ECA/03/19
Luxembourg, 7 November 2003
Information Note of the European Court of Auditors concerning Special Report No 12/2003 on the sound financial management of the Common Market Organisation for dried fodder (1)
Protein is important for animal feeding and is present to varying degrees in a wide range of feeding material. The major sources are grass, hay, silage and other roughages and are largely EU sourced and generally non-tradeable. The other major sources which are tradeable are cereals, the energy rich group (eg manioc, corn gluten, brans and molasses) and the protein rich group (soya, other oilseed meals, peas, beans and dried fodder). The most important single source in this group is soya which provides some 20 % of total needs. Most soya is imported. Although dried fodder is one source in the protein rich group it is relatively low in protein and provides only around 1 % of the total crude protein fed to EU livestock.
Dried fodder is obtained either by drying approved plants by the application of artificial heat or by other means - mostly sun drying. The plant most commonly used is luzerne/alfalfa.
The Common Market Organisation established in 1974, set out to increase the levels of EU production by granting aid to processors for the production of artificially dried fodder. A uniform level of aid was set. To ensure a regular supply of plants for drying and to enable growers to benefit, the aid was made conditional upon processors concluding contracts with growers.
The aid system was reformed in 1978 when the rate payable became linked to the difference between a guide price and world market price and aid introduced for sun-dried but at a lower level to reflect the lower costs involved. Production rose continually throughout the 1980s and aid expenditure escalated as no limit had been placed on the quantity that could be produced. The equivalent rate of aid per hectare under production was then around euro 600/hectare compared to euro 390/hectare for protein crops receiving aid on an area basis.
In 1991, the Commission considered proposing phasing out support but the Council were not in favour of the idea. The present form of the CMO dates from 1995 and introduced a mechanism to cap the budget and influence production levels. A Maximum Guaranteed Quantity (MGQ) distributed among producer States was introduced. The aid reverted to a flat rate basis, maintaining the differential between artificially dried and sun dried. Overall production in excess of the MGQ by up to 5 % results in a global reduction of the rate of aid payable. Production beyond this results in specific additional reductions for individual countries involved.
The aid rates established in 1995 were 68,83 euro per tonne for artificially dried and 38,64 for sun dried. The aid budget has remained around euro 300 million since 1995 and for 2003 was 317 million euro.
Aid is only paid for dried fodder grown on IACS registered land, which meets quality standards as regards moisture and protein content and which has left the premises of the processing undertaking or approved external storage.
The audit focused on the three largest producers Spain, France and Italy and one smaller scale producer Germany.
The Court found that:
- the measures introduced by the 1995 reform had been successful in keeping overall expenditure within budget. But some states had been able to exceed their share of the MGQ by as much as 60 % before penalty as other states consistently produced less than their share;
- the rates of aid set by the Council in 1995, particularly for artificially dried, were higher than those recommended by the Commission. This encouraged processors to switch from sundrying and produce artificially dried to the maximum extent possible;
- despite the investment in supporting the industry, dried fodder remains of limited economic significance for protein consumption in the EU;
- lack of clarity in Commission regulations has created opportunities for different interpretations and practices in Member States.
The Commission has agreed to examine the situation during their forthcoming examination in the context of their work on clearance of EAGGF accounts.
Planned evaluation of the CMO was postponed twice. But the market was reviewed for other purposes. Following the BSE crisis, the supply and demand situation was reviewed for determining how, processed animal protein which is now banned could be replaced. This suggested that importing more soya was preferable to increasing production of dried fodder. More recently the mid-term review of the CAP resulted in a proposal by the Commission to phase out aid for processing, which would have resulted in budget savings, and integrate aid for fodder cultivation into the single farm payment scheme.
The Commission has informed the Court that, following the compromise solution reached in Council in June 2003 in relation to the various proposals following CAP review, the Council has rejected phasing out aid for processing. It has agreed to transfer part of the aid for fodder into the single farm payment scheme, and to introduce a single and lower rate of aid for processing of euro 33/tonne.
The Council has asked the Commission to submit a report to it on the fodder sector by September 2008 on the basis of a formal evaluation of the CMO for dried fodder.
Special Report No 12/2003 : http://www.eca.eu.int/EN/RS/2003/rs12_03en.pdf
(1) The only purpose of this information note is to give a summary. The special report, as adopted by the Court of Auditors, is available on its internet site ( HYPERLINK http://www.eca.eu.int http://www.eca.eu.int) and will be published shortly in the C series of the Official Journal of the European Communities.
