02014XC0701(01) — EN — 20.04.2018 — 001.001

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Amended by:









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European Union Guidelines for State aid in the agricultural and forestry sectors and in rural areas 2014 to 2020

2014/C 204/01

CONTENTS PART I. COMMON PROVISIONS Chapter 1. Introduction Chapter 2. Scope and definitions 2.1. Effect of the CAP and the rural development policy on the scope of application 2.2. Scope of application 2.3. Horizontal rules and aid instruments applicable to the agricultural and forestry sectors and to rural areas 2.4. Definitions 2.5. Notifiable aid Chapter 3. Common assessment principles 3.1. Contribution to a common objective 3.2. Need for State intervention 3.3. Appropriateness of aid 3.4. Incentive effect and need for aid 3.5. Proportionality of the aid 3.6. Avoidance of undue negative effects on competition and trade 3.7. Transparency PART II. CATEGORIES OF AID Chapter 1. Aid in favour of undertakings active in the primary production, processing and marketing of agricultural products 1.1. Rural development measures 1.1.1. Aid for investment 1.1.1.1. Aid for investment in tangible assets and intangible assets on agricultural holdings linked to primary agricultural production 1.1.1.2. Aid for investments in favour of the conservation of cultural and natural heritage located on agricultural holdings 1.1.1.3. Aid for investment concerning the relocation of farm buildings 1.1.1.4. Aid for investments in connection with the processing of agricultural products and the marketing of agricultural products 1.1.2. Start-up aid for young farmers and for the development of small farms 1.1.3. Aid for the transfer of agricultural holdings 1.1.4. Start-up aid for producer groups and organisations in the agricultural sector 1.1.5. Aid for agri-environment-climate and animal welfare commitments 1.1.5.1. Aid for agri-environment-climate commitments 1.1.5.2. Aid for animal welfare commitments 1.1.6. Aid for disadvantages related to Natura 2000 areas and to the Water Framework Directive 1.1.7. Aid to areas facing natural or other specific constraints 1.1.8. Aid for organic farming 1.1.9. Aid for the participation of producers of agricultural products in quality schemes 1.1.10. Aid for provision of technical support in the agricultural sector 1.1.10.1. Aid for knowledge transfer and information actions 1.1.10.2. Aid for advisory services 1.1.10.3. Aid for farm replacement services 1.1.11. Aid for co-operation in the agricultural sector 1.2. Risk and crisis management 1.2.1. Aids to compensate for the damage to agricultural production or the means of agricultural production and to prevent damage 1.2.1.1. Aid to make good the damage caused by natural disasters or exceptional occurrences 1.2.1.2. Aid to compensate for damage caused by adverse climatic event which can be assimilated to a natural disaster 1.2.1.3. Aid for the costs of the prevention, control and eradication of animal diseases and plant pests and aid to make good the damage caused by animal diseases and plant pests 1.2.1.4. Aid for fallen stock 1.2.1.5. Aid to compensate for the damage caused by protected animals 1.2.1.6. Aid for the payment of insurance premiums 1.2.1.7. Aid for financial contributions to mutual funds 1.2.2. Aid for Closing Production Capacity 1.2.2.1. Closing of capacity for animal, plant or human health, sanitary, ethical or environmental reasons 1.2.2.2. Closing of capacity for other reasons 1.3. Other types of aid in the agricultural sector 1.3.1. Aid to the livestock sector 1.3.2. Aid for promotion measures in favour of agricultural products 1.3.3. Aid for the outermost regions and the smaller Aegean islands 1.3.4. Aid for agricultural land consolidation 1.3.5. Aid for rescuing and restructuring undertakings in difficulty 1.3.6. Aid for research and development in the agricultural sector Chapter 2. Aid for the forestry sector which is co-financed by the EAFRD, granted as additional national financing to such co-financed measures or granted as a pure State aid 2.1. Investments in forest area development and improvement of the viability of forests 2.1.1. Aid for afforestation and creation of woodland 2.1.2. Aid for the establishment, regeneration or renovation of agroforestry systems 2.1.3. Aid for the prevention and restoration of damage to forests from forest fire, natural disasters, adverse climatic events which can be assimilated to natural disaster, other adverse climatic events, plant pests and catastrophic events 2.1.4. Aid for investments improving the resilience and environmental value of forest ecosystems 2.1.5. Aid for investments in forestry technologies and in processing, in mobilising and in marketing of forest products 2.1.6. Aid for investments in infrastructure related to the development, modernisation or adaptation of forestry 2.2. Aid for disadvantages related to Natura 2000 forest areas 2.3. Aid for forest-environment and climate services and forest conservation 2.4. Aid for knowledge transfer and information actions in the forestry sector 2.5. Aid for advisory services in the forestry sector 2.6. Aid for co-operation in forestry sector 2.7. Start-up aid for producer groups and organisations in the forestry sector 2.8. Other aid to the forestry sector with ecological, protective and recreational objectives 2.8.1. Aid for specific forest actions and interventions with the primary objective to contribute to maintaining or to restoring forest ecosystem and biodiversity or the traditional landscape 2.8.2. Aid for maintaining and improving the soil quality and ensuring a balanced and healthy tree growth in the forestry sector 2.8.3. Restoration and maintenance of natural pathways, landscape elements and features and natural habitat for animals in the forestry sector 2.8.4. Aid for maintaining roads to prevent forest fires 2.8.5. Aid to make good the damage in forests caused by animals regulated by law 2.8.6. Aid for establishing forest management plans 2.9. Aid in the forestry sector aligned with the agricultural aid measures 2.9.1. Aid for research and development in the forest sector 2.9.2. Aid for forestry land consolidation Chapter 3. Aids in rural areas which are co-financed by the EAFRD or granted as additional national financing to such co-financed measures 3.1. Aid for investments concerning the processing of agricultural products into non-agricultural products, the production of cotton or investments in the creation and development of non-agricultural activities 3.2. Aid for basic services and village renewal in rural areas 3.3. Business start-up aid for non-agricultural activities in rural areas 3.4. Aid for agri-environment-climate commitments to other land managers and undertakings in rural areas not active in the agricultural sector 3.5. Aid for disadvantages related to Natura 2000 areas to other land managers 3.6. Aid for knowledge transfer and information actions in rural areas 3.7. Aid for advisory services in rural areas 3.8. Aid for participation of active farmers in quality schemes for cotton or foodstuffs 3.9. Aid for information and promotion activities concerning cotton and foodstuffs covered by a quality scheme 3.10. Aid for co-operation in rural areas 3.11. Aid for setting-up of mutual funds PART III. PROCEDURAL MATTERS 1. Duration of aid schemes and evaluation 2. Revision clause 3. Reporting and monitoring 4. Application of these Guidelines 5. Proposals for appropriate measures 6. Expiry

PART I. COMMON PROVISIONS

Chapter 1. Introduction

(1) Article 107(1) of the Treaty on the Functioning of the European Union (‘the Treaty’) stipulates that, ‘(s)ave as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.’

(2) However, despite that general prohibition State aid may be necessary to address market failures in order to ensure a well-functioning and equitable economy. Therefore, the Treaty leaves room for the granting of State aid in respect of several policy objectives. With particular relevance to the agricultural sector and forestry, firstly in accordance with Articles 107(2)(b) of the Treaty, aid to make good the damage caused by natural disasters or exceptional occurrences shall be compatible with the internal market. Secondly, on the basis of Articles 107(3)(c) of the Treaty, the Commission may consider compatible with the internal market State aid to promote the economic development of the agricultural and forestry sectors and of rural areas, provided that it does not adversely affect trading conditions.

(3) Furthermore, due to the specificities of the agricultural sector, Article 42 of the Treaty provides that the rules on competition apply to production of and trade in agricultural products only to the extent determined by the European Parliament and the Council.

(4) In these Guidelines, the Commission sets out the conditions and criteria under which aid for the agricultural and forestry sectors and for rural areas will be considered to be compatible with the internal market and establishes the criteria for identifying the areas that fulfil the conditions of Article 107(3) of the Treaty. As regards aid granted pursuant to Article 107(2)(b), the Commission hereby sets out the conditions which will be verified in order to determine whether a measure constituting aid to make good the damage caused by natural disasters or exceptional occurrences is indeed covered by that Article.

(5) State aid to promote the economic development of the agricultural and forestry sectors and of rural areas is embedded in the broader common agricultural policy (‘the CAP’). Within the CAP, the Union provides financial support to the agricultural and forestry sectors and to rural areas. As the economic effects of State aid do not change depending on whether it is (even partly) financed by the Union, or whether it is financed by a Member State alone, the Commission considers that there should in principle be consistency and coherence between its policy in respect of the control of State aid and the support which is granted under the Union’s own common agricultural policy. Consequently, the use of State aid can be justified only if it is in line with the objectives of this policy and, in particular, the underlying objectives of the CAP reform towards 2020 ( 1 ). Therefore, when the Commission applies and interprets the rules of these Guidelines for specific aid schemes, it takes into consideration the CAP rules and policies.

