The agricultural situation in the European Union 2001 Report- Report in conjunction with the General Report on the Activities of the European Union - 2001 BRUSSELS AND LUXEMBOURG, 2002

TABLE OF CONTENTS

The agricultural situation in the European Union 2001 Report

1. Economic situation and farm incomes

1.1. Overview

1.2. Production levels

1.3. Producer prices and market prices

1.4. Input prices

1.5. Farm income

1.6. Farm accountancy data network (FADN)

1.6.1. Farm incomes

1.6.2. Income by type of farming

2. Policy developments and legislative initiatives in 2001

2.1. Quality policy

2.1.1. Protected Designation of Origin / Protected Geographical Indication / Traditional Speciality Guaranteed

2.1.2. TRIPs Agreement

2.1.3. New products listed

2.2. Organic farming

2.3. Promotion of agricultural products

2.4. Simplification of agricultural legislation

2.4.1. Introduction

2.4.2. Transparency and accessibility of agricultural legislation

2.4.3. Trade mechanisms

2.4.4. Small farmers' scheme

2.4.5. CAP-ED project

2.4.6. Member States' submission of simplification proposals

2.4.7. Reform of the sheep regime

2.5. State aids

2.5.1. Introduction

2.5.2. Exceptional occurrences: the BSE crisis

2.5.3. Animal diseases: foot-and-mouth disease in the United Kingdom

2.5.4. Opening of formal investigations

2.5.4.1. Opening of formal investigations

2.5.4.2. Italian financial law for 2001

2.5.4.3. AIMA programme: Aid for the poultry industry in Italy

2.5.4.4. Aid to improve the conditions in which agricultural products are processed and marketed - Article 35 of Regional Law 5/2000 - Italy (Veneto).

