Brussels, 07.12.2004

SEC(2004) 1575 final

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

on EAGGF Guarantee Section expenditureEarly warning systemNo 8/2004, No 9/2004and No 10/2004

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

on EAGGF Guarantee Section expenditure Early warning system No 8/2004, No 9/2004 and No 10/2004

TABLE OF CONTENTS

1. PROVISIONAL UTILISATION OF APPROPRIATIONS 4

2. COMMENTS ON THE IMPLEMENTATION OF THE 2004 BUDGET 4

3. CONCLUSIONS 7

1. PROVISIONAL UTILISATION OF APPROPRIATIONS

The uptake of appropriations under heading 1 of the budget for the month of October 2004 (Member States' expenditure from 16 October 2003 to 31 August 2004) amounts to EUR 39 335.8 million, i.e. 84.1% of appropriations. Before the clearance of the accounts, this expenditure is approximately –EUR 3 363.0 million under the indicator for both subheadings 1a and 1b. However, when the clearance of accounts is included, this under-execution rises to –EUR 3 751.5 million for both subheadings. For a detailed presentation of the implementation of the EAGGF-Guarantee’s budget for the months of June to August 2004 please refer to the tables annexed to this report.

2. COMMENTS ON THE IMPLEMENTATION OF THE 2004 BUDGET

The budget’s implementation is influenced by the following main factors:

2.1. 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 2004 agriculture budget was drawn up on the basis of the average dollar rate for July, August and September 2003, i.e. EUR 1 = $ 1.12. For the period 1 August 2003 to 31 July 2004 the average dollar rate was approximately equal to EUR 1 = $ 1.20, i.e. at a level above the rate used for the establishment of the 2004 budget.

2.2. Subheading 1a – Market factors

For subheading 1a the rhythm of execution is under the level of the indicator at approximately –EUR 1 235.7 million before the clearance of the accounts. Approximately 44% of this under-execution is attributable to the plant products sector and 46% to the animal products sector while approximately 8% is attributable to the slowdown of the implementation rhythm of veterinary and phyto-sanitary expenditure. For the plant products sector, this under-execution is primarily related to sugar, cereals, fruits and vegetables, wine and to other plant products/measures. In the animal products sector, the budget’s under-execution is primarily related to dairy products, beef and sheepmeat.

The following comments are called for:

Article 05 02 01: Market measures for cereals | Divergence: –EUR 208 million (–37.0%) |

(expenditure: EUR 304 million) (indicator: EUR 512 million) |

At this point in time, the Commission expects that this article will be under-executed by approximately –EUR 200 million by the end of the budget year. This under-execution will be primarily attributable to the lower level of aid payments for starch where, because of favourable market conditions, the rate of the production refund for starch has been set at zero for most of the budget year. In addition, cereals were sold from intervention at prices which were higher than the ones retained at the time of the establishment of the budget.

Article 05 02 05: Sugar | Divergence: –EUR 300 million (–17.5%) |

(expenditure: EUR 1 226 million) (indicator: EUR 1 526 million) |

The current under-execution by comparison to the level of the indicator is due to the reduced quantities of sugar exported with refunds. The Commission’s services expect that this article’s under-implementation will continue and it will amount to approximately –EUR 300 million by the end of the budget year.

Article 05 02 08: Fruit and vegetables | Divergence: –EUR 73 million (–4.5%) |

(expenditure: EUR 1 394 million) (indicator: EUR 1 467 million) |

At this point in time, the Commission expects that this article’s current under-execution will continue to the end of the budget year. This under-execution will be primarily attributable to lower quantities of fruits and vegetables withdrawn from the market because of favourable market conditions in this sector. Furthermore, expenditure incurred for the aid for bananas was lower because the favourable market conditions led to an increase in the prices of bananas and to a consequent decrease in the rate of aid.

