Regulation (EC) No 138/2004 of the European Parliament and of the Council of 5 December 2003 on the economic accounts for agriculture in the Community (Text with EEA relevance)

Article 1

Subject matter

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

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

Article 2

Methodology

Those delegated acts shall be adopted only where they do not change the underlying concepts in Annex I, they do not require additional resources for producers within the European Statistical System for their implementation and they do not impose a significant additional burden on Member States or on the respondents.

The Commission shall duly justify the statistical actions provided for in those delegated acts, using, where appropriate, input from relevant experts based on a cost-effectiveness analysis, including an assessment of the burden on the respondents and of the production costs, as referred to in point (c) of Article 14(3) of Regulation (EC) No 223/2009 of the European Parliament and of the Council ([^E0001]).

Article 3

Transmission to the Commission

However, the first transmission of data for the regional economic accounts for agriculture (‘REAA’) at NUTS 2 level within the meaning of Regulation (EC) No 1059/2003 of the European Parliament and of the Council ([^E0002]) shall take place by 30 September 2023.

Those delegated acts shall not impose a significant additional burden on the Member States or on the respondents.

The Commission shall duly justify the statistical actions provided for in those delegated acts, using, where appropriate, input from relevant experts based on a cost-effectiveness analysis, including an assessment of the burden on the respondents and of the production costs, as referred to in point (c) of Article 14(3) of Regulation (EC) No 223/2009.

Article 3a

Dissemination of statistics

Without prejudice to Regulation (EC) No 1367/2006 of the European Parliament and of the Council ([^E0003]) and Regulation (EC) No 223/2009, the Commission (Eurostat) shall disseminate the data transmitted to it in accordance with Article 3 of this Regulation online, free of charge.

Article 3b

Quality assessment

Article 4

Exercise of the delegation

Article 4a

Committee procedure

Article 4b

Derogations

Article 5

Final provision

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

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

ANNEX I

ECONOMIC ACCOUNTS FOR AGRICULTURE

(EAA)

CONTENTS	CONTENTS
	Foreword
I.	General features of the accounts
A.	Introduction
B.	The basic unit and the agricultural industry
1.	Basic unit
2.	Agricultural industry
3.	Inseparable non-agricultural secondary activities
C.	Measurement of output
D.	Sequence of accounts
1.	Sequence of accounts as provided for in the  ESA 2010
2.	Sequence of accounts of the EAA
E.	Sources of data and methods of calculation for compiling the EAA
F.	The classification
1.	General
3.	Definition of the characteristic units of agriculture
4.	Observations concerning various items
5.	Discrepancy between the EAA agricultural industry and the agricultural branch of the centralframework of the national accounts
II.	Transactions in products
A.	General rules
1.	Reference period
2.	Units
3.	Time of recording
B.	Output
1.	General comments on the concepts of output in the  ESA 2010 and EAA
2.	Output of agricultural activity: quantities
3.	Output of inseparable non-agricultural secondary activities
4.	Output of the agricultural industry
5.	Valuation of output
C.	Intermediate consumption
1.	Definition
2.	Elements of intermediate consumption
3.	Valuation of intermediate consumption
D.	Gross capital formation
1.	Gross fixed capital formation (GFCF)
2.	Change in stocks
3.	Recording of livestock as ‘GFCF’ or ‘changes in stocks’
III.	Distributive transactions and other flows
A.	Definition
B.	General rules
1.	Reference period
2.	Units
3.	Time of recording distributive transactions
4.	General remarks concerning value added
C.	Compensation of employees
D.	Taxes on production and imports
1.	Taxes on products
2.	Treatment of value added tax VAT
3.	Other taxes on production
E.	Subsidies
1.	Subsidies on products
2.	Other subsidies on production
F.	Property income
1.	Definition
2.	Interest
3.	Rents (on land and subsoil assets)
4.	Investment income attributable to insurance policy holders (not covered by the EAA)
G.	Capital transfers
1.	Investment grants
2.	Other capital transfers
H.	Consumption of fixed capital
IV.	Agricultural labour input
V.	Agricultural income indicators
A.	Definition of income and balancing items
B.	Treatment of the income of units organised on a corporate basis
C.	Definition of the agricultural income indicators
D.	Aggregation of income indicators for the European Union
E.	Deflation of income indicators
VI.	Valuation of EAA at constant prices
A.	Price and volume measures
B.	Principles and method for compiling EAA at constant prices
1.	Choice of index formula
2.	Base year
3.	Presenting series in relation to a reference year
4.	Calculation of value added at fixed year prices
5.	Breakdown of taxes and subsidies on products into volume and price components
VII.	Regional economic accounts for agriculture (‘REAA’)
A.	General principles
1.	Introduction
2.	Regional economy, regional territory
3.	Basic unit in the compilation of the REAA
4.	Methods of compiling the REAA
5.	Concepts of residence and territory
6.	Agricultural industry and characteristic units
B.	Transactions in products
1.	Output
2.	Intermediate consumption
3.	Gross capital formation
C.	Distributive transactions and other flows
1.	General rules
2.	Value added
3.	Consumption of fixed capital
4.	Subsidies
5.	Taxes
6.	Compensation of employees
7.	Net operating surplus
8.	Interest, rents
9.	Agricultural entrepreneurial income: general calculation rules
D.	A brief look at implementation
1.	Introduction
2.	Defining regional agriculture
3.	Measuring agricultural output
4.	Inseparable non-agricultural secondary activities
5.	Intermediate consumption

