Special Report No 4/2003 concerning rural development: support for less-favoured areas, together with the Commission's replies
Date: 2003-04-10
Institutions: European Court of Auditors
Subjects: less-favoured region, regional aid, report, rural development

27.6.2003

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I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 4/2003

concerning rural development: support for less-favoured areas, together with the Commission’s
replies

(pursuant to Article 248(4), second subparagraph of the EC Treaty)

(2003/C 151/01)

CONTENTS

Paragraphs

Page

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

GENERAL BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Audit field . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Scope of the audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Eligibility and financing conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The breakdown of responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Previous observations by the Court

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE CLASSIFICATION OF AREAS AS LESS FAVOURED AND ITS CONSEQUENCES . . . . . . .

Classification criteria whose validity remains to be shown . . . . . . . . . . . . . . . . . . . . . . . . . . .

The current situation of classification decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I-IV

1-21

1-3

4-9

10-13

14-17

18-20

21

22-42

22-29

22

Evidence to justify classification decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23-28

The consequences of the current situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A multitude of indicators leading to disparities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

No uniform identification of less-favoured areas by the Member States . . . . . . . . . . . . . . .

A wide range of indicators leading to disparities in treatment . . . . . . . . . . . . . . . . . . . . . .

Support measures where there is a risk of overcompensation . . . . . . . . . . . . . . . . . . . . . . . .

The measures taken by the Member States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE IMPLEMENTATION, MONITORING AND EVALUATION OF MEASURES IN SUPPORT
OF LESS-FAVOURED AREAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weaknesses in the implementation of support measures . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Rural development plans and good agricultural practices . . . . . . . . . . . . . . . . . . . . . . . . . .

Surveillance systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management and control systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29

30-37

30-34

35-37

38-42

41-42

43-74

43-57

44-46

47-48

49-54

3

4

4

5

7

7

8

8

9

9

9

9

9

10

10

10

10

11

11

11

11

12

12

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Paragraphs

Page

Payments and the recording and booking of expenditure . . . . . . . . . . . . . . . . . . . . . . . . . .

Shortcomings in monitoring by the Commission and the Member States . . . . . . . . . . . . . . .

Monitoring indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The data supplied by the Member States

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Commission’s use of data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

55-57

58-63

59-60

61-62

63

Improvements to be made in the implementation and use of assessments

. . . . . . . . . . . . . .

64-74

Guidelines on evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The quality of evaluations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CONCLUSIONS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

65

66-74

75-83

ANNEXES I — II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

13

13

14

14

14

14

14

14

15

17

19

EAGGF

European Agricultural Guidance and Guarantee Fund (Guarantee Section)

GLOSSARY

LFA

RDP

UAA

ABU

less-favoured area

rural development plan

usable agricultural area

adult bovine unit

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SUMMARY

I.
The support scheme for less-favoured areas (LFAs) grants aid to 55,8 % of the EU’s agricultural hold-
ings. The annual cost is some 2 000 million euro of which roughly 50 % is financed from EU Funds. The area
classified as less favoured increased steadily from 36 % in 1975 to 56 % in the year 2000, due partially to the
successive enlargements of the EU in this period, with a number of countries having a much higher propor-
tion of less-favoured areas, reflecting their natural conditions.

II.
The objectives of the audit were to establish whether the support scheme for less-favoured areas is man-
aged by the Commission in a way that legal and regular implementation is ensured, whether it is appropriately
monitored, whether relevant knowledge on its impact is available and whether timely action is undertaken to
correct deficiencies. The audit examined key areas of the support scheme, focusing on the definition and
respect of eligibility criteria, in particular good agricultural practices and the classification of LFAs.

III.

The main findings of the audit are that:

(a)

the Commission has insufficient evidence that the classification of the LFAs is valid. Following observa-
tions from the Court in 1990 the Commission commenced a review of existing classifications, but this
review was not finalised due, in part, to opposition from Member States. Subsequently, although certain
macroeconomic and socioeconomic indicators have developed noticeably and certain classifications may
no longer be valid, the Commission has not proposed that the existing regulatory framework should be
amended (see paragraphs 22 to 29);

(b) Member States use a wide range of indicators to determine whether areas are less favoured or not; this

may lead to differences in the treatment of beneficiaries (see paragraphs 30 to 37);

(c)

the Commission does not have enough sound information on the impact of the measure and, in par-
ticular, on whether the level of compensation is justified; in the absence of such knowledge, overcom-
pensation may occur (see paragraphs 38 to 42);

(d)

the notion of ‘good agricultural practice’ is now an important eligibility criterion. However, without clear
and verifiable definitions and consistent application, compliance with this criterion is difficult to verify
and the checks carried out in this context are not as effective as they should be (see paragraphs 43 to 57);

(e) monitoring of the LFA scheme is poor due to a lack of relevant data; information from Member States is

late or incomplete (see paragraphs 58 to 63);

(f)

beneficiaries believe that aid for LFAs has enabled them to continue farming in an area which they might
otherwise have had to leave but, in the absence of an overall evaluation, no definite conclusion can be
drawn; an assessment of the outcomes is near impossible because the Commission, contrary to the provi-
sions of the Financial Regulation, has not set quantified objectives specific to this measure in favour of
less-favoured areas; although there have been recent improvements in setting the framework for evaluat-
ing the measure, an overall evaluation of its impact is, after 30 years of operation, still lacking (see para-
graphs 38 and 64 to 74).

The report concludes that various aspects of the support scheme should be reviewed in order for it to

IV.
be a more effective, efficient and economic contribution to rural development (see paragraphs 75 to 83).

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GENERAL BACKGROUND

Introduction

1.
Support for rural development constitutes the second pil-
lar of the common agricultural policy (CAP). It accompanies and
supplements the CAP’s other traditional instruments for the man-
agement of markets, which fall under the first pillar. Its general
objectives are not only those of the CAP (Article 33 of the Treaty
establishing the European Union), but also those of other provi-
sions of the Treaty, in particular economic and social cohesion
(Article 158) and environmental protection (Article 174).

2.
In 1999, rural development support underwent a signifi-
cant reform aimed at making it more consistent. The nine Regula-
tions that governed it were grouped together in a single docu-
ment (Council Regulation (EC) No 1257/1999 (1), which lays

down the support framework and establishes 22 aid measures.
One of these measures (Article 13 (ff)) concerns the support given
to farmers in the LFAs. The aid is paid from the EAGGF –Guar-
antee Section and is implemented, along with other Guarantee
payments, by means of a total of 89 rural development plans
(RDPs), covering the period 2000 to 2006, which have been
developed by the Member States’ authorities and approved by the
Commission.

3.
Around 56 % of the agricultural area in use in the Union
(UAA) is classified as less favoured. This scheme benefits some
3 900 000 agricultural holdings, or 55,8 % of the total. In 2001,
its overall cost amounted to around 2 000 million euro (an aver-
age of 500 euro per holding), of which around a half is borne by
the budget of the European Union. EU expenditure on the less-
favoured-areas scheme represents 18,7 % of the overall budget
authorised by the Berlin Council over the period 2000 to 2006
(32 906 million euro) (2).

Holdings in less-favoured Areas

Source: Eurostat 1997

Graph 1

(1) Council Regulation (EC) No 1257/1999 of 17 May 1999 (OJ L 160,

26.6.1999, p. 60).

(2) Subheading 1(b) of the relevant Financial Perspectives.

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Audit field

4.
Community aid for less-favoured areas goes back to 1975,
with the publication of the first Directive (1), which established
‘the particular nature of agricultural activity, which results from
the social structure of agriculture and from structural and natural
disparities between the various agricultural regions’ and defines
the notion of less-favoured areas.

Subsequent regulations, which concerned the improve-
5.
ment of the efficiency of agricultural structures (2) or rural devel-
opment aid, only adapted this definition.

Current Community regulations (3) distinguish between

6.
three categories of less-favoured regions:

(a) mountain areas, characterised by a considerable limitation of
the possibilities for using the land and an appreciable increase
in the cost of working it due to altitude or slope; areas north
of the 62nd parallel and certain adjacent areas are assimi-
lated to mountain areas;

(b) other less-favoured areas, which are areas with poor produc-
tivity which are in danger of abandonment and where the
accelerated decline in activity calls into question the viability
of the area and its continued habitation;

(c)

areas affected by specific handicaps, in which farming needs
to be continued, subject, where necessary, to certain condi-
tions, in order to conserve or improve the environment,
maintain the countryside and the area’s tourist potential or
protect the coastline.

7.
While, overall, the areas classified as LFAs account for 56 %
of the Community’s UAA (4), this rate varies considerably from
one Member State to another, ranging from 1 % for Denmark to
more than 98 % for Luxembourg. In addition to the particular dis-
advantages of mountainous areas, Member States have identified
other zones as being less favoured in their view. All but three
Member States have also identified zones with specific handicaps
resulting from, for example, the need to preserve the tourist
potential, maintain the countryside or protect the coastline.

