REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT IN ACCORDANCE WITH ARTICLE 35 OF REGULATION (EEC) No 1600/92 Report on the progress made in the implementation of POSEIMA from 1992 to 1998

(presented by the Commission)

INTRODUCTION

1. Economic and Social Situation

1.1. Background

1.2. Agriculture

2. Implementation of the POSEIMA agricultural framework regulation

2.1. Specific supply arrangements (SSA)

2.2. Aid for agricultural products in the Azores and Madeira

2.2.1. Measures common to the two regions

2.2.2. Measures to assist agricultural production in Madeira

2.2.3. Measures to assist agricultural production in the Azores

2.3. Other measures

2.3.1. The graphic symbol

2.4. Budget

2.5. Structural derogations

2.6. Plant health measures

3. EAGGF Guidance Section measures

4. Conclusions

ANNEX 1 Specific supply arrangements (SSA)

ANNEX 2 Specific aid for local agricultural products

ANNEX 3 Derogations applicable to structural measures

ANNEX 4 Plant health measures

ANNEX 5 EAGGF Guidance Section measures

INTRODUCTION

1. By virtue of the Act of Accession of Portugal to the European Communities the provisions of the Treaties and the common policies, in particular the policy on agriculture, applied fully and immediately to the autonomous regions of the Azores and Madeira from the moment of accession, subject to a few specific derogations in the application of the common policies.

In a joint declaration annexed to the Act of Accession, the Member States asked the Community institutions to pay special attention to development policies in these archipelagos.

2. Council Decision 91/315/EEC of 26 June 1991 [1] set up a programme of options specific to the remote and insular nature of Madeira and the Azores (POSEIMA). This programme aims to take account, in the application of Community policies, of the special characteristics and handicaps of these two archipelagos, due to the fact that they are small, very remote islands with difficult topography and climate, economically dependent on certain products and with restricted and dispersed local markets, that affect their economic and social circumstances.

[1] OJ L 171, 29.6.1991, p. 10.

3. As a symbol of the Community's solidarity with its most remote regions and an indispensable tool for better integration into the internal market, POSEIMA serves as a reference framework for the application of Community policies in these two regions. It is based on a twofold principle: the Azores and Madeira are part of the Community but, owing to their location, they are in a special situation.

4. To help the Azores and Madeira become genuinely integrated into the Community, POSEIMA introduced a set of measures for farming and the food industry designed primarily to facilitate supply to the regions and develop or maintain certain local production activities. Under this programme, CAP operations can be adapted to the specific constraints of agricultural production in the Azores and Madeira.

5. For this purpose, on 15 June 1992 the Council adopted a framework Regulation [2] introducing specific measures for the Azores and Madeira with regard to certain agricultural products; these measures have been implemented by a large number of Commission implementing regulations.

[2] Council Regulation (EEC) No 1600/92, OJ L 173, 27.6.1992, p. 1.

6. In view of the economic and social importance of bananas for Madeira, the Community also paid particular attention to the traditional banana industry by implementing specific structural measures until Council Regulation (EEC) No 404/93 (banana market organisation) and the Commission implementing regulations were adopted.

7. The joint declaration concerning the outermost regions of the Community, annexed to the Treaty on European Union, confirmed the POSEIMA approach. The Treaty of Amsterdam introduced a new article, Article 299(2), applicable to the outermost regions, establishing the specific framework to be applied by the Community to these regions. The Treaty entered into force on 1 May 1999.

8. In 1994, in accordance with Title VI of POSEIMA and Article 35 of Regulation (EEC) No 1600/92, the Commission presented the first progress report on POSEIMA [3] to the Council and the European Parliament.

[3] COM(94)476 final of 9.12.1994

9. The Portuguese authorities have sent the Commission reports on the implementation of the programme as well as some requests for amendments to Council Regulation (EEC) No 1600/92.

10. In the context of SEM 2000, the Commission appointed an external consultant to draw up a report evaluating the agricultural section of POSEIMA.

11. After eight years of application, it is now appropriate to report, measure by measure, on the implementation and use made of each of the agricultural provisions. This report takes stock of the experience gained and the impact of the measures implemented.

12. Some of these measures apply both to the Azores and to Madeira; others are intended to deal with specific situations in one or other of the regions.

1. Economic and Social Situation

1.1. Background

The Azores

The archipelago of the Azores is situated in the North Atlantic, over 1 500 km west of Lisbon, half way between Europe and North America. The archipelago is made up of nine main islands, scattered over a distance of 560 km. The largest island is São Miguel (757 km ), then Pico (446 km ) and Terceira (402 km ). The total area of the archipelago is 2 335 km .

Because of the damp, windy climate, the islands are very green, inhabited and cultivated only around the coastal strip; from an altitude of 300 to 400 metres, they are covered with pasture and forest.

The population totals some 245 000. The average population density is high (105 inhabitants per square kilometre), but varies from one island to another. There are no large towns in the Azores. There are only two towns with more than 10 000 inhabitants: Ponta Delgada on the island of São Miguel, and Angra do Heroismo on the island of Terceira. In general, the habitations are scattered.

In 1996, regional per capita GDP (gross domestic product) was half the European average. Unemployment is 7.2%.

Tourism is still insufficiently developed, although capacity is increasing steadily year by year. Division of the active population between the sectors and their relative economic weight is as follows:

>TABLE POSITION>

Madeira

The volcanic archipelago of Madeira, with an area of 795 km , is made up of two inhabited islands, Madeira and Porto Santo, plus some uninhabited islands (the Desertas and the Selvagens); it is situated in the middle of the Atlantic, at 1 000 km from Lisbon, and 600 km from the Moroccan coast. The climate is subtropical, tending towards the Mediterranean, strongly influenced by the Gulf Stream.

