Special Report No 12/2003 on the sound financial management of the common organisation of the market in dried fodder together with the Commission's replies
Date: 2003-09-25
Institutions: European Court of Auditors
Subjects: EU aid, EU control, aid system, common organisation of markets, financial management, fodder

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I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 12/2003

on the sound financial management of the common organisation of the market in dried fodder
together with the Commission’s replies

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

(2003/C 298/01)

TABLE OF CONTENTS

Paragraph

Page

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

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

Protein needs for animal feeding and the role of dried fodder . . . . . . . . . . . . . . . . . . . . . .

The objectives of the CMO and how it has evolved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The characteristics of dried fodder production in the EU and how the present aid system
works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The budget

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

Previous audit by the Court

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

The Court’s present audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

MANAGEMENT OF AID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The aid rates established by the 1995 reform were higher than those proposed by the
Commission but were subject to the introduction of a budget limit . . . . . . . . . . . . . . . . . .

Total aid expenditure has been contained within the budget limits independently of the
levels of production in Member States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

DG AGRI identified key controls to be applied but has not amended the detailed rules to
be applied by Member States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Lack of clarity in Commission regulations has contributed to different interpretations
and practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Effective cross checking with IACS is not being achieved in one Member State . . . . . . . . .

MONITORING AND EVALUATION BY THE COMMISSION . . . . . . . . . . . . . . . . . . . . . . . . . . .

Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

There has been no evaluation of the CMO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

OTHER REVIEWS OF THE MARKET AND SECTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supply and demand of protein rich material in the EU following the BSE crisis . . . . . . . .

Changes proposed to the CMO as a result of the CAP mid-term review . . . . . . . . . . . . . .

I-X

1-20

1-3

4-9

10-15

16

17-18

19-20

21-45

21-24

25-26

27-29

30-44

45

46-50

46-48

49-50

51-59

52-55

56-59

3

4

4

4

7

7

7

8

8

8

8

9

9

11

11

11

11

11

11

12

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CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

60-68

RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

69

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

13

13

17

Paragraph

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SUMMARY

I.
Protein is important for animal feeding and is present to varying degrees in a wide range of feeding mate-
rial. Dried fodder is one source but is relatively low in protein. It provides only 1,2 % (1) of the total crude
protein fed to EU livestock.

II.
A common market organisation (CMO) for dried fodder was first established in1974 with a view to
improving the supply by granting aid for processing. Aid is paid for the production of fodder which has been
dried naturally and by artificial means. The CMO has been reformed twice in 1978 and 1995, the second time,
to cap the cost, which was increasing. A system of maximum guaranteed quantities (MGQ) was introduced to
achieve this. The present budget is some 317 million euro. In 2000, the Court commented in its Special Report
on ‘Greening the CAP’ that the dried fodder CMO showed the limited extent to which environmental consid-
erations were taken into account in some markets.

III.
Aid is payable to processors who dry permitted plants grown on integrated accounting and control
system (IACS) (2) registered land. Aid is paid for quantities that meet the required criteria for protein and mois-
ture content and leave the premises of the processing undertaking. Two rates of aid exist, one for artificially
dried material of 68,83 euro/tonne and another for sun dried of 38,64 euro/tonne.

The aid rates set by the Council in 1995 were higher than those recommended by the Commission.
IV.
Setting the aid rate for artificially dried fodder at nearly twice that for sun-dried fodder, encouraged some
processors to switch from sun-drying and to produce to the maximum extent possible. Nearly all Member
States produce dried fodder but the major producers are Spain, France and Italy. EU production has continued
to increase since 1995. The MGQ has been exceeded since 1998/99. Development of the market has been
uneven as some Member States have been able to exceed their MGQ by as much as 60 % whereas others have
consistently produced less than their MGQ.

Lack of clarity in regulations has created opportunities for different interpretations and practices. Some
V.
checks are not being carried out in Member States including, cross-checking with the IACS system, reconcili-
ation of financial accounts of processors and aid claims and verification of plants entering the drying process.
In one Member State marketing companies have been created to facilitate claims for aid. This has enabled them
to claim aid sooner than if they were transferring ownership to a third party.

VI.
Member States are required to produce information for the Commission and the Management Com-
mittee. But no information is provided regularly concerning prices for fodder products, or the level of imports
or production of competing protein crops and products.

(1) COM(2001) 148 final 2.
(2) The reform of the common agricultural policy in 1992 increased significantly the number of aid beneficiaries and the

potential for irregularity and fraud.
The IACS system was introduced to meet these risks. It consists of five elements, a computerised database; an identifica-
tion system for agricultural land parcels, a system of identification and registration of animals; aid applications; and an
integrated system for administrative controls and field inspections. Member States are responsible for the implementa-
tion of IACS. Within the Directorate-General for Agriculture, supervision, coordination and checking of the implementa-
tion of IACS in Member States is carried out by the ‘Clearance-of-Accounts Directorate’.

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The regulations governing the CMO do not specify any requirement for an evaluation. Although the
VII.
market was programmed for evaluation by the evaluation unit of the Directorate-General for Agriculture in
2001 this was postponed twice in favour of evaluations of other markets. No evaluation has therefore been
done.

VIII.
Although no evaluation has been done, two major reviews of the market occurred for other purposes
and provided an opportunity for the Commission to examine the market and its development. The first was a
review in 2001 devoted to examining the options for replacing the processed animal proteins banned as a
result of the BSE epidemic. It concluded that it would be more justifiable to increase imports of soya rather
than pursue other more costly options such as increasing production of dried fodder. Farmers would remain
free to decide how to satisfy their protein needs.

The most significant review occurred however in relation to the Commission’s mid-term review of the
IX.
CAP in July 2002. This proposed a fundamental change in agricultural support, in particular, a move away
from product to producer support. As part of a proposal to introduce a decoupled single payment per farm,
changes were proposed in specific markets including dried fodder. Accordingly, the Commission has proposed
an income support scheme for growers along with a simplified single rate support scheme to facilitate the
transition for processors. The latter would be phased out by 2009.

The Court welcomes the current efforts to reform the CMO and recommends that the Commission

X.
takes this opportunity to ensure that existing weaknesses are not perpetuated.

INTRODUCTION

2.
Dried fodder is obtained by drying approved plants either
by the application of artificial heat or by other means, mostly sun-
drying.

Protein needs for animal feeding and the role of dried fodder

3.
Table 2 shows estimates of the sources of the 64 million
tonnes of crude protein in the nearly 400 million tonnes of mate-
rial fed to EU livestock in 1999/2000. Table 3 shows that the
protein-rich group accounts for around 33 % of total crude pro-
tein fed to livestock but dried fodder contributes only 1,2 % of the
total.