FOREWORD

The revision of the European system of accounts (ESA 2010) ([^E0004]) has led to some revisions of the basic methodology used for the EAA, to guarantee consistency with the ESA to allow harmonisation of the EAA both between Member States and with the central framework of the national accounts and to ensure that the changes to be made were feasible. This manual has been drawn up with these considerations in mind as, in addition to the concepts, principles and basic rules for compiling the EAA, it also refers to any adaptations to specific characteristics in the field of agriculture.

I. GENERAL FEATURES OF THE ACCOUNTS

A. INTRODUCTION

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

• 1.02. The European system of integrated economic accounts, which is derived from the United Nations revised system of national accounts ( 2008 SNA) ([^E0005]) , was created in response to the specific needs of the European Union. It lays down concepts, definitions, accounting rules and uniform classifications to be used by the EU Member States.

• 1.03. The economy of a country is the sum of the activities of a very large number of units engaged in many different types of transaction with a view to producing, financing, insuring, distributing and consuming. Units and groups of units considered in the context of a system of national accounts have to be defined in terms of the economic models under examination.  The ESA 2010 is characterised by the use of two types of unit and two corresponding ways of subdividing the national economy.

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

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

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

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

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

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

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

B. THE BASIC UNIT AND THE AGRICULTURAL INDUSTRY

1. Basic unit

• 1.09. In order to analyse flows occurring in the process of production and in the use of goods and services, it is necessary to choose units which emphasise relationships of a technico-economic kind. This requirement means that as a rule institutional units must be partitioned into smaller and more homogeneous units with regard to the kind of production. Local kind-of-activity units (local KAUs) are intended to meet this requirement as an operational approach (ESA 2010, 2.147) ([^E0006]).

• 1.10. The local kind-of-activity unit (local KAU) is the part of a KAU which corresponds to a local unit. The local KAU is called an establishment in the 2008 SNA and ISIC Rev.4. A KAU groups all the parts of an institutional unit in its capacity as a producer contributing to the performance of an activity at class level (four digits) of the NACE Rev. 2 (the reference classification for economic activities, cf. 1.55) and corresponds to one or more operational subdivisions of the institutional unit. The institutional unit's information system must be capable of indicating or calculating for each local KAU at least the value of production, intermediate consumption, compensation of employees, the operating surplus and employment and gross fixed capital formation (ESA 2010, 2.148). The local unit is an institutional unit, or part of an institutional unit, producing goods or services situated in a geographically identified place.

