Special Report No 7/2006 concerning rural development investments: do they effectively address the problems of rural areas? Together with the Commission's replies
Date: 2006-06-28
Institutions: European Court of Auditors
Subjects: audit, cost-effectiveness analysis, investment, project evaluation, rural development, rural region, support policy

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I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 7/2006

concerning rural development investments: do they effectively address
the problems of rural areas?

together with the Commission’s replies

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

(2006/C 282/01)

CONTENTS

Paragraph

Page

Glossary of terms and abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

Description of the rural development investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The legal basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Audit scope and approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Audit questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Audit approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

OBSERVATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Audit question 1: Does the EU have a clear strategy and a coherent approach to rural
development policy, and are they adequately defined in Member State programmes? . . .

Clarity of the strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A coherent approach for rural development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Audit question 2: Are those projects selected for EU financing based on criteria which best
address the needs of rural areas? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conditions and selection procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deadweight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Audit question 3: Have the projects been implemented in rural areas and have they had
an impact? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The location of projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Results and impacts of the projects reviewed on the spot

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

Audit question 4: Are the outputs, results and impacts properly monitored and evaluated?

The overall framework of the monitoring and evaluation system . . . . . . . . . . . . . .

I-VII

1-15

1-3

4-10

4-5

6-8

9-10

11-15

11-13

14-15

16-63

16-28

16-18

19-28

29-39

29-34

35-39

40-52

40-46

47-52

53-63

53-63

3

4

5

5

5

5

5

7

7

7

8

8

8

8

9

10

10

12

12

12

14

16

16

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

64-69

Annex I — List of projects audited in the Member States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annex II — Definitions of rural areas — Benchmarks used for the audit

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

Annex III — Examples of results and impacts of projects reviewed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

17

18

21

22

24

Paragraph

Page

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GLOSSARY OF TERMS AND ABBREVIATIONS

TERMS

Beneficiary

the final recipient of an EU payment.

Impact

NUTS

longer-term socio-economic consequences that can be observed a certain period after the comple-
tion of an intervention, which may affect either direct addressees of the intervention or indirect
addressees falling outside the boundary of the intervention, who may be winners or losers.

Nomenclature of Statistical Territorial Units, the EU’s common classification for regional statistics,
which divides each Member State into a hierarchy of regions (labelled NUTS I, II, III and LAU I and II)
depending on national administrative units.

Leader

an initiative financed by the structural funds designed to help rural actors.

Output

Result

that which is produced or accomplished with the resources allocated to an intervention (e.g. farm
equipment purchased by a farmer, road built in a village).

immediate changes that arise for direct addressees during or at the end of their participation in an
intervention (e.g. improved accessibility to an area due to the construction of a road, more efficient
production on a farm).

Urban area

a geographical area which does not have the characteristics of a rural area. Different typologies exist
which classify areas into rural and urban, for instance based on population density.

ABBREVIATIONS

CAP

common agricultural policy.

DG AGRI Directorate-General for Agriculture and Rural Development.

EAGGF

European Agricultural Guidance and Guarantee Fund.

ESPON

European Spatial Planning Observation Network.

GDP

gross domestic product.

LAU

local administrative unit.

LFA

less-favoured area.

OECD

Organisation for Economic Cooperation and Development.

OP

RD

operational programme.

rural development.

RDP

rural development programme.

SWOT

strengths, weaknesses, opportunities, threats.

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EXECUTIVE SUMMARY

I.
Rural areas face significant challenges such as depopulation and a scarcity of economic opportunities.
The EU contribution for rural development for the period 2000 to 2006 is more than 60 billion euro. Around
40 % of this budget is used for rural development investments. They cover a wide range of projects, for which
management and implementation is shared by the Commission and the Member States (see paragraphs 1
to 10).

II.
This report concerns observations on the Court’s audit on rural development investments. The audit
sought to reply to the following overall question: ‘To what extent do the outcomes of investment measures
address effectively the problems of rural areas?’ (see paragraphs 3 and 11 to 15).

The flexibility of the Rural Development Regulation (broad objectives, lack of priorities) and the lack
III.
of a clear strategy in the Member State programmes have led to a situation where it is unclear to which objec-
tive the funds have contributed. Member States’ programmes focus largely on the agricultural sector and do
not sufficiently take into account the characteristics of the geographical area supported (see paragraphs 16
to 28).

IV.
There is a lack of effective conditions and selection procedures, to target funds on the most needy geo-
graphical areas and beneficiaries (see paragraphs 29 to 34). A lack of effective targeting also leads to a risk of
increased deadweight effects, which reduce the effectiveness of the aid (see paragraphs 35 to 39).

A significant part of the expenditure is implemented in areas which are not predominantly rural. When
V.
compared to the previous programming period, investment support for rural areas decreased significantly (see
paragraphs 40 to 46).

VI.
It was not always possible to identify the effects of the projects, but when this could be done key fac-
tors which increased their effectiveness were synergy with other projects and being sited in rural areas (see para-
graphs 47 to 52). Shortcomings were also found in the implementation of the monitoring and evaluation sys-
tem (see paragraphs 53 to 63).

VII.
Overall, the Court finds that no assessment can be made whether rural development investments are
effective. Objectives are too broad and strategies to implement the policy are lacking. There is no balanced
achievement of the two main objectives of the RD policy. In order to achieve this, the Commission should
work with the Member States towards improved effectiveness of the policy. Important elements in this respect
include clarifying the objectives and developing principles of effective targeting (see paragraphs 64 to 69).

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INTRODUCTION

Background

1.
The financial importance of rural development within the
EU budget is significant. The EU contribution for the 2000
to 2006 programming period is more than 60 billion euro. The
budget for the 2007 to 2013 programming period proposes
to increase this to almost 70 billion euro. To this should be added
several billion euro coming from ‘modulation’, the transfer of
amounts from direct farm subsidies to rural development (1).

Rural areas cover a large part of the EU’s territory and its
2.
population. In comparison to urban areas, on average in rural
areas the GDP per head is around one third lower, population
density around 10 times lower and employment in the agricul-
tural sector around 10 times higher. Rural areas are generally
more remote and have less infrastructure and basic services and
face significant challenges such as depopulation and a scarcity of
economic opportunities.

development measures such as agri-environment, LFA, and for-
estry which also aim to address problems of rural areas have been
covered in previous reports (3).

Description of the rural development investments

The legal basis

4.
Before the year 2000, the investment measures were part
of the Structural Funds and their objectives and conditions were
defined by specific regulations. Investment in agricultural hold-
ings and improving the processing and marketing of agricultural
products were to support the agricultural sector across the EU,
while the measures for promoting the adaptation and develop-
ment of rural areas were to address specific problems of those
areas.

5.
Starting from the year 2000, Rural Development became
the ‘second pillar of the CAP’ (4). This was done by combining the
investment measures with a wide range of other measures in a
single regulation. While keeping the Structural Fund objectives,
the CAP objectives were integrated in the policy. Few conditions
were set and, from then on, all measures were implemented across
the EU. This has resulted in a decentralised policy giving Member
States a wide range of options to finance national or regional
priorities.

3.
This Special Report presents observations on the follow-
ing measures of the Rural Development Regulation (2): ‘invest-
ment in agricultural holdings’,
‘improving the processing and
marketing of agricultural products’ and ‘promoting the adapta-
tion and development of rural areas’. They cover around 40 % of
the available budget. Under these measures a wide range of
projects can be financed which, for the purpose of this audit, are
labelled rural development investments. Other important rural

(1) Council Regulation (EC) No 1782/2003 of 29 September 2003 estab-
lishing common rules for direct support schemes under the common
agricultural policy and establishing certain support schemes for farm-
ers (OJ L 270, 21.10.2003, p. 1). Article 10.

(2) Council Regulation (EC) No 1257/1999 of 17 May 1999 on support
for rural development from the European Agricultural Guidance and
Guarantee Fund (EAGGF) and amending and repealing certain Regu-
lations (OJ L 160, 26.6.1999, p. 80).

The objectives

6.
At a global level, the Regulation sets two objectives. The
first relates to the agricultural sector, and can be summarised as
improving agricultural competitiveness and sustainable land
management. The second concerns the structural adjustments of
regions that are lagging behind or facing other structural prob-
lems. Table 1 sets out full details of these objectives.

(3) Special Report No 3/2005 (OJ C 279, 11.11.2005), Special Report
No 4/2003 (OJ C 151, 27.6.2003), Special Report No 9/2004
(OJ C 67, 18.3.2005).

(4) The first pillar of the CAP consists of support to be granted to farmers

in the form of direct payments.

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Table 1

Objectives provided by the Rural Development Regulation for the RD investment measures

Rural development measures shall:

GLOBAL OBJECTIVES FOR ALL RD MEASURES (1)

— accompany and complement other instruments of the common agricultural policy and thus contribute to the

achievement of the following objectives:

(a)

to increase agricultural productivity by promoting technical progress and by ensuring the rational develop-
ment of agricultural production and the optimum utilisation of the factors of production, in particular labour;

(b)

thus to ensure a fair standard of living for the agricultural community, in particular by increasing the indi-
vidual earnings of persons engaged in agriculture;

(c)

to stabilise markets;

(d)

to assure the availability of supplies;

(e)

to ensure that supplies reach consumers at reasonable prices.

— be integrated into the measures promoting the development and structural adjustment of regions whose devel-
opment is lagging behind, and accompany the measures supporting the economic and social conversion of areas
facing structural difficulties in the regions concerned, taking into account the following specific target: in order to
promote its overall harmonious development, the Community shall develop and pursue its actions leading to the
strengthening of its economic and social cohesion. In particular, the Community shall aim at reducing disparities
between the levels of development of the various regions and the backwardness of the least-favoured regions
or islands, including rural areas.

SPECIFIC OBJECTIVES FOR RD INVESTMENT MEASURES (2)

Investment in agricultural
holdings

Improving the processing and marketing of agricul-
tural products

Article 33

1.

2.

To reduce production
costs

To improve and redeploy
production

3.

To increase quality

4.

To preserve and improve
the natural environment,
hygiene conditions and
animal welfare

1.

2.

3.

To guide production in line with foreseeable
market trends or encourage the development
of new outlets for agricultural products

No specific objectives provided

To improve or rationalise marketing channels
or processing procedures

To improve the presentation and preparation
of products or encourage the better use or
elimination of by-products or waste

4.

To apply new technologies

5.

To promote diversifica-
tion of farm activities

5.

To favour innovative investments

6.

To improve and monitor quality

7.

To improve and monitor health conditions

8.

To protect the environment

(1) Article 1 of Regulation (EC) No 1257/1999.
(2) Articles 4, 25 and 33 of Regulation (EC) No 1257/1999.

