Indicator 2.a.1 The agriculture orientation index for government expenditures

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Food and Agriculture Organization of the United Nations (FAO)

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Definition:

The Agriculture Orientation Index (AOI) for Government Expenditures is defined as the Agriculture share of Government Expenditure, divided by the Agriculture value added share of GDP, where Agriculture refers to the agriculture, forestry, fishing and hunting sector. The measure is a currency-free index, calculated as the ratio of these two shares. National governments are requested to compile Government Expenditures according to the Government Finance Statistics (GFS) and the Classification of the Functions of Government (COFOG), and Agriculture value added share of GDP according to the System of National Accounts (SNA).

Concepts:

Agriculture refers to the agriculture, forestry, fishing and hunting sector, or Division A of ISIC Rev 4 (equal to Division A+B of ISIC Rev 3.2).

Government Expenditure comprise all expense and acquisition of non-financial assets associated with supporting a particular sector, as defined in the Government Finance Statistics Manual (GFSM) 2014 developed by the International Monetary Fund (IMF). NOTE: Transactions in assets and liabilities, such as loans by general government units (disbursement and repayment), are excluded when compiling COFOG data for GFS reporting purposes.

Government Expenditure are classified according to the Classification of the Functions of Government (COFOG), a classification developed by the Organisation for Economic Co-operation and Development (OECD) and published by the United Nations Statistical Division (UNSD).

Agriculture value-added and GDP are based on the System of National Accounts (SNA).

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Index

See 4.c. Method of computation, below.

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The Classification of the Functions of Government (COFOG) is a detailed classification of the functions, or socioeconomic objectives, that general government units aim to achieve through various kinds of expenditure. Functions are classified using a three-level scheme, consistent with the International Standard Industrial Classification of All Economic Activities (ISIC), Rev.4. In particular, the scheme includes:

1. 10 first-level, or two digit, categories, referred to as divisions, including Economic Affairs (04) and Environmental Protection (05);
2. within each division, 2 or more 3-digit three-digit categories, referred to as groups, such as Agriculture, Forestry, Fishing, and Hunting (042) and Protection of Biodiversity and Landscapes (054); and
3. within each group, one or more four-digit categories, referred to as classes, such as Agriculture (0421), Forestry (0422) and Fishing and hunting (0423), as well as related Research and Development (0482), covering the administration and operation of government agencies engaged in applied research and experimental development related to the sector, including that undertaken by nongovernment bodies, such as research institutes and universities funded by government grants and subsidies.

The International Monetary Fund (IMF) questionnaire on Government Finance Statistics (GFS) collects annual data on the first two levels (divisions and groups). The FAO questionnaire aims at collecting information on classes, as well as a breakdown of the related expenditure in recurrent and capital expenditures. The three classification levels and the contents of each class are described in the GFSM 2014, accessible at https://www.imf.org/external/np/sta/gfsm/.

FAOSTAT geographic classification is used to aggregate indicators across country groups (http://www.fao.org/faostat/en/#definitions).

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Data on government expenditures is collected from countries through an annual questionnaire administered by FAO. These data are not affected by sampling error, given that countries typically compile the questionnaires administered by FAO on the basis of their financial and accounting systems, using administrative information on government expenditures based on the availability and comprehensiveness of source data. For some countries that do not report directly data to FAO, key expenditure aggregates needed to calculate Indicator 2.a.1 are obtained either from the IMF GFS database, from other regional organizations, or from official national governmental websites.

Data on agriculture value-added and GDP are retrieved from the UN Statistics Division, which provides national accounts estimates for 220 countries and territories.

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Data for the denominator are annually collected from countries using the FAO questionnaire on Government Expenditure on Agriculture (GEA), developed in collaboration with the IMF., For countries with missing information, data is supplemented with data collected by the IMF, regional organizations or published on official national governmental websites. The official counterpart(s) at country level are, depending on the country, from the national statistics office, the ministry of finance (or other central planning agency), or the ministry of agriculture. Validation and consultation were conducted through various FAO commissions and committees, including its two agricultural statistics commissions in Africa and the Asia and Pacific, its Committee on Agriculture and Livestock Statistics in Latin America and the Caribbean, and its Committee on Agriculture.

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The t-1 reference year data collection cycle for Government Expenditure on Agriculture (GEA) will start in March/April of year t. Due to the time required to collect, compile and publish national data, countries may experience delays in reporting timely data.

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As the COFOG data is largely compiled annually, this indicator is released every year in March, covering data up to reference year t-2 (for the countries for which data collection, compilation, release is more timely).

