Commission Decision

of 30 May 2000

on aid measures put in place by the Irish authorities to alleviate the situation of livestock farmers whose production was affected by adverse weather conditions in summer and autumn 1998

(notified under document number C(2000) 1604)

(Only the English text is authentic)

(Text with EEA relevance)

(2000/760/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular the first subparagraph of Article 88(2) thereof,

Having regard to Council Regulation (EC) No 2467/98 of 3 November 1998 on the common organisation of the market in sheepmeat and goatmeat(1), and in particular Article 22 thereof;

Having called on interested parties to submit their comments pursuant to the provision cited above(2),

Whereas:

I. PROCEDURE

(1) Ireland forwarded a notification of an aid measure (Ewe Supplementary Measure) pursuant to Article 88(3) of the Treaty on 2 December 1998 in reply to a letter from the Commission of 26 November 1998 asking for information about a scheme, of which the Commission had learned through information in the public domain. The aid was registered on 9 December 1998 under the State aid N 678/98.

(2) By letters of 12 February 1999 and 14 April 1999 the Irish authorities submitted additional information in relation to that aid scheme. In their letter of 12 February 1999 they confirmed that the measure had been put into effect before the Commission had submitted its comments under Article 88(3) of the Treaty. The aid was consequently transferred to the register of non-notified aids as NN 23/99.

(3) By letter of 11 February 1999, registered on 18 February 1999, the Irish authorities notified a further aid scheme under the title Assistance for Winter Fodder Losses (February 1999) under Article 88(3) of the Treaty. Additional information was submitted by letter of 29 April 1999, registered on 3 May 1999. In the letter the Irish authorities confirmed that the aid had been put into effect. The aid was consequently transferred to the register of non-notified aids as NN 79/99.

(4) In view of the fact that both measures were intended to support Irish livestock producers against losses resulting from adverse weather conditions in the summer and autumn of 1998, and since it appeared that certain producers could benefit under both measures, the Commission considered that it was appropriate to examine the two dossiers jointly within the framework of a single procedure. By letter of 30 July 1999 the Commission informed Ireland that it had decided not to raise objections against the additional winter fodder aid, which is the first submeasure of the Ewe Supplementary Measure (NN 23/99), and to the top-up payments to certain beneficiaries under N 605/98, which is the second submeasure under the Scheme of Assistance for Winter Fodder Losses (aid NN 79/99).

(5) By that same letter, however, the Irish authorities were informed that the Commission had decided to open the formal investigation procedure under Article 88(2) of the Treaty, in respect of the second submeasure (ewe premium) of the Ewe Supplementary Measure (NN 23/99) and the first submeasure (new beneficiaries) and third submeasure (Special Fodder Hardship Fund) of the Scheme of Assistance for Winter Fodder Losses. The procedure also covered certain of the beneficiaries under the second submeasure (top-up payments to beneficiaries under N605/98), in so far as it concerns aid to suckler-cow and small dairy-cow farmers (NN 79/99).

(6) The decision to initiate the procedure was published in the Official Journal of the European Communities(3). The Commission called upon interested parties to submit their comments.

(7) The Irish authorities submitted their comments on the questions raised by the Commission in their letter of 3 September 1999, registered on 6 September 1999.

(8) Bilateral meetings between the Irish authorities and representatives of the Commission took place on 20 and 27 September 1999.

(9) Further additional information concerning the Special Fodder Hardship Fund and the ewe premium was submitted by letters of 13 October 1999 (registered on 14 October 1999) and of 3 January 2000 (registered on 6 January 2000) respectively.

II. DESCRIPTION

NN 23/99 - EWE SUPPLEMENTARY MEASURE

(10) The notified aid consisted of two distinct measures in the sheepmeat sector, the additional winter fodder aid and the ewe premium. As the additional winter fodder aid has already been approved by the Commission, the description and assessment deal with the ewe premium only.

(11) In their notification the Irish authorities explained the economic background underlying their decision to introduce a disposal scheme for ewes which otherwise would not have a sufficient commercial value to be sold to slaughterers.

(12) During autumn 1998, availability of competitively priced pork, chicken and beef depressed the lamb market in many of the main European markets. The impact was especially acute in Ireland because of the extent of dependence on export markets, with as much as 75 % of production exported. For 1998 as a whole, the average price of lambs in Ireland was 19 % below that of the previous year.

(13) The situation reached crisis point by mid-autumn when lamb processing plants ceased accepting cull ewes or light mountain lambs even from their traditional local farmer suppliers. In addition, during the 1998 growing season, severe wet weather and below average sunshine resulted in difficulties in saving adequate winter feed for animals. The situation was acute in some areas, particularly on peaty or heavy clay soils, and conditions were so poor that a large proportion of winter fodder could not be harvested due to ground conditions.

(14) Farmers using commonage land, where no single owner takes action to protect the vulnerable grazing, were regarded as being at risk in the event of a fodder shortage. The welfare of sheep on these grazing lands was of particular concern, as producers with cull ewes which could not be slaughtered, had no option but to return these animals to an already fragile environment where supply of grazing was not adequate to meet the need. The scheme was consequently confined to mountain sheep farmers operating in the areas designated, that is mountain commonage in six western counties of Ireland(4). Total expenditure under the scheme was about IEP 1 million (EUR 1,27 million).

