Special Report No 14/2003 on the measurement of farm incomes by the Commission Article 33(1)(b) of the EC Treaty, together with the Commission's replies
Date: 2003-12-04
Institutions: European Court of Auditors
Subjects: EU Member State, common agricultural policy, farm income, report

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I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 14/2003

on the measurement of farm incomes by the Commission Article 33(1)(b) of the EC Treaty,
together with the Commission’s replies

(pursuant to Article 248(4), second subparagraph, of the EC Treaty)

(2004/C 45/01)

CONTENTS

Paragraphs

Page

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE COURT’S AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Audit approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Implementation of the audit and audit criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

STATISTICAL TOOLS FOR THE ASSESSMENT OF INCOMES . . . . . . . . . . . . . . . . . . . . . . . . . .

The Farm Accountancy Data Network (FADN) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legal basis and concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Economic Accounts for Agriculture (EAA)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legal basis and concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Income of the Agricultural Households Sector (IAHS) . . . . . . . . . . . . . . . . . . . . . . . . .

Legal basis and concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The cost of the FADN, the EAA and the IAHS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE PERTINENCE OF THE STATISTICAL TOOLS USED BY THE COMMISSION . . . . . . . . . . .

Field to be covered by the statistics on agricultural income . . . . . . . . . . . . . . . . . . . . . . . .

Changes in the socioeconomic context of the CAP . . . . . . . . . . . . . . . . . . . . . . . . . . .

Proposed interpretation of the concepts contained in Article 33 of the EC Treaty . . .

Impact of the interpretation of Article 33 on the Commission’s statistical tools . . . .

I-VII

1-2

3-6

3-4

5-6

7-50

8-27

8-10

11-27

28-36

28-33

34-36

37-48

37-41

42-48

49-50

51-77

53-66

53-63

64-65

66

3

4

4

4

4

5

5

5

5

8

8

9

9

9

10

12

14

14

14

16

16

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Paragraphs

Page

Evaluation of the pertinence of the Community’s statistical tools . . . . . . . . . . . . . . . . . . .

The Farm Accountancy Data Network (FADN) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Economic Accounts for Agriculture (EAA)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Income of the Agricultural Households Sector (IAHS) . . . . . . . . . . . . . . . . . . . . .

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

67-77

68-72

73-75

76-77

78-79

80-83

ANNEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Commission’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16

16

18

18

18

18

20

22

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SUMMARY

I.
Pursuant to Article 33(1) of the EC Treaty, one of the five objectives assigned to the common agricultural
policy (CAP) is to ensure a fair standard of living for the agricultural community, in particular by raising the
individual earnings of persons engaged in agriculture. This has proved to be a real leitmotif running through
the whole CAP.

The Commission uses three instruments to measure earnings in the agricultural sector: the Farm
II.
Accountancy Data Network (FADN), the Economic Accounts for Agriculture (EAA) and the statistics on the
Income of the Agricultural Household Sector (IAHS). The main conclusions concerning these instruments are
as follows:

(a)

the FADN measures the income of farm holdings on the basis of harmonised accounts. However, sub-
stantial differences can be observed in the Member States concerning the determination of the field of
survey, the selection of holdings and verification of the representativity of the sample. These differences
affect the quality and comparability of the FADN results;

(b)

as the EAA are not based on harmonised sources of information, the quality of the data provided by the
Member States is very variable. An end-user of the EAA has no indicator which would make an assess-
ment of the statistical accuracy of the data possible;

(c)

the data drawn up in the framework of the IAHS also lack homogeneity; the latitude allowed the Member
States concerning methodology is problematic as the differing approaches produce divergent results. In
addition, the project has not been completed and the majority of the existing data are now obsolete.

III.
The European Community has never defined the concepts of ‘agricultural community’, a ‘fair standard
of living’ or ‘income’ as they appear in Article 33 of the EC Treaty. There are therefore still no clear concepts
or criteria which can be applied to the statistics intended to measure these variables.

IV.
The Court found that the type of information required on the financial situation of farmers has
changed over the years. Whereas, under the 1992 Mac Sharry reform, it was only a matter of compensating
for income losses by direct payments, since then the Commission has also been interested in non-agricultural
sources of income and in the distribution of income within the agricultural sector. Examination of these two
questions requires information on the overall income of agricultural households.

V.
The Court attempted to clarify the various concepts under Article 33 EC with the help of an expert.
Examination revealed that, in the absence of other data, it is the overall disposable income of all the members
of the household which may serve as an approximate indication of the standard of living. In addition, an
agricultural household’s standard of living can no longer be considered fair when the overall disposable income
of all its members falls below a certain threshold as compared with the households of other types of entre-
preneur.

VI.
The Court studied the Commission’s three tools for agricultural statistics from the point of view of
their ‘pertinence’ in view of CAP requirements. The aim of all these instruments is to measure income in the
agricultural sector. However, it must be noted that the FADN only gives the profit of holdings run on a full-
time basis without taking non-agricultural income or the income of other members of the household into
account. As for the EAA, their main finding is the amount by which income exceeds costs for all agricultural
products. These two instruments do not provide direct information on the standard of living of agricultural
households. The IAHS project was designed to do this but has never produced reliable and comparable results.

VII.
To conclude, at the present time the Community’s statistical instruments do not provide sufficient
information on the disposable income of agricultural households to allow an evaluation of the agricultural
sector’s standard of living. The Commission should therefore produce a new precise definition of Community
requirements in this field and restructure the existing statistical instruments accordingly.

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INTRODUCTION

THE COURT’S AUDIT

According to Article 33(1)(b) of the EC Treaty, one of the
1.
objectives of the common agricultural policy (CAP) is to guaran-
tee ‘the agricultural community a fair standard of living, in par-
ticular by increasing the individual earnings of people engaged in
agriculture’ (1). Although this is only one of the five objectives of
agricultural policy expressly stated in the EC Treaty, the income
of the agricultural community runs like a leitmotif through the
CAP. This stands out, in particular, in the preamble of the Mac
Sharry reform, Agenda 2000 and the mid-term review (2).

2.
This is why the Court of Auditors devoted an audit to the
methods used by the Member States for gathering data relating to
agricultural incomes and the processing of these data by the
Commission. The Court did not itself collect any data on incomes.
Rather, it concentrated on verifying the procedures and evaluat-
ing the instruments used by the Commission to measure and esti-
mate the earnings of the farming community.

(1) The wording of Article 33 of the EC Treaty is as follows:

‘1. The objectives of the common agricultural policy shall be:

(a)

(b)

to increase agricultural productivity by promoting techni-
cal progress and by ensuring the rational development of
agricultural production and the optimum utilisation of the
factors of production, in particular labour;
thus to ensure a fair standard of living for the agricultural
community, in particular by increasing the individual earn-
ings of persons engaged in agriculture;
to stabilise markets;
(c)
to assure the availability of supplies;
(d)
(e)
to ensure that supplies reach consumers at reasonable prices.
In working out the common agricultural policy and the special
methods for its application, account shall be taken of:
(a)

the particular nature of agricultural activity, which results
from the social structure of agriculture and from structural
and natural disparities between the various agricultural
regions;
the need to effect the appropriate adjustments by degrees;
the fact that in the Member States agriculture constitutes a
sector closely linked with the economy as a whole.’

(b)
(c)

2.

(2) Communication from the Commission to the Council and Parlia-
ment, Perspectives for the common agricultural policy, Luxembourg,
15 July 1985, COM(85) 333 final, p. 20 f; Commission of the Euro-
pean Communities, Proposals for Council Regulations (EC) concern-
ing the reform of
the common agricultural policy, Brussels,
18 March 1998, COM(1998) 158 final, p. 5 (paragraph 2.1); Commis-
sion of the European Communities, Communication from the Com-
mission to the Council and the European Parliament, mid-term review
of the common agricultural policy, Brussels, 10 July 2002, COM(2002)
394, pp.1, 7 ff. (explanatory memorandum).

Audit approach

3.
The standard of living of the agricultural community plays
a major role in the discussions of the reform of the CAP. In order
to be able to determine the consequences of a number of CAP
reform measures on agricultural incomes, it is necessary to have
reliable information on the composition of, and changes in, these
incomes.

4.
With regard to agricultural incomes, the Commission uses
three statistical instruments: the Farming Accountancy Data Net-
work (FADN), the Economic Accounts for Agriculture (EAA) and
data from a special project devoted to the Incomes of the Agri-
cultural Household Sector (IAHS). As the Member States form the
basis of the statistical system and the Commission has a concep-
tual, coordinating and supervisory role in this system, the audit
concentrated on the following points:

— the collection by the Member States of data for the three

instruments mentioned above and,

— the pertinence of these instruments, i.e. their appropriate-
ness to the needs arising in the context of management and
development by the Commission of the CAP.

Implementation of the audit and audit criteria

5.
The audit was carried out in six Member States (Germany,
Greece, France, the Netherlands, Austria, Sweden) and at the
Commission; the most recent available data examined concerned
the financial years 1999 and 2000.

6.
As the information concerning incomes constitutes statis-
tical data, the quality requirements for statistical data developed
by the European statistical system (Eurostat and the statistical
offices of the community Member States) were used as audit cri-
teria. ISO standard 8402 — 1986 defines quality as ‘the totality
of characteristics of an entity that bear on its ability to satisfy
stated and implied needs’ (3). On this basis, the European statisti-
cal system has worked out a concept of quality applicable to sta-
tistics which takes the following aspects into account (4):

(a)

completeness (complete coverage of the field);

(b)

exactness (close estimate to the real (but unknown) value);

(3) Eurostat, Assessment of the Quality in Statistics, Luxembourg, 4 to

5 April 2000, p. 2.

(4) Eurostat, Assessment of the Quality in Statistics, Luxembourg, 4 to

5 April 2000, p. 2.

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(c)

consistency (use of uniform definitions, classifications and
methods);

(d)

comparability over time among the Member States and the
various years;

Commission within the established time (3). The representatives
of the liaison agencies and the Commission meet at the Commu-
nity FADN Committee approximately three times per year. This
committee is consulted for the verification of the selection of the
holdings, the critical analysis and evaluation of the annual FADN
results and any other questions that are submitted to it (4).

