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Brussels, 28.1.2008

SEC(2008) 101 final

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

on EAGF expenditure Early warning system No 12/2007

TABLE OF CONTENTS

1. INTRODUCTION 3

2. ASSIGNED REVENUE 3

3. SUGAR RESTRUCTURING FUND 4

4. COMMENTS ON THE IMPLEMENTATION OF THE 2007 BUDGET 4

5. CONCLUSIONS 6

1. INTRODUCTION

The 2007 budget year's (16 October 2006 to 15 October 2007) provisional implementation is expected to amount to EUR 42 139.8 million, i.e. 98.7% of initial appropriations. This amount includes the amounts clawed back from Member States through the corrections of the accounting clearance of EAGF's accounts and the suspensions and reductions of their monthly reimbursements imposed in the course of the year. This amount also includes an estimate of expenditure which can be still made directly by the Commission up to 31 December 2007.

This provisional implementation, presented in detail in the annexed table, shows an overall under-execution of approximately – EUR 571.9 million by comparison to the budget's initial appropriations.

2. ASSIGNED REVENUE

On the basis of the dispositions of Article 34 of the new CAP Financing Regulation (EC) No 1290/2005, the receipts originating from financial corrections under conformity clearance decisions, from irregularities and from the milk levy are designated as revenue assigned to the financing of EAGF expenditure. At the time of establishment of the 2007 budget, an estimation of this revenue was made and this estimation was taken into consideration when the Budgetary Authority adopted the 2007 budget's appropriations. Specifically:

- the receipts from the milk levy were estimated at EUR 349.0 million and they were taken into consideration by reducing the appropriations requested for the milk and milk products sector for which the Budgetary Authority granted an amount of EUR 587.0 million;

- the receipts from the conformity clearance claw-backs and from irregularities were estimated at EUR 568.0 million and EUR 70.0 million correspondingly. The total amount of EUR 638.0 million was taken into consideration by reducing the appropriations requested for the single payment scheme for which the Budgetary Authority granted an amount of EUR 27 918.0 million.

The annexed table presents the implementation of the assigned revenue account for which an amount of EUR 1 159.7 million was collected in the course of the budget year. Specifically:

- from the milk levy an amount of approximately EUR 362.7 million was collected as compared to the initial estimate of EUR 349.0 million,

- the conformity clearance claw-backs amounted to approximately EUR 557.8 million as compared to the initial estimate of EUR 568.0 million, and

- the receipts from irregularities amounted to approximately EUR 239.3 million as compared to the initial estimate of EUR 70.0 million.

According to applicable rules, this revenue can be used, partly or wholly, to cover the financing of EAGF expenditure if the budget appropriations granted by the Budgetary Authority are not sufficient to finance the expenditure incurred by the Member States. In the case where all or part of this revenue is not used, then, it will be automatically carried over into the following budget year.

Considering the under-execution of the 2007 budget's appropriations, then, the totality of this revenue assigned to EAGF will be carried forward into 2008 and it will be used to finance the expected budgetary needs for that year.

3. SUGAR RESTRUCTURING FUND

The temporary restructuring amounts in the sugar sector are treated as assigned revenue intended to finance the sugar restructuring aid and other aids foreseen in the restructuring fund. For the marketing year 2006/07 these amounts relate to the sugar, inulin syrup and isoglucose quantitative quotas held by operators and they are to be collected and paid by the Member States into the Fund in 2 instalments, the deadlines of which are 31 March and 30 November 2007 respectively. As of the end of March, Member States had transferred to the assigned revenue account the first instalment of the restructuring amounts due amounting to EUR 1 287.2 million. On the other hand, in the course of the 2007 budget year, Member States paid out EUR 551.4 million to stakeholders for aids to the restructured sugar industry, for diversification aids as well as for aids to sugar refiners.

These payments are financed out of the above-mentioned assigned revenue account and the unused balance of EUR 735.9 million will be carried forward into 2008 in order to cover the payments for restructuring aid and other aids expected to be made in that year.

4. COMMENTS ON THE IMPLEMENTATION OF THE 2007 BUDGET

The budget's provisional implementation was influenced by a number of factors which for the most significant areas can be outlined as follows:

4.1. Monetary factors

The expenditure incurred in the aforementioned period takes account of the movement in the US$/EUR rate. For a large part of export refunds for agricultural products, particularly for cereals and sugar, expenditure is influenced by the trend in this parity rate.

In accordance with Article 21 of Regulation (EC) No 1290/2005, the budget adopted by the Budgetary Authority was drawn up on the basis of the average parity rate for July–September 2006 of EUR 1 = $ 1.27. It should be noted that for the period 1 August 2006 to 31 July 2007 the average parity rate was approximately equal to EUR 1 = $ 1.31, i.e. 3.1% above the rate used for the establishment of the 2007 budget.

4.2. Market measures (- EUR 746.8 million)

The interventions in agricultural markets showed an under-execution of the budget's appropriations amounting to – EUR 746.8 million. Appropriations for cereals, refunds for Non-Annex I products, fruits and vegetables showed the most significant under-executions while the sector of sugar showed the most significant over-execution of appropriations.

