Proposal for a COUNCIL REGULATION (EC) regulating compensation for reductions in the agricultural conversion rates of certain national currencies
Date: 1995-05-16
Institutions: European Commission
Subjects: EU aid, State aid, agri-monetary policy, agricultural product, monetary compensatory amount, representative rate

COMMISSION OF THE EUROPEAN  COMMUNITIES 

Brussels,  16.05.1995 
COM(95)  173 final 

Proposal  for  a 

COUNCIL REGULATION  ŒC) 

regulating  compensation  for  reductions  in the agricultural  conversion  rates 

of certain  national  currencies 

(presented  by the Commission) 

EXPLANATORY  MEMORANDUM 

1.  The  monetary  gaps between agricultural  conversion rates and representative  market 
rates  have  exceeded  5%  since  24 February  1995 
the 
Belgian/Luxembourg franc and since  16 March  1995 in the case of the German mark, 
the  Dutch guilder  and the Austrian schilling. 

the  case  of 

in 

Since  5 April  1995 the  monetary  gap  for  the  Danish  krone  has  also  exceeded  5% 
compared with the average of the market rates for  the  10 preceding days. 

In  principle,  this  overrun  of  the  threshold  should  entail  an  adjustment  of  the 
agricultural  conversion rates so as to reduce the monetary  gap by half.  However, in 
the  case  of  positive  monetary  gaps,  and  in  accordance  with  Article 4  of  Council 
Regulation (EEC) No 3813/92, delay periods to confirm  the monetary situation have 
been  introduced  before  the  revaluation  mechanism  is  actuated.  The  purpose  of 
inserting  a  delay  before  the  agricultural  conversion  rates  are  reduced  is to  prevent 
measures  which  would  have multiannual  effects  from  being  triggered,  on  the  basis 
of  unstable  monetary  developments  which  on  their  own  could  reduce  the  positive 
monetary  gaps to" back  below  the 5% threshold. Thus for  the German  mark  and the 
Austrian  schilling,  market  rates  recorded  during  the  reference  period  ending  on 
24 April  1995  produced  an  average  of  less  than  5%.  By  contrast,  for  the  other 
currencies referred  to above, large monetary  gaps persisted, in some cases for  up to 
more  than  three  months.  In  the  period  from  February  to  June  1995  the  budgetary 
impact of this delay in Teducing the gaps for the currencies in question will be on the 
order  of ECU  10 million  to ECU  15 million per month. 

Over and above the consequences for the Community budget, difficulties  have arisen 
for  some economic operators as a result of changes in trade flows  brought about by 
the maintenance of agricultural conversion rates at unchanged levels, and uncertainty 
as  regards  possible  adjustments  to  the  rates.  These  agrimonetary  difficulties  have 
come on top of the wider monetary problems created by changes in the value of the 
dollar  and by tfoe sharp devaluation of some Community currencies. 

2.  In  accordance  with  the  agrimonetary  system  currently  in  force,  a  reduction  in 
agricultural  conversion rates opens up the possibility for the Member States  affected 
to introduce  compensilery measures. If there is a significant  fall  in the agricultural 
conversion rate, .they.-'cai) r&<pest two pre-estafolished mechanisms to be operated; 

- 

Pursuant ':*o  Article T  of  Heguiation  (EEC)  No 3813/92,  aid  payments  per 
hectare or per livestock  unit,  and aid of  a structural of environmental nature, 
can  be  increased  m ecus  so  as  to  prevent  any  fall  in  their  value  in  national 
currency. Since they are increased in ecus, they affect  all Member States, even 
those whose currencies have been  devalued. 

Pursuant to Article .8 of Regulation (EEC) No 3813/92, compensatory  aid  for 
income  losses due  to  agrimonetary  causes  can  be  granted  degressively  over 
three years, with Community part-financing, which as a rule is 50%. in the cases 
at issue here. 

The cost to the Community of implementing these pre-established  mechanisms could 
be of the order of ECU  1  000 million in  1996 and  1997, faïhVg gradually to produce 
permanent  expenditure  of approximately  ECU 750 millier, per annum  from  1999. 

Given  the  appropriation  requirements  of  the  EAGGF  Guarantee  Section  for  1996, 
additional agrimonetary  expenditure of the order of ECU  1 000 million is out of the 
question. 

3.  In general,  the high  level  of monetary  gaps is based at present  on a money  market 
situation which has lasted for almost three months. As a result, if gaps of more than 
5% were to be confirmed,  under the rules the agricultural conversion rates in question 
should  be  reduced  so  as to  alleviate  or  eliminate  their  effects  on  trade  flows.  The 
destabilising  effects  on  markets  become  more  marked  the  longer  the  gaps  are 
maintained. 

