Special Report No 8/2006: Growing success? The effectiveness of the European Union support for fruit and vegetable producers' operational programmes together with the Commission's replies
Date: 2006-06-28
Institutions: European Court of Auditors
Subjects: aid system, cost-effectiveness analysis, operational programme, producer organisation, production aid, project evaluation

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Official Journal of the European Union

20.11.2006

SPECIAL REPORT No 8/2006

Growing success?

The effectiveness of the European Union support for fruit and vegetable
producers’ operational programmes

together with the Commission’s replies

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

(2006/C 282/02)

CONTENTS

Paragraph

Page

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

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

Objective of the aid scheme: adapting to the changing market situation . . . . . . . . . . . . .

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

Producer organisations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The aid for operational programmes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART I: EFFECTIVENESS OF OPERATIONAL PROGRAMMES . . . . . . . . . . . . . . . . . . . . . . . .

Has the aid scheme been implemented in a way to ensure that operational programmes
are likely to be effective? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commission checks to ensure that Member States grant the EU aid according to the
principles of sound financial management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Member States’ implementation of the aid scheme . . . . . . . . . . . . . . . . . . . . . . . . . .

Have the measures financed in operational programmes been effective? . . . . . . . . . . . . .

Producer organisation evaluations of operational programmes (final reports)

Sample of operational programme actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conclusions on the effectiveness of operational programmes . . . . . . . . . . . . . . . . . . . . .

PART II: PROGRESS MADE BY PRODUCER ORGANISATIONS . . . . . . . . . . . . . . . . . . . . . . .

Have producer organisations made progress towards achieving the objectives set for the
aid scheme? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sample of producer organisations

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

Commission data on producer organisations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

The effectiveness of operational programmes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Progress made by producer organisations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I-XI

1-18

1-3

4-8

9-12

13-18

19-63

20-49

20-23

24-49

50-59

51-52

53-59

60-63

64-86

65-86

66-68

69-86

87-93

87-90

91-93

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

94-100

Make the aid for operational programmes simpler and more effective . . . . . . . . . . . . . . .

Better target the policy to achieve the overall objectives of concentration and adaptation

95-96

97-98

Question the policy of encouraging producer organisations

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

99-100

Annex: Audit criteria for the approval of effective operational programmes . . . . . . . . . . . . . . . . . . . . . . . . .

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

33

34

34

34

35

35

38

38

38

38

43

43

44

45

46

46

46

47

49

49

50

50

50

51

51

52

53

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EXECUTIVE SUMMARY

I.
A new policy was introduced in 1996 to support fruit and vegetable growers in adapting to the chang-
ing market situation. This offered aid for 50 % of the costs of measures taken by growers in ‘operational pro-
grammes’, which aimed, inter alia, to improve product quality, reduce production costs and improve environ-
mental practices. The aid is only available to groups of growers that collectively market their produce in
‘producer organisations’. Member States are responsible for approving operational programmes and paying the
aid. In 2004, the aid amounted to 500 million euros.

The Court audited the effectiveness of this aid scheme based primarily on a random sample of 30 opera-

II.
tional programmes in eight Member States and on a review of Commission data.

III.
Member States based their decisions to approve operational programmes on the nature of the planned
expenditure, without also taking account of the likely effectiveness of the proposed measures. The program-
ming elements required by the regulations were followed nominally, at a significant cost but without real ben-
efits. The criteria for the eligibility of expenditure were not clear, resulting in uncertainty.

IV.
The Commission checks the eligibility of operational programme expenditure, but has not checked
whether Member States’ procedures for approving operational programmes ensure that the expenditure is
likely to be effective. It has not monitored the effectiveness of operational programmes or evaluated the policy.

Operational programmes have, on the whole, resulted in progress being made towards the Council
V.
regulation’s objectives. Almost half of the actions financed represented a significant advance from the pro-
ducer organisations’ initial situation towards at least one of the 11 objectives, and can therefore be considered
effective. However, the effectiveness of the majority of the actions was low, in that they did not result in a sig-
nificant advance from the producer organisations’ initial situation.

VI.
Producer organisations in the sample had made progress towards most of the objectives set for the
policy. However, the Commission has no information on the achievement of these objectives at the European
level with two exceptions: for withdrawals from the market of surplus produce, which have been reduced, and
for the concentration of supply.

VII.
On current trends, the Commission’s target of 60 % of supply concentrated in producer organisations
by 2013 will not be reached. Producer organisations account for only about one-third of the EU’s fruit and veg-
etable production and they have grown at a lower rate than the sector as a whole.

The Court recommends that the Commission considers the merits of alternative approaches to sim-
VIII.
plify and reduce the costs of the scheme and improve the effectiveness of the aid. The Commission should con-
sider if this could best be achieved by aligning the scheme’s procedures and rules for the eligibility of expen-
diture with those of the Rural Development investment measures.

IX.
Whichever approach is followed, the Commission should improve its monitoring of the effectiveness
of the aid and use the planned evaluation study in 2009 to establish the reasons for the relative lack of progress
by producer organisations, particularly in those Member States where the fruit and vegetables sector repre-
sents the highest proportion of agricultural output.

If the evaluation confirms that producer organisations are an effective mechanism for strengthening the

X.
position of growers in these Member States, the policy should be better targeted to achieve this.

XI.
If, on the other hand, the Commission cannot demonstrate that the concentration of supply in pro-
ducer organisations delivers real benefits, it should reconsider this mechanism for supporting the EU’s fruit
and vegetable growers.

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INTRODUCTION

Audit scope and approach

Objective of the aid scheme: adapting to the changing market
situation

1.
Faced in the 1990s with a changing market for fruit
and vegetables, requiring different products and increased guar-
antees of quality and environmental standards, the EU introduced
a new aid scheme to support growers in adapting to this demand.
This was the aid for ‘operational programmes’, which is described
below. At the same time, cuts were made in the long-standing aid
for withdrawals (1), providing a further incentive for the EU’s
growers to produce what the market wanted.

4.
The Court reported the results of its previous audit of the
aids for the fruit and vegetable sector in the Annual Report for
2000 (2). At that time, few operational programmes had been
completed, so the longer-term effectiveness of the aid was not
apparent. However, the report identified weaknesses in the Mem-
ber States’ management of the scheme, which had reduced the
effectiveness of the aid. In the light of this, the objective set for
this audit was to assess the effectiveness of the aid scheme for
operational programmes.

Effectiveness is defined in the EU’s Financial Regulation (3)
5.
as ‘attaining the specific objectives set and achieving the intended
results’. As the objectives set for the operational programme aid
scheme are not definite or quantified, in this audit, effectiveness
is considered as making progress towards those objectives.

6.

The questions set for this audit were:

2.
The market situation was also changing with the increas-
ing dominance of a few large retail and distribution groups. In
response, the EU strengthened the policy followed since the
1960s encouraging the formation of groups of growers known as
‘producer organisations’ with a view to obtaining economies of
scale and a stronger market presence.

(i) Has the aid scheme been implemented in a way to ensure
that operational programmes are likely to be effective?

(ii) Have the measures financed in operational programmes been

effective?

3.
This grouping of supply (or ‘concentration’) was encour-
aged by making membership of a producer organisation a con-
dition for receiving the new aid for operational programmes. Fruit
and vegetable growers not in producer organisations were not eli-
gible for the EU aid. This created an incentive for growers to form
or join producer organisations. At the same time, the EU set
stricter conditions to be met by the producer organisations to
ensure that they would be effective in concentrating the supply.

(iii) Have producer organisations made progress towards achiev-

ing the objectives set for the aid scheme?

7.

The audit approach consisted of:

(i)

assessing the procedures established by the Commission and
the Member States for implementing the policy;

Text box 1

(ii)

testing the effectiveness of a sample of operational pro-
gramme actions; and

‘An intelligent aid’ enthused the director of a fruit and vegetable
producer organisation we visited. No longer does the EU hand out aid
to growers to destroy their surplus fruit and vegetables that no one
wants to buy. Now, the EU subsidises measures taken by the growers
to adapt their production to the quantity and quality for which there
is demand.

(iii) examining a sample of producer organisations, and Commis-
sion data at EU level, for evidence of progress made by pro-
ducer organisations towards the policy objectives.

Text box 2

‘Growing success’: The aid is linked to turnover, so the more pro-
ducer organisations grow, the more aid they get to finance adapta-
tion. This success should encourage more growers to form or join
producer organisations, resulting in more bargaining power and a
higher turnover, and therefore more aid for further adaptation…

8.
The audit fieldwork was undertaken in 2005, based on a
random sample of 30 operational programmes completed in
2003 and 2004 in eight Member States: Greece, Spain, France,
Ireland, Italy, the Netherlands, Portugal, and the United Kingdom.
Producer organisations in the new Member States were not
included as they had not completed operational programmes at
the time of the audit.

(1) Growers who ‘withdraw’ surplus fruit and vegetables from the market
to support prices (usually by destroying the produce) are paid com-
pensation from the EU budget.

(2) Court of Auditors — Annual Report concerning the financial year

2000 (OJ C 359, 15.12.2001).

(3) Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002

(OJ L 248, 16.9.2002, p. 1).

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Producer organisations

Diagram 1

Number of producer organisations in 2004

9.
A producer organisation is a group of growers who act
together to strengthen their position in the market. Many are
cooperatives, but they can be groups of individuals or groups of
companies. The conditions to be met, set out in the EU regula-
tions (1), are to have at least five members and a minimum turn-
over of 100 000 euro. Producer organisations have to provide the
means for storing, packaging and marketing their members’ pro-
duce. They have to be able to plan and adapt their production,
and promote environmentally sound cultivation and waste-
management practices.

10.
A start-up aid is available over a five-year period for new
producer organisations to set up and acquire the facilities they
need to meet the EU’s conditions. Once established, Member
States check that producer organisations continue to meet these
conditions, although no further aid is available for this. In prin-
ciple, the EU does not support producer organisations’ adminis-
trative, operating or production costs (2).

