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)

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)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 285(1) thereof,

Having regard to the proposal from the Commission,

Acting in accordance with the procedure laid down in Article 251 of the Treaty (¹),

(1) The monitoring and evaluation of the common agricultural policy requires comparable, up-to-date and reliable information on the economic situation of agriculture, and more specifically on changes in agricultural income.

(2) Agricultural accounts are a basic tool for analysing the economic situation of a country's agriculture, provided that they are drawn up on the basis of a single set of principles. Agricultural accounts also make a valuable contribution to the calculation of the national accounts.

(3) The economic accounts for agriculture are compiled in accordance with the basic concepts and rules of Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community (²).

(4) Council Regulation (EC) No 322/97 of 17 February 1997 on Community statistics (³) provides a reference framework for this Regulation.

(5) Since the objective of the proposed action, namely the creation of common statistical standards which will allow the production of harmonised data, cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale of the action, be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective.

(6) The measures necessary for the implementation of this Regulation should be adopted in accordance with Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission (⁴).

(7) The Standing Committee on Agricultural Statistics and the Statistical Programme Committee have been informed,

HAVE ADOPTED THIS REGULATION:

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

Article 3

Transmission to the Commission

Article 4

Committee pocedure

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

FOREWORD

The revision of the European system of accounts (ESA 1995) in 1995 (⁵) and the need to adapt to economic and structural developments in agriculture have led to a new basic methodology used for the EAA. The amendments made to the basic EAA methodology had to satisfy two, often conflicting, demands: on the one hand, methodological consistency was needed with the ESA to allow harmonisation of the EAA both between Member States and with the central framework of the national accounts; and on the other hand, the legislator had 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 (SNA 93) (⁶), 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 95 is characterised by the use of three types of unit and two distinct ways of breaking down 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 activity branch, the second is based on households (i.e. institutional units) whose main source of income is independent agricultural activity (⁷).

B. THE BASIC UNIT AND THE AGRICULTURAL INDUSTRY

1. Basic unit

1.09. In order to analyse flows generated by the production process and the use of goods and services, it is necessary to select units which emphasise relationships of a technico-economic kind. This requirement means that as a rule institutional units must be broken-down 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 a first but practically oriented operational approach (ESA 95, 2.105) (⁸).

1.10. The local KAU is defined as the part of a KAU which corresponds to a local unit. The KAU groups all the parts of an institutional unit in its capacity as producer contributing to the performance of an activity at class level (four digits) in  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 output, intermediate consumption, compensation of employees, the operating surplus and employment and GFCF (ESA 95, 2.106).

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. Ancillary activities (purchases, sales, marketing, accounting, transport, warehousing, maintenance, etc.; cf. 1.27), however, cannot lead to the creation of a local KAU.

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. Thus, a local KAU may carry out one or more secondary activities alongside its principal activity (ESA 95, 2.107).

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 (ESA 95, 2.103). The principal activity of a local KAU is the activity whose value added is greater than that of any other activity carried out within the unit. The classification of the principal activity is determined with reference to  NACE Rev. 2, first at the highest level of the classification and then at more detailed levels (ESA 95, 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, an industry includes all local KAUs in the same class (four digit level) of  NACE Rev. 2 and therefore engaged in the same 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 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. 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 an industry comprises a group of units which carry out 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 (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 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 distinguished from the main agricultural activity.

1.26. Inseparable non-agricultural secondary activities of local agricultural KAUs are defined 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. The latter are supplementary activities (e.g. sales, marketing, warehousing, transport for own account; see ESA 95, 3.12 and 3.13, and SNA 93, 5.9 to 5.16) 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 activities involving GFCF of non-agricultural products (such as buildings or machines) for own account. This production for own final consumption 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 (⁹). 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: —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 —Grading and packaging of agricultural products, e.g. eggs and potatoes. —Activities involving the agricultural holding and its means of agricultural production (equipment, installations, buildings, workforce). These activities are basically the following:

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 95, 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 (¹⁰) 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 95

1.37. The EAA are based on a sequence of inter-related accounts. In the ESA 95, the full sequence of accounts includes current accounts, accumulation accounts and balance sheets. 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, 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 95, 8.04).

1.39. The full sequence of accounts referred to above applies only to institutional units, sectors and subsectors. The ESA 95 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 95 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 95, the sequence of accounts of the EAA can be depicted as shown in tables 1 to 4. A. Current accounts Table 1:  Production account Uses Resources P.2 Intermediate consumption 50 P.1 Output 100 B.1b Gross value added 50 K.1 Consumption of fixed capital 10 B.1n Net value added 40 Table 2:  Generation-of-income account 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 Net operating surplus/net mixed income 35 Table 3:  Entrepreneurial income account Uses Resources D.4 Property income 10 B.2n/B.3n Net operating surplus/net mixed income 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 direct foreign investment D.44 Property income attributed to insurance policy holders D.45 Rents on land and subsoil assets B.4n Net entrepreneurial income 26 B. Accumulation accounts Table 4:  Capital account Changes in assets Changes in liabilities and net worth B.10.1 Change in net worth due to saving and capital transfers B.8n Saving, net D.9 Capital transfers, receivable 10 D.92 Investment grants 5 D.99 Other capital transfers 5 D.9 Capital transfers, payable D.91 Capital taxes D.99 Other capital transfers P.51 Gross fixed capital formation (GFCF) 100 B.10.1 Changes in net worth due to saving and capital transfers P.511 Acquisitions less disposals of tangible fixed assets 85 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.) P.512 Acquisitions less disposals of intangible fixed assets (software etc.) 10 P.513 Additions to the value of non-produced non-financial assets 5 P.513a Major land improvements 4 P.513b Costs of transferring ownership of land and production rights 1 K.1 Consumption of fixed capital 10 P.52 Changes in inventories 5 P.53 Acquisitions less disposals of valuables K.2 Acquisitions less disposals of non-produced non-financial assets K.21 Acquisitions less disposals of land and other tangible non-produced assets K.22 Acquisitions less disposals of intangible non-produced assets (production rights, etc.) B.9 Net lending(+)/Net borrowing(-)
Uses	Resources
P.2	Intermediate consumption	50	P.1	Output	100
B.1b	Gross value added	50
K.1	Consumption of fixed capital	10
B.1n	Net value added	40
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	Net operating surplus/net mixed income	35
Uses	Resources
D.4	Property income	10	B.2n/B.3n	Net operating surplus/net mixed income	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 direct foreign investment
	D.44	Property income attributed to insurance policy holders
	D.45	Rents on land and subsoil assets
B.4n	Net entrepreneurial income	26
Changes in assets	Changes in liabilities and net worth
B.10.1	Change in net worth due to saving and capital transfers		B.8n	Saving, net
	D.9	Capital transfers, receivable	10
	D.92	Investment grants	5
	D.99	Other capital transfers	5
	D.9	Capital transfers, payable
	D.91	Capital taxes
	D.99	Other capital transfers
P.51	Gross fixed capital formation (GFCF)	100	B.10.1	Changes in net worth due to saving and capital transfers
P.511	Acquisitions less disposals of tangible fixed assets	85
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.)
P.512	Acquisitions less disposals of intangible fixed assets (software etc.)	10
P.513	Additions to the value of non-produced non-financial assets	5
P.513a	Major land improvements	4
P.513b	Costs of transferring ownership of land and production rights	1
K.1	Consumption of fixed capital	10
P.52	Changes in inventories	5
P.53	Acquisitions less disposals of valuables
K.2	Acquisitions less disposals of non-produced non-financial assets
K.21	Acquisitions less disposals of land and other tangible non-produced assets
K.22	Acquisitions less disposals of intangible non-produced assets (production rights, etc.)
B.9	Net lending(+)/Net borrowing(-)

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 Property income attributed to insurance policy holders and D.45 Rent under Resources of Table 3 and headings B.8n Net saving, B.10.1 Changes in net value 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.9 Capital transfers, payable, D.91 Capital taxes and D.99 Other capital transfers, P.53 Acquisitions less disposals of valuables, K.2 Acquisitions less disposals of non-produced non-financial assets, K.21 Acquisitions less disposals of land and other tangible non-produced assets and K.22 Acquisitions less disposals of intangible non-produced assets (production rights, etc.) in Table 4. Some of these (e.g. D.91, K.2, K.21 and K.22) 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 his family which cannot be distinguished from his profits as an entrepreneur. This is referred to as ‘mixed income’ (ESA 95, 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 (¹¹), 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. The industry corresponds to the group of local KAUs engaged in the same or similar economic 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 95, 2.108). 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 to Division 01 in  NACE Rev. 2.

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 95. 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 (¹²): —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 (01,1to 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) (¹³), —exclusion of the activities relating to the production of seeds upstream and downstream of multiplication and 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 (¹⁴). 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 (¹⁵), 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, income 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 (¹⁶) 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.

(d) Group 01,7: Hunting, trapping and related service activities

1.92. This group of activities comprises the following activities: (i) hunting and trapping on a commercial basis; (ii) taking of animals (dead or alive) for food, fur or skin, or for use in research, in zoos or as pets; (iii) production of fur skins or reptile or bird skins from hunting or trapping activities. It should be noted that the production of hide and leather from slaughterhouses and hunting performed as a sports or recreation activity are not included as characteristic activities of the agricultural industry. Additionally, the ‘hunting’ group does not comprise the breeding of game on holdings, which should be recorded under class 01,49 ‘Raising of other animals’.

5. Discrepancy between the EAA agricultural industry and the agricultural branch of the central framework of the national accounts

1.93.

The EAA agricultural industry, as defined in Sections 1.62 to 1.66, differs in some respects from the branch as defined for national accounts purposes. The differences relate to the definition of both characteristic activities and units. They can be summarised as follows: EAA agricultural industry =  NA agricultural branch –  Units engaged in seed production (for research or certification) –  Production of units providing associated agricultural services other than agricultural contract work (e.g. the operation of irrigation systems) –  Units for which the agricultural activity represents solely a leisure activity +  Agricultural activities of units whose principal activity is not agricultural (cf. 1,18)

EAA agricultural industry

=  NA agricultural branch –  Units engaged in seed production (for research or certification) –  Production of units providing associated agricultural services other than agricultural contract work (e.g. the operation of irrigation systems) –  Units for which the agricultural activity represents solely a leisure activity +  Agricultural activities of units whose principal activity is not agricultural (cf. 1,18)

II.   TRANSACTIONS IN PRODUCTS

2.001. Transactions in products provide an account of the origin and use of products. Products are goods and services created within the production boundary. The main categories of transactions in products defined by the ESA 95 are: output, intermediate consumption, final consumption expenditure, actual final consumption, gross capital formation, exports of goods and services and imports of goods and services.

2.002. As mentioned in 1.40 and 1.41, only output, intermediate consumption and gross capital formation are taken into account in the EAA. Output is recorded as a resource and intermediate consumption as a use in the production account. Gross capital formation is recorded as a use (a change in assets) in the capital account.

