REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL - Early warning system No 9/2002 and No 10/2002

TABLE OF CONTENTS

1. OVERALL OUTTURN IN MONTHLY EXPENDITURE

1.1. Subheading 1a: CAP

1.2. Subheading 1b: Rural Development

2. PROVISIONAL UTILISATION OF APPROPRIATIONS

3. COMMENTS

3.1. The uptake of appropriations for October 2002

3.2. Monetary factors

3.3. Market factors

4. CONCLUSIONS

1. OVERALL OUTTURN IN MONTHLY EXPENDITURE

The following tables show the overall out-turn in monthly expenditure in relation to the expenditure profile. This situation corresponds to expenditure incurred in the Member States from 16 October 2001 to 31 August 2002.

1.1. Subheading 1a: CAP

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1.2. Subheading 1b: Rural Development

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2. PROVISIONAL UTILISATION OF APPROPRIATIONS

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3. COMMENTS

3.1. The uptake of appropriations for October 2002

The uptake of appropriations under heading 1 of the budget for October 2002 (Member States' expenditure from 16 October 2001 to 31 August 2002) is EUR 37 758,9 million, i.e. 85,3% of appropriations. Expenditure is

- EUR 2 182,4 million below the indicator for subheading 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure), and

- EUR 43,3 million below the indicator for subheading 1b (rural development).

3.2. Monetary factors

The dollar/euro rate

The expenditure indicated in point 3.1 above takes account of the movement in the Euro/dollar 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 the trend in the dollar rate.

In accordance with the Council Regulation on budgetary discipline (Council Regulation (EC) No 2040/2000 of 26 September 2000), the letter of amendment to the 2002 agriculture budget was drawn up on the basis of the average dollar rate for July, August and September 2001, i.e. EUR 1 = $ 0,89. For the period 1 August 2001 to 30 June 2002 the average dollar rate was equal to EUR 1= $ 0,90, i.e.: at a level slightly above the rate used for the establishment of the 2002 budget.

3.3. Market factors

Subheading 1a

For subheading 1a, the overall budget execution was under the level foreseen by the indicator and it concerned all three major categories of expenditure. Specifically:

- for plant products, the under-execution resulted, mainly, from under-spending for cotton, fruits and vegetables and wine,

- for animal products, the under-execution resulted, mainly, from under-spending for beef and veal as well as for sheep- and goat-meat, and

- for ancillary expenditure, the under-execution resulted, mainly, from under-spending for veterinary and plant health measures as well as from agri-monetary measures.

The observed overall divergence amounts to EUR -2 182,4 million equal to - 5,4% of the budget's appropriations. However, the divergence for certain individual chapters is more important, thus, inviting the following explanations:

Chapter B1-10: Arable crops // Divergence: - EUR 34 million (- 0,2%)

// (expenditure: EUR 17 654 million)

(indicator: EUR 17 688 million)

While, as of 31.08, the budget shows a slight under-implementation when compared to the level of the indicator, the situation will change drastically by the end of the year when this chapter of the budget will be over-implemented substantially. The reason for this reversal of the situation is due to the decisions taken in late August and early September by the Commission to advance the payment of direct aids for arable crops (marketing year 2002/03) in certain regions of Germany and Italy to this budget year. These decisions are expected to incur additional expenditure of approximately EUR 891 million which, of course, will be deducted from the corresponding amounts included in the Amending Letter to the PDB for 2003.

Chapter B1-14: Fibre plants and silkworms // Divergence: - EUR 242 million (-25,4%)

// (expenditure: EUR 702 million)

(indicator: EUR 944 million)

This level of under-implementation is expected to be temporary as the Commission decision with regard to the level of effective production of cotton in Greece was taken in late July. This decision is expected to lead to an overall saving of approximately - EUR 130 million for this chapter's budget.

Chapter B1-15: Fruits and vegetables // Divergence: - EUR 96 million (- 5,8%)

// (expenditure: EUR 1 376 million)

(indicator: EUR 1 472 million)

The Commission expects that this chapter will be under-executed by the end of the year. This under-execution will be attributable to fresh fruits and vegetables and primarily to smaller compensation payments because of lower quantities of fruits and vegetables withdrawn from the market and to lower payments for the compensatory aid for bananas because of smaller quantities and of lower levels of aid for bananas. The Commission estimates that savings of approximately EUR 60 million can be expected by the end of the year for this chapter of the budget.

