REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on EAGGF Guarantee Section expenditure - Early warning system No 1/2003 and No 2/2003

TABLE OF CONTENTS

1. APPROPRIATIONS

2. OVERALL OUT-TURN IN MONTHLY EXPENDITURE

3. PROVISIONAL UTILISATION OF APPROPRIATIONS

4. COMMENTS

5. CONCLUSIONS

ANNEX 1 Calculation of the expenditure profile for 2003

1. Introduction

2. Calculation method - Basic rule

3. Exceptions to the basic rule

ANNEX 2 Profile for 2003 - accumulated percentages

1. APPROPRIATIONS

1.1. Appropriations under Heading 1 (Agriculture) of the 2003 budget

1.1.1. The adopted budget

The appropriations adopted by the European Parliament in December 2002 for budget heading 1 amount to EUR 44 780.45 million (including EUR 18.0 million in Chapter B0-40).

The appropriations under the subheading for "CAP measures" (subheading 1a covering Titles B1-1 to B1-3) amount to EUR 40 082.45 million, i.e. EUR 2 597.5 million below the ceiling fixed in the Inter-institutional Agreement of 6 May 1999 [1].

[1] Interinstitutional agreement of 6 May 1999 between the European Parliament, the Council and the Commission on budgetary discipline and improvement of the budgetary procedure (1999/C 172/01).

The appropriations under the subheading for "Rural Development" (subheading 1b covering Title B1-4) amount to EUR 4 698.0 million, equal to the ceiling fixed in the Inter-institutional Agreement.

The appropriations in chapter B0-40 (provisional appropriations) amount to EUR 18.0 million and they will be available only after a transfer has been made. These appropriations were allocated to the following specific items:

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1.1.2. The budget procedure

The preliminary draft budget (PDB)

The 2003 PDB was drawn up by the Commission and proposed to the Budget Authority in April 2002. Total appropriations proposed for the EAGGF-Guarantee Section amounted to EUR 45 117.8 million, including EUR 40 419.85 million for subheading 1a (which left a margin of EUR 2 260.1 million under the ceiling for this subheading) and EUR 4 698.0 million for subheading 1b (set at the ceiling).

The draft budget (DB)

The Council adopted the 2003 DB in July 2002. When compared to the appropriations in the 2003 PDB, the Council reduced the appropriations in subheading 1a by EUR 288.0 million across-the-board. Total EAGGF-Guarantee Section appropriations, thus, amounted to EUR 44 829.8 million. This amount included EUR 40 131.8 million for subheading 1a and EUR 4 698.0 million for subheading 1b.

The letter of amendment

At the end of October 2002, the Commission adopted the amending letter no 3 to the PDB 2003. This amending letter took account of the latest economic trends and market forecasts in the different agricultural sectors and of the recent agricultural legislation since the establishment of the 2003 PDB. These considerations generated appropriations' requirements for EUR 44 780.4 million, i.e: it resulted in a reduction in requirements amounting to EUR 337.4 million when compared to the ones for the 2003 PDB. This amending letter involved an amount of EUR 40 082.4 million in subheading 1a which was below the ceiling by EUR 2 597.5 million, and of EUR 4 698.0 million in subheading 1b which was equal to the ceiling.

Adoption of the 2003 budget

Following conciliation between the three institutions, the 2003 budget was adopted in December along the lines which were proposed by the Commission in its amending letter No 3 to the 2003 PDB (see point 1.1.1 for details)

2. 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 to 31 December 2002.

The annex to this report explains in detail how the expenditure profile is drawn up.

2.1. Subheading 1a: CAP

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2.2. Subheading 1b: Rural Development

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3. PROVISIONAL UTILISATION OF APPROPRIATIONS

The following tables present the provisional utilisation of appropriations for the first two months of the 2003 budget year:

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4. COMMENTS

4.1. The uptake of appropriations for February 2003

The uptake of appropriations under heading 1 of the budget for February 2003 (Member States' expenditure from 16 October to 31 December 2002) amounts to EUR 24 689.6 million, i.e. 55.1 % of appropriations. Expenditure is

- EUR 1 338.7 million above the indicator for subheading 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure), and

- EUR 59.6 million above the indicator for subheading 1b (rural development).

4.2. Monetary factors

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 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 to 31 December 2002 the average dollar rate was equal to EUR 1 = $ 0.99, i.e. at a level slightly above the rate used for the establishment of the 2003 budget.

