How the SEEA Experimental Ecosystem Accounting framework could be used for growth accounting and productivity analysis

Transcription

1 How the SEEA Experimental Ecosystem Accounting framework could be used for growth accounting and productivity analysis Paper prepared for the OECD Expert Workshop on Measuring Environmentally Adjusted TFP and its Determinants, December, 2015 Carl Obst Director, Institute for the Development of Environmental-Economic Accounting (IDEEA) Honorary Fellow, Melbourne Sustainable Society Institute, University of Melbourne December Introduction In light of the ongoing realities of climate change and the increasing demand for food around the world, understanding the capacity of the environment to support agricultural production is of upmost concern. An important part of this understanding is the organization and analysis of information about the link between the environmental assets and ecosystems that underpin agricultural production and the production functions that describe the activities of the economic units (including households) that are involved in that activity. Commonly, environmental and economic analysis is not conducted in an integrated manner and the available information does not generally support such analysis. In this context, the measurement of productivity represents an important analytical and monitoring tool. The explicit incorporation of environmental considerations into productivity measures, especially for the agricultural industry, would support a more complete understanding of the factors that drive output and inputs growth and hence support the development of more integrated policy responses. At national level, the standard approach to measuring multi- or total factor productivity (MFP/TFP) that is used across OECD countries is known as growth accounting. The approach uses the framework and data from the national accounts i.e., the dataset that incorporates gross domestic product (GDP) and associated measures of investment, wages and salaries, profits and related variables. The national accounts themselves are compiled by all OECD countries following the international standard, the System of National Accounts (SNA) (EC et al, 2009). Estimates for the agriculture industry are included in national measures of MFP. However, notwithstanding the direct use of environmental assets by the agriculture industry, the measurement of capital s contribution to MFP growth in agriculture has commonly been undertaken using the same methods as for other industries i.e. including only produced (or manufactured) capital. More recently, in some countries (e.g. Australia), a variation has been adopted with the inclusion of the area of agricultural land as a capital input (ABS, 2014), but no account is taken for the changing quality of land, for example through declines in soil fertility and soil erosion. Over the past 20 years there have been important advances in the measurement of natural capital and environmental assets, encapsulated in the recent international standard, the System of Environmental-Economic Accounting (SEEA) 2012 Central Framework (SEEA Central 1

2 Framework) (UN et al., 2014a) which uses national accounting principles for the organization and integration of environmental data. In 2013, as an extension to the SEEA Central Framework, an additional perspective was introduced to apply national accounting principles to the integration of information on ecosystem condition and ecosystem services. This advance is referred to as ecosystem accounting and is described in the SEEA 2012 Experimental Ecosystem Accounting (SEEA EEA) (UN et al., 2014b). In concept, ecosystem accounting provides information that can directly enhance the measurement of MFP. In effect, measures of the ecosystem assets (i.e. the underlying natural capital) that underpin agricultural activity can be included as a new factor of production in deriving the volume of inputs i.e. in addition to labour and produced capital. For agriculture, the enhancement allows recognition of the changing quality of agricultural land and surrounding ecosystems. This paper articulates the way in which information on ecosystem services and ecosystem assets might be incorporated into standard growth accounting measures of MFP. It also provides a series of conceptual and measurement issues that remain to be further explored, including the potential for ecosystem accounting approaches to be applied at both macro and micro levels. Since the integration proposed requires bringing together quite different streams of measurement, particularly with regard to ecosystem accounting, the first half of the paper provides some introductory and background descriptions of relevant material. Thus, in section 2, there is some background to the development of the SEEA; in section 3, the ecosystem accounting model is described; and in section 4, an overview of the growth accounting method is provided. All of this background is to provide a frame for the integration of ecosystem information. Section 5 discusses in conceptual terms the way in which ecosystem services could be integrated into the standard growth accounting framework. Section 6 describes the key research questions and section 7 concludes. 2. Overview of the SEEA framework and its development Development of the SEEA 1 The potential and need to better integrate measures relating to natural capital within the national accounts framework emerged through the 1970s and 80s (see Bartelmus, 1987; Ahmad et al., 1989). Consistent with a request from the first United Nations Conference on Environment and Development held in Rio de Janeiro in 1992 (United Nations, 1993a), the United Nations Statistical Division led the drafting of the first international document on environmental-economic accounting (United Nations, 1993b). This document, Integrated Environmental and Economic Accounting, became known as the System of Environmental- Economic Accounting or SEEA. It was an interim document prepared by the world s official statistics community to propose ways in which the SNA might be extended to better take natural capital into consideration. Over the past 20 years there has been an important broadening of focus in SEEA related work. Through the 1980s and early 1990s the primary focus was on extensions and adjustments to GDP, for example measures of depletion and degradation adjusted GDP, and recording environmental expenditures. Discussion considered the range of ways in which depletion and degradation might be estimated, valued and subsequently incorporated within the structure of the standard national accounts and its various measures of production, income, saving and wealth. 1 This brief history is taken from Obst (2015) which summarises the longer description in UN, et. al., 2014a 2

