Special report of the Court of Auditors on the common organization of the market in olive oil
Date: 1985-04-25
Institutions: European Court of Auditors
Subjects: budget appropriation, control of State aid, intervention stock, olive oil, prices, producer organisation













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31985Y0603(01)

Special report of the Court of Auditors on the common organization of the market in olive oil  


Official Journal C 134 , 03/06/1985 P. 0001 - 0057 





SPECIAL REPORT  OF THE COURT OF AUDITORSon the common organisation of the market in olive oil(Opinion Article  206a (4) of the EEC Treaty)(85/C 134/01)The Court of Auditors has drawn up this  report in response to a request made by the President of the European Parliament at the proposal of  its Committee on Budgetary Control. The report was adopted by the Court at its meeting of 25 April  1985, in accordance with Article 206a (4) of the EEC Treaty. On 4 March 1985 the draft report was  sent to the Commssion whose replies are attached. TABLE OF CONTENTSCHAPTER 1INTRODUCTIONParagraphreferenceOrigin of this report . 1.1 The audit and its scope . 1.2  1.6Background . 1.7  1.10The common organisation of the market . 1.11 1.14 The basic regulation . 1.11 1.13 The market mechanism . 1.14CHAPTER 2REVIEW OF OLIVE OIL MARKET 1978/79 1981/82Introduction . 2.1  2.2Community production in the world context . 2.3Analysis of Community production and consumption . 2.4  2.11 Production . 2.5  2.8 Consumption . 2.9  2.11Trade between the Community and other countries . 2.12 2.14Intra-Community trade . 2.15Prices . 2.16 2.18CHAPTER 3EVOLUTION OF BUDGETARY APPROPRIATIONSExpenditure trends . 3.1  3.3Budgetary presentation . 3.4Expenditure by Member State . 3.5Accuracy of budget estimates . 3.6CHAPTER 4PRODUCTION AIDHistorical background . 4.1  4.7 Original production aid . 4.1  4.5 The 1978 reform . 4.6  4.7Outline of the system . 4.8  4.13 Key control requirements of the system . 4.13Control provisions of the governing regulations . 4.14 4.30 Control responsibilities of producer organisations . 4.17 4.21 Controls over non-associated producers . 4.22 Control responsibilities of the national authorities . 4.23 4.28 Division of control responsibilities . 4.29 4.30Operation of the scheme in the Member States . 4.31 4.70 Italy . 4.31 4.52  Audit findings . 4.35 4.52 Greece . 4.53 4.66  Audit findings . 4.59 4.66 France . 4.67 4.70Management by the Commission   Audit findings . 4.71 4.72Conclusions on production aid . 4.73 4.82CHAPTER 5CONSUMPTION AIDDescription of the system . 5.1  5.12Operation of the scheme in the Member States . 5.13 5.35 Italy . 5.13 5.24  Audit findings . 5.24 Greece . 5.25 5.33  Audit findings . 5.33 France . 5.34 5.35  Audit findings . 5.35Administration by the Commission . 5.36 5.43 Audit findings . 5.37 5.43Conclusions on consumption aid . 5.44 5.50CHAPTER 6INTERVENTION STORAGEGeneral . 6.1  6.13Operation of the scheme in the Member States . 6.14 6.48 Italy . 6.14 6.31  Audit findings . 6.23 6.31 Greece . 6.32 6.48  Audit findings . 6.41 6.48Management by the Commission   Audit findings . 6.49 6.54Conclusions on intervention storage . 6.55 6.65CHAPTER 7OTHER ELEMENTS OF PARLIAMENT'S REQUESTIntroduction . 7.1Frauds and irregularities reported . 7.2  7.5Proposals for improvement . 7.6  7.16 Production aid . 7.6  7.13 Consumption aid . 7.14 7.15 Intervention storage . 7.16CHAPTER 8OVERALL ASSESSMENTThe present system . 8.1  8.17 Production aid . 8.5  8.10 Consumption aid . 8.11 8.13 Intervention storage . 8.14 8.17Towards a more reliable system . 8.18 8.21ANNEXESIUses of olivesIIOlive oil market mechanismII(a)Olive oil market  mechanism   Common pricesIIIReliabiliy of statistical dataIVOlive cultivation registerVThe  results of analyses of samples taken in ItalyTHE COMMISSION'S  REPLIESANNEX I USES OF OLIVES >START OF GRAPHIC> >END OF GRAPHIC> ANNEX II OLIVE OIL MARKET MECHANISM >START OF GRAPHIC> >END OF GRAPHIC> ANNEX II (a)  Olive oil market mechanism: Common prices 1978/79 to 1983/84  >TABLE  POSITION> ANNEX III RELIABILITY OF STATISTICAL DATA Introduction1.  A timely and reliable flow of  market statistics is indispensable for sound market management and rational decision-making. In  certain cases it can also be used to supplement control measures by indicating unusual trends or by  acting as a credibility check on accounting data. The various systems weaknesses noted in this  report are such as to leave open the possibility of fraud and irregularity. While it is beyond the  scope of the report to go further and show, by extensive audit over a wide range, whether such  irregularities are in fact occurring, and if so, on what scale, this annex presents some  reflections on production and consumption statistics relating to olive oil, primarily from the  control aspects. 2.  As indicated in Chapter 5, consumption aid is payable on only a fraction of the total oil  consumed while production aid is payable, in principle, on every kilogram produced. There can be no  relationship therefore between the quantities qualifying for the two aids. For that reason, it is  appropriate to concentrate on the production aspect, and to consider the consumption statistics  only for the light which they may throw on real production. The examination is limited to Italy and  Greece. ITALYProduction statistics3.  