4.3. Market factors

Subheading 1a

For subheading 1a, the rhythm of execution is above the level of the indicator for both the plant and animal products sectors. For the plant products sector, this over-execution is primarily related to arable crops and to olive oil. For the animal products sector, this over-execution is mainly attributed to sheep-meat. For the ancillary expenditure, budget chapter B1-39 shows an over-execution, which is currently under investigation by the Commission as it might involve a mis-posting of the expenditure declared by the Member States. Therefore, the following comments are due:

Chapter B1-10: Arable crops // Divergence: + EUR 673 million (+ 3,0%)

// (expenditure: EUR 15 402 million)

(indicator: EUR 14 729 million)

At the start of the financial year, the majority of payments under this chapter relate to payments for direct aids, which have to be made in the period from 16 November 2002 to 31 January 2003. The over-execution observed by comparison to the level of the indicator points out to an acceleration in the rhythm of payments for these aids by the Member States. At this point in time, this over-execution is deemed to be temporary.

Chapter B1-12: Olive oil // Divergence: + EUR 182 million (+ 7,8%)

// (expenditure: EUR 1 783 million)

(indicator: EUR 1 601 million)

This over-execution is due to the acceleration of the rhythm of payments of the advances for the production aid for olive oil as compared to the level of the indicator. The situation is expected to be regularised over the coming months on the basis of the maximum pre-determined quantities of olive oil expected to be subsidised under this measure.

Chapter B1-22: Sheepmeat and goatmeat // Divergence: + EUR 464 million (+ 25,7%)

// (expenditure: EUR 1 286 million)

(indicator: EUR 822 million)

A linear profile for the period from 16 October 2002 to 31 March 2003 has been established for payments under the new rules for this scheme. The observed over-execution is due to the acceleration of the rhythm of the sheep- and goat-meat premium payments by the Member States concerned as compared to the level of the profile indicator. However, this situation is temporary and it is expected to be regularised later on since, under the new rules, Member States are authorised to pay this premium only for a maximum number of pre-determined premium rights for each Member State concerned.

5. CONCLUSIONS

Implementation of appropriations at 28 February 2003

The uptake of appropriations for February 2003 (Member States' expenditure from 16 October to 31 December 2002) shows an over-execution for sub-heading 1a. This over-execution relates to certain individual chapters of the budget and, at this point in time, it is expected to be temporary. The over-execution for sub-heading 1b is minimal inviting no comments for the moment.

ANNEX 1 Calculation of the expenditure profile for 2003

1. Introduction

Under Article 7 of Council Regulation (EC) No 2040/2000 of 26 September 2000 on budgetary discipline, the Commission is required to implement an 'early warning system' covering each chapter of EAGGF Guarantee Section expenditure. To that end, the Commission presents monthly reports to Parliament and the Council comparing actual expenditure with the forecast expenditure profiles.

The profiles are established by the Commission for each chapter of the budget as soon as budget data are available. They are based, where appropriate, on average monthly expenditure over the three preceding years.

2. Calculation method - Basic rule

The approach involves establishing profiles by chapter on the basis of data for each item, as follows (see Annex 1).

(a) Expenditure over the three preceding years is adjusted as required to the budgetary nomenclature for the coming year.

For each closed financial year, a profile in terms of accumulated percentages is calculated at the lowest budgetary level (item or article).

(b) The historical profile for each budget heading is the arithmetic mean of the percentage values for the corresponding months of each financial year.

(c) Multiplying the percentage obtained by the appropriation amount for that heading for the year concerned gives, for each item, the amount of expenditure that can be considered normal at a given date.

(d) The indicator at the next level up is obtained by adding together the amounts at the constituent levels (chapter = sum of amounts under each item).

The percentage these amounts represent in relation to the budget for each chapter gives the profile for that chapter. The profile therefore incorporates the distribution of expenditure at the lower levels (articles and items).

Profiles should also reflect any payment deadlines that are set under the rules.

3. Exceptions to the basic rule

As a rule, profiles are calculated as described under point 2. However, a different approach has to be adopted in certain cases, in particular the following:

(a) Where historical data for a given budget heading include factors of a strictly one-off nature the appropriate adjustments are made.

(b) Where, for a given budget heading, the data for one or two years are felt to be more representative than the historical profile, calculations are based on the data for that year or years only.

(c) Where special circumstances (such as a new heading, or changes in the rules or in payment deadlines) mean that the historical data do not reflect the foreseeable pattern of expenditure under a budget heading, a theoretical profile is established on the basis of working hypotheses that take account of the new situation.

