SPECIAL REPORT No 3/94 on the implementation of the intervention measures provided for by the organization of the market in beef and veal, together with the commission's replies (94/C 356/01)

1. INTRODUCTION 1.1. Cattle rearing has a very important, albeit slightly declining, role in European agriculture. Two common organizations of the market (COMs) cover the products resulting from cattle rearing: the COM in milk and milk products and the COM in beef and veal. The COM in milk and milk products was examined in Special Report No 4/93 on the implementation of the quota system intended to control milk production (1). This report deals with the intervention measures in the beef sector, in particular those concerning public storage of beef.

1.2. Since the early Eighties, the Community market in beef and veal has constantly suffered from surpluses, and this situation has gradually worsened. As early as 1984, the Community's own production (7,4 Mio t) exceeded internal consumption by more than 800 000 tonnes, an imbalance which could be absorbed only by ever-larger amounts of beef being bought into intervention. At the cost of very high budgetary expenditure to off-set the disparity between the selling price and the buying-in price, these intervention stocks were disposed of by exporting them to markets whose solvency, in the case of most of the countries concerned, has become more and more precarious. Furthermore, since 1981, mainly in the context of international agreements, the Community has been importing up to 600 000 t of beef every year, imports which have served only to worsen the internal imbalance described above.

1.3. From 1990 to 1992, because of a combination of various occurrences ('mad cow' disease, or BSE (2), the reunification of Germany, the Gulf War, developments in relations with Eastern Europe, etc.), the Community market underwent an unprecedented crisis, which, as from the financial year 1991, led to soaring Community budgetary expenditure in this sector. The European Parliament has on several occasions expressed its concern about the management of the beef and veal sector (3), in particular during the procedure for giving discharge to the Commission for the financial year 1990.

The Court's earlier audit enquiries 1.4. As part of its Annual Report, the Court examined the premium for maintaining suckler cows (4) in 1990 and the special premium for beef and veal producers (5) in 1992. In both these reports, the Court highlighted the inadequacy of the information available at the Commission with regard to the ex ante and ex post assessment of the impact of these premiums on the producers' incomes and on the equilibrium of the beef and veal market (see paragraphs 4.4 to 4.6).

1.5. Furthermore, in 1988 the Court published a Special Report on management and control of public storage (6), in which it emphasized the need to provide for an obligatory annual physical stock-taking, with random spot checks, which could be broken down into partial stock-takings spread over the year, and the need to specify minimum requirements as to quality. The provisions of Commission Regulation (EEC) No 618/90 of 14 March 1990 (7) have, for the most part, taken into account the observations made by the Court in its Special Report.

Audit performed by the Court 1.6. The Court conducted its audit enquiries at the Commission and, in five Member States (Germany, France, Ireland, Italy and the United Kingdom), at the national and regional authorities responsible for the management of the COM in beef and veal, and at a number of recipients.

1.7. Whilst this audit examined the COM as a whole, the systems audit focused in particular on the various intervention measures, especially public storage.

2. THE BEEF AND VEAL MARKET 2.1. In 1992 the Community, with a net production of 8,4 Mio t of beef and veal, was the second largest producer in the world after the USA (10,6 Mio t), with the Commonwealth of Independent States ranking third (7,3 Mio t). Community production accounts for 15,8 % of world output of beef and veal.

The trend in production, consumption and prices 2.2. Table 2.1 reviews the situation of the COM in beef and veal since 1980. For years, Community beef and veal production (7,2 Mio t in 1980 compared with 7,7 Mio t in 1990 (7,2 Mio t in 1990 for EUR 10), with an estimated value of 24 600 Mio ECU at Community prices) has shown a slightly upward trend (see Graph 2.2), but less than the production of other types of meat (see Graphs 2.1 and 2.3).

The relative share of beef and veal production in the Community's own production of all types of meat decreased from 29,7 % in 1980 to 24,7 % in 1990. Consumer habits in the Community have also changed. Consumption of beef and veal has tended to stagnate (see Graphs 2.4 and 2.5), whereas the amount of other types of meat consumed (in particular poultrymeat and pigmeat) has increased.

Table 2.1 - Production, consumption and stocks on the market in beef and veal ('000 tonnes) "" ID="2">1980> ID="3">1981> ID="4">1982> ID="5">1983> ID="6">1984> ID="7">1985> ID="8">1986> ID="9">1987> ID="10">1988> ID="11">1989> ID="12">1990> ID="13">1991> ID="14">1992"> ID="1">GIP> ID="2">7 182> ID="3">7 014> ID="4">6 685> ID="5">6 943> ID="6">7 535> ID="7">7 394> ID="8">8 014> ID="9">8 066> ID="10">7 614> ID="11">7 340> ID="12">7 736> ID="13">8 705> ID="14">8 378"> ID="1">EXAN> ID="2">364> ID="3">448> ID="4">391> ID="5">391> ID="6">398> ID="7">385> ID="8">443> ID="9">399> ID="10">391> ID="11">390> ID="12">388"> ID="1">IMAN> ID="2">374> ID="3">381> ID="4">391> ID="5">373> ID="6">365> ID="7">412> ID="8">494> ID="9">474> ID="10">461> ID="11">519> ID="12">634"> ID="1">NP> ID="2">7 192> ID="3">6 947> ID="4">6 685> ID="5">6 925> ID="6">7 502> ID="7">7 421> ID="8">8 065> ID="9">8 141> ID="10">7 684> ID="11">7 469> ID="12">7 982> ID="13">8 723> ID="14">8 396"> ID="1">IMBV> ID="2">1 567> ID="3">1 439> ID="4">1 526> ID="5">1 584> ID="6">1 555> ID="7">1 739> ID="8">1 787> ID="9">1 839> ID="10">1 768> ID="11">1 797> ID="12">1 834> ID="13">447> ID="14">480"> ID="1">EXBV> ID="2">1 766> ID="3">1 736> ID="4">1 577> ID="5">1 711> ID="6">1 990> ID="7">2 096> ID="8">2 538> ID="9">2 317> ID="10">2 173> ID="11">2 445> ID="12">2 318> ID="13">1 244> ID="14">1 239"> ID="1">NBIT> ID="2">-199> ID="3">-297> ID="4">-51> ID="5">-127> ID="6">-435> ID="7">-357> ID="8">-751> ID="9">-478> ID="10">-405> ID="11">-648> ID="12">-484> ID="13">-797> ID="14">-759"> ID="1">CONS> ID="2">7 012> ID="3">6 751> ID="4">6 607> ID="5">6 628> ID="6">6 701> ID="7">6 864> ID="8">7 469> ID="9">7 573> ID="10">7 321> ID="11">7 338> ID="12">7 159> ID="13">7 670> ID="14">7 424"> ID="1">VStocks> ID="2">-19> ID="3">-101> ID="4">27> ID="5">170> ID="6">366> ID="7">200> ID="8">-155> ID="9">90> ID="10">-42> ID="11">-517> ID="12">339"> ID="1">BUYING> ID="2">410> ID="3">280> ID="4">270> ID="5">445> ID="6">495> ID="7">455> ID="8">580> ID="9">540> ID="10">390> ID="11">170> ID="12">660> ID="13">1 030> ID="14">890"> ID="1">SALES> ID="2">360> ID="3">430> ID="4">250> ID="5">265> ID="6">230> ID="7">395> ID="8">755> ID="9">335> ID="10">750> ID="11">460> ID="12">175> ID="13">770> ID="14">675"> ID="1">STOCK> ID="2">360> ID="3">210> ID="4">230> ID="5">410> ID="6">675> ID="7">735> ID="8">575> ID="9">780> ID="10">420> ID="11">130> ID="12">615> ID="13">875> ID="14">1 090"> ID="1">SURPLUS> ID="2">180> ID="3">196> ID="4">78> ID="5">297> ID="6">801> ID="7">557> ID="8">596> ID="9">568> ID="10">363> ID="11">131> ID="12">823> ID="13">1 033> ID="14">972""GIP: gross internal production of beef and veal EXAN: exports of live animals

IMAN: imports of live animals NP: net production

IMBV: imports of beef and veal EXBV: exports of beef and veal

NBIT: net balance of international trade CONS: consumption of beef and veal

Vstocks: changes in stocks in the Community BUYING: intervention buying

SALES: intervention sales STOCKS: intervention stocks at the year-end

SURPLUS: surplus production

Source: EUROSTAT - CRONOS and DG VI/A-2 calculations in supply balances - meat 1965-1990 - VI/2643/91 - July 1992 - for intervention: buying, sales and stocks - DG VI-D-2

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Graph 2.1. - Gross internal meat production

(in Mio t)

N.B. Since 1990, EUR 12 has included the former GDR.

Source: Supply balances - meat 1965 to 1990 - VI/2643/91 - DG VI/A-2 & CRONOS

Graph 2.2. - Gross internal beef and veal production

(in Mio t)

N.B. Since 1990, EUR 12 has included the former GDR.

Source: Supply balances - meat 1965 to 1990 VI/2643/91 - DG VI/A-2 & CRONOS

Graph 2.3. - Gross internal production of meat in the Community, by type of meat - (EUR 12 since 1986)

(in Mio t)

N.B. Since 1990, EUR 12 has included the former GDR.

Source: Supply balances - meat 1965 to 1990 - VI/2643/91 - DG VI/A-2 & CRONOS

Graph 2.4. - Changes in consumption in the Community, by type of meat, in kg per capita (EUR 12 since 1986)

N.B. Since 1990, EUR 12 has included the former GDR.

Source: Supply balances - meat 1965 to 1990 - VI/2643/91 - DG VI/A-2 & CRONOS.

Graph 2.5. - Changes in Community consumption of beef and veal

(in Mio t)

N.B. Since 1990, EUR 12 has included the former GDR.

Source: Supply balances - meat 1965 to 1990 - VI/2643/91 - DG VI/A-2 & CRONOS

2.3. The importance of cattle farming in the Community's final agricultural production (27 % in 1991, of which 15,8 % for the milk sector and 11,2 % for the meat sector) is far greater in the north of the Community than in the south. France, with 1,9 Mio t (24,7 % of Community production), is the largest producer in the Community, ahead of Germany with 1,7 Mio t. In 1992, there were 76,8 million head of cattle in the Community, consisting of 20,9 million dairy cows, 32,6 million other adult bovine animals and 23,3 million calves (see Graphs 2.6 to 2.9). Cattle numbers decreased by 11,6 % between 1983 and 1992, with the reduction applying mainly to dairy cows because of the cut in milk quotas. The average herd size has increased, however, from about 30 to around 41 cattle over the past decade, owing to the approximately 30 % decrease in the number of farms since 1981.

2.4. At present, of the cattle slaughtered for meat production, around 65 % still come from dairy herds (cull cows, pure dairy-breed or crossbreed calves and male cattle), with the rest coming from suckler herds or herds of beef cattle specially bred for meat production. The share of the latter is, however, growing.

2.5. In 10 years the average slaughter weight of adult bovine animals has increased to such an extent (8) that meat production has risen despite the reduction in cattle numbers (see Graphs 2.6 and 2.7).

Graph 2.6. - Cattle numbers (in million head)

N.B. Since 1990, EUR 12 has included the former GDR.

Source: EUROSTAT - Cronos

Graph 2.7. - Dairy herd (in million head)

N.B. Since 1990, EUR 12 has included the former GDR.

Source: EUROSTAT - CRONOS

Graph 2.8. - Calf numbers (in million head)

N.B. Since 1990, EUR 12 has included the former GDR.

Source: EUROSTAT - CRONOS

Graph 2.9. - Numbers of other adult bovine animals (in million head)

N.B. Since 1990, EUR 12 has included the former GDR.