The objectives of the CMO and how it has evolved

1.
Protein crops are an essential component of the feeding of
farm animals. Protein is present to varying degrees in a wide vari-
ety of feeding material. It comes from what are considered to be
generally ‘non-traded’ and ‘tradable’ sources. The first category
comprises material such as grass, hay, silage and other roughages
and is largely EU-sourced. The second comprises cereals, energy-
rich crops (e.g. manioc, corn gluten, brans and molasses) and
protein-rich crops (e.g. soya, other oilseeds meal, peas and beans
and dried fodder). The largest single source in this category is soya
meal which contributes some 20 % of total needs. Most soya meal
is imported. Table 1 shows those most commonly used according
to the level of protein they contain. Dried fodder falls into the
lowest category.

EU produced dried fodder is in direct competition with
4.
other protein products, in particular, imported soya products.
Because EU dried fodder was more expensive than imports, the
Council decided to introduce some form of support. Aid for dried
fodder production in the EU was first provided in 1974 when a
common organisation of the market (CMO) was established by
the Council (1).

(1) Council Regulation (EEC) No 1067/74 (OJ L 120, 1.5.1974).

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Table 1

Protein content of most commonly used protein crops

High protein content
Fishmeal
Meat and bonemeal
Soya meal (high pro)

Medium protein content

Skimmed milk powder
Rape meal
Sunflower meal
Palmist/copra/etc.
Peas and beans
Corn gluten feed

Low protein content

Dried fodder
Cereal
Tapioca
Vegetable oil

Crude protein, %

60
55
48- 50

35
32
28
23
22
22

15- 20
9- 12
>2
0

NB: This table shows that dried fodder is in the low protein category.
Source: Commission working paper SEC(2001) 431 dated 16.3.2001.

Supply and demand of protein-rich crops in the EU following the BSE crisis.

Crude protein use in animal feed broken down by type of feedstuff, EU-15, 1999/2000

Table 2

Total quantity fed
million t

TOTAL TRADABLE
Of which:

Cereals
Energy-rich
Protein

TOTAL GENERALLY NON-TRADED
Roughage - 85 % dry matter

TOTAL FEED

206
110
40
56

188
394

Total crude protein

million t

37,7
11
5
21

26,3
64,0

%

59
18
8
33

41
100

NB: This table shows that protein tradables, which include dried fodder, provided 33 % of the total crude protein.
Source: Commission internal working paper DG Agriculture ‘Possible developments regarding protein-rich crops following the BSE crisis.’

Sources of crude protein in total animal feed in EU-15, 1999/2000

Table 3

NB: This table shows the sources of the 64 million tonnes of crude protein referred to in Table 2.

Source: Commission’s working paper SEC(2001) 431 dated 16.3.2001

‘Supply and demand of protein-rich crops in the EU following the BSE crisis’.

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It was decided to grant aid to fodder drying/processing
5.
facilities to increase the levels of EU production. To ensure that
green plants for drying were regularly supplied and to enable
growers to benefit, aid was made conditional on processors con-
cluding contracts with growers. A uniform level of aid was intro-
duced with the marketing year running from 1 April. To qualify
for aid the dried fodder produced had to meet quality standards
as regards moisture and protein content.

6.
Following the review of 1978, the Council decided that, to
guarantee producers a fair return, a guide price should be set.
Because EU fodder was, in general, more expensive than imported
products, aid would be granted to dried fodder processors on the
basis of a percentage of the difference between the guide price
and world market price. It was also agreed that, because sun-dried
fodder was also subject to competition from outside the EU and
it should also qualify for aid, but at a lower level than that for
dehydrated fodder.

7.
Production rose continually throughout the 1980s. This
resulted in increases in total aid expenditure which could not be
controlled as no limit had been placed on the quantities for which

aid would be paid. As part of the 1991 review of the common
agricultural policy (CAP) the Commission considered proposing
the phasing-out of the support for dried fodder. The Council did
not support the idea and asked the Commission to seek alterna-
tive ways of limiting total expenditure.

8.
The Commission eventually proposed a return to a flat-
rate system while maintaining the differential between artificially
dehydrated and sun-dried fodder. The rates were set by the Coun-
cil at 68,83 euro/tonne for artificially dried and 38,64 euro/tonne
for sun-dried (1).

9.
In an effort to limit costs and influence the levels of EU
production, the new regulation introduced a maximum guaran-
teed quantity (MGQ) of 4 412 400 tonnes for artificially dried and
443 500 tonnes for sun-dried fodder, above which, aid would be
reduced. Table 4 shows how the MGQ was attributed between
Member States. This was determined on the basis of their
production/aid claims in relation to 1992/93 and 1993/94 mar-
keting years.

Table 4

Maximum guaranteed quantities by Member States

Member State

Artificially dried fodder
tonnes

Sun-dried fodder
tonnes

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

EU - 15

8 000
334 000
421 000
32 000
1 224 000
1 455 000
5 000
523 000
285 000
4 400
5 000
3 000
11 000
102 000

4 412 400

0
0
0
5 500
101 000
150 000
0
162 000
0
0
25 000
0
0
0

443 500

NB: This table shows the attribution of maximum guaranteed quantity. It also shows that most EU production comes from three Member

States namely Spain, France and Italy.

Source: Article 4 of Council Regulation (EC) No 603/95.

(1) New regime introduced by Council Regulation (EC) No 603/95 by
which detailed rules for the application of the new regulation were
introduced via Commission Regulation (EC) No 785/95.

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The characteristics of dried fodder production in the EU and
how the present aid system works

Aid is payable to processors who transform permitted
10.
green protein-yielding plants into dried fodder either by drying
them by the application of artificial heat or by other means, usu-
ally sun-drying. The plants supplied must be grown on registered
agricultural land and references provided to permit cross-checking
through the integrated administrative and control system (IACS)
that the same land has not been the source of claims made in
respect of other EU area-based aid schemes.

11.
Benefit from the aid does not usually accrue directly to
growers but is achieved indirectly through contracts for supply to
the processing industry. The aid influences on the prices which
the processors are prepared to pay to suppliers. But, in those cases
where the grower is providing green material for the production
of dried fodder for his own use, processors are required to pass
the aid on to the grower either in cash or, as is more usual, by
adjusting the prices they charge the growers for drying the fod-
der.

12.

In summary, aid is paid under the following conditions:

(a)

the plants used qualify for drying;

(b)

they have been grown on registered land;

increased steadily since 1995 eventually exceeding the total MGQ
in 1998/99. In contrast the production of sun-dried has fallen by
some 60 % over the same period. Production in Spain has con-
sistently exceeded their MGQ reaching 150 % in 2002/03. Italy
and Greece have also exceeded their MGQ in most years. The
remaining Member States have consistently produced far less than
their MGQ.