(d) Since, for the items concerning expenditure on public storage, end-of-year depreciation has a significant impact on the pattern of expenditure and, moreover, this depreciation fluctuates widely from year to year, this factor should be omitted when calculating the historical profile. The forecast depreciation for the 2003 budget will then be incorporated into the forecast expenditure for the last month of the financial year, giving the final profile for these budget headings.

(e) For the items dealing with recovery in the event of fraud or irregularity (which, by their nature, are hard to predict), the best method for calculating the profile is to distribute the total expenditure evenly over the whole financial year.

These exceptions are explained below, item by item.

Chapter 10 - Arable crops

B1-1001 - Refunds on barley grain and malt

Since 2002 was not representative because there were no appropriations, the profile has been constructed on the basis of the average for 2000 and 2001.

B1-1013 - Other public storage costs

Since none of the previous three years was representative, the profile has been made linear over the year.

B1-1014 - Depreciation of cereal stocks

Since expenditure will run from November to the end of May (inclusive), the profile has been made linear over that period only.

B1-1040 - Aid for producers of maize (base area for maize)

B1-1041 - Aid for producers of cereals not subject to the base area for maize

B1-1042 - Aid for producers of soya beans, rape seed and sunflower seed

B1-1043 - Aid for producers of peas, field beans and sweet lupins

B1-1044 - Aid for producers of non-textile flax seed

B1-1045 - Supplementary aid for durum wheat: traditional production zones

B1-1047 - Aid for grass silage

B1-1049 - Voluntary set-aside

B1-1050 - Aid for producers of maize (base area for maize)

B1-1051 - Aid for producers of cereals not subject to the base area for maize

B1-1052 - Aid for producers of soya beans, rape seed and sunflower seed

B1-1053 - Aid for producers of peas, field beans and sweet lupins

B1-1054 - Aid for producers of non-textile flax seed

B1-1056 - Supplementary aid for durum wheat: traditional production zones

B1-1057 - Supplementary aid for durum wheat: zones other than traditional production zones

B1-1058 - Aid for grass silage

B1-1060 - Set-aside related to per hectare aid

For items B1-1040 to B1-1049 and B1-1050 to B1-1060, Regulation (EC) No 1251/1999 changed the payment deadlines from the 2000/01 marketing year onwards, so the average for the previous three financial years is not representative of the new situation. The profile is therefore based on 2001 and 2002. However, for items B1-1047, B1-1056 and B1-1058 the indicator is based on 2002 only since 2001 was not representative.

We would draw your attention to the fact that in establishing the indicator for certain items (B1-1045, B1-1051 and B1-1056) we have taken account of the advances (2003 budget) made to Germany and Italy in September and October 2002.

Chapter 14 - Fibre plants and silkworms

B1-1401 - Processing aid for long flax fibre

B1-1403 - Processing aid for short flax fibre and hemp fibre

As the previous years were not representative, the profile has been made linear between November 2002 and the end of July 2003 as regards 96% of the budget, with the remaining 4% being spread over the remainder of 2003.

Chapter 15 - Fruit and vegetables

B1-1509 - Other

The profile is based on 2002.

Chapter 16 - Products of the vine-growing sector

B1-1611 - Distillation of wine (Regulation (EC) No 1493/1999)

In view of the new rules which came into force in August 2000, the profile is based on data for 2001 and 2002.

B1-1625 - Private storage aid

Since the implementation rates for 2000 and 2001 are not representative, the profile has been based on 2002.

B1-1650 - Restructuring and conversion of vineyards

Since the implementation rates for 2000 and 2001 are not representative, the profile has been based on 2002.

Chapter 17 - Tobacco

B1-1750 - Community Tobacco Fund - direct payments by the European Union

As the previous three years were not representative, the profile has been made linear.

B1-1751 - Community Tobacco Fund - direct payments by Member States

As the previous three years were not representative, the profile has been made linear.

Chapter 18 Other plant sectors or products

B1-1858 - Per hectare aid for rice

Since 2000 and 2001 were not representative, the profile has been based on 2002.

Chapter 20 - Milk and milk products

B1-2011 - Technical costs of public storage

B1-2012 - Financial costs of public storage

B1-2013 - Other public storage costs

B1-2014 - Depreciation of stocks

For the above four items, the profile has been made linear over the year.

B1-2034 - Depreciation of stocks

The profile has been made linear over the year.

B1-2099 - Other

The profile has been made linear over the year.

