Indigenous and Northern Affairs Committee on Nov. 22nd, 2010

[The Chair, Conservative, Bruce Stanton]

Welcome to the committee members, our witnesses and our guests. This is the 36 ^th meeting of the Standing Committee on Aboriginal Affairs and Northern Development.

Pursuant to Standing Order 108(2), we are continuing our study on Nutrition North Canada.

We welcome four witnesses here this afternoon.

I would also say, members, that this is the last meeting at which we'll be hearing testimony on the study subject. We'll go through each of our four presentations today.

I'm sure that some of you have done this before or have at least been in the audience. For those of you who have not done this before, customarily we go through the presentations for each of the four, and then we open it up to questions and responses from witnesses.

The members will have a number of questions, I'm sure. That's the most interesting part of our committee hearing. I shouldn't say that, because of course, your presentations are absolutely interesting, and we'll be welcoming them here this afternoon. As I've said, this will wrap up our testimony. After this, we'll be going into consideration of a draft report.

I think we'll go in the same order you see listed on the agenda here today.

With that, we welcome Mr. Ben Ryan, who is here representing the organization Air North, which we have heard about to this point in the testimony.

Please, Mr. Ryan, go ahead with your presentation. You have about five minutes. There are four of you here today. We'll allow you a little bit of extra time, but nothing close to 10 minutes because of the number of witnesses here this afternoon.

Go ahead, Mr. Ryan.

[Ben Ryan, Representative, Air North]

I don't think I'll need to exhaust too much time. I'm here on behalf of my father, Joseph Sparling, president of Air North. I came to deliver a report that he wrote. You will receive the report in both languages as soon as it's translated.

Essentially, the report aims to do three things: define the issue as we see it; identify our stance; and provide you with some background information on the Old Crow to Whitehorse market, to which you are currently providing the food mail subsidies.

The issue as we see it is that the Vuntut Gwitchin First Nation of Old Crow would prefer that the subsidy to reside at the transportation level rather than at the level of retail.

The community of Old Crow has a couple of reasons for its concern about having the subsidy at the retail level. First, Old Crow is in very close proximity to a competitive market, Whitehorse, where there are a number of grocery stores, including speciality food stores and organic stores. There are tons of food options with competitive pricing.

Essentially, one of their primary concerns is that the grocery subsidy would limit the variety of competitive choices available in the community of Old Crow. This would occur because presumably not all retailers in Whitehorse would be interested in adopting the subsidy program and administering it, so a system whereby the program was administered at the transportation level would then allow consumers to access any grocer in Whitehorse.

There's a compelling argument for that in terms of cost. In my father's report, it is illustrated that we can get food on the table of customers in Old Crow at a 13% premium over what it costs in Whitehorse, so the pricing is very competitive. We're able to leverage economies of scale in order to drive prices down. The other convenient factor is that we fly to Old Crow five days a week in the peak season. You're actually able to put in an order and receive food within one to two days, at a very competitive price.

Essentially, the two concerns that the VGFN has expressed are that they will have a limited number of options if the subsidy is at the retail level and that prices may suffer.

Our stance on the issue is that essentially we have no problem with the Vuntut Gwitchin proposal that the subsidy reside at the transportation level, but if you look at the report, and particularly at our 2009 income statement information, we actually operated at a slight net loss on the Old Crow segment.

For this reason, we want to make it very clear that this isn't really a profit-generating opportunity for us as much as it is an opportunity for us to back the Vuntut Gwitchin First Nation, which is a huge part of our organization. We've been in business for 30 years with the local communities up north, so it's very important to us, as long as we don't fundamentally disagree with their objectives, that we have their back, and we try to address their concerns as much as possible. Essentially, our stance is that we agree with the Vuntut Gwitchin First Nation, and we are willing to comply with their request.

We also feel that we are well poised to administer the food mail program. I've worked in cargo in Whitehorse for probably seven or eight years, so I'm very familiar with the way the food mail program works. If we started administering the program, not a lot would really change, other than some accounting considerations.

Essentially, we've been the point of contact between the community and the food mail program all along. If you're in Old Crow and you have any questions or concerns regarding food mail, you would be phoning me at the cargo office. You would be dropping off your freight to us at the cargo office. It is for these reasons that we have a very thorough understanding of, first, the food mail system as it currently exists, and second, the customers who are the people in the community of Old Crow. I think that's one of the compelling advantages that would enable us to be very effective in administering the program.