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The Regulation also provides specific objectives for two of
7.
the investment measures, which are also set out in Table 1. Invest-
ments in agricultural holdings contribute to the improvement of
agricultural incomes and to the improvement of living, working
and production conditions. Investments for improving the pro-
cessing and marketing of agricultural products contribute
to increasing competitiveness and adding value to products.

8.
Investments for promoting the adaptation and develop-
ment of rural areas are commonly known after its number in the
Regulation: ‘Article 33’. The article defines that support shall be
granted for measures, relating to farming activities and their con-
version and to rural activities, which do not fall within the scope
of other measures. It then provides a list of indents (which are in
this report also referred to as measures) for which no details and
no specific objectives are provided. Consequently, a wide range of
projects can be supported under this measure.

Potential beneficiaries (farmers, processing and market-
10.
ing companies, local authorities) present an application to the
implementing body in the Member State concerned. If the project
fulfils the requirements (eligibility conditions, available budget
and sometimes ranking and selection criteria), it is approved and
the beneficiary can implement the project. Upon project comple-
tion, the beneficiary requests reimbursement from the Member
State paying agency. Periodically, the paying agency asks the
Commission to reimburse the expenditure incurred.

Audit scope and approach

Audit questions

The implementation

The Commission and Member States share the manage-
9.
ment and implementation of rural development investment mea-
sures. In practice, this means that the Member States define the
strategy and the eligibility conditions in their programmes,
approve and check projects, pay beneficiaries and report to the
Commission. The Commission is responsible for ensuring that
the programmes, their implementation and reporting comply
with the legal requirements.

11.
The Court decided to carry out a performance audit
focusing on effectiveness, with as its scope the 2000 to 2006 pro-
gramming period. The principle of effectiveness is concerned with
attaining the objectives set and achieving the intended results.

12.
Planning, implementation, the outcomes achieved and
the monitoring and evaluation were identified as key elements.
Figure 1 gives an overview of
these elements and their
relationships:

13.
The objective of the audit was to conclude on the extent
to which rural development investment measures are effective in
addressing problems of rural areas. This was approached by
addressing the following questions, based on the four key ele-
ments above:

(b) Are those projects selected for EU financing based on crite-

ria which best address the needs of rural areas?

(c) Have the projects been implemented in rural areas and have

they had an impact?

(a) Does the EU have a clear strategy and a coherent approach
to rural development policy, and are they adequately defined
in Member State programmes?

(d) Are the outputs, results and impacts properly monitored and

evaluated?

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Audit approach

The audit was carried out in the period January to Decem-

14.
ber 2005 and involved gathering audit evidence from:

(a) an analysis of the legal basis, policy papers, studies, program-
ming documents and of monitoring and evaluation reports;

(b) examination of a random sample of 300 EAGGF projects for
the programming period 2000 to 2006, with the main aim
of obtaining a representative view of the location of the
investments and the socio-economic problems of the area
concerned;

(c) nine audit visits to the Member States which were amongst
those with the most payments in the sample of 300. A total
of 31 projects were audited, concentrating on the financially
most important measures. A list of these projects and the
measures concerned is contained in Annex I. The 31 projects
were selected on a judgemental basis, in order to include
projects in areas with different types of rurality. The aim was
also to identify examples of good practice.

15.
The following Member States and regions were selected
for on the spot visits on the basis of their size in the random
sample. Outside Objective 1 regions (1): France (national RDP),
Germany (Niedersachsen), Italy (Emilia Romagna), the Nether-
lands (national RDP) and Spain (Catalonia). In Objective 1 regions:
Germany (Brandenburg), Italy (Campania), Portugal (Lisboa Vale
do Tejo) and Spain (National OP). The visits took place in the
period June to October 2005.

OBSERVATIONS

The Rural Development Regulation aims, on the one
16.
hand, to contribute to the achievement of the objectives of the
CAP and, on the other hand, to contribute to economic and social
cohesion (see paragraph 6). In order to reach those objectives, the
Regulation defines a series of measures. For some of them, spe-
cific objectives are set out, while for others none are provided (see
Table 1). These measures are a mix of support for agricultural
competitiveness improvements, environmental
improvements
and support for rural areas. The Regulation does not set out which
measure should contribute to which objective, nor in which pro-
portion the objectives should be obtained.

The Regulation defines the investment measures in a flex-
17.
ible manner, as few conditions are required to get the support. In
addition, the measures can contribute to any of the global
objectives.

18.
For the nine Member State programmes reviewed, the
Court found that a clear strategy was lacking. Some programmes
do not set out clearly what objectives are pursued and in which
proportion a measure shall address them. Other programmes set
out objectives but implement measures which achieve different
objectives. This makes policy decisions non-transparent: it is not
clear how much money is used for which purpose. Text box 1
provides examples of this situation.

Audit question 1: Does the EU have a clear strategy and a
coherent approach to rural development policy, and are they
adequately defined in Member State programmes?

Text box 1

Same measure for different objectives

Clarity of the strategy

Observation 1

The flexibility of the Regulation (broad objectives, lack of priorities)
and the lack of a clear strategy in the Member State programmes have
led to a situation where it is unclear to which objective the funds have
contributed.

(1) NUTS II regions whose development is lagging behind, which is
defined as a per capita GDP of less than 75 % of the Community
average.

One of the measures in the Spanish programme for improving agri-
cultural structures in Objective 1 areas is investment in agricultural
holdings. The objective set out in the programme is to increase agri-
cultural incomes, and to improving living, working and production
conditions. However, the audit found that the actual objectives
achieved differed depending on the location of the investment. In
areas of productive agriculture, this measure contributes to the objec-
tive of agricultural competitiveness improvement. However, in moun-
tain areas the measure offers support to small and non-competitive
farms with the objective to stabilise the rural population. The pro-
gramme does not allocate specific resources to these different objec-
tives. There are no specific targets for the two different objectives
addressed by this measure; and there is no monitoring of how much
money is spent on each of the different objectives or in each of the
different type of areas.

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The measure water resources management and reparcelling accounts
for 70 % of the EAGGF contribution to the Portuguese programme
for ‘Lisboa e Vale do Tejo’. The objective set out in the programme is
‘to develop a modern and competitive agriculture as key element for
the development of rural areas’. However the audit found that the
measure supports the modernisation of irrigation networks in fertile
areas as well as new irrigation networks completed by reparcelling
and infrastructure in areas of poor farming structure (very small par-
cels, obsolete irrigation systems). The measure has two different
objectives: to increase the competitiveness of highly productive areas;
and to boost the farming activities in rural areas threatened by aban-
donment. The programme does not establish in which proportion the
measure shall address one or the other objective. A single project
located in a densely populated area has absorbed 29 % of the whole
EAGGF contribution to the programme.

Unclear objectives

Reparcelling is generally considered as the rearrangement of parcels
to improve farm structures and thus the economic viability of hold-
ings. Under the Dutch RDP, this Article 33 indent is the financially
most important measure. The lack of a detailed description in the
Rural Development Regulation enables the Netherlands to use this
indent as a means for the State to buy land for the purpose of nature
development. The Commission approved RDP shows that from the
amount allocated to this indent, 87 million euro should contribute
to the objective of sustainable agriculture and 16 million euro to the
objective of nature and landscape. However, the Court’s audit showed
that in reality 86 % of the funds had as main objective nature devel-
opment and only 14 % for sustainable agriculture. The flexibilty of
the Regulation allows this situation. The consequence is a policy
where it is unknown to which objective the funds have contributed.

A coherent approach for rural development

Observation 2

Member States’ programmes focus largely on the agricultural sector
and do not sufficiently take into account the characteristics of the
geographical area supported.

and vibrancy of many rural communities, caused by a scarcity of
economic opportunities, there is a need to maintain the viability
of rural communities, support new activities and facilitate the
provision of rural services. Additionally, Member States are fac-
ing a wider range of challenges such as an increased awareness
about product quality, animal welfare, environmental concerns.

20.
In order to address these wide-ranging needs, various
concepts of territorial approaches for rural areas have been devel-
oped. They are focused on a geographical area, based on a socio-
economic analysis and a strategy that articulates the different
aspects of rural development in explicit relation to other inter-
ventions in the area.
they have an integrated
approach: multi-sectoral with involvement of all actors and
resources in the area concerned. This maximises the synergies
within one programme as well as between different programmes
applied in the zone.

In addition,

21.
Independent evaluations on rural development, launched
by the Commission, recommend a territorial approach (1). The
Commission concludes in its third report on Economic and Social
Cohesion that many problems of rural areas are territorial in
character (2).

The two European conferences on rural development, in
22.
Cork (1996) and in Salzburg (2003), confirmed the relevance of
a territorial approach. In Cork it was underlined that ‘Rural devel-
opment policy must be multi-disciplinary in concept, and multi-
sectoral in application, with a clear territorial dimension’ (3). In
Salzburg it was considered that ‘Rural development policy must
serve the needs of broader society in rural areas and contribute
to cohesion’ (4).

23.
In addition, there is a large number of studies available
on the territorial approach for rural development, which also rec-
ommend this approach. Well known institutes and researchers,
including OECD and ESPON, conclude in their studies that a sec-
toral approach is less effective than a territorial one.

19.
At the level of Member States, two needs are recognised
through the general objectives defined by Articles 33, 158
and 160 of the Treaty. Firstly, there is a need to address structural
weaknesses, reduce income inequalities between rural and urban
areas, to reduce rural unemployment, improve the competitive-
ness of the primary sector and promote wider economic oppor-
tunities in rural areas. Secondly, because of threats to the viability

(1) Ex-post evaluation of Objective 5b programmes 1994 to 1999, August
2003; Synthesis report of the Mid-Term Evaluations 2000 to 2006,
February 2006.

(2) A new partnership for cohesion, Third report on Economic and Social

Cohesion, February 2004, p. 29.

(3) Conclusions of the European Conference on rural development in

Cork, 7 to 9 November 1996.

(4) Conclusions of the second European Conference on rural develop-

ment in Salzburg, 12 to 14 November 2003.

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The other approach is the traditional agricultural-centred
24.
or ‘sectoral’ one, focusing on only one sector and not taking
account of the characteristics of the geographical area supported.
The Court found that the Member State programmes predomi-
nantly have this latter approach. Key elements of the programme,
such as the specific objectives, the SWOT analysis, the descrip-
tion of the situation and the measures are all focused on the agri-
cultural sector. The programmes did not enable effective spatial
targeting because the necessary elements were either lacking
or incomplete (1).

25.
The Commission recognises the need to boost innova-
tion and diversification outside traditional agri-businesses (2).
However, an analysis by the Court of rural development expen-
diture for the current programming period shows that almost
90 % of rural development expenditure is paid to the agricultural
sector.

