34-250-XIE

Manufacturing, Construction and Energy Division

EVOLUTION OF THE PRIMARY TEXTILE INDUSTRY

Yasmin Sheikh

October 1999

In recent years, several economic forces have been at work that have changed the structure of the economy. Factors such as globalization and trade liberalization, among others, have intensified competition resulting in the reallocation of resources among sectors in Canada.

This paper highlights some of the key changes that have taken place in the Primary Textile Industry. It concentrates on the evolution and importance of this industry within an overall changing economic and manufacturing environment using Statistics Canada’s data base, CANSIM, data from International Trade Division and results of the Annual Survey of Manufactures (ASM) along with current findings of the 1998 and 1999 Monthly Survey of Manufacturing (MSM).

The importance of manufacturing in the economy

The share of manufacturing output in total Gross Domestic Product (GDP) was 17.9% in 1998, up from 17.2%, in 1961(1). This sector is more sensitive to economic conditions showing sharp increases and declines in its share of GDP, corresponding to major economic events during the period of study.

The performance of the Canadian economy was very strong in the 1960’s. " The only threat to the record period of growth from 1961 to 1970 occurred in 1967, when firms slowed their stockpiling of goods…..The rate of expansion slackened somewhat in 1970…Fiscal and monetary policies adopted in 1969 (to slow inflation) apparently played some role in slowing down the growth of income and domestic demand in the first half of 1970…Rising inflation and an embargo on OPEC oil shipments plunged the U.S. economy into a severe recession late in 1973…our exports to the United States posted a marked decline during 1974"(2).   The share of manufacturing in total GDP also peaked in 1969 at 19.7% dropping to 18.5% in 1970 reaching 19.7% once again in 1973 and dropping to record lows during the recessions of 1982 and 1991 (Figure 1. Share of Manufacturing in total Gross Domestic Product).

The GDP growth of the primary textile industry kept pace with the growth of the manufacturing sector

The structure of the manufacturing industry has evolved over time with industries such as Plastic Products, Transportation Equipment and Electrical and Electronic Products showing phenomenal growth between 1961 and 1998. On the other hand, Clothing and Tobacco industries grew marginally while Leather and Allied Products industries experienced negative growth. The GDP of the Plastic Products Industry in 1998 was 24 times that of 1961 and for the Transportation Equipment and Electrical and Electronic Products was 11 times higher. Eight of 22 industries grew at a faster pace than the growth of the manufacturing sector while primary textiles maintained the same rate (Figure 2. Growth in Gross Domestic Product, Manufacturing Industries).

Evolution of the Primary Textile Industry

The textile industry, consisting of both primary textiles and textile products started with the production of natural yarns and fabrics some 150 years ago. The industry has evolved into a highly modernized and capital-intensive industry. It is mainly concentrated in Quebec and Ontario where about 90% of production takes place. Establishments producing primary textiles tend to be larger and have greater economies of scale than those producing textile products(3).

In the 1970s and early 1980s, the textile industry was protected from low-cost imports by means of import quotas and tariffs. This policy was driven by the government’s objective to give the industry time to restructure and adjust to international competition.

The Primary Textile Industry(4), is one of the smaller industries contributing 0.2% to the Canadian GDP in 1998.

The Primary Textile Industry GDP grew at the same pace as overall Canadian manufacturing sector’s GDP, between 1961 and 1989. The Free Trade Agreement (FTA) with the United States was introduced in 1989 followed by other trade policy developments. The recession of the early 1990s overwhelmed the economy and made it difficult to measure the initial impact of the FTA. None-the-less, the Primary Textile Industry posted strong growth beginning in 1992, out-pacing both the growths in manufacturing as well as the economy. The growth rate of the primary textiles, however, is much more cyclical than both the manufacturing sector and the overall economy (Figure 3. Gross Domestic Product Growth).

The analysis that follows will concentrate mostly on the developments during the more recent period, 1988 to 1997 and study the impact that free trade has had on the Primary Textile Industry and its sub-sectors.

The five-year period of consecutive growth of the Primary Textile Industry has ended

The slowdown of the Canadian economy in 1998 in response to the Asian crisis and continued deceleration into 1999(5), ended the five-year growth spurt of the Primary Textile Industry. Between 1988 to 1997, the value of shipments increased 18% from $3.2 billion in 1988 to $3.8 billion in 1997. However, current data from the Monthly Survey of Manufacturing (MSM) show that the value of shipments declined by 1% in 1998 and 6% in the first two quarters of 1999(6) (Figure 4. Primary Textile Industry, Value of Shipments).

In 1997, the Primary Textile Industry consisted of 174 establishments, a decrease from 216 in 1988. The number of establishments peaked at 223 in 1990 and gradually declined to 174 in 1997.

