REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT IN ACCORDANCE WITH ARTICLE 30 OF REGULATION (EEC) No 1601/92 Report on the progress made in the implementation of POSEICAN from 1992 to 1998

(presented by the Commission)

INTRODUCTION

1. The social and economic situation in the Canary Islands

1.1. Background

1.2. Agriculture

2. Implementation of the POSEICAN agricultural framework regulation

2.1. Specific supply arrangements (SSA)

2.2. Aid for agricultural products in the Canary Islands

2.2.1. Livestock production

2.2.2. Crop production

2.3. Other measures

2.4. Budget

2.5. Structural derogations

2.6. Veterinary measures

2.7. National measures authorised by the Council

3. EAGGF Guidance Section measures

4. Conclusions

ANNEX 1 Specific Supply Arrangement (SSA)

ANNEX 2 Specific aid for local agricultural products

ANNEX 3 Structural derogations

ANNEX 4 EAGGF Guidance Section measures

INTRODUCTION

1. Under Article 25 of the Act of Accession of Spain to the European Communities, the Treaties apply to the Canary Islands, except for the provisions regarding the customs territory, taxation, the common commercial policy, the common agricultural policy and the common fisheries policy.

2. To ensure the economic and social development of the Canary Islands, Council Regulation (EEC) No 1911/91 of 26 June 1991 [1] ruled that the Treaties and all Community law should apply to them without prejudice to any special measures adopted to take account of their specific constraints and traditional economic and taxation system.

[1] OJ L 191, 29.6.1991, p. 1.

3. In response to the Canary Islands' accession to the Community, Council Decision 91/314/EEC of 26 June 1991 [2] set up a programme of options specific to the remote and insular nature of the Canary Islands (POSEICAN). This programme aims to take account, in the application of Community policies, of the Canary Islands' special characteristics and handicaps associated with their insularity, remoteness, small size, difficult topography and climate, economic dependence on certain products and restricted and dispersed local markets that affect the region's economic and social circumstances.

[2] OJ L 171, 29.6.1991, p. 5.

4. For this purpose, on 15 June 1992 the Council adopted a framework regulation introducing specific measures for the Canary Islands with regard to certain agricultural products [3]; these measures have been implemented by a large number of Commission implementing regulations.

[3] Council Regulation (EEC) No 1601/92, OJ L 173, 27.6.1992, p. 13.

5. The common declaration concerning the most remote regions of the Community, annexed to the Treaty on European Union, confirmed the POSEICAN approach. The Treaty of Amsterdam introduced a new article, Article 299(2), applicable to the most remote regions, establishing the specific framework to be applied by the Community to these regions. The Treaty entered into force on 1 May 1999.

6. The Community has also paid particular attention to the traditional banana industry by implementing specific structural measures until Council Regulation (EEC) No 404/93 (banana market organisation) and the Commission implementing regulations were adopted.

7. Under Article 30(1) of the framework Regulation for agriculture, the Commission must submit an annual report on the progress made in implementing the agricultural section of POSEICAN accompanied, where appropriate, by proposals for any adjustments needed to achieve the programme's objectives. Under Article 30(2) of that Regulation, at the end of the third year of application of the programme the Commission must submit to Parliament and the Council a general report on the economic situation of the Canary Islands showing the impact of the measures taken under the Regulation.

8. It was impossible to present those reports, and so the present report fulfils the requirement for the period from 1992 to 1998, during which time the main specific measures were implemented under POSEICAN.

9. After eight years of application, it is now appropriate to report, measure by measure, on the implementation and use made of each of the provisions. The Spanish authorities have sent the Commission reports on the implementation of the programme as well as some requests for amendments of the Council Regulation. In the context of SEM 2000, the Commission appointed an external consultant to draw up a report evaluating the agricultural section of the POSEICAN programme. The consultant examined the achievement of the programme's objectives and proposed some possible improvements. The present document therefore reports on the implementation of the measures provided for in Regulation (EEC) No 1601/92 taking account of the experience gained and the impact of the measures implemented.

1. The social and economic situation in the Canary Islands

1.1. Background

The archipelago of the Canary Islands is situated in the Atlantic Ocean, between 27 and 29°N, 115 km from the African coast and more than 1 000 km from mainland Europe. This volcanic archipelago covers an area of 7 500 km and is made up of eight inhabited islands (the largest, Tenerife, is 2 036 km ) and several islets. The distance between the most remote islands is around 500 km.

Besides its remoteness from mainland Europe and the small size and fragmentation of its territory, the following features can be noted:

- very uneven terrain (the Teide volcano, which at 3 717 metres is the highest summit in Spain, is found on Tenerife),

- high population density - 215 inhabitants per km , on average - with population growth greater than the Spanish average,

- a lack of natural resources, with total dependence on the outside for energy,

- a shortage of water resources, with less than 180 m³ of fresh water/head/year, making desalination of seawater necessary to satisfy demand. The cost of water in the Canaries is double the average for the rest of Spain,

- a per capita GDP (gross domestic product) less than 75% of the average Community GDP,

- a high rate of unemployment at around 22%.

