COMMISSION REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on EAGGF Guarantee Section expenditure Early warning system No 7/2000

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 by the Member States from 16 October 1999 to 31 May 2000.

1.1. Subheading 1a: Traditional EAGGF Guarantee Section expenditure and veterinary expenditure

>TABLE POSITION>

1.2. Subheading 1b: Rural development and accompanying measures

>TABLE POSITION>

>TABLE POSITION>

3. Comments

3.1. The uptake of appropriations for July 2000

The uptake of appropriations under heading 1 of the budget for July 2000 (Member States' expenditure from 16 October 1999 to 31 May 2000) is EUR 32 043 million, i.e. 78.2 % of appropriations. Expenditure is

- EUR 238 million above the indicator for subheading 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure). This is a greater overrun than last month,

- EUR 826 million below the indicator for subheading 1b (rural development and accompanying measures).

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 how the dollar rate develops.

In accordance with the Council Decision on budgetary discipline, the 2000 agriculture budget was drawn up on the basis of the average dollar rate for January, February and March 1999, i.e. EUR 1 = $ 1.12.

The real euro rates recorded were substantially lower than the budgetary parity. The average dollar rate for the period 1 August 1999 to 31 July 2000 (reference period for determining the impact of the dollar) will therefore diverge from this budgetary parity and the expenditure incurred by the Member States will be lower as a result of the trend in the dollar rate [1].

[1] The average dollar rate for the period 1 August 1999 to 20 June 2000 was around EUR 1 = $ 1. Should the rate at 20 June (EUR 1 = $ 0.95) continue until the end of the year, the average rate will remain at around EUR 1 = $ 1.

The EAGGF Guarantee Section will only take partial advantage of these savings. It should be remembered that savings exceeding the margin of EUR 200 million fixed under the rules of budgetary discipline will be transferred to the monetary reserve at the end of the financial year, and cannot be used to finance other measures.

3.2.2. The impact of the dual rates

The impact of the dual rates will result in substantially lower expenditure than in previous years. Abolition of the green rates has eliminated the effect of dual rates in the countries participating in the euro and thus produced major savings.

The cost of the dual rate to the EAGGF Guarantee Section at the time when the letter of amendment was prepared was estimated at EUR 119 million. Recent calculations have estimated it at EUR 240 million, i.e. EUR 121 million more.

3.3. Market factors

3.3.1. Subheading 1a: Traditional EAGGF Guarantee Section expenditure and veterinary expenditure

Chapter B1-10: Arable crops // + EUR 248 million

// (expenditure: EUR 16 069 million)

(indicator: EUR 15 821 million)

The overrun of the indicator is due to:

- the across-the-board reduction in appropriations decided by the budgetary authority when the budget was adopted; in particular, certain budget items for area aid overrun the indicator,

- higher production refunds for starch (due to increased volume),

- higher export refunds, despite savings resulting from the favourable movement of the dollar rate. However, Member States' forecasts indicate low expenditure on refunds over the next few months,

- higher-than-expected expenditure on public storage. The Commission considers, however, that expenditure on public storage will be below budget appropriations at the end of the financial year. As a result of substantial sales of barley at a good price, intervention stocks at the end of the year will be much smaller than originally expected. Moreover, it will probably not be necessary to depreciate stock further at the end of the financial year.

Resources available for aid for durum wheat were also underutilised, following a delay in payments in Italy due to the reinforcement of controls requested by the Commission.

The Commission considers that expenditure on this chapter will remain below appropriations at the end of the financial year. The reasons for this underutilisation are lower expenditure on public storage, export refunds and possibly, depending on the results of controls in Italy, durum wheat. However, expenditure on other per hectare aid will overrun appropriations (because of the across-the-board reduction), as will production refunds for starch.

It should be borne in mind that the level of expenditure at the end of the year will take account of the savings from favourable movements in the dollar exchange rate, which will mean transferring a substantial amount to the monetary reserve.

Chapter B1-11: Sugar // + EUR 36 million

// (expenditure: EUR 1 347 million)

(indicator: EUR 1 311 million)

Despite the savings resulting from favourable exchange-rate movements against the dollar, the indicator was overrun owing to higher payments on export refunds. This is due to the low level of world market prices.

The overrun is partially offset by lower expenditure on adjustment aid for sugar refining.

Expenditure for this chapter is expected to be roughly equal to budget appropriations at the end of the financial year. It should be borne in mind that some of the savings resulting from favourable exchange-rate movements against the dollar will be transferred to the monetary reserve.