There are some 1 500 producer organisations in the
11.
14 Member States (3) (Diagram 1). There is a great diversity in the
sizes and nature of producer organisations (Diagram 2). In the
course of this audit, the Court visited fig growers in Greece and
mushroom growers in Ireland, a citrus fruit cooperative in Por-
tugal and tomato growers from Spain to the Netherlands. Some
had fewer than 10 members, one in Italy specialising in apples
had 5 800 members. One producer organisation was made up of
14 companies, each with turnover averaging 2,6 million euro,
another was a cooperative of 800 part-time growers averaging
just 600 euro of produce each. The average EU producer organi-
sation in 2003 had a turnover of 9 million euro and over
300 members.

12.
Fruit and vegetables is the largest agricultural sector by
value of output in the EU-15. It is particularly important to the
agricultural economies of Greece, Spain, Italy and Portugal, where
the sector represents over 25 % of the value of agricultural out-
put. Spain, France and Italy together account for 70 % of EU fruit
and vegetable production by value. About a third of their produc-
tion was marketed by producer organisations in 2004. In the
Netherlands, Belgium and Ireland, the proportion of fruit and veg-
etable output marketed by producer organisations was much
higher, at around 80 %, whereas in Greece it was 13 % and in Por-
tugal 6 % (Diagram 3).

Diagram 2

Average value of marketed production per producer organisation
2004 (Mio EUR)

(1) Council Regulation (EC) No 2200/96 of 28 October 1996 on the
common organisation of the market in fruit and vegetables (OJ L 297,
21.11.1996, p. 1). and Commission Regulation (EC) No 1432/2003
of 11 August 2003 laying down detailed rules for the application of
Council Regulation (EC) No 2200/96 regarding the conditions for rec-
ognition of producer organisations and preliminary recognition of
producer groups (OJ L 203, 12.8.2003, p. 18).

(2) Some exceptions are allowed in producer organisations’ operational

programmes. See paragraph 42.

(3) Luxembourg has no producer organisations.

The aid for operational programmes

Producer organisations that meet the conditions in para-
13.
graph 9 can apply for aid for an ‘operational programme’. This is
a programme of measures that a producer organisation under-
takes to adapt its members’ production to market demand and
strengthen its position in the marketplace (Text box 3). The spe-
cific objectives that the measures should aim to achieve are set in

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Diagram 3

Value of marketed production in 2004

the Council regulation (1) (Text box 4). The programme is drawn
up by the producer organisation and approved by the Member
State, which pays EU aid annually of 50 % of the costs incurred
by the producer organisation in implementing the programme.
The duration of an operational programme is between three and
five years, and at the end of the period a producer organisation
may apply for a new programme. There is an annual ceiling on
the aid, set at 4,1 % of the producer organisation’s turnover.

14.
Over 70 % of producer organisations have an operational
programme and the aid amounted to 500 million euro in 2004.
This represented 3 % of producer organisations’ turnover and
approximately 1 % of the total value of EU fruit and vegetable
output. Take-up of the aid has increased greatly since it was intro-
duced in 1997, at the same time as the aid for the withdrawal of
surplus production has decreased (Diagram 4). The diagram also
shows the aid paid through producer organisations to growers of
tomatoes and fruit for processing, which is based on the volume
of production.

Text box 3

Typical contents of an operational programme

— purchase of sorting and packing machinery

— employment of quality control staff and marketing staff

— investments in irrigation facilities and greenhouses

— subsidies to growers for replanting fruit trees

— costs of natural pest and disease control approaches

(1) Regulation (EC) No 2200/96.

Text box 4

The 11 operational programme objectives

— ensuring that production is planned and adjusted to demand,

particularly in terms of quality and quantity

— promoting the concentration of supply and the placing on the

market of the products produced by its members

— reducing production costs and

— stabilising producer prices

— promoting the use of environmentally-sound cultivation prac-

tices, production techniques and waste-management practices

— improvement of product quality

— boosting products’ commercial value

— promotion of the products targeted at consumers

— creation of organic product lines

— the promotion of integrated production or other methods of

production respecting the environment

— the reduction of withdrawals

15.
Implementation of the aid scheme is on the usual shared
management basis whereby Member States follow detailed rules,
set by the Commission, within the framework of the Council
Regulation. They are required to cooperate with the Commission
to ensure that the aid is granted according to the principles of
and
sound
effectiveness.

financial management:

economy,

efficiency

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Diagram 4

Main EU aids paid to fruit and vegetable producer organisations

1996-2004 (EU 15)

Diagram 5

Programming model

16.
The Commission implementing regulation (1) requires
producer organisations to describe in their operational pro-
gramme proposal:

— their initial situation,

in particular regarding production,

marketing and equipment,

— the objectives of the programme, bearing in mind the mar-

ket outlook, and

17.
Producer organisations have the freedom to propose
operational programme measures that suit their particular situa-
tion, with the proviso that the programmes must target ‘several’
of the objectives set out in the Council regulation (see Text Box
4). To complete the feedback circuit, producer organisations are
required to report to the Member State at the end of the pro-
gramme on the extent to which they have achieved their objec-
tives, and the lessons to be learnt for their next programme. This
‘programming model’ to be followed by producer organisations
is illustrated in Diagram 5.

— the concrete measures or ‘actions’ proposed to achieve those

objectives.

18.
The Commission regulation also specified a number of
checks that the Member States should make on the operational
programme proposals:

(1) Commission Regulation (EC) No 411/1997 of 3 March 1997(OJ L 62,
4.3.1997, p. 9),
replaced by Commission Regulation (EC)
No 1433/2003 of 11 August 2003 laying down detailed rules for the
application of Council Regulation (EC) No 2200/96 as regards opera-
tional
funds, operational programmes and financial assistance
(OJ L 203, 12.8.2003, p. 25).

— verify the producer organisation’s initial situation and the

operational programme objectives;

— verify the compliance of the operational programme objec-

tives with those set out in the Council regulation;

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— verify the economic consistency and technical quality of the
proposed operational programme, and the soundness of the
estimates.

The regulation provided that the Member States should then
approve the programme, require changes, or reject it.

Consequently, while the Commission has checked the eli-
23.
gibility of the aid paid out by Member States for Clearance of
Accounts purposes, it has not checked whether this aid has been
granted respecting the sound financial management principles, in
particular, of effectiveness.

Member States’ implementation of the aid scheme

PART I: EFFECTIVENESS OF OPERATIONAL PROGRAMMES

Details of the audit in the Member States

As described above, Member States and the Commission
19.
share the responsibility to ensure that the aid scheme is effective:
that the aid is used to achieve progress towards the 11 objectives
the Council set for operational programmes. This part of the
report first looks at whether the aid scheme was implemented by
the Commission and Member States in a way to encourage effec-
tiveness, and in particular, if the ‘programming model’ operated
as intended. It then assesses a sample of operational programmes
to determine whether the measures financed resulted in progress
towards the scheme’s objectives.

Has the aid scheme been implemented in a way to ensure that
operational programmes are likely to be effective?

Commission checks to ensure that Member States grant the
EU aid according to the principles of sound financial
management

20.
Member States approve the operational programmes
proposed by the producer organisations, but under the Treaty, the
Commission retains final responsibility for the sound financial
management of the EU budget and supervises the Member States.

21.
In the ‘Clearance of Accounts’ process, the Commission
visits Member States to check that the aid payments have been
made in compliance with Community rules. The Council regula-
tion also set up a ‘Special Corps of Inspectors’ for the fruit
and vegetable sector with the role, inter alia, of ensuring a uniform
application of the rules across the EU. In practice, these are the
same officials that check expenditure for the Clearance of
Accounts.

In relation to other EU agricultural policies, the opera-
22.
tional programme aid scheme requires Member States to exercise
a greater degree of judgment in deciding whether to approve,
reject or require changes to the measures proposed in an opera-
tional programme. However, since the initial checks of the Mem-
ber States’ procedures in 1997 and 1998, Commission inspec-
tions have focused on compliance with the criteria for the
eligibility of expenditure and have not checked whether the Mem-
ber State procedures for approving and monitoring operational
programmes shown in paragraph 18 operate in a way to ensure
that operational programmes are likely to be effective.

24.
Given the Member States’ key role in approving opera-
tional programmes, the Court audited the procedures applied in
all 14 Member States concerned (Text box 5). As implementation
of the scheme is decentralised in some Member States, the pro-
cedures were also checked at a further 19 regional and local
administrations in Italy, Spain, France and Greece.

25.
The implementing regulation requires Member States to
make a number of checks, but does not prescribe how. This gives
Member States the flexibility to organise these procedures accord-
ing to their context. Consequently, each administration has imple-
mented the scheme in a different way and the findings below do
not apply equally in all Member States (1).

Text box 5

Details of the audit in the Member States:

We based the audit of the Member States’ procedures on a random
sample of 30 operational programmes completed in 2003 and 2004.
We visited the Member States’ administrations responsible for approv-
ing those programmes and the producer organisations concerned.

Number of operational programmes selected

Spain
France
Italy
Greece

11
8
4
2

Portugal
United Kingdom
Netherlands
Ireland

2
1
1
1

The selected operational programmes were approved by the Member
States between 1998 and 2001. To obtain sufficient evidence, and
ensure that findings were still relevant, we examined documentation
from 1998 to 2005 for a further 94 operational programmes
and 103 evaluation reports. We selected these randomly at the Mem-
ber State authorities we visited.

We undertook a more limited audit of the procedures followed by the
other six Member States, based on a questionnaire and a check of
documentation concerning randomly selected operational pro-
grammes.

(1) The Court has informed Member States of the specific findings that

concern them.

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Criteria for assessing the implementation of the programming model

26.
To comply with the requirements for sound financial
management, Member States should apply the principles of
economy, efficiency and effectiveness in deciding whether to
approve an operational programme, thereby granting the EU aid.

27.
For the aid to be effective, each action financed in the
programme should have an effect: the action should result in
progress being made towards one or more of the 11 objectives set
by the Council Regulation. Consequently, Member States should
base their decision on whether to approve, reject or require
changes to an operational programme on whether the producer
organisation has satisfactorily demonstrated that the proposed
actions are likely to achieve these objectives.

