Main article

1. Summary
2. Slower growth in wholesale sales
3. A difficult fourth quarter for Canadian wholesalers
4. Wholesale growth held back by the automotive products sector
5. Higher prices for fertilizers and fertilizer materials boost sales in the “other products” sector
6. The machinery and electronic equipment sector posts a fifth consecutive advance
7. Saskatchewan has the top growth rate for the second straight year

1   Summary

Wholesalers reported the lowest growth in sales in the last five years reflecting the downturn in the Canadian economy in the fourth quarter and the slump in the automotive industry.

Wholesale sales ¹  rose 3.0% in 2008 to more than $532 billion, a lower growth rate than in 2007 (+5.4%). With inflation removed, the volume of wholesale sales also slowed, as the growth rate declined from 7.0% in 2007 to 0.4% in 2008.

The slower growth compared with 2007 largely reflects a drop in sales in the automotive products sector. When those sales are excluded, the growth rate in wholesale trade was 6.1% in 2008, compared to 6.3% in 2007.

The downturn in automotive product sales in 2008 was partly offset by the strong performance of the machinery and electronic equipment sector and the “other products” sector.

Machinery and electronic equipment, the largest sector in terms of sales, recorded a 7.1% growth in 2008, primarily due to higher sales in the machinery and equipment group, which reflects more vigorous investment in infrastructure and expansion in the mining and oil industries. The “other products” sector had the highest rate of growth in wholesale trade since 1993, mainly as a result of a large increase in prices for fertilizers and fertilizer materials.

At the provincial level, wholesalers in Alberta and Saskatchewan posted larger gains than their counterparts in other Canadian provinces, accounting for more than 80% of the increase in sales at the national level in 2008.

Following an exceptionally strong performance in 2007 (+17.3%), Saskatchewan’s wholesalers recorded a 41.0% jump in sales in 2008, largely due to higher sales of fertilizers and fertilizer materials. It was the largest provincial growth rate since 1993.

Ontario suffered its first decline in sales since 1993 (-0.6%), which pushed the province’s share of total national sales below 50% for the first time since 1995.

This study reviews the performance of the wholesale trade sector nationally and regionally, along with the key factors affecting the 2008 trends. Unless otherwise specified, all data are expressed in current dollars.

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2   Slower growth in wholesale sales

In 2008, Canadian wholesalers experienced the slowest growth in sales of the last five years.

Wholesale sales rose 3.0% to more than $532 billion, a lower rate than the 5.4% recorded in 2007. The slowdown is primarily attributable to the slump in the automotive products sector, whose sales decreased by more than $10 billion. When these sales are excluded, the wholesale trade growth rate was 6.1% in 2008, compared to 6.3% in 2007.

In 2008, sales in the automotive products sector declined to its lowest level since 2001. The sharp decline in sales in 2008 resulted in a decrease in the sector’s share of total sales. The automotive products sector fell from second to third place in terms of share of sales, behind the machinery and electronic equipment sector and the food, beverages and tobacco sector.

Despite the economic downturn late in the year, five of the seven sectors reported higher sales in 2008. Sales increases of more than $10 billion in the “other products “ sector ²  and an increase in sales of more than $7.7 billion in the machinery and electronic equipment sales helped to offset the $10 billion drop in sales in the automotive products sector.

Machinery and electronic equipment, the largest sector in terms of sales, recorded a 7.1% increase in sales, primarily due to higher sales in the machinery and equipment group. Fuelled by a strong advance in exports of fertilizers and fertilizer materials, sales of “other products” grew by more than 10% for the second consecutive year, posting the highest growth rate in 2008 (+15.9%).

At the provincial level, Alberta and Saskatchewan led the way in the wholesale sector, accounting for 80% of the change in national sales in 2008. Saskatchewan’s wholesalers outpaced their counterparts in other provinces for the second consecutive year, with a 41.0% jump in sales in 2008.

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3   A difficult fourth quarter for Canadian wholesalers

Like most sectors in the Canadian economy, the wholesale industry was hard hit by the global economic downturn. The Canadian economy shrank at an annualized rate of 3.4% in the fourth quarter, while the American economy contracted by 6.2%. The majority of European countries also suffered negative economic growth.

The wholesale sector posted strong growth in the first half of 2008, followed by a decline that began in October. A fourth-quarter slump in Canada’s exports (-4.7%), imports (-6.4%) and retail sales was reflected in wholesale sales, which were down 6.3% in December compared with September.

