Proposal for a Council Regulation (EC) amending Regulation (EC) No 724/97 determining measures and compensation relating to appreciable revaluations that affect farm incomes
Date: 1998-03-06
Institutions: European Commission
Subjects: agri-monetary policy, farmers' income, financial equalisation, monetary compensatory amount, representative rate

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels,  06.03.1998 
COM(1998) 109 final 

Proposal for a 

COUNCIL REGULATION (EC) 

amending Regulation (EC) No 724/97 determining measures and compensation 
relating to appreciable revaluations that affect farm incomes 

(presented by the Commission) 

EXPLANATORY  MEMORANDUM 

1.  Council  Regulation  (RC)  No  724/97  of  22  April  1997  determines  measures  and 

compensation  relating  to appreciable  revaluations of the agricultural  conversion  rate 

that affect  farm  incomes. 

It is  based  on  Article  9  of  Council  Regulation  (EEC)  No  3813/92  of  28  December 

1992,  which  provides,  among  other  things,  that  in  the  event  of  an  appreciable 

revaluation,  the  Council,  acting  by  a  qualified  majority  on  a  proposal  from  the 

Commission,  shall  decide  on  all  necessary  measures,  which  may 

involve 

derogations from the provisions concerning aid. 

2.  Regulation  (EC)  No  724/97  applies  only  to  appreciable  revaluations  occurring 

between  1 January  1997 and the end of the twelfth  month  following  its  publication, 

i.e. 30 April  1998. 

Consequently,  the Commission  finds  it necessary  to send  the Council  a proposal  for 

a  Regulation  to  cover  the  period  up to  31  December  1998,  the  last  date  before  the 

introduction of the euro. 

This proposal  does not merely  reproduce the provisions  of Regulation No  724/97  by 

extending  its period of validity; it also introduces improvements required in the light 

of experience  in the course of  1997. 

The main  purpose  of  these  changes,  which  do  not  change  the  basic  features  of  the 

present  system,  is  as  far  as  possible  to  avoid  overcompensation  by  taking  closer 

account of the impact of agri-monetary  movements on income  loss. 

3.  The following  changes are proposed. 

3.1. 

The  observation period,  after  which  the maximum  amount  of  compensatory 

aid may be reduced or cancelled, should be adapted. 

For  Member  States  participating  in  the  single  currency,  there  will  be  no 

further  currency  movements  after  31  December  1998.  It  is  therefore 

proposed that observation periods should end on that date. 

For  the  Member  States  that  do  not  take  part  in  the  single  currency  from  1 

January  1999, the observation period may extend beyond that date. 

Since  this  proposal  also  introduces  arrangements  for  taking  account  of  the 

market  situation  as  well  as  the  development  of  green  rates  (see  the  next 

point), the observation period ought to be longer than the present six months. 

The  most  appropriate  period  is  one  year,  as  this  covers  a  complete 

production  cycle.  However,  to  avoid  too  long  a  delay  in  granting  aid  to 

producers who  have  incurred a loss of  income,  it is proposed  to  compromise 

by adopting a nine-month observation  period. 

Where appreciable  revaluation  occurs  in the course of the observation  period 

for  an  earlier  appreciable  revaluation,  the  entire  observation  period  should 

not  expire  until  the  end  of  the  third  month  following  that  of  the  last 

revaluation. 

3.2. 

The system governed by Regulation (EC) No 724/97  involves calculating the 

maximum  compensation  as  a  function  of  the  percentage  of  the  appreciable 

revaluation.  In  order  to  ensure  continuity  between  present  rules  and  the 

proposed  new  system,  it  is  not  suggested  that  this  method  of  calculation 

should  be changed.  Improvements  do,  however,  need  to  be  made  to  the  way 

reductions  or  cancellations  of  the  maximum  amount  of  aid  are  calculated, 

both  lor the initial  amount and for the two subsequent tranches. 

At  present, a decision  to  reduce or cancel  tranches  may  be taken only  in the 

light of the effect  on  incomes  of the development  of  agricultural  conversion 

rates observed over a certain period. 

In  practice,  this  means  that  an  increase  in  the  green  rate  following  an 

appreciable revaluation may  lead to a reduction in the amount of aid, or even 

cancellation of one or more tranches. 

