2020 Canadian export trends by size

Author: Tuan Tran

Acknowledgement

The author and the Office of the Chief Economist at Global Affairs Canada (OCE-GAC) would like to express their deep appreciation and gratitude to Andreas Loken and the team at the International Accounts and Trade Division within Statistics Canada for providing inputs, suggestions, and data to this report.

Key takeaways

• Canadian exports fell sharply during the initial phase of the COVID-19 pandemic in the spring 2020, with substantial declines in both Canadian export value and the number of exporting enterprises. By the end of 2020, export value had almost fully recovered, while the number of exporters remained well-below pre-pandemic levels, with the number of small-sized enterprise exporters lagging behind the most.
• Wholesalers and retailers generally contributed more to the loss in the number of exporters throughout 2020. Given that wholesale and retail exporters are much more likely to be small-sized enterprises, it is perhaps unsurprising that small-sized enterprise exporters saw the largest loss in the number of exporters. The manufacturing sector, however, also lost more small-sized enterprise exporters than medium-sized enterprise exporters, suggesting that more broadly small-sized exporters suffered more than other size-classes during the pandemic.
• In the early months of the pandemic, there was a large number of enterprises that moved down export‑size groups (exported less value on a monthly basis) in addition to a large number of enterprises that stopped exporting all together. By the end of 2020, enterprises that moved down export-size groups was no longer a major problem, but the negative contributions from enterprises that stopped exporting remained large. There is some evidence that the intensive-margin of trade contributed negatively to exports in the beginning of the pandemic (lower value of exports per exporter), while the extensive margin contributed negatively throughout 2020 (decline in the number of exporters).

Introduction

The containment measures enacted to combat the COVID-19 pandemic was one of the factor that left heavy negative impacts on Canadian exports and other aspects of the Canadian economy in 2020. An interesting feature of the “COVID-19 downturn” is the exceptionally large month to month variation in economic and trade activity, especially in the first half of 2020. Early in the pandemic, both exports value and the number of exporting enterprises suffered greatly, declining 34% and 20%, respectively, between February and April. Starting in May, both exports value and the number of exporters started to recover at a fast pace, and the fast pace of the recovery continued throughout most of summer 2020. Beginning in the fall of 2020, the recovery in exports value and the number of exporters continued but at a slower pace. By the end of the year, exports value has almost reached pre-pandemic (February 2020) level but the number of exporters was still 3.5% below pre‑pandemic level.

Figure 1: Monthly Canadian merchandise exports and number of exporting enterprises, seasonally adjusted

The overall exports trend hides some differences in export performance by enterprise-size, export-size, and industry. For example, the loss in the number of exporters tend to be higher throughout 2020 for small-sized enterprises, enterprises with smaller exports value a month, and establishments in the wholesale industry. This report will provide further insights into these trends, in particular the underperformance of small-sized enterprise exporters, as the export mobilization of small- and medium-sized enterprises (SMEs) is an important part of the mandate of the Minister of Small Business, Export Promotion and International Trade. Research have shown that firms that internationalize are more productive, more innovative and pay higher wages, and therefore the internationalization of SMEs is important for ensuring that the benefits of trade are widely shared.

COVID-19’s four different phases in 2020

2020 can be divided into four phases based on economic activities and the level of containment measures enacted to control the spread of COVID-19. The pre-containment phase includes January and February, when Covid‑19 was mostly international news. The first-wave phase stretches from March to May, as regions in Canada entered varying degrees of lockdown due to rising COVID-19 cases and mortality. Economic and trade activities experienced large month to month variation during the first-wave phase as there was a learning curve for businesses, governments and consumers to adapt to new social distancing and containment measures. The re-opening phase includes June, July and August as new COVID-19 cases and mortality stabilized at a lower level and governments started to roll back containment measures. Lastly, the second‑wave phase stretches from September to December as Covid-19 cases and mortality started to rise again and governments started to increase containment measures, albeit more localized and not as strict as the containment measures enacted during the first-wave. Trade and economic activities continued to recover in the second-wave phase, but at a slower pace.

