COMMISSION REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on EAGGF Guarantee Section expenditure - Early warning system No 5/2001

CONTENTS

1. Supplementary and amending budget (SAB) No 1/2001

2. Overall outturn in monthly expenditure

3. Provisional utilisation of appropriations

4. Comments

5. Conclusions

ANNEX 1: Change in expenditure profiles for 2001

1. Introduction

2. Calculation method

ANNEX 2: Profile for 2001 - SAB - accumulated percentages

1. Supplementary and amending budget (SAB) No 1/2001

The adoption procedure for SAB No 1/2001 was completed on 28 February 2001. The SAB incorporates EUR 971 million in additional costs related to BSE, resulting from beef market support measures adopted following decisions by the Agriculture Council on 4 December 2000. The main items covered in the SAB are:

- extra costs decided in December by the Agriculture Council concerning the arrangements for destroying animals aged over 30 months (item B1-2129: EUR 700 million),

- public intervention storage of beef and veal (items B1-2111 to 2114: EUR 238 million),

- part-financing of BSE tests (item B1-2129: EUR 33 million).

The rules on budgetary discipline require the Commission to update exchange rates when a SAB that affects Heading 1 of the financial perspective is adopted. The exchange rate has accordingly been revised to EUR 1=$0.87 (the 2001 budget was based on a rate of EUR 1=$ 0.91). The new exchange rate has led to a reduction in appropriations of EUR 245 million, comprising:

- Chapter B1-10: Arable crops

- Chapter B1-11: Sugar and isoglucose

- Chapter B1-14: Fibre plants (cotton)

- Chapter B1-18: Other plant sectors or products (rice)

- Chapter B1-31: Food programmes (food aid)

- Chapter B1-32: POSEI // EUR 178 million

EUR 22 million

EUR 24 million

EUR 16 million

EUR 4 million

EUR 1 million.

Allowing for savings of EUR 245 million due to the new euro/$ exchange rate, additional appropriations required therefore amount to EUR 726 million.

Updated appropriations for budget Heading 1 amount to EUR 44 023.7 million (including EUR 40 million in Chapter B0-40) [1].

[1] Not including appropriations of EUR 500 million entered in the monetary reserve (B1-6).

Appropriations:

- Appropriations under the subheading for "CAP (not including rural development)" (subheading 1a covering Titles B1-1 to B1-3) amount to EUR 39 528.7 million, which is EUR 506.3 million below the ceiling fixed in the Interinstitutional Agreement of 6 May 1999 [2].

[2] Interinstitutional Agreement of 6 May 1999 between the European Parliament, the Council and the Commission on budgetary discipline and improvement of the budgetary procedure (OJ C 172, 18.6.1999, p. 1).

- Appropriations under the subheading for "rural development and accompanying measures" (subheading 1b covering Title B1-4) are unchanged at EUR 4 495.0 million, which is the ceiling fixed in the Interinstitutional Agreement.

The appropriations in chapter B0-40 "provisional appropriations" (EUR 40 million) will be available only after a transfer has been made. They are allocated to the following chapter:

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2. Overall outturn in monthly expenditure

The following tables show the overall monthly expenditure outturn in relation to the expenditure profile. This situation corresponds to expenditure incurred in the Member States from 16 October 2000 to 31 March 2001.

SAB No 1/2001 involves an adjustment to the expenditure profile for some items, as explained in the annex to this report.

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

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2.2. Subheading 1b: Rural development and accompanying measures

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3. Provisional utilisation of appropriations

The following table shows provisional utilisation of appropriations for the first five months of financial year 2001.

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4. COMMENTS

4.1. The uptake of appropriations for May 2001

The uptake of appropriations under heading 1 of the budget for May 2001 (Member States' expenditure from 16 October 2000 to 31 March 2001) is EUR 29 331.6 million, i.e. 67% of appropriations. Expenditure is:

- EUR 842.3 million below the indicator for subheading 1a (CAP, not including rural development),

- EUR 512.1 million below the indicator for subheading 1b (rural development and accompanying measures).

4.2. Monetary factors

4.2.1. 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 Regulation on budgetary discipline (Council Regulation No 2040/2000 of 26 September 2000), SAB No 1/2001 was based on average parity of EUR 1=$ 0.87.

4.2.2. The impact of the dual rates

The cost of the dual rate to the EAGGF Guarantee Section is estimated at EUR 77 million.

4.3. Market factors

4.3.1. Subheading 1a

For subheading 1a, three quarters of the unutilised amount in relation to the indicator (EUR 636 million) was due to animal products. A detailed chapter-by-chapter explanation is given below for the most significant divergences.

