http://www.fao.org/economic/ess/ess-events/sdg-indicator-2a1/en/

1. Workshop on SDG Indicator 2.a.1;
Turin, Italy, 27-28 March 2018
COMPILATION OF THE INDICATOR,
RATIONALE AND USE
Sangita Dubey, Senior Statistician/Team Leader, FAO
Titus Mwisomba, Manager of Agriculture Statistics, Tanzania Bureau of Statistics
Giulia Gonnella, Statistician, FAO

2. SDG INDICATOR 2.A.1. FORMULA
AOI =
Agriculture share of GDP
based
on
Governance Finance
Statistics methodology
The Classification of the
Functions of
Government
based
on
System of National Accounts
International Standard
Industrial Classification of
All Economic Activities
Agriculture share of government expenditure

3. TABLE A: Government expenditure on agriculture and
related functions
General Government
Central Government
State
Government
s
Local
Government
s
Consolidatio
n Column
General
Government4
Budgetary
Central
Government
Extrabudgetar
y Units
Social Security
Funds
Consolidation
Column
Central
Government3
Functional classification2 (1) (2) (3) (4) (5) (6) (7) (8) (9)
7 EXPENDITURE (TOTAL OUTLAYS)
704 Economic Affairs
7042 Agriculture, forestry, fishing, and hunting
→ Recurrent
→ Capital
70421 Agriculture (crops and animal husbandry)
→ Recurrent
→ Capital
70422 Forestry
→ Recurrent
→ Capital
70423 Fishing and hunting
→ Recurrent
→ Capital
7048 R&D Economic Affairs
70482 R&D Agriculture, forestry, fishing, and hunting
705 Environmental protection
7054 Protection of Biodiversity and Landscape
→ Recurrent
→ Capital
7055 R&D Environmental Protection
→ Recurrent
→ Capital
7z1
Other, please specify:
________________________
7z2
Other, please specify:
________________________
Central government
expenditure on
agriculture
Total central
government
expenditure
GEA
Questionn
aire: List of
COFOG
categories
FAO-GOVERNMENT EXPENDITURE ON AGRICULTURE
(GEA) QUESTIONNAIRE & 2.a.1
2.a.1 numerator components from the GEA questionnaire.

4. INDICATOR 2.a.1- FAO CALENDAR
May: dispatch GEA
Questionnaire
June-Aug:
Review, validate,
process GEA
data
Sept: Compile
GEA & 2.a.1
indicators and
media release
Oct-Nov:
FAOSTAT and
media release
Feb-Mar:
Submit 2.a.1
indicator &
analysis for SDG
Global report

5. FAOSTAT: HTTP://WWW.FAO.ORG/FAOSTAT/EN/#DATA/IG

6. FAO STATISTICS DIVISION WEBPAGE
HTTP://WWW.FAO.ORG/ECONOMIC/ESS/INVESTMENT/EXPENDITURE/EN/

7. Top 10 in agricultural share of public expenditures
HTTP://WWW.FAO.ORG/ECONOMIC/ESS/INVESTMENT/EXPENDITURE/EN/

8. SDG REPORT 2017 / RAPPORT SUR LES ODD 2017
HTTPS://UNSTATS.UN.ORG/SDGS/REPORT/2017/GOAL-02/

9. RATIONALE FOR GOVERNMENT EXPENDITURES (1)
Negative
externalities
Government expenditure on agriculture and its corresponding
programs are essential to address market failures, and to
improve equity by redistributing income and other resources.
• Markets fails when the private sector is unable to reach an
efficient outcome, and government intervention helps
achieve efficiency.
• Market failures occur due to the existence of: negative
externalities; positive externalities; public goods; asymmetric
information, and market power.
Positive
externalities
Public
goods
Asymmetric
information
Market
Power

10. RATIONALE FOR GOVERNMENT EXPENDITURES (2)
Positive
externalities
Public
goods
Asymmetric
information
Market
Power
A negative externality occurs when the activity
of a producer or consumer imposes a cost on
others who do not benefit from the activity, and
cannot recoup the costs they incur.
For example, farmers that use chemical pesticides in
producing irrigated rice create pollution in nearby rivers and
streams. This imposes costs on downstream users of the
water. Governments can intervene by taxing pesticides
producers; imposing quotas on production; or subsidizing
farmers to use non-chemical pesticides.
Negative
externalities

