Special Report No 11/2008#The management of the European Union support for the public storage operations of cereals
Date: 2008-11-19
Institutions: European Court of Auditors
Subjects: atmospheric conditions, cereals, opinion of the Court of Auditors, price fluctuation, price increase, price reduction, production cost, public stock

EUROPEAN COURT 
OF AUDITORS

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THE MANAGEMENT OF THE EU SUPPORT
FOR THE PUBLIC STORAGE OPERATIONS 
OF CEREALS

EN

 
 
 
Special Report No 11  

 2008

THE MANAGEMENT 
OF THE EU SUPPORT 
FOR THE PUBLIC STORAGE 
OPERATIONS OF CEREALS

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

EUROPEAN COURT OF AUDITORS

2

EUROPEAN COURT OF AUDITORS
12, rue Alcide De Gasperi
L-1615 Luxembourg

Tel. (352) 43 98-45410
Fax (352) 43 98-46430
E-mail: euraud@eca.europa.eu
Internet: http://www.eca.europa.eu

Special Report No 11   

 2008

More information on the European Union is available on the Internet (http://europa.eu).

Cataloguing data can be found at the end of this publication.

Luxembourg: Office for Official Publications of the European Communities, 2009

ISBN 978-92-9207-027-4

DOI 10.2865/57636

© European Communities, 2009

Reproduction is authorised provided the source is acknowledged.

Printed in Belgium

CONTENTS

 EXECUTIVE SUMMARY

 INTRODUCTION

 BACKGROUND

 OVERVIEW OF THE MANAGEMENT SYSTEMS

 AUDIT SCOPE AND APPROACH

 OBSERVATIONS

 HAVE THE PHYSICAL OPERATIONS OF THE PUBLIC STORAGE OF CEREALS BEEN WELL MANAGED?
 THE ACCEPTANCE OF CEREALS INTO STORAGE
 THE PHYSICAL SAFEGUARD OF CEREALS IN STORAGE
 THE DISPOSAL OF CEREALS IN STORAGE
 THE AVOIDANCE OF STRUCTURAL STORAGE

 DO THE COMMISSION’S PROCEDURES ENSURE THAT THE COSTS INCURRED BY THE EU ARE MINIMISED?
 TECHNICAL COSTS
 DEPRECIATION COSTS
 FINANCING COSTS

Paragraph 

IIX 

112 

17 

812 

1316 

1743 

1733 
18 
19 
2029 
3033 

3443 
3638 
3940 
4143 

4454 

 CONCLUSIONS AND RECOMMENDATIONS

 ANNEX I  QUANTITIES OF CEREALS IN PUBLIC STORAGE AT THE FINANCIAL YEAR END 30 SEPTEMBER

ANNEX II  EXPENDITURE FOR THE INTERVENTION STORAGE OF CEREALS BY TYPE OF COST

 ANNEX III   DETAILS OF THE COMPUTATION OF THE EXPENDITURE INCURRED IN THE CONTEXT 

OF PUBLIC STORAGE OPERATIONS

THE  COMMISSION’S REPLIES

 
 
 
 
EXECUTIVE 
SUMMARY

I.
The objective of public storage of agricultural 
products is to stabilise the markets and ensure a 
fair standard of living for the agricultural com-
munity. Member States buy in the products at 
the intervention price set by the Council based 
on  a  proposal  from  the  Commission  and  keep 
them in storage until they can be sold without 
undermining prices on the EU markets.

II.
T h e   s t o c k s   o f   c e r e a l s   i n   s t o r a g e   h a v e   b e e n 
d e c r e a s i n g   r e c e n t l y   d u e   t o   a   s i g n i f i c a n t 
increase  in  market  prices.  Future  levels  also 
d e p e n d   u p o n   m a n y   o t h e r   f a c t o r s ,   s u c h   a s 
climatic  conditions  and  the  policy  decisions 
taken in the context of the Commission’s 2008 
‘health check’.

III.
The Court audited the economy of the European 
Union  support  for  the  public  storage  opera-
tions of cereals, and in particular the extent to 
which costs have been minimised and revenue 
maximised.  This  was  based  on  a  review  of  the 
data  at  the  Commission  and  the  two  Member 
States  with  the  largest  stocks.  The  conditions 
a n d   q u a l i t y   o f   a   s a m p l e   o f   1 8   c e r e a l   l o t s   i n 
11 stores were checked on-the-spot.

5

EXECUTIVE 
SUMMARY

IV.
T h e   C o u r t   f o u n d   t h a t   t h e   p r o c e d u r e s   t h a t 
e n s u r e   t h a t   c e r e a l s   b o u g h t   i n   a r e   o f   t h e 
required  quality  and  stored  appropriately  are 
correctly applied.

V.
The  procedures  followed  for  the  disposal  of 
s t o c k s   i n   s t o r a g e   d o   n o t   a l w a y s   e n s u r e   t h a t 
the net costs of intervention are minimised or 
that  stocks  remain  in  storage  no  longer  than 
necessary. The Court recommends that: 

(a) 

the  minimum  sales  price  set  should  take 
the quality and location of the cereals into 
account; 

(b) 

when market conditions allow: 

(i) 

(ii) 

cereals should not be offered for export 
if a higher price can be obtained on the 
internal market; and 
m a r g i n a l l y   l o w e r   o f f e r s   s h o u l d   b e 
accepted  if  this  is  more  than  offset  by 
their future storage costs.

VI.
T h e   t r a n s p a r e n c y   o f   t h e   b u d g e t a r y   p r o c e s s 
could  be  improved  by  identifying  all  the  cost 
elements of any activities which are not directly 
related  to  the  objectives  of  the  intervention 
storage  of  cereals,  such  as  the  support  of  the 
m o s t   d e p r i v e d   p e r s o n s   o r   o f   t h e   b i o e t h a n o l 
industry.

VII.
P a y m e n t s   t o   M e m b e r   S t a t e s   f o r   t h e   s t o r a g e 
o f   c e r e a l s   a r e   b a s e d   o n   d a t a   c o m m u n i c a t e d 
to  the  Commission.  Given  the  significance  of 
the amounts involved, the Commission should 
strengthen its review procedures and introduce 
on-the-spot checks of the data.

VIII.
The  method  of  calculation  of  reimbursements 
to  Member  States  generally  ensures  that  they 
do  not  exceed  the  underlying  costs  and  that 
Member  States  have  an  incentive  to  maintain 
c o s t s   l o w .   H o w e v e r ,   t h e   C o m m i s s i o n   s h o u l d 
review  its  standard  costs  for  operations  with-
out movement. Furthermore, the rates used for 
the  calculation  of  financing  costs  should  be 
reviewed to encourage Member States to pro-
vide their actual financing costs and reduce the 
risk of overcompensation to a minimum.

IX.
W h i l e   t h e   i m p r o v e m e n t s   r e c o m m e n d e d   b y 
the Court have limited financial impact in the 
c u r r e n t   s t r o n g   m a r k e t   s i t u a t i o n ,   p o t e n t i a l l y 
t h e y   c o u l d   h a v e   a   s i g n i f i c a n t   i m p a c t   o n   t h e 
EU  budget  if  cereal  stocks  increase  again  in 
the future. Furthermore, they could impact on 
other  intervention  storage  measures.  There-
fore,  the  Court  strongly  recommends  imple-
menting  these  improvements  at  the  earliest 
possible date.

INTRODUCTION

BACKGROUND 

The objective of public storage of agricultural products is to stabilise the 
related  markets  and  ensure  a  fair  standard  of  living  for  the  agricultural 
community 1. When market prices are low, Member States buy in the prod-
ucts (subject to certain conditions) offered by producers or intermediaries 
at  the  intervention  price  that  is  set  by  the  Council  based  on  a  proposal 
from  the  Commission.  They  are  kept  in  storage  until  disposal  either  to 
the internal market when prices rise or for export.

