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# 52002XC1224(01)

**Community guidelines for State aid concerning TSE tests, fallen stock and slaughterhouse waste***Official Journal C 324 , 24/12/2002 P. 0002 - 0007*

Community guidelines for State aid concerning TSE tests, fallen stock and slaughterhouse waste

(2002/C 324/02)

I. INTRODUCTION

1. Community legislation introduced in the wake of the bovine spongiform encephalopathies (BSE) crisis has changed the economics of meat production. For example, parts of a slaughtered animal which before could be profitably turned into meat and bonemeal to be sold for feed are now not only often worthless, but have to be destroyed at extra cost. Community legislation(1) now requires the removal of specified risk material at the slaughterhouse. Compulsory testing of certain cattle for transmissible spongiform encephalopathies (TSE) is another additional cost factor.

2. As a result, several Member States have notified State aid measures granting aid towards the costs of TSE tests, for the disposal of fallen stock, and in particular for the elimination of specified risk material and meat and bonemeal.

3. Several Member States have requested the Commission to look into the possibility of better harmonisation of costs incurred by farmers and slaughterhouses, for the elimination of slaughterhouse waste, fallen stock and BSE test costs. They argue that the current situation, where some slaughterhouses and farmers receive State aid for covering these costs, while others do not, causes distortions of competition. The issue has also been raised on the occasion of several meetings of the Agriculture Council in 2001 and 2002.

4. The Commission sent out a questionnaire to all Member States in the summer of 2001, asking for more specific information relating to State aid granted towards the costs of dealing with slaughterhouse waste and fallen stock. A similar exercise was undertaken in relation to BSE test costs.

5. On the basis of the information received, and of the experience gathered with State aid notifications received since 2001, the Commission presented its findings to Member States in a meeting on 27 May 2002. Those findings were also presented to the Standing groups on beef and pigmeat of the Advisory Committee on livestock products, comprising representatives of producers, the processing and marketing sector, as well as consumers, on respectively 3 and 18 July 2002. Additional direct contacts have taken place with sectoral organisations.

6. A draft of these guidelines has been presented to Member States in a meeting on 8 November 2002.

7. The information gathered shows that the different State aid policies followed by Member States imply a serious risk of distortion of competition. It is, therefore, necessary to create a more level playing field, while also taking into account the importance of the measures in question for the protection of human and animal health, and for the protection of the environment.

8. Ongoing harmonisation via Community legislation requiring the sector to bear the costs is slow and likely to remain incomplete for some time.

9. The Commission has therefore decided to clarify and modify in some respects its State aid policy in relation to TSE test costs, fallen stock and slaughterhouse waste, by laying down these guidelines.

10. If the economics of animal by-products should change significantly in the future, the Commission will review the policy set out in these guidelines.

11. The Commission encourages Member States to speed up as much as possible the provision of sufficient capacities for proper disposal of animal by-products, and to foster research into their alternative use.

II. SCOPE AND DEFINITIONS

A. Scope and relation to the Community guidelines for State aid in the agriculture sector

12. These guidelines concern State aid towards the costs of TSE tests, fallen stock and slaughterhouse waste granted to operators active in the production, processing and marketing of animals and animal products falling within the scope of Annex I to the Treaty and insofar as Articles 87, 88 and 89 of the Treaty have been declared applicable to such products.

13. For the purpose of these guidelines, the processing and marketing of an animal or animal product means an operation the product resulting from which remains an animal product, for example the slaughter of animals for meat. The processing of Annex I products into non-Annex I products therefore falls outside the scope of these guidelines.

14. These guidelines take precedence over the Community guidelines for State aid in the agriculture sector(2) (hereinafter referred to as the agriculture guidelines) in so far as an issue is expressly covered by these guidelines. The agriculture guidelines remain applicable on a subsidiary basis.

B. Definitions

15. For the purpose of these guidelines, the following definitions apply:

16. "TSE and BSE test costs" are all costs, including those for test kits, taking, transporting, testing, storing and destruction of samples necessary for tests undertaken in accordance with Annex X, Chapter C to Regulation (EC) No 999/2001.