Source: EUROSTAT - Cronos

Table 2.2 - Changes in prices (young bull - R3) - (annual average) price per 100 kg carcase weight in ECU "" ID="1">B> ID="2">319,6> ID="3">315,6> ID="4">315,6> ID="5">312,5> ID="6">325,3> ID="7">305,3> ID="8">296,6> ID="9">304,2"> ID="1">DK> ID="2">352,9> ID="3">346,9> ID="4">326,2> ID="5">333,5> ID="6">353,9> ID="7">329,4> ID="8">311,4> ID="9">303,9"> ID="1">D> ID="2">322,3> ID="3">311,0> ID="4">317,7> ID="5">312,3> ID="6">322,8> ID="7">310,7> ID="8">290,4"> ID="1">GR> ID="2">369,3> ID="3">313,3> ID="4">307,3> ID="5">319,9> ID="6">356,1> ID="7">359,2> ID="8">363,5> ID="9">384,2"> ID="1">E> ID="3">312,3> ID="4">327,3> ID="5">343,2> ID="6">334,1> ID="7">338,5> ID="8">337,5"> ID="1">F> ID="2">332,1> ID="3">322,0> ID="4">316,2> ID="5">311,6> ID="6">338,1> ID="7">318,3> ID="8">306,3> ID="9">308,6"> ID="1">IRL (1)> ID="2">304,1> ID="3">299,6> ID="4">296,3> ID="5">320,7> ID="6">304,4> ID="7">293,8> ID="8">286,7> ID="9">286,7"> ID="1">I> ID="2">356,8> ID="3">357,1> ID="4">331,6> ID="5">316,6> ID="6">360,2> ID="7">339,3> ID="8">319,1> ID="9">321,5"> ID="1">L> ID="2">338,6> ID="3">324,2> ID="4">320,7> ID="5">315,6> ID="6">325,7> ID="7">325,9> ID="8">313,2> ID="9">313,7"> ID="1">NL> ID="2">335,1> ID="3">322,6> ID="4">325,7> ID="5">316,1> ID="6">332,9> ID="7">314,2> ID="8">299,9> ID="9">311,4"> ID="1">P> ID="8">380,0> ID="9">377,9"> ID="1">UK> ID="2">332,2> ID="3">291,4> ID="4">280,3> ID="5">329,6> ID="6">327,1> ID="7">281,4> ID="8">287,8> ID="9">275,6""Source: EUROSTAT - CRONOS

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2.6. For some years, prices and the disparities between the prices applied in most of the Member States (see Table 2.2) have been decreasing (a range of 10 % to 20 % in relation to the average of the prices recorded). In 1992, the highest annual average price was found in Greece (384,2 ECU/100 kg (9)), a Member State which is not self-sufficient in beef and veal (see paragraph 2.10), and the lowest in the United Kingdom (275,6 ECU/100 kg).

Developments in international trade 2.7. In 1992, the Community, as the second largest exporter of beef and veal in the world after Australia (10), contributed a quarter of the international trade in these products. In order to dispose of its record-level intervention stocks, the Community kept its exports in 1991 and 1992 at 1,2 Mio t, i.e. about 15 % of its net production of beef and veal.

2.8. The level of trade with third countries is largely governed by agreements between the Community and these countries to allow preferential access to the Community market. For example, imports which are subject to reduced or zero rates of customs duties and import levies are generally made under quota arrangements. These imports, which have been growing over the past decade (+ 57 % since 1981), add to the existing surplus of internal production and end up by swelling the Community stocks, thus resulting in extra intervention expenditure in order to dispose of the surpluses, particularly on the world market. In 1992, the 214 500 young cattle from Hungary, Poland, Yugoslavia and the Czech and Slovak Federal Republic (11) which Italy and Greece imported at reduced levies for fattening led not only to a loss of some 53,5 Mio ECU in uncollected own resources but also to deferred extra costs, for example export refunds for live cattle (a total of 122 Mio ECU in 1992 (12)). For the financial year 1992, the financial impact of imports at a reduced rate of duty or duty-free has been estimated, in the budget remarks, at 1 030 Mio ECU (890 Mio ECU taking into account the reduced duties collected).

Imbalance on the beef and veal market 2.9. One of the objectives of the COM in beef and veal is to stabilize the market in the Community (see paragraph 3.1). A look at the trend in consumption and production since 1980 (see Graph 2.10) reveals that Community production, which, admittedly, is cyclical, has always, even at the lowest point of the cycle, exceeded consumption. This structural imbalance, which has persisted for over a decade, is growing worse. The surplus needing to be disposed of every year on the world market has, over the past 10 years, represented on average about 6 % of Community production, which is tending to grow at slightly less than 0,5 % a year.

2.10. An examination of the levels of self-supply in the Community (see Table 2.3) shows that four Member States (Greece, Italy, Portugal and the United Kingdom) are not self-sufficient. The other Member States, except for Spain where consumption and production are in balance, have all produced considerably more than they have consumed. Except for Belgium (159 % in 1990 as against 108 % in 1980) and Ireland (948 % in 1990 compared to 484 % in 1981), the level of self-supply decreased in all the Member States between 1986 and 1989.

Graph 2.10. - Changes in the balance between internal production and consumption - EUR 6, EUR 9 and EUR 12

(in Mio t)

N.B. Since 1990, EUR12 has included the former GDR.

Source: Supply balances - meat 1965 to 1990 - VI/2643/91 - DG VI/A-2

2.11. Even though the recent situation on the market seems to have improved considerably, stocks, which exceeded 1,1 million tonnes at the beginning of 1993, nevertheless stood at about 450 000 tonnes at the start of 1994. The fundamental imbalance - obscured by temporarily better export performances, the cyclical changes in production and the fact that farmers are deferring slaughter so as to acquire rights to premiums under the new system - will make itself felt very clearly in the years to come, at a time when solvent export markets may well be growing scarce (13).

Table 2.3 - Level of self-sufficiency (self-sufficiency as a percentage - beef and veal) "" ID="1">B (1)> ID="2">108> ID="3">116> ID="4">103> ID="5">114> ID="6">126> ID="7">127> ID="8">136> ID="9">135> ID="10">149> ID="11">150> ID="12">159> ID="13">178> ID="14">179"> ID="1">DK> ID="2">351> ID="3">372> ID="4">413> ID="5">414> ID="6">363> ID="7">328> ID="8">283> ID="9">290> ID="10">249> ID="11">208> ID="12">208> ID="13">231> ID="14">204"> ID="1">D> ID="2">104> ID="3">109> ID="4">109> ID="5">112> ID="6">119> ID="7">113> ID="8">121> ID="9">118> ID="10">112> ID="11">113> ID="12">120> ID="13">137> ID="14">121"> ID="1">GR> ID="2">46> ID="3">57> ID="4">47> ID="5">37> ID="6">37> ID="7">35> ID="8">33> ID="9">27> ID="10">38> ID="11">28> ID="12">29> ID="13">32> ID="14">28"> ID="1">E> ID="5">95> ID="6">88> ID="7">87> ID="8">99> ID="9">99> ID="10">96> ID="11">96> ID="12">102> ID="13">95> ID="14">100> ID="15">97"> ID="1">F> ID="2">111> ID="3">115> ID="4">112> ID="5">113> ID="6">121> ID="7">118> ID="8">118> ID="9">121> ID="10">118> ID="11">108> ID="12">114> ID="13">119> ID="14">122> ID="15">116"> ID="1">IRL> ID="2">629> ID="3">484> ID="4">476> ID="5">547> ID="6">601> ID="7">692> ID="8">706> ID="9">692> ID="10">776> ID="11">716> ID="12">903> ID="13">977> ID="14">977"> ID="1">I> ID="2">63> ID="3">60> ID="4">59> ID="5">63> ID="6">67> ID="7">61> ID="8">58> ID="9">59> ID="10">59> ID="11">56> ID="12">62> ID="13">62> ID="14">69"> ID="1">NL> ID="2">141> ID="3">156> ID="4">154> ID="5">172> ID="6">196> ID="7">185> ID="8">220> ID="9">182> ID="10">169> ID="11">154> ID="12">160> ID="13">173> ID="14">179"> ID="1">P> ID="5">99> ID="6">91> ID="7">84> ID="8">86> ID="9">80> ID="10">82> ID="11">83> ID="12">71> ID="13">76> ID="14">70"> ID="1">UK> ID="2">84> ID="3">83> ID="4">83> ID="5">86> ID="6">92> ID="7">89> ID="8">81> ID="9">84> ID="10">76> ID="11">81> ID="12">91> ID="13">92> ID="14">85> ID="15">91"> ID="1">EUR

12> ID="5">104> ID="6">111> ID="7">106> ID="8">107> ID="9">107> ID="10">104> ID="11">100> ID="12">108> ID="13">115> ID="14">113"> ID="1">EUR

10> ID="2">102> ID="3">104> ID="4">101> ID="5">105> ID="6">112> ID="7">108> ID="8">108> ID="9">107> ID="10">105> ID="11">101> ID="12">109""Source: Supply balances - meat 1965 to 1990 - VI/2643/91 - DG VI/A-2

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3. COMMON ORGANIZATION OF THE MARKET IN BEEF AND VEAL 3.1. The COM in beef and veal was set up by Council Regulation (EEC) No 805/68 of 27 June 1968 (1), hereinafter called the basic Regulation. This Regulation lays down the instruments to be implemented, on the basis of the Common Agricultural Policy objectives specified in Article 39 of the Treaty of Rome. Priority is given to the need to stabilize markets, in particular by preventing price fluctuations on the world market from affecting prices ruling within the Community and the need to ensure a fair standard of living for the agricultural community concerned (2).

Changes in the regulations: the three periods of the COM 3.2. The Community regulations of this COM have gone through the following three chronological phases:

(a) a period of a shortage of beef and veal, from 1960 to 1973, during which the provisions of the regulations aimed to stimulate production;

(b) a period of precarious balance, from 1974 to 1981, during which the main purpose of the ad hoc measures decided was to support prices on the Community market;

(c) a period of structural surpluses, since 1981, during which Community regulations have increasingly been moving towards the support of producers' incomes by applying a system of premiums paid direct to the producer, whilst at the same time allowing market prices to drop within certain limits under pressure from the production surpluses.

3.3. The various premiums which were introduced in a somewhat disparate manner at the beginning of the Seventies in response to concerns that seemed transitory have gradually been replaced by premiums of a more lasting nature, which have in the end been incorporated into the basic Regulation of the COM. The Council's response to the market has been to introduce the Community classification scale, which established the shift from a 'live price' system to a 'carcase price' system, to implement a more homogeneous set of premiums, combined with a policy of reducing intervention prices, and to make successive changes to the mechanisms of purchase by tender. On several occasions, the Council considered that the intervention system in the beef sector had failed to achieve its objective of supporting prices and stabilizing the market and that intervention was tending to become an end in itself, as shown by the appearance of a typical intervention carcase (heavy carcase with good conformation, etc.).

The Community regulations in force 3.4. Following the most recent changes made in May 1992 as part of the 'reform of the Common Agricultural Policy (CAP)', the basic Regulation of the COM (3) contains, as it has from the outset, a prices and intervention system and arrangements governing trade with third countries.

Arrangements governing trade with third countries 3.5. The measures laid down in the basic Regulation comprise a system of export refunds differentiated according to the destination of the goods and a system of customs duties for imports, plus, if need be, a system of levies. Furthermore, one system of exceptions is laid down for the processing industry and another for the importing of animals for fattening.

