Factors Driving Canada's Rural Economy

Catalogue no. 21-601-MIE — No. 083
ISSN: 1707-0368
ISBN: 978-0-662-44862-4
R e s e a r c h P a p e r
Agriculture and Rural Working Paper Series
Factors Driving Canada's
Rural Economy

1914 to 2006
by Ray D. Bollman
Agriculture Division
Jean Talon Building, 12th floor, Ottawa, K1A 0T6
Telephone: 1-800-465-1991

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Statistics Canada


Agriculture Division

Agriculture and Rural Working Paper Series

Factors Driving Canada’s Rural Economy

1914 to 2006


February 2007
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An earlier version was presented to the “Growing Regions” conference in Brisbane,
Australia, July, 2006


Abstract

Three drivers for rural Canada are technology, prices, and demography.

The relative increase in the value of human time is causing the substitution of machines
for labour, thanks to labour-saving technology. Primary sectors will employ fewer people.
Successful communities will necessarily find a new good or service to export.

The falling price of transporting goods helps rural Canada to be competitive in
manufacturing. Successful rural communities may be expected to have a manufacturing
base —exceptions being communities with a natural amenity attraction.

The price of transferring information is falling. Rural people can receive and send
information faster —but so can urban people! The declining price of exchanging
information is changing the opportunities in rural areas.


Regarding demographics:

• Aboriginal peoples are a driver of rural Canada’s demography;
• The economic advantages of agglomerations are driving the demography of those
rural communities that are able to link to these agglomerations;
• Rural areas are competitive in attracting the demographic groups of young
families and early retirees;
• Some rural areas are competitive in attracting international immigrants.
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Introduction

Rural Canada was settled in order to export commodities – cod, beaver pelts, lumber,
wheat, metals (such as gold and nickel), uranium and now diamonds. In a nutshell, this is
400 years of rural Canadian history. One view of the problematique for rural Canada is
that, due to the on-going increase in the value of human time (Schultz, 1972), there is an
on-going pressure to substitute machines for workers in these commodity sectors.
Consequently, communities dependent upon these commodity sectors have fewer and
fewer workers employed in these sectors, often in a context when more and more of the
commodity is being shipped from the community. Communities are confronted with the
challenge to find a new good or service to export from their community in order to
maintain their employment base. Not all rural Canadian communities have been able to
find something new to export (Mwansa and Bollman, 2005).

Given this problematique, we identify and discuss three fundamental drivers for rural
Canada:

• technology;
• prices, and
• demography.

Are these drivers unique to rural Canada? Not really. However, these so-called “drivers”
are proposed as key factors that define or provide opportunities for rural areas, relative to
urban areas.

By identifying “drivers”, everything else is implied to be a “rider” – as in “if you are not
driving, you are riding.” This is admittedly unfair. The real world is not black and white, it
is clearly grey. To illustrate, two factors that would be classified toward the “rider” end of
the “driver-to-rider” continuum are:

i)
primary industries (specifically, the traditional primary sectors producing
commodities) would not be considered as “drivers.” Primary industries are
shedding labour. If rural development is the growth of jobs and / or the
growth of population, then commodity production is not a driver of rural
development; and

ii)
infrastructure (roads, airports, schools, Internet service, etc.) would not be
viewed as a driver of rural development. Infrastructure would be viewed as
responding to development. The words of Mrs. Skinner, during the protest
of the closure of the town hospital, are key:

In time, we realized the truth – that we did in fact have a hand in
making that decision. Fifty years of complacency had allowed our
community to shrink in population, economic viability and regional
importance. (Quoted in Scholz [2002], p. 34)

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The supply of infrastructure would not seem to be a driver of rural
development. Rather, the driver is the idea or the identification of a good
or service that can be produced here and sold to someone from away. The
idea is a “driver”. The resulting demand for infrastructure justifies the
provision of infrastructure which is a supply response to the demand for
infrastructure.


Driver #1: Labour-saving technology

The key factor is the increasing value of human time (Schultz, 1972). For example, in
agriculture, the price of labour is increasing relative to the price of machinery (Figure 1).
This means there is an on-going incentive to adopt labour-saving technology – to
substitute machines for labour. Thus, regardless of the price of outputs (wheat or lumber
or nickel, etc.), communities dependent on primary sectors will have fewer and fewer
people working in these sectors. Successful communities will be those who find a new
good or service to export in order to maintain their employment base.


Figure 1 The price of farm labour tends to increase over time relative to farm
machinery costs (operation and purchase), measured relative to 1992=1.00

1.20
ase)
ch
pur
1.00
tion and
a
s (oper
0.80
y cost
er
machin
m 0.60
of far
to index
tes 0.40
a
ge r
a
w
r
m
Ratio of index of farm wage rates to index of farm
0.20
machinery costs (operation and purchase)
dex of fa
tio of in 0.00
Ra
1921
1924
1927
1930
1933
1936
1939
1942
1945
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
Source: Statistics Canada, Farm Input Price Index, (Catalogue no. 62-004).