1  Council Regulation (EC) 
No 1784/2003 (OJ L 270, 21.10.2003, 
p. 78), since repealed by Regulation 
(EC) No 1234/2007 (OJ L 299, 
16.11.2007, p. 1).

The Commission refunds to Member States the cost of storage (warehousing 
and  financing  costs)  and  part  of  the  initial  purchase  cost  of  bought-in 
produce  through  so-called  ‘depreciation’.  Net  proceeds  (proceeds  less 
initial  cost,  adjusted  for  depreciation)  on  disposal  are  credited  to  the 
Community budget. 

By protecting producers from reduced prices, the intervention measure acts 
as  a  safety  net.  However,  it  should  not  distort  markets  by  encouraging 
consistent over-production or cause a structural build-up of stocks.

The intervention policy for cereals dates back to 1962, when the Council 
established it as an instrument of the common organisation of the market. 
Annexes I and II show the quantities and cost of cereals in public storage 
since 2000. The quantity of rye in storage declined following the abolition 
of its intervention in 2003. The quantity of other cereals increased sharply 
in  2005  following  a  good  harvest  and  the  entry  of  the  10  new  Member 
States, but the steadily increasing market prices have negated the need 
for intervention and allowed existing stocks to be sold. As a result, stocks 
were  virtually  nil  by  June  2008.  The  cost  of  public  storage  has  followed 
a similar pattern.

1. 

2. 

3. 

4. 

 
 
 
 
7

5. 

6. 

7. 

Future trends of market prices and intervention stocks depend upon numer-
ous  factors,  such  as  climatic  conditions  and  world  demand,  which  are 
difficult to forecast. While the stocks are not expected to increase again 
in the short term, this remains a possibility for the future. In this respect 
the  ongoing  ‘health  check’  on  agricultural  policy  includes  proposals  by 
the  Commission  to  maintain  public  intervention  for  at  least  the  major 
cereal  (bread  wheat)  and  certain  other  products  in  order  to  maintain  a 
safety-net support in case of market disruptions 2. Another issue discussed 
by  the  Council  was  the  constitution  of  “strategic  stocks”  in  the  interest 
of food security 3.

2  COM(2007) 722 final of 20 
November 2007, followed by 
COM(2008) 306 final of 20 May 2008.

3  Agriculture and Fisheries Council, 
2834th Council meeting, Brussels 
26-27 November 2007 (15333/07 
(Presse 264)).

4  Commission Regulation (EC) 
No 884/2006 (OJ L 171, 23.6.2006, 
p. 35).

Certain of the Court’s findings on disposal policy and costs may apply to 
other products (such as butter, skimmed milk powder, alcohol, beef and 
veal,  bulk  sugar  and  packaged  sugar),  as  they  are  subject  to  the  same 
regulation 4 and management systems.

5  Court of Auditors — Special 
Report No 5/88 on management and 
control of public storage (OJ C 274, 
24.10.1988).

The Court has previously reported on public storage of agricultural products 
in a special report in 1988 5 that focused on the accounting of public stor-
age expenditure as well as checks on the quantity and quality of stocks. 
A  special  report  in  1999 6  dealt  with  the  impact  of  the  1992  CAP  reform 
on the cereals sector.

6  Court of Auditors — Special 
Report No 2/99 on the effects of 
the CAP reform in the cereals sector 
(OJ C 192, 8.7.1999).

 
 
 
8

8. 

9. 

10. 

11. 

OVERVIEW OF THE MANAGEMENT SYSTEMS

The  paying  agencies  of  the  Member  States  are  responsible  for  the  man-
agement  of  public  storage  operations 7.  This  includes  the  purchase  and 
disposal of the cereals, contracting of the storage facilities, carrying out 
various  checks  and  maintaining  the  required  physical  and  accounting 
records. The paying agencies input their physical and financial data into 
a Commission-maintained computer database. The Commission uses this 
information  to  monitor  the  situation  and  calculate  the  amounts  due  to 
or from Member States.

7  Commission Regulation (EC) 
No 884/2006 (OJ L 171, 23.6.2006, 
p. 35).

Producers or intermediaries are given the opportunity to sell cereals to inter-
vention at the intervention price. Before acceptance by the paying agency, 
the cereals are weighed and analysed to ensure that their quality satisfies 
the minimum conditions for intervention. The paying agencies adjust the 
intervention price to take account of certain quality characteristics, such 
as the moisture content, impurities and specific weight.

The cereals are kept in Member State-contracted storage facilities (stores, 
such as warehouses and silos) which are required to meet minimum stand-
ards.  Member  State  paying  agencies  are  required  to  ensure  that  cereals 
in  storage  are  properly  conserved.  This  includes  conducting  an  annual 
stock take as well as ad hoc checks at stores.

The paying agencies inform the Commission whenever a loss or degradation 
occurs. When this results in the cereals no longer fulfilling the conditions 
for intervention, the paying agencies or storekeepers — rather than the 
Community budget — bear the financial responsibility. Any depreciation 
and other costs previously received for the degraded stock is reimbursed 
to the Commission.

 
 
 
 
9

12. 

The Commission determines its approach to disposals of stored cereals on 
the  basis  of  its  market  forecasts.  Tenders  for  the  disposal  of  cereals  are 
then  organised  by  the  Member  States.  The  Commission  decides  upon 
which offers to accept, after consultation with the Management Commit-
tee for Cereals, comprised of representatives from the Member States. The 
committee can reject any proposed decision by a qualified majority. The 
paying agencies are responsible for the implementation of the approved 
disposal operations.

Source: ECA

 
AUDIT SCOPE AND APPROACH 

13. 

14. 

The Court audited the economy of the European Union support for the public 
storage operations of cereals, and in particular the extent to which costs 
have been minimised and revenue maximised.

The questions set for this audit were the following:

(a) 

Have  the  physical  operations  of  the  public  storage  of  cereals  been 
well managed?

(b) 

Do  the  Commission’s  procedures  ensure  that  the  costs  incurred  by 
the EU are minimised?

8  This untypical concentration of 
stocks in these Member States is 
explained by the fact that disposals 
were carried out sooner in other 
Member States for logistical reasons 
(transport to the markets) and the 
high volumes involved.

15. 

The audit approach consisted of:

(a) 

assessing the procedures established by the Commission and the Mem-
ber States for implementing the policy and providing data;

(b) 

testing the compliance of storage operations in the two Member States 
visited; and

(c) 

checking the conditions of storage and quality of cereals in a sample 
of stores.

16. 

The  audit  covered  the  storage  operations  during  the  financial  year  that 
ended  on  30  October  2006  and  the  first  five  months  of  the  following 
financial  year.  The  fieldwork  undertaken  in  2007  included  the  audit  of 
the paying agencies in Germany and Hungary, which together accounted 
for  91  %  of  stocks  in  public  storage  at  the  time  of  the  audit 8.  The  Court 
checked the storage conditions and quality of a sample of 18 cereal lots 
in 11 stores located in these Member States. The sample was selected on 
the basis of the quantities remaining in storage and logistical criteria.

 
 
 
 
OBSERVATIONS

11

HAVE THE PHYSICAL OPERATIONS OF THE PUBLIC 
STORAGE OF CEREALS BEEN WELL MANAGED? 

17. 

In  approaching  the  audit  question,  the  Court  examined  the  extent  to 
which:

(a) 

the cereals bought in are of the required quality;

(b) 

the conditions of storage are appropriate;

(c) 

the cereals are disposed of efficiently as soon as conditions permit;

(d) 

the Commission acts in a way to avoid structural storage.

18. 

19. 