17. "Fallen stock" are animals which were killed (euthanasia with or without definite diagnosis) or have died (including stillborn and unborn animals) on a farm or any premise or during transport, but were not slaughtered for human consumption.

18. "Slaughterhouse waste" is any waste occurring at the level of slaughterhouses, cutting plants or butchers, including in particular animal by-products covered by categories 1, 2 and 3 of Regulation (EC) No 1774/2002 of the European Parliament and of the Council laying down health rules concerning animal by-products not intended for human consumption(3).

19. "Specified risk material" is, from the date referred to in Article 22(1) of Regulation (EC) No 999/2001, the specified risk materials as designated in Annex V to that Regulation, and until that date, the specified risk materials as designated in Annex XI Part A to that Regulation.

20. "Disposal" comprises the collection, transport, storage, transformation to prepare destruction, destruction and the final disposal of the good to be disposed of.

III. TSE AND BSE TEST COSTS

A. Introduction

21. Since the introduction of compulsory BSE testing of cattle over thirty months, the Commission has authorised State aid of up to 100 % towards the costs of such tests. This also applies to aid towards the TSE testing of fallen stock and the recently introduced obligation to perform random tests on small ruminants, for example. Several Member States have notified such aid. In all cases notified and authorised, the aid schemes are of limited duration. The Commission decisions authorising such State aid have been based on point 11.4 of the agriculture guidelines on aid for combating animal and plant diseases.

B. Analysis

22. In order to determine its future policy, the Commission has in particular taken into account the following considerations:

(a) The tests serve the purpose of avoiding the spread of TSE, a disease that is of particular concern from the point of view of the protection of human health.

(b) There is a risk of distortion of competition arising from different levels of State aid granted, at least as far as slaughter cattle is concerned. However, most Member States do currently grant some State aid. Prices for TSE tests continue to vary between Member States. In order to reduce the risk of distortions of competition which could be caused by aid granted towards TSE tests for cattle slaughtered for human consumption, and in order to encourage research towards low-price tests, aid should be limited to EUR 40, currently roughly the best price available in the Community.

(c) There is concern that making farmers pay for the cost of testing fallen stock could make some of them try to avoid controls by illegally disposing of carcasses, reducing the reliability of statistical data, and create health risks.

(d) As to low-value animals like sheep and goats, TSE tests may cost more than the value of the animal. Making owners pay for tests could entail the risk that such animals are marketed without testing, again reducing the availability of data.

(e) For both fallen stock and low-value animals, the risk of distortions of competition from the granting of aid seems to be lower than in the case of slaughter cattle.

C. Future policy concerning TSE and BSE test costs

23. In order to promote the taking of measures for the protection of animal and human health, the Commission has decided that it will continue to authorise State aid of up to 100 % towards the costs of TSE tests, following the principles of point 11.4 of the agriculture guidelines.

24. However, from 1 January 2003, as far as compulsory BSE testing of bovine animals slaughtered for human consumption is concerned, total direct and indirect public support, including Community payments, may not be more than EUR 40 per test. The obligation for testing may be based on Community or national legislation. This amount refers to the total costs of testing, comprising: test kit, taking, transporting, testing, storing and destruction of the sample. This amount may be reduced in future, as test costs fall.

25. State aid towards the costs of TSE tests has to be paid to the operator where the samples for the tests have to be taken. However, in order to facilitate administration of such State aid, payment of the aid may be made to laboratories instead, provided that it can be properly demonstrated that the full amount of State aid paid is passed on to the operator. In any event, State aid directly or indirectly received by an operator where the samples for the tests have to be taken must be reflected in correspondingly lower prices charged by this operator.

IV. FALLEN STOCK

A. Introduction

26. In the past, the Commission has received hardly any notification of State aid Member States may be granting towards the costs of collecting and disposing of fallen stock. Due to this absence of notifications, the Commission so far has not had the opportunity to clearly define its policy towards such aid. In view of the information received over the past months, it now seems both possible and necessary to establish a clear policy on how the Commission will deal with such State aid in the future.

