COMMISSION REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on EAGGF Guarantee Section expenditure - Early warning system No 8/2001

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 in the Member States from 16 October 2000 to 30 June 2001.

1.1. Subheading 1a: CAP (not including rural development)

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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 2001

The uptake of appropriations under heading 1 of the budget for August 2001 (Member States' expenditure from 16 October 2000 to 30 June 2001) is EUR 34 564,80 million, i.e. 83% of appropriations. Expenditure is:

- EUR 1 406,5 million below the indicator for subheading 1a (CAP, not including rural development),

- EUR 877,6 million below the indicator for subheading 1b (Rural development).

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 the dollar rate.

In accordance with the Council Regulation on budgetary discipline (Council Regulation (EC) No 2040/2000 of 26 September 2000), the supplementary and amending budget (SAB) No 1/2001 was based on average parity of EUR 1 = $0,87. The unweighted average parity from August 2000 to the end of June 2001 is EUR 1 = $0,8885.

3.2.2. The impact of the dual rates

The cost of the dual rates to the EAGGF Guarantee Section is estimated at - EUR 45 million.

3.3. Market factors

3.3.1. Subheading 1a

For subheading 1a, 60% of the underspending in relation to the indicator (EUR 850 million) was due to beef and veal. A detailed chapter-by-chapter explanation is given below for the most significant divergences.

Chapter B1-10: Arable crops // Divergence: - EUR 208 million (-1,2%)

// (expenditure: EUR 17 097 million)

(indicator: EUR 17 305 million)

This chapter's appropriations are expected to be substantially under-implemented by the end of the budget year. This under-implementation will be mainly due to the significantly lower quantities of cereals bought into intervention (6,7 million t) when compared to the hypothesis of intervention purchases of 11,2 million t retained for the establishment of the budget. Cereals intervention was closed on 30.06.2001 for the current period. It is also due to the export of significant quantities at zero refund.

Chapter B1-11: Sugar // Divergence:- EUR 179 million (-10,5%)

// (expenditure: EUR 1 104 million)

(indicator: EUR 1 283 million)

Substantial under-implementation of this chapter's budget appropriations is expected by the end of the budget year. The shortfall is due to the smaller volume of sugar exports which, up to the end of June 2001, amounted to only 83% of the exports expected for this period of the year. Moreover, the average rate of refund granted since the beginning of the budget year stood at only 95% of the rate retained in the hypotheses on which the 2001 budget was based.

Chapter B1-12: Olive oil // Divergence: - EUR 74 million (-3,0%)

// (expenditure: EUR 2 139 million)

(indicator: EUR 2 213 million)

The profile established for this year was based on the rate of payments observed in the budget year 2000. The currently observed under-implementation appears to be due to the decreased level of advance payments for production aid for olive oil in EL, E, F and P for the marketing year 1999/2000.

However, on the basis of available information, the Commission expects that the observed under-implementation is temporary and that it will be probably corrected when the balance of production aid for the marketing year 1999/2000 will be paid. Indeed, the fixing of the effective production of olive oil for this marketing year as well as the fixing of the unitary amount of aid point to an expected overall 100% implementation of the budget's appropriations which might, also, be overshot because of late payment of the balances of production aid in EL and E for the marketing year 1998/99.

Chapter B1-14: Fibre plants and silkworms // Divergence: - EUR 74 million (-8,9%)

// (expenditure: EUR 594 million)

(indicator: EUR 668 million)

The observed under-implementation is mainly due to the lower level of advances paid until December 2000 because of the high price of cotton on the world market. E and EL have paid advances for approximately 90% of the quantities of cotton due. Consequently, the expenditure declared for this chapter was below the indicator.

The Commission has just fixed the aid and the eligible quantities for cotton for the current period. On the basis of these decisions, final expenditure in this sector is expected to correspond to the level of appropriations in the budget if all Member States pay the aid by 31.08.2001, i.e: the mandatory deadline for making these payments.

Chapter B1-15: Fruits and vegetables // Divergence: - EUR 116 million (-7,0%)

// (expenditure: EUR 1 065 million)

(indicator: EUR 1 181 million)

The undershoot of the indicator appears to be due to both fresh (60%) and processed fruits and vegetables (40%):

- with regard to the fresh fruits and vegetables, the primary reason for the under-spending relates to the reduction of the quantities withdrawn as well as to the reduced uptake of operational funds for the producers' organisations and

- with regard to the processed fruits and vegetables, the under-spending is related to lower payments made for the production aid for fruit-based products, for the aid for the processing of agrumes as well as for the aids for dried raisins in EL.

The Commission considers that the under-implementation of this chapter's appropriations will continue up to the end of the budget year.

Chapter B1-16: Products of the vine-growing sector // Divergence: + EUR 311 million (+27,0%)

// (expenditure: EUR 873 million)

(indicator: EUR 562 million)

This substantial overshooting of the indicator is due:

- to the higher distillation quantities of table wines and

- to the accelerated payments for the distillation of table wines for the potable alcohol market when compared to the establishment of a linear indicator over 10 months, starting in January 2001, for this new measure firstly introduced through the reform of the wine market in 1999.

In addition, the payments made up to 30.06.2001 for restructuring aids technically overshoot the ad-hoc indicator which was established over 4 months, starting in June 2001, for this new measure firstly introduced through the reform of the wine market in 1999. Furthermore, the Commission decided to re-allocate the unused appropriations foreseen in the budget for these aids amongst the Member States which had implemented this measure by 30.06.2001.