26.
This strong focus on agriculture puts at risk the achieve-
ment of one of the global objectives of the Regulation, reducing
territorial imbalances. An appropriate mix of territorial and sec-
toral approaches would mitigate this risk. A successful case of
integration of sectoral and territorial approaches was found in
Campania (Text box 2). This shows that it is possible to apply a
territorial approach with the EU’s rural development policy.

Text box 2

Elements of a partial territorial approach in Italy’s programme
for Campania

The Campania programme includes the following elements of a ter-
ritorial approach:

— appropriate description and diagnosis of the territory. The
programme distinguishes two large zones with different prob-
lems: areas with intensive agriculture and ‘rural areas’. The lat-
ter are defined using different criteria, and have an average
population density of 127 inhabitants/km2, compared with
1 239 inhabitants/km2 outside these areas, and an agricultural
employment rate of 22 %, compared with 6 % in the rest of the
region.

— the measures which apply an approach by agricultural product
sector aim at supporting economically viable agricultural hold-
ings and processing firms. They represent 23 % of the EAGGF
contribution. Priority is given to investments in areas which are
particularly suited for the production of the agricultural prod-
uct concerned. Additional priority is given to mountain areas,

— four Article 33 measures addressing the lack of basic services
and promoting new activities, representing 24 % of the EAGGF
monies, are only implemented in rural areas,

— priority is given to projects located in rural areas, thus address-
ing the needs of those areas, and creating synergies with other
investments in the area.

27.
The new Rural Development Regulation, which will be in
force from 2007, continues to allow Member States to adopt a
predominantly sectoral approach, with a primary focus on the
agricultural sector. There is no territorial objective aimed at a
more balanced development by reducing disparities and avoiding
territorial imbalances at EU, Member State or regional level.

Only ‘Leader’, which has been included under the new
28.
Regulation, has a territorial approach, while also certain measures
have some elements of this approach because of their multi-
sectoral nature. However the funds available are limited (the mini-
mum Community percentage for Leader is 5 % for EU-15
and 2,5 % for the new Member States; the rate for the multi-
sectoral measures is 10 %). The Commission’s more ambitious
proposals were reduced (for the multi-sectoral measures from
15 % to 10 %) or rejected (in the case of a Leader reserve of 3 %
of the RD budget). This shows that in practice there is a reluctance
to shift from the sectoral to the territorial approach.

Audit question 2: Are those projects selected for EU financing
based on criteria which best address the needs of rural areas?

(1) For instance, if a diagnosis of the problems of different parts of the ter-
ritory is included, this is at a general level, without identifying which
concrete rural area has which problem. Moreover, the description of
the problems/needs is not used for adapting the RD measures to the
needs of different areas.

(2) Commission Newsletter ‘Putting rural development to work for jobs

and growth’, 2005.

Conditions and selection procedures

Observation 3

There is a lack of effective eligibility conditions and selection proce-
dures to target funds on the most needy geographical areas and ben-
eficiaries.

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Both the consolidated Treaty and the Rural Development
29.
Regulation use the term ‘rural areas’. Article 33 is entitled ‘pro-
moting the adaptation and development of rural areas’. However
the Regulation does not define this, nor requires Members States
to set out conditions which rural areas should fulfil (e.g. in their
rural development programmes). The Court found for the Mem-
ber State programmes audited that three did not contain a defi-
nition of rural areas, that five had a definition which was not
applied, and that only one programme (Campania) actually
applied its definition of rural areas.

30.
The Regulation also does not require that Member States
should tailor the measures to the needs of rural areas in their pro-
grammes. This could be done by identifying the areas with the
highest needs, and then to allocate funds to rural areas according
to the degree of their needs (specific budgets, differentiating aid
rates, limiting measures to certain areas, etc.).

The Member States have generally not done so in their
31.
programmes. Almost all measures are applied in the whole of the
programme’s territory, without taking into account the varying
degree of needs of rural areas.

Even when a project fulfils the conditions, some projects
32.
are better at addressing the needs of rural areas than others. For
instance, if one investment project creates more jobs in rural areas
than another project, assuming all other matters are equal, the
first project is preferable. In addition, available funds are limited.
For reasons of effectiveness, funds should be prioritised accord-
ing to needs.

33.
The Court’s audit found that Member States generally do
not apply effective procedures for selecting those projects which
best address the needs of rural areas. Several Member States award
projects on the basis of the ‘first-come, first-served’ principle. In
other cases, Member States have set up ranking procedures, which
were not applied or based partly on non relevant criteria. In only
one out of the nine programmes reviewed were effective proce-
dures applied. Text box 3 provides examples.

Text box 3

Examples of ineffective application of ranking and selection

The following are examples of criteria which are not relevant in
addressing the needs of rural areas:

— In Catalonia, for the processing and marketing measure, points
are awarded to the proposed projects depending on the length
of time since the beneficiary received a grant. This criterion aims
to spread the aid to a larger number of beneficiaries rather than
to select projects which best address the needs of rural areas. In
France, for the same measure none of the selection criteria refers
to the location of the investment.

— In Niedersachsen, only one of the five criteria used to select a
village in the region’s programme for ‘village renewal’ takes into
account the rurality of a village. One of these criteria is the
commune’s financial situation: it must have sufficient financ-
ing power to be able to carry out the actions speedily and effec-
tively. This tailors the measure to communes in urban areas,
rather than to rural ones because the latter are usually finan-
cially weaker.

34.
The audit also found that there is a risk that the better-
informed, better-organised and richer beneficiaries have easier
access to EU funds. For the investment measures, the projects
financed are proposed by private persons and by municipalities
which must co-finance part of the investment. Examples were
found where aid is concentrated with the economically stronger
beneficiaries and areas rather than the more rural areas. Text
boxes 3 and 4 show cases where regional imbalances increased
rather than decreased.

Text box 4

Concentration of aid with stronger private and public benefi-
ciaries

In Emilia Romagna, only agricultural holdings are supported which
have a minimal revenue by annual work unit of around 10 000 euro
for LFA areas and around 15 000 euro for non-LFA areas. 50 % of
the farms have less than 5 000 euro revenue. In general these are
small farms. 12 % of the region’s biggest farms (more than 20 ha)
absorbed 41 % of the grants.

The Article 33 indent ‘agricultural water management’ is financially
the most important measure in the Spanish programme for improv-
ing agricultural structures in Objective 1 region. Most of the funds
of this measure (76 %) are used to modernise existing irrigation net-
works. Irrigated areas cover around 12 % of the total surface of
Objective 1 regions, and are more densely populated and more com-
petitive than non-irrigated areas. People have settled in such areas
because irrigated areas are on average six times more productive than
non-irrigated areas. This has led to a situation where the majority
of the funds is concentrated in 12 % of the surface area in the most
favourable position. Only a small percentage of the aid (around
20 %) was implemented in areas which were defined as depopulated
(< 38,5 inhabitants/km2).

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Deadweight

Observation 4

A lack of effective targeting also leads to a risk of increased dead-
weight effects, which reduce the effectiveness of the aid.

35.
Deadweight occurs when an investment would have hap-
pened also without the assistance. In such instances the effects,
such as growth of the firm or jobs created, would have been rea-
lised anyway. Support for investments is most effective when the
investment would not have been carried out, and the desired
effects would otherwise not have been realised. However, a cer-
tain level of deadweight can be considered unavoidable, as ben-
eficiaries must be ready to undertake investment projects.

if the investments were made by larger firms but lower in the case
of environmentally friendly investments. These factors could con-
sequently be taken into account when targeting the assistance.

38.
There is a relationship between viability of the company
and sustainability of the investment, on the one hand, and dead-
weight, on the other hand. However the Court considers that the
Commission focused too much on sustainability while accepting
too easily a high risk of deadweight.

An illustration of this is the situation for investment in
39.
agricultural holdings in the Belgian region of Flanders, where
almost half of the agricultural holdings are excluded because of
the condition for economic viability. This condition was imple-
mented by requiring an income per full-time worker of at least
21 577 euro. The evaluators of the programme concluded that
this excluded holdings which needed support and for which the
deadweight effects were lower.

The Commission acknowledges

36.
that deadweight
exists (1). This was also confirmed by the Court’s audit, of which
some of the examples found are included in Text box 5. High lev-
els of deadweight are also reported by independent evaluations.

Audit question 3: Have the projects been implemented in rural
areas and have they had an impact?

Text box 5

Examples of deadweight

Two farmers were visited who received aid for projects under the mea-
sure investment in agricultural holdings in Emilia Romagna. Both
farmers stated that, had the public support not been granted, they
would have carried out the investments anyway. Moreover, both
farmers had sufficient financial resources and chose to carry out addi-
tional investments (not EU co-financed) for amounts in one case five
times bigger than the supported project, in the other case half of the
supported project.

In Catalonia, until 2005 priority criteria were not applied for the
measure improving the processing and marketing of agricultural
products, and all eligible applications were co-financed. Because the
funds were insufficient to do so at the public co-financing rate fore-
seen in the RDP, the rate was reduced significantly to an average of
15 %. This increased the likelihood of deadweight — the beneficia-
ries had to finance 85 % themselves. For two of the three companies
visited, the annual accounts for the years after completion of the EU
co-financed project showed that the companies had made additional
investments for amounts exceeding the EU co-financed investments.

37.
In order to reduce the risk of deadweight, better target-
ing is needed. In addition, little or no attention has been given by
the Commission to identifying factors which can predict dead-
weight. For example, deadweight was generally found to be higher

The location of projects

Observation 5

A significant part of the expenditure is implemented in areas which
are not predominantly rural, to the detriment of the amounts avail-
able for such areas.

40.
The Commission has little information on the location of
the results and impacts of RD Investments (see further para-
graph 61). The Court drew a representative sample of 300 EAGGF
projects, and classified their location in categories of rurality. This
was done by using four of the best available independent bench-
marks for which data exists to classify all areas of the EU’s terri-
tory in urban and rural. The following benchmarks were used
(more details are provided in Annex II):

(a) whether or not the area was classified as rural in the previ-
ous programming period (1994 to 1999). In this period
Article 33 measures outside Objective 1 areas were only
implemented in certain areas, called ‘Objective 5b’, which
had to fulfil certain criteria of rurality and had to be approved
by the Commission;

(1) DG AGRI factsheet ‘New perspectives for EU Rural Development’, p. 7.

(b)

the classification of the NUTS III area in the ESPON typol-
ogy, developed as part of the ESPON programme which is
jointly managed by the Commission and the Member States;

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(c)

the relative rurality of the NUTS III area according to national
definitions available for statistical purposes;

(d)

the classification of the NUTS III area in OECD typology,
which is based on population density and which has been
generally applied for international analysis since 1994.

