Report from the Commission to the Budget Authority on the impact on EAGGF Guarantee Section expenditure in 2001 of movements in the euro/dollar exchange rate - 2001 Financial Year
Date: 2001-10-31
Institutions: European Commission
Subjects: EAGGF Guarantee Section, activity report, budgetary expenditure, exchange parity

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 31.10.2001
COM(2001) 622 final

REPORT FROM THE COMMISSION TO THE BUDGET AUTHORITY

on the impact on EAGGF Guarantee Section expenditure in 2001
of movements in the euro/dollar exchange rate

2001 FINANCIAL YEAR

   
REPORT FROM THE COMMISSION TO THE BUDGET AUTHORITY

on the impact on EAGGF Guarantee Section expenditure in 2001
of movements in the euro/dollar exchange rate

I.

INTRODUCTION

The  value  of  the  dollar  affects  a  major  proportion  of  EAGGF  Guarantee  Section
expenditure.

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

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

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

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

The  Edinburgh  European  Council  of  11  and  12  December  1992  confirmed  that  the
monetary reserve would remain in place for the period 1993-1999 but decided that the
amount  should  be  cut  to  ECU  500 million  from  1995  onwards.  Under  the
Interinstitutional Agreement between the Parliament, the Council and the Commission
of  29 October  1993  on  budgetary  discipline  and  improvement  of  the  budgetary
procedure3 the monetary reserve is intended to cover the financial impact on budgetary
expenditure  of  substantial  and  unforeseen  divergences  in  the  dollar  exchange  rate  as
compared with that used in the budget. On 31 October 1994 the Council adopted a new
Decision  on  budgetary  discipline4  which  took  account  of  the  conclusions  of  the
Edinburgh  European  Council  and  the  Interinstitutional  agreement  of  1993.  As  was
already  the  case  under  the  Decision  of  1988,  this  new  Decision  laid  down  that  the

1

2

3

4

OJ L 185, 15.7.1988, p. 29.
Following  the  introduction  of  the  single  currency  on  1 January 1999,  the  legislative  references  to  the
term “ECU” are replaced by the term “EUR”.
OJ C 331, 7.12.1993, p.1.
OJ L 293, 12.11.1994, p. 14.

2

                                                
dollar/ECU rate used to draw up the budget is equal to the average market rate over the
first three months of the year preceding the budget year.

replaced 

the  Decision  of  1994,  applicable  as 

For  the  period  after  1999,  the  Berlin  European  Council  of  24  and  25  March  1999
concluded that the monetary reserve would be phased out by the end of 2002. It would
remain at EUR 500 million for 2000 and 2001 and be reduced to 250 million for 2002.
These conclusions were confirmed in the Interinstitutional Agreement of 6 May 19995.
Subsequently  Council  Regulation  (EC)  No  2040/2000  of  26  September  2000  on
budgetary  discipline6 
from
1 October 2000.  Articles  8  to  13  of  that  Regulation  contain  the  provisions  relating  to
consideration  of the  euro/dollar  exchange  rate,  in  accordance  with  the  conclusions  of
the  Berlin  European  Council.  This  Regulation  provides  that  the  monetary  reserve
remains  at  EUR 500 million  for  2000  and  2001,  is  reduced  to  EUR 250 million  for
2002 and then abolished with effect from 2003. If the dollar strengthens against the euro
compared with the rate used in the budget, savings in the Guarantee Section of up to
EUR  500  million  (EUR 250 million  for  2002)  shall  be  transferred  to  the  monetary
reserve.  Where  a  fall  in  the  dollar  compared  to  the  rate  used  in  the  budget  leads  to
additional costs and these costs cannot be met from within the budgetary appropriations
for Titles 1 to 3 of the EAGGF Guarantee section, the monetary reserve is drawn on and
transfers  made  to  the  headings  of  the  Guarantee  Section  affected  by  the  fall  in  the
dollar. Recourse is to be had to the monetary reserve when the said savings (or, as the
case  may  be,  the  additional  costs)  exceed  a  neutral  margin  of  EUR 200 million
(EUR 100 million for 2002).

In  accordance  with  Article 10  of Regulation  (EC)  No  2040/2000,  the  Commission  is
presenting  the  budgetary  authority  with  this  report  for  the  2001  financial  year  on  the
impact  on  expenditure  under  Titles  1  to  3  of  the  EAGGF  Guarantee  Section  of
movements  in  the  average  euro/dollar  exchange  rate  in  the  period  1  August  2000  to
31 July 2001 in relation to the rate used in the budget. The report contains information
used to assess whether, on account of the impact of these changes, a transfer should be
proposed to or from the monetary reserve and, if so, the relevant amount.

II.

