20.11.2006   

EN

Official Journal of the European Union

C 282/1

I-VII

1-15

1-3

4-10

4-5

6-8

9-10

11-15

11-13

14-15

16-63

16-28

16-18

19-28

29-39

29-34

35-39

40-52

40-46

47-52

53-63

53-63

64-69

Beneficiary

the final recipient of an EU payment.

Impact

longer-term socio-economic consequences that can be observed a certain period after the completion of an intervention, which may affect either direct addressees of the intervention or indirect addressees falling outside the boundary of the intervention, who may be winners or losers.

NUTS

Nomenclature of Statistical Territorial Units, the EU's common classification for regional statistics, which divides each Member State into a hierarchy of regions (labelled NUTS I, II, III and LAU I and II) depending on national administrative units.

Leader

an initiative financed by the structural funds designed to help rural actors.

Output

that which is produced or accomplished with the resources allocated to an intervention (e.g. farm equipment purchased by a farmer, road built in a village).

Result

immediate changes that arise for direct addressees during or at the end of their participation in an intervention (e.g. improved accessibility to an area due to the construction of a road, more efficient production on a farm).

Urban area

a geographical area which does not have the characteristics of a rural area. Different typologies exist which classify areas into rural and urban, for instance based on population density.

CAP

common agricultural policy.

DG AGRI

Directorate-General for Agriculture and Rural Development.

EAGGF

European Agricultural Guidance and Guarantee Fund.

ESPON

European Spatial Planning Observation Network.

GDP

gross domestic product.

LAU

local administrative unit.

LFA

less-favoured area.

OECD

Organisation for Economic Cooperation and Development.

OP

operational programme.

RD

rural development.

RDP

rural development programme.

SWOT

strengths, weaknesses, opportunities, threats.

I.

Rural areas face significant challenges such as depopulation and a scarcity of economic opportunities. The EU contribution for rural development for the period 2000 to 2006 is more than 60 billion euro. Around 40 % of this budget is used for rural development investments. They cover a wide range of projects, for which management and implementation is shared by the Commission and the Member States (see paragraphs 1 to 10).

II.

This report concerns observations on the Court’s audit on rural development investments. The audit sought to reply to the following overall question: ‘To what extent do the outcomes of investment measures address effectively the problems of rural areas?’ (see paragraphs 3 and 11 to 15).

III.

The flexibility of the Rural Development Regulation (broad objectives, lack of priorities) and the lack of a clear strategy in the Member State programmes have led to a situation where it is unclear to which objective the funds have contributed. Member States’ programmes focus largely on the agricultural sector and do not sufficiently take into account the characteristics of the geographical area supported (see paragraphs 16 to 28).

IV.

There is a lack of effective conditions and selection procedures, to target funds on the most needy geographical areas and beneficiaries (see paragraphs 29 to 34). A lack of effective targeting also leads to a risk of increased deadweight effects, which reduce the effectiveness of the aid (see paragraphs 35 to 39).

V.

A significant part of the expenditure is implemented in areas which are not predominantly rural. When compared to the previous programming period, investment support for rural areas decreased significantly (see paragraphs 40 to 46).

VI.

It was not always possible to identify the effects of the projects, but when this could be done key factors which increased their effectiveness were synergy with other projects and being sited in rural areas (see paragraphs 47 to 52). Shortcomings were also found in the implementation of the monitoring and evaluation system (see paragraphs 53 to 63).

VII.

Overall, the Court finds that no assessment can be made whether rural development investments are effective. Objectives are too broad and strategies to implement the policy are lacking. There is no balanced achievement of the two main objectives of the RD policy. In order to achieve this, the Commission should work with the Member States towards improved effectiveness of the policy. Important elements in this respect include clarifying the objectives and developing principles of effective targeting (see paragraphs 64 to 69).

1.

The financial importance of rural development within the EU budget is significant. The EU contribution for the 2000 to 2006 programming period is more than 60 billion euro. The budget for the 2007 to 2013 programming period proposes to increase this to almost 70 billion euro. To this should be added several billion euro coming from ‘modulation’, the transfer of amounts from direct farm subsidies to rural development (1).

2.

