Table of contents 1.Introduction Purpose and scope 2.Background to the intervention 2.1.Legal and policy background 2.2.Baseline scenario 2.3.Description of the intervention and its objectives 3.Implementation / state of Play 3.1.Description of the current situation 3.2.Recent relevant Commission policy developments 3.3.Recent events 4.Method 4.1.Short description of methodology 4.2.Data collection and assessment 4.3.Limitations and robustness of findings 5.Analysis and answers to the evaluation questions 5.1.RELEVANCE 5.2.EFFECTIVENESS 5.3.EFFICIENCY

5.4.COHERENCE 5.5.EU ADDED VALUE 6.Conclusions 6.1.Relevance 6.2.Effectiveness 6.3.Efficiency 6.4.Coherence 6.5.EU added value 6.6.Lessons learned Annex 1: Procedural information Annex 2: Stakeholder consultation Annex 3: Methods and analytical models Glossary Term or acronym Meaning or definition ABER Agricultural Block Exemption Regulation AIR Annual Implementation Report CAP Common Agricultural Policy COVID-19 Coronavirus disease 2019 DG AGRI Directorate General for Agriculture and Rural Development DG COMP Directorate General for Competition EAFRD European Agricultural Fund for Rural Development EU European Union FADN Farm Accountancy Data Network GBER General Block Exemption Regulation RDP Rural Development Programme SARI State aid reporting interactive SAM State Aid Modernisation SME Small and Medium sized enterprises TFEU or Treaty Treaty on the Functioning of the European Union WTO World Trade Organisation 1.Introduction Purpose and scope This document sets out the results of the Commission’s evaluation of the rules of the 2014 State aid framework applicable in the agricultural and forestry sectors and in rural areas. This framework is composed of: -Commission Regulation (EU) No 702/2014 declaring certain categories of aid in the agricultural and forestry sectors and in rural areas compatible with the internal market in application of Articles 107 and 108 of the TFEU (known as the agricultural block exemption regulation; "the ABER"). The ABER allows Member States to grant State aid to the agricultural and forestry sectors and in rural areas without prior notification to the Commission.

-2014 EU Guidelines for State aid in the agricultural and forestry sectors and in rural areas ("the Guidelines"), laying down the conditions under which the Commission assesses Member States' aid notifications. The Guidelines set out the general criteria that will be used by the Commission when assessing the compliance of aid with the internal market. -Commission Regulation (EU) No 1408/2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid in the agriculture sector. This de minimis regulation allows Member States to grant small amounts of aid to farmers without prior notification to the Commission. This State aid framework applies since July 2014. As the ABER and the Guidelines are set to expire on 31 December 2022, a new State aid framework will have to be established. This evaluation feeds into that process. The purpose of the evaluation is to assess the relevance, effectiveness, efficiency, coherence and EU added value of this sector-specific framework. However, the evaluation covers only the ABER and the Guidelines. The de minimis regulation was revised in 2018 and will apply until the end of 2027. It is therefore not included in the scope of the evaluation. Furthermore, horizontal State aid instruments like the General Block Exemption Regulation (GBER) or other relevant Commission Guidelines on State aid generally apply to the sectors covered by the instruments under review. Their applicability is, however, limited for the primary production of agricultural products (traditional farming activities). Those horizontal State aid instruments are not covered either by the present evaluation. They are subject to a separate evaluation in the context of a Fitness check. This Staff Working Document (SWD) reflects the findings and views of the Commission’s staff and does not reproduce the formal position of the Commission itself. It does not prejudge the final nature of any act or the content of any delegated or implementing acts that may be prepared by the Commission. This evaluation is a backward-looking exercise. It seeks to establish how well the agricultural State aid rules have worked since July 2014, when they started to apply, up until the present, based on the relevant information and data available (for example, due to the time lag of Member States’ reporting, the State aid Scoreboard data available for this Staff Working Document cover only aid granted until 31 December 2018). The evaluation will assess whether the State aid rules under review are still fit for purpose taking into account the current and (already known) future challenges. It will take the new political objectives of the Commission, in particular the European Green Deal (see also Section 3.2), into consideration. The recent COVID-19 crisis is also considered in Section 3.3 and Section 6. However, since the final impact of the COVID‑19 outbreak is not yet known, it is not dealt with in detail in this SWD. The evaluation covers all EU Member States (including the UK which was an EU Member State during the period covered by the evaluation). The scope of the evaluated State aid instruments includes three sector-specific sections: 1.Aid for the agricultural sector; 2.Aid for the forestry sector; and 3.Rural development support for non-agricultural activities in rural areas. The two sections on aid for agriculture and forestry are further divided into two types of aid categories. 1)The first (and major) category covers “rural development-like measures” that may be co-financed by the Union under the Common Agricultural Policy (CAP) or financed exclusively by national funds. “Rural development-like measures” include, for example, aid for investments, aid for environmental-climate commitments, aid for knowledge transfer and information actions, start-up aid and aid for cooperation. 2)The second aid category covers measures falling outside the scope of rural development legislation. These measures can only be financed by national funds. For agriculture, this category includes mainly aid for risk and crisis management in agriculture but also certain other measures, such as aid for promotion and aid for closure of capacity. For forestry, this category includes mainly aid with ecological, protective and recreational objectives. It also covers aid for research and development in both sectors.

3)The third category covers only measures that can be financed under rural development programmes by the European Agricultural Fund for Rural Development (EAFRD). This category was included in the agricultural State aid framework in 2014 to make it easier for Member States to implement those programmes (see Section 2.2). The below table shows the full scope of the agricultural State aid instruments: GUIDELINES FOR STATE AID IN THE AGRICULTURAL AND FORESTRY SECTORS AND IN RURAL AREAS Agricultural sector “Rural development like” measures Measures financed exclusively by national funds Investments -Primary agricultural production -Cultural and natural heritage on agriculture holdings -Relocation of farm buildings -Processing and marketing of agricultural products Other RD-like -Start-up aid for young farmers and development of small farms -Transfer of agricultural holdings -Agri-environmental-climate commitments -Animal welfare commitments -Natura 2000 and Water Framework Directive -Areas facing natural constraints -Organic farming -Participation in quality schemes -Technical support (incl. knowledge and information actions; advisory services; farm replacement services) -Cooperation Risk and crisis management -Natural disasters and exceptional occurrences -Adverse climatic events -Animal diseases and plant pests -Fallen stock -Protected animals -Insurance premiums -Mutual funds Other -Closing production capacity -Livestock sector -Promotion -Outermost regions & Aegean islands -Land consolidation -Research & development Forestry sector “Rural development like” measures Measures financed exclusively by national funds Investments -Afforestation -Agro-forestry systems -Prevention and restoration of damage to forests -Forestry ecosystems -Forestry technologies -Infrastructure for development & modernisation Other -Natura 2000 forestry areas -Forest environment-climate service and forest conservation -Knowledge transfer and information actions -Advisory services -Cooperation -Start-up aid for producer groups Ecological, protective & recreational objectives -Maintenance or restoration of forest ecosystems, biodiversity or traditional landscape -Soil quality and balanced tree growth -Pathways, landscape elements and natural habitats for animals -Maintenance of roads to prevent forest fires -Compensation of damage caused by regulated animals -Forest management plans Other -Research & development -Forestry land consolidation NON-AGRICULTURAL ACTIVITIES IN RURAL AREAS Measures financed by the EAFRD Investments -Processing of agricultural products into non-agricultural products -Cotton production -Diversification into non-agricultural activities Other rural development measures -Basic services and village renewal -Start-up aid for non-agricultural activities -Environmental-climate commitments (other land managers than farmers/foresters) -Natura 2000 (other land managers than farmers/foresters) -Knowledge transfers and information actions -Advisory services -Participation in quality schemes for cotton and foodstuff -Information and promotion activities -Cooperation -Setting-up of mutual funds AGRICULTURAL BLOCK EXEMPTION REGULATION Agricultural sector Rural development like measures Measures financed exclusively by national funds Investments -Primary agricultural production -Cultural and natural heritage on agriculture holdings -Relocation of farm buildings -Processing and marketing of agricultural products Other RD-like -Start-up aid for young farmers and development of small farms -Star-up aid for producer groups -Participation in quality schemes -Technical support (incl. knowledge and information actions; advisory services; farm replacement services) -Farm replacement services Risk and crisis management -Natural disasters and exceptional occurrences -Adverse climatic events -Animal diseases and plant pests -Fallen stock -Insurance premiums Other -Promotion -Land consolidation -Research & development Forestry sector Measures financed by the EAFRD “Rural development like measures” Investments -Afforestation -Agro-forestry systems -Prevention and restoration of damage to forests -Forestry ecosystems -Forestry technologies -Infrastructure for development & modernisation Other -Natura 2000 forestry areas -Forest environment-climate service and forest conservation -Conservation of genetic resources -Start-up aid for producer groups -Knowledge transfer and information actions -Advisory services Measures financed exclusively by national funds -Research & development -Land consolidation NON-AGRICULTURAL ACTIVITIES IN RURAL AREAS Measures financed by the EAFRD Investments -Processing of agricultural products into non-agricultural products -Cotton production Other -Basic services and village renewal -Knowledge transfers and information actions -Advisory services -Participation in quality schemes for cotton and foodstuff -Information and promotion activities The framework covers a total of 63 measures. Given this complexity, the evaluation – while covering all measures – scrutinized more closely eight measures, chosen to provide a coverage of all three sectors falling within the scope of the ABER and Guidelines as well as all aid categories and focussing on: -“good aid”, i.e. measures, which are deemed not likely to have major distortive effects on competition and trade (aid mitigating risks inherent to the agricultural sector, such as. plant pests, animal diseases and adverse weather events) or -measures newly introduced into the framework in 2014 and/or -measures with possible higher risks of distortion of competition. The selected measures are as follows: Aid for the agricultural sector: 1)Aid to make good the damage caused by adverse climatic events that can be assimilated to natural disasters 2)Aid for the costs of the prevention, control and eradication of animal diseases and plant pests, aid to make good the damage caused by animal diseases and plant pests 3)Aid for fallen stock. 4)Aid to compensate for damage caused by protected animals. 5)Aid for the payment of insurance premiums. Aid for the forestry sector 6)Aid for the prevention and restoration of damage to forests from forest fire, natural disasters, adverse climatic events which can be assimilated to natural disaster, other adverse climatic events, plant pests and catastrophic events. 7)Aid for investments in forestry technologies and in processing, mobilising and marketing of forestry products. Aid for non-agricultural activities in rural areas

