Special Report No 11/2000 on the support scheme for olive oil, accompanied by the Commission's replies
Date: 2000-05-04
Institutions: European Court of Auditors
Subjects: aid system, export refund, olive oil, production aid

27.7.2000

EN

Official Journal of the European Communities

C 215/1

I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 11/2000

on the support scheme for olive oil, accompanied by the Commission’s replies

(pursuant to Article 248(4), second subparagraph, EC)

(2000/C 215/01)

CONTENTS

Paragraph

Page

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

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

The audit objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Evolution of the expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART 1: PRODUCTION AID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The support mechanism for production. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The control provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Observations relating to the Commission’s management of the scheme . . . . . . . . . . . . . . . .

The regulatory framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Statistical data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Setting of institutional prices and producers’ incomes . . . . . . . . . . . . . . . . . . . . . . . . . . .

The market balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management of funds deducted from production aid . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Measures to promote consumption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Observations relating to the implementation of the scheme in the Member States . . . . . . . .

The yields as a control instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Reliability of the control mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The effectiveness of the sanctions system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The olive cultivation register. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-9

5-7

8-9

10-78

10-12

13-14

15-35

15-17

18-20

21-23

24-26

27-30

31-35

36-57

39-44

45-53

54-57

58-67

68-78

PART 2: CONSUMPTION AID AND EXPORT REFUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

79-130

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

79-85

Judgment of the European Court of Justice on measures taken to recover sums lost as the
result of irregularities or negligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

86-88

3

4

5

5

8

8

9

9

9

9

10

13

15

16

16

16

17

19

19

20

22

22

25

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Paragraph

Page

Control framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

89-92

Consumption aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93-125

Debtor accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93-95

Completeness of data on amounts to be recovered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

96-100

Delays in recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

101-106

Monitoring the progress of criminal proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

107-111

Case where recovery action was taken against the supplier rather than the aid recipient

112-113

Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

114-115

Clearance of accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

116-118

Fines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

119-123

Exchange of information on laboratory tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

124-125

Export refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

126-127

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

128-130

ANNEX — Review of the world olive oil market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Commission’s replies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25

25

25

26

26

28

28

28

29

29

30

30

30

32

34

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SUMMARY

Part 1

This part of the report deals with production aid which is granted
to about 2,2 million applicants out of 2,8 million recorded pro-
ducers of olive oil. This aid is financially the most important meas-
ure in the olive oil scheme absorbing in 1997 to 1998 more than
90 % of the total annual expenditure of about ECU 2 200 million.
The audit was focused on the management of the scheme by the
Commission and the operation of the controls in the Member
States in order to asses their contribution to the achievement of
the main objectives of the scheme, i.e. to contribute to a fair
income for the producers and to maintain a market balance.

The main institutional prices (production target price and repre-
sentative market price) were fixed annually by the Council and
had been almost frozen since 1989. The target price was an
indicative price aiming to contribute to a fair income to produ-
cers and to maintain the level of Community production. The
representative market price was intended to be set at a level per-
mitting normal disposal of olive oil. The difference between these
prices was the Community subsidy.

The audit revealed continuous changes in Community rules. After
thirty years of operation, a sufficiently efficient and reliable sys-
tem for the management and the control of the scheme has still
not been achieved.

The olive oil sector is characterised by a large number of small
holdings. About 40 % of the applicants in 1996/97 have less than
100 trees (area of 1 ha). The income objective of production aid
has never been defined and thus, the achievement of this objec-
tive could not be evaluated. The two institutional prices were kept
stable for more than 10 years and were not based on an estab-
lished method of calculation. The representative market price did
not follow the evolution of the actual market prices, which means
that Community subsidies were not always justified. As for the
market balance, the increase in number of trees and production,
the relatively slow increase in consumption, the WTO constraints
for subsidised exports and the increase in stocks in the last two
years, indicate a risk of surpluses.

With regard to the control mechanism the Court found that the
method for estimating the yields is not harmonised even within
the same country and the use of the yields as a control instrument
is ineffective. The administrative checks carried out by the pro-
ducer organisations (PO), are incomplete in important aspects. A

crucial check of double declarations for the same parcel could not
be done effectively. For the checks on the spot made by the con-
trol agencies (CA) at producer level, the sample taken is too small
and they are not based on reliable documentation. At mill level,
the sample selected is adequate but certain important aspects are
not covered in the checks made. Moreover, the CAs complete
their checks after the payments, so that cumbersome recovery
procedures have to be initiated.

A percentage of the production aid was retained every year in
order to finance the compilation of the olive cultivation register
and the quality improvement programmes. For the register an
amount of ECU 383 million was retained of which ECU 245 mil-
lion (64 %) were used. The current situation of the cultivation reg-
ister, to be replaced by the olive cultivation GIS, is that only Italy
has succeeded in setting up a register, despite being delayed, at a
cost of about ECU 195 million. The Commission should not toler-
ate any further delay in compiling the olive cultivation GIS, which
since 1996 has replaced the register and will become one of the
main tools for the control of the olive oil support scheme.

With the amendments introduced in July 1998, to be applied
until marketing year 2000/01, the subsidy is fixed without any
link to institutional prices. Other changes introduced for this tran-
sitional period include the abolition of the consumption aid and
the small producers scheme, the apportioning of the maximum
guaranteed quantity among the producer Member States, the
improvement of private storage contracts and the creation of a
geographical information system (GIS) in place of the olive culti-
vation register. New provisions clarifying and reinforcing the
administrative and control rules have also been adopted. After the
transitional period 1998 to 2000, an extensive reform system is
intended to be put into force. The Commission is committed to
submit relevant proposals in the year 2000.

Part 2

Consumption aid, which was abolished in November of 1998,
was a subsidy paid to undertakings for packing or bottling olive
oil for retail sale. It was designed to increase the market share of
olive oil which was faced with competition from cheaper culinary
oils. During its lifetime consumption aid cost the EU budget more
than ECU 6 000 million. It was also prone to irregularities and
fraud, particularly in Italy, which accounts for around 87 % of
reported irregularities. The rate of recovery of unduly paid amounts
is very low, only 6 % of irregularities reported between 1985 and
1998 has been recovered, leaving some ECU 429 million out-
standing.

The Court’s audit established that the delays in recovery in Italy
to lengthy judicial
were attributable,

the most part,

for

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procedures, caused by understaffing both in the district attorney’s
offices and in the courts themselves. The understaffing coupled
with the absence of a deterrent to appeals which may subsequently
prove to be either a delaying tactic or otherwise without serious
justification (1), lead to the situation where it could take more
than 10 years to arrive at definitive judgements (see para-
graph 101). Delays in recovery action in the other Member States,
Greece, Portugal and Spain, were caused by a mixture of slow
administrative and judicial procedures. Debtors’ accounts, which
Member States were not obliged to keep, were incomplete (Italy
and Spain). In Italy the debtors were understated by some ECU
208 million. Both Greece and Italy had failed to apply fines intro-
duced in 1992 for irregularities concerning consumption aid.

Recovery of export refunds unduly paid was subject to similar
delays, only 13 % had been recovered, although the amounts
involved were much smaller (some ECU 12,5 million reported
between 1990 and 1998). There was no exchange of information
between the responsible bodies for export refunds and consump-
tion aid concerning the results of laboratory tests. Olive oil could
qualify for both export refunds and consumption aid and there
was a considerable overlap in the chemical requirements for eli-
gibility for these subsidies.

that communication, i.e. improvement of the current system and
aid per tree, have been the subject of discussions and formal opin-
ions within the Community institutions. The Court has made its
contribution to this discussion in the form of a document (4)
summarising its observations on the reform proposed.

3. The Commission, acknowledging the current lack of reliable
information for choosing between the reform options, has pro-
posed, as an interim measure, to improve some aspects of the
present system for application for the marketing years 1998/99 to
2000/01. During this period the Commission is committed to
gathering reliable information, particularly about the number of
olive trees, the areas planted and yields, on which to base its pro-
posal for an extensive reform in the course of the year 2000.

4. The changes to the present system, introduced by Council
Regulations (EC) No 1638/98 and No 1639/98 of 20 July 1998,
which will be implemented (5) for the abovementioned three-year
period are:

Member States should take urgent action to speed up recovery
action and the Commission should take action within the clear-
ance of accounts procedures to protect the Community’s financial
interests.

(a) the special scheme whereby small producers were paid on the
basis of the number of their trees and a fixed yield, is abol-
ished; production aid is granted to all olive growers on the
basis of the quantity of olive oil they actually produce;

INTRODUCTION

(b) consumption aid, the aim of which was to render olive oil

more competitive with seed oils has been abolished;

1. The olive oil scheme was set up by Council Regulation
No 136/66/EEC of 22 September 1966 (2) establishing a common
organisation of the market (CMO) in oils and fats. This regulation
was adopted when the main producer Member State in the then
Community of six was Italy. This situation changed totally with
the accession of Greece in 1981, and Spain and Portugal in 1986.
The many subsequent changes in the scheme failed to establish a
satisfactory support system. Thus the need for extensive further
reform remained.

2.
In February 1997 the Commission, in a note to the Council
of Ministers and to the European Parliament (3), concluded that
far-reaching reform of the support scheme for the olive and olive
oil sector was necessary. The two options for reform contained in

(c) the Community maximum guaranteed quantity of olive oil
eligible for production aid has been increased and for the first
time apportioned among the Member States in the form of
national guaranteed quantities (NGQs); the total guaranteed
quantity has been increased from 1,35 million tonnes to some
1,8 million tonnes and the production aid rate has been
reduced from 142,2 to 132,5 EUR/100kg of olive oil;

(d) public storage is abolished and the private storage contracts

system has been improved;

(e) the olive cultivation register will be integrated into a more
efficient olive cultivation geographical information system
(GIS), by adopting and complementing the information already
available in the existing register.

(1) Dilatory or frivolous.
(2) OJ 172, 30.9.1966.
(3) COM(97) 57 final.

(4) Observations on the envisaged reform of the common organisation
of the market in olive oil, presented by the Court to the Council, the
European Parliament and the Commission on 26 March 1998.

(5) OJ L 210, 28.10.1998.

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The audit objectives

5. The Court has examined the olive oil scheme three times in
the past. The results of these audits were published in a Special
Report in 1985 (1) and in the Annual Reports for the financial
years 1991 (2) and 1995 (3). The main observations concerned the
control mechanism of the scheme. The Court concluded that
inadequacies in the governing regulations resulted in weaknesses
in controls; the reliance placed on controls entrusted to producer
organisations was a serious weakness in the system because of the
conflict between their members’ interests and those of the Com-
munity; management and control of production aid always
required an extraordinary administrative effort both by the Com-
mission and the Member States due to the multitude of produc-
ers, the absence of independent third-party evidence and the fact
that both miller and producer stood to gain from overstating the
quantity of olive oil produced.

6. This present audit examines the effectiveness of the manage-
ment and control of olive oil production aid up to 1998 and the
controls applied in the period 1996 to 1998. For these three years
the production aid accounted for 91 % of total budgetary expen-
diture in this area. Although the relative budgetary importance of
consumption aid and export refunds has been significantly reduced
(in 1998 they accounted for 6 % and 1 % respectively), they were
included in the audit due to the large number of irregularities in
payments notified by the Member States to the Commission. Stor-
age measures, having generated very low expenditure in recent
years, were not covered by the audit. The producer Member States
audited were Italy, Spain, Greece and Portugal. The other pro-
ducer Member State, France, was not included, due to low pro-
duction volumes of olive oil compared to the other countries and
because most of the overpayments there had already been recov-
ered.

7. The main objectives of the enquiry were to assess whether the
management of the scheme by the Commission and the opera-
tion of the measures (including the required control systems) by
the Member States contributed to the achievement of the princi-
pal declared aims of the scheme for olive oil, i.e. to provide fair
incomes for producers and maintain a balance between supply
and demand. It also evaluated the effectiveness of Member States’
follow-up of irregularities in claims for consumption aid and
export refunds. The results of the audit of production aid are pre-
sented in Part 1 of this report and those concerning consump-
tion aid and export refunds are presented in Part 2.

Evolution of the expenditure

8. The evolution of the expenditure for the period 1987 to 1998
is shown in Table 1. On average during this period, annual expen-
diture on olive oil was at ECU 1 670 million, 5,5 % of total
EAGGF-guarantee expenditure, with significant variations from
one year to the other and a slowly rising overall trend (see
Table 4). More than 65 % of the expenditure over this period con-
cerned production aid, about 27 % the consumption aid scheme,
about 4 % export refunds and the remainder account for storage
costs and production refunds.

9. The reduction in the proportion of consumption aid to total
expenditure since 1994 has been due to a shift to production aid
decided by the Council and put into force with effect from 1995.
Thus the share of production aid to total expenditure increased
from 60 % in 1994 to 90 % in 1998, while for consumption aid
the corresponding share decreased from 34 % to 6 % and for
export refunds from 3 % to 1 %. A breakdown of the expenditure
by Member State between 1993 and 1998 is presented in Table 2.

(1) OJ C 134, 3.6.1985.
(2) OJ C 330, 16.12.1992.
(3) OJ C 340, 12.11.1996.

Budgetary expenditure related to olive oil, 1987 to 1998 inclusive

Table 1

C
2
1
5
/
6

(million ECU)

E
N

Budget line

Heading

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

B1-1 2 0

Export refunds

23,2

64,2

93,2

134,9

111,8

48,4

68,8

52,8

38,2

59,3

42,7

24,9

B1-1 2 1 0
B1-1 2 1 1
B1-1 2 1

B1-1 2 2 0
B1-1 2 2 1
B1-1 2 2

B1-1 2 3 0
B1-1 2 3 1
B1-1 2 3 2
B1-1 2 3 3
B1-1 2 3 9
B1-1 2 3

B1-1 2 4

Production aid
Schemes related to production

Total

Consumption aid
Schemes related to consumption

Technical costs of storage
Financial costs of storage
Other public storage costs
Depreciation of stocks
Other storage measures

Total

Total

Other intervention (production
refund)

B1-1 2 9

Other (amounts recovered))

560,7
16,9
577,6

437,6
1,5
439,2

28,6
23,9
8,7
0,0
0,0
61,2

296,8
22,9
319,7

421,5
10,4
432,0

38,2
30,9
16,9
0,0
0,0
86,0

790,6
27,2
817,8

441,8
9,8
451,6

40,8
34,4
– 31,5
0,4
7,4
51,6

520,9
25,2
546,1

457,5
4,7
462,2

9,2
5,8
– 42,5
1,7
0,1
– 25,8

1 065,6
18,8
1 084,4

708,9
17,5
726,4

8,6
7,5
– 40,1
5,5
0,0
– 18,4

825,0
25,1
850,1

734,4
27,4
761,8

5,7
1,8
– 27,5
59,5
3,4
42,9

1 367,9
18,2
1 386,1

1 051,9
20,5
1 072,4

773,6
10,7
784,3

12,1
8,1
– 13,2
153,1
17,2
177,3

613,3
1,1
614,4

27,3
20,3
– 70,8
43,5
15,7
36,0

550,2
16,3
566,5

263,3
5,4
268,7

7,0
4,2
– 106,4
0,3
0,1
– 94,8

38,0

43,2

47,4

50,8

56,0

51,1

51,6

44,0

34,1

1 774,1
17,8
1 791,9

112,6
19,6
132,2

4,7
1,9
– 7,2
0,6
0,0
– 0,1

26,3

– 1,9

2 004,6
25,2
2 029,8

1 993,5
52,9
2 046,5

125,6
0,0
125,6

0,6
0,0
– 26,8
0,0
0,0
– 26,2

27,3

– 3,2

136,0
0,0
136,0

4,3
0,4
– 4,5
25,9
0,9
27,0

33,8

– 1,5

Total

1 139,2

945,0

1 461,5

1 168,2

1 960,2

1 754,3

2 468,1

1 819,5

812,7

2 007,7

2 196,0

2 266,7

EAGGF Guarantee expenditure

23 175,9

27 658,1

26 075,6

26 831,4

32 222,1

31 871,1

34 975,3

33 582,4

35 648,4

40 230,5

41 290,7

38 743,6

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

% of EAGGF Guarantee
expenditure

Source: Commission’s financial reports.

4,9 %

3,4 %

5,6 %

4,4 %

6,1 %

5,5 %

7,1 %

5,4 %

2,3 %

5,0 %

5,3 %

5,9 %

.

.

2
7
7
2
0
0
0

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Budgetary expenditure related to olive oil, 1993 to 1998 inclusive, by Member State

Table 2

Budget line

Heading

Greece

Spain

France

Italy

Portugal

B1-1 2 0

Refunds

Other Com-
munity

(million ECU)

Total

B1-1 2 1

B1-1 2 2

B1-1 2 3

1993
1994
1995
1996
1997
1998

Production aid
1993
1994
1995
1996
1997
1998

Consumption aid
1993
1994
1995
1996
1997
1998

Storage measures
1993
1994
1995
1996
1997
1998

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

384,0
288,6
78,6
510,7
600,5
536,9

96,9
84,8
26,8
6,9
6,5
6,8

7,3
36,3
– 11,4
3,8
– 2,0
1,6

B1-1 2 4

Other intervention (production refund)

1993
1994
1995
1996
1997
1998

0,3
0,2
0,3
0,2
0,0
0,5

B1-1 2 9

Other (recovered amounts)

1996
1997
1998

– 0,1
– 2,2
– 0,1

Source: Commission’s financial reports.

