OPINION OF ADVOCATE GENERAL

MAZÁK

delivered on 2 September 2010 ( )

Case C‑153/09

Agrargut Bäbelin GmbH & Co. KG

v

Amt für Landwirtschaft Bützow

(Reference for a preliminary ruling from the Verwaltungsgericht Schwerin (Germany))

(Common agricultural policy – Regulation (EC) No 1782/2003 – Regulation (EC) No 796/2004 – Agricultural aid – Obligation imposed on the farmer, for the purposes of preventing over-declaration, to claim set-aside entitlements before any other entitlement – Infringement of that obligation where, after the setting aside of an area, the farmer does not have any arable land – Sanctions)

1. The present reference for a preliminary ruling from the Verwaltungsgericht Schwerin (Administrative Court, Schwerin) (Germany) seeks an interpretation of Article 50(4) of Commission Regulation (EC) No 796/2004, ( ) read in conjunction with Article 51(1) of that regulation. In the main proceedings, Agrargut Bäbelin GmbH & Co. KG (‘Agrargut’) is in dispute with the Amt für Landwirtschaft Bützow (Office for Agriculture, Bützow; ‘the Amt’), essentially concerning a claim for a single payment to be awarded for the year 2006.

I – Legal context

A – Regulation No 1782/2003

2. Council Regulation (EC) No 1782/2003 ( ) provides for a form of income support for farmers called the single payment scheme (‘the SPS’). As regards the determination of set-aside entitlements, Article 53 of that regulation provides:

‘1. By way of derogation from Articles 37 and 43 of this Regulation, where in the reference period a farmer was subject to the obligation to set aside part of the land of his holding pursuant to Article 6(1) of [Council] Regulation (EC) No 1251/1999 [OJ 1999 L 160, p. 1], the three-year average amount corresponding to the compulsory set-aside payment calculated and adjusted according to Annex VII and the three-year average number of compulsory set-aside hectares shall not be included in the determination of the entitlements referred to in Article 43 of this Regulation.

2. In the case referred to in paragraph 1, the farmer shall receive an entitlement per hectare (hereinafter referred to as “set-aside entitlement”) which is calculated by dividing the three-year set-aside average amount by the three-year average number of hectares set-aside, as referred to in paragraph 1.

The total number of set-aside entitlements shall be equal to the average number of compulsory set-aside hectares.’

3. With regard to the use of set-aside entitlements, paragraphs 2 and 6 of Article 54 of Regulation No 1782/2003 provide respectively, so far as is relevant for present purposes, that: ‘… “hectare eligible for set-aside entitlement” shall mean any agricultural area of the holding taken up by arable land, except areas which at the date provided for the area aid applications for 2003 were under permanent crops, forests or used for non-agricultural activities or under permanent pasture [( )]’ and ‘… set-aside entitlements shall be claimed before any other entitlement’.

B – Regulation No 796/2004

4. Under point (22) of Article 2 of Regulation No 796/2004, ‘Area determined’ means the area for which all conditions laid down in the rules for granting the aid have been met and, ‘in the case of the [SPS], the area declared may be deemed as being determined only if it is actually being accompanied by a corresponding number of payment entitlements’.

5. In Part II of Regulation No 796/2004, which is entitled ‘The integrated administration and control system’, Title IV lays down the rules governing the calculation of the aid under Regulation No 1782/2003 as well as reductions and exclusions.

6. In particular, Article 49(1)(a) of Regulation No 796/2004 provides that, for the purposes of that section of the regulation, the following crop groups are to be distinguished as appropriate: ‘areas for the purposes of the [SPS], as the case may be, each fulfilling the conditions particular to them’.

7. Article 50(4) of that regulation provides that ‘[w]ithout prejudice to reductions and exclusions in accordance with Articles 51 and 53, with regard to applications for aid under the [SPS] the following shall apply in respect of set-aside entitlements for the purpose of the definition of “area determined” in Article 2 point (22):

(a) if a farmer does not declare all his area for the purposes of activating the set-aside entitlements at his disposal but declares, at the same time, a corresponding area for the activation of other entitlements, that area shall be considered as having been declared as set-aside areas and not determined for the purposes of the crop group referred to in Article 49(1)(a);

(b) if area declared as set-aside areas is found not to be set-aside, that area shall be considered as not being determined.’

