Case C-283/03

A.H. Kuipers

v

Productschap Zuivel

(Reference for a preliminary ruling from the College van Beroep voor het bedrijfsleven)

(Common organisation of the markets – Milk and milk products – Regulation (EEC) No 804/68 – National scheme under which dairies withhold deductions from the price payable to dairy farmers or pay price supplements to them according to the quality of the milk supplied – Incompatibility)

Opinion of Advocate General Kokott delivered on 16 December 2004

Judgment of the Court (First Chamber), 26 May 2005

Summary of the Judgment

Agriculture — Common organisation of the markets — Functioning — Producer prices — Fixing — Community legislation — Member State intervention — Limits — Milk and milk products — National provisions instituting a mechanism reducing the price of milk on the basis of quality criteria, favouring only dairy farmers who meet those quality criteria — Not permissible

(Council Regulation No 804/68, as modified by Regulation No 1538/95)

In a sector covered by a common organisation, a fortiori where that organisation is based on a common pricing system, Member States can no longer take action, through national provisions taken unilaterally, affecting the machinery of price formation at the production and marketing stages established under the common organisation. They may, however, adopt measures intended to remove a distortion of competition, since measures of that kind do not as such affect the fixing of prices but rather seek to safeguard the proper working of the machinery for setting prices in order to achieve price levels which serve the interests of both producers and consumers.

The machinery of price formation governed by Regulation No 804/68 on the common organisation of the market in milk and milk products, as modified by Regulation No 1538/95, is, however, affected by the system which, whatever its alleged or stated objective may be, institutes a mechanism under which:

– on the one hand, dairies are required to withhold deductions from the price of milk delivered to them when that milk does not meet certain quality criteria and,

– on the other hand, the amount thus withheld over a given period by all the dairies is aggregated before being redistributed, after possible financial adjustments between the dairies, in the form of supplements identical in amount paid by each dairy, per 100 kilograms of milk delivered to it during that period, to those dairy farmers alone who have delivered milk meeting those quality criteria.

(see paras 42-43, 53, operative part)

JUDGMENT OF THE COURT (First Chamber)

26 May 2005 ( )

(Common organisation of the markets – Milk and milk products – Regulation (EEC) No 804/68 – National scheme under which dairies withhold deductions from the price payable to dairy farmers or pay price supplements to them according to the quality of the milk supplied – Incompatibility)

In Case C-283/03,

REFERENCE under Article 234 EC for a preliminary ruling made by the College van Beroep voor het bedrijfsleven (Netherlands) by decision of 27 June 2003, lodged at the Court on 30 June 2003, in the proceedings

A.H. Kuipers

v

Productschap Zuivel,

THE COURT (First Chamber),

composed of P. Jann, President of the Chamber, K. Lenaerts, J.N. Cunha Rodrigues, K. Schiemann (Rapporteur) and M. Ilešič, Judges,

Advocate General: J. Kokott,

Registrar: M.-F. Contet, Principal Administrator,

having regard to the written procedure and further to the hearing on 28 October 2004,

after considering the observations submitted on behalf of:

– Mr Kuipers, by A. Noordhuis, advocaat,

– Productschap Zuivel and the Netherlands Government, by H.G. Sevenster and J. van Bakel, acting as Agents,

– the Commission of the European Communities, by T. van Rijn, A. Stobiecka-Kuik and H. van Vliet, acting as Agents, assisted by M. van der Woude, advocaat,

after hearing the Opinion of the Advocate General at the sitting on 16 December 2004,

gives the following

Judgment

1 The reference for a preliminary ruling concerns the interpretation of Regulation (EEC) No 804/68 of the Council of 27 June 1968 on the common organisation of the market in milk and milk products (OJ, English Special Edition 1968 (I), p. 176), as amended by Council Regulation (EC) No 1538/95 of 29 June 1995 (OJ 1995 L 148, p. 17; hereinafter ‘Regulation No 804/68’), Article 92 of the EC Treaty (now, after amendment, Article 87 EC) and Article 93 of the EC Treaty (now Article 88 EC).