2.5.4.5. Framework state-aid schemes in Italy

2.5.5. Aid to wine producers in Italy (Sicily)

2.5.6. Aid for fruit and vegetable producers in Greece

2.5.7. Programme to control agricultural pollution in France

2.6. Assistance to the needy in the Community

2.7. The outermost regions

2.8. Overseas countries and territories (OCT)

2.9. Information measures concerning the CAP

2.10. Information and communication technology (ICT)

2.11. Advisory committees and relations with bodies representing the EU socio-professional sector

3. MARKET DEVELOPMENTS

3.1. Crop products

3.1.1. Cereals

3.1.1.1. World market

3.1.1.2. Community market

3.1.2. Oilseeds

3.1.3. Peas, field beans and sweet lupins

3.1.4. Linseed

3.1.5. Grain legumes (chickpeas, vetches and lentils)

3.1.6. Non-food production

3.1.7. Rice

3.1.8. Starch

3.1.9. Sugar

3.1.9.1. World market

3.1.9.2. Community market

3.1.9.3. Main legislative and policy developments

3.1.10. Potatoes

3.1.11. Dried fodder

3.1.12. Fibre flax and hemp

3.1.12.1. Fibre flax

3.1.12.2. Hemp

3.1.13. Cotton

3.1.13.1. Reform of the aid scheme for cotton

3.1.13.2. World and Community markets

3.1.14. Silkworms

3.1.15. Olive oil

3.1.16. Fresh fruit and vegetables

3.1.16.1. World market

3.1.16.2. International trade

3.1.16.3. Community market

3.1.16.4. Reform of the fruit and vegetables sector

3.1.17. Bananas

3.1.17.1. Reform of the market organisation for bananas

3.1.17.2. Community production

3.1.17.3. Imports from ACP countries

3.1.18. Processed fruit and vegetables

3.1.18.1. World and Community markets

3.1.18.2. Main developments in legislation and policy (see Section 3.2.16.4)

3.1.19. Wine

3.1.20. Tobacco

3.1.20.1. Market developments

3.1.20.2. Main legislative and policy developments

3.1.21. Seeds

3.1.21.1. Market developments

3.1.21.2. Main legislative and policy developments

3.1.22. Hops

3.1.22.1. World market

3.1.22.2. Community market

3.1.23. Flowers and live plants

3.1.24. Animal feed

3.2. Market developments - livestock products

3.2.1. Milk and milk products

3.2.1.1. World market

3.2.1.2. Community market

3.2.2. Beef and veal

3.2.2.1. World market

3.2.2.2. Main legislative and policy developments

3.2.2.3. Beef labelling

3.2.3. Sheepmeat and goatmeat

3.2.3.1. Main legislative and policy developments

3.2.4. Pigmeat

3.2.4.1. World situation

3.2.4.2. Community market

3.2.5. Poultrymeat

3.2.6. Eggs

3.2.7. Honey

3.2.7.1. World situation

3.2.7.2. European market

4. AGRIMONETARY ARRANGEMENTS

4.1. Developments in 2001

4.2. Agrimonetary aids

5. RURAL DEVELOPMENT IN 2001

5.1. Belgium

5.1.1. Rural development plans (EAGGF Guarantee Section)

5.1.1.1. Amended RDPs

5.1.1.2. Level of payments for the period 16 October 2000-15 October 2001

5.1.2. Operational programmes and single programming documents (EAGGF Guidance Section)

5.1.3. Leader+ programmes

5.2. Denmark

5.2.1. Rural development plans (EAGGF Guarantee Section)

5.2.1.1. New RDP adopted

5.2.1.2. Amended RDP

5.2.1.3. Level of payments for the period 16 October 2000-15 October 2001

5.2.2. Leader+ programmes

5.2.2.1. New programmes adopted

5.3. Germany

5.3.1. Rural development plans (EAGGF Guarantee Section)

5.3.1.1. The RDP for Berlin was adopted in 2001.

5.3.1.2. Amended RDPs

5.3.1.3. Level of payments for the period 16 October 2000-15 October 2001

5.3.2. Operational programmes (EAGGF Guidance Section)

5.3.2.1. Level of payments in 2001

5.3.3. Leader+ programmes

5.4. Greece

5.4.1. Rural development plans (EAGGF Guarantee Section)

5.4.1.1. Level of payments for the period 16 October 2000-15 October 2001

5.4.1.2. Annual report

5.4.2. Operational programmes and single programming documents (EAGGF Guidance Section)

5.4.2.1. Adoption of the new operational programmes and single programming documents.

5.4.2.2. Amendment of operational programmes and single programming documents

5.4.2.3. Annual report

5.4.3. Leader+ programmes (EAGGF Guidance Section)

5.4.3.1. Adoption of new programmes

5.5. Spain

5.5.1. Rural development plans (EAGGF Guarantee Section)

5.5.1.1. Amended RDPs

5.5.1.2. Level of payments for the period 16 October 2000-15 October 2001

5.5.2. Operational programmes and programme complements (EAGGF Guidance Section)

5.5.2.1. Level of payments for the period 16 October 2000-15 October 2001

5.5.3. Leader+ programmes

5.5.3.1. National and regional Leader programmes adopted

5.5.3.2. Leader II

5.6. France

5.6.1. Rural development plans (EAGGF Guarantee Section)

5.6.1.1. New RDP adopted

5.6.1.2. Amended RDP

5.6.1.3. Level of payments for the period 16 October 2000-15 October 2001

5.6.2. Operational programmes or single programming documents (EAGGF Guidance Section)

5.6.2.1. Amended operational programmes or single documents

5.6.2.2. Level of payments for the period 16 October 2000-15 October 2001

5.6.3. Leader+ programmes

5.7. Ireland

5.7.1. Rural development plans (EAGGF Guarantee Section)

5.7.2. Operational programmes (EAGGF Guidance Section)

5.7.3. Leader+ programmes

5.8. Italy

5.8.1. Rural development plans (EAGGF Guarantee Section)

5.8.1.1. Adoption of new RDPs

5.8.1.2. Amended RDPs

5.8.1.3. Level of payments for the period 16 October 2000-15 October 2001

5.8.1.4. Programming 1994-1999 (EAGGF Guidance Section)

5.8.2. Operational programmes or single programming documents (EAGGF Guidance Section)

5.8.2.1. Amendment of operational programmes or single programming documents

5.8.2.2. Level of payments in 2001

5.8.3. Leader+ programmes (EAGGF Guidance Section)

5.8.3.1. Adoption of new programmes

5.8.3.2. Level of payments in 2001

5.9. Luxembourg

5.9.1. Rural development plans (EAGGF Guarantee Section)

5.9.1.1. Level of payments for the period 16 October 2000-15 October 2001

5.10. Netherlands

5.10.1. Rural development plans (EAGGF Guarantee Section)

5.10.1.1. Amended RDP

5.10.1.2. Level of payments for the period 16 October 2000-15 October 2001

5.10.2. Leader+ programmes

5.10.2.1. Adoption of new operational programmes or single programming documents

5.11. Austria

5.11.1. Rural development plans (EAGGF Guarantee Section)

5.11.1.1. Level of payments for the period 16 October 2000-15 October 2001

5.11.2. The Burgenland Objective 1 programme

5.11.2.1. Level of payments in 2001

5.11.3. Leader+ programmes (EAGGF Guidance Section)

5.11.3.1. New operational programme or single programming document

5.11.3.2. Level of payments in 2001

5.12. Portugal

5.12.1. Rural development plans (EAGGF Guarantee Section)

5.12.1.1. Adoption of new RDPs

5.12.1.2. Level of payments for the period 16 October 2000-15 October 2001

5.12.2. Leader+ programmes (EAGGF Guidance Section)

5.12.2.1. Adoption of new programmes

5.12.2.2. Level of payments in 2001

5.12.3. Operational programmes (EAGGF Guidance Section)

5.12.3.1. 'Agriculture and rural development' operational programme

5.12.3.2. Regional operational programmes

5.13. Finland

5.13.1. Rural development plans (EAGGF Guarantee Section)

5.13.1.1. Amended RDPs

5.13.1.2. Level of payments in 2001

5.13.2. Operational programmes or single programming documents (EAGGF Guidance Section)

5.13.2.1. Level of payments in 2001

5.13.3. Leader+ programmes (EAGGF Guidance Section)

5.13.3.1. Programme Leader+ adopted

5.13.3.2. Level of payments in 2001

5.14. Sweden

5.14.1. Rural development plans (EAGGF Guarantee Section)

5.14.1.1. Amended RDPs

5.14.1.2. Level of payments for the period 16 October 2000-15 October 2001

5.14.2. Operational programmes and single programming documents (EAGGF Guidance Section )

5.14.2.1. Annual reports and payments

5.14.2.2. Level of payments for the period 16 October 2000-15 October 2001

5.14.3. Leader+ programmes (EAGGF Guidance Section)

5.14.3.1. Leader+ programme approved

5.14.3.2. Level of payments in 2001

5.15. United Kingdom

5.15.1. Rural development plans (EAGGF Guarantee Section)

5.15.1.1. Level of payments in 2001

5.15.2. Operational programmes and single programming documents (EAGGF Guidance Section)

5.15.2.1. Annual reports and payments

5.15.2.2. Leader+ programmes adopted

5.15.2.3. Annual payments

6. ENVIRONMENT AND FORESTRY

6.1. Environmental measures

6.2. Forestry measures

7. Financing of the CAP in 2001

7.1. European Council in Berlin and budget discipline

7.2. EAGGF Guarantee Section

7.2.1. Stages of the budget procedure

7.2.1.1. The monetary reserve

7.2.2. The EAGGF Guarantee Section in the context of the general budget

7.2.3. The EAGGF and its financial resources

7.2.4. EAGGF Guarantee Section expenditure

7.2.4.1. Public storage

7.2.5. Clearance of accounts

7.2.6. Expenditure on agricultural markets in 2001

7.3. EAGGF Guidance Section

7.3.1. Funding carried out

7.3.2. Budget execution

7.4. Evaluation

7.4.1. Evaluation of market-related measures

7.4.2. Evaluation of structural and rural development measures

8. preparing for enlargement

8.1. Main developments

8.1.1. Accession negotiations

8.1.2. Regular Reports

8.1.3. Sapard

8.1.4. CEECs, progressive liberalisation of bilateral agricultural trade

8.1.4.1. List 1:

8.1.4.2. List 2:

8.1.4.3. List 3:

8.1.5. Results of the negotiations

9. International relations

9.1. International organisations and agreements

9.1.1. World Trade Organisation (WTO)

9.1.1.1. WTO consultations and dispute settlement

9.1.1.2. Towards a new round of trade negotiations

9.1.2. Organisation for Economic Cooperation and Development (OECD)

9.1.3. Generalised System of Preferences (GSP)

9.1.4. United Nations Food and Agriculture Organisation (FAO)

9.1.5. International Grains Agreement (IGA)

9.1.5.1. Grains Convention

9.1.6. International Sugar Organisation

9.2. Bilateral and regional trade relations

9.2.1. United States

9.2.2. Canada

9.2.3. Mexico

9.2.4. Mercosur

9.2.5. Chile

9.2.6. South Africa

9.2.7. Japan and South Korea

9.2.7.1. Bilateral trade relations with Korea and Japan in 2001

9.2.8. New Zealand

9.2.9. The Mediterranean countries

9.2.10. Western Balkans

9.2.11. ACP

CHAPTER I

1. Economic situation and farm incomes

1.1. Overview

1. The 2001 agricultural year was mainly characterised by the following developments: (a) the general downturn in the international economic situation over the course of the year, which was further exacerbated by the tragic events of 11 September; (b) relatively high oil prices for most of the agricultural year (although markedly down on the very high prices in the latter part of 2000), leading to continued high costs for energy and fertilisers, but with prices dropping sharply in mid-September and remaining at much lower levels for the rest of the year; (c) a sudden increase in food prices in the first half of 2001 which gave a boost to inflation and eroded private consumption; (d) continued turmoil in the meat sector, following firstly the new BSE crisis which erupted towards the end of 2000 and which led to a large drop in beef consumption and prices, and secondly the outbreak of foot and mouth disease (FMD) in early 2001; and (e) generally unfavourable weather conditions over the course of the agricultural year, with bad weather affecting most EU Member States and leading to a reduced cereals harvest.

2. Given the overall downturn in the domestic and international economic situation, exports faced an abrupt deceleration in global trade growth, mainly due to the marked US slowdown. Furthermore, notwithstanding the favourable euro exchange rate, EU agricultural exports during 2001 were heavily affected by the crises in the meat sector and by increased competition from third countries in the cereals sector.

3. Overall, initial estimates at the end of 2001 put farm incomes for the European Union as a whole on an upward trend by 2.7 % in real terms (measured as real net value added at factor cost per annual work unit), following the rise already recorded in 2000 (+ 3.7 %, according to the most recent figures). Despite the sanitary crises observed in the animal sector, linked to BSE and FMD, favourable price developments, notably in the animal sector (but with the clear exception of the beef sector), together with a renewed, though moderate, decline in the agricultural labour force (-1.6 % in 2001), should result in average agricultural income per labour unit rising to record levels in 2001, giving a renewed sign of recovery after the falls recorded in 1998 and 1999. However, as usual, some caution is necessary with these first estimates. In addition, underlying the expected overall increase in the average income are quite large variations in the evolution of farm incomes according to the type of farming.

4. In terms of weather, the 2001 agricultural year got off to a generally poor start with adverse conditions during the autumn sowing period. This period was characterised by excessive rain, which hindered or made impossible winter cereals sowing operations in the United Kingdom, Ireland, France and the Benelux countries, and which reduced the crop area through flooding and crop damage. Excessive rains were also recorded in Spain and Northern Italy, allowing replenishment of water reserves but in some cases causing localised saturation and flooding.

5. Nevertheless, unseasonably high temperatures during winter, especially in the central and northern regions of Europe, helped advance the growth of winter crops, but while conditions were drier than normal in the southern EU countries, the other countries experienced higher than average rainfall, in some cases excessive. In the spring the rainfall was still excessive in the central and northern areas, further hindering operations, while in the southern regions of Italy, Spain and Portugal rain was inadequate and temperatures higher than normal, enhancing a drought effect on winter cereals. In particular, June was very dry and hot in these three countries, with a negative impact on straw cereals, especially barley and wheat.

6. During the summer, excess moisture in some central and northern countries hampered or delayed harvests, while several weeks of peak temperatures and dryness had negative effects on maturing winter and spring cereals crops in the southern countries, generally resulting in reduced yields for the year. With regard to summer crops, both beet and potato yields were below the levels for 2000, with these two crops suffering from the excessive autumn rainfall in the north which delayed the harvests in most areas.

7. Domestic consumption for cereals is estimated to have risen only very slightly in 2001 (by just under 1 %) after having risen some 4 % the previous year (when cereal use for animal feed rose noticeably). For beef and veal the widespread loss of consumer confidence in the wake of the discovery of fresh cases of 'mad cow disease' late last year resulted in a 5 % reduction in total EU consumption in 2000 compared to 1999. This large drop in consumption continued into 2001, with consumption dropping most in Germany, Greece and Spain, but was followed by a recovery in the latter half of the year, leading to an expected overall reduction averaged out over the year of around 5.7 % compared to 2000.

8. As in the past, the slump in beef and veal consumption had a positive impact on poultry and pigmeat consumption, which (on a per capita basis) should increase by 6.5 % and close to 2 % respectively compared to the 2000 levels. In contrast, per capita sheep and goat meat consumption should decrease by 5.8 %, largely due to the impact of FMD-related export restrictions which led to a scarcity of these meats in continental EU countries that traditionally rely on United Kingdom exports.

9. Overall consumption of dairy products (i.e. covering all uses of milk) has been increasing in the EU since 1997, and in 2001 consumption should reach 115.2 million tonnes (in milk equivalent), a 0.3 % increase over last year. While butter consumption remained unchanged from 2000, consumption of cheese is expected to continue its upward trend, growing by some 0.5 % in 2001, although this increase is noticeably below the trend over recent years.

10. The general economic scene was characterised by a weakening of the world economy during 2001 (world GDP growth for 2001 is expected to be only 2.1 %), led by the economic slowdown in the USA during the course of the year and made worse by the general sense of insecurity and uncertainty following the tragic events of 11 September. The EU was not able to escape this severe and synchronised slowdown in the world economy, with economic growth in the EU decelerating in 2001 (the euro area economy is likely to grow at only 1.6 %, down from 3.4 % last year), and with exports facing an abrupt deceleration in global trade growth which is likely to be below 1 % (in volume) for 2001, a restricted level not seen since the early 1980s.

11. Following the 1999-2000 oil price rise, a surge in food prices in the first half of 2001 gave a boost to inflation that eroded the purchasing power of households and private consumption, with the inflation rate for the year expected to reach 2.8 % on average in the euro area (compared to 2.4 % in 2000). Oil prices remained generally high at the start of 2001, although somewhat lower than the very high prices observed in the latter part of 2000, and remained fairly stable until mid-September, at which point prices dropped sharply to reach levels last seen in mid-1999. On the currency front, the euro remained historically fairly weak against the United States dollar during 2001, helping Community exports to remain generally competitive in world export markets.

12. In line with the general downturn in the global economy, international agricultural markets were relatively depressed for much of 2001. International prices for most cereals initially showed some recovery at the beginning of the second half of the year, having fallen over the first half, but economic uncertainty following the events on 11 September put prices under pressure again leading to little change over the remaining months.

13. International wheat prices remained relatively high throughout the year and well above last year's levels up until September, helped by the fall in production in key exporting countries and the expected increased world demand. However, from October onwards price levels, although still remaining quite high, were slightly below the high levels of the corresponding period at the end of 2000, due to reduced demand and evidence emerging of significant surpluses available for export in several countries not traditionally known as exporters. In the world maize market prices experienced a fall of the order of 10 % between January and June before recovering somewhat until August, from which point they also came under renewed downward pressure as prospects became uncertain. Prices fell heavily between August and October, due to the availability of large supplies and uninspiring demand, but recovered slightly towards the end of the year on expectation of reduced US production.

14. In the meat markets, international prices strengthened in the first part of 2001, mainly driven by a strong increase in poultry prices. However, the deterioration of global economic conditions and the emergence in September of the first reported cases of BSE in Asia restricted further gains in meat prices by limiting the growth in global meat consumption. Furthermore, beef prices, which had shown some gradual recovery over the first part of the year, came under downward pressure towards the end of the year following the renewed animal disease concerns, but also reflecting a global move away from beef to other meats. International prices for dairy products fell noticeably during the second half of the year, in line with the general deceleration in global economic growth and in particular the contraction in demand in those regions which had been the principal expanding markets over recent years, so that by December prices for all dairy products other than Cheddar cheese were well down on those 12 months earlier.

15. The performance of the European Union on world agricultural markets in 2001 has been somewhat mixed. While the weak euro aided the competitiveness of Community exports, the downturn in the global economy together with this year's low cereals harvest, the increased competition from third countries in the cereals sector and the recent crises in the meat sector all had a significant restraining effect on EU exports.

