Regulation (EC) No 138/2004 of the European Parliament and of the Council

of 5 December 2003

on the economic accounts for agriculture in the Community

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 285(1) thereof,

Having regard to the proposal from the Commission,

Acting in accordance with the procedure laid down in Article 251 of the Treaty(1),

Whereas:

(1) The monitoring and evaluation of the common agricultural policy requires comparable, up-to-date and reliable information on the economic situation of agriculture, and more specifically on changes in agricultural income.

(2) Agricultural accounts are a basic tool for analysing the economic situation of a country's agriculture, provided that they are drawn up on the basis of a single set of principles. Agricultural accounts also make a valuable contribution to the calculation of the national accounts.

(3) The economic accounts for agriculture are compiled in accordance with the basic concepts and rules of Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community(2).

(4) Council Regulation (EC) No 322/97 of 17 February 1997 on Community statistics(3) provides a reference framework for this Regulation.

(5) Since the objective of the proposed action, namely the creation of common statistical standards which will allow the production of harmonised data, cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale of the action, be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective.

(6) The measures necessary for the implementation of this Regulation should be adopted in accordance with Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission(4).

(7) The Standing Committee on Agricultural Statistics and the Statistical Programme Committee have been informed,

HAVE ADOPTED THIS REGULATION:

Article 1

Subject matter

1. This Regulation sets up the economic accounts for agriculture in the Community (hereinafter referred to as "EAA"), by providing for:

(a) an EAA methodology (common standards, definitions, classifications and accounting rules), intended to be used for compiling accounts on comparable bases for the purposes of the Community, and for the transmission of data in accordance with Article 3;

(b) time limits for the transmission of the agricultural accounts compiled in accordance with the EAA methodology.

2. This Regulation shall not oblige any Member State to use the EAA methodology in compiling agricultural accounts for its own purposes.

Article 2

Methodology

1. The EAA methodology referred to in Article 1(1)(a) is set out in Annex I.

2. The EAA methodology shall be updated in accordance with the procedure referred to in Article 4(2).

Article 3

Transmission to the Commission

1. The Member States shall transmit to the Commission (Eurostat) the data set out in Annex II within the time limits specified for each table.

2. The first transmission of data shall take place in November 2003.

3. The list of variables and the time limits for the transmission of data set out in Annex II shall be updated in accordance with the procedure referred to in Article 4(2).

Article 4

Committee pocedure

1. The Commission shall be assisted by the Standing Committee on Agricultural Statistics.

2. Where reference is made to this paragraph, Articles 4 and 7 of Decision 1999/468/EC shall apply, having regard to the provisions of Article 8 thereof.

The period laid down in Article 4(3) of Decision 1999/468/EC shall be set at three months.

3. The Committee shall adopt its Rules of Procedure.

Article 5

Final provision

This Regulation shall enter into force on the 20th day following that of its publication in the Official Journal of the European Union.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels, 5 December 2003.

For the European Parliament

The President

P. Cox

For the Council

The President

P. Lunardi

(1) Opinion of the European Parliament of 3 September 2003 (not yet published in the Official Journal), and Council Decision of 17 November 2003.

(2) OJ L 310, 30.11.1996, p. 1. Regulation as last amended by Regulation (EC) No 1267/2003 of the European Parliament and of the Council (OJ L 180, 18.7.2003, p. 1).

(3) OJ L 52, 22.2.1997, p. 1.

(4) OJ L 184, 17.7.1999, p. 23.

ANNEX I

ECONOMIC ACCOUNTS FOR AGRICULTURE

(EAA)

CONTENTS

>TABLE>

FOREWORD

The revision of the European system of accounts (ESA 1995) in 1995(1) and the need to adapt to economic and structural developments in agriculture have led to a new basic methodology used for the EAA. The amendments made to the basic EAA methodology had to satisfy two, often conflicting, demands: on the one hand, methodological consistency was needed with the ESA to allow harmonisation of the EAA both between Member States and with the central framework of the national accounts; and on the other hand, the legislator had to ensure that the changes to be made were feasible. This manual has been drawn up with these considerations in mind as, in addition to the concepts, principles and basic rules for compiling the EAA, it also refers to any adaptations to specific characteristics in the field of agriculture.

I. GENERAL FEATURES OF THE ACCOUNTS

A. INTRODUCTION

1.01. A system of integrated economic accounts should provide an overview of economic activities which is systematic, comparable and as complete as possible, to serve as a basis for analyses, forecasts and political measures. The vast number and variety of economic transactions and units covered by the system therefore have to be classified according to general criteria and set out clearly and simply in a coherent system of accounts and tables.

1.02. The European system of integrated economic accounts, which is derived from the United Nations revised system of national accounts (SNA 93)(2), was created in response to the specific needs of the European Union. It lays down concepts, definitions, accounting rules and uniform classifications to be used by the EU Member States.

1.03. The economy of a country is the sum of the activities of a very large number of units engaged in many different types of transaction with a view to producing, financing, insuring, distributing and consuming. Units and groups of units considered in the context of a system of national accounts have to be defined in terms of the economic models under examination. The ESA 95 is characterised by the use of three types of unit and two distinct ways of breaking down the national economy.

1.04. In order to analyse flows involving income, capital, financial transactions and assets, it is essential to select units which depict the interaction between economic operators (institutional units). In order to analyse the production process, it is crucial to select units which illustrate technico-economic relationships (i.e. kind-of-activity units at local level and units of homogeneous production).

1.05. Thus, the economy may be broken down in two different ways:

(i) into institutional sectors or subsectors, which represent groups of institutional units;

(ii) into industries, which comprise groups of kind-of-activity units at local level (industry) or units of homogeneous production (homogeneous branch).

1.06. The main purpose of the EAA is to analyse the production process and primary income generated by it. The accounts are therefore based on the industry concept.

1.07. The EAA are a satellite account providing complementary information and concepts adapted to the particular nature of the agricultural industry. Although their structure very closely matches that of the national accounts, their compilation requires the formulation of appropriate rules and methods.

1.08. A distinction needs to be made between the income generated by agricultural production and the income of agricultural households, the latter including, apart from income from agricultural activity, income from other sources (from property, social transfers, etc.) that agricultural households may have. These two types of income (income generated by agricultural production and the income of agricultural households) are measured for two distinct purposes, which require two distinct methods of breaking down the economy: the first, for the EAA, is based on production units; which are defined by reference to an activity branch, the second is based on households (i.e. institutional units) whose main source of income is independent agricultural activity(3).

B. THE BASIC UNIT AND THE AGRICULTURAL INDUSTRY

1. Basic unit

1.09. In order to analyse flows generated by the production process and the use of goods and services, it is necessary to select units which emphasise relationships of a technico-economic kind. This requirement means that as a rule institutional units must be broken-down into smaller and more homogeneous units with regard to the kind of production. Local kind-of-activity units (local KAUs) are intended to meet this requirement as a first but practically oriented operational approach (ESA 95, 2.105)(4).

1.10. The local KAU is defined as the part of a KAU which corresponds to a local unit. The KAU groups all the parts of an institutional unit in its capacity as producer contributing to the performance of an activity at class level (four digits) in NACE Rev. 1 (the reference classification for economic activities, cf. 1.55) and corresponds to one or more operational subdivisions of the institutional unit. The institutional unit's information system must be capable of indicating or calculating for each local KAU at least the value of output, intermediate consumption, compensation of employees, the operating surplus and employment and GFCF (ESA 95, 2.106).

1.11. Although a local KAU may correspond to an institutional unit or part of an institutional unit in its capacity as a producer, it can never belong to two distinct institutional units. Since, in practice, most institutional units producing goods and services are involved in a number of different activities at once (a principal activity and one or more secondary activities), they can be broken down into the same number of local KAUs. Ancillary activities (purchases, sales, marketing, accounting, transport, warehousing, maintenance, etc.; cf. 1.27), however, cannot lead to the creation of a local KAU.

1.12. Basically, as many local KAUs should be recorded as there are secondary activities, but it can happen that statistical (accounting) information does not make it possible to separate a local KAU's secondary activities or parts of those activities from its principal activities. Thus, a local KAU may carry out one or more secondary activities alongside its principal activity (ESA 95, 2.107).

1.13. An activity can be said to take place when resources such as equipment, labour, manufacturing techniques, information networks or products are combined, leading to the creation of specific goods or services. An activity is characterised by an input of products (goods and services), a production process and an output of products (ESA 95, 2.103). The principal activity of a local KAU is the activity whose value added is greater than that of any other activity carried out within the unit. The classification of the principal activity is determined with reference to NACE Rev. 1, first at the highest level of the classification and then at more detailed levels (ESA 95, 3.10).

2. Agricultural industry

1.14. By grouping all local KAUs engaged in the same type of activity, it is possible to establish an industry. This makes it possible to break down the economy by industry. The classification of these industries depends on the principal activity of the units thus grouped together. At the most detailed level of classification, an industry includes all local KAUs in the same class (four digit level) of NACE Rev. 1 and therefore engaged in the same activity as that defined in NACE Rev. 1.

1.15. Although the agricultural industry was formerly defined as a grouping of units of homogeneous agricultural production, the local KAU was chosen as the basic unit of description for the EAA so as (i) to approach the EAA from the economic situation of agriculture, i.e. to take the existence of certain inseparable non-agricultural secondary activities into full account when measuring the total productive activity of agricultural units and (ii) to remain consistent with the rest of the national accounts. This represents a shift from an analytical approach based on the concept of the unit of homogeneous production and homogeneous branch to a statistical approach based on the concept of the KAU at local level and industry.

1.16. Inseparable, non-agricultural secondary activities are activities whose costs cannot be observed separately from those of the agricultural activity. Examples are the processing of farm products on the farm, forestry, logging, tourism. The output of the agricultural industry thus results from two kinds of activity:

(i) agricultural activities (main or secondary) performed by agricultural units;

(ii) non-agricultural secondary activities of agricultural units.

1.17. The agricultural holding, which is the unit currently used for statistical studies of agriculture (censuses, surveys of the structure of agricultural holdings), is the local KAU most appropriate to the agricultural industry (even though certain other units, such as wine or olive oil cooperatives, or units performing contract work, etc., have to be included in it). Nevertheless, it should be pointed out that the variety of agricultural activities that can be performed on agricultural holdings makes them a special type of local KAU. The strict application of the ESA rule to units and their group should in fact result in a division of the agricultural holding into several separate local KAUs in cases where several activities of the NACE Rev. 1 four-digit class are performed on the same holding. The adoption of the agricultural holding as the local KAU of the agricultural industry in the national accounts and EAA is based on a statistical approach.

1.18. Thus, the accounts for the agricultural industry are essentially similar to the accounts of agricultural holdings (production and generation of income accounts). In order to avoid any ambiguity, however, it should be pointed out that the agricultural accounts are not accounts of enterprises whose principal activity is agricultural: firstly, they do not include all of these holdings' non-agricultural activities (those which can be separated from agricultural activities are excluded). Moreover, they include the agricultural activities of enterprises whose principal activity is not agricultural. Consequently, the adoption of the agricultural holding as the base unit for the EAA does not alter the fact that the agricultural accounts are agricultural industry accounts.

1.19. Since an industry comprises a group of units which carry out the same or similar types of activity, the definition of the agricultural industry in the EAA depends on the identification of the characteristic activities and units in that industry. The resultant selection of characteristic agricultural activities and units may lead to some differences between the EAA agricultural industry accounts and the national accounts (cf. 1.93).

1.20. The agricultural industry is treated as a grouping of all KAUs at local level which perform the following economic activities (cf. 1.60 to 1.66 for the precise definition of the agricultural industry):

- crop growing; market gardening; horticulture (including the production of wine and olive oil from grapes and olives grown by the same unit),

- farming of animals,

- crop production associated with animal husbandry,

- agricultural contract work,

- hunting, trapping and game propagation, including related service activities.

1.21. In addition to agricultural holdings, the agricultural industry comprises units made up of groups of producers (e.g. cooperatives) which produce wine and olive oil and specialised units which provide machines, material and labour for the performance of contract work.

1.22. Specialised units which provide machines, equipment and personnel for the performance of contract work at the agricultural production stage (commercial enterprises engaged in contract work or agricultural holders providing services as contractors) are treated as part of the agricultural industry. Under a stricter interpretation, these units, which must be included in the agricultural industry, must perform work which (a) is part of the agricultural production process, (b) is linked to the production of agricultural products, (c) is customarily performed by the agricultural holdings and (d) is actually performed entirely by specialist units providing machines, material and labour.

1.23. If, however, the contract work is not performed entirely by specialised units (e.g. if the holder hires machines but employs his own workers) this activity must be recorded in Division 71 of NACE Rev. 1 (renting of machinery and equipment without operator); in this case, amounts paid to enterprises working under contract by the holders must be recorded as "other goods and services" under "intermediate consumption" (cf. 2.108).

1.24. Since the purpose of the EAA is to measure, describe and analyse the formation of income from agricultural economic activity (which, in the EU Member States, is almost exclusively a commercial activity), it was decided to exclude units for which the agricultural activity represents solely a leisure activity. In contrast, units engaged in subsistence farming are included in the EAA. It should be pointed out that agricultural output for own final consumption by agricultural holdings must be recorded in the EAA.

3. Inseparable non-agricultural secondary activities

1.25. The use of the local KAU as the basic unit for the agricultural industry entails recording non-agricultural secondary activities where they cannot be distinguished from the main agricultural activity.

1.26. Inseparable non-agricultural secondary activities of local agricultural KAUs are defined as activities closely linked to agricultural production for which information on any of output, intermediate consumption, compensation of employees, labour input or GFCF cannot be separated from information on the main agricultural activity during the period of statistical observation.

1.27. The main characteristics of these inseparable non-agricultural secondary activities are as follows:

- they must be intended for sale or barter (during the accounting period or later, after storage), own final use by the producer or as payment in kind (including compensation in kind paid to employees),

- they must not be ancillary activities. The latter are supplementary activities (e.g. sales, marketing, warehousing, transport for own account; see ESA 95, 3.12 and 3.13, and SNA 93, 5.9 to 5.16) carried out by an enterprise in order to create the conditions for conducting the main or secondary activities. Typically, the output of ancillary activities appears as input in the different types of productive activity,

- by convention, they may not include activities involving GFCF of non-agricultural products (such as buildings or machines) for own account. This production for own final consumption is presumed to be a separable activity and is recorded as the production of an identifiable local KAU. Accommodation services made available to employees as remuneration in kind must be treated in a similar manner (they are recorded as remuneration in kind in the generation of income account),

- they must be characteristic of agricultural holdings, i.e. they must be of significant economic importance for a significant number of holdings,

- agricultural "contract work" is not a non-agricultural activity since it is a characteristic activity (agricultural services) of the agricultural industry.

1.28. Only that part of a specific non-agricultural secondary activity which is inseparable must be included. As a consequence, a given non-agricultural activity will be included in the agricultural industry if it is impossible to separate it from the main agricultural activity of a local KAU, but will be excluded if it can be separated from the main agricultural activity, in which case the secondary activity gives rise to a non-agricultural local KAU. The selection criterion for inseparable non-agricultural secondary activities is not so much the nature of the product as the type of activity(5). For example, agro-tourism services provided by a farm must only be included if they cannot be separated from its agricultural activities. This would probably not be the case when these activities become important. Thus, non-agricultural products accounted for in the production of the agricultural industry may vary geographically and over time.

1.29. Two main types of inseparable non-agricultural secondary activity may be distinguished:

- Activities which represent a continuation of agricultural activity and which use agricultural products. This type of activity can be found in most of the EU Member States. The processing of agricultural products is the typical activity of this group:

Processing of agricultural products

- milk into butter, cream, cheeses, yoghurts and other dairy products,

- fruit and vegetables into fruit juices, tinned foods, alcoholic beverages and other products,

- grapes, must and wine into alcoholic products (e.g. sparkling wine, such as Champagne, and spirits, such as Cognac),

- plaiting of vegetable material/textiles/wool,

- production of pâtés, foie gras and other processed meat products,

- processing of other agricultural products,

Grading and packaging of agricultural products, e.g. eggs and potatoes.

- Activities involving the agricultural holding and its means of agricultural production (equipment, installations, buildings, workforce). These activities are basically the following:

- agro-tourism - camping, catering, hotels, various kinds of accommodation, etc.,

- farm shops - retail trade activities concerning products other than those from the holding. Direct sales of agricultural products, raw or processed, are recorded in the output of the products concerned,

- sports and rural recreation - the use of land for activities such as golf, horse-riding, hunting, fishing, etc.,

- services for third parties - e.g. the renting and repair of agricultural machinery, irrigation projects, agricultural advisory services, product storage, maintenance of farm buildings, commercial services relating to agricultural products, transport of agricultural products, etc. These services are recorded as secondary activities, only if they are performed for a third party. When performed for own account, they are ancillary activities, which are not recorded in the accounts (cf. 1.27),

- landscaping services - grass-mowing, hedge-trimming, snow-clearing, laying out, planting and maintenance of green areas and the like,

- fish-farming,

- other activities involving the use of the land and the means of agricultural production.

1.30. The list of non-agricultural secondary activities (cf. 1.29) is however given by way of illustration and does not apply in every country. On the contrary, each country has to compile its own list of inseparable non-agricultural secondary activities, depending on the characteristics of its agriculture. The list must be drawn up in collaboration with the national accounts departments so as to ensure that the EAA is compatible with the agricultural branch accounts and the accounts for these non-agricultural activities as compiled for national accounts purposes (i.e. to ensure that no activity is omitted or double-counted).

1.31. The agricultural secondary activities of non-agricultural units are negligible and are recorded as zero by convention. Agricultural production carried out by a non-agricultural unit is in fact considered to be always separable, in terms of accounting data, because of the specific features of the products and the means of agricultural production as well as the data sources and methods used for drawing up the resulting EAA (cf. section E of chapter I and sections B and C of chapter II). In order to base the EAA on the industry concept, the output of all agricultural products, excluding those products arising from the secondary activities of non-agricultural local KAUs, has to be measured. As these by convention are deemed to be zero, all agricultural output is recorded (with the exception of the output of units for which the agricultural activity represents solely a leisure activity; cf. 1.24).

1.32. Non-agricultural goods and services produced by agricultural holdings are not included in the EAA unless they are the result of inseparable secondary activities. For example, if units include several vertically integrated production processes (e.g. enterprises engaged in slaughtering, packing and vacuum-packing fowl, grading, washing and pre-packaging potatoes or other vegetables, sorting, preparing and selling seeds; cooperatives providing storage space and selling the products, etc.), the agricultural industry includes only the part of their activity which is related to agricultural production as defined in 1.62 and 1.63, and to the inseparable non-agricultural secondary activities.

C. MEASUREMENT OF OUTPUT

1.33. According to the ESA 95, the output of the industry represents all of the products produced over the accounting period in question by all the units of the industry except for goods and services produced and consumed over the same accounting period by the same unit. The measurement of agricultural output is based(6) on an adaptation of this ESA rule, with the inclusion in agricultural output of part of the output consumed by the agricultural units themselves (cf. 2.032 to 2.036). Thus in the EAA, agricultural output represents the sum of output by all units in the industry (excluding output for intermediate consumption by the same unit), plus output used as intermediate consumption by the same unit, provided this output concerns two different basic activities (such as crop products intended for use as animal feedingstuffs) and it meets certain criteria (set out in 2.055).

1.34. The ESA rule has been adapted because of the special nature of the agricultural industry:

- the amount of agricultural output used in the same unit as intermediate consumption is greater in agriculture than in other economic sectors,

- the agricultural holding includes a great variety of agricultural activities which are closely linked to one another (one activity being a basis for or continuation of another activity, such as cereal and fodder production for animal feedingstuffs; close links in the use of production factors such as equipment and machinery). The varied content of the agricultural holding, without putting into question its characterisation as a local KAU, makes it a very special case as compared to local KAUs in other parts of the economy (cf. 1.17). The aim of the accounts in subdividing the economy into industries is, in part, to reflect the flows within the production process: creation, transformation, trade and transfer of economic value. The different activities carried out on an agricultural holding would not be fully taken into account by solely measuring the output leaving the holding.

1.35. This adaptation of the ESA rule calls for special treatment for certain products such as agricultural products intended for use as feedingstuffs on the holding, grapes used for wine production and olives used for olive oil production, and agricultural products intended for use as intermediate consumption for inseparable non-agricultural secondary activities.

1.36. Trade in live animals between agricultural holdings and imports of live animals are the subject of special treatment as they are considered work-in-progress (cf. chapter II).

D. SEQUENCE OF ACCOUNTS

1. Sequence of accounts as provided for in the ESA 95

1.37. The EAA are based on a sequence of inter-related accounts. In the ESA 95, the full sequence of accounts includes current accounts, accumulation accounts and balance sheets. These different accounts make it possible to record transactions and other flows linked to specific aspects of the economic cycle (for example, production) in an ordered framework. These transactions range from the generation of income through income accumulation in the form of assets, to its distribution and redistribution. The balancing items which are deducted from them are then used as aggregates for measuring economic performance.

1.38. The current accounts deal with the production, distribution and redistribution of income and its use in the form of final consumption; they make it possible to calculate "savings", which is the essential component of accumulation. Accumulation accounts analyse the various components of changes in the assets and liabilities of units and make it possible to record changes in net worth (the difference between assets and liabilities). The balance sheets show the total assets and liabilities of the various units at the beginning and end of the accounting period, together with their net worth. The flows for each asset and liability item recorded in the accumulation accounts are seen again in the "changes in balance sheets" account (ESA 95, 8.04).

1.39. The full sequence of accounts referred to above applies only to institutional units, sectors and subsectors. The ESA 95 assumes that there is no point in compiling a full sequence of accounts for a local KAU and an industry because such units rarely have the capacity to retain goods or assets in their own name or to receive and distribute income.

2. Sequence of accounts of the EAA

1.40. As the EAA are based on the industry concept, the sequence of accounts in accordance with the ESA 95 has to be limited to the first accounts of the current accounts:

- the production account and

- the generation-of-income account

whose balancing items are value added and operating surplus respectively (cf. tables 1 and 2 below).

1.41. Nevertheless, it is thought that, given the specific features of agriculture, it should be possible to compile other accounts, at least in part, in so far as the relevant flows can be clearly attributed to them. The accounts in question (cf. tables 3 and 4 below) are the following:

- the entrepreneurial income account (one of the current accounts) and

- the capital account (one of the accumulation accounts).

1.42. Consideration is being given to extending this sequence of accounts to include certain items (flows) in the account "other changes in assets" in the accumulation accounts (i.e. certain headings under "other changes in the volume of assets" and the revaluation account) and the balance sheet.

1.43. On the basis of the tables and accounting structure in the ESA 95, the sequence of accounts of the EAA can be depicted as shown in tables 1 to 4.

A. Current accounts

Table 1: Production account

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Table 2: Generation-of-income account

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Table 3: Entrepreneurial income account

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B. Accumulation accounts

Table 4: Capital account

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1.44. It should be borne in mind that transactions and stocks set out in italics in tables 3 and 4 are items which:

- are not relevant for the EAA because the industry concept is used and the sequence of accounts is incomplete. The headings concerned are headings D.42 Distributed income of corporations, D.43 Reinvested earnings on direct foreign investment, D.44 Property income attributed to insurance policy holders and D.45 Rent under Resources of Table 3 and headings B.8n Net saving, B.10.1 Changes in net value due to saving and capital transfers and B.9 Net lending(+)/Net borrowing(-) in Table 4 or

- are not recorded, either for lack of reliable information or because they are currently of limited interest for EAA purposes. The headings in question are D.9 Capital transfers, payable, D.91 Capital taxes and D.99 Other capital transfers, P.53 Acquisitions less disposals of valuables, K.2 Acquisitions less disposals of non-produced non-financial assets, K.21 Acquisitions less disposals of land and other tangible non-produced assets and K.22 Acquisitions less disposals of intangible non-produced assets (production rights, etc.) in Table 4. Some of these (e.g. D.91, K.2, K.21 and K.22) may be recorded in the EAA at some later date.

1.45. The production account records transactions relating to the production process. It includes output under "Resources" and intermediate consumption under "Uses". Value added, i.e. the balancing item, may be calculated either before or after consumption of fixed capital (gross or net value added). As output is valued at the basic price and intermediate consumption at purchaser price, the value added includes subsidies less taxes on products.

1.46. The generation of income account is concerned with the formation of income resulting from the production process and its attribution to the "labour" production factor and general government (in the form of taxes and subsidies). The operating surplus, i.e. the balancing item, corresponds to the income which the units generate by using their production assets. In the case of unincorporated enterprises in the households sector, the balancing item of this account implicitly contains an element corresponding to remuneration for work carried out by the owner or members of his family which cannot be distinguished from his profits as an entrepreneur. This is referred to as "mixed income" (ESA 95, 8.19).

1.47. The entrepreneurial income account makes it possible to measure income which is similar to the concept of current profit before distribution and taxes on income, as customarily used in business accounting.

1.48. The capital account makes it possible to determine the extent to which acquisitions less disposals of non-financial assets have been financed from saving and capital transfers. It shows lending or borrowing. It is not possible to compile a complete capital account for agriculture because, although certain flows may be clearly attributable to this industry, other items (e.g. net saving, the balance of the sequence of the current accounts) cannot be calculated on an industry basis. Nevertheless, by recording as much as possible of the changes in the value of non-financial assets in the industry (due to acquisitions, disposals and the consumption of fixed capital) and capital transfers received by the industry, valuable information is obtained on its economic and balance-sheet situation (plus information on the income generated by the production process).

E. SOURCES OF DATA AND METHODS OF CALCULATION FOR COMPILING THE EAA

1.49. One of the main characteristics of the EAA is the adoption of the "quantity x price" formula when measuring the output of the large majority of products. This approach was prompted mainly by the difficulty of compiling agricultural accounts based on representative samples of business accounts.

1.50. The evaluation of crop output can normally be based on resources, i.e. the estimate of quantities produced (harvested) based on estimates of areas under crops and yields, or on uses, i.e. on estimates of purchases by the user branches of agricultural products, exports net of imports, to which should be added certain quantities used for intermediate consumption by the agricultural industry, changes in producer stocks and use for own account (much of which is own final consumption). The latter approach can prove highly appropriate in cases where the buyers of these agricultural products are readily identifiable and the four other components of uses are limited (for example, products requiring preliminary processing before they can be used, such as sugar beet, tobacco, etc.). Nevertheless, a physical balance sheet is necessary in order to verify the consistency and reliability of the data.

1.51. Statistics on slaughterings, exports/imports of live animals and the size of herds are the main sources of data for measuring the output of animals. The output of animal products (mainly milk) is generally estimated using sales to user branches (dairies, packers) because of the specific uses to which they are put.

1.52. A more detailed description of the methods of calculation is given in chapter II.

1.53. Most intermediate goods can basically only be used in agriculture (seeds and planting stock, fertilisers, pesticides, etc.). In this case purchases by agriculture are based on the data relating to sales by branches which supply these intermediate goods (after inclusion of external trade).

1.54. Applying this rule is not without certain risks, however. In actual fact, sales by producers of intermediate consumption goods, which are mainly used in agriculture, do not necessarily correspond to the purchases of those goods by the agricultural sector, because fertilisers, pesticides, etc. may also be bought for other purposes (stocks of commercial units, consumption of other units such as public parks and households etc.).