— Member States should ensure that the operational pro-
gramme objectives correspond to those in the EU regulation,
and that the actions proposed represent a real advance
towards the objectives at a reasonable cost. They should use
the evaluation information in the producer organisations’
final reports to monitor the effectiveness of the operational
programmes and apply the lessons learned to improve the
effectiveness of future programmes.

Text box 6

Methodology: Some of the Court’s criteria for assessing the Member
States’ implementation of the aid scheme go beyond formal compli-
ance with the letter of the regulation (see Annex). As an illustration,
to comply with the regulation the producer organisation has to
describe its initial situation, and the Member State has to check its
accuracy. To meet the audit criteria, the Member State should also
ensure that the description is related to the objectives and actions in
the proposed programme. If not, the description of the initial situa-
tion has little purpose.

Member States need detailed information from the pro-
28.
ducer organisations to be able to justify their decisions to award
the aid in these terms. They need to know, for each objective, the
producer organisation’s initial situation and what impact the
action(s) is expected to have.

The initial situation description is not related to the operational
programme objectives

29.
Following this logic, and the specific requirements of the
Regulation (see paragraphs 16 to 18), the Court developed audit
criteria for what would be reasonable to expect in a ‘good’ system
(Text box 6). If these criteria are met, Member States’ procedures
are likely to ensure that the aid will be effective. These criteria can
be summarised as follows:

— Operational programme documents should show the pro-
ducer organisation’s initial situation in respect of each of the
programmes’ objectives. The objectives should be ‘SMART’
(specific, measurable, achievable, relevant and timed): specific
so that there is no doubt about what the producer organisa-
tion aims to achieve; measurable (and timed) so that their
achievement can be monitored; achievable through imple-
menting the actions proposed in the programmes; and rel-
evant: coherent with the producer organisation’s situation
and market outlook, and with the EU’s 11 objectives. Pro-
ducer organisations should give targets for each objective in
relation to the initial situation. The documents should show
how the proposed actions will achieve the programme’s
objectives. At the end of the programme the producer organi-
sation should report on the extent to which the objectives
have been achieved in relation to the initial situation and
targets.

30.
All but two of the operational programmes examined
included a section called ‘initial situation’ and more than half
(60 %) formally complied with the regulation by mentioning pro-
duction, marketing and equipment, even if very briefly. Some
Member States required producer organisations to list their equip-
ment and facilities and give a table of their production in tonnes
and by value, but without requiring this to be related to the pro-
gramme’s objectives or actions in any way. Other Member States
issued no particular instructions, and accepted very general
descriptions, in some cases of only one or two sentences. Few
producer organisations described their initial situation in respect
of the environment, product quality and production costs, yet
nearly all operational programmes had these objectives (see Text
box 7). No producer organisation described the initial situation
for each of the objectives in its operational programme.

Text box 7

Regional authorities in Spain approved an operational programme
containing ten actions with a total cost of 770 000 euros. Six of these
actions had the objective of improving product quality, eight had the
objective of reducing production costs, and two had the objective of
improving environmental practices.

The producer organisation listed in the initial situation the types of
fruit grown and the surface area, but gave no information on the ini-
tial quality of the fruit, the costs of production, or the environment.

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In a few cases, producer organisations described the start-
31.
ing situation in relation to specific actions, which is a requirement
in the Netherlands, for example. This went some way to meeting
the criteria, but did not sufficiently describe the producer organi-
sation’s initial situation in terms of its objectives.

The contents of operational programmes do not always relate to the stated
objectives

32.
Several Member States required producer organisations
to explicitly state in their operational programmes which EU
objectives related to each action. In these cases, the correspon-
dence between the objective and the programme was automatic
on paper, making the Member States’ check of the compliance of
objectives with those in the regulation a formality. However,
many producer organisations listed any objective that seemed rel-
evant in an attempt to justify the programme or particular action,
regardless of whether that was their real objective or not (Text
boxes 8 and 9).

33.
In Italy and Greece, the authorities developed detailed
lists of possible actions, from which the producer organisation
could choose, and gave a predetermined objective to each action.
The French authorities also issued a list of possible actions, but
classified according to their nature, not their objective. For the
environmental and quality categories of actions the relevant
objective was usually evident, but for the category ‘measures
linked to production facilities’ sometimes it was not. As a result it
was not possible to identify the objective of some of the actions
on the basis of the operational programme documentation (Text
box 10). The Italian, Greek and French authorities did not attempt
to check the objectives of individual programmes as they consid-
ered that the compliance of the actions with the EU objectives had
been established when drafting the national lists of actions. How-
ever, changes over time to the classification had the effect of
‘changing’ the operational programmes’ objectives for a given
action (Text box 11).

Text box 9

In an operational programme approved by the regional authorities in
Spain, a producer organisation purchased a fork-lift truck at a cost of
25 000 euro. The producer organisation could not demonstrate a
relation between the action and the stated objective of ‘reducing with-
drawals’.

Text box 10

In an operational programme in France, a producer organisation
included an action described as ‘provision of services’ a cost of
50 400 euro. 25 % of this cost was allocated to the objective of
‘improving quality’ and 25 % to ‘improving environmental practices’.
We were unable to identify the EU objective related to the remaining
50 % of the costs.

Text box 11

An irrigation project in Italy was allocated to the objective of ‘improv-
ing quality’ in accordance with the 1997 national guidelines. Follow-
ing a revision of the guidelines it was given the objective of ‘concen-
tration of supply’ in 1999. In 2002 a further revision classified the
same action under the objective ‘reducing costs’.

Operational programme objectives are not given in measurable terms and
targets are not set

34.
Only the United Kingdom authorities formally required
producer organisations to set measurable objectives for opera-
tional programmes, although in practice it did not ensure that this
was done. In Spain, Italy and the Netherlands, the authorities
required the expected results to be shown for each measure or
action, but this was focused on the outputs — how the imple-
mentation of the actions could be demonstrated — rather than on
the achievement of the objective. In 10 % of the operational pro-
grammes examined, producer organisations gave quantified
objectives for at least one action where this was straightforward,
such as for the expected reduction in costs, or the number of
hectares to be converted to organic production. These cases were
mostly in Spain and Italy. Otherwise, producer organisations did
not set targets or indicators by which achievement of the objec-
tives could be monitored.

Producer organisations’ evaluation reports do not show the achievement
of objectives

Text box 8

An operational programme in the Netherlands included an electronic
delivery note system at a cost of 135 000 euro with the objective
‘planning and adjusting production to the demand’. The producer
organisation could not demonstrate a relation between the action and
this objective. The real objective, the reduction in costs, was not men-
tioned in the operational programme.

35.
Except for some cases in France and Ireland, the Member
final evaluation
States ensured that producer organisations’
reports described the implementation of the programme and out-
puts (what had been done), but none in practice required the
reports to also show the extent to which the operational pro-
gramme objectives had been achieved. As such the reports were
of little use for assessing the effectiveness of the aid.

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Diagram 6

Subsidy approach

The evaluations in the final reports were little used by the
36.
Member States (1), and were treated as another formality required
for compliance with the regulation. In Greece, Spain (2) and Por-
tugal, final reports were simply filed by the paying agency and not
examined by the authorities responsible for approving opera-
tional programmes.

common set of information to allow monitoring of the effective-
ness of the programmes at regional or national level, and the
diversity of the reports made any such analysis impractical.

Member States do not apply effectiveness criteria when approving
operational programmes

The content of the reports varied widely, from less than
37.
one page of general unsubstantiated statements such as that ‘qual-
ity has been improved’, to over 100 pages of detailed facts and
figures on the implementation of the programme, action by
action. Member States did not require final reports to contain a

(1) Member States commented that, according to the deadlines set in the
implementing regulation, final reports are received after they have
already approved the next operational programme for the producer
organisation concerned. Although the regulation has been revised sev-
eral times since 1997, this inconsistency has not been amended.
Evaluation reports could be required earlier in the final year of the pro-
gramme, simultaneous with the request for the following programme,
for example.

(2) This concerns the national paying agency in particular.

In practice, Member States approved the programmes
38.
according to the nature of the proposed expenditure, not in terms
of what the programme was expected to achieve. Effectiveness
criteria, such as additionality, were not applied in deciding
whether or not to approve the financing of an action with EU aid.
Consideration of factors specifically required by the regulation,
such as the initial situation and objectives, the technical quality
and economic consistency of the programme, has become redun-
dant and has only been done to the extent necessary to demon-
strate compliance with the letter of the regulation.

39.
Instead, Member States followed a different approach,
with the focus placed on compliance with the eligibility criteria
and the payment of subsidy as illustrated in Diagram 6.

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This is largely a result of the amendment of the Commis-
40.
sion implementing regulation to introduce ‘eligibility lists’ with
which operational programmes since 1999 have had to comply.
These list the types of expenditure that can and cannot be included
in operational programmes (Text box 12).

have to be able to justify their decision to the producer organisa-
tion and also may face legal challenges. Member States can avoid
these difficult decisions by approving the same action for all pro-
ducer organisations that request it, regardless of the objectives or
situation of each particular producer organisation (Text box 13).

Text box 12

Example of eligibility criteria: transport costs

Eligible:

— investments in transport equipped with cold storage.

Ineligible:

— costs of collection or transport (internal or external),

— investments in transport for marketing or distribution.

41.
The initial implementing regulation in 1997 did not set
detailed criteria for eligibility, except to exclude producer organi-
sations’ administrative and operating expenditure. Member States
were uncertain of what the Commission would accept as eligible
expenditure in the Clearance of Accounts process and, in response
to queries from the Member States, the Commission issued a
series of ad hoc interpretive notes.

As these interpretive notes had no official status, the
42.
Commission amended the implementing legislation to introduce
a list of ineligible operations and expenditure. At the same time,
it required Member States to check the eligibility of proposed
operational programme expenditure against
this list before
approving operational programmes. In 2001 the Commission
added a list of what could be included in operational programmes
and in 2003 the interpretive notes were withdrawn and both lists
were revised again. The eligibility lists allowed some exceptions to
the exclusion of producer organisations’ production and operat-
ing costs such as certain staff salaries, recyclable packaging
and costs of natural pest and disease controls.

