[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 26.9.2008

COM(2008) 587 final

1st FINANCIAL REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

o n the EUROPEAN AGRICULTURAL GUARANTEE FUND – 2007 FINANCIAL YEAR – {SEC(2008) 2502}

TABLE OF CONTENTS

1st FINANCIAL REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the EUROPEAN AGRICULTURAL GUARANTEE FUND– 2007 FINANCIAL YEAR –{SEC(2008) 2502}

1. BUDGET PROCEDURE 3

1.1. Preliminary draft budget 2007 3

1.2. Draft budget 2007 3

1.3. Amending Letter for 2007 3

1.4. Revenue assigned to EAGF 3

1.5. Temporary restructuring amounts in the sugar sector 4

1.6. The adoption of the 2007 budget 4

1.7. The Amending Budget No 7/2007 4

2. CASH POSITION AND MANAGEMENT OF APPROPRIATIONS 5

2.1. Management of appropriations 5

2.2. Monthly payments 6

3. EXECUTION OF THE 2007 EAGF BUDGET 6

4. COMMENTS ON THE IMPLEMENTATION OF THE 2007 AGRICULTURAL BUDGET 7

5. COMMENTS ON THE IMPLEMENTATION OF ASSIGNED REVENUE 8

6. COMMENTS ON THE IMPLEMENTATION OF SUGAR RETRUCTURING FUND 8

7. BREAKDOWN BY TYPE OF EXPENDITURE 9

ANNEX 1 Annex 2 Annex 3 Annex 4 Annex 5 ANNEX 6 | BUDGETARY PROCEDURE FOR 2007 EAGF COMMITMENT APPROPRIATIONS Part of the EAGF Guarantee budget in the EU budget for 2002-2007 Analysis of 2007 budgetary execution ANALYSIS OF 2007 EXECUTION OF ASSIGNED REVENUE EAGF 2007 EXPENDITURE BY ARTICLE AND BY MEMBER STATE Evolution of breakdown of EAGGF-Guarantee expenditure 2002-2007 |

Note: A detailed Commission Working Document accompanies this report. The full text of this Working Document (in English) and the annexed tables (in English) will be also available on DG Agriculture’s Europa website. |

BUDGET PROCEDURE[1]

Preliminary draft budget 2007[2]

The 2007 Preliminary Draft Budget was adopted by the Commission and proposed to the Budgetary Authority in April 2006. The commitment appropriations proposed for the European Agricultural Guarantee Fund, heading 2, totalled EUR 43 684.0 million.

Draft budget 2007

The Council[3] adopted the 2007 Draft Budget in July 2006. The EAGF's appropriations were reduced by EUR 730.0 million as compared to the PDB.

Amending Letter for 2007

At the end of October 2006 the Commission adopted the Amending Letter No 3 to the 2007 PDB, setting appropriation requirements for the EAGF at EUR 42 832.3 million which was lower by EUR 851.7 million compared to the corresponding amount in the Preliminary Draft Budget.

Revenue assigned to EAGF[4]

On the basis of the provisions of Article 34 of the new CAP Financing Regulation (EC) No 1290/2005, the receipts originating from financial corrections under conformity clearance decisions, from irregularities and from the milk levy are designated as revenue assigned to the financing of EAGF expenditure. At the time of establishment of the 2007 budget, an estimation of this revenue was made, amounting to EUR 987.0 million, and this estimation was taken into consideration when the Budgetary Authority adopted the 2007 budget's appropriations. Specifically:

- the receipts from the milk levy were estimated at EUR 349.0 million and they were taken into consideration by reducing the appropriations requested for the milk and milk products sector for which the Budgetary Authority granted an amount of EUR 587.0 million;

- the receipts from the conformity clearance corrections and from irregularities were estimated at EUR 568.0 million and EUR 70.0 million correspondingly. The total amount of EUR 638.0 million was taken into consideration by reducing the appropriations requested for the single payment scheme for which the Budgetary Authority granted an amount of EUR 27 918.0 million.

According to the rules, this revenue can be used, partly or wholly, to cover the financing of EAGF expenditure if the budget appropriations granted by the Budgetary Authority are not sufficient to finance the expenditure incurred by the Member States. In the case where part of this revenue is not used, then, this part will be automatically carried over into the following budget year.