11. RATIONALE FOR GOVERNMENT EXPENDITURES (3)
Negative
externalities
Public
goods
Asymmetric
information
Market
Power
A positive externality occurs when the activity of
a producer (or consumer) provides benefits to
others who do not pay for (all) benefits received.
A classic example is the knowledge generated by R&D. A
farmer that develops natural and low-costs mechanisms to
contain pests incurs costs that benefit other farmers for free.
This reduces incentives to invest in R&D. Governments
typically fund or subsidize such R&D activities, combined
with patent and copyright laws.
Positive
externalities

12. RATIONALE FOR GOVERNMENT EXPENDITURES (4)
Negative
externalities
Positive
externalities
Asymmetric
information
Market
Power
Public goods are goods and services from which
individuals cannot be excluded from consumption (non-
excludability in consumption), and the addition of a new
consumer has no impact on the amount available for
existing consumers (non-rivalry in consumption).
Examples include dams that prevent flooding of agricultural
land; and rural roads that bring goods to market. Fees
typically cannot be charged for use; and voluntary fees
result in free-riding due to non-excludability. This results in
private markets’ under-investment, requiring government to
intervene to finance such goods through tax revenues.
Public
goods

13. RATIONALE FOR GOVERNMENT EXPENDITURES (5)
Negative
externalities
Positive
externalities
Public
goods
Market
Power
Asymmetric information occurs when at least one party to two
an economic transaction has incomplete information. It
becomes a problem when it leads to adverse selection (poor
quality output) or moral hazard (“bad” or risky behavior).
Insurers of crop insurance set rates at the level of the average
farmer, adjusted for risk of pre-harvest loss. If production is highly
correlated with skills and expertise, high skilled farmers will opt out
of insurance due to its pricing at the average, resulting in lower
skilled farmers purchasing insurance (adverse selection).
Similarly, insurance may reduce incentives for farmers to protect
their crop against pests, disease and other forms of damage
(moral hazard). Government solutions by include provision or
subsidization of crop insurance programs.
Asymmetric
information

14. RATIONALE FOR GOVERNMENT EXPENDITURES (6)
Negative
externalities
Positive
externalities
Public
goods
Market power occurs when a producer (consumer) can set market
prices higher (lower) than if free competition were possible. One
cause is barriers to market entry, often from high fixed costs of
production or collusion by producers (monopoly or oligopoly).
Shear size of a consumer results in monopsony power, particularly
if the consumer acts to prevent competition.
In countries with concentrated supermarket chains, monopsony
power can result in farmers selling produce at low price, or
incurring losses if the chain refuses to buy less than perfect
looking products. The “ugly food” movement, by consumers, has
been one counteraction. Government advertising campaigns also
help, as do laws banning collusion.
Asymmetric
information
Market
Power

15. RATIONALE FOR GOVERNMENT EXPENDITURES – INCOME
REDISTRIBUTION (7)
• Income redistribution is also a key rationale for
government intervention, even when markets are
competitive and efficient.
• This equity-based rationale takes into account that
not all individuals are born into the same situation;
nor do they all face the same adversities.
• Those born into the poorest circumstances can face
a life with inadequate resources for survival and food
security. Adverse circumstances, such as illness,
injury and disability, can also result in individuals and
households facing poor prospects of survival and
food security.

16. RATIONALE FOR GOVERNMENT EXPENDITURES – INCOME
REDISTRIBUTION (8)
• Human rights is one rationale for income redistribution
programs, as is socio-political stability and inter-
temporal redistribution.
Governments redistribute income through multiple
means. Progressive tax systems are a key example.
Other include the distribution of food during food
shortages (to avoid food riots); input subsidies to poor
farmers; subsidies to regulate market prices for key food
products; public stockpiling to prevent severe price
fluctuations; sensitization campaigns targeted to
wealthier consumers and producers to reduce food
waste and food consumption during shortages.

