SPPI for Wholesale Services in CanadaSPPI for Wholesale Services in Canada

Fred BarzykFred Barzyk

23rd Voorburg Group Meeting23rd Voorburg Group Meeting

Aguascalientes, MexicoAguascalientes, Mexico

September 22nd to September 26th 2008September 22nd to September 26th 2008

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BackgroundBackground

• Distributive Trades DivisionDistributive Trades Division– Responsible for surveys of revenue and Responsible for surveys of revenue and

expenses (turnover)expenses (turnover)

• Prices DivisionPrices Division– Responsible for developing/producing Responsible for developing/producing

SPPISPPI

• System of National AccountsSystem of National Accounts– Responsible for estimates of real and Responsible for estimates of real and

nominal GDPnominal GDP

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Definition of the service (1)Definition of the service (1)

• North American Industry Classification North American Industry Classification (NAICS) 2002(NAICS) 2002

Classification 41 Classification 41 Wholesale Trade  Wholesale Trade 

• Establishments primarily engaged in wholesaling Establishments primarily engaged in wholesaling merchandise and providing related logistics, merchandise and providing related logistics, marketing and support services. marketing and support services.

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Definition of the service (2)Definition of the service (2)

• Wholesale MerchantsWholesale Merchants

– Buy and sell merchandise on their own account, take Buy and sell merchandise on their own account, take title to the goods they sell.title to the goods they sell.

• Wholesale Agents and BrokersWholesale Agents and Brokers

– Buy and sell merchandise owned by others on a fee or Buy and sell merchandise owned by others on a fee or commission basis, do not take title to the goods they commission basis, do not take title to the goods they buy or sell. buy or sell.

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Pricing Unit of Measure CollectedPricing Unit of Measure Collected

• Margin price per unit for product or Margin price per unit for product or homogeneous product line.homogeneous product line.

• Prices reflect real transactions measured Prices reflect real transactions measured monthly, but collected on a quarterly monthly, but collected on a quarterly basis. basis.

• The reported purchase and selling prices The reported purchase and selling prices represent an average monthly price. represent an average monthly price.

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Market conditions and constraints (1)Market conditions and constraints (1)

• In Canada, wholesaling is a multi-billion-In Canada, wholesaling is a multi-billion-dollar industry, with sales totalling dollar industry, with sales totalling $660 billion in 2006.$660 billion in 2006.

• The industry employed an average 740,000 The industry employed an average 740,000

Canadians in 2006. Canadians in 2006.

• Between 2001 and 2006, wholesale output Between 2001 and 2006, wholesale output (GDP), grew 2X the rate of the overall (GDP), grew 2X the rate of the overall economy, fastest growing of all major economy, fastest growing of all major industrial sectors during this period. industrial sectors during this period.

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Market conditions and constraints (2)Market conditions and constraints (2)

SPPI - Distribution by Service Group(Service sector weight 2000)

27%

12%

32%

20%

7% 2%

Distributive trades

Transportation andwarehousing

Finance, insurance, leasing,real estate, and businessmgmt.

Scientific, technical andprofessional services

Information, communicationand cultural services

Other

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Market conditions and constraints (3)Market conditions and constraints (3) Table 1: Approximate Count of Wholesaling Units In Canada

Trade Group Total Number of

Units % Farm products 2,619 2.2 Petroleum Products 1,676 1.4 Food, products 12,107 10.0 Alcohol and Tobacco Products 696 0.6 Apparel 5,729 4.7 Home and Personal Products 11,930 9.9 Pharmaceuticals 972 0.8 Motor Vehicles 2,649 2.2 Motor Vehicle Parts and Accessories 4,759 3.9 Building Supplies 11,332 9.4 Metal Products 1,678 1.4 Lumber and Millwork 2,076 1.7 Machinery and Equipment 14,276 11.8 Computers and Other Electronic Equipment 5,457 4.5 Office and Professional Equipment 7,268 6.0 Other Products 21,922 18.2 Agents and Brokers 13,547 11.2 Total 120,693 100.0

