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A price tag lists the retail price and the subsidy calculations on a four-litre jug of milk at a grocery store in IqaluitSean Kilpatrick/The Canadian Press

For years, northerners have complained about Nutrition North to anyone who would listen, grumbling that the $60-million annual federal food subsidy was doing little to ease their staggering grocery costs.

No one, it seemed, took much notice. That all changed last month, when Auditor-General Michael Ferguson revealed that the program's overseers are largely in the dark about whether the subsidy is doing anything for the people who need it the most.

"The program is not working," Cathy Towtongie, president of Nunavut Tunngavik Inc., which administers the Nunavut land claim, said in a recent interview at her Iqaluit office.

"For the large majority of Inuit that don't know how to access it … it's not working. And accountability and the transparency of Canadian taxpayer dollars … the Auditor-General agreed with us that there is no transparency and no accountability. And we have been saying that for a number of years now."

One of Mr. Ferguson's observations in particular struck a nerve with northerners: that some retailers are cashing in on the subsidy. Aboriginal Affairs and Northern Development Canada told the audit team that the subsidy sometimes exceeds the very shipping costs it is meant to defray – a revelation that came as no surprise to some.

"The stores are making money based on the amount of food they're bringing in, and in return they're supposed to lower their food price," said Leesee Papatsie, who helped organize Nunavut-wide food price protests and started the "Feeding My Family" group on Facebook.

"In upper, High Arctic communities, the subsidy is higher than the freight cost. So they're making money like that."

Food has always cost more in the North, due to the expense of shipping it in from other parts of Canada, the region's relatively small and dispersed population and the distance from major transportation hubs.

"In the south, food is shipped by road, and we just do not have roads into our territory," former Iqaluit mayor Madeleine Redfern said in an interview. "You have the cost of running a retail store – the actual space and storage and having to pay employees higher wages. The power rate costs have gone up several times in the last few years. So it is expensive to run a business here."

The federal government used to subsidize shipping costs through the old Food Mail program in an effort to make food more affordable. First Air, an airline owned since 1990 by the Inuit people of Quebec through Makivik Corp., had a contract with Canada Post to deliver groceries to Nunavut communities at set rates. That meant under Food Mail, retailers had to rely on airlines chosen by Canada Post to get the subsidized freight rate.

But in 2011, the Conservatives replaced Food Mail with Nutrition North, which shifted the subsidy to retailers, who in turn were expected to pass it on by cutting food costs for consumers.

Ron Elliott, who used to represent a High Arctic riding in Nunavut's legislature, said people are skeptical that businesses are actually passing on the full subsidy to customers.

"What you're doing is you're putting the subsidy in the hands of the businesses," Mr. Elliott said in a telephone interview from Arctic Bay. "If you're in business to make a profit, are you going to be that willing to have good will? My problem is, you can't really tell a business what profit they should have, right? So if the market can bear something, usually that's what people charge."

Aboriginal Affairs has not required merchants to report their profit margins, which over time would indicate whether the full subsidy is being passed on. Mr. Ferguson's report said such a measure would help quell skepticism about whether consumers are actually getting the full benefit of the subsidy. The department now says that as of April 1, retailers will have to provide information on their current and long-term profit margins.

Nutrition North gives retailers a subsidy based on the weight of eligible foods shipped to eligible communities. But the Auditor-General found Aboriginal Affairs did not choose eligible communities based on need.

To highlight the problem, Mr. Ferguson's team pointed to two remote communities in Northern Ontario, both about the same distance to the nearest town and lacking year-round road access. One is eligible for a subsidy of $1.60 a kilogram; the other only five cents a kilogram.

The audit found that the department chose communities based on two factors: whether they had year-round road access and if they had used the old Food Mail program. Communities that made very little use of Food Mail are only eligible for a partial subsidy of five cents per kilogram, while places that did not use Food Mail aren't eligible.

"Consequently, community eligibility is based on past usage instead of current need," the report says. "As a result, there may be other isolated northern communities, not benefiting from the subsidy, where access to affordable, nutritious food may be an issue."

Aboriginal Affairs told Mr. Ferguson's team it has looked at expanding the full subsidy to around 50 fly-in northern communities, but doing so would increase the cost of the program by $7-million a year.

Ted Laking, a spokesman for MP Leona Aglukkaq, said Nutrition North is administered in a way that helps lower costs by providing competition. "That is totally appropriate, and is meant to help lower costs to families for food," Mr. Laking wrote in an e-mail.

Aboriginal Affairs, meanwhile, is tweaking the program in response to Mr. Ferguson's report.

"In the coming months, our government and the Nutrition North Canada Advisory Board will continue engaging northerners, retailers and suppliers on ideas to keep the program on a sustainable path," Andrea Richer, a spokeswoman for Aboriginal Affairs Minister Bernard Valcourt, said in an e-mail.