Income Research Paper Series
Proposals for a Northern Market Basket Measure and its disposable income

Northern Market Basket Measure (MBM-N)

As stated in the Poverty Reduction Act, the Market Basket Measure (MBM) is now Canada’s Official Poverty Line. The Northern Market Basket Measure (MBM-N) is an adaptation of the MBM that reflects life and conditions in two of the territories – Yukon and Northwest Territories^Note . As with the MBM, the MBM-N is comprised of five major components: food, clothing, transportation, shelter and other necessities. The MBM-N is intended to capture the spirit of the existing MBM (i.e., represent a modest, basic standard of living) while accounting for adjustments to the contents of the MBM to reflect life in the North.

This discussion paper describes a proposed methodology for the five components found in the MBM-N, as well as its disposable income. This discussion paper also provides an opportunity for feedback and comments on the proposed methodology of the MBM-N.

Acknowledgements

This discussion paper would not have been possible without the invaluable contributions of Bishnu Saha from the Yukon Bureau of Statistics and Jeff Barichello and Vishni Peeris from the Northwest Territories Bureau of Statistics. We would like to thank them for their support and time in helping create the methodology for the MBM-N, and for their help with reviewing this paper.

Introduction

On August 21, 2018, the Government of Canada released Opportunity for All, Canada’s First Poverty Reduction Strategy (Employment and Social Development Canada, 2018), which contained long-term commitments to guide current and future government actions and investments to reduce poverty.

The Poverty Reduction Act, legislates the commitments made in the Strategy. Opportunity for All indicated that Statistics Canada will be investigating the possibility of producing MBM thresholds for the territories. To this end, Statistics Canada has held several discussions with the Yukon and the Northwest Territories statistical focal points^Note with the aim of identifying what specific things need to be changed, compared to the MBM, in order to construct MBM thresholds for the North. The discussions aimed to build upon a study produced in 2012 by an informal working group formed to assess the technical feasibility of developing a MBM-N (Statistics Canada internal document, 2012). The informal working group was comprised of representatives from each of the three territories, as well as from Human Resources and Skills Development Canada (HRSDC), Statistics Canada, and Aboriginal Affairs and Northern Development (AAND).

This discussion paper describes the proposed methodology for the MBM-N basket and its disposable income.  Readers are encouraged to provide feedback and comments. Although this discussion paper does not address Nunavut, we welcome feedback and comments related to that territory as well.

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Discussion papers reporting on the proposed creation of a MBM-N

This study represents the first of two discussion papers which will be released as part of the proposed basket and disposable income methodologies for the MBM-N.

The next paper should be available in mid-2021 and will describe the final proposed MBM-N methodology, as well as identify research to be conducted in preparation for the 2023 review. The paper will also present the proposed thresholds and the poverty estimates based on these thresholds.

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Working with Indigenous peoples

While the construction of the MBM-N basket is based on a recognized methodology, the Government of Canada has established a process to better understand poverty and well-being from the perspective of Indigenous peoples and to encourage the co-development of complementary indicators of poverty that will respect the autonomy of Indigenous governments. Furthermore, given that there is a higher proportion of individuals living in the North who have reported an Indigenous identity, there is a higher importance to integrate these additional indicators of poverty.

In Opportunity for All, the Government of Canada committed to “work[ing] with National Indigenous Organizations and others to identify and co-develop indicators of poverty and well-being, including non-income-based measures of poverty, that reflect the multiple dimensions of poverty and well-being experienced by First Nations, Inuit and Métis.”^Note That discussion is proceeding independently from these proposals for a MBM-N methodology.

What is the Northern Market Basket Measure?

A family with disposable income less than the poverty threshold appropriate for their family’s size and region of residence would be considered to be living in poverty. As is with the MBM, disposable income for the purposes of the MBM-N is proposed to be the total income (including government transfers) after deducting not only income taxes but also several non-discretionary expenditures. These expenditures are Employment Insurance premiums, Canada Pension Plan, Quebec Pension Plan and Registered Pension Plan contributions, union dues, child care expenses, support payments paid, public health insurance premiums and direct medical expenses including private insurance premiums. Disposable income would also be adjusted for different housing tenure types, which will be explained later in this discussion paper.

MBM-N regions

It is proposed that the MBM-N provide poverty thresholds for nine regions across the two territories: one for each of the capitals and seven geographical groupings – two for Yukon^Note and five for the Northwest Territories (see text box – MBM-N regions, by territory). Under guidance from the statistical focal points, the MBM-N regions were based, where appropriate, on the Census Division boundaries, while also taking into consideration similarities between communities in order to make logical geographical groupings. The intent is to have the most detail possible for communities faced with different prices for goods and services, while keeping the price measurement within reasonable parameters.