3 Through the 1990s this specific focus started to broaden to consider ways in which accounting approaches and structures may be useful in the organization of physical information on environmental stocks and flows such as water, energy and waste. This broader application of accounting, which has been expanded further in recent years through the development of ecosystem accounting, confronts the common conception that adoption of accounting approaches necessarily relies on the valuation of nature in monetary terms. Certainly there are questions that cannot be answered unless valuation is undertaken, for example adjusting measures of GDP, but there are some important advantages of applying accounting principles in the organization of data in physical terms. The SEEA family The SEEA 2012 comprises three volumes: (i) the SEEA Central Framework; (ii) SEEA EEA; and (iii) the SEEA 2012 Applications and Extensions (UN et. al., 2014c) 2. In addition, various thematic SEEA publications have been developed including a SEEA for Forestry (Eurostat, 2000); a SEEA Fisheries (UN and FAO, 2004); and SEEA Water (UN, 2012). Work is almost complete on the development of a SEEA Energy and a final consultation draft is currently under review on a SEEA for Agriculture, Forestry and Fisheries (SEEA Agriculture). All of these various publications within the SEEA family are connected through their common basis in the national accounting principles and structures of the international standard for economic accounting the System of National Accounts (EC, et. al., 2009) (referred to here as the SNA). It is the SNA that defines the measure of GDP and many other common economic aggregates that form the basis for much macro-economic assessment and policy. Indeed, the logic driving the development of the SEEA is (i) that the SNA s accounting for the environment is insufficient and (ii) that highlighting the significance of the environment may be best achieved by mainstreaming environmental information via the standard framework for economic measurement. Thus the SEEA is envisioned as a complementary system to the SNA rather than a competing or alternative approach. Box 1: The SEEA Central Framework and SEEA Experimental Ecosystem Accounting Initially developed in the early 1990s, the SEEA is conceived as a comprehensive approach for the organization of information concerning the relationship between the environment and the economy. To provide a suitable coverage and to ensure that more recent developments on ecosystem services could be incorporated, a two volume approach to the development of the SEEA 2012 was applied. The first volume, titled SEEA Central Framework, views the environment in terms of individual environmental stocks and flows and hence provides standards to account for variables such as stocks of timber, fish, mineral resources and land, and for flows of energy, water, emissions and waste. The second volume, titled SEEA Experimental Ecosystem Accounting, views the environment as a set of ecosystems such as forests, wetlands, grasslands and agricultural land. The ecosystem accounting model describes the measurement of the changes in condition and extent of the stock of ecosystem assets ; and the measurement of the ecosystem services that flow from those assets. There are connections between the two volumes (for example between the measurement of the stock of timber resources and the condition of forests). The intention is that the different perspectives are seen as complementary rather than competing approaches to accounting for natural capital. 2 The third volume focuses on ways in which data organized following the SEEA Central Framework can be applied to the analysis of various policy questions and linked to other datasets. It is not discussed further here. 3