The industry employed over 16,000 production workers in 1997, compared to over 19,000 in 1988. An average establishment operated with 89 workers in 1988 which dropped to 71 in 1990. By 1997 this average was up to 93. Each worker, on average, earned $23,500 in wages in 1988, which increased to $30,536 in 1997, a rise of 30%. However, after discounting for inflation using the Consumer Price Index, the real increase was only 2.4%.

The value of shipments (in constant 1992 dollars) per establishment and per production worker increased by 30% and 25% respectively.

During the period 1988 and 1997, primary textile manufacturers managed to increase their profitability by bringing their costs down. The ratio of the cost of inputs to the value of shipments decreased from 55% in 1988 to 52% in 1997 (Table 1. Statistical highlights – Primary Textile Industries).

Exports of primary textiles have quadrupled

The domestic market of primary textiles manufactured in Canada has been on the decline. However, this has been more than compensated by a quadruple increase in exports(7) from $0.5 billion in 1988 to $1.9 billion in 1997. In 1988, 15% of the shipments were destined for other countries, by 1997 about half of the total were destined for other countries with a major proportion going to the United States. At the same time, imports increased from $1.8 billion in 1988 to $3.3 billion in 1997. While imports satisfied 40% of the Canadian market in 1988, by 1997 this proportion increased to 64% (Figure 5. Exports, Imports and Domestic Shipments)(8).

Capacity utilization similar to the rate in the manufacturing sector

Capacity utilization rates have fluctuated over the years with the highest rate of 89% achieved in 1994 and the lowest at 80% in 1990. Compared to the peak in 1994, capacity utilization declined to 83 % in 1998 which still compares well with the total manufacturing rate of 84% in 1998.

Investment (9)(in constant 1992 dollars) was at its lowest during the recession in 1992 at $127.5 million, it reached a peak of $315.3 million in 1996 and by 1998 dropped to $245.2 million (Figure 6. Primary Textile Industry – Capital Investment and Capacity Utilization).

According to Industry Canada, investment tends to be concentrated among a small number of large textile companies. Historically, the industry has attracted a significant volume of foreign investment. Foreign controlled companies producing man-made fibres, filaments and fabrics accounted for some 60% of aggregate primary textiles shipments in 1996(10).

All sub-groups show notable increases in exports

The Primary Textile Industry produces a wide variety of threads, filaments and fabrics and is composed of the following sub-groups in order of their size, the first two accounting for three-quarters of the industry in terms of the value of shipments:

Spun Yarn and Woven Cloth (other than wool) (SIC 1829)
Man-made Fibre and Filament Yarn (SIC 1811)
Broad Knitted Fabric (SIC 1831)
Wool Yarn and Woven Cloth (SIC 1821)

This industry specializes in the manufacture of various kinds of fabric, from yarns other than wool. It is the largest sector in the Primary Textile Industry and accounted for 42% of the total in 1988 and 1997. Although the total value of shipments increased 18% from $1.3 billion in 1988 to $1.6 billion in 1997, domestic shipment of these items has progressively declined over the study period. On the other hand, both imports and exports have sky-rocketed. Exports comprised of 11% of the value of total shipments in 1988, climbing to 40% in 1997. At the same time, the Canadian market, consisting of domestic shipments plus imports, has increased from $2.3 billion to $2.7 billion. The market is being satisfied increasingly with more imports. The share of imports in the Canadian market increased, from 47% in 1988 to 64% in 1997.

Man-made Fibre and Filament Yarn industry processes and combines fibres and filaments to produce various types of thread. It is the second largest sub-sector accounting for 33% of total shipments of primary textiles. The Canadian market for such products has grown somewhat, from $1.1 million in 1988 to 1.3 million in 1997. However 71% of this market was satisfied with imports in 1997 compared to 34% in 1988. Meanwhile, exports of these products have more than tripled.

Broad Knitted Fabric

The second smallest sub-sector in the Primary Textile Industry, engaged in knitting apparel fabrics, has experienced an increase in its share of the value of shipments from 15% in 1988 to 17% in 1997. The share of imports in the Canadian market has increased from 21% in 1988 to 52% in 1997. At the same time exports jumped from 2% in 1988 of the value of total shipments to 36% in 1997.

Wool Yarn and Woven Cloth, the smallest sub-sector, consists of establishments that specialize in the manufacture of wool yarn and fabrics from such yarn as well as felts for paper-making. Even though exports of these products have increased from 13% to 44% of the value of shipments, its share fell from 12% in 1988 to 8% in 1997 of total shipments. Demand for imported products is higher than those produced domestically.

Conclusion

Globally, industry structure and trade patterns are rapidly shifting as a result of many changes including the development of new regional trading blocks and intensified competition from developing countries. To be internationally competitive in this rapidly evolving and dynamic trading environment, Canadian textile producers are striving for improvements in productivity, engaging in product specialization and establishing a presence in export markets.