8)Aid for investments concerning the processing of agricultural products into non-agricultural products. 2.Background to the intervention 2.1.Legal and policy background State aid control is part of the competition policy enshrined in the Treaty on the Functioning of the European Union (TFEU). Its objective is to avoid undue market distortions and subsidy races, as well as to safeguard the internal market and create a competitive landscape with a level playing field for undertakings and adequate and affordable choices for consumers. State aid is a form of support given by a Member State that provides an undertaking or certain undertakings with an advantage over its/their competitors. State aid can be granted in a variety of ways, such as through the allocation of subsidies, the provision of interest and tax relief, State guarantees or the purchasing of goods and services on preferential terms. Support financed from the Union budget is also considered to be State aid, if national authorities have discretion as to the use of these resources. Article 107(1) TFEU lays down a negative presumption against all forms of State aid. However, the State aid rules enshrined in the Treaty also include exemptions allowing State aid to be granted for reasons of economic development or for the common good. The exemptions that are particularly relevant for agriculture, forestry and rural areas are laid down in Article 107(2)(b) TFEU, which allows for aid to make good damage caused by natural disasters and exceptional circumstances, and in Article 107(3)(c) TFEU, which allows for aid to facilitate the development of certain economic activities or economic areas. Aid under Article 107(2)(b) TFEU is per se compatible with the internal market, whereas Article 107(3)(c) TFEU is discretionary in nature and the Commission has exclusive competence to decide on its application (i.e. on the compatibility of State aid with the internal market). When assessing the compatibility of aid, the Commission balances the negative effects of the aid measure on trade and competition in the internal market with its positive effects on the achievement of well-defined objectives of common interest. The State aid rules are not automatically applicable to support for the agricultural sector. Article 42 TFEU provides that State aid rules shall apply to production and trade in agricultural products only to the extent that the EU legislator (i.e. the Council and European Parliament) has decided so. On that basis, the legislator has decided that State aid rules shall not apply to support for agriculture financed by the EU under the CAP. However, State aid rules and procedures fully apply to: -Aid measures financed by national resources only (so-called “pure State aid”). -Rural Development support falling outside the scope of Article 42 TFEU, namely forestry measures and non-agricultural activities in rural areas. To ensure predictability and legal certainty for Member States and stakeholders on how the Commission assesses State aid compatibility, the Commission has adopted rules in the form of “soft law” such as guidelines. Moreover, for less distortive aid measures, the Commission has issued block exemption regulations, pursuant to Article 109 TFEU, laying down the conditions that have to be fulfilled in order to deem a State aid measure compatible with the internal market without the necessity of an ex-ante notification and approval. As already described in the introduction, the Commission has set up a specific State aid framework for agriculture, forestry and rural areas, which comprises a block exemption regulation (ABER), Guidelines and a de minimis regulation for farmers. The current framework started to apply on 1 July 2014 and was set to expire on 31 December 2020. However, the Commission has decided to extend its period of application until the end of 2022. This is because the design of the future State aid rules will largely depend on the outcome of the CAP reform, for which the legislative procedure is still pending. 2.2.Baseline scenario The point of comparison for the present evaluation is the outcome of the previous review of the agricultural State aid framework applicable in the period 2007 to mid-2014. State aid rules are as a matter principle limited in time, in order to allow the Commission to update them to new challenges and policy priorities.

The review of the 2007 State aid framework was guided by an Impact Assessment that identified the following problems: a)Lack of consistency between the State aid rules and the CAP rules on rural development support: In 2013, the legislator adopted a new legal framework for rural development support financed by the European Agricultural Fund for Rural Development (EAFRD) under Regulation (EU) No 1305/2013. The lack of consistency with the 2007 State aid Framework risked becoming an obstacle to the effective implementation of the Rural Development policy, in particular because rural development measures falling outside the scope of Article 42 TFEU are subject to State aid control. b)Lack of consistency with the horizontal objectives of the State Aid Modernisation initiative: In 2012, the Commission launched the State Aid Modernisation (SAM) initiative aiming at reforming the EU State aid policies and rules. The objectives of the SAM were threefold: -to foster sustainable, smart and inclusive growth in a competitive internal market (fostering “good aid”); -to focus the Commission’s ex-ante scrutiny on cases with the biggest impact on internal market whilst strengthening the Member States’ cooperation in State aid enforcement (“big on big, small on small”); -to streamline the rules and provide for faster decisions (“faster access to aid”) Those objectives were translated into common principles and more efficient State aid procedures. The previous agricultural State aid framework, applicable from 2007 to mid-2014, did not reflect that overarching and horizontal approach. c)Unnecessarily complex rules and procedures: -Under the 2007 State aid framework, a large number of measures had to be notified to and approved by the Commission because they were not covered by the scope of the ABER. Moreover, some of those measures were not even covered by the agricultural State aid Guidelines. That caused overly heavy State aid procedures, in particular for rural development support measures subject to State aid control. These measures first had to be approved by the Commission under the rural development rules and then had to be approved for a second time under State aid rules.

-There was also one frequently recurring type of aid that was not covered by the 2007 State aid framework at all, namely aid to make good damage caused by protected animals. In the course of that period, the Commission assessed and authorised six such State aid schemes, corresponding to a total budget of EUR 3.04 million, directly on the basis of the Treaty. Otherwise, Member States preferred using the de minimis regulation. As a result of the review, the following changes were brought to the agricultural State framework: -The specific conditions for considering aid to be compatible with the internal market became fully aligned with the conditions for granting rural development support under the CAP. The agricultural State aid rules adopted in 2014 thus mirror the CAP rules applicable to support for rural development. -The scope of the ABER was extended to cover most of the rural development support measures financed by the EAFRD. This means that Member States can implement support measures relating to forestry and non-agricultural activities in rural areas without having to first notify those measures to the Commission and wait for a Commission decision. -The objectives of the SAM and its ensuing common principles were fully integrated in the agricultural State aid framework adopted in 2014. The overall objectives of those changes were not only to achieve a better consistency with CAP legislation and SAM principles but also to improve predictability and legal certainty and to simplify procedures in the context of State aid control. The baseline for the present evaluation is the counterfactual scenario where, in 2014, the Commission would not have revised the agricultural State aid instruments but simply prolonged them as they were in the previous period (2007 to mid-2014) without aligning them with the new rural development rules and the SAM objectives and without enlarging their scope. The baseline does not cover the unlikely scenario that the State aid framework would have expired without having been replaced. The consequence of the absence of substantive rules would have been the direct application of the Treaty, i.e. the notification of each and every measure constituting State aid in the meaning of 107(1) TFEU and their compatibility assessment by the Commission directly under the Treaty without any guiding rules to ensure predictability and legal certainty. The absence of State aid control as such is excluded, given the general prohibition of State aid enshrined in the Treaty since 1957. 2.3.Description of the intervention and its objectives As indicated above, the current State aid rules expire on 31 December 2022. The main objective of the revision is therefore to replace them with a new set of rules. This evaluation aims at establishing whether the current rules have achieved their objectives of alignment with the CAP and the SAM, clearer and simpler rules, enhanced predictability and legal certainty as well as simplified State aid procedures, compared to the previous State aid framework established in 2007. As already indicated in Section 2.2, a large part of the current State aid rules on agriculture, forestry and in rural areas mirrors the rules laid down in Regulation (EU) No 1305/2013 on support for rural development.