Chapter B1-11: Sugar // Divergence: - EUR 120 million (- 7.0%)

// (expenditure: EUR 777 million)

(indicator: EUR 897 million)

The shortfall in implementation in relation to the indicator was due to the volume of sugar exports up to the end of February 2001, which amounted to only 80% of expected exports by that period of the year. Moreover, the average rate of refund granted since the beginning of the budget year stood at only 95% of the rate adopted in the assumptions on which the 2001 budget was based.

Chapter B1-12: Olive oil // Divergence: -EUR 77 million (- 3.1%)

// (expenditure: EUR 2 062 million)

(indicator: EUR 2 139 million)

The profile for the year was based on the rate of payments observed in 2000. Underutilisation was due to delayed payment of advances on production aid in Greece, Spain, France and Portugal, despite Italy's having advanced virtually all the olive oil production aid for 1999/2000.

The underutilisation of appropriations for payment of production aid for 1999/2000 should be corrected when the balance of this aid is paid. However, available appropriations may well be overshot upon complete implementation of production aid, because of late payment for 1998/99 in Greece and Spain.

Chapter B1-14: Fibre plants and silkworms // Divergence: -EUR 87 million (- 10.5%)

// (expenditure: EUR 571 million)

(indicator: EUR 658 million)

Underutilisation is due to a low level of advances until December 2000 because of the high price of cotton on the world market. Consequently, expenditure declared for the budget was below the indicator.

Chapter B1-16: Products of the vine-growing sector // Divergence: +EUR 90 million (+ 7.8%)

// (expenditure: EUR 394 million)

(indicator: EUR 304 million)

The overrun is due to the fact that the indicator for distillation of table wine for the potable alcohol market (new measure introduced by the reform of the wine market in 1999) assumed utilisation would be spread evenly over a ten-month period from January 2001. However, because of the increased production of table wine, the Member States accelerated the procedures for implementing the measure. Distillation for the potable alcohol market had already taken place by November 2000 when the first payments were made to Spain, Italy and Germany.

At the present stage of budget implementation, there is some uncertainty about the level of expenditure between now and the end of the budget year. On the one hand, the large quantities of wine to be distilled are a factor in increased distillation. On the other, as this is the first year of application of the restructuring arrangements, expenditure might be less than forecast. The Member States must send information on the implementation of the measure by 30 June 2001.

Chapter B1-21: Beef and veal // Divergence: - EUR 636 million (- 9.1%)

// (expenditure: EUR 2 987 million)

(indicator: EUR 3 623 million)

This underutilisation was due to a number of measures.

Export refunds:

These were lower because of the decline in the volume of exports, only 56% of that recorded in the previous year because of the closing of export markets for beef.

Public intervention storage in the beef sector:

The financial impact by 31 March 2001 most probably relates to buying-in contracts for about 19 000 tonnes awarded over the period up to the first week of January 2001. At the end of January 2001, contracts had been awarded for 43 000 tonnes, and at the end of February, 76 000 tonnes; these contracts do not yet appear in the EAGGF accounts.

Beef premium:

The indicator for beef premiums was initially determined on the assumption that the Member States would pay the advance on premiums at the increased rate of 80% introduced in December 2000. This assumption was not borne out in the rate of payments actually made by Member States. Consequently, the indicator is now based once more on the three-yearly average for the most significant premiums. Despite these adjustments, payments are still slow for the slaughter premium, because of low prices and unstable markets and, more recently, restrictions on movements that have obliged breeders to keep animals on their holdings.

Exceptional support measures:

- delays in payment indicated by the United Kingdom.

Measures relating to BSE:

- budget implementation of these measures is not significant for the moment. On the basis of their forecasts, the Member States will begin to declare significant expenditure only from May 2001 onwards.

At the present stage, on the basis of reports from the Member States, it would seem that the level of implementation of arrangements for purchasing animals for destruction is less than expected. It is therefore estimated that expenditure will be less than forecast in the SAB, and there will most probably be some savings under this item.

Chapter B1-30: Non-Annex I products // Divergence: + EUR 36 million (+ 8.6%)

// (expenditure: EUR 231 million)

(indicator: EUR 195 million)

Overshooting of the indicator is due to in increase in the use of skimmed milk powder (Ireland and the Netherlands), whole milk powder (Ireland and the Netherlands), sugar (the Netherlands, the United Kingdom, Germany and Spain), cereals and rice (France and the Netherlands), and butter (Belgium, the Netherlands and Germany).