Figure 2: Canadian GDP and new Canadian COVID-19 mortality

Monthly trade in goods by exporter characteristics and the “pre-pandemic level”

Traditional international merchandise trade statistics record the products (the “what”) and the destinations (the “where”) of exports. However, the “who” is trading is now as important as the “what” and the “where” goods are traded, as policy makers are interested in understanding more about the characteristics of enterprises that participate in the international market. For Canada, Trade in Goods by Exporter Characteristics (TEC) data fill this data gap, providing data on the characteristics of enterprises that export goods. This dataset is typically release on an annual basis, but due to the need of timely and relevant data during the pandemic in 2020, TEC data was release on a monthly basis in 2020. While the annual and the monthly TEC data are conceptually and methodologically similar, there are some notable differences in the two dataset.     

One notable difference is the fact that monthly data needed to be seasonally adjusted in order to make month to month comparison. However, seasonal adjustment was only applied to TEC data at a high aggregated level and was not applied at the more detailed level. Due to the lack of seasonally adjusted detailed data and annual volatility in trade data, monthly Canadian export performances in 2020 are compared against the previous 5‑year average level in this report to determine which exporters characteristics were the most affected in 2020, both in terms of the number of exporters and the value of exports. For linguistic simplicity, the previous 5‑year average level will be referred to as the “pre-pandemic level” from this point on-ward.

2020 export trends by size

Medium-sized enterprise exporters performed the best throughout the pandemic in 2020 and the number of small-sized enterprises exporters lagged the furthest behind.   

Table 1: Monthly average number of exporters and exports value ($ millions) in 2019, by enterprise size

Medium-sized enterprises, which accounted for approximately 12% of exporters and 21% of exports value on a monthly basis in 2019, fared the best throughout all phases of the pandemic in 2020. In the first-wave of the pandemic, medium-sized enterprises saw the smallest gap in both the number of exporters and value of exports when compared to the pre-pandemic level. This gap was nearly erased by the re-opening phase and by the second-wave phase of the pandemic, there was only a tiny gap in the number of medium-sized enterprise exporters (-0.3%). The value of exports by medium-sized enterprises saw an even better performance, with the value of exports having exceeded the pre-pandemic level by 9.7% as of the second wave phase of the pandemic.

In contrast to medium-sized enterprises, small-sized enterprises, which accounted for 85% of exporters and 19% of exports value on a monthly basis in 2019, saw double-digit gaps in both the number of exporters and value of exports when compared against the pre-pandemic level during the first-wave of the pandemic. The gap in underperformance compared to the pre-pandemic level became smaller during the re-opening phase, but the gap persisted into the second-wave phase, the number of small-sized enterprise exporters was still 7.6% below the pre-pandemic level. However, the value of exports by small-sized enterprises was slightly up 0.6% compared to pre-pandemic level by the second-wave phase.

With regards to the loss in the number of exporters, large-sized enterprises performed better than small-sized enterprises but not as good as medium-sized enterprises. However, large-sized enterprises performed the worst with regards to exports value throughout the three pandemic phases of 2020, which is of concern as large-sized enterprises accounted for 59% of exports value on a monthly basis in 2019.  

Figure 3: 2020 % difference vs pre-pandemic level in monthly average number of exporters and exports values, by enterprise size

In addition to being the furthest away from pre-pandemic level in 2020, small-sized enterprises also account for the largest share of exporters, approximately 85% on a monthly basis in 2019. With the combination of these two factors, it is perhaps unsurprising that small-sized enterprise exporters were the main contributor to the lower level of exporters in 2020 (see Figure 4).    