14,9
18,4
10,7
16,9
13,5
5,8

423,6
393,3
103,7
696,0
473,7
977,6

284,8
269,5
120,3
51,0
56,8
67,9

89,0
– 7,2
– 44,9
– 1,1
0,0
29,0

7,1
8,8
7,9
5,0
6,5
12,2

– 0,2
– 0,1
– 0,5

0,3
0,3
0,3
0,3
0,3
0,2

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

15,7
12,4
8,1
4,6
4,5
5,6

0,0
0,0
0,0
0,0
0,0
0,0

1,5
1,7
1,4
1,1
1,0
1,1

0,0
– 0,1
– 0,2

43,0
26,1
21,0
32,9
23,3
16,0

556,0
368,4
376,6
545,5
903,9
485,3

348,4
220,9
94,4
43,4
50,6
47,4

81,0
10,3
– 37,4
– 2,7
– 22,1
– 3,5

40,1
30,8
22,6
18,5
18,0
18,2

– 1,3
– 2,4
– 0,5

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

17,6
19,1
7,3
36,3
44,7
42,4

23,7
21,7
11,6
5,3
5,9
6,8

0,0
– 3,4
– 1,2
0,0
– 2,1
0,0

2,6
2,4
1,9
1,5
1,6
1,7

– 0,3
– 0,3
– 0,1

0,1
0,6
1,4
0,7
– 0,8
0,0

0,0
0,2
– 0,1
– 0,1
3,5
0,0

14,8
4,9
7,5
21,0
1,3
1,4

0,0
0,0
0,1
– 0,1
0,0
0,0

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

0,0
0,0
0,0

68,8
52,8
38,2
59,3
42,7
24,9

1 386,1
1 072,4
566,5
1 791,9
2 029,9
2 046,5

784,3
614,4
268,7
132,2
125,6
136,0

177,3
36,0
– 94,8
– 0,1
– 26,2
27,0

51,6
44,0
34,1
26,3
27,3
33,8

– 1,9
– 3,1
– 1,5

C 215/8

EN

Official Journal of the European Communities

27.7.2000

PART 1: PRODUCTION AID

The support mechanism for production

tive market price. Although the support system is still intended
to contribute to the provision of fair incomes, the main determi-
nant of the subsidy is the need to place a ceiling on expenditure.
For this reason the level of production aid has been frozen until
2001.

10. The olive oil scheme used to function on the basis of insti-
tutional prices. These prices (production target price and repre-
sentative market price) were fixed annually by the Council on a
proposal from the Commission, as follows:

(a) the target price was an indicative price judged appropriate so
as to provide a fair income for producers and to maintain the
level of Community production;

(b) the representative market price was set at a level that would
permit normal disposal of olive oil taking into account the
market conditions and trends in supply and demand of other
vegetable oils and fats;

(c) the difference between these two prices was the Community
subsidy, the majority of which went to producers with the
balance paid to packaging undertakings, with the objective of
making the product more attractive to consumers (1).

11. However, according to the system in force for the transitional
period (1998 to 2000), the rate of production aid is no longer
determined as a difference between target price and representa-

12. Production aid is financed under budget heading B1-1 2 1.
It is granted to producers of olive oil and, following the abolition
of the small producer scheme, is now paid exclusively on the basis
of the actual quantity produced. This aid is subject to a stabiliser
mechanism with a maximum guaranteed quantity for each Mem-
ber State. This contrasts with the previous situation under which
an overall breach of quotas led to a reduction in the rate of sub-
sidy to all producer Member States without any regard to respon-
sibility for the excess. Given the national quotas and the amount
of production aid fixed for the three-year period, the maximum
Community support each producer Member State can receive is
presented in Table 3. Should the quantity of olive oil eligible for
payment exceed the national guaranteed quantity (NGQ), the sta-
biliser mechanism will make a proportional reduction in the
amount of the aid. It should also be added that a percentage of the
production aid is retained for financing regional measures to
improve the quality of oil production and its environmental
impact in each producer Member State. This percentage is fixed
at 1,4 % for the 1998/99 to 2000/01 marketing years. A further
percentage, fixed at 0,8 %, is withheld and paid to approved pro-
ducer organisations and associations in compensation for the
administrative and control tasks they perform.

Olive oil production aid — maximum national guaranteed quantities and Community support

Table 3

Member State

Spain
France
Greece
Italy
Portugal

Max. NGQ
in tonnes

760 027
3 297
419 529
543 164
51 244

Total

1 777 261

Unit amount of production aid
ECU/tonne

Total max. amount of Community
aid
in ECU

1 322,5
1 322,5
1 322,5
1 322,5
1 322,5

1 005 135 708
4 360 283
554 827 103
718 334 390
67 770 190

2 350 427 673

(1) Example for the period since 1994/95 marketing year, after the mon-

etary realignment :
Production target price ECU
383,77/100kg of olive oil
Representative market price ECU 229,50/100kg of olive oil
Difference ECU
154,27/100kg of olive oil
Analysed: Production aid (large producers) 142,20
12,07
154,27.

Consumption aid
Total

27.7.2000

EN

Official Journal of the European Communities

C 215/9

The control provisions

13. For the production aid scheme, the requirements of Council
Regulation (EEC) No 2261/84 of 17 July 1984 (1) covering eligibil-
ity conditions, administrative procedures, the duties of the bod-
ies involved and their control responsibilities continue to apply
for the transitional period up to the 2000/01 marketing year.
the Commission’s implementing Regulation (EC)
However,
No 2366/98 of 30 October 1998 (2), has clarified the above-
mentioned conditions, procedures and responsibilities. The most
important new provisions concern additional conditions for the
approval of mills, quality control of olive oil, obligation on grow-
ers to keep records, imposition of a scale of penalties, specific
on-the-spot checks and control coverage between 1 % and 10 %
of the growers’ declarations, additional cursory checks on mills
and in-depth cross-checks for suppliers and consignees.

14. The extensive level of control resulting from the complexity
of the system, in the case of olive oil, causes a significant burden
on Member States due to the large population subject to that con-
trol. In 1996/97 the population subject to control in the context
of the production aid scheme was about 2,8 million producers
involving more than 2 million aid applications annually. There
were around 380 producer organisations and associations and
10 800 mills operating during that year.

Observations relating to the Commission’s management of
the scheme

The regulatory framework

15. Continuous modification of the relevant regulations and the
introduction of various measures have been observed since the
establishment of the olive oil scheme. Despite all these amend-
ments, and the experience of thirty years, the system for the man-
agement and control of the support scheme for olive oil is still not
sufficiently efficient and reliable.

16. During this period Community policy changed direction on
many occasions. A striking example is the provision for dealing
with the problem of structural surpluses. Council Regulation
(EEC) No 1562/78 of 20 June 1978 (3) provided that production
aid should be granted only in respect of areas planted with olive
trees before 31 October 1978. Subsequent to the entry of Spain
and Portugal this restriction was removed by Council Regulation
(EEC) No 1915/87 of 2 July 1987 (4) thus allowing massive increases

in EU production capacity. The restriction was introduced again
with Council Regulation (EC) No 1638/98 according to which no
aid may be paid as from 1 November 2001 in respect of trees
planted after 1 May 1998. Thus a measure which had been abol-
ished was reintroduced after 11 years in the interest of efficiency.

17. Another example is the small producers regime. Initially
‘small producers’ were defined as growers whose production was,
in principle, intended for their own consumption and who were
not members of producer organisations. The limit was set at a
maximum annual production of 100 kg of olive oil. Council
Regulation (EEC) No 1097/84 of 31 March 1984 (5) dropped the
requirement that the producers could not be members of pro-
ducer organisations and all growers producing less than 100 kg
of olive oil became eligible under the small producers regime.
From the marketing year 1987/88 onwards, the limit was increased
to 200 kg and subsequently to 300 kg (1988), 400 kg (1989) and
finally to 500 kg (1990), far in excess of the annual consumption
of a single household. As from 1998/99 the provisions relating to
aid for small producers were repealed. It took several years to
develop measures which recognise that the small producers scheme
was vulnerable to irregularities and unjustified payments.

Statistical data

18. Accurate, reliable and relevant statistical data are an indis-
pensable basis for effective management and decision making. In
the olive oil sector the lack of reliable statistical data is a signifi-
cant problem. The Commission in its note to the Council and to
the Parliament (6) on the olive and olive oil sector, detailed a num-
ber of problems and inconsistencies in the data submitted by the
Member States. Furthermore, one of the reasons the Commission
has proposed the transitional period for the marketing years
1998/99 to 2000/01 is the need for more reliable information
particularly on the number of olive trees, the areas planted and
the yields.

19. The Commission has carried out two statistical enquiries in
order to obtain the necessary information. The first is the Olistat
enquiry into the number of trees, the second-called Oliarea, cov-
ers the area under olive cultivation..

20. The results of the Olistat study in 1998 present a totally dif-
ferent picture from that known before the beginning of the study.
There are about 180 million olive trees more than the previous
estimates of total number of trees, i.e., a difference of about 31 %.
At the level of Member States, this difference varies significantly.
This shows the extent of the unreliability of the basic data needed
to manage the olive oil scheme.

(1) OJ L 208, 3.8.1984.
(2) OJ L 293, 31.10.1998.
(3) OJ L 185, 8.11.1978.
(4) OJ L 183, 3.7.1987.

(5) OJ L 113, 28.4.1984.
(6) COM(97) 57 final.

C 215/10

EN

Official Journal of the European Communities

27.7.2000

Setting of institutional prices and producers’ incomes

Main features of the income structure

In some areas of the producer Member States parents tradi-
21.
tionally divide their land equally between their heirs leading to
over-segmentation of agricultural
land. Of the growers who
applied for aid in the marketing year 1996/97, in Spain 36 %, in
Portugal 43 % and in Greece 35 % (1) had less than 100 olive trees
(area of about 1 ha) and 38 %, 61 % and 41 % respectively had
produced less than 250 kg of olive oil. The production of 250 kg
of olive oil in 1998/99 attracted Community aid of ECU 330.
Thus, for a significant proportion of producers, income from
olive oil is a complementary rather than the main source of
income. This is also supported by estimates made by national
administrations requiring 1 000 to 1 500 trees to generate suf-
ficient income for a family of four to live exclusively from olive
cultivation. Only about 5 % of the holdings which applied for aid
in 1996/97 have more than 1 000 trees in production.

Amount of production aid

22.
In principle the amount and allocation of Community sub-
sidy should be determined by reference to its objectives. Especially
for the production aid the income objective is stated as ‘contribut-
ing to a fair income for producers’. In practice this objective has
never been defined in a way which would make possible the meas-
urement of its achievement. An indication of this contribution is
the ratio of the subsidy to total value of production. Based on

an average of the annual market prices supplied by the Commis-
sion and the quantities of olive oil produced (IOOC data, includ-
ing olive pomace oil), the Court has made an approximate esti-
mate of the total value of production for the main producer
Member States for the period 1986/87 to 1997/98. The share of
the subsidy to the estimated total value of production, although
it varies over time, is significant, amounting on average to about
35 % during the period (see Table 4).

23. The amount of the Community subsidy was until 1998/99
determined as difference between target price and representative
market price. The target price which is supposed to provide a fair
income to the producers was proposed by the Commission with-
out following an established method of calculation based on
objective income and cost indicators. Besides, the target price has
been kept frozen for more than 10 years and it is again fixed for
the whole transitional period. On the other side, the representa-
tive market price had been set not by reference to actual observed
market prices, but by deducting the aid rate set for the previous
year from the target price. In fact the representative market price
was fixed almost at the same level for the last 10 years and it was
lower than the market prices for most of this period. Since actual
market prices have generally been higher than the representative
market price set by the Council, the subsidy paid per tonne has
exceeded the amount properly payable by reference to the target
price (see Table 5). Indeed, in 1995/96 the registered wholesale
price almost reached the target price, which logically negated the
need for any subsidy at all. It should be added that during the last
years an important concern in setting the prices has been the
need to keep budgetary expenditure under control.

(1) This data was obtained from these three Member States only.

.

.

2
7
7
2
0
0
0

Comparison value of production with budgetary expenditure

Table 4

Marketing year

1986/87

1987/88

1988/89

1989/90

1990/91

1991/92

1992/93

1993/94

1994/95

1995/96

1996/97

1997/98

1

2

Approximate value of production

2 374,0

3 555,0

2 440,0

3 469,0

2 280,0

3 719,0

2 719,0

2 691,0

3 956,0

5 290,0

3 952,0

3 673,0

Budgetary expenditure

1 139,2

945,0

1 461,5

1 168,2

1 960,2

1 754,3

2 468,1

1 819,5

812,7

2 007,7

2 196,0

2 266,7

3=(1+ 2)

Total

4=2/3

Ratio

3 513,2

4 500,0

3 901,5

4 637,2

4 240,2

5 473,3

5 187,1

4 510,5

4 768,7

7 297,7

6 148,0

5 939,7

32 %

21 %

37 %

25 %

46 %

32 %

48 %

40 %

17 %

28 %

36 %

38 %

(million ECU)

6 000

5 000

4 000

3 000

2 000

1 000

0
1986/87

1987/88

1988/89

1989/90

1990/91

1991/92

1992/93

1993/94

1994/95

1995/96

1996/97

1997/98

Appr. Value of production
Approximate value of production
Budgetary expenditure
Budgetary expenditure
Linéaire (Appr. Value of production)
Linear (approximate value of production)
Linéaire (Budgetary expenditure)
Linear (budgetary expenditure)

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
2
1
5
/
1
1

11/1990 2/1991

5/1991

8/1991 11/1991 2/1992

5/1992

8/1992 11/1992 2/1993

5/1993

8/1993 11/1993 2/1994

5/1994

8/1994 11/1994 2/1995

5/1995

8/1995 11/1995 2/1996

5/1996

8/1996 11/1996 2/1997

5/1997

8/1997 11/1997 2/1998

5/1998 8/1998

(ECU/100 kg oil)

Table 5

Olive oil: institutional prices and market prices

Market Prices

IT (Bari) extra
virgin olive oil

SP (Jaen) extra
virgin olive oil

IT (Bari) lampante
olive oil

SP (Seville)
lampante olive oil

GR ordinary olive
oil (1,6– 3,3 %)

Institutional prices

Production target
price

Representative
market price

221,10

207,69

196,93

240,85

238,44

255,47

256,10

326,34

471,20

505,81

511,04

418,79

318,90

297,71

291,00

277,04

273,91

279,96

279,96

301,36

286,08

258,80

242,78

273,15

302,45

304,26

302,45

290,11

266,53

276,00

278,35 284,97

162,52

173,44

183,09

193,62

205,53

193,35

188,24

182,01

185,68

173,72

187,92

193,42

187,78

196,92

204,00

208,96

205,25

274,42

268,77

304,52

331,82

378,44

375,21

372,57

348,39

247,27

235,45

220,26

197,72

175,95

179,38 182,41

214,57

208,94

212,89

211,19

219,31

204,38

202,67

197,56

188,95

165,43

173,38

184,62

175,59

190,04

191,20

195,34

197,76

248,76

237,49

269,84

292,85

358,56

355,09

341,50

322,20

233,76

191,24

184,91

170,13

151,62

149,45

147,16

151,01

164,11

173,9

176,4

208,14

179,53

177,04

166,96

174,93

168,15

171,96

178,3

186,73

189,88

195,54

198,65

195,22

259,61

255,48

288,16

323,63

374,58

360,41

338,79

333,26

224,42

177,06

182,47

180,82

155,82

157,54 156,06

274,49

315,03

320,75

324,70

313,98

288,99

249,76

246,10

240,18

262,25

259,23

271,05

280,34

298,46

294,44

292,09

295,37

300,98

297,66

302,12

316,93

361,46

372,73

365,16

359,45

299,47

285,09

284,75

274,53

256,73

242,14

322,01

322,01

322,01

322,01

322,01

322,01

322,01

322,01

321,16

321,16

321,16

321,16

317,82

317,82

317,82

317,82

317,82

317,82

317,82

317,82

317,82

317,82

317,82

317,82

317,82

317,82

317,82

317,82

317,82

317,82

317,82

317,82

190,28

190,28

190,28

190,28

197,28

197,28

197,28

197,28

191,27

191,27

191,27

191,27

198,40

198,40

198,40

198,40

190,06

190,06

190,06

190,06

190,06

190,06

190,06

190,06

190,06

190,06

190,06

190,06

190,06

190,06

190,06 190,06

600,00

500,00

400,00

300,00

200,00

100,00

0,00

IT (Bari) extra virgin olive oil

SP (Jaen) extra virgin olive oil

IT (Bari) lampante olive oil

SP (Seville) lampante olive oil 

GR ordinary olive oil (1,6-3,3%)

Production target price

Representative market price

C
2
1
5
/
1
2

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

11/1990

2/1991

5/1991

8/1991

11/1991

2/1992

5/1992

8/1992

11/1992

2/1993

5/1993

11/1993
8/1993

2/1994

5/1994

8/1994

11/1994

2/1995

5/1995

8/1995

11/1995

2/1996

5/1996

8/1996

11/1996

2/1997

5/1997

8/1997

11/1997

2/1998

5/1998

 8/1998

Source: Commission DG AGRI. C.4.
Note: For comparability reasons the increase of target price and representative market price due to the monetary realignment of February 1995 between aid rates and conversion rates is not applied.

.

.