B.	OUTPUT1. General comments on the concepts of output in the ESA 95 and EAA 2.032. In the ESA 95, the term ‘production’ denotes the process and the term ‘output’ denotes the resulting goods and services; it is important to bear this distinction clearly in mind. According to the ESA 95 (3.14), output covers all products manufactured during the accounting period. 2.033. According to the ESA 95, output also includes (i) goods and services supplied by one local KAU to another belonging to the same institutional unit, (ii) goods produced by one local KAU and still in the stocks at the end of the accounting period in which they were produced, whatever use they are intended for subsequently. However, goods or services produced and consumed during the same accounting period by the same local KAU are not recorded separately. They are therefore recorded neither as output nor as intermediate consumption of the unit. 2.034. The concept of output used in the EAA which is related to the concept of ‘total output’ is based on an adaptation of the ESA 95, since some agricultural goods and services produced and consumed during the same accounting period within the same agricultural unit are recorded in the output of overall agricultural activity. The criteria for identifying these goods and services for inclusion in the agricultural industry output are set out in 2.055. The difference between the ESA 95 and the method adopted in the EAA is represented by these elements of intra-unit consumption whose value is included in both output and intermediate consumption. The value added thus remains identical, whichever method is used. 2.035. As mentioned in 1.34, this modification of the ESA rule is based on the special nature of the agricultural activity and the agricultural holding (as a local KAU). Furthermore, it makes it possible to: —improve the economic analysis of agricultural accounts, especially the definition of technical coefficients and value added rates (the ratio between output and intermediate consumption), —improve the comparison of technical coefficients and value added rates between subbranches of economic activity and countries. In actual fact, the output consumed within a unit is mainly limited to a few specific products (such as cereals, protein and oleaginous products, forage crops and milk for livestock feeding) and rates of intra-unit consumption vary considerably depending on the economic branch and country. —strengthen consistency between the production, generation of income and entrepreneurial income accounts: the necessary consistency between transactions in products (output, intermediate consumption, etc.) and distributive transactions (compensation of employees, subsidies, taxes, rents, interest, etc.) has been strengthened since the reform of the common agricultural policy in 1992 in that subsidies (some of which concern products subject to intra-branch consumption) currently play an important role in the formation and development of agricultural income. 2.036. Although it is not proposed by the ESA 95, the rule adopted in the EAA is provided for by the SNA (cf. SNA 93, Annex I, 15) because of the special nature of agriculture, and by the FAO methodological manual (20). Finally, it allows the difference between the measurements of output stemming from the choice of basic unit (local KAU or unit of homogeneous production) to be reduced substantially. 2. Output of agricultural activity: quantities 2.037. In the compilation of the EAA, output is progressively broken down in quantity terms. Schematic representation of resources and uses of agricultural products 2.038. The starting point for this progressive calculation is either: —gross output (1q), or —usable output (3q), depending on whether the reference harvest figures include field, harvest and farm losses or not. (a) Gross outputGross output: (1q) 2.039. This is the starting point for countries whose official harvest statistics include losses. In accordance with the industry concept, all the products of the agricultural activities of agricultural units within the industry (as mentioned in 1.62 and 1.63) need to be measured. In line with the convention adopted in 1.31 (that the output of the secondary agricultural activities of non-agricultural units is non-existent because all agricultural activities are assumed to be separable and therefore form the main activity of their own local agricultural KAU), all agricultural output needs to be recorded except that produced by units for which the agricultural activity represents solely a leisure activity (cf. 1.24). (b) LossesLosses: (2q) 2.040. This item refers to recurrent losses of goods in inventories (cf. 2.041). These include field, harvesting and other losses on farms (due to the perishable nature of the products, weather influences, such as frost, drought, etc.). Losses occurring during the various marketing stages, i.e. during transport from the farm, during storage with dealers and during processing or treatment in the processing industry should not be included here. In contrast, products offered for sale by producers but remaining unsold and therefore spoiled (particularly fruit and vegetables) should also be included here. 2.041. Following ESA 95, there are three types of losses that can be incurred by producers: recurrent losses in inventories (ESA 95, 3.117 and 3.118), exceptional losses in inventories (ESA 95, 6.25.e) and catastrophic losses (ESA 95, 6.22 and 6.23.b). 2.042. For recording losses of goods in inventories, a distinction needs to be made between recurrent losses, on the one hand, and exceptional and catastrophic losses, on the other. But the recording of losses also depends on the method of calculation of output and the type of basic statistical material of each country. 2.043. When output is calculated from data on initial and final stocks, sales and possibly other uses (such as own-account produced fixed capital goods), recurrent losses are already deducted from the changes in stocks, and recording of them a further time under the item ‘losses’ would lead to double-counting. In contrast, where the calculation of output is not based on stocks data but instead on a well-founded calculation such as actual birth figures, recurrent losses during production in the reference period concerned should be recorded, as well as losses of animals imported for rearing or fattening or born during previous periods. 2.044. Exceptional and catastrophic losses of goods in inventories have to be recorded in the accumulation accounts, namely in the ‘other changes in the volume of assets’ account. Output therefore includes the full value of these losses. 2.045. Losses (whether recurrent, exceptional or catastrophic) of fixed assets (such as dairy cows, breeding animals, etc.) should be recorded in ‘other changes in the volume of assets’ account. They have no impact on the value of output. It should be stressed that losses affecting plantations which are already producing have to be recorded either as ‘fixed capital consumption’ or as ‘other changes in the volume of assets’, depending on the type of loss. (c) Usable outputUsable output: (3q) = (1q) minus (2q) = gross output minus losses (at the producer stage) 2.046. This is the first item to be entered by countries whose reference harvest statistics do not include losses. It constitutes the disposable production of the reference period which will be either marketed, used as a means of production, processed by the producer himself, consumed in his household, put into storage, or possibly, used as own-account produced fixed capital goods. (d) Initial stocksInitial stocks: (4q) 2.047. These constitute the finished or semi-finished stocks of own products existing on the agricultural holdings (i.e. held by producers) at the beginning of the reference year. Stocks at the different marketing stages and intervention stocks should therefore not be entered here (cf. 2.201 and following regarding the treatment of livestock). 2.048. The initial stocks of ‘poultry’ should also include eggs hatching in incubators at the start of the reference period since they are regarded as semi-finished poultry products (cf. 2.018). (e) Total available resourcesTotal available resources: (5q) = usable output plus initial stocks (3q plus 4q) (f) Intra-unit consumptionIntra-unit consumption: (6q) 2.049. Under the heading of intra-unit consumption recorded are products produced within the agricultural unit (local KAU) and used by the unit as inputs into the production process within the same accounting period. 2.050. All agricultural products (except livestock; cf. 2.067 and 2.208) sold by an agricultural unit to other producing agricultural units must be recorded as sales and then as intermediate consumption. These include goods subjected to treatment and processing and their by-products (e.g. the return of skimmed milk, bran, oilcake and sugar beet pulp and tops, as well as the return of seeds after treatment). Classification of intra-unit consumption 2.051. Intra-unit consumption can be broken down according to the use of the products concerned: 2.052. Products consumed within the industry by the same agricultural activity (i.e. the same class of activity, at  NACE Rev. 2 four-digit level): —seed (for cereals, vegetables, flowers, etc.): reused for the same crop; —wine grapes and grape must: used in wine production; —olives: used in olive oil production; —milk: used in livestock feed. 2.053. Products consumed within the industry by a different agricultural activity (i.e. a different class of activity, at  NACE Rev. 2 four-digit level). These are mainly crop products used in animal feed, but also animal by-products used in the production process of another activity (slurry and manure used as fertilising elements for crop production). Crop products used in animal feed can be classed according to the degree to which they are normally marketed (which is estimated in general): —normally marketable animal feed products: cereals (wheat, rye, barley, oats, maize, sorghum, rice and other cereal grain); protein crops; potatoes; oilseeds (rape seed, sunflower seed, soya beans and other oilseeds), —normally unmarketable animal feed products:— —annual fodder products: root crops (sugar beet, fodder beet, swedes, fodder turnips, fodder carrots, fodder kale/curly kale and other root crops); fodder maize and other green fodder (green, dried or preserved), —perennial fodder products: permanent and temporary fodder products derived from an economic activity (green, dried or preserved), —fodder by-products (straw, chaff, plant leaves and ends and other fodder by-products). Definition of intra-unit consumption to be included in the industry's output 2.054. Agricultural products undergoing intra-unit consumption are not included in the measurement of the output of the industry unless they meet certain criteria. The setting of restrictive criteria for recording intra-unit consumption meets two requirements: first, a methodological one since, after deviating from the letter of the ESA rule, there was a need to follow it in spirit (by involving two separate activities); secondly, a practical one, since the criteria to be developed were to serve as a precise and comparable framework for defining which intra-unit consumption had to be recorded, to make this method of measuring output feasible. 2.055. These criteria are as follows: 1.The two activities exercised should come under different four-digit levels of NACE Rev. 2 (Division 01: Crop and animal production, hunting and related service activities). The application of this criterion thus precludes, for example, the valuation of seed produced and used on the same holding for crop production (during the same accounting period); 2.The agricultural product should have a significant economic value for a significant number of farmers. 3.Data on prices and quantities must be available without too much difficulty. This criterion is difficult to meet for some unmarketable products. 2.056. In line with the definition of the selection criteria for including intra-unit consumption products in the measurement of output (cf. 2.055), only crop products used in animal feed (marketable or not) are to be recorded in the agricultural output of the industry. 2.057. When these products are recorded in the industry's output, they must also be recorded as intermediate consumption, thereby respecting the principle that total quantities produced and then used for a different production activity during the reference year are taken into account (cf. 2.055). When the change from output to intermediate consumption takes longer than the reference year in question, then the corresponding quantities of output should be recorded as ‘final stocks’ of the product concerned during the reference year. 2.058. Animal by-products are excluded from intra-unit consumption because of the practical difficulties of unavailability of data on quantities and especially prices. (g) Processing by producersProcessing by producers: (7q) 2.059. Under the heading of processing by producers recorded are quantities produced for further processing by agricultural producers (e.g. milk processed to make butter or cheese, apples processed to make apple must or cider) but only in the framework of processing activities which are separable from the main agricultural activity (on the basis of accounting documents, cf. 1.26). Only the raw products (e.g. raw milk, apples) should be recorded and not the processed products manufactured from them (e.g. butter, apple must and cider). In other words, the work incorporated in the processing of agricultural products is not taken into consideration under this heading. Products resulting from processing by the producer will naturally be indicated in the output of the ‘agriculture’ subsector in the national accounts (cf. 1.04 and 1.05). 2.060. Where these processing activities are inseparable non-agricultural activities, the product of these processing activities is recorded in the value of the output of the agricultural industry (cf. 1.25). Basic agricultural products used as intermediate consumption by these processing activities are not recorded as either output or intermediate consumption. This rule stems from the fact that the two activities (the production of agricultural products and the processing of such products) cannot be distinguished on the basis of accounting documents. Accordingly, the costs of these two types of activity are entered together and their output is assessed as the output of processed products. (h) Own final consumptionOwn final consumption: (8q) 2.061. This includes: (i)products consumed by the farmers' households which produced them; (ii)products stemming from the agricultural unit (holding) and used for payment in kind in the form of remuneration paid to holding workers or exchanged for other goods. 2.062. Agricultural products processed by the agricultural unit in a separable way (i.e. giving rise to the formation of a local non-agricultural KAU) and consumed by farmers’ households are recorded in the output of the ‘Manufacturing’ industry (section C of NACE Rev. 2), as own final consumption. By contrast, agricultural household consumption of agricultural products processed in an inseparable way (i.e. the output of inseparable non-agricultural processing activities), is recorded as own final consumption of these activities (cf. 2.080) and included in the output of the agricultural industry. 2.063. The imputed rental value of the owner-occupied housing unit is not recorded here but in the branch ‘Renting and operating of own or leased real estate’ (Class 68,20 of NACE Rev. 2). Renting of accommodation is a non-agricultural activity which is always considered to be separable from agricultural activity. (i) SalesSales: (9q) 2.064. This heading covers sales of agricultural products made by agricultural units to other units (agricultural or those of other branches), including sales to storage and intervention centres, with the exception of disposals of fixed assets. It is broken down into domestic sales outside the industry, domestic sales to other agricultural units and sales abroad. 2.065. Consequently, for a given unit, sales correspond to the turnover obtained from the marketing of its output. It should be noted that sales of animals classed as fixed assets, which are taken out of the productive herd (exports or slaughterings) are not recorded. Animals classed as fixed assets and taken out of the productive herd are transferred into stocks before their sale, but the sales of these animals (slaughterings or exports) appear in the accounts as destocking, seen only in the capital account. The corresponding output had already been imputed as a part of own-account produced fixed capital goods (21) then recorded in the production account. 2.066. Livestock considered to be stocks: the disposal of livestock considered to be stocks to another holding constitutes a sale in accordance with the definition given in 2.064. This sale may be offset by a removal from stocks if the livestock is recorded as stocks at the start of the reference period (otherwise, only sales are recorded). 2.067. The acquisition of livestock is a stock entry if the products are not resold during the reference period. Acquired livestock, however, cannot be treated as intermediate consumption because, by definition, intermediate consumption goods are destined to disappear (or at least undergo substantial transformation) during the production process. These animals are regarded as work in progress since the livestock production process is not fully terminated (the production process finishes at the time of slaughter). Acquisitions are therefore recorded as stock entries of work (products) in progress and thus recorded as ‘negative’ sales and not as intermediate consumption. In the case of trading between resident holdings, sales and the corresponding purchases offset each other (except for the costs of transferring ownership) (22). In view of this special treatment of trade in live animals between agricultural units, there is no intermediate consumption under ‘livestock and animal products’ (23). 2.068. Livestock classed as fixed assets: trade in fixed-asset livestock between agricultural units is not recorded in sales as defined above but as trade in assets (recorded in the capital account as GFCF of agriculture). In the case of trading between resident holdings, sales and corresponding purchases offset each other (except for the transfer costs). 2.069. Recording of imports of live animals (not intended for immediate slaughter): as in the case of trade between resident holdings, livestock treated as stocks (other than animals for immediate slaughter) and imported during the reference period by agricultural units are recorded as stock entries of work in progress and are therefore deducted from sales. On the other hand, livestock classed as fixed assets (such as breeding animals) and imported as such, should not be deducted from sales. 2.070. Nevertheless, as it is often difficult, in practice, to make relevant distinctions between the different categories of animals on the basis of available sources of EU data (between animals classed as fixed assets and those classed as stocks), all imports are considered to be of animals intended for building up stocks and the value of all imported animals (except those intended for immediate slaughter) is deducted from the value of sales. This method of recording guarantees treatment of external trade in live animals similar to that adopted for calculating gross indigenous production in animal production statistics. (j) Own-account produced fixed capital goodsOwn-account produced fixed capital goods: (10q) 2.071. These only include: —work done by agricultural units (e.g. use of labour, machines and other means of production, including planting stock) for the own-account establishment of plantations such as orchards, vineyards, soft fruit plantations and hop-fields. In general, own-account work on planting orchards and vineyards, etc., is made up of a large number of individual work operations which cannot be added up into specific quantities, —animals produced in agricultural units and transferred to their fixed capital (cf. 2.161). These are animals reared for the output which they supply on a regular basis (mainly breeding livestock, dairy livestock, draught animals, sheep and other animals reared for their wool; cf. 2.202). (k) Final stocksFinal stocks: (11q) 2.072. These are stocks of finished products or work in progress on the holdings of the industry (i.e. held by producers) at the end of the reference year. Stocks at different marketing stages (especially reserves held by dealers and processing firms) as well as intervention stocks should not be listed here. 2.073. Products which are only temporarily stocked and are consumed in a later period within the industry (e.g. cereals for feed, seed and planting stock, etc) should also be entered here since the final use of the product is not known at the time of their entry in stocks. (l) Total usesTotal uses: (12q) (not including intra-unit consumption) = (7q) + (8q) + (9q) + (10q) + (11q) = processing by producers plus own final consumption plus sales plus own-account produced fixed capital goods plus final stocks. 2.074. This entry is the sum of columns 7q to 11q. (m) Change in stocksChange in stocks: (12q) = (11q) minus (4q) = additions to stocks (A) minus withdrawals from stocks (W) 2.075. The change in stocks in the industry (excluding stocks at the various marketing stages) during the reference year is measured by calculating the difference between stock entries and withdrawals, or the difference between final and initial stocks. In the latter case other changes in volume and holding gains (net of losses) are to be deducted in the calculation of values (cf. 2.179 and following). (n) Output of agricultural activitiesOutput of agricultural activities = (6q, animal feedingstuffs) + (7q) + (8q) + (9q) + (10q) + (12q) 2.076. In accordance with the concept of output and the rules for recording intra-unit consumption (cf. 2.049 and following), processing of agricultural products (cf. 2.059 and 2.060), and own final consumption (cf. 2.061, 2.062, 2.063), the output of agricultural activities can be depicted as follows: Resources Uses Agricultural output of the agricultural industry Gross output Sales (total, excluding trade in animals between agricultural holdings) X Change in stocks (with producers) X – Losses Own-account produced fixed capital goods (plantations yielding repeat products, productive animals) X Own final consumption (of agricultural products) X = Usable output Processing by producers (of agricultural products, separable activities) X Intra-unit consumption: — for the same activity: (seeds, milk for livestock feed, wine grapes, olives for olive oil, hatching eggs) —  for a separate activity: crop products used in animal feed (cereals, oilseeds, fodder crops, marketable or not, etc.) X animal by-products used in crop production (slurry, manure) 2.077. Compared with the former ‘final output’ concept on which the EAA used to be based, the new concept for measuring the output of agricultural activity includes trade in agricultural goods and services between agricultural units as well as intra-unit consumption of livestock feed products (marketable or not). 3. Output of inseperable non-agricultural secondary activities 2.078. A distinction is made between two types of ‘inseparable non-agricultural secondary activities’ (cf. 1.29): —‘processing of agricultural products’: this group covers activities which are an extension of agricultural activity and in which agricultural products are employed. The processing of agricultural products is the typical activity of this first group, —‘other inseparable non-agricultural secondary activities’: this group covers activities which use the agricultural holding and its means of agricultural production. It is less uniform than the first group. 2.079. In general, these activities include a variety of products (goods and services) whose quantities cannot be added together. 2.080. The product of these activities is either intended for sale, barter, payment in kind, own final consumption (cf. 2.062) or kept in stocks. 4. Output of the agricultural industry 2.081. In accordance with the definition of the output of the agricultural industry (cf. 1.16), the output of the agricultural industry is made up of the sum of the output of agricultural products (cf. 2.076 to 2.077) and of the goods and services produced in inseparable non-agricultural secondary activities (cf. 2.078 to 2.080). 5. Valuation of output 2.082. Output is to be valued at the basic price. The basic price is the price receivable by the producers from the purchaser for a unit of a good or service produced as output minus any tax payable on that unit as a consequence of its production or sale (i.e. taxes on products) plus any subsidy receivable on that unit as a consequence of its production or sale (i.e. subsidies on products). The basic price excludes any transport charges invoiced separately by the producer. However, it includes any transport margins charged by the producer on the same invoice, even if they are included as a separate item on the invoice (cf. ESA 95, 3.48). 2.083. Components of output such as sales, payments in kind, additions to stocks and intra-unit consumed products should be valued at the basic price. Similarly, output for own final use (i.e. own-account fixed capital goods and own final consumption) should be valued at the basic price of similar products sold on the market. Work in progress and additions to it are valued proportionally to the current basic price of the finished product. If the latter has to be assessed in advance, the calculation should be based on the actual costs incurred plus an amount corresponding to the anticipated operating surplus or mixed income. 2.084. When establishing the EAA according to the ‘net’ recording system (cf. 3.033 and 3.035 to 3.043), the VAT invoiced by the producer is not included when establishing the basic price. 2.085. The price obtained by the producer corresponds to the producer price (not including invoiced VAT) as defined in the SNA 93 (i.e. the ex-farm price). The basic price can be obtained from the producer price by adding subsidies less taxes (other than VAT) on products. When problems of allocating a tax or subsidy on products to a specific product make it difficult to calculate the basic price, output can be calculated direct at the basic price. In this case it is obtained direct from the value of the producer price (exclusive of invoiced VAT), minus the value of taxes on products (other than VAT) and plus the value of subsidies on products. 2.086. The valuation of output at the basic price makes it necessary to distinguish between taxes (other than VAT) on products and subsidies on products (cf. 3.027 and 3.053), on the one hand, and other taxes and subsidies on production (cf. 3.044 and 3.058), on the other. Taxes and subsidies on products are not recorded in the generation of income account of the industry (this account only includes other taxes on production and other subsidies on production, cf. 3.055). 2.087. The price of a given item received by producers is not necessarily always the same; it may vary, inter alia, according to the type of delivery. For example, the structure, in terms of quality, of goods exported directly by the producer can be different from the structure of the sales intended for national consumption or of domestic sales to other agricultural units. These goods would consequently have a different price. It should be noted that when a producing unit directly exports its output, the receipt or payment of monetary compensatory amounts for the exports must be taken into account in the EAA. 2.088. These general principles of valuation require specific applications for certain products such as seasonal products and wine. These are explained in the section treating the valuation of changes in stocks (cf. 2.185 to 2.200).
2.032.	In the ESA 95, the term ‘production’ denotes the process and the term ‘output’ denotes the resulting goods and services; it is important to bear this distinction clearly in mind. According to the ESA 95 (3.14), output covers all products manufactured during the accounting period.
2.033.	According to the ESA 95, output also includes (i) goods and services supplied by one local KAU to another belonging to the same institutional unit, (ii) goods produced by one local KAU and still in the stocks at the end of the accounting period in which they were produced, whatever use they are intended for subsequently. However, goods or services produced and consumed during the same accounting period by the same local KAU are not recorded separately. They are therefore recorded neither as output nor as intermediate consumption of the unit.
2.034.	The concept of output used in the EAA which is related to the concept of ‘total output’ is based on an adaptation of the ESA 95, since some agricultural goods and services produced and consumed during the same accounting period within the same agricultural unit are recorded in the output of overall agricultural activity. The criteria for identifying these goods and services for inclusion in the agricultural industry output are set out in 2.055. The difference between the ESA 95 and the method adopted in the EAA is represented by these elements of intra-unit consumption whose value is included in both output and intermediate consumption. The value added thus remains identical, whichever method is used.
2.035.	As mentioned in 1.34, this modification of the ESA rule is based on the special nature of the agricultural activity and the agricultural holding (as a local KAU). Furthermore, it makes it possible to: —improve the economic analysis of agricultural accounts, especially the definition of technical coefficients and value added rates (the ratio between output and intermediate consumption), —improve the comparison of technical coefficients and value added rates between subbranches of economic activity and countries. In actual fact, the output consumed within a unit is mainly limited to a few specific products (such as cereals, protein and oleaginous products, forage crops and milk for livestock feeding) and rates of intra-unit consumption vary considerably depending on the economic branch and country. —strengthen consistency between the production, generation of income and entrepreneurial income accounts: the necessary consistency between transactions in products (output, intermediate consumption, etc.) and distributive transactions (compensation of employees, subsidies, taxes, rents, interest, etc.) has been strengthened since the reform of the common agricultural policy in 1992 in that subsidies (some of which concern products subject to intra-branch consumption) currently play an important role in the formation and development of agricultural income.
2.036.	Although it is not proposed by the ESA 95, the rule adopted in the EAA is provided for by the SNA (cf. SNA 93, Annex I, 15) because of the special nature of agriculture, and by the FAO methodological manual (20). Finally, it allows the difference between the measurements of output stemming from the choice of basic unit (local KAU or unit of homogeneous production) to be reduced substantially.
2.037.	In the compilation of the EAA, output is progressively broken down in quantity terms. Schematic representation of resources and uses of agricultural products
2.038.	The starting point for this progressive calculation is either: —gross output (1q), or —usable output (3q), depending on whether the reference harvest figures include field, harvest and farm losses or not.
(a)	Gross outputGross output: (1q) 2.039. This is the starting point for countries whose official harvest statistics include losses. In accordance with the industry concept, all the products of the agricultural activities of agricultural units within the industry (as mentioned in 1.62 and 1.63) need to be measured. In line with the convention adopted in 1.31 (that the output of the secondary agricultural activities of non-agricultural units is non-existent because all agricultural activities are assumed to be separable and therefore form the main activity of their own local agricultural KAU), all agricultural output needs to be recorded except that produced by units for which the agricultural activity represents solely a leisure activity (cf. 1.24).
2.039.	This is the starting point for countries whose official harvest statistics include losses. In accordance with the industry concept, all the products of the agricultural activities of agricultural units within the industry (as mentioned in 1.62 and 1.63) need to be measured. In line with the convention adopted in 1.31 (that the output of the secondary agricultural activities of non-agricultural units is non-existent because all agricultural activities are assumed to be separable and therefore form the main activity of their own local agricultural KAU), all agricultural output needs to be recorded except that produced by units for which the agricultural activity represents solely a leisure activity (cf. 1.24).
(b)	LossesLosses: (2q) 2.040. This item refers to recurrent losses of goods in inventories (cf. 2.041). These include field, harvesting and other losses on farms (due to the perishable nature of the products, weather influences, such as frost, drought, etc.). Losses occurring during the various marketing stages, i.e. during transport from the farm, during storage with dealers and during processing or treatment in the processing industry should not be included here. In contrast, products offered for sale by producers but remaining unsold and therefore spoiled (particularly fruit and vegetables) should also be included here. 2.041. Following ESA 95, there are three types of losses that can be incurred by producers: recurrent losses in inventories (ESA 95, 3.117 and 3.118), exceptional losses in inventories (ESA 95, 6.25.e) and catastrophic losses (ESA 95, 6.22 and 6.23.b). 2.042. For recording losses of goods in inventories, a distinction needs to be made between recurrent losses, on the one hand, and exceptional and catastrophic losses, on the other. But the recording of losses also depends on the method of calculation of output and the type of basic statistical material of each country. 2.043. When output is calculated from data on initial and final stocks, sales and possibly other uses (such as own-account produced fixed capital goods), recurrent losses are already deducted from the changes in stocks, and recording of them a further time under the item ‘losses’ would lead to double-counting. In contrast, where the calculation of output is not based on stocks data but instead on a well-founded calculation such as actual birth figures, recurrent losses during production in the reference period concerned should be recorded, as well as losses of animals imported for rearing or fattening or born during previous periods. 2.044. Exceptional and catastrophic losses of goods in inventories have to be recorded in the accumulation accounts, namely in the ‘other changes in the volume of assets’ account. Output therefore includes the full value of these losses. 2.045. Losses (whether recurrent, exceptional or catastrophic) of fixed assets (such as dairy cows, breeding animals, etc.) should be recorded in ‘other changes in the volume of assets’ account. They have no impact on the value of output. It should be stressed that losses affecting plantations which are already producing have to be recorded either as ‘fixed capital consumption’ or as ‘other changes in the volume of assets’, depending on the type of loss.
2.040.	This item refers to recurrent losses of goods in inventories (cf. 2.041). These include field, harvesting and other losses on farms (due to the perishable nature of the products, weather influences, such as frost, drought, etc.). Losses occurring during the various marketing stages, i.e. during transport from the farm, during storage with dealers and during processing or treatment in the processing industry should not be included here. In contrast, products offered for sale by producers but remaining unsold and therefore spoiled (particularly fruit and vegetables) should also be included here.
	2.041. Following ESA 95, there are three types of losses that can be incurred by producers: recurrent losses in inventories (ESA 95, 3.117 and 3.118), exceptional losses in inventories (ESA 95, 6.25.e) and catastrophic losses (ESA 95, 6.22 and 6.23.b).
2.041.	Following ESA 95, there are three types of losses that can be incurred by producers: recurrent losses in inventories (ESA 95, 3.117 and 3.118), exceptional losses in inventories (ESA 95, 6.25.e) and catastrophic losses (ESA 95, 6.22 and 6.23.b).
	2.042. For recording losses of goods in inventories, a distinction needs to be made between recurrent losses, on the one hand, and exceptional and catastrophic losses, on the other. But the recording of losses also depends on the method of calculation of output and the type of basic statistical material of each country. 2.043. When output is calculated from data on initial and final stocks, sales and possibly other uses (such as own-account produced fixed capital goods), recurrent losses are already deducted from the changes in stocks, and recording of them a further time under the item ‘losses’ would lead to double-counting. In contrast, where the calculation of output is not based on stocks data but instead on a well-founded calculation such as actual birth figures, recurrent losses during production in the reference period concerned should be recorded, as well as losses of animals imported for rearing or fattening or born during previous periods. 2.044. Exceptional and catastrophic losses of goods in inventories have to be recorded in the accumulation accounts, namely in the ‘other changes in the volume of assets’ account. Output therefore includes the full value of these losses. 2.045. Losses (whether recurrent, exceptional or catastrophic) of fixed assets (such as dairy cows, breeding animals, etc.) should be recorded in ‘other changes in the volume of assets’ account. They have no impact on the value of output. It should be stressed that losses affecting plantations which are already producing have to be recorded either as ‘fixed capital consumption’ or as ‘other changes in the volume of assets’, depending on the type of loss.
2.042.	For recording losses of goods in inventories, a distinction needs to be made between recurrent losses, on the one hand, and exceptional and catastrophic losses, on the other. But the recording of losses also depends on the method of calculation of output and the type of basic statistical material of each country.
2.043.	When output is calculated from data on initial and final stocks, sales and possibly other uses (such as own-account produced fixed capital goods), recurrent losses are already deducted from the changes in stocks, and recording of them a further time under the item ‘losses’ would lead to double-counting. In contrast, where the calculation of output is not based on stocks data but instead on a well-founded calculation such as actual birth figures, recurrent losses during production in the reference period concerned should be recorded, as well as losses of animals imported for rearing or fattening or born during previous periods.
2.044.	Exceptional and catastrophic losses of goods in inventories have to be recorded in the accumulation accounts, namely in the ‘other changes in the volume of assets’ account. Output therefore includes the full value of these losses.
2.045.	Losses (whether recurrent, exceptional or catastrophic) of fixed assets (such as dairy cows, breeding animals, etc.) should be recorded in ‘other changes in the volume of assets’ account. They have no impact on the value of output. It should be stressed that losses affecting plantations which are already producing have to be recorded either as ‘fixed capital consumption’ or as ‘other changes in the volume of assets’, depending on the type of loss.
(c)	Usable outputUsable output: (3q) = (1q) minus (2q) = gross output minus losses (at the producer stage) 2.046. This is the first item to be entered by countries whose reference harvest statistics do not include losses. It constitutes the disposable production of the reference period which will be either marketed, used as a means of production, processed by the producer himself, consumed in his household, put into storage, or possibly, used as own-account produced fixed capital goods.
2.046.	This is the first item to be entered by countries whose reference harvest statistics do not include losses. It constitutes the disposable production of the reference period which will be either marketed, used as a means of production, processed by the producer himself, consumed in his household, put into storage, or possibly, used as own-account produced fixed capital goods.
(d)	Initial stocksInitial stocks: (4q) 2.047. These constitute the finished or semi-finished stocks of own products existing on the agricultural holdings (i.e. held by producers) at the beginning of the reference year. Stocks at the different marketing stages and intervention stocks should therefore not be entered here (cf. 2.201 and following regarding the treatment of livestock). 2.048. The initial stocks of ‘poultry’ should also include eggs hatching in incubators at the start of the reference period since they are regarded as semi-finished poultry products (cf. 2.018).
2.047.	These constitute the finished or semi-finished stocks of own products existing on the agricultural holdings (i.e. held by producers) at the beginning of the reference year. Stocks at the different marketing stages and intervention stocks should therefore not be entered here (cf. 2.201 and following regarding the treatment of livestock).
2.048.	The initial stocks of ‘poultry’ should also include eggs hatching in incubators at the start of the reference period since they are regarded as semi-finished poultry products (cf. 2.018).
(e)	Total available resourcesTotal available resources: (5q) = usable output plus initial stocks (3q plus 4q)
(f)	Intra-unit consumptionIntra-unit consumption: (6q) 2.049. Under the heading of intra-unit consumption recorded are products produced within the agricultural unit (local KAU) and used by the unit as inputs into the production process within the same accounting period. 2.050. All agricultural products (except livestock; cf. 2.067 and 2.208) sold by an agricultural unit to other producing agricultural units must be recorded as sales and then as intermediate consumption. These include goods subjected to treatment and processing and their by-products (e.g. the return of skimmed milk, bran, oilcake and sugar beet pulp and tops, as well as the return of seeds after treatment). Classification of intra-unit consumption 2.051. Intra-unit consumption can be broken down according to the use of the products concerned: 2.052. Products consumed within the industry by the same agricultural activity (i.e. the same class of activity, at  NACE Rev. 2 four-digit level): —seed (for cereals, vegetables, flowers, etc.): reused for the same crop; —wine grapes and grape must: used in wine production; —olives: used in olive oil production; —milk: used in livestock feed. 2.053. Products consumed within the industry by a different agricultural activity (i.e. a different class of activity, at  NACE Rev. 2 four-digit level). These are mainly crop products used in animal feed, but also animal by-products used in the production process of another activity (slurry and manure used as fertilising elements for crop production). Crop products used in animal feed can be classed according to the degree to which they are normally marketed (which is estimated in general): —normally marketable animal feed products: cereals (wheat, rye, barley, oats, maize, sorghum, rice and other cereal grain); protein crops; potatoes; oilseeds (rape seed, sunflower seed, soya beans and other oilseeds), —normally unmarketable animal feed products:— —annual fodder products: root crops (sugar beet, fodder beet, swedes, fodder turnips, fodder carrots, fodder kale/curly kale and other root crops); fodder maize and other green fodder (green, dried or preserved), —perennial fodder products: permanent and temporary fodder products derived from an economic activity (green, dried or preserved), —fodder by-products (straw, chaff, plant leaves and ends and other fodder by-products). Definition of intra-unit consumption to be included in the industry's output 2.054. Agricultural products undergoing intra-unit consumption are not included in the measurement of the output of the industry unless they meet certain criteria. The setting of restrictive criteria for recording intra-unit consumption meets two requirements: first, a methodological one since, after deviating from the letter of the ESA rule, there was a need to follow it in spirit (by involving two separate activities); secondly, a practical one, since the criteria to be developed were to serve as a precise and comparable framework for defining which intra-unit consumption had to be recorded, to make this method of measuring output feasible. 2.055. These criteria are as follows: 1.The two activities exercised should come under different four-digit levels of NACE Rev. 2 (Division 01: Crop and animal production, hunting and related service activities). The application of this criterion thus precludes, for example, the valuation of seed produced and used on the same holding for crop production (during the same accounting period); 2.The agricultural product should have a significant economic value for a significant number of farmers. 3.Data on prices and quantities must be available without too much difficulty. This criterion is difficult to meet for some unmarketable products. 2.056. In line with the definition of the selection criteria for including intra-unit consumption products in the measurement of output (cf. 2.055), only crop products used in animal feed (marketable or not) are to be recorded in the agricultural output of the industry. 2.057. When these products are recorded in the industry's output, they must also be recorded as intermediate consumption, thereby respecting the principle that total quantities produced and then used for a different production activity during the reference year are taken into account (cf. 2.055). When the change from output to intermediate consumption takes longer than the reference year in question, then the corresponding quantities of output should be recorded as ‘final stocks’ of the product concerned during the reference year. 2.058. Animal by-products are excluded from intra-unit consumption because of the practical difficulties of unavailability of data on quantities and especially prices.
2.049.	Under the heading of intra-unit consumption recorded are products produced within the agricultural unit (local KAU) and used by the unit as inputs into the production process within the same accounting period.
2.050.	All agricultural products (except livestock; cf. 2.067 and 2.208) sold by an agricultural unit to other producing agricultural units must be recorded as sales and then as intermediate consumption. These include goods subjected to treatment and processing and their by-products (e.g. the return of skimmed milk, bran, oilcake and sugar beet pulp and tops, as well as the return of seeds after treatment).
2.051.	Intra-unit consumption can be broken down according to the use of the products concerned:
2.052.	Products consumed within the industry by the same agricultural activity (i.e. the same class of activity, at  NACE Rev. 2 four-digit level): —seed (for cereals, vegetables, flowers, etc.): reused for the same crop; —wine grapes and grape must: used in wine production; —olives: used in olive oil production; —milk: used in livestock feed.
