COMMISSION REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on EAGGF Guarantee Section expenditure Early warning system No 10/2000

CONTENTS

1. Overall outturn in monthly expenditure

2. Provisional utilisation of appropriations

3. Comments

4. Conclusions

1. Overall outturn in monthly expenditure

The following tables show the overall outturn in monthly expenditure in relation to the expenditure profile. This situation corresponds to expenditure incurred by the Member States from 16 October 1999 to 31 August 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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3. Comments

3.1. The uptake of appropriations for October 2000

The uptake of appropriations under heading 1 of the budget for October 2000 (Member States' expenditure from 16 October 1999 to 31 August 2000) is EUR 36 814 million, i.e. 89.8 % of appropriations. Expenditure is

- EUR 119 million below the indicator for subheading 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure),

- EUR 1 820 million below the indicator for subheading 1b (rural development and accompanying measures).

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 how the dollar rate develops.

In accordance with the Council Decision on budgetary discipline, the 2000 agriculture 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 average dollar rate for the period 1 August 1999 to 31 July 2000 (reference period for determining the impact of the dollar) will therefore diverge from this budgetary parity (average rate: EUR 1 = USD 0.99). The amount of expenditure incurred by the Member States will be lower as a result of the trend in the dollar rate. Savings will amount to about EUR 500 million.

The EAGGF Guarantee Section will only take partial advantage of these savings. It should be remembered that savings exceeding the margin of EUR 200 million fixed under the rules of budgetary discipline (i.e. some EUR 300 million) will be transferred to the monetary reserve at the end of the financial year, and cannot be used to finance other measures.

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.

However, the cost of the dual rate to the EAGGF Guarantee Section at the time when the letter of amendment was prepared was estimated at EUR 119 million. Recent calculations have estimated it at EUR 260 million, i.e. EUR 141 million more.

3.3. Market factors

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

Chapter B1-10: Arable crops // + EUR 135 million

// (expenditure: EUR 16 491 million)

(indicator: EUR 16 356 million)

The overrun of the indicator is due to:

- the across-the-board reduction in appropriations decided by the budgetary authority when the budget was adopted; in particular, certain budget items for area aid overrun the indicator,

- higher production refunds for starch (due to increased volume and higher rate of refund),

These overruns are partially offset by underutilisation of appropriations:

- for public storage (higher volume of sales at a price generating profits, and lower volume of buying in),

- for aid for durum wheat following a reduction in payment in Italy.

The Commission expects expenditure under this chapter to be roughly equivalent to appropriations at the end of the financial year (expenditure in the final weeks of the year will probably be small, particularly owing to export refunds and the fact that products bought in to intervention will not show depreciation). It should be noted, however, that the level of expenditure at the end of the financial year will take account of the savings due to the favourable movement of the dollar exchange rate (amounting to over EUR 360 million).

Chapter B1-11: Sugar // - EUR 50 million

// (expenditure: EUR 1 729 million)

(indicator: EUR 1 780 million)

Underutilisation is the result of lower payments for export refunds. This in turn is due to a slight decrease in quantities exported under quota, and to savings resulting from the favourable movement of the dollar exchange rate.

Appropriations for this chapter will probably be underutilised this financial year, owing in particular to the level of export refunds.

Chapter B1-12: Olive oil // - EUR 68 million

// (expenditure: EUR 2 032 million)

(indicator: EUR 2 099 million)

The divergence from the indicator results from lower expenditure on olive oil production aid. The Member States were late in sending in their figures, which moreover sometimes diverged substantially from earlier notifications, requiring Commission departments to investigate them in detail; consequently, the date when the Commission was able to fix the level of the balance to pay for 1998/99 was later than in recent years.

This has led to the present underutilisation, and possibly also to underutilisation at the end of this financial year, since late adoption of the Regulation also means postponing until 2001 the final date for payment of the balance of production aid for the current year.