(e) accessibility and clarity of information (for example user-friendly

presentation, help for users);

(f)

production in good time and punctuality (publication of the
results at the appropriate time and within predetermined
deadlines);

(g)

relevance (usefulness of information for users);

(h)

economy (relationship between costs and benefits of produc-
ing data). This criterion was added by the Court because it
must always be asked whether the usefulness of a particular
set of statistics justifies their actual cost.

STATISTICAL TOOLS FOR THE ASSESSMENT OF INCOMES

7.
This chapter gives the main characteristics of the statistical
instruments used by the Commission and the findings of the
audits carried out in the six Member States visited.

The Farm Accountancy Data Network (FADN)

10.
The indicators calculated in the context of the FADN,
based on the financial statements of the farms, concern gross and
net value added and family farm income. Figure 1 explains how
these three indicators are calculated.

Figure 1
Calculation of income indicators in the framework of the FADN

Final stock agricultural products
+ Sales

+ Correction livestock inventory values
+ Farmhouse consumption
+ Farm use
– Starter stock agricultural products
– Purchases of livestock
= Output (crop output plus livestock output)
+ Farm subsidies
– Intermediate consumption (5)
– Balance of VAT and farm taxes
= Farm gross value added (Gross farm income)

– Depreciation

= Farm net value added

+ Subsidies on investments

– Wages (6), rents and interest paid

= Family farm income

Legal basis and concept

Source: Farm Incomes, Wealth and Agricultural Policy, Berkeley Hill, Ashgate Publishing

Ltd, Hants 2000, third edition, p. 160.

Council Regulation No 79/65/EEC of 15 June 1965 (1)
8.
constitutes the legal basis of the Farm Accountancy Data Network
(FADN). The purpose of the FADN is to collect accounting data
to permit ‘an annual determination of incomes on agricultural
holdings’ and ‘a business analysis of agricultural holdings’ (2). This
information comes from a sample of approximately 60 000 farms,
representing more than 90 % of agricultural production in the
European Community.

9.
The FADN is managed by the Commission. However, it
does not collect the data directly, but relies on the Member States,
which are represented within the Community FADN Committee
by their liaison agencies. These liaison agencies are essentially
responsible for the selection of the farms, the accuracy of the
these data to the
recorded data and the transmission of

(1) OJ 109, 23.6.1965, pp. 1859-1865.
(2) Article 1(2) of Regulation No 79/65/EEC.

(6)

Observations

Population coverage

11.
Pursuant to Article 4(1) and (2) of Regulation No 79/65/
EEC, the FADN field of survey covers agricultural holdings in
excess of a given minimum size. A different minimum size is
defined for each Member State in such a way that each field of

(3) Article 6(1) of Regulation No 79/65/EEC.
(4) Article 20 of Regulation No 79/65/EEC.
(5)

Intermediate consumption consists of the costs of certain supplies
(including inputs produced on the holding) and miscellaneous costs
associated with production during the accounting year. Examples:
seed, manure, cattle feed, etc.
Including wages paid to members of the family under a contract of
employment.

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survey covers at least 90 % of the standard gross margin (SGM) (1)
of the farms of the Member State (2). This method makes it pos-
sible to ensure that the FADN includes only the data for agricul-
tural holdings managed on a professional basis.

up in the sample (France). In another Member State, a national
selection committee examines the representativeness of each indi-
vidual holding (Germany). In a third Member State, an official
selects the holdings to be included in the sample at his own dis-
cretion (Greece).

12.
The audit nevertheless showed that the FADN field of sur-
vey is not defined in a uniform manner in all Member States; the
following features, which are liable to affect the comparability of
the results, were found:

(a)

the economic size threshold of the holdings was set so high
in one Member State, that, for 1995 and 1997, the field of
survey covered less than 90 % of the SGM (Austria);

(b)

farms in the form of corporations are proportionally under-
represented (Netherlands);

15.
Moreover, the period that the holdings remain in the
sample varies significantly considerably from one Member State
to another. An analysis of the Commission’s data showed that the
proportion of holdings that were selected in 1995 and still included
in the 1999 sample ranged between 28 % and 88 %. This means
that, in one case, only about 4 % of the holdings were replaced
each year, while in the other, almost 24 % of the sample was
renewed. These figures reflect two different concerns: whereas the
‘conservative’ approach to the sample stresses the long-term devel-
opment of the holdings contained in the sample, its rapid renewal
aims at preserving its representativeness by monitoring the devel-
opment of agricultural structures as closely as possible.

(c)

the overseas regions of one Member State are excluded
(France) (3).

Representativeness of the sample

Selection of the holdings to be included in the sample

13.
In order to optimise the quality of the results obtained,
the individual components of the sample must be selected at ran-
dom (4). Nevertheless, in practice, two conditions stand in the
way of genuine random sampling, the availability of suitable
accounts documents and the fact that farmer participation in the
FADN is voluntary (they cannot be forced to provide data). Dis-
regarding these two factors, selection must be carried out as rigor-
ously as possible in accordance with the principle of random
sampling — the sample must be drawn at random from the sub-
set of farms within the field of survey which fulfil the two condi-
tions mentioned (5). As far as methodology is concerned, this is
an essential condition for a valid extrapolation of the results of
the sample.

14.
The checks carried out in the Member States showed that
the principle of the random selection of the holdings was not
always complied with. In one of the Member States, the popula-
tion of the holdings is divided up among several subsets, whose
components do not all have the same probability of being taken

(1) The standard gross margin is the balance between the standard value
of production and the standard value of certain specific costs (Article 3
of Commission Decision 85/377/EEC of 7 June 1985 establishing a
Community typology for agricultural holdings (OJ L 220, 17.8.1985,
p. 1)).

(2) European Commission, Community Committee for the Farm Accoun-
tancy Data Network (FADN), Revision of thresholds in FADN selection
plans (RI/CC 1321), Brussels, 1 December 2000, p. 2.

(3) The CAP is applicable without restrictions in the French overseas
departments. For essentially budgetary reasons, the French authori-
ties do not, however, ask for the inclusion of these departments in the
list of FADN areas annexed to the basic FADN Regulation.

(4) Manfred G. Korter, Stichprobenverfahren für Revisoren und Controller,

16.
Pursuant to Article 4(2)(c) of Regulation No 79/65/EEC,
the selected agricultural holdings must be representative of the
FADN field of survey. The holdings are therefore divided up into
cells, by type of farming, size and region in accordance with the
Community typology. A sample is taken from these cells. From a
technical point of view, the selection plan and the implementa-
tion report are the tools used for controlling the representative-
ness of the sample (6). Whereas the selection plan determines the
number of holdings to be represented in the sample for each indi-
vidual cell, the implementation report states the number of agri-
cultural holdings actually selected.

An examination of the selection plans and implementa-

17.
tion reports led to the following observations:

(a)

(b)

in one Member State, the sampling rate is the only criterion
applied to determine sample size; there are no statistical data
on the stratification of the holdings according to the Com-
munity typology (Greece). It is therefore not possible to
evaluate the representativeness of the sample in the various
regions;

in the same Member State, the selection plan was incomplete
and had not been updated between 1983 and 1997, i.e. over
a period of more than 14 years (Greece). Furthermore, this
Member State did not draw up an implementation report for
certain years and supplied incomplete reports for other years.
The selection plan of another Member State did not follow
the Community typology concerning economic size and
farming type (Netherlands);

5.2.6. Ottokar Schreiber Verlag, 1st edition, Hamburg, 1997.
(5) http://europa.eu.int/comm/agriculture/rica/methodology2_en.cfm.

(6) Article 6(1)(b) of Regulation No 79/65/EEC.

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(c)

(d)

(e)

there are sometimes considerable differences between the
selection plan and the implementation report (Netherlands).
These differences show that the selection initially envisaged
was not properly implemented, or that the implementation
reports do not accurately reflect reality;

the Commission does not systematically make use of the
selection and implementation reports. It does not regularly
examine the representativity of the samples and there is no
systematic reconciliation between the selection and imple-
mentation reports. According to the Commission, this com-
parison will be carried out automatically for the data con-
cerning the financial year 2001, which will be available to the
Commission at the end of 2003;

the Commission has never clarified the concept of the rep-
resentativity of the sample. The Member States rely on dif-
ferent indicators to assess representativity. The application of
the indicator mentioned in Annex II to Regulation (EEC)
No 1859/82 (1) (the relationship between the number of
holdings in the sample and the number of holdings in the
corresponding population cell) led to substantial differences
in several Member States. The Commission took no steps to
harmonise the approach.

Deadline for the transmission of farm returns

18.
The liaison agencies forward the farm returns to the
Commission no later than nine months after the end of the
accounting year to which they relate (2). A standard fee is paid by
the Commission for each duly completed farm return that is for-
warded to it within the period prescribed (132 euro in 2001 (3)).

In practice, there are considerable delays in the forward-
19.
ing of data. In 1997, an average delay of 133 days was noted; this
was 238 days in 1998 and 139 days in 1999. In one of the coun-
tries visited, the data was regularly transmitted with a delay of
approximately a year (Greece). It was therefore only possible to
publish the results of the FADN for the financial year 1997-1998
in 2001, in the 1999 report on the situation of agriculture in the
European Union, i.e. with a delay of approximately two years. The
Commission has not penalised these delays by reducing the stan-
dard fee paid to the Member States concerned.

20.
In July 2002, the Commission decided, in agreement with
the Community Committee of the FADN, to have the period for
the transmission of the data extended exceptionally from nine to

(1) Commission Regulation (EEC) No 1859/82 of 12 July 1982 concern-
ing the selection of returning holdings for the purpose of determin-
ing incomes of agricultural holdings (OJ L 205, 13.7.1982, p. 5).
(2) Article 3 paragraph 1 of Commission Regulation No 1915/83/EEC.
(3) Commission Regulation (EC) No 368/2001 of 23 February 2001 fix-
ing the standard fee per farm return for the 2001 accounting year of
the Farm Accountancy Data Network (OJ L 55, 24.2.2001, p. 40).

22 months for 2000 and 2001 (4). The Commission justified this
measure with the fact that foot-and-mouth disease and BSE had
affected compliance with deadlines for forwarding the data. How-
ever, this extension might have led to Member States transmitting
the data for 2002 before those for 2001, which would have caused
administrative problems. The transmission period for the data
concerning the 2002 accounting year was therefore extended, in
turn, from nine to 15 months (5). For the data concerning the
2003 accounting year the maximum period of nine months will
apply once more.