16. In the first 10 months of 2001 the overall value of Community agricultural exports was slightly up (around 2.3 %) on the same period in 2000. However, underlying this figure are wide variations across product sectors. Cereal exports fell heavily, by some 30 % in volume and 15 % in value (in euro terms), partly due to the impact of increased competition from exports by the central and eastern European countries and the republics of the Former Soviet Union, where 2001 cereal crops had recovered from the drought-affected levels of the previous year. Similarly, large falls in the value of exports were recorded for animal feedstuffs (-19 %) and olive oil (-9.5 %). In contrast, significant rises occurred for sugar (+ 36 %), fruit (+ 16 %) and vegetables (+ 17 %).

17. With regard to meat exports, the volume of exports in the first 10 months of the year, compared with the same period the previous year, decreased due to the impact of the BSE and FMD crises, which virtually halted for a certain period EU exports of meat products. Exports of beef and veal dropped over 20 % in both volume and value, while those for pigmeat fell heavily in volume (-around 34 %) but less so in value (-13 %). Exports of poultrymeat dropped in volume (- around 4 %) but actually rose in value (by 13 %). Although the volume of milk product exports decreased noticeably, the value of certain exports increased, especially cheese (+ 8 %) and concentrated milk (+ 35 %), but skimmed-milk powder exports fell heavily (by close to 50 % in value) as a result both of limited availability in the EU and reduced export refund levels.

18. On the whole, intervention stocks for most of the main agricultural products covered by the intervention scheme increased during 2001. For cereals, intervention stocks increased from around 6.6 million tonnes at the end of 2000 to around 7.0 million tonnes by the end of 2001. Underlying this, however, are quite wide variations in changes in the stock levels for individual cereals. While wheat stocks were run down appreciably during 2001 (down to around 0.66 million tonnes by the end of the year from a level of 1.8 million tonnes in December 2000), stocks of barley increased during the same period from 1.2 to 1.7 million tonnes, and stocks of rye rose from 3.6 to 4.7 million tonnes and remain a cause for concern. Intervention stocks of milk powder had already been completely run down by October 2000 and remained so during 2001, while butter stocks reduced from close to 64 000 tonnes at the start of 2001 to end the year at around 54 000 tonnes. Following the recent crises in the meat sector, beef intervention stocks, which were almost completely run down during 2000, increased substantially in 2001 to reach around 250 000 tonnes by the end of the year.

1.2. Production levels

19. Overall, latest estimates (available at the end of December) indicate cereal production to be low in 2001 at just above 201 million tonnes and about 12.7 million tonnes (or some 6 %) down from last year's record crop, although still slightly higher than that of 1999. The overall reduction compared to 2000 is mainly due to the bad weather conditions which affected most EU Member States during the year. The biggest production falls occurred in France (-6 million tonnes, or 9 %), Spain (-6.9 million tonnes, or 29 %), and the United Kingdom (-4.4 million tonnes, or 18 %), although production in Germany increased significantly (+ 4.8 million tonnes, or 11 %) following a bumper crop there and making it for the first time the largest EU straw cereal producer, ahead of France. Most of the overall fall in production is due to a reduction in common wheat (- about 11.4 million tonnes, or 12 %, compared to last year). Barley production is also expected to be down some 3.3 million tonnes (or 6.4 %) compared to 2000, and durum wheat down by 1.1 million tonnes (or 12.4 %), but maize production should increase by around 2.4 million tonnes (some 6 %) to just under 41 million tonnes, and rye by 0.8 million tonnes (or 15 %), driven by a 1 million tonne increase in production in Germany.

20. The overall decrease in cereals production reflects a general reduction in both area under cereals and in the yields for 2001. The total area under cereals decreased by 2.8 % (around 1.1 million ha) compared to last year, due almost exclusively to the reduction in the area grown with common wheat (- around 8 %). The only significant increase in area compared to last year was that grown with maize (+ around 5 %, or about 0.2 million ha, over last year), while barley and durum wheat areas remained more or less constant.

21. Latest estimates show average cereal yields down just over 3 % compared to last year, at 5.5 tonnes/ha, some 4 % lower than the trend and with barley (-6 %) and durum wheat (-12 %) yields showing the largest declines. Average soft wheat yields were also down (by 4 %), but yields for maize rose slightly (by 1 %) and those for rye markedly (by 19 %). However, the pattern of crop yield variation differs greatly from one Member State to another. For example, while soft wheat yields were reduced significantly in Spain (down by around one-third), and to a lesser extent in France (-6 %), Italy (-4 %) and the United Kingdom (-10 %), they rose appreciably (around 8 %) in Ireland and Germany and leapt in Austria (around 16 %). Similarly, yields for rye rose markedly in Germany (by 25 %) and Austria (by 20 %), but fell heavily in Spain (by 44 %) and Portugal (by 30 %). For maize, however, the variation across Member States was less dramatic, with nearly all recording increased yields.

22. Total oilseed production (rape, sunflower and soya) of 13.4 million tonnes, covering both food and non-food production, is much the same as that of last year, and remains significantly below the record harvest of 1999. Both the overall area cultivated and overall oilseed yields have remained more or less the same as in 2000. With regard to the individual crop situations, soya production was up just over 6 %, driven by a 50 % increase in cultivated area in France, while sunflower and rapeseed production was very marginally down on last year (due to slightly lower average yields), although much more significant changes did occur at the national level.

23. While protein crop area increased marginally (by 3 %) compared to last year, overall yields were reduced, so that total output was some 3 % lower than in 2000 at 3.7 million tonnes, the lowest level since 1995. Linseed area reduced dramatically from 227 000 ha in 2000 to 105 000 ha in 2001, resulting from modifications to the common market organisation in this area. However, better yields led to overall production decreasing less markedly from 260 000 tonnes in 2000 to 150 000 tonnes in 2001.

24. Latest estimates indicate that EU sugar production fell by around 15 % relative to last year's level, mainly due to lower production in France, Germany and Italy. While the overall area under beet declined only slightly (but following on from last year's steep decline), yields fell heavily due to the poor climatic conditions and in particular the unfavourable period in September, when excessive rain in the main areas of production such as Germany and France disrupted harvests.

25. Early estimates put olive oil production noticeably higher in 2001 at some 2.1 million tonnes.

26. Early estimates have production of both fruit (-2.5 % on 2000) and fresh vegetables (-1.1 %) down in 2001. Potato output is estimated to have fallen by 8 % compared with the previous year, with dry spells and hot temperatures having affected the non-irrigated varieties in southern regions, and excessive rain having hindered north European production.

27. Following on from the exceptional harvest in 1999, when production was at the highest level for several years, and the slightly lower production in 2000, latest estimates show wine must production having fallen in 2001 by approximately 7.6 % compared to last year to around 169.5 million hectolitres. Big falls were seen in Spain (over 20 %), while both France and Italy saw declines of between 2.2 and 4.7 %. By contrast, wine production in Austria and Portugal was estimated to have risen by more than 15 % following large declines the year before.

28. Following the collapse in consumption at the end of 2000, and which continued into 2001, beef and veal production during 2001 was subject to a number of short-term disturbances. First of all the carry-over of a large number of animals retained on farms at the end of 2000, due to the fall in prices and the strong reduction in demand, created a backlog of around 1 million animals for slaughter. While a large part of these were for slaughter in 2001 many were kept to the following year due to low prices. Secondly, production was strongly affected by the various measures taken to counter the recent BSE and FMD crises and to support the market. In this regard, it is estimated that over 800 000 tonnes of meat were taken off the market. Taking all these factors into account, latest estimates put the level of production of beef and veal meat destined for human consumption at around 7.4 million tonnes in 2001, more or less unchanged from last year but still some 4 % down on levels in 1999.

29. As in 1996, the recent BSE crisis increased the demand for pigmeat and led to a sustained high price level in 2001. However, the outbreak of FMD, mainly in the United Kingdom and the Netherlands, and later on the outbreaks of classical swine fever in Spain and to a lesser extent in Germany, heavily disturbed the pigmeat sector, both due to the effect of the animals destroyed for sanitary reasons and due to the limitations on movement of livestock together with the large number of export bans imposed by third countries. Nevertheless, the situation recovered somewhat in the latter part of the year and the overall level of production for 2001 is expected to increase slightly (about 0.5 %) relative to last year, although that year saw a 2.4 % drop in production compared to 1999.

30. In contrast to the stagnation in production levels experienced in 1999 and 2000, which arose from lower export growth at the time and partly from the impact on consumption of the dioxin crisis that hit Belgium in 1999, poultrymeat production in 2001 saw an increase of around 4 % compared to 2000. This is mainly due to the latest BSE scare, which led to a switch in demand away from beef to other kinds of meat, and which mostly benefited the poultry sector due to its ability to respond relatively quickly to the increased demand for alternatives to beef.

31. In contrast to the more or less stable situation in 1999 and 2000, 2001 has been a difficult year for the sheepmeat and goatmeat sector. The outbreak of FMD in the United Kingdom and in some other European countries severely disrupted the sector, with large losses through culling (almost entirely in the United Kingdom), and limitations on trade. Largely due to this, along with the difficulties in throughput due to movement restrictions implemented in order to restrict the spread of the disease, overall EU production for 2001 is expected to drop by 8 % compared to 2000, to levels well down on the highs of the early 1990s.

32. The Community dairy herd is expected to be about 20.5 million head at the end of 2001, a small reduction of 0.6 % from the previous year. By contrast, milk yields should increase by 2 %, so that total milk production for 2001 is expected to be just above 122 million tonnes, more or less unchanged from the levels in 1999 and 2000. Deliveries to dairies were very slightly up (0.5 %) compared to 2000, due to increases in several Member States and despite the decreases expected in France and Finland.

33. Butter production in 2001 is estimated to have decreased by around 1.8 % compared to 2000, following on from a similar slight fall already seen last year. Cheese production, however, rose by 4 %, boosted by rising consumption and following on from the 2.4 % production increase already seen in 2000. Production of skimmed-milk powder fell off again in 2001 (-6.4 % compared to 2000), continuing the heavy fall already seen last year (-5.7 %).

1.3. Producer prices and market prices

34. According to the figures available at the end of December 2001, the index of farm-gate prices is estimated to have grown in 2001 by an average of 5 % in the EU in nominal terms compared with the previous year, fuelled by a 5.8 % increase in the price of animal products and a 4.1 % increase in crop prices. The steepest increases in crop prices were recorded by potatoes (+ 27.1 %), oilseeds (+ 15 %), durum wheat (+ 14.7 %) and fruit (+ 11.5 %). The upward trend was mainly bucked only by olive and olive oil prices, which decreased by 4 %. As regards animal products, pigmeat prices leapt by 20 %, continuing on from their strong rise the previous year. Significant rises were also recorded for mutton and lamb (+ 10.6 %), poultry (+ 6.4 %) and milk (+ 7.8 %). In contrast beef and veal prices fell heavily (by 11.3 % and 7.7 % respectively), and egg prices by 2.1 %.

