| Clarification description | Two issues are raised for clarifications in the measurement of output produced for own final use: Should output be measured at basic prices at farm gates and factory gates to avoid imputing any trade and transport margins? Should own-account capital fixed assets be measured at basic prices and be imputed with mark-up for operating surplus?
(a) Raised by Russel Freeman, IMF
There seems to be confusion in a number of quarters about how such production should be valued. Many people seem to read paragraph 6.85 of 1993 SNA which says “.... (such) goods and services should be valued at the basic prices at which they could be sold if offered for sale on the market” and interpret this to mean: “if offered for sale in the local market.” This is not what it means. The crucial point is that prices "in the local market places", as measured by CPI collectors are only a particular subset of "market prices" or "prices on the market". Paragraph 6.37 states: "...outputs are recorded and valued as they emerge from the (production) process." Considering the particular case of agriculture production for own final use, this ‘emerges from the production process’ on the farm, so should be valued at farm gate prices. 1993 SNA does not explicitly use the term “farm gate prices” but this is what it means. If nonmonetary agriculture production is valued at prices prevailing “in the local market”, implicit trade and transport margins are attributed to this production, when it is neither sold nor transported, and hence overvaluing it. This should be clarified in contrast to the treatment of marketed agriculture production. For marketed agriculture production, there has been a change in the treatment between the 1968 SNA and 1993 SNA. In the former, all farm production was measured at farm gate prices, but in the latter, the point of valuation of marketed produce depends on where it is sold. Paragraph 6.205 says that “....producers' prices (and basic prices) exclude separately invoiced transport charges, but otherwise these are part of production cost”. So if a farmer sells to a wholesaler on his farm, that produce is valued at farm gate prices, but if he, or his family, takes the items to the local market then this produce is valued at prices “in the local market” as the farmer’s transport costs in this case are part of his production costs.
(b) Raised by Cor Gorter, IMF
It would be useful to add a sentence at the end of paragraph 6.85 that if the output is estimated as the sum of the cost of production, a mark-up should be included. Furthermore, the SNA (see 10.37, 10.78) says that own-account fixed assets should be valued at basic prices in the capital account. This presumes that there are no taxes on products payable; otherwise they should probably be valued at purchasers’ prices. If, on the other hand, it is decided to value always at basic prices in 1993 SNA Rev. 1, it would be good to explain this in paragraph 3.73.
(c) Raised by John Pitzer
Paragraphs 6.85 and 6.91 state that these two types of non-market output often must be valued at their cost of production, and they both list the elements of the cost of production as intermediate consumption, compensation of employees, consumption of fixed capital, and other taxes, less subsidies, on production. Non-produced non-financial assets also provide inputs to production, and rent should be added to the lists in both paragraphs. If consumption of fixed capital is replaced by capital services, then it should be made clear that the capital services of non-produced non-financial assets must be included. |
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