2
7
7
2
0
0
0

27.7.2000

EN

Official Journal of the European Communities

C 215/13

The market balance

24. The prevailing market conditions when the CMO was con-
ceived were quite different from now. Italy and France were the
only producer Member States and faced the competition of impor-
tant third countries. With the accession of Greece, Spain and Por-
tugal, the Community market effectively reflected the world mar-
ket, and consequently the market balance became a Community
issue little affected by external factors. During the 10-year period
1986/87 to 1995/96 there was no sign of any upward trend in
production and production figures oscillated around a broadly
constant level of internal consumption of 1,435 million tonnes.
In 1996/97 however, production jumped back up to the peak
level of 1987/88 production (1,9 million tonnes) and the follow-
ing year 1997/98 it reached its highest level ever of 2,3 million
tonnes. The accumulated stocks at the end of 1997/98 are esti-
mated by the International Olive Oil Council (IOOC) at 0,561
million tonnes, which represent about 24 % of the production
and 30 % of the consumption of the same year.

25.
In relation to future prospects, a study drawn up by the
IOOC of projected olive oil production and consumption up to
2005, which is based on statistics covering the period 1960/61 to

1996/97, estimates the projected surplus for the Community mar-
ket at between 86 000 and 155 000 tonnes every year. The accu-
mulated stocks at the end of 1997/98; the increased production
capacity in some countries through the planting of new trees; the
relatively slow increase in consumption observed in the last two
years; and the WTO limitation on subsidised exports to third
countries indicate a risk of surpluses.

26. For the period 1987/88 to 1997/98, the production aid rate
was generally on a rising trend although to a varying degree in
each producer Member State, due to the evolution of agricultural
conversion rates and the gradual increase of the aid rate in Spain
and Portugal during the transitional period. Thus, with the excep-
tion of the last two years producers in some Member States ex-
perienced substantial increases of subsidies expressed in national
currencies. The availability of increasing amounts of the Commu-
nity subsidy has provided an incentive for increasing production
by planting new trees and improving productivity. This incentive
was further reinforced by the fact that small producers were
exempted from the price reductions due to the overshoot of the
maximum guaranteed quantity. The evolution of production aid
rates as well as the actual production of olive oil for the main pro-
ducer Member States are shown in Table 6.

Evolution of the production aid rate and actual production of olive oil

Table 6

(in ECU and national currencies)

C
2
1
5
/
1
4

1987/1988

1988/1989

1989/1990

1990/1991

1991/1992

1992/1993

1993/1994

1994/1995

1995/1996

1996/1997

1997/1998

77,35

78,12

78,12

80,85

80,84

91,08

95,01

123,57

149,21

149,21

149,21

E
N

120 198

129 057
7 %

131 401
2 %

142 421
8 %

142 404
0 %

190 090
33 %

215 123
13 %

294 528
37 %

322 942
10 %

294 530
– 9 %

294 530
0 %

46,61

72 431

742 500

67,79

67,79

67,68

66,69

79,06

76,75

104,56

124,69

95,69

77,15

111 994
55 %
390 000

114 027
2 %
585 000

119 212
5 %
148 000

117 478
– 1 %
650 000

164 996
40 %
410 000

173 788
5 %
550 000

249 205
43 %
458 664

269 871
8 %
625 000

188 895
– 30 %
410 000

152 290
– 19 %
712 847

77,35

9 024

46,61

5 438

321 718

20,57

2 999

12,53

1 827

770 000

78,12

78,12

80,85

80,84

91,08

95,01

123,57

149,21

149,21

149,21

12 242
36 %

12 869
5 %

18 771
46 %

20 383
9 %

28 268
39 %

31 533
12 %

43 821
39 %

46 518
6 %

46 518
0 %

46 555
0 %

67,79

67,79

67,68

66,69

79,06

76,75

104,56

124,69

95,69

77,15

10 623
95 %
319 231

11 167
5 %
316 372

15 712
41 %
170 869

16 815
7 %
430 147

24 536
46 %
314 432

25 474
4 %
323 161

37 078
46 %
389 904

38 873
5 %
445 000

29 834
– 23 %
494 218

24 072
– 19 %
492 364

27,90

35,23

42,39

52,37

62,25

73,20

112,66

149,21

149,21

149,21

4 068
36 %

5 387
32 %

6 440
20 %

7 846
22 %

10 339
32 %

13 936
35 %

21 820
57 %

24 649
13 %

24 649
0 %

24 941
1 %

25,62

31,75

37,85

43,18

52,09

57,74

94,86

124,69

95,69

77,15

3 735
104 %
408 000

4 855
30 %
573 000

5 750
18 %
700 000

6 469
13 %
610 000

8 651
34 %
636 000

10 993
27 %
588 000

18 372
67 %
583 000

20 599
12 %
375 000

15 809
– 23 %
986 700

12 896
– 18 %
1 147 000

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

14,06

2 415

22,21

30,35

38,42

49,20

59,86

73,20

112,66

149,21

149,21

149,21

4 175
73 %

5 827
40 %

8 017
38 %

10 267
28 %

12 542
22 %

17 343
38 %

26 963
55 %

29 574
10 %

29 574
0 %

30 030
2 %

7,95

1 365

38 000

19,92

26,87

33,88

40,05

49,75

57,74

94,86

124,69

95,69

77,15

3 746
174 %
21 570

5 159
38 %
35 100

7 070
37 %
20 000

8 356
18 %
34 992

10 423
25 %
17 075

13 680
31 %
27 486

22 702
66 %
29 220

24 714
9 %
34 000

18 967
– 23 %
37 000

15 527
– 18 %
39 600

ITALY
Small producers
Production aid rate (ECU)
Production aid rate (NC)
Annual increase %
Large producers
Production aid rate (ECU)
Production aid rate (NC)
Annual increase %
Production (tonnes)

GREECE
Small producers
Production aid rate (ECU)
Production aid rate (NC)
Annual increase %
Large producers
Production aid rate (ECU)
Production aid rate (NC)
Annual increase %
Production (tonnes)

SPAIN
Small producers
Production aid rate (ECU)
Production aid rate (NC)
Annual increase %
Large producers
Production aid rate (ECU)
Production aid rate (NC)
Annual increase %
Production (tonnes)

PORTUGAL
Small producers
Production aid rate (ECU)
Production aid rate (NC)
Annual increase %
Large producers
Production aid rate (ECU)
Production aid rate (NC)
Annual increase %
Production (tonnes)

Remarks: a) Production aid rates per 100 kg of olive oil after regulatory deductions for register and quality improvement.

b) Conversion rates ECU/national currencies valid on 1 January.
c) Production figures correspond to the eligible quantity for Community aid.

.

.

2
7
7
2
0
0
0

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Management of funds deducted from production aid

27. Two measures were financed from resources withheld from
the payment of production aid: the quality improvement pro-
gramme and the olive cultivation register. The funds were with-
held by the Commission by budgeting and paying production aid
at a lower rate than the rate set by the Council. For the measures
to be financed appropriations were allocated to budget heading
B1-1 2 1 1. For every financial year during which the system has
been in operation, the amounts allocated, spent and charged to
this budget heading have been lower than the amounts actually
withheld. For example, in 1997 out of ECU 78,6 million withheld,
only ECU 38,9 million was charged to the quality improvement
programme and the olive cultivation register. Neither the budget
nor the final accounts on which the budgetary authority gives dis-
charge show the total amounts withheld nor the amounts not
used. The information is only disclosed in the Commission’s
annual financial report of EAGGF Guarantee.

Funding of quality improvement programmes

28. The actions related to the improvement of the quality of
olive oil production are specified in Commission Regulations
adopted almost every year (1). Each Member State is required to
transmit an action programme to the Commission for approval.
In the period 1979 to 98 the total amount retained for these

actions was ECU 202 million while the programme absorbed
only ECU 107,3 million. The rate of utilisation is about 53 % of
the amount withheld, with Greece at 83 %, Spain at 56 %, Italy at
30 % and Portugal at 42 %.

29. The Commission has not quantified the objectives of these
actions either in the Regulations or at the stage of approving the
programmes submitted by the Member States and has not devel-
oped any performance indicators. This makes it impossible to
undertake a meaningful evaluation of their actual impact.

Funding of the olive cultivation register

30. The establishment of the register was financed by amounts
withheld by the Commission from the payment of production
aid. In accordance with Council Regulation (EEC) No 2159/92 the
percentage to be withheld was 2,4 % of gross payments for the
marketing years 1992/93 to 1997/98. The amounts withheld and
the payment appropriations used for setting up the olive cultiva-
tion register are shown in Table 7. For the period 1979 to 1998,
in average only 64 % of the amounts withheld have been used,
with a significant variation between individual Member States,
ranging from 0,4 % for Greece to 115 % for Italy. Over the whole
period, a cumulative amount of ECU 138,4 million was withheld
but not used.

Amounts retained and used for olive cultivation register and quality improvements (period 1979 to 1998)

Table 7

Olive cultivation register

Quality improvement programme

Member State

Amounts

Amounts

Retained

Used

Difference

101,37

106,06

0,85

0,42

48,43

0,41

100,95

57,63

0,44

% of use

0,4 %

45,7 %

48,2 %

169,18

194,87

– 25,69

115,2 %

Greece

Spain

France

Italy

Portugal

5,64

0,56

5,08

Total

383,1

244,69

138,41

9,9 %

63,9 %

Retained

Used

Difference

55,8

62,9

0,44

79,92

2,99

46,57

35,36

0,42

23,73

1,26

202,05

107,34

9,23

27,54

0,02

56,19

1,73

94,71

(million ECU)

% of use

83,5 %

56,2 %

95,5 %

29,7 %

42,1 %

53,1 %

(1) The actions undertaken cover the control of the olive fly and other
harmful organisms; the improvement of conditions for the treatment
of olive trees; harvesting, storage and pressing; technical assistance to
growers and mills; the improvement of the disposal of residues; the
training and information of farmers and mills on oil quality and envi-
ronmental impact, the creation of laboratories for virgin oil analysis,
and collaboration with specialists to improve the quality of virgin
olive oil and improve the environment.

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Official Journal of the European Communities

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Measures to promote consumption

31. Pursuant to Article 11 of Regulation No 136/66/EEC, as
amended, the Commission may undertake measures to promote
the consumption of olive oil and table olives. These measures
entail the dissemination of existing knowledge, market studies,
publicity and promotional campaigns, research work and studies
to assess the results of promotional campaigns. Until the market-
ing year 1993/94, these measures were financed by retaining 0,5 %
of consumption aid. After the abolition of consumption aid with
effect 1 November 1998 these measures may be financed by the
Community budget.

32. The promotional programmes run in Member States are
undertaken by the Commission, while those aiming to increase
the consumption of olive oil and table olives in third countries are
undertaken by the IOOC. For the period from 1979 to 1998 the
total amount available for financing promotional programmes
amounted to about ECU 161,2 million out of which ECU 135,9
million (84 %) were actually used. The last campaign (sixth) involv-
ing 12 Member States started in 1996 and ended in June/July
1998 at a cost of ECU 27,5 million. The next campaign (seventh)
is expected to start fully in autumn 1999, with a budget of ECU
45 million for the next three years. The Community’s contribu-
tion to the IOOC promotion fund is fixed annually. In 1998 the
Community financed almost 100 % of its promotional programme
of ECU 6,1 million.

33. The Court reviewed the sixth promotional programme as
well as the preparatory work for the seventh programme. Both
lack measurable objectives, for example to achieve a specific
increase in consumption in absolute or relative terms, or an
increase in awareness of the nutritional value of olive oil using
measurable indicators, etc. On the other hand, the Commission’s
report on the results of the sixth programme (VI. A. II./CG D (97)
1490) claims that olive oil consumption had increased signifi-
cantly between 1996 and 1997 in all countries for which data was
available, without analysing the contribution to this increase made
by the campaign in reaching these results and whether these
results are sustainable.

34. The Commission lacks the technical expertise, the capacity
and the resources to manage the various actions directly itself and
therefore makes extensive use of the services of external com-
panies. Within the Commission there are only three officials deal-
ing with these programmes, two officials supervising the execu-
tion of the contracts (about 23 contracts ongoing at the time of
the audit) and one official for the financial management of the
programmes. This level of resources is insufficient as demon-
strated by the lack of continuity between the latest campaigns.
The seventh campaign is not expected to start until autumn 1999,
i.e., about 15 months after the completion of the sixth campaign,
due to the lack of human resources.

35. The Commission has not yet undertaken a general evalua-
tion to assess whether, given the limited human and financial
resources it can itself devote to these programmes, the extended
use of external technical assistance and the reliance on outside
evaluation of the programmes, the results obtained justify its
commitment to these actions.

Observations relating to the implementation of the scheme in
the Member States

36. The main parties involved in administering and controlling
the production aid scheme at Member State level are the produc-
ers, the producer organisations (PO) and associations thereof, the
national administrations and the control agencies (CA). The pro-
ducers have to submit cultivation declarations, indicating their
production potential and any changes over time (total number of
trees and those in production, area cultivated, varieties of trees,
etc.). They also have to submit aid applications in which the quan-
tities of olives harvested and the olive oil produced each year are
declared for Community support.

37. The POs and associations process these documents for their
members. After some administrative checks they computerise the
information contained in the applications and forward the files to
the paying agencies or to their regional services for final admin-
istrative checking and for payments. The non-associated produ-
cers, who constitute a small percentage of the total, submit their
applications directly to the services of the paying agencies for
administrative control and payments.

38. control agencies are responsible for on-the-spot controls.
Every year they select a sample of individual growers to be checked
for the accuracy of their declarations and applications. They also
select a sample of POs to be checked as to whether they continue
to fulfil the conditions for their approval by the national authori-
ties and whether they are performing their tasks effectively. A
sample of oil mills is also checked as to whether they are autho-
rised to testify for their clients the quantities of oil olive produced
and whether the quantities testified are correct. The cultivation
register and the average yields are two important tools for facili-
tating effective controls in the framework described above.

The yields as a control instrument

39. The quantities of oil declared in the aid applications are
checked in the first instance by comparing average yields esti-
mated every year by each Member State for homogeneous pro-
duction zones with actual yields. The actual yield for each aid

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application is compared with the average calculated for the zone
in which the applicant’s parcel is located. Abnormally high yields
are taken as an indicator that the quantities declared may not be
correct which usually leads to the farmer being checked on the
spot. The accuracy of the estimation of the average yield is there-
fore of crucial importance for ensuring effective and efficient con-
trol.

Estimation of the average production yields

40. Apart from information on the area under olive trees and
the trees per hectare, the estimation of any production yields
requires estimates of the quantity of olives per tree, and the quan-
tity of virgin olive oil per 100 kg of olives. Both of the latter indi-
cators should be estimated for fairly homogeneous production
zones in order to allow for valid comparisons between estimated
and actual values. The Court analysed the methods and proced-
ures applied by the Member States for the collection, evaluation
and communication to the Commission of the relevant data and
the results are given in the following paragraphs.

(a) each producer Member State used to set its own limits margin
above and below which the declared quantities had to be con-
sidered abnormal requiring an on-the-spot check; the Court
found that this margin was set too high in some production
zones; for example, cases were found where margins of 49
times the average yield were tolerated; such high tolerance lev-
els adopted by the Member States are indicative of the inad-
equacy of the estimation of average yields and reduce the
effectiveness of yields as a control tool;

(b) since the last marketing year two countries apply a single mar-
gin of tolerance over all zones; the maximum tolerance in
these cases is 3,5 times the average yield, which is fixed for
several years; the risk of this is that the applicants become
aware of the limits and adjust the declared quantities to just
below the upper limit thus evading any check.

Reliability of the control mechanism

41. Under Council Regulation (EEC) No 2262/84, Article 1(2),
the control agencies are responsible for collecting, verifying and
processing at national level the data for ascertaining the yields. To
a certain extent, this provision is respected in all Member States
visited. However, the methods of data collection, the sources of
the information and the processes of calculation differ not only
between countries but also between regions of individual coun-
tries, resulting in non-comparable results.

45. Producers are not always well informed about their obliga-
tions in respect of the cultivation declarations, aid applications
and the notification of any change concerning the number of
trees, the area, etc. What is more important is that they do not
seem to be aware of the consequences of failing to declare their
olive groves correctly and to notify any amendment without delay.
The low quality of the information provided by the producers is
the main source of the large discrepancies concerning the number
of trees and makes the control ineffective.

42. To assess the reliability of the data on olive and olive oil
yields, the Court examined the data on the number of trees which
is a basic element in the calculation of average yields and there-
fore has to be accurate. However, from its audit work in Spain,
Greece and Italy, the Court found that the recorded number of
trees was rarely accurate. Out of 35 parcels visited only in six did
the number of trees found agree with that declared by the produc-
ers.

The usefulness of the average yields as a control instrument

46. The tasks of the POs and their associations are confined
mostly to administrative checks, i.e. identification of the appli-
cant, completeness of declaration and application and checking
for dual applications. This latter check merits special attention
from an audit point of view. Within one PO it is possible to iden-
tify duplicate applications made by the same applicant but it is
not possible to detect whether the same parcel of trees appears on
applications of two different applicants. Moreover, the adminis-
trative checks are not always extended to cover the ownership and
the basis on which the producers manage their olive groves. Such
controls are however foreseen in the 1998 regulations.

43. Within the various zones comparisons between the average
yields fixed by the Commission and the yields declared by each
producer-applicant showed variations up to three times of the
average yield. This situation calls into question the concept of
homogeneous production zones and the usefulness of average
yields as a control instrument.

