COMMISSION REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on EAGGF Guarantee Section expenditure - Early warning system No 4/2000

COMMISSION REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

on EAGGF Guarantee Section expenditure Early warning system No 4/2000

TABLE OF CONTENTS

1. Overall outturn in monthly expenditure

2. Provisional utilisation of appropriations

3. Comments

4. Conclusions

1. Overall outturn in monthly expenditure

The following table shows 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 29 February 2000.

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

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1.2. Subsection 1b: Rural development and accompanying measures

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2. Provisional utilisation of appropriations

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3. Comments

3.1. The uptake of appropriations for April 2000

The uptake of appropriations under heading 1 of the budget for April 2000 (Member States' expenditure from 16 October 1999 to 29 February 2000) is EUR 24 994 million, i.e. 61.0% of appropriations. Expenditure is

- EUR 369 million below the indicator for subsection 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure). Expenditure in the two previous months was almost exactly at the level of the indicator. Under-utilisation in relation to the indicator at the end of February is mainly because the aid for areas under oilseeds is not paid until March, rather than from February as in previous years. The indicator provides for the payment of EUR 540 million on this aid during February,

- EUR 79 million above the indicator for subsection 1b (rural development and accompanying measures). This overrun reflects the situation at the end of the previous months.

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 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 higher as a result of the trend in the dollar rate [1].

[1] The average dollar rate for the period 1 August 1999 to 15 March 2000 was EUR 1 = $ 1.03. Should the rate at 15 March (EUR 1 = $ 0.96) continue until the end of the year, the average rate will be 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 rate

The movement in 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 double 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. Subsection 1a: Traditional EAGGF Guarantee Section expenditure and veterinary expenditure

Chapter B1-10: Arable crops // - EUR 314 million

// (expenditure: EUR 14 179 million)

(indicator: EUR 14 492 million)

(Member States' forecasts: EUR 14 565 million)

The divergence from the indicator has arisen because the aid for areas under oilseeds was paid later than in previous years. The Regulation authorising the Member States to make payments was adopted about a month later than in previous years. The indicator provides for the payment of EUR 540 million for this aid during February.

Another temporary factor contribution to this month's under-utilisation is late payment of the aid per hectare in Italy as a result of the intensified checks requested by the Commission.

By contrast, the indicator has been overrun, resulting in substantial divergences:

- expenditure on public storage is higher than expected (higher intervention buying-in and higher losses on sales),

- following the across-the-board reduction in appropriations made by the budgetary authority when it adopted the budget, some budget headings for aid per hectare, in particular, have overshot the indicator.

An overshoot 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, implementation of this chapter will also depend on the outcome of the checks in Italy.

Chapter B1-11: Sugar // + EUR 44 million

// (expenditure: EUR 924 million)

(indicator: EUR 880 million)

(Member States' forecasts: EUR 929 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 72 million

// (expenditure: EUR 1 885 million)

(indicator: EUR 1 957 million)

(Member States' forecasts: EUR 1 878 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 payments for the advance are lower than in previous years. The under-utilisation will probably disappear when the balance is paid later on in the financial year.

By contrast, a slight overshoot 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 194 million

// (expenditure: EUR 560 million)

(indicator: EUR 753 million)

(Member States' forecasts: EUR 638 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.

Under-utilisation 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 79 million

// (expenditure: EUR 652 million)

(indicator: EUR 731 million)

(Member States' forecasts: EUR 608 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 B1-21: Beef/veal // + EUR 203 million

// (expenditure: EUR 1 966 million)

(indicator: EUR 1 763 million)

(Member States' forecasts: EUR 2 093 million)

The overrun of the indicator is due

- mainly to early payment of premiums. Experience in previous years has shown that Member States pay these premiums irregularly, so there has often been a considerable divergence between implementation and the indicator, which did not even out until the end of June, which is the final date for payment of most of these premiums,

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

The overrun is partially offset by under-utilisation in relation to the indicator for export refunds.

An overshoot on appropriations can be expected for premiums (in particular as a result of the across-the-board reduction when the budget was adopted) 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 18 million

// (expenditure: EUR 628 million)

(indicator: EUR 611 million)

(Member States' forecasts: EUR 742 million)

Expenditure has returned to around the level of the indicator this month, after exceeding it in recent months because of a faster rate of payment of the ewe premium.

Requirements for this chapter are likely to decrease because of lower expenditure on the ewe premium (good prices on the Community market).

Chapter B1-23: Pigmeat, eggs and poultrymeat // + EUR 21 million

// (expenditure: EUR 207 million)

(indicator: EUR 185 million)

(Member States' forecasts: EUR 215 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 25 million

// (expenditure: EUR 229 million)

(indicator: EUR 204 million)

(Member States' forecasts: EUR 227 million)

The overrun is mainly due to higher expenditure on cereal-based products and butter. 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.

3.3.2. Subsection 1b: Rural development and accompanying measures

Chapter B1-40: Rural development // + EUR 79 million

// (expenditure: EUR 779 million)

(indicator: EUR 700 million)

(Member States' forecasts: EUR 797 million)

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

4. Conclusions

The uptake of appropriations under heading 1 of the budget for April 2000 (Member States' expenditure from 16 October 1999 to 29 February 2000) is EUR 24 994 million, i.e. 61.0% of appropriations.

4.1. The uptake of appropriations for subsection 1a

Expenditure is EUR 369 million below the indicator for subsection 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure).

The divergence from the indicator has arisen because the aid for areas under oilseeds was paid later than in previous years (from March as opposed to February). The indicator provides for the payment of EUR 540 million for this aid during February. The impact on expenditure is therefore only temporary.

Turning to the different chapters, expenditure is under-utilised for arable crops, fruit and vegetables, tobacco and olive oil. By contrast, spending on beef and veal, non-Annex I products and pigmeat is above the indicator.

In addition, the low level of expenditure takes account of savings arising from the favourable movement in the dollar/euro rate. However, 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.

To conclude, the under-utilisation recorded at the end of February is illusory. It should be remembered that the situation update produced when the Commission presented the price proposals indicates that appropriations for subsection 1a will be exceeded by several million euros at the end of the year [2].

[2] See Early Warning Report No 3/2000.

4.2. The uptake of appropriations for subsection 1b

Expenditure is EUR 79 million above the indicator for subsection 1b (rural development and accompanying measures). The divergence from the indicator is due to slightly higher expenditure on the three former accompanying measures.

The Member States' expenditure forecasts show low expenditure over the next two months and expenditure below the indicator at the end of April.