3-4-Dec-07 Meeting of the Working Group “Agricultural Accounts and Prices” Calculation of Fixed Capital Consumption (Doc. ASA/AAP/096)

3-4-Dec-07Calculation of Fixed Capital Consumption  Fixed Capital Consumption has a significant influence on agricultural income results. On the EU-27 average, it accounts around 28% of gross value added and 34% of factor income.  The aims of this paper are  to present an overview of the methodological requirements on FCC,  to make an inventory of current practices,  to show some results of the analysis of the data,  to collect more methodological information from the Member States and  to propose improvements. Introduction

3-4-Dec-07Calculation of Fixed Capital Consumption Methodology  The ESA and EEA Regulations say:  CFC represents the amount of fixed assets used up, during the period under consideration, as a result of normal wear and tear and foreseeable obsolescence.  CFC must be calculated for all fixed assets (except animals).  CFC should be estimated on the basis of the stock of fixed assets and the probable average economic life. For the calculation of the stock, the perpetual inventory method (PIM) is recommended. The stock should be valued at the purchasers’ prices of the current period.  CFC is calculated according to the ‘straight line’ method.

3-4-Dec-07Calculation of Fixed Capital Consumption Methodology (cont.)  The OECD manual on the measurement of capital says:  The PIM generates an estimate of the capital stock by accumulating past purchases of assets over their estimated service lives.  The procedure is to:  use the PIM to estimate the gross capital stock,  to apply a depreciation function to calculate consumption of fixed capital and  to obtain the net capital stock by subtracting accumulated capital consumption from the gross capital stock.

3-4-Dec-07Calculation of Fixed Capital Consumption Methodology (cont.)  The OECD manual says (cont.):  The basic requirements to apply the PIM to estimate the gross capital stock are:  An initial bench-mark estimate of the capital stock.  Statistics on gross fixed capital formation extending back to the bench-mark, or, if no bench-mark is available, back over the life of the longest-lived asset.  Asset price indices.  Information on the average service lives of different assets.  Information on how assets are retired around the average service life (mortality functions).

3-4-Dec-07Calculation of Fixed Capital Consumption  Eurostat data on FCC in Cyprus, Italy, Ireland, Latvia, Luxembourg, Malta and Poland are incomplete.  The EAA inventories are still not available from Cyprus, Germany, Italy, Slovenia, Iceland and Switzerland. The majority of the available inventories are incomplete or too general.  Among the Member States where information is available, the PIM is the method most commonly used. Some Member States directly observe the stock of fixed capital and a few others use other methods.  Summary by Member State: see Annex I to the document. Current situation

3-4-Dec-07Calculation of Fixed Capital Consumption  See Annex II. (Excel file) Analysis of the data

3-4-Dec-07Calculation of Fixed Capital Consumption  Cyprus, Germany, Italy, Slovenia, (plus Iceland and Switzerland) are requested to provide EAA inventories as soon as possible.  Member States for which Annex I information is incomplete are asked to complete their EAA inventories.  Cyprus, Italy, Ireland, Latvia, Luxembourg, Malta and Poland are requested to provide complete FCC series as soon as possible.  Member States are requested to revise their methodologies, especially the service lives used for the calculation of FCC, and to provide Eurostat with improved time series by end September Further Action

3-4-Dec-07Calculation of Fixed Capital Consumption  Member States are asked to comment on the results of this analysis and their plans for improving FCC data and methodological information. Questions