4 This approach of integrating with the SNA leads to some important choices in measurement, for example concerning valuation concepts, that may be different from the ways in which environmental economists have traditionally approached assessment of the links between the economy and the environment. The various SEEA publications cover five different aspects of accounting, although to varying degrees within the thematic SEEAs. These five aspects are: (i) physical flow accounts for substances such as water, energy, solid waste and emissions (ii) asset accounts for individual environmental assets, such as mineral and energy resources, timber resources, soil resources, water resources and fish stocks (iii) accounting for stocks and changes in stocks of land and ecosystems and their services (iv) accounting for environmental transactions (including environmental protection expenditure, the production of environmental goods and services, and flows of environmental taxes and subsidies) (v) a sequence of accounts and balance sheets including accounting for depletion and degradation and adjusting relevant economic aggregates (e.g. GDP, national saving, net wealth). The SEEA for Agriculture, Forestry and Fisheries (SEEA Agriculture) emerged from ongoing interest in organizing information for the purpose of analyzing the relationship between the economy and the environment for agriculture, forestry and fisheries activities. The work has been led by the FAO who are the leading international agency concerning data on these activities. The SEEA Agriculture is expected to be finalized in early A short summary is provided in Annex The SEEA EEA ecosystem accounting model The SEEA EEA was developed through 2011 and 2012 to provide an approach to the measurement and integration of environmental degradation within the standard economic accounts. The definition and measurement of degradation has been an area of discussion and contention within national accounting circles for more than 20 years. The work on SEEA EEA was able to take advantage of the more recent developments in the measurement of ecosystem services, such as presented in the Millennium Ecosystem Assessment (MA, 2005) and the original TEEB study (TEEB, 2010). The SEEA EEA represents a synthesis of approaches to the measurement of ecosystems adapted to enable integration with standard national accounting concepts and measurement boundaries. The full ecosystem accounting model is described at length in SEEA EEA chapter 2 and readers are referred to that document for a detailed description. For the purposes of discussion here Figure 1 provides a depiction of the general model. 4

5 Figure 1: General ecosystem accounting model (SEEA EEA Figure 2.2) Source: UN et al, 2014a Five key features are noted: (i) The delineation of spatial areas. Ecosystem accounting is focused on accounting for ecosystem assets, each delineated by a spatial area. In the case of agriculture this could equate to a single farm or to a broader area, such as a rice farming area, with the understanding that each spatial area would consist of a similar vegetation type and cover. From a measurement perspective, defining the spatial boundaries is fundamental since without such boundaries it is not possible to consistently measure the condition and changes in condition of the asset or to appropriately attribute flows of ecosystem services. In addition, the use of a spatial basis for accounting is the embodiment of a systems approach to accounting wherein both economic and environmental stocks and flows are considered in a holistic fashion. However, the delineation of an ecosystem asset should not be equated with definition of a farming or agricultural system which would commonly be considered to also encompass a range of socio-economic factors (e.g. markets, institutions, government policies, etc). Further, it is likely that a complete agricultural system would comprise more than one type of ecosystem asset. For example, in a rice production system there would be rice fields as well as neighbouring water sources and perhaps forest ecosystems. Finally, for the purposes of integrating ecosystem information about the defined spatial areas with standard economic accounting and productivity measurement, it is most useful to consider this asset as a type of quasi-producing unit additional to the standard economic units such as industries and households. (ii) Measuring the condition of ecosystem assets. Each ecosystem asset (e.g. a rice farm) has numerous characteristics (climate, soil, vegetation, species diversity, etc) and performs various ecosystem functions. The integrity and functioning of the asset is measured by its condition. It is the decline in overall condition, in biophysical terms, that underpins the measurement of ecosystem degradation. At this point there is no finalized view on precisely which characteristics should be monitored for each ecosystem type in order to provide an appropriate assessment of the overall condition (current state) and the change in condition of an ecosystem asset. Accounts for ecosystem condition and ecosystem extent (i.e. the area of the ecosystem asset) are described in SEEA EEA. These accounts are compiled in biophysical terms only. 5