Chapter B1-15: Fruit and vegetables // - EUR 145 million

// (expenditure: EUR 1 371 million)

(indicator: EUR 1 515 million)

The underrun is due to:

- fresh fruit and vegetables: reduced expenditure on bananas and operating funds of producer organisations, and to

- processed fruit and vegetables: reduced expenditure on financial compensation to encourage the processing of citrus fruit. Some of the underutilisation will probably be due to late payments, and it is likely that some of the expenditure initially planned for 2000 will not be incurred until next year.

Chapter B1-16: Wine // + EUR 53 million

// (expenditure: EUR 693 million)

(indicator: EUR 641 million)

The overrun of the indicator is the result of higher expenditure on aid for the use of grape must (larger-than-expected volume of rectified concentrated grape must intended for enrichment in receipt of aid).

It is estimated that expenditure on this chapter will be above appropriations at the end of the financial year.

Chapter B1-17: Tobacco // - EUR 63 million

// (expenditure: EUR 912 million)

(indicator: EUR 975 million)

The divergence from the indicator is the result of a decline in Italy's expenditure on premiums for the 1999 harvest.

The latest forward estimates sent by the Member States show that expenditure will catch up with appropriations, and probably even overrun them, by the end of the year.

Chapter B1-18: Other sectors // + EUR 26 million

// (expenditure: EUR 312 million)

(indicator: EUR 287 million)

The overrun is due to:

- late payment of export refunds on rice for the former 1998/99 crop year, which led to charging most of the export refund expenditure for both crop years, i.e. 1998/99 and 1999/2000, to financial year 2000,

- an increased requirement for production aid for seeds because of a greater volume of output.

Chapter B1-20: Milk and milk products // - EUR 139 million

// (expenditure: EUR 2 362 million)

(indicator: EUR 2 500 million)

There was a major divergence from the indicator for public storage of skimmed-milk powder. Earnings on sales are considerably higher, as a result of the large volume sold from public intervention stocks, and there was no buying in.

The underutilisation was partially offset by overruns on public storage of butter (more purchases) and aid for use of skimmed milk (in particular aid for the production of casein from skimmed milk).

Appropriations can be expected to exceed requirements at the end of the year. This will be due to lower expenditure on public storage of skimmed-milk powder, and additional milk levies in excess of the figure in the budget. However, expenditure on aid for use of skimmed milk and export refunds will probably overrun appropriations.

Chapter B1-21: Beef/veal // + EUR 135 million

// (expenditure: EUR 4 430 million)

(indicator: EUR 4 295 million)

The overrun of the indicator is due to:

- higher-than-expected expenditure under exceptional support measures (slaughter and destruction of livestock in the United Kingdom as part of the campaign to eradicate BSE),

- higher expenditure on premiums, following the across-the-board reduction in appropriations decided by the budgetary authority,

- higher expenditure on public storage owing to lower-than-expected earnings on sales.

The overruns are partially offset by the lower level of export refunds.

For the above reasons, an overrun of appropriations can be expected at the end of the year.

Chapter B1-30: Non-Annex I products // + EUR 24 million

// (expenditure: EUR 505 million)

(indicator: EUR 481 million)

The overrun is mainly due to higher expenditure on products based on cereals, butter and skimmed milk. This is due in particular to an increase in the volume of exports.

It will be recalled that, in order to limit expenditure, the Commission suspended in mid-May the issue of export licences giving entitlement to the payment of refunds.

Member States' forecasts show that appropriations will be overrun at the end of the year, despite the savings from the favourable movement of the exchange rate of the dollar (about EUR 35 million).

Chapter B1-37: Clearance and reduction in advances //

This chapter is not subject to an indicator; it covers financial corrections decided under the clearance of accounts, and reductions and suspensions of advances (reductions/suspensions of monthly reimbursements) to the Member States.

At the end of the financial year, the overall level of amounts credited to the budget is expected to be greater than appropriations entered. Amounts collected for clearance of accounts will be slightly lower than expected, while amounts collected for reductions in advances will probably be substantially higher.

Chapter B1-39: Other measures // + EUR 59 million

// (expenditure: EUR 869 million)

(indicator: EUR 810 million)

The overrun results from higher expenditure on agri-monetary aid, due to higher payments by Italy (relating to repeated revaluation of the lira in 1997) and the United Kingdom (relating to the sterling exchange rate in the course of the year).

