Special to The Globe and Mail
As an economist, perhaps I should find it satisfying that every public-policy decision we make demands an economic justification. What’s the cost-benefit analysis of the project? What’s the return on investment of building a new tunnel or library? Do the economics of it make sense? We obsess over these questions.
Surely economic analysis does provide valuable guidance for policy makers. The problem is we work ourselves into analytical cul-de-sacs from which we can never return. The traditional models of estimating the impact to the country’s gross domestic product can tell us whatever we want them to tell us – they are only as good as the assumptions that go into them.
Canada – and Alberta specifically – is about to enter another analytic cul-de-sac with the question of whether taxpayers should back a bid for Calgary to host the 2026 Winter Olympics. Already the debate hinges on one question: Will it be good for the economy?
Almost universally, economists agree that hosting a sporting event is not worth the economic benefits to the host region. The costs are enormous – the cost of security alone for the 2010 Games in Vancouver rang in at almost $1-billion. Most economic cost-benefit analyses would suggest that coin this large would be much better spent elsewhere, or rebated to taxpayers, if boosting the GDP is the goal.
Yet, economic impact is not the only thing that matters. When it comes to supporting an Olympic bid, other questions should guide the debate.
The first question Canadians should ask is whether we value amateur sports and the future of the Olympic movement at all. Some would say no. But my guess is that most Canadians like cheering on our nation on a global stage. We love our Olympic athletes. Who didn’t love watching Penny Oleksiak win in Rio? Or Clara Hughes on the ice or her bike? Or Sid the Kid score the winning goal in Vancouver?
If that’s the case, Canada has a responsibility to host the Games at least occasionally. Between the Vancouver Games and 2026, there will have been eight Olympic Games – Winter and Summer. Canada is one of only a handful of countries geographically capable of hosting the Winter Games. And as the list of countries willing to bid on the Olympics diminishes, the future of the movement could be in question. Besides, why should we expect other, much poorer countries to host? Some nations are so corrupt that hosting the Games has burdened their people unfairly.
The second question that should be answered is whether the host city will find a lasting economic impact from the sports facilities left behind. Certainly some cities have found their stadiums to be enormous white elephants that sit empty and eventually crumble.
But in Calgary’s case, the venues of the 1988 Games have continued to generate economic activity. The speed-skating oval at the University of Calgary and the bobsleigh and luge track at WinSport continue to attract world cup events. None of this is accounted for in a traditional cost-benefit analysis.
The third question is whether the city in question would benefit from a boost in global profile. For Olympic cities such as London, Tokyo or Sydney, the answer is probably not.
But for small cities such as Calgary, Pyeongchang or Salt Lake City, the boost in profile could be enormous. You can’t buy this kind of tourism promotion.
Economic studies and cost-benefit analysis can be valuable tools for policy makers. But relying too heavily on an economic impact study – whether it is positive or negative – can result in a wrong decision. Other factors need to be taken into account as well.
Do Canadians care about the future of the Olympic Games? Can we derive value for decades to come from the sporting venues? Will we benefit from a boosted global profile? If the answer to even one of these questions is yes, the strict economic analysis alone should not be our guide.
Special to The Globe and Mail | Thursday, December 29, 2016
Ten years ago, I wrote a book entitled Coming Up Next, which tried to predict long-term economic trends in Canada’s economy. It was sobering to pull the book off the shelf to see which predictions I got right – and which ones I got wrong.
Economists are our own worst enemies. We set ourselves up for failure every time we make predictions, yet we can’t help ourselves. And as another year draws to a close, it’s time once again to guess what’s going to happen next. So, here are some bold (and some not-so-bold) predictions for Canada’s economy in 2017 and beyond.
1. Canada-U.S. trade disputes will intensify. One doesn’t need a Nobel Prize in economics to make this forecast, it’s already happening. With the expiry of the softwood-lumber agreement and an incoming White House administration vowing to get tough on trade deals, it is a certainty that trade spats will dominate the economics news. Softwood lumber will be front and centre. Trade lawyers are rejoicing.