2.053.	Products consumed within the industry by a different agricultural activity (i.e. a different class of activity, at  NACE Rev. 2 four-digit level). These are mainly crop products used in animal feed, but also animal by-products used in the production process of another activity (slurry and manure used as fertilising elements for crop production). Crop products used in animal feed can be classed according to the degree to which they are normally marketed (which is estimated in general): —normally marketable animal feed products: cereals (wheat, rye, barley, oats, maize, sorghum, rice and other cereal grain); protein crops; potatoes; oilseeds (rape seed, sunflower seed, soya beans and other oilseeds), —normally unmarketable animal feed products:— —annual fodder products: root crops (sugar beet, fodder beet, swedes, fodder turnips, fodder carrots, fodder kale/curly kale and other root crops); fodder maize and other green fodder (green, dried or preserved), —perennial fodder products: permanent and temporary fodder products derived from an economic activity (green, dried or preserved), —fodder by-products (straw, chaff, plant leaves and ends and other fodder by-products).
2.054.	Agricultural products undergoing intra-unit consumption are not included in the measurement of the output of the industry unless they meet certain criteria. The setting of restrictive criteria for recording intra-unit consumption meets two requirements: first, a methodological one since, after deviating from the letter of the ESA rule, there was a need to follow it in spirit (by involving two separate activities); secondly, a practical one, since the criteria to be developed were to serve as a precise and comparable framework for defining which intra-unit consumption had to be recorded, to make this method of measuring output feasible.
2.055.	These criteria are as follows: 1.The two activities exercised should come under different four-digit levels of NACE Rev. 2 (Division 01: Crop and animal production, hunting and related service activities). The application of this criterion thus precludes, for example, the valuation of seed produced and used on the same holding for crop production (during the same accounting period); 2.The agricultural product should have a significant economic value for a significant number of farmers. 3.Data on prices and quantities must be available without too much difficulty. This criterion is difficult to meet for some unmarketable products.
2.056.	In line with the definition of the selection criteria for including intra-unit consumption products in the measurement of output (cf. 2.055), only crop products used in animal feed (marketable or not) are to be recorded in the agricultural output of the industry.
2.057.	When these products are recorded in the industry's output, they must also be recorded as intermediate consumption, thereby respecting the principle that total quantities produced and then used for a different production activity during the reference year are taken into account (cf. 2.055). When the change from output to intermediate consumption takes longer than the reference year in question, then the corresponding quantities of output should be recorded as ‘final stocks’ of the product concerned during the reference year.
2.058.	Animal by-products are excluded from intra-unit consumption because of the practical difficulties of unavailability of data on quantities and especially prices.
(g)	Processing by producersProcessing by producers: (7q) 2.059. Under the heading of processing by producers recorded are quantities produced for further processing by agricultural producers (e.g. milk processed to make butter or cheese, apples processed to make apple must or cider) but only in the framework of processing activities which are separable from the main agricultural activity (on the basis of accounting documents, cf. 1.26). Only the raw products (e.g. raw milk, apples) should be recorded and not the processed products manufactured from them (e.g. butter, apple must and cider). In other words, the work incorporated in the processing of agricultural products is not taken into consideration under this heading. Products resulting from processing by the producer will naturally be indicated in the output of the ‘agriculture’ subsector in the national accounts (cf. 1.04 and 1.05). 2.060. Where these processing activities are inseparable non-agricultural activities, the product of these processing activities is recorded in the value of the output of the agricultural industry (cf. 1.25). Basic agricultural products used as intermediate consumption by these processing activities are not recorded as either output or intermediate consumption. This rule stems from the fact that the two activities (the production of agricultural products and the processing of such products) cannot be distinguished on the basis of accounting documents. Accordingly, the costs of these two types of activity are entered together and their output is assessed as the output of processed products.
2.059.	Under the heading of processing by producers recorded are quantities produced for further processing by agricultural producers (e.g. milk processed to make butter or cheese, apples processed to make apple must or cider) but only in the framework of processing activities which are separable from the main agricultural activity (on the basis of accounting documents, cf. 1.26). Only the raw products (e.g. raw milk, apples) should be recorded and not the processed products manufactured from them (e.g. butter, apple must and cider). In other words, the work incorporated in the processing of agricultural products is not taken into consideration under this heading. Products resulting from processing by the producer will naturally be indicated in the output of the ‘agriculture’ subsector in the national accounts (cf. 1.04 and 1.05).
2.060.	Where these processing activities are inseparable non-agricultural activities, the product of these processing activities is recorded in the value of the output of the agricultural industry (cf. 1.25). Basic agricultural products used as intermediate consumption by these processing activities are not recorded as either output or intermediate consumption. This rule stems from the fact that the two activities (the production of agricultural products and the processing of such products) cannot be distinguished on the basis of accounting documents. Accordingly, the costs of these two types of activity are entered together and their output is assessed as the output of processed products.
(h)	Own final consumptionOwn final consumption: (8q) 2.061. This includes: (i)products consumed by the farmers' households which produced them; (ii)products stemming from the agricultural unit (holding) and used for payment in kind in the form of remuneration paid to holding workers or exchanged for other goods. 2.062. Agricultural products processed by the agricultural unit in a separable way (i.e. giving rise to the formation of a local non-agricultural KAU) and consumed by farmers’ households are recorded in the output of the ‘Manufacturing’ industry (section C of NACE Rev. 2), as own final consumption. By contrast, agricultural household consumption of agricultural products processed in an inseparable way (i.e. the output of inseparable non-agricultural processing activities), is recorded as own final consumption of these activities (cf. 2.080) and included in the output of the agricultural industry. 2.063. The imputed rental value of the owner-occupied housing unit is not recorded here but in the branch ‘Renting and operating of own or leased real estate’ (Class 68,20 of NACE Rev. 2). Renting of accommodation is a non-agricultural activity which is always considered to be separable from agricultural activity.
2.061.	This includes: (i)products consumed by the farmers' households which produced them; (ii)products stemming from the agricultural unit (holding) and used for payment in kind in the form of remuneration paid to holding workers or exchanged for other goods.
2.062.	Agricultural products processed by the agricultural unit in a separable way (i.e. giving rise to the formation of a local non-agricultural KAU) and consumed by farmers’ households are recorded in the output of the ‘Manufacturing’ industry (section C of NACE Rev. 2), as own final consumption. By contrast, agricultural household consumption of agricultural products processed in an inseparable way (i.e. the output of inseparable non-agricultural processing activities), is recorded as own final consumption of these activities (cf. 2.080) and included in the output of the agricultural industry.
2.063.	The imputed rental value of the owner-occupied housing unit is not recorded here but in the branch ‘Renting and operating of own or leased real estate’ (Class 68,20 of NACE Rev. 2). Renting of accommodation is a non-agricultural activity which is always considered to be separable from agricultural activity.
(i)	SalesSales: (9q) 2.064. This heading covers sales of agricultural products made by agricultural units to other units (agricultural or those of other branches), including sales to storage and intervention centres, with the exception of disposals of fixed assets. It is broken down into domestic sales outside the industry, domestic sales to other agricultural units and sales abroad. 2.065. Consequently, for a given unit, sales correspond to the turnover obtained from the marketing of its output. It should be noted that sales of animals classed as fixed assets, which are taken out of the productive herd (exports or slaughterings) are not recorded. Animals classed as fixed assets and taken out of the productive herd are transferred into stocks before their sale, but the sales of these animals (slaughterings or exports) appear in the accounts as destocking, seen only in the capital account. The corresponding output had already been imputed as a part of own-account produced fixed capital goods (21) then recorded in the production account. 2.066. Livestock considered to be stocks: the disposal of livestock considered to be stocks to another holding constitutes a sale in accordance with the definition given in 2.064. This sale may be offset by a removal from stocks if the livestock is recorded as stocks at the start of the reference period (otherwise, only sales are recorded). 2.067. The acquisition of livestock is a stock entry if the products are not resold during the reference period. Acquired livestock, however, cannot be treated as intermediate consumption because, by definition, intermediate consumption goods are destined to disappear (or at least undergo substantial transformation) during the production process. These animals are regarded as work in progress since the livestock production process is not fully terminated (the production process finishes at the time of slaughter). Acquisitions are therefore recorded as stock entries of work (products) in progress and thus recorded as ‘negative’ sales and not as intermediate consumption. In the case of trading between resident holdings, sales and the corresponding purchases offset each other (except for the costs of transferring ownership) (22). In view of this special treatment of trade in live animals between agricultural units, there is no intermediate consumption under ‘livestock and animal products’ (23). 2.068. Livestock classed as fixed assets: trade in fixed-asset livestock between agricultural units is not recorded in sales as defined above but as trade in assets (recorded in the capital account as GFCF of agriculture). In the case of trading between resident holdings, sales and corresponding purchases offset each other (except for the transfer costs). 2.069. Recording of imports of live animals (not intended for immediate slaughter): as in the case of trade between resident holdings, livestock treated as stocks (other than animals for immediate slaughter) and imported during the reference period by agricultural units are recorded as stock entries of work in progress and are therefore deducted from sales. On the other hand, livestock classed as fixed assets (such as breeding animals) and imported as such, should not be deducted from sales. 2.070. Nevertheless, as it is often difficult, in practice, to make relevant distinctions between the different categories of animals on the basis of available sources of EU data (between animals classed as fixed assets and those classed as stocks), all imports are considered to be of animals intended for building up stocks and the value of all imported animals (except those intended for immediate slaughter) is deducted from the value of sales. This method of recording guarantees treatment of external trade in live animals similar to that adopted for calculating gross indigenous production in animal production statistics.
2.064.	This heading covers sales of agricultural products made by agricultural units to other units (agricultural or those of other branches), including sales to storage and intervention centres, with the exception of disposals of fixed assets. It is broken down into domestic sales outside the industry, domestic sales to other agricultural units and sales abroad.
2.065.	Consequently, for a given unit, sales correspond to the turnover obtained from the marketing of its output. It should be noted that sales of animals classed as fixed assets, which are taken out of the productive herd (exports or slaughterings) are not recorded. Animals classed as fixed assets and taken out of the productive herd are transferred into stocks before their sale, but the sales of these animals (slaughterings or exports) appear in the accounts as destocking, seen only in the capital account. The corresponding output had already been imputed as a part of own-account produced fixed capital goods (21) then recorded in the production account.
2.066.	Livestock considered to be stocks: the disposal of livestock considered to be stocks to another holding constitutes a sale in accordance with the definition given in 2.064. This sale may be offset by a removal from stocks if the livestock is recorded as stocks at the start of the reference period (otherwise, only sales are recorded).
2.067.	The acquisition of livestock is a stock entry if the products are not resold during the reference period. Acquired livestock, however, cannot be treated as intermediate consumption because, by definition, intermediate consumption goods are destined to disappear (or at least undergo substantial transformation) during the production process. These animals are regarded as work in progress since the livestock production process is not fully terminated (the production process finishes at the time of slaughter). Acquisitions are therefore recorded as stock entries of work (products) in progress and thus recorded as ‘negative’ sales and not as intermediate consumption. In the case of trading between resident holdings, sales and the corresponding purchases offset each other (except for the costs of transferring ownership) (22). In view of this special treatment of trade in live animals between agricultural units, there is no intermediate consumption under ‘livestock and animal products’ (23).
2.068.	Livestock classed as fixed assets: trade in fixed-asset livestock between agricultural units is not recorded in sales as defined above but as trade in assets (recorded in the capital account as GFCF of agriculture). In the case of trading between resident holdings, sales and corresponding purchases offset each other (except for the transfer costs).
2.069.	Recording of imports of live animals (not intended for immediate slaughter): as in the case of trade between resident holdings, livestock treated as stocks (other than animals for immediate slaughter) and imported during the reference period by agricultural units are recorded as stock entries of work in progress and are therefore deducted from sales. On the other hand, livestock classed as fixed assets (such as breeding animals) and imported as such, should not be deducted from sales.
2.070.	Nevertheless, as it is often difficult, in practice, to make relevant distinctions between the different categories of animals on the basis of available sources of EU data (between animals classed as fixed assets and those classed as stocks), all imports are considered to be of animals intended for building up stocks and the value of all imported animals (except those intended for immediate slaughter) is deducted from the value of sales. This method of recording guarantees treatment of external trade in live animals similar to that adopted for calculating gross indigenous production in animal production statistics.
(j)	Own-account produced fixed capital goodsOwn-account produced fixed capital goods: (10q) 2.071. These only include: —work done by agricultural units (e.g. use of labour, machines and other means of production, including planting stock) for the own-account establishment of plantations such as orchards, vineyards, soft fruit plantations and hop-fields. In general, own-account work on planting orchards and vineyards, etc., is made up of a large number of individual work operations which cannot be added up into specific quantities, —animals produced in agricultural units and transferred to their fixed capital (cf. 2.161). These are animals reared for the output which they supply on a regular basis (mainly breeding livestock, dairy livestock, draught animals, sheep and other animals reared for their wool; cf. 2.202).
2.071.	These only include: —work done by agricultural units (e.g. use of labour, machines and other means of production, including planting stock) for the own-account establishment of plantations such as orchards, vineyards, soft fruit plantations and hop-fields. In general, own-account work on planting orchards and vineyards, etc., is made up of a large number of individual work operations which cannot be added up into specific quantities, —animals produced in agricultural units and transferred to their fixed capital (cf. 2.161). These are animals reared for the output which they supply on a regular basis (mainly breeding livestock, dairy livestock, draught animals, sheep and other animals reared for their wool; cf. 2.202).
(k)	Final stocksFinal stocks: (11q) 2.072. These are stocks of finished products or work in progress on the holdings of the industry (i.e. held by producers) at the end of the reference year. Stocks at different marketing stages (especially reserves held by dealers and processing firms) as well as intervention stocks should not be listed here. 2.073. Products which are only temporarily stocked and are consumed in a later period within the industry (e.g. cereals for feed, seed and planting stock, etc) should also be entered here since the final use of the product is not known at the time of their entry in stocks.
2.072.	These are stocks of finished products or work in progress on the holdings of the industry (i.e. held by producers) at the end of the reference year. Stocks at different marketing stages (especially reserves held by dealers and processing firms) as well as intervention stocks should not be listed here.
2.073.	Products which are only temporarily stocked and are consumed in a later period within the industry (e.g. cereals for feed, seed and planting stock, etc) should also be entered here since the final use of the product is not known at the time of their entry in stocks.
(l)	Total usesTotal uses: (12q) (not including intra-unit consumption) = (7q) + (8q) + (9q) + (10q) + (11q) = processing by producers plus own final consumption plus sales plus own-account produced fixed capital goods plus final stocks. 2.074. This entry is the sum of columns 7q to 11q.
2.074.	This entry is the sum of columns 7q to 11q.
(m)	Change in stocksChange in stocks: (12q) = (11q) minus (4q) = additions to stocks (A) minus withdrawals from stocks (W) 2.075. The change in stocks in the industry (excluding stocks at the various marketing stages) during the reference year is measured by calculating the difference between stock entries and withdrawals, or the difference between final and initial stocks. In the latter case other changes in volume and holding gains (net of losses) are to be deducted in the calculation of values (cf. 2.179 and following).
2.075.	The change in stocks in the industry (excluding stocks at the various marketing stages) during the reference year is measured by calculating the difference between stock entries and withdrawals, or the difference between final and initial stocks. In the latter case other changes in volume and holding gains (net of losses) are to be deducted in the calculation of values (cf. 2.179 and following).
(n)	Output of agricultural activitiesOutput of agricultural activities = (6q, animal feedingstuffs) + (7q) + (8q) + (9q) + (10q) + (12q) 2.076. In accordance with the concept of output and the rules for recording intra-unit consumption (cf. 2.049 and following), processing of agricultural products (cf. 2.059 and 2.060), and own final consumption (cf. 2.061, 2.062, 2.063), the output of agricultural activities can be depicted as follows: Resources Uses Agricultural output of the agricultural industry Gross output Sales (total, excluding trade in animals between agricultural holdings) X Change in stocks (with producers) X – Losses Own-account produced fixed capital goods (plantations yielding repeat products, productive animals) X Own final consumption (of agricultural products) X = Usable output Processing by producers (of agricultural products, separable activities) X Intra-unit consumption: — for the same activity: (seeds, milk for livestock feed, wine grapes, olives for olive oil, hatching eggs) —  for a separate activity: crop products used in animal feed (cereals, oilseeds, fodder crops, marketable or not, etc.) X animal by-products used in crop production (slurry, manure) 2.077. Compared with the former ‘final output’ concept on which the EAA used to be based, the new concept for measuring the output of agricultural activity includes trade in agricultural goods and services between agricultural units as well as intra-unit consumption of livestock feed products (marketable or not).
2.076.	In accordance with the concept of output and the rules for recording intra-unit consumption (cf. 2.049 and following), processing of agricultural products (cf. 2.059 and 2.060), and own final consumption (cf. 2.061, 2.062, 2.063), the output of agricultural activities can be depicted as follows: Resources Uses Agricultural output of the agricultural industry Gross output Sales (total, excluding trade in animals between agricultural holdings) X Change in stocks (with producers) X – Losses Own-account produced fixed capital goods (plantations yielding repeat products, productive animals) X Own final consumption (of agricultural products) X = Usable output Processing by producers (of agricultural products, separable activities) X Intra-unit consumption: — for the same activity: (seeds, milk for livestock feed, wine grapes, olives for olive oil, hatching eggs) —  for a separate activity: crop products used in animal feed (cereals, oilseeds, fodder crops, marketable or not, etc.) X animal by-products used in crop production (slurry, manure)
Resources	Uses	Agricultural output of the agricultural industry
Gross output	Sales (total, excluding trade in animals between agricultural holdings)	X
Change in stocks (with producers)	X
– Losses	Own-account produced fixed capital goods (plantations yielding repeat products, productive animals)	X
Own final consumption (of agricultural products)	X
= Usable output	Processing by producers (of agricultural products, separable activities)	X
Intra-unit consumption: — for the same activity: (seeds, milk for livestock feed, wine grapes, olives for olive oil, hatching eggs)
—  for a separate activity: crop products used in animal feed (cereals, oilseeds, fodder crops, marketable or not, etc.)	X
animal by-products used in crop production (slurry, manure)
2.077.	Compared with the former ‘final output’ concept on which the EAA used to be based, the new concept for measuring the output of agricultural activity includes trade in agricultural goods and services between agricultural units as well as intra-unit consumption of livestock feed products (marketable or not).
2.078.	A distinction is made between two types of ‘inseparable non-agricultural secondary activities’ (cf. 1.29): —‘processing of agricultural products’: this group covers activities which are an extension of agricultural activity and in which agricultural products are employed. The processing of agricultural products is the typical activity of this first group, —‘other inseparable non-agricultural secondary activities’: this group covers activities which use the agricultural holding and its means of agricultural production. It is less uniform than the first group.
2.079.	In general, these activities include a variety of products (goods and services) whose quantities cannot be added together.
2.080.	The product of these activities is either intended for sale, barter, payment in kind, own final consumption (cf. 2.062) or kept in stocks.
2.081.	In accordance with the definition of the output of the agricultural industry (cf. 1.16), the output of the agricultural industry is made up of the sum of the output of agricultural products (cf. 2.076 to 2.077) and of the goods and services produced in inseparable non-agricultural secondary activities (cf. 2.078 to 2.080).
2.082.	Output is to be valued at the basic price. The basic price is the price receivable by the producers from the purchaser for a unit of a good or service produced as output minus any tax payable on that unit as a consequence of its production or sale (i.e. taxes on products) plus any subsidy receivable on that unit as a consequence of its production or sale (i.e. subsidies on products). The basic price excludes any transport charges invoiced separately by the producer. However, it includes any transport margins charged by the producer on the same invoice, even if they are included as a separate item on the invoice (cf. ESA 95, 3.48).
2.083.	Components of output such as sales, payments in kind, additions to stocks and intra-unit consumed products should be valued at the basic price. Similarly, output for own final use (i.e. own-account fixed capital goods and own final consumption) should be valued at the basic price of similar products sold on the market. Work in progress and additions to it are valued proportionally to the current basic price of the finished product. If the latter has to be assessed in advance, the calculation should be based on the actual costs incurred plus an amount corresponding to the anticipated operating surplus or mixed income.
2.084.	When establishing the EAA according to the ‘net’ recording system (cf. 3.033 and 3.035 to 3.043), the VAT invoiced by the producer is not included when establishing the basic price.
2.085.	The price obtained by the producer corresponds to the producer price (not including invoiced VAT) as defined in the SNA 93 (i.e. the ex-farm price). The basic price can be obtained from the producer price by adding subsidies less taxes (other than VAT) on products. When problems of allocating a tax or subsidy on products to a specific product make it difficult to calculate the basic price, output can be calculated direct at the basic price. In this case it is obtained direct from the value of the producer price (exclusive of invoiced VAT), minus the value of taxes on products (other than VAT) and plus the value of subsidies on products.
2.086.	The valuation of output at the basic price makes it necessary to distinguish between taxes (other than VAT) on products and subsidies on products (cf. 3.027 and 3.053), on the one hand, and other taxes and subsidies on production (cf. 3.044 and 3.058), on the other. Taxes and subsidies on products are not recorded in the generation of income account of the industry (this account only includes other taxes on production and other subsidies on production, cf. 3.055).
2.087.	The price of a given item received by producers is not necessarily always the same; it may vary, inter alia, according to the type of delivery. For example, the structure, in terms of quality, of goods exported directly by the producer can be different from the structure of the sales intended for national consumption or of domestic sales to other agricultural units. These goods would consequently have a different price. It should be noted that when a producing unit directly exports its output, the receipt or payment of monetary compensatory amounts for the exports must be taken into account in the EAA.
2.088.	These general principles of valuation require specific applications for certain products such as seasonal products and wine. These are explained in the section treating the valuation of changes in stocks (cf. 2.185 to 2.200).
D.	GROSS CAPITAL FORMATION2.115. Gross capital formation comprises: —GFCF, —changes in stocks, —acquisitions less disposals of items of value. 2.116. Since the EAA are accounts drawn up in order to depict flows generated by units within their production function, only GFCF and changes in stocks are dealt with below. 2.117. Gross capital formation means gross of fixed capital consumption. Net capital formation is obtained by deducting fixed capital consumption from gross capital formation. Fixed capital consumption is the value of the depreciation of fixed capital goods as a result of normal wear and tear in the course of the production process (cf. 3.099). 1. GFCF(a) Definition 2.118. GFCF consists of resident producers' acquisitions, less disposals, of fixed assets during a given period plus certain additions to the value of non-produced assets stemming from the productive activity of producer or institutional units. Fixed assets are tangible or intangible assets produced as outputs from production processes that are themselves used repeatedly, or continuously, in other production processes for more than one year (cf. ESA 95, 3.102). (b) Considerations for the national economy as a whole 2.119. The GFCF of a national economy is understood to mean the proportion of the gross domestic product (GDP) produced during the reference year which is intended to be used for a period of more than one year as a means of production in the production process (as distinct from the final consumption of private or public households, exports and changes in stocks). Consequently, goods which, although produced sometime in the past and therefore included in the national product, are put to a different use in the reference period, are not included in the GFCF of a national economy. A change of use or ownership does not imply that such goods become part of the domestic product a second time and in no way changes the total mass of fixed capital of the national economy as a whole. The inclusion of such transactions is, however, important in analyses by homogenous branch, industry or sector. 2.120. If a change in ownership results in a different use (i.e. no longer as capital assets), there is a reduction in the capital assets of the national economy. The commonest instances of this are motor vehicles which households buy secondhand from producer units, shipping vessels which are sold secondhand to other countries, and also capital goods which have been broken up and put to some intermediate use. Since the new use in these cases forms part of the national product (final consumption, export or any other use depending on the type of goods produced from the scrap), the GFCF must be reduced as a result. This is why the ESA 95 uses the concept of net acquisitions of existing produced goods for calculating GFCF: this heading allows capital disposals, i.e. reductions in fixed capital to be taken into account. 2.121. It is possible for net acquisitions of existing goods to be positive, in other words, to represent increases in the capital assets of the economy as a whole. This is the case, for example, when secondhand vehicles which have already been listed as final consumption in the national product are bought for use as fixed capital. Since sales of existing investment goods exceed purchases, net acquisitions are negative for the national economy as a whole. If, however, the GFCF is broken down by user branch, net acquisitions can be positive for some branches. (c) Transfer of ownership criterion 2.122. The determination of the GFCF of sectors or branches of the economy is based on the criterion of transfer of ownership (acquisition, disposal) and not on that of the use of the goods. It should be noted that fixed assets acquired by financial leasing (but not those simply on hire) are treated as assets of the lessee (if he is a producer) and not of the lessor, who keeps a financial asset equivalent to a notional claim (cf. 2.109(d) and Annex II of the ESA 95 on the distinction between the different forms of hire of durable goods) (25). 2.123. Application of the criterion of transfer of ownership depends on the statistical system on the basis of which the GFCF is calculated. If it is data from purchasers, there will in theory be no difficulties (apart from the practical difficulty of recording all the investors). Often, however, (and this is particularly true of agriculture), it is information from producers of capital goods on their output or sales that is used as the basis for calculations. Apart from those cases where it is not clear whether a product belongs under the capital goods heading or not, it is also difficult to determine the actual purchaser since the nature of the capital goods gives only an indication of who the user is. In agriculture, therefore, there is the risk that capital goods will also be recorded which have not been acquired by agricultural holdings but by commercial enterprises for the purpose of hiring without operating staff. (d) Acquisitions 2.124. Acquisitions of fixed assets comprise new or existing fixed assets which have been acquired (purchased, acquired in barter transactions, received as capital transfers in kind or acquired as a financial lease), fixed assets produced and retained for the producer's own use, major improvements to fixed assets and to non-produced tangible assets, natural growth in agricultural assets (livestock and plantations) and costs associated with the transfer of ownership of non-produced assets (cf. ESA 95, 3.103(a)). 2.125. It should be remembered that in order to qualify for recording as GFCF, acquired durable goods have to have a unit value (or total value if they have been obtained in large quantities) of over EUR 500 at 1995 prices (cf. 2.090). 2.126. The same applies to the purchase or production for own account of a set of durable goods needed for an initial installation. The stock of bottles of a brewery or wine-producing enterprise (excluding non-returnable bottles) for example, constitutes a mass of goods to be recorded as assets, although the value of each bottle is negligible. The same applies to seats and tables, crockery and cutlery of restaurants and the tools of an enterprise. The initial installation of these goods constitutes fixed capital formation: nevertheless, no fixed capital consumption is calculated in these cases because it is assumed that once this installation has been made, it will always keep the same value as a result of constant purchases of replacement items to make up for those which have been lost or become unusable. Current replacement purchases are recorded as intermediate consumption. This rule, which in theory is clear, is sometimes difficult to apply in practice as statistical data on production or sales do not give a clear idea of whether the goods in question have been bought for an initial installation or to replace existing items. 2.127. Goods and services incorporated into existing fixed capital goods for the purpose of improving them, rebuilding or reconstructing them, prolonging their useful life or increasing their productivity, are recorded with the capital goods into which they are incorporated. This work is considered to be acquisition of new fixed assets. In principle, this heading includes all goods and services incorporated into fixed capital goods which go well beyond the scope of current maintenance and repair. Current maintenance is taken to mean all services which, in comparison with the normal lifetime of the capital goods, must be repeatedly provided at relatively short intervals in order to maintain the goods in serviceable condition. It covers, for example, the replacement of fast-wearing components of capital goods, external and internal painting, etc. 2.128. The size of the sums spent on this maintenance is in no way a criterion for determining whether a service creates an asset or represents current maintenance, since in the case of high-value capital items, even services for current maintenance may be very costly (cf. 2.109(e)). Strictly speaking, the allocation of services performed on existing fixed capital goods either to the ‘current maintenance’ or ‘GFCF’ category should be determined by the interval which will elapse before the service has to be repeated, e.g. the replacement of parts which normally wear out within one year, such as the tyres of a truck, counts as current maintenance, whereas the replacement of an engine constitutes fixed capital formation, not because the value is higher but because an engine does not normally have to be replaced annually but only after several years. Recording a service of this kind under the assets heading (i.e. treatment as fixed capital formation and not as current maintenance) makes it possible to distribute the value uniformly over the entire period of use through the device of fixed capital consumption. 2.129. The SNA 93 specifies that improvements made to fixed assets should be determined either by the magnitude of the changes in the characteristics of the fixed assets — i.e. by major changes in their size, shape, performance, capacity or anticipated service life — or by the fact that improvements are not the kinds of changes that are observed to take place routinely in other fixed assets of the same kind, as part of ordinary maintenance and repair programmes (cf. SNA 93, 10.49). (e) Disposals 2.130. Disposals of fixed assets comprise the sale, demolition, scrapping or destruction of fixed assets by their owner, or their surrender in barter or as capital transfers in kind (cf. ESA 95, 3.103(b) and 3.104). These disposals should normally lead to a change in ownership and have a direct economic purpose (therefore fixed assets which are demolished, scrapped or destroyed by their owner in order to be put to no further economic use are not included in these disposals) (cf. SNA 93, 10.35 and 10.39). However, some disposals may be kept within the same institutional unit, as in the case of animals slaughtered by a farmer and consumed by his family. (f) Valuation of gross fixed capital formation 2.131. GFCF is valued at purchaser prices (including the costs of transferring ownership, installation and other transfer charges) or, when produced on own account, it is valued at the basic prices of similar fixed assets (the basic price can be obtained from the sum of the costs incurred). Disposals should be recorded at the sales price, which should correspond to the purchaser price less the costs incurred in the transfer of ownership of assets, installation and transfer charges (cf. 2.130). (g) Costs of transfer of ownership 2.132. The costs of transfer of ownership of assets constitute GFCF by the acquirer, even if some of the costs are paid by the seller. They comprise the expenditure incurred in order to take possession of the assets (installation and transport charges, etc.), fees and commissions of intermediaries (solicitors, experts, etc.) and taxes to be paid on intermediary services used in the transfer of ownership of assets. 2.133. The GFCF of the acquirer comprises the value of the goods acquired (exclusive of transfer costs) plus the total transfer costs involved in the acquisition. Conversely, the GFCF of the seller only includes the value of the goods sold (exclusive of transfer costs) (26). In the case of non-produced assets (such as land, or patented assets such as production rights) which are not included in GFCF, these costs must be separated from the acquisition/disposal of these assets and recorded under a different heading as GFCF of the acquirer. (h) GFCF and change in the value of assets 2.134. The balance sheet, which provides an itemised list of the values of the assets held and commitments entered into, provides information on the different components of the change in the value of assets. As defined in the balance sheets (cf. ESA 95, 7.08) the change in the value of an asset between the end and beginning of an accounting period can be described as follows: Value of assets at the end of the accounting period – Value of assets at the beginning of the accounting period = GFCF – Consumption of fixed capital + Other volume changes + Nominal holding gains (net of losses) 2.135. Nominal holding gains (net of losses) correspond to holding gains (net of losses) accumulated during the period considered and resulting from a change in the price of the asset whose economic and physical (quantitative and qualitative) characteristics remain unchanged over the period concerned. These changes are recorded in the revaluation account. 2.136. The other changes in the volume of assets are flows which make it possible to record the discovery, deterioration or depletion of natural assets as well as the consequences of exceptional events which may modify the benefit drawn from assets. As far as the assets of the agricultural industry are concerned, changes in volume may be put into three main categories: —exceptional losses or catastrophic losses (earthquakes, wars, drought, epidemics, etc.), —the margin between the anticipated depreciation of the assets (measured by the consumption of fixed capital) and the depreciation actually determined (due to unforeseen obsolescence, damage, deterioration and accidental events leading to higher depreciation than anticipated), —changes in classification or structure of fixed assets: e.g. changes in the economic purpose of agricultural land, dairy livestock intended for meat production (cf. 2.149, footnote 1) or agricultural buildings which have been altered for private or other economic use. 2.137. GFCF and consumption of fixed capital (cf. 3.098 to 3.106) are therefore not the only elements to take into account when analysing the change in the value of assets. (i) Elements of GFCF 2.138. The ESA 95 distinguishes between four types of elements which should be recorded as GFCF (cf. ESA 95, 3.105): —acquisitions less disposals of new or existing tangible fixed assets (dwellings, other buildings and structures, machines and equipment, cultivated assets), —acquisitions less disposals of new or existing intangible fixed assets (mineral exploration, computer software, artists' and other works), —major improvements to tangible non-produced assets, including land, —costs associated with the transfer of ownership of non-produced assets such as land and patented assets. 2.139. For the EAA, a distinction is made between five types of elements of GFCF: —plantations yielding repeat products, —livestock, —tangible and intangible fixed assets:— —machines and other capital goods, —transport equipment, —farm buildings (non-residential), —other structures with the exception of land improvement (other buildings and structures, etc.), —other (computer software, etc.), —land improvement, —costs associated with the transfer of ownership of non-produced assets such as land and production rights. 2.140. GFCF in agricultural assets concerns two types of assets (plantations and animals) which are used repeatedly and continually for the production of products such as fruit, rubber, milk, etc.: fruit trees, vines, hop fields, soft fruit plantations and asparagus beds. Christmas tree plantations (which only provide a finished product once) are not fixed assets, just as cereals and vegetables are not. Animals which serve as fixed assets include, for example, breeding animals, dairy cattle, sheep reared for their wool and draught animals (animals for slaughter, including poultry, are not fixed assets). (j) Plantations 2.141. According to ESA 95 (3.103) GFCF in plantations corresponds to the value of acquisitions less disposals of natural assets yielding repeat products (such as fruit trees) which have reached maturity, plus the natural growth of such natural assets until they reach maturity (i.e. generate a product), during the accounting period concerned. 2.142. This definition of GFCF corresponds to: —expenditure on new plantations (new or renewed) during the accounting period, including amounts spent on maintaining young plantations during the accounting period (during the first three years), —the increase in the intrinsic value of plantations up to their maturity, —the costs associated with transfer of ownership in exchanges, between agricultural units, of plantations which have reached maturity. 2.143. The first two elements of GFCF in plantations represent own-account agricultural output of GFCF. 2.144. Disposals of plantations (recorded as negative GFCF) may take two forms: they may be sales of standing plantations to other (agricultural) units, in which case only the costs associated with the transfer of ownership are entered in the EAA. The other possibility is for the plantations to have been felled before the end of their normal growing life. In this case, however, according to the general definition of disposals, felled plantations must have a direct economic use; in other words, a counter-entry is required in the form of a use in goods and services (such as a sale to an enterprise specialising in the sale of timber (27)). In this second case, disposals of plantations to be recorded as negative GFCF should represent a modest amount. 2.145. Consequently, in the majority of cases (i.e. except in the second case set out in 2.144), the value of the grubbings must not be deducted from the value of the investments in plantations. Investments intended for renewing existing plantations should be treated as investments and not as routine maintenance costs. 2.146. The treatment of grubbings of plantations should be analysed in relation to the calculation of consumption of fixed capital. In accordance with the ESA 95, there is consumption of fixed capital in the case of plantations corresponding to the depreciation of the plantations when they have reached maturity. Plantation grubbings (28) should therefore be interpreted as follows: —grubbings carried out at the end of the normal growing life of plantations correspond to plantations withdrawn from assets. These grubbings are taken into account in the consumption of fixed capital throughout the productive life of the plantations, —‘exceptional’ grubbings are grubbings carried out before the end of the normal growing life of plantations for various (economic, strategic, etc.) reasons. They should be interpreted as the difference between the real (effective) depreciation and normal depreciation measured by the consumption of fixed capital. This depreciation surplus should be recorded in the ‘other changes in volume of assets’ account (accumulation accounts) which is not included in EAA. 2.147. The change in the value of plantations over the accounting period therefore comprises the following four components (cf. 2.134): —GFCF, which corresponds to the difference in value between acquisitions and disposals during the reference period, as defined in 2.141 to 2.145, —consumption of fixed capital, which measures the depreciation of plantations, as defined in 2.146, —other changes in ‘volume’ which take account of the effects of unforeseen events on plantations (such as exceptional grubbings) and which are recorded in the ‘other changes in volume of assets’ account (cf. the definition in 2.136 and 2.146), —holding gains (net of losses), which measure the changes in value due to changes in price during the accounting period and which are recorded in the revaluation account of the ESA 95 accumulation accounts (cf. the definition in 2.135). 