Standard Gross Margin
The European Union comprises 27 countries, some of which have collaborated economically and politically for 50 years. The consortium of nations arose from World War II with the goal of maintaining lasting peace and creating high living standards for its citizens. The E.U. governments share many policies, including the standard gross margin, a way of measuring the economic power of commercial farms in the participating countries.
Standard Gross Margin
In the European Union, the standard gross margin -- SGM -- is the money 1 hectare of crop or one animal raises after farmers deduct their expenses for growing the plants or rearing the livestock. In other words, the SGM is the profit they make from farming. The earnings vary depending on the crop and livestock, as well as on the region the farm is located in and the products are marketed.
Why Use SGM
The standard gross margin of a farm determines whether the operation exists for a commercial purpose. The European Commission defines a commercial farm as a piece of productive land that “is large enough to provide a main activity for the farmer and a level of income sufficient to support his or her family.”
How SGM Works
Every E.U. country has organizations known as liaison agencies. They collect statistical data from the farms themselves regarding their production volume and earnings. Since those numbers can change from one growing season to another based on weather or seed quality, for example, the agencies calculate a farm's SGM as an average of data collected for three consecutive years. After the farm has been operational for three years, its SGM is adjusted every two years. If a farm grows more than one kind of produce or raises more than one type of animal, the standard gross margin is determined for each separate crop and livestock.
Calculating a farm’s standard gross margin is the first step towards determining its production value within the European Union. After the SGM of every crop and livestock on a farm is calculated, the liaison agency uses the totals to figure out the farm’s European Size Unit -- ESU -- or what the farm is worth in euros. As of 2004, one ESU equals 1,200 euros.
SGM and ESU
To calculate a farm’s European Size Unit, the liaison agency adds the standard gross margins of all crops and livestock produced on the land. Then, it divides the sum by 1,200 or by what 1 ESU is worth in euros at the time it does the calculations -- the value of 1 ESU changes to reflect inflation.
Emma Watkins writes on finance, fitness and gardening. Her articles and essays have appeared in "Writer's Digest," "The Writer," "From House to Home," "Big Apple Parent" and other online and print venues. Watkins holds a Master of Arts in psychology.