98% of the population of 260 000 is concentrated on the island of Madeira; density is very high, at 324 inhabitants per square kilometre.

The economy is dominated by tourism, which has a long tradition, concentrated in Funchal, the capital of the archipelago (48 000 inhabitants). Per capita GDP is 54% of the European average, and unemployment is 5.5%.

Division of the active population between the sectors and their relative economic weight is as follows:

>TABLE POSITION>

1.2. Agriculture

The Azores

Agriculture accounts for a major share of the economy of the Azores. It is hampered by the survival of a land-ownership structure characterised by small, scattered holdings, and by the lack of modern equipment. There are some 18 000 agricultural holdings altogether, accounting for a total area of 136 000 hectares, only 8% of which is cultivated land at an altitude of less than 300 metres; the land at higher altitudes consists of permanent pasture and forest. Agricultural holdings are divided into blocks (from 3.5 on São Miguel to 32 on Corvo), and half of the agricultural area is farmed by tenants.

The main characteristic of agriculture in the Azores is the production of beef cattle on extensive pasture, which covers 88% of the UAA (utilised agricultural area). Animal products account for 82% of the value of final agricultural output, the main products being cows' milk (60% of final output), beef/veal and live calves for export.

The most important crops are forage crops (especially maize, with 5 500 ha), vines, potatoes (1 500 ha), sugarbeet and tobacco; pineapples and tea are quite important in certain areas (São Miguel).

Madeira

Agriculture in Madeira is conditioned by topography, with 88% of the land on a gradient of more than 16% (and 65% on more than 25%). This mountainous region is made up of three farming areas, depending on altitude: the sheltered coastal area in the lowest part is used for growing bananas and other subtropical fruit; the hillsides above are covered by vineyards and horticulture; the highest land is used for maize and orchards.

The land is very densely occupied up to the 700-metre crop limit: there are some 17 000 holdings covering about 13 000 ha, including 7 500 ha of utilised agricultural area.

These holdings are very small (average UAA of 0.43 ha), and on average are divided into three blocks; this is a considerable constraint, which often makes it impossible to use a tractor, or even a draft animal. The family farm is the dominant type of business (94% of farms), and the method is very labour-intensive, with an average labour input of 2.75 man-years per hectare of UAA.

Most of the farms are geared towards self-sufficiency, with less than 50% of output being marketed in most cases.

The climate encourages the development of a very wide variety of agricultural products, despite the three-to-six-month dry season each year. Because of the very low summer rainfall, farmland must be irrigated. With its very dense network of irrigation canals, Madeira's agricultural land is the most intensively irrigated in Portugal (75% of UAA).

Crop production is predominant, accounting for 72% of final agricultural output: the main crops are vines (2 200 ha), subtropical crops such as bananas (1 600 ha), pineapples and sugar cane, while potatoes and flowers (30 ha) are the main products marketed. Livestock production mainly concerns intensive poultry and pig production (owing to the lack of forage crops and pasture).

The fact that Madeira is a remote island region generates additional production factor costs that exacerbate the effects of structural constraints and the atomisation of supply on this necessarily intensive farming system geared to plant production.

2. Implementation of the POSEIMA agricultural framework regulation

2.1. Specific supply arrangements (SSA)

The objective of the specific supply arrangements is to guarantee supply to these regions and compensate for the additional costs of supplying agricultural products due to their insularity and remoteness. The scheme was designed to respond to the population's consumption needs, and as an instrument for the development of production and processing: by reducing input costs, it is intended to maintain and develop farming activity and the local processing industry.

Description of the arrangements:

Each marketing year a supply balance is drawn up for the agricultural products essential for everyday consumption and/or processing in the archipelagos mentioned in the annexes to the Regulation, the Azores (Annex I) and Madeira (Annex II), listing the requirements of the local markets, taking account of local production. The quantities of products covered by the specific supply arrangements are periodically reviewed in the light of changes in the islands' requirements. Separate forecast balances may be drawn up for the requirements of the industries processing and packaging products intended for both the local and traditional export markets.

Since POSEIMA's objective of lowering prices for the end user is to be achieved by promoting competition between sources of supply, products imported from non-member countries under the specific supply arrangements are exempt from customs duties and the same Community products may be supplied on the same terms.

Special attention is paid to the induced economic effects of these arrangements, in particular as regards actual spinoff downstream.

Products imported under the specific supply arrangements may not be re-exported or re-dispatched to the rest of the Community. However, where processing takes place in the archipelagos, the restriction does not apply to traditional consignments or exports. In this case, no refund is granted.

Common rules for implementing the SSA are defined in Commission Regulation (EEC) No 1696/92 of 30 June 1992. [4]

[4] OJ L 179, 1.7.1992, p. 6.

It is left up to the Member State to take all appropriate measures to check that the benefits of the arrangements are actually passed on. It is specified that this may involve assessing the trading margins of the various traders concerned. To ensure that the benefit is passed on, security must be lodged; it is released after checks, which are made at various stages up to that of sale to farmers, or in the industrial sectors in receipt of aid.

The Portuguese authorities provide the Commission periodically with the information it needs to monitor and assess whether the balance matches the islands' requirements.

Comments and analyses:

The arrangements are used differently from one region to another.