6 (iii) Measuring the flow of ecosystem services. Based on both the ecosystem asset s condition and the use made of the ecosystem asset (e.g. for rice production), a basket of ecosystem services will be supplied. The ecosystem services supplied are matched to users/beneficiaries, i.e. economic units including businesses, households and governments. An ecosystem services supply and use account is developed in ecosystem accounting. The coverage of ecosystem services includes provisioning services (e.g. food, fibre, water), regulating services (e.g. air filtration, water flow regulation, carbon sequestration) and cultural services (e.g. tourism, spiritual connections). The focus in SEEA EEA is on final ecosystem services following the approach taken in TEEB (2010) and Boyd and Banzhaf (2012), among others. Consequently, ecosystem services are considered contributions to benefits and in valuation a distinction is drawn between the price of a marketed good such as rice and the value of the contribution of the ecosystem. In this case the contribution would be estimated by deducting growing and harvesting costs (e.g. labour, pesticides, fertilizer, machinery, etc) from total revenue. In concept, by estimating the monetary value of all ecosystem services supplied by an ecosystem asset, and then estimating the associated net present value of this basket of services, the value of the ecosystem asset itself is derived. The value of ecosystem degradation will be related to the change in the value of the ecosystem asset over an accounting period, noting that the value of the asset may change for reasons other than a decline in condition, e.g. through changes in land use; and that a loss in condition may not be due to human activity (e.g. storm damage) and hence would be excluded from ecosystem degradation for accounting purposes. 3 (iv) Relating ecosystem services to standard measures of economic activity. The supply of all ecosystem services is outside the production boundary of the SNA as they are considered natural processes (see SNA 2008, 6.24). At the same time, many ecosystem services contribute to the production of goods and services that are included in the SNA production boundary, for example the contribution of soil nutrients to rice production. In this case the net effect on GDP of recording the supply of ecosystem services is zero, since the ecosystem services are considered outputs of the ecosystem asset and inputs to existing production. 4 The SEEA EEA also goes an additional step by including the supply of ecosystem services that are not inputs to current goods and services. For example, the carbon sequestration service of plants. It is this additional output, and associated value added, that directly increases measures of GDP. (v) The use of exchange values. The ecosystem accounting model reflects relationships between stocks and flows that exist without regard for the unit of measurement. Thus, in concept, the accounting relationships can be reported in both physical and monetary units. Measurement in monetary terms requires the use of various valuation techniques since prices for ecosystem services and assets are not directly observed in markets as for standard economic products. Economists have developed many valuation techniques to support analysis of environmental issues including the valuation of ecosystem services. For accounting purposes, some of these 3 In national accounting degradation, like the depreciation of manufactured assets, is considered a cost against income from production and hence only the change in asset value that is attributable to the production activity should be deducted. Other changes in value are recorded in the accounts but not as a deduction from income. 4 Note that it is by recognizing ecosystem services as both outputs (of ecosystem assets) and inputs (to farming units) that double counting is avoided. The treatment is exactly analogous to the treatment of outputs and inputs through the standard supply chains recorded in the national accounts. 6