2 The reference has been made in the course of proceedings between Mr Kuipers and Productschap Zuivel (Dairy Board) regarding deductions made by the latter in July and August 1995 from the price payable to Mr Kuipers for deliveries of raw milk.

Law

Community legislation

3 Article 3 of Regulation No 804/68 provides:

‘1. Before 1 August of each year a target price for milk shall be fixed for the Community in respect of the milk year beginning in the following calendar year.

…

2. The target price shall be that price which it is aimed to obtain for the aggregate of producers’ milk sales, on the Community market and on external markets, during the milk year.

3. The target price shall be fixed for milk containing 3.7% fat, delivered to dairy.

4. The target price shall be fixed in accordance with the procedure laid down in Article 43(2) of the Treaty.’

4 Article 5 of Regulation No 804/68 provides:

‘Each year at the same time as the target price for milk, and in accordance with the same procedure, the following shall be fixed:

a) an intervention price for butter;

b) an intervention price for skimmed milk powder …’.

5 Article 23 of Regulation No 804/68 provides:

‘Save as otherwise provided in this Regulation, Articles 92 to 94 of the Treaty shall apply to the production of and trade in the products listed in Article 1.’

6 Article 24 of that regulation states as follows:

‘1. Subject to the provisions of Article 92(2) of the Treaty, aids the amount of which is fixed on the basis of the price or quantity of products listed in Article 1 shall be prohibited.

2. National measures permitting equalisation between the prices of products listed in Article 1 shall also be prohibited.’

7 Article 5 of Regulation (EEC) No 1411/71 of the Council of 29 June 1971 laying down additional rules on the common organisation of the market in milk and milk products for products falling within tariff heading No 04.01 (OJ, English Special Edition 1971 (II), p. 412) provides as follows:

‘1. Without prejudice to requirements for the protection of public health as regards milk suitable for human consumption, drinking milk, other than raw milk, may be produced in the Community only by milk processors.

Milk used for making such drinking milk shall have been subject to a system of payment varying according to quality. This system must guarantee that milk used as raw material for making drinking milk reaches certain standards of quality, including composition.

…

3. The Council, acting in accordance with the voting procedure laid down in Article 43(2) of the Treaty on a proposal from the Commission, shall adopt general rules for the application of paragraph 1.

4. Detailed rules for the application of paragraph 1 shall be adopted in accordance with the procedure laid down in Article 30 of Regulation (EEC) No 804/68.’

Netherlands legislation relating to payment for raw milk adjusted according to its quality

8 Article 2 of the Law on the Quality of Agricultural Products (Landbouwkwaliteitswet, Staatsblad 1971, p. 371), as amended by the Law of 23 December 1993 (Staatsblad 1993, p. 690), permits the adoption of rules on the quality of agricultural products, including milk and milk products, which are intended to promote the sales thereof. Those rules may, inter alia, relate to ‘payment according to the quality of products’.

9 Article 3(1) of the Decree on the Quality of Agricultural Products: raw milk and dairy production (Landbouwkwaliteitsbesluit: rauwe melk en zuivelbereiding, Staatsblad 1994, p. 63), as amended by the Regulation of 26 June 1995 (Nederlandse Staatscourant 1995, p. 122, hereinafter ‘the Decree on the Quality of Agricultural Products’), provides:

‘The Minister may lay down rules for raw milk, heat-treated drinking milk and products made from milk, with regard to:

(a) … in so far as raw milk is concerned, payment according to the quality;

...

(c) the obligation for certain affiliated establishments to pay to the COKZ [(Centraal Orgaan voor Kwaliteitsaangelegeheden in de Zuivel) (Central Council for Dairy Product Quality Assurance)] deductions imposed and other sums of money in connection with the quality of raw milk and the obligation for the COKZ to pay to certain establishments affiliated to it price supplements in connection with the quality of raw milk.’

