COMMISSION REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on EAGGF Guarantee Section expenditure - Early warning system No 3/2000

COMMISSION REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on EAGGF Guarantee Section expenditure - Early warning system No 3/2000

TABLE OF CONTENTS

1. Overall monthly expenditure outturn

2. Provisional utilisation of appropriations

3. Comments

4. Conclusions

1. Overall monthly expenditure outturn

The following tables show the overall monthly expenditure outturn in relation to the expenditure profile. This situation corresponds to expenditure incurred in the Member States from 16 October 1999 to 31 January 2000.

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

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1.2. Subheading 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 March 2000

The uptake of appropriations under heading B1 of the budget for March 2000 (Member States' expenditure from 16 October 1999 to 31 January 2000) is EUR 22 805 million, i.e. 55.6 % of appropriations. Expenditure is:

- almost exactly at the level of the indicator for subheading 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure), just as it was the preceding month.

- EUR 70 million above the indicator for subheading 1b (rural development and accompanying measures). This overrun also mirrors the situation at the end of the preceding month.

A situation update for subheading 1a was made when the Commission presented the price proposals for 2000/2001. The update sets the requirements at a level slightly below those established when the letter of amendment was prepared in autumn 1999. However, as the appropriations entered in the budget were fixed at a level far below the requirements in the letter of amendment, the situation update provides for an appropriations overrun at year-end of EUR 582 million (see attached table).

It should be noted that savings of up to EUR 200 million may eventually be deducted from this amount as a result of the favourable trend in the dollar rate (see next point). Given these savings, expenditure should stay within the ceiling for subheading 1a.

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 the 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 agricultural 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 in recent months 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 and the amount of expenditure incurred by the Member States will probably be lower as a result of the movement in the dollar rate [1].

[1] The average dollar rate for the period 1 August 1999 to 22 February 2000 was EUR 1 = $ 1.03. Should the rate on 22 February (about EUR 1 = $ 1) continue until the end of the year, the average parity will be $ 1.02.

It should be recalled that savings exceeding the margin of EUR 200 million fixed under the budgetary discipline rules will be transferred to the monetary reserve at the end of the financial year.

3.2.2. The impact of the dual rates

The impact of 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 dual rate to the EAGGF Guarantee Section when the letter of amendment was prepared was estimated at EUR 119 million. In the situation update of January it was revised to EUR 193 million, an increase of EUR 74 million.

3.3. Market factors

3.3.1. Subheading 1a: Traditional EAGGF Guarantee Section expenditure and veterinary expenditure

Chapter B1-12: Olive oil // - EUR 98 million

(Expenditure: EUR 1 805 million)

(Indicator: EUR 1 903 million)

(Member States' forecasts: EUR 1 818 million)

The under utilisation in relation to the indicator results from lower expenditure on olive oil production aid. Due to the change in the quota system, which now provides for national quotas, the overall amount of payments of the advance is lower than in previous years. This situation will probably disappear when the balance is paid later in the financial year.

Chapter B1-14: Fibre plants and silkworms // + EUR 48 million

(Expenditure: EUR 754 million)

(Indicator: EUR 705 million)

(Member States' forecasts: EUR 762 million)

The overrun of the indicator is due to the increased pace of expenditure on aid for cotton. This is borne out by Member States' forecasts, which indicate expenditure for the coming months closely in line with the indicator.

Chapter B1-15: Fruit and vegetables // - EUR 209 million

(Expenditure: EUR 426 million)

(Indicator: EUR 635 million)

(Member States' forecasts: EUR 524 million)

The under utilisation in relation to the indicator results from delays in the payment of production aid for products processed from tomatoes (owing in particular to Italy's postponing payment to the coming months) and of financial compensation to encourage the processing of citrus fruit.

Chapter B1-17: Tobacco // - EUR 93 million

(Expenditure: EUR 560 million)

(Indicator: EUR 653 million)

(Member States' forecasts: EUR 587 million)

The under utilisation in relation to the indicator is due to a delay in paying the premiums for the 1999 harvest.

