COMMISSION REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL EAGGF Guarantee Section expenditure Early warning system No 6/2000

CONTENTS

1. Overall outturn in monthly expenditure

2. Provisional utilisation of appropriations

3. Comments

4. Conclusions

1. Overall outturn in monthly expenditure

The following tables show the overall outturn in monthly expenditure in relation to the expenditure profile. This situation corresponds to expenditure incurred in the Member States from 16 October 1999 to 30 April 2000.

1.1. Subheading 1a: Traditional EAGGF Guarantee Section expenditure and veterinary expenditure

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1.2. Subheading 1b: Rural development and accompanying measures

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2. Provisional utilisation of appropriations

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3. Comments

3.1. The uptake of appropriations for June 2000

The uptake of appropriations under heading 1 of the budget for June 2000 (Member States' expenditure from 16 October 1999 to 30 April 2000) is EUR 30 320 million, i.e. 74.0 % of appropriations. Expenditure is

- EUR 123 million above the indicator for subheading 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure); this is the same as last month,

- EUR 166 million below the indicator for subheading 1b (rural development and accompanying measures).

3.2. Monetary factors

3.2.1. The dollar/euro rate

The expenditure indicated under the above point takes account of the movement in the dollar/euro rate. In the case of a large part of export refunds for agricultural products, particularly for cereals and sugar, and of some internal aids such as aid for cotton, expenditure depends on how the dollar rate develops.

In accordance with the Council Decision on budgetary discipline, the 2000 agriculture budget was drawn up on the basis of the average dollar rate for January, February and March 1999, i.e. EUR 1 = $ 1.12.

The real euro rates recorded were substantially lower than the budgetary parity. The average dollar rate for the period 1 August 1999 to 31 July 2000 (reference period for determining the impact of the dollar) will therefore diverge from this budgetary parity. The amount of expenditure incurred by the Member States will probably be lower as a result of the dollar rate [1]

[1] The average dollar rate for the period 1 August 1999 to 5 June 2000 was EUR 1 = $ 1. Should the rate at 5 June (EUR 1 = $ 0.94) continue until the end of the year, the average rate will be EUR 1 = $ 0.99.

The EAGGF Guarantee Section will only take partial advantage of these savings. It should be remembered that savings exceeding the margin of EUR 200 million fixed under the rules of budgetary discipline will be transferred to the monetary reserve at the end of the financial year, and cannot be used to finance other measures.

3.2.2. The impact of the dual rates

The impact of the dual rates will result in substantially lower expenditure than in previous years. Abolition of the green rates has eliminated the effect of dual rates in the countries participating in the euro and thus produced major savings.

The cost of the dual rate to the EAGGF Guarantee Section at the time when the letter of amendment was prepared was estimated at EUR 119 million. Recent calculations have estimated it at EUR 240 million, i.e. EUR 121 million more.

3.3. Market factors

3.3.1. Subheading 1a: Traditional EAGGF Guarantee Section expenditure and veterinary expenditure

Chapter B1-10: Arable crops // + EUR 305 million

// (expenditure: EUR 15 899 million)

(indicator: EUR 15 593 million)

The overrun of the indicator is due to:

- the across-the-board reduction in appropriations decided by the budgetary authority when the budget was adopted; in particular, certain budget items for area aid overrun the indicator,

- higher-than-expected expenditure on public storage (and increased purchases and sales),

- higher production refunds for starch (due to increased volume and higher rate of refund),

- export refunds, due to an increase in the rate of payment.

These overruns are partially offset by underutilisation following a delay in payments of per hectare aid in Italy (in particular for durum wheat) due to the further checks requested by the Commission.

As the savings resulting from the dollar exchange rate will need to be transferred at the end of the financial year to the monetary reserve, it may be expected that requirements will exceed appropriations at that time.

This is due in particular to the across-the-board reduction decided when the budget was adopted, and to higher expenditure on production refunds for starch. However, the end-year budget situation for expenditure on public storage looks better. Intervention stocks at the end of the year will be much smaller than originally forecast, because of a greater volume of exports at higher prices. Uptake under this chapter will also depend on the outcome of the checks in Italy.

