COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 10.02.1998 
COM(1998) 10 final 
REPORT FROM THE COMMISSION TO THE COUNCIL 
ON GREEK REQUESTS 
IN THE COTTON SECTOR 

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CM 1. INTRODUCTION 
In a declaration on the operation of the cotton aid scheme adopted at the Council 
meeting of June 1997, the Council, at the request of the Greek delegation, asked the 
Commission to submit a report on aid arrangements in the cotton sector by the end of 
the year, with special reference to the four suggestions put forward by Greece, which 
involved: 
- direct payment of Community aid to producers, 
- régionalisation of penalties, 
- basing the payment of advances on estimated production increased by a safety 
margin of 7.5% 
- legal provision for revising production estimates in the course of the marketing 
year. 
It should be made quite clear that this report has been drawn up solely in response to 
that request; it does not in any way replace the report provided for in Council 
Regulation (EC) No 1553/95 on the system of aid for cotton, which is to be sent to the 
Council and the European Parliament before the beginning of the 1999/2000 
marketing year. 
Consequently, this report drafted at the request of the Greek delegation cannot be 
regarded as an investigation of the economy of the sector in general. It consists in an 
in-depth examination of the four suggestions, with their advantages and 
disadvantages, on the assumption that all the other detailed arrangements for the aid 
scheme remain unchanged. This investigation is not at this stage accompanied by any 
proposal for changes to legislation. 
The suggestions for changes have been assessed in the light of the need to maintain or, 
if possible, reinforce control measures and their effectiveness, in response to 
observations made earlier by the Court of Auditors in its annual reports.1 The Court 
noted serious weaknesses in the control aspects of the CMO for cotton, and pointed 
out that both the Council and Parliament had urged the Commission to see that 
effective control measures were introduced. 
2. THE PRESENT SYSTEM 
The Greek delegation's suggestions relate specifically to the identity of the recipient 
of aid, the stabilising mechanism, and, for the last two points, the system of advance 
payment of grants and consequently also the system of payment of the balance. The 
present situation can be summarised as follows. 
S l OJNoC309,16.11.1993,p. 1. 
i OJNo C 340,17.11.1996,p. 1. 
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2.1 Aid scheme and prices 
Cotton does not appear in Annex II to the Treaty, but Protocol 4 to the Act of 
Accession of Greece explicitly recognises the specifically agricultural character of 
cotton production and introduces production aid. It was subsequently amended and 
expanded by Protocol 14 to the Act of Accession of Spain and Portugal. 
One of the essential structures of the arrangements for aid to cotton is based on the 
well-known "deficiency payment" system. Aid equal to the difference between a 
guide price fixed by the Council and a world market price determined at least once a 
month by the Commission is granted to ginning firms, which are required in 
exchange to pay a minimum price to producers. Thus while the purpose of the aid is to 
provide income support for producers, its operation is based on payments to ginners. 
Moreover, the aid is granted for quantities of unginned cotton, although these 
quantities are adjusted as a function of the fibre yield of ginnning. 
The guide price and the minimum price for unginned cotton of standard quality have 
been fixed, for a period ending with the 1999/2000 marketing year at the latest, at 
ECU 106-30/100 kg and ECU 100-99/100 kg respectively. These institutional prices 
relate to relate to cotton of fair, sound and merchantable quality, having a 10 % 
moisture content and 3 % impurity content and the necessary characteristics to 
produce, after ginning, 32 % grade 5 fibres (white middling) of 28 mm length (1-
3/32"). 
The marketing year runs from 1 September to 31 August. 
2.2 Stabiliser mechanism 
In March 1995 the Commission, acting upon its undertaking at the December 1993 
Council meeting "to reflect on the specific problems of the cotton sector in a spirit of 
fair management", sent the Council a comprehensive report on the operation of the aid 
system, and in particular the stabiliser mechanism. 
In order to solve the problems linked to the fact that increased production in one 
producer Member State led to identical penalties in both, the Council introduced a 
system of guaranteed national quantities (GNQs) from the 1995/96 marketing year 
onwards, with the aim of making sure that producers in each Member State take steps 
to respond to overshoots themselves. To offset this, the abatement cut-off was 
removed, as was the possibility of carrying over part of the abatement from one 
marketing year to the next. 