However,  Articles  7 and  8 of  Regulation  (EEC)  No 3813/92  cannot  be  applied  as 
they stand, mainly for budgetary reasons. Article  9 provides the basis for a derogation 
from  these two Articles by stipulating that  in the event  of a substantial  revaluation, 
the Council, acting by a qualified  majority  on a proposal from  the Commission, is to 
decide  on  all  necessary  measures.  It  also  provides,  primarily  to  comply  with 
obligations  arising out of the GATT Agreement  and budgetary  discipline, that  such 
measures  may  involve  derogations  on  aid  and  the  amount  by  which  the  monetary 
gaps are dismantled, although these derogations must not result in the threshold being 
widened. 

4.  If,  for  the  reasons  outlined  above,  unconditional  use of  Article  7 must  be  avoided, 
compensation  on the  lines of the system provided for  in Article  8 appears to be the 
appropriate  measure  to  alleviate  the  effects  of  a  revaluation  of  the  agricultural 
conversion  rates  in  question.  To  implement  such  an  approach,  the  Commission's 
proposal  is based on the three following  principles: 

the  compensatory  measures  must to used  to  meet  actual  income  losses  in the 
light of price  movements over the past few years; 
the  compensatory  measures  must  not  increase  resource  requirements  for  the 
EAGGF beyond  the  possibilities laid down by budgetary  discipline; 
the compensatory  measures must not lead to overcompensation and, in general 
and  mainly,  must  therefore  be  applied  degressively  and  as  a  temporary 
measure. 

Thus,  the  overall  amount  of  compensatory  aid  proposed  for  each  Member  State 
concerned  has been established  in accordance  with agricultural  income  statistics for 
1994, on the basis of the following  factors: 

(a) 

the  reduction  in  agricultural  conversion  rates  will  be  reflected  directly  in 
intervention  prices and therefore  in the value of cereals, sugar beet,  beef/veal 
and milk products. For the other agricultural produce of the Member  States in 
question,  no  intervention  prices  exist  and  the  effect  of  the  agrimonetary 
situation on market  prices has been very  slight or zero. 

In  addition,  the  fall  in  the  value  of  feed  grains  represents  a  fall  in  input  costs 
in  the  livestock  production  sector. 

(b)  Most  aid  granted 
developments. 

to  farmers 

is  directly  affected  by 

the  agrimonetary 

However,  the  aids  awarded  as  part  of  the  reform  of  the  common  agricultural 
policy  were  determined  on  the  basis  of  a  fall  in  Community  prices  which  has 
not  been  followed  by  market  prices.  In  the  particular  case  of  oilseeds,  the 
reduction  in  aid  per  hectare  has  been  considerably  smaller  than  the  rise  in 
market  prices. 

Thus, in the case of cereals, oilseeds, protein plants, flax,  beef/veal  and the  set-
aside  scheme,  the  agrimonetary  reduction  in  aid  in  national  currency  is  not  a 
real  income  loss. 

As a result, the aid to farmers which would be taken  into account for  estimating 
income  losses  consists  of  aids  per  hectare  other  than  that  referred  to  in  the 
preceding  paragraph,  aids  or  premiums  of  a  structural  nature,  and  aid  in  the 
sheepmeat,  tobacco  and  seeds  sectors. 

The overall  amount of compensatory aid thus calculated represents the impact on total 
agricultural  income  of  the  Member  State  in  question  for  a  1%  reduction  in  the 
agricultural  conversion  rate. 

However,  since  agrimonetary  variations  of  less than  2%  do  not have  any  detectable 
significant  impact  on  market  prices,  even  if  there  is  an  intervention  mechanism  in 
operation, 
the  first 
it  is  proposed  not  to  award  any  compensatory  aid  for 
one  percentage  point  of  reduction  in the  agricultural  conversion  rate. 

In  addition,  in  the  case  of  the  Belgian/Luxembourg  franc  and  the  Danish  krone,  the 
effects  of the devaluations of those currencies in 1993 still persist. In accordance  with 
Article  1(e)  of  Regulation  (EEC) No  3813/92,  reductions  in  agricultural  conversion 
rates  are  substantive  only  in  the  case  of  rates  less  than  BFR/LFR  40.4192  or 
DKR  7.53835.  Consequently,  the  effects  on  incomes  of  a  fall  in  agricultural 
conversion  rates  are  considered  to  be  compensated  a  priori  by  1.015  percentage 
points  in  the  case  of  Belgium  and  Luxembourg  and  2.626  percentage  points  in  the 
case  of  Denmark. 

