Has the EU support to the food-processing industry been effective and efficient in adding value to agricultural products?. Special Report No 1, 2013.
Date: 2013-04-05
Institutions: European Court of Auditors
Subjects: agricultural product, aid to agriculture, audit, competitiveness, distribution of EU funding, food industry, food processing

EUROPEAN
COURT OF AUDITORS

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HAS THE EU SUPPORT TO THE FOOD-PROCESSING 

INDUSTRY BEEN EFFECTIVE AND EFFICIENT IN 

ADDING VALUE TO AGRICULTURAL PRODUCTS?

EN

 
 
 
 
Special Report No 1 

 2013

HAS THE EU SUPPORT TO THE 
FOOD-PROCESSING INDUSTRY 
BEEN EFFECTIVE AND EFFICIENT IN 
ADDING VALUE TO AGRICULTURAL 
PRODUCTS?

(pursuant to Article 287(4), second subparagraph, TFEU)

EUROPEAN COURT OF AUDITORS

EUROPEAN COURT OF AUDITORS
12, rue Alcide De Gasperi
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LUXEMBOURG

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Fax +352 4398-46410
E-mail: eca-info@eca.europa.eu
Internet: http://eca.europa.eu

Special Report No 1 

 2013

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It can be accessed through the Europa server (http://europa.eu).

Cataloguing data can be found at the end of this publication.
Luxembourg: Publications Office of the European Union, 2013

ISBN 978-92-9241-137-4
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© European Union, 2013
Reproduction is authorised provided the source is acknowledged.

Printed in Luxembourg

3

CONTENTS

Paragraphs

GLOSSARY

I–VIII 

EXECUTIVE SUMMARY

1–6 

INTRODUCTION

7–11 

AUDIT SCOPE AND APPROACH

12–77 

OBSERVATIONS

12–28 

 PART ONE 
HAS THE MEASURE BEEN DESIGNED IN A WAY THAT PROVIDES FOR THE EFFICIENT FUNDING OF PROJECTS 
ADDRESSING CLEARLY IDENTIFIED NEEDS?

15–18 

 THE LEGISLATION PUTS THE ONUS ON MEMBER STATES TO ENSURE THAT THE MEASURE IS EFFECTIVE 
AND EFFICIENT …

19–23 

… BUT MEMBER STATE RDPs DO NOT CLEARLY JUSTIFY THE NEED FOR THE MEASURE

24–28 

THE COMMISSION APPROVED RDPs DESPITE WEAKNESSES

29–69 

 PART TWO 
HAVE MEMBER STATES IMPLEMENTED THE MEASURE WITH DUE REGARD TO VALUE FOR MONEY?

30–32 

CHECKS GIVE LIMITED ASSURANCE ON THE FINANCIAL SUSTAINABILITY OF PROJECTS

33–51 

MEMBER STATES DO NOT SELECT PROJECTS WITH THE HIGHEST POTENTIAL BENEFIT

52–61 

 MEMBER STATES’ PROGRAMMING AND IMPLEMENTATION OF THE MEASURE DO NOT EFFECTIVELY MITIGATE 
RISKS OF DEADWEIGHT …

62–66 

… AND DISPLACEMENT

67–69 

THESE WEAKNESSES LEAD TO MIXED RESULTS FOR THE EFFICIENCY AND EFFECTIVENESS OF THE GRANTS

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70–77 

 PART THREE 
HAVE THE COMMISSION AND THE MEMBER STATES APPROPRIATELY MONITORED AND EVALUATED 
THE RESULTS OF THE MEASURE?

73–74 

MEMBER STATES DO NOT EFFECTIVELY MONITOR MEASURE 123 PROJECTS

75–77 

 MID-TERM EVALUATIONS ARE OF LIMITED USE FOR DEMONSTRATING THE EFFICIENCY AND EFFECTIVENESS 
OF THE MEASURE

78–87 

CONCLUSIONS AND RECOMMENDATIONS

ANNEX I  —  EU FUNDS FOR MEASURE 123 PROGRAMMED AND SPENT  

(AS AT DECEMBER 2011)

ANNEX II  —  LIST OF PROJECTS AUDITED AND THE COURT’S ASSESSMENT OF  

THE EFFICIENCY AND EFFECTIVENESS OF THE GRANT

ANNEX III  —  MID-TERM EVALUATION REPORTS REVIEWED

REPLY OF THE COMMISSION

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GLOSSARY

5

Axes: Rural development in the 2007–13 programming period is implemented under three thematic axes, 
which represent coherent groups of rural development measures, and one horizontal axis dedicated to the 
LEADER approach (LEADER axis).

CAP: Common agricultural policy: the set of legislation and practices adopted by the European Union to pro-
vide a common, unified policy on agriculture.

CMEF: Common Monitoring and Evaluation Framework.

Community strategic guidelines: With these strategic guidelines the Council identifies the European Union’s 
priorities under the European Agricultural Fund for Rural Development (EAFRD). The idea is to ensure the 
consistency of rural development with other EU policies, in particular in the field of cohesion and environ-
ment, and accompany the implementation of the new common agricultural policy (CAP) and the restructuring 
involved.

Deadweight: A situation where a subsidised project would have been wholly or partly undertaken without 
the grant aid.

Displacement: The degree to which an activity promoted by public support is offset by reductions in activity 
elsewhere.

EAFRD: European Agricultural Fund for Rural Development.

Measure: An aid scheme for implementing a policy. A measure defines the rules for the projects that can be 
financed within an axis.

MTE: Mid-term evaluation report.

Multi-annual supply contract: Type of contract that establishes the terms of business between an agricul-
tural producer and a processor or distributor over a period of several years.

Measure 123 : The measure for ‘adding value to agricultural and forestry products’.

Programming period: Multiannual framework to plan and implement EU policies such as Rural Development 
policy; the current Rural Development period runs from 2007 to 2013.

RDP: Rural Development Programme, a programming document prepared by a Member State and approved by 
the Commission to plan and implement the EU’s rural development policy. A RDP may be prepared on regional 
or national level.

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EXECUTIVE SUMMARY

I.
As part of the EU’s rural development policy grants are 
made available to enterprises that process and market 
agricultural products through a measure called ‘Adding 
value to agricultural and forestry products’ that aims 
to improve the competitiveness of agriculture and for-
estry. For the current programming period, 2007–13, 
the EU budget for this measure is some 5,6 billion euro. 
This financing is complemented by national spending, 
which brings the total public funding to 9 billion euro.

II.
The Court’s audit examined whether the EU support 
had been effective and efficient in adding value to 
agricultural products. In particular, the Court ques-
tioned whether the measure was designed and imple-
mented in a way that provides for the efficient fund -
ing of projects addressing clearly identified needs and 
whether the measure is monitored and evaluated in 
a way that allows its results to be demonstrated.

III.
As is to be expected, the projects mostly improved the 
financial performance of the companies concerned 
and a number of the projects audited may result in 
some added value. This, however, could not be attrib-
uted to the design of the measure or the selection pro-
cedures used by the Member States. There was a lack 
of evidence to demonstrate that the companies aided 
needed a subsidy, or the specific policy objectives that 
the subsidy was expected to achieve. The Court con-
cludes that the support has not been systematically 
directed to projects that effectively and efficiently add 
value to agricultural products.

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IV.
Member  States  must  draw  up  Rural  Development 
Programmes (RDPs) tailoring the aid to their needs 
through national or regional objectives and setting 
the scope of the measure to ensure that efficient use 
is made of the funding available. However, the Court 
found that only general objectives were set, which 
did not demonstrate how the funding was intended 
to add value to agricultural products or improve the 
competitiveness of agriculture. Despite this lack of 
specificity, the Commission approved the programmes.

V.
Member States should set eligibility criteria to limit the 
type of investment or beneficiary eligible for funding 
and then selection criteria to identify the most effec-
tive and efficient projects to be supported. The audit 
found that eligibility criteria were set that allowed 
almost any food-processing company to be eligible. 
Furthermore, selection systems were poor or non-exist-
ent and while there were sufficient resources — which 
is often the case at the beginning of a programming 
period — were not applied at all.

VI.
The Court found that Member States do not direct the 
funding to projects for which there is a demonstrable 
need for public support. Without this, the measure risks 
becoming a handout — a general support to enter -
prises investing in the food-processing sector — with 
the attendant risks of distortion of competition and 
waste of scarce public money.

7

EXECUTIVE SUMMARY

VII.
Almost a fifth of the EU budget for improving the com-
petitiveness of agriculture is paid to food-processing 
companies but the effects on the competitiveness of 
agriculture can only be indirect and there is no clear 
intervention logic. However, the monitoring and eval-
uation arrangements do not collect information on 
added value or on the effects on competitiveness of 
agriculture. Consequently, the current arrangements 
are unlikely to provide the information necessary to 
demonstrate the success or otherwise of the funding 
allocated to the measure or to provide a basis to assess 
the effectiveness of the measure when programming 
rural development measures for the 2014–20 period.

VIII.
The Court therefore recommends that:

(a)  Member States’ programmes clearly identify the 
need for funding and set objectives that are mean-
ingful and  measurable; the Commission  should 
only approve programmes that do so.

(b)  Selection criteria should be defined that enable 
the most effective projects to be identified. To en-
sure that the EU funds are used efficiently, these 
criteria should be rigorously applied, even when 
there is sufficient budget available to finance all 
eligible projects.

(c)  The Commission and Member States should pro-
mote the adoption of best practices in respect of 
the mitigation of deadweight and displacement 
risks.

(d)  The monitoring and evaluation framework appli-
cable to the projects financed should be improved 
for the forthcoming programming period to en-
sure that the effectiveness of the funds spent can 
be properly measured.

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INTRODUCTION

8

1. 

2. 

3. 

As part of the aid given for rural development under pillar 2 of the com-
mon agricultural policy (CAP), provision is made for a specific measure 
‘Adding value to agricultural and forestry products’ (hereafter ‘meas-
ure 123’). Measure 123 contributes to the axis 1 objective of improving 
the competitiveness of agriculture and forestry as introduced by Regula-
tion (EC) No 1698/2005 (see  Box 1)1.

Through measure 123, public money is made available to enterprises with 
fewer than 750 employees or less than 200 million euro turnover that 
process and market agricultural and forestry products. Support is given 
to fund investments that should add value to those products. This should 
ultimately benefit the competitiveness of agriculture, for example by 
developing new market opportunities for agricultural products2. Second-
ary benefits may include creating jobs in rural areas and environmental 
improvements.

Having regard to the requirements of the relevant regulations set at EU 
level, Member States draw up Rural Development Programmes (RDPs), 
at national or regional level, in which they define a strategy and pro -
pose the measures they wish to use to address their identified needs. 
The RDPs only become operational after the Commission has approved 
them. EU and national funds should then be channelled to investment 
projects through measure 123 by using eligibility and selection crite -
ria. The following figure describes the different stages of the decision-
making process leading to the financing of an investment project with 
measure 123 funds.

1  Axis 1: improving the 
competitiveness of the 
agricultural and forestry 
sector; axis 2: improving 
the environment and 
the countryside; axis 3: 
improving the quality of 
life in rural areas. Council 
Regulation (EC) No 1698/2005 
of 20 September 2005 
on support for rural 
development by the 
European Agricultural Fund 
for Rural Development 
(EAFRD) (OJ L 277, 
21.10.2005, p. 1) and Council 
Decision 2006/144/EC 
of 20 February 2006 on 
Community strategic 
guidelines for rural 
development (programming 
period 2007 to 2013) 
(OJ L 55, 25.2.2006, p. 20).

2  For enterprises that 
are not small or medium-
sized (i.e. with fewer than 
250 employees and less than 
50 million euro turnover) the 
maximum rate of support is 
halved.

BOX 1

EXTRACT FROM REGULATION (EC) NO 1698/2005

Axis 1
Improving the competitiveness of the agricultural and forestry sector
Article 20
Measures

Support targeting the competitiveness of the agricultural and forestry sector shall concern: ... (b) measures 
aimed at restructuring and developing physical potential and promoting innovation through: ... (iii) adding 
value to agricultural and forestry products.

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EU aid is co-financed with national public money and the total public 
expenditure on the measure will be some 9 billion euro. The measure 
is used principally to give grants towards the beneficiaries’ investment 
costs. Member States may determine the aid rate, within limits. Most 
grants are for between 20 % and 50 % of the companies’ total eligible 
investments.

The EU budget for the period 2007–13, for measure 123, totals 5,6 bil -
lion euro. This represents  5,9  % of the planned EU expenditure on rural 
development and 18 % of the total allocated for improving the com -
petitiveness of agriculture and forestry (axis 1) 3. The Figure in Annex I 
shows the programmed EU funds by Member State and the financial 
implementation as at the end of 2011. At that date, 35 % of the planned 
expenditure for the period had been spent.

3  European Union, 
Directorate-General for 
Agriculture and Rural 
Development, ‘Rural 
Development in the 
European Union — Statistical 
and Economic Information, 
Report 2011’, section 4.3.4 
(‘Main Rural Development 
Instruments funded by 
EAFRD’).

4. 

5. 

FIGURE

Rural development policy defined at EU level
   EU policy objective: improving the competitiveness of agriculture
   Measure: adding value to agricultural products
(Community Strategic Guidelines, Council Regulation)

Strategic programming at Member State level 
   Identiﬁcation of speciﬁc needs and objectives
(National Strategic Plans, Rural Development Programmes)

Proposed by the 
Commission and 
approved by the 
Council

Proposed by the 
Member States 
and approved by 
the Commission

Detailed rules and procedures at Member State level 
(national or regional legislation, procedures, guides)

Project selection

Funding allocated to investments for the processing and 
marketing of agricultural products

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6. 

As only about 5  % of the approved expenditure for the measure relates 
to forestry projects, this audit focused on support granted for adding 
value to agricultural products. The investments financed are generally 
made by start-up or existing businesses for new or improved plant and 
machinery or for the construction of new facilities to process and market 
agricultural products (see Box 2).

BOX 2

EXAMPLES OF THE TYPES OF INVESTMENTS FINANCED BY MEASURE 123

Investments financed included milling equipment for the production of olive oil ...