LFAs as a proportion of total UAA per Member State

Source: Document of the STAR Committee VI7675/98. Situation as of March 1998.

Graph 2

(1) Council Directive 75/268/EEC of 28 April 1975 on mountain and
hill farming and farming in certain less-favoured areas (OJ L 128,
19.5.1975).

(2) Council Regulation (EC) No 950/97 of 20 May 1997 (OJ L 142,

2.6.1997).

(3) Council Regulation (EC) No 1257/1999 of 17 May 1999, Article 17

(OJ L 160/80, 26.6.1999).

(4) Commission Document DG AGRI reference: STAR VI/7675/98.

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For some Member States, this rate has varied considerably over time. Thus, between 1975 and 1998, it
8.
went up from 37,7 % to 53,6 % for Italy and from 51,2 % to 70,9 % for Ireland. Given that mountainous areas
have not changed, the increases are all the more remarkable in view of the advances in soil improvement and
varietal development. Since 1998, these percentages of land identified as less favoured have not changed.

Development of the percentage of less-favoured areas in the Member States where it was the most significant

Source: STAR Committee Document, Ref: VI7675/98.

Graph 3

In terms of land area, the second category mentioned in paragraph 6 (other less-favoured areas) is con-

9.
siderably larger. For this important category, the Regulation does not provide clear common criteria.

Distribution between the three categories of less-favoured areas in 1998

Source: STAR Committee Document, Ref: VI/7675/98.

Graph 4

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Scope of the audit

Eligibility and financing conditions

The objective of the audit was to examine to what extent

10.
the Commission:

Eligibility conditions

(a)

has taken appropriate steps to correct any shortcomings, in
particular with regard to classification decisions and the
impact of the measure (see paragraphs 22 to 42);

14.
In addition to the geographical criteria related to the
location of the holding, for the 2000 to 2006 programming
period, beneficiaries must fulfil three requirements, whilst, at the
same time, complying with the rules on the use of phytosanitary
sprays, etc., and veterinary products.

(b) has a reasonable assurance that the payments made for aid
for less-favoured areas comply with the criteria of legality
and regularity (see paragraphs 43 to 57);

(c)

has introduced a monitoring and evaluation system that
makes it possible to appraise the effectiveness of the mea-
sure (see paragraphs 58 to 74).

They must:

— farm a minimum area (established by each Member State),

— carry out their agricultural activity in a less-favoured area for

at least five years from the first payment of aid,

— apply usual good agricultural practices compatible with the
need to safeguard the environment and maintain the coun-
tryside, in particular by sustainable farming.

The data available to the Commission were examined to
11.
assess the implementation of the measure both at the financial
level and in terms of its objectives. This work was supplemented
with a documentary check centred on both the degree of support
offered to less-favoured areas and the administrative and control
systems set up by the Member States, at local, regional and
national level, in particular in the context of the RDPs.

12.
On-the-spot checks looked at the systems for the man-
agement of the measure in a region of each of the four Member
States (France, Finland, Austria and Germany) selected on the
basis of their financial significance (1), the eligibility conditions in
force and a preliminary assessment of the administrative and con-
trol systems in place. The first stage of the audit work consisted
of tests on the key controls (2) and was carried out in each region
on a sample of 30 beneficiaries (agricultural holdings), selected on
a random basis.

13.
The audit work carried out in the holdings was divided
among documentary checks, the physical examination of the fac-
tors that governed the granting of the aid (pasture land, fodder
crops, livestock, etc.) and the verification of the actual payment
of the aid. Subsequently, checks were carried out at the main pub-
lic bodies involved in management (in particular at the adminis-
trative accounting and audit levels), concerning in particular the
accuracy of payment procedures and the payments made and
their compliance with the applicable regulations.

(1)

In relation to the budget estimates for the 2000 to 2006 program-
ming period.

(2) A key control is a control procedure aimed at identifying operational
shortcomings; they are identified via a risk analysis of the systems in
place.

Financial framework

15.
Under the scheme provided for in Regulation (EC)
No 950/97, the Member States could choose between two sys-
tems: the aid could be paid out either on the basis of the number
of animals, expressed in adult bovine units (ABUs), or on the basis
of the land area farmed. Since the entry into force of Regulation
(EC) No 1257/1999, compensatory amounts must be calculated
on the basis of the number of hectares, with, however, the pos-
sibility of a transition period limited to the year 2000 for those
Member States that have hitherto used the per head criterion. At
the same time, the financing of the Community contribution
passed from EAGGF-Guidance to EAGGF-Guarantee (see para-
graph 57).

16.
The aid consists of a compensatory allowance, the unit
value of which is established by the Member States within a range
of 25 to 200 euro per hectare (3). It should be sufficient to com-
pensate for existing handicaps whilst avoiding overcompensation.
The maximum amount may be exceeded in individual cases, pro-
vided that the average level of aid paid out by each Member State
respects this limit.

17.
Expenditure for the financial years 2000 and 2001 were
674 million euro and 919 million euro, respectively. As the fol-
lowing table shows, there were significant developments in cer-
tain Member States. While the differences between expenditure in
2000 and 2001 may be partly due to delays in the preparation
and approval of RDPs, this does not explain the large differences,
particularly as the measure itself has been operating for many
years.

(3) Council Regulation (EC) No 1257/1999, Annex 1.

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Table: Expenditure incurred over the period 2000 to 2001

2000

2001

mio EUR

0,14

0,04

%

0,02

0,01

mio EUR

—

0,34

109,62

16,26

108,95

4,50

1,76

0,67

0,26

8,42

53,41

212,17

31,47

198,33

45,10

13,34

0,42

0,04

6,69

1,98

0,06

0,01

110,98

38,48

3,89

0,38

102,70

15,23

104,81

0,00

0,00

74,86

143,67

21,31

128,26

1,76

38,94

0,26

5,78

16,08

72,40

%

—

0,04

11,75

0,91

5,76

21,40

11,97

4,15

0,42

0,04

11,31

8,08

13,48

1,73

8,60

674,22

100,00

919,59

100,00

Change 2000 to 2001
(%)

- 100

+ 750

- 1

+ 87

+ 2 935

- 7

+ 146

+ 188

+ 826

+ 850

+ 2

—

- 11

+ 814

+ 86

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

Italy

Luxembourg

Netherlands

Austria

Portugal

Finland

Sweden

UK

Total

Source: Commission, revenue and expenditure account.

The breakdown of responsibilities

Previous observations by the Court

The Council establishes rural development policy by

18.
adopting the basic Regulation.

The Commission adopts the procedures for its imple-
19.
mentation. In particular, it approves the rural development plans,
for whose monitoring and evaluation it is also then responsible.
From the accounting point of view, it records the expenditure
declared each month by the Member States and reimburses them
the Community’s share of the funding.

20.
The Member States are responsible for establishing the
less-favoured areas, designating the authorities responsible for
drawing up rural development plans and implementing the mea-
sure both from the administrative and control points of view.
They also supply the Commission with the necessary data to
enable effective monitoring of the implementation of rural devel-
opment programming.

The Court has previously looked at support measures for
21.
less-favoured regions. The results of its last audit on the subject
were published in 1991 (1). On that occasion, it noted the con-
tinuous extension of less-favoured areas and spoke out in favour
of a regular evaluation of criteria for appraising handicaps. Since
then, the Court has examined various aspects of the measure, in
particular in the context of its work on the annual Statement of
Assurance.

(1) OJ C 324, 13.12.1991, p. 141.

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THE CLASSIFICATION OF AREAS AS LESS FAVOURED AND
ITS CONSEQUENCES

Classification criteria whose validity remains to be shown

The current situation of classification decisions

22.
As indicated in paragraph 6, certain eligibility character-
istics apply for a specific area to qualify as less favoured. Until
1999 this was done on the basis of a reasoned request by the
Member States to the Commission. The Council, on the basis of a
proposal by the Commission, then adopted the list of LFAs. The
Court examined the documentary evidence held by the Commis-
sion in support of these classification decisions.

Evidence to justify classification decisions

Annex I shows, by Member State, the documents found
23.
at the Commission that contain evidence to justify the classifica-
tion of certain areas as less favoured. Documentary evidence in
support of classification decisions during the period 1975 to 1985
could not be presented to the Court during the audit. Only
rarely (1) could evidence be found of a review of the continuing
validity of the classification.

24.
In its Annual Report for the year 1990, the European
Court of Auditors found ‘… the continuous growth of the less-
favoured areas’, and stated that ‘… the possibility cannot be ruled
out that a regular assessment of the actual level of handicap in all
the less-favoured areas of the Community will lead to the discov-
ery that, in certain parts of these areas, there are no longer any
handicaps left’.