10 According to Article 4 of the Decree on the Quality of Agricultural Products, the Minister may, however, order that the rules referred to in Article 3(1) of that decree are to be adopted by byelaw by the management of the Productschap (Product Board), a body governed by the Law on the Organisation of Undertakings (Wet op de Bedrijfsorganisatie), which groups undertakings by product.

11 The Regulation on the Quality of Agricultural Products: payment for farm milk according to quality (Landbouwkwaliteitsregeling uitbetaling van boerderijmelk naar kwaliteit) (Nederlandse Staatscourant 1994, p. 25) was adopted by the Staatssecretaris van Landbouw, Natuurbeheer en Visserij (Minister for Agriculture, Nature Conservation and Fisheries). Article 2 of that regulation confers on the Productschap Zuivel (Dairy Board, hereinafter the ‘Productschap’) authority to lay down, by way of byelaws, the rules relating to payment according to quality for farm milk concerning, inter alia, ‘the withholding of a deduction and the payment of a quality supplement’.

12 The management of the Productschap adopted the Byelaw on the Quality of Agricultural Products 1994: Payment for farm milk according to quality (Landbouwkwaliteitsverordening 1994, Uitbetaling van boerderijmelk naar kwaliteit, PBO blad 1994, afl. No 9; hereinafter the ‘1994 byelaw’). Article 2(1) of that byelaw states as follows:

‘‘The recipient of farm milk shall pay the dairy farmers concerned for that milk according to the quality, having due regard to the provisions set out in or pursuant to this byelaw.’

13 Article 10(1) of the 1994 byelaw provides:

‘An assessment shall be attributed by the milk monitoring station to the results of the quality testing, in accordance with a system comprising standards, deduction points and other deductions to be imposed, adopted by the chairman after hearing the views of the COKZ.’

14 According to Article 11 of the 1994 byelaw:

‘1. The recipients of farm milk shall, in respect of a fixed period of 12 weeks, pay a quality supplement to dairy farmers who in the period in question are assigned in total not more than one deduction point and whose milk is found not to contain any antibiotic ...

2. The amount of the quality supplement shall be fixed per 100 kilogrammes of milk for each region determined by the chairman, after hearing the views of the COKZ, in such a way that the total amount of quality supplements per period is the same or approximately the same as the total amount of deductions withheld.’

15 By decision of 14 February 1995, the president of the Productschap designated the entire territory of the Netherlands as a region within the meaning of Article 11(2) of the 1994 byelaw.

16 Article 12 of that byelaw provides:

‘For each sampling period, the recipient of farm milk shall withhold, on the basis of the total number of deduction points assigned, a deduction to be determined by the chairman after hearing the views of the COKZ, in respect of the total quantity of farm milk delivered in that period by the dairy farmer concerned, as well as any deduction(s) in respect of individual deliveries on account of the presence of antibiotics.’

17 The Decree on the determination of frequency and assessment of results of quality testing (Besluit vaststelling frequentie en beoordeling resultaten kwaliteitsonderzoek), as amended by the Decrees of 19 July 1994 and 15 February 1995, adopted by the president of the Productschap, lays down, inter alia, the deductions to be imposed.

18 In their written observations, the Netherlands Government and the Productschap submit in that regard that the deduction points are applied according to the extent to which the milk delivered differs from the standard, the deduction itself being set at NLG 0.02 per kilogramme of milk and per point. By way of derogation from this scale, a deduction of NLG 0.50 is applied per kilogramme of milk delivered which has been shown to contain antibiotics.