Table 2 provides the results of the analysis of how the
41.
300 investments are classified for each of the benchmarks. It
shows that for regions outside Objective 1, depending on the
typology used, between 29 % (OECD) and 55 % (ex Objective 5b
classification) of the expenditure is in non-rural areas. For Objec-
tive 1 regions between 9 % (OECD) and 22 % (national definition)
of rural development support is located in non rural areas.

Table 2

Location of RD investments in a representative sample of 300 EAGGF projects

Sample population

Ex-objective 5b

ESPON typology

National definition

OECD typology

No

Yes

Urban

Medium

Rural

Urban

Medium

Rural

Urban

Medium

Rural

Regions outside Objective 1

55 %

45 %

47 %

29 %

25 %

44 %

Objective 1 regions

n/a

n/a

21 %

53 %

26 %

22 %

7 %

2 %

49 %

29 %

38 %

33 %

76 %

9 %

43 %

48 %

When compared to the previous programming period
42.
(1994 to 1999), rural development investment support for
rural areas (ex Objective 5b) dropped by 50 % in absolute
terms (around 1 500 million euro), and by 70 % in relative
terms (1), despite a significant increase in the RD budget. This
illustrates that the lack of prioritisation of rural areas, allowed by
the Regulation, has been to the detriment of the funds available
for these areas.

The population density was also analysed for the
43.
300 projects. For each of the sample populations, the average
population density of the area of investment is shown in Table 3
(LAU II is the ‘lowest’ administrative level, such as communes,
and NUTS III is the larger administrative area such as provinces).
For all types of investment measures audited, both LAU II and
NUTS III areas have on average a higher population density than
the European average of 120 inhabitants per square km. The fig-
ures for Objective 1 regions should be compared with the aver-
age population density for Objective 1 areas, which is
81 inhabitants/km2.

(1) Source: Court analysis of Commission accounting data.

Table 3

Average population density of the location of RD investments
in a representative sample of 300 EAGGF projects

Sample population

Population density of the location
of the investment (inhabitants/km2)

LAU II

NUTS III

Regions outside Objective 1

Objective 1 regions

259

237

242

246

44.
The relevance of this analysis stems from the correlation
between population density and economic performance. The
higher the population density, the higher the GDP per head. The
results of Table 3 mean that the RD investments are on average in
LAU II and NUTS III areas which have a higher GDP per head
than the EU average.

45.
A characteristic of the ESPON classification is that the
areas defined as urban in its typology have the highest GDP, i.e.
they are the richer areas. The results of the sample thus show that
a significant part of the expenditure for the measures reviewed
(47 % for regions outside Objective 1, 21 % for Objective 1
regions) is implemented in areas with the highest GDP, contrary
(see
to the objective of
paragraph 6).

reducing territorial

imbalances

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The results are particularly noteworthy for Objective 1
46.
regions, which are overall the poorer areas of the EU. The aver-
age population density of the location of the investment is very
similar for regions in and outside Objective 1 (see Table 3). This
indicates that the investments are concentrated in the richest parts
of the Objective 1 regions.

Point 2: Projects are more effective when synergy takes place

Results and impacts of the projects reviewed on the spot

Observation 6

It was not always possible to identify the effects of the projects, but
when this could be done key factors which increased their effective-
ness were synergy with other projects and being sited in rural areas.

49.
For 20 projects reviewed synergy effects were found. This
means that the projects were not implemented in isolation but
were linked to others. This was normally because projects were
part of a wider concept such as a local development strategy (e.g.
for village development or tourism development). For the remain-
ing 11 projects (3), synergy effects could not be established. The
Court found that isolated projects, which had no link with other
projects, had less impact and were less effective.

Member States do not always require that projects are
50.
part of a wider concept or local development plan. In those cases,
in particular for Article 33 measures, effective targeting would
increase the effectiveness of the assistance.

47.
As part of the analysis of the 31 projects reviewed dur-
ing the Member State visits, the audit addressed the question ‘what
were the project’s results and what were the key variables which
have determined them?’. The following photos provide an impres-
sion of four of the projects audited. Annex III provides a more
detailed description of these projects, which illustrate the follow-
ing points. The results presented below cannot be extrapolated
because the sample was made on a judgemental basis and also
aimed to include examples of good practice.

Point 3: Location and impact in rural areas

Point 1: Effects (results and impacts) cannot always be identified

51.
For all projects reviewed, the main effects were realised
in close vicinity of the investment. Only seven projects (4) also
had an impact in a wider area.

48.
For 10 projects reviewed, clear results and impacts were
found. For another 15 projects (1), evidence for some effects was
found, albeit not for all the intended effects. For the remaining six
projects (2) little or no effects were found. This information was
generally not collected by the Member States, which sometimes
claimed that this is the responsibility of the evaluators.

52.
For 19 projects reviewed, the results and impacts contrib-
uted positively to the development of rural areas. However, for
the remaining 12 projects, the Court did not find such a positive
contribution: for six cases little or no effects were found (see para-
graph 48) and another six cases (5) were in a town or non-rural
area. This has a significantly lesser impact on rural development
and is thus not effectively addressing the problems of rural areas.

(1) Projects 1 to 5, 7 to 9, 16, 18, 19, 22, 23, 30 and 31 (see Annex I).
(2) Projects 12, 15, 17, 20, 26 and 27 (see Annex I).

(3) Projects 1, 2, 3, 4, 7, 8, 9, 12, 17, 20 and 31 (see Annex I).
(4) Projects 5, 6, 7, 8, 9, 10 and 11 (see Annex I).
(5) Projects 7, 8, 11, 18, 24 and 25 (see Annex I).

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Photo 1

Photo 2

Project No 11, purchase of agricultural land by the State in the Netherlands

Project No 15, construction of a viewing tower
in Brandenburg

Photo 3

Photo 4

Project No 19, upgrading of the village centre of Kirchwahlingen
in Niedersachsen

Project No 22, modernisation of old concrete aqueducts by
a system of underground pipes and pumps in Spain

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Audit question 4: Are the outputs, results and impacts properly
monitored and evaluated?

(b) even when indicators were adequately defined, several Mem-
ber States did not collect and report data on project results,
even though this would have been possible;

The overall
monitoring and evaluation system

framework and implementation of

the

Observation 7

Implementation by the Commission and the Member States of the
monitoring and evaluation system does not provide adequate and
reliable information about the outputs, results and impacts of RD
investments.

53.
The design of the monitoring and evaluation system is set
out in the legal basis, including for instance the inclusion in the
RDPs of operational objectives and expected impacts, quantified
where possible in terms of monitoring and evaluation estimates.

For monitoring, the legal basis requires Member States to
54.
submit annual progress reports to the Commission, which include
progress of measures in relation to their objectives. For this, as far
as possible, the common indicators defined in the guidelines
drawn up by the Commission should be used. On the basis of the
common indicators reported by the Member States, the Commis-
sion prepares periodically a synthesis report.

Three types of evaluations are performed: ex-ante (at pro-
55.
gramme planning stage), mid-term (not later than 31 Decem-
ber 2003 and where necessary updated two years later) and
ex post (by 31 December 2008). The Commission has also con-
tracted evaluators to prepare summary reports concerning the
information included in Member States’ ex post evaluations for the
previous programming period (which were available in 2003)
and the mid-term evaluations of the present period.

56.
When taking into account that the Commission has
addressed some of the present shortcomings with the changes
proposed for the new programming period the Court finds that
the overall framework of the monitoring and evaluation system
is generally adequate.

The Court analysed how the monitoring and evaluation
57.
system was implemented by the Commission and the Member
States. The Court found that neither the Commission nor the
Member States adequately monitor and evaluate the outputs,
results and impacts of RD investments. This means that they do
not have sufficient information to effectively manage the invest-
ment measures.

(c) when data was reported, in many cases the output, result
and impact indicators were not reliable. EU achievements
were overstated due to the inclusion of national co-financing
and double reporting of the results. In addition, data was
based on planned figures or estimates and generally not
checked in reality by the national administrations;

(d)

the Commission has requested that the data is based on com-
mitments and not on payments, there is thus no direct link
with the amounts paid and consequently the financial report-
ing. It also means that figures are not those actually realised
and that outputs and results are reported too early or over-
stated (e.g. when projects are cancelled);

(e)

concerning Article 33, because of the wide variety of differ-
ent type of projects, the Commission did not provide for rel-
evant common output indicators. It is not reported what is
actually financed.

These weaknesses consequently affect the Member State’s
59.
annual progress reports, in which the data is reported. The com-
mon indicators of these reports form the basis for the Commis-
sion’s ‘EU rural development monitoring data — synthesis
reports’, a report requested by the Agricultural Council. The last
report, relating to the years 2001 to 2003, was prepared in May
2005, focuses on financial implementation, and provides little
monitoring data on outputs and results. The report is not com-
plete, as data for Objective 1 regions was not available. It cannot
be compared with the year 2000 because the Commission
changed the indicators in 2001, and updated figures for the year
2000 are only partly available.

60.
The weaknesses (see paragraph 58) also affect the evalu-
ation reports. An additional problem relating to the evaluations
is the limited relevance of the ‘common evaluation questions’.
These are a series of evaluation questions, criteria and indicators
developed by the Commission and required by the legal basis. The
Court’s audit found that the majority of the questions are not
answered by the evaluators because most of the questions, crite-
ria and indicators are not pertinent, and when they are, that data
is not reported or cannot be quantified.

58.

The following weaknesses were found:

(a) objectives at project and measure level, indicators and targets
were generally found to be inadequately defined in the Mem-
ber State programmes;

Monitoring and evaluation provides only limited infor-
61.
mation on where outputs, results and impacts are realised. Such
information is necessary to analyse that
the problems are
addressed in those rural areas where the needs are highest. As
such it is the logical completion of targeting and enables to mea-
sure the effectiveness of the support.

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For a number of years the Commission’s approach to
62.
sound financial management has been through the Activity-Based
Management procedures. This provides, at a global level, indica-
tors on output and impact of rural development. These indica-
tors, however, do not provide any insight in what was financed
and what was achieved. The output indicators describe the
expected activities of the Commission and the only relevant
impact indicator for the investment measures is rural develop-
ment expenditure as share of total EAGGF expenditure.

The way in which the monitoring and evaluation system
63.
is implemented has led to a situation that reporting does not pro-
vide a reliable picture of the outputs, results and impacts of the
RD investments. It is not apparent what was financed (outputs),
what was achieved (results, impacts) and how this contributed to
addressing the problems of rural areas.