However, the agricultural State aid rules also apply to other kinds of aid measures, not related to rural development support, which may be financed exclusively by national funds. This includes aid to make good damage caused by natural disasters or exceptional occurrences, which is per se compatible with the internal market, or measures which are considered to be "good" State aid, such as aid to make good the damage caused by adverse climatic events that can be assimilated to natural disasters, aid for maintaining and improving the genetic quality of livestock, aid for the costs of prevention, control and eradication of animal diseases and plant pests, aid for fallen stock and aid for insurance premiums. All of the above aid measures are subject to State aid control (known as State aid clearance). No aid may be granted until the envisaged aid measure has either been notified to and authorised by the Commission or exempted under a block exemption regulation (if applicable), unless it is granted as de minimis aid. The key objectives of the agricultural State aid framework are to: -ensure that State aid instruments minimise the distortion of competition in the agricultural and forestry sectors and in rural areas, -provide predictability and legal certainty for Member States and beneficiaries, -ensure consistency of agricultural State aid with the CAP and the rural development objectives, as well as -simplify and increase the efficiency of the procedures and reduce administrative costs. Figure 1: Intervention logic 3.Implementation / state of Play 3.1.Description of the current situation A total of 2 487 State aid cases were exempted under the ABER or notified under the agricultural Guidelines by the Member States during the period July 2014 to December 2018. Exemptions under the ABER were used for 1 971 cases (79%), while 516 cases (21%) were notified under the Guidelines. Italy made the largest use of the ABER (370 cases), followed by Germany (190 cases), Spain (179 cases) and Slovenia (177 cases). With the exception of Slovenia, these are decentralised Member States with exemptions also submitted by regions. As for notified cases, Germany notified 117 cases during the evaluation period, followed by Italy (93) Czechia (43), France (29) and Spain (26). The total State aid expenditures of those cases at EU-28 level amount in this period to EUR 16 277.8 million. Almost half of it (EUR 7 819.7 million) was disbursed by four Member States, which are also the largest agricultural producers in the EU in terms of agricultural output: Italy (EUR 2 316 million), Germany (EUR 1 971.5 million), Spain (EUR 1 790.1 million) and France (EUR 1 742.1 million). Member States at EU-28 level have disbursed under exempted cases EUR 8 836.8 million, i.e. 54.3% of the total amount of expenditures registered during the evaluation period. Out of this, Italy, Spain, France and Germany registered expenditures of up to EUR 4 425 million. Under notified cases in total EUR 7 441 million were disbursed, of which EUR 1 016.4 million by Italy, EUR 1 010 million by Germany and EUR 930 million by Spain. Figure 2: Distribution of State aid cases according to the aid measures under closer scrutiny (EU-28, number of cases)

Source: COMP data In the period 2014-2018, support for one (or more) of the State aid measures selected for the special focus of the evaluation was provided under 751 of the exempted or notified aid schemes for a total amount of EUR 6 307.5 million. This corresponds to 39% of the total agricultural State aid expenditure (all measures, all aid schemes) in that period. Risk management measures account for the largest amount of expenditure, namely EUR 4 933.1 million (78%). Measures in support of forestry represent the second biggest expenditure share, corresponding to EUR 1 289.2 million (20%). Support measures grouped under non-agricultural investments in rural areas account for EUR 85.2 million, or only 2% of the total expenditure. Figure 3: Distribution of total expenditures (€m) per measure and per agricultural State aid instrument, and share in total expenditure Source: COMP data As shown in figure 3, aid for insurance premiums was the measure in the closer scope of the evaluation with the highest expenditure in the period 2014-2018. Around 70% of it can be attributed to two Member States, namely Spain (50%) and Italy (20%). The second most important measure in terms of expenditure was aid for animal diseases and plant pests. This measure is widely used by the Member States with available data showing that the United Kingdom has registered significant expenditure (€533.4 million), followed by France, Germany and Poland. Another large group of expenditures relates to adverse climatic events with the main part of the budget being spent on aid schemes exempted under the ABER in France, Poland and Italy. Italy also accounted for over 80% of the expenditure incurred for the measure regarding the prevention of damage to forests and restoration of forest potential in that period. 3.2.Recent relevant Commission policy developments The new European Commission took office on 1 December 2019. In its political guidelines, it outlined its six overarching priorities for the period 2019-2024. Key among these priorities is the development and implementation of a European Green Deal. On 11 December 2019, the Commission unveiled its European Green Deal which sets out an action plan and a roadmap of policy initiatives and legislative proposals with the aim of the EU reaching climate neutrality by 2050. In the framework of the European Green Deal, the Commission adopted in particular the Farm-to-Fork strategy, the Biodiversity strategy for 2030, a proposal for a Climate Law as well as a new action plan for the Circular Economy, all of which address issues relevant to agriculture, forestry and rural areas. The CAP plays a key role in supporting Europe’s agricultural sector – the importance of the CAP has been amplified due to the ongoing COVID-19 pandemic, which has been putting a strain on the resilience of European farmers. Looking ahead, the future CAP will be an important instrument in managing the transition to sustainable food production systems and supporting the efforts of European farmers to contribute to the climate objectives of the EU and to protect the environment. Whereas agriculture is responsible for 10.3% of the EU’s greenhouse gas emissions, together with forestry it plays a crucial role to increase the carbon sinks, thus to help decarbonise other sectors. The CAP is therefore a key instrument to support the development of new green business models (such as carbon farming) by farmers and foresters to incentivise farming practices that remove CO2 from the atmosphere. Moreover, given that agricultural land and forests cover 80% of the EU territory and that a substantial share of EU funding for biodiversity comes from the CAP, that policy will also play a major role in supporting the achievement of the EU biodiversity commitments for 2030. The Commission services have already analysed the links between the future CAP reform proposals and the Green Deal and concluded that the CAP reform proposal is compatible with the Green Deal and its associated strategies such as the Farm to Fork Strategy and the Biodiversity Strategy. It has the potential to accommodate the Green Deal’s ambitions. At the same time, the Commission services also identified the steps needed to fully align the CAP with the Green Deal and its associated strategies. These include increased ambition with regard to environmental- and climate related objectives set out in the Commission proposal for a Regulation on CAP Strategic Plans (‘no back-sliding principle’); an ambitious system of conditionality maintaining key standards (e.g. crop rotation, soil protection, preservation of peatlands and wetlands as carbon rich soils, maintenance of permanent grassland, agricultural land devoted to non-productive areas or features); eco-schemes and ring-fenced spending for the environment and climate of 30% of the rural development budget for each CAP Strategic Plan. The proposed eco-schemes will be an important innovation of the new CAP, dedicating substantial funding to sustainable farming practices, including minimum requirements for the use of fertilisers, plant protection products, and in terms of animal welfare. In co-operation with the agri-environmental commitments from the rural development framework, they will power the green transition in agriculture. The negotiations on the CAP reform are currently ongoing.

The findings of the present evaluation are based on how well State aid rules in the agricultural and forestry sectors and in rural areas have worked during the evaluation period, which preceded the publication of the European Green Deal and its associated strategies. However, the relevance of the rules under review in the context of these recent policy developments is considered in section 5.1.4.2. 3.3.Recent events The COVID-19 outbreak created an unprecedented crisis at a global level. The consequences on our societies and economies have been profound. In response to these times of crises, the Commission has deployed all means at its disposal to counter the impact of the pandemic and support the EU Member States on their road to recovery and growth. In this context, the Commission adopted on 19 March 2020 a Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (the Temporary Framework). On 27 May 2020, the Commission also adopted its Recovery Plan to tackle the consequences of the crisis stemming from the COVID-19 outbreak. The aim of the Temporary Framework is to tackle the severe liquidity needs of undertakings due to the exceptional circumstances created by the COVID-19 outbreak, supporting the sustainability of otherwise healthy businesses, in order to facilitate the recovery of the economy and minimise the impact of the outbreak on the real economy. Contrary to the State aid rules examined in the present evaluation, the Temporary Framework is based on Article 107(3)(b) TFEU, which constitutes an exceptional legal basis for compatibility with the internal market, according to which "aid to remedy a serious disturbance in the economy of a Member State" may be declared compatible. Having recognised the COVID-19 outbreak as such a serious disturbance, in line with case law, the Temporary Framework laid down the conditions under which the COVID-19 measures would be compatible with the internal market. As such, the Temporary Framework has been developed to cater for an emergency situation and has led to extraordinary financial commitments. It will remain temporary and is set to expire on 31 December 2021. It complements the existing State aid rules, which are mainly based on Article 107(3) (c) TFEU and serve other objectives. The findings of this evaluation (which is a backward-looking exercise) are based on how well rules have worked since their entry into force and therefore precede the COVID-19 crisis. Consequently, the qualitative and quantitative data used in the evaluation do not take account of the crisis. The end of the crisis is still difficult to predict. Public support under the Temporary Framework targets the problems undertakings are currently facing and is limited in time. Aggregate data will need to be collected to better assess the economic and financial consequences of the crisis. The full impact of the COVID-19 outbreak on different sectors is not yet known either. It is, however, already now evident, that the agriculture, forestry and agro-tourism sectors have suffered substantial losses. In the agricultural sector, for instance, the fight against the global Covid-19 pandemic is causing unprecedented uncertainties in global food supply chains, with potential bottlenecks in labour markets, input industries, agriculture production, food processing, transport and logistics, as well as shifts in demand for food and food services. A recent OECD report found that over the next ten years supply growth is going to outpace demand growth, causing real prices of most commodities to remain at or below their current levels. According to WTO data, food prices were already on a downward trend at the beginning of 2020. The COVID-19 crisis exerted further downward pressure on prices, and therefore on producer revenues. Prices are expected to remain at low levels amid the economic downturn. Following the outbreak of the pandemic, the European Union’s agri-food sector showed resilience and has continued to provide people in the European Union with high- quality and safe food. Nonetheless, farmers and producers are facing difficulties and increasing pressure. Ensuring food security through a strong food supply chain remains one of the Commission’s priorities. According to the Commission’s market forecasts, many uncertainties remain around the economic recovery, and thus on the evolution of demand in the EU and the world. In particular, the forecast magnitude of the recession is such that it is expected to lead to a sharp increase in unemployment in the EU, negatively impacting private consumption. The effects of the stimulus measures, the capacity of individual sectors to adapt their production, and the strength of the recovery in particular in export markets, will all drive demand and supply and have a direct influence on prices and thus on the profitability of the agri-food sector.