(6) The following European instruments are of particular relevance for State aid considerations related to the CAP:

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(a) Regulation (EU) No 1144/2014 of the European Parliament and of the Council of 22 October 2014 on information provision and promotion measures concerning agricultural products implemented in the internal market and in third countries and repealing Council Regulation (EC) No 3/2008 ( 2 );

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(b) Regulation (EU) No 228/2013 of the European Parliament and of the Council of 13 March 2013 laying down specific measures for agriculture in the outermost regions of the Union and repealing Council Regulation (EC) No 247/2006 ( 3 ) and Regulation (EU) No 229/2013 of the European Parliament and of the Council of 13 March 2013 laying down specific measures for agriculture in favour of the smaller Aegean islands and repealing Council Regulation (EC) No 1405/2006 ( 4 ). Pursuant to those Regulations, support programmes can be established to take account of the geographical and economic handicaps of those regions;

(c) Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 ( 5 );

(d) Regulation (EU) No 1305/2013 of the European Parliament and of the Council of 17 December 2013 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) and repealing Council Regulation (EC) No 1698/2005 ( 6 ), which aims at promoting sustainable rural development throughout the Union in a complementary manner to the other instruments of the CAP, such as direct payments and market measures. It contributes to the development of a more territorially and environmentally balanced, climate-friendly and resilient, competitive and innovative Union agricultural sector and to the development of rural territories;

(e) Regulation (EU) No 1306/2013 of the European Parliament and of the Council of 17 December 2013 on the financing, management and monitoring of the common agricultural policy and repealing Council Regulations (EEC) No 352/78, (EC) No 165/94, (EC) No 2799/98, (EC) No 814/2000, (EC) No 1290/2005 and (EC) No 485/2008 ( 7 );

(f) Regulation (EU) No 1307/2013 of the European Parliament and of the Council of 17 December 2013 establishing rules for direct payments to farmers under support schemes within the framework of the common agricultural policy and repealing Council Regulation (EC) No 637/2008 and Council Regulation (EC) No 73/2009 ( 8 ) which lays down rules on direct payments granted directly to farmers in the form of a basic income support under certain support schemes;

(g) Regulation (EU) No 1308/2013 of the European Parliament and of the Council of 17 December 2013 establishing a common organisation of the markets in agricultural products and repealing Council Regulations (EEC) No 922/72, (EEC) No 234/79, (EC) No 1037/2001 and (EC) No 1234/2007 ( 9 ), which lays down common rules for agricultural markets. In particular, those rules concern public intervention in the markets, quota and aid schemes, marketing and production standards, and trade with third countries.

(7) ►M1 The CAP is based on two pillars: the first pillar consists of instruments related to the functioning of agricultural markets and the food supply chain (Regulation (EU) No 228/2013, Regulation (EU) No 229/2013, Regulation (EU) No 1308/2013 and Regulation (EU) No 1144/2014) and to direct payments (Regulation (EU) No 1307/2013) conditional upon statutory management requirements, good agricultural and environmental conditions. ◄ Combined, those measures provide a fundamental layer of support to farmers in the Union, creating the basis for keeping sustainable farming in place throughout the Union. The first pillar measures are mandatory for Member States and, with very few exceptions, there is no co-financing. This ensures the application of a common policy within the internal market. The second pillar of the CAP is the rural development policy which is governed by Regulation (EU) No 1305/2013 which aims at improving the competitiveness of agriculture, the sustainable management of natural resources and climate action and a balanced territorial development of rural areas. Rural development measures are largely voluntary, contractual in nature, co-financed and delivered within a strategic framework and implemented via rural development programmes meeting the Union's priorities for rural development at national, regional and local level.

(8) According to Article 39(1) of the Treaty, the objectives of the CAP are to increase agricultural productivity, to ensure a fair standard of living for the agricultural community, to stabilise markets, to assure the availability of supplies reaching the consumer at reasonable prices. According to Article 39(2) of the Treaty, in working out the CAP and the special methods for its application, account has to be taken of the particular nature of agricultural activity, which results from the social structure of agriculture and from structural and natural disparities between the various agricultural regions, the need to effect the appropriate adjustments by degrees and the fact that agriculture constitutes a sector closely linked with the economy as a whole.

(9) Agriculture has to adapt to new realities and to face challenges in terms of food security, environment, climate change and keeping the rural economy alive. In order to address those major challenges, in the Communication on the CAP towards 2020 ( 10 ) the Commission has outlined the following objectives for the CAP 2014-2020: (1) viable food production; (2) sustainable management of natural resources and climate action; and (3) balanced territorial development.

(10) As an integral part of the CAP, the rural development policy 2014-2020 shall contribute to achieving the following objectives: (1) fostering the competitiveness of agriculture; (2) ensuring the sustainable management of natural resources, and climate action; and (3) achieving a balanced territorial development of rural economies and communities including the creation and maintenance of employment. The achievement of these objectives of rural development shall be pursued through the following Union priorities for rural development: (1) fostering knowledge transfer and innovation in agriculture, forestry, and rural areas; (2) enhancing farm viability and competitiveness of all types of agriculture in all regions and promoting innovative farm technologies and sustainable management of forests; (3) promoting food chain organisation, including processing and marketing of agricultural products, animal welfare and risk management in agriculture; (4) restoring, preserving and enhancing ecosystems related to agriculture and forestry; (5) promoting resource efficiency and supporting the shift towards a low carbon and climate resilient economy in agriculture, food and forestry sectors; and (6) promoting social inclusion, poverty reduction and economic development in rural areas ( 11 ).

(11) The CAP's objectives also fall within the scope of the objectives set out in the Communication from the Commission of 3 March 2010‘Europe 2020 - A strategy for smart, sustainable and inclusive growth’ ( 12 ) and its flagship initiative for a resource-efficient Europe ( 13 ), which set targets in areas such as competitiveness, climate, energy and biodiversity.

(12) State aid policy in the agricultural and forestry sectors and in rural areas also has to be embedded into the overall State aid modernisation initiative of the Commission. In its Communication on State aid modernisation ( 14 ), the Commission announced three objectives to be pursued through the modernisation of State aid control: (1) to foster sustainable, smart and inclusive growth in a competitive internal market; (2) to focus Commission ex ante scrutiny on cases with the biggest impact on the internal market while strengthening the cooperation with Member States in State aid enforcement; and (3) to streamline the rules and provide for faster decisions. In particular, the Communication called for a common approach in the revision of the different Guidelines and frameworks with a view to strengthening the internal market, promoting more effectiveness in public spending through a better contribution of State aid to the objectives of common interest, greater scrutiny on the incentive effect, limiting the aid to the minimum, and avoiding the potential negative effects of aid on competition and trade. The compatibility conditions set out in these Guidelines are based on those common assessment principles and are applicable to notifiable aid schemes and individual aid.

Chapter 2. Scope and definitions

2.1. Effect of the CAP and the rural development policy on the scope of application

(13) In accordance with Article 42 of the Treaty, in so far as agricultural products listed in Annex I to the Treaty are concerned, the rules on State aid laid down in Articles 107 to 109 of the Treaty apply only to the extent determined by the European Parliament and the Council.

(14) As a general rule, pursuant to Article 211(1) of Regulation (EU) No 1308/2013 the rules on State aid are applicable to the production of and trade in agricultural products. ►M1 However, there are various derogations from this general principle which are laid down, amongst others, in Article 23 of Regulation (EU) No 228/2013, Article 17 of Regulation (EU) No 229/2013, Article 13 of Regulation (EU) No 1307/2013, Article 211(2) of Regulation (EU) No 1308/2013 and Article 27 of Regulation (EU) No 1144/2014. ◄

(15) As regards support for rural development, the general principle of the applicability of State aid rules in that context is set out in Article 81(1) of Regulation (EU) No 1305/2013. Articles 81(2) and 82 of that Regulation stipulate that the State aid rules do not apply to payments made by Member States pursuant to, and in conformity with Regulation (EU) No 1305/2013 or to additional national financing within the scope of Article 42 of the Treaty.

(16) Therefore, State aid rules do not apply to the co-financing of rural development support (both the EAFRD part and the national part) or to additional national financing on top of such support, provided that the measure in question is related to an agricultural activity falling within the scope of Article 42 of the Treaty and forms a part of the rural development programme.

(17) However, State aid rules apply fully to all co-financed aid measures (both the EAFRD part and the national part) and to the additional national financing for such measures which fall outside the scope of Article 42 of the Treaty, envisaged in Regulation (EU) No 1305/2013 in the following cases: (a) measures supporting activities in the rural areas and (b) forestry measures.

(18) If a Member State intends to finance exclusively from national funds (that is to say, without any EAFRD co-financing) a measure which is designed largely in accordance with the conditions of a given rural development measure (‘rural development like measure’), State aid rules fully apply, regardless of whether the measure falls within or outside the scope of Article 42 of the Treaty.

2.2. Scope of application

(19) The Commission will apply these Guidelines to aid schemes and individual aid.

(20) These Guidelines apply to State aid for the primary agricultural production, the processing of agricultural products resulting in another agricultural product and the marketing of agricultural products.

(21) Based on the general considerations described in Section 2.1. of Part I of these Guidelines, in order to ensure coherence with the rural development policy and to achieve simplification for compliance with State aid rules, it is appropriate to also include in these Guidelines certain rural development measures falling outside the scope of Article 42 of the Treaty, whether co-financed by the EAFRD or additional national financing, as well as rural development like measures financed exclusively from national funds. Therefore, in addition to the agricultural sector, these Guidelines set out the compatibility criteria for State aid to the forestry sector and aid to undertakings active in rural areas which otherwise fall outside the scope of Article 42 of the Treaty.

(22) When analyzing State aid and its compatibility with the general principles on State aid, the Commission will take into account, to the extent possible, the conditions laid down in Regulation (EU) No 1305/2013 and its implementing provisions and delegated act.

