Indigenous and Northern Affairs Committee on Nov. 3rd, 2010

[The Chair, Conservative, Bruce Stanton]

Good afternoon honorable members. I welcome the witnesses and guests. This is the 33rd meeting of the Standing Committee for Aboriginal Affairs and Northern Development.

Pursuant to Standing Order 108(2) and the agenda, we are going to proceed with the study on Nutrition North Canada. This afternoon, I am pleased to welcome our five witnesses. I invite Mr. Andy Morrison, Chief Executive Officer of Arctic Co-operatives Limited, to give his presentation as our first witness.

Before we get under way, I will say that we have allowed about five minutes for each of your presentations. If you are reading from a written presentation, it is good to keep the pace fairly modest, more or less the way I'm speaking right now. It helps for the simultaneous translation that is available to the members, and to the guests we have in the room, as well.

Take your time. We'll get through each of the presentations. After that, we will go to questions from members. They have a certain time allotted, and we'll tell you more about that when the time comes.

I see that most of you have the audio in. You'll be needing that through the course of the meeting as well

Let's go to Mr. Morrison. You have five minutes, sir.

[Andy Morrison, Chief Executive Officer, Arctic Co-operatives Limited]

Good afternoon, Mr. Chairman, and members of the standing committee. Thank you for the opportunity to speak to you today.

My name is Andy Morrison, and I am the chief executive officer of Arctic Co-operatives Limited. Arctic Co-ops is a service federation that's owned and controlled by 31 community-based cooperatives located across the Northwest Territories and Nunavut. These 31 multi-purpose cooperatives are owned and controlled by more than 20,000 individual owner-members in the north.

The co-ops in the Arctic have participated in the food mail program for many years. We consider the program to be an essential tool for the delivery of perishable nutritious foods to the remote communities of the north.

The existing food mail program, while essential to the communities of the Arctic, is mired in regulations and rules that greatly reduce the effectiveness of the program and result in increased transportation time, reduced product quality, and higher costs for the people of the north.

Some of the major challenges of the current program include the following.

The first is deposit days. Under the current program, product shipped to the north is inspected by Canada Post officials at entry points. Inspections take place at a specific time on a specific day. Retailers must design their product supply and logistics around these deposit days, which are not based on the needs of the communities we serve and not based on the most efficient methods of procurement and delivery.

Second is entry points. Product entering the north via the existing food mail program must be shipped through entry points specified by the program. These entry points were established many years ago and, in the case of some routes, have no relationship to existing transportation routes.

Third is claims processes. Under the existing food mail program, Canada Post does not permit retailers to file claims against their contracted air carriers for poor service. As a result, consumers pay higher prices for perishable nutritious products to cover the costs of frozen, spoiled, or damaged products. Lack of a claims process does not allow retailers to hold all members of the supply chain accountable for good service.

For more than two years, Arctic Co-ops has participated with other stakeholders in the extensive INAC consultations and review of the existing food mail program. Throughout this review, we have provided an honest assessment of the existing program and have consistently offered constructive suggestions to improve the program.

We'd like to compliment INAC and the Department of Health for the work they've done in the development of the new Nutrition North Canada program. Based on the information that's been provided to date, very important improvements will be introduced in the new program. The elimination of specific deposit days and designated entry points, and the ability to file claims for service, will result in a much better consumer-based freight subsidy program.

The new Nutrition North program does not provide any financial benefits to the retailers of the north. The freight subsidies in the new program are consumer subsidies, not subsidies to retailers. If anything, the new program will increase administrative costs for retailers, as we report to government and educate consumers on this important new program.

The Nutrition North program will eliminate the inefficiencies that exist in the current food mail program. More efficient processes and operations will enable retailers to provide better quality products, better service, and better value to our stakeholders.

Mr. Chairman, much has been accomplished in the last two years. I urge this committee and INAC to do everything possible to ensure that the new and improved program is fully implemented on April 1 as scheduled. We are committed to partnering with INAC to deliver an effective program that will provide good value and quality products to consumers and contribute to healthy eating across the north.

Thank you.

[The Chair, Conservative, Bruce Stanton]

Thank you, Mr. Morrison.

I now invite Mr. Kenn Harper, President of Arctic Ventures 2000 Ltd., to make his presentation.

Go ahead, Mr. Harper.

[Kenn Harper, President, Arctic Ventures 2000 Ltd]

Thank you, Mr. Chairman, members.

I have represented Arctic Ventures in business, including the food business, since 1985 in Iqaluit.