... equipment for drying ham, and ...

... systems for modernising milk processing.

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AUDIT SCOPE AND APPROACH

11

7. 

The  Court  sought  to  assess  whether  the  measure  was  designed  and 
implemented in a way that provides value for money and whether the 
projects financed achieved the objectives of the measure. Furthermore, 
the Court assessed whether the results of the measure as a whole were 
appropriately monitored and evaluated to allow the Member States and 
the Commission to identify and react to any problems encountered and 
to provide objective information on the measure’s achievements.

4  Deadweight refers to the 
extent to which a beneficiary 
would have undertaken 
the investment even in the 
absence of public financial 
support. Displacement is the 
degree to which an activity 
promoted by public support 
is offset by reductions in 
activity elsewhere.

8. 

The overall audit question was:

Has the EU support to the food-processing industry been effective 
and efficient in adding value to agricultural products?

The main sub-questions were:

 — Has  the  measure  been  designed  in  a way  that  provides  for  the 

efficient funding of projects addressing clearly identified needs?

 — Have Member States implemented the measure with due regard 

to value for money?

 — Have the Commission and the Member States appropriately moni-

tored and evaluated the results of the measure?

9. 

10. 

In  the  context  of  this  audit,  projects  were  considered  as  effective,  if 
they were sustainable and contributed to specific RDP objectives for 
the measure as well as adding value to agricultural products. The fund-
ing was considered to be efficient if deadweight was limited and any 
displacement was justified4.

The Court’s audit covered six national and regional rural development 
programmes (RDPs), selected mainly for their size: Spain (Castilla y León), 
France, Italy (Lazio), Lithuania, Poland and Romania. In France, the na-
tional RDP is implemented regionally and the Rhône-Alpes region was 
selected for this audit.

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11. 

The  audit  work  comprised  a review  of  the  RDPs,  an  examination  of 
the  Member  States’  management  systems  and  separate  audit  visits 
to 24 completed food-processing projects in these Member States, in -
cluding four projects nominated by the Member States as best practice 
examples. The remainder were selected by the Court to give a range of 
projects typical of those financed in the Member State concerned. A list 
of the projects audited is in Annex II. The Court also reviewed the mid-
term evaluation reports for 23 RDPs (see list in  Annex III).

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OBSERVATIONS

13

PART ONE

HAS THE MEASURE BEEN DESIGNED IN A WAY 
THAT PROVIDES FOR THE EFFICIENT FUNDING 
OF PROJECTS ADDRESSING CLEARLY IDENTIFIED 
NEEDS?

Good design of the measure is essential for sound financial management. 
The measure grants public support to investments by private enterprises 
in the food-processing and marketing sector. These enterprises have 
their own motivations and objectives, which may coincide with the EU’s 
policy objective of improving the competitiveness of agriculture (see 
paragraph 15), but this is not automatic. The sector is considered to be 
one of the world’s most competitive and innovative5. Providing funding 
to such companies should therefore be in response to a clearly identi -
fied need. The need for public intervention has to be established and 
the logic for how this will improve the competitiveness of agriculture 
explained.

Clear and specific RDP objectives reflecting the particular needs of the 
Member State or the region are therefore a prerequisite for effective pro -
ject selection and to provide a basis for accountability, to demonstrate 
what should be and later what has been achieved6. If specific needs for 
public intervention have not been identified and RDP objectives are too 
general, this may give rise to the selection of projects which provide little 
or no contribution towards improving the added value of agricultural 
produce and thereby improving the competitiveness of agriculture.

The Court reviewed EU legislation, RDPs and Member State systems, 
procedures and documents to obtain evidence as to whether the design 
of measure 123 at both EU and Member State level was likely to lead to 
the efficient funding of effective projects addressing clearly identified 
needs.

12. 

13. 

14. 

5  Council Decision 
2006/144/EC.

6  Article 43 of Commission 
Regulation (EC) No 1974/2006 
of 15 December 2006 
laying down detailed 
rules for the application 
of Council Regulation (EC) 
No 1698/2005 on support 
for rural development by 
the European Agricultural 
Fund for Rural Development 
(EAFRD) stipulates, ‘For 
investment measures, 
Member States shall ensure 
that support is targeted on 
clearly defined objectives 
reflecting identified structural 
and territorial needs and 
structural disadvantages’ 
(OJ L 368, 23.12.2006, p. 15).

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15. 

16. 

17. 

18. 

THE LEGISLATION PUTS THE ONUS ON MEMBER STATES TO ENSURE 
THAT THE MEASURE IS EFFECTIVE AND EFFICIENT …

Objectives are defined in the EU legislation only at the level of the rural 
development policy axes, in this case axis  1, with the objective of im-
proving the competitiveness of agriculture7. Measure 123 aims to con -
tribute to this through adding value to agricultural products that are 
processed or marketed following the investments made. The legislation 
itself does not specify what the added value is intended to be (purely 
financial, from an environmental or a quality standpoint, etc.) nor to 
whom such added value should accrue.

A similar measure existed in the previous programming period 2000–06 8, 
which stipulated: ‘Investment must contribute to improving the situation 
of the basic agricultural production sector in question. It must guarantee 
the producers of such basic products an adequate share in the result-
ing economic benefits.’ Similar rules also existed under earlier support 
schemes9.

There are no such requirements in the current programming period. 
The regulation 10 requires investments in processing and marketing to 
‘improve the overall performance of the [supported] enterprise’, i.e. the 
legislation only specifies that there should be a benefit to the individual 
food-processing and marketing enterprises concerned.

The removal of the previous requirement that the aid should improve 
the situation for agricultural producers and the absence of prescrip-
tion on how the measures are to add value are intended to simplify the  
legal texts and allow Member States to define the measure in a way that 
best meets their circumstances and needs. Consequently, the onus is on 
Member States to ensure that the measure results in improved added 
value and achieves benefits for the competitiveness of agriculture. The 
Commission, when approving the RDPs, should ensure that this is the 
case.

7  Article 4 of Regulation (EC) 
No 1698/2005.

8  Article 26 of Council 
Regulation (EC) No 1257/1999 
of 17 May 1999 on support 
for rural development from 
the European Agricultural 
Guidance and Guarantee 
Fund (EAGGF) and amending 
and repealing certain 
Regulations (OJ L 160, 
26.6.1999, p. 80).

9  Article 9(1) of Council 
Regulation (EEC) No 355/77 
of 15 February 1977 on 
common measures to 
improve the conditions 
under which agricultural 
products are processed 
and marketed (OJ L 51, 
23.2.1977, p. 1); Article 12(1) 
of Council Regulation (EEC) 
No 866/90 of 29 March 1990 
on improving the processing 
and marketing conditions for 
agricultural products (OJ L 91, 
6.4.1990, p. 1); Article 12(1) 
of Council Regulation (EC) 
No 951/97 of 20 May 1997 
on improving the processing 
and marketing conditions 
for agricultural products 
(OJ L 142, 2.6.1997, p. 22).

10  Article 28(1)(a) 
of Regulation (EC) 
No 1698/2005.

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19. 

20. 

21. 

15

… BUT MEMBER STATE RDPs DO NOT CLEARLY JUSTIFY THE NEED FOR 
THE MEASURE

Through the ongoing process of the simplification of EU law and the 
principle of subsidiarity, EU legislation has evolved to be quite general 
and non-prescriptive, as described above. However, Member States’ RDPs 
at either national or regional level, are required by the legislation11 to 
be more specific. RDPs have to be approved by the Commission, which 
has overall responsibility for the efficient and effective spending of the 
EU budget.

11  Article 5 of Regulation (EC) 
No 1974/2006.

Specifically, RDPs are required to analyse the existing situation in terms 
of strengths and weaknesses and to develop a strategy in relation to 
them. The RDP must provide evidence to show that the support is tar-
geted on clearly defined objectives reflecting identified territorial needs 
and structural disadvantages. Furthermore the RDPs should identify the 
rationale for the intervention and define the types of investments and 
beneficiaries that would be eligible for support. If done well, this should 
result in an effective and efficient programming of the measure.

However, the RDPs audited did not identify specific needs for interven-
tion in the food-processing sector, such as instances where the pos-
sibilities to add value to agricultural products were hindered by inad-
equate processing capacity. Where needs were identified, they were of 
a very general nature. For example in Poland, the RDP stated ‘Support 
of agricultural products processing is of crucial importance because the 
sector is one of the most important branches of Polish economy.’ The 
RDPs did not show why public support was necessary and how it could 
achieve the desired change. The rationale for the measure was therefore 
missing and the objectives set were necessarily general and were not 
clearly linked to the regional strengths and weaknesses identified nor 
to a clearly identified need for intervention. They were often verbatim 
copies of the EU objectives, or slightly modified recitals of those objec-
tives (see Box 3 for some examples).

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22. 

A final step in programming is to define the eligibility conditions — the 
types of investments, the categories of beneficiaries and the nature of 
the support — to ensure that the aid is directed to the specific objectives 
that have been set. Despite the lack of specific objectives, all RDPs set at 
least some eligibility conditions. In the case of France, the Rhône-Alpes 
programming document stated that the entire food-processing sector 
was eligible throughout the region’s territory with the exception of sugar 
and milk substitutes. Other Member States, Spain (Castilla y León) and 
Lithuania in particular, went further in defining specific eligibility con-
ditions. Lithuania excluded most new construction in sectors that had 
received support under previous programmes, such as new slaughter-
houses or milk processing plants, as there was already sufficient capacity. 
In Spain (Castilla y León), wine-related projects were eligible only if they 
concerned wines with a geographical indication of origin, for example.

23. 

These eligibility conditions have the effect of restricting the scope of 
the aid to some extent. However, almost all major food sectors remain 
eligible, with the risk that the aid will not be sufficiently targeted.

BOX 3

EXAMPLES OF OBJECTIVES SET FOR MEASURE 123

The objective identified in the RDP of Castilla y León is ‘to improve the processing and marketing of the prod -
ucts of the primary and forestry sectors through investments to improve the efficiency, renewable energies, 
new technologies and new market opportunities.’ These elements are taken from recital 23 of Regulation (EC) 
No 1698/2005, without any further specification.

The national RDP of France sets the objective of the measure as ‘to improve the competitiveness of the agri-
food industry.’ This general formulation allows specific objectives to be established at regional level. However, 
the region Rhône-Alpes, audited by the Court, did not do so.

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THE COMMISSION APPROVED RDPs DESPITE WEAKNESSES

Prior to approving the Member States’ RDPs, the Commission is required 
to check the consistency of the RDP objectives with EU and national 
strategies and with the identified needs and weaknesses. However, as 
the RDPs audited defined objectives in such general terms, this check 
of consistency is not very meaningful.

12  See paragraphs 33 to 37 of 
Special Report No 8/2012 
(http://eca.europa.eu).

The Commission’s procedures to assess RDPs do not contain any verifi-
cation that the Member State or region is strategically targeting meas-
ure 123 support to where public intervention is needed. No checks are 
made on the rationale for intervention. The Commission does not assess 
how effectively or efficiently the proposed measure will generate an 
added value for agricultural products and improve the competitiveness 
of agriculture.

Despite the weaknesses described in paragraphs 21 to 23 above, the 
Commission approved the RDPs in question. Once an RDP is approved by 
the Commission and EU funds are made available to the Member State, 
it is more difficult for the Commission to retroactively ensure that the 
measures will be effective and efficient12.

The  audit  has  shown  that  the  design  and  the  programming  of  the 
measure has not sufficiently addressed the risks that follow from para-
graphs 12 and 13. This makes it more important — but also more dif -
ficult — for Member States to avoid the risks and ensure effectiveness 
and efficiency when selecting the individual projects for support. This 
issue is covered in the next part of this report.

A second consequence is that there is not a satisfactory basis for moni-
toring and evaluation and for accountability. This issue is covered in 
part III.

24. 

25. 

26. 

27. 

28. 

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PART TWO

HAVE MEMBER STATES IMPLEMENTED THE MEASURE 
WITH DUE REGARD TO VALUE FOR MONEY?

29. 

To make best use of public money, when implementing the measure 
Member States should:

13  This was formerly stated 
in Article 26(1) of Regulation 
(EC) No 1257/1999.

 — ensure, prior to granting funding, that applicants demonstrate the 

financial sustainability of the project;

 — ensure that support goes to projects that offer the best results in 

adding value to agricultural products;

 — mitigate the risks of deadweight and displacement.

CHECKS GIVE LIMITED ASSURANCE ON THE FINANCIAL 
SUSTAINABILITY OF PROJECTS

30. 

Although the legislation no longer requires applicants to demonstrate 
the viability of their enterprises13, all Member States audited still carry 
out viability checks on the applicants’ financial accounts.

BOX 4

VIABILITY CHECKS: WEAKNESSES IN PRACTICE

Lithuania: The maximum attainable revenue from the investment project (grain drying and storage facilities) 
operating at full capacity could be calculated at LTL 4 million. The projection of LTL 29 million presented in the 
grant application was clearly unattainable.

Romania: A sample of 17 application files showed unrealistically high forecasts, with returns on investment of 
more than 90 % for half of these projects.

Italy (Lazio): As the methodology for assessing the financial projections was public, project promoters knew 
that if their business plan did not show financial data that met the required minimum values their applica-
tion would be rejected. Unsurprisingly, no projects were submitted that did not reach the required score. The 
region’s officials did not check the information submitted or evaluate whether the projections were realistic or 
not. The auditors found that in several cases, sales figures and other financial information had been overstated.

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31. 

32. 

33. 

34. 

35. 

The current legislation requires Member States to check that the invest-
ment improves the overall performance of the enterprise receiving sup-
port. All the audited Member States obtained relevant projections from 
the applicants showing expected turnover, profits, cashflows, etc. With 
the exception of France (Rhône-Alpes), the Member States compared 
these projections to minimum values and rejected projects that did not 
meet the requirements. However, a common weakness was that Member 
States relied on the projections made by the applicants without checking 
that the figures and the underlying assumptions were well-founded and 
plausible. In particular, projections were not tested for different scenarios 
to ensure that project proposals were sufficiently robust to withstand 
foreseeable events, such as downturns in market conditions, for example.

