The Agricultural situation in the European Union - 1999 Report - VOLUME I - Report in conjunction with the General Report on the Activities of the European Union - 1999 BRUSSELS AND LUXEMBOURG, 2000

TABLE OF CONTENTS

1. ECONOMIC SITUATION AND FARM INCOMES

1.1. Overview

1.2. Production levels

1.3. Prices

1.4. Input prices

1.5. Farm incomes

1.6. Farm accountancy data network (FADN)

1.6.1. Farm incomes

1.6.2. Income by type of farming

2. Policy developments and legislative initiatives in 1999

2.1. The Berlin agreement on Agenda 2000

2.1.1. Lower institutional prices, as a means of encouraging competitiveness

2.1.2. A fair standard of living for the farming community

2.1.3. Strengthening the European Union's international trading position

2.1.4. Focusing on quality

2.1.5. Integrating environmental goals into the CAP

2.1.6. A new rural development framework: the second pillar of the CAP

2.1.7. Decentralised management

2.1.8. Further simplification

2.2. Quality policy

2.3. Organic farming

2.4. Promotion of Agricultural Products

2.5. Agricultural Research

2.5.1. Introduction

2.5.2. Quality of life and management of living resources (QoL) specific programme (1998-2002) under the Fifth Framework Programme

2.5.3. Management of RTD contracts

2.5.3.1. Fourth Framework Programme (1994-1998)

2.6. Projects concerned with genetic resources in agriculture

2.7. Simplification of agricultural legislation

2.7.1. Simplification

2.7.1.1. Simplification of the rules of the CAP

2.7.1.2. Consultation of the national paying agencies

2.7.2. Transparency

2.7.2.1. Informal consolidation of agricultural legislation in the eleven official languages

2.7.2.2. Repeal of all agricultural legislation that is no longer applicable

2.7.2.3. Standardisation of Commission publications covering export refunds

2.8. State aids

2.8.1. Introduction

2.8.2. Belgium

2.8.3. Denmark

2.8.4. Germany

2.8.5. Greece

2.8.6. Spain

2.8.7. France

2.8.8. Ireland

2.8.9. Italy

2.8.10. Netherlands

2.8.11. Austria

2.8.12. Portugal

2.8.13. Sweden

2.8.14. United Kingdom

2.9. Assistance to the needy

2.10. The outermost regions

3. agricultural markets

3.1. The 1999/2000 prices package

3.2. Agenda 2000 reforms

3.2.1. Arable crops

3.2.2. Milk and milk products

3.2.2.1. Regulations

3.2.2.2. Intervention prices

3.2.2.3. Quotas

3.2.2.4. Compensatory aid

3.2.2.5. National envelopes

3.2.2.6. Quota management

3.2.3. Reform of the wine sector

3.2.4. Reform of the beef and veal sector

3.3. Market developments - Crop products

3.3.1. Cereals

3.3.1.1. World market

3.3.1.2. Community market

3.3.2. Oilseeds

3.3.3. Peas, field beans and sweet lupins

3.3.4. Linseed

3.3.5. Grain legumes (chick peas, vetches and lentils)

3.3.6. Non-food production

3.3.7. Rice

3.3.8. Starch

3.3.9. Sugar

3.3.9.1. World market

3.3.9.2. Community market

3.3.10. Potatoes

3.3.11. Dried fodder

3.3.12. Fibre flax and hemp

3.3.12.1. Fibre flax

3.3.12.2. Hemp

3.3.13. Cotton

3.3.14. Silkworms

3.3.15. Olive oil

3.3.16. Fresh fruit and vegetables

3.3.16.1. World market

3.3.16.2. International trade

3.3.16.3. Community market

3.3.16.4. Main developments in legislation and policy

3.3.17. Bananas

3.3.17.1. Reform of the market organisation for bananas

3.3.17.2. Community production

3.3.17.3. ACP imports

3.3.18. Processed fruit and vegetables

3.3.18.1. World and Community markets

3.3.18.2. Main legislative and policy developments

3.3.19. Wine

3.3.20. Tobacco

3.3.20.1. Market developments

3.3.21. Seeds

3.3.21.1. Market developments

3.3.21.2. Changes in the market organisation for seeds

3.3.22. Hops

3.3.22.1. World market

3.3.22.2. Community market

3.3.23. Flowers and live plants

3.4. Market developments -- Animal products

3.4.1. Milk and milk products

3.4.1.1. World market

3.4.1.2. Community market

3.4.2. Beef and veal

3.4.2.1. Market situation

3.4.2.2. Labelling of beef/veal

3.4.3. Sheepmeat and goatmeat

3.4.4. Pigmeat

3.4.5. Poultrymeat

3.4.6. Eggs

3.4.7. Honey

ECONOMIC SITUATION AND FARM INCOMES

Overview

1. The 1999 agricultural year saw higher output for most crops (except cereals), an increase in the volume of livestock production and a marked reduction in producer prices, in particular in the livestock sector. Given that the reduction in the cost of inputs failed to compensate for the fall in producer prices and that agricultural subsidies themselves were slightly down in 1999 after the increase recorded in recent years, it will come as no surprise that the year as a whole again showed a reduction in farm incomes (of the order of 3%), on top of the one experienced in the last two years. The somewhat sluggish state of agricultural markets thus continues to have an adverse effect on farm incomes, following the tangible improvement recorded in 1994-96, a development which coincided with the implementation of the reform of the CAP and a significantly more favourable international economic situation.

2. In terms of climate the 1999 agricultural year was characterised by excessive soil moisture in northern Europe at the time of the autumn sowings, resulting in some of the latter being delayed and in some areas being held over for spring crops. The winter was, on the whole, fairly mild in northern and central Europe, thus assisting crop growth in those regions. In the South, however, insufficient rainfall had an adverse effect on sowings and on the growth of winter crops. Later on, the agrimeteorological situation evolved fairly satisfactorily, not to say very favourably in the case of the summer crops. The only exception was a severe drought in southern Spain which, combined with very high temperatures, considerably reduced the production potential in the areas concerned. Generally speaking, yields were fairly good in the case of summer crops (in particular beet and maize), but less spectacular in the case of winter crops (viz. common wheat and, above all, durum wheat).

3. Internal demand for cereals is estimated to have been more or less unchanged, after the sharp increase in consumption in recent years, especially by the feedingstuffs and other industries. In the case of livestock products the salient feature was the fairly remarkable recovery of beef/veal consumption after the sharp drop caused by the BSE (bovine spongiform encephalopathy) crisis in 1996. In spite of that recovery, the overall trend of beef/veal consumption per head of the population is still downward, from more than 23 kg in 1986 to about 20 kg in 1999. Pigmeat consumption again showed a major rise in 1999, while the increase in the consumption of poultrymeat was less marked than in previous years, when it had been driven up by the drop in demand for beef/veal caused by the BSE crisis. Moreover, since the spring, the poultrymeat sector has had to withstand the adverse effects, on both production and consumption, of the dioxin contamination of poultry feed.

4. The international context, too, points to a situation on agricultural markets which, although in some respects better than it was in 1998, is nonetheless very much down on earlier years. In the case of cereals in particular, while wheat and coarse grain prices have recovered slightly in relation to the levels to which they had fallen in 1998, they are still about 20% below the average for 1994-96. Similarly, while world oilseed prices appear to have bottomed out in the second half of 1999 after falling for three consecutive years, they are still almost 50% down on the peak they reached in 1997. In the case of pigmeat and poultrymeat, too, world prices are down on earlier years or remain sluggish at fairly low levels. For their part, milk and milk products have not yet fully absorbed the effects of the crisis in Asia, Russia and Latin America.

5. In spite of this unpromising international context, the European Union turned in, for some products at least, better export figures in 1999, following the downturn recorded in 1998. This is true in particular of cereal exports which, in the first nine months of the year, were appreciably up in volume on the same period in 1998. It is also true of pigmeat, exports of which reached an all-time high (+26% in volume for the period from January to September), beef/veal (+20%) and skimmed milk powder (+40%). Most of the other sectors, however, did not perform as well as in 1998: sugar (-24%), fruit and vegetables (-4% and -16% respectively in the first nine months of the year), seed oil (-15%), butter (-6%), cheese (-17%), wine (-16%) and poultrymeat (-2%). Moreover, even where exports were up in terms of volume, they often rose by a smaller percentage in terms of value (cereals: +2%, beef/veal: +5%, skimmed milk powder: +19%) or actually fell (pigmeat: -3%) because of lower export prices.

6. The level of intervention stocks over the year is a fairly good indicator of the deterioration on agricultural markets in the European Union. In the case of cereals the quantities actually in public storage at the end of each month went up from 13.5 million tonnes in August 1998 to 17.6 million tonnes in July 1999, before going back down to 12.8 million tonnes at the end of October 1999. Butter stocks, which had been less than 4 000 tonnes in August 1998, exceeded 49 000 tonnes in October 1999. Similarly, stocks of skimmed milk powder went up from 200 000 to 212 000 tonnes in the same period after exceeding 270 000 tonnes in July 1999. On the other hand, thanks to lower production and increased outlets on both internal and export markets, beef intervention stocks went down from 472 000 tonnes in August 1998 to 139 000 tonnes at the end of October 1999. In the case of pigmeat, private storage aid was introduced in September 1998 to underpin a market hit by the Russian crisis. Over a twelve-month period a total of 428 000 tonnes of pigmeat benefited from this measure and was stored for a period which could in no case exceed six months.

Production levels

7. After the previous year's bumper crop, cereal production was appreciably down in 1999 (-4% according to provisional estimates) as a result of a reduction in acreages and yields. The drop in production was more marked in the case of common wheat (-5.4%), barley (-5.2%), durum wheat (-6.3%) and rye (-12.6%). Maize production, on the other hand, recovered (+4.8%) after the fall recorded in 1998 without, however, matching the record level it reached in 1997. In addition to the increase in compulsory set-aside (from 5% to 10%), the reasons for the reduction in acreages include excess soil moisture in some northern European regions in the autumn of 1998, something which, as pointed out above, gave rise to problems in connection with the sowing of winter cereals and led to some growers switching to spring crops or opting for voluntary set-aside.

