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Per capita consumption of wood and wood products slips – but fail the ‘why is it so?’ test

Implied per capita measures provide useful information with which to compare countries and their relevant performances. 

We have only to think of measures of per capita income (How many US Dollars the average citizen earns in a year, is the normal measure) for a very clear example. But while those measures work for some purposes, they do have their limitations.

For instance and continuing the example above, spending power (What that average US Dollar amount will buy in different countries) is more important than the per capita income level.

Lets use the commonly quoted globally standardized hamburger example. 

In Country A, per capita income is USD10 per day and the hamburger costs USD1 or 10% of daily income. In Country B, per capita income is USD20 per day and the hamburger costs USD3 or 15% of daily income. On this measure, despite earning less in US Dollar terms, the spending power of the person in Country A is higher and their average living standard might also be higher.

The limitation of the per capita measure is evident.

In that context, Australia’s per capita consumption of major forest products may be a useful macro measure of our economy, our society and how it compares with others. It might provide some pointers about the nature, state of development and geography of a nation.

But, beyond that momentary snapshot level, per capita measures of consumption  of products can border on the redundant and can even be misleading, as the following data, at least in part, demonstrates.

The following chart, from a recent report produced by the Australian Bureau of Agricultural and Resource Economics (ABARES) shows how per capita consumption in Australia, compares with other selected countries.

The chart shows Australian per capita consumption on a cubic metre basis.

fig12

Consumption per capita of major forest product groups, selected countries, 2012 

The data table isn’t available, but the chart is reasonably clear and shows Australia as a middle of the road per capita consumer of paper and paperboard, but a lower end consumer of wood-based panels and sawnwood. While this is an interesting snapshot, it is sufficiently high-level to be of no more than passing interest.

Any viewer of that data will either quickly move on or will alternatively drill in, seeking out more granular data and other measures from which to take actual insights and make real decisions.

In more detail, the report by ABARES for the Forest Industry Advisory Council (FIAC) provides some more granular data and provides the latest available data and updates. It provides some food for thought, but it still raises more questions than it answers. Although the data is only available to the end of 2013, it displays, as the charts below show, declining per capita consumption of all of the major wood products formats.

As ABARES points out, per capita consumption of sawnwood is directly linked to the state of the housing market. It fluctuates accordingly. That is why the missing data for the last two completed financial years would be of particular interest. Would it show, for example, an upswing in per capita consumption as the latest housing boom implies? Sawn softwood sales data and anecdote suggests that it would, but conversely, it could show that the rise in apartment approvals and construction has seen per capita construction be merely stable as other materials dominate apartment construction.

fig13-2

What this data does not, and cannot, show, is the extent to which changing behaviours are impacting on consumption at a per capita level. It tells us what is happening, but not why it is happening.

For instance, if households are declining in size as nuclear families reduce, then new houses may be declining in size, bringing down per capita consumption of sawn wood. Equally, if houses are better built and last longer, they will be replaced less often and less wood will be consumed in the construction of houses and therefore on a per capita basis.

Perhaps most significantly, with respect to sawnwood, the aggregate measure includes both softwood and hardwood. Though they are combined as a macro indicator, these are at best ‘policy level’ measures and are not particularly effective market and decision making tools. The drivers and the medium term market experience for each of softwood and hardwood sawnwood are different. 

That is why, in its separate analysis for the Australian Forest & Wood Products Statistics, ABARES has broken down the consumption by species, as the two charts below show. They are different to the above chart, providing both total apparent consumption (LHS) and per capita consumption (RHS).

fig14

fig15

 

Although the distinction may not be immediately clear, the data suggests that per capita consumption of sawn softwood is at least six times higher than per capita consumption of sawn hardwood. The more refined data is more useful, but what it tells us is, again, what is happening, not why it is happening.

The uninitiated would for example think that sawn hardwood had simply fallen out of favour through to 2010-11, not that successive rounds of challenges to the sector’s supply had dramatically reduced availability. The per capita measure is, in this case misleading and could, on its own, cause a serious miscalculation.

Returning to the most macro data, the charts below display the apparent per capita consumption for wood-based panels and paper and paperboard.

fig16

 

The wood-based panels include particleboard, MDF and plywood. It is unlikely that consumption of these has grown and then contracted symmetrically and consistently. Again, more refined data, for at least each of the grades, could be of value for business decision makers, but even then, the Julius Sumner Miller question (“Why is it so?”) would not be answered.

It is a similar situation for the paper and paperboard sector, per capita consumption of which is described in the chart below.

fig17

Per capita analysis of paper and paperboard consumption demonstrates, very clearly,  the challenges that may exist with this level of analysis. After a long period of upwards movement in per capita consumption, paper and paperboard use has declined, as the data shows. But that is because of some grades of paper – newsprint is the clearest example – being impacted by digitization and electronic communication. Consumption of other grades of paper – tissue and packaging for instance – has not declined, and is in fact growing.

But that is a further complexity. As an example, packaging papers and paperboard consumption cannot reasonably be measured on a per capita basis because they are not, per se, consumed by individuals. They are directly linked to industry and business activity and are only purchased by consumers in very small quantities. 

The major factors impacting on consumption of packaging papers (like corrugated boxes for instance) are food production levels, which are in part driven by climate and by the burgeoning middle-classes of Asia. Their consumption bears little relationship to the domestic population’s demand and consumption.

Tissue products on the other hand are almost entirely consumed by individuals with the majority of purchases undertaken by households. Per capita consumption measures are very relevant in that sector.

Whether macro per capita consumption indicators are therefore effective is a good question for industry. One solution may be for industry to select some key indicative products, that are actually consumed by individuals, and analyse those on a per capita basis, rather than dealing with the aggregated product groupings. 

Ultimately, the question is whether this data is useful for businesses and for the industry, to inform its decision-making. 

The reality is that with the exception of a small number of products, per capita measures are unlikely to be significant measures used in decision-making.

 

Posted Date: April 26, 2016

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