(23) In view of the aforementioned considerations, these Guidelines cover the following categories of aid:

(a) measures in the agricultural sector, financed exclusively from national funds, which consist of:

(i) rural development like measures falling outside the framework of a rural development programme (Section 1.1 of Part II of these Guidelines);

(ii) measures other than those referred to in (i) which fall outside the scope of Regulation (EU) No 1305/2013, such as certain risk and crisis management measures, aid for the livestock sector and certain promotion measures (Sections 1.2 and 1.3 of Part II of these Guidelines);

(b) aid for the forestry sector, which can be:

(i) granted as part of a rural development programme or as additional national financing for such rural development measure (Sections 2.1 to 2.7 of Part II of these Guidelines);

(ii) financed exclusively from national resources, in the form of

— a rural development like forestry measure foreseen in Regulation (EU) No 1305/2013 and granted in accordance with the conditions of these Guidelines (Sections 2.1 to 2.7 of Part II of these Guidelines);

— other aid in the forestry sector with ecological, protective and recreational objectives (Section 2.8 of Part II of these Guidelines);

— aid in the forestry sector aligned with agricultural aid measures (Section 2.9 of Part II of these Guidelines);

(c) aid for undertakings active in rural areas which can be granted as:

(i) an aid measure included in a rural development programme, co-financed by the EAFRD pursuant to, and in conformity with Regulation (EU) No 1305/2013, where the notifiable State aid measure is identical with the measure in the rural development programme (Chapter 3 of Part II of these Guidelines); or

(ii) additional national financing related to a measure in the framework of a rural development programme (Chapter 3 of Part II of these Guidelines).

(24) Aid for LEADER local development referred to in Article 35 of Regulation (EU) No 1303/2013 and in Articles 42 to 45 of Regulation (EU) No 1305/2013, which involves individual projects designed and executed by local partnerships to address specific local problems, may be covered by these Guidelines to the extent that it meets the conditions of the related rural development measures as laid down in these Guidelines.

(25) These Guidelines apply in principle to aid to SMEs and to large enterprises. Large enterprises tend to be less affected by market failures than SMEs. Moreover, large enterprises in the agricultural and forestry sectors and in rural areas are more likely to be significant players on the market and, consequently, in specific cases, aid granted to large enterprises may particularly distort competition and trade in the internal market. As aid to large enterprises in the agricultural and forestry sectors and in rural areas and to other large enterprises can potentially cause similar distortions of competition, State aid rules for large enterprises in these Guidelines should be harmonised with the general State aid rules, and should be subject to the common assessment principles as laid down in Chapter 3 of Part I of these Guidelines. Without prejudice to those common assessment principles, as regards rural development measures for reasons of consistency and coherence with the rural development policy, the State aid rules for large enterprises should be aligned with the relevant rules of Regulation (EU) No 1305/2013. As regards aid measures for the livestock sector, which do not fall within the scope of Regulation (EU) No 1305/2013, the Commission maintains its previous policy that large enterprises should be able to finance the costs of these measures themselves. Therefore, aid in the livestock sector should be limited to SMEs.

(26) Undertakings in difficulty ( 15 ) are in principle excluded from the scope of these Guidelines. The Commission considers that when an undertaking is in financial difficulty, given that its very existence is in danger, it cannot be considered an appropriate vehicle for promoting other public policy objectives until such time as its viability is assured. Therefore, where the beneficiary of the aid is in financial difficulty within the meaning of point (35)15 , the aid will be assessed in accordance with the Community Guidelines on State aid for rescuing and restructuring firms in difficulty ( 16 ), as amended or replaced. This principle does not apply to compensatory aid for damage caused by natural disasters and exceptional occurrences referred to in Sections 1.2.1.1 and 2.1.3 of Part II of these Guidelines which is compatible with the internal market under Article 107(2)(b) of the Treaty. ►M1 If the financial difficulty of an undertaking active in the agricultural and forestry sectors has been caused by the risk event referred to in Sections 1.2.1.2, 1.2.1.3, 1.2.1.5, 2.1.3, 2.8.1 or 2.8.5 of Part II of these Guidelines, aid to compensate for or restore the losses or damage caused by such risk events and to cover the costs of eradication of plant pests can be granted in line with these Guidelines and may be still found compatible with the internal market under Article 107(3)(c) of the Treaty. In addition, for reasons of public health protection and having in mind the emergency situation, no distinction should be made, under certain conditions, as to the economic situation of an undertaking for aid for destruction and removal of fallen stock in Section 1.2.1.4 and for aid for control and eradication measures in the case of animal diseases referred to in point (375) of Section 1.2.1.3 of Part II of these Guidelines. ◄

(27) When assessing aid granted to an undertaking which is subject to an outstanding recovery order following a previous Commission decision declaring an aid illegal and incompatible with the internal market, the Commission will take account of the amount of aid still to be recovered ( 17 ). ►M1 This does not apply to aid to make good the damage caused by natural disasters and exceptional occurrences under Article 107(2)(b) of the Treaty. ◄

(28) The Commission will not authorise aid for export-related activities to third countries or to Member States which would be directly linked to the quantities exported, aid contingent upon the use of domestic over imported goods, or aid to establish and operate a distribution network or to cover any other expenditure linked to export activities. Aid towards the cost of participating in trade fairs, or of studies or consultancy services needed for the launch of a new or existing product on a new market in principle does not constitute export aid.

(29) Member States are reminded that the system of financing, for example, by parafiscal levies, should be notified, when the system forms an integral part of the aid measure (see paragraphs 41 to 44 of Case T-275/11) ( 18 ).

(30) The Commission will assess any aid measures not covered by these Guidelines or by any other relevant State aid rules on a case by case basis directly on the basis of Article 107(3) of the Treaty, taking into account the rules laid down in Articles 107, 108 and 109 of the Treaty, the CAP and by analogy these Guidelines, where possible. Member States notifying State aid not covered by the scope of these Guidelines will have to demonstrate that the State aid in question meets the common assessment principles as laid down in Chapter 3 of Part I of these Guidelines. The Commission will only approve such measures if the positive contribution to the development of the sector clearly outweighs the risks of distorting competition in the internal market and affecting trade between Member States.

2.3. Horizontal rules and aid instruments applicable to the agricultural and forestry sectors and to rural areas

(31) In principle, to streamline State aid rules and due to the similarities between undertakings active in the agricultural and forestry sectors and in rural areas and other undertakings, the general State aid instruments laying down the criteria for compatibility of aid are applicable to the sectors covered by these Guidelines. This concerns in particular the Community guidelines on State aid for rescuing and restructuring firms in difficulty, the Framework for state aid for research and development and innovation ( 19 ) as amended or replaced, the Guidelines on State aid for environmental protection and energy 2014-2020 ( 20 ) as amended or replaced, the EU Guidelines for the application of State aid rules in relation to the rapid deployment of broadband networks ( 21 ) as amended or replaced, the Guidelines on State aid to promote risk finance investments ( 22 ) as amended or replaced, the Communication from the Commission - Criteria for the compatibility analysis of training State aid cases subject to individual notification ( 23 ) as amended or replaced, the Communication from the Commission - Criteria for the compatibility analysis of State aid to disadvantaged and disabled workers subject to individual notification ( 24 ) as amended or replaced and the instruments related to services of general economic interest ( 25 ).

(32) The above horizontal instruments apply to the production, processing and marketing of agricultural products unless the present Guidelines provide specific rules. These Guidelines provide for specific environmental aid measures, such as aid for agri-environment-climate and animal welfare commitments (Section 1.1.5 of Part II), aid for disadvantages related to Natura 2000 areas and to the Water Framework Directive ( 26 ) (Section 1.1.6 of Part II) and aid for organic farming (Section 1.1.8 of Part II). Aids for investments to pursue environmental objectives in the field of primary agricultural production are evaluated in accordance with the rules set out in Section 1.1.1.1. of Part II of these Guidelines. Aid for environmental protection in favour of undertakings active in the processing of agricultural products and the marketing of agricultural products will be declared compatible with the internal market under Article 107(3)(c) of the Treaty if it fulfils the conditions of the Guidelines on State aid for environmental protection and energy 2014-2020. Aid for investments in energy saving, biofuel and energy from renewable sources are excluded from the scope of Chapters 2 and 3 of Part II of these Guidelines as such aid should comply with the Guidelines on State aid for environmental protection and energy 2014-2020, unless it is exempted from notification obligation. However aid for investments linked to primary agricultural production related to the production of energy from renewable sources or to the production of biofuels on holdings can fall within the scope of these Guidelines provided that such production does not exceed the average annual consumption of fuels or energy of the agricultural holding in question (Section 1.1.1.1).

(33) The Guidelines on regional State aid for 2014-2020 ( 27 ) do not apply to aid for the production of primary agricultural products due to the specificities of the sector. They do however apply to the processing of agricultural products and the marketing of agricultural products to the extent set out in these Guidelines.

(34) Both the general State aid rules and the more specific provisions of these Guidelines may concern undertakings active in the forestry sector or in rural areas. Where applicable, aid to undertakings active in the forestry sector or in rural areas may also be found compatible under the conditions and in compliance with general Union rules on State aid (in particular, with the Guidelines on regional State aid for 2014-2020, the Framework for state aid for research and development and innovation and the Guidelines on State aid for environmental protection and energy 2014-2020).

