COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 06.03.1998 
COM(1998) 109 final 
Proposal for a 
COUNCIL REGULATION (EC) 
amending Regulation (EC) No 724/97 determining measures and compensation 
relating to appreciable revaluations that affect farm incomes 
(presented by the Commission) 

EXPLANATORY MEMORANDUM 
1. Council Regulation (RC) No 724/97 of 22 April 1997 determines measures and 
compensation relating to appreciable revaluations of the agricultural conversion rate 
that affect farm incomes. 
It is based on Article 9 of Council Regulation (EEC) No 3813/92 of 28 December 
1992, which provides, among other things, that in the event of an appreciable 
revaluation, the Council, acting by a qualified majority on a proposal from the 
Commission, shall decide on all necessary measures, which may involve 
derogations from the provisions concerning aid. 
2. Regulation (EC) No 724/97 applies only to appreciable revaluations occurring 
between 1 January 1997 and the end of the twelfth month following its publication, 
i.e. 30 April 1998. 
Consequently, the Commission finds it necessary to send the Council a proposal for 
a Regulation to cover the period up to 31 December 1998, the last date before the 
introduction of the euro. 
This proposal does not merely reproduce the provisions of Regulation No 724/97 by 
extending its period of validity; it also introduces improvements required in the light 
of experience in the course of 1997. 
The main purpose of these changes, which do not change the basic features of the 
present system, is as far as possible to avoid overcompensation by taking closer 
account of the impact of agri-monetary movements on income loss. 
3. The following changes are proposed. 
3.1. The observation period, after which the maximum amount of compensatory 
aid may be reduced or cancelled, should be adapted. 
For Member States participating in the single currency, there will be no 
further currency movements after 31 December 1998. It is therefore 
proposed that observation periods should end on that date. 
For the Member States that do not take part in the single currency from 1 
January 1999, the observation period may extend beyond that date. 
Since this proposal also introduces arrangements for taking account of the 
market situation as well as the development of green rates (see the next 
point), the observation period ought to be longer than the present six months. 
The most appropriate period is one year, as this covers a complete 
production cycle. However, to avoid too long a delay in granting aid to 
producers who have incurred a loss of income, it is proposed to compromise 
by adopting a nine-month observation period. 
Where appreciable revaluation occurs in the course of the observation period 
for an earlier appreciable revaluation, the entire observation period should 
not expire until the end of the third month following that of the last 
revaluation. 
3.2. The system governed by Regulation (EC) No 724/97 involves calculating the 
maximum compensation as a function of the percentage of the appreciable 
revaluation. In order to ensure continuity between present rules and the 
proposed new system, it is not suggested that this method of calculation 
should be changed. Improvements do, however, need to be made to the way 
reductions or cancellations of the maximum amount of aid are calculated, 
both lor the initial amount and for the two subsequent tranches. 
At present, a decision to reduce or cancel tranches may be taken only in the 
light of the effect on incomes of the development of agricultural conversion 
rates observed over a certain period. 
In practice, this means that an increase in the green rate following an 
appreciable revaluation may lead to a reduction in the amount of aid, or even 
cancellation of one or more tranches. 
Under the proposed new rules, reductions or cancellations of the maximum 
aid or the second or third tranches could be decided not only in the light of 
agricultural conversion rates, but also in the light of the market situation. 
This is a considerable improvement: it is difficult to assess the real 
repercussions of changes in green rates on farm incomes, for the green rate is 
only one factor, and not the most important, in the formation of prices. Only 
rarely is there a direct and measurable link between the green rate and the 
market price in a given Member State. This may be the case, for example, 
when the market price closely follows the intervention price, or when a 
revaluation occurs at a key point in the production or marketing cycle of a 
product. But in some agricultural sectors, currency movements may have no 
visible or demonstrable effect on market prices. In such cases, the rules must 
provide for the possibility of reducing aid selectively, depending on the 
sector concerned. 
The idea is not to achieve an accurate and precise quantification of income 
loss, which would be impossible, but rather to ensure that the rules include 
sufficiently simple criteria to provide a legal basis for refraining from 
payment of compensation where it seems most probable that the agri-
monetary movement has had no impact on incomes. These are cases where 
the income loss is not apparent in market statistics, or where there is no 
possible explanation of the way the revaluation, on the date when it 
occurred, could have affected farm incomes. 
