Canada’s Textile and Clothing Industries

by C. Bloskie *

On January 1, 2005, most countries around the world, including Canada, dropped quotas on imports of apparel and textiles under World Trade Organization rules adopted in 1994, setting the stage for increased competition from low-wage, developing countries. Even before quotas expired, falling prices boosted import volumes in recent years, depressing domestic output. Recent newspaper headlines have highlighted factory closings and job losses.

This paper takes a look at the role of the textile and clothing industries in the Canadian economy¹. It starts with a brief overview of recent trends in global trade. It then looks at these industries in Canada, in terms of jobs, productivity, output and trade.

Although clothing and textiles are often combined for analysis, they are quite different. The apparel industry is very labour intensive, its workers are low paid and production is mobile and can shift easily for economic reasons. The textile industry is capital intensive, continually investing in new technology to remain competitive as production is less transitory, and its workers are higher paid.

World trade²

In 2003, clothing and textiles accounted for 3.1% and 2.3% of world merchandise trade, with $226 billion ($US) in clothing and $169 billion for textiles. Although trade continued to recover from declines in 2001, which had been exacerbated by falling prices due to increasing imports from less-developed countries and exchange rate movements, growth was below the 14% overall rise in manufactured goods trade.

Figure 1

The EU, US and Japan account for the majority of textile and clothing imports. Although the EU still has the lion’s share, it has been losing ground over the past 15 years. Canada’s share has changed little.

China has become the world’s largest supplier of textiles and clothing, as other Asian nations have shifted much of their labour-intensive production there. In 2003, China’s textiles and clothing exports surged 31% and 26% respectively.

Share of World Trade

Textiles and Clothing in Canada

Textiles consist of mills that manufacture yarn or textile fabrics. It also includes textile product mills that manufacture carpets, curtains, linens, etc. from purchased fabrics. Textiles have a large degree of vertical integration with the output of one firm often being the input of another; from fibre to yarn, to fabric, to dyeing, to finishing, to its final form (a textile product or an input to the clothing industry). Textiles employ a high degree of technology and capital investment.³

The apparel industry manufactures clothing and leather products, including footwear. It is labour-intensive and dominated by small firms. New immigrant workers represent a large portion of the workforce in entry level jobs, including sewing and production-type jobs.⁴

Fabric mills account for the bulk of Canada’s textile production, while cut and sew clothing is 80% of clothing output.

Employment⁵

In 2003, textiles, clothing and leather accounted for 7.5% of manufacturing employment and 1.2% of all jobs in Canada. Jobs have shifted from clothing to textiles: textiles employed 36% of these employees, up from 28% in 1991; clothing was just over 50%, down from 60% in 2001 when employment peaked at almost 95,000. Clothing jobs tumbled 15,000 in 1991 when the FTA and recession hit. Employment recovered steadily until 2001 but has since declined. Leather products employ 16,000, mainly in footwear.

The majority of these jobs are in central Canada: 81,000 workers in Quebec, 49,000 in Ontario. In Quebec, 57% are in clothing, 32% in textiles, with the remainder in leather. In Ontario, employment is split between clothing (48%) and textiles (42%). The western provinces have 14,000 employees, mostly in clothing in BC and Manitoba.

Overall, these industries had 155,000 jobs in Canada in 2003. By November 2004, this fell to 129,000, with only textile product mills rising. Ontario lost over 8,000 and Quebec 15,000. In Ontario the loses were relatively evenly split between textile mills, clothing and leather, while in Quebec clothing lost almost three times as many workers as textiles.

Figure 2

Productivity

Productivity has become increasingly important with the reduction of trade barriers and the recent rise in the dollar, which makes imports of end products and inputs much cheaper. Labour productivity can be raised by increasing capital available per hour worked, more skilled workers or combining both capital and labour more efficiently (known as multifactor productivity).