2. West Texas intermediate will close the year at $55 (U.S.) a barrel. Statistically speaking, the best guess is often that prices will end the year at the same point they started. But there is some logic to this as well. OPEC agreements to limit supply may or may not hold together, but Saudi Arabia has realized $30 oil hasn’t worked out that well for it. And shale oil in the United States is likely to put a cap on oil prices when they start bumping up against $55 or higher.
3. Japan will become the focus of a trade deal for Canada. With the CETA agreement mostly wrapped up, Canada needs to find other major economies with which it can broaden its trade base. China is tricky at the moment because of Donald Trump. Russia and Brazil have been huge disappointments. India still seems a while in the coming. Japan ticks all the boxes for Canadian trade, particularly in agriculture, and they’re still keen to continue work on the Trans-Pacific Partnership.
4. The Canadian dollar dips below 70 cents early in the year, but finishes 2017 at 78 cents. With the economy rising in the United States but stagnating in Canada, traders will find more compelling reasons to buy U.S. dollar assets and investments. The Federal Reserve will raise rates three times in 2017, while the Bank of Canada will sit on the sidelines until 2018. However, the loonie should stabilize and regain some ground toward the end of the year.
5. The Keystone XL pipeline gets Washington’s approval. Again, not out on a limb here. This will cheer Canada’s energy sector, but it will sharpen the divide between pipeline proponents and environmental interests.
6. Alberta’s budget deficit starts to shrink. Higher oil and natural gas prices will lift revenues for the provincial government above forecast levels. The carbon fee, which kicks in New Year’s Day, will be redistributed and rebated back to some Albertans, so it won’t have an impact on the deficit.
7. Ontario will have the fastest real GDP growth rate among the provinces. Aided by a faltering Canadian dollar, the country’s manufacturing heartland will continue to shift gradually away from traditional sectors and develop greater global supply-chain focus.
8. NAFTA is not torn up. There are things said during campaigns to jazz up the crowds, and then there are strategies that make sense from within the Oval Office. Tearing up the North American free-trade agreement does nothing for the latter. Mr. Trump will be preoccupied by China, not Mexico or Canada. He has enough business acumen within his cabinet to advise him against ditching NAFTA.
9. Canada does not submit a bid for the 2026 Winter Olympics. The federal and Alberta governments are unlikely to support Calgary in a bid for the Games, especially given the exorbitant costs of security. Calgary’s mayor has said that without federal and provincial support, the city will not bid.
10. Montreal wins the Stanley Cup. University of Calgary Dinos win the Vanier Cup. Winnipeg Blue Bombers win the Grey Cup.
Hold on tight! It’s going to be an interesting year.
Special to The Globe and Mail | Sunday, January 15, 2017
More than 90 years ago, an enterprising businessman in Cincinnati named Noah McVicker came up with a clever solution to a vexing problem. Wallpaper was popular in homes in the 1920s and 1930s – but because of coal heating and oil lamps, it got filthy. Mr. McVicker developed a putty-like substance that could be pressed onto the walls, cleaning them without damaging the wallpaper.
His family-run soap company enjoyed great success with the product, but he was sideswiped with a most unwelcome development. By the 1940s most homes had converted to natural gas and electricity, and wallpaper was not getting as dirty. This gutted the demand for his cleaning product and threw the company into trouble.
Fortunately, his nephew Joseph was able to see a bigger picture. He recognized that Mr. McVicker’s product was so much more than just wallpaper cleaner. It was also popular with art students as modelling clay, and children enjoyed playing with it. With this greater perspective, Mr. McVicker pivoted and changed the market for the product. It gave birth to one of the most successful and beloved toys of all time: Play-Doh.
What lessons can Mr. McVicker’s story offer to Canadian industries in 2017? We aren’t facing falling demand for wallpaper cleaner, but our economy is in a precarious situation. The United States is shifting toward less, not more, global trade. And like Mr. McVicker who faced an unexpected and unwelcome drop in demand for his product, we need to pivot. Quickly.
