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Economy of Saskatchewan
By: Peter Phillips
Saskatchewan is the fifth largest Canadian province in terms of area, with a land mass of 651,9002 km, divided about one-third each in Precambrian rock and agricultural land, 23% in commercial forest, and 12% in lakes and rivers. As such, the province makes up about 6.5% of the area of Canada and 0.4% of the world. In 2001, close to one million people lived in the province, a number almost unchanged since the 1930s. Approximately 53% of the population lives in the thirteen cities, and another 16% in towns; the remaining 31% of the population lives on farms, in small rural villages, or on Indian reserves.
Most of the development in Saskatchewan until this past decade was based on the production and export of natural resources. The first phase of development in western Canada occurred in the late 1800s after a number of conditions were met. First came the political and legal systems. In 1867 Canada acquired Ruperts’ Land from the Hudson’s Bay Company (see Rupert’s Land Purchase) and introduced a legitimate form of government in the Territories (leading to provincial government in 1905); also, in response to the political strife between the Indigenous peoples and the first European settlers, the North-West Mounted Police force was formed in 1885 and introduced to the west. The second phase of development was the result of two key factors. In 1885 the Canadian Pacific transcontinental rail link was completed, providing the means to move people into the west and ship products to markets (see Canadian Pacific Railway). A massive migration then was triggered after the turn of the century by the development of the Marquis strain of wheat and the opening of new grain markets in the United Kingdom: this new Wheat produced a higher yield and matured earlier than existing varieties, which turned the latent potential of the virgin prairie into a valuable economic resource ripe for development.
From a base of only a few thousand in 1885, the population of the province rose to 91,300 in 1901 and then surged to 921,800 by 1931. People migrated from eastern Canada and Europe, attracted by free land and virtually unbounded economic potential. The industries that serviced these new farmers followed close behind. By 1929, Saskatchewan had a vibrant developing economy. The third phase of economic development followed the decision in 1930 of the federal government to transfer control and ownership of the land and its natural resources to the provincial government: from Confederation until 1930 the land and resources of Saskatchewan had been owned by the federal government and developed according to federal priorities. Halted during the Great Depression, development resumed after World War II with the discovery of rich natural resource deposits below the ground and the growth of export markets for these products. New technologies led to the discovery of oil, potash and Uranium reserves; the growth of energy-intensive economic systems in North America and Europe created the opportunities. By the 1980s the Saskatchewan economy was highly specialized and competitive. As production and export capacity increased, demand increased for specialized business as well as community and personal services. Primary production of wheat, oilseeds, livestock, oil and gas, potash, uranium, and timber naturally led to the development of firms supplying inputs to these industries (e.g., IPSCO), and of firms processing the raw products further (e.g., flour mills, oilseed crushers, slaughter houses, oil refineries, and pulp and paper plants). As these industries developed and expanded, a select few rural and urban communities grew as industrial and regional service centres. (See Table 1.) (see Forestry, oil and gas industry, Potash Industry and uranium)
The Modern Saskatchewan Economy
The production and export of natural resources and their refined products is the backbone of the Saskatchewan economy. About 95% of all goods produced in the province directly depend on its basic resources (grains, livestock, oil and gas, potash, uranium and wood, and their refined products). In addition, the individuals and firms involved in these industries make purchasing decisions that drive the rest of the economy; farmers, Mining companies, and the manufacturers processing primary products purchase the bulk of the non-resource manufactured output and business services produced in the province. Two factors fundamentally influence the provincial economy. First, given its orientation on primary and resource extraction and processing, the provincial economy is heavily dependent on financial markets to provide attractively priced financial resources to sustain heavy annual investments in gross fixed capital formation; on average, in the 1993-2002 period, more than 21% of the annual output was invested in new infrastructure and capital. Second, trade access and international market growth are vital to the future: the province’s grains, canola, livestock, oil, potash and uranium producers are leaders in their fields and produce many times more than local demand could use. More than 90% of the grains and oilseeds produced in the province are sold to other Canadians or offshore; all of the potash and uranium is used outside the province; 83% of the oil pumped is shipped to other markets; and 30% of the goods processed in the provincial manufacturing industry are exported (e.g., wood pulp and paper from Weyerhaeuser, pipes from IPSCO Inc., Canola oil). At the same time, the provincial economy could never produce enough goods at competitive prices to feed, house, clothe and transport the population in its accustomed style: the province thus imports the vast majority of consumer goods such as Automobiles, fresh fruit and vegetables during the winter, clothes, and household equipment and appliances.
