Low oil prices mostly bad for rural Alberta

Consumers including those involved in crop production agriculture are welcoming lower energy prices

Ahead of the Heard

Consumers including those involved in crop production agriculture are welcoming lower energy prices particularly for gas and diesel. Largescale commercial producers foresee saving tens of thousands of dollars in fuel costs at seeding and harvest times. To a lesser extent even greenhouse growers will see some energy cost relief, although an easy winter would benefit them even more. But for the rest of rural Alberta particularly those living in towns and villages lower oil prices are a disaster bordering on a catastrophe. Industry cutbacks all boil down to huge losses in jobs and services in the energy sector.

The impact is more severe outside of the big cities simply due to the nature of the energy business. Whenever an industry downturn happens, company head offices in Calgary tend to look after themselves and keeping their own jobs first – that’s just human nature. But what that means is that cutbacks are going to be inflicted first on people and services in the rural areas and small towns where energy industry infrastructure is located and drilling occurs. To be fair folks that work on contracts for energy companies in big cities are usually the first to get the axe. The difference is that 100 people losing their jobs in Edson has a greater impact on the local economy than 100 folks losing their jobs in Calgary. But all of that is cold comfort to the people affected.

Those critically affected are oilfield service companies that generally operate in the countryside where the wells are located; their impact on local suppliers and services is huge. They are the economic backbone of many small towns. The same with seismic and drilling activities – those also make huge contributions to local economies. It has a snowball effect as those providing consumer services in smaller locales are also affected. Hotels, fast food joints and grocery stores depend much more on folks who work in the energy industry in small towns than the same outfits do in Calgary or Edmonton. Add it all together and you can understand all the fear and angst in the countryside when a downturn occurs. Most have seen it all before.

Even in agriculture, notwithstanding the savings in fuel expenses, an energy industry downturn has collateral damage. That’s because for many small operators working in the oil patch in the winter contributes to the financial survival of many family farms and ranches. The extent of that off-farm support is generally not known or reported and it’s not just support from the energy industry. Stories abound about how farm wives who work as teachers and nurses in local areas and contribute millions to the well-being and survival of many farms and ranches. Local energy industry service companies and well operators also provide employment to the sons and daughters of many farmers and ranchers. One suspects that such local energy industry employment is a lot more critical than any savings that could be achieved from cheaper fuel costs. Add into that land owner income from well site access and it all becomes a significant contributor to the overall ag economy.

Whenever there is a downturn in the Alberta energy economy, comments arise about diversification and more agricultural development comes to mind. That’s always an interesting discussion but keep in mind the agriculture sector suffers from more price cycles than does the energy sector. Agriculture also operates on tighter margins and is more severely impacted from weather calamities. Billion dollar bail outs are fairly common in agriculture. But having said that, strategic investments in agricultural development and research have proven to help expand the economic viability of the industry. That’s been the prudent approach being it tends to better respond to market opportunities. It’s also the safe approach from a government perspective.

The other approach to expanding agricultural production has been through subsidization. That has occurred in Alberta under various guises but only happens when the government’s treasury has loose tax dollars available. That won’t happen now with multi-billion dollar deficits. It’s also becoming less politically acceptable to subsidize a small rural sector when most voters live in urban centres. But I digress.

It would seem that the only approach for those in the countryside and small towns affected by the energy industry crisis is to just tough it out, at least that’s what the government hopes they will do. But maybe just to remind the government not to forget them, so-called rural voters might want to consider how to send them a stiff message at the next election.