For an abatement to be applied, two conditions must be met: 
I. actual Community production must exceed the guaranteed maximum 
quantity (GMQ) of 1 031 000 tonnes; 
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£ II. this Community production must include actual production in Spam 
2 exceeding the GNQ of 249 000 tonnes, or in Greece exceeding the GNQ of 
S 782 000 tonnes. 
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Moreover, when the abatement is applied to only one Member State, it is based, not 
on that Member State's overshoot of its own GNQ, but on the Community overshoot 
ofGMQ. 
The abatement involves reducing the guide price by a percentage equal to half of that 
by which the reference quantity is exceeded. 
2.3 Advance payments and balances 
One of the aims of the reform introduced from the 1995/96 marketing year was to 
apply penalties in a single marketing year to the producers responsible for 
overshooting in that year. It was therefore essential to provide for a system of payment 
to combine advance payments on grants in the course of the year and settlement of the 
balance at the end of the same year. 
2.3.1 Advances 
Calculation of advances 
Before the beginning of the marketing year, the Commission, in accordance with the 
Management Committee procedure, estimates production for each Member State 
concerned. In view of Council Regulation (EC) No 1554/95 laying down the general 
rules for the system of aid for cotton, the estimated levels of production are increased 
by a 15% safety margin for the calculation of a provisional abatement, through the 
theoretical operation of the stabilisers. 
Depending on the variable levels of market prices, the amounts of the advances 
granted in the course of the marketing year result from the following calculation: 
Guide price 
- Provisional abatement 
- World price 
= Advance 
As the present system provides for production to be estimated once only, provisional 
abatements are constant throughout the marketing year, but different as between 
Member States, depending on how far each has overshot its own GNQ. Consequently, 
for the same world price, the advance may not be the same in both Member States. 
The 15% mcftasfc m estimated production provides a safety net to ensure that by the 
end of the year the advances granted do not exceed the aid finally due. This 
percentage was fixed, from the second year of application of the reform (1996/97) in 
the light of past figures for the previous nine marketing years, relating to the 
discrepancy observed between production forecasts before the beginning of the year 
$ and actual output recorded at the end (see Annex I). The figures show that a margin of 
m 15% is neither arbitrary nor excessive. 
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p^w the system of advances operates o 
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o As soon as the unginned cotton enters the ginning plant (is taken into supervised 
storage) and from 16 October following the beginning of the marketing year, the 
Member States will, on application from the ginners, grant an advance on aid on 
condition security of at least 110% of the amount of the advance is lodged. When the 
cotton is taken into supervised storage, the ginner can indicate that the aid on which 
the advance is to be granted corresponds to that for the day of entry into supervised 
storage (subsidy of the day) or to that for a later date (post-fixing). The security is 
forfeit up to an amount equal to that by which the advance exceeds the aid eventually 
granted. 
The ginning period during which quantities of unginned cotton can be taken into 
supervised storage and weighed ends on 31 March. However, from the present 
marketing year (1997/98), the Member State has the option of setting an earlier date if 
this does not interfere with commercial operations in the sector. In that case, the 
Member State adopts the new time limit at the latest 30 days before it comes into 
force, and informs the Commission thereof immediately. 
The monthly breakdown of quantities taken into supervised storage in recent 
marketing years will be found in Annex II. Two points should be borne in mind: it 
takes longer in Greece than in Spain to dispose of the harvest, and the most active 
period is usually in October and November. On average, quantities taken into 
supervised storage up till the end of October and the end of November respectively 
represent, as a percentage of the total quantity for the period as a whole, 43% and 66% 
in Greece, and 77% and 96% in Spain. 
The period during which operators can apply for advances on aid also ends on 31 
March but unlike the ginning period it cannot be shortened by the Member States. 
2.3.2 Balance 
At the end of the marketing year, the level of the final abatement applicable to each 
Member State is determined on the basis of each Member State's final production, 
established at the latest before the end of June. 
