COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 08.11 1996 
COM(96) 566 final 
REPORT FROM THE COMMISSION TO THE COUNCIL 
AND THE EUROPEAN PARLIAMENT 
ON THE IMPACT ON EAGGF GUARANTEE SECTION EXPENDITURE OF: 
MOVEMENTS OF THE DOLLAR/ECU EXCHANGE RATE 
INCREASES IN THE CORRECTING FACTOR RESULTING 
FROM MONETARY REALIGNMENTS WITHIN THE 
EUROPEAN MONETARY SYSTEM 
1996 FINANCIAL YEAR 

REPORT 
on the impact on EAGGF Guarantee Section expenditure in 1996 of: 
movements of the dollar/ecu exchange rate, and 
increases in the correcting factor resulting from monetary realignments within the 
European Monetary System 
I. INTRODUCTION 
The value of the dollar affects a major proportion of EAGGF Guarantee Section 
expenditure. A number of production aids and almost all export refunds are fixed 
on the basis of the gap existing between Community prices, expressed in ecus, 
and world prices, generally expressed in dollars (USD). 
Other things being equal, a change in the value of the dollar in relation to the ecu 
automatically implies a change in the gap in ecus between Community prices and 
world prices and consequently a change in the production aids and export refunds 
concerned. If the dollar rises, the gap diminishes, leading to a reduction in 
expenditure; if the dollar falls, the gap widens, raising expenditure. 
The European Council of 11 and 12 February 1988, in its conclusions, expressed 
the will to take explicit account of the impact of the change in the dollar on 
agricultural expenditure. 
On that basis, by its Decision of 24 June 1988 concerning budgetary discipline,1 
the Council provided for the inclusion of ECU 1 000 million in a reserve of the 
general budget of the European Communities "as a provision for covering 
developments caused by significant and unforeseen movements in the dollar/ecu 
market rate compared to the dollar/ecu rate used in the budget". The latter is equal 
to the average market rate during the first three months of the year preceding the 
budget year. 
OJNoL 185, 15.7.1988, p. 29. 
If the average value of the dollar in the period from 1 August of the preceding 
year to 31 July of the current year falls in relation to the rate used in the budget, 
the additional budget costs are financed by a transfer from the monetary reserve. 
Equally, savings in the Guarantee Section when the dollar strengthens are to be 
transferred to the monetary reserve.2 
Recourse is to be had to the monetary reserve when the said expenditure (or, as 
the case may be, the saving) exceeds a margin ('franchise') - ECU 400 million up 
to and including the 1994 financial year. Similarly, the amount of the transfer 
relates to that fraction of the impact which exceeds that margin. 
The Edinburgh European Council of .11 and 12 December 1992 confirmed that the 
monetary reserve would remain in place for the period 1993-99 but decided that 
the amount should be cut to ECU 500 million from 1995 onwards and the 
'franchise' reduced from ECU 400 million to ECU 200 million. 
Noting also that the monetary movements between the Member States' currencies 
at the time would substantially increase EAGGF Guarantee Section expenditure, 
the Edinburgh European Council agreed that adjustments should be made to the 
arrangements for the operation of the monetary reserve so as to make due 
allowance for the costs resulting from the monetary alignments between Member 
States. 
The Edinburgh European Council also agreed that if such an increase should cause 
agricultural expenditure to exceed the guideline and thus jeopardise the financing 
of the new common agricultural policy as already approved, appropriate measures 
would be taken by the Council to fund the EAGGF Guarantee Section. 
Under the Interinstitutional Agreement between the Parliament, the Council and 
the Commission of 29 October 1993 on budgetary discipline and improvement of 
the budgetary procedure, the monetary reserve is intended to cover the financial 
impact on budgetary expenditure of substantial and unforeseen divergences in the 
dollar exchange rate as compared with that used in the budget; the reserve may 
also be used when the agricultural guideline prevents the budgetary cost directly 
due to monetary realignments within the European monetary system from being 
absorbed. In that agreement, the institutions took note that, if the agricultural 
guideline were exceeded as a result of realignments within the monetary system 
and the lack of available appropriations within the monetary reserve, the Council 
would take appropriate steps to provide funds for the EAGGF Guarantee Section. 