15.
Nearly all Member States produce artificially dried fod-
der but the major producers are Spain, France and Italy who,
between them, produce around 80 % of total EU production.
Although Spain and Italy together produce nearly all the EU’s sun-
dried fodder they have decreased their production of it over the
last few years but increased production of artificially dried fod-
der. In other Member States the production of dried fodder is at a
lower level, either because animals have more access to natural
grazing, or other protein sources or drying is less viable.

The budget

16.
The annual budget has remained at around 300 million
euro since the last reform introduced in 1995. The budget for
2003 is 317 million euro.

(c)

the dried fodder produced meets quality criteria for protein
and moisture content;

Previous audit by the Court

(d) processing undertakings claiming the aid have been duly
approved by the Member State and fulfil the requirements of
the regulations;

(e)

the product has left the premises of the processing undertak-
ing or approved external storage.

13.
The rate of aid to be applied is assessed ultimately on the
basis of the actual production recognised as eligible by Member
States. When production stays within the MGQ the full rate is
paid. When it exceeds MGQ, the rate payable is calculated on the
basis of either a standard or specific reduction.

17.
The CMO featured in the Court’s Special Report No 14/
2000 ‘Greening the CAP’. The Court commented in that report
that the dried fodder CMO showed the limited extent to which
environmental considerations had been taken into account in
some markets. It drew particular attention to the higher rate paid
for artificial drying which was inconsistent with the EU’s energy
policy and had encouraged a major switch from sun-drying to
artificial methods. As well as criticising the extent of the energy
required to dry fodder artificially, the Court also commented on
the environmental impact of the resulting carbon dioxide emis-
sions.

Assuring compliance with these conditions falls prima-
14.
rily to Member States who are required to implement the detailed
rules. The Commission remains responsible for ensuring compli-
ance with all market requirements and for monitoring and evalu-
ating the implementation and impact of the market’s measures.
Annex A shows that EU production of artificially dried fodder has

18.
In its reply the Commission undertook to follow up the
Court’s comments and to ascertain whether a further reform of
the sector should be proposed to the Council, not excluding the
possibility of abandoning the scheme. This has been incorporated
in the reforms to the dried fodder CMO proposed as a result of
the Commission’s mid-term review of the CAP discussed later in
this report.

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The Court’s present audit

The Court’s objectives were to examine whether in modi-

19.
fying the regime in 1995:

(a)

alternative ways of achieving increased production of pro-
teins had been considered;

(b)

the differential aid rates established for the present system
had been determined on a sound basis;

(c)

the detailed rules and procedures introduced ensured effec-
tive control over the market and the aid measures adopted;

(d)

appropriate monitoring had been carried out and the impact
of the measures evaluated.

The audit focused on the main producer States of Spain,
20.
France and Italy and used transactions of the 2000/01 marketing
year to examine how the aid system was managed. Germany was
also visited to provide a contrast as a less important producing
Member State. The audit included visits to individual processors,
their representative organisations, national and regional adminis-
trations and the Commission services responsible. It also took
account of the work of national certifying bodies and the Com-
mission service responsible for clearance of EAGGF accounts as
well as other work done by the Court in this area.

The Commission’s proposals on prices for agricultural
22.
products for 1994/95 (1) recognised that, despite the Commis-
sion’s suggestion in 1991 that the support for dried fodder should
be phased out, the Council had asked for other proposals based
on either continuing the specific aid or including the products in
the general framework of aid for arable crops. The latter option
was rejected as unsuitable and the Commission eventually pro-
posed a simple flat-rate payment of 40 ecu/tonne for artificially
dehydrated fodder and half that for sun-dried, coupled with an
increase in the minimum protein content. The difference between
the rates was supposed to reflect the higher energy costs required
for artificial drying.

23.
This received a mixed reception at the Management Com-
mittee. During discussions at the Council working group other
levels of aid and production limits were discussed. Accordingly,
the rates finally adopted by the Council increased to 57 and
32 ecu/tonne respectively, which, after taking account of the spe-
cial exchange rates which apply to agricultural spending (green
ecu) became 68,83 euro and 38,64 euro.

24.
The rates originally proposed of 40/20 ecu (see para-
graph 22) were intended to permit processors to produce fodder
at a price similar to those products with which it was in competi-
tion. Examination of the various documents associated with the
consideration of the proposal did not explain the increase between
the rates proposed and those finally adopted by the Council.

Total aid expenditure has been contained within the budget
limits independently of the levels of production in Member
States

MANAGEMENT OF AID

The aid rates established by the 1995 reform were higher
than those proposed by the Commission but were subject to
the introduction of a budget limit

25.
If total EU production exceeds the MGQ the regulations
prescribe that, in order to limit expenditure to the budget pro-
vided for, a reduction in aid will be applied equally to all Member
States provided the excess was no greater than 5 %. If the excess
is greater than 5 % a specific additional reduction is applied indi-
vidually to those Member States who have exceeded their national
MGQ.

21.
When reviewing the evolution of the market in 1993, the
Commission expressed their concern that the aid in this sector
did not represent a cost-effective means of supporting farm
incomes and that, despite the reductions in aid which had been
applied, production had continued to increase with the usual con-
sequences for the budget. On the basis of Commission costings
for 1994 and 1993 production levels, the average aid for dehy-
drated fodder, expressed in per hectare terms, represented some
600 ecu/hectare compared with the aid for other protein crops,
actually paid on a per hectare basis, of 390 ecu/hectare. While
production costs and selling prices also have to be taken into
account in assessing the relative attractiveness of dried fodder
production, the aid level contributed to an increase in production
in certain Member States.

26.
Since 1998/99, the Commission has had to reduce the
amount of aid finally paid to beneficiaries as a result of total pro-
duction exceeding total MGQ. Even though some countries
exceeded their national MGQ by substantially more than 5 % the
second level of reduction was not triggered because others had
produced less than their MGQ. It was not until 2000/01 that pro-
duction exceeded 105 % of MGQ and the second level of reduc-
tion was applied to Greece, Spain and Italy (see Annex B).

(1) COM(94) 10 final of 30 January 1994.

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DG AGRI identified the key controls to be applied but has
not amended the detailed rules to be applied by Member
States

presented. The Spanish authorities informed the Court that rec-
ognition had been withdrawn from the previous operator of the
site in question. The authorities are pursuing reimbursement of
aid from the operator and have initiated legal proceedings.

27.
Communication of controls, which the Commission con-
siders as being required to ensure the proper operation of the
market in Member States, are laid down in the detailed rules pub-
lished as Commission regulations. In general, CMO regulations do
not rank the rules/controls to be applied in order of their relative
priority, since these regulations regard all controls to be of equal
importance.