There are a number of means of measuring the scope and scale of the economy. The conventional method is to look at distribution of value-added activity by sector. The provincial economic accounts show that the province has moved rapidly from an agrarian and resource-based economy into a services-propelled region. This transformation has been mirrored by the shift of employment between those sectors. (See Table 2).
This approach overstates the shifts of activity away from the commodity market drivers. The move from goods to services production is at least partly the result of greater specialization. For instance, as farmers use more inputs and out-source more of their trucking and financial management, the value and employment created are now counted as manufacturing, Transportation, wholesale trade, finance, or business services. The final market for many of the new processing or service jobs remains as embedded value in exported commodities: in agriculture, for example, only about 40% of the export value of our products is added on-farm. If this is consistent across the primary sector, the all-in estimate of both value-added and employment based on supply chain relationships between final markets and primary producers, input suppliers, output processors and related services would suggest that the primary sectors drive not only the 25% in the core sectors, but rather more than 60% of the total economy. After more than a century of commercial development, the provincial gross domestic product in 2002 was $34.5 billion, equal to about 3% of the Canadian economy. The average per capita income was approximately $34,700, equal to about 94% of the national average. The provincial average per capita income in 2002 was more than three times the global average and would earn Saskatchewan a position among the most affluent regions in the world.
The goods-producing sectors in the province directly contributed about 32% of the provincial gross domestic product in 2002. Agriculture remains the single largest sector, even though it has been significantly restructured in recent years. Saskatchewan, with 202,400 km2 of improved agricultural land, equal to 44% of Canada’s farmland, is a major producer of crop products. In 2001, 50,600 farms involved 66,200 operators and employed an estimated $33 billion of capital. The sector accounted for about 50% of Canada’s wheat production, 80% of its durum production, 33% of its barley production, and 43% its canola production. Saskatchewan alone accounted for 10% of world trade in wheat, 60% in durum, and 40% in canola. The province is also a significant producer of red meats, especially feeder and slaughter cattle and hogs. The domestic market consumes about 43% of the slaughter cattle, and keeps just less than that percentage of the feeder cattle. The major export markets for slaughter cattle, in order of importance, are the US, Alberta, and Manitoba; over 40% of the feeder cattle produced in the province are exported to Alberta, with only small amounts shipped to Ontario, the US, and Manitoba. The hog market is more domestically driven, with more than 80% of the production being sold to the two main slaughterhouses, some of which is then sold elsewhere as processed meat products. The US makes up about 5% of the slaughter animal market; the rest is exported (often through confidential contracts) to Alberta and Manitoba.
Saskatchewan is also endowed with an abundant supply of natural resources. As a result of having been submerged under a prehistoric ocean, the province has an estimated 75% of the world’s potash reserves: exploration in the 1950s revealed the existence of huge potash beds underlying most of the southern region. The first potash mine in Saskatchewan was completed in 1958, but promptly flooded. Potash production, however, has been continuous since 1962. There are ten potash mines spread throughout the province, and four producing companies with a total capital investment of over $2.5 billion. Only about 5% of the potash produced in Saskatchewan is consumed in Canada. Saskatchewan also has large deposits of a relatively high grade of uranium, which is mined and processed into yellowcake for international markets. Canada has a significant portion of known uranium resources in the world, and the bulk of these resources are located in Saskatchewan: these large, high-grade uranium deposits, which can be extracted at production costs below those in many other parts of the world, are sufficient for more than forty years at current rates of production. Saskatchewan is now the largest uranium-producing region in the world, accounting for 25% of annual world uranium production in 2002. There are currently three uranium mining and milling operations in the province: Rabbit Lake, Cluff Lake and Key Lake produced 15.6 million kgs U3O8 in 2002, earning revenues from sales of $593 million, about two-thirds from sales to the rest of Canada and one-third from sales to the world.
Saskatchewan is a small but significant producer of crude oil, natural gas, and coal and electrical energy, with about 10% of Canada’s reserves for oil and 25% of its gas reserves. The province’s crude oil, discovered in 1944, varies from light sweet crude to heavy sour crude. Saskatchewan is the second largest oil producer in Canada after Alberta, accounting for more than 20% of the total Canadian oil production: cumulative oil production up to December 31, 2002 was 622 million cubic metres. Remaining recoverable reserves on December 31, 2002, were estimated to be approximately 183 million cubic metres. There are an estimated 25 billion barrels of heavy oil in-place in the west-central region of the province, which represents the greatest potential for future development. About 20% of Saskatchewan’s production is currently used within the province, 10% in the rest of Canada, and about 70% is exported to the US. Saskatchewan natural gas producers account for more than 6.5 billion cubic metres annually, earning on average about $1 billion per year in the 2000-02 period, while Coal producers produced 11.3 million tonnes of coal in 2002, earning $180 million.
