How the often neglected hewers of wood and drawers of water are saving Canada some pain

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The hewers of wood and drawers of water who built Canada’s economy are no longer big employers, but the COVID-19 recession would have been a lot worse without them.

Canada exported goods worth about $50 billion in February, exceeding pre-pandemic levels for the second consecutive month, according to data released by Statistics Canada on April 7.

Non-energy commodities such as lumber and canola have been driving the trade recovery, picking up the slack left by bitumen miners and auto-parts makers, which have had a tough time during the crisis. Another way to look at it: the Staple Thesis is reasserting itself, suggesting that investors and policy-makers should make room in their imaginations for farmers, loggers and miners, not just the software engineers that receive most of their attention these days.

“Agri-food trade has demonstrated clearly that it is foundational to modern life in every corner of the globe,” the Canadian Agri-Food Trade Alliance (CATA), an industry group, asserts in a new policy paper that will serve as its case for extra attention from political leaders as they set their post-pandemic recovery plans.

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The trade rebound is a positive omen, no matter who deserves the credit for it.

Exports were the source of former Bank of Canada governor Stephen Poloz’s “serial disappointment” with the sluggish pace of the recovery from the Great Recession.

Canada avoided the worst of that downturn, but the economy struggled to regain momentum in part because it received almost no lift from exports, which represent the equivalent of about a third of the country’s gross domestic product. The value of goods exported climbed to about $44.5 billion in July 2008, a height they wouldn’t reach again until May 2014, as financial crises on Wall Street and in the City of London triggered deep and stubborn downturns in many of the world’s most advanced economies.

This time, exports are doing their job. If historic relationships hold, business investment should follow, as companies expand and retool to keep up with demand. And there is every reason to expect lots of demand. The International Monetary Fund this week predicted the global economy will grow six per cent in 2021 and 4.4 per cent in 2022, after contracting about three per cent last year.

“The overall outlook for Canadian trade, exports in particular, has brightened,” said Omar Abdelrahman, an economist at Toronto-Dominion Bank.

And that means the recovery from the COVID-19 crisis is shaping up differently than the one from the Great Recession.

Extraordinary government assistance has kept thousands of companies out of bankruptcy, giving them a fighting chance to restore losses by harnessing the global recovery. Exports were worth more than imports for the second consecutive month in February, putting Canada on track for its first quarterly current-account surplus in more than a decade, according to Benjamin Reitzes, a Bank of Montreal economist.

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Canada’s export revenue is dominated by the cars and trucks that American and Japanese automobile makers assemble in Ontario, the output of the parts makers that surround those factories, and crude from Alberta.

The COVID crisis has been unkind to those industries. Oil prices collapsed a year ago and were slow to recover. It took a full year for crude shipments to return to pre-pandemic levels, according to the most recent data. Motor vehicles and parts remain in a hole: the value of shipments in February was about 19 per cent lower than a year earlier, partly because demand is constrained by high levels of joblessness, and partly because a global shortage of computer chips has forced automakers to idle plants, according to Statistics Canada.

Fortunately, other engines kept running. The value of commercial services such as engineering and software design was about $7 billion in February, only three per cent lower than a year earlier. The segment is now comfortably the country’s biggest earner of export revenue, and, unlike autos and oil, there is little reason to doubt its ability to grow as the world shifts to a digitally oriented economy.

But the heroes of the crisis might be a couple of forgotten stars of Canada’s economy.

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Lumber companies, which, unlike steel producers, were left to cope with punitive U.S. duties without the backing of tit-for-tat tariffs, are earning about 100 per cent more from exports than they were a year ago, due to surging prices for construction materials. Lumber currently represents about four per cent of Canada’s merchandise exports, up from about two per cent at the end of 2019 and the most since early 2006.

Farmers represent the other new/old export engine. International shipments of agricultural products and fish were worth $4.1 billion in February, the most ever, according to Statistics Canada records that date back to 1988. The segment currently represents about eight per cent of total merchandise exports, compared with about six per cent at the start of the pandemic.

Policy-makers would do well to take advantage of the momentum. Farmland is an under-utilized carbon sink, and a stronger rural economy could narrow the wealth gaps that have opened between the country and the city.

“For many of the people who have been displaced (by the recession), there has been growth and many job opportunities in New Brunswick,” which is among the least densely populated provinces, said Greg Engel, chief executive of Moncton, N.B.-based Organigram Holdings Inc., a cannabis producer.

For its part, CATA wants the federal government to work harder at knocking down regulatory trade barriers, especially in countries with which Canada has negotiated preferential access, such as Vietnam. It also suggests setting a target of making this country the world’s second-largest exporter of food by 2025. Why not? The crisis suggests the world values what our farmers are selling.

• Email: [email protected] | Twitter: CarmichaelKevin

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