8. The fall in average yields is due above all to the very low figures recorded in Spain, where there were long periods of drought and excessively high temperatures during the growing season. In most other Member States yields continued to rise in 1999, even reaching record levels in some cases. Another factor which helped to bring down average cereal yields was the reduction in the total area under common wheat, the cereal which, together with maize, produces the highest yields. The resulting adverse effects were, however, mitigated by a significant improvement in maize yields, that crop having benefited from much better weather than did winter cereals.

9. In 1999 the total production of oilseeds (rape, sunflower and soya) reached an all-time high (15.4 million tonnes, i.e. about 1% more than the previous year) thanks to increased acreages and better yields. The increase was, however, restricted to oilseeds for non-food uses, the figures for oilseeds used for food purposes being down on the previous year. The increase in production, moreover, concerns rape only, the output of which rose by more than 15% in 1999, following a spectacular increase in acreages. The production of both sunflower and soya, on the other hand, is sharply down on the previous year (-19% and -35% respectively) as a result of an appreciable reduction both in acreages in Italy - in the wake of the stiff penalties imposed the previous year - and in yields and acreages in Spain as a result of drought.

10. In 1999, after two years of marked increases, the production of protein plants also fell (-18%), as a result of the reduction in acreages brought about by low oilcake prices at the time of the spring sowings. The production of non-fibre flax, however, has increased spectacularly for the third consecutive year (+91%), area aid having proved very attractive to producers, especially in the United Kingdom and in Germany.

11. A slight reduction in the area under beet notwithstanding, sugar production exceeded 17 million tonnes in 1999, a year-on-year increase of 6.8%, although yields had fallen in 1998 as a result of unfavourable weather in the autumn. Unlike the previous year, weather conditions were - from sowing to harvest - generally favourable to beet-growing. Sugar yields thus reached exceptionally high levels in most Member States.

12. After two harvests which were down on the 1996/97 level of close to 170 million hl, the forecasts for 1999/2000 suggest that wine production exceeded 173 million hl in 1999, i.e. an increase of about 7% on the previous wine-growing year. Production is appreciably up in Germany (+21.1%), France (+11.6%) and Portugal (+92.8%), but more or less unchanged in Italy and Austria, and even slightly down in Spain and Greece.

13. Early reports in mid-January 2000 suggest that olive oil production totalled about 1.6 million tonnes, a year-on-year reduction of 12.3%.

14. After the fall recorded in 1997 as a result of late frosts in central and southern Europe, and a return to more normal conditions in 1998, fruit production again increased in 1999. Total fruit production rose about 9%, with peaks of over 15% in some Member States. The production of vegetables is about 2% up on 1998, while potato production recovered sharply after the major fall recorded the previous year.

15. Beef/veal production continued to fall in 1999 (-0.8% according to provisional estimates), although at a slower rate than in recent years. The reduction is the result of two factors: a cyclical drop in production after the peak recorded in 1996 and the impact of the emergency measures adopted in October 1996 following the BSE crisis. [1] The beef/veal production cycle - which, as stated above, was accentuated in terms of amplitude if not duration by the BSE crisis - bottomed out in the second half of the year. As in 1997 and 1998, beef/veal consumption continued in 1999 the recovery (+0.7% according to early estimates) it began after the fall recorded in 1996 (-7.4%), thus reverting to the long-term trend, which nevertheless shows a gradual reduction in consumption per head of the population.

[1] The following measures in particular were introduced after the BSE crisis:

16. After the sharp increase recorded in 1998 (+8.2%), pigmeat production continued to rise in 1999, albeit at a slower pace (+1.8%), and this in spite of particularly low pigmeat prices in the second half of 1998. Even though consumption has continued to rise and exports are expected to reach an all-time high in 1999, the pigmeat market had to absorb over 1.5 million tonnes more than in 1997, something which has continued to have an adverse effect on market prices.

17. The production of poultrymeat increased slightly in 1999 (+0.9%), after a series of appreciable increases in earlier years. The slowdown is attributable on the one hand to a fall in exports and, on the other, to the adverse effects on consumption of the dioxin crisis in Belgium in the spring of 1999.

18. With a slight increase in 1999 (+0.8%) on top of the more substantial rise (+2.5%) recorded in 1998, the production of sheepmeat and goatmeat reverted to the level it had reached before the fall which occurred in 1997, when bad weather led to farmers - especially in the United Kingdom and Ireland - retaining animals which would normally have been sent for slaughter.

19. In spite of a reduction in the Community herd (-1.7%), milk production reached about 120.5 million tonnes in 1999, i.e. about the same level as the preceding year. As in the past, increased yields have compensated for a reduction in the herd. Deliveries to dairies are slightly up, in spite of the overshoot of the reference quantities observed in preceding years in some Member States. Milk delivered to dairies in the first eleven months of 1999 is 1.1 million tonnes up on the previous year.

20. After falling in 1998 in line with a trend observed since 1995, butter production showed a slight increase in 1999 (+1.3%) reflecting delivery levels and the difficulties experienced on certain external markets in other milk products such as cheese. While continuing to follow a long-term downward trend, butter consumption per head of the population rose slightly in 1999. The upward trend which cheese production has been following for 20 years or so slowed down. This was due above all to export difficulties on certain markets, in particular Russia, following the economic and financial crisis experienced by that country, since the summer of 1998. Internal consumption has continued to rise, but at a slower pace.

Prices

21. According to early estimates at the end of December 1999, the index of agricultural producer prices for 1999 went down by 2.8% in nominal terms compared with the preceding year. The fall in prices was more marked in the case of livestock products generally (-4.6%), in particular pigmeat (-7.3%), poultrymeat (-8.4%), animals intended for slaughter or export (-4.9%), and eggs (-10.0%). Significant falls were also recorded in the case of milk (-3.3%) and bovine animals (-2.6%). The fall in prices affecting crop products was less tangible (-1.1% on average), except in the case of fruit (-9.4%). For some products there has even been a fairly marked improvement in prices compared with the preceding year, in particular olive oil (+11.3%) and root crops (+1.4%).

22. When inflation is taken into account, the producer price index shows a reduction averaging 4.6% in real terms for the European Union as a whole. The fall was above the average in Belgium (-6.1%), Denmark (-8.0%), Greece (-5.3%), Ireland (-7.1%), Italy (-6.2%), the Netherlands (-9.3%) and Portugal (-6.2%), and below the average, again in real terms, in Germany (-2.8%), Spain (-1.9%), France (-3.7%), Luxembourg (-1.1%), Austria (-3.8%) and Finland (-3.6%), while in Sweden (-4.8%) and the United Kingdom (-4.4%) the reduction was about average.

23. After reaching an all-time low at the beginning of the 1998/99 marketing year, when a bumper European crop coincided with world prices recording a five-year low, market prices of cereals recovered slightly in the spring of 1999 thanks to better disposal prospects, and expectations that the harvest would be sharply down on the preceding year. Throughout 1999, however, the cereal market was adversely affected by the large stocks carried over from the previous year and by fairly low world prices compared with earlier years, despite the upturn recorded in the summer. Thus, although the harvest was smaller and of good quality, the price of common wheat was almost unchanged compared with July, while barley and, above all, maize prices even began to fall that month. Only durum wheat showed a sustained improvement in the first half of 1999/2000, after the fall recorded the previous marketing year.

24. Olive oil prices recovered sharply after the falls recorded towards the end of 1999. In mid-January 2000 the market price for extra virgin olive oil was well above the price at which private storage is activated, both in Italy (+38%) and in Spain (+22%).

25. After showing a significant improvement in the two preceding years, the market price for wine deteriorated throughout 1999, for both red wine and white wine. Compared with a year earlier, the market price for red wine at the beginning of January 2000 was 15% down in Italy, 9% down in France and more or less unchanged in Spain; for white wine there were reductions of 14% and 10% in Italy and Spain respectively, whereas for France there was no substantial change.

26. A significant increase in the volume of production, combined with difficulties in disposing of overabundant production are at the root of the reduction in market prices compared with the preceding year in the fruit and vegetable sector. The picture was roughly the same throughout the sector and in most Member States. Potato prices, on the other hand, showed a slight increase (+3.1% on average compared with the preceding year).

27. The price of butter, which had been falling since the summer of 1998 as a result of export difficulties and increased production, continued on a downward course until the beginning of May 1999, when it was equivalent to 91.3% of the intervention price, and thereafter held at that level. It recovered to some extent after July, to end the year at about 95% of the intervention price. The price of skimmed milk powder was almost unchanged until February, when it began a rise which took it to the level of the intervention price towards the middle of June, a level which it was later to exceed.

28. In the beef/veal sector the market price for reference quality R3 uncastrated male adult bovine animals, which had been falling since August 1998 following the loss of the Russian market, gradually recovered in the first six months of 1999 before settling at a level slightly above the intervention price, the threshold for the activation of market support. For their part, the prices of R3 castrated young bovine animals continued to fall throughout the first half of 1999, whereupon they showed an appreciable improvement to end the year at a much higher level than at the end of 1998.

29. In the spring of 1999 the poultry market, which had begun the year fairly promisingly, was hit by the crisis resulting from the contamination of poultry feed by dioxin. This resulted in a sharp fall in demand and in prices not only in the Member State where the crisis had occurred (Belgium) but also in the European Union generally. The worst of the crisis was felt at the end of June, when market prices were about 20% below the level they had reached twelve months earlier. Prices later recovered, but remained below the levels recorded in preceding years.