But how? It requires us to look at our economy, our resources and our products in a new way.
Bitumen would make a terrible children’s toy. Softwood lumber has few other purposes if not sold to U.S. buyers. Our auto parts sector will be decimated if Trump puts Canada in his anti-trade crosshairs. Adapting to unwanted and unexpected change is not easy, and no one suggests it is. Mr. McVicker, too, may have thought he was doomed. What saved him was his nephew’s ability to see the wallpaper-cleaning putty in a new way.
So what’s Canada’s bigger picture? If the world’s largest economy is turning inward on us, can we pivot to Japan, the world’s third largest economy? They need lumber and oil too, as well as high value-added parts and components in manufacturing. Maybe 2017 is the year we get serious about a bilateral free-trade deal with Japan.
And while bitumen has few other purposes other than to be pumped into a pipeline and sent to refineries in Chicago, can we find other ways to economically use the product here at home? Refineries are costly, though, and Canada is an expensive place to build them. What other creative ideas can we come up with to use our hydrocarbons in a different way, rather than simply burning them as fuel?
Our manufacturing sector, too, holds enormous untapped potential. Rather than remaining a branch plant economy that feeds into the U.S. behemoth (the model that worked so well for decades following the Second World War), what can we learn about design mentality from places like Denmark? How can we position our economy at the top end of the value-added chain, which is product design?
Thousands of Canadian companies are already doing this. We are creative, innovative and great designers. But so far, it hasn’t been enough. If Mr. Trump carries out his (naive) plans to repatriate U.S. jobs by restricting trade, Canada’s economy is in serious trouble. We don’t have the luxury of a five-year Royal Commission to explore the problem, and two decades after that to execute a plan (which was the model used to introduce the free-trade agreement in the late 1980s).
We need to act quickly. The solutions may not seem obvious to us at the moment. Then again, I doubt Noah McVicker would have imagined being the inventor of Play-Doh.
Special to The Globe and Mail | Published December 14, 2016
I know you usually get letters from little girls and boys, but I’m a bit desperate these days.
In the past, you’ve been very generous with me, but it seems perhaps I’ve done something to upset you. I’ve had nothing but lumps of coal in my stocking for the past two years.
Since I’m trying to get off coal, perhaps you’d consider leaving a few goodies under the tree instead. I’ve compiled a short list of things I’d love to see.
Oil at $55 a barrel. Plenty of Albertans would like a much higher price for West Texas intermediate, such as $75 (U.S.) or $80 a barrel. But I actually don’t think we need it that high. Sure, $80 oil would help bring back jobs and investment, and it would certainly boost government coffers. But a big jump in oil prices would just put me back on the roller-coaster of booms and busts. A moderate price with stability is better than a high price that crashes again in three years.
More clean-tech companies. Okay, I’ll admit that I’ve fought a bit with my big sister British Columbia this year. But she’s had two full years of strong economic growth and I’m starting to feel left out. Vancouver has worked wonders in building up its tech sector, but from what I’ve been hearing it’s starting to have a hard time holding on to them. The city is too expensive for tech-sector employees to live. Could you please send a few of those companies east over the Rockies? I’ve got some attractive office space in Edmonton and Calgary, and their employees can get much bigger condos for half the price!
Good weather. Tourism is huge for me, and last year was a record-setting year. But attendance at the Calgary Stampede was down – not only because of the recession, but also because of torrential rain and hail. Could you manage to keep July and August comfortably warm and dry? That would keep the tourists spending. And on the topic of weather, I’d also like to put in a request for decent moisture in April and May – not too much and not too little, but just the right amount to keep farmers happy. Agriculture is my second-most important sector and the proper balance of wet, dry and warm is necessary to keep those wheat and canola crops healthy.