• 1.11. Although a local KAU may correspond to an institutional unit or part of an institutional unit in its capacity as a producer, it can never belong to two distinct institutional units. Since, in practice, most institutional units producing goods and services are involved in a number of different activities at once (a principal activity and one or more secondary activities), they can be broken down into the same number of local KAUs, if necessary information is available. Ancillary activities (purchases, sales, marketing, accounting, transport, warehousing, maintenance, etc.; cf. 1.27), however, cannot lead to the creation of a local KAU, unless they are carried out in a separate location, located in a region other than the local KAU they serve (ESA 2010, 3.13).

• 1.12. Basically, as many local KAUs should be recorded as there are secondary activities, but it can happen that statistical (accounting) information does not make it possible to separate a local KAU's secondary activities or parts of those activities from its principal activities. If an institutional unit producing goods or services contains a principal activity and also one or several secondary activities, it is subdivided into the same number of KAUs, and the secondary activities are classified under different headings from the principal activity. The ancillary activities are not separated from the principal or secondary activities. But KAUs falling within a particular heading of the classification system can produce products outside the homogeneous group on account of secondary activities connected with them which cannot be separately identified from available accounting documents. Thus a KAU may carry out one or several secondary activities. (ESA 2010, 2.149).

• 1.13. An activity can be said to take place when resources such as equipment, labour, manufacturing techniques, information networks or products are combined, leading to the creation of specific goods or services. An activity is characterised by an input of products (goods and services), a production process and an output of products. The principal activity of a local KAU is the activity where the value added of such activity exceeds that of any other activity carried out within the same unit. The classification of the principal activity is determined by reference to NACE rev. 2, first at the highest level of the classification and then at more detailed levels (ESA 2010, 3.10).

2. Agricultural industry

• 1.14. By grouping all local KAUs engaged in the same type of activity, it is possible to establish an industry. This makes it possible to break down the economy by industry. The classification of these industries depends on the principal activity of the units thus grouped together.  At the most detailed level of classification, as defined by ESA 2010, 2.150, an industry includes all local KAUs in the same class (four digit level) of NACE Rev. 2 and therefore engaged in the same principal activity as that defined in NACE Rev. 2.

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

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

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

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

• 1.17. The agricultural holding, which is the unit currently used for statistical studies of agriculture (censuses, surveys of the structure of agricultural holdings), is the local KAU most appropriate to the agricultural industry (even though certain other units, such as wine or olive oil cooperatives, or units performing contract work, etc., have to be included in it). Nevertheless, it should be pointed out that the variety of agricultural activities that can be performed on agricultural holdings makes them a special type of local KAU.  The strict application of the ESA rule to units and their group should in fact result in a division of the agricultural holding into several separate local KAUs in cases where several activities of the NACE Rev. 2 four-digit class are performed on the same holding and the information required according to paragraph 1.10 is available. The adoption of the agricultural holding as the local KAU of the agricultural industry in the national accounts and EAA is based on a statistical approach.

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

• 1.19. Since, according to ESA 2010, an industry comprises a group of units which carry out as their principal activity the same or similar types of activity, the definition of the agricultural industry in the EAA depends on the identification of the characteristic activities and units in that industry. The resultant selection of characteristic agricultural activities and units may lead to some differences between the EAA agricultural industry accounts and the national accounts (cf. 1.93).

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

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

• — farming of animals,

• — crop production associated with animal husbandry,

• — agricultural contract work,

• — hunting, trapping and game propagation, including related service activities.

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

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

• 1.23. If, however, the contract work is not performed entirely by specialised units (e.g. if holders hire machines but employ their own workers), this activity must be recorded in Division 77 of NACE Rev. 2 (Rental and leasing activities); in this case, amounts paid by the holders to enterprises working under contract must be recorded as ‘other goods and services’ under ‘intermediate consumption’ (cf. 2.108).

• 1.24. Since the purpose of the EAA is to measure, describe and analyse the formation of income from agricultural economic activity (which, in the EU Member States, is almost exclusively a commercial activity), it was decided to exclude units for which the agricultural activity represents solely a leisure ([^E0007]) activity. In contrast, units engaged in subsistence farming are included in the EAA. It should be pointed out that agricultural output for own final consumption by agricultural holdings must be recorded in the EAA.