Chapter B1-16: Wine // Divergence: - EUR 117 million (- 8,5%)

//

(expenditure: EUR 1 181 million)

(indicator: EUR 1 298 million)

The under-spending, as of 31.08, is primarily related to delays in carrying out the various types of approved distillations in the Member States concerned. On the basis of the hypothesis that the situation as to these distillation delays will improve, the Commission estimates that savings of approximately EUR 50 million can be expected by the end of the year for this chapter of the budget.

Chapter B1-20: Milk and milk products // Divergence: + EUR 116 million (+ 6,1%)

// (expenditure: EUR 1 830 million)

(indicator: EUR 1 714 million)

This chapter is expected to be over-implemented by the end of the year. This over-implementation is primarily attributable to the increased recourse to public storage for both butter and skimmed milk powder owing to the deterioration of the market situation for these products as well as to the increased export refunds' rates due to decreases in world market prices for dairy products. The Commission estimates that over-spending of approximately EUR 400 million can be expected by the end of the year for this chapter of the budget.

Chapter B1-21: Beef and veal // Divergence: - EUR 911 million (-11,3%)

//

(expenditure: EUR 6 857 million)

(indicator: EUR 7 768 million)

The Commission expects significant under-execution for this chapter of the budget by the end of the year. This under-spending is primarily attributable to beef intervention, which has been substantially lower than the level expected when the budget was established, thus, resulting in lower technical, financial and other costs. Nevertheless, under-spending is also expected for refunds due to the smaller quantities of beef exported as well as to lower payments for the slaughter premium, for the exceptional measures for the UK and for the purchase for destruction and for the special purchase schemes. The Commission estimates that savings of approximately EUR 1 billion can be expected by the end of the year for this chapter of the budget.

Chapter B1-22: Sheepmeat and goatmeat // Divergence: - EUR 133 million (- 19,9%)

// (expenditure: EUR 534 million)

(indicator: EUR 667 million)

The Commission expects significant under-execution for this chapter of the budget by the end of the year. This under-spending is primarily due to the fact that higher than foreseen market price levels for sheep- and goat-meat led to the fixing of the ewe/goat premium at a level lower than the one foreseen when the budget was established. The Commission estimates that savings of approximately EUR 110 million can be expected by the end of the year for this chapter of the budget.

Chapter B1-33: Veterinary and plant health measures // Divergence: - EUR 398 million (-69,9%)

// (expenditure : EUR 167 million)

(indicator : EUR 565 million)

This under-execution is primarily due to the delays observed in the liquidation of the files, especially for foot and mouth disease, and the subsequent payment of the balance of the amounts due. A large under-spent is expected by the end of the year.

Chapter B1-39 : Other measures // Divergence: - EUR 96 million (-36,8%)

//

(expenditure: EUR 151 million)

(indicator: EUR 247 million)

The Commission expects significant under-execution for this chapter of the budget by the end of the year because the UK decided not to claim a part of the agri-monetary aids designed to compensate beef, sheep and dairy farmers for the strength of the pound against the Euro. The Commission estimates that savings of approximately EUR 90 million can be expected by the end of the year for this chapter of the budget.

Subheading 1b

Chapter B1-40:Rural development // Divergence: - EUR 43 million (- 0,9%)

//

(expenditure: EUR 1 838 million)

(indicator: EUR 1 881 million)

This chapter's execution is at the level of the indicator.

4. CONCLUSIONS

Implementation of appropriations in October 2002

The uptake of appropriations in October 2002 (Member States' expenditure from 16 October 2001 to 31 August 2002) is EUR 37 758,9 million, i.e. 85,3% of appropriations.

Subheading 1a

The under-execution amounts to EUR 2 182,4 million when compared to the level of the indicator for the period 16.10.2001 to 31.08.02. The Commission expects that this large under-execution will be much lower by the end of the year.

Subheading 1b

The under-execution amounts to EUR 43,3 million when compared to the level of the indicator for the period 16.10.2001 to 31.08.02. The peculiar expenditure profile of this chapter, where nearly half of the expenditure is executed in the period 1 to 15 October, makes the situation for subheading 1b uncertain. The estimations communicated by the Member States by 30 September foresee an under-spent of more than EUR 200 million.