19 That Government and the Productschap pointed out, in the same way, that in order to allow the COKZ to calculate the amount of the quality supplement per 100 kilogrammes of milk delivered, at the end of a sampling period the dairies supply it, per milk producer, with the information relating to the quantities of milk delivered, the deduction points and amounts of deductions made during that period. After having made that calculation, the COKZ informs each dairy of the total amount of quality supplements which it is required to pay. Where the amount of deductions retained by a dairy is greater than the amount of supplements which it must pay, it transfers the difference to the COKZ, whilst the latter undertakes to repay the amounts thus collected to the dairies which are required to pay an amount of supplements above the amount of the deductions which they have retained.

The dispute in the main proceedings and the questions referred for a preliminary ruling

20 Mr Kuipers is a dairy farmer in the Netherlands. After various deliveries to the De Kievit dairy, the latter informed him, by letters of 24 and 28 July 1995 and 8 and 15 August 1995, that, given the presence of an antibiotic in the milk delivered, it would be making a deduction from the price to be paid for those deliveries at a rate of NLG 0.50 per kilogramme, in accordance with Article 12 of the 1994 byelaw.

21 As the administrative appeal brought by Mr Kuipers against that decision was dismissed by the COKZ, he contested the position adopted by it before the Arrondissementsrechtbank te Groningen (District Court, Groningen). By decision of 20 April 1999, that court declared that it did not have jurisdiction to hear the action.

22 The latter decision was overturned on appeal by the Raad van State (Council of State) which, by judgment of 16 May 2000, also annulled the decisions adopted by the COKZ and ordered that Mr Kuiper’s initial claim be transferred to the Productschap, which alone was competent to deal with it.

23 In that judgment, the Raad van State stated, inter alia, that ‘under the [1994 byelaw] …, a dairy is entrusted, in Article 12, with the task of withholding a deduction in respect of the total quantity of farm milk delivered by a dairy farmer in a particular period … and, in Article 11, it is likewise required to pay a quality supplement. However, according to the broad logic of that byelaw, the decisions concerning such payments and deductions must be attributed to the [Productschap]. The byelaw was adopted by the management of the [Productschap] and the obligations laid down in it are imposed on a dairy by that management. It follows from Article 12 that the chairman of the Productschap determines the deduction to be withheld. The system comprising standards and deductions to be imposed was also adopted by the chairman. A dairy, as a contracting party on the market in dairy products, merely provides financial and administrative assistance. It does not have the public-law authority to determine the legal status (rights and/or obligations) of other persons subject to the law’.

24 By decision of 20 December 2000, the Productschap held that Mr Kuiper’s claim was not well founded. Mr Kuipers then appealed against that decision to the College van Beroep voor het bedrijfsleven (Administrative Court for Trade and Industry).

25 That court takes the view, firstly, that the withholding of deductions by the De Kievit dairy on the amounts due to Mr Kuipers must be attributed to the Productschap.

26 It considers, secondly, that the Netherlands legislation on the payment for raw milk adjusted according to its quality does not infringe Council Regulation (EEC) No 2377/90 of 26 June 1990 laying down a Community procedure for the establishment of maximum residue limits of veterinary medicinal products in foodstuffs of animal origin (OJ 1990 L 224, p. 1), or Council Directive 92/46/EEC of 16 June 1992 laying down the health rules for the production and placing on the market of raw milk, heat-treated milk and milk-based products (OJ 1992 L 268, p. 1), or Council Directive 92/47/EEC of 16 June 1992 on the conditions for granting temporary and limited derogations from specific Community health rules on the production and placing on the market of milk and milk-based products (OJ 1992 L 268, p. 33). In its opinion, that Community legislation does not preclude raw milk which complies with the standards thus set from being differentiated for the purpose of determining the price payable to the producer.

27 Nor, finally, in the view of the national court, does that national legislation infringe Regulation No 1411/71. It considers that Article 5 thereof requires Member States to put into effect a system of payment varying according to quality with regard to milk used to make drinking milk and neither the letter nor the spirit of that provision permits the conclusion that its aim, namely to make available high-quality products for consumption, could not also be achieved by national systems of payment varying according to quality applicable to milk intended for the manufacture of other milk-based products.