Up to ECU 1 000 million up to the 1994 financial year and up to ECU 500 
million from 1995 onwards. 
OJ No C 331, 7.12.1993, p. 1. 
On 31 October 1994 the Council adopted a new Decision on budgetary discipline4 
which took account of the conclusions of the Edinburgh European Council and the 
inter-institutional agreement. Articles 7 to 12 of that Decision contain the 
provisions relating to consideration of the dollar exchange rate and of the impact 
of monetary realignments. The Decision specifies that the special provisions 
relating to the financing of costs arising from monetary realignments within the 
European Monetary System will apply until the end of the 1997 financial year 
(Article 11(3)) and that the transfers from the reserve will only be used if the 
additional costs (due either to the variation in the dollar rate or to monetary 
realignments) cannot be met from the budget appropriations entered in Titles 1 to 
5 of the EAGGF Guarantee Section (Article 12(1)). 
Under Article 9 of the Decision of 31 October 1994 the Commission is required 
to present a report to the budgetary authority by the end of October each year on 
the impact on EAGGF Guarantee Section expenditure of: 
movements in the average dollar/ecu market rate for the period from 
1 August of the preceding year to 31 July of the current year in relation 
to the rate used in the budget; 
the monetary realignments within the European Monetary System since 
I September 1992. 
This report, which relates to the 1996 financial year, contains information to be 
used to assess: 
whether, on account of the impact of changes in the dollar/ecu exchange 
rate, a transfer should be proposed to or from the monetary reserve and, 
if so, the relevant amount; 
whether, on account of the impact of the monetary realignments within the 
European Monetary System, a transfer from the monetary reserve should 
be proposed and whether, if the reserve is used up, appropriate 
arrangements should be made by the Council to finance the EAGGF 
Guarantee Section in accordance with the conditions laid down in Article 
II of the Decision on budgetary discipline of 31 October 1994. 
OJNoL293, 12.11.1994, p. 14. 
II. IMPACT OF THE DOLLAR ON EAGGF GUARANTEE SEC HON 
EXPENDITURE IN 1996 
To gauge the impact of movements in the dollar/ecu rate on the 1996 financial 
year, consideration must be given, pursuant to Article 7 of the Council Decision 
of 31 October 1994, to the gap between the average rate recorded for the dollar 
between 1 August 1995 and 31 July 1996 and the rate used in the 1996 budget. 
The rate used to assess appropriations for the 1996 financial year is $ 1 = 
ECU 0.79. In accordance with the Council Decision, this corresponds to the 
average rate in the first three months of the year preceding the financial year in 
question (January, February and March 1995). 
The following table gives the monthly exchange rate gaps recorded in the 
reference period: 
a 
August 
September 
October 
November 
December 
January 
February 
March 
April 
May 
June 
July 
Average 1.8.95-31.7.96 Recorded rate 
1$ = ... ECU 
b 
0.7670 
0.7761 
0.7564 
0.7553 
0.7667 
0.7742 
0.7761 
0.7805 
0.7912 
0.8027 
0.7981 
0.7871 
0.7773 Budget rate 
1$ := ... ECU 
c 
0.7900 
0.7900 
0.7900 
0.7900 
0.7900 
0.7900 
0.7900 
0.7900 
0.7900 
0.7900 
0.7900 
0.7900 
0.7900 Gap 
in ECU 
d = b-c 
- 0.0230 
-0.0139 
- 0.0336 
- 0.0347 
- 0.0233 
-0.0158 
-0.0139 
- 0.0095 
+ 0.0012 
+ 0.0127 
+ 0.0081 
- 0.0029 
- 0.0127 Gap 
in% 
e = b/c 
-2.9 
- 1.8 
-4.3 
-4.4 
-2.9 
-2.0 
- 1.8 
- 1.2 
+ 0.2 
+ 1.6 
+ 1.0 
-0.4 
- 1.6 
Over the period under consideration the average dollar rate, rounded off, was $ 1 
= ECU 0.78, 1.3% below the budget rate. That reduction in the value of the dollar 
involved additional expenditure charged to the EAGGF Guarantee Section. 