B. Analysis

27. In order to determine its future policy, the Commission has in particular taken into account the following considerations:

(a) Fallen stock is a regular feature of keeping live animals, and therefore part of normal production costs.

(b) The "polluter pays" principle set out in Article 174(2) of the Treaty(4) establishes a primary responsibility of producers to take proper care of removal of fallen stock, and to finance the costs of it.

(c) Granting aid for the elimination of waste may go against the principle applied in agriculture that aid should only be granted for behaviour, which goes beyond good agricultural practice. Community legislation, which is part of good agricultural practice, requires proper disposal of carcasses.

(d) The costs of removing fallen stock can be high, in particular where carcasses of heavy animals like cattle or horses have to be removed from remote locations.

(e) It is difficult to control what farmers do with carcasses. There is a risk that carcasses may be disposed of illegally, creating serious health risks.

(f) Where carcasses have to be tested for TSE, their uncontrolled disposal in order to avoid test costs could have the additional disadvantage that these animals are not tested, although it may be that precisely these animals should be tested, in order to ensure sound statistical data on TSE.

(g) The risks of distortions of competition from State aid granted for the removal of fallen stock is considered relatively low.

(h) State aid should only be accepted for fallen stock occurring at the level of farmers, and not at any other level, such as slaughterhouses, where control of proper removal is easier.

(i) In order to facilitate the introduction of new rules for State aid for the costs of removing and destroying fallen stock, a transitional period of one year seems justified, during which aid of up to 100 % can be authorised.

C. Future policy concerning fallen stock

28. In order to contribute to the protection of human health and of the environment, the Commission has decided that Member States may grant State aid of up to 100 % of the costs of removal (collection and transport) and destruction (storage, transformation, destruction and final disposal) of fallen stock until 31 December 2003; alternatively, aid up to an equivalent amount may be granted towards the costs of premiums paid by farmers for insurance covering the costs of removal and destruction of fallen stock, if the principles set out in points 32, 33 and 34 are complied with.

29. From 1 January 2004 onwards, Member States may grant State aid of up to 100 % of costs of removal of fallen stock, which has to be disposed of, and 75 % of the costs of destruction of such carcasses; alternatively, aid up to an equivalent amount may be granted towards the costs of premiums paid by farmers for insurance covering the costs of removal and destruction of fallen stock, if the principles set out in points 32, 33 and 34 are complied with.

30. Alternatively, Member States may grant State aid of up to 100 % for costs of removal and destruction of carcasses where the aid is financed through fees or through compulsory contributions destined for the financing of the destruction of such carcasses, provided that such fees or contributions are limited to and directly imposed on the meat sector.

31. Member States may grant State aid of 100 % for the costs of removal and destruction of fallen stock where there is an obligation to perform TSE tests on the fallen stock concerned.

32. In all cases, the approval of such State aid is conditional upon the existence of a consistent programme monitoring and ensuring safe disposal of all fallen stock in the Member State. State aid for fallen stock may only be granted to farmers. No aid may be given to operators active in the processing and marketing of such animals.

33. In order to facilitate administration of such State aid, payment of the aid may be made to economic operators active downstream from the farmer, providing services linked to the removal and/or destruction of fallen stock, provided that it can be properly demonstrated that the full amount of State aid paid is passed on to the farmer.

34. Where the choice of the provider of such services is not freely left to the farmer, and unless it is demonstrated that there is only one possible provider due to the nature or the legal basis for the provision of a given service, such provider must be chosen and remunerated according to market principles, in a non-discriminatory way, where necessary using tendering procedures which are in accordance with Community law, and in any event using a degree of advertising sufficient to enable the services market to be opened up to competition and the impartiality of procurement rules to be reviewed.