The archipelago's economy is very dependent on the outside world and largely specialises in the service sector, notably tourism (11 million tourists in 1998).

Division of the active population between the sectors and their relative economic weight is as follows:

>TABLE POSITION>

Tourism has become the mainstay of the economy - a role played by farming until the 1960's. The chief activities in the secondary sector are construction and infrastructure work, both closely connected to tourism; the industrial fabric is mainly made up of small and medium-sized enterprises catering for the local market. The most developed industry is agri-foodstuffs.

The region has a marked balance of trade deficit: exports (mainly bananas, tomatoes, fishery products and tobacco) are equivalent to only 23.7% of imports. Trade flows are mainly within the EU: 82.3% of exports and 78.8% of imports have the European Community as the point of destination or origin.

1.2. Agriculture

Farming involves only 8% of the active population and 7% of businesses in the Canary Islands. However, it plays an important role in the economy of some of the islands and in the conservation of the countryside and the rural fabric. Only 6.5% of the territory is cultivated. While there is a shortage of useful agricultural land because of the difficult terrain and urban development, there is also an important network of protected natural areas, covering 42% of the territory.

Livestock farming makes up around 20% of the final agricultural output (FAO). Farming in the Canary Islands consists mainly of crop cultivation (= 80% FAO). Forestry is insignificant in economic terms. The following table sets out the main products in decreasing order of their contribution to the islands' final agricultural output:

>TABLE POSITION>

* Products not covered by POSEICAN.

Source: Government of the Canary Islands; Department of Agriculture, Fisheries and Food.

The sector's main features are:

- the marked contrast between farming for export, accounting for 75% of FAO, which uses the best technology, water resources and microclimate (irrigated land on the coastal plains), and farming for the supply of local markets, which is less innovative and occupies the more difficult areas to cultivate (the "mid-altitude zone" from 300 to 900 m in altitude),

- the lack of diversification: two "export" products - tomatoes and bananas - account for 50% of the total production value of the archipelago. These two crops are not covered by POSEICAN. Two of the crops found in the "mid-altitude zone" - vines and potatoes - occupy 40% of the archipelago's total cultivated area. These four crops make up 70% of the total cultivated area and their environmental and social impact is extremely important,

- the fierce competition with tourism (the archipelago's main economic activity) over land (and water) use and the urbanisation of rural areas, prompted by population growth greater than the European average in a necessarily limited area,

- the small size of holdings and the resulting intensive farming: 92% of holdings are less than 5 hectares. Furthermore, because of the difficult terrain, terrace cultivation is practised, entailing transport and mechanisation problems,

- the supply of goods is fragmented and poorly coordinated,

- dependence on the outside world, for both the supply of inputs (fertiliser, seeds, packaging, etc.) and the distribution of products, in a geographical situation very remote from sources of supply and markets,

- the local market is small and fragmented (two million consumers, including tourists) [4]; the countries of the regional market (Morocco, Mauritania, Senegal) are competitors rather than trading partners,

[4] 1.62 million inhabitants, plus 10 million tourists/year. The number of tourists is recorded as a person/year equivalent, multiplying the number by the average number of days stayed (ITER 96) divided by 365 days. This calculation explains the figure of 2 million local consumers.

- the lack of competitiveness of most products due to remoteness and difficult production conditions,

- the Canary Islands have an open economy: imports are extremely important for local consumption and the food industry, which uses mostly imported raw materials and has few links with local producers.

2. Implementation of the POSEICAN agricultural framework regulation

2.1. Specific supply arrangements (SSA)

Full application of the common agricultural policy is subject to the entry into force of specific supply arrangements (Title I of Regulation (EEC) No 1601/92). The objective of the specific supply arrangements is to guarantee supply to this region and compensate for the additional costs of supplying agricultural products due to its insularity and remoteness.

Description of the arrangements:

Each marketing year a supply balance is drawn up for the agricultural products essential for everyday consumption and/or processing in the archipelago, listing the requirements of the Canary Islands market, taking account of local production. The quantities of products covered by the specific supply arrangements are periodically reviewed in the light of changes in the islands' requirements. Separate forecast balances may be drawn up for the requirements of the industries processing and packaging products intended for both the local and traditional export markets.

Since POSEICAN's objective of lowering prices for the end user is to be achieved by promoting competition between sources of supply, products imported from non-member countries under the specific supply arrangements are exempt from customs duties and the same Community products may be supplied on the same terms.

Special attention is paid to the economic effects of these arrangements, in particular as regards spinoff through to the end-user.

Products imported under the specific supply arrangements may not be re-exported or re-dispatched to the rest of the Community. However, where processing takes place in the archipelago, the restriction does not apply to traditional consignments or exports within the limits defined. In this case, no refund is granted.

Comments and analyses:

Certain comments and analyses can be made about the performance of the specific supply arrangements between 1992/93 and 1997/98. The main statistics on implementation of the supply balances can be found in Annex 1.