Rural areas cover a large part of the EU's territory and its population. In comparison to urban areas, on average in rural areas the GDP per head is around one third lower, population density around 10 times lower and employment in the agricultural sector around 10 times higher. Rural areas are generally more remote and have less infrastructure and basic services and face significant challenges such as depopulation and a scarcity of economic opportunities.

3.

This Special Report presents observations on the following measures of the Rural Development Regulation (2): ‘investment in agricultural holdings’, ‘improving the processing and marketing of agricultural products’ and ‘promoting the adaptation and development of rural areas’. They cover around 40 % of the available budget. Under these measures a wide range of projects can be financed which, for the purpose of this audit, are labelled rural development investments. Other important rural development measures such as agri-environment, LFA, and forestry which also aim to address problems of rural areas have been covered in previous reports (3).

4.

Before the year 2000, the investment measures were part of the Structural Funds and their objectives and conditions were defined by specific regulations. Investment in agricultural holdings and improving the processing and marketing of agricultural products were to support the agricultural sector across the EU, while the measures for promoting the adaptation and development of rural areas were to address specific problems of those areas.

5.

Starting from the year 2000, Rural Development became the ‘second pillar of the CAP’ (4). This was done by combining the investment measures with a wide range of other measures in a single regulation. While keeping the Structural Fund objectives, the CAP objectives were integrated in the policy. Few conditions were set and, from then on, all measures were implemented across the EU. This has resulted in a decentralised policy giving Member States a wide range of options to finance national or regional priorities.

6.

At a global level, the Regulation sets two objectives. The first relates to the agricultural sector, and can be summarised as improving agricultural competitiveness and sustainable land management. The second concerns the structural adjustments of regions that are lagging behind or facing other structural problems. Table 1 sets out full details of these objectives.

7.

The Regulation also provides specific objectives for two of the investment measures, which are also set out in Table 1. Investments in agricultural holdings contribute to the improvement of agricultural incomes and to the improvement of living, working and production conditions. Investments for improving the processing and marketing of agricultural products contribute to increasing competitiveness and adding value to products.

8.

Investments for promoting the adaptation and development of rural areas are commonly known after its number in the Regulation: ‘Article 33’. The article defines that support shall be granted for measures, relating to farming activities and their conversion and to rural activities, which do not fall within the scope of other measures. It then provides a list of indents (which are in this report also referred to as measures) for which no details and no specific objectives are provided. Consequently, a wide range of projects can be supported under this measure.

9.

The Commission and Member States share the management and implementation of rural development investment measures. In practice, this means that the Member States define the strategy and the eligibility conditions in their programmes, approve and check projects, pay beneficiaries and report to the Commission. The Commission is responsible for ensuring that the programmes, their implementation and reporting comply with the legal requirements.

10.

Potential beneficiaries (farmers, processing and marketing companies, local authorities) present an application to the implementing body in the Member State concerned. If the project fulfils the requirements (eligibility conditions, available budget and sometimes ranking and selection criteria), it is approved and the beneficiary can implement the project. Upon project completion, the beneficiary requests reimbursement from the Member State paying agency. Periodically, the paying agency asks the Commission to reimburse the expenditure incurred.

11.

The Court decided to carry out a performance audit focusing on effectiveness, with as its scope the 2000 to 2006 programming period. The principle of effectiveness is concerned with attaining the objectives set and achieving the intended results.

12.

Planning, implementation, the outcomes achieved and the monitoring and evaluation were identified as key elements. Figure 1 gives an overview of these elements and their relationships:

13.

The objective of the audit was to conclude on the extent to which rural development investment measures are effective in addressing problems of rural areas. This was approached by addressing the following questions, based on the four key elements above:

14.

The audit was carried out in the period January to December 2005 and involved gathering audit evidence from:

15.

The following Member States and regions were selected for on the spot visits on the basis of their size in the random sample. Outside Objective 1 regions (7): France (national RDP), Germany (Niedersachsen), Italy (Emilia Romagna), the Netherlands (national RDP) and Spain (Catalonia). In Objective 1 regions: Germany (Brandenburg), Italy (Campania), Portugal (Lisboa Vale do Tejo) and Spain (National OP). The visits took place in the period June to October 2005.

16.