In the Azores, the products covered by the SSA (with the exception of rice, intended for direct consumption) are mainly for processing: raw beet sugar (refining), wheat (milling), malt (brewing) and barley and maize (animal feed).

For Madeira, the share of direct consumption is greater (rice, vegetable oils, sugar, pork and beef, milk products).

In addition, the SSA include the supply of breeding animals of Community origin (Article 4): aid is provided for the supply of breeding chicks, hatching eggs, and pure-bred breeding bovine animals, swine, sheep and goats. These measures are designed to help consolidate or launch production activities in order to strengthen local production, reducing production costs and increasing the low rate of self-supply.

Regulation (EEC) No 1600/1992 also provides for the temporary supply (1992/93 to 1995/96 marketing years) to Madeira of two types of products under the special supply arrangements: seed potatoes (CN code 0701 10 00) and bovine animals intended for fattening and consumption in the archipelago.

When this measure expired in June 1996, local production had still not developed sufficiently to supply local demand. Pending any conclusions to be drawn from the assessment and to avoid any sudden interruption in the application of these measures, the Council temporarily extended them until 30 June 1997 [5].

[5] Council Regulation (EC) No 2348/96, OJ L 320, 11.12.1996, p. 1.

Certain comments and analyses can be made about the performance of the specific supply arrangements between 1992/93 and 1997/98. The main statistical data are given in Annex 1. The rates of utilisation mentioned correspond to the ratio of licences used to supply the balance.

- The importance of the SSA is reflected in their share of total expenditure under the programme, which comes to about 70%; however, it varies between the regions: in Madeira, the SSA account for 94% of expenditure (with 6% for specific production support aid), while in the Azores expenditure is almost equally divided between the two categories.

- At all events, SSA expenditure has declined, especially since 1995. The cause of the decline is the reduction in unit amounts of aid paid for Community products.

Following the changes introduced by the CAP reform and the Community's undertakings after the latest GATT agreements (Uruguay Round), and in view of the narrowing gap between world and Community prices, unit aid granted for the supply of Community products, mainly based on current export prices, has been reduced for certain products; in 1995/96 there was a very substantial reduction in the aid, to the point where no aid at all was granted for some cereals, particularly common wheat. This development gave rise to concern about the objective of offsetting extra cost so as to cut production costs.

- Within the constraints of the present rules, the Commission has carefully managed the effects induced by these changes in the international environment. It has also launched external evaluations under SEM 2000 to assess the real difficulties of applying the SSA, and to prepare the Commission's reports to the Council and to Parliament on the implementation of these arrangements.

- The external assessment report on the agricultural aspects of POSEIMA concludes that, in view of the new market situation, the resources provided under Council Regulation (EEC) No 1600/92 are not sufficient to achieve the principal objective of the SSA, which is to compensate for additional supply costs in these regions. Objective criteria are not available to quantify the remoteness and insularity of these regions: the present method of calculating aid for Community products sometimes overcompensates for the extra supply cost, and sometimes fails to cover the extra cost.

- From the economic point of view, the scheme has helped to reduce prices in both regions; in Madeira, regular financial controls are carried out, in accordance with public sector auditing standards and the general model established by the Commission to check on those in receipt of EAGGF Guarantee Section aid (Council Regulation (EEC) No 4045/89). In the Azores, systems of contract prices and fixed trading margins are monitored by the Business Inspectorate. SSA aid is generally taken into account in price forming.

Operation of the arrangements raised some problems, particularly a discrepancy between forecasts and actual requirements for some balances. These discrepancies arose because of incomplete statistics (which did not take account of certain commercial transactions between Portugal and the autonomous regions), some administrative teething troubles and quantitative and qualitative changes in consumer habits. These difficulties have been corrected, but the procedural rules provided for in Commission Regulation (EC) No 1696/92 [6] need to be amended.

[6] OJ L 179, 1.7.1992, p. 6.

2.2. Aid for agricultural products in the Azores and Madeira

Under POSEIMA, aid is to be granted for the production, processing and marketing of agricultural products, in order both to maintain and strengthen traditional activities and to develop diversification. In certain cases, this aid is supplemented by the impact on inputs and on breeding animals of the aid under the supply arrangements.

The cost of these specific measures in favour of local production, about 30% of total expenditure under the programme, is distributed unevenly between sectors: in Madeira, the scheme (which does not cover bananas) mainly helps potatoes for human consumption (72% of aid). In the Azores, the main recipients are cattle breeding (74%) and pineapple growing (19%).

2.2.1. Measures common to the two regions

In the fruit and vegetables, flowers and live plants sector, for products coming under Chapters 6, 7 and 8 of the Combined Nomenclature, and for tea (Chapter 9), aid per hectare is granted to producers who undertake a programme of initiatives to develop and/or diversify production and/or improve quality (Article 11).

The maximum amount of aid is EUR 500 if public funding from the Member State amounts to at least EUR 300 and the producers' financing to at least EUR 200. Moreover, these initiatives should come under programmes designed to run for at least three years and to cover at least 0.3 hectares.

The aid is not available for the production of bananas and potatoes for human consumption in Madeira, or for the production of seed potatoes and pineapples in the Azores.

Implementation procedures are bureaucratic, and the structure and amounts of aid have not had the hoped-for incentive effect. The measure has not been applied.