Specifically, for Yukon, the 62^nd parallel would be used to delineate the boundary of Rural South^Note and Rural North^Note , while Whitehorse would be the entire Census Agglomeration (CA). The Yukon Subdivision, Unorganized, which occupies the majority of the territory and spans the two proposed areas, would be included in the North as approximately two-thirds of its total area is located in the North. For the Northwest Territories, the five Census Divisions (e.g., Beaufort Delta^Note , Sahtu^Note , Tłįchǫ^Note , Dehcho^Note and South Slave^Note ) would be used to group communities, while the CA of Yellowknife would be used for the capital.

There are a number of issues that make measuring poverty in the North particularly challenging, especially for geographies outside of the territorial capitals. First Nations reserves, settlements and Inuit regions are presently excluded from the MBM-N calculation.

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MBM-N regions, by territory

Through consultation with territorial statistical focal points, thresholds based on the following geographical groupings are being proposed:

For Yukon

1. Whitehorse
2. Rural North
3. Rural South

For the Northwest Territories

1. Yellowknife
2. Beaufort Delta
3. Sahtu
4. Tłįchǫ
5. Dehcho
6. South Slave

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Proposed methodology for the MBM-N basket

The next five sections of the discussion paper describe the proposed methodology of the basket components for the 2018-base MBM-N. The main aspects of the proposals are summarized as follows:

• Shelter: Recognising the recommendation of using the Canadian National Occupancy Standard (NOS), the MBM-N shelter component would be based upon the rental of a 3-bedroom dwelling (see text box – The use of standards in the MBM-N).
• Clothing: The clothing component would be based on the Social Planning Council of Winnipeg and Winnipeg Harvest Acceptable Living Level (ALL) 2012 clothing basket for a family of four, while making adjustments for the unique living conditions in the North.
• Food: The food component would be based on Health Canada’s 2019 National Nutritious Food Basket (NNFB).
• Transportation: The methodology would reflect vehicle use and typical transportation habits in Northern communities.
• Other Necessities: Calculations of the other expenses component would include the expenses associated with cellular telephone services and a general category, which would use the 2018-base MBM simplified “multiplier” methodology.

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The use of standards in the MBM-N

A large number of decisions must be made in constructing a poverty threshold as detailed as the MBM-N. Accordingly, wherever appropriate, the MBM-N attempts to build upon pre-existing work of experts in various domains who have already thought in great detail about what are appropriate standards for Canadian families. These standards are updated from time to time, and when the time comes to update the MBM-N through a rebasing, the newer versions of these standards could be used to update the MBM-N basket.

In general, the standards proposed for the initial MBM-N are the same as those found in the 2018-base MBM with small adjustments (Please see, Towards an update of the Market Basket, for more information).

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The MBM-N thresholds will be adjusted on an annual basis to reflect inflation. The MBM-N will adopt an adjustment methodology similar to the 2018-base MBM, which is used in the provinces, to improve the stability of the year-to-year change (see text box – Statistical Fine Print: Price indexation).

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Statistical Fine Print: Price indexation

Following the 2018-base MBM methodology, it is proposed the MBM-N will not use direct pricing of goods and services every year, as it adds unwanted variability to the thresholds, because of the sampling variability the direct pricing strategy introduces.

To improve the stability of the thresholds from year to year, the MBM-N will use price indices exclusively to inflate the thresholds. For example, once the food basket is established for 2018, the appropriate territorial CPI food price index will be used to determine the change in the price of the food basket over time until the next re-basing exercise. This will reduce variability in the time series that comes from sampling error, as well as make the year over year movements in the baskets more transparent and predictable.

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Shelter Component

It is proposed that the MBM-N derives shelter costs for rental units from those measured in the Census^Note . The Census is chosen to provide rental values because its large sample size allows for precise estimation of rental costs and covers all types of rental units, including those outside of the capitals.

The proposed methodology for estimating the shelter component costs outside of the capitals would be same as the capitals, but the shelter costs would be calculated separately for each of the MBM-N regions (see text box – MBM-N regions, by territory).

Finally, in the MBM-N, it is proposed that the territorial specific all-items index of the Consumer Price Index (CPI) be used to update the value of the shelter component for different reference years.

Clothing and Footwear Component

More specifically, during the 2012 MBM-N feasibility study consultation process it was proposed that certain items found in the ALL clothing basket were unnecessary or not typically used in the territories^Note , and therefore should be removed. Conversely, during the same consultation process, additional winter clothing items were identified as having a higher typical use in the North and were proposed to be added^Note .