Under  the  proposed  new  rules,  reductions  or cancellations  of  the  maximum 

aid  or the  second  or third  tranches  could  be decided  not  only  in the  light  of 

agricultural  conversion  rates, but also in the light of the market situation. 

This  is  a  considerable  improvement:  it  is  difficult  to  assess  the  real 

repercussions of changes in green rates on  farm incomes, for the green rate is 

only  one  factor, and not the most important,  in the formation  of prices.  Only 

rarely  is  there  a  direct  and  measurable  link  between  the  green  rate  and  the 

market  price  in  a  given  Member  State.  This  may  be  the  case,  for  example, 

when  the  market  price  closely  follows  the  intervention  price,  or  when  a 

revaluation  occurs  at  a  key  point  in  the  production  or  marketing  cycle  of  a 

product.  But  in some  agricultural  sectors, currency  movements  may  have  no 

visible or demonstrable effect  on  market prices.  In such cases, the rules must 

provide  for  the  possibility  of  reducing  aid  selectively,  depending  on  the 

sector concerned. 

The  idea  is  not  to  achieve  an accurate  and precise  quantification  of  income 

loss,  which  would  be  impossible,  but  rather to  ensure  that the  rules  include 

sufficiently  simple  criteria  to  provide  a  legal  basis  for  refraining  from 

payment  of  compensation  where  it  seems  most  probable  that  the  agri-

monetary  movement  has  had  no  impact  on  incomes.  These  are  cases  where 

the  income  loss  is  not  apparent  in  market  statistics,  or  where  there  is  no 

possible  explanation  of  the  way  the  revaluation,  on  the  date  when  it 

occurred, could  have affected  farm  incomes. 

In  accordance  with  this  approach,  there  are  two  ways  of  taking  account  of 

the market situation. 

3.2.1. 

I'irst,  when  a green  rate declines  in a Member  State  following  an 

appreciable  revaluation,  market  prices  in  that  Member  State 

should  decline  in  relation  to  market  prices  observed 

in  the 

Member  States  whose  currency  was  not  revalued.  If, 

in  a 

particular  sector,  a  comparison  of  market  prices  in  the  Member 

State  concerned  and  the  other  Member  States  shows  no  relative 

decline,  it  is  very  difficult  to  argue  that  income  has  been  lost 

owing  to  agri-monetary  movements.  In  that  case,  compensation 

based  solely  on  the  development  of  green  rates  would  most 

probably  lead  to overcompensation,  which  would  not  only  result 

in budget expenditure, but might also distort competition. 

To  avoid  this,  the  amount  of  aid  could  be  reduced,  in  a  given 

sector,  when,  over  the  observation  period  or  over  the  period 

between the beginning of the preceding tranche and the  beginning 

of  the  month  preceding  the first month of the tranche  concerned, 

the market price  for the Member  State concerned  was  on  average 

equal  to  or higher  than  the  average  market  prices  in the  Member 

States whose currencies had not been appreciably  revalued during 

the same period. 

3.2.2. 

The  approach  described  in  the  preceding  paragraph  is  based  on 

statistical  observation  of  market  prices.  It  would  be  helpful  to 

take  account  not  only  of  a statistical  approach to  prices,  but  also 

of  mechanisms  through  which  the  impact  of  a  revaluation 

occurring  at a specific  time  is  passed  on  to  agricultural  markets, 

or not as the case may  be. This means taking  account of the point 

in  the  production  or  marketing  cycle  at  which  the  appreciable 

revaluation  occurs.  More  specifically,  if  all  the  operative  events 

in  an  aid  scheme  had  already  occurred  by  the  time  the  agri-

monetary  movement  took  place,  this  would 

imply  that  the 

revaluation  had not had a negative  impact on market prices or on 

incomes.  In that  case,  aid  should  be  cancelled  for  that  particular 

sector, although possibly  only for production in certain months  of 

the period concerned. 