The relevance of the COVID-19 crisis with regard to the rules under review is further described in Section 5.1.5. 4.Method 4.1.Short description of methodology The current evaluation is based on (i) case experience and in-house data analysis of State aid statistics; (ii) an external evaluation support study carried out by a contractor and (iii) an open public consultation. The evaluation is based on the evaluation questions summarised in Section 5.1, as grouped around the five evaluation criteria (relevance, effectiveness, efficiency, coherence and EU added value). The assessment is further broken down into the sectors and measures referred to in the introduction in Section 1, in order to take into account the specific characteristics of each of the sectors concerned. 4.2.Data collection and assessment Stakeholders had the opportunity to provide their feedback on a Commission roadmap from 20 April 2017 to 18 May 2017. External experts were commissioned for the evaluation support study for the purpose of obtaining an independent evidence-based assessment on how the State aid rules work and to conduct case studies on the eight measures chosen for closer scrutiny (see Chapter 1. Introduction). The study used a vast range of information sources and tools, both quantitative and, to a larger extent, qualitative (see Figure 4 below). Figure 4: Information sources and tools used in the evaluation support study Information sources Tools Data from DG COMP Analysis of aid schemes and expenditures Regulations, evaluations, other Documentary and literature review (regulations and bibliography) Eurostat and national statistics on the agricultural and forestry sector § § Review of RDPs RDP and 2016 AIR Case studies in 8 MS (include literature review, RDP review, interviews with competent authorities, managing authorities, beneficiaries and/or their representatives, competitors, all based on interview guidelines, intervention case studies with a counterfactual scenario) Interviews with competent authorities, managing authorities, beneficiaries and/or their representatives, competitors, EC services § FADN (regional/national) § Other accounting data from national sources and application forms § Intervention case studies with counterfactual scenario Online survey Source: ADE The information from those different sources has been triangulated, ensuring that the answers to the evaluation questions are based on solid and cross-checked evidence. The Commission carried out an open public consultation in order to give public authorities and all stakeholders the opportunity to provide their views on the review of the State aid instruments for agriculture, forestry and rural areas. The consultation was launched on the Europa website on 26 April 2019 and was open for responses until 19 July 2019. The public consultation generated a total of 190 responses from respondents in 24 Member States. The questionnaire was divided into five sections. Section I sought respondents’ opinions on the overall performance of the current State aid rules, on the State aid objectives to be pursued and on future challenges, including simplification possibilities. Sections II, III, and IV concerned more specifically State aid issues in relation to, respectively, agriculture, forestry and non-agricultural activities in rural areas. Section V concerned the EU added value of detailed rules for State aid control. The evaluation is strongly based on the Commission’s own internal assessment. In fact, one of the most valuable sources for the Commission to understand whether the current rules work well and what needs improvement are (formal and informal) contacts with Member States in the notification procedure of State aid cases. To date, almost 700 notifications were analysed under the current rules. Furthermore, some 2 500 block-exempted measures were screened for their compliance with formal requirements. This provides valuable insight and a sound basis for conclusions to be drawn. This “case experience” is complemented by quantitative data from the internal case management database and analysis of State aid statistics (including the State Aid Scoreboard). A further valuable source are Member States’ interpretation questions. While no weighting of the different sources was applied, it has to be noted that the sources were complementary. The Commission’s internal assessment was complemented by the evaluation support study, conducted by independent experts and relying on a number of sources, and by the open public consultation reflecting various stakeholders’ views. 4.3.Limitations and robustness of findings a)Data availability

The general difficulty of gathering data in State aid control stems from the fact that the counterpart of the Commission in the proceedings is the Member States and information-gathering tools are extremely limited. Quantitative data on State aid expenditure is collected from Member States in the context of the State aid scoreboard (see Section 1), based on annual reporting pursuant to Article 6(1) of Commission Regulation (EC) 794/2004. The most recently published data includes State aid expenditure until the end of 2018 (see also Section 1). The limited availability of data at the time the contractor carried out the evaluation support study was a particular challenge for that study. The main cause was the short examination period of the study (unavoidable, because the duration of State aid rules is limited to seven years). Another reason lies with the way in which aid schemes are registered in the Commission database, as one single registered scheme may include several distinct measures, which pursue multiple objectives. Furthermore, in the period 2014-2020, the Rural Development Programmes expenditures for projects linked to the aid measures selected for the study were low and not completely reflected in the data reported by Member States. The reference period (2007-2014) was used when relevant and, in the case of non-agricultural investments, expenditures after 2016 were also assessed. For forestry investments, only few expenditures were registered and the evaluation support study was only able to obtain detailed data for Germany. The evaluation support study used publicly available data on beneficiaries but could do so only to a limited extent, as data on individual aid is published only if it is of a larger size. The online survey of the evaluation support study was addressed only to national authorities; for forestry and non-agricultural activities the views of managing authorities for the rural development programmes were collected only through case studies. b)Methodological issues It should be noted that there was no control group to assess the effectiveness of the examined aid measures. For example, where a Member State grants aid to compensate for damage, it usually grants it to all undertakings affected by the damaging event. Member States have also provided similar compensation for similar damage. In this context, it was not possible to observe directly the situation of an undertaking affected by an adverse event but which was not compensated. The evaluation support study tackled this by developing a counterfactual scenario and adopted the same approach for investment measures. The assessment of effects on trade and competition was carried out qualitatively, which is limiting. However, it seemed not to affect the conclusion regarding whether the positive effects of the aid measures outweigh the potential distortive effects. Indeed, the potential distortive effects of risk management measures in the agriculture and forestry sectors are limited by the specificity of those measures and the types of beneficiaries, which are mostly micro, small and medium-sized enterprises (SMEs). c) Public consultation not representative The response to the public consultation is of limited representativeness as it comprised only 190 replies in total. This is a small number compared to the reference population of stakeholders, like the companies potentially affected by State aid. The main category of respondents were State aid beneficiaries (30%), public authorities (21%) and farmers’ associations (11%). Some environmental NGOs responded as well (7% of respondents). Some stakeholders who answered did so because of their specific interests and thus do not constitute a representative sample of the whole population of stakeholders. The Commission takes this limitation into account when analysing the results of the public consultation. As a result of this limitation it was difficult to obtain quantitative data on certain effects, as for instance the reduction of administrative costs. While a total of 35 public authorities responsible for granting State aid replied to the qualitative questions on the reduction of administrative costs linked to block-exemptions and notifications, only 18 provided data on average time spent on notifications/submission of information sheets for block exempted aid and average costs of those two procedures. In addition, the replies were very heterogeneous, ranging from 0.5 to 10 500 hours per notification and from 3 to 500 hours per block-exemption. d) Unprecedented events Finally, as explained above in section 3.3, this evaluation cannot take into account the impact of the COVID-19 crisis which is an unprecedented situation and possible future policy measures which might be adopted by the Commission to deal with the impact of the crisis on the economy. The rules under review were only to a limited extent relevant given that they serve a different purpose than to provide liquidity to companies hit by unprecedented events, for which the Commission has designed a specific State aid tool, namely the Temporary State aid Framework (see section 5.1.5). 5.Analysis and answers to the evaluation questions This section presents the assessment of the performance of the State aid rules for agriculture, forestry and non-agricultural activities in rural areas. The assessment is based on the five evaluation criteria (relevance, effectiveness, efficiency, coherence and EU added value) using the evaluation questions as listed below.

EVALUATION QUESTIONS Relevance – Section 5.1 To what extent are the State aid rules relevant for the needs of the agricultural and forestry sectors and rural areas, in particular in relation to the objectives of the rural development policy under the CAP? To what extent are the State aid rules relevant against the future policy context, in particular the European Green Deal and the future CAP? Effectiveness – Section 5.2 To what extent have the following objectives of the current State aid rules been achieved? -Minimise distortion of competition and trade in the agricultural and forestry sectors; -Provide predictability and legal certainty for Member States and beneficiaries; -Assure consistency of the agricultural State aid rules with the CAP and the rural development objectives; -Achieve societal objectives such as ecological and economic development. Efficiency – Section 5.3 To what extent are the rules efficient in terms of State aid procedures applicable to aid for, respectively, agriculture, forestry and non-agricultural activities in rural areas? To what extent have the revised rules brought simplification and reduction of administrative costs compared to the baseline scenario? Coherence – Section 5.4

