WRITTEN QUESTION P-1758/98

by Sirkka-Liisa Anttila (ELDR) to the Commission

(27 May 1998)

Subject: The basis for the Commission's calculations for use in analysing trends in farm incomes and costs in the Member States, e.g. Finland

The Commission monitors trends in agriculture by making assessments per country, per production sector, etc. Negotiations have been conducted and letters exchanged with the Commission concerning the special needs of Finnish agriculture. Recently, on 23 April, a reply was received from the Commission concerning trends in farm incomes and reductions in farm costs in Finland. According to the letter, farm incomes in Finland had risen by 5 % in 1995 and 5,4 % in 1996, while farm production costs had fallen by 17 %, were continuing to fall by between 3 % and 4 % per annum and were expected to fall again in 1997.

In reality, according to research by both Helsinki University Economics Department and the Agricultural Economics Research Institute, farm incomes fell by 6,1 % in 1995 and 8,4 % in 1996 and are continuing to fall. Nor did reductions in costs keep pace with the Commission's calculations. The same study by Helsinki University considered that implementation of Agenda 2000 would represent a serious threat to the future of the whole of agriculture in Finland.

What is the reason for the major disparities between the analyses by the Commission and by the Finnish authorities concerning farm incomes and costs in Finland? The Commission's assessments of trends in Member States' agriculture absolutely must be accurate, as they are used as a basis both for the Commission's calculations of the impact in the various Member States of reductions in producer prices under Agenda 2000 and for estimating the need for direct support to compensate farmers for loss of income. I am particularly concerned about the bases for the Commission's calculations which yield inaccurate information about Finland. The information in question is vital to the whole sector.

How will the Commission ensure that analyses of trends in incomes and farm costs in the Member States are reliable, accurate and comparable?

Answer given by Mr Fischler on behalf the Commission

(22 June 1998)

The Commission fully agrees with the view of the Honourable Member that trends in the agricultural economy of Member States have to be assessed accurately. The basic instruments used by the Commission to monitor the performance of agricultural income are the economic accounts for agriculture (EAA).

The EAA compiled by the Commission are an exhaustive source of information on the agricultural income. In particular, they provide detailed information on production (final output), intermediate consumption, subsidies and taxes, depreciation, compensation of employees, rent and interest payments in agriculture. They represent the most reliable and comparable source of information to date at the sectoral level.

The Commission has published EAA since 1964. Since 1969 these statistics have been based on the European system of integrated economic accounts (ESA)(1) as the basis for calculations covering the period from 1963 onwards. Concepts, ideas and rules of accounting, laid down in the ESA, represent only a general framework applicable to the economy as a whole. They therefore cannot make provision for all aspects specific to each of the individual "industries" and had to be amplified to cover the particular requirements of agriculture and forestry.

This was done initially in 1969 in two working documents produced by the committee on agricultural statistics working party on economic accounts for agriculture. These were regularly expanded in the course of the next few years. The work subsequently carried out by the working party on economic accounts for agriculture has made it possible to develop a common methodology for all the Member States. This aims to provide a coherent, practical and comprehensible tool for the compilation and use of the EAA. It was first published in 1989. The revision of the system of national accounts in 1995 and the need to adapt to economic and structural developments in the agriculture and forestry sectors have led to an in-depth revision of the basic methodology used for the EAA/economic account for forestry (EAF). The EAA working party adopted the manual on economic accounts for agriculture and forestry (rev. 1) in July 1997. The revised EAA methodology will be applied from 1999 onwards.

A couple of measures for agricultural income can be derived on the basis EAA. These measures concern in particular the net value added at factor cost (NVAfc) which is derived from final output minus intermediate consumption plus subsidies minus taxes minus depreciation. Deducting rents and interest payments from the NVAfc one arrives at a measure which is the "Net income from agricultural activity of total labour input". The further deduction of the compensation of employees leads to the "Net income from agricultural activity of family labour input".

The correspondents in the Member States are, above all, national statistical offices. In the case of Finland the official correspondent for the transmission of EAA and agriculture income index (AII) data is Statistics Finland. The figures published by the Commission reflect exactly these figures. The only figures which do not come (directly) from the Member States in the Commission's calculations are gross domestic product deflators and exchange rates. However they are calculated applying a standardised methodology.

Diverging results between calculations of the Commission and some Finnish research institutes on economical indicators have their source in differences of the applied methodology of data compilation and data selection. As far as is known to the Commission the Finnish institutes, quoted by the Honourable Member, apply a methodology which is not in congruence with the methodology the Member States agreed in the committee on agricultural statistics.

(1) Statistical Office of the European Communities, European System of Integrated Economic Accounts - ESA, 2nd edition, Luxembourg 1979.