REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on EAGGF Guarantee Section expenditure - Early warning system No 7/2003 and No 8/2003

TABLE OF CONTENTS

1. OVERALL OUT-TURN IN MONTHLY EXPENDITURE

2. PROVISIONAL UTILISATION OF APPROPRIATIONS

3. COMMENTS

4. CONCLUSIONS

1. 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 2002 to 30 June 2003.

1.1. Subheading 1a: CAP

>TABLE POSITION>

1.2. Subheading 1b: Rural Development

>TABLE POSITION>

2. PROVISIONAL UTILISATION OF APPROPRIATIONS

The following tables present the provisional utilisation of appropriations for the seventh and the eighth month of the 2003 budget year:

>TABLE POSITION>

>TABLE POSITION>

3. COMMENTS

3.1. The uptake of appropriations for August 2003

The uptake of appropriations under heading 1 of the budget for June 2003 (Member States' expenditure from 16 October 2002 to 30 June 2003) amounts to EUR 37 403,9 million, i.e. 83,5% of appropriations. Expenditure is

- EUR 506,6 million under the level of the indicator for subheading 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure), and

- EUR 256,6 million above the indicator for subheading 1b (rural development).

3.2. 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 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 2002 to 30 June 2003 the average dollar rate was equal to EUR 1 = $ 1,05, i.e. at a level above the rate used for the establishment of the 2003 budget.

3.3. Market factors

Subheading 1a

For subheading 1a, the rhythm of execution is under the level of the indicator for all budget titles. However, this overall under-execution pattern for the budget's appropriations did not concern the chapters relating to arable crops, olive oil, fruits and vegetables, milk and sheep-meat that showed an over-execution of the corresponding appropriations.

The following comments are called for certain chapters of the budget:

Chapter B1-10: Arable crops // Divergence: + EUR 116 million (+ 0,7%)

// (expenditure: EUR 16 571 million)

(indicator: EUR 16 455 million)

At this point in time, the Commission expects that this chapter's appropriations will be over-executed by the end of the budget year. This over-execution will be primarily due to the higher payments incurred by the Member States for set-aside aids as well as to the increase in appropriation requirements for export refunds for cereals due to the increase of the export refund rates for soft wheat, flour, barley and oats during the first few months of the year. Equally for cereals intervention, expenditure could be higher due to the higher purchases and lower sales of public storage cereals.

Chapter B1-11: Sugar // Divergence: -EUR 142 million (-9,6%)

// (expenditure: EUR 957 million)

(indicator: EUR 1 099 million)

This under-execution is due to the decrease in the quantities of exported sugar by comparison to the quantities, which were expected to have been exported by this time of the year. The Commission expects that this under-execution will continue to the end of the financial year.

Chapter B1-12: Olive oil // Divergence: + EUR 12 million (+ 0,5%)

// (expenditure: EUR 2 055 million)

(indicator: EUR 2 043 million)

This over-execution is due to the fact that, within the expenditure incurred and declared by the Member States, approximately EUR 62,0 million concern payments of production aid for the previous marketing years which were not foreseen to be paid when the budget was established.

Chapter B1-15: Fruits and vegetables // Divergence: + EUR 9 million (+ 0,6%)

// (expenditure: EUR 1 187 million)

(indicator: EUR 1 178 million)

This small over-execution is temporary. At this point in time, the Commission expects that this chapter's appropriations will be under-executed by the end of the budget year. This under-execution will be primarily due to the fresh fruits and vegetables sector. In this sector, and due to favourable market conditions:

- smaller quantities of fruits and vegetables were withdrawn from the market, thus, resulting in smaller payments for financial compensation, and

- the aid for bananas was fixed at lower levels when compared to the quantities and the levels retained when the 2003 budget was established.

Chapter B1-16: Wine // Divergence: -EUR 46 million (-3,3%)

// (expenditure: EUR 1 048 million)

(indicator: EUR 1 094 million)

At this point in time, the Commission expects that this chapter's appropriations would show an under-execution by the end of the budget year. This under-execution will be primarily due to the fact that there will be no crisis distillation this year, a scheme for which the budget foresaw appropriations covering a quantity of 8,0 million hl. Equally, the distillation for the spirits industry is expected to amount to a quantity of approximately 8,7 million hl as compared to budget appropriations covering such distillations of 12,5 million hl.

Chapter B1-20: Milk // Divergence: + EUR 47 million (+ 1,7%)

// (expenditure: EUR 1 959 million)

(indicator: EUR 1 1912 million)

The international market situation made necessary the increase in the export refund rates for butter and skimmed milk powder beyond the rates initially retained in the 2003 budget. This increase resulted to an over-execution of the budget's appropriations, which are expected to last to the end of the 2003 budget year.

Chapter B1-21: Beef and veal // Divergence: -EUR 382 million (-4,6%)

// (expenditure: EUR 7 230 million)

(indicator: EUR 7 612 million)

At this point in time, the Commission expects an overall under-implementation of this chapter's appropriations. Part of the observed under-implementation is due to lower payments for export refunds because of the decrease in the exported quantities of beef. The Commission expects that this decrease will continue to the end of the year, thus, under-implementing the corresponding appropriations.

Another part of the observed under-execution is due to the slower rhythm of premium payments when compared to the level of the indicator for the same period of time. Indeed, certain Member States having difficulties to make premium payments within the set by the regulation deadline of 30 July 2003. They were granted a supplementary deadline of one month in order to catch up with these delayed payments for the premium schemes.

Chapter B1-23: Pigmeat // Divergence: -EUR 34 million (-16,8%)

// (expenditure: EUR 106 million)

(indicator: EUR 140 million)

The smaller quantities of exported pigmeat as well as the lower level of refunds granted compared to the levels retained in the 2003 budget point towards an under-implementation of this chapter's appropriations by the end of the year. However, uncertainties as to the payments which will be made by the Member States for the private storage of pigmeat could influence this chapter's implementation to the end of the budget year.

Subheading 1b

Chapter B1-40: Rural development // Divergence: +EUR 257 million(+ 5,5%)

// (expenditure: EUR 1 752 million)

(indicator: EUR 1 495 million)

An overall acceleration is observed with regard to the implementation rhythm of rural development programmes, which are currently running at approximately 37% of their budget appropriations while the corresponding indicator was calculated at a 32% implementation rhythm for the period to 30 June2003. This significant acceleration is mostly observed in the implementation rhythm of the agri-environmental measures. It should be noted that, on the basis of past experience, Member States tend to spend almost half of their annual allocation in the last two weeks of the budget year. However, setting this chapter's appropriations at the ceiling of the financial perspectives for sub-heading 1b, there is no risk of over-implementing these appropriations.

4. CONCLUSIONS

Implementation of appropriations at 30 June 2003

The uptake of appropriations for August 2003 (Member States' expenditure from 16 October 2002 to 30 June 2003) shows that, for sub-heading 1a, there is an overall under-execution of the budget's appropriations despite the over-implementation observed for certain chapters of the budget. The level of this under-execution, at -EUR 507 million, was halved when compared to the level of the previous month, i.e. to 31 May 2003 when it stood at -EUR 955 million (see tables 2.1 and 2.2 of this report). Within this tendency, for certain chapters of the budget like: sugar, fruits and vegetables, wine and beef-meat, on the basis of current market information available, the under-implementation of appropriations is expected to last to the end of the budget year. For sub-heading 1b, Member States should watch out to not exceed their 2003 allocations for the rural development programmes approved for the period 2000-2006.