3.6. Every year, the Council draws up an 'estimate of the meat intended for the processing industry, taking account, on the one hand, of expected Community supplies of meat of a quality and type of cut suitable for industrial use and, on the other, of industrial needs' (4). These successive estimates have in particular taken the changes in Community production into account. Since 1991, import needs, which last reached their highest point in 1990 with 50 000 t, have been fixed at nil by the Council. Nevertheless, in order to fulfil commitments (193 795 t of meat and 472 600 live animals) made under international agreements (GATT, ACP, namely Botswana, Kenya, Madagascar, Namibia (since 1993), Swaziland, Zimbabwe - see Table 3.1), the Community continues to import some 500 000 t of beef per year at preferential rates, including 200 000 t in the form of preparations or preserved meat (tariff heading 16.02) which can be imported at a 26 % rate of customs duties.

3.7. The successive estimates concerning young male bovine animals weighing 300 kg or less intended for fattening in the Community have taken account of the Community surplus of male calves, a surplus which should in future be reduced by the introduction, since 1993, of the premium for the conversion of young male dairy calves (a premium of 100 ECU paid for every young male dairy calf withdrawn from production before it is 10 days old). This measure, which is optional for the Member States, has not yet been applied. In order to keep up harmonious trade relations with the third countries concerned (Hungary, Poland and Yugoslavia for 1992, the Czech Republic and the Slovak Republic for 1993, Romania), the Council has decided for the past three years to keep the number of young male bovine animals allowed to be imported at preferential rates at 198 000 head, despite a foreseeable surplus of 600 000 head in 1992 and 100 000 head in 1993.

System of premiums 3.8. The various types of premium, namely the special premium, the deseasonalization premium, the suckler-cow premium and the calf conversion premium, are measures whose purpose is to influence the supply of beef and veal, in particular in terms of the quantity available for marketing, the time of marketing or the form in which it is marketed (calves, young male bovine animals, bullocks, etc.) and to support producers' incomes.

The intervention system 3.9. The system of intervention applies to the carcases of adult bovine animals, i.e. those with a live weight of over 300 kg, and to the fresh or chilled meat of such animals, presented in the form of carcases, half-carcases, compensated quarters, forequarters or hindquarters, graded according to the Community classification scale.

3.10. Intervention consists of public storage carried out according to the rules governing the buying in by the intervention agencies of each Member State, and private storage, i.e. aid for the storing of products in a warehouse by persons other than intervention agencies on their own behalf and at their own risk (5). In recent years, however, the budgetary expenditure incurred for private storage has accounted for only an insignificant portion of the costs of intervention in the form of storage (see Table 3.1).

3.11. These measures may be taken either for a Member State or a region or for the whole of the Community, depending on the level of prices recorded on markets in the Member States in relation to an indicator, the intervention price (originally the guide price (6)).

Public storage Buying in

3.12. Intervention buying in may be carried out in two different specific cases depending on the levels, in relation to the intervention price, of the average price on the

Table 3.1 - Import quotas in the beef and veal sector "" ID="1">Coun. 129/94> ID="2">GATT Hilton beef> ID="3">Argentinia, Australia,> ID="4">20 % (CD)> ID="5">24 300 t> ID="6">34 300 t"> ID="1">Comm. 212/94> ID="2">GATT Hilton beef USA> ID="3">Uruguay, USA, Canada> ID="4">20 % (CD)> ID="5">10 000 t"> ID="1">Coun. 131/94

Comm. 212/94> ID="2">GATT buffalo> ID="3">Australia> ID="4">20 % (CD)> ID="5">2 250 t"> ID="1">Coun. 132/94> ID="2">GATT thin skirt> ID="3">Erga omnes> ID="4">4 % (CD)> ID="5">800 t> ID="6">1 500 t"> ID="1">Comm. 139/94> ID="2">GATT thin skirt

Argentina> ID="3">Argentina> ID="4">4 % (CD)> ID="5">700 t"> ID="1">Coun. 130/94> ID="2">GATT frozen meat> ID="3">Erga omnes> ID="4">20 % (CD)> ID="5">53 000 t"> ID="1">Comm. 214/94> ID="2">Situation processed meat> ID="3">Erga omnes> ID="4">0 %/45 % (L)

20 % (CD)> ID="5">0 t"> ID="1">Coun. 715/90> ID="2">ACP meat> ID="3">Kenya, Zimbabwe, Swaziland, Botswana, Madagascar, Namibia> ID="4">10 % (L)> ID="5">52 100 t"> ID="1">Comm. 336/94> ID="2">Situation young bovines> ID="3">Czeck Republic, Sovakia, Poland, Hungary, Romania, Slovenia, Bulgaria> ID="4">25 %/35 % (L)

16 % (CD)> ID="5">198 000 h> ID="6">425 000

traditional level"> ID="1">Comm. 2697/93

Comm. 3558/93> ID="2">Association agreement (meat)> ID="3">Poland, Hungary, Czech Republic, Slovakia> ID="4">40 % (L)

8 % (CD)> ID="5">14 100 t"> ID="1">Comm. 358/94> ID="2">Association agreement (live animals of 160 to 300 kg)> ID="3">Poland, Hungary, Czech Republic, Slovakia> ID="4">25 % (L)

16 % (CD)> ID="5">59 400 h"> ID="1">Coun. 1157/92

Comm. 3409/93> ID="2">Calves < 80 kg> ID="3">Erga omnes> ID="4">100 % (L)

16 % (CD)> ID="5">167 600 h"> ID="1">Coun. 775/94

Comm. 957/94> ID="2">Compensation (situation) 'high quality meat'> ID="3">Argentina, Australia, Uruguay, New Zealand, Brazil> ID="4">20 % (CD)> ID="5">11 430 t"> ID="1">Coun. 774/94

Comm. 1001/94> ID="2">Compensation 'oleaginous products'> ID="3">Argentina, Uruguay, Brazil> ID="4">20 % (CD)> ID="5">18 000 t"> ID="2">Mountain breed> ID="3">Austria, Switzerland> ID="4">4 % (CD)> ID="5">47 600 h"> ID="1">Comm. 266/94> ID="2">Meat Sweden> ID="3">Sweden> ID="4">0 % (CD)

0 % (L)> ID="5">4 000 t fresh or frozen meat 2 500 t tins"> ID="1">Comm. 346/94> ID="2">Meat Bulgaria &

Romania> ID="3">Bulgaria, Rumania> ID="4">60 % (L)

12 % (CD)> ID="5">75 t (Bulgaria)

540 t (Romania)""Source: Commission

>

Community market and the average market prices in the Member States or regions of a Member State (7). In the first case, buying in is subject to a quantitative limit (see paragraphs 3.13 and 3.14). In the second case, buying in is carried out according to the arrangements of the 'safety system' or 'safety net' (see paragraph 3.15).

3.13. In the first case, buying in is done by means of a tender procedure, with the buying in prices and the quantities accepted being determined on the basis of tenders received by the Commission. This procedure is opened provided that two conditions are met during a period of two consecutive weeks:

(a) the average Community market price recorded on the basis of the Community scale for classification of beef carcases is less than a percentage of the intervention price (84 % (8) since 1992);

(b) the average market price recorded on the basis of the said scale in the Member State or the region concerned is less than a percentage of the intervention price (80 % (9) since 1992).

3.14. The procedure is suspended where one or other of these conditions is no longer met for two consecutive weeks or where the annual ceiling fixed for buying in under this procedure has been reached. This ceiling, which was set at 750 000 tonnes for 1993, decreases step by step down to 350 000 tonnes in 1997.

3.15. In the second case, products are bought in according to a procedure generally known as the 'safety system or safety net' under which all tenders are accepted. This buying-in procedure is applied in the event of a sharper fall in prices over two consecutive weeks, i.e. where the average Community market price is lower than 78 % of the intervention price and, in a Member State or regions of a Member State, where the average market price of adult bovine animals, recorded on the basis of the Community classification scale for carcases, is less than 60 % of the intervention price.

3.16. In the two cases described above, the only tenders accepted are those where the price does not exceed the average market price of the Member State or the region, plus an amount which has been fixed by the Commission at 8 ECU. The meat bought in must correspond to the quality for which the price conditions specified in paragraph 3.13 were recorded.

3.17. The system of intervention buying in has undergone considerable changes because of the numerous amendments and improvements to the implementing rules laid down by the Commission. These include:

(a) the possibility allowed since 1974 to the intervention agencies, in the event of huge amounts being offered for intervention, of restricting buying in to the quantities which they are able to freeze and store (10);

(b) the authorization granted since 1978 to the intervention agencies to bone the beef which they buy in, within certain limits (11); after various derogations, these limits were abolished in 1989 (12) and others were again introduced in 1993 (13);

(c) the ban since 1988 on accepting into intervention products coming from animals treated with certain substances having a hormonal action (14);

(d) the obligation, imposed since 1989, to refuse products whose classification the intervention agencies do not deem to comply with the Community classification scale (15), with no possibility of making a new classification;

(e) the possibility retained by the Commission since 1990, where the quantities tendered at a price equal to or below the maximum price exceed the quantities to be bought in, of decreasing these quantities by means of reduction coefficients (see paragraph 4.16);

(f) the obligation, imposed on the tenderer since 1992, to lodge the security intended to ensure fulfilment of his obligations solely in the form of a cash deposit, so as to reduce any speculation aimed at anticipating the application of reduction coefficients (16) (see paragraph 4.15).

Disposal of stocks

3.18. The aim of the measures implemented for disposing of intervention stocks of meat is to expand demand on the Community market, i.e. sales to the meat-processing industry or distribution free of charge to humanitarian organizations, and to facilitate exports on the world market (17).

3.19. The detailed rules of application (18) stipulate that the purchase application must always include a declaration whereby the applicant waives all claims as to the quality and characteristics of the product which may be assigned to him. The intervention agencies are nevertheless supposed to have enabled prospective tenderers to inspect the products for sale before submitting their tender. The intervention agencies must give priority to disposing of the products which have been in store the longest.

Changes in budgetary expenditure 3.20. The budgetary expenditure of the COM (see Table 3.2) in beef and veal has increased from 1 736 Mio ECU in 1983 to 3 894 Mio ECU in 1993 (+ 124 %). This upward trend has been heavily affected by the surpluses bought into intervention: between 1983 and 1993 intervention spending on storage increased from 632 Mio ECU to 1 291 Mio ECU, a rise of 104 %. Export refunds represented the largest item of COM expenditure in 1993, amounting to 1 711 Mio ECU, or 44 % of the COM's total budgetary expenditure. Expenditure on export refunds rose less rapidly than the total expenditure of the COM (+106 % as against +124 %). The various premiums paid direct to beef and veal producers have resulted in budgetary expenditure which has risen by 123 % between 1983 and 1993. According to the forecasts used as a basis when the budget for the financial year 1994 was being drawn up, this expenditure is set to more than triple between 1993 and 1994 (see Table 3.2 and Graph 3.1).

