Canada West Foundation Blog

By: Robert Roach

The federal government recently announced a “Plan for Responsible Resource Development” that will streamline the federal regulatory review process. While this is a step in the right direction, a report from the Canada West Foundation being published on May 3 argues that the task at hand is much larger. Keeping Pace: Improving Environmental Decision-Making in Canada reveals an environmental decision-making process that, while one of the best in the world, is dogged by a number of significant shortcomings. These weaknesses include insufficient integration of scientific research; a lack of clarity regarding exactly what trade-offs between environmental protection and economic development are acceptable to the government of the day; and the ongoing need to ensure that the various government departments and agencies at the federal and provincial levels are cooperating as much as possible.

You can download this timely new report for free from the Canada West Foundation website on Thursday.

As reflected by the results of the 2011 census, the creation of new House of Commons Seats and the ongoing news about the westward titling of the economy, it is clear that the nature of the Federation is shifting. The latest research from the Canada West Foundation looks at the consequences for the region and the country, now that the West is truly “in”.

Taking Stock of the Federation by Dr. Roger Gibbins, President & CEO and Robert Roach, VP, Research, is the synthesis report from a roundtable held on February 9, 2012 in Calgary. This roundtable gathered sixteen participants who provided their insights on the contemporary political landscape, the likely direction of future change, and the potential for strains within the federation across the four western provinces.

“Each region in Canada is vitally important,” notes Dr. Gibbins. “While differences between the regions have evolved, they are still key variables in both Canada’s political environment and the economy. For the federation to work well, we must ensure that all regions— including the West—are heard, understood, and integrated into the whole.”

While participants expressed a general sense of optimism about the region’s future, they also highlighted some significant challenges western Canadians will face in securing a new position within Canada and the global economy. By addressing issues like market access, sustainable environmental management, labour shortages and a fiscally unbalanced federal state, we can ensure that the future remains bright.

Taking Stock of the Federation is part of Foundation’s The West in Canada initiative, which examines public policy innovation in the West, discusses and recommends ways to improve the Canadian federation, and analyzes regional economic, demographic and public opinion trends. Click here for your copy of the report.

Western Canada profits from its abundance of natural resources, however, in the changing global landscape, we need to take action to ensure our future prosperity. The latest research from the Canada West Foundation outlines the main contours of the contemporary energy world and takes stock of the trends shaping energy in western Canada.

State of the West: Energy – 2012 Western Canadian Energy Trends, by Senior Economist Michael Holden and Policy Analyst Robbie Rolfe, provides an overview of the provincial energy systems in western Canada, including the current state of energy production, consumption, and other associated activities and impacts. That information is framed in the context of the energy-related policy issues and challenges facing the four western provinces.

“Western Canada is characterized by a profound diversity of resources, consumption patterns, and economic and environmental impacts” said Michael Holden. “The energy picture in each province is unique, but their strengths are complementary. Through a more coordinated approach to energy policy, the western provinces can become more than the sum of their parts.”

Given the extent to which it permeates our daily lives, energy has come to dominate the economic, social, and political agenda in the region. State of the West: Energy provides a one-stop information resource on energy in western Canada, informing the debate surrounding energy policy in the West, and providing context to both where we are today and where we may go in the future.

State of the West: Energy – 2012 Western Canadian Energy Trends is part of the Foundation’s Powering Up for the Future initiative, which facilitates constructive debate on sustainable energy policy solutions for Canada and promotes the vital importance of western Canadian energy systems in the national, continental, and global economy. Click here to download a copy of the report.

By: Robert Roach, VP, Research

In an article in today’s Globe and Mail, John Ibbitson argues that "One question will define national politics in our time: Are Western Canadians prepared to sacrifice for the sake of the nation, now that Ontario is less able to help?"

In addition to incorrectly implying that western Canadians chipping in to help the rest of the country is a new phenomenon, the question is the wrong one to ask.

The question Canadians should be focused on is how to ensure that the nation successfully adjusts to the evolving global economy. It is a mistake to start with a negative question that assumes the need for "sacrifice"—whatever that means—or puts pressure on the nation’s fault lines by immediately assuming that regional wealth redistribution is the solution to central Canada’s problems. This is the old way of thinking and this is not the time to bring it back.