Verification of the data contained in the farm returns

21.
The liaison agencies are required to collect the farm returns
sent in by the accountancy offices and verify that they have been
duly completed (6). A farm return is duly completed where its
contents are factually accurate and the accountancy data given
comply with the relevant Community provisions (7).

22.
Until 2001 (data concerning the 1999 accounting year),
the Commission itself checked the consistency of the data for-
warded by the Member States. Amongst other things, the Com-
mission’s software checked whether the data contained in the
farm returns were consistent and whether certain maximum and
minimum thresholds had been complied with. The Commission
reported any errors to the liaison agencies. It was the responsibil-
ity of these agencies to analyse the errors found, rectify them and
forward the corrected data to the Commission. As the Commis-
sion only pays for farm returns which are completely free of
errors, it was in the liaison agencies’ interest to carry out the nec-
essary corrections and send the corrected farm returns to the
Commission. Under the new system for collecting and checking
the data (FADN-1), the Member States carry out checks them-
selves with the help of programmes provided by the Commission.
The liaison agencies are thus in a position to process the error
reports directly.

23.
The aim of the audit carried out in the Member States
visited was to examine a sample of the errors reported by the
Commission in order to establish the cause of the errors and
ascertain that they had been corrected. As none of the Member
States visited kept records of the reasons for the corrections made,
it was not always possible to achieve this objective. In one Mem-
ber State, where the national sample is much larger than required
by the Community provisions, farm returns with errors are sim-
ply replaced with correct returns, but the errors are not rectified
(Germany). Not all the Member States visited made use of the
opportunities for cross-checking against other databases, for

(4) Commission Regulation (EC) No 1251/2002 of 11 July 2002 (OJ L 183,

12.7.2002, p. 9).

(5) Commission Regulation (EC) No 1409/2003 of 7 August 2003 dero-
gating from Regulation (EEC) No 1915/83 on certain detailed imple-
menting rules concerning the keeping of accounts for the purpose of
determining the incomes of agricultural holdings (OJ L 201, 8.8.2003,
p. 8).

(6) Article 6(1)(d) of Regulation No 79/65/EEC.
(7) Article 4 of Commission Regulation (EEC) No 1915/83.

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example the IACS (1) (Germany). A number of Member States do
carry out such cross-checks with the aim of limiting, as far as pos-
sible, the risk of error but the Commission does not organise any
opportunities for an exchange of information concerning the
experience gained in this area.

of an individual farmer. Nevertheless, the FADN remains wholly
designed for traditional family holdings and does not provide any
separate indicator for farms organised as companies. Provision
has been made for differentiation between farm holdings on the
basis of their legal status in the data for the 2002 financial year,
which will be available in 2004.

Agricultural holdings organised as corporations

24.
The Farm Accountancy Data Network (FADN) is wholly
geared to traditional family farms. No separate methodology has
been set out to deal with agricultural holdings organised as com-
panies. This is clearly demonstrated by the FADN’s main indica-
tor, ‘family farm income’. This indicator shows profit after deduc-
tion of interest, farm rent and labour costs. For the farmer and his
family, this represents their return on land use, capital and labour.
However, this indicator cannot be applied to legal entities, as it
does not take into account the incomes of investors and those
employed in agriculture (2).

Holdings organised as companies would not represent a
25.
major problem if there were only a few of them. But, actually, in
two of the six Member States their role is by no means insignifi-
cant. In France, since the 1970s, the Government has created
three types of company specially designed for the agricultural sec-
tor: the ‘groupement agricole d’exploitation en commun’ (GAEC),
the ‘entreprise agricole à responsabilité limitée’ (EARL) and the
‘société civile d’exploitation agricole’. The number of these com-
panies increased from 3 % of agricultural holdings in 1979 to
17 % in 2000 (3) and they accounted for 40 % of French agricul-
tural production for 2000 (4).

A similar situation exists in the new Länder in Germany.
26.
Many of the former agricultural cooperatives (Landwirtschaftliche
Produktionsgenossenschaften) have been transformed into legal enti-
ties. The structure of these holdings (which are legal entities under
private law and, in 2001, had an average agricultural area of 931,7
ha (5)) is fundamentally different from that of the traditional pri-
vate holdings, whose average agricultural area is 27,9 ha.

It is not very meaningful to compare the profit of a lim-
27.
ited company, after deduction of staff expenditure, with the income

(2)

(1) Council Regulation (EEC) No 3508/92 of 27 November 1992 estab-
lishing an integrated administration and control system for certain
Community aid schemes (OJ L 355, 5.12.1992, p. 1).
In the case of holdings organised as corporations, the only two mean-
ingful indicators are ‘farm net added value’ or ‘farm gross added value’,
which are less meaningful in this context as far as the level of income
is concerned.
If we take into account the FADN field of observation (professional
holdings), the ‘Structures’ survey in France gave for 1997 25,4 % of
holdings as being registered as companies.

(3)

(4) European Commission, Directorate-General Agriculture, Summary
Report on the 141st FADN committee meeting in Midi-Pyrénées,
VI. A.3/YP D(99), p. 2. Ministry of Agriculture and Fisheries, Agreste
Primeur No 93-June 2001.

(5) German Federal Ministry of Consumer Protection, Food and Agricul-
ture, summary of the report by the Federal Government on food and
agricultural policy 2002, Berlin, 2002, Table 8, p. 12.

The Economic Accounts for Agriculture (EAA)

Legal basis and concept

The EAA are drawn up within the framework of the
28.
European System of Integrated Economic Accounts (ESA) with
the aim of providing comparable, up-to-date and reliable infor-
mation on the economic situation of the agricultural sector and,
more particularly, on the development of agricultural incomes (6).
They have been published by Eurostat since 1964.

The aim of the EAA is to evaluate agricultural produc-
29.
tion and related costs. The point of departure is the farm holding
and the entire agricultural production resulting from a full-time
or part-time agricultural activity, which is defined on the basis of
a list of activities. The holdings’ secondary non-agricultural activi-
ties are not taken into consideration. These activities are neverthe-
less included in the value of production if it is impossible to dis-
tinguish them from the main agricultural activity.

30.
The EAA are still based at present on a gentlemen’s agree-
ment, according to which the Member States have undertaken to
comply with the concepts and rules of a common methodology
for drawing up the EAA and a timetable for forwarding the data.
In February 2003, the Commission submitted a proposal for a
Regulation concerning the economic accounts for agriculture to
the European Parliament and the Council (7). This proposal, which
is currently passing through the parliamentary legislative proce-
dure, is mostly based on the methodology which has been applied
so far.

31.
The production value is calculated by multiplying the
quantities by the relevant prices. The values are provided by the
statistics offices or ministries of the Member States on the basis
of national statistics for each branch. Every Member State has its
own particular source of information. Where statistics for the sec-
tors are not available, other sources are used; for example, FADN
statistics for previous years may be extrapolated.

Figure 2 gives an overview of the EAA and the indicators

32.
derived from them.

(6) Commission of the European Communities, Proposal for a Regula-
tion of the European Parliament and of the Council on the economic
accounts for agriculture in the Community, Brussels, 4 February
2003, COM(2003) 50 final, first preamble.

(7) Commission of the European Communities, Proposal for a Regula-
tion of the European Parliament and of the Council on the economic
accounts for agriculture in the Community, Brussels, 4 February
2003, COM(2003) 50 final.

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Income indicators derived from the Economic Accounts for Agriculture (AWU = annual work unit)

Figure 2

Final output

– Intermediate consumption
= Gross value added at basic prices
– Consumption of fixed capital
= Net value added at basic prices
+ Other subsidies on production
– Other taxes on production
= Factor income
+ Interest received
– Employees’ remuneration
– Rent paid
– Interest paid
= Net entrepreneurial income

deflated and divided by AWU (total): Indicator A

deflated and divided by AWU (unpaid): Indicator B
deflated: Indicator C

Indicator A: Index of the real income of factors in agriculture per annual work unit.

Indicator B: Index of real net agricultural entrepreneurial income per unpaid annual work unit.

Indicator C: Net entrepreneurial income of agriculture.

Sources: Statistical Office of the European Communities, Income from agricultural activities in 2001 — European Union and Candidate Coun-
tries (2002 edition), Luxembourg 2003, p. 108; Manual on the Economic Accounts for Agriculture and Forestry EAA/EAF (Rev. 1.1),
No 4.12.

33.
Eurostat publishes a first estimate towards the end of the
financial year concerned. It publishes a second estimate in the
spring of the subsequent financial year and then presents final fig-
ures in the summer.

Observations

34.
Two headings in the EAA 2000 were examined in the
Member States audited in order to verify the exactness of the data
— cereal production and ‘intermediate consumption’. In the case
of the first heading, the statistics available are generally of reason-
ably good quality. In the case of ‘intermediate consumption’, it is
more difficult to obtain reliable figures. The auditors retraced the
various stages of the calculation of these two aggregates and
checked the source of all the underlying data used.

Apart from two calculation errors (one negligible, the
35.
other significant) which were rectified immediately, the auditors
found no inaccurate values. Nevertheless, they noted that the
quality of the statistics varied considerably in the Member States
visited. Whereas, almost all Member States visited had statistical
data on production, either based on statutory provisions or col-
lected voluntarily, in the case of ‘intermediate consumption’ there
were only estimates based on hypotheses, which varied from
Member State to Member State.

Member State specifies the sources of its data and the methods it
used to calculate the values forwarded to Eurostat. On the other
hand, it has begun drawing up standard reports by country and
financial year. Plausibility checks are carried out when these
reports are produced and — where there are inconsistencies —
the Member States are asked to provide explanations. Neverthe-
less, all the opportunities for cross-checking with data from other
sources have not been exhausted and the end-user of the EAA has
no indicator which would allow him to assess the statistical accu-
racy of the data.

Income of the Agricultural Households Sector (IAHS)

Legal basis and concept

37.
In 1985, the Commission published a study of the pros-
pects for the agricultural sector. In this study it estimated the
number of farmers who would require direct income support
because their income was insufficient, and the relevant costs for
the Community budget (1). The discussion provoked by the Com-
mission’s Green Paper of 1985 showed that it lacked information
on the total income of agricultural households. This is why Euro-
stat launched the ‘Total income of agricultural households’ project.
In 1997, the statistics relating to the total income of agricultural
households were renamed statistics on the ‘Income of the

36.
Concerning the evaluation of the reliability of the vari-
ous figures, Eurostat attempts to overcome the difficulties men-
tioned above in two ways. On the one hand, it has launched an
initiative to draw up an inventory of the EAA, in which each

(1) Commission of the European Communities, COM(85) 333 final,

p. 56 ff.