25.
In 1993, following the Court’s observations, the Com-
mission undertook a review of LFA classifications by asking
Member States to supply an underlying justification of their own
classification. However, this operation faced several difficulties
and delays. Some Member States submitted incomplete data, data
containing errors or nothing at all; also, in several cases, the
requested information was submitted late.

26.
Internal notes of the Commission, analysed by the Court,
show that the Commission was faced with serious opposition
from Member States to examine properly the continuing validity
of underlying data for classification. Indeed extensive correspon-

(1) See Annex I, only for two out of 10 Member States.

dence took place and, at various Management Committee (Com-
mittee on Agricultural Structures and Rural Development) meet-
ings, the lack of justification data was discussed. In the last analy-
sis, the Court could not find any evidence that the review was
properly finalised.

27.
Although the Commission has indicated that there is
‘permanent pressure of Member States to extend the LFAs’ (2), it
did not propose amending the existing arrangements in its pro-
posal in 1996 on improving the efficiency of agricultural struc-
tures (3). On the contrary, this proposal led to the adoption of
Council Regulation (EC) No 950/97 (4), subsequently replaced by
Regulation (EC) No 1257/1999 which, in the latter text, states
that all Council and Commission directives adopting lists of LFAs
shall remain in force.

28.
Moreover, since the entry into force of Regulation (EC)
No 1257/1999, decisions adopting or modifying lists of less-
favoured areas are no longer taken at the Community level, but
by the Member States, who then notify the Commission. Thus,
the Commission no longer holds the final responsibility for the
validity of these classifications, a major component of the aid
scheme. The Court considers that this is a major weakness in the
Regulation, particularly in view of the coming accessions.

The consequences of the current situation

29.
The inability to carry out an objective assessment of the
decisions adopting the lists of less-favoured regions may have a
considerable impact on their validity. This can be illustrated by
the case of Luxembourg. The less-favoured areas of this country
were established in April 1975 (5). At that time, more than 96 %
of the total UAA was classified as less favoured because of the
threat of abandonment and a further 2,45 % was classified as hav-
ing a specific handicap. Since then, no change has been made to
this classification. However, recent data from Eurostat show that
certain macro- and socioeconomic indicators have changed con-
siderably and that large areas would no longer satisfy the eligibil-
ity criteria (6).

(2) European Commission Directorate General for Agriculture (DG VI),
‘Rural Developments’, July 1997,

CAP 2000 working document,
p. 59.

(3) OJ C 115, 19.4.1996, p. 34.
(4) Council Regulation (EC) No 950/97 of 20 May 1997 (OJ L 142,

2.6.1997).

(5) Council Directive 75/274/EEC of 28 April 1975 concerning the
Community list of less-favoured farming areas within the meaning of
Directive No 75/268/EEC (Luxembourg) (OJ L 128, 19.5.1975, pp. 226
to 228); the criteria used were, interalia, farm income (below 80 % of
Community average).
In 1975, average farm income in Luxembourg was below 80 % of
average farm income in the Community as a whole, but in 2000, it
was some 20 % higher.

(6)

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A multitude of indicators leading to disparities

No uniform identification of less-favoured areas by the Mem-
ber States

States (2) and 50 % (Greece). Austria, Finland and Sweden, who
joined the EU together in 1995, did not set a threshold for agri-
cultural population, the requirement only being that the propor-
tion of the agricultural population should be ‘significant’.

30.
The Court also examined the criteria used by Member
States to qualify certain areas as less favoured. As indicated in
paragraph 9, the most important category concerns the areas in
danger of abandonment (Article 19 of Regulation (EC) No 1257/
1999). This category alone represents 60,7 % of the LFAs. The
Court therefore looked more particularly at this category in its
examination of the criteria used.

31.
The aforementioned Regulation (1) identifies three com-
mon criteria used for identifying areas in danger of abandonment:

(a)

(b)

(c)

land productivity (the presence of land of poor productiv-
ity, unsuitable for cultivation and with a limited potential
which cannot be increased except at excessive cost, and
mainly suitable for extensive livestock farming);

economic performance (the production which results from
the low productivity of the natural environment is apprecia-
bly lower than the average with regard to the main indices
of economic performance in agriculture);

population (either a low or dwindling population, which is
predominantly dependent on agricultural activity, the accel-
erated decline of which would jeopardise the viability of the
area concerned and its continued habitation).

A wide range of indicators leading to disparities in treat-
ment

35.
This variation in indicators as the result of different
national priorities may lead to disparities in treatment among
beneficiaries. The Court was informed during its audit on the spot
that the beneficiaries, especially in border areas, wondered why,
in apparently similar local situations, Member States had taken
decisions which led to considerable differences in the allocation
of compensatory allowances.

36.
The Commission itself noted in a 1997 working docu-
ment (3) on the previous LFA scheme that, ‘Community legisla-
tion allows Member States a considerable leeway in the imple-
mentation of the LFA scheme. […] The different priorities identified
by Member States or regions lead to different criteria being estab-
lished for the eligibility of beneficiaries […], for example:

(a)

the average payment per beneficiary holding varies from
4 437 ecu in Luxembourg to 410 ecu in Portugal;

(b) beneficiary holdings as a proportion of those in eligible areas
varies between 84 % and 99 % in many northern Member
States to 9 % in Italy.’

The report continues,

37.
‘Analysis shows that, whereas
incomes in LFAs are lower in comparison with non-LFAs within
the same national boundaries, they can be higher than incomes
in non-LFAs in other countries’ (4).

32.
Thirteen Member States identified areas corresponding to
these criteria. Denmark and the Netherlands did not identify areas
under this category.

Support measures where there is a risk of overcompensation

Annex II shows that Member States use a wide variety of
33.
indicators to define the three aforementioned criteria. No fewer
than 17 indicators are used for land productivity, 12 for eco-
nomic performance and three for population. Almost all Member
States use their own unique indicator(s) for the criteria of land
productivity and economic performance. The Commission has
not studied the impact of these various indicators to ensure that
the concept of common criteria, as indicated in the 25th pre-
amble of the Regulation, is applied.

Most of the beneficiaries visited by the Court (5) believed
38.
that the receipt of compensatory allowances had allowed them to
continue farming and living in areas which they otherwise might
have been obliged to leave. However, in the absence of proper
overall evaluation results (see paragraph 72), no definitive conclu-
sion can be drawn on the effectiveness of the compensatory
allowances. An assessment of the policy outcomes is made dif-
ficult because the Commission has set no specific quantified
objectives for this measure, despite this being a requirement of
the Financial Regulation (6).

34.
With regard to the population, a great disparity was noted
in respect of the thresholds adopted. Thus, the reference figure for
overall population density ranges from 27 inhabitants/km2 (Ire-
land) to 130 inhabitants/km2 (Germany), and the agricultural
population rate varied between 15 % (applied by five Member

(1) Council Regulation (EC) No 1257/1999.

(2) Belgium, France, Germany, Italy and Luxembourg.
(3) European Commission Directorate General for Agriculture (DG VI),
CAP 2000, working document, ‘Rural Developments’, July 1997,
p. 54.

(4) European Commission Directorate General for Agriculture (DG VI),
‘Rural Developments’, July 1997

CAP 2000, working document,
p. 55.

(5) Thirty beneficiaries selected per region audited.
(6) Article 27(4).

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Articles 15(1) and 16 of Regulation (EC) No 1257/1999
39.
require compensatory allowances to be fixed at a level which
makes an effective contribution towards compensating for exist-
ing handicaps yet avoids overcompensation. The Regulation does
not specify the level of compensation any further. Thus, neither
the Member States nor the Commission are in a position to evalu-
ate objectively whether overcompensation exists. This is com-
pounded by the fact that the same Regulation gives Member States
a considerable degree of freedom in adapting the scheme to local
priorities.

Thus, when some Member States have identified the need
42.
for certain measures to limit aid, the Commission has not carried
out an objective examination to ensure that:

(a)

the measures taken effectively remove the risk of overcom-
pensation;

(b)

types of overcompensation identified in one Member State
do not occur in others.

40.
There is no indication in the legislation as to who is actu-
ally responsible for monitoring overcompensation. The division
of responsibilities between Member States and the Commission is
not defined. As a result, there are insufficient arrangements for
verifying whether or not systematic overcompensation occurs in
practice. The Court considers that the Commission should exam-
ine how, within the context of checking the implementation of
the regime in the Member States, the possible incidence of such
overcompensation can be identified.

The measures taken by the Member States

41.
Without any common guideline on how overcompensa-
tion may be identified, Member States have adopted their own
measures, which may put some farmers at a disadvantage com-
pared to others. The requirements in rural development plans
include:

(a)

limiting the total sum receivable through LFA aid regardless
of entitlement (1);

(b)

specifying certain stocking densities for particular areas (2);

(c)

(d)

restricting payments to certain eligible forage areas farmed
by producers who keep extensively grazed sheep breeding
flocks and suckler-cows (3);

limiting full payment to only part of the LFA area, exclud-
ing certain types of farming or allowing lower than permit-
ted aid rates (4).