(NB: In parenthesis, the level of over (+) or under (–) execution is presented).

4.2.1. Cereals (– EUR 649.3 million)

Extremely favourable internal and external conditions prevailed in the cereals market for this year and led to higher internal and world market prices. The resulting under-execution was due to:

- the significant net gains realised for the budget as purchases of cereals into public storage were very low while very high quantities of cereals were sold from public storage commanding high prices; and

- lower expenditure incurred for export refunds for cereals as the refund rate has been set at 0 for most of the budget year.

4.2.2. Refunds on Non-Annex 1 products (– EUR 113.8 million)

In this sector also the very favourable internal and external conditions in the cereals and dairy markets led to an overall general reduction of the export refund rates and to subsequently lower expenditure for refunds for the export of processed agricultural products. Hence, the resulting under-execution of the budget's appropriations.

4.2.3. Sugar (+ EUR 132.5 million)

This over-implementation of the budget's appropriations was due to the increased export refunds expenditure incurred by Member States as the quantities of exported sugar, both from the free market and from public storage, have been much higher compared to the assumptions retained in the 2007 budget. This situation, partly, resulted from the fact that the quantities of sugar withdrawn within the framework of the sugar restructuring fund were much lower than expected.

4.2.4. Fruits and vegetables (– EUR 69.9 million)

This under-implementation of the budget's appropriations was primarily due to the lower expenditure incurred by Member States as a result of the smaller quantities of tomatoes receiving the processing aid and of the lower uptake of operational funds for producer organisations compared to the assumptions retained in the 2007 budget.

4.2.5. Milk and milk products (+ EUR 51.2 million)

The very favourable internal and external conditions for dairy markets led to lower expenditure incurred by Member States for export refunds for dairy products, for the public storage of butter and for the internal disposal aids for skimmed milk.

However, the nature of this over-execution of the budget's appropriations is technical. Starting with the 2007 budget, the revenue from the milk levy, initially estimated at EUR 349.0 million, was separately treated as revenue assigned to the EAGF. The 2007 budgetary appropriations requested and granted by the Budgetary Authority for this sector were net of this revenue, essentially being lower by this amount. This is the reason for which this over-execution of the budget's appropriations occurred.

If the revenue from the milk levy, initially forecasted to be assigned to the milk sector, was taken into consideration, then, an under-execution of– EUR 297.8 million would have arisen for this sector.

4.3. Direct aids (+ EUR 167.2 million)

This over-execution results from higher expenditure incurred by the Member States, for both the single payment scheme and other direct aids, compared to the appropriations retained in the 2007 budget for these measures.

However, the nature of this over-execution of the budget's appropriations is also technical. Starting with the 2007 budget, the revenue from the conformity clearance and from irregularities, initially estimated at EUR 638.0 million, was separately treated as revenue assigned to the EAGF. The 2007 budgetary appropriations requested and granted by the Budgetary Authority for this sector were net of this revenue, essentially being lower by this amount. This is the reason for which this over-execution of the budget's appropriations occurred.

If the revenue from the conformity clearance and from irregularities, initially forecasted to be assigned to the single payment scheme, was taken into consideration, then, an under-execution of – EUR 470.8 million would have arisen for the direct aids chapter in 2007.

4.4. Audit of agricultural expenditure

4.4.1. Accounting clearance of previous years' accounts (+ EUR 79.9 million)

All the accounting clearance decisions expected to be implemented by the end of the current budget year have been taken by the Commission. The net amount clawed back through the corrections imposed by these decisions stood at approximately– EUR 74.7 million. This amount compared to the amount of – EUR 178.0 million, which was retained in the 2007 budget, led to an under-execution of the budget's appropriations. This shortfall in claw backs has to be covered and it will lead to a corresponding increase in EAGF's expenditure.

5. CONCLUSIONS

The favourable internal and external market conditions, which characterised the 2007 budget year, led to exceptionally high prices, especially in the cereals and dairy markets. The resulting liquidation of public storage stocks in these sectors and the lower levels of export refund rates led to savings in EAGF expenditure. On the other hand, higher quantities of exported sugar led to higher expenditure in export refunds for sugar. These factors led to an under-implementation of the 2007 budget's appropriations for market measures. This under-implementation was partly offset by higher expenditure for direct aids and for the coverage of the expected shortfall in claw-backs under the accounting clearance procedure. The overall net result for the 2007 budget's appropriations was an under-implementation of approximately– EUR 571.9 million. As a consequence, the full amount of the collected revenue assigned to the EAGF in 2007 of EUR 1 159.7 million will be carried forward to 2008 as it is already foreseen in the proposal of the Amending Letter No 2 to the Preliminary Draft Budget for 2008.

In view of the 2007 budget's under-spending, the Commission proposed to the Budgetary Authority, through the submission of Amending Budget No 7/2007, the reduction of the EAGF’s initial appropriations by EUR 400.0 million.

ANNEX

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