Economic Profit

Economic profit measures the monetary profitability of agriculture, including compensation for entrepreneurial risk. It is calculated by deducting the opportunity costs of the entrepreneurial family’s own labour and capital from the agricultural income.

The opportunity cost of the family’s own labour, wage claim, is calculated by multiplying the family’s total hours worked in agriculture by the average hourly wage of agricultural workers. The opportunity cost of equity capital, interest claim, is determined by multiplying the average equity capital for the financial year by the average interest rate paid on external capital.

The average hourly wage of agricultural workers and the average interest rate on external capital are calculated annually for each EU Member State based on their own FADN accounting data. These wage and interest claims are country-specific and thus reflect the prevailing cost levels in each Member State.

By dividing total costs by total output (Total Output, SE131 + Balance current subsidies & taxes, SE600), a total cost percentage is obtained. This indicator expresses the ratio of costs to total revenue. If costs, including opportunity costs, are higher than output, the ratio will be greater than 100%. The entrepreneurial profit is then negative.