Productivity in the Mining Industry: Measurement and Interpretation

Mining typically accounts for around 5 per cent of Australia's nominal market sector gross domestic product. Long lead times between investment in new capacity in mining and the associated output response can lead to short term movements in mining multifactor productivity (MFP) unrelated to underlying efficiency. Ongoing depletion of Australia's natural resource base is estimated to have had a significant adverse effect on long-term mining MFP. 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. The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission.