1 PURPOSE, SAMPLE AND METHODS
1.7 Result measures and calculations
The survey presents various result measures. In the following the internal connections between these will be explained.
1.7.1 Agriculture
Output – Variable costs
= Gross margin
– Fixed costs excluding depreciation
= Result before depreciation – Depreciation
= Net income
completely. Therefore the extent of representativeness in the forestry part of the
survey will not be discussed.
Table 1.4 compares the agricultural size group allocation of the survey holdings to similar overviews produced by Statistics Norway. The data from Statistics Norway relate, roughly speaking, to all Norwegian holdings, whereas the population of our survey is limited by a minimum standard output. Moreover, Statistics Norway counts joint operations with solely rented agricultural area among the smallest farms, unlike what is done in the survey. Despite these obstacles for relevance of the comparison, table 1.4 indicates that the smallest holdings are under-represented, and that farms with more than 200 decares are over-represented, in our survey sample. In order to obtain large enough groups for some important categories of farming, achieving a representative survey sample as regards size groups has been given lower priority. It is emphasized to keep the regional distribution of the survey participants at a state that approximately matches the regional distribution of all Norwegian holdings.
1.6 Accounting principles
NIBIO converts the tax account into a management account for each of the survey participants. Some important characteristics of management accounts are mentioned below.
Management accounts record unpaid labour executed by others than members of the farmer’s family, by number of hours. This contribution is classified as hired labour. Nevertheless, hired labour costs merely include wages actually paid.
Management accounts present a clear distinction between agriculture, forestry, other occupations and private department. Therefore, certain assets and certain items of income and expenditure may be wholly or partly transferred between occupations, or between an occupation and private department, in the survey conversion process.
Management accounts present the agricultural output as a total and also split up into three main categories: Output from crop production, output from livestock production and a miscellaneous category including support, grants and other income. Similarly farm forestry output is classified according to origin: Timber sales, grants and other sources. The costs of both agriculture and forestry are divided into fixed and variable ones.
In management accounts each item of output and expenditure is adjusted for changes in the balance sheet.
The value given for livestock in a management account (with some few exceptions) is the break-up value. Tax accounts value livestock according to standardized unit prices based on variable rearing and breeding costs.
Management accounts apply linear depreciation. Reducing balance depreciation is
applied in tax accounts.
In management accounts profits or losses on sales of fixed assets are written-down or depreciated, whereas tax accounts present accrual profits or losses.
Management accounts value the stocks of farm products for sale by estimated sales values at the end of the year. Tax accounts apply standardized production costs.
Management accounts include an imputed value for family labour that has been executed at construction operations on the farm or at cultivating new farmland.
This value is capitalized under investment costs and is also recorded as a separate item of income.
Management accounts record size of agricultural land, use of the land, labour input and achieved agricultural yields. As regards farm forestry, sustainable yield and some technical data on the current financial year’s operations are recorded.
Tax accounts measure the average forestry result from the last five years, on farms with agricultural enterprise. Management accounts focus on the result for each financial year.
Management accounts treat payments to the Forest Trust Fund as allocations to reserves and disregard these transactions. Similarly, refunds from the Forest Trust Fund are not recorded as income.
The construction of forestry roads entail directly charged expenses in tax accounts.
Management accounts capitalize these investments.
1.7 Result measures and calculations
The survey presents various result measures. In the following the internal connections between these will be explained.
1.7.1 Agriculture
Output – Variable costs
= Gross margin
– Fixed costs excluding depreciation
= Result before depreciation – Depreciation
= Net income
Net income expresses the payment for family labour and for own and borrowed
capital. There are several ways to split the net income in order to measure different kinds of return on labour and capital:
1) Net income
– Required return on agricultural assets = Family labour income
+ Costs of hired labour = Capacity to pay 2) Net income
– Family payment for labour (imputed value)
= Return on capital 3) Net income
+ Costs of hired labour
– Share of interest on debt and payments to previous owner (assigned to agriculture)
= Return on labour and own capital 4) Return on labour and own capital
+ Adjustment for income effect of Farmer’s allowance = Tax-adjusted return on labour and own capital 5) Net income
– Share of interest on debt and payments to previous owner (assigned to agriculture)
= Return on family labour and own capital
Family labour income, return on labour and own capital (also the tax-adjusted return) and return on family labour and own capital are measures that are often calculated per man-year. One man-year is defined to be 1,845 hours of labour. Hours of unpaid hired labour and hours of family labour are merged. Capacity to pay is generally calculated per hour worked.