Obviously,  if  the first tranche  of  aid  is  cancelled  or reduced,  the 

automatic  reduction  of  one  third  for  the  second  tranche  and  two 

thirds  for  the  third  tranche  will  be  calculated  without  taking 

account  of  the cancellation  or reduction  of  the first tranche,  since 

an  appreciable  revaluation  whose  impact  on  the  current  farming 

year  was  nil  because  of  the  date  on  which  it  occurred  may  still 

affect  subsequent  years.  Therefore,  reducing  or  cancelling  the 

first  tranche  in  accordance  with  the  "operative  event"  criterion 

should not automatically affect subsequent tranches. 

3.3. 

Under  present  rules,  no  aid  is  paid  for  appreciable  revaluations  where  the 

appreciable part of the revaluation is less than 0.5%. 

It  is  proposed  to  increase  that  percentage,  to  prevent  excessively  small 

currency  movements  from setting off the compensation  mechanism. 

Following  an  appreciable  revaluation,  the  monetary  gap  will  be  reduced  by 

at  least  2.5%,  because  of  the  permitted  margin  of  5%,  which  leads  to  the 

monetary  gap  being  divided  by  two  after  the  confirmation  period.  The 

appreciable  part of  the  revaluation  will  be  at  most  2.56%,  corresponding  to 

halving  of the monetary  gap (reduction  by 2.5  points). The slight disparity  is 

due  to  the  fact  that  the  appreciable  part  of  the  revaluation  is  expressed  as  a 

percentage  of  the  green  rate,  rather than  as  a percentage  point  reduction  in 

the gap. 

Since  the  rules  allow  guaranteed  prices  to  be  overvalued  by  up  to  5% 

without  any  consequences,  it  is  reasonable  to argue that,  correspondingly,  a 

readjustment  of  the  green  rate  where  the  permitted  margin  is  exceeded 

should  not  give  rise  to  compensation  for  the  analogous  part  of  the 

appreciable  revaluation. 

The  Commission  therefore  proposes  to  the  Council  that  appreciable 

revaluations  should  be  ignored  if  the  appreciable  part  of  the  revaluation  is 

not more than 2.6% (round figure). 

Under present  rules, the  0.5% is  not treated  as a neutral  margin,  but  carried 

over to the next  revaluation.  The wording  of the provision  must be  changed, 

so that the part of the revaluation that does not exceed 2.6% is  ignored rather 

than carried over. The  idea of carrying over appreciable revaluations  is  much 

less  significant  in  the  context  of  a  system  that  is  not  to  remain  in  force 

beyond  31  December  1998.  However,  if  several  successive  revaluations 

occurred  between  the  entry  into  force  of  this  Regulation  and  31  December 

1998,  the 2.6% margin  would  apply  to the aggregate  revaluation  rather than 

to each revaluation  separately. 

4.  As Regulation (EC) No  724/97  applies only to revaluations occurring up to 30 April 

1998, this proposal  should come into force by  1 May  1998 at the latest. 

Proposal for 

COUNCIL REGULATION (EC) No .... 

of 

amending Regulation (EC) No 724/97 determining measures and compensation 
relating to appreciable revaluations that affect farm incomes 

TI IE COUNCIL Or  Tl IE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, 

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  policy1, and in particular Article 9 thereof, 

I laving regard to the proposal from  the Commission, 

Whereas Council  Regulation (EC) No 724/97 of 22 April  19972 determines measures and 

compensation  relating  to appreciable  revaluations of the agricultural  conversion  rate that 

affect  farm  incomes; whereas that  Regulation  does not apply  to appreciable  revaluations 

that may occur after  30 April  1998; whereas it should  therefore  be amended  to cover any 

revaluations that may occur in the period up to the introduction of the single currency; 

Whereas Article 4(3) of Regulation (EC) No 724/97 provides that the maximum  amount 

of  aid  may  be  reduced  or  cancelled  as  a  function  of  the  effect  on  income  of  the 

development  of  agricultural  conversion  rates  recorded  during  a  certain  observation 

period; whereas in order to avoid compensation  that is excessive in relation to the loss of 

income actually  incurred, it is also necessary to take account of the market situation; 