Figure 4: 2020 % difference in the number of exporters vs pre-pandemic level, and percentage points (PPT) contribution by enterprise sizes

The trend for exports value is similar to the trend for the number of exporters early in the pandemic, but diverged by the end of 2020. Early in the pandemic, both exports value and number of exporters were below their respectively pre-pandemic level by a significant gap. The gap for the number of exporters was mostly due to small-sized enterprises, while the gap for exports value was due mostly to large-sized enterprises. As previously noted, by the second-wave phase, exports value has exceeded the pre-pandemic level and all size groups made a positive contribution, including large-sized enterprises. On the other hand, the number of exporters continued to lag the pre-pandemic level and small-sized enterprises’ contribution remained negative (see Figure 4).  

Figure 5: 2020 % difference in exports value vs pre-pandemic level, and percentage points (PPT) contribution by enterprise sizes

Small-sized enterprises and medium-sized enterprises are often grouped together as one group called small‑ and medium-sized enterprises (SMEs) in policy decisions and analytical frameworks but the divergent in export performance in 2020, along with the fact that medium-sized enterprises actually outperformed large-sized enterprises, showed that it is not always appropriate to group small-sized enterprises and medium-sized enterprises together.

Small-sized enterprises lost more exporters than medium-sized enterprises in both the manufacturing and wholesale sectors, the two sectors with the most number of exporters.  

The manufacturing sector and the wholesale sector account for the most number of exporters in Canada, respectively representing 49% and 22% of the number of exporters in 2019 on a monthly average. In both of these sectors small-sized enterprises lost more exporters than their medium-sized counterparts throughout 2020. For both small-sized enterprises and medium-sized enterprises, the manufacturing sector is overwhelmingly the sector with the largest share of exporters, respectively at 46% and 67% on a monthly basis in 2019. While the number of small-sized enterprise exporters in manufacturing was below the pre-pandemic level throughout all phases of 2020, the number of medium-sized enterprise exporters in manufacturing exceeded the pre-pandemic level throughout 2020. For the second largest sector, wholesale trade, the number of exporters was down from the pre-pandemic level for both small-sized enterprises and medium-sized enterprises but the gap was smaller for medium-sized enterprises throughout 2020. Small-sized enterprise exporters performed better than medium-sized enterprise exporters in the construction, the retail trade, and the transportation and warehousing but the share of these sectors are too small to make up for the poorer performances in the manufacturing sectors and wholesale trade sector.

Table 2: 2020 % difference in the number of exporters vs pre-pandemic level, by enterprise-size and sectors with the most number of exporters

Export-size also matters, as enterprises with lower export values on a monthly basis lost more exporters in 2020.

Table 3: Monthly average number of exporting enterprises in 2019, by enterprise-size and export-size

A firm’s export-size is determined by its monthly value of exports. Similar to enterprise-size, enterprises with the smallest export-size (less than $1 million a month) account for most of exporters (87% on a monthly basis in 2019) but the smallest share of exports value (6.1% on a monthly basis in 2019). Only 1.0% of enterprises belonged to the largest export-size ($25 million or greater a month) but they account for a large 69% of exports value. When enterprise-size and export-size are combined, most exporters (79%) are small-sized enterprises with less than $1 million a month in export value but these exporters only account for 5.1% of exports value on a monthly basis in 2019. At the other end, large‑sized enterprises with the largest export-size ($25 million or greater a month) account for less than 1% of exporters but more than half (53%) of exports value. The trend of having a greater share of exporters than exports value is consistent across all enterprise-size for less than $1 million a month exporters. $1 million to $24.9 million a month exporters and $25 million or greater a month exporters across all enterprise-size groups have smaller share of exporters than their respective share of exports value.

Another noticeable trend is the fact that 93% of small-sized enterprise exporters export less than $1 million a month while the equivalent share for medium-sized enterprise exporters and large-sized enterprise exporters are 53% and 42%, respectively. In another word, only 6.8% of small-sized enterprise exporters managed to export more than $1 million a month, while almost half of medium-sized enterprise exporters and more than half of large-sized enterprise exporters managed to do so.    

