COMMISSION REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on EAGGF Guarantee Section expenditure Early warning system No 8/2000

CONTENTS

1. Overall outturn in monthly expenditure

2. Provisional utilisation of appropriations

3. Comments

4. Conclusions

1. Overall outturn in monthly expenditure

The following tables show the overall outturn in monthly expenditure in relation to the expenditure profile. This situation corresponds to expenditure incurred by the Member States from 16 October 1999 to 30 June 2000.

1.1. Subheading 1a: Traditional EAGGF Guarantee Section expenditure and veterinary expenditure

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1.2. Subheading 1b: Rural development and accompanying measures

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3. Comments

3.1. The uptake of appropriations for August 2000

The uptake of appropriations under heading 1 of the budget for August 2000 (Member States' expenditure from 16 October 1999 to 30 Jun 2000) is EUR 33 972 million, i.e. 82.9 % of appropriations. Expenditure is

- EUR 111 million above the indicator for subheading 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure),

- EUR 1 446 million below the indicator for subheading 1b (rural development and accompanying measures).

3.2. Monetary factors

3.2.1. The dollar/euro rate

The expenditure indicated under the above point takes account of the movement in the dollar/euro rate. In the case of a large part of export refunds for agricultural products, particularly for cereals and sugar, and of some internal aids such as aid for cotton, expenditure depends on how the dollar rate develops.

In accordance with the Council Decision on budgetary discipline, the 2000 agriculture budget was drawn up on the basis of the average dollar rate for January, February and March 1999, i.e. EUR 1 = $ 1.12.

The real euro rates recorded were substantially lower than the budgetary parity. The average dollar rate for the period 1 August 1999 to 31 July 2000 (reference period for determining the impact of the dollar) will therefore diverge from this budgetary parity and the expenditure incurred by the Member States will be lower as a result of the trend in the dollar rate [1]. Estimated savings will be EUR 400 to 500 million.

[1] The average dollar rate for the period 1 August 1999 to 18 July 2000 was around EUR 1 = $ 1. Should the rate at 18 July (EUR 1 = $ 0.94) continue until the end of the year, the average rate will still be EUR 1 = $ 1.

The EAGGF Guarantee Section will only take partial advantage of these savings. It should be remembered that savings exceeding the margin of EUR 200 million fixed under the rules of budgetary discipline will be transferred to the monetary reserve at the end of the financial year, and cannot be used to finance other measures.

3.2.2. The impact of the dual rates

The impact of the dual rates will result in substantially lower expenditure than in previous years. Abolition of the green rates has eliminated the effect of dual rates in the countries participating in the euro and thus produced major savings.

The cost of the dual rate to the EAGGF Guarantee Section at the time when the letter of amendment was prepared was estimated at EUR 119 million. Recent calculations have estimated it at EUR 240 million, i.e. EUR 121 million more.

3.3. Market factors

3.3.1. Subheading 1a: Traditional EAGGF Guarantee Section expenditure and veterinary expenditure

Chapter B1-10: Arable crops // + EUR 280 million

// (expenditure: EUR 16 285 million)

(indicator: EUR 16 005 million)

The overrun of the indicator is due to:

- the across-the-board reduction in appropriations decided by the budgetary authority when the budget was adopted; in particular, certain budget items for area aid overrun the indicator,

- higher production refunds for starch (due to increased volume),

- higher export refunds, despite savings resulting from the favourable movement of the dollar rate. However, Member States' forecasts indicate low expenditure on refunds over the next few months,

Resources available for aid for durum wheat were also underutilised, following a reduction in payments in Italy.

The Commission considers that expenditure on this chapter will remain below appropriations at the end of the financial year. The reasons for this underutilisation are lower expenditure on public storage, export refunds and durum wheat. However, expenditure on other per hectare aid will overrun appropriations (because of the across-the-board reduction), as will production refunds for starch. It should be borne in mind that the level of expenditure at the end of the year will take account of the savings from favourable movements in the dollar exchange rate, which will mean transferring a substantial amount to the monetary reserve.

