Productivity decline in Australian coal mining
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Productivity decline in Australian coal mining C. A. K. Lovell • J. E. Lovell
Springer Science+Business Media New York 2013
Abstract A recent Australian Productivity Commission Staff Working Paper has estimated a 25 % decline in value added total factor productivity in Australian coal mining over the period 2000/2001–2006/2007. The decline coincides with a period of rapidly increasing global demand for, and price of, coal, which has made it economically feasible to mine coal that was previously uneconomic. This ‘‘digging deeper’’ hypothesis is plausible, although our initial surprise at the magnitude of the estimated decline has motivated our investigation of productivity in Australian coal mining, its financial implications and its likely causes. We begin by applying the Staff Working Paper methodology to revised data to estimate the magnitude of the decline. This exercise shrinks the estimated magnitude of the decline to 21 %. We continue by applying an alternate methodology to the revised data to re-estimate the magnitude of the decline. This exercise generates no further change to the estimated rate of decline. We then compare estimates of the decline obtained from value added and gross output frameworks, and we find a considerable shrinkage in the estimated productivity decline that highlights the importance of the Domar factor in productivity measurement. We continue by exploring the financial consequences of the productivity decline. We conclude by joining the search for sources of the productivity decline. Keywords Coal mining Productivity Price recovery Profitability
C. A. K. Lovell (&) J. E. Lovell CEPA, School of Economics, University of Queensland, Brisbane, Australia e-mail: [email protected]
JEL Classification
D24 L71 C43
1 Introduction The mining sector is important to the Australian economy, constituting nearly 10 % of GDP and 40 % of exports. Coal accounts for roughly 25 % of mining output, and 75 % of coal output is exported, accounting for around a third of world coal trade. Consequently productivity trends in the mining sector have a sizeable impact on aggregate productivity trends. In 2007 the Australian Productivity Commission (PC) hosted a conference on productivity perspectives, at which Topp et al. (2007) made a presentation in which they reported estimates from the Australian Bureau of Statistics (ABS) that value added mining sector productivity had declined by 24 % from its peak in 2000/2001. Their objective was to investigate the ABS result by generating productivity estimates for eight mining sub-sectors, based on the ABS methodology, and by searching for sources of the measured productivity decline in those eight sub-sectors. Their search focused on the quality of the natural resource, through depletion, and lags in the investment cycle, although they considered several other contributing factors. That presentation eventually grew into Topp et al. (2008) (henceforth TSPB), a detailed exploration into the magnitudes and sources of productivity trends in the mining s
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