COMMISSION PROPOSAL on the prices for agricultural products (2000/2001) VOLUME I EXPLANATORY MEMORANDUM VOLUME II Financial implications

(presented by the Commission)

1. Introduction

As a result of the decisions on Agenda 2000 in May 1999 and the reforms of common market organisations (CMOs) since 1992, the yearly fixing of institutional prices and amounts now affects only a few sectors. Recently, the Commission proposed a review of the flax and hemp CMO, so that this sector too will no longer be subject to the yearly fixing exercise.

Specifically, the Council must fix the following institutional prices and amounts for the 2000/01 marketing year, taking account of Parliament's opinion:

- monthly increments for cereals (amount, number and timing),

- monthly increments for rice,

- various prices and amounts in the sugar sector (institutional prices for beet and sugar, monthly reimbursement of storage costs),

- aid for silkworms,

- the basic price for sheepmeat,

- the basic price for pigmeat.

The Commission intends to continue the multiannual approach followed for Agenda 2000 and previous reforms and to fix institutional prices and amounts for the six sectors concerned for an undefined period, except in the sugar sector, where the present production quota regime legally expires at the end of the 2000/01 marketing year. This approach has the advantage of providing farmers with a more stable framework in which to plan their long-term production. The ensuing proposals for amendments to basic Regulations do not prejudge future reviews.

2. Explanatory memoranda by product

2.1. Cereals

2.1.1. Monthly increments

The monthly increments are currently fixed at EUR 1/tonne/month on the intervention price from November to May; the increment for May also applies to June. These increments are fixed each year by a specific Council Regulation. In the spirit of the multiannual approach described above, it is proposed that the amount and timing of the monthly increments be fixed permanently for the 2000/01 and subsequent marketing years by amending the basic Regulation on the common organisation of the market in cereals (Regulation (EEC) No 1766/92).

A change in the amount is not warranted since the short-term interest rate has returned to the level it was at when the decision was taken fixing the increment for 1999/2000 (3%). Following the introduction of the euro on 1 January 1999, that rate is not expected to fluctuate much in future.

However, since it is planned to reduce the intervention price for cereals by two cuts of 7.5% each, the Commission is proposing that the monthly increments be reduced at the same time, i.e. to an amount of:

- EUR 0.93/tonne/month for the 2000/01 marketing year, and

- EUR 0.85/tonne/month from the 2001/02 marketing year

as compared to the current amount of EUR 1/tonne/month.

The situation will be reviewed when the time comes to decide on a final reduction in the intervention price for cereals to apply from the 2002/03 marketing year, taking account of market trends.

2.1.2. Intervention period in Sweden

Article 4 of Regulation (EEC) No 1766/92 fixes the following intervention periods:

- from 1 August to 30 April for Italy, Spain, Greece and Portugal,

- from 1 November to 31 May for the other Member States,

- from 1 December to 30 June for Sweden.

A different intervention period was fixed for Sweden at the time of accession to help it adapt in view of its geographical location. However, rather than being especially useful, this difference has added to the administrative complexity, particularly by extending the intervention period to include June. Since all cereals must be taken over before the end of July so they are not mixed with the new harvest, the take-over period for quantities offered for intervention at the end of June is too short and this has led to derogations for a number of marketing years. This difficulty is liable to be exacerbated by the cut in the intervention price during the transitional period provided for under Agenda 2000 (which might make intervention artificially attractive at the end of the marketing year in order to avoid the price cut).

Sweden's location and climate do not seem to outweigh these drawbacks sufficiently to warrant continuing the special period. Moreover, the normal intervention period applies in Finland, which is as far north as Sweden, without any particular market disturbances having been reported there.

The Commission is therefore proposing that the intervention period for all the Member States other than the southern ones, i.e. 1 November to 31 May, should apply to Sweden also.

2.2. Rice

The monthly increment is currently fixed at EUR 2/tonne/month on the intervention price. It is fixed each year by a specific Council Regulation. In the spirit of the multiannual approach, it is proposed that the amount of the monthly increments be fixed permanently by amending the basic Regulation on the common organisation of the market in rice (Regulation (EC) No 3072/95).

Since both the intervention price and interest rates are stable, the Commission is proposing that the amount of EUR 2/tonne/month be carried forward.

This proposal does not prejudge the proposal on the entire market organisation for rice which the Commission has undertaken to present.

2.3. Sugar

This is the last marketing year of the current production quota regime and the Commission is proposing that the basic price for beet, the intervention price for white sugar and the manufacturing margin be frozen.