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Special Conditions and Restrictions Special Conditions and Restrictions

• NotNot a regulated industry in Canada a regulated industry in Canada

• Import a large share of the goods they distribute Import a large share of the goods they distribute (typically from the United States)(typically from the United States)

• Quick to adopt new information and Quick to adopt new information and communications technologies, have recorded communications technologies, have recorded above-average growth in capital investments above-average growth in capital investments

• Globalisation, offshore outsourcing, and the Globalisation, offshore outsourcing, and the arrival of American-style retailing (big box stores arrival of American-style retailing (big box stores and club warehouses)and club warehouses)

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Record Keeping Practices (1) Record Keeping Practices (1)

• Specific data collection issues were Specific data collection issues were identified for each of the Trade identified for each of the Trade Group/NAICS strata. Group/NAICS strata.

• Variation in the types and quantities of Variation in the types and quantities of products that wholesalers carry products that wholesalers carry

– Relatively small number of unique items Relatively small number of unique items to thousands and sometimes tens of to thousands and sometimes tens of thousands of specific productsthousands of specific products

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Record Keeping Practices (2)Record Keeping Practices (2)

• Some wholesalers have difficulty in reporting Some wholesalers have difficulty in reporting price information by product or item, and find it price information by product or item, and find it much easier to supply information by line or much easier to supply information by line or departmentdepartment

• Collection of corresponding detailed product or Collection of corresponding detailed product or item specifications is an ongoing challenge for item specifications is an ongoing challenge for the wholesale industrythe wholesale industry

• Availability of electronic data, but historical Availability of electronic data, but historical product price data is generally difficult to getproduct price data is generally difficult to get

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Standard classification structure, product Standard classification structure, product detail/levels (1)detail/levels (1)

Main classification of wholesale activity is Main classification of wholesale activity is by industry by industry NAICS (North American NAICS (North American Industrial Classification System)Industrial Classification System)

The wholesale sample of approximately The wholesale sample of approximately 3,000 units selected using the 2005 3,000 units selected using the 2005 Business Register (BR) frameBusiness Register (BR) frame

Publication Publication target target NAICS 5-digit NAICS 5-digit classification (excluding Brokers & Agents classification (excluding Brokers & Agents for now) for now)

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Standard classification structure, product Standard classification structure, product detail/levels (2)detail/levels (2)

Main variables collectedMain variables collected

• Product Description Product Description

• Country of Origin (if imported)Country of Origin (if imported)

• Wholesale Average Purchase Price Wholesale Average Purchase Price

• Wholesale Average Selling Price Wholesale Average Selling Price

• Unit of Measure Unit of Measure

• Wholesale Activities Wholesale Activities

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Standard vs. Definition and Market Standard vs. Definition and Market ConditionsConditions • No special or additional classifications that differ No special or additional classifications that differ

from the turnover survey program from the turnover survey program – Existing classification structure (NAICS) used to Existing classification structure (NAICS) used to

produce the SPPI are consistent with the turnover produce the SPPI are consistent with the turnover surveys. surveys.

• Sample source for the SPPI and turnover surveys Sample source for the SPPI and turnover surveys is the same – STC’s Business Register. is the same – STC’s Business Register. – Sample comparison and clean up is easier Sample comparison and clean up is easier

– Industry level estimates of price change and Industry level estimates of price change and turnover will also be directly comparableturnover will also be directly comparable

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National Accounts Concepts and National Accounts Concepts and Measurement Issues (1)Measurement Issues (1)

For monthly GDP, For monthly GDP,

• Changes in constant price output are used Changes in constant price output are used as indicators of the growth rates in as indicators of the growth rates in constant price value added. constant price value added.

• The movement in constant price output is The movement in constant price output is assumed to be represented by the month-assumed to be represented by the month-to-month growth rates in constant price to-month growth rates in constant price sales by wholesalers.sales by wholesalers.