As a large proportion of payments relate to the settlement of cases from last year at higher rates of refund than at present, the positive divergence can be expected to last until the end of the year.

Chapter B1-32: POSEI // Divergence: - EUR 20 million (- 7.7%)

// (expenditure: EUR 92 million)

(indicator: EUR 112 million)

Underutilisation is mainly due to France's delay in implementing POSEIDOM.

Chapter B1-39: Other measures // Divergence: + EUR 27 million (+ 6.6%)

// (expenditure: EUR 271 million)

(indicator: EUR 244 million)

Overshooting of the indicator is partly due to payments by the United Kingdom, Ireland and Sweden of the balance on the first and second instalments for these measures, and to final payments by the United Kingdom. Italy paid EUR 6 million for the arrangements in force prior to 1999.

Appropriations for this chapter will probably be overrun this financial year, owing in particular to the significant currency revaluations for the United Kingdom and Sweden in 2000.

4.3.2. Subheading 1b

Chapter B1-40: Rural development // Divergence: - EUR 512 million (- 11.4%)

// (expenditure: EUR 1 217 million)

(indicator: EUR 1 729 million)

Underimplementation in relation to the indicator is due to the fact that most of the Member States, with the exception of Portugal, made payments lower than forecast for March 2001. Moreover, the Member States were seen to continue regularly to apply the old measures rather than the new measures in this chapter for 2000. In particular:

- for early retirement (B1-403): almost all expenditure was incurred under the old arrangements,

- for agri-environmental measures (B1-405): 82% of expenditure was incurred under the old arrangements,

- for afforestation (B1-407): 60% of expenditure was incurred under the old arrangements.

5. CONCLUSIONS

5.1. The uptake of appropriations by 31 May 2001 for subheading 1b

The uptake of appropriations by 31 May 2001 (Member States' expenditure from 16 October 2000 to 31 March 2001) is EUR 28 114.2 million, i.e. 71% of appropriations.

Expenditure is EUR 840 million below the indicator. The divergence between expenditure incurred and the indicator is therefore the same as last month. Divergence is due to the rate of payment by the Member States being different from that forecast for the indicator, for the reasons given above. However, as already remarked in this report, the divergence will persist in some cases until the end of the financial year.

5.2. The uptake of appropriations by 31 May 2001 for subheading 1b

The uptake of appropriations by 31 May 2001 (Member States' expenditure from 16 October 2000 to 31 March 2001) is EUR 1 217.4 million, i.e. 27% of appropriations.

Expenditure is EUR 512 million below the indicator. The divergence between expenditure incurred and the indicator is greater than last month. However, it would be premature to conclude that the negative divergence will persist until the end of the year. There is always a possibility that expenditure will catch up over coming months.

ANNEX 1 Amendment to expenditure profile for 2001

1. Introduction

In February 2001 the budgetary authority approved SAB No 1/2001, with changes in appropriations amounting to EUR 726 million.

For those budget lines where appropriations have been reduced because of changes in the euro exchange rate, the profile has not changed.

The profiles will be changed for Chapters B1-21 and B1-33, where appropriations were increased.

2. Calculation method

2.1. Chapter 21 - Beef and veal

B1-2111 - Technical costs of public storage

B1-2112 - Financial costs of public storage

As intervention buying-in began in December, allowing for the time required for bringing the goods into stock and entering transactions in the accounts, the profile has been based on an even distribution of expenditure over the months from February to October.

B1-2114 - Depreciation of stocks

As intervention buying-in began in December, and purchases are concentrated at the beginning of the intervention period as a result of the depressed market, the profile has been constructed as follows: 20% in February, 20% in March, the remainder evenly distributed from April to October.

B1-2120 - Suckler cow premiums

B1-2122 - Special premiums

The Commission's assumption that the Member States would use the possibility of advance payments was not borne out in most cases. Consequently, the traditional profile taking account of the three years, has been restored.

B1-2129 - Other

As this is a new measure (Commission Regulation (EC) No 2777/2000 of 18 December 2000 introducing exceptional support measures for the beef market) which came into force from 1 January 2001 until 30 June 2001, and allowing for the time required to make payments, the profile is based on the assumption that expenditure is evenly distributed from March to October.

3. Chapter 33 - Veterinary and plant health measures

B1-330 - Animal disease eradication and monitoring programmes

B1-331 - Other measures in the veterinary field

B1-332 - Emergency veterinary fund

B1-333 - Plant health measures

B1-339 - Other

These being direct payments, the profile is based on estimated expenditure for the year 2001.

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