(1) Bavarian rural development plan.
(2) Various rural development plans.
(3) Rural development programme for England.
(4) Payment of LFA aid at full rate only on the first 350 hectares. The fol-
lowing 350 hectares receive half rate (50 %) payments. Land in excess
of 700 hectares receives no payments. Exclusion of LFA land used for
certain enterprises: LFA payments are not be made on land used for
dairy or other livestock production, except extensive sheep breeding
and suckler cows.
Setting rates for compensatory allowances for moorland and com-
mon land at below the minimum of EUR 25/ha in order to reflect the
typically larger farm size and limited agricultural vocation of such
land.

THE IMPLEMENTATION, MONITORING AND EVALUATION OF
MEASURES IN SUPPORT OF LESS-FAVOURED AREAS

Weaknesses in the implementation of support measures

The quality of the implementation of the support scheme
43.
depends not only on the implementing provisions contained in
the RDPs but also on the surveillance, management and control
systems. It is therefore essential for the Commission to have a suf-
ficient guarantee as to the quality of each of these components.

Rural development plans and good agricultural practices

44.
Implementation procedures are laid down at national or
regional level in the RDPs that are put forward by the Member
States, approved by the Commission and specified in various
implementation documents issued by the competent authorities.
Good agricultural practices should be defined by the Member
States (5). During its work on the verification of their consistency
with Community rules and their applicability, the Court found
the following:

(a)

(b)

(c)

good agricultural practices were often synonymous with
mere compliance with the rules already applicable to agri-
cultural holdings (nitrate Directive, etc.);

certain Member States, like France and Austria, added the
notion of stocking density by introducing a condition relat-
ing to level of the stocking rate, an indicator that expresses
the density of the herd(s) present on the holding in ABUs per
hectare;

in France, however, the optimum stocking density was deter-
mined on the basis of usual practices already in place; more-
over, the exclusion of certain types of livestock (particularly
pigs and poultry), whose waste is therefore spread over the
land of the holding, is questionable;

(5) Commission document VI/10535/99.

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(d)

some Member States include respect for the well-being of
the animals among their good agricultural practices, but they
do not clearly define the criteria for assessing it (France and
Austria).

Management and control systems

45.
The Court notes that, at the moment, there is no verifi-
able, clear and consistent definition of ‘good agricultural practices’
for the purpose of assistance to the LFAs. In the absence of clear
definitions and a consistent application, it is difficult to under-
stand how this notion can constitute an objective basis for assess-
ing the eligibility of aid financed from the Community budget.

46.
Generally speaking, it was found that the provisions of
the RDPs were consistent with the Community’s rules. However,
in the case of good agricultural practices, they too often merely
borrow from other regulations and are not therefore in any posi-
tion to promote farming procedures that are more demanding
from the environmental point of view.

49.
The management and control systems put in place by the
Member States should make it possible to prevent, detect and cor-
rect any errors and significant weaknesses in good time. Their
quality was evaluated by the Court by analysing the anomalies
detected during the tests carried out on the representative sample
of payments to beneficiaries.

In respect of procedures, the following was found in indi-

50.
vidual cases:

(a)

the information in the national database used for counting
the cattle was not reliable (France); there was no systematic
reconciliation between the data given on the aid application
forms and those given in the livestock registers (Austria);

Surveillance systems

(b)

corrections made by beneficiaries to the histories of their
cattle herds were inadequately verified (France);

47.
In order to be able to assess the legality and regularity of
the allowance paid out, the Commission should be satisfied that
the managers have relevant and precise information to guarantee
the accuracy of the situations declared. The Commission should
ensure that information systems exist to enable it to pronounce
on compliance with the eligibility criteria.

(c)

(d)

During the compliance tests carried out by the Court dur-
48.
ing its on-the-spot audits, it examined the availability of this infor-
mation and found the following:

(a)

(b)

(c)

in some Member States, there is no rule requiring the keep-
ing of a register to show pest-control treatments, the spread-
ing of waste and the use of fertiliser on the various parcels
(France, Austria and Germany);

in Germany, some farmers carried out soil analyses by tak-
ing samples. Particularly high levels were sometimes found
for nitrates or other substances. Little or no attention was
given to the results, because this Member State has no stock-
ing criterion (1) in its definition of good agricultural practice;

in France, the procedure for verifying the area of land declared
by the applicant and checking that it is actually the applicant
who works the land does not enable the reliability of stock-
ing rates to be guaranteed;

(d)

as a general rule, animals other than cattle, sheep and goats,
such as poultry, pigs and horses, are not recorded.

(1) Reflecting livestock density.

compliance with the beneficiaries’ commitment to continue
their farming activity for five years was not systematically
monitored (France and Austria);

the selection of the beneficiaries checked by the authorities
did not take into account the risk factors specific to the mea-
sure (France) or the declarations were not always subject to
appropriate administrative checks (Finland);

(e)

checks over the good maintenance of pasture land, which is
one of the conditions for eligibility, were insufficient (France);

(f)

(g)

the documentation of checks on good agricultural practices
was unsatisfactory and the bodies making the checks had
little or no assurance that the relevant conditions were com-
plied with (all the Member States visited); furthermore, checks
sometimes lacked relevance and the follow-up given is some-
times uncertain (Austria);

the amount of the aid is determined by an indicator for-
warded by the tax authorities, whose components and cal-
culation procedures are unknown to the management body;
it also depends on the nature of the crops, whose verifica-
tion is very difficult without an appropriate register (Ger-
many);

(h)

the possession, on the part of the beneficiary, of a manure-
spreading certificate, which is one of the national conditions
for the allocation of the allowance, was not systematically
checked (Germany).

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With regard to individual transactions, it came to light

51.
that:

(a)

in Austria, the animal numbers recorded were often wrong;

(b)

(c)

also in Austria, mountain pastures were significantly over-
declared;

in France, in one third of the holdings audited, the cattle
numbers recorded differed by more than 3 % as compared
with the number calculated on the basis of the information
contained in the departmental register.

the payments carried out under this year; moreover, no
recoveries were made for the 2001 EAGGF year, because,
according to the authorities, they were waiting for the vari-
ous national regulations to be made consistent with one
another;

(b)

in Finland, recoveries were only declared to the Commission
when they were finalised; partial recoveries were not taken
into consideration;

The errors found do not necessarily have a financial effect, as the
compensatory allowances may be capped.

(c)

52.
Generally speaking, the reliability of the management
and control systems was inadequate. The main cause of this was
the poor quality of the data taken over from other management
systems. The scale and the effect of the anomalies observed in
each Member State are directly influenced by the degree of strict-
ness of the conditions laid down (after approval by the Commis-
sion) by each of them. The stricter the conditions, the higher the
risk of non-compliance. Moreover, the effectiveness of these man-
agement and control systems is also hampered by the fact that it
is difficult to verify certain criteria relating to good agricultural
practices, like, for example, the well-being of the animals.

53.
The Commission also noted some of these shortcom-
ings (1) following an enquiry into the systems of management and
control and the penalties introduced or envisaged by the Member
States in the field of rural development.

54.
Nevertheless, the Commission should more clearly (2)
specify the characteristics that the eligibility criteria set by each
Member State should have, in particular with regard to compli-
ance with good agricultural practices, and ensure that they are
verifiable.

Payments and the recording and booking of expenditure

55.
The completeness and annuality of records are two gen-
erally accepted accounting principles. The correct booking of the
transactions for the period was verified by examining the date of
the payment of the aid due in the 2001 EAGGF year (3).

During the on-the-spot checks in the Member States, it

56.
was found that:

(a)

for all of France, according to the paying body’s data at
31 March 2002, payments made after the closing date of the
EAGGF year amounted to 18,1 million euro, or 8,5 % of all

(1) See the synthesis report of 20 August 2001 No AGR 019399.
(2)

It should be noted that, during 2002, the Commission and the Mem-
ber States examined a document containing guidelines in the control
field.

(3) The 2001 EAGGF year ran from 16 October 2000 to 15 October

2001.

in Austria, only 75,5 % of the allowances due were paid out
under the 2001 EAGGF year; indeed, although the benefi-
ciaries had been notified of the total amount of the allow-
ance to which they were entitled, the paying body, on the
instructions of the ministry responsible, only paid out a frac-
tion of the sum due; according to the authorities concerned,
this was because of the introduction of a new system for the
identification of handicaps (Berghöfekataster); according to
the data supplied by the paying body, the remaining amount
was 65 million euro, 32,7 million euro of which were
chargeable to the Community budget, and was only paid out
in June 2002; the Commission has not yet been officially
informed by the Member State of the existence of the defer-
ment of this payment.

57.
Thus, in three of the four Member States visited, the Court
identified significant anomalies in terms of the budgetary prin-
ciples of completeness and annuality, even though they do not
constitute irregularities in terms of the specific regulations for the
measure.

