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5.38 This sub-group includes activities such as preparation of fields for growing the crops and hiring of tractors with crew. The share of these services is usually quite small in the total production of agricultural output and data on the production of such services, whether they relate to establishments or agricultural products are not generally available. Where the cost of such services has already been included in the goods it need not be separated. In countries where such services are being produced on a large scale it may be necessary to conduct studies either to estimate the total quantum of such services sold or to get structural ratios. In case of the latter, it may also be necessary to get a multiplier to estimate the total activity in terms of the area covered. In such cases, it may be necessary to check if the estimated services have also been included as intermediate consumption of purchasing units to avoid double counting.
5.39 Estimation of the operation of irrigation systems, which is another service activity, needs special mention. Generally irrigation systems are either owned by cultivators themselves or operated by government. Government systems refer to the operation of canals and dams. The cost of a cultivator-owned system consists of the cost of labour, repairs and maintenance and the value of fuel and lubricants used for the operation of the system. Such inputs (repairs and maintenance and fuel and lubricants) should be included in the intermediate consumption of the cultivators so that it is not necessary to impute a value for the output of irrigation. When the system is run by the government, a detailed analysis of the expenditure of the irrigation department should be made to separate this activity from other activities related to the creation of assets. Water charges received by the government from cultivators become the receipt (or output) of the department which is very often subsidized. When the supply of irrigation water is heavily subsidized (or made available free) the output is estimated on the basis of actual cost incurred, i.e. the sum of intermediate consumption, compensation of employees and consumption of fixed capital.
5.40 The 1993 SNA recommends the use of basic prices or, if that is not possible, producer prices to value output. In principle, the basic prices received by farmers for their produce are the prices realized by them for that produce at the farmgate excluding any taxes payable on the products and including any subsidies. The costs of transporting agricultural produce from the farm to the market or to the first point of sale off-farm, and of selling it there (whether these activities are performed by the farmer himself or by specialized agents) are not, by definition, to be included in the farmgate price. The cost of such activities, if included in the purchasers' prices paid on the market or the first point of sale must, therefore, be deducted to arrive at the estimate of the basic farmgate price.
5.41 Conceptually, any activity outside the farm is not agricultural activity. Thus, the cost of transportation, storage charges and payments for market charges are excluded from the basic prices received by the farmer. Even when farmers have their own transport and storage facilities, the output of such facilities should be excluded from agricultural output and recorded under a different industry heading. If a farmer decides to hold his produce for a period to get the benefit of higher prices, then for that period he is acting like a trader (and not cultivator) and taking various risks from market fluctuations or losses during storage. He also pays rent for storage space, etc. Thus, the prices to be used are the average basic prices on representative primary markets during the peak marketing period which is the period of six to eight weeks (not necessarily at the beginning of the market campaign) when the major share of the harvested crops are disposed of in market. In this period the bulk of the crop produce is usually transacted by the cultivators who do not have storage capacity. To obtain representative prices for the various crops, the price data should be collected on weekly basis, or at some other convenient time interval, and average prices calculated. If the area under crop is very large, it may also be divided into smaller segments taking into account the administrative structure and the organization of price collecting mechanisms.
5.42 When the total output is multiplied by the prices calculated in the above manner, crop output used for own-consumption, quantities used for transaction in kind or given as gifts (either free or at very subsidized prices) and quantities exported are all evaluated at basic prices. In developing countries the bulk of produce is very often transported by the cultivators themselves and sold on primary markets. In such cases, instead of adjusting each individual price quotation, the total value of all transportation and market charges should be estimated and allocated on a pro-rata basis.
5.43 In the case of live animal and animal products, there is no peak marketing season so simple or weighted averages of weekly or periodic prices may be used to value output at basic prices.
5.44 In some countries the prices of certain crops or products may not become available until years later because the crops are very minor or because of some other reason. In such cases, countries should adopt one of the following alternative techniques:
· Find out whether there is a marketing board or development Directorate for the produce that regularly compiles prices. If there is the procedure for the collection of data by the institution concerned should be examined and the price data suitably adjusted, if necessary, to arrive at basic prices.
· A benchmark study may have been carried out into the cultivation or production practices in selected areas for a specific product. In such studies data on prices may also have been collected. Such price data suitably adjusted to basic prices could be extrapolated to other years on the basis of the price behaviour of similar products.
