of airlines, retailers, wholesalers or other supply chain stakeholders. Clearly, businesses have a right to pursue their best interests and a legitimate role in influencing public policy to their advantage.
But in the midst of this discussion, officials sought to present objective information focused on the program's core objective to make nutritious food more accessible for the residents of isolated northern communities.
And, of course, we're here to take your questions.
Thank you, Monsieur Lévesque.
Members, I have just a point here in terms of trying to manage our time. We have four more interventions on this particular topic. We have 40 minutes left in our usual time slot and we have staff here that are anticipating work on the Nutrition North Canada study.
Do we feel that we need the remaining 40 minutes for this motion? Because I can release the staff at this point if we're not going to get to the study this afternoon. Or do you want to forge ahead and see if we can finish this up in, say, 10 minutes? I'm trying to look ahead here.
Okay. We're not going to get to the study here this afternoon, so I think we'll do that.
To our staff members, who have so diligently come to their very first meeting anticipating to work on our study, you are free to go. We'll see you back here on Wednesday afternoon. I commit to getting to the study. The committee will certainly indulge us, I'm sure, and we'll see you back here Wednesday afternoon on the committee report. Thank you.
Sorry for that interruption.
I have Mr. Payne followed by Ms. Crowder.
Mr. Payne, you're up next.
Well, this has been a program that has been under a certain amount of criticism, commentary, and review for quite some time, especially since, as I explained earlier, we had to come in cap in hand every year to ask for more resources without really being able to demonstrate how those resources were leading to better outcomes.
There were a lot of criticisms by northerners, as well as by the retailers themselves, and by the airlines. Some airlines were not happy they weren't getting contracts. In fact, they took Canada Post to court. There was a lot of conflict around it, and we could never get to the bottom line, in terms of being sure that each dollar is actually making its way to northerners and to the right kinds of objectives, i.e., increasing the consumption of healthy foods.
So we listened. We did a formal review. We had engagement sessions. There were about 80 different sessions across Canada. A lot of them were in northern Quebec and in Nunavut, where the majority of the program funding is.
I recognize that in some parts of northern Ontario it was more of a virtual engagement; we couldn't be everywhere at the same time. We also faced some constraints in terms of travel during the H1N1 crisis, so again we ended up taking a lot more testimony or commentary virtually, or people were phoning or writing the minister. We certainly had a lot of representation from all the different stakeholders.
We put our best advice forward. There were three options looked at. One was a pure retail subsidy, which would be directly paid at the till. Another one was a retail subsidy paid through the retailers. The third was a form of making some improvements or modifications to the existing program. Those were the three options. All of them were looked at. We did a complete risk analysis where we actually involved the stakeholders in the risk analysis, and on that basis we developed advice, which went into the policy process. Our minister and cabinet made a decision and now we are loyally and dutifully implementing that decision as good public servants.
The rates are called “introductory” because they're intended to be updated periodically as we get more information. With respect to the framework for the new program, I'll be receiving price data as well as cost data and we'll be able to adjust as we go. When we started, we were using 2009-10 food mail program data by community and forecasts for next year.
So if some of those forecasts are off and conditions change, we'll have to adjust our rates accordingly, within the envelope. The data that we're going to receive under the program will allow us to monitor consumption as well as what's shipped.
I think these rates are relatively close to what Canada Post is paying now. In a couple of instances, certain companies have said they think the rate could be higher in one community or another. It's because we've used, wherever we could, two or three different market rates. It's basically an indicator that the company may be paying higher than other people are paying. We are trying to keep the low-water mark and not the high-water mark within these rate structures.
Finally, the rates are not intended to be a 100% subsidy of airfare costs. It's to make it a more acceptable, cheaper price and level the playing field. If we were provided additional funds, we could make those rates more aggressive. But at this point, we've distributed them so that everybody is paying something. In some communities, like those in Manitoba--I think you asked about that last time I was here--some of those communities are actually paying significantly less than Canada Post rates, so they're still under the floor. They have not lost anything under the new rates. So it sort of fits in with that.
Ms. Jean Crowder: Just to--
Mr. Jamie Tibbetts: Could--
I still have another question.
The Chair: One more.