In accordance with this approach, there are two ways of taking account of 
the market situation. 
3.2.1. I'irst, when a green rate declines in a Member State following an 
appreciable revaluation, market prices in that Member State 
should decline in relation to market prices observed in the 
Member States whose currency was not revalued. If, in a 
particular sector, a comparison of market prices in the Member 
State concerned and the other Member States shows no relative 
decline, it is very difficult to argue that income has been lost 
owing to agri-monetary movements. In that case, compensation 
based solely on the development of green rates would most 
probably lead to overcompensation, which would not only result 
in budget expenditure, but might also distort competition. 
To avoid this, the amount of aid could be reduced, in a given 
sector, when, over the observation period or over the period 
between the beginning of the preceding tranche and the beginning 
of the month preceding the first month of the tranche concerned, 
the market price for the Member State concerned was on average 
equal to or higher than the average market prices in the Member 
States whose currencies had not been appreciably revalued during 
the same period. 
3.2.2. The approach described in the preceding paragraph is based on 
statistical observation of market prices. It would be helpful to 
take account not only of a statistical approach to prices, but also 
of mechanisms through which the impact of a revaluation 
occurring at a specific time is passed on to agricultural markets, 
or not as the case may be. This means taking account of the point 
in the production or marketing cycle at which the appreciable 
revaluation occurs. More specifically, if all the operative events 
in an aid scheme had already occurred by the time the agri-
monetary movement took place, this would imply that the 
revaluation had not had a negative impact on market prices or on 
incomes. In that case, aid should be cancelled for that particular 
sector, although possibly only for production in certain months of 
the period concerned. 
Obviously, if the first tranche of aid is cancelled or reduced, the 
automatic reduction of one third for the second tranche and two 
thirds for the third tranche will be calculated without taking 
account of the cancellation or reduction of the first tranche, since 
an appreciable revaluation whose impact on the current farming 
year was nil because of the date on which it occurred may still 
affect subsequent years. Therefore, reducing or cancelling the 
first tranche in accordance with the "operative event" criterion 
should not automatically affect subsequent tranches. 
3.3. Under present rules, no aid is paid for appreciable revaluations where the 
appreciable part of the revaluation is less than 0.5%. 
It is proposed to increase that percentage, to prevent excessively small 
currency movements from setting off the compensation mechanism. 
Following an appreciable revaluation, the monetary gap will be reduced by 
at least 2.5%, because of the permitted margin of 5%, which leads to the 
monetary gap being divided by two after the confirmation period. The 
appreciable part of the revaluation will be at most 2.56%, corresponding to 
halving of the monetary gap (reduction by 2.5 points). The slight disparity is 
due to the fact that the appreciable part of the revaluation is expressed as a 
percentage of the green rate, rather than as a percentage point reduction in 
the gap. 
Since the rules allow guaranteed prices to be overvalued by up to 5% 
without any consequences, it is reasonable to argue that, correspondingly, a 
readjustment of the green rate where the permitted margin is exceeded 
should not give rise to compensation for the analogous part of the 
appreciable revaluation. 
The Commission therefore proposes to the Council that appreciable 
revaluations should be ignored if the appreciable part of the revaluation is 
not more than 2.6% (round figure). 
Under present rules, the 0.5% is not treated as a neutral margin, but carried 
over to the next revaluation. The wording of the provision must be changed, 
so that the part of the revaluation that does not exceed 2.6% is ignored rather 
than carried over. The idea of carrying over appreciable revaluations is much 
less significant in the context of a system that is not to remain in force 
beyond 31 December 1998. However, if several successive revaluations 
occurred between the entry into force of this Regulation and 31 December 
1998, the 2.6% margin would apply to the aggregate revaluation rather than 
to each revaluation separately. 
4. As Regulation (EC) No 724/97 applies only to revaluations occurring up to 30 April 
1998, this proposal should come into force by 1 May 1998 at the latest. 