· In the case of products that are not properly specified (e.g. small millet, other fruits, vegetables and pulses) the price can be expressed as a percentage of the prices of some specified crops or the weighted average of a group of crop grown in the same season or, depending on the local situation, observed in the areas where they are grown in bulk. For example, the average prices for other pulses can be taken as 85 percent of the weighted average prices of arhar, urd, moong, masoor, horsegram, etc., the weights being the outputs.
· When prices are available for processed goods (e.g. prices of sheet rubber instead of raw rubber), they should be reduced to eliminate the processing element using data available from manufacturing surveys.
· The prices of by-products should be calculated using data from cost of production studies or by comparing the prices of substitutes.
· Prices collected in consumption surveys can also be used after adjusting for trade and transport margins.
· In some countries the government announces procurement or support prices for some commodities either to protect farmers from sudden adverse trends is the market or to obtain food grains etc. for distribution through various plans and programs (poverty alleviation or rural development programmes). In such cases only the quantities procured by government should be evaluated at such prices. Trends in procurement prices should also not be used to extrapolate any other prices.
5.45 Various items may enter into intermediate consumption, these are: seed and seedlings for agricultural products; feedstuffs for all types of livestock; manures and fertilizers; protective farm chemicals, e.g. insecticides, pesticides and others; electricity, light and fuel; other materials used in production, e.g. gasoline, oil, bags and rope; repair and maintenance charges; rental charges for the hire of farm machinery with or without a driver; and other services. Data for estimating the value of these items may be available either from sample surveys of farm income and expenditure or from cost of cultivation or farm management studies. When such data are collected from income and expenditure surveys, they can be distributed among the various crops grown on the farm with the help of information on cultivation practices and area sown under each crop using cost-accounting techniques. Estimates per unit of the quantity or value at constant prices may be used as technological ratios, e.g. the quantity of seeds, insecticides or fertilizer used per unit of area sown in the different centres where data are being collected. Such information should be combined with information on the area under cultivation to obtain the value of intermediate consumption for total crop production. Those crops for which no area data are available should be included by combining them with crops having similar cultivation practices. This should be done taking into account local conditions and practices. Similarly, the quantity of animal feed used may be calculated on the basis of the quantity of animal feed used per head of livestock multiplied by the total number of livestock. However, in such cases, the livestock used by other sectors, e.g. transport and games, should, of course, be excluded. When data on animal feed are not available for all livestock, the total livestock population can be converted to a standard animal using livestock equivalence factors. Similar kinds of estimates can be made for the quantity of fuel used, the cost of repairs and maintenance, electricity, etc. by establishing relationships to capital stock and applying them to data collected in agricultural or livestock censuses. While collecting data in such enquiries it is necessary to ensure that seed, fodder and other products produced and consumed on the same farm are included. The quantities of various items of intermediate consumption estimated in this way should be valued at current purchasers' prices.
5.46 As already discussed in the case of measurements of production, the cost of an input should be recorded at the time it is actually used on the farm and not at the time of its purchase. If necessary, the price may be adjusted to that at the time the input is used.
5.47 Data on intermediate consumption derived from cost of cultivation or farm management studies should be checked against information available from other sources. For example, information on standard cultivation practices available in the Ministry of Agriculture will provide recommended rates of seed, fertilizers, pesticides, etc. per unit of area along with an expected yield rate for the crop. In such cases the individual returns should be scrutinized from both sides, i.e. from the input as well as the output side. Usually, if data are being processed through computers it is possible to write standard scrutiny programs. An alternative check is also possible from the production side using the commodity flow approach. Such checks are generally applied either to test the reliability of the estimates or to prepare estimates for chemical fertilizer and pesticides. Furthermore, in the case of electricity, some countries provide electricity to cultivators at special concessional rates and the estimate of total consumption of electricity can be obtained from the Electricity Board or Company. Likewise, in some countries estimates of total fertilizer consumed can be prepared using data on production, import and export of the fertilizer together with information on producer stocks.
5.48 The composition of the intermediate consumption of agriculture depends on the technical level of the production processes used. Mechanized agriculture uses tractors and other machinery to harvest, thresh, spray, pump, etc. and these require spare parts, repair and maintenance and fuel oil. The degree of mechanization depends partly on the size of the holding. Taking these factors into account checks can be made on the composition of intermediate consumption.
5.49 In countries where governments operate irrigation systems it may be necessary to calculate the irrigation charges actually paid by the farmers and include these in intermediate consumption. The values of output and intermediate consumption can be estimated from the income and expenditure statements of the government irrigation department.