THE ACCEPTANCE OF CEREALS INTO STORAGE

The Court checked the compliance of the paying agencies’ acceptance pro-
cedures  with  the  regulation  in  force  at  the  time 9.  The  documentation 
of  a  sample  of  31  purchases  was  audited  to  verify  their  compliance  and 
the correctness of the related payments. No errors were detected in the 
sample  and  the  documentation  provided  sufficient  evidence  that  the 
paying agencies’ procedures had been carried out in accordance with the 
requirements of the same regulation.

THE PHYSICAL SAFEGUARD OF CEREALS IN STORAGE

The Commission carried out checks in five Member States in 2005 and 2006, 
concluding  that  there  were  no  major  problems  regarding  the  storage 
conditions of cereals in those countries 10. The Court checked the appro-
priateness  of  the  conditions  of  18  cereal  lots  stored  in  11  stores  in  Ger-
many and Hungary. Nine stores were found to be satisfactory. However, 
unsatisfactory storage conditions were identified in two stores, although 
the  paying  agencies  had  already  taken  appropriate  remedial  action  and 
the quality of the cereals was not compromised.

9  Commission Regulation (EC) 
No 824/2000 (OJ L 100, 20.4.2000, 
p. 31), codified by Regulation (EC) 
No 687/2008 (OJ L 192, 19.7.2008, 
p. 20).

10 The Member States visited were 
the Czech Republic, Germany, 
France, Hungary and Slovakia. The 
report of the visit in November 2006 
to Hungary noted that although 
some problems were found, 
considerable improvements had 
been made since the previous visit 
in 2005.

 
 
 
12

20. 

21. 

22. 

23. 

THE DISPOSAL OF CEREALS IN STORAGE

The Court did not detect any weaknesses in the system for disposal operations 
at the paying agencies in Germany and Hungary. The Court also reviewed 
the documentation of a sample of 44 disposals. This provided sufficient 
evidence that the transactions had been properly carried out.

11 Article 5 of Commission Regulation 
(EEC) No 2131/93 (OJ L 191, 
31.7.1993, p. 76).

12 Represents revenue foregone.

The Commission’s stock disposal policy — which is to support producers when 
market prices fall below the intervention price and to avoid undermining 
the market price 11 — reflects its interpretation of the objectives of public 
storage  (see  paragraph  1).  The  disposal  policy  does  not  aim  to  stabilise 
markets when prices are rising. Until recently, this did not have any impact 
because the market price of cereals was below the intervention price. 

In its disposal decisions, the Commission sells either on the EU market, where 
it does not wish to undermine the internal market price, or on the export 
market, where it will accept lower prices to remove the excess stocks from 
the EU market. When the EU market price exceeds the intervention price, 
this policy sometimes results in higher value internal market sales being 
forgone in order not to undermine the EU market prices. However, the risk 
of disrupting the market is lower when markets are strong (characterised 
by rising prices).

For  example,  in  early  2007,  112  800  tonnes  of  German  rye  were  sold  for 
export at prices ranging between EUR 106 and EUR 113 per tonne, while 
on  the  same  dates,  offers  of  EUR  140  per  tonne  on  the  internal  market 
were rejected because they were below the corresponding market price. 
This had an opportunity cost 12 of approximately EUR 3,3 million. Further-
more, in the case of exports the EU reimburses the costs of transport to 
the nearest point of export, whereas sales on the internal market do not 
give  rise  to  any  such  reimbursement.  In  this  example,  the  export  rather 
than internal sale resulted in additional costs of EUR 1,9 million.

 
 
 
 
13

24. 

25. 

26. 

27. 

In the first six months of 2006, sales of German rye were made to the bioetha-
nol sector at lower prices than could have been obtained on the market. 
According  to  the  Commission,  these  sales  were  part  of  a  programme  of 
experimental  support  for  the  energy  sector.  This  choice  had  no  direct 
relationship with the economic management of intervention stocks, and 
resulted in an opportunity cost of approximately EUR 5 million 13.

13 183 000 tonnes sold between 
January and June 2006 at 
approximately 81 euro/tonne, while 
an average price of above 108 euro/
tonne was being obtained on the 
market during this period.

14 In 2007, 667 000 tonnes of cereals 
were withdrawn for the programme 
at an approximate potential loss 
of revenue of 40 euro/tonne which 
would have been earned if the 
cereals had been disposed of on the 
market.

15 Commission Regulation (EEC) 
No 2273/93 (OJ L 207, 18.8.1993, 
p. 1) only states that intervention 
centres should have, inter alia, 
an “advantageous geographical 
location”.

Since 1987, cereals have been withdrawn from EU public intervention stocks 
for the support of a Community programme to contribute to the well-being 
of the most deprived persons. This policy is funded through the budget 
line for the intervention storage of cereals. Due to the recent rise in the 
market price of cereals, the opportunity cost (representing a subsidy for 
the most deprived persons’ budget) can be estimated at EUR 26 million 14 
for 2007. In the past the opportunity cost was lower than currently because 
the only alternative outlet for cereals was the export market.

Disposing of stored cereals at below market price for bioethanol production, 
or withdrawing them for the benefit of the most deprived people in the EU, 
represents a cost to the EU budget (in the form of sales income forgone). 
However,  the  ‘subsidy’  element  of  such  programmes  is  not  allocated  to 
the activities concerned. This leads to a lack of transparency in budgeting 
and reporting.

The centralisation of the decision to sell products makes it difficult, in prac-
tice, to take into account the differences in characteristics between lots. 
At each management committee meeting, the Commission sets a minimum 
disposal price for each Member State and product type, with no distinc-
tion made for geographical location of the store. All offers above the set 
price are accepted and all those below are rejected. However:

(a) 

in  a  Member  State,  all  else  being  equal  (such  as  the  quality  of  the 
cereals),  a  lot  in  a  less  convenient  location  will  receive  lower  offers 
than a similar lot in a more convenient location 15;

(b) 

likewise, differences in the quality of the cereals in storage (in particu-
lar the levels of protein) could affect the value of the offers received. 
While  the  intervention  price  is  adjusted  to  reflect  such  criteria  (see 
paragraph 9), this principle is not applied on disposal.

 
 
 
 
14

28. 

29. 

30. 

31. 

In practice, cereal lots of lower quality or stored in less accessible locations 
will  attract  lower  offers.  When  such  offers,  even  if  economically  sound, 
are below the minimum disposal price set by the Commission, the lot will 
remain in storage. Keeping cereals in storage incurs continuing technical 
and financial costs charged to the Community budget. 

For example, representatives of the paying agency in Germany indicated to 
the  Court  that  the  cereals  remaining  in  storage  at  the  time  of  the  audit 
visit were mainly in less favourably situated regions or stores. The offers 
received for those lots had been lower than for the other lots sold, as they 
reflected the additional transport costs involved, but were not accepted 
by the Commission.

THE AVOIDANCE OF STRUCTURAL STORAGE

As mentioned in paragraph 3, structural storage occurs when the intervention 
policy results in a persistent imbalance between supply and demand for 
the stored cereal. The result is a build-up of stocks over time caused by 
a  level  of  production  which  reacts  to  the  intervention  price  rather  than 
market conditions. The Court examined the extent to which the Commis-
sion managed cereal storage to reduce the risk of structural storage.

The Commission monitors the medium term prospects for the agricultural 
markets  by  means  of  historical  data  and  projections,  updated  every  six 
months. The impact of specific events, such as the accession of new Mem-
ber  States  or  planned  changes  to  public  storage,  is  evaluated  either  by 
the  Commission  itself  or  external  consultants.  The  state  of  the  cereals 
market is regularly discussed between representatives of the Commission 
and Member States at the cereal management committee meetings.

  
 
 
 
15

32. 

33. 

The data on which the Commission assesses the market is necessarily based 
on a number of assumptions and forecasts that can only be used as a guide 
to  market  trends.  It  is  especially  difficult  to  make  accurate  long-term 
forecasts  about  supply  and  demand  because  of  the  variables  involved, 
such as the effect of climatic conditions on forthcoming harvests and the 
demand  for  cereals  for  the  production  of  biofuel.  Action  to  reverse  the 
negative effect of intervention on certain products was only taken when 
a risk had actually materialised and was forecast to worsen.