Proposal for 
COUNCIL REGULATION (EC) No .... 
of 
amending Regulation (EC) No 724/97 determining measures and compensation 
relating to appreciable revaluations that affect farm incomes 
TI IE COUNCIL Or Tl IE EUROPEAN UNION, 
Having regard to the Treaty establishing the European Community, 
Having regard to Council Regulation (EEC) No 3813/92 of 28 December 1992 on the 
unit of account and the conversion rates to be applied for the purposes of the common 
agricultural policy1, and in particular Article 9 thereof, 
I laving regard to the proposal from the Commission, 
Whereas Council Regulation (EC) No 724/97 of 22 April 19972 determines measures and 
compensation relating to appreciable revaluations of the agricultural conversion rate that 
affect farm incomes; whereas that Regulation does not apply to appreciable revaluations 
that may occur after 30 April 1998; whereas it should therefore be amended to cover any 
revaluations that may occur in the period up to the introduction of the single currency; 
Whereas Article 4(3) of Regulation (EC) No 724/97 provides that the maximum amount 
of aid may be reduced or cancelled as a function of the effect on income of the 
development of agricultural conversion rates recorded during a certain observation 
period; whereas in order to avoid compensation that is excessive in relation to the loss of 
income actually incurred, it is also necessary to take account of the market situation; 
1 OJ L 387, 31.12.1992, p. 1. Regulation last amended by Regulation (EC) No 150/95. 
2 OJL 108,25.4.1997, p.9. 
8 
Whereas the introduction of the single currency on 1 January 1999 will put an end to 
fluctuations in agricultural conversion rates for the Member States participating; whereas 
it is therefore appropriate to end the observation period for those Member States on 31 
December 1998; 
Whereas the observation period for the other Member States may extend beyond 31 
December 1998; whereas, since the market situation is to be taken into account, it is 
helpful to extend the observation period to nine months instead of six, and to provide for 
a further extension if a subsequent appreciable revaluation occurs during the observation 
period for the preceding appreciable revaluation; 
Whereas application of Article 4 of Regulation (EEC) No 3813/92 means that the 
agricultural conversion rate may not decline by less than 2.56%; whereas, to limit the risk 
of excessive compensation in cases of small appreciable revaluations, aid should not be 
granted for the amount corresponding to an appreciable part of less than 2.6%; 
Whereas decisions to reduce or cancel the second and third tranches should also be taken 
in the light of the market situation; 
Whereas the method of taking the market situation into account should be defined; 
whereas this method may involve comparing the development of market prices in the 
Member State whose currency has been appreciably revalued with those in the Member 
States whose currencies have not been appreciably revalued during the observation 
period, and by considering how far operative events in the various sectors have already 
occurred on the date of the appreciable revaluation, 
HAS ADOPTED THIS REGULATION: 
Article 1 
Regulation (EC) No 724/97 is amended as follows: 
1. Article 1( 1 ) is replaced by the following: 
"1. This Regulation shall apply in the event of appreciable revaluations occurring 
from 1 January 1997 and before 1 January 1999." 
2. Article 4 is amended as follows: 
(a) The following is added to the first subparagraph of paragraph 3: "and 
taking account, in the amount calculated in accordance with the lirst 
indent of paragraph 2, of the market situation during that period." The 
second and third subparagraphs arc replaced by the following: 
"For the currencies of the Member States that adopt the single currency 
pursuant to the Treaty, the observation period shall expire on 31 
December 1998. For the other currencies, the observation period shall 
expire at the end of the ninth month following that of the appreciable 
revaluation. However, where an appreciable revaluation occurs in the 
course of the observation period for an earlier appreciable revaluation, the 
entire observation period shall not expire until the end of the third month 
following that of the last revaluation. 
I lowcver, no aid shall be granted for that portion of the amount calculated 
in accordance with the first subparagraph of paragraph 2 and the first 
subparagraph of this paragraph equal to not more 2.6% of the appreciable 
revaluation occurring between the entry into force of this Regulation and 
31 December 1998." 
(b) The following sentence is added to the first subparagraph of paragraph 4: 
"However, in cases where the amount of the first tranche of aid is 
calculated by applying the second subparagraph of paragraph 4a(b), the 
reduction of at least one third shall be calculated on the basis of the 
amount of the lirst tranche that would have been granted if the second 
subparagraph of paragraph 4a(b) had not been applied." 