It is well known that the price of commodities is declining. For example, wheat prices, on
average, have declined about CAN$3.05 per tonne per year since 1916 (Figure 2). Many
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rural citizens hope for an increase in commodity prices to save their rural community. It is
true that an increase in commodity prices would increase the dollars circulating in rural
areas. But people, not dollars, constitute rural communities. Regardless of the price of the
output, the increasing value of human time will cause the adoption of labour-saving
technology and fewer people will be employed in primary industries.

Traditional rural communities will continue to experience declining employment in the
primary sector – regardless of the price of commodities. The good news is that the value
of human time continues to increase (i.e. our real wages are increasing). The bad news for
traditional rural communities is that the primary sector will continue to shed labour.
Successful rural communities in the future will have found new goods and / or services to
sell from their communities.


Figure 2 The price of wheat is declining, after accounting for inflation


$900
Annual average price (current dollars)
$800
Annual average price (1997 constant dollars)
e $700
Trend of annual average price in 1997 constant dollars

tonn $600
per
y = -3.052x + 469.07
$500
R2 = 0.2867
wheat
of $400
i
ce
pr $300
m
Far $200
$100
$0
914
918
922
926
930
934
938
942
946
950
954
958
962
966
970
974
978
982
986
990
994
998
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
Source: Statistics Canada, CANSIM. Series D216036 for average farm price of wheat per tonne, updated from 1984 with the wheat (excluding seed) component of the Raw Materials
Price Index from CANSIM Series P6508. The adjustment for inflation is the Consumer Price Index, CANSIM Table No. 326-0002, altered to 1997 = 100.







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Driver #2: Trends in the price of rurality1

Given the crucial role of distance in our understanding of rurality2, it is important to know
whether the price of distance (i.e. the price of overcoming distance) is going up or down
over time. We are all aware that the time needed to travel across Canada has declined from
many months for fur traders travelling in a canoe (in the 1700s) to many days for travellers
on a cross-Canada train (in the late 1800s) to many hours for travellers on a jet airplane (in
the mid-1900s). The time cost has declined – how much has the money cost declined?

Rural is defined by distance and density. Density refers to the number of people per square
kilometre and a higher density (i.e. a bigger town or city) implies that higher-order3
services would exist in this location. Distance is a measure of the time and money cost to
access these services or to sell to these markets. Thus, places with lower population
density and longer distances would be more rural4. A decline in the price of distance
would indicate a decline in the price of rurality.


Trend in the price of transporting goods

In general, the price of transporting goods has declined over time (relative to the general
price trends). Barring a couple of upward blips, the price of transporting goods by railroad
has fallen continuously since the early 1960s (Bollman and Prud’homme, 2006, Figure 1).
The price of transporting goods by truck increased, marginally, up to the end of the 1970s,
but has been decreasing since that time (Figure 3).

As noted by Glaeser and Kohlase (2004) and Rietveld and Vickerman (2004), one
reason for a decline in the price of transporting goods is the trend to increased
efficiencies (and thus declining costs) for trans-shipments (i.e., loading, unloading, less
time in temporary storage, etc.).












1. This section summarizes the discussion regarding trends in the price of rurality by Bollman and Prud’homme
(2006).
2. The term “rurality” is used in the sense of the degree of being rural. Thus, the degree of rurality would be greater
for individuals living in a place with a lower population density or in a place further from an urban centre.
3. A “higher-order” service describes the presence of a brain surgeon in a metro hospital compared to a family
physician in a smaller hospital or a professional hockey team compared to a Pee Wee team at the local rink.
4. Note that the distances to access different services or different markets are different. Thus, one’s measure of
rurality would change, depending upon whether one was considering access to a monthly ballet performance or
access to a curling rink or access to a sizable number of organic restaurants to market your organic farm products.
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Figure 3 Truck transport prices have fallen since the late 1970s

2.20
2.00
Implicit price index of the output of the truck transportation sector, relative to
1.80
the GDP implicit price index (1986=100)
1.60
1.40
1.20
1.00
0.80
0.60
0.40
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
Source: Statistics Canada, GDP Implicit Price Index.




The trend in the price of transportation (people and cargo combined) in the air transport
sector was flat in the 1960s and in the 1970s, higher but flat in the 1980s and early
1990s, but has been increasing in recent years (Bollman and Prud’homme, 2006, Figure
3).

Thus, the price of moving goods by rail or by truck has been falling whereas the price of
transporting goods (plus people) by air transport has been increasing in recent years.

The decline in the price of transporting goods over time is one reason for the increase in
the geographic spread of the production of components for manufactured goods – which
are transported from various locations to the assembly plant (often using “just-in-time”
delivery systems). This dovetails with the ongoing trend of larger manufacturers
outsourcing part of their production processes to smaller, independent companies. The
geographic spread of enterprises which manufacture components of the final product is
due, in part, to the decline in the price of transporting goods.