T emporary restructuring amounts in the sugar sector[5]

The temporary restructuring amounts in the sugar sector are treated as assigned revenue intended to finance the sugar restructuring aid and other aids foreseen in the restructuring fund. For the marketing year 2006/07 these amounts relate to the sugar, insulin syrup and isoglucose quantitative quotas held by operators and they are to be paid by the Member States into the Fund in 2 instalments, the deadlines of which are 31 March and 30 November 2007 respectively. An amount of EUR 1 259.0 million had been estimated as assigned revenue under this fund.

The adoption of the 2007 budget

The European Parliament adopted the 2007 budget in its plenary session of December 2006, as per the amounts proposed in the Second Reading of the Council. The appropriations for EAGF, heading 2, amounted to EUR 42 711.7 million[6].

The initially available EAGF commitment and payment appropriations amounted to EUR 42 711.7 million and to EUR 42 435.6 million correspondingly. For policy area 05-agriculture and rural development, credits amounting to EUR 5 615.2 million, were foreseen for interventions on agricultural markets, while EUR 36 878.5 million were foreseen for direct aids. Furthermore, credits of EUR 309.8 million for policy area 17-veterinary and phyto-sanitary measures and of EUR 30.5 million for policy area 11-fisheries markets[7], were foreseen in the 2007 budget. The difference between commitment and payment appropriations, amounting to EUR 276.0 million, is due to the fact that differentiated appropriations are used for the payments made directly by the Commission for promotion of agricultural products, for policy strategy and coordination measures for agriculture and for veterinary and phyto-sanitary measures.

The Amending Budget No 7/2007

In December 2007, the Commission proposed and the Budgetary Authority accepted an adjustment, through AB No 7/2007, of the 2007 budget’s commitment and payments appropriations, by cancelling an amount of EUR 400.0 million out of EAGF's initial credit appropriations, which, then, amounted to EUR 42 311.7 million. In detail, the Amending Budget involved a reduction of appropriations for chapter 05 02 "Interventions in agricultural markets" by EUR 673.5 million, while it increased them for chapter 05 03 "Direct aids" by EUR 188.0 million and for chapter 05 07 "Audit of agriculture expenditure" by EUR 85.5 million. Annex 3 presents the finally available appropriations, the resulting under-implementation was reduced to EUR 191.9 million (0,5%).

The part of the final EAGF budget (commitment appropriations) in the total EU Budget for the period 2002–2007 appears in annex 2.

CASH POSITION AND MANAGEMENT OF APPROPRIATIONS

Management of appropriations

Appropriations available for the financial year 2007

EUR |

Expenditure section of budget | Commitment appropriations | Payment appropriations |

1. Initial appropriations for EAGF | 42 711 661 000.00 | 43 875 641 756.00 |

2. Amending budget | -400 000 000.00 | -400 000 000.00 |

3. Final appropriations for EAGF of which: | 42 311 661 000.00 | 43 475 641 756.00 |

3a. Appropriations for shared management (excluding TRDI (1) EU 10) | 41 908 432 000.00 | 41 908 432 000.00 |

3b. Appropriations for direct expenditure | 403 229 000.00 | 127 209 756.00 |

3c. Appropriations for TRDI EU 10 | 0.00 | 1 440 000 000.00 |

(1) Transitional Rural Development Instrument for EU-10

Execution of appropriations available for the financial year 2007

The table below details the budget 's execution carried out in 2007:

EUR |

Execution | Execution of commitment appropriations | Execution of payment appropriations |

Shared management ( excluding TRDI EU 10) (1): | 42 335 567 108.49 | 42 335 567 108.49 |

Direct expenditure | 336 739 778.86 | 78 872 905.36 |

TRDI EU 10 | 0.00 | 1 298 701 347.00 |

Total (including Sugar Restructuring Fund) | 42 672 306 887.35 | 43 713 141 360.85 |

Sugar Restructuring Fund | 551 435 562.68 | 551 435 562.68 |

Total (excluding Sugar Restructuring Fund) | 42 120 871 324.67 | 43 161 705 798.17 |

(1) Committed amounts. Commitment and payment less assigned revenue received: EUR 39 887 650 082.38

For the financial year 2007, the execution of commitment appropriations amounted to EUR 42 672 306 887.35 and the execution of payment appropriations amounted to EUR 43 713 141 360.85.