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Agricultural Households Sector’ (IAHS) in order to give a more
precise description of their contents and distinguish them more
clearly from other statistics.

Figure 3
Calculation of net disposable income within the
framework of the IAHS

38.
The aim of the statistics drawn up in accordance with the
method based on the Agricultural Households Sector (IAHS) is to
provide an instrument for measuring total income in order to:

(a)

study changes, year-on-year, in the aggregate income of agri-
cultural households in the Member States;

(b)

track changes in the composition of this income, in particu-
lar in the percentage of this income that comes from agri-
cultural holdings, other paid employment, property and social
benefits;

(c) compare changes in the total income of agricultural house-
holds with those in the income of other socioeconomic
groups by household, member of the household, and con-
sumption unit;

(d) compare total farmers’ income per unit with that of other

socioeconomic groups (1).

39.
The central concept of the IAHS is net disposable income.
This includes, in addition to income from paid employment, rents
and other transfer payments, the value of agricultural goods pro-
duced and consumed by the household and the rental value of
owner-occupied dwellings. Taxes and social benefits, in particular,
are deducted from the amount thus calculated.

40.
The ‘Income of the Agricultural Households Sector’ project
has no legal basis; it is based on a gentlemen’s agreement between
the Member States of the European Community within Eurostat’s
Agricultural Statistics Committee (ASC). Figure 3 explains the cal-
culation of net disposable income.

Net operating surplus from independent activity

(a) from agricultural activity

(b) from non-agricultural activity

(c) from imputed rental value of owner-occupied dwellings

+ Compensation to members of agricultural households as
employees, from agricultural and non-agricultural activity

+ property income received
+ non-life insurance claims (personal and material damage)
+ social benefits (other than social benefits in kind)
+ miscellaneous inward current transfers (paid)
= Total resources
– property income paid
– net non-life insurance premiums
– current taxes on income and wealth
– social contributions
– miscellaneous outgoing transfers (paid)
= Net disposable income

Source: Farm Incomes, Wealth and Agricultural Policy, Berkeley Hill, Ashgate Publishing

Ltd, Hants 2000, 3rd edition, p. 184.

41.
The unit of measurement covers all the persons living
under the same roof. In order to distinguish agricultural house-
holds from other households, Eurostat has developed two defini-
tions: in the narrow sense of the term, an agricultural household is a
household where farming is the main source of income of the ref-
erence person — as a general rule, the head of the household. In
the broad sense of the term, on the other hand, all households are
considered to be agricultural households in which at least one
member draws some income from an independent agricultural
activity (2).

Observations

Microeconomic and macroeconomic approaches

42.
As in the case of the EAA, the sources of data used for
the IAHS in the various Member States have not been harmon-
ised. To enable the Member States to apply the simplest method
with regard to the information at their disposal, Eurostat allows
them to choose between various approaches to determine the
income of the agricultural households sector:

(a)

the disposable income of the ‘agricultural households’ sector
may be obtained by the extrapolation of microeconomic data
obtained from surveys of family budgets, tax records or sur-
veys of the accounts of agricultural holdings;

(1) European Commission, Income of the Agricultural Households Sector,

(2) European Commission, Income of the agricultural households sector,

1999 Report, Luxembourg, 2000, Table 1.1, p. 104.

1999 Report, Luxembourg, 2000, p. 103 ff.

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(b)

in the national accounts, the distribution of income account
for the ‘households’ sector is subdivided into separate sub-
accounts for agricultural households and other socioeco-
nomic groups. The distribution key is usually taken from a
source of macroeconomic data (macroeconomic approach);

(c) a ‘hybrid’ approach, where the income from agricultural activ-
ity is calculated on a macroeconomic basis but the other
components making up disposable income are taken from
microeconomic sources of information (1).

Of the six Member States visited, four had opted for the
43.
microeconomic approach. One Member State (Netherlands) com-
pared the income calculated by the microeconomic approach, on
the basis of a survey of households, with the income determined
by the macroeconomic approach based on the EAA. The differ-
ence found between these two values was reduced by adjustments
at both the microeconomic and macroeconomic levels (defini-
tional difference). The figures for the 1997 and 1998 financial
years are shown in Table 1.

The Netherlands: difference between incomes calculated by the microeconomic approach and incomes
calculated by the macroeconomic approach

Table 1

Income panel survey (microeconomic approach)

Definitional difference

Statistical difference

1997

1998

Absolute value

Relative value

Absolute value

Relative value

4 131

2 086

5 193

36 %

18 %

46 %

3 037

2 492

5 135

28 %

23 %

48 %

National accounts (macroeconomic approach)

11 410

100 %

10 664

100 %

Source: Centraal Bureau voor de Statistiek, The Hague (national statistics office of the Netherlands).

44.
The latitude allowed the Member States to choose between
the microeconomic and macroeconomic approaches to establish
disposable income is questionable. In view of the differences in
disposable income calculated for one Member State using these
two approaches, 46 % and 48 % for 1997 and 1998 respectively,
there must be doubts about the equivalence of the two methods.
Differences of this kind also cast doubt on the possibility of com-
paring data supplied by Member States using different approaches.
The Commission has not examined the possible sources of this
anomaly with a view to drawing appropriate methodological con-
sequences.

Difficulties in the implementation of the project

45.
With regard to the calculation of the IAHS, using (unhar-
monised) microeconomic data, the Member States were repeat-
edly confronted with the problem of obtaining reliable data. For
instance, one of the Member States visited extracted the data
required from an annual survey of households, but the propor-
tion of agricultural households was, in this case, so small, that this
survey can no longer be considered representative. Faced with the
impossibility, for financial reasons, of expanding the sample to
include further agricultural households, the Member State con-
cerned did not forward any more data to Eurostat (Germany).

(1) European Commission, Income of the Agricultural Households Sector,

1999 Report, Luxembourg, 2000, p. 106 ff.

46.
Some Member States experienced difficulties in collect-
ing the data from very disparate sources which were needed to be
able to record all sources of income for the various members of
the household. In addition, in some Member States, the rules gov-
erning tax secrecy and the protection of personal data hamper the
use of the data. In one Member State, the statistics office can only
use income data extracted from tax returns if they remain anony-
mous. These data cannot, therefore, be linked with certainty to
agricultural holdings (France). Another Member State may use tax
data but, as its tax system does not make any distinction between
income from agriculture or from industrial or commercial activi-
ties, a significant percentage of the households covered by this
survey cannot be linked with certainty to the agricultural sector
(Netherlands). Yet another Member State avoids the difficulties by
simply using IAHS farm data without making any allowance for
methodological differences (Austria).

47.
Table 2 shows the data forwarded as at 12 October 2001.
The length of some delays demonstrates clearly the difficulties of
implementing the project.

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Data provided for the calculation of the Income of the Agricultural Households Sector

Table 2

‘Narrow’ definition

‘Broad’ definition

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

Italy

Luxembourg

Netherlands

Austria

Portugal

Finland

Sweden

United Kingdom

1987-1999

1989-1999

1972-1993

1982-1998

1980-1993

1990-1995

1987

1984-1995

1989

1988-1997

1985-1999

1980-1989

1987-1999

1989-1997

1980-1998

N/A

1989-1999

1983

1982, 1988, 1994

1990

N/A

1987

N/A

N/A

1988

1991-1994

N/A

1992

1992

N/A

Source: European Commission (Eurostat), Meeting of the ‘Economic Accounts for Agriculture’ Working Party of the Agricultural Statistics Com-

mittee in Luxembourg on 28 and 29 November 2001, Doc. ASA/EEA/513, p. 37 ff.

48.
In 2002, Eurostat and the Member States examined the
difficulties affecting the collection of reliable data. On this occa-
sion, four Member States stated that they were not interested in
the project, five others mentioned major technical problems and
six reported financial difficulties. Eurostat therefore acknowledged
that the IAHS project had no priority and the contracts of the two
experts who had been assigned to it until 2002 were not extended.

The cost of the FADN, the EAA and the IAHS

49.
The Court asked the Supreme Audit Institutions (SAIs) of
the Member States to forward information to the Court which
would allow the cost of the FADN, the EEA and the IAHS and the
benefits of using these sources of data to be evaluated. The infor-
mation collected on the cost is shown in Table 3. The majority of
SAIs emphasised certain advantages but the disparate nature of
the information received allows no general conclusions.

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Table 3

Cost of the FADN, the EAA and the IAHS

1

2 (1)

3 (2)

4 (3)

5 (4)

Financial year 2000

Cost of the
FADN
euro

Number of
agricultural
holdings

Cost per holding
euro

FADN
reimbursements
euro

154 800

6 (5)

Balance
euro

7 (6)

8 (7)

Cost of the EAA
euro

Cost of the IAHS
euro

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

Italy

Luxembourg

Netherlands

Austria

Portugal

Finland

Sweden

United Kingdom

Total

1 300 000

3 455 000

1 000

2 000

5 300

5 500

2 370 993

10 100

3 800 000

4 094 000

3 900 000

1 461 080

687 685

888 000

6 100

1 300

18 000

300

1 500

2 000

3 000

1 300

1 000

2 500

60 900

650

280 704

1 019 296

250 600

3 000

235

623

2 729

1 950

487

529

888

341 850

322 500

9 000

9 000

1 106 562

1 264 431

286 051

924 543

2 875 457

149 124

2 010 078

46 440

39 212

12 325

96 750

3 997 250

75 000

50 000

263 418

3 636 582

311 535

1 149 545

119 583

568 102

129 000

759 000

371 391

6 628 278

(1) Column 2 shows the cost of the FADN as notified to the Court by the SAIs of the Member States of the EU.
(2) Column 3 contains the number of holdings covered by the sample, in accordance with the provisions of Annex I to Commission Regulation (EEC) No 1859/82 of 12 July

1982.