7 techniques are appropriate as they estimate the exchange value of an ecosystem service, i.e. the price at which a willing buyer and willing seller would complete a transaction. Exchange values are required for accounting since they allow a balance between supply and demand to be maintained in monetary terms. However, a number of valuation techniques measure welfare values that reflect the value to an individual buyer or seller of undertaking a transaction. Such valuations are not appropriate for accounting purposes although they may be appropriate for various forms of economic analysis. Research is ongoing about the best ways to utilize different valuation techniques for accounting purposes. 4. Background to the growth accounting approach to the measurement of MFP Multifactor productivity (MFP) is a well accepted and broadly compiled estimate of productivity that takes into account the extent to which the volume all of the inputs to production (labour, capital and intermediate inputs) are changing in relation to the volume of output. In short, MFP growth occurs when the growth in the volume of output is greater than the combined volume of inputs. Under various assumptions, the so called MFP residual reflects changes in technical progress i.e. that part of the growth in output that cannot be explained by the growth in inputs. The measurement of MFP can be undertaken in many ways and has been compiled for individual firms, industries and for countries as a whole. At national level, the standard approach used across OECD countries is known as growth accounting. It was developed in the 1950s and 60s by Robert Solow, Dale Jorgenson and others and has been continually advanced since that time. The approach uses the framework and data from the national accounts. Because national accounts compiled by official statistical agencies are the basis for growth accounting, MFP estimates, since the 1980s OECD countries have steadily been adopting and publishing national MFP estimates as extensions from the core national accounts dataset. Two approaches are commonly applied. The first involves measuring the change in the volume of value added for each industry i.e. output less intermediate inputs and to compare this to the change in the combined volume of the two factors of production labour and capital. Since the volume of value added by industry is the same measure used in the derivation of GDP this information is readily available. The volumes of labour and capital are weighted together using national accounts information on the cost shares of each namely compensation of employees for labour inputs and gross operating surplus (GOS) for capital. The second approach, known as KLEMS (capital, labour, energy, materials and services), uses output by industry as the left hand side variable of interest and compares growth in output with the combined growth in inputs of labour, capital and three categories of intermediate inputs (energy, materials and services). Due to the use of the underlying national accounting information to determine input cost shares, the resulting MFP estimates from either approach can be mathematically related. In practice, the measurement of MFP draws out complexities that arise in all of the variables but the measurement of the volume of capital is generally considered the most complex. Traditionally, across all industries the only capital that has been considered has been produced capital buildings, machines, transport vehicles, roads, and the like. Investment flows on each asset type are incorporated in models and together with assumptions on asset lives, depreciation rates and similar factors, measures of the flows of capital services provided by produced capital can be estimated. As noted, the relative importance of capital, its cost share, is reflected in the measure of gross operating surplus. For the agricultural industry, it has long been recognised that consideration of only produced capital is insufficient to obtain a meaningful estimate of MFP. Therefore, current best practice is to include a measure of the area of agricultural land to reflect the importance of this form of 7