35. In cases where fallen stock is directly linked to conservation measures, for instance where the feeding of endangered or protected species of necrophagous birds with fallen stock is allowed in accordance with Community rules, Member States need to make the necessary provisions to ensure that the conservation objectives are still met.

36. For the sake of clarity, the Commission confirms that where animals are culled for disease reasons on basis of a public order, compensation for the farmer will continue to be examined and authorised on the basis of point 11.4 of the agriculture guidelines, if the conditions are fulfilled. In relation to TSE, Article 13(4) of Regulation (EC) No 999/2001 specifies that "owners shall be compensated without delay for the loss of the animals which have been killed or products of animal origin destroyed in accordance with Article 12(2) and paragraph 1(a) and (c) of this Article".

V. SLAUGHTERHOUSE WASTE

A. Analysis

37. In order to determine its future policy, the Commission has in particular taken into account the following considerations:

(a) The removal and destruction of slaughterhouse waste is a major cost factor for slaughterhouses and cutting plants (and their customers, if they are charged for it).

(b) The polluter pays principle establishes a primary responsibility of producers of waste to take proper care of its removal, and to finance the costs of it.

(c) The granting of State aid for this can create serious distortions of competition.

(d) Control would normally appear to ensure that slaughterhouse waste is dealt with properly.

(e) There is broad agreement amongst most Member States that the costs of the removal of slaughterhouse waste should be borne by operators responsible for them.

(f) It would therefore seem appropriate to clearly exclude State aid for the cost of the disposal of slaughterhouse waste, or other operating costs of slaughterhouses.

(g) As to the costs of disposal of specified risk material and meat and bonemeal or of feed made from it, the Commission has been authorising State aid of up to 100 % for this for almost two years, allowing the sector to calculate these costs, and gradually factor them into prices.

(h) A specific solution should be provided for specified risk material and meat and bonemeal produced before the date of application of these guidelines, which could not be disposed of so far because of a lack of disposal facilities.

(i) Aid towards the costs of safe and proper storage (but not the destruction) of specified risk material would seem acceptable, until sufficient destruction capacity is available.

B. Future policy concerning slaughterhouse waste

38. Within the scope of these guidelines, the Commission will not authorise State aid towards the costs of the disposal of slaughterhouse waste produced after the date of application of these guidelines.

39. Exceptionally, and in order to allow the meat sector to gradually integrate the higher costs resulting from the introduction of legislation related to TSEs, the Commission will authorise State aid of up to 50 % towards costs occurred for the safe disposal of specified risk material and meat and bonemeal having no further commercial use, produced in the year 2003.

40. For the same reason, the Commission will authorise State aid of 100 % for the disposal of specified risk material and meat and bonemeal having no further commercial use produced before the date of application of these guidelines.

41. In addition, and in order to reduce the risk of unsafe storage of such material, the Commission will authorise State aid of up to 100 % towards the costs of safe and proper storage of specified risk material and meat and bonemeal waiting for safe disposal, until the end of 2004. The Commission will review by mid-2004 whether this should be prolonged.

42. For the sake of clarity, the Commission confirms that State aid for investments undertaken in relation with the disposal of slaughterhouse waste will be examined under the relevant rules applying to investment aid, such as point 4 of the agriculture guidelines. In relation to TSE, Article 13(4) of Regulation (EC) No 999/2001 provides that "owners shall be compensated without delay for the loss of the animals which have been killed or products of animal origin destroyed in accordance with Article 12(2) and paragraph 1(a) and (c) of this Article".

VI. UNLAWFUL STATE AID

A. Introduction

43. It is also appropriate to clarify the position as to State aid which may have been unlawfully granted in the past towards TSE and BSE test costs or the disposal of fallen stock and slaughterhouse waste within the meaning of these guidelines.

44. Unless specifically provided for in points 45, 46 and 47 of these guidelines, unlawful aid within the meaning of Article 1(f) of Regulation (EC) No 659/1999(5) will be assessed in accordance with the rules and guidelines applicable at the time when the aid has been granted.