The importance of the specific supply arrangements can be seen from their share of expenditure, which has remained above 85% of total budget implementation on the agricultural section of POSEICAN.

The specific supply arrangements were first conceived as a response to the consumption requirements of the Canary Islands' population, to supply finished agricultural products for direct consumption and to help develop production and processing activities in the local farming and food industry. By reducing the cost of inputs and raw materials, the arrangements seek to maintain and develop farming and the local processing industry.

The specific supply arrangements therefore include the supply of breeding animals and other agricultural inputs. Aid for the supply of potato seeds, multiplier chicks, hatching eggs, pure-bred breeding animals, namely rabbits, cattle and swine is provided for. These measures are designed to help consolidate or launch production activities in order to strengthen local production, reducing production costs and increasing the low rate of self-supply.

Take-up of these measures has varied.

It has been particularly high for rabbits, swine and potato seeds.

However, little use has been made of breeding chicks and hatching eggs. The fact that there is no tradition of poultry production and breeding in the Canary Islands could explain why the amounts allocated for these aids have not been sufficient incentive until now.

In the case of breeding cattle, uptake was initially good but has declined with every year, suggesting that there are certain obstacles to the development of the bovine sector. However, increased uptake since 1995 hints at a revival.

To aid local production of tobacco products, since very little raw tobacco is produced locally, imports into the Canary Islands of raw tobacco (CN code 2401) and semi-manufactured tobacco (CN codes 2402 and 2403) are exempt from customs duties within a quota of 20 000 tonnes of stripped raw tobacco equivalent.

Some difficulties arose during the first three years of application of the arrangements, particularly a discrepancy between forecasts and actual requirements for some balances. These discrepancies arose because of incomplete statistics (which did not take account of certain commercial transactions between Spain and the Canary Islands), some administrative teething troubles and quantitative and qualitative changes in consumer habits. These difficulties were corrected in 1994 when the procedural rules were amended by Commission Regulation (EC) No 2790/94 [5].

[5] Commission Regulation (EC) No 2790/94 (OJ L 296, 17.11.1994, p. 23) amending Regulation (EEC) No 1695/92 (OJ L 179, 1.7.1992, p. 1) (as amended by Regulation (EEC) No 2596/93, OJ L 238, 23.9.1993, p. 24).

Special rules were introduced for the issue of import licences, exemption certificates and aid certificates with a view to facilitating and accelerating the procedure. In particular, the general requirement to lodge a security beforehand was abolished and the period of validity of certificates was restricted to the period needed for transport; the issue of licences and certificates was made subject to presentation of the purchase invoice and bill of lading; a requirement to prove that the supply operation covered by the licence or certificate has been carried out in a short time-span was introduced, and the transfer of the rights and obligations conferred on the holder of the document in question prohibited. Furthermore, a register of traders was created, entitling registered traders to the benefits of the arrangements provided they comply with the obligations set out in the Community, national and regional rules (particularly transmission of benefits to the end-user). Penalties were laid down for cases where traders fail to fulfil the undertakings they enter into when they register (without prejudice to penalties applicable under national and regional legislation). The Regulation also sets out the quantities of processed products that may be the subject of traditional exports or consignments from the Canary Islands.

The competent Spanish authorities have adopted implementing laws and set up a monitoring committee responsible for the proper management of the arrangements and a computer system linking the customs services and the other relevant departments, to allow real-time monitoring of the supply balances. The Spanish authorities provide the Commission each month with the information it needs to monitor and assess whether the balance matches the islands' requirements.

The results of these measures and the experience gained show that there has been a marked improvement in how the arrangements are managed and that the balances have stabilised somewhat.

Regulation (EEC) No 1601/92 also provides for the temporary supply of three types of products under the special supply arrangements: fresh or chilled pigmeat (CN code 0203), processed meat products (CN codes 1601 and 1602) and bovines intended for fattening and consumption in the archipelago. An assessment report, accompanied if need be by appropriate proposals, was required after the first four years of application of the arrangements.

After the first marketing year, the Spanish authorities no longer used the special supply arrangements for fresh or chilled pigmeat since local production satisfied domestic demand by that time.

However, for the rest of the products in question (bovine animals for fattening and meat preserves), the measure expired in June 1996 before local production had developed sufficiently to meet local needs. Pending any conclusions to be drawn from the assessment and to avoid any sudden interruption in the application of these measures, the Council temporarily extended them until 30 June 1997 [6].

[6] Council Regulation (EC) No 2348/96, OJ L 320, 11.12.1996, p. 1.

Following the changes introduced by the CAP reform and the Community's undertakings after the latest GATT agreements (Uruguay Round), and in view of the narrowing gap between world and Community prices, unit aid granted for the supply of Community products, mainly based on current export prices, has been reduced for certain products. In 1995/96 there was a very substantial reduction in the aid, to the point where no aid at all was granted for some cereals, particularly common wheat. This development gave rise to concern about the objective of offsetting extra cost so as to cut production costs.