Table 3.2 - Budgetary expenditure - COM in beef and veal "(Mio ECU)

>(3)(4)"> ID="1"> 210> ID="2">REFUNDS ON BEEF/VEAL> ID="3">828> ID="4">1 393> ID="5">1 339> ID="6">1 214> ID="7">878> ID="8">769> ID="9">1 343> ID="10">1 110> ID="11">1 282> ID="12">1 333> ID="13">1 711> ID="14">902> ID="15">1 552"> ID="1">2110> ID="2">PRIVATE STORAGE> ID="3">14> ID="4">14> ID="5">160> ID="6">102> ID="7">66> ID="8">60> ID="9">102> ID="10">87> ID="11">1> ID="12">0> ID="13">-93> ID="14">28> ID="15">pm"> ID="1">2111> ID="2">TECHNICAL COSTS OF PUBLIC STORAGE> ID="3">94> ID="4">136> ID="5">198> ID="6">170> ID="7">130> ID="8">175> ID="9">109> ID="10">70> ID="11">256> ID="12">292> ID="13">273> ID="14">296> ID="15">74"> ID="1">2112> ID="2">FINANCIAL COSTS OF PUBLIC STORAGE> ID="3">56> ID="4">59> ID="5">128> ID="6">112> ID="7">83> ID="8">104> ID="9">49> ID="10">14> ID="11">77> ID="12">88> ID="13">104> ID="14">80> ID="15">18"> ID="1">2113> ID="2">OTHER PUBLIC STORAGE> ID="3">469> ID="4">606> ID="5">608> ID="6">1 497> ID="7">771> ID="8">563> ID="9">132> ID="10">-55> ID="11">81> ID="12">65> ID="13">-119> ID="14">-64> ID="15">-294"> ID="1">2114> ID="2">DEPRECIATION OF STOCKS> ID="3">0> ID="4">0> ID="5">0> ID="6">149> ID="7">0> ID="8">344> ID="9">270> ID="10">882> ID="11">1 897> ID="12">1 747> ID="13">1 126> ID="14">1 268> ID="15">90"> ID="1"> 211> ID="2">INTERVENTION STORAGE> ID="3">632> ID="4">815> ID="5">1 094> ID="6">2 030> ID="7">1 050> ID="8">1 246> ID="9">663> ID="10">998> ID="11">2 312> ID="12">2 192> ID="13">1 291> ID="14">1 608> ID="15">-112"> ID="1">2120> ID="2">PREMIUMS FOR SUCKLER COWS> ID="3">91> ID="4">90> ID="5">113> ID="6">91> ID="7">62> ID="8">156> ID="9">182> ID="10">292> ID="11">367> ID="12">437> ID="13">558> ID="14">691> ID="15">891"> ID="1">2121> ID="2">ADDITIONAL PREMIUMS FOR SUCKLER COWS> ID="14">52> ID="15">70"> ID="1">2122> ID="2">SPECIAL PREMIUMS> ID="3">0> ID="4">0> ID="5">0> ID="6">0> ID="7">74> ID="8">192> ID="9">158> ID="10">401> ID="11">335> ID="12">454> ID="13">319> ID="14">967> ID="15">671"> ID="1">2123> ID="2">DESEASONALIZATION PREMIUMS (1)> ID="3">82> ID="4">98> ID="5">83> ID="6">74> ID="7">65> ID="8">71> ID="9">41> ID="10">0> ID="11">0> ID="13">0> ID="14">21> ID="15">35"> ID="1">2124> ID="2">PREMIUMS FOR FATTENING YOUNG MALE CALVES (2)> ID="3">103> ID="4">152> ID="5">117> ID="6">72> ID="7">19> ID="8">42> ID="9">41> ID="10">32> ID="11">8> ID="13">0> ID="14">59> ID="15">1"> ID="1">2125> ID="2">EXTENSIFICATION PREMIUMS> ID="14">448> ID="15">401"> ID="1">2126> ID="2">PROMOTION AND MARKETING MEASURES> ID="13">90> ID="14">10> ID="15">10"> ID="1">2127> ID="2">ADDITIONAL PREMIUMS FOR SUCKLER COWS (PORTUGAL)> ID="14">28> ID="15">31"> ID="1">2129> ID="2">OTHER INTERVENTION> ID="4">0> ID="5">0> ID="6">0> ID="7">0> ID="8">0> ID="9">0> ID="10">0> ID="11">0> ID="12">0> ID="13">6> ID="14">pm> ID="15">pm"> ID="1"> 212> ID="2">INTERVENTION OTHER THAN STORAGE OF BEEF> ID="3">276> ID="4">340> ID="5">313> ID="6">237> ID="7">220> ID="8">461> ID="9">422> ID="10">725> ID="11">710> ID="12">891> ID="13">892> ID="14">2 276> ID="15">2 116"> ID="1">B1-21> ID="2">TOTAL FOR THE CHAPTER (beef/veal)> ID="3">1 736> ID="4">2 547> ID="5">2 746> ID="6">3 482> ID="7">2 149> ID="8">2 476> ID="9">2 429> ID="10">2 833> ID="11">4 304> ID="12">4 416> ID="13">3 894> ID="14">4 786> ID="15">3 550""Source: Financial reports 1983-91 - SINCOM 92-93 - Budget 1994

>

Graph 3.1 - Budgetary expenditure - COM in beef and veal

in (000) Mio ECU

Source: Financial reports 1983-91 - SINCOM 92-93 - 1994 budget

4. THE IMPLEMENTATION OF INTERVENTION MEASURES 4.1. For the past decade there have been persistent structural surpluses in the beef market. Approximately one third of the surpluses merely reflects decisions which have been adopted under the COM in milk and milk products. There is a risk that this worrying situation (annual surplus of around one million tonnes of beef in 1991/1992) will persist, despite the 1992 CAP reform (1).

4.2. Even though the current cyclical downturn in beef and veal production appears to be influenced by the package of measures adopted as part of the reform, there is a risk that the structural surpluses will ultimately return to the levels of 1991 and 1992, unless the Community implements corrective measures of a restrictive nature in the meantime.

4.3. From the aspect of Community finance, the Commission has estimated that by 1996 the introduction of new premiums and the increases in the existing premiums for beef producers will represent an additional annual cost to the budget of some 2 100 Mio ECU (2). If, in the future, the gap between Community prices and world prices narrows as expected, the budgetary cost of refunds will decline, as will that of intervention buying. The Commission has estimated the saving to the Community budget at 778 Mio ECU. The financing of the intervention buying, Community storage and the disposal of surpluses on the world market, which legally is not allowed, however, to exceed the export level (817 000 t in the year 2000) authorized under the GATT, will, nevertheless, continue to impose a significant budgetary burden. In the long term, the structural surpluses will continue to be a problem, one which the 1992 CAP reform has failed to remedy in the slightest and whose extent is hardly likely to diminish either, unless corrective measures, some of which have already been adopted in the meantime (for example, as part of the 1994/95 prices package) are implemented.

The system of premiums and its impact on the incomes of farmers specializing in beef production 4.4. In its Annual Reports concerning the financial years 1989 (3) and 1991 (4), the Court examined the implementation of the suckler cow premium and the special premium for young male bovine animals. It also evaluated the impact of the two premiums, and their impact on the incomes of specialist producers of beef in particular.

4.5. According to this evaluation, the special premium, which was introduced to compensate for any loss of income which might result from the Council's decision to impose an immediate cut on intervention prices, appeared, in the end, to have no impact on producer incomes, as the effect of the premium is ultimately cancelled out by price variation. In fact, payment of the premium produces very little long-term improvement in farmers' incomes as part of the premium is absorbed by the market machinery. If the premium did not exist, the price difference in the producers' favour would equal or even exceed the amount of the premium. As regards the suckler cow premium, its impact on producers' incomes was found to be marginal in the long term.

4.6. One of the priority objectives of the COM in beef and veal is to ensure a fair standard of living for the agricultural population concerned (see paragraph 3.1). Comparison of the farm incomes for specialist beef and veal producers with those for milk producers shows that the average income for the former is approximately 50 % lower than that of the latter (5). The decisions which were adopted in 1992 as part of the reform of the CAP aimed to produce a 16 % improvement in the incomes of farmers specializing in beef and veal production, as against 8 % for milk producers. The only case where the target of a 16 % increase in income is higher is that of agricultural holdings which produce less than 92 t of cereals per year, where the improvement sought is 19 % (6). The Council has considered the problem of the specialized producers' incomes on a number of occasions. In addition to introducing the premiums already mentioned, it has also given producers the opportunity of diversifying into milk production, by allowing them individual reference amounts or quotas of up to 120 000 kg.

The intervention system The various roles of intervention

4.7. There are certain slaughterhouses which sell surpluses into intervention and which use the system to sort the carcases bought from fatteners according to market requirements. Carcases which do not readily find buyers in the market go into intervention. For some slaughterhouses with a wide range of outlets in a number of Member States, there is no such thing as a typical intervention carcase. For others, more numerous than the first, the typical intervention carcase is a heavy carcase (see paragraph 4.10). In the case of the latter slaughterhouses, which are usually situated in the main areas of production, their outlets tend to be local or regional and the Community intervention system for beef is 'one of their best customers'.

4.8. According to some economic operators whom the Court's auditors met during audit visits to the Member States, intervention was deemed to play a major role in large-scale export business. In their view there were very few enterprises which were large enough to be able to undertake to export tens, or even hundreds, of thousands of tonnes of beef at short notice. Consequently, irrespective of the level of Community prices, intervention should and, in fact, did perform an important function as a focus of supply for large export contracts.

4.9. In the Member States that were visited, some senior staff in the intervention agencies criticized the present system of continuous intervention buying. According to them, intervention buying should revert as soon as possible to the original function of regulating seasonal or occasional surpluses, and should cease to act as a regulator in situations of structural surplus of the kind that has existed within the Community for many years. In the United Kingdom, in 1993, some slaughterhouses already seemed to be resigned to the idea that buying in under the intervention system would be abolished within two years (7).

4.10. One of the disadvantages reported by operators in a number of Member States was that, in a situation of structural over-production, intervention attracted very heavy male beef carcases and actually encouraged the production of them. The live weight of these animals is more than 340 kg and there are no buyers for them in the market at the intervention price because, after boning and cutting, they do not satisfy consumer requirements. The joints produced after cutting are usually larger and heavier than the standard portions demanded by the market. The Council became aware of this drawback and decided, in response to a Commission initiative, to limit the weight of carcases eligible for intervention buying to 380 kg with effect from 1 July 1993 (8). This weight was reduced to 360 kg from 1 January 1994 and to 340 kg from 1 July 1994.

The parties involved in management of the COM in beef and veal

4.11. In each Member State one or more national intervention agencies are responsible for the day-to-day management of intervention measures: tendering, buying, stock control and sales. The structure of the agencies involved in intervention measures may be limited to a single ministry, as in the case of Ireland, or it may involve a number of different provincial organizations, as in Italy.

Tendering procedure

4.12. The procedures for recording market prices are laid down in Community regulations and play a key role in triggering the intervention mechanisms. The purchases on which the intervention agencies decide in the course of the open tendering procedures so as to provide reasonable support for the market are established by reference to the prices recorded on the markets for adult bovine animals (9). The conditions for opening the tendering procedures are set out in detail in the basic Regulation (10) (see paragraphs 3.12 to 3.16). Invitations to tender and amendments to them are published in the Official Journal of the European Communities.

4.13. Only certain types of beef carcase are eligible for intervention buying, namely carcases of uncastrated young male animals under the age of two years and castrated male animals; heifers and dairy or other cows are excluded. The carcases must also meet certain criteria (11), for example, they must originate in the Community, satisfy certain health and hygiene requirements and be classified according to the Community scale.

4.14. Interested parties forward their tenders to the intervention agencies in the Member States. Tenderers must give a written undertaking to comply with all the provisions relating to the tender concerned (12) and are required to lodge a security of 30 ECU per 100 kg, in cash (13), as a guarantee.

4.15. The cash deposit was introduced in March 1992 to counteract a speculative movement that had been triggered by the increased use of the reduction coefficients introduced by Regulation (EEC) No 1282/90 (14). A cash deposit costs the tenderer around ten times as much as a bank guarantee. In view of the amounts at stake in intervention sales, this additional cost has very little influence on the way traders operate. Nevertheless the Commission's application of reduction coefficients to tenders is a very disturbing factor for traders, because it is arbitrary. Some slaughterhouses sell between 30 % and 50 % of their output into intervention and if the tenders submitted are not accepted, or the amounts bought are too small, they may be obliged to slow down their slaughtering rates temporarily, with immediate repercussions on the operation of the slaughterhouse and indirect repercussions on fatteners' incomes.