One point that I'd like to make is that we deal with the customer on both ends, on the shipping end and on the receiving end of freight, so the feedback channel to the people overseeing the program would be very strong in the event of us administering it.

The other issue I want to point out is one of oversight. Having the program run through one point, that being Air North, we feel it may be easier to oversee from an administrative perspective.

The rest of the report is simply designed to give you background information on why we feel that our cost structure is competitive and why we feel that we can continue to deliver competitive prices to the community of Old Crow. Essentially, prices would not take a hike with us administering the program.

That's the gist of our report. My contribution will probably be more during the question and answer period.

[The Chair, Conservative, Bruce Stanton]

Thank you very much, Mr. Ryan.

As Mr. Ryan indicated, he does have a more thorough report here. It is in only one language, so we will undertake to get the transcription done, and la traduction complete, we'll get that out to you in the days ahead.

We'll now invite Mr. James Ballingall to present. Mr. Ballingall is here representing Cargojet Canada Limited and is the vice-president for business development, air cargo division.

Go ahead, Mr. Ballingall.

[James Ballingall, Vice-President, Business Development, Air Cargo Transportation, Cargojet Canada Ltd.]

Thank you, Mr. Chair, members of the committee, and other guests here today. We sincerely appreciate the opportunity to present our views and to provide feedback on the new Nutrition North Canada program, specifically as it relates to the cost of air cargo transportation.

Allow me first to provide a brief background and description of Cargojet in order to put into context our ability to provide commentary and opinion on this issue.

Cargojet is a Canadian-based public company. We trade on the TSX and our executive and senior management team have over 500 years of combined air cargo transportation experience. We are Canada's cargo airline. We have been recognized with numerous industry awards, including the award as one of Canada's 50 best-managed companies. We are the only Canadian cargo airline that is a full member of IATA , and recently we achieved our ISO 9001 quality accreditation for the ninth consecutive year.

We provide air cargo services across Canada and are the only air cargo carrier that operates a scheduled Canada-wide overnight air cargo network providing air cargo services to multiple customers. Typically, other cargo carriers operate aircraft in networks on behalf of a single air cargo customer.

We operate our air cargo network using a modern fleet of B727, B757, and B767 freighter aircraft on behalf of major couriers, freight forwarders, and various manufacturers. We carry over 750,000 pounds of time-sensitive and time-definitive air cargo every business night, including perishable foodstuff and temperature-controlled pharmaceuticals among a vast range of products. We do this with a high level of reliability, operating at over 98% on-time performance and virtually claim-free in respect to loss or damage.

We are experts in air cargo transportation, which will continue to be a vital element and the single largest cost component of the new Nutrition North Canada program. Cargojet supports the elimination of the outdated and costly single entry point concept that forms part of the current food mail program. It will improve efficiency by eliminating the middleman, reducing the delivery time from the producer to the shelf, and ultimately lowering the overall cost to the consumer in the north.

It is recognized that the majority of nutritious food products that make up the new program are grown, sourced, or purchased in the southern parts of Canada. Flying them directly to the north whenever possible will significantly lower transportation costs.

Many southern-based air cargo carriers, including Cargojet, have the aircraft capacity and availability to provide air cargo services between southern Canadian points and the major northern destinations of Iqaluit and Rankin Inlet. Two or more northern air carriers provide sufficient competition and, presumably, competitive pricing, as these carriers serve approximately 98% of these smaller communities.

Utilizing aircraft assets that have the fixed cost of ownership paid for by their overnight air cargo business to provide air cargo transportation during the day from southern points to the north will provide significant cost savings to the Nutrition North Canada program. Removing the fixed cost component of any air cargo carrier reduces the transportation cost by approximately 25% to 30%. This is a significant cost saving when the average air cargo cost is approximately $4 to $5 per kilo.

These cost savings can be passed on directly to the consumer by northern retailers and will help government to reduce the overall cost to the Nutrition North Canada program. It will also help to provide lower costs of transport for other non-subsidized--yet still needed--products for northerners.

In summary, Mr. Chair, we believe this can help to ultimately provide three fundamental benefits to the Nutrition North Canada program.

Number one is to provide the lowest air cargo transportation cost to all retailers. This model presents new elements of competition and growth that enable the program to be a more competitive model by allowing retailers and suppliers to access the lowest cost of air transportation.

