Report from the Commission to the budget authority on the impact on EAGGF Guarantee Section expenditure of movements in the dollar/euro exchange rate - 1999 financial year
Date: 1999-11-17
Institutions: European Commission
Subjects: EAGGF Guarantee Section, agricultural expenditure, budgetary reserve (EU), exchange parity, financial year

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 17.11.1999
COM(1999) 591 final

REPORT FROM THE COMMISSION TO THE BUDGET AUTHORITY

on the impact on EAGGF Guarantee Section expenditure
of movements in the dollar/euro exchange rate

1999 FINANCIAL YEAR

REPORT FROM THE COMMISSION TO THE BUDGET AUTHORITY

on the impact on EAGGF Guarantee Section expenditure in 1999
of movements in the dollar/euro exchange rate

I.

INTRODUCTION

The value of the dollar affects a major proportion of EAGGF Guarantee Section
expenditure. The budget appropriations for a significant number of export refunds for
agricultural products, notably cereals, rice and sugar and for some Community aids
such as aid for the production of starch, aid for the use of sugar by the chemical industry
and aid for cotton, are fixed on the basis of the gap existing between Community prices,
expressed in euros, and world prices, generally expressed in dollars.

Other things being equal, a change in the value of the dollar in relation to the euro
automatically implies a change in the gap in euro between Community prices and world
prices and consequently a change in the production aids and export refunds concerned.
If the dollar rises, the gap diminishes, leading to a reduction in expenditure; if the dollar
falls, the gap widens, raising expenditure.

The European Council of 11 and 12 February 1988, in its conclusions, expressed the
will to take explicit account of the impact of the change in the dollar on agricultural
expenditure.

On that basis, by its Decision of 24 June 1988 concerning budgetary discipline1 the
Council provided for the inclusion of ECU 1 000 million in a reserve of the general
budget of the European Communities "as a provision for covering developments caused
by significant and unforeseen movements in the dollar/ecu market rate compared to the
dollar/ecu rate used in the budget"2. The latter is equal to the average market rate
during the first three months of the year preceding the budget year.

If the average value of the dollar in the period from 1 August of the preceding year to
31 July of the current year falls in relation to the rate used in the budget, the additional
budget costs are financed by a transfer from the monetary reserve. Equally, savings in
the Guarantee Section when the dollar strengthens are to be transferred to the monetary
reserve3.

Recourse is to be had to the monetary reserve when the said expenditure (or, as the case
may be, the saving) exceeds a margin ('franchise') (ECU 400 million up to and
including the 1994 financial year). Similarly, the amount of the transfer relates to that
fraction of the impact which exceeds that margin.

1

2

3

OJ L 185, 15.7.1988, p. 29.
Following the introduction of the single currency on 1 January 1999, the legislative references to the
term “ECU” are replaced by the term “EUR”.
Up to ECU 1 000 million until the end of the 1994 financial year and up to 500 million from 1995
onwards.

2

The Edinburgh European Council of 11 and 12 December 1992 confirmed that the
monetary reserve would remain in place for the period 1993-1999 but decided that the
amount should be cut to ECU 500 million from 1995 onwards and the 'franchise' should
be reduced from ECU 400 million to ECU 200 million. Under the Interinstitutional
Agreement between the Parliament, the Council and the Commission of 29 October
1993 on budgetary discipline and improvement of the budgetary procedure4 the
monetary reserve is intended to cover the financial impact on budgetary expenditure of
substantial and unforeseen divergences in the dollar exchange rate as compared with
that used in the budget;

On 31 October 1994 the Council adopted a new Decision on budgetary discipline5
which took account of the conclusions of the Edinburgh European Council and the
inter-institutional agreement. Articles 7 to 10 and Article 12 of that Decision contain the
provisions relating to consideration of the dollar exchange rate.

In accordance with Article 9 of the Decision of 31 October 1994, the Commission is
presenting the budgetary authority with this report on the impact on EAGGF Guarantee
Section expenditure in 1999 of movements in the average dollar/euro exchange rate in
the period 1 August 1998 to 31 July 1999 in relation to the rate used in the budget. The
report contains information used to assess whether, on account of the impact of these
changes, a transfer should be proposed to or from the monetary reserve and, if so, the
relevant amount.

II.

IMPACT OF THE DOLLAR ON EAGGF GUARANTEE SECTION
EXPENDITURE IN 1999

To gauge the impact of movements in the dollar/euro rate on the 1999 financial year,
consideration must be given, under Article 7 of the Council Decision of 31 October
1994, to the gap between the average rate recorded for the dollar between 1 August
1998 and 31 July 1999 and the rate used in the 1999 budget. The rate used to assess
appropriations for the 1999 financial year is $ 1 = EUR 0.92. In accordance with the
Council Decision, this corresponds to the average rate in the first three months of the
year preceding the financial year in question (January, February and March 1998).