8. Article 51(1) of Regulation No 796/2004 provides that ‘[i]f, in respect of a crop group, the area declared for the purposes of any area-related aid schemes ... exceeds the area determined in accordance with Article 50(3), (4) and (5) of this Regulation, the aid shall be calculated on the basis of the area determined reduced by twice the difference found if that difference is more than either 3% or two hectares, but no more than 20% of the area determined.

If the difference is more than 20% of the area determined, no area-linked aid shall be granted for the crop group concerned.’

II – Facts and the questions referred

9. In 2006 Agrargut had at its disposal 12.10 payment entitlements based on permanent pasture and 59.57 payment entitlements based on set-aside. In that period it held a total of 48 hectares: 11.90 hectares of pasture and 36.10 hectares of arable land. In its application for the award of a single payment for 2006, Agrargut declared set-aside entitlements of 36.10 hectares for the arable land set aside and pasture payment entitlements of 11.90 hectares. However, the Amt rejected that application by a notice of 8 January 2007.

10. Agrargut challenged this by an objection which was ultimately unsuccessful. The Amt held that, pursuant to Article 54(6) of Regulation No 1782/2003, Agrargut was required to declare its total area of 48 hectares for the purposes of activating the set-aside entitlements at its disposal (59.57 payment entitlements). Since Agrargut had declared only 36.10 payment entitlements for the set-aside, at the same time declaring an area of 11.90 hectares to activate pasture payment entitlements, the Amt held that, under Article 50(4)(a) of Regulation No 796/2004, those 11.90 hectares fell to be considered as having been declared as set-aside areas and as not being determined. As a result, the Amt applied sanctions under Article 51(1) of Regulation No 796/2004.

11. Agrargut brought proceedings against that decision before the Verwaltungsgericht Schwerin, which decided it was necessary to refer the following questions to the Court for a preliminary ruling:

‘(1) Is a farmer prevented from activating payment entitlements based on permanent pasture before activating all payment entitlements based on set-aside, even if he does not hold any other (arable) areas eligible for set-aside?

(2) If the first question should be answered in the affirmative:

Do the sanctions under Article 51 of Regulation No 796/2004 also apply to a farmer who before 29 December 2006 (in the absence of areas eligible for set-aside) infringes the obligation first to activate completely payment entitlements based on set-aside?’

III – Assessment

A – The first question

1. Principal arguments of the parties

12. Agrargut submits essentially that only arable land eligible for set-aside is covered by the obligation to claim set-aside entitlements before any other entitlement. That is true even where the number of set-aside entitlements held by the farmer exceeds the number of hectares actually at his disposal and the farmer activates the entitlements based on permanent pasture on the basis of other available areas. Set-aside is by its nature an instrument which only concerns arable land. Agrargut contends that its interpretation is consistent with the wording, spirit and purpose of Regulations No 796/2004 and No 1782/2003.

13. The Greek Government and the Commission argue, in essence, that a farmer is effectively precluded from claiming entitlements based on pasture if he has not yet claimed all set-aside entitlements, even if he holds no other arable land eligible for set-aside aid. Consequently, the Greek Government adds, the farmer who has at his disposal more entitlements than hectares eligible for aid should be required to lease or sell, failing which he should not declare other entitlements at the same time.

2. Appraisal

14. To my mind, it is apparent from the wording of the questions referred that, by its first question, the referring court is essentially asking whether Article 50(4)(a) of Regulation No 796/2004 must be interpreted as meaning that the condition for application of the sanction provided therein is fulfilled only where, for the purposes of activating set-aside entitlements at his disposal, a farmer does not declare all his ‘hectares eligible for set-aside aid’ under Article 54(2) of Regulation No 1782/2003 and, correspondingly, that it is not fulfilled where a farmer declares areas which are unsuitable for set-aside, such as permanent pasture, for the purposes of activating other entitlements at his disposal.