The Rural Development Regulation aims, on the one hand, to contribute to the achievement of the objectives of the CAP and, on the other hand, to contribute to economic and social cohesion (see paragraph 6). In order to reach those objectives, the Regulation defines a series of measures. For some of them, specific objectives are set out, while for others none are provided (see Table 1). These measures are a mix of support for agricultural competitiveness improvements, environmental improvements and support for rural areas. The Regulation does not set out which measure should contribute to which objective, nor in which proportion the objectives should be obtained.

17.

The Regulation defines the investment measures in a flexible manner, as few conditions are required to get the support. In addition, the measures can contribute to any of the global objectives.

18.

For the nine Member State programmes reviewed, the Court found that a clear strategy was lacking. Some programmes do not set out clearly what objectives are pursued and in which proportion a measure shall address them. Other programmes set out objectives but implement measures which achieve different objectives. This makes policy decisions non-transparent: it is not clear how much money is used for which purpose. Text box 1 provides examples of this situation.

Text box 1Same measure for different objectivesOne of the measures in the Spanish programme for improving agricultural structures in Objective 1 areas is investment in agricultural holdings. The objective set out in the programme is to increase agricultural incomes, and to improving living, working and production conditions. However, the audit found that the actual objectives achieved differed depending on the location of the investment. In areas of productive agriculture, this measure contributes to the objective of agricultural competitiveness improvement. However, in mountain areas the measure offers support to small and non-competitive farms with the objective to stabilise the rural population. The programme does not allocate specific resources to these different objectives. There are no specific targets for the two different objectives addressed by this measure; and there is no monitoring of how much money is spent on each of the different objectives or in each of the different type of areas.The measure water resources management and reparcelling accounts for 70 % of the EAGGF contribution to the Portuguese programme for ‘Lisboa e Vale do Tejo’. The objective set out in the programme is ‘to develop a modern and competitive agriculture as key element for the development of rural areas’. However the audit found that the measure supports the modernisation of irrigation networks in fertile areas as well as new irrigation networks completed by reparcelling and infrastructure in areas of poor farming structure (very small parcels, obsolete irrigation systems). The measure has two different objectives: to increase the competitiveness of highly productive areas; and to boost the farming activities in rural areas threatened by abandonment. The programme does not establish in which proportion the measure shall address one or the other objective. A single project located in a densely populated area has absorbed 29 % of the whole EAGGF contribution to the programme.Unclear objectivesReparcelling is generally considered as the rearrangement of parcels to improve farm structures and thus the economic viability of holdings. Under the Dutch RDP, this Article 33 indent is the financially most important measure. The lack of a detailed description in the Rural Development Regulation enables the Netherlands to use this indent as a means for the State to buy land for the purpose of nature development. The Commission approved RDP shows that from the amount allocated to this indent, 87 million euro should contribute to the objective of sustainable agriculture and 16 million euro to the objective of nature and landscape. However, the Court’s audit showed that in reality 86 % of the funds had as main objective nature development and only 14 % for sustainable agriculture. The flexibilty of the Regulation allows this situation. The consequence is a policy where it is unknown to which objective the funds have contributed.

19.

At the level of Member States, two needs are recognised through the general objectives defined by Articles 33, 158 and 160 of the Treaty. Firstly, there is a need to address structural weaknesses, reduce income inequalities between rural and urban areas, to reduce rural unemployment, improve the competitiveness of the primary sector and promote wider economic opportunities in rural areas. Secondly, because of threats to the viability and vibrancy of many rural communities, caused by a scarcity of economic opportunities, there is a need to maintain the viability of rural communities, support new activities and facilitate the provision of rural services. Additionally, Member States are facing a wider range of challenges such as an increased awareness about product quality, animal welfare, environmental concerns.

20.

In order to address these wide-ranging needs, various concepts of territorial approaches for rural areas have been developed. They are focused on a geographical area, based on a socio-economic analysis and a strategy that articulates the different aspects of rural development in explicit relation to other interventions in the area. In addition, they have an integrated approach: multi-sectoral with involvement of all actors and resources in the area concerned. This maximises the synergies within one programme as well as between different programmes applied in the zone.

21.

Independent evaluations on rural development, launched by the Commission, recommend a territorial approach (8). The Commission concludes in its third report on Economic and Social Cohesion that many problems of rural areas are territorial in character (9).

