Commission Report to the European Parliament and the Council on EAGGF guarantee section expenditure - Early warning system No 6/2001

CONTENTS

1. Overall outturn in monthly expenditure

2. Provisional utilisation of appropriations

3. Comments

4. Conclusions

1. Overall outturn in monthly expenditure

The following tables show the overall outturn in monthly expenditure in relation to the expenditure profile. This situation corresponds to expenditure incurred in the Member States from 16 October 2000 to 30 April 2001.

1.1. Subheading 1a: CAP (not including rural development)

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1.2. Subheading 1b: Rural development and accompanying measures

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2. Provisional utilisation of appropriations

The following table shows provisional utilisation of appropriations for the first six months of 2001.

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3. COMMENTS

3.1. The uptake of appropriations for June 2001

The uptake of appropriations under heading 1 of the budget for June 2001 (Member States' expenditure from 16 October 2000 to 30 April 2001) is EUR 30 921.80 million, i.e. 70% of appropriations. Expenditure is:

- EUR 1 196.0 million below the indicator for subheading 1a (CAP, not including rural development),

- EUR 602.3 million below the indicator for subheading 1b (rural development and accompanying measures).

3.2. Monetary factors

3.2.1. The dollar/euro rate

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

In accordance with the Council Regulation on budgetary discipline (Council Regulation No 2040/2000 of 26 September 2000), amending and supplementary budget (ASB) No 1/2001 was based on average parity of EUR 1=$ 0.87. The unweighted average parity from August 2000 to the end of April 2001 is EUR 1=$ 0.8939.

3.2.2. The impact of the dual rates

The cost of the dual rates to the EAGGF Guarantee Section is estimated at - EUR 39 million.

3.3. Market factors

3.3.1. Subheading 1a

For subheading 1a, three quarters of the unutilised amount in relation to the indicator (EUR 873 million) was due to beef and veal. A detailed chapter-by-chapter explanation is given below for the most significant divergences.

Chapter B1-10: Arable crops // Divergence: - EUR 46 million (-0.3%)

// (expenditure: EUR 16 963 million)

(indicator: EUR 17 009 million)

Underutilisation is not significant for the moment. However, it presages a more substantial degree of underutilisation by the end of the budget year. It is mainly due to the lower volume of intervention buying-in of cereals.

Chapter B1-11: Sugar // Divergence: - EUR 158 million (- 9.2%)

// (expenditure: EUR 865 million)

(indicator: EUR 1 023 million)

Appropriations are still underutilised in relation to the indicator. The shortfall is due to the volume of sugar exports up to the end of April 2001, which amounted to only 85% of exports expected by that period of the year. Moreover, the average rate of refund granted since the beginning of the budget year stood at only 95% of the rate adopted in the assumptions on which the 2001 budget was based.

In view of budget implementation so far, it is expected that appropriations in this chapter will not be fully utilised.

Chapter B1-12: Olive oil // Divergence: - EUR 75 million (- 3.0%)

// (expenditure: EUR 2 090 million)

(indicator: EUR 2 165 million)

The profile for the year was based on the rate of payments observed in 2000. Underutilisation was due to delayed payment of advances on production aid in Greece, Spain, France and Portugal, despite Italy's having advanced virtually all the olive oil production aid for 1999/2000.

The underutilisation of appropriations for payment of production aid for 1999/2000 will probably be corrected when the balance of this aid is paid. Indeed, available appropriations may well be overshot upon complete implementation of production aid, because of late payment for 1998/99 in Greece and Spain.

Chapter B1-14: Fibre plants and silkworms // Divergence: - EUR 83 million (- 10.0%)

// (expenditure: EUR 583 million)

(indicator: EUR 666 million)

Underutilisation is due to advances having been reduced until December 2000 because of the high price of cotton on the world market. Consequently, expenditure declared for the budget was below the indicator. Spain and Greece have now paid these advances for 90% of the volume of cotton due. The Commission has just fixed the aid and the eligible quantities for cotton. Final expenditure in this sector, on the basis of decisions taken, will correspond to the level of appropriations in the budget.

Chapter B1-16: Products of the vine-growing sector // Divergence: + EUR 141 million (+ 12.3%)

// (expenditure: EUR 531 million)

(indicator: EUR 390 million)

The overrun is due to the fact that the indicator for distillation of table wine for the potable alcohol market (new measure introduced by the reform of the wine market in 1999) was based on expenditure spread evenly over a ten-month period from January 2001. Because of the increased production of table wine, the Member States accelerated the procedures for implementing the measure. Distillation for the potable alcohol market had already taken place by November 2000 when the first payments were made to Spain, Italy and Germany. Meanwhile, Italy increased the rate of payment in March and April 2001.

At the present stage of budget implementation, there is some uncertainty about the level of expenditure between now and the end of the budget year. On the one hand, the large quantities of wine to be distilled are a factor in increased distillation. On the other, as this is the first year of application of the restructuring arrangements, expenditure might be less than forecast. The Member States must send information on the implementation of the measure before 30 June 2001.