F. THE CLASSIFICATION

1. General

1.55. The EAA are an integral part of the European system of accounts and therefore for their compilation use is made of Eurostat's general classification of economic activities, NACE Rev. 1. NACE Rev. 1 is a four-level nomenclature of activities which was compiled in 1990. It is in fact a revision of the general industrial classification of economic activities within the European Communities, or NACE, which was first published by Eurostat in 1970.

1.56. NACE Rev. 1 is a more detailed version of ISIC Rev. 3(7), adapted to specifically European circumstances. NACE Rev. 1 is also directly linked to the statistical classification of products by activity (CPA) within the European Economic Community, which in turn is based on the United Nations' central product classification (CPC).

1.57. NACE Rev. 1 is a classification of activities which is used for defining industries in the national accounts. It is based on the four-level coding system described below:

- a preliminary level, containing headings identified by an alphabetical code denoting "sections",

- an intermediate level, containing headings identified by a two-letter alphabetical code denoting "subsections",

- a second level, containing headings identified by a two-digit numerical code denoting "divisions",

- a third level, containing headings identified by a three-digit numerical code denoting "groups",

- a fourth level, containing headings identified by a four-digit numerical code denoting "classes".

1.58. Each level in a classification of economic activities can usually be defined by its characteristic goods or services. Thus, the CPA is used to describe in detail the various economic activities in the agricultural industry with an additional two-digit differentiation providing a more detailed definition of the headings.

1.59. The industry corresponds to the group of local KAUs engaged in the same or similar economic activity. At the most detailed level of classification, an industry includes all local KAUs in the same class (four digits) of NACE Rev. 1 and which are therefore engaged in the same activity as defined in this nomenclature (ESA 95, 2.108). A definition of the field of the agricultural industry therefore requires a precise statement of:

- its characteristic activities,

- the characteristic units of the EAA.

2. Definition of the characteristic activities of agriculture

1.60. The agricultural industry, as described in the EAA, corresponds to Division 01 in NACE Rev. 1.

1.61. The EAA are a satellite account in the framework of the national accounts, whose basic concepts, principles and rules are based on the ESA 95. However, the latter only provides a general framework for the economy as a whole, and has to be adapted to the specific requirements of agriculture. These particular requirements derive mainly from the specific purposes of the EAA, the availability of data sources and the special character of agricultural units and their economic activities. The specific nature of the satellite accounts necessitates the compilation of a list of characteristic agricultural activities of the EAA, which obviously has to be based on NACE Rev. 1.

1.62. For national accounts purposes the agricultural industry is defined as all units performing, either solely or together with other secondary economic activities, activities which come under Division 01 of NACE Rev. 1 "Agriculture, hunting and related service activities". Division 01 comprises(8):

- Group 01.1: Growing of crops; market gardening; horticulture;

- Group 01.2: Farming of animals;

- Group 01.3: Growing of crops combined with farming of animals (mixed farming);

- Group 01.4: Agricultural and animal husbandry service activities, except veterinary activities;

- Group 01.5: Hunting, trapping and game propagation, including related service activities.

1.63. The list of characteristic agricultural activities of the EAA corresponds to these five groups of activities (01.1 to 01.5), but with the following differences:

- inclusion of the production of wine and olive oil (exclusively using grapes and olives grown by the same holding), the growing of vegetable materials used for plaiting, Christmas trees, fruit trees, vines and ornamental nursery trees (which come under Division 02, Forestry),

- exclusion of the activities relating to the production of seeds upstream and downstream of multiplication and certain activities which, in NACE Rev. 1, are considered as agricultural services (i.e. the operation of irrigation systems, the design, planting and maintenance of gardens, parks and green areas for sports facilities and the like, tree pruning and hedge trimming; only agricultural contract work is taken into account here).

3. Definition of the characteristic units of agriculture

1.64. All units which perform characteristic activities of the agricultural industry of the EAA must be included. The units in question perform the activities included in the following groups in NACE Rev. 1:

- group 01.1: Growing of crops; market gardening; horticulture

- production of seeds: only the units engaged in seed multiplication,

- production of wine (olive oil): only those units engaged in this type of production from grapes (olives) grown by the same units and groups of producers (e.g. cooperatives)(9),

- group 01.2: Farming of animals,

- group 01.3: Growing of crops combined with farming of animals (mixed farming),

- group 01.4: Agricultural and animal husbandry service activities, except veterinary activities

- excluding units which perform agricultural service activities other than contract work (i.e. units which operate irrigation systems or perform services relating to the design, planting and maintenance of gardens, parks and green areas for sports facilities and the like, and tree pruning and hedge trimming),

- group 01.5: Hunting, trapping and game propagation, including related service activities.

1.65. The list under 1.64 should be extended to include units producing Christmas trees, fruit trees, vines and ornamental nursery trees and production units producing vegetable materials used for plaiting.

1.66. It can be seen from the list that, apart from agricultural holdings, the other characteristic units of agriculture are: groupings of producers producing wine and olive oil and specialist units performing agricultural contract work (cf. 1.20 and 1.21). It should be remembered that units for which the agricultural activity represents solely a leisure activity are not included among the characteristic units of agriculture (cf. 1.24).

4. Observations concerning various items

(a) Group 01.1: Growing of crops; market gardening; horticulture

1.67. Group 01.1, "Crops", is a systematic breakdown making it possible to classify all crop production activities in the EU Member States plus harvesting activities (plants or wild fruit).

1.68. In order to be recorded, the production of fodder crops must be part of an economic activity.

1.69. Unlike in NACE Rev. 1, which attributes the production of nursery trees to forestry, this activity is treated as an agricultural activity in so far as it relates to the production of tree saplings and fruit-bearing shrubs, vines and ornamental shrubs, whereas the production of forest plants is treated as a forestry activity if the plants are intended for use in the production of forest trees(10). The production of Christmas trees is also treated as an agricultural activity if the trees are grown in nurseries with specifically ornamental purposes in mind, but if for instance, the Christmas trees are the result of lopping or thinning of forest trees, then this is considered as forestry production.

1.70. In the nomenclature of the EAA, agricultural seeds are grouped under the heading "Seeds", the exceptions being seed for cereals (including rice), oilseeds, protein crops and potatoes, which are entered respectively under the individual cereal and oilseeds varieties, protein crops and potatoes(11). The production of seeds in fact covers several types of production activity: research (i.e. production of first-generation seed prototypes), multiplication (done by agricultural holdings under contract) and certification (i.e. grading and packing by specialist production units). Only the multiplication of seeds is a characteristic agricultural activity since research and certification activities are done by research and production institutes and are not part of traditional agricultural activity (i.e. the exploitation of natural resources with a view to producing plants and animals). As a result, the production of seeds in the EAA only concerns the production of multiplied seeds. The intermediate consumption of seeds corresponds to (i) first-generation seeds purchased with a view to multiplication and (ii) certified seeds purchased by agricultural producers with a view to crop production.

1.71. Production of grape must, wine and olive oil: the CPA treats wine and olive oil as food products. NACE Rev. 1 classifies the production of wine and olive oil under subsection DA "Agri-food industries" (Classes 15.93 "Manufacture of wines" and 15.41 "Manufacture of crude oils and fats"). Only the production of wine grapes and olives comes under agriculture (Class 01.13 "Growing of fruit, nuts, beverage and spice crops"). However, following the convention adopted by NACE Rev. 1, when wine (olive oil) is produced from grapes (olives) grown by the same unit of production, it is attributed to agriculture (Class 01.13). This convention makes it unnecessary to distinguish between the unit which grows the grapes and the unit which produces the wine. As a result, all wine (olive oil) production from grapes (olives) by the same agricultural holding forms part of characteristic agricultural activities.

1.72. The production of wine by units closely linked to agricultural holdings is also treated as a characteristic agricultural activity in the EAA. Units with strong links to agricultural holdings include groups of producers (e.g. vine-growers' cooperatives). Their inclusion in the agricultural industry is dictated by the nature of these organisations, which have historically represented an "extension" of agricultural holdings (on mutual grounds relating to production and marketing) and which are usually owned by them. By contrast, the production of wine (olive oil) by agri-food businesses is excluded from the EAA (since it is clearly industrial by nature).

1.73. The production of grape must features together with the production of wine in the list of characteristic activities since grape must can be sold or exported in its raw state or added to stocks prior to being sold or exported, either for consumption or to be made into wine, in a subsequent reference period.

1.74. Since wine, olive oil and grape must (the latter only in so far as it is not vinified during the reference period) result from agricultural production in the form of the processing of grapes and olives grown by the same unit, neither grapes intended for the manufacture of grape must and wine nor olives intended for the manufacture of olive oil (i.e. the basic products) should be included under output. They are treated as intra-unit consumption which is not measured as industry output (cf. 2.052). Grape must which is not vinified during the reference period should be included in the period's output. During the vinification period, it should be recorded as intermediate consumption (intra-industry consumption) balancing a corresponding stock decline. The wine resulting from the processing of the must should be recorded as a component of output.

1.75. Plantations (e.g. vineyards and orchards) are fixed capital goods, and their establishment has to be recorded under output. The establishment of plantations for own account constitutes "Own-account produced fixed capital goods". When the establishment of plantations is carried out by specialised units on contract basis, the corresponding value is considered as "Sales".

(b) Group 01.2: Farming of animals

1.76. As with crop-growing activities (cf. 1.67), this group comprises a systematic breakdown of all the livestock and animal products produced in the EU Member States.