Within the constraints of the present rules, the Commission has carefully managed the effects induced by these changes in the international environment. It has also launched external evaluations under SEM 2000 to assess the real difficulties of applying the SSA, and to prepare the Commission's reports to the Council and to Parliament on the implementation of these arrangements.

The external assessment report mentioned earlier revealed that the method currently used, which must also meet the goal of promoting competition between the different sources of supply (non-member countries/EC), overcompensated the additional costs arising from the islands' remoteness and insularity in some cases, while failing to fully compensate those additional costs in others.

As far as the impact of the arrangements is concerned, studies on the retail price trends from the period before their entry into force until 1997 show that they have kept fluctuations in the Islands at levels comparable to the rest of Spain (even smaller for certain products). The retail price index (RPI) has increased less in the Canary Islands than in Spain as a whole, both for the general RPI and the index relating to food products. Most of the products that have undergone the highest price rises are precisely those not included in the special supply arrangements. The full integration of the Canary Islands into the Community has had no inflationary effect. This shows the positive impact of passing on the benefits to the end user.

2.2. Aid for agricultural products in the Canary Islands

Under the POSEICAN programme, aid is to be granted for the production, processing and marketing of agricultural products, in order both to maintain and strengthen traditional activities and to develop diversification. In certain cases, this aid is supplemented by the impact on inputs of the aid under the supply arrangements.

2.2.1. Livestock production

For livestock farming, particularly the beef and veal sector, the Regulation introduces aid to help develop traditional Canary Islands livestock products, within the limits of the archipelago's consumption requirements (which are assessed in the context of a periodic supply balance). In addition to the supply of pure-bred breeding animals and bovines for on-site fattening, as already mentioned, a supplement of EUR 48.3 is granted on top of the fattening aid for male bovines and the premium for maintaining suckler cows (Article 10). These support measures have had a relative impact. Implementation of these measures is summarised in Table 1 in Annex 2.

A reasonable explanation of this could be that cattle farming in the archipelago is mainly carried out on mixed holdings specialising in dairy production (with meat production as a sideline) on small surface area. The usable agricultural area in the islands is only 25% of the total area, and the proportion used for grazing is very small; most farms do not have enough fodder, and this restrains the development of the suckler herd.

Premiums for bovine animals are granted subject to a stocking density of 2 LU/ha. Applying this stocking density to the Canary Islands considerably reduces the number of animals eligible for the basic aid, and thus also for the supplement provided for under POSEICAN. This restricts the number of livestock farmers entitled to aid under POSEICAN to assist the development of specialised beef and veal production.

Furthermore, in the case of suckler cows, problems have arisen because the archipelago has lost individual production quotas to the national reserve and because dairy breeds are not eligible for the premium.

Table 2 in Annex 2 summarises the development of the bovine sector in the archipelago.

This initial review shows that:

- the total number of bovine animals has been in decline since 1989, even considering the herd revival from 1995 when the 1991/92 level was achieved,

- the total number of cows is falling due to the sharp decline in the dairy herd. The dairy herd has been restructured. The use of pure-bred breeding animals has helped to improve the dairy industry and increase yields, thereby maintaining milk production (see the next point, Article 11),

- the number of suckler cows, currently 1/5 of all cows, doubled during the period under review, although this has not made up for the reduction in the total number of dairy cows;

- the total number of male bovines has fallen since 1989, particularly those aged more than 12 months; however, there has been an improvement since 1995. The percentage of male bovines receiving a premium increased from 16% in 1993 to an average of 34% in 1996 and 1997;

- the number of slaughtered animals, both those produced locally and those imported for fattening, has declined sharply, as has the activity of local slaughterhouses. In this connection, it is worth noting that the supply balances for male animals intended for fattening have not been greatly used;

- consumer trends now favour fresh meat; however, this change in preferences has not boosted local production, the market share of which has been halved,

- meat production by local farms has stabilised during the last five years to around 2 700 tonnes after having fallen sharply: due to the reduction in the dairy herd, on which meat production is based, the low uptake of the supply balance for male animals for fattening and the relative effect of the support measures provided for in Article 10,

Aid for the human consumption of locally-produced fresh cows' milk products is paid to dairies. After the agri-monetary amendments, the aid currently amounts to EUR 8.34/100 kg, and may be adjusted by the Commission to ensure that these products are disposed of normally on the local market (Article 11).

The development of the measure is summarised in Table 3 in Annex 2.

Despite being initially restricted to certain products such as raw milk, whole milk, pasteurised milk, cream, whole-milk yoghurt and fresh cheese (Annex I to Regulation (EEC) No 2235/92 [7]), the measure has had a positive effect. Given the change in consumer habits (particularly towards skimmed products and UHT milk), the Spanish authorities have asked for the measure to be extended to all local cows' milk delivered to the dairies, irrespective of the product manufactured. Commission Regulation (EC) No 1400/98 of 30 June 1998 [8] amended the Annex to Regulation (EEC) No 2235/92 to that effect.

[7] OJ L 218, 1.8.1992, p. 105.

[8] OJ L 187, 1.7.1998, p. 54.

