Special Report No 1/99 concerning the aid for the use of skimmed-milk and skimmed-milk powder as animal feed, accompanied by the Commission's replies
Date: 1999-03-25
Institutions: European Court of Auditors
Subjects: EU aid, animal nutrition, skimmed milk, skimmed milk powder

27.5.1999

EN

Official Journal of the European Communities

C 147/1

I

(Information)

COURT OF AUDITORS

concerning the aid for the use of skimmed milk and skimmed-milk powder as animal feed, accompanied
by the Commission(cid:146)s replies

SPECIAL REPORT No 1/99

(submitted pursuant to Article 188c(4)(2) of the EC Treaty)

(1999/C 147/01)

CONTENTS

Paragraph

Page

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . .

INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Court(cid:146)s audit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 (cid:151) 5

1 (cid:151) 2

3 (cid:151) 5

COMMUNITY AID AND THE MILK MARKET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6 (cid:151) 28

The common market organisation for milk and milk products. . . . . . . . . . . . . . . . . . . . . . . . . .

6 (cid:151) 13

The legal context. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14 (cid:151) 15

Observations on the Commission Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16 (cid:151) 17

The market for SMP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18 (cid:151) 20

Fixing the level of aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21 (cid:151) 23

External trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24 (cid:151) 28

THE MEMBER STATES(cid:146) MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29 (cid:151) 52

Aid for liquid skimmed milk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29 (cid:151) 36

General remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29 (cid:151) 30

The findings of on-the-spot enquiries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

31 (cid:151) 36

Aid for skimmed milk powder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

37 (cid:151) 42

General remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

37 (cid:151) 39

The findings of on-the-spot enquiries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

40 (cid:151) 42

Weaknesses concerning the aid for SMP processed into compound feedingstuff in the territory of
another Member State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

43 (cid:151) 49

Weaknesses relating to public storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

50 (cid:151) 52

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

53 (cid:151) 62

Tables 1 (cid:151) 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . .

Graphs 1 (cid:151) 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . .

Commission(cid:146)s replies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . .

2

3

3

3

3

3

4

4

5

5

6

6

6

6

6

7

7

7

8

9

9

11

16

18

C 147/2

EN

Official Journal of the European Communities

27.5.1999

SUMMARY OF SPECIAL REPORT No 1/99 CONCERNING THE AID FOR THE USE OF SKIMMED MILK AND
SKIMMED-MILK POWDER AS ANIMAL FEED

Total production of skimmed milk powder (SMP) in the EU is 1 208 000 t. Only 35 % is sold on the market without
subsidy. The rest is either exported or sold in the context of disposal measures on the internal market (see paragraph
11). This report deals with the Community subventions for the use of SMP and skimmed milk (SM) as animal feed.
This concerns some 500 000 t per annum for which ECU 386 million was spent in 1997 (see paragraphs 11 and 13).

The Regulations should determine the quality (notably protein content) of the SMP eligible for the aid in order to avoid
aid being paid for low grade, non marketable, SMP (see paragraph 16).

The decline in the use of SMP for animal feed continues, not only because of the crisis in the beef and veal sector but
also because of competition from other, lower priced, products (see paragraphs 18 and 19).

The level of aid paid for the use of SMP as animal feed is nearly 35 % of its commercial value (see paragraph 21). The
same rate of aid has applied since 1993 but no comprehensive document was available at the Commission services
showing that the level of aid has been reassessed yearly as foreseen in the Regulation (see paragraph 22). An effective
tendering system should provide an optimum aid level, particularly in view of the rising level of stocks (see paragraph
23).

Imports from non-member countries may increase further. Imported SMP is fully eligible for all Community SMP aid
schemes (except public storage). Net cost for the EU budget is ECU 18,7 million (see paragraph 27). The WTO Agree-
ment limits the possibilities for subsidised exports of SMP (see paragraph 28).

For skimmed milk and buttermilk the audit revealed weaknesses notably in the determination of eligible quantities
(see paragraph 31) and concerning sample taking (see paragraph 32).

SMP aided shall not include whey powder. The audit revealed the importance of systematic checks in this area (see
paragraph 42).

There are persistent control weaknesses as regards the particular arrangements applicable for the payment of the aid
in the SMP producing country for incorporation into compound feedingstuff in other Member States. Either the situ-
ation should be improved or the Regulation abolished, as already suggested by the Court in its annual report concern-
ing the 1988 financial year (see paragraphs 48 and 49).

Public stocks of SMP increased during 1996 and 1997. Most stocks are in Ireland and in the United Kingdom. In Ireland
the audit revealed a clear need for an institutional separation of responsibilities and in the United Kingdom inadequate
warehousing (see paragraphs 50 to 52).

27.5.1999

EN

Official Journal of the European Communities

C 147/3

INTRODUCTION

COMMUNITY AID AND THE MILK MARKET

The product

The common market organisation for milk and milk products

1. Skimmed milk (SM) is produced during the process of defatting
whole milk to obtain cream, the starting point for butter production.
It is used in liquid form or in dehydrated form as skimmed-milk pow-
der (SMP). SMP is used in the manufacture of other milk products
(together with whole milk) and in the food processing industry. Liquid
skimmed milk is mainly used to produce casein, supplying proteins
for the agri-food and chemical industries. Buttermilk (BM) is the
by-product of butter manufacture obtained after separation of the
solid fat in the cream while buttermilk powder (BMP) is dehydrated
buttermilk. Graph 1 shows the principal products derived from milk.

2. Worldwide SMP production is some 3,1 million t (1). The Euro-
pean Union is the biggest producing region of SMP and accounts for
nearly 40 % of the world production. Other important regions are
Eastern Europe (11 %), North America (19 %) and Australia and New
Zealand (14 %).

The Court(cid:146)s audit

6. Milk accounts for some 18,4 % of the total value of agricultural
production in the EU and is therefore the most important agricultural
activity in the EU as a whole. The market organisation for the sector
has been established by Council Regulation (EEC) No 804/68 (4), which
provides the legal basis for support measures aimed at improving the
situation of the milk sector in order to absorb excess production.

7. Community milk-price support is provided by aid for the sale of
butter and skimmed-milk (in either liquid or powder form) and export
refunds for milk products and public storage of butter and SMP when
market prices fall. There are also storage grants for certain types of
cheese.

8. Since 1984 the production of milk in the EU has been controlled
by milk quotas. The system, initially implemented for nine years, has
been extended by Council Regulation (EEC) No 3950/92 to the year
2000 (5).

9. Despite the stabilisation of milk production following the imple-
mentation of the milk quota system in 1984, there is still overproduc-
tion of milk in the European Union. Table 1 shows the development
of the EU dairy production for 1984 and from 1993 to 1997.

3. The Court examined the subsidy paid for the use of SM and SMP
as animal feed (ECU 386 million in 1997) at the level of the Commis-
sion and in a number of Member States (Germany, Belgium, France,
Italy and the Netherlands). Audit visits were also undertaken in Ireland
and in the United Kingdom to take into account the increasing public
storage of SMP in 1996 in both Member States.

10.
In the EU approximately 35 % (6) of the milk produced is either
consumed fresh as milk or converted into products such as yoghurt.
The remaining 65 % is converted into either cheese, butter or skimmed
milk. The skimmed milk that is not used in liquid form is subsequently
converted into either skimmed-milk powder or casein (22 kg of whole
milk yields around 1 kg of butter and 2 kg of SMP). As regards SMP
only 445 000 t of the 1 208 000 t produced in the EU in 1997 could
be sold without subsidies at market prices (see Table 2).

4. Among the risk factors taken into account in the course of the
audit were those arising from the vagueness of the legislative provi-
sions and from the problems of determining and controlling the qual-
ity and quantity of qualifying products. The specific control problems
relating to the SMP subsidised in one Member State for production of
animal feed stuffs in another, and the possibilities regarding product
substitution (i.e. whey powder) were also considered.

5. The measures for the disposal of skimmed milk have previously
been examined by the Court. The main observations in this context
were published in the Court(cid:146)s annual reports 1988 (2) (SMP) and
1993 (3) (casein).

(1) Latest available data 3,079 million t of SMP (provisional figure) in 1996,

3,128 million t in 1995.

(2) OJ C 312, 12.12.1989, paragraphs 6.41-6.73.
(3) OJ C 327, 24.11.1994, paragraphs 4.1-4.54.

11.
In the context of the disposal measures for the milk sector, the
European Union subsidises the use of skimmed milk, liquid or dehy-
drated, for animal feed (512 000 t in 1997) (7) and for the production

(4) OJ L 148, 28.6.1968, p. 13.
(5) Milk quotas were implemented by Council Regulation (EEC) No 856/84 of
31 March 1984 (OJ L 90, 1.4.1984, p. 10). For the current system Council
Regulation (EEC) No 3950/92 of 28 December 1992 which is valid until
the year 2000 applies (OJ L 405, 31.12.1992, p. 1).

