PART ONE: THE SYSTEM
Chapter 1 - Introduction
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a separate system?
The role of the system
The arrangements of the handbook
Why a separate system?
1.1 A System of Economic Accounts consists of a coherent, consistent and interrelated set of economic accounts for sectors or sub-sectors of the economy, industries or the economy as a whole. It provides a set of concepts, definitions and classifications within a broad accounting framework. It is designed for purposes of economic analysis and policy-making, including the formulation and monitoring of economic programmes and development planning. Data of a scientific, technological or social nature can be systematically related to economic data within the framework of an overall system of accounts. Work on the formulation of such a system started at individual research level well before the Second World War. The first United Nations System of National Accounts (SNA) was published in 1953. The UN recommended countries to compile their economic accounts within the SNA framework to achieve consistency and facilitate international economic comparison. However, the interest of policy-makers in relating the outcomes of various scientific and technological studies, plans and programmes to the socio-economic status of the population, encouraged the further elaboration of the system. This elaboration included the establishment of links with the distribution of income and consumption; stocks of tangible and non-tangible assets; a balance sheet; stocks of human capital; and various other monetary and quantitative databases relating to different types of activities. SNA has been revised several times to take account of these wider concerns. The latest version' of the system was completed in 1993 and provides measures of production, income, consumption, savings, capital formation and their financing for individual sectors and not only for the economy as a whole. It also provides linkages with various monetary and quantitative databases relating to different types of activities through Satellite Accounts. SNA is a powerful and flexible tool to provide the detailed economic information required to meet analytical and policy needs. A System of Economic Accounts for Food and Agriculture (SEAFA) can be viewed as a specific application of SNA to meet the requirements of analysts, policy-makers and planners dealing with various economic activities relating to food and agriculture.
1.2 Policy-making and decision-taking with increasing socio-economic linkages and interdependencies within and between nations, is a necessary activity of every government. Agricultural development, like many other activities, has also become complex and comprises a number of separate but interrelated subjects. In many developing countries a large share of agricultural land is held in the form of small and marginal holdings. In most such countries the population is rising. Although new jobs may be created in non-agricultural activities the rate of increase in employment opportunities may be far less than the growth of population, giving rise to increasing poverty. Very often the resources at the disposal of primary agricultural workers diminish. On the one hand, the worker is forced to follow traditional production techniques while, on the other hand, the economy increases its demands on food production. An economy may also be faced with a situation in which the prices of food are high but farm incomes are low. Scarce foreign exchange is often used to pay for food imports. Diets are below the normal level and contain insufficient quantities of protein and fat. Animal husbandry activity and fisheries are inadequately developed because of a lack of resources. There is increasing pressure on land. Labour moves out of agriculture not because of the mechanization of farm activity but because of uncertainty and lack of resources. The high risk leads to agricultural credit being in short supply. Marketing systems, transportation and communication networks are inadequate. These factors, combined with social factors, hinder the commercialization of agriculture. In countries endowed with large forest resources, government policies frequently fail to secure the maximum benefits and efficient resource use. This results in economic and fiscal losses and contributes to the wastage of forest resources. Scarcely any resources are devoted to the development of the eco-system and the conservation of natural resources. The list of topics could be extended further but it is already sufficiently long to illustrate the complex and interrelated nature of the problem. In the face of this situation, however, the decision-maker has very little reliable data or information available for analysis. To solve such problems an information system is needed that keeps in close touch with various aspects of agriculture and shows the place and role of agriculture in the total economy. SEAFA is intended to meet this need. A separate system of economic accounts for food and agriculture is proposed for the following reasons:
(a) The basic needs of human populations for food, fibre, fuel and shelter are supplied by a combination of agriculture, fishery and forestry activity. Policy-makers need a comprehensive integrated view of the system as a whole to emphasize the importance of the subject and to make optimum use of resources in the long term.
(b) The activity of agriculture defined by the International Standard Industrial Classification (ISIC) under Divisions 01, 02 and 05 covers crop production, animal husbandry, forestry and fisheries, but for day-to-day decision-making, policy-makers and planners require information on many other areas in order to have a comprehensive view. These areas include the availability of food production, the impact of food and agricultural activities on the eco-system and the current status of natural resources.
(c) Planning exercises require information on numerous topics such as labour force participation, research and development, agro-industries, the management and production of inputs, the balance of trade and the balance of payment, the depletion of natural resources and impacts on other sectors.
(d) Agriculture, being an important part of economic activity, is recognized in the ISIC and SNA classification of economic activities as a separate activity. " Food production", however, is not specifically identified. Food production cuts across ISIC by combining economic activities covered under agriculture, forestry, fishery and manufacturing (food processing).