Chapter B1-12: Olive oil // - EUR 35 million

// (expenditure: EUR 1 990 million)

(indicator: EUR 2 026 million)

The divergence from the indicator results from lower expenditure on olive oil production aid. The Member States were late in sending in their figures, which moreover sometimes diverged substantially from earlier notifications, requiring Commission departments to investigate them in detail; consequently, the date when the Commission was able to fix the level of the balance to pay for 1998/99 was later than in recent years.

This has led to the present underutilisation, and possibly also to underutilisation at the end of this financial year, since late adoption of the Regulation also means postponing until 2001 the final date for payment of the balance of production aid for the current year.

Chapter B1-15: Fruit and vegetables // - EUR 150 million

// (expenditure: EUR 1 114 million)

(indicator: EUR 1 264 million)

Underutilisation is mainly due to processed fruit and vegetables, among other things, to lower expenditure on financial compensation to encourage the processing of citrus fruit. Some of the underutilisation will probably be due to late payments, and it is likely that some of the expenditure initially planned for 2000 will not be incurred until next year.

Chapter B1-17: Tobacco // - EUR 151 million

// (expenditure: EUR 805 million)

(indicator: EUR 955 million)

The divergence from the indicator is the result of a decline in Italy's expenditure on premiums for the 1999 harvest.

The forward estimates sent by the Member States show that appropriations will be underutilised at the end of the year. Assuming these estimates are reliable, the spending shortfall is expected to be the result of substantial underutilisation of quotas allocated.

Chapter B1-20: Milk and milk products // - EUR 60 million

// (expenditure: EUR 2 025 million)

(indicator: EUR 2 084 million)

There was a major divergence from the indicator for public storage of skimmed milk powder. Earnings on sales are considerably higher, as a result of the large volume sold from public intervention stocks, and there was no buying in.

The underutilisation was partially offset by overruns on public storage of butter (more purchases) and aid for use of skimmed milk (in particular aid for the production of casein from skimmed milk).

Appropriations can be expected to exceed requirements at the end of the year. This will be due to lower expenditure on public storage of skimmed milk powder, and additional milk levies in excess of the figure in the budget. However, expenditure on public storage of butter and aid for use of skimmed milk will probably overrun appropriations.

Chapter B1-21: Beef/veal // + EUR 161 million

// (expenditure: EUR 4 250 million)

(indicator: EUR 4 089 million)

The overrun of the indicator is due to:

- higher expenditure on premiums, following the across-the-board reduction in appropriations decided by the budgetary authority,

- higher-than-expected expenditure under exceptional support measures (slaughter and destruction of livestock in the United Kingdom as part of the campaign to eradicate BSE),

- higher expenditure on public storage owing to lower-than-expected earnings on sales.

For the above reasons, an overrun of appropriations can be expected at the end of the year.

Chapter B1-22: Sheepmeat and goatmeat // + EUR 48 million

// (expenditure: EUR 1 238 million)

(indicator: EUR 1 189 million)

The indicator was overrun as a result of the increased rate of payment of the balance of ewe premiums compared to previous years. The impact on expenditure is therefore only temporary.

Indeed, requirements for this chapter are likely to decrease because of lower expenditure on the ewe premium in 1999 and 2000 (higher-than-expected prices on the Community market).

Chapter B1-30: Non-Annex I products // + EUR 23 million

// (expenditure: EUR 416 million)

(indicator: EUR 393 million)

The overrun is mainly due to higher expenditure on products based on cereals, butter and skimmed milk. This is due in particular to an increase in the volume of exports.

It will be recalled that, in order to limit expenditure, the Commission suspended in mid-May the issue of export licences giving entitlement to the payment of refunds.

The level of expenditure at the end of the year in relation to appropriations depends in particular on the rate of utilisation of the certificates issued prior to that date, and on the rate of payments by paying agencies in the Member States.

Chapter B1-37: Clearance and reduction in advances //

This chapter is not subject to an indicator; it covers financial corrections decided under the clearance of accounts, and reductions and suspensions of advances (reductions/suspensions of monthly reimbursements) to the Member States.