28.
Within the DG AGRI a ‘Clearance-of-EAGGF Accounts
Directorate’ is responsible for on-the-spot examinations of how
controls and checks required by these regulations are carried out
in Member States in support of aid claims. When they find
instances where controls have not been carried out or have not
been carried out correctly they propose financial corrections. In
its Annual Report for 2001 the Court noted that, in order to
make the relationship between systematic weaknesses identified
as a result of financial clearance of EAGGF accounts and the cor-
rections proposed clearer, the ‘Clearance-of-Accounts Directorate’
had developed definitions of key and ancillary controls for vari-
ous markets and measures including the CMO for dried fodder.

The market unit responsible for the overall management
29.
of the CMO was not involved in this analysis. There has been no
proposal to amend the detailed rules to reflect the resulting iden-
tification of the key and ancillary controls which should help
focus efforts and facilitate risk analysis.

Lack of clarity in Commission regulations has contributed to
different interpretations and practices

The criteria for claiming aid for sun-dried fodder

Checks on the financial accounts of processors and checks
of suppliers and operators

32.
The checks of financial accounts play an important role
in ensuring the compatibility of the financial information main-
tained by processors for producing their financial and manage-
ment accounts and the quantities claimed for aid.

The ‘Clearance-of- Accounts Directorate’ of DG Agricul-
33.
ture had observed that the German text of the detailed rules con-
cerning checks of accounts of processors required such checks
only ‘in case of doubt’ whereas the other language versions con-
tain no such limitation. They had also observed that the checks
on suppliers provided for in the other language versions of the
regulation did not feature in the German text or the national regu-
lations. The competent authorities consider that the official Ger-
man text of the regulations has exclusive validity. The Commis-
sion has not yet addressed the differences in the German text.

34.
In Italy the authorities responsible for the checking of
dried fodder aid claims were not themselves carrying out the
required checks of financial records of processors. They relied,
instead, on inspections carried out by two other services and
undertaken for different purposes. As a result, these checks were
limited in scope and did not respond to the specific requirements
of the dried fodder regulations.

The Council regulation and the detailed rules promul-
30.
gated by the Commission define those products which are regarded
as dried fodder products qualifying for aid.

35.
The Commission’s detailed rules (1) also provide that
authorities will make checks on suppliers and operators to whom
processed fodder is supplied. This was not being done in all Mem-
ber States visited and, in certain cases, relied on seeking written
confirmation rather than a visit to verify trading activity.

31.
Sun-dried fodder has to be dried otherwise than by the
application of artificial heat and also ground before it can qualify
for aid. In the case of one Spanish processor audited, fodder was
being dried other than by the application of artificial heat but had
not been milled as it was produced as long fibre. The authorities
informed the Court that, to ensure correct treatment, all the
autonomous communities had been reminded in 2001 that, for a
product to be defined as sun-dried, it had to be subjected to a pro-
cess of milling regardless of the manner in which it was finally

36.
Failure to operate such controls coherently and consis-
tently reduces the assurance that the quantities claimed for aid are
acceptable.

(1) Article 14(3) of Commission Regulation (EC) No 785/95.

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The absence of checks on plants entering the drying process

The Council regulation (1) specifies the green plants which
37.
are permitted to be transformed into dried fodder and thus qualify
for aid. The Commission’s detailed rules do not include any
requirement to verify that only permitted plants are used. In prac-
tice, national authorities usually achieve some verification indi-
rectly by means of the contracts for supply. Inspectors also obtain
some assurance through physical observations made during their
periodic visits to processors though this is not done systemati-
cally.

Definition of criteria for leaving the precincts

For one of the processors visited during the audit, output
40.
delivered to a common silo as well as to other external storage,
qualified for aid. The competent authorities considered that this
was consistent with the requirements of the regulations as the
fodder had, in both cases, left the precincts of the processing
undertaking.

41.
In 2001, France abandoned the concept of approved
external storage altogether and now regards all storage facilities
outside the precincts of the processing facility as being not
approved. On this basis they regard all flows to external storage
as fulfilling the criteria of leaving the premises and therefore
qualifying for aid. This is within the letter but not the spirit of the
regulations which the Court considers should require the product
to be transferred to a third party.

To qualify for aid or advances of aid the fodder must
38.
leave the premises of the processor. Fodder products are consid-
ered to have left the processing undertaking where they leave in
an unaltered state either (2):

Processors in one Member State have created their own market-
ing companies to facilitate aid claims

(a)

the precincts of the undertaking; or

(b) where the products cannot be stored in those precincts, any
storage place outside them which has been approved in
advance by the competent authority.

The criteria that processed fodder must leave the premises of the
processor to qualify for aid is open to different interpretations.

39.
The instructions for processors issued by the competent
authority in France, in relation to 1998/99, recognised that one
of the main criteria governing the right to claim aid was for pro-
cessed fodder to have left the processing undertaking. They also
stated that, what generated this condition was usually fulfilled by
actual sale supported by an invoice. It went on to advise that the
processor could transfer the product to storage external to the
main installations without making a sale and that this was, by
association, equivalent to the product leaving the premises. A
later instruction however, confirmed that products must leave the
processor’s premises or approved external storage in order to
qualify for aid.

(1) Article 1 of Council Regulation (EC) No 603/95 and Article 2 of

Commission Regulation (EC) No 785/95.

(2) Article 3(1) of Commission Regulation (EC) No 785/95.

In Italy the authorities have extended interpretation of
42.
the leaving the premises conditions to mean that the fodder has
to have been sold. To ensure that they can meet this criteria and
claim the aid, processors have established marketing companies
to whom they ‘sell’ their production. The system is a device for
ensuring that the processors can claim aid sooner than if they had
to wait for a sale to a true third party. The marketing companies
of two of the processors visited in Italy were legally physically
separate entities but remained virtually inseparable from their
parent processing companies. The administration and bookkeep-
ing of the marketing companies was provided by the systems and
personnel of the processing companies.

The ‘sale’ criteria adopted can, in one sense, be viewed as
43.
stricter than just ‘leaving the premises’, but the creation of such
companies can also be seen as exposing the system to the risk of
fictitious sales.

The Italian authorities carried out sample checks on
44.
financial documents (bills and payments) for dried fodder, includ-
ing the final user of the products. The Court carried out specific
tests, during the audit of the processors, relating to stock records
of both parties, including clearance of the payments for ‘sales’, in
order to ensure that the transactions between the processors

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Official Journal of the European Union

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visited and their marketing companies were genuine. Although
the results of the tests were satisfactory in this instance, they
required extensive reconciliation which the national authorities
were not carrying out. Such tests are essential to ensure that com-
plex beneficiary structures are controlled effectively.

The Commission provides this information to the Com-
48.
mittee along with the calculations of the reduction in aid to be
applied in cases where production has exceeded MGQ. Although
the primary objective of the CMO was initially to increase protein
supply through the aid for processing dried fodder, no informa-
tion is required to be provided by Member States on total protein
supply market prices of protein products or prices and production/
imports of other competing protein crops and products.