Non-energy mineral production in Saskatchewan has risen significantly in recent years. In 2002, the province produced 11.7 million kg of copper, 4.6 million kg of zinc, 1,678 kg of gold, 1,344 kg of silver, 921,000 tonnes of salt, 184,000 tonnes of sodium sulphate, and a variety of other metals and minerals. In aggregate, the total value of mineral sales (net of oil, gas, coal, potash and uranium) was $156 million in 2002 (see mining).
With 23% of the land mass covered by commercial forest, the province is a small but competitive producer of pulp, paper and wood products for domestic and international markets; it has commercial softwood production of balsam fir, black spruce, jack pine, tamarack and white spruce, and hardwood operations for balsam poplar, trembling aspen, and white birch. The aggregate forestry sector generates about $750 million annually in revenue, divided among about 300 forestry industry firms and 9,000 workers.
The construction sector in Saskatchewan is devoted to delivering approximately $8.9 billion of new and renovation construction annually; there were an estimated 24,200 construction workers in the province in 2003. In terms of manufacturing, there were 1,044 firms in Saskatchewan in 2001, most of which either process primary produce from the agricultural, forestry, mining and energy sectors, or produce intermediate goods for use in those sectors. In aggregate, these firms produced $7.2 billion in manufacturing receipts in 2001, and employed 28,300 workers. Only a small portion of the firms and value added in the manufacturing sector produce consumer goods or equipment for direct export. The bulk of the revenues and value added in the sector is in the two heavy-oil upgraders and the oil refinery, the various wood, pulp and paper operations, and in a variety of food processing and agri-chemical ventures. The $1.8 billion Food Processing Industry includes more than 160 processors and 5,000 employees. About 300 firms in the machinery, transportation and industrial equipment sector employ about 12,000 employees and generate about $2.2 billion in annual sales.
The service-producing parts of the economy have grown significantly faster than the goods-producing sectors, accounting for about 62% of the total gross domestic product in 2002. A small number of very large employers—governments, health and school boards, utility corporations—employ a large portion of the workers in the service- producing economy. In 2002, the federal, provincial and local governments, combined, employed 27,200 workers, or about 5.6% of the total workforce; in addition, the publicly funded and managed health and Education sectors employed in aggregate more than 87,000 in 2002. Crown Investments Corporation of Saskatchewan (CIC) owns or manages enterprises that account for 15% of the province’s gross domestic product, employs assets totaling $8.1 billion, and directly employs 9,500 people. CIC’s eleven wholly owned subsidiary Crown corporations span the commercial services sector, providing electricity, natural gas distribution, telephones, water, automobile and general insurance, intercity bus service, computer services, and a variety of investment funds and services.
A large number of independent and chain wholesale and retail operations facilitate $9 billion of retail trade in the province annually, equal to approximately $9,100 per capita. In conjunction with more than 22,000 accommodation outlets, restaurants, caterers, taverns, and attractions operators, these firms also support a $1.3 billion tourism industry, which serves more than 3.5 million tourist-day visits by residents, and an estimated 3.4 million Canadian and 0.1 million foreign tourists annually. For tourism purposes, the trip expenditures are most important: Saskatchewan residents account for 45% of expenditures by those making trips of one or more nights in Saskatchewan, while other Canadians account for 35%, United States visitors for 17%, and those from overseas for 3%.
Finally, a large number of small- and medium-sized firms offer an array of services. The finance, insurance and real estate sector and commercial transportation operators account for more than 20% of the province’s economic activity and employ more than 11% of its work force. Furthermore, there are thousands of firms offering business and personal services, employing more than 100,000 workers in what is increasingly becoming the backbone of the commercial and public activity; among those are more than 20,000 professional, scientific, technical and managerial service providers such as lawyers, accountants, computer supply firms, and engineers.
The Labour Market
In 2003 the province had a total labour force of 515,800, which varied by as much as 25,000 between the months with the highest and lowest activity. On average 68% of adults (aged 15+) were in the active labour force in that year, a percentage slightly higher than the national average. Participation rates rise sharply, depending on the education level: only about 26% of adults with less than a Grade 8 education were in the labour market, while 84% of adults with post-graduate training were active in the workforce.