At the end of the financial year, the overall level of amounts credited to the budget will be approximately equal to appropriations entered. The slightly higher-than-forecast amounts collected for clearance of accounts will be offset by larger amounts under reductions in advances. Reductions in advances relate especially to:

- Italy's failure to collect the additional milk levy for the 1998/99 marketing year (-EUR 64 million),

- shortcomings in the application of the integrated system in Greece (-EUR 75 million),

- corrections for several Member States concerning payment dates (-EUR 10 million).

3.3.2. Subheading 1b: Rural development and accompanying measures

Chapter B1-40: Rural Development // - EUR 1 446 million

// (expenditure: EUR 1 279 million)

(indicator: EUR 2 726 million)

The divergence from the indicator is due to the fact that the new programmes for 2000-06 have not yet been adopted by the Commission. At this stage, the Commission can take into consideration only the expenditure on former accompanying measures; other rural development expenditure cannot be entered in the EAGGF Guarantee Section budget until after the programmes have been adopted.

The Member States' forecasts for the end of the year indicate that the requirement will be considerably below the appropriations entered in the budget.

4. Conclusions

The uptake of appropriations under heading 1 of the budget for August 2000 (Member States' expenditure from 16 October 1999 to 30 June 2000) is EUR 33 972 million, i.e. 82.9 % of appropriations.

4.1. The uptake of appropriations for subheading 1a

Expenditure is EUR 111 million above the indicator for subheading 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure).

The indicator was overrun in the following sectors:

- arable crops (+EUR 280 million), because of the across-the-board reduction in appropriations by the budgetary authority when the budget was adopted and because of production refunds for starch (however, for the end of the year, the requirement is expected to be less than the appropriations, owing to lower expenditure in the cereals market),

- beef and veal (+ EUR 161 million) with higher expenditure on premiums, on measures involving the slaughter and destruction of livestock in the United Kingdom as part of the campaign to eradicate BSE, and on public storage,

- sheep meat and goat meat (+ EUR 48), due to a faster rate of payment of ewe premiums (requirements are expected to be lower than appropriations by the end of the year),

- non-Annex I products (+EUR 23 million) owing to an increase in the volume of exports.

Utilisation was below the indicator in the following sectors:

- tobacco (- EUR 151 million) owing to lower expenditure on premiums by Italy (possibly delayed payment),

- fruit and vegetables (- EUR 150 million) owing mainly to lower payments for processed fruit and vegetables (partly due to late payment),

- milk and milk products (-EUR 60 million) owing to the higher profit on sales of skimmed-milk powder from public storage,

- olive oil (-EUR 35 million) owing to the delay in relation to earlier years in adopting the Regulation authorising payment of the balance of production aid.

In terms of the utilisation of appropriations by the end of the year, the Commission estimates that expenditure to be allocated to subheading 1a will be less than originally forecast. This is confirmed by the expenditure forecasts sent by the Member States. According to those forecasts, the level of expenditure by the Member States to the end of August (utilisation of European budget appropriations to the end of October) will not overrun the indicator, with underutilisation of about EUR 200 million. For the remaining weeks of September and October (to 15.10), the Commission is expecting further savings in relation to the indicator, such as an increase in amounts collected under the supplementary milk levy. In conclusion, the appropriations entered in the budget for 2000 should be adequate to cover expenditure to be reimbursed to the Member States and the amount to transfer to the monetary reserve (some EUR 200 to 300 million).

4.2. The uptake of appropriations for subheading 1a

Expenditure is EUR 1 446 million below the indicator for subheading 1b (rural development and accompanying measures). This is due to the fact that the new programmes for 2000-06 have not yet been adopted by the Commission. At this stage, the Commission can take into consideration only the expenditure on former accompanying measures; other rural development expenditure cannot be entered in the EAGGF Guarantee Section budget until after the new programmes have been adopted.

The Member States' forecasts for the end of the year indicate that the requirement will be considerably below the appropriations entered in the budget.