Public Accounts Committee on March 23rd, 2015

[The Chair, NDP, David Christopherson]

I now call meeting 51 of the Standing Committee on Public Accounts to order.

Colleagues, there are just a couple of small matters before we move to the orders of the day. One is just a little housekeeping to welcome Mr. Bevington, the member for Northwest Territories, who's joining our committee today, and also Ms. Perkins, the member for Whitby—Oshawa, who is one of our newer members of the House.

Welcome. I hope you enjoy your time here.

[Pat Perkins, Conservative, Whitby—Oshawa, ON]

Thank you very much.

[The Chair, NDP, David Christopherson]

Also just a reminder that at our next meeting we'll resume the study of the draft report on chapter 3, “Mental Health Services for Veterans” of the 2014 fall report of the Auditor General of Canada.

Also, we are pleased to welcome friends and colleagues from the federal state of Amhara regional council in Ethiopia. There will be a short half-hour informal meeting afterwards that all members are welcome to stay for. I know you're busy. I will be meeting with them, as will the staff, but you're quite welcome to join us if your schedule permits.

Maybe we could give a warm welcome to our guests and say how honoured we are to have them here.

[Some hon. members]

Hear, hear!

[The Chair, NDP, David Christopherson]

We look forward to our meeting after this one.

With that, we will now begin our public hearing on chapter 6, “Nutrition North Canada—Aboriginal Affairs and Northern Development Canada” of the fall 2014 report of the Auditor General of Canada.

Without further ado, I will turn first, as we always do, to our Auditor General, Mr. Michael Ferguson, to introduce his delegation, make his presentation, and then we'll move to the deputy and I'll ask her to do the same.

With that, Mr. Ferguson, you now have the floor, sir.

[Michael Ferguson, Auditor General of Canada, Office of the Auditor General of Canada]

Mr. Chair, thank you for this opportunity to discuss chapter 6, Nutrition North Canada—Aboriginal Affairs and Northern Development Canada, from our 2014 fall report.

Joining me at the table is Glenn Wheeler, Principal, who was responsible for the audit.

Many communities across Canada's three territories, as well as in the northern parts of several provinces, are accessible only by air for part or all of the year. Necessities such as perishable foods must be flown into these communities, and this increases the prices of these items on store shelves.

According to Statistics Canada, feeding a household in Nunavut costs, on average, twice as much as it does elsewhere in Canada. Since the late 1960s, the federal government has managed programs to help reduce the high cost of food in the North.

In April 2011, Aboriginal Affairs and Northern Development Canada introduced the nutrition north Canada program. The program has an annual budget of $60 million. A subsidy is provided directly to northern retailers through contribution agreements to help lower the prices of nutritious foods. Retailers are responsible for passing the full subsidy on to consumers by reducing their prices on eligible foods. We examined whether the department has managed the nutrition north Canada program to meet its objective of making healthy foods more accessible and affordable. We also examined whether the department obtained the information needed to verify that the subsidy is fully passed on to consumers. We did not audit the northern retailers.

We found that the department has not managed the Nutrition North Canada program to meet its objective of making healthy foods more accessible, as it has not identified eligible communities on the basis of need. For example, there are two communities in northern Ontario that are about 20 kilometres apart and are similarly isolated. One is eligible for a full subsidy of $1.60 per kilogram of food, while the other is eligible for only a partial subsidy of 5 cents per kilogram.

We also found that the department has not managed the program to meet its objective of making healthy foods more affordable, as it has not defined affordability or verified that northern retailers are passing the full subsidy on to consumers.

The impact of the subsidy may be negated if the profit margin is subsequently increased. Therefore, in our opinion, determining whether the entire amount of the subsidy is being deducted from the selling price of a food item requires an examination of profit margins, both current and over time. However, the department did not require information on profit margins, either in its contribution agreements with retailers or through its compliance reviews of retailers.

Department officials told us that information from the northern retailers' monthly reports on food prices, which are used to calculate the cost of the revised northern food basket, allows the department to verify that the full subsidy is passed on.

We have a different view. We found that the department had limited assurance of the accuracy of these prices provided by the retailers, as it did not systematically verify the accuracy of prices reported. Furthermore, at least 30 stores were excluded from the calculation of the food basket because their price data was unavailable. Finally, this information did not allow the department to know whether the full subsidy was being passed on to consumers because the food basket included prices for both eligible and ineligible items.