We have used the food mail program for the 25 years we have been in business in Iqaluit, and before that, at another business I owned in Arctic Bay. We saw very little wrong with the food mail program as it operated over the years, except that we did not have the freedom to source our food inventory from wherever we wanted.

When we realized in the last few years that the program was under review and faced potential changes, and when we realized that the minister might rely heavily on a report that had been commissioned by his department--the, in our view, deeply flawed Dargo report--we lobbied consistently to discredit that report and in favour of a modified status quo.

I say “modified” because there was blatant and unconscionable misuse of the existing program. This misuse came about as a result of INAC's own foolishness in allowing items to become eligible for shipment through food mail that had only the most tenuous connection to food. Retailers and individuals in some communities were shipping Ski-Doo parts, dishwashers, clothes dryers, and even truck tires. This abuse is largely why the program was overbudget and out of control, and this abuse led to the review and to the announced changes.

Some months ago changes to product eligibility were announced by INAC. Most of those changes affected products in the higher rate category. These changes didn't affect us. In Iqaluit my company did not use this category, because the food mail rate was fairly close to our negotiated freight rate and it didn't warrant our using that category. However, all communities past Iqaluit use this category extensively. I cannot comment on how changes to product eligibility implemented on October 1 are affecting them.

The changes that will impact Arctic Ventures and all other retailers are those that will take effect on April 1, when Canada Post's involvement with the program ends. We have been provided with no details on how the program will work, other than the broad generalities that were announced by the minister. We would dearly love to know the specifics of the program.

Here is what we understand.

Retailers can order their supplies from wherever they choose and have them delivered to an entry point of their choice.

Retailers will be expected to have their suppliers ship eligible-for-subsidy and ineligible items on separate waybills, as the new program is a waybill-based subsidy program.

INAC will determine and announce a subsidy rate for each community, a community-specific rate. Presumably this will be an amount per kilogram.

Each retailer will negotiate his own freight rate for food cargo and other cargo with the air carrier of his choice in communities where there is a choice. Fortunately, in Iqaluit there is a choice. The retailer will determine a freight cost to be applied to the food products landed in his community by subtracting the subsidy per kilogram from the negotiated freight rate per kilogram and then adding in the cost of local haulage.

At the end of each time period--presumably each month--the retailer will submit his claim for the subsidy, based on waybills and supporting invoices. We assume we will have to submit all of this, so the photocopiers will be busy. We have heard that INAC may contract out the processing of these claims but we have no confirmation of this. And the next stage is, we wait for our cheque.

Who benefits from this new program? You would hope that I would say it's the consumer. I'm not so sure it's the consumer. The big winner, in my view, is the North West Company--owner of Northern stores and NorthMart stores--with stores in almost every community. They have huge purchasing power with whichever airline they decide to ship their cargo. Money talks and they have money. They will negotiate the best freight rates with northern carriers because of their volume. The rest of us will pay higher freight rates and have to set our prices accordingly.

But I do not believe the dominant retailer will substantially undercut our prices. They never have in the past. Rather, they will price the same as us, or a few pennies lower, and their profits will be correspondingly higher.

So this program, in my view, has handed the North West Company a windfall, and for some small businesses a death sentence.

What about quality? Under the existing program, the carrier was required to deliver perishable product within a certain short timeframe. Who will ensure timely delivery of perishable food under this new laissez-faire program? No one will. Our shippers will consign our cargo to the airline, and we will wait.

Whose cargo will be carried first? Whose cargo will get there while still fresh? You know the answer to that. North West Company's cargo will take priority over everybody else's cargo because they will negotiate that priority as part of their contract negotiations. This will provide an incentive for customers to shop at NorthMart or at Northern.

[The Chair, Conservative, Bruce Stanton]

We are a bit over time now, Mr. Harper. If you could sum up, if there are some points remaining you will likely have the opportunity to get those out in the course of questions.

[Kenn Harper]

Okay. I'll just finish.

We've been preparing for the new ordering regime by establishing relationships with potential suppliers. We've gotten our heads around the changes. We're doing what business does best: dealing with change. But there are some things we haven't yet figured out. Under the old program, there was a level playing field for delivery costs. That is gone. The new program will not deal fairly with freight costs and quality control issues for retailers other than the largest. The department needs to turn its attention seriously to these issues in the months between now and next April.

Thank you very much.

[The Chair, Conservative, Bruce Stanton]

Thank you, Mr. Harper.

We have two representatives here from First Air. We have Scott Bateman, the president and CEO for commercial operations, and Bill Thompson, who is the VP for commercial operations.