A free-trade deal with Japan. Would you put in a good word for us with the Prime Minister on trade deals? He’s done great work with the Comprehensive Economic and Trade Agreement with Europe, but I’d love to have more diversity in global trading partners. Free-trade access into Japan for my lumber, pork and beef products would be fantastic. It doesn’t have to be Japan necessarily, but it seems like an obvious market for Canada. Even if its economy is stagnant, there’s still more than 126 million consumers.
Favourable deals for Canada in the White House. Could I slip in one more teensy, weensy request? Could you arrange for Donald Trump and his incoming administration to rethink U.S. trade isolationism? I know Canada isn’t in his crosshairs, but we risk being collateral damage if he follows through on some of his campaign promises to tear up the North American free-trade agreement. He’s talking favourably about the Keystone XL pipeline, which would be welcomed by my energy patch. But what I really need are open borders – and throw in a renewed softwood-lumber trade agreement if you can manage that.
Now, Santa, I know I’m asking a lot. You must get so many requests, especially this year with all of the violence and anger around the world. It’s been a tough year for many.
But if you find it in your heart to deliver a couple of these things on my list, I’ll make a promise to you, too. I promise – one more time – not to waste this recession. I promise to foster more economic diversity, to encourage more innovation, to continue building up my arts, culture and transportation systems, to lead in environmental stewardship and to be that place of opportunity for people from all corners of the globe.
Have a safe trip on Christmas Eve, and give Rudolph and Mrs. Claus my regards.
'Twas the night before Christmas and all through the land
Albertans were weary, you understand.
Recession has pummelled our spirits this year;
it's been a tough time of worry and fear.
Businesses suffer and jobs hard to find,
it's left a discouraging note this Yuletide.
But cheerier lies the next year ahead--
economists tell us to not be mislead.
The price of West Texas is up over fifty
and that, says producers, is really quite nifty.
For fifty is now the new eighty, they say,
and at this new price we need not dismay
With OPEC agreeing to crude oil cuts,
and Putin in need of petroleum bucks,
the price of the black stuff should stabilize soon
and that will lift energy stocks like balloons.
And at the same time, new projects are near.
A way to move oil to tidewater, dear!
A pipeline or two, we've asked not too much.
And finally, Trudeau has given thumbs up!
Now things, of course, percolate south of the border
where Donald and company seek a new order.
Will Canada suffer? What happens to us
if NAFTA is thrown right under the bus?
Yet Trump is pragmatic, and ever so keen
to bolster America's economy.
That should help us out, Canadians mention.
Let's try to forget Trump's other intentions.
So next year is likely to be a bit better,
but hard work is needed from all whom we've vetted.
Our government leaders must be in good form
to help our dear province manage this storm.
On Notley, on Ceci, and on Brian Jean!
McIvor, Don Iveson, Naheed Nenshi!
Let's all work together, and be sharp as whips.
The fighting and nastiness help not a bit.
And even though 2016's been a curse,
there is always someone who's struggle is worse.
Be kind to each other and be neighbourly.
So many are struggling—give generously.
Take heart, dear Albertans, and be of good cheer.
A new year is coming, we'll play it by ear.
The recession will fade, so rest comfortably.
Merry Christmas to all, and a good economy!
Special to The Globe and Mail
Published Friday, Dec. 02, 2016
Most Canadians are aware of the economic pain bearing down on energy producers. But few would guess the surprising way in which they’re dealing with it: by actually increasing wages and hours.
Employees in Canada’s mining and energy sector still earn the fattest paycheques in the country. Average weekly earnings in September of this year were $2,059 (seasonally adjusted). No other sector is even close, and wages are more than double the national all-sector average of $957. Even more curiously, wages in mining and petroleum are 17 per cent higher than they were five years ago.
This presents a bit of a paradox. The energy sector – which has gone from Canada’s economic leader to laggard in two short years – is still home to high and rising wages. How does this make sense? Shouldn’t wages be tumbling as oil producers scramble to get their costs down?
There is an explanation. Wages may still be high, but the head count has been dropping like a stone. From its peak two years ago, Canada’s energy and mining sector has shed over 48,000 jobs, a drop of more than 20 per cent. The situation has been most acute in Alberta, the centre of Canada’s oil and gas sector. In that province, employment in the petroleum sector has dropped 29 per cent, meaning almost one in three jobs in the industry have vanished.
