Select Committee on European Scrutiny Thirty-Ninth Report


7 Effectiveness of rural development investments

(27823)

12857/06

Special Report No. 7/2006 of the European Court of Auditors on the effectiveness of Rural Development Investments

Legal base
Document originated15 September 2006
Deposited in Parliament26 September 2006
DepartmentEnvironment, Food and Rural Affairs
Basis of considerationEM of 17 October 2006
Previous Committee ReportNone, but see footnote
To be discussed in CouncilShortly
Committee's assessmentPolitically important
Committee's decisionCleared

Background

7.1 The Community's rural areas are characterised by population densities and per capita levels of GDP which are significantly below those in urban areas, as well as by their remoteness, high dependence on agriculture and poor levels of infrastructure and basic servicesGovernments view. Consequently, Council Regulation (EC) No. 1257/1999[25] provides support for rural development from the European Agricultural Guidance and Guarantee Fund (EAGGF), under which contributions of more than €60 billion have been made from the Community budget in the period 2000-06 — a figure which it is proposed should be increased to almost €70 billion for 2007-13. About 40% of the budget available[26] for this Regulation relates to what are known as "rural development investments", covering investment in agricultural holdings, improving the processing and marketing of agricultural products, and promoting the adaptation and development of rural areas, and the European Court of Auditors has sought in this Special Report to assess the extent to which these measures have effectively addressed the problems of rural areas.

The current document

7.2 The Court notes that, prior to 2000, the measures were part of the Structural Funds, with their objectives specifically defined, according to whether they were to support the agricultural sector or to address the problems of rural areas. However, since 2000, rural development has formed the so-called "second pillar" of the Common Agricultural Policy (CAP), which has resulted in a decentralised approach, giving Member States a wide range of options to finance national or regional policies, subject to two main objectives — the improvement of agricultural competitiveness and sustainable land management, and the structural adjustment of regions which are lagging behind or facing other structural problems. The Regulation also specifies that investments in agricultural holdings must contribute to the improvement of agricultural incomes and of living, working and production conditions, whilst those for improving the processing and marketing of agricultural products must contribute to increasing their competitiveness and added value. However, no specific objectives are set for rural development measures.

7.3 In its assessment, the Court addressed four key issues:

  • whether the Community has had a clear strategy and coherent approach, which is adequately defined in Member States' programmes;
  • whether the projects selected for Community funding are based on criteria which best address the needs of rural areas;
  • whether the projects have been implemented, and have had an impact; and
  • whether the outputs, results and impacts are properly monitored and evaluated.

It did so by a study of the relevant documents, evaluating a random sample of 300 projects under the EAGGF, and audit visits to the Member States[27] among those with most payments in the sample.

7.4 On each of these questions, the Court concludes in turn that:

  • the flexibility of the Regulation, with its broad objectives and lack of priorities, and the absence of a clear strategy in the Member States' programmes, has led to a situation where it is unclear to which objective the funds have contributed, with Member States largely focussing on the agricultural sector and taking insufficient account of the general characteristics of the area supported;
  • there is a lack of effective eligibility conditions and selection procedures to target funds on the most needy geographical areas and beneficiaries, which also leads to a risk of increased "deadweight" effects,[28] thereby reducing the effectiveness of the aid;
  • a significant part of the expenditure has been implemented in areas which are not predominantly rural, to the detriment of the amounts available for such areas: and, whilst it is not always possible to identify the effect of the projects, the key consideration was their synergy with other projects and their being located in rural areas; and
  • the monitoring and evaluation systems adopted by the Commission and the Member States do not provide adequate or reliable information on the outputs, results and impacts of rural development investments.

7.5 The Court therefore recommends that, for the next programming period, the Commission should ensure that Member States have identified clear strategies which relate to specific objectives, and which will allow the cost effectiveness of the investments to be assessed; that, as regards the period 2007-13, appropriate attention should be given to the balance between the Regulation's two core objectives relating to the CAP and the reduction of territorial imbalances; that the Commission should ensure that Member States' programmes prioritise the allocation of funds according to their needs, with a clearer identification of the most needy areas and beneficiaries; that the Commission should, when approving rural development programmes, make sure that Member States have clearly identified the areas in which investments are most needed; that the Commission should encourage Member States to analyse key factors influencing the success of investment projects and disseminate cases of good practice; and that the Commission should improve data collection and reporting in order to be better informed on the effectiveness of the investments.

COMMISSION REPLY

7.6 In its reply to the Court, the Commission says that, although rural development deals with territorial cohesion, it also includes other objectives, and that there is a strong inherent focus on agriculture since the present policy has evolved from the structural problems of the farm sector and the multiple roles of farming in rural society. It also points out that the subsidiarity principle places the responsibility for identifying eligible areas and beneficiaries on the Member States. However, it stresses that the Regulation (EC No 1698/2005) governing the next programming period includes a clearer targeting towards smaller enterprises in order to limit deadweight effects, seeks to encourage integrated projects combining several measures, and takes a more strategic approach by defining three core objectives for rural development. In addition, serious efforts are being made to remedy shortcomings in Member State's monitoring data, and a Common Monitoring and Evaluation Framework has been established.

The Government's view

7.7 In his Explanatory Memorandum of 17 October 2006, the Minister for Biodiversity, Landscape and Rural Affairs at the Department of Environment, Food and Rural Affairs (Barry Gardiner) simply points out that the Report makes a number of recommendations to the Commission as regards the design of the arrangements and the approval of Member States' programmes for the programming period 2007-13, that there are no policy implications arising directly from it, but that his department and the devolved administrations are current preparing rural development programmes for their individual territories for this new period.

Conclusion

7.8 This Report by the Court of Auditors identifies a number of criticisms in the way in which these measure have been implemented by the Community, which will clearly be helpful in their operation for the next programming period. As the Commission is taking steps to address most of these points, we do not think there is any need for this document to be considered further, but, as it deals with a significant area of expenditure, we think it right, in clearing it, to draw it to the attention of the House.




25   OJ No. L 160, 26.6.99, p.80. Back

26   The rest of the budget relates to agri-environment measures, Less Favoured Areas and forestry. Back

27   France, Germany, Italy, the Netherlands, Portugal and Spain. Back

28   Where an investment would have happened anyway without the assistance. Back


 
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Prepared 2 November 2006