(6) There are no definitive figures showing how the milk produced is used
because of uncertain statistical sources and also because of different
fat/protein contents of milk products of all sorts. Drinking milk produc-
tion is 30 350 million t or some 25 % of milk production. However, drink-
ing milk has a lower fat content than fresh milk (the fat may be used for
butter and cheese). It is estimated that drinking milk and fresh products of
all kinds absorb some 35 % of milk production.

(7) 495 000 t concern the use of SMP as animal feed and 17 000 t SMP
equivalent for the subsidised use of skimmed-milk as animal feed (provi-
sional data for 1997).

C 147/4

EN

Official Journal of the European Communities

27.5.1999

of casein (some 400 000 t SMP equivalent in 1997) (8). Furthermore,
SMP exports benefit from refunds (some 280 000 t in 1997).

(c) Commission Regulation (EEC) No 1624/76 (14) provides for special
arrangements for the payment of aid for SMP denaturated or pro-
cessed into compound feedingstuffs in the territory of another
Member State (15).

12. However, these measures could not fully absorb the surplus of
skimmed milk powder in recent years, so that, from 1996, public
intervention stocks of SMP increased to 135 421 t at the end of 1997.
The highest stocks were reported in Ireland (54 634 t) and the United
Kingdom (46 400 t). For the overall market balance of SMP see Table
2.

13. EAGGF Guarantee expenditure for skimmed milk and skimmed
milk powder totalled ECU 875 million in 1997, out of which ECU 386
million (44 %) was paid for the use of SM and SMP as animal feed,
ECU 288 million (33 %) for casein production, ECU 171 million (20 %)
for export refunds and ECU 30 million (3 %) for public storage (see
Tables 3 and 4).

The legal context

14. The disposal measures for the use of skimmed milk and skimmed-
milk powder as animal feed are provided for by Council Regulation
(EEC) No 986/68 (9). According to this Regulation buttermilk and but-
termilk powder are also eligible for these aids. Regulation (EEC)
No 986/68 is completed by Commission Regulations dealing with the
specific measures and the implementation rules:

(a) Commission Regulation (EEC) No 1105/68 (10) on detailed rules

for granting aid for skimmed milk for use as feed (11);

(b) Commission Regulation (EEC) No 1725/79 (12) on the rules for
granting aid to skimmed milk processed into compound feeding-
stuffs and skimmed-milk powder intended for feed for calves (13);

(8) Casein is produced from skimmed milk. For the calculation of skimmed
milk into skimmed milk powder equivalent apply the factor of 11: 1 (11
kg skimmed milk = 1 kg skimmed-milk powder).

(9) OJ L 169, 18.7.1968, p. 4; buttermilk and buttermilk powder are treated

as skimmed milk and skimmed-milk powder.

(10) OJ L 184, 29.7.1968, p. 24.
(11) The Regulation includes three different types of utilisation of aid:

(a) the dairy produces and processes SM which is specially denatured and
sold to farms where it is used as animal feed at a price for which the
maximum may be set (Article 1); a variant of this occurs when dairies
sell SMP in liquid form to livestock farmers (Article 1a) as amended by
Commission Regulation (EEC) No 2630/84 (OJ L 249, 18.9.1984, p.
8);

(b) dairies which use their skimmed-milk production solely for feeding
their own animals (Article 5a) as amended by Commission Regulation
(EEC) No 2863/75 (OJ L 285, 4.11.1975, p. 5);

(c) breeders using their own skimmed milk as feed (Article 6).

(12) OJ L 199, 7.8.1979, p. 1.
(13) Although the Regulation and the related budget lines indicate that the
product is for feeding calves, part of the animal feedstuff is used as feed
for sheep and piglets. This is not forbidden by the Regulation.

15. Public storage of SMP is foreseen by Article 7 of the basic Council
Regulation (EEC) No 804/68. Detailed rules for public storage of SMP
are stipulated by Commission Regulation (EC) 322/96 of 22 February
1996 (16). Only high quality SMP with a protein content of 35,6 % (17)
of the non-fatty dry extract, is eligible for public storage. The SMP
must not include buttermilk or whey and must correspond to a num-
ber of additional quality criteria (18).

Observations on the Commission Regulations

16. Commission Regulation (EC) No 322/96 clearly specifies the
minimum characteristics of SMP eligible for public storage but these
are not applied to SMP used as animal feedingstuff (see Table 5). Both
Commission Regulations (EEC) No 1105/68 and (EEC) No 1725/79 set
out physical eligibility criteria for SM and SMP to qualify for aid, and
also describe the control measures that Member States should apply
to ensure that the conditions of granting aid have been met. However,
the physical eligibility criteria allow Member States to make inconsis-
tent interpretations of the rules to be applied (see paragraphs 31, 41
and 42). Moreover the control provisions are not sufficiently explicit
to indicate when, where and how Member States should carry out
checks and, in the case of Regulation (EEC) No 1105/68, which spe-
cific laboratory tests should be applied to confirm that the physical
criteria have been respected. Examples of these deficiencies are as fol-
lows:

(a) despite the fact that the nutritional value of the product for animal
feed is determined by the protein content there is no minimum
requirement for this characteristic. Low grade SMP with low pro-
tein content is not excluded and receives the same aid as quality
SMP (19);

(b) notwithstanding the fact that Council Regulation (EEC) No 968/68
stipulates a maximum fat content for SM of 1 % and for SMP of
11 %, Commission Regulation (EEC) No 1105/68 allows that the
fat content for SM may be exceeded by 25 %;

(14) OJ L 180, 6.7.1976, p. 9.
(15) The aid is paid to the seller of SMP on the basis of proof from the receiv-

ing Member State that a security was taken from the importer.

(16) OJ L 45, 23.2.1996, p. 5.
(17) The protein content is 35,6 %, lower intervention prices apply for each
percentage point of protein content which is lower, down to a minimum
of 31,4 %.
(18) See also Table 5.
(19) The low protein content of SMP included in a compound feedstuff can be
compensated for by adding casein, a product that is also subsidised.

27.5.1999

EN

Official Journal of the European Communities

C 147/5

(c)

the dry matter of eligible SM is not regulated by strict criteria.
Regulation (EEC) No 1105/68 provides for a minimum dry mat-
ter to SM of 8,75 % and for BM of 8 % but also allows aid to be
granted to SM and BM below these minimum levels in certain
cases (20);

(d) Commission Regulation (EEC) No 1105/68 does not permit dilu-
tion with water and whey unless it is (cid:145)normally part of the produc-
tion methods used(cid:146) (21). The production methods requiring this
dilution are not contained in the Regulation;

shows the evolution of the subsidised and non-subsidised consump-
tion of SM and SMP.

19. According to producers of compound feedingstuff visited, the
decline in the use of SMP is partly due to the decrease in the number
of calves and partly due to the development of new products and the
replacement of SMP by other cheaper products (such as whey pow-
der), despite the EU subsidies paid for the use of SMP.

(e)

the control provisions in Commission Regulation (EEC) No1105/68
(Article 10) stipulate only that (cid:145)Member States shall take the mea-
sures necessary to check that the conditions governing the grant-
ing of aid are fulfilled and that the benefit of the aid is passed on
to the farm stage(cid:146) without giving any indication of the timing,
nature or extent of such measures. The control provisions of
Commission Regulation (EEC) No 1725/79 (as amended) are more
detailed in defining the nature of the checks to be performed, and
also indicate both the technical standards of the laboratory tests
to be carried out and the accepted result parameters for such tests.

20. Furthermore, the current minimum percentage of 50 % of SMP
in compound feedingstuffs, necessary to qualify for the aid, was con-
sidered by certain producers as being too high and a constraint on the
use of SMP. In fact, the minimum SMP content has been modified on
several occasions in the past (25). The Commission should re-evaluate
the minimum necessary SMP content in the light of the evolution of
the market and the price of competing products (see also paragraph
22). Graph 3 shows the development of market prices of SMP in Europe
and on the world market.

17. Furthermore, Regulation (EEC) No 1105/68, unlike Regulation
(EEC) No 1725/79, does not stipulate that skimmed-milk producers
must have approval before aid can be granted. The requirement that
beneficiaries have suitable technical equipment and adequate admin-
istrative and accounting methods to make it possible to comply with
the Regulations is particularly relevant in this context.

Fixing the level of aid

The market for SMP

18. Annual production of SMP has fallen from 2,4 million t in 1984,
before the implementation of the quota system, to 1,3 million t in
1993 and 1,1 million t in 1998. Principal producers of SMP are France
and Germany which together account for some 60 % of the total Euro-
pean Union production. The Commission expects a further drop in
SMP production and consumption mainly because of declining use of
SMP in animal compound feedingstuffs (22). Human consumption (23)
of SMP, on the contrary, is expected to remain stable (24). Graph 2

(20) See Article 1 (6), of Commission Regulation (EEC) No 1105/68 as amended
by Regulation (EEC) No 1645/78 (OJ L 191, 14.7.1978, p. 23), which stipu-
lates numerous exemptions to the minimum eligibility criteria.

(21) See Article 1 (4), of Commission Regulation (EEC) No 1105/68 as amended

by Regulation (EEC) No 2114/75 (OJ L 215, 13.8.1975, p. 12).

