'Jll»Htt|iPWi|ll 
COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 19.02.1997 
COM(97) 59 final 
Proposal for a 
COUNCIL REGULATION (EC) 
determining measures and compensation relating to appreciable revaluations that affect 
farm incomes 
(presented by the Commission) 

EXPLANATORY MEMORANDUM 
Council Regulation (EEC) No 3813/92 provides for compensation measures when, 
following a revaluation, the agricultural conversion rate falls below certain thresholds 
established as a function of past currency developments. In order to enable compensation 
to be paid, the Member States may request the application of the following provisions: 
Article 7 of the Regulation, for an increase in the amount of most direct aid to 
producers as expressed in ecus, to prevent a reduction in terms of revalued 
national currency; 
Article 8 of the Regulation, for digressive compensatory aid over a three-year 
period, with the European Union contributing 50% or 75% of the cost, as the case 
may be. 
The cost of applying Article 7 is about ECU 250 million a year for each percentage point 
of revaluation. The maximum amount of compensatory aid under Article 8 is established 
by the Council, at least 12 months after the revaluation, on the basis of an estimate of 
actual income loss. 
However, under Article 9 of Regulation (EEC) No 3813/92, the Council must take all 
necessary measures in the event of an appreciable revaluation, which, primarily to comply 
with obligations under the GATT Agreement and budgetary discipline, may involve 
derogations from the provisions of the said Regulation concerning aid and the amount by 
which the monetary gaps are dismantled, without, however, resulting in the five-point 
threshold being extended. 
To avoid the financial and international consequences of applying Articles 7 and 8 of 
Regulation (EEC) No 3813/92, the Council adopted Regulations (EC) No 1527/95 and 
(EC) No 2990/95; for appreciable reductions in agricultural conversion rates before 31 
December 1996, those Regulations replace the measures of Articles 7 and 8 by: 
a freeze on the agricultural conversion rate applicable to the amounts referred to 
in Article 7, for the Member State concerned, until 1 January 1999, the date of 
the planned introduction of the euro; 
the possibility of digressive compensatory aid over three years, of a maximum 
amount determined on the basis of a flat-rate forward estimate of future losses of 
annual incomes. 
The currencies of eight Member States have been concerned by the provisions referred 
to. However, no compensatory aid was granted for the 2% reduction in the agricultural 
conversion rate of the Irish pound on 8 November 1996, since, despite the fact that 0.3% 
of this reduction was regarded as "appreciable", the Council did not establish a maximum 
amount of aid in this case. 
The impact of all these measures was analysed in the Annual Report on the agri-monetary 
system for 1995/96.l The approximate cost of freezing agricultural conversion rates is 
ECU 185 million a year, and that of compensatory aid ECU 200 million in 1996, one 
third less the following year, and two thirds less the year after that. For the future, despite 
the various problems arising, the report concludes that care should be taken to ensure 
similar treatment when appreciable revaluations occur, although the measures should not 
aggravate the risk of problems that could interfere with the changeover to the euro on 1 
January 1999. 
At present, any further decline in an agricultural conversion rate, except for that of the 
Greek drachma, would be regarded as "appreciable" under Article 1(e) of Regulation 
(EEC) No 3813/92. The declines in the rates of the Irish pound and of sterling in January 
1997 are "appreciable" reductions comparable to those that occurred in 1995 and 1996. 
In view of the agri-monetary situation, the United Kingdom would thus be in a position 
to request the application of Article 7 for an 8.5% increase in ecus for certain direct aid 
payments from July 1997, and Ireland that of Article 8 from April 1997. The criteria set 
out in Article 1(e) do not, in fact, correspond exactly to those for triggering Articles 7 
and 8. The level of the Italian lira in January 1997, for example, if maintained, would 
enable Italy to request the application of Article 8 in March and Article 7 in July. 
It would thus appear necessary to take measures at Community level to avoid problems, 
and especially financial problems, in implementing the common agricultural policy. In 
accordance with the conclusions of the Annual Report on the agri-monetary system, it is 
proposed to follow the approach determined by Regulations (EC) No 1527/95 and (EC) 
No 2990/95, taking due account of experience. 
