Leamington, Ontario, home to nearly 2000 acres of greenhouse production, holds the distinction of being the largest concentration of greenhouses in North America. At the inaugural CEAg World conference when I asked Christopher Higgins, an expert in Controlled Environment Agriculture (CEA), why Leamington dominates the greenhouse industry—especially when the US, with its larger economy, lacks a similarly centralized hub—his response was two words: “currency arbitrage.”

While this concept, where Canadian growers benefit from the exchange rate between the US and Canadian dollars, is part of the explanation, there are several more layers to Leamington’s success story. To fully understand whether currency arbitrage alone explains Leamington's dominance, we need to examine the broader economic and logistical factors, including labor, energy, equipment, taxes, and transportation.

Leamington: The greenhouse capital of North America

Leamington’s thousands of acres of greenhouses, which produce everything from tomatoes and cucumbers to peppers and cannabis, make it the largest hub of greenhouse farming on the continent. The concentration of greenhouses in this region far surpasses any similar area in the US. This success is due not only to currency arbitrage but also to Leamington’s favorable location near the US border, its climate, and its agricultural expertise.

Leamington's proximity to major US markets, such as Detroit, Chicago, and New York, gives it easy access to a population of more than 150 million consumers. However, logistical advantages alone don’t account for the scale of greenhouse farming in this region. Leamington’s growth also hinges on key economic factors that work together to make its produce competitive, especially in US markets.

What is currency arbitrage?

Currency arbitrage refers to the process of exploiting differences in currency values to gain a financial advantage. In the context of Leamington’s greenhouses, Canadian growers benefit from the fact that the Canadian dollar (CAD) is often weaker than the US dollar (USD). Over the past decade, the exchange rate has generally ranged between 0.70 and 0.80 USD/CAD, meaning Canadian costs, when converted to USD, are lower than in the US.

This exchange rate difference affects several aspects of the greenhouse business, including labor, energy, equipment, and even transportation, as many Leamington-based growers export the majority of their produce to the US market.

Economic factors beyond currency arbitrage

While currency arbitrage plays a significant role, it’s only part of the story. Let's dive deeper into the broader economic factors influencing Leamington’s greenhouse success and compare them to the US.

1. Labor costs

Labor is one of the most significant operational costs for greenhouses, representing up to 30% of the total expenses. In Canada, greenhouse workers are typically paid around $18 CAD per hour. When this wage is converted to USD using an average exchange rate of 0.75, it equates to $13.50 USD per hour.

In contrast, US greenhouse workers are paid approximately $15 USD per hour. This means Canadian growers enjoy a labor cost advantage of roughly 10%, which becomes significant when scaled across large operations. For a 50-acre greenhouse employing dozens of workers, this difference can amount to tens of thousands of dollars annually, providing a cost advantage to Canadian operators when exporting produce to US markets.

However, it’s worth noting that Canada has relatively higher taxes and social benefit costs. In Ontario, greenhouse businesses must pay into various social programs, such as the Canada Pension Plan (CPP) and Employment Insurance (EI), which may slightly offset the labor savings gained from currency arbitrage. For instance, employer CPP contributions are about 5.95% of employee salaries. US greenhouse operators, by contrast, often face fewer payroll-related expenses but higher wages.

2. Energy costs

Energy is a critical factor in greenhouse operations, particularly for heating during colder months. In Ontario, energy costs vary depending on the source, but natural gas and electricity tend to be relatively expensive. However, Canadian greenhouses often use innovative energy-saving technologies like cogeneration and energy curtains, reducing overall consumption.

Moreover, Ontario's greenhouses benefit from subsidies and special pricing for agricultural energy use, which helps mitigate some of the higher energy costs. The exchange rate also helps lower energy costs when selling in US markets. In comparison, energy costs in the US vary significantly by state but are generally higher, especially in colder northern regions.

3. Equipment and technology costs

This is where the equation tips somewhat against Canadian growers. Greenhouses rely heavily on advanced equipment and technology, including climate control systems, lighting, and irrigation technologies. Much of this equipment is imported from the US or Europe, and when the Canadian dollar is weak, these imports become more expensive.

For example, a US greenhouse might pay $1 million for a state-of-the-art lighting system, but a Canadian operator might pay $1.33 million CAD at an exchange rate of 0.75. This higher upfront cost for equipment adds to the financial burden on Canadian growers, but many offset this through technological innovation and automation, reducing labor dependency and operational inefficiencies over time.