1.77. In the CPA, hatching eggs are classified together with eggs in one subcategory. However, by convention, they are treated, in the EAA, as semi-finished output of poultry production(12).

1.78. Horse breeding is a characteristic activity of the EAA whatever the final destination of the animal may be (breeding, meat production or services). It should be noted, however, that the management of racehorse stables and riding schools is not a characteristic agricultural activity (it is a recreational, cultural and sporting activity: Division 92) (cf. 2.210). Therefore, income accruing to farmers from such activities must be excluded from the EAA. In addition, the keeping of racehorses or saddle horses which are not part of the agricultural production process is excluded from the EAA. A similar treatment is applied to bulls bred for bullfights.

1.79. In the economic accounts, by-products(13) which automatically result from the production of certain agricultural products are not recorded under the same headings as the product itself. They appear separately at the end of each group of production activities, broken down by species. In crop production, for example, examples include straw, beet leaves and cabbage leaves, pea and bean pods, etc.; in vinification, lees and argols; in the manufacture of olive oil, waste, such as oilseed cakes; and, in the case of animal production, hides, hair and the fur of dead game, and wax, manure and slurry. Generally speaking, none of these products is the prime objective of production, which explains why it is so rare for statistical data on them to be reliable. In agriculture itself, these products are used mainly as animal feedingstuffs or soil improvers. Occasionally, however, these by-products are sold to economic sectors other than agriculture, in which case the value of output should be shown in the EAA.

(c) Group 01.4: Agricultural and animal husbandry service activities, except veterinary activities

1.80. The activities in group 01.4 can be divided into two categories:

- agricultural services in the form of contract work at the production stage (i.e. agricultural contract work),

- "other" agricultural services (the operation of irrigation systems; the design, planting and maintenance of gardens, parks, and green areas for sports facilities and the like; tree pruning and hedge trimming, etc.).

1.81. Agricultural service activities in the second category are not treated as characteristic EAA activities (even though they are recorded in the agricultural accounts of the national accounts), since they are not traditional or typical agricultural activities. They may, however, be recorded as inseparable non-agricultural secondary activities (within the meaning of the EAA). The traditional approach, in which agriculture is described as the cultivation of the soil, includes, by extension, all work designed to use and exploit natural resources for crop and animal production of benefit to mankind. Despite their growing economic importance, it was felt that taking account of services related to the environment would amount to an unacceptable widening of the traditional approach described above.

Agricultural contract work

1.82. As part of the process of economic specialisation, agricultural holdings and households have long since ceased to perform certain functions, which have been taken up by a growing number of specialist professions with their own production units. This division of functions mainly concerns the processing of agricultural products (slaughtering and meat processing, the milling of cereals, the manufacture of bread, butter and cheese and the processing of seeds by new sectors), and, at a later stage, certain marketing transactions. This is especially the case in the context of the major structural changes affecting agriculture, the growing use of large machines and agricultural activities which make a direct contribution to the production of crop products and animal husbandry and which have increasingly been outsourced to specialised units.

1.83. Notable among these activities are manuring, liming, ploughing, sowing, weeding, pest control, plant protection, hay harvesting, threshing and the shearing of sheep.

1.84. A characteristic feature of all these activities is that they are generally necessary as part of the production process for agricultural products and are linked to the production of these products.

1.85. Activities which are not directly related to the production of agricultural products, i.e. which do not take place at the agricultural production stage (transport for account of third parties and deliveries of milk to dairies are examples of a non-agricultural activity constituting part of a different industry) should not feature in the EAA (unless they are activities which are inseparable from the principal agricultural activity; cf. 1.12).

1.86. It should be borne in mind that this classification applies only on so far as the activities in question are exclusively for account of the specialised units. If, on the other hand, the farmer hires machines without operators or with only some of the operators which they require, with the result that he/she continues to carry out the activity as such, with the help of the machines, this activity comes under Division 71 of NACE Rev. 1. This situation mainly occurs with simple machines requiring relatively few repairs, and mainly during peak periods, when the machines are in greatest demand (cf. 1.23).

1.87. Contract work performed during the agricultural production stage mainly involves the use of expensive machines and equipment. Such work may be performed by:

(a) specialist contractors for whom these are the principal activities (contractors in the true sense);

(b) agricultural holdings

Contract work by holders usually takes the following forms:

- as far as farmers' supplementary income is concerned, the most flexible form is occasional aid given to neighbours. This category also includes the provision of accommodation for livestock and, mainly for pigs and poultry, animal husbandry on a fee basis (especially fattening). Accommodation may be provided for livestock owned by another farmer or the livestock may be the property of an industrial enterprise, usually a supplier (e.g. a manufacturer of/trader in fodder crops) or a purchaser (e.g. an abattoir),

- in the form of a more or less autonomous machine pool which represents a systematised form of mutual aid between neighbours. The high cost of machinery and its low rate of utilisation by an individual holding lead holdings which possess such machines to form machine pools which are placed at the disposal of other holdings, complete with the necessary personnel. Increasingly, farmers are deriving their main agricultural income from contract work on account of persons for whom agriculture is no more than a secondary activity and who in some cases are merely the owners of the land,

- agricultural machine cooperatives(14). These are large cooperatives with paid employees; they resemble specialist contractors;

(c) enterprises involved in a subsequent production stage which harvest fruit or vegetables and then process themselves (e.g. tinning factories tinning peas under contract);

(d) enterprises involved in a previous production stage. These include traders in agricultural machinery who perform contract work. Although other cases may, from the point of view of the EAA, seem highly unlikely, it is theoretically possible for a manufacturer of pesticides to apply the product himself. If this is done using the most modern techniques, however, it is not necessarily contract work at the agricultural production stage, and certainly not if the work is not regularly carried out by the farmer (e.g. aerial spraying of parasites).

1.88. In cases where it has to be decided if an activity should be treated as contract work (i.e. work which, in the context of the agricultural production process, would normally be performed by agricultural holdings themselves), it should be borne in mind that not only the nature of the activity, but also the specific context in which it is performed, i.e. the "agricultural production process" is important.

1.89. Animal husbandry performed on farms for remuneration (the provision of land for livestock) is agricultural contract work since it is part of the agricultural production process. This heading does not, however, include the private rearing and care of saddle horses, since these activities do not constitute the production of goods but a genuine service within the meaning of the ESA 95 (section O of NACE Rev. 1). By the same token, work linked to the creation and maintenance of parks, gardens, golf courses and roadside plantations must not be treated as an agricultural production process.

1.90. The type of compensation paid to the persons performing contract work is unimportant. It does not in any way have to be fixed remuneration (i.e. a wage in the strict sense); the compensation can perfectly well take the form of profit-sharing or a mixed formula (for example, a farmer who fattens calves in return for compensation generally receives a fixed amount for each animal plus a share in net profit). Compensation can also take the form of a specified share of the output.

1.91. Nevertheless, the work must always be performed by independent enterprises: work performed by the holding's paid employees does not fall into this category. From the point of view of the holding, remuneration for such work (for example, work done by a paid herdsman) is a wage cost and appears under the heading "compensation of employees". By contrast, work performed by an enterprise which carried out milking on a contract basis for other agricultural holdings is recorded in the EAA both as output (sales of services), from the point of view of the contractor, and as intermediate consumption (purchase of services), from the point of view of the agricultural holding.

(d) Group 01.5: Hunting, trapping and game propagation, including related service activities

1.92. This group of activities comprises the following activities: (i) the hunting and trapping of animals for food, for their pelt or hide, for research purposes, zoos, or for use as pets; (ii) the production of furrieries, skins of reptiles or birds originating from hunting or trapping activities; (iii) restocking with game; (iv) services to promote hunting and trapping for commercial purposes. It should be noted that the production of hide and leather from slaughterhouses and hunting performed as a sports or recreation activity are not included as characteristic activities of the agricultural industry. Additionally, the "hunting" group does not comprise the breeding of game on holdings, which should be recorded as part of the class "Farming of other live animals".

5. Discrepancy between the EAA agricultural industry and the agricultural branch of the central framework of the national accounts

1.93. The EAA agricultural industry, as defined in Sections 1.62 to 1.66, differs in some respects from the branch as defined for national accounts purposes. The differences relate to the definition of both characteristic activities and units. They can be summarised as follows:

>TABLE>

II. TRANSACTIONS IN PRODUCTS

2.001. Transactions in products provide an account of the origin and use of products. Products are goods and services created within the production boundary. The main categories of transactions in products defined by the ESA 95 are: output, intermediate consumption, final consumption expenditure, actual final consumption, gross capital formation, exports of goods and services and imports of goods and services.

2.002. As mentioned in 1.40 and 1.41, only output, intermediate consumption and gross capital formation are taken into account in the EAA. Output is recorded as a resource and intermediate consumption as a use in the production account. Gross capital formation is recorded as a use (a change in assets) in the capital account.

A. GENERAL RULES

1. Reference period

2.003. For the EAA, the reference period is the calendar year.

2. Units

(a) Quantities

2.004. Quantities should generally be shown in 1000 t, (in 10000 hl, for grape must and wine) to one decimal place. For animals, live weight is used.

(b) Prices

2.005. In the EAA, prices should be shown per tonne (per 10 hl for wine and grape must).

2.006. In the EAA, prices should be recorded either to the nearest whole number or correct to one or two decimal places, depending on the statistical reliability of the price data available.

