Sector analysis

Applying appropriate prices will yield the corresponding values of these items. In order to determine the Gross Value Added in the various agricultural sectors, variable costs incurred in these sectors have to be calculated or estimated too.

The aggregation of Gross Value Added (GVA) of the various sectors results in Gross Value Added of Agriculture, an indicator of the value (at market prices) that was created (in terms of market goods) through capital, land and labour input into agriculture. Gross Value Added of Agriculture is a major component of the Economic Accounts for Agriculture (GDP).

Value of production minus variable costs (including seed and planting costs in the case of crops and feed costs in the case of livestock) equals Gross Value Added at market prices. Taking account of subsidies and taxes, we receive Gross Value Added at factor costs (at basic prices); this is the remuneration of the „fixed“ factors used for production of marketable goods and the provision of “public goods” by agriculture (capital, land, labour).

Subtracting depreciation (= the value of capital services) from GVA at factor costs results in Net Value Added, i.e. the remuneration of land and labour used for production.

In the following we are going to present and comment on data sources for prices, apply particular prices to the respective quantities and get the values of production, feed, food, exports and imports. Similarly we want to determine the quantities, prices and values of variable inputs.

The value of production is the quantity of production multiplied by the market price (producer price) of this quantity. It is composed of the values of production of different qualities (f.i. food, feed, seed) or varieties (for instance old cows, female and male calves, bulls) evaluated at their respective prices. Value of production is calculated at farm gate level (producer price). In the case of processed or slaughter products prices may refer to the processing plant or slaughterhouse levels. In that case these prices have to be converted to the farm gate level (by subtracting transport costs to the plant or slaughterhouse).

Value of production at factor costs (basic prices) includes product-specific subsidies and excludes product-specific taxes.

Sales (revenues, cash receipts) are a source of income for farmers. They can be used to pay for production inputs (expenses for variable costs, machinery, buildings, hired labour).

The value of imports and exports (on the border) is given directly in the statistics.

The difference between the value of imports and the value of exports is the trade deficit which contributes to the trade balance of the country. A trade deficit in one sector has to be compensated by a surplus in another sector; otherwise it increases the state deficit (level of debt of the state) or the debt of the importers. The vulnerability of a country can increase as the trade balance deteriorates.

This is the value of food consumption (on the farm and on the market = total balance). This can be compared to the value of food consumption at import prices (i.e. in case all food consumption were to be imported).

The variable costs encompasses in particular the values of

  • energy (fuel, ...)
  • Maintainance of buildings and machinery
  • seed input
  • fertilizer and soil improvers
  • plant protection and pesticides
  • feed input (feed costs)
  • veterinary costs, ...

Variable inputs costs (of production) are usually only available for the agricultural sector overall. For the evaluation of the profitability of sectors within agriculture (activities), the overall amount of variable inputs costs used has to be allocated to the various activities. A simple approach to do this is to determine (or estimate of assume) the share of an activity in the overall consumption (use) of a variable cost item.

For crops which are used as an input (feed) for livestock, the value of the feed is a variable cost item in relevant livestock activities. Accordingly, the feed use of a crop has to be allocated to the various livestock activities which use the crop as an input into the production process.

Seed is also an input into the production process and thus a variable cost item in the crop activity which uses seeds, Note that seeds can be self-produced (appears as a component of production in the supply balance sheet) and/or imported; thus the value of seed production differs from the value of seed use.

Gross value added at market prices is the value of production at market prices minus variable costs (of production).

Gross value added at factor costs is the value of production at factor costs (basic prices) 

  • + other (non-product-specific) subsidies (f.i. agri-environmental payments, mountain area payments)
  • - other (non-product-specific) taxes
  • - variable costs (of production)
  • - other input subsidies (refers to items not taken into account of in the variable costs, f.i. fuel tax refund)
  • + other input taxes

Net value added at factor costs (= GVA – depreciation) is the remuneration of land and labour. GDP is the sum of GVA of all sectors. The current exercise is the basis for calculating the Economic Accounts of Agriculture. We suggest to concentrate much effort to get this right in order to easily establish these Accounts.

Gross value added at factor costs (GVA) is the remuneration of quasi-fixed factors of production: capital, land and labour. Accordingly it can be related to 

  • Acreage: GVA / ha
  • agricultural working units: GVA / AWU
  • heads of livestock: GVA / head

These partial factor productivities for the various sectors can be compared across sectors and indicate the profitability of the sectors.

Additional indicators of competitiveness are the Nominal Protection Coefficients, i.e. the ratios between domestic and import prices (of comparable products, i.e. same product at the same marketing stage), and the Effective Protection Coefficients (the ratios between GVAs at domestic and external prices).

These indicators are the basis for the assessment of productivity and competitiveness of the different sectors. This assessment is a basis for setting priorities and designing measures to enhance the productivity and profitability in the various sectors.