In the sheepmeat and goatmeat sector (Article 13), premiums are granted in addition to those payable under Article 5 of Council Regulation (EEC) No 3013/89 [9]. The premium supplement is adjusted for every marketing year (in 1998 it amounted to 5.163 EUR/head).

[9] OJ L 289, 7.10.1989, p. 1.

This measure is very important because it makes sense to develop an activity which is so well suited to the particular agricultural and climatic conditions of the islands, particularly goat farming. Implementation of the measure is summarised in Table 4 in Annex 2.

2.2.2. Crop production

In the fruit and vegetables, flowers and live plants sector (except bananas, tomatoes and potatoes for human consumption), aid per hectare is granted to producers who undertake a programme of initiatives to develop and/or diversify production and/or improve quality. The maximum amount of aid is EUR 500 if public funding from the Member State amounts to at least EUR 300 and the producers' financing to at least EUR 200. Moreover, these initiatives should be covered by programmes designed to run for at least three years (Article 15).

The application procedures are administratively complicated and the structure and amount of aid have not provided sufficient incentive: in 1993 only nine applications were received, involving a total area of 8.08 ha. No further applications have been received since then.

To facilitate the marketing of tropical products included in the products referred to above and harvested in the Canary Islands, aid is granted for the conclusion of annual contracts between individual producers or producer groups and traders established in the rest of the Community (Article 16). The volume concerned is 10 000 t per product per year; the aid amounts to 10% of the value of the produce marketed, free at destination (13% for joint ventures between producers and traders).

The implementation of this measure is summarised in Table 5 in Annex 2.

The measure has been favourably received by producers.

The Community contributes towards the financing of an economic analysis and forward study of the fruit and vegetable processing industry in the Canary Islands, with particular reference to tropical products (Article 17). This study should help identify the bottlenecks in the industry and serve as a basis for its development. The study, which has not yet been carried out, may be extended to include fresh fruit and vegetables.

In the winegrowing sector, a flat-rate aid per hectare (Article 19) is granted for the continued cultivation of vines for the production of quality wines psr.

It is economically and environmentally imperative that vineyards, which cover 10% of the agricultural area in use (the most widespread crop in the archipelago), continue to be cultivated, because winegrowing is practised in dry areas and on land that is particularly vulnerable to erosion. The development of the measure is summarised in Table 6 in Annex 2.

The measure has proved attractive to growers, as evidenced by the increase in the number of hectares and beneficiaries. Moreover, the number of designations of origin has increased from one to nine during the review period.

The aid, to be paid exclusively to producer groups from the 1997/98 wine year onwards, amounts to EUR 476.76/ha following the agri-monetary adjustments [10].

[10] Regulation (EC) No 2537/95, OJ L 260, 31.10.1995, p. 10.

In the absence of producer groups, the Commission has provisionally granted authorisation for the aid to be paid to individual producers via the regulatory boards for the designations of origin ("Consejos reguladores").

Potato cultivation is also a key traditional agricultural activity in the Canary Islands, for both economic and social reasons: around 10 000 growers cultivate an average of 0.7 hectares. Cultivation takes place in areas of average altitude in the islands; production costs are extremely high because of the difficult terrain and small size of holdings (terrace cultivation), as well as the high prices of inputs and water irrigation.

POSEICAN's strategy for continuing this activity comprises three types of measures:

- aid per hectare amounting to EUR 596/ha, paid up to a maximum of 12 000 ha per year (Article 20),

- the supply of seed potatoes under the special supply arrangements in order to bring down production costs (Annex to Article 3),

- the restriction on deliveries of potatoes for human consumption during sensitive periods for the marketing of local production (Article 21).

Regulation (EEC) No 1601/92 provides for this restriction to be gradually phased out over a period of ten marketing years, i.e. by the end of 2001. Under the latest GATT agreements (Uruguay Round), the measure could not be continued beyond 31 December 1998 [11], and so the application period has been shortened by three marketing years.

[11] Commission Regulation (EC) No 984/96, OJ L 131, 1.6.1996, p. 51.

The development of aid per hectare can be broken down as shown in Table 7 in Annex 2.

The measure appears to have been attractive to growers, although the subsidised area was smaller than both the cultivated area (around 7 000 ha) and the maximum eligible area.

This measure, as well as aid for the supply of seeds under the special supply arrangements, is not sufficient to offset the lack of competitiveness of local production. Local production, which has become very vulnerable now that it is no longer protected by Article 21, is not competitive but is vitally important from an economic, social and environmental point of view.

In 1999, the first year in which Article 21 was not applicable, the serious difficulties in the local situation prompted the Spanish authorities to ask the Commission to apply a safeguard clause.

Like the restriction in force up until the previous year, this request sought to restrict deliveries of potatoes for human consumption to the Canary Islands during August, September and October 1999, relying on the safeguard clause provided for in Article 379 of the Act of Accession, applicable to the Canary Islands under Article 11 of Regulation (EEC) No 1911/91 until 31 December 1999.