Chapter B1-11: Sugar // + EUR 34 million

// (expenditure: EUR 1 200 million)

(indicator: EUR 1 166 million)

The overrun of the indicator is the result of higher payments for export refunds, due to the low level of world market prices.

Appropriations for this chapter will probably be overrun this financial year, owing in particular to the level of export refunds.

Chapter B1-12: Olive oil // - EUR 56 million

// (expenditure: EUR 1 951 million)

(indicator: EUR 2 007 million)

The divergence from the indicator results from lower expenditure on olive oil production aid. Following the change in the quota arrangements with the introduction of national quotas, overall expenditure in the form of advance payments is lower than in previous years. The underutilisation will probably disappear when the balance is paid later on in the financial year.

By contrast, a slight overrun on appropriations should be expected at the end of the financial year as a result of the across-the-board reduction when the budget was adopted.

Chapter B1-15: Fruit and vegetables // - EUR 188 million

// (expenditure: EUR 851 million)

(indicator: EUR 1 039 million)

The divergence from the indicator mainly concerns processed fruit and vegetables, and results in particular from the late payment of financial compensation to encourage the processing of citrus fruit, production aid for products processed from tomatoes, and production aid and intervention for processed dried grape products.

Underutilisation is only minimal for fresh fruit and vegetables, also because payments (for bananas) were made later than expected.

It is estimated that at the end of the year expenditure will be below the appropriations entered in the budget, in particular because of lower expenditure on financial compensation to encourage the processing of citrus fruit and on bananas.

Chapter B1-17: Tobacco // - EUR 77 million

// (expenditure: EUR 751 million)

(indicator: EUR 828 million)

The divergence from the indicator is the result of late payment for premiums for the 1999 harvest. It is expected that this delay will be made up during the financial year.

Chapter B1-20: Milk and milk products

// - EUR 58 million

// (expenditure: EUR 1 506 million)

(indicator: EUR 1 564 million)

The divergence from the indicator results from lower expenditure on public storage of skimmed-milk powder. Earnings on sales are considerably higher, as a result of the large volume sold from public intervention stocks.

However, the indicator was overrun for export refunds (increased volume of exports), expenditure on public storage of butter (more purchases) and aid for use of skimmed milk (in particular aid for the production of casein from skimmed milk).

Appropriations can be expected to exceed requirements at the end of the year. This will be due to lower expenditure on public storage of skimmed milk powder, and supplementary milk levies in excess of the figure in the budget. However, expenditure on export refunds, public storage of butter and aid for use of skimmed milk will probably overrun appropriations.

Chapter B1-21: Beef and veal // + EUR 190 million

// (expenditure: EUR 3 077 million)

(indicator: EUR 2 886 million)

The overrun of the indicator is due to:

- higher expenditure on premiums, following the across-the-board reduction in appropriations decided by the budgetary authority, and to higher-than-expected expenditure under exceptional support measures (slaughter and destruction of livestock in the United Kingdom as part of the campaign to eradicate BSE),

- to a lesser extent, lower-than-expected earnings on sales from public storage. Requirements are likely to outstrip budget appropriations.

The above reasons also explain why appropriations will probably be overrun at the end of the year.

Chapter B1-22: Sheepmeat and goatmeat // + EUR 51 million

// (expenditure: EUR 1 056 million)

(indicator: EUR 1 005 million)

The indicator was overrun as a result of the increased rate of payment of the balance on ewe premiums compared to previous years. The impact on expenditure is therefore only temporary.

Indeed, requirements for this chapter are likely to decrease because of lower expenditure on the ewe premium in 1999 and 2000 (good prices on the Community market).

Chapter B1-30: Non-Annex I products // + EUR 30 million

// (expenditure: EUR 333 million)

(indicator: EUR 303 million)

The overrun is mainly due to higher expenditure on cereal-based products. This is due in particular to an increase in the volume of exports.

In order to limit expenditure, the Commission suspended in mid-May the issue of export certificates giving entitlement to the payment of refunds. The level of expenditure at the end of the year in relation to appropriations depends in particular on the rate of utilisation of the certificates issued prior to that date, and on the rate of payments by paying agencies in the Member States.