5.50 Compensation of employees is payable to resident or non-resident workers out of value added. Data on salaries and wages paid in cash and kind are available either from sample surveys or farm management studies, in the same way as for items of intermediate consumption. Employers' contributions to social security, private pension, family allowance and similar welfare schemes are not usually made for agricultural workers in developing countries. When they are payable they can be estimated from government expenditure statements, insurance company accounts and other relevant sources. The data obtained from surveys or farm management studies should be processed in similar ways to data on intermediate consumption.
5.51 The coverage of this item, as indicated in Chapter 3, limited to paid labour. If possible, however, the quantum of work done (in terms of person hours) by unpaid family workers should also be recorded and compiled for different stages of production. The value of unpaid family labour could be imputed using this data together with a general wage rate prevailing at that time, if a suitable local wage rate can be found. Such information could be shown as a memorandum item in the income generation accounts.
5.52 Taxes on production are unrequited compulsory payments by enterprises to Governments (or supranational agencies) on the production, sale, purchase or use of goods and services. Tax data are generally available from the Government offices responsible for collecting taxes but their distribution by kind of activity is very often not available. In the case of agriculture, taxes include:
· land taxes on agricultural land;
· the specific taxes on agricultural products based on their production or sale. These are usually proportionate to the quantity or value of the products sold;
· taxes of a general nature (such as VAT in the European Union) which are also based primarily on the sale of products but which may be totally or partially deductible or reimbursable. The amount of this deduction depends on the taxes paid on the intermediate goods or capital goods purchased by the enterprises;
· other taxes on production either directly on the activity or on the purchase or utilisation of goods, such as farm vehicles, or factors of production; fixed water and irrigation rates which are unrelated to the quantity of water consumed paid to
Government administration.
5.53 The allocation of such taxes to the agricultural activity may be difficult. Estimates may be made using different methods. For example, taxes on land and fixed irrigation or water charges can be estimated either by getting the relevant details from the tax office or from government income and expenditure statements. Taxes on farm vehicles can be estimated using the tax rate and the estimated number of tractors etc. in agricultural or livestock censuses. Similar procedures would be necessary for other items and small items might be omitted if not significant. Taxes on imports can be estimated on the basis of the volume of imports.
5.54 Subsidies are unrequited current transfers to producers which are a function of their production activities. The recording of a subsidy depends on the way it has been paid. For example, if the government pays subsidies to a fertilizer producer to reduce the purchaser's price of the fertilizer, the subsidy is recorded in the manufacturing and not the agricultural sector. In another case, if government is giving away certain chemical compounds to increase productivity or for demonstration purposes, they become either a subsidy to agriculture or part of the cost of extension services, depending upon the way in which they have been given. Similarly, in the case of an irrigation system, if Government charges for irrigation are nominal and the operation is running at a loss then the total loss may be treated as a subsidy in the agricultural sector. For the purpose of analysis, subsidies may be divided into the following three groups:
· subsidies on farm products;
· subsidies on intermediate consumption;
· other farm subsidies.
5.55 Subsidies on farm products are linked to production and given in the form of price support. For example, the government may decide to pay a certain amount per ton in addition to the payment received from the industrial user of certain cash crops such as sugar cane or sunflowers. Most of these subsidies are intended to encourage or improve production of the commodity in question.
5.57 The data sources for estimating subsidies are government income and expenditure statements. However, sometimes specific details of subsidies are not available from printed statements. Subsidies change very frequently and indirect estimates are also possible from details available in the Ministry responsible for the implementation of such schemes.
5.58 Gross fixed capital formation consists of the acquisition of fixed assets by producer units less disposals of fixed assets. It can be measured either for enterprises (institutional units) or for establishments. The main source for estimating gross fixed capital formation is either the expenditure data available in the accounts of government units or enterprises or data collected through censuses or sample surveys. Although the estimates should be made at purchasers' prices they cannot be prepared by multiplying quantity data (collected in agricultural censuses, etc.) by average purchasers' prices because existing (second-hand) assets are involved as well as new assets. However, this approach can be made to work for estimates of net acquisitions of livestock classified as fixed assets.