CONCLUSIONS AND RECOMMENDATIONS

The Court found that key information to answer the
64.
question of whether rural development investment measures
effectively address the problems of rural areas was lacking. Thus
it could not be assessed what funds had contributed to achieve
which objective. The non-availability of this information is partly
due to the Rural Development Regulation which offers a wide
range of measures aiming at broad objectives. Furthermore the
Member State programmes did not set out clear strategies in order
to address problems of rural areas (see paragraphs 16 to 18).

— The Commission should for the next programming period
ensure that when it adopts the rural development pro-
grammes Member States have identified clear strategies
which relate to specific objectives and which will allow the
assessment of the cost effectiveness relationship of the
investments.

65.
Member States’ programmes implementing rural devel-
opment measures focus support to a large extent on the agricul-
tural sector and thus remain close to one of the global objectives
of the Regulation: contributing to the achievement of the objec-
tives of the CAP. This strong focus on agriculture puts at risk
achievement of the other global objective of the Regulation: con-
tributing to economic and social cohesion of rural areas which
would be best served by a territorial approach as applied in other
Structural Funds (see paragraphs 19 to 26).

— When designing the arrangements for the programming
period 2007 to 2013, appropriate attention should be given

to the balance between the two core objectives of the Regu-
lation: that relating to the CAP and that aiming to reduce ter-
ritorial imbalances.

66.
The Regulation does not give a definition of rural areas,
nor stipulates conditions which they should fulfil. Member States
are not required to set out rural areas in their rural development
programmes. There is a lack of effective conditions and selection
procedures to target funds on the most needy geographical areas
and beneficiaries (see paragraphs 29 to 34).

— The Commission should ensure that, for reasons of effective-
ness, Member States’ programmes prioritise allocation of
funds according to their needs. Such prioritisation would
benefit from a clearer identification of the most needy areas
and beneficiaries.

67.
The Commission has little information on the location of
the results and impacts of the investments. The Court identified
that a significant part of the expenditure is implemented in areas
which are not predominantly rural and that, when compared to
the previous programming period, investment support for rural
areas decreased significantly (see paragraphs 40 to 46).

— When approving the rural development programmes the
Commission should make sure that Member States have
clearly justified in which areas investments are most needed.

Regarding the results and impacts of

the projects
68.
reviewed on the spot it was found that establishing the effect is
difficult but that factors which influenced positively the effective-
ness were synergy with other projects and being located in rural
areas (see paragraphs 47 to 53).

— The Commission should encourage Member States to anal-
yse key factors influencing succes of investment projects and
disseminate cases of good practice.

69.
The system for monitoring and evaluation does not pro-
vide the Commission and the Member States with sufficient and
reliable information on outputs, results and impacts (see para-
graphs 53 to 63).

— The Commission should improve data collection and report-
ing in order to be better informed on the effectiveness of the
investments.

This report was adopted in Luxembourg at its meeting of 28 June 2006.

For the Court of Auditors
Hubert WEBER
President

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ANNEX I

LIST OF PROJECTS AUDITED IN THE MEMBER STATES

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1

2

3

4

5

6

7

8

9

Italy — Emilia Romagna

Italy — Emilia Romagna

Spain — National OP

Spain — National OP

France — National RDP

France — National RDP

Spain — Catalonia

Spain — Catalonia

Spain — Catalonia

Measure — Regulation (EC) No 1257/1999

Article 33 measures

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Short project description

Purchase of farm machines, aiming at cost reduc-
tion

Construction of farm buildings to store machines,
aiming at cost reduction

Supporting an investment (grant, interest rate and
loan subsidy) at a small family farm with around
15 cows

Supporting an investment (grant and interest rate
subsidy) at a relatively large size milk cooperative
(186 cows, milk quota 1,2 million kg)

Investments to improve quality control in a wine
production cooperative

Investments to improve and control hygienic con-
ditions in a slaughterhouse

Improving sanitary conditions and saving energy
through adjusting production process in a private
company

Building a new plant and improving sanitary con-
ditions through adjusting production process in a
private company

Building a new plant and improving sanitary con-
ditions through adjusting production process in
an association of producers

10

Netherlands — National
RDP

×

Purchase of 28,6 hectares of agricultural land in a
nature reserve area from a farmer

20.11.2006

EN

Official Journal of the European Union

C 282/19

Measure — Regulation (EC) No 1257/1999

Article 33 measures

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Ref.

Member State and
Programme

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Netherlands — National
RDP

12

Italy — Campania

13

Italy — Campania

14

15

Germany — Brandenburg

Germany — Brandenburg

16

Germany — Brandenburg

17

Germany — Niedersachsen

18

19

20

21

Germany — Niedersachsen

Germany — Niedersachsen

Spain — Catalonia

Germany — Brandenburg

22

Spain — National RDP

23

Spain — National RDP

24

Spain — National RDP

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Purchase of 125,6 hectares of land in a nature
reserve area, mostly used as agricultural
land,
from the municipality of Zaanstad

Renovating an existing building in an isolated
farm with the commitment to use it as a bed-and-
breakfast facility

Renovating an open space (street and square) of a
commune in order to use it as social area

Renovating of a castle for museum purposes

Building of a 31,5-meter-high steel tower giving a
panoramic view over a lake and surrounding area

Rebuilding of two bridges and the upgrading of a
1,1-km-long rural road

Converting an old traditional building into a social
and meeting place

Restoring fencing and gables of an old farmhouse

Building a car park, resurfacing a road, creating a
turning place for agricultural supply lorries repair-
ing typical fences and establishing benches for lei-
sure

Renewal of a meeting room in a rural commune

Improving of the dykes along the river Oder and
providing water from the river to irrigation

Improving and modernising an irrigation network
for an irrigation society

Improving an area for an irrigation society in an
integrated project (irrigation, drainage, roads, etc.)

Irrigation in an agricultural area immediately next
to the town of Castellón de la Plana

×

×

×

×

C 282/20

EN

Official Journal of the European Union

20.11.2006

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Ref.

Member State and
Programme

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26

27

28

Spain — National RDP

Portugal — Lisboa e Vale do
Tojo

Portugal — Lisboa e Vale do
Tojo

Italy — Campania

29

Italy — Campania

30

31

Germany — Niedersachsen

Germany — Niedersachsen

Measure — Regulation (EC) No 1257/1999

Article 33 measures

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Irrigation of agricultural land next to the town of
Sagunto

Constructing a new irrigation system in the area
of two villages in a rural community of Tomar

Constructing a new irrigation system in an area
25 km from Lisbon

Renovating existing rural roads, improving the
accessibility to the surrounding farms, improving
the communication between different parts of the
commune and the access to the main roads

Renovating existing rural roads, improving the
accessibility to the surrounding farms, improving
the communication between different parts of the
commune and the access to the main roads

Creating a new rural road of 410 meters

Upgrading of 1,4 km of rural road

×

×

×

×

20.11.2006

EN

Official Journal of the European Union

C 282/21

ANNEX II

DEFINITIONS OF RURAL AREAS — BENCHMARKS USED FOR THE AUDIT

1.

Ex-Objective 5b areas

With the date of effect of the Rural Development Regulation, 1 January 2000, Regulation (EEC) No 2052/88 (1) was repealed.
The latter defines in Article 1(5) Objective 5b as ‘promoting the development of rural areas’. Further on, Article 11 stipulates
that areas eligible under Objective 5b shall be selected (…) taking into account in particular the degree to which they are
rural in nature, the number of persons occupied in agriculture, their level of economic and agricultural development, the
extent to which they are peripheral and their sensitivity to changes in the agricultural sector, especially in the context of
reform of the common agricultural policy. For the 1994 to 1999 programme period, the Commission approved 83 zones
following these criteria. The area thus affected by the Objective 5b programmes covered 26 % of the EU’s surface area
and 9 % of its population.

2.

ESPON typology

The focus of the final report of ESPON project 1.1.2 ‘Urban-rural relations in Europe’ is on whether the urban-rural divide
is sensible, how this should be done and what the criteria should be, and whether it can be used for policy making. The
report elaborates a typology of regions in Europe according to urban-rural characteristics. The ESPON typology is based on
two main dimensions, the degree of urban influence and the degree of human intervention. Urban influence is defined
according to population density and status of the leading urban centre of each NUTS III area. The degree of human inter-
vention was determined by the relative share of land cover according to the main land cover classes of the CORINE data set.
The main classes are artificial surfaces, agricultural areas, and residual land cover. For the purpose of the audit, the first class
(type one ‘high urban influence, high human intervention’) is considered as urban, classes two to five as medium and class
six as rural.

3.

National definitions

Because the variation of criteria applied by the Member State is very large, the different typologies as such defined are not
comparable. However, as part of project 1.1.2, ESPON has harmonised the national classifications by defining three classes
depending on the country average. The result is a typology of relative rurality according to national definitions in three
classes: low rurality (index below 90 of the country average), medium rurality (index between 90 and 110) and high rurality
(index above 110).

4.

OECD

The OECD classification has three classes where NUTS III areas are labelled as urban if less than 15 % of its population live
in LAU II areas with a population density below 150 inhabitants/km2. A NUTS III area is relatively rural if 15 to 50 % of its
population live in LAU II areas with a population density below 150 inhabitants/km2, while it is rural if it is more than 50 %.

(1) Council Regulation (EEC) No 2052/88 of 24 June 1988 on the tasks of the Structural Funds (OJ L 185, 15.7.1988, p. 9).

C 282/22

EN

Official Journal of the European Union

20.11.2006

ANNEX III

EXAMPLES OF RESULTS AND IMPACTS OF PROJECTS REVIEWED

Point 1 — Effects cannot always be identified

In Brandenburg, under the Article 33 measure ‘renovation and development of villages and protection and preservation of
the rural heritage’, a 31,5-meter-high steel viewing tower has been built, giving panoramic views over the Senftenberger See
and surrounding area (see also Photo 1). The tower is an additional attraction for the area, but in the opinion of the auditors
it is not an essential project. If it had not been constructed the number of visitors would probably have been essentially the
same. There is no evidence that this project, costing around 380 000 euro, develops the rural area effectively. The park
authorities were able to provide statistics showing the number of overnight and day visitors. The construction of the tower
had no discernible impact on these figures, and in any event any trend could be due to other factors. Thus the results
and impact of the tower are very difficult to determine and quantify and it is early to assess the medium and long-term effects
of the project.

Point 2 — Projects are more effective when synergy takes place

Example 1: Synergy with other instruments and objectives, part of a wider strategy

The project concerned the purchase of agricultural land by the State under the Article 33 measure of reparcelling in the Neth-
erlands (see also Photo 2). For this project, the parcels were purchased in the 1960s by the commune for building purposes,
but now (with EU co-financing) bought by the State for nature development rather than for urbanisation. Other EU
co-financed projects were also implemented in the area, which has resulted in achieving at the same time the two main objec-
tives of the RDP: nature development and sustainable development of agriculture. In addition, the area in which the project
was located offered possibilities for water recreation and an EU co-financed cycle path was under construction between the
parcels purchased and the city of Zaanstad. The project also fitted in a wider strategy of national and provincial plans and
detailed arrangement plans. This is in particular relevant for the objective of nature, for example for the protection of spe-
cies, which requires a larger intervention than at individual project level.