35. After accounting for inflation, the producer price index for the European Union as a whole was estimated to have risen by 2.6 % on the previous year. The biggest rises were in Austria (+ 4.4 %), Denmark (+ 4.8 %), Germany (+ 6.8 %), Portugal (+ 5.3 %) and the United Kingdom (+ 6.5 %). Farm-gate prices also rose in most other Member States: in Belgium (+ 3.2 %), Greece (+ 3.2 %), France (+ 2.3 %), Ireland (+ 1.8 %), Italy (+ 2.5 %), the Netherlands (+ 1.0 %), Finland (+ 1.6 %) and Sweden (+ 2.9 %). However, real producer prices held more or less steady in Spain and actually fell in Luxembourg (by 3.0 %).

36. During 2001 the intervention price for cereals was reduced in application of Agenda 2000 from EUR 110.25 to EUR 101.31/tonne and aids were increased to EUR 63/tonne of reference yield instead of EUR 58.76 previously. The level of compulsory set-aside was kept at 10 %. Against this background, together with the generally reduced cereals harvest compared to 2000, average EU cereal market prices mostly remained quite stable over the year, with only durum wheat showing any major change (up from around EUR 150/tonne at the start of the year to just below EUR 200/tonne by mid-December, due to the large drop in production and the lack of intervention stocks).

37. Average bread-making wheat prices were particularly stable over the year, remaining close to the EUR 140/tonne level throughout. EU maize prices also remained quite stable and close to the EUR 140/tonne level from January through to mid-August, but then fell to around the EUR 130/tonne level as prospects firmed for a strong maize harvest, and remained around this level for the rest of the year.

38. Average EU market prices for barley showed little fluctuation over the year, except those for brewing barley which fell from the EUR 140/tonne level over the middle part of the year before recovering back to this level from August onwards. For rye, average EU prices generally rose over the first half of the year but fell back in the latter half on prospects for a large harvest in Germany. This was especially the case for average bread rye prices which rose from EUR 123/tonne in January to EUR 135/tonne in July, but then fell through to August to the EUR 115/tonne level and remained around this level for the rest of the year.

39. Olive oil prices generally improved over 2001 from the depressed levels of the year before, but fell somewhat towards the end of the year in Spain and Italy following information on the importance of the coming crop there. For Italian extra virgin and lampante, figures for late December 2001 show olive oil prices more or less unchanged from a year earlier, and remaining above the trigger level for private storage. More significantly, prices for Spanish olive oil increased noticeably in the second half of 2001 compared to the same period in 2000, for both extra virgin and lampante, and with prices for extra virgin being mostly above the trigger price for private storage from September 2001 onwards. In contrast to the general improvement in olive oil markets during 2001, prices and sales of olive-residue oils collapsed following a food scare concerning the presence of polycyclic aromatic hydrocarbons.

40. In general, wine prices during 2001 have continued to fall even further than the levels of the previous year. By early December 2001, market rates for red wine relative to the same period in the previous year were down 15 % in France and 24 % in Spain, having been at even lower relative levels earlier in the year, while prices in Italy remained more or less unchanged. White wine prices showed less dramatic overall changes, falling by around 5 % in Spain, 7 % in Italy and 10 % in France over the same period. However, while white wine prices have been quite stable in Spain and Italy, prices in France fluctuated widely during the year.

41. Average EU butter prices began the year at 97.5 % of the intervention price, but then fell until mid-March towards the 93.5 % level before rising again to just below the intervention price at the end of July. Prices then fell again slowly over the rest of the year, to reach a level of around 91 % of the intervention price by mid-December. Given the fall in production and the low stocks, average prices for skimmed-milk powder remained at levels above the intervention price for most of the year. Beginning the year at 131 % of the intervention price, they fell during the first four months to around 112 %, climbed in May back to around 127 % and finally fell again to end the year at around 5 % below the intervention price. The average price paid to milk producers increased 6.5 % in 2001.

42. Prices for beef and veal in 2001 remained substantially below those of much of the previous year (before the BSE crisis broke). In addition, the latter half of the year saw a considerable fall in cow carcass prices, especially in the Netherlands and Germany. Whereas this was partially a seasonal trend, it also reflected the substantial backlog of animals that were held back on farms earlier in the year, mainly due to a drop in exports following the recent BSE and FMD crises, and which were gradually presented for slaughter later on.

43. The Special Purchase Scheme and other measures taken played an important role in supporting the market in 2001 and, together with a recovery in beef consumption, allowed for a continuation of the gradual recovery of the beef market in the EU. By early December, carcass prices for young bulls and for steers had recovered to 86.2 % and 83.6 % of the intervention price respectively, although cow carcass prices continued lower. However, the first recorded BSE cases in Austria and Finland put renewed downward pressure on prices in mid-December.

44. As an indication of the level of impact of the latest crises on the beef and veal markets, comparing beef prices in October 2001 with those around a year earlier (at the start of the BSE crisis), initially reveals apparently large price drops (e.g. prices for young bulls had fallen by 18.5 %, heifers by 15 % and cows by just over 30 %). However, it should be borne in mind that 2000 was generally considered as an exceptionally good year in terms of market price levels and that comparison with prices in the same period in 1999 is more relevant. On this basis prices had fallen less dramatically (e.g. prices for young bulls had fallen by 15.5 %, heifers by 9.4 % and cows by just over 22 % compared to 1999 price levels). These price reductions should also be seen in light of the 13.4 % reduction of intervention prices decided under Agenda 2000 for which farmers were compensated through increased direct payments, offsetting a part of the losses incurred by farmers and helping to alleviate the market situation further.

45. Following on from the strong recovery in the poultry market during 2000, the positive impact on the poultry sector of the latest BSE crisis raised poultry prices to an all time record in February 2001 of almost EUR 170/100 kg, well above prices for the corresponding period of recent years. Average prices subsequently decreased over the rest of 2001, but remained higher than the prices of recent years up until the end of August, at which point they fell to levels close to the average of the last few years. In November the average price began to rise again, mainly driven by large price rises in Spain, before falling off again in December to end the year close to EUR 133/100 kg and around the average price for the last few years, although considerably down (about 15 %) on prices 12 months earlier.

46. Due to the switch in demand away from beef following the recent BSE scare and which partially benefited the pigmeat sector, the marked increase in pigmeat prices seen in 2000 continued through into the first quarter of 2001, with prices rising steeply to reach a peak in March of around EUR 200/100 kg. Although market prices in the EU remained historically generally high they subsequently decreased from the March peak, mainly due to export difficulties and the recovery in beef consumption. By October prices had fallen back to levels seen at the start of the year and continued lower to reach just above EUR 136/100 kg towards the end of the year and some 15 % down on price levels at the beginning of 2001.

47. Other than in the United Kingdom, the markets for sheepmeat and goatmeat products remained buoyant throughout 2001, with prices generally well in excess of the levels seen in recent years. During the first half of the year average EU prices peaked around the end of April, some 12 % higher than at the start of the year, but then fell to reach a low in July of about 8 % below the start-of-year price. The outbreak of FMD in the United Kingdom in late February threw the market into turmoil, with lamb prices here falling by over a quarter immediately following news of the outbreak and continuing to fall thereafter, and led to the closure of export markets. After the summer, however, average prices improved again back to around the peak prices seen in spring, and by December, led by a price recovery in the United Kingdom and resumption of its exports, surpassed even those earlier levels to reach a historically high level of close to EUR 470/100 kg and some 21 % higher than 12 months earlier.

1.4. Input prices

48. In 2001, the index of purchase prices for goods and services currently consumed in agriculture was up by an average of 4.5 % in nominal terms on the previous year. The biggest rises were in fertilisers (+ 13 %) and feedingstuffs (+ 6 %).

49. When account is taken of inflation, the real increase in the index of purchase prices for goods and services currently consumed in agriculture since 2000 was 2.2 % for the European Union as a whole. Above-average rises were recorded in Denmark (+ 5.7 %), Germany (+ 3.3 %), France (+ 2.3 %), the Netherlands (+ 2.7 %), Portugal (+ 4.1 %) and Sweden (+ 5.4 %). The input price index was also up in Belgium (by 1.3 %), Ireland (by 1.0 %) and Italy (by 2.1 %), and more or less stable in Austria, Greece, Luxembourg, Spain and the United Kingdom. By contrast, the input price index in Finland fell by 1.5 %.

1.5. Farm income

50. Eurostat's initial estimates, based on information received by Member States up until early December 2001, put average farm income (measured as the real net value added at factor cost per annual work unit) across the European Union as a whole 2.7 % up on the previous year, with incomes up in the clear majority of Member States and only two experiencing a fall. The strongest rises were for Denmark (+ 12.5 %), Portugal (+ 9.5 %), Austria (+ 8.5 %), Ireland (+ 7.3 %), Belgium (+ 6.2 %) and Germany (+ 5.7 %). The surge in pig prices constitutes the common factor in the rise of agricultural income in most of these countries, although for Ireland the large fall in agricultural labour is the main driving factor behind the increase. Additional key factors underlying the overall rise in average income per labour unit are the increase in the level of subsidies granted to the agricultural sector in the framework of the implementation of the Agenda 2000 CAP reform and of the measures adopted in the wake of the sanitary crises in the animal sector, together with a renewed, though moderate, decline in the EU agricultural labour force (-1.6 % in 2001). For the remaining Member States, incomes were up in the Netherlands (by 4.3 %), the United Kingdom (by 4.3 %), Finland (by 3 %), Sweden (by 2.8 %), Spain (by 2.7 %) and Greece (by 1.4 %), and little changed in France. The only countries where incomes fell below the level of 2000 were Italy (-0.8 %) and Luxembourg (-2.4 %).

51. Underlying the overall increase in average farm income are quite wide variations according to the type of farming. Average income should increase compared to 2000 levels in those farms specialising in pork and poultry production (+ 30 %), mixed (crops and livestock) production (by 10.1 %), milk production (+ 5.8 %), and horticulture (+ 3.2 %), while incomes are expected to remain more or less static in farms specialising in the production of field crops. In contrast, farms specialising in grazing livestock saw a drop in income of 1.7 %, while those specialised in wine production experienced a large drop in income of around 12.6 %.