For example, the Commission proposal to abolish intervention in rye was 
made  in  the  context  of  the  2002  CAP  reform,  although  it  had  already 
been apparent for a number of years that whereas the supply of rye was 
relatively  stable,  demand  was  declining.  Except  in  urgent  cases  such  as 
for  maize  in  2007,  the  pace  of  the  Commission’s  responses  to  structural 
storage  is  in  practice  dependent  upon  the  timetable  of  larger  reforms, 
rather  than  representing  a  quick  and  flexible  reaction  to  market  condi-
tions. However, at the end of 2007 the stocks of most cereals were either 
non-existent or very low indicating little or no current risk of structural 
storage.

Source: ECA

 
 
16

DO THE COMMISSION’S PROCEDURES ENSURE THAT 
THE COSTS INCURRED BY THE EU ARE MINIMISED?

34. 

There are three types of storage costs that the Commission refunds to paying 
agencies, which are described in more detail in Annex III:

(a) 

the technical costs for the entry, monthly storage and removal from 
storage of cereals;

(b) 

the  ‘depreciation’  costs  to  compensate  for  potential  losses  in  the 
value of stored cereals; and

(c) 

the financing costs of the capital used in holding the stocks.

35. 

36. 

37. 

Total expenditure on intervention storage comprises the costs described 
above  as  well  as  the  accounting  profit  or  loss  on  sale  of  stored  cereals 
(representing sale proceeds less written down value — original cost net 
of depreciation); see Annex II.

TECHNICAL COSTS

The Court reviewed the Commission’s system for ensuring the accuracy of 
data  from  Member  States  and  the  use  of  this  data  to  calculate  the  costs 
to be refunded to the paying agencies.

The Court’s audit revealed inconsistencies and inaccuracies in the data used 
to calculate the standard technical costs. 

(a) 

In a sample of four Member States whose real cost data differed from 
the  norm  or  varied  significantly  between  2005  and  2006,  only  one 
Member State had provided the Commission with adequate explana-
tory documentation to support the figures provided.

(b) 

In 1999 the Commission carried out detailed on-the-spot checks which 
identified  a  number  of  issues  that  had  the  potential  to  affect  the 
accuracy  of  the  data  provided  by  the  paying  agencies.  No  further 
on-the-spot checks have been undertaken.

 
 
 
 
16 Once stocks are sold the amount 
of depreciation has no net effect on 
the Community budget, other than 
through the time value of money.

17

38. 

39. 

40. 

In 2005/06, 61 % of purchases and 11 % of disposals did not involve the cereals 
being physically moved into or from the stores in which they were located 
and were therefore at lower cost to the paying agency. The Commission 
calculates  the  standard  costs  of  such  take-overs  or  disposals  of  cereals 
without movement by reducing the equivalent standard cost with move-
ment by 32 %. The Commission could not provide sufficient justification 
to  support  this  figure.  This  adjusted  standard  cost  has  almost  certainly 
resulted  in  Member  States  having  been  reimbursed  more  than  would 
have  been  the  case  if  the  Commission  had  used  the  same  standard  rate 
calculation which better reflected the actual costs incurred as is done for 
transactions with movement. For example, Germany, which accounted for 
27  %  of  cereals  taken  over  without  movement,  was  paid  EUR  2,3  million 
during the marketing year 2005/06 on such transactions, even though no 
costs were actually incurred by the agency.

DEPRECIATION COSTS

The depreciation cost is not an accounting depreciation — which involves 
the writing off of the cost of an asset without movement of funds — but 
compensation paid to Member States for the estimated unrealised loss in 
the value of cereal stocks. The higher the rate that stocks are depreciated, 
the  greater  is  the  cash  flow  advantage  to  the  Member  States  until  the 
cereals  are  sold 16.  The  Court  examined  the  methods  and  approach  used 
by  the  Commission  in  calculating  depreciation  and  the  extent  to  which 
they ensure that depreciation of stocks is appropriate and reasonable.

As explained in Annex III, depreciation is calculated using estimates of the 
future  realisable  value  of  stocks.  These  values  are  established  by  the 
Commission, but there is an insufficient record of the background to the 
assumptions made for the market forecasts on which these estimates are 
based. It is thus not possible for the Court to audit whether the method 
is  realistic  and  has  been  consistently  applied.  Annex  II  shows  that  the 
depreciation  paid  to  Member  States  has  almost  always  resulted  in  an 
excess of proceeds over net book value when cereals have been disposed 
of, indicating that depreciation — and therefore advance payments from 
the Community budget — was at a higher rate than necessary to protect 
Member States but prevented the build-up of Community liabilities.

 
 
 
18

41. 

42. 

43. 

FINANCING COSTS

The Court examined the Commission’s approach to calculating and reimburs-
ing  the  financing  costs  (based  on  the  cost  of  capital),  and  the  extent  to 
which  the  process  ensures  that  such  reimbursements  do  not  overcom-
pensate Member States.

Every year the Commission requests each Member State to calculate and 
declare their cost of capital. If no reply is received, the rate used by the 
Commission for the reimbursement of the Member State’s financing cost 
is the lower of the inter-bank borrowing rate plus one percentage point 
and the uniform rate (see Annex III).

In practice, not all Member States reply, perhaps because of the complexity of 
the calculations involved. For 2006, only 15 Member States declared their 
cost  of  capital,  out  of  which  nine  were  reimbursed  a  total  of  EUR  6  mil-
lion less than if they had not provided the information. For the remaining 
10 Member States that did not declare their cost of capital, the Court has 
no  basis  to  estimate  whether  the  reimbursements  exceeded  their  real 
financing costs.

Source: ECA

 
 
 
CONCLUSIONS 
AND RECOMMENDATIONS

19

44. 

45. 

46. 

47. 

48. 

The Court found that the physical operations of the public storage, including 
the taking in, storing and disposing of cereals have been well managed. 
The Court’s audits to Germany and Hungary indicated that the procedures 
that ensure that cereals bought in are of the required quality and stored 
appropriately are correctly applied.

The Commission’s disposal policy generally minimises the cost of intervention. 
However,  the  Court  identified  cases  where  higher  value  internal  market 
sales  were  forgone  in  favour  of  export  sales  in  order  not  to  undermine 
the EU market prices (see paragraph 22). 

The transparency of the EU budget and accounts is affected by charging the 
cereal storage budget line with the cost of disposal at lower than market 
price in support of the bioethanol industry or the most deprived people 
(see paragraph 26).

A lack of flexibility in the disposal policy — resulting from the fact that the 
quality  and  physical  location  of  the  product  is  not  taken  into  account, 
together  with  the  cost  of  maintaining  it  in  storage  —  means  that  some 
stocks  remain  longer  than  necessary,  so  incurring  additional  financing 
and technical costs (see paragraphs 27 and 28).

The pace of the response to structural storage is often slowed down to coin-
cide  with  the  timetable  of  larger  reforms.  However,  the  urgent  case  of 
maize in 2007 was dealt with promptly (see paragraph 33). 

 
 
 
 
 
20

49. 

The Court recommends that:

(a) 

the  following  factors  should  be  taken  into  account  when  evaluating 
offers received for the disposal of cereals in storage: 

(i) 

setting  a  sales  price  which  varies  based  on  product  quality  and 
physical location;

(ii) 

minimising the period, and thus the costs, of storage by accepting 
marginally lower offers when the market is considered sufficiently 
buoyant;

(iii) 

optimising  revenue  (which  is  credited  to  the  cereal  intervention 
budget line to offset other costs of intervention) by accepting an 
offer  above  the  intervention  price  on  the  internal  market  rather 
than one for export at a considerably lower price;

(b) 

in order to improve the budgetary process, the costs of any activities 
which are not directly related to the intervention storage of cereals, 
such as for the support of the most deprived persons or as a subsidy 
of the bioethanol industry, should be more transparent;

(c) 

action should be taken more promptly to react to potential or actual 
risks of market distortion (structural surpluses).

