Industries that are based on extracting natural resources—mining, forestry, fishing, and farming—are particularly vulnerable to booms and busts. Commodity prices, you see, are especially volatile: small oversupplies can lead to huge price drops, while tight supplies can send prices soaring. (See, e.g., petroleum.)
British Columbia’s timber industry is a case in point. The price of BC timber—much of which is exported to the U.S. or overseas—gyrates not only with the condition of the global economy, but also with arcane details of trade policy, with the level of government subsidy provided to competing timber producers, and a host of other factors that are beyond the region’s control.
Add to that list international currency markets. The Vancouver Sun reports that, for every cent that the Canadian dollar gains with respect to the U.S. dollar, the BC timber industry loses $150 million in annual sales. In the past month, the Canadian dollar has gained five cents on the U.S. dollar. That change alone is projected to cut BC timber sales by six percent.
I’m no currency expert, but lots of analysts are projecting a fall in the U.S. dollar over the coming years—the trade deficit, they say, is too high to be sustainable. That portends even worse news for the B.C. timber industry.
For me, this is all the more reason to avoid relying on resource extraction as a foundation for a region’s economy. There are too many ways for the bottom to drop out.
Update: Click here for a graph of the two-year trend in Canadian vs. U.S. currency, courtesy of Yahoo.