(22) SMP quantities used as animal feed and supported in the context of Regu-

lation (EEC) No 1725/79 developed as follows
(EU- 12): 1993, 675 000 t; 1994, 649 000 t; 1995, 587 000 t;
(EU- 15): 1995, 594 000 t; 1996, 543 000 t; 1997, 495 000 t.

(23) SMP for human consumption is an important ingredient in all kinds of
food products such as bakery products, confectionery, certain ice creams,
dried soups, sauces, babyfood, etc.

(24) Source: Situation and outlook dairy sector, working document of the

21. The current aid level for the use of SMP corresponds to some
35 % of its commercial value. This has not changed since 1 July 1993
when it was fixed at ECU 59,22/100 kg. The rate increase on 1 Febru-
ary 1995 to ECU 71,51/100 kg does not reflect a real increase but the
adjustment to take into account the adaptation of (cid:145)green(cid:146) rates in 1995.

22. Under Article 2a(1) of Council Regulation (EEC) No 986/68, the
aid level shall be fixed taking into account the following factors: (cid:145)the
intervention price for skimmed-milk powder applicable during the
milk year concerned; the development of the supply situation as
regards skimmed milk and skimmed-milk powder and developments
in the use thereof as feed; trends in calf prices; and trends in the mar-
ket prices for competing proteins as compared with those for skimmed-
milk powder(cid:146). Article 2a(2) (26) of the Regulation stipulates that (cid:145)the
amounts of aid shall be fixed each year for the following milk year(cid:146).
The evaluation of these factors and the way they were taken into
account as foreseen by the Regulation is not recorded in a compre-
hensive document. Furthermore, as already observed by the Court in
1988, there is (cid:145)no specific analysis to determine an optimum level of
subsidy which will achieve a target level of disposals at minimum cost
to the budget(cid:146).

(25) Up to 5.6.1988: 60 %

6.6.1988 to 30.9.1988: 45 %
1.10.1988 to 31.10.1990: -
1.11.1990 to 31.1.1993: 50 %
1.2.1993 to 30.6.1996: 35 %
1.7.1996-: 50 %

(26) Articles 2a(1) and 2a(2) were implemented by Council Regulation (EEC)

Commission, Brussels 1997.

No 666/74 (OJ L 85, 29.3.1974, p. 22).

C 147/6

EN

Official Journal of the European Communities

27.5.1999

23. The Court maintains its previous observation (27) that the sub-
sidy may be fixed at an inappropriate level and that the implementa-
tion of a tendering procedure would provide more assurance that the
subsidy is set at the optimum level.

External trade

28. Concerning exports, the WTO Agreement stipulates that, by the
year 2000/2001, the total amount of refunds for SMP must be reduced
by 36 % to ECU 275,8 million (31), calculated from a base amount of
ECU 430,9 million. Corresponding quantities of SMP exported shall
be reduced by 21 % to 272 500 t in 2000/2001, calculated from a base
quantity of 344 900 t. As long as the internal market prices remain
high relative to the export prices of Europe(cid:146)s competitors in the inter-
national market, the Community(cid:146)s exports will continue to be con-
fined to those that qualify for export refunds, subject to the limits pro-
vided for in the WTO Agreement. As at 1 August 1997 the export
refund rate was fixed at ECU 598,5/tonne and was increased to
ECU 680/tonne on 31 October of the same year.

Imports of SMP increased from 17 500 t in 1993 to some
24.
64 000 t in 1997 mainly as a result of the preferential import regimes
implemented during recent years. Exports of SMP amounted to some
281 470 t in 1997. Table 6 provides the data for imports and exports
of SMP from 1993 to 1997.

THE MEMBER STATES(cid:146) MANAGEMENT

25.
In accordance with the World Trade Organisation (WTO) Agree-
ments, starting on 1 July 1995, import duties for SMP are to be reduced
by 20 % over six years (28). However, from July 1995 onwards, for
most imports more favourable import duties already exist, because a
reduced tariff rate of ECU 47,5/100 kg applies for some 40 000 t of
SMP in 1995 increasing to 68 000 t in the year 2000 in the frame-
work of the (cid:145)minimum access commitment(cid:146) accepted by the EU in the
context of the WTO Agreement.

Aid for liquid skimmed milk

General remarks

26. Furthermore, import quotas are available for milk powder (either
whole milk or skimmed-milk powder) in the context of the European
Association Agreements with countries from Eastern Europe. These
Agreements allow the import of 20 580 t in 1997/98 at a preferential
rate of 20 % of the standard customs rate (29). Whereas public storage
of SMP is only made for SMP of European origin, imported SMP in
free circulation can fully benefit from the subventions for the use of
SMP as animal feed. The imported quantities are therefore also eligible
for the grants made available for SMP disposal measures.

27. The total SMP imported in 1997 (around 64 000 t) is thus eligible
for aid, at a total cost to the European Union(cid:146)s budget of some
ECU 42,9 million. Import duties, on the other hand, amount to only
ECU 24,2 million. The net effect on the EU budget is therefore around
ECU 18,7 million (30).

(27) See the Court(cid:146)s 1988 annual report, paragraphs 6.63 to 6.66 (OJ C 132,

12.12.1989).

(28) The standard customs rates (import duties) are to be reduced over six
years, starting from ECU 143,6/100 kg of SMP in GATT year 1
(1.7.1995/30.6.1996) and developed as follows: ECU 138,6 in 1996/97,
133,7 in 1997/98 and 128,7 in 1998/1999. Further reductions will apply
for the years 1999/2000 and 2000/2001.

(29) The quotas for preferential imports under the Association Agreements will

increase by 990 t each year, to 23 550 t in year 2000.

(30) The amount is calculated as follows: importation of 40 000 t under the
minimum access commitment at an import duty rate of ECU 47,5/100 kg
and 20 000 t under the agreements with the countries of eastern Europe
at an import duty rate of ECU 25,74/100kg equals
40 000 t x ECU 475/tonne = ECU 19 000 000,
20 000 t x ECU 257,4/tonne = ECU 5 148 000,
amount of import duties: ECU 24 148 000.
The aid amounts to ECU 71,51/100 kg i.e. 715,1/t x 60 000 = ECU
42 906 000
Net expenditure charged to budget ECU 18 758 000

29. Aid for (liquid) skimmed milk amounted to ECU 21,2 million in
1997 which represents 5,5 % of total expenditure for its use as animal
feed (32). This form of aid is used mainly by Italy (36 %), Germany
(30 %) and Belgium (15 %). In Italy the aid relates to substantial
amounts of buttermilk which is used for pig production, especially in
the Parma area.

30. With the exception of the coefficients for a producer(cid:146)s own ani-
mals (see paragraph 33), the Regulation does not provide for theoreti-
cal or standard calculations to be used for determining quantities eli-
gible for subsidy.

The findings of on-the-spot enquiries

31.
In the case of skimmed milk and/or buttermilk supplied to stock
farmers directly by the dairy industry, aid applications are seldom
based on the real weight of the product supplied for animal feed and
the accuracy of the claims submitted cannot therefore be verified. In
Belgium the dairies visited based their claims on estimates derived
from their records of monthly production of milk products. In France

(31) Annual quantity commitments for SMP for 1997/1998: 310 000 t, for
1998/1999: 297 500 t, for 1999/2000: 285 000 t and 2000/2001:
272 500 t. Outlay commitments: for 1997/1998: ECU 354 million, for
1998/1999: ECU 328 million, for 1999/2000: ECU 301,9 million and for
2000/2001: ECU 275,8 million.

(32) Aid disbursed in 1997, ECU 386,3 million, of which ECU 365,2 million
(94,5 %) for SMP (Regulation (EEC) No 1725/79) and ECU 21,2 million
(5,5 %) for SM (liquid).

27.5.1999

EN

Official Journal of the European Communities

C 147/7

the amount of skimmed milk is an estimated figure derived from the
quantity of butter produced. Furthermore, at one of the major dairies
visited in Italy a formula is used by the dairy to derive the quantity of
buttermilk produced. In these cases, estimates of weight were used
without any evidence being available that they correctly reflected the
physical characteristics of the milk in the production process. As a
result, there is no assurance that the correct amount of subsidy is
being paid by the Commission. The Regulation should be improved
to specify the basis for the payment of the subsidy, and to require
appropriate control arrangements to enforce it.

used for human consumption. It is, however, impossible to determine
the exact buttermilk content by analysis, although this is necessary for
the aid payment controls.

It was found in the Netherlands that the main aid beneficiary
36.
(98 % in 1996) supplied buttermilk produced, without denaturing, to
a farm in Germany. The Dutch authorities, however, had never checked
whether the buttermilk in question was actually used for animal feed
and, moreover, they had not asked the German authorities to carry
out such checks.

32. Article 10 of Regulation (EEC) No 1105/68 does not specify the
control measures to be taken by the Member States [see paragraph
16(e)]. In most of the Member States visited (Belgium, Germany,
France, Italy) the samples used to check the physical and chemical
characteristics of the buttermilk and/or skimmed milk intended for
animal feed were not taken from the product that was delivered to the
farmers. The samples were taken during the production process or
from large tanks at the dairies. However, it could not be established
that the sampled product corresponded to what was actually delivered
to farmers.