This tells us three things about the energy sector and how it’s fighting to regain profitability.
The first is that for energy companies, it’s smarter to hand out layoff slips than to cut wages. Perhaps because of the nature of much of the work involved in resource extraction, lower pay isn’t a practical solution. Only a certain kind of person is able to either manage the physicality of the work (on oil rigs, for example), or possess the right technical skills and education (such as geologists and engineers). Cutting pay across the board would make it difficult to hold onto your star employees. Better to cut the ones you can still function without than risk losing your best talent.
The second thing we learn is that there were plenty of labour efficiencies to gain – particularly in oil extraction. If CEOs in the energy patch were honest, they’d likely concede that they hired too many people during the good times in the five years leading up to the oil price tipping point in June, 2014. Canadian producers are still producing the same volume of oil that they did when it sold for 100 (U.S.) a barrel – but they’re doing it with 20 per cent fewer people. Many of the job losses have been concentrated at the head-office level, with fewer people required to work on future projects. Most of those high-cost projects have been cancelled.
The third thing we learn is that employees still fortunate enough to have their job are working longer hours, which partially explains the higher weekly earnings. Over the past 12 months, the average work week for workers in oil and gas extraction is about 2 per cent longer than it was five years ago. That makes sense considering the same amount of work needs to get done but with 20 per cent fewer workers. Calgary’s energy sector workers were famous for enjoying every second Friday off – something that has been scaled back or eliminated at many companies.
Conditions may be starting to gradually improve. The OPEC production limits and two pipeline project approvals announced this week offer some silver lining for Canada’s oil producers. Still, keeping costs contained and efficiencies up will remain the modus operandi for the sector in 2017. If the experience over the past two years is any indicator, don’t expect big wage cuts in the petroleum sector any time soon.
“Canada?” The response was always one of surprise when I revealed that, no, I’m not American. “Oh, we get lots of Canadians here. Nice folks.”
Nothing brings into focus more vividly what the rest of the world thinks about Canada than travelling abroad. Having spent the past 10 days in Ireland, I was once again reminded that when others think of Canada, they usually think good things. The problem is, beyond that, they tend not to think of us at all.
Mysteriously, Canada is a bit lost in a world of more interesting, frightening or dramatic places. (The one bizarre exception was Irish TV game shows: Canada shows up as either an answer or part of the question in an astonishing number of trivia questions, perhaps underscoring our global position: we’re trivial.)
I was in Dublin as a guest speaker at the summit of the Ireland-Canada Business Association, a group fostering greater business connections, investment and trade between the two countries. There was a packed house of enthusiastic Irish business people, but I couldn’t help but think how many more people would attend a summit focused on the U.S., Germany or even Australia.
Even though we’re a nation nine times larger than Ireland and a member of the G7, Canada still seems like an afterthought in Dublin.
What are the economic implications of having such an invisible profile? Is it a drawback being so vanilla in a world of 101 flavours? Or can there indeed be some benefit? After all, who wants the violence or political theatre that is lifting other countries’ profiles at the moment?
Certainly in terms of investment, Canada’s low profile is not a benefit. Global capital managers and investors want to make money, but they need to be aware of where the opportunities are. If the only thoughts they have of Canada is moose, mountains and maple syrup, they’ll overlook us.
Tourism is another enormous area of potential economic opportunity. The world’s middle class of consumers, particularly in China, are looking for interesting and unique travel experiences – but they also want security and safety. Canada checks a lot of those boxes.
Finally there’s the realm of culture, art and design. These overlap a bit with tourism, but taken together they really represent a broader economic driver called innovation. Countries that are innovative, creative and more risk-taking also tend to attract like-minded people.
In this very global age in which we live, the best and brightest can live anywhere. They choose to live in cities like Barcelona, Copenhagen, Austin and Melbourne for a reason – they are bursting with art and design.