47. Commission Regulation (EEC) No 3061/84 of 31 October
1984 (1) further requires producer organisations to collect copies
of contracts for land use or titles of ownership. The Associations
of POs are required under Council Regulation (EEC) No 2261/84
of 17 July 1984 (2) to check that POs comply with their obliga-
tions. The Court examined eight cases of 49 irregularities declared
by Spain in 1996 to 1997 and found that had these provisions
been correctly applied, no irregularities would have occurred.

44. The use of the average yields for identifying potential in-
accurate aid applications gives rise to the following further com-
ments:

(1) OJ L 288, 1.11.1984.
(2) OJ L 208, 3.8.1984.

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48. The paying agencies in all producer Member States except
Greece are equipped with computerised systems and therefore are
capable of performing effective administrative checks on all indi-
vidual declarations and aid applications. In Greece the paying
agency relies heavily for these checks on the work of the POs, i.e.
on the beneficiaries themselves. However, checking for multiple
declarations in respect of the same parcel can only be done effec-
tively when each parcel is identified by a unique code. At present,
this is only possible in Italy.

49. Council Regulation (EEC) No 2262/84 required the producer
Member States to set up an agency to play a key role in ensuring
that Community rules in respect of olive oil are correctly applied
by all operators. For the first three years (until 1986/87 for Italy,
1988/89 for Greece and 1989/90 for Spain and Portugal) the
operational expenditure of these agencies was fully covered by the
Community budget. Since then and until 2002 the Community
contribution has been reduced to 50 %. The operational expen-
diture declared by the control agencies for 1996/97 was ECU
24,1 million, 50 % of which was covered by the Community. This
amount represents about 1 % of the total budgetary expenditure
on the olive oil sector.

50. The Community contributes to control activities which are
the responsibility of the Member States. The Commission has not
yet carried out an evaluation of the cost effectiveness of the activi-
ties of the agencies. Furthermore, the Commission’s decisions
concerning the eligibility of the agencies’ expenditure are taken
after long delays, putting the proper functioning of the agencies
at risk. Financial information on the CAs operating in the four
main producer Member States for the marketing year 1996/97 is
to be found in Table 8.

51. As production aid is paid on the quantity of olive oil pro-
duced, any evaluation of the effectiveness of the controls carried
out by the CA needs to concentrate on the verification of produc-
tion quantities. In reality there are two main organisational arrange-
ments:

(a) the mills buy the olives from growers and market the oil
themselves; the quantity of oil actually produced can be
checked at the mill on the basis of commercial documents of
purchases of olives, sales of oil, stocks and stock movements;
this situation prevails in Spain for big, professional olive oil
producers; however, a risk exists where trees belong to the
same owner (or company) as the mill; in this case the ‘miller’
would certify his own quantities, thus requiring checks on a
regular basis;

(b) in the case of small producers in some countries, most of
them take home their oil from the mills for own consump-
tion and private sales and remunerate the miller either in cash
or with a small percentage of the oil produced; controls at
producers or in the mostly small mills, often owned by pro-
ducers or their relatives, do not give the same degree of assur-
ance as under a) above, because of the lack of reliable docu-
mentation on oil produced, sales and stocks; in response to
this situation, CAs have developed a set of indicators as con-
trol tools which they apply to mills such as the ratio between
olives crushed and husk or water and electricity consumption;
although the actual sample size exceeds significantly the mini-
mum sample of 10 % fixed in the Regulation (being, in the
1996/97 marketing year, 16 % for Italy, 34 % for Greece, 38 %

Control agencies operating in the olive oil sector (personnel, expenditure and average cost of controls)

Table 8

Total personnel

Controllers

Administration

Informatics

Other

Total expenditure (in million ECU)

Personnel

Administrative exp.

Other

Average cost by inspector
(man/day in ECU)

Average cost of a control (1995/96, Spain 1994/95 in ECU)

Mills

Producer organisations

Producers

Source: Commission, DGVI. A. I.3.

Italy

Greece

Spain

Portugal

Total

197

122

30

13

32

13,211

9,734

2,086

1,391

119

70

30

5

14

4,088

3,096

0,775

0,217

97

48

21

9

19

5,300

3,409

1,700

0,191

44

29

10

3

2

1,524

1,064

0,216

0,244

457

269

91

30

67

24,123

17,303

4,777

2,043

574

317

605

282

445

2 756

6 474

2 271

1 376

3 556

254

658

2 466

666

1 221

2 380

792

1 503

3 719

996

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for Spain and 20 % for Portugal), these checks are plausibility
checks and they do not constitute a reliable proof of the quan-
tity of oil actually produced; for example husk, water and elec-
tricity consumption can easily be manipulated in order to
overestimate production, from which both the miller and the
producer would benefit; in addition checks at producer level
of the number of trees declared only indicate the theoretical
production capacity rather than being a reliable proof of the
quantity of oil actually produced; it should also be noted that
checks are not made on possible sources of evidence such as
weighing scales, the quality of oil in stock, the existence of
proper stock records of the mills, nor are there checks to
ensure that all the contents of barrels and tanks declared as
olive oil stocks is really olive oil.

52. Since November 1998, Regulation (EC) No 2366/98 requires
that producers have to keep documentation recording the use of
oil produced. This could form the basis of effective checks at pro-
ducer level. It should be noted however that the requirement is
only valid for growers producing more than 200 kg, thus exempt-
ing about 36 % of growers. In practice this percentage may even
increase, as it should be relatively easy to split a production of
400 kg for example between two persons.

53. The CAs reports on detected irregularities are communi-
cated to the competent authorities in the Member States to allow
recovery procedures and sanctions to be initiated. The Court
observes that the recovery procedures could be avoided if the CAs
completed their controls before any incorrect payment was made
thus saving time and administrative resources.

irregularities to the competent authorities and the final decision
taken by the latter. The new Community rules which came into
force as from 1 November 1998 do not alleviate the problem.
They only stipulate that Member States shall decide on action to
be taken within 12 months of the report and the sanctions to be
applied in case of discrepancies in quantities of olive oil and in
number of trees. They do not solve the problem of long legal and
administrative procedures between this first decision and the final
one after which amounts unduly paid can actually be recovered.

56. The Court examined the extent to which irregularities that
were reported by the CAs led to the imposition of sanctions. Most
of the sanctions on producers proposed by the CAs are based on
variations from average yields or the technical standards applied
by the CAs. Although this methodology has steadily been improv-
ing, individual deviations from averages cannot be considered as
irrevocable proof of the inaccuracy of aid applications.

57. Although reported irregularities in the production aid scheme
represent only 2 % of the total amount in the olive oil sector, the
delays that occur during recovery of amounts unduly paid and the
very low percentage of recovered amounts give cause for concern,
particularly in cases where large amounts are involved. In prac-
tice, long administrative and judicial procedures postpone the
recoveries for many years. Based on the irregularities communi-
cated by the Member States to the Commission pursuant to
Council Regulation (EEC) No 595/91, the recovery rate for pro-
duction aid for all irregular cases recorded from 1991 to 1997 is
only 6,8 %.

The effectiveness of the sanctions system

The olive cultivation register

54. For individual growers, the sanction laid down in Council
Regulation (EEC) No 2262/84 for false declaration for production
aid is the reimbursement of the amount of aid received and a fine
sufficiently high to be dissuasive. The latter is defined by indi-
vidual Member States at a level of one to three times the aid
unduly received. For the POs, their associations and mills, the
sanction is the withdrawal of approval for participating in the
olive oil scheme for a period of between one and five marketing
years. Apart from the eventual withdrawal of approval, additional
sanctions may be imposed, varying from warning letters requir-
ing for administrative corrections to very severe fines.

55. With regard to the efficiency of the system of sanctions, the
Court observed very long delays between notification of the

58. Regulation (EEC) No 154/75 of 21 January 1975 required the
Member States to establish a register of olive cultivation. The
objective of this action was to obtain the information needed to
determine the Community’s potential production of olives and
olive oil with a view to improving the operation of the aid system
for olive oil. The deadline for the compilation of the register was
February 1981 for Italy, November 1988 for Greece and Novem-
ber 1992 for Spain and Portugal.

59. The Commission has offered technical assistance to the
Member States for the compilation of the register, but long toler-
ated that Member States extended the deadlines for completion
leading to delays in planning the work and compiling the neces-
sary data. The result is that the register has not been completed
in most of the countries concerned thus weakening the Commis-
sion’s management and control of the scheme.

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60. Council Regulation (EC) No 1638/98 of 20 July 1998 stipu-
lates that the work for the register should be redirected towards
the creation of the geographical information system (GIS). Com-
mission Regulation (EC) 2366/98 of 30 October 1998 defines the
information to be contained and rules for the compilation and the
completion of this system. It consists of two databases. The first
is called the alphanumerical database and basically includes infor-
mation which should have been already compiled in the form of
computerised files for the old register and the information declared
by producers on their production potential. In addition it will
contain the files of mills, of producer organisations and of homo-
geneous production zones. The second is called the graphical ref-
erence database and should contain digital orthophotographs of
all olive groves, the boundaries of parcels and the location of the
individual olive trees. The compilation of the two databases is
more demanding than the old olive cultivation register; however,
once finished, it should render the checking of aid applications
more efficient. Declarations and aid applications can be efficiently
cross-checked and cases for further investigation can be identified.
However, it should be noted that:

(a) the Commission did not require Member States to finish this

work by the end of the transitional period;

(b) expenditure on setting up the GIS and the updating of the
graphical database will now be eligible for distinct Commu-
nity financing; the amount of ECU 138,4 million not spent for
the previous register has been cancelled.

61. The current situation concerning the state of progress of the
original register is that Italy is the only Member State which suc-
ceeded in setting up a register albeit with some delay, at a cost of
about ECU 195 million. The register is considered completed and
updated when the number of trees recorded can be reconciled to
the total number of trees the producers declare as having in their
ownership. Each year, the Italian authorities carry out checks on
those growers who apply for aid to ensure that this condition is
met. In the last four marketing years, 12 % to 23 % of the aid
applications showed discrepancies. In these cases the authorities
have to confirm the correct figure, if necessary through on-the-
spot visits. This means that a high level of resources is needed
every year in order to follow up the differences in order to update
the register. In 1997/98 alone about 500 000 parcels had to be
checked for this purpose.

In Greece work on establishing the register has been unac-
63.
ceptably delayed and the pilot studies carried out in 1992 to 1994,
four years after the first deadline for its completion, costing ECU
147 633, did not achieve any tangible result. Work recommenced
with the assistance of the Commission, for the creation of the
olive cultivation GIS. According to the work schedule established
in January 1998, the GIS is expected to be completed by the end
of the year 2000 at a cost of ECU 5,9 million. However, the 1998
work programme is again behind schedule which puts comple-
tion within the stated deadline in doubt.

64.
In Spain, according to the information and documentation
provided, the completion of the register was scheduled for the
first quarter of 1999, i.e. seven years after the first deadline. The
register was at the final stage of the compilation, but not yet fully
operational for control purposes, The work carried out to date
needs to be adapted for GIS requirements. This task is expected to
be completed before the end of the period of application of the
new Regulations, i.e. the 2000/01 marketing year.

65.
In Portugal the work on the olive cultivation register effec-
tively started in 1997, some five years after it should have been
completed. The contract for the GIS was the subject of an inter-
national public tender and the work was expected to be com-
pleted by the end of 1999.

66. The situation in the Member States described above shows
that the register, an important control instrument, has not been
put in place in a majority of the olive oil producing Member
States. Furthermore, there are doubts about the reliability of the
Italian register as illustrated by the large number of discrepancies
found each year by the Italian administration. Thus, payments are
made without the necessary key controls such as checking for
double declarations of the same parcels and testing of the accu-
racy of the quantities of olive oil declared for support from the
individual applicants.

67. The failure to correctly compile and regularly update the reg-
ister is also attributable to the lack of incentive for producers to
notify on time all modifications to the number of trees, from
planting to the production stage and then destruction and replace-
ment. The establishment, the maintenance and the continuous
updating of the olive cultivation GIS will call for an even greater
effort and amount of financial resources, not only from the pro-
ducers but also from the Member States’ administrations and the
Community.

62. According to Article 26(1c) of Commission Regulation (EC)
No 2366/98, the GIS cannot be considered as completed if the
number of trees in the two databases differ by more than 5 % of
the declarations. The high level of discrepancies found in Italy in
the case of the register indicates that at this stage even in Italy the
criterion of completeness of the GIS is not likely to have been sat-
isfied, despite having absorbed up to 1998 about 80 % of the
Community funds available for the register. However, the exten-
sive work carried out on the register should enable Italy to com-
plete the GIS relatively quickly.

Conclusions

68. Thirty years after the introduction of a Community support
scheme for olive oil, the system for its management and control
is still not sufficiently efficient and reliable. There have been
numerous changes in the regulatory framework and the objec-
tives have not been sufficiently clear (paragraphs 15-17).

27.7.2000

EN

Official Journal of the European Communities

C 215/21

69. Statistical data sufficiently reliable for administering and
controlling the scheme are still not available (paragraphs 18-20).

70. The target price was fixed by the Council without taking into
account either producers’ incomes or production costs. The ‘rep-
resentative market price’ was set at a lower level than the actual
market prices. In the last 10 years, both target and market prices
were frozen at a constant level (paragraphs 22-23).

71. The sharp increase of production in 1996/97 and 1997/98
marketing years compared to the relatively low rising trend in EU
demand, the existence of more trees than previously envisaged,
and the limited prospects for increasing subsidised exports due to
the WTO, are factors which indicate that the Community faces a
real risk of structural surpluses in the olive oil sector (para-
graphs 24-26).

72. With respect to the promotional campaigns, the Commis-
sion lacks the experience and expertise necessary in order to
implement these measures effectively. Consideration should be
given to leaving with the Member States, the producers and pro-
cessors concerned the operational and financial responsibility for
such measures (paragraphs 31-35).

73. Controls in the Member States by producer organisations,
paying agencies and control agencies are still inadequate. Particu-
lar efforts are needed to verify quantities produced and to prevent
more than one application in respect of the same trees (para-
graphs 45-53).

74. The plausibility of the yields declared by each producer by
comparison with average yields in each production zone should
provide the basis for checks. The methods used to estimate these
average yields should be harmonised in all Member States and the
zones should be defined so as to be homogeneous. Account
should be taken of the actual production conditions which vary
from year to year (paragraphs 39-44).

76. A satisfactory olive cultivation register is an essential tool for
the effective enforcement of whatever system is finally chosen for
subsidies to producers. The Commission has tolerated unaccept-
ably long delays in the compilation of such a register. Despite the
technical assistance it has provided and the financial resources it
has made available, work on the register still has not been com-
pleted. In 1998 the Commission replaced it by the ‘olive cultiva-
tion GIS’. However, the compilation and updating of the GIS will
necessitate a considerable fresh effort as well as financial resources.
The Commission must not allow repetition of the unsatisfactory
experience with the initial register, and no further delays should
be permitted (paragraphs 58-67).

77. With regard to the pending reform, the Court’s main obser-
vations are as follows:

(a) any reform should maintain the principle expressed in
Article 2 of the Community’s financial regulation that no
financial resources are devoted without being coupled to meas-
urable results towards the achievement of the objectives set.
The objectives of whatever support system is proposed by the
Commission must be specified in such a way to make it pos-
sible to measure progress towards them;

(b) payment of subsidy simply on the number of trees poses less
control problems, but it creates the risk of owners abandon-
ing cultivation altogether or reducing their effort to improve
quality. Even if the rates of subsidy were adjusted to reflect
average yields in the region concerned, it would give unde-
served benefits to producers who took no care of their trees.
If it were decided to link the aid per tree to some production
criteria, in order to cope with the risk of abandonment, the
subsidy would not only lose its character as a ‘decoupled pay-
ment’ but control problems similar to those experienced under
the present system would remain, thereby further reinforcing
the need of the GIS;

(c) given the difficulty of precise checks on quantities produced
by 2,2 million individual growers, an effective control is also
required over the output of the 11 000 mills. The Court con-
siders that control over the mills can prove more effective.

75. National administrations have not hitherto taken sufficient
steps to avoid delays in the recovery of overpayments and the
application of administrative sanctions to discourage unjustified
claims for aid (paragraphs 54-57).

78.
In the Court’s opinion, any reform should deal effectively
with the risk of overproduction. As for other COMs, the arrange-
ments for olive oil should complement EU rural development
schemes so as to improve the competitiveness of EU olive oil pro-
duction.

C 215/22

EN

Official Journal of the European Communities

27.7.2000

PART 2: CONSUMPTION AID AND EXPORT REFUNDS

Background

1998. As was the case with consumption aid, the payments are
only made in respect of oil bottled or packaged in containers with
a capacity of 5 litres or less and similar chemical quality param-
eters have to be met (4). Table 2 also shows the value of payments,
by Member State, for the period 1993 to 1998.

79. This part of the report deals with irregularities detected by
Member States in claims for consumption aid and export refunds
in the olive oil sector. It examines the way in which Member
States have accounted for amounts of consumption aid and export
refunds unduly paid, their recovery procedures and the applica-
tion of sanctions in this connection.

80. The audit was carried out in Greece, Italy, Portugal and Spain,
but not in France where nearly 100 % of the undue amounts had
been recovered. More audit work was carried out in Italy than in
the other countries because it accounts for some 87 % (ECU 398
million) of the unrecovered amounts. This also explains the pre-
ponderance of audit observations relating to that Member State.

