Introduction

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The economic upgrading from primary production to processing, services and higher value activities is one of the main priorities on the agenda of local and national development officers. This development strategy is even more important for rural communities that have traditionally relied on raw commodity production, which are now increasingly exposed to global competition and fluctuating commodity prices. Although there are several studies that focus on the spatial distribution and performance of primary production or processing or services activities in isolation, an understanding of the geographic patterns of these vertical linkages is more limited.

This bulletin takes a value chain perspective and assesses the employment shifts between components of the value chain of natural resource sectors within Canada. The analysis also includes a perspective across regions, with an emphasis on Canada's rural and urban regions (Box 1). Understanding the nature of these employment changes is helpful in revealing the relevance of the natural resource sector to the rural economy as well as the contribution of the rural economy to national value chains.

A "value chain" comprises the whole range of activities that are required to deliver a product to final consumers (Kaplinsky 1999). We use an operational definition of natural resource value chains that focuses on one single element: number of individuals employed (Box 2). Although this is a simplification, the analysis is one attempt to bring a value chain perspective into rural development analysis in Canada. For a specification and analysis of resource-sector value chains in 2001, see Natural Resources Canada (2001).

In this analysis, we placed a specific emphasis on the spatial distribution of resource sector employment. We used a spatially lagged employment indicator to compare a region and the milieu in which the region is located (Box 3). In so doing, we identified regions whose economy is directly linked to a natural resource sector as well as regions which were located in a regional milieu that is highly reliant on the economy of natural resources and their value chains.
 
Value chain analysis considers regional and international trade relations as being part of a series of networks of producers, traders and retailers, whereby knowledge and relationships are developed to gain access to markets and suppliers. It has been argued that the success of disadvantaged areas in value-adding their production lies in the ability of these regions to access these networks (UNCTAD 2000). This bulletin remains a preliminary exploration of the value chains of natural resource sectors and their relevance to the rural economy.

During the 1990s, the employment changes in Canada's natural resource sectors and their associated value chains were substantial. However, the distribution of these changes varied between each natural resource sector, each component of the value chain and across space. Contrary to what might be generally perceived, employment directly related to the value chains of natural resources has not always declined. Employment in the full value chain of forestry, in fact increased between 1991 and 2001, while declining employment occurred in the agriculture, fisheries, mining and energy value chains. Generally, the employment decline was seen in primary production and processing, while the employment growth was mainly in services to primary and wholesaling.

In Canada's predominantly urban regions (Box 1), both the employment decline in natural resources and the employment growth in other sectors have been faster than in predominantly rural regions. As a result of this, by 2001, employment in primary production was relatively more concentrated in predominantly rural regions than it was in 1991. Rural metro-adjacent regions generally saw some increase in specialization in advanced components of the natural resource value chains (services and first-stage processing). As a result, these regions have been able to upgrade and diversify their employment base and compensate for the decline in primary production employment. In contrast, the more rural regions, specifically rural non-metro-adjacent regions, have not been able to replicate this.

Thus, the spatial distribution of this employment shift was not uniform. Employment in primary production and in services to primary became more spatially concentrated over the 1990s. In contrast, the employment shift within processing and wholesale activities was more evenly distributed across space.