Therefore, it is expected that payments for this chapter will exceed available appropriations by the end of the budget year.

Chapter B1-20: Milk and milk products // Divergence:- EUR 169 million (-7,2%)

// (expenditure: EUR 1 562 million)

(indicator: EUR 1 731 million)

The under-run is mainly due to the following three measures:

Aid for the use of skimmed milk powder:

Payments were lower due to the smaller quantities of skimmed milk powder used in feed for calves. It should be borne in mind that the incorporation rate of skimmed milk powder in compound feedingstuffs has been reduced from 50% to 25%;

Export refunds:

Payments were lower because refund rates for the export of skimmed milk powder, cheese and other milk products have been reduced;

Public storage of butter:

Payments were lower because only 5 038 t were bought into intervention, as of the end of June 2001, while the budget was based on the hypothesis of intervention buying-in of 53 000 tonnes of butter.

It is, therefore, expected that the appropriations of this chapter will not be fully utilised.

Chapter B1-21: Beef/veal // Divergence: - EUR 850 million (-12,2%)

// (expenditure: EUR 5 221 million)

(indicator: EUR 6 071 million)

For June, we observe an improvement of the chapter's implementation situation. While there is still a substantial undershooting of the indicator (- EUR 850 million), this has decreased when compared to the month of May (- EUR 1 071 million). However, the overall undershooting is mainly due to:

Export refunds:

The indicator partly reflects the lower volume of exports because of the shutting off of export markets for beef and veal. Indeed, exports amounted to only 58% of last year's volume by the end of June 2001.

Exceptional support measures:

Because of foot and mouth disease in the United Kingdom, animal movements were severely restricted. The implementation of this measure declined, in the course of June 2001, to 10% or less of its rate of implementation for the first 2-3 months of the budget year.

Measures relating to BSE:

The implementation rate of the "purchase for destruction" scheme was very low. Total quantities of only 264 832 t of beef were involved in this scheme, as of its closing on 30.06.2001, versus the quantity of 530 000 t foreseen in the SAB No 1/2001.

It is, therefore, expected that the overall appropriations for this chapter will not be fully utilised by the end of the budget year.

Chapter B1-30: Non-Annex I products // Divergence: + EUR 31 million (+ 7,6%)

// (expenditure: EUR 330 million)

(indicator: EUR 299 million)

The overshooting of the indicator is due to:

- an increase in the use of milk powder (IRL, NL and D), cereals and rice (F and NL), butter (B, NL and D), sugar (IRL, NL) and

- to the payments of export refund files for last marketing year's exports which are liquidated at the, then, high export refund rates.

Therefore, the Commission expects that the over-spending for this sector will continue up to the end of the budget year.

Chapter B1-32: POSEI // Divergence: - EUR 39 million (-16,0%)

// (expenditure: EUR 136 million)

(indicator: EUR 175 million)

The under-spending is mainly due to the delays in the implementation of the POSEIMA and POSEICAN programmes.

Chapter B1-39: Other measures // Divergence: + EUR 52 million (+ 12,4%)

// (expenditure: EUR 418 million)

(indicator: EUR 366 million)

The overshooting of the indicator is partly due to the UK's payments of outstanding balances for the various tranches of the agri-monetary measures.

The Commission expects an over-implementation of this chapter's appropriations up to the end of the budget year, owing in particular to the significant currency revaluations for the UK and S in 2000.

3.3.2. Subheading 1b

Chapter B1-40: Rural Development // Divergence: - EUR 878 million (-19,5%)

// (expenditure: EUR 1 617 million)

(indicator: EUR 2 495 million)

In most of the Member States, except EL and F, payments in June 2001 were less than forecasted. Again, Member States were continuing the regular implementation of the old measures, while expenditure on the new (former EAGGF-Guidance) measures lagged behind.

The divergence between the expenditure incurred and the indicator is greater than last month. However, it would be premature to conclude that this overall negative divergence will persist until the end of the year given the fact Member States tend to concentrate payments close to the end of the budget year. Moreover their forecasts for the end of the exercise show a substantial alignment of the actual expenditures with the budget's appropriations.

4. CONCLUSIONS

4.1. The uptake of appropriations by 31 August 2001 for subheading 1a

The uptake of appropriations by 31 August 2001 (Member States' expenditure from 16 October 2000 to 30 June 2001) is EUR 32 947,9 million, i.e. 83% of total appropriations.

Expenditure is EUR 1 406 million below the indicator. The divergence between the expenditure incurred and the indicator is slightly lower than the one observed last month. However, on the basis of the budget's conjunctural revision carried out in June 2001, the Commission expects that the budget's appropriations will be under-utilised by the end of the year, even if an over-spending of appropriations may be expected for certain chapters, and in particular, for agri-monetary measures, for wine and, possibly, for non-annex I products.

4.2. The uptake of appropriations by 31 August 2001 for subheading 1b

The uptake of appropriations by 31 August 2001 (Member States' expenditure from 16 October 2000 to 30 June 2001) is EUR 1 616,9 million, i.e. 36% of appropriations.

Expenditure is EUR 878 million below the indicator. The divergence between the expenditure incurred and the indicator is larger than the one observed last month. At the present stage, the Commission can, tentatively, conclude that a certain negative divergence might persist until the end of the year. However, the Commission can not conclude as to the width of this divergence, since on the basis of expenditure forecasts, Member States are planning payments of approximately EUR 2,6 billion for the period of July to the end of the budget year.