COMMISSION REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on EAGGF Guarantee Section expenditure - Early warning system No 9/2001 and No 10/2001

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 2000 to 31 August 2001.

1.1. Subheading 1a: CAP (not including rural development)

>TABLE POSITION>

1.2. Subheading 1b: Rural development and accompanying measures

>TABLE POSITION>

>TABLE POSITION>

>TABLE POSITION>

3. COMMENTS

3.1. The uptake of appropriations for September and October 2001

The uptake of appropriations under heading 1 of the budget for the period up to October 2001 (Member States' expenditure from 16 October 2000 to 31 August 2001) was EUR 37 646,10 million, i.e. 85,5% of appropriations. Expenditure was:

- EUR 1 999,7 million below the indicator for subheading 1a (CAP, not including rural development), and

- EUR 997,9 million below the indicator for subheading 1b (Rural development).

3.2. Monetary factors

3.2.1. The dollar/euro rate

The amount of expenditure indicated above 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 the dollar rate.

In accordance with the Council Regulation on budgetary discipline (Council Regulation (EC) No 2040/2000 of 26 September 2000), the supplementary and amending budget (SAB) No 1/2001 was based on a parity of EUR 1 = $ 0,87. The unweighted average parity from August 2000 to the end of July 2001 was EUR 1 = $ 0,8861.

3.2.2. The impact of the dual rates

The cost of the dual rates to the EAGGF Guarantee Section was estimated at - EUR 45 million.

3.3. Market factors

3.3.1. Subheading 1a

For the period from 16 October 2000 to 31 August 2001, 44% of the under-spending in relation to the indicator (EUR 885 million) was due to beef and veal. A detailed chapter-by-chapter explanation is given below for the most significant divergences.

Chapter B1-10: Arable crops // Divergence: - EUR 384 million (-2,2%)

// (expenditure: EUR 17 228 million)

(indicator: EUR 17 612 million)

This chapter's appropriations are expected to be under-implemented by the end of the budget year. This under-implementation will be mainly due to the significantly lower quantities of cereals bought into intervention (6.7 Mio t) when compared to the hypothesis of intervention purchases of 11.2 million t retained for the establishment of the budget. With regard to area aids, there are a number of Member States which have made payments lower than the ones they should have made on the basis of their own area declarations.

Chapter B1-11: Sugar // Divergence:- EUR 169 million (- 10,0%)

// (expenditure: EUR 1 360 million)

(indicator: EUR 1 529 million)

Substantial under-implementation of this chapter's budget appropriations is expected by the end of the budget year. The shortfall is due to the smaller volume of sugar exports which, up to the end of July 2001, amounted to only 80% of the exports expected to have been realised up to this period of the year.

Chapter B1-15: Fruits and vegetables // Divergence: - EUR 115 million (- 7,0%)

// (expenditure: EUR 1 352 million)

(indicator: EUR 1 467 million)

The undershoot of the indicator is essentially due to lower payments for fresh fruits and vegetables. The primary reason for this under-spending relates, mainly, to the reduction of the quantities withdrawn from the market as well as to the effect of the initial delays in the uptake of operational funds for the producers' organisations. However, it should be noted that the uptake rhythm for these funds accelerated slightly in August 2001.

The Commission considers that the under-implementation of this chapter's appropriations will continue up to the end of the budget year.

Chapter B1-16: Products of the vine-growing sector // Divergence: + EUR 170 million (+14,8%)

// (expenditure: EUR 997 million)

(indicator: EUR 827 million)

This substantial overshooting of the indicator was primarily due to payments for the additional (5 million hl) crisis distillation operations decided by the Commission for E, F and I.

The Commission expects that payments for this chapter will exceed available appropriations by the end of the budget year.

Chapter B1-20: Milk and milk products // Divergence: -EUR 319 million (-13,6%)

// (expenditure: EUR 1 818 million) (indicator: EUR 2 137 million)

The under-run is mainly due to lower payments:

- for export refunds because of the reduction of refund rates for the export of skimmed milk powder, cheese and other milk products;

- for the aid for the use of skimmed milk powder because of the reduced quantities used in the feed for calves, and finally,

- for the public storage of butter because only 6 000 t were bought into intervention, as of the end of June 2001, while the budget was based on the hypothesis of intervention buying-in of 53 000 tonnes of butter.

The Commission, therefore, expects that the appropriations of this chapter will be substantially under-utilised by the end of the year.