This type of measure, limited to intra-Community trade, might have caused provoked deflections in trade and, in the light of information now available, would have been disproportionate.

In the end, a Regulation was adopted introducing safeguard measures permitting the market situation for potatoes for human consumption in the Canary Islands to be closely monitored, so that more restrictive measures could be introduced if difficulties persist and significant quantities of potatoes for human consumption are delivered to the archipelago. The procedure for issuing licences for the delivery of potatoes, similar to the one in force until the previous year, has been maintained, as has the requirement that the Spanish authorities' send information to the Commission on a weekly basis.

The Regulation was adopted by the Commission on 27 August 1999.

Aid is granted for the production of quality honey specific to the Canary Islands, produced by the local breed of 'black bees'. The aid is fixed at EUR 20 per hive in production and per marketing year, and is paid to associations of beekeepers, up to a maximum number of 5 000 hives (Article 24).

The measure was fully utilised and helped maintain the population of black bees which had, before the entry into force of POSEICAN, been in danger of being supplanted by imported breeds which were more productive but more susceptible to disease. Implementation of this measure is summarised in Table 8 in Annex 2.

2.3. Other measures

POSEICAN and Council Regulation (EEC) No 1601/92 also provide for some derogations from the common agricultural policy in order to help maintain local production. These include:

- adjusting the dairy quota to a level that will allow reasonable development of local production,

- in the winegrowing sector, exemption from the distillation obligation and non-application of voluntary distillation and the grubbing premium (Article 18),

- in the cereals sector, the co-responsibility levy is not applicable (Article 25) (NB: this levy is now no longer applicable in the Community).

Furthermore, the consumption aid for olive oil provided for in Council Regulation No 136/66/EEC is paid to undertakings in the Canary Islands packaging olive oil produced in the rest of the Community (Article 22). This aid was abolished under the reform of the olive oil market organisation [12] and should therefore be deleted in this Regulation.

[12] Council Regulation (EC) No 1638/98, OJ L 210, 28.7.1998, p. 32.

To ensure greater awareness and consumption of products specific to the most remote regions, the POSEI programmes provide for the introduction of a graphic symbol (Article 26), for which the Commission launched a competition in December 1993.

After the logo was chosen in 1994, the Commission financed the organisation of a promotion campaign for this logo to publicise its existence, significance and the advantages of its use.

Conditions of use for the logo are laid down in Commission Regulation (EC) No 1418/96 [13].

[13] OJ L 182, 23.7.1996, p. 9.

The first Canary Islands products authorised to bear this logo have now been recognised by the competent Canary Islands authorities. They are bananas, tomatoes, French beans, cucumbers, wine and rum. The competent authorities are currently considering other products (honey, cheese, 'gofio', figs, jam and almonds).

2.4. Budget

Specific budget headings have been introduced in the Community budget under the EAGGF Guarantee Section for financing the agricultural section of POSEICAN. The corresponding forecasts and implementation are set out in Table 9 in Annex 2.

In addition, the revenue to the Community budget foregone as a result of exemption from customs duties for products imported from non-member countries under the specific supply arrangements should be included in EAGGF Guarantee Section expenditure.

Table 10 in Annex 2 summarises the overall cost of POSEICAN.

The following conclusions can be drawn from this information:

- the specific supply arrangements represent around 87% of the average overall cost of the programme for the period concerned, and the agricultural measures around 13%,

- the arrangements introduced in 1992 have now stabilised. Their overall cost stands at around ESP 30 000 million, i.e. an average of EUR 183 million for the period concerned,

- the appropriation in the EAGGF Guarantee Section budget has always exceeded expenditure. This gap reflected the difficulty of adopting supply balances that corresponded to real local requirements at a time when the agricultural production aid measures were being launched and picking up speed. All measures have now reached cruising speed and stabilised,

- there has been a constant drop in EAGGF Guarantee Section expenditure, mainly due to the fall in expenditure on the supply arrangements, particularly for crop products (see point 2.1 above: analysis of specific supply arrangements),

- there has been a commensurate increase in exemption from customs duties, which represents revenue forgone for the Community budget.

2.5. Structural derogations

Article 27 provides for derogations to Council Regulation (EEC) No 2328/91, (superseded by Regulation (EC) No 950/97) on improving the efficiency of agricultural structures.

Article 27, which concerns the structural derogations under the agricultural section of POSEICAN, was deleted with the reform of the Structural Funds because of the flexibility of the new Regulation (EC) No 1257/1999. Only Recital (53) of the 'Rural development' Regulation refers to the specific requirements of these regions, but there is no operative part in the text of the Regulation. The requests for flexibility, adjustments or derogations and the proposed solutions should be studied at the time of the review provided for in the programming exercise.

2.6. Veterinary measures

Article 28 of Regulation (EEC) No 1601/92 provided for amendments to Directives 72/462/EEC and 90/675/EEC so as to allow the Commission to derogate from the health and hygiene rules for meat imports until 31 December 1994. At the request of the Spanish authorities, the Commission adopted Decision 93/78/EEC to permit importation under derogation from a slaughterhouse in Paraguay; the decision was repealed on 14 April 1993 by Decision 93/249/EEC.