5. 

In  accordance  with  the  principle  laid  down  in  Article  8  of  Regulation  (EEC)  No 
3813/92, the compensatory  aid  is to be granted  degressively over three years and  the 
Community  contribution  to  the  financing  thereof  is  to  be  adjusted  in  line  with 
requirements  and  regional  possibilities. 

In  order  to take  account  of the  special  importance  of certain  amounts  affected  by  the 
reduction  in  the  agricultural  conversion  rate,  part  of  the  income  loss  to  be  offset 
during  the  three  years  the  aid  is  granted  will  be  impossible  to  reduce  and  this  is  to 
be  financed  fully  by  the  Community. 

Furthermore,  should  an  examination  of  the  situation  indicate  a  continuing  loss  of 
agricultural  income,  the  period  during  which  the  aid  is  granted  could  be  extended. 
The  supplement  to  be  determined  as  and  when  the  need  arises  would  be  limited  to 
two additional  annual tranches, the amount not exceeding  that granted under the last 
tranche. 

6.  The  aid  of  a  structural  or  environmental  nature  fixed  by  the  Council  and  granted 
under  the  accompanying  measures » of  the  CAP  reform  generally  fall  within 
multiannual  programmes. In order to avoid calling into question programmes already 
agreed,  it  is proposed  to extend  the application  of  Article  6(3)  of  Regulation  (EEC) 
No 3813/92 without reducing the financing  of the annual tranches of the aid granted 
prior to  1996. 

On the basis of the principles set out above and the monetary situation on 25  April  1995, 
the  financial  impact  of  the  proposal  on  the  Community  budget  in  relation  to  the 
preliminary draft budget for  1996 results in additional expenditure of ECU  11 million for 
1996,  which  is  compatible  with financial and international  constraints. 

The  measures to  be taken  necessarily  involve  the  Community  level  since  this is  an area 
which is the exclusive responsibility of the Community.  The approach is in line with the 
general  objective  of  applying  the  common  agricultural  policy  in a uniform  manner and 
adapts  the  provisions  already  planned  by  the  Council  to  take  account  af  the  current 
special  situation. 

Proposal for a 

COUNCIL  REGULATION (EC) No ..../.. 

of....... 

regulating  compensation  for  reductions  in the  agricultural  conversion  rates 
of  certain  national  currencies 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the  European  Community, 

Having regard to the proposal  from  the  Commission, 

Having  regard  to  Council  Regulation  (EEC)  No  3813/92  of  28  December  1992 on  the 

unit  of  account  and  the conversion  rates to be applied  for  the purposes of the  common 

agricultural  policy , as  last  amended  by  Regulation  (EC) No  150/95 , and  in  particular 

Article 9 thereof, 

Whereas there  is a risk  of substantial reductions  in the agricultural  conversion rates  for 

the Belgian/Luxembourg franc,  the  Danish krone, the  German mark,  the  Dutch  guilder 

and  the  Austrian  schilling; whereas  monetary  gaps  greater  than  5% have  already  been 

recorded  for  these currencies  over  several  reference  periods;  whereas  it  is necessary  to 

take  steps  at  Community  level  to  prevent  distortions  in  the  implementation  of  the 

common agricultural policy due to monetary causes; 

Whereas, in order to curtail the risk of distortions to trade flows caused by the monetary 

gaps of the said currencies, these gaps should be reduced if they prove to be still over 5% 

by the end of the reference  periods  introduced  to confirm  the monetary  situation; 

1  OJNoL387,  31.12.1992, p.  1. 
2  O J N o L 2 2,  31.1.1995, p.  1. 

6 

Whereas  Article  9 of  Regulation  (EEC)  No  3813/92 provides  for  a Council  decision,  in 

the event  of an appreciable  re-evaluation, primarily  to comply with obligations  under  the 

GATT agreement and budgetary discipline, on all necessary measures, which may  involve 

derogations  from  the provisions of the said Regulation  concerning  aid and the amount  by 

which  the  monetary  gaps  are  dismantled,  without,  however,  resulting  in  the  threshold 

being  extended;  whereas  the  measures  provided  for  in  Articles  7  and  8  of  the  said 

Regulation  cannot  be  applied  as they  stand;  whereas,  however,  compensation  for  losses 

of  income  caused  by  a  reduction  in  agricultural  conversion  rates  needs  to  be  provided, 

while  taking  into  account  on  a  flat-rate  basis  the  effects  of  the  1993  devaluations,  the 

movements  of prices in real  terms  for  products  qualifying  for  compensatory payments  as 

part  of  the  reform  of  the  common  agricultural  policy,  and  the  acknowledged  sensitivity 

of  market  prices  and  incomes  to  agrimonetary  adjustments; 