(3) The amounts in column 4 are the result of dividing the figures in column 2 by those in column 3.
(4) Column 5 includes payments made by the Commission to the Member States in 2001.
(5) The amounts in column 6 are equal to the difference between the amounts in column 2 and those in column 5.
(6) Column 7 shows the cost of the EAA as notified to the Court by the SAIs of the Member States of the EU.
(7) Column 8 shows the cost of the IAHS as notified to the Court by the SAIs of the Member States of the EU.

Source: Information forwarded by the SAIs of the Member States; Commission documents on reimbursements made under the FADN; investigations carried out by the European
Court of Auditors; Annex I to the consolidated version of Commission Regulation (EEC) No 1859/82 of 12 July 1982 concerning the selection of returning holdings for
the purposes of determining the income of agricultural holdings (OJ L 205, 13.7.1982, p. 5).

50.
With regard to the costs, sufficiently accurate and com-
parable information is only available for the FADN and gives rise
to the following conclusions:

(b)

(a)

for most of the Member States, the Commission’s reimburse-
ments only represent a fraction of the total cost of the FADN
(between 10 % and 20 %). However, one Member State receives
a rather high rate of cover for its expenditure, amounting to
approximately 50 % (Spain) and another a very low rate of
approximately 2 % (Netherlands);

the average cost, per agricultural holding, of acquiring the
FADN data varies considerably from Member State to Mem-
ber State, ranging from approximately 230 euro (Spain) to
more than 2 700 euro (Netherlands). Some Member States in
fact commission accounting firms to draw up the annual
accounts of the holdings in the FADN sample or, within the
FADN framework, collect many more data than are required
for the FADN itself, such as, for example, information con-
cerning the use of fertilisers and pesticides.

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THE PERTINENCE OF THE STATISTICAL TOOLS USED BY THE
COMMISSION

holdings — in other words by no means in all agricultural hold-
ings, nor even in average holdings (3).

The statistical tools applied to the agricultural sector are
51.
intended to monitor changes in the results achieved by the CAP
in the context of the objectives of the Treaty. They are also applied
to examine whether the agricultural community is achieving a fair
standard of living in accordance with the objective laid down in
Article 33 of the EC Treaty. If these instruments actually do pro-
vide suitable data for this purpose, thay may be considered ‘per-
tinent’, i.e. as satisfying the audit criteria applicable to statistics
(see paragraph 6).

52.
The concepts ‘agricultural community’ and ‘fair standard
of living’ contained in Article 33 of the EC Treaty nevertheless
require precise definition before any evaluation of the ‘pertinence’
of the statistical indicators relating to them can be carried out. For
this purpose, the Court examined what had been said at the major
points in the development of the CAP to clarify the content of
Article 33 of the EC Treaty. In addition, the Court asked an agri-
cultural expert to help develop a working interpretation of the
concepts ‘agricultural community’ and ‘fair standard of living’.

The field to be covered by the statistics on agricultural
income

Changes in the socioeconomic context of the CAP

The early days of the common agricultural policy

The early days of the CAP were characterised by the effort
53.
to emerge from the difficult situation of the post-war period and
achieve self-sufficiency. These two objectives were to be achieved
by increasing the productivity of farms (1). At the Stresa confer-
ence in 1958, the Agriculture Ministers and the Commission
decided to encourage productivity by supporting the prices of
agricultural products (2). The European Community gave this
policy a legal framework by creating market organisations for the
most important agricultural products.

54.
Price support was meant not only to stimulate productiv-
ity, but also to result in an increase in the earnings of the agricul-
tural community. By supporting prices, the Commission intended
to ensure a fair income for people who had worked full-time over
the years in well-managed and economically viable agricultural

(1) This also explains the reference in Article 33(1)(b) of the EC Treaty
(‘thus’) to the increase in productivity (Article 33(1)(a) of the EC
Treaty).

(2) Collection of documents from the agricultural conference of the
Member States of the European Economic Community held at Stresa
from 3 to 12 July 1958, pp. 215 and 222.

55.
Already at the Stresa Conference, the Agriculture Minis-
ters of the Member States had drawn attention to the relatively
unfavourable situation of farm incomes (4). However, it was not
specified what was to be understood by a ‘fair income’ or by an
‘income level comparable with that of industrial workers’. The
question of knowing which income should be measured and what
comparison should be carried out remained open.

56.
Similarly, the expression ‘agricultural holding’ was not
clarified at the time. In 1956, the Spaak report, which heralded
the Treaty of Rome (5), still regarded the family holding as the fun-
damental form of agricultural activity in the European Commu-
nity, both past and future (6). In 1960, however, the Commission
was already describing an agricultural holding more broadly as
‘an agricultural structure in which farms of various types and
sizes complement each other, and in which the farm operating
with paid labour — a farm that is sound from the socioeconomic
point of view — will have its place’ (7).

In short, the European Community has never specified
57.
what is meant to be understood by either ‘the agricultural com-
munity’ or a ‘fair standard of living’. Neither the Council nor the
Commission have given these concepts any meaning that is bind-
ing for them (8). Nevertheless, it is clear from the work at the
Stresa Conference that ‘fairness’ is to be defined in comparison
with other sectors.

(3) Hans-Broder Krohn and Jacques van Lierde, Proposed Criteria for Fix-
ing the Prices of Agricultural Products in the European Economic Commu-
nity, International Journal of Agrarian Affairs, Vol. 111 (1963), p. 246.
(4) Agriculture conference of the Member States of the European Eco-
nomic Community from 3 to 11 July 1959, quoted from: Gottsmann,
Der Gemeinsame Agrarmarkt, Nomos Verlagsgesellschaft Baden-Baden,
Loseblattsammlung, Stand 1.8.1998, I A 1, p. 2 ff.

(5) At the Messina conference in 1955, the Foreign Ministers of the Mem-
ber States of the ECSC set up a working party, chaired by Paul-Henri
Spaak, to study the possibilities for increasing economic integration.
The Spaak Report (April 1956) contained the first drafts of the Com-
munity Treaties providing for the creation of the EEC and Euratom.
‘Comité intergouvernemental créé par la Conférence de Messine, Rap-
ports des chefs de délégation aux Ministres des Affaires étrangères’,
21 April 1956, p. 47.

(6)

(7) European Economic Community Commission, Proposals for the
Working-Out and Putting Into Effect of the Common Agricultural Policy in
Application of Article 43 of the Treaty establishing the European Economic
Community, Brussels, 30 June 1960, VI/COM(60) 105, II/13 and 14.
(8) Berkeley Hill, Farm incomes, wealth and agricultural policy, Ashgate Pub-

lishing Ltd, 3rd edition, Hants 2000, p. 28.

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The move towards a broader and more complex concept

58.
In the 1985 Perspectives Green Paper, the Commission
examined the need for income support for farmers with low or
falling incomes. The basic idea underlying the social approach
was that structural change in agriculture should be gradually
implemented in a way that would cushion farmers from the shock
of structural adjustment, while still maintaining pressure on farm-
ers to adapt their holdings to market needs. Thus, as long as no
alternative income and employment solutions are available to
farmers, any income aid scheme for farmers should help avoid
social hardship (1).

In the mid-term review, the Commission emphasised that
61.
ensuring a fair standard of living for the agricultural community
and contributing to the stability of farm incomes remained key
objectives for the CAP. In this same document, it was noted that
the growth of the average farm size, the specialisation in certain
crops and the concentration of production in certain regions had
put pressure on traditional farming methods and mixed farming.
It also stated that many of these farms would need more targeted
support to adapt to the opportunities offered by more open mar-
kets and consumer demand for quality products. Moreover, the
Commission observed that a minority of farmers benefit from
most of the direct payments and questioned whether the distribu-
tion of direct support was optimal (6).

This new approach was received by farmers with little
59.
enthusiasm. They distrusted direct income aid as ‘welfare’ and
were afraid such income support would preclude them from hav-
ing multiple activities (2). This is why, in 1992, the Mac Sharry
reform limited itself to replacing price maintenance only partially
by revenue support for agricultural producers (3). This essentially
involved three measures: a fall in production prices, compensa-
tion for this fall in income by direct payments to producers and
measures to limit output, such as the set-aside of arable land (4).

62.
A comparison of the programmes clearly shows that the
requirements as regards information on the financial situation of
the agricultural community have changed: whereas, at the outset,
it was a matter of compensating for the loss of income via direct
payments, since Agenda 2000, the Commission has also been
interested in non-agricultural sources of income. Moreover, the
mid-term review document also deals with the distribution of
incomes and the question of knowing whether the final benefi-
ciaries of direct payments are in a precarious position. However,
these questions (concerning other sources of income and the dis-
tribution of incomes) can only be answered if the overall dispos-
able income of the various holdings is known.

60.
Agenda 2000 shifts further away from price support to
income support by lowering intervention prices for cereals, beef
and dairy products, and by increasing the level and scope of ‘area’
aid and animal premiums in order to compensate for potential
income losses. Two of the five major objectives of the Agenda
2000 CAP reform refer to farmers’ incomes: to ensure a fair stan-
dard of living for the agricultural community and the stability of
farm incomes; and to promote supplementary or alternative
sources of employment and income in rural areas and thus con-
tribute to economic cohesion within the EU (5).

(1) Commission of the European Communities, COM(85) 333 final, p. 56

ff.

(2) Nigel Robson, The Changing Role of Part-Time Farming in the Structure
of Agriculture, Journal of Agricultural Economics, Vol. XXXVIII No 2,
May 1987, p. 169.

(3) Communication of the Commission to the Council — the develop-
ment and future of the CAP — reflections paper of the Commission,
COM(91) 100 final, p. 12.

(4) Commission of the European Communities, Communication of the
Commission to the Council — the development and future of the
CAP — reflections paper of the Commission, COM(91) 100 final,
p. 13 and p. 14.

(5) Commission of the European Communities, Proposals for Council
Regulations (EC) concerning the reform of the common agricultural
policy, Brussels, 18 March 1998, COM(1998) 158 final, p. 5 (No 2.1).

63.
The Commission is also aware of the changed demands
as regards information on the farmers’ financial situation, in par-
ticular for the structural policies: ‘The integrated development of
rural areas is becoming an ever greater concern of sectoral policy,
including agricultural policy (…). This generates new needs in
terms of statistical data, and particularly the availability of infor-
mation (…). These new requirements are for more detail in terms
of the territorial breakdown of data. Moreover, these requirements
also extend to information on the non-farming component of the
income of holdings and families, particularly activities that supple-
ment farming activity and the community services provided by
farmers’ (7).