30. After experiencing fairly favourable conditions in 1996 and 1997 which helped to bring about a considerable increase in the herd, the pigmeat market has in the past two years been characterised by overproduction, a situation which has been exacerbated by disposal difficulties on the Russian market from the summer of 1998 onwards. Market prices fell throughout 1998, reaching their lowest point at the end of November (ECU 88.5/100 kg carcase weight, i.e. about 40% less than at the same period in 1996 and 1997). The situation then improved somewhat, especially in the summer, when production stabilised and exports picked up and also because private storage measures were implemented from the end of September 1998 until the middle of September 1999. Nevertheless, the situation again worsened in the second half of the year, when production exceeded the quantity that could be disposed of. At the end of the year, in spite of relatively low prices for compound feedingstuffs, pigfarmer profit margins were appreciably lower than normal.

31. Market prices in the sheepmeat and goatmeat sector, which had fallen by 24% in the second half of 1998, reverted to normal levels in the spring of 1999, only to collapse as a result of a sharp increase in production in the United Kingdom and Ireland. Following a significant improvement from the autumn onwards, however, prices at the end of the year were more than 30% up on those recorded a year earlier.

Input prices

32. The index of purchase prices for staple goods and services in agriculture fell by an average of 1.8% in nominal terms in 1999 as a result of lower prices for feedingstuffs (-5.3%) and fertilisers (-3.3%). There was an increase in nominal terms, however, for most of the other headings, in particular energy (+1.8%).

33. When inflation is taken into account the index of purchase prices for staple goods and services in agriculture reveals a fall averaging 3.5% in real terms in the European Union as a whole. The fall was above the average in Italy (-3.8%), Austria (-3.9%), Portugal (-3.9%), Finland (-3.7%), Spain (-4.7%) and the Netherlands (-5.0%), but below the average in the other Member States, in particular in Germany (-1.5%), Ireland (-1.7%) and the United Kingdom (-1.6%).

Farm incomes

34. According to revised Eurostat estimates based on information received from the Member States in January 2000 in accordance with the new methodology for economic accounts in agriculture, farm incomes [2] fell by an average of about 3% in real terms compared with a year earlier. The fall was above the average in France (-4%), the Netherlands (-6%), Belgium (-9%), Denmark (-11%) and Ireland (-12%). It was below the average in the United Kingdom (-2%), Italy (-2%), Austria (-1%), Greece (0%) and Finland (-2%), while in Spain and Germany it was at the average level for the EU as a whole (-3%). In three Member States, however, there was an increase in farm incomes compared with a year earlier: Luxembourg (+2%), Sweden (+6%) and Portugal (+16%).

[2] Measured as the net value added at factor cost per unit of work.

35. As a result of the change in the methodology used for drawing up the economic accounts in agriculture, [3] and the delays which occurred in most Member States in compiling historical series in accordance with the new methodology, it is impossible to assess the changes recorded in 1999 in relation to the long-term trend in farm incomes or even in relation to recent years. In many Member States, moreover, changing over to the new methodology has not been without its problems. The information provided to date has not always been of the highest quality or homogeneous between Member States. In addition, not only have several revisions arising from the new methodology affected the definition of certain aggregates, they have also brought about changes in certain sources of data, thereby restricting comparability with the earlier series. It is accordingly difficult at this stage to measure to what extent the early estimates of farm incomes in 1999 have been influenced by factors other than the deterioration in agricultural markets or the reduction in subsidies compared with the preceding year.

[3] The introduction of the new methodology for the economic accounts in agriculture has resulted in many changes in data, as a result both of the change in the methodology itself and of the use of new sources of data. Some of the changes have had a direct impact on the measurement of farm incomes, whereas others have altered only the level of certain aggregates without, however, affecting the measurement of income. An overview of the changes and of the factors that explain the movements in farm incomes in 1999 can be found in the Eurostat brochure Statistics in Focus - Theme 5 (24/1999).

Changes in nominal producer prices of agricultural products

in 1999 and 1998

(%)

>TABLE POSITION>

Source : Eurostat

Changes in nominal agricultural input purchase prices

in 1999 and 1998

(%)

>TABLE POSITION>

Source : Eurostat

Deflated producer price indices

(1990=100)

>TABLE POSITION>

Source : Eurostat

Deflated indices of purchase prices for staple goods and services

in agriculture

(1990=100)

>TABLE POSITION>

Source : Eurostat

Farm accountancy data network (FADN)

Farm incomes

36. Output, costs and incomes of commercial farms in the EU are calculated from observed data collected in a survey of harmonised farm accounts (see Chapter VII, Table 3.2.1). The survey provides valuable information about how farm incomes vary according to type of farming, size and location, which is not apparent from the global averages in the results for the agricultural sector as a whole. This section presents variations according to type of farming. For an explanation of the various types of farming, see Chapter VII, Table 3.2.2.

37. The results set out here are all based on observations, and the variations are calculated in real terms (adjusted for inflation). At the time of going to press, some results for 1997 were not yet available and those available were still provisional. Detailed results (in current euro) for the different types of farming and different business levels of economic size of farm are given in Chapter VII, Tables 3.2.3 and 3.2.4.

Income by type of farming

38. The large differences in average income between Member States (see Figure 1) are inherent in the structure of their agriculture. The Member States with the highest average incomes are generally speaking those with a large number of large-sized farms specialising in arable crops or involved in the most competitive sectors of production (pigs and/or poultry, horticulture and dairy). The southern Member States, with a large number of small farms engaged in mixed farming (crop and livestock production) or 'other permanent crops' (mixes of different cropping enterprises) have average incomes below the EU average.

39. In the 1997/1998 accounting year average farm incomes in real terms were up on 1995/1996 in several Member States: Spain, Ireland and especially the Netherlands. For the other available countries the figures were lower than in 1995/1996.

40. Figure 2 shows the wide range of incomes from one Member State to another for each type of farming. It also shows a lack of uniformity regarding the changes in income between 1996 and 1997: for all sectors there are some Member States with an increase in income, while other(s) had a decrease.

41. Figure 3 shows the value of production of the average holding (in real terms). Between 1996 and 1997 more Member States experienced an increase than a decrease.

42. Figure 4 shows the evolution of net public subsidies (balance between public subsidies and taxes) per farm since 1995. Between 1996 and 1997 five countries had a negative evolution: Belgium, Denmark, France, Austria and Sweden. The others had an increase in net public subsidies.

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Policy developments and legislative initiatives in 1999

The Berlin agreement on Agenda 2000

43. The conclusions of the Berlin Summit on Agenda 2000 in March 1999 resulted in the adoption of ten new regulations [4] and the decision on the level of allocations for the reform of the agricultural sector. The agricultural budget will be restricted to an average of EUR 38 000 million annually for market policy (including veterinary and plant health measures) and EUR 4 300 million for rural development measures.

[4] OJ L160, 26.6.1999, p. 1; OJ L179, 14.7.1999, p. 1.

44. The new regulations, which, except in the case of milk, are all applicable from the beginning of 2000, concern the arable crops, beef, milk and wine sectors, the new rural development framework, the horizontal rules for direct support schemes and the financing of the CAP. The amended regulations for the olive oil and tobacco sectors have to be added to this list, even though they were not adopted in the context of the Agenda 2000 reform package.

45. While in some respects the policy as finally agreed is not as far-reaching as had originally been proposed, it remains the most radical and wide-ranging reform in the history of the common agricultural policy. The reformed CAP represents a step towards supporting the broader rural economy rather than agricultural production and ensures that farmers are rewarded not only for what they produce but also for their general contribution to society.

46. More specifically, the reform provides for the following:

Lower institutional prices, as a means of encouraging competitiveness

47. Reductions in market support prices ranging between 15% for cereals and 20% for beef will be introduced. A cut of 15% will apply to the milk sector from the year 2005/2006. The cuts will be introduced gradually, with a view to bringing European prices closer to world market prices, something which, via a positive impact on both internal demand and export levels, will help to improve the competitiveness of agricultural products on domestic and world markets.

A fair standard of living for the farming community

48. The reductions in institutional prices will to some extent be offset by an increase in direct aid payments, thus helping to provide farmers with a fair standard of living. The move away from price support and towards direct income support for farmers means a further decoupling of aid from production.

Strengthening the European Union's international trading position

49. Greater market orientation will pave the way for the integration of new Member States and strengthen the European Union's position in the coming WTO round. As stated in the Berlin European Council conclusions on Agenda 2000: "the decisions adopted regarding the reform of the CAP within the framework of Agenda 2000 will constitute essential elements in defining the Commission's negotiating mandate for the future multilateral trade negotiations at the WTO".

Focusing on quality

50. The reform takes full account of increased consumer concerns over food quality and safety, environmental protection and animal welfare in farming. Compliance with minimum standards in the field of environment, hygiene and animal welfare is a requirement, in terms of both market support and the new rural development policy.

Integrating environmental goals into the CAP

51. Member States have to undertake what they regard as appropriate environmental measures. In this respect, Member States will have three options. The first of these, implementing appropriate agri-environmental measures under rural development programmes, may be sufficient on its own. The second allows them to make direct payments under the market organisations, subject to the observance of general environmental requirements. By virtue of the third, they may attach specific environmental conditions to the granting of such payments. In the latter two cases, payments would be proportionally reduced or cancelled altogether in the event of non-compliance.

A new rural development framework: the second pillar of the CAP

52. The new policy on rural development seeks to establish a coherent and sustainable framework for the future of Europe's rural areas. It will complement the market sector reforms by promoting a competitive, multifunctional agricultural sector in the context of a comprehensive integrated strategy for rural development.

53. As a coherent package of measures, it has three main objectives:

- To create a stronger agricultural and forestry sector, the latter being recognised for the first time as an integral part of rural development policy;

- To improve the competitiveness of rural areas;

- To maintain the environment and preserve Europe's rural heritage. The Council adopted Leader+, a new Commission Initiative for rural development for the period 2000-06.

54. The agri-environmental measures are the only compulsory element of the new generation of rural development programmes and therefore represent a decisive step towards the recognition of the role of agriculture in preserving and improving Europe's natural heritage. The agri-environmental aid scheme will encourage farmers to introduce, or to continue using, farming practices that are compatible with environmental protection and natural resource conservation.

