The supply of essential goods and services in Australia is not highly susceptible to a short-term disruption to the supply of imported goods, the Productivity Commission has found in its interim report. Vulnerability appears to be quite limited. The Productivity Commission has also found that firms are best placed to manage risk and warned against government crowding out private investment.
Initiated by the Federal Treasurer, Josh Frydenburg MP, on 19 February 2021, the Productivity Commission’s interim released today has focused on supply chain vulnerabilities from Australia’s role as an importer. It also focuses on the supply of goods and products rather than the the carriage of freight.
Key findings
- One-in-five products imported by Australia are “highly-concentrated” however, for many of these products alternative sources of supply exist and could be utilised
- One-in-twenty Australian imports might be vulnerable to concentrated sources of supply
- Vulnerable imports are mostly consumption or intermediate goods but many of them are not essential to the wellbeing of Australians
- Disruptions to the supply of vulnerable capital goods are unlikely to affect Australian well-being in the long run
- For many products, the main supplier of vulnerable imports is China, which accounts for roughly two-thirds of those products
- Vulnerable imports are a small share (by value) of the goods used in essential industries. “This is suggestive, but not conclusive, evidence that vulnerable imports may not be critical to the production of essential goods and services,” the Productivity Commission says.
The Productivity Commission then went on to add: “combining imports and production data suggests that the supply of essential goods and services in Australia is not highly susceptible to a short-term disruption to the supply of imported goods. Vulnerable imports represent a small fraction of the value of essential goods and services consumed by Australians”.
Risk management
The Productivity Commission also noted that risks are best managed by those parties that have direct incentives to mitigate against those risk and that firms are primarily responsible for managing risks in their supply chain. Although noting that there are conditions where government intervention in private sector risk management may be justified, the Productivity Commission warned that government could crowd out private investment.
The Commission also specifically pointed out that the Australian government has the responsibility for maintaining and promoting a respected and rules-based international trading system that promotes low-cost training and the ability of firms to respond to disruption. “All levels of government have responsibility for ensuring regulations are fit for purpose, including making temporary changes that let firms adjust to temporary disruptions,” the Productivity Commission wrote.
Next steps
The Commission is inviting all interested parties to make written submissions in response to its interim report. The Commission is also seeking submissions for its next phase of work focusing on supply chain vulnerabilities in exports from Australia.
Submissions are due by Friday 30 April 2021.
