BRUSSELS: The European Union (EU) underspent its lavish farm subsidy budget by 500 million euros (US$635 million) last year, and the shortfall would have doubled without advance handouts to farms hit by drought.

The beef, sugar and wine sectors were most affected by the underspending, while budget targets were exceeded in milk and mutton, indicate preliminary figures from the European Commission.

Farm spending reached 44.29 billion euros last year, or 98.9 per cent of allocated funding.

Agriculture, the largest element of EU spending, eats up nearly half of the bloc's annual budget.

But had it not been for extra budget allocations made for the livestock sector during the summer, the underutilization would have ballooned by 500 million euros (US$635 million) - bringing it closer to the farm underspend of 1.20 billion euros (US$1.52 billion) in 2002.

In the summer, the commission agreed to help farmers whose crops and herds were suffering from lack of water and scorched pastures.

Cattle farmers in eastern Germany, southern France and mountainous areas of Austria were particularly affected.

These included bringing forward annual payments in the beef, sheep and goat sectors and allowing member States to graze cattle on land which would normally be kept fallow.

Other measures were taken specifically for cereals farmers.

"The advance payments are normally paid after October 15, from the next budget. But we paid them in September, because of the drought, with money from 2003," a commission official said.

"If we had not, the underspending would have been bigger. The under-utilization would have been 1 billion (euros)," he said.

Unused funds are returned to the EU members' governments.

This year's farm budget will top the 50-billion-euro (US$63.5-billion) mark for the first time, as the EU swells its numbers on May 1 and admits 10 new countries as member States.

Poor exports

For beef and veal, a key factor causing the hefty underspend of 417 million euros (US$529.59 million) - still way down on the 1.02 billion euros (US$1.30 million) seen in 2002 - was the need for fewer subsidies due to continued poor exports in the wake of Europe's mad cow (BSE) crisis.

"The (EU) beef market still hasn't recovered properly after the BSE crisis. That also goes for exports," the official said.

The 277-million-euro (US$351.79-million) overspend on mutton was entirely due to advance subsidy payments that could be made from the 2003, not 2004, budget to soften the impact of drought.

These are expected to exceed 300 million euros (US$381 million).

Sugar also saw a large underspend of 205 million euros (US$260.35 million), up sharply from 5 million euros (US$6.35 million) in 2002, which the commission said was due to a lower volume of exports than foreseen for the year.

Higher subsidy rates and volume of butter exports had helped cause the EU's dairy budget to exceed target by 124 million euros (US$157.48 million), along with more funding needed to finance higher stocks of both butter and skimmed milk powder, the commission said.

EU nations will forfeit less cash for rural development projects and lose 68 million euros (US$86.36 million), against 275 million euros (US$343.75 million), in 2002.

While member states might carry over subsidies for traditional market support from one year to the next, money earmarked by Brussels to fund rural development is lost if not used.

Agencies via Xinhua

(Business Weekly 01/13/2004 page2)