If Aboriginal Affairs and Northern Development Canada could verify that the full subsidy is being passed on to consumers, some of the public skepticism surrounding the nutrition north Canada program might be lessened. This would benefit the department, northern retailers, and the residents of Canada's north.

The department has agreed with our recommendations, and it has prepared an action plan to address each of our recommendations.

Mr. Chair, this concludes my opening remarks. We would be pleased to answer any questions the committee may have.

Thank you.

[The Chair, NDP, David Christopherson]

Très bien. Merci.

Now we'll move over to Ms. Colleen Swords, who is the deputy minister of Aboriginal Affairs and Northern Development Canada. Welcome. I'd ask you also to introduce your delegation and provide your opening remarks to the committee. You now have the floor, ma'am.

[Colleen Swords, Deputy Minister, Department of Indian Affairs and Northern Development]

Thank you very much, Mr. Chair. Thank you for the invitation to appear before this committee to discuss the nutrition north Canada program, especially in relation to the recommendations from the Office of the Auditor General, which were issued last fall.

I'm accompanied today by Stephen Van Dine, who's the assistant deputy minister for northern affairs at the department.

The nutrition north Canada program, or NNC, was introduced in April of 2011. It replaced the food mail program, which had been in operation since the late 1960s and had a number of efficiencies and weaknesses. In fact, it was also the subject of a 2002 report from the Auditor General. The food mail program targeted less nutritious items, lacked accountability, and had no monitoring in place to ensure the subsidy was being passed on to consumers.

By comparison, nutrition north Canada focuses on perishable, nutritious foods, and provides greater transparency and accountability than there had been under the previous program. Whereas food mail was a transportation subsidy—funds went to Canada Post to subsidize the postal costs—nutrition north funds go directly to retailers, wholesalers, and northern processors and distributors of country foods, providing an incentive for retailers to support healthier, more nutritious foods, and to make the most cost-effective decisions to get the eligible items to communities.

Another change was the establishment of the Nutrition North Canada Advisory Board. The Nutrition North Canada Advisory Board has the mandate to improve program governance and give northerners a direct voice in the program. The members of the board collectively represent a wide range of the northern perspective. Their experience will inform the management and effectiveness of Nutrition North Canada.

One thing that did not change significantly was the communities that had been benefiting from the subsidy. For ease of initial implementation, the communities eligible for nutrition north Canada were those that made the most use of food mail. We're now reviewing the requirements for eligibility to ensure that the program is working to help meet the needs of northerners and to better understand the challenges they face in accessing perishable, nutritious food.

The program's initial funding of $60 million a year was increased by $11.3 million for the fiscal year 2015-16. As well, the government has announced that a 5% annual escalator will be applied to the subsidy budget in future years to help the program keep pace with the growing demand. This funding supports 103 isolated northern communities, stretching from Old Crow, Yukon, to Nain, northern Labrador, and taking in all three territories and the northern regions of five provinces.

Since its inception, Nutrition North Canada has achieved measurable results, demonstrating its effectiveness in reducing food prices on eligible items from the previous program.

Between March 2011 and March 2014, for example, the cost of the revised northern food basket for a family of four in communities eligible for a full subsidy under nutrition north Canada fell by an average of 7.2%, from $438 to $406 per week. That translates into a saving of approximately $137 per month for a family of four. According to the consumer price index, food prices elsewhere in Canada increased by approximately 5.5% over the same period. Furthermore, the average volume of eligible items shipped to northern remote communities increased by approximately 25% over the first three years of the program.

Notwithstanding these positive effects, we are not standing still and we welcome the constructive recommendations for improvement from the Office of the Auditor General, all of which the department has accepted. A management action plan was provided to the Office of the Auditor General in the fall of 2014.

For example, a detailed review of remote communities has been under way for the past year to better understand what they face due to isolation in accessing perishable nutritious food. We anticipate that the information on isolated northern communities will be completed and posted on our website by summer 2015.

The recommendations to specify that retailers provide information on profit margins, and that profit margins over time be set out in contribution agreements as well as part of compliance reviews are being implemented.

While all financial information has always been a requirement, for greater clarity a new clause to this effect will be added to all funding agreements with retailers and suppliers beginning this coming April 1. This new clause specifies that recipients must provide all the information on eligible items, including current profit margins and profit margins over time. By adding this new clause, the department will be able to review the information and verify that the full subsidy is passed on to consumers. In addition, the statement of work for audit firms engaged to conduct compliance reviews has been amended in a similar fashion, and 2014-15 compliance reviews are being conducted accordingly.