15. In particular, the referring court considers absurd the interpretation argued for by the Amt, according to which the phrase ‘all his area’ in Article 50(4)(a) of Regulation No 796/2004 should be understood as meaning all the land attributable to a farmer (which is eligible for a single payment), rather than as referring only to hectares eligible for set-aside aid under Article 54(2) of Regulation No 1782/2003, that is to say, the arable land held by the farmer. In addition, in the view of the referring court, the key term ‘a corresponding area’, which is linked linguistically to the phrase ‘not … all his area’, cannot be construed in quantitative terms, as meaning an area ‘of the same size’. Nor is a qualitative interpretation the obvious approach.

16. It is settled case-law that the meaning and scope of terms for which Community (and now Union) law provides no definition must be determined by considering their usual meaning in everyday language, while also taking into account the context in which they occur and the purposes of the rules of which they are part. Furthermore, the preamble to a Union measure may explain the latter’s content. ( )

17. First, as regards the wording, the phrase ‘all his area’ quite clearly, in my view, refers to the whole of the farmer’s area; that is to say, it covers ‘hectares eligible for set-aside aid’ under Article 54(2) of Regulation No 1782/2003 as well as other areas (eligible for aid) which are held by the farmer. As the Commission rightly pointed out, in the German language version, on account of the word order, the phrase ‘not … all his area’ (nicht seine gesamte Fläche) is in fact dissociated from the phrase ‘his set-aside entitlements’ (zur Verfügung stehenden Zahlungsansprüchen bei Flächenstilllegung). It follows from the foregoing that the area concerned should be understood in a broad sense, as all the areas held by the farmer which are eligible for aid.

18. Secondly, so far as concerns the context of Article 50(4)(a), that provision and Article 51(1) of Regulation No 796/2004 form part of Title IV of Part II of that regulation, which lays down rules governing the basis for calculating the aid under Regulation No 1782/2003 as well as reductions and exclusions. Recital 55 in the preamble to Regulation No 796/2004 states that: ‘to protect the [Union’s] financial interests effectively adequate measures should be adopted to combat irregularities and fraud. Separate provisions should be made in cases of irregularities found with regard to eligibility criteria for the different aid schemes concerned.’

19. With regard to reductions and exclusions, as the Commission noted, Article 50(4)(a) constitutes just such a separate provision in relation to irregularities linked to the activation of set-aside entitlements under Article 53(2) of Regulation No 1782/2003. In that regard, it follows from recital 59 ( ) in the preamble to Regulation No 796/2004 that the intention of the Union legislature was to give full effect to Article 54(6) of Regulation No 1782/2003.

20. Article 54(6) of Regulation No 1782/2003 expressly provides that set-aside entitlements are to be claimed ‘before any other entitlement’. That clearly demonstrates that the Union legislature intended that set-aside entitlements were to take priority over all other entitlements, whatever their nature. There is nothing to suggest that that priority was to apply only vis-à-vis entitlements relating to areas suitable to be set aside. Indeed, when drafting those provisions, the legislature did not choose to frame them in terms relating only to set-aside entitlements, but in broad terms which cover all entitlements. It follows that the role played by Article 50(4)(a) in the context of Regulation No 796/2004 is consistent with the literal interpretation given in point 17 above.

21. Thirdly and finally, it is necessary to consider the objectives pursued by Regulations No 796/2004 and No 1782/2003. It is clear from recital 32 in the preamble to Regulation No 1782/2003 that the objective of that regulation is to maintain, under the new system of income support, the set-aside conditions for arable land so as to preserve the supply control benefits of set-aside, while reinforcing its environmental benefits.

22. It is in that context that the following remarks concerning the facts of the dispute in the main proceedings should be made.

23. It follows from the documents before the Court and, in particular from the national case-file forwarded by the referring court, that in 2005 – the year when original entitlements were attributed – Agrargut had 6.28 set-aside entitlements at its disposal. These were calculated on the basis of land suitable to be set aside which Agrargut had declared and which it therefore had at its disposal.

24. Thus, as the Commission commented, it is likely that, through transfers made in the course of 2005, Agrargut acquired so many set-aside entitlements that it ended up with a number of entitlements much higher than the number of hectares which it could set aside. Indeed, it would appear that the facts of the dispute in the main proceedings constitute an extreme example of a situation where the number of set-aside entitlements exceeds the number of hectares suitable to be set aside: during the relevant period, the farmer had at his disposal 59.57 set-aside entitlements, but only 36.10 hectares of arable land. Thus, the number of entitlements was 65% higher than the area suitable to be set aside.