Shortcomings in monitoring by the Commission and the
Member States

58.
According to Article 48 of Regulation (EC) No
1257/1999 the Commission and the Member States must ensure
effective monitoring of implementation of rural development
programming. The objective of monitoring is to assess the timely
and proper implementation of the measure in both financial and
physical terms. It must be carried out by way of jointly agreed
procedures and by reference to specific physical and financial
indicators agreed beforehand and written analyses. Member States
are required to draw up annual progress reports containing infor-
mation on monitoring activities (4).

(4) The annual progress reports should contain the following informa-

tion (Article 53 of Regulation (EC) No 445/2002):
— changes in the general conditions of relevance to the implemen-
tation of the measure and in major socioeconomic trends;
changes in national policies,

— the progress of measures and priorities,
— the action taken by the management authority and the monitor-
ing committee, if any, to ensure high-quality and effective imple-
mentation,

— measures taken to ensure compatibility with Community poli-

cies.

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Monitoring indicators

The Commission’s use of data

59.
Pursuant to Article 53(2) of Regulation (EC) No 445/
2002 (1) and its predecessor (2) the Commission has adopted
guidelines on common indicators for monitoring the rural devel-
opment programming and expenditure for 2000 to 2006 (3).

In examining these guidelines on financial monitoring, it

60.
was noted that:

(a)

(b)

the annual progress reports to be submitted to the Commis-
sion are required to be produced on a calendar-year basis (4);
this reference period differs from the EAGGF-Guarantee
financial year (5), thus making budgetary monitoring of LFA
expenditure more difficult and less transparent;

financial data included in the annual progress reports con-
cern commitments made under Regulation (EC) No
1257/1999, rather than payments; payment data would be
more appropriate, reflecting actual expenditure incurred.

The data supplied by the Member States

61.
Apart from the general weakness in the reporting system,
there were also shortcomings in the data transmitted by the Mem-
ber States. They are required to submit the progress reports before
30 April of the following year. Only a few Member States submit-
ted their reports by this deadline. Some were submitted half a year
later. Most provided financial and other information for the LFA
measure, but the written analyses of changes in general condi-
tions, progress with implementation and actions taken by the
management authority were often incomplete or non-existent.

62.
The fact that the lateness and absence of information had
adversely affected monitoring was confirmed by the Commission,
which stated in its guidelines that ‘several apparent difficulties and
inconsistencies in completing the indicator tables were observed’
and ‘the quantity and quality of common monitoring data received
for the year 2000 would be unlikely to permit effective monitor-
ing of the implementation of the measure or provide reliable
aggregation of monitoring data at Community level’. From the
end of 2001 to the spring of 2002, the Commission, together
with the Member States, examined the monitoring indicators in
order to improve them.

(1) Regulation (EC) No 445/2002 of 26 February 2002 (OJ L 74,

15.3.2002, p. 1).

(2) Commission Regulation (EC) No 1750/1999 of 23 July 1999 (OJ L 214,

13.8.1999, p. 31).

(3) Commission working document VI43512/02.
(4) Article 53 of Regulation (EC) No 445/2002.
(5) The EAGGF year runs from 16 October of year n–1 to 15 October of

year n.

63.
The Commission could not fully exploit the progress
reports presented by the Member States for the year 2000 because
of the little information supplied. With regard to the data for
2001, the deadline for the submission of the annual reports was
changed to the end of June 2002 to enable Member States to
adapt to the revised system of monitoring indicators. As a result,
at the end of the audit in July 2002, the Commission had not
analysed these reports.

Improvements to be made in the implementation and use of
assessments

Article 49 of Regulation (EC) No 1257/1999 requires
64.
that the measures covered by the RDPs should be evaluated. The
objective of evaluation is to assess the results and impact of the
aid schemes, and to analyse their effectiveness. The Commission
has a key role in ensuring the effectiveness of evaluation and its
dissemination.

Guidelines on evaluation

65.
The Commission has prepared guidelines for evaluation
of the measures for the programming period 2000 to 2006 as
required under Article 54(2) of Regulation (EC) No 445/2002,
concerning mid-term and ex post evaluations (6). The guidelines
consist of common evaluation questions together with criteria
and indicators. The Court made an analysis of these indicators for
the LFA measure by comparing them with the overall evaluation
approach followed by the Commission (7). In general, they are
adequate, with the exception of questions and criteria relating to
the effectiveness of the measure in avoiding overcompensation
for handicaps (see also paragraphs 38 to 42).

The quality of evaluations

66.
According to Article 49 of Regulation (EC) No
1257/1999, rural development measures must be carried out on
the basis of the principles laid down in Articles 40 to 43 of Regu-
lation (EC) No 1260/1999. This implies that they should be sub-
ject to ex ante, mid-term and ex post evaluation.

The quality of the ex ante evaluations for the LFAs measure for the new
programming period

67.
According to Article 55(1) of Regulation (EC) No
445/2002 and its predecessor, the RDPs are required to include
an ex ante evaluation analysing the disparities, shortcomings and

(6) Commission document VI12004/final.
(7) MEANS evaluation approach.

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potentials of the current situation, assessing the consistency of the
proposed strategy with the situation and targets and to take into
account the issues raised in the common evaluation questions.
They must also assess the expected impact of the selected priori-
ties for action and quantify their targets where possible as well as
verify both the proposed implementing arrangements and con-
sistency with the CAP and other policies.

68.
The Court found that the relevance of the information
provided in the ex ante evaluations by Austria, Finland, France and
Germany (Bavaria) for the programming period 2000 to 2006 on
LFAs was particularly limited. Although, in most cases, they fol-
low the required structure, appropriate information on the above-
mentioned elements is rare.

The quality of the evaluations for the previous programming period

69.
Article 6 of Regulation (EEC) No 2052/88 (1) provides
the legal basis for the evaluation of the measure under the previ-
ous programming period (1994 to 1999). By June 2002, the
Commission had received evaluations from 10 Member States
and it performed a quality assessment on three of these reports:
Austria, Finland and France. This quality assessment indicates that
various aspects of the evaluations should be improved, in particu-
lar the methodology applied, the quality of the data used and the
drawing up and the validity of the conclusions.

70.
The Court’s analysis of the RDPs for the new program-
ming period shows that the conclusions and recommendations
made in the mid-term evaluations have been taken into account
by the Member States concerned. For example, the Finnish and
French evaluators had recommended the change from the per-
head-based system for calculating the aid to a hectare-based sys-
tem.

However, at the same time instances were noted where

71.
no impact could be identified on the design of the RDPs:

(a)

the French evaluators had highlighted the need to perform a
review of the classification of the eligible areas, as the socio-
economic situation in certain regions has changed and there-
fore the classification (outside mountain areas) is no longer
necessarily valid;

(b)

the German evaluators had recommended ensuring better
coordination of the environmental aspects of the compensa-
tory allowances with the agri-environmental scheme.

Ex post evaluation of the measure during the previous programming
period(s)

Although support for LFAs has been provided since 1975,
72.
no complete evaluation of the measure has so far been made. It is

therefore to be welcomed that the Commission included an over-
all evaluation of the measure in its evaluation programme for
2002. The results are expected to be available at the end of 2003.

73.
The Commission did, however, perform an interim evalu-
ation of the measures for Structural Fund Objective 5a (including
the LFA scheme) in 1999. This was done on the basis of reports
supplied by the Member States (2) and was mainly limited to anal-
ysing monitoring data. The report does not include any specific
results or conclusions concerning the LFA measure. However,
there were common conclusions that the procedures, including
those for LFAs, should be simplified, and that the indicators were
too general in nature to allow a relevant assessment. A number
of programmes were criticised for not having a clear strategy.

74.
The Court could find no evidence of the extent to which
the results of the information obtained through this evaluation
had been taken into account in designing the Regulation for the
new programming period.

CONCLUSIONS AND RECOMMENDATIONS

75.
Support for LFAs has become a key constituent of rural
development policy, and it is of prime importance that the Com-
mission should:

— have proper evidence to judge the validity of the classifica-

tion of the various areas as less favoured,

— have sound information on the impact of the measure, in
particular the extent to which it avoids overcompensating
for handicaps,

— have appropriate assurance as to the legality and regularity

of expenditure,

— use the information on implementation efficiently and in
good time in order to monitor the measure effectively.

Since 1993 the Commission has called into question the relevance
of existing LFA classifications and their durability. However, this
has not led to any changes in the rules.

76.
The Commission has insufficient evidence that the LFA
classification decisions are still valid, which affects the efficiency

(1) Council Regulation (EEC) No 2052/88 of 24 June 1988 (OJ L 185,

15.7.1988, p. 9).

(2) Commission document, dated 1 November 1999 called ‘Interim
evaluation of rural development programmes (objectives 5(a) and
5(b))’.