Labour productivity in clothing and textiles has generally been rising since 1998. Annual capital investment in clothing averaged $120 million in the 1990s. This declined steadily to $70 million by 2003. Yet, the productivity gains in clothing from 2001 to 2003 were more than double for all manufacturing. Textiles had a rapid improvement up to 2001, matching higher capital investment (averaging almost $300 million a year). Since then, annual investment plunged to half that amount and productivity retreated.

Multifactor productivity tells much the same story. Clothing manufacturers continued to make more efficient use of resources (albeit at a declining rate), while textiles, after a surge up to 2000, have seen productivity fall into 2002. Some of the divergence in productivity might be explained by the hiring of less-skilled workers at lower wages. Average incomes fell 2.4% to $26,800 in 2001 (the last year for which data are currently available) in clothing while they rose 4.4% to $37,500 in textiles. The fall in incomes could reflect a change in labour composition that lowered costs but did not adversely affect productivity. Increased labour costs in textiles were not offset by higher productivity.

Figure 3a

Figure 3b

The recent decline in productivity for these industries was also reflected in their financial health. Their combined return on capital employed fell from 7.7% in 2002 to 5.3% in 2003⁶. Profit margins also slumped, from a peak of 5% in 2000 to 3.8% in 2003, while return on equity was nearly halved to 6%.

Output and Trade

Textile and clothing output has been strongly influenced by the business cycle and trade over the last two decades. Both industries were hard hit by the 1982 recession, but rebounded quickly. By the late 1980s, they were already suffering the effects of a rising dollar compounded by the recession of the early 1990s. After a rapid recovery up to 2000, output has since declined at an accelerating rate.

Canada has historically run trade deficits in textiles, clothing and leather and the gap continues to widen. These industries together accounted for 1.3% of exports in 2004 and 3.9% of imports. Clothing currently runs the widest trade deficit ($4.0 billion), followed by leather ($2.1 billion), textile product mills ($1.5 billion) and textile mills ($1.0 billion).

Figure 4

Clothing accounts for the most trade, with exports of $2.5 billion and imports of $6.6 billion. While exports have been steady since 1998, the value of imports has doubled even as import prices have declined. The bulk of our clothing exports go to the US, with whom we have a $1.8 billion surplus, although sales have recently slowed as the loonie appreciated. Our largest deficit is with China at $4 billion, with imports tripling in just 10 years. Imports have also increased from Bangladesh, India, Mexico, and Southeast Asia.

Leather output has declined over the last two decades, with double-digit declines since 2001. Production shrank 75% from almost $1 billion in 1984 but our trade deficit has remained near $2 billion since 2000 as the value of both imports and exports have been steady.

Figure 5

Textiles peaked in 2000, the same year as clothing, with textile mills accounting for 60% of production. The output of fibre, yarn and thread mills, along with fabric finishing and coating mills, has remained steady near $550 million since 1997, while production in fabric mills tumbled one-third from its $1.1 billion peak in 1999. In textile product mills, a similar trend has occurred, with output falling for textile furnishings but holding steady for other textile products.

Figure 6

Trade in textiles ran a $2.5 billion deficit in 2004 with imports of $5 billion and exports of $2.5 billion. The largest deficit was with China, followed by the US and India. Only textile mills saw its deficit narrow, falling in half from over $2 billion in 1998. Exports rose 6% over this period, led by textiles and fabric finishing, while imports plunged 26% as manufacturers substituted domestic inputs (particularly yarn and thread) for imported ones. This is also reflected in domestic output of these firms holding up despite the overall decline in textile import prices.

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Notes

^* Current analysis group (613) 951-3634.

¹ Due to the different levels of aggregation available for the various sources of data, it is not always possible to separate leather from clothing. In some instances, such as productivity, data are not currently available for leather. Therefore, clothing excludes leather unless otherwise stated.
² Data is from the WTO in $US on a customs basis up to 2003.
³ Textile Industry Guidance Document, Canada Revenue Agency, January 15, 2002.
⁴ 2004 Canadian Apparel Federation.
⁵ From the Survey of Employment, Earnings and Hours.
⁶ Data is only available at the aggregate level for clothing, textiles and leather.