The West knows what it is like to have its interests and economic prospects ignored and how damaging this is to the country and its potential. It will not, therefore, make the same mistake that central Canada has made in the past and be blithe to the blight of the other regions.

The West gets it—all regions benefit when all regions are heard and respected. The West will do its part, as it always has.

Ensuring Canada’s prosperity will happen naturally as the western economy continues to provide jobs and returns on investment. It will also happen at the political level through the equalization program, a strong tax base in the West that helps fill the national treasury, and by ongoing efforts by Canadians to ensure strong regional representation within the national government.

Ultimately, however, the economic recovery of Canada's industrial heartland will depend on the efforts of individual Canadians and their ability to harness the changes happening at a global level.

By: Shawna Stirrett

In November 2011 the Canada West Foundation in partnership with the National Round Table on the Environment and the Economy (NRT) conducted a series of roundtables about developing a low-carbon growth strategy for Canada with particular emphasis on the opportunities and risks facing the West.

You can read all about the main themes, policy recommendations, and overview issues in the report (click here to view) but, just for fun, here is a visual overview of the roundtables:

These word clouds were created from my notes, which were typed up during each of the sessions. Words that appeared more often in the conversation appear larger in the clouds and words that were less common are smaller. In a sense, these clouds give a visual overview of what ideas were most prevalent during the roundtables and which topic generated the most interest.

What is really fun is to see how the conversations—which were all structured around the same questions—varied from province to province.

For example, in Saskatoon, one of the main themes was on how to deal with carbon constraints in an environment of economic growth.

Those in Vancouver were most concerned about how carbon should be constrained, should it be a tax or cap and trade?

Calgary roundtable participants were pretty set on the need for a national framework around energy and emissions.

While in Winnipeg the discussion centered on how challenging it can be to put in place carbon policies when power is so cheap and emissions rates are so low in the province.

Of course these word clouds do not tell the whole story, but they do provide an interesting visual overview of what issues were important to roundtable participants and how the conversation varied across the region.

Click here to download a copy of Cautious Optimism: Western Perspectives on a Low-Carbon Economy.

By: Michael Holden

Just in time for Christmas, the federal government has announced a new funding plan for health care. The present funding agreement, in which federal cash transfers to the provinces and territories grow by 6% per year, is set to expire in 2013-2014. The new ten-year plan will see that 6% annual escalator maintained through to 2016-2017. Thereafter, federal cash transfers for health care will be tied to annual growth in nominal (i.e., not adjusted for inflation) economic output, with a floor provision that guarantees a minimum increase of 3% per year, regardless of how well the economy actually does.

This unilateral announcement caught many people off guard. Federal-provincial transfers have always been a sensitive and nuanced subject and new funding agreements typically come only after extensive, public, and often bitter negotiations between Ottawa and the provinces. Many people were just beginning to get geared up for the next round of talks, which now appear to have been cut off at the pass.

Reaction across the provinces to the new arrangement has been mixed. Alberta is strongly supportive, for reasons that I will discuss below, while BC and Saskatchewan are also largely in favour. In the rest of Canada, however, the backlash has been harsh. It being the Christmas season, “lump of coal” metaphors abound.

This backlash is rooted in the interpretation of a Conservative Party campaign promise during the last election; several provinces had expected the 6% escalator to be maintained over the entirety of the new funding arrangement. Tying federal transfers to economic output will almost certainly result in slower growth in health transfers beginning in 2017-2018.

How much slower is anyone’s guess at this point. However, historical data suggest that nominal economic growth in Canada has actually been quite consistent over the long term, averaging 4.2% over the past 10 years, 4.7% over the past 15 years and 4.5% over the past 20 years. Assuming growth at the low end of that range (4.2%) over the duration of the new plan, total federal health transfers to the provinces can be expected to increase from about $30 billion in 2013-2014 to about $47.7 billion in 2023-2024. Had the 6% escalator remained in place, transfers would have reached $53.7 billion.

As I hinted at above, Alberta is the clear winner under this new funding arrangement. One of the less-publicized changes it will bring is that cash transfers for health care will be distributed across the provinces on an equal-per-capita basis. At present, this is not the case. The history and complexities of federal transfers are too complicated to get into here, but the end result is that wealthy provinces (with strong tax bases) currently receive less cash per person from the federal government for health care than poorer provinces. Since Alberta is by far the wealthiest, it receives far less on a per-capita basis than the other provinces.