The minimum prices for A beet and B beet therefore remain unchanged (they are derived from the basic price for beet by applying a levy of 2% and 30% respectively). However, the actual minimum price for B beet will ultimately depend on the final rate of the levy on B beet to be fixed later by the Management Committee procedure (in accordance with Article 33 of Regulation (EC) No 2038/1999).

The Commission is proposing that the amount of the monthly reimbursement of storage costs be kept at EUR 0.33 per 100 kg, in view of the stable interest rates prevailing in the Community.

The Commission notes that, in accordance with Article 26 of the basic Regulation, it may have to reduce the production quotas for the 2000/01 marketing year if the GATT constraints so require.

The following table summarises the proposals for the sugar sector.

>TABLE POSITION>

(1) 98% of the basic price for beet.

(2) 68% of the basic price for beet, except where Article 33(5) of Regulation (EC) No 2038/1999 applies.

2.4. Silkworms

Silk-worm rearing accounts for a tiny part of the Community's agricultural activity and of world silk production. However, it is an important activity in some rural areas and should therefore be preserved by keeping the aid at the current level of EUR 133.26 per box of silk seed. In line with the multiannual approach, that amount will be fixed in the basic Regulation for the sector (Regulation (EEC) No 845/72).

2.5. Sheepmeat

The basic price is used to determine the loss of revenue for producers. The ewe premium is calculated on the basis of the difference between the basic price and the arithmetic mean of the weekly average weighted prices on the representative Community markets. Seasonally adjusted basic prices are also fixed to take account of the normal seasonal variations on the market. Where the market price falls below a certain percentage of the seasonally adjusted price it may be decided to grant private storage aid.

In line with the multiannual approach it is proposed that the basic price and the seasonally adjusted prices be fixed in the basic Regulation (EC) No 2467/98. The basic price should remain at the present level of EUR 504.07/100 kg. For the seasonally adjusted prices, the first week should begin on the first day of the marketing year (first Monday in January).

2.6. Pigmeat

Following the multiannual approach, it is proposed that the basic price and the standard quality to which that price refers be fixed in the basic Regulation (Council Regulation (EEC) No 2759/75). The basic price should be kept at the current level, i.e. EUR 1 509.39/tonne.

It should be remembered that the specific role of the basic price relates to intervention measures, i.e. the possible grant of private storage aid. Such measures can be introduced when the average Community market price is less than 103% of the basic price.

The standard quality is fixed for:

- carcases weighing from 60 kg to less than 120 kg: grade E,

- carcases weighing from 120 to 180 kg: grade R.

3. Horizontal aspects

Amending the basic Regulations concerned by these proposals provides the opportunity to update those Regulations from a legal point of view without changing their substance.

In the case of Regulations (EEC) No 1766/92 (cereals) and (EC) No 3072/95 (rice), this entails deleting the Article extending EAGGF Guarantee Section financing to the French overseas departments, as this provision is no longer required.

The other Regulations should be updated to bring the committee procedures into line with Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission.

COMMISSION PROPOSAL on the prices for agricultural products (2000/2001) VOLUME II Financial implications

(presented by the Commission)

TABLE OF CONTENTS

1. Introduction

2. Impact of the proposals for the EAGGF Guarantee

3. The budget context in 2000 and 2001

(a) The budget context in 2000

GENERAL SITUATION

SITUATION FOR THE PRINCIPAL SECTORS

CONCLUSIONS

(b) The budget context in 2001

ANNEX I

ANNEX II

1.

1. Introduction

1. This Volume II contains an assessment of the financial implications of the price proposals for the 2000/2001 marketing year for the EAGGF Guarantee Section and for agricultural own resources.

2. The proposals maintain the prices for sugar, pigmeat and sheepmeat and the aid for silkworms at their present levels. Reductions in two stages are proposed in the monthly increments for cereals. Except for sugar, the prices and amounts proposed for 2000/2001 (2001/2002 in case of monthly increments for cereals) will remain in force thereafter, without prejudice to future revisions.

The following table summarises the financial implications of these proposals for EAGGF Guarantee Section expenditure and agricultural own resources:

>TABLE POSITION>

3. In order to give the fullest picture possible of the financial background to these proposals and to show likely trends in expenditure, the Commission is also presenting a new estimate of expenditure for 2000, taking account of economic and legislative developments as assessed in January 2000 (see point III). The new estimate is limited to Titles B1-1 to B1-3 of the EAGGF Guarantee (Heading 1a of the financial perspectives), given that it is too early at this stage to re-assess the requirements for Title B1-4 (Rural development).