In the same sector, to facilitate the marketing of products harvested in the islands, aid is granted for the conclusion of annual contracts between individual producers or producer groups and traders established in the rest of the Community (Article 12). For each of the two regions, this aid involves 3 000 tonnes per product per year. The aid, granted to the purchaser, amounts to 10% of the value of the produce marketed, free at destination (13% for joint ventures valid for at least three years between producers and traders). The implementation of this measure is summarised in Table 1 in Annex 2.

In general, producers have welcomed the measure despite the problems encountered in drawing up three-year contracts, an option that has not been utilised.

The Community contributes towards the financing of an economic analysis and forward study of the fruit and vegetable processing industry in the two regions, with particular reference to tropical products (Article 13). This study, which has not yet been carried out, should help identify the bottlenecks in the industry and serve as a basis for its development. It has been suggested that Community financing, which is at present granted jointly to the two regions, should be separated and allocated to each region separately for two independent and specific studies. Moreover, the study could cover fresh fruit and vegetables as well as processed products.

2.2.2. Measures to assist agricultural production in Madeira

For livestock farming, particularly the beef and veal sector, the Regulation introduces aid to help develop Madeira's traditional livestock products, within the limits of the archipelago's consumption requirements, which are assessed in the context of a periodic supply balance. In addition to the supply of pure-bred breeding animals and the temporary supply of bovine animals for on-site fattening under the SSA, a supplement of EUR 48.3 is granted on top of the basic fattening premium for male bovine animals and the premium for maintaining suckler cows (Article 14). The implementation of this measure is summarised in Table 2 in Annex 2.

The aid measure for the fattening of male bovine animals was introduced gradually, but suckler cow aid has not aroused much interest among farmers. The lack of interest is essentially due to the structural limits of the sector, which is characterised by the small number of animals on each farm and largely geared to the production of milk as a main source of income and for home consumption. This type of traditional livestock farming is extremely unresponsive to changes in the economic environment. Consequently, beef premium supplements have not achieved the aim of effectively supporting local production, and imports of fresh meat, supported by the SSA, have partially replaced the local supply of beef to consumers. Table 3 in Annex 2 summarises the development of the bovine sector in the archipelago.

The application of the measures provided for in Article 14 did not prevent the volume of beef production from declining by 17% between 1993 and 1998; even though the decline seems to have stabilised over recent years, the increase in the consumption of fresh over frozen meat does not work to the advantage of local production.

Aid for the human consumption of locally-produced fresh cows' milk products is paid to dairies, within the limits of the consumption needs of the archipelago. Following agri-monetary changes, the amount of aid now stands at EUR 8.14 per 100 kg (Article 15). Implementation of the measure is summarised in Table 4 in Annex 2.

Local milk production declined during this period, owing to a reduction in the number of dairy cows. Consumption is increasingly based on products imported under the SSA, which increased in volume by 18% from 1993 to 1997. Aid to the dairy centre was not sufficient to maintain equilibrium between external supply and local output. Prices to producers were virtually constant, and the impact of the measure is declining rapidly, since it applies only to a small part of the milk produced in the region. The sector is affected by structural problems.

Flat-rate aid per hectare is granted for potatoes for human consumption, for a maximum area cultivated and harvested of 2 000 hectares per year (Article 16). Annual aid at present amounts to EUR 596 per hectare. Implementation of the measure is summarised in Table 5 in Annex 2.

The measure has been fully utilised, to the considerable advantage of a large number of recipients. It has significantly increased the incomes of potato producers, and improved competitiveness in real terms. There is no possibility of introducing mechanisation for potato growing, in view of the pattern of land ownership and the steep gradient; this keeps production costs high, because of the large labour input needed (the regional authorities report that the standard gross margin for potato growing is 9.3% below the national average).

Sugar cane is grown in Madeira on small plots, where all operations are carried out manually, for the production of sugar syrup (mel de cana) or agricultural rum.

Flat-rate per hectare aid is granted for sugar-cane production within the framework of a restructuring plan submitted by the Portuguese authorities for the improvement of plantations. Aid is paid to individual planters, planter groups or organisations. From the sixth year of application, aid is paid exclusively to groups or organisations (Article 17).

The Community finances 60% of eligible expenditure, if the official contribution of the Member State is at least 15%. Where the percentage is less than 15%, Community aid is reduced accordingly. Implementation of the measure is summarised in Table 6 in Annex 2.

Aid is granted for the direct processing of sugar cane into sugar syrup or agricultural rum. The aid is paid as applicable to the sugar syrup manufacturer or to the distiller on condition that he has paid to the sugar cane producer a minimum price determined annually (Article 18). Aid is granted for the production of a maximum annual quantity of 250 tonnes of sugar syrup and 2 500 hectolitres of agricultural rum with a strength of 71.8°. Implementation of the measure is summarised in Table 7 in Annex 2.

These two measures have had a positive impact on the gross income of planters leading to improved competitiveness and increased production; this is true despite the gradual decline in the number of aid cases over the period.

Increased sugar cane output (22% from 1994 to 1997) has led especially to increased syrup production, which now accounts for processing of over 60% of the sugar cane produced, while the production of agricultural rum has declined (despite the fact that the aid per unit of cane processed is much higher).

There are four aid schemes for the wine sector in Madeira:

- three types of aid are granted to support the manufacture of Madeira liqueur wines, within the limits of the requirements corresponding to traditional methods in the region (Article 21),

- flat-rate aid per hectare is granted for the continued cultivation of vines for the production of quality wines psr in the traditional production zones (Article 22).