3. Inseparable non-agricultural secondary activities

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

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

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

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

• — they must not be ancillary activities. Ancillary activities are not isolated to form distinct entities or separated from the principal or secondary activities or entities they serve. Accordingly, ancillary activities must be integrated with the local KAU they serve, unless they are organised in separate units and located in another region. Ancillary activities remain in the same industry as the local KAU they serve. Ancillary activities are supplementary activities (e.g. sales, marketing, warehousing, transport for own account; see ESA 2010, 3.12 and 3.13, and 2008 SNA, 5.35 to 5.44) carried out by an enterprise in order to create the conditions for conducting the main or secondary activities. Typically, the output of ancillary activities appears as input in the different types of productive activity,

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

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

• — agricultural ‘contract work’ is not a non-agricultural activity since it is a characteristic activity (agricultural services) of the agricultural industry.

• 1.28. Only that part of a specific non-agricultural secondary activity which is inseparable must be included. As a consequence, a given non-agricultural activity will be included in the agricultural industry if it is impossible to separate it from the main agricultural activity of a local KAU, but will be excluded if it can be separated from the main agricultural activity, in which case the secondary activity gives rise to a non-agricultural local KAU. The selection criterion for inseparable non-agricultural secondary activities is not so much the nature of the product as the type of activity ([^E0008]). For example, agro-tourism services provided by a farm must only be included if they cannot be separated from its agricultural activities. This would probably not be the case when these activities become important. Thus, non-agricultural products accounted for in the production of the agricultural industry may vary geographically and over time.

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

• 1. Activities which represent a continuation of agricultural activity and which use agricultural products. This type of activity can be found in most of the EU Member States. The processing of agricultural products is the typical activity of this group: Processing of agricultural products — milk into butter, cream, cheeses, yoghurts and other dairy products, — fruit and vegetables into fruit juices, tinned foods, alcoholic beverages and other products, — grapes, must and wine into alcoholic products (e.g. sparkling wine, such as Champagne, and spirits, such as Cognac), — plaiting of vegetable material/textiles/wool, — production of pâtés, foie gras and other processed meat products, — processing of other agricultural products, Grading and packaging of agricultural products, e.g. eggs and potatoes

• 1. Activities involving the agricultural holding and its means of agricultural production (equipment, installations, buildings, workforce). These activities are basically the following:
• — agro-tourism — camping, catering, hotels, various kinds of accommodation, etc.,
• — farm shops — retail trade activities concerning products other than those from the holding. Direct sales of agricultural products, raw or processed, are recorded in the output of the products concerned,
• — sports and rural recreation — the use of land for activities such as golf, horse-riding, hunting, fishing, etc.,
• — services for third parties — e.g. the renting and repair of agricultural machinery, irrigation projects, agricultural advisory services, product storage, maintenance of farm buildings, commercial services relating to agricultural products, transport of agricultural products, etc. These services are recorded as secondary activities, only if they are performed for a third party. When performed for own account, they are ancillary activities, which are not recorded in the accounts (cf. 1.27),
• — landscaping services — grass-mowing, hedge-trimming, snow-clearing, laying out, planting and maintenance of green areas and the like,
• — fish-farming,
• — other activities involving the use of the land and the means of agricultural production. These other activities will include R & D, if not performed by separate local KAUs and if possible to be estimated.

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

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

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

C. MEASUREMENT OF OUTPUT

• 1.33. According to the ESA 2010, the output of the industry represents all of the products produced over the accounting period in question by all the units of the industry except for goods and services produced and consumed over the same accounting period by the same unit. The measurement of agricultural output is based on an adaptation of this ESA rule, with the inclusion in agricultural output of part of the output consumed by the agricultural units themselves (cf. 2.032 to 2.036). Thus in the EAA, agricultural output represents the sum of output by all units in the industry (excluding output for intermediate consumption by the same unit), plus output used as intermediate consumption by the same unit, provided this output concerns two different basic activities (such as crop products intended for use as animal feedingstuffs) and it meets certain criteria (set out in 2.055).