50. 

51. 

The Commission’s method of calculating costs generally ensures that the EU 
minimises the costs of storage and that Member States have an incentive 
to minimise their costs. However, few checks are carried out on the data 
that is used for the cost calculations, with the risk that wrong data may 
be used (see paragraph 37).

Amounts reimbursed to Member States for storage of cereals are mostly rea-
sonable, but may exceed the underlying costs in the case of the financing 
costs and the standard cost of taking cereals into storage without move-
ment (see paragraphs 38 and 43).

 
 
 
21

52. 

The Commission insufficiently records the background to the assumptions 
made  for  the  market  forecasts  on  which  the  future  realisable  values  of 
cereals are based. The Court cannot therefore verify whether these values, 
used for the calculation of depreciation, are realistic and consistent (see 
paragraph 40).

53. 

The Court recommends that:

(a) 

the  Commission  should  strengthen  its  review  of  the  costs  notified 
by  the  paying  agencies  by  systematically  following  up  any  unusual 
data or trends; on-the-spot inspections should include checks of the 
data used; 

(b) 

the Commission should review its standard costs for operations with-
out movement to ensure that they do not exceed the actual costs;

(c) 

the background to the assumptions made by the Commission for the 
depreciation of cereal stocks should be more clearly documented;

(d) 

the Commission should ensure that the rates are set at levels that act 
as  an  incentive  for  Member  States  to  provide  their  actual  financing 
costs and reduce any risk of overcompensation to a minimum.

54. 

The  Court  recommends  a  simplification  of  procedures  in  the  context  of 
the  ‘health  check’,  particularly  as  public  intervention  for  at  least  the 
major cereal (bread wheat), in order to provide a safety-net support, will 
continue.

This report was adopted by the Court of Auditors in Luxembourg at its meet-
ing of 19 November 2008.

For the Court of Auditors

Vítor Manuel da Silva Caldeira
President

  
 
 
 
 
 
 
22

A N N E X   I

QUANTITIES OF CEREALS IN PUBLIC STORAGE AT THE FINANCIAL YEAR END 30 SEPTEMBER

2004

20051

2000

2 770

23

3 218

1 798

 5

2001

666

12

3 792

2 210

 5

2002

431

3

5 054

2 382

4

2003

1 179

17

173

-

4 715

3 196

800

11

109

-

8 592

2 608

2 307

1 129

2

(1 000 tonnes)

2006

4 218

5 357

546

2 061

3

2007

152

1 218

-

-

-

7 814

6 685

7 874

6 722

3 478

14 638

12 185

1 370

Wheat

Maize

Rye

Barley

Sorghum

Total

1  The ﬁ gures from 2005 include the cereals stored in the 10 Member States that joined the EU in 2004.

Source: Annual ﬁ nancial reports of the EAGGF-Guarantee Section (2000-2006) and of the EAGF (2007).

A N N E X   I I

EXPENDITURE FOR THE INTERVENTION STORAGE OF CEREALS BY TYPE OF COST

2000

325

2001

198

2002

160

2003

177

2004

20051

106

222

2006

353

2007

 192

(million EUR)

30

25

27

(130)

(74)

(14)

239

464

36

185

46

219

23

58

10

268

9

30

47

 25

(97)

(10)

(130)

 (443)

27

45

200

442

68

-

338

 (226)

Technical 
costs (a)

Financial 
costs (b)

Book value — 
proceeds (c)

Depreciation (d)

Total 
expenditure2
(a) + (b) + (c) + (d)

1  The ﬁ gures from 2005 include the cereals stored in the 10 Member States that joined the EU in 2004.

2  Budget line 05 02 01 02 “Intervention storage of cereals”.

Source: Annual ﬁ nancial reports of the EAGGF-Guarantee Section (2000-2006) and of the EAGF (2007).

23

A N N E X   I I I

DETAILS OF THE COMPUTATION OF THE EXPENDITURE INCURRED 
IN THE CONTEXT OF PUBLIC STORAGE OPERATIONS

1. 

2. 

3. 

STANDARD AMOUNTS FOR PHYSICAL OPERATIONS

The standard rates for the three storage operations (entry, monthly stor-
age and removal) are calculated every year on the basis of the real costs 
provided by the Member States for the previous year. Each standard rate 
is  calculated  as  the  weighted  average  of  the  real  costs  of  at  least  four 
Member States with the lowest costs of the operation. The real costs used 
must  correspond  to  at  least  33  %  of  the  average  stored  quantities.  The 
following example illustrates this:

Member State

Real cost of entry (EUR/tonne)

Average stored quantities (tonnes)

A

1,5

200

B

1,7

500

C

1,9

300

D

2,0

100

E

2,5

F

5,0

4 000

6 000

Since the Member States with the lowest four real costs represent less than 
33 % of the total average stored quantities (= 3 663 tonnes), the fifth must 
be  partially  included  in  the  weighted  average  calculation.  The  standard 
rate per tonne for the entry into storage in this example is thus:

(1,5x200 + 1,7x500 + 1,9x300 + 2x100 + 2,5x2 563) / 3 663 = 2,27 euro.

It should be noted that this method ensures that the Commission always 
reimburses  less  than  the  total  real  costs  declared  by  all  Member  States 
taken  together,  although  the  Member  States  declaring  the  least  costs 
will  be  compensated  for  more  than  the  actual  costs  they  incur.  In  the 
above example, the overall average would have been EUR 3,78 per tonne. 
Member  States  have  an  incentive  to  minimise  their  costs  because  costs 
exceeding those reimbursed by the Commission will be borne out of their 
own funds.

 
 
 
 
 
24

4. 

5. 

6. 

7. 

The paying agencies of the Member States are responsible for contracting 
storage space, including determining the individual costs for entry into 
storage, storage and removal from storage. In Hungary, an annual stand-
ard contract is negotiated between the national authorities and the rep-
resentatives  of  the  storekeepers.  In  Germany,  although  a  standard  cost 
for  entry  and  removal  from  storage  is  set  by  the  paying  agency,  twice  a 
year storekeepers submit offers for providing storage space. The paying 
agency then selects the cheapest when needed on the basis of minimising 
the combined transport and storage costs.

In Germany, individual storekeepers have to compete for the service of stor-
ing the cereals. This ensures that costs are kept in line with the market, 
which in turn has a beneficial effect on the standard costs reimbursed by 
the EU.

DEPRECIATION OF STORED CEREALS

Depreciation is determined by the Commission and reimbursed to Member 
States:

(a) 

when the cereals are bought at least 70 % (the so-called K coefficient, 
fixed by the Commission at the beginning of each year) of the differ-
ence  between  the  buying-in  price  and  the  estimated  disposal  price 
for each cereal concerned;

(b) 

at  the  end  of  each  subsequent  accounting  year  by  multiplying  the 
quantities of each cereal in stock in each Member State by the differ-
ence between their carry-over value and estimated selling price.

The carrying value of cereals may be reduced by depreciation but cannot 
be  increased.  Thus,  even  if  at  the  end  of  an  accounting  year,  the  esti-
mated disposal price of the cereals has increased, the carrying value is not 
increased by reversing part of the depreciation cost already reimbursed 
to the Member States.

 
 
 
 
25

8. 