25. However, under Article 63(2) of Regulation No 1782/2003, set-aside entitlements are to correspond at the time of their initial attribution to approximately 10% ( ) of the area suitable to be set aside. ( ) It is clear, therefore, that the disproportion between the set-aside entitlements and the area suitable to be set aside does not correspond to the proportion provided for in Article 63(2) of Regulation No 1782/2003 and risks compromising achievement of the objective of maintaining the set-aside conditions for arable land (see point 21 above).

26. I believe (as do the Amt and the Greek Government) that that objective also means that care must be taken to ensure that the total number of set-aside entitlements granted in 2005 is activated and that the corresponding arable areas are set aside. That aim is served by the obligation under Article 54(6) of Regulation No 1782/2003 to give priority to the activation of set-aside entitlements which, as pointed out by the Commission, constitutes an economic incentive given by the legislature to encourage the maintaining of set-aside conditions for arable land. ( )

27. Aside from the above obligation, the stated objective is also served by a system of sanctions designed to discourage farmers from abandoning set-aside. The sanction for the breach of Article 54(6) of Regulation No 1782/2003 is provided for in Article 50(4)(a) of Regulation No 796/2004, read in conjunction with Article 51(1) thereof.

28. I agree with the argument put forward by the Amt in the main proceedings that it is quite clear from all the above rules that a sanction is to be imposed on a farmer who, without activating all the set-aside entitlements at his disposal, declares – at the same time – a corresponding area for the activation of other entitlements. In other words, where a farmer finds himself holding more set-aside entitlements than the arable land at his disposal (eligible for set-aside), he has either to lease or to sell the set-aside entitlements or else he will not be allowed to declare – at the same time – other payment entitlements available to him.

29. As the Commission has correctly observed, in order to reduce the risk that set-aside conditions for arable land would not be maintained, the Union legislature sought, by means of the above system of sanctions, to make sure that a farmer would have no incentive to activate fewer set-aside entitlements than the number at his disposal. Accordingly, a farmer should have no interest in declaring fewer ‘hectares eligible for set-aside aid’ than the set-aside entitlements he has at his disposal.

30. In that connection, recital 59 in the preamble to Regulation No 796/2004 envisages two situations concerning sanctions for infringement of Article 54(6) of Regulation No 1782/2003. The situation of relevance here is the second, where set-aside entitlements are not activated, but the area corresponding to those set-aside entitlements is used, at the same time, for activation of other entitlements. In such a situation, that area should, notionally, be considered to be an area, not determined, which has been declared as set-aside, with the result that the sanction under Article 51(1) of Regulation No 796/2004 applies.

31. In the national case-file forwarded by the referring court the Amt expounds upon an example which I consider relevant for the present legal analysis. Two holdings, A and B, have an area of 100 hectares each: 40 hectares of arable land and 60 hectares of pasturage. Both holdings have at their disposal 60 entitlements for pasture, 20 entitlements for arable land and 20 set-aside entitlements. Let us assume that Farmer F is the majority shareholder in both holding A and holding B. In times of rising prices for agricultural products, Farmer F strives to reduce his set-aside obligation as much as possible. Accordingly, he takes three steps: (i) he transfers 20 set-aside entitlements from holding B to holding A; (ii) he transfers 20 hectares of arable land from holding A to holding B; and (iii) he transfers 20 entitlements for arable land from holding A to holding B. Holding A now has at its disposal, in addition to the pasture with corresponding entitlements, 20 hectares of arable land and 40 set-aside entitlements. Holding B now has at its disposal, in addition to 60 hectares of pasture with corresponding entitlements, 60 hectares of arable land and 40 entitlements for arable land. On that holding, Farmer F can now cultivate crops on 60 hectares of arable land instead of the original 40 hectares. ( ) There is no set-aside obligation for holding B anymore. Holding A, on the other hand, is obliged to activate with priority 40 set-aside entitlements. Since it holds only 20 hectares of arable land, the fact that the 20 set-aside entitlements are not activated remains (notes the Amt) – according to Agrargut’s interpretation of the system of sanctions – unpenalised. According to Agrargut’s interpretation, holding B would receive aid on the basis of 60 pasturage entitlements ( ) and 40 entitlements for arable land. Holding A would receive aid for 60 entitlements for pasture and for 20 set-aside entitlements.

