Wednesday, May 7, 2014

Price Gap Paradox: All Canada's Hyped Middle Class Is Being Wiped By Higher Prices

Canadians jealous of lower prices south of the border don’t have anybody but themselves -- or at least their government -- to blame.

That’s according to a report released today by Toronto’s C.D. Howe Institute, which says closing the gap between American and Canadian retail prices will come from changes in national policy rather than putting pressure on retailers.

“Whether they are buying dinnerware, diapers, or dairy products, Canadian consumers are becoming frustrated by the higher prices of similar goods in Canadian stores relative to US stores,” writes Nicholas Li, assistant professor of economics at the University of Toronto and author of the report.

But before the government acts, it should understand why Canadian prices are often higher and how much its own policies are the cause of relatively higher prices for Canadian consumers.”

The report, called “Sticker Shock: The Cause of the Canada-U.S. Price Differential,” highlights tariffs discouraging foreign competitors from entering the Canadian market of certain supply-managed goods like poultry and dairy products. Policies surrounding these foods protect producers from outside competition, but the result is a harder hit to shoppers’ pockets.

“Eggs, cheese, those kinds of supply-managed products are some of the main culprits behind the higher cost of living here in Canada,” says Benjamin Dachis, a senior policy analyst at the C.D. Howe Institute.

Dachis also mentions increasing customs allowances as a way to put the power of choice back into consumer hands, especially the 90 per cent who live within an hour of the U.S. border.

Despite the cultural similarities, the two countries have a distinct retail atmosphere -- one that is becoming increasingly noticeable. Beyond the segregated prices sitting on the back of books, retailers in Canada are different than their American counterparts.

According to the report, the average Canadian retail store sells about 10,000 different products -- only about 70 per cent as many as the average U.S. retailer, which sells 14,000. Li also found the average U.S. supermarket to be 8,000 square feet larger than the average, 41,000-square-foot Canadian grocer.

The difference in markets has also caused problems for American retailers like Target who have made the move north. After opening more than 100 stores in Canada last year, the company has lost more than a billion dollars in its endeavour, despite a track record of Canadians crossing the border to shop at its U.S. stores.

The C.D. Howe report also brings up issues like Canada’s restrictive bilingual label laws and its lower-density population -- both factors that can drive up the cost of doing business in the country, leading to a higher price for products on Canadian shelves.

“If the federal government is serious about reducing costs for Canadians,” concludes the paper, “it should first look at some of its own policies before tasking the Competition Bureau with investigating companies charging higher prices in Canada relative to the U.S.”

Originally posted as Report puts price gap burden on Harper government Jesse Tahirali, CTVNews

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