If you haven’t figured it out yet, one thing that Torrens Hume loves is good free economic data. And that is why he also loves the Australian Bureau of Statistics; its got LOTS of the stuff. He also loves good economic questions. So here is a go at answering the one posed by David Kilmartin Esq. Just how important are Australia’s commodity exports?
Thanks to the ABS, Mr Kilmartin’s question is an easy one to answer. If you are an economics student, or just interested, the end of the post has some basic instructions on how to get the data — you will need access to excel or google spreadsheets.
Anyway, let’s cut into the pit and get dirty with the raw commodity trade data. Chart 1 shows Australia’s commodity exports as a percentage of total goods and services exports. Mr Kilmartin, TH is sorry (for you) to report that exports of primary commodities have reached a staggering 50 percent of Australian exports! That’s up from about 25-30% less than a decade ago. Of this, exports of the rural sector (basically farm products) have fallen as a share of total down to 10 percent (which TH thinks is the basis for Mr Kilmartin’s claim that commodities account for less than 10% of Australia’s exports). (There is a bit of discussion about rural and other exports here).
In fact, since 2004, 70 percent of the increase in Australia’s export earnings has come from primary commodities (Chart 2).
Much of this increase in the value of exports is coming from increased export prices (especially commodity prices) – the price of stuff Australia exports compared to what it imports (the terms of trade) is roughly twice what it was a decade ago and at an historical high. Alternatively, you can think of it as imports costing half of what they did a decade ago (in terms of our exports). For the average Australian, like Mr Kilmartin, this means the cost of living is lower.
The ABS also provides a measure of this improvement in living standards that comes from the improvement in the terms of trade. It is called Gross Domestic Income and it is similar to Gross Domestic Product (GDP — the usual measure reported in the news), except while measures of GDP keep prices constant, GDI incorporates the benefits from improved terms of trade (or the losses when the terms of trade fall, as the did during the GFC). The next Chart shows how the two measures of Australia’s income have changed over time. For ease, I standardised it so that Australian income was 100 in 1995 (both GDP and GDI were actually just shy of about $800 billion that year).
The Chart, which shows a measure of GDP in blue and GDI in red, shows the beneficial effects of the commodity boom clearly. Since 2001, when the current terms of trade boom first began, while GDP has increase by almost 30% (which is quite a lot), GDI has increased by almost 50%, which is a lot and quite unprecedented. Today, Australians are roughly 50% better off than in 2001, and about 2 fifths of that improvement in leaving standards is due to the high price of commodities. TH reckons that even Premier Torrens would be impressed!
You can get the data for Charts 1 and 2 by clicking here and downloading two of the excel spreadsheets (the general summary and exports by broad economic classification). From the summary statistics, find the column of data for credits of goods and services cut this and the date columns into a new spreadsheet, then open TABLE 31. MERCHANDISE EXPORTS, Broad Economic Category, FOB Value and get the data on Primary food and beverages, industrial supplies (NES) and pirmary fuels– these are the commodity exports. Sum the latter together and divide by total exports (credits) of goods and services from the summary statistics spreadsheet to get Chart 1.