Prairie manufacturers punching above their weight
By Jayson Myers
It’s been five years since Prairie Manufacturer Magazine published its first issue in the summer of 2016. Now it’s Manitoba’s Magazine of the Year! I’ve been honoured to be a contributor to the magazine since its inception, and I couldn’t be prouder of what the Prairie Manufacturer team has accomplished. Congratulations!
The very first edition of Prairie Manufacturer challenged readers to Think Big! That’s exactly what Prairie manufacturers have done ever since.
The Prairies are home to the fastest growing manufacturing sector in Canada! Prairie manufacturing has blown away national averages, far exceeding what is happening in the rest of the country. In June 2016, monthly manufacturing sales across the three Prairie provinces totalled $7.9 billion. By June 2021, they had grown by a third to $10.5 billion. Now, there have been significant price increases along the way (especially over the past year) in addition to changes in production volumes. In real terms, discounting for price increases, Prairie manufacturers’ sales volumes increased by about eight per cent. Strong Prairie sales performance has also been mirrored in the labour market as manufacturing employment has grown by more than six per cent from 205,800 to 218,700, adding almost 13,000 jobs over the past five years. In fact, Prairie manufacturers have accounted for more than 57 per cent of all net new manufacturing jobs created in Canada since June 2016.
By contrast, the overall value of products manufactured and sold by Canadian manufacturers increased at about half the rate recorded in the Prairies, growing by 17 per cent from $50.7 billion in June 2016 to $59.2 billion in June 2021. On average, manufacturers’ selling prices in Canada have shot up by 22 per cent over the past five years. So, after adjusting for inflation, real sales volumes for Canadian manufacturers were about 4.5 per cent lower in June 2021 than in the same month in 2016. Overall production volumes have not yet recovered from last year’s pandemic-induced recession. However, the good news is that manufacturing employment has grown by 1.3 per cent from 1,685,100 to 1,707,600 workers since June 2016.
Manitoba hit hard by COVID-19
Manitoba is an exception to the overall positive story for prairie manufacturers, although specific sectors in the province have significantly outperformed. Monthly manufacturing sales in Manitoba increased by just over 12 per cent from $1.4 billion in June 2016 to $1.6 billion in June 2021. But when price changes are considered, sales volumes were approximately eight percent lower this year. Still, Manitoba manufacturers have created 2,500 new jobs, with employment levels increasing from 62,000 to 64,500, over the past five years.
Some sectors in the province have been particularly hard hit because of the pandemic. Machinery and aerospace manufacturing have suffered from supply chain disruptions and shortages of materials and components. Aerospace production has fallen along with international demand. The current-dollar sales value for Manitoba’s transportation equipment manufacturers (including aerospace) declined by 25 per cent between June 2016 and June 2021, and selling prices have changed little over the past five years. Factory-gate machinery sales have risen by about three percent, but, with a small increase in selling prices, output has remained steady over that same period. Profits and cash flow are depressed in both sectors with input costs surging in the face of supply shortages.
Wood product, primary metal, and furniture manufacturing have also struggled over the past five years. Sales of wood products have grown 61 per cent, but prices have increased 136 per cent, masking a downturn in production volumes. Sales of primary metals are down 32 per cent even though selling prices for primary metals have jumped by 59 per cent. Furniture manufacturers have seen their sales drop by eight per cent and production volumes drop by 18 per cent as well.
Luckily that is not the story for all sectors of Manitoba manufacturing. Sales of food products have grown 45 per cent in current dollars and 23 per cent in volume terms over the past five years. The chemicals sector has increased sales by 41 per cent or 19 per cent after adjusting for inflation. Manufacturers of fabricated metal products have increased sales by 46 per cent with sales volumes up by eight per cent. More of Manitoba’s manufacturing sectors will join these growth sectors as markets recover post pandemic.
In Saskatchewan, manufacturing is not only growing faster than in any other Prairie province, it’s also outpacing the entire country. Manufacturing sales in the province shot up 42 per cent from $1.2 billion in June 2016 to $1.7 billion in June 2021. Discounting for inflation, sales volumes have increased by 16 per cent over the past five years. Manufacturing employment has also grown steadily from 25,200 five years ago to 31,100 in June of this year.
Four key sectors are leading the charge. Food processors have increased sales by 47 per cent or by 25 per cent in price-adjusted volume terms. Wood products manufacturers have seen their sales shoot up by 252 per cent with volumes up by 49 per cent. There has been a 39 per cent hike in both current-dollar sales and sales volumes for machinery manufacturers. And for metal fabricators, sales have risen 48 per cent with volumes up 10 per cent over the past five years.