The Court found unrealistic assumptions, calculation errors and other 
inconsistencies in the financial projections that had not been detected 
by the Member State authorities during the appraisal of the project (see 
examples in Box 4).

MEMBER STATES DO NOT SELECT PROJECTS WITH THE HIGHEST 
POTENTIAL BENEFIT

As shown in part I, the Member States audited did not identify structural 
and  territorial  needs for public intervention and did not set  specific 
objectives for the measure. As a consequence a wide range of potential 
projects in almost all food sectors was eligible for support.

Three main instruments are available to the Member States to ensure 
that support is nevertheless directed to the projects that best meet the 
national or regional needs: application of selection criteria, imposing 
specific conditions and varying the aid rates to give incentives.

SELECTION SYSTEMS

Member States are expected to make a selection from within the popu -
lation of eligible investment projects, using selection criteria related to 
the objectives set. This is a requirement of the EU legislation. It allows 
the relative merits of project proposals to be evaluated on an objective 
basis and for those projects that do not represent value for money to be 
rejected.

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Spain (Castilla y León) and Poland have not defined such selection cri -
teria. The selection systems applied in the other four Member States 
audited are characterised by weaknesses, described below.

While most of the selection criteria were relevant to the (albeit general) 
national and regional objectives for the measure, few concerned the 
degree to which the projects added value to the agricultural products. 
Those  that  did  were  not  highly  weighted  in  the  evaluation,  with  an 
exception in Italy (Lazio) (see Box 5). In Lithuania and Romania priority 
was given to criteria unrelated to the effectiveness or efficiency of the 
project (see Box 6).

SELECTION CRITERIA RELATED TO ADDED VALUE

Lithuania

Poland

Romania

France
(Rhône-Alpes)

Italy 
(Lazio)

Introduction of 
innovation  
(5th priority out of 6)

No selection criteria

None

Organic production 
(5 points/100)
Traditional products 
(3 points/100)

Organic production 
(10 points/100)
Product innovation 
(4 points/100)
Quality improve-
ments for wine  
(38 points/100)

Spain 
(Castilla y León)

No selection criteria

36. 

37. 

BOX 5

BOX 6

CRITERIA UNRELATED TO THE EFFECTIVENESS OF THE PROJECT

In Lithuania, the first priority is automatically given to applicants that have not previously received a grant, 
regardless of the quality of the project.

Romania rejects projects that fail to achieve a minimum score of 20 points from the assessment of the selection 
criteria. One criterion concerns whether the project is in a ‘priority sector’. However, all the major food sectors 
(dairy, meat, cereals, wine, fruit and vegetables) are classed as priority sectors, with scores of 32 to 36 points. 
Consequently, almost all projects automatically achieve the minimum score.

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38. 

39. 

With  the  exception  of  Romania,  at  the  time  of  the  audit  the  EU  and 
national budgets programmed for the measure by the Member States 
audited was more than sufficient to be able to support every eligible 
project application. Instead of limiting support to the most effective 
projects these Member States chose to spend the budget on projects 
that they had identified as low priority. The selection systems in these 
Member States have had little or no effect (see Box 7).

SPECIFIC CONDITIONS

Member States may define specific conditions to be met by the investment 
projects to ensure that they will contribute to national and regional objec-
tives. This facility was not widely used in the audited Member States but 
there were instances in Poland, and Italy (Lazio). In Poland beneficiaries 
are required as a condition of the grant to conclude multi-annual ‘sup -
ply contracts’ with agricultural producers covering at least  50  % of their 
supplies. This is intended to improve the situation of farmers by giving 
them some stability by fixing the quality and quantity of produce to be 
delivered. Supply contracts are also a condition of the grant in Italy (Lazio).

BOX 7

SELECTION SYSTEMS THAT HAVE LITTLE EFFECT

In Italy (Lazio) there is no minimum score so projects have been selected with as little as 15 points out of 100 
in the project evaluation, indicating a poor contribution to the region’s priorities and objectives.

In France (Rhône-Alpes) the national cofinancing is granted by the regional council and/or the local council. 
The regional council evaluates projects against its own, regional, objectives and rejects projects that do not 
achieve a minimum score. However, the rejected projects nevertheless received EU funding, as co-financing for 
these was provided by the local council, which does not operate a formal selection system.

In Lithuania, the selection system of prioritisation is only applied if the budget is insufficient to finance all 
eligible projects — which, at the time of the audit, had not been the case. Projects could therefore be selected 
even if they did not meet any of Lithuania’s six priorities.

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INCENTIVES

For projects co-financed by the regional council in France (Rhône-Alpes), 
supply contracts are not an obligation but project promoters may make 
a voluntary commitment. In return for this, and other commitments such 
as using local suppliers or creating new jobs, the beneficiary is given 
an additional 5  % or 10  % aid. How much additional effect this practice 
leads to is unclear: three of the four beneficiaries visited in this audit 
met the conditions for the additional aid without having to adapt their 
projects (for example, the cooperatives already had supply contracts 
with local suppliers, i.e. their members). The fourth beneficiary (a maker 
of traditional sausage products) declined the additional aid element as 
they did not want to be tied to regional suppliers of pork.

14  Lithuania and Poland 
are exceptions in that the 
companies had to declare 
some information on their 
financial situation after the 
grant. 

In Spain (Castilla y León), projects were assessed against evaluation cri -
teria, which determined the aid rate applicable. Several criteria were 
related to priorities identified in the regional legislation, such as projects 
that conclude contracts with local farmers or that are related to innov- 
ation or organic production. However, only around 2 % of the projects 
corresponded to each of these criteria. The incentive effect of the evalu-
ation criteria is reduced because of the predominance of criteria related 
to the size of the company and the food sector: small or medium-sized 
beneficiaries in sectors such as fruit and vegetables automatically re-
ceived the maximum 40 % aid rate regardless of the other characteristics 
of the project. Aid rates for larger companies, which were as low as 3 % 
in the dairy sector or 7 % in the wine sector, for example, are unlikely to 
provide sufficient incentive to potential applicants that may have had 
proposals for effective projects.

ASSESSMENT OF AUDITED PROJECTS

The Member States audited14 did not have information to show if the 
projects to which they had given financial support were financially sus-
tainable and effective, i.e. that they had achieved specific RDP objectives 
for the measure and added value to agricultural products.

The Court assessed the financial sustainability and effectiveness for the 
24 projects as illustrative case studies. The contribution to specific RDP 
objectives could not be assessed as the RDPs set only very general objec-
tives (see part I). Consequently, projects were considered as ‘effective’ if 
they resulted in an added value for agricultural products. The results of 
this assessment are shown in Annex II and summarised below.

40. 

41. 

42. 

43. 

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44. 

45. 

46. 

47. 

All of the 24 projects visited by the Court’s auditors were financially sus -
tainable at the time of the audit. In two cases, it was too soon to assess 
the impact of the project on the company’s financial results but of the 
remaining 22 companies, 15 had improved their financial results since 
the investment. Seven of these had achieved or exceeded their financial 
targets, and in eight cases, although the targets were not achieved, some 
improvement in the companies’ financial situation had occurred. In seven 
cases, the company’s financial results had deteriorated, although only in 
one case was the future sustainability of the project at risk. The reasons 
given were complex but ultimately the projects were insufficiently robust 
in sometimes unfavourable market conditions.

It might be expected that most investments by food processing and mar-
keting companies would result in adding value to agricultural produce 
as this is the nature of their business. The Court assessed the results of 
the projects in terms of the value added, including whether new prod-
ucts were created, new market opportunities developed or the quality 
of existing products improved.

The Court found that six of the projects had a clear effect in adding value 
and classified these as ‘high added value’ according to the criteria set out 
in paragraph 45 (although this result may be biased to an extent as the 
projects in France, Spain (Castilla y León) and Romania were best practice 
projects nominated by the Member State). These projects had as their 
main objective to increase added value and included wine producers 
that moved production to higher quality wines and an olive mill that 
introduced organic production. Further examples are given in Box 8.

A  further  12  projects were assessed as medium by the Court for their 
results in adding value. These were characterised by improvements to 
product quality that did not affect the sales price, or new products that 
were small-scale in relation to the investment or of low value. An ex-
ample is a 1,5 million euro investment by a tomato processing plant in 
Romania that enabled it to meet hygiene standards and produce a high 
volume, low cost range of own-label products for supermarket chains.

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BOX 8

PROJECTS THAT CLEARLY ADDED VALUE TO AGRICULTURAL PRODUCE

In Spain (Castilla y León) , a 1 million euro investment improved the ham drying process by expanding the 
storage and handling areas and providing new equipment. This allowed the drying times to be increased from 
11 months to 18 months, thus improving the quality of the final products and enabling the company to gain 
certification for authentic ‘jamón serrano’ and ‘jamón ibérico’ products. The new equipment also enabled new 
types of products to be produced with a higher added value — vacuum-packed and boneless dried ham.

In France, in a 200 000 euro project a new company purchased equipment for producing vegetable crisps. 
The company developed new products with a high added value and created new market outlets for organic 
vegetables produced in the area.

In Romania, a 1,1 million euro project by one of the country’s leading wine producers invested in modern 
equipment for wine production, conditioning, bottling and transport. As a result of the project, the company 
was able to increase the share of quality wines in the total sales. A  new high quality brand was introduced, 
which helped the company expand to external markets.

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48. 

49. 

50. 

The remaining six projects resulted in little or no adding of value to the 
agricultural products and were aimed primarily at increasing the capacity 
and/or efficiency of the processor. Displacement is an issue with these 
projects in particular (see paragraphs 62 onwards). Examples are given 
in Box 9.

The Court further assessed whether there was a demonstrable benefit to 
the agricultural producers that supplied the processing and marketing 
companies concerned. Eight of the 24 projects could demonstrate that 
the added value at least partly accrued to the agricultural producers. 
Seven of these were cooperatives. A further seven beneficiaries in Italy 
(Lazio) and Poland were obliged to conclude supply contracts, which 
may have had some value for the producers. For the remaining nine 
projects, the companies could not demonstrate a benefit for their agri-
cultural suppliers.

A common, horizontal objective of all the RDPs was to create new jobs in 
rural areas. While this is not the primary objective of measure 123, pro -
jects that create employment in addition to adding value enhance the 
effectiveness of the measure. Three of the projects had a strong impact 
on employment, each creating over 20 new jobs (but see paragraphs 62 
to 66 for findings on displacement) and nine projects created at least 
one new job. A  further 11 projects had no impact on employment and 
one project led to a reduction.

BOX 9

PROJECTS THAT ADDED LITTLE OR NO VALUE TO AGRICULTURAL PRODUCE

In France, the main element of a cheese company’s investment project was a new cutting and packaging line. 
The company supplied whole cheeses to another processor for packaging. The new line enabled the company 
to instead sell pre-packaged cheese directly to retailers and thereby capture a higher share of the added value 
themselves at the expense of the other processor. The final product remained unchanged.

In Spain (Castilla y León) , a  project that qualified for the maximum  40  % aid rate had no effect on the added 
value of the product: the investment was a simple increase in storage capacity at a fruit distributor, with the 
aim of allowing the distributor to capture a greater market share.

In Romania, the main element of a milling company’s 1,8 million euro project was the purchase of a fleet of 
12 lorries for collecting the wheat and distributing the flour products. With a  50 % grant for the purchase of the 
lorries, the company is able to operate its own fleet of vehicles at a lower cost than the haulage contractor that 
the company used previously. This, however, has had no impact on the value added to the agricultural produce.

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51. 

Three of the projects also contributed to horizontal environmental objec-
tives through energy and water savings resulting from improved process-
ing equipment and techniques.

52. 

53. 

54. 

MEMBER STATES’ PROGRAMMING AND IMPLEMENTATION OF THE 
MEASURE DO NOT EFFECTIVELY MITIGATE RISKS OF DEADWEIGHT …

Deadweight refers to the extent to which a beneficiary would have un -
dertaken the investment even in the absence of public financial sup-
port. To give a grant in such cases is an inefficient use of the EU and 
national budgets as it is not needed to achieve the desired effect (i.e. the 
investment).

The primary means of reducing the risk of deadweight is to design and 
programme  the  measure  such  that  it  is  only  used  where  there  is  an 
identified need for public intervention. Public support may be needed, 
for example, where investments are innovative, making it difficult for the 
investor to raise capital; or where the financial returns are insufficient 
to justify the full costs of the investment, such as in a project that has 
mainly environmental benefits. However, as shown in part I, the Member 
States audited did not identify such needs and did not set specific ob-
jectives so the measures were open to all investment projects whether 
public support was needed or not.

A second level at which Member States can mitigate the risk of dead -
weight is in the project selection process. The Member States audited all 
obtained detailed information about each beneficiary’s financial situa-
tion and the costs and financial projections for the investment. This was 
used to check the requirement that the investment would improve the 
overall performance of the beneficiary company. In doing so, the Mem-
ber States could also check whether the applicant needed a grant for 
the project to be viable and whether the applicant had sufficient capital 
or access to capital to finance the entire project. None of the Member 
States audited did so.

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55. 

56. 

57. 

In Lithuania the opposite occurred: project applications that showed 
a high rate of return on the investment were given priority. Yet these 
were likely to be the projects with the least need for support. In Romania, 
many business plans showed very high rates of return. Although these 
projections appear unrealistic the Romanian authorities accepted them 
without questioning why a project with a 90 % return on investment 
needed public support. Similarly in Spain (Castilla y  León), the projects’ 
financial data evaluated by the authorities showed rates of return of 
over 30 % and payback of 3 or 4 years even without taking the grant into 
account.

A strong indication of the deadweight effect is where investments have 
already started or even been completed before a decision is taken to 
award a grant. In these situations, the beneficiary has demonstrated, by 
his initial investment decision that he was willing and able to carry out 
the investment without the aid. Consequently, it is considered good 
practice for Member States to exclude such cases from the measure, 
thereby increasing the likelihood that the aid will be directed to those 
that need it.

Romania  applied  this  good  practice  and  considers  investment  costs 
eligible for support only if incurred after the approval of the grant. In 
contrast, in Lithuania, the authorities accepted project costs retroactively 
up to two years before the submission of the support application. Sup-
port of around 115 million euro was retrospectively approved and paid 
for 37 large projects in Lithuania.