Number two is to improve reliability and provide fresher products for northerners. We applaud INAC's fundamental goal of supply chain streamlining and improving the availability of more nutritious and fresher foods for northerners. Sourcing products from various southern points and matching the right aircraft type to the demand will lower costs and enhance delivery time and freshness for northern consumers.

Number three is to ultimately reduce the subsidy levels required and/or provide the resources for additional required products at cheaper costs. By opening up the transportation component of the Nutrition North Canada program to more competition, there is a tremendous opportunity to significantly reduce the cost of food and other essentials for northerners.

In conclusion, Cargojet believes that the 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.

The people of the north will win with lower costs, improved availability, and better quality food products, and the government and the taxpayers of Canada will win with potential lower cost levels in the future.

Thank you for the opportunity to speak to you today. I look forward to your questions.

[The Chair, Conservative, Bruce Stanton]

Thank you very much, Mr. Ballingall.

We'll now invite our guests from the Fond du Lac Denesuline First Nation to present. We have with us Chief Napoleon Mercredi. With Chief Mercredi is Mr. Darryl McDonald, who is the CEO for the first nation.

I understand, Chief, that you are going to lead off this afternoon. Please go ahead with your presentation.

[Chief Napoleon Mercredi, Chief, Fond du Lac Denesuline First Nation]

Good afternoon. I am Chief Napoleon Mercredi from Fond du Lac First Nation and I have with me the corporate executive officer, the CEO, of Fond du Lac First Nation.

I would like to thank the chair and committee members and the minister and the staff for giving us an opportunity here to speak about our community and the Nutrition North Canada program.

I will pass the mike on to Darryl McDonald, who will speak to the topic.

Thank you.

[Darryl McDonald, Chief Executive Officer, Fond du Lac Denesuline First Nation]

Good afternoon.

This is just a brief overview of our presentation. We'll eventually forward a completed document.

To begin with the background, on behalf of the Fond du Lac First Nation, I will just briefly describe our community and the history of the people. Fond du Lac is situated on the north shore of Fond du Lac on Lake Athabasca. It's south of the 60th parallel. It is one of the few fly-in communities left in northern Saskatchewan.

During the winter, we have winter road access to a seasonal road. It may take about 13 hours, on average, of driving to the nearest centres, such as Prince Albert, Saskatchewan. We fall under the riding of Mr. Rob Clarke, Desnethé—Missinippi—Churchill River.

I'll provide some other background information. We have put this briefing in previously as well, in 2009, regarding a 1989 policy for the Saskatchewan region under Indian and Northern Affairs Canada. During the aggregation of tribal councils that were continuing to build capacity, Indian and Northern Affairs introduced at that time a northern composite factor, which is a policy that determined funding transfers. Fond du Lac was affected.

Initially there was a road being built through La Loche, where there was a paved highway, and then seasonal road access on the south shore to Fond du Lac and eventually to a narrow or shorter distance just across the lake. Eventually that was switched around, and now it's situated on the eastern side of the province through Points North and Black Lake First Nation.

Since that time, we've submitted requests to have this factor reversed, but it's somehow set in stone, where our funding as an isolated community is somehow not factored in. We may have top-ups with regard to transportation if, say, there are projects or other factors that come into our communities.

That's just the background or some of the information I've provided in the report.

The original road was redirected on the north shore from La Ronge to Black Lake First Nation and the policy remained intact. To this day, we are considered a non-isolated community. This is very important to note, because under the new program we fall under the nominal subsidy under Nutrition North Canada, whereas we are comparable to communities like Gods Lake First Nation and Lac Brochet, Manitoba, which qualify for the full subsidy. So in essence, we are urging the committee to review this and to reconsider our position that we be considered for the full subsidy.

There is other research out there that I will put into the final report. Under the Aboriginal Research and Environmental Consulting group out of Winnipeg, we had various remote communities across Canada, and Gods Lake and Fond du Lac were comparable in the sense that we had similar needs and wants, visions and goals, and missions of our youth and communities. We went through these types of exercises, which I will also provide.

Concerning the subsidy programs, many of our community members may be challenged to access such programs because of socio-economic factors. In other presentations I've read, the same has been reiterated: it was harder for low-income families to have access to other programs that were run through Canada Post and so forth. I don't want to go into detail. You have had other presenters who have gone through this whole process of presenting.

