U.S.-Canada price gap widened by tariffs, supply management, report says
C.D. Howe Institute examined why Canadians pay higher retail prices than Americans
The federal government should look at lowering tariffs and relaxing supply management restrictions if it wants to close the gap between U.S. and Canadian pricing, according to a study by the C.D. Howe Institute.
The higher prices that Canadians pay for everything from clothing to cars to cheese have been a major irritant for consumers and the rise of the loonie to par with the U.S. dollar in the past few years failed to erase the gap.
Ottawa put forward legislation earlier this year saying it may pursue enforcement action against firms that charge more for goods in Canada than in the U.S.
- 'Country pricing' a cause of Canada-U.S. price gaps
But a study of the reasons for higher Canadian prices by the C.D. Howe Institute, a research think-tank, suggests there are a range of factors that affect the wholesale prices of goods, including the exchange rate and the lack of competition in Canada in both retail and manufacturing.
American consumers shop in a more competitive environment, with more goods on offer made by more manufacturers and that tends to keep prices lower, the study found.
Food and non-alcoholic beverages showed the widest gap between what Canadians pay and what Americans pay, with the Canadian prices about 28 per cent higher in 2011.
The price gaps on supply managed items, such as milk, cheese, eggs and ice cream, tended to be wider than on other goods. The C.D. Howe report estimates the average U.S./Canada wholesale price gap for all goods grew by 14 per cent between 2004 and 2007, but for supply managed goods, the gap grew 23 per cent.
Economists have been pointing to Canada's supply management boards for years as a cause of higher prices, says Ben Dachis, senior policy analyst with the C.D. Howe Institute.
The report acknowledges that “country pricing,” the practice by some manufacturers of charging more in Canada than the U.S., does play a role in the price gap, but Dachis said retailers do face higher costs in Canada.
"In a lot of cases they have to [charge more] – to be able to survive and operate in Canada because when their product comes from the U.S. or around the world, they’re paying a punitive tariff," he said in an interview with CBC's The Lang & O'Leary Exchange.
But its recommendations for federal action concentrate on eliminating tariffs and increasing competition, including:
- Reducing tariffs and taxes and eliminating supply management.
- Increasing retail level competition (possibly with higher customs allowances for Canadians who shop in the U.S.)
- Increasing wholesale level competition by fostering more manufacturing in Canada.
“If the federal government is serious about reducing costs of Canadians, 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.,” the report said.
Dachis said there is no credible way the government can foster more competition.
"The levers it actually does have are things like reducing tariffs. That should be priority No. 1 before it starts to get into meddling into the sector trying to increase the number of competitors or even worse...regulating the prices of goods in Canada," he said.