(15) The scheme provided slaughter facilities to remove about 100000 cull mountain ewes from mountain commonage land in six western counties of Ireland. The Department of Agriculture and Food made payments to sheep slaughter plants to provide slaughter facilities in the case of two categories of ewes which would not have had a sufficient commercial value to cover the slaughter and handling costs involved. Assistance was only provided in respect of the disposal of ewes during November and December 1998. Approximately 12 meat plants participated. The question of participation was a matter of choice for plant management. The payment was:

- IEP 10 (EUR 12,7) in the case of condemned animals which would not have any commercial value,

- IEP 3 (EUR 3,8) in the case of ewes suitable for boning (boner ewes) which would yield a limited value to plants in terms of the meat harvested.

(16) The number of ewes to be disposed of by each producer amounted to 30 % of the producers individual ewe quota. The producers were allowed to choose which ewes in their flocks to dispose of.

(17) According to the Irish authorities' letter of 14 April 1999 the aid of IEP 3 per animal enabled the meat plants to enable to dispose of 35300 boner ewes. This amount covered the cost of disposal of soft offal and heads as specified risk material to an approved rendering plant, as well as the cost of disposal of skins. These costs are normally borne by the meat plant and are indeed passed on to the producer in terms of an in-built deduction in the price of the lamb. For these animals the question of payment was for negotiation between producer and plant, and according to the Irish authorities only token sums were paid.

(18) Meat from the animals purchased by meat plants, under this arrangement, was sold for human consumption, subject to the normal conditions of health, hygiene and safety, which apply to all meat handled by these plants. The predominant commercial outlet for meat from boner ewes is supply to the catering trade. This meat is suitable for use as burgers, kebabs, ethnic dishes, etc. The quantity of meat yield in this case was about 150 tonnes in total and this meat found sale through the domestic festive food-service industry in December 1998.

(19) The aid paid to factories was expected to cover the costs that arise from killing, processing and handling the animal. Because the animals involved were over one year old there was a considerable cost associated with the disposal of specified risk material. In the case of carcasses which had to be completely condemned, to minimise risk to the human food chain, factories were directed to dispose of the whole carcass as specific risk material. The fee agreed by the Department was intended to cover the full cost associated with condemned ewes but in the case of the second category, boner ewes, the fee paid by the Department would represent only a contribution of the costs involved. The balance was to be contributed by the producer in terms of carcass meat value.

(20) After studying the data provided, the Commission had doubts whether Article 87(2)(b) of the Treaty, according to which Member States may grant aid compensating for damages due to exceptional occurrences, could be applied to the present case. Indeed the measure appeared to counteract problems that were due to an economic downturn in the sector rather than being the appropriate response to the winter fodder problem caused by exceptionally adverse weather conditions.

(21) Furthermore, by permitting the meat obtained from boner ewes to be sold on for human consumption, and thus compete in the market place with other meat, whose slaughter costs have not been subsidised, it appears that the Irish authorities have failed to take the steps necessary to minimise the effects of the measure on competition.

(22) Finally, the Commission expressed doubts as to the compatibility of the ewe premium aid measure with the common market organisation of sheepmeat. The measure might have constituted an alternative intervention mechanism liable to interfere with the provisions of the common market organisation. If these doubts were confirmed, the aid would have been found to be contrary to the Treaty.

NN 79/99 - SCHEME OF ASSISTANCE FOR WINTER FODDER LOSSES

(23) This scheme provided for three submeasures directed at different groups of beneficiaries. Only the second submeasure, which provided for top-up payments to beneficiaries under N 605/98 has so far been approved by the Commission in so far as it concerns aid for sheep farmers benefiting from the submeasure. The procedure had been opened in respect of submeasure 1 (new beneficiaries), submeasure 3 (Special Fodder Hardship Fund) and part of the beneficaries under submeasure 2 (top-up payments). The budget for submeasures 1 and 2 in total amounted to EUR 25,4 million, while EUR 635000 was foreseen for submeasure 3.

New beneficiaries

(24) Aid under this title extended the circle of beneficiaries under N 605/98 to farmers who sustained winter fodder losses but did not receive aid under N 605/98 as they were not situated in those areas of the less-favoured areas identified as worst affected by the Agricultural Advisory Training and Research Body (Teagasc) survey of September 1998. In their notification of the N 605/98 scheme the Irish authorities had assumed that while all holdings in less-favoured areas were affected by the wet weather the farmers in the areas which were not considered to be seriously affected should be in a better position to cope with losses. However, a further Teagasc report prepared in January 1999 showed that the situation in the less-favoured areas had deteriorated significantly and therefore the Irish authorities decided to make aid also available to producers situated in those areas which initially were deemed to be less seriously affected.