The weakness in wholesale sales continued in early 2009; preliminary figures for January and February show a decrease of 3.9% and 0.6%, respectively.

Most sectors experienced declining sales in the final months of 2008, including the “other products” sector and the automotive products sector, whose sales were down 18.9% and 11.1% in December compared with September. Automotive product sales posted four monthly declines in the first nine months of 2008, and the downturn in sales accelerated in the last three months of the year.

The only exception was the food, beverage and tobacco sector, which maintained the same growth rate throughout 2008.

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4   Wholesale growth held back by the automotive products sector

Companies in the automotive products sector reported their lowest sales since 2001, which put a damper on sales growth for Canadian wholesalers.

The trend observed in recent years continued in 2008. Since 2003, sales in the automotive products sector have been rising at a lower average annual rate than overall wholesale sales, which has pushed its share of total sales down from 21% in 2003 to 16% in 2008.

Wholesale sales of automotive products dropped 10.6% in 2008 compared with 2007, and the entire decline was due to lower sales in the motor vehicle group (-13.6%). In contrast, the sales of auto parts wholesalers were up 1.7% compared with 2007.

A 13.7% drop in wholesale sales of passenger cars and light trucks accounted for 90% of the decline in the motor vehicle group’s sales.

The main reasons for the decline are lacklustre demand in the Canadian market and falling prices. According to the New Motor Vehicle Sales Survey, 1.7 million vehicles were sold in 2008, down 1.0% from 2007. In addition, consumers who purchased new vehicles benefited from much lower prices, as motor vehicle prices fell 6.9% in 2008. It was the largest price decrease in more than 50 years.

Another factor that may account for this performance is lower American demand for many Canadian-made vehicles. For example, more than 90% of the motor vehicles assembled in Canada are shipped to the United States ³ , some of them through wholesalers.

Passenger car exports dropped by 14.8% in 2008. Much of the decrease took place in the final quarter of the year, when exports of automotive products were down 19.0% from the previous quarter.

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5   Higher prices for fertilizers and fertilizer materials boost sales in the “other products” sector

In 2008, despite sharply lower sales at the end of the year, the “other products” sector posted its strongest gains since 1993. The sector’s sales climbed 15.9% to $73 billion, and accounted for 13.8% of the wholesale sector’s total sales.

The strong performance in 2008 was primarily a result of higher sales of agricultural chemicals and other farm supplies, which accounted for 55% of the increase. Wholesaler sales of agricultural chemicals and other farm supplies constitute a substantial portion of Canada’s exports of fertilizers and fertilizer materials.

Canada is one of the leading producers and exporters of fertilizers and fertilizer materials, accounting for more than 30% of world production. ⁴  Over 90% of Canadian production is exported to the United States, China and India, and a large proportion of those exports go through wholesalers.

Compared with 2007, fertilizer prices more than doubled in 2008 as a result of higher production costs (energy, petroleum and natural gas prices) and strong demand for agricultural products and biofuels. ⁵ 

In 2008, a number of Canadian firms signed fertilizer delivery contracts with India and China at a much higher price than in 2007, which translated into an 88.0% jump in the value of Canadian exports of fertilizers and fertilizer materials compared with 2007.

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6   The machinery and electronic equipment sector posts a fifth consecutive advance

The machinery and electronic equipment sector recorded its fifth consecutive gain, with a 7.1% increase in sales to more than $117 billion. The sector is made up of three trade groups— machinery and equipment, computers and other electronic equipment, and office and professional equipment—and accounts for 22% of wholesale sales.

In recent years, the sector has been growing at a faster pace than most other wholesale sectors. Since 2004, its sales have climbed nearly 36%, for an average annual growth rate of 7.6%, well above the average growth rate for wholesale sales over the same period (+5.1%).

The machinery and equipment group generated nearly $60 billion in sales and was responsible for more than 70% of the machinery and electronic equipment sector’s growth. The group’s sales were up 10.4% in 2008, following a 5.8% growth rate in 2007.