8 capital in the production of agricultural output. While this does broaden the scope of capital inputs being taken into account, the measure used takes no account of changes in the quality of agricultural land. The potential to improve the measurement of capital inputs to MFP is the entry point for the integration of ecosystem accounting and growth accounting. This is the focus of the following section. 5. Integrating ecosystem accounting and growth accounting for agriculture In concept, ecosystem accounting provides information that can directly enhance the measurement of MFP. In effect, measures of the ecosystem assets (i.e. the natural capital) that underpin agricultural activity can be included as an additional component of capital in deriving the combined volume of inputs i.e. in addition to labour and produced capital. The addition is appropriate in either a value added based approach to measuring MFP or a KLEMS based approach. In cases where land is already included as a capital input, the enhancement provided through ecosystem accounting is to recognize changes in the quality of agricultural land. The basis for the enhancement lies in recognizing that the flows of ecosystem services from agricultural land (in line with the flow of ecosystem services from ecosystem assets in Figure 1) are directly analogous, in accounting terms, to the capital services that flow from produced capital. It has not been until the synthesis of ecosystem measurement and national accounting that took place in the SEEA EEA that this apparently quite simple insight has emerged. The incorporation of ecosystem services into MFP calculations can be undertaken in a number of stages. The most straightforward inclusion concerns ecosystem services where there is the direct use of an ecosystem by an agricultural unit. Examples include the abstraction of water for irrigation, the pollination of crops by wild pollinators, native grasses eaten by livestock and the absorption of soil nutrients in plant growth. For each of these types of ecosystem service there is an associated physical flow that reflects the flow of capital services in the growth accounting formulation. There are two key challenges in incorporating these ecosystem services. First, there is challenge of understanding and measuring the relationship between the physical flows of ecosystem services and the associated agricultural outputs. Commonly, there are no simple linear relationships involved with the supply of ecosystem services dependent on a range of factors including the relative condition of the ecosystem asset, the weather patterns that may arise in any given season and the extent of human inputs, for example the application of fertilizer and pesticides. However, while the precise articulation of the link between ecosystem services and agricultural output may be difficult, this is also the case for produced capital (although perhaps to a lesser extent) whereby assumptions about the link between assets and capital service flows are made following generalised models. The second challenge lies in estimating the cost share relevant for these inputs. Since these ecosystem services flow directly into the production of agricultural outputs that are included in standard measures of industry value added, in concept the value of these inputs should be incorporated implicitly in estimates of the gross operating surplus. It is therefore a matter of partitioning the gross operating surplus between the return to produced capital and the return to natural capital. This is akin to the measurement of resource rent as applied in standard natural resource accounting. The next stage in the incorporation of ecosystem services is recognizing the role that ecosystems play in dealing with the residual flows generated as a result of agricultural production. These services are often considered in economics in the context of negative production externalities and represent the use of the environment as a sink for pollutants and waste. Examples of relevant flows include GHG emissions and excess flows of nitrogen 8

9 and phosphorous into local water catchments. In these cases the relevant ecosystems provide a service to agricultural producers by capturing the residual flows. If the ecosystems were not playing this role costs would be incurred by the producer. Whether or not the release of residuals leads to a decline in the condition of the relevant ecosystem assets, a flow of ecosystem services should be recorded as an input to agricultural production. Unlike the previous case of direct use, it will be uncommon for the cost of these sink ecosystem services to be incorporated in the market prices for the outputs from agricultural production and hence the value of the services will not be incorporated into the operating surplus that might serve as a base for estimating the cost share of these inputs. Thus from an accounting perspective it becomes necessary to recognize additional outputs and inputs related to these services. Further, where the release of residuals does lead to a decline in the condition of ecosystem assets it is likely to be appropriate to allocate an amount of degradation, i.e. a cost of natural capital. As noted in the following section, further research is required to understand fully the accounting implications of these proposals. In relation to these types of sink ecosystem services, a note is made of the recent OECD work on environmentally adjusted MFP in which adjustments are made to account for GHG emissions. In the work by Brandt, Schreyer and Zipperer (2014) the growth accounting approach is used but rather than utilizing an ecosystem accounting logic to extend the measures, an indicator of emissions is reflected as a negative output of production and an associated environmentally adjusted GDP is derived. It may be that this approach can be mathematically incorporated within the broader ecosystem accounting logic but further examination is required. The final stage of potential extension of the ecosystem accounting approach is recognizing that there may be a range of positive externalities of agricultural production that could be considered in understanding the full production function and relevant trade-offs. Thus, the incorporation of ecosystem services could be extended to include the carbon sequestration services of farms which provide benefits globally, it would be possible to recognize the role that agricultural areas play in the regulation of water flows and the benefits obtained by the tourism industry from the management of agricultural landscapes. As in the previous stage the key challenge will be estimating the appropriate adjusted measure of agricultural output that reflects the production of these additional services by ecosystem assets managed by the agricultural industry. Overall, the incorporation of ecosystem services into the MFP picture should support a more extensive analysis of agricultural production processes. For example, tradeoffs between the use of fertilizer and the maintenance of soil fertility (and hence obtaining nutrients from the soil) should become explicit since both inputs are within scope of the system. Previously only fertilizer was recognised as an input in the calculations. There is thus the potential to reflect, in the measures of MFP, the effect of investments in best practice land management as part of the productivity equation. This simply was not possible in the past. 6. Key research questions It is considered that the broad approach of integrating ecosystem accounting and growth accounting has considerable potential but there remain important measurement issues to overcome. This section outlines some key research questions. First, a much more detailed working through of the conceptual model is needed with regard to the application to MFP measurement. In particular, it will be necessary to take the ecosystem accounting concepts and blend them with the standard capital and growth accounting theory and related index number approaches. An important aspect in this work will be considering 9

