TWENTY-EIGHTH REPORT
The European Scrutiny Committee has made further
progress in the matter referred to it and has agreed to the following
Report:—
SUPPORT SCHEME FOR OLIVE
OIL
(21394)
9431/00
—
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Special Report No. 11/2000 of the Court of Auditors on the support
scheme for olive oil.
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| Legal base:
| — |
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| Document originated:
| 4 May 2000 |
| Forwarded to the Council:
| 9 June 2000 |
| Deposited in Parliament:
| 11 July 2000 |
| Department: |
Agriculture, Fisheries and Food
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| Basis of consideration:
| EM of 24 July 2000 |
| Previous consideration:
| None; but see (17906) 6069/97: HC 36-xvi (1996-97), paragraph 5 (5 March 1997) and HC 36-xviii (1996-97), paragraph 15 (19 March 1997); and (19029) 7972/98: HC 155-xxvi (1997-98), paragraph 17 (29 April 1998)
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| To be discussed in Council:
| No date set |
| Committee's assessment:
| Politically important |
| Committee's decision:
| For debate in European Standing Committee A
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Background
1.1 The olive oil régime was established
in 1966, and was thus one of the first to be set up under the
Common Agriculture Policy. Over the years, its main elements have
comprised:
— production target
and intervention prices;
— a production aid, representing the difference
between the target price and a representative market price, payable
on the quantity of oil produced;
— a separate scheme for small producers,
whose aid was related not to production quantity, but to the number
and production potential of their trees;
— a consumption aid payable to those bottling
olive oil for retail sale (and designed to make it more competitive
with cheaper vegetable oils);
— private storage aid; and
— a system of export refunds.
1.2 At the time of its introduction, the régime
took account of the near self-sufficiency which existed at that
time in the Community of Six. However, following the accession
of Greece, Spain and Portugal, the Community became a net exporter,
and the increased production potential in those countries arising
from Community support prices led to concerns about over-supply,
particularly in view of the limits that had in the meantime been
imposed by the GATT settlement on the Community's level of subsidised
exports. In addition, there were continuing concerns over the
régime's potential for fraud.
1.3 As a result, the Commission produced in 1997
a lengthy report[8],
analysing the economic, cultural, social and environmental aspects
of the régime, and setting out two broad options for longer
term reform — a continuation of the existing arrangements,
but with certain amendments, or the so-called tree aid option
(involving a production aid system based on aid per tree) However,
because the Commission considered it needed better estimates of
actual production before making any proposal for a full reform
of the régime, it put forward in March 1998 a proposal[9]
for an interim reform for the three marketing years 1998/99-2001/02.
This involved production aid being restricted to trees existing
on 1 May 1998; the abolition of consumption aid, and separate
support arrangements for small producers; and the replacement
of intervention by an enhanced system of private storage aid.
In addition, the existing cultivation register was to be integrated
into a more efficient geographical information system (GIS). These
changes were agreed by the Council[10],
and came into effect on 1 November 1998.
The current document.
1.4 The current document is a report by the Court
of Auditors, which aims to assess whether, during the period 1996-98,
the management of the scheme by the Commission and the operation
of measures by the Member States contributed to the aims of providing
a fair income for producers, and of maintaining a balance between
supply and demand. It also evaluates the effectiveness of Member
States' follow up of irregularities. As such, it follows three
earlier reports by the Court on this scheme, in 1985[11],
1991[12]
and 1995[13],
which had highlighted a number of inadequacies, and the administrative
burden it placed on Member States as a result of the very large
number of applications (in excess of 2 million) from small producers.
1.5 The report begins by noting that, during
the latest period under review, annual Community budgetary expenditure
on the scheme averaged some 2.15 billion euro (£1.35 billion),
equivalent to about 5.5% of total expenditure under the EAGGF
Guarantee Section. Following a decision in 1995 to shift away
from aiding consumption and towards production aid, the latter
now accounts for over 90% of the expenditure in this sector. The
report then goes on to examine the operation of the scheme under
three main headings.
1.6 So far as its general operation is
concerned, the Court comments that:
— although the
aim is to achieve market balance, there is still an increasing
risk of surplus, due to increased production capacity, the relatively
slow increase in consumption, and WTO limits on subsidised exports
to third countries;
— although the production aid was intended
to be calculated as the difference between the target and representative
market prices, the need to place a ceiling on expenditure has
in practice become the main determinant of the subsidy;
— although a major aim is to provide producers
with a "fair" income, that objective has never been
defined in a way which would make it possible to measure whether
it has been achieved;
— for most of the last 10 years, the representative
market price has been lower than actual market prices, resulting
in a higher subsidy than that properly payable;
— the tradition in the Member States concerned
of dividing land equally between heirs has led to the fragmentation
of holdings: as a consequence, olive oil is for a substantial
number of producers not their main source of income, and the aid
represents a significant percentage of the total value of production;
— it was not until 1998 that the provision
relating to aid for small producers was repealed, thus taking
several years to recognise its potential for irregularities and
unjustified payments;
— a lack of reliable data has presented
a significant barrier to effective management and decision making;
— although sums have been deducted each
year from the production aid to finance quality improvement and
the establishment of a cultivation register, barely half of the
amounts withheld have been used for these purposes;
— the promotional campaigns which have
been undertaken lack measurable objectives (and Commission claims
of increases during the 1996-98 campaign do not analyse the contribution
to that increase made by the campaign itself); the management
of the campaigns is also hindered by a lack of expert personnel
within the Commission; and
— although the Community contributes to
the cost of Member States' control activities, the Community has
yet to carry out an evaluation of the cost-effectiveness of this
arrangement
1.7 As regards the implementation of the production
aid by the Member States, the Court notes that:
— since applicants
submit claims through their producer organisation, the cultivation
register and information on average yields form an important part
of the checks carried out by the national control agencies;
— however, data collection methods differ,
so that yields are often unrepresentative and meaningful comparisons
difficult; and, despite offers of technical assistance from the
Commission, the cultivation register in most of the Member States
concerned has still not been completed, long after the deadline
set in Community legislation;
— even in the one Member State (Italy)
where the register is considered completed, a significant number
of applications contain discrepancies between the number of trees
recorded on it, and the number claimed by producers for aid; the
Court also suggests that these shortcomings must cast doubt on
how far the aim of introducing a geographical information system
can be achieved;
— the information provided by producers
is often of low quality, and inaccuracies difficult to detect;
likewise, verification of claims checked by reference to quantities
milled is often difficult when the trees belong to the same owner
as the mill;
— although the relevant Council Regulation
provides for sanctions against false declarations, there have
in many cases been very long delays between the notification of
an irregularity and action by Member State authorities; and
— there has also been a very low recovery
rate for aid paid incorrectly.