A study of production statistics for Italy is complicated by the  existence of three separate and, sometimes conflicting, sources of statistical information. These  are: (a)  The figures published by the Italian statistical service (ISTAT), based on returns from its  agents in the provinces. This is the basic source (see paragraph 5 below). (b)  Production data appearing in the supply balance sheets prepared by the Ministry of Agriculture  and Forestry and supplied to EUROSTAT. In the balance sheets, the figures are adjusted in the light  of the other factors such as net imports, changes in stocks and consumption, so as to produce an  equality between sources and uses. (c)  Data published by the International Olive Oil Council (1) (IOOC). 4.  Table 1 compares the three series, from 1974/75 to date. The fact that in each of three years out of eight the International Olive Oil Council has estimated  production at a level some 200 000 tonnes less than the official Italian estimates is, to say the  least, alarming. The total difference for the eight-year period was 770 100 tonnes (or 506 000  tonnes if the lesser ISTAT figure is used). Commission officials stated, by way of explanation for  the discrepancy, that the figures supplied to the IOOC were early estimates and that it was not the  practice of the latter to publish revised figures when they became available. The differences  between the ISTAT estimates and those of the Ministry (average 30 000 tonnes) are also a cause for  concern. In an attempt to throw further light on the foregoing, the following paragraph analyses  the basic source, that is to say the ISTAT estimates of olive production, and of the virgin oil  derived therefrom. 5.  Table 2 presents the official (ISTAT) production statistics of virgin olive oil in Italy,  together with related production indicators such as growing area, olive production and yields in  oil, for a sufficiently long period to detect significant departures from trend. A slow decline in  the total area devoted to olive production appears to have been compensated for by a tendency to  move from mixed (1) to specialised olive groves. Taking account of this factor, all the indicators  show a high degree of internal consistency. The only exception is the significant increase (about  8,5 %) in yields of oil obtained from a given quantity of olives, which took place around mid-1960s  when production aid was first introduced, and which appears to have been maintained since then.  Increased yields may be due to improved cultivation techniques, such as irrigation, or to better  extraction methods. A gradual conversion from traditional presses to centrifugal mills has  certainly been taking place. Nevertheless, neither the suddenness of the increase, which, in terms  of aidable oil, averaged out at an extra 40 000 tonnes per year, nor its timing can be fully  accounted for by these factors alone. >TABLE>N° C 134/513. 6. 85Official Journal of the European CommunitiesAided  production6.  Table 3 compares the official statistics with those derived from applications for  production aid and the quantities finally admitted. Since aid is paid also for olive residue oil,  on a quantity equal to 8 % (1) of virgin olive oil produced, the comparison should be made from  column 2 onwards. There is a slight difference between the definition of the production year for  statistical purposes and the marketing year for aid purposes. The difference appears to the Court  the be of little practicable importance for the purposes of the comparison and is, in any case,  subsumed in the comparison of the totals for the whole period.7.  The table shows that the aid applications (column 3) usually exceeded the estimated harvest  (column 2) by an average of some 20 000 tonnes per annum. Over the period, however, and given the  normal vagaries of statistics, the table gives no reason to suppose that the quantities admitted to  aid (column 4) were consistently greater than the totals statistically estimated. In fact the  contrary seems to be the case. >TABLE>N° C 134/523. 6. 85Official Journal of the European Communities8.  The above  comparison can only be valid to the extent that the two data-series are independent. In Italy,  official statistics of olive oil production are derived from estimates of the olive harvest made on  the spot, at successive stages during the growing season, by provincial agencies in each of the  several thousand homogenous production zones, supplemented by samples, taken at selected mills, on  the yields in oil from olives. The fact that the provincial services responsible for overseeing this operation are, in some cases,  also involved in the verification of applications for aid introduces a certain statistical bias  into the comparison which, unfortunately, cannot be measured. A statistical bias of this nature  does not cast doubts on the integrity of the services involved but simply places uncertainty on the  value of the comparisons. 