Aid is granted for the purchase in the rest of the Community of concentrated rectified must for the purpose of sweetening liqueur wines. The amount of aid is determined having regard to the conditions, in particular the cost, of supply to Madeira resulting from its geographical situation, the price of products on the Community market and on the world market, and the economic aspects of the envisaged aid.

Aid is granted for the purchase from intervention agencies of vinous alcohol obtained by distillation [7]. The amount of aid is determined by tendering procedure, and the terms adopted for this specific disposal are such that the market in alcohol and spirit drinks in the Community is not disturbed.

[7] Council Regulation (EEC) No 822/87, OJ L 84, 27.3.1987, p. 1.

Exports from Madeira of must and vinous alcohol are not eligible for refunds.

Aid is granted for the ageing of Madeira liqueur wine up to a maximum annual quantity of 20 000 hectolitres. This aid is paid in respect of liqueur wines which age for not less than five years. It is paid for each lot for three marketing years. The amount of aid is EUR 0.020 per hectolitre per day.

The aid measure for the purchase of vinous alcohol has not been applied in Madeira. Implementation of the other two measures is summarised in Table 8 in Annex 2.

Implementation of flat-rate aid for the continued cultivation of vines for the production of quality wines psr, at present amounting to EUR 476.76 per hectare (following agri-monetary adjustment), is summarised in Table 9 of Annex 2.

These measures have had a favourable impact. They have boosted the real gross income of wine producers, even though the improvement has been less marked than in Portugal as a whole.

According to the regional authorities, aid for the purchase of concentrated rectified must covered 6% of the total purchase cost, and aid for the ageing of Madeira liqueur wines represented about 20% of the cost of ageing over five years. Madeira's quality varieties (Malvasia, Cândida, Boal da Madeira, Verdelho, Sercial and Terrantez) are all characterised by low productivity (50% less than the other varieties present in the region) and high production costs (+60%), owing to the training and pruning system, and to their extra sensitivity to cryptogamic diseases.

In the absence of producer groups, the Commission has provisionally granted authorisation for the aid to be paid to individual producers via the Wine Institute of Madeira.

2.2.3. Measures to assist agricultural production in the Azores

Aid is granted in support of essential economic activities that are traditional in the Azores, connected with beef and veal and with milk production (Article 24).

- In the beef and veal sector, the Regulation provides for a supplement of EUR 48.3 to the special premium for the fattening of male bovine animals and the premium for maintaining suckler cows. Implementation of the measure is summarised in Table 10 in Annex 2. The measures have been very positive: the volume of output of beef and veal in the Azores increased by almost 20% from 1992 to 1997, with a significant improvement in both the competitiveness of meat production and the real gross income of producers. The measures have had a very positive impact.

- In the milk sector, a specific premium is granted for the maintenance of the dairy herd, up to a maximum of 78 000 head. The premium is paid to the producer, and amounts to EUR 80 per cow held by the producer on the day on which the application is submitted. Implementation of the measure is summarised in Table 11 in Annex 2. The measure has been utilised in full. It accounts for almost 58% of the total amount of aid to local production in the Azores, and it has had a very positive impact; the introduction of breeding animals under the SSA has resulted in genetic improvement. The aid scheme and productivity gains led to a 20% increase in producers' real gross income from 1992 to 1997. Milk production increased by about 30% (the rate for Portugal as a whole over the same period was only 5%). In the 1999/2000 marketing year, the Azores exceeded their milk quota for the first time.

- Private storage aid is granted for traditional São Jorge cheese manufactured at least three months previously, and for Ilha cheese manufactured at least 45 days previously, to support essential traditional milk sector activities in the Azores [8]. To date, only storage contracts for Ilha cheese have been signed. There were no applications for aid for São Jorge cheese; the conditions of eligibility for storage contracts (storage period of less than 60 days, starting 90 days after manufacture of the cheese) and the demand for this type of cheese mean that aid is not required for the time being. Implementation of the measure is summarised in Table 12 in Annex 2.

[8] Commission Regulation (EEC) No 2174/92, OJ L 217, 31.7.1992, p. 64.

Flat-rate aid per hectare is granted for the development of sugarbeet production within the limit of an area corresponding to production of 10 000 tonnes of white sugar per year. The amount of aid is EUR 500 per hectare sown and harvested.

Special aid is also granted for the processing of sugarbeet harvested in the Azores into white sugar, within the limit of a total annual production of 10 000 tonnes of refined sugar. The amount of aid, which may be adjusted, is at present EUR 20 per 100 kilograms of refined sugar (Article 25). Implementation of the measure is summarised in Table 13 in Annex 2.

Per hectare aid had a positive impact from 1992 to 1996. The adverse developments of subsequent years were probably due to the bad weather. The impact of the measure on output and gross farm incomes is not in doubt.

Aid granted to the local processing industry is supplemented by the SSA (supplies of raw sugar for refining locally). These two support measures, and especially the SSA, have provided an incentive to local industry and kept it going, which is essential for continued sugarbeet growing in the Azores.

A supplement to the premium provided for under the common organisation of the market in tobacco is granted for the collection of leaf tobacco of the Burley P. variety, up to a maximum of 250 tonnes. The supplement, which amounts to EUR 0.2 per kilogram of leaf tobacco, is paid to purchasers (Article 26). Implementation of the measure is summarised in Table 14 in Annex 2.

The measure has worked well, and the gains in competitiveness resulting from the combined effects of CAP aid and the POSEIMA supplement have had a substantial impact on real gross farm incomes and on tobacco production in the Azores, with the area increasing by 30% and output increasing by 38% between 1992 and 1997.

