REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on EAGGF Guarantee Section expenditure - Early warning system No 12/2003

1. Overall outturn in monthly expenditure

The following tables show the overall out-turns in monthly expenditure in relation to the expenditure profile. This situation corresponds to expenditure incurred in the Member States from 16 October 2002 to 15 October 2003.

1.1. Subheading 1a: CAP

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1.2. Subheading 1b: Rural Development

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2. Provisional utilisation of appropriations

The following table presents the provisional utilisation of appropriations for the 2003 budget year:

Table 2 - Provisional utilisation of appropriations - Budget year 2003

Expenditure incurred by the Member States from 16/10/2002 to 15/10/2003

charged to the European Union budget from January to December 2003

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3. COMMENTS

3.1. The uptake of appropriations for the budget year 2003

The (provisional) uptake of appropriations under heading 1 of the budget for the budget year 2003 (Member States' expenditure from 16 October 2002 to 15 October 2003) amounts to EUR 44 285,6 million, i.e. 98,9% of appropriations.

This amount:

- on the one hand, includes the (provisional) expenditure made by Member States in the period from 16 October 2002 to 15 October 2003 as well as an estimate of the payments made or still to be made directly by the Commission up to 31 December 2003; and

- on the other hand, is a net amount after the deduction of negative expenditure clawed back through the financial corrections of the clearance of EAGGF-Guarantee's accounts and through the suspensions and reductions of advances imposed in the course of the 2003 budget year.

Therefore, this overall under-execution is broken down as follows:

- for subheading 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure) it amounts to -EUR 427,2 million, and

- for subheading 1b (rural development) it amounts to -EUR 67,7 million. Transfer of appropriations

In the course of the month of December 2003, the Commission will present to the Budget Authority a proposal to transfer an amount of EUR 583,0 million from chapters B1-11, B1-15, B1-16, B-121 and B1-31 to cover the additional appropriation requirements of the following chapters at the end of the current budget year:

- B1-10: Arable crops (+ EUR 25.0 million)

- B1-12: Olive oil (+ EUR 7.0 million)

- B1-18: Other plant sectors or products (+ EUR 31.0 million)

- B1-20: Milk and milk products (+ EUR 129.0 million)

- B1-22: Sheep- and goat-meat (+ EUR 280.0 million)

- B1-30: Refunds on certain goods obtained by processing agricultural products (+ EUR 19.0 million)

- B1-37: Clearance of accounts (+ EUR 92.0 million)

3.2. Monetary factors

The dollar/euro rate

The 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 trend in the dollar rate.

In accordance with the Council Regulation on budgetary discipline (Council Regulation (EC) No 2040/2000 of 26 September 2000), the letter of amendment to the 2003 agriculture budget was drawn up on the basis of the average dollar rate for July, August and September 2002, i.e. EUR 1 = $ 0,98. For the period 1 August 2002 to 31 July 2003 the average dollar rate was equal to EUR 1 = $ 1,06, i.e. approximately 8% above the rate used for the establishment of the 2003 budget.

3.3. Market factors

Subheading 1a

For subheading 1a, the budget was under-implemented for all budget titles. However, this under-implementation within each budget title was concentrated in the following sectors:

- for plant products: the sugar, fruits and vegetables, and wine sectors;

- for animal products: the beef and pig-meat sectors; and

- for ancillary expenditure: the food programmes and the promotion and agri-monetary measures.

On the other hand, certain individual chapters like: other plant sectors (rice), milk, sheepmeat and plant and veterinary and health measures, showed or are expected to show an over-execution of their corresponding appropriations.

A brief preliminary explanation is given below for the most significant differences of the implementation of certain individual chapters when compared to their corresponding initial appropriations.

Chapter B1-10: Arable crops // Over-spending: + EUR 19 million (+ 0,1%)

// (expenditure: EUR 16 809 million)

(appropriations: EUR 16 790 million)

This over-execution was primarily due to the higher payments incurred by the Member States:

- for per hectare aids for large-scale producers,

- for export refunds for cereals due to the increase of the export refund rates for soft wheat, flour, barley and oats during the first few months of the year, and

- for public storage expenditure due to higher purchases, lower sales and the consequent higher end-of-year stocks of public storage cereals.

Chapter B1-11: Sugar // Under-spending: -EUR 205 million (-13,8%)

// (expenditure: EUR 1 277 million)

(appropriations: EUR 1 482 million)

This under-execution was primarily due to the reduction of the volume of exported sugar by comparison to the volume retained in the budget, despite the increase of the average export refund rates in the course of the year.

Chapter B1-12: Olive oil // Over-spending: + EUR 5 million (+ 0,2%)

// (expenditure: EUR 2 346 million)

(appropriations: EUR 2 341 million)

This over-execution was due to the fact that, within the expenditure incurred and declared by the Member States, approximately EUR 70,0 million concerned payments of production aid for previous marketing years while Member States incurred higher production refund payments as a result of higher quantities of olive oil used in the manufacture of preserved fish and vegetables.