To what extent are the State aid rules coherent with other EU policies/legislation, in particular the rural development policy under the CAP and the EU veterinary and public health policy? Are they coherent with the relevant horizontal State aid instruments? EU value added – Section 5.5 To what extent have the State aid rules ensured EU added value? 5.1.RELEVANCE This section evaluates whether the current State aid rules for agriculture, forestry and rural areas meet the needs of those sectors, in particular in relation to the objectives of the rural development policy under the CAP. State aid to promote the economic development of the agricultural and forestry sectors and of rural areas is embedded in the broader CAP. The economic effects of State aid do not change depending on whether it is (even partly) financed by the Union, or whether it is financed by a Member State alone. Consequently, the use of State aid can be justified only if it is in line with the CAP and, in particular, meet the underlying objectives of the rural development policy. Those objectives are, largely, to ensure viable food production and to promote the efficient and sustainable use of resources in order to achieve intelligent and sustainable growth. A majority of the respondents to the public consultation accorded very high importance to climate change mitigation and adaptation (62% and 60% respectively), ecosystem services and biodiversity (61%) and protection of public and animal health (53%) as well as sustainable forest management (53%). Figure 5: Stakeholders’ view on importance of objectives pursued by the granting of State aid Source: Public consultation Most of the State aid rules for agriculture are long-standing and have proven their relevance over the years. As indicated in the baseline scenario (Section 2.2), the substance of the current rules have not changed significantly compared to previous State aid frameworks, other than adaptations to ensure coherence with the rural development rules and to integrate the common assessment principles introduced by the SAM. Case-handling practice in the period 2014 – 2020 has not revealed any significant difficulties. Nor did the evaluation support study or the response to the public consultation reveal any important failures in meeting the needs of the farm and forestry sectors. To remain relevant, the rules under review will however have to be considered also in the light of recent policy developments and new Commission priorities, in particular the European Green Deal, the 2030 targets of the Farm to Fork and Biodiversity Strategy and the future CAP, including its enhanced environmental ambition. In that context, the relevance analysis largely depends on the aid category; i.e. is it a “rural development-like aid measure”, a measure financed under a rural development programme or a measure falling outside the scope of rural development? The relevance of the first two categories, seen also in a Green Deal context, is closely linked to the rules and objectives of CAP legislation. State aid rules on “rural development-like measures” are tailor-made to contribute to the rural development objectives embedded in the CAP. Rural development support for the forestry sector and for non-agricultural activities in rural areas is subject to State aid rules and procedures. For these two categories, the current State aid rules are therefore almost identical to the provisions laid down in Regulation (EU) No 1305/2013. A challenge in this context is the subsidiarity approach (known as the “delivery model”) envisaged for the future CAP Strategic Plans Regulation, which should replace the current Rural Development Regulation (EU) No 1305/2013 as of 2023. As regards the State aid category falling outside the scope of rural development, the relevance of aid for risk and crisis management in agriculture and forestry has become even more accentuated in recent years and is closely related to the Commission’s new political objectives addressing climate change and environmental concerns. The evaluation therefore gives specific attention to the aid categories related to risk and crisis management. 5.1.1.The agricultural sector The relevance of the State aid rules for the agricultural sector is assessed with a particular focus on the needs that farmers are facing in terms of risk and crisis management. Most of the State aid rules on risk and crisis management are long-standing. The assessment of whether the rules are still relevant takes into account overarching risk elements such as adverse climatic events, animal diseases and plant pests, fallen stock and damage caused by protected animals. It looks in particular at the market failures that farmers hit by such events would be facing in the absence of public support.

A study on risk management in EU agriculture carried out in 2018 shows that farmers are increasingly exposed to risks affecting their income and agronomic assets. Those risks are to a certain extent considered to be normal business risks that should be borne by the farmers themselves as entrepreneurs. However, they are becoming more frequent and more severe, because of climate change, and can put in particular small farmers in a dire financial situation. Certain tools for risk management are available under the CAP but they are of limited availability and unevenly used, according to the risk study. Moreover, adverse climatic events, animal diseases and plant pests do not only have a direct effect on the economic situation of the undertakings affected by an adverse event, but can also impact negatively on related public policy objectives. The risk management measures falling within the scope of the current State aid framework address farmers’ needs and contribute to public policy objectives in the following ways: -The evaluation shows that aid to make good damage caused by adverse climatic events associated with natural disasters (such as hail, heavy precipitation and drought) still meets the need of farmers to overcome major financial difficulties generated by the event so that they can stay in business. -Aid related to animal diseases and plant pests helps safeguarding the viability of farm holdings and, even more importantly, prevents the spread of animal diseases and plant pests. Aid for the disposal of fallen stock prevents the negative consequences of a potential mismanagement of dead animals and thus contributes to the protection of public and animal health. Moreover, it also addresses environmental concerns by preventing the pollution of soil, air and ground water that would occur if fallen stock was to be buried or burned. -Aid to make good damage caused by protected animals supports the co-existence of livestock farmers and protected animals and thus contributes to the wider CAP objectives of promoting biodiversity. Unlike the long-standing risk and crisis management measures referred to above, aid related to protected animals was not covered by the agricultural State aid framework until 2014. Case-handling practice shows that the inclusion of this aid category in the Guidelines has strengthened the relevance of the agricultural State aid framework in comparison to the baseline scenario. -Finally, aid for payment of insurance premiums favours the emergence of an insurance market for agricultural producers that would not exist in the absence of public support. Even if the European agricultural insurance market is highly diverse in terms of products and implementation, it appears to be developing in Member States where there is public support (for example in Spain and Poland). However, the availability of affordable insurance for farmers is still limited in most Member States. Aid for insurance premiums therefore remains a complement to aid for compensation of damage as it is not in itself sufficient to mitigate the risks that farmers are facing. The relevance of aid for risk and crisis management is confirmed by case-handling practice as well as by the evaluation support study and the public consultation. Interviews with competent authorities showed that the compatibility conditions and rules are adequate to meet the farmers’ needs and this finding was also confirmed by the online survey. In terms of expenditure, support measures related to animal diseases, adverse climatic events and insurance premiums are among the most important aid categories falling within the scope of the agricultural State aid framework. The evaluation thus shows that aid for risk and crisis management continue to help achieving the CAP objectives of viable food production and balanced territorial development. According to the responses to the public consultation, risk management objectives rank among the most important objectives pursued by the granting of State aid. Nevertheless, the interviews held in the context of the evaluation support study, as well as the response to the public consultation, pointed towards certain difficulties in relation to aid to mitigate risks caused by animal diseases, as follows: -Aid may only be granted in respect of diseases listed by the World Organisation for Animal Health or listed in Regulation (EU) No 652/2014, which means that State aid cannot be granted to compensate for loss caused by emerging diseases.

-Damage incurred during the phase of mere suspicion of a disease requires a formal recognition of the outbreak of the disease. -The rules on eligible costs do not allow for full compensation of income losses related to quarantine or multiannual losses and require products to be destroyed even if they can still be consumed. The evaluation support study and the outcome of the public consultation also highlighted that, for losses caused by protected animals, the provisions on eligible costs do not take into account indirect costs such as reduced production capacity. Farmers also find it disproportionate to have to take measures to prevent the risk of damage given that there are very few preventive tools that are really effective. The evaluation nonetheless concludes that the State aid rules for the agricultural sector remain relevant for farmers’ needs in terms of risk and crisis management. 5.1.2.The forestry sector The relevance of the current State aid rules for the forestry sector was assessed in the light of the question of whether they meet the forestry objectives as defined by the rural development policy. The assessment was mainly based on whether the forestry State aid measures are used by a large majority of Member States and whether the compatibility conditions, eligible costs and maximum aid intensities are adequate in relation to the needs of the sector. The evaluation shows that a large majority of the Member States (24 out of 28) implement aid for the prevention and restoration of damage to forests or for investments in forestry technologies. More than 90% of the expenditure in the period covered by that study concerned the prevention of damage. The major part of that expenditure was aimed at preventing forest fires and certain serious plant pests such as root rot and bark beetle. That aid was mainly implemented through rural development programmes, where 65 to 75 programmes (out of 109) include forestry support. Only two Member States, Finland and Ireland, and a few regions in France, Germany and Italy implemented forestry measures outside the rural development programme. The evaluation shows that national authorities and beneficiaries find compatibility conditions, eligible costs and aid intensities to be overall adequate. Nevertheless, interviews with Member States’ authorities in the context of the evaluation support study highlighted the following constraints: -Aid for the restoration of forests requires that the damaging event has caused “the destruction of at least 20% of the relevant forest potential affected”, a condition which is considered to be unclear. -Some entities that fall outside the definition of SMEs (such as rural municipalities and national parks) have difficulties complying with the incentive effect conditions imposed on large enterprises, in particular the requirement to submit a counterfactual scenario. In addition, several respondents to the public consultation, comprising both Member States authorities and forestry stakeholders, complained about some overly restrictive conditions for granting aid. Among the concrete examples were aid for afforestation and agroforestry (e.g. limits in time and number of annual payments) and difficulties to support the functioning of forest management associations because of the ineligibility of running costs. The evaluation nonetheless concludes that the State aid rules for the forestry sector are relevant in the sense that they largely meet the forestry objectives defined by the rural development policy.