More specifically, it is proposed to extend the scope of the compensatory measures to all 
cases that lead to the application of Articles 7 and 8 of Regulation (EEC) No 3813/92. 
When the appreciable revaluation does not correspond to an appreciable reduction in the 
agricultural conversion rate within the meaning of Article 1 (e) of the Regulation, the 
conditions for applying Articles 7 and 8 would be fulfilled, for example, following one 
or more reductions in the rate over the previous twelve months that were not offset by 
devaluations occurring in the same period. For such cases, a date must be determined to 
be deemed to be that of the appreciable revaluation. It is proposed to take the first date 
on which the conditions for applying either Article 7 or Article 8 are fulfilled, with the 
exception of the request by the Member State concerned. 
Experience has shown that the principle of freezing agricultural conversion rates for the 
amounts referred to in Article 7 may lead to very wide monetary gaps. These gaps have 
very little short-term impact on the markets; and although they could over the longer term 
Report from the Commission to the Council and the European Parliament on the agri-monetary 
system for the single market; 1 July 1995 to 30 June 1996. COM(96) 636 final. 
create difficulties of a structural nature between Member States or between production 
sectors in the same Member State the freeze is limited to 1 January 1999. On the other 
hand, large monetary gaps may lead to major problems when they have to be closed up 
in order to substitute the euro for national currency. Consequently, it is proposed to limit 
the size of these monetary gaps. The gap between the frozen agricultural conversion rate 
and the agricultural conversion rate which it replaces should never exceed 7%. The choice 
of a threshold value of 7% takes account of the fact that in July 1996, for the Swedish 
krona, the gaps were 14.7% for per hectare aid for arable crops and 6.9% for beef and 
veal premiums, ewe premiums and structural aid. If necessary, the loss of income due to 
a decline in the agricultural conversion rate for the amounts referred to in Article 7 could 
be taken in to account when granting compensatory aid. 
Compensatory aid, like the aid granted under Regulations (EC) No 1527/95 and (EC) No 
2990/95, would not be linked to current production, would be digressive in three annual 
tranches, could be extended for a limited period, and would be eligible for Community 
financing to cover 50% of the maximum amount. The amounts of the second and third 
tranches would be reconsidered in the case of a devaluation affecting incomes, but 
experience has also shown that the maximum amount of the first tranche can and must 
be revised if there is a devaluation in the first six months of the first year, since in that 
case the full amount of aid would no longer be justified. At all events, the first aid 
payments are made only after the national arrangements for granting the aid have been 
drafted, notified and approved, a process that takes at least six months. When the 
"appreciable" fraction of the revaluation is small, the amount of compensatory aid per 
holding does not correspond to a notable and significant loss of income. It is proposed 
to introduce a minimum of ECU 150 per existing holding, below which aid is not 
granted. In the past, the smallest amounts paid in aid corresponded to a maximum amount 
possible of about ECU 200 per holding. 
In fact, the method of calculating the amount of aid was approved by the Council under 
Regulations (EC) No 1527/95 and (EC) No 2990/95. It is proposed to formalize this 
method so that the Commission may apply it, through the management committee 
procedure, whenever necessary, and as a function of the latest available economic and 
financial data. This method is based on determining the extent to which a given 
revaluation is appreciable in terms of a percentage (the "appreciable part"), and 
determining the expected flat-rate income loss for each percentage point of appreciable 
revaluation. 
The appreciable part of a revaluation corresponding to an appreciable reduction in the 
agricultural conversion rate as defined in Article 1(e) of Regulation (EEC) No 3813/92 
derives directly from that définition. In other cases of appreciable revaluation, the 
problem is more complex, since the difference between the level of the conversion rate 
obtaining on average and the level beyond which a revaluation is regarded as appreciable 
varies both upwards and downwards over time. In such cases, the proposal takes the 
average over twelve months of the reductions that would have made it possible to request 
the application of Article 8 of Regulation (EEC) No 3813/92. 
The assessment of income loss by percentage point of appreciable revaluation is based 
on the economic accounts for agriculture and on documents relating to the budget of the 
European Union. It is assumed, on a flat-rate basis, that the effects of the reduction in 
agricultural conversion rates are passed on in full in: , 
(i) the value of products where an intervention price usually effectively influences 
market prices: cereals and rice, sugar beet, milk and milk products, beef and veal; 
(ii) products subject to a minimum price, aid or premiums paid direct to farmers, to 
the extent that the said reduction in the agricultural conversion rate is actually 
applied. 