28 However, the College van Beroep voor het bedrijfsleven is doubtful as to the compatibility of that national legislation with Regulation No 804/68 given, on the one hand, the effect which that could have on the system of common prices laid down by that regulation and, on the other hand, the fact that that national legislation could bring about an equalisation between the prices of milk products prohibited by Article 24(2) of that regulation, or, as is prohibited under Article 24(1), institute aid determined by reference to the price or quantity of milk delivered.

29 In the same way, the national court is uncertain whether the supplements instituted by that national legislation constitute aid within the meaning of Article 92 of the Treaty and whether that legislation should, on that basis, have been notified to the Commission as provided for by Article 93(3) of the Treaty.

30 It was in those circumstances that the College van Beroep voor het bedrijfsleven decided to stay proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘1. Is a national system of deductions and supplements based on the quality of raw milk delivered to the dairy, such as that at issue, consistent with Regulation (EEC) No 804/68 on the common organisation of the market in milk and milk products and in particular with the prohibition of “equalisation between the prices” in Article 24(2) … ?

2. Is a national system of supplements based on the quality of raw milk delivered to the dairy, such as that at issue, consistent with the prohibition of aid in Article 24(1) of Regulation (EEC) No 804/68?

3. If Question 2 is answered in the affirmative, is such a national system to be regarded as aid the grant of which must be notified beforehand to the Commission under Article 93(3) of the EC Treaty … ?’

The order in which the questions must be examined

31 As emerges from the questions referred by the national court, the latter is requesting an examination of the national system at issue in the main proceedings in the light of various provisions of Community law.

32 In that regard, it is important to note that, in the event of proceedings relating to an agricultural sector governed by a common organisation of the market, the problem raised must first be examined from that point of view having regard to the precedence necessitated by Article 38(2) of the EC Treaty (now, after amendment, Article 32(2) EC) for the specific provisions adopted in the context of the common agricultural policy over the general provisions of the Treaty relating to the establishment of the common market (Case 177/78 McCarren [1979] ECR 2161, paragraph 9).

33 The application of that principle to this case means that consideration should first be given to the first and second questions, which relate to the system of common prices instituted by Regulation No 804/68 and to Article 24(1) and (2) thereof, provisions which both form an integral part of the common organisation of the market instituted by that regulation (see, by analogy, McCarren, cited above, paragraph 10).

34 This method of dealing with the questions is necessary also in a separate respect. By virtue of Article 42 of the EC Treaty (now, after amendment, Article 36 EC), the provisions of Title VI, Chapter 1 thereof, relating to rules on competition, are applicable to production of and trade in agricultural products only to the extent determined by the Council within the framework of measures adopted for the organisation of agricultural markets. In that regard, Article 23 of Regulation No 804/68 provides that, save as otherwise provided in that regulation, Articles 92 to 94 of the EC Treaty (now Article 89 EC) are to apply to the production of and trade in the products covered by that regulation. It follows from Article 23 that, although Articles 92 to 94 of the Treaty are fully applicable to the milk and milk products sector, their application nevertheless remains subordinate to the provisions governing the common organisation of the market established by the regulation. In other words, recourse by a Member State to the provisions of Articles 92 to 94 on aid cannot receive priority over the provisions of the regulation on the organisation of that sector of the market (see, by analogy, McCarren, paragraph 11).

35 It follows that the potential need to examine the third question, which seeks to assess the national system at issue in the main proceedings in the light of Articles 92 to 94 of the Treaty, is subordinate to the answer which will be given to the first two questions of the national court.