The following example shows that the depreciation rate does not change 
the  overall  cash  flow  of  public  storage  of  cereals,  but  has  an  effect  on 
the  timing  of  the  flow  of  funds  and  how  the  payments  are  allocated  to 
the budgetary years. In the example, the same lot of cereals is bought in 
year  x  at  100  and  sold  in  year  x+1  for  90,  the  only  difference  being  the 
depreciation cost in year x:

Take-over 
cost

Depreciation 
in year x

Carry-over 
value

Disposal 
proceeds in 
year x + 1

Carrying 
value less 
proceeds

Total paid 
by the EU

(a)

100

100

100

A

B

C

(b)

100

50

0

(c) = (a) — (b)

-

50

100

(d)

90

90

90

(e) = (c ) — (d)

(b) + (e)

-90

-40

10

10

10

10

1  The rate to be notified by the 
Member States is the average 
interest rate actually borne during 
the six months preceding the 
request.

2  The uniform interest rate 
corresponds to the average of the 
3-month and 12-month forward 
Euribor rates of the six months 
preceding the request.

3  The interest rate level is one 
percent plus the average of the 
Member States interbank borrowing 
offered rate three months for the six 
month preceding the request.

9. 

10. 

The example illustrates the fact that the depreciation cost affects the cash 
flow of payments (or refunds) from the EU budget to the Member States 
in year x (column b) and year x+1 (column e), but that the overall amount 
paid by the EU is the same.

FINANCING COSTS FOR FUNDS MOBILISED

The financing costs reimbursed to Member States are calculated by the Com-
mission by multiplying the applicable interest rate by the average value 
of the cereals in storage during the accounting year. Every year the Com-
mission requests every Member State to declare their cost of capital:

(a) 

if a reply is received, the interest rate applicable to the Member State 
is the lower of the one declared 1 and the uniform interest rate 2;

(b) 

if  no  reply  is  received,  the  interest  rate  applicable  to  the  Member 
State is the lower of the Member State’s interest rate level 3 plus one 
percent and the uniform interest rate. 

 
 
 
THE COMMISSION’S 
REPLIES

27

EXECUTIVE SUMMARY

V. 
Under  the  current  system  the  resale  price  of 
each  batch  is  determined  without  taking  into 
consideration either its quality or its geograph-
ical location. Doing otherwise would make the 
system very difficult to manage in practice. The 
Commission finds that the current system has 
the advantage of being straightforward, objec-
tive and more efficient.

When market conditions allow, the Commission 
applies these recommendations.

VI. 
The Commission will examine how to respond 
to this observation.

VII. 
The  Commission  currently  carries  out  a  thor-
ough analysis of the cost information received 
f r o m   t h e   M e m b e r   S t a t e s   c o n c e r n e d .   O n   t h e 
basis of the Commission’s risk analysis and the 
limited quantities in store, on-the-spot inspec-
tions of this information cannot be justified at 
this point in time.

VIII. 
T h e   C o m m i s s i o n   i s   e x a m i n i n g   t h e   s i t u a t i o n 
a n d   i t   w i l l   d e c i d e   o n   t h e   m o s t   a p p r o p r i a t e 
method  to  follow  for  the  calculation  of  entry 
a n d   r e m o v a l   s t a n d a r d   c o s t s   w i t h o u t   s t o c k 
movement.  However,  the  current  public  stor-
age situation does not allow the Commission to 
establish a method whereby intakes and remov-
als costs with no movement can be efficiently 
accounted for and used in devising a new cal-
culation method.

The  Commission  is  also  working  on  the  most 
a p p r o p r i a t e   m e t h o d   t o   f o l l o w   i n   t h e   c a s e s 
where  certain  Member  States  do  not  declare 
their  interest  costs,  in  the  framework  of  the 
Commission’s calculation of the specific inter-
est rate to be used for the reimbursement of the 
financing costs for public storage operations.

IX. 
T h e   C o m m i s s i o n ’ s   p r o p o s a l s   p u t   f o r w a r d   i n 
May  2008,  in  the  framework  of  the  so-called 
health check, include several measures aimed 
a t   a d a p t i n g   t h e   c e r e a l s   i n t e r v e n t i o n   s y s t e m 
t o   t h e   n e w   m a r k e t   s i t u a t i o n   a n d   r e i n f o r c e 
the  role  of  public  intervention  as  a  safety-net 
mechanism.

There are currently no public stocks for butter 
and skimmed milk powder and for many years 
not for beef and veal either. Furthermore, there 
have been no intakes for sugar while outtakes 
are expected to limit sugar stocks in store. For 
alcohol,  the  reformed  wine  market  has  abol-
ished all new intakes into public storage as of 
1 August 2008.

A  new  Commission  regulation  is  foreseen  by 
e n d   o f   2 0 0 9   e s t a b l i s h i n g   c o m m o n   r u l e s   a s 
regards buying-in under public intervention.

OBSERVATIONS

22. 
Export  is  the  main  outlet  for  stocks  of  inter-
vention  cereals.  It  is  essential  to  avoid  a  situ-
a t i o n   w h e r e   m a s s i v e   r e s a l e s   o n   t h e   i n t e r n a l 
market  would  lead  to  a  sharp  drop  in  prices, 
which would in turn trigger intervention offers. 
Resales on the internal market have therefore 
taken  place  only  during  marketing  years  with 
high  price  levels.  Care  has  been  taken  not  to 
upset the market, which required cautious man-
agement of the changeovers from reselling for 
export to reselling on the internal market.

23. 
Over  time,  rye  became  a  structural  stock.  In 
spite  of  the  Commission’s  efforts  to  find  out-
lets, the final stocks could not be cleared until 
the summer of 2007, although rye had not been 
eligible for intervention since 2003.

D u r i n g   t h e   y e a r   2 0 0 6 / 0 7   t h e   m a r k e t   e x p e r i -
e n c e d   a n   u n e x p e c t e d   t u r n a r o u n d .   I n t e r n a l 
prices rose sharply.

28

The  situation  referred  to  by  the  Court,  where 
two tenders were open simultaneously, lasted 
for  only  five  weeks.  The  export  tender,  with 
lower sales prices, was closed in favour of the 
internal market tender.

24. 
Two  prices  existed,  a  higher  one  for  regular 
rye  and  a  lower  one  for  rye  used  to  produce 
bioethanol.

The  pilot  project  conducted  in  2005/06  con-
cerned  200  000  tonnes  harvested  in  2003  and 
earlier.  In  spite  of  the  additional  opportunity 
c o s t ,   p a s t   a n d   p o t e n t i a l   s t o r a g e   e x p e n s e s 
(EUR  2  per  tonne  per  month)  were  sufficient 
reason put this new outlet to the test.

25. 
The programme to supply food to the poorest 
was  set  up  in  1987,  when  intervention  stocks 
h e l d   b y   t h e   C o m m u n i t y   w e r e   v e r y   l a r g e 1.   I t 
provided an outlet for large stocks that would 
otherwise have remained in public storage and 
entailed large expenses for the Community.

The accounting value of goods made available 
f r o m   i n t e r v e n t i o n   s t o c k s   f o r   m o s t   d e p r i v e d 
persons  has  been  fixed  by  the  Council  at  the 
intervention price.

T h e   s u c c e s s i v e   r e f o r m s   o f   t h e   C A P   l e d   t o   a 
drastic reduction in the Community’s interven-
tion stocks. This means that the programme to 
supply  food  to  the  poorest  has  to  undergo  a 
thorough  review.  On  17  September  2008,  the 
Commission adopted a proposal to review the 
relevant Council regulation.

1  Council Regulation (EEC) No 3730/87 of 10 December 1987, 
replaced by the Single CMO, Council Regulation No 1234/2007.

26. 
With regard to the most deprived persons sup-
port  scheme,  the  cereals  outtakes  are  funded 
through budget item 05 02 04 01. Furthermore, 
t h e   p u b l i c   s t o r a g e   a c c o u n t s   c l e a r l y   i d e n t i f y 
separately  all  stock  movements  involving  the 
f r e e   d i s t r i b u t i o n   s c h e m e .   T h e   i m p l e m e n t a -
tion  of  these  two  separate  accounts  leads  to 
the  transparent  presentation  of  the  financial 
c o s t   o f   t h i s   s c h e m e   t o   t h e   E U   b u d g e t   b o t h 
from  the  budgetary  and  the  stock  accounting 
viewpoints.