The decline in the price of transporting goods is one factor explaining the spread of
manufacturing jobs into rural areas (Baldwin et al., 2001). Rural Canada has always had
manufacturing jobs (fish processing, smelting, sawmills, pulp and paper plants, etc.) but
some of the newer manufacturing jobs are part of the network of just-in-time delivery
systems. To the extent that the price of transporting goods might be expected to decline in
the future, manufacturing jobs would be expected to continue to spread into rural areas.
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An Aside on the Trends in Rural Manufacturing

A relative decline in the price of transporting goods may be expected to increase the
competitiveness of rural areas in manufacturing. David Freshwater (2003) has argued that
manufacturing may be expected to be the export base of successful rural communities of
the future.

In Canada, early manufacturing was a rural activity as considerable activity took place
close to the harvest and extraction of the raw resource, such as fish processing plants,
sawmills, pulp and paper mills and smelters. Also, for many early manufacturing
activities, waterfalls were needed to power waterwheels and they tended to be in rural
areas.

Over the last three decades, rural Canada has been increasing its share of total
manufacturing employment (Figure 4) (see also Beshiri, 2001). If we define
competitiveness as increasing one’s market share (e.g. Brinkman, 1987), then rural
Canada is competitive in manufacturing. The share of Canada’s manufacturing workforce



Figure 4 Rural and Small Town Canada has been gaining manufacturing
employment, relative to Canada as a whole

Percent of Canada's manufacturing workers
residing in rural and small town areas
30
y = 0.1316x + 21.624
R2 = 0.6503
25
20
y = 0.1344x + 16.512
15
R2 = 0.47
Rural and Small Town = NSRU
10
Rural and Small Town = non-CMA/CA
Rural and Small Town = non-CMA/CA
5
Linear (Rural and Small Town = NSRU)
Linear (Rural and Small Town = non-CMA/CA)
0
5*
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
199
1996
1997
1998
1999
2000
2001
2002
2003
2004
Source: Statistics Canada, Labour Force Survey. Non-self representing units (NSRUs) are smaller municipalities (generally less than 10,000 population). A Census Metropolitan Area
(CMA) has a core population of 100,000 or more and includes neighbouring muncipalities where 50% or more of the workforce commutes to the core. A Census Agglomeration (CA) has a
core population of 10,000 to 99,999 and includes neighbouring municipalities where 50% or more of the workforce commutes to the core. Rural and small town areas are non-CMA/CA
areas. An asterisk (*) indicates some of the change may be due to a change in the survey design.



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living in rural and small town areas has increased about 0.13 percentage points per year
since 19765. In 2004, 21% of Canada’s manufacturing workers lived in rural and small
town areas. Obviously, some of these residents may be commuting to larger urban centres
to work. However, the resident workforce in each degree of rurality (in each metropolitan
influenced zone [McNiven et al., 2000]) has maintained its share of Canada’s overall
workforce (Figure 5). Thus, each type of rural area appears “competitive” in
manufacturing employment.


Figure 5 Each metropolitan influenced zone has maintained its share of Canada’s
total manufacturing employment, Canada, 1991 to 2001


90
Percent distribution of manufacturing employment
80
70
1991
1996
2001
60
50
40
30
20
10
0
All LUCs
CMAs
CAs
All RST
Strong MIZ
Moderate
Weak MIZ
No MIZ
RST
areas
MIZ
Territories
Larger urban centres (LUCs)
Rural and small town (RST) areas
Source: Statistics Canada, Census of Population, 1991, 1996 and 2001. Data are tabulated within current boundaries.
Census Metropolitan Areas (CMAs) have 100,000 or more in the urban core and includes all neighbouring towns and municipalities where 50% or more of the workforce commutes to the
urban core. Census Agglomerations (CAs) have 10,000 to 99,999 in the urban core and includes all neighbouring towns and municipalities where 50% or more of the workforce commutes
to the urban core. Metropolitan Influenced Zones (MIZ) are assigned on the basis of the share of the workforce that commutes to any CMA or CA (Strong MIZ: 30 or more; Moderate MIZ: 5
to 29%; Weak MIZ: 1 to 5%; No MIZ: no commuters).



5. Note that some rural areas were re-classified as urban areas in 1995. Some towns surpassed the threshold of 10,000 in
the urban core and in other cases, commuting patterns changed and some rural areas were assigned to the labour market
of larger urban centres. Interestingly, after this reclassification, the remaining rural and small town areas continued to
increase their share of Canada’s manufacturing employment at the same rate – the coefficient for time (variable “x” in
Figure 4) was 0.13 both before and after the reclassification of 5 percentage points of Canada’s manufacturing
workforce from “rural and small town” to “larger urban centres.”
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