The Productivity Commission released a staff working paper today that examines recent productivity performance in manufacturing with a focus on the cause of its decline.
The report, Productivity in Manufacturing: Measurement and Interpretation analyses multifactor productivity (MFP) change and its causes including value adding, labour and capital inputs for the manufacturing sector as a whole.
Developed by Paula Barnes, Leo Soames, Cindy Li and Marcelo Munoz, the paper examines the Australia Bureau of Statistics (ABS) estimates of multifactor productivity for manufacturing, and concludes that there is no overarching systematic reason for the decline in manufacturing’s rate of multifactor productivity growth to -1.4 percent a year over the last complete productivity cycle (2003-04 and 2007-08), compared with 1.3 per cent a year over the previous cycle (1998-99 to 2003-04).
The report does however state that three subsectors in particular – petroleum and chemicals, food and beverages and metal products have collectively accounted for two-thirds of the decline between cycles.
The main reasons for the decline have been credited to a lag in new capital investment, changing consumer preferences, the appreciation of the Australian dollar and changing competitive conditions.
In relation to the food and beverage sector, key findings were:
- Slower output growth was associated with a decline in exports and a loss of domestic market share for some products — reflecting input cost pressures, appreciation of the Australian dollar, and, in cases such as wine, drought.
- Consumer preferences also drove changes in the composition of output that increased the input intensity of production — for example, there was growth in smaller scale, more labour intensive, non-factory bakeries.
- However the decline in MFP in food, beverage and tobacco products may have been overstated due to challenges in measuring improved output quality and reductions in the capital stock and that overall, the MFP decline in the manufacturing sector has slowed in the current incomplete cycle.