However, for the amounts referred to in point (ii), losses affecting, in the sector 
concerned, less than 0.01% of the value of total agricultural production by percentage 
point of appreciable revaluation are regarded as not being significant, and no account is 
taken of them. 
It is also assumed, on a flat-rate basis, that the income loss will be reduced by the impact 
of the agricultural conversion rate on the value of feedingstuffs and on tax payments, 
since they may be expected to decline as a function of cereal prices, on the one hand, and 
gross value added on the other. Finally, in accordance with the agreement established 
under Regulations (EC) No 1527/95 and (EC) No 2990/95, a deduction is applied for 
budgetary reasons, in particular to contribute to financing the freeze on agricultural 
conversion rates for the amounts referred to in Article 7 of Regulation (EEC) No 
3813/92. 
The provisions of this Regulation will help to prevent the main adverse effects of 
currency revaluations on farm incomes, while limiting the risk of possible problems when 
national currencies are phased out. It will provide optimum protection for the financial 
interests of the Community, without leading to discrimination between Member States. 
It should be regarded as a transitional stage pending reform and simplification of the agri-
monetary arrangements that will be possible after the introduction of the euro on 1 
January 1999. 
COUNCIL REGULATION (EC) No ..../97 
of 
determining measures and compensation relating to appreciable revaluations that affect 
farm incomes 
THE COUNCIL OF THE EUROPEAN UNION, 
Having regard to the Treaty establishing the European Community, 
Having regard to the proposal from the Commission, 
Having regard to Council Regulation (EEC) No 3813/92 of 28 December 1992 on the 
unit of account and the conversion rates to be applied for the purposes of the common 
agricultural policy,2 and in particular Article 9 thereof, 
Whereas appreciable revaluations have occurred for the Irish pound, the pound sterling 
and the Italian lira; whereas it is necessary to take steps at Community level to prevent 
distortions in the implementation of the common agricultural policy due to monetary 
causes; 
Whereas Article 9 of Regulation (EEC) No 3813/92 provides for the Council to take all 
necessary measures in the event of an appreciable revaluation, which, primarily to comply 
with obligations under the GATT Agreement and budgetary discipline, may involve 
derogations from the provisions of the said Regulation concerning aid and the amount by 
which the monetary gaps are dismantled, without, however, resulting in the threshold 
being extended; whereas the measures provided for in Articles 7 and 8 of the said 
Regulation cannot be applied as they stand; 
OJL387, 31.12.1992, p. 1; last amended by Regulation (EC) No 150/95 (OJL 22, 31.1.1995, p. 1). 
6 
Whereas compensation for appreciable reductions in the agricultural conversion rates 
before 1 January 1997 was regulated by Council Regulations (EC) No 1527/953 and (EC) 
No 2990/954; whereas equality of treatment requires that new cases should be dealt with 
in the same way, while taking account of experience; whereas on the basis of the 
information available it is impossible to know what the situation will be for more than 
twelve, months ahead; 
Whereas problems could arise, in particular upon the introduction of the euro, if the 
conversion rates applicable to the amounts referred to in Article 7 of Regulation (EEC) 
No 3813/92 were maintained until 1 January 1999, the planned date for the 
implementation of the third stage of Economic and Monetary Union; whereas the 
monetary gap for the agricultural conversion rate applicable to the amounts in question 
should consequently be limited; 
Whereas the rules for granting compensatory aid should be amplified on the basis of 
experience; whereas the amplification should involve iaking account of currency 
developments in the months following appreciable revaluation, and introducing an amount 
per holding below which the grant of aid makes little economic sense; 
Whereas the amount of compensatory aid should be established in each case as a function 
of the latest known economic and financial data; whereas this amount should be 
determined by the Commission by the management committee procedure, as a function 
of the methods devised and applied under Council Regulations (EC) No 1527/95 and 
(EC) No 2990/95; whereas these methods lead to calculation, on a flat-rate basis, of a 
forward estimate of annual income loss related to the appreciable revaluation, with a 
deduction for budgetary purposes; 