Effective cross-checking with IACS is not being achieved in
one Member State

In Italy declarations relating to parcels growing green
45.
fodder are included in those made for all arable products and
recorded for checking to the Land Register database. The areas
declared as the source of green fodder under supply contracts to
processors are also recorded but in another database. There was
however, no cross-checking between these databases thereby cre-
ating a risk that inconsistencies would not be detected. New pro-
cedures were adopted in 2000 with the aim of making the fodder
scheme more compatible with IACS. But the above cross-checks
were still not being done at the time of our audit.

MONITORING AND EVALUATION BY THE COMMISSION

Monitoring

There has been no evaluation of the CMO

49.
The regulations governing the operation of the dried fod-
der market do not specify that any evaluation of the market is
required.

50.
Under its evaluation programme for 2001 however, the
‘Evaluation’ unit of DG AGRI had planned an evaluation of the
dried fodder sector but this was postponed in favour of a higher
priority project on the wine sector. The fodder project would have
been reprogrammed for 2002 but further changes in Commis-
sion priorities resulted in it being replaced by one on cereals. To
date therefore, the CMO has not been the subject of an evalua-
tion.

The market is managed and monitored by a market unit
46.
in the Commission and the Management Committee for Dried
Fodder set up to assist the Commission (1).

OTHER REVIEWS OF THE MARKET AND SECTOR

The Commission requires Member States to provide lim-

47.
ited information to them consisting of:

(a)

the average level of humidity of the green fodder to be dehy-
drated;

51.
Although there has been no evaluation of the market two
major reviews of the sector, for other purposes, provided an
opportunity for the Commission and the Council to examine the
market.

(b)

the quantities of dried fodder for which aid has been requested
and the quantities accepted;

Supply and demand of protein rich material in the EU
following the BSE crisis

(c)

stocks of dried fodder.

(1) Article 17 of Council Regulation (EC) No 603/95 of 21 February

1995.

Following the BSE crisis, the Commission was asked by
52.
the ‘Agriculture’ Council in December 2000 to examine the sup-
ply and demand situation of protein-rich crops in the context of
the need to find alternative supplies to replace banned processed
animal protein. The terms of reference were: ‘…to analyse the
issue (of the production of protein rich plants) in greater detail

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Official Journal of the European Union

9.12.2003

and to draw its consequences for the policy currently being pre-
pared in this sector…’.

The results of this review were set out in a formal com-
53.
munication from the Commission to the Council and the Euro-
pean Parliament (1) ‘Options to promote the cultivation of plant
proteins in the EU’. This assessed the protein market, likely future
scenarios and the options available, including:

(a)

increasing production of oilseeds by increasing aid;

(b) promoting increased production of aid supported protein

crops;

(c)

authorising the cultivation of protein rich crops on set aside
land;

(d) promoting increased production of dried fodder by increas-

ing the MGQ;

(e)

importing more soya.

The best option was to increase soya imports as the other
54.
options were considered to be too costly or too difficult to rec-
oncile with other objectives. Each option would, however, satisfy
additional needs only to a limited extent. Market forces would
come into play: the feed industry and farmers would not react to
the replacement problem just by using soya meal. They were likely
to reduce protein-rich ingredients in feed and increase cereal con-
tent, any remaining deficit being covered by additional use of soya
via increased imports.

55.
Also, increasing the production of dried fodder would
increase aid costs by nearly 14 million euro but not necessarily
lead to ‘real’ increases in production rather than just cover for
existing production in excess of MGQ.

were a shift from product to producer support with the introduc-
tion of a decoupled system of single payments per farm, based on
historical references and conditional upon compliance with envi-
ronmental, animal welfare and food quality criteria. Adjustments
to the dried fodder sector were envisaged as part of this process,
in particular to consider the need for further reform of the market
or even its abandonment, following the comments made by the
Court in its Report ‘Greening the CAP’.

57.
The Commission proposed replacing the current regime
in the dried fodder sector with an income support envelope for
growers of up to 132 million euro of the existing budget for aid
paid to processors. This would be distributed between Member
States in proportion to the national shares of the existing MGQ.
Grower entitlements would be based on the quantities of green
fodder delivered to processors in a historical reference period. In
order to facilitate the transition for the fodder processing industry,
a simplified and degressive single-rate support scheme, of 33 euro
per tonne of dried fodder produced, would be maintained and the
individual national MGQs would be merged.

In addition to the Court’s environmental arguments on
58.
fodder, the Commission also drew attention to the fact that aid
now represented up to 70 % of the market price of dehydrated
lucerne. They also indicated that they had not excluded the pos-
sibility of abandoning the current regime if the reform proposals
were not accepted.

Changes proposed to the CMO as a result of the CAP
mid-term review

56.
Following the CAP review published in July 2002 (2), the
Commission proposed a number of fundamental changes in agri-
cultural support with the objective of achieving more market-
orientated sustainable agriculture. The most significant elements

59.
In January 2003, the Commission brought forward leg-
islative proposals to the Council (3) which make clear that, in
addition to transferring funds (now some 133 million euro) from
the present fodder aid budget to growers via the single farm pay-
ment scheme, the revised single rate payable to processors would
be phased out by 2009 thus removing all aid for processing. The
Commission confirmed to the Court that the money saved would
not be transferred to growers and would be a real saving for the
budget.

(1) COM(2001) 148 final 2 16.3.2001.
(2) Commission Communication to the Council and to the Parliament,

COM (2002) 394 final 10.7.2002.

(3) COM(2003) 23 final of 21.1.2003.

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CONCLUSIONS

in amendments to regulations (see paragraphs 27 to 28). The
results of the definition of controls work have been communi-
cated to Member States by the ‘Clearance-of-Accounts Director-
ate’ through presentations made to the EAGGF Committee.

60.
The market was introduced to encourage the production
of proteins in the form of dried fodder. Although production has
increased, the EU still only produces less than 2 % of its protein
requirements in the form of dried fodder. Dried fodder remains of
limited economic significance for animal protein consumption in
the EU. The MGQ introduced to limit total expenditure has been
successful. It has however, influenced production to only a limited
extent as some Member States have consistently exceeded their
MGQ (see paragraphs 4, and 7 to 9).

The Commission has argued against increasing produc-
61.
tion limits even to the limited extent necessary to make up the
deficit in protein supply caused by the ban on processed animal
proteins (see paragraphs 52 to 55).

62.
There has been a major shift in production from sun-
dried to artificially dried fodder. The rates of aid themselves were
set by the Council at higher levels than those recommended by
the Commission and with an increased differential between the
two levels of aid. The existence of the higher rate of aid for arti-
ficially dried fodder encouraged processors to produce this form
of the product to the maximum extent possible. The production
of artificially dried fodder rose by 11 % between 1995 and 2002
whereas the production of sun-dried fell by 50 %. Of the total aid
expenditure on dried fodder 87,5 % relates to artificially dried.
Development of production has been uneven with some Member
States consistently exceeding MGQ and others continually pro-
ducing less than their entitlement (see paragraphs 14 and 25 and
26).