These derogations are no longer relevant and should be deleted.

2.7. National measures authorised by the Council

Spain has been authorised to grant regional aid for the production of raw tobacco in the Canary Islands. The maximum amount of the regional aid is equal to the difference between the aid previously paid in the Canaries and the Community premium introduced by Regulation (EEC) No 727/70 (superseded by Council Regulation No 2075/92), within the limit of the quantity traditionally produced in the islands (Article 23).

The development of the measure is summarised in Table 11 in Annex 2.

Production, which only involves a small number of local growers on the island of Las Palmas (the only production area), has fallen somewhat and the detailed rules for implementing the arrangements for individual quotas for growers have caused problems. Payment of aid for the year is based on the average quantity sold to the industry in the three years previous to the last harvest [14].

[14] Regulation (EEC) No 2075/92, OJ L 215, 30.7.92, p. 70.

3. EAGGF Guidance Section measures

Guidance Section funding is not included in the scope of this report but is outlined in the Annex to give a comprehensive list of all Community measures in favour of agriculture in the Canary Islands.

4. Conclusions

Agricultural measures which are innovative and adapted to the local situation are a major aspect of the Programmes of specific orientations for remote and insular regions. Altogether, these measures have helped to offset some of the constraints affecting production costs. Alongside support from the CAP, they have helped to improve the quality or increase the volume of local output.

The difficulties encountered in implementing some of the measures, an analysis of the Spanish authorities' requests to the Commission by the and the conclusions of the external assessment report on the agricultural section of POSEICAN suggest certain adjustments. Some amendments can be made by the Commission while others will require the Council to adapt the POSEICAN agricultural framework Regulation.

The Commission therefore intends, in the context of this report, to propose a Council Regulation, with three aims:

- to adapt the specific supply arrangements, particularly the list of products covered, in the light of the changes in requirements noted and taking greater account of the additional costs of supplying the region,

- to adjust measures which experience has shown to be poorly suited to the real situation in the region, so as to improve their incentive power and make them more effective,

- to implement new measures to take account of specific local conditions and requirements, within the framework of the POSEICAN objectives.

ANNEX 1 Specific Supply Arrangement (SSA)

Utilisation by marketing year of supply balances adopted (Source: Ministerio de Economía y Hacienda - Subdirección General de Comercio Exterior de Productos Agroalimentarios - Madrid)

1992/1993

>TABLE POSITION>

>TABLE POSITION>

DC = direct consumption IC = industrial consumption

1993/1994

>TABLE POSITION>

>TABLE POSITION>

DC = direct consumption IC = industrial consumption

1994/1995

>TABLE POSITION>

>TABLE POSITION>

DC = direct consumption IC = industrial consumption

1995/1996

>TABLE POSITION>

>TABLE POSITION>

DC = direct consumption IC = industrial consumption

1996/1997

>TABLE POSITION>

>TABLE POSITION>

DC = direct consumption IC = industrial consumption

1997/1998

>TABLE POSITION>

>TABLE POSITION>

DC = direct consumption IC = industrial consumption

ANNEX 2 Specific aid for local agricultural products

Unless otherwise specified, the data in this annex were supplied by the Government of the Canary Islands; Department of Agriculture, Fisheries and Food

Table 1

Article 10: supplementary aid for fattening male bovine animals and maintaining suckler cows

>TABLE POSITION>

* (for the first two marketing years dairy cows served or inseminated by beef bulls were counted as suckler cows).

Table 2

Development of the bovine sector in the Canary Islands

>TABLE POSITION>

* (for the first two marketing years dairy cows served or inseminated by beef bulls were counted as suckler cows).

Table 3

Article 11: aid for human consumption of milk products

>TABLE POSITION>

Table 4

Article 13: sheepmeat and goatmeat sector - additional premiums

>TABLE POSITION>

* July - December

Table 5

Implementation of Article 16: aid to facilitate the marketing of tropical products

>TABLE POSITION>

* All relevant products grouped together.

Table 6

Development of Article 19: flat-rate aid per hectare granted for the continued cultivation of vines for the production of quality wines psr

>TABLE POSITION>

Table 7

Implementation of Article 20: aid per hectare - potatoes

>TABLE POSITION>

Table 8

Implementation of Article 24: aid for the production of quality honey specific to the Canary Islands

>TABLE POSITION>

Table 9

Financing of agricultural aspects of POSEICAN: budget forecasts and outturn

(EUR million)

>TABLE POSITION>

Source: EAGGF Guarantee Section

Table 10

Amount of POSEICAN assistance over five marketing years (in ESP)

>TABLE POSITION>

Source: IDOM-UPM based on information provided by the Ministry for Agriculture, the Government of the Canary Islands.