For each period for which a world market price for unginned cotton has been fixed, 
aid is calculated as follows: 
Guide price 
- Final reduction in guide price (final abatement) 
- World price 
= Aid 
However, the amounts of aid thus calculated can be increased, pursuant to Article 2(4) 
of Council Regulation (EC) No 1553/95, if the following three conditions are met at 
ui the end of the marketing year: 
£ - the weighted average of the world market price is greater than ECU 30.2 per 
S 100 kg 
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- total budgetary expenditure is less than ECU 770 million, 
- actual production in the Member State exceeds its GNQ.2 
Definitive amounts of aid are therefore obtained as follows: 
Aid 
+ Increase in aid 
= Definitive amount of aid 
The balance to be paid to ginners at the end of the marketing year thus corresponds to 
the difference between the level of definitive aid and the amount of advances. The 
balance is different as between the Member States, but is in fact constant throughout 
the marketing year, and does not depend on the period for which a level of world 
prices has been fixed. It can be obtained as follows: 
Definitive abatement 
- Provisional abatement 
+ Increase in aid 
The balances paid in the 1996/97 marketing year following full application of the 
mechanism described above were as follows: 
ECU 32.315 /100 kg in Greece, 
ECU 0.744/100 kg in Spain. 
Consequently, the balance paid to Greek ginners was significant, corresponding to 
about 50% of the aid due, because actual output in Greece was considerably less than 
originally forecast (-24%). The balance paid to Spanish ginners, on the other hand, 
was quite small, because actual output in Spain was 13.6% higher than forecast, a 
figure very close to the 15% safety margin applied to forward estimates of production. 
2.4 Actors in the cotton sector 
The main actors involved in the agricultural production of cotton in the strict sense are 
the producer organisations and the ginning firms. A brief survey of these two 
categories is sufficient for present purposes, leaving aside the description of the 
textiles industry downstream, mainly spinners and weavers. 
£ 2 The increase may not raise aid above the level of the two ceilings specified in 
£ the aforesaid Regulation, i.e. aid without the application of the abatement and 
S aid resulting from an increase in the GNQs (270 000 tonnes for Spain and 
^ 850 000 tonnes for Greece). 
2,4*1 Producer groups 
During the 1980s, the Community encouraged the formation of producer groups in the 
cotton sector. Start-up aid and investment aid was provided, mainly for the purchase 
of harvesting machinery. 
At present, harvesting machines are generally available, in both Greece and Spain. 
Producer groups still have the job of managing this stock of equipment; but they no 
longer seem very active in terms of concentration and adjustment of supply by 
producers. However, it must be recognised that these functions can be fulfilled by the 
industry downstream (co-operatives and others). In Spain, producer groups are not 
very highly organised, and indeed only involve 12% of producers. 
2.4.2 Ginning firms 
In Greece, of a total of some 90 firms, co-operatives represent about a third of the 
number and 40% of ginning capacity at present. There is no particular problem in the 
sector as a whole, in view of the level of total output. 
In Spain, co-operatives also represent about a third of the total of eighteen firms. In 
the sector as a whole, there is some spare ginning capacity in relation to the supply of 
cotton, especially in recent years (1993/94 to 1995/96), when persistent drought was a 
major factor in limiting supply. However, if the increase in areas sown recorded in 
1996/97 and 1997/98 continues, there are grounds for hoping for a better balance 
between supply and demand. 
2.4.3 Financial relations between ginners and producers 
Aid is granted only to ginning firms applying for it, and having lodged a contract 
providing for payment to the producer of a price at least equal to the minimum 
institutional price. Among other things, the contract must include a clause providing 
that, should the abatement and aid increase mechanisms be applied, the agreed price 
will be adjusted as a function of the effect of the two mechanisms on the aid finally 
granted. 
When unginned cotton is taken into supervised storage, the ginner makes an initial 
payment to the producer, taking account, of course, of the advances received. 
Consequently, where prices are concerned, the ginners pass on to producers the 
burden of uncertainty about the aid that will finally be granted at the end of the 
marketing year. Once they have collected the balance at the end of the year, the 
ginners make the second payment to the producers, which should enable them to 
ensure an overall payment corresponding to the minimum price, as provided for in the 
rules. 
This two-stage payment of producers is a precautionary measure for the ginners. If 
UJ they were to make a single payment, it might turn out at the end of the year to have 
£ been too high, but it would probably be difficult to recover the overpayment. At the 
^ same time, the advances on aid that exceeded the amount of aid finally due would be 
S recovered from the 110% security. Moreover, it should be noted that for the period 
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from 1 September to 15 October unginned cotton taken into supervised storage cannot 
immediately qualify for an advance. 
The system of paying Community grants to ginners in two stages, an advance 
followed by the balance, has not had the same effect on behaviour in the cotton sector 
in the two Member States. 
