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Do groceries cost twice as much in Canada as in UK? Walmart Canada, ASDA comparison suggests so

If there is one thing Canadians and Brits like to complain about beside the weather, it is food prices. Anyone who has spent time in both countries will quickly realise a curious paradox: While eating out seems to cost significantly more in the Unikted Kingdom, grocery shopping seems to cost significantly less.

While cross-country food price comparisons can be challenging for a number of reasons, comparing prices between Canada and the UK could be interesting, if not insightful.

For one, Canadian and British consumer tastes / preferences and population compositions (age, gender, immigration) are similar, as are their respective economic development levels and per capita incomes. Both countries have a productive agriculture sector largely focused on cereal grain and animal food production. Both are open economies, exporting a significant share of their agricultural output while relying on imports of many fresh fruits, some fresh vegetables, as well as a host of other commonly consumed food items.

One thing that facilitates food price comparison between Canada and the UK  is the presence of online grocery shopping from the same company in both countries. Walmart Canada  offers online grocery shopping in select cities across the country.  ASDA, the name under which Walmart operates in the UK, offers the same service.

Shopping basket, Walmart Canada vs ASDA

Below is a fairly lengthy, albeit nowhere near complete, list of grocery items compiled from the online grocery shopping sites of both Walmart Canada and ASDA, with the respective weight/volume of each item along with its corresponding price.

Item Unit/size Walmart Canada (CAD) ASDA UK (GBP)
Quick oats 1 kg 2.10 0.75
Instant coffee 200 g 3.47 1.79
Tea bags 72 bags 3.17 0.45
Chick peas 900 g 2.57 2.07
Red lentils 900 g 2.57 1.71
Long-grain white rice 1 kg 2.47 0.45
Broccoli crown 1 cluster 2.17 0.60
Dry pasta spaghetti 900 g 1.08 0.41
Tomatoes 6 pack 1.62 0.69
Tomato paste 369 g 0.94 0.26
Bell peppers, rainbow 4 pack 3.97 1.72
Carrots 1.36 kg 3.47 0.82
Potatoes 2.27 kg 2.47 1.35
Washed baby spinach 454 g 2.97 1.51
Leaf lettuce 1 head 1.97 0.45
Celery 1 bunch 1.97 0.55
Cucumber 1 whole 0.97 0.60
Mushroom 397 g 2.47 1.12
Onion 1.36 kg 1.47 0.80
Garlic 3 pack 0.77 0.60
Gala Apples 1.36 kg 3.97 1.36
Banana 1.36 kg 2.60 1.03
Seedless orange 1.82 kg 5.77 1.82
Salt 1 kg 0.77 0.36
Pepper 85 g 2.22 1.10
Vinegar, malt or ACV 500 ml 1.47 0.21
Extra virgin olive oil 1 L 6.86 3.60
Sugar 500 g 2.17 1.19
Crunchy peanut butter 500 g 2.47 0.96
Wholewheat bread 675 g 2.57 0.46
Eggs 12 large 2.93 0.95
Sliced bacon 375 g 3.47 1.69
Salted butter 454 g 3.97 2.54
Partlly skim milk, 2% 1 L 1.82 0.75
Ground Beef 454 g 4.00 1.53
Chicken fillet 850 g 10.00 3.25
Flaked tuna 170 g 1.17 0.70
Cheddar cheese 450 g 6.47 2.21
Total   109.36 44.43

Some explanation of the ‘methodology’ used to compile this list:

The list excludes as much as possible overly-processed food items. The more processed the item, the more local logistic, supply chain and labour cost can play a role in production cost, and, ultimately, final consumer price differences. Nevertheless, it would be impossible to exclude animal products, which all require various degrees of processing, from the list, since doing so would produce an unrealistic list. Like it or not, Canadians and Brits consume a lot of bacon, eggs, etc.

The list includes as much as possible prices for packaged food items instead of prices for single items or by weight. Most households tend to buy the more economical packaged formats. Since standard package sizes differ between Canada and the UK, the price difference was directly factored for in the prices listed. That said, in almost all instances the standard package size was larger in Canada than in the UK. In such cases, this would tend to understate some of the Walmart Canada prices.

