Why is living in Barbados so expensive?

Ever since we arrived on this little island, we have been astonished at the cost of living. From the very basic items that are bought each week at the supermarket to luxury items such as meals out, Barbados stands out at the most expensive place I have ever visited. On average, it seems that things cost about twice as much as in the US. Admittedly, many goods are imported, from the US and UK, though not from relatively cheaper local sources such as Trinidad (see below). According to the Index of Economic Freedom 2007 Barbados levies significant tariffs on non-CARICOM goods; average tariff rates are similarly high. There are, however, price controls on basic food items and fuel. No wonder that those who can travel to the US (or Trinidad) and ship things back in barrels or containers. They get better prices and better choices. That would suggest that the difference is not just transport costs and duties.

There was discussion several months ago about price levels, especially the cost of food, and accusations that retailers were price gouging. A week's groceries at one of the major supermarkets (SuperCentre, the island’s largest chain of supermarkets and pharmacies, accounting for a major share of the supermarket trade in Barbados, see) seems to run regularly at BS$ 400 (US$ 200). I certainly don't understand how the average Bajan can make ends meet living with those kinds of prices.

But looking at places like restaurants, I don't understand why meals including local sea food and other local ingredients are priced as if these were coming from Europe. It's hard to find a good restaurant that charges less that B$ 150 (about US$ 75) a person for a two course meal. Only if you eat roti or go to a place like Oistins for fish fry or outdoor BBQ joint like Just Grillin' does a meal come at a reasonable cost, say B$ 15-20 a person. Sure, tourists can deal with these prices over their vacations, especially coming from the UK with the pound very strong; though I'm sure they would love lower prices as few of the places are really that good. But, I suspect that there's a lemming approach to the pricing.

A task force was set up early in 2006 to monitor all aspects of food prices, after mounting complaints from consumers. In March 2007 the President of the Barbados Chamber of Commerce and Industry (BCCI), Dick Stoute, claimed that local businesses were not to blame for the high price levels (see report in The Advocate newspaper). This followed reports by the Department of Commerce and Consumer Affairs, and the Fair Trading Commission (FTC) stating that food prices increased by approximately 25 per cent over the past three years and inflation was up 13 per cent over the same period. What was clear is that no one knows or is prepared to say what is going on in the food retail and distribution industry, which made B$883 million in sales but no one has said categorically what the profit level was, though the BCCI has estimated that at end-2006 the average profit for food retail business was 3-4%. But what is the mark-up at the wholesale level, and to what extent do connected wholesale and retail groups manage to manipulate prices? The Barbados Shipping and Trading Company owns the major food retailer, Supercentre, and the household appliance retailer, Dacosta Manning, but also has major import and distribution subsidiaries.

The FTC report highlighted that increases in sea freight; increases in cost of packaging materials; increases in local energy costs; the Cess (6% tax on consumer imports) imposed by government; and a number of others factors were important contributory factors. Mr. Stoute also noted that with the removal of the Cess [from February] he expects that this will reduce prices over a period of time. Part of the underlying problem is that wages are too high: the gap between real wages and productivity widened between 1999 and 2004, and limited data for period after suggests that gap has not been fully closed (see IMF Staff Report for the 2006 Article IV Consultation). Part is also due to Barbados' appetite for imported goods. Central Bank of Barbados data for the quarter ended march 2007 show that total imports in 2006 were B$ 3.17 billion, about 1/3 of imports are consumer goods (and about 40% of this is food); only just under 25% of imports from CARICOM.

The official measure of inflation in Barbados, the retail price index has been accelerating on average since 2004, from 1-2% previously to around 6-8%. This a disturbing uptick in the trend, even price increases are still relatively moderate, but people are being asked to adjust to a much faster rate of inflation. (For more analysis of the trends see Broad Street Journal article on recent price developments in Barbados and Trinidad.) The central bank expects average inflation to decline by end-2007. Maybe we should put off shopping and eating out for the rest of the year!