In Greece, ginners have in fact paid producers in two stages; the producers, 
dissatisfied with the first payment, have held on to the harvest of unginned cotton in 
the hope of better prices later in the year. This has affected the disposal of the harvest, 
and thus the rate at which cotton is taken into supervised storage. Consequently, the 
period of ginning in the strict sense has also been affected. 
In Spain, the situation is different in view of the surplus capacity in the ginning 
industry in relation to the supply from producers. Against a background of 
competition, the ginners made a single payment to producers, for the 1996/97 
marketing year at all events, which later turned out to be much higher than the final 
minimum price. 
3. DIRECT PAYMENT TO PRODUCERS 
3.1 Greece's request and the reasons behind it 
While maintaining the principle of deficiency payments, and the grant of aid on the 
basis of the quantity produced, Greece would like to see the aid paid direct to the 
producers through the agency of producer groups, of which there are very few at 
present, but which could number about 300 to 400 to cover total output. 
With such new arrangements for granting Community financing, which already exist 
for certain CMOs such as tobacco, the principle of the minimum price for producers 
could be maintained, this price being paid by the groups. 
Besides collecting Community aid and paying member producers the minimum price, 
the producer groups would choose one of the following alternatives for marketing 
fibre. 
a) Marketing by producer groups 
Under this alternative, producer groups would own the fibre and would therefore be 
responsible for marketing it. In this situation, the groups could own ginning plants 
(possibly setting up a co-operative) or lease plant from the ginners, or subcontract the 
ginning of the cotton on their own account. 
In the last two cases, the consideration paid to the ginners by the producer groups 
q would consist either in a flat-rate amount applied to the quantity ginned (similar to a 
jobbing contract) or in a financial sum to cover the hire of the ginning plant. HI 
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d This alternative would considerably weaken the importance of private ginners, who 
would become merely intermediaries with no commercial function. As for individual 
producers, their situation would be unchanged. In the short term, the Greek authorities 
consider that this alternative could concern 40% of total production through the 
intermediary of co-operatives. That is the reason for suggesting the second alternative. 
B) Marketing by ginners 
Under this alternative, the ginners own the fibre and remain responsible for marketing 
it, as in the present situation. However, instead of paying the minimum price, as at 
present, they would undertake to pay the producer organisations an amount 
corresponding to the difference between the minimum price and the aid. The Greek 
authorities would like this to be laid down as a legal requirement in a Community 
regulation. 
One of the effects of changing the recipient of the aid would be to weaken the position 
of the ginning firms against the producers when negotiating contracts and prices. The 
Greek authorities would like to see a two-stage process, where alternatives (a) and (b) 
would co-exist in the first stage, until eventually all output could be absorbed under 
alternative (a), whereupon alternative (b) would be withdrawn. 
3.2 Analysis of the proposed changes 
Marketing of the fibre by the producer groups should lead to the following advantages 
for producers: 
- it would provide an incentive to improve the structures of producer groups; 
- producers who are direct recipients of aid should feel more responsibility for the 
level of total output, and thus for the penalties for overshooting the GNQ; 
- direct payment of the Community grant without going through the ginners could 
speed up payment of the minimum price to producers; 
- any profits from managing the aid could be passed on by the producer groups to 
their members. 
However, if producer groups are to market fibre, they will have to take responsibility 
for applying not only for supervised storage, but also, and especially, for advances and 
for aid, which means dealing with post-fixing, since they will be the recipients of the 
aid. Moreover, the groups will also be subject to the constraint of lodging security for 
the advances they collect. 
The problems of managing applications for supervised storage are exclusively 
practical matters of administration or shortage of infrastructure for weighing the 
cotton. However, the management of advances and aid (especially post-fixing) is a 
sensitive matter, since it requires not only a good knowledge of the world market but 
Q also, in certain cases, correct anticipation of world prices. To lodge security, 
a moreover, bank facilities are required. The structure of producer groups in Greece and 
2 especially in Spain does not seem suitable, as they operate at present, to enable most 
of them to deal with these problems and co:.isîrdï:;.iS h the ne?x f iture. 
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These arrangements would mean that production of unginned cotton would be 
monitored by the producer groups, since it is at this stage that cotton would be taken 
into supervised storage: there would then be 300 to 400 checkpoints, instead of only 
90 at present. However, ginned cotton would need to be checked at the ginning stage, 
and this check on the quantity of fibres would remain essential since the aid is granted 
for unginned cotton taken into supervised storage, adjusted for the fibre yield from 
ginning. Except for the producer groups constituted as ginning co-operatives, these 
twofold checks at two different stages of processing would clearly be more 
complicated than the present system. 