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Ministry of Finance, Central Planning Agency, Central Banks, National Statistics Office, and/or Ministry of Agriculture.

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Food and Agriculture Organization of the United Nations (FAO)

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Article I of the FAO Constitution requires the Organization to "collect, analyse, interpret and disseminate information relating to nutrition, food and agriculture." (http://www.fao.org/docrep/x5584e/x5584e00.htm). Member countries reaffirmed this mandate in 2000. Within the FAO's statistical program of work, member countries endorsed the development of an investment statistics domain, including ongoing work on government expenditure on agriculture, during meetings of three statutory bodies: the Asia and Pacific Commission on Agricultural Statistics (APCAS) held in Vietnam in February 2014; the African Commission on Agricultural Statistics (AFCAS) held in Morocco in December 2013; and the IICA working group on agricultural and livestock statistics for Latin America and the Caribbean, held in Trinidad and Tobago in June 2013.

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An Agriculture Orientation Index (AOI) greater than 1 reflects a higher orientation towards the agriculture sector, which receives a higher share of government spending relative to its contribution to economic value-added. An AOI less than 1 reflects a lower orientation to agriculture, while an AOI equal to 1 reflects neutrality in a government’s orientation to the agriculture sector.

Government spending in agriculture includes spending on sector policies and programs; soil improvement and soil degradation control; irrigation and reservoirs for agricultural use; animal health management, livestock research and training in animal husbandry; marine/freshwater biological research; afforestation and other forestry projects; etc.

Spending in these agricultural activities helps to increase sector efficiency, productivity and income growth by increasing physical or human capital and/or reducing inter-temporal budget constraints.

However, the private sector typically under-invests in these activities due to the presence of market failure (e.g. the public good nature of research and development; the positive externalities from improved soil and water conditions; lack of access to competitive credit due to asymmetric information between producers and financial institutions, etc.). Similarly, the high risk faced by agricultural producers, particular smallholders unable to hedge against risk, often requires government intervention in terms of income redistribution to support smallholders in distress following crop failures and livestock loss from pests, droughts, floods, infrastructure failure, or severe price changes.

Government spending in agriculture is essential to address these market failures and the periodic need for income redistribution. This leads to several potential indicators for the SDGs, which include: a) the level of Government Expenditure on Agriculture (GEA); b) the Agriculture share of Government Expenditure, and c) the AOI for Government Expenditures.

An indicator that measures GEA levels fails to take into account the size of an economy. If two countries, A and B, have the same level of GEA, and the same agriculture contribution to GDP, but country A’s economy is 10 times that of country B, setting the same target levels for GEA fails to take economic size into account.

An indicator that measures the Agriculture share of Government Expenditure fails to take into account the relative contributions of the agricultural sector to a country’s GDP. Consider two countries with the same economic size, C and D, where agriculture contributes 2 percent to C’s GDP, and 10 per cent to country D’s GDP. If total Government Expenditures were equal in both countries, C would experience greater relative investment in Agriculture than D. If total Government Expenditures differed, the result could be magnified or diluted.

The AOI index takes into account a country’s economic size, Agriculture’s contribution to GDP, and the total amount of Government Expenditure. While the indicator does not allow setting of a universal and achievable target, it is useful to interpret the AOI in combination with its numerator and denominator separately: the Agriculture share of Government Expenditure and the Agriculture value-added Share of GDP.

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Since the numerator of this data is based on financial and accounting systems and administrative sources, there is no confidence interval or standard error associated with government expenditure data. For the denominator, national accounts data typically do not provide any standard error or confidence interval information.

The key limitation with this indicator is that Consolidated General Government expenditure – the best measure for cross-country comparisons – is not available for all reporting countries. While most advanced economies – and many emerging market economies – do report these data, many smaller and/or low-income economies either do not have significant fiscal interventions in agriculture at the state/provincial and local/municipal levels; or do not have adequate source data to compile meaningful general government estimates for each subsector, as relevant. Given that in several countries, significant intervention in agriculture is implemented by sub-national governments, the Indicator 2.a.1 is calculated using the highest level of government available for the reporting country. For some countries, such as India, where the general government sector is defined for fiscal policy purposes as budgetary central government plus state government, the Indicator will take this into account.

Annex I lists the reporting countries, their M49 code, the latest year for which data are available and the level of government for which data has been reported. The level of government notation used is as follows: GG: Consolidated General Government; CG Consolidated Central Government (excluding Social Security Funds): CGI: Consolidated Central Government (including Social Security Funds); BA: Budgetary Central Government.