2.148. Investments in cultivated crop assets, i.e. plantations, are recorded either as sales, by enterprises specialising in such kind of agricultural contract work (with soil preparation, supply of machines, plant, labour, etc.), or as output of own-account produced fixed capital goods (cf. 1.75). In the case of own-account plantation output, the following should be recorded: (a)for calculating the value of output: for own-account produced fixed capital goods in plantations, either the value of similar plantations valued using the basic price and pro rata production costs incurred over the period, or the value of the materials consumed (including nursery plants) and services rendered over the period; (b)in the calculation of intermediate consumption, the values of the different intermediate consumption goods used (including nursery plants); (c)for GFCF, under the ‘plantations’ heading, the value obtained by adding up the value of own-account produced fixed capital goods in plantations (i.e. the entry mentioned in (a)) and the plantation output of units specialising in such kind of contract work. (k) Fixed asset livestock 2.149. GFCF for livestock corresponds to the following elements: —the annual growth of livestock (until they reach maturity); —livestock acquisitions (imports) less disposals (slaughterings (29) and exports); —the costs associated with the transfer of ownership incurred in trade between agricultural units (30). 2.150. In accordance with the ESA 95, GFCF for livestock is a measure of the difference between livestock acquisitions (natural growth and imports) over the year, including those resulting from own-account production, and livestock disposals (for slaughter (31), export or any other final use), to which is added the cost of transfer of ownership (32). GFCF for livestock occurs throughout the animal's life. To begin with, the GFCF mainly consists of the natural growth of the animal. When it reaches the age of maturity, the GFCF is mainly measured by way of disposals (sales for slaughter or export). Imports, exports and costs associated with the transfer of ownership are components of GFCF for livestock which are likely to occur throughout the animal's useful life. The natural growth of livestock (and not the GFCF as a whole) constitutes own-account agricultural production of fixed assets in livestock. 2.151. As shown in 2.134, measuring the GFCF for livestock only constitutes one element of the change in the value of assets. In fact, GFCF for livestock can only be measured via the change in the number of livestock valued at the average price for the calendar year for each livestock category (quantitative method), if three conditions are met: —no nominal holding gains or losses (i.e. a regular trend in prices and livestock population numbers), —no other changes in volume (i.e. no losses due to natural disasters and no changes in classification, etc.), —no consumption of fixed capital (i.e. no foreseeable depreciation in the value of livestock). Another method of calculation (direct method) consists of measuring the flows of entries and withdrawals for each livestock category, at the corresponding prices: apart from acquisitions and disposals, this method has to take into account entries (in particular births) and withdrawals on the holdings. 2.152. As a general rule, therefore, GFCF for livestock cannot be measured via the difference between the livestock values at the end and beginning of the accounting period. The rule for calculating the GFCF for livestock depends directly on the method adopted for recording and measuring the three elements of the change in the value of livestock (other than GFCF), and in particular the consumption of fixed capital element. 2.153. In theory, consumption of fixed capital should be calculated for livestock (33). In actual fact, consumption of fixed capital for livestock corresponds to a measurement of the anticipated decline in productivity of livestock when used for production purposes, a reduction which in turn is reflected in the updated value of future income from this livestock. However, in view of the practical difficulties in evaluating consumption of fixed capital (the definition of the calculation parameters are very complex, cf. 3.105 and 3.106), no consumption of fixed capital should be calculated for productive livestock. 2.154. GFCF for livestock may be measured by various methods. By using the perpetual inventory method, each of the GFCF elements defined in 2.149 (natural growth of livestock, imports, sales for slaughter and exports, costs associated with the transfer of ownership) can be valued very strictly. Nevertheless, it requires numerous data (such as the prices of productive livestock throughout their useful life). The same is true of methods based on the livestock production cycle. A simpler method therefore needs to be adopted, even if it is less strict. 2.155. The recommended method employs an indirect calculation approach (34). It is based on calculating the change in the number of livestock and on the following two assumptions: —livestock prices are regular and normally predictable, so that the average annual price can be used for valuing quantities whilst excluding from them holding gains/losses, —exceptional losses can be estimated (in quantities and prices). 2.156. The measurement of GFCF is made up of the sum of the following elements: GFCF = Change in the number of livestock between the end and beginning of the accounting period valued at the average annual price P + Culling discount + Other productive livestock losses + Costs associated with the transfer of ownership 2.157. The term ‘culling discount’ refers to the difference, at the time of their withdrawal from productive livestock, between the value of the livestock valued as productive animals (at what could be called a ‘capital’ price) and the value of the same livestock valued as animals intended for slaughter (i.e. at the slaughterhouse selling price). 2.158. The term ‘other losses of productive livestock’ comprises two types of losses: —exceptional losses in productive livestock which have become mature, —the value of livestock kept in production until the end of their life (natural death). 2.159. The value of losses to be recorded in the calculation of GFCF corresponds to the difference between the value of livestock at the price prevailing at the start of the period and the disposal value of the animals. These disposals are valued at the selling price of animals which are slaughtered (i.e. for sale or own final consumption) or can have a zero value if they have no economic use (e.g. if they are disposed of, etc.). 2.160. The terms ‘other losses of productive livestock’ and ‘culling discount’ correspond to flows which are recorded in the ‘other changes in the volume of assets’ account of the balance sheet. They provide a link between the different components of the change in the value of assets and the GFCF, and ensure conformity with the ESA 95. Ignoring them would result in the real level of GFCF for livestock being underestimated. 2.161. The estimation of own-account production of fixed capital in livestock, which corresponds to the natural growth of animals, is derived from the definition of the GFCF for livestock set out in 2.149 applied to categories of animals which are not yet fully mature: Own-account production = GFCF + disposals (slaughterings and exports) — acquisitions (imports) (35) — (cost of transfer of ownership). (l) Tangible and intangible fixed assets (other than agricultural assets) 2.162. Tangible and intangible fixed assets other than agricultural assets (plantations and livestock) comprise the following elements: —machines and other capital goods, —transport equipment, —farm buildings (non-residential), —other (computer software, etc.). 2.163. GFCF corresponds to the acquisition of these assets (new assets produced or imported during the accounting period, or existing assets) less transfers to other units (of the agricultural industry or other industries). It should be recalled that if this transaction concerns two units of the agricultural industry during the same accounting period, the two flows cancel each other out and only the costs associated with the transfer of ownership are recorded under the corresponding fixed asset heading. 2.164. In the case of construction or capital goods (intended for sale) whose production is spread over several periods, the value of the work performed in the period of production is to be recorded in the change of stocks of the producer in the form of work in progress. These goods (whether movable or immovable) are not recorded in GFCF until the ownership has been transferred. By contrast, when this production is own-account, this work is recorded as GFCF during the entire production period (cf. 2.025). 2.165. Assets whose economic use changes without any change in ownership taking place (e.g. when a farm building is used for purposes other than an agricultural production activity) are not recorded as disposals of assets. These changes are recorded in the ‘other changes in the volume of assets’ account. (m) Land improvement 2.166. Major improvements in non-produced tangible assets correspond mainly to land improvement (better quality of land and higher yield through irrigation, drainage and flood prevention measures, etc.) and should be treated like any other GFCF. Since land acquisitions and withdrawals are not recorded as GFCF (being non-produced assets), investments in land improvement are listed separately under a special GFCF heading. 2.167. These investments correspond to expenditure on the improvement of land and its preparation for other productive uses, with the exception of expenditure on routine maintenance (cf. 2.127 to 2.129). This expenditure has to be made by holders or the result of this expenditure has to become their property. This concerns in particular expenditure on infrastructure works such as clearance, levelling, drainage, irrigation and consolidation (cf. ESA 95, 3.106 and SNA 93, 10.51 to 10.54). (n) Costs associated with the transfer of ownership of non-produced assets 2.168. Costs associated with the transfer of ownership of non-produced assets refer to acquisitions of land and non-produced intangible assets (such as patented assets, production rights, etc.) by agricultural units. These acquisitions are not recorded as GFCF (but under another heading of the capital account, because they are non-produced assets) and only the costs associated with the transfer of ownership are recorded as GFCF (for the acquirer, but not for the seller). (o) Goods and services excluded from GFCF 2.169. The following goods and services are not included in GFCF: (a)small tools, working clothes, spare parts and equipment of a low value (less than EUR 500 at 1995 prices), even if these goods have a normal useful life of over one year (cf., however, 2.125 and 2.126); because they are renewed regularly, and to conform with business accounting practice, these purchases of goods are considered to be intermediate consumption (cf. 2.105 and 2.106); (b)ongoing maintenance and repairs (cf. 2.127 to 2.129) are classed as intermediate consumption); (c)services of scientific research, advertising, market research, etc. Purchases of these services are included in intermediate consumption (cf. 2.108(d)); (d)durable goods acquired by households to satisfy their domestic needs; as these goods are not used for production purposes, they are treated as final consumption; (e)animals which serve as stocks: fattening animals reared for slaughter, including poultry; (f)holding gains and losses on fixed assets (to be recorded in the revaluation account, cf. 2.135); (g)losses of fixed assets due to catastrophic events (cattle diseases, etc.) or force majeure (floods, gales, etc.) (cf. 2.045 and 2.136). 2.170. The value of fixed capital goods used simultaneously for professional and private purposes (motor vehicles, for example) is recorded in accordance with their two possible types of use; partly as GFCF and partly, as final consumption. 2. Change in stocks(a) Definition of stocks and change in stocks 2.171. Stocks comprise all goods which do not form part of fixed capital and are held by producer units at a given moment. A distinction is made between two types of stocks: input stocks and output stocks: —Input stocks are made up of raw materials and supplies which will be used at a later date as intermediate inputs in production processes. Normally, the consumption of these products is calculated by offsetting purchases (or other forms of acquisitions) with a change in stocks in the course of the reference period (cf. 2.021). —Output stocks represent the stocks of finished products and work in progress of the producer. They are taken into account in the calculation of output. Output stocks comprise:— —finished products from the industry: these are goods which producers have no intention of further processing before sending them for other economic purposes. In the case of agriculture, they include crop products, olive oil, grape must, livestock products and non-agricultural goods produced in inseparable secondary activities, —work in progress: this is output which is not quite finished. For the EAA, it includes wine, livestock for slaughter, all chickens and other poultry (including breeding poultry) and other animals except those regarded as fixed capital. It should be noted that growing crops (cf. 2.012) are not regarded as work in progress stocks in the annual economic accounts. 2.172. Not recording growing crops as work in progress is justified for European agriculture by the fact that a very large majority of crops have a production cycle which is shorter than an accounting period. It is also felt that recording them at the time of harvesting allows sufficient consistency with production costs to be maintained in the analysis of income from the activity (cf. 2.012). When the harvest, soil preparation and sowing operations are carried out in different accounting periods, the accounts of the period in which the costs occurred show an accounting loss and those of the harvest period an accounting profit. This accounting method may, however, be accepted because if the conditions remain the same from one year to another an approximate balance is established in that expenditure is offset in the same period by the profit from the sale of the previous harvest. Only in the event of a substantial change in production or in cases of very poor harvests does this compensation not occur. Under such circumstances, the recording of output as work in progress might be indicated (see also 2.013). 2.173. It should be noted that services are not entered as stocks except for those included in the purchase value of goods placed into stock. 2.174. According to the ESA 95, changes in stocks are measured by deducting from the value of stock entries the value of stock withdrawals and any recurrent losses of goods in stock. (b) Time of recording and valuation of changes in stocks 2.175. Stock entries should be valued at the date of entry into stock and withdrawals should be valued at the prices prevailing when withdrawn from stocks. The time of recording (and valuation) of stock entries and withdrawals should be consistent with that of other transactions in products (output and intermediate consumption). 2.176. The basic price is the price to be used for valuing changes in stocks (entries, withdrawals or recurrent losses of finished products or work in progress). As regards entries of work in progress, the price used should be estimated by applying the fraction of the total production cost incurred by the end of the period to the basic price of a similar finished product. Alternatively, the value of the entries of work in progress can be estimated by the value of the production cost with a mark-up for expected operating surplus or (estimated) mixed income (cf. ESA 95, 3.51 and 3.52). 2.177. The method recommended in the ESA 95 for recording stock entries and withdrawals is the perpetual inventory method. However, this solution is not generally applicable in view of the difficulty in obtaining information on entries and withdrawals. In an attempt to get into line with the perpetual inventory method, the ESA 95 recommends a ‘quantitative’ method which consists in measuring changes in stocks as the difference in volume between the stocks at the opening and closing of the accounting period, valued at the average prices in force during the period concerned. However, this method is only applicable if prices remain stable over the period under consideration or if the prices and quantities stocked increase or decline at a constant rate during the accounting period. 2.178. This ‘quantitative method’ cannot be applied to crop production because of the fluctuation in prices and quantities resulting from the production process and the structure of supply and demand. This problem which is specific to agriculture is recognised by the ESA 95 (cf. 3.124 (c)). 2.179. It should also be considered that a change in stocks, as defined in 2.174, is only one of the components of the change in the value of stocks between the start and end of the accounting period. There is in fact a basic accounting equation which connects the opening and closing figures for stock assets: Value of closing stocks at the prices applicable at the end of the accounting period - Value of opening stocks at the prices applicable at the start of the accounting period = Change in stocks (entries - withdrawals - recurrent losses) + nominal holding gains (net of losses) + other changes in volume 2.180. These nominal holding gains and losses and other changes in volume (36) should not be included in the measurement of output, but in the account of other changes in assets (respectively, in the revaluation account and in the other changes in the volume of assets account). 2.181. The main difficulty in valuing the change in stocks in the EAA concerns crop products. These products are in fact seasonal products whose entries into stocks only occur after the harvest and whose withdrawals are spread over several months after the harvest and often continues into the next accounting year. Their price may also be subject to substantial fluctuations from one period to another, or even within the same period. (c) Change in stocks of livestock and animal products 2.182. When valuing changes in stocks of livestock, it is not very important whether the animals were reared from birth within the country or were imported when young and then reared and fattened in the country. When the imported animals are taken over by the holding which continues rearing them on the national territory, the animals are ‘nationalised’ and consequently assimilated to domestic production. 2.183. To evaluate changes in the herd at the end of the reference period, a distinction has to be drawn between the ‘stocks’ herd and the ‘fixed assets’ herd (cf. 2.140 and 2.202). The value at basic prices for the first category of animal should be considered to be the sum of the production costs throughout the life of the average animal in the different livestock classes up to and including the reference year, plus a mark-up for the estimated operating surplus or an estimate of mixed income (cf. 2.176). If an animal was originally imported before its period in the national territory, the purchaser price at the time of import can be regarded as representing the sum of the production costs up to that date. 2.184. Because of the generally regular changes in the prices of animals, it is possible to evaluate the change in livestock stocks by a simple approximation method which excludes nominal holding gains (net of losses). For each category of animal, the change in population between the end and the start of the accounting year is multiplied by the average price observed over the reference period. (d) Change in stocks of seasonal products 2.185. Seasonal products (cf. 2.178 and 2.181) are products for which the quantitative method does not constitute a good approximation of the perpetual inventory in view of the irregular change in prices and quantities. The application of the quantitative method could lead to the inclusion of nominal holding gains or losses in the measurement of the change in stocks. One solution could consist in measuring the change in stocks over shorter periods than the reference period (for example, each quarter), subperiods which would have more even price and quantity trends. Nevertheless, this type of method is often difficult to apply because of a lack of basic data. 2.186. Another method of evaluating stocks of seasonal products is that of examining the trend in the prices of stocked goods. The price of a good may change during storage for at least three reasons (SNA 93, 6.105): —its physical qualities may improve or deteriorate with time, —there may be seasonal factors influencing its supply or demand, thus resulting in regular and predictable changes in its price over the year, even though its physical qualities may not otherwise change, —there may be factors such as general inflation or other general factors which may lead to a change in price even though its physical or economic characteristics are not changed over time. 2.187. The difference between the price at which products are put into stock and the price at which they are withdrawn, in the first two cases, should reflect the additional output value produced during storage (SNA 93, 6.106), since products withdrawn from storage several months after harvest are different, in economic terms, from those which have been stored. This type of increase in the value of products should not be counted as a nominal holding gain (SNA 93, 12.70). 2.188. On the basis of the different components of the change in the value of stocks and factors determining changes in the prices of products held in stock, and in view of the difficulty in fully excluding the recording of holding gains or losses from the valuation of seasonal output, two methods are recommended. They differ in their interpretation of the storage activity and the time for recording the change in the value of the goods resulting from their stay in stocks. The first method constitutes the reference method to be applied in valuing output and changes in stocks of seasonal agricultural production. The second method may be used for more specific cases (mainly products whose prices are difficult to predict). 2.189. The reference method consists in determining the change in stocks as the difference between the value of output for the year and the value of sales (and other uses) for the same year (37). It is founded on the assumption that there are no stocks left over at the end of the marketing year (the end of the first half of the following calendar year). It involves directly evaluating total output harvested during year n using the weighted average price for the marketing year (n/n + 1) and deducting from this the value of all sales (and other uses) made during calendar year n corresponding to the year of harvest (38) at the prices applicable at the time of sale (or other uses). 2.190. The reference method treats the storage activity as a factor for raising the prices of goods during storage. It thus makes a distinction between the storage activity and its effects on product prices. The increase in value resulting from the stay in storage is ‘anticipated’ since it is allocated to the output of year n (i.e. the year of harvest, even though the sales are spread over two calendar years), it being possible to anticipate price trends without too much uncertainty because they result from fairly regular and predictable changes (cf. 2.186). 2.191. The application of this method makes it possible to minimise the inclusion of holding gains or losses in the measurement of output. It ensures consistency between the calculations of output in value and quantity and avoids the recording of output on the basis of work in progress (requiring data on the level of stocks at the start and end of the calendar year, with corresponding prices). It also facilitates the elaboration of accounts in constant prices. 2.192. A second method is recommended in the specific case of products whose prices are difficult to predict (such as fruit, vegetables, potatoes and olive oil) and whose storage on agricultural holdings reaches economically significant levels. This method is less strict than the reference method in excluding holding gains and losses from the measurement of output; it considers the storage activity to be an extension of the production process in time. The inclusion of the increase in prices of stored goods is delayed and allocated to the year in which the storage took place. 2.193. By this second method, seasonal output is calculated directly as the sum of sales, other uses and changes in stocks. Stock changes are estimated by valuing the stocks at the end and start of the accounting period on the basis of their current prices. 2.194. It should be noted that these two methods differ in the way they measure the change in stocks but not in the valuation of sales (which are valued at the basic prices applicable on withdrawal from stocks). (e) Changes in stocks of wine (from grapes produced by the same holding) 2.195. Wine is a product which is generally stocked for several years for ageing and maturing. During this storage period, the quality changes. This storage activity at the holding can be regarded as an extension of the wine production process since the wine leaving storage is different from the wine which entered. Stored wine should therefore be treated as work in progress and the increase in value which is then determined should be regarded as an increase in output to be measured continuously over time. 2.196. The change in the value of wine may result from three factors: the change in its quality, changes in the structure of supply and demand (i.e. relative prices between young and aged wines), and a general increase in prices. Whilst the change in the value of wine due to the first two factors should be included in the measurement of output, any increase in the price of wine due to a general increase in wine prices should not be reflected in the value of output but treated as a holding gain (recorded in the revaluation account). 2.197. Recording the increase in the value of wine in the value of output should be done throughout the course of the ageing process. However, this would mean having a large amount of data available on the structure of wine stocks based on their production year, quality and production area, as well as on the development of their respective prices. As these data are not generally available in the Member States, two practical methods have been developed which allow the increase in the value of wine due to ageing to be calculated approximately for the EAA. Although not so strict from the conceptual point of view, these two methods nonetheless appear to be acceptable in the current situation regarding availability of data. The choice of each Member State will depend on the structure of its wine-growing industry and statistical system. 2.198. Anticipation of the increase in value from wine-ageing: the first method is to value stock entries of wines to be aged by the producer, using the selling prices of wines which have already been aged, as observed in the second half of the year. The expected increase in value is anticipated in the output of the year of harvest. This increase is only partial since these wines are not valued at their real selling prices but at the prices of other wines of the same type but older. The difference between their real selling price and that used for evaluating stock entries is not counted in the value of output, since it is interpreted as holding gain (NB: this difference includes the effects of inflation). Since it makes no distinction depending on the harvest year of the stocked or sold wine, it assumes that the quality wine market is even in terms of age of the wine. 2.199. Delay in taking into account wine ageing: the second method is to value stock entries at the price of ‘unaged’ wines at the time of harvesting and not to record an addition to the wine work in progress (i.e. the increase in price due to ageing, irrespective of the effect of the general change in the price of wine) until the aged wine is sold. Since sales are valued at the average price for the year, any increase in value between the harvest year and the year of sale is recorded in the output of the year of sale (and is therefore not distributed over time). This method requires more data on the structure of wine stocks as it assumes that the distribution of stocks (and stock withdrawals) is known for each harvest year. Nevertheless, it can provide a more accurate idea of sales and stocks of different vintages. 2.200. Neither of these two practical methods allows the increase in the value of wine from ageing to be distributed over time: one records it in advance and the other after a delay. This disadvantage can be regarded as a relatively minor one in both cases if it is assumed that there is a certain stability over time in the production of ‘aged’ wine. The first method appears to be preferable when the average ageing period is short. 3. Recording of livestock as ‘GFCF’ or ‘changes in stocks’‘changes in stocks’2.201. As mentioned in 2.140 and 2.151, changes in the number of livestock (for agricultural statistical purposes) are entered either as GFCF or as changes in stocks depending on the type of animal. (a) Definition2.202. GFCF of livestock concerns animals, i.e. fixed assets, used repeatedly and continuously in production processes. They are reared for the output they regularly provide and include, for example, breeding livestock, dairy livestock, draught animals, sheep and other animals reared for their wool. By contrast, animals serving as stocks are animals produced during the current or a previous period which are kept in order to be sold or used for other production purposes at a later date. These include animals reared for their meat such as animals for slaughter and poultry. (b) Recording of animal imports1. Animals identifiable as fixed assets: 2.203. If, at the time of import, the animals were able to be clearly identified as a fixed asset, they would be recorded exclusively as acquisitions in the GFCF (cf. 2.149 and 2.150). Of course, only animals bought by the agricultural industry are to be recorded as GFCF of agriculture, and therefore not, for example, saddle horses for private use or animals acquired for other purposes. 2. Animals identifiable as stocks: 2.204. By contrast, if at the time of import the animals were able to be clearly identified as stocks (e.g. animals for slaughter) their import would be considered as an entry into stocks of work in progress and therefore, deducted from sales (negative sales) in the calculation of output (cf. 2.069). 3. Treatment to be adopted: 2.205. It is often difficult, on the basis of the sources of data available, to draw pertinent distinctions between these two different categories of animals. This is why the value of all imported animals (animals classed as fixed assets or stocks, but with the exception of those imported animals for immediate slaughter) should be deducted from sales in the output calculation. If at any time they are transferred to the herd of productive livestock (i.e. fixed assets), they will be recorded as own-account produced fixed capital goods during the reference period when the transfer takes place (as for animals which are produced and reared in the country and which are then transferred to herds of productive livestock) (cf. 2.069 and 2.070). 2.206. It should be noted that animals imported for immediate slaughter are entered as imports of the national abattoirs and are not recorded in the EAA since the latter are restricted to depicting the output of national agriculture. (c) Recording of livestock trade between agricultural units2.207. Animals classed as fixed assets: trade in these animals is recorded in GFCF as acquisitions and disposals of fixed assets (services associated with the transfer of ownership are recorded in the purchaser price). When sales and purchases occur in the same accounting period, these flows offset each other and only services associated with the transfer of ownership are recorded as GFCF (cf. 2.068). 2.208. Animals classed as stocks: these sales and purchases are only recorded if they occur in two different accounting periods. Services associated with this trade, which are included in the purchaser price, should be deducted from the output total when trade occurs in the same accounting period (cf. 2.067). 2.209. Because of the special treatment of livestock trade between agricultural units and imports, there is no intermediate consumption for ‘Livestock and animal products’. (d) Non-agricultural animals2.210. The rearing of race-horses, saddle horses, dogs, cats, cage birds, zoo and circus animals and bulls for bullfights is included in the activities defining the agricultural industry, whether it is for breeding, meat production, recreation or sports events (cf. 1.78). The use of these animals for service activities is included in the agricultural industry, only when such activities are performed by agricultural units as inseparable secondary activities. The rearing of non-agricultural animals by units for which the agricultural activity represents solely a leisure activity is not considered as part of the EAA (cf. 1.24). 2.211. Such animals may be sold to: —households: in which case any subsequent operations involving these animals are of no concern to the EAA, —other branches: a guard dog, circus animal or racing horse, for example; these form part of the formation of fixed capital of the purchasing branch.
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2.115.	Gross capital formation comprises: —GFCF, —changes in stocks, —acquisitions less disposals of items of value.
2.116.	Since the EAA are accounts drawn up in order to depict flows generated by units within their production function, only GFCF and changes in stocks are dealt with below.
2.117.	Gross capital formation means gross of fixed capital consumption. Net capital formation is obtained by deducting fixed capital consumption from gross capital formation. Fixed capital consumption is the value of the depreciation of fixed capital goods as a result of normal wear and tear in the course of the production process (cf. 3.099).
1.	GFCF(a) Definition 2.118. GFCF consists of resident producers' acquisitions, less disposals, of fixed assets during a given period plus certain additions to the value of non-produced assets stemming from the productive activity of producer or institutional units. Fixed assets are tangible or intangible assets produced as outputs from production processes that are themselves used repeatedly, or continuously, in other production processes for more than one year (cf. ESA 95, 3.102). (b) Considerations for the national economy as a whole 2.119. The GFCF of a national economy is understood to mean the proportion of the gross domestic product (GDP) produced during the reference year which is intended to be used for a period of more than one year as a means of production in the production process (as distinct from the final consumption of private or public households, exports and changes in stocks). Consequently, goods which, although produced sometime in the past and therefore included in the national product, are put to a different use in the reference period, are not included in the GFCF of a national economy. A change of use or ownership does not imply that such goods become part of the domestic product a second time and in no way changes the total mass of fixed capital of the national economy as a whole. The inclusion of such transactions is, however, important in analyses by homogenous branch, industry or sector. 2.120. If a change in ownership results in a different use (i.e. no longer as capital assets), there is a reduction in the capital assets of the national economy. The commonest instances of this are motor vehicles which households buy secondhand from producer units, shipping vessels which are sold secondhand to other countries, and also capital goods which have been broken up and put to some intermediate use. Since the new use in these cases forms part of the national product (final consumption, export or any other use depending on the type of goods produced from the scrap), the GFCF must be reduced as a result. This is why the ESA 95 uses the concept of net acquisitions of existing produced goods for calculating GFCF: this heading allows capital disposals, i.e. reductions in fixed capital to be taken into account. 2.121. It is possible for net acquisitions of existing goods to be positive, in other words, to represent increases in the capital assets of the economy as a whole. This is the case, for example, when secondhand vehicles which have already been listed as final consumption in the national product are bought for use as fixed capital. Since sales of existing investment goods exceed purchases, net acquisitions are negative for the national economy as a whole. If, however, the GFCF is broken down by user branch, net acquisitions can be positive for some branches. (c) Transfer of ownership criterion 2.122. The determination of the GFCF of sectors or branches of the economy is based on the criterion of transfer of ownership (acquisition, disposal) and not on that of the use of the goods. It should be noted that fixed assets acquired by financial leasing (but not those simply on hire) are treated as assets of the lessee (if he is a producer) and not of the lessor, who keeps a financial asset equivalent to a notional claim (cf. 2.109(d) and Annex II of the ESA 95 on the distinction between the different forms of hire of durable goods) (25). 2.123. Application of the criterion of transfer of ownership depends on the statistical system on the basis of which the GFCF is calculated. If it is data from purchasers, there will in theory be no difficulties (apart from the practical difficulty of recording all the investors). Often, however, (and this is particularly true of agriculture), it is information from producers of capital goods on their output or sales that is used as the basis for calculations. Apart from those cases where it is not clear whether a product belongs under the capital goods heading or not, it is also difficult to determine the actual purchaser since the nature of the capital goods gives only an indication of who the user is. In agriculture, therefore, there is the risk that capital goods will also be recorded which have not been acquired by agricultural holdings but by commercial enterprises for the purpose of hiring without operating staff. (d) Acquisitions 2.124. Acquisitions of fixed assets comprise new or existing fixed assets which have been acquired (purchased, acquired in barter transactions, received as capital transfers in kind or acquired as a financial lease), fixed assets produced and retained for the producer's own use, major improvements to fixed assets and to non-produced tangible assets, natural growth in agricultural assets (livestock and plantations) and costs associated with the transfer of ownership of non-produced assets (cf. ESA 95, 3.103(a)). 2.125. It should be remembered that in order to qualify for recording as GFCF, acquired durable goods have to have a unit value (or total value if they have been obtained in large quantities) of over EUR 500 at 1995 prices (cf. 2.090). 2.126. The same applies to the purchase or production for own account of a set of durable goods needed for an initial installation. The stock of bottles of a brewery or wine-producing enterprise (excluding non-returnable bottles) for example, constitutes a mass of goods to be recorded as assets, although the value of each bottle is negligible. The same applies to seats and tables, crockery and cutlery of restaurants and the tools of an enterprise. The initial installation of these goods constitutes fixed capital formation: nevertheless, no fixed capital consumption is calculated in these cases because it is assumed that once this installation has been made, it will always keep the same value as a result of constant purchases of replacement items to make up for those which have been lost or become unusable. Current replacement purchases are recorded as intermediate consumption. This rule, which in theory is clear, is sometimes difficult to apply in practice as statistical data on production or sales do not give a clear idea of whether the goods in question have been bought for an initial installation or to replace existing items. 2.127. Goods and services incorporated into existing fixed capital goods for the purpose of improving them, rebuilding or reconstructing them, prolonging their useful life or increasing their productivity, are recorded with the capital goods into which they are incorporated. This work is considered to be acquisition of new fixed assets. In principle, this heading includes all goods and services incorporated into fixed capital goods which go well beyond the scope of current maintenance and repair. Current maintenance is taken to mean all services which, in comparison with the normal lifetime of the capital goods, must be repeatedly provided at relatively short intervals in order to maintain the goods in serviceable condition. It covers, for example, the replacement of fast-wearing components of capital goods, external and internal painting, etc. 2.128. The size of the sums spent on this maintenance is in no way a criterion for determining whether a service creates an asset or represents current maintenance, since in the case of high-value capital items, even services for current maintenance may be very costly (cf. 2.109(e)). Strictly speaking, the allocation of services performed on existing fixed capital goods either to the ‘current maintenance’ or ‘GFCF’ category should be determined by the interval which will elapse before the service has to be repeated, e.g. the replacement of parts which normally wear out within one year, such as the tyres of a truck, counts as current maintenance, whereas the replacement of an engine constitutes fixed capital formation, not because the value is higher but because an engine does not normally have to be replaced annually but only after several years. Recording a service of this kind under the assets heading (i.e. treatment as fixed capital formation and not as current maintenance) makes it possible to distribute the value uniformly over the entire period of use through the device of fixed capital consumption. 2.129. The SNA 93 specifies that improvements made to fixed assets should be determined either by the magnitude of the changes in the characteristics of the fixed assets — i.e. by major changes in their size, shape, performance, capacity or anticipated service life — or by the fact that improvements are not the kinds of changes that are observed to take place routinely in other fixed assets of the same kind, as part of ordinary maintenance and repair programmes (cf. SNA 93, 10.49). (e) Disposals 2.130. Disposals of fixed assets comprise the sale, demolition, scrapping or destruction of fixed assets by their owner, or their surrender in barter or as capital transfers in kind (cf. ESA 95, 3.103(b) and 3.104). These disposals should normally lead to a change in ownership and have a direct economic purpose (therefore fixed assets which are demolished, scrapped or destroyed by their owner in order to be put to no further economic use are not included in these disposals) (cf. SNA 93, 10.35 and 10.39). However, some disposals may be kept within the same institutional unit, as in the case of animals slaughtered by a farmer and consumed by his family. (f) Valuation of gross fixed capital formation 2.131. GFCF is valued at purchaser prices (including the costs of transferring ownership, installation and other transfer charges) or, when produced on own account, it is valued at the basic prices of similar fixed assets (the basic price can be obtained from the sum of the costs incurred). Disposals should be recorded at the sales price, which should correspond to the purchaser price less the costs incurred in the transfer of ownership of assets, installation and transfer charges (cf. 2.130). (g) Costs of transfer of ownership 2.132. The costs of transfer of ownership of assets constitute GFCF by the acquirer, even if some of the costs are paid by the seller. They comprise the expenditure incurred in order to take possession of the assets (installation and transport charges, etc.), fees and commissions of intermediaries (solicitors, experts, etc.) and taxes to be paid on intermediary services used in the transfer of ownership of assets. 2.133. The GFCF of the acquirer comprises the value of the goods acquired (exclusive of transfer costs) plus the total transfer costs involved in the acquisition. Conversely, the GFCF of the seller only includes the value of the goods sold (exclusive of transfer costs) (26). In the case of non-produced assets (such as land, or patented assets such as production rights) which are not included in GFCF, these costs must be separated from the acquisition/disposal of these assets and recorded under a different heading as GFCF of the acquirer. (h) GFCF and change in the value of assets 2.134. The balance sheet, which provides an itemised list of the values of the assets held and commitments entered into, provides information on the different components of the change in the value of assets. As defined in the balance sheets (cf. ESA 95, 7.08) the change in the value of an asset between the end and beginning of an accounting period can be described as follows: Value of assets at the end of the accounting period – Value of assets at the beginning of the accounting period = GFCF – Consumption of fixed capital + Other volume changes + Nominal holding gains (net of losses) 2.135. Nominal holding gains (net of losses) correspond to holding gains (net of losses) accumulated during the period considered and resulting from a change in the price of the asset whose economic and physical (quantitative and qualitative) characteristics remain unchanged over the period concerned. These changes are recorded in the revaluation account. 2.136. The other changes in the volume of assets are flows which make it possible to record the discovery, deterioration or depletion of natural assets as well as the consequences of exceptional events which may modify the benefit drawn from assets. As far as the assets of the agricultural industry are concerned, changes in volume may be put into three main categories: —exceptional losses or catastrophic losses (earthquakes, wars, drought, epidemics, etc.), —the margin between the anticipated depreciation of the assets (measured by the consumption of fixed capital) and the depreciation actually determined (due to unforeseen obsolescence, damage, deterioration and accidental events leading to higher depreciation than anticipated), —changes in classification or structure of fixed assets: e.g. changes in the economic purpose of agricultural land, dairy livestock intended for meat production (cf. 2.149, footnote 1) or agricultural buildings which have been altered for private or other economic use. 2.137. GFCF and consumption of fixed capital (cf. 3.098 to 3.106) are therefore not the only elements to take into account when analysing the change in the value of assets. (i) Elements of GFCF 2.138. The ESA 95 distinguishes between four types of elements which should be recorded as GFCF (cf. ESA 95, 3.105): —acquisitions less disposals of new or existing tangible fixed assets (dwellings, other buildings and structures, machines and equipment, cultivated assets), —acquisitions less disposals of new or existing intangible fixed assets (mineral exploration, computer software, artists' and other works), —major improvements to tangible non-produced assets, including land, —costs associated with the transfer of ownership of non-produced assets such as land and patented assets. 