More expensive based on exchange rate

All that said, Canadian food prices, at least as much as this limited comparison between Walmart Canada and ASDA online grocery prices can serve to illustrate, appear to be significantly higher. Adjusted for the current UK Pound Sterling – Canadian Dollar (GBP-CAD) exchange rate from the Bank of Canada, the Canadian basket would cost 26 percent more.

One of the risks of comparing prices based solely on the prevailing exchange rate  is exchange rate volatility. The Canadian dollar, commonly referred to as a petro-dollar for the impact fossil fuel prices have on its movements, has been relatively volatile since the 2009 Great Recession. The UK Pound Sterling had likewise been quite volatile since the 2009 Great Recession, and has become even more so following the 2016 Brexit referendum.

The Bank of Canada Daily Exchange Rates over the past year shows the GBP-CAD exchange rate reaching a low of 1.59 on Sep 7, 2017, a high of 1.84 on Mar 19, 2018, and averaging 1.69 for the year.

A lower GBP-CAD exchange rate, holding basket prices constant, would mean an even greater discrepancy between the total price of the two baskets; the 1.69 annual average GBP-CAD exchange rate would make the Walmart Canada basket cost 31 percent more.

Even more expensive based on purchasing power

Generally, one to one price comparisons using just the prevailing exchange rate between two countries’ currencies does not necessarily reflect a real price discrepancy. A number of factors can result in a unit of currency in one country not having the same purchasing power as its equivalent in another.

For this reason, the concept of Purchasing Power Parity (PPP) is useful. While nowhere near perfect, PPP indexes try to bridge the discrepancy in purchasing power between different countries and their respective currencies.

One of the more popular and easy to understand PPP indexes is the OECD Monthly comparative price levels. It could be used, for example, to see how many US dollars (USD) would be required in different countries to purchase the equivalent basket of goods that $100 USD could purchase in the United States.

According to the latest (January 2018) OECD.Stat data, a consumer would need to spend $108 USD in Canada and $111 USD in the UK to purchase that $100 US basket.

The implied PPP exchange rate between Canada and the UK would be just 1.03, which would make the Walmart Canada basket cost  139 percent more, more than double the price of the same basket from ASDA.1

Food vs general price trend

One possible explanation for a significant price discrepancy between two countries for a given group or class of goods / services is diverging price trends for that specific  group or class relative to the overall price trend.

If food prices  rose more rapidly in Canada than in the UK over a significant period of time relative to each country’s general price trend,  that could account for at least some of the price discrepancy illustrated above.

OECD Consumer price indices for Canada and the UK on OECD.Stat  over the last ten years (2008-2017) do provide some interesting information: Food prices in both Canada and the UK rose significantly faster than the general price trend from 2008 to 2014. Canadian food prices rose 8.0 percent faster than the all-items price trend, while UK food prices rose 5.9 percent faster over the same period.

Canadian food prices as well as the general price trend continued to rise. Between 2014 and 2017, Canadian food prices rose 4.1 percent, while all-items rose 4.2%.

However, UK food prices actually started to fall as the general price trend continued to rise. Between 2014 and 2017, UK food prices fell by 2.8 percent, while all-items rose 3.4%. From 2014 to 2016, food prices actually plummeted 4.9 percent during the politically tumultuous period preceding and immediately following the 2016 Brexit vote, somewhat recovering in 2017.

So recent price trends account for at least part of the current gaping discrepancy between Canadian and UK food prices. But is there a longer term difference in the trend, and if so, what if any market factors could have contributed to it?

Note(s)
1 For those who prefer the Big Mac Index produced by The Economist as a measure of PPP, its latest (January 2018) priced a Big Mac in Canada at $5.26 USD and one in Britain at $4.41 USD. The implied PPP exchange rate of 1.19 would likewise make the Walmart Canada basket cost 106% more, again more than double the price of the same basket from ASDA.

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