Automatic carryovers from 2006

EUR |

Carry over from 2006 to 2007 | Commitments | Decommitments | Payments | Cancelled appropriations |

Carried over appropriations | 265 366 752.43 | 3 917 107.82 | 206 772 710.88 | 54 676 933.73 |

Automatic carry over from 2006 to 2007 only concerned direct expenditure for non-differentiated appropriations. As indicated in the table above, an amount of EUR 265.4 million was carried over from 2006 to 2007. In 2007 an amount of EUR 3.9 million from this carry over was decommitted. The payments made amounted to EUR 206.8 million and the amounts cancelled totalled EUR 54.7 million.

Monthly payments

Monthly payments to Member States

Monthly payments on the provision for expenditure

The Council Regulation (EC) No 1290/2005 of 21 June 2005 on the financing of the Common Agricultural Policy[8] states in Article 15 that "monthly payments shall be made by the Commission for expenditure effected by Member States' accredited paying agencies during the reference month". Monthly payments shall be made to each Member State at the latest on the third working day of the second month following that in which the expenditure is effected.

The monthly payments are a reimbursement of net expenditure (after deduction of revenue) which has been already carried out and are made available on the basis of the monthly declarations forwarded by the Member States[9]; the monthly booking of expenditure and revenue is subject to checks and corrections on the basis of the detailed declaration[10]. Moreover, they will become final after the verification during the following exercises in the light of the clearance of accounts decisions.

Payments made by the Member States from 16-10-2006 to 15-10-2007 are covered by the system for monthly payments. For the remaining payments, the Commission carries out direct payments for a limited number of measures.

For financial year 2007, the total net amount of monthly payments effected was EUR 39 887 650 082.38.

Decisions on monthly payments for 2007

During the financial year 2007, the Commission adopted twelve decisions on monthly payments. An additional monthly payment, adjusting those already granted for the total expenditure chargeable to the year, was adopted in December 2007. (For details, please see annex 5 of the Working Document accompanying this report).

EXECUTION OF THE 2007 EAGF BUDGET

The 2007 agricultural year was marked by remarkable increases in the prices of many agricultural products in both the EU and world markets. These rises concerned mainly cereals and dairy products. In contrast to livestock production, the overall EU crop production fell in 2007. These developments in agricultural markets as well as other factors affected the level of EAGF expenditure in certain areas of the budget and led to a significant under execution of its credit appropriations.

The implementation of the budget amounted to EUR 42 120.9 million, i.e. to approximately 98.6 % of the initial credit appropriations. This amount includes the implementation of the credits corresponding to the Fisheries markets (Policy area 11) of approximately EUR 25.1 million as well as those corresponding to Veterinary expenditure (Policy area 17) of EUR 260.3 million. As regards Agriculture (Policy area 05), the expenditure for Interventions on agricultural markets amounted to EUR 4 867.6 million and for Direct aids to EUR 37 044.7 million. Therefore, the implementation of the EAGF budget resulted in under-spending of EUR 591.9 million, before adoption of the Amending Budget No 7/2007. For details, please see annex 3.

COMMENTS ON THE IMPLEMENTATION OF THE 2007 AGRICULTURAL BUDGET

The budget's initial appropriations were mostly under-implemented for the interventions in agricultural markets but were over-implemented for direct aids. The annexed table 3 presents the implementation details for the various articles of the budget. The main reasons for the implementation pattern of certain articles of the budget compared its initial appropriations are briefly presented below:

Cereals

Extremely favourable internal and external conditions prevailed in the cereals market for this year and led to higher internal and world market prices. The resulting under-execution was due to:

- the significant net gains realised for the budget as purchases of cereals into public storage were very low while very high quantities of cereals were sold from public storage commanding high prices; and

- lower expenditure incurred for export refunds for cereals as the refund rate has been set at 0 for most of the financial year.

Refunds on Non-Annex 1 products

In this sector also the very favourable internal and external conditions in the cereals and dairy markets led to an overall general reduction of the export refund rates and to subsequently lower expenditure for refunds for the export of processed agricultural products. Hence, the resulting under-execution of the budget's appropriations.

Sugar

The over-implementation of the budget's appropriations was due to the increased export refunds expenditure incurred by Member States as the quantities of exported sugar, both from the free market and from public storage, have been much higher compared to the assumptions retained in the 2007 budget.