Decentralised management

55. Compared with 1992 there has been a change in the arrangements for direct payments to producers. Those for the beef and dairy sectors will partly take the form of a national financial envelope from the EAGGF budget, an envelope which Member States can distribute in such a way as to target specific national or regional priorities. Each Member State will be able to allocate resources freely, subject to certain Community requirements designed to prevent distortions of competition.

Further simplification

56. The CAP reform contains important elements of simplification in various sectors. In the wine sector, for instance, there is now one Regulation where previously there were twenty-three. Equally, in rural development there is now only one Regulation instead of nine. The Commission has, however, also sought to encourage the process by decentralising, streamlining and simplifying programming procedures.

57. To conclude, the new reform will contribute to the development of a genuinely multifunctional, sustainable and competitive agriculture, thus helping to secure the future of the more fragile rural regions. It recognises that agriculture has a key role to play in preserving the countryside and natural spaces and maintaining the vitality of rural life. It also seeks to respond to consumer concerns over food safety and quality and animal welfare. Lastly, the reform of the CAP is aimed at ensuring that the rural environment is protected and improved for future generations.

Quality policy

58. It is becoming increasingly clear, particularly in the light of the events of 1999, that producers cannot afford to ignore the growing concerns of consumers over food quality. Food safety must, of course, remain a basic requirement but, having ensured this, demand for quality products must be satisfied from a wide range of foodstuffs whose objective characteristics are known and guaranteed. What is more, guaranteeing this choice will create opportunities for agricultural diversification, particularly in the Union's less-favoured rural areas. It is against this background that Community policy on the use of quality labels to identify products has continued to develop.

59. The Commission has, under Council Regulation (EEC) No 2081/92 on the protection of geographical indications and designations of origin for agricultural products and foodstuffs, [5] made additions to the list of registered names, which now stands at 526.

[5] OJ L 208, 24.7.1992, p. 1.

60. In terms of both the Member States and the types of products concerned, the new product registrations reflect growing interest in the protection of foodstuffs which consumers can associate with a particular production method and geographical origin.

61. By its very nature, however, the procedure can lead to disputes. In its judgement of 16 March 1999, the Court of Justice cancelled the registration of the name "Feta" - essentially because of an alleged lack of basis for such registration - but did not express an opinion on the generic nature of the name. The application for registration is still pending before the Commission and will be re-examined in the light of additional information now being received. In other cases, the Court of Justice confirmed the Commission's approach and procedures for registration.

62. Operators are increasingly beginning to use the Community PDO and PGI logos - which were adopted in 1998 [6] - to increase the visibility of their products where the latter are covered by those Community quality guarantee schemes.

[6] Regulation (EC) No 1726/98 (OJ L 224, 11.8.1998, p. 1).

63. Very little use has been made of Regulation (EEC) No 2082/92 [7] on certificates of specific character and introducing the "guaranteed traditional speciality" indication, with only six specialities being registered. In accordance with the rules, the Commission addressed to the Council and Parliament a report on the application of the Regulation, detailing the difficulties encountered, in particular with the procedure for objecting to registrations and the type of legal protection given to names.

[7] OJ L 208, 24.7.1992, p. 9.

64. The information campaign to make the public aware of the indications PDO (protected designation of origin), PGI (protected geographical indication) and GTS (guaranteed traditional speciality), which was completed at the end of 1998, is currently undergoing evaluation.

65. There was a major development in 1999 in the WTO (World Trade Organisation) negotiations on the application of the Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPs Agreement). With this Agreement, the protection of geographical indications and designations of origin takes on an international dimension. Regulation (EEC) No 2081/92 will have to be amended to specify how non-member countries which are members of the WTO can register products as PDOs or PGIs and submit objections to the registration of Community PDOs or PGIs where they have a legitimate interest in doing so.

66. With the adoption, in 1991, of Regulation (EEC) No 2092/91 on organic production of agricultural products and indications referring thereto on agricultural products and foodstuffs, [8] the Community created a legal framework for ensuring that organic products comply with a number of well-defined production rules and are subject to special inspection arrangements in order to meet the expectations of the consumers concerned.

[8] OJ L 198, 22.7.1991, p. 1.

>TABLE POSITION>

ist of PDOs, PGIs and GTSs registered in 1999

Organic farming

67. The Austrian Government and the Commission held a conference on "Organic farming in the European Union - The prospects for the 21st century" in Baden (Austria) on 27 and 28 May 1999. During the Conference it was pointed out that the area devoted to organic farming or in the process of conversion to organic farming had increased from around 900 000 hectares in 1993 to approximately 2.9 million hectares in 1998. It was recognised that there was further potential for growth in the sector, from the current 2% of the European agricultural area to an average of between 5% and 10% by 2005. In addition to the effects of the above-mentioned legislation and the Community's financial support for environmentally friendly farming practices, the reason for the growth appears to be an upsurge of interest among both consumers and farmers in farming practices that respect the environment.

68. On 19 July 1999 the Council adopted Regulation (EC) No 1804/99, [9] which includes livestock products in the scope of Regulation (EEC) No 2092/91. As a result, from 24 August 2000, the date on which the Regulation becomes applicable, all organic agricultural products and foodstuffs, with the exception of a few livestock products of minor importance, will be subject to the rules of production and the inspection measures laid down in that Regulation.

[9] Council Regulation (EC) No 1804/1999 of 19 July 1999 supplementing Regulation (EEC) No 2092/91 on organic production of agricultural products and indications referring thereto on agricultural products and foodstuffs to include livestock production (OJ L 222, 24.8.1999, p. 1).

Promotion of Agricultural Products

69. Programmes run directly by the Commission: 1999 saw the start of a new two-year campaign for textile flax, and the launch of the seventh campaign for olive oil. The latter takes account of the assessment reports and informs consumers and nutritionists on the health aspects of the product.

70. The programmes run indirectly by the Commission comprised a continuation of the promotional campaigns for milk and milk products, quality beef, apples, citrus fruit and grape juice. For these sectors too, the assessment reports were encouraging. The year also saw the completion of the campaign to promote the logo identifying agricultural products from the EU overseas departments.

71. The promotion of quality beef and veal continued and helped stabilise consumption. Based on Council Regulation No 2702/1999, [10] information measures were drawn up for the new labelling system for beef and veal.

[10] (OJ L 327, 14.12.1999, p. 7).

72. The third set of promotion programmes for flowers and live plants was launched in 14 Member States.

73. The Council adopted a framework Regulation on information and promotion measures for European agricultural and food products in third countries, which will afford fresh opportunities to increase awareness of Community products.

74. The budget amounts were as follows (in EUR million):

// Amount set in 1999

Olive oil

Textile flax

Grape juice

Apples/citrus fruit

Information on beef labelling

Quality beef

Milk and milk products

Quality products from outermost regions

Flowers and live plants // 18.2

2.5

7.1

6.5

1.0

* With effect from 2000

Agricultural Research

Introduction

75. Research activities in the field of agriculture, forestry and rural development were carried out through the implementation of the specific programme "Quality of life and management of living resources" under the ongoing Fifth Framework Programme for Research and Technological Development [11] (1998-2002). Concomitantly with this, there was further progress on research activities in the field of the conservation, characterisation, collection and utilisation of genetic resources in agriculture under Regulation (EEC) No 1467/94.

[11] Decision 182/1999/EC (OJ L 26, 1.2.1999, p. 1).

Quality of life and management of living resources (QoL) specific programme [12] (1998-2002) under the Fifth Framework Programme

[12] Decision 1999/167/EC (OJ L 64, 12.3.1999, p.1).

76. The Fifth Framework Programme comprises four thematic and three horizontal specific programmes. The specific programme "Quality of life and management of living resources" (QoL) addresses RTD priorities in agriculture, forestry and rural development. It consists of six key actions, generic activities and support for research infrastructures. Key Action 5, "Sustainable agriculture, fisheries and forestry and integrated development of rural areas including mountain areas" and Key Action 2 "Control of infectious diseases" are the main vectors of RTD activities in the relevant disciplines.

77. The first call for proposals for the QoL programme was published on 6 March 1999 and featured two deadlines:

- A total of 1 020 proposals were submitted in respect of the first one, in June 1999. Altogether, 192 research proposals were received for Key Actions 2 and 5. Following independent evaluation, seven proposals on infectious animal diseases were put on the main priority list under Key Action 2, and 34 proposals (four on diversification, 14 on plant health, four on animal health and welfare, seven on forestry and five on support for the CAP) were put on the main priority list under Key Action 5. Contract negotiations were completed by November 1999 and the projects began in February 2000. The total Community contribution is EUR 54 million.

- The second deadline was 15 November 1999. Shortlists will be drawn up and contracts launched in 2000.

78. Proposals for training grants, accompanying measures and specific measures in favour of SMEs were also submitted, evaluated and selected in the areas of agriculture, forestry and rural development following open calls for proposals.

79. The Commission is, in its management of the specific programme as a whole, assisted by the Member States via the Programme Committee. In addition, RTD priorities are addressed at key action level by External Advisory Groups. These consist of independent experts representing, in a personal capacity, all the fields covered by the key actions.

80. In addition to the Agreement established with the EEA countries, cooperation agreements have been signed with the 11 applicant countries and Israel. Under the agreements, organisations in these countries are given equal access to the Fifth Framework Programme for RTD.

Management of RTD contracts

1.1.1.1. Fourth Framework Programme (1994-1998)

81. Of the 183 projects being implemented at the beginning of 1999 under the FAIR specific RTD programme, 63 were completed before the end of the year. A total of 12 RTD projects are currently being carried out in the field of transmissible spongiform encephalopathies.

Projects concerned with genetic resources in agriculture

82. Following a call for proposals subject to a 9 July 1998 deadline, six proposals were selected for a total Community contribution of EUR 2.6 million in 1999. The Directorate-General for Agriculture is, in its management of the programme, assisted by a Committee on Genetic resources made up of representatives of the Member States.

83. Lastly, it should be noted that, following the restructuring of the Commission, the management of research activities under RTD Framework Programmes was transferred to the Directorate-General for Research as of 1 October 1999.