81. Consumption aid for olive oil was abolished with effect from
1 November 1998 (1). It had been designed to increase the market
share for olive oil via the payment of subsidies for olive oil bottled
or packaged in containers with a capacity of 5 litres or less. In
order to ensure that payments were not made for poor quality
olive oil or olive oil mixed with other substances such as nut oil,
a range of chemical quality parameters had to be met (2). From
1983 to 1998 consumption aid cost the Community more than
ECU 6 000 million (3). Payments, by Member State, for the period
1993 to 1998 are shown in Table 2.

82. Export refunds, on the other hand, continue to be paid to
exporters of olive oil although the rates decreased significantly in

83. According to the Commission database, national checks had
revealed irregular consumption aid payments amounting to ECU
456 million reported in the period 1985 to 1998 which repre-
sents some 7,6 % of payments made in the same period. Of that
total, only 6 % had been recovered, leaving ECU 429 million
unrecovered. Table 9 shows, by Member State, the value of irregu-
larities detected and the related amounts recovered.

84. The two most common types of consumption aid fraud
reported to the Commission are claims for fictitious quantities of
oil and claims for ineligible oil mixtures. Of those reported by
Italy, the majority involved the use of false invoices for the pur-
chase and/or sale of fictitious oil or fictitious containers (bottles
or cans). The incidence of false invoices from a given company
being used in support of consumption aid claims submitted by a
number of different companies would appear to suggest a degree
of organisation. In Italy, in the period 1996 to 1998, 10 % of the
cases involved charges for conspiracy (5).

85. The incidence of irregularities in connection with the export
refunds paid to olive oil exporters was far smaller than in the field
of consumption aid, but it was nevertheless significant: ECU 12,5
million reported in the period from 1990 to 1998 of which only
13 % had been recovered. Table 10 shows the value of irregulari-
ties detected and the related amounts recovered as reported to the
Commission.

(1) Council Regulation (EC) No 1638/98 (OJ L 210, 28.7.1998, p. 32).
(2) Article 5 of Commission Regulation (EEC) No 2677/85 (OJ L 254,

25.9.1985, p. 5).

(3) Source: Sincom and Commission management accounts.

(4) Commission Regulation (EEC) No 2568/91 (OJ L 248, 5.9.1991, p 1,
as amended by Commission Regulation (EC) No 2472/97, OJ L 341,
11.12.1997, p 25).

(5) The Italian Penal Code dealing with crime involving criminal organi-
sations differentiates between associazone a delinquere (confederation to
commit a crime or criminal conspiracy) and associazone di tipo mafioso
(mafia style conspiracy).

.

.

2
7
7
2
0
0
0

Olive oil consumption aid — EAGGF Guarantee irregularities

Table 9

Greece

Spain

Italy

Portugal

Total

Reported

Recovered

% Recovered

Reported

Recovered

% Recovered

Reported

Recovered

% Recovered

Reported

Recovered

% Recovered

Reported

Recovered

% Recovered

(1 000 ECU)

0
0
0
0
0
0
0
1 310
2 116
0
10 114
77
31 053
1 322

0
0
0
0
0
0
0
1 234
1 541
0
1 685
0
0
1 195

45 992

5 655

0
0
0
0
0
0
0

0
0
0
0
0
0
0

94
73

17
0
0
90

12

88
482
186
3 993
6 070
44

77
454
164
3 338
5 057
36

10 863

9 126

88
94
88
84
83
82

84

2 713
310
10 290
0
38 219
18 508
12 807
62 013
0
60 694
25 104
26 203
3 784
137 160

10
9
344
0
1 764
0
85
2 756
0
3 610
527
58
1 857
167

397 805

11 187

0
3
3

5
0
1
4

6
2
0
49
0

3

0
0
0
0
0
0
0

594
127
469
49
104
46

0
0
0
0
0
0
0

594
101
391
37
87
30

1 389

1 240

2 713
310
10 290
0
38 219
18 508
12 807
63 323
2 798
61 303
35 873
30 322
41 011
138 572

10
9
344
0
1 764
0
85
3 990
2 212
4 165
2 767
3 433
7 001
1 428

456 049

27 208

0
3
3
0
5
0
1
6
79
7
8
11
17
1

6

100
80
83
76
84
65

89

Year

<1986
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998

Total

Source: OLAF database of irregularities notified under Regulation (EEC) No 595/91.

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
2
1
5
/
2
3

Olive oil export refunds — EAGGF Guarantee irregularities

Table 10

Greece

Spain

Italy

Portugal

Total

Reported

Recovered

% Recovered

Reported

Recovered

% Recovered

Reported

Recovered

% Recovered

Reported

Recovered

% Recovered

Reported

Recovered

% Recovered

(ECU)

0

0
0
0
0
0
0

0

0

0

203 101
16 332
5 810
54 565
39 528
19 801

44 543
16 332
0
29 733
4 380
8 686

0

339 137

103 673

0

332 592
1 132 277
617 469
84 670
1 714 999
1 803 787
179 233

0
0
332 592
631 424
0
5 555
0
0
0

5 865 027

969 571

22
100
0
54
11
44

31

100
56
0
7
0
0
0

17

20 821

5 297
499 480
34 754
0
8 049
0
0

20 821
0
0
499 480
34 754
0
0
0
0

0
100
100

0

20 821
0
337 888
7 558 858
668 555
90 480
1 777 612
1 843 315
199 034

20 821
0
332 592
1 175 447
51 086
5 555
29 733
4 380
8 686

568 400

555 055

98

12 496 564 1 628 299

100

98
16
8
6
2
0
4

13

Year

<1991
1991
1992
1993
1994
1995
1996
1997
1998

0

5 724 000
0
0
0
0
0

Total

5 724 000

Source: OLAF database of irregularities notified under Regulation (EEC) No 595/91.

C
2
1
5
/
2
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
7
2
0
0
0

27.7.2000

EN

Official Journal of the European Communities

C 215/25

Judgment of the European Court of Justice on measures taken
to recover sums lost as the result of irregularities or
negligence

Control framework

86. Member States are required to take the measures necessary
to recover sums lost as the result of irregularities or negligence.
‘in the absence of total
According to the relevant legislation,
recovery the financial consequences of irregularities shall be borne
by the Community, with the exception of the consequences of
irregularities or negligence attributable to administrative authori-
ties or other bodies of the Member States’ (1).

In the context of relations between Member States and the
87.
Commission, the European Court of Justice (ECJ) has said that the
responsibility for negligence as described in paragraph 86 above
must be determined by Community law which imposes a number
of requirements on Member States and the Commission with
respect to rules capable of having financial consequences. In the
first instance, the ECJ ruled that Member States should respect the
obligation of diligence in Article 5 of the EC Treaty. This obliga-
tion ‘implies that the Member States must take steps to rectify
irregularities promptly’, adding that ‘with the passage of time,
recovery of sums wrongly paid is likely to become more compli-
cated or impossible for reasons such as the fact that the undertak-
ings may have ceased trading or accounting documents may have
been lost.’ In the case under consideration, the ECJ decided that,
in waiting four to ten years before starting proceedings to recover
amounts wrongly paid, the Italian authorities had not acted with
the necessary diligence (2).

88.
In the light of this judgment, the Commission should con-
sider the introduction of a reasonable time limit for recovery
action. Any sums not recovered by Member States within this
period should be credited to the EAGGF pending definitive judg-
ments in the related cases. The Commission has acknowledged
that ‘recovery procedures can take time but considers that a period
of four years should be enough to take the necessary measures
and to ascertain that the amount is recoverable’ (3). It has also
stated in its reply to Special Report No 8/98 (4) on the Commis-
sion’s services specifically involved in the fight against fraud that
‘Where the Member State does not provide sufficient elements
which exclude any irregularity or negligence attributable to it the
Commission will not fail to charge the amounts to the Member
State in accordance with Article 8 of Regulation (EEC)
No 729/70 without necessarily waiting for the final outcome of
proceedings pending in court.’

(1) Article 8 of Council Regulation (EEC) No 729/70 (OJ L 94, 28.4.1970,

p. 13).

(2) Case C-34/89 of 11 October 1990, Italian Republic v Commission of the

(3)

European Communities.
‘Protecting the Communities’ financial interests and the fight against
fraud — Annual Report 1998, paragraph 1.5.2’.

(4) OJ C 230, 22.7.1998.

89. Both consumption aid and export refund payments were
subject to the normal ex post checks on commercial records that
Member States must carry out on most EAGGF expenditure (5).

90.
In addition, for consumption aid, Member States had to carry
out specific on-the-spot checks on the regularity of claims on the
basis of stocks and accounts (6). They also had to take random
samples of olive oil for laboratory analysis to ensure that the qual-
ity parameters had been met (7). In the countries audited, these
specific checks were carried out by the olive oil control agencies
referred to in paragraph 38 of part 1 of this report.

91. For export refunds, selected physical checks should be car-
ried out by the Member States’ customs services at the time the
oil is placed under customs control (8). These checks included tak-
ing samples for laboratory analysis to ensure compliance with the
quality parameters.

92.
Investigations into irregular consumption aid and export
refund payments were undertaken by the competent fraud inves-
tigation services in the Member States.

Consumption aid

Debtor accounts

93. The Commission does not require the Member States’ pay-
ing agencies to keep debtor accounts. Member States may provide
information on debtors to the Commission in Table 105 (9) when
submitting their claims for the reimbursement of EAGGF expen-
diture, but this is not obligatory. Consequently, in Greece, there
were no debtor accounts for olive oil consumption aid at the time
of writing; in Italy there were none prior to 1996 and in Spain
only nine of the 14 paying agencies kept debtor accounts.

(5) Council Regulation (EEC) No 4045/89 (OJ L 388, 30.12.1989, p. 18).
(6) Article 12 of Commission Regulation (EEC) No 2677/85 (OJ L 254,

25.9.1985).

(7) Commission Regulation (EEC) No 2677/85, Article 5(1) (OJ L 254,
25.9.1985, as amended by Commission Regulation (EEC) No 643/
93, OJ L 069, 20.3.1993, p. 19).

(8) Commission Regulation (EEC) No 386/90 (OJ L 42, 16.2.1990, p. 6).
(9) Table 105 may be submitted to the Commission by Member States on
a monthly basis with Table 104, the declaration of EAGGF expendi-
ture. Table 105 summarises sums unduly paid and the progress of
recoveries.

C 215/26

EN

Official Journal of the European Communities

27.7.2000

94. Member States are required to notify the Commission of all
irregularities involving more than ECU 4 000 and of amounts
recovered. (1) The Commission did not systematically test the
completeness of these notifications nor did it systematically check
that the amounts recovered had been credited to the EAGGF bud-
get. (2)

95.
In the absence of complete debtor accounts, the Court
requested the Member States concerned to construct and/or pro-
vide complete accounts of all cases of olive oil consumption aid
irregularities where the undue amounts had not been recovered.
Italy has provided such an account and even though it is incom-
plete, it shows that the undue sums to be recovered have been
understated in Table 105 by some ECU 208 million. Greece and
Spain provided information on irregularities totalling ECU 12
million and ECU 2,9 million respectively. This information was
also incomplete since the irregularities notified to the Commis-
sion in accordance with the provisions mentioned in the preced-
ing paragraph totalled ECU 45,9 million for Greece and ECU 10,8
million for Spain for the same period. Portugal has provided
details of unrecovered amounts of ECU 380 000 relating to irregu-
larities detected in the period 1995 to 1997.

Completeness of data on amounts to be recovered

Italy

In a further six cases recoveries had actually been made.
98.
However, there were delays of between seven and 37 months in
crediting these amounts to the EAGGF and one amount, recov-
ered in March 1997, had still not been credited to the EAGGF at
the time of the last audit visit in February 1999. In view of the
systematic nature of this failure, further investigations were
requested, which revealed amounts recovered but not credited to
the EAGGF of ECU 166 000 for olive oil consumption aid alone.
Despite request, at the time of writing, the Italian authorities had
not provided information on amounts recovered but not credited
to the EAGGF relating to other measures managed by AIMA (3)
(the responsible paying agency).

99. A comparison with information received from the District
Attorney for Bari, one of many district attorneys dealing with,
inter alia, consumption aid cases, revealed a further two cases
relating to the Bari region that could not be traced in AIMA’s
database of irregularities.

100. The AIMA database has now been updated to include the
cases mentioned in the preceding paragraphs that were incor-
rectly omitted. Given these discrepancies, however, the Court
asked the Italian authorities to check the completeness of the final
version of their account of amounts to be recovered against all
irregularities recorded in the Guardia di Finanza database. This
check has not yet been completed. The figure of ECU 403,6 mil-
lion for amounts to be recovered arising from irregularities must
still be regarded as incomplete.

96. The Italian authorities took six months to prepare the account
of the amounts to be recovered, and, during that period, they pro-
vided four different versions. The first of these had a total of ECU
181,9 million and the most recent had a total of ECU 403,6 mil-
lion. At the time of writing, a definitive and complete version had
yet to be received.

Delays in recovery

General

97. The Court checked the earlier versions for completeness
against data on irregularities obtained from Agecontrol (the body
responsible for the specific on-the-spot checks on consumption
aid) and the Guardia di Finanza, which is responsible for fraud
investigation and also participates in the normal EAGGF ex post
checks. Of 157 cases checked, 20 were incorrectly omitted, 13
could not be traced, and, in seven instances, the amounts were
inaccurate.

101. Recovery procedures in all Member States were character-
ised by long administrative and judicial delays. National regula-
tions quite rightly allowed individuals or undertakings to appeal
against administrative decisions or court judgments affecting them
but none of the Member States concerned had any procedures for
deterring appeals which may subsequently prove to be either a
delaying tactic or otherwise without serious justification (such as
requiring the appellant to deposit the amount under appeal or
provide an appropriate guarantee before the appeal could be
heard). Appeals were lodged in the vast majority of cases exam-
ined by the Court.

(1) Council Regulation (EEC) No 595/91 (OJ L 67, 14.3.1991, p. 11).
(2) See also paragraphs 1.8 and 4.5 of Special Report No 8/98 on the
Commission’s services specifically involved in the fight against fraud
notably UCLAF/OLAF (OJ C 230, 22.7.1998).

(3) The State agency for intervention in the agricultural market.

27.7.2000

EN

Official Journal of the European Communities

C 215/27

Italy

Greece

102. Although concurrent civil recovery action was provided for
by law (1), because most irregularities were treated as criminal
cases, the civil claim was almost always inserted in the criminal
proceedings and therefore recovery action was suspended until
the final judgment had been passed in the relevant criminal case.
As recognised by the Italian authorities, it could take more than
10 years before a definitive judgment was reached. (2) A contribu-
tory factor was the shortage of staff in the District Attorneys’
offices as acknowledged in a report of the Corte dei Conti (3).
Table 11 shows the delays in open cases.

Table 11

Italy: Open cases — Delays from date of report of irregularity to
25.2.1999

Delay

No of cases

%

Less than 1 year

1 to 2 years

2 to 5 years

5 to 8 years

8 to 10 years

Over 10 years

Total

Source: AIMA.

26

62

227

277

69

54

715

4

9

32

39

10

8

Amount to be
recovered in
ecus

16 011 184

134 226 337

67 639 673

108 237 901

34 850 635

23 014 982

383 946 309

%

4

35

18

28

9

6

103. AIMA, the paying agency responsible for recovery, nor-
mally only issued a ‘request’ for the recovery of sums unduly paid
to the beneficiary concerned. This request was not enforceable.
The basis for the enforcement of recovery action in respect of a
debt was an injunction or a court judgment. AIMA considered
that, once a case had been referred to a district attorney, it was not
required to take further action since it was the district attorney’s
duty to initiate civil recovery action before the relevant court. Fur-
ther, it was not AIMA’s normal practice to issue injunctions,
because, it argued, injunctions could only be issued on the basis
that ‘the debt should be certain, quantified and enforceable, based
upon written evidence that is to say based on a definitive court
judgment’.

(1) Nuovo Codice Di Procedura Penale Article 75.
(2) See also Reports on the Administration of Justice (in Italy) during
1997 and 1998 by the Supreme Court of Cassation and the regional
Appeal Courts of Venice, Florence, Turin, Naples and Salerno.
(3) See Report 71/98 of 27 March 1998 of the Italian Corte dei Conti on
‘Sanctions in respect of Community aid’ which reads that ‘the task [of
recovery of fines] is made all the more difficult by the fact that the
District Attorneys now refuse to defend the Inspectorate [for the fight
against fraud] claiming that they do not have enough staff’.

104. All reports of irregularities detected in Greece had to be
submitted to a committee of the Ministry of Agriculture for a final
decision as to whether or not recovery action was justified. At the
time of writing, this committee had given decisions in 129 cases.
In a further 80 cases decisions are still pending, 79 of which for
more than four years. No information has been provided on the
amounts involved. The sums unduly paid had still not been recov-
ered more than one year after the date of the decision in 93 of the
129 cases (4).

Spain

105. The Spanish paying agency, FEGA (5), provided information
on 1 721 cases involving ECU 2,9 million out of a total of ECU
10,1 million where recovery was pending as notified to the Com-
mission as at 31 December 1997. The cases dated back as far as
1991. An analysis of the higher value cases (429 cases with a
value of ECU 2,7 million) revealed that most delays were admin-
istrative and were attributable to the time taken to arrive at the
definitive recovery decision, which, in over 60 % of the cases, was
over five years. Table 12 below details the delays. According to the
Commission’s data as at 31 December 1998, Spain had recovered
84 % (ECU 9,1 million) of the amounts notified, compared with
6 % (ECU 668 000) as at 31 December 1997.