B. TSE and BSE tests

45. As to unlawful State aid towards the costs of TSE and BSE tests granted before the date of application of these guidelines, and without prejudice to compliance with other provisions of Community law, the Commission will evaluate the compatibility of such aid in line with point 11.4 of the agriculture guidelines and its practice since 2001 of accepting such aid of up to 100 %.

C. Fallen stock

46. As to State aid towards fallen stock, the Commission has so far not clearly defined its policy, notably as to the relation between rules for the fight against diseases, as set out in point 11.4. of the agriculture guidelines, allowing State aid up to 100 %, on the one hand, and the application of the polluter pays principle and the rules for aid to waste treatment on the other hand. Therefore, as to unlawful State aid towards the costs of the removal and destruction of fallen stock granted at the level of production, processing and marketing of animals before the date of application of these guidelines, and without prejudice to compliance with other provisions of Community law, the Commission will authorise State aid of 100 % towards such costs.

D. Slaughterhouse waste

47. As to State aid for slaughterhouse waste, a series of individual decisions have been taken by the Commission since January 2001, authorising State aid of up to 100 % for the cost of disposal of specific risk material, meat and bonemeal, and animal feed containing such products, which had to be disposed of as a consequence of new Community legislation on TSEs. These decisions were in particular based on point 11.4 of the agriculture guidelines, taking note of the short-term character of these aids, and of the need to respect the polluter pays principle in the long run. Exceptionally, the Commission has accepted that such State aid is also granted to operators other than those active in the production of live animals, for example slaughterhouses. For unlawful aid granted before the end of 2002 for comparable costs in relation to new Community legislation on TSEs, and without prejudice to compliance with other provisions of Community law, the Commission will apply the same principles.

VII. LEGAL BASIS

48. State aid falling under Article 87(1) of the Treaty which fulfils the criteria set out in these guidelines can benefit from the derogation provided for by Article 87(3)(c) of the Treaty because it facilitates the development of the agricultural sector, and does not adversely affect trading conditions to an extent contrary to the common interest. The Commission considers that such aids contributes in particular to the protection of human and animal health, and to the protection of the environment.

VIII. NOTIFICATION AND REPORTS

49. Notifications and annual reports are to be undertaken in line with the rules set out in point 23 of the agriculture guidelines.

IX. PERIOD OF APPLICATION AND PROPOSALS FOR APPROPRIATE MEASURES

A. Application

50. The Commission will apply these guidelines to new State aid, including pending notifications from Member States, from 1 January 2003.

B. Proposals for appropriate measures

51. In accordance with Article 88(1) of the Treaty, the Commission proposes to Member States to amend their existing aid schemes relating to State aid covered by these guidelines to conform to these guidelines by 31 December 2003 at the latest.

52. Member States are invited to confirm that they accept these proposals for appropriate measures in writing by 31 March 2003 at the latest.

53. In the event that a Member State fails to confirm its acceptance in writing before that date, the Commission will apply Article 19(2) of Regulation (EC) No 659/1999 and, if necessary, initiate the proceedings referred to in that provision.

C. Expiry

54. These guidelines shall apply until 31 December 2013. After consulting the Member States, the Commission may amend them before that date on the basis of important competition policy considerations, or agricultural of human and animal health policy considerations, or in order to take account of other Community policies or international commitments.

(1) See in particular Regulation (EC) No 999/2001 of the European Parliament and of the Council of 22 May 2001 laying down rules for the prevention, control and eradication of certain transmissible spongiform encephalopathies (OJ L 147, 31.5.2001, p. 1), Regulation as last amended by Commission Regulation (EC) No 1494/2002 (OJ L 225, 22.8.2002, p. 3).

(2) Corrected version OJ C 232, 12.8.2000 p. 17.

(3) OJ L 273, 10.10.2002, p. 1.

(4) As far as State aid is concerned, see in particular point 5 of the agriculture guidelines, and the Community guidelines on State aid for environmental protection (OJ C 37, 3.2.2001, p. 3).

(5) Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (OJ L 83, 27.3.1999, p. 1).