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58. 

59. 

In the other Member States audited, investments were generally eligible 
from the date of submission of the application, with some exceptions 
in Spain (Castilla y León), France and Italy (Lazio) that allowed project 
costs to be financed even if incurred before applying for EU support (see 
example in Box 10).

The audit found long delays for project approval and payments. In Spain 
(Castilla y Léon) and Italy (Lazio), the approval of projects took on aver -
age 14 and 17 months respectively and in France, Poland and Romania, 
approximately 8 months. Delays put the applicant in a position of having 
to decide whether to start the investment, with the risk that their grant 
application may be rejected and they would have to finance the project 
entirely themselves — or to delay the investment and potentially miss 
a business opportunity. Applicants that cannot afford to take this risk 
(for example, those with innovative projects that cannot raise sufficient 
capital) are effectively excluded from the aid scheme, yet these are the 
very  projects  with  the  greatest  need  for  support.  In  contrast,  where 
the applicants are able to pre-finance the investments from their own 
resources (which was the case for 7 of the 24 projects audited) or long-
term  loans,  the  aid  becomes  a mere  reimbursement  to  beneficiaries 
rather than a source of complementary financing and is an indication 
of likely deadweight.

BOX 10

AN INDICATION OF DEADWEIGHT: GRANTING EU FUNDING FOR ALREADY COMPLETED 
PROJECTS

In France, a cooperative in the wine sector applied for a grant from a local council aid scheme unrelated to the 
EU rural development policy. It received the maximum grant of 50 000 euro for its investment project, which 
was completed in 2007. Measure 123 came into operation in France in May 2008 with a higher aid ceiling. 
The cooperative applied for and received an additional grant of 37 000 euro from measure 123 for the same 
project. Given that the cooperative had already completed the project with the 50  000  euro grant, the add-
itional 37 000 euro was clearly deadweight.

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15  Special Report No 5/2010 
on implementation of the 
Leader approach for rural 
development; Special Report 
No 8/2012 on targeting of 
aid for the modernisation of 
agricultural holdings  
(http://eca.europa.eu).

16  When replying to the 
horizontal evaluation 
question identified by the 
Commission in the Common 
Monitoring and Evaluation 
Framework, ‘To what 
extent has the programme 
design been successful 
in avoiding deadweight 
and/or displacement?’, the 
mid-term evaluations of the 
Czech Republic, Germany 
(Lower-Saxony/Bremen and 
Mecklenburg-Vorpommern), 
Lithuania, the United 
Kingdom (England and Wales) 
RDPs indicate a deadweight 
risk of approximately 50 % for 
measure 123.

60. 

61. 

62. 

63. 

The Court assessed the 24 projects visited for the risk of deadweight 
based on documentation and discussions with the beneficiary on the 
company’s financial situation and access to capital; how the project was 
financed (in particular for the period before the grant was received); the 
timing of the investment in relation to the grant decision; the nature of 
the project and its importance in the company’s strategy; and the pro-
ject payback or rate of return (see Annex II). Indications of deadweight 
were strong in eight of the 24 projects visited with indications of some 
deadweight in a further 11.

The Court has already identified and made recommendations on this 
issue in previous reports15. The weaknesses in programming and in the 
selection practices applied in the Member States audited combined with 
results from several mid-term evaluation reports 16 suggest that dead-
weight is of particular relevance for measure 123.

… AND DISPLACEMENT

Displacement is the degree to which an activity promoted by public sup-
port is offset by reductions in activity elsewhere. A subsidy that enables 
one company to increase its market share at the expense of a competitor 
may have no net effect on policy objectives such as creating employ-
ment or — in the case of measure 123 — adding value to agricultural 
produce, and is therefore a priori  not an efficient use of the EU funds. 
Examples of this situation are shown in Box 9. A degree of displacement 
may, however, be justified where there is a sufficient net effect in terms 
of the policy objectives.

Food processing and marketing is a competitive sector with many thou -
sands of enterprises continually investing to improve their efficiency, to 
develop their products and to grow. Small and medium-sized enterprises 
are part of this competitive market: of the 24 companies visited in this 
audit only three traded predominantly in local markets, the others all 
competed nationally and 10 of the companies, internationally. Giving 
a grant of up to 50 % of a company’s investment costs puts it at a com-
petitive advantage in relation to unsubsidised companies and therefore 
carries a strong risk of displacement. Subsidies can also distort normal 
competitive forces and have negative effects, such as hindering the con-
solidation of fragmented production.

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64. 

65. 

66. 

As with deadweight, the primary means of mitigating the risk of unjus-
tified displacement lies in programme design. This requires identifying 
needs that are sufficiently strong to justify any displacement that may 
occur, and setting objectives and eligibility conditions specific to those 
needs. As shown in part I, in the Member States audited this was not 
done. However, in Lithuania and Spain (Castilla y León) the RDPs limited 
eligibility in certain food sectors in which there was overcapacity and 
therefore a high likelihood of displacement.

Because of the displacement risks, particularly with an aid scheme such 
as measure 123 that supports private companies, Member States’ author-  
ities should assess project proposals for the likelihood of displacement 
risk during project approval. Where displacement is likely, they should 
ensure that the project makes a sufficiently high contribution to the 
measure’s objectives to justify the grant. However, none of the Member 
States audited did so. None gave any consideration to the risk of dis-
placement or to the efficiency of the measure in this respect.

The Court assessed the 24 projects visited for the risk of displacement 
based on documentation and discussions with the beneficiary on the 
company’s products, markets and competitors and the effects of the 
investment on these (see Annex II). In particular, where the investment 
resulted in increased capacity, the Court considered whether this was 
responding to an expanding market or was aimed at capturing market 
share from competitors. The analysis showed that displacement was like-
ly in 13 of the projects, which was most evident where the project aimed 
at increasing market share by increasing capacity or reducing costs. The 
Court also found displacement effects within the food-processing chain, 
such as those noted in paragraph 48.

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67. 

68. 

69. 

THESE WEAKNESSES LEAD TO MIXED RESULTS FOR THE EFFICIENCY 
AND EFFECTIVENESS OF THE GRANTS

This audit has shown that the design and programming of measure 123, 
and the systems implemented by the Member States audited, cannot 
be relied on to ensure that the measure will make an efficient and ef-
fective use of the EU and national budgets. The impact of this can al-
ready be seen in the projects that have received support. As explained 
in paragraph 9, the effectiveness and efficiency of the measure would be 
demonstrated if the projects selected are financially sustainable, result 
in an improvement in added value, are not affected by deadweight and 
do not cause unjustified displacement. Only two of the 24 projects met 
all four of these criteria (see Annex II). Ten were classed as medium and 
represent satisfactory value for money. Effective projects should also 
contribute to specific RDP objectives — but this could not be assessed 
as the RDPs set only very general objectives (see part I).

It should be noted that the success of these projects cannot be attrib-
uted to the design of the measure or the selection systems implemented 
by the Member States: the remaining 12 projects selected by the same 
Member States with those same systems are classed as low or very low 
in the Court’s analysis.

The 24 projects were not intended to constitute a statistical sample to be 
extrapolated to predict the incidence of such projects financed EU-wide. 
Nevertheless, these case studies illustrate the consequences of a lack of 
effective programming and selection: the failure in the first instance to 
identify needs, set specific objectives and design the measure in a  way 
to best achieve those objectives; and in the second instance to have an 
effective selection process.

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71. 

PART THREE

HAVE THE COMMISSION AND THE MEMBER STATES 
APPROPRIATELY MONITORED AND EVALUATED THE 
RESULTS OF THE MEASURE?

Monitoring and evaluation should provide relevant and timely infor-
mation to the Commission and Member States for managing the 9 bil -
lion euro of EU and national money allocated to measure 123, allowing 
the design and implementation of the measure to be adapted to opti-
mise its effectiveness and efficiency. Information on results and impacts 
is also important for accountability: to show what has been achieved 
with  the  public  money.  Member  States  should  not  only  collect  data 
from the applications for support and payments but also on the results 
achieved at beneficiary level, at least until the expiry of the five-year 
period for which the EU regulations require beneficiaries to maintain 
their investments.

Under the Common Monitoring and Evaluation Framework (CMEF), Mem-
ber  States  must  collect  information  for  at  least  the  common  output 
and result indicators and provide mid-term and ex post evaluations of 
their rural development programmes in 2010 and 2015 respectively. The 
mid-term evaluation is intended to generate amendments to the cur-
rent programmes when necessary but also contribute to the design of 
the subsequent (2014–20) programmes. As regards measure 123, the 
CMEF sets two common result indicators17 and five common evaluation 
questions18.

72. 

The Court examined the data collection and monitoring systems in the 
six Member States audited and reviewed a total of 23 mid-term evalua -
tion reports.

32

17  (1) Increase in gross 
value added in supported 
enterprises (this measures 
improvements in a company’s 
financial performance).  

(2) Number of enterprises 

introducing new products 
and/or new techniques.

18  (1) To what extent have 
supported investments 
contributed to introducing 
new technologies and 
innovation? 

(2) To what extent have 

supported investments 
contributed to improving the 
quality of agricultural and 
forestry products? 

(3) To what extent have 

supported investments 
contributed to improving the 
efficiency in the processing 
and marketing of agricultural 
and forestry products? 

(4) To what extent have 

supported investments 
contributed to enhancing 
market access and market 
share of agricultural and 
forest holdings, including 
sectors such as the sector of 
renewable energy? 

(5) To what extent have 

supported investments 
contributed to improving 
the competitiveness of the 
agricultural and forestry 
sector?

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MEMBER STATES DO NOT EFFECTIVELY MONITOR 
MEASURE 123  PROJECTS

73. 

The two common result indicators for measure 123 focus on the effects 
on the food processing companies. They provide little information on 
the achievement of added value or the effects on producers. None of the 
Member States audited has introduced additional result indicators that 
would serve this purpose. Furthermore, four years into the programming 
period, Poland and Romania had not provided complete information 
regarding the two common result indicators and the methodologies 
used by Spain (Castilla y León), France and Italy (Lazio) were not reliable. 
Castilla y León, for example, took projections from the business plans 
at the time of grant application for just six out of 444 projects and used 
these as an indicator for the increase achieved in enterprises’ financial 
performance for the measure as a whole.

74. 

Of the Member States audited, only Lithuania and Poland monitored 
project results declared by the beneficiary after the grant payment and 
this concerned only the companies’ financial results and employment.

MID-TERM EVALUATIONS ARE OF LIMITED USE FOR DEMONSTRATING 
THE EFFICIENCY AND EFFECTIVENESS OF THE MEASURE

75. 

The review of 23 mid-term evaluation (MTE) reports conducted as part 
of this audit revealed that the information needed to answer the eval-
uation questions is, in most cases, lacking and the assessment of project 
effectiveness is mainly based on theoretical arguments rather than on 
evidence from completed projects. These weaknesses are confirmed by 
a methodological assessment of mid-term evaluation reports, conducted 
by the Commission: ‘ The early timing of the MTE, but also insufficient 
monitoring, posed difficulties in terms of data availability and quality. 
These have been cited as the most important hindrances to come to 
reliable evaluation results’.

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76. 

77. 

Eight of the 23 MTE reports reviewed by the Court gave no conclusions 
on the evaluation question ‘To what extent have supported investments 
contributed to improving the competitiveness of the agricultural and 
forestry sector?’ despite this being the EU objective for which the aid is 
given. The other reports mostly gave a positive assessment that agricul -
tural competitiveness had been improved, while recognising that their 
conclusions were based on assumptions and expectations. These evalu-
ations were of little use for demonstrating the effectiveness or efficiency 
of the measure as they failed to assess the ‘extent’ of any improvement 
(see Box 11).

The impact of the weaknesses in monitoring and evaluating the results 
of the measure extends beyond the absence of information with which 
to manage and adapt the support in the current period. Such inform- 
ation should be available to inform the decision on whether an equiv-
alent  measure  should  be  included  in  the  next  programming  period 
from 2014. If it is, the Member States must decide whether to programme 
the measure and how much of the EU and their own budgets to allocate 
to it. The evidence is lacking to show whether investment support for 
food processing companies is an efficient and effective means of improv-
ing the competitiveness of agriculture. While the Commission has already 
introduced some improvements in data collection which is essential for 
the Member States and Commission to be able to account for the 9 bil -
lion euro budgeted for the current programming period — the results 
are likely to be too late to inform the important decisions concerning 
the programming of the 2014–20 period.

BOX 11

EVALUATION CONCLUSIONS BASED ON ASSUMPTIONS

Portugal — Azores
The evaluators reviewed the descriptions of the approved projects and formed the opinion that the investments 
contributed to improving competitiveness because the project descriptions included: generation of new prod-
ucts and products of higher added value; ability to introduce new technologies and processes and innovation; 
commitment to quality and differentiation; gains in efficiency in the processing of agricultural products; etc. 
Whether these projects actually achieved such results and how they affected the competitiveness of agriculture 
was not shown.

Germany — Bavaria
The evaluators’ conclusion was that they ‘assumed that increasing the competitiveness of the food industry will 
have a positive impact on the competitiveness of agriculture because (...) sales opportunities for the Bavarian 
agricultural products will be secured’. No evidence was presented to support this assumption.

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CONCLUSIONS AND RECOMMENDATIONS

35

78. 

79. 

80. 

As part of the rural development policy, Member States may use the EU 
budget, co-financed with their national budgets, to give grants towards 
the costs of investments undertaken by food-processing and marketing 
companies. This is intended to add value to agricultural produce and 
thereby improve the competitiveness of agriculture.

This audit set the question ‘Has the EU support to the food-processing 
industry been effective and efficient in adding value to agricultural prod-
ucts?’ Because of weaknesses in programme design and in the Member 
States’ project selection systems, this could not be demonstrated. The 
Court therefore concludes that the support has not been systematically 
directed to projects that effectively and efficiently add value to agricul-
tural products.