Two types of aid measure are available for seed potatoes (Article 27):

- aid of EUR 500 per hectare up to a maximum of 200 hectares for production,

- aid on the terms laid down in Article 12 (conclusion of annual contracts between local producers and natural or legal persons established in the rest of the Community) for marketing. Implementation of the measure is summarised in Table 15 in Annex 2.

These measures do not appear to have had the desired impact in the seed potatoes sector. The area covered by per hectare aid, and the number of recipient farmers, have declined. Marketing aid was utilised in three marketing years only.

Aid is granted for the production of endives falling within CN code 1212 99 10 up to a maximum of 400 hectares, at a rate of EUR 500 per hectare (Article 27). Implementation of the measure is summarised in Table 16 in Annex 2.

Despite good progress from 1992 to 1995, the favourable impact of the aid on the relative competitiveness of endive production was not sufficient to maintain the level of output; the area cultivated and the volume of output have both declined significantly in recent crop years.

Flat-rate aid per hectare is granted for the continued cultivation of vines for the production of quality wines psr in the traditional production zones (Article 29). The aid, to be paid exclusively to producer groups from the 1997/98 wine year onwards, amounts to EUR 476.76/ha following the agri-monetary adjustments [9]. Implementation of the measure is summarised in Table 17 in Annex 2.

[9] Commission Regulation (EC) No 2537/95, OJ L 260, 31.10.1995, p. 10.

The measure has proved useful, as evidenced by the increase in the number of hectares and beneficiaries. In the absence of producer groups, the Commission has provisionally granted authorisation for the aid to be paid to individual producers via the Wine-growing Commission of the Azores.

Aid of EUR 1 per kilogram is granted for the production of pineapples, up to a maximum quantity of 2 000 tonnes per year (Article 30). Implementation of the measure is summarised in Table 18 in Annex 2.

Pineapple production aid accounted for almost 2/3 of total production aid for plant products in the Azores. The gains achieved in competitiveness had a very positive impact on the volume of output and on the improvement of producers' real gross income.

2.3. Other measures

POSEIMA and Council Regulation (EEC) No 1600/92 also provide for some derogations from the common agricultural policy in order to help maintain local production.

- In the winegrowing sector, exemption from the distillation obligation and non-application of voluntary distillation and the grubbing premium.

2.3.1. The graphic symbol

To stimulate greater awareness and consumption of products specific to the most remote regions, the "POSEI" programmes provide for the introduction of a graphic symbol, for which the Commission launched a competition in December 1993. The logo was chosen in 1994, and its conditions of use are laid down in Commission Regulation (EC) No 1418/96 [10].

[10] Commission Regulation (EC) No 1418/96, OJ L 182, 23.7.1996, p. 9.

In 1998 the Commission launched a promotion campaign for this logo, to publicise its existence and significance, and the advantages of using it.

2.4. Budget

Specific budget headings have been introduced in the Community budget under the EAGGF Guarantee Section for financing the agricultural section of POSEIMA. The corresponding forecasts and implementation are set out in Table 19 in Annex 2.

In addition, the revenue to the Community budget forgone as a result of exemption from customs duties for products imported from non-member countries under the specific supply arrangements should be included in EAGGF Guarantee Section expenditure.

Table 20 in Annex 2 summarises the overall cost of POSEIMA.

The following conclusions can be drawn from this information:

- the specific supply arrangements represent around 70% of the average overall cost of the programme for the period concerned, and the agricultural measures around 30%; however, the breakdown is different in the two regions: in the Azores the two types of measure are equivalent, while in Madeira the SSA represent 94% of the total,

- owing to the reduction in the amount of aid for Community products, the cost of the SSA has declined; however, the decline was largely offset by the increase in revenue forgone as a result of exemption from duties for products imported from non-member countries,

- the cost of measures to support local production has more or less stabilised in the Azores at about PTE 2 000 million, or some EUR 10 million; in Madeira, the measures were introduced more gradually, which seems to highlight problems of implementation,

- the total cost of the system set up in 1992 stabilised at about EUR 40 million on average over the period considered,

- the appropriation in the EAGGF Guarantee Section budget has always exceeded expenditure. This gap reflected the difficulty of adopting supply balances that corresponded to real local requirements at a time when the agricultural production aid measures were being launched and picking up speed. All measures have now reached cruising speed and stabilised; however, adjusting some of these measures better to the regional situation would mean an increase in expenditure.

2.5. Structural derogations

Article 32 provides for derogations from Council Regulation (EEC) No 2328/91, (superseded by Regulation (EC) No 950/97) on improving the efficiency of agricultural structures. (See summary description in Annex 3.) These derogations were discontinued by the new rural development Regulation (EC) No 1257/1999, which is very flexible. Only recital 53 of the rural development Regulation refers to the specific requirements of these regions, but there is no operative part in the text of the Regulation. The requests for flexibility, adjustments or derogations and the proposed solutions should be studied at the time of the review provided for in the programming exercise.

2.6. Plant health measures

Article 33 of Regulation (EEC) No 1600/92 provides that the competent authorities submit to the Commission programmes for the control of organisms harmful to plants or plant products. (See Annex 4 for a summary description of these measures.)

3. EAGGF Guidance Section measures

Guidance Section funding is not included in the scope of this report but is outlined in Annex 5 to give a comprehensive list of all Community measures in favour of agriculture in the Azores and Madeira.