63.
The lack of clarity of the regulations has permitted dif-
ferent interpretations by Member States and exposed the system
to the risk of incoherence of approach. In one Member State, mar-
keting companies have been created by processors to facilitate
claims for production aid. This permitted them to claim aid sooner
than would otherwise be possible (see paragraphs 30 to 45).

64.
Some Member States have failed to operate important
controls provided for in the regulations which may expose the
system to risks that unjustified claims might go undetected (see
paragraphs 32 to 36).

66.
Monitoring of the CMO by the Commission does not
cover protein supply or prices of protein products and imports.
There is no formal requirement for evaluation in the regulations.
Although an evaluation was planned it has been postponed twice
in favour of other markets. Other reviews of the market have been
made but were initiated for other purposes (see paragraphs 46 to
50).

The recent reform proposals are in part intended to address
67.
the uneven development which has occurred in the market and
continuing concerns about efficiency. The Commission has indi-
cated to the Council that it has not excluded the possibility of
abandoning the current regime if the overall CAP reform propos-
als are not accepted by the Council. Any new scheme would still
involve redirecting funds to the growers rather than the process-
ing industry (see paragraphs 56 to 59).

68.
The major changes proposed by the Commission follow-
ing the mid-term review of the CAP would, if approved by Parlia-
ment and the Council, eliminate many of the risks associated with
aid to processors although some may remain in the interim. The
continuance of aid to processors, albeit at a single reduced rate,
will still require the application of effective controls. The new sys-
tem of paying farmers for growing plants has yet to be defined
and controls devised.

RECOMMENDATIONS

69.
The Court welcomes the Commission’s current efforts to
reform the market. The Court recommends that the Commission
address the following points when implementing the reform and
notes the compromise reached by the Council:

(a)

emphasise the importance of prioritising checks on the basis
of formal risk assessment;

65.
The Commission has identified key controls in order to
focus proposals for corrections to the aid paid in cases of non-
compliance with regulations. But the managers of the CMO were
not involved in this process and the information has not resulted

(b)

define more specifically what it is prepared to accept as
meeting the key criteria of fodder ‘leaving the premises’ in
order to qualify for aid;

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Official Journal of the European Union

9.12.2003

(c)

(d)

introduce checks on the plants actually used to produce the
fodder to ensure compliance with those specified;

(e)

specify the nature and extent of checks on suppliers and
operators to whom fodder is supplied;

specify and define the inspections of stock records and
financial records of processors that are required in order to
ensure reconciliation of the information as far as possible
with the quantities being claimed for aid.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 24 and 25 September 2003.

For the Court of Auditors

Juan Manuel FABRA VALLÉS

President

ANNEX A

DEVELOPMENT OF EU PRODUCTION OF DRIED FODDER

Quantities recognised as being entitled to aid

1. DEHYDRATED FODDER

MGQ

1995/96

1996/97

1997/98

1998/99

1999/2000

2000/01

2001/02

2002/03

Difference

BLEU

Denmark

Germany

Greece

Spain

France

Ireland

Italy

Netherlands

Austria

Portugal

Finland

Sweden

United Kingdom

produc-
tion

4

271

343

%
MGQ
51 %

81 %

81 %

46

145 %

8

334

421

32

1 224

1 262

103 %

1 455

1 307

5

523

285

4

5

3

11

102

5

526

221

2

1

2

9

72

90 %

94 %

101 %

77 %

50 %

16 %

60 %

86 %

70 %

produc-
tion

4

207

300

30

1 414

1 091

%
MGQ
54 %

62 %

71 %

94 %

produc-
tion

4

225

308

%
MGQ
53 %

67 %

73 %

produc-
tion

3

266

321

%
MGQ
35 %

80 %

76 %

38

120 %

46

144 %

produc-
tion

2

186

334

52

%
MGQ
24 %

56 %

79 %

161 %

115 %

1 571

128 %

1 668

136 %

1 769

145 %

75 %

1 264

87 %

1 346

93 %

1 304

6

117 %

6

126 %

5

109 %

499

176

2

2

1

7

79

95 %

62 %

45 %

39 %

44 %

65 %

77 %

561

210

2

4

1

5

84

107 %

74 %

48 %

71 %

35 %

48 %

82 %

638

223

2

3

1

7

81

122 %

78 %

42 %

50 %

40 %

60 %

80 %

5

674

194

2

1

0

6

70

90 %

99 %

129 %

68 %

45 %

19 %

17 %

59 %

68 %

produc-
tion

2

168

357

44

1 955

1 225

5

677

214

2

2

1

6

63

%
MGQ
22 %

50 %

85 %

136 %

160 %

84 %

95 %

129 %

75 %

47 %

44 %

19 %

55 %

62 %

produc-
tion

1

147

334

%
MGQ
14 %

44 %

79 %

51

160 %

produc-
tion

2

147

348

58

%
MGQ
20 %

44 %

83 %

181 %

1 812

1 167

5

659

181

2

4

1

8

50

148 %

1 882

154 %

80 %

98 %

126 %

64 %

45 %

74 %

17 %

68 %

49 %

1 094

4

716

203

3

0

1

9

48

75 %

87 %

137 %

71 %

61 %

2 %

21 %

79 %

47 %

TOTAL EU

4 412

4 070

92,2 %

3 818

86,5 %

4 283

97,1 %

4 610 104,5 %

4 599 104,2 %

4 720 107,0 %

4 421 100,2 %

4 515 102,3 %

02/03-
01/02
1

0

14

7

70

02/03-
MGQ
- 6

- 187

- 73

26

658

- 73

- 361

- 1

57

22

1

- 4

0

1

- 2

94

- 1

193

- 82

- 2

- 5

- 2

- 2

- 54

103

2. SUN-DRIED FODDER

MGQ

1995/96

1996/97

1997/98

1998/99

1999/2000

2000/01

2001/02

2002/03

Difference

Greece

Spain

France

Italy

Portugal

TOTAL EU

produc-
tion

3

41

166

190

3

6

101

150

162

25

%
MGQ
46 %

40 %

111 %

117 %

13 %

produc-
tion

2

37

86

125

4

%
MGQ
30 %

36 %

57 %

77 %

16 %

produc-
tion

0

53

14

87

3

%
MGQ
2 %

52 %

10 %

54 %

10 %

produc-
tion

0

93

4

53

1

%
MGQ
0 %

92 %

2 %

33 %

5 %

produc-
tion

0

85

3

73

2

%
MGQ
0 %

84 %

2 %

45 %

6 %

produc-
tion

0

%
MGQ
0 %

produc-
tion

0

%
MGQ
0 %

produc-
tion

0

%
MGQ
0 %

02/03-
01/02
0

02/03-
MGQ
- 6

108

107 %

227

225 %

105

104 %

- 122

3

90

2

2 %

56 %

6 %

4

74

1

3 %

46 %

2 %

3

107

1

2 %

66 %

4 %

- 2

33

0

4

- 147

- 55

- 24

443,5

402

90,7 %

253

57,0 %

156

35,3 %

151

34,1 %

162

36,5 %

203

45,7 %

306

69,0 %

216

48,7 %

- 90

- 228

Sources: Information supplied by Member States (Article 15(a), second indent of Regulation (EC) No 785/95).