The Auditor General's report also recommended that the department review and update the nutrition north program's performance measurement strategy, again reinforcing the findings of an internal evaluation we had done in 2013. The strategy was reviewed and updated in September 2014 and is posted on the department's website.

It focuses on ensuring that performance indicators and data collection methods are well defined and in place to support program monitoring. Key activities in the performance measurement strategy include providing, monitoring, and verifying subsidies for eligible foods and promoting program awareness, outreach, and engagement.

A final recommendation dealt with the importance of the department considering all options in implementing its cost containment strategy for the nutrition north program. The Minister of Aboriginal Affairs and Northern Development has considered and continues to consider all options related to cost containment, especially how any such decisions may affect northerners. The department will continue to apply cost containment in a manner that supports the program objective.

This is why the minister announced on November 21, 2014, that the Government of Canada and the Nutrition North Canada Advisory Board will be engaging northerners, retailers and suppliers on ideas to keep the program on a sustainable path. Meetings with retailers began in December and the public engagement process is planned to start this spring.

In conclusion, I would reiterate that Nutrition North Canada is achieving real results—contributing to food security and better nutrition in isolated northern communities while respecting the funds provided by the taxpayers of Canada.

Thank you, Mr. Chair.

[The Chair, NDP, David Christopherson]

Thank you to both of you.

Colleagues, we'll now begin our questions in the rotation that is our standard format. We'll begin with Mr. Hayes.

You, sir, now have the floor.

[Bryan Hayes, Conservative, Sault Ste. Marie, ON]

Thank you, Mr. Chair.

I'm going to direct my question to Mr. Ferguson. Specifically in your report, in section 6.18, you state, “We found that the Department has not established community eligibility criteria that are fair and accessible.” Obviously you have come to that determination. I'm trying to understand it. If what has been established isn't “fair and accessible” in your opinion—and obviously we all value your advice and guidance—can you identify for the committee what eligibility criteria you feel would be fair and accessible?

[Michael Ferguson]

We made a recommendation in paragraph 21 that the department should review its eligibility criteria for the nutrition north Canada program to base the criteria on need, and it should assess the eligibility of communities accordingly.

I think the issue that we raised in the audit was simply the fact that the decision of what communities should be included seemed to be one of continuation of those that were making the most use of the food mail program, as opposed to this being a new program starting up that should look at the basis of need and should establish criteria on the basis of need, not just on the basis of who was making the most use of the former program.

[Bryan Hayes, Conservative, Sault Ste. Marie, ON]

My fear is that if the department establishes these new eligibility criteria that are fair and accessible and you don't review those until another three years down the road, you might at that time state that they really aren't exactly what you were looking for and that they're still not fair and accessible. I'm wondering if there's something that can be done in a mitigating step, so that, say, six months down the road the department could present to you, Auditor General, and say, these are our new criteria that we feel are fair and accessible and we'd like your advice on those prior to us moving forward and implementing them.

Would it be reasonable for the department to do that?

[Michael Ferguson]

We never want to put ourselves in the position of approving or setting policy for departments. I think what we would expect to see is simply a thorough analysis that the department determined how to set fair criteria. Accessible I think is probably a little easier to assess, but we would expect that the department would have done enough of a review to determine how to establish criteria that would be fair and that in that process they considered where there might be questions of fairness and how to resolve them. I don't think we would come along and say at the end of the day that we felt it was fair or not fair in that instance. What we would want to do is see that there was a fulsome analysis done by the department to say, “You know what? This is how we have arrived at what's fair.”

[Bryan Hayes, Conservative, Sault Ste. Marie, ON]

At this stage of the game you wouldn't offer any insight, or be able to offer any insight, on what that analysis should consist of. You would leave that up to the department and then you would have a look at it from that point.

[Michael Ferguson]

Again, what we would be looking for is to make sure that the department seemed to have done a fulsome analysis, that they considered fairness from a number of different angles, and that they've arrived at whatever decisions they arrived at. We might then say, “Did you consider this, did you consider that?”. But I think to the extent that the analysis appeared to be fulsome, that would be all we'd be looking for.

[Bryan Hayes, Conservative, Sault Ste. Marie, ON]

That being said, the action plan was given to you in the fall of 2014 and I anticipate you would not be in a position to comment on the action plan. The reason I ask is that this speaks again to the analysis. Within the action plan it talked about:

A common template and criteria were developed to allow for comparison of data collected, such as: community demographics, the number of grocery stores in each community, amount of time isolated, nature and condition of surface access when it exists and distance to supply centre by air.