22.

The two European conferences on rural development, in Cork (1996) and in Salzburg (2003), confirmed the relevance of a territorial approach. In Cork it was underlined that ‘Rural development policy must be multi-disciplinary in concept, and multi-sectoral in application, with a clear territorial dimension’ (10). In Salzburg it was considered that ‘Rural development policy must serve the needs of broader society in rural areas and contribute to cohesion’ (11).

23.

In addition, there is a large number of studies available on the territorial approach for rural development, which also recommend this approach. Well known institutes and researchers, including OECD and ESPON, conclude in their studies that a sectoral approach is less effective than a territorial one.

24.

The other approach is the traditional agricultural-centred or ‘sectoral’ one, focusing on only one sector and not taking account of the characteristics of the geographical area supported. The Court found that the Member State programmes predominantly have this latter approach. Key elements of the programme, such as the specific objectives, the SWOT analysis, the description of the situation and the measures are all focused on the agricultural sector. The programmes did not enable effective spatial targeting because the necessary elements were either lacking or incomplete (12).

25.

The Commission recognises the need to boost innovation and diversification outside traditional agri-businesses (13). However, an analysis by the Court of rural development expenditure for the current programming period shows that almost 90 % of rural development expenditure is paid to the agricultural sector.

26.

This strong focus on agriculture puts at risk the achievement of one of the global objectives of the Regulation, reducing territorial imbalances. An appropriate mix of territorial and sectoral approaches would mitigate this risk. A successful case of integration of sectoral and territorial approaches was found in Campania (Text box 2). This shows that it is possible to apply a territorial approach with the EU's rural development policy.

Text box 2Elements of a partial territorial approach in Italy's programme for CampaniaThe Campania programme includes the following elements of a territorial approach:

27.

The new Rural Development Regulation, which will be in force from 2007, continues to allow Member States to adopt a predominantly sectoral approach, with a primary focus on the agricultural sector. There is no territorial objective aimed at a more balanced development by reducing disparities and avoiding territorial imbalances at EU, Member State or regional level.

28.

Only ‘Leader’, which has been included under the new Regulation, has a territorial approach, while also certain measures have some elements of this approach because of their multi-sectoral nature. However the funds available are limited (the minimum Community percentage for Leader is 5 % for EU-15 and 2,5 % for the new Member States; the rate for the multi-sectoral measures is 10 %). The Commission's more ambitious proposals were reduced (for the multi-sectoral measures from 15 % to 10 %) or rejected (in the case of a Leader reserve of 3 % of the RD budget). This shows that in practice there is a reluctance to shift from the sectoral to the territorial approach.

29.

Both the consolidated Treaty and the Rural Development Regulation use the term ‘rural areas’. Article 33 is entitled ‘promoting the adaptation and development of rural areas’. However the Regulation does not define this, nor requires Members States to set out conditions which rural areas should fulfil (e.g. in their rural development programmes). The Court found for the Member State programmes audited that three did not contain a definition of rural areas, that five had a definition which was not applied, and that only one programme (Campania) actually applied its definition of rural areas.

30.

The Regulation also does not require that Member States should tailor the measures to the needs of rural areas in their programmes. This could be done by identifying the areas with the highest needs, and then to allocate funds to rural areas according to the degree of their needs (specific budgets, differentiating aid rates, limiting measures to certain areas, etc.).

31.

The Member States have generally not done so in their programmes. Almost all measures are applied in the whole of the programme's territory, without taking into account the varying degree of needs of rural areas.

32.

Even when a project fulfils the conditions, some projects are better at addressing the needs of rural areas than others. For instance, if one investment project creates more jobs in rural areas than another project, assuming all other matters are equal, the first project is preferable. In addition, available funds are limited. For reasons of effectiveness, funds should be prioritised according to needs.

33.

The Court’s audit found that Member States generally do not apply effective procedures for selecting those projects which best address the needs of rural areas. Several Member States award projects on the basis of the ‘first-come, first-served’ principle. In other cases, Member States have set up ranking procedures, which were not applied or based partly on non relevant criteria. In only one out of the nine programmes reviewed were effective procedures applied. Text box 3 provides examples.

Text box 3Examples of ineffective application of ranking and selectionThe following are examples of criteria which are not relevant in addressing the needs of rural areas:

34.