(25) Payment rates were the same as in N 605/98. For sheep farmers with mountain ewes they were set at EUR 5,08 (IEP 4) per ewe or hogget up to 75 head, for suckler cow farmers at EUR 50,79 (IEP 40) per suckler cow up to a ceiling of EUR 380 (IEP 300) equivalent to 7,5 cows and for small-scale dairy farmers (up to 35000 gallons milk quota) at EUR 38,01 (IEP 30) per 1000 gallons milk up to 10000 gallons. In excess of 40000 farmers were in this category.

(26) The formal procedure of investigation was opened in respect of this measure as the Commission had doubts whether all recipients of aid under this submeasure were using extensive farming methods. Intensive farming indeed would mean that farmers to a significant extent could have relied on in-bought fodder and animal foodstuffs, and as such would have suffered less from winter fodder production deficits caused by adverse weather conditions.

Top-up payments to beneficiaries under N605/98.

(27) In recognition of the fact that farmers who had already received support under N 605/98 were located in the worst affected areas, a 50 % top-up payment was made available to them. The Agricultural Inspectorate of the Department in association with local Teagasc officials listed the worst affected areas by District Electoral Division (DED). There were 45000 farmers in this category.

(28) In the following the top-up premiums and the resulting total premiums are listed:

- EUR 2,5 per ewe or hogget up to 75 head for sheep farmers with mountain ewes leading to an overall grant of EUR 7,5 per animal,

- EUR 25,4 per suckler-cow up to a ceiling of 7,5 cows for suckler-cow farmers leading to a total grant of EUR 76,19 per animal,

- EUR 19 per 1000 gallons up to 10000 gallons for small scale dairy farmers leading to a total grant of EUR 57 per 1000 gallons.

(29) From its initial assessment the Commission concluded that there was no risk of overcompensation in respect of the sheep producers, as it was established that the additional costs of bought-in fodder for sustaining the sheep and hoggets through the winter amounted to an average of EUR 29,20 (IEP 23) per ewe for the producers concerned, compared to a total premium Level of EUR 20,32 (IEP 4 + IEP 10 + IEP 2).

(30) Suckler-cow producers are the main group of beneficiaries with 80 % of the aid being expected to be paid to them. As the costs for food per cow in winter in Ireland were EUR 152, an overall grant of EUR 76 corresponds to an aid rate of 50 %. Assuming that sucklercow producers in normal years do not buy in fodder - the Irish authorities have confirmed this by letter of 29 October 1998 in the context of State aid N 605/98 - in order to exclude overcompensation they ought to have consequently sustained losses of winter fodder of 50 % and more.

(31) According to the Irish authorities (point 3 of the letter of 29 April 1999), the actual losses of winter fodder were considerably in excess of those originally estimated by the Teagasc surveys in September 1998 and January 1999 which found the losses to be between 20 % and 50 % of normal winter fodder production. Furthermore the safety mechanism which consists in paying compensation for up to 7,5 cow units when the average suckler cow herd in Ireland is over 12 cows would also apply. The Irish authorities were therefore of the opinion that the question of overcompensation did not arise.

(32) However, the Irish authorities had not submitted appropriate evidence which would demonstrate that the average level of winter fodder losses of the producers concerned reached 50 % or more. Indeed, the January 1999 Teagasc report they referred to speaks of losses of 20 % to 50 %. Since the correspondence of damages and compensation had so far not been demonstrated in a satisfactory manner the Commission was bound to emit doubts as to measure's compatibility with the common market under Article 87(2)(b) of the Treaty.

(33) In the same context the Commission also invited the Irish authorities to further explain the argument presented in point 3 of their letter of 29 April 1999 to the effect that farmers with suckler cows would have experienced grazing and fodder losses not only for their cows but also for the progeny of these cows and that compensation had therefore also to be available for these weanlings. Prima facie this approach seems incongruous with the concept of compensation of losses in fodder production as compensation would not be established in accordance with fodder production in normal years but in relation to the current number of animals in the stock and their fodder requirements. Such an approach would allow for aid relieving the producer of day to day expenses and would be incompatible with the concept underlying Article 87(2)(b) of the Treaty.

The Special Fodder Hardship Fund

(34) In addition a Special Fodder Hardship Fund (SFHF) was operated for a small number of farmers who had not qualified for aid in 1998 and who would not qualify for aid under the first submeasure (see section II.2.1) of the present scheme. The objective was to grant aid to farmers almost totally dependent on a relatively small farm enterprise as a source of income. Severe fodder shortage had to be demonstrated by each applicant and certified by a Teagasc advisor. Farmers were only accepted into the scheme if the fodder shortage in comparison to the quantities needed to sustain the herd until turnout to grass in spring was found to be in excess of 50 %, and if they also fulfilled the other criteria for eligibility.

(35) In their letter of 29 April 1999 the Irish authorities had further described the conditions under which aid had been granted under the SFHF. From the terms of reference of the SFHF there was no indication that grants under the measure had been conditional on or in proportion to losses of winter fodder due to wet weather.

(36) The Commission therefore considered that this measure might have constituted an operating aid that would have to be considered to be incompatible with the common market. In particular it seemed that Article 87(2)(b) of the Treaty would not be applicable.

III. COMMENTS FROM INTERESTED PARTIES

(37) No comments were received from interested parties following the publication of the notice in the Official Journal.