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. They only provide, as the other presenters have said, pop, candy, snowmobiles, and other non-essential foods. We don't get access to the nutritious foods that other Canadians enjoy in the southern communities.

During the summer, we also take advantage of water transportation. There is a local company that provides services to the isolated communities on Lake Athabasca. This lessens some of the costs for fuel, petroleum, building materials, and things that come into the community that may not be provided during the summer seasonal road access.

The other topic I want to bring up is health and how it impacts our communities. We recently established the Athabasca Health Authority, which is a regional agreement whereby first nations, the municipality of Stony Rapids, and Indian and Northern Affairs, through Health Canada and other partners, have provided service in the northern region of Lake Athabasca.

This provides services to the surrounding areas, such as Uranium City, Camsell, Fond du Lac, Black Lake, and Stony Rapids. The other community that's nearby, Hatchet Lake First Nation, is serviced under the La Ronge health region.

[The Chair, Conservative, Bruce Stanton]

Perhaps you could just wrap up there now. If you could, Mr. McDonald, I'd appreciate it.

[Darryl McDonald]

All right.

The community of Fond du Lac has other programs through the national child benefit program, which does allocations for cultural enrichment and child nutrition. This also is a factor when high costs of transportation hinder the full delivery of that program, whereas through this renewal of the Nutrition North program, factors like this and security of food, such as caribou, which is a main staple of food for our region.... There could be other factors whereby community freezers or community infrastructure to provide year-long access to caribou would be a good strategy for the program if an incentive were provided.

Thank you for allowing us to present to you a brief overview on Nutrition North Canada and the community of Fond du Lac First Nation.

[The Chair, Conservative, Bruce Stanton]

Thank you, Chief; thank you, Mr. McDonald. Meegwetch.

Now we welcome Mr. Richard Brouillard, Director General and President of Airport of Val-d'Or and Regional Committee of the Food Mail Program. He is accompanied by Mr. Jasmin Frappier, Director General of Valpiro Inc.

Mr. Brouillard, you can begin.

[Richard Brouillard, Director General and President of Airport of Val-d'Or and Regional Committee of the Food Mail Program, Valpiro Inc.]

Mr. Chair, ladies and gentlemen of the committee, thank you for this opportunity to offer our point of view.

As you just mentioned, Mr. Chair, I represent a committee of stakeholders including wholesalers, carriers, and freight handlers, as well as our region's airport. I am accompanied by Mr. Frappier, who is the director general of Valpiro, a company that has specialized in preparing cargo for shipment to areas of the north for more than 30 years. The company is wholly owned by the James Bay Cree.

Almost three-quarters of the total Canadian volume in the Food Mail program is checked through Val-d'Or, where the closest 10,000 ft. runway to Nunavut is located. Val-d'Or's strategic location also allows trucking between Val-d'Or and the end of the road at La Grande Rivière airport. The trip can be done in one stretch, with all regulations followed.

We are convinced that abandoning Val-d'Or as an entry point and discontinuing delivery schedules threaten not only the fair treatment of retailers but also the success of the intended model.

First, a word about entry points. Currently, the system has 19 entry points. Eighteen of those points handle 25% of all cargo sent under the Food Mail Program. Val-d'Or receives and ships 75% of the entire program. We feel that this is a logical result of our geography.

The situation in the west of Canada is not the same as in the east, but the same, one-size-fits-all solution is being attempted. Arguing that entry points should be closer to the large centres to the south will simply cause costs to rise more. It is well known and clearly documented that transporting goods by road is 5 to 10 times cheaper than by air.

The air carrier that has been awarded the exclusive contract to transport goods has no aircraft based in Val-d'Or, though it does in Yellowknife and in La Grande Rivière. So that company's shuttling expenses should not be considered in the argument on costs.

We believe that the operational model that we have developed at Val-d'Or's small airport could probably not be reproduced in large centres for several reasons. First, we load the cargo onto the plane directly from the refrigerated warehouse. Preparations for loading take place in the refrigerated facility itself. Deliveries from suppliers are not subject to delays caused by heavy road or air traffic either. Our infrastructure and our practices at Val-d'Or allow the cold and freshness chain to remain intact, a chain that is often broken at the destination.