1.8 The third part of the Court's report deals
with irregularities detected in claims for consumption aid
and export refunds, where, as regards the former, it notes
that 87% of the unrecovered amounts have arisen in Italy. The
report goes on to observe that:
— according to
the Commission, irregularities have arisen on some 7.6% of consumption
aid payments, amounting to around 756 million euro, but only 27
million euro (or 6% of that sum) has been recovered; moreover,
the majority of this fraud in Italy involved false invoices, and
many suggested a degree of organisation;
— although Member States are required to
take steps to rectify irregularities promptly, the Italian authorities
had waited from four to ten years before starting recovery proceedings,
and the paying agency responsible for recovery both left court
action to the local district attorney and failed to follow systematically
the progress of cases;
— the Italian authorities had yet to provide
a definitive version of the sums to be recovered;
— in the vast majority of irregularity
cases examined, appeals had been lodged, but none of the Member
States concerned had any procedures for deterring those used simply
as a delaying tactic;
— payments of aid made in advance of on-the-spot
checks were subject to the lodging of guarantees, but in Spain
and Greece, these were often released merely on the basis of a
desk check;
— although fines should have been imposed
since 1992 where olive oil does not meet the necessary quality
standards to qualify for consumption aid, no such fines had been
imposed by Greece or Italy; and fines elsewhere for applications
for excessive quantities claimed had been credited, not to the
Community budget, but to those of the Member States; and
— although the level of irregularities
on export refunds was considerably lower than that for consumption
aid, the 13% rate of recovery is only marginally higher, and regarded
by the Court as unacceptable.
1.9 Overall, the Court's damning conclusion is
that, despite all the amendments made by the Council, and the
experience of thirty years, the system for the management and
control of the support scheme for olive oil is still not efficient
and reliable.
The Commission's response
1.10 In its response, the Commission acknowledges
that, although new control arrangements have been introduced,
the current system does not yet reach the desired level of efficiency
and reliability, and says that it is therefore continuing to seek
improvements in the context of reform. It does, however, cite
the various changes over the years, including the most recent
decision to withdraw the small producers' scheme, as evidence
of a willingness to draw conclusions based on experience. It also
suggests that the attainment of a fair producer income is a "political
principle rather than a quantifiable target", on which it
doubts whether agreement could ever be reached on the kind of
quantifiable definition sought by the Court.
The Government's view
1.11 In her Explanatory Memorandum of 24 July
2000, the Minister of State (Commons) at the Ministry of Agriculture,
Fisheries and Food (The Rt. Hon. Joyce Quin) describes the scenario
of fraud identified by the Court as "disturbing", but
points out that, in the absence of a producer interest, the UK's
interest is principally budgetary. She adds that the report has
no direct policy implications for the UK, but that the Government
wishes to see a further reform of the régime to reduce
costs, complexity and opportunities for fraud. She suggests that
this report is a "step in the right direction".
Conclusion
1.12 Although the Minister has described the
situation revealed by this report as "disturbing", the
blithe disregard shown by the Member States concerned for the
basic principles of financial accountability, not to mention the
interests of Community taxpayers, is in our view little short
of a scandal. Likewise, although the report may indeed be a step
in the right direction, that will prove to be the case only if
determined efforts are made to ensure that the Court of Auditors'
criticisms are fully reflected in the further reform of this discredited
régime.
1.13 Consequently, whilst we appreciate the
difficulty any UK government faces in influencing events in this
area, we feel that the issues raised by this report — which
typify both the shortcomings of the Common Agricultural Policy
and the lack of proper financial controls within the Community
— are ones on which the House should have the opportunity
to question the Minister further. We are, therefore, recommending
this document for debate in European Standing Committee A.
8 (17906) 6069/97; see HC 36-xvi (1996-97), paragraph
5 (5 March 1997) and HC 36-xviii (1996-97), paragraph 15 (19 March
1997). Back
9
(19029) 7072/98; see HC 155-xxvi (1997-98), paragraph 17 (29
April 1998). Back
10
Council Regulation (EC) No. 1638/98: OJ No. L 210, 28.7.98, p.32. Back
11
OJ No. C 134, 3.6.85. Back
12
OJ No. C 330, 16.12.92. Back
13
OJ No. C 340, 12.11.96. Back
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