The  tender  for  the  resale  of  rye  in  view  of  its 
processing into ethanol was a pilot project for 
a limited quantity of grain (200 000 tonnes, of 
which 190 505 were sold). The accounts for this 
one-off tender are included in the budget line 
for sales of intervention rye, together with the 
other  three  tenders  opened  the  same  market-
ing year, for 0,2 million, 0,5 million and 1 mil-
lion  tonnes  respectively.  The  pilot  project  for 
bio-ethanol represented less than 11 % of the 
quantities of intervention rye put on sale dur-
ing  that  marketing  year.  It  was  therefore  not 
necessary  to  create  a  specific  budget  line.  In 
addition, this tender has not been reopened in 
subsequent years.

27 and 28. 
Under  the  current  system  the  resale  price  of 
each  batch  of  cereals  is  determined  without 
taking  into  consideration  either  its  quality  or 
i t s   g e o g r a p h i c a l   l o c a t i o n .   D o i n g   o t h e r w i s e 
would  make  the  system  very  difficult  to  man-
age in practice.

The Commission has chosen to adhere to gross 
prices  and  let  the  tender  mechanism  and  its 
inherent  competition  element  determine  the 
order  in  which  the  batches  are  sold.  It  would 
be  difficult  to  take  real  transport  costs  into 
account  in  any  meaningful  way,  because  they 
are unknown and would have to be estimated 
on  a  hypothetical  basis.  Therefore  the  Com-
mission  finds  that  the  current  system  has  the 
advantage  not  only  of  being  straightforward 
and objective, but also more efficient.

29

29. 
Batches  further  afield  from  consumption  cen-
tres generally fetch less competitive offers and 
consequently are the last to be sold. An ad-hoc 
approach is possible in such cases. For instance, 
in  October  2007  the  Commission  located  the 
last  remaining  stocks  in  Hungary,  which  con-
sisted of small batches spread across different 
locations,  by  obtaining  information  from  the 
national authorities on a case-by-case basis.

T h e   s a m e   h a s   b e e n   d o n e   i n   t h e   p a s t   w i t h 
Finnish  and  Swedish  stocks  stored  in  difficult 
locations.  On  more  than  one  occasion,  prices 
have  been  accepted  on  the  basis  of  this  con-
sideration.  However,  as  useful  as  tailor-made 
approaches may be for the final batches, they 
would be very difficult to manage if used from 
the outset, for all batches put on sale.

31. 
Market analyses are discussed with representa-
tives  from  the  Member  States  in  the  manage-
ment  committee,  which  meets  twice  monthly, 
a n d   i n   t h e   S t a n d i n g   G r o u p   ‘ C e r e a l s ’   o f   t h e 
A d v i s o r y   C o m m i t t e e   ( w i t h   r e p r e s e n t a t i v e s 
from  traders  and  civil  society),  which  meets 
four times a year.

32 and 33. 
Over the past few years the Commission made 
several  proposals  to  modify  the  cereals  inter-
vention system, more specifically in connection 
with  Agenda  2000,  the  2003  mid-term  reform 
and  maize  in  2006.  Thanks  to  these  proposals 
the  intervention  system  could  be  adapted  to 
the changed market conditions.

Given that the stocks’ size is no longer a prob-
l e m ,   t h e   C o m m i s s i o n   p r o p o s e d   a   n u m b e r   o f 
changes  in  May  2008  (health  check)  to  adapt 
the  system  to  present-day  market  conditions 
and reinforce its role as a safety net.

37. 
The  Commission  proceeds  to  an  analysis  and 
t o   a   t h o r o u g h   q u e s t i o n i n g   o f   t h e   i n f o r m a -
tion  forwarded  by  the  Member  States.  This  is 
clearly  evidenced  by  the  established  working 
files which contain not only the Member States’ 
initial  replies  to  the  Commission’s  question-
naire  but  also  all  the  additional  communica-
tions exchanged between the Commission and 
the Member States as a result of this analysis. 
There have been many instances where Member 
States  have  amended  their  initially-declared 
costs following the Commission’s analysis and 
questioning of their declarations. Furthermore, 
the Commission considers that it has received 
adequate  explanatory  information  to  support 
the figures provided by the Member States. It, 
therefore,  does  not  share  the  analysis  of  the 
Court that only one of the four Member States 
selected provided adequate justification to the 
Commission.

The on-the-spot checks carried out in 1999 have 
not been repeated since because the findings 
were considered by the Commission not to be 
sufficiently important and, after due considera-
tion  under  the  clearance  of  accounts  proce-
dure, when effect on the fund was established 
as negligible the enquiries were closed.

30

38. 
According  to  applicable  rules,  in  cases  where 
there  is  no  movement  of  stocks,  the  costs  of 
t r a n s p o r t   a n d   r e m o v a l   f r o m   t h e   w a r e h o u s e 
shall be deducted from the intervention price. 
In the case of Germany, for the period in ques-
tion,  the  transport  and  removal  costs  entered 
into the technical costs account leading to the 
reduction of the technical costs reimbursed to 
Germany.

43. 
For 2006, the Council had provided derogation 
to  the  applicable  rules  for  the  Member  States 
which were incurring very high financing costs. 
As a result these Member States could be reim-
bursed  on  the  basis  of  specific  interest  rates 
h i g h e r   t h a n   t h e   a p p l i c a b l e   u n i f o r m   i n t e r e s t 
rate set at 2,2 % for 2006. These specific rates 
were fixed on the basis of the declared financ-
ing costs by the Member States concerned.

The Commission will examine the situation and 
it will decide on the most appropriate method 
t o   f o l l o w   f o r   t h e   c a l c u l a t i o n   o f   e n t r y   a n d 
removal  standard  costs  without  stock  move-
ment once the public storage situation would 
allow it.

40. 
The Commission considers it has adequate evi-
dence to support the assumptions made for the 
market  forecasts  on  which  the  cereal  values 
are based.

The  cereals  selling  price  is  the  one  used  for 
establishing the credit appropriations needed 
i n   o r d e r   t o   f u n d   t h e   c e r e a l s ’   m a r k e t   c r e d i t 
requirements  included  in  the  amending  let-
ter  of  each  budget.  The  amending  letter  does 
indeed  explain  the  rationale  of  the  retained 
budget  hypotheses  which  are  communicated 
to  the  Budgetary  Authority  which  examines, 
and  eventually,  adopts  the  budgetary  credits 
needed.

The Commission will examine the situation and 
it will decide on the most appropriate method 
to  follow  when  Member  States  do  not  declare 
their  interest  costs,  in  the  framework  of  the 
Commission’s calculation of the specific inter-
est rate to be used for the reimbursement of the 
financing costs for public storage operations.

CONCLUSIONS 
AND RECOMMENDATIONS

46. 
The Commission has ensured that the Commu-
nity budget reflects the cost of public storage 
in a transparent manner. On one hand, interven-
tion  cereals  used  for  the  support  programme 
for  the  poorest  are  financed  under  a  separate 
b u d g e t   h e a d i n g :   0 5   0 2   0 4   0 1 .   O n   t h e   o t h e r , 
public  storage  accounts  clearly  itemise  stock 
movements relating to this programme. Creat-
ing  these  two  separate  accounts  has  made  it 
possible to detail the programme’s cost trans-
parently,  both  for  the  purposes  of  the  Com-
m u n i t y   b u d g e t   a n d   s t o c k   m a n a g e m e n t .   T h e 
accounting value of goods made available from 
intervention stocks for most deprived persons 
has been fixed by the Council at the interven-
tion price.