IV. COMMENTS FROM IRELAND

NN 23/99 - EWE SUPPLEMENTARY MEASURE

(38) The Irish authorities stress that low meat yield and poor quality rather than market factors discouraged plants from buying cull ewes. This was substantiated by the data related to the plant profit/loss balance obtained by the participating abattoirs in 1998, which should be considered in relation to the profit/loss balance for cull ewes in good condition in normal years.

(39) The following breakdown of costs incurred and market returns received by the abattoirs participating in the scheme in late 1998 was submitted (expressed in Irish pounds per animal). The data originate from the Irish Meat Association and were reviewed by the Irish authorities.

In the case of condemned ewes:

>TABLE>

In the case of boner ewes:

>TABLE>

(40) In 1998, very many of the animals offered through the Ewe Supplementary Measure were in very poor condition. 76000 animals were condemned and yielded no meat. The total net profit on these animals for the participating abattoirs was 76000 x IEP 1,41 = IEP 107160. A total of 35000 ewes went for boning. The net loss on these animals was 35000 x IEP 6,03 = IEP 211050. The measure as a whole thus ended up with a negative balance for the participating slaughterhouses of IEP 103890.

(41) According to information in the letter of 3 September 1999, two thirds of the culled animals were condemned by veterinary Department staff as unfit for human consumption, mainly due to poor physical condition and emaciation, and disposed of through the rendering plant. In the case of animals that were condemned, the factory made no payment to the producer.

(42) In normal market circumstances a good quality ewe in satisfactory condition might be expected to command a producer price of IEP 1,10/kg, with an average weight of 16 kg. The normal expected meat yield of such an animal would be approximately 9,3 kg of useable product and plants would need to command a price from retailers of at least IEP 3,25/kg to allow a break-even situation. It is stated that retail return in excess of this amount would be the norm for satisfactory quality ewe meat. This leads to IEP 30,23 at the cost side (IEP 12,63 for delivery, slaughter, handling and boning, plus IEP 17,6 paid to the producer), against IEP 30,23 as a return for the meat sold.

(43) The 150 tonnes of meat yielded from the boner ewes constitutes 0,177 percent of the volume of the sheep meat market which, according to the official figures of the Central Statistics Office, totals 84000 tonnes. The Irish authorities claim that this minute market share was not capable of influencing market prices or flows.

(44) To underpin this statement, and to demonstrate that the cull measure had no measurable effect on the market for sheepmeat, they attached a table of Irish sheepmeat prices for a four-year period. From this table it appears that there was no lift in market prices at the time of, or immediately following the measure. They remained at a stable very low level until mid-February, when the spring lambs came on the market. Demonstrably there was no artificial increase in the value of the remaining sheep as a result of the measure. As such it is claimed that the measure did not interfere with the market organisation for sheepmeat, one of the aims of which is a price-regulating mechanism.

(45) It is stressed that, if market intervention had been the objective, it would have been necessary to open the measure to the 48000 sheep farmers in Ireland and to provide aid in respect of the one million sheep and lambs slaughtered between October and December 1998 in Ireland. Instead the measure was limited to 4564 producers in six western counties who depended on commonage grazing and therefore faced the most severe problems in terms of fodder shortage. The animals which were the subject of the measure were low-grade and low-value cull ewes, a by-product of lamb production, not commercial, meat-producing lambs.

New beneficiaries

(46) In their letter of 3 September 1999, the authorities stressed that the recipients of aid were all engaged in extensive production, which means cattle and sheep are grazed on their holdings for most of the calendar year. These farmers save their own winter fodder requirements during the summer period for feeding the animals during the winter. This is further substantiated by the fact that over 90 % of the applicants who were paid suckler-cow premia in disadvantaged areas (the area where this measure applied) qualified for extensification payments.

Top-up payments to beneficiaries under N 605/99

(47) In their letter of 3 September the Irish authorities underlined that the shortfall of 20 to 50 % mentioned in the Teagasc surveys of September 1998 and January 1999 referred to the quantity of winter fodder produced. This fodder unfortunately was in general of very poor quality with a dry matter digestibility (DMD) two to five units lower that normal. Silage dry matter was significantly lower as well. The preservation of baled silage was variable due to the high moisture content and soil contamination. They concluded that while Teagasc reported a general shortfall of 20 to 50 % in quantity terms, when quality deterioration in the available supplies was taken into account, the losses in general were much higher.

(48) In reply to the doubts expressed in paraghaph 73 of the decision to initiate the procedure, it was explained that indeed both suckler-cow producers and small dairy farmers have to maintain a number of other lifestock on their farm, which also, under the extensive farming practices of the western counties concerned, largely depend on winter fodder that was saved on the farm. According to Teagasc data, the average number of 12 suckler cows on a farm corresponds with a total stock held on the farm of 29 livestock units (LU).