Simplification of agricultural legislation

84. The work on simplification carried out by the Commission in 1999 focused on two main areas: reducing the administrative workload the common agricultural policy (CAP) imposes on farmers and administrative authorities and making agricultural legislation as clear, transparent and easily accessible as possible.

Simplification

1.1.1.2. Simplification of the rules of the CAP

85. Simplification applied to various sectors is a major feature of the CAP reforms under the Agenda 2000 package. In addition, Agenda 2000 has led to a considerable reduction in the number of regulations in force, making the legislation much more comprehensible and accessible. Furthermore, the olive oil reform introduced some changes in June 1998 which will facilitate management and improve the control of the system.

1.1.1.3. Consultation of the national paying agencies

86. The Commission has invited the EAGGF national paying agencies to put forward proposals for the simplification of administrative rules and procedures. Some of the proposals have already been implemented under Agenda 2000 or are the subject of separate Commission decisions, while others are still being worked on and may lead to further proposals for simplification.

Transparency

1.1.1.4. Informal consolidation of agricultural legislation in the eleven official languages

87. As agricultural legislation is amended by successive legal acts, the modifications are integrated into single, correct and updated versions and are gradually made available to the general public and to national administrations via the Internet. Although non-binding, the consolidated versions substantially facilitate the search for rules in force by all those concerned by the CAP. They thus eliminate confusion and minimise the risk of misinterpretation. A first set of consolidated acts is already available, and the process will be completed for all agricultural legislation within the next few years.

1.1.1.5. Repeal of all agricultural legislation that is no longer applicable

88. Agricultural legislation which is formally still in force but no longer applicable is to be repealed. This will simplify user access to the legislation that is still relevant. The Commission has undertaken to monitor all agricultural legislation and take appropriate measures. Around 300 acts have been repealed so far.

1.1.1.6. Standardisation of Commission publications covering export refunds

89. Different systems are currently in use in the different sectors to indicate destinations in connection with the fixing of export refunds. The present systems are often complex and make the rules on export refunds difficult to read and understand. This represents a clear risk of misunderstanding and error. In order to overcome these problems, the Commission has been working on a standardisation of Commission publications concerned with export refunds. Once adopted, the new system will facilitate the electronic exchange of data and information between the Commission and the Member States and improve the implementation of the rules.

State aids

Introduction

90. In 1999 the Commission received 292 notifications of State aids measures to be granted in the agricultural and agro-industrial sector. Most of the notifications came from Italy and Germany and, as a result of the dioxin crisis, from Belgium. The actual numbers are not necessarily significant, however. Some of the notifications concern individual cases and/or one-off measures, which can vary in complexity from relatively straightforward promotional aid to complex cases of restructuring aid. Other notifications concern aid schemes of indefinite duration, often drafted in the form of comprehensive national or regional acts aimed at providing all-embracing frameworks for State aids in the Member State or region concerned and including different types of aid measure. In 1999 the Commission also began examining 42 aid measures which had not previously been notified under Article 88(3) of the EC Treaty. The Commission concluded two reviews of existing aids which resulted in proposals for appropriate measures pursuant to Article 88(1) of the EC Treaty. Altogether, the Commission approved 249 measures, several of them after the Member States concerned had amended them to bring them into line with the Community rules on State aid or had undertaken to do so. The Commission initiated the procedure provided for in Article 88(2) of the EC Treaty in 16 cases in which there were serious doubts as to whether the measures were compatible with the common market. The Commission closed the procedure provided for in Article 88(2) of the EC Treaty in respect of 25 cases, taking a final negative decision in 13 of them. In all cases where a negative decision was taken, and State aids had already been granted by the Member State concerned, the Commission requested recovery of the aid paid.

91. Policy developments: In 1999, following multilateral consultations with the Member States, the Commission adopted new comprehensive Community guidelines for State aid in the agriculture sector. [13] Together with the entry into force of Council Regulation (EC) No 1257/99, [14] the need to provide a clear guide to Commission practice with regard to the different types of aid which may be considered compatible with the common market prompted a move to revise, update and consolidate the rules followed by the Commission when assessing proposals from Member States to grant State aid in the agriculture sector and applying a derogation under Article 87(2) and (3) of the EC Treaty. In providing a clear new framework for the different types of State aid allowed, the guidelines take particular account of new developments in agricultural policy, especially the need, on the one hand, to improve and promote the quality of agricultural products and, on the other, to preserve the environment and the traditional heritage in the countryside.

[13] OJ C 28, 1.2.2000, p. 2.

[14] OJ L 160, 26.6.1999, p. 80.

92. The following overview covers just some of the cases, those which raise interesting, although at times problematic, issues in terms of State aid policy in the agricultural and agro-industrial sector. Where no specific reference is made to the publication of a decision in the Official Journal of the European Communities, the decision has not yet been published. The authentic texts of the decisions approving aids, less any confidential information they may contain, can generally be found at http://europa.eu.int/comm/sg/sgb/state_aids.

Belgium

93. State aids for "exceptional occurrences" falling under Article 87(2)(b) of the Treaty: In 1999 the Commission authorised a Belgian Government aid package for producers and undertakings affected by the crisis resulting from dioxin-contaminated feedingstuffs. The Commission took the view that, although the chemical contamination of foodstuffs could not be regarded as an "exceptional occurrence" within the meaning of Article 87 (2)(b), the Belgian authorities' announcement of the contamination and the urgent measures subsequently adopted made it impossible for the operators concerned to market their products, thereby plunging them into a crisis situation which, in terms of its character and effects, was quite unusual and outside normal market conditions. The Commission was of the opinion, however, that the concept of "exceptional occurrence" could apply only to those producers who were victims of a situation which was beyond their control.

94. National aid for farmers initially took the form of compensation and repayable advances. [15] The first were paid to poultry farmers and the second to pig farmers, cattle farmers and egg producers. The Commission subsequently authorised the conversion of the repayable advances into definitive compensatory payments set at 80% of the cost price of the animals concerned, but not exceeding the market price where this was less than 80% of the cost price. [16] The aim of the measures adopted by the Belgian Government was to compensate and assist farmers following the slaughter/destruction of animals and eggs, either because the said animals/products were dioxin-contaminated or because they had passed the optimum marketing stage and had had to be destroyed for animal welfare or public health reasons. The latter measures were aimed in particular at farms which, being under precautionary distraint, were prohibited from marketing their production.

[15] Cases NN 87/99, NN 88/99, NN 89/99, N 380/99 and N 386/99 - Commission Decision of 20.7.1999 (OJ C 253, 4.9.1999, p. 14).

[16] Cases N 510/99, N 511/99, N 512/99 and N 513/99 - Commission Decision of 29.9.1999 (OJ C 326, 13.11.1999, p. 10).

95. The aid to owners of products of animal origin also took the form of repayable advances and was intended to prevent bankruptcy among operators whose contaminated products had to be destroyed or whose products had passed their sell-by date because of the Belgian Government's precautionary measures. [17] The Commission authorised a further measure, aimed at owners of fresh meat and meat products obtained from pigs, cattle or poultry that had possibly been contaminated by dioxin, and designed to compensate them for losses sustained as a result of the order to destroy such products. [18] The products had been placed under precautionary distraint or destroyed because they could not be released for marketing and the possibility of contamination could not be ruled out altogether. The measure, aimed at protecting consumer health, was deemed compatible with the common market under Article 87(3)(c) since it constituted aid to facilitate the development of the sectors concerned. The Commission also authorised the Belgian authorities to bear the costs of the tests and of the destruction of the animals and products covered by the above measures. [19] In line with its normal practice, the Commission permitted payment of all the costs concerned because the quality checks on, and the destruction of, the products were obligatory under Community and/or national rules.

[17] Cases NN 95/99 and N 384/99 - Commission Decision of 20.7.1999 (OJ C 253, 4.9.1999).

[18] Cases N 434/99, N 435/99 and N 447/99 - Commission Decision of 16.8.1999 (OJ C 264, 18.9.1999).

[19] Case NN 90/99 - Commission Decision of 20.7.1999 (OJ C 253/99, 4.9.1999); Cases N 514/99 and N 509/99 - Commission Decision of 29.9.1999 (OJ C 326, 13.11.1999).

96. Also in connection with the Belgian dioxin crisis, approval was given to State aid included in an agreement between the Belgian authorities and the Belgian Banking Association. [20] The Agreement concerned a loan scheme to prevent basically sound agricultural undertakings from failing as a result of a loss of income brought about by market disruption following the contamination of certain animal feeds by dioxin and the measures taken to deal with this. The scheme was based on equal contributions from the public and private sectors whereby the public sector would guarantee 50% of the loan amount and the banking sector would underwrite the remaining 50% and forgo its normal margin on the interest rate, the latter not exceeding the Belgian prime rate less 30 base points (cost price to the banks). Eligibility was restricted to undertakings which, although basically sound and viable, had suffered a major drop in turnover in June to September 1999 (25% over a two-month period or 40% in a single month). The notification contained two aid elements within the meaning of Article 87(1) of the EC Treaty. Firstly, the principal aid element was the provision of a State guarantee. Secondly, the fees of the accountants certifying the losses were to be met by the State. The State guarantee element was considered compatible under Article 87(2)(b) of the EC Treaty, given that the Commission had concluded in previous cases that the nature and extent of the restrictions needed to protect public health in connection with the dioxin crisis affecting foodstuffs and animal feed produced in Belgium amounted to an exceptional occurrence within the meaning of Article 87(2)(b) of the EC Treaty. The State guarantee amounted to a subsidy of less than 6.05% of the total loan. Moreover the Belgian authorities undertook to ensure that individual recipients would not be overcompensated for their losses. Payment by the State of the accountants' charges was considered a soft aid, for which the Commission's established practice is to accept aid rates of up to 100%.

[20] Case N 499/99 - Commission Decision of 7.9.1999 (OJ C 288, 9.10.1999).