2.139. For the EAA, a distinction is made between five types of elements of GFCF: —plantations yielding repeat products, —livestock, —tangible and intangible fixed assets:— —machines and other capital goods, —transport equipment, —farm buildings (non-residential), —other structures with the exception of land improvement (other buildings and structures, etc.), —other (computer software, etc.), —land improvement, —costs associated with the transfer of ownership of non-produced assets such as land and production rights. 2.140. GFCF in agricultural assets concerns two types of assets (plantations and animals) which are used repeatedly and continually for the production of products such as fruit, rubber, milk, etc.: fruit trees, vines, hop fields, soft fruit plantations and asparagus beds. Christmas tree plantations (which only provide a finished product once) are not fixed assets, just as cereals and vegetables are not. Animals which serve as fixed assets include, for example, breeding animals, dairy cattle, sheep reared for their wool and draught animals (animals for slaughter, including poultry, are not fixed assets). (j) Plantations 2.141. According to ESA 95 (3.103) GFCF in plantations corresponds to the value of acquisitions less disposals of natural assets yielding repeat products (such as fruit trees) which have reached maturity, plus the natural growth of such natural assets until they reach maturity (i.e. generate a product), during the accounting period concerned. 2.142. This definition of GFCF corresponds to: —expenditure on new plantations (new or renewed) during the accounting period, including amounts spent on maintaining young plantations during the accounting period (during the first three years), —the increase in the intrinsic value of plantations up to their maturity, —the costs associated with transfer of ownership in exchanges, between agricultural units, of plantations which have reached maturity. 2.143. The first two elements of GFCF in plantations represent own-account agricultural output of GFCF. 2.144. Disposals of plantations (recorded as negative GFCF) may take two forms: they may be sales of standing plantations to other (agricultural) units, in which case only the costs associated with the transfer of ownership are entered in the EAA. The other possibility is for the plantations to have been felled before the end of their normal growing life. In this case, however, according to the general definition of disposals, felled plantations must have a direct economic use; in other words, a counter-entry is required in the form of a use in goods and services (such as a sale to an enterprise specialising in the sale of timber (27)). In this second case, disposals of plantations to be recorded as negative GFCF should represent a modest amount. 2.145. Consequently, in the majority of cases (i.e. except in the second case set out in 2.144), the value of the grubbings must not be deducted from the value of the investments in plantations. Investments intended for renewing existing plantations should be treated as investments and not as routine maintenance costs. 2.146. The treatment of grubbings of plantations should be analysed in relation to the calculation of consumption of fixed capital. In accordance with the ESA 95, there is consumption of fixed capital in the case of plantations corresponding to the depreciation of the plantations when they have reached maturity. Plantation grubbings (28) should therefore be interpreted as follows: —grubbings carried out at the end of the normal growing life of plantations correspond to plantations withdrawn from assets. These grubbings are taken into account in the consumption of fixed capital throughout the productive life of the plantations, —‘exceptional’ grubbings are grubbings carried out before the end of the normal growing life of plantations for various (economic, strategic, etc.) reasons. They should be interpreted as the difference between the real (effective) depreciation and normal depreciation measured by the consumption of fixed capital. This depreciation surplus should be recorded in the ‘other changes in volume of assets’ account (accumulation accounts) which is not included in EAA. 2.147. The change in the value of plantations over the accounting period therefore comprises the following four components (cf. 2.134): —GFCF, which corresponds to the difference in value between acquisitions and disposals during the reference period, as defined in 2.141 to 2.145, —consumption of fixed capital, which measures the depreciation of plantations, as defined in 2.146, —other changes in ‘volume’ which take account of the effects of unforeseen events on plantations (such as exceptional grubbings) and which are recorded in the ‘other changes in volume of assets’ account (cf. the definition in 2.136 and 2.146), —holding gains (net of losses), which measure the changes in value due to changes in price during the accounting period and which are recorded in the revaluation account of the ESA 95 accumulation accounts (cf. the definition in 2.135). 2.148. Investments in cultivated crop assets, i.e. plantations, are recorded either as sales, by enterprises specialising in such kind of agricultural contract work (with soil preparation, supply of machines, plant, labour, etc.), or as output of own-account produced fixed capital goods (cf. 1.75). In the case of own-account plantation output, the following should be recorded: (a)for calculating the value of output: for own-account produced fixed capital goods in plantations, either the value of similar plantations valued using the basic price and pro rata production costs incurred over the period, or the value of the materials consumed (including nursery plants) and services rendered over the period; (b)in the calculation of intermediate consumption, the values of the different intermediate consumption goods used (including nursery plants); (c)for GFCF, under the ‘plantations’ heading, the value obtained by adding up the value of own-account produced fixed capital goods in plantations (i.e. the entry mentioned in (a)) and the plantation output of units specialising in such kind of contract work. (k) Fixed asset livestock 2.149. GFCF for livestock corresponds to the following elements: —the annual growth of livestock (until they reach maturity); —livestock acquisitions (imports) less disposals (slaughterings (29) and exports); —the costs associated with the transfer of ownership incurred in trade between agricultural units (30). 2.150. In accordance with the ESA 95, GFCF for livestock is a measure of the difference between livestock acquisitions (natural growth and imports) over the year, including those resulting from own-account production, and livestock disposals (for slaughter (31), export or any other final use), to which is added the cost of transfer of ownership (32). GFCF for livestock occurs throughout the animal's life. To begin with, the GFCF mainly consists of the natural growth of the animal. When it reaches the age of maturity, the GFCF is mainly measured by way of disposals (sales for slaughter or export). Imports, exports and costs associated with the transfer of ownership are components of GFCF for livestock which are likely to occur throughout the animal's useful life. The natural growth of livestock (and not the GFCF as a whole) constitutes own-account agricultural production of fixed assets in livestock. 2.151. As shown in 2.134, measuring the GFCF for livestock only constitutes one element of the change in the value of assets. In fact, GFCF for livestock can only be measured via the change in the number of livestock valued at the average price for the calendar year for each livestock category (quantitative method), if three conditions are met: —no nominal holding gains or losses (i.e. a regular trend in prices and livestock population numbers), —no other changes in volume (i.e. no losses due to natural disasters and no changes in classification, etc.), —no consumption of fixed capital (i.e. no foreseeable depreciation in the value of livestock). Another method of calculation (direct method) consists of measuring the flows of entries and withdrawals for each livestock category, at the corresponding prices: apart from acquisitions and disposals, this method has to take into account entries (in particular births) and withdrawals on the holdings. 2.152. As a general rule, therefore, GFCF for livestock cannot be measured via the difference between the livestock values at the end and beginning of the accounting period. The rule for calculating the GFCF for livestock depends directly on the method adopted for recording and measuring the three elements of the change in the value of livestock (other than GFCF), and in particular the consumption of fixed capital element. 2.153. In theory, consumption of fixed capital should be calculated for livestock (33). In actual fact, consumption of fixed capital for livestock corresponds to a measurement of the anticipated decline in productivity of livestock when used for production purposes, a reduction which in turn is reflected in the updated value of future income from this livestock. However, in view of the practical difficulties in evaluating consumption of fixed capital (the definition of the calculation parameters are very complex, cf. 3.105 and 3.106), no consumption of fixed capital should be calculated for productive livestock. 2.154. GFCF for livestock may be measured by various methods. By using the perpetual inventory method, each of the GFCF elements defined in 2.149 (natural growth of livestock, imports, sales for slaughter and exports, costs associated with the transfer of ownership) can be valued very strictly. Nevertheless, it requires numerous data (such as the prices of productive livestock throughout their useful life). The same is true of methods based on the livestock production cycle. A simpler method therefore needs to be adopted, even if it is less strict. 2.155. The recommended method employs an indirect calculation approach (34). It is based on calculating the change in the number of livestock and on the following two assumptions: —livestock prices are regular and normally predictable, so that the average annual price can be used for valuing quantities whilst excluding from them holding gains/losses, —exceptional losses can be estimated (in quantities and prices). 2.156. The measurement of GFCF is made up of the sum of the following elements: GFCF = Change in the number of livestock between the end and beginning of the accounting period valued at the average annual price P + Culling discount + Other productive livestock losses + Costs associated with the transfer of ownership 2.157. The term ‘culling discount’ refers to the difference, at the time of their withdrawal from productive livestock, between the value of the livestock valued as productive animals (at what could be called a ‘capital’ price) and the value of the same livestock valued as animals intended for slaughter (i.e. at the slaughterhouse selling price). 2.158. The term ‘other losses of productive livestock’ comprises two types of losses: —exceptional losses in productive livestock which have become mature, —the value of livestock kept in production until the end of their life (natural death). 2.159. The value of losses to be recorded in the calculation of GFCF corresponds to the difference between the value of livestock at the price prevailing at the start of the period and the disposal value of the animals. These disposals are valued at the selling price of animals which are slaughtered (i.e. for sale or own final consumption) or can have a zero value if they have no economic use (e.g. if they are disposed of, etc.). 2.160. The terms ‘other losses of productive livestock’ and ‘culling discount’ correspond to flows which are recorded in the ‘other changes in the volume of assets’ account of the balance sheet. They provide a link between the different components of the change in the value of assets and the GFCF, and ensure conformity with the ESA 95. Ignoring them would result in the real level of GFCF for livestock being underestimated. 2.161. The estimation of own-account production of fixed capital in livestock, which corresponds to the natural growth of animals, is derived from the definition of the GFCF for livestock set out in 2.149 applied to categories of animals which are not yet fully mature: Own-account production = GFCF + disposals (slaughterings and exports) — acquisitions (imports) (35) — (cost of transfer of ownership). (l) Tangible and intangible fixed assets (other than agricultural assets) 2.162. Tangible and intangible fixed assets other than agricultural assets (plantations and livestock) comprise the following elements: —machines and other capital goods, —transport equipment, —farm buildings (non-residential), —other (computer software, etc.). 2.163. GFCF corresponds to the acquisition of these assets (new assets produced or imported during the accounting period, or existing assets) less transfers to other units (of the agricultural industry or other industries). It should be recalled that if this transaction concerns two units of the agricultural industry during the same accounting period, the two flows cancel each other out and only the costs associated with the transfer of ownership are recorded under the corresponding fixed asset heading. 2.164. In the case of construction or capital goods (intended for sale) whose production is spread over several periods, the value of the work performed in the period of production is to be recorded in the change of stocks of the producer in the form of work in progress. These goods (whether movable or immovable) are not recorded in GFCF until the ownership has been transferred. By contrast, when this production is own-account, this work is recorded as GFCF during the entire production period (cf. 2.025). 2.165. Assets whose economic use changes without any change in ownership taking place (e.g. when a farm building is used for purposes other than an agricultural production activity) are not recorded as disposals of assets. These changes are recorded in the ‘other changes in the volume of assets’ account. (m) Land improvement 2.166. Major improvements in non-produced tangible assets correspond mainly to land improvement (better quality of land and higher yield through irrigation, drainage and flood prevention measures, etc.) and should be treated like any other GFCF. Since land acquisitions and withdrawals are not recorded as GFCF (being non-produced assets), investments in land improvement are listed separately under a special GFCF heading. 2.167. These investments correspond to expenditure on the improvement of land and its preparation for other productive uses, with the exception of expenditure on routine maintenance (cf. 2.127 to 2.129). This expenditure has to be made by holders or the result of this expenditure has to become their property. This concerns in particular expenditure on infrastructure works such as clearance, levelling, drainage, irrigation and consolidation (cf. ESA 95, 3.106 and SNA 93, 10.51 to 10.54). (n) Costs associated with the transfer of ownership of non-produced assets 2.168. Costs associated with the transfer of ownership of non-produced assets refer to acquisitions of land and non-produced intangible assets (such as patented assets, production rights, etc.) by agricultural units. These acquisitions are not recorded as GFCF (but under another heading of the capital account, because they are non-produced assets) and only the costs associated with the transfer of ownership are recorded as GFCF (for the acquirer, but not for the seller). (o) Goods and services excluded from GFCF 2.169. The following goods and services are not included in GFCF: (a)small tools, working clothes, spare parts and equipment of a low value (less than EUR 500 at 1995 prices), even if these goods have a normal useful life of over one year (cf., however, 2.125 and 2.126); because they are renewed regularly, and to conform with business accounting practice, these purchases of goods are considered to be intermediate consumption (cf. 2.105 and 2.106); (b)ongoing maintenance and repairs (cf. 2.127 to 2.129) are classed as intermediate consumption); (c)services of scientific research, advertising, market research, etc. Purchases of these services are included in intermediate consumption (cf. 2.108(d)); (d)durable goods acquired by households to satisfy their domestic needs; as these goods are not used for production purposes, they are treated as final consumption; (e)animals which serve as stocks: fattening animals reared for slaughter, including poultry; (f)holding gains and losses on fixed assets (to be recorded in the revaluation account, cf. 2.135); (g)losses of fixed assets due to catastrophic events (cattle diseases, etc.) or force majeure (floods, gales, etc.) (cf. 2.045 and 2.136). 2.170. The value of fixed capital goods used simultaneously for professional and private purposes (motor vehicles, for example) is recorded in accordance with their two possible types of use; partly as GFCF and partly, as final consumption.
2.118.	GFCF consists of resident producers' acquisitions, less disposals, of fixed assets during a given period plus certain additions to the value of non-produced assets stemming from the productive activity of producer or institutional units. Fixed assets are tangible or intangible assets produced as outputs from production processes that are themselves used repeatedly, or continuously, in other production processes for more than one year (cf. ESA 95, 3.102).
2.119.	The GFCF of a national economy is understood to mean the proportion of the gross domestic product (GDP) produced during the reference year which is intended to be used for a period of more than one year as a means of production in the production process (as distinct from the final consumption of private or public households, exports and changes in stocks). Consequently, goods which, although produced sometime in the past and therefore included in the national product, are put to a different use in the reference period, are not included in the GFCF of a national economy. A change of use or ownership does not imply that such goods become part of the domestic product a second time and in no way changes the total mass of fixed capital of the national economy as a whole. The inclusion of such transactions is, however, important in analyses by homogenous branch, industry or sector.
2.120.	If a change in ownership results in a different use (i.e. no longer as capital assets), there is a reduction in the capital assets of the national economy. The commonest instances of this are motor vehicles which households buy secondhand from producer units, shipping vessels which are sold secondhand to other countries, and also capital goods which have been broken up and put to some intermediate use. Since the new use in these cases forms part of the national product (final consumption, export or any other use depending on the type of goods produced from the scrap), the GFCF must be reduced as a result. This is why the ESA 95 uses the concept of net acquisitions of existing produced goods for calculating GFCF: this heading allows capital disposals, i.e. reductions in fixed capital to be taken into account.
2.121.	It is possible for net acquisitions of existing goods to be positive, in other words, to represent increases in the capital assets of the economy as a whole. This is the case, for example, when secondhand vehicles which have already been listed as final consumption in the national product are bought for use as fixed capital. Since sales of existing investment goods exceed purchases, net acquisitions are negative for the national economy as a whole. If, however, the GFCF is broken down by user branch, net acquisitions can be positive for some branches.
2.122.	The determination of the GFCF of sectors or branches of the economy is based on the criterion of transfer of ownership (acquisition, disposal) and not on that of the use of the goods. It should be noted that fixed assets acquired by financial leasing (but not those simply on hire) are treated as assets of the lessee (if he is a producer) and not of the lessor, who keeps a financial asset equivalent to a notional claim (cf. 2.109(d) and Annex II of the ESA 95 on the distinction between the different forms of hire of durable goods) (25).
2.123.	Application of the criterion of transfer of ownership depends on the statistical system on the basis of which the GFCF is calculated. If it is data from purchasers, there will in theory be no difficulties (apart from the practical difficulty of recording all the investors). Often, however, (and this is particularly true of agriculture), it is information from producers of capital goods on their output or sales that is used as the basis for calculations. Apart from those cases where it is not clear whether a product belongs under the capital goods heading or not, it is also difficult to determine the actual purchaser since the nature of the capital goods gives only an indication of who the user is. In agriculture, therefore, there is the risk that capital goods will also be recorded which have not been acquired by agricultural holdings but by commercial enterprises for the purpose of hiring without operating staff.
2.124.	Acquisitions of fixed assets comprise new or existing fixed assets which have been acquired (purchased, acquired in barter transactions, received as capital transfers in kind or acquired as a financial lease), fixed assets produced and retained for the producer's own use, major improvements to fixed assets and to non-produced tangible assets, natural growth in agricultural assets (livestock and plantations) and costs associated with the transfer of ownership of non-produced assets (cf. ESA 95, 3.103(a)).
2.125.	It should be remembered that in order to qualify for recording as GFCF, acquired durable goods have to have a unit value (or total value if they have been obtained in large quantities) of over EUR 500 at 1995 prices (cf. 2.090).
2.126.	The same applies to the purchase or production for own account of a set of durable goods needed for an initial installation. The stock of bottles of a brewery or wine-producing enterprise (excluding non-returnable bottles) for example, constitutes a mass of goods to be recorded as assets, although the value of each bottle is negligible. The same applies to seats and tables, crockery and cutlery of restaurants and the tools of an enterprise. The initial installation of these goods constitutes fixed capital formation: nevertheless, no fixed capital consumption is calculated in these cases because it is assumed that once this installation has been made, it will always keep the same value as a result of constant purchases of replacement items to make up for those which have been lost or become unusable. Current replacement purchases are recorded as intermediate consumption. This rule, which in theory is clear, is sometimes difficult to apply in practice as statistical data on production or sales do not give a clear idea of whether the goods in question have been bought for an initial installation or to replace existing items.
2.127.	Goods and services incorporated into existing fixed capital goods for the purpose of improving them, rebuilding or reconstructing them, prolonging their useful life or increasing their productivity, are recorded with the capital goods into which they are incorporated. This work is considered to be acquisition of new fixed assets. In principle, this heading includes all goods and services incorporated into fixed capital goods which go well beyond the scope of current maintenance and repair. Current maintenance is taken to mean all services which, in comparison with the normal lifetime of the capital goods, must be repeatedly provided at relatively short intervals in order to maintain the goods in serviceable condition. It covers, for example, the replacement of fast-wearing components of capital goods, external and internal painting, etc.
2.128.	The size of the sums spent on this maintenance is in no way a criterion for determining whether a service creates an asset or represents current maintenance, since in the case of high-value capital items, even services for current maintenance may be very costly (cf. 2.109(e)). Strictly speaking, the allocation of services performed on existing fixed capital goods either to the ‘current maintenance’ or ‘GFCF’ category should be determined by the interval which will elapse before the service has to be repeated, e.g. the replacement of parts which normally wear out within one year, such as the tyres of a truck, counts as current maintenance, whereas the replacement of an engine constitutes fixed capital formation, not because the value is higher but because an engine does not normally have to be replaced annually but only after several years. Recording a service of this kind under the assets heading (i.e. treatment as fixed capital formation and not as current maintenance) makes it possible to distribute the value uniformly over the entire period of use through the device of fixed capital consumption.
2.129.	The SNA 93 specifies that improvements made to fixed assets should be determined either by the magnitude of the changes in the characteristics of the fixed assets — i.e. by major changes in their size, shape, performance, capacity or anticipated service life — or by the fact that improvements are not the kinds of changes that are observed to take place routinely in other fixed assets of the same kind, as part of ordinary maintenance and repair programmes (cf. SNA 93, 10.49).
2.130.	Disposals of fixed assets comprise the sale, demolition, scrapping or destruction of fixed assets by their owner, or their surrender in barter or as capital transfers in kind (cf. ESA 95, 3.103(b) and 3.104). These disposals should normally lead to a change in ownership and have a direct economic purpose (therefore fixed assets which are demolished, scrapped or destroyed by their owner in order to be put to no further economic use are not included in these disposals) (cf. SNA 93, 10.35 and 10.39). However, some disposals may be kept within the same institutional unit, as in the case of animals slaughtered by a farmer and consumed by his family.
2.131.	GFCF is valued at purchaser prices (including the costs of transferring ownership, installation and other transfer charges) or, when produced on own account, it is valued at the basic prices of similar fixed assets (the basic price can be obtained from the sum of the costs incurred). Disposals should be recorded at the sales price, which should correspond to the purchaser price less the costs incurred in the transfer of ownership of assets, installation and transfer charges (cf. 2.130).
2.132.	The costs of transfer of ownership of assets constitute GFCF by the acquirer, even if some of the costs are paid by the seller. They comprise the expenditure incurred in order to take possession of the assets (installation and transport charges, etc.), fees and commissions of intermediaries (solicitors, experts, etc.) and taxes to be paid on intermediary services used in the transfer of ownership of assets.
2.133.	The GFCF of the acquirer comprises the value of the goods acquired (exclusive of transfer costs) plus the total transfer costs involved in the acquisition. Conversely, the GFCF of the seller only includes the value of the goods sold (exclusive of transfer costs) (26). In the case of non-produced assets (such as land, or patented assets such as production rights) which are not included in GFCF, these costs must be separated from the acquisition/disposal of these assets and recorded under a different heading as GFCF of the acquirer.
2.134.	The balance sheet, which provides an itemised list of the values of the assets held and commitments entered into, provides information on the different components of the change in the value of assets. As defined in the balance sheets (cf. ESA 95, 7.08) the change in the value of an asset between the end and beginning of an accounting period can be described as follows: Value of assets at the end of the accounting period – Value of assets at the beginning of the accounting period = GFCF – Consumption of fixed capital + Other volume changes + Nominal holding gains (net of losses)
Value of assets at the end of the accounting period
– Value of assets at the beginning of the accounting period =	GFCF
	– Consumption of fixed capital
	+ Other volume changes
	+ Nominal holding gains (net of losses)
2.135.	Nominal holding gains (net of losses) correspond to holding gains (net of losses) accumulated during the period considered and resulting from a change in the price of the asset whose economic and physical (quantitative and qualitative) characteristics remain unchanged over the period concerned. These changes are recorded in the revaluation account.
2.136.	The other changes in the volume of assets are flows which make it possible to record the discovery, deterioration or depletion of natural assets as well as the consequences of exceptional events which may modify the benefit drawn from assets. As far as the assets of the agricultural industry are concerned, changes in volume may be put into three main categories: —exceptional losses or catastrophic losses (earthquakes, wars, drought, epidemics, etc.), —the margin between the anticipated depreciation of the assets (measured by the consumption of fixed capital) and the depreciation actually determined (due to unforeseen obsolescence, damage, deterioration and accidental events leading to higher depreciation than anticipated), —changes in classification or structure of fixed assets: e.g. changes in the economic purpose of agricultural land, dairy livestock intended for meat production (cf. 2.149, footnote 1) or agricultural buildings which have been altered for private or other economic use.
2.137.	GFCF and consumption of fixed capital (cf. 3.098 to 3.106) are therefore not the only elements to take into account when analysing the change in the value of assets.
2.138.	The ESA 95 distinguishes between four types of elements which should be recorded as GFCF (cf. ESA 95, 3.105): —acquisitions less disposals of new or existing tangible fixed assets (dwellings, other buildings and structures, machines and equipment, cultivated assets), —acquisitions less disposals of new or existing intangible fixed assets (mineral exploration, computer software, artists' and other works), —major improvements to tangible non-produced assets, including land, —costs associated with the transfer of ownership of non-produced assets such as land and patented assets.
2.139.	For the EAA, a distinction is made between five types of elements of GFCF: —plantations yielding repeat products, —livestock, —tangible and intangible fixed assets:— —machines and other capital goods, —transport equipment, —farm buildings (non-residential), —other structures with the exception of land improvement (other buildings and structures, etc.), —other (computer software, etc.), —land improvement, —costs associated with the transfer of ownership of non-produced assets such as land and production rights.
2.140.	GFCF in agricultural assets concerns two types of assets (plantations and animals) which are used repeatedly and continually for the production of products such as fruit, rubber, milk, etc.: fruit trees, vines, hop fields, soft fruit plantations and asparagus beds. Christmas tree plantations (which only provide a finished product once) are not fixed assets, just as cereals and vegetables are not. Animals which serve as fixed assets include, for example, breeding animals, dairy cattle, sheep reared for their wool and draught animals (animals for slaughter, including poultry, are not fixed assets).
2.141.	According to ESA 95 (3.103) GFCF in plantations corresponds to the value of acquisitions less disposals of natural assets yielding repeat products (such as fruit trees) which have reached maturity, plus the natural growth of such natural assets until they reach maturity (i.e. generate a product), during the accounting period concerned.
2.142.	This definition of GFCF corresponds to: —expenditure on new plantations (new or renewed) during the accounting period, including amounts spent on maintaining young plantations during the accounting period (during the first three years), —the increase in the intrinsic value of plantations up to their maturity, —the costs associated with transfer of ownership in exchanges, between agricultural units, of plantations which have reached maturity.
2.143.	The first two elements of GFCF in plantations represent own-account agricultural output of GFCF.
2.144.	Disposals of plantations (recorded as negative GFCF) may take two forms: they may be sales of standing plantations to other (agricultural) units, in which case only the costs associated with the transfer of ownership are entered in the EAA. The other possibility is for the plantations to have been felled before the end of their normal growing life. In this case, however, according to the general definition of disposals, felled plantations must have a direct economic use; in other words, a counter-entry is required in the form of a use in goods and services (such as a sale to an enterprise specialising in the sale of timber (27)). In this second case, disposals of plantations to be recorded as negative GFCF should represent a modest amount.
2.145.	Consequently, in the majority of cases (i.e. except in the second case set out in 2.144), the value of the grubbings must not be deducted from the value of the investments in plantations. Investments intended for renewing existing plantations should be treated as investments and not as routine maintenance costs.
2.146.	The treatment of grubbings of plantations should be analysed in relation to the calculation of consumption of fixed capital. In accordance with the ESA 95, there is consumption of fixed capital in the case of plantations corresponding to the depreciation of the plantations when they have reached maturity. Plantation grubbings (28) should therefore be interpreted as follows: —grubbings carried out at the end of the normal growing life of plantations correspond to plantations withdrawn from assets. These grubbings are taken into account in the consumption of fixed capital throughout the productive life of the plantations, —‘exceptional’ grubbings are grubbings carried out before the end of the normal growing life of plantations for various (economic, strategic, etc.) reasons. They should be interpreted as the difference between the real (effective) depreciation and normal depreciation measured by the consumption of fixed capital. This depreciation surplus should be recorded in the ‘other changes in volume of assets’ account (accumulation accounts) which is not included in EAA.
2.147.	The change in the value of plantations over the accounting period therefore comprises the following four components (cf. 2.134): —GFCF, which corresponds to the difference in value between acquisitions and disposals during the reference period, as defined in 2.141 to 2.145, —consumption of fixed capital, which measures the depreciation of plantations, as defined in 2.146, —other changes in ‘volume’ which take account of the effects of unforeseen events on plantations (such as exceptional grubbings) and which are recorded in the ‘other changes in volume of assets’ account (cf. the definition in 2.136 and 2.146), —holding gains (net of losses), which measure the changes in value due to changes in price during the accounting period and which are recorded in the revaluation account of the ESA 95 accumulation accounts (cf. the definition in 2.135).
2.148.	Investments in cultivated crop assets, i.e. plantations, are recorded either as sales, by enterprises specialising in such kind of agricultural contract work (with soil preparation, supply of machines, plant, labour, etc.), or as output of own-account produced fixed capital goods (cf. 1.75). In the case of own-account plantation output, the following should be recorded: (a)for calculating the value of output: for own-account produced fixed capital goods in plantations, either the value of similar plantations valued using the basic price and pro rata production costs incurred over the period, or the value of the materials consumed (including nursery plants) and services rendered over the period; (b)in the calculation of intermediate consumption, the values of the different intermediate consumption goods used (including nursery plants); (c)for GFCF, under the ‘plantations’ heading, the value obtained by adding up the value of own-account produced fixed capital goods in plantations (i.e. the entry mentioned in (a)) and the plantation output of units specialising in such kind of contract work.
2.149.	GFCF for livestock corresponds to the following elements: —the annual growth of livestock (until they reach maturity); —livestock acquisitions (imports) less disposals (slaughterings (29) and exports); —the costs associated with the transfer of ownership incurred in trade between agricultural units (30).
2.150.	In accordance with the ESA 95, GFCF for livestock is a measure of the difference between livestock acquisitions (natural growth and imports) over the year, including those resulting from own-account production, and livestock disposals (for slaughter (31), export or any other final use), to which is added the cost of transfer of ownership (32). GFCF for livestock occurs throughout the animal's life. To begin with, the GFCF mainly consists of the natural growth of the animal. When it reaches the age of maturity, the GFCF is mainly measured by way of disposals (sales for slaughter or export). Imports, exports and costs associated with the transfer of ownership are components of GFCF for livestock which are likely to occur throughout the animal's useful life. The natural growth of livestock (and not the GFCF as a whole) constitutes own-account agricultural production of fixed assets in livestock.
2.151.	As shown in 2.134, measuring the GFCF for livestock only constitutes one element of the change in the value of assets. In fact, GFCF for livestock can only be measured via the change in the number of livestock valued at the average price for the calendar year for each livestock category (quantitative method), if three conditions are met: —no nominal holding gains or losses (i.e. a regular trend in prices and livestock population numbers), —no other changes in volume (i.e. no losses due to natural disasters and no changes in classification, etc.), —no consumption of fixed capital (i.e. no foreseeable depreciation in the value of livestock). Another method of calculation (direct method) consists of measuring the flows of entries and withdrawals for each livestock category, at the corresponding prices: apart from acquisitions and disposals, this method has to take into account entries (in particular births) and withdrawals on the holdings.
2.152.	As a general rule, therefore, GFCF for livestock cannot be measured via the difference between the livestock values at the end and beginning of the accounting period. The rule for calculating the GFCF for livestock depends directly on the method adopted for recording and measuring the three elements of the change in the value of livestock (other than GFCF), and in particular the consumption of fixed capital element.
2.153.	In theory, consumption of fixed capital should be calculated for livestock (33). In actual fact, consumption of fixed capital for livestock corresponds to a measurement of the anticipated decline in productivity of livestock when used for production purposes, a reduction which in turn is reflected in the updated value of future income from this livestock. However, in view of the practical difficulties in evaluating consumption of fixed capital (the definition of the calculation parameters are very complex, cf. 3.105 and 3.106), no consumption of fixed capital should be calculated for productive livestock.
2.154.	GFCF for livestock may be measured by various methods. By using the perpetual inventory method, each of the GFCF elements defined in 2.149 (natural growth of livestock, imports, sales for slaughter and exports, costs associated with the transfer of ownership) can be valued very strictly. Nevertheless, it requires numerous data (such as the prices of productive livestock throughout their useful life). The same is true of methods based on the livestock production cycle. A simpler method therefore needs to be adopted, even if it is less strict.
2.155.	The recommended method employs an indirect calculation approach (34). It is based on calculating the change in the number of livestock and on the following two assumptions: —livestock prices are regular and normally predictable, so that the average annual price can be used for valuing quantities whilst excluding from them holding gains/losses, —exceptional losses can be estimated (in quantities and prices).
2.156.	The measurement of GFCF is made up of the sum of the following elements: GFCF = Change in the number of livestock between the end and beginning of the accounting period valued at the average annual price P + Culling discount + Other productive livestock losses + Costs associated with the transfer of ownership
GFCF =	Change in the number of livestock between the end and beginning of the accounting period valued at the average annual price P
	+ Culling discount
	+ Other productive livestock losses
	+ Costs associated with the transfer of ownership
2.157.	The term ‘culling discount’ refers to the difference, at the time of their withdrawal from productive livestock, between the value of the livestock valued as productive animals (at what could be called a ‘capital’ price) and the value of the same livestock valued as animals intended for slaughter (i.e. at the slaughterhouse selling price).
2.158.	The term ‘other losses of productive livestock’ comprises two types of losses: —exceptional losses in productive livestock which have become mature, —the value of livestock kept in production until the end of their life (natural death).
2.159.	The value of losses to be recorded in the calculation of GFCF corresponds to the difference between the value of livestock at the price prevailing at the start of the period and the disposal value of the animals. These disposals are valued at the selling price of animals which are slaughtered (i.e. for sale or own final consumption) or can have a zero value if they have no economic use (e.g. if they are disposed of, etc.).
2.160.	The terms ‘other losses of productive livestock’ and ‘culling discount’ correspond to flows which are recorded in the ‘other changes in the volume of assets’ account of the balance sheet. They provide a link between the different components of the change in the value of assets and the GFCF, and ensure conformity with the ESA 95. Ignoring them would result in the real level of GFCF for livestock being underestimated.
2.161.	The estimation of own-account production of fixed capital in livestock, which corresponds to the natural growth of animals, is derived from the definition of the GFCF for livestock set out in 2.149 applied to categories of animals which are not yet fully mature: Own-account production = GFCF + disposals (slaughterings and exports) — acquisitions (imports) (35) — (cost of transfer of ownership).
2.162.	Tangible and intangible fixed assets other than agricultural assets (plantations and livestock) comprise the following elements: —machines and other capital goods, —transport equipment, —farm buildings (non-residential), —other (computer software, etc.).
2.163.	GFCF corresponds to the acquisition of these assets (new assets produced or imported during the accounting period, or existing assets) less transfers to other units (of the agricultural industry or other industries). It should be recalled that if this transaction concerns two units of the agricultural industry during the same accounting period, the two flows cancel each other out and only the costs associated with the transfer of ownership are recorded under the corresponding fixed asset heading.
2.164.	In the case of construction or capital goods (intended for sale) whose production is spread over several periods, the value of the work performed in the period of production is to be recorded in the change of stocks of the producer in the form of work in progress. These goods (whether movable or immovable) are not recorded in GFCF until the ownership has been transferred. By contrast, when this production is own-account, this work is recorded as GFCF during the entire production period (cf. 2.025).
2.165.	Assets whose economic use changes without any change in ownership taking place (e.g. when a farm building is used for purposes other than an agricultural production activity) are not recorded as disposals of assets. These changes are recorded in the ‘other changes in the volume of assets’ account.
2.166.	Major improvements in non-produced tangible assets correspond mainly to land improvement (better quality of land and higher yield through irrigation, drainage and flood prevention measures, etc.) and should be treated like any other GFCF. Since land acquisitions and withdrawals are not recorded as GFCF (being non-produced assets), investments in land improvement are listed separately under a special GFCF heading.
2.167.	These investments correspond to expenditure on the improvement of land and its preparation for other productive uses, with the exception of expenditure on routine maintenance (cf. 2.127 to 2.129). This expenditure has to be made by holders or the result of this expenditure has to become their property. This concerns in particular expenditure on infrastructure works such as clearance, levelling, drainage, irrigation and consolidation (cf. ESA 95, 3.106 and SNA 93, 10.51 to 10.54).
2.168.	Costs associated with the transfer of ownership of non-produced assets refer to acquisitions of land and non-produced intangible assets (such as patented assets, production rights, etc.) by agricultural units. These acquisitions are not recorded as GFCF (but under another heading of the capital account, because they are non-produced assets) and only the costs associated with the transfer of ownership are recorded as GFCF (for the acquirer, but not for the seller).
2.169.	The following goods and services are not included in GFCF: (a)small tools, working clothes, spare parts and equipment of a low value (less than EUR 500 at 1995 prices), even if these goods have a normal useful life of over one year (cf., however, 2.125 and 2.126); because they are renewed regularly, and to conform with business accounting practice, these purchases of goods are considered to be intermediate consumption (cf. 2.105 and 2.106); (b)ongoing maintenance and repairs (cf. 2.127 to 2.129) are classed as intermediate consumption); (c)services of scientific research, advertising, market research, etc. Purchases of these services are included in intermediate consumption (cf. 2.108(d)); (d)durable goods acquired by households to satisfy their domestic needs; as these goods are not used for production purposes, they are treated as final consumption; (e)animals which serve as stocks: fattening animals reared for slaughter, including poultry; (f)holding gains and losses on fixed assets (to be recorded in the revaluation account, cf. 2.135); (g)losses of fixed assets due to catastrophic events (cattle diseases, etc.) or force majeure (floods, gales, etc.) (cf. 2.045 and 2.136).