(6) Commission of the European Communities, Communication from
the Commission to the Council and the European Parliament, Mid-
Term Review of the Common Agricultural Policy, Brussels, 10 July
2002, COM(2002) 394, pp. 2, 7 ff.

(7) Second Commission report to the European Parliament and the
Council on the state of progress of the implementation of Council
Decision 96/411/EC relating to the improvement of Community agri-
cultural statistics, paragraph 5.9, p. 12.

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Proposed interpretation of the concepts contained in
Article 33 of the EC Treaty

Evaluation of the pertinence of the Community’s statistical
tools

64.
In short, the European Community has hitherto failed to
interpret the very generic objective of a ‘fair standard of living’
and subdivide it into specific, precise and measurable objectives.
Moreover, there is also no definition of the ‘agricultural commu-
nity’ concept either (1). However, the ‘major stages’ in the develop-
ment of the CAP can provide us with information regarding the
aspects of the standard of living of the agricultural community
that interest the European Community, i.e., in particular, the exist-
ence and scale of non-agricultural earnings and the distribution
of incomes.

67.
The Court examined the statistical tools applied by the
Commission and in the Member States in order to verify, in par-
ticular, whether these tools allow conclusions to be drawn in
respect of the fairness of the standard of living of the agricultural
community.

65.
In the absence of a clear definition of the concepts of
‘agricultural community’ and ‘fair standard of living’, the Court
commissioned an expert (2) with a view to clarifying the meaning
of these concepts, which are important for an evaluation of the
Commission’s statistical tools. The results of the expert’s appraisal
are summarised in the Annex.

The Farm Accountancy Data Network (FADN)

Impact of the interpretation of Article 33 on the Commis-
sion’s statistical tools

66.
The interpretation of Article 33(1)(b) of the EC Treaty
establishes the following criteria for the development of the Com-
mission’s statistical tools: the standard of living in the agricultural
sector is not fair when all the disposable incomes of all the mem-
bers of the farming household together fall below a certain thresh-
old, which must be established, at the political level, in relation to
other entrepreneurial households. In order to give an opinion on
the question of the fairness of agricultural incomes, the Commis-
sion must therefore have relevant information on the overall dis-
posable income of individual agricultural households and the
households of comparable entrepreneurs. It also needs this infor-
mation to be able to study the other sources of farmers’ incomes
or the distribution of incomes within the farming sector.

(1) Hill, loc.cit. p. 28.
(2) Professor Stephan von Cramon of the University of Göttingen.

68.
The FADN’s strength lies in its microeconomic database.
As agricultural holdings are classified, under the European typol-
ogy, according to their size, region and activity, a differentiated
analysis is also possible. The extensive farm returns control pro-
gramme, which has been accessible on the Internet since 2002
(data for the financial year 2000) and guarantees a precise control
over the data, is another positive aspect. The fact that the data
have been made available on the Internet in the course of the last
few years, thus giving researchers a considerable degree of access,
is an additional asset.

69.
The FADN is based, however, on holdings and not on
households. The incomes of the members of the agricultural
household other than the farmer and the incomes of other per-
sons are therefore not taken into account. Moreover, only income
from agricultural activities is entered in the FADN accounts. Other
sources of income are ignored completely. Figure 4 shows that, in
12 Member States out of 15, income generated by agricultural
activity as such accounts for at least half the total income of agri-
cultural households in the narrow sense of the term. However, in
nine Member States agricultural households only draw between
25 % and 60 % of their income from agricultural activity. The
data available indicate that the percentage is very much lower if
the population of agricultural households in the broad sense of
the term is taken.

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Farm income as a percentage of total income of farm households

Figure 4

Source of narrow definition: Eurostat, Income of the agricultural households sector - 2001 Report, Luxembourg 2002. The figures for
Sweden, Spain and Portugal include income from independent agricultural and non-agricultural activities.

Source of broad definition: Organisation for Economic Cooperation and Development, Working Party on Agricultural Policies and Markets:
Synthesis report on farm household income issues in OECD countries (AGRÉÉ/CA/API(2002)11/Final), 29.10.2002, p. 14.

In order to distinguish between agricultural households and other households, the OECD uses the definitions adopted by Eurostat: in the
narrow sense of the term, an agricultural household is a household where agriculture is the main source of income of the reference person
— as a general rule, the head of the household. In the broad sense of the term, on the other hand, all households are considered to be
agricultural households where at least one member draws some income from an independent agricultural activity (European Commis-
sion, ‘Income of the Agricultural Households Sector’, 1999 report, Luxembourg, p. 8).

70.
The FADN only covers professionally managed holdings.
In practice, this means that the FADN only covers 65 % of all
farmers in the Community. As the economic size threshold for
the holdings is not always the same, this rate varies considerably
from one Member State to another: while the FADN only covers
41,9 % of Austrian farmers, the rate covered in Ireland comes to
87,9 % (1).

71.
As the audit, which was carried out in a number of Mem-
ber States, revealed, in contrast to the high degree of standardisa-
tion displayed by the farm returns, discrepancies still exist between
the Member States with regard to population size, the procedures
for selecting representative samples and the selection of new
holdings for inclusion. This limits opportunities for drawing com-
parisons.

(1) http://europa.eu.int/comm/agriculture/rica/methodology2_en.cfm.

72.
In general, it can therefore be said that the FADN gives a
largely reliable picture of the disposable incomes of individual
farmers living alone and with no other income other than

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agriculture. If the holdings are organised on a different legal basis,
if the household is made up of several professionally active per-
sons or the farmer has sources of income other than agriculture,
the FADN’s ‘family farm income’ does not give an accurate indica-
tion of disposable income.

ation of living standards. Where the IAHS is determined on the
basis of the macroeconomic approach, reservations are called for
since it says nothing about the distribution of incomes.

The Economic Accounts for Agriculture (EAA)

77.
The IAHS has never achieved reliable and comparable
results, however, because of technical and financial obstacles and
because the Commission and a number of Member States do not
give it high priority.

As the first estimate for the EAA is published before the
73.
end of the reporting year, one of its great advantages is that it
provides results that are available quickly.

CONCLUSION

However, the income aggregates and indicators used are
74.
not indicators of farmers’ total
incomes or their disposable
incomes, as they may have sources of income other than agricul-
tural production. The agricultural incomes calculated in the con-
text of the EAA must therefore, under no circumstances, be taken
as the equivalent of the total earnings of the farmers or the farm
households.

75.
In addition, it should be borne in mind that the figures
forwarded are average values, which give no indication of the dis-
tribution of incomes. If, in addition, one bears in mind that the
denominator used to calculate indicators A and B (see Figure 2),
i.e. the annual work unit (1), has not been completely standard-
ised,
it is impossible to compare incomes in absolute terms
between the Member States. Only changes within each Member
State can be compared. No conclusions should thus be drawn
concerning the absolute value of the incomes. For this reason
Eurostat has refused for some years to draw such conclusions and
has confined itself to a comparison of changes in incomes observed
within the various Member States (2).

78.
The three Commission instruments which were exam-
ined — the FADN, the EAA and the IAHS — are all intended to
determine agricultural income. When subjected to closer scrutiny,
it is apparent that these three instruments have not been designed
for the same purposes. The EAA is used for calculating surplus
income in relation to the costs of all agricultural products. The
aim of the FADN is to calculate the income earned by agricultural
holdings managed on a professional basis. The FADN and the
EAA do not provide any direct information on the standard of liv-
ing of the agricultural community (Article 33(1)(b) of the EU
Treaty). This is what the IAHS was designed to do. However, this
project has never produced reliable and comparable results.

79.
To conclude, at the present time the Community’s statis-
tical instruments do not provide sufficiently exhaustive informa-
tion on the disposable incomes of agricultural households and do
not allow an assessment of the living standard of the agricultural
community to be made.

The Income of the Agricultural Households Sector (IAHS)

RECOMMENDATIONS

76.
The income of the agricultural households sector project
was designed to overcome an information deficit with regard to
the real standard of living of the agricultural community. Net dis-
posable income calculated using the IAHS offers the advantage
that it is not based on agricultural products or the holding but on
the household. In addition, it allows various other sources of
income to be taken into consideration, in addition to income
from capital. Overall, therefore, because of its structure, the IAHS
appears greatly superior to the FADN and the EAA for the evalu-

(1) An Annual Work Unit represents the labour provided by one person
in full-time employment on an agricultural holding (Eurostat, Statis-
tics in Focus, Theme 5-2/2003, p. 7).

(2) See previous situation: European Commission, Income from agricultural

activity in 1998, Luxembourg, 1999, Chapter 6, p. 95 ff.

80.
The Commission should evaluate the statistics available
at present concerning the situation of holdings and agricultural
households and then define precisely the statistical framework it
requires to monitor achievement of the objectives of the CAP, in
particular those set out in Article 33 of the EC Treaty.

81.
The FADN measures the incomes of agricultural hold-
ings. For the results to allow comparison between the various
Member States, the Commission has devised numerous rules gov-
erning the content of the data, the controls on them and the cal-
culation of indicators. However, the room for manoeuvre is so
large that the differences between the Member States may impair
the comparability of the results. The Court recommends that a
multi-disciplinary group should be set up to review these differ-
ences, evaluate them and propose the necessary improvements.

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The EEA are based on various types of sources depend-
82.
ing on the Member States. As the origin and quality vary from
one Member State to the other, the Court recommends that the
transparency of the data should be improved by drawing up an
inventory and introducing standardised controls. In addition, it
would be very useful if the user of the EAA could form an opin-
ion of the quality of the data with the help of precise statistical
indicators.

With regard to the IAHS, the Commission should evalu-
83.
ate the project and decide under what conditions it can be pur-
sued. The Court recommends that the Commission should opt
for a uniform approach, either macroeconomic or microeco-
nomic, on the basis of prior definition by the Commission of the
statistical information which it absolutely must have if it is to
monitor achievement of a fair standard of living for the agricul-
tural community.

This report was adopted by the Court of Auditors in Luxembourg at the Court meeting of 4 December 2003.