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and effectiveness of the implementation of the aid scheme (see
paragraph 23). This may lead to a classification that is no longer
justified, as was explained in paragraph 29, and thus to an unjus-
tified allocation of aid. Member States use a wide range of indica-
tors to determine whether areas are less favoured or not (see para-
graph 33), which may lead to disparities in the treatment of
beneficiaries.

77.

The Commission should:

(a)

(b)

perform a complete and in-depth review of existing classifi-
cations of all LFAs;

develop, in close collaboration with the Member States, a
more appropriate set of indicators for identifying LFAs that
would be consistent and guarantee an equitable treatment of
the beneficiaries.

78.
The Commission is insufficiently informed on the impact
of the LFA support scheme. In the absence of an appropriate
overall evaluation (see paragraph 72), it is not possible to give a
definitive judgement on the effectiveness of the compensatory
allowances in compensating for existing handicaps and therefore
guarantee that resources are being used properly.

79.

The Commission should:

(a)

(b)

try to obtain relevant information on the impact of the
scheme;

examine how, within the context of checking the implemen-
tation of the regime in the Member States, the possible inci-
dence of overcompensation can be identified and, if neces-
this
sary, propose
phenomenon.

changes needed to prevent

the

in these management and control systems adversely affect the
legal and regular implementation of the measure.

81.

The Commission should:

(a)

(b)

(c)

ensure that Member States provide a definition of ‘good agri-
cultural practices’ which is clear and can be conveniently
verified; if this is not possible, the Commission should pro-
pose a system of support for LFAs which relies on a more
clear and controllable concept than ‘good agricultural prac-
tices’;

develop an inventory of existing regional/local practices in
relation to specific farming conditions;

give full guidance to Member States on the requirements of
an effective control system;

(d)

ensure that the checks performed are effective;

(e)

ensure that the Member States comply with the general
accepted accounting principles, in particular as regards annu-
ality and completeness, for recording and paying the EAGGF-
Guarantee compensatory allowances.

82.
During the years 2000 and 2001, Member States did not
supply the Commission with complete and timely information,
which was necessary for appropriate monitoring (see para-
graphs 61 to 62). The Commission did not make proper use of
the data made available (see paragraph 63).

The Member States should present complete and timely

83.
information required for monitoring.

80.
The quality of the management and control systems put
in place by the Member States suffers from the weak control envi-
ronment due to the impossibility of satisfactorily verifying one of
the key eligibility criteria (compliance with good agricultural
practices) (see paragraph 52); the procedures for the recording
and payment of aid do not always follow the accounting prin-
ciples of completeness and annuality (see paragraph 57). Further-
more, objective information on compliance with the eligibility
criteria is not always available (see paragraph 48). The weaknesses

The Commission should:

(a)

(b)

ensure that the Member States comply with the obligation
to present complete data in good time;

re-examine the relevance of the indicators used for monitor-
ing the measure.

This Report was adopted by the European Court of Auditors in Luxembourg at its meeting of 10 April 2003.

For the Court of Auditors

Juan Manuel FABRA VALLÉS

President

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ANNEX I

Existence of underlying data for LFA classification and Commission’s review of that data

1975-80

1981-85

1986-90

1991-95

1996–

cl.

data

review

cl.

data

review

cl.

data

review

cl.

data

review

cl.

data

review

I, M

I, M

I, M

I, M

I

I

I

I

+

–

–

–

–

+

–

–

+

–

–

–

–

+

–

–

M

M

M

M

M

M

I, M

–

–

–

–

–

–

–

–

–

–

+

–

–

+

M

M

M

M

M

M

I, M

I, M

+

+

–

+

+

–

+

–

+

+

+

+

+

–

–

–

Belgium

France

Germany

Ireland

Italy

Luxembourg

Netherlands

UK

Greece

Portugal

Spain

Austria

Finland

Sweden

Denmark

M

M

M

M

M

M

M

I

I

I

+

+

+

+

+

+

+

+

+

+

–

+

+

–

+

+

+

+

+

+

M

M

M

M

M

M

M

I

+

+

+

+

+

+

+

+

+

+

+

–

+

+

+

+

+/Total

2/8

2/8

0/7

2/7

5/8

5/8

10/10

8/10

8/8

7/8

initial classification

cl.: classification
I:
M: modification/extension
data: underlying data for classification/modification
review: Commission review of underlying data and justifications
+: evidence found in the Commission archives
–: evidence not found in the Commission archives.

C 151/18

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Official Journal of the European Union

27.6.2003

ANNEX II

Indicators used for the common criteria for less-favoured areas in danger of depopulation

(Source: STAR document, ref.: VI7675/98)

Criteria

Indicators used

MSs that apply
the indicator

Limit value

Land
productivity

Economic
performance

Population

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.

13.
14.
15.
16.
17.

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.

1.
2.
3.

agricultural comparability index (BZ)
number of days without frost
production from bovine animals
Nikula index
potential natural yield index
final agricultural production per ha
agricultural comparability index (LVZ)
yield
percentage of ploughed area
stocking rate (LU/ha)
farm rent
at least 50 % of the UAA of the ‘Concelho’ is affected by
serious handicaps
productivity index ‘L. Turc’
arable land/productive area
standard index of yields
gross value added of holdings per annual work unit
grassland/total UAA

agricultural comparability index (BZ)
earned income per work unit
Nikula index
potential natural yield index
agricultural comparability index (LVZ)
farm income per labour unit
indices related to livestock density
net value added at factor cost per agricultural worker
standard gross margin (SGM)
standard index of yields
gross value added of holdings per annual work unit
labour income per man-work unit

1
1
1
1
1
1
1
4
1
3
2
1

1
1
1
1
1

1
1
1
1
1
3
2
1
1
1
1
1

30
150
70 %
440

80 %
28
66 to 84 %
7,8 %
1 to 1,19
65 %
50 %

30
50 %
80 %
80 %
70 %

30
77 %
440

28
80 %
66 % or 0,2
80 %
80 %
80 %
80 %
80 %

population density
depopulation rate
agricultural population

13
7
13

27 to 130/km2
0,5 to 2 %
15 to 50 %

27.6.2003

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C 151/19

THE COMMISSION’S REPLIES

SUMMARY

III. (a)

The bulk of the work on designating less-favoured areas
(LFAs) was completed during the previous programming
period (1994 to 1999) on the basis of the information
provided by the Member States. Under the new rules for
the current programming period 2000 to 2006, the des-
ignations have remained largely unchanged (see replies to
point 28).

(b) The use by Member States of different indicators within
the general criteria established by the Regulation to deter-
mine LFA designation reflects the less-favoured character
in relation to the productive agricultural areas within the
Member State or region concerned (and not in compari-
son with other Member States).

(c) During the process of approving the rural development
programmes, the Commission examines the system and
level of aid proposed. Several elements of Council Regu-
lation (EC) No 1257/1999 minimise the risk of overcom-
pensation (see point 40).

(d) The Commission is aware of the complexity of the con-
cept of good farming practices (GFPs), which depends on
complex rules governing a variety of sectors.

That is why a practical approach was proposed to the
Member States in 2000 in a guidance document (1) (see
reply to point 47).

Following its experiences of the definition and imple-
mentation of good farming practices in the first years of
the programming period, the Commission has now pro-
posed drawing up a Community framework for the statu-
tory standards to be applied in farming (point 48) as part
of the CAP reform.

(e)

The Commission shares certain concerns of the Court
regarding the timing, quantity and quality of annual
reports and the associated monitoring indicators pro-
vided by Member States.

However, 2000 was the first year in which the common
monitoring system was completed under the new rural
development programming structure introduced under
Agenda 2000 and clearly this is a learning process.

(f) A Community summary of the ex post evaluations is to
be completed by the end of 2003. Furthermore, the
evaluation methodology for rural development, includ-
ing LFA, has been reinforced for the current program-
ming period in cooperation with the Member States.

(1) Document VI10535/99. Version Rev. 7 was the latest update in
December 2002. However, Rev. 2, distributed to the Member States
in June 2000, included the recommendations on GFP.

Pursuant to Regulation (EC) No 1257/1999, Member
States quantify (where possible for the various measures
(including LFA measures) in their rural development pro-
grammes (RDPs)) objectives which allow progress in
implementing the monitoring process to be measured,
and which provide a benchmark for the evaluations (see
replies 38 to 71).

IV.

The LFA measure has provided substantial financial sup-
port to farmers living in the most disadvantaged areas of
the European Union. It will continue to play an important
role in maintaining sustainable agriculture and viable rural
communities.

Following the Court’s comments in its 1990 report, the
Commission made a number of changes. It welcomes the
present report and will take into account the observations
and recommendations for the further development of the
LFA measure as part of rural development policy.

GENERAL BACKGROUND

8.
The increase occurred because these Member States decided
to introduce the criteria for classifying eligible areas gradually, in
the light of their priorities and available budget resources.

The Regulation provides a framework of common charac-
9.
teristics for classification of this type of area. Within the existing
legislation, each Member State uses its own set of objective indica-
tors.