Chapter B1-21: Beef and veal // + EUR 178 million

(Expenditure: EUR 1 501 million)

(Indicator: EUR 1 322 million)

(Member States' forecasts: EUR 1 558 million)

The overrun of the indicator is the result of:

- earlier payments for premiums in particular. Already in previous years it was found that the Member States pay such premiums irregularly, often producing substantial discrepancies between utilisation and the indicator which only disappeared at the end of June (the deadline for payment of a large part of these premiums),

- earnings on sales from public storage are lower than expected. Appropriation requirements are likely to be higher than those entered in the budget.

The overrun is partially offset by under utilisation for export refunds. However, it is estimated that export refunds will correspond to budget appropriations at the end of the financial year.

Chapter B1-22: Sheepmeat and goatmeat // + EUR 86 million

(Expenditure: EUR 571 million)

(Indicator: EUR 485 million)

(Member States' forecasts: EUR 577 million)

The indicator was overrun as a result of the increased rate of payment of the second advance on ewe premiums compared to previous years.

A lower requirement is expected for this chapter because of the high price obtaining on the Community market.

Chapter B1-23: Pigmeat, eggs and poultrymeat // + EUR 24 million

(Expenditure: EUR 166 million)

(Indicator: EUR 142 million)

(Member States' forecasts: EUR 168 million)

The overrun of the indicator is the result of higher expenditure on export refunds for pigmeat. It is estimated that the requirement for this measure will be slightly above the budget appropriations at the end of the financial year.

Chapter B1-39: Other measures // + EUR 54 million

(Expenditure: EUR 303 million)

(Indicator: EUR 249 million)

(Member States' forecasts: EUR 301 million)

The overrun of the indicator is largely caused by early agri-monetary aid payments (transitional arrangements).

In addition, in December 1999 Italy paid the first instalment of the agri-monetary aid (arrangements in force before the introduction of the euro) for the programmes adopted by the Commission in spring 1998. This instalment was entered in the 1999 budget and exceeds the amount set aside for Italy in the 2000 budget. The Commission has therefore asked the Budget Authority to carry over EUR 29 million from the previous to the current financial year. Once this carry-over is approved, EUR 29 million will be deducted from the appropriations for the 2000 financial year and entered in the appropriations carried forward.

The Community forecasts by Member State indicate low expenditure in the coming months and the overrun will be purely temporary as a result.

3.3.2. Subheading 1b: Rural development and accompanying measures

Chapter B1-40: Rural development // + EUR 70 million

(Expenditure: EUR 670 million)

(Indicator: EUR 600 million)

(Member States' forecasts: EUR 683 million)

The overrun of the indicator is due to slightly higher expenditure on the former three accompanying measures.

4. Conclusions

The uptake of appropriations under heading B1 of the budget for March 2000 (Member States' expenditure from 16 October 1999 to 31 January 2000) is EUR 22 805 million, i.e. 55.6 % of appropriations.

4.1. The uptake of appropriations for subheading 1a

Expenditure is almost exactly at the level of the indicator for subheading 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure), just as it was the preceding month.

At chapter level, there is an overrun of the indicator in particular in the beef and veal, sheepmeat and goatmeat, agri-monetary aid, fibre plants as well as pigmeat sectors. By contrast, appropriations in the fruit and vegetables, tobacco and olive oil sectors are under utilised.

Almost all the discrepancies between expenditure actually incurred and the indicator result from payments being made earlier or later than in previous years and can therefore be considered to be only temporary.

The situation update produced when the Commission presented the price proposals indicates, for subheading 1a [2], an overshoot of several hundred million EUR on appropriations at the end of the year. However, the savings from the favourable trend in the dollar rate should ensure that expenditure remains below the ceiling for subheading 1a.

[2] The situation update was established purely for the requirements of subheading 1a.

4.2. The uptake of appropriations for subheading 1b

Expenditure on subheading 1b (rural development and accompanying measures) is EUR 70 million above the indicator. The overrun of the indicator is due to slightly higher expenditure on the three former accompanying measures.

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