The  Court  nevertheless found that  the individual projects examined 
had been sustained. The investments had improved the financial per-
formance or efficiency of many of the beneficiary companies audited, 
with a number of the projects adding some value to agricultural prod -
ucts. This is to be expected when giving grants for investments to food 
processing and marketing companies. However, this could not be at-
tributed to the design of the measure or the Member States’ systems 
and the Court found indications of deadweight and/or displacement in 
the majority of the projects audited.

81. 

Despite a programmed 5,6 billion euro from the EU budget there was 
a lack of evidence to demonstrate:

 — that the companies needed a subsidy (as a sector or individually);

 — the specific objectives that the subsidy was expected to achieve 

(and how); and

 — the value added to agricultural products and the increase in com-

petitiveness of agriculture obtained.

82. 

This situation has arisen through a combination of the poor quality of 
the RDPs, inadequate procedures in the Member States for implementing 
the measure and weaknesses in monitoring and evaluation.

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83. 

84. 

The EU legislation gives Member States the possibility to tailor the meas-
ure to meet specific national or regional needs. The legislation sets few 
requirements or constraints: the onus is on the Member States to en-
sure that the measure is effective and efficient. Key to this are the RDPs, 
which set the national or regional objectives and scope of the measure 
(paragraphs 12 to 18).

Yet the RDPs audited mostly comprise only general objectives, some-
times  verbatim  copies  from  the  EU  legislation,  and  do  not  provide 
specific strategies to add value to agricultural products by strength-
ening  their  food  industry. The  rationale  for  how  the  measure  would 
improve  the  competitiveness  of  agriculture  in  the  Member  State  or 
region is missing. Nevertheless, the Commission approved these RDPs 
(paragraphs 19 to 28).

RECOMMENDATION 1

In their RDPs, Member States should clearly identif y where and why 
public intervention is necessary to improve the added value of agri-
cultural produce and hence the competitiveness of agriculture. The 
RDPs should set specific and measurable objectives in relation to these 
needs.

The Commission should approve only those RDPs that present substan-
tiated and comprehensive strategies with a clear rationale to demon-
strate how the financial support for the food industry will improve the 
competitiveness of agriculture.

85. 

Eligibility conditions established by the Member States audited placed 
few additional limits on the types of investments or the beneficiaries 
eligible: in four of the six Member States reviewed, practically all food-
processing companies were eligible. The EU legislation requires Mem-
ber States to set selection criteria, which should allow the most effec-
tive  and efficient of the eligible projects to  be  prioritised  and  those 
that do not represent value for money to be rejected. Only four of the 
six Member States set selection criteria and these were not applied in 
practice: while the Member States had budget available, they financed 
all  eligible  projects,  regardless  of  their  effectiveness  and  efficiency 
(paragraphs 29 to 41).

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RECOMMENDATION 2

The Member States should define and continuously apply criteria that 
ensure the selection of the most effective, sustainable projects with re-
spect to the Member States’ specific objectives for improving the added 
value of agricultural products and the competitiveness of agriculture.

The Commission should ensure that these criteria are correctly and 
continuously applied, and not only in cases of budgetary shortage.

86. 

The Court found that Member States do not systematically direct the 
funding to projects for which there is a demonstrable need for public 
support. Without this, the measure risks becoming a handout — a gen -
eral support to enterprises investing in the food-processing sector — 
with the attendant risk of distortion of competition and waste of scarce 
public money. As a consequence, the likelihood of deadweight is high 
and the results achieved by the projects cannot necessarily be attributed 
to the grant. Displacement reduces the efficiency of the measure as 
companies use the subsidised investments to gain market share and not 
necessarily to improve added value. The deadweight and displacement 
risks were largely ignored by the Member States and were not formally 
considered in any of the rural development programmes or selection 
systems audited (paragraphs 42 to 69).

RECOMMENDATION 3

The Commission and Member States should promote the adoption of 
best practices in respect of the mitigation of deadweight and displace-
ment risks. This requires Member States to target the aid to projects 
for which there is a demonstrable need for public support and which 
deliver added value. Member States should consider deadweight and 
displacement  risks  both  when  drawing  up  their  RDP  and  in  project 
selection. The Commission should encourage Member States to adopt 
the practice whereby expenditure for investments would be eligible 
only from the date of grant approval.

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38

87. 

Almost a fifth (18 %) of the EU budget for improving the competitiveness 
of agriculture is paid to food-processing and marketing companies but 
the effects on the competitiveness of agriculture can only be indirect 
and there is no clear intervention logic. It is therefore important that the 
Member States and Commission can demonstrate that the budget has 
been spent effectively and efficiently. Yet Member States do not collect 
information on the added value achieved for agricultural products or 
on the effect of the investments on the competitiveness of agriculture. 
Member States rely on evaluations for this, but the mid-term evaluations 
in 2010 were performed before there were tangible results and their 
conclusions were insufficiently evidence-based. As the results of ex post 
evaluations will not be available until after  2015, the Commission and 
Member States have an insufficient basis to assess the effectiveness of 
the 9 billion euro allocated to measure 123 when programming the aid 
for the 2014–20 period (paragraphs 70 to 77).

RECOMMENDATION 4

The Commission should take the opportunity of the new programming 
period to improve the CMEF in a way that it provides useful inform- 
ation on the achievements of the projects and measures financed. This 
implies the enhancement of ongoing evaluation activities and recon-
sideration of the utility of lengthy mid-term evaluation reports whose 
results are questionable. 

This Report was adopted by Chamber I, headed by Mr Ioannis SARMAS, 
Member  of  the  Cour t  of  Auditors,  in  Luxembourg  at  its  meeting  of 
23 January 2013.

For the  Co ur t  of Auditor s

Vítor Manuel da SILVA CALDEIRA
President

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ANNEX I

FIGURE –  
EU-FUNDS FOR MEASURE 123 PROGRAMMED AND SPENT (AS AT DECEMBER 2011)

Programmed expenditure (2007–13): 5 557 735 472 euro

Implemented expenditure (2007–December 2011): 1 940 224 033 euro (34,9 %)

o
r
u
e
n
o

i
l
l
i

M

1 000

900

800

700

600

500

400

300

200

100

0

BE BG CZ DK DE EE

IE

EL ES FR IT CY LV LT LU HU MT NL AT PL PT RO SI

SK FI

SE UK

Programmed 2007-2013 period

Realised as at December 2011

Source: European Court of Auditors’ compilation on the basis of data provided on the website of the European Network for Rural 
Development: Financial and physical indicators (http://enrd.ec.europa.eu/policy-in-action/rural-development-policy-in-figures/rdp-
monitoring-indicator-tables/financial-and-physical-indicators/en/financial-and-physical-indicators_en.cfm). As at December 2011, 
no expenditure had been declared by the Netherlands. Ireland has not programmed measure 123.

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ANNEX II

LIST OF PROJECTS AUDITED AND THE COURT’S ASSESSMENT OF THE EFFICIENCY AND 
EFFECTIVENESS OF THE GRANT

Eligible 
costs 
(rounded) 
(euro)

Public aid 
as % of 
eligible 
costs

1
e
l
b
a
n

i
a
t
s
u
S

Demon-
strated 
added 
value for 
agricultural 
products

Indica-
tions of 
deadweight

Indications 
of displace-
ment

Assessment 
of overall 
efficiency 
and effec-
tiveness of 
the grant

1 000 000

18 %

yes

high

some

few

medium

600 000

2 200 000

20 %

10 %

34 %

30 000

40 %

yes

yes

yes

yes

800 000

20 %

yes

low

high

medium

low

low

strong

strong

very low

some

some

strong

some

some

few 2

medium

medium

very low

some

strong

very low

Construction of a winery

1 500 000

Member 
State

Description

Spain 
(Castilla 
y León)

France

Italy 
(Lazio)

Building extension and 
new equipment for meat 
processing

Additional production line 
for potato processing

Additional production line 
for potato processing

Additional storage room 
for fruit

Additional production line 
for cutting and packaging 
cheese

Equipment for a new 
processor of organic 
vegetables

New equipment capable of 
processing simultaneously 
organic and conventional 
olives

New olive milling 
equipment with higher 
capacity

Factory renovation and new 
chestnut processing and 
packaging equipment 

New facilities for storing, 
packaging and distribution 
of fruit and vegetables

200 000

39 %

New equipment for winery

200 000

40 %

New equipment for meat 
processing and packaging 
lines

700 000

26 %

New equipment for winery

200 000

34 %

yes

yes

yes

yes

high

few

medium

strong

medium

few

high

strong

few

some

some

some

200 000

40 %

yes

high

strong

few 2

high

low

medium

low

low

200 000

40 %

yes

low

few

few 2

low

250 000

40 %

yes

medium

some

few 2

medium

New equipment for winery

250 000

Lithuania

New grain drying and 
storage facilities

4 150 000

40 %

40 %

900 000

38 %

yes

yes

yes

medium

few

medium

low

strong

some

some

some

medium

low

strong

very low

1  Activity related to the project was sustained at the date of the audit visit.
2  Project aimed at capturing market share but this result had not been achieved at the date of the audit visit.

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Demon-
strated 
added 
value for 
agricultural 
products

Indica-
tions of 
deadweight

Indications 
of displace-
ment

medium

some

medium

strong

few

few

1
e
l
b
a
n

i
a
t
s
u
S

yes

yes

Member 
State

Description

Eligible 
costs 
(rounded) 
(euro)

Public aid 
as % of 
eligible 
costs

New equipment for a dairy

3 500 000

25 %

700 000

40 %

Poland

Romania

New equipment and 
transport vehicles for 
vegetable processor

New equipment for 
processing meat products

New equipment for 
vegetable preparation 
and packaging

New equipment for 
vegetable processing

New equipment for meat 
processing

New equipment and 
transport vehicles for grain 
milling

New equipment for winery

1 100 000

350 000

40 %

yes

medium

strong

few 2

900 000

40 %

50 %

50 %

1 500 000

400 000

50 %

yes

yes

yes

yes

medium

high

medium

medium

some

few

some

some

few

few

some

some

1 800 000

50 %

yes

low

some

strong

very low

Assessment 
of overall 
efficiency 
and effec-
tiveness of 
the grant

medium

low

low

medium

high

medium

medium

1  Activity related to the project was sustained at the date of the audit visit.
2  Project aimed at capturing market share but this result had not been achieved at the date of the audit visit.

Efficiency

Indications of 
deadweight

few

some

strong

Indications of displacement

few

high

medium

low

some

medium

medium

low

strong

low

low

low

Overall efficiency and  
effectiveness

low

Efficiency

medium

low

very low

low

Added value

medium

high

low

low

medium

medium

high

low

medium

high

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Assessment criteria

Demonstrated added 
value for agricultural 
products

The project’s contribution towards achieving the following results:
—  increase in market value (sales price) of products
—  quality increase of products (including improvements in hygiene, environmental standards and animal 

Indications of 
deadweight

Indications of 
displacement

welfare)

—  development of new products and market outlets (responding to market opportunities for high quality 

products)

—  beneficiary’s own assessment of the extent to which the investment would have taken place without 

the grant

—  investment project started or even completed before grant application/before grant decision
—  project pre-financed mostly or entirely from own resources
—  investment appraisal shows high rate of return (or short payback) and there are no indications that the 

beneficiary had difficulties in acquiring capital 

—  the company’s financial situation at the date of application shows a very good financial position

—  beneficiary’s own assessment of displacement
—  the beneficiary is in a stable or decreasing market with little product differentiation and the project’s 

primary aim was to increase capacity/market share or increase efficiency/reduce costs

—  the project aimed at capturing activities from within the value added chain (packaging, labelling, 

transport, etc.)

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ANNEX III

MID-TERM EVALUATION REPORTS REVIEWED

Bulgaria

Czech Republic

Germany — Bavaria

Germany — Brandenburg/Berlin

Germany — Mecklenburg-Vorpommern

Germany — Lower Saxony/Bremen

Spain — Andalucía

Spain — Castilla La Mancha

Spain — Castilla y León

Spain — Extremadura

France — Mainland (Hexagone)

Italy — Calabria

Italy — Emilia Romagna

Italy — Lazio

Italy — Puglia

Lithuania

Austria

Poland

Portugal — Mainland

Portugal — Azores

Romania

UK — England

UK — Wales

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REPLY OF THE 
COMMISSION

EXECUTIVE SUMMARY

II.
Reading Recital 23 of Council Regulation (EC) No 1698/2005 
together with Article 28, the Commission considers that the 
concept of the measure adding value to agricultural (and 
forestry) products as envisaged by the legislator is broad, 
which includes for example improving environmental pro-
tection, occupational safety, hygiene and animal welfare.

III.
The  legislator  did  not  foresee  an  ex  ante  assessment  of 
whether or not the applicants would be in need of a sub -
sidy. The  requirement  is  to  identify  needs  in  the  RDP  in 
relation  to  the  SWOT 1  analysis  of  the  area  concerned, 
hence to target support according to identified territorial 
needs and structural weaknesses. 

The Commission also wishes to underline that based on 
result indicators new products and new technologies have 
been supported and the gross value added has increased 
in some supported enterprises. 

IV.
When approving the RDPs, the Commission carries out an 
analysis to assess that programmes and measures are con-
sistent with the Community strategic guidelines, relevant 
national strategy plans and comply with the relevant legal 
provisions2.

However, according to the principles of subsidiarity and 
shared  management,  project  selection  lies  within  the 
responsibility of Member States. 

Nevertheless, in its supervisory role, the Commission has 
insisted on several occasions on the need for greater selec-
tivity3 and targeting in the implementation of the measure.

1  SWOT = Strengths/Weaknesses/Opportunities/Threads.

2  Regulation (EC) No 1698/2005 and Regulation (EC) No 1974/2006 
(Article 18 of Regulation (EC) No 1698/2005).

3  For example, during annual meetings, notably, at the beginning of 
the programming period a letter was sent from the Commission to 
the Managing Authorities of all programmes inviting them to take into 
account the importance of well-defined selection criteria for an effective 
implementation throughout the whole period. Furthermore, in 2009, 
another letter asked all Member States to make sure that adequate 
selection criteria are specified and used for the allocation of funds.

