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Productivity in the Mining Industry: Measurement and Interpretation

Staff working paper

This paper by Vernon Topp, Leo Soames, Dean Parham and Harry Bloch was released on 18 December 2008.

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  • Key points
  • Contents
  • Mining typically accounts for around 5 per cent of Australia's nominal market sector gross domestic product.
    • A 'once-in-a-generation' shock to demand for, and prices of, mining commodities saw this share rise to 8.5 per cent in 2006-07, stimulating substantial growth in new investment, employment, and profits.
    • Yet output growth in mining in recent years has been weak at best, and multifactor productivity (MFP) has declined by 24 per cent between 2000-01 and 2006-07.
  • Long lead times between investment in new capacity in mining and the associated output response can lead to short term movements in mining MFP unrelated to underlying efficiency.
    • Around one-third of the decline in mining MFP between 2000-01 and 2006-07 is estimated to be due to this temporary effect. This effect was particularly important in the last few years of this period.
  • Ongoing depletion of Australia's natural resource base is estimated to have had a significant adverse effect on long-term mining MFP.
    • In the absence of observed resource depletion, the annual rate of mining MFP growth over the period from 1974-75 to 2006-07 is estimated to have been 2.3 per cent, compared with the measured rate of 0.01 per cent.
  • Over the longer-term, MFP impacts of resource depletion have been offset by technological advances and improved management practices. An increase in the use of open-cut mining has been a key development, along with a general increase in the scale and automation of mining equipment.
  • An expected rebound in mining MFP from 2008-09 onward may be delayed as a consequence of the decline in world prices for many mineral and energy commodities in mid-to-late 2008. Any temporarily idle capital associated with production cut-backs and mine closures will tend to lower MFP. On the other hand, significantly lower commodity prices may lead mining companies to cut costs, with a positive effect on MFP.
  • Despite the impact of the fall in mining MFP, the sector has made a significant contribution to the strong overall growth in national income so far this decade through a substantial improvement in Australia's' terms of trade.
  • Preliminaries
    Cover, Copyright, Contents, Preface and Abbreviations
  • Overview - including key points
  • Chapter 1 Introduction
    1.1 Background
    1.2 Objectives and scope of the paper
  • Chapter 2 Mining and its measured productivity
    2.1 Australia's mining industry
    2.2 Measured productivity of mining
  • Chapter 3 Understanding productivity in mining: natural resource inputs
    3.1 The input of natural resources
    3.2 Optimal extraction, depletion of deposits and productivity
    3.3 Evidence of depletion
    3.4 Measuring the resource input in productivity estimates
    3.5 Results
  • Chapter 4 Understanding productivity in mining: purchased inputs
    4.1 The structure of mining costs
    4.2 The nature of mining capital
    4.3 Capital investment and MFP changes
  • Chapter 5 Other factors influencing mining MFP
    5.1 Increased effort and changes in the quality of inputs
    5.2 Technology changes
    5.3 Work practices
    5.4 Poor weather
    5.5 Infrastructure constraints
    5.6 Putting the pieces together
  • Chapter 6 The big picture: mining, productivity and prosperity
    6.1 The contribution of the mining industry to Australia's productivity growth
    6.2 The mining boom and national prosperity
    6.3 Impact of global economic developments and falling commodity prices
  • Appendix A Sub-sector results
  • Appendix B Methodology and data
  • Appendix C Estimating the contribution of yield changes to mining MFP
  • References

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