(c) Values

2.007. Values should be shown in millions of units of national currency.

3. Time of recording

2.008. The ESA 95 (1.57) records flows (especially transactions in products and distributive transactions) on an accrual basis, in other words, at the time when an economic value, amount due or claim is created, transformed, cancelled or ceases to exist, and not at the time when payment is actually made.

(a) Output

2.009. Output should be valued and recorded at the time it is generated. It is therefore to be recorded when produced and not when paid for by the purchaser.

2.010. In the ESA 95, production is treated as a continuous process in which goods and services are converted into other goods and services. This process may take place over different periods depending on the products, and the periods may exceed an accounting period. This characterisation of production, combined with the accrual principle, therefore results in the recording of output in the form of work in progress. Thus, according to the ESA 95 (3.58), the output of agricultural products should be recorded as if it is produced continuously over the entire production period (and not simply when the crops are harvested or animals slaughtered). Growing crops and stocks of fish or animals reared for the purposes of human consumption should be treated as stocks of work in progress during the production process, and transformed into stocks of finished products when the process is completed.

2.011. Recording output as work in progress is both desirable and necessary for economic analysis when the production process occurs over a period exceeding the accounting period. This allows consistency to be maintained between the recording of costs and that of output in order to obtain meaningful data on value added. Since the EAA are based on the calendar year, the recording of work in progress can be assumed to apply only to products whose production process was not completed at the end of the calendar year (but also in cases where the general price level undergoes very rapid changes during the accounting period)(15).

2.012. However, for farm products whose production cycle is shorter than the accounting period, it would be unnecessary to record the output as work in progress. The recording of output at the finished product stage, i.e. at the harvest (for crop production), in fact allows an adequate degree of consistency between it and the production costs to be maintained. This is the situation for most agricultural output whose production cycle lasts less than a year. It is not necessary, either, to record as work-in-progress short-cycle crop production whose production process overlaps into a second calendar year (cf. 2.172.). In these cases, growing crops are not considered to be stocks of work in progress.

2.013. In practice, only products with a long production cycle are concerned by the method of recording in the form of work in progress. Such products are in particular livestock, crop products such as wine (whose ageing is an integral part of the production process) and plantations. The normal trend in prices in the European Union is in fact generally not very marked and should not be a reason for recording certain products as work in progress (although this could happen in exceptional cases, cf. 2.172).

2.014. When products with a long production cycle which have been recorded as work in progress are harvested (crop production) or slaughtered (animals), the production process is completed and the work in progress is transformed into stocks of finished products ready to be sold or used for other purposes. During the production process, the value to be recorded each year as output under work in progress can be obtained by distributing the value of the finished product in proportion to the costs incurred each period (SNA 93, 6.96).

2.015. Animals: animal production normally requires a period of time, possibly spanning several accounting periods before the process is completed. From the time of birth, it is possible and also appropriate to record an entry for each phase of production, i.e. for each age group of individual animals (the part of the production process preceding the birth, however, cannot be recorded because it cannot be isolated from the services consumed in rearing the parent animal).

2.016. The production process for draught animals is formally completed at their birth; from that time on, they are recorded as capital assets. The animals are, of course, not then ready for their intended use, but the individual variations are such that any selection of a fixed age for all cases would be highly arbitrary. The moment of birth has been selected for practical reasons, particularly since the subsequent use to which they will be put is already determined at this stage.

2.017. This is not always the case for cattle, pigs, sheep and other livestock which may be reared for breeding purposes or for slaughter. When it is possible to differentiate between young animals according to their future use, animals intended for use as factors of production should be recorded as GFCF right from their birth (own-account GFCF i.e. they are considered as work in progress and their growth is registered as output, cf. ESA 95, 3.112). Otherwise, animals are included in stocks as work in progress until they become mature and are used themselves as factors of production (e.g. as dairy cows, for breeding or other productive purposes such as wool production). They are then recorded under fixed capital. Animals which have been removed from breeding herds before being slaughtered should also be recorded as stocks and not capital assets.

2.018. Chick production is given special treatment if it spans two reference periods. Eggs hatching in incubators at the end of a period are regarded as output of chicks and recorded in the EAA under poultry output (in the form of work in progress) (cf. 2.048).

2.019. Wine: output should be recorded as work in progress since its ageing forms part of the production process and can last over several accounting periods. Similarly, fermenting grape must, which, though no longer raw must, is not yet wine, is treated at the end of an accounting period in the same way as eggs hatching in incubators and shown in the EAA as wine in the form of work in progress.

2.020. Assets cultivated in plantations: goods intended for own-account GFCF (other than livestock) such as plantations yielding repeat products should be recorded as GFCF at the time of production of the assets concerned.

(b) Intermediate consumption

2.021. Goods and services should be recorded at the time they enter the production process, i.e. when they are actually consumed and not when they are purchased or taken into storage.

2.022. The consumption of goods for a given reference period in practice corresponds to purchases or acquisitions of goods plus the initial stocks and minus the final stocks at the end of the period(16).

2.023. Services are recorded at the time of purchase. Since services cannot be stored, the time of purchase is also the time of consumption.

2.024. The following services are an exception to this rule:

- services connected with the purchase of goods, such as trade and transport services, are recorded as intermediate consumption at the time the goods in question are consumed (cf. 2.111),

- services considered to be permanent, such as insurance services. These are recorded on a pro-rata basis at the end of the reference period according to the proportion of the payment due for the year, or part-year, in question. Accordingly, the amounts recorded do not necessarily correspond to the insurance premiums paid within the period concerned.

(c) Gross fixed capital formation

2.025. GFCF is recorded at the time of transfer of ownership of the fixed assets concerned to a unit intending to use them for production purposes. Nevertheless, there are two exceptions to this principle: first, assets acquired through financial leasing are recorded as if the user became the owner when the goods became available to him for use (cf. 2.122). Secondly, own-account GFCF is recorded at the time of production of the assets concerned (except cattle, pigs, sheep and other livestock, the future use of which cannot be clearly defined since these animals are included in stocks as work in progress, cf. 2.017).

2.026. Correspondingly, in the case of the establishment of orchards and vineyards (fixed capital goods produced on own account), if not all the necessary work has been completed by the end of the accounting period, the value of the materials consumed and services rendered over the reference year is recorded as GFCF at the end of the period.

2.027. Land purchases and sales as well as associated costs are recorded at the time of transfer of ownership. However, the net acquisition of land is not included in GFCF since the land is a non-produced asset. The net acquisition of land (and other non-produced tangible assets) is recorded in the capital account (acquisitions of non-financial assets account).

(d) Changes in stocks

2.028. Changes in stocks correspond to the difference between goods entering and goods withdrawn from stocks over the reference period.

2.029. Goods entering stocks are either goods intended for consumption in the production process later (input stocks), in which case they are recorded at the time of transfer of ownership, or else they are goods from the industry itself to be put to future use, e.g. by sale or by transfer to the unit's fixed capital (output stocks), in which case they are recorded as stocks when their production is completed.

2.030. In the case of unfinished products from the industry (recorded as work in progress), the value of the materials consumed and the services rendered over a reference period is also recorded as stocks at the end of that period (except for short-cycle standing crops, cf. 2.012; as a result, part of the materials consumed and services rendered during a reference period will have been consumed without an offsetting increase in the value of the stocks).

2.031. Goods withdrawn from stocks are, in the case of input stocks, goods entering the production process or, in the case of output stocks, goods leaving the industry to be sold or to serve some other use. In the first case, the goods are deducted from the industry stocks at the time of their actual intermediate consumption in the production process; in the second case, they are deducted from the stocks at the time of their sale or other use.

B. OUTPUT

(cf. ESA 95, 3.07 to 3.58)

1. General comments on the concepts of output in the ESA 95 and EAA

2.032. In the ESA 95, the term "production" denotes the process and the term "output" denotes the resulting goods and services; it is important to bear this distinction clearly in mind. According to the ESA 95 (3.14), output covers all products manufactured during the accounting period.

2.033. According to the ESA 95, output also includes (i) goods and services supplied by one local KAU to another belonging to the same institutional unit, (ii) goods produced by one local KAU and still in the stocks at the end of the accounting period in which they were produced, whatever use they are intended for subsequently. However, goods or services produced and consumed during the same accounting period by the same local KAU are not recorded separately. They are therefore recorded neither as output nor as intermediate consumption of the unit.

2.034. The concept of output used in the EAA which is related to the concept of "total output" is based on an adaptation of the ESA 95, since some agricultural goods and services produced and consumed during the same accounting period within the same agricultural unit are recorded in the output of overall agricultural activity. The criteria for identifying these goods and services for inclusion in the agricultural industry output are set out in 2.055. The difference between the ESA 95 and the method adopted in the EAA is represented by these elements of intra-unit consumption whose value is included in both output and intermediate consumption. The value added thus remains identical, whichever method is used.

2.035. As mentioned in 1.34, this modification of the ESA rule is based on the special nature of the agricultural activity and the agricultural holding (as a local KAU). Furthermore, it makes it possible to:

- improve the economic analysis of agricultural accounts, especially the definition of technical coefficients and value added rates (the ratio between output and intermediate consumption),

- improve the comparison of technical coefficients and value added rates between subbranches of economic activity and countries. In actual fact, the output consumed within a unit is mainly limited to a few specific products (such as cereals, protein and oleaginous products, forage crops and milk for livestock feeding) and rates of intra-unit consumption vary considerably depending on the economic branch and country.