If the producer groups were to market the ginned cotton (alternative (a)), they would 
be responsible for negotiating sales contracts for their fibre on the world market, and 
thus for finding potential customers. 
If the combination and addition of the two mechanisms (applying for aid and 
negotiating fibre sales contracts on the world market) did not result in a price equal to 
95% of the guide price, the producer groups would be unable to pay their members the 
minimum price without endangering their financial viability. 
If the ginners were to retain responsibility for marketing the fibre on the world market 
(alternative (b)), it seems inconsistent to grant to producer groups aid that depends 
closely on fluctuations of world prices, which the producer groups do not have to cope 
with. 
Moreover, this alternative would involve including a requirement in a Community 
regulation for the ginner to pay the producer group a certain price, corresponding to 
the difference between the minimum price and the aid. This would mean imposing a 
financial constraint on an operator that did not receive a Community grant. From a 
legal point of view, this requirement could be imposed provided the ginner still 
remained involved in the operation of the aid scheme. 
The ginning process would still be a necessary condition for the granting of aid, since 
the quantity of unginned cotton eligible for aid would still be determined as a function 
of the fibre yield of ginning. Moreover, the ginner would still have the possibility of 
purchasing unginned Community cotton at a price close to the world market price, 
which would not be possible without a Community aid scheme. 
From a practical point of view, however, this requirement would encounter a major 
problem, since the difference between the minimum price and the amount of aid 
varies throughout the marketing year. Consequently, the ginners would have to make 
continual adjustments to the price paid to the producer groups, which seems very 
complicated, especially when aid is post-fixed. 
To determine the yield of ginning in such a system, the fibre produced by the ginners 
would have to be monitored. For the same reasons as those mentioned above in 
w connection with financial constraints, there is no obstacle from the legal point of view 
to imposing such monitoring on an operator that does not receive a Community grant. o 
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Under such a system, it is difficult to ensure monitoring or to impose penalties in 
cases of failure to comply with Community regulations. One idea might be to provide 
for national sanctions, or the introduction of a principle of approval of firms, which 
would then entail the possibility of withdrawing approval. 
Against a background of monitoring and sanctions, ginners could turn to the purchase 
of raw unginned cotton from outside the Community. 
3.3 Conclusions 
In the light of the arguments, alternative (a), involving marketing of ginned cotton by 
the producer groups, could be advisable in some cases, but alternative (b) does not 
seem feasible. 
Some producer groups set up as ginning co-operatives receive aid under the present 
arrangements in the way described as option (a) in that, as part of the co-operative 
sector, they market the fibre at present. In this capacity, the co-operative receives the 
aid, and consequently passes the minimum price on to its members. 
However, it is unlikely that all the producer groups (and especially those still to be set 
up) will have adequate expertise to manage not only the system of applications for 
supervised storage, but also that of applications for advances and aid, and the actual 
sale of fibre on the world market. Not all producer groups will be able to join the 
alternative (a) scheme fully and immediately; some may reach a sufficient degree of 
organisation, but there is a risk that for others the financial attractions of being a direct 
recipient of aid may take precedence over the establishment of adequate and efficient 
infrastructure. 
In Spain, the present low percentage of producers who are members of groups would 
also be a handicap for the establishment of this two-fold structure favoured by the 
Greek authorities. 
On balance, it is suggested that the present arrangements for channelling aid through 
ginning undertakings as provided for in Protocol 4 should be maintained, to facilitate 
management and monitoring of the scheme. In this framework, Article 7 of Council 
Regulation (EC) No 1554/95 could be adapted. This Article provides at present that 
where a cotton ginning undertaking carries out ginning on behalf of an individual 
producer or a group of producers it must submit a statement giving details of the 
conditions under which the ginning is carried out and how the aid is passed on to the 
producers. The reference is to aid, not to the minimum price. The new Council rules 
could specify that, where aid is passed on to a producer group, that group must pay 
individual producers the minimum price to ensure compliance with the requirements 
for minimum prices referred to in the Protocol. 