The recorded average rate of $ 1 = ECU 0.78 is the arithmetical mean of the daily 
rates for the twelve-month period in question. The average monthly rate fluctuated 
around that 12-month average, between a minimum of $ 1 = ECU 0.7553 in 
November 1995 and a maximum of $ 1 = ECU 0.8027 in May 1996. 
In general, the dollar rate tended to increase gradually over the period, with the 
rounded-off averages for the last four months equal to or slightly above the budget 
rate. 
If an accurate assessment of the additional expenditure incurred owing to the 
depreciation of the dollar is to be made during a period when the gaps compared 
to the budget rate were variable, it is necessary to establish for the period 
concerned a weighted average dollar rate for every agricultural product for which 
expenditure in ecus is affected by the dollar, taking account of the seasonal 
variation in exports with refund or in quantities eligible for Community aid. 
On that basis, additional expenditure charged to the EAGGF Guarantee Section 
as a result of the depreciation of the dollar in relation to the budget rate is 
estimated at ECU 87 million for the 1996 financial year. 
Annex I gives a detailed calculation of this expenditure, which breaks down by 
sector as follows: 
(ECU million) 
Cereals: 54 
,c -?ar: 10 
Kice: 1 
Non-Annex II products: 6 
Fibre plants: 14 
Islands and most remote regions: 2 
TOTAL: 87 
It should be noted that, like last year, it was considered that the refund rates for 
livestock sector products were influenced very little by the short or medium-term 
variation in the dollar rate. There was therefore no need to evaluate the impact of 
changes in the value of the dollar on refunds for those products. 
The increase in EAGGF Guarantee Section expenditure in 1996 arising from 
movements in the dollar is therefore less than the margin of ECU 200 million and 
so there is no need to call upon the monetary reserve. 
111. THE IMPACT ON EAGGF GUARANTEE SECTION EXPENDITURE IN 
1996 OF INCREASES IN THE CORRECTING FACTOR RESULTING 
FROM MONETARY REALIGNMENTS WITHIN THE EUROPEAN 
MONETARY SYSTEM SINCE 1 SEPTEMBER 1992 
Between the beginning of September 1992 and mid-May 1993 there were five 
monetary realignments within the European Monetary System. 
To gauge the impact of these realignments on EAGGF Guarantee Section 
expenditure, two factors have to be taken into account: 
As a direct consequence of the monetary realignments since September 
1992, the correcting factor (switchover) used for the purposes of the 
common agricultural policy rose by 5.4% from 1.145109 to 1.207509 from 
14 May 1993. 
Other things being equal, this increase in the correcting factor is reflected 
in a corresponding increase in the double rate, the coefficient expressing 
the difference between EAGGF Guarantee Section expenditure expressed, 
on the one hand, in terms of agricultural ('green') ecus, known as ECU(A) 
and, on the other, the expenditure charged to the budget (budget ecus), 
designated ECU(B). 
This increase in the double rate coefficient, from 1.145 to 1.207, thus leads 
to a corresponding increase in agricultural expenditure expressed in budget 
s ecus. 