17.
The years 2000 and 2001 were atypical of the new pro-
gramming period as most RDPs were not approved until the
second half of 2000 and the switch from the Guidance to the
Guarantee Section changed the funding mechanism. Much of the
funding for programmes approved in year 2000 was paid in 2001
under the Guarantee Section.

21.

See point 9.

Following the Court’s comments in its 1990 report and as part of
its continuing aim of improving checks on agricultural expendi-
ture, the Commission has made a number of changes (introduc-
tion of minimum inspection standards, introduction of computer
files on holdings, changes to the system by moving from a head-
age payment to an area payment).

C 151/20

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THE CLASSIFICATION OF AREAS AS LESS FAVOURED AND
ITS CONSEQUENCES

24 to 27.
efforts to review classification have proved unsuccessful.

Like the Court, the Commission regrets that its

28.
The areas classified as less favoured in the Member States
have undergone only very minor modifications since 1999 and
are therefore effectively stable. Under the implementing rules for
Regulation (EC) No 1257/1999 (second indent of point 9. B.3. V.
B of Annex II to Commission Regulation (EC) No 445/2002),
Member States must give specific information on amendments to
the lists of the less-favoured areas adopted or amended by Coun-
cil and Commission Directives, and the lists of the areas with
environmental restrictions with the necessary justification. Under
this procedure the Commission checks every amendment. For the
new Member States the initial classification of LFAs will form part
of the approval of their rural development programmes.

29.
The classification of the LFAs must be seen in the light of
the particular situation in each Member State. Regulation (EC)
No 1257/1999 does not prevent the use of different indicators
(with the general criteria listed in the Regulation) by the various
Member States. For each Council Directive, the Commission
checks the relevance of the indicators used by the Member States
under Article 19.

Directive 75/268/EEC and now Regulation (EC) No
33.
1257/1999 set down the common characteristics of the different
types of mountain and less-favoured areas. In its Explanatory
Memorandum to the Council (1) the Commission indicated the
type and/or quantitative level of the indices to allow the most
accurate judgement of the various Member State proposals made
at the time, having regard to the Directive. In the course of its
contacts with the Member States, the Commission strove to con-
vince them of the need to make the definitions listed in the char-
acteristics concise and harmonised. The indications given in the
paper quoted have been used in all subsequent discussions of LFA
classification with the Member States. Since 1999 there have been
few amendments to the less-favoured areas, but, while there is no
formal approval, the Commission checks each proposal notified
to verify its conformity with the Directive previously approved
for the Member State in question.

34.
Because of the varying demographic situations in the
Member States, the density of population indicator may be used
differently by each provided it remains within the scope of the
Regulation. This means that this comparison among the Member
States is of only limited usefulness in judging whether the mea-
sure is being applied correctly.

(1) COM (74) 222 final, of 18 December 1974.

Under the legislation referred to above, each Member
35.
State has a free choice in deciding the importance it wishes to
attach to the LFA measure among all the rural development mea-
sures and what compensatory allowance is needed to offset local
handicaps within its borders.

36.
The differences noted in this 1997 text reflect the priori-
ties accorded by Member States to this measure, the financial
resources mobilised, the farm structures in Member States and the
systems and levels of aid used rather than the range of indicators
employed for the classification of areas.

(a)

It should also be noted that the average size of holdings var-
ies considerably from one Member State to another (the
document mentioned quotes EUR 111 per hectare for Lux-
embourg and EUR 52 per hectare for Portugal).

(b)

In Italy the lack of national part-financing means that not all
of the beneficiaries in an LFA receive the allowance.

37.

See reply to point 36.

The status of LFAs must be considered with reference to condi-
tions in a single Member State. The general economic situation
may vary considerably from one Member State to another.

Depending on budget allocations and priorities some Member
States have succeeded in equalising incomes between less-favoured
areas and others have not.

38.
National evaluations have been made for each Member
State concerned. The measures for the previous programming
period (including those for the LFAs) were subject to a mid-term
review and ex post evaluation. A general summary will be avail-
able before the end of 2003. The evaluation requirements for all
measures in the current programming period have been stepped
up.

Pursuant to Regulation (EC) No 1257/1999, the Member States
quantified the objectives for measures in their rural development
programmes, which also contain justifications for differences in
the rates of compensatory allowance used by each Member State.

The monitoring and annual reports (see reply to point 62) mea-
sure, inter alia, the progress made in implementing the pro-
grammes against the quantified objectives.

40.
Several elements in Regulation (EC) No 1257/1999 mini-
mise the risk of overcompensation. A Member State’s total fund-
ing for its rural development programme is fixed for the pro-
gramming period and this has to be allocated across all such

27.6.2003

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Official Journal of the European Union

C 151/21

measures which it wishes to apply. The Regulation also puts a
ceiling of EUR 200/ha on the compensatory amount. If this limit
is exceeded, the Commission requires supplementary informa-
tion. Under the procedure for approving the RDPs, the Commis-
sion examines the system and level of aid proposed. Because of
the decentralised way in which the measure operates, the Member
States are best placed to prevent risks of overcompensation.

A definition of GFP exists in every rural development
45.
programme. Under Agenda 2000, it was deliberate policy to
define GFP at the level of each Member State or region in order to
deal with actual local conditions. In view of the very different
environmental situations from region to region, a common code
of GFP defined at Community level is not appropriate.

41.
Article 37(4) of Regulation (EC) No 1257/1999 allows
the Member States to lay down further or more restrictive condi-
tions for granting Community support for rural development.
These conditions may not have the aim of disadvantaging certain
farmers as compared with others.

When approving the RDPs containing a definition of GFP, the
Commission also insisted on clear indications on how the respect
of GFP is checked and verified by the national and regional
authorities, via verifiable standards to be included in the pro-
gramme.

42.

See replies to points 40 and 41.

The Commission is aware of the complexity of the concept of
good farming practice, which relies on complex rules in the vari-
ous sectors.

The Commission notes that the Member States differentiate allow-
ances as permitted by Article 15(2) of Regulation (EC) No
1257/1999.

THE IMPLEMENTATION, MONITORING AND EVALUATION OF
MEASURES IN SUPPORT OF LESS-FAVOURED AREAS

Expenditure is correct and eligible for the following rea-

44.
sons:

Accordingly, a practical approach was proposed to the Member
States in a guidance document in 2000. The Commission consid-
ered that there was an objective basis for assessing the eligibility
of the aid which had two parts: the definition of a ‘reasonable
series of essential practices’ to be checked during on-the-spot
inspections of beneficiaries and a system of cross-notification
among the specialist expert departments and those inspecting aid
financed by the EAGGF.

46.
As a minimum, all codes of GFP as defined in the rural
development programmes respect Community legislation, which
already provides a certain base level.

(a)

under Regulation (EC) No 1257/1999, good farming prac-
tice (GFP) may reflect only the Community and national leg-
islation in force (minimum requirement);

Following its experiences of the definition and implementation of
GFP in the first years of the programming period, the Commis-
sion has now proposed drawing up a Community framework for
the statutory standards to be applied in farming as part of the
CAP reform.

(b) minimum and maximum stocking densities are normally
part of good farming practice to avoid under- or over-
grazing;

47.
The effective implementation of the systems for manage-
ment, inspection and penalisation by the Member States is assessed
as part of the audits carried out by the Commission.

(c)

the exclusion of pig and poultry farming is justified by the
fact that the criterion used seeks to ensure good manage-
ment of the grass areas which are the virtually exclusive use
of these areas, seeking to avoid over-grazing or under-
utilisation in systems which are too extensive. Intensive
stock-raising is to be found mainly outside less-favoured
areas and is in any case subject to the legislation on nitrates
and the disposal of effluent;

48. (a)

In the case of France, the keeping of registers on treat-
ments and the spreading of waste applies as regards agri-
environmental measures under the PDRN (national rural
development plan), but it is not a priority under the cri-
teria selected by France for its LFAs.

(d)

the Commission has noted the Court’s comment and will
consider this point in future audits.

(d) A requirement to register all poultry, pigs and equines
would be a major complication. It would not be useful in
practice as those animals are less present in LFAs and do
not use forage areas.

C 151/22

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Official Journal of the European Union

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The Commission is already aware that a number of
50.
improvements are needed in the Member States. The Commission
has noted the Court’s findings and will follow them up in its
future audits.

(a) The purpose of the annual report is to follow the physical
and financial implementation of programmes (which are
based on a calendar year) against objectives. While annual
reports can contribute to budgetary control, this is not their
key purpose.

(f) Austria has a sophisticated inspection system which is, how-
ever, new and will be improved with a supplementary system
of cross-checks.

52.
As stated under point 45, practical guidelines on how to
inspect rural development measures (including those for LFAs)
have been worked out with the Member States. As experience on
the ground increases, these guidelines will be further adapted.

The Commission is well aware that an increase in the number and
complexity of requirements increases the risk of error.