The first question

36 As can be seen, inter alia, from the grounds for the order for reference, the first question seeks to determine, firstly, whether the system of common prices instituted by Regulation No 804/68 precludes a national system such as that described in paragraphs 8 to 19 of the present judgment (hereinafter ‘the national system at issue in the main proceedings’) which provides that dairies retain deductions from the price of milk payable to dairy farmers or pay supplements to them according to the quality of the raw milk that they deliver and, secondly, whether Article 24(2) of that regulation must be interpreted as meaning that such a national system constitutes a measure permitting ‘equalisation between the prices of products listed in Article 1’ of that regulation which is prohibited by Article 24(2).

The first part of the first question

37 With regard to the first part of the first question, relating to the scope of the system of common prices instituted by Regulation No 804/68, it should be observed at the outset, as the Advocate General noted in point 32 of her Opinion, that it is settled case-law that, where there is a regulation on the common organisation of the markets in a given sector, the Member States are under an obligation to refrain from taking any measures which might undermine or create exceptions to it. Rules which interfere with the proper functioning of a common organisation of the markets are also incompatible with such common organisation, even if the matter in question has not been exhaustively regulated by it (see, inter alia, Case C-1/96 Compassion in World Farming [1998] ECR I-1251, paragraph 41, and the case-law there cited).

38 Submitting that the rules under the national system at issue in the main proceedings have the sole aim of encouraging dairy farmers to deliver only high‑quality milk so as to help its sale, however, the Netherlands Government and the Productschap rely on settled case‑law of the Court according to which the establishment of a common organisation of the agricultural markets pursuant to Article 40 of the EC Treaty (now, after amendment, Article 34 EC) does not have the effect of exempting agricultural producers from any national provisions intended to attain objectives other than those covered by the common organisation, even though such provisions may, by affecting the conditions of production, have an impact on the volume or the cost of national production and therefore on the operation of the common market in the sector concerned (see Joined Cases 141/81 to 143/81 Holdijk and Others [1982] ECR 1299, paragraph 12; Case 118/86 Nertsvoederfabriek Nederland [1987] ECR 3883, paragraph 12; and Case C-309/96 Annibaldi [1997] ECR I-7493, paragraph 20).

39 The Netherlands Government and the Productschap point out, more particularly, that the Court has, when faced with national measures on the quality of products containing a prohibition on the production of cheese of a quality other than that laid down by the national legislation, accepted that, in the absence of any rule of Community law on the quality of cheese products, the Member States retain the power to apply rules of that kind to cheese producers established within their territory (Case 237/82 Jongeneel Kaas and Others [1984] ECR 483, paragraphs 12 to 14).

40 Furthermore, the Netherlands Government and the Productschap reiterate that the target price referred to in Article 3 of Regulation No 804/68 is a political objective at Community level and is not a guarantee to all producers in every Member State that they will earn an income corresponding to the target price (Case C-137/00 Milk Marque and National Farmers’ Union [2003] ECR I-7975, paragraph 88).

41 It must, however, be stated that the legal principles thus referred to by the Netherlands Government and the Productschap in no way bring into question the fact that one of the main objectives of the common organisation of the market in the milk and milk products sector instituted by Regulation No 804/68 is to ensure that milk producers can obtain a price for that product in the region of the target price and that the mechanisms instituted by the regulation and designed to achieve that end – among which, in particular, is a system of intervention prices, in accordance with Article 5 of that regulation, for certain derived products, as well as import levies and export refunds – are subject to the exclusive jurisdiction of the Community (see, to that effect, Case 10/79 Toffoli and Others [1979] ECR 3301, paragraph 11).

42 Nor are the legal principles referred to by the Netherlands Government and the Productschap such as to bring into question the assessment that, in a sector covered by a common organisation, a fortiori where that organisation is based on a common pricing system, Member States can no longer take action, through national provisions taken unilaterally, affecting the machinery of price formation at the production and marketing stages established under the common organisation (see Toffoli and Others, cited above, paragraph 12; Case 166/82 Commission v Italy [1984] ECR 459, paragraph 5; Case 127/87 Commission v Greece [1988] ECR 3333, paragraph 8; and Milk Marque and National Farmers’ Union, cited above, paragraph 63).