(e) Food availability and consumption may be expressed in terms of physical quantities of food or in terms of the nutritional level provided by the basket of food consumed, which is expressed in terms of calories (number), protein (grams), fat (grams), etc., for specific analytical use.
1.3 The economic accounts for food and agriculture have been designed to cover all these aspects. FAO thought it appropriate to provide a comprehensive framework for the economic accounts for food and agriculture in order to present traditional agricultural statistics on output, input, capital formation and uses of agricultural products in a logical consistent framework together with other information required by users either directly or through satellite accounts as recommended by the 1993 SNA.
1.4 In order to take coherent decisions regarding the availability of food, the level of nutrition of the population, the economic condition of the rural population (especially those engaged in agricultural production), the preservation of the ecosystem and the improvement of the efficiency of production, a comprehensive system is required. Such a system should provide information on the various subjects listed above and link the information system of agriculture with that of the rest of the economy and the rest of the world. The system would have both physical as well as monetary databases, as analysts and policy-makers need to know the impact of changes in one on the other. Thus, to provide a sufficiently flexible tool to policy-makers, it is necessary to formulate a comprehensive system of economic accounts for agriculture linked to the 1993 SNA. With such a framework it would also be possible to make international comparisons.
1.5 SEAFA has been designed to meet analytical needs and requirements for the formulation of plans and policies relating to food and agriculture. The framework of the System has been formulated using the concepts recommended by the 1993 SNA for establishing a system of economic accounts and by FAO for the collection of various data.
The role of the system
1.6 SEAFA recommends covering a large number of productive activities that are of interest to decision-makers. These activities fall under ISIC Divisions 01, 02 and 05 dealing with crop and animal husbandry, forestry and fisheries, and also under other divisions dealing with the production of fertilizer and pesticides, machinery and equipment, research and development, education and health, recreation, etc. SEAFA does not, however, propose that the accounts should be prepared for all activities. It suggests that part of the information should be presented in the form of supplementary tables of statements. The basic objective of this Handbook (SEAFA) is to illustrate how to organize useful information in an integrated manner for decision-making in FAO Member Countries. This Handbook is not a questionnaire for the collection of data on food and agriculture by FAO and it is proposed to address this matter separately.
The arrangements of the handbook
1.7 The Handbook has been divided into two parts. The first part deals with the structure of the system. As well as this introductory Chapter, it includes three more Chapters. Chapter 2 presents an overview of the System and includes the structure and formats of various accounts as well as illustrative list of statements recommended for different activities. FAO's traditional Food Balance Sheets are linked with SNA's supply and use accounts for food products. The linkage of SEAFA with the 1993 SNA has also been illustrated in this chapter. In Chapter 3, the basic national accounting concepts and definitions of the main flows used in the System are presented together. Obviously, this Chapter entirely depends on the 1993 SNA and many relevant portions have been extracted from SNA's text and reproduced. The concepts listed in this Chapter are uniformly applicable to all the economic activities covered in SEAFA. Readers familiar with the 1993 SNA may omit this Chapter. Chapter 4 covers the various uses of the System. Part TWO of the Handbook, which is intended primarily for compilers in developing countries, consists of two Chapters. The first chapter of Part TWO is devoted to crop and animal husbandry activities and discusses the application of the concepts given in Chapter 3 in Part ONE as well as describing the various sources of the data required to compile the accounts. The second Chapter of Part TWO presents a schematic classification of available data used to prepare SEAFA, keeping in view the reliability of resultant estimates. This chapter also includes some discussion of simple statistical techniques which are generally used by official statisticians to process primary data and impute missing data or observations. This discussion explains the assumptions underlying the techniques used. It is proposed to provide similar details about the structure of accounts and sources of data for other activities included in SEAFA in separate supplements to the Handbook.
1.8 This Handbook on SEAFA has greatly benefited from the comments and suggestions offered by various subject matter specialists and economists at FAO and in other international organizations on the first draft issued in March 1995 and also from the views expressed at the seminar on the 1993 System of National Accounts organized by the Economic and Social Commission for Asia and the Pacific (Canberra, September 1994), the Expert Consultation on Use and Analysis of Food and Agricultural Data organized by FAO (Bangkok, June 1995) and the Study Group on Food and Agricultural Statistics in Europe, Conference of European Statisticians, organized jointly by the Economic Commission for Europe (ECE) and FAO (Geneva, July 1995) where the draft Handbook was presented. The basic concepts and structure of accounts were also discussed with the representatives of ECE, the Statistical Office of the European Communities (EUROSTAT), the Organization for Economic Cooperation and Development (OECD) and the Ministry of Agriculture of France. Their contribution in suggesting improvements to the draft is gratefully acknowledged. Some editing of the final draft was also undertaken by Mr. Peter Hill working as a consultant to the FAO and his help is also gratefully acknowledged.
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