The European Court of Auditors has issued a report on the system for setting the rates of subsidy on exports of agricultural products. Its findings will form the basis of a number of changes to be introduced by the European Commission.

The price of agricultural products on the EU internal market is generally higher than the world market price. In order to sell the surplus of agricultural products arising from oversupply, the EU therefore pays subsidies to exporters to compensate them for the difference between the internal EU and world prices.

The Commission sets the rates individually by product. The main products involved are bulk sugar and cereals, skimmed and whole milk powder, butter, cheese and beef. The EU currently spends around €3.5 billion a year on such subsidies.

The Court's audit set out to establish whether or not the Commission set refund rates in a sound and transparent way, within the limits of the difference between EU and world prices, and on the basis of reliable, up-to-date market information.

It found that while the Commission had most of the information necessary it was not always complete or up-to-date. Although for some product sectors the difference between the EU and world market price quotations was calculated, this could not be systematically linked to the calculation of refund rates actually set.

There were no guidelines or manuals setting out procedures to be followed nor was there systematic evidence of management checks on the rates set. In the beef sector, the Commission stated that it was not able to monitor that the subsidies did not exceed the difference between EU and world price quotations.

The Commission's own analyses of skimmed milk powder and whole milk powder price quotations showed that the subsidy exceeded the difference in quotations for significant periods covered by the audit.

Overall, the way the Commission set refund rates was insufficiently clear particularly for beef, milk products and, to a lesser extent, cereals. The Commission is in the process of making a number of changes, based on the Court's audit, designed to make procedures clearer, to improve documentation and to facilitate management control.

For full details of the report, visit the audit website .