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Brussels, 12.5.2010

COM(2010) 229 final

REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

on EAGF expenditure Early warning system No 1-3/2010

TABLE OF CONTENTS

1. The 2010 EAGF budgetary procedure 3

2. Revenue assigned to EAGF 3

3. Revenue originating from the temporary restructuring amounts (sugar sector) 4

4. Comments on the implementation of the 2010 EAGF budget 4

5. Implementation of revenue assigned to EAGF 7

6. Implementation of revenue originating from the temporary restructuring amounts (sugar sector) 8

7. Implementation of Sugar Restructuring Fund 8

8. Conclusions 8

ANNEX 1 ANNEX 2: | THE 2010 EAGF BUDGETARY PROCEDURE PROVISIONAL CONSUMPTION OF EAGF APPROPRIATIONS UP TO 31/01/2010 |

1. THE 2010 EAGF BUDGETARY PROCEDURE

The 2010 budgetary procedure for the European Agricultural Guarantee Fund (EAGF) and the corresponding amounts of appropriations involved at each stage of the procedure are summarised in the table presented in Annex 1.

The 2010 EAGF budget was adopted by the Budgetary Authority on 17 December 2009. The budget included commitment and payment appropriations amounting to:

- EUR 43 417.4 million and to EUR 43 633.1 million respectively for agricultural market measures and direct aids (policy area 05).

- EUR 371.9 million and to EUR 253.7 million respectively for veterinary and phyto-sanitary measures (policy area 17).

- EUR 30.5 million and to EUR 31.0 million respectively for fisheries (policy area 11).

The budget’s total commitment appropriations for EAGF amounted to EUR 43 819.8 million and its payment appropriations amounted to EUR 43 917.8 million. The difference between commitment and payment appropriations is due to the fact that differentiated appropriations are used for certain measures which are directly implemented by the Commission. These schemes relate mainly to the promotion of agricultural products, to policy strategy and coordination measures for agriculture as well as to fisheries and to veterinary and phyto-sanitary measures.

2. REVENUE ASSIGNED TO EAGF

On the basis of the rules of Article 34 of Council Regulation (EC) No 1290/2005 on the financing of the Common Agricultural Policy, revenue 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. According to these rules, assigned revenue can be used to cover the financing of EAGF expenditure incurred by the Member States. In the case where part of this revenue is not used, then, this part will be automatically carried over into the following budget year.[1]

The Commission’s Amending Letter for 2010 presented both its latest estimate on the amount of appropriations which will be needed in order to finance the expected expenditure for market measures and direct aids and estimates of the assigned revenue which is expected to be collected in the course of the budget year concerned and the carry over of the balance of assigned revenue left available from the previous budget year. As a consequence, in its proposal for this Amending Letter on the amount of appropriations to grant to the EAGF, the Commission took into consideration the total assigned revenue expected to be available in the coming budget year by requesting a level of appropriations calculated by deducting the estimated assigned revenue from its estimated expenditure for EAGF for the same year. The Budgetary Authority, then, adopted the new EAGF budget whose appropriations did not include the expected assigned revenue.

At the time of establishment of the 2010 Amending Letter, the Commission’s estimates for the available assigned revenue amounted to EUR 922.0 million. Specifically:

- The assigned revenue expected to be generated in the course of the 2010 budget year was estimated at EUR 789.0 million. Amounts of EUR 600.0 million and EUR 91.0 million were expected from conformity clearance corrections and from irregularities correspondingly. The receipts from the milk levy were estimated at EUR 98.0 million.

- The amount of assigned revenue expected to be carried over from the budget year 2009 into 2010 was estimated at EUR 133.0 million.

In its 2010 Amending Letter, the Commission assigned this revenue of EUR 922.0 million to two schemes. Specifically:

- EUR 222.0 million was assigned to the operational funds for producer organisations in the fruits and vegetables sector, and

- EUR 700.0 million to the single payment scheme.