More uneven growth in Alberta
Alberta’s manufacturing performance has been relatively strong but more uneven. The total monthly value of manufacturing sales rose 35 per cent from $5.3 billion in June 2016 to $7.2 billion in June 2021. Taking inflation into account, sales volumes grew by almost 11 per cent. Alberta’s manufacturing workforce has grown by four per cent over the past five years, increasing from 118,600 to 123,100 employees.
Not all sectors of manufacturing have been able to keep pace with overall provincial performance. Beverage production has been flat; so have sales for chemical manufacturers although prices for chemical products have increased by 18 per cent. There has been little change in sales value or sales volumes for transportation equipment producers. Sales of primary- and fabricated metal products have increased by 16 per cent and 5 per cent respectively, but taking price increases into account, sales volumes have declined by about 22 per cent in both sectors. Furniture and electrical and transportation equipment manufacturing sectors have all seen sales drop over the past five years. Taking price changes into account, sales volumes have declined 35 per cent for electrical equipment producers and 20 per cent for furniture manufacturers.
Now for the good news. Those sales losses have been offset by strong growth in other sectors. Food processors have seen sales jump 52 per cent and volumes increase by 29 per cent since June 2016. In the pulp and paper sector, sales have shot up by 60 per cent and sales volumes by 33 per cent. Sales for Alberta petroleum refiners have increased by 51 per cent or 25 per cent after adjusting for inflation. Sales of plastic products are up by 57 per cent while sales volumes have grown by 44 per cent. Manufacturers of wood product have increased sales by 158 per cent and sales volumes by close to 10 per cent. Machinery manufacturers have seen sales jump by 36 per cent and sales volumes by 31 per cent. Factory-gate sales of Alberta’s electronics manufacturers have grown by 15 per cent with volumes up by more than eight per cent. And, miscellaneous manufacturing, which includes medical and other technology-based devices, is recording a 39 per cent jump in sales and a 27 per cent increase in price-adjusted sales volumes.
Where do we go from here?
The past five years have generally been very positive for Prairie manufacturing, but they have been full of challenges that not all sectors have been able to navigate as successfully as others. The next five years look equally as challenging, which only means that they will be full of new business opportunities as well.
First, we need to get over the inter-related impacts of the pandemic, supply chain disruptions, materials and parts shortages, and escalating input costs that are weighing manufacturing down in Canada and around the world. While the outlook for new orders is strong as North America and other economies recover from the pandemic, it will take manufacturers and the global shipping industry longer to get over the shortages and logistics disruptions that are currently backing up production, delaying deliveries, and pushing up both input and output costs. In fact, the situation may get a lot worse before it gets better if new pandemic restrictions are imposed on critical suppliers or port facilities, especially in China and southeast Asia. It’s going to be another bumpy year ahead!
Other trends will be at work reshaping the future of Prairie manufacturing as well. Workforce and skills shortages will drive greater degrees of automation but will, at the same time, require higher levels of digital and technical skills among the manufacturing workforce. The deployment of digital and automation technologies will be a key determinant of productivity and profit performance preventing production shutdowns, increasing operating efficiencies, speeding up design, engineering, and process improvements, and providing companies with the flexibility and agility to respond rapidly to changes in customer demand and new business opportunities. Digital technologies will also play a critical role in generating new data-driven product and process capabilities and new service-based lines of business.
The drive to reduce carbon emissions and the environmental footprint of manufacturing operations and supply chains will also fundamentally transform industrial operations. Large industrial customers are making product investment decisions now about how to radically cut greenhouse gas emissions. Manufacturers can play a key role as critical suppliers in the process. On the other hand, suppliers will need to think differently about their business, how they contribute to the goals of their customers, and transition their businesses to become part of the solution rather than counting on getting product out the door in the same relatively more carbon-intensive production methods used today.
Reducing environmental footprints will be an important game changer when it comes to future supply chain restructuring; we are already seeing distance and clean sources of energy becoming key criteria for supplier and location selection on the part of OEMs and larger Tier 1 manufacturers. Current supply chain disruptions are also forcing companies to examine and restructure their supply lines. The localization of supply chains for higher-value innovative products, driven by the need for more specialized manufacturing, technology, and engineering capabilities close to centres of product development is another trend that is reshaping the business of manufacturing worldwide.
Prairie manufacturers can regard these longer-term trends as a threat – or as a business opportunity. Building on the dynamism, entrepreneurship, and success that we’ve seen over the past five years, I think I know where their business is likely to head in the future!
Jayson Myers is CEO of Next Generation Manufacturing Canada – the country’s advanced manufacturing supercluster. An award-winning business economist and leading authority on technological change, Myers has counselled Canadian prime ministers and premiers, as well as senior corporate executives and policymakers around the world.