An estimated 486,800 people were employed on average during 2003, approximately 80% in full-time jobs and 20% in part-time work; 68% of all employed workers had some formal education beyond high school (26% with university degrees), 24% simply had high school, and 19% had not completed high school. The average weekly earnings, including overtime, for employed workers in Saskatchewan was about $610—about 10% less than the national average. In total, 29,000 workers on average were unemployed over the year, representing 5.6% of the provincial labour force; those unemployed people were without work for about 18 weeks. The provincial unemployment rate was the third lowest rate of any province, marginally behind Alberta and Manitoba, and significantly lower than the national average. However, one of the reasons why the province has a low unemployment rate is that unemployed workers tend to migrate to other provinces for jobs: over the 1994-2003 period, about 5,000 more people migrated each year to other provinces than arrived.
Labour force surveys focus primarily on individuals actively engaged in paid employment or in self-employment that is done with an expectation of a profit. Three important socio-economic groups are generally excluded from any detailed analysis. First, those individuals that are 15 years or older and in full-time education are for the most part not included in the analysis: about 90,000 Saskatchewan residents were 15-24 years old in December 2003, a majority of whom were in high school or some post-secondary education or training program. Second, about 16,000 of the 134,000 elderly (aged 65+) were active in the labour force. Third, a significant number of women do not work for pay outside the home and are therefore excluded from analysis in the labour force survey: in 2003, about 35,000 women in the prime working ages of 25-64 were not active in the labour market; many of these were stay-at-home wives and mothers. Each of these groups adds significant uncounted value to the economy, both directly in terms of acquiring education and maintaining homes and families, and indirectly as volunteers and contributors to the social fabric of the province. In 2000, 42% of Saskatchewan residents, both those employed and those outside the labour market, volunteered to a range of educational, social, cultural and community non-profit organizations and ventures, according to the National Survey of Giving, Volunteering and Participating: this was the highest rate of volunteerism in Canada for that year. In all, 323,000 Saskatchewan people volunteered 49.7 million hours in 2000, or on average 154 hours of their time each, which is the equivalent of 26,000 full-time jobs. (See Voluntary Sector.)
In 1997, Saskatchewan had approximately 30,000 firms registered to operate with province-based headquarters; 27,000 sole proprietorships; and 8,000 firms with out-of-province headquarters but registered with Saskatchewan Justice to undertake business in the province. Urban-based firms employed 76% of provincial workers, northern firms about 0.8%, and rural firms about 23%. Looking at the top 100 grossing companies in the province in 2003, Saskatoon had the head offices of 35 commercial enterprises while Regina had 31 commercial headquarters and the head offices of eleven Crown Corporations. The other cities each had one or two headquarters, for a total of ten firms. The other private companies are scattered around the smaller centres. Over 86% of all domestic firms have fewer than twenty employees; the 5% of all firms that employ more than 100 workers accounted in 1993 for 52% of all jobs and more than 60% of the provincial payroll. As a result of the small average size of Saskatchewan firms, the average net profit per firm is 16% lower than the national average. At the same time the average equity per firm was about 25% below the national average, and only 24 firms with Saskatchewan-based headquarters have raised equity capital on Canadian stock exchanges. Many firms compensate for shortages of capital by leveraging their equity to a greater extent than their national counterparts; as a result, the average firm in Saskatchewan has a higher debt to equity level and is more at risk to changes in financial conditions than many other firms. Out-of-province firms are significant actors too. Only about 68% of gross revenues by firms operating in Saskatchewan are controlled by private Canadian firms; firms controlled by government—federal, provincial and local—are responsible for about 19% of gross business revenues in the province; and foreign-controlled firms contribute about 12% of gross revenues.
Economic Challenges in the 21st Century
Diversification has been a key priority for Saskatchewan. Given the international orientation of the provincial economy, the primary and secondary export industries are forced to remain globally competitive, which often leads to new capital infrastructure replacing some jobs. Pulp and paper mills, computerized business services, Heavy Oil Upgraders, irrigation projects, and many new food processing plants all add essential new diversified layers to the economy and thereby increase value added, employment, and incomes. One benefit of the diversifying economy has been a moderation in the annual swings in economic activity. In the decade leading up to 1962, the real (inflation-adjusted) gross domestic product was extremely volatile: on average, the economy changed by almost 14% between years, with contractions of up to 26.7% in some years and expansions of as much as 23.4% in other years. In contrast, during the decade leading up to 2003, the economy changed by an average of only 2.5% each year, the largest contraction being 0.8% and the largest expansion only 4.7%. Although considerable progress has been made over the past few decades, the gains from diversified production have barely been sufficient to offset the jobs lost from agriculture. High real interest rates, volatile financial markets, international trade wars, changing world-wide demand for primary products, and a long-term decline in real prices for resource exports have been key features of the operating environment since the 1970s and are likely to continue into the foreseeable future, challenging the provincial economy to remain dynamic and growing.
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