Indicator Name, Target and Goal

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

Target 2.a: Increase investment, including through enhanced international cooperation, in rural infrastructure, agricultural research and extension services, technology development and plant and livestock gene banks in order to enhance agricultural productive capacity in developing countries, in particular least developed countries

Goal 2: End hunger, achieve food security and improved nutrition and promote sustainable agriculture

Definition and Rationale

Definition:

The Agriculture Orientation Index (AOI) for Government Expenditures is defined as the Agriculture Share of Central Government Expenditure, divided by the Agriculture Share of GDP, where Agriculture refers to the agriculture, forestry, fishing and hunting sector. Government Expenditures are compiled according to the international Classification of the Functions of Government (COFOG), and Agriculture Share of GDP according to the System of National Accounts (SNA).

 Concepts:

Government expenditures are based on the IMF Government Finance Statistics (GFS) methodology, and are defined as expenses plus the net investment in non-financial assets. They include compensation of employees, subsidies and grants paid as transfers to individuals or corporations, acquisitions of non-financial assets, etc. In particular, Government Expenditure on Agriculture includes all the expenditures that fall under the COFOG group 04.2 (Agriculture, Forestry, Fishing) of the Classification of the Functions of Government (COFOG).

 Agriculture share of GDP refers to the share of contribution to the GDP from the agricultural sector where, agriculture refers to the agriculture, forestry, fishing and hunting sector, or Division A of International Standard of Industry Classification (ISIC) Rev 4 (equal to Division A+B of ISIC Rev 3.2).

Rationale and Interpretation:

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 need for income redistribution.

An Agriculture Orientation Index (AOI) greater than 1 reflects a higher share of government spending in the agriculture sector, relative to the sector’s share in overall GDP. An AOI less than 1 reflects a lower share of government spending in the agricultural sector, relative to the sector’s share in overall GDP. An AOI of 1 reflects neutrality in a government’s orientation to the agriculture sector. The AOI is a currency-free measure and allows for comparison across countries with different agricultural sector size through viewing government expenditures into agriculture relative to the size of the agricultural sector of the country. 

Data Sources and Collection Method

Data on government expenditures are collected from countries (Department of Finance or other central planning agency, National Statistics Office, and/or Ministry of Agriculture), using an annual questionnaire administered by FAO. For some countries that do not report such data to FAO, data may be obtained from the IMF Government Finance Statistics (GFS) database (the IMF also collects data on Government Expenditure by COFOG, but with less disaggregation of the Agriculture sector) or from official national governmental websites. 

Data on agriculture value-added and GDP are based on the System of National Accounts (SNA), which is an analytical framework that compiles national data from a mix of survey, census and administrative (e.g. tax) sources. This data is obtained from the UN Statistics Division, which provides national accounts estimates for 220 countries and territories.

Method of Computation and Other Methodological Considerations

Computation Method:

The Agriculture Orientation Index can be calculated using the following formula:

where,

Agriculture share of government expenditure is the proportion of total central government expenditure spent on the agricultural sector based on the COFOG classification; and

Agriculture share of GDP is the total value added in the agricultural sector as a proportion of the total value added in the economy (GDP). This is based on the Division A of International Standard of Industry Classification (ISIC) Rev 4. 

Comments and limitations:

Since the numerator of this data is based on 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 it takes into account only central government expenditure. To the extent that some countries may have heavier intervention in Agriculture by sub-national governments, this will not be taken into account.

In addition, AOI equal to 1 may not be the right target for a country, due to differences in degrees of decentralization, and degrees of market failure and income redistribution policies. Additionally, comparing an AOI within a country over time should be done along with its two components (the Agriculture share of Government Expenditures and the Agriculture Value Added Share of GDP), and in the context of the severity of market failure and agriculture sector income inequalities.

Proxy, alternative and additional indicators: N/A

Data Disaggregation

Since this indicator is based on central government expenditures, which does not take into account the demographics of beneficiaries, it does not allow for data disaggregation.

References

Official SDG Metadata URL
https://unstats.un.org/sdgs/metadata/files/Metadata-02-0A-01.pdf  

Internationally agreed methodology and guideline URL
United Nations Statistics Division. Classification of the Functions of Government (COFOG). New York. Available at: https://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=4&Top=1&Lg=1 

United Nations Statistics Division (2008). System of National Accounts. New York. Available at:  https://unstats.un.org/unsd/nationalaccount/sna.asp 

International Monetary Fund (2014). Government Finance Statistics Manual 2014. Washington, D.C. Available at: https://www.imf.org/external/Pubs/FT/GFS/Manual/2014/gfsfinal.pdf 

United Nations Statistics Division. International Standard Industrial Classification Rev. 4. New York. Available at: https://unstats.un.org/unsd/cr/registry/isic-4.asp  

Other references
FAO SDG Portal and E-Learning:

FAO. Sustainable Development Goals Indicators. Available at http://www.fao.org/sustainable-development-goals/indicators/en/

FAO. E-learning Centre. Available at http://www.fao.org/elearning/

Additional References:
FAOSTAT - Government Expenditure on Agriculture. http://www.fao.org/faostat/en/#data/IG 

FAOSTAT Macro Indicators. http://www.fao.org/faostat/en/#data/MK 

FAO ESS - Government Expenditure on Agriculture. http://www.fao.org/economic/ess/investment/expenditure/en/ 

FAO SDG Indicator 2.a.1 – Agriculture Orientation Index for Government Expenditure http://www.fao.org/sustainable-development-goals/indicators/2.a.1/en/

International Organization(s) for Global Monitoring

This document was prepared based on inputs from Food and Agricultural Organization (FAO).

For focal point information for this indicator, please visit https://unstats.un.org/sdgs/dataContacts/

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