Chapter B1-14: Fibre plants and silkworms // Under-spending: -EUR 18 million (-2,0%)

// (expenditure: EUR 890 million)

(appropriations: EUR 908 million)

This under-spending was primarily due to lower expenditure incurred for the cotton sector in Greece and Spain as compared to the appropriations foreseen in the budget following the Commission's decision which fixed the effective production of non-ginned cotton at levels higher than the ones foreseen in the 2003 budget. This decision led to a reduction of the guide price and, consequently, to a reduction to the rate of aid granted for cotton as compared to the rate of aid initially retained in the budget.

Chapter B1-15: Fruits and vegetables // Under-spending: -EUR 77 million (-4,8%)

// (expenditure: EUR 1 532 million)

(appropriations: EUR 1 609 million)

This under-spending was primarily due to the fresh fruits and vegetables sector. In this sector, and due to favourable market conditions:

- smaller quantities of fruits and vegetables were withdrawn from the market, thus, resulting in smaller payments for financial compensation, and

- the higher prices led to fixing the aid for bananas at a level which was lower compared to the level retained when the 2003 budget was established.

Chapter B1-16: Wine // Under-spending: -EUR 168 million (-12,2%)

// (expenditure: EUR 1 213 million)

(appropriations: EUR 1 381 million)

This under-spending was primarily due:

- to the absence of crisis distillation this year, a scheme for which the budget foresaw appropriations covering a quantity of 8,0 million hl,

- to the distillation for the spirits industry which amounted to a quantity of approximately 8,8 million hl while the 2003 budget appropriations foresaw a quantity of 12,5 million hl for this type of distillation, and

- to lower alcohol depreciation costs whereby the lower quantities of alcohol purchased and sold resulted to lower quantities in end-of-year stock of alcohol in public storage.

Chapter B1-18: Other plant sectors or products // Over-spending: + EUR 29 million (+ 9,4%)

// (expenditure: EUR 332 million)

(appropriations: EUR 303 million)

This over-execution was primarily due to the higher payments incurred by the Member States for public storage expenditure due to higher purchases, lower sales and the consequent higher end-of-year stocks of rice in public storage.

Chapter B1-20: Milk // Over-spending: + EUR 124 million (+ 4,6%)

// (expenditure: EUR 2 796 million)

(appropriations: EUR 2 672 million)

This over-spending was primarily due:

- to the increase in the export refund rates for butter and butterfat beyond the rates initially retained in the 2003 budget as well as to the increased volume of butter exports,

- to higher depreciation costs for both skimmed milk powder and butter because of the increased quantities purchased as well as to the consequent increase in end-of-year stocks for these products in public storage by comparison to the quantities retained in the 2003 budget,

- to the increase of the level of aid for skimmed milk processed into casein as well as to the increased quantities of this product used for animal feed and for casein by comparison to the level retained in the 2003 budget, and

- to higher aid levels and quantities for pastry butter compared to those used for the 2003 budget under the specific uses of butterfat scheme.

The Commission also collected higher amounts for milk levies as compared to the amounts foreseen in the 2003 budget.

Chapter B1-21: Beef and veal // Under-spending: -EUR 417 million (-5,0%)

// (expenditure: EUR 7 987 million)

(appropriations: EUR 8 404 million)

This under-spending was primarily due to:

- to lower payments for export refunds because of the decrease in the exported quantities of beef when compared to the appropriations retained in the 2003 budget,

- to lower premium payments because of a decrease in the number of animals for which 2002 applications were lodged for the special beef, extensification, compulsory slaughter and for the over the 30-month premium schemes.

The Commission, following the summer drought in certain Member States, adopted Regulation (EC) No 1621/2003 of 16 September 2003 allowing the advance payment of the 2003 beef and sheepmeat premiums in the budget year 2003 instead of 2004 up to a total amount of approximately EUR 500 million. The Member States concerned informed the Commission on 1 October 2003 that they intend to make advance payments for the 2003 suckler cow and special beef premiums of approximately EUR 101 million. At this point in time, the Commission does not yet know the exact amounts which have been actually paid for these advance payments. However, it has to be noted that the expected under-implementation has been reduced by the payments for these special measures.

Furthermore, the European Court of Justice handed out its ruling in the case C-239/01 whereby it annulled Article 5.5 of Commission Regulation (EC) No 690/2001 in so far as that provision requires Member States to finance 30% of the price of beef purchased under the special purchase scheme. Therefore, the Commission now has to reimburse the remaining 30% of the Member States' expenditure incurred under this scheme.