4. Taxes and regulations

One of the key differences between the Canadian and US systems lies in taxation. Corporate taxes in Canada tend to be higher, and there are additional social welfare contributions required from businesses, such as CPP and EI payments. In Ontario, the combined corporate tax rate is approximately 26.5%, while in the US, it varies but has been as low as 21% since the tax reforms in 2017.

This higher tax burden somewhat offsets the cost advantages gained from labor and energy savings. However, despite higher taxes, Canadian growers benefit from more generous subsidies and government support for agriculture, especially for energy efficiency and research development. For instance, the Ontario Greenhouse Vegetable Growers Association provides support for infrastructure and new technology investments.

5. Transportation costs

Leamington’s location near key US markets such as Detroit and Chicago gives it a logistical advantage. The cost to transport produce from Leamington to Detroit, for example, is about $1,200 CAD (or $900 USD), compared to $1,100 USD for a similar journey within the US. While this isn’t a huge difference, the proximity of Leamington to large urban markets in the US provides a competitive edge in terms of both speed and cost of delivery.

Do the numbers support currency arbitrage?

Let’s take a more detailed look at the numbers behind Leamington’s competitive advantages, focusing on labor, energy, equipment, taxes, and transportation. The goal is to quantify the financial impact of currency arbitrage and other cost factors for a typical greenhouse in Leamington compared to a similar operation in the US.

Labor cost analysis

In Leamington, greenhouse workers typically earn around $18 CAD per hour, which equates to $13.50 USD at an exchange rate of 0.75. In the US, the average greenhouse labor cost is $15 USD per hour. Here's a deeper breakdown of the impact of labor costs over a year.

Let’s assume:

• A 50-acre greenhouse in Leamington employs 100 full-time workers, each working 2,080 hours per year (full-time).
• Labor costs per worker: Leamington: $18 CAD/hour × 2,080 hours = $37,440 CAD annually per worker an exchange rate of 0.75, this is $28,080 USD annually. US: $15 USD/hour × 2,080 hours = $31,200 USD annually per worker.

Labor Savings (Leamington vs. US):

• Per worker: $31,200 USD (US) – $28,080 USD (Leamington) = $3,120 USD savings per worker per year.
• For 100 workers: $3,120 USD × 100 workers = $312,000 USD in total annual savings on labor.

The labor savings due to currency arbitrage, therefore, offer a substantial advantage, particularly when considering the scale of greenhouse operations in Leamington. Additionally, Canada’s reliance on temporary foreign workers, who are typically paid less than domestic workers, further increases labor savings for Canadian growers.

Energy cost analysis

Heating and cooling are critical for greenhouse operations, especially in regions like Ontario, where winters are long and cold. Canadian greenhouses benefit from energy-saving technologies and, in some cases, provincial subsidies.

Assuming:

• A 50-acre greenhouse in Ontario uses approximately $20,000 CAD per acre in energy costs annually(
• In the US, energy costs for greenhouses tend to be higher, averaging about $18,000 USD per acre annually, due to less favorable energy subsidies and higher utility costs in colder regions(

Energy Savings (Leamington vs. US):

• Per acre: $18,000 USD (US) – $15,000 USD (Leamington) = $3,000 USD savings per acre.
• For 50 acres: $3,000 USD × 50 acres = $150,000 USD in total annual energy savings.

Equipment and technology costs

One of the counterarguments to the advantages of currency arbitrage is the higher cost of importing equipment and technology into Canada. Much of the high-tech equipment used in greenhouses—such as advanced lighting systems, climate control technologies, and hydroponic systems—are imported from the US or Europe, which can drive up costs for Canadian operators.

Let’s assume:

• A typical greenhouse climate control system costs $1 million USD for US operators.
• Due to the weaker Canadian dollar, this same system costs $1.33 million CAD for Canadian operators (at an exchange rate of 0.75 USD/CAD).

Equipment Cost Difference:

• $1.33 million CAD = $1 million USD × 1.33.
• This means that Canadian growers pay about 33% more for imported equipment.

For a 50-acre operation with extensive technological needs, these additional costs can add up. If the total equipment cost is around $3 million USD in the US, Canadian growers would be paying approximately $4 million CAD (or $3 million USD × 1.33). This adds an extra $1 million CAD (or $750,000 USD) in costs compared to US operations.

However, Canadian greenhouses often offset these higher initial costs by adopting energy-saving technologies, government grants, and longer-term efficiencies from automation, which can drive down labor and energy expenses in the long run.

