COMMISSION REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL EAGGF Guarantee Section expenditure Early warning system No 5/2000

CONTENTS

1. Overall outturn in monthly expenditure

2. Provisional utilisation of appropriations

3. Comments

4. Conclusions

1. Overall outturn in monthly expenditure

The following tables show the overall outturn in monthly expenditure in relation to the expenditure profile. This situation corresponds to expenditure incurred in the Member States from 16 October 1999 to 31 March 2000.

1.1. Subheading 1a: Traditional EAGGF Guarantee Section expenditure and veterinary expenditure

>TABLE POSITION>

1.2. Subheading 1b: Rural development and accompanying measures

>TABLE POSITION>

2. Provisional utilisation of appropriations

>TABLE POSITION>

3. Comments

3.1. The uptake of appropriations for May 2000

The uptake of appropriations under heading 1 of the budget for May 2000 (Member States' expenditure from 16 October 1999 to 31 March 2000) is EUR 28 241 million, i.e. 68.9 % of appropriations. Expenditure is

- EUR 154 million above the indicator for subheading 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure). Expenditure in the previous month was below the level of the indicator. This was mainly because aid for areas under oilseeds was not paid until March, rather than from February as in previous years. The Member States paid this aid in March, thus making up the delay in uptake of the previous month.

- EUR 116 million above the indicator for subheading 1b (rural development and accompanying measures).

3.2. Monetary factors

3.2.1. 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 Decision on budgetary discipline, the 2000 agriculture budget was drawn up on the basis of the average dollar rate for January, February and March 1999, i.e. EUR 1 = $ 1.12.

The real euro rates recorded were substantially lower than the budgetary parity. The average dollar rate for the period 1 August 1999 to 31 July 2000 (reference period for determining the impact of the dollar) is therefore highly likely to diverge from this budgetary parity. The amount of expenditure incurred by the Member States will probably be lower as a result of the trend in the dollar rate [1].

[1] The average dollar rate for the period 1 August 1999 to 7 April 2000 was EUR 1 = $ 1.02. Should the rate at 7 April (EUR 1 = $ 0.96) continue until the end of the year, the average rate would be about EUR 1 = $ 1.

It should be remembered that savings exceeding the margin of EUR 200 million fixed under the rules of budgetary discipline will be transferred to the monetary reserve at the end of the financial year.

3.2.2. The impact of the dual rates

The impact of the dual rates will result in substantially lower expenditure than in previous years. Abolition of the green rates has eliminated the effect of dual rates in the countries participating in the euro and thus produced major savings.

The cost of the dual rate to the EAGGF Guarantee Section at the time when the letter of amendment was prepared was estimated at EUR 119 million. In the situation update for January, it was calculated at EUR 193 million, i.e. EUR 74 million more.

3.3. Market factors

3.3.1. Subheading 1a: Traditional EAGGF Guarantee Section expenditure and veterinary expenditure

Chapter B1-10 : Arable crops // + EUR 180 million

// (expenditure: EUR 15 474 million)

(indicator: EUR 15 293 million)

(Member States' forecasts: EUR 15 342 million)

At the end of the previous month, appropriations under this chapter were underutilised, but the indicator has now been overrun. This is due to the fact that the Member States have made up practically all the delay in paying aid for areas under oilseeds.

The overrun of the indicator is due to:

- the across-the-board reduction in appropriations decided by the budgetary authority when the budget was adopted; in particular, certain budget items for area aid overrun the indicator;

- higher-than-expected expenditure on public storage (and increased purchases and sales).

Both disparities are substantial. They are partially offset by underutilisation following a delay in payments of per hectare aid in Italy (in particular for durum wheat) due to the reinforcement of controls requested by the Commission.

An overrun on appropriations can be expected at the end of the financial year, in particular as a result of the across-the-board reduction when the budget was adopted and higher expenditure on public storage. However, uptake under of this chapter will also depend on the outcome of the checks in Italy.

Chapter B1-11 : Sugar // + EUR 58 million

// (expenditure: EUR 1 083 million)

(indicator: EUR 1 025 million)

(Member States' forecasts: EUR 1 095 million)

The overrun of the indicator is the result of higher payments for export refunds. This is due to a high level of exports and also to low world prices.

