COMMISSION REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on EAGGF Guarantee Section expenditure - Early warning system No 6/2002

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 2001 to 30 April 2002.

1.1. Subheading 1a: CAP

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1.2. Subheading 1b: Rural Development

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2. Provisional utilisation of appropriations

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3. COMMENTS

3.1. The uptake of appropriations for June 2002

The uptake of appropriations under heading 1 of the budget for June 2002 (Member States' expenditure from 16 October 2001 to 30 April 2002) is EUR 31 209,6 million, i.e. 70,5% of appropriations. Expenditure is

- EUR 1 923,1 million below the indicator for subheading 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure), and

- EUR 99,7 million below the indicator for subheading 1b (rural development).

3.2. Monetary factors

The dollar/euro rate

The expenditure indicated in point 3.1 above takes account of the movement in the Euro/dollar 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 2002 agriculture budget was drawn up on the basis of the average dollar rate for July, August and September 2001, i.e. EUR 1 = $ 0,89. For the period 1 August 2001 to 30 April 2002 the estimated average dollar rate has remained at approximately the same level.

3.3. Market factors

Subheading 1a

For subheading 1a, the overall budget execution was under the level foreseen by the indicator and it concerned all three major categories of expenditure. Specifically:

- for plant products, the under-execution resulted, mainly, from under-spending for cotton, fruits and vegetables and wine,

- for animal products, the under-execution resulted, mainly, from under-spending for beef and veal as well as for sheep- and goatmeat, and

- for ancillary expenditure, the under-execution resulted, mainly, from under-spending for veterinary and plant health measures as well as from agrimonetary measures.

The observed overall divergence amounts to EUR -1 923,1 million equal to -4,8% of the budget's appropriations. However, the divergence for certain individual chapters is more important, thus, inviting the following explanations:

Chapter B1-14: Fibre plants and silkworms // Divergence: -EUR 141 million (-14,7%)

// (expenditure: EUR 673 million)

(indicator: EUR 814 million)

The indicator was undershot because the effective level of advances of the aid paid for cotton placed under control in the ginning mills was lower in comparison to the amount of advance retained for the establishment of the budget. At this point in time (end of May 2002), there are still uncertainties as to the level of effective production of cotton and, therefore, it is difficult to predict whether this under-execution will persist to the end of the financial year.

Chapter B1-15: Fruits and vegetables // Divergence: -EUR 142 million (-8,6%)

// (expenditure: EUR 749 million)

(indicator: EUR 891 million)

The under-spending is attributable to both the fresh and the processed fruits and vegetables sectors. For the fresh fruits and vegetables, this is primarily due to smaller compensation payments because of lower quantities of fruits and vegetables withdrawn from the market, to the lower quantities and the lower level of aid for bananas as well as to the smaller uptake of operational funds for producer organisations. With regard to the processed fruits and vegetables, the under-spending is mostly due to delays in the payments of the aid for dried raisins in EL, and of the financial compensation for the processing of citrus fruits. It is expected that this chapter's budget will be under-executed by the end of the financial year due, primarily, to under-spend for fresh fruits and vegetables.

Chapter B1-16: Wine // Divergence: -EUR 277 million (-19,9%)

// (expenditure: EUR 614 million)

(indicator: EUR 891 million)

The under-spending is primarily related to delays in carrying out the various types of approved distillations in the Member States concerned. If these Member States use the maximum time allowed, under the crisis distillation measure, for the distillation of the authorised quantities of wine, then, this chapter's budget will be under-executed by the end of the financial year.

Chapter B1-17: Tobacco // Divergence: -EUR 86 million (-8,7%)

// (expenditure: EUR 708 million)

(indicator: EUR 794 million)

The under-spending is primarily related to delays in the payment of the premium in EL and ESP when compared to the level of the indicator. However, it is expected that, on the basis of available information, the budget will be implemented as foreseen.

Chapter B1-21: Beef and veal // Divergence: -EUR 541 million (-6,7%)

// (expenditure: EUR 4 573 million)

(indicator: EUR 5 114 million)

As already indicated, this under-spending is primarily attributable to the delays in the payment of the special purchases scheme and for the exceptional measures for the UK. Furthermore, recourse to beef intervention has been substantially lower than the level expected when the budget was established, thus, resulting to lower than otherwise technical, financial and other costs.

Consequently, the Commission estimates that significant savings will be realised by the end of the year for this chapter of the budget.

Chapter B1-22: Sheepmeat and goatmeat // Divergence: -EUR 125 million (-18,6%)

// (expenditure: EUR 490 million)

(indicator: EUR 615 million)

As already indicated, this under-spending is, primarily, due to the fact that higher than foreseen market price levels for sheep- and goat-meat led to the fixing of the ewe/goat premium at a level lower than the one foreseen when the budget was established. In addition, at this point in time, part of the under-spending is attributable to the delays in the payment of the supplementary premium for the mountainous and less-favoured areas by IT. Consequently, the Commission estimates that savings of approximately EUR 100 million can be expected by the end of the year for this chapter of the budget.

Chapter B1-33: Veterinary and plant health measures // Divergence: - EUR 328 million (-57,6%)

// (expenditure : EUR 2 million)

(indicator : EUR 330 million)

The observed under-execution is due to the new accounting rules, in force as of 1.1.2002, which require that commitments of appropriations are made individually by disease for each Member State. These provisions necessitate the communication of a bank account number to the competent Commission services; certain Member States have not yet done so. Therefore, under the new accounting system rules, the relevant commitments can not be made, thus, resulting in the observed temporary under-execution.

Chapter B1-39 : Other measures // Divergence: -EUR 43 million (-16,4%)

// (expenditure: EUR 129 million)

(indicator: EUR 172 million)

The UK decided to not claim a part of the agri-monetary aids designed to compensate beef, sheep and dairy farmers for the strength of the pound against the euro. Consequently, the Commission estimates that savings of approximately EUR 64 million can be expected by the end of the year for this chapter of the budget.

Subheading 1b

Chapter B1-40:Rural development // Divergence: -EUR 100 million (-2,2%)

// (expenditure: EUR 1 122 million)

(indicator: EUR 1 222 million)

The under-execution, by comparison to the level of the indicator, is minor. The Commission considers that the execution of the budget for rural development will proceed as it was foreseen at the time of establishment of the budget.

4. CONCLUSIONS

Implementation of appropriations in June 2002

The uptake of appropriations in June 2002 (Member States' expenditure from 16 October 2001 to 30 April 2002) is EUR 31 209,6 million, i.e. 70,5% of appropriations. Expenditure is EUR 1 923,1 million below the indicator for subheading 1a and EUR 99,7 million below the indicator for subheading 1b.

The overall discrepancy between actual expenditure and the indicator for subheading 1b is not significant. However, this discrepancy for subheading 1a is significant. For certain chapters of the budget (fruits and vegetables, beef and veal, sheep- and goat-meat and agri-monetary measures) this under-execution should be confirmed by the end of the year, thus, leading to an important under-spend of the 2002 budget estimated at more than EUR 1 billion.