Gross Value Added (GVA) is the value that producers have added to the goods and services they have bought. When they sell their wares, producers’ income should be more than their costs, and the difference between the two is the value they have added.
For example, a brewer will buy barley, hops, and yeast and turn it into beer which they will sell for more than they paid for the ingredients. They will also have overheads for their brewery like heat, light, and insurance. The difference between all these costs and ingredient costs and what the brewer receives in payment for their goods is their Gross Value Added.
In National Accounts, instead of using the terms sales and costs we talk about Output, and Intermediate Consumption. In the example above, the sales are the Output and the costs of ingredients and other overheads are the Intermediate Consumption. However, there are more complicated cases where Output might mean something different to sales (see Output).
The brewer in the example will need some equipment to make the beer, and, if it is a large enterprise will employ people in the business. Gross Value Added does not deduct the wear and tear on equipment (Depreciation, or Consumption of Fixed Capital), what is paid to employees, taxes, interest on its loans (Investment Income), or Long Term Investment in the business from total Output.
If we deduct the depreciation from Gross Value Added we get Net Value Added.
Gross Value Added can be calculated in two ways. First, as we said, by subtraction like this:
Gross Value Added can also be calculated by addition like this:
The most important economic indicator, Gross Domestic Product (GDP) is mostly made up of GVA (see How GDP is Measured). GDP is GVA plus product Taxes (like VAT) minus product Subsidies. Taxes and subsidies are available for the economy as a whole but not for separate sectors like agriculture or manufacturing. For this reason, we cannot talk about, for example, 'GDP growth in agriculture' but we can describe the next best thing, which is 'GVA growth in agriculture'.