October 7, 2005

Imperfect subsidies keep food prices reasonable

“Nobody would pay $21.99 for one box of McCain orange juice”


Click photos to enlarge
Sweetened fruit drinks that have more sugar than juice are not eligible for the food mail subsidy, but McCain orange juice from concentrate, which was photographed at $21.99 per litre in Pond Inlet in August, is eligible for the reduced shipping rate. (PHOTOS COURTESY OF CAREY ELVERUM)
Without the national food mail program, a litre of milk could be as expensive as the $21.99 boxes of McCain orange juice that were photographed in the Northern Store in Pond Inlet this August, and widely circulated on the internet last week.

Instead, a litre of milk sells for $3 to $4 in most Nunavut communities.

But even the orange juice should not be so expensive, said Fred Hill, who manages the food mail program as part of his role as food security manager for the department of Indian and Northern Affairs in Ottawa.

“The McCain orange juice in those boxes is eligible for shipment at the perishable rate,” Hill said. “Had that been shipped in as food mail, it would only cost a dollar for shipping.”

Hill couldn’t say whether the juice was shipped as food mail or regular cargo, but he did say, “it’s obviously a mistake and it’s not typical.”

Frozen concentrated juice is also classified as “nutritious perishable food” that can be shipped at a reduced cargo rate, Hill said. “So obviously nobody would pay $21.99 for one box of McCain orange juice, nor should it be priced that way at the store.”

Many people know food mail as something individuals use to import personal grocery orders from the South at low shipping rates.

While individuals are allowed to use the program, food mail is mainly intended to help stores ship healthy foods at a lower cost than regular air cargo, and then pass the savings on to the consumer by selling those foods at lower prices.

“We rely on competition to ensure that the savings are passed on, and most communities do have two stores or more so that the savings are passed on,” Hill said. “It’s more likely that that wouldn’t be the case in a community where there’s only one store.”

DIAND monitors food prices around Nunavut by surveying prices in about 35 northern and southern communities each year. The department can isolate cases where the gap between prices in the South and the North is bigger than is justified.

In that case, Hill said, DIAND “draws it to the attention” of the stores, as well as the local mayor, and publishes the information on its website.

“We hope that also there could be public pressure if there are large differences between communities, but for the most part, we don’t find that.”

Because the shipping rates are the same everywhere, prices for foods that are eligible for the program vary only slightly from community to community.

Junk food and prepared foods — like frozen dinners — are not eligible for food mail. That’s why a bottle of Coke costs $1.50 in Iqaluit, and anywhere from $2 to $3.85 in Gjoa Haven.

A litre of milk, however, costs $3.69 in Iqaluit and just $3.89 in Gjoa Haven.

Food mail rates have not changed since 1993, which is one of the reasons why food prices around Nunavut have stayed the same or dropped since 1990, even though food prices in the South have increased during that time.

In Pond Inlet, for example, a typical basket of food to feed a family of four for a week cost $265 in 1990, and just $276 in 2003. A basket of perishable foods went down from $146 in 1990 to $113 in 2003.

In Iqaluit, prices went from $217 in 1990 to $244 in 2003. The most expensive groceries in 2003 were in Resolute Bay, where the same basket cost $304.

It’s a similar story in the Kitikmeot. A food basket in Gjoa Haven went from $263 in 1990 to $274 in 2003.

Entry points under review

The Kivalliq is somewhat different. A basket of food for a family of four in Repulse Bay cost $261 in 1990, and $315 in 2003.

A strange hitch in the program means stores in Rankin Inlet and Arviat don’t use food mail.

The reason is that food mail can only be sent to the North through designated entry points. These were selected by Canada Post when the program first began, and appear to have been political decisions rather than economic.

All food mail shipments going to the Baffin region and Nunavik must pass through Val D’Or, a former gold-mining town in northwestern Quebec. Overall, Hill estimates that 65 per cent of all food mail shipments pass through Val D’Or.

Food mail to the Kitikmeot is shipped from Yellowknife.

The entry points raise the cost of food slightly for northern consumers, since stores or individuals must pay regular rates to ship the food to the entry points, but the difference is the most extreme for the Kivalliq region, where Churchill is the designated entry point.

The cost of shipping food to Churchill and then further North is about the same as shipping food directly from Winnipeg or Edmonton, which retailers prefer because they can ship food faster, and in better condition.

In December 2002, the Auditor General of Canada took a look a the food mail program and found, to her surprise, that the entry points — “a key part of the food mail program” — had never been formally reviewed.

The AG recommended DIAND review the entry points. DIAND responded with a review of the Churchill entry point, its most problematic.

So far, DIAND has held consultations in five out of seven Kivalliq communities, as well as in Winnipeg, Iqaluit and Thompson, Man. Results are expected in the fall.

DIAND has no immediate plans to review the other entry points.

The food mail program has been running for 30 years.

The food mail air cargo rate is 80 cents per kilogram of nutritious perishable food, or $2.15 per kilogram of non-perishable food and non-food items, plus an extra 75 cents for every parcel.

Last year, DIAND spent $36 million on the program — almost 58 per cent of which was spent in Nunavut, where virtually everyone makes use of the program, because they shop in stores that do.