The 2000 budget, adopted on 16 December 1999, brought the appropriations for Titles B1-1 to B1-3 of the EAGGF Guarantee Section to EUR 36 889 million, leaving a margin of EUR 463 million under the financial perspectives ceiling (EUR 37 352 million). However, the forecast of appropriation requirements at the basis of the budget was EUR 37 537 million.

Appropriation requirements as estimated at present (January 2000) stand at EUR 37 471 million, EUR 582 million more than the budget appropriations. This new estimate for 2000 is not affected by the price proposals.

2. Impact of the proposals for the EAGGF Guarantee

>TABLE POSITION>

>TABLE POSITION>

3. The budget context in 2000 and 2001

(a) The budget context in 2000

GENERAL SITUATION

1. The estimated appropriation requirements of Titles B1-1 to B1-3 of the EAGGF Guarantee for 2000, as forecast in January 2000, amount to EUR 37 471 million, overrunning the budget appropriations by EUR 582 million and the financial perspectives ceiling by EUR 119 million. The new estimate is based on the EUR/$ rate used for the budget (EUR 1 = $ 1.12). The average real value of the dollar for the period August 1999 to January 2000 was at EUR 1 = $ 1.04. At the end of January, the rate was EUR 1 = $ 0.98.

2. The preliminary draft budget, adopted by the Commission in April 1999, provided for appropriations of EUR 37 314 million for Titles B1-1 to B1-3 of the EAGGF Guarantee Section.

To take account of the latest forecasts regarding the development of the market situation, the Commission presented a letter of amendment to the preliminary draft budget in October 1999. For the letter of amendment, the Commission forecast the requirements at EUR 37 537 million but the actual appropriations requested in the letter of amendment were fixed at EUR 37 337 million (-EUR 200 million), in order to respect the financial perspectives ceiling for 2000 of EUR 37 352 million.

Finally, after the budget authority decided to make an additional reduction of EUR 448 million, the appropriations fixed for Titles B1-1 to B1-3 of the EAGGF Guarantee section in the budget adopted on 16 December 1999 amounted to EUR 36 889 million, leaving a margin of EUR 463 million compared to the financial perspectives ceiling but EUR 648 million below the Commission's forecast of appropriation requirements of EUR 37 537 million.

3. This new assessment of appropriation requirements for the EAGGF Guarantee Section at EUR 37 471 million takes account of developments which have occurred compared to the economic assumptions and the legislative situation used in establishing the budget and represents a reduction of EUR 66 million compared with the requirements forecast at the time of the letter of amendment.

Firstly, the requirements for sheepmeat and goatmeat have been revised downwards, essentially due to an upward adjustment in market prices for 1999 and 2000 and a consequent decrease in the rate of premium. In addition, lower requirements are forecast for the milk sector where, despite an upward revision in expected expenditure for export refunds, important savings should arise as a result of higher sales of skimmed milk powder from public stock and lower purchases. There are also significant decreases in the requirements for the wine sector, due to lower distillation quantities. For olive oil, a reduction in requirements mainly reflects downward revisions for storage measures.

On the other hand, requirements for a number of chapters have been raised compared to the forecasts at the basis of the budget. For beef and veal, the increased requirements are above all due to lower expected receipts from sales out of public stock and higher expenditure for exceptional support measures. For sugar and for textile plants (cotton), higher requirements are a reflection of downward revisions to world market prices.

SITUATION FOR THE PRINCIPAL SECTORS

(Explanation of the changes in appropriation requirements compared to those on which the budget was based) [1]

[1] The first figure in each chapter shows the difference compared to the requirements on which the budget is based; the second figure between brackets shows the difference compared to the budget appropriations for the EAGGF Guarantee Section (including the appropriations in reserve in Chapter B0-40)

Arable crops // + EUR 10 million

// (+ EUR 299 million)

The relatively small increase in overall requirements for the chapter is nevertheless the result of two opposite tendencies: an increase of EUR 99 million for market measures for cereals and a decrease of EUR 89 million for direct payments under the arable aid scheme.