Changes in nominal farm-gate prices in 2001 and 2000

( %)

>TABLE POSITION>

Source: Eurostat.

Changes in nominal purchase prices for agricultural inputs in 2001 and 2000

(%)

>TABLE POSITION>

Source: Eurostat.

Real output price indices for agricultural products

>TABLE POSITION>

Source: Eurostat.

Indices of real purchase prices for goods and services currently consumed in agriculture

>TABLE POSITION>

Source: Eurostat.

1.6. Farm accountancy data network (FADN)

1.6.1. Farm incomes

52. The FADN is used to calculate output, costs and incomes of commercial farms in the EU from observed data collected in a survey of harmonised farm accounts (see Chapter VII, Table 3.2.1.). The survey provides valuable information about how farm incomes vary according to type of farming and location, which is not apparent from the global averages in the results for the agricultural sector as a whole. This section presents some information by type of farming and by country. For an explanation of the various types of farming, see Chapter VII, Table 3.2.2.

53. At the time of going to press, some results for 1999 were not yet available and those available were still provisional for some countries. More detailed results for the different types of farming and different levels of economic size are given in Chapter VII, Tables 3.2.3. and 3.2.4.

1.6.2. Income by type of farming

54. The large differences in average income between Member States are inherent in the structure of their agriculture (Tables 1, 2 and 3).

55. The Member States with the highest average incomes are, generally speaking, those with a large number of large-sized farms specialising in arable crops, dairy or the less regulated sectors of production (pigs, poultry, horticulture, etc.). The southern Member States, with a large number of small farms engaged in 'mixed' farming (crop and livestock production) or 'other permanent crops' (mixes of different cropping enterprises) have average incomes below the EU average.

56. Table 3 shows the wide range of economic results among Member States for each type of farming, as measured by the Farm Net Value Added (FNVA). Particularly significant are the negative income figures for several Member States for 1998 in the pigs/poultry and mixed type of farms. This mainly reflects the severity of the crisis in the pig sector in that year. In 1999 the situation became more normal and only Sweden showed negative FNVA in the drystock sector.

57. Table 4 shows the contribution of the balance of subsidies and taxes to FNVA. For EUR-15 in 1998 the proportion of subsidies net of taxes to FNVA was 35 % but there were substantial differences among Member States and among types of farming.

58. In that year Finland and Sweden had an average FNVA that was lower than the balance of subsidies and taxes. This means that revenue from the market was not enough to cover production costs. On the other hand the part of subsidies in income was the lowest in the Netherlands, Belgium, Italy, and Spain.

59. There are also substantial differences with regard to types of farming. Net subsidies in the drystock, arable and mixed types of farming were the highest as a proportion to income. The horticulture and vineyards types of farming were by far the least subsidised.

60. More detailed information can be found on the FADN website: http://europa.eu.int/comm/agriculture/ rica

CHAPTER II

2. Policy developments and legislative initiatives in 2001

2.1. Quality policy

2.1.1. Protected Designation of Origin / Protected Geographical Indication / Traditional Speciality Guaranteed

61. Products named by reference to a geographical origin and produced by traditional methods provide a response to consumers' expectations from two points of view:

- because they often show exceptional organoleptic qualities; and,

- because the traditional methods which have been used to produce such products re-establish a link of confidence between the product, its place of origin and at least the people who live there and develop it.

62. The 1992 reform of the CAP laid the foundations for putting these principles into concrete form. The reform also allowed the CAP to become part of the new world-wide economic order arising from the Uruguay Round.

63. In line with this new trend, Council Regulations (EEC) No 2081/92 and No 2082/92 were adopted to set up systems to enhance the value and the protection of specific food products. The specificity of such products may be dependent on their geographical origin (Protected Designations of Origin and Geographical Indications: PDOs and PGIs) or on traditional methods of production (Traditional Speciality Guaranteed: TSGs).

64. The protection is based on the fact that, when a food product has a reputation which extends beyond its place of origin or a specific method of production, it may well be confronted with misuses and imitations of its name.

65. By using a language common to all the Member States, protection makes free trade in the products concerned easier.

2.1.2. TRIPs Agreement

66. The issue of the protection of designations of origin and geographical indications has been raised in the international arena. The TRIPs Agreement (trade-related aspects of intellectual property rights) covers the concept of geographical indications, which corresponds to the Community concept in Regulation (EEC) No 2081/92. This Regulation will have to be amended accordingly to take account of the provisions in the TRIPs Agreement. Producers of non-member countries which are members of the WTO will be able to oppose applications for registration in the Union if they have a legitimate interest.

67. The European Commission's services have adopted a proposal to be transmitted to the Council that aims at complying with the Commission's obligations set out in the TRIPs Agreement (the right of objection to registrations is extended to WTO member nationals). Beyond the TRIPs Agreement and to obtain improved protection of European geographical indications, amendments are proposed in order to open this system to third countries on the basis of equivalence and reciprocity. In addition, further adaptations are proposed, for example: to include wine vinegar, remove mineral and spring waters from the scope and abolish the 'fast-track' procedure of registration.

68. On the other hand, at the multilateral level, work is under way on clarifying certain aspects of Regulation (EEC) No 2081/92 as regards the TRIPs Agreement. Moreover, the European Union is seeking progress via proposals for a system of notification and registration of geographical indications, the Multilateral Register and for the extension of protection for geographical indications to products other than wines and spirits. This is a priority objective which will help Community producers entitled to the use of a geographical indication to protect themselves more effectively and find a niche on the international market.

2.1.3. New products listed

69. Under Council Regulation (EEC) No 2081/92 [1], the Commission has made additions to the list of protected designations of origin (PDOs) and protected geographical indications (PGIs), the combined total of which now stands at 584. In terms of both the number of Member States and the types of products concerned, the new product registrations reflect a growing interest in the production of foodstuffs which consumers can associate with a particular production method and geographical origin.

[1] OJ L 208, 24.7.1992, p. 1.

70. A further designation has been registered under Regulation (EEC) No 2082/92 on certificates of specific character and introducing the 'traditional speciality guaranteed ' (TSG) indication. [2] On the whole, though, very little use has been made of the new designation, with a total of only 10 TSGs registered to date. Following a report from the Commission to the Council on the detailed implementing rules concerned, a regulation is being drafted and discussed which, it is hoped, will resolve the difficulties that have come to light. The aim is in particular to specify legitimate grounds for objection.

[2] OJ L 208, 24.7.1992, p. 9.

List of PDOs, PGIs and TSGs registered in 2001

>TABLE POSITION>

2.2. Organic farming

71. On 2 March 2001 the Commission adopted Regulation (EC) No 436/2001 [3] updating the technical Annex II to Regulation (EEC) No 2092/91 [4] concerning some fertilisers and soil conditioners

[3] OJ L 63, 3.3.2001, p. 16.

[4] OJ L 198, 22.7.1991, p. 1.

72. On 7 September 2001 the Commission adopted Regulation (EC) No 1788/2001 [5] concerning the certificate of inspection for imports from third countries. The certificate has to be presented with the products to the competent authority of the importing Member State and will enter into force on 1 November 2002.

[5] OJ L 243, 13.9.2001, p. 3.

73. On 19 December 2001 the Commission adopted Regulation (EC) No 2491/2001 [6] substantially amending Annex III to Regulation (EEC) No 2092/91 concerning detailed inspection requirements and precautionary measures.

[6] OJ L 337, 20.12.2001, p. 9.

74. Following the adoption of Regulation (EC) No 1804/1999 [7] bringing organic livestock production within the scope of Regulation (EEC) No 2092/91, the Commission launched a work programme aimed at clarifying certain issues relating to organic livestock production which were raised by the Council at the time of the adoption of Regulation (EC) No 1804/1999. The main issues currently covered by the programme are as follows:

[7] OJ L 222, 24.8.1999, p. 1.

- development of a regulation establishing labelling and inspection requirements for animal feedingstuffs,

- additions to sections A and B of Annex VI as regards the non-agricultural ingredients and processing aids used in processed livestock products,

- issue of supplementing feedingstuffs with synthetic products such as vitamins and amino acids.

75. The continuous process of updating the annexes to Regulation (EEC) No 2092/91 included discussion on:

- The conversion period,

- revising deadlines for the use of certain inputs,

- derogations for the use of non-organic seed.

76. Guidelines for inspection have been developed for inspection bodies and authorities.

77. The possibility of developing a European Action Plan for organically produced food and organic farming was discussed and comments requested from Member States via a questionnaire.

78. The assessment of equivalency according to Article 11(1) of Regulation (EC) No 2092/91 is ongoing for several third countries. On 21 February and 27 December 2001 the Commission adopted Regulation (EC) No 349/2001 [8] extending the equivalency recognition to imported products for Hungary and extending the duration of the inclusion for Argentina and Regulation (EC) No 2589/2001 [9] extending the equivalency recognition to livestock production for the Czech Republic.

[8] OJ L 52, 22.2.2001, p. 14.

[9] OJ L 345, 29.12.2001, p. 18.

2.3. Promotion of agricultural products

79. In December 2001, under the new arrangements for measures to provide information on, and to promote, agricultural products in third countries introduced by Council Regulation (EC) No 2702/1999, the Commission approved 18 of the 33 programmes submitted by professional organisations via the national authorities concerned.

80. These campaigns chiefly target the Far East, the United States, Brazil and central and eastern Europe. The products concerned are mainly milk products, fresh and processed fruit and vegetables, wine and pigmeat. Community part-financing will amount to EUR19.5 million over three years, with EUR9.8 in the first year.

81. In the beef sector, the Commission adopted Regulation (EC) No 1358/2001 laying down specific communication measures with a view to restoring consumer confidence in the product. Under this Regulation, in December 2001 the Commission approved 13 of the 19 programmes presented by professional organisations or the Member States. These programmes will run for one year and receive Community aid worth EUR8.3 million. This initiative aims to inform European consumers, firstly, about the applicable Community and national rules on food safety (traceability, labelling, etc.) and providing for effective control throughout the production chain and, secondly, about the nutritional value of the product.

82. Lastly, as regards promotion inside the Community, the Commission has worked out detailed rules for implementing Council Regulation (EC) 2826/2000, in particular the guidelines for information and promotion in the sectors selected. This draft regulation was endorsed by the Management Committee in December 2001.

2.4. Simplification of agricultural legislation

2.4.1. Introduction

83. Simplification work carried out by the Commission in the field of agricultural legislation has focused on 1) making agricultural legislation as clear, transparent and easily accessible as possible and 2) reducing the administrative workload that the CAP imposes on farmers and administrative authorities.

