2019, Volume 4, Issue 3 - Winter 2019

Make market exploration a New Year’s resolution

By Derek Lothian

This past September marked the second anniversary of the entry into force of the Comprehensive and Economic Trade Agreement (CETA) between Canada and the European Union. And, in just a few short weeks, on December 30, we will be celebrating the one-year milestone of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Both pacts were heralded as pioneering achievements in global policy — landmark accords that would redefine access to 38 key growth markets and spark unprecedented opportunity for Canadian manufacturers.

While it is still far too early to gauge the effectiveness of these agreements, a look at export performance over the past decade is a clear indication of the need for Western Canadian companies to continue to diversify their customer bases.

In 2009, manufacturers across the three Prairie provinces shipped a little more than $30 billion in goods to international jurisdictions — roughly 37 per cent of everything they produced. This included $5.3 billion in manufactured food products, $1.5 billion in transportation equipment, and $1 billion in agricultural implements.

The United States was far and away the top trade destination, accounting for exactly two-thirds of manufacturing exports, followed by China in a distant second, at 7.2 per cent. In fact, if you were to take all 38 countries now encompassed by either CETA or CPTPP, Prairie manufacturing exports to those nations totalled less than $4.5 billion in 2009 — equivalent to only 22 per cent of products shipped to the United States alone.

Fast forward one decade later. And although a lot has changed, much — perhaps an alarming amount — has stayed the same.

There is no doubt that manufacturers have, by and large, become better exporters over that timeframe — in no small part due to the aggressive efforts of groups like Canadian Manufacturers & Exporters, the World Trade Centre, and the Saskatchewan Trade and Export Partnership, just to name a few. During that period, the global sale of Prairie-made goods jumped more than 62 per cent, by a whopping $18.8 billion annually.

But there has also been an increasing concentration in where that activity is taking place.
The top four export markets for Prairie manufacturers in 2009 — the United States, China, Japan, and Mexico — repeated in the same order in 2018, and grew collectively by 79 per cent, or $19.2 billion. What that means, however, is that cumulative sales to all other nations actually dropped in terms of real dollars, shedding $333 million in overall sales per year.

Take the United Kingdom as a case in point. Ten years ago, Manitoba, Saskatchewan, and Alberta manufacturers sent $695 million in goods across the pond. Today, the Brits spend less than $177 million — a quarter of the original tally. Sales to Russia, meanwhile, have been cut in half, and other smaller markets like the Netherlands are showing signs of erosion as well.

If one thing is for certain, it’s that the next 12 months carry a unique degree of risk for Prairie manufacturers. South of the border, where 77 per cent of our manufacturing exports now head, our American neighbours will cast their ballots for president, and we will likely learn the fate of the still-unratified Canada-U.S.-Mexico Trade Agreement. Across the Atlantic, we will find out the future of Brexit. And, further to the east, the geopolitical situation with China will continue to unfold with very real supply chain consequences.

Trade diversification is seldom easy. It’s rarely as simple as finding new buyers for the same or similar products. It often takes years of planning, partnership development, negotiation, re-engineering, repackaging, and overhauling of manufacturing processes. Yet, it’s hard to ignore how many eggs we have in so few baskets.

As we head into 2020, consider putting market exploration atop your list of New Year’s resolutions. Like most of mine, it may not stick the first time around; though, there will always be one lesson learned that will eventually lead to progress.

Derek Lothian is the former, founding editor of Prairie Manufacturer Magazine. He currently serves as a business association CEO and on several public and not-for-profit boards. He is also an advisor to private manufacturing enterprises across Canada.