For these two schemes, the Budgetary Authority eventually voted appropriations amounting to EUR 547.0 million and to EUR 28 480.0 million respectively in accordance with the Commission’s Amending Letter. The sum of the voted appropriations and the assigned revenue mentioned above corresponds to a total estimate of appropriations required of EUR 769.0 million for the operational funds for producer organisations in the fruits and vegetables sector and EUR 29 180.0 million for the single payment scheme.

In annex 2 which presents the 2010 budget’s provisional execution for the period to 31.01.2010, the voted appropriations for the aforementioned two schemes are included in the original budget appropriations for the fruits and vegetables sector and for the decoupled direct aids sector which amount to EUR 720.1 million and to EUR 33 272.0 million correspondingly without taking account of the aforementioned assigned revenue. After including the revenue assigned to these sectors, the total appropriations foreseen in the 2010 budget amount to EUR 942.1 million for fruits and vegetables and to EUR 33 972.0 million for decoupled direct aids.

3. REVENUE ORIGINATING FROM THE TEMPORARY RESTRUCTURING AMOUNTS (SUGAR SECTOR)

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 Sugar Restructuring Fund. For each marketing year, starting with 2006/07 up to 2008/09, these amounts relate to the sugar, inulin syrup and isoglucose quantitative quotas held by operators in each Member State and they are to be paid by the Member States into the Fund in two instalments, the deadlines of which are 31 March and 30 November respectively for each year. At the time of establishment of the 2010 budget, the estimation of this revenue amounted to EUR 606.8 million for the upcoming budget year. At the same time, an amount of EUR 717.9 million was expected to be carried over from the budget year 2009 into 2010.

4. COMMENTS ON THE PROVISIONAL IMPLEMENTATION OF THE 2010 EAGF BUDGET

For the period 16 October 2009 to 31 January 2010, the budget’s provisional implementation level compared to the expenditure profile based on the indicator, which was established on the basis of the dispositions of Article 20 of Council Regulation (EC) No 1290/2005, is presented in Annex 2. Hereafter, a brief commentary is presented for certain budget articles which show, or which will show in the course of the year, the most significant divergences between the actual and the expected level of implementation of the 2010 budget:

4.1. Market measures

The uptake of appropriations for interventions in agricultural markets was lower compared to the level of the budget's voted appropriations, as determined by the level of the indicator on 31.01.2010, by - EUR 74.9 million. This divergence is insignificant. It is primarily attributed to the food programmes and to the milk and milk products sectors which present an under-implementation at this point in time. At the same time, other sectors, such as sugar, fruits and vegetables, wine and other plant products/measures present an over-implementation.

4.1.1. Food programmes (- EUR 35.0 million)

The slower uptake of appropriations compared to the level of the indicator at this point in time is due to the delayed approval of the 2010 food distribution plan by the Commission. Based on the past year’s implementation pattern, the Commission considers that this implementation rhythm is temporary and that it will accelerate as the budget year progresses.

4.1.2. Sugar (+EUR 6.2 million)

The main measures funded under this year’s budget are the payment of still outstanding export refund certificates for sugar, estimated at EUR 12.0 million, and the expenditure on the outtake of the quantity of sugar in public storage which is to be distributed to the most deprived persons under the 2010 food distribution plan, estimated at – EUR 11.0 million. Adding the payment of outstanding balances for other sugar schemes, estimated at EUR 0.5 million, the final budget for the sugar sector amounted to EUR 1.5 million. However, at this point in time, EAGF payments for this sector concern principally payments of outstanding export refund certificates for an amount of EUR 6.7 million. The outtake of public storage sugar has not yet taken place. Therefore, the payments already made in this sector present a big over-implementation gap compared to the level of the indicator at this point in time. However, it should be pointed out that the absolute amounts involved in the current implementation pattern of this sector are insignificant.

4.1.3. Fruits and vegetables (+ EUR 14.0 million in comparison with voted appropriations)

This implementation level is attributable to the payments made by the Member States for the operational funds for producer organisations which is funded both by the budget’s voted appropriations and by the revenue assigned to this scheme in the 2010 budget (NB: For details please see point 2 above). This implementation level is the result of applying the indicator for the period to 31/01/2010 to the budget’s voted appropriations which do not include the revenue assigned to this sector.