Article 05 02 09: Wine | Divergence: –EUR 67 million (–5.6%) |

(expenditure: EUR 1 025 million) (indicator: EUR 1 092 million) |

This under-execution by comparison to the level of the indicator is due to the fact that crisis distillation was not used at all in the course of this budget year while the quantities of alcohol bought into intervention were lower than the quantities retained when the budget was established. The Commission’s services expect that this article’s under-implementation will continue to the end of the budget year and it is expected to amount to approximately –EUR 70 million.

Article 05 02 11: Other plant products/measures | Divergence: –EUR 66 million (–8.5%) |

(expenditure: EUR 610 million) (indicator: EUR 676 million) |

This under-execution is due to the slowdown in the implementation of the POSEI programmes when compared to the level pointed out by the indicator.

Article 05 03 01: Milk and milk products | Divergence: –EUR 386 million (–13.1%) |

(expenditure: EUR 2 349 million) (indicator: EUR 2 735 million) |

The Commission services expect that there will be an under-implementation of the budget’s appropriations for this article of approximately –EUR 550 million by the end of the budget year. The main reason is that favourable conditions in dairy markets have led to a reduction of the export refund rates for dairy products. Furthermore, the Commission estimates that the amounts which will be collected from the super-levy on milk will be much higher than the ones retained when the budget was established.

Article 05 03 02: Beef and veal | Divergence: –EUR 124 million (–1.5%) |

(expenditure: EUR 7 640 million) (indicator: EUR 7 764 million) |

The Commission services expect that there will be an under-implementation of the budget’s appropriations for this article by the end of the budget year amounting to approximately –EUR 250 million. The main reason is that the quantities of exported beef were lower than the ones retained when the budget was established. Furthermore, the budget included appropriations intended to be used to reimburse Member States for the co-financing part of their expenditure incurred for the special purchase scheme following the European Court of Justice ruling in case C-239/01. These appropriations were not used because Member States, in most cases, declared immediately the amounts due and were subsequently reimbursed by the end of the last budget year.

Article 05 03 04: Pigmeat, eggs and poultry, beekeeping and other animal products | Divergence: EUR 3 million (1.7%) |

(expenditure: EUR 146 million) (indicator: EUR 143 million) |

In order to stabilise the pigmeat market, the Commission introduced the private storage of pigmeat in late December 2003 and the payment of export refunds on fresh and frozen pigmeat exports as of the end of January 2004. Both of these measures have been discontinued due to the subsequent improvement in the market situation of the sector. However, the 2004 budget did not include appropriations for any of these schemes. Therefore, if Member States make all the payments due for these measures, then, the credit appropriations foreseen in the budget for the pigmeat sector will be over-implemented.

2.3. Subheading 1b

Article 05 04 04: Transitional instrument for rural development in the new Member States | Divergence: –EUR 1 710 million (–98.7%) |

(expenditure: EUR 23 million) (indicator: EUR 1 733 million) |

This article relates to the transitional instrument for the financing of rural development by the EAGGF-Guarantee for the new Member States. Delays in the submission of their rural development programmes by the new Member States led to delays in their subsequent examination and approval by the Commission’s services. Nevertheless, the Commission’s services consider the current under-execution to be temporary and they expect that the appropriations foreseen for these programmes will be fully committed by the end of the year.

3. CONCLUSIONS

Implementation of appropriations at 31 August 2004

The uptake of appropriations for October 2004 (Member States' expenditure from 16 October 2003 to 31 August 2004) shows an under-implementation for subheading 1a. A part of this under-implementation is due to the slowdown of the implementation rhythm of veterinary and phytosanitary expenditure. However, for the rest of the measures, the Commission’s services expect budget savings of approximately EUR 1.6 billion. These savings will be primarily attributable to articles 05 02 01, 05 02 05, 05 02 08, 05 02 09, 05 03 01, 05 03 02 and 05 03 03 of the budget. As it regards the implementation pattern of the other articles of the budget, the Commission services can not draw, at this point in time, a definitive opinion. With the reserve of the observation relating to the execution of article 05 04 04 in point 2.3 above, the current under-execution for subheading 1b invites no comment at this point in time.

ANNEX 1

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ANNEX 2

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ANNEX 3

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