Case C-192/06

Matthias Kruck

v

Landkreis Potsdam-Mittelmark

(Reference for a preliminary ruling from the Bundesverwaltungsgericht)

(Agricultural structures – Community aid schemes – Article 7(6) of Regulation (EEC) No 1765/92 – Article 9(2) of Regulation (EEC) No 3887/92 – Set-aside of land – Reduction of compensatory payments)

Judgment of the Court (Second Chamber), 4 October 2007

Summary of the Judgment

Agriculture – Common agricultural policy – Support system for producers of certain arable crops

(Council Regulation No 1765/92, Arts 7(6), first subpara., and 9; Commission Regulation No 3887/92, Art. 9)

On a proper construction of Article 9 of Regulation No 3887/92 laying down detailed rules for applying the integrated administration and control system for certain Community aid schemes, as amended by Regulation No 1648/95, the maximum area to be considered for compensatory payments for set-aside in accordance with the second and fourth sentences of the first subparagraph of Article 7(6) of Regulation No 1765/92 establishing a support system for producers of certain arable crops, as amended by Regulation No 2989/95, should be calculated on the basis of the area applied for provided that that area is actually under arable crops and does not contain land excluded from compensatory payments by Article 9 of Regulation No 1765/92.

(see para. 38, operative part)

JUDGMENT OF THE COURT (Second Chamber)

4 October 2007 ( )

(Agricultural structures – Community aid schemes – Article 7(6) of Regulation (EEC) No 1765/92 – Article 9(2) of Regulation (EEC) No 3887/92 – Set-aside of land – Reduction of compensatory payments)

In Case C‑192/06,

REFERENCE for a preliminary ruling under Article 234 EC by the Bundesverwaltungsgericht (Germany), made by decision of 19 January 2006, received at the Court on 21 April 2006, in the proceedings

Matthias Kruck

v

Landkreis Potsdam-Mittelmark,

THE COURT (Second Chamber),

composed of C.W.A. Timmermans, President of the Chamber, P. Kūris, K. Schiemann, J. Makarczyk (Rapporteur) and L. Bay Larsen, Judges,

Advocate General: M. Poiares Maduro,

Registrar: R. Grass,

having regard to the written procedure,

after considering the observations submitted on behalf of:

– Matthias Kruck, by F. Schulze, Rechtsanwalt,

– the Commission of the European Communities, by F. Erlbacher, acting as Agent,

having decided, after hearing the Advocate General, to proceed to judgment without an Opinion,

gives the following

Judgment

1 This reference for a preliminary ruling concerns the interpretation of Article 9(2) to (4) of Commission Regulation (EEC) No 3887/92 of 23 December 1992 laying down detailed rules for applying the integrated administration and control system for certain Community aid schemes (OJ 1992 L 391, p. 36), as amended by Commission Regulation (EC) No 1648/95 of 6 July 1995 (OJ 1995 L 156, p. 27; ‘Regulation No 3887/92’), in conjunction with the first paragraph of Article 7(6) of Council Regulation (EEC) No 1765/92 of 30 June 1992 establishing a support system for producers of certain arable crops (OJ 1992 L 181, p. 12), as amended by Council Regulation (EC) No 2989/95 of 19 December 1995 (OJ 1995 L 312, p. 5; ‘Regulation No 1765/92’).

2 The reference was made in the course of proceedings between Mr Kruck, a farmer, and the Landkreis Potsdam Mittelmark, regarding compensatory payments to which Mr Kruck claims entitlement for the marketing year 1996/97.

Legal framework

Community legislation

Regulation No 1765/92

3 It is apparent from the second recital in the preamble to Regulation No 1765/92 that ‘in order to ensure better market balances, a new support system has to be established; whereas the best way to achieve this objective is to approximate the Community prices of certain arable crops to the prices of the world market and to compensate the loss of income caused by the reduction of the institutional prices by a compensatory payment for producers who sow such products; whereas therefore the area eligible should be restricted to the area down to arable crops or publicly funded set aside in the past’.

4 Under Article 2 of Regulation No 1765/92:

‘1. Community producers of arable crops may apply for a compensatory payment under the conditions set out in this Title.

2. The compensatory payment shall be fixed on a per hectare basis and regionally differentiated.

The compensatory payment is granted for the area which is down to arable crops or subject to set-aside in accordance with Article 7 of this Regulation and which does not exceed a regional base area. This is established as the average number of hectares within it down to arable crops or where appropriate fallowed in conformity with a publicly funded scheme during 1989, 1990 and 1991. A region in this sense should be understood to mean a Member State or a region within the Member State, at the option of the Member State concerned.

…’

5 Article 7(1) of that regulation requires each producer applying for compensatory payments to set aside part of his land in accordance with detailed procedures.