5.1.3.Non-agricultural activities in rural areas The rules on aid for non-agricultural activities in rural areas were included in the scope of the agricultural State aid framework only to make it easier for Member States’ authorities to obtain State aid clearance for measures financed under the rural development programmes. They do not allow for measures financed exclusively by national funds and they are therefore relevant only in the sense that they facilitate the State aid procedures applicable to rural development support. Analysis of statistical data shows that this possibility was up to now only moderately used by Member States. In total, 192 aid schemes were notified or block-exempted in the period July 2014 until end of August 2020 in relation to non-agricultural activities in rural areas. This represents a mere 4.8% of all block-exempted cases in this period and close to 10% of all notified cases. Considerable differences in the uptake of the different sub-measures can however be observed. While 42 aid schemes were either notified or block-exempted for investments in non-agricultural activities, 40 for knowledge transfer and 28 for co-operation, other measures, notably setting up of mutual funds and aid for disadvantages related to Natura 2000 areas were not used at all. 5.1.4.Relevance of the current framework against a new policy context 5.1.4.1. CAP Strategic Plans Regulation As already explained above, the State aid rules on rural development-like measures and measures that can only be financed under a rural development program are almost identical to the provisions laid down in Rural Development Regulation (EU) No 1305/2013. However, the subsidiarity approach envisaged in the Commission’s proposal for the CAP Strategic Plans Regulation will be a challenge for the next State aid framework. This is not so much because of substance, as State aid objectives and measures will have to remain closely linked to and coherent with the CAP, but because the level of detail in the current State aid rules could interfere with the implementation of future rural development support measures. Under the CAP Strategic Plans Regulation, the Union will define the basic policy parameters (CAP objectives, broad types of interventions, basic requirements), but it will belong to the Member States to tailor the CAP interventions in their national strategic plans. Therefore, the future CAP rules will not provide any precise eligibility criteria. The absence of detailed rules under the CAP means that also the design of the future State aid rules will have to change, while still contributing to the achievement of the objectives and targets of the EU Green Deal, the Farm to Fork and Biodiversity Strategies, the provisions of the future CAP and its enhanced environmental ambition. The provisions on support for investments are an illustrating example. The current rural development rules define a set of investment operations eligible for support. Each of those operations corresponds to a given measure (or sub-measure), which is subject to a number of specific conditions. Maximum support rates differ depending on the type of measure. The CAP strategic plans proposal, on the other hand, outlines one single broad type of intervention called “investment”, which encompasses the current forms of support but without defining any specific measures matched by detailed eligibility criteria. The proposal includes instead a negative list of ineligible investments and categories of expenditure. In short, the future CAP legislation will no longer establish any detailed eligibility criteria that the State aid rules could reproduce.

5.1.4.2. European Green Deal As described under section 3.2, the policy initiatives under the European Green Deal are highly relevant for the agriculture and forestry sectors and for rural areas. As also described under section 3.2, the CAP reform proposal has the potential to accommodate the Green Deal’s ambitions, in particular its implementing policy initiatives, such as the Farm to Fork Strategy and the Biodiversity Strategy. The current State aid framework has the potential to contribute to the transition to a sustainable and biodiversity-friendly agriculture by reaching the overall goals of the Green Deal, in particular in relation to the Farm to Fork and Biodiversity strategies. Aid for investments in agriculture must pursue objectives such as sustainable food production, environmental and climate performance and animal welfare. Aid for investments in forestry must pursue objectives related to forest area development and improvement of the sustainability of forests in terms of resilience, health and quality. There is nonetheless scope for strengthening the incentive for farmers and foresters to invest in practices contributing to the achievement of the Green Deal objectives, taking into account also the rules on investments support under the future CAP. Many of the other aid categories falling within the scope of the current State aid framework also contribute to environmental and climate performance. The aid measures that are particularly relevant for achieving the objectives of the Green Deal are indicated in the table below. State aid measures contributing to Green Deal objectives Agriculture Forestry Investment aid for: -sustainability of agricultural holdings -improvement of the natural environment, hygiene an animal welfare standards, beyond Union standards -infrastructure related to supply and saving of energy and water -achievement of agri-environment-climate objectives, including biodiversity, Natura 2000 and other high natural value systems. Aid for agri-environment-climate commitments and animal welfare commitments Aid for disadvantages related to Natura 2000 and Water Framework Directive Aid for organic farming Aid for cooperation for joint actions undertaken with a view to mitigating or adapting to climate change Investment aid for: -afforestation and creation of woodland -agro-forestry systems -improvement of the resilience and the environmental value of forests ecosystems Aid for disadvantages related to Natura 2000 forest areas Aid for forest-environment, climate services and forest conservation Aid for maintenance and restoration of forest ecosystems, biodiversity and traditional landscapes Aid for maintenance and improvement of soil quality and a balanced and healthy tree growth Aid for restoration and maintenance of natural pathways, landscape elements and features and natural habitat for animals Aid for cooperation for joint actions undertaken with a view to mitigating or adapting to climate change Non-agricultural activities in rural areas Aid for agri-environment-climate commitments to land managers not active in agriculture Aid for disadvantages related to Natura 2000 areas to land managers not active in agriculture Aid for cooperation for joint actions undertaken with a view to mitigating or adapting to climate change Aid schemes for agri-climate-environment and for sustainable forests are widely used by Member States. For instance, in the period July 2014 to August 2020, Member States notified or exempted 62 measures for agri-environment-climate commitments, 35 measures for forest-environment climate services and 55 measures for afforestation. Under these three categories of State aid measures alone, EUR 1 315 million were disbursed in the period 2014-2018 , representing some 8% of total State aid expenditure under the current rules in this period. Already in the public consultation, which took place before the presentation of the European Green Deal, a considerable number of respondents highlighted the importance of tackling climate and environment related challenges in the State aid context. In particular, the sustainable use of natural resources, climate change mitigation/adaptation, the ecosystem services and biodiversity as well as the protection of public and animal health and sustainable forest management were perceived as important objectives pursued when granting State aid. Stakeholders would also favour activities with environmental and climate objectives, including an increase of the maximum aid levels for environment-climate actions targeting biodiversity, ecosystem services and carbon sequestration. 5.1.5.COVID-19 context The rules under review were only to a limited extent relevant in the context of the current COVID-19 crisis, given that they in general serve a different purpose than to provide liquidity to companies hit by unprecedented events, for which a specific State aid tool was designed, as explained in Section 3.3. The Guidelines, however, foresee the possibility to grant aid to make good the damage caused by natural disasters or exceptional occurrences in the agriculture sector (see section 1.2.1.1 of the Guidelines). Contrary to the other aid categories in the Guidelines, this section is based on Article 107(2)(b) of the TFEU. Its application is very restrictive, in particular when it comes to the definition of an exceptional occurrence. The COVID-19 outbreak in spring 2020 was recognised as an exceptional occurrence, both because of its unprecedented character and its magnitude. In this context, for instance the Netherlands used the possibility to compensate undertakings in the horticulture, floriculture and potato sectors for damages caused by the COVID-19 outbreak. Lithuania also made use of this possibility and set up a scheme to compensate poultry and egg producers for income losses incurred due to the COVID-19 outbreak. Several other measures in the Guidelines, in particular investment aid measures, can also be used by Member States to respond to such unprecedented declines of or shifts in consumer demand, as observed in spring 2020 in the context of the COVID-19 crisis. These measures can, on a more structural basis, stimulate diversification and lead to new economic activity in (sub)sectors hit particularly hard by the crisis.

The rules under review are, however, relevant for the Commission crisis response under the Recovery and Resilience Facility (RRF), to which State aid rules fully apply. In particular investment aid measures (such as in irrigation infrastructure or in the forestry sector) or measures linked to knowledge transfer and R&D in the agriculture and forestry sectors will contribute to fostering the digital and green transition, which the RRF aims to support.



5.2.EFFECTIVENESS This section evaluates to which extent the State aid rules established in 2014 for agriculture, forestry and rural areas have been effective in achieving their objectives of: -minimising distortion of competition and trade; -ensuring predictability and legal certainty for Member States and beneficiaries; -ensuring consistency with the CAP and the rural development objectives. The evaluation also looks at whether the rules provide for “good aid” in the sense that they contribute to societal objectives such as ecological and economic development, with focus on the measures referred to in sections 5.2.1, 5.2.2 and 5.2.3. The societal objectives are nonetheless secondary to the overall objective of State aid control, which is to minimise distortions of competition in the internal market. The analysis suggests that, as a whole, the current State aid rules have reached their objectives. The higher level of detail has allowed for a more transparent and streamlined compatibility assessment as regards both the Commission’s handling of notified aid and the Member States’ use of the ABER. The implementation of the common assessment principles introduced by the SAM seems to have contributed to a clearer methodological framework. Overall, State aid control has become more predictable, compared to what would have been the case under the baseline scenario, and has thus brought enhanced legal certainty to Member States and aid beneficiaries. Better consistency with rural development rules and objectives under the CAP was achieved through the alignment of the State aid rules with the Rural Development Regulation (EU) No 1305/2013. According to the evidence collected in the case studies, the current State aid rules have reached their overriding objective of minimising distortion of competition and trade on the internal market. In the absence of quantifiable aggregate data on the effects on competition and trade, the evolution of the number of complaints can be taken as proxy to indicate whether this objective was met. According to internal data, the number of complaints went from 119 in the period 2007-2014 to 36 in the period 2014 - 2020. Moreover, most of the complaints received since 2014 concerned potential local impacts and did not involve intra-EU trade at any significant scale. The response to the public consultation points in the same direction. Moreover, State aid rules follow the logic that the smaller the size of the aid, the smaller is the likelihood of distortion of competition. Several aid measures under the ABER are therefore subject to notification thresholds limiting the application of that regulation. If the aid amount for an undertaking or project exceeds a certain threshold, the Member State will have to notify the aid to the Commission for closer scrutiny. The notification thresholds under the ABER are in general set at the same level as the thresholds for corresponding measures under the GBER, whereas investments linked to the primary production of agricultural products have a specific, lower ceiling: EUR 500 000 per undertaking per investment project. This stems from the fact that, due to the specificities of this sector, even low levels of aid could bear a risk of potential distortion of competition. The lower notification threshold reflects approximately the ratio of the general de minimis ceilings (EUR 200 000) and the specific de minimis ceiling for farmers (EUR 15 000 at the time the ABER was adopted). In 2018, the latter de minimis ceiling was raised to EUR 20 000 (and EUR 25 000 under certain conditions), pointing to a possible leeway to also increase the notification threshold. However, for investments linked to primary agricultural production, the notification thresholds seem to play a very marginal role.