5.59 Estimates based on expenditure statements are straightforward and are available in the form of time series. Estimates can be prepared from census data extrapolated to other years by means of sample surveys. For this purpose, the benchmark estimate must be disaggregated by type of assets, viz. farm buildings, land improvements, plantations, machinery and equipment and livestock. Estimates for farm buildings can be extrapolated on the basis of permits issued or, alternatively, a joint estimate for farm buildings and land improvements can be extrapolated to other years on the basis of agricultural incomes or indicators such as gross value added in agriculture at constant prices. The adjustment for changes in prices can be made on the basis of a specially prepared investment cost index (details of which are given in the next paragraph). The basic assumption in this case is that the resources available to farmers directly finance the capital formation. A number of assumptions like this can be made to construct indicators and thus project benchmark estimates available from different sources. However, in such cases it is necessary to understand the basic assumptions used and their suitability. Benchmark estimates for plantations can be extrapolated to other years by using areas under new plantation. Similarly, to prepare yearly estimates of capital formation in machinery and equipment, the benchmark year estimate can be extrapolated on the basis of time series on the net availability of agricultural machinery (i.e. the total production of agricultural machinery plus import minus export of agricultural machinery) after adjusting for changes in inventories, trade and transport margins and taxes. These data are generally available from censuses or surveys of industrial production and foreign trade. If comprehensive data on domestic production of agricultural machinery are not available, benchmark estimates of domestic production can be extrapolated with the help of an index of industrial production for the relevant group. Such estimates implicitly assume that the proportions of machinery and equipment used in the agricultural and non-agricultural sectors remain the same as in the base year. Thus, it is not generally advisable to prepare very long time series of capital formation using such indicators.
5.60 Investment cost index numbers are index numbers of purchasers' prices for fixed assets. Such index numbers can be prepared for different types of assets such as farm buildings, land improvements and machinery and equipment To prepare such an index for construction a weighting diagram is drawn up in which the shares of different construction costs, including wages, are shown for the base year. Using this weighting diagram and price and wage indices, a weighted index, known as an investment cost index, can be prepared. In the case of machinery and equipment, the price indices of various types of machinery are combined in proportion to their shares in the base year, including a wage index that represents installation costs, if any. The price indices for individual items can be taken from either wholesale or retail prices indices but the same source should be used for all items.
5.61 Stocks or inventories consist of supplies and materials purchased by cultivators but not used, goods produced for sale but not sold, work-in-progress and livestock (young stock and animals for slaughter). The subject has already been covered at length in earlier discussions. In the case of agriculture it may be assumed that the cultivator would be reluctant to hold stocks of materials and supplies because of the problem of storage and the risk of deterioration or damage. As discussed earlier, when the crop is harvested just before the end of the year, it is necessary to record the total output of the crop as additions inventories of finished goods and the run-down of those inventories in the subsequent year has to be taken into account in the production account for that year. The treatment of standing crops work-in-progress has already been discussed. Changes in inventories of agricultural goods held by traders do not form part of the capital formation of the agriculture sector.
5.62 Consumption of fixed capital is measured at current prices. It is a fraction of the current price of the fixed asset that reflects the part used by in the production process during the current year. It is necessary first to estimate the current replacement cost of farm buildings, other construction work and machinery and equipment; i.e. the current value of the capital stock. Estimates can be obtained for a benchmark year through a sample survey or census and updated using information on the average life span of the different capital goods, their prices and estimates of new gross fixed capital formation. An alternative way to estimate the value of capital stock and the consumption of fixed capital is known as Perpetual Inventory Method (PIM). The steps involved in PIM are as follows:
· Assumptions are made about the average length of life of each class of assets;
· Gross fixed capital formation at constant prices is estimated for each class of assets. If the average length of life of a class of asset is 't year' and the current year for which the estimate of capital stocks is being prepared is denoted as 'c', the series of gross fixed capital formation would be required for t years prior to the year c;
· A simple total of this series will give the value of the gross stock of fixed capital at constant prices at the end of the year;
· The gross capital stock so arrived is divided by 't' to obtain the estimate of consumption of fixed capital at constant prices which is then converted to the current year price level by multiplying the estimate by the change in prices between base and the current years.
5.63 This procedure obviously involves collecting a large amount of data and making assumptions about prices, length of life, etc. The reliability of the estimates depends on the judgements of lengths of lifes of various assets. These assumptions are generally made in consultation with cost accountants and engineers.
5.64 The Goods and Services Accounts gives the uses of agricultural goods and services produced or imported during the year. Taking into account the wide variety of the transactions involved, a large amount of data are required from different sources. A simple way to prepare this account would be to use the commodity flow method which integrates the results of various surveys. The various steps along with sources of data for preparing this account follows:
· Prepare a detailed item-by-item list of goods and services produced during the year.
