A growing sense of angst among Canadian consumers has resulted from an inexplicable rise in consumer goods prices, as compared with U.S. prices. This glaring price gap – which accounts for brand name products costing as much as 40 percent more in Canada – comes despite the sustained strength of the Canadian dollar.
Not surprisingly, the conundrum has result in some high level finger pointing, with legislators blaming retailers for the higher prices, and retailers throwing the fault right back at the government.
The issue has been the subject of a series of hearings convened by the Canadian Senate finance committee – at the request of Finance Minister Flaherty. Flaherty asked the committee to look into the U.S./Canadian price gap, amidst growing public frustration.
Testifying on behalf of the Retail Council of Canada (RCC), council president Diane Brisebois cited several regulatory and legislative mandates that are affecting Canadian prices – outdated import duties on finished goods, a lack of harmonization of standards and requirements, vendor pricing, and the government’s supply management processes for dairy and poultry prices – were the four “largest contributors” cited, as reported by the Canadian Financial Post.
“We understand that this is a sensitive issue, but if this committee is really going to look at factors that contribute to the differences in pricing between Canada and the U.S., it would be remiss in not address supply management in some way,” Brisebois told the committee.
She also cautioned the panel that “it would be wrong to assume that large, multinational retailers should be able to negotiate one price from suppliers for the products they sell in North America…The reality is that suppliers of these products – those where you would tend to see the greatest difference in pricing – will charge Canadian retailers up to 50 percent more to buy those products than they charge retailers in the United States.”
Financial Post reported that Brisebois told lawmakers that the reasons cited by suppliers for the higher Canadian prices include:
- Canada is a smaller country than the U.S., and therefore more expensive in which to operate;
- Prices charged are what the market will allow; and
- Higher prices are necessary to compensate Canadian distributors and wholesalers.
How bad are the price discrepancies between the U.S. and Canada? Following is an overview of pricing prepared by the Retail Council of Canada:
|Item||U.S. Cost||Canadian Cost||Percent Difference|
|Soap – 16 pack||$6.99||$8.98||43%|
|46” LED TV||$888.75||$1,001.00||13%|
|Water Filters – 6 pack||$22.77||$26.76||18%|
|Aspirin 81mg low dose
|Ketchup 2.5 liters||$3.93||$6.90||76%|
Not surprisingly, higher prices in Canada have resulted in a spike in cross border sales. According to Douglas Porter, deputy chief economist with BMO Capital Markets, U.S. businesses can expect to continue to benefit. “There has been precious little movement in underlying relative prices in the past two years despite the [Canadian dollar’s] record sprint,” he told the Wall Street Journal’s Marketwatch blog. “They are never going to equalize at today’s exchange rate, though we will see some chipping away at the price gap in the year ahead.
But, he added “I’m not sure even if we stayed at par for years and years and years that the spread would ever completely vanish.”
So while our neighbors to the north continue to ponder the reasons behind their significantly higher consumer prices, savvy U.S. businesses are rolling out the welcome mat for bargain-hungry Canadian shoppers.