IMPACT  OF  THE  DOLLAR  ON  EAGGF  GUARANTEE  SECTION
EXPENDITURE IN 2001

To gauge the impact of movements in the euro/dollar rate on the 2001 financial year,
consideration must be given, under Article 8 of Regulation (EC) No 2040/2000, to the
gap between the average euro/dollar rate recorded between 1 August 2000 and 31 July
2001 and the rate used in the 2001 budget.

Since the provisions of the Decision of 31 October 1994 remained applicable when the
preliminary draft budget was established in May 2000, the rate initially used to draw up
the budget estimates  for 2001  was  fixed at 1 EUR = $ 0.99  (average  rate  for  January,
February and March 2000). Subsequently, when the Commission adopted an amending
letter  to  the  preliminary  draft  budget  at  the  end  of  October  2000  which  concerned
agricultural expenditure, the provisions of Council Regulation (EC) No 2040/2000 had

5

6

OJ C 172, 18.6.1999, p.1.
OJ L 244, 29.9.2000, p. 27

3

                                                
entered  into  force.  In  accordance  with  Article  8(1)  of  that  Regulation,  the  rate  was
revised to 1 EUR = $ 0.91 (average for July, August and September 2000).

Finally,  when  the  Commission  adopted  a  preliminary  draft  supplementary  and
amending  budget  for  agriculture  at  the  end  of  January  2001,  the  provisions  of
Article 8(2) of Regulation (EC) No 2040/2000 required a further revision of the rate to
1 EUR = $ 0.87  (average  rate  for  August  –  December  2000  with  the  average  rate  for
September – December 2000 used a forecast for the period January – July 2001). The
rate of 1 EUR = $ 0.87 became the definitive budget rate used in drawing up the budget
estimates for 2001.

The  following  table  gives  the  monthly  exchange  rate  gaps  recorded  in  the  reference
period compared to the budget rate of 1 EUR = $ 0.87 :

Recorded rate

Budget rate

EUR 1 = $ …

EUR 1 = $ …

Gap in $

Gap in %

d = b – c

e = b/c

a

August

September

October

November

December

January

February

March

April

May

June

July

Average
1.8.2000-31.7.2001

B

0.9041

0.8721

0.8552

0.8564

0.8973

0.9383

0.9217

0.9095

0.8920

0.8748

0.8532

0.8607

0.8861

c

0.8700

0.8700

0.8700

0.8700

0.8700

0.8700

0.8700

0.8700

0.8700

0.8700

0.8700

0.8700

+ 0.0341

+ 0.0021

- 0.0148

- 0.0136

+ 0.0230

+ 0.0683

+ 0.0517

+ 0.0395

+ 0.0220

+ 0.0048

- 0.0168

- 0.0093

0.8700

- 0.0161

+ 3.9

+ 0.2

- 1.7

- 1.6

+ 3.1

+ 7.9

+ 5.9

+ 4.5

+ 2.5

+ 0.6

- 1.9

- 1.1

+ 1.9

Over  the  period  under  consideration  the  average  recorded  rate,  rounded  off,  was
EUR 1 = $ 0.89, i.e. 2.3 % above the budget rate and corresponding to a depreciation
of the dollar of 2.2 %. That depreciation in the value of the dollar involved additional
expenditure for the EAGGF Guarantee Section.

The  recorded  average  rate  of  EUR 1 = $ 0.89  is  the  arithmetical  mean  of  the  daily
rates  for  the  twelve-month  period  in  question.  The  average  monthly  rate  fluctuated
around  that  12-month  average,  between  a  maximum  of  EUR 1 = $ 0.94  in  January
2001 and a minimum of EUR 1 = $ 0.85 in June 2001.

To  make  an  accurate  assessment  of  the  additional  expenditures  due  to  the
depreciation of the dollar during a period when the gaps compared to the budget rate

4

were  variable,  it  is  necessary  to  establish,  over  the  period  concerned,  a  weighted
average exchange rate for every agricultural product for which expenditure in euros
is  affected  by  the  dollar,  taking  account  of  the  seasonal  variation  in  the  quantities
exported  with  a  refund  or  in  quantities  eligible  for  Community  aid.  For  2001,  this
weighted average for all the products and measures concerned was EUR 1 = $ 0.895.

On  that  basis,  the  additional  expenditures  for  the  EAGGF  Guarantee  Section  as  a
result of the depreciation of the dollar in relation to the budget rate are estimated at
EUR 115 million for the 2001 financial year.