43.
The existence of these eligibility lists does not prevent
Member States from also considering the producer organisations’
initial situation and objectives and the likely effectiveness of the
proposed actions. However, Member States that refuse to approve
proposed expenditure defined in the regulation as eligible would

Text box 13

Example: pallet-boxes

In 10 of the 30 randomly selected operational programmes, Member
States had approved the purchase of pallet-boxes, crates or similar
containers for collecting, transporting and storing fruit and vegetables
at a combined cost of 1,7 million euro. The Commission considers
this expenditure to be eligible. The objectives given in the operational
programmes included:

— stabilising producer prices,

— increasing product quality,

— boosting products’ commercial value,

— reducing production costs,

— improving environmental practices,

— concentration of supply,

— reducing withdrawals.

In some cases, the purchase represented an advance from the initial
situation to achieve an objective: one producer organisation replaced
wooden crates with more hygenic plastic in order to supply a baby-
food manufacturer (objective given: improving quality). In other cases
these were simply replacements of old, lost or damaged crates, or
additional purchases needed for increased production levels, without
any clear relation to the given objectives.

The coexistence of the programming model and subsidy approach has
increased complexity and costs

44.
In effect, a ‘subsidy approach’ has been followed by Mem-
ber States rather than a programming approach, while the pro-
gramming elements of the regulation are still required. The result
is that the aid scheme has become more complex than necessary,
with increased costs of administration and control. This results
from the lack of clarity of the eligibility lists as well as from the
coexistence of the programming model. If done properly, prepar-
ing operational programmes, annual implementation reports and
end-of-programme evaluations entails significant costs for pro-
ducer organisations. This is all the more so in Member States such
as Italy and the Netherlands, which require detailed annual opera-
tional programmes also to be submitted for approval.

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The eligibility lists published in the regulation can never
45.
be precise enough to cover all possible actions in such a diverse
and fast-changing sector and so are written in quite general terms
such as ‘quality improvement measures’. Inevitably, queries arise,
and the lists are interpreted differently by different Member States
and even by different regions within Member States. Even after
eight years of operation of the scheme, examples of ineligible
expenditure continued to be found by the Commission in the
2005 Clearance enquiries in Spain, France, Italy and the United
Kingdom where the Member States had not always interpreted
the eligibility rules in the same way as the Commission.

the inclusion of costs which are not ‘actions’ or ‘measures’
designed to achieve operational programme objectives, but are
normal costs of any fruit and vegetable producer. Although it is
not common for operational programmes to include such a high
proportion of recyclable packaging (2), Member States have
approved significant amounts of expenditure for this. Ten opera-
tional programmes in the Court’s sample of 30 included a com-
bined total of 4,9 million euro for recyclable or reusable
packaging.

46.
In the light of the uncertainty on eligibility and the asso-
ciated risks, several Member State administrations undertake
more checks than required by the regulation (1), some visiting
every producer organisation several times a year. This adds costs
not only for the Member State but also for the producer
organisation.

47.
This uncertainty on the eligibility, the costs of adminis-
tration and extensive checks of their activities may also deter pro-
ducer organisations from risking innovative measures, which may
ultimately be disallowed. This may encourage them to include
only those measures in their operational programmes where the
eligibility has been clearly established.

There is a risk that ineffective actions have been approved

Text box 14

Example: Regional authorities in Spain had approved one opera-
tional programme in our sample, which included 2,7 million euro for
recyclable cardboard boxes. This represented 83 % of the total pro-
gramme for 2000-2003. In 2001 they approved a revision to the
programme which deleted planned investments in greenhouses
and irrigation, and increased the budget for recyclable boxes to 98 %
of the total. The only other ‘action’ was the salary of a technician.

Have the measures financed in operational programmes been
effective?

50.
The previous section showed that the approach followed
by the Member States in approving operational programmes
results in a risk that the measures financed may not be effective.
This section assesses whether or not the actions implemented by
producer organisations have been effective in achieving the opera-
tional programme objectives.

48.
As the programming model has not been properly imple-
mented, the EU budget has been exposed to an increased risk of
ineffectiveness: the risk that actions will be approved that do not
result in progress towards the EU’s objectives.

Producer
programmes (final reports)

organisation

evaluations

of

operational

Some Member States have argued that they do not need
49.
to concern themselves with the effectiveness of the programmes,
as producer organisations will normally make the best business
decisions for their circumstances. After all, the members of the
producer organisation have to co-finance 50 % of the costs of the
programme. However, the examples seen in this audit show that
some producer organisations use the subsidy to support the costs
of their existing activities, which do not represent a step forward
from their initial situation. While this may make business sense
for the producer organisation, particularly when under competi-
tive pressure, it does not contribute to achieving the objectives of
the EU aid scheme. The example in Spain (Text box 14) illustrates

(1) Annual checks of at least 20 % of producer organisations represent-

ing 30 % of expenditure.

51.
The primary source of information on the effectiveness
of operational programmes should be the final reports drawn up
by producer organisations at the end of each programme. The
regulation requires these to show the extent to which the opera-
tional programme objectives have been achieved. None of the
142 final reports examined in this audit gave a full assessment of
the achievement of the operational programme objectives. Com-
pliance with this requirement of the regulation has not been
included in the Commission’s checks of Member States’
procedures.

(2) The Commission disallowed this expenditure in the Clearance of
Accounts process on the basis that the programme did not have sev-
eral objectives as required by the regulation. In 2002, the Spanish
authorities limited spending on recyclable packaging to a maximum
35 % of each operational programme to ensure equal treatment for all
Spanish producer organisations.

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This represents a missed opportunity for the Commis-
52.
sion, which has a specific responsibility under the EU’s Financial
Regulation to monitor the achievement of policy objectives. Had
the final reports contained the required assessments, it should
have been possible to analyse a sample of reports and draw con-
clusions on whether operational programmes had achieved their
objectives. With a few well-chosen performance indicators
required from all producer organisations, these final reports could
have produced a long time series showing progress made in
objectives such as improving quality, reducing costs, organic pro-
duction, and improving environmental practices.

Sample of operational programme actions

53.
In order to check if operational programme actions have
been effective, the Court selected a total of 104 actions at random
from thirty producer organisations’ operational programmes
completed in 2003 or 2004 (Text box 5). The producer organi-
sations were asked to demonstrate the impact of the selected
actions in terms of the related operational programme objectives.
Some actions had more than one objective, giving a total of
265 cases examined.

54.
In only 30 % of the cases could producer organisations
provide sufficient evidence to show that the action had resulted
in progress towards the related objective (Diagram 7). In a further
41 % of cases, while there was no direct evidence, a positive con-
clusion could be reached based on a logical reasoning (see Text
box 15). However, as shown in paragraph 58, in many cases the
progress made was only marginal.

Text box 15

Example of ‘probable progress’: A producer organisation in Portu-
gal purchased a refrigerated lorry to stop the quality of its fruit prod-
ucts deteriorating during distribution. It had no data to prove an
improvement of quality, but showed us the equipment and explained
the refrigeration processes. On the basis of this, we concluded that
quality had probably been improved.

55.
In almost a quarter of the cases, the Court could not draw
a conclusion on whether or not progress had been made. In most
cases, this was because the related objective was so general that it
was not possible to prove that there had been no impact. This was
particularly the case for the objectives of reducing withdrawals,
concentration of supply, and stabilising producer prices (Dia-
gram 8). For example, a producer organisation’s raison d’être is
to concentrate supply and market its members’ produce. Conse-
quently, all of its activities contribute to this objective in some
way, however indirectly.

Diagram 7

Sample of actions: impact on EU objectives

In 6 % of cases there was clear evidence that no progress
56.
had been made (Diagram 7). In a few of these cases, the action had
failed: one producer organisation had started an operational pro-
gramme action concerning organic production, for example, but
abandoned the project. In the rest of the cases, the reason for the
lack of progress was that objectives had been incorrectly allocated
to the measures, either through misunderstanding (several pro-
ducer organisations understood the objective ‘promotion of prod-
ucts to consumers’ as being promotion to clients), or to comply
with a national classification (see paragraph 33).

Low effectiveness of actions

57.
The results of the sample presented above show only
whether there is evidence of progress being made but not the
extent of that progress. Although many actions in the sample had
clearly moved the producer organisation forward from its initial
situation towards the related objectives,
in other cases the
progress made was only marginal. Replacement machinery usu-
ally resulted in some progress as it represented an improvement
over the old model. However, in relation to the total cost of the
replacement, the progress was sometimes not significant. Simi-
larly, the continuing employment of staff to check product qual-
ity enabled the producer organisations to maintain quality levels,
but did not necessarily lead to a discernable improvement in qual-
ity in relation to previous years.

58.
In order to gauge the incidence of these ‘low effective-
ness’ measures, the Court reviewed each of the 104 actions that
had been audited on the spot to consider if they represented a sig-
nificant advance for the producer organisation from its initial
situation towards one or more of the EU’s objectives (Text
box 16). Against this criterion, more than half (55 %) of the ran-
dom sample of actions were classed as ‘low effectiveness’.

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Diagram 8

Sample of actions: impact on EU objectives

59.
These findings show the extent to which Member Sates
have approved actions in operational programmes on the basis of
their nature (is the action eligible?) without also taking into account
their effectiveness (does the action advance the producer organisation
towards the objective?).

Text box 16

Examples of actions where we often found a significant advance
from the initial situation:

— improvements in production facilities (irrigation systems,

energy-efficient greenhouses);

— introduction of certified quality schemes.

Examples of actions where we often found no significant
advance:

— replacements of machinery such as pallet-movers, fork-lift

trucks, lorries and tractors;

— pallet-boxes, crates, containers, etc.;

— salaries of existing staff (marketing departments, quality checkers).

programmes. This increased the risk of low-effectiveness actions
being supported with EU aid.

