This watermelon was priced $38 in a Nain store, but later sold by the slice at $3.99 per kilogram, the store manager said. (Courtesy Sarah Erickson)

The manager of a store in Nain, Labrador, where a watermelon was recently priced at $38, told CBC News the province's subsidy for shipping fresh food to northern communities isn't enough to keep prices reasonable for customers.

In August, people in the community were shocked when a watermelon at Labrador Investments store in Nain was priced at $55.

That price turned out to be a mistake, and the real cost of the whole 10-kilogram melon was supposed to be $38, store manager Albert Hamel said.

However, Hamel said the subsidy his store receives to help with the cost of shipping food to the North isn't enough to keep fresh food prices down.

Hamel explained the cost of shipping food to Nain is 80 cents per kilogram. The government gives a rebate of 11.6 cents per kilogram. Hamel said that leaves his store with 68 cents to pay per kilogram to get the fresh food to the north coast. It's a cost he called "extreme."

Hamel said there are additional costs for his company to ship food north, including 75 cents per piece of air freight and Canada Post, which transports the food by mail, also charges HST.

"So we have to put these two prices, I call them hidden prices, into the price per kilogram," Hamel said. "We just can't take losses on this every week."

Both the federal and Newfoundland and Labrador governments spend hundreds of thousands of dollars each year to subsidize the cost of transporting perishable items to Labrador's north coast.

In July, the province announced a further $200,000 to enhance the Air Foodlift Subsidy program, bringing the total annual subsidy to $600,000. The funding is earmarked to extend the air freight subsidy during the summer.

Hamel said his staff eventually cut up the $38 watermelon and sold it in slices, for $3.99 per kilogram.