3 OJL 148, 30.6.1995, p.l. 
4 OJ L 312, 23.12.1995, p.l; amended by Regulation (EC) No 1451/96 (CJ L 187, 26.7.1996, p.l). 
Whereas the appreciable revaluation of the Irish pound on 8 November 1996 did not lead 
to the granting of compensatory aid; whereas aid should be authorized in this case in 
accordance with the conditions of this Regulation, 
HAS ADOPTED THIS REGULATION: 
Article 1 
1. This Regulation shall apply in the event of appreciable revaluations occurring 
from 1 January 1997 until the end of the twelfth month following that of its 
publication. 
2. For the purposes of this Regulation, an appreciable revaluation shall mean a 
reduction in the agricultural conversion rate leading to the application of Articles 
7 and 8 of Regulation (EEC) No 3813/92, and any other reduction as defined in 
Article 1(e) of that Regulation. 
3. The appreciable revaluation shall be deemed to have occurred: 
where applicable, on the date of the appreciable reduction in the 
agricultural conversion rate, as defined in Article 1(e) of Regulation (EEC) 
No 3813/92, or 
in other cases, on the earliest date on which all the conditions for applying 
Articles 7 or 8 of Regulation (EEC) No 3813/92, with the exception of the 
request from the Member State concerned, are fulfilled. 
Article 2 
Articles 7 and 8 of Regulation (EEC) No 3813/92 shall not be applicable in cases of 
revaluation as referred to in Article 1. 
Article 3 
1. The agricultural conversion rate applied to one of the amounts referred to in 
Article 7 of Regulation (EEC) No 3813/92, on the day preceding that on which 
the conditions for applying that Article are fulfilled, except for the request from 
the Member State concerned, shall remain unchanged until 1 January 1999. 
However, without prejudice to Article 3 of Regulation (EC) No 1527/95-or to 
Article 3 of Regulation (EC) No 2990/95, in cases where the agricultural 
conversion rate referred to in the first subparagraph exceeds by more than 7% the 
agricultural conversion rate it replaces, the rate applied until 1 January 1999 shall 
be the rate replaced increased by 7%. 
2. The agricultural conversion rate referred to in paragraph 1 shall apply to the 
amount in question and to any additions or changes to the value of that amount 
decided before 2 January 1999. 
Article 4 
1. The Member State affected may make compensatory payments to farmers in three 
successive tranches lasting twelve months each, starting with the month following 
the appreciable revaluation. 
These compensatory payments shall not take the form of aid linked to production, 
other than production during a stipulated period prior to introduction of the 
compensation scheme; they shall not favour any particular type of production or 
be dependent on production subsequent to the period stipulated. 
2. The maximum amount of the first tranche of compensatory aid shall be 
established, for the Member State concerned as a whole, by multiplying: 
by the appreciable part of the revaluation, as a percentage, determined in 
accordance with Article 5 
the flat-rate income loss for each percentage point of appreciable 
revaluation, determined in accordance with Article 6. 
To the sum resulting from these calculations shall be added the part of the aid 
referred to in Article 7 of Regulation (EEC) No 3813/92 for which the agricultural 
conversion rate has been reduced in accordance with Article 3. 
3. The maximum amount referred to in paragraph 2 shall be reduced or cancelled if 
necessary as a function of the effect on income of the development of agricultural 
conversion rates until the end of the sixth month following that of the appreciable 
revaluation. 
However, no aid shall be granted when the amount calculated in accordance with 
paragraph 2 and the first subparagraph of this paragraph corresponds to an average 
of less than ECU 15.0 per agricultural holding in the Member State concerned. 
4. The amounts paid out under the second and third tranches shall each be reduced, 
vis-à-vis the previous tranche, by at least a third of the amount paid out in the 
first tranche. 
The amounts paid out under the second and third tranches of compensatory aid 
shall be reduced or cancelled as a function of the effect on incomes of the 
development of agricultural conversion rates until the beginning of the month 
preceding the first month of the relevant tranche. 
5. The Community contribution to financing these compensatory payments shall be 
50 % of the amounts that may be paid out. 