Member States instead followed a ‘subsidy approach’
61.
using the eligibility lists to approve programmes in relation to the
nature of the proposed expenditure without having to take
account of the producer organisations’ situations and objectives.

62.
However, this has not resulted in the uniform application
and simplicity that such an approach could offer. The eligibility
lists did not set sufficiently clear criteria to guide the expenditure
towards the activities that the EU wants to support, with the result
of uncertainty and increased costs of control. The coexistence of
the programming model required producer organisations to pre-
pare operational programmes and evaluations to comply with the
regulations at a significant cost, and for little benefit.

Conclusions on the effectiveness of operational programmes

60.
Member States formally applied most of the aspects of
the programming model that were specifically required in the
regulation. However, they did not take account of the likely effec-
tiveness of the actions in their decisions to approve operational

63.
Operational programmes have, on the whole, resulted in
progress being made towards the Council regulation’s objectives.
However, less than half of the actions financed represented a sig-
nificant advance from the producer organisations’ initial situation
towards at least one of the 11 objectives, and can therefore be
considered effective. The aid has also been granted for operational
programme actions with low effectiveness that achieve little
change. In these cases, the aid could be more effective if better
targeted

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PART II: PROGRESS MADE BY PRODUCER ORGANISATIONS

Sample of producer organisations

64.
Many factors have an impact on the progress made by
producer organisations, in addition to the effectiveness of the
operational programmes described in Part I. Foremost among
these are the activities undertaken by producer organisations and
their members that are not financed by operational programmes.
Many producer organisations undertake significant investments
under Rural Development programmes, for example. Further-
more, other EU aid schemes also support producer organisations,
notably the schemes for the withdrawals of surplus production
and for the processing of fruit and tomatoes. Also affecting the
producer organisations’ achievement of the objectives are the
strategy followed by the producer organisation, the competition
it faces, changing customer requirements and preferences, other
EU policies such as for quality and the environment, and even, in
the shorter term, weather conditions.

Have producer organisations made progress towards achieving
the objectives set for the aid scheme?

Part I showed that operational programmes have, on the
65.
whole, resulted in progress being made towards the Council regu-
lation’s objectives. This part of the report examines whether this
progress has been reflected in the overall performance of pro-
ducer organisations. The report first assesses the sample of pro-
ducer organisations visited during the audit (Text box 17), then
considers the Commission’s aggregated data at EU level.

66.
The 30 producer organisations visited were asked to
demonstrate the progress they had made towards each of the
11 objectives, regardless of whether they had included actions
related to those objectives in their operational programmes. This
gave a total of 330 cases examined. In 54 % of these, the producer
organisation was able to provide evidence to show that it had
made progress. In a further 12 % of cases, the conclusion was
reached that the producer organisation had probably made
progress. A lack of information, particularly on production costs
and the stability of prices, explained most of the 16 % of cases
where a conclusion could not be made (Diagram 9).

67.
Many producer organisations had not followed the objec-
tives ‘organic production’ and ‘promoting products to consum-
ers’, which accounts for most of the 18 % of cases where ‘no
progress’ was observed. Relatively little progress had also been
made against the objectives of ‘reducing production costs’ and
‘stabilising prices’. Producer organisations explained that they
aimed for increasing prices rather than stable prices, although
most considered themselves price-takers and could do little
to influence the prices they obtained. More important than sim-
ply reducing costs was maximising profit, which often involved
increasing costs to obtain better quality and added value. Pro-
ducer organisations also noted that improving environmental
practices usually increased costs, without necessarily leading
to increased product prices.

Text box 17

Sample characteristics: Producer organisations in the random
sample represented 2 % of the total number and 5 % of the turnover
of EU producer organisations in 2004.

68.
Although the sample results show that most producer
organisations made at least some progress towards most of the
11 objectives, this is not sufficient on its own to confirm that the
operational programme aid scheme has been effective, because of
the influence of the other factors described in paragraph 64.

Sample of producer organisations: progress towards EU objectives

Diagram 9

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Commission data on producer organisations

Analysis of data on withdrawals of surplus produce

As shown in Part I, the Commission has not taken the
69.
opportunity of exploiting the evaluations made by producer
organisations in their final reports to monitor achievement of the
operational programme objectives. Furthermore, the Commission
has not so far complied with its obligation under the EU Finan-
cial Regulation to evaluate the policy. An evaluation study is
scheduled to start in 2008, with the results expected in 2009.

75.
The reform of the fruit and vegetable policy in 1996 lim-
ited the quantities of surplus produce that could be disposed of
under the withdrawals aid scheme, and cut the compensation
paid to growers for those withdrawals. The Commission data
shows that this has resulted in a substantial reduction in the quan-
tities of withdrawals within the EU aid scheme (Diagram 10). This
is in line with the result of the Court’s sample that 90 % of pro-
ducer organisations had reduced withdrawals, or maintained
them at zero.

70.
Nevertheless, the Commission does have some informa-
tion on producer organisations. It obtains data on the quantities
of surplus produce withdrawn from the market for which aid is
claimed. Since 2000, it has also required information on opera-
tional programmes and extended the information collected on
producer organisations in an annual statistical report from the
Member States.

71.
The data on operational programmes is limited to break-
downs of the aid paid by categories of expenditure. This indicates
what the operational programme aid is being spent on, but not
what is being achieved with that aid.

The Commission requires a more extensive set of data on
72.
producer organisations, in particular on their membership, their
production and their sales. The Court’s checks on the reliability of
this information were made difficult, as the Commission does not
have a proper management information system for recording the
data. The Commission addressed numerous queries to the Mem-
ber States in 2004 and 2005 on inconsistencies in the data, but
did not follow these up. Important data is lacking, particularly for
the three largest fruit and vegetable producing Member States:
Italy, Spain and France. Analysis of the data is hampered by its
incompleteness and the large number of inconsistencies, making
it insufficiently reliable for indicating anything other than broad
trends.

73.
The main indicator that can be derived from this data is
the share of producer organisations’ output in the EU total. This
shows how much production is concentrated in producer organi-
sations, which is the overall aim of the policy for the fruit and veg-
etable sector. It also indicates the broader success of the policy by
showing what proportion of fruit and vegetable growers choose
to participate in the EU aid scheme. In the 2005 budget docu-
ments the Commission set a target of 60 % for this indicator by
2013, with an annual increase.

Diagram 10

Withdrawals of fruit and vegetables for which aid was paid
1994-2004 (EU 15)

76.
One of the objectives set for the operational programme
aid scheme was to support measures taken by producer organi-
sations to reduce withdrawals. However, this reduction in with-
drawals does not necessarily prove that the operational pro-
gramme aid has resulted in producer organisations planning and
adjusting their production to the demand: producer organisations
explained that the reduced aid rates for withdrawals phased in
since 1996, together with increased controls, make it no longer
worthwhile to claim the aid on their surplus production.

Analysis of data on the concentration of supply

74.
Consequently, while it has data on withdrawals and the
concentration of supply, the Commission has no indicators to
show the progress made by producer organisations towards
achieving the other policy objectives such as reducing costs, sta-
bilising prices, improving quality and the environment.

77.
The policy introduced in 1996 should result in a situa-
tion where the aid helps producer organisations to adapt and suc-
ceed and other growers are encouraged to join. Both of these fac-
tors should increase the turnover of producer organisations,
‘concentrating supply’ in their hands.

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Share of producer organisations in total value of marketed production (EU 15)

Diagram 11

However, the Commission’s data shows that the concen-
78.
tration of supply indicator has decreased: producer organisations’
share of the total output fell from 40 % in 1999 to 31 % in 2003
(Diagram 11). (The figure shown for 2004 is provisional, as two
of the largest Member States, France and Italy, have not reported
complete data). While the value of marketed production of the
total fruit and vegetable sector increased by 45 % from 1999
to 2003, that of producer organisations increased by only 12 %.

lower value production, and with the most need for adapting to
the market’s increasing quality and environmental standards
and concentrated demand, to join producer organisations. The
data shows that in some Member States, this has not happened.
Instead the scheme has had the result of directing the aid to large
producer organisations with high value production.

79.
As described in paragraph 72, it is not possible to place
too much reliance on this data, other than to indicate the broad
trend. The 2003 percentage was incorrectly reported by the Com-
mission, for example, because of an error concerning missing
data for Greece. While the Court was able to easily find and cor-
rect this, the Commission could not demonstrate to the Court
that the other data is sufficiently reliable.

The data also shows the continuing geographical dispar-
80.
ity in participation in the aid scheme (Diagram 12). Portugal and
Greece, the Member States in which fruit and vegetables repre-
sents the largest share of agricultural output, have the lowest par-
ticipation rates, and have not shown any significant increase.
Because of this low participation in producer organisations, only
6 % of Portugal’s fruit and vegetable sector receives aid for opera-
tional programmes, and 13 % in Greece compared to 80 % in the
Netherlands. The design of the aid scheme, which rewards suc-
cess by paying aid as a percentage of producer organisations’
turnover, should create an incentive for smaller producers with

81.
The Commission lacks information on the differences in
performance of producer organisations and other growers and so
cannot explain why the sector outside producer organisations
appears to be growing at a faster rate than producer organisations.

To explain the lack of progress in the concentration of
82.
supply, it is also necessary to find out why growers do not join
producer organisations. The Commission has not questioned pro-
ducers in any systematic way to find the real reasons for this.

83.
In its reply to the Court’s Annual Report 2000, the Com-
mission stated ‘if the majority of producers … prefer not to join
an effective producer organisation, they must also take the con-
sequences of their decision. A comparison of the income of those
belonging to producer organisations and that of non-members
will show which choice was better’. However, the Commission
has not monitored the revenues of producer organisation mem-
bers to be able to make this comparison.

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Producer organisations’ share of the total value of marketed production 2000-2004

Diagram 12

Rural development

One particular risk, identified by the Commission at an
84.
early stage, is that the availability of rural development funding
may have undermined the incentive to join or form producer
organisations by offering aid similar to operational programmes
without requiring the growers to be members of producer organi-
sations (see Text box 18). Although the rural development regu-
lation addressed this issue (by providing that fruit and vegetable
producers are not eligible for rural development aid to the extent
that similar aid is available under operational programmes),
exceptions were allowed.