Chapter B1-12: Olive oil // - EUR 50 million

// (expenditure: EUR 1 966 million)

(indicator: EUR 2 016 million)

The divergence from the indicator results from lower expenditure on olive oil production aid. Following the change in the quota arrangements with the introduction of national quotas, overall expenditure in the form of advance payments is lower than in previous years. The underutilisation will probably disappear when the balance is paid later on in the financial year.

Chapter B1-15: Fruit and vegetables // - EUR 169 million

// (expenditure: EUR 978 million)

(indicator: EUR 1 147 million)

Underutilisation mainly concerns processed fruit and vegetables, and is due, among other things, to lower expenditure on financial compensation to encourage the processing of citrus fruit. Some of the underutilisation will probably be due to late payments, and it is likely that some of the expenditure initially planned for 2000 will not be incurred until next year.

As a result of lower payments on bananas, appropriations were slightly underutilised in relation to the indicator in the fresh fruit and vegetables sector.

It is estimated that at the end of the year expenditure will be below the appropriations entered in the budget, in particular because of lower expenditure on financial compensation to encourage the processing of citrus fruit and on bananas.

Chapter B1-16: Wine // + EUR 25 million

// (expenditure: EUR 489 million)

(indicator: EUR 464 million)

The overrun of the indicator is the result of higher expenditure on aid for the use of grape must.

It is estimated that expenditure on this chapter will be slightly above appropriations at the end of the financial year.

Chapter B1-17: Tobacco // - EUR 104 million

// (expenditure: EUR 773 million)

(indicator: EUR 877 million)

The divergence from the indicator is the result of late payment of premiums for the 1999 harvest. It is thought that this delay may be made up during the financial year.

Chapter B1-20: Milk and milk products // + EUR 6 million

// (expenditure: EUR 1 800 million)

(indicator: EUR 1 794 million)

Expenditure under this chapter as a whole is around the level of the indicator. However, there are some divergences within the chapter.

The indicator was overrun for expenditure on public storage of butter (more purchases), aid for use of skimmed milk (in particular aid for the production of casein from skimmed milk) and export refunds (increased volume of exports).

However, there was a major divergence from the indicator resulting from lower expenditure on public storage of skimmed milk powder. Earnings on sales are considerably higher, as a result of the large volume sold from public intervention stocks, and there was no buying in.

Appropriations can be expected to exceed requirements at the end of the year. This will be due to lower expenditure on public storage of skimmed milk powder, and additional milk levies in excess of the figure in the budget. However, expenditure on export refunds, public storage of butter and aid for use of skimmed milk will probably overrun appropriations.

Chapter B1-21: Beef/veal // + EUR 243 million

// (expenditure: EUR 3 679 million)

(indicator: EUR 3 435 million)

The overrun of the indicator is due to:

* higher expenditure on premiums (the main factor), due to:

- the across-the-board reduction in appropriations decided by the budgetary authority,

- higher-than-expected expenditure under exceptional support measures (slaughter and destruction of livestock in the United Kingdom as part of the campaign to eradicate BSE),

- a faster rate of payment of premiums. It should be borne in mind that most of the premiums must be paid to recipients by the end of June, which means that expenditure should move closer to the indicator next month, and

* to a lesser extent, lower-than-expected earnings on sales from public storage.

For the above reasons, an overrun of appropriations can be expected at the end of the year.

Chapter B1-22: Sheepmeat and goatmeat // + EUR 74 million

// (expenditure: EUR 1 174 million)

(indicator: EUR 1 100 million)

The indicator was overrun as a result of the increased rate of payment of the 1999 balance of ewe premiums compared to previous years. The impact on expenditure is therefore only temporary.

Indeed, requirements for this chapter are likely to decrease because of lower expenditure on the ewe premium in 1999 and 2000 (higher-than-expected prices on the Community market).

Chapter B1-30: Non-Annex I products // + EUR 29 million

// (expenditure: EUR 376 million)

(indicator: EUR 347 million)

The overrun is mainly due to higher expenditure on products based on cereals, butter and skimmed milk. This is due in particular to an increase in the volume of exports.

It will be recalled that, in order to limit expenditure, the Commission suspended in mid-May the issue of export licences giving entitlement to the payment of refunds.

The level of expenditure at the end of the year in relation to appropriations depends in particular on the rate of utilisation of the certificates issued prior to that date, and on the rate of payments by paying agencies in the Member States.