^ When the general operation of the cotton aid scheme is reviewed at a later stage, with 
ui the possibility of more substantial changes than those under consideration in this 
£ report, one option to consider will be that of fixed aid (per hectare or per tonne) paid 
- direct to the producer without going through the intermediary c*" the groups. This 
§ ooticn in the form in operation at present in the tobacco and cl:'ve oil sectors would 
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eliminate the concept of minimum price, and all the problems related to the 
management of applications for aid, especially post-fixed aid. However, it might make 
producers' incomes highly variable, because of the volatility of the world price. 
4. RÉGIONALISATION OF PENALTIES 
4.1 Greece's request and the reasons behind it 
Initially, Greece had asked for provision for sharing out the present guaranteed 
national quantity between the various producer regions. 
Greece also wanted a clause similar to that granted to Germany in the framework of 
arrangements for oilseed crops, where the sanction applicable at national level and 
resulting from the stabiliser mechanism can be adjusted, at the request of the Member 
State concerned, to individual regions. 
The purpose was to allow differentiated regional penalties as long as they were 
weighted to correspond to the overall national penalty. In this way, producers outside 
the traditional regions of production can be discouraged, while those in the traditional 
regions, where major investment has been made in the past, can be supported. Another 
purpose was to encourage the rotation of crops, and thus better environmental 
management of water reserves and better soil conservation. 
As this first option could lead to major penalties for certain regions, the Greek 
authorities substantially changed their demands, and are now asking for individual 
production quotas to be fixed for each producer. 
Under these new arrangements, production equivalent to the quota would be eligible 
for full aid, without any sanction, while production above the quota would receive no 
aid and would be remunerated on the free market. 
Individual quotas would be fixed in the light of various criteria such as the area 
covered and the level of regional investment. They would be revised annually. 
Logically, the sum of individual quotas should correspond to the guaranteed national 
quantity allocated to Greece at present (782 000 tonnes). The Greek authorities 
consider that this quantity should be increased, however. 
4.2 Analysis of the proposed changes 
4.2.1 Original proposal 
If Greece's total GNQ were to be allocated between the regions, this would mean, as a 
function of the extent of overshoot, varying levels of abatement from one region to 
another, varying levels of aid, and consequently varying levels of minimum prices. It 
2 would therefore be essential to provide for different levels of advances on grants 
depending on forward estimates of production. o 
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There would need to be a regional breakdown of the budgetary redistribution 
mechanism that operates when expenditure is below ECU 770 million. 
These constraints would make the aid scheme complicated to manage. The reason 
they exist is that regional references relate to levels of output rather than to area. 
Moreover, a system of regional allocation as a function of levels of output might lead 
to transfers of production from one region to another. 
4.2.2 New proposal 
A system of individual quotas involves the same risk of transfer of production, but 
between producers rather than between regions. Moreover, problems similar to those 
besetting milk quotas or durum wheat quotas would probably arise: cumbersome 
management for individuals, and complex control procedures. 
The aid scheme for durum wheat provided for individual entitlement related to area. 
Because of the major problems in applying the arrangements, the Council recently 
decided to repeal the system of individual entitlement by area, and to replace it with a 
system based on a guaranteed maximum area (GMA). 
The problem of consistency arises when quotas are applied to individual producers but 
aid is granted to producer groups; the problem of controls also arises, in view of the 
clear risk of transfer of production between producers in the same group, or even 
between groups. 
Annual reviews of individual quotas on the basis of allocation criteria that are not, at 
this stage, very clearly defined only add a further complication. 
Individual allocation of production would mean having two categories of cotton: 
grant-aided cotton and non-grant-aided cotton, at the level of the producer and at the 
level of the ginner. It would not be easy to monitor the system, and each operator 
would need to keep separate accounts for the two categories of cotton. Moreover, the 
present system of adjusting quantities of eligible unginned cotton up or down as a 
function of the fibre yield of ginning would no longer be efficient in certain cases, 
since the upward adjustment could not be applied when it led to a quantity in excess 
of the quota granted. 
These arrangements with two categories of cotton, one eligible for full aid with no 
sanction, and the other without any aid, also imply a considerable change in the 
scheme, since it would no longer be necessary to estimate production or to pay 
advances and balances. 