The audit also found that there is a risk that the better-informed, better-organised and richer beneficiaries have easier access to EU funds. For the investment measures, the projects financed are proposed by private persons and by municipalities which must co-finance part of the investment. Examples were found where aid is concentrated with the economically stronger beneficiaries and areas rather than the more rural areas. Text boxes 3 and 4 show cases where regional imbalances increased rather than decreased.

Text box 4Concentration of aid with stronger private and public beneficiariesIn Emilia Romagna, only agricultural holdings are supported which have a minimal revenue by annual work unit of around 10 000 euro for LFA areas and around 15 000 euro for non-LFA areas. 50 % of the farms have less than 5 000 euro revenue. In general these are small farms. 12 % of the region's biggest farms (more than 20 ha) absorbed 41 % of the grants.The Article 33 indent ‘agricultural water management’ is financially the most important measure in the Spanish programme for improving agricultural structures in Objective 1 region. Most of the funds of this measure (76 %) are used to modernise existing irrigation networks. Irrigated areas cover around 12 % of the total surface of Objective 1 regions, and are more densely populated and more competitive than non-irrigated areas. People have settled in such areas because irrigated areas are on average six times more productive than non-irrigated areas. This has led to a situation where the majority of the funds is concentrated in 12 % of the surface area in the most favourable position. Only a small percentage of the aid (around 20 %) was implemented in areas which were defined as depopulated (< 38,5 inhabitants/km2).

35.

Deadweight occurs when an investment would have happened also without the assistance. In such instances the effects, such as growth of the firm or jobs created, would have been realised anyway. Support for investments is most effective when the investment would not have been carried out, and the desired effects would otherwise not have been realised. However, a certain level of deadweight can be considered unavoidable, as beneficiaries must be ready to undertake investment projects.

36.

The Commission acknowledges that deadweight exists (14). This was also confirmed by the Court’s audit, of which some of the examples found are included in Text box 5. High levels of deadweight are also reported by independent evaluations.

Text box 5Examples of deadweightTwo farmers were visited who received aid for projects under the measure investment in agricultural holdings in Emilia Romagna. Both farmers stated that, had the public support not been granted, they would have carried out the investments anyway. Moreover, both farmers had sufficient financial resources and chose to carry out additional investments (not EU co-financed) for amounts in one case five times bigger than the supported project, in the other case half of the supported project.In Catalonia, until 2005 priority criteria were not applied for the measure improving the processing and marketing of agricultural products, and all eligible applications were co-financed. Because the funds were insufficient to do so at the public co-financing rate foreseen in the RDP, the rate was reduced significantly to an average of 15 %. This increased the likelihood of deadweight — the beneficiaries had to finance 85 % themselves. For two of the three companies visited, the annual accounts for the years after completion of the EU co-financed project showed that the companies had made additional investments for amounts exceeding the EU co-financed investments.

37.

In order to reduce the risk of deadweight, better targeting is needed. In addition, little or no attention has been given by the Commission to identifying factors which can predict deadweight. For example, deadweight was generally found to be higher if the investments were made by larger firms but lower in the case of environmentally friendly investments. These factors could consequently be taken into account when targeting the assistance.

38.

There is a relationship between viability of the company and sustainability of the investment, on the one hand, and deadweight, on the other hand. However the Court considers that the Commission focused too much on sustainability while accepting too easily a high risk of deadweight.

39.

An illustration of this is the situation for investment in agricultural holdings in the Belgian region of Flanders, where almost half of the agricultural holdings are excluded because of the condition for economic viability. This condition was implemented by requiring an income per full-time worker of at least 21 577 euro. The evaluators of the programme concluded that this excluded holdings which needed support and for which the deadweight effects were lower.

40.

The Commission has little information on the location of the results and impacts of RD Investments (see further paragraph 61). The Court drew a representative sample of 300 EAGGF projects, and classified their location in categories of rurality. This was done by using four of the best available independent benchmarks for which data exists to classify all areas of the EU's territory in urban and rural. The following benchmarks were used (more details are provided in Annex II):

41.