Case experience shows that only a small fraction of notifications is due to aid amounts above the notification threshold. The specific notification threshold of EUR 500 000 for investments linked to primary agricultural production can therefore be considered to be adequate. 5.2.1.The agricultural sector As already indicated in Section 5.1, most of the aid measures for the agricultural sector are long-standing and the current rules are, in substance, mainly the same as those applied under the previous State aid framework. The analysis suggests that these rules remain effective in ensuring predictability and legal certainty but that there is no significant change compared to the base-line scenario. However, case-handling experience shows that the alignment with the rural development rules has improved the consistency with the CAP, notably by allowing for a streamlined interpretation of the two set of rules. Otherwise, the main development compared to the baseline scenario is the simplification resulting from the inclusion in the Guidelines of aid to compensate damage caused by protected animals. Previously, this kind of aid had to be assessed directly under the Treaty. Since 1 July 2014, the Commission has adopted 51 State aid decisions under the Guidelines. Regarding the objective of minimising distortion on competition and trade, the evaluation takes into account the fact that State aid in the agricultural sector is mostly granted under schemes benefiting a very large number of beneficiaries (from hundreds to thousands), which are almost exclusively undertakings falling within the category of SMEs. This largely reflects the structure of the European agricultural sector. In 2016, there were 10 467 760 agricultural holdings within the EU-28. An analysis by economic size shows that 82.6% of these holdings were small (standard output < EUR 25 000), 10.4% were medium-sized and only 7% were of larger size with a standard output of more than EUR 100 000. The average size in terms of area was around 17 ha per farm. The effectiveness in terms of impacts on competition and trade was analysed more closely in relation to the aid for risk- and crisis management. This was done by a qualitative assessment, supported by online survey results, which showed that the distortive effects were limited for the following reasons: -case studies showed that the aid payments did not increase the production of the recipient undertakings; -there were no signs of distortive effects on competition within the Member States granting aid, because all undertakings affected by the adverse event had access to aid; -potential distortive effects on competition and trade between Member States is not excluded but is very limited, because aid amounts per undertaking are small and most Member States offer similar aid measures. Counterfactual scenarios show that aid to make good damage improves the beneficiary’s economic situation, even if the aid does not completely compensate for the losses incurred due to the adverse event. The impact on the economic situation also depends on the share of CAP support (mainly direct payments) in the farmers’ income, which by itself has an income-stabilizing effect. It ensures notably the viability of undertakings in fragile farming systems. The evaluation thus shows that the impact of risk management aid on competition and trade is negligible and that the positive effects largely outweigh the potential distortive effects. Overall, the evidence collected through case-studies indicate that the aid has effectively contributed to societal objectives such as public and animal health and the protection of biodiversity: -aid related to animal diseases and plant pests contributes to an increased acceptance of biosecurity measures in the event of epidemics;

-aid for fallen stock guarantees a safe disposal of carcasses; -aid to make good damage caused by protected animals promotes co-existence of livestock farmers and protected animals like wolves and lynxes. Regarding aid for the payment of insurance premiums, the support study showed that aid for insurance premiums in Spain and Poland had a positive effect on the uptake of insurance but that other factors also determine uptake, such as the types of production and risk covered, the quality of insurance products offered or the specific conditions for intervention of an insurance. Some distortive impacts on competition and trade between Member States cannot be excluded but they are mitigated by the condition that the aid may cover only part of the insurance premium costs (65%). In response to the public consultation, some stakeholders pointed out that Member States have different financial means for granting State aid. This is a valid comment but it also confirms the added value of State aid control. The very reason for why the Commission lays down State aid rules is to ensure that national budgets are spent on actions that contribute to public goods and do not hamper the functioning of the internal market. In that regard, the evaluation shows that the State aid rules have made it possible to grant public support for which the positive effects, in particular the achievement of public health objectives, exceed the very limited potential effects on competition and trade. Figure 6: Statements by stakeholders on State aid in the agricultural sector Source: Public consultation.



5.2.2.The forestry sector Until the adoption of a revised State aid framework for agriculture and forestry in 2014, forestry aid measures were dealt with under the horizontal State aid rules or granted as de minimis aid under Commission Regulation (EU) No 1407/2013. Case-handling experience shows that the inclusion of forestry aid measures in the agricultural State aid framework, together with the alignment of those measures with the rural development forestry measures, has not only led to a better consistency with the CAP but has also enhanced the predictability of State aid control. The alignment has in particular led to a harmonised interpretation of State aid rules and rural development rules, which contributes to ensuring legal certainty for both Member States and aid beneficiaries. As concerns the objective of simplifying procedures and reducing administrative costs, the use of the ABER in the forestry sector is a benchmark of success (until the end of 2020, 678 block exemptions were registered, containing a total of 892 forestry measures). The achievement of the objective to minimise impacts on competition and trade was assessed mainly on the basis of case studies relating to the following two aid measures: -aid for the prevention of damage to forests and restoration of forest potential;

-aid for investment in forest technologies, processing, mobilising and marketing of forest products. The effects on competition and trade were assessed qualitatively, based on the equal access to aid for forest holders/areas within the Member State concerned and on the influence of the aid on the volume of wood produced. a)Aid for prevention of damage to forests and restoration of forest potential The prevention of forest fires is one of the State aid measures that Member States use the most to support the forestry sector. Six out of eight Member States that were subject to case studies have set up schemes to prevent forest fires and to restore forest potential damaged by fires. The aid is used to support infrastructure, such as fire walls, fire tracks and water storage, as well equipment to detect forest fires. These measures are available in all regions with medium or high risk exposure to forest fires. The case studies carried out in France showed that regions exposed to high forest fire risk are mainly located in the south of the country. These forests are of low productivity, except for those in Aquitaine (1.25 million ha), where the “Landes” (almost 557 000 ha), is a large and productive forest area. The average public investment in infrastructure and equipment to prevent forest fires in Aquitaine was estimated at EUR 1/ha per year. The contribution from forest holders was around EUR 1.6/ha per year. Together, the support made it possible to maintain more than 20 000 km of forest tracks and 25 000 bridges in 557 000 ha of the Landes forest. The amount of EUR 1/ha per year represents 0.4% of the current value of harvested wood after 40 years, which is estimated at around EUR 8 750. The case study thus concluded that the aid did not influence the volume of wood produced and did not lead to an increase in production volume compared to the situation before the aid was granted. The prevention measure in Aquitaine has been very effective in limiting forest fires. Although there were numerous fire outbreaks (between 2000 and 4000 per year from 2007-2016), over 80% of those fires affected less than 1 ha. The damage was thus limited, despite the fact that the period subject to study included years with record summer temperatures, increasing population in the concerned departments and an increase in tourists in the summer. The measure had major positive effects on the security of the local population (including tourists), the local forestry-based economy and the environment (including CO2 emissions). The case study thus concluded that the positive effects of the aid largely outweighed any distortive effects on competition and trade between Member States. That conclusion was confirmed by the respondents to the online survey of the evaluation study. The evaluation support study also comprised two case studies on aid for prevention of plant pests, namely prevention of bark beetle in Germany and root rot in Finland. The scale of the two aid schemes differs in terms of expenditure in the evaluation period. The German scheme is small-scale (< EUR 0.4 million), whereas the Finnish scheme is large-scale and nationwide (EUR 8.4 million). The aid aims at encouraging forest holders to implement prevention measures that are environmentally friendly but cumbersome (preferring the mechanical preventive measures instead of insecticides in Bavaria for Bark Beetle) or using them systematically when harvesting (Root Rot in Finland). In Germany (Bavaria), aid for mechanical preventive measures was available to all forest holders (i.e. private forest managers, their associations and municipalities). The measures concern small volumes of wood (80-160m³), small amounts per application (EUR 1 300 – EUR 2 800/application) for a total expenditures of less than EUR 0.4 million. The case study concluded that these very small volumes did not affect trade in the internal market. The overall conclusion was that the environmental benefit of avoiding the use of insecticides largely exceeds any distortive effects that the aid might have. Despite the fact that aid amounts are small, they still create incentives for forest holders to use the laborious mechanical treatment. In Finland, aid for urea treatment to combat root rot when harvesting wood was available to all forest holders for a standard amount (EUR 75/ha). The case study showed that the aid allowed to limit losses of wood due to root rot but did not increase the volume of wood produced. For forest holdings, the costs of the treatment indicatively represents 0.45% of the gross income from felling. However, although the treatment costs appears small in relation to gross income, not all foresters were treating stumps left after thinning or felling, even with the subsidy. The limited incentive effect of the aid explains why the treatment was made mandatory from mid-2016 onwards. The Finnish forest output was estimated at EUR 1.7 billion and EUR 1.8 billion in 2015 and 2016 respectively. Aid to prevent root rot represented less than 1% of the forest output and operating profit of non-industrial forestry. It was thus unlikely that the aid would have distortive effects on the internal market, whereas the positive effects of limiting the spread of a serious plant pest was important, also for neighbouring Member States. The analysis of the use of aid for prevention of damage to forests and restoration of forest potential thus confirms that achievement of societal objectives, notably the development of resilient and healthy forests that contribute to biodiversity and climate goals, can be deemed to outweigh the limited effects of the aid on competition and on trade.