97. The Commission decided to initiate the procedure provided for in Article 88(2) of the EC Treaty against a measure notified by the Belgian authorities [21] granting aid to farmers as compensation for restrictions on the spreading of manure (the maximum quantities concerned vary year by year). This measure possibly qualified under point 3.4 of the Community guidelines on State aid for environmental protection [22] whereby operating aids may, in exceptional cases, be allowed if: (i) the aid only compensates for extra costs by comparison with traditional costs; (ii) the aid is temporary and in principle degressive; and (iii) the aid is necessary to offset losses in competitiveness, particularly at international level. Furthermore, the Commission normally takes account of what the firms concerned have to do in return to reduce their pollution. In this case the Commission initiated the procedure provided for in Article 88(2) of the EC Treaty because it had doubts as to whether those conditions had been met. The signs were that the aid was neither temporary nor degressive, that it was not needed to offset losses in competitiveness and that the farmers did not have to take any steps to reduce pollution. Furthermore, the amount of manure that could be spread per hectare under the measure appeared to constitute an infringement of the nitrates Directive (Council Directive 91/676/EEC of 12 December 1991 concerning the protection of waters against pollution caused by nitrates from agricultural sources). There therefore appeared to be no justification for granting the aid.

[21] Case C 12/99 (ex N 380/98) - Commission Decision of 17.2.1999 (OJ C 129, 8.5.1999).

[22] OJ C 72, 10.3.1994, p. 3.

Denmark

98. In a Danish case [23], the Commission applied for the first time in the agricultural sector its notice on the application of the State aid rules to measures relating to direct business taxation [24]. The case involved the reintroduction of a ceiling on the Danish local land tax levied by the municipalities on land used for primary production purposes. The measure, which was in the form of an amendment to the 1990 local land tax law, was intended to apply to the 1999 and 2000 fiscal years. The ceiling proposed by Denmark (0.008%) was lower than that approved by the Commission (0.015%) in its previous two decisions on the land tax, which dealt with the 1994-96 and 1997 fiscal years respectively and covered land used for agriculture, horticulture and seed nurseries. The latest measure also involved the extension of the tax ceiling to forestry. The ceiling is intended primarily to counteract increases in land prices - and, by the same token, in land taxes - that are caused by factors not attributable to primary production. A considerable reduction in variations in the tax rate (from 0.006-0.024% to 0.006-0.008%) would also be achieved. In its previous decisions on the land tax, the Commission considered that the land tax ceiling did not constitute aid. The Danish authorities gave assurances that the factors on which the Commission had based its previous decisions had not changed. In its Decision the Commission reiterated its position in the previous two cases, i.e. that although selective, the measure did not constitute State aid within the meaning of Article 87(1) of the EC Treaty. As additional arguments in favour of this conclusion the Decision took into account the special nature of the land used for primary production and the fact that the measure applied to the entire primary production sector.

[23] Case N 53/99 - Commission Decision of 9.6.1999 (OJ C 213, 24.7.1999).

[24] OJ C 384, 10.12.1998, p. 3.

99. The Commission decided to initiate the procedure provided for in Article 88(2) of the EC Treaty against an aid measure notified by Denmark and involving an amendment of the Danish parafiscal Poultry Levy Fund, a parafiscal aid scheme. [25] The specific purpose of the measure notified was to allow the Poultry Levy Fund to finance part of the cost of preventive vaccination of broilers against gumboro, a poultry disease responsible for increased mortality rates among birds intended for slaughter. The aid was paid retrospectively to owners whose non-infected flocks were vaccinated as part of a vaccination campaign. As the disease in question was not covered by Danish or Community legislation on animal diseases, the aid did not entirely satisfy the cumulative requirements that, in accordance with established Commission practice, have to be fulfilled before State aid for combating epizootic and plant diseases can be declared compatible with the common market under Article 87(3)(c) of the EC Treaty (compulsory Community or national provisions, infections of public concern, preventive and/or compensatory nature of the aid, no overcompensation of individual undertakings, and compliance with Community veterinary legislation). In addition, the Commission had doubts as to whether the requirement that the aid had to cover only infections of public concern and could not be granted to defray costs relating to normal business risks had been satisfied, in particular in the light of a previous gumboro outbreak in the 1990s and the existence of a voluntary industry gumboro fund. The notification was withdrawn by the Danish authorities after the procedure was initiated.

[25] Case C 15/99 (ex N 489/98) - Commission Decision of 23.6.1999.

Germany

100. In 1999 the Commission communicated to Germany the adoption of a final negative decision on the aid granted by the German Government under the Entschädigungs- und Ausgleichsleistungsgesetz (EALG). [26] This introduced a scheme for the purchase of land at reduced prices in the former GDR that amounted to the granting of State aid to some beneficiaries. The Commission argued that while for the category Wiedereinrichter (resettled farmers) and juristische Personen (legal entities) comprising at least one of the former, the benefit of a reduced-price purchase could constitute compensation for a loss suffered (expropriation and/or the possible deterioration of the farm's inventory), this was not true in the case of the Neueinrichter (newly settled farmers), the other legal entities and possibly other beneficiaries not included in the law in question. For the latter category, the aid would constitute State aid under Article 87(1) of the EC Treaty, given that they had not suffered expropriation or similar damage. The aid rate appeared to be too high in relation to the rates which the Commission could ordinarily accept for the purchase of farmland in normal areas (i.e. those not classified as less favoured). In addition, the aid in question appeared to be discriminatory and thus to infringe Articles 12, 34(3) and 43 of the EC Treaty, given the requirement that certain beneficiaries had to have been resident in the former GDR on 3 October 1990, a condition that in practice could be fulfilled only by former East German nationals.

[26] Case C 17/98 - Commission Decision of 20.1.1999 (OJ L 107, 24.4.1999).

101. In the course of 1999 an amended version of the land purchase programme was notified to the Commission, which has approved the new version. [27] The problems which had led to the partial negative decision have been resolved:

[27] Case N 506/99 - Commission Decision of 22.12.1999 (not yet published).

- In its partial final negative decision of 20 January 1999 regarding the old EALG, the Commission takes the view that making residence on a given date a requirement for eligibility under the programme - a requirement which in practice could be met by former East German nationals only - constitutes discrimination. No such date is specified in the new programme.

- The Commission further objected to the aid intensity for the purchase of agricultural land in areas other than less-favoured areas. The aid rate has been brought fully in line with the rates the Commission usually accepts. Any excess aid granted under the old EALG will be recovered, with interest, as stipulated in the Commission Decision of 20 January 1999.

102. In the light of the assurances provided by the German authorities, the Commission has established beyond doubt that there is sufficient land to overcome any potential discrimination without rescinding the contracts concluded under the old EALG. Insofar as residual elements in the new scheme would, all other things being equal, give priority to Eastern Germans, such preference would be in keeping with the objective of restructuring agriculture in the new Länder, while at the same time ensuring that potential purchasers who had lived and worked in the GDR for several decades, or whose family had lived and worked there for such a period, would be able to take part. This objective, which has been accepted as legitimate in the Commission Decision of 20 January 1999, has not been challenged.

103. The Commission takes the view that the new scheme proposed by the German government will facilitate the development of economic activities in the sector and that it therefore falls within the scope of Article 87(3)(c) of the Treaty.

104. The Commission decided to initiate the procedure provided for in Article 88(2) of the EC Treaty against promotion aid granted by Germany (Mecklenburg - Western Pomerania). The aid consisted of several measures that could be divided into "soft aids" and promotional aids. It is established Commission practice to allow aids with a 100% aid intensity for soft aids such as aid for participation in trade fairs and seminars, aid for market research, etc. Promotional aids have to comply with the Commission communication concerning State involvement in the promotion of agricultural and fisheries products [28] and, if the promotion is in the form of advertising, the Framework for national aids for advertising of agricultural products and certain products not listed in Annex II to the EEC Treaty, excluding fishery products. [29] One of the main conditions for promotional aids is compliance with Article 28 of the Treaty. An earlier Decision had regarded this condition as having been fulfilled. [30] Before adopting the current decision, however, the Commission examined the sample promotional material sent in by the German authorities. It seemed, on the face of it, that the sole message contained in the said promotional material was that the products were from Mecklenburg - Western Pomerania. Therefore, both the existence of a reasonable balance between references to the qualities and varieties of the product and its national origin (a requirement of the above-mentioned communication) and compliance of the measure with Article 28 of the Treaty appeared to be in doubt. Furthermore, since the measure restricted the benefit of the aid to undertakings with a registered office in Mecklenburg - Western Pomerania, it appeared to constitute an infringement of Article 43 of the EC Treaty. In reply to the initiation of the procedure, the German authorities indicated that they would amend the measure: what had been put forward as an example of the promotional material would not be used. Furthermore the national authorities gave an undertaking that future promotional material would comply with Article 28 of the Treaty and that they would send the Commission an annual report with examples of the promotional material used. Lastly, the requirement to have a registered office in Mecklenburg - Western Pomerania in order to be eligible for aid would be abolished. In the light of those amendments the Commission decided to close the procedure by taking a positive decision. [31]

[28] OJ C 272, 28.10.1986, p. 3.

[29] OJ C 302, 12.11.1987.

[30] Case NN 27/97 - Commission Decision of 18.6.1997 (OJ C 334, 5.11.1997).

[31] Case C 23/99 - Commission Decision of 25.11.1999 (OJ L 37, 12.2.2000, p. 3).

105. In a German case, the Commission took the view that an exemption from tax on electricity and oil which was applicable in part to the agricultural sector [32] complied with point 3.4 of the environmental guidelines. [33] The exemption had been notified by the German authorities for a three-year period, and was therefore temporary, but it was not degressive. However, having regard to its existing practice in the interpretation of the guidelines, the Commission waived the requirement of degressivity in this case. Although in the agricultural sector the mere fact that most other countries do not yet have energy taxes is not an acceptable justification for the payment of the aid, in this case the Commission accepted that the limited temporary relief provided by the aid measure was necessary to enable farms to adapt to new conditions of competition. Furthermore, although the Commission noted that there was no legal obligation on the agricultural sector to do anything in return, it was ultimately accepted that farmers would invest to reduce their energy consumption. Given the limited nature of the tax exemption in the agricultural sector (the producers still have to pay 20% of the tax) and the large net additional tax burden that resulted from the measure, it appeared that primary agricultural production had a substantial incentive to make energy savings.