Chapter B1-37: Clearance and reduction in advances //

There is no indicator for this chapter, which covers financial corrections decided under the clearance of accounts, and reductions and suspensions of advances (reductions/suspensions of monthly reimbursements) to the Member States.

The present level of expenditure (- EUR 108 million) is due to:

- reductions in advances decided by the Commission (- EUR 67 million). The reductions relate in particular to Italy's failure to collect the additional milk levy for the 1998/99 marketing year,

- the first financial corrections under the clearance of accounts amounting to about -EUR 41 million. The Commission recently decided further financial corrections, to be credited to EAGGF accounts over the coming months.

The Commission is also to decide more financial corrections, if possible before the summer break, for which administrative procedures are at present under way. Depending on these decisions, it is estimated that sums collected will probably correspond to the level of appropriations at the end of the year.

Chapter B1-39: Other measures // - EUR 104 million

// (expenditure: EUR 591 million)

(indicator: EUR 695 million)

Appropriations were underutilised because of delays in the payment of some agri-monetary aid. The discrepancy is probably only temporary. However, it is estimated that expenditure on agri-monetary aid will overrun budget appropriations at the end of the year, as a result of the exchange rate for sterling.

This chapter also includes a heading under which the Member States must temporarily enter any amounts recovered for which they have not yet been able to determine the original chapter and heading. At present, Italy has a recovered amount (negative amount) of about EUR 45 million pending under this temporary heading. This is another major reason for the underutilisation recorded.

3.3.2. Subheading 1b: Rural development and accompanying measures

Chapter B1-40: Rural development // - EUR 166 million

// (expenditure: EUR 980 million)

(indicator: EUR 1 146 million)

The divergence from the indicator is due to the fact that new programmes for 2000-06 have not yet been adopted by the Commission. At this stage, the Commission can take into consideration only the expenditure on former accompanying measures; other rural development expenditure cannot be entered in the EAGGF Guarantee Section budget until after the programmes have been adopted.

4. Conclusions

The uptake of appropriations under heading 1 of the budget for June 2000 (Member States' expenditure from 16 October 1999 to 30 April 2000) is EUR 30 320 million, i.e. 74.0 % of appropriations.

4.1. The uptake of appropriations for subheading 1a

Expenditure is EUR 123 million above the indicator for subheading 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure). This is the same as last month.

The indicator was overrun in the following sectors:

- arable crops (+EUR 305 million), because of the across-the-board reduction in appropriations by the budgetary authority when the budget was adopted and because of higher expenditure on public storage, production refunds for starch and export refunds,

- beef and veal (+EUR 190) owing to higher expenditure on premiums and public storage,

- sheepmeat and goatmeat (+EUR 51 million) owing to a faster rate of payment of ewe premiums,

- sugar (+EUR 34 million) owing to higher-than-expected expenditure on export refunds,

- non-Annex I products (+EUR 30 million) owing to an increase in the volume of exports.

Utilisation was below the indicator in the following sectors:

- fruit and vegetables (-EUR 188 million) mainly owing to delayed payments for processed fruit and vegetables,

- other measures (-EUR 104 million), owing first to delayed payment of agri-monetary aid and secondly to temporary entry of a large negative amount by Italy, pending definitive allocation to other chapters,

- tobacco (-EUR 77 million) owing to a delay in payment in relation to the indicator,

- milk and milk products (-EUR 58 million) owing to the large volume of sales, at a profit, of skimmed-milk powder from public storage,

- olive oil (-EUR 56 million), also owing to a delay in payment.

The Commission estimates that expenditure in the second half of the year will be less than forecast. This is due in particular to savings on public storage of cereals (large volumes of barley sold for export at good prices) and public storage of skimmed-milk powder (no purchases, and better profits on sales). The Commission considers that the risk of exceeding the ceiling for subheading 1a is declining, and that it should be possible to keep within budget appropriations.

4.2. The uptake of appropriations for subheading 1b

Expenditure is EUR 166 million below the indicator for subheading 1b (rural development and accompanying measures). This is due to the fact that new programmes for 2000-06 have not yet been adopted by the Commission. At this stage, the Commission can take into consideration only the expenditure on former accompanying measures; other rural development expenditure cannot be entered in the EAGGF Guarantee Section budget until after the programmes have been adopted.