31

As regards the resale of rye as a raw material for 
making ethanol, this was part of a pilot project 
and  happened  on  a  very  small  scale.  The  cost 
of  this  one-off  tender  was  included  under  the 
budget  heading  for  the  resale  of  intervention 
rye,  together  with  three  other  public  tenders 
held during the same year. It was therefore not 
necessary to create a separate budget heading. 
Moreover,  no  such  tender  has  been  launched 
since.

49. (a)
(i) 
Under  the  current  system  the  resale  price  of 
each  batch  is  determined  without  taking  into 
consideration either its quality or its geograph-
ical location. Doing otherwise would make the 
system very difficult to manage in practice. The 
Commission finds that the current system has 
the advantage of being straightforward, objec-
tive and more efficient.

47. 
Taking  on  board  criteria  such  as  quality  and 
g e o g r a p h i c a l   l o c a t i o n   t o   d e t e r m i n e   r e s a l e 
p r i c e s   f o r   e v e r y   b a t c h   o f   c e r e a l s   s e p a r a t e l y 
would be very difficult in practice.

48. 
The  Commission  would  repeat  that  over  the 
p a s t   f e w   y e a r s   i t   m a d e   s e v e r a l   p r o p o s a l s   t o 
adapt  the  cereals  intervention  system,  more 
specifically  in  connection  with  Agenda  2000, 
the  2003  mid-term  reform  and  maize  in  2006. 
Thanks to these proposals the intervention sys-
tem  could  be  adapted  to  the  changed  market 
conditions.

Given that the stocks’ size is no longer a prob-
l e m ,   t h e   l e g i s l a t i v e   p r o p o s a l s   o f   M a y   2 0 0 8 
( h e a l t h   c h e c k )   w e r e   d e s i g n e d   t o   a d a p t   t h e 
system  to  present-day  market  conditions  and 
reinforce  the  intervention  system’s  role  as  a 
safety net.

An ad-hoc approach can and has been followed 
o n   s e v e r a l   o c c a s i o n s   f o r   t h e   l a s t   r e m a i n i n g 
batches at the end of each exercise.

(ii) 
The Commission already follows this approach 
when it considers it appropriate.

(iii) 
The Commission already follows this approach 
when it considers it appropriate.

49. (b) 
The Commission will examine how to respond 
to this recommendation.

49. (c) 
Intervention stocks have disappeared and the 
proposals made by the Commission in May 2008 
(health check) include a number of adjustments 
to adapt the system to present-day market con-
ditions and reinforce its role as a safety net. A 
new Commission regulation laying down com-
mon rules for public intervention purchases is 
expected by the end of 2009.

50. 
The  Commission  proceeds  to  an  analysis  and 
to  a  thorough  questioning  of  the  information 
forwarded by the Member States.

51. 
The Commission is examining the situation and 
it will decide on the most appropriate method to 
follow for the calculation of entry and removal 
standard costs without stock movement.

The  Commission  is  also  working  on  the  most 
a p p r o p r i a t e   m e t h o d   t o   f o l l o w   i n   t h e   c a s e s 
where  certain  Member  States  do  not  declare 
their  interest  costs,  in  the  framework  of  the 
Commission’s calculation of the specific inter-
est rate to be used for the reimbursement of the 
financing costs for public storage operations.

52.
The Commission considers it has adequate evi-
dence to support the assumptions made for the 
market  forecasts  on  which  the  cereal  values 
are based.

The  cereals  selling  price  is  the  one  used  for 
establishing the credit appropriations needed 
i n   o r d e r   t o   f u n d   t h e   c e r e a l s ’   m a r k e t   c r e d i t 
requirements  included  in  the  amending  let-
ter  of  each  budget.  The  amending  letter  does 
indeed  explain  the  rationale  of  the  retained 
budget  hypotheses  which  are  communicated 
to  the  Budgetary  Authority  which  examines, 
and  eventually,  adopts  the  budgetary  credits 
needed.

32

53. (a) 
The  Commission  currently  carries  out  a  thor-
ough analysis of the cost information received 
f r o m   t h e   M e m b e r   S t a t e s   c o n c e r n e d .   O n   t h e 
basis of the Commission’s risk analysis and the 
limited quantities in store, on-the-spot inspec-
tions of this information cannot be justified at 
this point in time.

53. (b) 
T h e   C o m m i s s i o n   i s   e x a m i n i n g   t h e   s i t u a t i o n 
a n d   i t   w i l l   d e c i d e   o n   t h e   m o s t   a p p r o p r i a t e 
method  to  follow  for  the  calculation  of  entry 
a n d   r e m o v a l   s t a n d a r d   c o s t s   w i t h o u t   s t o c k 
movement.  However,  the  current  public  stor-
age situation does not allow the Commission to 
establish a method whereby intakes and remov-
als costs with no movement can be efficiently 
accounted for and used in devising a new cal-
culation method.

53. (c) 
The Commission’s procedure as regards the sell-
ing price for cereals determines the amount of 
the depreciation of cereals stocks to be made. 
This  selling  price  is  thoroughly  documented 
a n d   p r e s e n t e d   t o   t h e   B u d g e t a r y   A u t h o r i t y 
as  part  of  the  amending  letter  of  each  year’s 
budget.

53. (d) 
The Commission is working on the most appro-
priate method to follow in the cases where cer-
tain Member States do not declare their interest 
costs,  in  the  framework  of  the  Commission’s 
calculation  of  the  specific  interest  rate  to  be 
used  for  the  reimbursement  of  the  financing 
costs for public storage operations.

54. 
T h e   C o m m i s s i o n ’ s   p r o p o s a l s   p u t   f o r w a r d   i n 
May  2008,  in  the  framework  of  the  so-called 
health check, include several measures aimed 
a t   a d a p t i n g   t h e   c e r e a l s   i n t e r v e n t i o n   s y s t e m 
t o   t h e   n e w   m a r k e t   s i t u a t i o n   a n d   r e i n f o r c e 
the  role  of  public  intervention  as  a  safety-net 
mechanism.

European Court of Auditors

Special Report No 11/2008

The management of the EU support for the public storage operations of cereals

Luxembourg: Office for Official Publications of the European Communities

2009 — 32 pp. — 21 × 29.7 cm

ISBN 978-92-9207-027-4

DOI 10.2865/57636

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IN THIS REPORT, THE EUROPEAN COURT OF AUDITORS ANALYSES THE 

MANAGEMENT OF EU SUPPORT FOR PUBLIC STORAGE OPERATIONS 

FOR  CEREALS  TO  ASCER TAIN  WHE THER  THE  COST  TO  THE  EU  IS 

MINIMISED.

THE  REPORT  FINDS  SOME  ASPEC TS  OF THE  MANAGEMENT  OF THE 

PHYSICAL STORAGE OPERATIONS AND THE COMMISSION’S PROCEDURES 

SATISFACTORY, WHILST HIGHLIGHTING OTHER ASPECTS THAT NEED 

I M P R O V I N G.  T H E S E  O B S E R VAT I O N S  F O C U S  I N  PA R T I C U L A R  O N 

IMPROVING BUDGETARY TRANSPARENCY AND, IN CERTAIN CASES, THE 

POSSIBILITY OF AVOIDING SOME STORAGE COSTS OR SALES INCOME 

FOREGONE. THE REPORT MAKES A NUMBER OF RECOMMENDATIONS 

TO THIS EFFECT, WHICH MIGHT HAVE A SIGNIFICANT IMPACT IF CEREAL 

STOCKS INCREASE AGAIN IN FUTURE. FOR THAT REASON, THE COURT 

STRONGLY RECOMMENDS IMPLEMENTING THESE IMPROVEMENTS AS 

SOON AS POSSIBLE.

EUROPEAN COURT OF AUDITORS

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ISBN 978-92-9207-027-4