I started to become despondent about Canada’s feeble global profile, drowning my frustration in pints of Guinness. But then, three separate media events on three consecutive days gave me hope for my home and native land.
First, Monocle magazine. The U.K.-based magazine is the must-read on global affairs, business, culture and design. Its November issue is focused on Canada. The cover story is titled: “Canada calling: Why it’s time to take a fresh look north. From Toronto to the high north, Monocle reports on a nation that’s flexing mind and muscle, re-engaging diplomatically and spreading its wings.” It’s almost as if Monocle believes it discovered a new country no one had heard of before.
Then, The Economist magazine’s Oct. 29th cover story: “Liberty Moves North: Canada’s Example to the World.” When the world’s most respected business and political affairs publication dedicates a cover to Canada, you know attention may finally be shifting to above the 49th parallel.
Finally last week, The Lonely Planet publication awarded Canada its Top Travel Destination of 2017. That alone could do more to boost tourism to Canada than the travel agency posters of Lake Louise.
Profile matters for the economy. A strong reputation as a great place for investment, tourism, innovation, culture and design is critical in a planet crowded with competition. We’ve got all of the ingredients, and it’s great that three major publications are finally recognizing us.
Still, Canadians cannot sit back and let business magazines and travel books do the heavy lifting for us. We need to promote ourselves more aggressively, or risk behind left behind.
This column originally appeared in The Globe and Mail on November 4, 2016.
Special to The Globe and Mail
Published Friday, September 23, 2016
What motivates interprovincial migration in Canada? Are people drawn to a new region by a perceived better quality of life? Or are they simply fleeing economic hardship and moving to where the jobs are?
While it’s difficult to generalize across all regions of the country, out-migration from Alberta shows that it’s a bit complicated. Sometimes migrants are pushed out, but sometimes they are pulled away.
In the most recent snapshot of interprovincial migration, Alberta is now seeing a net loss of migrants to both Ontario and British Columbia. Combined, these two provinces are the destination of nearly two-thirds of people leaving Alberta. That reverses a powerful trend of in-migration over the period 2010 to 2014. With the petroleum sector in a nasty slump and the province now stuck in a second year of recession, it’s neither surprising nor unexpected that more Albertans are leaving than arriving.
The graph above shows total out-migration from Alberta to Ontario and B.C. over the past 40 years. (The graph does not show net migration, which would show that in-migration to Alberta has generally outpaced out-migration). What stands out in the graph is that while there are occasional surges of out-migration to both provinces, the surges are not concurrent. That suggests the reasons Albertans move to B.C. are different than the reasons they move to Ontario. Out-migration from Alberta to B.C. swelled to nearly 8,000 per quarter in 1979 and 1980, and again in the early 1990s (see graph). These were years when Alberta’s economy was actually performing reasonably well – the unemployment rate in 1980 was a mere 3.9 per cent. In 1990, it was 6.9 per cent, which is high for Alberta but lower than B.C.’s rate of 8.4 that year.
There was another wave of out-migration from Alberta to B.C. in 2007. Labour markets in both provinces were doing well, but Alberta was still the stronger market. In that year, Alberta’s white-hot economy actually saw severe labour shortages; the unemployment rate was 3.6 per cent. Still, people kept moving to B.C.
This suggests that lifestyle, not economics, prompts Albertans to move to B.C. The mild climate on the coast, the hot, dry summers in the interior and the recreational opportunities throughout the province make it very attractive. There’s a reason why people retire to British Columbia.
Ontario, on the other hand, tends to be the destination of migrants who may simply be out of work opportunities. Massive waves of migrants moved from Alberta to Ontario during the downturns of 1984 and 1986, when Alberta’s unemployment rate was a miserable 11.4 per cent and 10 per cent, respectively. That stands in sharp contrast to Ontario’s economy, which was ramping up. Riding a wave of well-paying manufacturing jobs, its unemployment rate fell to a low of 5 per cent in the late eighties.