10 
For the purposes of the financing of the common agricultural policy, this 
contribution shall be considered to form part of the assistance designed to 
regularize agricultural markets. The Member State may withdraw from national 
participation in financing the aid. 
Article 5 
1. The appreciable part of the revaluation, expressed as a percentage, referred to in 
the first indent of Article 4(2) shall: 
(a) in cases of appreciable reduction of the agricultural conversion rate within 
the meaning of Article 1(e) of Regulation (EEC) No 3813/92, be equal to 
the difference between, on the one hand, the threshold beyond which a 
reduction becomes appreciable and, on the other, the new agricultural 
conversion rate, expressed as a percentage of that threshold; 
(b) in other cases, be equal to the average, over the twelve months following 
that of the appreciable reduction, of the reductions in average agricultural 
conversion rates below the thresholds triggering the possible application 
of Article 8 of Regulation (EEC) No 3813/92; such reductions shall be 
established on the first day of each month, and expressed as a percentage 
of the said thresholds. 
2. Where several successive appreciable revaluations occur, the reductions in the 
agricultural conversion rates taken into account for determining the appreciable 
part leading to the grant of aid may not be taken into account more than once. 
Article 6 
1. The flat-rate income loss referred to in the second indent of Article 4(2) shall be 
equal to: 
11 
(a) the sum of 1%: 
of final agricultural production of cereals including rice, sugar beet, 
milk and milk products and beef and veal, 
and 
of the value of the quantities of products supplied under a contract 
imposing, in accordance with Community rules, a minimum price 
to the producer, for products not referred to in the first indent, 
and 
of aid or premiums paid to farmers, with the exception of those 
referred to in Article 7 of Regulation (EEC) No 3813/92; 
(b) after subtraction of: 
0.5% of the value of intermediate consumption in the form of 
animal feed, 
and 
the impact on tax of the reduction in gross value added at market 
prices resulting from the operations concerning point (a) and the 
first indent of point (b), 
and 
a deduction corresponding to 1% of forecast EAGGF expenditure 
on the following items: 
12 
the full amount of flat-rate per hectare aid, 
half the amount of structural or environmental aid, and 
130% of ewe premiums. 
2. The amounts referred to in the second and third indents of paragraph 1(a) shall 
not be taken into account when their sum is less than 0.01% of the final 
agricultural production of the relevant Member State in the product sector 
concerned. 
For the purposes of this Regulation, the product sectors shall be those set out in 
the Annex. 
3. The flat-rate income loss shall be determined on the basis of information relating 
to: 
(a) economic accounts for agriculture available from Eurostat for the last 
calendar year ending before the date of the appreciable revaluation, for the 
first indent of paragraph 1(a) and the first and second indents of paragraph 
1(b); 
(b) the budget outturn, or, failing that, the budgets or draft budgets or 
preliminary draft budgets relating to: 
income for the year referred to in (a), for the second and third 
indents of paragraph 1(a), 
the budget year beginning during the marketing year for cereals in 
which the appreciable revaluation occurred, for the third indent of 
paragraph 1(b). 
13 
For the purposes of applying paragraph 2 in marginal cases, consideration of the 
information referred to in point (a) above shall take account of the relevant figures 
for the preceding two years also. 
The increase referred to in the second indent of Article 4(2) shall be calculated 
as a function of the data referred to in the first indent of point (b) above. 
Article 7 
The Commission shall, in accordance with the procedure laid down in Article 12 of 
Regulation (EEC) No 3813/92, adopt detailed rules for applying this Regulation, and in 
particular the amounts of the aid tranches referred to in Article 4 and the factors for 
calculating them referred to in Articles 5 and 6. 
Article 8 
Before the end of the third period during which the compensatory aid is granted, the 
Commission shall examine the effects on agricultural income of the appreciable 
revaluation concerned. 
Where it is found that income losses are likely to continue, the Commission may, in 
accordance with the procedure laid down in Article 12 of Regulation (EEC) No 3813/92, 
extend the possibility of granting compensatory aid as provided for in Article 4 by a 
maximum of two additional 12-month tranches, the maximum amount per tranche being 
equal to that granted in the third tranche. 
Article 9 
This Regulation shall enter into force on the seventh day following its publication in the 
Official Journal of the European Communities. 