Working document submitted by the Commission to the Dried Fodder Management Committee in respect of the 2002/03 marketing year.

.

.

9
1
2
2
0
0
3

(1 000 t)

02/03-
95/96

E
N

- 2

- 123

5

12

621

- 213

0

189

- 17

0

- 1

- 1

- 1

- 23

445

11 %

(1 000 t)

02/03-
95/96

- 3

64

- 163

- 83

- 2

- 187

- 46 %

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

C
2
9
8
/
1
5

C 298/16

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9.12.2003

ARTIFICIALLY HEAT-DRIED (DEHYDRATED) FODDER — REDUCTIONS IN AID WHEN EU PRODUCTION
EXCEEDS MGQ

ANNEX B

General amount to achieve budget neutrality when EU production < MGQ + 5 %

Table a

Aid payable if EU excess = 0

MGQ

4 412,4

Aid payable if EU excess = MGQ + 5 %

MGQ + 5 %

4 633,0

68,83

65,55

303,705

303,705

Production

Quantity
1 000 tonne

Rate of aid
euro/tonne

Budget
Million euro

Table b

Specific reduction when EU production > MGQ + 5 %

Marketing
year 2000/
2001

PRODUCTION
quantities
recognised as being
entitled to aid
1 000 t

NGQ (1)

Distribution of Quantities
exceeding the NGQ + 5 %

NGQ
1 000 t

Production/
NGQ ratio

NGQ + 5 %
1 000 t

RATE OF AID
to be paid by
Member States
Euro/t

% of total

quantity
produced
over and
above the
NGQ + 5 %
1 000 t

Greece

Spain

Italy

Total

43,6

32

1 954,6

1 224,0

676,8

523

136 %

160 %

129 %

33,6

10,0

1 285,2

669,4

549,2

127,7

807,1

1 %

83 %

16 %

100 %

63,94

63,15

64,23

(1) NGQ = national guaranteed quantity share of maximum guaranteed quantity for EU as a whole.
NB: Legal basis: Article 5 of Regulation (EC) No 603/95.

The full aid provided for in Article 3 of Regulation (EC) No 603/95 is payable, if the EU production recognised for aid of the marketing
year does not exceed the MGQ. If the EU production exceeds the MGQ, two cases are foreseen under Article 5 of Regulation (EC) No 603/
95, in order to keep total EU expenditure within the budget limit:

(a) EU production exceeds the MGQ between 0 and 5 %: the aid is reduced in all Member States by an amount which is proportionate to

that excess

(b) EU production exceeds the MGQ more than 5 %: all Member States support a 5 % aid reduction and for the Member States in which

production exceeds the NGQ increased by 5 %, additional reductions is made proportionate to this excess.

In 2000/01, it was the first time when the EU dehydrated production overshot the MGQ by more than 5 % and therefore the rule (b)
applied;
Table b presents a detailed calculation of this situation.

Source: Information supplied by Member States to the Commission and submitted to the Dried Fodder Management Committee.

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THE COMMISSION’S REPLIES

SUMMARY

In March 1994, in the framework of the price package
IV.
proposal for the 1994/95 marketing year, the Commission pro-
posed aid rates without limits on production. In February 1995,
the Council agreed in an overall compromise on a level of aid
higher than initially proposed by the Commission, but with an
effective upper limit on EU budget expenditure by the introduc-
tion of maximum guaranteed quantities (MGQs).

An evaluation of the dried fodder scheme is foreseen in
VII.
the Council decision and is to be completed in time for the Com-
mission’s report to the Council by 30 September 2008. As the
Court indicates, it should be noted that the sector was included
in the analysis presented in the report on protein supply.

IX.
In its proposal on a long-term policy perspective for sus-
tainable agriculture, the Commission took account of the Court
of Auditors’ report on ‘Greening the CAP’ as regards the negative
effect of the fodder dehydrating process on the environment.

The Commission acknowledges that uneven developments in
production occurred after the reform of the sector in 1995, in
terms of dried fodder type and as between Member States.

INTRODUCTION

V.
The Commission’s staff also pay great attention to differ-
ences of interpretation when conducting audits as part of the
clearance of accounts.

For example, in 1999 Commission staff carried out a series of
audits of agricultural expenditure relating to dried fodder in the
main producing Member States. In the course of these investiga-
tions, shortcomings similar to those raised by the Court were
identified. However, after taking into account the other elements
of the control systems in the Member States, it was concluded
that the financial risk for the EAGGF was small, except for specific
cases where financial corrections were applied.

The Commission notes the Court’s remarks concerning the per-
sistence of these shortcomings and will take account of them in
its forthcoming audits.

3.
Even if the level of protein content as such in feeds is an
important element, the protein composition and other qualities
required by the different types of livestock must be considered as
well.

MANAGEMENT OF AID

Since 1995, the budget stabiliser system has ensured that
21.
an overshoot of the MGQ does not create any additional expen-
diture from the Community budget.

24.
In March 1994, in the framework of the price package
proposal for the 1994/95 marketing year, the Commission pro-
posed aid rates without limits on production. In February 1995,
the Council agreed in an overall compromise on a level of aid
higher than initially proposed by the Commission, but with an
effective upper limit on EU budget expenditure by the introduc-
tion of the MGQ.

Specifically concerning the procedures to accelerate the payment
of aid, the Commission considers that they are not questionable
per se. The criterion of ‘leaving the premises’ is meant to promote
effectiveness of the physical checks and is mainly designed to
guarantee that aid on dried fodder is not paid twice.

27 to 29.
In the Commission’s view, ranking the controls by
order of importance in the Community legislation is not desir-
able.

VI.
In order to minimise the administrative burden, the Com-
mission Regulation requires Member States to report the informa-
tion needed to manage the aid regime. Information on the items
raised by the Court is available through other sources such as
Eurostat and industry data.