(49) The following calculations were made:

The fodder cost of overwintering 1 LU is EUR 152,4 (data provided in the context of N 605/99). The fodder cost of overwintering 29 LU is EUR 4419. A fodder shortage of 20 % therefore corresponds to a financial deficit of (4419 x 0,2 =) EUR 883,8 for the average herd. Knowing that the maximum premium (the top-up inclusive) is EUR 571,4, this situation leads to a compensation of 65 % of the losses incurred. Where farmers incurred a 50 % fodder deficit, the financial loss is EUR 2209,5 and the aid rate accounts for 26 % of the direct losses.

(50) Further data were provided in relation to the usage of feed compounds by the cattle sector in the September quarter of 1998, of which it is indicated that it was 54 % up compared with 1997. This also indicates the seriousness of the fodder crisis and in particular points at the poor quality of the fodder saved and the need to supplement it with richer types of nutrition.

(51) The CSO December livestock census of 1998 revealed that total cattle numbers had gone up by 1,4 % and sheep numbers had gone down by 0,2 % relative to 1997. This should satisfy the Commission that increased livestock numbers did not significantly contribute to the fodder crisis.

The Special Fodder Hardship Fund

(52) The letter of 3 September 1999 provides further details on the fodder deficit profile of the applicants that were accepted under the scheme.

>TABLE>

Of 1813 applicants having a fodder deficit of over 50 %, only 1417 actually received payments, which should illustrate how strict the requirements for eligibility under this submeasure were interpreted.

(53) The letter of 13 October 1999 addresses the concern of the Commission that aid was given on the basis of an established shortage of winter fodder rather than on the basis of production deficits. To quantify the actual fodder deficit under the SFHF the number of days from 5 March to turn-out to grass (taken as 15 April) was taken to be 42 days. As the total over-wintering period was 150 days, this gives an average fodder shortage of 21,7 % throughout the entire over-wintering period (42÷150 x 77,5 % = 21,7 %). This is a general underestimation of the shortage, as throughout the whole period farmers had been making great efforts to restrict fodder feeding to animals and used all available means, including supplementation with concentrate feed, to extend the availability of fodder. This general restriction of access to feed was evident at the time of inspection from the general body condition of the animals. The Teagasc fodder survey dated 12 August 1998 reported a fodder shortage of 20 % to 50 % and the figure of 21,7 % for the SFHF is compatible with the range of the reported shortage for the general fodder scheme.

V. ASSESSMENT

(54) The measures covered by this Decision concern support for livestock farmers, in particular producers of ovines and bovines. Production and trade in sheepmeat are covered by Council Regulation (EC) No 2467/98. Article 22 of that Regulation stipulates that, save as otherwise provided in the Regulation, Articles 87, 88 and 89 of the Treaty apply to the products covered by it. Analogous provisions are laid down by Article 24 of Council Regulation (EEC) No 805/68 of the Council of 27 June 1968 on the common organisation of the market in beef and veal(5). The measures concerned are therefore covered by the rules laid down in Articles 87 to 89 of the Treaty, subject to any contrary provisions in the regulations governing the common organisations of the market.

(55) The Irish authorities have confirmed in the framework of aid N 605/98(6) that the fodder losses incurred exceeded the minimum intensity of normally 30 %, reduced to 20 % in the case of the less favoured areas, in comparison with an average year (calculated on the basis of average production in the three years preceding the year in which the damage took place).

NN 23/99 - EWE SUPPLEMENTARY MEASURE

Existence of aid (Article 87(1) of the Treaty)

(56) The Commission considers that the measure in question clearly constitutes aid within the meaning of Article 87(1) of the Treaty. The payments in question were made by the Irish authorities directly to sheep slaughter plants in Ireland. However, those slaughterhouses are not the primary economic beneficiaries of the aid as the payments were granted in return for the service of killing, processing and handling of the animals which the Irish authorities wished to dispose of. The measure benefits the producers of ewes who have no normal market outlets for their animals and who would incur costs if they had to continue feeding them, or arrange for the slaughter of the animals at their own expense. By virtue of the measure, sheep which otherwise did not have a sufficient commercial value can be put to the market at competitive prices.

(57) Therefore the measure concerning the slaughter and disposal of over 100000 ewes may threaten to distort the competition on the relevant market as it confers a gratuitous advantage on the beneficiaries. Such a unilateral measure by a Member State in a market which, according to the Irish authorities themselves, was seriously depressed and which, on the other hand, is highly integrated at Community level, and where substantial intra-Community trade takes place, must be considered to affect trading conditions among Member States. In their comments to the Commission, the Irish authorities themselves recognise that the Irish livestock sector, in particular the sheep and cattle sectors are highly dependent on exports to other Member States, with as much of 75 % of production being exported.

(58) The prohibition in Article 87(1) of the Treaty is followed by exceptions in Article 87 paragraphs 2 and 3.

Article 87(2) of the Treaty

(59) The exceptions in Article 87(2)(a) (aid of a social character granted to individual consumers) and Article 87(2)(c) (aid to compensate for the economic disadvatages of the division of Germany) are manifestly inapplicable to the present case.