Table 2 provides the results of the analysis of how the 300 investments are classified for each of the benchmarks. It shows that for regions outside Objective 1, depending on the typology used, between 29 % (OECD) and 55 % (ex Objective 5b classification) of the expenditure is in non-rural areas. For Objective 1 regions between 9 % (OECD) and 22 % (national definition) of rural development support is located in non rural areas.

42.

When compared to the previous programming period (1994 to 1999), rural development investment support for rural areas (ex Objective 5b) dropped by 50 % in absolute terms (around 1 500 million euro), and by 70 % in relative terms (15), despite a significant increase in the RD budget. This illustrates that the lack of prioritisation of rural areas, allowed by the Regulation, has been to the detriment of the funds available for these areas.

43.

The population density was also analysed for the 300 projects. For each of the sample populations, the average population density of the area of investment is shown in Table 3 (LAU II is the ‘lowest’ administrative level, such as communes, and NUTS III is the larger administrative area such as provinces). For all types of investment measures audited, both LAU II and NUTS III  areas have on average a higher population density than the European average of 120 inhabitants per square km. The figures for Objective 1 regions should be compared with the average population density for Objective 1 areas, which is 81 inhabitants/km2.

44.

The relevance of this analysis stems from the correlation between population density and economic performance. The higher the population density, the higher the GDP per head. The results of Table 3 mean that the RD investments are on average in LAU II and NUTS III areas which have a higher GDP per head than the EU average.

45.

A characteristic of the ESPON classification is that the areas defined as urban in its typology have the highest GDP, i.e. they are the richer areas. The results of the sample thus show that a significant part of the expenditure for the measures reviewed (47 % for regions outside Objective 1, 21 % for Objective 1 regions) is implemented in areas with the highest GDP, contrary to the objective of reducing territorial imbalances (see paragraph 6).

46.

The results are particularly noteworthy for Objective 1 regions, which are overall the poorer areas of the EU. The average population density of the location of the investment is very similar for regions in and outside Objective 1 (see Table 3). This indicates that the investments are concentrated in the richest parts of the Objective 1 regions.

47.

As part of the analysis of the 31 projects reviewed during the Member State visits, the audit addressed the question ‘what were the project’s results and what were the key variables which have determined them?’. The following photos provide an impression of four of the projects audited. Annex III provides a more detailed description of these projects, which illustrate the following points. The results presented below cannot be extrapolated because the sample was made on a judgemental basis and also aimed to include examples of good practice.

48.

For 10 projects reviewed, clear results and impacts were found. For another 15 projects (16), evidence for some effects was found, albeit not for all the intended effects. For the remaining six projects (17) little or no effects were found. This information was generally not collected by the Member States, which sometimes claimed that this is the responsibility of the evaluators.

49.

For 20 projects reviewed synergy effects were found. This means that the projects were not implemented in isolation but were linked to others. This was normally because projects were part of a wider concept such as a local development strategy (e.g. for village development or tourism development). For the remaining 11 projects (18), synergy effects could not be established. The Court found that isolated projects, which had no link with other projects, had less impact and were less effective.

50.

Member States do not always require that projects are part of a wider concept or local development plan. In those cases, in particular for Article 33 measures, effective targeting would increase the effectiveness of the assistance.

51.

For all projects reviewed, the main effects were realised in close vicinity of the investment. Only seven projects (19) also had an impact in a wider area.

52.

For 19 projects reviewed, the results and impacts contributed positively to the development of rural areas. However, for the remaining 12 projects, the Court did not find such a positive contribution: for six cases little or no effects were found (see paragraph 48) and another six cases (20) were in a town or non-rural area. This has a significantly lesser impact on rural development and is thus not effectively addressing the problems of rural areas.

53.

The design of the monitoring and evaluation system is set out in the legal basis, including for instance the inclusion in the RDPs of operational objectives and expected impacts, quantified where possible in terms of monitoring and evaluation estimates.

54.

For monitoring, the legal basis requires Member States to submit annual progress reports to the Commission, which include progress of measures in relation to their objectives. For this, as far as possible, the common indicators defined in the guidelines drawn up by the Commission should be used. On the basis of the common indicators reported by the Member States, the Commission prepares periodically a synthesis report.

55.