33. Under Article 5a of Regulation (EEC) No 1105/68, as amended
by Commission Regulation (EEC) No 2863/75 (33), dairies that use
buttermilk to feed their own animals may receive, for every kilogram
of butter produced and sold, the aid payable for 2,2 kg of skimmed
milk. In 1975, when this amendment to the Regulation was intro-
duced, the buttermilk and/or skimmed milk produced would, in many
cases, have been consumed directly by animals that were kept on the
dairy(cid:146)s own premises. Nowadays, with the exception of a few very
small establishments, animals are kept away from the milk-processing
plant, for reasons of hygiene. In the mean time some dairies have
acquired stock-rearing companies and thus continue to take advantage
of the standard calculation, which is considered to be more advanta-
geous than determining the quantities by weighing the delivered prod-
uct.

34. As animals are not kept on the premises of the dairy where the
buttermilk is produced, the abovementioned standard method for cal-
culating the quantities of BM qualifying for aid should not apply. Fur-
thermore, the coefficient of 2,2 kg of buttermilk per kilogram of but-
ter produced was determined in 1968 and the technical justification
for establishing this method of calculation is no longer available in the
responsible Commission department. In view of the increasing milk
fat content, a revision of the 2,2 coefficient is long overdue.

Aid for skimmed milk powder

General remarks

37.
Industrial production of compound animal feedstuffs in the Euro-
pean Union is around 122 million t annually and is tending to increase
slightly (36). The composition of these products vary, but they must all
incorporate the necessary nutritional elements for fattening the ani-
mals in question. The essential elements are various forms of animal
or vegetable protein. Milk-based protein, including skimmed milk
powder, is an important element in the composition of these feed-
stuffs.

38.
In the five years between 1993 and 1997 budgetary expenditure
for skimmed-milk powder, used in the manufacture of feed compound,
was reduced from ECU 495,4 million to ECU 365,3 million, a reduc-
tion of 26,3 %, despite the enlargement of the European Union. At the
same time, the quantity of SMP subsidised was reduced from 676 000 t
to 495 000 t (- 26,8 %). In so far as surplus disposal was possible only
because of the Community aid, this was an encouraging development.

39. Regulation (EEC) No 1725/79 provides that aid is to be paid on
the basis of monthly records of quantities considered to be eligible.
Before the aid is paid the paying agencies are required, among other
things, to verify that the results of laboratory analysis of samples for
the month to which the application relates are satisfactory. In the
absence of these results, the aid cannot be paid unless the results of
the previous month(cid:146)s tests are satisfactory.

35. To prevent SM being diverted to human consumption it must
either be denatured, or be subject to administrative control that pro-
vides guarantees equivalent to denaturing, if it is to qualify for aid as
skimmed milk (34). In cases where the dairies receiving aid have a
butter-making unit and a cheese-making unit, whey is added to the
buttermilk. This product is automatically denatured (35) and cannot be

(33) Commission Regulation (EEC) No 2863/75 of 3 November 1975 (OJ L

285, 4.11.1975, p. 5).

(34) Article 1(a) and (b) of Commission Regulation (EEC) No 1105/68.
(35) According to Article 2 of Regulation (EEC) No 1105/68 the product is

considered as denatured when:
(i)
the product is made sour,
(ii) whey-concentrate is added,
(iii) starch paste or puffed starch is added,
(iv) azorubin E 122 is added.

The findings of on-the-spot enquiries

40.
In France aid applications relate to a week, not a month. How-
ever, in the absence of appropriate computer systems, it is particularly
difficult to check whether the administration is handling the current
aid in accordance with the Regulations, because of the number of
transactions involved and the necessity of linking them to a specific
month.

41. Whey is a by-product of cheesemaking and is in competition
with skimmed-milk powder as a raw material. Whey is not eligible for

(36) L(cid:146)Øconomie laitiŁre en chiffres, CNIEL (Centre national interprofessionnel

de l(cid:146)Øconomie laitiŁre), Paris, 1997 edition.

C 147/8

EN

Official Journal of the European Communities

27.5.1999

Community aid and there is no aid for using it as an additive. Regula-
tion (EEC) No 3480/90 (37) amending Regulation (EEC) No 1725/79
accordingly laid down a method of analysis to be applied to the
samples required by Regulation, with the aim of preventing the addi-
tion of rennet whey to SMP for which the aid is requested. However,
as the model of the analysis report (Annex 1 to the Regulation) does
not specifically mention the non presence of rennet whey, some Mem-
ber States did not systematically carry out the test foreseen by Article
10(3) of the Regulation.

(a)

the factors involved in the operation of the system had evolved
considerably, to the point where the grounds cited at the time no
longer applied (to facilitate trade);

(b) since the control systems are, of necessity, more complicated, the
measure is more vulnerable to irregularity, far more so than under
a normal system such as that provided for by Regulation (EEC)
No 1725/79.

42.
In Belgium some 20 % of the tests undertaken in 1996 for the
detection of the presence of whey were positive. This level of irregular-
ity indicates that these tests should be undertaken on a much more
systematic basis. Furthermore, during an audit by the Court in the
Netherlands it was found that 3 350 kg of SMP had been treated as
eligible, despite the fact that the analysis report indicated that whey
was present.

Weaknesses concerning the aid for SMP processed into compound
feedingstuff in the territory of another Member State

43. According to Article 3 of Council Regulation (EEC) No 986/68,
when skimmed milk powder produced in one Member State is dena-
tured or used in the manufacture of compound feedingstuffs in the ter-
ritory of another Member State, the first-mentioned Member State is
authorised to pay the aid. Commission Regulation (EEC) No
1624/76 (38) establishes special arrangements for the payment of aid
for SMP in these circumstances.

44. According to the Regulations, the quantities are subject to veri-
fication by the Member State of destination. For that purpose, a secu-
rity of 110 % of the aid to be paid must be lodged with the authorities
in the Member State of destination which has to certify, on the EU
control document (T5), that these requirements have been complied
with. The aid is paid to the producer by the consignor Member State
on the basis of that certification.

47. The last Commission proposal for the abolition of this particular
system dates from 1993 (39). The Council did not follow up the Com-
mission proposal and the system is therefore still in force.

48. Weaknesses of Regulation (EEC) No 1624/76 were again con-
firmed in the context of the Court(cid:146)s audit, notably:

(a)

the consignor (exporting) Member State is responsible only for the
control of the quality of SMP and for the check of copies of the
T5 control document with the certificate from the importing
Member State stating that the security was received. The import-
ing Member State is responsible for the control of the production
of the feedingstuff. The administrations of the two Member States
are often not aware of the controls of the other Member State. In
fact the Regulation does not require that the results of the inspec-
tions about the denaturation or processing in the importing Mem-
ber States be communicated to the consignor Member State;

(b) whereas the aid for SMP in compound feedingstuff on the basis of
Regulation (EEC) No 1725/79 is paid after the denaturation or
processing, Regulation (EEC) No 1624/76 provides for a delay of
six months in this respect;

(c)

the quality of SMP is tested in the consignor Member State at its
departure but not at its arrival at the Member State of destination.
The controls relating to the denaturation or processing in the
importing Member State will not necessarily show if there is an
unallowed substitution of the SMP for which the aid was granted
by the consignor Member State. There is in fact a risk that the SMP
delivered is replaced by substitutes, such as SMP of lower quality,
either during the transport or at the arrival at the destination (40)
;

45. These procedures apply particularly to German and French deliv-
eries of SMP to Italian and, to a lesser extent, Spanish producers of
compound feedingstuffs. These two countries have a shortfall in SMP.
The procedures laid down are of financial interest, because the aid is
paid immediately after the receipt of the certificate from the Member
State of destination, instead of following denaturing or compound-
ing. In 1997 these particular provisions affected aid payments for
61 000 t in Germany and 4 000 t in France, corresponding to some
15 % of the aid disbursed.

(d) the scrutiny, as foreseen by Council Regulation (EEC) No
4045/89 (41) is initiated by the exporting Member State. For the
companies selected, control requests are sent by the exporting
Member State to the importing Member States. However, these
requests pertain to export transactions (such as all exports of one
particular company) and concern audit at the processor in rela-
tion to the selected export transactions only. Therefore the scru-
tiny audit does not cover all activities and all supplies to a par-
ticular producer of feedingstuff.

46 In its annual report for 1988 the Court proposed the abolition of
this particular system of granting aid. In 1989, for the reasons set out
below, the Commission likewise proposed the amendment of Article
3 of Regulation (EEC) No 986/68, which provided the legal base for
this practice. The reasons were:

(37) OJ L 366, 1.12.1990, p. 68.
(38) OJ L 180, 6.7.1976, p. 9.

49. As already indicated by the Commission in 1989 (see paragraph
46), the developed state of the internal market no longer calls for the
special arrangements that were established under difficult circum-

(39) COM(93) 211 final, of 17 May 1993.
(40) The risk of non-compliance is even higher if the quantities are transported

in bulk.