Fruits and vegetables

The under-implementation of the budget's appropriations was primarily due to the lower expenditure incurred by Member States as a result of the smaller quantities of tomatoes receiving the processing aid and of the lower uptake of operational funds for producer organisations compared to the assumptions retained in the 2007 budget.

Milk and milk products

The very favourable internal and external conditions for dairy markets led to lower expenditure incurred by Member States for export refunds for dairy products, for the public storage of butter and for the internal disposal aids for skimmed milk.

However, the nature of the apparent over-execution of the budget's appropriations is technical. The 2007 budgetary appropriations requested and granted by the Budgetary Authority for this sector were net of the revenue assigned to it essentially being lower by this amount (EUR 349.0 million). This is the reason for which over-execution of the budget's appropriations occurred.

Direct aids

The over-execution resulting from the budgetary table is the consequence of the particular treatment of the assigned revenue.

The 2007 budgetary appropriations requested and granted by the Budgetary Authority for this sector were net of the revenue assigned to it (EUR 638.0 million). Therefore the over-execution of EUR 166.0 million in respect of the initial budget becomes an under implementation compared to the needs (-EUR 472.0 million).

COMMENTS ON THE IMPLEMENTATION OF ASSIGNED REVENUE

The table in annex 4 presents the details for the implementation of assigned revenue:

The revenue assigned to EAGF

In the course of the 2007 budget year, Member States declared revenue assigned to EAGF amounting to EUR 1 159.5 million which was carried forward into 2008 to cover the expected budgetary needs for that year.

The revenue concerning the temporary restructuring amounts in the sugar sector

In the course of the 2007 budget year, Member States had transferred to the assigned revenue account the first instalment of the temporary restructuring amounts of approximately EUR 1 287.2 million.

COMMENTS ON THE IMPLEMENTATION OF SUGAR RETRUCTURING FUND

There were no commitment and payment appropriations foreseen in the 2007 budget (article 05 02 16) for the Sugar Restructuring Fund. Payments were made from the assigned revenue which was declared by the Member States as temporary restructuring amounts in the sugar sector.

A part of the initially estimated assigned revenue, amounting to EUR 757.0 million, was earmarked for payments of aids to the restructured sugar industry, for diversification aids as well as for aids to sugar refiners. However, in the course of the 2007 budget year, Member States paid approximately EUR 551.4 million for these aids. The unused balance between the collected assigned revenue of EUR 1 287.2 million and the payment of EUR 551.4 million for the different types of aid amounted to EUR 735.8 million and it was carried forward into 2008 to finance payments for these aids expected to be made in that year. For details, please see annex 4.

BREAKDOWN BY TYPE OF EXPENDITURE

The total EAGF expenditure amounts to EUR 42 120.9 million and can be broken down into the following principal categories. Hereafter, the corresponding expenditure along with the percentage that this expenditure represents in the total EAGF expenditure for 2007 are given:

Export refunds

Spending on export refunds amounted to EUR 1 444.7 million, i.e.: 3.43% of the total.

Direct aids

Expenditure under this heading amounted to EUR 37 045.8 million, i.e.: 87.95% of the total.

Storage

Expenditure for storage amounted to -EUR 106.7 million, i.e.: -0.25% of the total. The main products involved were cereals, sugar and alcohol.

Other measures

Other intervention expenditure amounted to EUR 3 763.9 million, i.e.: 8.94% of the year's total. This heading covers expenditure not falling into one of the above categories.

Rural Development

Spending on Rural development related to the Guarantee Section of ex-EAGGF amounted to - EUR 26.8 million, i.e.: -0.06%.

The evolution of this breakdown by type of expenditure for the period 2002-2007 is presented in annex 6.

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[1] This procedure is presented in annex 1

[2] Including reserves

[3] First reading

[4] These amounts are not inscribed in the revenue lines of the budget (article 670 for the revenue assigned to the EAGF) but they are mentioned in the budgetary comments for these articles.

[5] These amounts are not inscribed in the revenue lines of the budget (article 680 for the temporary restructuring amounts for the sugar sector) but they are mentioned in the budgetary comments for these articles.

[6] Net amount including the forecast of assigned revenue

[7] Including reserves

[8] OJ L 209 of 11.8.2005, p. 1.

[9] These monthly declarations of expenditure are transmitted by the Member States by the declaration of the 10th.

[10] The detailed declarations are transmitted monthly by the Member States (by table 104) on the 20th.