2.4. Definitions

(35) For the purposes of these Guidelines:

1. ‘aid’ means any measure fulfilling all the criteria laid down in Article 107(1) of the Treaty;

2. ‘agricultural sector’ means all undertakings active in primary production, processing and marketing of agricultural products;

3. ‘agricultural product’ means the products listed in Annex I to the Treaty, except fishery and aquaculture products listed in Annex I to Regulation (EU) No 1379/2013 of the European Parliament and of the Council ( 28 );

4. ‘aid scheme’ means any act on the basis of which, without further implementing measures being required, individual aid awards may be made to undertakings defined within the act in a general and abstract manner and any act on the basis of which aid which is not linked to a specific project may be granted to one or several undertakings for an indefinite period of time and/or for an indefinite amount;

5. ‘outermost regions’ means the regions referred to in the first paragraph of Article 349 of the Treaty;

6. ‘smaller Aegean islands’ means the smaller islands referred to in Article 1(2) of Regulation (EU) No 229/2013 ( 29 );

7. ‘rural development programme’ means a rural development programme as provided for in Article 6(1) of Regulation (EU) No 1305/2013;

8. ‘agricultural activity’ means the production, processing and marketing of agricultural products;

9. ‘forest’ means an area of land spanning more than 0,5 hectares with trees higher than 5 meters and a canopy cover of more than 10 %, or trees able to reach these thresholds in situ; and does not include land that is predominantly under agricultural or urban land use. A Member State or region may choose to apply another forest definition based on existing national legislation or inventory system. The Member States or regions must provide such definition in the notification and when it relates to a rural development measure, it should be provided in the rural development programme;

10. ‘primary agricultural production’ means the production of products of the soil and of stock farming, listed in Annex I to the Treaty, without performing any further operation changing the nature of such products;

11. ‘processing of agricultural products’ means any operation on an agricultural product resulting in a product which is also an agricultural product, except on-farm activities necessary for preparing an animal or plant product for first sale;

12. ‘marketing of agricultural products’ means holding or display with a view to sale, offering for sale, delivery or any other manner of placing on the market, except the first sale by a primary producer to resellers or processors and any activity preparing a product for such first sale; a sale by a primary producer to final consumers is considered as marketing of agricultural products if it takes place in separate premises reserved for that purpose;

13. ‘SME’ or ‘micro, small and medium-sized enterprises’ means undertakings fulfilling the criteria laid down in Annex I to Commission Regulation (EU) No 702/2014 ( 30 );

14. ‘large enterprises’ means undertakings not fulfilling the criteria laid down in Annex I to Regulation (EU) No 702/2014;

15. ‘undertaking in difficulty’ means an undertaking in respect of which at least one of the following circumstances occurs:

(a) in the case of limited liability company (other than SME that has been in existence for less than three years), where more than half of its subscribed share capital has disappeared as a result of accumulated losses. This is the case when deduction of accumulated losses from reserves (and all other elements generally considered as part of the own funds of the company) leads to a negative cumulative amount that exceeds half of the subscribed share capital. For the purposes of this provision ‘limited liability company’ refers in particular to the types of company mentioned in Annex I of Directive 2013/34/EU of the European Parliament and of the Council ( 31 ) and ‘share capital’ includes, where relevant, any share premium;

(b) in the case of a company where at least some members have unlimited liability for the debt of the company (other than an SME that has been in existence for less than three years), where more than half of its capital as shown in the company accounts has disappeared as a result of accumulated losses. For the purposes of this provision, ‘a company where at least some members have unlimited liability for the debt of the company’ refers in particular to the types of company mentioned in Annex II of Directive 2013/34/EU;

(c) where the undertaking is subject to collective insolvency proceedings or fulfils the criteria under its domestic law for being placed in collective insolvency proceedings at the request of its creditors;

(d) where the undertaking has received rescue aid and has not yet reimbursed the loan or terminated the guarantee, or has received restructuring aid and is still subject to a restructuring plan;

(e) in the case of an undertaking that is not an SME, where, for the past two years:

(i) the undertaking’s book debt to equity ratio has been greater than 7,5 ; and

(ii) the undertaking's EBITDA interest coverage ratio has been below 1,0 .

16. ‘agricultural holding’ means a unit comprising of land, premises and facilities used for primary agricultural production;

17. ‘aid intensity’ means the gross aid amount expressed as a percentage of the eligible costs, before any deduction of tax or other charge;

18. ‘individual aid’ means ad hoc aid and awards of aid to individual beneficiaries on the basis of an aid scheme;

19. ‘ad hoc aid’ means aid not granted on the basis of an aid scheme;

20. ‘gross grant equivalent’ means the amount of the aid if it had been provided in the form of a grant to the beneficiary, before any deduction of tax or other charges;

21. ‘date of granting the aid’ means the date when the legal right to receive the aid is conferred on the beneficiary under the applicable national legal regime.

22. ‘producer group and organisation’ means a group or organisation set up for the purpose of:

(a) adapting the production and output of producers who are members of such producer group or organisation to market requirements, or

(b) jointly placing goods on the market, including the preparation for sale, centralisation of sales and supply to bulk buyers; or

(c) establishing common rules on production information, with particular regard to harvesting and availability; or

(d) other activities that may be carried out by producer groups or organisations, such as the development of business and marketing skills and the organisation and facilitation of innovation processes;

23. ‘repayable advance’ means a loan for a project which is paid in one or more instalments and the conditions for the reimbursement of which depend on the outcome of the project;

24. ‘plant pest’ means harmful organisms as defined in point (e) of Article 2(1) of Council Directive 2000/29/EC ( 32 );

25. ‘start of works on the project or activity’ means the earlier of, either the start of the activities, or the construction works relating to the investment, or the first legally binding commitment to order equipment or employ services or any other commitment that makes the project or activity irreversible; buying land and preparatory works such as obtaining permits and conducting feasibility studies are not considered start of works or activity. The purchase of land referred to in point (144)(a) second sentence, (502)(a) second sentence and (635)(a) where the eligible costs for the land purchase equals 100 % of the eligible investment costs, is considered to be the start of works on project or activity;

26. ‘fiscal successor scheme’ means a scheme in the form of tax advantages which constitutes an amended version of a previously existing scheme in the form of tax advantages and which replaces it;

27. ‘fallen stock’ means animals which have been killed by euthanasia with or without a definite diagnosis or which have died, including stillborn and unborn animals, on a farm or on any premises or during transport, but which have not been slaughtered for human consumption;

28. ‘protected animal’ means any animal protected either by Union or by national legislation;

29. ‘young farmer’ means a person who is no more than 40 years of age on the date of submitting the aid application, possesses adequate occupational skills and competences and is setting up for the first time in an agricultural holding as head of that holding;

30. ‘large investment project’ means an investment in rural areas, as referred to in Chapter 3 of Part II of these Guidelines, with eligible costs exceeding EUR 50 million, calculated at prices and exchange rates on the date of granting the aid;

31. ‘adjusted aid amount’ means the maximum permissible aid amount for a large investment project, calculated according to the following formula: maximum aid amount = R × (50 + 0,50 × B + 0,34 × C), where R is the maximum aid intensity applicable in the area concerned, excluding the increased aid intensity for SMEs. B is the part of eligible costs between EUR 50 million and EUR 100 million. C is the part of eligible costs above EUR 100 million;

32. ‘tangible assets’ means assets consisting of land, buildings and plant, machinery and equipment;

33. ‘intangible assets’ means assets that do not have a physical or financial embodiment such as patents, licences, know-how or other intellectual property;

34. ‘adverse climatic event which can be assimilated to a natural disaster’ means unfavourable weather conditions such as frost, storms and hail, ice, heavy or persistent rain or severe drought which destroy more than 30 % of the average of the production calculated on the basis of the preceding three-year period or a three-year average based on the preceding five-year period, excluding the highest and the lowest entry;

35. ‘other adverse climatic event’ means unfavourable weather conditions which do not meet the conditions of point (35)34 of these Guidelines;

36. ‘environmental incident’ means a specific occurrence of pollution, contamination or degradation in the quality of the environment which is related to a specific event and is of limited geographical scope, which destroys more than 30 % of the average annual production of the undertaking active in the agricultural sector in the preceding three-year period or a three-year average based on the preceding five-year period, excluding the highest and lowest entry. It does not cover general environmental risks not connected with a specific event, such as climate change or atmospheric pollution;

37. ‘catastrophic event’ means an unforeseen event of biotic or abiotic nature caused by human action that leads to important disturbances in forest structures, eventually causing important economic damage to the forestry sectors;

38. ‘Union standard’ means mandatory standard laid down in Union legislation setting the level which individual undertakings must achieve, in particular as regards the environment, hygiene and animal welfare; consequently, standards or targets set at Union level which are binding for Member States but not for individual undertakings are not deemed to be Union standards;

39. ‘non-productive investment’ means an investment which does not lead to a significant increase in the value or profitability of the holding;

40. ‘investments to comply with an Union standard’ means investments made to comply with an Union standard after the expiry of the transitional period provided for in Union legislation;

41. ‘advice’ means complete advice given in the framework of one and the same contract;

42. ‘herd book’ means any book, register, file or data medium:

(a) which is maintained by a breeders' organisation or association officially recognised by a Member State in which the breeders' organisation or association was constituted; and

(b) in which pure-bred breeding animals of a given breed are entered or registered with mention of their ancestors;

43. ‘active farmer’ means an active farmer within the meaning of Article 9 of Regulation (EU) No 1307/2013;

44. ‘less developed regions’ means regions where the gross domestic product (GDP) per capita is less than 75 % of the average GDP of the EU-27;

45. ‘EU-25’ means the 25 Member States of the Union who were Member States of the Union in May 2005;

46. ‘EU-27’ means the 27 Member States of the Union who were Member States of the Union in January 2007;

47. ‘capital works’ means works, undertaken by the farmer personally or by the farmer's workers that create an asset;

48. ‘small-scale infrastructure’ means infrastructure with eligible costs limited to EUR 2 million;

49. ‘food based biofuel’ means a biofuel produced from cereal and other starch rich crops, sugars and oil crops as defined in the Commission's Proposal for a Directive of the European Parliament and of the Council amending Directive 98/70/EC relating to the quality of petrol and diesel fuels and amending Directive 2009/28/EC on the promotion of the use of energy from renewable sources ( 33 );

50. ‘agricultural area’ means any area taken up by arable land, permanent grassland and permanent pasture or permanent crops as defined in Article 4 of Regulation (EU) No 1307/2013;

