Outlook of Rural Businesses, Q1 2022

Andrew Balcom and Anne Munro 

In January 2022, inflation in Canada rose to over 5% for the first time in over 30 years. Total hours worked fell 2.2% after being sustained at pre-COVID levels through the previous two months as businesses dealt with implementing new restrictions related to the rise of the Omicron variant. Real gross domestic product (GDP) continued to grow, increasing by 1.6% in the fourth quarter, following an increase of 1.3% in the previous quarter.

The extent to which these changing conditions impacted businesses varied, depending on their region and industry. The Canadian Survey on Business Conditions (CSBC) provides detailed information on the environment in which companies are currently operating and their expectations moving forward. This analysis focuses on businesses in rural areas using results from the CSBC, first quarter 2022, conducted from January 4th to February 7th, 2022.

The most frequently expected short-term obstacles among rural businesses were the rising cost of inputs (56.0%), cost of insurance (42.2%), transportation costs (39.4%), and recruiting skilled employees (38.0%). 

Among rural businesses that expected supply chain challenges, 71.9% reported that these difficulties had become more severe over the last three months, and 58.4% expected supply chain challenges to continue for six months or longer. The most commonly adopted strategies by rural businesses to deal with supply chain challenges were searching for alternative supply sources (63.6%), maintaining higher inventory levels (50.4%), increasing communications with suppliers or wholesalers (49.8%), and monitoring issues for critical inputs, products or supplies (49.7%). 

The most commonly reported recruitment, retention, and training plans among rural businesses over the next twelve months were increasing wages offered to existing employees (43.4%), increasing wages offered to new employees (22.6%), and offering flexible scheduling (22.3%). 

More than half of rural businesses expect the rising cost of inputs to be an obstacle shortly.

While consumers may notice rising costs at the gas pump or in the grocery store, businesses may also experience increased costs of business expenses. The rising cost of inputs was the most commonly expected short-term obstacle among rural companies for the fifth successive quarter, rising from 49.4% of businesses in the fourth quarter of 2021 to 56.0% in the first quarter of 2022. The rising cost of inputs was also the most frequently cited short-term obstacle for urban businesses in the first quarter of 2022 at 49.0%, up 8.0 percentage points from the previous quarter. 

For the first time, the cost of insurance was the second most common short-term obstacle for rural businesses at 42.2%, with transportation costs next at 39.4%. In fourth place, rural companies were slightly more likely to expect recruiting skilled employees to be an obstacle this quarter, with the value increasing to 38.0% from 35.5% in the previous quarter. 

Difficulty acquiring inputs, products, or supplies domestically decreased across quarters from the second most common rural obstacle to the fifth, despite an increase in the share of businesses reporting this challenge. This indicates that while domestic supply chain issues remain, other challenges have become more common across rural industries. 

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