As a result of these exceptions, Rural Development fund-
85.
ing is available for a similar range of activities, from irrigation
projects to packaging machinery, for producer organisations and
other growers alike. A significant proportion of Rural Develop-
ment projects under the measures ‘investments in agricultural
holdings’ and ‘improving the processing and marketing of agri-
cultural products’ concern fruit and vegetables.

86.
Despite the potential importance of the risk of the Rural
Development programmes undermining producer organisations,
which are the cornerstone of the EU’s policy for fruit and veg-
etable producers, the Commission has not checked the operation
of Member States’ procedures for ensuring consistency, or col-
lected information or undertaken any assessment of the extent to
which this may have occurred.

Text box 18

CONCLUSIONS

Key features of the two aid
schemes

Rural
development

Operational
programmes

Aid only available to producer
organisations?

Multiannual programme?

Objectives include planning and
adapting production to demand,
reducing costs, improving quality
and environment?

Measures proposed, implemented
and co-funded by beneficiary?

Measures approved and checked by
Member State?

Evaluation at end of programme?

No

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

The effectiveness of operational programmes

Has the aid scheme been implemented in a way to ensure that operational
programmes are likely to be effective?

87.
Member States have focused on the eligibility of opera-
tional programme actions by the nature of the expenditure, with-
out also considering whether they represent a step forward for the
producer organisation towards achieving the operational pro-
gramme objectives. As a result, Member States’ procedures do not

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ensure that all operational programme actions are likely to be
effective. Member States have not applied the sound financial
management principle of effectiveness in approving operational
programmes. Commission checks have focused on compliance
with the criteria for the eligibility of expenditure and not on
whether the Member State procedures for approving and moni-
toring operational programmes operate in a way to ensure that
the programmes are likely to be effective.

88.
The aid scheme has been costly to implement for the
Member State administrations and for producer organisations.
The programming elements required by the regulations have been
followed nominally, at a significant cost but without real benefits.
The criteria for the eligibility of expenditure were not clear, result-
ing in uncertainty and an increased need for controls to ensure
compliance.

about one-third. On current trends, the Commission’s target for
producer organisations to reach a 60 % share of the total value of
marketed production by 2013 will not be achieved.

93.
The Commission has not assessed the reasons for this
lack of participation in producer organisations, including whether
Member States’ procedures have been sufficient to ensure that
Rural Development funding has not undermined the incentive for
growers to join.

RECOMMENDATIONS

Have the measures financed in operational programmes been effective?

Almost half of the actions financed in operational pro-
89.
grammes resulted in a significant advance from the producer
organisations’ initial situation towards at least one of the 11 objec-
tives, and can therefore be considered effective.

The conclusions presented above show that the overall
94.
policy objective of concentrating supply in producer organisa-
tions has not been achieved in most Member States, and the Com-
mission lacks the information on the reasons for this that would
be necessary for reviewing the policy. Pending a review of this,
which should take account of the results of the evaluation of pro-
ducer organisations due in 2009, the Commission should bring
forward proposals to make the aid scheme for operational pro-
grammes simpler and more effective.

90.
Member States have also granted the aid for operational
programme actions with low effectiveness that achieve little
change. In these cases, the aid could be more effective if better
targeted.

Make the aid for operational programmes simpler and more
effective

Progress made by producer organisations

95.
The Commission should consider the merits of the fol-
lowing alternative approaches to improve the operational pro-
gramme aid scheme:

Have producer organisations made progress towards achieving the
objectives set for the aid scheme?

91.
Producer organisations have adapted to the changing
demand and made progress towards the objectives set in the
Council regulation. Operational programmes have contributed to
this, but are not the only factor. Rural development funding is
also available to producer organisations, and to other fruit
and vegetable growers, to support similar activities, with similar
objectives to operational programmes. Market forces put pressure
on all producers to meet higher environmental standards,
improve product quality and control costs. Consequently, some
of these effects may have been observed even without the opera-
tional programme aid.

92.
Despite the availability of EU aids to members of pro-
ducer organisations, the majority of growers in the main fruit
and vegetable producing Member States choose not to participate.
The policy has so far not succeeded in concentrating supply in
most Member States. When the Court reported on the fruit
and vegetable sector in 2000, around 40 % of the EU’s fruit
and vegetable production was marketed by producer organisa-
tions. The Commission’s latest data shows that this has fallen to

(i)

simplify and reduce the costs of the scheme by clarifying the
criteria for eligible expenditure and removing the program-
ming requirements;

(ii)

simplify and improve the effectiveness of the aid by review-
ing the objectives set for operational programmes and the
eligibility lists to encourage Member States to approve opera-
tional programmes based on effectiveness criteria;

(iii) improve coherence, simplify administration and reduce costs
by aligning the scheme’s procedures and rules for the eligi-
bility of expenditure with those of the Rural Development
investment measures.

96.
The Commission should improve its data collection on
operational programmes and producer organisations, focusing on
a few key indicators that will allow it to monitor the effectiveness
of the aid scheme and provide useful information for periodic
evaluation.

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Better target the policy to achieve the overall objectives of
concentration and adaptation

Question the policy of encouraging producer organisations

97.
The Commission should use the evaluation planned for
2009 to obtain a better understanding of the reasons for the lack
of progress in the concentration of supply in producer organisa-
tions. It should assess whether producer organisations have
improved the situation of their members in relation to other
growers, and how the policy coexists with rural development.

If these studies confirm that producer organisations are
98.
an effective mechanism for strengthening the position of grow-
ers, the policy should be better targeted to achieve this. The Com-
mission should propose changes to encourage membership of
producer organisations, particularly in the main fruit and veg-
etable producing Member States. The Commission should also
consider if the policy aim of adapting production to the chang-
ing market demands could be better achieved if the aid was tar-
geted at those who have the most need of adaptation by intro-
ducing new criteria, in addition to turnover, for allocating funding
to producer organisations.

The Commission should also use the planned evaluation
99.
to establish whether the benefits of concentration of supply
achieved by the policy are sufficient to compensate for the
inequality caused by limiting the aid to one particular structure of
fruit and vegetable growers: producer organisations.

100.
A policy choice was made in 1996 to exclude growers
who are not in producer organisations from the benefits of the EU
aid. If the Commission cannot demonstrate that the support for
producer organisations produces real gains in terms of strength-
ening their position in the market place, the rationale for exclud-
ing other producers from the EU aid should be questioned and
the Commission should reconsider this mechanism for support-
ing the EU’s fruit and vegetable growers.

This Report was adopted by the Court of Auditors in Luxembourg at its meeting of 28 June 2006.

For the Court of Auditors

Hubert WEBER

President

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AUDIT CRITERIA FOR THE APPROVAL OF EFFECTIVE OPERATIONAL PROGRAMMES

ANNEX

Compliance with the Regulation

Additional performance audit criteria

Producer organisation’s initial situation

The operational programme should contain a
1.
description of the initial situation, in particular con-
cerning production, marketing and equipment.

The description should show the starting situation in rela-

1.
tion to each of the operational programmes’ objectives.

The description should set a benchmark against which

2.
progress towards the objectives can be assessed.

Operational programme objectives

1.
Operational programmes should include sev-
eral of the 11 EU objectives (the environment objec-
tive is compulsory).

2.
The operational programme should describe
the objectives of the programme, bearing in mind
the outlook for production and markets.

The Member State should check the compli-

3.
ance of the objectives with the regulation.

1.
The objectives should be SMART: specific so that there is
no doubt about what the producer organisation aims to achieve;
measurable (and timed) so that their achievement can be moni-
tored; achievable through implementing the actions proposed in
the programmes; and relevant: coherent with the producer organi-
sation’s situation and market outlook, and with the EU’s 11 objec-
tives.

2.
In particular, targets, indicators or quantified objectives
should be given to allow the achievements of the programme to
be monitored and to demonstrate to the Member States the
expected impact of the programme on its objectives.

Operational programme actions

Operational programmes should include a

1.
detailed description of the actions.

2.
The Member State should check the techni-
cal quality of the programme and the soundness of
its estimates.

1.
Actions should be sufficiently well described so that Mem-
ber States can check that the programme of actions is likely to
achieve its objectives.

Final reports (end-of-programme evaluations by the producer organisation)

Producer organisations

1.
should prepare
annual reports describing implementation of the
programme, and in the ‘final report’
include an
assessment of the extent to which the programmes’
objectives have been achieved.

1.
Member States should take account of final reports when
approving new programmes or amendments in order to avoid
inclusion of actions likely to be ineffective (for that and for other
producer organisations).

2.
Member States and the Commission should use the final
report information to monitor the effectiveness of the policy (the
extent to which producer organisations are achieving the opera-
tional programme objectives).

Approval of operational programmes

In addition to the above requirements, the
1.
Member State should check the economic consis-
tency of the programme;

…and the eligibility of the proposed expen-

2.
diture.

The Member State should approve, reject, or

3.
require amendments to the programme.

4.
Member States should ensure that aid is
granted in accordance with the principles of sound
financial management: economy, efficiency and
effectiveness.

Member States should approve actions for which the pro-
1.
ducer organisation has sufficiently demonstrated that they are
likely to achieve a significant advance towards the EU operational
programme objectives for a reasonable cost.

2.
Decisions to approve operational programmes should be
sufficiently documented to demonstrate that they were taken
according to the principles of sound financial management.

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THE COMMISSION’S REPLIES

EXECUTIVE SUMMARY

I.
The scheme provides financial support for the operational
programmes of fruit and vegetable growers who market their
products via producer organisations. It was introduced to help a
fragmented sector improve its position in a market dominated by
a relatively small number of large purchasers.

The Commission considers that even if an action may not appear
effective in achieving a significant advance towards one of the
objectives specified in Article 15(4) of the Council Regulation, the
aid should be considered effective in terms of improving produc-
ers’ incomes through improving their competitiveness, which is
one of the overall policy aims. However, it does agree that the aid
can be more effective if better targeted, and it will address this
issue in the on-going impact assessment.