Table 4: Monthly average exports value ($ millions) in 2019, by enterprise-size and export-size

During the first-wave phase of the pandemic, the smallest Canadian exporters, those that fell into both the category of smallest enterprise-size and the smallest monthly export-size lost the most exporters compared to pre-pandemic level. However, this changed as the pandemic moved into the second-wave phase, the biggest loss in exporters was seen by large-sized enterprises with the smallest export-size, followed by small-sized enterprises with the smallest export size and medium-sized enterprises with the smallest export-size. All other enterprise-size and export-size combinations have exceeded the pre-pandemic level of monthly average number of exporters by the second-wave phase. The results here suggest that export-size might be an important determinant of export performances in 2020, as enterprises with the smallest export-size (and more likely to be on the margins of exporting) consistently lost more exporters than all export-size within each enterprise-size categories.  

Considering that enterprises with the smallest export-size make up a large share (93%) of small-sized enterprise exporters in 2019 on a monthly basis, it is perhaps unsurprising that small-sized enterprises lost the most number of exporters in 2020 since enterprises with the smallest export-size lost the most number of exporters. Less than $1 million a month exporters make up a much smaller share of medium-sized enterprise exporters (53%) and large-sized enterprise exporters (42%).

Table 5: 2020 % difference in the number of exporters vs pre-pandemic level , by enterprise size and export-size

Enterprises decreased their export-size during the first two phases of the pandemic, but by the end of 2020, its enterprises that stopped exporting all together that still contribute negatively to exports growth.

Unlike other enterprises characteristics that are defined on an annual basis and is therefore static, export size is determined on a monthly basis and is therefore dynamic, which means that a firm can change export‑size classification from month to month. The year over year change in the number of enterprises that exported between $1 million to $24.9 million a month can be broken down into three groups of contributions:

The number of enterprises that exported $1 million to $24.9 million a month in 2020 declined significantly in the first-wave phase of the pandemic but was already exceeding 2019 levels by the second-wave phase. Both the decline in the first-wave and growth in the second-wave phase are mainly due to contributions from smaller export-size. In another word, there were fewer enterprises that managed to grow their export size (from less than $1 million a month in 2019 to between $1 million to $24.9 million a month in 2020) than vice versa during the first-wave phase, but the opposite occurred by the end of 2020 in the second-wave phase, more enterprises managed to grow their export size from less than $1 million a month in 2019 to between $1 million to $24.9 million a month in 2020 than vice versa. The contribution from larger export-size partially mitigated the decline in the first-wave phase but that is not necessary a positive thing as it meant that there were more enterprises that exported $25 million or more in 2019 that decreased their export size in 2020 than vice versa. By the end of 2020, the contribution from larger export-size is no longer an issue. In economic terms, there are some evidence that the intensive-margin contributed negatively to exports growth during the first-wave phase of the pandemic but that is no longer the case by the end of 2020.

Of concern is the fact that contributions to growth from net new exporters remain negative throughout the year, which means there were more $1 million to $24.9 million exporters in 2019 that stop exporting in 2020 than vice versa throughout the year. Economically, it means that the extensive-margin contributed negatively to exports growth throughout the year.

Figure 6: Year over year % growth in number of “$1 million to $24.9 million a month” exporters in 2020 and percentage points (PPT) contribution to the growth (enterprise data)

The same concept can be applied to enterprises that exported less than $1 million a month. The year over year change in the number of enterprises that exported less than $1 million a month can be broken down into two groups of contributions:

As previously mentioned, the number of enterprises that exported less than $1 million a month decreased the most throughout the latter two phases of the pandemic in 2020. This decline is mostly due to contributions from net new exporters, which means that there are many more enterprises that exported less than $1 million in 2019 and did not export in 2020 than vice versa. The decline in the number of less than $1 million a month exporters was partially mitigated in the first-wave by contribution from larger export-size, but once again this is not necessary a good thing as it meant there were more enterprises that decrease their exports value from $1 million or more in 2019 to less than $1 million in 2020 than vice versa. Once again, there are some evidence that the intensive-margin contributed negatively to exports only during the first-wave phase of the pandemic, while the extensive margin contributed negatively throughout 2020.