Whereas  the  Community  financial  assistance  must  be  adjusted  having  regard  to  the 

situation  in  the  Community  regions  covered  by  Objective  1  within  the  meaning  of 

Council  Regulation  (EEC)  No  2052/88  of  24  June  19883  and  of  the  special  importance 

of  certain  amounts  affected  by  the  reduction  in  the  agricultural  conversion  rates; 

Whereas  the  multiannual  aid  granted  under  the  accompanying  measures  for  the  reform 

of  the  common  agricultural  policy  under  Council  Regulations  (EEC)  Nos  2078/92  , 

2079/925  and  2080/926  of  30  June  1992  may  not  decrease  in  terms  of  national  currency 

without  the programmes  concerned  being  called  in  to  question; 

Whereas there should be provision  for  extending the compensatory aid granted  over  three 

successive twelve-month  periods should the duration  of the effects  of the reduction  in the 

agricultural  conversion  rates  in  forthcoming  years  so  require, 

HAS  ADOPTED  THIS  REGULATION: 

3  O J N oL  185,  15.7.1988, p.  9. 
4  OJ  No  L  215,  30.7.1992,  p.  85. 
5  OJ  No  L  215,  30.7.1992,  p. 91. 
6  OJ  No  L  215,  30.7.1992,  p.  96. 

* 

Article 1 

This Regulation shall apply in the event of reductions  in agricultural  conversion rates in 

accordance with Article 4 of  Regulation (EEC) No 3813/92 introduced before  1 January 

1996. 

Article 2 

1.  In the  event  of a reduction  in agricultural  conversion  rates  as referred  to in Article 

1, the Member  State affected  may make compensatory payments to farmers  in three 

successive  tranches  lasting  12 months  each,  starting  with  the  month  following  the 

relevant reduction in the agricultural conversion rate. These compensatory payments 

shall not take the  form  of  aid  linked to production,  other  than production  during  a 

stipulated period  prior  to  introduction  of  the  compensation  scheme;  they  shall  not 

favour  any particular  type of production  or be dependent  on production  subsequent 

to the period stipulated. 

2.  The total compensatory aid in the first twelve-month tranche shall not be more than: 

ECU  19.9 million  in the case of Belgium, 

ECU 21.7 million  in the case of  Denmark, 

ECU  136.1 million  in the case of Germany, 

ECU  1.5  million  in the case of  Luxembourg, 

ECU 40.6 million  in the case of the Netherlands, 

ECU 21.5 million  in the case of Austria, 

to  be  multiplied  by the  reduction  in the  agricultural  conversion  rate  referred  to  in 

Article  1 expressed  as a  percentage,  less  2.015  percentage  points  in respect  of the 

Belgian/Luxembourg franc,  3.626  percentage  points in respect  of the  Danish krone 

and  1.000 percentage points in respect of the currencies of all other Member States. 

3.  The amounts paid out  in the second and third tranches shall not exceed the amount 

paid out in the previous tranche in each case, less at least a third of the amount paid 

out in the first. 

Ô 

However,  total  compensatory  aid  under  each  tranche  may always  be granted  up to: 

ECU  1.9  million  in the case of Belgium, 

ECU 6.4  million  in the case of  Denmark, 

ECU 40.7 million  in the case of Germany, 

ECU 0.1 million  in the case of  Luxembourg, 

ECU 2.1 million  in the case of the Netherlands, 

ECU 4.7 million  in the case of Austria, 

to be multiplied  by the reduction  in the relevant agricultural  conversion rate. 

4.  The Community  contribution  to financing these compensatory  payments  shall be: 

75% of the amounts actually paid out to farmers  in Objective  1 regions within 

the meaning  of Article  1 of  Regulation (EEC) No 2052/88; 

50% of  the amounts actually paid  out  in all other cases. 

However, the Community shall  finance  100% of the total compenattory  aid  referred 

to in the  second subparagraph of paragraph 3. 

For the purposes of the financing of the common agricultural policy, this contribution 

shall  be considered  to form  part of the assistance designed  to regularize  agricultural 

markets. 

5.  The  Commission  shall  adopt  detailed  rules  for  applying  this  Article  in  accordance 

with the procedure provided  for  in Article  12 of Regulation (EEC) No 3813/92. 