9.  The verification 'effort', i.e. the differences between quantities presented for and those  admitted to aid, shown in columns 5 and 6, have varied considerably over the period. Consumption statistics10.  A commonly adopted method of arriving at consumption statistics is to  use the commodity flow approach. This starts from production and, after adding imports and  deducting exports (both known with reasonable accuracy) and allowing for changes of stocks (not so  easily known, except for intervention stocks), calculates consumption as a residual. This is the  method used in Italy. It is supplemented, as to human consumption, by credibility tests derived  from household budget enquiries conducted each year on a sample of 36 000 households. The balance  sheets so derived are presented in table 4. >TABLE>3. 6. 85Official Journal of the European Communities11.  A striking feature of  the table is the amplitude of the stock variations in certain years. In 1967/68, stocks are shown  to have risen by 217 000 tonnes (1). Of this increase only 13 000 went into intervention. This apparent increase in private commercial stocks which took place shortly after the introduction  of the Community aid despite the introduction of public intervention stocks, and which averaged out  at a level 140 000 tonnes higher than before, is such as to raise questions as to the accuracy of  the entries for production and consumption in the balance sheets. 12.  In a report to the Council dated 29 September 1972 (2) the Commission undertook a detailed  study of the production and consumption statistics in Italy for the period 1966/67 to 1970/71. The  study concluded that the level of consumption of olive oil implied from production aid applications  could not be explained by available economic indicators. As a consequence the Commission (DG VI)  has not since then presented official estimates of production or consumption, either to the  Council, charged with the decisions on pricing policy, or in the annual reports on the 'situation  of the agricultural markets'. Strangely enough the Court was informed that EUROSTAT, the  Commission's own statistical service, has accepted Italian statistics without demur and,  apparently, was unaware of the reserves of DG VI. 13.  In documents presented for recent Council discussions of the consequences of enlargement, and  particularly of the proposal to adopt a ratio of 2 : 1 between the price of olive oil and that of  edible seed oils, DG VI presented its own estimated balance sheets, which show a substantially  different consumption pattern from that in the official balance sheets, i.e. an annual average of  some 11 000 tonnes less. However, the Commission's estimates are also suspect, principally because  they ignore private stock changes altogether. The Commission's consumption figures are presented,  for comparison purposes, in column 10 of table 4, and should be compared with column 6. 14.  The appearance of a 'loss' of 60 000 tonnes in the balance sheet 1980/81 (column 7 of table 4)  was drawn to the attention of EUROSTAT by the auditors of the Court. As EUROSTAT could not throw  any light on the matter, it wrote to the Italian statistical authorities. In reply, the Italian  authorities removed the 'loss' from the figures by adjusting a number of the balance sheet items  for 1979/80, 1980/81 and 1981/82. The main changes were that domestic consumption in 1979/80 was  increased by 41 000 tonnes and final stocks reduced accordingly. The 60 000 tonnes in 1980/81 was  then transferred from an apparent loss to an increase in stocks. N° explanation was provided for  the revised figures. GREECE15.  As in the case of Italy, three sources of production statistics may be consulted.  These are set out intable 5. >TABLE>3. 6. 85Official Journal of the European CommunitiesThough the series differ,  they all show a substantial increase in production in 1980/81, the year in which production aid was  introduced. At the request of the Court of Auditors, the Greek authorities offered as possible  reasons: (a)  the fact that 26,5 million olive trees had been planted in the period 1960 to 1975 and(b)   since adhesion to the Community producers had intensified production. 16.  Following is a comparison of production statistics with aid applications: (1 000 tonnes) 1980/811981/82Ministry of Agriculture estimates371259Greek Statistical  Office estimate of virgin oil plus 8 % for olive residue oil407n.a. (1)Figures supplied by the  Greek authorities to the Court of Auditors330230Figures supplied by the Greek authorities to the  Budgetary Control Commission of the European Parliament337242Quantity for which production aid  was requested338200Quantity for which aid was paid33721217.  On 11 April 1984 the Commission  drew the attention of the Greek authorities inter alia to the apparently excessive payment for  1981/82 and requested a blockage of further payments of aid pending an examination on the spot. Balance sheets18.  The balance sheets for Greece notified to EUROSTAT (see table 6) showed a  substantial increase, from 170 000 to 283 000 tonnes, in human consumption of olive oil in 1980/81.  