1  OJ L 387, 31.12.1992, p. 1. Regulation last amended by Regulation (EC) No 150/95. 

2  OJL  108,25.4.1997, p.9. 

8 

Whereas  the  introduction  of  the  single  currency  on  1 January  1999  will  put  an  end  to 

fluctuations  in agricultural  conversion rates for the Member States participating; whereas 

it  is  therefore  appropriate  to  end  the  observation  period  for  those  Member  States  on  31 

December  1998; 

Whereas  the  observation  period  for  the  other  Member  States  may  extend  beyond  31 

December  1998;  whereas,  since  the  market  situation  is  to  be  taken  into  account,  it  is 

helpful  to extend  the observation  period  to nine  months  instead of six, and to provide  for 

a  further  extension  if a subsequent  appreciable  revaluation  occurs during the  observation 

period  for the preceding appreciable  revaluation; 

Whereas  application  of  Article  4  of  Regulation  (EEC)  No  3813/92  means  that  the 

agricultural  conversion rate may not decline by less than 2.56%; whereas, to limit the risk 

of  excessive  compensation  in cases  of  small  appreciable  revaluations,  aid  should  not  be 

granted for the amount corresponding to an appreciable part of less than 2.6%; 

Whereas decisions to reduce or cancel  the second and third tranches should also  be taken 

in the light of the market situation; 

Whereas  the  method  of  taking  the  market  situation  into  account  should  be  defined; 

whereas  this  method  may  involve  comparing  the  development  of  market  prices  in  the 

Member  State  whose  currency  has  been  appreciably  revalued  with  those  in  the  Member 

States  whose  currencies  have  not  been  appreciably  revalued  during  the  observation 

period,  and  by  considering  how  far operative  events  in the  various  sectors  have  already 

occurred on the date of the appreciable revaluation, 

HAS ADOPTED THIS REGULATION: 

Article  1 

Regulation (EC) No 724/97  is amended as follows: 

1.  Article  1( 1 ) is replaced by the  following: 

"1.  This  Regulation  shall  apply  in  the  event  of  appreciable  revaluations  occurring 

from  1  January  1997 and before  1  January  1999." 

2.  Article 4  is amended  as  follows: 

(a) 

The  following  is  added  to  the  first  subparagraph  of  paragraph  3:  "and 

taking  account,  in  the  amount  calculated  in  accordance  with  the  lirst 

indent  of  paragraph  2,  of  the  market  situation  during  that  period."  The 

second  and  third  subparagraphs  arc replaced  by  the  following: 

"For  the  currencies  of  the  Member  States  that  adopt  the  single  currency 

pursuant 

to  the  Treaty,  the  observation  period  shall  expire  on  31 

December  1998.  For  the  other  currencies,  the  observation  period  shall 

expire  at  the  end  of  the  ninth  month  following  that  of  the  appreciable 

revaluation.  However,  where  an  appreciable  revaluation  occurs  in  the 

course  of the observation  period  for  an  earlier  appreciable  revaluation,  the 

entire  observation  period  shall  not  expire  until  the  end  of  the  third  month 

following  that  of the last  revaluation. 

I lowcver,  no aid  shall  be granted  for  that  portion  of  the amount  calculated 

in  accordance  with  the  first  subparagraph  of  paragraph  2  and  the  first 

subparagraph  of  this  paragraph  equal  to  not  more  2.6% of  the  appreciable 

revaluation  occurring  between  the  entry  into  force  of  this  Regulation  and 

31 December  1998." 

(b) 

The  following  sentence  is  added  to  the  first  subparagraph  of  paragraph  4: 

"However,  in  cases  where  the  amount  of  the  first  tranche  of  aid  is 

calculated  by  applying  the  second  subparagraph  of  paragraph  4a(b),  the 

reduction  of  at  least  one  third  shall  be  calculated  on  the  basis  of  the 

amount  of  the  lirst  tranche  that  would  have  been  granted  if  the  second 

subparagraph  of paragraph 4a(b) had  not been  applied." 

(c) 

The  following  is  added  to  the  second  subparagraph  of  Article  4(4)  "and 

taking  account,  in  the  amount  calculated  in  accordance  with  the  first 

subparagraph  of paragraph 2, of the market  situation during that  period." 