[32] Case NN 47/99, Commission Decision of 21.4.1999 (OJ C 166, 12.6.1999).

[33] OJ C 72, 10.3.1994.

106. The Commission also initiated the procedure in the case of three aid projects for the rescue or restructuring of companies in the new German Länder. [34] Following the initiation of the procedure, one of the notifications was withdrawn. The examination of the others is still under way.

[34] Cases: C 71/99 (ex N 258/98) - Commission Decision of 13.10.1999 (OJ C 359, 11.12.1999); C 73/99 (ex NN 90/97) - Commission Decision of 26.10.1999 (not yet published); C 16/99 (ex NN 108/98) - Commission Decision of 3.3.1999 (OJ C 120, 1.05.1999).

Greece

107. In 1999 the Commission adopted a final negative decision on the operation of the Greek Cotton Board (GCB), on the grounds that the latter was financed by a parafiscal tax of 1% on the overall value of imported cotton. [35] The GCB is a public body carrying out official tasks in, and granting State aids to, the cotton sector (technical assistance, quality controls and research). The Commission took the view that although the aids - in the strict sense of the term - were compatible with the common market, they were financed by means of a parafiscal tax imposed not only on domestic products but also on imported cotton. As well as being incompatible with Commission policy on parafiscal taxes, the measures appeared to be incompatible with the Treaty of Accession of Greece. As a consequence of the Decision, Greece is required to modify the scheme, notify the Commission of the amendments introduced and recover the amounts unduly paid.

[35] Case C 60/94 - Commission Decision of 20.7.1999 (not yet published).

Spain

108. The Commission adopted two negative decisions with demand for recovery in respect of two aid schemes implemented by the Autonomous Community of Extremadura in Spain. Aid No C 37/99, [36] introduced by Decree 35/1993, provides for financing to meet the capital requirements for a single marketing year in order to develop agricultural and agri-food activity. The beneficiaries are farmers, agricultural cooperatives and other associations and processing undertakings in Extremadura which conclude contracts with agricultural and livestock holdings in Extremadura for raw materials for industrial processing. The aid takes the form of an interest-rate subsidy for loans. Aid No C 38/99, [37] introduced by the Decree of 8 July 1998, provides for aid for agricultural products for industrial processing for the 1997/98 marketing year. The beneficiaries of the aid are producers of horticultural products for industrial processing in Extremadura who concluded contracts with processors in 1997/98. The aid provided for is between ESP 1.5 and ESP 5 per kilogram for peppers, gherkins, cabbages, onions, broccoli, cauliflowers, spinach, broad beans and potatoes. The two aid schemes are restricted to Extremadura producers who conclude contracts with Extremadura processors and vice versa, two requirements which constitute a restriction on the free movement of goods between Member States and constitute an infringement of Articles 28 and 29 of the Treaty. In addition, the aid is granted to promote the production of products subject to a common organisation of the market (Council Regulation (EC) No 2200/96 of 28 October 1996 on the common organisation of the market in fruit and vegetables), which is to be considered as a complete and exhaustive system which denies the Member States any powers to take measures which might derogate from or undermine it. With regard to aid No C 38/99, any aid whose amount varies with the quantities produced is deemed to constitute operating aid and is, as such, incompatible with the common market. Furthermore, Aid No C 37/99 does not fulfil the criteria laid down in the Commission communication on State aids: subsidised short-term loans in agriculture. [38]

[36] Case C 37/99 (ex NN 25/99) - Commission Decision of 22.12.1999 (not yet published).

[37] Case C 38/99 (ex NN 26/99) - Commission Decision of 22.12.1999 (not yet published).

[38] OJ C 44, 16.12.1996, p. 2.

France

109. The Commission decided to open the examination procedure provided for in Article 88(2) of the Treaty with respect to a measure notified by France to promote the production of wine that meets consumer requirements in the Charentes Region. [39] The purpose of the aid is to improve the quality of vineyards and encourage cognac producers to switch to "local wine" production by promoting the use of certain vine varieties. The Commission took into account the fact that the new Council Regulation (EC) No 1493/1999 of 17 May 1999 on the common organisation of the market in wine, [40] which entered into force on 21 July 1999 and is applicable from 1 August 2000, contains provisions on the abandonment of wine-growing areas and the restructuring and conversion of vineyards. The Commission took the view that, since the programme presented by the French authorities sought a long-term solution to the problem, the measures envisaged must take account of the new guidelines set out in the common organisation of the market. The Regulation concerned establishes a system for the restructuring and conversion of vineyards, the objective of which is to adapt production to market demand. Article 15(c) provides for, inter alia, the inclusion, in the implementing rules to be adopted by the Commission, of provisions aimed at preventing an increase in production potential arising out of the application of the conversion measures. The information supplied indicates that the conversion measures involve the production of new "local wines" and, therefore, an overall increase in the production of such wines. In addition, Article 2(1) of this Regulation lays down that planting with vines classified as wine-grape varieties is prohibited until 31 July 2010. It has to be concluded, therefore, that one of the objectives of the new common organisation of the market is to prevent an increase in wine production. While it agrees that varietal conversion of the vineyards in the Charentes has the advantage of reducing the production of wines for which there is no market, the Commission considers that the resulting increase in "local wine" production in France is incompatible with the principles contained in the new organisation of the market in wine and is likely to distort competition on a wine market which shows no signs of growth. It should be borne in mind that the wines resulting from the conversion of these vineyards would enter the ordinary wine market, while current production by definition goes to other destinations outside this market. Consequently, there is a strong risk that the general conversion of these vineyards would shift the problem to other markets, by leading to an overall net increase in the quantity of wine placed on the market, something which is incompatible with the objectives of the new common organisation of the market.

[39] Case C 70/99 (ex N 79/99) - Commission Decision of 29.9.1999 (OJ C 359, 11.12.1999).

[40] OJ L 179, 14.7.1999, p. 1.

Ireland

110. The Commission also initiated the procedure provided for in Article 88(2) of the EC Treaty in respect of two aid measures notified by Ireland. [41] The first, a submeasure (Ewe Premium) of the Ewe Supplementary Measure, provides for slaughter facilities for about 100 000 cull mountain ewes in six counties in the West of Ireland affected by weather conditions and difficult soil types. [42] The Commission considered that this measure appeared to constitute aid to sheep producers and expressed doubts as to whether Article 87(2)(b) was applicable. Indeed, the measure appeared to counteract problems resulting from an economic downturn in the sector and could, therefore, be regarded as compensation for damages due to an exceptional occurrence. Furthermore, by permitting the meat obtained from "boner ewes" to be sold on for human consumption, and thus compete in the marketplace with other meat whose slaughter costs had not been subsidised, it appeared that the Irish authorities had failed to take the steps necessary to minimise the effects of the measure on competition.

[41] Case C 44/99 (ex NN 23/99 and ex NN 79/99) - Commission Decision of 8.7.1999 (OJ C 280, 2.10.1999).

[42] Case C 44/99 (ex NN 23/99, ex N 678/98).

111. The second measure against which the procedure was opened was the Assistance Scheme for Winter Fodder Losses. [43] This consisted of three sub-measures aimed at providing relief to farmers who suffered winter fodder losses. In the case in particular of compensation granted by the Special Fodder Hardship Fund (SFHF) to farmers who did not qualify for aid under the other measure, the Commission expressed doubts as to whether the compensation was conditional on, and proportional to, losses of winter fodder due to wet weather. In fact the assistance appeared to be provided to any farmer who could show that his cattle was suffering or was likely to suffer from malnutrition due to a shortage of fodder, irrespective of the actual reason. The Commission therefore considered that the measure could constitute pure operating aid.

[43] Case C 44/99 (ex NN 79/99, ex N 90/99).

Italy

112. Aids for restructuring: In 1999 the Commission communicated to Italy its decision to open the procedure provided for in Article 88(2) of the EC Treaty on a notified project to grant aids for restructuring undertakings operating in the sector of protected agricultural products (flowers and horticultural products) in the Sardinia Region in Italy. [44] The Commission took this decision because the measure notified, which envisaged financial measures (repayment and renegotiation of debts), structural measures (investments) and technical assistance, did not appear to satisfy the conditions upon which an aid scheme for restructuring holdings in difficulty could be approved under the Community guidelines on state aid for rescuing and restructuring firms in difficulty. [45] Aid for restructuring raises particular competition concerns among other producers who are coping without aid, and among other Member States. Therefore restructuring aid can be allowed only in circumstances in which it can be demonstrated that its approval is in the Community interest. This will only be possible when strict criteria are fulfilled and full account is taken of the possible distortive effects of the aid. In the case at hand the Commission had doubts concerning, in particular, the following aspects: (1) the state of financial difficulty of the potential recipients; (2) the restoration of viability of the holdings concerned through the measures envisaged by the notified scheme; (3) the avoidance of undue distortion of competition; (4) the proportionality of the aid in relation to the restructuring costs and benefits; and (5) the fact that not all the beneficiaries might fully satisfy the requirements for qualifying as SMEs under 3.2.4 of the guidelines. A further reason for opening the procedure was that the national authorities had not dispelled doubts of a possible duplication of aid for the repayment of debt paid to the same beneficiaries who might not yet have repaid the aid which the Commission, by a previous decision, had declared incompatible with the common market and whose recovery it had ordered. According to the Court of Justice, the failure to repay the unlawful aid constitutes, in these circumstances, an essential factor which is lawfully taken into account when the compatibility of the new aid is examined (Judgement of the Court in Case C-355/95 P Textilwerke Deggendorf GmbH (TWD) v Commission of the European Communities and the Federal Republic of Germany [1997] ECR I-2549). The planned budget for the aid measure amounted to ITL 60 billion (around EUR 30 million).

