9.

The considerations which have been set out so far lead me to consider that the Community is liable for the damage caused by the application of Regulation No 563/76. The questions relating to the nature of the damage and the causal connexion between the unlawful measure and the damage remain to be dealt with, leaving aside for now, as I stated at the outset, the question of the amount of compensation. The applicants complain in substance that as a result of the abovementioned regulation there was an increase in the price of animal feedingstuffs; as purchasers of such products, they were obliged to pay that higher price, thereby suffering damage corresponding to the extent of the increase. It is therefore necessary to establish: (a) in principle whether compensation must be paid for damage complained of not by the principal persons to whom Regulation No 563/76 was addressed — the producers and importers of animal feeding-stuffs — but by the purchasers of such feeding-stuffs; (b) what effect Regulation No 563/76 had on the increases in the prices of feeding-stuffs and whether or not it was the sole factor with regard to such increases; (c) whether the applicants were able in their turn to pass on to their customers the burden of the increased prices; (d) whether an inquiry into the repercussions of the abovementioned regulation on the costs of production and on the profit margins of the applicant undertakings might be relevant. With regard to (a), I do not consider that it is possible to accept the argument put forward by the defendant institutions denying the existence of a sufficient causal connexion between the regulation and the damage of which the applicants complain on the ground that the many stages between cause and effect prevented the causal connexion from being direct in character. The fact that the provisions of the regulation were addressed directly to the manufacturers and importers of feeding-stuffs and thus to persons other than those who finally bore the economic effects thereof is not sufficient in order to deny that the regulation is the cause (or at least one of the causes) of the increased price of feeding-stuffs. On the other hand, it must be recalled that under Article 5 of the regulation in question, the successive buyers of the products referred to in Articles 2 and 3 (in particular colza, rape and sunflower seeds, linseed and soya beans or protein products processed therefrom) were to bear the burden of the costs arising thereunder in the case of all contracts concluded before the entry into force of the regulation. The purchasers of feeding-stuffs were therefore not even formally speaking ‘third parties’ with regard to the system introduced by the regulation. With regard to (b), the two defendant institutions maintain that the increases which occurred in the price of feeding-stuffs in the spring of 1976 were not entirely justified by the effect of the obligation to incorporate milk powder. According to the Commission, such increases are in good part attributable to other causes which have nothing to do with Regulation No 563/76. Referring to the fact that between March and July 1976 the increase in the price of soya beans was almost four times that of the increase in price which may be considered to have been caused by the use of skimmed-milk powder when the Council regulation started to apply, the Commission asks which proportion of the increase in the price of animal feeding-stuffs was really due to the obligation to purchase powdered milk and which to the increase in the world price of soya beans. Moreover, according to the statements of the Commission, the producers of animal feeding-stuffs sought to lessen the impact of the double increase in costs by having recourse to substitute domestic products containing protein with regard to which no obligation to purchase powdered milk was laid down. The applicant undertakings have produced numerous letters sent to them by their respective suppliers immediately after the entry into force of Regulation No 563/76 to inform them that the system laid down by that regulation obliged them to increase the prices of feeding-stuffs. The initial increase, which was 5 % at the maximum, was generally reduced subsequendy by about a quarter. That reduction, as explained to the Court during the hearing, was attributable to the fact that the producers of feeding-stuffs at first passed on in their prices the greater burden which resulted from the loss of the security provided for in Articles 2 and 3 of the above-mentioned regulation, whilst they later merely passed on to their customers the lesser increase resulting from the incorporation of milk powder in the feeding-stuffs. That also explains why the fall in the prices of feeding-stuffs which occurred after the expiry of the system established by the abovementioned Council regulation was less than the initial increases. The defendants have replied that it is not sufficient to produce the statements made by the suppliers and that the applicants must indicate how the increase in the prices was calculated in detail taking into account the varying composition of the feeding-stuffs according to the various types of breeding. Finally, the defendant institutions do not deny the existence of a connexion between the Council regulation and the increase in the prices of feeding-stuffs. They do however deny that the whole amount of the increases referred to by the applicants is attributable to that regulation. With regard to this particular point therefore the argument is not whether prices went up but by how much. This does not alter the fact that the question is very important for the