2.170.	The value of fixed capital goods used simultaneously for professional and private purposes (motor vehicles, for example) is recorded in accordance with their two possible types of use; partly as GFCF and partly, as final consumption.
2.	Change in stocks(a) Definition of stocks and change in stocks 2.171. Stocks comprise all goods which do not form part of fixed capital and are held by producer units at a given moment. A distinction is made between two types of stocks: input stocks and output stocks: —Input stocks are made up of raw materials and supplies which will be used at a later date as intermediate inputs in production processes. Normally, the consumption of these products is calculated by offsetting purchases (or other forms of acquisitions) with a change in stocks in the course of the reference period (cf. 2.021). —Output stocks represent the stocks of finished products and work in progress of the producer. They are taken into account in the calculation of output. Output stocks comprise:— —finished products from the industry: these are goods which producers have no intention of further processing before sending them for other economic purposes. In the case of agriculture, they include crop products, olive oil, grape must, livestock products and non-agricultural goods produced in inseparable secondary activities, —work in progress: this is output which is not quite finished. For the EAA, it includes wine, livestock for slaughter, all chickens and other poultry (including breeding poultry) and other animals except those regarded as fixed capital. It should be noted that growing crops (cf. 2.012) are not regarded as work in progress stocks in the annual economic accounts. 2.172. Not recording growing crops as work in progress is justified for European agriculture by the fact that a very large majority of crops have a production cycle which is shorter than an accounting period. It is also felt that recording them at the time of harvesting allows sufficient consistency with production costs to be maintained in the analysis of income from the activity (cf. 2.012). When the harvest, soil preparation and sowing operations are carried out in different accounting periods, the accounts of the period in which the costs occurred show an accounting loss and those of the harvest period an accounting profit. This accounting method may, however, be accepted because if the conditions remain the same from one year to another an approximate balance is established in that expenditure is offset in the same period by the profit from the sale of the previous harvest. Only in the event of a substantial change in production or in cases of very poor harvests does this compensation not occur. Under such circumstances, the recording of output as work in progress might be indicated (see also 2.013). 2.173. It should be noted that services are not entered as stocks except for those included in the purchase value of goods placed into stock. 2.174. According to the ESA 95, changes in stocks are measured by deducting from the value of stock entries the value of stock withdrawals and any recurrent losses of goods in stock. (b) Time of recording and valuation of changes in stocks 2.175. Stock entries should be valued at the date of entry into stock and withdrawals should be valued at the prices prevailing when withdrawn from stocks. The time of recording (and valuation) of stock entries and withdrawals should be consistent with that of other transactions in products (output and intermediate consumption). 2.176. The basic price is the price to be used for valuing changes in stocks (entries, withdrawals or recurrent losses of finished products or work in progress). As regards entries of work in progress, the price used should be estimated by applying the fraction of the total production cost incurred by the end of the period to the basic price of a similar finished product. Alternatively, the value of the entries of work in progress can be estimated by the value of the production cost with a mark-up for expected operating surplus or (estimated) mixed income (cf. ESA 95, 3.51 and 3.52). 2.177. The method recommended in the ESA 95 for recording stock entries and withdrawals is the perpetual inventory method. However, this solution is not generally applicable in view of the difficulty in obtaining information on entries and withdrawals. In an attempt to get into line with the perpetual inventory method, the ESA 95 recommends a ‘quantitative’ method which consists in measuring changes in stocks as the difference in volume between the stocks at the opening and closing of the accounting period, valued at the average prices in force during the period concerned. However, this method is only applicable if prices remain stable over the period under consideration or if the prices and quantities stocked increase or decline at a constant rate during the accounting period. 2.178. This ‘quantitative method’ cannot be applied to crop production because of the fluctuation in prices and quantities resulting from the production process and the structure of supply and demand. This problem which is specific to agriculture is recognised by the ESA 95 (cf. 3.124 (c)). 2.179. It should also be considered that a change in stocks, as defined in 2.174, is only one of the components of the change in the value of stocks between the start and end of the accounting period. There is in fact a basic accounting equation which connects the opening and closing figures for stock assets: Value of closing stocks at the prices applicable at the end of the accounting period - Value of opening stocks at the prices applicable at the start of the accounting period = Change in stocks (entries - withdrawals - recurrent losses) + nominal holding gains (net of losses) + other changes in volume 2.180. These nominal holding gains and losses and other changes in volume (36) should not be included in the measurement of output, but in the account of other changes in assets (respectively, in the revaluation account and in the other changes in the volume of assets account). 2.181. The main difficulty in valuing the change in stocks in the EAA concerns crop products. These products are in fact seasonal products whose entries into stocks only occur after the harvest and whose withdrawals are spread over several months after the harvest and often continues into the next accounting year. Their price may also be subject to substantial fluctuations from one period to another, or even within the same period. (c) Change in stocks of livestock and animal products 2.182. When valuing changes in stocks of livestock, it is not very important whether the animals were reared from birth within the country or were imported when young and then reared and fattened in the country. When the imported animals are taken over by the holding which continues rearing them on the national territory, the animals are ‘nationalised’ and consequently assimilated to domestic production. 2.183. To evaluate changes in the herd at the end of the reference period, a distinction has to be drawn between the ‘stocks’ herd and the ‘fixed assets’ herd (cf. 2.140 and 2.202). The value at basic prices for the first category of animal should be considered to be the sum of the production costs throughout the life of the average animal in the different livestock classes up to and including the reference year, plus a mark-up for the estimated operating surplus or an estimate of mixed income (cf. 2.176). If an animal was originally imported before its period in the national territory, the purchaser price at the time of import can be regarded as representing the sum of the production costs up to that date. 2.184. Because of the generally regular changes in the prices of animals, it is possible to evaluate the change in livestock stocks by a simple approximation method which excludes nominal holding gains (net of losses). For each category of animal, the change in population between the end and the start of the accounting year is multiplied by the average price observed over the reference period. (d) Change in stocks of seasonal products 2.185. Seasonal products (cf. 2.178 and 2.181) are products for which the quantitative method does not constitute a good approximation of the perpetual inventory in view of the irregular change in prices and quantities. The application of the quantitative method could lead to the inclusion of nominal holding gains or losses in the measurement of the change in stocks. One solution could consist in measuring the change in stocks over shorter periods than the reference period (for example, each quarter), subperiods which would have more even price and quantity trends. Nevertheless, this type of method is often difficult to apply because of a lack of basic data. 2.186. Another method of evaluating stocks of seasonal products is that of examining the trend in the prices of stocked goods. The price of a good may change during storage for at least three reasons (SNA 93, 6.105): —its physical qualities may improve or deteriorate with time, —there may be seasonal factors influencing its supply or demand, thus resulting in regular and predictable changes in its price over the year, even though its physical qualities may not otherwise change, —there may be factors such as general inflation or other general factors which may lead to a change in price even though its physical or economic characteristics are not changed over time. 2.187. The difference between the price at which products are put into stock and the price at which they are withdrawn, in the first two cases, should reflect the additional output value produced during storage (SNA 93, 6.106), since products withdrawn from storage several months after harvest are different, in economic terms, from those which have been stored. This type of increase in the value of products should not be counted as a nominal holding gain (SNA 93, 12.70). 2.188. On the basis of the different components of the change in the value of stocks and factors determining changes in the prices of products held in stock, and in view of the difficulty in fully excluding the recording of holding gains or losses from the valuation of seasonal output, two methods are recommended. They differ in their interpretation of the storage activity and the time for recording the change in the value of the goods resulting from their stay in stocks. The first method constitutes the reference method to be applied in valuing output and changes in stocks of seasonal agricultural production. The second method may be used for more specific cases (mainly products whose prices are difficult to predict). 2.189. The reference method consists in determining the change in stocks as the difference between the value of output for the year and the value of sales (and other uses) for the same year (37). It is founded on the assumption that there are no stocks left over at the end of the marketing year (the end of the first half of the following calendar year). It involves directly evaluating total output harvested during year n using the weighted average price for the marketing year (n/n + 1) and deducting from this the value of all sales (and other uses) made during calendar year n corresponding to the year of harvest (38) at the prices applicable at the time of sale (or other uses). 2.190. The reference method treats the storage activity as a factor for raising the prices of goods during storage. It thus makes a distinction between the storage activity and its effects on product prices. The increase in value resulting from the stay in storage is ‘anticipated’ since it is allocated to the output of year n (i.e. the year of harvest, even though the sales are spread over two calendar years), it being possible to anticipate price trends without too much uncertainty because they result from fairly regular and predictable changes (cf. 2.186). 2.191. The application of this method makes it possible to minimise the inclusion of holding gains or losses in the measurement of output. It ensures consistency between the calculations of output in value and quantity and avoids the recording of output on the basis of work in progress (requiring data on the level of stocks at the start and end of the calendar year, with corresponding prices). It also facilitates the elaboration of accounts in constant prices. 2.192. A second method is recommended in the specific case of products whose prices are difficult to predict (such as fruit, vegetables, potatoes and olive oil) and whose storage on agricultural holdings reaches economically significant levels. This method is less strict than the reference method in excluding holding gains and losses from the measurement of output; it considers the storage activity to be an extension of the production process in time. The inclusion of the increase in prices of stored goods is delayed and allocated to the year in which the storage took place. 2.193. By this second method, seasonal output is calculated directly as the sum of sales, other uses and changes in stocks. Stock changes are estimated by valuing the stocks at the end and start of the accounting period on the basis of their current prices. 2.194. It should be noted that these two methods differ in the way they measure the change in stocks but not in the valuation of sales (which are valued at the basic prices applicable on withdrawal from stocks). (e) Changes in stocks of wine (from grapes produced by the same holding) 2.195. Wine is a product which is generally stocked for several years for ageing and maturing. During this storage period, the quality changes. This storage activity at the holding can be regarded as an extension of the wine production process since the wine leaving storage is different from the wine which entered. Stored wine should therefore be treated as work in progress and the increase in value which is then determined should be regarded as an increase in output to be measured continuously over time. 2.196. The change in the value of wine may result from three factors: the change in its quality, changes in the structure of supply and demand (i.e. relative prices between young and aged wines), and a general increase in prices. Whilst the change in the value of wine due to the first two factors should be included in the measurement of output, any increase in the price of wine due to a general increase in wine prices should not be reflected in the value of output but treated as a holding gain (recorded in the revaluation account). 2.197. Recording the increase in the value of wine in the value of output should be done throughout the course of the ageing process. However, this would mean having a large amount of data available on the structure of wine stocks based on their production year, quality and production area, as well as on the development of their respective prices. As these data are not generally available in the Member States, two practical methods have been developed which allow the increase in the value of wine due to ageing to be calculated approximately for the EAA. Although not so strict from the conceptual point of view, these two methods nonetheless appear to be acceptable in the current situation regarding availability of data. The choice of each Member State will depend on the structure of its wine-growing industry and statistical system. 2.198. Anticipation of the increase in value from wine-ageing: the first method is to value stock entries of wines to be aged by the producer, using the selling prices of wines which have already been aged, as observed in the second half of the year. The expected increase in value is anticipated in the output of the year of harvest. This increase is only partial since these wines are not valued at their real selling prices but at the prices of other wines of the same type but older. The difference between their real selling price and that used for evaluating stock entries is not counted in the value of output, since it is interpreted as holding gain (NB: this difference includes the effects of inflation). Since it makes no distinction depending on the harvest year of the stocked or sold wine, it assumes that the quality wine market is even in terms of age of the wine. 2.199. Delay in taking into account wine ageing: the second method is to value stock entries at the price of ‘unaged’ wines at the time of harvesting and not to record an addition to the wine work in progress (i.e. the increase in price due to ageing, irrespective of the effect of the general change in the price of wine) until the aged wine is sold. Since sales are valued at the average price for the year, any increase in value between the harvest year and the year of sale is recorded in the output of the year of sale (and is therefore not distributed over time). This method requires more data on the structure of wine stocks as it assumes that the distribution of stocks (and stock withdrawals) is known for each harvest year. Nevertheless, it can provide a more accurate idea of sales and stocks of different vintages. 2.200. Neither of these two practical methods allows the increase in the value of wine from ageing to be distributed over time: one records it in advance and the other after a delay. This disadvantage can be regarded as a relatively minor one in both cases if it is assumed that there is a certain stability over time in the production of ‘aged’ wine. The first method appears to be preferable when the average ageing period is short.
2.171.	Stocks comprise all goods which do not form part of fixed capital and are held by producer units at a given moment. A distinction is made between two types of stocks: input stocks and output stocks: —Input stocks are made up of raw materials and supplies which will be used at a later date as intermediate inputs in production processes. Normally, the consumption of these products is calculated by offsetting purchases (or other forms of acquisitions) with a change in stocks in the course of the reference period (cf. 2.021). —Output stocks represent the stocks of finished products and work in progress of the producer. They are taken into account in the calculation of output. Output stocks comprise:— —finished products from the industry: these are goods which producers have no intention of further processing before sending them for other economic purposes. In the case of agriculture, they include crop products, olive oil, grape must, livestock products and non-agricultural goods produced in inseparable secondary activities, —work in progress: this is output which is not quite finished. For the EAA, it includes wine, livestock for slaughter, all chickens and other poultry (including breeding poultry) and other animals except those regarded as fixed capital. It should be noted that growing crops (cf. 2.012) are not regarded as work in progress stocks in the annual economic accounts.
2.172.	Not recording growing crops as work in progress is justified for European agriculture by the fact that a very large majority of crops have a production cycle which is shorter than an accounting period. It is also felt that recording them at the time of harvesting allows sufficient consistency with production costs to be maintained in the analysis of income from the activity (cf. 2.012). When the harvest, soil preparation and sowing operations are carried out in different accounting periods, the accounts of the period in which the costs occurred show an accounting loss and those of the harvest period an accounting profit. This accounting method may, however, be accepted because if the conditions remain the same from one year to another an approximate balance is established in that expenditure is offset in the same period by the profit from the sale of the previous harvest. Only in the event of a substantial change in production or in cases of very poor harvests does this compensation not occur. Under such circumstances, the recording of output as work in progress might be indicated (see also 2.013).
2.173.	It should be noted that services are not entered as stocks except for those included in the purchase value of goods placed into stock.
2.174.	According to the ESA 95, changes in stocks are measured by deducting from the value of stock entries the value of stock withdrawals and any recurrent losses of goods in stock.
2.175.	Stock entries should be valued at the date of entry into stock and withdrawals should be valued at the prices prevailing when withdrawn from stocks. The time of recording (and valuation) of stock entries and withdrawals should be consistent with that of other transactions in products (output and intermediate consumption).
2.176.	The basic price is the price to be used for valuing changes in stocks (entries, withdrawals or recurrent losses of finished products or work in progress). As regards entries of work in progress, the price used should be estimated by applying the fraction of the total production cost incurred by the end of the period to the basic price of a similar finished product. Alternatively, the value of the entries of work in progress can be estimated by the value of the production cost with a mark-up for expected operating surplus or (estimated) mixed income (cf. ESA 95, 3.51 and 3.52).
2.177.	The method recommended in the ESA 95 for recording stock entries and withdrawals is the perpetual inventory method. However, this solution is not generally applicable in view of the difficulty in obtaining information on entries and withdrawals. In an attempt to get into line with the perpetual inventory method, the ESA 95 recommends a ‘quantitative’ method which consists in measuring changes in stocks as the difference in volume between the stocks at the opening and closing of the accounting period, valued at the average prices in force during the period concerned. However, this method is only applicable if prices remain stable over the period under consideration or if the prices and quantities stocked increase or decline at a constant rate during the accounting period.
2.178.	This ‘quantitative method’ cannot be applied to crop production because of the fluctuation in prices and quantities resulting from the production process and the structure of supply and demand. This problem which is specific to agriculture is recognised by the ESA 95 (cf. 3.124 (c)).
2.179.	It should also be considered that a change in stocks, as defined in 2.174, is only one of the components of the change in the value of stocks between the start and end of the accounting period. There is in fact a basic accounting equation which connects the opening and closing figures for stock assets: Value of closing stocks at the prices applicable at the end of the accounting period - Value of opening stocks at the prices applicable at the start of the accounting period = Change in stocks (entries - withdrawals - recurrent losses) + nominal holding gains (net of losses) + other changes in volume
Value of closing stocks at the prices applicable at the end of the accounting period
- Value of opening stocks at the prices applicable at the start of the accounting period =	Change in stocks (entries - withdrawals - recurrent losses)
	+ nominal holding gains (net of losses)
	+ other changes in volume
2.180.	These nominal holding gains and losses and other changes in volume (36) should not be included in the measurement of output, but in the account of other changes in assets (respectively, in the revaluation account and in the other changes in the volume of assets account).
2.181.	The main difficulty in valuing the change in stocks in the EAA concerns crop products. These products are in fact seasonal products whose entries into stocks only occur after the harvest and whose withdrawals are spread over several months after the harvest and often continues into the next accounting year. Their price may also be subject to substantial fluctuations from one period to another, or even within the same period.
2.182.	When valuing changes in stocks of livestock, it is not very important whether the animals were reared from birth within the country or were imported when young and then reared and fattened in the country. When the imported animals are taken over by the holding which continues rearing them on the national territory, the animals are ‘nationalised’ and consequently assimilated to domestic production.
2.183.	To evaluate changes in the herd at the end of the reference period, a distinction has to be drawn between the ‘stocks’ herd and the ‘fixed assets’ herd (cf. 2.140 and 2.202). The value at basic prices for the first category of animal should be considered to be the sum of the production costs throughout the life of the average animal in the different livestock classes up to and including the reference year, plus a mark-up for the estimated operating surplus or an estimate of mixed income (cf. 2.176). If an animal was originally imported before its period in the national territory, the purchaser price at the time of import can be regarded as representing the sum of the production costs up to that date.
2.184.	Because of the generally regular changes in the prices of animals, it is possible to evaluate the change in livestock stocks by a simple approximation method which excludes nominal holding gains (net of losses). For each category of animal, the change in population between the end and the start of the accounting year is multiplied by the average price observed over the reference period.
2.185.	Seasonal products (cf. 2.178 and 2.181) are products for which the quantitative method does not constitute a good approximation of the perpetual inventory in view of the irregular change in prices and quantities. The application of the quantitative method could lead to the inclusion of nominal holding gains or losses in the measurement of the change in stocks. One solution could consist in measuring the change in stocks over shorter periods than the reference period (for example, each quarter), subperiods which would have more even price and quantity trends. Nevertheless, this type of method is often difficult to apply because of a lack of basic data.
2.186.	Another method of evaluating stocks of seasonal products is that of examining the trend in the prices of stocked goods. The price of a good may change during storage for at least three reasons (SNA 93, 6.105): —its physical qualities may improve or deteriorate with time, —there may be seasonal factors influencing its supply or demand, thus resulting in regular and predictable changes in its price over the year, even though its physical qualities may not otherwise change, —there may be factors such as general inflation or other general factors which may lead to a change in price even though its physical or economic characteristics are not changed over time.
2.187.	The difference between the price at which products are put into stock and the price at which they are withdrawn, in the first two cases, should reflect the additional output value produced during storage (SNA 93, 6.106), since products withdrawn from storage several months after harvest are different, in economic terms, from those which have been stored. This type of increase in the value of products should not be counted as a nominal holding gain (SNA 93, 12.70).
2.188.	On the basis of the different components of the change in the value of stocks and factors determining changes in the prices of products held in stock, and in view of the difficulty in fully excluding the recording of holding gains or losses from the valuation of seasonal output, two methods are recommended. They differ in their interpretation of the storage activity and the time for recording the change in the value of the goods resulting from their stay in stocks. The first method constitutes the reference method to be applied in valuing output and changes in stocks of seasonal agricultural production. The second method may be used for more specific cases (mainly products whose prices are difficult to predict).
2.189.	The reference method consists in determining the change in stocks as the difference between the value of output for the year and the value of sales (and other uses) for the same year (37). It is founded on the assumption that there are no stocks left over at the end of the marketing year (the end of the first half of the following calendar year). It involves directly evaluating total output harvested during year n using the weighted average price for the marketing year (n/n + 1) and deducting from this the value of all sales (and other uses) made during calendar year n corresponding to the year of harvest (38) at the prices applicable at the time of sale (or other uses).
2.190.	The reference method treats the storage activity as a factor for raising the prices of goods during storage. It thus makes a distinction between the storage activity and its effects on product prices. The increase in value resulting from the stay in storage is ‘anticipated’ since it is allocated to the output of year n (i.e. the year of harvest, even though the sales are spread over two calendar years), it being possible to anticipate price trends without too much uncertainty because they result from fairly regular and predictable changes (cf. 2.186).
2.191.	The application of this method makes it possible to minimise the inclusion of holding gains or losses in the measurement of output. It ensures consistency between the calculations of output in value and quantity and avoids the recording of output on the basis of work in progress (requiring data on the level of stocks at the start and end of the calendar year, with corresponding prices). It also facilitates the elaboration of accounts in constant prices.
2.192.	A second method is recommended in the specific case of products whose prices are difficult to predict (such as fruit, vegetables, potatoes and olive oil) and whose storage on agricultural holdings reaches economically significant levels. This method is less strict than the reference method in excluding holding gains and losses from the measurement of output; it considers the storage activity to be an extension of the production process in time. The inclusion of the increase in prices of stored goods is delayed and allocated to the year in which the storage took place.
2.193.	By this second method, seasonal output is calculated directly as the sum of sales, other uses and changes in stocks. Stock changes are estimated by valuing the stocks at the end and start of the accounting period on the basis of their current prices.
2.194.	It should be noted that these two methods differ in the way they measure the change in stocks but not in the valuation of sales (which are valued at the basic prices applicable on withdrawal from stocks).
2.195.	Wine is a product which is generally stocked for several years for ageing and maturing. During this storage period, the quality changes. This storage activity at the holding can be regarded as an extension of the wine production process since the wine leaving storage is different from the wine which entered. Stored wine should therefore be treated as work in progress and the increase in value which is then determined should be regarded as an increase in output to be measured continuously over time.
2.196.	The change in the value of wine may result from three factors: the change in its quality, changes in the structure of supply and demand (i.e. relative prices between young and aged wines), and a general increase in prices. Whilst the change in the value of wine due to the first two factors should be included in the measurement of output, any increase in the price of wine due to a general increase in wine prices should not be reflected in the value of output but treated as a holding gain (recorded in the revaluation account).
2.197.	Recording the increase in the value of wine in the value of output should be done throughout the course of the ageing process. However, this would mean having a large amount of data available on the structure of wine stocks based on their production year, quality and production area, as well as on the development of their respective prices. As these data are not generally available in the Member States, two practical methods have been developed which allow the increase in the value of wine due to ageing to be calculated approximately for the EAA. Although not so strict from the conceptual point of view, these two methods nonetheless appear to be acceptable in the current situation regarding availability of data. The choice of each Member State will depend on the structure of its wine-growing industry and statistical system.
2.198.	Anticipation of the increase in value from wine-ageing: the first method is to value stock entries of wines to be aged by the producer, using the selling prices of wines which have already been aged, as observed in the second half of the year. The expected increase in value is anticipated in the output of the year of harvest. This increase is only partial since these wines are not valued at their real selling prices but at the prices of other wines of the same type but older. The difference between their real selling price and that used for evaluating stock entries is not counted in the value of output, since it is interpreted as holding gain (NB: this difference includes the effects of inflation). Since it makes no distinction depending on the harvest year of the stocked or sold wine, it assumes that the quality wine market is even in terms of age of the wine.
2.199.	Delay in taking into account wine ageing: the second method is to value stock entries at the price of ‘unaged’ wines at the time of harvesting and not to record an addition to the wine work in progress (i.e. the increase in price due to ageing, irrespective of the effect of the general change in the price of wine) until the aged wine is sold. Since sales are valued at the average price for the year, any increase in value between the harvest year and the year of sale is recorded in the output of the year of sale (and is therefore not distributed over time). This method requires more data on the structure of wine stocks as it assumes that the distribution of stocks (and stock withdrawals) is known for each harvest year. Nevertheless, it can provide a more accurate idea of sales and stocks of different vintages.
2.200.	Neither of these two practical methods allows the increase in the value of wine from ageing to be distributed over time: one records it in advance and the other after a delay. This disadvantage can be regarded as a relatively minor one in both cases if it is assumed that there is a certain stability over time in the production of ‘aged’ wine. The first method appears to be preferable when the average ageing period is short.
3.	Recording of livestock as ‘GFCF’ or ‘changes in stocks’‘changes in stocks’2.201. As mentioned in 2.140 and 2.151, changes in the number of livestock (for agricultural statistical purposes) are entered either as GFCF or as changes in stocks depending on the type of animal. (a) Definition2.202. GFCF of livestock concerns animals, i.e. fixed assets, used repeatedly and continuously in production processes. They are reared for the output they regularly provide and include, for example, breeding livestock, dairy livestock, draught animals, sheep and other animals reared for their wool. By contrast, animals serving as stocks are animals produced during the current or a previous period which are kept in order to be sold or used for other production purposes at a later date. These include animals reared for their meat such as animals for slaughter and poultry. (b) Recording of animal imports1. Animals identifiable as fixed assets: 2.203. If, at the time of import, the animals were able to be clearly identified as a fixed asset, they would be recorded exclusively as acquisitions in the GFCF (cf. 2.149 and 2.150). Of course, only animals bought by the agricultural industry are to be recorded as GFCF of agriculture, and therefore not, for example, saddle horses for private use or animals acquired for other purposes. 2. Animals identifiable as stocks: 2.204. By contrast, if at the time of import the animals were able to be clearly identified as stocks (e.g. animals for slaughter) their import would be considered as an entry into stocks of work in progress and therefore, deducted from sales (negative sales) in the calculation of output (cf. 2.069). 3. Treatment to be adopted: 2.205. It is often difficult, on the basis of the sources of data available, to draw pertinent distinctions between these two different categories of animals. This is why the value of all imported animals (animals classed as fixed assets or stocks, but with the exception of those imported animals for immediate slaughter) should be deducted from sales in the output calculation. If at any time they are transferred to the herd of productive livestock (i.e. fixed assets), they will be recorded as own-account produced fixed capital goods during the reference period when the transfer takes place (as for animals which are produced and reared in the country and which are then transferred to herds of productive livestock) (cf. 2.069 and 2.070). 2.206. It should be noted that animals imported for immediate slaughter are entered as imports of the national abattoirs and are not recorded in the EAA since the latter are restricted to depicting the output of national agriculture. (c) Recording of livestock trade between agricultural units2.207. Animals classed as fixed assets: trade in these animals is recorded in GFCF as acquisitions and disposals of fixed assets (services associated with the transfer of ownership are recorded in the purchaser price). When sales and purchases occur in the same accounting period, these flows offset each other and only services associated with the transfer of ownership are recorded as GFCF (cf. 2.068). 2.208. Animals classed as stocks: these sales and purchases are only recorded if they occur in two different accounting periods. Services associated with this trade, which are included in the purchaser price, should be deducted from the output total when trade occurs in the same accounting period (cf. 2.067). 2.209. Because of the special treatment of livestock trade between agricultural units and imports, there is no intermediate consumption for ‘Livestock and animal products’. (d) Non-agricultural animals2.210. The rearing of race-horses, saddle horses, dogs, cats, cage birds, zoo and circus animals and bulls for bullfights is included in the activities defining the agricultural industry, whether it is for breeding, meat production, recreation or sports events (cf. 1.78). The use of these animals for service activities is included in the agricultural industry, only when such activities are performed by agricultural units as inseparable secondary activities. The rearing of non-agricultural animals by units for which the agricultural activity represents solely a leisure activity is not considered as part of the EAA (cf. 1.24). 2.211. Such animals may be sold to: —households: in which case any subsequent operations involving these animals are of no concern to the EAA, —other branches: a guard dog, circus animal or racing horse, for example; these form part of the formation of fixed capital of the purchasing branch.
2.201.	As mentioned in 2.140 and 2.151, changes in the number of livestock (for agricultural statistical purposes) are entered either as GFCF or as changes in stocks depending on the type of animal.
(a)	Definition2.202. GFCF of livestock concerns animals, i.e. fixed assets, used repeatedly and continuously in production processes. They are reared for the output they regularly provide and include, for example, breeding livestock, dairy livestock, draught animals, sheep and other animals reared for their wool. By contrast, animals serving as stocks are animals produced during the current or a previous period which are kept in order to be sold or used for other production purposes at a later date. These include animals reared for their meat such as animals for slaughter and poultry.
2.202.	GFCF of livestock concerns animals, i.e. fixed assets, used repeatedly and continuously in production processes. They are reared for the output they regularly provide and include, for example, breeding livestock, dairy livestock, draught animals, sheep and other animals reared for their wool. By contrast, animals serving as stocks are animals produced during the current or a previous period which are kept in order to be sold or used for other production purposes at a later date. These include animals reared for their meat such as animals for slaughter and poultry.
(b)	Recording of animal imports1. Animals identifiable as fixed assets: 2.203. If, at the time of import, the animals were able to be clearly identified as a fixed asset, they would be recorded exclusively as acquisitions in the GFCF (cf. 2.149 and 2.150). Of course, only animals bought by the agricultural industry are to be recorded as GFCF of agriculture, and therefore not, for example, saddle horses for private use or animals acquired for other purposes. 2. Animals identifiable as stocks: 2.204. By contrast, if at the time of import the animals were able to be clearly identified as stocks (e.g. animals for slaughter) their import would be considered as an entry into stocks of work in progress and therefore, deducted from sales (negative sales) in the calculation of output (cf. 2.069). 3. Treatment to be adopted: 2.205. It is often difficult, on the basis of the sources of data available, to draw pertinent distinctions between these two different categories of animals. This is why the value of all imported animals (animals classed as fixed assets or stocks, but with the exception of those imported animals for immediate slaughter) should be deducted from sales in the output calculation. If at any time they are transferred to the herd of productive livestock (i.e. fixed assets), they will be recorded as own-account produced fixed capital goods during the reference period when the transfer takes place (as for animals which are produced and reared in the country and which are then transferred to herds of productive livestock) (cf. 2.069 and 2.070). 2.206. It should be noted that animals imported for immediate slaughter are entered as imports of the national abattoirs and are not recorded in the EAA since the latter are restricted to depicting the output of national agriculture.
2.203.	If, at the time of import, the animals were able to be clearly identified as a fixed asset, they would be recorded exclusively as acquisitions in the GFCF (cf. 2.149 and 2.150). Of course, only animals bought by the agricultural industry are to be recorded as GFCF of agriculture, and therefore not, for example, saddle horses for private use or animals acquired for other purposes.
2.204.	By contrast, if at the time of import the animals were able to be clearly identified as stocks (e.g. animals for slaughter) their import would be considered as an entry into stocks of work in progress and therefore, deducted from sales (negative sales) in the calculation of output (cf. 2.069).
2.205.	It is often difficult, on the basis of the sources of data available, to draw pertinent distinctions between these two different categories of animals. This is why the value of all imported animals (animals classed as fixed assets or stocks, but with the exception of those imported animals for immediate slaughter) should be deducted from sales in the output calculation. If at any time they are transferred to the herd of productive livestock (i.e. fixed assets), they will be recorded as own-account produced fixed capital goods during the reference period when the transfer takes place (as for animals which are produced and reared in the country and which are then transferred to herds of productive livestock) (cf. 2.069 and 2.070).
2.206.	It should be noted that animals imported for immediate slaughter are entered as imports of the national abattoirs and are not recorded in the EAA since the latter are restricted to depicting the output of national agriculture.
(c)	Recording of livestock trade between agricultural units2.207. Animals classed as fixed assets: trade in these animals is recorded in GFCF as acquisitions and disposals of fixed assets (services associated with the transfer of ownership are recorded in the purchaser price). When sales and purchases occur in the same accounting period, these flows offset each other and only services associated with the transfer of ownership are recorded as GFCF (cf. 2.068). 2.208. Animals classed as stocks: these sales and purchases are only recorded if they occur in two different accounting periods. Services associated with this trade, which are included in the purchaser price, should be deducted from the output total when trade occurs in the same accounting period (cf. 2.067). 2.209. Because of the special treatment of livestock trade between agricultural units and imports, there is no intermediate consumption for ‘Livestock and animal products’.
2.207.	Animals classed as fixed assets: trade in these animals is recorded in GFCF as acquisitions and disposals of fixed assets (services associated with the transfer of ownership are recorded in the purchaser price). When sales and purchases occur in the same accounting period, these flows offset each other and only services associated with the transfer of ownership are recorded as GFCF (cf. 2.068).
2.208.	Animals classed as stocks: these sales and purchases are only recorded if they occur in two different accounting periods. Services associated with this trade, which are included in the purchaser price, should be deducted from the output total when trade occurs in the same accounting period (cf. 2.067).
2.209.	Because of the special treatment of livestock trade between agricultural units and imports, there is no intermediate consumption for ‘Livestock and animal products’.
(d)	Non-agricultural animals2.210. The rearing of race-horses, saddle horses, dogs, cats, cage birds, zoo and circus animals and bulls for bullfights is included in the activities defining the agricultural industry, whether it is for breeding, meat production, recreation or sports events (cf. 1.78). The use of these animals for service activities is included in the agricultural industry, only when such activities are performed by agricultural units as inseparable secondary activities. The rearing of non-agricultural animals by units for which the agricultural activity represents solely a leisure activity is not considered as part of the EAA (cf. 1.24). 2.211. Such animals may be sold to: —households: in which case any subsequent operations involving these animals are of no concern to the EAA, —other branches: a guard dog, circus animal or racing horse, for example; these form part of the formation of fixed capital of the purchasing branch.
2.210.	The rearing of race-horses, saddle horses, dogs, cats, cage birds, zoo and circus animals and bulls for bullfights is included in the activities defining the agricultural industry, whether it is for breeding, meat production, recreation or sports events (cf. 1.78). The use of these animals for service activities is included in the agricultural industry, only when such activities are performed by agricultural units as inseparable secondary activities. The rearing of non-agricultural animals by units for which the agricultural activity represents solely a leisure activity is not considered as part of the EAA (cf. 1.24).
2.211.	Such animals may be sold to: —households: in which case any subsequent operations involving these animals are of no concern to the EAA, —other branches: a guard dog, circus animal or racing horse, for example; these form part of the formation of fixed capital of the purchasing branch.