Shipments of primary textiles were on an up swing for five years, until 1997, but a much lower proportion being shipped domestically. On the other hand, exports have been on the rise particularly to the United States. The Canadian market is increasingly being satisfied with imports. All sub-sectors of the Primary Textile Industry show the same trend. One may conclude that Canadian producers are specializing in products that are in high demand abroad and Canadian users are importing and consuming lines that are made cheaper elsewhere. While Canadian manufacturers are specializing more in certain varieties of Man-made Fibre and Filament and Broad Knitted Fabrics, they are relying more on imported Wool Yarn and Woven Cloth.

Definitions

Trade Policy Developments(11):  In the late 1980s, protectionism gave way to trade liberalization, and Canada entered into the Canada-U.S. Free Trade Agreement (FTA) in 1989 and, in 1994, the North American Free Trade Agreement(NAFTA).

In addition to the phase-out of tariffs under NAFTA, the industries are also facing tariff reductions as a result of the Uruguay Round of multilateral trade negotiations under the GATT, concluded in 1994. These reductions are occurring in annual increments over a 10-year period beginning January 1, 1995, and will reduce the average tariff for apparel from 25 percent to 18 percent. Tariffs on textile fabrics will be reduced from a maximum of 20 percent to a maximum of 14 percent.

The Uruguay Round Agreement on Textiles and Clothing also provided for the gradual phase-out of quotas on apparel and textiles over a 10-year period beginning January 1, 1995. Products are being removed from the quantitative restraint system in four steps over the phase-out period, with the second phase taking effect on January 1, 1998. At the same time, the annual quota growth rates of those products remaining under restraint are being increased according to a set schedule. The phase-out applies only to Canada’s agreements with member countries of the World Trade Organization (WTO), which comprise 32 of the 43 existing bilateral restraint agreements.

References

1. Statistics Canada, CANSIM Matrix no. 4677.

2.  Cross P. Alternative Measures of Business Cycles in Canada: 1947-1992, Canadian Economic Observer, February 1996, Statistics Canada, Catalogue no. 11-010-XPB.

3.  The Canadian Textiles Industry, Business Information by sector, Web site Strategis, Industry Canada.

4.  Refers to Major Group (MG) 18, in Statistics Canada Standard Industrial Classification, 1980, Catalogue no. 12-501E.

5.  Real GDP growth rate fell from 4.0% in 1997 to 2.9% in 1998 and 2.6% for the first two quarters of 1999.

6.  Statistics Canada, Monthly Survey of Manufacturing, June, Catalogue no. 31-001-XPB.

7.  International Trade Division, Special tabulations.

8.  Users should be aware that this figure is based on two different sources of data - value of shipments from the Annual Survey of Manufacturers and exports and imports data from International Trade Division. While the two surveys are conceptually different, within their own realm they are consistent from one year to the next. Hence derived variables such as domestic market and Canadian market give a good indication of their relative size and the change thereof, from one year to the next.

9.  Data for Capital Investment are only available from 1991.

10.  The Canadian Textiles Industry, Business Information by sector, Web site Strategis, Industry Canada.

11.  The Canadian Textiles Industry, Business Information by sector, Web site Strategis, Industry Canada.

Sources

Charron, Nicole , Primary Textile Industries , Manufacturing, Construction and Energy Division.

Cross P., Alternative Measures of Business Cycles in Canada:1947-1992, Canadian Economic Observer, February 1996 Statistics Canada – Catalogue no. 11-010-XPB

Industry Canada, Evolving Patterns: Canada’s Competitiveness in the Apparel and Apparel Textiles Industries, 1995.

Industry Canada, The Canadian Textiles Industry, Business Information by sector, Web site Strategis,

Kowaluk, Russell, Growth Perseveres in the Canadian Primary Textile Industry, Manufacturing, Construction and Energy Division. 

This article was written by Yasmin Sheikh. Yasmin is a Statistics Canada economist in the Manufacturing, Construction and Energy Division.

Further information on Canadian manufacturing can be found in the publications Manufacturing Industries of Canada: National and Provincial Areas (Catalogue 31-203-XPB), available annually for $68 per issue in Canada and for $68 U.S. outside Canada, and Products Shipped by Canadian Manufacturers (Catalogue 31-211-XCB), available annually for $430 per issue in Canada and for $430 U.S. outside Canada. Order these products and other Statistics Canada publications by telephone, dial 1-800-267-6677, by fax: 1-800-889-9734, or by Internet.

For more information about manufacturing data or time-series, call the Disclosure and Dissemination Unit, Manufacturing, Construction and Energy Division at (613) 951-9497 or by Internet: manufact@statcan.gc.ca.   For information from International Trade Division telephone 1-800-294-5583 or by Internet: trade@statcan.gc.ca.