6 Article 7(5) of the regulation governs the amount of the compensatory payment to be made for the set‑aside of land.

7 The first paragraph of Article 7(6) of the regulation states:

‘To help reduce production, producers may be granted the compensation provided for in paragraph 5 on land set aside in excess of their obligation in order to better control production. In such cases, the area set aside may not exceed the area under arable crops for which compensatory payment is requested. … Member States may prescribe a lower set-aside limit for a specific reason with respect to their agriculture such as protection of the environment or the risk of excessive reduction of farming in certain areas.’

8 The first paragraph of Article 9 of Regulation No 1765/92, which excludes certain land from compensatory payments, states the following:

‘Applications for the compensatory payment and for fulfilling the set-aside obligations may not be made in respect of land which was under permanent pasture, permanent crops, forest, or non-agricultural uses on 31 December 1991.’

Regulation (EC) No 762/94

9 As provided in the sixth recital in the preamble to Commission Regulation (EC) No 762/94 of 6 April 1994 laying down detailed rules for the application of Regulation No 1765/92 with regard to the set-aside scheme (OJ 1994 L 90, p. 8), that regulation ‘provides for compensation for set-aside which exceeds a producer’s obligation in order to help control production; … this objective cannot be attained unless the set-aside effected is deducted from the area down to arable crops; … the necessary provisions on the subject must take account of the diversity of agricultural structures in the Community’.

10 Under the first paragraph of Article 2 of Regulation No 762/94, ‘“set-aside” means the leaving fallow of an area which has been cultivated in the previous year with a view to a harvest’.

Regulation No 3887/92

11 Regulation No 3887/92 lays down the detailed rules for applying the integrated administration and control system for certain Community aid schemes. It sets up, in particular, checks to establish compliance with the conditions for grant of the aid in the ‘area’ aid sector.

12 Under Article 9 of Regulation No 3887/92:

‘1. If the area actually determined is found to be greater than that declared in the “area” aid application, the area declared shall be used for calculation of the aid.

2. If the area actually determined is found to be less than that declared in an “area” aid application, the area actually determined on inspection shall be used for calculation of the aid. However, except in cases of force majeure, the area actually determined on inspection shall be reduced by twice the difference found if this is more than 3% or two hectares but not more than 20% of the determined area.

Where the difference from the area declared is more than 20% of the area determined, no area-linked aid or compensation shall be granted.

…

The reductions shall not be made where growers can prove that in their declaration they have made correct use of information accepted by the competent authority.

…

For the purposes of this article, “determined area” means the area for which all of the conditions laid down in the rules have been met.

3. Forage areas, set-aside areas and each arable crop area for which a different aid rate is applicable shall be treated exclusively and separately for the purposes of applying paragraphs 1 and 2.

4(a) The areas established in accordance with the provisions of paragraphs 1 to 3 for the purpose of calculating the aid shall be used for the calculation of the limit of the premiums referred to in Articles 4g and 4h of Regulation (EEC) No 805/68, as well as for the calculation of the compensatory allowance.

The calculation of the maximum eligible area for the compensatory payments to arable crop producers shall be made on the basis of the area of set-aside land actually determined and on a pro rata basis for each crop concerned.

(b) Where the set-aside obligation is transferred, the calculations referred to in subparagraph (a) of the maximum area eligible for compensatory payments to arable crop producers shall be made as follows:

– on the basis of the determined area of the set aside minus the area of set aside transferred, for the farm where the transferred set aside obligation is performed,

– on the basis of the determined set-aside area including the set-aside area transferred, for the farm which has transferred the set-aside obligation.

…’

National legislation

13 Paragraph 1 of the Regulation concerning a support system for producers of certain arable crops (Verordnung über eine Stützungsregelung für Erzeuger bestimmter landwirtschaftlicher Kulturpflanzen, BGBl. I 1995, p. 1561) (‘the KVO’) states:

‘The provisions of this regulation shall apply to the implementation of legal instruments of the Council and the Commission of the European Communities establishing a support system for the producers of certain arable crops and an integrated administration and control system for certain Community aid schemes relating to

1. the simplified compensatory payment for small producers,

2. the general compensatory payment for producers who set aside land,

3. set-aside in the context of the rules on general compensatory payments,

4. the planting of further crops on set-aside land under the rules on general compensatory payments.’

14 Under the first sentence of Paragraph 12a(1) of the KVO:

‘Compensatory payments for land set aside can be made for a maximum of 33% of the area of a farm for which an application for compensatory payments is made pursuant to the legal instruments listed in Paragraph 1.’

The dispute in the main proceedings and the question referred

15 It is apparent from the order for reference that Mr Kruck, a farmer established in the Land Brandenburg, applied, in respect of the marketing year 1996/97, for area compensatory payments for 13.3830 ha of protein crops, 45.9521 ha of seed flax and 29.2247 ha of voluntary set-aside.