Chapter B1-12 : Olive oil // - EUR 61 million

// (expenditure: EUR 1 929 million)

(indicator: EUR 1 990 million)

(Member States' forecasts: EUR 1 934 million)

The divergence from the indicator results from lower expenditure on olive oil production aid. Following the change in the quota arrangements with the introduction of national quotas, overall expenditure in the form of advance payments is lower than in previous years. The underutilisation will probably disappear when the balance is paid later on in the financial year.

By contrast, a slight overrun on appropriations should be expected at the end of the financial year as a result of the across-the-board reduction when the budget was adopted.

Chapter B1-15 : Fruit and vegetables // - EUR 134 million

// (expenditure: EUR 774 million)

(indicator: EUR 908 million)

(Member States' forecasts: EUR 739 million)

The divergence from the indicator mainly concerns processed fruit and vegetables, and results from the late payment of financial compensation to encourage the processing of citrus fruit and production aid for products processed from tomatoes.

Underutilisation is only minimal for fresh fruit and vegetables, also because payments (for bananas) were made later than expected.

Expenditure is expected to be roughly equal to budget appropriations at the end of the financial year.

Chapter B1-17 : Tobacco // - EUR 65 million

// (expenditure: EUR 714 million)

(indicator: EUR 780 million)

(Member States' forecasts: EUR 707 million)

The divergence from the indicator is the result of late payment for premiums for the 1999 harvest. It is expected that this delay will be made up during the financial year.

Chapter B1-20 : Milk and milk products // + EUR 24 million

// (expenditure: EUR 1 321 million)

(indicator: EUR 1 296 million)

(Member States' forecasts: EUR 1 307 million)

The overrun of the indicator is the result, in particular, of higher expenditure on export refunds (a larger volume of exports), partially offset by higher earnings on sales of skimmed milk powder from public storage.

Chapter B1-21 : Beef and veal // + EUR 114 million

// (expenditure: EUR 2 448 million)

(indicator: EUR 2 334 million)

(Member States' forecasts: EUR 2 497 million)

The overrun of the indicator is due to:

- higher expenditure on premiums (the main factor). Already in previous years it was found that the Member States pay such premiums irregularly, often producing substantial discrepancies between utilisation and the indicator that disappeared only at the end of June (the deadline for payment of a large part of these premiums). However, alongside this strictly temporary impact, increased expenditure was also due to the across-the-board reduction in appropriations decided by the budgetary authority, and to unexpected expenditure under exceptional support measures (slaughter and destruction of livestock in the United Kingdom as part of the campaign to eradicate BSE);

- lower-than-expected earnings on sales from public storage. Requirements are likely to outstrip budget appropriations.

The overrun is partially offset by underutilisation in relation to the indicator for export refunds.

An overrun on appropriations can be expected for premiums (in particular as a result of the across-the-board reduction in appropriations) and expenditure on public storage. By contrast, expenditure on export refunds is expected to be roughly equal to budget appropriations at the end of the financial year.

Chapter B1-22 : Sheepmeat and goatmeat // + EUR 142 million

// (expenditure: EUR 909 million)

(indicator: EUR 767 million)

(Member States' forecasts: EUR 993 million)

The indicator was overrun as a result of the increased rate of payment of the balance on ewe premiums compared to previous years. The impact on expenditure is therefore only temporary.

Indeed, requirements for this chapter are likely to decrease because of lower expenditure on the ewe premium in 1999 (good prices on the Community market).

Chapter B1-23 : Pigmeat, eggs and poultry // + EUR 20 million

// (expenditure: EUR 248 million)

(indicator: EUR 229 million)

(Member States' forecasts: EUR 252 million)

The overrun of the indicator is the result of higher expenditure on export refunds for pigmeat. Although expenditure on this measure will probably slightly exceed budget appropriations at the end of the financial year, overall expenditure for this chapter is expected to be roughly equal to budget appropriations.

Chapter B1-30 : Non-Annex I products // + EUR 31 million

// (expenditure: EUR 286 million)

(indicator: EUR 254 million)

(Member States' forecasts: EUR 281 million)

The overrun is mainly due to higher expenditure on cereal-based and butter-based products. This is the result of both an increase in the quantity of exports and the across-the-board reduction in appropriations when the budget was adopted.