- strengthen consistency between the production, generation of income and entrepreneurial income accounts: the necessary consistency between transactions in products (output, intermediate consumption, etc.) and distributive transactions (compensation of employees, subsidies, taxes, rents, interest, etc.) has been strengthened since the reform of the common agricultural policy in 1992 in that subsidies (some of which concern products subject to intra-branch consumption) currently play an important role in the formation and development of agricultural income.

2.036. Although it is not proposed by the ESA 95, the rule adopted in the EAA is provided for by the SNA (cf. SNA 93, Annex I, 15) because of the special nature of agriculture, and by the FAO methodological manual(17). Finally, it allows the difference between the measurements of output stemming from the choice of basic unit (local KAU or unit of homogeneous production) to be reduced substantially.

2. Output of agricultural activity: quantities

2.037. In the compilation of the EAA, output is progressively broken down in quantity terms.

Schematic representation of resources and uses of agricultural products

>PIC FILE= "L_2004033EN.002601.TIF">

2.038. The starting point for this progressive calculation is either:

- gross output (1q), or

- usable output (3q),

depending on whether the reference harvest figures include field, harvest and farm losses or not.

(a) Gross output

Gross output: (1q)

2.039. This is the starting point for countries whose official harvest statistics include losses. In accordance with the industry concept, all the products of the agricultural activities of agricultural units within the industry (as mentioned in 1.62 and 1.63) need to be measured. In line with the convention adopted in 1.31 (that the output of the secondary agricultural activities of non-agricultural units is non-existent because all agricultural activities are assumed to be separable and therefore form the main activity of their own local agricultural KAU), all agricultural output needs to be recorded except that produced by units for which the agricultural activity represents solely a leisure activity (cf. 1.24).

(b) Losses

Losses: (2q)

2.040. This item refers to recurrent losses of goods in inventories (cf. 2.041). These include field, harvesting and other losses on farms (due to the perishable nature of the products, weather influences, such as frost, drought, etc.). Losses occurring during the various marketing stages, i.e. during transport from the farm, during storage with dealers and during processing or treatment in the processing industry should not be included here. In contrast, products offered for sale by producers but remaining unsold and therefore spoiled (particularly fruit and vegetables) should also be included here.

Types of losses

2.041. Following ESA 95, there are three types of losses that can be incurred by producers: recurrent losses in inventories (ESA 95, 3.117 and 3.118), exceptional losses in inventories (ESA 95, 6.25.e) and catastrophic losses (ESA 95, 6.22 and 6.23.b).

Recording of the three types of losses

2.042. For recording losses of goods in inventories, a distinction needs to be made between recurrent losses, on the one hand, and exceptional and catastrophic losses, on the other. But the recording of losses also depends on the method of calculation of output and the type of basic statistical material of each country.

2.043. When output is calculated from data on initial and final stocks, sales and possibly other uses (such as own-account produced fixed capital goods), recurrent losses are already deducted from the changes in stocks, and recording of them a further time under the item "losses" would lead to double-counting. In contrast, where the calculation of output is not based on stocks data but instead on a well-founded calculation such as actual birth figures, recurrent losses during production in the reference period concerned should be recorded, as well as losses of animals imported for rearing or fattening or born during previous periods.

2.044. Exceptional and catastrophic losses of goods in inventories have to be recorded in the accumulation accounts, namely in the "other changes in the volume of assets" account. Output therefore includes the full value of these losses.

2.045. Losses (whether recurrent, exceptional or catastrophic) of fixed assets (such as dairy cows, breeding animals, etc.) should be recorded in "other changes in the volume of assets" account. They have no impact on the value of output. It should be stressed that losses affecting plantations which are already producing have to be recorded either as "fixed capital consumption" or as "other changes in the volume of assets", depending on the type of loss.

(c) Usable output

Usable output: (3q) = (1q) minus (2q) = gross output minus losses (at the producer stage)

2.046. This is the first item to be entered by countries whose reference harvest statistics do not include losses. It constitutes the disposable production of the reference period which will be either marketed, used as a means of production, processed by the producer himself, consumed in his household, put into storage, or possibly, used as own-account produced fixed capital goods.

(d) Initial stocks

Initial stocks: (4q)

2.047. These constitute the finished or semi-finished stocks of own products existing on the agricultural holdings (i.e. held by producers) at the beginning of the reference year. Stocks at the different marketing stages and intervention stocks should therefore not be entered here (cf. 2.201 and following regarding the treatment of livestock).

2.048. The initial stocks of "poultry" should also include eggs hatching in incubators at the start of the reference period since they are regarded as semi-finished poultry products (cf. 2.018).

(e) Total available resources

Total available resources: (5q) = usable output plus initial stocks (3q plus 4q)

(f) Intra-unit consumption

Intra-unit consumption: (6q)

2.049. Under the heading of intra-unit consumption recorded are products produced within the agricultural unit (local KAU) and used by the unit as inputs into the production process within the same accounting period.

2.050. All agricultural products (except livestock; cf. 2.067 and 2.208) sold by an agricultural unit to other producing agricultural units must be recorded as sales and then as intermediate consumption. These include goods subjected to treatment and processing and their by-products (e.g. the return of skimmed milk, bran, oilcake and sugar beet pulp and tops, as well as the return of seeds after treatment).

Classification of intra-unit consumption

2.051. Intra-unit consumption can be broken down according to the use of the products concerned:

2.052. Products consumed within the industry by the same agricultural activity (i.e. the same class of activity, at NACE Rev. 1 four-digit level):

- seed (for cereals, vegetables, flowers, etc.): reused for the same crop;

- wine grapes and grape must: used in wine production;

- olives: used in olive oil production;

- milk: used in livestock feed.

2.053. Products consumed within the industry by a different agricultural activity (i.e. a different class of activity, at NACE Rev. 1 four-digit level).

These are mainly crop products used in animal feed, but also animal by-products used in the production process of another activity (slurry and manure used as fertilising elements for crop production). Crop products used in animal feed can be classed according to the degree to which they are normally marketed (which is estimated in general):

- normally marketable animal feed products: cereals (wheat, rye, barley, oats, maize, sorghum, rice and other cereal grain); protein crops; potatoes; oilseeds (rape seed, sunflower seed, soya beans and other oilseeds),

- normally unmarketable animal feed products:

- annual fodder products: root crops (sugar beet, fodder beet, swedes, fodder turnips, fodder carrots, fodder kale/curly kale and other root crops); fodder maize and other green fodder (green, dried or preserved),

- perennial fodder products: permanent and temporary fodder products derived from an economic activity (green, dried or preserved),

- fodder by-products (straw, chaff, plant leaves and ends and other fodder by-products).

Definition of intra-unit consumption to be included in the industry's output

2.054. Agricultural products undergoing intra-unit consumption are not included in the measurement of the output of the industry unless they meet certain criteria. The setting of restrictive criteria for recording intra-unit consumption meets two requirements: first, a methodological one since, after deviating from the letter of the ESA rule, there was a need to follow it in spirit (by involving two separate activities); secondly, a practical one, since the criteria to be developed were to serve as a precise and comparable framework for defining which intra-unit consumption had to be recorded, to make this method of measuring output feasible.

2.055. These criteria are as follows:

1. The two activities exercised should come under different four-digit levels of NACE Rev. 1 (Division 01: Agriculture, hunting and related service activities). The application of this criterion thus precludes, for example, the valuation of milk used for livestock feed and seed produced and used on the same holding for crop production (during the same accounting period);

2. The agricultural product should have a significant economic value for a significant number of farmers.

3. Data on prices and quantities must be available without too much difficulty. This criterion is difficult to meet for some unmarketable products.

2.056. In line with the definition of the selection criteria for including intra-unit consumption products in the measurement of output (cf. 2.055), only crop products used in animal feed (marketable or not) are to be recorded in the agricultural output of the industry.

2.057. When these products are recorded in the industry's output, they must also be recorded as intermediate consumption, thereby respecting the principle that total quantities produced and then used for a different production activity during the reference year are taken into account (cf. 2.055). When the change from output to intermediate consumption takes longer than the reference year in question, then the corresponding quantities of output should be recorded as "final stocks" of the product concerned during the reference year.

2.058. Animal by-products are excluded from intra-unit consumption because of the practical difficulties of unavailability of data on quantities and especially prices.

(g) Processing by producers

Processing by producers: (7q)

2.059. Under the heading of processing by producers recorded are quantities produced for further processing by agricultural producers (e.g. milk processed to make butter or cheese, apples processed to make apple must or cider) but only in the framework of processing activities which are separable from the main agricultural activity (on the basis of accounting documents, cf. 1.26). Only the raw products (e.g. raw milk, apples) should be recorded and not the processed products manufactured from them (e.g. butter, apple must and cider). In other words, the work incorporated in the processing of agricultural products is not taken into consideration under this heading. Products resulting from processing by the producer will naturally be indicated in the output of the "agriculture" subsector in the national accounts (cf. 1.04 and 1.05).