Member States were asked to furnish the amounts in question by 5 December 2003. The Member States which will reply by that deadline will be reimbursed within this budget year. At the point of writing this report, these amounts are not known. However, this chapter's under-implementation will be reduced by the amounts which will be reimbursed to the Member States concerned.

Chapter B1-22: Sheepmeat // Over-spending: + EUR 277 million (+15,4%)

// (expenditure: EUR 2 082 million)

(appropriations: EUR 1 805 million)

The appropriations retained in the 2003 budget were intended to cover the 2002 sheep, goat and fixed premiums. The Commission estimates that the number of heads for which these premiums were paid were lower than the numbers retained in the 2003 budget.

However, the execution situation for the whole chapter was reversed due to the Commission's special measures taken following the summer drought in certain Member States, ie: the adoption of Commission Regulation (EC) No 1621/2003 of 16 September 2003 (for details see description above under chapter B1-21). The Member States concerned informed the Commission on 1 October 2003 that they intended to make advance payments for the 2003 sheep and goat premium of approximately EUR 303 million. Despite the fact that the Commission does not yet know the exact amounts which have been actually paid for these advance payments, she estimates that the over-implementation of this chapter's appropriations was entirely due to the payments for these special measures.

Chapter B1-23: Pigmeat // Under-spending: -EUR 32 million (-15,8%)

// (expenditure: EUR 171 million)

(appropriations: EUR 203 million)

This under-spending was primarily due to the smaller quantities of exported pigmeat as well as the lower level of refunds granted for these exports compared to the levels retained in the 2003 budget.

Chapter B1-30: Non-Annex I products // Over-spending: + EUR 16 million (+ 3,8%)

// (expenditure: EUR 431 million)

(appropriations: EUR 415 million)

This over-execution was primarily due to the acceleration of the liquidation of older files which resulted to higher than otherwise payments incurred by the Member States for refunds on goods obtained by processing agricultural products.

Chapter B1-31: Food programmes // Under-spending: -EUR 53 million (-17,4%)

// (expenditure: EUR 253 million)

(appropriations: EUR 306 million)

This under-execution was primarily due to the fact:

- that Member States failed to apply in its entirety the 2003 plan for the supply of food from intervention stocks for the benefit of the most deprived persons in the Community, and

- to the smaller quantities of exported rice as well as the corresponding lower rate of export refunds paid for food aid operations.

Chapter B1-32: Most remote regions and Aegean islands // Under-spending: -EUR 15 million (-6,0%)

// (expenditure: EUR 234 million)

(appropriations: EUR 249 million)

This under-spending was primarily due to the fact that Member States failed to apply in their entirety the 2003 programmes aimed at compensating for the remote geographical locations of certain regions.

Chapter B1-39: Other measures // Under-spending: -EUR 21 million (-14,4%)

// (expenditure: -EUR 3 million)

(appropriations: EUR 18 million)

This under-execution was primarily due to the fact that Member States made insignificant payments for agri-monetary aids when compared to the appropriations retained in the 2003 budget while they recovered and credited to the budget amounts of this aid which exceeded the payments made.

Subheading 1b

Chapter B1-40: Rural development // Under-spending: -EUR 68 million (-1,4%)

// (expenditure: EUR 4 630 million)

(appropriations: EUR 4 698 million)

This under-spending was the result of under-implementation of certain rural development schemes by Member States such as the improvement of processing and marketing of agricultural products, forestry and promotion of the adaptation and development of rural areas. A further analysis will be provided in the Commission's Annual Management Report for the budget year 2003.

4. CONCLUSIONS

Implementation of appropriations of the budget year 2003

The uptake of appropriations for the budget year 2003 (Member States' expenditure from 16 October 2002 to 15 October 2003) was EUR 44 285,6 million, i.e. 98,9% of appropriations. The overall under-spending of the budget's appropriations is estimated at approximately -EUR 494,9 million.

For sub-heading 1a, the under-spending, as of the time of writing this report, stands at -EUR 427,2 million (1,1% of the budget's appropriations) and it is primarily attributable to the beef and veal, the sugar, the wine and the fruits and vegetables sectors. The final under-spending of this sub-heading will only be known by the end of the calendar year 2003 because of:

- the Commission's reimbursement of the remaining 30% of the Member States' expenditure incurred for the price of beef purchased under the special purchase scheme of Commission Regulation (EC) No 690/2001 as per the European Court of Justice's ruling in the case C-239/01 (see comments in chapter B1-21 above for details); and

- the possibility for the Commission to pay directly for certain measures up to 31 December 2003.

For sub-heading 1b, the under-spending for Rural Development programmes stands at -EUR 41.3 million (0,9% of the budget's appropriations) which is lower than the previous years' under-implementation for these programmes.

Therefore, the definitive under-implementation figures for heading 1 of the budget will be presented in the Commission's Annual Management Report for the budget year 2003.