84. The simplification of agricultural legislation has been a regular feature of Council discussions during 2001 and has also been discussed by the experts group on the simplification of agricultural legislation which was set up by the Commission following the conclusions of the Agriculture Council meeting of October 2000. The group has identified several issues and established priorities for simplification in the near future. One of the principal priorities is to be a study of Member States reporting obligations towards the Commission.

85. In its report to the European Parliament and the Council on the simplification of agricultural legislation [10], the Commission gave details of the progress achieved as regards simplification since its last report of April 1999, especially the different simplification measures adopted in the market management sector.

[10] COM(2001) 48, 29.1.2001.

2.4.2. Transparency and accessibility of agricultural legislation

86. Work on the project to consolidate agricultural legislation has continued this year. The project aims to consolidate agricultural legislation in all official languages of the EU and make it available on the Internet for the general public. Amendments to agriculture acts are integrated into the basic text so that a single and updated, though not legally-binding, version can be consulted. Some 665 consolidated agricultural acts have been made available on the EUR-Lex website so far.

2.4.3. Trade mechanisms

87. In June 2001, the Commission presented the Trade Mechanisms Management Committee with an updated collection of interpretative notes concerning export refunds.

88. In November 2001, the Commission adopted a regulation to apply to national food aid some of the procedures currently applicable to Community food aid. These more flexible procedures will make it easier to carry out national food-aid operations.

2.4.4. Small farmers' scheme

89. On 19 June the Council adopted Regulation (EC) No 1244/2001 [11], which provides for a simplified scheme for the payments to be made under certain support schemes. Farmers entitled to small amounts of direct aid may opt for a simplified scheme in which they would receive one all-inclusive amount each year instead of several small payments based on area or numbers of animals. The annual inclusive payment will be based on the amount of direct payments the participant received during a reference period of three years. It will be the highest average amount received during those three years or the amount received in the most recent year, subject to a maximum of EUR1 250. Once established, the amount would be paid from the year in which the farmer applies to participate in the scheme until the end of the trial period, in 2005. The scheme will apply from 1 January 2002, after the adoption of the implementing rules.

[11] Council Regulation (EC) No 1244/2001 of 19 June 2001 amending Regulation (EC) No 1259/1999 establishing common rules for direct support schemes under the common agricultural policy.

2.4.5. CAP-ED project

90. At its meeting of 22 October 2001, the experts group on simplification approved the Global Implementation Plan of the CAP-ED project. This project aims to create an electronic dictionary of codes used within the CAP, with the intention of facilitating and simplifying the electronic exchange of information between the Commission and the Member States.

2.4.6. Member States' submission of simplification proposals

91. Following the publication in October 2000 of the Commission staff working paper [12] in response to the simplification proposals from the EAGGF paying agencies, Member States were invited by the Commission early in 2001 to submit their proposals for simplification to the experts group on simplification. Member States have submitted a significant number of simplification proposals, and the Commission is currently studying these in depth.

[12] SEC(2000) 1775, 23.10.2000.

92. Recasting of the IACS implementing Regulation

93. In 2001, an updating and recasting of the Regulation governing implementation of the Integrated Administration and Control System was undertaken by the unit responsible for the audit of agricultural expenditure. Clarification and simplification of the IACS system were amongst the objectives of this review. It also introduced a 'holding-based' approach for control of the numerous bovine premium schemes, a simplification which had been requested by the Agriculture Council at its meeting of 23 October 2000. See section 7.1.5 for more details.

2.4.7. Reform of the sheep regime

94. In November 2001, the Council adopted a Regulation reforming the sheep and goat regime. The main change was to replace the deficiency payment with a fixed premium. The Regulation simplifies the regime significantly and replaces six regulations previously in force. Furthermore, the reform will allow for the detailed rules applicable in the sector to be simplified.

2.5. State aids

2.5.1. Introduction

95. On 6 June 2001 the European Commission adopted new guidelines on the use of state aids to advertise agricultural products [13]. The new text clarifies the Commission's policy on the advertising of quality products, products of regional origin and traceability systems.

[13] OJ C 252, 12.9.2001, p. 5.

96. The regional origin of products can now be promoted on condition that the rules on the free movement of goods are respected. The new guidelines will allow subsidies for advertising where the origin of a product is the primary message, if it takes place outside the Member State or the region of production. The objective should be to introduce consumers to products with which they are not familiar. Where advertising is aimed at consumers in the Member State or region of production, information about the origin can also be given. However, in such cases the reference to the origin has to remain secondary to the information about the quality of the product.

97. Aid for advertising quality products may also be granted where these products clearly meet higher standards, or have a protected designation of origin. Claims that products are of high quality when in fact they simply meet the legislative requirements applicable to all similar products may mislead the consumer. State support for advertising will only be possible where no internal market rules are violated.

98. In the case of products bearing a protected designation of origin registered by the EU (PDO, PGI or TSG), the Commission does not, in general, oppose aid for advertising which includes a reference to the origin of the product concerned, provided that it corresponds exactly to the references which have been registered.

99. Following the introduction of compulsory beef labelling, the new rules also set out how the advertising of traceability systems may be subsidised. State aid for advertising of individual firms remains prohibited and a maximum aid of 50%, or 75% for certain products from SMEs from disadvantaged regions, is permitted.

100. The new guidelines replace the two existing texts from 1986 and 1987. This consolidation and clarification should contribute to the continuous simplification and increased transparency of Community state-aid rules. The new guidelines will apply to new state aids, including pending notifications, from 1 January 2002.

101. Overall, the Commission received 379 notifications of draft state aid schemes in the agricultural and agro-industrial sector. The Commission also started the examination of 39 aid measures which had not been notified in advance under Article 88(3) of the EC Treaty. The Commission raised no objections to 212 measures, several of which were approved after the Member States concerned had either amended them or undertaken to amend them in order to bring them in line with Community state aids rules. The procedure laid down in Article 88(2) of the EC Treaty was launched in respect of 15 cases where the measures concerned raised serious doubts about compatibility with the common market. The Commission closed the Article 88(2) procedure in respect of five cases, taking a negative final decision in two cases. In all the cases where a negative decision was taken and where state aid had already been granted by the Member State concerned, the Commission requested recovery of the aid paid.

102. The following overview of cases includes a selection of those which raised the most interesting issues of state aid policy in the agricultural and agro-industrial sector in 2001 For the sake of clarity, the cases have been classified by topic.

2.5.2. Exceptional occurrences: the BSE crisis

103. The main issue of the year as far as state aid are concerned is, without doubt, linked to the consequences of the 'BSE crisis'. State-aid rules normally prevent Member States from paying income aid to farmers because this could distort competition and interfere with the functioning of the Community market organisations. Only in exceptional situations may such aid be granted to compensate for the damage caused by such situations.

104. Under Article 87(2)(b), aid aimed at making good the damage caused by exceptional occurrences is compatible with the common market. The concept of exceptional occurrence is not defined in the Treaty and the Commission applies this provision on a case-by-case basis, after appraisal of the specific event concerned.

105. The ongoing crisis in the beef market, caused by a BSE scare at the end of last year, has been recognised by the Commission as one such exceptional occurrence. It is not the drop in sales or turnover that is considered exceptional. The drop in sales is seen by the Commission as a consequence of an exceptional and rare combination of incidents which caused farmers to lose income: the closure of export markets to Community beef and the extent of the negative reaction of European consumers, both preceded and accompanied by a series of incidents like the first cases of BSE detected in countries such as Germany, Italy and Spain, the ban at Community level of the marketing of any type of meat-and-bone meal as animal feed, and the sometimes controversial management of the crisis at national level.

106. Accordingly, the European Commission has authorised Austria, Belgium, France, Germany, Italy and Spain to pay income aid to beef farmers who suffered losses between November 2000 and June 2001 because of the consequences of the BSE crisis. No requests to pay such aid have been received from the other Member States. In all cases the Commission has established that there was no over-compensation at sectoral or individual farm level. These state aids can be summarised as follows:

- Austria: on 25 July the Commission authorised income aid of approximately EUR2.9 million (some ATS 40 million) granted in one Bundesland (state): Kärnten [14];

[14] The text of the decisions will be made available on the Internet at http://europa.eu.int/comm/ secretariat general/sgb/droit com/index en.htm

aides. The decision can be found under aid number NN 58/2001.

- Belgium: on 7 November the Commission authorised Belgium to pay out the second instalment of direct aid to beef farmers for approximately EUR29.7 million (BEF 1 200 million) [15]. An equivalent amount had already been authorised by the Commission on 25 July under aid scheme N 437/2001. The aid is targeted at beef farmers who have been particularly affected by the consequences of BSE because their income depends on beef production;

[15] Aid numbers N 437/2001 and N 657/2001.

- France: the combined value of the income aid [16] cleared by the Commission on 25 July is approximately EUR259 million (FF 1 700 million), comprising direct aid of approximately EUR152.4 million (FF 1 000 million), reimbursement of interest payments with an estimated aid value of EUR60.9 million (FF 400 million), and consolidation loans with an estimated aid value of approximately EUR45.7 million (FF 300 million);

[16] Aid number NN 46/2001.

- Germany: on 25 July the Commission authorised Germany to grant income aid as follows: in Bavaria [17], approximately EUR28 million (DEM 55 million); Thuringia [18], approximately EUR4 million (DEM eight million) ; Lower Saxony [19], approximately EUR5million (DEM 10 million).

[17] Aid number N 193/2001.

[18] Aid number N 170/2001.

[19] Aid number N 164/2001.

On 2 October 2001 the Commission authorised Germany (Baden-Württemberg) [20] to pay income aid worth some EUR5.1 million (DEM 10 million) to beef farmers who suffered losses between November 2000 and June 2001 as a result of the BSE crisis.

[20] Aid number N 150/B/2001.

On 30 October 2001 the Commission authorised Germany (Hessen) [21] to pay aid to beef farmers who suffered losses between November 2000 and December 2001 as a result of the BSE crisis. In particular, the Hessen emergency programme for BSE grants income aid worth EUR766 937.82 (DEM 15 million) in the form of subsidised loans to farmers affected by the BSE crisis;

[21] Aid number N 249/2001.

- Italy: on 25 July the Commission authorised income aid to beef farmers of up to approximately EUR77 million (some ITL 154 000 million) [22].

[22] Aid number N 113/A/2001.