Article 9 of Council Regulation (EEC) No 3813/92 of 28 December 1992 
on the unit of account and the conversion rates to be applied for the 
purposes of the common agricultural policy6 lays down that where the 
correcting factor is increased, the prices fixed in ecus are to be reduced at 
the beginning of the following marketing year by 25% of the percentage 
of the change in the correcting factor. The other amounts fixed in ecus, 
with the exception of certain aids provided for under the 1992 reform of 
the common agricultural policy, are to be altered appropriately as the need 
arises.7 
It should be noted that, even though the correcting factor was abolished with 
effect from 1 February 1995, the impact of monetary realignments on EAGGF 
Guarantee Section expenditure continues to be felt because abolition was 
accompanied by an increase in prices and aids in green ecus of 20.7509%. 
Without the effect of the monetary realignments which occurred between 
September 1992 and mid-May 1993 that increase would have been limited to 
14.5109%. 
OJNoL387, 31.12.1992, p. 1. 
Among the amounts excluded from the reduction are the majority of aids per 
hectare for arable crops, beef premiums, the amounts fixed in the context of 
accompanying measures and amounts of a structural nature or not affecting 
7 
By virtue of this provision and in line with the increase in the correcting 
factor between September 1992 and May 1993, prices and aids in ecus 
were cut by 1.29% by the application of a reduction coefficient of 
1.013088 from the start of the 1993/94 marketing year in the majority of 
cases. The resulting reduction in EAGGF Guarantee Section expenditure 
partially offsets the increase in expenditure resulting from the increase in 
the double rate. 
Bearing in mind these two factors, the impact on EAGGF Guarantee Section 
expenditure in 1996 of the monetary realignments within the European Monetary 
System and potentially eligible for financing under the mechanisms decided by the 
Edinburgh European Council, as laid down in Article 11 of the 31 October 1994 
Decision on budgetary discipline, is put at ECU 1 728 million, made up as 
follows: 
(ECU million) 
Rise in the double rate (from 1.145 to 1.207): + 2 051 
Cut in prices and some aids (-1.29%). 348 
TOTAL: + 1 703 
However, since it has been possible to finance this additional expenditure from 
within the budget appropriations entered in Titles 1 to 5 of the EAGGF Guarantee 
Section and within the agricultural guideline, there is no need to have recourse to 
Article 11 of the Decision of 31 October 1994. 
It should also be pointed out that the change in the correcting factor also has an 
effect on the gap between internal prices and world prices for agricultural products 
expressed in green ecus. 
The increase in the correcting factor has raised internal prices expressed in green 
ecus and, consequently, automatically increased the main export refund rates and 
the rates for some aids. The impact of the increase in the correcting factor on 
refunds and aids is estimated at ECU 171 million. 
Overall, therefore, the monetary realignments that occurred in 1992 and 1993 have 
resulted in additional expenditure for the EAGGF Guarantee Section in 1996 of 
ECU 1 874 million, which, thanks to the favourable trend in the agricultural 
economy, has been covered in full within the budget appropriations and the 
agricultural guideline. 
Annex II gives the details of the calculation of these estimates. 
markets. 
xuîation of the impact on EAGGF Guarantee Section expenditure of change? in the dollar: 1996 financial year 
a 
A REFUNDS : 
Cereals and rice 
- Common wheat 
- Barley 
- Other cereals 
- Starch 
- Rice (milled equivalent) 
Sugar (incl. chemicals industry) 
Milk products 
- Butter 
- Butteroi! 