When the new funding arrangement comes into effect, there will be a large increase in per-capita cash transfers to Alberta in order for it to reach the same level as the other provinces. This change is bound to be controversial. Alberta is already the richest province in Canada. For it to receive a perceived “windfall” of cash may not sit well with some provinces, especially since the increase in payments to Alberta will, by definition, come at the expense of increases to other provinces (because all funds come out of a fixed pool).

One thing is for certain; after a few quiet years, fiscal federalism and issues about federal-provincial transfers suddenly are back in the public policy spotlight. We will be writing more on these subjects in the months ahead.

By: Roslyn Kunin

It sounded really good when US President Barack Obama spoke in Hawaii after meeting with Canada’s Prime Minister Stephen Harper: his talk centered on an expanded trans-Pacific trade agreement which would significantly increase trade and, in turn, create jobs and generate economic growth.

Canadians should be delighted at this chance to expand trade. We are twice as dependent on international trade as the US.  But the greatest part of that trade is with the US. In western Canada, we have survived the recent economic uncertainties better than much of the rest of the continent, in part because our trade with the Asia Pacific region has been growing. For the first time ever, BC wood exports to Asia have exceeded those to the US.

So it would appear to be a no-brainer that Canada should be jumping at the chance to sell more to the fast growing markets in Asia and not have our foreign trade sector held hostage to the weak and wavering conditions in the US. But, according to Finance Minister, Jim Flaherty, we have to pay attention to details before we move ahead.

What are those details? They are the Canadian monopolies on things like eggs and dairy products that we call “marketing boards”. These boards were put in place to appease the relatively small number of producers of these products by guaranteeing them protected markets for milk and other basic foods. All other Canadians pay for this program dearly in the form of notably higher prices for these groceries. How much higher? Enough to make it worthwhile for those who live close to the US border to pick up their eggs, milk and other dairy products on the south side of the Canada-US border. In fact, Canadians in US border towns are called “cheeseheads” after one of their common purchases.

Not only do the marketing boards increase the cost of living for Canadians, they are also a serious trade barrier. They have been and remain a major deterrent to expanding Canada’s trade opportunities in Asia and elsewhere. So it should be a big win-win to get rid of them. At a time of rising food costs, we would all see the amount on our grocery bills drop while our markets for goods and services abroad would expand and jobs would increase.

Even the protected producers could benefit in the long-run. Once they have lost their monopoly, they are smart enough to figure out not only how to be sufficiently productive to survive in the Canadian market, but also how to compete in markets abroad. We saw this happen in New Zealand when their previously protected food producers were exposed to the winds of competition. The quantity and quality of the output went up, the prices went down and markets and profits expanded. Canadian producers will do, at least, as well.

By: Michael Holden

As the Canada West Foundation highlighted in a study released earlier this year, western Canadian exporters are gradually shifting their focus away from the United States and are increasingly selling their goods in Asian markets.

Early data for 2011 show this trend continuing. Through the first six months of the year, western Canadian exports to Asia were up 23.3% compared to the same period last year, well above the growth rate for exports to the US (11.2%) or other non-US destinations (18.3%). In total, 18.2% of western Canadian exports from January to June 2011 went to Asian markets.

Leading the charge is BC. Through the first half of 2011, BC’s total exports were 14.0% higher compared to the first half of 2010. Exports to Asia, however, have risen at more than twice that rate, owing in part to strong growth in sales to China, Taiwan and South Korea.

This increase has not only helped to cement BC’s status as Canada’s largest exporting province to Asia, but, if the pattern established through the first six months hold true for the remainder of the year, BC will be the first province to reach a significant new milestone: it will export more to Asia than to the United States. From January to June 2011, BC shipped 43.2% of its merchandise exports to Asia, compared to 42.0% of sales going to the United States.

As we’re looking at just half a year’s worth of data, this feat is mostly symbolic at this point, but if the underlying trend continues, it could represent an important structural shift in how we think about the BC economy. What happens in Asia could be more important to the province’s economic outlook than what happens in the United States.