Figure 7: Year over year % growth in number of “less than $1 million a month” exporters in 2020 and percentage points (PPT) contribution to the growth (enterprise data)

Wholesale exporters, which has a greater proportion of small-sized enterprises and have lower export intensity, contributed more to the lost or gains of exporters of top products than natural resource or manufacturing sectors

Canada’s top export products include grain such as wheat (HS 1001) and canola seeds (HS 1205), where there are a small number of exporters and they export relatively smaller values on a monthly basis. Petroleum products such as crude oil (HS 2709), refined oil (HS 2710), and petroleum gases (HS 2711), also have a small number of exporters but their export values are relatively large on a monthly basis. Lumber (HS 4407) is another natural resource product to make it to the top exported products, it has a relatively large number of exporters with relatively lower exports value on a monthly basis. Medicaments (HS 3004) is a top exported pharmaceutical products, it has a smaller amount of exporters. Lastly, top exported products include manufactured automotive products such as passenger vehicles (HS 8703) and motor vehicle parts and accessories (HS 8708), with a large number of exporters and large exports value on a monthly basis.       

Table 6: Monthly average number of exporters and exports value in 2019, by top exported^{Footnote 1} HS-4 products in 2020 (establishment basis)

In general, a producer (in the resource or manufacturing sector) of a product has two different methods for exporting, either directly using internal resources or through a third party (usually a wholesaler). Generally, the method of exporting is chosen by the producer, but there are instances where this is not the case. For Canadian top exported products, the share of exports value by the top resource or manufacturing sub-sector greatly exceed their respectively share of exporters. On the other hand, the top wholesale sub-sector’s share of exports value is roughly equal or much smaller than their respectively share of exporters. The most extreme example of this trend is passenger vehicles, where the transportation equipment manufacturing sub-sector accounted for 2.8% of exporters and 95% of exports value on a monthly basis in 2019, while the motor vehicle and motor vehicle parts and accessories merchant wholesaler sub-sector accounted for 18% of exporters and only 1.4% of exports value.

The exception to this trend is in grain products like wheat and canola seeds, where the agriculture, forestry, fishing and hunting sector accounts for a large share of exporters but a very small share of exports value, and the farm product merchant wholesalers account for a smaller share of exporters but a very large share of exports value. 

Table 7: Share of exporters and exports value by top resource/manufacturing sub-sectors and by top wholesale sub-sector for each of Canada’s top exported^{Footnote 2} products in 2020 (establishment basis)

Among Canada’s top two export products (crude oil, and passenger vehicles), the top wholesale sub-sector contributed more percentage points to 2020 monthly average number of exporters being above or below the pre-pandemic level than the top resource or manufacturing sub-sector. This trend can be found in other top export products such as lumber (HS 4407), and medicaments (HS 3004). Results were more mixed for refined oils (HS 2710), and motor vehicles parts and accessories (HS 8708). For the exportation of passenger vehicles, there are also a large number of retailers with low exports value that contributed much more to the changes in the number of passenger vehicles exporters than transportation equipment manufacturer, or motor vehicle and motor vehicle parts and accessories wholesalers.

Results here show that for the exportation of top petroleum products, automotive products, wood products and pharmaceutical products, the top wholesale sub-sector with lower export intensity than top resource or manufacturing sub-sector is more likely to be on the margin of exporting, and contribute more to the changes in the number of exporters. The trend is reversed for top grain products, where the agriculture, forestry, fishing and hunting sector has very low export intensity (more likely to be on the margin of exporting) and the farm product merchant wholesalers sub-sector has a relatively high export intensity, resulting in higher contribution from the agriculture, forestry, fishing and hunting sector to changes in the number of exporters.