- Skimmed-milk powder 
- Other in milk equivalent 
Beef and veal 
- Fresh meat 
- Frozen meat 
Pigmeat 
- Cuts and sausages 
Eggs and poultry 
- Fggs 
- Poultry 
Non-Annex II products 
- Common wheat 
- Barley 
- Other cereals 
- Sugar , 
B. AIDS 
Oilseeds (1) 
Fibre plants (cotton) 
Islands and most-remote regions 
- Common wheat 
- Durum wheat 
- Barley 
• Other cereals 
- Rice (milled equivalent) 
- Sugar 
TOTAL A + B Average 
world nrice 
recorded 
($/t) 
b 
139 
170 
118 
145 
315 
348 
154 
137 
117 
340 , 
1.913 
159 
185 
136 
145 
315 
340 Technical 
adjustment 
coefRcient 
c 
1,00 
1,00 
1,00 
1,60 
1,00 
1,00 
1,00 
1,00 
1,00 
1,00 
0,50 
0,50 
0,50 
0,50 
0,75 
1,00 
1,00 
1,00 
1,00 
0,244 
1,00 
1,00 
1,00 
1,00 
1,00 
1.00 Average 
world price 
used 
($/t) 
d = b x c 
139 
170 
118 
232 
315 
348 
154 
137 
117 
340 
466,8 
159 
185 
136 
145 
315 
340 Weighted 
average rate 
(1 $ = .. ECU) 
e 
0,75 
0,76 
0,76 
0,78 
0,78 
0,78 
0,78 
0,78 
0,78 
0,78 J 
0,77 
0,78 
0,78 
0,78 
0,78 
0,78 
0.78 World price converted into ecu 
At rate 
i* = ECU 0.79 
(ECU/t) 
f=dx0,79 
109,8 
134,3 
93,2 
183,3 
248,9 
274,9 
121,7 
108,2 
92,4 
268,6 
368,8 
125,6 
146,2 
107,4 
114,6 
248,9 
268.6 At average 
weighted rate 
recorded 
(ECU/T) 
fi = d x e 
104,3 
129,2 
89,7 
181,0 
245,7 
271,4 
120,1 
106,9 
91,3 
265^2 j 
359,4 
124,0 
144,3 
106,1 
113,1 
245,7 
265.2 Unit impact 
of gap in rates 
(ECU/t) 
_h =.LJ_. 
5,5 
5,1 
3,5 
2,3 
3,2 
3,5 
1,6 
1,3 
1,1 
.3,1. 
9,4 
1,6 
1,9 
1,3 
1,5 
3,2 
3.4 Quantities 
concerned 
(1000 t) 
t 
3.585 (2) 
4.307 (2) 
2.059 
2.250 
142 
2.746 
650 
475 
1.320 
530 J 
1.469 
294 
16 
121 
313 
18 
20 Total budget impact 
ECU (A) 
million 
.i~hxi 
19,7 
22,0 
7,2 
5,2 
0,5 
9,6 
1,0 
0,6 
1,5 
L«J 
13,8 
0,5 
0,0 
0,2 
0,5 
0,1 
0.1 Double rate 
k 
1,018 
1.018 
1,024 
1,021 
1,062 
1,014 
1,021 
1.021 
1,021 
1,015 j 
1,015 
1,021 
1.021 
1,021 
1,021 
1,021 
1.021 ECU (B) 
million 
l = ixk 
71 
22 
22 
7 
5 
I 
10 
1 
1 
2 
2 
Î6 I 
14 
1 0 
0 
1 
0 
0 
87 
8 : On the basis of the figures in the Table, a change in the dollar rate of 10% would lead to a change in expenditure of ECU 361 million (not counting oilseeds). 
) Because the reference price recorded in ecus for oilseeds in 1995/96 exceeded the forecast reference price by more than 12% the hectare aids in that sector were reduced by 4% (12% less the 8% margin). 
The average dollar rate during the period used to record the reference price was 1S= ECU 0.76, 4% lower than the budget rate. Without that drop in the dollar, the reference price recorded in ecu would have exceeded 5 % reduction in the 
aids (9-4%) The impact of not reducing the aids is assessed at ECU 124 million. 
^-ted with 'a\ nrd with zero refund. 
EXPLANATORY REMARKS TO ANNEX I 
Column (a) of the tables gives all the budget headings which are affected explicitly and 
directly by movements in the value of the dollar. 
Column (b) gives estimated average world prices in dollars for the period concerned. 