32. It is clear from the above account that to be free to reduce areas eligible for set-aside below the level of set-aside entitlements without a sanction being applied is incompatible with the objective of maintaining the set-aside conditions for arable land. Nor would it be compatible if set-aside entitlements were not activated even though arable areas eligible for set-aside were available.

33. That is why there was a need for the rule envisaged in recital 59 in the preamble to Regulation No 796/2004 and laid down in Article 50(4) of that regulation.

34. In the example set out in point 31 above, for holding A Farmer F activated only 20 set-aside entitlements and at the same time 60 entitlements for pasture. Under Article 50(4)(a) of Regulation No 796/2004, of those 60 hectares of pasturage, on the basis of which the farmer activated 60 entitlements for pasture, 20 hectares will be deemed to have been declared as a set-aside area.

35. Hence the applicable legal effect flows from Article 50(4)(b) of Regulation No 796/2004 and the sanction from the second subparagraph of Article 51(1); that is to say, no aid is to be accorded for set-aside entitlements. As regards the 60 hectares of pasturage, on the basis of which Farmer F activated 60 entitlements for pasture, the legal effect flows from the second subparagraph of Article 51(1); that is to say, nor is there any entitlement to aid.

36. Accordingly, I agree with the Amt that, in the dispute in the main proceedings, on which it modelled the above example, there is also no entitlement to aid.

37. Finally, as the Commission noted, it was in accordance with the principle of proportionality – through use of the phrase ‘a corresponding area’ in Article 50(4)(a) of Regulation No 796/2004 – that the Union legislature sought to limit the scope of Article 54(6) of Regulation No 1782/2003 so that the sanction arising under Article 50(4)(a) of Regulation No 796/2004, read in conjunction with Article 51(1) thereof, only applies when: (i) there is a disparity between the set-aside entitlements and the set-aside areas declared and (ii) areas corresponding to that disparity have been declared for the purposes of activating other entitlements, which is indeed the situation in the main proceedings.

38. It follows from all the foregoing that the condition for application of the sanction provided for in Article 50(4)(a) of Regulation No 796/2004 is fulfilled where a farmer does not declare all the area necessary for the purposes of activating the set-aside entitlements at his disposal and, at the same time, declares areas for the purposes of activating other entitlements, whether or not those areas are eligible for set-aside.

B – The second question

39. By its second question, the referring court is asking essentially whether the system of sanctions arising under Article 51(1) of Regulation No 796/2004, read in conjunction with Article 50(4) of that regulation – in the version prior to the entry into force of Commission Regulation (EC) No 2025/2006, ( ) which amended Article 50(4)(a) – is applicable in circumstances such as those of the case before it.

1. Principal arguments of the parties

40. Agrargut contends that the sanction under Article 51 of Regulation No 796/2004 is not applicable in the dispute in the main proceedings. The system of sanctions provided for in Regulations No 1782/2003 and No 796/2004 presupposes fault on the part of the applicant, which is not the case here. In accordance with the principle nulla poena sine lege, the legislature is required to set out in a sufficiently clear and comprehensible manner the conditions and legal effects attached to a sanction and Article 50 of Regulation No 796/2004 does not meet those requirements. Agrargut submits that, in the light of the scheme of the set-aside regime, it was reasonable to suppose that all the relevant provisions refer to areas which are eligible for set-aside aid, that is to say, to arable land. That is supported by the fact that Article 50 was subsequently clarified by an amendment.

41. The Greek Government and the Commission suggest in essence that the second question be answered to the effect that sanctions under Article 51 of Regulation No 796/2004 are applicable in the dispute in the main proceedings.