purpose of ascertaining to what degree a causal connexion exists between the unlawful measure and the damage and to what extent the damage is attributable to the application of the regulation. I should say that the applicants are correct when they account for the inadequacy of the evidence which they put forward by pointing out the difficulty of establishing how producers of feeding-stuffs make their calculations and the precise composition of their products. They request that those who were responsible in the various undertakings producing feeding-stuffs for calculating the effects of the obligation to purchase powdered milk should be called as witnesses and specify their names, status and addresses. In fact, only the manufacturers are in a position to specify how they have calculated the effects of Regulation No 563/76 on their costs, taking into account the different factors involved in the composition of the feeding-stuffs, their quantitative relationship and the increases in the prices of soya beans in the period in question. It is superfluous to add that the replies may vary according to the producers and to the types of feeding-stuffs. All this should, in my opinion, be clarified by means of a preparatory inquiry and an expert's report. With regard to (c), it would however not be sufficient to prove the extent of the effects of the compulsory purchase of powdered milk on the price of feeding-stuffs for the purpose of ascertaining the amount of the right to compensation if it appeared that the applicants were able in their turn to pass on the higher cost of the feeding-stuffs in the prices charged to their customers. However this question has also been the subject of a wide dispute between the parties. The applicants maintain that once the existence of damage as a result of the increase in prices caused by the regulation has been proved it is not for them to show that it was impossible to pass on that damage to their clients but for the defendants to prove the contrary. In their opinion, any such possibility is linked to market conditions since the price of the product, apart from its costs, is the effect of the laws of demand and supply. However, the applicants have produced a report drawn up by the experts Hülsemeyer and Graser and, relying upon that report, they stress that although the number of undertakings in the poultry-breeding sector and their relative sizes may give the impression of an oligopolistic market structure, nevertheless the great homogeneity of production and the free access of competing traders from the other Member States to the domestic German market in practice prevent the undertakings in that sector from being able to conduct themselves like undertakings in an oligopolistic market. Apart from that consideration, the applicants consider that the Hulsemeyer-Graser report has shown, on the basis of a precise study of the effects of the increase in the prices of animal feeding-stuffs on the prices of chicks of laying strains and of pullets, that the variations in the prices of the feeding-stuffs do not have an appreciable effect on the eggs which have reached maturity. If therefore the supply of chicks of laying strains did not react to the change in the price of animal feeding-stuffs, it is necessary to conclude, on the basis of the laws of supply and demand, that the prices of these products could not have been changed either. Finally, in the market situation which is characteristic of the products in question it was impossible for the breeders in question to pass on to their buyers the increases in costs caused by the Council regulation, at least during the period in which the regulation was in force. The Commission criticizes various aspects of the abovementioned expert's report but does not contest the validity of the data on which it is based and of some important economic assessments. More particularly, in so far as poultry breeders are concerned the Commission considers that there is some freedom of manoeuvre with regard to prices whilst in so far as egg producers are concerned it recognizes that their market position vis-a-vis purchasers is weak and that in that sector competition is particularly keen. It states that in order to reply to the question whether the obligation to purchase laid down by Regulation No 563/76 had an effect on the price of eggs it is necessary not only to take into account the actual market conditions but also to make a more general analysis of the economic mechanisms governing the market in question. The extremely technical nature of this analysis makes it difficult for me to reach a conclusion on the substance of the case. I consider that the Court should as a result order an expert's report on this question too enabling light to be thrown on a problem which is so important with regard to the assessment of the damages. With regard to (d), during these proceedings the harmful economic effects of Regulation No 563/76 have been examined in relation also to the trend of the applicants' production costs and of their profit margins. I should like to emphasize that these assessments do not in my opinion affect the nature of the damage and the method of ascertaining its amount: the damage consisted, as I have said, in the heavier burden borne by the applicants as a result of the increase in the prices of feeding-stuffs caused by the abovementioned regulation, and the determination of the amount of damage requires essentially the solution of the two problems of the influence of other factors on the increase in the prices of feeding-stuffs and of the possibility of passing on the burden to the applicants' customers. In fact, it is