How are vertically integrated activities treated?

Vertical integration is treated like any other form of multiple activities. Paragraph 84 of the introductory guidelines states that the principal activity is the activity accounting for the largest share of value added, as determined according to the top down method. The treatment is statistical only, described here in the abstract, and it does not determine a code for a specific reader.

What is vertical integration in the manual?

Paragraph 83 defines vertical integration as the case where different stages of production are carried out in succession by the same unit, and the output of one process serves as an input to the next. The manual gives three examples: tree felling combined with sawmilling, a clay pit combined with brickworks, and production of apparel in a textile mill. In each example, the stages form a chain, and the product of one stage is consumed by the next stage inside the same unit. The chain is the defining feature. Activities carried on side by side using the same factors of production are horizontal integration, covered in a separate guide, and are treated differently in one respect, concerning the choice of substitute measure.

The definition matters because a vertically integrated unit does not sell the intermediate product on the market in the ordinary course of the chain. Its accounts may therefore show no separate value added for each stage. The manual anticipates that difficulty in paragraph 85, and provides a sequence of fallbacks. The definition comes first, the measurement difficulty second, and the fallback sequence third. No stage is given a code of its own by virtue of being a stage. The unit receives one classifying code, for its principal activity, under the same rules as any unit with multiple activities.

How is the principal activity identified for a chain?

Paragraph 84 states the rule without exception for the integrated case. Vertical integration should be treated like any other form of multiple activities, which means the principal activity is the activity accounting for the largest share of value added, as determined according to the top down method. The chain character of the work does not create a special classification for the chain as a whole, and it does not require the unit to be split into separate statistical units as a matter of course. Splitting a unit into more statistical units is mentioned in paragraph 85 only as a consequence that is avoided by assigning one code, with a stated cost: the production chain as represented in the input output framework becomes less clear.

Paragraph 85 then sets out the measurement sequence. If value added or substitutes cannot be determined for the individual steps directly from accounts compiled by the unit itself, comparisons with similar units could be used, for example based on market prices for intermediate and final products. The same precautions for using substitutes in paragraphs 72 to 77 apply. If it is still impossible to determine the share of value added or its substitutes for the different stages, default assignments for typical forms of vertical integration can be applied. The manual does not list those default assignments in paragraph 85, and this guide does not invent a list. The defaults are a matter for the statistical office applying the manual, using the explanatory notes and the classification index.

What is the sequence when stage figures are missing?

| Step | Source the manual names |

|---|---|

| 1 | Value added for each stage, from the unit’s own accounts |

| 2 | Comparisons with similar units, using market prices for intermediate and final products |

| 3 | Default assignments for typical forms of vertical integration, where stage shares remain impossible to determine |

The table follows paragraph 85. Each step is tried in order, and the precautions on substitutes apply at the second step. The table does not state the default assignments, because the manual does not state them in that paragraph. A reader with a vertically integrated unit should not guess a default. The institute or register that holds the record applies the defaults it uses, and the explanatory notes for the categories concerned state what each category includes and excludes.

What does this classification not decide?

The limit matters because the same activity words appear in many different registers and forms. The classification gives the activity a statistical place. It does not give the unit a right, a rate or a status. According to Eurostat, the legislation only applies to statistical use of the classification, and it does not oblige member states to collect, publish or supply data. A principal activity label therefore cannot be quoted as proof of eligibility for a scheme, a licence or an agreement. A separate step, taken with the institute or register named at the end of this guide, confirms the entry held for a specific unit.

Where is the entry confirmed?

A check of this subject follows three sources in order: the manual paragraphs cited, the explanatory note for the category in question, and the institute or register holding the entry. Each step answers a different question, and the last step is the only one that answers a question about a specific unit.

Treat the chain as multiple activities, apply the top down method to the largest value added share, and confirm the stage treatment with the institute or register that holds the record.