When this was drawn to the notice of the Greek authorities by the Court they stated that it was due  to an error. Shortly afterwards they informed EUROSTAT of a reduction of 60 000 tonnes in the  consumption figure and a further increase in stocks of an equivalent amount. Thus the increase in  stocks, already high by the standards of previous years at + 63 000 tonnes, rose to + 123 000  tonnes, of which some 74 000 tonnes can be explained by net sales to public intervention stocks  (and the liquidation of abnormal carryover stocks envisaged in the Accession Treaty). The  implications of the correction, i.e. that private commercial stocks rose by some 50 000 tonnes, are  deserving of an explanation. >TABLE>3. 6. 85Official Journal of the European CommunitiesObservations19.  In their  present state the statistics of production and consumption of olive oil in Italy and Greece cannot  be relied upon for serious analytical study. The existence of several statistical series, differing  substantially one from the other, is a most unsatisfactory feature. The error noted during the  audit in the Greek consumption figures, the changes to the Italian figures to remove the 'loss' in  1980/81, and the apparently volatile movements in the stock figures for both countries, add further  elements of doubt. Despite the above caveats, however, the statistics do appear to show discernible  breaks in continuity at or about the time of the commencement of the Community system in each of  the two countries, breaks which are not fully explicable by known factors. 20.  In the matter of statistical policy, the Commission's market division and its statistical  service appear to be following in consistent lines. The lack of coordination between the two  services has led to errors going undetected and unusual features not being investigated. More  seriously, the resulting lack of impetus towards reform of the statistical machinery has deprived  the legislative arm of the Community of an important element in the policy-making process. (1) The IOOC represents most of the producer countries of the world, including the  Community. (1) Where olives are interspersed with other crops. (1) Formerly 9 % and, earlier sill, 10 %. (1) From 168 000 to 385 000 tonnes. (2) Ref. 2022/72 (AGRI J 98/FIN J 42). (1) n.a. = not available.  ANNEX IV OLIVE CULTIVATION REGISTER The plans1.  Following the rejection of its  proposals in the early 1970s, the Commission developed the idea of creating a register of olive  cultivation in each producer Member State designed to provide accurate information on the potential  production of olives and olive oil and to improve the operation of the aid system. An outline  regulation (1) was adopted by the Council in January 1975, requiring the two existing producer  Member States to set up such a register showing, for each holding: (a)  within two years of the entry intro force of the regulation (i.e. before 24 January 1977), the  total olive-growing area with the cadastral reference of the parcels comprising it and the total  number of trees; (b)  within a further four years (i.e. before 24 January 1981), more detailed information, such as  ownership of the holding, the varieties of the olive trees and the precise conditions of  cultivation. The register was to be updated at regular intervals. The costs involved were to be charged to the  Community budget (EAGGF-Guarantee Section) but, in compensation, the production aid fixed by the  Community was to be reduced by varying percentages depending on the marketing year. 2.  There followed a period of nearly five years before the scheme was launched. The lengthy delay  has been attributed by the Commission to feasibility studies and experimental tests carried out  under Community auspices. It was not until the adoption of Commission Regulation (EEC) N° 2276/79  (2) that more concrete details were evolved. Despite the immensity of the task, and the formidable  problems involved, aerial photography was to be the preferred method of obtaining the basic  information, such as the area and location of parcels and the number of trees, in Italy. For  France, and, where feasible, for certain zones in Italy, this information was to be obtained by  counting the trees on the ground and by verifying cadastral maps. In both cases the supplementary  information as to ownership and cultivation conditions was to be collected from the growers or by  on-the-spot visits. For the aerial survey operation, precise steps (eight in all) were laid down,  comprising the preparatory zoning operations and acquisition and harmonisation of cadastral maps,  as well as the aerial surveys and the construction of orthophotos with cadastral boundaries  superimposed. It also dealt with the interpretation of the photographs to determine the exact area  of each parcel and the number of trees and the checking and recording of the results in the form of  tables. 3.  By Council Regulation (EEC) N° 3453/80 (3) Greece was included within the ambit of the 1975  Regulation and the time limits of two years and six years were fixed to run from 1 November 1982.  