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June 12, 2006

Up, up and away | Maine industries anticipate benefits from a strong Canadian dollar

By Chris Churchill
The Canadian dollar has gone loony. The value of the currency is on a long climb, its worth jumping 40% in just four years. In May, the Canadian dollar reached a value of 91 cents to the U.S. dollar ˆ— its highest level since 1978 ˆ— before backing off to 90 cents in early June. And if the rising trend continues, as many economists expect it will, dollars on both sides of the border soon could be equals, virtually interchangeable.

For Maine, the economic impact of a rising and newly powerful "loonie" ˆ— as the Canadian dollar, which features a loon, is called ˆ— is significant. The nation is easily Maine's largest trading partner. Its residents are frequent visitors to the state's attractions and stores. Likewise, some Mainers have grown used to traveling to Canada in search of discount vacations or bargains on luxury items. "When the Canadian dollar is worth 50 cents," says Susan Swanton, executive director

of the Portland-based Maine Marine Trades Association, "there are obviously some people that will make the move to a Canadian-built boat."

Maine boat builders and other industries obviously are hoping the near parity of the dollars will keep U.S. shoppers at home. But no one, it seems, is sure of the rising loonie's potential impact. That's partly because the Canadian currency is closing the gap with the U.S. dollar for the first time since the 1988 Free Trade Agreement between the nations abolished tariffs and other trade barriers, making the potential economic ramifications of the rising loonie difficult to predict. "In a way we're in uncharted territory here," says former state economist Charles Colgan. With Canadian goods suddenly more expensive for Americans, and vice versa, "we have some opportunities to sell into Canada in ways that we haven't in the past. It may bring back some of the Canadian retail customers, particularly from New Brunswick. New Brunswick has a much smaller retail sector than we do."

Merchants along the border are already getting a boost, says Linda Corey, executive director of the St. Croix Valley Chamber of Commerce in Calais, even though new security measures in some cases have made crossing into the United States arduous. On a recent May weekend, Corey says, Canadians "waited an hour and a half to two hours to cross. I think the fact that the Canadian dollar is that strong is why they waited." She adds that some Calais-area businesses are planning shopping days during which they'll accept the loonie at par, to draw even more Canadians across the border.

Reversing a trend
Don Flannery, executive director of the Maine Potato Board, says the number of acres in potato production in Maine has been nearly halved in the last 20 years, from about 103,000 acres to about 55,000 acres today. "We could lay a lot of that decline in Maine to the Canadians being able to be very competitive in our marketplace," Flannery says. "That low Canadian dollar has had a tremendous impact on our industry."

But the tide is starting
to shift: U.S. demand for New Brunswick potatoes has dropped about eight percent to 10% in recent months, Flannery says, while demand for Maine potatoes is up about the same percentage. "It puts us in a more competitive position," he says. "They've got to compete at the same level."

It's not surprising, then, that the rising loonie has been the source of much debate and worry in Canada. The nation's newspapers report the Canadian tourism sector is concerned fewer Americans will visit this summer ˆ— while Maine's tourism industry expects more Canadians will decide to vacation in destinations like Old Orchard Beach.

Meanwhile, Canadian manufacturers are anxious Americans will buy fewer of their products. Some even believe manufacturers will pick up and move, leaving Canada for new sites south of the border. The Forest Products Association of Canada, for example, recently called on the Bank of Canada to address the appreciation of the nation's dollar and in a press release claimed that last year "in the forest products industry alone some 11,000 jobs have been lost while the manufacturing sector has shed more than 100,000 jobs."

Bill Primosch of the Washington, D.C.-based National Association of Manufacturers says he's dubious the U.S. will see many new manufacturing jobs as a result of the rising loonie. He suggests instead that firms leaving Canada are more likely to move to Asian nations such as China, which has a currency many consider extremely undervalued. But Primosch says Maine could see modest gains in wood-based sectors such as furniture manufacturing. "I think that generally [the rising Canadian dollar] will favor New England industry," he says, "and provide new business opportunities in Canada."

Many American manufacturers have long complained that their Canadian counterparts held an unfair price advantage because of the undervalued loonie. Now, analysts say, Canadian industry can no longer count on the exchange rate to carry it through. "It requires Canadians to reorient their sales and marketing pitch, because they can no longer sell on price alone," says Perry Newman of Portland-based Atlantica Group, an international business consulting firm. "We're approaching a situation where there's parity between the two currencies, and that's going to change the playing field."

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