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

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

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

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

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

D. SEQUENCE OF ACCOUNTS

1. Sequence of accounts as provided for in the  ESA 2010

• 1.37. The EAA are based on a sequence of interconnected accounts. In the ESA 2010, the full sequence of accounts includes current accounts, accumulation accounts and balance sheets (ESA 2010, 1.113 to 1.115). These different accounts make it possible to record transactions and other flows linked to specific aspects of the economic cycle (for example, production) in an ordered framework. These transactions range from the generation of income through income accumulation in the form of assets, to its distribution and redistribution. The balancing items which are deducted from them are then used as aggregates for measuring economic performance.

• 1.38. The current accounts deal with the production and related generation, distribution and redistribution of income and its use in the form of final consumption; they make it possible to calculate ‘savings’, which is the essential component of accumulation. Accumulation accounts analyse the various components of changes in the assets and liabilities of units and make it possible to record changes in net worth (the difference between assets and liabilities). The balance sheets show the total assets and liabilities of the various units at the beginning and end of the accounting period, together with their net worth. The flows for each asset and liability item recorded in the accumulation accounts are seen again in the ‘changes in balance sheets’ account (ESA 2010, 8.02 to 8.09 and Table 8.1).

• 1.39. The sequence of accounts referred to above applies to institutional units, sectors and subsectors, and the total economy. The ESA 2010 assumes that there is no point in compiling a full sequence of accounts for a local KAU and an industry because such units rarely have the capacity to retain goods or assets in their own name or to receive and distribute income.

2. Sequence of accounts of the EAA

• 1.40. As the EAA are based on the industry concept, the sequence of accounts in accordance with the  ESA 2010 has to be limited to the first accounts of the current accounts:

• — the production account and

• — the generation-of-income account

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

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

• — the entrepreneurial income account (one of the current accounts) and

• — the capital account (one of the accumulation accounts).

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

• 1.43. On the basis of the tables and accounting structure in the  ESA 2010, the sequence of accounts of the EAA can be depicted as shown in tables 1 to 4.

A. Current accounts	A. Current accounts	A. Current accounts	A. Current accounts	A. Current accounts	A. Current accounts
Table 1: Production account	Table 1: Production account	Table 1: Production account	Table 1: Production account	Table 1: Production account	Table 1: Production account
Uses	Uses	Uses	Resources	Resources	Resources
P.2	Intermediate consumption	50	P.1	Output	100
B.1g	Gross value added	50	P.1
P.51c	Consumption of fixed capital	10	P.1
B.1n	Net value added	40	P.1
Table 2: Generation-of-income account	Table 2: Generation-of-income account	Table 2: Generation-of-income account	Table 2: Generation-of-income account	Table 2: Generation-of-income account	Table 2: Generation-of-income account
Uses	Uses	Uses	Resources
D.1	Compensation of employees	10	B.1n	Net value added	40
D.29	Other taxes on production	5
D.39	Other subsidies on production	– 10
B.2n/B.3n	Operating surplus, net/Mixed income, net	35
Table 3: Entrepreneurial income account	Table 3: Entrepreneurial income account	Table 3: Entrepreneurial income account	Table 3: Entrepreneurial income account	Table 3: Entrepreneurial income account	Table 3: Entrepreneurial income account
Uses	Uses	Uses	Resources	Resources	Resources
D.4	Property income	10	B.2n/B.3n	Operating surplus, net/Mixed income, net	35
D.41	Interest	5
D.45	Rent	5	D.4	Property income	1
			D.41	Interest	1
			D.42	Distributed income of corporations
			D.43	Reinvested earnings on foreign direct investment
			D.44	Other investment income
			D.45	Rent
B.4n	Entrepreneurial income, net	26
B. Accumulation accounts	B. Accumulation accounts	B. Accumulation accounts	B. Accumulation accounts	B. Accumulation accounts	B. Accumulation accounts
Table 4: Capital account	Table 4: Capital account	Table 4: Capital account	Table 4: Capital account	Table 4: Capital account	Table 4: Capital account
Changes in assets	Changes in assets	Changes in assets	Changes in liabilities and net worth	Changes in liabilities and net worth	Changes in liabilities and net worth
B.101	Change in net worth due to saving and capital transfers		B.8n	Saving, net	Saving, net
			D.9r	Capital transfers, receivable	10
			D.92r	Investment grants, receivable	5
			D.99r	Other capital transfers, receivable	5
			D.9p	Capital transfers, payable	Capital transfers, payable
			D.91p	Capital taxes, payable	Capital taxes, payable
			D.99p	Other capital transfers, payable	Other capital transfers, payable
P.51g	Gross fixed capital formation (GFCF)	100	B.101	Changes in net worth due to saving and capital transfers	Changes in net worth due to saving and capital transfers
P.511	Acquisition less disposals of fixed assets (GFCF in fixed assets)	89
P.511a	GFCF in plantations	10
P.511b	GFCF in livestock	15
P.511c	GFCF in machines and equipment	20
P.511d	GFCF in transport equipment	20
P.511e	GFCF in farm buildings	20
P.511f	GFCF in other works except land improvements (other buildings, structures, etc.)	0
P.511g	Major improvements to land	4
P.511h	Research and development	0
P.511i	Other GFCF (e.g. computer programmes, production rights)	0
P.512	Costs of ownership transfer on non-produced assets (land, etc.)	1
P.51c	Consumption of fixed capital	10
P.52	Changes in inventories	5
P.53	Acquisitions less disposals of valuables
NP	Acquisitions less disposals of non-produced assets (land, etc.)
B.9	Net lending(+)/Net borrowing(-)
K.1	Economic appearance of assets
K.2	Economic disappearance of non-produced assets