Figure 8: 2020 % change in the number of exporters vs pre-pandemic level during the first-wave phase, and percentage points (PPT) contribution by sectors (right axis) (establishment basis)

Figure 9: 2020 % change in the number of exporters vs pre-pandemic level during the second-wave phase, and percentage points (PPT) contribution by sectors (right axis) (establishment basis)

For crude oil and passenger vehicles, the contribution to the drop in exports value came mainly from the top resource or manufacturing sub-sector, with much smaller contributions from the top wholesale sub-sector. This pattern also holds true for other top export products such as refined oil, motor vehicle parts & accessories, lumber, and medicaments, where the top resource or manufacturing sub-sector contributed more than the top wholesale sub-sector to the gains and drop in exports value.

Top exported grain products remain an exception to the trend as the farm product merchant wholesaler sub‑sector contributed to most of the gains in exports value, while the agriculture, forestry, fishing and hunting sector did not always benefit from the gains in exports value of wheat and canola seeds.

Figure 10: 2020 % change in exports value vs pre-pandemic level, and percentage points (PPT) contribution by sectors (establishment basis)

Considering that wholesalers generally have lower export intensity (smaller export-size) and contributed more to the loss of exporters for top exported products, it is perhaps unsurprising that small-sized enterprise exporters lost the most exporters in 2020 since small-sized enterprise exporters make up 91% of wholesale exporters on a monthly basis in 2019. For comparison, small-sized enterprises accounted for only 85% of all exporters, 62% of mining, quarrying, and oil and gas extraction exporters, and 65% of transportation equipment manufacturing exporters. The share of small-sized enterprises is higher for agriculture, forestry, fishing and hunting exporters but the exporting structure is reversed for top agriculture exports as wholesalers have much higher export intensity and contributed less to the loss or gains of exporters.

Figure 11: Enterprise-size’s share of monthly average number of exporters in 2019,  by select sectors

Conclusion

The containment measures enacted to combat the spread of COVID-19 and the resulting changes in supply and demand patterns initially left a devastating impact on Canadian goods exports value and the number of exporting enterprises. However, the recovery began in the summer of 2020 and continued throughout the rest of the year as businesses and consumers adjusted their behaviours in order to operate in a socially-distanced environment. By the end of 2020, exports value has almost fully recovered, while the number of exporters lagged pre-pandemic levels, with the number of small-sized enterprise exporters lagging behind the most. The larger loss in the number of small-sized enterprise exporters is of concern as the export mobilization of SMEs is an important goal of inclusive trade. Small-sized enterprise exporters tend to export less value on a monthly basis than medium-sized enterprises and large-sized enterprises which can partially explain the gap in performance as enterprises with lower export value are more likely to be on the margin of exporting. Small‑sized enterprise exporters are also more likely to be wholesalers, which tends to contribute more to the gains or loss in the number of exporters than contribution from manufacturing exporters, and this can also partially explain the gap in performance between small-sized enterprise exporters and the larger sizes. Despite this sectoral composition effect, both the manufacturing and wholesale sector (the two sectors with the most number of exporters) lost more small-sized enterprise exporters than medium-sized enterprise exporters, suggesting that enterprise-size play a role in export performance even after accounting for differences in sectoral composition.

In the early months of the pandemic, there was a large number of enterprises that moved down export-size groups (exports less value on a monthly basis) in addition to a large number of enterprises that stopped exporting all together. By the end of 2020, enterprises that moved down export-size groups was no longer a major problem, but enterprises that stop exporting all together remained a negative contributor. There is some evidence that the intensive-margin of trade contributed negatively to exports only during the first-wave phase of the pandemic, while the extensive margin contributed negatively throughout 2020. This is of concern as negative contribution by the extensive margin means that less firms are exporting, an activity that provides international experience that can lead to future productivity and innovation gains.