Methodology - Agricultural Price Indices

Introduction of New Series to Base 2020 as 100

1. Introduction

This publication introduces the new series of agricultural output and input price indices with the base year 2020 as 100. The rebasing of the two series is in line with EU recommendations to update the base reference periods at regular five-year intervals. This new series replaces the existing series to base year 2020 as 100.

Changing to base 2020 as 100 has meant that base year average prices, for each item refer to the year 2020. Monthly and annual output and input price indices have been calculated from January 2019 onwards using as weights the estimated value of sales off farms and the estimated expenditure on farm inputs respectively, averaged over the years 2019, 2020 and 2021.

2. Definition

The Agricultural Price Indices comprise of:

• The index of producer prices of agricultural products – the Output Price Index.
• The index of purchase prices of the means of agricultural production – the Input Price Index.

The Output Price Index is based on the sales of agricultural products and the Input Price Index is based on the purchases of the means of agricultural production by agricultural producers. Both indices are compiled on the basis of the average farm concept. The average farm concept includes both sales to other economic sectors as well as sales/purchases of agricultural output between agricultural units for intermediate consumption purposes, excluding trade in animals between agricultural units.

3. Legal Basis

The Agricultural Price Indices are compiled on the basis of a voluntary agreement between Eurostat (the statistical office of the European Union) and Member States. The agricultural price indices are required for the compilation of the Economic Accounts for Agriculture which are compiled in compliance with Council Regulation (EC) No 138/2004.

4. Price Coverage

(i) Output Prices

For consistency with similar price indices at EU level, the prices used are based on the market price concept. The market price is defined as the price received by the producer without the deduction of bonuses, taxes or levies (except deductible VAT and third party levies) and without the inclusion of subsidies.

Monthly prices are used for most products. Annual prices are only available for some items e.g. cereals and for these products the annual price (or the price for the crop year) is used each month to calculate the monthly indices until the beginning of the next season or harvest.

Standardised prices are used for milk and cereals to ensure that products of identical quality are priced in successive periods. In the case of milk for manufacturing, this means pricing each month at a fixed butterfat (3.7%) and protein (3.3%) content. In the case of cereals, prices are standardised at 20% moisture content each year.

(ii) Input Prices

The input prices used are those actually paid by farmers, excluding VAT. Monthly prices are used for most products. For seasonal products, such as seeds and plant protection products, for which prices are only available at certain times during the year, the monthly prices returned during the last selling period remain unchanged until the product can be priced again for the next season. Some items are only priced annually e.g. veterinary fees and veterinary products and for these products the annual price is used each month to calculate the monthly indices.

5. Weights

The agricultural output price indices are intended to measure trends in the price of agricultural produce sold by farmers. The monthly total output price indices are the weighted average of the individual output price indices using the average annual value of sales off farms from the Economic Accounts for Agriculture in the period 2019 to 2021 as weights. A spread of three years is used to counteract any abnormalities which might have occurred in agricultural production in a single year. The annual output indices are calculated as the weighted arithmetic mean of the monthly indices.

The agricultural input price indices are designed to measure trends in the price of farm inputs purchased for current consumption (i.e. non-capital materials and services). The monthly total input price indices are the weighted average of the individual input price indices using the expenditure on farm inputs from the Economic Accounts for Agriculture in the period 2019 to 2021 as weights. A spread of three years is also used to counteract any abnormalities which might have occurred in purchases of inputs in a single year. The annual input indices are calculated as the simple arithmetic mean of the monthly indices.

While Eurostat require quarterly and annual output and input indices, the indices published in this national publication are of a monthly and annual frequency to provide continuity with the previous monthly series. It is important to note that there are differences between the methodology used to calculate the quarterly output indices for Eurostat and the methodology used to calculate the monthly output indices for the Agricultural Price Indices release. The weighting scheme used in the calculation of the quarterly output indices for Eurostat is compiled using base year quarterly weights to reflect the seasonal character of output products. The weighting scheme used in the calculation of the monthly output indices is compiled using fixed annual weights.

6. Index Calculation

The Laspeyres index formula, involving the use of fixed base year weights, has been used in the compilation of the monthly index numbers for all commodity groupings except vegetables, potatoes and sheep. Since the weights used are based on average values of sales, not on quantities, the following adapted Laspeyres index formula is used:

where:

I_t = the overall index in month t

(i.e. the base year value weight of item _j)

P_jo = the price of item j in the base year (i.e. the average price in the year 2020)

P_jt = the price of item j in month t

P_jo Q_jo = the average annual sales/purchases of item j around the base year (i.e. P_jo Q_jo the average value of

sales/purchase in the years 2019 to 2021)

P_jt / P_jo = the "price relative" of item j for month t compared with the base year

With the exception of vegetables, potatoes, and sheep the price index of a given commodity j in month t is given by the expression:

P_jt / P_jo x 100

i.e. the price relative multiplied by 100.

As vegetables, potatoes (i.e. early and main varieties) and sheep (i.e. lambs and hoggets) are highly seasonal commodities, it is not appropriate to use fixed annual weights when calculating these price indices. Accordingly, an approach using variable monthly baskets is used for this sub-indices. The composition of each monthly basket is based on the monthly pattern of sales of vegetables, potatoes, and sheep respectively averaged over the three years 2019 to 2021 inclusive. The monthly index is then calculated using the following formula:

i.e. (value of monthly basket at reference month prices/value of basket at average base year prices) x 100

where:

I_mt = price index in month m in year t

Q_imo = quantity of vegetable i / potato i / sheep i in basket in month m in the base year (2020)

P_imt = price of vegetable i / potato i / sheep i in month m in year t

P_io= weighted annual average price of vegetable i / potato i / sheep i in the base year (2020)