Chapter B1-20: Milk and milk products // Divergence: - EUR 78 million (- 3.3%)

// (expenditure: EUR 1 222 million) (indicator: EUR 1 300 million)

The under-run is mainly due to the following two measures:

Public storage of skimmed milk powder: the budget was based on the initial assumption of intervention buying-in of 5 000 tonnes of skimmed milk powder, but in fact there was no buying in until March 2001, while existing stocks, carried over from financial year 2000, were sold at prices that generated budget gains;

Aid for the use of skimmed milk powder: underutilisation for this article was mainly due to the smaller quantities of skimmed milk powder used in feed for calves. It should be borne in mind that the proportion of skimmed milk powder in compound feedingstuffs has been reduced from 50% to 25%.

The Commission expects expenditure to be below the level of appropriations because of the smaller quantities of butter and skimmed milk powder being bought in to intervention, and because less skimmed milk powder is being used for feeding calves, as mentioned above.

Chapter B1-21: Beef/veal // Divergence: - EUR 873 million (-12.5%)

// (expenditure: EUR 3 596 million)

(indicator: EUR 4 469 million)

Underutilisation calls for the following remarks on the special measures.

Export refunds:

The indicator reflects the lower level at which the budget year will be closed, because of the shutting off of export markets for beef and veal. For information, exports amounted to only 54% of last year's volume.

Beef premium:

Budget implementation of premiums was regularised after adoption of the classic three-year average indicator for this part of the budget. The only exception was the implementation of the slaughter premium, where farmers had kept their animals on the holding because of low prices and an unstable market. Moreover, movement restrictions imposed on live animals (transport from the holding to the abattoir) up to 12 April 2001 because of foot and mouth disease also limited the implementation of the premium.

Exceptional support measures:

Because of foot and mouth disease in the United Kingdom, animal movements were severely restricted. The implementation of this measure declined in the course of March 2001 to some 10% or less of the rate of implementation in previous months.

Measures relating to BSE:

The outcome of the "purchase for destruction" arrangements was less than expected. Some Member States were exempt from the arrangements; others did not apply them, for mainly ethical reasons. Moreover, for those that did apply them, expenditure declared up to the end of April was appreciably below that corresponding to the quantities for destruction.

At the present stage, on the basis of the application of the arrangements by the Member States, it would seem that the level of implementation is less than expected. Expenditure is therefore unlikely to reach the level in ASB No 1/2001.

For all the above reasons, and for the chapter as a whole, expenditure will be less than the appropriations entered.

Chapter B1-30: Non-Annex I products // Divergence: + EUR 27 million (+ 6.6%)

// (expenditure: EUR 263 million)

(indicator: EUR 236 million)

Overshooting of the indicator is due to an increase in the use of skimmed milk (Ireland and the Netherlands), whole milk powder (the Netherlands), cereals and rice (Germany, France and the Netherlands), and butter (Belgium, the Netherlands and Germany).

As a large proportion of payments relate to the settlement of cases from last year at rates of refund higher than at present, the positive divergence can be expected to last until the end of the year.

Chapter B1-32: POSEI // Divergence: - EUR 26 million (- 10.6%)

// (expenditure: EUR 109 million)

(indicator: EUR 135 million)

Underutilisation is mainly due to France's delay in implementing POSEIDOM.

Chapter B1-39: Other measures // Divergence: + EUR 35 million (+ 8.4%)

// (expenditure: EUR 310 million)

(indicator: EUR 275 million)

Overshooting of the indicator is partly due to payment of outstanding balances on the first, second and third tranches of these measures by the United Kingdom. Italy paid EUR 10 million for the arrangements in force prior to 1999.

Appropriations for this chapter will be overrun this financial year, owing in particular to the significant currency revaluations for the United Kingdom and Sweden in 2000.

3.3.2. Subheading 1b

Chapter B1-40: Rural Development // Divergence: - EUR 602 million (- 13.4%)

// (expenditure: EUR 1 383 million)

(indicator: EUR 1 985 million)

Underutilisation is more marked than in March. In most of the Member States except Italy, payments in April 2001 were less than forecast. Moreover, the Member States were seen to continue regularly to apply the old measures, while expenditure on the new, former EAGGF Guidance Section, measures lagged behind. Implementation of accompanying measures amounts to 90% of the theoretical profile. However, the rate for the other measures stands at 41% altogether.

4. CONCLUSIONS

4.1. The uptake of appropriations by 30 June 2001 for subheading 1a

The uptake of appropriations by 30 June 2001 (Member States' expenditure from 16 October 2000 to 30 April 2001) is EUR 29 744.9 million, i.e. 74% of total appropriations.

Expenditure is EUR 1 196 million below the indicator. The divergence between expenditure incurred and the indicator is therefore greater than last month. It implies that appropriations will be underutilised by the end of the year, even if an overrun of appropriations may be expected for certain chapters as indicated above, in particular agrimonetary measures and wine.

4.2. The uptake of appropriations by 30 June 2001 for subheading 1b

The uptake of appropriations by 30 June 2001 (Member States' expenditure from 16 October 2000 to 30 April 2001) is EUR 1 382.8 million, i.e. 31% of appropriations.

Expenditure is EUR 602 million below the indicator. The divergence between expenditure incurred and the indicator is greater than last month. At the present stage, we cannot yet conclude that the negative divergence will persist until the end of the year. On the basis of expenditure forecasts, the Member States are planning payments of over EUR 2.6 billion up to the end of the year (including EUR 2.3 billion in the final quarter).