Grocers pocketing over half of federal hunger subsidy for the North

Grocery retailers supplying food to dozens of Canada's most food-insecure communities are pocketing up to over half of a federal subsidy to reduce hunger, researchers have found.

The $131-million annual Nutrition North subsidy is paid directly to most grocery retailers serving over 120 remote northern communities from Labrador to Yukon. Applicable only to certain foods and necessities like milk, eggs and diapers, the funds theoretically cover the region's high transportation costs and thus reduce food costs for consumers.

Grocery prices are routinely two to three times higher in the North than in southern Canada, fuelling widespread food insecurity in the region. In Nunavut alone, nearly half of households can't afford enough to eat.

Retailers eligible for the subsidy are paid a set amount by the federal government, which varies depending on the product and where it will be shipped, meant to help cover transportation and other costs. According to the program's website, the retailers "must pass on the full subsidy to consumers," thereby reducing the shelf price of products relative to what they would be without the subsidy. This amount is published on customers' receipts, ostensibly to prove the subsidy has been passed on.

But because retailers aren't forced to disclose their transportation costs or their wholesale purchase prices, it is impossible for consumers to know if the companies are actually following the rules. That gap allows grocers to pocket "a big chunk" of the subsidy, said University of Toronto professor Tracey Galloway.

The biggest retailer in northern Canada, the North West Company, is an international corporation that reported $125 million in net income last year. It receives over half of the Nutrition North subsidy.

In larger towns with more than one store, grocers pass only about 67 cents of every subsidy dollar on to consumers. In smaller towns with a single grocery store, that so-called "pass-through" falls even lower, with retailers keeping up to 67 per cent of each dollar they receive from the federal government.

The team reached these findings by comparing price increases in the cost of the so-called "revised northern food basket," a statistical tool the federal government uses to estimate the cost of food in the North before and after major subsidy increases in 2016 and 2019. The government reports the price of this basket — which includes subsidized items — quarterly as a measure of the cost of food in the North.

In theory, an increase in the subsidy should be fully reflected in the cost of the revised northern food basket, with the cost in the financial quarter following the subsidy increase falling by its new value, explained Toronto Metropolitan University professor Nicholas Li. Month-to-month inflation was stable in 2016 and 2019, meaning grocers weren't forced to significantly pay more for their goods between each quarter the team assessed.

In practice, however, only part of the subsidy increase was being reflected in the post-increase cost of the basket. This was particularly true in smaller communities with a single store where only about 33 per cent of the increase was passed on to consumers — a "smoking gun" grocers broke the program rules, he said.

The findings indicate that Nutrition North's accountability measures are "insufficient," Galloway and Li write in a blog summarizing their findings. This despite the government publishing data on the subsidy and a requirement for retailers to undergo regular audits, which are not complex enough to assess if grocers are fully passing the subsidy to consumers.

"The department is reviewing the study’s findings, and exploring more options to further improve supports for consumers in isolated communities so they may fully benefit from the subsidy program," a spokesperson for Crown-Indigenous Relations and Northern Affairs Canada said in a statement.

In northern communities where high food prices and low incomes combine to fuel widespread food insecurity, grocers' failure to pass on the subsidy — and the federal government's inability to hold them to account — is especially hard felt. Food security is "an ongoing crisis," with thousands of northerners struggling to afford food every day, Galloway said.

The Nutrition North program is not perfect, with food security advocates and researchers emphasizing it primarily benefits people with stable incomes and housing. It also is primarily directed at ensuring people can access southern foods, not traditional country foods from the region.

While the program is better than nothing, Galloway said the team's findings highlight it is failing Canadians.

"I'm not surprised, but I am disappointed," she said.