of interest from another point of view to establish to what extent Regulation No 563/76 has affected the production costs of the applicants and their profit margins: in other words, in case the requirement of the seriousness of the breach by the Council is related to the seriousness of the damage suffered by the applicants. I have already examined this theoretical possibility and I considered that I should reject it for the reasons already explained: however, some of the considerations put forward by the parties in this respect serve to complete the description of the economic assessments made by those concerned. It is necessary to state first that the parties disagree with regard both to the determination of the extent and to the assessment of the seriousness of the increase in the production costs of the applicants. The defendants do not appear to admit that there was an increase of more than 1 %, whilst the applicants assess that increase at 2 % on average. Even in the latter case, according to the defendants, it is impossible to consider the damage as serious. The applicants however maintain that because of the very small profit margin characteristic of the sector, an increase in costs of this magnitude is of considerable importance. In fact, it is impossible to let matters rest with the mere statement that the effects of the obligation to purchase powdered milk on the final cost of the applicants' products represent a small percentage. In order to establish the real importance of those effects from the point of view of business management, it is necessary to examine what relation such an increase in the level of production costs bears to the profit margin. Such an assessment should be carried out separately in relation to each undertaking; but if the intention were to argue in general terms it would be necessary to adopt as a reference value the average profit margin of well-managed undertakings in that sector. This reference value is lacking: the statements made by the parties are not corroborated by convincing evidence. According to the applicants the increase in production costs which occurred as a result of Regulation No 563/76 goes in some cases as far as absorbing ail the annual profit margin and sometimes even as far as causing higher losses. The latter case seems to be that of the applicant in Case 83/76, which states that it suffered a loss muchgreater than the average annual profit. The applicant in Case 40/77 claims in its turn that the effects of the regulation in question practically reduced its profits to nothing in the period in which the regulation was applicable, and the applicant in Case 94/76 makes the same statement. Only the applicants in Cases 4/77 and 15/77 were affected to a proportionately lesser degree by the regulation, having suffered, according to their statements, a reduction of approximately 20 % in the annual profit. The defendants state that the egg producers obtained export facilities in compensation because of wide and intensive application of the system of refunds. But we must ask whether and to what extent such facilities were granted in connexion with the burden imposed by the regulation in question. In other words, there is nothing to show that the amount of those benefits, which already existed before Regulation No 563/76 and which continued to exist afterwards, would have been different if that regulation had not been adopted. With regard to the system of Community levies to which the Commission refers, the applicants observe that it can only help to restrict competition from products from third countries. On the other hand, in this connexion the applicants emphasize that the increase in costs caused by the obligation to purchase powdered milk was not in fact taken into consideration for the purposes of the fixing of the amount of the levy applicable to the importation of poultry and products derived therefrom since the levy varies only according to the changes in the difference between the price of feed grain on the Community market and the price of the same cereals on the world market, whilst it is not influenced by changes which have occured in other sectors. Finally, the question of the relative effect of the increases in price of soya beans arises again when the increase in the production costs and the reduction in the profits of the undertakings concerned is discussed. Although it is true that these increases had a much greater influence on the applicants' production costs than the obligation to purchase milk powder resulting from Regulation No 563/76, it is also necessary to observe that the undertakings in question could perhaps have borne such increases by reducing their profit margin in proportion but that precisely in view of this the effect of the obligation to purchase powdered milk had extraordinarily serious repercussions on the economic situation of the undertaking. In view of objective factors which made the situation of the undertakings in question worse the liability of the Council is in fact even clearer since, by adopting and maintaining the measure in consideration, the Council increased the economic difficulties of the undertakings in that sector when, as the Court has held, it was not necessary to attain the objectives in view. It seems to me however to be impossible in the present state of the file to express a conclusive view on the very delicate technical and economic aspects of this complex situation. I conclude from this that if the Court were to decide that the seriousness of the breach depends on the seriousness of the damage, it would be difficult to establish the latter without a previous measure of inquiry.