10 the alignment between ecosystem accounting and the production and consumption theory that underpins growth accounting. Indeed, it is likely that work in this area will have related benefits in the ongoing research to develop valuation techniques for ecosystem services that are appropriate for national accounting uses. Second, there are many data that need to be brought together to form a basis for compilation of environmentally adjusted MFP measures. Ecosystem accounting has not yet been implemented on a large scale in any country although some important pilot work is being undertaken in a number of locations. Experience to date suggests that progress on ecosystem accounting will generally involve bringing together a wide range of existing data and there would appear to be great potential to examine data that currently underpins the variety of agricultural models that have been developed that incorporate information on physical and ecological flows. Integrating these data within the accounting framework will be an important step. Also relevant in the context of data, especially for international comparison purposes, will be advances in the implementation of SEEA Agriculture and the associated coordination of country data by the FAO. Third, the most challenging area of measurement is likely to be the valuation of ecosystem services such that relevant cost shares within an accounting framework can be determined. Given that ecosystem services are not exchanged on markets, it will be important to advance the testing and implementation of appropriate non-market valuation techniques. A particularly interesting aspect here will be understanding the connections between values for agricultural land and values for associated ecosystem services. Fourth, an important aspect of the work will be considering spatial detail. Ecosystem accounting builds up from different types of ecosystem assets and hence it is possible, in theory, to consider the measurement of productivity for different regions and for different types of farming operation e.g. irrigated and rainfed agriculture, cropping and grazing. Building the information set to integrate macro and micro measurements of agricultural MFP would be a significant extension. Overall, while these are challenging research tasks, the broadening of the MFP framework to incorporate environmental adjustments would seem to provide an excellent platform for describing an integrated research program that can utilize findings from many different areas of work. 7. Conclusions This paper provides an introduction to two important fields of national accounting - the measurement of MFP through growth accounting approaches and the work on environmentaleconomic accounting. To this point, these two fields have not been connected in any direct sense. Given this lack of connection, the intent is this paper is to describe how recent developments in ecosystem accounting, incorporating measurement of ecosystem condition and ecosystem services, might be considered in an MFP context. Improved measurement of agricultural MFP provides a very relevant test case given the direct use of ecosystems and natural capital by the agricultural industry. Conceptually, the accounting equivalence between ecosystem services from ecosystem accounting and capital services utilized in standard MFP measurement, represents a fundamental insight and the basis for the potential to extend standard MFP measures. At the same time, there remain important research questions that must be advanced to consider this extension in more depth and to test the approach in practice. An important factor in taking forward this research is that ecosystem accounting can be applied at a relatively detailed spatial level, for example at farm or landscape level, and hence finding suitable test cases may be more straightforward compared to attempting to estimate the ecosystem accounting extension at national level in the first instance. 10

11 It is hoped that this introductory paper can provide a basis for further exchanges between relevant experts. A key finding from work on the SEEA over the past 5 years has been the need to bring together experts from a range of disciplines including economics, statistics, accounting, ecology and geography. The further inclusion of agricultural specialists, such as agronomists and soil scientists would be particularly relevant in the context of advancing measures of environmentally adjusted agricultural MFP. 11