b)Aid for investment in forest technologies and in processing, mobilising and marketing of forest products The assessment was largely based on a case study for Baden-Württemberg, where the rural development programme supports investment in soil-friendly forwarding machines (machines that carry felled logs from the stump to a roadside storage point). The aid aims at creating incentives for SMEs to change their equipment in order to achieve sustainable forwarding of wood. Sustainable forwarding is essential for the maintenance and restoration of biodiversity and natural regeneration. When assessing potential distortive effects on competition and trade, the study took into account the fact that the aid amount was very small (20% aid intensity, unique investment, aid of EUR 2 500 for moor belts to EUR 11 500 for forwarding machines), but also the fact that competitors in other countries and regions did not necessarily have access to similar types of aid. According to the findings of the study, the potential distortive effects were limited for the following reasons: (i) the aid was small in absolute terms and by m³ (EUR 0.2-0.3/m³); (ii) the volume concerned small amounts of wood in difficult areas (mountainous, steep slopes, wet areas); and (iii) the beneficiaries were mainly micro and small enterprises. The competition authority of a neighbouring region did not find the aid distortive. This opinion was also shared by the respondents to the online survey. It was therefore concluded that the environmental benefits exceeded the limited effect on competitors. c)Results from the public consultation According to the response to the public consultation, aid in the forestry sector has had a generally positive impact. Even though about one third of the respondents replied that they had no strong views, two thirds of the respondents found that the aid has helped to achieve viable forest area development. Many of them also confirmed that State aid had helped the development of the bioeconomy, had increased the resilience and protection of forest ecosystems and contributed to carbon sequestration as well as to the recreational or ecological function of forests. Nevertheless, three environmental Non-Governmental Organisations argued that the aid could lead to lower prices in raw materials, resulting in increased biomass use. Figure 7: Statements of Stakeholders related to State aid in forestry Source: Public consultation 5.2.3.Non-agricultural activities in rural areas As already pointed out above, the rules on aid for non-agricultural activities in rural areas were included in the scope of the agricultural State aid framework only to make it easier for Member States’ authorities to obtain State aid clearance for measures financed under the rural development programmes. The effectiveness of this kind of rural development support was nonetheless assessed in relation to the balance between the positive impacts of the aid on jobs and growth in rural areas and the potential distortive effects on competitors and on trade. The scope of this assessment was narrow, because it turned out that Member States continue using the same venues as in the past (mainly the GBER and the general de minimis rules set out in Regulation (EU) No 1407/2013) to seek State aid clearance for non-agricultural investments, whereas the agricultural State aid rules are applied only to very limited extent. The assessment of the potential impact on competition and trade was done by simulating counterfactual scenarios (with or without support) based on accounting information provided in case studies in four Member States. This was complemented by interviews with beneficiaries, competitors and managing authorities.

The case studies covered investments in processing of agricultural products into a great variety of non-agricultural products (notably bread and bakery products, including gluten-free products, craft beers, distilled products (coriander oil), fruit drinks, ice cream, meat products, potato snacks). Many projects were innovative and often concerned niche markets. The scarcity of relevant data made it difficult to assess distortive effects on trade. As many projects concerned niche markets and very specific products, no statistics were publicly available on trade in the EU. It was however concluded that the aid is unlikely to have distortive effects on competitors or to have an impact on the internal market, for the following reasons: -the aid beneficiaries are almost exclusively SMEs; -the allowed aid intensities are as low as 10-20% (unless the investment takes place in a region with constraints such as sparsely populated, less developed or transition regions, for which higher aid intensities may apply); -the size of the investment projects were small and the aid of the large majority of the projects amounted to less than EUR 2 million; -support for the same type of investments is available in a majority of Member States’ rural development programmes. Moreover, the projects were funded under rural development programmes and contributed to rural development priorities, by promoting a food chain organisation with processing and marketing of foodstuff, in particular by ensuring a better integration of farmers in the agri-food chain and by promoting resource efficiency. The response to the public consultation regarding the rules on aid for non-agricultural activities was weak. However, among those who responded, a vast majority took the view that the aid has favoured the creation and development of SMEs in rural areas and has thus had a positive impact on employment and growth as well as on the social fabric in those areas. Figure 8. Statement by stakeholders on State aid in rural areas Source: Public consultation Based on the various (internal and external) sources, the evaluation confirms that the State aid rules are effective in preventing distortive impacts on competition and trade. The fact that Member States often use GBER instead of ABER as a State aid basis for measures in rural areas (see under section 5.4.5 below) also underpins that the sector specific rules are not overly favourable and thus their potential for distorting competition is limited. Moreover, any potential impact on competition and trade is balanced by the contribution of the aid to the creation of growth and jobs in rural areas. 5.2.4.Conclusions The overall conclusion drawn from case-handling practice, case-studies and the response to the public consultation is that that the current State aid rules have proven to be largely effective in achieving their objectives. The evaluation confirms that the rules have reached the Treaty objective of minimising the impact of domestic support on the functioning of the internal market. The analysis of specific aid measures also suggests that the positive effects of those measures largely outweigh any negative effect that they might have had on competition and trade, in the sense that the aid has helped achieving the rural development objectives of viable food production, a sustainable use of resources in both agriculture and forestry as well as the creation of growth and jobs in rural areas. The analysed aid measures also seem to have achieved their societal objectives in terms of protecting public and animal health and contributing to the ecological development of the forestry sector. Overall, the evaluation shows that the current rules surpasses the baseline scenario when it comes to ensuring the predictability and legal certainty in State aid control.

However, the evaluation also revealed some elements that may need further clarification or fine-tuning in the context of the upcoming revision of the rules in order to enhance their effectiveness.



5.3.EFFICIENCY This section evaluates the efficiency of the agricultural State aid rules. Besides analysing how the State aid rules per sector have performed in relation to the procedure for obtaining State aid clearance, it looks in particular at whether the rules have led to an overall simplification and reduction of administrative costs compared to the baseline scenario. It is in this context important to understand how block-exempted versus notified aid measures work in praxis. In the case of exemptions, the Member State designs its project to be fully in line with all the conditions of the ABER, which implies that the measure is per se compatible with the internal market. The Member State can then implement the aid measure without having to seek the Commission’s approval. Notified measures, on the other hand, require the Commission’s assessment of the compatibility of the aid with the internal market and cannot be implemented without first being authorised by the Commission. In-house data show an overall increase in the number of exemptions under the ABER and a decrease of notifications under the Guidelines, since the enlargement of the scope of the ABER in 2014. The larger ABER uptake implies that State aid measures are processed more rapidly than what would be the case under the baseline scenario, since aid measures under the ABER do not require any Commission decision before being implemented. This also has an impact on the undertakings benefitting from the measure, because they get access to aid faster. The figure below indicates the share of notifications and exemptions under the previous State aid framework established in 2007 and those of the current State aid framework established in 2014, subject of the evaluation. Figure 9: Share of notifications under the Guidelines and exemptions under the ABER In-house data also suggest that the Commission’s case assessment process has become more efficient, in the sense that the average number of days required for handling notifications in the period 2014 to 2020 has shortened considerably compared to the previous period. The length of case-handling is illustrated by figure 10. The deviations in years 2013 and 2020 from the overall trend can be explained by the use of simplified notification procedures to extend existing aid schemes that otherwise would have expired at the end of those years. Figure 10: Length of the notification procedures in the period 2007 to 2020 (number of days) Source: COMP data

5.3.1.The agricultural sector The assessment mainly looked at Member States’ choices as regards which State aid instrument to use in terms of efficiency considerations as well as the time that Member States and the Commission services spend on State aid procedures. Most of the current aid measures in agriculture fell within the scope also of the previous State aid instruments applicable in the period 2007 to mid-2014. The only major change, compared to the baseline scenario, was the inclusion in the Guidelines of aid to make good damage caused by protected animals and aid for closing production capacity. Statistics and interviews with national authorities show that State aid procedures in the field of agriculture, including preparations within the Member State, are at an acceptable level. It takes the Commission on average five months from the notification to adopt a decision. However, the length of that procedure is strongly influenced by the quality of the notification and the need to obtain further clarification and information from the Member State. The support study showed that the average length of notification procedures for risk management aid is more or less the same (ranging from 3.3 months for aid for insurance premiums to 6.5 months for aid regarding protected animals) as for other aid categories within the agricultural sector, as illustrated by figure 11. The slightly longer average duration for approving aid to make good damage caused by protected animals can be explained by the learning curve for both national authorities and the Commission services since this aid measure was included in the Guidelines only in 2014. Figure 11: Average length of notification procedures for agricultural risk management measures Statistics show that Member States favour using the ABER and national authorities have explained that exemptions entail less administrative costs compared to notifications. According to the statistics on risk management aid measures, an average of seven aid schemes is exempted for every notified scheme. Also the response to the public consultation showed that notifications under the Guidelines are associated with heavier administrative costs than exempting aid under the ABER. The assessment suggests that some Memb