51. ‘other land manager’ means an undertaking which manages land other than an undertaking active in the agricultural sector;

52. ‘transaction cost’ means an additional cost linked to fulfilling a commitment, but not directly attributable to its implementation or not included in the costs or income foregone that are compensated directly; and which can be calculated on a standard cost basis;

53. for the purposes of conservation of genetic resources in agriculture and in forestry :

(a) ‘in situ conservation’ in agriculture means the conservation of genetic material in ecosystems and natural habitats and the maintenance and recovery of viable population of species or feral breeds in their natural surroundings and, in the case of domesticated animal breeds or cultivated plant species, in the farmed environment where they have developed their distinctive properties;

(b) ‘in situ conservation’ in forestry means the conservation of genetic material in ecosystems and natural habitats and the maintenance and recovery of viable population of species in their natural surroundings;

(c) ‘on-farm or on-forest holding conservation’ means in situ conservation and development at farm or forest holding level;

(d) ‘ex situ conservation’ means the conservation of genetic material for agriculture or forestry outside their natural habitat;

(e) ‘ex situ collection’ means a collection of genetic material for agriculture or forestry maintained outside their natural habitat;

54. ‘foodstuffs’ means foodstuffs which are not agricultural products and which are listed in Annex I to Regulation (EU) No 1151/2012 of the European Parliament and of the Council ( 34 );

55. ‘fixed costs arising from participation in quality scheme’ means the costs incurred for entering a supported quality scheme and the annual contribution for participating in that quality scheme, including, where necessary, expenditure on checks required to verify compliance with the specifications of the quality scheme;

56. ‘short supply chain’ means a supply chain involving a limited number of economic operators, committed to co-operation, local economic development, and close geographical and social relations between producers, processors and consumers;

57. ‘member of a farm household’ means a natural or legal person or a group of natural or legal persons, whatever legal status is granted to the group and its members by national law, with the exception of farm workers. Where a legal person or a group of legal persons is considered as a member of the farm household, that member must exercise an agricultural activity on the farm at the time of the aid application;

58. ‘cluster’ means a grouping of independent undertakings, including start-ups, small, medium and large enterprises as well as advisory bodies and/or research organisations designed to stimulate economic/ innovative activity by promoting intensive interactions, the sharing of facilities and the exchange of knowledge and expertise, as well as contributing effectively to knowledge transfer, networking and information dissemination among the undertakings in the cluster;

59. ‘small operator’ means a microenterprise as defined in Commission Recommendation 2003/361 ( 35 ), or a natural person not engaged in economic activity at the moment of applying for aid;

60. ‘local markets’ means:

(a) markets in radius of 75 km from the farm of origin of the product, within which the activities of processing and sale to the final consumer have to take place; or

(b) markets for which the respective rural development programme sets out a kilometric radius from the farm of origin of the product, within which the activities of processing and sale to the final consumer have to take place; or

(c) markets for which the respective rural development programme sets out an convincing alternative definition;

61. ‘Transmissible Spongiform Encephalopathy (TSE) and Bovine Spongiform Encephalopathy (BSE) test costs’ means all costs, including those for test kits and for the taking, transporting, testing, storing and destruction of samples, necessary sampling and laboratory testing in accordance with Chapter C of Annex X to Regulation (EC) No 999/2001 of the European Parliament and of the Council ( 36 );

62. ‘research and knowledge-dissemination organisation’ means an entity (such as universities or research institutes, technology-transfer agencies, innovation intermediaries, research-oriented physical and/or virtual collaborative entities), irrespective of its legal status (organised under public or private law) or way of financing, whose primary goal is to independently conduct fundamental research, industrial research or experimental development, as defined in the Framework for state aid for research and development and innovation or to widely disseminate the results of such activities by way of teaching, publication or knowledge transfer. Where such entity also pursues economic activities, the financing, the costs and the revenues of economic activities must be accounted for separately. Undertakings that can exert influence upon such an entity, in the quality of, for example, shareholders or members, may not enjoy preferential access to its research capacities of such an entity or to the results generated by it;

63. ‘arm's length’ means that the conditions of the transaction between the contracting parties do not differ from those which would be stipulated between independent undertakings and contain no element of collusion. Any transaction that results from an open, transparent and unconditional procedure is considered as meeting the arm's length principle;

64. ‘sustainable forest management’ means using forests and forest land in a way and at a rate that maintains their biodiversity, productivity, regeneration capacity, vitality and their potential to fulfil now and in the future relevant ecological, economic and social functions at local, national and global levels and that does not cause damage to other ecosystems;

65. ‘agro-forestry systems’ means land use systems in which trees are grown in combination with agriculture on the same land;

66. ‘fast growing trees’ means a short rotation forest, where the minimum time before felling is set to be not less than 8 years and the maximum time before felling is set not to exceed 20 years;

67. ‘trees for short rotation coppicing’ means tree species of CN code 0602 90 41 to be defined by Member States that consist of woody, perennial crops, the rootstock or stools of which remain in the ground after harvesting, with new shoots emerging in the following season and with a maximum harvest cycle to be determined by the Member States as established in Article 4(1)(k) of Regulation (EU) No 1307/2013;

68. ‘sparsely populated areas’ means areas accepted by the Commission as such in the individual decisions on regional aid maps for the period 1 July 2014 to 31 December 2020;

69. ‘“a” areas’ means those areas designated in an approved regional aid map for the period from 1 July 2014 to 31 December 2020 in application of the provisions of Article 107(3)(a) of the Treaty;

70. ‘“c” areas’ means those areas designated in an approved regional aid map for the period 1 July 2014 to 31 December 2020 in application of the provisions of Article 107(3)(c) of the Treaty;

71. ‘NUTS 3 area’ means a region specified at level 3 of a common classification of territorial units for statistics in accordance with Regulation (EC) No 1059/2003 of the European Parliament and of the Council ( 37 );

72. ‘non-predefined “c” areas’ means areas that a Member State at its own discretion designate as ‘c’ areas provided that the Member States demonstrates that such areas fulfil certain socioeconomic criteria and that those areas are designated in an approved regional aid map for the period of 1 July 2014 to 31 December 2020 in application of the provisions of Article 107(3)(c ) of the Treaty;

73. ‘former “a” areas’ means those areas designated as ‘a’ areas in an approved regional map for the period from 1 January 2011 to 30 June 2014;

74. ‘regional aid map’ means the list of areas designated by a Member State in accordance with the conditions laid down in the Guidelines on regional State aid for 2014-2020 and approved by the Commission;

75. ‘processing of agricultural products into non-agricultural products’ means any operation on an agricultural product resulting in a product which is not an agricultural product;

76. ‘evaluation plan’ means a document containing at least the following minimum elements: the objectives of the aid scheme to be evaluated; the evaluation questions; the results indicators; the envisaged methodology to conduct the evaluation; the data collection requirements; the proposed timing of the evaluation, including the date of submission of the final evaluation report; the description of the independent body conducting the evaluation or the criteria that will be used for its selection and the modalities for ensuring the publicity of the evaluation.

2.5. Notifiable aid

(36) Where the conditions of Article 107(1) of the Treaty are met, Member States must notify to the Commission aid in the agricultural and forestry sectors and in rural areas pursuant to Article 108(3) of the Treaty and shall not put the proposed measure into effect until this procedure resulted in a final decision, with the exception of measures that fulfil the conditions laid down in a block exemption regulation.

(37) Individual aid granted on the basis of an aid scheme remains subject to the notification obligation pursuant to Article 108(3) of the Treaty, if the aid exceeds the following notification thresholds:

(a) for individual investment aid for the processing of agricultural products and the marketing of agricultural products under Section 1.1.1.4 of Part II of these Guidelines: eligible costs in excess of EUR 25 million, or where the gross grant equivalent exceeds EUR 12 million;

(b) for aid for promotion campaigns under Section 1.3.2. of Part II of these Guidelines: promotion campaigns with an annual budget in excess of EUR 5 million;

(c) for individual investment aid granted under Sections 3.1, 3.2, 3.6 and 3.10 of Chapter 3 of Part II of these Guidelines:







Aid intensity Notification threshold 10 % EUR 7,5 million 15 % EUR 11,25 million 25 % EUR 18,75 million 35 % EUR 26,25 million 50 % and above EUR 37,5 million

Chapter 3. Common assessment principles

(38) To assess whether a notified aid measure can be considered compatible with the internal market under Article 107(3) of the Treaty, the Commission generally analyses whether the design of the aid measure ensures that the positive impact of the aid towards an objective of common interest exceeds its potential negative effects on trade and competition.

(39) The Communication on State aid modernisation called for the identification and definition of common principles applicable to the assessment of compatibility of all the aid measures carried out by the Commission. For this purpose, the Commission will consider an aid measure compatible with the Treaty only if it satisfies each of the following criteria:

(a) contribution to a well-defined objective of common interest: a State aid measure must aim at an objective of common interest in accordance with Article 107(3) Treaty;

(b) need for State intervention: a State aid measure must be targeted towards a situation where aid can bring about a material improvement that the market cannot deliver itself, by remedying a well-defined market failure;

(c) appropriateness of the aid measure: the proposed aid measure must be an appropriate policy instrument to address the objective of common interest;

(d) incentive effect: the aid must change the behaviour of the undertaking(s) concerned in such a way that it engages in additional activity which it would not carry out without the aid or it would carry out in a restricted or different manner;

(e) proportionality of the aid (aid limited to the minimum necessary): the aid amount must be limited to the minimum needed to induce the activity in the sector concerned;

(f) avoidance of major undue negative effects on competition and trade between Member States: the negative effects of aid must be sufficiently limited, so that the overall balance of the measure is positive;

(g) transparency of aid: Member States, the Commission, economic operators, and the public must have easy access to all relevant acts and to pertinent information about the aid granted thereunder.