Chapter 21 - Beef/veal

B1-2100 - Refunds on beef/veal (dead animals)

B1-2101 - Refunds on beef/veal (live animals)

The profile for item B1-2101 is based on the average implementation rates for the last three years of the sub-items relating to the export of live animals. The profile for item B1-2100 is based on average implementation for other beef/veal exports (dead animals).

B1-2111 - Technical costs of public storage

B1-2112 - Financial costs of public storage

B1-2113 - Other public storage costs

The profile has been made linear over the year.

B1-2120 - Suckler cow premiums

B1-2121 - Additional premiums for suckler cows

B1-2122 - Special premiums

B1-2124 - Slaughter premiums

The profile is based on 2001 and 2002 because 80% advances were only possible in those two years.

B1-2127 - Compulsory slaughter programme

The profile has been made linear over the year because the previous years are not representative.

B1-2128 - Additional payments

The profile is based on the average of the last two years, 2001 and 2002, because 2000 was not representative.

B1-2129 - Other intervention

The profile has been made linear over the year since the Member States have to pay only the remaining balances for this measure.

Chapter 22 - Sheepmeat and goatmeat

B1-2220 - Ewe and goat premiums

B1-2221 - Fixed flat-rate ewe and goat premium in less-favoured and mountain areas

B1-2222 - Additional payments for sheep and goats

The profile has been made linear for the period from 16 October 2002 to 31 March 2003 since under the new rules that is the period during which the payments must be made.

Chapter 23 - Pigmeat

B1-2302 - Exceptional market support measures

The profile has been made linear over the year since no previous year was representative.Chapter 30 - Refunds on certain goods obtained by processing agricultural products

B1-3000 - Refunds on cereals exported in the form of certain spirit drinks

Since the rules were amended in July 2000, the profile has been calculated on the basis of 2001 and 2002.

B1-3012 - Skimmed milk and other milk products

Since 2000 and 2002 were not representative, the profile has been calculated on the basis of implementation in 2001.

Chapter 31 - Food programmes

B1-3100 - Distribution of agricultural products to deprived persons in the Community

Since 2000 and 2001 were not representative, the profile has been calculated on the basis of implementation in 2002.

Chapter 32 - programmes for the outermost regions and the aegean islands

B1-3201 - Other measures

B1-3221 - Other measures

Since 2002 was not representative (programmes approved late in 2002), the profile has been based on 2000 and 2001.

Chapter 33 - Veterinary and plant health measures

B1-330 - Eradication and monitoring programmes (DG SANCO)

B1-331 - Other measures in the veterinary field (DG SANCO)

B1-332 - Emergency fund (DG SANCO)

B1-333 - Plant health measures (DG SANCO)

These being direct payments, the profile is based on estimated expenditure for 2003.

B1-333A - Plant health measures - Expenditure on administrative management

As this item concerns administrative expenditure, it was not taken into consideration for establishing a profile.

Chapter 36 - Monitoring and preventive measures concerning the EAGGF Guarantee Section

B1-3600 - Olive oil register - sig

B1-3602 - Other measures

The profile is 100% of expenditure in February 2003.

B1-361A - Monitoring and prevention - Direct payments by the European Community - Expenditure on administrative management

As this item concerns administrative expenditure, it was not taken into consideration for establishing a profile.

Chapter 38 - Promotion measures

B1-3800 - Measures within the European Union

B1-3801 - Measures in third countries

The profile has been made linear over the year because new programmes were approved in 2002.

B1-3810 - Measures within the European Union

B1-3811 - Measures in third countries

The profile is based on 2001 and 2002 because 2000 was not representative.

B1-3820 - Information measures on the common agricultural policy

The profile is based on 2001 because 2000 and 2002 were not representative.

Chapter 39 - Other measures

B1-3910 - Direct aid scheme for small producers

Since payments for this measure have to be made between 1 November 2002 and 30 June 2003, the profile has been made linear over that period.

Chapter 40 - Rural development

B1-4000 - Investments in agricultural holdings

B1-4010 - Setting-up of young farmers

B1-4020 - Training

B1-4030 - Early retirement (new system)

B1-4040 - Less-favoured areas

B1-4050 - Agri-environment (new system)

B1-4060 - Improving the processing and marketing of agricultural products

B1-4070 - Forestry

B1-4071 - Forestry (new system, other)

B1-4080 - Main agriculture-related measures

B1-4081 - Other measures

B1-4091 - Evaluation

B1-4092 - Transitional measures

The profile for all these items is based on 2001 and 2002.

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