(41) OJ L 388, 30.12.1989, p. 18.

27.5.1999

EN

Official Journal of the European Communities

C 147/9

stances at a time when it was considered desirable to foster internal
trade. The aid could, in fact, be paid on the basis of Regulation (EEC)
No 1725/79 by the competent paying agency in the Member State in
which processing took place.

Weaknesses relating to public storage

50. The major exporter of Irish dairy products arranges storage
facilities for SMP intervention stocks, using private storage facilities. It
could therefore be considered, on the one hand, as a delegated ser-
vice (42) of the paying agency, and on the other hand, the almost exclu-
sive tenderer for sales from intervention stocks. In such circumstances
there is a clear need for an institutional separation of responsibilities.

51. To ensure that the SMP offered into intervention satisfies the con-
ditions stipulated in Regulation (EC) No 322/96 the responsible dairy
inspectors of the Irish paying agency (43) take samples for testing in
the State laboratories. However, the laboratory analysis bulletins attest-
ing the results of such tests were not validated and only photocopies
were made available to the paying agency.

55. The Commission does not have a comprehensive document,
analysis or studies, which would justify the retention of the level of aid
that has been in force since 1993, taking account of the rising level of
stocks in certain Member States, inter alia. In the Court(cid:146)s opinion the
implementation of tendering arrangements such as those recom-
mended in its Annual Report, some 10 years ago, concerning the
1988 financial year is still relevant (see paragraphs 21 to 23).

56. The Regulations do not clearly state the specifications that must
be satisfied by SM and SMP intended for animal feed if they are to
qualify for aid. In line with the other disposal measures applied in the
milk sector (butter) the granting of aid for SMP should be subject to
minimum product quality standards, in particular with reference to
the minimum protein content (see paragraphs 15 to 17).

It was found (in Belgium, France and Italy) that the national
57.
administrations were paying aid for estimated quantities of SM sup-
plied and (in Belgium, Germany, France and Italy) accepted that the
samples for laboratory analysis were taken from quantities of the
product in the plant, instead of being taken from the quantities deliv-
ered. The Community Regulations do not provide for these practices,
which place the reliability of the control systems at risk. There is,
therefore, a need for the Commission to review the situation (see para-
graphs 30 to 32).

52. Article 5 of Regulation (EC) No 322/96 stipulates that the stor-
age depots for SMP must be dry, well maintained and free of vermin,
free of extraneous odours and permit good ventilation. However, the
two storage centres visited by the Court in the United Kingdom did
not meet these criteria. There were no dehumidifiers installed (traces
of humidity were found in one warehouse) and only rudimentary
measures were taken against rodents/pests.

58. The Commission should re-examine the standard method for
calculating the quantity of skimmed milk qualifying for aid that dair-
ies use for feeding their own animals. The adequacy of the applicable
coefficient should be reassessed and the use of the method restricted
to very small dairies feeding their own animals (see paragraphs 33 and
34).

CONCLUSION

59. The Commission should reassess the controls to ensure non-
addition of whey to buttermilk. The controls concerning non-
denaturated buttermilk delivered to farmers in a Member State differ-
ent from where the buttermilk is produced should also be reviewed.
The initiatives necessary to improve these controls should be taken by
the Commission (see paragraphs 35 and 36).

53. Despite the introduction of milk quotas in 1984 only 37 % of the
SMP produced in the European Union is sold at market prices. The
remainder (63 %) is exported with refunds that are financed by the
Community budget or is sold on the internal market with aid that
amounts to approximately 35 % of the market price (see paragraphs 9
and 21).

60. Uncertainty exists regarding the systematic testing for the absence
of rennet whey in SMP. Because of the risk of irregularities, the Com-
mission should ensure that the Regulations are amended (see para-
graphs 41 and 42).

54. The aid for SM and SMP used in animal feedstuffs (ECU 386 mil-
lion in 1997) facilitated the disposal of approximately 500 000 t, i.e.
40 % of the Union(cid:146)s annual SMP production (see paragraphs 10 and
11).

(42) Delegated service in the sense of Commission Regulation (EC) No 1663/95.
(43) DAFF is the Irish paying agency for EAGGF Guarantee expenditure (Depart-

ment of Agriculture, Forestry and Food).

61. Where aid is paid in one Member State for the SMP used in the
manufacture of animal feed in another Member State, the SMP should
be sampled and tested on arrival at its final destination, so as to ensure
that there is adequate control. The test results would confirm whether
or not the SMP complied with Community requirements. Should this
procedure prove unsuitable, either for administrative reasons or on
grounds of cost, the special arrangements introduced by Regulation
(EEC) No 1624/76 should be abolished, as the Court suggested in the
Annual report concerning the 1988 financial year (see paragraphs 43
to 49).

C 147/10

EN

Official Journal of the European Communities

27.5.1999

62. The audit of the implementation of the Community SMP inter-
vention and storage system in Ireland and the United Kingdom (the
main beneficiaries) revealed that, in Ireland, the only tenderer for sales
of intervention stocks is simultaneously responsible for the organisa-

tion of the public storage arrangements (see paragraph 50). Of the two
warehouses that were visited in the United Kingdom neither complied
with the regulatory requirements concerning warehouses (see para-
graph 52).

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 25 March 1999.

For the Court of Auditors

Jan O. KARLSSON

President

27.5.1999

EN

Official Journal of the European Communities

C 147/11

Table 1

Overview of European Union dairy production (EU- 15)

1. Dairy cows(cid:146) milk production
2. Dairy cows(cid:146) milk deliveries
3. Drinking milk production
4. Butter
Dairy
Farm

5. Cheese

Dairy (cows(cid:146) milk)
Farm (cows(cid:146) milk)
Other (goats(cid:146) milk, etc.)

6. Milk powders
Skimmed
Semi-skimmed
Whole
Buttermilk

Total butter production

Total cheese production

Total milk powder production

7. Condensed and evaporated milk production
8. Casein and caseinate production

Liquid skimmed milk used

9. Skimmed milk returned to farmers

Source: Cronos and forecasts including estimates of the Commission.

(1 000 tonnes)

1984

1993

1994

1995

1996

1997

136 247 119 630 120 179 121 546 121 182
111 515 113 729 113 697
123 588 110 854
30 722
31 003
30 320
30 267
26 449

120 653
113 283
30 350

2 622
35
2 657

4 508
81
293
4 882

2 364
199
668
52
3 283
1 645
127
4 225
6 618

1 828
21
1 849

5 509
59
446
6 014

1 307
181
773
49
2 310
1 324
116
3 761
422

1 799
18
1 817

5 650
59
459
6 168

1 232
185
816
52
2 285
1 284
111
3 724
409

1 854
18
1 872

5 874
57
509
6 440

1 215
177
801
54
2 247
1 340
142
4 714
383

1 857
15
1 872

5 932
54
497
6 483

1 192
162
734
57
2 145
1 324
133
4 412
357

1 828
12
1 840

5 986
52
502
6 540

1 140
183
767
51
2 141
1 373
133
4 374
303

C 147/12

EN

Official Journal of the European Communities

27.5.1999

Table 2

Skimmed-milk powder (SMP) balance sheet

1. Public stocks at 1 January
2. Production (1)
3. Imports

4. Quantity available

For human consumption (not subsidised)
For animal feed

5. Total uses

Commercial exports
Food aid exports

6. Total exports
7. Public stocks at 31 December
8. Skimmed milk used for the manufacture of casein in SMP equivalent.

EUR 12
1995

EUR 15
1995

EUR 15
1996

EUR 15
1997

EUR 15
1998

(1 000 tonnes)

72
1 197
31

1 300
410
587

997
336
25

361
14
434

72
1 268
35

1 375
420
594

1 014
347
25

372
14
438

14
1 278
50

1 342
440
543

983
218
9

227
125
422

125
1 208
64

1 397
445
495

940
276
4

280
135
395

135
1 185
70

1 390
450
480

930
240
5

245
215 (2)
n/a

(1) The data at row 2 differs from the (cid:145)milk powder(cid:146) data in Table 1 because they were drawn from different databases, and different methods of categorising buttermilk powder were used.
(2) Estimated.
Source: Commission DG VI.

Expenditure related to skimmed milk and skimmed milk powder compared with overall expenditure on the milk CMO.

Table 3

B1-2 0: Milk CMO
Overall
expenditure

Expenditure on SM
and SMP

B1-2 0 0 1
SMP export
refunds

B1-2 0 1
SMP storage

B1-2 0 2 0
B1-2 0 2 1
Aid for SM/SMP
for calf feed

B1-2 0 2 2
B1-2 0 2 3
Aid for SM/SMP
for other animals

(1)

(2)=(3)+(4)+(5)+(6)+(7)

5 211
4 249
4 028
3 582
3 100

1 005
922
901
1 042
875

(3)

193
73
199
138
171

(4)

- 45
69
- 89
155
30

(5)

521
501
448
438
386

(6)

0
- 1
0
1
0

Year

1993
1994
1995
1996
1997

(ECU million)

B1-2 0 2 4
Aid for SM
for cassein

(7)

336
279
343
311
288

Source: DG VI - Evolution of EAGGF Guarantee payments.