4.3 Conclusions 
The initial option involving regional allocation of the GNQ leads lo complications in 
jj the management and control of the aid scheme. It would inevitably give rise to 
£ differing levels of support and remuneration from one region to another. It might also 
lead to the transfer of production between regions. OJ 
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In the light of the arguments set out above, the option of individual quotas allocated 
annually can be rejected completely; it would increase the complexity of control 
measures, thus weakening their effectiveness, against the wishes of the Court of 
Auditors, the Council and Parliament. 
A simpler way of avoiding the expansion of cotton-growing throughout Greece could 
be partially based on the present model for durum wheat. This would involve defining 
areas of traditional production, where the aid scheme would be fully applicable, and 
other areas where no support would be provided. 
If such a scheme were to be adopted, it should be based on stricter controls of areas 
sown to cotton and of area declarations accompanying the cotton supplied to ginning 
undertakings. Complications would therefore be introduced whatever solution was 
adopted. The introduction of these provisions would mean adjusting the basic rules. 
To allow some régionalisation while avoiding the undesirable transfer of production 
between regions, the solution would be to adapt support as a function of area. 
However, this alternative does not correspond to the model which the Greek 
authorities would like; moreover, it cannot be adopted without changing the basic 
principles of the present scheme. 
In Spain, the concept of régionalisation of penalties clearly does not have the same 
implications, since Spanish cotton production is concentrated in Andalusia, which 
usually accounts for 95% of output. 
5. ESTIMATED PRODUCTION 
The Greek authorities take the view, with reason, that their third and fourth 
suggestions are no longer relevant in view of their new request for régionalisation of 
sanctions (individual quotas). This is because the abatement and consequent sanction 
would no longer apply, which would preclude the need to estimate production as a 
basis for calculating advances. 
We do nevertheless consider the last two points, which are difficult to deal with 
separately, since they relate to the detailed rules for paying advances. 
5.1 Greece's request and the reasons behind it 
Greece's original suggestion was to allow more flexibility in the two parameters 
influencing the calculation of advances. This involved providing a legal framework 
for revising the estimated production in the course of the year, and reducing the 
percentage for the safety margin added to estimated production from 15% to 7.5%. 
Greece suggested revising the production estimates at the latest during the last ten 
P days of October, with the possibility, where necessary, of revising the figures 
oo upwards. 
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The main purpose is to obtain, during the course of the marketing year, an estimate as 
close as possible to actual final output, so as to grant aid recipients prior remuneration 
as close as possible to their definitive entitlement. 
5.2 Analysis of the proposed changes 
Revising estimates of production during the course of the year (if it revises the 
original figures downwards) and applying a smaller margin of safety (7.5%) 
contributes to reducing the difference between the provisional and the definitive 
abatement. Advances are thus larger in the course of the marketing year, and the 
balance to be paid at the end is smaller. 
This means that recipients of advances can pass on the payment of the minimum price 
to producers more rapidly, especially if the recipients are producer groups, as 
suggested by the Greek authorities. 
However, if the safety margin added to the first estimation, made before the beginning 
of the year, is only 7.5%, the budgetary risk is appreciable, since the advances granted 
might turn out to be higher than aid finally due. 
Ginning activity is in full swing by the end of October, and revised estimates of final 
production would still be fairly unreliable. A safety margin of only 7.5% would entail 
an unacceptable budgetary risk. The 15% margin should be retained, even for the 
revised estimate, which would reduce the impact of the revision on the new advances. 
Under these arrangements, aid recipients would receive: 
- from 16 October, an advance linked to the initial estimate of production, increased 
by a safety margin of 15% (estimate made before the beginning of the marketing 
year), 
- from early November, a further advance (not much higher) based on the revised 
estimate of production, still with a 15% safety margin and including a small 
retroactive component linked to the earlier advance, 
- the balance at the end of the marketing year. 
However, this series of payments of different amounts is a source of complications 
that is very likely to lead to administrative errors for the sake of what in most cases 
will be a very small adjustment to the advance. 
5.3 Conclusions 
To reduce the budgetary risk to a minimum, it might be advisable to calculate 
advances in two stages: 
d 
w - in the first stage, the initial estimate of production made before the beginning of the 
ft marketing year could be kept, with the safety margin of 15% 
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- in the second stage, the estimate could be revised at the end of November, i.e. well 
into the period during which the bulk of the cotton is taken into supervised storage; 
as this estimate would be more reliable, a smaller safety margin could be applied. 
By postponing the revised estimate of production until the end of November, the 
conditions of remuneration of operators are improved both in Greece and Spain, 
without risk for the budget. The complications resulting from the payment of two 
advances still remain, however. 