III.
The Commission recognises the Court’s concerns. How-
ever, some progress towards the related objectives could either be
clearly seen or assumed in over 70 % of cases the Court audited
(see paragraph 54).

VI.
In addition to the sources of information cited by the
Court, indirect indicators exist as far as the objective of improv-
ing quality (the increasing number of geographic indicators and
quality labels related to fruit and vegetable products) is concerned,
although these do not show specifically the progress made by
producer organisations.

The Commission introduced eligibility lists, which (as far as was
reasonably possible) clearly set out what could be funded. It is for
the national authorities to ensure that the programmes they
approve harmonise not only with these guidelines, but also with
the overall objectives set by the regulations. Member States decide
on their own detailed administrative arrangements and the Com-
mission verifies that these are in compliance with the regulations.

IV.
During its various Clearance of Accounts missions and
desk audits, the Commission paid particular attention to ensur-
ing that Member States’ systems of management and control offer
reasonable assurance that expenditure declared conforms to the
regulatory requirements. This led, where appropriate, to assess-
ments of compliance of the procedures for approving and moni-
toring operational programmes. Weaknesses are followed up via
the Clearance of Accounts process and give rise, where necessary,
to financial corrections against the Member State concerned.

Under the shared management system, Member States are prima-
rily responsible for evaluating and controlling the effectiveness of
any given action. The Commission regularly discusses the func-
tioning of the aid scheme, including issues related to effectiveness,
with Member States in the Management Committee meetings and
bilaterally.

The issue of effectiveness will be addressed further in the impact
assessment and the forthcoming evaluation, where the Court’s
observations will be taken into account. Moreover, more atten-
tion will be paid in the forthcoming reform to making the require-
ments on reporting and monitoring by Member States more
effective tools for them in their assessment of the effectiveness of
the policy.

VII.
The Commission shares the Court’s concerns regarding
achievement of the 60 % target. However, it considers that the
picture is more complex. The instrument has been used in very
different ways in different Member States, and results are not uni-
formly negative. Other more encouraging data should be high-
lighted, in particular the formation of Associations of Producer
Organisations (APOs) and the emergence of big producer organi-
sations in some Member States since the reform of the policy in
1996 (in particular BE, NL and IT), some of which are already able
to counterbalance the bargaining power of big retailers.

This policy approach, having in mind the increased market access
implied by the Doha Development Agenda and the increasing
concentration of the demand side, is still the best instrument to
try to achieve a better balanced chain (between producers
and consumers). One of the aims of the forthcoming reform is to
address the weaknesses and to reinforce the available instruments,
in particular by favouring mergers between producer organisa-
tions, Associations of producer organisations, cooperation
between producer organisations, and producer organisations with
a transnational dimension.

VIII.
The Commission is carrying out an impact assessment
in preparation for the CMO reform proposal to be presented later
in 2006. It agrees with the aims expressed in the Court’s recom-
mendations and will, as part of the impact assessment, explore
how best they can be achieved.

IX to XI.
The Commission will improve its capacity to col-
lect data and develop relevant indicators. To address the data reli-
ability issue, DG AGRI is starting an IT project in 2006 to have a
proper database in place, starting in 2007.

V.
The Commission is pleased to note that the Court’s find-
ings give a positive global picture of progress made by producer
organisations thanks to Community support. It notes also that
nearly three-quarters of the actions the Court tested showed some
progress towards the programme objectives.

The scope of the evaluation and the evaluation questions will be
formulated during the preparation of the tender specifications.
The observations of the Court will be taken into account.

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INTRODUCTION

The issue of effectiveness will be addressed further in the impact
assessment and the forthcoming evaluation.

1.
Council Regulation (EC) No 2200/96 foresees several des-
tinations for products withdrawn from the market: free distribu-
tion to charitable organisations; schools; non-food purposes; ani-
mal feed; processing industries; and (but not exclusively) compost
or biodegradation under environmentally strict conditions.

Text box 9:

The Common Market Organisation (CMO) was last
5.
reformed in 1996, prior to the entry into force of the more
detailed requirements of the Financial Regulation in 2002.

The Commission notes that for the action’s other stated objectives, the
Court found that there was a relationship with ‘reducing production
costs’, and indirectly with ‘improving product quality’, and thereby
‘increasing the commercial value of products’.

However, given the evolution of the Financial Regulation, the
objectives will be reconsidered in the next CMO reform,
announced for the end of 2006.

PART I: EFFECTIVENESS OF OPERATIONAL PROGRAMMES

The Commission recognises its final responsibility for the
20.
sound financial management of the EU budget under Articles 274
of the EC Treaty and 179 of the Euratom Treaty. The results of
the application of clearance-of-accounts procedures and other
financial corrections mechanisms, established under the provi-
sions of Article 53(5) of the Financial Regulation are part of this
framework. Furthermore, Council Regulation (EC) No 1290/2005
on the financing of the Common Agricultural Policy requires
directors of Paying Agencies to sign a declaration of assurance
(DAS), mirroring in shared management the declaration of assur-
ance issued by the Directors-General of the Commission.

21.
The merging of the Special Corps of inspectors into the
clearance of accounts team increased the efficiency of the Com-
mission’s checks on Member States’ procedures. The team in
charge of auditing the fruit and vegetable sector, which includes
the Corps, was reinforced in 2000.

22 and 23.
During its various Clearance of Accounts mis-
sions and desk audits, the Commission paid particular attention
to ensuring that Member States’ systems of management and con-
trol offer reasonable assurance that expenditure declared con-
forms to the regulatory requirements. This led, where appropri-
ate, to assessments of compliance of the procedures for approving
and monitoring operational programmes. Weaknesses are fol-
lowed up via the Clearance of accounts process and give rise,
where necessary, to financial corrections against the Member
State concerned.

Under the shared management system, Member States should
have adequate control systems in place: they are primarily respon-
sible for evaluating and controlling the effectiveness of any given
action. The Commission’s Action Plan towards an integrated
internal control framework (COM(2006) 9) aims to reinforce
Member States’ accountability as required by the Parliament.

The Commission regularly discusses the functioning of the aid
scheme, including issues related to effectiveness, with Member
States in the Management Committee meetings and bilaterally.

38 to 40.
The Commission recognises the Court’s concerns.
However, some progress towards the related objectives could
either be clearly seen or assumed in over 70 % of cases the Court
audited (see paragraph 54).

The decision to include in the Commission Regulation a list of eli-
gible actions (a ‘positive’ list), accompanied by a list of non-eligible
actions, increased legal security for both Member States’ admin-
istrations and producer organisations. This approach was never
conceived as an alternative to the Member States’ obligations to
approve operational programmes in relation to producer organi-
sations’ initial situations and objectives.

41.
The interpretative notes issued by the Commission, in
particular between 1997 and 2000, covered a large range of
issues, including eligibility and, to a greater extent, Article 11 of
Regulation (EC) No 2200/96 on recognition of producer
organisations.

43.
The decision to include in the Commission Regulation a
list of eligible actions (a ‘positive’ list), accompanied by a list of
non-eligible actions, increased legal security for both Member
and producer organisations. This
States’
approach was never conceived as an alternative to the Member
States’ obligations to approve operational programmes in relation
to producer organisations’ initial situations and objectives.

administrations

Text box 13:

In general, the purchase of pallet-boxes is seen as an investment both
under this scheme and under Rural Development programming, and as
such would be considered eligible.

44.
The Commission introduced eligibility lists, which (as far
as was reasonably possible) clearly set out what could be funded.
It is for the national authorities to ensure that the programmes
they approve harmonise not only with these guidelines, but also
with the overall objectives set by the regulations. Member States
decide on their own detailed administrative arrangements and the
Commission verifies that these are in compliance with the
regulations.

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Eligibility lists and the ‘programming model’ do not necessarily
conflict. Even in a more framed policy (for example rural devel-
opment) both elements coexist.

In the framework of the incoming reform, more
51 and 52.
attention could be paid to making the requirements on reporting
and monitoring by Member States more effective tools for them
in their assessment of the effectiveness of the policy.

The regulations have foreseen a comprehensive set of

45.
rules for this measure.

The fact that examples of ineligible expenditure continued to be
found by Member States and Commission auditors seems inher-
ent to any aid scheme and not a peculiarity of this one. Further-
more, the Commission noted several cases where the Member
States interpreted EU law very broadly.

46.
Community law fixes the control rate at a reasonable
level. The Commission considers that the undertaking of more
checks by some Member States does not reflect uncertainty on eli-
gibility and the associated risks.

47.
Innovative measures may, by their very nature, test the
limits of eligibility. However, the Commission was not informed
of any problems relating to the inclusion of such measures into
the operational programmes.

48.
The fact that members of producer organisations have
to co-finance 50 % of the costs of the programme counterbal-
ances the risk that ineffective actions are chosen by beneficiaries,
as long as the producer organisations’ objectives coincide with
those of the CMO. Furthermore, the Member States have a pre-
cise set of obligations to respect, as set out in paragraph 18.

49.
An overall aim of the CMO has always been to improve
farmers’ incomes, not via support but via the market, thereby
enhancing their competitiveness. In this respect, it seems sensible
that they use subsidies to support the costs of existing activities,
even if this may not appear to represent a significant advance
from the initial situation in respect of the Regulations’ 11 specific
objectives. However, the support given in Operational Funds,
with some exceptions, has to target structural improvements and
not running costs.

The specific example of recycled packaging is a clear illustration
of the Commission’s approach in this regard. In 2004 the Com-
mission moved to change the eligibility rules from supporting the
costs of the packaging itself to the environmental management of
recyclable packaging. The aim was to stop the abuses observed in
certain Member States and make the expenditure better linked to
environmental improvements. As mentioned in footnote 13, the
Commission made a financial correction in 2001.

The Commission has included in its evaluation programme the
commitment to launch evaluations of the various market mea-
sures concerning the CMO of fruits and vegetables. The evalua-
tion concerning producer organisations shall be launched in
2007, with a final report due in 2009.