The following table gives the monthly exchange rate gaps recorded in the reference
period:

4

5

OJ C 331, 7.12.1993, p.1.
OJ L 293, 12.11.1994, p. 14.

3

Recorded rate
1$ = ... EUR1

Budget rate

Gap

1$ = ... EUR

in EUR

a

b

c

d = b – c

August

September

October

November

December

January

February

March

April

May

June

July

Average 1.8.98-31.7.99

0,9078

0,8666

0,8377

0,8589

0,8532

0,8616

0,8924

0,9189

0,9343

0,9410

0,9636

0,9663

0,9006

0,9200

- 0,0122

0,9200

- 0,0534

0,9200

- 0,0723

0,9200

- 0,0611

0,9200

- 0,0668

0,9200

- 0,0584

0,9200

- 0,0276

0,9200

- 0,0011

0,9200

+ 0,0143

0,9200

+ 0,0210

0,9200

+ 0,0436

0,9200

+ 0,0463

0,9200

- 0,0194

Gap

in %

e = b/c

- 1,3

- 5,8

- 8,9

- 6,6

- 7,3

- 6,3

- 3,0

- 0,1

+ 1,6

+ 2,3

+ 4,7

+ 5,0

- 2,1

1

For the period August to December, the ECU was used.

Over the period under consideration the average dollar rate, rounded off, was $ 1 =
EUR 0.90, i.e. 2.2% below the budget rate.
That drop in the value of the dollar involved additional expenditure for the EAGGF
Guarantee Section.

The recorded average rate of $ 1 = EUR 0.90 is the arithmetical mean of the daily
rates for the twelve-month period in question. The average monthly rate fluctuated
around that 12-month average, between a minimum of $ 1 = EUR 0.84 in October
1998 and a maximum of $ 1 = EUR 0.97 in July 1999.

To make an accurate assessment of the expenditures due to the depreciation of the
dollar during a period when the gaps compared to the budget rate were variable, it is
necessary to establish, over the period concerned, a weighted average dollar rate for
every agricultural product for which expenditure in euros is affected by the dollar,
taking account of the seasonal variation in the quantities exported with a refund or in
quantities eligible for Community aid.

On that basis, the additional expenditure for the EAGGF Guarantee Section as a
result of the depreciation of the dollar in relation to the budget rate is estimated at
EUR 219 million for the 1999 financial year.

4

The Annex gives a detailed calculation of this expenditure, which breaks down by
sector as follows:

B1-10:
B1-11:
B1-13:
B1-18:
-
-
B1-30:
----------------------------------------------------------------------------------------------------

Arable crops (cereals)
Sugar
Cotton
Other plant sectors
Islands and most remote regions
Rice
Non-Annex I products (cereals, sugar, rice)

EUR 120 million
EUR 21 million
EUR 62 million

EUR 4 million
p.m.
EUR 12 million

TOTAL

EUR 219 million

For other sectors, livestock products in particular, it should be noted that, like last
year, the world prices expressed in dollars were not used to establish the budget
There was therefore no need to evaluate the impact of changes in the value of the
dollar on refunds or aid to those sectors.

The additional expenditure in 1999 for the EAGGF Guarantee Section arising from
the movements in the dollar
is EUR 19 million above the margin of ECU
200 million.

Total additional expenditure:
Margin:

EUR 219 million
EUR 200 million

-----------------------------------------------------------------------------------------------------

Expenditure above the margin:

EUR 19 million

The amount of EUR 19 million is liable to be taken from the monetary reserve under
Article 10 of the Decision of 31 October 1994. However, in view of Article 12(1) of
the Commission considers that, on the basis of the foreseeable
that Decision,
implementation of all agricultural expenditure for 1999, all
the additional
expenditure arising from the fall in the dollar rate may be financed within the budget
appropriations entered in Titles B1-1 to B1-5 of the EAGGF Guarantee Section.
There is no need therefore to call on the reserve.