On 30 October 2001 the Commission authorised Italy (Lombardy) [23] to grant aid of approximately EUR2.32 million to beef farmers with cash-flow problems as a result of reduced income during the BSE crisis period. The aid, in the form of subsidised short-term loans, consists of a contribution by the region of 3.5% of the loan interest, the rest (a minimum of 1.5%) payable by the farmers;

[23] Aid number N 411/2001.

- Spain: the aid authorised by the Commission on 25 July relates to income aid two regions: Asturias [24], approximately EUR6 million (ESP 1 000 million) and Cantabria [25],: approximately EUR5.98 million (ESP 994 million).

[24] Aid number N 269/2001.

[25] Aid number N 377/2001.

107. On the basis of Article 87(3)(c) EC, the Commission authorised a series of other BSE-related state aids, notably in Austria, Italy and Germany. These measures relate, for example, to the costs for BSE tests, compensating slaughterhouses, the value of culled animals, the restocking of herds on farms where BSE was found, storage, transport and the disposal costs of processed animal protein and animal feed. In most of these cases the Commission considered that the measure complied with the rules on state aid granted within the context of programmes for combating animal diseases, as laid down in point 11.4 of the Community guidelines for state aid in the agriculture sector [26]. For example:

[26] OJ C 28, 1.2.2000, corrigendum OJ C 232, 12.8.2000.

- Austria: on 2 October 2000 the Commission authorised Austria to grant various BSE-related aids with a budget of more than EUR29 million. This Austrian measure [27] has various aspects. Aid is granted to compensate for the decrease in value of processed animal proteins and animal-feed additives in feedingstuffs and premixtures containing such processed animal proteins. Aid may also be granted for storage, transport and disposal costs of processed animal proteins and animal feed, feed additives and premixtures containing such processed animal proteins, risk material and milk which could not be used or products produced on the basis thereof. Finally, aid may also be granted to compensate for the loss of income on farms which were blocked because of BSE and to cover the costs of testing.

[27] Aid number N 114/2001.

- Germany: by decision of 25 October 2001 the Commission authorised the payment of two state aids, one in the Bavaria [28] of approximately EUR10 million (DEM 20 million), to compensate for the value of animal feed which had to be destroyed, as well as approximately EUR6 million (DEM 12 million) to compensate farmers on whose farms BSE was found. The second relates to Saxony [29] and represents approximately EUR2 million (DEM 4 million), to pay for restocking herds on farms where livestock was culled by order of the public authorities.

[28] Aid number N 174/2001.

[29] Aid number N 248/2001.

On 30 October 2001 the Commission authorised an emergency programme for BSE in Hessen [30]. Among the measures listed in the programme, Hessen will compensate up to 100% of the costs for transport and disposal of animal feed containing meat-and-bone meal produced before 2 December 2000; the costs for BSE tests for cattle aged more than 24 months and sheep, destruction and compensation of the economic value of carcases and milk in the case of suspected or confirmed BSE cases. The total amount of aid granted under the approved scheme amounts to EUR1 955 689.

[30] Aid number N 249/2001.

On 7 September 2001 the Commission authorised Germany (Baden-Württemberg) [31] to pay aid for BSE tests, to compensate slaughterhouses for the value of culled animals, and farms where BSE was found. The three aid measures are all time-limited: until the end of 2002 for the BSE tests and the compensation for BSE-affected farms and until the end of 2001 for the measure pertaining to slaughterhouses. At the end of 2002 the aid for BSE tests and the compensation for BSE-affected farms will be reviewed in the light of the strategy applied at that time for combating BSE.

[31] Aid number N 150/B/2001.

- Italy: The scheme authorised on 25 July 2001 (N 113/A/2001) comprises state aid other than income aid, e.g. compensation to farmers where BSE has been found, restocking aid, and national part-financing for the 'purchase for destruction scheme', bringing the total value of aid, including the EUR77 million income aid, up to EUR150 million (some ITL 300 000 million).

2.5.3. Animal diseases: foot-and-mouth disease in the United Kingdom

108. Most of the aid notified by the United Kingdom to the Commission during 2001 provided for measures designed to help farmers to overcome the financial and economic difficulties caused by the outbreak of foot-and-mouth disease (FMD) which affected most of the country, with strong repercussions on the agricultural sector.

109. In this respect, two major aid schemes were approved by the Commission: on 3 April 2001, the Commission approved the 'Outgoers mark 2 scheme' [32] which was designed to help pig producers hit by FMD and who wished to leave pig farming permanently to do so. The aid scheme had a planned budget of GBP five million. Shortly afterwards, on 6 June 2001, the Commission also authorised 'the livestock welfare disposal scheme' [33], which was designed to address the animal-welfare problems arising from the movement restrictions put in place to control FMD. The aid scheme, with a planned budget of GBP six million per week, included contributions towards the costs of the transport, slaughter, rendering, incineration and disposal of carcases, veterinary costs as well as compensation to livestock producers subject to movement restrictions, who were offered the possibility of disposing of their animals where state-contracted veterinarians confirmed that the welfare of the animals was compromised by movement restrictions.

[32] Aid number NN 24/2001.

[33] Aid number NN 25/2001.

2.5.4. Opening of formal investigations

2.5.4.1. Opening of formal investigations

110. Spain: Aid to compensate farmers for high fuel prices

On 11 April 2001 the European Commission decided to initiate a formal state-aid investigation procedure concerning a series of fiscal measures in favour of agriculture introduced by Spain in the wake of the rise in energy prices in 2000. The Commission queried the compatibility with the common market of the measures introduced by the Spanish government. At this stage, the Commission cannot rule out the possibility that the measures under investigation are pure operating aids granted to compensate the agricultural sector for the higher price of fuel. As a general rule, such operating aids cannot be authorised by the Commission. In so far as such aids have already been granted, and in the event that the investigation substantiates the Commission's reservations, the Commission would have to ask the Spanish authorities to recover the aid from recipients.

111. Italy (Sardinia): Aid to compensate farmers for the high price of gas oil

On 25 July 2001, the Commission initiated a formal investigation procedure with respect to Italian (Sardinia) state aid aimed at compensating farmers for the higher price of gas oil in comparison with that of natural gas. The measure is contained in a comprehensive law for Sardinia, called Testo Unico, which regulates the granting of a large number of different aids to the agricultural sector. The Commission has no objections to the rest of the Testo Unico.

112. According to the Sardinian authorities, the island lacks a natural gas pipeline network, which obliges farmers to use much more expensive gas oil. The aid aims at overcoming this structural handicap, and thus restoring what the government of Sardinia considers to be normal competitive conditions. However, at this stage, the Commission considers that state aid which exclusively and artificially reduces farmers' production costs must be regarded as an operating aid. Such aid does not normally bring about any lasting improvement for the sector. As soon as such aid is withdrawn, the earlier problem reappears. Solutions to problems of this type should be sought elsewhere. For example, Commission rules for state aid for environmental protection offer the possibility of granting aid to renewable energies available locally. The aid proposed, however, would not encourage the transfer from fossil fuels to renewable energy sources. It would rather appear to inhibit such structural changes.

2.5.4.2. Italian financial law for 2001

113. The Commission has opened a formal investigation procedure with regard to the additional financing of EUR119 million (ITL 230 000 million), for an exceptional aid package of EUR100 million (ITL 200 000 million), which was approved by the Council in 1997 on the basis of the third indent of Article 88(2) of the EC Treaty. In that instance, Italy applied to the Council for the exceptional approval of the aid measure by a unanimous vote after the Commission had initiated the formal investigation procedure with respect to the aid. The measure in question provided for the State to assume responsibility for payment of sums due by members of agricultural co-operatives who had personally stood surety in favour of the cooperatives in case of established insolvency of the latter.

114. In opening the procedure, the Commission considered that the purpose of the measure was to ensure retrospective payment of aid for the operation of cooperatives and that the operation itself would entail the retrospective expunging of cooperatives' liabilities. Given its exceptional nature, the Council's approval of this aid measure cannot be considered as a de facto authorisation for further refinancing of the same aid measure, particularly given the serious doubts expressed in the first instance by the Commission. The Commission therefore believes that new financial appropriation needs to be assessed on its merits on the basis of the applicable Community rules.

115. The Commission has also opened a formal investigation procedure with regard to aid for rescuing and restructuring companies in difficulties, and aid in favour of promotion and research and development. The latter measure will be partially financed through a parafiscal levy imposed on both national and imported products. The Commission has followed its established practice in the field as well as the Court case law whereby aid financed from parafiscal charges (which also apply to imported products) is, in principle, incompatible with the common market in that the imported products cannot benefit from the aid scheme in the same way as domestic ones. Unless the Member State is able to prove that this is not the case, aid financed in this way is likely to result in a clear distortion of competition. This will be examined during the course of the investigation. The Commission has however considered that some of the research and development measures envisaged do not constitute state aid in that they will be conducted by public institutions in the public interest.

2.5.4.3. AIMA programme: Aid for the poultry industry in Italy

116. The Italian intervention agency, 'Alternative Investment Management Association' (AIMA), intends to grant compensation to Italian poultry producers for the loss of income suffered as a result of the dioxin crisis in Belgium in 1999, which is claimed to have caused a substantial fall in production and trade and a sharp drop in the consumption of poultry products in Italy. The amount of aid - EUR10 323.138 (ITL 20 000 million), is the difference between average prices in countries not affected by the crisis and prices in Italy in June and July 1999 (the period to which the compensation relates). The Commission takes the view that market disruption as a result of consumer concerns about dioxins does not in itself constitute an exceptional event. Consequently, if Italy cannot demonstrate that the disruption was exceptional, the aid cannot be authorised.

2.5.4.4. Aid to improve the conditions in which agricultural products are processed and marketed - Article 35 of Regional Law 5/2000 - Italy (Veneto).

117. On the basis of Article 35 of Regional Law 5/2000 [34], the Italian authorities intend to introduce state aid for investment (up to 40%) in the processing and marketing of agricultural products for 36 agro-industrial companies which submitted financing applications within the meaning of Regulation (EC) No 951/97 [35] during the 1994-99 programming period [36] and which actually undertook work, but were not granted any part-financed state aid because no funds were available.

[34] The law concerns a general measure to refinance and amend regional laws concerning the preparation of the region's annual and multiannual budgets.

[35] Regulation on improving the processing and marketing conditions for agricultural products (OJ L 142, 2.6.1997, p. 22).

[36] The operational programme for Veneto was approved by Commission Decision 96/2598/EC of 2 October 1996.

118. According to the information available, the Commission cannot exclude that this is retroactive aid for activities already undertaken by the beneficiary, which would not therefore have the necessary 'incentive' component and should therefore be regarded as operating aid, since its only purpose would be to relieve the beneficiary of a financial cost.