(c) The following is added to the second subparagraph of Article 4(4) "and 
taking account, in the amount calculated in accordance with the first 
subparagraph of paragraph 2, of the market situation during that period." 
10 
(d) The following paragraph 4a is inserted: 
"The market situation shall be taken into account pursuant to the first 
subparagraph of paragraph 3 and the second subparagraph of paragraph 4 
in accordance with the following method: 
The amount of one or more tranches in one or more sectors may be 
reduced when it has been observed that: 
(a) over the observation period referred to in paragraph 3 or over the period 
between the beginning of the preceding tranche and the beginning of the 
month preceding the first month of the tranche concerned, the market 
price for the Member State concerned was on average equal to or higher 
than the average market prices in the Member States whose currencies had 
not been appreciably revalued during the same period 
or 
(b) the relation between the dates of operative events in the sector concerned 
and the date of the appreciable revaluation is such that there is no 
justification for concluding that the revaluation had an impact throughout 
the period considered. 
for the purposes of point (a), market prices shall be compared using an 
index of base 100 for market prices in national currency on the date of the 
appreciable revaluation." 
11 
Article 2 
This Regulation shall enter into force on the seventh day following its publication in the 
Official Journal of the European Communities. 
This Regulation shall apply to appreciable revaluations occurring from 1 May 1998. 
This Regulation shall be binding in its entirety and directly applicable in all Member 
States. 
Done at Brussels, For the Council 
The President 
12 
FINANCIAL STATEMENT 
BUDGET HEADING: 390 APPROPRIATIONS: 
ECU 505 million 
2. TITLE: 
Proposal for a Council Regulation amending Regulation (EC) No 724/97 determining measures and compensation relating 
to appreciable revaluations that affect farm incomes 
3. LEGAL BASIS: 
Article 9 of Council Regulation (EEC) No 3813/92 
4. AIMS: 
1. To extend Regulation (EC) No 724/97 lo cover the period I May 1998 to 31 December 1998. 
2. To introduce a number of amendments, while maintaining the essentials of the arrangements, in order to better evaluate 
the impact of agri-monetary movements on incomes and thus limit, as far as possible, overcompensation. 
5. FINANCIAL IMPLICATIONS PERIOD OF 12 
MONTHS 
(ECU million) CURRENT 
FINANCIAL 
YEAR 
(98) 
(ECU million) FOLLOWING 
FINANCIAL 
YEAR 
(99) 
(ECU million) 
5.0 EXPENDITURE 
- CHARGED TO THE EC BUDGET 
(REFUNDS/INTERVENTION) 
- NATIONAL AUTHORITIES 
- OTHER (I) (1) 
5.1. UUV44N44U 
- (WNRUSOtW(4*^)I^THlvUC 
(I^VWX/CWKTOMS DUT4KK) 
- NATIONAL 
2000 
5.0.1 ESTIMA TED EXPENDITURE 
5.1.1 ESTIMATED REVENUE (I) 2001 
(0 2002 2003 
5.2 METHOD OF CALCULATION: 
6.0 CAN THE PROJECT BE FINANCED FROM APPROPRIATIONS ENTERED IN THE 
RELEVANT CHAPTER OF THE CURRENT BUDGET? YES/NO 
6.1 CAN THE PROJECT BE FINANCED BY TRANSFER BETWEEN CHAPTERS OF THE 
CURRENT BUDGET? YES/NO 
6.2 WILL A SUPPLEMENTARY BUDGET BE NECESSARY? YES/NO 
6.3 WILL FUTURE BUDGET APPROPRIATIONS BE NECESSARY? YES/NO 
OBSERVATIONS: 
( I ) The possible budgetary impact of this proposal depends on future monetary movements and is therefore impossible to 
estimate at this stage. However, since it tightens the conditions for the granting of compensatory aid in the event of 
appreciable evaluations of one or more agricultural conversion rates, the proposal should reduce spending compared with a . 
simple extension of Regulation (EC) No 724/97. 
!3> 

ISSN 0254-1475 
COM(98) 109 final 
DOCUMENTS 
EN 03 04 17 
Catalogue number : CB-CO-98-lll-EN-C 
ISBN 92-78-31372-6 
Office for Official Publications of the European Communities 
L-2985 Luxembourg 
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