An overrun of appropriations can be expected at the end of the year.

Chapter B1-37: Clearance and reduction in advances //

This chapter is not subject to an indicator; it covers financial corrections decided under the clearance of accounts, and reductions and suspensions of advances (reductions/suspensions of monthly reimbursements) to the Member States.

The present level of expenditure (- EUR 67 million) is due to reductions in advances for March decided by the Commission. The reductions relate in particular to Italy's failure to collect the additional milk levy for the 1998/99 marketing year.

Moreover, the Commission has recently decided financial corrections under the clearance of accounts amounting to about -EUR 254 million, to be credited to EAGGF accounts over the coming months.

It is likely that the Commission will take further decisions before the summer break, in particular on the clearance of accounts. It is possible, however, that amounts collected under this heading will remain below budget forecasts if more time is needed to deal with the cases before the Conciliation Body.

Chapter B1-39: Other measures // - EUR 139 million

// (expenditure: EUR 488 million)

(indicator: EUR 627 million)

(Member States' forecasts: EUR 481 million)

Appropriations were underutilised because of delays in the payment of some agrimonetary aid. The discrepancy is probably only temporary.

This chapter also includes a heading under which the Member States must temporarily enter any amounts recovered for which they have not yet been able to determine the original chapter and heading. At present, Italy has a recovered amount (negative amount) of about EUR 85 million pending under this temporary heading. This is another major reason for the underutilisation recorded.

3.3.2. Subheading 1b: Rural development and accompanying measures

Chapter B1-40: Rural development // + EUR 116 million

// (expenditure: EUR 889 million)

(indicator: EUR 773 million)

(Member States' forecasts: EUR 912 million)

The divergence from the indicator is due to higher expenditure on the three former accompanying measures. The Member States' expenditure forecasts show low expenditure over coming months and expenditure substantially below the indicator at the end of May.

4. Conclusions

The uptake of appropriations under heading 1 of the budget for May 2000 (Member States' expenditure from 16 October 1999 to 31 March 2000) is EUR 28 241 million, i.e. 68.9 % of appropriations.

4.1. The uptake of appropriations for subheading 1a

Expenditure is EUR 154 million above the indicator for subheading 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure). In March, the Member States began to pay aid for areas under oilseed crops, and made up the delays in implementation recorded in the previous month.

The indicator was overrun in the following sectors:

- arable crops (+EUR 180 million), because of the across-the-board reduction in appropriations by the budgetary authority when the budget was adopted and because of higher expenditure on public storage,

- sheepmeat and goatmeat (+EUR 142 million) owing to a faster rate of payment,

- beef and veal (+EUR 114) owing to higher expenditure on premiums (partially the result of a faster rate of payments) and on public storage,

- sugar (+EUR 58 million) owing to higher export refunds,

- non-Annex I products (+EUR 31 million) owing to an increase in the volume of exports.

Utilisation was below the indicator in the following sectors:

- other measures (-EUR 139 million), owing first to delayed payment of agri-monetary aid and secondly to temporary entry of a large negative amount by Italy, pending definitive allocation to other chapters,

- fruit and vegetables (-EUR 134 million) owing to delayed payments, in particular for processed fruit and vegetables,

- tobacco (-EUR 65 million) owing to a delay in payment in relation to the indicator,

- olive oil (-EUR 61 million), also owing to a delay in payment.

Most of the causes of underutilisation are temporary, while overruns largely correspond to substantial discrepancies that will persist until the end of the year. It should also be borne in mind that the present level of expenditure takes account of the savings resulting from the movement of the dollar against the euro, but that any savings exceeding the margin of EUR 200 million fixed under the rules of budgetary discipline will be transferred to the monetary reserve at the end of the financial year.

Consequently, the budget situation for this subheading is very tight.

4.2. The uptake of appropriations for subheading 1b

Expenditure is EUR 116 million above the indicator for subheading 1b (rural development and accompanying measures). The divergence from the indicator is due to higher expenditure on the three former accompanying measures.

The Member States' expenditure forecasts show low expenditure over the coming months and expenditure below the indicator at the end of May.