Are you being gouged?

If you're visiting Alaska and feeling homesick, a sure place to run into fellow Yukoners is Costco or Fred Meyer. During the Arctic Winter Games in Fairbanks, it sometimes seemed like the Yukon was competing in the shopping event.

If you’re visiting Alaska and feeling homesick, a sure place to run into fellow Yukoners is Costco or Fred Meyer.

During the Arctic Winter Games in Fairbanks, it sometimes seemed like the Yukon was competing in the shopping event. The cafeteria on the ferry from Juneau to Skagway is often filled with Canadian accents talking about big-screen televisions and gallon jugs of cheap ketchup.

There is a widespread belief that, even if the Canadian dollar is in one of its perky phases, you can still get killer deals in America. A new report from the C.D. Howe Institute, a think tank out East, confirms this with real data.

It’s hard to boil down the Canada-U.S. price difference into a single number. It depends on a bunch of things including how you adjust for exchange rates, what categories of products you look at, and whether you consider list prices or what people actually pay.

The C.D. Howe report estimates that, based on data available from 2004-07, the gap ranged from two-14 per cent on regularly priced items and up to 18 per cent for items on sale. For certain categories, the differences can be eye-popping. In 2011, the price gap for milk, cheese and eggs hit 77 per cent. It was 63 per cent for bread and cereals.

It is kind of amazing that a country that grows so much wheat should have such expensive bread.

So what could explain the phenomenon?

Canadians often accuse their retailers of price gouging. The C.D. Howe folks quote Mark Carney, former Bank of Canada governor, as suggesting that retailer profit margins are higher in Canada than in the U.S. since the top four retailers here have 28 per cent of the market while the equivalent figure in the U.S. is just 12 per cent.

Carney would know about high prices. He grew up in Fort Smith, N.W.T., a place that makes Whitehorse look like a consumer paradise.

However, the C.D. Howe report says that retail margins are only one part of the story. Wholesale prices are also quite high in Canada. Retailers often have to buy from Canadian wholesalers, either because of government rules or restrictive practices by manufacturers. They can’t buy from the giant American wholesalers who buy in huge quantities and get better prices.

So you end up with higher wholesale prices multiplied by higher retail margins.

The problem is exacerbated by how multinational corporations set different prices for the same product in different countries. Often, for reasons one can debate, the price in Canada is higher than in the U.S. Cars and trucks are a classic example of this, with the difference for the same model often being thousands of dollars.

Sometimes Canadian companies accused of having high prices point to the higher cost of doing business in Canada. There is some truth to this, although it’s hard to measure how much. Canadian retailers make arguments about the size of our country and its remoteness, although to be frank it’s not clear to me that Hamilton is much more remote than Buffalo.

One major explanation is our government. Despite free trade with the U.S., we still have tariffs on some items and government restrictions on others. Canadian grocery stores are actually not allowed to send a truck down to the U.S. and buy cheese without being hit by a punitive tariff at the border. It’s against the law for a grocery store in the Yukon to buy cheap, tasteless American beer in Skagway and sell it here.

The list of such restrictions could fill a book. Each restriction may have a rationale, but the end effect is a few more dollars out of your wallet.

So what should you do about it? The Senate did a report on the subject a few years ago, and the federal government made a big splash in the last budget about cracking down on the price gap. It’s not clear that the federal government could actually track the daily movements of prices on millions of products in thousands of stores across the country.

To be polite, you may have to wait a long time before the Senate and the federal government do much to help you, especially since the federal government is actually behind a bunch of the restrictive practices mentioned above.

“Buyer beware” remains your best strategy. You need to comparison shop, and reward lower cost outlets with your business. Use the Internet, find sales, switch brands and change the products you buy.

So far, my attempts to get the kids to eat less pricey Canadian bread and eat more rice and turnip snacks has been unsuccessful. I may have to tell them they have been diagnosed as gluten intolerant if peanut butter and jelly sandwich consumption continues at its current pace.

This all seems like penny pinching, and it is. But the figures are big in aggregate. I recall a year or two ago when a certain Canadian retailer told investors that price competition from newly arrived U.S. chains had forced it to cut prices significantly. It worked out to tens of millions of dollars every quarter that its customers had been paying before but were now keeping in their wallets.

Savvy shopping can probably save you five to 10 per cent on your retail purchases. That could be thousands of dollars. It might even pay for your next vacation to Alaska.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. You can follow him on Channel 9’s Yukonomist show or Twitter

@hallidaykeith

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