5

ANNEX - Calculation of the impact on EAGGF Guarantee Section expenditure of changes in the dollar rate: 1999 financial year

Average world
price recorded

Technical
adjustment
coefficient

Average world
price used

Weighted
average rate

World price converted into EUR

Unit impact of
gap in rates

Quantities
concerned

Total budget impact

a

A. EXPORT REFUNDS
Cereals and rice
- Common wheat
- Barley
- Durum wheat
- Other cereals
- Rice (milled equivalent)
Sugar

Non-Annex I products
- Common wheat
- Barley
- Durum wheat
- Other cereals
- Rice
- Sugar

B. EXPORTS FROM PUBLIC
STORAGE
- Common wheat
- Barley
- Maize
- Rye

C. AIDS
Starch (production refunds)
Sugar for chemical industry
Fibre plants (cotton)

Islands and most-remote regions
- Common wheat
- Barley
- Durum wheat
- Other cereals
- Rice (milled equivalent)
- Sugar

TOTAL A + B + C

($ / t)
b

c

($ / t)
d = b x c

($ 1 = EUR .. )
e

(EUR / t)
f = d x 0,

At rate
$1= EUR 0.92

At average
weighted rate
recorded

(EUR / t)
g = d x e

(EUR / t)
h = f – g

(1 000 t)
i

EUR (A)
million
j = h x i

Dual rate

k

EUR (B)
million
l = j x k

110,7

95
62
145
70
390
216

95
62
145
70
390
216

103
75
103
62

84
216
1.233
1.233

95
62
145
70
390
216

1,00
1,00
1,00
1,00
1,00
1,00

1,00
1,00
1,00
1,00
1,00
1,00

1,00
1,00
1,00
1,00

1,60
1,00
0,206
0,23

1,00
1,00
1,00
1,00
1,00
1,00

95
62
145
70
390
216

95
62
145
70
390
216

103
75
103
62

134
216
254
254

95
62
145
70
390
216

0,88
0,87
0,88
0,86
0,91
0,89

0,88
0,87
0,88
0,86
0,91
0,89

0,91
0,89
0,93
0,87

0,86
0,89
0,87

0,88
0,87
0,88
0,86
0,91
0,89

87,4
57,0
133,4
64,4
358,8
198,7

87,4
57,0
133,4
64,4
358,8
198,7

94,8
69,0
94,8
57,0

123,3
198,7

261,0

87,4
57,0
133,4
64,4
358,8
198,7

83,6
53,9
127,6
60,2
354,9
192,2

83,6
53,9
127,6
60,2
354,9
192,2

93,7
66,8
95,8
53,9

115,2
192,2
221,1

83,6
53,9
127,9
60,2
354,9
192,2

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

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

1,1
2,2
-1,0
3,1

8,1
6,5

39,9

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

(1)
(1)
(1)
(1)

11.558
6.315
158
3.387
114
2.915

170
410
212
1.503
9
430

1.523
5.543
39
632

3.020
300

1.549

250
62
7
518
19
23

43,9
19,6
0,9
14,2
0,4
18,9

0,6
1,3
1,2
6,3
0,0
2,8

1,7
12,2
0,0
2,0

24,5
2,0

61,8

1,0
0,2
0,0
2,2
0,1
0,1

1,006
1,006
1,005
1,006
1,006
1,006

1,006
1,006
1,006
1,006
1,006
1,006

1,005
1,005
1,005
1,005

1,005
1,005

1,011

1,005
1,005
1,005
1,005
1,005
1,005

44,2
19,7
0,9
14,3
0,4
19,0

0,6
1,3
1,2
6,3
0,0
2,8

1,7
12,3
0,0
2,0

24,6
2,0

62,5

1,0
0,2
0,0
2,2
0,1
0,1

16,0

92,7

217,9

219,4

N.B.:
(1)

On the basis of the figures in the table, a change in the dollar rate of 10% would lead to a change in expenditure of EUR 472 million
Excluding quantities exported subject to charge or with zero refund.

6

EXPLANATORY REMARKS TO THE ANNEX

Column (a) of the tables gives all the budget headings which are affected explicitly and directly
by movements in the value of the dollar as against the exchange rate used in the budget.

Column (b) gives estimated average world prices in dollars for the period concerned.
They correspond either to the average selling prices of Community products when exported or to
prices used for the calculation of the various aids.
These prices are multiplied by an adjusting coefficient [column (c)] indicating the weighting of
the world price used to determine an aid or refund. For example, 1.6 times the world price for
maize is used in determining the production refund for starch.

Column (d) gives average world prices in dollars corrected by the adjusting coefficient.

Column (e) gives the average dollar/euro exchange rates recorded, established per heading on the
basis of a weighting taking account of the seasonal nature of the quantities eligible for export
refunds or Community aids.

Columns (f) and (g) give the corrected average world prices converted into euros using the
exchange rate adopted in the budget of $ 1 = EUR 0.92 and the recorded weighted average rates
in column (e).

The unit impact of the higher value of the dollar is given is column (h) in EUR per tonne.
This unit amount multiplied by the estimated quantities [column (i)] qualifying for aids and/or
refunds during the period under review provides the impact expressed in agricultural EUR
[column (j)] and budget EUR [column (l)].

7