METAC Workshop March 14-17, 2016 Beirut, Lebanon National Accounts Compilation Issues Session 3.1: Agriculture: work in progress in growing crops

Agriculture, work in progress

Methodological requirements 2008 SNA, 3.176: – The principle of recording on an accrual basis implies that output is recorded over the period in which the process of production takes place. – Thus, additions to work-in-progress are recorded continuously as work proceeds. – When the production process is terminated, the whole of the work-in progress accumulated up to that point is effectively transformed into a stock of finished product ready for delivery or sale.

Methodological requirements 2008 SNA, 6.137: – The measurement of agricultural output … when the process of production extends over many months, or even years. – Many agricultural crops are annual with most costs incurred at the beginning of the season when the crop is sown and again at the end when it is harvested. – However, immature crops have a value depending on their closeness to harvest. The value of the crop has to be spread over the year and treated as work-in-progress… – When the crop is harvested, the cumulated value of work- in-progress is converted to inventories of finished goods that is then run down as it is used by the producer, sold or is lost to vermin.

Methodological requirements 2008 SNA, – … some plants and many animals take some years to reach maturity. – In this case, the increase in their value is shown as output and treated as increases in fixed capital or inventories depending on whether the plant or animal yields repeat products or not.

Current practice Accounts for agriculture in many instances refer to the current agricultural year Output is estimated based on the harvest No direct estimates for intermediate consumption, – … mainly based on the Input / Output benchmark ratio, sometimes not changed for many years ago As a result: – … inconsistent estimates of output and intermediate consumption in some cases leading to implausible results, in particular for quarterly estimates

Example Agricultural year: July Y1 – June Y2 Harvest period: Q4

Example Annual accounts, Production and Generation of income

Example More serious implications on quarterly Value added

Solutions Estimates based on cost method – Identifying major crops with a growing period over the two consecutive years, for example: Land preparation during October-December; Harvest during July-August, next year; – Specifying the agricultural activities within the growing period (agricultural year): Land preparation; Plowing Seeding Crops preventing Harvesting – … and for each activity expenditures for goods and services, labor and capital

Solutions Work in progress, estimates based on costs

Solutions Work in progress, estimates based on costs, cont.

Solutions Work in progress, estimates based on costs, cont.

Solutions Estimates based on the continuous annual Agriculture Production Survey (APS) over the agricultural year: August - July next year – observing all the stages of the agricultural production process: from plowing and disking, to harvesting and storage – observes five main crops: wheat, maize, sorghum, peas, beans, and other crops, distinguished as: summer crops (almost all), planted in third quarter and harvested in second quarter the following year; winter crops (a few: some of wheat and peas), planted during winter, July/August, and harvested during November/ December of the same year.

Solutions APS survey design

Solutions Regular estimates/quarterly: – Planted area (ha); – Expenditures per ha from the model, price updated; – Updating the model in year period Consistency issues: Session 3_1 annex 1.xlsx Session 3_1 annex 1.xlsx – … when the accumulated work in progress does not match the estimated harvest, due to: unexpected weather or economic conditions, catastrophic disasters; inappropriate farm management… – … adjustments of the previously estimated quarters … mark up for operating surplus/return to fixed capital

Rearing animals Animals reared for food should be recorded as work in progress during the process – and transformed into inventories of finished products when the process is completed Reared productive animals should be recorded as work in progress during the process – and transformed into acquisition of fixed assets when the animals reach maturity

Rearing animals Estimates based on the balance of animal heard, required information: – Animal stocks by type, age groups, male/female – Transactions: Purchases, number/prices – From domestic market/other farms – Imported Sales, number/prices – Domestic market/ to other farms/ to meet producers – Exported Slaughtered in the farm – For further processing and sales/for own consumption Losses

Rearing animals Example:

References System of Economic Accounts for Food and Agriculture, FAO, 1996 Census of Commercial Agriculture, 2007, questionnaire, SSA

Thank you