It is not yet clear whether aerial photography will be imposed. Execution4.  In the Member States work is at various stages of completion. France has carried  out the preliminary steps but it is as yet too early to estimate when the register will be  operational there. 5.  In June 1981 Italy signed a contract with a business consortium of four specialist companies,  to carry out and finalise the project. The work was to take six years. The four producer unions  were also enlisted for data-collection purposes. The Court was informed that, in terms of the  contract provisions, satisfactory progress was being made and that the project was expected to be  completed ahead of contract time. In terms of the official timetable and even after allowing for  the five-year launching delay, the completion of the first phase is already more than three years  overdue. In fact the contract does not provide for the two phases mentioned in the Community  provisions. In these circumstances it is not possible to give any reasonable estimate of when the  register is likely to be fully operational in Italy. 6.  Greece has no land registration system and cadastral maps do not exist. In these circumstances  the Greek authorities look on the olive cultivation register as a long-term project, lasting at  least 10 years. Initial proposals were made to the Commission some time ago for a pilot study but  no final decision has yet been made. Financial aspects7.  The percentages to be withheld from the production aid for financing the  register are set out in table 1. 8.  The register was embarked upon without a realistic and detailed assessment of its costs or  benefits. The explanatory memorandum presented by the Commission with Regulation (EEC) N° 154/75  implied that the cost for Italy and France combined could be as low as 12 Mio ECU   with the  possibility of an excess. More recent indications suggest that the cost will be many times this  amount. Even at the date of this report the Commission is unable to provide a firm figure for the  ultimate cost. Total expenditure charged to the Community budget amounted, at end-1983, to 26,63  Mio ECU and total retentions at end-1982/83 came to 27,45 Mio ECU. >TABLE>(1) Council Regulation (EEC) N° 154/75   OJ L 19, 24. 1. 1975, p. 1. (2) OJ L 262, 18. 10. 1979, p. 11. (3) OJ L 360, 31. 12. 1980, p. 15.  ANNEX V THE RESULTS OF ANALYSES OF SAMPLES TAKEN IN ITALY 1.  The organoleptic  characteristics of one of the eight samples taken at the Bari centre, which was classified as  'fine', were such that it could only be classified as 'lampante'. The question is: did these  characteristics escape detection at the point of entry or were they the consequence of poor storage  conditions? Out of the seven other samples, only one remained after analysis in its nominal  category. 2.  The results of the analysis of the 15 samples of oil classified as 'fine' which had been taken  at the Lecce centre, that is to say, 13 mediocre 'semi-fine' oils and two poor 'lampante' oils,  suggest that the oils stored at this centre were systematically excluded from the reclassification  operation carried out six months earlier. 3.  The results of the analysis of the 10 samples taken at the Reggio Calabria centre were such  that, apart from a problem regarding the coverage of the spectrophotometric analysis, there are  grounds for seriously questioning whether the oil is stored with due care and attention,  particularly as far as the maintenance and cleaning of the storage installations is concerned. Now,  the fact is that(a)  in the case of two out of five samples of 'lampante' oil, the value of the  extinction coefficient at the final stage of the analysis, that is, after neutralisation and  decolorisation, was not within the limits established to define 'lampante' oil. In the absence of  any adequate analysis at the point of entry, this phenomenon cannot be explained; (b)  the ss-sitosterol content of three of these five samples of 'lampante' oil was far below the  regulation minimum of 93 %. If we assume that this characteristic (which is determined during each  analysis) met the regulation criteria at the point of entry, the reason for the deterioration must  be looked for in the storage conditions, for example:   (i)contamination by traces of olive-residue oil or old 'lampante' oil which had accumulated at  the bottom of the vat, or,  (ii)contact with the cement of damaged vat walls, and, (iii)in any case, lack of technical care and attention; (c)  the humidity and impurities levels of all five samples of olive-residue oil were far too high  (the water content alone was in excess of the limit of 2 % for the sample as a whole, whilst the  total water and impurities content for the sample as a whole varied from 2,9 to 4,0 %). The most  likely explanation is the accumulation of water and impurities at the bottom of the vat because the  vat had not been cleaned out. The presence of such contaminants greatly encourages acidification  and consequently a more rapid deterioration of the oil, and thus has a direct effect on the sales  price.