Article 40 of the EEC treaty (Article 40 TFEU) - devoted to the gradual development of the common agricultural policy - declared that one or several agricultural guidance and guarantee funds should be created to enable the common organisation of agricultural markets to fulfil its goals. On January 14, 1962 during the first agricultural marathon, the Council opted for the creation of one single fund to finance all Community market and structural expenditure in the various agricultural sectors: the European Agricultural Guidance and Guarantee Fund (EAGGF). The Fund was set up in 1962, but the arrangements on the financing of the common agricultural policy were finalised in 1970.
The reform of the common agricultural policy in June 2003 and April 2004 [see section 21.2.2] introduced major changes having a significant impact on the economy of rural territories of the EU in terms of agricultural production patterns, land management methods, employment and the wider social and economic conditions in the various rural areas. Consequently, the European Agricultural Guidance and Guarantee Fund (EAGGF) was abolished and two European agricultural funds were created in 2005 [Regulation 1290/2005, repealed by Regulation 1306/2013]: namely the European Agricultural Guarantee Fund (EAGF), for the financing of market measures, and the European Agricultural Fund for Rural Development (EAFRD), for the financing of rural development programmes.
As of January 2007, the EAGF finances in a context of shared management between the Member States and the Union the following expenditure, which is effected in accordance with European law: (a) refunds for the exportation of agricultural products to third countries; (b) intervention measures to regulate agricultural markets; (c) direct payments to farmers under the common agricultural policy; and (d) the Union's financial contribution to information and promotion measures for agricultural products on the internal market of the Union and in third countries, undertaken by Member States on the basis of European programmes and selected by the Commission. The EAFRD finances in a context of shared management between the Member States and the Union the Union's financial contribution to rural development programmes implemented in accordance with the European legislation on support for rural development [see section 21.5]. Budget discipline takes account of the reform of the CAP as provided for by Regulation 73/2009, last amended by Regulation 994/2014]. The Commission and Member States share the costs of payments under the EAFRD and amounts to be recovered following the detection of irregularities and negligence.
The EAGF and the EAFRD may each respectively finance on a centralised basis, on the initiative of the Commission and/or on its behalf, the preparatory, monitoring, administrative and technical support, evaluation, audit and inspection measures required to implement the common agricultural policy, including rural development. Paying agencies are the departments or bodies of the Member States which, in respect of payments made by them and as regards communicating and keeping information, provide sufficient guarantees. They are controlled by certification bodies, which are designated by each Member State with a view to certifying the truthfulness, completeness and accuracy of the accounts of the accredited paying agency, taking account of the management and control systems set up. Each Member State must adopt all legislative, regulatory and administrative provisions and take any other measures necessary to ensure effective protection of the financial interests of the EU.