The Annex gives a detailed calculation of these expenditures, which break down by
chapter as follows:

B1-10 : Arable crops (cereals)
B1-11 : Sugar
B1-13 : Cotton
B1-18 : Other plant sectors (rice)
B1-30 : Non-Annex I products (cereals, sugar, rice)
B1-32 : Islands and most remote regions

TOTAL

EUR 89 million
EUR 9 million
EUR 7 million
EUR 1 million
EUR 9 million
EUR 1 million
EUR 115 million 7

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

As  the  additional  expenditures  in  2001  of  EUR 115 million  are  below  the  neutral
margin  of  EUR 200 million  referred  to  in  Article  11(2)  of  Regulation  (EC)
No 2040/2000,  no  transfer  may  be  made  from the monetary  reserve.  In  any  case,  the
additional expenditures can be met from the budget appropriations for Titles 1 to 3 of
the EAGGF Guarantee for 2001.

7

Due to rounding, individual items may not add to the total.

5

                                                
ANNEX - Calculation of the impact on EAGGF Guarantee Section expenditure of changes in the euro/dollar rate: 2001 financial year

Average world
price recorded

Technical
adjustment
coefficient

Average world
price used

Weighted
average rate

World price converted into EUR

At rate
the parity
1 EUR = $ 0.87

At average
weighted rate
recorded

Unit impact of
gap in rates

Quantities
concerned

Total budget impact

($ / t)

b

($ / t)

EUR 1 = $ ..

(EUR / t)

(EUR / t)

(EUR / t)

(1 000 t)

c

d = b x c

e

f = d /0.87

g = d x e

h = f – g

i

EUR (A)
million

j = h x i

Dual rate

k

EUR (B)
million

l = j x k

79.1

106
122
131
81
231

252

106
122
131
87
231
252

103
102
82

87
252
1 334

106
122
131
86
231
252

1.00
1.00
1.00
1.00
1.00

1.00

1.00
1.00
1.00
1.00
1.00
1.00

1.00
1.00
1.00

1.60
1.00
0.244

1.00
1.00
1.00
1.00
1.00
1.00

106
122
131
81
231

252

106
122
131
87
231
252

103
102
82

139
252
326

106
122
131
86
231
252

0.92
0.88
0.89
0.90
0.89

0.88

0.92
0.88
0.89
0.90
0.89
0.88

0.92
0.88
0.89

0.89
0.88
0.88

0.92
0.88
0.89
0.90
0.89
0.88

(0.895)

121.8
140.2
150.6
93.1
265.5

289.7

121.8
140.2
150.6
100.0
265.5
289.7

118.4
117.2
94.3

159.8
289.7
374.1

121.8
140.2
150.6
98.9
265.5
289.7

115.2
138.6
147.2
90.0
259.6

286.4

115.2
138.6
147.2
96.7
259.6
286.4

112.0
115.9
92.1

156.2
286.4
369..9

115.2
138.6
147.2
95.6
259.6
286.4

6.6
1.6
3.4
3.1
5.9

3.3

6.6
1.6
3.4
3.3
5.9
3.3

6.4
1.3
2.2

3.6
3.3
4.2

6.6
1.6
3.4
3.3
5.9
3.3

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

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

8.764
0
0
1.213
132

2.450

145
0
0
1.815
11
460

1 244
2 856
504

3.900
350
1.574

0
0
0
432
10
7

57.8
0.0
0.0
3.8
0.8

8.1

1.0
0.0
0.0
6.0
0.1
1.5

8.0
3.7
1.1

14.0
1.2
6.6

0.0
0.0
0.0
1.4
0.1
0.0

115.2

1.000
1.000
1.000
0.998
0.999

1.002

0.998
0.998
0.998
0.998
0.998
0.998

0.999
0.999
0.999

0.999
0.999
0.999

1.000
1.000
1.000
1.000
1.000
1.000

57.8
0
0
3.8
0.8

8.1

1,0
0,0
0,0
6.0
0.1
1.5

8.0
3.7
1.1

14.0
1.2
6.6

0.0
0.0
0.0
1.4
0.1
0.0

12.8

23.3

115.2

a

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

Sugar

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

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

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

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

TOTAL A + B + C

N.B.:
(1)

On the basis of the figures in the table, a change in the euro/dollar rate of 10% would lead to a change in expenditure of EUR 402 million.
Excluding quantities exported subject to charge or with zero refund.

6

EXPLANATORY REMARKS TO THE ANNEX

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

Column (b) gives estimated average world prices in dollars for the period concerned.

They correspond either to the average selling prices of Community products when exported or to
prices used for the calculation of the various aids.

These prices are multiplied by an adjusting coefficient [column (c)] indicating the weighting of
the world price used to determine an aid or refund. For example, 1.6 times the world price for
maize is used in determining the production refund for starch.

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

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

Columns  (f)  and  (g)  give  the  corrected  average  world  prices  converted  into  euro  using  the
exchange rate adopted in the budget of EUR 1 = $ 0.87 and the recorded weighted average rates
in column (e).

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

7