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

[Andy Morrison]

Products that were non-perishable that we could ship under what we call food mail B and C, yes, were eliminated.

We had the same notification as everyone else on May 21, when the formal announcement was made. We began to work immediately on adjusting resupply orders to bring in more product. We were very concerned about the timing. It was a very short period of time. Sealifts have just completed delivery as we speak.

We believe that we met all our requirements, but we will not know for a number of months, depending on how sales go and what inventory levels are.

[Michael McMullen]

For example, because we had adequate notice, we shipped more bottled water on sealift to keep the price down. In addition, because bottled water will become contentious in some communities, because there will be higher prices when we run out of the sealift supply, we invested in more Dyna-Pro machines, which are water filtration devices. So I think all retailers will try to mitigate the up-costs on this.

INAC and Health Canada deemed that pumpkins were not being consumed, and their prices rose dramatically on October 3, because they are a perishable good and you can only ship them in season. So that was passed on.

Like most of the retailers, we would have shipped a product like bacon, with good dates, so that it arrived prior to October 3 so we could extend the lower cost as long as possible and soften the blow for our customers.

[Earl Dreeshen, Conservative, Red Deer, AB]

Pumpkins, because of the non-nutritional value, I would assume, would be part of what you would be looking at there.

[Michael McMullen]

I think it's not only the non-nutritional value. I can't comment on the nutritional value of pumpkins. Through their research, INAC and Health Canada deemed that they weren't a product that was largely a consumable. Again, it would be more beneficial to put the subsidies behind leaf products, and produce such as berries, and so on.

[Earl Dreeshen, Conservative, Red Deer, AB]

I was also interested, Mr. Morrison, in your original discussion when you spoke about deposit days and entry points and the claims process. Then later on, people were talking about the concerns they had with Canada Post and the inspection process. All of these things seem to be delays in the system.

The first thing that went through my mind is that if you can't hold somebody accountable for the way the produce comes into your stores, then what's the real point of the inspection you had in the first place, which just slows the thing down? I was wondering if you could comment on some of the issues you saw as difficulties as far as the deposit days, the entry points, and the claims circuit, sir.

[Andy Morrison]

Our focus in our supply chain, particularly for perishable products, is time and temperature. The more time it takes a product to leave a distribution centre and be displayed on a retail shelf, the less time the consumer has for that product and the shorter the life of that product. In the existing program, because the shelf life of the product we purchased was greatly reduced because of increased time, we had more spoilage. More spoilage drives the price of the product up.

Eliminating even one day in the distribution cycle is one day more we can put the product on the shelf and one day more a consumer can have lettuce in the fridge before it goes bad. We think that's going to add value for the consumer. It's going to reduce losses at the retail level, and ultimately, we believe, it will increase consumption of healthy, nutritious foods.

[Earl Dreeshen, Conservative, Red Deer, AB]

I suppose there's also the cost of shipping spoiled product, as well, the waste that one has. There's always a certain amount of product loss you're going to have, which certainly makes that more difficult as well.

[The Chair, Conservative, Bruce Stanton]

Thank you very much, Mr. Dreeshen.

Mr. Lévesque, you have five more minutes.

After that , well' go to Ms. Glover.

[Yvon Lévesque, Bloc, Abitibi—Baie-James—Nunavik—Eeyou, QC]

Thank you, Mr. Chairman.

I have another question for Mr. Bateman and Mr. Thompson.

Presently, you have entry points. Your rates are based on transportation from those entry points. I do not know if prices vary from one territory to another, but everything starts from these entry points.

There are no longer any entry points in the new program, Nutrition North Canada. If a retailer decides that tomorrow morning, instead of leaving from Val d’Or—or LG2, but I do not think that you serve that area—you will start from Ottawa, will your pricing take into account the cost difference arising from a departure from Ottawa compared with one from Val d’Or?

What would be the price difference, per kilogram for instance? Give me an idea.

[Scott Bateman]

There would definitely be a difference in staging the food mail from Ottawa or Montreal as opposed to Val d'Or. I mean, we're flying large aircraft out of Ottawa, and flying it into Val d'Or 45 minutes later. The cost of that cycle is significant with landing fees, cycle costs, engine costs, and everything else.

There is a savings to be had by staging...where the aircraft is staged, and the aircraft is staged in Ottawa or Montreal; there would be a savings versus Val d'Or. You eliminate all the costs of that stop, basically, as well as all the trucking costs from the originator up to that point. There would be a saving.

[Yvon Lévesque, Bloc, Abitibi—Baie-James—Nunavik—Eeyou, QC]

You would have to add costs taking into account the distance.

Let us say that you start from Ottawa and go directly to Kuujjuaq, for instance, rather than from Val d’Or to Kuujjuaq.

[Scott Bateman]

The difference in the stage length to Kuujjuaq from Ottawa or Val d'Or is minuscule. The costs that are driven by Val d'Or are the cycle costs, the engine costs of landing, flying big equipment over a 45-minute stage length. Those aircraft are based on a minimum of three hours per cycle, per flight, so your costs go up exponentially. Plus, there are landing costs. To stop the airplane in Val d'Or costs thousands of dollars every day--more than $1,000, more than $5,000.