4.16. Owing to the way in which the reduction coefficients operate (see paragraph 3.17), only a fraction of the amount offered in the tender is accepted. The system of reduction coefficients for tenders was introduced with the aim of improving market-price support. This device makes it possible to buy certain quantities at a price above the equilibrium price for the market. As long as the reduction coefficient has a value such that almost 100 % of the quantities tendered are bought, the expectations of those involved remain within reasonable limits. Since July 1990, however, the effect of the reduction coefficients has been to reduce the amounts accepted against each tender. In February 1992, traders' expectations were such that, for category A (young male animals), they could expect to be able to deliver no more than 5 % of the quantity tendered. They accordingly submitted tenders for amounts ten to twenty times higher than the quantity they intended to supply. In Germany the record level was reached when 82 465 t were offered for sale in response to the 61st invitation to tender and 1 402 t (1,7 % of the amounts offered) were accepted for intervention after the reduction coefficient had been taken into account. At that time the amounts needing to be bought in in order to stabilize the market in Germany were of the order of 8 000 t to 10 000 t per invitation to tender.

4.17. In the light of the tenders received in response to an invitation to tender and in accordance with the procedure provided for in Article 27 of Regulation (EEC) No 805/68 (15), the Commission consults the Management Committee (16) and fixes the maximum buying-in price (17) per category for quality R3 (18) (conformation class R and degree of fat cover 3). The intervention agency immediately informs each tenderer of the outcome of his participation in the tendering procedure. Each successful tenderer immediately receives a delivery order from the intervention agency, with details of the quantity to be delivered, the price at which the award is made, the delivery timetable and the intervention centre(s) to which delivery is to be made (19).

4.18. The successful tenderers are allowed 17 days from the closing date for the submission of tenders within which to deliver the products. Deliveries may be split into several consignments. The rights and obligations arising from a successful tender are not transferable (20). During audit visits to the Member States, and the United Kingdom (Northern Ireland) in particular, it was found that a number of enterprises had submitted multiple bids by operating through subsidiaries to circumvent the stipulation of only one bid per undertaking (21). Delivery was effected by the parent company on behalf of the subsidiaries, thus circumventing the prohibition on transferring the rights and obligations arising from a successful tender. Commission Regulation (EEC) No 2456/93 of 1 September 1993 reinforced the prohibition on transferring rights and obligations by requiring the Member States to ensure that tenderers are independent of each other in terms of their management, staffing and operations.

Community buying in

4.19. Community buying in for intervention rose from 540 000 t (carcase equivalent) in 1987 to 1 030 000 t in 1991, an increase of 90,7 % in four years (see Table 2.1). Admittedly, the level of buying in has followed a cyclical pattern, with a downswing to 170 000 t (22) in 1989, but, nevertheless, the 1991 buying represents more than 13 % of Community beef and veal production and approximately 30 % of the production of meat from young male bovine animals and adult castrated male animals.

4.20. In 1990/91, 69,8 % (see Table 4.1) of Community purchases were effected under the safety-net system (see paragraph 3.15). In the United Kingdom the percentage was 97,1 %, in Ireland 94,7 % and in Germany 52,9 %. In contrast, the figure for France, the other major beef producer, was only 37,9 %. For the 1992/93 marketing year, purchases under this system, which had been modified in the meantime, accounted for not more than 13,2 % of total Community buying in.

Table 4.1 - Public buying in of beef, broken down according to the tender system or the safety-net system "Carcase weight (tonnes)

"" ID="1">Belgiuma> ID="2">10> ID="4">10> ID="5">109> ID="6">2 924> ID="7">3 033> ID="8">7 684> ID="9">1 800> ID="10">9 484> ID="11">1 447> ID="13">1 447"> ID="1"> b"> ID="1"> c> ID="2">10> ID="4">10> ID="5">109> ID="6">2 924> ID="7">3 033> ID="8">7 684> ID="9">1 800> ID="10">9 484> ID="11">1 447> ID="13">1 447"> ID="1">Den-a> ID="5">16 192> ID="6">8 989> ID="7">25 181> ID="8">40 470> ID="9">3 215> ID="10">43 685> ID="11">39 743> ID="13">39 743> ID="14">10 170 (1)> ID="16">10 170"> ID="1">markb> ID="5">385> ID="6">407> ID="7">792> ID="8">655> ID="9">90> ID="10">745> ID="11">140> ID="12">615> ID="13">745> ID="14">45> ID="16">45"> ID="1"> c> ID="5">16 577> ID="6">9 396> ID="7">25 973> ID="8">41 125> ID="9">3 305> ID="10">44 430> ID="11">39 883> ID="12">615> ID="13">40 488> ID="14">10 215> ID="16">10 215"> ID="1">Germanya> ID="2">66 940> ID="4">66 940> ID="5">125 652> ID="6">130 425> ID="7">256 077> ID="8">122 376> ID="9">66 983> ID="10">189 359> ID="11">173 962> ID="13">173 962> ID="14">17 959> ID="16">17 959"> ID="1"> b> ID="2">8 603> ID="4">8 603> ID="6">11 113> ID="7">11 113> ID="9">9 255> ID="10">9 255> ID="11">3 117> ID="12">4 536> ID="13">7 653> ID="14">82> ID="16">82"> ID="1"> c> ID="2">75 543> ID="4">75 543> ID="5">125 652> ID="6">141 538> ID="7">267 190> ID="8">122 376> ID="9">76 238> ID="10">198 614> ID="11">177 079> ID="12">4 536> ID="13">181 615> ID="14">18 041> ID="16">18 041"> ID="1">Greecec

"> ID="1">Spaina> ID="2">3 994> ID="4">3 994> ID="5">435> ID="7">435> ID="8">551> ID="9">1 330> ID="10">1 881> ID="11">264> ID="13">264"> ID="1"> b"> ID="1"> c> ID="2">3 994> ID="4">3 994> ID="5">435> ID="7">435> ID="8">551> ID="9">1 330> ID="10">1 881> ID="11">264> ID="13">264"> ID="1">Francea> ID="2">2 776> ID="4">2 776> ID="5">49 062> ID="6">37 190> ID="7">86 252> ID="8">176 368> ID="10">231 532> ID="11">137 758> ID="13">137 758> ID="14">12 062> ID="16">12 062"> ID="1"> b> ID="5">11 876> ID="7">11 876> ID="8">55 164> ID="11">33 506> ID="13">33 506"> ID="1"> c> ID="2">2 776> ID="4">2 776> ID="5">60 938> ID="6">37 190> ID="7">98 128> ID="8">231 532> ID="10">231 532> ID="11">171 264> ID="13">171 264> ID="14">12 062> ID="16">12 062"> ID="1">Irelanda"> ID="1"> b> ID="2">84 241> ID="4">84 241> ID="5">13 062> ID="6">234 767> ID="7">247 829> ID="8">79 560> ID="9">187 592> ID="10">267 152> ID="11">164 512> ID="12">73 622> ID="13">238 134> ID="14">22 342> ID="16">22 342"> ID="1"> c> ID="2">84 241> ID="4">84 241> ID="5">13 062> ID="6">234 767> ID="7">247 829> ID="8">79 560> ID="9">187 592> ID="10">267 152> ID="11">164 512> ID="12">73 622> ID="13">238 134> ID="14">22 342> ID="16">22 342"> ID="1">Italya> ID="5">41 255> ID="6">39 776> ID="7">81 031> ID="8">134 016> ID="10">134 016> ID="11">54 105> ID="13">54 105"> ID="1"> b"> ID="1"> c> ID="5">41 255> ID="6">39 776> ID="7">81 031> ID="8">134 016> ID="10">134 016> ID="11">54 105> ID="13">54 105"> ID="1">Luxem-c

bourg"> ID="1">Nether-a> ID="5">426> ID="6">881> ID="7">1 307> ID="8">2 010> ID="9">414> ID="10">2 424> ID="11">664> ID="13">664"> ID="1">landsb"> ID="1"> a> ID="5">426> ID="6">881> ID="7">1 307> ID="8">2 010> ID="9">414> ID="10">2 424> ID="11">664> ID="13">664"> ID="1">Portugalc"> ID="1">United a"> ID="1">Kingdomb> ID="2">11 654> ID="4">11 654> ID="5">4 230> ID="6">140 654> ID="7">144 884> ID="8">43 211> ID="9">83 793> ID="10">127 004> ID="11">66 261> ID="12">23 914> ID="13">90 175> ID="14">4 565> ID="16">4 565"> ID="1"> c> ID="2">11 654> ID="4">11 654> ID="5">4 230> ID="6">140 654> ID="7">144 884> ID="8">43 211> ID="9">83 793> ID="10">127 004> ID="11">66 261> ID="12">23 914> ID="13">90 175> ID="14">4 565> ID="16">4 565"> ID="1">ECa> ID="2">73 720> ID="4">73 720> ID="5">233 131> ID="6">220 185> ID="7">453 316> ID="8">483 475> ID="9">73 742> ID="10">557 217> ID="11">407 943> ID="13">407 943> ID="14">40 191> ID="16">40 191"> ID="1"> b> ID="2">104 498> ID="4">104 490> ID="5">29 553> ID="6">386 941> ID="7">416 494> ID="8">178 590> ID="9">280 730> ID="10">459 320> ID="11">267 536> ID="12">102 687> ID="13">370 223> ID="14">27 034> ID="16">27 034"> ID="1"> c> ID="2">178 218> ID="4">178 218> ID="5">262 684> ID="6">607 126> ID="7">869 810> ID="8">662 065> ID="9">354 472> ID="10">1 016 537> ID="11">675 479> ID="12">102 687> ID="13">778 166> ID="14">67 225> ID="16">67 225""T: Tender - S: Safety-net - a: young male cattle - b: steers - c: total

Sources: for France: 'Le marché des viandes et des produits avicoles' ('The market in meat and poultry products) (OFIVAL); for the Community: Revenue and expenditure accounts and DG VI-D-2.

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4.21. During the 1991/92 marketing year, the highest level of buying was in Ireland, where 267 152 t - slightly less than half the national beef production - were bought in. For the 1992/93 marketing year, the amount bought into intervention in Ireland was still 238 134 t.

4.22. The quantity of carcases bought into intervention in the various Member States is a function of the categories and classes of carcase eligible for intervention buying. Thus in Italy, one of the few Member States which accepted carcases of category A (young male animals) and conformation class O (Community classification scale) for intervention, a wave of intervention buying started in May 1990 following the increase in imports of beef, especially of category A class O, many of them from the former GDR, and probably from other countries in central and eastern Europe as well. The Community beef market, and the Italian market in particular, was disturbed in consequence. Italy is a country which is far from self-sufficient, but even so it was obliged to apply the safety-net measures until the beginning of March 1991.

4.23. The proportion of category A class O meat from Germany bought into intervention in Italy (68 000 t for the 1990/91 year and 78 000 t for the 1991/92 year) was very high between September 1990 (approximately 70 %) and November 1992 (around 50 %), but traders from other Member States also sold in Italy carcases which did not qualify for intervention in their countries of origin.

The buying in procedure

4.24. Successful tenderers who have received delivery orders go to the intervention centre stated in the delivery order at the dates and times specified (see paragraph 4.17) to deliver the quantity of carcases awarded.