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

• — are not relevant for the EAA because the industry concept is used and the sequence of accounts is incomplete. The headings concerned are headings D.42 Distributed income of corporations, D.43 Reinvested earnings on direct foreign investment, D.44 Other investment income and D.45 Rent under Resources of Table 3 and headings B.8n Saving, net, B.101 Changes in net worth due to saving and capital transfers and B.9 Net lending(+)/Net borrowing(-) in Table 4 or

• — are not recorded, either for lack of reliable information or because they are currently of limited interest for EAA purposes. The headings in question are D.9p Capital transfers, payable, D.91p Capital taxes, payable and D.99p Other capital transfers, payable P.53 Acquisitions less disposals of valuables, NP Acquisitions less disposals of non-produced assets (land and other non-produced assets), K.1 Economic appearance of assets, K.2 Economic disappearance of non-produced assets, in Table 4. Some of these (e.g. D.91, K.1, K.2) may be recorded in the EAA at some later date.

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

• 1.46. The generation of income account is concerned with the formation of income resulting from the production process and its attribution to the ‘labour’ production factor and general government (in the form of taxes and subsidies). The operating surplus, i.e. the balancing item, corresponds to the income which the units generate by using their production assets.  In the case of unincorporated enterprises in the households sector, the balancing item of this account implicitly contains an element corresponding to remuneration for work carried out by the owner or members of the family. This income from self-employment has characteristics of wages and salaries, and characteristics of profit due to work carried out as an entrepreneur. This income, neither strictly wages nor profits alone, is referred to as ‘mixed income’ (ESA 2010, 8.19).

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

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

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

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

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

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

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

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

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

F. THE CLASSIFICATION

1. General

• 1.55. The EAA are an integral part of the European system of accounts and therefore for their compilation use is made of Eurostat’s general classification of economic activities, NACE Rev. 2. NACE Rev. 2 is a four-level nomenclature of activities which was compiled in 2006. It is in fact a revision of the general industrial classification of economic activities within the European Communities, or NACE, which was first published by Eurostat in 1970.

• 1.56. NACE Rev. 2 is a more detailed version of  ISIC Rev. 4 ([^E0009]), adapted to specifically European circumstances.  NACE Rev. 2 is also directly linked to the statistical classification of products by activity (CPA) within the European Economic Community, which in turn is based on the United Nations' central product classification (CPC).

• 1.57. NACE Rev. 2 is a classification of activities which is used for defining industries in the national accounts. It is based on the four-level coding system described below:

• — a first level consisting of headings identified by an alphabetical code (sections);

• — a second level consisting of headings identified by a two-digit numerical code (divisions);

• — a third level consisting of headings identified by a three-digit numerical code (groups); and

• — a fourth level consisting of headings identified by a four-digit numerical code (classes).