They correspond either to average selling prices of Community products when exported 
or to prices used for the calculation of the various aids. These prices are multiplied by 
an adjusting coefficient (column (c)) indicating the weighting of the world price used to 
determine an aid or refund. For example, 1.6 times the world price for maize is used in 
the determination of the production refund for starch. 
Column (d) gives average world prices in dollars corrected by the adjusting coefficient. 
Column (e) gives the average dollar/ecu exchange rates recorded, established by heading 
on the basis of a weighting taking account of the seasonal nature of the quantities eligible 
for export refunds or Community aids. 
Columns (f) and (g) give the corrected average world prices converted into ecus using the 
exchange rate adopted in the budget of $ 1 = ECU 0.79 and the recorded weighted 
average rates in column (e). 
The unit impact of the lower value of the dollar is given in column (h) in ecus per tonne. 
This unit amount multiplied by the estimated quantities qualifying for aids and/or refunds 
during the period under review (column i) gives the impact in millions of agricultural 
ecus (column (j)) and in millions of budget ecus (column (1)). 
to 
ANNEX II - Cost of monetary realignments between September 1992 and May 1993 : 1996 financial year 
a 
10 
11 
12 
13 
14 
15 
16 
17 
18 
20 
21 
22 
23 
24 
25 
26 
30 
33 
34 
35 
36 
37 
38 
39 
Titles 1. 2 et 3 
40 
50 
Total 
EAGGF-Guarantee Sector 
b 
Arable crops 
Sugar 
Olive oil 
Dried fodder and pulses 
Fibre plants 
Fresh fruit and vegetables 
Processed fruit and vegetables 
Wine 
Tobacco 
Other plant sectors 
Milk and milk products 
Beef/veal 
Sheepmeat 
Pigmeat 
Eggs and poultry 
Other animal product aid measures 
Fisheries 
Non-Annex II products 
Food aid 
Interest on advance financing 
Distribution to deprived persons 
Anti-fraud measures 
Clearance 
Rural development 
Other measures 
Income aid 
Accompanying measures Change in 
double rate 
c 
816 
89 
107 
19 
43 
47 
34 
43 
49 
16 
189 
346 
72 
7 
8 
5 
2 
25 
2 
0 
0 
0 
0 
25 
12 
1.956 
2 
93 
2051 Monetary 
reduction in 
prices 
d 
26 
29 
35 
0 
21 
6 
7 
4 
14 
2 
102 
32 
55 
0 
0 
0 
0 
13 
2 
0 
0 
0 
0 
0 
0 
348 
0 
0 
348 Sub-total 
e = c - d 
790 
60 
72 
19 
22 
41 
27 
39 
35 
14 
87 
314 
17 
7 
8 
5 
2 
12 
0 
0 
0 
0 
0 
25 
12 
1.608 
2 
93 
1.703 Impact of change in 
the correcting factor 
on refunds and aids 
f 
79 (1) 
38 
0 
0 
27 
0 
0 
0 
0 
7 
0 
0 
0 
0 
0 
0 
0 
20 
0 
0 
0 
0 
0 
0 
0 
171 
0 
0 
171 Total impact 
g = e + f 
869 
98 
72 
19 
49 
41 
27 
39 
35 
21 
87 
314 
17 
7 
8 
5 
2 
32 
0 
0 
0 
0 
0 
25 
12 
1.779 
2 
93 
1.R74 
!! 
(1) Impact on refunds and aids for cereals, less quantities exported with tax and with zero refund. In the case of oilseeds, it is estimated that, if there had been 
no change in the con-ectmg factor, per hectare aids would have been reduced by a further 6%. The impact of this further non-reduction in aids is estimated 
at ECU 142 million. 

ISSN 0254-1475 
COM(96) 566 final 
DOCUMENTS 
EN 03 09 
Catalogue number : CB-CO-96-564-EN-C 
ISBN 92-78-10906-1 
Office for Official Publications of the European Communities 
L-2985 Luxembourg 
u