III.   DISTRIBUTIVE TRANSACTIONS AND OTHER FLOWS

A. DEFINITION

3.001. Distributive transactions are transactions: —which distribute value added generated by production among the workforce, capital and general government, —which involve the redistribution of income and wealth.

3.002. The ESA 95 distinguishes between current transfers and capital transfers, the latter representing a redistribution of saving or wealth rather than of income.

3.003. Given that the EAA are the accounts for an industry, only certain distributive transactions will be described in this chapter. The most important ones are those recorded in the primary income distribution accounts, particularly the generation of income account and entrepreneurial income account (cf. EAA sequence of accounts, 1.38 to 1.48). In the case of the generation of income account, these distributive transactions relate to other taxes on production, other subsidies on production and the compensation of employees. For the entrepreneurial income account, they correspond to certain types of property income (mainly land rents, interest and property income attributed to insurance policy holders). The account also records distributive transactions corresponding to aid for investment and other capital transfers in the capital account.

3.004. They do not include some distributive transactions relating to certain property income (mainly dividends and other income distributed by corporations), current taxes on income and wealth, etc. Recording these transactions is only statistically feasible and meaningful if groupings of institutional units, i.e. sectors and subsectors, are taken into account (cf. 1.06).

B. GENERAL RULES

1. Reference period

3.005. The reference period for the EAA is the calendar year.

2. Units

3.006. The values should be expressed in millions of units of the national currency.

3. Time of recording distributive transactions

3.007. As was explained in 2.008, the ESA 95 records distributive transactions on an accrual basis, i.e. at the time an economic value, amount due or claim is created, transformed or cancelled or ceases to exist, and not at the moment when payment is actually made. This recording principle (based on rights and obligations) is applied to all flows, irrespective of whether they are monetary flows, or whether they occur between units or within a single unit. However, certain exceptions might be justified for practical reasons.

3.008. The times of recording the various types of distributive transaction are as follows:

4. General remarks concerning value added

3.013. Value added is the balancing item of the production account. It is the difference between the value of output and the value of intermediate consumption (irrespective of the output concept used, since intermediate consumption changes accordingly). It is a key item in measuring the productivity of an economy or industry. It can be accounted for on a gross basis (gross value added) or on a net basis (net value added), i.e. before or after the deduction of the consumption of fixed capital. Net value added is the only resource in the generation of income account. In line with the method for valuing output (basic price) and intermediate consumption (purchaser prices) net value added is measured at basic prices.

3.014. By deducting other taxes on production from the value added at basic prices, and adding other subsidies on production, the value added at factor cost is obtained. Net value added at factor cost constitutes the income of the factors of production.

C. COMPENSATION OF EMPLOYEES

3.015. The compensation of employees is defined as total remuneration, cash/kind, payable by an employer to an employee in return for work done by the latter during the accounting period (cf. ESA 95, 4.02). It includes: —gross wages and salaries (cash/kind), —employers' social contributions (actual and imputed).

3.016. Gross wages and salaries in cash comprise the following components: (a)direct basic wages and salaries (payable at regular intervals); (b)enhanced rates for overtime, night or weekend work, work of a particularly arduous nature, etc.; (c)cost of living and accommodation allowances; (d)wage benefits such as Christmas, end-of-year, holiday or productivity bonuses and allowances for higher grades; (e)allowances for transport to and from work (³⁹); (f)compensation for days not actually worked, paid holidays; (g)commissions, tips, attendance fees; (h)other allowances or occasional payments linked to overall company results as part of profit-sharing schemes; (i)payments made by employers contributing to asset formation by employees; (j)one-off payments to employees when they leave the enterprise, in so far as the payments are not made under a collective agreement; (k)housing allowances payable in cash by employers to their employees.

3.017. It should be stressed that the data to be entered are gross wages and salaries, including wage and salary taxes and any higher rates of these taxes and employees' social security contributions. In cases where net wages and salaries are paid by employers to their employees, therefore, they should be increased by the value of these items.

3.018. Gross wages and salaries in kind comprise goods and services made available by employers to their employees free of charge or at reduced prices for use by the employees and their families, as and when they wish, to satisfy their needs. They do not necessarily figure in the production process. Their value is the value of the benefit which they represent: the value of the goods if they are provided free of charge, or the difference between the latter value and the payments to the employees if they are provided at reduced prices These items, which are of considerable significance in the EAA, include the following components: (a)agricultural products made available to employees free of charge or at reduced prices, by way of remuneration (⁴⁰); (b)accommodation services produced for own account and provided to employees free of charge or at reduced prices (⁴¹); (c)goods and services purchased by employers, provided that these purchases fulfil the definition of wages in kind (i.e. when they do not constitute intermediate consumption). In particular, the transport of employees between their place of work and home is part of their wages in kind, unless the journeys take place during the employer's time. This category includes purchased accommodation services and children's crèches, etc. (cf. ESA 95, 4.05).

3.019. Wages and salaries in kind should be valued at their basic price or at the purchaser price (depending on whether the items are produced by the unit or purchased from outside).

3.020. Gross wages and salaries, by contrast, do not include expenditure by employers which is to their own benefit and incurred in the interest of the enterprise. The items in question are, inter alia: allowances towards/reimbursements of expenditure on travel, separation or removal incurred by employees in the course of their duties, entertainment expenses incurred by employees on behalf of the enterprise and expenditure on providing amenities at the place of work (e.g. sports and recreational facilities). Similarly, cash payments by employers to their employees for the purchase of tools or special clothing (including amounts which employees are contractually obliged to devote to such purposes) are not part of gross wages and salaries included under this heading. All these items are recorded in the intermediate consumption of employers (cf. ESA 95, 4.07).

3.021. Employers' social contributions include the value of social contributions paid by employers to ensure that their employees are covered by social welfare provisions (except employees' social contributions deducted at source from gross wages or salaries (cf. 3.017). These contributions may be actual or imputed.

3.022. Actual social contributions represent the payments made by employers, including statutory, contractual and voluntary contributions by way of insurance against risks and social hardship. These social contributions are paid to insurers (social security administrations or private insurers). Although paid directly to insurers, they are treated as a component of compensation of employees since the latter are deemed to receive the contributions and then pay them to insurance enterprises.

3.023. Imputed social contributions represent the counterpart to unfunded social benefits, paid directly by employers to their employees or former employees without involving an insurance enterprise or autonomous pension fund (⁴²) (cf. ESA 95, 4.10). These contributions are recorded during the period in which the work is performed (if they are the counterpart of compulsory social benefits) or when the benefits are provided (if they are the counterpart of voluntary social benefits).

3.024. It must be stressed that, in the EAA, if the production units are individual enterprises, the compensation of employees does not include the remuneration for work carried out on the holding by the holder or non-salaried members of his family; these persons share in the mixed income, which is the balance of the generation of income account for individual enterprises. If, however, the production units are part of a corporation (cf. 5.09 and 5.10), all remuneration has to be recorded as compensation of employees.

D. TAXES ON PRODUCTION AND IMPORTS

3.025. Taxes on production and imports are compulsory, unrequited payments, in cash or in kind which are levied by general government, or by the institutions of the European Union, in respect of the production and importation of goods and services, the employment of labour, the ownership or use of land, buildings or other assets used in production. These taxes are payable whether or not profits are made (cf. ESA 95, 4.14).

3.026. Taxes on production are divided into: —taxes on products: —other taxes on production.

E. SUBSIDIES

3.051. Subsidies are current unrequited payments which general government or the institutions of the European Union make to resident producers, with the objective of influencing their levels of production, their prices or the remuneration of the factors of production. Other non-market producers can receive other subsidies on production only if those payments depend on general regulations applicable to market and non-market producers as well. By convention, subsidies on products are not recorded on other non-market output (cf. ESA 95, 4.30).

3.052. Subsidies are classified into: —subsidies on products: —other subsidies on production.

F. PROPERTY INCOME

1. Definition

3.070. Property income is the income receivable by the owner of a financial asset or tangible non-produced asset in return for providing funds to, or putting the tangible non-produced asset at the disposal of, another institutional unit (ESA 95, 4.41).

3.071. The ESA 95 classifies property incomes in the following way: —interest, —distributed incomes of corporations (dividends and withdrawals from income of quasi-corporations), —reinvested earnings on direct foreign investment, —property income attributed to insurance policy holders, —rents (on land and subsoil assets).

3.072. The EAA are concerned only with property income accounted for in the entrepreneurial income account (cf. sequence of accounts, 1.38 to 1.48). This account records on the resources side income received by units as a result of their direct participation in the production process (operating surplus/mixed income) and receivable property income received. It records on the uses side payable property income linked to agricultural activities (and inseparable non-agricultural secondary activities). Generally speaking, the entrepreneurial income account can only be calculated for the institutional sectors, although it may be calculated for an industry if certain property income can be attributed to local KAUs.

3.073. Only three types of property income can be of relevance to the EAA: interest, rents and property income attributed to insurance policy holders.

2. Interest

3.074. Interest is the charges payable on a capital loan. It includes payments to be made at intervals, fixed in advance, of a percentage (fixed or otherwise) of the value of the loan. In the EAA, interest is the counterpart of loans granted to meet the needs of agricultural holdings (for example, with a view to acquiring land, buildings, machines, vehicles or other equipment, even if these are used in the context of inseparable non-agricultural secondary activities).

3.075. Interest also includes payments relating to leasing of fixed capital goods for their use in agriculture (possibly including land). Only the rent part (treated as an imputed loan granted by the lessor to the lessee) paid by the lessee is included under payment of interest (the capital part is recorded in the financial account).

3.076. It should be noted that notional interest on fixed equity capital in agricultural holdings is not recorded under this heading; it appears as a component of the income of the agricultural enterprise (cf. 5.06). Similarly, the amount to be recorded as interest payable includes interest-rate subsidies to agriculture.

3.077. Interest received in connection with agricultural activities by units belonging to corporate agricultural enterprises should also be recorded. Interest received by individual enterprises is excluded from the measure of entrepreneurial income of the agricultural industry, since it was felt that the majority of interest-bearing assets are not linked to the agricultural activity of the units and because it is very difficult to distinguish family assets from assets used in production (⁴⁹).

3.078. Interest is recorded in line with the accrual principle, i.e. as accrued interest (not as interest paid).

3.079. The value of the services provided by financial intermediaries being allocated among different customers, the actual payments or receipts of interest to or from financial intermediaries need to be adjusted to eliminate the margins that represent the implicit charges made by financial intermediaries. The estimated value of these costs should be subtracted from the interest paid by borrowers to financial intermediaries and added to the interest received by depositors. The costs are regarded as remuneration for services rendered by financial intermediaries to their clients and not as an interest payment (see 2.107.1 and 2.108(i); ESA 95, Appendix I, 4.51).

3. Rents (on land and underground deposits)

3.080. Rents correspond to payments made to the owner of non-produced tangible assets (land and underground deposits) in return for making assets available to another unit. In the EAA, this item corresponds mainly to rents paid on land by holders to the landowners (⁵⁰).

3.081. Where the owner pays certain charges directly linked to agricultural activity (property tax, the cost of maintaining land, etc.), the rents to be recorded should be reduced accordingly. These charges are accounted for as other taxes on production (in the case of property tax) or intermediate consumption (in the case of land maintenance).

3.082. Rents on land do not include the rentals of buildings or dwellings situated on it; those rentals are treated as the payment for a market service provided by the owner to the tenant of the building or dwelling, and are to be recorded in the accounts as the intermediate consumption of services or as final consumption expenditure (household accounts), depending on the type of tenant unit. If there is no objective basis on which to split the payment between rent on land and rental on the buildings situated on it, the whole amount is to be recorded as rent on land. This rule is an adapted version of the ESA recommendation (cf. ESA 95, 4.73) (⁵¹).

3.083. All rent on land should be recorded under this heading whether the land is rented for less or more than one year.

3.084. Rents do not include: —the rental value of dwellings contained in these buildings; this is remuneration for a market service which is a component of private consumption (i.e. the occupant pays the rent from his net residual income), —rents paid for the professional use of non-residential buildings (cf. 2.108(a)), —depreciation of buildings, —current maintenance expenditure on buildings (cf. 2.106), —property tax (cf. 3.048(a)), —expenses relating to buildings insurance (cf. 2.108(g)).

3.085. In the case of land and buildings used by the owner, there is no need to account for notional rents. The rents corresponding to non-produced intangible assets such as patented assets and production rights (milk quotas), should be recorded as intermediate consumption (cf. 2.108(n)).

4. Property income attributed to insurance policy holders (not covered by the EAA)

3.086. Property income attributed to insurance policy holders corresponds to total primary incomes received from the investment of insurance technical reserves and pension funds (cf. ESA 95, 4.68). These technical reserves are treated as assets belonging to the insured. The ESA 95 provides for the calculation of entrepreneurial income to include, as resources, incomes received from the investment of insurance technical reserves. This income is attributed to the insured as property income attributed to insurance policy holders. The latter is treated as being paid back to the insurance enterprises in the form of additional premiums, since, in practice, the income is retained by them (cf. ESA 95, 4.69).

3.087. Property income attributed to insurance policy holders is not covered by the EAA. In fact, in order to be meaningful, a measure for the income of agricultural activity should: —include all flows related to non-life insurance (value of the service, income attributed to insurance policy holders, net premiums and claims): in this case, the income measured appears after description of all transactions of redistribution (between insurance policy holders and insurance enterprises and between periods) linked to non-life insurance, or —only take into account the value of the service (which is definitely acquired from the insurance enterprise) (cf. 2.108. (g)): in this case, the income measured appears before description of all these transactions of redistribution. The EAA have opted for the second solution.

G. CAPITAL TRANSFERS

3.088. The only capital transfers recorded in the EAA are receivable capital transfers, i.e. investment grants and other capital transfers. These distributive transactions are recorded in the capital account (cf. 1.41 and 1.48).

H. CONSUMPTION OF FIXED CAPITAL

3.098. The foreseeable wear and tear and obsolescence of fixed capital goods over the accounting period represent a charge which is implicit so long as the item is not replaced by a new acquisition. This wear and tear and obsolescence are measured by fixed capital consumption. Its inclusion under ‘uses’ in the production account allows expenditure on fixed capital formation to be distributed over the entire period of use.

3.099. If the economic life of the means of production is more than one year, the consumption of fixed capital represents the amount of fixed capital used up in the production process during the accounting period as a result of normal wear and tear and foreseeable obsolescence (⁵²). If, on the other hand, the means of production used have an economic life of less than one year, the wear and tear is recorded as intermediate consumption.

3.100. All fixed capital goods (i.e. products) are the subject of consumption of fixed capital (although some flexibility is required in specific cases; cf. 3.105). This includes tangible and intangible fixed assets, major improvements to non-produced assets and the costs associated with the transfer of ownership. The consumption of fixed capital is not calculated for either stocks or work in progress, or for non-produced assets such as land, underground deposits and patented assets.

3.101. The consumption of fixed capital is only one component of the change in the value of assets (together with GFCF, other changes in volume and nominal holding gains (net of losses); cf. 2.134). In particular, the consumption of fixed capital does not include other changes in the volume of assets (other than those due to GFCF): —exceptional losses due to disasters (earthquakes, war, drought, epidemics, etc.), —unforeseeable obsolescence, which is the difference between provisions made in the consumption of fixed capital for normal wear and tear and actual losses, accidental events causing depreciation greater than that accounted for on the basis of the anticipated consumption of fixed capital, —changes in the classification of fixed assets, i.e. changes in their economic use, as in the case of farming land or buildings converted for private use or a different economic use.

3.102. The consumption of fixed capital, which has to be distinguished from depreciation calculated for fiscal purposes and that appearing in the company accounts, should be evaluated on the basis of stocks of fixed capital goods and the (average) probable economic life of the various categories of goods in question. If no information on the stock of fixed capital goods is available, it is recommended that it be calculated using the perpetual inventory method and that its acquisition price in the reference period be evaluated (i.e. the replacement value of the assets during the reference year, not on the basis of historic values). The replacement value is ascertained from the prices which holders have to pay, during any given reference period, to replace a fixed capital good by a new one which resembles it as closely as possible. It is necessary to proceed in this manner in order to calculate net domestic product correctly.

3.103. The consumption of fixed capital is calculated using the linear depreciation method, i.e. by attributing the value of the fixed capital good in question evenly throughout the period in which it is used. The rate of depreciation is defined by the formula 100/n, where ‘n’ represents the probable economic life of this category in years (‘n’ may vary from one country to another and over time). The rate of depreciation can, in certain cases, be geometric. In view of the use of the current replacement price and the fixed rate of consumption of fixed capital, the consumption of fixed capital varies from year to year unless the purchaser prices remain unchanged throughout the entire normal economic life of the asset.

3.104. The consumption of fixed capital in the form of the costs associated with the transfer of the ownership of produced tangible and intangible assets should be calculated on the basis of an average economic life, conventionally put at one year.

3.105. The consumption of fixed capital in animals corresponds to the anticipated decline in the productivity of animals if they are used for production purposes (milk, wool, etc.), which is reflected in the current value of future income obtainable form these animals. As the value of future income from productive animals declines over time, the animals will have to become the object of consumption of fixed capital. Given the practical difficulties of calculating the consumption of fixed capital for this type of asset, however, it was felt that the consumption of fixed capital should not be calculated for productive animals. The decision to exclude animals from this calculation was based on the following considerations: —depreciation in terms of productivity and economic value is linked to age but is not a direct, regular and continuous function of it, as is otherwise implicitly the case for depreciation, —the withdrawal of animals from the productive herd may be a function of the economic environment (changes in the prices obtainable for slaughtered animals and the prices of animal feedingstuffs, etc.).

3.106. Although these considerations are not a hindrance to calculating the consumption of fixed capital for livestock, they do make such calculations very complicated in terms of adequate definitions of average life and rates of consumption of fixed capital. Otherwise, it would be difficult to ensure consistency between forecast and actual average depreciation of animals. This treatment also ensures compatibility between the EAA and the ESA 95 (cf. ESA 95, 6.03) and microeconomic accounts of the farm accountancy data network and obviates the need to distinguish between livestock having the character of fixed capital goods and livestock having the character of stock.

IV.   AGRICULTURAL LABOUR INPUT

4.01. Agricultural employment covers all persons — both employees and self-employed — providing salaried and non-salaried labour input to the resident units performing characteristic activities (agricultural and inseparable non-agricultural secondary activities) of the agricultural industry of the EAA. All persons of retiring age who continue to work on the holding are included in agricultural employment. Persons having not reached school-leaving age are not included.

4.02. Employees are defined as all persons who, by agreement, work for another resident institutional unit (which is an agricultural unit) and receive a remuneration (recorded as compensation of employees, cf. Section C of Chapter III). The labour input provided by employees is referred to as salaried labour input. By convention, labour of non-family workers is classified as salaried labour input. When an agricultural unit is organised as a conventional company (cf. 5.09), all the labour input performed is classified as salaried labour input.

4.03. Self-employed persons are defined as persons who are the sole owners, or joint owners, of the unincorporated enterprises in which they work. The labour input provided by self-employed persons is referred to as non-salaried labour input. Members of the holder's family who do not receive a compensation which is predefined and calculated according to their actual work are classified as self-employed.

4.04. In the case of specific companies (cf. Section B of Chapter V), the labour input of workers is treated in the same manner as in unincorporated enterprises (sole proprietorships). The directors/shareholders share in the mixed income of the unit (non-salaried labour input), whilst their employees receive a remuneration (salaried labour input).

4.05. Total hours worked represent the aggregate number of hours actually worked as an employee or self-employed for resident agricultural units, during the accounting period.

4.06. A description of what total hours worked include and exclude can be found in ESA 95 (11.27 and 11.28). Total hours worked do not cover work for the private household of the holder or manager.

4.07. Annual work units (AWUs) are defined as full-time equivalent employment (corresponding to the number of full-time equivalent jobs), i.e. as total hours worked divided by the average annual number of hours worked in full-time jobs within the economic territory.

4.08. One person cannot represent more than one AWU. This constraint holds even if someone is working in the agricultural industry for more than the number of hours defining full time.

4.09. The agricultural labour input of persons who work less than full time on agricultural holdings is calculated as the quotient of the number of hours actually worked (per week or per year) and the number of hours actually worked (per week or per year) in a full-time job.

4.10. The number of hours actually worked in a full-time job is not necessarily the same for all categories of labour. It is possible that the number of hours comprising a full-time job used for self-employed persons is greater than that used for employees. For in the latter case, the maximum number of hours to be worked are laid down in a contract.

4.11. The number of hours worked by a person is not to be adjusted by some coefficient because of age (i.e. under 16 or over 65) or gender. Equality must be applied. ‘Full-time’ is determined by the number of hours worked and not as an evaluation of an amount and/or a quality produced.

4.12. Unless there are reasons for preferring alternative sources, the AWU representing full-time work in agriculture should be based on the current definition in the Community surveys on the structure of agricultural holdings, as the minimum hours required by the national provisions governing contracts of employment. If these do not indicate the number of annual hours then 1 800 hours is to be taken as the minimum figure (225 working days of eight hours per day).

V. AGRICULTURAL INCOME INDICATORS

5.01. One of the principal objectives of the EAA is to measure agricultural income and changes therein.

A.	DEFINITION OF INCOME AND BALANCING ITEMS5.02. Income can be defined as the maximum amount which the beneficiary can consume over a given period without reducing the volume of his/her assets. It can also be defined as being the total of the consumption and change in value of assets held over a given period, all other things being equal, as income represents what could have been consumed. The distinction made in the ESA 95 between current accounts and the capital account enables maximum potential consumption to be studied using the measure of consumption and saving in the current accounts and that of the change in the value of assets in the capital account. 5.03. The sequence of accounts (cf. 1.43) of the agricultural industry makes it possible to calculate three balancing items which can be used as an income aggregate for the agricultural industry: net value added, net operating surplus (net mixed income) and net entrepreneurial income. The relationship between these items is set out in the following: Production account Generation of income account Entrepreneurial income account P.1 Output B.1n Net value added B.2n B.3n Net operating surplus/net mixed income P.2 - Intermediate consumption D.1 - Compensation of employees D.41 + Interest received (1) K.1 - Consumption of fixed capital D.29 - Other taxes on production D.41 - Interest paid D.39 + Other subsidies on production D.45 - Rent paid B.1n = Net value added B.2n B.3n = Net operating surplus/net mixed income B.4n = ‘Net entrepreneurial income’ D.29 - Other taxes on production D.39 + Other subsidies on production = Net value added at factor cost/factor income (1)Only interest received by agricultural units organised as companies. 5.04. Net value added of the industry measures the value created by all the agricultural LKAUs, after the consumption of fixed capital. Given that output is valued at basic prices and intermediate consumption is valued at purchaser prices, net value added contains subsidies on products less taxes on products. Net value added at factor cost (defined as net value added at basic prices less other taxes on production plus other subsidies on production) measures the remuneration of all factors of production (land, capital, labour) and can be termed ‘factor income’, as it represents all the value generated by a unit engaged in a production activity. 5.05. Net operating surplus measures the yield from land, capital and non-salaried labour. It is the balance of the generation of income account which indicates the distribution of income between the factors of production and the general government sector. The net value added and net operating surplus are calculated for the industries. 5.06. Net entrepreneurial income, obtained by adding the interest received by agricultural units organised as companies to the net operating surplus and then deducting rent (i.e. farm and land rents) and interest payments, measures the compensation of non-salaried labour, remuneration from land belonging to units and the yield arising from the use of capital. It is similar to the corporate-accounting concept of current profit before distribution and taxes on income. Although net entrepreneurial income is not always calculated for industries, it can generally be evaluated for the agricultural industry as it is possible to determine the part of interest and rents linked exclusively to agricultural activity (and to secondary, non-agricultural activities). 5.07. In the case of sole proprietorships, entrepreneurial income represents, on the one hand, the compensation of the work performed by the agricultural holder (and the work of non-salaried family members) and, on the other hand, the income remaining with the enterprise, without it being possible to separate these two components (the term ‘holder’ as used here naturally refers to all persons who run sole proprietorships in this industry). It is, therefore, a mixed income. Like any other industry, however, the agricultural industry comprises production units that belong to different types of institutional units: companies and sole proprietorships. There is a difference between entrepreneurial income generated by sole proprietorships and that generated by units organised as companies. In the latter case, it represents ‘straight’ entrepreneurial income as it excludes any labour income (compensation of work has to be regarded as compensation of paid labour even if it relates to the administrators and shareholders of the company). 5.08. It has to be borne in mind that the income aggregates, obtained as balancing items of the sequence of accounts of the industry, are not indicators of total income or of the disposable income of households employed in agriculture, because the latter, in addition to their purely agricultural incomes, may also have income from other sources (non-agricultural activities, remuneration, social benefits, income from property). In other words, agricultural income must not be regarded as farmers' income. Moreover, this measure of income relates to the income generated by agricultural activities (as well as inseparable non-agricultural secondary activities) over a given accounting period, even though in certain cases the corresponding revenues will not be received until a later date. It does not, therefore, constitute the income effectively received in the course of the accounting period itself.
5.02.	Income can be defined as the maximum amount which the beneficiary can consume over a given period without reducing the volume of his/her assets. It can also be defined as being the total of the consumption and change in value of assets held over a given period, all other things being equal, as income represents what could have been consumed. The distinction made in the ESA 95 between current accounts and the capital account enables maximum potential consumption to be studied using the measure of consumption and saving in the current accounts and that of the change in the value of assets in the capital account.
5.03.	The sequence of accounts (cf. 1.43) of the agricultural industry makes it possible to calculate three balancing items which can be used as an income aggregate for the agricultural industry: net value added, net operating surplus (net mixed income) and net entrepreneurial income. The relationship between these items is set out in the following: Production account Generation of income account Entrepreneurial income account P.1 Output B.1n Net value added B.2n B.3n Net operating surplus/net mixed income P.2 - Intermediate consumption D.1 - Compensation of employees D.41 + Interest received (1) K.1 - Consumption of fixed capital D.29 - Other taxes on production D.41 - Interest paid D.39 + Other subsidies on production D.45 - Rent paid B.1n = Net value added B.2n B.3n = Net operating surplus/net mixed income B.4n = ‘Net entrepreneurial income’ D.29 - Other taxes on production D.39 + Other subsidies on production = Net value added at factor cost/factor income (1)Only interest received by agricultural units organised as companies.
Production account	Generation of income account	Entrepreneurial income account
P.1		Output	B.1n		Net value added	B.2n B.3n		Net operating surplus/net mixed income
P.2	-	Intermediate consumption	D.1	-	Compensation of employees	D.41	+	Interest received (1)
K.1	-	Consumption of fixed capital	D.29	-	Other taxes on production	D.41	-	Interest paid
	D.39	+	Other subsidies on production	D.45	-	Rent paid
B.1n	=	Net value added	B.2n B.3n	=	Net operating surplus/net mixed income	B.4n	=	‘Net entrepreneurial income’
D.29	-	Other taxes on production
D.39	+	Other subsidies on production
	=	Net value added at factor cost/factor income
(1)Only interest received by agricultural units organised as companies.
5.04.	Net value added of the industry measures the value created by all the agricultural LKAUs, after the consumption of fixed capital. Given that output is valued at basic prices and intermediate consumption is valued at purchaser prices, net value added contains subsidies on products less taxes on products. Net value added at factor cost (defined as net value added at basic prices less other taxes on production plus other subsidies on production) measures the remuneration of all factors of production (land, capital, labour) and can be termed ‘factor income’, as it represents all the value generated by a unit engaged in a production activity.
5.05.	Net operating surplus measures the yield from land, capital and non-salaried labour. It is the balance of the generation of income account which indicates the distribution of income between the factors of production and the general government sector. The net value added and net operating surplus are calculated for the industries.
5.06.	Net entrepreneurial income, obtained by adding the interest received by agricultural units organised as companies to the net operating surplus and then deducting rent (i.e. farm and land rents) and interest payments, measures the compensation of non-salaried labour, remuneration from land belonging to units and the yield arising from the use of capital. It is similar to the corporate-accounting concept of current profit before distribution and taxes on income. Although net entrepreneurial income is not always calculated for industries, it can generally be evaluated for the agricultural industry as it is possible to determine the part of interest and rents linked exclusively to agricultural activity (and to secondary, non-agricultural activities).
5.07.	In the case of sole proprietorships, entrepreneurial income represents, on the one hand, the compensation of the work performed by the agricultural holder (and the work of non-salaried family members) and, on the other hand, the income remaining with the enterprise, without it being possible to separate these two components (the term ‘holder’ as used here naturally refers to all persons who run sole proprietorships in this industry). It is, therefore, a mixed income. Like any other industry, however, the agricultural industry comprises production units that belong to different types of institutional units: companies and sole proprietorships. There is a difference between entrepreneurial income generated by sole proprietorships and that generated by units organised as companies. In the latter case, it represents ‘straight’ entrepreneurial income as it excludes any labour income (compensation of work has to be regarded as compensation of paid labour even if it relates to the administrators and shareholders of the company).
5.08.	It has to be borne in mind that the income aggregates, obtained as balancing items of the sequence of accounts of the industry, are not indicators of total income or of the disposable income of households employed in agriculture, because the latter, in addition to their purely agricultural incomes, may also have income from other sources (non-agricultural activities, remuneration, social benefits, income from property). In other words, agricultural income must not be regarded as farmers' income. Moreover, this measure of income relates to the income generated by agricultural activities (as well as inseparable non-agricultural secondary activities) over a given accounting period, even though in certain cases the corresponding revenues will not be received until a later date. It does not, therefore, constitute the income effectively received in the course of the accounting period itself.