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

• 1.59. According to ESA 2010, the industry corresponds to the group of local KAUs engaged in the same or similar principal activity. At the most detailed level of classification, an industry includes all local KAUs in the same class (four digits) of NACE Rev. 2 and which are therefore engaged in the same activity as defined in this nomenclature (ESA 2010, 2.150). A definition of the field of the agricultural industry therefore requires a precise statement of:

• — its characteristic activities,

• — the characteristic units of the EAA.

2. Definition of the characteristic activities of agriculture

• 1.60. The agricultural industry, as described in the EAA, corresponds, in principle, to Division 01 in NACE Rev. 2 with differences shown in following paragraphs 1.62 to 1.66.

• 1.61. The EAA are a satellite account in the framework of the national accounts, whose basic concepts, principles and rules are based on the  ESA 2010. However, the latter only provides a general framework for the economy as a whole, and has to be adapted to the specific requirements of agriculture. These particular requirements derive mainly from the specific purposes of the EAA, the availability of data sources and the special character of agricultural units and their economic activities. The specific nature of the satellite accounts necessitates the compilation of a list of characteristic agricultural activities of the EAA, which obviously has to be based on  NACE Rev. 2.

• 1.62. For national accounts purposes the agricultural industry is defined as all units performing, either solely or together with other secondary economic activities, activities which come under Division 01 of NACE Rev. 2 ‘Crop and animal production, hunting and related service activities’. Division 01 comprises ([^E0010]):

• — Group 01,1: Growing of non-perennial crops;

• — Group 01,2: Growing of perennial crops;

• — Group 01,3: Plant propagation;

• — Group 01,4: Animal production;

• — Group 01,5: Mixed farming;

• — Group 01,6: Support activities to agriculture and post-harvest crop activities;

• — Group 01,7: Hunting, trapping and related service activities.

• 1.63. The list of characteristic agricultural activities of the EAA corresponds to these seven groups of activities (01,1 to 01,7), but with the following differences:

• — inclusion of the production of wine and olive oil (exclusively using grapes and olives grown by the same holding),

• — exclusion of certain activities which, in NACE Rev. 2, are considered as agricultural services (e. g. the operation of irrigation systems — only agricultural contract work is taken into account here).

3. Definition of the characteristic units of agriculture

• 1.64. All units which perform characteristic activities of the agricultural industry of the EAA must be included. The units in question perform the activities included in the following groups in NACE Rev. 2:

• — groups 01,1 and 01,2: Growing of non-perennial and perennial crops,

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

• — group 01,3: Plant propagation

• — group 01,4: Animal production,

• — group 01,5: Mixed farming,

• — group 01,6: Support activities to agriculture and post-harvest crop activities

• — excluding units which perform agricultural service activities other than contract work (i.e. units which operate irrigation systems or seed processing for propagation),

• — group 01,7: Hunting, trapping and related service activities.

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

4. Observations concerning various items

(a) Groups from 01,1 to 01,3: Growing of non-perennial and perennial crops, plant propagation

• 1.67. Groups from 01,1 to 01,3 include a systematic breakdown making it possible to classify all crop production activities in the EU Member States.

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

• 1.70. In the nomenclature of the EAA, agricultural seeds are grouped under the heading ‘Seeds’, the exceptions being seed for cereals (including rice), oilseeds, protein crops and potatoes, which are entered respectively under the individual cereal and oilseeds varieties, protein crops and potatoes ([^E0012]). The production of seeds in fact covers several types of production activity: research (i.e. production of first-generation seed prototypes), multiplication (done by agricultural holdings under contract) and certification (i.e. grading and packing by specialist production units). Only the multiplication of seeds is a characteristic agricultural activity since research and certification activities are done by research and production institutes and are not part of traditional agricultural activity (i.e. the exploitation of natural resources with a view to producing plants and animals). As a result, the production of seeds in the EAA only concerns the production of multiplied seeds. The intermediate consumption of seeds corresponds to (i) first-generation seeds purchased with a view to multiplication and (ii) certified seeds purchased by agricultural producers with a view to crop production.