(60) Under Article 87(2)(b) of the Treaty, aid to make good the damage caused by natural disasters and exceptional occurrences is compatible with the common market. In contrast to the case of the measures to compensate for fodder losses, in their notification and in their subsequent comments, the Irish authorities have not specifically invoked Article 87(2)(b) as the basis for the ewe premium. Indeed, in their written comments the Irish authorities explain that a number of factors coincided in the autumn and winter of 1998 which brought to a crisis the situation of the sheep producers, in particular the shortage of grazing due to bad weather conditions leading to under-nourishment of livestock, the welfare and environmental risks resulting from large-scale starvation of animals and the fact that the traditional channel for the disposal of cull ewes had been squeezed out by the depressed market situation. At the same time, the costs of slaughter and disposal of the animals were increased as a result of the need to treat the carcasses as specified risk material. The slaughterhouses were therefore unwilling to assume the cost of slaughter and disposal of animals which were considered unfit for human consumption. In addition to these factors, which are explicitly cited by the Irish authorities, the Commission is aware, from the information provided by the Irish authorities in connection with other aid files, that there is a problem of the long-term over-grazing of sheep in the commonage areas of the six counties concerned which have caused the Irish authorities to propose additional aid measures to reduce stocking densities.

(61) In these circumstances the Commission considers that it is not possible to establish a sufficiently direct causal link between the adverse event, excessive rainfall, and the aid to dispose of excess numbers of cull ewes in order to permit the application of Article 87(2)(b) in the present case. Moreover, this difficulty appears to be recognised by the Irish authorities since they themselves suggest that the compatibility of this measure with the Treaty should be assessed on the basis of Article 87(3)(c).

Article 87(3)(c) of the Treaty

(62) Under Article 87(3)(c) of the Treaty, aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest, may, by way of derogation, be considered to be compatible with the common market.

(63) In its decision to open the procedure, the Commission doubted that the present measure could be considered to bring about structural improvements in the beneficiaries' holdings thereby facilitating the development of the sector as a whole. In reply, the Irish authorities have provided extensive information about the background to the measure which makes it possible to resolve these doubts.

(64) In their initial submission, the Irish authorities mainly advanced four arguments to justify the measure: (a) the measure was necessary due to the depressed state of the market, (b) it was justified on animal welfare grounds, (c) it was necessary on environmental grounds, and (d) it was necessary to offset the additional costs resulting from the need to dispose of specified risk material. In opening the procedure, the Commission doubted that arguments related to the general state of the market or arguments related to the costs of specified risk material could be invoked to justify the aid. It also invited the Irish authorities to provide additional information on the welfare and environmental aspects of the aid.

(65) The Irish authorities explain that in a normal year, sheep producers cull between 20 % and 25 % of their animals, and that a good quality ewe will yield a return of an average of IEP 30,23(7) of which IEP 17,60 will be paid to the producer and IEP 12,63 will cover the slaughter, handling and boning costs of the plant. The costs of slaughtering and disposing of poor grade animals which cannot be used to obtain meat for human consumption will be met by the plant as part of its normal operating costs.

(66) In the autumn of 1998, the number of animals needing to be culled was unusually high (30 %). Moreover, the quality of cull ewes was exceptionally poor. This is confirmed by the fact that of the 111000 animals selected for culling under the scheme, 76000 were immediately condemned as unfit for human consumption. The remaining 35000 yielded an average of just 4 kg of meat which commanded a price of IEP 0,90/kg, yielding just IEP 3,60 per animal as opposed to costs of IEP 12,63. Thus the plants were not willing to accept cull ewes. Those figures clearly show that premiums of IEP 3 and IEP 10 per animal slaughtered cannot possibly exceed the losses incurred by the farmers, who are to be considered as the true beneficiaries of the measure.

(67) In this situation, the producers would have turned the animals out to over-winter on the commonages. In view of the poor quality of the grazing, and the poor condition of the animals themselves, a large number of animals would simply have starved. In this context, the Irish authorities explain that the high numbers of animals condemned as unfit for consumption at the slaughter plants can also been taken as an indicator of the very poor survival prospects for the animals. The prospect of large-scale starvation of animals was unacceptable from a welfare point of view. The potential presence of large numbers of decaying fallen livestock scattered across the countryside in the six counties concerned was also considered unacceptable from an environmental point of view. Moreover, the animals would have inflicted further long-term damage on what grazing did remain.

(68) In the light of those explanations, the Commission accepts that the primary objective of the measure was to minimise environmental damage resulting from over-grazing and the presence of large numbers of fallen livestock on the land. The aid covered the extra costs which the farmers should have incurred (but would probably have been unwilling to incur) in disposing of excess numbers of unwanted livestock. It therefore appears reasonable to assimilate the measure to an aid for the disposal of waste. In accordance with point 3.4 of the Commission's Guidelines on State aid for environmental protection(8) which were applicable to the agricultural sector at the time when the aid was granted, aid for the collection, recovery and treatment of agricultural waste will be considered by the Commission on a case by case basis. However, since the acceptance of such aid implies derogating from the "polluter pays" principle, it may be permitted only in specific and well justified cases.