Chapter B1-37: Clearance and reduction in advances //

This chapter is not subject to an indicator; it covers financial corrections decided under the clearance of accounts, and reductions and suspensions of advances (reductions/suspensions of monthly reimbursements) to the Member States.

The present level of expenditure is due in particular to financial corrections decided under the clearance of accounts.

The Commission has also decided on reductions in advances, relating in particular to Italy's failure to collect the additional milk levy for the 1998/99 marketing year.

The Commission is also expected to adopt two clearance of accounts decisions, if possible before the summer break, for which administrative procedures are at present under way. Depending on these decisions, it is estimated that sums collected will probably correspond approximately to the level of appropriations at the end of the year.

Chapter B1-39: Other measures // - EUR 105 million

// (expenditure: EUR 640 million)

(indicator: EUR 745 million)

Appropriations were underutilised because of delays in the payment of some agri-monetary aid. The discrepancy is probably only temporary. It is estimated that expenditure on agri-monetary aid will overrun budget appropriations at the end of the year, as a result of the exchange rate for sterling.

3.3.2. Subheading 1b: Rural development and accompanying measures

Chapter B1-40: Rural development // - EUR 826 million

// (expenditure: EUR 1 059 million)

(indicator: EUR 1 886 million)

The divergence from the indicator is due to the fact that the new programmes for 2000-06 have not yet been adopted by the Commission. At this stage, the Commission can take into consideration only the expenditure on former accompanying measures; other rural development expenditure cannot be entered in the EAGGF Guarantee Section budget until after the programmes have been adopted.

The Member States' forecasts for the end of the year indicate that the requirement will be considerably below the appropriations entered in the budget.

4. Conclusions

The uptake of appropriations under heading 1 of the budget for July 2000 (Member States' expenditure from 16 October 1999 to 31 May 2000) is EUR 32 043 million, i.e. 78.2 % of appropriations.

4.1. The uptake of appropriations for subheading 1a

Expenditure is EUR 238 million above the indicator for subheading 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure).

The indicator was overrun in the following sectors:

- arable crops (+ EUR 248 million), because of the across-the-board reduction in appropriations by the budgetary authority when the budget was adopted and because of higher production refunds for starch (however, the requirement is expected to be less than the appropriations by the end of the year owing to lower expenditure for the cereals market),

- beef and veal (+ EUR 244 million) with higher expenditure on premiums (partly due to a faster rate of payment), on measures involving the slaughter and destruction of livestock in the United Kingdom as part of the campaign to eradicate BSE, and on public storage,

- sheepmeat and goatmeat (+ EUR 74), due to a faster rate of payment of ewe premiums (requirements are expected to be lower than appropriations by the end of the year),

- sugar (+ EUR 36 million) owing to higher export refunds,

- non-Annex I products (+ EUR 29 million) owing to an increase in the volume of exports,

- wine (+ EUR 25 million) as a result of higher expenditure on aid for the use of grape must.

Utilisation was below the indicator in the following sectors:

- fruit and vegetables (- EUR 169 million) owing mainly to lower payments for processed fruit and vegetables (partly due to late payment),

- other measures (- EUR 105) due to delays in paying agri-monetary aid (expenditure will probably exceed appropriations by the end of the year),

- tobacco (- EUR 104 million) owing to a delay in payment in relation to the indicator,

- olive oil (- EUR 50 million), also owing to a delay in payment.

Expenditure in the milk and milk products sector is close to the indicator, but there are major divergences from the indicator within the chapter. By the end of the year, expenditure on this chapter will probably remain below appropriations.

The Commission estimates that expenditure to be charged to subheading 1a in the second half of the year will be less than forecast. As some of the probable savings will not really make an impact until later, they have little effect on the present level of expenditure. They include reduced expenditure on the cereals market, the milk and milk products sector (with savings on public storage of skimmed milk powder and increased revenue from additional milk levy) and sheepmeat. The Commission considers that the risk of exceeding the ceiling for subheading 1a is declining, and that it should be possible to keep within budget appropriations.

4.2. The uptake of appropriations for subheading 1b

Expenditure is EUR 826 million below the indicator for subheading 1b (rural development and accompanying measures). This is due to the fact that the new programmes for 2000-2006 have not yet been adopted by the Commission. At this stage, the Commission can take into consideration only the expenditure on former accompanying measures; other rural development expenditure cannot be entered in the EAGGF Guarantee Section budget until after the new programmes have been adopted.

The Member States' forecasts for the end of the year indicate that the requirement will be considerably below the appropriations entered in the budget.