• 1.71. Following the convention adopted by NACE Rev. 2 ([^E0013]), when own produced agricultural products are processed by the same unit of production, the processed products are also attributed to agriculture. As an example, grape must, wine and olive oil are treated as food products in the CPA. NACE Rev. 2 classifies the production of wine and olive oil under section C ‘manufacturing’ (Classes 11,02 ‘Manufacture of wine from grape’ and 10,41 ‘Manufacture of oils and fats’). Only the production of wine grapes and olives comes under agriculture (Classes 01,21 ‘Growing of grapes’ and 01,26 ‘Growing of oleaginous fruits’). However, following the above convention, wine and olive oil produced from grapes and olives grown by the same unit of production are attributed to agriculture.

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

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

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

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

(b) Group 01,4: Animal production

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

• 1.78. Horse breeding is a characteristic activity of the EAA whatever the final destination of the animal may be (breeding, meat production or services).  It should be noted, however, that the management of racehorse stables and riding schools is not a characteristic agricultural activity (it is a part of ‘Sports activities and amusement and recreation activities’: Division 93) (cf. 2.210). Therefore, flows accruing to farmers from such activities must be excluded from the EAA. In addition, the keeping of racehorses or saddle horses which are not part of the agricultural production process is excluded from the EAA. A similar treatment is applied to bulls bred for bullfights.

• 1.79. In the economic accounts, by-products ([^E0015]) which automatically result from the production of certain agricultural products are not recorded under the same headings as the product itself. They appear separately at the end of each group of production activities, broken down by species. In crop production, for example, examples include straw, beet leaves and cabbage leaves, pea and bean pods, etc.; in vinification, lees and argols; in the manufacture of olive oil, waste, such as oilseed cakes; and, in the case of animal production, hides, hair and the fur of dead game, and wax, manure and slurry. Generally speaking, none of these products is the prime objective of production, which explains why it is so rare for statistical data on them to be reliable. In agriculture itself, these products are used mainly as animal feedingstuffs or soil improvers. Occasionally, however, these by-products are sold to economic sectors other than agriculture, in which case the value of output should be shown in the EAA.

(c) Group 01,6: Support activities to agriculture and post-harvest crop activities

• 1.80. The activities in group 01,6 can be divided into two categories:

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

• — ‘other’ agricultural services (the operation of irrigation systems, seed processing for propagation, etc.).

• 1.81. Agricultural service activities in the second category are not treated as characteristic EAA activities (even though they are recorded in the agricultural accounts of the national accounts), since they are not traditional or typical agricultural activities.

Agricultural contract work

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

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

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

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

• 1.86. It should be borne in mind that this classification applies only on so far as the activities in question are exclusively for account of the specialised units.  If, on the other hand, the farmer hires machines without operators or with only some of the operators required, with the result that he/she continues to carry out the activity as such, with the help of the machines, this activity comes under Division 77 of NACE Rev. 2. This situation mainly occurs with simple machines requiring relatively few repairs, and mainly during peak periods, when the machines are in greatest demand (cf. 1.23).

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

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

• (b) agricultural holdings Contract work by holders usually takes the following forms:
• — as far as farmers' supplementary income is concerned, the most flexible form is occasional aid given to neighbours. This category also includes the provision of accommodation for livestock and, mainly for pigs and poultry, animal husbandry on a fee basis (especially fattening). Accommodation may be provided for livestock owned by another farmer or the livestock may be the property of an industrial enterprise, usually a supplier (e.g. a manufacturer of/trader in fodder crops) or a purchaser (e.g. an abattoir),
• — in the form of a more or less autonomous machine pool which represents a systematised form of mutual aid between neighbours. The high cost of machinery and its low rate of utilisation by an individual holding lead holdings which possess such machines to form machine pools which are placed at the disposal of other holdings, complete with the necessary personnel. Increasingly, farmers are deriving their main agricultural income from contract work on account of persons for whom agriculture is no more than a secondary activity and who in some cases are merely the owners of the land,
• — agricultural machine cooperatives ([^E0016]). These are large cooperatives with paid employees; they resemble specialist contractors;

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

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

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