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Joint reply to Point V.–VI.
The Commission considers that the purpose of the eligibil-
ity criteria defined by the Member States is not, per se, to 
exclude a specific company of a production sector from EU 
support. Instead eligibility criteria should aim, at the level 
of supported operation, at better targeting the support to 
the actual needs of the territory concerned, on the basis of 
the strategic programming and the SWOT analysis. The leg-
islation itself already favours SMEs (with the exception of 
outermost regions). As concerns targeting, the Commission 
agrees with the Court that improvements in better target-
ing the support are needed at the level of Member States.

VII.
Although the impact to primary producers is indirect, the 
Commission’s view is that the intervention logic is suffi-
ciently clear. Indeed, by improving the handling/process-
ing  of  agricultural  products,  for  example  to  respond  to 
changing marketing standards, the primary sector benefits 
from stabilised demand especially when new (innovative) 
products are developed and new market opportunities are 
opened. This improves the competitiveness of the agricul-
tural sector of the territories concerned.

To remedy the weaknesses in methodologies developed by 
Member States (MS) to assess some indicators, the Com-
mission  established  methodological  guidelines  in 2010. 
These guidelines were distributed and explained to those 
in charge of the evaluation within the MS. More reliable 
figures are now expected.

VIII. (a)
The  Commission,  aware  of  weaknesses  in  this  field,  has 
proposed, for the next programming period, that appropri-
ate targets should be set for each of the focus areas of the 
Union priorities, on the basis of common result indicators, 
and that the selected measures in relation to the Union 
priorities  should  be  based  on  sound  inter vention  logic 
supported by an ex ante evaluation.

VIII. (b)
The Commission has insisted on several occasions on the 
need for greater selectivity (see footnote 3).

The  Commission  proposals 4  foresee  that  the  selection 
criteria shall be defined for all measures and shall aim to 
ensure equal treatment of applicants, better use of finan-
cial  resources  and  targeting  of  measures  in  accordance 
with the Union priorities for rural development. The use of 
selection criteria shall generally be compulsory even in the 
case where available funds are sufficient. 

VIII. (c) 
The Commission will organise an exchange of best prac-
tices on the mitigation of deadweight and displacement 
risks with the Member States in the first semester of 2013.

4  The legal basis is the proposal for the Rural Development Regulation 
and its Article 49, as well as the related implementing/delegated acts. 
See COM(2011) 627 Final/2 dated 19.10.2011.

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REPLY OF THE  COMMISSION46

VIII. (d) 
The monitoring and evaluation framework for the period 
2014–20 is currently being elaborated5.

13.
The Commission agrees that the Member States have to 
target the measure according to sector’s identified needs 
and structural disadvantages. 

OBSERVATIONS

These  ongoing  proposals  take  account  of  the  lessons 
learned from the current period and the need to measure 
the effectiveness of the funds spent. These proposals aim 
at improving the reporting on results and impacts of the 
policy by taking into account the information available at 
various stages of the programming period (see also reply 
to paragraph 88 and Recommendation 4).

INTRODUCTION

Box 1
Please see paragraph 15.

4.
Please see Commission reply to paragraphs 34 and 35.

AUDIT SCOPE AND APPROACH

9.
Please see Commission reply to paragraph 15.

5  The legal basis is the proposal for the Horizontal Legislation art.110, 
the proposal for the RD Regulation title VII, as well as the related 
implementing/delegated acts. See COM(2011) 628 Final/2 dated 
19.10.2011.

See also reply to paragraph 15.

15.
Reading Recital 23 of Council Regulation (EC) No 1698/2005 
together with Article 28, the Commission considers that the 
concept of the measure adding value to agricultural (and 
forestry) products as envisaged by the legislator is broad, 
which includes for example improving environmental pro-
tection, occupational safety, hygiene and animal welfare, 
The requirement to identify needs in the RDP is linked to 
the specific needs of the programming area6. These needs 
are derived from the SWOT-analysis.

Common reply to paragraphs 16.–17.
The measure has evolved over the time from direct man-
agement  to  shared  management  and  the  legislator  has 
chosen to limit the rules to a minimum to simplify the legis- 
lation and to better reflected the subsidiarity and shared 
management principle.

Common reply to paragraphs 18.–19.
When approving the RDPs, the Commission carries out an 
analysis to assess that programmes and measures are con-
sistent with the Community strategic guidelines, relevant 
national strategy plans and comply with the relevant prov- 
isions of Regulation (EC) No 1698/2005 and Regulation (EC) 
No 1974/2006). 

21.
The Polish RDP identifies the main structural weaknesses of 
the food processing sector as poor vertical integration and 
the diversified structure, which require public intervention. 

6  Article 43 of Commission Regulation (EC) No 1974/2006 of 
15 December 2006 laying down detailed rules for the application of 
Council Regulation (EC) No 1698/2005 on support for rural development 
by the European Agricultural Fund for Rural Development (EAFRD) 
stipulates, ‘For investment measures, Member States shall ensure that 
support is targeted on clearly defined objectives reflecting identified 
structural and territorial needs and structural disadvantages’ (OJ L 368, 
23.12.2006, p. 15).

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Box 3 
In the case of Castilla y Le ón, even though the RDP recalls 
t h e   o b j e c t i ve s   l i s te d   i n   re c i t a l  2 3   o f   R e g u l a t i o n   ( E C ) 
1698/2005, an additional expected effect for improving farms 
and rural areas performance has also been established7.

For France, regional plans are not subject to the Commis-
sion’s approval. Nevertheless, in the Rhône-Alpes regional 
programming document, some priority to innovative and 
technological projects is given for networks of enterprises.8 

22.
In  relation  to  France,  the  Plan  de  Développement  Rural 
Hexagonal (PDRH) sets out the general framework for each 
measure. Further specifications and targeting should be 
made at regional level within the regional programming 
documents (DRDR). 

See also paragraph 37.

23.
According to the principles of subsidiarity and shared man-
agement, project selection lies within the responsibility of 
Member States.

Selection of the food sectors to be supported is the task 
of strategic programming with its SWOT-analysis including 
the identification of structural and territorial needs.

The Commission considers that while it is necessary for the 
Member States to establish eligibility criteria, they are not 
the only way to target the measure. Targeting of the aid 
can be achieved in many ways; through selection criteria, 
regional and sectorial differentiation and differentiation of 
aid intensities depending on the type of the investment as 
well as aid ceilings by which the Member State can make 
a preselection among the potential beneficiaries.

7  See RDP pages 247 and 248. http://www.jcyl.es/web/jcyl/
AgriculturaGanaderia/es/Plantilla100/1185746059889/_/_/_ 

8  See Volet régional Rhône-Alpes du Programme de Développement 
Rural Hexagonal, 10 August 2010, Pages 81–82  
http://agriculture.gouv.fr/IMG/pdf/Rhone-Alpes_DRDR_V4_
valide_100810_V2_101022.pdf

Nonetheless, the Commission has insisted on several occa-
sions on the need for greater selectivity, for example, dur-
ing annual meetings. Notably, at the beginning of the pro-
gramming period a letter was sent from the Commission 
to  the  Managing  Authorities  of  all  programmes  inviting 
them to take into account the importance of well-defined 
selection criteria for an effective implementation through-
out the whole period. Furthermore, in 2009, another let-
ter asked all Member States to make sure that adequate 
selection criteria are specified and used for the allocation 
of funds.

24.
The objectives set at RDP level are further translated into 
action via measure design and targeting. The consistency 
check made by the Commission ensures that the frame-
work for policy action is coherent with EU objectives and 
provides  appropriate  guidelines  for  implementing  the 
strategy. 

25.
According to the principles of subsidiarity and shared man-
agement, project selection lies within the responsibility of 
Member States.

According to Annex II of Regulation (EC) No 1974/2006, 
Member States must identify the rationale for intervention, 
the objectives, the scope and actions. Furthermore, there 
has to be evidence that for investment measures support is 
targeted on clearly defined objectives reflecting identified 
territorial needs and structural disadvantages. Checking 
that these issues are covered in each programme is part of 
the Commission’s assessment procedure.

26.
According to the principles of subsidiarity and shared man-
agement, project selection lies within the responsibility of 
Member States.

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27.
See replies in part two of the report.

28.
See replies in part three of the report.

29. First indent
See reply to paragraph 31.

Article 72 of Regulation (EC) No 1698/2005 requires that 
all supported projects need to be sustainable in the sense 
that Member State shall ensure that an investment oper- 
ation does not, within five years of the funding decision, 
undergo a substantial modification, including the cessa -
tion or relocation of a productive activity. 

As regards evaluation, the information should be provided 
in the context of the CMEF. 

29. Second indent
The  measure  design,  including  the  eligibility  and  selec-
tion criteria, should be the result of strategic programming 
based on SWOT-analysis and reflecting the identified struc-
tural and territorial needs and structural disadvantages. 

The activities covered by the measure include for example 
promoting the renewable energy production, improving 
environmental  protection,  occupational  safety,  hygiene 
and animal welfare. 

29. Third indent
Please see Commission reply to paragraph 30.

The targeting of investment support (Article 43 of Com -
mission regulation (EC) No 1974/2006) was introduced in 
this programming period exactly to limit deadweight and 
displacement effects. 

30.
Article 28 of Council Regulation (EC) No  1698/2005 requires 
that support shall not be granted to enterprises in difficulty 
within the meaning of the Community guidelines on State 
aid for rescuing and restructuring firms in difficulty.

31.
I t  is  the  responsibility  of  Member  States  to  establish 
how, and according to which criteria, to assess whether 
a project would actually improve the performance of the 
enterprise.

The Commission would like to point out that Article 28 of 
Council Regulation (EC) No 1698/2005 requires that invest -
ments in adding value to agricultural and forestry prod-
ucts must improve the overall performance of the enter-
prise and that support shall not be granted to enterprises 
in difficulty within the meaning of the Community guide-
lines on State aid for rescuing and restructuring firms in 
difficulty. 

Article 24.2  (e)  of  Regulation  (EU)  No 65/2011  foresees 
‘Administrative  checks  on  applications  for  support  shall 
in  particular  include  verification  of :  (e)  the  reliability  of 
the applicant, with reference to any previous co-financed 
operations undertaken since 2000’.

Box 4 
Italy (Lazio): As regards the checks performed by region’s 
o f f i c i a l s,   t h e   Co m m i s s i o n’s   s e r v i c e s   h ave   a d d re s s e d 
the  issue  on  the  occasion  of  the  Annual  Meeting  on 
27/11/2012 with the Managing Authority and represen- 
tatives of the Paying Agency and the matter will be ad- 
equately followed up.

33. 
According to the principles of subsidiarity and shared man-
agement, project selection lies within the responsibility of 
Member States. 

All Member States carried out an initial SWOT analysis and 
needs assessment that served as a basis for selecting rele-  
vant measures and respective objectives.

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34.
The Commission considers that several targeting mech- 
anisms exist such as eligibility criteria (including differenti-
ated aid rates) and selection criteria to channel EU funds 
and national funds to strategic objectives.

35.
Article 71(2) of Regulation (EC) No 1698/2005 establishes 
a general obligation to fix selection criteria. However, it is 
for MS to define the level of detail for the selection criteria. 

According to Article 49 of the Commission’s proposal for 
the next programming period, strategic programming will 
be further reinforced, with the result of an improved stra-
tegic targeting through the Union priorities for rural devel-
opment and their focus areas.

36.
Although Castilla y  León has no selection criteria strictly 
speaking, regional established criteria and strong eligibil-
ity criteria are also meant to be selective tools to target 
among potential beneficiaries. 

Poland sought to achieve the intended targeting by means 
of the eligibility criteria and the way calls for applications 
were carried out. On 23 August 2012, the Polish Managing 
Authority subsequently initiated the process of introduc-
tion of selection criteria for measure 123.

37.
See reply to paragraph 15.

Projects that do not create direct added value for products, 
for example those improving the environmental protec-
tion, can be prioritised if they are part of the strategy. 

As there is no standard definition of ‘adding value’, which 
can  tak e  different  for ms,  assessment  cr iter ia  should 
respond to the specific measure objectives.

For Lithuania, by Order of the Lithuanian Ministry of Agri-
culture9 the selection criteria applied under measure 123 
have been revised. The new criteria put a higher emphasis 
on adding value to agricultural products.

9  Order No 3D-219 of 27-03-2012.

Box 6 
As regards Romania, the Commission wishes to clarify that, 
although the majority of projects submitted exceed the 
minimum scoring for being selected, only the best scor-
ing  projects  are  financed.  Up  to  December 2012,  only 
about 37  %  of  the  projects  submitted  under  the  meas-
ure 123 under the RO RDP had been selected. 

Box 7 
In Italy (Lazio) the Commission considers as a best prac -
tice,  when  applying  selection  criteria,  the  use  of  a min-  
imum  score  to  be  achieved  by  each  eligible  project  in 
order to be financed. Following observations formulated 
by the Commission and the Court of Auditors, the Region 
has now adopted a minimum score to be applied in future 
calls.

40.
The objective is to value endogenous resources and sup-
port  local  development  as  well  as  ensuring  stability  of 
local supply.

41.
According to Article 16 of Regulation (EC) No 1698/2005, it 
is the national/regional authority that establishes its prior- 
ities/strategies in relation with the ex ante analysis as ref-
ered to in Article 85.

42.
Article 72 of Regulation (EC) No 1698/2005 requires that 
all supported projects need to be sustainable in the sense 
that Member State shall ensure that an investment oper- 
ation does not, within five years of the funding decision, 
undergo a substantial modification, including the cessa -
tion or relocation of a productive activity. 

As regards evaluation, the information should be provided 
in the context of the CMEF.

43.
The Commission considers that the interventions selected 
for  support  are in  line  with  the specific  priorities  of  the 
RDPs, respond to the assessed needs of the territory at the 
national and regional level in line with the SWOT analysis 
and satisfy the objectives of the relevant regulations on 
Rural Development in force. The interventions funded are 
linked to the basic agricultural production, aiming at re- 
inforcing the existing local/regional SMEs (including co- 
operatives) which the legislator had in mind.