.

.

2
7
5
1
9
9
9

Aids for skimmed milk and skimmed milk powder for calf feed.

Table 4

SMP (B1-2 0 2 0)

SM (B1-2 0 2 1)

Total

(ECU million)

Member States

1993

1994

1995

1996

1997

1993

1994

1995

1996

1997

1993

1994

1995

1996

1997

Belgium
Denmark
Germany
Greece
Spain
France
Ireland
Italy
Luxembourg
Netherlands
Austria
Portugal
Finland
Sweden
United Kingdom

15,7
1,0
115,8
0,0
0,4
206,3
8,5
1,1
0,0
137,4
0,0
0,0
0,0
0,0
9,1

15,6
0,8
117,4
0,0
0,0
200,7
4,3
0,6
0,0
130,4
0,0
0,0
0,0
0,0
7,3

15,3
1,0
86,8
0,0
0,1
182,2
5,8
0,3
0,0
126,8
1,4
0,0
0,3
0,5
6,7

12,0
0,8
88,5
0,0
0,2
178,0
3,2
1,0
0,0
114,7
3,7
0,0
1,5
1,2
6,3

8,7
1,4
77,4
0,0
0,4
153,0
4,1
0,7
0,0
107,6
3,8
0,0
1,7
1,2
5,3

5,8
0,8
8,8
0,0
0,0
2,3
0,8
5,4
0,0
0,5
0,0
0,0
0,0
0,0
0,9

4,8
0,7
8,2
0,0
0,0
1,4
0,8
7,5
0,0
0,3
0,0
0,0
0,0
0,0
0,6

4,4
0,4
7,7
0,0
0,0
1,5
0,7
5,0
0,0
0,4
0,6
0,0
0,0
0,0
0,2

4,6
0,3
6,6
0,0
0,0
1,5
0,8
9,8
0,0
0,4
2,0
0,0
0,2
0,0
0,2

3,1
0,2
6,4
0,0
0,0
0,9
0,9
7,7
0,0
0,4
1,1
0,0
0,3
0,0
0,2

21,6
1,8
124,6
0,0
0,4
208,6
9,3
6,5
0,0
137,9
0,0
0,0
0,0
0,0
10,0

20,3
1,5
125,6
0,0
0,0
202,1
5,2
8,2
0,0
130,7
0,0
0,0
0,0
0,0
7,9

19,7
1,4
94,5
0,0
0,1
183,7
6,5
5,3
0,0
127,2
2,0
0,0
0,3
0,5
6,9

16,6
1,1
95,1
0,0
0,2
179,5
4,0
10,8
0,0
115,1
5,7
0,0
1,7
1,2
6,5

11,8
1,6
83,8
0,0

0.4
153,9
5,0
8,4
0,0
108,0
4,9
0,0
2,0
1,2
5,5

Total

495,3

477,1

427,2

411,1

365,3

25,3

24,3

20,9

26,4

21,2

520,7

501,5

448,1

437,5

386,5

Source: Evolution of EAGGF payments by Member States, DG VI.

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
C
o
m
m
u
n
i
t
i
e
s

C
1
4
7
/
1
3

Table 5

Quality requirements and definitions for SM and SMP

Council Regulation (EEC) No 986/68

Commission Regulation (EEC) No 1105/68 (SM)

Commission Regulation (EEC) No 1725/79
(SMP)

Commission Regulation (EEC) No 322/96
(Intervention-public storage)

Skimmed milk (SM)

SM milk or buttermilk with a fat content not
exceeding 1 %.
Aid is granted for:
(cid:151) SM processed sold to farmers for feed
(the modalities of which were to be deter-
mined),

(cid:151) SM used for feed on the holdings where

it is produced,

(cid:151) SM used for compound feedingstuffs.

Skimmed milk powder
(SMP)

SMP: milk or buttermilk powder with a fat
content not exceeding 11 %:
Aid granted for:
(cid:151) denatured SMP,
(cid:151) SMP included in compound feedingstuffs.

The maximum fat content can be exceeded
by 25 % under certain conditions.
The defatted dry matter content of SM and
buttermilk should be at least 8,75 % and 8 %,
respectively-subject to certain exceptions.
Aid for buttermilk is paid at a reduced rate
if the dry matter content is not less then
4 %.
100 litres SM=103 kg
No dilution with water or whey (cid:145)which is
not part of normal production process(cid:146).

SMP which complies with the conditions of
Regulation (EEC) No 1725/79 (but not but-
termilk powder) is eligible for aid if sold in
liquid form but only if the quantity does not
exceed 40 % of SM sold to the livestock
farmer in the previous year.
Same provisions as for SM apply.

Not applicable.

SM must comply with conditions of Regula-
tion (EEC) No 986/68, and should not con-
tain additives.
SM mixed with other products may be
eligible for aid if no products apart from fat,
vitamins, minerals, sucrose, and certain other
agents (anti-oxidants, emulsifiers, anti cak-
ing, etc.) are added.
The same requirements for testing apply as
for SMP (see below).

SMP must comply with conditions of Regu-
lation (EEC) No 986/68 and should not con-
tain additives.
The maximum water content is 5 % (for each
0,2 % more the aid is reduced by 1 %).
SMP mixed with other products may be
eligible for aid if no products apart from fat,
vitamins, minerals, sucrose, and certain other
agents (antioxidants, emulsifiers, anti cak-
ing, etc.) are added.
Detailed testing is required to check that
rennet whey has not been added.
Checks must also establish that the follow-
ing products in particular are not contained
in SMP:
(cid:151) lucerne meal or grass meal,
(cid:151) starch or puffed starch,
(cid:151) fish meal.

In order to be eligible for intervention, the SMP should have a
protein content of at least 35,6 % of the non-fat dry matter. A
lower intervention price is available for SMP with a protein
content of at least 31,4 %. The following conditions also apply:
(cid:151) fat content: 1 % maximum,
(cid:151) water content: 3,5 % maximum,
(cid:151) titrable acidity: 19,5 ml maximum,
(cid:151) lactate content 150 mg/100 g maximum,
(cid:151) additives: none,
(cid:151) phosphate test: negative,
(cid:151) solubility index: 0,5 ml maximum,
(cid:151) burnt particles: 15,0 mg maximum,
(cid:151) micro organisms: 40 000 maximum per gram,
(cid:151) detection of coloforms: negative,
(cid:151) no buttermilk, no whey,
(cid:151) antimicrobial substances: negative,
(cid:151) taste/smell/appearance: clean free from impurities and

coloured particles.

Other definitions

No additional definitions.

No additional definitions.

No additional definitions.

Buttermilk: the by-product of butter manufacture obtained
after churning of the cream and separation of the solid fat.
Whey: the by-product of cheese or casein obtained by the action
of acids, rennet and/or chemical physical processes.

C
1
4
7
/
1
4

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
C
o
m
m
u
n
i
t
i
e
s

.

.

2
7
5
1
9
9
9

.

.

2
7
5
1
9
9
9

External trade of skimmed milk powder in the European Union

Table 6

E
N

(in tonnes)

Exports

1993

1994

1995

1996

1997

Imports

1993

1994

1995

1996

1997

CEEC countries:
Czech Republic
Hungary
Poland
Slovakia

Baltic States:
Estonia
Latvia
Lithuania

Total CEECs

Total Baltic States:

Bulgaria and Romania:
Bulgaria
Romania

Total Bulgaria and Romania

Other countries:
Mexico
Algeria
Philippines
Malaysia
Indonesia
Singapore
South Africa
Thailand
Egypt
Cuba
Other

Total other countries

50
1
30
15
96

8
8
2
18

140
39
179

88 122
34 189
3 780
15 753
11 757
3 823
497
4 320
2 158
8 724
105 281
278 404

33
8
1 124
0
1 165

2
1
72
75

148
7
155

28 460
6 287
2 608
6 257
5 226
2 709
183
4 244
766
977
79 815
137 532

4
13
31
43
91

10
30
49
89

209
231
440

54
1
23
68
146

2
13
2
17

36
499
535

29
344
84
37
494

27
26
24
77

55
169
224

49 648
22 828
13 269
24 240
17 290
15 167
949
15 186
1 586
8 660
206 242
375 065

75 829
26 503
3 901
10 371
6 028
5 127
3 343
8 216
2 601
3 398
81 975
227 292

99 583
22 977
13 052
12 890
11 426
8 983
7 215
6 442
6 302
5 783
85 698
280 351

CEEC countries:
Czech Republic
Hungary
Poland
Slovakia

Baltic States:
Estonia
Latvia
Lithuania

Total CEECs

Total Baltic States

Bulgaria and Romania:
Bulgaria
Roumania

Total Bulgaria and Romania:

Other countries:
Ukraine
Russia
Belarus
New Zealand
Egypt
Moldova
United States of America
Mexico
India
Others

Total others countries

1 980
0
3 246
369
5 595

142
114
3 373
3 629

0
253
253

10
3 359
209
128
0
0
18
0
0
4 299
8 023

1 886
1
3 959
905
6 751

254
0
368
622

0
0
0

40
215
0
6
0
0
9
0
0
1 023
1 293

2 600
3
11 477
1 228
15 308

841
32
2 461
3 334

0
58
58

734
1 309
860
149
0
0
5
0
0
9 398
12 455

3 397
96
16 097
1 484
21 074

7 920
909
7 538
16 367

0
259
259

3 628
5 210
1 063
490
0
0
0
575
300
1 432
12 698

4 310
59
25 001
1 656
31 026

9 551
2 570
11 062
23 183

0
586
586

4 278
3 435
540
406
160
80
28
25
25
117
9 094

Total exports

278 697

138 927

375 685

227 990

281 146

Total imports

17 500

8 666

31 155

50 398

63 889

Source: Commission DG VI-D.1 document reference IV044.xls.