The other three western provinces are in no danger of crossing that threshold in the foreseeable future, but Asian markets continue to grow in importance for exporters on the prairies as well. Manitoba and Saskatchewan have seen increases of 39.0% and 25.4% in exports to Asia, respectively, through the first half of 2011. Both provinces now sell more than 20% of their total exports to that part of the world.

On the surface, Alberta appears to be something of an exception to this general trend. Not only are Alberta’s exports to Asia growing more slowly than any other province (7.6% through the first half of 2011), but the share of total exports going to Asia (7.5%) remains low as well. Only New Brunswick and Ontario send a smaller share of their exports to Asia.

The weakness in growth through 2011 to date is partly due to reduced sales of primary plastics and canola – two of Alberta’s largest exports to Asia. It remains to be seen if that reduction is a temporary dip or evidence of a longer-term trend.

But in terms of overall market share, Asia is far more important to Alberta than the figures suggest. Oil and gas make up more than half of Alberta’s total exports, but based on the infrastructure in place, Alberta oil and gas companies wishing to sell their products abroad have no real choice in where they can go: all roads – or, in this case, pipes – lead to the US.

Removing oil and gas from the equation gives us a chance to see where Alberta exporters sell their products when they have a choice of customer. When you do so, Alberta’s export mix begins to look a lot more like the other Prairie Provinces. In the first half of 2011, 15.7% of Alberta’s non-oil-and-gas exports went to Asia – not as much as in Saskatchewan or Manitoba, but still much higher than in any province outside western Canada.  

On Thursday, September 8, 2011, The Canada West Foundation and the Asia-Pacific Foundation are co-hosting the Canada-Asia Cooperation Conference and Dinner, which will look at the growing web of energy-related trade, investment, strategic and environmental linkages between Canada and Asia. For more details, click here.

By: Michael Holden, Senior Economist

On February 22nd, the Canada West Foundation released a new research paper examining western Canada’s trade relationship with Asia-Pacific. Through the Gateway: Unlocking Western Canada’s Potential for Economic Diversification by Expanding Trade with Asia-Pacific looks at the importance of Asia-Pacific markets to western Canadian exporters, their impact on economic diversification in the West and some of the policy options for further expanding trade with that region.

One of the challenges in writing on current economic developments and trends is that the timing of major data releases does not always cooperate with research deadlines. Not long after Through the Gateway was launched, new trade data was released for the 2010 calendar year. With a new year’s worth of numbers in hand (along with some minor revisions to previous years’ figures), I thought it might be useful to revisit some of the key trends we highlighted in that paper to see if and how those trends are holding up.

As it turns out, data for 2010 continue to drive home the growing importance of Asia-Pacific market for western Canada. One of the most important trends we noted in Through the Gateway was the growth in western Canadian exports to Asia-Pacific—especially since the early 2000s. From 2001 to 2008, the value of goods shipped to Asia-Pacific markets rose from $14.0 billion to $26.7 billion, before falling to $22.6 billion in 2009 because of the impact of the global financial and economic crisis.

While exports to Asia-Pacific in 2010 did not recover their 2008 peak, they did rebound strongly, reaching $25.9 billion—the second highest value on record. Leading the charge was B.C., where exports were 28.9% higher than in 2009. B.C. now exports almost as much to Asia-Pacific ($12.2 billion) as it does to the United States ($13.7 billion).

Through the Gateway also observed that growth in western Canadian exports to Asia-Pacific was being driven by shipments to the region’s developing markets. In 2009, the total value of exports to wealthy countries like Japan and South Korea was about the same as the value of exports to China and other developing economies, but long-term growth in the latter group vastly exceeded growth in the former; from 1990 to 2009, exports to industrialized countries in Asia-Pacific had grown by about 25%, while those to developing economies had risen by 428%.

Although 2010 was a good year for western Canadian exports to Japan and South Korea, there was no competing with the continued boom in sales to China and other developing markets. Western Canadian exports to developing economies in Asia-Pacific rose by 18.1% compared to 2009 (reaching $13.5 billion), while exports to industrialized economies in the region increased by 11.1% (to $12.3 billion).

A final point worth mentioning is the need to consider trade flows with the United States when assessing the importance of Asia-Pacific markets. We noted in Through the Gateway that, while the share of exports going to Asia-Pacific rose from 12.5% in 2001 to 17.5% in 2009, it was hard to say how much of that increase was because of strong growth in trade with Asia-Pacific and how much was because of weak market conditions in the U.S. Factors such as a high Canadian dollar; new regulatory and security measures; the economic downturn in 2008-2009; and the resulting drop in commodity prices have all weighed on shipments of goods to the U.S. in recent years.