During the most recent consultation process with the territorial statistical focal points, it was also proposed that an adjustment should be made to the replacement schedule, to account for the higher use of winter clothes in the North. Using Environment and Climate Change Canada temperature data from Winnipeg, the city where the 2012 ALL basket is based, and comparing it to a corresponding territorial capital, an adjustment ratio was created^Note . It is proposed that this ratio be used to adjust the 2012 ALL clothing basket replacement schedule for summer and winter clothes. For example, this ratio would increase how often a family would need to replace typical winter items like scarfs and toques, while decreasing how often they would need to replace typical summer items like bathing suits.

The proposed methodology for estimating the clothing and footwear component costs outside of the capitals would also include the costs associated with one trip^Note to a capital and/or online shopping (See text box – Measuring the Clothing and Footwear Component outside the Capitals).

After directly pricing clothing items for the 2018 base year, the clothing component thresholds would be updated to other years using the territorial specific CPI for “clothing and footwear”.

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Measuring the Clothing and Footwear Component outside the Capitals

For areas outside of the capitals, a weighted average method is being proposed, and is composed of the costs associated with travel to the closest territorial capital and the cost of ordering online. The price of the trip to the capital would include gasoline, hotel and/or plane tickets if required. The shipping cost associated with online purchases would be estimated on an annual basis, under the assumption of monthly bulk orders. The weights are based on the percentage of people in the lower end of the income distribution for these regions with internet access, either at home or on a mobile device.

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Food Component

It is proposed that the MBM-N would use the 2019 National Nutritious Food Basket (NNFB) developed by Health Canada to calculate the cost of the food component^Note . The foods in the NNFB are consistent with the new Canada’s Food Guide and are commonly consumed nutritious foods that Canadians reported consuming in the 2015 Canadian Community Health Survey-Nutrition, the most recently available survey of food consumption.

The 2019 NNFB includes fresh, frozen and canned food formats to balance considerations of cost, access and availability. Additionally, 5% is added to the total cost of the basket for miscellaneous foods and beverages such as coffee, tea, herbs, spices and condiments.

The proposed methodology for estimating the food component costs outside of the capitals would be to use an adjustment factor based on Statistic Canada’s Living Cost Differential data and territorial spatial indexes (See text box – Measuring the Food Component outside the Capitals).

As with the previous component, direct pricing of the food basket would occur in the 2018 base year, while subsequent years would be adjusted using the territorial specific CPI for “food purchased from stores”.

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Measuring the Food Component outside the Capitals

It is proposed that spatial indexes be derived by combining Living Cost Differential (LCD) data and data supplied by the territorial statistical partners, to create community level spatial indexes. These indexes would then be applied to their respective capital’s costs for the four main food groups that are found in the NNFB (i.e., vegetables and fruit, protein foods, whole grain foods, and unsaturated fats), which would be aggregated to calculate food component cost for a specific community. Finally, the 2016 Census based population weights would be used to aggregate the community level food costs into their respective MBM-N regions.

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Transportation Component

After consultations with territorial focal points, it is proposed that two changes be made to the 2018-base MBM methodology to reflect life in the North. First, it is proposed that the transportation component would comprise of only private transportation related costs. Second, considering the road infrastructure in the territories, it is proposed the basket should not be limited to compact cars, as is done in the South. Therefore, it is also proposed that the transportation component include costs associated with a utility vehicle, as well as a compact car.

The proposed methodology for estimating costs outside of the capitals would depend on whether the communities have road access. For communities with road access^Note , the costs of the transportation component would be the same transportation costs found in their capitals, but with adjustments based on the registration weights to account for the higher prevalence of SUVs versus compact cars outside of the capitals. In addition, for these regions, it is proposed that a small nominal cost be added to account for the higher maintenance cost and higher number of kilometres typically driven compared to the capitals.

For the fly-in communities in the Northwest Territories, the transportation costs would be based on the costs associated with purchasing a new mid-quality range All-Terrain Vehicle (ATV) from Hay River and shipping it by barge to the fly-in community, as well as the costs associated with operating and maintaining it (See text box – Statistical Fine Print: Transportation Component).

Finally, it is proposed that the appropriate territorial level index for private transportation be used to adjust the transportation component.

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Statistical Fine Print: Transportation Component

The method of determining the vehicle basket would be based on the combined sales results for the two territories in each vehicle class (i.e., the number one compact SUV and compact car in terms of total sales volume).

For the non-fly-in communities, each compact vehicle would include the costs associated with the purchase of an eight-year-old compact vehicle, along with 1,200 litres of gas per year. The values of the vehicles would be amortized over five years with a 36-month financing term at a rate corresponding to the published consumer loan rate.

For the fly-in communities, the costs would be those associated with purchase of a new ATV, along with 600 litres of gas per year. The value of the ATV would be amortized over eight years with a 36-month financing term at a rate corresponding to the published consumer loan rate.

Regardless of community location, other costs such as insurance, maintenance, registration and driver’s license renewals would also be taken into account.

