[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 16.03.2005

SEC(2005) 383 final

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

on EAGGF Guarantee Section expenditure Early warning system No 11/2004 and No 12/2004

TABLE OF CONTENTS

1. AMENDING BUDGET NO 10/2004 3

2. PROVISIONAL UTILISATION OF APPROPRIATIONS 3

3. COMMENTS ON THE IMPLEMENTATION OF THE 2004 BUDGET 3

4. CONCLUSIONS 6

AMENDING BUDGET NO 10/2004

Favourable developments in agricultural markets in 2003/2004 resulted to an important underutilisation of the 2004 EAGGF-Guarantee’s initial budget appropriations. In view of the increased requirements for payment appropriations for the Structural Funds, the Commission proposed a decrease in EAGGF-Guarantee’s appropriations through the Amending Budget 10/2004 which was adopted by the European Parliament on 2 December 2004. This decrease involved only schemes under sub-heading 1a of the budget and it amounted to EUR 1.7 billion. Therefore, the overall budget’s appropriations were reduced from EUR 46 781.4 million to EUR 45 081.4 million. Columns a, b and c of the annexed table present the budget’s articles for which initial appropriations were decreased, the amount of this decrease as well as the amount of the available appropriations after this decrease. Furthermore, an amount of EUR 0.5 million was transferred out of article 05 01 04 01 to DG Environment in order to carry out a study on environmental indicators. Therefore, the available appropriations for the year 2004 amounted to EUR 45 080.9 million.

PROVISIONAL UTILISATION OF APPROPRIATIONS

The uptake of appropriations under heading 1 of the budget for the budget year 2004 amounted to EUR 44 719.3 million, i.e. 99.2% of appropriations. This amount is a net amount after deduction of negative expenditure clawed back through the financial corrections of the clearance of EAGGF-Guarantee’s accounts and through the suspensions and reductions of advances imposed in the course of the 2004 budget year.

The annexed table presents the detailed implementation of the EAGGF-Guarantee’s 2004 budget by article. This implementation shows an overall under-execution of approximately –EUR 361.5 million broken down as follows:

- for sub-heading 1a, it amounts to –EUR 246.3 million, and

- for sub-heading 1b, it amounts to –EUR 115.2 million.

In December 2004, the Commission presented to the Budget Authority a proposal to transfer an amount of EUR 139.7 million to article 17 04 03, the emergency veterinary fund, in order to cover the community’s contribution to payments mainly for the foot and mouth disease in the UK, the avian influenza in the Netherlands etc. This amount was drawn from budget articles 05 02 05 (EUR 20.0 million), 05 03 01 (EUR 80.0 million), 17 01 04 (EUR 1.0 million), 17 04 01 (EUR 36.6 million) and 17 04 04 (EUR 2.1 million).

COMMENTS ON THE IMPLEMENTATION OF THE 2004 BUDGET

The budget’s implementation is influenced by the following main factors:

Monetary factors

The dollar/euro rate

The expenditure indicated above takes account of the movement in the dollar/euro rate. In the case of a large part of export refunds for agricultural products, particularly for cereals and sugar, and of some internal aids such as aid for cotton, expenditure depends on the trend in the dollar rate.

In accordance with the Council Regulation on budgetary discipline (Council Regulation (EC) No 2040/2000 of 26 September 2000), the letter of amendment to the 2004 agriculture budget was drawn up on the basis of the average dollar rate for July, August and September 2003, i.e. EUR 1 = $ 1.12. For the period 1 August 2003 to 31 July 2004 the average dollar rate was approximately equal to EUR 1 = $ 1.20, i.e. approximately 7% above the rate used for the establishment of the 2004 budget.

Subheading 1a – Market factors

For subheading 1a, the budget’s appropriations were under-executed for all budget chapters with the exception of chapter 05 07 – Audit and 17 04 – Food safety, animal health and welfare, plant health which show an over-execution of their respective appropriations. However, the under-execution was concentrated in the following chapters:

- plant products where the under-execution amounted to –EUR 160.5 million and mainly involved sugar, fruits and vegetables and wine,

- animal products where the under-execution amounted to –EUR 137.1 million and mainly involved milk and beef.

For the following sectors these comments are called for:

Article 05 02 05: Sugar | Under-spending: –EUR 30 million (final appropriations) Under-spending: –EUR 295 million (initial appropriations) |

(expenditure: EUR 1 416 million) (final appropriations: EUR 1 446 million) (initial appropriations: EUR 1 711 million) |

This under-execution was primarily due to lower quantities of sugar exported by comparison to the ones foreseen in the budget and, consequently, to smaller payments incurred for export refunds.