(69) In the present case it appears that the aid has a clear incentive effect, and there is a counterpart from the producers who agree to the slaughter of 30 % of their ewes, some of which might otherwise survive the winter. From the standpoint of the farmers, the aid is limited to the free disposal of the animals. No payment is made in return for the livestock. These factors encouraged farmers to dispose of the worst quality stock with the least prospects for survival, which contributes towards the realisation of the objectives of the aid and at the same time tends to minimise any adverse effect on competition. Moreover, the aid produces durable benefits both for the sector and, by avoiding environmental problems, for the wider community. Given that the aid is granted on a one-off basis to resolve a specific environmental problem which resulted from a very unusual combination of events and with the additional issue of animal welfare at stake (which distinguishes this case from other, nonagricultural sectors), the Commission considers that it is justifiable to derogate from the "polluter pays" principle in this case.

(70) The Commission and the Member State concerned are continuing their efforts to obtain a permanent reduction of stocking densities in the overgrazed areas. Supplementary measure A of the co-financed Rural Environment Protection Scheme (REPS), and certain measures under the proposed State aided Natura 2000 scheme both aim at a reduction of stocking densities that will prevent environmental degradation and allow the vegetation to recover from damage by overgrazing. The Irish authorities have committed themselves to exclude farmers who refuse to enter into one of these schemes from Community support for compensatory allowances in the less-favoured areas under Council Regulation (EC) 1257/99 of 17 May 1999 on support for rural development from the European Agricultural Guidance and Guarantee Fund (EAGGF) and amending and repealing certain Regulations(9). Article 9, second paragraph, of Regulation (EC) No 2467/98 provides the necessary legal basis for this type of measure. This approach will prevent a return to the stocking densities that existed prior to the implementation of the ewe premium submeasure.

(71) However, before applying the derogation provided for in Article 87(3)(c) it is also necessary to verify that the aid has not adversely affected trading conditions to an extent contrary to the common interest, in particular by verifying that the aid does not contravene the regulations governing the common organisation of the market in sheepmeat and goatmeat.

(72) Under Article 9 of Regulation (EC) No 2467/98, the Member States may apply appropriate environmental protection measures on the basis of the specific situation of the land used for the production of sheep eligible for benefit under the premium scheme. For the reasons given in recitals 67 and 68, the Commission considers that the measure is an appropriate environmental protection measure which falls within the scope of this derogation from the rules of the common organisation of the market. This conclusion is reinforced by the limited geographical scope of the measure, which is confined to the six counties of Ireland suffering the worst environmental problems.

(73) In its decision to open the procedure, the Commission also expressed concern that meat obtained from boner ewes was sold on for human consumption. However the Irish authorities have explained that this decision was taken with the sole objective of reducing the budgetary costs of the measure. Moreover, they have explained that the total quantity of meat originating from the ewes under the scheme was about 150 tonnes, which accounts for 0,177 % of Irish sheepmeat production. The Irish authorities have also submitted Irish weekly average prices for lamb over the last four years which do not show any effect of the measure, as prices remained depressed throughout the whole period from September 1998 to mid-February 1999. In the light of those facts, the Commission considers that any resulting interference in the mechanisms of the common organisation of the market was minimal, and can be accepted, having regard to the environmental objectives of the measure.

(74) For those reasons the Commission concludes that the payment of aid under the ewe supplementary measure may benefit from the derogation provided for in Article 87(3)(c) of the Treaty, and may therefore be considered compatible with the common market.

(75) All cases where Member States propose to grant aid to cull excess livestock have to be examined on a case-by- case basis, having regard to the environmental and welfare justifications for the measure and the compatibility of the measure with the common organisation of the market concerned and Article 87 of the Treaty.

NN 79/99 - SCHEME OF ASSISTANCE FOR WINTER FODDER LOSSES

Existence of aid (Article 87(1) of the Treaty)

(76) The Commission considers that the three submeasures in question clearly constitute aid within the meaning of Article 87(1) of the Treaty. Payments were made by the Irish authorities to sheep and suckler-cow farmers to alleviate the hardship caused by the fodder production deficit. The aid is selective, and confers an advantage on those farmers who have been unable to harvest sufficient fodder for their winter requirements. Furthermore, the aid is granted in sectors which are highly integrated at Community level, being subject to the provisions of the common organisations of the market. Furthermore, as much as 75 % of Irish lamb production and 90 % of Irish beef production is exported, a substantial proportion to the other Member States.

New beneficiaries

Article 87(2)(b) of the Treaty

(77) In its decision to open the procedure, while acknowledging that the aid appeared to qualify for the exemption under Article 87(2)(b), the Commission raised concerns that the award of aid to intensive producers, who normally buy in fodder, even in good years, could result in a possible risk of overcompensation of this category of beneficiaries.

(78) In their letter of 3 September 1999, the Irish authorities stressed that the recipients of aid are all engaged in extensive production, with cattle and sheep being grazed on their holdings for most of the calendar year. This assurance removes the concerns of the Commission about a possible overcompensation of loss of fodder harvest which might have taken place if intensive cattle and sheep producers were among the beneficiaries. Consequently the fodder situation of these new beneficiaries can be assimilated to the situation of the beneficiaries in respect of which an identical aid measure was approved under N 605/98. As the measure falls within the scope of the derogation provided for by Article 87(2)(b) of the Treaty, it is compatible with the common market.