Mrs. Shelly Glover: That ties into my last question for you. It's running down the same track that Mr. Lemay was running down with regard to, once again, people coming to committee and suggesting they need points of entry because jobs might be lost there, or there are going to be rotten bananas that are going to get up north, and we have to have a way to hold people to account for that.
But under the old program there was no accountability for rotten food because there was no insurance. Is that right?
Mr. Patrick Borbey: That's right.
Mrs. Shelly Glover: And yet, under Nutrition North Canada, when we hold the retailer to account, they have insurance, so the consumer now has the option of compensation--if I'm correct in what I've learned in committee--because there is some insurance.
How would we go back with this motion that Monsieur Lévesque is suggesting? How would that affect points of entry? Wouldn't it just collapse entirely the progress we've made on Nutrition North if we adopted this motion and put points of entry, etc., back in place? We'd lose the insurance. We'd lose everything that we've made progress on for the consumer, wouldn't we?
When you say "major retailers", let's get this straight: they're the ones that have solid operations. Do we agree on that?
Mr. Patrick Borbey: Well, they're the ones—
Mr. Jean-Claude D'Amours: As a general rule. Perhaps you don't want to agree. As a general rule, they're the ones that have solid operations. The remaining 25%, the smallest ones, are on a less solid footing. If the current trend is to balance the operation of the government's contribution agreements, and it takes two to six months for a payment to be made... I'm not talking about the first one, I'm talking about the others, subsequently. The small retailers, the remaining 25% aren't on a sufficiently solid footing to operate that way. In spite of that, the department has decided that that's the normal process for dealing with 200 businesses that will be making regular claims. That means that, as you said, one person will be designated to handle that. That person will have to check all the requests one by one.
That person will have two, three, four...? These are perishable foodstuffs. If they're not paid for the following week, there will be a problem because retailers will have no more money. If they have no more money, they can't buy any more food. If it takes two months for them to be able to pay their small retailers, and the small retailers can't pay their suppliers, what happens to the population of the north?
I understand: you're saying that will be the problem, the retailer's fault. People will complain to it. Yes, but how will you guarantee that payment isn't made just as it's being made right now, that is to say in two to six months?
Thank you, Mr. Chairman.
First, you tell me that the cost of the new Nutrition North Canada Program is approximately the same as that of Food Mail.
So you acknowledge that, to make the Nutrition North Canada Program competitive, the quantity of food that the first nations and Inuit peoples currently receive will have to be reduced. There will be less of it and the program will cost less. In actual fact, its cost is still the same.
In this area, you didn't consider that food withdrawn from the program will have to be stored and that it will be up to the communities or to the retailers to deal with that.
You're also telling us that the calculation of the subsidies is important for you. What's important for you is to ensure that the subsidy the department provides is applied to the food in question when it's paid for at the cash.
You're not considering that transportation may cost more. For example, take a pound of butter that costs $8.49 and retails for $9.60 or $9.65 under the new program because the retailer doesn't have the same bargaining power. It's not true that it will have the same bargaining power, and, as First Air told us, it could cost more. If a pound of butter costs $9.67 instead of $8.49, that's not that important to you, provided the amount of the subsidy is applied to that pound of butter. Is that correct?
I'll choose not to answer the last question, but I will be pleased to answer the others.
With regard to eliminating the subsidy for non-perishable foods and non-foods, I simply want to recall that we previously showed before this committee that, from an economic standpoint, for both consumer and taxpayer, it wasn't a bargain to ship products such as diapers by air. It costs much less to send them by boat.
The storage issue was also raised. Additional storage expenses will definitely be incurred by retailers in the north.
However, I believe I've previously told the committee that, for less than $1,000, the shipping company will leave a container in the community to add to the storage capacity of the business.
I would also invite people to go and visit the retailers in the north to see how much space is reserved for carbonated drinks and their non-nutritional food items in the warehouses. We sent out a notice of change in May. These retailers should have changed storage space allocation priorities. They aren't the majority; I believe only two haven't done so. All the other retailers in the north have made the necessary changes to make room for products that will no longer be covered and to place their annual orders through Sealift, as it's called.
Then you mentioned checks. Canada Post doesn't check everything 100%. Only a small portion of foods are checked to ensure that their quality is still good when they reach the community. Canada Post doesn't check 100%. That's not part of the contract, part of the service offered.