The pattern that emerges is one showing there are different reasons for out-migration from Alberta. British Columbia tends to draw people, regardless of economic conditions. Ontario, on the other hand, tends to receive those pushed out of a lousy job market.
Currently, both provinces are seeing rising migration from Alberta – a rare instance when the cycles are in sync. With the highest unemployment west of New Brunswick, Alberta’s tough economy is unfortunately driving some job seekers out of the province. Ontario’s economic growth is easily outperforming Alberta’s this year, but it’s hardly booming. The province’s unemployment rate is still near 6.5 per cent. That’s why there has been a rise, but not yet a massive tsunami, of migration from Alberta to Ontario. The opportunities in the latter are simply not all that much better.
British Columbia, on the other hand, is enjoying its day in the economic sun. With the strongest labour market in the country and an economy fuelled by offshore investment, B.C. is by far the preferred destination of job seekers from Alberta. Not only does the province offer plenty of jobs, there are daffodils in February in Stanley Park.
Indeed, if it wasn’t for the unattainable cost of real estate in the lower mainland, out-migration from Alberta might be higher still.
Todd Hirsch is the Calgary-based chief economist of ATB Financial and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline
Special to The Globe and Mail
Published Thursday, September 8, 2016
Still dazed by oil’s price collapse in 2014, Alberta’s economy is gradually finding its feet. All eyes have been fixed on the drama playing out in the oil patch, but all the while other sectors have been quietly developing new products and markets.
The biggest surprise has been Alberta’s burgeoning food sector. In an ironic twist that many didn’t see coming a decade ago, the province has returned to its original roots in agriculture – but this time it’s producing consumer food products for the 21st century and finding lucrative markets around the world. It’s not just for wheat, canola and cattle. It is for niche products such as organic honey, high-protein bison, award-winning gin, unprocessed cereal products and high-value greenhouse vegetables.
In fact, in terms of dollar value, food products have overtaken refined petroleum products as the largest manufacturing sector in Alberta. In June of this year, the total value of refined petroleum slumped to $971-million (seasonally adjusted), well below the glory-days high of more than $2-billion in May 2014. On the other hand, food manufacturing has grown steadily in value to more than $1.2-billion.
The chart below shows how refined petroleum has lost ground – and food has gained – in relative terms over the last five years. With the value of production in June 2011 set equal to 100, food manufacturing now has an index value of 122, while refined petroleum manufacturing has dipped to only 64.
Admittedly, the decline in refined petroleum products has been entirely due to low prices for products such as gasoline, jet fuel and diesel. The volume of production has remained constant, and if prices were to rebound, so would the value of refined manufacturing.
Alberta’s food manufacturing, on the other hand, has grown both in value and volume terms. New products and markets have lifted food to become the province’s most valuable manufacturing segment. Three factors that have provided the spark.
The first is changing consumer preferences in food and culinary experiences. This is not restricted to Alberta: Food consumers all over the world are demanding better quality, less processing and more transparency in nutritional content. The closer to the consumer a product is farmed and produced, the better. That’s a trend that gives Alberta (and indeed much of rural Canada) a competitive advantage.
Previously, Alberta’s smaller population and geographical distance from major markets made mass food processing uneconomic. The enormous factories in Toronto or Chicago could churn out packaged cookies, boxes of colourful cereal and cans of cooked vegetables at a price point unimaginable for a small, niche producer. That’s why small pasta manufacturers on the Prairies, for example, could never compete.
Now, the tables have turned and the advantage favours the small guys. Sales of mass-produced, highly processed foods have flat-lined. Consumers are willing to pay a premium for niche products grown and produced close to home. High-end restaurants go out of their way to promote their locally sourced meat, cheese and vegetables. Back in the 1980s, Calgary restaurants would never have boasted about the cheese from Sylvan Lake (about 90 minutes northwest). But today they do – and they can command a price premium for it.