Article 05 02 08: Fruit and vegetables | Under-spending: –EUR 40 million |

(expenditure: EUR 1 577 million) final appropriations: EUR 1 617 million) (initial appropriations: EUR 1 617 million) |

This under-execution was due to smaller aid payments incurred, primarily resulting from the lower quantities of fruits and vegetables withdrawn from the market as well as to the increase in the prices of bananas and to the consequent decrease in their rate of aid because of favourable market conditions in these sectors.

Article 05 02 09: Wine | Under-spending: –EUR 30 million (final appropriations) Under-spending: –EUR 123 million (initial appropriations) |

(expenditure: EUR 1 092 million) (final appropriations: EUR 1 122 million) (initial appropriations: EUR 1 215 million) |

This under-execution was primarily due to the fact that crisis distillations were not necessary in 2003/2004 thus incurring no payments for this scheme while the quantities of alcohol bought into intervention were lower than the ones retained when the 2004 budget was established thus incurring smaller depreciation costs.

Article 05 03 01: Milk and milk products | Under-spending:–EUR 101 million (final appropriations) Under-spending:–EUR 694 million initial appropriations) |

(expenditure: EUR 2 265 million) (final appropriations: EUR 2 366 million) (initial appropriations: EUR 2 959 million) |

This under-execution was due to smaller payments for export refunds and for other aids for milk products primarily because of the favourable conditions and prices in both the internal and external dairy markets which led to fixing export refund rates and certain internal aids for skimmed milk and butter at levels lower than the ones retained when the budget was established.

Article 05 03 02: Beef and veal | Under-spending: –EUR 40 million (final appropriations) Under-spending: –EUR 278 million (initial appropriations) |

(expenditure: EUR 7 776 million) (final appropriations: EUR 7 816 million) (initial appropriations: EUR 8 054 million) |

This under-execution was primarily due to smaller payments for export refunds because of the lower quantities of exported beef when compared to the ones retained when the 2004 budget was established. Furthermore, the 2004 budget included appropriations intended to be used to reimburse Member States for the co-financing part of their expenditure incurred for the special purchase scheme following the European Court of Justice ruling in case C239/01. These appropriations were not used because Member States, in most cases, declared immediately the amounts due and were subsequently reimbursed by the end of the last budget year.

Subheading 1b

Article 05 04 01: Rural development for the EU-15 | Under-spending: –EUR 95 million |

(expenditure: EUR 4 708 million) (appropriations: EUR 4 803 million) |

This under-execution was the result of under-implementation of certain rural development schemes by the EU-15 such as the investments into agricultural holdings, forestry and promotion of the adaptation and development of rural areas.

Article 05 04 04: Transitional Instrument for the financing of Rural Development for the new Member States (EU-10) | Commitment appropriations: EUR 1 733 million Amount committed: EUR 1 733 million Payment appropriations: EUR 645 million Amount paid: EUR 629 million |

This article relates to the transitional instrument for the financing of rural development by the EAGGF-Guarantee for the new Member States. This instrument, while financed under the EAGGF-Guarantee, is implemented through differentiated appropriations. This approach allows more time between commitments and liquidation of these commitments, both of which are made in EUR, than it would be possible under the Guarantee rules. Commitments for 2004 were effected automatically on the basis of the Commission Decision granting a contribution to the rural development programmes of each Member State concerned. On this basis, all the commitment appropriations foreseen in the 2004 budget for this instrument were committed. Payments for the amounts committed are to be made within 2 years from the date of commitment. After this period, the committed amounts for which there is no request for payment are automatically cancelled. In the course of the 2004 budget year, payments for this instrument, mainly consisting of advances paid to the new Member States, amounted to approximately EUR 629 million.

CONCLUSIONS

THE UPTAKE OF APPROPRIATIONS FOR the budget year 2004 (Member States' expenditure from 16 October 2003 to 15 October 2004) amounted to EUR 44 719.3 million, ie: 99.2% of available appropriations. The overall under-spending of the budget’s appropriations amounted to approximately –EUR 361.5 million.

For subheading 1a, the under-spending stands at –EUR 246.3 million (0.6% of the budget’s final appropriations) and it is primarily attributable to the sugar, fruits and vegetables, wine, milk and beef sectors.

For sub-heading 1b, the under-spending for Rural Development programmes stands at –EUR 115.2 million (1.8% of the budget’s appropriations) and it is primarily attributable to the schemes relating to investments into agricultural holdings, forestry and promotion of the adaptation and development of rural areas.

ANNEX

[pic]