For the public storage of cereals, the requirements are raised by EUR 91 million, above all due to an upward revision to the forecast of purchases into intervention from 8.2 million tonnes to 9.9 million tonnes. The public stock at the end of the financial year is forecast to be 16.9 million tonnes instead of 19.2 million tonnes, as a consequence of a lower level of opening stock than initially expected and an increase in the volume of sales. Higher requirements for starch production refunds of EUR 50 million are due to an adaptation in eligible quantities from 2.9 million tonnes to 3.45 million tonnes. By contrast, decreased requirements for export refunds of EUR 42 million are mainly the consequence of a downward revision to the quantities concerned (-2.4 million tonnes) and to a lowering of the forecast rate of export refund for barley for 1999/2000 from EUR 34.9/tonne to EUR 32.3/tonne, reflecting a higher world price than initially foreseen. The refund rate for rye has also been lowered from EUR 75.1/tonne to EUR 68.9/tonne. Conversely, the forecast refund rates for soft wheat and for maize have been increased (EUR 37.6/tonne instead of EUR 30.5/tonne for wheat) due to lower world prices.

For the arable aids, the reduction in requirements results from the incorporation of the definitive data received on the eligible areas requested for aid for 1999/2000 and the average historic yields, which Member States are required to communicate to the Commission by mid-January 2000. Within the overall reduction of EUR 89 million, the requirements for the aids for small producers are decreased by EUR 47 million. For professional producers, there are notable reductions for the aids for cereals including maize (-EUR 25 million) and for oilseeds (-EUR 24 million). The needs for set-aside aids are also reduced by EUR 13 million, but those relating to the additional aid for durum wheat are increased by EUR 20 million.

Sugar // + EUR 30 million

// (+ EUR 65 million)

The increase of EUR 30 million results from a slight downward revision to the forecast world market price for sugar for 1999/2000 to $ 187/tonne and a consequent increase in the rate of export refund from EUR 525/tonne to EUR 535/tonne.

Olive oil // - EUR 14 million

// (+ EUR 24 million)

The reduction in requirements is essentially attributable to a decrease of EUR 16 million for storage measures, above all due to the expectation that no expenditures will arise in relation to private storage.

Fibre plants // + EUR 22 million

// (+ EUR 39 million)

The requirements for the aid for cotton increase by EUR 38 million as a result of a downward revision to the forecast world price (49.5 cents/lb instead of 55.5 cents/lb for the budget). For the flax aid, a reduction of EUR 16 million results from a lower forecast average rate of aid.

Wine // - EUR 22 million

// (- EUR 9 million)

A reduction in requirements for distillation and intervention measures of EUR 33 million is due to a downward revision in the quantities of table wine subject to preventive distillation from 12 million hl in the budget to 10 million hl. The requirements for aids for the use of grape must increase by EUR 11 million.

Other plant sectors // - EUR 9 million

// (- EUR 5 million)

The requirements for the public storage of rice decrease by EUR 16 million, essentially because of an increase in the quantities to be sold in the context of the programme to supply food to deprived persons. This is partly offset by higher requirements elsewhere in the chapter, notably for export refunds for rice (+ EUR 5 million) due to a downward revision to the forecast world price.

Milk and milk products // - EUR 46 million

// (+ EUR 7 million)

For the public storage of skimmed milk powder, an increased volume of sales of skimmed milk powder out of public storage (104 000 tonnes instead of 55 000 tonnes) and a reduction in expected purchases (50 000 instead of 80 000 tonnes) lead to a reduction in requirements of EUR 103 million. For the public storage of butter, requirements are also reduced by EUR 19 million, as a result of increased sales quantities (13 560 tonnes instead of 5 000 tonnes).

These reductions are partly offset by increased requirements for export refunds of EUR 68 million, notably for skimmed milk powder where, despite a decrease in the forecast average rate of refund, there is a substantial upward revision to the volumes to be exported (325 000 tonnes instead of 250 000 tonnes). The requirements for the aids for butter used on the internal market also increase by EUR 12 million, above due to an upward revision to the quantity of butter used in pastry-making (370 000 tonnes instead of 360 000 tonnes).

Beef and veal // + EUR 61 million

// (+ EUR 138 million)

A lower level of opening stocks for public intervention than initially foreseen (187 000 tonnes instead of 195 000 tonnes) leads to a consequent downward revision in sales volumes, given the unchanged assumption that no purchases into intervention will take place in 2000 and that stocks will be eliminated by the end of the financial year. This, together with a reduction in the expected average selling price, is at the origin of increased requirements for public storage of EUR 57 million. The requirements for the exceptional support measures applied in the United Kingdom ("Over thirty months scheme") are also increased by EUR 28 million due to an upward revision in the numbers of animals concerned.