The second factor is growing markets abroad for niche Canadian food products. Tourism from China is increasing – a major Chinese airline just started non-stop flights from Beijing to Calgary. It still has a lot of growth potential, but Alberta food producers can capitalize on Chinese interest in all things Canadian. (In a recent conversation, a shop-owner in Hinton, Alta., who sells specialty foods and gifts reported that a busload of Chinese tourists stopped in the other day and “bought everything in the entire store.”)
The third factor is government support. As much as the market libertarians don’t like to admit it, there are some sectors that need a boost from the public coffers to get off the ground. The Food Processing Development Centre in Leduc – funded by Alberta Agriculture and Forestry – has helped small, niche players in the industry test recipes and develop marketing experience.
Organic honey is never going to replace a barrel of West Texas Intermediate for supremacy in Alberta. But thousands of new food producers–small and niche as they may be–can provide better balance and diversity in the province’s economy.
Todd Hirsch is the Calgary-based chief economist of ATB Financial and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline
Special to The Globe and Mail
Published Wednesday, August 10, 2016
Now in the grips of a second year of contraction, Alberta has gone from the hare to the tortoise of Canada’s economy. It’s by no means the first time the province has found itself on the wrong side of the resource price collapse; once again it finds itself too heavily reliant on a single industry and commodity.
In the past, the province’s labour force reacted to recessions with greater elasticity – when the jobs disappeared, so did the workers. The current downturn, however, is proving to be different in many ways. Curiously, Alberta’s workforce is not contracting nearly to the extent that it has in the past.
The accompanying graph (see bottom) shows the year-over-year per cent change in the number of Albertans over the age of 15 who are working or looking for work. The nasty recessions of the 1980s saw tens of thousands of people pack up and leave Alberta, resulting in a drop in the size of the workforce. During the darkest days of 1987, the province saw more than 1.2 per cent of its workers leave or drop out of the labour market. This repeated itself during the recessions of 1992 and 2009-10.
This time around, however, the labour force has held its ground. It did dip briefly to a year-over-year loss of -0.2 per cent in May of this year, but in July the size of the workforce was actually greater (+0.4 per cent) than a year ago.
What’s different about this recession that has enabled Alberta to hold onto people, even if they’re out of work?
The main reason has been net interprovincial out-migration, which has (so far) amounted to only a trickle. Over the last two quarters for which data is available, the province did lose people – but only a net loss of 2,800. That’s a fraction of the 140,000 net gain the province enjoyed over the previous five years. The job market in the rest of the country is lacklustre, especially in Ontario. Unemployed workers could leave Alberta, but their job prospects are not particularly better elsewhere, except in British Columbia.
Another factor could be the addition of new entrants to the job market because of falling household income. A few years ago, employment earnings in Alberta were so strong that it was increasingly possible for households to have only one income-earner, allowing the other adult member to stay home. This was especially true in Edmonton, which saw its participation rate actually fall during the strong economic recovery of 2010.
But with the number of layoffs in 2016, some of those formerly stay-at-home Albertans are being pulled back into the job market simply to supplement falling household income. The increase in part-time jobs across the province suggests that this could be the case.
A third factor supporting the size of Alberta’s labour force comprises the other two components of population growth: international migration and natural population growth. These have remained strongly positive for Alberta, even while interprovincial migration has turned negative. Over 54,000 international migrants arrived in Alberta over the last four quarters, accounting for nearly one in every six new migrants to Canada. That’s greater than Alberta’s 11.7-per-cent share of the national population. And Alberta’s birth rate has outpaced the national average for years, resulting in more teenagers entering the job market today.
The stable size of Alberta’s workforce during the recession is a mixed blessing. Surely holding on to a cache of available workers is positive for employers who, before too long, will start looking to hire once again. And a stable population supports the housing market, retail sales and other consumer-driven sectors.
On the other hand, it has been responsible for the unemployment rate shooting up to a painful 8.6 per cent last month. A greater number of people looking for work increases the competition for scarce jobs – and for many out-of-work Albertans, that’s the problem.
Todd Hirsch is the Calgary-based chief economist of ATB Financial, and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.