The Commission had in fact identified some of these
53.
potential weaknesses during an enquiry carried out from Septem-
ber 2000 to June 2001 prior to the introduction of a new system.
At that time, the actual introduction of the systems of manage-
ment, inspection and penalisation was not audited because these
systems were being developed.

54.
The variety of local situations makes it inappropriate to
lay down common characteristics at Community level as regards
good farming practice. However, these practices should be verifi-
able, as provided for in Regulation (EC) No 445/2002. The Com-
mission has proposed a way of doing this (see reply to point 45)
and will ensure that such checks are made in the course of future
audits.

Monitoring on a calendar-year basis ensures a coherent
approach for programming financed by both the Guidance
and Guarantee Sections of the EAGGF. The issue has not
proved problematical until now. If in the future it does, the
Commission will examine it further.

For programming financed by the EAGGF Guarantee Sec-
tion, Member States are also required to submit each Sep-
tember separate financial reporting based on the EAGGF
budget year (Article 47 of Regulation (EC) No 445/2002).

(b) The separate financial reporting under Article 47 of Regula-
tion (EC) No 445/2002 already provides measure-level infor-
mation on expenditure actually incurred (payments).

In the case of the LFAs measure, there is in practice little dif-
ference between commitments and payments, as payments
are made annually and normally declared to the Commis-
sion in the same financial year. The Commission considers
that it is more appropriate for monitoring purposes to use
commitment data as this gives a clearer picture of the extent
to which the various measures are being taken up on the
ground.

61.
The Commission shares certain concerns of the Court
regarding the timing, quantity and quality of annual reports and
the associated monitoring indicators provided by Member States.

(a), (b) and (c). The fact that some payments due for 2001
56.
were paid in 2002 is not contrary to the specific regulations, as
the Court notes under point 57, and Member States were under
no legal obligation to pay these aids in 2001.

At the time of the audit the only reports available were for 2000.
This was the first year of reporting and in many cases an atypical
year where programme approval was still in progress and/or
where implementation of measures on the ground was only just
beginning.

(c) In 2001 Austria presented a programme modification in which
the financing for the LFAs measure was reduced. As the figures in
the changed financial tables correspond with the actual sums
spent, there are no consequences for the EU budget.

57.
The fact that these cases do not constitute irregularities
in the context of the specific regulations shows that the rules
applied to EAGGF Guarantee Section have been correctly applied.

62.
The quotation is taken from the explanatory guidelines
for the common monitoring indicators for rural development. It
assessed the completeness and quality of the common monitor-
ing indicators agreed at Community level (as opposed to annual
reports, which include also programme-specific text and in some
cases additional programme-specific indicators) supplied for 2000.
This critical assessment concerned whether the Commission could
fulfil its obligations to produce regular Community-level synthe-
sis reports, as requested by the European Council at the Gothen-
burg Summit in June 2001.

The Commission’s monitoring system concerns both
60.
financial and physical aspects (Article 48 of Regulation (EC)
No 1257/1999). The framework drawn up by the Commission
together with the Member States was designed to cover all rural
development measures in a single system and so is not specific to
the LFAs measure.

While there is still further scope for improvement, the Commis-
sion considers the quantity and quality of monitoring indicators
since provided for 2001 a considerable improvement on those
supplied for 2000.

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For 2000 and 2001, written comments have been sent to
63.
Member States and regions to clarify or request further informa-
tion on certain aspects.

With regard to 2001, the first Community-level synthesis report
is now under preparation. It was not possible to produce it by the
end of 2002 due to the late submission and, in certain cases,
incompleteness of the data from Member States. The analysis is
now underway as regards 2001 monitoring data for RDPs (Guar-
antee Section) and will, subject to receipt of revised data requested
from Member States, be completed for 2000. This matter has
been discussed with Member States in the context of the Special
Committee on Agriculture.

64.
Regulation (EC) No 1257/1999 introduced a whole new
system of evaluation (ex ante, mid-term, ex post) and a new com-
mon methodology which is a clear improvement on evaluations
in the previous period.

68.
Ex ante rural development evaluation has only been made
obligatory for the 2000 to 2006 programming period. No experi-
ences of systematic ex ante evaluations in this area existed before.
However, the evaluation guidelines issued by the Commission
provide for a revision of the ex ante evaluation and, where needed,
its supplementing in the context of the mid-term evaluation.

69.
Up to the end of 2002, the Commission had received
from Member States a total of 17 ex post evaluations reports for
Regulation (EC) No 950/97.

Most of these reports were assessed by the geographical units
responsible. The quality assessments serve as a tool for the four
European-level ex post summary evaluations of the 1994 to 1999
programming period, which are currently being carried out.

As to the lack of clear strategy, in the 1994 to 1999 program-
ming period, measures under Regulation (EC) No 950/97, other
than those in regions eligible under Objectives 1 and 6, were sub-
ject to financial programming only. In the new period 2000 to
2006 the measure is included in the overall strategy of each rural
development programme.

74.
The results were one of the inputs for the new program-
ming period. Based on the experience gained the system of com-
pensatory allowances was modified with payments solely on a per
hectare basis and the requirement to observe GFP.

CONCLUSIONS AND RECOMMENDATIONS

75.
The evaluation of the results of the current programmes
will provide information on the need for a review of the classifica-
tion criteria.

The monitoring and evaluation system put in place has improved
the availability of relevant information.

With the EAGGF Guarantee Section inspection system and the
guidelines for the Member States on the inspection control of
rural development measures, including less-favoured areas, the
necessary framework was put in place in July 2002 to provide
assurance of legality and correctness of expenditure.

The new evaluation system introduced by Regulation (EC)
No 1257/1999 will provide the information required for a pos-
sible review of the designation criteria and of other elements of
the Regulation.

The Commission is continuing to take steps to improve the qual-
ity of Member States’ evaluation reports using guidelines, semi-
nars and coordination meetings.

76.
The current classification complies with Regulation (EC)
No 1257/1999. The classification of less-favoured areas should
be considered in the light of the particular situation in each Mem-
ber State. Regulation (EC) No 1257/1999 does not prevent the
use of different indicators.

71.
Member States should draw conclusions from the evalu-
ation reports. The Commission uses the same reports to examine
critically the national programming documents under the follow-
ing programming period.

77. (a) The Commission will consider whether the present sys-
tem should be changed for the period after 2006.

(b) See replies to points 75 and 76.

73.
The Commission’s European-level mid-term evaluation
of Objective 5(a) measures suffered from a lack of systematic and
comprehensive data. Not all Member States had submitted evalu-
ation reports, and common evaluation questions had not yet been
developed. For the new programming period new evaluation
guidelines have been set in cooperation with Member States,
including a set of common evaluation questions with related cri-
teria and precise indicators.

78.
Evaluations of Member States’ programmes of the previ-
ous programming period, including the LFAs measure, are avail-
able and are being examined, in order to produce an overall
analysis before the end of 2003. The evaluation system for rural
development for the current programming period will provide
more detailed information on all measures, including the LFAs
measure, than was available for the previous period.

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Official Journal of the European Union

27.6.2003

79. (a) See reply to 78.

(b) The LFAs measure uses a flat-rate approach. The system
itself already contains built-in safeguards (see reply III(c)).
When looking at the evaluations of the rural develop-
ment programmes the Commission will consider whether
they are sufficient.

been worked out with the Member States. These guide-
lines will evolve as more experience on the ground is
gained.

(d) The Member States’ inspection systems will continue to
be audited. The audit service of DG Agriculture works on
a multi-annual plan based on risk analysis, as demanded
by the Court. It takes into account the remarks of the
Court when developing its audit programme.

Guidelines on the inspection of GFP were issued in 2002.
80.
In view of the relative novelty of GFP as an instrument, a certain
learning process is inevitable.

(e) See paragraph 80.

The procedures adopted by Member States in declaring expendi-
ture complied with existing EAGGF Guarantee Section require-
ments.

81. (a) When approving the rural development plans contain-
ing the definition of GFP, the Commission also insisted
on clear indications on how compliance is monitored
and verified by the national and regional authorities via
the verifiable standards to be included in the programme.

(b) A further step in CAP reform proposes the use of GFP as
an instrument by providing a Community framework for
the base level of statutory standards it is to respect.

(c) Practical guidelines on how to inspect rural development
measures (including those for less-favoured areas) have

The monitoring system for rural development was new
82.
for the Member States. Monitoring performance has improved
and will continue to improve as the Member States gain experi-
ence. A first report by the Commission on the implementation of
the rural development programmes in the first two years of the
programming period is under preparation and a computer system
(CAP-IDIM) for the collection and processing of monitoring data
will become operational in 2003.

83. (a) The Regulation clearly states which monitoring and evalu-
ation data the Member States have to send to the Com-
mission and when. The Commission reminds them regu-
larly of this requirement.

(b) Some of the monitoring indicators may need to be
adjusted as more experience is gained in their applica-
tion.