Information will be posted in the summer of 2015....

That sounds like if that were done, it would be a pretty significant analysis, to take into consideration all those. Can I get your comments on the type of analysis they proposed doing?

[Michael Ferguson]

I think your opening comments were right. We haven't audited the action plan. Certainly we're happy to see the action plan has touched on all the different areas we have made recommendations on.

I think the types of things you're talking about are certainly what you would expect to see in the analysis of fairness. I think, though, we would also like to see that perhaps there was thought about all the different aspects that could go into fairness. Some they have decided to include in the calculation; some they have decided not to include for reasons of reasonable consideration.

Again, it's just a matter of what we would want to do, to look and see that this analysis seemed to be complete.

[The Chair, NDP, David Christopherson]

Thank you both.

Moving along, Mr. Giguère. You have the floor, sir.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you, Mr. Chair.

My thanks to the panel of witnesses for appearing before the committee.

This is an extremely important issue. The Auditor General and UN officials analyzed these projects specifically. According to the analysis, 70% of adults in Nunavut are experiencing food insecurity and, for 8.4% of them, this is a serious problem. It's not simply that they don't have food a few days a month. These people's health is compromised because they have nothing to eat. They are forced to go to landfills. That's not because they come from an Aboriginal culture, but because the government is not delivering on its responsibilities to ensure that they have enough to eat.

This is a particularly important issue. In 2011, the Auditor General raised this problem in section 6.4 of his report. Four years later and after a change in the program, the same problem has come up. Regardless of how you describe the changes to the Nutrition North Canada program, could you tell me how it will ensure that 8.4% of the population is not experiencing this serious food shortage, even starving. In 2015, it is not normal to have people starving in Canada.

[Colleen Swords]

Mr. Chair, food security in the north is very important for the government and for those who live in the north.

The nutrition north Canada program is not a cost of living subsidy overall. Many factors affect the price of food in the north: isolated communities, the distance to transport food, the size of the communities, the cost of power, wages, competitive markets, world market trends.

The nutrition north Canada program is really a small part of the overall cost of living in the north, and it's an attempt to try to decrease the cost of perishable, nutritious food, and make it more accessible, but it's not the answer to all the problems on the cost of living in the north.

It's basically a market-driven model. We're trying to promote a more efficient, cost-effective, transparent manner to increase access to nutritious and perishable food, and the information we've been able to gather suggests that, indeed, it is accomplishing that.

It's one way we had tried to address issues around food security and the cost of living. It's not the only way in which the federal government supports the north. There are transfer payments for health, social, territorial financing in the amounts of close to $1 billion, and in the case of Nunavut, $1.5 billion a year. There are other parts of federal government funding that address issues related to the cost of living in the north.

We do want northerners to have quality, nutritious food, and our sense is that by the way we have changed—

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Madam, it is good to develop a program, but people are hungry. You have implemented a program designed to reduce food prices. However, the Auditor General and UN officials have told us that you failed to meet your objective. Food prices have not gone down. Instead, they have gone up by 2%.

You are giving us figures showing that food prices have gone down by 8%, but according to the audit done by the Government of Nunavut, prices have increased. You are the only ones to talk about a drop in prices. When we ask you to be transparent and tell us where the figures come from, you are unable to do so. At any rate, you have not provided them to the Auditor General.

You don't have the technical means to check whether the prices are actually going down. I think that is a serious problem. You are spending $80 million to ensure that people have access to quality food at a lower price. However, the Auditor General and the UN auditor have come to the same conclusion that you did not meet your objective.

[The Chair, NDP, David Christopherson]

Ask your question very quickly.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

How will you assure us that the prices are actually dropping?

[Colleen Swords]

I don't think the Auditor General said that prices haven't gone down. He was addressing whether or not we were able to establish whether the subsidy is passed on; whether we've looked at the eligible communities sufficiently, accurately, and carefully; and whether we have the right performance measures. In fact, there's been a 25% increase in the volume of the eligible foods going up north in the past three years. In and of itself, somebody is buying that food, so there's an increase in the amount of nutritious food that's going up.

[The Chair, NDP, David Christopherson]

Thank you. Time has expired.

We'll go over to Mr. Falk. You have the floor, sir.