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Other Necessities Component

Finally, it is proposed that an amount for cellular telephone services be priced separately and added to the other necessities component (See text box – Statistical Fine Print: Other Necessities Component).

The proposed methodology for the other necessities component in and outside of the capitals would use the same methodology. The 2018 base MBM multiplier^Note would be applied to the food and clothing component threshold costs for each of the MBM-N regions.

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Statistical Fine Print: Other Necessities Component

In examining the territorial SHS data it was determined that there was insufficient sample size to derive spending on the individual items. Therefore, instead of using a multiplier that represents the ratio of spending based on the aggregate of the territories, it would use the multiplier from the 2018-base MBM (the ratio based on the provincial aggregate), and then apply this multiplier to the food and clothing components for each MBM-N region.

The calculation of the other expenses category using the 2018-base MBM multiplier is the only instance where Northern data was not used in the calculation of the MBM-N.

The cellular telephone services amount would be based on the median territorial expenditure for a family of four in the first five income deciles in each territory, based on SHS data.

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Proposed methodology for disposable income

In the MBM-N methodology, disposable income is defined as total income (including government transfers) after deducting not only income tax, but also several non-discretionary expenses including Canada Pension Plan and Quebec Pension Plan contributions, Employment Insurance and Registered Pension Plan contributions, union dues, child care expenses, spousal support payments paid, public health insurance premiums, and direct medical expenses including private insurance premiums.

A MBM-N forward looking research agenda

As was the case during the consultations and analysis leading up to the discussion papers for 2018-base MBM review^Note , certain topics were identified during the creation of this discussion paper which will require further study. In addition to those previously identified during the 2018-base MBM review, the following MBM-N specific topics will likely require further research before the next MBM-N rebasing exercise.

Revised Northern Food Basket. Statistics Canada will examine the feasibility of incorporating the Revised Northern Food Basket for the communities outside the capitals into a future MBM-N methodology. Presently, the pricing of the 2019 NNFB is proposed to estimate food costs in the capitals and spatial indexes are proposed to adjust these cost for communities outside the capitals.

Country Food and Harvesting. Currently the MBM methodology only takes into account food purchased from stores. Statistics Canada will research other approaches that could account for other sources of food in the North, such as harvesting, trapping, hunting and fishing for country food.

Any decisions for changes made in the MBM will inform the decisions for updating the MBM-N. Conversely, decisions taken with regards to changes in the MBM-N could also have an impact on the MBM.

Conclusion

This discussion paper described the work being done by Statistics Canada, Employment and Social Development Canada (ESDC), Yukon and Northwest Territories statistical focal points towards the creation of a MBM-N basket methodology and those associated with the determination of an appropriate measure of disposable income. It describes the proposed basket content, measurement methods and the process to define a family’s disposable income. Following the release of this paper, there will be a review period during which Statistics Canada and ESDC will collect feedback and comments.

Users are welcome to ask questions or share their feedback. Persons interested in contacting us are encouraged to do so by sending an email to:
statcan.market.basket.measure-mesure.du.panier.de.consommation.statcan@canada.ca

If access to email is impractical or not possible, we can also be reached by contacting Statistics Canada’s general enquiries line:

• Toll-free number: 1-800-263-1136
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References

Djidel, Samir, Burton Gustajtis, Andrew Heisz, Keith Lam, Isabelle Marchand and Sarah McDermott (2020), “Report on the second comprehensive review of the Market Basket Measure”. Catalogue no. 75F0002M2020002.

Djidel, Samir, Burton Gustajtis, Andrew Heisz, Keith Lam and Sarah McDermott (2019a), “Towards an update of the Market Basket”. Catalogue no. 75F0002M2019013.

Djidel, Samir, Burton Gustajtis, Andrew Heisz, Keith Lam and Sarah McDermott (2019b), “Defining disposable income in the Market Basket Measure”. Catalogue no. 75F0002M2019014.

Employment and Social Development Canada, 2018. “Opportunity for All – Canada’s First Poverty Reduction Strategy”, Cat. No.: SSD-212-08-18E.

Hatfield, Michael, Wendy Pyper and Burton Gustajtis. (2010), “First Comprehensive Review of the Market Basket Measure of Low Income”, Applied Research Branch paper, Human Resources and Skills Development Canada.

Heisz, Andrew (2019), “An update on the Market Basket Measure comprehensive review”. Catalogue no.75F0002M2019009.

Statistics Canada, 2019. “Methodological changes to the Market Basket Measure in 2019”. Catalogue no.75F0002M2019005.

Statistics Canada, 2016. “Low Income Lines: What they are and how they are created”. Catalogue no.75F0002M2016002.

Statistics Canada, 2012. Northern Market Basket Measure Feasibility Study. Unpublished document.