For the Court of Auditors

Juan Manuel FABRA VALLÉS

President

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MAIN CONCLUSIONS OF THE EXPERT APPRAISAL CONCERNING THE INTERPRETATION OF ARTICLE 33
OF THE EC TREATY

ANNEX

1.
First of all, it appeared necessary to look at the question of the fair-
ness of the standard of living in terms of a comparison with a given
level (1). This approach presupposes that we:

The considerations summarised below are based on published lit-

2.
erature as well as the expert appraisal carried out for the Court.

(a) define the subject of the comparison - the standard of living;

(b)

identify the target group; specify whose standard of living is to be mea-
sured;

The subject of the comparison: ‘the standard of living’

(c)

identify a reference group whose standard of living will serve as a
benchmark;

(d) establish a threshold below which the standard of living can no longer

be considered ‘fair’.

3.
‘Standard of living’ is a concept of social well-being. The quality
of life is derived from consumption, or in this case, from potential con-
sumption. The latter comes from the aggregation of two variables —
income and wealth. Potential consumption, associated with the environ-
ment and personal factors such as health, gives the individual standard of
living (see Figure below) (2).

Figure

Factors which affect the standard of living

Source: Prof. Stephan von Cramon, Department of Agricultural Economics, Göttingen University.

(1) Professor Stephan von Cramon, Department of Agricultural Econom-
ics, University of Göttingen, Aspects of the Commission’s Management of
the ‘Fair Standards of Living’ Treaty Objective, p. 1.

(2) von Cramon, loc. cit. p. 6 ff.

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Defined in this way, a person’s ‘standard of living’ is very difficult
4.
to measure in practice. This is why the Court followed an approach
involving the measurement of disposable income only (1).

The reference group

The target group: ‘the agricultural community’

Given that ‘standard of living’ and ‘disposable income’ can only
5.
concern natural persons or groups of persons, the holding cannot be used
as a reference unit in the comparison. The choice of the household as the
unit is justified by the fact that, in agricultural households, incomes are
generally pooled and that the members of the household take decisions
on consumption together. The reference unit for the comparison must
therefore be the household and not the individual farmer (2).

7.
The Community institutions have not specified whether the crite-
rion for comparison should be set at the regional, national or European
level or whether comparisons must be made within the agricultural sec-
tor or between this sector and other social groups (4). However, as early
as the 1958 Stresa Conference, the Agriculture Ministers made it clear that
they were concerned, above all, by the relatively less favourable situation
of farm incomes (5), but did not specify which occupational groups should
be used as a benchmark. Since the majority of farmers work on their own
initiative and at their own risk, it is logical to compare them with other
entrepreneurs (6).

The definition of ‘fairness’

The last stage in the definition of the target group consists in dis-
6.
tinguishing agricultural households from non-agricultural households. In
accordance with the two criteria most often used for this purpose (income
and working time), an occupation is held to be agricultural where agri-
culture constitutes the main source of income or the main activity. This
distinction implies the exclusion of certain agricultural populations, such
as persons who carry out a farming activity as a secondary occupation or
the owners of land that is leased and used for farming (3).

8.
Any farmer’s income that is below a certain threshold may be
considered ‘unfair’ (7). This individualised approach disregards mean val-
ues. It refers to the distribution or allocation of incomes (8).

9.
Like the so-called ‘poverty line’, it is difficult to establish a limit
below which the standard of living can no longer be considered to be
fair (9). The European Communities have not, to date, solved this problem.
There is therefore no criterion for comparison to enable us to appraise the
fairness of agricultural incomes.

(1) Disposable income: Total income-compulsory expenditure (e.g. taxes

and social security contributions).

(2) von Cramon, loc. cit. p. 8.
(3) von Cramon, loc. cit. p. 10.

(4) von Cramon, loc. cit. p. 3.
(5) Agriculture conference of the Member States of the European Eco-
nomic Community from 3 to 11 July 1959, quoted from; Gottsmann,
Der Gemeinsame Agrarmarkt, Nomos Verlagsgesellschaft Baden-Baden,
Loseblattsammlung, 1.8.1998, I A 1, p. 2 f.

(6) von Cramon, loc. cit. p. 5.
(7) The same procedure is generally followed for the definition of the
concept of poverty (see, for example, von Cramon, op. cit., p. 1 and
p. 38).

(8) von Cramon, loc. cit. p. 1 and p. 14.
(9) von Cramon, loc. cit. p. 1.

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THE COMMISSION’S REPLIES

SUMMARY

II.

(a)

Improving the quality and especially the comparability of the statistical data from the FADN is a major
concern of the departments responsible for these statistics and has been the subject of constant attention
on the part of the Commission, the FADN Committee and the Member States. The latter have introduced
a basic methodology designed to improve quality and harmonise the results from the FADN. It is true
that the regional diversity of agriculture — in both socioeconomic and structural terms — has meant
the adoption of rules specific to some Member States. However, the impact of the methodological dif-
ferences referred to by the Court is reduced as much as possible by the efforts made regarding sampling
and weighting.

(b) The economic accounts for agriculture are continuously and closely monitored for accuracy and com-
parability by the Working Party ‘Agricultural accounts and prices’ and more specific controls such as the
inventories. This is why the quality of the income statistics produced under the EAA has always been
considered satisfactory. In addition, although the choice of sources of data is left to the Member States
depending on the specific structure of their agricultural sector and their statistical system, this has little
impact on the quality of the EAA data. It is in fact not the harmonisation of data sources but the har-
monisation of definitions and principles of data extraction which guarantees the harmonisation of the
EAA data among Member States and contributes to their quality. Finally, studies have shown that the
multiplicity of data sources makes accuracy indicators very difficult to establish and complex to interpret
for such statistics as national accounts and accounts for agriculture.

(c)

The statistics on incomes of agricultural households do not benefit from the same degree of quality,
homogeneity and updating as the FADN and the EAA. A taskforce to develop and improve these statistics
was set up in 2003 in collaboration with the FAO, the OECD and UN/ECE.

III to IV.
There are various different measures of income (inter alia, income by branch of activity and
income of households at macroeconomic level, and income of holdings at microeconomic level). These have
been extensively used and published by the Commission for the purposes of monitoring and analysing the
levels of and changes in incomes in agriculture, as well as contributing to generating agricultural policy.

VI.
The statistical instruments represented by FADN and EAA have made it possible from their inception
to monitor, evaluate and analyse changes in the income generated by agricultural activity, both across the
agricultural sector as a whole and by farm specialisation. Moreover, since the most significant part of farm
households’ income comes from agricultural activity (and mainly commercial holdings), these statistics also
make it possible to monitor and analyse changes in farm households’ income in a relatively reliable way. In
fact, this is in line with paragraphs (a) and (b) of Article 33, which explicitly link the goal of ensuring a fair
standard of living for the farming community to increases in income generated by agricultural activity.

VII.
they should be seen as complementary parts in a very complex policy field.

Each of the statistical tools provides additional information in the decision-making process. Therefore,

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The statistics of the EAA and of the FADN have for many years provided very useful, reliable and relevant
information on the incomes generated by agricultural activity. This information has proved very important
for the monitoring, evaluation and design of the common agricultural policy. So far these figures on income
from agriculture could be regarded as relatively reliable estimates of farm households’ income to the extent
that the latter draw the major part of their income from farming. Equally, the use of these statistics is in line
with paragraphs (a) and (b) of Article 33 explicitly linking the goal of ensuring a fair standard of living for the
farming community to increases in the income generated by agricultural activity.

The socioeconomic developments in the agricultural sector and recent changes in agricultural policy (in par-
ticular as regards rural development) may well require more detailed figures on farm income. Although reli-
able statistics on the income of agricultural households already exist in a considerable number of Member
States, it would be worth making a study of the feasibility and cost of statistics that measure the standard of
living of the farming population across all the Member States of the Union.

The financial situation and income levels of farming undertakings and in the agricultural sector generally will
continue to be the subject of regular monitoring on the basis of FADN and EAA data, the harmonisation and
consistency of which will need to be strengthened through increased collaboration among the various services
concerned.

STATISTICAL TOOLS FOR THE ASSESSMENT OF INCOMES

national data collection networks that take into account certain
country-specific factors of their agriculture. Keeping in mind that
participation is voluntary for farmers, the Commission can only
recommend that sampling should be random.

12 to 14.
The threshold for the economic size of holdings,
defining the field of survey, has been adopted in accordance with
the management committee procedure laid down in Article 19 of
the Council Regulation. This threshold has to reflect the diversity
of agriculture in the Member States, and a uniform definition
would not be feasible. The FADN data have to be representative
by region, type of farming and economic size class. The Commis-
sion has developed a new tool to monitor the representativeness
of the sample.

15.
For business analyses, continuity of the sample is needed.
Therefore, neither a low nor a very high renewal rate is desirable.
The Commission recommends a continuous renewal of the sample,
but taking into account that participation is voluntary, has not
imposed strict rules on how long a farm should stay in the FADN
sample. Therefore, differences between Member States or regions
occur.

12. (a) For Austria, a lower threshold would have been more
appropriate at the time of accession. The issue has to be
reconsidered taking into account the results of the 2003
farm structure survey.

17. (a) In the new selection plan for Greece, discussed in the
FADN Committee in December 1999, information con-
cerning selection rates exists.

(b) No separate sub-sample for companies exists in the Neth-
erlands. This does not, however, prevent such holdings
from existing in the sample.

(b) The Commission has sent several requests to the Greek
authorities on this matter with a view to improving the
situation. It has also financed specific actions to improve
Greece’s FADN statistics.

(c) The Commission will analyse this question.

(c) Participation in the FADN is voluntary for farmers.
Depending on experience with the new data delivery and
control system (FADN-1), the Commission is considering
whether implementation reports could be suppressed.

The Commission follows the representativity of the
13 to 14.
selection plans and the results in respect of the three criteria set
in Commission Regulation (EEC) No 1859/82 (region, type of
farming and economic size class). Member States have been
allowed to do the selection in a way that best suits to their condi-
tions. In some Member States the FADN makes use of existing

(d) Until 2001, the comparison of selection plans with the
results had to be done by analyses. These analyses have
been discussed in the FADN Management Committee. The
latest discussion took place in November 2002.

