Further theory on normalising market trends

If all co-products of a joint production have an alternative production route, only one of these co-products can be the determining one. An unambiguous way to identify which co-product is the determining one is to compare the normalised market trends of the co-products, to see which trend in demand impose a constraint on the output of the other co-products. Before comparing the market trends for this purpose, they have to be normalised to the relative outputs of the products from the co-producing activity. For example, if joint products A and B have increasing annual market trends of 6% and 10%, respectively, and the relative outputs from the joint production activity are 5 units of B per unit of A, then the normalised market trends are 6%/1 = 6% for A and 10%/5 = 2% for B. Note that it is easiest to express all numbers in relative terms, since the absolute size of the trends and outputs are irrelevant for the comparisons here.

normalised production volume

Figure: Illustration of how the normalised market trend is calculated from the general market trends and information on the relative outputs of the specific co-products.

The market trends that have to be normalised are the market trends for the generic markets for the co-products (e.g. generic vegetable oil and protein meal), not the specific outputs of the joint production (e.g. soy oil and soy protein), since these are per definition produced in fixed proportions and therefore have an identical trend in production volume.

Whether the co-product with the smallest or largest normalised market trend is the determining one depends on whether or not the co-product alone provides a revenue that exceeds the marginal production cost; see the full description of the conditions that must be fulfilled.


How to cite this: 
Consequential-LCA (2015). Further theory on normalising market trends. Last updated: 2015-10-27. www.consequential-lca.org.