10 

(d) 

The following  paragraph 4a is inserted: 

"The  market  situation  shall  be  taken  into  account  pursuant  to  the  first 

subparagraph  of  paragraph 3 and the  second  subparagraph  of  paragraph  4 

in accordance with the following  method: 

The  amount  of  one  or  more  tranches  in  one  or  more  sectors  may  be 

reduced when it has been observed that: 

(a) 

over  the  observation  period  referred  to  in  paragraph  3  or  over  the  period 

between  the  beginning  of  the  preceding  tranche  and  the  beginning  of  the 

month  preceding  the  first  month  of  the  tranche  concerned,  the  market 

price  for  the  Member  State  concerned  was  on  average  equal  to  or  higher 

than the average  market prices  in the Member States whose currencies had 

not been appreciably revalued during the same period 

or 

(b) 

the relation  between  the dates of  operative  events  in the  sector  concerned 

and  the  date  of  the  appreciable  revaluation  is  such  that  there  is  no 

justification  for concluding  that the revaluation had an impact  throughout 

the period considered. 

for  the  purposes  of  point  (a),  market  prices  shall  be  compared  using  an 

index of base  100 for market prices  in national  currency on the date of the 

appreciable  revaluation." 

11 

Article 2 

This Regulation shall  enter  into  force  on the seventh  day  following  its publication  in the 

Official Journal of the European Communities. 

This Regulation shall apply to appreciable revaluations occurring from  1  May 1998. 

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

States. 

Done at Brussels, 

For the Council 

The President 

12 

FINANCIAL  STATEMENT 

BUDGET  HEADING:  390 

APPROPRIATIONS: 
ECU  505  million 

TITLE: 
Proposal  for  a Council  Regulation  amending  Regulation  (EC)  No  724/97  determining  measures  and  compensation  relating 
to appreciable  revaluations  that affect  farm  incomes 

LEGAL  BASIS: 
Article  9 of Council  Regulation  (EEC)  No  3813/92 

AIMS: 
1. To extend  Regulation  (EC)  No 724/97  lo cover  the  period  I  May  1998 to 31  December  1998. 
2. To  introduce  a number  of amendments,  while  maintaining  the essentials  of  the arrangements,  in order  to  better  evaluate 
the  impact  of agri-monetary  movements  on  incomes  and  thus  limit, as  far  as possible,  overcompensation. 

2. 

3. 

4. 

5. 

FINANCIAL  IMPLICATIONS 

5.0 

5.1. 

EXPENDITURE 
-  CHARGED  TO  THE  EC  BUDGET 
(REFUNDS/INTERVENTION) 

-  NATIONAL  AUTHORITIES 
-  OTHER 

UUV44N44U 
- 

( W N R U S O t W ( 4 * ^ ) I ^ T H l v UC 
(I^VWX/CWKTOMS DUT4KK) 

-  NATIONAL 

5.0.1 
5.1.1 
5.2 

ESTIMA TED  EXPENDITURE 
ESTIMATED  REVENUE 
METHOD  OF  CALCULATION: 

PERIOD  OF  12 
MONTHS 

(ECU  million) 

CURRENT 
FINANCIAL 
YEAR 
(98) 
(ECU  million) 

FOLLOWING 
FINANCIAL 
YEAR 
(99) 
(ECU  million) 

(I) 

(1) 

2000 
(I) 

2001 
(0 

2002 

2003 

6.0 

6.1 

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

6.2 
6.3 
OBSERVATIONS: 
( I ) 

The possible  budgetary  impact  of  this proposal  depends  on  future  monetary  movements  and  is therefore  impossible  to 
estimate  at  this stage.  However,  since  it tightens  the conditions  for  the granting  of compensatory  aid  in  the  event  of 
appreciable  evaluations  of one  or  more  agricultural  conversion  rates, the  proposal  should  reduce  spending  compared  with  a  . 
simple  extension  of  Regulation  (EC)  No  724/97. 

YES/NO 

YES/NO 

YES/NO 
YES/NO 

!3> 

ISSN 0254-1475 

COM(98) 109 final 

DOCUMENTS 

EN 

03  04  17 

Catalogue  number  :  CB-CO-98-lll-EN-C 

ISBN  92-78-31372-6 

Office  for Official  Publications of the European Communities 

L-2985 Luxembourg 

uf