Example 2: Synergy with other projects and part of a wider strategy

Under the Article 33 measure ‘renovation and development of villages and protection and conservation of the rural heri-
tage’, the village centre of Kirchwahlingen (Germany) was upgraded (see also Photo 3). This involved creating a car park for
church and other visitors, resurfacing the road to help drain rainwater and avoid flooding, creating a turning place for agri-
cultural supply lorries, repairing typical fencing, and establishing benches for leisure. This has led to an appreciation in the
value of the village which has been opened up for cultural events and tourism and even attracted people to return to live.
The inclusion of this project in a wider village renewal plan ensured that a range of appropriate local people have had an
input into the planning procedure, including prioritisation, and that the most needy projects have been selected for that vil-
lage. The project was complemented by two other closely-related public projects and one private project which were also
identified in the village renewal plan. Moreover, the project was part of a wider concept of the (in total) 15 village renewal
plans of the three local joint-communitoes (Samtgemeinde). The village concerned is in a rural area, where depopulation
had been a problem and where infrastructure was relatively weak. The village was losing its identity. These facts reinforced
the impact of this project.

Point 3 — Location in a non-rural areas

One of the projects reviewed for the measure irrigation in Spain has a total investment of 9,9 million euro, co-financed by
EAGGF for 2,4 million euro. The project concerns irrigation in an agricultural area immediately next to Castellón de la Plana.
There are no small villages in or around the agricultural area and the farmers benefiting from the project live in Castellón.

Through the middle of the irrigated agricultural area runs a highway which leads from the city to the port of Castellón, a
distance of around 5 km. Between the agricultural area and the Mediterranean Sea is mainly built-up area. Castellón de la
Plana has a population of around 147 000 and a population density of 1 346 inhabitants/km2. The town is one of the cen-
tres of Spanish citrus fruit production because the area is fertile. It is an important commercial centre, with a large petro-
chemical industry, ceramic tile manufacturing and fishing as main activities.

20.11.2006

EN

Official Journal of the European Union

C 282/23

Castellón de la Plana is one of the 29 Spanish cities which have benefited from the EU co-financed URBAN I Community
initiative. The URBAN Community Initiative is an instrument within EU Cohesion Policy, dedicated to the regeneration of
urban areas and neighbourhoods in crisis.

The project involves the modernisation of an irrigation network in an area of 895 hectares, by changing the existing con-
crete aqueducts to a system with pumps and underground channels (see also Photo 4). Main results are a significant reduc-
tion in water use, making the agriculture in the area more efficient, improving the quantity and quality of the products and
thus maintaining the existing part-time agriculture (consolidar la agricultura a tiempo parcial).

The results of this project contribute to improving the competitiveness of agriculture and to the environment (water saving).
However, these results are realised in an area which in several aspects are in the most competitive and best-situated parts of
the Objective 1 areas of Spain. Castellón de la Plana, and the agricultural areas next to this town, are not characterised by
problems which are typical for rural areas (depopulation, high employment in agriculture, etc.). Based on objective criteria,
the areas cannot be considered as rural. The financing of such projects does not contribute to and does not promote the
adaptation and development of rural areas.

C 282/24

EN

Official Journal of the European Union

20.11.2006

THE COMMISSION’S REPLIES

The successful implementation of the investment mea-
II.
sures should not solely be assessed against their impact on solv-
ing the problems of rural areas. Rural development deals with ter-
ritorial cohesion but includes also other objectives like increasing
the competitiveness of the agricultural and forestry sector,
enhancing the environment and the countryside, and improv-
ing the wider
rural economy both at Community and
national/regional level (see reply to paragraphs 6 to 13).

The Commission acknowledges that integrated territorial
VI.
approaches provide an important tool for implementing the rural
development policy and has recommended this possibility in the
new Regulation (EC) No 1698/2005 by encouraging integrated
projects which combine several measures and by mainstreaming
the Community initiative Leader (see reply to paragraphs 48
to 51).

Therefore, to adequately tackle the problems of rural areas, sev-
eral instruments need to be put in place.

III.
Specific ‘measure-related’ objectives are included for each
of the audited measures under the respective Chapters I, VII and IX
of Council Regulation (EC) No 1257/1999. For the next program-
ming period, the Commission has included a more strategic
approach through the Community Strategic Guidelines allowing
Member States to better focus their rural development strategies
on relevant objectives deriving from specific needs.

The strong focus on the agricultural sector is inherent to the rural
development policy which has evolved from a policy dealing with
the structural problems of the farm sector to a policy which
addresses the multiple roles of farming in society and, in particu-
lar, challenges faced in a wider rural context. The tandem of sec-
toral and territorial elements is embedded in that policy being
considered as the second pillar of the CAP (see reply to para-
graphs 16 to 28).

IV.
Rural development is a horizontal policy which is appli-
cable to all European areas. Following the principle of subsidiar-
ity, the identification of beneficiaries and areas eligible for sup-
port and the formulation of appropriate strategies is the
responsibility of the Member States (see reply to paragraphs 29
to 34).

The Commission has already undertaken serious efforts to rem-
edy shortcomings in the quantity and quality of the monitoring
data of Member States, for the current programming period.
Monitoring will be strengthened with the introduction of a Com-
mon Monitoring and Evaluation Framework (CMEF) for the next
programming period in cooperation with the Member States (see
reply to paragraphs 55 to 63).

VII.
For the period 2007 to 2013, support will be better tar-
geted through the introduction of the CMEF which has strong
links to the national strategies.

In addition, Council Regulation (EC) No 1698/2005 concerning
the next programming period takes a more strategic approach to
rural development through the definition of three core objectives
(improving competitiveness of farming and forestry, environment
and countryside, improving quality of life and diversification of
the rural economy) which are subsequently further broken down
into sub-objectives specific to the different measures.

6 to 13.
The Commission welcomes the observations
and conclusions presented by the Court in this report. Many of
them are relevant in view of the implementation of the legal
framework for the next programming period 2007 to 2013.

Regulation (EC) No 1698/2005 for the next programming period
includes a clearer targeting towards smaller enterprises in process-
ing and marketing of agricultural products (and micro-enterprises
for forestry products in axis 1 and for business development in
axis 3) in order, inter alia, to limit deadweight effects (if and where
they occur) as much as possible (see reply to paragraphs 35 to 39).

Rural development policy consists of a set of nine groups of vari-
ous sorts of measures. To address problems of rural areas, all
groups of measures have to be taken into account in order
to cover the wider scope of rural development objectives.

V.
The definition and identification of eligible areas as well as
the location of the different measures is the responsibility of the
Member States/regions on the basis of their analysis of problems,
their objectives and the strategy that they have defined in their
programmes. This is a core element in the context of subsidiarity.
Furthermore, efficient spending of the investment measures can
not only be brought down to the rural character of the area in
which the intervention takes place (see reply to paragraphs 40
to 46).

The specific objectives defined in the three groups of RD invest-
ment measures focus more specifically on reducing production
costs, improving production and quality, promoting diversifica-
tion of farm activities etc. These goals are embedded in the wider
rural development approach of increasing competitiveness of the
agricultural and forestry sector, enhancing the environment and
the countryside and improving the wider rural economy (see also
reply to paragraphs 19 to 27).

20.11.2006

EN

Official Journal of the European Union

C 282/25

Observation 1

— make the link with the main EU priorities

(Lisbon,

Gothenburg);

The flexible design of the RD policy allows Member States/regions to
define objectives and strategies fitted to their specific situation. The
RDPs include information on the objectives set out for the program-
ming period and provide a description of the measures used to
achieve those objectives.

16.
Council Regulation (EC) No 1257/1999 for the current
programming period 2000 to 2006 managed for the first time to
merge several pre-existing measures into a single legal framework
evolving from a policy dealing with the structural problems of the
farming sector to a policy which addresses the multiple roles of
farming in society.

— ensure complementarity and coherence between actions
financed by the structural, employment and rural develop-
ment policies on a given territory and in a given field of
activity;

— accompany the implementation of

the new market-
orientated CAP and the necessary restructuring it will entail
in the old and new Member States.

Text box 1 — Spain

This approach for more coherence between the individual mea-
sures is now further developed by Council Regulation (EC)
No 1698/2005 for the next programming period 2007 to 2013.
It improves the internal structure by clearly defining the three
major policy objectives which are subsequently further broken
down into specific objectives at the level of the individual mea-
sures (see reply to paragraph 27).

Objectives pursued by the programme derive from the ex-ante
evaluation at the level of the respective rural development plan.
Where the territorial coverage of a single programme is com-
posed of several regions, like the Spanish programme for improv-
ing structures, quoted in text box 1, the realisation of a general
objective may be implemented in different ways, depending on
farm structure and on the coherence of the measures proposed.

17.
The flexibility of investment measures does not prevent
Member States from building coherent development strategies:
the regulation offers a toolkit with a large spectrum of measures
so that Member States can choose those more relevant to their
situation and needs.

18.
On the basis of the analysis of problems, Member
States/regions define objectives and a strategy in their RDPs. Vari-
ous measures can contribute to the realisation of these objectives.
That is why it is sometimes difficult at the beginning of the pro-
gramming period to predefine resource allocation to certain sub-
objectives at regional level.

Following the framework provided by the Council for the next
period 2007 to 2013 a more strategic approach has been intro-
duced through the Community Strategic Guidelines (CSG)
adopted by the Council in February 2006 (1).

Member States shall prepare their national rural development
strategies on the basis of six community strategic guidelines,
which will help to:

Text box 1 — Portugal

The two examples mentioned by the Court are in line with the
objective of increasing incomes and of improving living, working
and production conditions. In general, it is not because a certain
degree of competitiveness has been achieved that no new invest-
ment should be done.

In the Portuguese example, the measure ‘water resources manage-
ment and reparcelling’ (combination of two indents of Article 33)
is only one of the instruments to achieve the global objective ‘to
develop a modern and competitive agriculture’. The two aspects
of irrigation and reparcelling are closely linked. In those areas
where farms are fragmented into numerous small parcels, it is
advisable to start reparcelling first and then develop the irrigation
networks, once the farming structure has improved and stabilised.
In other parts of Portugal where the farm structure is better, the
main factor of development is water management. It is not always
feasible to allocate the funds to sub-objectives at the beginning of
the programming period, and that is the reason why the two
indents have been combined into one single measure in the pro-
gramme. Concerning the reference to one big project the key ele-
ment to consider is whether the project contributes to the objec-
tives of the programme.