With the economy stabilizing in the U.S. and commodity prices recovering, western Canadian exports to the U.S. rebounded in 2010. From a six-year low of $92.1 billion in 2009, north-south sales increased to $102.4 billion in 2010. While this figure remains well below its historic high ($141.9 billion in 2008), it’s interesting to note that the recovery in exports to the U.S. did not come at the expense of growth in trade with Asia-Pacific. While the share of western Canada’s total exports to the U.S. rose from 71.5% in 2009 to 72.1% in 2010, the share going to Asia-Pacific markets rose by even more¬—from 17.5% to 18.2%.

By: Dr. Roslyn Kunin, Director of BC Office

In the 19th century, young men in North America who wanted to seek their fortunes were advised to go west. In the 21st century, those who are already in western Canada are advised to keep looking west, where Canada’s best opportunities to participate in the global economy lie across the Pacific Ocean. However, opportunities only become reality for the prepared. To benefit from growth in the trans-Pacific trade that is so important to Canada’s present and future wellbeing, western Canada must have the infrastructure and capacity in place to receive, move and dispatch goods in growing volumes. Otherwise, our growth may be limited not by lack of supply or demand, but by the lack of capacity at its ports and elsewhere to handle the flow, as illustrated in Brazil.

Fortunately, federal and provincial leaders in Canada have taken steps to remove this potential limitation. The Asia Pacific Gateway and Corridor Initiative (APGCI), now at the midpoint of its lifecycle, is a connected series of major projects to improve both port and inland goods moving capacity in western Canada.

First, we should note that the benefits will not be limited to Canada’s Pacific ports. This is because the APGCI deals not only with gateways (ports and related facilities) but also with hubs (inland distribution centres such as Edmonton and Regina). The results of this increased trade volume will be spread not only throughout western Canada but to the rest of Canada and the United States.

There are several advantages in western Canada that will be created or enhanced by the APGCI. One is the very short transit time from BC across the Pacific, especially from the port of Prince Rupert. The tonnage through Prince Rupert has been soaring given very strong markets for products like coal, and the port facilities have been enhanced to meet this demand. In 2008, volume through Prince Rupert increased 20%.

Another advantage is the very efficient and competitive rail system that goes from Canada’s west coast ports across the country and into the United States, which is emphasized by the fact that Canadian rail transport systems are much more cost effective than those in the United States. A third, often called the hidden advantage, is that many people of Asian origin currently reside in BC and are increasingly spreading across the western provinces.

Not surprisingly, there are also challenges that come with developments of this magnitude. Much of the development is primarily focused on container movements, which is ideal for all the manufactured goods that are imported, since they travel in containers. However, it may be a limiting factor for what are western Canada’s biggest exports—commodities. Demand for minerals, food, energy and wood is strong and rising rapidly, particularly in Asia. In particular, China’s demand is not only increasing sharply, but China has become a dominant player in world markets for copper and other commodities. Other developing Asian economies are expected to follow. To take advantage of these long-term markets, our inland and port facilities need be able to handle not only bulk commodities like coal and grain, but also fluid energy sources like oil and, ultimately, liquefied natural gas.

APGCI developments, like any others, must deal wisely with the continuing realities that affect all major investment projects. First, agreements must be reached with affected First Nations on whose territories the developments occur. By negotiating in good faith, arrangements can be made that are win/win for all the parties involved. As always, attention must be paid to the environmental impact of any developments. Steps can be taken to minimize environmental impacts and to compensate for any unavoidable effects.

Finally, given that taxpayer dollars are contributing to the APGCI, Canadians must be assured that they are getting value for money. Cost benefit analysis is the best tool and should be comprehensive; looking at all costs including the environmental impact. Potential competition must be considered such as the newly widened Panama Canal.

We need to take into account all the benefits, many of which are long term. In comparing present costs against future benefits, we should not be discounting future benefits too heavily. Otherwise, we will find that we have lost long term benefits to defer short term costs.

Photo Courtesy: Prince Rupert Port Authority