Top-up payments to beneficiaries under N 605/98

Article 87(2)(b) of the Treaty

(79) The concerns raised by the Commission in its decision to open the procedure related to the risk of overcompensation in respect of suckler-cow farmers with an average farm size. The additional data submitted by the Irish authorities are sufficiently conclusive to exclude the risk of overcompensation.

(80) As the maximum aid payable covers not more than 65 % of the loss incurred in the case of a 20 % fodder production deficit on a farm of 12 suckler-cows and their offspring normally present on the farm, it can be assumed that the risk of overcompensation of dairy farmers who maintain less offspring on their farm still will be very limited. Verification of the data provided by the Irish authorities indicates that the maximum premium would be sufficient to compensate for a 20 % loss where 18,75 LU are kept. In the event of a 50 % fodder production deficit, the maximum premium covers the losses incurred with exactly 7,5 LU.

(81) The risk of overcompensation is again reduced if due account is taken of the arguments that were put forward in relation to the fodder quality. They indicate that indeed the losses in all cases largely exceeded 20 %.

(82) Lastly, in regard of this residual risk, in line with its assessment under State aid N 605/98, the Commission considers that it would be disproportionate to expect the Irish authorities to undertake the individual processing of thousands of applications, each involving relatively small sums of money, to identify a relatively limited number of cases of limited possible overcompensation

(83) For those reasons the top-up payments to beneficiaries under N 605/98, having been payable to suckler-cow producers and small dairy farmers, qualify for the exception under Article 87(2)(b) of the Treaty and are compatible with the common market.

The Special Fodder Hardship Fund

Article 87(2)(b) of the Treaty

(84) Pursuant to the measure the amount of fodder (roughage) available on the farm must be certified by a Teagasc advisor as being less than 50 % of that necessary to adequately maintain livestock until turn-out to grass (taken as 15 April). It therefore appears that assistance could be granted to any farmer who could prove that his cattle were suffering or were likely to suffer malnutrition due to a shortage of fodder independently of the reason for this.

(85) As the aid scheme was launched to alleviate the consequences of losses of winter fodder, following a survey in January from which it appeared that farmers in general were suffering from fodder shortages, it was technically impossible to determine ex post what the degree of the fodder production deficit on each individual farm had been. The method used to calculate the probable deficit incurred by the farmers, as presented in the letter of 13 October 1999, seems to be a logical approach for a tentative ex post calculation.

(86) In its decision on the first winter fodder aid (N 605/98) the Commission recognised that in schemes involving the payment of relatively small amounts of aid to large numbers of beneficiaries the individual calculation of actual losses incurred could result in disproportionate administrative expenses. The Commission therefore accepted that compensation could be calculated on the basis of average losses, provided that the risk of significant overcompensation could be excluded. In view of the explanations provided by the Irish authorities, and the fact that compensation is limited to a proportion of actual losses incurred, the Commission considers that the present measure excludes the risk of significant overcompensation at the level of the individual farmer.

(87) In the case at hand, evidence is provided that the average losses in winter fodder production on the farms concerned exceeded the 20 % threshold needed to conclude that the weather conditions at the origin of the deficit qualify as "exceptional". The evidence is based both on the general survey carried out by Teagasc in August 1998 and on the findings made by Teagasc at its visit to each individual applicant in March 1999.

(88) For the above reasons the Special Fodder Hardship Fund would qualify for the exception under Article 87(2)(b) of the Treaty.

VI. CONCLUSION

(89) The Commission finds that Ireland has unlawfully implemented the ewe supplementary measure and the scheme of assistance for winter fodder losses contrary to Article 88 of the Treaty. However, for the reasons set out above, the Commission finds that;

- the scheme of assistance for winter fodder losses falls within the scope of the derogation provided for by Article 87(2)(b) of the Treaty and is therefore compatible with the common market,

- the payment of aid under the ewe supplementary measure may benefit from the derogation provided for in Article 87(3)(c) of the Treaty, and may therefore be considered compatible with the common market,

HAS ADOPTED THIS DECISION:

Article 1

The aid scheme of assistance for winter fodder losses which Ireland implemented in the autumn of 1998 is compatible with the common market.

Article 2

The aid scheme implemented by Ireland under the ewe supplementary measure is compatible with the common market.

Article 3

This Decision is addressed to Ireland.

Done at Brussels, 30 May 2000.

For the Commission

Franz Fischler

Member of the Commission

(1) OJ L 312, 20.11.1998, p. 1.

(2) OJ C 280, 2.10.1999, p. 12.

(3) See footnote 2.

(4) Donegal, Sligo, Leitrim, Mayo, Galway and Kerry.

(5) OJ L 165, 16.7.1968, p. 8.

(6) Aid N 605/98 was authorised by letter SG(98)D/11410 of 8 December 1998.

(7) Based on a return of 9,3 kg of usable meat at a wholesaler price of IEP 3,25/kg.

(8) OJ C 72, 10.3.1994, p. 3.

(9) OJ L 160, 26.6.1999, p. 80.