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National Accounts Concepts and National Accounts Concepts and Measurement Issues (2)Measurement Issues (2)

For annual GDP estimates, For annual GDP estimates, Real GDP is derived by taking the difference between the Real GDP is derived by taking the difference between the

industry gross output and the industry intermediate inputs industry gross output and the industry intermediate inputs at constant prices (at constant prices (the double deflation method)the double deflation method)

In the absence of a In the absence of a directdirect price index, the price movement is price index, the price movement is measured indirectly via a derived implicit price index. measured indirectly via a derived implicit price index.

The implicit price index is calculated by taking the sum the The implicit price index is calculated by taking the sum the current dollar wholesale margins divided by the sum of current dollar wholesale margins divided by the sum of constant dollar wholesale margins.constant dollar wholesale margins.

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Pricing Method and Criteria for Choice (1)Pricing Method and Criteria for Choice (1)

Price is the margin for a Price is the margin for a product or product line.product or product line.

Relative is constructed on margin price Relative is constructed on margin price t/t-1t/t-1

PPMPt

unitAcquistion

t

unitSelling

t

unit //

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Pricing Method and Criteria for Choice (2)Pricing Method and Criteria for Choice (2)

Why? Nominal output (margin) is defined as, Why? Nominal output (margin) is defined as,

OutputOutputtt = Price = Pricett x Quantity x Quantitytt

for wholesale services.for wholesale services.

In the classical sense, we need a price index In the classical sense, we need a price index for deflation. for deflation.

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Pricing Method and Criteria for Choice (3)Pricing Method and Criteria for Choice (3)

Quality Assurance Framework:Quality Assurance Framework:

Shipment Price Shipment Price

Representative of current period productionRepresentative of current period production

Transaction price Transaction price

Output priceOutput price

Timely measureTimely measure

Constant quality maintained Constant quality maintained

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Quality Adjustment MethodologyQuality Adjustment Methodology

• Quality change in Quality change in serviceservice identified in survey and follow-up with identified in survey and follow-up with

respondent respondent

• Quality change in Quality change in productproduct comparable or non-comparable substitutioncomparable or non-comparable substitution

• Change in Change in priceprice reason(s) identified and assessedreason(s) identified and assessed

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Evaluation of Comparability with Evaluation of Comparability with Turnover/Output Measures Turnover/Output Measures

The level of comparability is The level of comparability is highhigh..

• Turnover and SPPI use the same industry (and soon Turnover and SPPI use the same industry (and soon product) classification system (NAICS, and then NAPCS). product) classification system (NAICS, and then NAPCS).

• SPPI sample is a sub-sample of the Annual Wholesale Trade SPPI sample is a sub-sample of the Annual Wholesale Trade Survey (AWTS) frameSurvey (AWTS) frame

• Coherence analysis is conducted between the SPPI and Coherence analysis is conducted between the SPPI and turnover turnover

• One difference in comparability One difference in comparability wholesale margin data wholesale margin data (turnover) is collected (turnover) is collected annuallyannually, SPPI will be , SPPI will be monthly datamonthly data..

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Other Uses - Import Price Information (1)Other Uses - Import Price Information (1)

• Acquisition cost as proxy for import priceAcquisition cost as proxy for import price– What does it measure?What does it measure?

• LIFO valuationLIFO valuation

• Total cost to wholesaler (includes freight etc.,)Total cost to wholesaler (includes freight etc.,)

• Average for the monthAverage for the month

• About 60% of reported products are About 60% of reported products are imports.imports.

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Other Uses - Import Price Information (2)Other Uses - Import Price Information (2)

If same product or product line If same product or product line (k) (k) is is importedimported for a sufficient for a sufficient period, period,

then a second price relative could be constructed for then a second price relative could be constructed for imports, imports,

P

Pkt

unitnAcquisitio

ktunitnAcquisitio

,1/

,/

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DiscussionDiscussion