42. The Greek Government adds, however, that as regards the imposition of sanctions, it is for the referring court alone to determine whether, on the basis of all the circumstances of the case before it, the farmer acted in good faith or whether he acted fraudulently, or with serious negligence, in submitting his declaration. Nonetheless, according to the Greek Government, a different interpretation of Article 50(4)(a) and (b) of Regulation No 796/2004 is also possible, in accordance with which the requirement to claim set-aside entitlements before any other entitlement would be met in so far as all the arable lands at the disposal of the farmer, and for which set-aside aid was granted, were effectively set aside.

2. Appraisal

43. The referring court considers that if the substantive content of legislation is not sufficiently clear until the legislature provides subsequent clarification (here, through the adoption of Regulation No 2025/2006, which was published on 29 December 2006), it would seem inappropriate, in the light of the principles of the protection of legitimate expectations and of the clarity of legal rules (das Gebot der Normenklarheit), to refuse not only the single payment relating to the pasture but also the single payment in respect of the set-aside land for which application was made.

44. It should be recalled that, according to the case-law, the principle of legal certainty, the corollary of which is the principle of the protection of legitimate expectations, requires that rules of law be clear and precise. ( )

45. Even though the principles of the clarity of legal rules and of the protection of legitimate expectations were invoked by the referring court separately, I believe that it follows from the above case-law that it is not necessary to consider them separately.

46. The Court held in Nijemeisland ( ) – a case pertaining to Regulation No 1782/2003 and Commission Regulation (EC) No 795/2004 ( ) – that the principle of legal certainty, a general principle of Union law, requires Union rules which are binding on individuals to be clear and precise so that those persons are able to ascertain their rights and obligations without ambiguity and to take steps accordingly.

47. As regards, first, the clarity of the condition laid down in Article 50(4)(a) of Regulation No 796/2004, it follows from the considerations relating to the first question (see point 17 et seq. above) that, without ambiguity, ‘all [the farmer’s] area’ falls within the scope of that provision, and not merely ‘hectares eligible for set-aside aid’.

48. Secondly, as regards the legal effects of failure to comply with the above provision (that is, the extent to which aid is reduced where the area declared exceeds the area determined) those effects follow without ambiguity from Article 50(4)(a) of Regulation No 796/2004, read in conjunction with Article 51(1) thereof, as is clear from the considerations relating to the first question.

49. As the Commission rightly observed, the condition laid down in Article 50(4)(a) of Regulation No 796/2004, read in conjunction with Article 51(1) thereof, fulfils the requirements of the principle of legal certainty – as do the legal effects of that provision – because it is clear and precise and enables the persons concerned to ascertain their rights and obligations without ambiguity and to take steps accordingly.

50. Next, concerning the fact that Article 50(4)(a) of Regulation No 796/2004 was amended by Regulation No 2025/2006, I am not convinced that this has any bearing on the present case. Recital 5 in the preamble to the latter regulation states: ‘Article 54(6) of Regulation (EC) No 1782/2003 requires that set-aside entitlements are to be claimed before any other entitlements. In order to ensure equal treatment of farmers who do not have all the required set-aside area available to claim for all their set-aside entitlements, the provisions set out in Article 50(4) of Regulation (EC) No 796/2004 should be clarified.’

51. It is clear from a Commission working document ( ) produced before the Court, as well as from a comparison of the wording of various language versions of Article 50(4)(a) of Regulation No 796/2004, that the clarification in question concerned essentially a clarification of the legal effects of that provision. In the German language version as amended by Regulation No 2025/2006, the condition laid down in Article 50(4)(a) of Regulation No 796/2004 remained unchanged. As regards the legal effects, the amendment consisted essentially in a deletion of the phrase ‘and not determined for the purposes of the crop group referred to in Article 49(1)(a)’.

52. Suffice it to point out that the new version of Article 50(4)(a) of Regulation No 796/2004 amends the legal effects of the provision only in so far as it relates to situations other than the situation at issue in the main proceedings. As the Commission observed, no other consideration relating to the principle of the protection of legitimate expectations is apparent which would militate against a refusal of the aid in such circumstances. This is so not least because the Court has consistently held that the right to rely on the principle of the protection of legitimate expectations extends to any person in a situation where a Union institution has caused him to entertain expectations which are justified by precise assurances provided to him. ( )

53. Next, it is clear that in order to be applicable in circumstances such as those of the dispute in the main proceedings, the legal effects of Article 50(4)(a) of Regulation No 796/2004, read in conjunction with Article 51(1) thereof, must also be consistent with the principle of proportionality.

