REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on EAGGF Guarantee Section expenditure - Early warning system No 5/2003 and No 6/2003

TABLE OF CONTENTS

1. OVERALL OUT-TURN IN MONTHLY EXPENDITURE

2. PROVISIONAL UTILISATION OF APPROPRIATIONS

3. COMMENTS

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 2002 to 30 April 2003.

1.1. Subheading 1a: CAP

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1.2. Subheading 1b: Rural Development

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2. Provisional utilisation of appropriations

The following tables present the provisional utilisation of appropriations for the fifth and the sixth month of the 2003 budget year:

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3. COMMENTS

3.1. The uptake of appropriations for June 2003

The uptake of appropriations under heading 1 of the budget for April 2003 (Member States' expenditure from 16 October 2002 to 30 April 2003) amounts to EUR 32 578,6 million, i.e. 72,8% of appropriations. Expenditure is

- EUR 721,9 million under the level of the indicator for subheading 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure), and

- EUR 262,5 million above the indicator for subheading 1b (rural development).

3.2. Monetary factors

The dollar/euro rate

The expenditure indicated above 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 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 2003 agriculture budget was drawn up on the basis of the average dollar rate for July, August and September 2002, i.e. EUR 1 = $ 0,98. For the period 1 August 2002 to 30 April 2003 the average dollar rate was equal to EUR 1 = $ 1,03, i.e. at a level above the rate used for the establishment of the 2003 budget.

3.3. Market factors

Subheading 1a

For subheading 1a, the rhythm of execution is under the level of the indicator for all budget titles. However, this overall under-execution pattern for the budget's appropriations did not concern the chapters relating to arable crops, olive oil, milk and the food programmes which showed an over-execution of the corresponding appropriations.

The following comments are called for certain chapters of the budget:

Chapter B1-10: Arable crops // Divergence: + EUR 103 million (+0,6%)

// (expenditure: EUR 16 465 million)

(indicator: EUR 16 362 million)

According to the Commission's estimates, a part of the over-execution observed for this chapter is due to the acceleration in the rhythm of payments for direct aids for arable crops. Indeed, it is estimated that Member States have paid approximately 99,7% of the direct aids due while the average level of the indicator for these schemes was calculated at approximately 97,4% of the budget's appropriations for the period to 30 April 2003. Furthermore, the Commission expects that appropriation requirements for export refunds for cereals could increase due to the increase in the export refund rates for soft wheat, flour, barley and malt. Equally for cereals intervention, expenditure could be higher due to the expected higher purchases and lower sales of public storage cereals. At this point in time, the Commission estimates that the over-execution of this chapter's appropriations might persist to the end of the budget year.

Chapter B1-11: Sugar // Divergence: - EUR 52 million (-3,5%)

// (expenditure: EUR 843 million)

(indicator: EUR 895 million)

This under-execution is due to the decrease in the quantities of exported sugar by comparison to the quantities which were expected to have been exported by this time of the year. The Commission expects that this under-execution will continue to the end of the financial year.

Chapter B1-12: Olive oil // Divergence: + EUR 20 million (+ 0,9%)

// (expenditure: EUR 2 016 million)

(indicator: EUR 1 996 million)

This over-execution is due to the fact that, within the expenditure incurred and declared by the Member States, approximately EUR 54,0 million concern payments of production aid for the previous marketing years which were not foreseen to be paid when the budget was established.

Chapter B1-15: Fruits and vegetables // Divergence: - EUR 99 million (-6,1%)

// (expenditure: EUR 744 million)

(indicator: EUR 843 million)

This under-execution is primarily due to the fresh fruits and vegetables sector where, due to favourable market conditions, smaller quantities of fruits and vegetables were withdrawn from the market while the aid for bananas was fixed at lower levels when compared to the quantities and the levels retained when the budget was established. These factors resulted to lower expenditure incurred and declared by the Member States. The Commission expects that appropriation requirements for these schemes would be lower by the end of the budget year.