4. Conclusions

Agricultural measures which are innovative and adapted to the local situation are a major aspect of the Programmes of specific orientations for remote and insular regions. Altogether, these measures have helped to offset some of the constraints affecting production costs. Alongside support from the CAP, they have helped to improve the quality or increase the volume of local output.

The difficulties encountered in implementing some of the measures, and an analysis of the Portuguese authorities' requests to the Commission suggest certain adjustments. Some amendments can be made by the Commission while others will require the Council to adapt the POSEIMA agricultural framework Regulation. The Commission intends, following on from this report, to propose a Council Regulation, with three aims:

- to adapt the specific supply arrangements more closely to the aims pursued, particularly the list of products covered, in the light of the changes in requirements noted in the regions and of the present situation,

- to adjust measures which experience has shown to be poorly suited to the real situation in the region, so as to improve their incentive power and make them more effective,

- to implement new measures to take account of specific local conditions and requirements, within the framework of the POSEIMA objectives.

ANNEX 1 Specific supply arrangements (SSA)

Utilisation by marketing year of supply balances adopted (Source: Ministry of Economic Affairs - Directorate-General for International Economic Relations - Lisbon)

1992/1993 - AZORES

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1993/1994 - AZORES

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1994/1995 - AZORES

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1995/1996 - AZORES

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1996/1997 - AZORES

>TABLE POSITION>

1997/1998 - AZORES

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1992/1993 - MADEIRA

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* from 1 July 1992 to 31 October 1993

1993/1994 - MADEIRA

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* from 1 November 1993 to 31 October 1994 ** Without prejudice to revision of the balance in the course of the year, the quantities fixed for each of the products listed in the annex may be exceeded by up to 20% provided there is no overshooting of the total quantity. This provision may relate to cereals, olive oil and processed fruit and vegetables.

1995/1996 - MADEIRA

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* from 1 November 1994 to 31 October 1995 * from 1 September 1994 to 31 August 1995 *** Without prejudice to revision of the balance in the course of the year, the quantities fixed for each of the products listed in the annex may be exceeded by up to 20% provided there is no overshooting of the total quantity. This provision may relate to cereals, olive oil and processed fruit and vegetables.

1995/1996 - MADEIRA

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* from 1 November 1995 to 31 October 1996

1996/1997 - MADEIRA

>TABLE POSITION>

* from 1 November 1996 to 31 October 1997 ** Without prejudice to revision of the balance in the course of the year, the quantities fixed for each of the products listed in the annex may be exceeded by up to 20% provided there is no overshooting of the total quantity. This provision may relate to cereals, olive oil and processed fruit and vegetables.

1997/1998 - MADEIRA

>TABLE POSITION>

* from 1 November 1997 to 31 October 1998 ** Without prejudice to revision of the balance in the course of the year, the quantities fixed for each of the products listed in the annex may be exceeded by up to 20% provided there is no overshooting of the total quantity. This provision may relate to cereals, olive oil and processed fruit and vegetables.

ANNEX 2 Specific aid for local agricultural products

Unless otherwise specified, the data in this annex were supplied by the Autonomous Region of Madeira and the Autonomous Region of the Azores

Table 1 Article 12: aid for the marketing of fruit, vegetables and plants outside the Azores and Madeira*

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* All relevant products grouped together.

Table 2 Article 14: supplementary aid for fattening male bovine animals and maintaining suckler cows (Madeira)

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Table 3 Bovine sector in Madeira

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Table 4 Article 15: aid for human consumption of milk products - Madeira

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Table 5 Article 16: flat-rate aid per hectare for growing potatoes for human consumption - Madeira

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Table 6 Article 17: flat-rate aid per hectare for growing sugar cane - Madeira

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Table 7 Article 18: aid for the direct processing of sugar cane into sugar syrup or agricultural rum - Madeira

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Table 8 Article 21: aid to support the manufacture of Madeira liqueur wines

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Table 9 Article 22: flat-rate aid per hectare for continued cultivation of vines- Madeira

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Table 10 Article 24 (beef and veal sector): supplement to the special premium for the fattening of male bovine animals and the premium for maintaining suckler cows - Azores

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Table 11 Article 24 (milk sector): specific premium for the maintenance of the dairy herd - Azores

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Table 12 Article 24: aid for private storage of cheese - Azores

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Table 13 Article 25: flat-rate aid per hectare (sugarbeet) and special aid for processing of sugarbeet harvested in the Azores into white sugar

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Table 14 Article 26: supplementary premium paid to purchasers for the collection of leaf tobacco of the Burley P. variety - Azores

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Table 15 Article 27: aid for production and marketing of seed potatoes - Azores

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Table 16 Article 27: aid for production of endives - Azores

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Table 17 Article 29: flat-rate aid per hectare for continued cultivation of vines for the production of quality wines psr - Azores

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Table 18 Article 30: aid for production of pineapples - Azores

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Table 19 Financing of agricultural aspects of POSEIMA: budget forecasts and outturn

(EUR million)

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Source: EAGGF Guarantee Section

Table 20 POSEIMA support over seven marketing years

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Source: IDOM-AGRO.GES, based on data supplied by the Portuguese authorities

ANNEX 3 Derogations applicable to structural measures

Article 32 provides for derogations from Council Regulation (EEC) No 2328/91 (superseded by Regulation (EC) No 950/97) on improving the efficiency of agricultural structures [11]. These derogations were discontinued by the new rural development Regulation (EC) No 1257/1999.

