5.2 Accrued net income of farm operators from farm production

Concepts and definitions

5.9 Accrued net income of farm operators from farm production (ANIFO) comprises gross proceeds from the sale of agricultural products, including payments made to farmers under government programs, plus the imputed value of farm output consumed by farming households, plus the value of investment in farm-held inventories, less farm operating expenses and depreciation on buildings and farm machinery. It also includes an adjustment to transform earnings arising out of grain transactions of the Canadian Wheat Board from a cash to an accrual basis. Cash payments made to farmers under government programs are also adjusted to an accrual basis. Other sources of farm income, such as income from net rent and interest are included in other components of income-based gross domestic product. (see Table 5.4)

5.10 Estimates of accrued net income of farm operators from farm production can be subject to large fluctuations from one period to another. A variation in one of the key components can have a significant effect on both the level and the period-to-period movements of Accrued net income of farm operators from farm production. Cash receipts, which are closely tied to weather conditions and other unforeseeable factors, can experience large variations. In addition, investment in farm-held inventories, part of Accrued net income of farm operators from farm production, is affected by rapid changes in supply and demand of agricultural products at the national and international levels, making it a relatively unstable component. Changes in farm operating expenses are generally more stable.

Annual estimation methods and data sources

5.11 Annual estimates of accrued net income of farm operators from farm production (ANIFO) for Canada and the provinces1 are derived from the sum of the quarterly estimates. Methods used to derive quarterly estimates are described in the quarterly estimation method and data sources section.

5.12 Estimates follow the Canadian System of National Accounts four year revision cycle. The inputs to the benchmarking process for accrued net income of farm operators from farm production are produced by the Income and Expenditure Accounts Division (IEAD). They include all farm activity as described in the North American Industry Classification System (NAICS), meaning all industries related to crop production (111) and animal production (112), except animal aquaculture (1125), which is included in non-farm unincorporated business (mixed income for aquaculture is available from the Input-Output Tables). Table 5.3 shows the relationship between the two sets of accounts.

Table 5.3 Accrued net income of farm operators from farm production: reconciliation between Income and Expenditure Accounts and Input-Output Tables, 2000. Opens in a new browser window.

Table 5.3
Accrued net income of farm operators from farm production: reconciliation between Income and Expenditure Accounts and Input-Output Tables, 2000

Quarterly estimation methods and data sources

5.13 Table 5.4 illustrates the calculation of accrued net income of farm operators from farm production. The following paragraphs examine each component.

Table 5.4 General approach to estimation of accrued net income of farm operators from farm production, 2000. Opens in a new browser window.

Table 5.4
General approach to estimation of accrued net income of farm operators from farm production, 2000

Farm cash receipts

5.14 Farm Cash Receipts include income received from the sale of agricultural products, Canadian Wheat Board payments and government payments made under farm support programs. Farm cash receipts are estimated from both administrative and survey data. Data sources vary by province and by product. The main sources are Statistics Canada survey data as well as administrative data from Agriculture and Agri-Food Canada, the Canadian Wheat Board, marketing and regulatory boards, and government and private agencies.

5.15 As Table 5.5 shows, farm cash receipts cover all crops, livestock, livestock products, and direct payments made to producers from various programs, such as crop insurance, income stabilization payments and other one- time payments made by federal and provincial governments to compensate producers for losses due to extreme weather, disease or other factors.2 Some payments, such as property tax credits and fuel tax rebates, are deducted directly from expenses rather than being included on a gross basis in farm cash receipts.

Table 5.5 Farm cash receipts, 2000. Opens in a new browser window.

Table 5.5
Farm cash receipts, 2000

Farm income in kind

5.16 Farm income in kind consists of the estimated value of food and forestry products produced and consumed on farms for personal use. Home-consumed products are valued at prevailing market prices at the farm level. It excludes net rent imputed for dwellings on farms, already measured as part of the net income of non-farm unincorporated business including net rental income component. The composition and value of the farm income-in kind is shown in Table 5.6. It consists mainly of forestry and livestock products. The data are compiled from surveys, the Census of Agriculture and administrative data.3 The monthly data are distributed using ratios derived from a variety of data sources.

Table 5.6 Farm income in-kind, 2000. Opens in a new browser window.

Table 5.6
Farm income in-kind, 2000

Investment in farm-held inventories

5.17 For crops, investment in farm inventories is estimated for each grain type, using quantities valued at the market prices prevailing in the reference period. Withdrawals from inventories (which consist of sales, food for livestock, seed and waste) are deducted from production that has been placed into inventories, to arrive at an estimate of the value of inventory changes.4 The same approach is applied to potato and tobacco crops. For livestock, the value of inventory change is calculated directly from physical quantity changes and market prices obtained from Agriculture Division surveys.5 The investment in inventories chapter explains the sources and methods used to estimate investment in farm inventories, a component of expenditure-based GDP (see Chapter 10).

