REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on EAGGF Guarantee Section expenditure - Early warning system Nos 5/2004, 6/2004 and 7/2004

1. provisional utilisation of appropriations

The uptake of appropriations under heading 1 of the budget for the month of July 2004 (Member States' expenditure from 16 October 2003 to 31 May 2004) amounts to EUR 34 516.0 million, i.e. 73.8% of appropriations. Before the clearance of the accounts, this expenditure is approximately -EUR 795.7 million under the indicator for both subheadings 1a and 1b. However, when the clearance of accounts is included, this under-execution rises to -EUR 938.8 million for both subheadings 1a and 1b. For a detailed presentation of the EAGGF-Guarantee's execution for the months of March to May 2004 please refer to the tables annexed to this report.

2. comments on the implementation of the 2004 budget

The budget's implementation is influenced by the following main factors:

2.1. Monetary factors

The dollar/euro rate

The expenditure indicated above 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 2004 agriculture budget was drawn up on the basis of the average dollar rate for July, August and September 2003, i.e. EUR 1 = $ 1.12. For the period 1 August 2003 to 31 May 2004 the average dollar rate was approximately equal to EUR 1 = $ 1.22, i.e. at a level above the rate used for the establishment of the 2004 budget.

2.2. Market factors

Subheading 1a

For subheading 1a the rhythm of execution is under the level of the indicator at approximately -EUR 516.2 million before the clearance of the accounts. Part of this under-execution (approximately 78%) is attributable to the plant products sector while approximately 17% is attributable to the slowdown of the implementation rhythm of veterinary and phytosanitary expenditure. For the plant products sector, this under-execution is primarily related to sugar, cereals, cotton, tobacco and to other plant products/measures. In the animal products sector, the budget relating to dairy products is under-implemented.

The following comments are called for:

Article 05 02 01: Market measures for cereals // Divergence: -EUR 150 million (-26.7%)

// (expenditure: EUR 273 million)

(indicator: EUR 423 million)

This under-execution is primarily attributable to the lower level of aid payments declared by the Member States for starch intervention as compared to the level of the indicator. This is due to the fact that, because of the current favourable market conditions, the rate of the production refund for starch has been set at zero. The Commission services expect that there will be an under-implementation of the budget's appropriations for this article by the end of the budget year.

Article 05 02 05: Sugar // Divergence: -EUR 191 million (-11.2%)

// (expenditure: EUR 942 million)

(indicator: EUR 1 133 million)

This under-execution by comparison to the level of the indicator is due to the reduced quantities of sugar exported with refunds. These exports currently stand at approximately 66% of the volume expected to have been exported as at this point in time. The Commission services expect that there will be an under-implementation of the budget's appropriations for this article by the end of the budget year.

Article 05 02 07: Textile plants // Divergence: -EUR 66 million (-7.5%)

// (expenditure: EUR 621 million)

(indicator: EUR 687 million)

The Commission services fixed the eligible quantities of cotton for the marketing year 2003/04 at a level lower than the one retained when the 2004 budget was established. On this basis, total payments for the aid for cotton will be lower, thus, leading to an under-execution of the budget's appropriations for this article by the end of the budget year.

Article 05 02 10: Tobacco // Divergence: -EUR 45 million (-4.9%)

// (expenditure: EUR 711million)

(indicator: EUR 756 million)

This under-execution is due to the slowdown in the rhythm of payments for the tobacco premiums by 2 Member States when compared to the level of the indicator at this point in time.

Article 05 02 11: Other plant products/measures // Divergence: -EUR 34 million (-4.3%)

// (expenditure: EUR 414 million)

(indicator: EUR 448 million)

This under-execution is due to the slowdown in the implementation of the POSEI programmes when compared to the level pointed out by the indicator.

Article 05 03 01: Milk and milk products // Divergence: -EUR 173 million (-5.9%)

// (expenditure: EUR 1 773 million)

(indicator: EUR 1 946 million)

The favourable conditions in dairy markets have led to a reduction of the export refund levels for dairy products which in combination with the slowdown in the exported quantities of condensed milk will result in lower payments for export refunds for dairy products. The Commission services expect that, if the current situation persists, there will be an under-implementation of the budget's appropriations for this article by the end of the budget year.

Article 05 03 04: Pigmeat, eggs and poultry, beekeeping and other animal products // Divergence: -EUR 14 million (-7.9%)

// (expenditure: EUR 90 million)

(indicator: EUR 104 million)

In order to stabilise the pig-meat market, the Commission introduced the private storage of pig-meat in late December 2003 and the payment of export refunds on fresh and frozen pig-meat exports as of the end of January 2004. Both of these measures have been discontinued due to the subsequent improvement in the market situation of the sector. However, the 2004 budget did not include appropriations for any of these schemes. Therefore, the Commission considers the current under-execution for this article to be temporary. If Member States make all the payments due for these measures, then, the credit appropriations foreseen in the budget for the pig-meat sector will be over-implemented.

3. conclusions

Implementation of appropriations at 31 May 2004

The uptake of appropriations for July 2004 (Member States' expenditure from 16 October to 31 May 2004) shows an under-implementation for subheading 1a. A part of this under-implementation is due to the slowdown of the implementation rhythm of veterinary and phytosanitary expenditure. However, another part is attributed to articles 05 02 01, 05 02 05, 05 02 07 and 05 03 01 of the budget. At this point in time, the Commission services expect that the under-implementation of the budget for these articles will continue to the end of the budget year and that it will eventually result to budget savings. As it regards the implementation pattern of the other articles of the budget, the Commission services can not draw, at this point in time, a definitive opinion. The under-execution for subheading 1b invites no comment at this point in time.

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