At this point it time, the Commission considers that the total credit appropriations available for this sector will be sufficient to cover the expenditure expected to be incurred by Member States in 2010.

NB: For the benefit of the reader, the Commission introduced footnote * to the provisional execution table which appears in annex 2. This footnote shows which would be the situation had the indicator, as at 31.01.2010, been applied to the total appropriations which are expected to be available in order to fund this sector. As it is pointed out in point 2 above, the total funding expected to be available for this sector is composed of the budget’s voted appropriations of EUR 720.1 million and of the revenue assigned to this sector which is estimated to amount to EUR 222.0 million. Therefore, had the indicator been applied to the total funding of EUR 942.1 million expected to be available for this sector, then, an under-execution of – EUR 36.4 million would appear.

4.1.4. Products of the wine-growing sector (+EUR 32.4 million)

When compared to the level of budget appropriations pointed out by the indicator on 31 January 2010, this execution pattern above the budget’s appropriations is due to the acceleration of the rhythm of payments by Member States primarily for the grubbing up scheme. An acceleration of payments made by Member States is also observed for the national support programmes but at a slower rhythm.

4.1.5. Other plant products/measures (+EUR 26.7 million)

When compared to the level of budget appropriations pointed out by the indicator on 31 January 2010, this execution pattern above the budget’s appropriations is due to the acceleration of the rhythm of payments by Member States primarily for the POSEI programmes.

4.1.6. Milk and milk products (-EUR 73.1 million)

The situation in dairy markets has much improved compared to the one prevailing at the time when the Amending Letter for the 2010 budget year was being established. As a result, the Commission has discontinued the payment of export refunds for dairy products. Furthermore, market prices in the EU have risen substantially, thus stopping the inflow of skimmed milk powder and butter in public storage where the quantity stored for both products has stabilised. The slower uptake of appropriations compared to the level of the indicator at this point in time is due to the lower expenditure currently incurred and expected to be incurred in the course of the year in this sector as a result of the aforementioned factors.

4.2. Direct aids

The uptake of appropriations for direct aids compared to the level pointed out by the indicator on 31.01.2010 was lower by - EUR 90.4 million.

4.2.1. Decoupled direct aids (-EUR 61.7 million in comparison with voted appropriations)

This implementation level is attributable to the payments made by the Member States for the single payment scheme which is funded both by the budget’s voted appropriations and by the revenue assigned to this scheme in the 2010 budget (NB: For details please see point 2 above). While most of the Member States have carried out the bulk of their payments for this scheme, Greece has not yet made any payments in view of carrying out the requisite controls before these payments are made. The observed level of under-implementation is minimal because this under-implementation level is the result of applying the indicator for the period to 31/01/2010 to the budget’s voted appropriations which do not include the revenue assigned to this sector.

NB: For the benefit of the reader, the Commission introduced footnote * to the provisional execution table which appears in annex 2. This footnote shows which would be the situation had the indicator, as at 31.01.2010, been applied to the total appropriations which are expected to be available in order to fund this sector. As it is pointed out in point 2 above, the total funding expected to be available for this sector is composed of the budget’s voted appropriations of EUR 33 272.0 million and of the revenue assigned to this sector which is estimated to amount to EUR 700.0 million. Therefore, had the indicator been applied to the total funding of EUR 33 972.0 million expected to be available for this sector, then, the under-execution of – EUR 676.4 million would appear and it would be explained again by the fact that Greece has not yet paid the aids foreseen for the single payment scheme.

4.2.2. Other direct aids (-EUR 29.9 million)

This execution pattern is primarily due to the slower rhythm of payments made by Member States for certain schemes (premiums for suckler cows and sheep/goats and for cotton) compared to the level pointed out by the indicator at this point in time. At this point in time, this situation is expected to be temporary.

4.3. Audit of agricultural expenditure

4.3.1. Accounting clearance of previous years’ accounts (+EUR 57.6 million)

The current implementation level results from the comparison of the clearance of accounts corrections already made with the level of the corresponding indicator as of 31 January 2010. However, it should be noted that all the accounting clearance decisions expected within this budget year have not been taken yet. Therefore, the Commission, at this point in time, considers this level of implementation to be temporary.