4.25. The intervention agencies draw up a list of the intervention centres to which the quantity of carcases awarded is to be delivered. If the intervention agency in a Member State does not bone the carcases subsequently, it is logical for cold stores to be designated as intervention centres, as is the case in Germany.

4.26. In France, on the other hand, where a proportion of carcases are boned (36,1 % in 1992), there is no point in designating cold stores as intervention centres, unless successful tenderers are never required to bone carcases themselves. That is only so in theory, however. In practice, there were occasions when a successful tenderer took the carcases to the intervention centre (a cold store), unloaded them, so that they could be bought into intervention by the officials from OFIVAL (the French intervention agency), and then reloaded them onto the same lorry to take them to a cutting plant adjacent to his slaughterhouse.

4.27. In Member States such as the United Kingdom, where all carcases are boned, and Ireland, where almost all are, intervention buying took place either at the successful tenderer's slaughterhouses or at cutting plants. In future, for all the Member States, the intervention agency will be required to take over the carcases for boning at the weighing point situated at the entrance to the intervention centre's cutting plant (23). In the past, in almost every case, successful tenderers who delivered carcases for intervention would go on to bone the carcases themselves. With the entry into force of the new implementing Regulation, successful tenderers and cutting plants must be totally independent of each other (24). This has reduced the inherent risks of boning operations, such as substitution between carcases.

4.28. At the time of buying in, the intervention agencies are required to take certain steps to confirm various things, for example, that the carcases qualify for intervention (25).

4.29. In France, all the data relating to the carcases were recorded by computer at the time of weighing, although the actual data input was manual. The cold-store representative entered on a portable computer the weight, read from the display of the warehouse balance, and the quality, declared by the OFIVAL representative, of the quarters taken over. This procedure could give rise to a number of errors in view of the speed at which buying takes place. The OFIVAL representative did not make any ex post checks on the weighing notes, even by sampling. When the carcase was bought in, a label stating the quality of the carcase and the purchase number was stapled to each quarter. The carcase numbers recorded at the time of weighing were not subsequently used for stock control purposes.

4.30. In Italy, the procedure followed was the same as in France: the Associazione Provinciale Allevatori (APA) representative made out the purchase note for the meat presented for intervention.

4.31 In Germany, all the data were recorded manually on standard forms, which are encoded centrally by the intervention agency (Bundesanstalt fuer landwirtschaftliche Marktordnung - BALM). At the slaughterhouse exit a copy of the internal carcase weighing document was annexed to the buying-in report. Even though it was not checked by the intervention agency (BALM) representative, this was an additional security factor, as a means of verifying the end result of the actual buying-in session. The electronic weighing system printed a document which showed the weight of each group of quarters weighed together and the total weight of quarters weighed at the buying-in session, thus eliminating possible transcription errors.

4.32. The procedures followed in the United Kingdom and Ireland were similar to those applied in Germany.

4.33. However, the time required for registering the data varies widely from one Member State to another. In France the figures are updated every night by electronic transfer (see paragraph 4.66). In Germany the interval that elapses before the figures are updated is about 15 days. In the United Kingdom there can be delays of several months.

4.34. The Community regulations (26) provide that if more than 20 % of the products in the batch of carcases presented for intervention buying in are rejected, the whole batch must be rejected.

4.35. In France, the Court noted that, during the buying-in sessions which its officials attended, carcases were reclassified by the OFIVAL agent. Strictly speaking, these carcases should have been rejected under the terms of the Community regulations (27). Moreover, in order to comply with the Community regulations, there should have been a record of the carcases which had to be rejected. There were no general arrangements to that effect.

4.36. In Germany, although Part A of the report drawn up following a preliminary inspection of the quality of the meat at the slaughterhouse stated the number of half-carcases deemed eligible, it did not state the number of halves presented; it was thus impossible to verify whether more than 20 % of the products in the batch presented was rejected and to determine whether the batch could be accepted or not. If the half-carcases rejected during buying in at the cold store were the only ones taken into account, this splitting of the buying procedure into preliminary inspection at the slaughterhouse and official acceptance at the cold store would result in the omission of a significant part of the rejections, namely the carcases rejected as a result of the preliminary inspection by the BALM inspector at the slaughterhouse. This splitting of the procedure, as applied in Germany, is now permitted under the new Commission implementing Regulation (28), but it is still necessary to know the total number of rejections.

4.37. In Great Britain, the fatstock officers of the Meat and Livestock Commission (MLC) who buy carcases for intervention at the slaughterhouses regularly downgrade carcases so that they can be accepted, or they reject them if they fail to qualify for intervention. These rejections (or downgrading, which must be regarded as the equivalent of rejection) are not recorded anywhere. As a result neither the fatstock officers nor the intervention agency (MLC) itself can check whether the Community provisions in question are applicable.

4.38. In France, even though the Community regulations (29) governing the buying in of beef for intervention include health rules, no veterinary officers were present at the buying centre when carcases were being taken over.

4.39. During on-the-spot visits in Italy in December 1992, the presence of bruising on quarters accepted for intervention was brought to the notice of the officiating valutatore on several occasions. According to the Community rules, carcases must not be bloodstained, suffused or bruised (30). The valutatore ought to have been more severe and should, therefore, have rejected the quarters in question.

Boning 4.40. Commission Regulation (EEC) No 859/89 of 29 March 1989 (31) laid down the detailed implementing rules, which were in force until 1 September 1993. It has since been replaced by Commission Regulation (EEC) No 2456/93 of 1 September 1993 (hereinafter called 'the new implementing Regulation').

The proportion of intervention meat subject to boning

4.41. In the period between 1 January and 31 October 1993, 103 146 t of the beef bought into intervention was boned, thus accounting for 64,9 % of the total carcases bought. As at 31 January 1993, 484 419 t of boned beef was held in Community public intervention stocks. This is the equivalent of 712 381 t of carcase beef (32), with a value of 686,9 Mio ECU (33). Since 1990, about half the beef bought into intervention has been boned (see Tables 4.2 and 4.3). In only five Member States (Denmark, France, Ireland, Italy and the United Kingdom) is the beef, or a proportion of the beef, bought into intervention boned. In Ireland and the United Kingdom, more than 90 % of intervention beef is boned. In Denmark the percentage of boned meat declined from 100 % in 1989 to 48 % in 1991. In Italy the percentage has fluctuated between 10 % and 60 % in the period between 1988 and 1991. In France, for the same period, the figure was between 0 % and 25 %. In Germany the meat was not boned because, according to the German authorities, the rate paid by the Community covers only about half of the real cost.

Table 4.2 - Quantity of beef boned "(in tonnes)

"" ID="1">DK> ID="2">19 375> ID="3">24 896> ID="4">441> ID="5">4 331> ID="6">21 773> ID="7">29 166> ID="8">26 622"> ID="1">D> ID="3">14 352"> ID="1">F> ID="2">45 208> ID="3">41 075> ID="4">1 225> ID="7">44 752> ID="8">30 281"> ID="1">IRL> ID="2">57 300> ID="3">64 657> ID="4">25 539> ID="5">141 221> ID="6">256 538> ID="7">249 440> ID="8">153 985"> ID="1">I> ID="2">7 318> ID="3">19 461> ID="4">2 487> ID="5">8 425> ID="6">39 381> ID="7">45 058> ID="8">5 773"> ID="1">UK> ID="2">31 216> ID="3">33 767> ID="4">16 914> ID="5">40 742> ID="6">141 547> ID="7">75 774> ID="8">39 656"> ID="1">Total> ID="2">160 416> ID="3">198 207> ID="4">46 606> ID="5">194 719> ID="6">459 240> ID="7">444 190> ID="8">256 318""Source: Commission - Member States' annual declarations.

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Table 4.3 - Cost of boning "(in ECU)

"" ID="1">DK> ID="2">1 322 312> ID="3">1 699 152> ID="4">30 122> ID="5">295 619> ID="6">1 814 357> ID="7">2 727 011> ID="8">2 976 848"> ID="1">D> ID="3">979 543"> ID="1">F> ID="2">3 085 458> ID="3">2 803 335> ID="4">83 616> ID="7">4 184 327> ID="8">3 385 991"> ID="1">IRL> ID="2">3 910 730> ID="3">4 412 816> ID="4">1 734 047> ID="5">9 638 342> ID="6">21 377 338> ID="7">23 322 618> ID="8">17 218 640"> ID="1">I> ID="2">499 447> ID="3">1 328 221> ID="4">169 723> ID="5">574 994> ID="6">3 281 591> ID="7">4 212 949> ID="8">645 572"> ID="1">UK> ID="2">2 130 469> ID="3">2 304 570> ID="4">1 154 359> ID="5">2 780 636> ID="6">11 795 153> ID="7">7 084 904> ID="8">4 434 379"> ID="1">Total> ID="2">10 948 417> ID="3">13 527 638> ID="4">3 180 867> ID="5">13 289 591> ID="6">38 268 439> ID="7">41 531 809> ID="8">28 661 430""Source: Commission - Member States' annual declarations.

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The sound financial management aspects of boning

4.42. The intervention agency in each Member State is responsible for deciding whether the meat is to be boned (34). Originally, the decision was required to respect certain limits imposed by the Commission (35). Currently, it is taken mainly in terms of:

(a) the residual storage capacity of the store, given that, on average, it is possible to store 170 kg of bone-in meat per cubic metre and three times that quantity of boned meat;

(b) the freezer installations, which, in general, are more suited to storing cartons than storing carcases;

(c) buyers' preferences;

(d) the need to bone the meat for health reasons, as is the case at present in the United Kingdom following the outbreak of 'mad cow disease' (BSE).

4.43. One further criterion, which takes into account the sound financial management of Community expenditure, should be added to the considerations set out in paragraph 4.42. The decision on whether to bone the meat bought into intervention does, in fact, have an impact on budgetary expenditure (see Table 4.3). Between 1987 and 1991, budgetary expenditure on boning meat rose from 10,9 Mio ECU to 38,3 Mio ECU.

4.44. The factors which must be taken into account in evaluating this impact are as follows:

(a) the fact that boning makes it possible to rid meat of parts which are of no interest for storage; between 30 % and 32 % of the weight of the carcases bought into intervention is eliminated in this way;

(b) the difference in storage costs between bone-in meat and boned meat; the monthly storage costs are around 17,99 ECU/t for bone-in meat and 12,04 ECU/t for boned meat (36);

(c) the costs of boning the meat, for which the Commission has fixed a rate of 169,30 ECU/t of meat for boning; the boning costs also include the costs of taking into storage meat that is to be boned, whereas in the case of unboned meat, the costs of taking the meat into storage (amounting to 75,80 ECU/t) must be added to the purchase cost; the Community thus reimburses a flat amount of 93,5 ECU/t for the boning of carcases;

(d) the difference in withdrawal charges between bone-in meat and boned meat; the costs are 7,47 ECU/t for bone-in meat and 6,85 ECU/t for boned meat.

4.45. Given these factors, it is possible to determine the length of storage for which the total cost to the Community budget would be identical, irrespective of whether the meat is boned or not, i.e. the break-even point of the two methods: the length of storage is estimated to be ten months. Beyond that period, it becomes less expensive to store the meat in boned form, as the added cost of boning is offset by the savings achieved from eliminating certain parts of the carcase and the difference between storage and withdrawal costs per tonne of meat.

4.46. This length of storage has been achieved and even exceeded on several occasions in all the Member States, notably in 1987, at the beginning of 1988 and in 1993, on account of the substantial intervention buying which took place during the second quarter of 1990. In 1988 and 1990 the amount of meat stored as carcases was 548 661 t and 185 769 t respectively.