· Classify the data on import and export of agricultural goods under the same classification as used for domestic production.
· Add imports and subtract exports to domestic output to determine the net availability of goods and services for domestic uses.
· Deduct the intra- and inter-farm consumption from the net availability to obtain the net availability for other sectors and final uses.
· Identify the items that can be used for final consumption of household or government, intermediate consumption of other sectors and capital formation of agriculture and other sectors. Some of the items can be put to more than one use. Thus a workable solution would be to take out fixed capital formation and change in inventories first taking care to examine the definitions and composition of domestic output. For example, own account capital formation may only include those items that are included in output. Thus, if some standing crop has not been included, it should not be listed under capital formation but livestock going to another sector, such as transport or forestry, have to be classified as capital formation. The capital formation given in this account can therefore be different from that shown in the capital account for agricultural producers because here it represents that share of agricultural production that goes as capital formation irrespective of the sector that acquires the assets. Capital formation recorded in the capital account consists of assets that are acquired by the agricultural sector irrespective of the source from which they have been obtained. Likewise, feed for those animals that are not used in the agriculture sector must be included as intermediate consumption of other sectors.
· To estimate the agricultural goods and services supplied to other sectors, analyze the data of industrial surveys (agro-industry group) that contain details of output and input. When such surveys are carried out at periodic intervals, the ratio of output to input for the benchmark year may be applied to the final output of agro-industries in subsequent years to estimate the share of agricultural products used as intermediate consumption in the manufacturing sector. Likewise, data for the transport sector
(value of feed for transport animals), other services (value of feed for livestock used in recreation) and food served by medical and educational institutions, religious and welfare bodies and hotels and restaurants may be analyzed and benchmark estimates prepared if regular data are not available. These benchmark estimates can be extrapolated to other years using suitable indicators which depend on the availability of data and the quantum of the products going to other sectors. For example, the share of goods going to manufacturing can either be extrapolated on the basis of the output of manufacturing establishments (assuming a fixed input-output relationship) or on the basis of net availability of goods going as input (assuming the distribution among various uses remains the same). The consumption of food in various institutions can be extrapolated to other years with the help of data such as the number of beds in a or patients going to hospital and the number of students in schools where midday meals are served (or simply the total number of students). The food being served by religious and social institutions can be extrapolated to other years using the growth of the relevant population.
· Estimates of agricultural goods used by General Government can be made using information from selected departments such as the police, and the armed forces, for a benchmark year and then extrapolated to other years on the basis of their expenditures in those other years.
· Depending on their nature and source, data on purchases by other sectors and by government should be subtracted from the net availability so that the residual remaining is the share of agricultural goods and services that are used by the household as final consumption.
5.65 The estimates derived in the above manner should be checked with the help of per caput consumption calculated from the derived series and from the data available from consumption surveys. While checking the reliability of data it is necessary to take into account the way in which consumption surveys have been organized; for example, whether they take into account floating population, employment in defence services and expenditure of households in hotels and restaurants. Furthermore, the whole exercise described above has been formulated on the assumption that estimates of inventories of the agricultural goods held by traders and government are available. If such estimates are not available, an attempt should be made to prepare estimates of final consumption by households with the help of consumption surveys for the benchmark year extrapolated to other years on the basis of total population. Total consumption does not change often or significantly unless there has been some natural calamity or war in the country concerned.
Organization of the compilation of SEAFA
5.66 Having gone through the sources of data and methods of estimation for the compilation of SEAFA, a final word is necessary on how best to organize the work. The compilation work of SEAFA should be organized on a personal computer using suitable spreadsheet software. Starting with area under crops and number of livestock data the work can be organized in the form of different data banks relating to area, productivity, production, prices, etc. The data available should first be systematically recorded. At the second stage the gaps may be filled with the help of techniques described in Chapter 6. Wherever necessary a separate worksheet should be prepared in order to estimate missing data and estimated data should always be shown with a star to indicate their provisional nature. It is a good practice to prepare an aggregated picture by aggregating goods and services into a few (generally eight to ten) groups (for example, foodgrains, oilseeds or sugar) and monitoring the time series trend as well as ratios, such as yield rates, wastage, seed rate and input-output ratio, to check consistency. The spreadsheet may be organized in the form of a commodity-flow-approach calculation which is more or less similar to the input-output transaction table format.