3.3.2. Subheading 1b: Rural development and accompanying measures

Chapter B1-40: Rural Development // - EUR 1 820 million

// (expenditure: EUR 1 585 million)

(indicator: EUR 3 405 million)

Underutilisation results on the one hand from underspending on former accompanying measures, and on the other from the fact that the Commission adopted the new programmes for 2000-06 rather later than expected. At this stage, the Commission can charge only the following to the EAGGF budget:

- expenditure on the former accompanying measures,

- other rural development expenditure if the new programme has been adopted.

The Member States' forecasts point to a fairly sustained level of expenditure for the last weeks of the financial year:

- The Member States (especially Italy) are expecting major payments on former accompanying measures,

- expenditure to be covered following the adoption of the new programmes will depend on when those programmes are adopted, and on how far the Member States are able to make certain payments after they are adopted.

However, despite the Member States' expenditure forecasts, there is still a prospect that a large share of the appropriations will remain unutilised at the end of the year. The unutilised amount will depend on the paying agencies' ability to make further substantial payments by 15 October, and the Commission's progress in adopting new programmes.

4. Conclusions

The uptake of appropriations under heading 1 of the budget for October 2000 (Member States' expenditure from 16 October 1999 to 31 August 2000) is EUR 36 814 million, i.e. 89.8 % of appropriations.

4.1. The uptake of appropriations for subheading 1a

Expenditure is EUR 119 million below the indicator for subheading 1a (traditional EAGGF Guarantee Section expenditure and veterinary expenditure).

The indicator was overrun in the following sectors:

- beef and veal (+ EUR 135 million) with higher expenditure on measures involving the slaughter and destruction of livestock in the United Kingdom as part of the campaign to eradicate BSE, on premiums (in particular following the across-the-board reduction in appropriations), and on public storage,

- arable crops (+EUR 135 million), because of the across-the-board reduction in appropriations by the budgetary authority when the budget was adopted and because of production refunds for starch (however, for the end of the year, requirements may be expected to match appropriations because of lower expenditure on the cereals market),

- other measures (+EUR 59 million), due to higher payments for agri-monetary aid,

- wine (+ EUR 53 million) as a result of higher expenditure on aid for the use of grape must.

Utilisation was below the indicator in the following sectors:

- fruit and vegetables (-EUR 145 million) resulting from lower payments for processed fruit and vegetables (especially on the processing of citrus fruit) and for fresh fruit and vegetables (especially on bananas and the operating funds of producers' organisations),

- milk and milk products (-EUR 139 million) owing to lower expenditure on public storage of skimmed-milk powder (higher profit on sales and no intervention buying in),

- olive oil (-EUR 68 million) owing to the delay in relation to earlier years in adopting the Regulation authorising payment of the balance of production aid,

- tobacco (-EUR 63 million) owing to lower expenditure on premiums by Italy (caused by delayed payment, which Italy intends to make up).

The outlook for utilisation of appropriations to the end of the year (payments made by the Member States up to 15 October) is conditioned by Member States' expenditure forecasts, which are at a fairly low level for coming weeks. The Commission thinks that the appropriations entered in the budget for 2000 should be adequate to cover expenditure to be reimbursed to the Member States and the amount to transfer to the monetary reserve (some EUR 300 million).

4.2. The uptake of appropriations for subheading 1b

Expenditure is EUR 1 820 million below the indicator for subheading 1b (rural development and accompanying measures).

Underutilisation results on the one hand from underspending on former accompanying measures, and on the other from the fact that the Commission adopted the new programmes for 2000-2006 rather later than expected. It will be remembered that, except for expenditure on former accompanying measures, the Commission can enter rural development expenditure on the new programmes in the EAGGF Guarantee Section budget only once those programmes have been adopted.

Even if the Member States' forecasts show a fairly high level of expenditure for the weeks to the end of the financial year, there is still a prospect that a large fraction of appropriations will remain unutilised. The unutilised amount will depend on the paying agencies' ability to make further substantial payments by 15 October, and the Commission's progress in adopting new programmes.