12 Annex 1: SEEA for Agriculture Forestry and Fisheries (SEEA Agriculture) The SEEA Agriculture describes an accounting approach to organize information across ten main data domains see Table 1. Base accounts are designed to organize relevant basic data and statistics in each of these domains. Base accounts may be in the form of either supply and use tables e.g. the supply and use of agricultural products, the use of water, flows of nutrients (nitrogen & phosphorous) and GHG emissions; or asset accounts which show the stocks and changes in stocks of relevant environmental assets such as livestock, timber resources, fish stocks, land and soil resources. Table 1 Data domains of the SEEA Agriculture 1. Agricultural products and related environmental assets (e.g. orchards, livestock) 2. Forestry products and related environmental assets (e.g. timber resources) 3. Fisheries products and related environmental assets (e.g. fish stocks) 6 Greenhouse Gas (GHG) emissions 7. Fertilizers, nutrient flows and pesticides 8. Land 4. Water resources 9. Soil resources 5. Energy 10. Other economic data Using the information in the base accounts, combined presentations are developed which present together different pieces of information related to a theme of interest, such as food security, sustainability of production with respect to environment assets, bioenergy, or a comparison of input functions. By way of example, a combined presentation on the sustainability of wheat production might draw together information on the output of wheat, wheat prices, intermediate costs (fuel, fertilizer, etc.), employment, manufactured assets (tractors, etc.), profits, land use, soil condition, energy use and GHG emissions. In a final step, information from the combined presentations can be used to derive indicators of various types. For example, indicators of the output of wheat relative to water use or GHG emissions. This series of steps is shown in Figure 1. Figure 1 SEEA Agriculture framework for data flows and account connections Indicators Combined presenta ons by theme (e.g. food security, sustainability of produc on, bioenergy) Base accounts Supply and use accounts (e.g. AFF products, water, energy, fer lizer) Accounts for environmental assets (e.g. land, soil, water, mber, fish) Basic sta s cs and data Popula on & employment AFF produc on and consump on Inputs and residuals Natural resources & environmental assets Economic A particular feature of the SEEA Agriculture approach is the aim to provide detailed environmental and economic information at the key product level. Key products are those 12

13 considered to be the most important from the perspective of a country. Importance may be determined with regard to a product s contribution to agricultural value added, to exports, to calorie intake, to the use of land and water resources, and similar variables. Interest in the development of the SEEA Agriculture has proved very high from both developed and developing countries. This interest stems from the increasing importance of food security and the reality that the appropriate management of the environment is critical to developing appropriate policy responses. The importance of the social dimension of agriculture, forestry and fisheries activities is also keenly understood and is a driver for improved understanding of the sector. Further, the inclusion of forestry and fisheries alongside agriculture has also been welcomed as often these three activities are considered distinct areas of policy and analysis. Overall, the drivers behind the interest in the SEEA Agriculture are very similar to the drivers behind the TEEB AgFood [6]. While well advanced and well received to date, the statistical framework described in the SEEA Agriculture remains a work-in-progress. Initial feasibility assessments on SEEA Agriculture based on current FAO datasets and in four countries (Australia, Canada, Guatemala and Indonesia) have indicated that data across many of the ten domains are commonly available; albeit to differing degrees across countries and to different levels of specificity. Work is now turning to the description of implementation approaches and providing support to countries interested in developing SEEA Agriculture based datasets. At this stage, it is not intended that the SEEA Agriculture incorporate information on ecosystem services and changes in ecosystem condition. Thus, the SEEA Agriculture represents an application of the SEEA Central Framework rather than the SEEA EEA. Although not covered, the relevance of ecosystem accounting to the measurement of environmental-economic linkages in agriculture is recognized and further development of this aspect of the SEEA Agriculture is anticipated in due course. This work on connecting ecosystem services with the measurement of agricultural MFP is one example of how this work can be taken forward. Another example is present in work on the TEEB for Agriculture and Food study (TEEB, 2015) currently underway. 13

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