Farm operating expenses and depreciation

5.18 Operating expenses and depreciation represent the costs incurred by farm operators for goods and services used in the production of agriculture commodities. There is a wide range of expenses related to farm production, as itemized in Table 5.7. To arrive at net operating expenses, direct payments (rebates), made to producers to reduce the costs of inputs, are deducted. They are estimated annually by the Agriculture Division,6 using a number of sources. Total annual expenses are distributed quarterly using ratios established from a study conducted by the Income and Expenditure Accounts Division.

5.19 Estimates of depreciation are produced by the Agriculture Division. They reflect economic depreciation, or the loss in fair market value of the capital assets. Estimates cover farm buildings (including the farm business share of houses) and farm machinery (including the farm business share of automobiles or trucks).

Table 5.7. Farm operating expenses and depreciation charges, 2000. Opens in a new browser window.

Table 5.7.
Farm operating expenses and depreciation charges, 2000

Farm corporate profits before taxes

5.20 Farm corporate profits before taxes represents profits from incorporated farm operations. Estimates are derived from Canada Revenue Agency tax data files. This component is not included in farm income since it is measured as part of corporation profits before taxes.

Adjustment of Canadian Wheat Board profits and government program payments

5.21 This adjustment is necessary because gross domestic product measures income arising from current production and not current receipts. Consequently, profits arising out of the operations of the Canadian Wheat Board7 (CWB) are allocated to farm operators when they are earned regardless of when they are actually paid to farmers. As well, an inventory valuation adjustment is calculated to eliminate any holding gains or losses from the initial Canadian Wheat Board earnings reported.

5.22 Similarly, government program payments to farmers are adjusted from a cash basis to an accrual basis to reflect current agricultural production.

Provincial and territorial estimation methods and data sources

5.23 Provincial estimates are established from the quarterly estimates, which are estimated by province.

Relationship with other parts of the Income and Expenditure Accounts

5.24 A number of the components of accrued net income of farm operators from farm production are also included in other variables of gross domestic product. Investment in farm-held inventories appears directly on the expenditure side of the Income and Expenditure Accounts. Income-in kind for food is included as part of farm- consumption and other imputed food expenses, appearing under personal expenditure on consumer goods and services. All taxes and subsidies, whether part of income or expenses of farm operators, are included in either taxes less subsidies on factors of production or taxes less subsidies on products. Finally, depreciation, which is part of farm operating expenses, is included in capital consumption allowance, an income-based GDP component.

5.25 Accrued net income of farm operators from farm production is part of the unincorporated business net income in the persons and unincorporated businesses sector.

5.26 Investment in farm-held inventories is divided between the unincorporated sector and the incorporated sector, using a ratio derived from the Census of Agriculture data on farm cash receipts.

Reconciliation of estimates with the Agriculture Division

5.27 Agriculture Division produces a number of economic statistics on farming.8 Most of them are included in the estimation of accrued net income of farm operators from farm production. Table 5.8 shows the reconciliation between the two estimates.

Table 5.8 Accrued net income of farm operators from farm production: Reconciliation statement with Agriculture Division net farm income, 2000. Opens in a new browser window.

Table 5.8
Accrued net income of farm operators from farm production: Reconciliation statement with Agriculture Division net farm income, 2000

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Notes

1. Since 1999, estimates for the Yukon and the Northwest Territories have been added to those for Canada using annual farm cash receipts and operating expenses data provided by the Agriculture Division. Throughout this section the estimation methods described refer to those used for the ten Canadian provinces (farm activities in the northern regions are very limited).

2. Direct Payments to Agriculture Producers, catalogue no. 21-015.

3. Net Farm Income, catalogue no. 21-010.

4. Seasonal adjustment of the quarterly grain inventory series creates particular problems. For further details, see the technical paper Treatment of Grain Production in the Quarterly Income and Expenditure Accounts, catalogue no. 13-604, no. 2.

5. Survey no. 3460, published in Cattle Statistics, catalogue no. 23-012; Hog Statistics, catalogue no. 23-010; Livestock Statistics, catalogue no. 23-603; and Sheep Statistics, catalogue no. 23-011.

6. Farm Operating Expenses and Depreciation Charges, catalogue no. 21-012.

7. The Canadian Wheat Board buys wheat and barley from farm operators and sells the grain on various markets, notably the export market, on their behalf.

8. Agriculture Division's series Agriculture Economic Statistics includes: Net Farm Income, catalogue no. 21-010, Farm Cash Receipts, catalogue no. 21-011, Farm Operating Expenses and Depreciation Charges, catalogue no. 21-012, Value of Farm Capital, catalogue no. 21-013, Farm Debt Outstanding, catalogue no. 21-014, Direct Payments to Agriculture Producers, catalogue no. 21-015, Balance Sheet of the Agricultural Sector, catalogue no. 21-016, Agriculture Value Added Account, catalogue no. 21-017, and Farm Business Cash Flows, catalogue no. 21-018. Agriculture Division also offers additional statistics on various agricultural outputs.