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
C
o
m
m
u
n
i
t
i
e
s

C
1
4
7
/
1
5

C 147/16

EN

Official Journal of the European Communities

27.5.1999

Graph 1

Milk and milk products and existing disposal measures

Disposal measure

Butter/cream/concentrated butter for use 
in pastry, ice creams and other foodstuffs, 
Regulation (EC) No 2571/97 (ex 570/88)

Disposal measure
Concentrated butter for direct consumption, 
Regulation (EEC) No 429/90

Disposal measure

Butter at reduced price for non-profit-
making organisation Regulation
(EEC) No 2191/81

MILK
(principal contents)

Water

Lactose

Proteins:

casein

albumin

globulin

Fat

87,5 %

5,0 %

3,0 %

0,5 %

0,1 %

3,5 %

CREAM

SKIMMED MILK

BUTTER

BUTTERMILK
(BM)

Dehydration

Buttermilk powder
(BMP)

Skimmed-milk 
powder (SMP)

Disposal measure

Disposal measure

BM and SM as animal feed Regulation 
(EEC) No 1105/68

BMP and SMP in compound feedingstuff Regulation 
(EEC) No 1725/79

CHEESE
from full milk and raw milk

CHEESE

from skimmed milk

WHEY

Disposal measure

Aid for the production of 
casein/caseinate Regulation 
(EEC) No 2921/90

Dehydration

Whey powder
(not subsidised)

Subsidised and non-subsidised consumption of skimmed milk and skimmed milk powder in the European Union

Graph 2

7 000

6 000

5 000

s
e
n
n
o
t
0
0
0
1

4 000

3 000

2 000

1 000

0

1984

1985

1986

1987

1988

1989

1991

1992

1993

1994

1995

1996

1990

Year

Note: Liquid skimmed milk is expressed in terms of skimmed milk powder equivalent.

Source: Annexes to Commission (DG VI) document (cid:145)Situation and outlook - dairy sector(cid:146), April 1997.

Non-subsidised consumption

Subsidised casein consumption

Subsidised animal feed consumption

 
27.5.1999

EN

Official Journal of the European Communities

C 147/17

Graph 3

Key skimmed milk powder prices

g
k
0
0
1
U
C
E

/

250

200

150

100

50

0

Netherlands market prices

Germany market prices

France market prices

Intervention

World average market prices

Export refunds

1.1.1995

1.3.1995

1.5.1995

1.7.1995

1.9.1995

1.11.1995

1.1.1996

1.3.1996

1.5.1996

1.7.1996

1.9.1996

1.11.1996

1.1.1997

1.3.1997

1.5.1997

1.7.1997

1.9.1997

1.11.1997

1.1.1998

1.3.1998

1.5.1998

Source: Court of Auditor(cid:146)s review of various Commission documents.

Date

 
C 147/18

EN

Official Journal of the European Communities

27.5.1999

COMMISSION(cid:146)S REPLIES

SUMMARY

To avoid building up of stockpiles, the common market organisation (CMO) for milk and milk products provides for
different disposal measures on the internal market. The aim of these measures is to provide for additional outlets for
milk ingredients, which would otherwise be replaced by cheaper alternatives. As regards the protein part of milk, three
measures are currently in force which absorb a total quantity of some 10,3 million t of skimmed milk (i.e. around 9 %
of total European Union milk deliveries). The Court(cid:146)s report examines two measures that relate to the use of liquid
skimmed milk and skimmed-milk powder used as animal feed. They account for 3,2 % (Regulation (EEC) No 1105/68)
and 50,4 % (Regulation (EEC) No 1725/79), respectively, of the total quantity mentioned above.

Over the past 10 years, the volumes of skimmed milk and skimmed-milk powder (SMP) subsidised for the use in
animal feed have substantially declined: from a total quantity of 12,5 million of skimmed milk equivalent in 1988
down to 5,5 million t in 1998. As regards the use of liquid skimmed milk for cattle feeding on farms, the substantial
decrease of volumes sold under this scheme is due to the dairy industry(cid:146)s preference for further processing of the
skimmed milk whenever possible (to reduce transport costs and create added value). Moreover, cattle farmers prefer
using compound feedingstuffs rather than mixing different ingredients themselves. The use of skimmed milk powder
for the production of compound feedingstuffs (mainly calf feed) decreased substantially as a result of its substitution,
mainly by whey powder.

The Commission agrees with the Court that it would be appropriate to link the aid closer to the quality (protein
content in particular) of the skimmed-milk powder.

The Commission examines on a regular basis the market management measures for skimmed-milk powder both
within its services and with the Member States in the framework of the Management Committee for Milk and Milk
Products. On the basis of these discussions and taking account of the developments on the milk and veal markets in
recent years, the Commission is convinced that the aid was fixed at an appropriate level.

The Commission is not convinced that fixing the aid through a tendering procedure would be useful under this aid
scheme. The Commission fears that the administrative burden and the financial risks involved in such procedure
would, either have a dissuasive effect on the use of skimmed-milk powder, or limit the participation in the tenders to
a small group of specialised operators thus limiting considerably the competition within the system.

Imports of skimmed-milk powder from third countries, as part of the Union(cid:146)s WTO commitments, become part of
the global surplus on the Community market and cannot therefore be isolated from market management. A differenti-
ated treatment between European Union and imported products would necessitate the introduction of onerous control
mechanisms.

The Commission is planning a review of the aid scheme for liquid skimmed milk used as animal feed. If this examina-
tion confirms the need to maintain all or parts of this scheme, the implementing rules will be reinforced notably as
regards the control procedures and the eligibility criteria.

The Commission proposed to the Council back in 1989 to delete the provision in Council Regulation (EEC) No 986/68
that authorises the payment of the aid in the Member State where the skimmed-milk powder is produced. In the
framework of Agenda 2000, the review of the milk policy should result in abolishing this special aid arrangement.
The legal situation has changed following the proposal for a new basic Regulation on the milk sector. In Agenda 2000,
the Commission proposes repealing Regulation (EEC) No 986/68, which allows the Member States to utilise the above-
mentioned payment arrangements. The new Regulation lays down no provisions requiring the Commission to main-
tain those arrangements from 1 January 2000.

With regard to the problems indicated concerning the application of the regulations and the cases noted by the Court,
the Commission will carry out all the checks necessary and will follow them up under the clearance of accounts
procedure.

27.5.1999

EN

Official Journal of the European Communities

C 147/19

COMMUNITY AID AND THE MILK MARKET

The market for SMP

The common market organisation for milk and milk products

10. The high proportion of SMP that requires aid for its disposal can
be explained by the fact that SMP is a residual outlet for skimmed
milk. In other words, surplus milk that cannot be processed into other
added value dairy products is used for the manufacture of SMP and
butter, the two intervention products, which are the basis for the mar-
ket support mechanism in the dairy sector.

20. The Commission is convinced that the rate of incorporation is a
useful tool for steering the uptake of skimmed-milk powder under this
aid scheme. Taking account of the present market conditions, and of
the accumulation of public stocks in particular, the Commission
believes that the 50 % rate should be maintained.

As indicated by the Court, the Commission will continue to examine,
as in the past, the effects of this rule and adjust the rate when appro-
priate.

The legal context

14. As part of the Agenda 2000 package, the Commission has sub-
mitted a proposal for a new basic Council Regulation on the common
market organisation for milk and milk products. One of the aims of
this proposal is to simplify the existing legislation, notably by sup-
pressing all Council Regulations laying down general implementing
rules. The latter list includes Regulation (EEC) No 986/68. Conse-
quently, once this Regulation is adopted, the Commission will proceed
to a redrafting of Regulations (EEC) No 1725/79 and (EEC) No 1105/68,
in case it would be decided to maintain the latter scheme.

Moreover, it should be underlined that the control procedures relat-
ing to the content of skimmed milk powder in feedingstuffs are less
reliable in case of low incorporation rates.

Fixing the level of aid

22. The Commission should firstly like to stress that the interven-
tion price for skimmed-milk powder has remained unchanged since 1
July 1993 (except for the green rate adjustment on 1 February 1995).
Hence, the main parameter for fixing the aid level has been static since
the last aid adjustment.