— identify the areas where the use of EU support for rural devel-

opment creates the most value added at EU level,

(1) Council Decision 2006/144/EC.

Furthermore, a measure can contribute to more than one sub-
objective of the programme, all related to the global objective of
developing a modern and competitive agriculture. However, in
the next period, the Member States will have to establish a sepa-
rate national strategy, defining priorities which then will be fur-
ther translated into the rural development programmes.

C 282/26

EN

Official Journal of the European Union

20.11.2006

Text box 1 — Netherlands

In the Netherlands, the measure of reparcelling is related to dif-
ferent objectives. The purchase of land is done on a voluntary
basis. It offers farmers the possibility to move the holding to
another place where there is a greater potential for sustainable
development. With this integrated approach both objectives of
nature protection and agricultural development are realised.

As priorities/objectives and their linked financial allocation evolve
during the programming period (e.g. in function of the uptake of
the measure by farmers), a retargeting of the measure is some-
times needed to ensure a successful implementation.

Observation 2

Agenda 2000 established rural development as the second pillar of
the CAP. The majority of rural development measures are by defini-
tion targeted towards agriculture and farmers resulting in a high share
of spending on the agricultural sector but also includes territorial ele-
ments like higher co-financing rates for investments in less favoured
areas and in cohesion regions.

The flexible design of RD policy in combination with its
20.
decentralised approach provides Member States the possibility
to include a territorial approach in their rural development pro-
grammes. Regulation 1257/1999 states ‘be as decentralised as
possible and emphasis must be on participation and a “bottom-
up” approach’ (1). The integration of various policies put in place
in a territory at regional/local level is carried out by the Member
States. Additionally, rural development programmes (RDPs)
require information on the complementarity of support with
other Community instruments like cohesion policy.

Agenda 2000 established rural development as the sec-
24.
ond pillar of the CAP to face the multiple challenges of agricul-
ture as the main land user. Therefore the policy is by nature
strongly linked to the agricultural sector but promotes also the
taking into account of territorial disparities. Additionally, for the
period 2000 to 2006, rural development is also characterised by
several territorial aspects like the implementation of the LFA-
measure and higher co-financing rates for investments in less-
favoured areas and in cohesion regions. A further spatial differ-
entiation at programme level is the responsibility of the Member
States.

25 and 26.
The majority of rural development measures is by
definition targeted towards agriculture and farmers resulting in a
high share of spending on agriculture. Since agriculture contin-
ues to be the largest user of rural land and still plays an impor-
tant role in the economy of rural areas, support for the agricul-
tural sector can contribute significantly to the development of
rural areas. Rural development policy has a strong function in
promoting sustainable methods of farming and preserving the
rural environment and landscape. Furthermore, as shown in the
case of Campania, a mainly sectoral-oriented policy does not
exclude a territorial differentiation.

For the next programming period, a minimum funding of 10 %
of the total EU contribution has been withheld by the Council
Regulation for measures concerning the quality of life and diver-
sification of the rural economy outside agriculture and forestry.

Following the framework established by the Council, RD
27.
should also in the future accompany and complement the mar-
ket and income support policies of the CAP as a second pillar,
taking into account the general objectives of economic and social
cohesion.

21.
The Commission’s reports on economic and social cohe-
sion were drafted taking account of the need of all structural poli-
cies (including regional policy) being designed to contribute to
enhancing territorial cohesion in rural areas. They therefore need
to be seen as a whole with the rural development policy as the
second pillar of the CAP having a clear contribution (see also
reply to paragraph 24).

This is why the RD policy for 2007 to 2013 will focus on three
areas in line with the ‘three axes’ of measures laid down in Regu-
lation (EC) No 1698/2005: Axis 1: ‘improving competitiveness of
the agricultural and forestry sector’; Axis 2: ‘improving the envi-
ronment and the countryside’; Axis 3: ‘improving quality of life
in rural areas and diversification of the rural economy’. The fourth
‘Leader’ axis introduces possibilities for locally based bottom-up
approaches to rural development.

22.
The two European conferences on rural development
mentioned by the Court need to be seen within the context of a
new era where a need for a more comprehensive RD policy was
felt which, besides agricultural restructuring, also addressed envi-
ronmental concerns and the wider needs of rural areas. This is
reflected in the current programming period and strengthened in
the future period under Regulation (EC) No 1698/2005.

(1) Recital 14 of Council Regulation (EC) No 1257/1999.

However, to better accentuate the territorial dimension, Member
States need to assess the designation of rural areas and their
importance in the preparation of their RDPs.

28.
As outlined in paragraphs 24 to 26, the application of
some sector-related measures does follow a territorial differentia-
tion already in the current period 2000 to 2006.

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For the next programming period, several territorial elements
have been included, like the implementation of the LFA-measure
and a differentiation in co-financing rates according to the type
of area (higher co-financing rates for certain measures imple-
mented in LFA areas, like convergence regions, outermost regions,
smaller Aegean islands). The mainstreaming of the Community
initiative Leader under the other three axes will also facilitate this
approach.

Following the principle of subsidiarity, the selec-
32 and 33.
tion and ranking of projects is also the responsibility of the Mem-
ber States.

However, the Commission has introduced a more strategic man-
agement based on priorities and objectives for the next program-
ming period.

It is true that the minimum Community contributions to the pro-
gramme for axes 1 and 3 have been reduced by the Council
to 10 %. These reductions were preferred by the Member States
to leave them more flexibility to adapt programming to their par-
ticular needs. However, the programming rates are a minimum
giving Member States the possibility to apply higher rates. The
reduced percentage for Leader contributions in the new Member
States has to be seen as a ‘phasing in’ period, to gain experience
in the lengthy process of implementing those measures.

Observation 3

The areas and beneficiaries eligible for intervention, as well as the
selection of projects, are the responsibility of the Member States in
function of the needs and objectives set out in their rural develop-
ment programmes.

29.
Taken into account the variety of regions in Europe and
the different situations at national level, it is difficult to provide a
single definition of rural areas.

Therefore, the definition of rural areas and the identification of
areas eligible for intervention as well as the location of the
projects within these rural areas is the responsibility of the Mem-
ber States in function of their needs, objectives and the strategy
defined in their programmes. This explains the differences among
the RDPs for the current programming period of the audited
Member States as regards the clear designation of the areas of
implementation of the specific measures.

As mentioned in paragraph 27, for the next programming period
Member States need to include in their RDPs the designation of
their rural areas and indicate their importance.

Investment measures should be tailored to the
30 and 31.
needs of the areas eligible for intervention. In some Member States
for example, the increasing (environmental) urban pressure on
so-called ‘peri-urban’ areas is forming an important spatial chal-
lenge to which rural development policy can contribute. So,
depending on the aim of the measure, support can be more effec-
tive in areas under urban pressure than in remote peripheral areas.

However, as outlined under paragraph 29, the situation differs in
the different Member States. For a small country as the Nether-
lands for example — where the regional disparities are small — a
national general approach could be more useful. In other Mem-
ber States, thematic differentiations exist in order to promote
areas with highest needs.

Text box 3 — Spain

The practice in Catalonia, described by the Court, of encouraging
new applications by increasing the total number of different ben-
eficiaries over time is an incentive to bring European benefits to
more people.

Text box 3 — Germany

The quoted example of Niedersachsen is an exception in Ger-
many, as the communes are in charge of co-financing. In other
German Länder the Federal State (Bund) and/or the Land are
responsible for it.

In the current period one of the eligibility conditions for
34.
productive investments is economic viability of the holding in
order to support projects with real economic perspectives. This is
intended to help to increase efficiency of public support. For the
next programming period, enterprises that are ‘in difficulty’ will
be excluded from support.

However, it is inevitable that the better informed and organised
potential beneficiary is best placed to benefit from a scheme.

Text box 4 — Italy

The quoted example for Emilia Romagna of a required minimal
revenue recalls the criteria chosen by the region, on the basis of a
methodology set up by the Member State, to fulfil the legal
requirement of economic viability for agricultural holdings ben-
efiting from EU co-financed investment support. The fact that
only a part of the holdings operating in the region (approximately
half of them) may be able to benefit from this support is based on
considerations on the specific structure of agricultural farms, on
the objective to be fulfilled, namely to support competitive farms,
and on the responsibility for financial management of EU funds.

Text box 4 — Spain

As outlined above (paragraph 34), the Regulation requires that
the investment in agricultural holdings that will receive EU fund-
ing must be economically viable. Pursuant to Article 33, subsi-
dies may be granted for investments going beyond individual
agricultural holdings. It is essential that the EU funding brings
value added, and economic viability in the case of investment.
This can be achieved by a targeting of the best projects, which
explains the situation observed in Spain concerning the water
management projects.

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Observation 4

The Commission agrees that a lack of targeting increases the risk of
deadweight and that a clear focus of the resources by the Member
States contributes to the effectiveness of the RD programmes.

business development in axis 3) in order, inter alia, to limit dead-
weight effects as much as possible. On the other hand, supported
investments must
the
firm/holding (including environmental performance) (see also
reply to paragraph 34).

improve the overall performance of

The Commission agrees that deadweight is an important
35.
issue that should be considered at both the level of establishing
the legal framework and when drawing up programmes.

39.
Granting investment support to farms that are too small
and therefore do not reach a certain level of viability, raises the
question of whether those farms have a chance of staying in busi-
ness in the medium term and, therefore, raises doubts on the sus-
tainability of the investment.

However, lessons learnt from previous evaluations show that the
perceptions of deadweight have to be taken with caution. As
impacts observed at the micro-level are a result of a multiplicity
of intervening factors, it is difficult to establish the evidence of
deadweight.

36.
In the factsheet on ‘New perspectives for EU rural devel-
opment’ mentioned by the Court, the Commission states: ‘A lack
of targeting increases the danger of deadweight, a focusing of
resources may increase programme effectiveness’. The latter is the
responsibility of the Member States.

The ‘Synthesis of Rural Development Mid-Term Evaluations’,
which only became available after the finalisation of the Court’s
report (1), concludes that no definitive judgement across the EU
can be made on the evidence of deadweight since no systematic
assessment of the issue has been made in the mid-term evalua-
tions of the various RD programmes.

In this specific case, Flanders included the requirement of an
income per full-time worker of at least 21 577 euro in its RDP
based on the analysis of problems at regional level and the result-
ing objectives and priorities they wish to include in their
programme.

Observation 5

The eligibility of support under investments in agricultural holdings
and investment in food processing is not restricted to rural areas. The
aim of the measures is respectively to contribute to the improvement
of the agricultural income and of living, working and production con-
ditions and to increase the competitiveness and added value of food
processing, where these activities are present in the country (rural and
non-rural areas).