Table 12

Spain: Delays in recovery

Delay

No of cases

less than 4 years

4 to 5 years

5 to 6 years

More than 6 years

Total

52

103

237

37

429

Source: FEGA cases >ESP 100 000.

%

12

24

55

9

Amount unduly
paid in ecus

357 676

506 360

1 496 562

377 100

%

13

18

55

14

100

2 737 699

100

Portugal

In Portugal delays were noted both in the notification of
106.
control reports by the control agency to the paying agency and
in taking the final decision on recovery action. According to the
Commission’s database, as at 31 December 1998, Portugal had
recovered 89 % (ECU 1,2 million) of the amounts notified, com-
pared with 20 % (ECU 260 000) at 31 December 1997.

(4) The analysis in these paragraphs is based upon incomplete data sup-

plied by the Greek authorities.
(5) Fondo Espagnol de Garantia Agraria.

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Official Journal of the European Communities

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Monitoring the progress of criminal proceedings

Greece

Italy

107. AIMA did not systematically follow the progress of criminal
cases and its own civil claim within them. The Avvocatura dello
Stato, which was responsible for defending AIMA’s (and therefore
the Community’s) interests, did not systematically report back to
AIMA on the progress of the court cases and AIMA did not have
a system for periodically obtaining updated information from the
relevant district attorneys or Procura della Repubblica. Further,
there was no system in force to ensure the timely communica-
tion of court decisions to AIMA.

108. At the Court’s suggestion, AIMA wrote to the competent
district attorneys (or, if not known, to the responsible reporting
bodies) to establish the current situation of cases under their
responsibility (1). The replies showed that it was difficult to ascer-
tain from the judgments on the criminal cases whether or not it
had been accepted that undue aid payments had been made and
sometimes even to which civil case these payments related, since
the names of the beneficiary companies were not always men-
tioned.

109. The replies from the district attorneys further revealed 46
cases involving ECU 29 million where judgments had been made
but AIMA had not pursued recovery action. The oldest of these
judgments dated back to 1989. AIMA is currently making further
enquiries as to the exact status of these cases.

Spain

110. Eleven cases involving some ECU 697 000 reported in 1996
and 1997 were still awaiting decisions on criminal proceedings
and recovery action at the time of the last audit visit in November
1998 because of a dispute over competence between FEGA, the
former paying agency, and the autonomous authorities who have
latterly assumed this function.

111. Of 27 cases reported between 1991 and 1994 which should
be the subject of court proceedings, there has been a definitive
judgment in only one case. In 12 of the remaining cases, proceed-
ings have been commenced, five are under appeal and nine cases
have yet to have legal proceedings initiated.

Case where recovery action was taken against the supplier
rather than the aid recipient

112. This case, detected in Italy, involved the falsification of cus-
toms documents to disguise the non-Community origin of a large
quantity of oil, some of which was actually a blend of olive and
hazelnut oil. Irregular consumption aid claims were not made by
the importer but by his customers. Recovery action, on the other
hand, was initiated in the framework of the criminal case against
the importer but not against the customers (who had actually
made the irregular claims). The total value of payments to the aid
applicants to which they are not entitled, and which they still
have, was ECU 8,7 million. At the time of writing, the criminal
case was before the Court of Cassation, the importer was in li-
quidation but assets of ECU 22 million had been blocked.

113.
In order to protect the Community’s financial interests in
such cases, recovery action should be taken against the recipients
of the aid. Such action may be initiated independently of the
criminal action against the importer. Fraudulent behaviour by a
third party with whom the aid recipient has entered into a con-
tract constitutes an ordinary commercial risk (2) that should not
exclude repayment by the beneficiary.

Guarantees

114. Payments of consumption aid were made in advance of the
on-the-spot checks carried out by the olive oil control agencies
but were subject to the lodging of guarantees which were released
once entitlement to aid had been recognised on the basis of the
checks.

115.
In both Spain and Greece the guarantees were actually
released on the basis of the results of a desk check which was nec-
essarily limited in scope. This is contrary to the legislation, in
force since 27 March 1993, which requires the recognition of
entitlement to aid (and therefore the release of the guarantee) to
be based on the results of the on-the-spot checks (3).

(1) The replies showed, firstly that the defendants in any given criminal
case may have been involved in more than one civil case liable to lead
to recovery action and, secondly, that a given criminal case relating
to only one civil case may have many defendants. The situation was
further complicated by the fact that, often, in one single case of undue
payments, some defendants were found guilty, some plea bargained,
some were granted amnesties and some were acquitted.

(2) Case C-366/95, Steff-Houlberg Export e.a. [1998] ECR I-2661, para-

graph 28.

(3) Commission Regulation (EEC) No 2677/85, Article 11(2) (OJ L 254,
25.9.1985, as amended by Commission Regulation (EEC) No 643/
93, OJ L 69, 20.3.1993, p. 19-21).

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Clearance of accounts

116. As a result of the inspections carried out under the clear-
ance of accounts procedures the Commission has disallowed
expenditure for olive oil consumption aid for a total of ECU 84
million for the EAGGF years 1992 to 1995. Table 13 summarises
these corrections by Member State. The corrections were mainly
for shortcomings in the control system but there were also
instances of corrections for failure to withdraw approval from
certain undertakings that had made irregular claims. Withdrawal
of approval results in loss of entitlement to consumption aid pay-
ments.

However, a correction was still judged appropriate by the ECJ
because it found that ‘In as much as it took ten years to resolve
the jurisdictional dispute between the Italian authorities, and no
effective monitoring was possible during that time, it is reason-
able to presume that there were deficiencies entailing a risk of loss
to the EAGGF’.

In another case the ECJ confirmed corrections concerning
118.
Greece (3) maintaining that ‘... the Greek Government does not
challenge the Commission’s statements to the effect that the
checks carried out by the Ministry of Agriculture were ineffective
because of the insufficient number of qualified staff responsible
for the checks and the absence of reports on the checks enabling
them to be verified’.

Clearance of accounts corrections for olive oil consumption aid

Table 13

Fines (4)

1992

1993

1994

Greece

Spain

France

Italy

Portugal

0,0

5,6

7,8

5,2

0,1

Total

18,7

0,0

0,6

0,0

11,7

3,5

15,9

0,0

0,0

0,2

0,0

0,0

0,2

Source: Commission summary reports 1992 to 1995.

(million ECU)

1995

9,4

37,6

0,2

1,0

1,1

49,2

Total

9,4

43,8

8,2

17,9

4,7

84,0

119. With effect from 1992, fines (5) were introduced for olive
oil which laboratory tests showed not to meet the quality require-
ments necessary to qualify for consumption aid (6). The fine to be
imposed was twice the amount of the consumption aid applied
for in one of the months following that in which the samples
were taken. With effect from 1996, the rate was reduced to
between 20 % and 80 % of the monthly average of the consump-
tion aid applied for in the 12 months preceding that in which the
samples were taken (7). The fines collected were to be credited to
the EAGGF.

117. Corrections made regarding the two problems mentioned
in the previous paragraph were upheld by the Court of Justice.
One relevant case (1) concerned Italy. The responsible authority,
the Ministry of Industry, did not withdraw approvals until the
Ispettorato Centrale Repressione Frodi (ICRF) had imposed the
administrative fine (see also paragraphs 119-123 below). In its
judgment the ECJ refers to the opinion of the ‘Conciliation Body (2)’
which ‘formed the view that the more recent improvements in the
management of securities, and ... the introduction of a fairly rigor-
ous system of penalties should also be taken into consideration’.

(1) Case C-253/97 of 28 October 1999.
(2) Commission Decision No 442/94 of 1.7.1994 (OJ L 182, 16.7.1994)
setting up a conciliation procedure states that the Conciliation Body’s
purpose is “to try to reconcile the divergent positions of the Com-
mission and the Member State concerned” with regard to corrections
proposed by the Commission in the context of the clearance of
accounts procedure. The Body forms an integral part of the clearance
procedure. Member States may choose to make use of the concilia-
tion procedure, subject to certain minimum values, without prejudice
to their right to refer the matter to the European Court of Justice. The
opinions of the Body are not binding on the Commission’s final deci-
sion on the clearance of accounts.

120. As of February 1999, neither Greece nor Italy had imposed
the required fines. Italy has provided information on the value of
fines which should have been imposed. The information is, how-
ever, incomplete since it only covers the period from 1992 to
1995 for which period fines which should have been imposed
total some ECU 7,8 million. The Italian authorities were unable to
provide the information for 1996 to 1998. Greece has some 90
cases that were detected in the 1992 to 1998 period for which it
has not notified the required fines. The Greek authorities have yet
to calculate the value of the fines involved. In addition, during the
period 1994 to 95, because of a dispute between the State Labora-
tory and the Olive Oil Control Agency, no samples were sent for
analysis and those already in the possession of the Laboratory
were not analysed. In Spain, of fines proposed by the control
agency of some ECU 913 000, for the period 1992 to 1998, some
ECU 394 000 has been collected. In Portugal for the period 1995
to 1997, fines of ECU 2 290 have been collected from a total of
ECU 32 453 proposed.

(3) Case C-61/95 of 29 January 1998.
(4) Article 5(2) of Commission Regulation (EEC) No 2677/85 (OJ L 254,

25.9.1985, p. 5).

(5) Commission Regulation (EEC) No 1008/92 (OJ L 106, 24.4.1992,

p. 12).

(6) Commission Regulation (EEC) No 2568/91 (OJ L 248, 5.9.1991,

p. 1).

(7) Commission Regulation (EC) No 887/96 (OJ L 119, 16.5.1996, p. 16).

C 215/30

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121. The delays in notification of fines in Italy were attributed to
staff shortages (1). In its defence, the Ispettorato Centrale Repres-
sione Frodi (ICRF), responsible for the imposition of these fines,
maintains that all fines will be notified within the five years laid
down by the statute of limitations. Whilst such delays are permis-
sible under the law, the systematic failure to notify these fines
promptly and pursue recovery action is damaging to the financial
interests of the Community (see also paragraph 88).

Italy and Spain were requested to check whether or not
125.
consumption aid had been claimed for a selection of export refund
transactions where irregularities had been detected in laboratory
tests. Spain has reported one case, involving penalties of some
ECU 83 000 which should have been applied. Enquiries involv-
ing 12 cases are still under way in Italy. There were no cases to be
followed up in Greece and Portugal.

122. As of 1993, fines (2) were introduced in respect of applica-
tions for quantities of consumption aid that were greater than
those for which entitlement was recognised. The fines should be
between three and eight times the unduly claimed aid. The Regu-
lation is silent as to whether or not these fines should be credited
to the EAGGF. However, a letter from the Commission to the Ital-
ian authorities in 1998 (3) indicated that they were to be credited
to the national budgets. Amongst the arguments given for this
interpretation was that Member States would be more inclined to
impose the highest rate of penalty and thereby obtain the great-
est deterrent effect. The Court considers that the Regulation
should have required the fines to be credited to the EU budget as
for fines in respect of quality infringements.

123.
In contrast with the Commission’s idea that crediting these
fines to the national budget should increase their efficacy, their
deterrent effect was seriously undermined by delays in notifica-
tion (and, consequently, collection) for example, in Italy, where
the majority of fines are notified in the last year of the five pro-
vided for by the statute of limitations. In Greece, of a possible 468
cases where fines have been recommended by the Control Agency
since 1993, decisions to apply fines have only been taken in 121
cases. In 60 % of these cases the delay between the date of the
report and the date of the decision was more than four years.

Export refunds

126.
Irregularities in payments of export refunds for olive oil, as
reported to the Commission, are considerably less than consump-
tion aid irregularities, some ECU 12,5 million for export refunds
in comparison with ECU 456 million for consumption aid. The
rate of recovery is only marginally higher, 13 % for export refunds
as compared with 6 % for consumption aid but the delays in
recovery are considerably shorter. Some 43 % of amounts to be
recovered for consumption aid irregularities relates to years prior
to 1993, whereas almost 100 % of unrecovered amounts for
export refund irregularities relates to 1993 and subsequent years.

127. This does not imply that the rate of recovery for export
refund irregularities is acceptable. Some 87 % (ECU 10,9 million)
is outstanding for the years 1993 to 1996. The reasons for the
delays, administrative and judicial, are similar to those for con-
sumption aid. Member States should therefore take urgent steps
to improve their recovery procedures.

Conclusions

Exchange of information on laboratory tests

124. Exports of olive oil could and did attract both consump-
tion aid and export refunds. The chemical parameters which had
to be met for consumption aid and export refunds were mostly
identical. Despite this, there was no systematic exchange of infor-
mation in any of the Member States between the bodies respon-
sible for export refunds and those responsible for consumption
aid in respect of irregularities detected in laboratory tests.

128. According to information on debtors supplied to the Com-
mission by the Member States (Table 105), Italy accounts for about
60 % of debts two thirds of which relate to consumption aid.
These figures are known to be inaccurate since most of the Mem-
ber States’ paying agencies do not have accurate and complete
debtor accounts. For example, this audit showed that Italy alone
had understated debts by ECU 208 million in Table 105. The
information provided, though incomplete, points to a disturbing
scenario of fraud and irregularities at the expense of the EU bud-
get, coupled with inadequate recovery and sanction procedures in
the Member States (see paragraphs 83, 93-111, 117-123).

(1) See Report 71/98 of 27.3.1998 of the Italian Corte dei Conti on ‘Sanc-
tions in respect of Community aid’ which reads that ‘the task [of
recovery of fines] is made all the more difficult by the fact that the
District Attorneys now refuse to defend the Inspectorate [for the fight
against fraud] claiming that they do not have enough staff’.

(2) Commission Regulation (EEC) No 643/93 (OJ L 69, 20.3.1993,

p. 19).

(3) Reference VI 18672 of 5 May 1998.

129. The Commission bears responsibility for not having intro-
duced regulatory requirements for effective checks and fines from
the outset and for failing to ensure that Member States kept debtor
accounts, set up effective recovery procedures and applied the
fines once they had at last been introduced (see paragraphs 89-
92, 93, 117-123).

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130. The lengthy administrative and/or judicial procedures in
Member States are the principal causes of the delay in the recov-
ery of sums unduly paid. There are several factors contributing to
the length of these procedures in Member States, principally the
shortages of staff in administrations, Courts and district attorney
offices, but also the lack of a deterrent for appeals which may sub-
sequently prove to be either a delaying tactic or otherwise without
serious justification, (see paragraph 101) and the failure to moni-
tor systematically the progress of criminal cases. These are mat-
ters for the Member States concerned to remedy. However, in that
their actions to recover unduly paid sums of some ECU 429 mil-

lion relating to the period 1983 to 1998 were inadequate and in
that they failed to collect fines, Greece and Italy have not acted
with the necessary diligence referred to by the ECJ (see para-
graph 87). The Commission should therefore take urgent action
within the context of the clearance of accounts to protect the
Communities’ financial interests. The Commission should also
consider introducing a time limit for Member States to recover
sums unduly paid. Any sums not recovered within such a time
limit should be credited to the EAGGF budget within the clear-
ance of accounts procedures pending a definitive court judgment
(see paragraph 88).

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 4 May 2000.

For the Court of Auditors

Jan O. KARLSSON

President

C 215/32

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Official Journal of the European Communities

27.7.2000

ANNEX

REVIEW OF THE WORLD OLIVE OIL MARKET

1. Olive oil represents about 3 % of the edible oils on the world market. According to the statistics of the
International Olive Oil Council (IOOC), in the course of the last 12 years the average world production of olive
oil, including olive residue oil, is situated at 2, 018 million tonnes, varying from 1, 532 million tonnes in
1988/89 to 2,628 million tonnes estimated production for 1997/98. The corresponding consumption is esti-
mated on average to be 2,050 million tonnes (from 1,836 million tonnes in 1990/91 to 2,402 million tonnes
in 1997/98). Comparing consumption with production, it could be said that, on average, there is an equilib-
rium in the world market for the period of reference, but the situation changes considerably from one year to
the next, especially with regard to production, which varies compared with a relatively stable level of consump-
tion. Table 14 shows the olive oil supply balance at world and EU level for the period 1986/87 to 1997/98.

Community production and consumption

2. The world market situation is strongly influenced by the trend in the Community market, since the Euro-
pean Union counts on average for 78 % of production and 73 % of consumption for the same period. Based
on the same statistics, the European market shows average production of 1,579 million tonnes compared with
1,487 million tonnes of consumption. Since 1993/94 an increasing tendency has been registered concerning
production, which reached its highest level at 2,294 million tonnes in 1997/98. Consumption, after having
been relatively stable for a number of years, has been increased in the last two marketing years, reaching 1,841
million tonnes in 1997/98.

3. The information for the 1996/97 and 1997/98 marketing years gives an indication of the current situation
in the olive oil market. Contrary to the world market, the Community market has registered for the last four
consecutive marketing years a positive balance (surplus) and thus the stocks at the end of the period have
reached the highest level.

Trade

4. During the reference period from 1986/87 to 1997/98 the volume of trade (imports and exports) in olive
oil and olive-residue oil was, world-wide, about 0,73 million tonnes on average. The corresponding volume
relating to intra- and extra-Community trade is 0,49 million tonnes for imports and 0,58 million tonnes for
exports, i.e., 67 % to 79 % of world trade. At Community level, trade with third countries represents a minor
part compared to that between the Member States of the Community. For example, in the last two marketing
years imports from third countries were about 18 % to 21 % of the total, while exports were 31 % in 1996/97
and 38 % in 1997/98.

.

.