43 As the Netherlands Government and the Productschap point out, the Court has held that national measures intended to remove a distortion of competition resulting from the abuse of the dominant position occupied by an agricultural cooperative on the national market by reducing the market power of that cooperative and its ability to increase the price of milk charged by member producers beyond levels judged to be competitive cannot be considered measures affecting the machinery of price formation under the common organisation within the meaning of the case-law cited at paragraph 42 of this judgment. Measures of that kind do not as such affect the fixing of prices but rather seek to safeguard the proper working of the machinery for setting prices in order to achieve price levels which serve the interests of both producers and consumers (Milk Marque and National Farmers’ Union, paragraphs 64, 84 and 86).

44 However, in the present case the view must be taken that, unlike the measures at issue in the case leading to the Milk Marque and National Farmers’ Union judgment, or prohibitions on the production of cheese not complying with certain quality standards in relation to which the Court gave judgment in Jongeneel Kaas and Others, cited above, the national system at issue in the main proceedings does indeed affect the machinery of price formation under the common organisation, whatever may be its alleged or stated objective. That system requires each dairy sometimes to withhold deductions from the price normally payable to the dairy farmer when it appears that the milk delivered does not meet certain quality criteria, and sometimes to pay to the farmer, when the milk does satisfy those criteria, a supplement per 100 kilogrammes of milk delivered in addition to the price normally payable to that farmer and financed from all the deductions withheld by the Netherlands dairies because of deliveries of lower-quality milk.

45 In so doing, that system therefore has the effect of determining in advance certain factors which affect the definitive setting of the price to be paid by the dairy to each dairy farmer who delivers milk to it.

46 Furthermore, as the Court has already held, the essential aim of the machinery of the common organisation of the market in milk and milk products is to achieve price levels at the production and wholesale stages which take into account both the interests of Community production as a whole in the relevant sector and those of consumers and which guarantee market supplies without encouraging overproduction (see Joined Cases 36/80 and 71/80 Irish Creamery Milk Suppliers Association and Others [1981] ECR 735, paragraph 20, and Milk Marque and National Farmers’ Union, paragraph 85).

47 The payment of supplements such as those laid down by the national system at issue in the main proceedings to all dairy farmers who have delivered standard-quality milk in the Netherlands is, inter alia, likely to harm those objectives by conferring an advantage on those farmers. Moreover, it should be noted in that regard that the target price referred to in Article 3 of Regulation No 804/68 is fixed by reference to a standard type of milk accepted as typical of Community production (Case 179/84 Bozzetti [1985] ECR 2301, paragraph 33).

48 Furthermore, as the Commission has rightly pointed out, the national system at issue in the main proceedings disturbs the price mechanism to the extent that, with regard to milk which does not meet certain criteria and which, therefore, may be less suitable for further treatment and be of less use to the dairies, it provides for a deduction from the price which does not, however, benefit the dairies but the dairy farmers who have delivered milk of normal quality, thus requiring the dairies to bear the extra costs caused by the lower quality of the milk which they have received.

49 It should also be noted that the functioning of a common organisation of the markets and in particular the formation of producer prices must in principle be governed by the general Community provisions as laid down in general rules amended annually, with the result that any specific interference with this functioning is strictly limited to the cases for which express provision has been made (Case 77/76 Cucchi [1977] ECR 987, paragraph 31).

50 With regard, in that connection, to the fact that Article 5(1) of Regulation No 1411/71 provides that milk used by milk processors for making drinking milk is to have been subject to a system of payment varying according to quality, it should be noted that the implementation of that provision was, as is clear from paragraph 3 of that article, subject to the later adoption by the Council of general rules for the application of paragraph 1 thereof. Such rules have, as the Commission has rightly pointed out, never been adopted by the Council.