Article 3 

1.  Article  6(3)  of  Regulation  (EEC)  No  3813/92  shall  apply  to  aid  granted  before 

1 January  1996 under  Regulations (EEC) Nos 2078/92, 2079/92 and 2080/92. 

2.  Articles  7 and  8 of  Regulation  (EEC) No 3813/92 shall  not apply  to the reductions 

in agricultural  conversion  rates referred  to  in Article  1 of this  Regulation. 

Article 4 

Before  the  end  of  the  third  period  during  which  the  compensatory  aid  is  granted,  the 

Commission  shall  examine  the  effects  on  agricultural  income  of  the  reductions  in 

agricultural  conversion  rates as referred  to in Article  1. 

Where it is established tint  income  losses are likely to continue, the Commission may, 
in  accordance  with  the  procedure  laid  down  m  Article  12  of  Regulation  (EEC)  No 

3813/92, extend  the  possibility of  granting  compensatory  aid as provided  for  in Article 

2  by  a  maximum  of  two  additional  twelve-month  tranches,  the  maximum  amount  per 

tranche being equal to that granted  in the third tranche. 

Article 5 

This Regulation  shall enter  into force  on 3 June  1995. 

This  Regulation  shall  be  binding  in  its  entirety  and  directly  applicable  in  all  Member 

States. 

Done at 

, 

For the Council 

/  o 

FINANCIAL  STATEMENT 

1. 

BUDGET HEADING  : 322 (390 in  1996) and virtually  all lines of the EAGGF  Guarantee 

APPROPRIATIONS  :  p.m.  (article  322) 

2. 

TITLE 

Council  Regulation fixing compensation  relating to  reductions  in the agricultural  conversion  rates for  certain  currencies 

LEGAL  BASIS : 

Article  9 of  Regulation  (EEC)  No 3813/92 

AIMS : 

Fixing of a degressive  aid, cofinanccd  by  the Community  budget, compensating  the income  loss of  producers following  the 
reduction of agricultural  conversion  rates 

5. 

FINANCIAL  IMPLICATIONS 

5.0 

5 1 

EXPENDITURE  CHARGED  TO 
- THE  EC BUDGET 

(REFUNDS/INTERVENTIONS) 
- NATIONAL  ADMINISTRATION 
-OTHER 

REVENUE 
- OWN RESOURCES  OF THE EC 
(LEVIES/CUSTOMS  DUTIES) 

- NATIONAL 

5.2 

METHOD  OF CALCULATION  : 

PERIOD  OF 
12 MONTHS 

Mio ECU 

CURRENT 
FINANCIAL 
YEAR  (95) 
Mio ECU 

FOLLOWING 
FINANCIAL  YEAR 
(96) 
Mio ECU 

p.m. 

+  11 
+  109 

6.0 

6.1 

6.2 

6.3 

CAN THE PROJECT BE FINANCED  FROM APPROPRIATIONS  ENTERED  IN THE  RELEVANT 
CHAPTER  OF THE  CURRENT  BUDGET  ? 

YES /-NO 

CAN THE PROJECT  BE FINANCED  BY TRANSFER  BETWEEN  CHAPTERS  OF THE 
CURRENT  BUDGET  ? 

WILL  A SUPPLEMENTARY  BUDGET BE NECESSARY  ? 

WILL FUTURE  BUDGET  APPROPRIATIONS  BE NECESSARY ? 

YES / NO 

YES / NO 

YES/NO 

OBSERVATIONS  : 

In the present  situation, assumptions  must be  made  in order to estimate  the financial impact  of this proposal. 
The calculations  are based  on the  monetary  gaps of 25 April  1995, in  relation  to the representative  market  rates of  the preceding  10 
days and arc 6.899  for  the  BLF, 5.984 for  the  DKR, 5.818 for the HFL, 5.214 for  the  DM, 5.221 for  the Os. 
On the basis of the  monetary  gaps referred  to above and  taking account  of the franchises,  the cost to the budget  for  these 6 Member 
Slates would be  253 Mio ECU  for  1996. 
The cost of the non-reduction  in the agricultural  conversion  rates for  the accompanying  measures  may  be estimated  at a  maximum 
of  7 Mio ECU  for  1996.  This amount  should be considered  as maximum  since  for certain measures  and certain programmes,  the 
amounts fixed remain below the ceilings. 
It sould be noted  that  the  reduction  in the  ACR for  the Member  States concerned  also  leads to a saving under the  DR which, for  all 
of the chapters of the EAGGF  Guarantee, may  be estimated  at about  249 Mio ECU  compared  to the PDB 96. 
This measure therefore  leads to a saving estimated  at  11 Mio ECU  in 1996. 

I) 

ISSN 0254-1475 

COM(95) 173  final 

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