Alberta comes back to earth

he farmers who run the seed-cleaning co-op in Clandonald, Alta., went looking for a new assistant manager this past winter – and they were surprised by the bumper crop of candidates.

A dozen people applied for the $17-an-hour job. The co-op board winnowed the list down to four contenders, and the interviews were impressive, says board member Peter Harasiuk.

What a difference an energy meltdown makes. The same search two years ago came up with only three or four applicants, Mr. Harasiuk recalls. In the feverish boom of the past decade, workers passed up on modest paycheques in farming, ranching and agribusiness for the dream of $50- to $70-an-hour windfalls in the oil patch.

This time, the plant in tiny Clandonald, about 2½ hours east of Edmonton, had its pick of oil patch refugees. The winning contender left an energy job for a chance to come home to his family farm while holding down a job in the seed mill.

Alberta's rapidly slowing economy is turning a seller's market for labour into a buyer's bazaar. The Clandonald job search is a microcosm of the revolution in expectations currently under way in the province.

The province is being hit by collapsing oil and gas prices, a downsizing energy industry and a return to what other provinces might consider more normal market conditions.

In the farm communities east of Edmonton, where heavy-oil cylinders sit cheek by jowl with cow/calf operations, these downsized economic expectations mean complex new challenges, as well as opportunities, from a rebalancing of supply and demand.

For those heavily dependent on the energy industry, it translates into lower salaries and the threat of layoffs. But for agribusiness operators – despite volatile, often depressed commodity prices – there is a chance to acquire services when they want and at a price they can afford.

"The dollar signs are not floating around in suppliers' eyes these days," says Evan Chrapko, who, along with his brother and some partners, operates a power plant in Hairy Hill that is based on biogas produced from feedlot cow manure.

Yet in a province where many people have known only good times, there is also a danger that the sudden downturn from the dizzying economic heights Alberta has scaled could trigger an even more extreme reaction.

"You have to understand, Alberta had a period of continuous expansion since 1993 – one of the longest periods of real growth in North America," says economist Michael Percy, dean of the business school at the University of Alberta.

Now the bubble has burst, he says, and the collapse of expectations could turn what is a manageable downturn, with some positive effects, into a much more profound crisis as fretful consumers dramatically slash spending.

"We've reached this type of turning point, and it can be brutal to the extent we had these positive expectations. What happens is when they turn aggressively negative, it could be worse than people anticipated."

Dr. Percy says the province's business and consumer society operates as a zero-sum world in which "we are insanely optimistic or insanely pessimistic, without a lot of balance in between."

Whether Albertans see crisis or balance now depends on where they have been sitting for the past 10 years. Business people in small towns depend heavily on the energy services industry. Now, there are fewer help-wanted ads and more vacancy signs in the windows of motels housing itinerant oil workers.

Truckers, for example, who made good money hauling highly viscous heavy oil from the rural wells to an upgrader in the border city of Lloydminster, are seeing their business plummet by two-thirds in some cases.

The farmers in Clandonald are typical in their torn emotions. On one hand, they like the idea of a little less competition for labour. Yet many landowners in the region earn $20,000 or more a year from oil well leases, a supplement to their uncertain farm incomes.

Increasingly, the older, more costly wells are being capped. While leases are usually kept in force – Mr. Harasiuk even hopes for new wells this year on his land – there are concerns about the future growth of these tidy windfalls.

While labour is more available, many small-town farmers and entrepreneurs are also bracing for a homebound flood of sons and daughters who have been working in the oil patch – and will now return to reduced salaries. It will be tough for small businesses to meet expectations.

Even beef farmers are taking a mixed message from the current conditions. There are signs that cattle inventories are easing, which could mean more robust prices in a long-depressed market. But the recession is undermining markets for prime cuts in the United States and Europe.

John and Joanne Dorey, who keep about 800 bison on a farm near Vermilion, are concerned that the export markets are softening for their choicest pieces, particularly among high-end consumers and restaurants.

The credit crunch is not something reserved for large corporations, they say. "It's coming down the pipeline," Ms. Dorey says. "The credit isn't there for people buying our end products."

By contrast, the situation is almost ideal for someone undertaking a major construction project that can find financing and does not rely on the oil sands. Mr. Chrapko is planning to add an ethanol plant to his biogas facility – the first stage in a $700-million investment in alternative energy through six plants across the Prairie provinces.

"We already have unsolicited offers from engineers, contractors and suppliers from off the street," says Mr. Chrapko, a technology entrepreneur who sat on the controversial commission that reviewed Alberta's energy royalty regime. "They are coming to us," he says, whereas in the past, "we had to go so far afield for supplies."

But expectations are a moving target in Alberta's economy. Dr. Percy says the province's early estimates of job losses in the recession were clearly too optimistic. In February alone, Alberta lost almost 24,000 jobs, Statistics Canada says, and, based on recently released construction projections, the worst is yet to come.

The steepest falloff will come late this year or in early 2010 when employment in planned projects, including oil sands work, will fall far below original expectations, according to a rolling survey of demand for construction workers undertaken by the Construction Sector Council and the Construction Owners Association of Alberta.

That is significant in a province where 35 to 40 per cent of real GDP growth has been driven by capital investment, Mr. Percy says. Much of that comes from energy, which means emotions ride on hour-by-hour fluctuations in the price of oil and gas.

Mr. Percy calls it animal spirits – a concept, pioneered by British economist John Maynard Keynes in which economic fluctuations can be partly explained by sudden shifts in psychology.

Alberta is entering one of its periodic mood swings. The test is whether a bit of healthy rebalancing descends into a long, severe recession.

(prepared by Gordon Pitts/Globe & Mail)



By the numbers

5.4

Alberta unemployment percentage rate in February, the highest since June, 2003, and up from 4.4 per cent in January.

23,700

Number of jobs shed in Alberta last month. Manufacturing and construction lost a total of 19,000 jobs.

4.7

Unemployment percentage rate in Calgary, up from 2.8 per cent a year ago.

(Source: Alberta Employment and Immigration