[44] Case C 83/98 (ex N 40/98) - Commission Decision of 22.12.1998 (OJ C 187, 3.7.1999, p.2).

[45] OJ C 283, 19.9.1997, p. 2.

113. Some sophisticated types of measures to provide financing to undertakings were notified by Italy in 1998 and 1999. In particular, in 1999 the Commission notified Italy of its approval of an aid scheme aimed at supporting investments in the agri-food sector through the State-owned holding company RIBS. [46] The scheme provides for the acquisition by RIBS of capital holdings in the beneficiaries' undertakings and the provision of loans at subsidised rates for up to 15 years. Approval of this aid scheme made it unnecessary to notify the Commission of individual investment projects below a certain threshold, thus reducing the time required for their approval, which is given at national level only. The national authorities undertook to send the Commission an annual report on the implementation of the scheme. On the basis of this report, the Commission will be able to propose possible modifications to the aid scheme. Investment projects in the sugar sector and projects involving a total contribution by RIBS of more than ITL 50 billion (about EUR 25 million), however, were expressly excluded from the aid scheme and will be notified individually to the Commission. In 1999 the Italian State also notified, as a precaution, a series of measures by State-owned holding companies that were deemed to take place "under market conditions". Due to a long-standing tradition of support to the food sector, the Commission required, in particular in relation to RIBS' operations, that the Member State notify, pursuant to Article 88(3), any such measures with the exception of some very obvious cases. These measures, which normally take the form of acquisitions of holdings in the capital of other undertakings, are often linked to development projects, including investments, promotion, marketing, organisational changes, etc. In these cases the State-owned holding company is expected not only to recover its capital but also to obtain an acceptable return on the capital invested. Thus far the Commission has cleared one of these types of measure. [47] Other cases were notified in 1999 and are currently under examination.

[46] Case N 619/98 - Commission Decision of 22.12.1998.

[47] Case N 191/98 - Commission Decision of 22.12.1998.

114. In 1999 the Commission also adopted a final negative decision on several Italian State aid measures in the sugar sector granted through the State holding company RIBS between 1988 and 1992. [48] These aids, linked to the operation of two sugar plants in Central Italy (Abruzzi and Tuscany), varied in nature and amount. The aids included commercial guarantees, capital holdings to cover losses, capital holdings for investments, extension of capital holdings, waiver of preferential credits, favourable conditions on the sale of public property and loans at subsidised rates. The Commission declared most of the above aids incompatible with the Treaty and required Italy to recover the amounts unduly granted within two months of notification of the decision and to inform the Commission within the same deadline as to the measures taken to comply with the decision. Italy decided to challenge the final negative decision of the Commission before the European Court of Justice. Following this decision, the Commission was notified of another five cases where aids were granted through the State-owned holding RIBS to undertakings operating in the sugar sector between 1989 and 1992.

[48] Case C 56/96 - Commission Decision of 11.5.1999 (OJ L 236, 7.9.1999, p. 6).

115. The Commission also adopted a final negative decision in case C 36/98 [49] with respect to aid which Italy intended to grant to small and medium sized enterprises in the South in the form of guarantees and subsidised loans for the consolidation of debts under Article 2 of Law No 341 of 8 August 1995. Since these loans and guarantees were not linked to investment and were not granted for the rescue and restructuring of companies in difficulty, the Commission concluded that they had to be regarded as operating aid which is prohibited in the agricultural sector.

[49] Case C 36/98, Commission Decision of 10.11.1999 (not yet published).

116. In 1999, the Commission took a final negative decision with respect to an aid Italy intended to grant for the maintenance of female breeding animals of the Chianina breed. [50] The aid formed part of a package of three measures which, according to Italian authorities, was designed to counter the decline which had affected this local Tuscan breed over the previous ten years. Of the three schemes only this aid measure was considered by the Commission to be incompatible with the common market. The aid was granted in the form of a premium for the maintenance, until first calving, of adult female animals of the Chianina breed meeting specific requirements and was aimed at encouraging stockfarmers to use females as breeding animals rather than sell them or fatten them for slaughter, these being regarded as more profitable and less risky operations. The Commission has generally considered compatible with the common market aids granted for the maintenance of male breeding animals on account of the role played by such animals in the genetic and qualitative improvement of the livestock sector and of the high costs involved in keeping them, which are generally not recovered by stockfarmers. This is not the case with female animals, which can simultaneously be used profitably by stockfarmers for calving, milk production and the improvement of beef/veal production without any of these operations resulting in a reduction in market value. In this respect, the Commission considers that any aid granted for the maintenance of female animals would merely constitute operating aid intended to alleviate the costs normally associated with farming. The only case in which the Commission has consistently authorised aid for the maintenance of both female and male animals is where the breeds concerned are in danger of extinction according to Community criteria. In this case the aids are in fact considered to favour genetic diversity within the framework of Regulation (EEC) No 2078/92. The data submitted by the Italian authorities clearly showed, however, that the Chianina breed is far from being in danger of extinction, and no exception to Article 87(1) of the EC Treaty could therefore be granted with respect to the aid concerned.

[50] Case C 57/98, Commission Decision of 10.11.1999 (not yet published).

Netherlands

117. Aids granted pursuant to Article 87(2)(b) of the EC Treaty in order to make good the damage caused by natural disasters: The Dutch authorities notified an aid scheme providing compensation for damage, in affected areas, to all the sectors concerned, although most of the potential beneficiaries were agricultural undertakings. [51] In agriculture, the Commission has customarily held that weather conditions such as frost, hail, ice, rain and drought cannot be regarded as natural disasters within the meaning of the Treaty unless the damage caused to the individual recipient of the aid reaches a certain minimum threshold, normally 30% or more (20% or more in less-favoured areas) of production in relation to a normal period. Because of the seasonal variability of agricultural production, it is necessary to ensure that such a threshold is applied in order to prevent alleged adverse climatic conditions from being used as a pretext for the payment of operating aids. In this specific case, the Dutch authorities indicated that heavy rain had caused floods in certain regions. Since a flood is regarded as a natural disaster within the meaning of Article 87(2)(b) of the EC Treaty, compensation for damage to agricultural production in those regions was in conformity with Commission policy. As regards the remainder of the affected areas, only limited floods within the traditional meaning of the term (i.e. the bursting of riverbanks) had occurred. Nevertheless, in this particular case, the Commission considered that there had been a very unusual combination of geographical and climatic circumstances that could be regarded as a natural disaster within the meaning of Article 87(2)(b) of the EC Treaty, so that there was no need to require the usual 30% production loss for damage compensation. The weather conditions in the affected areas had been exceptionally harsh: at least 100 mm of rain had fallen in two days, an event which, according to the Dutch Royal Meteorological Institute, can be expected to occur only once every 125 years. According to the information provided by the Netherlands authorities, the problems arose in a polder area, situated below sea level and with heavy clay soil rendering natural drainage more difficult. A strong wind coming in from the sea made it impossible to drain the water seawards - on the contrary, water was being driven towards the land. There was a breakdown in the water-management systems in the region, with the result that the level of the water table rose and the land became saturated from below. The consequences of this chain of events were therefore very similar to those that would have occurred had the land been flooded in the traditional sense. In reaching this conclusion, the Commission also took into account the fact that the Netherlands compensation scheme was general in scope. It was open to private individuals, bodies covered by public law, and non-commercial bodies (schools, municipalities, religious bodies, etc.), commercial businesses operating in all sectors and agricultural producers. The Netherlands authorities had confirmed that the calculation of the losses would be undertaken individually for each beneficiary, who would be expected to bear a proportion of the losses themselves. In the agricultural sector, the calculation of losses would be based on the losses incurred in comparison with the average yields over the previous three years, which corresponds to normal Commission practice for the calculation of losses. There was therefore no risk of overcompensation under the scheme. In these circumstances, any risk of abuse of the scheme for payment of operating aids, which normally warrants the use of the 30% threshold in case of adverse weather conditions, seemed to be excluded.

[51] Case NN 136/98 (ex N 561/98) - Commission Decision of 9.12.1998 (OJ C 72, 16.3.1999). See also Case N 19/99 - Commission Decision of 12.3.1999 (OJ C 92, 1.4.1999).

118. In 1999 the Commission adopted a final negative decision on the proposal for an amendment to an existing aid scheme concerning flower bulbs in the Netherlands. [52] The existing aid scheme, concerning aids for the promotion of ornamental plants and flowers, is financed by parafiscal taxes and is compatible with Community rules, as regards both the promotional activities and the current system of financing, which explicitly exclude taxation of products imported from other Member States. The Netherlands authorities, however, notified an amendment to the scheme whereby products imported from other Member States would also be subject to the levy. The yield of the levy would be repaid to a representative organisation established in each Member State of origin and be used on promotional activities in that country. A final negative decision on the proposed amendment was adopted by the Commission for the following reasons: even in the case of generic promotional activities, which do not refer to the origin of the product and therefore guarantee formal equality of treatment, it appeared that on a practical level such promotional and advertising activities would favour national specialisations, needs and shortcomings. In particular, it is likely that the timing of promotional activities and the choice of varieties to be emphasised during promotional campaigns would be based on national characteristics, to the detriment of imported products. Furthermore, the Netherlands proposal to transfer the yield of taxes on products imported from other Member States to representative organisations in those Member States to be used on promotional activities in the Member States concerned did not appear to modify this assessment. In the first instance, the Netherlands authorities were unable to answer the concerns expressed by other Member States about the representativeness of the organisations to which the money would be transferred. Secondly, in some cases producers in other Member States may be paying compulsory levies to finance promotional activities in their own country. This would raise the problem of possible double taxation in the country of production and in the Netherlands. The Netherlands authorities offered to reimburse the tax where an importer could show that he had paid an equivalent tax in the Member State of production. However, such arrangements would require the establishment of additional administrative formalities solely for the movement of goods in intra-Community trade, something which appears contrary to Article 28 of the EC Treaty. Thirdly, the Dutch authorities provided no convincing explanation of how the administrative costs of such a system would be covered and how they