I think, Mr. Bateman, you are going to give the presentation. Please go ahead.

[Scott Bateman, President and Chief Executive Officer, First Air]

Good afternoon, Mr. Chairman, and members of this standing committee. Thank you very much for the opportunity to take five short minutes and present to you.

My name is Scott Bateman, and I am the president and CEO of First Air. First Air is the wholly owned subsidiary of Makivik Corporation, Makivik Corporation being the birthright organization representing the interests of the Inuit of Nunavik.

We've been in business 64 years, and we've been operating out of Iqaluit for over 35 years. We're one of Canada's oldest airlines and have operated successfully without a subsidy from any form of government--municipal, provincial, territorial, or otherwise--over that entire 64-year period.

First Air has over 1,000 employees, with approximately 500 working in the north. We are one of the largest private sector employers in the north. With a fleet of over 21 aircraft, a diversified fleet of aircraft, First Air is the largest air carrier in the region. We provide scheduled air service to 30 northern communities located in the three territories of Nunavik, Nunavut, and the Northwest Territories. We provide scheduled air service to 30 northern communities; to 19 of them we carry food mail on our scheduled route network.

As a major stakeholder in the food mail program, we were active participants in the food mail program review process. In addition, we took it upon ourselves earlier this year to meet with many individual members of the standing committee with regard to proposed changes to this program.

Throughout the review process, our position was, and continues to be, that certain areas of the program could certainly be improved. However, we maintain that the necessary improvements would have best been achieved within the framework of the existing program. Proposed changes to a program as important to all northerners as the food mail program should be based on a fully transparent process involving all stakeholders. Proposed changes should be based on both qualified and quantifiable data comparing the cost, efficiency, and effectiveness of the current program to the cost, efficiency, and benefits to be achieved from any proposed changes.

From this carrier's perspective, this was not the case with regard to the changes put in place to date.

Without roads, railways, or year-round marine transportation, the 30 northern communities we serve are cut off from southern supply points. As such, safe, reliable, and efficient air transportation is essential to northerners, not a luxury.

The northern air transportation system is in a state of delicate balance. Over our scheduled route network, food mail, cargo, medical travel passengers, and other passengers are carried on the same flight using specially modified aircraft. The economics of carrying both passengers and freight on a single aircraft typically supports daily service over our route network connecting the most northern communities to our north-south jet service.

Over the years, First Air and our shareholder, Makivik Corporation, have reinvested in excess of $120 million in support of this northern air transportation network. That being said, the food mail program is undergoing material changes. With April 1, 2011, rapidly approaching, we are concerned that the users of the program may not have sufficient time to adjust their supply chain to the new reality. Changes to our customers' supply chain and transportation logistics will potentially drive the need for air carriers to amend their product offerings and reinvest in additional infrastructure elsewhere.

Thank you very much for your time.

[The Chair, Conservative, Bruce Stanton]

Thank you, Mr. Bateman.

Now we'll go to Mr. Eric Pearson, who is the owner of Newviq'vi Inc.

Did I pronounce that right, Mr. Pearson? Perhaps you can pronounce it for me, and then we'll make sure we get it right.

[Eric Pearson, Owner, Newviq'vi Inc.]

You've got it: Newviq'vi.

[The Chair, Conservative, Bruce Stanton]

Thank you very much.

[Eric Pearson, Owner, Newviq'vi Inc.]

Please go ahead with your five minutes.

[Eric Pearson]

Mr. Chairman, members of the committee, thank you very much.

The word that Mr. Stanton mentioned, “Newviq'vi”, is kind of an anglicized version of the Inuit word niuvivik, which is the word for store.

We've been around since 1989, and the food mail system has been pretty much the raison d'être of the company. We've used it ever since we started in 1989.

Newviq'vi itself is an independent. We're not affiliated with co-ops. We're not affiliated with North West. We're very much on our own, and we're probably one of the largest individual users of the food mail program in northern Quebec.

The other presenters have very well summarized the old program. It was not perfect. I think we'll all admit that. There were many issues that came up, such as the entry points and the delivery schedules. But I'm focusing on what started on October 3.

On October 3, some products on that program were not eligible anymore. I'm very much concerned about what that will do to our northern population. Purchasing power will drop. We've already seen, over the last three weeks, that price increases have already started. I'm concerned that as this goes down to April 1, it will progressively get worse.

In one location, in Kuujjuaq, we are talking about a potential increase in prices of half a million dollars for the consumer. That's one location, one village. I'm unfortunately a little bit shattered that the program, that used to be called a food guarantee program and a food safety program, is now no more than making sure that the product gets there, and the customers will pay whatever they have to pay.