[11] Council Regulation (EEC) No 2328/91, OJ L 218, 6.8.1991, p. 1, as replaced by Council Regulation (EC) No 950/97, OJ L 142, 2.6.1997, p. 1.

- The conditions for granting investment aid for agricultural holdings and production incentives for swine, eggs and poultry have been relaxed, provided that the requirements of animal welfare and environmental protection are complied with and that production is for the internal market of the regions.

- Up to 20 cows whose milk is intended for the local market may be included for the purpose of calculating the compensatory allowance, which may be granted to farmers with at least half a hectare of utilised agricultural area, for all crops.

Article 32 also provides for the possibility of requesting derogations from both Regulation (EC) No 951/97 (formerly (EEC) No 866/90 [12]) on improving the processing and marketing conditions for agricultural and forestry products and from the selection criteria for investments in this field laid down by Commission Decision 94/173/EC.

[12] Council Regulation (EEC) No 866/90 of 29 March 1990, as replaced by Council Regulation (EC) No 951/97, OJ L 142, 2.6.1997, p. 22.

Derogations were approved by Commission Decision C(1998) 967 of 20 April 1998.

For EAGGF Guidance Section assistance, the programme provides a sum of EUR 22 million for this joint measure, which corresponds to a total eligible investment cost of EUR 56 million.

Article 27, which concerns the structural derogations under the agricultural section of POSEIMA, was deleted with the reform of the Structural Funds because of the flexibility of the new Regulation (EC) No 1257/1999. Only recital 53 of the rural development Regulation refers to the specific requirements of these regions, but there is no operative part in the text of the Regulation. The requests for flexibility, adjustments or derogations and the proposed solutions should be studied at the time of the review provided for in the programming exercise.

ANNEX 4 Plant health measures

MADEIRA

- 1993: Total: 2 000 000, comprising 1 500 000 EC and 500 000 Madeira (in ecus; ECU 1 = PTE 198.230 on 1.8.1993)

- 1995: Total: 1 200 000, comprising 900 000 EC and 300 000 Madeira (in ecus; ECU 1 = PTE 196.159 on 1.6.1995)

- 1996: Total: 800 000, comprising 600 000 EC and 200 000 Madeira (in ecus; ECU 1 = PTE 196.329 on 1.3.1996)

- 1997: Total: 1 066 666, comprising 650 000 EC and 416 666 Madeira (in ecus; ECU 1 = PTE 195.106 on 1.2.1997)

- 1998: Total: 666 667, comprising 500 000 EC and 166 667 Madeira (in ecus; ECU 1 = PTE 203.243 on 1.4.1998)

Measures: autocidal control of fruitfly (Ceratitis capitata) control of woolly whitefly (Aleurothixus floccosus) control of greenhouse whitefly (Trialeurodes vaporariorum) (until 1997)

AZORES

- 1994: Total: 666 666, comprising 500 000 EC and 166 666 Azores (in ecus; ECU 1 = PTE 197.279 on 1.3.1994)

- 1995: Total: 866 667, comprising 650 000 EC and 216 667 Azores (in ecus; ECU 1 = PTE 196.159 on 1.6.1995)

- 1996: Total: 667 246, comprising 500 000 EC and 167 246 Azores (in ecus; ECU 1 = PTE 196.329 on 1.3.1996)

Measure: control of Japanese beetle (Popillia japonica)

ANNEX 5 EAGGF Guidance Section measures

Guidance Section funding is not included in the scope of this report but is outlined here so as to provide a comprehensive view of all Community measures in favour of agriculture in the Azores and Madeira.

Period 1989-1993

The autonomous regions of the Azores and Madeira received assistance from various Community financing instruments in the course of the period.

The specific programmes approved in the framework of the 1985-95 PEDAP (specific development programme for Portuguese agriculture) were essentially concerned with infrastructure improvement (rural roads, electrification, irrigation), the improvement of pastureland in the Azores and the conversion and restructuring of banana-growing in Madeira.

Under the structural measures in the POSEIMA decision of 26 June 1991: for 1992 and 1993, the programmes approved for Madeira and the Azores involved, for Madeira, improvement and modernisation of banana marketing structures (EUR 11 000 000); for the Azores, support for structural assistance to investment in modernisation, in particular Pico cheese, and support for mechanisation (EUR 5 000 000).

The Community support framework for 1989-93 provided these regions with assistance under the Operational Programme for the restructuring of vineyards in the Azores and Madeira, with the EAGGF Guidance Section contributing EUR 2 708 000.

Period 1994-1999

Structural Fund assistance (Community support framework 1994-1999) for these regions comprised:

- the multi-fund Objective 1 Operational Programme for Madeira, involving a contribution from the EAGGF Guidance Section of EUR 59 723 000. The type of measure financed relates in particular to irrigation, rural roads, electrification, support for investment in agricultural holdings, conversion and diversification of production, training, research and demonstration, processing and marketing of agricultural products, improvement of forests,

- the multi-fund Objective 1 Operational Programme for the Azores, involving a contribution from the EAGGF Guidance Section of EUR 147 967 000. The type of measure financed relates in particular to improvement of farm infrastructure, rural roads, water supply, electrification, support for investment in agricultural holdings, training, processing and marketing of agricultural products, improvement of forests and recovery of derelict woodland.

Period 2000-2006

In this period, in the framework of the Structural Funds, each of the regions is again covered by a multi-fund Objective 1 Operational Programme, with identical measures. EAGGF Guidance Sector financing totals EUR 79 853 000 for Madeira, and EUR 133 554 000 for the Azores.