In Canada, the low prices of oil and other commodities are causing the value of the Canadian dollar to drop. Two years ago, the Canadian dollar was worth 93 American cents and as of Wednesday, it is now worth only 69 American cents. Factors that have contributed to this sudden fall of the Canadian dollar are listed as: reversing commodity prices and the oversupply of oil. In some ways, the weaker currency is helpful to the Canadian economy because the United States is the largest market for Canadian exports and those exports have become less expensive since the fall of the currency. Service sectors such as Canada's tourism industry are experiencing gains from the fall in currency value. However, food is more price sensitive than the service sector. In grocery stores, changes in currency are more quickly reflected, so grocery stores are less able and willing to take in the losses. The closing of 140 food processing plants in the last couple years is evidence of that.
Savings from lower oil prices seem to disguise the increasing prices for imported goods. Fishermen are now sending their harvest to the United States and restaurant owners must buy their fish back from the United States. This can also be seen in the beef industry. Canadians are trying to find ways to adapt to this new situation seen in the example of Sal Howell, owner of two restaurants who is now focusing on using locally available produce rather than importing produce.
New York Times, Ian Austen, 1/21/16
Interesting. Couldn't this actually be a good thing for local economies? Like you said, due to the high import costs of beef and other food, business owners are being forced to shop locally. Perhaps the high prices of importation will boost the national GDP as well, since Canadian money will stay in Canada.
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ReplyDeleteThis is very unique. I know that Oil and energy exports account for over 25% of their total exports as opposed to the US's less than 13%. Capital flows to the strongest currencies, and it is evident that because of this, there will be shortages in their market due to a lower supply of money and investment from foreign, and obviously domestic companies (as noted with the fishermen bringing their catch across the border). Perhaps the Canadians will be able to fight their currency devaluation by making their labor cheaper. Perhaps this will encourage firms to move into Canada to produce things - despite the weakness of the Peso, many American firms, including automakers, opt to produce things in Mexico because of the cheap labor.
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