Chapter B1-21: Beef/veal // Divergence: - EUR 885 million (-12,7%)

// (expenditure: EUR 5 681 million)

(indicator: EUR 6 566 million)

The overall undershooting of the budget, already mentioned in previous reports, is confirmed. It is reminded that this under-implementation of the budget is mainly due to:

- lower payments for export refunds because of the lower volume of exports due to the shutting off of export markets for beef and veal,

- to the slower rate of implementation of the exceptional support measures for the UK,

- to the very low implementation rate of the "purchase for destruction" scheme,

- to the very low implementation rate for the slaughter premium, partly due to Member States' difficulties in implementing this new measure.

The Commission, therefore, expects that the overall appropriations for this chapter will be substantially under-utilised by the end of the budget year.

Chapter B1-30: Non-Annex I products // Divergence: + EUR 27 million (+ 6,5%)

// (expenditure: EUR 392 million)

(indicator: EUR 365 million)

The overshooting of the indicator is due to:

- an increase in the quantities of milk powder and butter used in the exported processed agricultural products; and

- to the payments of export refund files for last marketing year's exports which are currently liquidated at the, then, high export refund rates.

Therefore, the Commission expects that the over-spending for this sector will continue up to the end of the budget year.

Chapter B1-39: Other measures // Divergence: + EUR 37 million (+ 8,9%)

// (expenditure: EUR 438 million)

(indicator: EUR 401 million)

The overshooting of the indicator is mainly due to the UK's payments of outstanding balances for the first tranche of the agri-monetary measures for 2000.

The Commission expects an over-implementation of this chapter's appropriations up to the end of the budget year, owing in particular to the significant currency revaluations for the UK and S in 2000.

3.3.2. Subheading 1b

Chapter B1-40: Rural Development // Divergence: - EUR 998 million (- 22,2%)

// (expenditure: EUR 2 036 million)

(indicator: EUR 3 034 million)

For the period up to 31 August 2001, Member States continued to concentrate the implementation of rural development mainly to the old measures while expenditure on the new (former EAGGF-Guidance) measures lagged behind. However, the Commission considers that, on the basis of the Member States communication provided on 30 September, the under-implementation of this chapter's appropriation will be significantly reduced by the end of the year.

4. CONCLUSIONS

4.1. The uptake of appropriations for October 2001 for subheading 1a

The uptake of appropriations for October 2001 (Member States' expenditure from 16 October 2000 to 31 August 2001) was EUR 35 964.0 million, i.e. 89.5% of total appropriations.

Expenditure was EUR 2 000 million below the indicator. The divergence between the expenditure incurred and the indicator was significantly higher than the one observed last month.

Member States forecasts indicate that there will be an under-spending of the budget's appropriations by EUR 2 100 million by the end of the budget year. However, there are certain items of expenditure, amounting to approximately EUR 420 million, which Member States could not have taken into account when they were drawing up their forecasts, like:

- the decision to allow payment of advances for certain arable crops aids for the next marketing year in E and P before the end of the current budget year (expected payments of approximately EUR 150 million),

- the end-of year depreciation for intervention products (expected to cost approximately EUR 110 million),

- the direct payments which the Commission makes by the end of the year (expected to cost approximately EUR 50 million),

- the payment of the balances for the olive oil production aid in Italy (expected to cost approximately EUR 160 million) and finally

- the higher expected receipts of the supplementary levy for milk as compared to the receipts forecasted by the Member States (expected to bring in the budget + EUR 50 million approximately).

Furthermore, the Commission estimates that the financial corrections coming through the clearance of the accounts will be lower amounting to approximately EUR 190 million less than the amount retained in the budget. Therefore, the Commission forecasts that the budget's under-spending will be lower than the one forecasted by the Member States and it will amount to approximately EUR 1 500 million.

In conclusion, the Commission expects that, despite an expected over-spending of the budget's appropriations for certain chapters, mainly for agri-monetary measures and for wine, the overall budget will be substantially under-implemented by the end of the year.

4.2. The uptake of appropriations for October 2001 for subheading 1b

The uptake of appropriations for October 2001 (Member States' expenditure from 16 October 2000 to 31 August 2001) was EUR 2 036,3 million, i.e. 45% of appropriations.

Expenditure was EUR 998 million below the indicator. The divergence between the expenditure incurred and the indicator was larger than the one observed last month.

However, the Commission can reasonably conclude that this under-spending will be significantly reduced by the end of the year. On the basis of the Member States communication provided on 30 September as per the provisions of Article 37 of Commission Regulation (EC) No 1750/1999, their forecasts of expenditure indicated that the expected under-spending would amount to approximately EUR 51 million because they foresee that significant amounts of expenditure will be paid in the first two weeks of October 2001.