It was also mentioned in the press release on May 21 that retailers will be able to go out and get their own transport, which, with the system in the north, is not really feasible. We don't have a lot of airline companies, so we will be at the short end of the stick. It also mentioned dealing with sealift cargo for products that will not be included in the food mail program anymore. The May 21 announcement was 21 days before our first deadline for sealift. It was not feasible to think that we could research inventory for stock and go ahead and look for warehousing.

Remember, we are one stop. We're not part of 100 stores. We're not part of 30 stores. I think the announcement may have been timely, but the timeframe for the start of this was very poor. I would have expected eight months to nine months of lead time that would have given the independent stores much more time to plan.

If there is a family business in the north, as mentioned previously, it'll kill them, because they won't have the capacity to bring product in by ship. They won't have the capacity to fight against everybody else who has a better rate.

I'd like to end on one topic. For your information, INAC has issued, over the last 15 or 20 years, a food basket cost. I've done this over the last three weeks. The food basket cost has increased by 34%. This is before April 1.

We've talked around the table, and we don't know on April 1 what will happen. We've talked about two classes of subsidies--a better one for produce, a better one for less than perishable--and we don't know what they are. I'd be really surprised if the powers that be know what they are, otherwise it would have been communicated to us.

I'm extremely skeptical about the way the program will materialize from here on in. Unfortunately, I think the people in the north, whether they be Métis, Cree, Inuit, or non-native, will have a hard time covering their food costs.

Thank you.

[The Chair, Conservative, Bruce Stanton]

Thank you, Mr. Pearson.

Next, it's a great pleasure to welcome Mike McMullen, the executive vice-president for northern Canada retail division. I assume that is for the North West Company. My notes may not be clear here.

[Michael McMullen, Executive Vice-President, Northern Canada Retail Division, North West Company]

Yes.

[The Chair, Conservative, Bruce Stanton]

It's good to have you here, Mike.

I've got to tell you that Mike and I graduated from the same high school in Orillia, Ontario. We have a few years on us since those days, but it's great to have you here, Mike.

Go ahead.

[Michael McMullen]

Thank you, Mr. Chairman.

Mr. Chairman and committee members, first and foremost, thank you for the opportunity to appear and make a brief presentation.

Thank you, Mr. Harper, for the kind comments.

The reactions and observations that the North West Company has in regard to the Nutrition North Canada program are simple. We'd strive to make it work for the end consumer and those communities. To that end, I will address the potential elements and improvements that can be achieved with Nutrition North Canada.

Mr. Morrison and I spend a great amount of personal time talking with INAC, providing input on areas that we think can be improved, as Andy so well elaborated on. Nutrition North Canada and the changes initiated in this program address the major concerns that existed in the food mail model. The food mail model was hindered by a lack of transparency and a lack of clear accountability.

There was little transparency as to how the food mail system worked, and at the moment of truth, when the customer bought the subsidized product, there was no clear indication of the subsidy--this despite the fact that Canada Post executed the food mail program as it was intended and structured.

The Nutrition North Canada model will deliver five basic improvements compared to the existing food mail system.

The first is supply chain streamlining. The Nutrition North Canada model supports a supply chain for eligible food items that is efficient and more cost effective. The streamlined distribution mechanics should ensure a high degree of food security on nutritional items. No matter what the size of the retailer or the spread of their different business ventures, the objective is always to bring goods to consumers in the most effective manner by reducing costs. It's the goal of big retailers, medium-sized retailers, and small retailers. A fundamental goal of the program in streamlining is getting the right nutritious products to the right communities in a timely and efficient manner.

The second is consumer transparency--transparency at the moment of truth. The combined programs of INAC and the retailers will ensure communication on a subsidy level is provided on an overall general level and potentially on a very specific product level. The communication process can visibly demonstrate and substantiate the subsidy passed through to the end consumer, as intended, and as has largely been accomplished historically.

The third improvement is subsidy transparency. Transparency of the freight subsidy will be more visible in the distribution chain. Working with INAC, the retail and wholesale community can develop clear transparency on the application of the subsidy to eligible product for both claiming the subsidy and auditing the program.

The fourth is health focus. 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.

The fifth is competition and growth. The Nutrition North Canada model is a competitive model, but by working directly with all wholesalers and retailers in the north, the economic infrastructure is not compromised and will continue to remain whole and hopefully grow.