Table 11

Implementation of Article 23: regional aid for the production of raw tobacco in the Canary Islands

>TABLE POSITION>

ANNEX 3 Structural derogations

Article 27 provides for derogations to Council Regulation (EEC) No 2328/91, (superseded by Regulation (EC) No 950/97) on improving the efficiency of agricultural structures [15]. These include:

[15] Council Regulation (EEC) No 2328/91, OJ L 218, 6.8.1991, p. 1, as replaced by Council Regulation (EC) No 950/97, OJ L 142, 2.6.1997, p. 1.

- the requirements for granting investment aid for agricultural holdings and production incentives for swine, bovine and poultry have been relaxed, on condition that the requirements of animal welfare and environmental protection are complied with and that production is for the internal market of the archipelago,

- cows whose milk is intended for the local market may be included for the purpose of calculating the compensatory allowance, which has been extended to cover all crops in the region and may be granted to farmers with less than one hectare of usable agricultural area.

Following the STAR Committee recommendations of 17 December 1992 and 25 February 1998 and the favourable Commission decisions, the derogations introduced by Article 27(1) to (5) of Regulation (EEC) No 1601/92 have been transposed into law in the autonomous community of the Canary Islands.

Article 27 also provides for the possibility of requesting derogations from both Regulation (EC) No 951/97 (formerly (EEC) No 866/90) [16] on improving the processing and marketing conditions for agricultural and forestry products and from the selection criteria for investments in this field laid down by Commission Decision 94/173/EC.

[16] Council Regulation (EEC) No 866/90, of 29.3.1990, as replaced by Council Regulation (EC) No 951/97, OJ L 142, 2.6.1997, p. 22.

On this basis the Spanish authorities have introduced some reasoned requests for derogation for essential products in the categories of 'meat' (bovines for fattening, beef and veal and pigmeat), 'poultry', 'milk and milk products' and 'processed fruits and vegetables':

- from Article 13, to extend eligibility for the common measure under Regulation (EC) No 951/97 to investors who market or process agricultural products from non-member countries, and

- from Article 12 of that Regulation, which lays down conditions for the payment of aid, to ensure an adequate and lasting share in the resulting economic benefits for producers of the basic products.

In the majority of cases, the existence of such processing facilities will enable outlets to be found for local agricultural produce and production to be developed, whereas there would be no guarantee of a return on such facilities solely on the basis of the local produce available at present. In addition, the competent authorities undertake to ensure that investments receiving aid do not have any negative effects on measures to develop local production.

The derogations from the selection criteria (Decision 94/173/EC) concern milk and milk products, poultry and wine, as well as cold stores for frozen or deep-frozen produce in the outerlying islands of the archipelago.

All these derogations are consistent with the other measures to develop agriculture in the Canary Islands and with the market supply measures implemented under POSEICAN. They also take account of local consumption requirements under the supply arrangements, without being detrimental to the development of local production.

Article 27, which concerns the structural derogations under the agricultural section of POSEICAN, was deleted with the reform of the Structural Funds because of the flexibility of the new Regulation (EC) No 1257/99. Only Recital (53) of the 'Rural development' Regulation refers to the specific requirements of these regions, but there is no operative part in the text of the Regulation. The requests for flexibility, adjustments or derogations and the proposed solutions should be studied at the time of the review provided for in the programming exercise.

ANNEX 4 EAGGF Guidance Section measures

Guidance Section funding is not included in the scope of this report but is outlined here to give a comprehensive list of all Community measures in favour of agriculture in the Canary Islands.

1989-1993

Given the economic and social importance of the banana industry in the Canary Islands, where it represents 25% of final agricultural output, and with a view to improving production and marketing conditions, structural assistance to the sector was introduced under point 9 of Title IV of POSEICAN before the banana market organisation was established.

This Community assistance was granted in addition to Structural Fund assistance during 1989-1993, and is supplementary to Community and national market measures. Assistance amounted to EUR 9 million in 1992 and EUR 12 million in 1993.

The following measures were implemented:

- improving irrigation systems over 2 421 ha,

- connecting infrastructures (16.5 km) between parcels and warehouses,

- switching to different varieties of banana (559 ha),

- improving production structures (498 holdings),

- commercial improvement and technical assistance (EUR 3.5 million).

1994-1999

After the banana market organisation was adopted [17], the structural measures for bananas were included in the 1994-99 Community Support Framework (CSF). EAGGF Guidance Section assistance for the CSF under Council Regulation (EEC) No 2081/93 [18], is implemented under the following forms of assistance (in EUR million):

[17] Regulation (EEC) No 404/93, OJ L 47, 25.2.1993, p. 1.

[18] OJ L 193, 31.7.1993, p. 5.

- Priority 2, Development of the economic infrastructure: 38.6,

- Priority 4, Agriculture and rural development: 92.73,

- REGIS II Community initiative: 12.0,

- Leader II global grant: 5.5.

2000-2006

The rural development measures for 2000-06 will be covered by the new rules governing the Structural Funds, and the EAGGF Guidance Section contribution by Council Regulation (EC) No 1257/1999. The Canaries come under Objective 1 and will be included in the regional programming in accordance with Council Regulation (EC) No 1260/1999 [19] laying down general provisions on the Structural Funds.