2.5.4.5. Framework state-aid schemes in Italy

119. The Commission approved several framework schemes in 2001, relating to the full range of processing and marketing activities for agricultural products and providing for very high budgets.

120. One such scheme (aid N 558/2000) has a budget of EUR500 million. The Commission also approved the 'Sviluppo Italia' scheme (aid N 559/2000), a public company which replaces the former RIBS and Itainvest and also finances projects in the area of processing and marketing agricultural products. The budget for this scheme is approximately EUR1 billion.

121. In the same context, the Commission approved the agricultural section of a major aid scheme for investments [37] for any company located in the Italian regions eligible for the exemptions provided for in Article 87(3)(a) and (c) of the Treaty. The scheme applies to agricultural businesses (aid for sectors other than agriculture was covered by separate decisions). The measures meet regional development objectives. The scheme, which applies until 31 December 2006, has an annual budget of approximately EUR46 billion (ITL 9 000 billion); that amount also covers sectors other than agriculture. The aid is granted in the form of tax credits.

[37] Aid number 00C646.

2.5.5. Aid to wine producers in Italy (Sicily)

122. On 17 October the Commission adopted a negative final decision in case C 61/96 [38] in respect of aid that Sicily intended to grant to wine producers (up to EUR1 million) to compensate them for planting rights that they had been unable to use because of drought, and to handicraft companies (up to EUR5 million) as short-term loans. Since aid to wine producers was intended to compensate for invalid rights, in contrast with the wine CMO rules, and since subsidised short-term loans could also have been granted to handicraft companies engaged in the production, marketing and processing of agricultural products, the Commission concluded that they should be considered as operating aid which is prohibited in the agricultural sector.

[38] Case C 61/96, Commission Decision of 17.10.2001, 2002/195/EC.

2.5.6. Aid for fruit and vegetable producers in Greece

123. Under Article 87(3)(c) of the Treaty, the Commission adopted a positive final decision with regard to State aid in Greece for producers of fruit and vegetables [39]. The aid, worth EUR265 000 in all, took the form of a financial compensation for farmers in the Prefecture of Thessaloniki whose crops of water melons and melons had been badly damaged by field mice during the summer of 1997. The Commission concluded that the criteria applicable to crop diseases applied to the case in point because, although an attack by mice does not constitute a plant disease, the effects are the same, in that agricultural production is destroyed by external live agents. These criteria therefore apply by analogy.

[39] Decision of 31 January, OJ L 93, 3.4.2001.

2.5.7. Programme to control agricultural pollution in France

124. On 30 October 2001 the Commission authorised France to grant state aid [40] to renew investment aid on farms under the programme to control agricultural pollution. This programme meets the need to improve water quality by introducing environmental considerations into farming practices. The aid scheme, worth EUR886 million for 2001-06, aims to encourage investment to reduce pollution from livestock effluents.

[40] Aid number N 355/2000, OJ C 350, 11.12.2001.

125. Among the objectives of the programme is speeding up compliance with Council Directive 91/676/EEC of 12 December 1991 [41], and priority is given to vulnerable areas where stockfarming is proved to be the source of nitrate pollution. In authorising the aid, the Commission took account of the fact that the above Directive includes requirements which need investments on holdings, such as building additional storage capacity, and that stockfarmers' obligations can be regarded as new standards within the meaning of the guidelines on state aid in agriculture. While concluding that the Directive could not itself be considered a new standard, the Commission took account of the fact that the first French action programme to implement the Directive was not adopted until 1997, and the first actual obligations implementing that programme and requiring stockfarmers to attain results on the ground are even more recent. In addition, the Directive does not contain specific obligations binding on economic operators without preliminary action by the Member State.

[41] OJ L 375, 31.12.1991, p. 1.

126. Accordingly, the Commission concluded that the aid is intended to finance investments for the purpose of improving the environment and aiming to adapt farms to new standards within the meaning of point 4.1.1.3 of the guidelines on state aid in agriculture. According to the Commission, any other interpretation would be likely to penalise stockfarmers because of the inaction of a Member State at legal level. The Commission also considered it important to include in its appraisal the human and financial scale of the programme (approximately 100 000 beneficiaries) and the importance of the issue for the environment in both France and Europe.

2.6. Assistance to the needy in the Community

127. The European Union continued to implement its food-aid programme for the needy [42]. This involved making agricultural produce and processed agricultural produce from intervention stocks available to the organisations concerned working in the field in the Member States.

[42] Regulation (EEC) No 3730/87 of 10 December 1987 (OJ L 352, 15.12.1987, p. 1); Commission Decision 2001/23/EC of 21 December 2000 (OJ L 6, 11.1.2001, p. 6).

128. The table below gives a breakdown of the total budget and shows the quantities that can be withdrawn from intervention stocks by each participating Member State.

Free distribution of agricultural products (2001)

>TABLE POSITION>

2.7. The outermost regions

129. As provided for in its report of 14 March 2000 [43], the Commission continued to implement Article 299(2) of the Treaty concerning the outermost regions of the Community (the Canary Islands, the French overseas departments (Martinique, Guadeloupe, French Guiana and Réunion), Madeira and the Azores) in the agricultural sector.

[43] COM(2000)147 - C5-0247/2000.

130. On the basis of Commission proposals, on 28 June 2001 the Council adopted a series of Regulations repealing and replacing the previous regulations based on the programmes of options specific to remoteness and insularity (Poseidom, Poseima, Poseican). The new Regulations are Regulations (EC) No 1452/2001, 1453/2001 and 1454/2001 [44], applicable to the French overseas departments, the Azores and Madeira and the Canary Islands, respectively. In addition, Regulation (EC) No 1455/2001 made the necessary adaptations to the common organisation of the market in beef and veal [45].

[44] OJ L 198, 21.7.2001. They replace Regulations (EEC) No 3763/91 (Poseidom) for the French overseas departments, No 1600/92 (Poseima) for Madeira and the Azores, and No 1601/92 (Poseican) for the Canary Islands.

[45] OJ L 198, 21.7.2001. This market organisation was previously governed by Regulation (EC) No 1254/1999.

131. On 14 March 2001, the Commission transmitted an additional proposal on milk production in the Azores [46], which the Council adopted and incorporated into the new Council Regulation (EC) No 1453/2001 (Poseima). This proposal concerned a temporary exemption from the additional milk levy.

[46] COM(2001) 156 final.

132. These decisions were followed by a number of Commission implementing Regulations.

133. Article 15(3) of the new Council Regulation (EC) No 1453/2001 (Poseima) authorises Madeira not to apply the additional levy scheme for milk and milk products up to a local production limit of 4 000 tonnes. In order not to affect application of the levy in Portugal, the Commission submitted to the Council a draft amendment to the Annex to Regulation (EEC) No 3950/92 establishing an additional levy in the milk and milk products sector in order to reduce the reference quantity applicable to Portugal by the additional quantity of 2 000 tonnes allotted to Madeira.

2.8. Overseas countries and territories (OCT)

134. Decision 91/482/EEC on the association of overseas countries and territories with the Community (the OCT Decision) was extended until 1 December 2001. Problems arose relating to the trade arrangements for sugar. The Commission was forced to adopt two safeguard measures in that sector (from 1 March to 30 June 2001 and from 1 July to 1 December 2001).

2.9. Information measures concerning the CAP

135. Council Regulation (EC) No 814/2000 [47] provides for information measures relating to the common agricultural policy, intended for both the Member States and the outside world. Commission Regulation (EC) No 1390/2000 [48] lays down the implementing rules. The purpose of the scheme is to explain the issues surrounding the CAP, promote the European model of agriculture, keep farmers and other rural interests informed and raise public awareness of the implications and goals of this policy.

[47] OJ L 100, 20.4.2000, p. 7.

[48] OJ L 158, 30.6.2000, p. 17.

136. Adoption of the Commission's proposal reflects the will to rectify the dearth of information on the CAP by part-financing three types of measures:

- annual work programmes presented, in particular, by farmers' or rural development organisations, consumers' associations and environmental protection associations;

- specific measures to be implemented in particular by the public authorities of the Member States, the media and universities;

- and activities implemented at the Commission's initiative.

137. For the first two types of measures, financing by the Commission may not exceed 50% of the eligible costs, except in cases of exceptional interest where financing can be up to 75%.

138. During the 2001 budget year, 149 applications for subsidies were submitted [49] under the scheme and call for proposals 2000/C 213/04 [50]. 39 of these applications were finally part-financed for EUR224 million. The projects were selected on the basis of their quality and cost-effectiveness in accordance Article 3 of Regulation (EC) No 814/2000.

[49] OJ L 205, 31.7.2001, p. 25.

[50] OJ C 215 1.8.2001, p. 9.

139. The part-financed measures include, in particular, conferences, publications, forums, the creation of CD-ROMs and the organisation of information visits. A variety of topics was also treated, including: organic farming, food safety and quality, rural development, an explanation of the CAP in general and various common organisations of the markets in particular, enlargement, the WTO negotiations. General meetings and measures required by law and measures already receiving financing under another Community operation may not be financed.

140. In July 2001 the Commission adopted Regulation (EC) No 1557/2001 [51] simplifying the detailed rules laid down in Regulation (EC) No 1390/2000 and repealing that Regulation. Likewise, call for proposals 2001/C 215/09 also allows proposals to be submitted for 2002.

[51] OJ C 213 26.7.2000, p. 9.

141. Under the information activities launched at the initiative of the Commission during 2001, the Directorate-General for Agriculture participated in several agricultural fairs (in particular the Salon de Paris and the Grüne Woche), produced a number of publications, chiefly monthly newsletters, factsheets, booklets, the report on markets and videos, and organised conferences for specialist journalists and other target audiences.

2.10. Information and communication technology (ICT)

142. ICT evolution continues according to the plan established in 2000. In 2001 activities linked to ICT continued around four principal objectives:

a) the strengthening and redevelopment of strategic information systems which are vital for the functioning of the agricultural markets and the financial mechanism. These information systems are built upon a data-processing architecture using open systems and Internet technologies (as used widely throughout the EU). Points of note in 2001 are:

- The start-up of the redevelopment work for the AGREX2 and eFAUDIT EAGGF Guarantee applications. The new applications are expected to be operational in 2002;

- continued use of the EAGGF Guidance application FEORIENT as well as the use of generic Commission-wide applications for structural fund management;

- implementation of the Clearance of Accounts (CATS) system which has been operational since January 20