Here is a small consolation for Quebec depanneur, grocery store and supermarket owners as well as beer manufacturers, most of whom deeming the Quebec minimum price of beer way too low and not rising fast enough from year to year (hence the hordes of Canadians from other provinces shopping beer in Quebec every day).
Over the past 10 years, they have been receiving an unexpected gift from the Régie des alcools, des courses et des jeux (RACJ or Quebec’s liquor board) through a hidden but quite real increase of about 2.5% of the minimum price of beer, worth at least an additional $160 million in guaranteed revenue and this, without ever noticing it!
And all indications are that this trend should continue, even increase over the next few years, especially since last year (2017) was the most generous for the industry in the last 10 years.
So what’s this all about?
Simply consequences related to a bureaucratic technicality establishing that the Quebec minimum price of beer must be adjusted according to the Canadian Consumer Price Index (CPI) instead of Quebec’s CPI.
A minimum price inflated by Canadian hormones
Most people believe that the Quebec minimum price of beer is simply “adjusted” every year to inflation and not “increased”. Well, think again.
Because the RACJ, whose mandate it is, does indeed have the mission of “indexing” the minimum prices of beer every year, but it does so by using the Canadian CPI, not Québec’s, as it says here:
The minimum prices for beer sold by a grocery permit holder are adjusted to April 1 of each year based on changes in the Consumer Price Index for Canada during the previous year. – RACJ website.
In doing so, the RACJ lends itself to the game of differential inflation, in the sense that should Canadian inflation be higher than that of Quebec for a specific year, the minimum price will in fact be increased; should the opposite happens, it will be decreased and should the two inflations be the same, it will then be truly indexed.
Except that Canada’s CPI is almost always higher than Quebec’s!
Why has the RACJ chosen to base its annual minimum price adjustment on the Canadian CPI and not Quebec’s? Hard to say. We may have to go back to the very beginning of this regulation to find out.
Nevertheless, this decision has been particularly rewarding for the industry since, over the last decade, the Canadian CPI has been significantly higher (especially in the last five years) except for a few years, than the Quebec CPI, as we can see in the following table.
The fact that inflation is generally higher in the rest of Canada than in Quebec is not in itself a surprise.
Although unbridled inflation is synonymous with a faltering economy like Venezuela at the moment, its moderate version often reflects the dynamism of an economy and as we share the same currency as the other provinces, those with more growth than Quebec, like Ontario and western Canada provinces, usually have more inflation than we do, Quebec being among the poorest provinces in the country.
According to the Federal CANSIM database (see table here), only 12 times since 1980 have there been higher inflation in Quebec than in Canada, for a cumulative difference of 4.12% in the CPI for Canada vs. Quebec over 38 years.
This means that the phenomenon has accelerated since that for the past 10 years, the differential reached 2.5%, more than half of the total differential reached for the last quarter of the period studied.
Lift off for the minimum price
Now, as the below tables show (and sorry for the vast amount of figures shown), indexing the minimum price of beer to an inflation rate higher than that of Quebec increases the price of beer in a very subtle way.
If we compare the indexations decreed by the RACJ on April 1 of each year to the various inflation rates in Quebec, we clearly see this margin of 2.50% emerging in favor of indexing, even with one year of lag between the different rates.
So, this indicates that a real increase in the minimum price did indeed occur.
Then, we bring the simulation to another level by imagining that the government has decreed, starting in 2008, that the Quebec CPI – and not Canada’s – will now be used for adjusting the minimum price.
In the following table, you can appreciate what the minimum price of beer today would be should the Quebec CPI has been used (column in red) compared to the minimum price established historically (column in blue) and the difference between the two (column in green) and this, for the four categories of minimum prices according to the alcohol content.
Finally, and this is how we came up with the magic figure of $160 million, we applied the average minimum price differential on the number of liters of beer sold each year in Quebec, which tells us what impact this measure had in terms of guaranteed additional income for the industry.
So, are you still with us?
Now, this exercise has some limitations. The estimate amount of $160 million is in theory accurate but has a true impact if and only all sales would be made at minimum price, which is not the case.
What this amount means is rather a “floor of guaranteed sales” than actual additional sales.
That being said, the overall conclusion is very clear: having chosen the Canadian CPI instead of Quebec’s has been quite beneficial to the industry, to the detriment of consumers.
But the latter being quite spoiled with the lowest minimum price in the country and the cheapest beer, this decision has just brought some balance and justice into the Quebec minimum price of beer equation.