Observations on the Commission Regulations

16.(a). The Commission agrees with the Court; the scheduled revi-
sion of Regulation (EEC) No 1725/79 should include a critical exami-
nation of the need to introduce a minimum requirement on the pro-
tein content of SMP subsidised under this scheme or, alternatively, to
link aid payment to the quantity of milk protein used in animal feed-
ingstuffs.

Furthermore, the other parameters mentioned in Article 2a(1) of
Regulation (EEC) No 986/68 are regularly assessed notably in the
framework of the decisions on the minimum incorporation rate or in
relation to other decisions on the management of the milk protein
market. These measures have been analysed in different notes or work-
ing documents and were discussed with Member States in the Manage-
ment Committee for Milk and Milk products. The Commission will
examine how to improve the recording of such deliberations.

16.(b). The Commission agrees with the Court; the 25 % tolerance
should be removed to ensure compliance with Council Regulation
(EEC) No 986/68. However, the Commission underlines that, given
the higher value of milk fat vis-(cid:224)-vis milk protein, there is no economic
advantage for operators in selling liquid milk with an excessively high
fat content.

16.(c), (d) and (e). The Commission intends to examine the situation
with regard to Regulation (EEC) No 1105/68 once the new basic Regu-
lation for the milk sector will be adopted by the Council (see remarks
on point 14). In view of the marginal importance of this scheme for
the balance on the milk protein market (3 % of the total subsidised
volume of skimmed milk on the internal market), the need to main-
tain this measure will be assessed. This examination will take into
account that the present Regulation covers four different modus oper-
andi, which inevitably requires a multiplication of eligibility criteria
and administrative and control procedures.

As regards the level of aid applied since 1993, the Commission is con-
vinced that the decision to maintain the aid at the same level was justi-
fied in view of the situation on the market. Moreover, in view of the
declining market share of skimmed-milk powder in this sector, there
is no reason to assume that the aid level was fixed at too high a level
during all or even part of the period examined. Over the past 10 years,
whey powder has replaced a large part of the skimmed-milk powder
uses in calf feed, to the extent that more than two thirds of the total
whey powder production is now absorbed by calf feed. This underlines
the strong competition between SMP and whey powder for use in ani-
mal feed.

23. The Commission recognises that a tender procedure can be a
useful tool for fixing an aid at an appropriate level under certain con-
ditions. However, in the case of the aid schemes for skimmed milk and
skimmed-milk powder used as animal feed, the Commission remains
convinced that a tender procedure could not play a useful role. There
are several arguments in support of this thesis.

16 and 17.
If the scheme is maintained, the Commission agrees with
the Court that the relevant Regulation should provide for detailed
rules on the eligibility criteria for aid as well as on the control and
administrative procedures.

Firstly, experience gained on other aid schemes indicates that opera-
tors are not inclined to effectively use the tender system as an instru-
ment for aid fixing but rather as a means of prefixing the aid for a

C 147/20

EN

Official Journal of the European Communities

27.5.1999

certain quantity of eligible product. In this case, the initiative for
changing the aid level is taken by the Commission just as in the case
where a fixed aid level applies.

Secondly, participating in a tender procedure requires additional
administrative work and related costs for an operator. It may be
assumed that these elements will ultimately be discounted in the offer.
For the same reasons, it is likely that compound feed manufacturers
will try to avoid the risks and burden of the tendering procedure in
which case they could ask a trader to deliver this service. In turn this
would imply that the participation in the tender would be limited to a
small number of specialised traders, who also supply the skimmed
milk powder, which would limit considerably the element of competi-
tion that is a prerequisite for an efficient tendering arrangement.

the aid application and the monthly records should always be pos-
sible. The French practice of weekly payments is acceptable as regards
the principle, provided that the practical application allows for the
reconciliation of aid claims and monthly records. This matter will be
followed up in the clearance of accounts procedure.

41. The Commission certainly agrees with the Court that the testing
for the presence of whey must be systematic as foreseen by Article
10(3) of the Regulation and that irregularities detected should be fol-
lowed up rigorously at Member State and Community level. As regards
the high percentage of tests indicating presence of whey in Belgium,
the Commission services are of the opinion that normally this should
lead to an increase of the number of samples. The Court(cid:146)s observa-
tions will be followed up in the clearance of accounts rocedure.

External trade

27. As regards skimmed-milk powder imported from third countries,
the Commission has submitted a proposal to the Council in 1993 (see
COM(93) 211 final) with a view to limiting the amount of the aid paid
on these products to the amount of duty paid on import. The Council
did not adopt this proposal, because a majority of Member States felt
that it would be impossible to control the origin of skimmed-milk
powder once it is in free circulation on the Community market. For
the same reasons, Member States expressed great resistance against
excluding imported skimmed-milk powder from the aid scheme as an
alternative option.

THE MEMBER STATES(cid:146) MANAGEMENT

Aid for liquid skimmed milk

The findings of on-the-spot enquiries

31 to 36. As indicated above, the operation of Regulation (EEC)
No 1105/68 will have to be reviewed as a consequence of the propos-
als related to Agenda 2000. On this occasion, the Commission will
examine the need to maintain all or parts of this scheme and will
endeavour to introduce specific and binding control procedures tak-
ing account of the Court(cid:146)s findings and recommendations.

The Court(cid:146)s observations will be followed up in the clearance of
accounts procedure and duly notified to the Member States concerned.
If confirmed, they might lead to financial corrections. For the case
mentioned by the Court concerning the Netherlands (paragraph 36)
the Commission(cid:146)s services have initiated the procedure for the neces-
sary follow-up checks on-the-spot.

Aid for skimmed milk powder

42. For the Court(cid:146)s findings concerning 3 350 kg of SMP for which
aid had been paid despite the presence of whey, the Dutch authorities
have stated that the payment has been recovered. This will be verified
in the clearance of accounts procedure.

Weaknesses concerning the aid for SMP processed into compound
feedingstuffs in the territory of another Member State

43 to 49. As indicated by the Court, the Commission proposed to
the Council back in 1989 (see COM(89) 448 final) to delete the provi-
sion in Article 3(1) of Regulation (EEC) No 986/68 that authorises the
payment of the aid in the Member State where the skimmed-milk
powder is produced. This proposal was discussed in several meetings,
but no qualified majority was found to allow the adoption of the text.

As indicated above, the Agenda 2000 proposals for the milk sector
have placed this dossier in a new perspective. If the Council adopts the
new basic Regulation proposed by the Commission, rules concerning
the aid payment will have to be specified in the implementing Com-
mission Regulation. In line with its abovementioned proposal, the
Commission does not intend to provide for the kind of payment
regime described above.

48. The Court(cid:146)s observations will also be followed-up in the clear-
ance of accounts procedure.

Weaknesses relating to public storage

50 to 52. With regard to the problems indicated concerning the
application of the Regulations and the cases noted by the Court, the
Commission will carry out all the checks necessary and will follow
them up under the clearance of accounts procedure.

The findings of on-the-spot enquiries

CONCLUSION

40. Regulation (EEC) No 1725/79 provides that monthly records
should be kept on the quantities of products used and manufactured
by approved companies (Article 8(1)(b) and (3)). Reconciliation between

53. The high proportion of SMP that requires aid for its disposal can
be explained by the fact that SMP is a residual outlet for skimmed

27.5.1999

EN

Official Journal of the European Communities

C 147/21

milk. Surplus milk that cannot be processed into other added value
dairy products is used for the manufacture of SMP and butter, the two
intervention products, which are the basis for the market support
mechanism in the dairy sector.

55. The Commission underlines that the market management mea-
sures for skimmed-milk powder have indeed been regularly examined
both within its services and with the Member States in the framework
of the Management Committee for Milk and Milk Products. On the
basis of these discussions and taking account of the developments on
the milk and veal markets in recent years, the Commission is con-
vinced that the aid was fixed at an appropriate level. However, the
Commission will continue to reassess the appropriateness of the aid
level and the incorporation rate.

The Commission is not convinced that fixing the aid through a tender-
ing procedure would be appropriate in this case. The Commission
fears that the administrative burden and the financial risks involved in
such a procedure would, either have a dissuasive effect on the use of
SMP, or limit the participation in the tenders to a small group of spe-
cialised operators thus limiting considerably the competition within
the system.

56. The Commission will examine how to improve the link between
aid level and quality of the eligible products.

57 to 59. The Commission is planning a review of the aid scheme for
liquid skimmed milk used as animal feed (Regulation (EEC) No1105/68),
which accounts for less than 3 % of the subsidised disposal of skimmed
milk on the internal market. If this examination confirms the need to
maintain all or parts of this scheme, the implementing rules will be
reinforced notably as regards the control procedures.

60.
In the framework of the planned revision of Regulation (EEC)
No 1725/79, the Commission will give particular attention to this
point.

61. The Commission refers to its proposal to the Council of 1989,
which intended to suppress the regime covered by Regulation (EEC)
No 1624/76. In the framework of Agenda 2000, the review of the
milk policy should result in abolishing this special aid arrangement.

62. With regard to the problems indicated concerning the applica-
tion of the Regulations and the cases noted by the Court, the Com-
mission will carry out all the checks necessary and will follow them
up under the clearance of accounts procedure.