Yield on boning

4.47. The implementing rules provide that the yield on boning, calculated for the quantity of boned meat as a percentage of the amount of bone-in meat used, must be at least 68 % (37). The highest yields were obtained in France (70,60 %) and the lowest in Italy (68,10 %) and Ireland (68,71 %). The boning yield depends, firstly, on the care with which the boning work is carried out and, secondly, on the breed of cattle. For beef breeds the yield can be as much as 72 %, or more, in the optimum cases.

4.48. The work of boning the meat is carried out under contract and is paid for at a fixed rate (see paragraph 4.44). The cutting plant receives the carcase from the intervention agency and returns the boned meat to the agency. The boning yield indicates the quantity of meat, bought in carcase form, which enters Community storage. Thus, the lower the yield, the greater the risk that, in addition to the rate for the job, the cutting plant will receive remuneration in kind, i.e. the meat which is not returned to intervention. The importance which the intervention agencies should attach to supervising the boning operations is highlighted by the fact that the rate paid for boning represents between 3 % and 4 % of the value of the carcase.

The conduct of boning operations and the supervision of them by the intervention agencies

4.49. The boning process is carried out in different ways in different Member States. The intervention agency for the Member State is responsible for the supervision of the boning process (38) by means of either permanent physical monitoring or unannounced inspections accompanied by random checks of the cartons of cut meat. The supervision must include a comparison of the quantities used with the quantities produced and the waste. In the case of the random checks on cartons, however, the Community regulations did not include provision for specific quantity standards, whether directly or by means of instructions to the Member States. Pre-established control standards are an essential requirement if inspectors are to preserve their independence, but it was not until 1993 that the new Commission implementing Regulation stipulated that at least 5 % of the cartons must be checked.

4.50. In France, no special precautions (for example, sealing of lorries) were taken when the quarters bought by the intervention agency were transported between cutting plants and cold stores. The OFIVAL official responsible for supervising the boning did not even make a sample check of the characteristics of the quarters presented against the description on the purchase note before the boning session started. In any case, it would not have been possible to carry out any random-sample check, because the labels attached to the carcases were, to a large extent, illegible.

4.51. The cuts of meat were packed in cartons, according to the instructions given in the specifications issued by the intervention agencies, which complied with the Community regulations (39). After packing, the cartons were tied (40) and sealed with one or more labels. The object of this system is to prevent subsequent substitution in the contents of the carton. Details of the weight, cut and, where relevant, number of pieces were written on the box by hand. In France the boning work was carried out under permanent control. At the close of the session, a number of boxes were reopened, so that the contents could be checked. The number of boxes checked in this way and the type of cut were recorded on a form which served as a control report. The latter was signed by the control officer for the OFIVAL regional office. Although the report does not identify the cartons that have been checked, the latter are, nonetheless, marked by the control officer, who performs various OFIVAL duties, including checks in cold stores and cutting plants.

4.52. During checks on stocks of boned meat in France, it was found that the self-adhesive seals for the cartons did not perform satisfactorily, because they could be removed from and reattached to a carton without leaving any trace. In some instances, labels had become detached, without trace, and some cartons were not even tied.

4.53. During the on-the-spot visits in Italy, boning was carried out after the close of the buying-in session, in a plant next to the hall in which the quarters were taken over. A representative of the Associazione Italiana Allevatori (AIA) made an unannounced inspection. Despite the fact that an AIA representative was not in continuous attendance, there were no random examinations to check the contents of cartons of boned meat when boning had finished. Labels, in the form of rolls or individual labels, which were not numbered, had been placed at various points in the cutting room. There was no check on the number of labels used, except that in one of the plants visited, the number of labels issued to the cutting room was recorded, in thousands, and there was a periodic check on the plausibility of that number. The previous practice was for the seals which had been attached to be initialled by a person who had been duly authorized by the cutting plant. Although this procedure was slow, it did confer some protection against potential fraud, but had subsequently been abandoned because it was considered irrelevant. In one of the Italian plants visited, an electronic weighing system printed out the labels, with full details of the packaged meat, thus reducing the number of sources of error.

4.54. The inspector representing the AIA was employed on a part-time basis on a one-year contract, which in practice was renewed annually. The contract specified what checks had to be made as part of the duties to be carried out at a particular plant. The same inspector thus carried out his duties for a number of years in the same enterprise. In some of the plants visited, the duties of AIA inspector were carried out by a veterinary officer from the Local Hygiene Unit, who was assigned to the slaughterhouse.

4.55. In Ireland and the United Kingdom, buying in took place at the slaughterhouse. In Ireland the meat was boned at the same time and was subject to permanent physical control by an official representative of the Ministry of Agriculture (Department of Agriculture and Food), who had been assigned to the same enterprise for a number of years. In the United Kingdom a representative of the intervention agency for Great Britain carried out unannounced inspections, whereas in Northern Ireland the work was subject to permanent physical control by an intervention agency representative. In Great Britain the Meat and Livestock Commission (MLC) representative responsible for supervising the boning work usually performed other duties within the enterprise; this placed him in a situation of potential conflict which could adversely affect the quality of the work carried out on behalf of the intervention agency. For example, it was found that a number of inspectors made redundant by the MLC subsequently found employment in enterprises which they had previously been responsible for inspecting. Furthermore, although, in principle, there is provision for a rotation of inspectors, in practice it did not happen. In Northern Ireland, the Livestock and Meat Commission (LMC) inspectors were subject to a system of regular rotation and were full-time employees of the intervention agency.

4.56. In Ireland the labels were numbered consecutively and use of the rolls was accounted for in a special ledger, sometimes in a rather summary fashion. However, the number of labels used was not systematically checked against the number of cartons of meat produced.

4.57. In the United Kingdom, the cartons were sealed with two unnumbered intervention-agency labels and a numbered veterinary-service label. Although the veterinary services usually kept a summary account of their numbered labels, there was no cross-check between the number of seals used and the number of cartons produced. At the close of the session a number of cartons were reopened. It was not possible, however, subsequently to reconstruct the checks carried out, nor to determine which cartons had been opened. This inevitably diminishes the extent of intervention agency inspectors' accountability.

4.58. In Ireland, because the Community regulations specify a maximum percentage fat content for forequarter cuts (41), one carton of each of the corresponding cuts was opened and the fat was removed from the pieces of meat; the percentage fat content was then calculated and, if it proved to be excessive in terms of the Community standards, the Irish authorities declared that the entire output of the quarters in question was to be rejected; at one session attended by the Court auditors, however, it was noted that, although the maximum fat content in the carton inspected was too high, the contents of the carton were reprocessed until they complied with the prescribed maximum. The Court auditors asked the Irish authorities how many cartons of forequarter cuts had been rejected in application of these measures, but were unable to obtain any figures. However, the information forwarded to the Court after the on-the-spot visits indicated that checks on the maximum percentage fat content had since been implemented.

Stocks 4.59. At 1 January 1993, Community stocks of beef (see Table 4.4) stood at 1 089 999 t, of which 408 940 t were carcases and 681 059 t boned meat (carcase equivalent). The book value of these stocks was estimated to be approximately 3 400 Mio ECU. At that time, more than half the beef in Community stores had been bought in the United Kingdom and Ireland. At 31 October 1993 it accounted for 66,7 %.

4.60. In France around 85 % of the beef storage capacity was full at the time of the audit visits (June 1992). In order to remedy the imminent capacity shortage, refrigerated ships were temporarily pressed into service as short-term storage and beef storage contracts were negotiated with companies in other Member States.

4.61. In Italy, where the maximum storage capacity was estimated to be 150 000 t, beef stocks at the time of the audit visits in August 1992, just before the cattle were taken off grass for the autumn, already amounted to 85 000 t. During the period audited, the meat remained in storage for an average of 60 days.

4.62. At the time of the on-the-spot visits (March 1992), of the 137 789 t of beef in the Community stores in the United Kingdom, 28 968 t were difficult to sell. The meat in question was taken into storage at the beginning of 1990, at the time of the BSE outbreak, and there are no buyers for it on the world market. For a long time it has been extremely difficult to sell for export beef that has been bought into intervention in the United Kingdom. Beef stocks have, therefore, been reduced in a number of ways, including sales to the processing industry.

The criteria used for selecting cold stores

4.63. In Italy and Ireland it was possible for one and the same enterprise to buy and sell meat for intervention and to be recognized as a buying-in centre, cutting plant and store. In most cases the meat was stored either in the cold stores directly belonging to the slaughterhouses which had sold the carcases into intervention or in the stores of the cutting plants which boned the meat for the intervention agency. In many cases, these warehouses were even located alongside the slaughterhouses or cutting plants. In Great Britain, by contrast, the intervention agency did not allow slaughterhouses or cutting plants to store in their own warehouses carcases that had been sold into intervention or meat that had been boned for intervention.

4.64. In the event of fraudulent intent, or should the intervention agency's controls not be sufficiently strict, the fact that one and the same enterprise has custody of stored intervention products and simultaneously has access to all the means of identifying such products, namely packaging, stamps, self-adhesive seals, etc, would make it easy for it to substitute products during storage or when they leave the store. The Commission has recognized this risk and its new implementing Regulation requires cutting plants and cold stores to be unconnected with the slaughterhouses and/or successful tenderers (42) (see paragraph 4.27).

Stock management and control

4.65. The computerized system used at buying sessions in France (see paragraph 4.29) assigned two numbers to each carcase, one for the two forequarters and the other for the two hindquarters of the same carcase. In physical storage the quarters were identifiable by the labels bearing the purchase number, but the number was not recorded when the quarters were taken out of stock. The advantage of recording the number would be that it would provide information concerning the composition of stocks at a given time and thus make it possible to use weighing notes as the basis for sample checks.

4.66. During the on-the-spot visit in France, checks on the stock of boned meat in stores showed that the management agency's stock return was not up to date. The listings that were available at the intervention agency's head office in Paris had not taken into account the stock movements from some days earlier, even though the computer system was supposed to provide, every day, without fail, details of the exact state of stocks at the end of the previous day.

4.67. In Ireland the backlog in the computer system which had been installed to control stocks was so great that the data produced by the system were useless for stock control purposes. There were, in fact, some communications from stores to the intervention agency regarding stock movements and inputs or outputs which had still not been entered in the system seven months after they had been received by the intervention agency. The computer system regularly produces a listing which details the availability of stocks in each store. Its practical value was very marginal, however, as the storekeeper was required to confirm the availability, in advance, by telephone, whenever stocks were to be removed. That notwithstanding, the computer system was a key element of the stock control system in Ireland.

4.68. In Italy, each forequarter and each hindquarter was identified by a number which appeared on a label attached to the quarter inside the stockinet. During inspections it was necessary to open the stockinet in order to find the carcase numbers. The quarters were stored in batches. Each batch comprised the quarters bought in at one buying session. Grouping the quarters in small batches facilitates management of them.

4.69. At the end of each financial year every intervention agency compiles a full inventory of the stocks of agricultural products bought in pursuant to market management measures. According to the Community regulations (43), each cold store must verify the accounting inventory during the last two months of the financial year. Verification is to be carried out in the presence of an intervention agency official (44), otherwise the official must carry out the check himself at a later date and make a report on the inventory check. The inventory is based on the full monthly inventories received from storekeepers and the inventory check reports (45). In the case of the financial year 1991, these provisions were not fully complied with in France, as none of the stores visited had in fact been the object of inventory checks of this kind. The situation was little better in Ireland. In the United Kingdom there was indeed a report on the checks carried out, but it had not been countersigned by the storekeeper or his representative, as required by the Community regulations (46). In Northern Ireland there were some stores which were not checked regularly. In one case the storage conditions had been substandard for a long time: an entire palette of boned meat was encased in ice. In view of the way in which the batches are made up for storage, it is relatively easy to verify inventories in Italy. On the other hand, the officials who had been delegated by the intervention agency to carry out the verifications did not make any checks and, moreover, had not been given the necessary instructions.

