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Brussels, 24.5.2007

SEC(2007) 693 final

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

on EAGF expenditure Early warning system No 2–4/2007

TABLE OF CONTENTS

1. INTRODUCTION 3

2. ASSIGNED REVENUE 3

3. SUGAR RESTRUCTURING FUND 4

4. COMMENTS ON THE IMPLEMENTATION OF THE 2007 BUDGET 4

5. CONCLUSIONS 6

INTRODUCTION

For the period 16 October 2006 to 28 February 2007, the budget’s actual implementation level compared to the expenditure profile pointed out by the indicator, established on the basis of the dispositions of Article 20 of Council Regulation (EC) No 1290/2005[1] is presented in the Annex.

ASSIGNED REVENUE

On the basis of the dispositions of Article 34 of the new CAP Financing Regulation (EC) No 1290/2005, the receipts originating from financial corrections under conformity clearance decisions, from irregularities and from the milk levy are designated as revenue assigned to the financing of EAGF expenditure. At the time of establishment of the 2007 budget, an estimation of this revenue was made and this estimation was taken into consideration when the Budgetary Authority adopted the 2007 budget's appropriations. Specifically:

- the receipts from the milk levy were estimated at EUR 349.0 million and they were taken into consideration by reducing the appropriations requested for the milk and milk products sector for which the Budgetary Authority granted an amount of EUR 587.0 million;

- the receipts from the conformity clearance claw-backs and from irregularities were estimated at EUR 568.0 million and EUR 70.0 million correspondingly. The total amount of EUR 638.0 million was taken into consideration by reducing the appropriations requested for the single payment scheme for which the Budgetary Authority granted an amount of EUR 27 918.0 million.

The annexed table presents the implementation of the assigned revenue account for which an amount of EUR 721.2 million was collected as of 28 February 2007. Specifically:

- from the milk levy an amount of approximately EUR 350.9 million was collected as compared to the initial estimate of EUR 349.0 million,

- the conformity clearance claw-backs amounted to approximately EUR 332.2 million with additional amounts expected by the end of the budget year, and

- the receipts from irregularities amounted to approximately EUR 38.1 million with additional amounts also expected by the end of the budget year.

According to the pertinent rules, this revenue can be used, partly or wholly, to cover the financing of EAGF expenditure if the budget appropriations granted by the Budgetary Authority are not sufficient to finance the expenditure incurred by the Member States. In the case where part of this revenue is not used, then, this part will be automatically carried over into the following budget year.

SUGAR RESTRUCTURING FUND

The temporary restructuring amounts in the sugar sector are treated as assigned revenue intended to finance the sugar restructuring aid and other aids foreseen in the restructuring fund. For the marketing year 2006/07 these amounts relate to the sugar, insulin syrup and isoglucose quantitative quotas held by operators and they are to be paid by the Member States into the Fund in 2 instalments, the deadlines of which are 31 March and 30 November 2007 respectively. As of the end of February, Member States had paid approximately EUR 314.2 million as part of their first instalment payment of the restructuring amounts due.

COMMENTS ON THE IMPLEMENTATION OF THE 2007 BUDGET

A brief commentary on the reasons for which the most significant divergences between the actual and the expected level of implementation for certain sectors of the 2007 budget is presented hereafter:

Monetary factors

The expenditure incurred in the aforementioned period takes account of the movement in the US$/EUR rate. For 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 is influenced by the trend in this parity rate.

In accordance with Article 21 of Regulation (EC) No 1290/2005, the budget adopted by the Budgetary Authority was drawn up on the basis of the average parity rate for July–September 2006 of EUR 1 = $ 1.27. It should be noted that for the period 1 August 2006 to 28 February 2007 the average parity rate was approximately equal to EUR 1 = $ 1.29, i.e. 1.6% above the rate used for the establishment of the 2007 budget.

Market factors

Cereals (– EUR 150.1 million)

The extremely favourable internal and external conditions in the cereals market and the resulting higher internal market prices are expected to lead to lower export refund rates as well as to lower purchases and higher sales of cereals in public storage, thus, leading to an under-implementation of this sector's budget appropriations which is expected to last to the end of the budget year.

Sugar (+ EUR 130.0 million)

The current over-implementation of the budget's appropriations, when compared to the level of the indicator, is due to the increased quantities of exported sugar involving both free market and public storage sugar.

Wine (+ EUR 58.0 million)

The current over-implementation of the budget's appropriations, when compared to the level of the indicator, is due to the following three reasons:

- the Member States' current payments arising from the crisis distillations of the marketing year 2005/2006 which were carried out late in 2006 but which were not paid for in the course of that budget year, and

- the acceleration in the rhythm of payments for the permanent abandonment and from the restructuring and re-conversion measures.

This over-implementation is expected to be temporary.

Milk and milk products (+ EUR 79.7 million)

The budget's appropriations, when compared to the level of the indicator, were over-implemented as of 28 February 2007 because of acceleration in the rhythm of payments for export refunds. At this point in time, the Commission expects this over-execution to be temporary.

It should be noted that the observed over-execution of appropriations, when compared to the level of the indicator, is due to technical reasons. The indicator was established on the basis of the past three budget years' expenditure which included the effect of the milk levy revenue which, in those budget years, was deducted both from the sector's requested appropriations and from the incurred expenditure. However, starting with the 2007 budget, the revenue from this levy, which was estimated at EUR 349.0 million, is separately treated as revenue assigned to the EAGF. The 2007 budgetary appropriations requested and granted by the Budgetary Authority for this sector did not include this revenue and, therefore, the indicator is applied at appropriations which were lower by this amount. This is the reason for which the current implementation of the budget points to an over-execution.

If the revenue from the milk levy initially forecasted to be assigned to the milk sector is taken into consideration, then, an under-execution of – EUR 48.1 million would arise for this sector.

Direct aids (– EUR 411.3 million)

The current under-execution of – 1.1% by comparison to the level of this indicator involves both decoupled and other direct aids. Member States can make payments for these schemes up to 30 June 2007. Therefore, the Commission considers that, at this point in time, this under-execution could be temporary.

If the revenue from the conformity clearance and from irregularities initially forecasted to be assigned to the single payment scheme is taken into consideration, then, an under-execution of – EUR 964.1 million would arise for the direct aids chapter.

CONCLUSIONS

The uptake of the budget's appropriations, for the period 16 October 2006 to 28 February 2007, concerning the Member States' expenditure for market measures and for direct aids amounted to EUR 32 531.9 million, i.e. it involved an overall under-execution of these appropriations by approximately – EUR 353.2 million.

Should this global under-execution of the budget's appropriations for market measures and direct aids continues to the end of the budget year, then, the agricultural budget would not need the collected assigned revenue which, as of 28 February 2007, amounted to EUR 721.2 million. The unused amounts of this revenue will, then, be carried over automatically into the 2008 budget year.

ANNEX

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[1] OJ L 209, 11.8.2005, p. 1. Regulation last amended by Regulation (EC) No 320/2006 (JO L 58, 28.2.2006, p. 42).