What do I mean by not compromised? There are sizes of the dogs in the fight currently: those sizes do not change with a model. It is all relative. The subsidies are available equally to everyone. There is no exclusion for any companies nor for private owners, nor for southern-based retailers and wholesalers competing.

I'll take a few more minutes to add a few points to each of the major improvements.

First is supply chain streamlining. We gain efficiency and cost effectiveness by the elimination of mail slots, middlemen, and staging points. All retail systems strive to eliminate touch points, product touches movements, and staging points. The operational goal is to find the lowest-cost supply chain model for all products and essentially perishables with the related goal of maximum protection of product quality and integrity. To paraphrase Mr. Morrison, we hope that with these changes we can move the goods faster, quicker, and with higher product integrity.

Next is consumer transparency. Working directly with INAC, I believe the wholesalers and the retailers operating in the north, in established communication programs--we already have some samples here, if any committee members are interested--where we can show on 20 to 40 products the difference with the subsidized rate versus the non-subsidized rate. We can show on specific products.

As a matter fact, we could action ten products biweekly or monthly that show the specific savings for subsidized rates in the Nutrition North Canada model versus the rates that the customer would pay without that subsidy in place. I think there are many communication advantages available and consumer transparency will go up. Again, we have some samples, if anyone is interested.

I'll make a few other comments on subsidy transparency. INAC gains the ability through working directly with retailers and wholesalers in the north to see what eligible product was ordered and shipped to each eligible community by air freight. The transparency would be through the whole supply chain, from store-based ordering to the end consumer. The goal here is transparent integrity, a clear process that only eligible product to eligible communities is being subsidized and be can be audited accordingly.

I have a few more points on health focus.

[The Chair, Conservative, Bruce Stanton]

Actually, Mr. McMullen, we're a little over time. Perhaps you can sum up a couple of the points and whatever's left, you will, hopefully, have the opportunity to get out in the course of questions.

[Michael McMullen]

Okay.

I think all retailers in the north have that physical presence that allows a platform to promote and support healthy eating. To that end, the involvement of Health Canada is a major boost to the program. We have taken the initiative to develop Healthy Eating: Paint Your Plate with Colour, a healthy eating guideline that we've already launched, that follows the guidelines of Health Canada.

We think that's the type of action and innovation that is required, in cooperation with INAC and other retailers, to advance the goals of more nutritional product being available in the north.

Thank you.

[The Chair, Conservative, Bruce Stanton]

Thank you, Mr. McMullen.

My compliments to each of the witnesses, by the way, for the pace you've used and for your presentations.

We're going now to questions from members. The first round is seven minutes, and that's seven minutes for the question and the answer.

I would caution members that we do have five witnesses here today, so if you're planning to put a question on the floor that you would like each of them to respond to, I would ask you to keep the front end of your time slot fairly brief and allow the witnesses sufficient time to do that. Don't take the first 70% and then leave it.

Again, we certainly are here to listen to you today, so I put that out to you. Of course, it's your time to do with what you will.

We'll start our first round of questions, and we'll begin with Mr. Bagnell, for seven minutes.

[Larry Bagnell, Liberal, Yukon, YT]

Thank you.

In my quick summary of what I heard--in general, not totally--there is some possible improvements, but they could have been done under the existing program and not caused the number of problems that are in the new program. I want to clarify some of them that I don't understand.

Mr. Harper, you said that in the existing program you can't get the supplies from anywhere. Could you explain to me how it works?

[Kenn Harper]

I can speak only for Iqaluit, but what I'm saying applies to all communities in the Baffin region. In theory, I guess, you can get supplies from anywhere as long as you have a supplier that will truck them to Val d'Or, because the only entry point is Val d'Or for the Baffin region.

[Larry Bagnell, Liberal, Yukon, YT]

Is there anything stopping the government in the existing program from changing the entry points?

[Kenn Harper]

To my knowledge, no. There has been lobbying over a number of years, from a number of parties in the past, not only me. I mean, in the 1980s and the 1990s, I used to lobby to try to get the entry point changed to Montreal or Ottawa. I ended up just giving up, because there was never any positive response and nobody wanted to listen to this suggestion. But to my knowledge, there's no reason why it could not have happened.

[Larry Bagnell, Liberal, Yukon, YT]

The only other possible improvement I saw was the transparency, which was a problem in the old program. I can't see exactly how the new program's going to be any better in fixing that. It could be fixed in either program.

But I have another question, and that's about the claims for bad service.

I don't know, Andy, if you said that, but when you ship something through Canada Post now and the bananas are all rotten when they get there, you're not allowed to claim against Canada Post. Is that so?