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Brussels, 20.8.2007

SEC(2007) 1078 final

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

on EAGF expenditure Early warning system No 6-7/2007

TABLE OF CONTENTS

1. INTRODUCTION 3

2. ASSIGNED REVENUE 3

3. SUGAR RESTRUCTURING FUND 4

4. COMMENTS ON THE IMPLEMENTATION OF THE 2007 BUDGET 4

5. CONCLUSIONS 6

INTRODUCTION

For the period 16 October 2006 to 31 May 2007, the budget’s actual implementation level compared to the expenditure profile pointed out by the indicator, established on the basis of the dispositions of Article 20 of Council Regulation (EC) No 1290/2005[1] is presented in the Annex.

ASSIGNED REVENUE

On the basis of the dispositions of Article 34 of the new CAP Financing Regulation (EC) No 1290/2005, the receipts originating from financial corrections under conformity clearance decisions, from irregularities and from the milk levy are designated as revenue assigned to the financing of EAGF expenditure. At the time of establishment of the 2007 budget, an estimation of this revenue was made and this estimation was taken into consideration when the Budgetary Authority adopted the 2007 budget's appropriations. Specifically:

- the receipts from the milk levy were estimated at EUR 349.0 million and they were taken into consideration by reducing the appropriations requested for the milk and milk products sector for which the Budgetary Authority granted an amount of EUR 587.0 million;

- the receipts from the conformity clearance claw-backs and from irregularities were estimated at EUR 568.0 million and EUR 70.0 million correspondingly. The total amount of EUR 638.0 million was taken into consideration by reducing the appropriations requested for the single payment scheme for which the Budgetary Authority granted an amount of EUR 27 918.0 million.

The annexed table presents the implementation of the assigned revenue account for which an amount of EUR 754.7 million was collected as of 31 May 2007. Specifically:

- from the milk levy an amount of approximately EUR 353.9 million was collected as compared to the initial estimate of EUR 349.0 million,

- the conformity clearance claw-backs amounted to approximately EUR 332.2 million with additional amounts expected by the end of the budget year, and

- the receipts from irregularities amounted to approximately EUR 68.7 million with additional amounts also expected by the end of the budget year.

According to applicable rules, this revenue can be used, partly or wholly, to cover the financing of EAGF expenditure if the budget appropriations granted by the Budgetary Authority are not sufficient to finance the expenditure incurred by the Member States. In the case where all or part of this revenue is not used, then, it will be automatically carried over into the following budget year.

SUGAR RESTRUCTURING FUND

The temporary restructuring amounts in the sugar sector are treated as assigned revenue intended to finance the sugar restructuring aid and other aids foreseen in the restructuring fund. For the marketing year 2006/07 these amounts relate to the sugar, insulin syrup and isoglucose quantitative quotas held by operators and they are to be paid by the Member States into the Fund in 2 instalments, the deadlines of which are 31 March and 30 November 2007 respectively. As of the end of March, Member States had paid the first instalment of the restructuring amounts due amounting to EUR 1 287.2 million.

COMMENTS ON THE IMPLEMENTATION OF THE 2007 BUDGET

A brief commentary on the reasons for which the most significant divergences between the actual and the expected level of implementation for certain sectors of the 2007 budget is presented hereafter:

Monetary factors

The expenditure incurred in the aforementioned period takes account of the movement in the US$/EUR rate. For 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 is influenced by the trend in this parity rate.

In accordance with Article 21 of Regulation (EC) No 1290/2005, the budget adopted by the Budgetary Authority was drawn up on the basis of the average parity rate for July–September 2006 of EUR 1 = $ 1.27. It should be noted that for the period 1 August 2006 to 31 May 2007 the average parity rate was approximately equal to EUR 1 = $ 1.31, i.e. 3.1% above the rate used for the establishment of the 2007 budget.

Market factors

Cereals (– EUR 301.2 million)

The extremely favourable internal and external conditions in the cereals market and the resulting higher internal market prices have led to lower purchases and higher sales of cereals in public storage as well as to lower expenditure for export refunds, thus, resulting to an under-implementation of this sector's budget appropriations which is expected to last to the end of the budget year.

Refunds on Non-Annex 1 products (– EUR 60.4 million)

Member States are expected to incur lower expenditure on refunds for the export of processed agricultural products because of the overall general reduction in the export refund levels for the various products concerned. This situation is expected to last to the end of the budget year.

Sugar (+ EUR 148.5 million)

The current over-implementation of the budget's appropriations, when compared to the level of the indicator, is primarily due to the increased quantities of exported sugar involving both free market and public storage sugar.

Fruits and vegetables (– EUR 68.9 million)

The current under-implementation of the budget's appropriations, when compared to the level of the indicator, is primarily due to the smaller quantities of tomatoes which have up to now received the processing aid. Furthermore, the rhythm of uptake of operational funds for producer organisations is slower when compared with the corresponding level of the indicator.

Milk and milk products (+ EUR 96.0 million)

The budget's appropriations, when compared to the level of the indicator, were over-implemented as of 31 May 2007. At this point in time, the Commission expects this over-execution to be temporary.

It should be noted that this over-execution of appropriations, when compared to the level of the indicator, is due to technical reasons since, starting with the 2007 budget, the revenue from the milk levy, initially estimated at EUR 349.0 million, is separately treated as revenue assigned to the EAGF. The 2007 budgetary appropriations requested and granted by the Budgetary Authority for this sector did not include this revenue and, therefore, the indicator is applied at appropriations which were lower by this amount. This is the reason for which the current implementation of the budget points to an over-execution.

If the revenue from the milk levy initially forecasted to be assigned to the milk sector is taken into consideration, then, an under-execution of – EUR 126.1 million would arise for this sector.

Direct aids (– EUR 726.4 million)

As of May 31, the under-execution of the budget's appropriations stood at 2.0% when compared to the level of the indicator and it primarily involved the other direct aids.

On the basis of the Member States forecasted expenditure to the end of July, this under-execution is expected to turn to an over-execution of 0.3% of the budget's appropriations compared to the corresponding level of the indicator. This lack of clear trend as to the execution of the budget led the Commission services to contact Member States in order to clarify various aspects of these schemes' execution and to establish an indication as to this chapter's expected level of payments for the period to the end of the budget year.

If the revenue from the conformity clearance and from irregularities initially forecasted to be assigned to the single payment scheme is taken into consideration, then, an under-execution of – EUR 1 337.0 million would arise for the direct aids chapter as of May 31.

CONCLUSIONS

The uptake of the budget's appropriations, for the period 16 October 2006 to 31 May 2007 amounted to EUR 37 944.1 million, i.e: it involved an overall under-execution of these appropriations by approximately – EUR 1 022.9 million which is mainly resulting from direct aids and to a lesser extent from market measures. The part of the under-execution resulting from market measures should increase by the end of the budget year. With regard to direct aids, the present under-execution is expected to change to an over-execution of the 2007 budget's corresponding appropriations.

ANNEX

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[1] OJ L 209, 11.8.2005, p. 1. Regulation last amended by Regulation (EC) No 320/2006 (JO L 58, 28.2.2006, p. 42).