The other point that we want to raise is the issue of delivery schedules. By abandoning the current program, the advantage of a reasonable balance of delivery time and transportation costs is lost, especially for villages that come after the primary destinations. That balance is seen in freshness and in costs, but it is also seen in the frequency of flights for passengers. So small retailers and consumers are treated fairly.

The laws of the market lead us to believe that retailers with the greatest volume will get the first choice of delivery days. Costs are not the only issue. In our view, a one-size-fits-all solution to the various problems of this program in different parts of the country is not likely to achieve the objectives of the program.

For regions served from Val-d'Or, the core of this program, which has evolved over several decades, remains a fair and effective way of serving consumers through healthy competition, between carriers specifically.

We stand by the approach that we suggested as a solution to replace the current program. That is the establishment of a body whose mission would be to manage the program and to accredit the various suppliers by making them accountable by contract.

We believe that the department's objectives can be integrated into the structure of the current program, and we suggest that the operational advantages of the current program be considered before any replacement solutions whose effectiveness is only theoretical.

Thank you, Mr. Chair.

[The Chair, Conservative, Bruce Stanton]

Thank you, Mr. Brouillard. Thank you also to all the witnesses.

We now move to the first round of members' questions; it will last seven minutes. We will start with Ms. Neville.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

Thank you, Mr. Chair.

Thanks to all of you for being here today. Your perspective is for the most part a different one and we thank you.

We know that Nutrition North as it's being proposed will be managed solely by the retailers and suppliers, very much at their convenience and with their decisions. We've heard some of your concerns on the potential impact.

To what extent do you think this change will enable an organization to offer lower shipping rates to retailers? One of the concerns I've heard around the table and privately is that we have to ensure that retailers don't keep to themselves whatever savings they achieve instead of passing them on to the consumers so that they will achieve higher profit margins.

I wonder if the airlines would like to comment on that.

[James Ballingall]

My understanding is that INAC is putting checks and balances in place and will have an audit system to ensure that the subsidy gets through to the consumer.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

How will the changes impact transportation organizations?

[James Ballingall]

You let the free-market forces prevail. Cargojet operates a fleet of 727s, 767s, and 757s. Our business model is that we're a co-loader. We operate every business night for a number of major courier companies across Canada.

Our business model works very well in the south. Our objective is to just point that north to Iqaluit. We can do that at half the cost of any other major carrier in Canada in moving all that product into Iqaluit and/or Rankin Inlet. We have a fleet of aircraft based right across Canada and those airplanes sit all day. We only operate them at night. So if you can take an asset that's already been paid for 100% and turn it north, the opportunity to save a lot of money is there.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

Would anybody else like to comment?

[Jasmin Frappier, Director General, Valpiro Inc.]

I will reply in French.

You are asking if consumers are going to get the subsidy. I have to say that I seriously doubt it. I believe that it will allow the largest retailers to negotiate better rates with the air carriers. Above all, they could obtain exclusive delivery days for shipping their goods.

Smaller retailers will get lower quality goods. Their shipments will come at the beginning of the week and the food will not be as fresh as it will be for the larger retailers. Eventually, the smaller retailers will go out of business because their transportation costs will be higher than those the larger retailers pay…for food that is not as fresh.

In the medium and long term, I think that the larger retailers will increase prices for consumers. As a result, the larger retailers, not the consumers, will be the ones who will reap the rewards. That is my prediction, madam.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

You're operating under the assumption that the small retailers will fall by the wayside. Is that what I'm hearing you say?

[Jasmin Frappier]

Yes, Madam, because they will have.... Parce que--

[Anita Neville, Liberal, Winnipeg South Centre, MB]

Go into French.

[Jasmin Frappier]

It will not be possible for them to negotiate with air carriers and they will not have the same clout as the large retailers. In my opinion, the large retailers will get the best days. I have been in this business for 17 years and I can tell you that delivery days are really important in getting quality products in the north. If smaller retailers have delivery days that only allow them to put week-old or ten-day-old produce on their shelves, their lettuce and bananas will not be of the quality that larger retailers will have. As their transportation costs will be higher, you can see how people will go to the larger retailers to shop, and the smaller ones will die off. When only the large retailers are left, they will be able to do what they like with the prices. Unfortunately, northerners will be the ones to suffer. That is how I see things.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

What you're really saying is that there will be a consolidation of large retailers providing food to the north.

[Jasmin Frappier]

Yes, and they will play with the price the way they want.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

Thank you.