Such ranking is carried out by Commission staff solely as part of
the clearance of accounts process in order to help assess the
financial risk to the EAGGF if one or more controls are not applied
or are applied wrongly. The division into key controls and second-
ary controls is based on some general principles adopted by the
Commission. It is the responsibility of the departments in charge
of auditing agricultural expenditure, independently of the depart-
ments responsible for market management.

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Detailed definitions, particularly of eligible fodder and
31.
approved undertakings, have been included through the manage-
ment committee procedure in the Commission regulation, which
must be applied by Member States.

In this connection, the nature of the crops is usually checked dur-
ing the on-the-spot controls carried out by the Member States.

33.
At the time of its audit for the clearance of accounts, the
Commission found that the German authorities had introduced
the other controls required in the rules and that additional con-
trols not required by the rules had also been used to settle cases
of doubt. In this context, the Commission judged the control sys-
tem as a whole to be capable of controlling the financial risks to
the EAGGF.

Nevertheless, in the framework of the reform of the sector, the
Commission will rectify the problem in the German text.

34.
The fact that controls on financial records are delegated
to specialised control bodies cannot in itself be regarded as a
shortcoming.

39 to 41.
The criterion of ‘leaving the premises’ used in the
legislation is designed to prevent aid for dried fodder being paid
twice. During the 1999 audit by Commission staff, the character-
istics of the French system, in particular the non-approved stores,
were subjected to thorough analysis; this concluded that the prac-
tice is in conformity with the current rules.

42 and 43.
The Commission considers that the practice of
using firms specialised in marketing dried fodder to assist opera-
tors to receive aid more quickly is not objectionable.

During their 1999 audit for the clearance of accounts,
44.
Commission staff identified weaknesses similar to those raised by
the Court. However, taking into account the other elements of the
control systems of the Member States, it was concluded that the
financial risk to the EAGGF was small, except for specific cases
where financial corrections were applied.

Except for specific financial corrections, the Commission judged
at the time of its 1999 controls that the Italian system did not
present financial risks to the EAGGF. This point will however be
analysed again during the next investigations to be carried out in
the context of the clearance of accounts.

As the Court indicates, its tests did not reveal any anomalies.
However, the Commission notes the remarks of the Court con-
cerning the persistence of these weaknesses and will take account
of them in its forthcoming audits.

36.
Regarding the differences noted by the Court of Auditors
in the detailed rules for applying the controls provided for in the
legislation, the Commission considers that this is the result of the
differences among the various national organisations. However,
the Commission always pays great attention to these aspects dur-
ing its investigations.

The audit carried out by Commission staff in Italy in
45.
1999 showed that cross-checking of the plots declared under IACS
was carried out but was not documented.

This point will be examined again during the next investigation.

37.
Given the broad range of fodder species for dehydration,
this issue mainly concerns fodder dried in the sun. The rate of aid
is lower by almost half than aid for dehydrated fodder and the
level of production is small within the total of dried fodder.

MONITORING AND EVALUATION BY THE COMMISSION

Furthermore, the areas intended for producing dried fodder are
covered by the area declaration under IACS and the use must be
indicated (dehydrated or sun-dried fodder).

48.
The objectives of the scheme are based on the EC Treaty,
in particular Articles 36 and 37. Since 1995, a particular focus has
been on managing the aid within the MGQ adopted by the Coun-
cil and thus on respecting the budget limits. The primary aim is
no longer to increase protein production.

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C 298/19

In order to minimise the administrative burden, the Commission
regulation requires Member States to report the information
needed to manage the aid regime. Information on the items raised
by the Court is available through other sources.

In particular, the fact that operators implemented procedures
enabling them to receive the aid more quickly cannot be consid-
ered per se as questionable.

49 and 50.
An evaluation of the dried fodder scheme is fore-
seen in the Council Decision of 26 June 2003 and is to be com-
pleted in time for the Commission’s report to the Council by
30 September 2008. As the Court indicates, it should be noted
that the sector was included in the analysis presented in the report
on protein supply.

OTHER REVIEWS OF THE MARKET AND SECTOR

The Commission’s Communication was the response to
53.
a mandate from the European Council in December 2000 request-
ing analyses in strict compliance with the financial perspective.

56 to 59.
The Council compromise of 26 June 2003 adopted
the Commission proposal on dried fodder with two amendments.

1.

Suppression of the phasing-out of processing aid, but main-
tenance of the single rate of aid at EUR 33 per tonne.

2. By 30 September 2008, the Commission is to present a report
on the dried fodder sector based on an evaluation of the
common market organisation, dealing in particular with the
growth of areas under leguminous and other green fodder,
the production of dried fodder and the savings on fossil fuels.
The report is to be accompanied, if necessary, by appropri-
ate proposals.

64.
The Court’s criticisms mainly concern Italy and Germany.
These two Member States were the subject of an investigation by
Commission staff in 1999 in the context of the clearance of
accounts.

After an analysis of their control systems as a whole, it was judged
that they were capable of controlling the risks to the EAGGF.

However, the Commission takes note of the Court’s remarks and
will take account of them when conducting its next investiga-
tions.

In the Commission’s view, ranking controls by order of

65.
importance in the Community legislation is not desirable.

Such ranking is carried out by Commission staff solely as part of
the clearance of accounts process in order to help assess the
financial risk to the EAGGF if one or more controls are not applied
or are applied wrongly. The division into key controls and second-
ary controls is based on a number of general principles adopted
by the Commission. It is the responsibility of the departments in
charge of auditing agricultural expenditure, independently of the
departments responsible for market management.

66.
An evaluation of the dried fodder scheme is foreseen in
the Council Decision of 26 June 2003 and is to be completed in
time for the Commission’s report to the Council by 30 September
2008.

CONCLUSIONS

In the context of the reform of this market organisation,
68.
the definition of appropriate controls will be given proper atten-
tion by the Commission.

The recent Council Decision will improve the regime by
62.
decoupling the aid and establishing a single aid rate for both
dehydrated and sun-dried fodder, while the MGQs will be merged
(see paragraphs 56 to 59).

RECOMMENDATIONS

63.
During the clearance-of-accounts procedure, the Com-
mission concluded that the national implementing rules cited by
the Court did not involve financial risks to the EAGGF.

69.
The Commission’s proposal is largely driven by the Court
of Auditors’ comments in its report on ‘Greening the CAP’ about
the environmental effects of the drying process.

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(a)

The need for a formalised risk analysis system was
stressed in the documents distributed to Member
States in February 2001.

(b) and (c)

In the context of the reform, the Commission will
continue to pay attention to the criterion of ‘leaving
the premises’ as well as the plant criteria, with the
objective of effectiveness in terms of cost/benefit.

(d) and (e) Obviously not all the possible controls can be defined
and listed in an exhaustive way, but the Commission
will continue to pay attention to the quality and suit-
ability of controls in the context of the clearance of
accounts.

However the Commission will re-evaluate all these controls in the
context of the forthcoming reform.