4.70. In certain Member States (Germany, France, Italy), the physical inspection procedures that are required for the intervention agency to draw up the full inventory did not use correct random sampling methods. In many cases batches were selected for inspection by non-random methods, in order to achieve the minimum sampling level laid down in Commission Regulation (EEC) No 618/90 of 14 March 1990 (47). Although this approach is not incompatible with the existing Community legislation, it does affect the confidence with which the sample results can be applied to the full inventory.

Table 4.4 - Public stocks of beef at 30 September - bone-in and boned meat "(tonnes)

>(1)(1)(1)(1)(1)(1)"> ID="1">Belgium> ID="2">7 139> ID="3">805> ID="4">14> ID="5">5 874> ID="6">2 666> ID="7">184> ID="8">0> ID="9">0> ID="10">0> ID="11">0> ID="12">0> ID="13">0"> ID="1">Denmark> ID="2">841> ID="3">0> ID="4">3 983> ID="5">22 193> ID="6">18 003> ID="7">1 558> ID="8">19 333> ID="9">1 844> ID="10">3 130> ID="11">13 037> ID="12">21 090> ID="13">20 573"> ID="1">Germany> ID="2">218 642> ID="3">84 219> ID="4">114 281> ID="5">102 867> ID="6">174 492> ID="7">17 499> ID="8">5 432> ID="9">0> ID="10">0> ID="11">0> ID="12">0> ID="13">0"> ID="1">Greece> ID="2">0> ID="3">0> ID="4">0> ID="5">0> ID="6">0> ID="7">0> ID="8">0> ID="9">0> ID="10">0> ID="11">0> ID="12">0> ID="13">0"> ID="1">Spain> ID="2">16 368> ID="3">3 515> ID="4">14 037> ID="5">3 882> ID="6">12 895> ID="7">0> ID="8">0> ID="9">0> ID="10">0> ID="11">0> ID="12">0> ID="13">0"> ID="1">France> ID="2">170 379> ID="3">4 334> ID="4">35 828> ID="5">162 112> ID="6">151 094> ID="7">6 084> ID="8">44 888> ID="9">942> ID="10">222> ID="11">1 154> ID="12">35 285> ID="13">15 191"> ID="1">Ireland> ID="2">41 513> ID="3">15 472> ID="4">7 968> ID="5">23 115> ID="6">15 527> ID="7">2 617> ID="8">51 320> ID="9">12 257> ID="10">67 935> ID="11">184 752> ID="12">226 316> ID="13">163 807"> ID="1">Italy> ID="2">49 937> ID="3">7 808> ID="4">5 489> ID="5">40 609> ID="6">31 178> ID="7">10 363> ID="8">19 428> ID="9">635> ID="10">5 775> ID="11">11 338> ID="12">21 891> ID="13">10 622"> ID="1">Luxembourg> ID="2">0> ID="3">0> ID="4">0> ID="5">0> ID="6">0> ID="7">0> ID="8">0> ID="9">0> ID="10">0> ID="11">0> ID="12">0> ID="13">0"> ID="1">Netherlands> ID="2">38 790> ID="3">1 224> ID="4">249> ID="5">2 623> ID="6">1 774> ID="7">681> ID="8">0> ID="9">0> ID="10">0> ID="11">0> ID="12">0> ID="13">0"> ID="1">Portugal> ID="2">0> ID="3">0> ID="4">0> ID="5">0> ID="6">0> ID="7">0> ID="8">0> ID="9">0> ID="10">0> ID="11">0> ID="12">0> ID="13">0"> ID="1">United Kingdom> ID="2">5 052> ID="3">2 605> ID="4">3 920> ID="5">3 315> ID="6">1 311> ID="7">0> ID="8">27 055> ID="9">6 809> ID="10">38 755> ID="11">136 431> ID="12">158 538> ID="13">85 614"> ID="1">Total> ID="2">548 661> ID="3">119 982> ID="4">185 769> ID="5">366 690> ID="6">408 940> ID="7">38 986> ID="8">167 456> ID="9">22 487> ID="10">115 827> ID="11">346 712> ID="12">463 120> ID="13">295 807"> ID="1">Total carcase equivalent> ID="2">548 661> ID="3">119 982> ID="4">185 769> ID="5">366 690> ID="6">408 940> ID="7">38 986> ID="8">246 260> ID="9">33 069> ID="10">170 334> ID="11">509 870> ID="12">681 059> ID="13">435 010"> ID="1">Total boned meat and bone-in meat (carcase equivalent)> ID="2">794 921> ID="3">153 051> ID="4">356 103> ID="5">876 383> ID="6">1 089 999> ID="7">473 996""Source: Member States' declarations to the EAGGF.

>

Weight losses

4.71. The tolerance for losses in weight during storage is fixed as a percentage of the actual weight, without packaging, of the quantities entering storage and taken over during the financial year in question, plus the quantities in storage at the start of that year. In the case of beef, the losses for all the quantities of beef held by the intervention agency must not exceed the normal allowable loss of 0,6 % (1).

4.72. The differences in the weight of the meat on entering and leaving storage can be attributed to various causes including: drying out of the goods as a result of bad packing; the balance was not tared when the meat entered and/or left storage; theft; a difference between the actual weight of the packaging and the standard value used to calculate the net weight of the goods.

4.73. In several of the stores that were visited in Italy, the losses in carcase weight as a result of freezing and storage were systematically higher than the prescribed level of 0,6 %. In the case of boned meat, the weight losses due to storage and freezing were not monitored. The net weight of boned meat contained in each carton (30 kg) was reduced by a standard amount of 100 grammes when the meat was packed, in anticipation of these losses. When the net weights of the cartons of boned meat were checked, however, there was found to be a virtually systematic additional weight loss of 100 grammes, thus proving the need for the introduction of weight loss monitoring for boned meat.

4.74. In France there were found to be significant losses in the weight of meat following storage. In one instance, there was a stock deficit of 1 072 kg, or 0,77 % of the initial weight of 139 380 kg. In another instance, a shortfall of 10 215 kg, or 1,10 % of the initial weight of 927 881 kg was noted.

4.75. In Ireland, contrary to the existing Community regulations, the cold stores accepted no responsibility for weight losses in the stored meat. When the meat left the store, the latter's responsibility was limited to ensuring that the number of quarters or cartons of boned meat leaving the store was the same as the number received on entry.

4.76. In Germany, the weight losses shown in the accounts were those declared as losses when a complete batch was taken out of storage. In order to determine the percentage weight loss relative to the tolerance of 0,6 %, the declared losses were calculated as a percentage of the quantities taken into storage during the year plus the quantities in stock at the start of the year.

Disposal of intervention stocks 4.77. The enquiry carried out in the Member States by the Court in 1992 was not designed to deal with the disposal of beef stocks. The Court nevertheless proposes to make some comments concerning the management of the stocks put forward for sale, which have been inspired by the findings made during on-the-spot visits.

4.78. According to the authorities whom the Court's auditors met in the Member States, the ease with which intervention stocks can be sold for export varies according to the destination and whether or not the meat is boned. Moreover, it is easier to export carcases to Islamic countries, if they have been slaughtered according to Islamic ritual. It is difficult to provide such certification for meat from Community intervention stocks.

4.79. Under certain circumstances Member States are permitted, within certain limits, to draw on Community stocks, at the Community's expense, to support the activities of welfare institutions and organizations. As regards the stocks made available to these organizations, which are responsible for distributing the produce to the needy, attitudes varied according to the Member State concerned (Ireland, Great Britain, France). In one Member State (France), it tended to be the lower-grade cuts which were offered for free distribution. In another Member State (Ireland), the intervention agency responded to the wishes expressed by the organizations in question by giving them the type of meat requested, which included very few lower-grade cuts. In a third Member State (Great Britain), it was the oldest stocks that were given to these organizations.

4.80. For the transfers of meat to welfare organizations (free meat to the most needy), the transport costs could, under certain circumstances, be paid in kind. In one case (Greece), the Commission was obliged to institute enquiries to determine the extent to which the carriers had received payment in kind (460 t and 570 t of beef carcases) for the cost of transporting the free meat. One Member State (Italy) did, in fact, note that a certain amount of meat from public intervention stocks (approximately 460 t) had caused a temporary disturbance in the prices on this market.

4.81. In the case of sales of intervention products, the attitudes of Member States' intervention agencies towards complaints about the quality of the meat varied. In the United Kingdom, a successful tenderer ('the supplier') that was at fault was, as far as possible, required to buy back the meat at the price he received at the time of delivery. In Ireland the buyer and the supplier were required to contact each other with a view to reaching an amicable settlement. If it was not possible to reach an amicable settlement, the intervention agency required the supplier to bear the loss in value claimed by the buyer of the meat. This latter solution is particularly advantageous for the supplier, since the beef loses more than half its value between being taken into storage, when the price entered in the accounts is very close to the intervention price, and leaving the store, when the price is close to world prices.

5. CONCLUSION The COM has been in surplus for more than 10 years 5.1. In terms of consumption within the Community, Community beef production has been in a state of surplus for more than 10 years (see paragraphs 2.9 to 2.11 and et seq). In recent years this surplus has amounted, on average, to around 600 000 t of beef each year, with an estimated value of 2 000 Mio ECU at a Community intervention price of 3 430 ECU/t.

5.2. It appears likely that the imbalance will persist and may even worsen in future (see paragraph 4.1). Nevertheless, the 1992 reform has ultimately done nothing to correct the imbalance, which has expensive implications for the Community's finances. During the preparatory work for the CAP reform, and before any decisions were taken, the Commission was, however, informed of the main aspects of the probable future trend of this imbalance.

5.3. The preferred objective of the recent reform measures was to bring about improvements in the incomes of beef producers, mainly by increasing certain premiums or introducing new premiums. Their long-term impact on producers' incomes has, however, been marginal or, in some cases, nil (see paragraphs 3.8 and 4.4 to 4.6). Consequently, the Commission will inevitably have to put forward proposals for measures to eliminate the persistent structural surpluses in the beef sector, otherwise the intervention costs of buying and storing the surplus will continue to be substantial.

Better adjustment to market situations 5.4. The Commission, with the Member States, should review the intervention procedures with a view to redefining them (see paragraph 4.7 et seq). The latter should take more account of the aspects which serve to stabilize markets.

5.5. The experience of the recent past has shown that, although the technique of applying coefficients to reduce the quantities taken into intervention when there has been an overwhelming response to an invitation to tender (see paragraph 4.16) may be a contributing factor in maintaining prices at an artificially high level in the short term, it is not an appropriate way of weathering a fundamental market trend. In this case it disturbs the economy of the sector, at least in the short term. In order to prevent speculation, the technique should be employed only in extreme situations and for very short periods of time. This being so, there is no longer any justification for retaining the more complex and more expensive system of cash guarantees, other than for short periods in which it has been decided that reduction coefficients are to be applied (see paragraph 4.15).

Harmonizing the conditions applicable to intervention 5.6. In the past the Commission has begun the process of harmonizing the conditions applicable to Community intervention. It should continue this effort:

(a) as regards the recording of market prices for carcases of cattle, classified according to the SEUROP scale, in Member States. The system used is stable but not homogeneous;

(b) by trying to achieve greater consistency between the Member States as regards the list of categories and conformation classes accepted for intervention (see paragraph 4.22);

(c) by considering, as a way of improving the internal control system, to what extent (see paragraph 4.29) the