(40) The overall balance of certain categories of schemes may further be made subject to a requirement of ex post evaluation as described in points (720) to (723). In such cases, the Commission may limit the duration of those schemes (normally to four years or less) with a possibility to re-notify their prolongation afterwards.

(41) Moreover, if a State aid measure or the conditions attached to it (including its financing method when it forms an integral part of it) entail a non-severable violation of Union law, the aid cannot be declared compatible with the internal market ( 38 ). In particular, the following aid is considered to entail a non-severable violation of EU law:

(a) aid the granting of which is subject to the obligation for the beneficiary to have its headquarters in the relevant Member State or to be predominantly established in that Member State;

(b) aid the granting of which is subject to the obligation for the beneficiary to use nationally produced goods or national services;

(c) aid restricting the possibility for the beneficiaries to exploit the research, development and innovation results in other Member States.

(42) The common assessment principles have to be seen in the specific context of the CAP. Therefore, these general competition policy considerations apply to all aid under these Guidelines, unless derogations are provided for in Sections 3.1. to 3.7 of Part I of these Guidelines, due to particular considerations applicable in the agricultural sector.

3.1. Contribution to a common objective

(43) The objectives of aid in the agricultural and forestry sectors and in rural areas are to ensure viable food production and to promote the efficient and sustainable use of resources in order to achieve intelligent and sustainable growth.

(44) Aid in the agricultural and forestry sectors and in rural areas should relate closely to the CAP, should be consistent with the rural development objectives referred to in point (10) of these Guidelines and should be compatible with the rules on the common organisation of the markets in agricultural products.

Rural development objectives

(45) The rural development objectives taken jointly with the general principles on State aid will be taken into account for the assessment of compatibility of the aid.

(46) The Commission considers that measures, implemented pursuant to and in conformity with Regulation (EU) No 1305/2013 and its implementing and delegated acts or as an additional national financing in the framework of a rural development programme, are per se consistent with and contribute to the objectives of rural development.

(47) As regards rural development like measures financed exclusively from national funds, in order to ensure coherence with the rural development measures co-financed by the EAFRD under rural development programmes, Member States should demonstrate how the State aid under consideration fits into and is consistent with the relevant rural development programmes. Every notification must be accompanied by such documentation.

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(48) The Commission considers that the principle of contribution to the objectives of rural development is met regarding the aid measures in Sections 1.1.10.3, 1.2, 1.3, 2.8 and 2.9 of Part II of these Guidelines, which are outside the scope of rural development, since the Commission has gained sufficient experience as to the contribution of those measures to the rural development objectives.

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Additional conditions for individually notifiable aid on the basis of a scheme

(49) When awarding aid to individually notifiable investment projects on the basis of a scheme, the granting authority must demonstrate that the selected project will contribute towards the objective of the scheme and thus towards the objectives of aid in the agricultural and forestry sectors and in rural areas. For this purpose, Member States can rely on the information provided by the applicant for aid where the positive effects of the investment must be described.

Rules of the common organisation of the markets in agricultural products

(50) Due to the specificity of the agricultural sector ( 39 ), although State aid rules are generally applicable to this sector, their application nevertheless remains subject to the provisions laid down in the regulations of the first pillar of the CAP. In other words, Member States' recourse to State aid measures cannot take precedence over Regulation (EU) No 1308/2013 ( 40 ). Therefore, the Commission will not authorise State aid which is incompatible with the provisions governing the common organisation of the market or which would interfere with the proper functioning of the common organisation.

(51) Further, specific conditions on the compliance with the principles of the common organisation of the markets in agricultural products are set out in Section 1.1.1.1 on investment aid on agricultural holdings linked to the primary agricultural production, in Section 1.1.4. on start-up aid for producer groups and organisations and in Section 1.2.2. on aid for closing of production capacity, of Part II of these Guidelines.

Environmental objectives

(52) Article 11 of the Treaty provides that ‘Environmental protection requirements must be integrated into the definition and implementation of the Union's policies and activities, in particular with a view to promoting sustainable development.’ The legal basis for the substantial environmental measures in the first and second pillars of the CAP is Article 11 of the Treaty. In line with this requirement, the Union's priorities for rural development should be pursued in the framework of sustainable development. The Union's promotion of the aim of protecting the environment as set out in Article 11 of the Treaty also takes into account the polluter pays principle ( 41 ). Therefore, particular attention should be given to environmental issues in future State aid notifications. All State aid notifications should in the future contain an assessment on whether or not the aided activity is expected to have any environmental impact. In cases where there is an environmental impact, State aid notifications should provide information demonstrating that the aid measure will not result in an infringement of applicable Union environmental protection legislation. ►M1 For example, in the case of an aid scheme for investments which are intended to increase production, and which involve an increased use of scarce resources or an increase in pollution, it will be necessary to show that the scheme will not result in an infringement of the applicable Union legislation, including environmental protection legislation ( 42 ), and the Good Agricultural and Environmental Conditions (GAECs) of cross-compliance under Regulation (EU) No 1306/2013. ◄ Where State aid is notified, which forms part of the rural development programme, the environmental requirement for such State aid measure should be identical with the environmental requirement of the rural development measure.

3.2. Need for State intervention

(53) In order to assess whether State aid is necessary to achieve the objective of common interest, it is necessary first to diagnose the problem to be addressed. State aid should be targeted towards situations where it can bring about a material improvement that the market cannot deliver on its own.

(54) State aid measures can indeed, under certain conditions, correct market failures thereby contributing to the efficient functioning of markets and enhancing competitiveness. Furthermore, where markets provide efficient outcomes but these are deemed unsatisfactory from an equity or cohesion point of view, State aid may be used to obtain a more desirable, equitable market outcome.

(55) For the purposes of these Guidelines, the Commission considers that the market is not delivering the expected objectives without State intervention concerning the aid measures fulfilling the specific conditions laid down in Part II of these Guidelines. Therefore, such aid should be considered necessary to achieve the objectives of common interest specified under Section 3.1. of Part I of these Guidelines.

3.3. Appropriateness of aid

(56) The proposed aid measure must be an appropriate policy instrument to address the policy objective concerned. An aid measure will not be considered compatible if other less distortive policy instruments or other less distortive types of aid make it possible to achieve the same positive contribution to the objectives of CAP and in particular of rural development. It is important to keep in mind that there may be other, better placed instruments such as regulation, market-based instruments, infrastructure development and improvement in the business environment to achieve those objectives.

Appropriateness among alternative policy instruments

(57) The Commission considers that aid granted in the agricultural and forestry sectors and in rural areas, which fulfils the specific conditions laid down in the relevant Sections of Part II of these Guidelines, is an appropriate policy instrument.

(58) Where a Member State decides to put in place a rural development like aid measure financed exclusively from national funds, when at the same time the same measure is provided for in the relevant rural development programme, the Member State should demonstrate the advantages of such a national aid instrument compared to the rural development programme measure at stake.

Appropriateness among different aid instruments

(59) Aid can be granted in various forms. The Member State should however ensure that the aid is granted in the form that is likely to generate the least distortions of trade and competition.

(60) Where a specific form is foreseen for an aid measure described in Part II of these Guidelines, such form is considered as an appropriate aid instrument for the purpose of these Guidelines.

(61) The Commission further considers as regards rural development measures, co-financed by EAFRD or granted as an additional financing for such co-financed rural development measures, that aid granted in the form provided for in the respective rural development measure is an appropriate aid instrument.

(62) As regards investment aid not covered by Regulation (EU) No 1305/2013 as part of the rural development programme or as additional financing for such a rural development measure, where the aid is granted in forms that provide a direct pecuniary advantage (for example, direct grants, exemptions or reductions in taxes, social security or other compulsory charges, etc.), the Member State must demonstrate why other potentially less distortive forms of aid such as repayable advances or forms of aid that are based on debt or equity instruments (for example, low-interest loans or interest rebates, State guarantees or an alternative provision of capital on favourable terms) are less appropriate.

(63) With regard to forestry measures in Section 2.8 of Part II of these Guidelines, Member States must demonstrate that the ecological, protective and recreational objectives they are aiming for cannot be achieved with the rural development like forestry measures in Chapters 2.1 to 2.7 of Part II of these Guidelines.

(64) In the case of several categories of aid, such as aid towards the costs of market research activities, product conception and design and for the preparation of applications for the recognition of quality schemes, aid for knowledge transfer and information actions, aid for advisory services, aid for farm replacement services, aid for promotion measures, aid to compensate for the costs of the prevention and eradication of animal diseases and plant pest and aid to the livestock sector, the aid must be granted to the final aid beneficiaries indirectly, in kind, by means of subsidised services. In these cases the aid is paid to the provider of the service or activity in question.

(65) The compatibility assessment of an aid measure with the internal market is without prejudice to the applicable public procurement rules and to the principles of transparency and openness and non-discrimination in the selection process of a service provider.

3.4. Incentive effect and need for aid

(66) Aid in the agricultural and forestry sectors and in rural areas can only be found compatible with the internal market, if it has an incentive effect. An incentive effect is present when the aid changes the behaviour of an undertaking in such a way that it engages in additional activity contributing to the development of the sector which it would not have engaged in without the aid or in which would only have engaged in a restricted or different manner. The aid must however not subsidise the costs of an activity that an undertaking would have incurred in any event and must not compensate for the normal business risk of an economic activity.