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(e) The requirements for selection plans are set out in Article 4
of Commission Regulation (EEC) No 1859/82. The selec-
tion plan is to include particulars of the statistical refer-
ence sources, the procedures for stratifying the field of
survey in accordance with the Community typology of
holdings and the procedures for determining the selection
rate chosen for each stratum. The FADN Committee is
consulted for the purpose of verifying that the plans are
in conformity with the provisions of Article 4 of the
Council Regulation. The Commission considers that, tak-
ing into account differences in farm types and size classes
in the Member States, this procedure is sufficient to ensure
harmonisation of the selection plans.

19.
The situation until 2002 in which Member States were
responsible for the delivery of duly completed farm returns, but
only the Commission had access to the data control programme,
led sometimes to a lengthy and cumbersome process of asking for
clarifications and corrections from the Member States. Therefore,
the Commission started a modernisation process concerning data
delivery and control. The new FADN-1 system has been opera-
tional since mid-2002 and was first applied to 2000 data. Its pur-
pose is to improve the quality of the results and make them avail-
able quicker.

23.
In the new FADN-1 data delivery and control system,
Member States either correct the data or justify the error message.
The Commission is in continuous contact with the Member States
and has bilateral discussions concerning the errors, how to cor-
rect them and how to improve the overall quality of the FADN
data.

An indicator of the organisational form of the holding
24.
will be available in 2004 for the accounting year 2002. This will
allow the use of farm family income only for those holdings that
are family farms. The other income indicators — farm net value
added and farm net value added per work unit — can be used for
all farms and are in fact more widely used in analyses than Farm
Family Income.

27.
Analyses based on the FADN data most often use farm
net value added as an income indicator. This indicator can be used
in a comparable way for all farms irrespective of their legal status.

The economic accounts for agriculture are the sub-
34 to 36.
ject of continuous and detailed checks on their accuracy and com-
parability by the Working Party on ‘Agricultural accounts and
prices’ and during more specific exercises such as the inventories.
This is why the quality of income statistics produced under the
EAA has always been considered satisfactory.

In addition, if the choice of the sources of data is left to the Mem-
ber States according to the specific structure of their agricultural
sector and of their statistical system, this has little impact on the
quality of the EAA data. It is in fact not the harmonisation of data
sources but the harmonisation of definitions and principles of
data extraction which guarantees the harmonisation of the EAA
data among Member States and contributes to their quality.

Similarly, studies have shown that the multiplicity of data sources
makes the accuracy indicators very difficult to establish and com-
plex to interpret for such statistics as national accounts and
accounts for agriculture.

Eurostat continues to collect the IAHS data available

48.
(without recourse to contractors).

49 to 50.
The statistics for the FADN, the EAA and the IAHS
have been drawn up for different reasons which go well beyond
the simple calculation of income in some cases (the FADN is
increasingly used for economic and financial analyses). If all the
costs of the FADN seem to have been taken into account, the
costs given for the statistics on agricultural accounts and farm
households’ incomes seem to reflect their real cost only very par-
tially. The EAA and IAHS statistics are largely taken from other
statistical sources (including national accounts and the FADN), so
a precise estimate of the costs of these various statistics is difficult
(a large part of the costs of the EAA and IAHS being borne by
national accounts and the FADN).

THE PERTINENCE OF THE STATISTICAL TOOLS USED BY THE
COMMISSION

A Regulation of the European Parliament and of the
30.
Council concerning the economic accounts for agriculture in the
Community is in the process of adoption. This Regulation will
consolidate the methodological framework of the EAA and will
fix a framework for data transfer. It should thus contribute to
improving the quality of the EAA.

57.
From the beginnings of the CAP, the Commission has
used the statistical tools provided by the FADN and EAA inten-
sively for monitoring and evaluating the common agricultural
policy with regard to its income goals. Since the most significant
part of farm households’ income comes from agricultural activ-
ity (and mainly commercial holdings), these statistics have also
made it possible to monitor and analyse changes in farm house-
holds’ income in a relatively reliable way. In fact, this was in line
with paragraphs (a) and (b) of Article 33, which explicitly link the

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C 45/25

goal of ensuring a fair standard of living for the farming commu-
nity to increases in income generated by agricultural activity.

levels. Extending the coverage of the FADN to small holdings has
proved very difficult and expensive, and contributes only a little
additional information on incomes.

64 to 66.
For the reasons given in paragraph 57, the monitor-
ing and evaluation of the common agricultural policy with regard
to its income goals have always been ensured in a relatively reli-
able and relevant way by the statistical tools represented by the
FADN and EAA. For example, at the time of the adoption of the
last reform of the CAP in June 2003, all the key data as regards
the evolution of incomes and the potential impact on incomes in
the agricultural sector were based on indicators derived from the
EAA and FADN.

71.
The Commission is continuously working to improve the
quality of the results. The approach and methodology of the FADN
are the same for all Member States, but country-specific factors
can be taken into account. The question of representativity has
been discussed in the FADN Management Committee. The Com-
mission is working together with the Member States to improve
the sampling and weighting methods of the FADN. These meth-
ods have to take into account the diversity of agriculture in the
Member States.

The Commission has been using these different statistical
67.
tools on the one hand to observe the past and on the other hand
as a basis for the reform proposals. Each of the tools provides
additional information in the decision-making process. Therefore,
they should be seen as complementary parts in a very complex
policy field.

The FADN database was created to satisfy the needs of
69.
the common agricultural policy and was therefore designed to be
able to monitor, inter alia, the changes in income of those most
directly concerned with the CAP.

Figure 4 confirms the analysis of the Commission that farm
households draw most of their income from agricultural activity
and that, consequently, the EAA and the FADN can be used as
relatively reliable estimators of farm households’ income. Accord-
ing to Figure 4, the share of income generated by agricultural
activity in the total income of agricultural households is consider-
ably greater than 50 % in 12 of the 15 Member States. This share
is less than 50 % only in Germany (partly for cyclical reasons), in
Finland (where farmers also engage in major forestry activity) and
in Sweden (for methodological reasons, households being classi-
fied by main occupation and not by income, and because of
changes in the taxation of capital).

The FADN may include, if appropriate, any woodland
72.
management and tourism connected with a farm. In 1994, the
Member States rejected a proposal to include any other sources of
income. The basic observation unit in the FADN is a holding, not
a farm household. For business analyses, the second main objec-
tive of the FADN, ‘holding’ is the only possible observation unit.
In the 2000 census, the share of legal persons or group holdings
in the FADN field of survey in EUR-15 was 6 %, up from just 3 %
in 1990.

74.
The main object of the EAA is the description and analy-
sis of the production process and income generated by agricul-
tural activity. As such, the EAA are not designed to measure the
income drawn from other activities or various transfers.

The EAA are accounts by branch of activity, making it
75.
possible to assess and analyse the evolution of income across the
agricultural sector. This information can be supplemented by the
microeconomic data from the FADN which allows, inter alia,
ananalysis by technical-economic type and by distribution.

77.
The IAHS project has so far encountered difficulties in the
Member States due to resources and methodological problems.
The recent developments under the CAP and in the structure of
the agricultural sector could bring new demand for such statistics
and encourage further development.

Finally, it should be recalled that while the broad definition of
farm households can provide interesting quantitative information
for economic purposes in quite specific situations, such statistics
cannot be compared with data obtained under the narrow defini-
tion, which is the only one which conforms with the rules applied
in the system of national accounts.

CONCLUSION

Although the FADN covers only 65 % of holdings, the
70.
income indicators drawn from it are broadly representative of the
agriculture sector because the share of holdings covered by the
FADN is much larger in terms of income. Since the structure of
the agricultural sector is different from one Member State to
another, the threshold of economic size has been set at different

The FADN and the EAA provide information on the
78.
income generated by agricultural activity which is used as basic
information in monitoring and evaluating the CAP. These statis-
tics are also necessary for developing the statistics provided by the
IAHS, which can give additional information on the standard of
living of the farming community.

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Official Journal of the European Union

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The statistics of the EAA and the FADN have for many
79.
years provided very useful, reliable and relevant information on
the incomes generated by agricultural activity. This information
has proved very important for the monitoring, evaluation and
design of the common agricultural policy. So far, these figures on
income from agriculture could be regarded as relatively reliable
estimates of farm households’ income to the extent that the latter
draw the major part of their income from farming. Equally, the
use of these statistics is in line with paragraphs (a) and (b) of
Article 33 explicitly linking the goal of ensuring a fair standard of
living for the farming community to increases in the income gen-
erated by agricultural activity.

The socioeconomic developments in the agricultural sector and
recent changes in agricultural policy (in particular as regards rural
development) may well require more detailed figures on farm
income. Although reliable statistics on the income of agricultural
households already exist in a considerable number of Member
States, it would be worth making a study of the feasibility and
cost of statistics that measure the standard of living of the farm-
ing population across all the Member States of the Union.

improve the quality and coverage of the statistics of farm incomes,
which are necessary for monitoring the objectives of the common
agricultural policy.

The approach and methodology of the FADN are the same
81.
in all Member States, but country-specific factors can be taken
into account. Several studies, aiming to contribute to a further
harmonisation of the methods and an improvement of the results
are currently foreseen. The Commission will develop the FADN in
cooperation with the Member States in the FADN Committee. A
further harmonisation between FADN and the farm structure sur-
vey is also planned.

82.
The EAA will continue to be monitored for quality by the
Working Party on ‘Agricultural accounts and prices’. The improve-
ment of the EAA (by systematically following up the gaps revealed
by the inventories) will be actively pursued, especially since the
EAA will henceforth be based on a Regulation of the European
Parliament and of the Council.

The financial situation and income levels of farming undertakings
and in the agricultural sector generally will continue to be the
subject of regular monitoring on the basis of FADN and EAA
data, the harmonisation and consistency of which will need to be
strengthened through increased collaboration among the various
services concerned.

Studies have shown that the multiplicity of data sources made
accuracy indicators very difficult to establish and complex to
interpret for such statistics as national accounts and accounts for
agriculture. In the absence of progress in measuring the accuracy
of economic accounts data, it seems impossible at present to take
action on this recommendation.

RECOMMENDATIONS

80.
With the help of the relevant committees and working
parties, the Commission is constantly evaluating and trying to

The Commission will continue to evaluate the project
83.
recently started. On this basis, it will study the feasibility and cost
of statistics making it possible to measure the standard of living
of the farming community in all Member States. Likewise, it will
decide on the methodological approach to be taken in collabora-
tion with the Member States or the relevant committees.