These increases are partly offset by a reduction in the requirements for export refunds of EUR 18 million, as a result of a lowering of the quantities to be exported with refund (770 000 tonnes instead of 835 000 tonnes).

Sheepmeat and goatmeat // - EUR 99 million

// (- EUR 67 million)

An upward revision to the average market prices for the 1999 and 2000 marketing years and consequent reductions in the rates of premium is the essential factor explaining the decrease in requirements. In effect, the average market price for 1999 has been determined at EUR 3 306/tonne against EUR 3 250/tonne for the budget. The forecast average price for 2000 has also been revised upwards to EUR 3 350/tonne instead of EUR 3 250/tonne. Consequently, and taking account of slight adaptations to the technical coefficient used in determining the rate of premium and in the forecast number of eligible animals, the requirements for the premium are reduced by EUR 91 million. The requirements for the fixed additional premium payable in less favoured areas are also decreased by EUR 8 million, essentially because the proportion of the advance on the premium for 1999, which was paid in the 1999 financial year, was greater than initially foreseen.

Food programmes // - EUR 6 million

// (- EUR 1 million)

The reduction for this chapter results from the inclusion of the budgetary appropriations for the programme for the supply of food to deprived persons (EUR 196 million instead of EUR 200 million) and a reduction in the requirements for refunds for external food aid (-EUR 2 million).

CONCLUSIONS

The budget situation in 2000 for Titles B1-1 to B1-3 of the EAGGF Guarantee is therefore summarised as follows:

>TABLE POSITION>

The new estimate of requirements consequently leads to an overrun of the financial perspectives ceiling by EUR 119 million and of the budget appropriations by EUR 582 million.

It should be noted that the forecast overruns do not take account of the savings that will result if the average real value of the euro against the dollar remains low in relation to the rate in drawing up the budget (EUR 1 = $ 1.12). If the average value of the euro for the whole of the financial year remains at EUR 1 = $ 1.04, these savings could be of the order of EUR 400 million. However, only the first EUR 200 million may be retained by the EAGGF Guarantee. The remainder must be transferred to the monetary reserve in chapter B1-60 of the budget. Nevertheless, inclusion of the savings of EUR 200 million will bring requirements to a level which is under the financial perspectives ceiling.

In the light of the current forecast of appropriation requirements, the Commission will closely monitor the budgetary situation during the financial year while continuing its policy of rigorous market management. If the measures taken prove insufficient to contain the level of expenditure within the existing budget appropriations, the Commission reserves the right to propose a supplementary and amending budget, within the limits of the financial perspectives ceiling.

(b) The budget context in 2001

In accordance with the provisions of Article 2 of the Council Decision of 31 October 1994 on budgetary discipline, the agricultural guideline for 2001 is provisionally estimated to be close to EUR 48 800 million. The definitive level of the guideline will be fixed when the preliminary draft budget is adopted.

It should be underlined, however, that in accordance with the conclusions of the European Council of Berlin of 24-25 March 1999 and the Interinstitutional Agreement of 6 May 1999 on budgetary discipline and improvement of budgetary procedure, new annual ceilings on agricultural expenditure have been fixed in the context of the financial perspectives for the period 2000-2006 and at levels significantly below that of the guideline. For Titles B1-1 to B1-3 of the EAGGF Guarantee, this ceiling stands at EUR 40 035 million for 2001 compared to EUR 37 352 million for 2000 and constitutes an extremely tight budgetary framework, given that 2001 is the first financial year which must accommodate the initial additional costs arising from the Agenda 2000 decisions to strengthen the systems of direct compensatory aids in certain sectors (notably arable crops and beef) and to reform the common market organisation in the wine sector. Moreover, the Interinstitutional Agreement of 6 May 1999 stipulates that as far as possible a sufficient margin should be left between the budget appropriations and the financial perspective ceilings.

The Commission stresses that its proposals on prices are presented in this context of budgetary stringency and urges that decisions on them should be taken in the same spirit.

ANNEX I

>TABLE POSITION>

ANNEX II

EAGGF GUARANTEE SECTION EXPENDITURE BY SECTOR SINCE 1985

(On the basis of the 1999 budget nomenclature and including expenditure from carried-over appropriations)

ECU/EUR million

>TABLE POSITION>

Notes: Expenditure in brackets was not financed from the EAGGF Guarantee Section.