Text box 5 — Italy

40.
results
Evaluators do investigate where outputs,
and impacts are realised. In the monitoring data that are annually
provided by the Member States a geographic breakdown of sup-
port is included.

In the updated mid-term evaluation of the Emilia Romagna RDP,
the evaluator points to differences as regards this aspect, particu-
larly in relation to the types of products, the size of holdings and
the types of investment. Similar measures under the next pro-
gramming period 2007 to 2013 will have to take account of
these conclusions.

The various definitions of ‘urban’ and ‘rural’ areas that have been
developed in different studies indicate the difficulty in formulat-
ing a single ‘multi-purpose’ definition covering the whole EU for
steering rural development interventions.

The Commission agrees that deadweight is an
37 and 38.
important element which needs to be taken into account when
drafting the legal framework. However, practise has shown that
several elements can influence deadweight which makes it very
difficult to provide a ‘standardised’ solution.

41.
A general finding which can be deducted from this exer-
cise is that very few projects supported by EAGGF Guidance are
situated in urban areas (for two out of four benchmarks 22 % and
according to the OECD-classification only 9 %), which indicates
a territorial dimension in rural development policy.

There will be a clear targeting of investment support in the next
programming period according to the needs of enterprises. Regu-
lation (EC) No 1698/2005 (EAFRD regulation) targets smaller
enterprises in processing and marketing of agricultural products
(and micro-enterprises for forestry products in axis 1 and for

(1) Published in June 2006.

The calculation presented by the Court includes an esti-
42.
mation based on a set of 300 samples. Furthermore, the compari-
son over time on the expenditure for Article 33 measures is dif-
ficult since the delimitation of Objective 5b areas for the
programming period 1994 to 1999 has not been maintained for
the period 2000 to 2006.

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Due to the diversity of Europe’s regions, this kind of
43.
threshold setting is a very complex issue when aggregating data
from a local level to a European level. Furthermore, Member
States can choose in which area they decide to implement some
or all of their measures and these are not necessarily the less
populated ones. There may be cases where forms of support other
than investment support fit better to the needs of particular types
of rural areas (e.g specific support in LFAs being as a general rule
less populated and remote areas).

45.
Table 2 illustrates that in Objective 1 areas 80 % of the
expenditure of the projects reviewed went into rural areas. Next
to this, the objective of reducing territorial imbalances is just one
of the objectives to which rural development contributes.

46.
Following the OECD definition, which is based on popu-
lation density, a high share of projects (91 %) implemented in
Objective 1 regions are located in significant and predominantly
rural regions which are in general the poorer parts of the Objec-
tive 1 regions.

Observation 7

The Commission has undertaken serious efforts to remedy shortcom-
ings in the quantity and quality of the monitoring data of Member
States, already for the current programming period. Monitoring will
be strengthened with the introduction of a CMEF for the next pro-
gramming period in cooperation with the Member States.

As part of the monitoring exercise, the Commission does
57.
check the output data provided by Member States in their annual
progress reports. Evaluation does assess the impact of the mea-
sures in view of addressing their contribution on the established
targets defined at programme level.

The Commission has undertaken serious efforts to remedy short-
comings in the quantity and quality of the monitoring data of
Member States, already for the current programming period.
Monitoring will be strengthened with the introduction of a CMEF
for the next programming period in cooperation with the Mem-
ber States.

Observation 6

The effectiveness of spending is measured by comparing the projects
with its objectives.

58.

(a)

48.
The judgement of interventions according to their results,
impacts and the needs they aim to satisfy forms part of the evalu-
ation exercise carried out at national or regional level. The syn-
theses of those national/regional rural development evaluations
regularly carried out on behalf of the Commission allow an
assessment to be made of the impacts of different measures at
programme level.

The possibility to measure the contribution of the immediate
effects of single projects on the overall programmes’ objectives
will be strengthened in the next programming period through
ongoing evaluation of programmes via the Common Monitoring
and Evaluation Framework (CMEF), which also will ensure a bet-
ter follow up.

49.
The Commission acknowledges that integrated territorial
approaches provide an important tool for implementing the rural
development policy and has recommended this possibility in the
current programming period and in the new Regulation (EC)
No 1698/2005 by encouraging integrated projects which com-
bine several measures and by mainstreaming the Community ini-
tiative Leader.

50.
The necessity of integrating projects into a wider local
development plan depends on the objective and nature of the
project and is assessed by the Member States/regions.

51.
All projects have indirectly a potential wider impact, as
beneficiaries are integrated in the economic life in rural areas and
they play an important role there.

In line with Article 43 of Council Regulation (EC)
include a
No 1257/1999 rural development plans shall
description of the strategy proposed, its quantified objectives,
and rural development priorities selected, as well as the geo-
graphical area covered.

(d) The approach of commitments as a basis for output mea-
surement seems to fit better to certain multi-annual types of
RD support which are spread over
time (e.g. agri-
environment, afforestation, etc.) as these often do not show
any concrete results during the first years of their implemen-
tation. For the period 2007 to 2013 realised expenditure will
be put in the monitoring tables and financial reporting will
be aligned as much as possible with physical reporting.

The synthesis of the rural development mid-term evaluation
reports includes financial data on the EAGGF expenditure
per chapter and per Member State.

(e) The variety of projects that are eligible under Article 33 mea-
sures is so wide that it is impossible to foresee monitoring
indicators which would cover all projects. The list of com-
mon indicators included in the monitoring tables is by no
means exhaustive. Member States can add additional indica-
tors which are adapted to their specific needs or to the spe-
cific features of their programmes.

59.
For the current programming period, Member States are
not obliged to apply the Common Evaluation Questions (CEQ) to
rural development support financed through the Guidance Fund.
The Commission agrees that this is a weakness of the current
monitoring and evaluation system put in place, which will be
solved for the next programming period through the creation of
one single rural development fund. The year 2000 was the first
year of reporting and mainly atypical since programme approval
was still ongoing and the implementation of the measures was
still in an early stage.

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The use of alternative indicators and additional national
60.
questions as supplement to the CEQ in national evaluation reports
has been low. The specified common indicators were generally
appropriate and the range of questions asked was relevant for
addressing the evaluation of the rural development programmes.

The majority of the rural development investment mea-
65.
sures are by definition targeted towards agriculture and farmers
which explains the high share of support for the agricultural sec-
tor. However, since agriculture still plays an important role in the
economy of rural areas, support to this sector can provide a sig-
nificant contribution to the development of rural areas.

The system of ‘ongoing evaluation’ introduced by the Common
Monitoring and Evaluation Framework (CMEF) for the next pro-
gramming period will enhance the contribution of monitoring to
evaluation, as well as the data collection and the quantification of
indicators.

61.
Some information is available at programme level, where
evaluations take place, but not at the level of projects. Within the
geographical scope of the programmes, evaluators investigate
where outputs, results and impacts are realised. Table 5 of the
monitoring tables, for example, includes a geographic breakdown
of financial support and the number of applications approved.

62.
It is difficult to summarise at the level of the activity-
based management procedures an adequate set of indicators
describing the outcomes and achievements of RD policy which is
broad by definition. Only a small number of indicators can give a
proxy picture on this. This difficulty is further exacerbated in the
current period due to the different management, monitoring,
reporting and evaluation systems applied according to the pro-
gramming patterns (Guidance, Guarantee, Leader+). Improve-
ments are expected in future under the single Common Monitor-
ing and Evaluation Framework.

63.
The monitoring synthesis reports and the various evalu-
ation reports do provide data and information. Both mid-term
and ex post evaluations, carried out by independent evaluators,
provide an assessment of results and impacts of the rural devel-
opment measures. Shortcomings included in the current system
have been remedied for the future and should allow the Commis-
sion and other interested parties to get a complete insight into the
monitoring and evaluation of rural development spending.

The flexible design of the rural development policy with
64.
its variety of measures and objectives does not prevent Member
States from setting out clear strategies and objectives in their rural
development programmes as is required by Council Regulation
(EC) No 1257/1999.

— Council Regulation (EC) No 1698/2005 sets out three core objec-
tives for rural development support for the programming period
2007 to 2013: (1) improving the competitiveness of agriculture
and forestry, (2) improving the environment and the countryside,
and (3) improving the quality of life in rural areas and encourag-
ing diversification of economic activity. These objectives are imple-
mented by means of measures which are grouped in four axes.
Article 17 of the Regulation ensures a balance between the objec-
tives by introducing minimum spending rates per axis.

66.
Taking into account the variety of regions in Europe and
the different situations at national level, it is difficult to provide a
single uniform definition of rural areas. Therefore, the areas eli-
gible for intervention, as well as the selection and ranking of
projects, is the responsibility of the Member States.

— With the introduction of the national strategy plans a more tar-
geted approach is foreseen for the next generation of rural develop-
ment programmes.

The eligibility of support under investments in agricul-
67.
tural holdings and investment in food processing is not limited to
the rural areas defined for the purposes of the relevant Article 33
measures. The choice of the scope of these measures is consistent
with their aim, respectively to contribute to the improvement of
the agricultural income and of living, working and production
conditions and to increase the competitiveness and added value
of food processing, where these activities are present in the coun-
try (rural and non-rural areas).

— The RDPs include a general description of the plan in which they
indicate the geographical coverage as well as a description of the
current situation, using quantified data, highlighting strengths, dis-
parities, gaps and potential for rural development. This description
takes into account
the agricultural and forestry sector, rural
economy, the demographic situation, human resources and employ-
ment and the state of the environment. On the basis of this infor-
mation Member States describe the priorities for action and their
appropriate strategy.

— For the next programming period, a more strategic approach has
been introduced through the Community Strategic Guidelines. This
will allow Member States to better focus their RD strategies on rel-
evant objectives deriving from specific needs. Furthermore, Member
States need to allocate a minimum percentage of their national
envelope for each axis ensuring thus a balanced programme, taking
into account both sectoral and territorial concerns.

— A further step in the direction of territorial targeting has been incor-
porated in the next programming period as Member States need
to include in their RDPs the designation of their rural areas
and indicate their importance.

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The Commission agrees

integrated territorial
68.
approaches provide an important tool for implementing the rural
development policy and has encouraged both in the current and
the next programming period the implementation of local devel-
opment strategies.

that

the EU rural network will offer the floor for exchanging informa-
tion and best practice.

69.
efforts
The Commission has undertaken serious
to improve the quality and quantity of the monitoring data of
Member States for the current programming period.

— The outcomes of the mid-term evaluation reports and the results of
the ex-ante evaluations will form an important input into the cur-
rent and new RDPs. Furthermore the national rural networks and

— The Commission has proposed, in collaboration with the Member
States, a new and better Common Monitoring and Evaluation
Framework for the next programming period.