51 It is indeed possible to discern in Article 5 of Regulation No 1411/71 the intention of the Community legislature to institute such a pricing system with regard to milk used for making drinking milk, which, as is clear from the third recital in the preamble to that regulation, has great importance as a basic foodstuff for the whole population and is subject to special quality requirements.

52 However, it appears that, failing adoption of Community implementing measures under Article 5(3) of that regulation, such a system, which unlike the national system at issue in the main proceedings, would in addition have concerned only milk intended to be used to make drinking milk and not other milk products, could not have been implemented.

53 It follows from the foregoing that, as the Commission and Mr Kuipers have rightly submitted, the answer to the first part of the first question should be that the common pricing system which forms the basis of the common organisation of the market in milk and milk products instituted by Regulation No 804/68 prohibits Member States from unilaterally adopting provisions affecting the machinery of price formation at the production and marketing stages established under the common organisation. That is the case with regard to a system such as that at issue in the main proceedings, which, whatever its alleged or stated objective may be, institutes a mechanism under which:

– on the one hand, dairies are required to withhold deductions from the price of milk delivered to them when that milk does not meet certain quality criteria and,

– on the other hand, the amount thus withheld over a given period by all the dairies is aggregated before being redistributed, after possible financial adjustments between the dairies, in the form of supplements identical in amount paid by each dairy, per 100 kilogrammes of milk delivered to it during that period, to those dairy farmers alone who have delivered milk meeting those quality criteria.

The second part of the first question

54 Since the answer to the first part of the first question indicates that the pricing system instituted by Regulation No 804/68 precludes the establishment of a national system such as that at issue in the main proceedings, it is not necessary to consider further whether Article 24(2) of that regulation also precludes such a system or, therefore, to answer the second part of that question.

The second question

55 By its second question, the national court essentially asks whether Article 24(1) of Regulation No 804/68, which prohibits aid the amount of which is fixed on the basis of the price or quantity of products listed in Article 1 of that regulation, precludes the institution of a national system, such as that at issue in the main proceedings, which provides for payment of supplements to certain dairy farmers.

56 It follows from the answer to the first part of the first question that the pricing system instituted by that regulation precludes the establishment of such a national system. In those circumstances, it is also unnecessary to answer the second question.

The third question

57 By its third question, the national court essentially asks whether Articles 92 and 93(3) of the Treaty are to be interpreted as meaning that supplements paid to dairy farmers on the terms laid down by the national system at issue in the main proceedings constitute State aid within the meaning of the first of those provisions, which must therefore be notified to the Commission in accordance with the second of those provisions.

58 Having regard to the considerations set out in paragraphs 31 to 35 of this judgment and the answer given to the first part of the first question, it is sufficient to note that having recourse to Articles 92 to 94 of the Treaty cannot affect the need for Member States to observe the rules on the common organisation of the market in the milk and milk products sector, with the result that it is not necessary to answer the third question.

Costs

59 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

On those grounds, the Court (First Chamber) hereby rules:

The common pricing system which forms the basis of the common organisation of the market in milk and milk products instituted by Regulation (EEC) No 804/68 of the Council of 27 June 1968 on the common organisation of the market in milk and milk products, as amended by Council Regulation (EC) No 1538/95 of 29 June 1995, prohibits Member States from unilaterally adopting provisions affecting the machinery of price formation at the production and marketing stages established under the common organisation. That is the case with regard to a system such as that at issue in the main proceedings, which, whatever its alleged or stated objective may be, institutes a mechanism under which:

– on the one hand, dairies are required to withhold deductions from the price of milk delivered to them when that milk does not meet certain quality criteria and,

– on the other hand, the amount thus withheld over a given period by all the dairies is aggregated before being redistributed, after possible financial adjustments between the dairies, in the form of supplements identical in amount paid by each dairy, per 100 kilogrammes of milk delivered to it during that period, to those dairy farmers alone who have delivered milk meeting those quality criteria.

[Signatures]