VI.   VALUATION OF EAA AT CONSTANT PRICES

A. PRICE AND VOLUME MEASURES

6.01. For the purposes of economic analysis, when looking at how values change, it is useful to distinguish between those value changes due to changes in volume and those due to changes in price. The ESA 95 (10.15 to 10.23) clearly states that the price component should only include changes relating to prices and that all other changes should be included in the volume component. Thus, differences in quality between products (physical characteristics, types of retail outlet, etc.) are to be taken into account as volume and not price changes.

6.02. For many goods and services there exist several variations which differ in quality. The ESA 95 defines several factors which give rise to differences in quality, but the most important for the EAA is that linked to physical characteristics. This recognises that within the definition of a given product, there may be physical differences which imply that the physical units (e.g. one tonne) are not identical in an economic sense. An example of this is with two tonnes of grain sold in two consecutive years. In year one all the grain is of milling quality, in year two, less than half is of milling quality, the rest is sold for feed. This means that the average quality of the grain has fallen. The other difference in quality, important for the EAA, is that of a shift in sales of a product between two differently priced markets, e.g. domestic and external, industrial use and sales to consumers (cf. ESA 95, 10.15 to 10.18).

6.03. The indicators of volume and price used to compile data at constant prices have to take account of changes in quality. It is therefore recommended that work is conducted at the greatest level of detail in order to get as close as possible to entirely homogeneous elementary products. If the elementary products are entirely homogeneous, changes in volume can be estimated on the basis of changes in quantity.

6.04. However, statistical information is often only available at a more aggregated level and therefore no longer concerns strictly homogeneous products. In this case, the ESA 95 (10.32) states that it is preferable to deflate the value for the current year by a suitable price index to estimate changes in volume.

6.05. The level of detail for which the index used is assumed to be an elementary index (the product under investigation is thus considered as homogeneous) is called the elementary level of aggregation. In the EAA, the elementary level of aggregation corresponds at least to the most disaggregated level of the nomenclature within the data transmission table. A greater level of detail is, however, desirable for compiling price indices.

6.06. For each aggregate of goods and services shown in the accounts, price and quantity measures have to be constructed so that value index = price index × volume index This means that each and every change in the value of a given flow must be attributed to either a price change or a change in volume or a combination of the two (cf. ESA 95, 10.13).

6.07. The systematic breakdown of the changes in current value into the components ‘changes in price’ and ‘changes in volume’ is restricted to flows representing transactions of goods and services and to elements concerned in the valuation of these transactions (output, intermediate consumption, consumption of fixed capital, gross value added, net value added, GFCF, change in stocks, taxes and subsidies on products).

B. PRINCIPLES AND METHOD FOR COMPILING EAA AT CONSTANT PRICES

1. Choice of index formula

6.08. The ESA 95 (10.62) expresses a preference for using Fischer indices. These indices present a certain number of disadvantages, however, including the fact that they are non-additive and that they demand a considerable quantity of basic data. For this reason, the ESA 95 grants that an acceptable method is to use a Laspeyres-type index of volume and a Paasche-type index of prices.

2. Base year

6.10. Changes in volume are measured using Laspeyres-type indices: changes in the quantities of elementary series are therefore weighted by the value in the base year. Changes in price are measured using Paasche-type indices: changes in the prices of elementary series are therefore weighted by the value in the current year at the prices for the base year.

6.11. The base year is the year from which the prices are used to compile the weighting scheme.

6.12. The most accurate way to measure changes in volume from one year to another is to use the most recent base year available. This approach guarantees that weightings are relatively up-to-date and avoids problems linked to weighting products that are no longer produced and new products that have emerged. It is for this reason that the EAA measures changes in volume using the weightings for the preceding year.

3. Presenting series in relation to a reference year

6.13. The year used for submitting and presenting data at constant prices may be different from the base year; it is called the reference year. In a series of indices, the reference year is the one that takes the value 100.

6.14. Series of volume indices in the prices of a reference year are obtained by chaining indices calculated in the prices of the preceding year (cf. ESA 95, 10.64).

6.15. It is important that a change of reference year has no effect on the changes in volume with respect to the preceding year. It is for this reason that EAA data are presented in relation to a fixed reference year by re-referencing each variable separately, regardless of whether these are aggregates or elementary indices.

6.16.	Example: Let us consider two homogeneous elementary products, A and B. The following series are based on the price structure for the preceding year: The volume and price indices for the whole (A+B) depend on the weighting given to each product, A and B. 90P90 90-91 volume index 91P90 90-91 price index 91P91 91-92 volume index 92P91 92-91 price index 92P92 A 100 105,0 105 110,0 115 102,0 117 108,0 126 B 300 110,0 330 95,0 314 90,0 283 105,0 297 Total 400 108,8 435 98,6 429 93,2 400 105,8 423 If these series are expressed in relation to a fixed reference year (e.g. 1990), the only way to retain the same n/n-1 volume indices is to chain the indices separately. This gives the following series (base equal to 100 in 1990): 1990 1991 1992 A 100 105,0 107,1 B 100 110,0 99,0 Total 100 108,8 101,4 (101,4 = 108,893,2/100) The values at constant prices expressed in relation to the reference year 1990 are: 1990 1991 1992 A 100 105 107,1 B 300 330 297,0 Total 400 435 405,6 (405,6 = 400101,4/100) As a result, the account is no longer additive. Adding the values at constant prices for A and B gives the following series: 1990 1991 1992 A + B 400 435 404,1 Other than in the year following the reference year, the re-referenced series are not additive.
	90P90	90-91 volume index	91P90	90-91 price index	91P91	91-92 volume index	92P91	92-91 price index	92P92
A	100	105,0	105	110,0	115	102,0	117	108,0	126
B	300	110,0	330	95,0	314	90,0	283	105,0	297
Total	400	108,8	435	98,6	429	93,2	400	105,8	423
	1990	1991	1992
A	100	105,0	107,1
B	100	110,0	99,0
Total	100	108,8	101,4
(101,4 = 108,8*93,2/100)
	1990	1991	1992
A	100	105	107,1
B	300	330	297,0
Total	400	435	405,6
(405,6 = 400*101,4/100)
	1990	1991	1992
A + B	400	435	404,1

6.17. According to ESA 95 (10.67), the non-additive constant price data are published without any adjustment (⁵⁵). This is also the approach taken by the EAA. It is to be explained to users, however, that the tables are not additive.

4. Calculation of value added at constant prices

6.18. Value added constitutes the balancing item of the production account. As such, it is not possible to split value added directly into a price component and a volume component. The theoretically correct method for calculating value added at constant prices is to carry out ‘double deflation’ (cf. ESA 95, 10.27 - 10.28).

6.19. Gross value added expressed in the prices of the preceding year is therefore defined as the difference between output measured in the prices of the preceding year and intermediate consumption measured in the prices of the preceding year. Net value added in the prices of the preceding year is defined as the difference between gross value added in the prices of the preceding year and consumption of fixed capital in the prices of the preceding year. The value added in prices of a fixed reference year is obtained by re-referencing.

6.20.	Example: A series of current values and values in the prices of the preceding year (volumes) concerning output and intermediate consumption is set out below: 95P95 96P95 96P96 97P96 97P97 Output 150 160 170 180 200 Intermediate consumption 40 30 35 40 45 The value added in volume terms is obtained by deducting the volume of intermediate consumption from the volume of output. The following series is derived: 95P95 96P95 96P96 97P96 97P97 Gross value added 110 130 135 140 155 In this way, the following volume indices in the prices of the preceding year are obtained: 1996 1997 Gross value added 118,2 103,7 (118,2 = 130/110100) (103,7 = 140/135100) The gross value added of year n in 1995 prices is derived by multiplying the current value for 1995 by the volume chain index. VA 96 (in 1995 prices) = 1101,182 = 130 VA 97 (in 1996 prices) = 1101,182*1,037 = 135
	95P95	96P95	96P96	97P96	97P97
Output	150	160	170	180	200
Intermediate consumption	40	30	35	40	45
	95P95	96P95	96P96	97P96	97P97
Gross value added	110	130	135	140	155
	1996	1997
Gross value added	118,2	103,7
(118,2 = 130/110100) (103,7 = 140/135100)

5. Breakdown of taxes and subsidies on products into volume and price components

6.21. The breakdown of valuations at basic price into respective volume and price components presupposes that this breakdown also applies to the taxes and subsidies on products. The choice made in the EAA is the following one:

6.22. The volume index of the subsidy (or the tax) on product is identical to the volume index of the output at the producer price. In this case, the volume index of the output is the same whether expressed in the producer price or in the basic price.

6.23. This solution has another advantage: the volume index is independent of the method of valuation. Consequently, the interpretation of the price and volume indices at the basic price, is straightforward: for a perfectly homogeneous basic product, the volume index is identical to the quantity index; the price index reflects the change in the average basic price.

6.24.	Example: For a given product, the value of output at the producer price in year n is 1 000; the value of output in year n+1 is 900. The volume index of output is 102. This product is subsidised. The value of the subsidy for year n is 100; the value of the subsidy for year n+1 is 150. The volume/price breakdown of the subsidy is carried out in the following way: Value n n+1/n volume index Volume n+1 n+1/n price index Value n+1 Output at producer prices 1 000 102,0 1 020 88,2 900 Subsidy on products 100 102,0 102 147,0 150 Output at basic prices 1 100 102,0 1 122 93,6 1 050 The volume index of the subsidy is the same as that of the output at the producer price.
	Value n	n+1/n volume index	Volume n+1	n+1/n price index	Value n+1
Output at producer prices	1 000	102,0	1 020	88,2	900
Subsidy on products	100	102,0	102	147,0	150
Output at basic prices	1 100	102,0	1 122	93,6	1 050

ANNEX II

For each of the output items (items 01 to 18, including sub-items), the value at basic prices as well as its components (value at producer prices, subsidies on products and taxes on products) have to be transmitted.

The data for production account and for GFCF have to be transmitted at both current and constant prices.

All values should be expressed in millions of units of the national currency. Labour input should be expressed in 1 000 AWUs.

1. Production account

Item	List of variables	Transmission concerning reference year n
November year n (estimates)	January year n+1 (estimates)	September year n+1
01	Cereals (including seeds)	X	X	X
01.1	Wheat and spelt	X	X	X
01.1/1	Soft wheat and spelt	—	—	X
01.1/2	Durum wheat	—	—	X
01.2	Rye and meslin	X	X	X
01.3	Barley	X	X	X
01.4	Oats and summer cereal mixtures	X	X	X
01.5	Grain maize	X	X	X
01.6	Rice	X	X	X
01.7	Other cereals	X	X	X
02	Industrial crops	X	X	X
02.1	Oil seeds and oleaginous fruits (including seeds)	X	X	X
02.1/1	Rape and turnip rape seed	—	—	X
02.1/2	Sunflower	—	—	X
02.1/3	Soya	—	—	X
02.1/4	Other oleaginous products	—	—	X
02.2	Protein crops (including seeds)	X	X	X
02.3	Raw tobacco	X	X	X
02.4	Sugar beet	X	X	X
02.5	Other industrial crops	X	X	X
02.5/1	Fibre plants	—	—	X
02.5/2	Hops	—	—	X
02.5/3	Other industrial crops: others	—	—	X
03	Forage plants	X	X	X
03.1	Fodder maize	—	—	X
03.2	Fodder root crops (including forage beet)	—	—	X
03.3	Other forage plants	—	—	X
04	Vegetables and horticultural products	X	X	X
04.1	Fresh vegetables	X	X	X
04.1/1	Cauliflower	—	—	X
04.1/2	Tomatoes	—	—	X
04.1/3	Other fresh vegetables	—	—	X
04.2	Plants and flowers	X	X	X
04.2/1	Nursery plants	—	—	X
04.2/2	Ornamental plants and flowers (including Christmas trees)	—	—	X
04.2/3	Plantations	—	—	X
05	Potatoes (including seeds)	X	X	X
06	Fruits	X	X	X
06.1	Fresh fruit	X	X	X
06.1/1	Dessert apples	—	—	X
06.1/2	Dessert pears	—	—	X
06.1/3	Peaches	—	—	X
06.1/4	Other fresh fruit	—	—	X
06.2	Citrus fruits	X	X	X
06.2/1	Sweet oranges	—	—	X
06.2/2	Mandarins	—	—	X
06.2/3	Lemons	—	—	X
06.2/4	Other citrus fruits	—	—	X
06.3	Tropical fruit	X	X	X
06.4	Grapes	X	X	X
06.4/1	Dessert grapes	—	—	X
06.4/2	Other grapes	—	—	X
06.5	Olives	X	X	X
06.5/1	Table olives	—	—	X
06.5/2	Other olives	—	—	X
07	Wine	X	X	X
07.1	Table wine	—	—	X
07.2	Quality wine	—	—	X
08	Olive oil	X	X	X
09	Other crop products	X	X	X
09.1	Vegetable materials used primarily for plaiting	—	—	X
09.2	Seeds	—	—	X
09.3	Other crop products: others	—	—	X
10	Crop output (01 to 09)	X	X	X
11	Animals	X	X	X
11.1	Cattle	X	X	X
11.2	Pigs	X	X	X
11.3	Equines	X	X	X
11.4	Sheep and goats	X	X	X
11.5	Poultry	X	X	X
11.6	Other animals	X	X	X
12	Animal products	X	X	X
12.1	Milk	X	X	X
12.2	Eggs	X	X	X
12.3	Other animal products	X	X	X
12.3/1	Raw wool	—	—	X
12.3/2	Silkworm cocoons	—	—	X
12.3/3	Other animal products: others	—	—	X
13	Animal output (11+12)	X	X	X
14	Agricultural goods output (10+13)	X	X	X
15	Agricultural services output	X	X	X
15.1	Agricultural services	—	—	X
15.2	Renting of milk quota	—	—	X
16	Agricultural output (14+15)	X	X	X
17	Non-agricultural secondary activities (inseparable)	X	X	X
17.1	Processing of agricultural products	X	X	X
17.2	Other inseparable secondary activities (goods and services)	X	X	X
18	Output of the agricultural industry (16+17)	X	X	X
19	Total intermediate consumption	X	X	X
19.01	Seeds and planting stock	X	X	X
19.02	Energy; lubricants	X	X	X
19.02/1	—  electricity	—	—	X
19.02/2	—  gas	—	—	X
19.02/3	—  other fuels and propellants	—	—	X
19.02/4	—  other	—	—	X
19.03	Fertilisers and soil improvers	X	X	X
19.04	Plant protection products and pesticides	X	X	X
19.05	Veterinary expenses	X	X	X
19.06	Animal feedingstuffs	X	X	X
19.06/1	—  feedingstuffs supplied by other agricultural holdings	X	X	X
19.06/2	—  feedingstuffs purchased from outside the agricultural industry	X	X	X
19.06/3	—  feedingstuffs produced and consumed by the same holding	X	X	X
19.07	Maintenance of materials	X	X	X
19.08	Maintenance of buildings	X	X	X
19.09	Agricultural services	X	X	X
19.10	Financial intermediation services indirectly measured (FISIM)	X	X	X
19.11	Other goods and services	X	X	X
20	Gross value added at basic prices (18-19)	X	X	X
21	Fixed capital consumption	X	X	X
21.1	Equipment	—	—	X
21.2	Buildings	—	—	X
21.3	Plantations	—	—	X
21.4	Others	—	—	X
22	Net value added at basic prices (20-21)	X	X	X

2. Generation of income account

Item	List of variables	Transmission concerning reference year n
November year n (estimates)	January year n+1 (estimates)	September year n+1
23	Compensation of employees	X	X	X
24	Other taxes on production	X	X	X
25	Other subsidies on production	X	X	X
26	Factor income (22-24+25)	X	X	X
27	Operating surplus/mixed income (22-23-24+25)	X	X	X

3. Entrepreneurial income account

Item	List of variables	Transmission concerning reference year n
November year n (estimates)	January year n+1 (estimates)	September year n+1
28	Rents and other real estate rental charges to be paid	X	X	X
29	Interest paid	X	X	X
30	Interest received	X	X	X
31	Entrepreneurial income (27-28-29+30)	X	X	X

4. Elements of the capital account

Item	List of variables	Transmission concerning reference year n
November year n (estimates)	January year n+1 (estimates)	September year n+1
32	GFCF in agricultural products	—	—	X
32.1	GFCF in plantations	—	—	X
32.2	GFCF in animals	—	—	X
33	GFCF in non-agricultural products	—	—	X
33.1	GFCF in materials	—	—	X
33.2	GFCF in buildings	—	—	X
33.3	Other GFCF	—	—	X
34	Gross fixed capital formation (excluding deductible VAT) (32+33)	—	—	X
35	Net fixed capital formation (excluding deductible VAT) (34-21)	—	—	X
36	Changes in stocks	—	—	X
37	Capital transfers	—	—	X
37.1	Investment grants	—	—	X
37.2	Other capital transfers	—	—	X

5. Agricultural labour input

Item	List of variables	Transmission concerning reference year n
November year n (estimates)	January year n+1 (estimates)	September year n+1
38	Total agricultural labour input	X	X	X
38.1	Non-salaried agricultural labour input	X	X	X
38.2	Salaried agricultural labour input	X	X	X

(¹) Opinion of the European Parliament of 3 September 2003 (not yet published in the Official Journal), and Council Decision of 17 November 2003.

(²) OJ L 310, 30.11.1996, p. 1. Regulation as last amended by Regulation (EC) No 1267/2003 of the European Parliament and of the Council (OJ L 180, 18.7.2003, p. 1).

(³) OJ L 52, 22.2.1997, p. 1.

(⁴) OJ L 184, 17.7.1999, p. 23.

(⁵) Statistical Office of the European Communities, European System of Accounts — ESA 1995, Luxembourg 1996.

(⁶) System of National Accounts, 1993. Joint publication by the United Nations, International Monetary Fund, Commission of the European Communities, OECD and World Bank.

(⁷) Recognising differing needs of analysts, the FAO has recommended the use of three types of unit as basic units for describing the economic accounts for food and agriculture, i.e. institutional units (including households), establishments (which are equivalent to the local KAUs referred to in the ESA) and products as recommended by the 1993 SNA (equivalent to the local KAUs referred to in the ESA) (cf. FAO (1996) System of Economic Accounts for Food and Agriculture, United Nations, Rome).

(⁸) It should be pointed out that, although the ESA gives preeminence to local KAUs, the unit best suited to analyses of the production process is the unit of homogeneous production (UHP). This unit is used to analyse inputs and outputs, since it corresponds exactly to a type of activity. Institutional units are thus divided into as many UHPs as there are activities (other than ancillary). By grouping these UHPs it is possible to break down the economy into ‘pure’ (homogeneous) branches. A UHP cannot, as a rule, be directly observed. Therefore, the accounts of homogeneous branches cannot be compiled on the basis of groups of UHPs. The ESA describes a method for compiling these accounts. It involves attributing secondary production and the corresponding costs of activity branches to the appropriate homogeneous branches (ESA, 9.53 to 9.61).

(⁹) Note however that some secondary activities are always considered separable from agricultural activity e.g. renting out of buildings or dwellings.

(¹⁰) The measurement of output was previously based on the concept of the ‘national farm’, a unique, notional agricultural holding performing all the agricultural production in a national economy, agricultural output being the sum of all products leaving the national farm. It was decided to discard the concept of the national farm because of improvements in (i) economic analysis of the agricultural accounts (technical coefficients and rates of value added), (ii) the consistency between the production accounts and the generation of income accounts, (iii) the comparison of technical coefficients and rates of value added between sub-branches and Member States, and (iv) consistency with the ESA and its principles.

(¹¹)  ISIC Rev. 4: United Nations international standard industrial classification of all economic activities.

(¹²) See also the ‘Explanatory notes’: Eurostat: NACE Rev. 2, Statistical classification of economic activities in the European Community, Theme 2, Series E, Luxembourg, 2007.

(¹³) The inclusion of these activities in fact does not represent a deviation from NACE Rev. 2: see the ‘Introductory guidelines’ to NACE Rev. 2.

(¹⁴) The reason for this deviation from the general rule is that in these special cases a considerable part of the seed is obtained from the normal output of the corresponding cereal, oilseed, protein crop or potato harvest, whereas in other cases it is produced in specialised holdings.

(¹⁵) See the ‘Introductory guidelines’ to NACE Rev. 2: Statistical classification of economic activities in the European Community, Theme 2, Series E, Luxembourg, 2007.

(¹⁶) A secondary product is a product which is technically linked to the production of other products. It may be exclusive when linked to other products of the same group but whose production is exclusive to this group, or ordinary when linked to other products, but whose production is not peculiar to one group.

(¹⁷) The equipment and machines belong to the cooperative, unlike with pools of machines, where they are generally the property of individual holdings.

(¹⁸) Cf. 6.72 to 6.79 and 6.94 to 6.100 of the SNA.

(¹⁹) Cf. 2.029 to 2.031 for the time at which stocks are recorded.

(²⁰) FAO (1996) System of economic accounts for food and agriculture, United Nations, Rome.

(²¹) Output for these animals is calculated by adding own-account produced fixed capital goods (= entries less disposals of assets) and sales (= disposals).

(²²) When valuing trade, the costs involved in the transfer of ownership (trade margins and transport costs) are included in the value of the acquisition. In the case of trading between resident holdings, sales and purchases offset each other except for the transfer costs which are treated, in the calculation of output, as a ‘negative sale’.

(²³) An identical treatment applies to other agricultural products having the character of stocks.

(²⁴) This is generally the case if production is promoted, and in some cases only made possible, by this expenditure by the employer.

(²⁵) Leasing differs from simple hiring in that the risks and advantages of ownership in leasing are transferred de facto, but not de jure, from the lessor to the lessee (the user of the asset). The ESA takes account of the economic situation of leasing by considering, for its recording, that the lessor provides a credit to the lessee which allows the latter to purchase a durable good and to become its de facto owner. Leasing is thus regarded as a special form of investment financing.

(²⁶) As a direct consequence of this method, the costs associated with trade in ‘fixed assets’ livestock between units should be recorded under the GFCF of the acquirer.

(²⁷) In this case, the activity of felling the plantation and selling the timber come under forestry activity.

(²⁸) It should be noted that the cost of the grubbing service which may be invoiced by a grubbing company constitutes intermediate consumption of a service.

(²⁹) The treatment of sales of livestock for slaughter (i.e. by abattoirs or the farmer, including all sales to non-agricultural units for economic uses other than slaughter) as disposals of fixed assets constitutes a simplification of the accounting procedure for recording the disposal of fixed assets whose economic use has changed. ‘Fixed asset’ livestock are in fact converted into stocks by recording a flow entitled ‘other change in volume’ (cf. 2.136) entered in the ‘other changes in volume of assets’ account. They are only sold in the form of stocks, the sale then constituting a withdrawal from stocks and not a disposal of assets.

(³⁰) In as much as the sale and purchase occurred during the same accounting period. Otherwise, a disposal (for the period in which the sale occurred) and an acquisition (for the period in which the purchase occurred) are recorded.

(³¹) Including slaughterings for own final consumption or payment in kind.

(³²) Trade in breeding livestock between farmers is not recorded in the accounts. This is also the case if the trading is carried out via agents (if the purchase and sale occurred in the same period). However, the cost of transfer of ownership (agents' services, trade margins, transport costs, etc) must be included in the value of the GFCF for livestock.

(³³) The SNA 93 (6.185), unlike the ESA 95 (6.03), considers that consumption of fixed capital should be calculated for livestock.

(³⁴) Any other method leading to equivalent results may be used.

(³⁵) This deduction corresponds to the theoretical case where the imports of productive animals are recorded as GFCF. In practice all animals imported by the agricultural industry are treated as changes in stocks (cf. 2.205).

(³⁶) Other changes in volume are generally understood to be stocks of goods destroyed in the wake of exceptional events (such as natural disasters). Current losses are included in withdrawals from stocks.

(³⁷) Use is made of the breakdown of output into sales (and other uses) and stock changes.

(³⁸) A similar result may be obtained by recording sales on a half-yearly basis and calculating the output of reference year n by adding together the sales of the second half of year n and those of the first half of year n + 1.

(³⁹) This category must not include payments made primarily in the employer's interest. Such payments are part of intermediate consumption (cf. 2.108 (e)).

(⁴⁰) Agricultural products provided to employees are output of the agricultural branch.

(⁴¹) Accommodation services are treated as a separable non-agricultural activity, with the result that they only appear as compensation of employees and in the form of a deduction from the operating surplus of the agricultural industry. If they were an inseparable non-agricultural activity, they would be recorded as a component of production and a form of compensation of employees.

(⁴²) They correspond in particular to wages and salaries which employers continue to pay on a provisional basis to their employees in the event of illness, maternity, accidents at the workplace, invalidity or redundancy, in so far as the amounts concerned can be separately identified.

(⁴³) Turnover is the most important taxable item. All EU Member States raise turnover tax in the form of VAT. The rates of this tax vary from one Member State to another and indeed within individual Member States. Generally speaking, agricultural products are subject to a lower rate of tax than the standard rate.

(⁴⁴) The percentage rate may vary according to the type of product and channel of distribution.

(⁴⁵) The variations between Member States in the VAT systems which they operate sometimes produce situations in which VAT paid by farmers on their purchases cannot be recovered or compensated for. Such VAT payments represent (i) non-deductible VAT, i.e. VAT paid on purchases which farmers, irrespective of the system to which they are subject, may not deduct from the VAT invoiced on sales and for which there is thus no compensation; (ii) and/or VAT other than that mentioned under (i), paid on purchases for which farmers subject to the flat-rate system are not fully compensated via the selling price or via reimbursement.

(⁴⁶) Subsidies on agricultural products paid to agricultural producers include any subsidy in the form of a deficiency payment to holders (i.e. in cases where general government pays the producers of agricultural products the difference between the average market prices and the guarantee prices of agricultural products).

(⁴⁷) An important example are subsidies paid to non-life insurance companies which enable these companies to charge lower (gross) premiums from the insurance policy holders (e.g. agricultural enterprises taking out insurance to cover risks such as damage by hail, frost etc.). As these subsidies are subsidies on products, the product being the insurance service, they are not recorded in the generation of income account of the policy holder (and thus not, in the above example, in the EAA). However, in as much as these subsidies reduce the costs of the insurance services (to the insurance policy holder), their effect is reflected in the production account (by a lower value of intermediate consumption, cf. 2.108(g)) of the insurance policy holder.

(⁴⁸) However, when a grant serves the dual purpose of financing both the amortisation of the debt and the payment of interest on it, and when it is not possible to apportion it between the two elements, the whole of the grant is treated as an investment grant.

(⁴⁹) Interest received corresponds to ‘Other accounts receivable’ (F.7) in the financial account. This category includes all transactions coming under Other accounts receivable, i.e. all financial assets created as a counterpart to financial or non-financial transactions, insofar as there is a time difference between the time when the transaction takes place and the time when the corresponding payment is made.

(⁵⁰) Note that rents received are not relevant to the EAA due to the use of the agricultural industry concept (cf. 1.44).

(⁵¹) The ESA 95 proposes that the full amount be recorded as rent on land if the value of the land is thought to be higher than that of the building, and as rent on buildings if the opposite is the case.

(⁵²) Including a provision for losses of fixed capital goods as a result of accidental damage which can be insured against. The value of these provisions to be recorded is the value of the net premiums paid in respect of insured fixed capital goods.

(⁵³) In order to take into account part-time and seasonal work, agricultural employment or changes therein are measured in AWUs (see Chapter IV for more details). A distinction is drawn between non-salaried and salaried AWUs, which together make up total AWUs.

(⁵⁴) This measure of income corresponds to the former measure ‘net income from family agricultural activity’ for sole proprietorships.

(⁵⁵) This does not preclude the possibility that there may be circumstances in which compilers may judge it preferable to eliminate the discrepancies in order to improve the overall consistency of the data.