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$AOI\mathrm{\ }=\mathrm{\ }\frac{Agriculture\mathrm{\ }Share\mathrm{\ }of\mathrm{\ }Government\mathrm{\ }Expenditures}{Agriculture\mathrm{\ }value\mathrm{\ }added\mathrm{\ }Share\mathrm{\ }of\mathrm{\ }GDP}$

where:

$Agriculture\mathrm{\ }Share\mathrm{\ }of\mathrm{\ }Government\mathrm{\ }Expenditures$

$=\mathrm{\ }\frac{Government\mathrm{\ }Expenditures\mathrm{\ }on\mathrm{\ }Agriculture}{Total\mathrm{\ }Government\mathrm{\ }Expenditures}\times 100$

Agriculture refers to COFOG category 042 (agriculture, forestry, fishing and hunting); and

$Agriculture\mathrm{\ }value\mathrm{\ }added\mathrm{\ }Share\mathrm{\ }of\mathrm{\ }GDP$

$=\mathrm{\ }\frac{Agriculture\mathrm{\ }value\mathrm{\ }added}{GDP}\times 100$

Agriculture refers to the Division A of ISIC Rev 4 (agriculture, forestry, fishing and hunting), equal to Division A+B of ISIC Rev 3.2.

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FAO revises data only when historical revisions or missing historical data are provided by countries, the IMF or regional organizations or when they become available through the national authorities’ websites. For example, prefilled questionnaires are sent out with reported data for t-2 through t-5, which countries are asked to review, revise where needed, and - to the extent possible – fill-in missing information. Conversion of values into millions is done as well.

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At country level

Missing values of government expenditure in agriculture were forecasted using trends in GDP and 3 to 5 year moving averages of the share of agriculture in total expenditure. Forecasted values are employed to compute regional and global aggregates, but not presented at the national level.

At regional and global levels

Regional and global aggregates of were based on a mixture of data directly reported by countries (to FAO or IMF) and forecasts of missing values. For time series period, regional and global aggregates are computed on the basis of based on data as reported by countries and interpolations of missing values.

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Global and regional estimates are compiled by first separately summing across countries the four individual components of the index: government expenditure on agriculture, total government expenditure, agriculture value-added, and GDP. These are added only for those countries in a region (or globally) for which all components are available, and the index is then calculated for this larger region.

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Countries are requested to reference the IMF's Government Finance Statistics Manual (GFSM 2014), particularly Chapter 6 - Annex: Classification of the Functions of Government and Chapter 2 – Institutional Units and Sectors, available at https://www.imf.org/external/np/sta/gfsm.

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Comparisons of key aggregates reported in both the FAO GEA and IMF GFS questionnaires are periodically conducted in order to ensure consistency.

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The FAO Statistics Quality Assurance Framework is available at: http://www.fao.org/docrep/019/i3664e/i3664e.pdf

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The quality of the data may vary considerably among countries, as not all of them apply the COFOG classification. In such cases, FAO seeks to validate reported aggregates against fiscal data published by national authorities' websites. Since 2012, the FAO Statistics Division also fields a detailed annual questionnaire on Government Expenditure on Agriculture that is pre-populated with key major aggregates reported to the IMF or identified by FAO. Where reported details diverge significantly from the pre-populated aggregates, queries are sent to national counterparts, to ensure the methodological quality, objectivity and reliability of the data submitted by countries.

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Data availability:

Data are reported for the highest level of government available (Consolidated general government, consolidated central government or budgetary central government) and are available for about 100 countries on a regular basis. In some cases (for example, India and Pakistan), data may reflect the general government sector as per national norm. That is, budgetary central government combined with state government.

Time series:

From 2001 forward

Disaggregation:

Since this indicator is based on national accounts data and total government expenditures, it does not allow for disaggregation by demographic characteristics or geographic location. However, where countries report expenditure data for the consolidated general government and it subsectors, disaggregation by level of government is possible.

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Sources of discrepancies:

When in-country compilation errors are identified and FAO has modified government expenditure data reported by countries, or where errors are found in comparison with the IMF GFS COFOG data or fiscal data published on national authorities' websites after querying to national respondents, there may be some difference between data reported by FAO and unrevised national figures.

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URL:

www.fao.org

References:

• FAOSTAT domain of Government Expenditure on Agriculture http://www.fao.org/faostat/en/#data/IG;
• IMF Government Finance Statistics Manual 2014
  https://www.imf.org/external/np/sta/gfsm/.

2.a.1 metadata ANNEX I: Highest Level of Government Available – last updated 01 March 2022