EU auditors rip €700 million farm program

A European Court of Auditors report says an ambitious effort to boost agricultural development has been a failure.

The European Union’s top accounting watchdog issued a new report on Tuesday slamming a farming development fund as a failure. But the European Commission is defending the program and considering extending it for four more years.

The European Court of Auditors (ECA) found that the Commission’s €700 million program to finance agricultural development between 2007 and 2014 was not adequately planned and lacks the legal framework needed for implementation.

The ECA report, seen by POLITICO, accuses the Commission of blurring the lines between its cohesion policy — which shifts money from richer member states to poorer ones — and agricultural development objectives. The result was a program that channeled funds to Greece, Romania, Bulgaria and regions of southern Italy that was “unsuccessful” in bringing about rural development.

“The Commission was not able to show that it has evaluated and addressed the specific characteristics of rural development when designing its framework,” the ECA report concluded.

The report found that the Commission’s plan to double the expenditure under the program from 2014 to 2020 also posed a risk to EU funds, with the ECA member responsible for the report, Kersti Kaljulaid, saying it would be a “considerable challenge to achieve the desired impact.”

By the end of 2013, the EU and member states had contributed around €700 million in financial instruments to the area of rural development, established under the European Agricultural Fund for Rural Development (EAFRD). But in a scathing conclusion, the ECA said the Commission had no basis on which to design such a program, as it did not have “sufficient past experience of financial instruments in rural development.”

EU member states have used financial instruments in agriculture in efforts to modernize farming or to promote agricultural business development schemes. In Greece, the funds included programs to inject money into the agricultural industry through favorable loans to entrepreneurs.

In Romania, the objectives of the guaranteed loan plans included attempts to create confidence in the agricultural sector on the part of often cautious financial institutions.

The Commission was not available for comment ahead of the report’s release, saying it would react only once it was made public. Agricultural associations were also reluctant to comment until they had seen the report.

However, in comments provided to the ECA, the Commission lays the blame squarely at the feet of member states, saying it was “the responsibility of national authorities to ensure that individual operations are implemented in accordance with applicable legal provisions.”

The ECA examined 37 authorities tasked with managing the funds and found that 32 of them had absorbed 90 percent of payments for investment measures under which the financial instruments were to be used — in other words, most of the funds were used up by administration.

The Commission also rejected the ECA’s accusation that the funding model had failed because the EU and national government contributions to the funds had not been matched by private investment.

“While the attraction of private capital is one of the value-addeds associated with financial instruments, the EU legislation in the field of rural development in 2007 to 2013 does not explicitly link financial engineering instruments to private funding,” the Commission argued in its written response to the ECA.