14 
Articles 4 to 8 shall apply to the reduction in the agricultural conversion rate of the Irish 
pound that occurred on 8 November 1996. 
This Regulation shall be binding in its entirety and directly applicable in all Member 
< 
States. 
Done at Brussels, For the Council 
15 
ANNEX 
The production sectors correspond to the statistical aggregates identified in the economic 
accounts for agriculture, drawn up by Eurostat, or to groups of aggregates, as listed 
below: 
1. Cereals and rice 
2. Sugar beet 
3. Milk and milk products 
4. Beef and veal 
5. Oilseeds and olive oil 
6. Fresh fruit 
7. Fresh vegetables 
8. Potatoes 
9. Wines and musts 
10. Flowers and nursery plants 
11. Pigmeat 
12. Sheepmeat and goatmeat 
13. Eggs and poultry 
14. Other 
16 
FINANCIAL STATEMENT 
BUDGET HEADING:390 APPROPRIATIONS:ECU 140.9 m 
2. TITLE: Council Regulation determining measures and compensation relating to appreciable revaluations that affect farm 
incomes 
LEGAL BASIS: Article 9 of Regulation 3813/92 
4. AIMS OF PROJECT:To define measures and degressive aid financed from the Community Budget to offset loss of 
farm income following a decline in the agricultural conversion rate 
FINANCIAL IMPLICATIONS PERIOD OF 12 
MONTHS CURRENT 
FINANCIAL 
YEAR 
(97) FOLLOWING 
FINANCIAL 
YEAR 
(98) 
5.0. 
5.1. EXPENDITURE 
- CHARGED TO THE EC BUDGET 
(REFUNDS/INTERVENTION) 
- NATIONAL ADMINISTRATION 
OTHER 
REVENUE 
OWN RESOURCES OF THE EC 
(LEVIES/CUSTOMS DUTIES) 
NATIONAL 263 369 
1999 
5.0.1. ESTIMATED EXPENDITURE 
5.1.1. ESTIMATED REVENUE 306 2000 2001 2002 
5.2. METHOD OF CALCULATION: 
6.0. CAN THE PROJECT BE FINANCED FROM APPROPRIATIONS ENTERED IN THE RELEVANT 
CHAPTER OF THE CURRENT BUDGET? 
Y-ES/NO 
6.1. CAN THE PROJECT BE FINANCED BY TRANSFER BETWEEN CHAPTERS OF THE CURRENT 
BUDGET? 
YES/NO* 
6.2. IS A SUPPLEMENTARY BUDGET NECESSARY? YES/NO 
6.3. WILL FUTURE BUDGET APPROPRIATIONS BE NECESSARY? YES/NO 
OBSERVATIONS: The lack of appropriations is due to the abatement of ECU 1 000 million in the draft Budget for 1997. If 
sufficient global appropriations are available under heading 1, the Commission will transfer funds to the 
relevant headings in this chapter. 
If global appropriations are insufficient, the Commission will propose a SAB to provide the necessary 
funds, as agreed in the joint declaration of the Council and the Commission of 21 July 1996. 
17 
ANNEX 
Measures have become necessary as a consequence of recent revaluations of the Irish pound, the pound sterling 
and the Italian lira. 
The proposed measure avoids the application of Articles 7 and 8 of Regulation 3813/92, which could have a 
financial impact on the budget in 1998 and subsequent years of the order of ECU 1 800 million. 
The cost of the measure is based on the monetary situation on 21.1.1997. 
The maximum amounts of compensatory aid were established on the basis of the latest forecasts available at the 
time. 
Cost of the measure (ECU million) 
IRL UK IT TOTAL 
1997 
- Compensatory aid 
1998 
- Compensatory aid 
- freeze on green rate 
TOTAL 
1999 
- Compensatory aid 
- freeze on green rate 
TOTAL 62 
41 
41 
21 
21 104 
69 
143 
212 
35 
167 
202 97 
65 
51 
116 
32 
51. 
83 263 
175 
194 
369 
88 
218 
306 
ISSN 0254-1475 
COM(97) 59 final 
DOCUMENTS 
EN 03 oi 
Catalogue number : CB-CO-97-049-EN-C 
ISBN 92-78-15664-7 
Office for Official Publications of the European Communities 
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