17. INDICATOR 2.a.1 POLICY USE AND INTERPRETATION (1)
Consider a country whose central government spends 3.5% of total
expenditures, or outlays, on agriculture; and has a sector whose
value-added is 3.5% of GDP:
𝑨𝑶𝑰 =
𝐴𝑔𝑟𝑖𝑐𝑢𝑙𝑡𝑢𝑟𝑒 𝑆ℎ𝑎𝑟𝑒 𝑜𝑓 𝐺𝑜𝑣𝑒𝑟𝑛𝑚𝑒𝑛𝑡 𝐸𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒
Agriculture Value Added as Share of GDP
=
3.5
3.5
= 𝟏. 𝟎𝟎
AOI =1 means neutrality in the central government to the agricultural
sector relative to agriculture’s economic contribution.

18. INDICATOR 2.a.1 POLICY USE AND INTERPRETATION (2)
Botswana in 2015: central government expenditures of 50.563 billion BWP
(Botswana Pula), of which 2.099 was on agriculture; GDP of $14.390 billion,
and agriculture Value-Added of $0.312 billion.
𝑨𝑶𝑰 =
𝐴𝑔𝑟𝑖𝑐𝑢𝑙𝑡𝑢𝑟𝑒 𝑆ℎ𝑎𝑟𝑒 𝑜𝑓 𝐺𝑜𝑣𝑒𝑟𝑛𝑚𝑒𝑛𝑡 𝐸𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒
Agriculture Value Added as Share of GDP
=
2.099
50.563
∗ 100
0.312
14.390
∗ 100
=
=
4.15
2.17
= 𝟏. 𝟗𝟏
AOI >1 means Botswana had a higher orientation by its central
government to the agricultural sector relative to agriculture’s economic
contribution

19. INDICATOR 2.a.1 POLICY USE AND INTERPRETATION (3)
Guinea-Bissau in 2015: central government expenditures of 86.302 billion
XOF (CFA Franc), of which 4.003 was on agriculture; GDP of $0.978 billion,
and agriculture Value-Added of $0.433 billion.
𝑨𝑶𝑰 =
𝐴𝑔𝑟𝑖𝑐𝑢𝑙𝑡𝑢𝑟𝑒 𝑆ℎ𝑎𝑟𝑒 𝑜𝑓 𝐺𝑜𝑣𝑒𝑟𝑛𝑚𝑒𝑛𝑡 𝐸𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒
Agriculture Value Added as Share of GDP
=
4.003
86.302
∗ 100
0.433
0.978
∗ 100
=
=
4.64
44.27
= 𝟎. 𝟏𝟎
AOI <1 means Guinea-Bissau had a lower orientation by its central
government to the agricultural sector relative to agriculture’s economic
contribution

20. INDICATOR 2.a.1 POLICY USE AND INTERPRETATION (4)
AOI = 1 means a neutral orientation
of the central government towards
agriculture sector relative to the
sector’s contribution to the economy.
AOI >1 means a higher orientation of
the central government towards the
agriculture sector relative to the
sector’s contribution to the economy.
𝑨𝑶𝑰 =
4.15
2.17
= 𝟏. 𝟗𝟏
AOI < 1 means a lower orientation of
the central government towards the
agriculture sector relative to the
sector’s contribution to the economy.
𝑨𝑶𝑰 =
3.5
3.5
= 1.00
𝑨𝑶𝑰 =
4.64
44.27
= 𝟎. 𝟏𝟎

21. INDICATOR 2.a.1 POLICY USE AND INTERPRETATION? (5)
AOI>1:
 “overinvestment” in agriculture;
 well developed agricultural and rural infrastructure with
diminishing marginal productivity to public investment;
and/or
 Response to high degrees of market failure relative to
other sectors?
AOI<1:
 “under investment” in agriculture;
 poorly developed agriculture and rural infrastructure; o
with high returns to public investment; and/or
 low degrees of market failure relative to other sectors?

22. INDICATOR LIMITATIONS
• 2.a.1 reflects central government only.
• Underestimates AOI if agriculture is disproportionally
undertaken by state governments.
• AOI=1 may not be the right target for any country
• Difference in: degrees of decentralization, market
failures; income inequality and food insecurity.
• Still provides useful trend analysis, and comparisons
between countries with similar agriculture sectors.
• FAO to revise regional aggregation methodology
• Currently uses cold deck imputation of non-response