In chapter 1.9 some details regarding calculation of tax-adjusted return on labour and own capital are presented.
The required rate of return is aimed to reflect the market’s current interest rate level and is settled at 2.0 per cent for 2016 and 2015. For the six previous years the rate is kept at 3.0 per cent. Further backwards the rate is fixed at 6.0 per cent for 2008 and 5.0 per cent for 2007.
1.7.2 Forestry
The result measures of forestry differ from those of agriculture. Profitability is calculated both excluding and including silviculture activities.
Changes of growing stock are not regarded when calculating forestry results.
Output
– Costs excluding silviculture = Result before silviculture – Silviculture (net)
= Net income
To allow comparison with results from other forestry statistics, an imputed value of family labour input is included.
Output from timber sales
– Variable costs including imputed value of family labour
= Net conversion return + Other income
= Result before depreciation – Depreciation
= Result before silviculture
– Silviculture (net) including imputed value of family labour
= Operating result +/– Forest Trust Fund
= Adjusted operating result
1.7.3 Total net income for the farmer’s family
Total net income include earnings derived from all the farm family’s different sources and is calculated as follows:
Net income, agriculture + Net income, forestry
+ Net income, other gainful activities (farm-based) + Net income, farm-independent occupations + Wage income and pensions
+ Family labour connected to investments (imputed value) + Interest earnings
= Family payment – Interest payments
– Payments to previous owner
= Total net income
Net income expresses the payment for family labour and for own and borrowed
capital. There are several ways to split the net income in order to measure different kinds of return on labour and capital:
1) Net income
– Required return on agricultural assets = Family labour income
+ Costs of hired labour = Capacity to pay 2) Net income
– Family payment for labour (imputed value)
= Return on capital 3) Net income
+ Costs of hired labour
– Share of interest on debt and payments to previous owner (assigned to agriculture)
= Return on labour and own capital 4) Return on labour and own capital
+ Adjustment for income effect of Farmer’s allowance = Tax-adjusted return on labour and own capital 5) Net income
– Share of interest on debt and payments to previous owner (assigned to agriculture)
= Return on family labour and own capital
Family labour income, return on labour and own capital (also the tax-adjusted return) and return on family labour and own capital are measures that are often calculated per man-year. One man-year is defined to be 1,845 hours of labour. Hours of unpaid hired labour and hours of family labour are merged. Capacity to pay is generally calculated per hour worked.
In chapter 1.9 some details regarding calculation of tax-adjusted return on labour and own capital are presented.
The required rate of return is aimed to reflect the market’s current interest rate level and is settled at 2.0 per cent for 2016 and 2015. For the six previous years the rate is kept at 3.0 per cent. Further backwards the rate is fixed at 6.0 per cent for 2008 and 5.0 per cent for 2007.
1.7.2 Forestry
The result measures of forestry differ from those of agriculture. Profitability is calculated both excluding and including silviculture activities.
Changes of growing stock are not regarded when calculating forestry results.
Output
– Costs excluding silviculture = Result before silviculture – Silviculture (net)
= Net income
To allow comparison with results from other forestry statistics, an imputed value of family labour input is included.
Output from timber sales
– Variable costs including imputed value of family labour
= Net conversion return + Other income
= Result before depreciation – Depreciation
= Result before silviculture
– Silviculture (net) including imputed value of family labour
= Operating result +/– Forest Trust Fund
= Adjusted operating result
1.7.3 Total net income for the farmer’s family
Total net income include earnings derived from all the farm family’s different sources and is calculated as follows:
Net income, agriculture + Net income, forestry
+ Net income, other gainful activities (farm-based) + Net income, farm-independent occupations + Wage income and pensions
+ Family labour connected to investments (imputed value) + Interest earnings
= Family payment – Interest payments
– Payments to previous owner
= Total net income
The private consumption of the family is measured this way:
Total net income
– Extraordinary items, debit (bad debts, gifts given etc.)
+ Extraordinary items, credit (child benefit, inheritance, gifts received etc.) – Equity, closing balance
+ Equity, opening balance – Taxes paid
= Private consumption