Tax and social contributions

In Canada, corporate taxes and employer contributions to social programs (such as the Canada Pension Plan and Employment Insurance) are generally higher than in the US. Let’s break down the impact of taxes.

• In Ontario, the combined corporate tax rate is about 26.5%, compared to the US corporate tax rate, which has been as low as 21% since the 2017 reforms(
• Employer contributions to Canada Pension Plan (CPP) are roughly 5.95% of salaries, while Employment Insurance (EI) contributions are approximately 1.58%(

If a 50-acre greenhouse in Leamington generates $1 million USD in profits:

• Canadian taxes: $1 million × 26.5% = $265,000 USD in taxes.
• US taxes: $1 million × 21% = $210,000 USD in taxes.

Tax difference:

• $265,000 USD (Canada) – $210,000 USD (US) = $55,000 USD higher tax burden in Canada.

Additionally, CPP and EI contributions would increase labor costs slightly, though the difference is marginal compared to overall savings from currency arbitrage and energy efficiency.

Transportation costs

Leamington’s proximity to major US markets like Detroit and Chicago gives it a logistical advantage. Here’s how transportation costs compare:

• Shipping a truckload of produce from Leamington to Detroit costs around $1,200 CAD, or $900 USD
• Shipping a truckload over a similar distance within the US costs approximately $1,100 USD.

Transportation Savings (Leamington vs. US):

• $1,100 USD (US) – $900 USD (Leamington) = $200 USD savings per truckload.
• For a medium-sized operation that ships 100 truckloads per year, this results in $200 USD × 100 truckloads = $20,000 USD in annual transportation savings.

Total financial impact of currency arbitrage

Let’s summarize the total cost advantages and disadvantages for a 50-acre greenhouse operation in Leamington compared to a similar operation in the US:

• Labor savings: $312,000 USD annually
• Energy savings: $150,000 USD annually
• Transportation savings: $20,000 USD annually
• Equipment cost increase: +$750,000 USD (one-time cost, amortized over several years)
• Higher taxes: +$55,000 USD annually

Chris was right: over the course of several years, the labor and energy savings largely offset the higher initial costs for equipment and taxes, making currency arbitrage a significant factor in the overall financial advantage for Canadian greenhouse operators. In the first year, the higher equipment costs may reduce the net savings, but over time, the annual labor and energy savings provide substantial ongoing financial benefits.

Why doesn’t the US have a Leamington?

While currency arbitrage and logistical advantages explain part of Leamington’s success, the US lacks a centralized greenhouse hub for several additional reasons:

1. Open-Field Agriculture Dominance: The US has historically relied on open-field agriculture due to its vast land resources, limiting the demand for greenhouses.
2. Regulatory Barriers: In many US states, regulations on land use, water, and energy are more stringent, making large-scale greenhouse operations more difficult to establish.
3. Energy and Land Costs: In colder northern regions of the US, energy costs are higher, while in warmer states, land is either too expensive or subject to competition from urban development.

How the US could develop a greenhouse hub

The US can create a comparable greenhouse region by addressing some of the key barriers:

• Incentivize Clustering: States like Texas, California, or even Michigan could offer tax incentives and subsidies to encourage greenhouse clustering.
• Renewable Energy Investments: States could incentivize renewable energy use, such as solar and geothermal, to help lower energy costs for greenhouse operators.
• Innovation and Automation: The US could increase its greenhouse competitiveness by investing in automation technologies that reduce labor costs and improve efficiency.

Conclusion

Currency arbitrage gives Canadian growers a significant cost advantage, but it is only part of the equation. Leamington’s success is the result of a confluence of factors, including labor savings, energy efficiencies, geographic proximity to US markets, and technological innovation. However, higher equipment costs and taxes do challenge Canadian growers, yet they mitigate these issues through subsidies and innovative practices.

If the US wants to develop its own Leamington-like greenhouse hub, it would need to focus on creating the right economic conditions, including tax incentives, energy solutions, and technological investments to make greenhouse farming as competitive as it is in Canada.

Further reading

1. https://greenhouse.news/leamingtons-greenhouses-a-hub-for-innovation-and-sustainability/
2. https://blog.ecoation.com/the-evolution-of-greenhouses-in-the-leamington-area-ontario-a-historical-perspective
3. https://www.linkedin.com/pulse/groh-canada-highlights-from-canadian-greenhouse-henry-gordon-smith/