(67) Unless exceptions are expressly provided for in Union legislation or in these Guidelines, unilateral State aid measures which are simply intended to improve the financial situation of undertakings but which in no way contribute to the development of the sector, and in particular aid which is granted solely on the basis of price, quantity, unit of production or unit of the means of production are considered to constitute operating aid which is incompatible with the internal market. Furthermore, by its very nature, such aid is also likely to interfere with the mechanisms regulating the organisation of the internal market.

(68) These same reasons have led the Commission to authorise aid to facilitate compliance with obligatory standards only to the extent that it meets the objectives of rural development policy.

(69) For the same grounds, aid granted under Sections 1.2. and 2.8.5 of Part II of these Guidelines should be limited to helping undertakings active in the agricultural and forestry sectors facing various difficulties despite having undertaken reasonable efforts to minimise such risks. State aid should not have as an effect to entice undertakings into taking unnecessary risk. Undertakings active in the agricultural and forestry sectors should themselves bear the consequences of imprudent choices of production methods or products.

(70) For the same reasons, the Commission considers that aid does not present an incentive for the beneficiary wherever work on the relevant project or activity has already started prior to the aid application by the beneficiary to the national authorities.

(71) The aid application must include at least the applicant's name and the size of the undertaking, a description of the project or activity, including its location and start and end dates, the amount of aid needed to carry it out and the eligible costs.

(72) In addition, large enterprises must describe in the application, the situation without the aid, which situation is referred to as the counterfactual scenario or alternative project or activity and submit documentary evidence in support of the counterfactual described in the application.

(73) When receiving an application, the granting authority must carry out a credibility check of the counterfactual and confirm that the aid has the required incentive effect. A counterfactual is credible if it is genuine and relates to the decision-making factors prevalent at the time of the decision by the beneficiary regarding the project or activity concerned.

(74) By derogation from points (70) to (73), aid in the form of tax advantages granted to SMEs is deemed to have an incentive effect if the aid scheme establishes a right to aid in accordance with objective criteria and without further exercise of discretion by the Member State and if the aid scheme has been adopted and in force before work on the aided project or activity has started. The latter requirement does not apply in the case of fiscal successor schemes provided the activity was already covered by the previous schemes in the form of tax advantages.

(75) By way of derogation from points (70) to (74), the following categories of aid of these Guidelines are not required or are deemed to have an incentive effect:

(a) aid schemes for land consolidation in accordance with Section 1.3.4. and Section 2.9.2. and aid schemes with ecological, protective and recreational objectives in accordance with Section 2.8 of Part II and where:

(i) the aid scheme establishes a right to aid in accordance with objective criteria and without further exercise of discretion by the Member State;

(ii) the aid scheme has been adopted and in force before eligible costs under Sections 1.3.4, 2.9.2 and 2.8. are incurred by the beneficiary; and

(iii) the aid scheme only covers SMEs;

(b) aid for disadvantages related to Natura 2000 areas and to the Water framework directive granted to SMEs in accordance with Section 1.1.6 of Part II;

(c) aid to areas facing natural or other specific constraints in accordance with Section 1.1.7 of Part II;

(d) aid to make good the damage caused by natural disasters or exceptional occurrences in accordance with Section 1.2.1.1 of Part II;

(e) aid to compensate for the damage caused by adverse climatic events which can be assimilated to natural disaster in accordance with Section 1.2.1.2 of Part II;

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(f) aid to compensate for the costs of the prevention, control and eradication of animal diseases and plant pests and for losses caused by those animal diseases and plant pests in accordance with Section 1.2.1.3 of Part II;

▼B

(g) aid to cover the costs of the removal and destruction of fallen stock in accordance with Section 1.2.1.4 of Part II;

(h) aid to compensate for the damage caused by protected animals in accordance with Section 1.2.1.5 of Part II;

(i) aid to make good the damage in forests caused by animals regulated by law in accordance with Section 2.8.5 of Part II;

(j) investment aid for meeting standards in accordance with point (148)(a) and (b);

(k) investment aid for meeting standards granted to SMEs in accordance with point (148)(c); investment aid for meeting standards to large enterprises in accordance with point (148)(c) may be considered to have an incentive effect, where the undertaking concerned can prove that without the aid, it would face the risk of closure.

(l) aid for investments in favour of conservation of cultural and natural heritage on the agricultural holding in accordance with Section 1.1.1.2 of Part II, with the exception of individual aid which exceeds EUR 500 000 per undertaking per investment project;

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(m) aid for promotion measures in accordance with point (464)(b), (c) and (d);

▼B

(n) aid for research and development in the agricultural and forestry sectors in accordance with Section 1.3.6 and Section 2.9.1. of Part II;

(o) aid for the maintenance, restoration and upgrading of the cultural and natural heritage of villages, rural landscapes and high nature value sites in accordance with point (644)(e); this derogation does not apply to investment aid associated with the cultural and natural heritage of villages, rural landscapes and high nature value sites, which exceeds the notification thresholds set out in point (37)(c);

(p) aid for the drawing up and updating of plans for the development of municipalities and villages in rural areas and their basic services and of protection and management plans relating to Natura 2000 sites and other areas of high nature value, in accordance with point (644)(a);

(q) aid for the restoration of damage to forests from fires, natural disasters, adverse climatic events, plant pests, animal diseases, catastrophic events and climate change related events in accordance with Section 2.1.3 of Part II;

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(r) aid for the costs of treatment and preventing the spreading of pests and tree diseases and aid to make good the damage caused by the pests and tree diseases in accordance with Section 2.8.1 of Part II;

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(s) aid for participation of active farmers in quality schemes for cotton and foodstuffs, in accordance with Section 3.8 of Part II.

▼B

Additional conditions for individually notifiable investment aid

(76) In addition to the requirements set out above, for individually notifiable investment aid, the Member State must provide clear evidence that the aid effectively has an impact on the investment choice. To allow for a comprehensive assessment, the Member State must provide not only information concerning the aided project but also a comprehensive description of the counterfactual scenario, in which no aid is granted to the beneficiary by any public authority.

(77) The Member States are invited to rely on documents, such as official board documents, risk assessments, including the assessment of location-specific risks, financial reports, internal business plans, expert opinions and other studies related to the investment project under assessment. Documents containing information on demand forecasts, cost forecasts, financial forecasts, documents that are submitted to an investment committee and that elaborate on various investment scenarios, or documents provided to the financial institutions could help the Member States to demonstrate the incentive effect.

(78) In this context the level of profitability may be evaluated by reference to methodologies which are standard practice in the sector concerned and which may include methods to evaluate the net present value of the project (NPV) ( 43 ), the internal rate of return (IRR) ( 44 ) or the average return on capital employed (ROCE). The profitability of the project is to be compared with normal rates of return applied by the undertaking in other investment projects of a similar kind. Where these rates are not available, the profitability of the project is to be compared with the cost of capital of the undertaking as a whole or with the rates of return commonly observed in the sector concerned.

(79) Where no specific counterfactual scenario is known, the incentive effect can be assumed when there is a funding gap, that is to say when the investment costs exceed the NPV of the expected operating profits of the investment on the basis of an ex ante business plan.

(80) If the aid does not change the behaviour of the beneficiary by stimulating additional investment, it has no positive effects for development of the sector concerned. Therefore, aid will not be approved in cases where it appears that the same investment would still be pursued without the aid.

3.5. Proportionality of the aid

(81) Aid in the agricultural and forestry sectors and in rural areas is considered to be proportionate if the aid amount per beneficiary is limited to the minimum needed to achieve the common objective aimed for.

Maximum aid intensities and maximum aid amounts

(82) In principle, in order for the aid to be proportionate, the Commission considers that the aid amount should not exceed the eligible costs. This is without prejudice to rules for environmental or other public incentives that are expressively provided for in Sections 1.1.3 and 1.2.2 of Part II of these Guidelines.

(83) In order to ensure predictability and a level playing field, in these Guidelines the Commission further applies maximum aid intensities for aid. Where the maximum aid intensity cannot be set, for example in the case of start-up aid for young farmers and the development of small farms, maximum aid amounts defined in nominal terms are set out in order to ensure the proportionality of the aid.

(84) If the eligible costs are correctly calculated and the maximum aid intensities or maximum aid amounts set out in Part II of these Guidelines are respected, the criterion of proportionality is deemed to be fulfilled.

(85) The maximum aid intensity and aid amount must be calculated by the granting authority when granting the aid. The eligible costs must be supported by documentary evidence which should be clear, specific and contemporary. For the purposes of calculating the aid intensity and the eligible costs, all figures used must be taken before any deduction of tax or other charge.

(86) Value added tax (VAT) is not eligible for aid, except where it is not-recoverable under national VAT legislation.

(87) Where aid is granted in a form other than a grant, the aid amount is the gross grant equivalent of the aid.

(88) Aid payable in several instalments is discounted to its value at the moment of granting the aid. The eligible costs are discounted to their value at the moment of granting the aid. The interest rate to be used for discounting purposes is the discount rate applicable on the date of granting the aid.

(89) Where aid is granted by means of tax advantages, the discounting of aid tranches takes place on the basis of the discount rates applicable at the various times the tax advantage takes effect.

(90) As regards investment aid in rural areas, the maximum aid intensity for large investment projects must be scaled down to the adjusted aid amount as defined in point (35).31. In addition, large investment projects cannot benefit from the increased aid intensities for SMEs.

(91) Where commitments under Sections 1.1.5.1, 1.1.8, 2.3 and 3.4 of Part II of these Guidelines are expressed in units other than those set out in Annex II to Regulation (EU) No 1305/2013, Member States may calculate payments on the basis of those other units. In such cases, the Member States must ensure that the maximum amounts per year are complied with.