Three types of evaluations are performed: ex-ante (at programme planning stage), mid-term (not later than 31 December 2003 and where necessary updated two years later) and ex post (by 31 December 2008). The Commission has also contracted evaluators to prepare summary reports concerning the information included in Member States’ ex post evaluations for the previous programming period (which were available in 2003) and the mid-term evaluations of the present period.

56.

When taking into account that the Commission has addressed some of the present shortcomings with the changes proposed for the new programming period the Court finds that the overall framework of the monitoring and evaluation system is generally adequate.

57.

The Court analysed how the monitoring and evaluation system was implemented by the Commission and the Member States. The Court found that neither the Commission nor the Member States adequately monitor and evaluate the outputs, results and impacts of RD investments. This means that they do not have sufficient information to effectively manage the investment measures.

58.

The following weaknesses were found:

59.

These weaknesses consequently affect the Member State's annual progress reports, in which the data is reported. The common indicators of these reports form the basis for the Commission's ‘EU rural development monitoring data — synthesis reports’, a report requested by the Agricultural Council. The last report, relating to the years 2001 to 2003, was prepared in May 2005, focuses on financial implementation, and provides little monitoring data on outputs and results. The report is not complete, as data for Objective 1 regions was not available. It cannot be compared with the year 2000 because the Commission changed the indicators in 2001, and updated figures for the year 2000 are only partly available.

60.

The weaknesses (see paragraph 58) also affect the evaluation reports. An additional problem relating to the evaluations is the limited relevance of the ‘common evaluation questions’. These are a series of evaluation questions, criteria and indicators developed by the Commission and required by the legal basis. The Court’s audit found that the majority of the questions are not answered by the evaluators because most of the questions, criteria and indicators are not pertinent, and when they are, that data is not reported or cannot be quantified.

61.

Monitoring and evaluation provides only limited information on where outputs, results and impacts are realised. Such information is necessary to analyse that the problems are addressed in those rural areas where the needs are highest. As such it is the logical completion of targeting and enables to measure the effectiveness of the support.

62.

For a number of years the Commission's approach to sound financial management has been through the Activity-Based Management procedures. This provides, at a global level, indicators on output and impact of rural development. These indicators, however, do not provide any insight in what was financed and what was achieved. The output indicators describe the expected activities of the Commission and the only relevant impact indicator for the investment measures is rural development expenditure as share of total EAGGF expenditure.

63.

The way in which the monitoring and evaluation system is implemented has led to a situation that reporting does not provide a reliable picture of the outputs, results and impacts of the RD investments. It is not apparent what was financed (outputs), what was achieved (results, impacts) and how this contributed to addressing the problems of rural areas.

64.

The Court found that key information to answer the question of whether rural development investment measures effectively address the problems of rural areas was lacking. Thus it could not be assessed what funds had contributed to achieve which objective. The non-availability of this information is partly due to the Rural Development Regulation which offers a wide range of measures aiming at broad objectives. Furthermore the Member State programmes did not set out clear strategies in order to address problems of rural areas (see paragraphs 16 to 18).

65.

Member States’ programmes implementing rural development measures focus support to a large extent on the agricultural sector and thus remain close to one of the global objectives of the Regulation: contributing to the achievement of the objectives of the CAP. This strong focus on agriculture puts at risk achievement of the other global objective of the Regulation: contributing to economic and social cohesion of rural areas which would be best served by a territorial approach as applied in other Structural Funds (see paragraphs 19 to 26).

66.

The Regulation does not give a definition of rural areas, nor stipulates conditions which they should fulfil. Member States are not required to set out rural areas in their rural development programmes. There is a lack of effective conditions and selection procedures to target funds on the most needy geographical areas and beneficiaries (see paragraphs 29 to 34).

67.

The Commission has little information on the location of the results and impacts of the investments. The Court identified that a significant part of the expenditure is implemented in areas which are not predominantly rural and that, when compared to the previous programming period, investment support for rural areas decreased significantly (see paragraphs 40 to 46).

68.

Regarding the results and impacts of the projects reviewed on the spot it was found that establishing the effect is difficult but that factors which influenced positively the effectiveness were synergy with other projects and being located in rural areas (see paragraphs 47 to 53).

69.

The system for monitoring and evaluation does not provide the Commission and the Member States with sufficient and reliable information on outputs, results and impacts (see paragraphs 53 to 63).