[Yvon Lévesque, Bloc, Abitibi—Baie-James—Nunavik—Eeyou, QC]

You offer your freight rates for the whole northern region. You base your rates on volume. Volume is an important factor in the management of your cost structure.

If your volume diminishes, can you use the same aircraft at the same price that you are asking now?

[Scott Bateman]

That's an excellent point.

Obviously our pricing is based on the volume and the aircraft type to move that volume most effectively. Under the current program we're using an extremely large aircraft, moving 100,000 pounds per flight, at roughly the same fuel cost that it used to be to move 50,000 pounds per flight.

So yes, volume drives your choice of aircraft, for sure. With less volume we would definitely go to a smaller aircraft.

[Yvon Lévesque, Bloc, Abitibi—Baie-James—Nunavik—Eeyou, QC]

Do you believe, as was mentioned a little earlier, that the Nutrition North Canada program would have greater visibility compared with the existing food mail program?

[Scott Bateman]

My comment is that in looking for visibility, the department can attain that under both programs equally. Signage, point of sale, and marketing materials should be available under either proposal. So the visibility is there.

[Yvon Lévesque, Bloc, Abitibi—Baie-James—Nunavik—Eeyou, QC]

Mr. Harper, you said that there would be additional costs.

In the North or in the South, the costs related to the operation of a business are integrated in the price of the product. You have a product cost and then you deduct the subsidy from that cost.

[The Chair, Conservative, Bruce Stanton]

Only a short answer, please.

[Kenn Harper]

We'll have the same product costs, or at least similar costs. We don't know what our air freight costs will be because we don't know what the subsidy will be. We will have more administration because we will have to do our end of initiating the claims process once a month.

[The Chair, Conservative, Bruce Stanton]

Thank you.

Ms. Glover, you have five minutes.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you, Mr. Chair.

I would like to welcome all our witnesses.

Welcome to the committee.

I need to just correct a couple of things to make sure that we don't mislead anyone and everyone understands the program, so please bear with me while I do that.

First and foremost, Nutrition North Canada came about as a result of not only the Dargo report, but a number of reports, a number of complaints of abuse as Mr. Harper pointed out, Ski-Doo parts being shipped, tires being shipped, those kinds of things. Following all of that there was an engagement process.

Mr. Harper, I note here that INAC officials met with your manager, John Bens, and co-manager Wayne Miley, on May 22, 2009, and that, again, Mr. Harper, you were invited by INAC to come here to Ottawa. Then, on October 14, 2009, INAC officials actually flew you here to Ottawa so you could take part in a workshop and talk about risk assessment. Then on January 19, 2010, Mr. Harper, you were invited again by the assistant deputy minister of INAC to provide some advice on this.

So I just want to remind you that when you were engaged by all of the entities, it's because we're trying to do the right thing. We're trying to get the best possible solution. So just the simple fact that Mr. Dargo didn't talk to you doesn't mean you weren't consulted.

I do want to remind Mr. Pearson that he was engaged as well on June 17, 2009, and at that point there was discussion already about why we were looking at this. The simple fact is that air transport costs far more than sea transport or winter road transport. That is the crux of our problem here

Not only that, but when we're providing taxpayer funds to subsidize transportation and we see abuse like Ski-Doo parts, like tires, like non-perishable items that are not nutritious value for people in the north who are suffering from health problems, it is the responsibility of this government to act. That's what we're trying to do, to act in a responsible manner so that we get this right for those people in the north who have suffered.

We touched on perishable versus non-perishable. The goal here is to take a perishable good, such as a banana from South America, from point A and bring it directly to northerners. Skip those entry points. Skip bringing it from South America to Winnipeg, where Winnipeg now trucks it to whatever entry point and then it has to again fly, because it's days long, as Mr. Morrison said.

We need to find a way to get these perishable, nutritious foods to northerners and we need to bring the non-perishables by sea or by ice roads. That is the goal of this program.

So now to my question, Mr. Morrison. How do you bring non-perishable and non-food items to northerners? Do you do it by air or do you do it by sea or by ice roads?

[Andy Morrison]

We use all methods. Sealift and winter road are major methods of transport for us. But we also transport by air. 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 the greatest-dating best-before dates on product. Only then do we start flying in dated product.

[Shelly Glover, Conservative, Saint Boniface, MB]

If you had to bring by air all of those non-perishables that you were sending by sea or ice roads, you would have to jack the price for your consumers, wouldn't you?

Second, when you send by sea and by ice roads, you are then able to give a better deal, a better price to your consumers. Am I right on that?

[Andy Morrison]

Strictly, transportation cost for air is higher, and the transportation costs for sea and winter road are lower. The difference in the equation--by sea or by air--is the financing of the inventory, insurance, facilities, product handling.

Overall, it is lower by sea, but when you include all of the other costs, such as utilities--electricity is phenomenally high in the north--it is lower, but the gap closes tremendously.

[Shelly Glover, Conservative, Saint Boniface, MB]

Am I done already? I was having so much fun.