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44.
Risks  are  inherent  to  any  investment  project.  If  at  the 
beginning the Managing Authority, using criteria estab-
lished under its responsibility, assesses that the project has 
the potential to increase the overall performance of the 
enterprise and respects any additional eligibility condition 
set at RDP level, then it can receive support. 

It lies within Member States reponsibility to establish how 
and with what criteria assessing whether a project would 
actually improve the performance of the enterprise.

46.
T h e   C o m m i s s i o n   w e l c o m e s   t h e   C o u r t ’s   p o s i t i v e 
assessment.

48.
The Commission considers that the improvement of the 
efficiency of the sector is one of the means to contribute 
to  the  competitiveness  of  agriculture,  as  referred  to  in 
recital 23 of Regulation (EC) No 1698/2005.

Box 9 
For France, Rhône-Alpes, such packaging upgrade project 
is a  standard and logical way of developing and securing 
company  development,  all  normally  per forming  com- 
panies arrive at certain stage to develop own capacities 
in different areas (packaging, logistic, IT, technologies …)

In  the  example  shown  by  the  Court  for  Castilla  y León, 
increasing storage capacity concerns the commercialisa-
tion of the fruit and vegetables while capturing a greater 
market, which helps improving the overall performance of 
the company, in line with Art. 28.(a) and (b) of Regulation 
(EC) No 1698/2005.

In Romania: From the information received regarding the 
respective project it appears that it contributes to increas-
ing  and  modernising  the  local  network  for  collecting 
products.

50.
The Commission considers that support to food industry 
can, in addition to creating new jobs, also be considered to 
contribute to maintain jobs in rural areas.

52.
The  Commission  considers  that  public  support  may  be 
necessary  and  efficient  in  circumstances  of  market  fail-
ures especially to provide positive externalities and public 
goods.

53.
The  Commission  considers  that  the  audited  Member 
States identified sector’s weaknesses. As part of the stra-
tegic programming process Member States are required to 
ensure that support is targeted on clearly defined objec-
tives reflecting identified structural and territorial needs 
and structural disadvantages (Article 28 of Regulation (EC) 
No 1698/2005 and 43 of Regulation (EC) No 1974/2006).

54.
The Commission considers that the eligibility and selection 
criteria should serve as a basis for targeting the support to 
the identified objective needs of the sector for different 
types of investments. 

The Commission would like to point out that Article 28 of 
Council Regulation (EC) No 1698/2005 requires that invest -
ments in adding value to agricultural and forestry prod-
ucts must improve the overall performance of the enter-
prise and that support shall not be granted to enterprises 
in difficulty within the meaning of the Community guide-
lines on State aid for rescuing and restructuring firms in 
difficulty.

55.
In Lithuania, the criterion ‘high rate of return on the invest-
ment’ was last in the list of six selection criteria which are 
in priority order, and the priority ‘lower intensity of sup-
port requested’ was ranked above it (fourth). As from 2011 
this criterion has been changed by the LT authorities with 
the current version, applicable in 2012 being ‘ projects with 
a higher return on assets ’.10

10  Order of the Lithuanian MoA No 3D-219 of 27-03-2012.

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Common reply to paragraphs 56.–57.
The risk deriving from the fact that project costs occurred 
before the date of submission of the support application 
can be claimed retroactively, has been addressed by the 
Commission:

59.
The  Commission  considers  that  the  possibility  of  being 
admitted to public funding can generate an incentive to 
implement projects which would not have taken place if 
no funding was available.

 — In its proposal of September 2010 for the amendment of 
Regulation (EC) No 1698/2005 and in respect of investment 
operations under measures falling within the scope of Art- 
icle 42 of the Treaty (TFEU), the Commission has proposed 
that only expenditure which has been incurred after an ap-
plication has been submitted to the competent authority shall 
be considered eligible11. In the Commission’s view, this should 
limit the risk of deadweight.

 — A similar requirement has been introduced in Article 67(2) 
of the Commission proposal for the next programming per-
iod. In this context, Member States may also provide in their 
programmes that only expenditure which has been incurred 
after the application for support has been approved by the 
competent authority shall be eligible.

58.
For Lazio, as part of the procedure of preliminary expres-
sion of interest (‘domanda di pre-adesione’12), beneficiaries 
might have started to implement projects before the com-
pletion of the application, especially the procedural and 
administrative preparation.

Box 10 
The Commission will investigate further this case in order 
to analyse the justification for the additional payment.

11  The Lisbon alignment proposal — COM(2010) 537 Final dated 
30.9.2010.

12  The so-called ‘domanda di pre-adesione’ is an instrument that 
the Region has implemented exclusively during the initial phase of 
implementation of the measure (for the first open call), by allowing an 
early start of the projects to ensure the continuity of the interventions 
during the transition from the previous programming period to the 
current one, reducing the risk of interruption of the operations, and 
accelerating the implementation of the programme.

The Commission is encouraging MS to shorten the delay 
for project approval and is informed that the situation is 
improving (e.g. in France). However, it is Member State’s 
responsibility to ensure efficient delivery mechanisms and 
well-functioning  administrative  procedures  at  national/
regional level. 

As  for  Castilla  y León,  during  the  last  monitoring  com -
mittee of 15 June 2012, the Commission encouraged the 
region to shorten projects approval and payment delays, 
without  jeopardising  the  sound  management  of  the  EU 
funding. 

In  Romania’s  case,  the  Commission  is  encouraging  MS 
to  shorten  the  delay  for  project  approval,  while  making 
a balance between the processing of applications within 
a reasonable timescale without compromising the sound 
financial management of EU funds. The length of selection 
process is mainly due to the high number of applications 
received under each call for proposals.

60.
Castilla y León is assessing possible deadweight effect. Les-
sons drawn from this exercise will lead to improved admin-
istrative procedures to assess and mitigate risks.

61.
I t  is  expected  that  the  synthesis  of  M id-term  evalua-
tions 13  (MTEs)  carried  out  on  behalf  of  the  Commission 
will give information on how the issue of deadweight was 
addressed, based on the MTE reports that provided an esti-
mation/calculation of impacts of their programmes. How-
ever, since the MTE synthesis is not structured according to 
particular measures but according to overarching themes, 
it will not necessarily provide a clear view as to the spe -
cific role of measure 123 in the calculation of deadweight 
effects.

13  The Synthesis of Mid-Term Evaluations 2007–13 will be published end 
of 2012/beginning of 2013.

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66.
The Commission considers that the interventions selected 
for support in line with the specific priorities of the RDPs, 
respond  to  the  assessed  needs  of  the  territor y  at  the 
national and regional level in line with the SWOT analysis 
and satisfy the objectives of the relevant regulations on 
Rural Development in force. The interventions funded are 
linked to the basic agricultural production, aiming at re- 
inforcing the existing local/regional SMEs (including co-
operatives). Therefore the Commission considers that dis-
placement can exist and that under certain circumstances 
it may even lead to an improvement of the economic situ-
ation (e.g. rationalisation).

Common reply to paragraphs 67.–69.
According to the principles of subsidiarity and shared man-
agement, project selection lies within the responsibility of 
Member States. The Commission has insisted on several 
occasions on the need for greater selectivity15.

When approving the RDPs, the Commission carries out an 
analysis to assess that programmes and measures are con-
sistent with the Community strategic guidelines, relevant 
national strategy plans and comply with the relevant legal 
provisions16.

The monitoring and evaluation framework for the period 
2014–20 is currently being elaborated.17

15  For example, during annual meetings, notably, at the beginning of 
the programming period a letter was sent from the Commission to 
the Managing Authorities of all programmes inviting them to take into 
account the importance of well-defined selection criteria for an effective 
implementation throughout the whole period. Furthermore, in 2009, 
another letter asked Member States to make sure that adequate selection 
criteria are specified and used for the allocation of funds. 

16  Regulation (EC) No 1698/2005 and Regulation (EC) No 1974/2006 
(Article 18 of Regulation (EC) No 1698/2005).

17  The legal basis is the proposal for the Horizontal Legislation art.110, 
the proposal for the RD Regulation title VII, as well as the related 
implementing/delegated acts.

62.
A certain displacement in the processing and marketing 
sector may be acceptable if the overall net benefit for the 
primary agricultural sector through a more efficient pro -
cessing and marketing is achieved.

The Commission does not consider it an inefficient use of 
EU funds if a subsidy entails an increase of the marketing 
share at the expense of a competitor. The subsidy may lead 
to a more efficient (economically and/or environmentally) 
installation, which overall may contribute to increase the 
competitiveness  of  the  agriculture  in  the  programming 
area.

The  Commission  considers  that  if  the  investment  sup-
port is well targeted (using among others eligibility and 
selection  criteria,  including  differentiation  in  aid  rates) 
and based on clearly identified gaps/needs 14, the risk of 
deadweight and displacement is minimised. The targeting 
of investment support (Article 43) was introduced in this 
programming period exactly to limit deadweight and dis-
placement effects coming out of earlier evaluations.

Common reply to paragraphs 63.–64.
The Commission considers that the interventions selected 
for support in line with the specific priorities of the RDPs, 
respond  to  the  assessed  needs  of  the  territor y  at  the 
national  and  regional  level  in  line  with  the  SWOT  ana- 
lysis and satisfy the objectives of the relevant regulations 
on Rural Development in force. Therefore the Commission 
considers that displacement can exist and that under cer-
tain circumstances it may even lead to an improvement of 
the economic situation (e.g. rationalisation).

Common reply to paragraphs 65.–66.
In general terms, the Commission considers that:

The Member States have the obligation to adopt a stra -
tegic approach to programming that takes into account 
the specific situation and needs of the different rural areas 
and beneficiaries covered by the programme. This helps 
in limiting the risk of displacement by targeting the aid 
to those in real need. In addition, the instrument of the 
National Strategy Plan further provides consistency across 
different regions/areas and should ensure an adequate and 
balanced allocation of public resources.

See also reply to 63.

14  Article 43 of Regulation (EC) No 1974/2006.

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The proposals for the monitoring and evaluation system 
for  the  period  2014–20 seek to  better  adjust  the  timing 
of  evaluations  to  the  information  available  at  various 
stages of the programming period. There is no longer the 
requirement of a mid-term evaluation, instead extended 
annual implementation reports shall be submitted in  2017 
and 2019 in which (among other things) progress towards 
achieving the objectives of the programme is to be set out 
and  assessed  (see  proposal  for  the  Common  Provisions 
Regulation (CPR) art. 44). In order to be able to deliver the 
necessary information, Member States are required to carry 
out evaluations during the programming period according 
to an evaluation plan (see proposal for CPR art. 49).

70.
The  for thcoming  synthesis  of  Mid-term  evaluations  is 
expected to give an overview of the implementation of the 
measure based on the 92 MTEs of the MS and regions. This 
will include information on the rates of achievement of the 
result indicators linked to measure  123 (Number of enter-
prises introducing new products and/or techniques and 
Increase in gross value added in supported enterprises) — 
see reply to §76 for more details.

In  the  ex  post  evaluation,  Member  States  should  again 
report  on  the  achievement  of  the  result  indicators,  this 
time covering the full programming period. 

73.
It  is  up  to  the  Managing  Authority  to  determine  where 
additional indicators are relevant and therefore need to be 
developed and monitored 18. The intention is not to have 
an  exhaustive  set  of  additional  indicators  but  rather  to 
have some additional indicators defined to make sure that 
potential specificities of the RDP could be monitored and 
evaluated. 

The Commission, aware of weaknesses in MS methodolo-
gies to assess some indicators, established methodological 
guidelines in 2010 that were distributed and explained to 
the people in charge of the evaluation within the MS. Bet-
ter and more reliable figures are now expected.

18  ‘Each rural development programme shall specify a limited number 
of additional indicators specific to that programme’ — see Regulation 
1698/2005, Article 81 §2.

In Romania, the issue of missing indicators has been raised 
during Annual Review Meetings and Romania is trying to 
provide those via a project to be financed under technical 
assistance.

74.
In the respect of the shared management, the Common 
Monitoring and Evaluation Framework (CMEF) handbook 
offers some flexibility to MS on how they implement their 
monitoring and evaluation. MS should identify the right 
balance for their monitoring system to ensure good qual-
ity data at a acceptable cost.

75.
The forthcoming synthesis of MTEs is expected to provide 
a more  complete  picture  on  the  information  contained 
in the MTE reports as it covers all 92 MTEs of the MS and 
regions. This  includes  information  on  measure 123  with 
respect  to  the  implementation  of  the  measure19  and  on 
the achievement of the result indicators that the measure 
should contribute to20.

Furthermore, the synthesis of MTEs will give an overview 
of  the  impacts  of  programmes  on  the  basis  of  available 
information from those MTEs that have performed such 
estimations/calculations, although exact quantification of 
these impacts is likely to remain difficult at this stage of 
the implementation of programmes.

Where quantitiative information on impacts is not avail-
able, the Commission does not consider it bad practice for 
the evaluation reports to draw on conceptual analysis and 
theoretical arguments on the effects of certain measures if 
these arguments are well founded.

The proposals for the monitoring and evaluation system 
for the 2014–20 period address the difficulties of assessing 
impacts at the moment that the MTEs were carried out by 
providing a different approach (see reply to §88 — Rec 4 
for more details).

19  Achievement of related output indicators, number of enterprises 
supported holdings and Total volume of investment.

20  Number of enterprises introducing new products and/or techniques 
and Increase in gross value added in supported enterprises.

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76.
The synthesis of MTEs is expected to give an overview on 
the response rates to the evaluation questions. One rea-
son why EQs linked to measure 123 may only have been 
answered partly is the too early timing of the MTE than 
made  it  difficult  to  come  to  a reliable  assessment  of 
impacts at the mid-term stage of the programming period.

Box 11 
Portugal — Azores
See reply to paragraph 77.

Germany — Bavaria
See reply to paragraph 62.

77.
Please see reply to paragraph  75 on the information con-
tained  in  the  for thcoming  synthesis  of  MTEs,  which  is 
expected to provide an indication of the current perfor-
mance  of  the  measure  and  a  useful  background  for  the 
decision  on  whether  to  programme  the  measure  in  the 
future.

The Commission also wishes to underline that based on 
result indicators new products and new technologies have 
been supported and the gross value added has increased 
in some supported enterprises. 