2.060. Where these processing activities are inseparable non-agricultural activities, the product of these processing activities is recorded in the value of the output of the agricultural industry (cf. 1.25). Basic agricultural products used as intermediate consumption by these processing activities are not recorded as either output or intermediate consumption. This rule stems from the fact that the two activities (the production of agricultural products and the processing of such products) cannot be distinguished on the basis of accounting documents. Accordingly, the costs of these two types of activity are entered together and their output is assessed as the output of processed products.

(h) Own final consumption

Own final consumption: (8q)

2.061. This includes:

(i) products consumed by the farmers' households which produced them;

(ii) products stemming from the agricultural unit (holding) and used for payment in kind in the form of remuneration paid to holding workers or exchanged for other goods.

2.062. Agricultural products processed by the agricultural unit in a separable way (i.e. giving rise to the formation of a local non-agricultural KAU) and consumed by farmers' households are recorded in the output of the "Manufacture of food products, beverages and tobacco" industries (subsection DA of NACE Rev. 1), as own final consumption. By contrast, agricultural household consumption of agricultural products processed in an inseparable way (i.e. the output of inseparable non-agricultural processing activities), is recorded as own final consumption of these activities (cf. 2.080) and included in the output of the agricultural industry.

2.063. The imputed rental value of the owner-occupied housing unit is not recorded here but in the branch "letting of own property" (Class 70.20 of NACE Rev. 1). Letting of accommodation is a non-agricultural activity which is always considered to be separable from agricultural activity.

(i) Sales

Sales: (9q)

2.064. This heading covers sales of agricultural products made by agricultural units to other units (agricultural or those of other branches), including sales to storage and intervention centres, with the exception of disposals of fixed assets. It is broken down into domestic sales outside the industry, domestic sales to other agricultural units and sales abroad.

2.065. Consequently, for a given unit, sales correspond to the turnover obtained from the marketing of its output. It should be noted that sales of animals classed as fixed assets, which are taken out of the productive herd (exports or slaughterings) are not recorded. Animals classed as fixed assets and taken out of the productive herd are transferred into stocks before their sale, but the sales of these animals (slaughterings or exports) appear in the accounts as destocking, seen only in the capital account. The corresponding output had already been imputed as a part of own-account produced fixed capital goods(18) then recorded in the production account.

2.066. Livestock considered to be stocks: the disposal of livestock considered to be stocks to another holding constitutes a sale in accordance with the definition given in 2.064. This sale may be offset by a removal from stocks if the livestock is recorded as stocks at the start of the reference period (otherwise, only sales are recorded).

2.067. The acquisition of livestock is a stock entry if the products are not resold during the reference period. Acquired livestock, however, cannot be treated as intermediate consumption because, by definition, intermediate consumption goods are destined to disappear (or at least undergo substantial transformation) during the production process. These animals are regarded as work in progress since the livestock production process is not fully terminated (the production process finishes at the time of slaughter). Acquisitions are therefore recorded as stock entries of work (products) in progress and thus recorded as "negative" sales and not as intermediate consumption. In the case of trading between resident holdings, sales and the corresponding purchases offset each other (except for the costs of transferring ownership)(19). In view of this special treatment of trade in live animals between agricultural units, there is no intermediate consumption under "livestock and animal products"(20).

2.068. Livestock classed as fixed assets: trade in fixed-asset livestock between agricultural units is not recorded in sales as defined above but as trade in assets (recorded in the capital account as GFCF of agriculture). In the case of trading between resident holdings, sales and corresponding purchases offset each other (except for the transfer costs).

2.069. Recording of imports of live animals (not intended for immediate slaughter): as in the case of trade between resident holdings, livestock treated as stocks (other than animals for immediate slaughter) and imported during the reference period by agricultural units are recorded as stock entries of work in progress and are therefore deducted from sales. On the other hand, livestock classed as fixed assets (such as breeding animals) and imported as such, should not be deducted from sales.

2.070. Nevertheless, as it is often difficult, in practice, to make relevant distinctions between the different categories of animals on the basis of available sources of EU data (between animals classed as fixed assets and those classed as stocks), all imports are considered to be of animals intended for building up stocks and the value of all imported animals (except those intended for immediate slaughter) is deducted from the value of sales. This method of recording guarantees treatment of external trade in live animals similar to that adopted for calculating gross indigenous production in animal production statistics.

(j) Own-account produced fixed capital goods

Own-account produced fixed capital goods: (10q)

2.071. These only include:

- work done by agricultural units (e.g. use of labour, machines and other means of production, including planting stock) for the own-account establishment of plantations such as orchards, vineyards, soft fruit plantations and hop-fields. In general, own-account work on planting orchards and vineyards, etc., is made up of a large number of individual work operations which cannot be added up into specific quantities,

- animals produced in agricultural units and transferred to their fixed capital (cf. 2.161). These are animals reared for the output which they supply on a regular basis (mainly breeding livestock, dairy livestock, draught animals, sheep and other animals reared for their wool; cf. 2.202).

(k) Final stocks

Final stocks: (11q)

2.072. These are stocks of finished products or work in progress on the holdings of the industry (i.e. held by producers) at the end of the reference year. Stocks at different marketing stages (especially reserves held by dealers and processing firms) as well as intervention stocks should not be listed here.

2.073. Products which are only temporarily stocked and are consumed in a later period within the industry (e.g. cereals for feed, seed and planting stock, etc) should also be entered here since the final use of the product is not known at the time of their entry in stocks.

(l) Total uses

Total uses: (12q) (not including intra-unit consumption) = (7q) + (8q) + (9q) + (10q) + (11q) = processing by producers plus own final consumption plus sales plus own-account produced fixed capital goods plus final stocks.

2.074. This entry is the sum of columns 7q to 11q.

(m) Change in stocks

Change in stocks: (12q) = (11q) minus (4q) = additions to stocks (A) minus withdrawals from stocks (W)

2.075. The change in stocks in the industry (excluding stocks at the various marketing stages) during the reference year is measured by calculating the difference between stock entries and withdrawals, or the difference between final and initial stocks. In the latter case other changes in volume and holding gains (net of losses) are to be deducted in the calculation of values (cf. 2.179 and following).

(n) Output of agricultural activities

Output of agricultural activities = (6q, animal feedingstuffs) + (7q) + (8q) + (9q) + (10q) + (12q)

2.076. In accordance with the concept of output and the rules for recording intra-unit consumption (cf. 2.049 and following), processing of agricultural products (cf. 2.059 and 2.060), and own final consumption (cf. 2.061, 2.062, 2.063), the output of agricultural activities can be depicted as follows:

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2.077. Compared with the former "final output" concept on which the EAA used to be based, the new concept for measuring the output of agricultural activity includes trade in agricultural goods and services between agricultural units as well as intra-unit consumption of livestock feed products (marketable or not).

3. Output of inseperable non-agricultural secondary activities

2.078. A distinction is made between two types of "inseparable non-agricultural secondary activities" (cf. 1.29):

- "processing of agricultural products": this group covers activities which are an extension of agricultural activity and in which agricultural products are employed. The processing of agricultural products is the typical activity of this first group,

- "other inseparable non-agricultural secondary activities": this group covers activities which use the agricultural holding and its means of agricultural production. It is less uniform than the first group.

2.079. In general, these activities include a variety of products (goods and services) whose quantities cannot be added together.

2.080. The product of these activities is either intended for sale, barter, payment in kind, own final consumption (cf. 2.062) or kept in stocks.

4. Output of the agricultural industry

2.081. In accordance with the definition of the output of the agricultural industry (cf. 1.16), the output of the agricultural industry is made up of the sum of the output of agricultural products (cf. 2.076 to 2.077) and of the goods and services produced in inseparable non-agricultural secondary activities (cf. 2.078 to 2.080).

5. Valuation of output

2.082. Output is to be valued at the basic price. The basic price is the price receivable by the producers from the purchaser for a unit of a good or service produced as output minus any tax payable on that unit as a consequence of its production or sale (i.e. taxes on products) plus any subsidy receivable on that unit as a consequence of its production or sale (i.e. subsidies on products). The basic price excludes any transport charges invoiced separately by the producer. However, it includes any transport margins charged by the producer on the same invoice, even if they are included as a separate item on the invoice (cf. ESA 95, 3.48).

2.083. Components of output such as sales, payments in kind, additions to stocks and intra-unit consumed products should be valued at the basic price. Similarly, output for own final use (i.e. own-account fixed capital goods and own final consumption) should be valued at the basic price of similar products sold on the market. Work in progress and additions to it are valued proportionally to the current basic price of the finished product. If the latter has to be assessed in advance, the calculation should be based on the actual costs incurred plus an amount corresponding to the anticipated operating surplus or mixed income.

2.084. When establishing the EAA according to the "net" recording system (cf. 3.033 and 3.035 to 3.043), the VAT invoiced by the producer is not included when establishing the basic price.

2.085. The price obtained by the producer corresponds to the producer price (not including invoiced VAT) as defined in the SNA 93 (i.e. the ex-farm price). The basic price can be obtained from the producer price by adding subsidies less taxes (other than VAT) on products. When problems of allocating a tax or subsidy on products to a specific product make it difficult to calculate the basic price, output can be calculated direct at the basic price. In this case it is obtained direct from the value of the producer price (exclusive of invoiced VAT), minus the value of taxes on products (other than VAT) and plus the value of subsidies on products.

2.086. The valuation of output at the basic price makes it necessary to distinguish between taxes (other than VAT) on products an