54. In Viamex Agrar Handel and ZVK, ( ) the Court held that ‘first of all, the principle of proportionality, which is a general principle of [Union] law and has been affirmed on numerous occasions in the case-law of the Court of Justice, in particular with regard to [the] common agricultural policy … must be observed as such both by the [Union] legislature and by the national legislatures and courts which apply [Union] law’.

55. It is settled law that, in order to establish whether a provision of Union law complies with that principle, it must be ascertained whether the means which it employs are suitable for the purpose of achieving the desired objective and whether they do not go beyond what is necessary to achieve it. ( )

56. It is clear that Regulation No 796/2004 (see recital 55 in the preamble thereto) aims – in order to protect the Union’s financial interests effectively – to introduce adequate measures to combat irregularities and fraud, introducing separate provisions for cases in which irregularities are found with regard to eligibility criteria for the different aid schemes concerned. The system of sanctions provided for under Article 50(4)(a) of Regulation No 796/2004, read in conjunction with Article 51(1) of that regulation, seeks to achieve the objective set out in recital 59: to ensure that set-aside entitlements are activated before any other entitlements, in accordance with Article 54(6) of Regulation No 1782/2003. The latter provision seeks to achieve the objective set out in recital 32 in the preamble to that regulation: to maintain set-aside conditions for arable land.

57. To my mind, it follows from all the above considerations that Article 50(4)(a) of Regulation No 796/2004, read in conjunction with Article 51(1) thereof, introduces an effective system of sanctions, making it disadvantageous for a farmer to activate fewer set-aside entitlements than he holds. The provision is manifestly suitable, therefore, for the purpose of achieving the desired objective.

58. As the Commission explained, in choosing the system of sanctions provided for under Article 50(4)(a) of Regulation No 796/2004, read in conjunction with Article 51(1) thereof, so as to make it disadvantageous for a farmer to activate fewer set-aside entitlements than he holds, the Union legislature already opted for the least restrictive means. That is because, in order to prevent a farmer from having more set-aside entitlements than areas suitable to be set aside, it would have been possible to go as far as to preclude the farmer even from having at his disposal set-aside entitlements not linked to an area or from having an area suitable to be set aside but not linked to set-aside entitlements, a prohibition which would have adversely affected the rights of individuals to a greater extent than the administrative sanctions currently in force, which lead only to a part refusal of the Union aid sought or, at worst, to all such aid being denied.

59. Finally, the Commission is also right when it contends that the sanction is not excessive. Article 51(1) of Regulation No 796/2004 provides for a system of progressive sanctions which are graded according to the seriousness of the irregularity. ( ) Indeed, the administrative sanction is not absolute but reflects the extent of the error committed. In the dispute in the main proceedings, a full refusal of the single payment is justified in view of the extreme situation in which Agrargut finds itself. ( )

60. Accordingly, the provision at issue is not contrary to the principle of proportionality.

61. It follows from the above considerations that the system of sanctions provided for under Article 51 of Regulation No 796/2004, read in conjunction with Article 50(4) thereof, is applicable in circumstances such as those of the dispute in the main proceedings.

IV – Conclusion

62. I suggest that the Court give the following answers to the questions referred by the Verwaltungsgericht Schwerin:

(1) The condition for application of the sanction provided for in Article 50(4)(a) of Commission Regulation (EC) No 796/2004 of 21 April 2004 laying down detailed rules for the implementation of cross-compliance, modulation and the integrated administration and control system provided for in Council Regulation (EC) No 1782/2003 of 29 September 2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers, as amended by Commission Regulation (EC) No 659/2006 of 27 April 2006, is fulfilled where a farmer does not declare all the area necessary for the purposes of activating the set-aside entitlements at his disposal and, at the same time, declares areas for the purposes of activating other entitlements, whether or not those areas are eligible for set-aside.

(2) The system of sanctions provided for under Article 51 of Regulation No 796/2004, read in conjunction with Article 50(4) thereof, is applicable in circumstances such as those of the dispute in the main proceedings.