Chapter B1-16: Wine // Divergence: - EUR 20 million (-1,5%)

// (expenditure: EUR 648 million)

(indicator: EUR 668 million)

For the period to 30 April 2003, this chapter's appropriations show a slight under-execution when compared to the corresponding level of the indicator. The Commission expects that this chapter's appropriations would show an under-execution by the end of the budget year. This under-execution will be primarily due to the fact that, as the market situation currently stands, there will be no crisis distillation this year, a scheme for which the budget foresaw appropriations covering a quantity of 8,0 million hl. Equally, the distillation for the spirits industry is expected to amount to a quantity of approximately 8,7 million hl as compared to budget appropriations covering such distillations of 12,5 million hl.

Chapter B1-20: Milk // Divergence: + EUR 49 million (+ 1,9%)

// (expenditure: EUR 1 491 million)

(indicator: EUR 1 442 million)

The international market situation made necessary the increase in the export refund rates for butter and skimmed milk powder beyond the rates initially retained in the 2003 budget. This increase resulted in an over-execution of the corresponding appropriations when compared to the level of the indicator for the period to 30 April 2003.

Chapter B1-21: Beef and veal // Divergence: - EUR 479 million (-5,7%)

// (expenditure: EUR 4 729 million)

(indicator: EUR 5 208 million)

For the period to 30 April 2003, the observed under-implementation is partly due to lower payments for export refunds because of the decrease in the exported quantities of beef. The Commission expects that this decrease will continue to the end of the year, thus, under-implementing the corresponding appropriations.

However, another part of the observed under-execution is due to the slower rhythm of premium payments when compared to the level of the indicator for the same period of time. Most of the premium schemes, with the exception of the slaughter premium, are running at current rhythms which are slower than the indicator's level. However, at this point in time, the Commission can not conclude as to the final level of execution of the corresponding budget appropriations for these premium schemes.

Chapter B1-22: Sheep- and goatmeat // Divergence: - EUR 41 million (-0,3%)

// (expenditure: EUR 1 764 million)

(indicator: EUR 1 805 million)

For the period to 30 April 2003, the slight under-execution when compared to the level of the indicator was due to the fact that the number of premiums paid were slightly lower than the numbers retained when the budget was established while payments under the national envelopes did not reach the amounts foreseen in the regulation for certain Member States.

Chapter B1-23: Pigmeat // Divergence: - EUR 42 million (-20,6%)

// (expenditure: EUR 72 million)

(indicator: EUR 114 million)

The Commission expects an under-implementation of this chapter's appropriations by the end of the year. This will be primarily due to both the smaller quantities of exported pigmeat as well as to the lower level of refunds granted compared to that retained in the 2003 budget.

Subheading 1b

Chapter B1-40: Rural development // Divergence: +EUR 262 million(+ 5,6%)

// (expenditure: EUR 1 435 million)

(indicator: EUR 1 173 million)

An overall acceleration is observed with regard to the implementation rhythm of rural development programmes which are currently running at approximately 31% of their budget appropriations while the corresponding indicator was calculated at a 25% implementation rhythm for the period to 30 April 2003. This significant acceleration is mostly observed in the implementation rhythm of the agri-environmental measures. It should be noted that, on the basis of past experience, Member States tend to spend almost half of their annual allocation in the last two weeks of the budget year. Therefore, it is difficult to assess, at this point in time, the final implementation pattern of the budget's appropriations for rural development.

4. CONCLUSIONS

Implementation of appropriations at 30 April 2003

The uptake of appropriations for June 2003 (Member States' expenditure from 16 October 2002 to 30 April 2003) shows that, for sub-heading 1a, there is an overall under-execution of the budget's appropriations despite the over-implementation observed for certain chapters of the budget. Within this tendency, for certain chapters of the budget like: sugar, fruits and vegetables, wine, beef and pigmeat, on the basis of current market information available, the under-implementation of appropriations is expected to last to the end of the budget year. For sub-heading 1b, Member States should watch out to not exceed their 2003 allocations for the rural development programmes approved for the period 2000-2006.