2
7
7
2
0
0
0

Table 14

Olive oil supply balance — world

E
N

(1 000 t)

1

5

6=(4-5)

7=(1/5)

Production

Consumption

Balance

Ratio production/
consumption

1986/1987

1987/1988

1988/1989

1989/1990

1990/1991

1991/1992

1992/1993

1993/1994

1994/1995

1995/1996

1996/1997

1997/1998

1 639

1 940

– 301

2 172

1 980

192

1 532

1 917

– 385

1 918

1 836

82

1 543

1 841

– 298

2 367

2 024

343

1 942

2 096

– 154

1 954

2 072

– 118

1 969

2 051

– 82

1 848

1 929

– 81

2 709

2 370

339

2 628

2 547

81

84 %

110 %

80 %

104 %

84 %

117 %

93 %

94 %

96 %

96 %

114 %

103 %

1

2

3

Production

Importations

Exportations

4=(1+ 2– 3)

Available quantity

5

Consumption

6=(4-5)

7=(1/5)

Balance

Ratio production/
consumption

Olive oil supply balance — EU

1986/1987

1987/1988

1988/1989

1989/1990

1990/1991

1991/1992

1992/1993

1993/1994

1994/1995

1995/1996

1996/1997

1997/1998

1 205

1 879

1 166

1 582

1 077

1 869

1 509

1 463

1 486

1 518

1 899

2 294

518

649

1 074

1 409

– 334

306

420

1 765

1 478

286

345

461

1 051

1 409

– 358

387

474

1 495

1 402

93

624

652

1 050

1 311

– 261

465

508

1 826

1 459

367

474

585

1 398

1 495

– 97

556

551

1 468

1 474

– 7

559

545

1 501

1 475

25

487

599

1 407

1 402

5

729

796

1 832

1 687

145

701

851

2 144

1 841

303

(1 000 t)

86 %

127 %

83 %

113 %

82 %

128 %

101 %

99 %

101 %

108 %

113 %

125 %

EU/world production

Consumption

74 %

73 %

87 %

75 %

76 %

73 %

82 %

76 %

70 %

71 %

79 %

72 %

78 %

71 %

75 %

71 %

75 %

72 %

82 %

73 %

70 %

71 %

87 %

72 %

Source: IOOC and DG AGRI. C.4 Olive oil and olive-pomace oil.

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
2
1
5
/
3
3

C 215/34

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Official Journal of the European Communities

27.7.2000

THE COMMISSION’S REPLIES

SUMMARY

The Commission would point out that one of the main objectives of the scheme is to contribute to providing
a fair income. This objective is derived from the Treaty, where it is expressed, furthermore, as a political prin-
ciple rather than a quantifiable target; the Commission doubts that political agreement could ever be reached
on the kind of definition capable of the evaluation that the Court appears to want.

The changes to the regulatory framework proposed by the Commission and/or adopted by the Council over
the past 30 years were designed to improve the situation and adapt the scheme to major changes, in particular
Greek accession, followed by Spanish and Portuguese accession. The examples of changes to the regulatory
framework given by the Court may equally be interpreted as a willingness on the part of the Commission and
the Council to draw conclusions based on experience, and to adapt to the complex socio-economic problems
of this sector. The small producers’ scheme provides an example of a trial solution to certain control problems
which was withdrawn when it was found to be unsuccessful. The basic principle of the organisation of the
olive oil market — the granting of aid directly to olive oil producers on the basis of the quantities of oil — has
on the other hand remained unchanged since 1966.

Looking to the future, the Court points to the socio-economic difficulties of a scheme based on aid per tree.
Its stresses the importance of effective controls on mills, which has been the objective for 30 years, but does
not point to any new measures that could improve the situation. Under its reform proposals for 2001, the
Commission will examine various avenues, taking account of the initial results of the action already taken and
measures introduced since 1998. The Commission also points out that the Court has been no more able than
the Commission to objectively quantify the extent of unjustified production aid claims in the various Member
States.

The Commission shares the Court’s concern that there should not be any further delay in bringing the olive
cultivation geographical information system (GIS) into operation, and it has warned the Member States that
any failure to comply with this requirement will be taken into account appropriately in the clearance of
accounts procedure. Member States will also have to increase their control rates if their GIS systems are not
operational.

Although it has introduced new control requirements with a view to ensuring more effective management of
the scheme, taking into account practical limitations, budgetary constraints and the different structures and
market habits in the different Member States, the Commission is well aware that the current system does not
yet reach the desired level of efficiency and reliability, and it therefore continues to seek improvements in the
context of the reform.

INTRODUCTION

The audit objectives

best way to contribute to fair incomes. The total production aid
available to producers has been increased by the amount previ-
ously budgeted for consumption aid and through abolition of the
2,4 % deduction which contributed to meeting the costs of the
register.

5-7. The Court’s report covers a period prior to implementation
of the Council Decision of July 1998.

The control provisions

PART 1: PRODUCTION AID

The support mechanism for production

11. The level of support in this sector was frozen for the 1998/99
to 2000/01 marketing years, as it was impossible to determine the

13. After the period audited by the Court, the Commission
introduced measures relating to Regulation (EC) No 2366/98 in
particular to improve the method for determining olive yields.

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13-14. New control requirements were introduced with a view
to ensuring more effective management of the scheme, taking
into account practical limitations in the olive oil sector and dif-
ferent structures and market habits in Member States.

scheme was abolished in 1998, following indications that the pro-
duction was passed on from small to big producers with a view
to benefiting from Community aid twice.

The Commission will monitor the application of the new control
requirements closely and, if Member States do not respect the
controls prescribed, will apply the necessary corrections.

Observations relating to the Commission’s management of
the scheme

Statistical data

20. The Olistat and Oliarea studies produced final results in
1999. It seems that the main divergences in data provided by the
Member States depend on what is deemed to be an olive tree in
production. The national definitions have been clarified and har-
monised as from 1999/2000.

The regulatory framework

Setting of institutional prices and producers’ incomes

15. The basic principles of the organisation of the olive oil mar-
ket, in particular the granting of aid directly to olive oil produ-
cers on the basis of the quantities of oil, have remained unchanged
since 1966. Continuous amendment of the relevant regulations
reflects the need to adapt to changing circumstances and the con-
stant effort for improvement, given the political priorities, the
budgetary constraints and the numerous practical limitations
inherent in the production of olive oil, such as the differing sys-
tems and market habits of the different Member States, and the
large number of producers. The Commission agrees that the cur-
rent system does not reach the desired level of efficiency and reli-
ability. The Commission considers that improvements are desir-
able, and it is in particular continuing to seek ways of improving
the control system. This will be one of the major issues in the next
reform of the olive oil market organisation, which the Commis-
sion is planning to put forward during the second part of 2000.

16. The Commission has always been wary of the danger of
structural surpluses if production rises too rapidly. The first series
of measures taken in this respect in 1978 were aimed at keeping
olive oil production limited to traditional areas against the back-
ground of Greek accession. The measures put in place in 1984
were also designed to meet budgetary concerns, with a budgetary
stabiliser being introduced in the shape of maximum guaranteed
quantities. At the same time, the restrictions on planting previ-
ously introduced were lifted to avoid situations in which growers
are doubly penalised by the system.

Restructuring of the sector in some Member States and the level
of aid resulted in a renewed risk of overproduction, leading the
Community to adopt new measures restricting the grant of aid in
1998.

Main features of the income structure

21. The Commission would point out that in many production
areas olive growing is not the only activity carried out by farmers
but complements other farming and non-farming activities.

However, earnings from the sale of olive oil and the related aid
account for a significant part of producers’ income, and owner-
ship of an olive grove is an additional asset.

Although it does not fundamentally alter the Court’s conclusions
in this paragraph, assessment should not be based on a maximum
aid of EUR 330 for 250 kg but on the aid plus the proceeds of
sales, i.e. a total of EUR 900 to EUR 1 000 for 250 kg.

In addition to revenue derived directly from olive growing, in
some regions the production of olive oil accounts for a highly sig-
nificant proportion of agricultural income and supports an exten-
sive network of small and medium-sized businesses providing
full- and part-time jobs.

Amount of production aid

22. The objective of contributing to a fair income is political in
nature, and it is doubtful if an agreement could be reached to
quantify it specifically for a single sector of the market organisa-
tion. The Commission would also mention that the objective is to
‘contribute’ to a fair income; there can be no doubt that the objec-
tive of ‘contribution’ is met, even if it is not quantifiable.

17. To relieve the problems of controls in the sector, the small
producer regime was designed to better target and rationalise con-
trols by exempting a large number of producers, who accounted
for a small share of the production, from the usual control
requirements. This did not prove to be very effective, and the

In spite of the imprecision of the idea of fair income, the contri-
bution to its achievement, especially as regards the low agricul-
tural incomes of the olive oil production areas, can always be

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considered as lower than desirable. Budgetary constraints and the
need to share agricultural support out among different types of
agricultural production will always limit it.

The Commission doubts that the share of the subsidy in the esti-
mated value of production is a good indicator of its contribution
to a fair income.

For the 1993/94 marketing year onwards, the Commission entered
a reservation at the IOOC on the validity of the statistics com-
municated by the Member States, in particular on end-of-marketing
year stocks. In 1999, together with the IOOC, the Commission
audited the data on both olive oil supply and demand. The exer-
cise resulted in the data being revised, as was confirmed by the
IOOC member countries at the 81st session of the IOOC in Jaen
(Spain).

23.
Income and costs vary a lot depending on the region, the
mode of production and the year. So, even if an objective method
of calculation of the target price could be established, these vari-
able data at microeconomic level would be of little help.

The Commission is aware of the danger of an unrestrained rise in
production. Nevertheless, the measures taken to curb the plant-
ing of new olive trees and the rise in world consumption without
using export refunds could help to absorb the additional produc-
tion.

The representative market price being fixed as a theoretical price
to permit normal disposal of olive oil on the market, the target
price could be considered as the maximum contribution to fair
income which is possible taking account of the budget.

When the actual market prices are higher than the representative
market price, the rate of contribution to fair income is higher
than foreseen, but the producer income may be even worse as
that situation may result from a shortfall in the harvest. In that
case, the returns from the market and from the aid may be espe-
cially low.

The market balance

24. An analysis of production trends in the decade 1986/87 to
1995/96 must also take account of the severe drought in Spain,
the world’s main producer, over the three marketing years preced-
ing 1996/97. During that decade, a very large number of new
olive trees were planted and there was a significant rise in produc-
tion potential, especially in Spain.

26. The increasing trend stopped in 1995/96. It was followed in
1996/97 and 1997/98 by a sharp decrease for large producers due
to the overshoot of the maximum guaranteed quantity (MGQ)
and some stabilisation for small producers. Increases in subsidies
in national currencies over the period 1987/88 to 1995/96 are
quite different, depending on the Member States concerned. In
Italy and Greece, it was 2,7 times the initial amount; in Spain it
was about 10 times and in Portugal 15 times their small post-
accession amounts.

Management of funds deducted from production aid

27. The difference between the amounts withheld and amounts
spent is due to the fact that the deduction is laid down in a Coun-
cil Regulation whereas spending depends on the Member States’
absorption capacity.

As the Court points out, information on the amounts withheld
and the amounts spent is available in the EAGGF Guarantee Sec-
tion financial report. The amounts spent are also given in the
budget documents.

For 1996/97 and the following marketing years, it was a combina-
tion of improved weather conditions and the entry into produc-
tion of young trees that led to the output of around 2,3 million
tonnes in 1997/98.

Specific budgetary monitoring of deductions is not required since
they are not revenue earmarked for a specific purpose.

25. As regards consumption, IOOC statistics indicate an increase
in 1996/97 and 1997/98 equivalent to the rise in production
pointed to by the Court.

The Commission nevertheless remains wary of the risk of struc-
tural imbalance on the market in the medium term.

Funding of quality improvement programmes

29. Designing quality improvement programmes involves a great
deal of subsidiarity to ensure that they are geared to real local
needs. Quantifying these qualitative objectives is a delicate mat-
ter. Laying down clear objectives as part of the overall quality
improvement strategy which the Commission is currently devis-
ing will make it easier to define performance indicators.

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Funding of the olive cultivation register

30. The slow absorption of the available funds is due to the slow
progress in setting up the olive oil register in certain Member
States. The difficulties in setting up the register have been the
main basis for financial corrections of the expenditure for olive oil
production aid.

of mills inspected annually by the various agencies exceeds 30 %
of the operating mills. The Commission has recently issued detailed
guidelines on inspection procedures, which are necessary to obtain
an adequate degree of assurance from the agencies’ checks on the
mills. Furthermore, beyond the usual clearance controls, the Com-
mission closely monitors the control activities of the agencies by
analysing the quarterly activity reports, quarterly meetings, etc.

Measures to promote consumption

The yields as a control instrument

In June 1999, as a consequence of the Berlin summit, the
32.
budget for the seventh campaign was cut by 22 % from EUR 45
million to EUR 35 million. This resulted in an additional delay
since the open call for tenders had to be closed and a negotiated
procedure was opened immediately after, and as, Austria, Finland
and Sweden were included for the first time in the campaign. The
last contracts were signed in December 1999.

In its future promotion strategies, the Commission will take into
account the results of the general evaluation of promotion.

33. The lack of measurable objectives has been addressed in the
seventh campaign which provides for an institute for consumer
studies to investigate the purchase, household penetration and
price of olive oil, and to provide quantitative results which will
allow the Commission to draw conclusions about the efficiency
of the measures in relation to the consumption of olive oil. Obvi-
ously these Community activities are not the only parameters
affecting consumption. The price of olive oil has an effect on con-
sumption as well, as was demonstrated as a result of the record
crops in the 1995/96 and 1997/98 marketing years.

The latest official statistics support the assumption made after the
sixth campaign that consumption has increased in countries where
the measures were implemented. The same figures also indicate
clearly that without the promotion campaign a decrease in con-
sumption can be observed.

34-35. Taking into account the complexity of direct manage-
ment, the Commission plans to submit a proposal to the Council
in the coming months, which harmonises the promotion schemes
from directly managed campaigns towards indirect management.
In consequence, the tasks will change and manpower allocations
will be made on the basis of the new situation in the future.

Observations relating to the implementation of the scheme in
the Member States

39. Comparison of the actual yield for each aid application with
the average zone yield is a useful control tool, which identifies
abnormally high production claims, but it is not a sufficient means
to ensure that only quantities actually produced receive Commu-
nity aid. There are many inherent control limitations resulting
from the specific characteristics of olive oil production. Yields
may vary enormously even in the same year and within the same
zone. Comparison of the actual with the average yield can only
take place after the harvest, the milling of the olives, the lodging
of the application for aid and the introduction of the relevant
information in the computer systems of Member States. When
high yields are identified in this way, there are no means of
obtaining direct evidence as to the reality of the claim. Inspection
of the producer’s trees will offer limited evidence, given that it will
take place when the trees bear the next year’s crop and that the
production of a tree may vary enormously between two consecu-
tive years.

Estimation of the average production yields

41. A harmonised method for estimating yields has been devised
and was incorporated into the regulatory framework in 1999.

The usefulness of the average yields as a control instrument

43-44. The variations of producer yield around the average yield
of a homogeneous zone are frequently much greater than three
times, and may be much higher than 10 times the average. The
examples mentioned by the Court concerning the tolerated mar-
gin of 49 times the average yield are indicative of the actual dif-
ficulties on the ground.

A much higher yield than the average is not in itself proof of
fraud. There are practical limitations in the use of the yields as a
control tool but it may help to highlight certain cases, which
require further investigation. At local level and especially at the
level of the individual producer, use of the average yield as a con-
trol instrument focuses checks on farms with old olive trees but
leaves free of checks olive groves which have low production.
However, it can detect divergent results which are questionable at
the level of a large area, an important mill or a producer organisa-
tion.

38. The inspection of mills by the control agencies is the most
important control tool of the scheme, since the aid is paid on the
basis of quantities produced, as certified by the mills. The sample

The average yield instrument cannot be the only tool, and cannot
be used in too systematic a way, for example with a fixed margin
of tolerance. However the system has eliminated the cases known

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in the first years of the scheme when some requests for aid were
quite incompatible with the number of olive trees belonging to
the producer in question.

nising their expenditure does not jeopardise the agencies’ opera-
tion in any way.

Reliability of the control mechanism

51. The minimum sample of 10 % has been increased to 30 % as
from 1998/99.

45. The problem of low quality of information provided by pro-
ducers may in fact be a consequence of the possibility for them to
confirm the previous declaration if no change occurred. At the
end of 1998 the renewal of all cultivation declarations between
1999 and 2001 was provided for.

As the total number of producers is very high it is possible that a
proportion of them are not well informed of their rights and obli-
gations. This, in principle, is the task of the Member States’
authorities and of the producers’ organisations (POs).

46. The POs cannot cover the full range of controls required for
ensuring the sound management of the scheme. The applications
for aid submitted by POs for their members are subject to further
(sample) controls by national administrations who bear the final
responsibility. Furthermore, the control agencies regularly inspect
a considerable sample of POs.

In the guidelines on procedures for the inspection of mills, which
were given recently to the control agencies by the Commission,
the specific features of these two main organisational arrange-
ments have been sufficiently taken into account. Specific verifica-
tions, responding to the characteristics of each control environ-
ment, have been proposed with a view to compensating for the
inherent control limitations.

It is noted however that in situations where the mill does not buy
the olives, but offers only a milling service, the control risk
appears to be higher. This is because the price/commission is
often agreed between the mill and the producer for each batch of
olives. Since the precise quantity of oil actually produced does not
affect the remuneration of the mill, there are no opposing inter-
ests between the mill and the producer to ensure certification of
the exact quantities of olive oil. Furthermore, this places limita-
tions on the ex post verifications because it is difficult to establish
consistent quantitative links between the olives or the oil and the
amounts that the milling services received in remuneration.