Nevertheless, it should be pointed out that, while the Commission, in its Amending Letter for 2010, proposed corrections amounting to – EUR 80.0 million, the Budgetary Authority retained an amount of – EUR 310.0 million. At this point in time, the Commission considers that the expected corrections from its accounting clearance decisions would not be sufficient to cover this extra-ordinary amount imposed by the Budgetary Authority will eventually lead to a shortfall of negative budget appropriations which the Commission would need to cover through positive budget appropriations in order to close this account in 2010.

4.4. Food and feed safety, animal health, animal welfare and plant health

4.4.1. Animal diseases eradication programmes (+EUR 132.5 million)

When compared to the level of budget appropriations pointed out by the indicator on 31 January 2010, this execution pattern above the budget’s appropriations is due to the acceleration of the rhythm of payments made by the Commission for the animal disease eradication programmes.

5. IMPLEMENTATION OF REVENUE ASSIGNED TO EAGF

The table in Annex 2 shows that assigned revenue amounting to EUR 483.8 million was collected as of 31 January 2010. Specifically:

- the revenue from corrections based on conformity clearance decisions amounted to approximately EUR 188.8 million with additional amounts expected by the end of the budget year;

- the revenue from irregularities amounted to approximately EUR 55.4 million with additional amounts also expected by the end of the budget year, and

- at this point in time, most of the revenue from the milk levy has been collected and it amounts to approximately EUR 98.1 million compared to the initial estimate of EUR 98.0 million;

- finally, contrary to the initially estimated amount of EUR 133.0 million, the amount of assigned revenue eventually carried over from 2009 into 2010 amounted to EUR 141.5 million.

Therefore, the amount of assigned revenue available for financing EAGF expenditure, on 31 January 2010, amounts to EUR 483.8 million. At this point in time, the Commission estimates that the amount of assigned revenue still to be collected amounts to EUR 305.2 million (estimated assigned revenue to be generated in the 2010 budget of EUR 789.0 million of which EUR 483.8 million has been collected).

6. IMPLEMENTATION OF REVENUE ORIGINATING FROM THE TEMPORARY RESTRUCTURING AMOUNTS (SUGAR SECTOR)

In November 2009, Member States paid the second instalment of the temporary restructuring amounts due for the marketing year 2008/09 amounting to EUR 606.8 million identical to the amount initially estimated. In addition, contrary to the initially estimated amount of EUR 717.9 million, the assigned revenue carried over from 2009 into 2010 eventually amounted to EUR 768.3 million. Therefore, the total assigned revenue available to the 2010 budget in the form of temporary restructuring amounts came to EUR 1 375.1 million.

7. IMPLEMENTATION OF SUGAR RESTRUCTURING FUND

As of the end of January 2010, Member States had made practically no payments (NB: payments of only EUR 0.7 million) for aids to the restructured sugar industry, for diversification aids or for aids to sugar refining.

8. CONCLUSIONS

The provisional execution of the 2010 EAGF budget's appropriations, for the period up to 31 January 2010, shows that monthly reimbursements to Member States exceeded the budget's voted appropriations, pointed out by the current level of the indicator, by approximately EUR 33.8 million. Assigned revenue amounting to EUR 483.8 million has been collected and an amount of EUR 305.2 million is still expected to be collected in 2010.

At this point it time, the Commission expects that the amount of assigned revenue which is available as well the one which will become available, in the course of the year, will be used to cover the funding of the operational funds for producer organisations and for the single payment scheme as originally expected when the budget was established.

As regards, the Budgetary Authority's increase of accounting clearance corrections by– EUR 230.0 million to a total of – EUR 310.0 million, the Commission will closely follow the evolution of the budget's execution to see if the under-execution in other parts of the budget will allow it to fund the part of this negative expenditure which will not be covered by the Commission’s accounting clearance decisions and other corrections for non-respect of the aid payments’ deadlines by the Member States concerned.

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[1] Assigned revenue carried over has to be used first, this means before the appropriations voted by the Budgetary Authority or the assigned revenues generated in the year (Art 10 of the Financial Regulation).