(92) Except for aid for commitments for the rearing of local breeds in danger of being lost to farming referred to in Section 1.1.5.1, aid under Sections 1.1.5.1, 1.1.8, 2.3 and 3.4 of Part II of these Guidelines cannot be granted per livestock unit. The conversion rates of the various categories of animals to livestock units are set out in Annex II of the implementing act to Regulation (EU) No 1305/2013.

(93) ►M2 Member States may fix the aid amount for the measures or types of operations referred to in Sections 1.1.5, 1.1.6, 1.1.7, 1.1.8, 2.1.1, 2.1.2, 2.2, 2.3, 3.4 and 3.5 of Part II of these Guidelines on the basis of standard assumptions of additional costs and income foregone. ◄ Member States should ensure that the calculations and the corresponding aid (a) contain only elements that are verifiable; (b) are based on figures established by appropriate expertise; (c) indicate clearly the source of the figures used; (d) are differentiated to take account of regional or local site conditions and actual land use, where applicable; and (e) do not contain elements linked to investment costs.

(94) When assessing the compatibility of aid, the Commission will consider any insurance taken out, or which could have been taken out by the aid beneficiary. Regarding aid to compensate for losses caused by adverse climatic events which can be assimilated to a natural disaster, in order to avoid the risk of distorting competition, aid at the maximum aid intensity should be granted only to an undertaking that cannot be covered for such losses by insurance. This is why, in order to further improve risk management, beneficiaries must be encouraged to take out insurance wherever possible.

Additional conditions for individually notifiable investment aid and investment aid to large enterprises under notified schemes

(95) As a general rule, individually notifiable investment aid will be considered to be limited to the minimum, if the aid amount corresponds to the net extra costs of implementing the investment in the area concerned, compared to the counterfactual scenario in the absence of aid. Likewise, in the case of investment aid granted to large enterprises under notified schemes, Member States must ensure that the aid amount is limited to the minimum on the basis of a ‘net-extra cost approach’.

(96) The aid amount should not exceed the minimum necessary to render the project sufficiently profitable, for example, it should not lead to an increase of its IRR beyond the normal rates of return applied by the undertaking concerned in other investment projects of a similar kind or, if these rates are not available, to an increase of its IRR beyond the cost of capital of the undertaking as a whole or beyond the rates of return commonly observed in the sector concerned.

(97) For investment aid to large enterprises under notified schemes, the Member State must ensure that the aid amount corresponds to the net extra costs of implementing the investment in the area concerned, compared to the counterfactual scenario in the absence of aid. The method explained in point (96) must be used together with maximum aid intensities as a cap.

(98) As regards individually notifiable investment aid, the Commission will verify whether the aid amount exceeds the minimum necessary to render the project sufficiently profitable, by using the method set out in point (96). Calculations used for the analysis of the incentive effect can also be used to assess if the aid is proportionate. The Member State must demonstrate the proportionality on the basis of documentation such as that referred to in point (77). This requirement does not apply to investment aid related to the primary agricultural production.

Cumulation of aid

(99) Aid may be granted concurrently under several schemes or cumulated with ad hoc aid, provided that the total amount of State aid for an activity or project does not exceed the aid ceilings laid down in these Guidelines.

(100) Aid with identifiable eligible costs may be cumulated with any other State aid, as long as those aids concern different identifiable eligible costs. Aid with identifiable eligible costs may be cumulated with any other State aid, in relation to the same eligible costs, partly or fully overlapping, only if such cumulation does not result in exceeding the highest aid intensity or aid amount applicable to this type of aid under these Guidelines.

(101) Aid without identifiable eligible costs under Sections 1.1.2 and 3.3. of Part II of these Guidelines may be cumulated with any other State aid measure with identifiable eligible costs. Aid without identifiable eligible costs may be cumulated with other State aid without identifiable eligible costs, up to the highest relevant total financing threshold fixed in the specific circumstances of each case by these Guidelines or other State aid guidelines, a block exemption regulation or a decision adopted by the Commission.

(102) State aid in favour of the agricultural sector should not be cumulated with payments referred to in Articles 81(2) and 82 of Regulation (EU) 1305/2013 in respect of the same eligible costs if such cumulation would result in an aid intensity or aid amount exceeding those laid down in these Guidelines.

(103) Where Union funding centrally managed by the institutions, agencies, joint undertakings or other bodies of the Union that is not directly or indirectly under the control of the Member State is combined with State aid, only the latter will be considered for determining whether notification thresholds and maximum aid intensities and ceilings are respected, provided that the total amount of public funding granted in relation to the same eligible costs does not exceed the most favourable funding rate(s) laid down in the applicable rules of Union law.

(104) Aid authorised under these Guidelines should not be cumulated with any de minimis aid in respect of the same eligible costs if such cumulation would result in an aid intensity or aid amount exceeding that fixed in these Guidelines.

(105) Aid for investments aimed at the restoration of agricultural production potential as referred to in point (143)(e) should not cumulated with aid for the compensation of material damage referred to in Sections 1.2.1.1, 1.2.1.2 and 1.2.1.3 of these Guidelines.

(106) Double funding of agricultural practices beneficial for the climate and the environment under Sections 1.1.5.1., 1.1.6, 1.1.8 and 3.5 of Part II of these Guidelines and equivalent practices referred to in Article 43 of Regulation (EU) No 1307/2013 should be excluded. The revision clause foreseen in point (724) of these Guidelines should also ensure avoiding double funding.

(107) Start-up aid for producer groups and organisations in the agricultural sector as referred to in Section 1.1.4 of Part II of these Guidelines should not be cumulated with aid for the setting-up of producers groups and organisations in the agricultural sector laid down in Article 27 of Regulation (EU) No 1305/2013. Start- up aid for young farmers and start-up aid for the development of small farms as referred to in Section 1.1.2 should not be cumulated with business start-up aid for young farmers or the development of small farms as referred to in Article 19(1)(a)(i) and (iii) of Regulation (EU) No 1305/2013 if such cumulation would result in an aid amount exceeding those laid down in these Guidelines.

3.6. Avoidance of undue negative effects on competition and trade

(108) For the aid to be compatible, the negative effects of the aid measure in terms of distortions of competition and impact on trade between Member States must be limited and outweighed by the positive effects in terms of contribution to the objective of common interest.

General considerations

(109) In assessing the negative effects of the aid measure, the Commission will focus its analysis of the distortions of competition on the foreseeable impact the aid in the agricultural and forestry sectors and in rural areas has on competition between undertakings in the product markets affected ( 45 ).

(110) As a starting point, if the aid is well targeted, proportionate and limited to the net extra costs, the negative impact of the aid is softened and the risk that the aid will unduly distort competition will be more limited. Second, the Commission establishes maximum aid intensities. These constitute a basic requirement for compatibility, the aim of which is to prevent the use of State aid for projects where the ratio between aid amount and eligible costs is to be deemed very high and particularly likely to be distortive. In general, the greater the positive effects the aided project is likely to give rise to and the higher the likely need for aid, the higher the cap on aid intensity.

(111) However, even where aid is necessary and proportionate, it may result in a change of the behaviour of the beneficiaries which distorts competition. This is more likely in the agricultural sector which differs from other markets by the specific structure of primary agricultural production that is characterized by a high number of small undertakings involved. On such markets the risk of distortion of competition is high even when only small amounts of aid are granted.

(112) Two main potential distortions of competition and trade may be caused by aid for the agricultural and forestry sectors and for rural areas. These are product market distortions and location effects. Both types may lead to allocative inefficiencies, undermining the economic performance of the internal market and distributional concerns, in that the aid affects the distribution of economic activity across regions.

(113) In principle, due to its positive effects on the development of the sector, the Commission considers that where an aid fulfils the conditions and does not exceed the relevant maximum aid intensities, laid down in the applicable Sections of Part II of these Guidelines, the negative effect on competition and trade is limited to the minimum.

(114) However, because investment aid to undertakings active in the processing of agricultural products and the marketing of agricultural products and to undertakings active in other sectors, for example, in the food processing sector ( 46 ), tends to have similar distortive effects on competition and trade, the general competition policy considerations on the effect on competition and trade should apply equally to all those sectors. Therefore, the conditions described in points (115) to (127) must be respected as regards investment aid for the processing of agricultural products and for the marketing of agricultural products, in the forestry sector and in rural areas.

Investment aid schemes for the processing of agricultural products and the marketing of agricultural products, in the forestry sector and in rural areas

(115) Aid schemes must not lead to significant distortions of competition and trade. In particular, even where distortions may be considered limited at an individual level (provided all conditions for investment aid are fulfilled), on a cumulative basis investment aid schemes might still lead to high levels of distortion. Such distortions might concern the output markets by creating or aggravating a situation of overcapacity or creating, increasing or maintaining the substantial market power of some beneficiaries in a way that will negatively affect dynamic incentives. Aid available under investment aid schemes might also lead to a significant loss of economic activity in other areas of the Europan Economic Area (EEA). In the case of an investment aid scheme focusing on certain sectors, the risk of such distortions is even more pronounced.

(116) Therefore, the Member State concerned must demonstrate that any negative effects will be limited to the minimum taking into account, for example, the size of the projects concerned, the individual and cumulative aid amounts, the expected beneficiaries as well as the characteristics of the targeted sectors. In order to enable the Commission to assess the likely negative effects, the Member State is encouraged to submit any impact assessment at its disposal as well as ex-post evaluations carried out for similar predecessor schemes.

Individually notifiable investment aid for the processing of agricultural products and the marketing of agricultural products and in rural areas

(117) In appraising the negative effects of individual investment aid, the Commission places particular emphasis on the negative effects linked with the build-up of overcapacity in declining markets, the prevention of exit, and the notion of substantial market power. These negative