48. The lack of computerised files in Greece is a problem known
to the Commission and it is taken into account in the EAGGF
Guarantee Section clearance procedure. The problems of identi-
fication of parcels will be resolved with the establishment of the
geographical information system (GIS). Until this system becomes
operational, Member States should carry out a rapidly increasing
number of on-the-spot inspections (1 % of all producers for
1998/99,5 % for 1999/2000 and 10 % for 2000/01).

52. As a rule, producers have their olives pressed by a mill, which
keeps the oil. This applies to almost all producers in Spain (where
bulk sale is forbidden) and most producers in Italy and Greece.

In some production areas in Italy and Greece, producers take back
the oil produced, or some of it, either to cover their own domestic
requirements or for direct sale, or to sell on to intermediaries.

50. The agencies were set up in response to the Commission’s
findings and the various criticisms by the budget authority relat-
ing to difficulties and weaknesses of national administrative struc-
tures in carrying out the checks provided for in Community rules
in the olive oil sector.

Objective evaluation of the cost effectiveness of the activities of
the agencies must take into consideration the complexity of the
system, the large number of subjects to be controlled (see also
point 14) and the absence of basic control instruments in pro-
ducer Member States (cultivation register, computerised files, etc.).

While it is true that in the past decisions recognising agency
expenditure took some time to be adopted, the situation today
has improved. However, it must be borne in mind that, as the
Commission pays the agencies an advance equivalent to its con-
tribution to scheduled spending each quarter, any delay in recog-

These provisions are expected to improve the checks on the
scheme. It is noted however that national laws often exempt pro-
ducers from issuing official commercial documents (for example
invoices or receipts) and from a number of tax obligations. There-
fore, the documentation to be kept according to Regulation (EC)
No 2366/98 may not be based on the opposition of interests
between the producers and the buyers of olive oil and therefore,
it may not offer, alone, the desired degree of assurance.

53. The Commission regularly reminds the agencies and the
national authorities of the need to complete quickly the checks
and administrative procedures relating to the imposition of sanc-
tions and the recovery of amounts paid. However, according to
national rules, these administrative procedures usually include an
opportunity for a beneficiary who is accused of committing an
irregularity to present his case, and for evaluation of the oppos-
ing arguments and of any available evidence by an independent
committee. These procedures inevitably require a certain time.

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As not all mills and producers can be visited each year, it is inevi-
table that some irregularities are discovered after payment.

appropriately in the clearance of accounts procedure. It can be
reasonably concluded therefore that Member States have suffi-
cient motivation to bring the GIS into operation quickly.

The effectiveness of the sanctions system

55. Legislation concerning legal and administrative procedures
falls within the exclusive competence of the Member States. There-
fore Community legislation can only stipulate when action must
be taken, and it is not entitled to lay down how long the relevant
legal procedures may last. With the latest reform, the Commis-
sion has acted in this matter and laid down that action must be
taken within 12 months of the report.

56. The Commission shares the Court’s view that individual
deviations from averages cannot be considered as proof of the
inaccuracy of aid applications, especially in the light of the large
variations in the olive and oil yields, even in the same year and
within the same zone. This is an inherent control limitation
(among several others) in the area of the production aid for olive
oil.

The Commission considers that the financing of the GIS is unre-
lated to any sums which may have been underspent on the old
olive cultivation register.

Under Article 26(2) of Regulation (EC) No 2366/98, expenditure
on setting up the olive cultivation GIS and the periodical updat-
ing of the graphical reference database is eligible for the 1998/99
and 2000/01 marketing years. The Member States may mobilise
the funds available or any part of them only for financing such
measures and with the Commission’s prior approval.

61. The high rate of differences for 1997/98 is also due to the
need for methodological improvements. In the future, that rate is
expected to decrease.

In view of the poor recovery results, the Commission and
57.
UCLAF/OLAF have repeatedly insisted that Member States improve
and speed up their recovery procedures. In 1999 they announced
that all amounts not recovered due to negligence of the Member
States would be charged to them under the clearance of accounts
procedure. Currently the Commission is identifying these cases of
negligence.

62. The Commission shares the Court’s view but stresses that
the problem arising in Italy is due essentially to the entry into
force of the new GIS Regulation. However, transition to the new
system has not made the original version of the Italian GIS inop-
erative to the extent that it was used for control purposes. In any
case, if the Italian GIS is not completed within the meaning of
Article 26(1) of Regulation (EC) No 2366/98, Italy is required to
carry out on-the-spot checks in accordance with Article 28(2) of
that Regulation.

The olive cultivation register

59. Although this does not explain all the delays, there have
been real technical and legal difficulties in completing the register,
as the Member States have often pointed out.

However, the Commission has been applying corrections under
the clearance of accounts procedure. For Greece a 10 % correc-
tion of the expenditure was applied until the 1992/93 marketing
year, followed by a 5 % correction until 1994/95. For later mar-
keting years the procedure is still ongoing, and a correction is
proposed by the Commission. For Spain, a 10 % correction of the
expenditure was applied for the 1992/93 marketing year, followed
by a 5 % correction until 1994/95. For later marketing years the
procedure is still ongoing, and a correction is proposed by the
Commission.

63. As regards Greece, the Commission is aware of the major
delay that has occurred. Nevertheless, it is hopeful that work will
speed up after the contracts for orthophotos and pilot studies
have been awarded.

64. Despite the delay in completing the GIS in Spain, it is now
almost ready. Of course it must be approved in accordance with
Article 26(1) of Regulation (EC) No 2366/98, otherwise Spain
must carry out on-the-spot checks
in accordance with
Article 28(2) of that Regulation.

65. The GIS in Portugal will be completed a little later than
scheduled. The Commission estimates that work will finish towards
the end of 2000.

60. There are regulatory requirements for an increasing number
of on the spot inspections, reaching 10 % of the total number of
applications for aid in 2000/01, if the GIS is not by then opera-
tional. The Commission has warned the Member States that any
failure to comply with this requirement will be taken into account

66-67. The Commission considers the register (and its successor
the GIS), together with the estimation of yields, to be a useful con-
trol tool but it cannot offer, alone, the assurance required as to the
sound implementation of the scheme. Even if the GIS were opera-
tional and producers correctly declared the number of trees and

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Official Journal of the European Communities

27.7.2000

quickly notified any change, the degree of assurance would still
not be sufficient, because the Community aid is currently paid on
the basis of the quantity of olive oil actually produced, as certi-
fied by the mills, and not on the basis of the number of trees.

An updating rate for the olive cultivation GIS of about 5 % seems
unavoidable as a consequence of changes in the cultivation dec-
larations. However the GIS can be used to check all the other dec-
larations.

Conclusions

68. The principle of production aid granted to producers on the
basis of the quantity of the olive oil has remained central, from
the beginning of the market organisation in 1966. The adjust-
ments reflect the need to adapt to the changing circumstances, in
particular to the successive enlargements of the EU and the search
for solutions to specific problems of the sector.

69. The results of ongoing investigations are expected soon.

74. Harmonisation of the methods of estimating the average
yield was completed in 1999. However, in any production zone,
variations in the yields at producer level will be significant. This
is a result of many factors, for example the age of the various olive
groves, their biological state, their maintenance, etc. For this rea-
son, the Commission considers that the analysis of yields is a use-
ful control tool, able to identify abnormally high production, but
it is not a sufficient means on its own to ensure that only quanti-
ties of olive oil actually produced receive Community aid.

75. The Commission monitors the recovery of overpayments
and the follow-up by national authorities of any irregularities
detected.

76. The olive cultivation register (and its successor the GIS) is a
useful tool in checking the support scheme for olive oil. The
Commission insists on its establishment and on its regular updat-
ing by Member States. Absence of or late introduction of the reg-
ister is taken into account appropriately in the clearance of
accounts procedure.

77. The Commission will present its reform proposal by the end
of 2000, after a thorough examination of the new data available
and the results of the provisions decided in 1998. The Court’s
comments will be taken into consideration during this process.

70. The Community subsidy takes account of a maximum con-
tribution to a fair income for producers and unavoidable budget-
ary constraints. The representative market price was fixed accord-
ing to the criteria provided for, at the desired level for the market.

The difficulty of checking the output of 11 000 mills has been
demonstrated throughout the history of the common market
organisation for olive oil. Improvements decided in 1998 are cur-
rently being tested.

71. The Commission shares the Court’s concerns over the bal-
ance between production and consumption as indicated in the
reply to paragraph 16.

PART 2: CONSUMPTION AID AND EXPORT REFUNDS

72. The Commission is examining changes to its strategy for the
promotion of agricultural products.

Control framework

73. The effectiveness of controls carried out by the producer
organisations, paying agencies and control agencies is closely
monitored by the Commission and any weaknesses identified are
taken into account appropriately in the clearance of accounts pro-
cedure. The Commission considers that there is still room for
improvement of the current system and is examining the possibil-
ity of further reinforcing controls, taking into account the addi-
tional costs imposed. However, it cannot share the Court’s view
that the controls are currently inadequate, especially in the light
of the control provisions introduced in 1998.

90. See points 107 to 113.

Consumption aid

Debtor accounts

Most of the control efforts are devoted to verifying that only
quantities of olive oil actually produced receive Community aid.
However, there are inherent control limitations due to the specific
characteristics of olive oil production. Verification of the number
of trees is one of the means used to compensate for these limita-
tions, but it is not a control objective in itself.

93 and 95. The Commission, from its own work and from infor-
mation supplied by the certifying bodies of the paying agencies
and the Court, has identified the administration and control of
debt as a major weakness. It has taken several steps to improve
the recording and administration of debt in the paying agencies.

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Regulation (EC) No 2761/99 (1) has now made it compulsory for
the Member States to provide the Commission with Table 105
twice per year. The Commission also recently adopted Regulation
(EC) No 2245/99 (2) amending Commission Regulation (EC)
No 1663/95 (3), requiring paying agencies to set up a system for
the recognition of all amounts due to the EAGGF and for the
recording in a debtors ‘ledger of all such debts prior to their receipt
(paragraph 11 of the annex); it also makes debtors’ figures subject
to formal audit by the Certifying Body.

All paying agencies reported figures for recorded debt in the 1998
clearance of accounts process.

An enquiry by the clearance of accounts unit into the administra-
tion of debtors was undertaken in 1999. This enquiry, which cov-
ered Italy, Spain and Portugal, found that the situation today is
reasonable, but that there are major problems in dealing with old
cases.

of Justice, the acceptable delay due to administrative or judicial
proceedings must be determined by Community law. A Member
State may not plead provisions, practices or circumstances exist-
ing in its internal legal or judicial system in order to justify a fail-
ure to comply with obligations under Community legislation
(Court judgment in Case No 137/80).

Guarantees

115. Regulation (EC) No 2367/98 amends certain provisions of
Regulation (EEC) No 2677/85 on checks on consumption aid,
which had just been abolished at the time. The reason for the
amendments was the Council’s wish to focus checks more on pro-
duction aid and mills, being the essential link in the olive oil pro-
duction chain.

Important financial corrections to the expenditure on consump-
tion aid have been imposed on these two Member States, as part
of the clearance of accounts procedure.

94. See point 100.

Completeness of data on amounts to be recovered

Fines

96-106. The Commission is concerned about the incomplete
and inaccurate data available in the Member States. It will follow
up the problems highlighted by the Court, particularly in Italy
and Greece.

The delays caused by the legal systems in the Member States are
regrettable. However, the Commission has no competence to
interfere in these legal processes.

Delays in recovery

103. See reply to points 107-111.

119. Experience showed that the fines imposed on packaging
plants under the regulations prior to 1996 related to months in
which the plants were practically idle. Although it may appear
less rigorous in terms of the percentage applied, the amendment
introduced covers the average over 12 months of activity and is
thus more effective. There is no reduction in the actual rate of
fines.

120. Following an exchange of correspondence with the Greek
authorities, the Commission was informed that in April 1999
they adopted official decisions relating to a considerable number
of pending cases (amounts to be recovered and corresponding
interest to the benefit of the EAGGF and amounts of sanctions to
the benefit of the Member State). These cases have been forwarded
to the relevant offices of the revenue service for recovery of the
corresponding amounts. The Commission is monitoring the settle-
ment of any pending cases and the actual receipt of the said
amounts.

Monitoring the progress of criminal proceedings

107-111. Whilst it is up to Member States to organise their legal
systems, their internal organisation may not jeopardise effective
recovery. According to the jurisprudence of the European Court

As regards Italy, the Commission has been informed that a small
number of cases is still under examination. The number of irregu-
larities should normally be lower from 1996 onwards than previ-
ously, as the system was changed so that following the commu-
nication of irregularities by Agecontrol, payments are blocked to
operators whose authorisation has been withdrawn.

(1) OJ L 331, 23.12.1999, p. 57.
(2) OJ L 273, 23.10.1999, p. 5.
(3) OJ L 158, 8.7.1995, p. 6.

122. Letters indicating that the amounts of the fines are to be
credited to national budgets were communicated to all Member
States concerned.

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In the Commission’s view, the fines should not be credited to the
EU budget for the following reasons:

— identifying the amounts that are irrecoverable for objective
reasons and that should be borne by the EAGGF Guarantee
Fund;

— the penalty is not a sum of money that has come from the

EAGGF, like an aid already paid;

— the sum of the penalty is not known in advance because of
the discretionary power of the Member State concerned, and
the internal system and logic of the Regulation and its vari-
ous Articles require such a fixed sum in the case of a deduc-
tion from the EAGGF claim.

Conclusions

128-130.
In spring 1999 the Commission started a number of
initiatives to verify in detail the recovery situation in all EAGGF
Guarantee domains. Special missions have been undertaken to
establish a detailed view of the debtors ledger situation in a num-
ber of paying agencies and in particular concerning the recover-
ies in irregularities notified before 1995 on the basis of Regula-
tion (EEC) No 595/91.

— preparing proposals for financial corrections under the clear-
ance of accounts procedure, to be applied to the Member
States that did not proceed with due diligence.

Financial corrections are proposed for those cases of irregulari-
ties where:

(a) no adequate follow-up action was taken; or

(b) administrative proceedings or judicial proceedings have taken

more than four or eight years respectively.

The Commission is aware of the problems with the consumption
aid scheme and has already applied considerable financial correc-
tions on Member States. The scheme was abandoned on 31 Octo-
ber 1998.

On the basis of the results of these missions and additional infor-
mation supplied later by the Member States, the Commission and
UCLAF/OLAF are currently:

It is expected that the provisions of Regulation (EC) No 2245/
1999 will considerably improve the situation as to recording and
collecting debts by Member States.

Member State

1990/91
marketing
year

1991/92
marketing
year

1992/93
marketing
year

1993/94
marketing
year

1994/95
marketing
year

1995/96
marketing
year

1996/97
marketing
year

1997/98
marketing
year (a)

1998/99
marketing
year (b)
forecast

% variation
1995-
1996/97

% variation
1995-
1996/98

% variation
1995-
1996/99

(1 000 tonnes)

% variation (a)
(b)

Olive oil consumption

D

DK

IRL

UK

NL

EL

E

I

F

P

BLEU

A

FIN

S

10,3

0,7

0,5

6,8

1

204

394,1

540

28

27

2,1

9,8

1,2

0,8

9,4

1,5

203

418,7

630

34,8

45

2,6

10,5

1,2

0,9

12

2

197

421,4

640

43,8

49,9

3,9

13,4

2,5

1

16,8

3,2

196

421

600

43,7

59

4,9

16,9

1,1

1

17,3

3,9

197

420

600

41,6

58

4,9

0,2

0,3

1

16,4

1,1

1,3

15

2,3

200

352,1

600

48,5

58,4

6,5

1

0,2

1,2

16,1

2,3

1,4

25,1

3,5

208

470,2

640

58,8

62

7

2,6

0,5

2,2

23,6

2,5

1,5

25,6

4

240

550,4

698

75,6

69,6

8,7

3

0,6

2,3

25

2,2

1,6

27,5

3,4

245

500

705

78,8

67

7

3,5

0,7

2,5

– 1,8

109,1

7,7

67,3

52,2

4,0

33,5

6,7

21,2

6,2

7,7

160,0

150,0

83,3

43,9

127,3

15,4

70,7

73,9

20,0

56,3

16,3

55,9

19,2

33,8

200,0

200,0

91,7

52,4

100,0

23,1

83,3

47,8

22,5

42,0

17,5

62,5

14,7

7,7

250,0

250,0

108,3

5,9

– 12,0

6,7

7,4

– 15,0

2,1

– 9,2

1,0

4,2

– 3,7

– 19,5

16,7

16,7

8,7

Total EU

1 214,5

1 356,8

1 382,6

1 361,5

1 363,2

1 304

1 499,7

1 705,4

1 669,2

(a) provisional figures
(b) estimated

Consump-
tion

EU
World
% EU

1990/1991

1991/1992

1992/1993

1993/1994

1994/1995

1995/1996

1996/1997

1997/1998

1 214,5
1 693,72
71,71

1 356,8
1 862,08
72,86

1 382,6
1 928,32
71,70

1 361,5
1 906,24
71,42

1 363,2
1 886,92
72,24

1 304
1 774,68
73,48

1 499,7
2 128,88
70,45

1 705,4
2 399,36
71,08

Source: IOOC statistics — November 1999.

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