54.
This means that 71 %, or nearly three-quarters, of actions
selected showed, to varying degrees, progress towards the pro-
gramme objectives.

The Commission considers that even if an action
57 and 58.
may not appear effective in achieving a significant advance
towards one of the objectives specified in Article 15(4) of the
Council Regulation, the aid should be considered effective in
terms of improving producers’ incomes through improving their
competitiveness, which is one of the overall policy aims.

Furthermore, quality standards are fast moving in the sector, and
maintenance of quality levels up to (improving) standards implies
an advance.

61.
The decision to include in the Commission regulation a
list of eligible actions (a ‘positive’ list), accompanied by a list of
non-eligible actions, increased legal security for both Member
States’ administrations and producer organisations. The existence
of eligibility lists does not absolve Member States from their
responsibility in ensuring that what is approved is likely to be
both eligible and effective, and should not be seen as an endorse-
ment by the Commission of the so-called ‘subsidy approach’.

62.
The Commission introduced eligibility lists, which (as far
as was reasonably possible) clearly set out what could be funded.
It is for the national authorities to ensure that the programmes
they approve harmonise not only with these guidelines, but also
with the overall objectives set by the regulations. Member States
decide on their own detailed administrative arrangements and the
Commission verifies that these are in compliance with the
regulations.

Eligibility lists and the ‘programming model’ do not necessarily
conflict. Even in a more framed policy (for example rural devel-
opment) both elements coexist.

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The Commission considers that even if an action may
63.
not appear effective in achieving a significant advance towards
one of the objectives specified in Article 15(4) of the Council
Regulation, the aid should be considered effective in terms of
improving producers’ incomes through improving their competi-
tiveness, which is one of the overall policy aims.

The issue of better targeting of the aid will be addressed in the
forthcoming CMO reform.

PART II: PROGRESS MADE BY PRODUCER ORGANISATIONS

69.
In the framework of the incoming reform, more atten-
tion could be paid to making the requirements on reporting and
monitoring by Member States more effective tools for them in
their assessment of the effectiveness of the policy.

The Commission has included in its evaluation programme the
commitment to launch evaluations of the various market mea-
sures concerning the CMO of fruits and vegetables. The evalua-
tion concerning producer organisations shall be launched in
2007, with a contract to be established in 2008 and a report due
in 2009.

71.
The collection of data on operational programmes is part
of monitoring the implementation of the policy; it follows an
input-output logic (how much money is spent (input) and for
what kind of activities (output). In evaluation, greater emphasis is
put on objectives and impacts.

The Commission agrees with the Court that the amount
72.
of data contained in Member States’ reports deserves a proper
management IT system. It continues its efforts to improve the
management and reliability of data. Looking to the future, DG
AGRI is starting an IT project in 2006 with the aim of having a
detailed database in place from 2007.

74.
Indirect indicators exist as far as the objective of improv-
ing quality (the increasing number of Geographic Indicators and
quality labels related to Fruit and Vegetable products) is con-
cerned, although this information does not show specifically the
progress made by producer organisations.

76.
The reduction of withdrawals (in quantity and in expen-
diture) indicates that supply has been adapted to demand. The
dramatic decrease in withdrawals is witnessed also by the low per-
centage of Operational Funds (only 2 %, when the ceiling is 30 %)
devoted to this purpose.

the policy in 1996 (in particular BE, NL and IT), some of which
are already able to counterbalance the bargaining power of big
retailers.

To address the data reliability issue, DG AGRI is starting
79.
an IT project in 2006 to have a proper database in place, starting
in 2007.

The Commission is aware of this issue, which will con-
80.
stitute one of the major concerns to be tackled in the forthcom-
ing CMO reform.

These issues will be considered in the context of the

81.
forthcoming evaluation.

82.
The evaluation concerning the producer organisations is
included in the evaluation programme of the DG AGRI for the
year 2007 with the contract to be established in 2008 with a
report due in 2009. The observations of the Court will be taken
into account when defining the scope of the evaluation and the
evaluation questions.

83.
The Commission compared the evolution of producer
organisations’ value of marketed production (VMP) to the VMP of
producers which were not producer organisation members.
Depending on the future role of producer organisations in the
forthcoming reform, the Commission is prepared to investigate
whether more direct income information could be obtained. The
matter will require discussion with, and the cooperation of, Mem-
ber States.

84 and 85.
Exceptions have to be justified by objective crite-
ria and after consultation with Member States. The Commission
services are systematically involved in ex ante assessments of
Member States’ requests for exceptions.

The Commission requested Member States to include a clear
demarcation in their rural development programmes, whereby
measures are differentiated by nature or by value; this determines
whether
operational
are
programme-financed.

development-

rural

they

or

According to Article 37(3) of Council Regulation (EC)
86.
No 1257/1999, it is the role of rural development (RD) program-
ming to prove that a request for an exception does not undermine
the coherence between the first and second pillar. The coherence
between the CMO Fruit and Vegetables and RD will be consid-
ered as part of the wider impact assessment, which is currently
ongoing.

CONCLUSIONS

78.
The Commission shares the Court’s concerns. However,
it considers that the picture is more complex. The instrument has
been used in very different ways in different Member States, and
results are not uniformly negative. Other more encouraging data
should be highlighted, in particular the formation of associations
of producer organisations (APOs) and the emergence of big pro-
ducer organisations in some Member States since the reform of

87.
Under the shared management system, Member States
are primarily responsible for evaluating and controlling the effec-
tiveness of any given action. The Commission regularly discusses
the functioning of the aid scheme, including issues related to
effectiveness, with Member States in the Management Committee
meetings. Furthermore, matters requiring clarification are dealt
with in bilateral meetings between the Commission and Member
States.

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During its various Clearance of Accounts missions and desk
audits, the Commission paid particular attention to ensuring that
Member States’ systems of management and control offer reason-
able assurance that expenditure declared conforms to the regula-
tory requirements. This led, where appropriate, to assessments of
compliance of the procedures for approving and monitoring
operational programmes. Weaknesses are followed up via the
Clearance of accounts process and give rise, where necessary, to
financial corrections against the Member State concerned.

88.
The Commission recognises the Court’s concerns. How-
ever, some progress towards the related objectives could either be
clearly seen or assumed in over 70 % of cases the Court audited.

The Commission introduced eligibility lists, which (as far as was
reasonably possible) clearly set out what could be funded. It is for
the national authorities to ensure that the programmes they
approve harmonise not only with these guidelines, but also with
the overall objectives set by the regulations. Member States decide
on their own detailed administrative arrangements and the Com-
mission verifies that these are in compliance with the regulations,
which fix the control rate at a reasonable level. The Commission’s
observations arising from its 2005 audit missions indicate sev-
eral cases where the Member States interpreted EU law very
broadly.

89.
The Commission is pleased to note that the Court’s find-
ings give a positive global picture of progress made by producer
organisations thanks to Community support.

90.
The Commission considers that even if an action may
not appear effective in achieving a significant advance towards
one of the objectives specified in Article 15(4) of the Council
Regulation, the aid should be considered effective in terms of
improving producers’ incomes through improving their competi-
tiveness, which is one of the overall policy aims. However, it does
agree that the aid can be more effective if better targeted, and it
will address this issue in the on-going impact assessment.

risk makes the operational programmes an important element for
keeping producers focussed on quality and environment issues in
their actions.

92.
The Commission is aware of the shortcomings pointed
out by the Court. However, this policy approach, having in mind
the increased market access implied by the Doha Development
Agenda and the increasing concentration of the demand side, is
still the best instrument to try to achieve a better balanced chain
(from producer to consumer). One of the aims of the incoming
reform is to address the weaknesses and to reinforce the available
instruments, in particular by favouring mergers between producer
organisations, Associations of producer organisations, coopera-
tion between producer organisations, and producer organisations
with a transnational dimension.

The Commission considers that the ex ante check made
93.
by its services on Member States’ requests for exceptions under
Article 37(3) of Council Regulation (EC) No 1257/1999 were suf-
ficient to ensure coherence between the two instruments. The rea-
sons for the unsatisfactory participation of producers in the
scheme will be assessed in future evaluations.

RECOMMENDATIONS

94.
This issue will be assessed and appropriately addressed in
the forthcoming review of the CMO (end 2006), with the aim of
making the aid scheme simpler and more effective in the future.

The results of the evaluation could lead to additional legislative
initiatives from the Commission, if these are considered to help
achieve the scheme’s objectives.

95.
The Commission is carrying out an impact assessment in
preparation for the CMO reform proposal to be presented later in
2006. It agrees with the aims expressed in the Court’s recommen-
dations and will, as part of the impact assessment, explore how
best they can be achieved.

91.
The Commission acknowledges that operational pro-
grammes effects cannot be seen as the only factor pushing pro-
ducers towards the objectives set in the Council Regulation. How-
ever, they do contribute to a more market oriented approach.
Market forces, particularly recently, have put producers under
enormous pressure, resulting in major crises for leading EU prod-
ucts (i.e. peaches, citrus, table grapes, tomatoes, tomatoes for
processing).

96.
The Commission will improve its capacity to collect data
and develop relevant indicators. To address the data reliability
issue, DG AGRI is starting an IT project in 2006 to have a proper
database in place, starting in 2007.

97.
The scope of the evaluation and the evaluation questions
will be formulated during the preparation of the tender specifica-
tions. The observations of the Court will be taken into account.

As a result of these crises, in a struggle for economic survival and
having cost reduction as a priority, producers may pay less atten-
tion to quality aspects and neglect environmental concerns. This

98.
The Commission will address in its forthcoming reform
proposal the issue of lack of organisation in the main fruit
and vegetable producing Member States by encouraging member-
ship of producer organisations more effectively.

C 282/58

EN

Official Journal of the European Union

20.11.2006

In a sector where supply is facing ever stronger
99 and 100.
bargaining power from the demand side, the concentration of
supply is, and will be, a valid tool for ensuring a more balanced

market. The scope of the evaluation and the evaluation questions
will be formulated during the preparation of the tender specifica-
tions. The observations of the Court will be taken into account.