Because of the type of products they sell, companies in the machinery and equipment group are very sensitive to changes in business investment in machinery. Their expansion in 2008 is due to heavy demand for agricultural machinery in Alberta and Saskatchewan and to increased business investment in oil and gas development machinery in Alberta. Investment by oil and gas extraction firms in Alberta was up 14.6% in 2008. ⁶ 

The fast appreciation of the Canadian dollar against the US dollar that began in the third quarter of 2007 continued through the first eight months of 2008, which provided an incentive to Canadian companies to invest in machinery and equipment, much of which is imported from the United States and therefore priced in US dollars.

According to the 2001 Wholesale Trade Commodity Survey by Origin and Destination, more than 50% of the machinery and electronic equipment sector’s sales consist of products manufactured outside Canada. In 2008, imports of farm machinery and drilling machinery for mining increased by 16% and 14% respectively.

The computers and other electronic equipment group recorded a slightly higher growth rate in 2008 than in 2007, as sales rose 5.0% to more than $32.7 billion. In contrast, the office and professional equipment group reported 2.3% growth, down substantially from its 2007 growth rate of 6.6%.

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7   Saskatchewan has the top growth rate for the second straight year

In 2008, Alberta and Saskatchewan led all other Canadian provinces in sales growth in the wholesale sector. Wholesale sales in the two provinces jumped by more than $6.7 billion and $5.9 billion, which accounted for over 80% of the change in sales at the national level (+$15.4 billion).

In the last few years, Alberta and Saskatchewan have experienced an economic boom, which translated into substantial sales growth for wholesalers. Between 2004 and 2008, wholesale sales in those provinces exhibited higher average annual growth rates than sales in other Canadian provinces. As a result, the provincial share of Canada’s total wholesale sales increased from 10.2% to 12.9% for Alberta and from 2.5% to 3.8% for Saskatchewan.

In Saskatchewan’s case, much of the growth was due primarily to the sharp upswing in sales in 2007 and 2008. For Alberta, the pace of growth has been steady since 2004.

With 41.0% increase in sales in 2008, Saskatchewan had a higher growth rate than any other Canadian province. It was the highest provincial growth rate since 1993. In nominal terms, Saskatchewan’s wholesalers sold about $20.4 billion worth of goods.

The performance of Saskatchewan’s wholesalers is mainly attributable to sales growth in the “other products” sector, which accounted for 46% of the province’s sales in 2008 and was responsible for more than 71% of the growth. The sharp increase in Canadian exports of fertilizers and fertilizer materials boosted the sales of Saskatchewan’s “other products” sector, which grew 81.8% to $9.3 billion, up more than $4.2 billion from 2007.

The machinery and electronic equipment sector also made a fairly significant contribution to the 2008 results. The sector’s total sales of $5.3 billion (up 28.7%) were fuelled by higher sales in the machinery and equipment trade group.

Following slower growth in 2007, Alberta’s wholesale sales jumped 10.9% to $68.6 billion. It was the province’s fourth double-digit growth rate in the last five years.

The sales increase in Alberta was attributable to advances in the machinery and electronic equipment sector and the “other products” sector. Together, the two sectors generated over 83% of the growth. In 2008, machinery and electronic equipment wholesalers benefited from increased investment by mining and natural gas development companies, posting sales of more than $23 billion, up 14.7%. Like their counterparts in Saskatchewan, Alberta’s “other products” wholesalers profited from the heavy demand for Canadian fertilizers.

Ontario’s wholesalers have traditionally accounted for more than 50% of Canada’s total sales, and consequently their performance has had a predominant impact on the national figures.

In 2008, wholesale sales in Ontario totalled $259.9 billion, down 0.6% from 2007. This marks the sixth straight year that the province’s rate of sales growth has been below the Canadian average. As a result of the decline, Ontario’s share of total wholesale sales fell below 50% for the first time since 1995.

The 2008 decline was mostly due to lower sales in the automotive products sector. If that sector is excluded, the province’s sales actually rose 4.0%, thanks largely to strong performance by the food, beverage and tobacco sector, the machinery and electronic equipment sector and the “other products” sector. Sales in these three sectors were up more than $6.8 billion, which partly offset the losses in the automotive products sector.

After climbing 2.8% in 2007, automotive product sales in Ontario dropped 12.7% to $62.3 billion, though they still made up more than 72% of Canada’s total sales in the automotive products sector.

Higher sales in the machinery and equipment trade group (+8.0%) contributed to the machinery and electronic equipment sector’s total of $55.5 billion, up 4.2%. With its 7.0% advance to more than $32 billion, the “other products” sector maintained the vigorous growth it experienced in 2007.