How much of Nutrition North’s subsidy is being kept by stores?

A federal subsidy intended to reduce the cost of food in the North isn’t fully reaching customers, particularly in communities with just one store, a recent study suggests.

The authors say there is a need for greater accountability.

The study, published last month in the Journal of Public Economics, looked at how the Nutrition North Canada subsidy is passed through stores to the price of goods on shelves in dozens of eligible communities.

Authors Tracey Galloway and Nicholas Li examined the extent to which subsidy increases for some communities in October 2016 and January 2019 lowered food prices, taking into account factors such as food inflation and energy costs.

Overall, they found that for every dollar paid to retailers to reduce shipping costs, average retail prices fell by 67 cents.

The authors found subsidy pass-through (how much of the subsidy makes it through to the final price customers pay) was 18 to 69 cents lower in communities with a retail monopoly – just one store – compared to those with two or more retailers.

Looking at the 2019 data in communities with a single grocery store, for example, the researchers found each extra dollar paid to retailers reduced prices by just 26 cents.

Galloway and Li said their findings suggest “substantial leakage” of Nutrition North funds intended for marginalized communities into retailer profits.

“I don’t know if we were surprised. And I don’t know that we were surprised to find pass-through worse in the communities where there is less retailer competition,” said Galloway, an associate professor of anthropology at the University of Toronto, of the findings.

“If this finding represents real action on the part of the retailers to retain more subsidy in monopoly communities where they have the power to do so, what I say is, there’s nothing in the program to prevent it.”

A separate study published by different authors in 2020, however, estimated that the average pass-through of the Nutrition North subsidy to consumers was 91 cents on the dollar. That study concluded the program had been generally effective in reducing the price of food by the amount of the subsidy.

Li, an assistant professor of economics at Toronto Metropolitan University, said there are some key differences between the two studies.

He said the earlier study focused only on communities in Nunavut and compared the price of foods that are subsidized in the territory to those in Ottawa. He argued there are several issues with that method, as shipping costs may be different, perishable foods were being compared with non-perishable foods, and there’s more retail competition in the south. He added there are not many Nunavut communities with a retail monopoly, as many have both an Arctic Co-op and a NorthMart or Northern store.

In Li and Galloway’s study, 42 percent of communities examined had a retail monopoly. In most cases, that was held by the North West Company, which operates NorthMart and Northern stores.

The North West Company did not return Cabin Radio’s requests for comment.

Urgent need for improvements

Li and Galloway said the findings of their study indicate the need for more accountability measures in the Nutrition North program.

They pointed to solutions such as increasing competition, adding price controls, or the creation of state-run stores like those used in other jurisdictions.

But the researchers argued the best approach would be requiring retailers to publish the price of all subsidized goods online, which they said could make analyses easier and help communities hold retailers accountable.

Nutrition North is “the primary system that the federal government employs to support food costs in the North, so we have to get this one right,” Galloway said.

“It’s really urgent. And it’s been a long time and a lot of critique. We’ve had some new money every few years, but there’s been no substantive overhaul of this program since it was implemented in 2011, and it’s high time.”

In previous evaluations of Nutrition North published in 2014 and 2016, Galloway similarly expressed concerns about gaps in food cost reporting, arguing those gaps constrain accountability measures. She pointed out in a 2012 report that the UN Special Rapporteur on the right to food had noted the Canadian government had no way of verifying if subsidies were being passed on.

“What we’ve argued for in this paper, and in others, is that the program has some strength to it. That the retailers who sign contribution agreements and receive the federal subsidy are accountable,” Galloway said.

“I think that’s all people want. People don’t expect to have lower food prices than they have in the south. They want the prices to be fair and they want them to be kind-of predictable.”

Li added that figuring out large grocery retailers’ costs is challenging and an issue not just in the North, but across Canada. He pointed out five large grocery chains recently agreed to price freezes and other measures to reduce food costs in the country, but there’s a lack of transparency around true food costs.

“There’s a real lack of data about what’s going on in this food chain, like where the margins are,” Li said.

While Li said he understands why retailers are protective about information around their cost structures, he said the lack of transparency makes it difficult for auditors.

He said that also makes it hard for people in communities where a monopoly retailer is being paid large subsidies to “shake that feeling” that they’re being ripped off – a sentiment immortalized in a song by The Jerry Cans.

Ottawa ‘exploring options’

Nutrition North Canada was launched by the federal government in 2011, replacing the Food Mail program that gave Canada Post federal subsidies to ship food to isolated northern communities.

Through Nutrition North, the federal government pays millions of dollars in subsidies to retailers and suppliers every year for certain foods and other items, which the stores agree to pass on to consumers in isolated communities through price reductions.

Subsidy rates depend on the community’s location, products being sold, and how goods are transported.

The program aims to make nutritious food and essential items more affordable and accessible in the North, where residents face high living costs and high rates of food insecurity.

In a written statement, Matthew Gutsch, a representative of Crown-Indigenous Relations and Northern Affairs Canada, or Cirnac, said the department is reviewing the recent study’s findings. He said the federal government is also “exploring more options to further improve supports for consumers in isolated communities so they may fully benefit from the subsidy program.”

Gutsch said existing accountability measures include requiring retailers to submit sales price data and pre-subsidy pricing data. The federal government uses that information to provide a publicly available aggregated value for a basket of subsidized and non-subsidized products.

Gutsch added that while retailers receive the same subsidy for similar products and communities, their expenses may differ due to factors like wholesale costs, transportation, insurance, salaries and other overheads.

He said the program only evaluates prices and profitability of registered stores. In some cases, he said, retailers have an indirect relationship with Nutrition North – they receive products from southern suppliers that are registered with the program.

“Cirnac works closely with northern and Indigenous partners to monitor results of the Nutrition North program and seek input for ongoing improvements to ensure its operations are fully transparent,” he said. “Retailers and suppliers are equally accountable and have a significant role to play.”

Each year, a sample of retailers registered with Nutrition North is selected for a compliance review from third-party auditors. Gutsch said the federal government then works with retailers and suppliers to address any recommendations.

He pointed out the federal government has also made changes to Nutrition North in recent years.

That includes introducing a harvester support grant, which provides funding to Indigenous governments and organizations to support traditional hunting, harvesting and food sharing. In 2022, the Community Food Programs Fund expanded the scope of the grant to include community-led, culturally appropriate initiatives such as school food programs.

Through the recent federal Food Research Grant, Gutsch added, Cirnac awarded a total of $1.2 million in 2022-23 to five Indigenous-led research projects. The grant was launched with the aim of filling data gaps on the cost of living and informing improvements to Nutrition North.