[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 19.9.2007

COM(2007) 544 final

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

on EAGF expenditure Early warning system No 8/2007

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

1. INTRODUCTION

For the period 16 October 2006 to 30 June 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.

2. 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 1 126.9 million was collected as of 30 June 2007. Specifically:

- from the milk levy an amount of approximately EUR 360.0 million was collected as compared to the initial estimate of EUR 349.0 million,

- the conformity clearance claw-backs amounted to approximately EUR 557.8 million, and

- the receipts from irregularities amounted to approximately EUR 209.2 million with additional amounts also expected by the end of the budget year.

According to applicable 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 all or part of this revenue is not used, then, it will be automatically carried over into the following budget year.

3. 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, inulin syrup and isoglucose quantitative quotas held by operators and they are to be collected and 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 March, Member States had transferred to the assigned revenue account the first instalment of the restructuring amounts due amounting to approximately EUR 1 287.2 million. In June 2007, Member States declared an amount of approximately EUR 391.5 million for payments of aids to the restructured sugar industry. These payments will be financed out of the corresponding assigned revenue account, thus, leaving a balance of EUR 895.7 million to cover future payments for restructuring aid and other aids.

4. 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:

4.1. 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 30 June 2007 the average parity rate was approximately equal to EUR 1 = $ 1.31, i.e. 3.1% above the rate used for the establishment of the 2007 budget.

4.2. Market factors

4.2.1. Cereals (– EUR 327.0 million)

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

4.2.2. Refunds on Non-Annex 1 products (– EUR 71.4 million)

Member States are expected to incur lower expenditure on refunds for the export of processed agricultural products because of the overall general reduction in the export refund levels for the various products concerned. This situation is expected to last to the end of the budget year.

4.2.3. Sugar (+ EUR 181.3 million)

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

4.2.4. Fruits and vegetables (– EUR 63.0 million)

The current under-implementation of the budget's appropriations, when compared to the level of the indicator, is primarily due to the smaller quantities of tomatoes which have up to now received the processing aid. Furthermore, the rhythm of uptake of operational funds for producer organisations is slower when compared with the corresponding level of the indicator.

4.2.5. Milk and milk products (+ EUR 100.3 million)

The budget's appropriations, when compared to the level of the indicator, were over-implemented as of 30 June 2007.

It should be noted that this over-execution of appropriations, when compared to the level of the indicator, is due to technical reasons since, starting with the 2007 budget, the revenue from the milk levy, initially 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 152.4 million would arise for this sector.

4.3. Direct aids (+ EUR 30.9 million)

Member States accelerated their rhythm of payments in the month of June, thus, turning the under-execution of the budget's appropriations observed until the month of May into a slight over-execution when compared to the corresponding level of the indicator.

On the basis of the Member States forecasted expenditure to the end of August, this over-execution is expected to increase to approximately 1.0% of the budget's appropriations, when compared to the corresponding level of the indicator, and it will involve both decoupled and other direct aids. In order to ascertain the budget's execution for certain schemes in this area, the Commission services have contacted certain Member States in order to establish an indication as to their payment intentions on these schemes for the period to the end of the budget year.

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 597.9 million would arise for the direct aids chapter as of 30 June 2007.

4.4. Audit of agricultural expenditure

4.4.1. Accounting clearance of previous years' accounts (+ EUR 40.9 million)

All the accounting clearance decisions which are expected to be executed by the end of the current budget year have been taken by the Commission. The net amount clawed back through the corrections imposed by these decisions, as of 30 June 2007, stood at approximately – EUR 74.7 million. This amount compared to the amount of – EUR 178.0 million, which was retained in the 2007 budget, leads to an under-execution of the budget's appropriations. Should the amount already clawed back remain steady to the end of the budget year, then, it will lead to an increase in EAGF's expenditure by approximately + EUR 103.3 million for the 2007 budget year. The current increase in EAGF's expenditure stands at approximately + EUR 40.9 million when compared to the corresponding level of the indicator for the month of June 2007.

5. CONCLUSIONS

The uptake of the budget's appropriations, for the period 16 October 2006 to 30 June 2007 amounted to EUR 40 371.3 million, i.e: it involved an overall under-execution of these appropriations by approximately – EUR 191.8 million which is mainly resulting from market measures. This under-execution is expected to increase by the end of the budget year. However, at this point in time, it is estimated that the budget's appropriations for direct aids will show an over-execution by the end of the budget year. These relative amounts as well as the under-execution in the budget's appropriations coming from the audit on agricultural expenditure will determine the level of any eventual utilisation of the revenue assigned to EAGF.

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).