To avoid the payment of several advances, with all the resulting administrative 
complications, it would be better to pay one advance from 16 December, instead of 16 
October as at present, on the basis of the estimate of production made at the end of 
November increased by a safety margin of less than 15%. 
These changes would require amendment of Council Regulation (EC) No 1554/95 
laying down the general rules for the system of aid for cotton. 
6. GENERAL CONCLUSIONS 
The main purpose of this report is to enable the Council to grasp the implications of 
the four changes suggested by the Greek authorities, in relation to the present system, 
with all the other present arrangements for the cotton aid scheme remaining constant. 
Other changes to the scheme might be considered with a view to involving producers 
more directly in the granting of Community aid. However, any such changes would be 
radical, implying an approach based on flat-rate aid (per hectare or per tonne); they 
would substantially increase the variability of incomes dependent on market prices, 
and imply tighter controls of the quality and quantity of output. Such options could be 
considered when the general operation of the scheme is reviewed; a report on the 
scheme as a whole is to be sent to the Council and to Parliament by 1 August 1999. 
For the granting of aid to producer groups, their present structure in both Greece and 
Spain does not seem likely to enable most of them to cope immediately with the 
constraints that inevitably fall on the recipient of aid in terms of management of 
taking into supervised storage, advances and aid itself. 
Under the alternative where ginners would be responsible for marketing the fibre 
downstream of receipt of aid by the producer groups, there would be a corresponding 
obligation to pay a certain price to the producer group. This alternative is not to be 
recommended, since it would raise problems of control and sanctions, but also of 
consistency in relation to the basic principle of the deficiency payment. 
Encouragement could be given to the other alternative, where the producer groups 
themselves would be responsible for marketing the fibre (in Greece this is already the 
2 case for producer groups set up as ginning co-operatives). There is already a rule that 
£ cotton ginning undertakings which carry out ginning on behalf of an individual 
& producer or a group of producers with them must pass aid on to the producers, and in 
S that case it should be reinforced. In order to comply with the requirements concerning 
minimiim prices laid down by the Protocol, the new Council Regulation could m 
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d introduce an obligation for producer groups to pay a minimum price to their members. 
In those conditions, producer groups would avoid all the constraints related to the 
management of aid by the ginners. Moreover, producer groups carrying out ginning 
themselves would, as at present, continue to collect and manage the aid. 
The introduction of a system of individual quotas to maintain cultivation in the 
traditional production areas creates a number of monitoring and management 
problems that cannot be solved in a manner compatible with the principles of the 
present aid scheme. Régionalisation of the present guaranteed national quantity 
implies multiple levels of aid, and thus the problem of controlling the transfer of 
production between regions. However, one possibility that could be considered, based 
on the principle at present applied for durum wheat, would be for a Council 
Regulation to fix areas that are not traditional production areas, where the aid scheme 
would not apply. 
As to the rules for the payment of advances, an improvement in production estimates 
requires revised estimates at a time when the main period of entry into supervised 
storage is usually well advanced (that is, towards the end of November). In this case, a 
safety margin of less than 15% could be applied to the revised estimate to calculate 
the advance on aid without creating budgetary risk. Moreover, to avoid the 
coexistence of several advances, and the resulting administrative complications, 
postponement for two months of the actual payment of advances should be 
considered. These changes involve amending the general rules laid down by the 
Council. 
The conclusions of this report can therefore be summarised as follows: 
- aid should continue to be granted to the ginning undertaking, whether a private 
undertaking or an association, and the possibilities for paying the minimum price 
when ginning is carried out on behalf of producer groups should be made explicit; 
- the introduction of individual production quotas would not be a good idea, but the 
possibility of geographical concentration of eligibility for aid should be considered; 
- it might be possible to consider a single advance payment calculated on the basis of 
a better estimate of production, which could then be increased by a margin smaller 
than the present 15%. 
In the light of the Council's discussions of this report, the above suggestions could 
lead to proposals for legislation applicable to the forthcoming marketing year 
1998/99. They do not, in themselves, involve any extra expenditure for the 
Community budget. 
17 

ISSN 0254-1475 
COM(98) 10 final 
DOCUMENTS 
EN 03 10 17 
Catalogue number : CB-CO-98-006-EN-C 
ISBN 92-78-30059-4 
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