The 9 billion euro budgeted for the current period will be 
subject to an ex post evaluation.

CONCLUSIONS AND RECOMMENDATIONS

79.
Reading Recital 23 of Council Regulation (EC) No 1698/2005 
together with Article 28, the Commission considers that the 
concept of the measure adding value to agricultural (and 
forestry) products as envisaged by the legislator is broad, 
which includes for example improving environmental pro-
tection, occupational safety, hygiene and animal welfare.

80.
A certain displacement in the processing and marketing 
sector may be acceptable if the overall net benefit for the 
primary agricultural sector through a more efficient pro -
cessing and marketing is achieved.

The Commission does not consider that in case a subsidy 
entails an increase of the marketing share at the expense 
of a competitor, this automatically leads to an inefficient 
use of the EU funds. The subsidy may lead to a more effi -
cient (economically and/or environmentally) installation, 
which overall may contribute to increase the competitive-
ness of the agriculture in the programming area.

The  Commission  considers  that  if  the  investment  sup-
port is well targeted (using among others eligibility and 
selection  criteria,  including  differentiation  in  aid  rates) 
and based on clearly identified gaps/needs 21, the risk of 
deadweight and displacement is minimised. The target-
ing of investment support (Article 28 of Regulation (EC) 
No 1698/2005 and Article 43 of Regulation 1974/2006) was 
introduced  in  this  programming  period  exactly  to  limit 
deadweight and displacement effects coming out of ear-
lier evaluations. 

81. First indent
The  legislator  did  not  foresee  an  ex  ante  assessment  of 
whether or not the applicants would be in need of a sub -
sidy. The  requirement  is  to  identify  needs  in  the  RDP  in 
relation  to  the  SWOT 22  analysis  of  the  area  concerned, 
hence to target support according to identified territorial 
needs and structural weaknesses. 

81. Second indent
When approving the RDPs, the Commission carries out an 
analysis to assess that programmes and measures are con-
sistent with the Community strategic guidelines, relevant 
national strategy plans and comply with the relevant legal 
provisions23.

21  Article 43 of Regulation (EC) No 1974/2006.

22  SWOT = Strengths/Weaknesses/Opportunities/Threats.

23  Regulation (EC) No 1698/2005 and Regulation (EC) No 1974/2006 
(Article 18 of Regulation (EC) No 1698/2005).

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84. 
The  Commission  considers  that  the  inter vention  logic/
rationale of the measure is sufficiently clear. By restruc-
turing and developing physical potential and promoting 
innovation the measure actually aims at modernising and 
fostering  the  competitiveness  of  the  agricultural  sector 
through increased added value of local products.

When approving the RDPs, the Commission carries out an 
analysis to assess that programmes and measures are con-
sistent with the Community strategic guidelines, relevant 
national strategy plans and comply with the relevant legal 
provisions27.

However, according to the principles of subsidiarity and 
shared  management,  project  selection  lies  within  the 
responsibility of Member States. 

Nevertheless, in its supervisory role, the Commission has 
insisted  on  several  occasions  on  the  need  for  greater 
selectivity 28 and targeting in the implementation of the 
measure.

Recommendation 1 — First part
See second part of this recommendation.

Recommendation 1 — Second part
The Commission agrees with the recommendation and has 
proposed to strenghten the legal framework for the next 
programming period so that appropriate ex ante quanti-
fied targets (close to result-type indicators) are set for each 
of the focus areas of the Union priorities, on the basis of 
common result indicators. The content of the programme 
shall  contain  a  description  of  the  strategy  and  that  the 
selected measures in relation to the Union priorities are 
based on sound intervention logic supported by an ex ante 
evaluation. 

27  Regulation (EC) No 1698/2005 and Regulation (EC) No 1974/2006 
(Article 18 of Regulation (EC) No 1698/2005).

28  For example, during annual meetings, notably, at the beginning of 
the programming period a letter was sent from the Commission to 
the Managing Authorities of all programmes inviting them to take into 
account the importance of well-defined selection criteria for an effective 
implementation throughout the whole period. Furthermore, in 2009, 
another letter asked Member States to make sure that adequate selection 
criteria are specified and used for the allocation of funds. 

However, according to the principles of subsidiarity and 
shared  management,  project  selection  lies  within  the 
responsibility of Member States. 

Nevertheless, in its supervisory role, the Commission has 
insisted  on  several  occasions  on  the  need  for  greater 
selectivity 24 and targeting in the implementation of the 
measure.

81. Third indent
Although the impact to primary producers is indirect, the 
Commission’s view is that the intervention logic as estab-
lished  by  the  legislator  is  sufficiently  clear.  Indeed,  by 
improving the handling/processing of agricultural prod-
ucts, for example to respond to changing marketing stand-
ards, the primary sector benefits from stabilised demand of 
their produce. This is the case especially when new (innova- 
tive) products are developed and new market opportuni-
ties are opened. This improves the competitiveness of the 
agricultural sector of the territories concerned.

To remedy the weaknesses in methodologies developed by 
Member States (MS) to assess some indicators, the Com-
mission established methodological guidelines in 201025. 
These  guidelines  were  distributed  and  explained  to  the 
people in charge of the evaluation within the MS. More 
reliable figures are now expected.

82.
T h e   m o n i t o r i n g   a n d   e v a l u a t i o n   f r a m e w o r k   fo r   t h e 
period 2014–20 is currently being elaborated 26. 

These  ongoing  proposals  take  account  of  the  lessons 
learned  from  the  current  period  and  the  need  to  meas-
ure  the  effectiveness  of  funds  spent  by  better  adjust-
ing  the  repor ting  on  results  and  impacts  of  the  policy 
to the information available at various stages of the pro-
gramming  period  (see  also  reply  to  paragraph  87  and 
Recommendation 4).

24  For example, during annual meetings, notably, at the beginning of 
the programming period a letter was sent from the Commission to 
the Managing Authorities of all programmes inviting them to take into 
account the importance of well-defined selection criteria for an effective 
implementation throughout the whole period. Furthermore, in 2009, 
another letter asked Member States to make sure that adequate selection 
criteria are specified and used for the allocation of funds. 

25  The methodological guidance on specific indicators by the European 
Evaluation network for Rural Development (http://enrd.ec.europa.eu/
evaluation/evaluation-methodologies/guidance-on-specific-indicators/
introduction/en/introduction_en.cfm).

26  The legal basis is the proposal for the Horizontal Legislation art.110, 
the proposal for the RD Regulation title VII, as well as the related 
implementing/delegated acts.

Special Report No 1/2013 – Has the EU support to the food-processing industry been effective and efficient in adding value to agricultural products?

REPLY OF THE  COMMISSION56

85. 
The Commission has insisted on several occasions on the 
need for greater selectivity29 in the current programming 
period. 

86.
The Commission agrees with the Court that improvements 
in better targeting the support is needed at the level of 
Member States.

For the next programming period, the Commission pro-
posals30 foresee that the selection criteria shall be defined 
for all measures and shall aim to ensure equal treatment 
of applicants, better use of financial resources and target-
ing of measures in accordance with the Union priorities 
for rural development. The use of selection criteria shall 
generally be compulsory even in the case where available 
funds are sufficient31.

Recommendation 2 — First part
The  Commission  understands  that  the  first  par t  of  the 
recommendation  is  addressed  to  Member  States.  It  has 
insisted on several occasions during the current program-
ming period on the need for greater selectivity and is pre-
pared to further encourage Member States to do so.

For the future period the Commission has proposed that 
the Member States should demonstrate that an appropri-
ate  approach  has  been  defined  laying  down  principles 
with regard to the setting of selection criteria for projects, 
which takes into account relevant targets.

Recommendation 2 — Second part
As regards the application of selection criteria, the Com-
mission  agrees  and  is  prepared  to  encourage  Member 
States to more efficient use of the selection criteria during 
the rest of the current programming period. In addition, 
the Commisision has proposed for the next programming 
period that selection criteria should be defined for oper- 
ations under all measures32.

29  For example, during annual meetings, notably, at the beginning of 
the programming period a letter was sent from the Commission to 
the Managing Authorities of all programmes inviting them to take into 
account the importance of well-defined selection criteria for an effective 
implementation throughout the whole period. Furthermore, in 2009, 
another letter asked Member States to make sure that adequate selection 
criteria are specified and used for the allocation of funds. 

30  The legal basis is the proposal for the RD Regulation, Article 49, as well 
as the related implementing/delegated acts.

31  Only in case of certain annual or multiannual measures, for 
example agri-environment-climate measure, where the measures are 
implemented through standard operations which should provide equal 
environmental or animal welfare effects, the use of the selection criteria 
will be optional in case of sufficient funds.

32  Only in case of certain annual or multiannual measures, for 
example agri-environment-climate measure, where the measures are 
implemented through standard operations which should provide equal 
environmental or animal welfare effects, the use of the selection criteria 
will be optional in case of sufficient funds.

When the investment support is well targeted and based 
on clearly identified gaps/needs, the risk of deadweight 
and displacement is minimised. The targeting of invest-
ment support (Article 43 of Regulation (EC) No 1974/2006) 
was introduced in this programming period exactly to limit 
deadweight and displacement effects coming out of earlier 
evaluations.

The Commission has included in the legal proposal for the 
next programming period requirement that specific needs 
linked with specific conditions at regional or sub-regional 
level  are  taken  into  account  and  concretely  addressed 
through adequately designed combinaisons of measures 
or thematic subprogrammes. 

The Commission has also proposed that appropriate tar-
gets are set for each of the focus areas of the Union prior-
ities, on the basis of common result indicators, and that 
the selected measures in relation to the Union priorities 
are based on sound intervention logic supported by an ex 
ante evaluation. 

Recommendation 3
The Commission will organise an exchange of best prac-
tices on the mitigation of deadweight and displacement 
risks with the Member States in the first semester of 2013.

To reduce the deadweight risk the Commission has intro-
duced  in  the  legal  proposal  for  the  next  programming 
period 33 that only expenditure which has been incurred 
after an application has been submitted to the competent 
authority shall be considered eligible.

87. 
Although the impact to primary producers is indirect, the 
Commission’s view is that the legislator has established 
intervention logic that is sufficiently clear. Indeed, improv-
ing the handling/processing of agricultural products, for 
example to respond to changing marketing standards, the 
primary sector benefits from stabilised demand especially 
when new (innovative) products are developed and new 
market opportunities are opened. This improves the com-
petitiveness  of  the  agricultural  sector  of  the  territories 
concerned. 

33  Article 67(2) of the Rural Development proposal.

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REPLY OF THE  COMMISSION57

To remedy the weaknesses in methodologies developed by 
Member States (MS) to assess some indicators, the Com-
mission  established  methodological  guidelines  in 2010. 
These  guidelines  were  distributed  and  explained  to  the 
people in charge of the evaluation within the MS. More 
reliable figures are now expected.

The forthcoming synthesis of MTEs is expected to give an 
overview of the available information on measure 123 with 
respect to the implementation of the measure34 and on the 
achievement of the result indicators35. 

The Commission also wishes to underline that based on 
results  indicators  new  products  and  new  technologies 
have  been  suppor ted  and  the  gross  value  added  has 
increased in some supporting enterprises.

The 9 billion euro budgeted for the current period will be 
subject to an ex post evaluation.

Recommendation 4
The proposals for the monitoring and evaluation system 
for the period 2014–20 introduce a number of changes. 
There is no longer the requirement of a mid-term evalu -
ation,  instead  extended  annual  implementation  reports 
shall  be  submitted  in 2017  and 2019  in  which  (among 
other things) progress towards achieving the objectives of 
the programme is to be set out and assessed36. In order 
to be able to deliver the necessary information, Member 
States are required to carry out evaluations during the pro-
gramming period according to an evaluation plan (see pro-
posal for CPR art. 49). In this way, the reporting on results 
and impacts of the policy will be better adjusted to the 
information available at various stages of the programming 
period.

34  Achievement of related output indicators, number of enterprises 
supported holdings and Total volume of investment.

35  Number of enterprises introducing new products and/or techniques 
and Increase in gross value added in supported enterprises.

36  See proposal for CPR: Common Provisions Regulation (Art 44).

Special Report No 1/2013 – Has the EU support to the food-processing industry been effective and efficient in adding value to agricultural products?

REPLY OF THE  COMMISSIONEuropean Court of Auditors

Special Report No 1/2013
Has the EU support to the food-processing industry been effective and efficient in adding value to agricultural products?

Luxembourg: Publications Office of the European Union

2013 — 57 pp. — 21 × 29.7 cm

ISBN 978-92-9241-137-4
doi:10.2865/65797

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AS PART OF THE EU’S RURAL DEVELOPMENT POLICY GRANTS ARE MADE AVAILABLE 

TO   E N T E R P R I S E S   T H AT   P R O C E S S   A N D   M A R K E T   AG R I C U LT U R A L   P R O D U C T S , 

WHICH  SHOULD  ALSO  RESULT  IN  IMPROVING THE  COMPE TITIVENESS  OF THE 

AGRICULTURAL SECTOR. 

THE COURT’S AUDIT EXAMINED WHETHER THE EU SUPPORT HAD BEEN EFFECTIVE 

AND EFFICIENT IN THIS RESPECT, BUT FOUND THAT MEMBER STATES DO NOT DIRECT 

THE FUNDING TO PROJEC TS FOR WHICH THERE IS A DEMONSTRABLE NEED FOR 

PUBLIC SUPPORT. WITHOUT THIS, THE MEASURE RISKS BECOMING A HANDOUT — 

A  GENERAL  SUPPOR T TO  ENTERPRISES  INVESTING  IN THE  FOOD-PROCESSING 

SEC TOR — WITH THE AT TENDANT RISKS OF DISTORTION OF COMPETITION AND 

INEFFICIENT USE OF SCARCE PUBLIC MONEY.

T H E   C O U R T   P R O V I D E D   R E C O M M E N D AT I O N S   T H AT   S H O U L D   A L LO W   T H E 

COMMISSION AND THE MEMBER STATES TO REMEDY THE WEAKNESSES MENTIONED.

EUROPEAN COURT OF AUDITORS