16 By decision of 6 January 1997 the Landkreis Potsdam‑Mittelmark refused to grant aid for the farmed areas on the ground that part of the declared areas was not eligible, namely, 2.5 ha of the area of protein crops and 29.5998 ha of the area of seed flax, and that the area declared was, in both cases, more than 20% of the area actually determined.

17 In addition, according to the Landkreis Potsdam‑Mittelmark, the compensatory payment in respect of the set‑aside land could be made only for a maximum of 33% of the area capable of being eligible. In the case of Mr Kruck, having regard to the farmed area considered to be eligible and after taking into account the overall reduction relating to the Land Brandenburg, the compensatory payment for the set‑aside was made only for an area of 12.76 ha.

18 The claim brought by the applicant against that decision was dismissed by the Landkreis Potsdam‑Mittelmark on 6 May 1997.

19 During the legal proceedings which followed, the Verwaltungsgericht Potsdam (Administrative Court, Potsdam) amended that decision considering an area of 11.1530 ha of protein crops to be eligible. However, the action was dismissed in so far it as concerned the areas of seed flax. That judgment was confirmed by the Oberverwaltungsgericht (Higher Regional Court) of the Land Brandenburg.

20 The Bundesverwaltungsgericht (Federal Administrative Court) dismissed the appeal on a point of law (‘Revision’) brought by Mr Kruck against the judgment of the Oberverwaltungsgericht of the Land Brandenburg in so far as that action concerned the compensatory payment for the seed flax.

21 Still in dispute before the national court is the issue of the right to a compensatory payment for the voluntary set‑aside.

22 In that regard, the national court states that it has not been established that the applicant in the main proceedings overstated the size of the area set‑aide or used it unlawfully. It states, furthermore, that the area applied for did not exceed 33% of the area of the farm for which an application for compensatory payments was made. Consequently, the area applied for could, in principle, qualify for aid.

23 However, in so far as, as a result of the irregularities found in respect of the areas farmed with arable crops, the compensatory payments for those areas have been reduced, the national court wishes to ascertain whether that fact has any repercussions on the compensatory payment for the set‑aside.

24 The Bundesverwaltungsgericht points out that the consequences of the irregularity consisting in failure to observe the conditions laid down for protein crops and seed flax are confined to the aid in respect of those crops.

25 Article 9 of Regulation No 3887/92 does not provide for any ancillary effect on the compensatory payment for the set-aside of land. According to the national court, on the contrary, under Article 9(3) of Regulation No 3887/92 the set-aside areas expressly constitute a separate ‘block’.

26 In those circumstances the Bundesverwaltungsgericht decided to stay proceedings and to refer to the Court of Justice the following question for a preliminary ruling:

‘Is Article 9(2) to (4) of Regulation … No 3887/92 … to be interpreted as meaning that the maximum area to be considered for compensatory payments for set-aside in accordance with the second and fourth sentences of Article 7(6) of Regulation … No 1765/92 … should be calculated on the basis of the area applied for or the area actually determined?’

The question referred

27 First, it should be pointed out that, in accordance with Article 2(2) of Regulation No 1765/92 establishing a support system for producers of certain arable crops, the compensatory payment is granted for the area which is down to arable crops or subject to set-aside in accordance with Article 7 of that regulation.

28 In the light of the sixth recital in the preamble to Regulation No 762/94 the objective of voluntary set-aside, which is to help control production, cannot be attained unless the set-aside effected is deducted from the area down to arable crops.

29 Under Article 7(6) of Regulation No 1765/92, ‘the [voluntary] area set aside may not exceed the area under arable crops for which compensatory payment is requested’.

30 Furthermore, Member States may prescribe a lower set-aside limit for a specific reason with respect to their agriculture. In Germany that limit has been set at 33% by the first sentence of Paragraph 12a(1) of the KVO.

31 It is common ground that the link which exists between the area intended to be set aside voluntarily and the area down to the arable crops for which compensatory payment is requested applies only to the defining of the percentage of land capable of being set aside voluntarily.

32 The concept of an area under arable crops for which compensatory payment is requested, referred to in Article 7(6) of Regulation No 1765/92, implies that that area must actually be used for those crops.

33 In addition, since certain land is excluded from compensatory payments by Article 9 of Regulation No 1765/92, that same land cannot constitute an area under arable crops within the meaning of Article 7(6) of that regulation for the purpose of calculating the area eligible for compensatory payments.

34 Second, it must be pointed out that the aims of Regulation No 3887/92 are, as set out in the seventh and ninth recitals in its preamble, to monitor effectively compliance with the provisions on Community aid and to adopt provisions which prevent and penalise irregularities and fraud effectively (see, to that effect, Case C‑295/02 Gerken [2004] ECR I‑6369, paragraph 41, and Case C‑45/05 Maatschap Schonewille‑Prins [2007] ECR I‑0000, paragraph 63).

35 In order to attain those objectives Article 9(2) of that regulation lays down, in a case where the area declared in an ‘area’ aid application is greater than that determined on inspection, sanctions consisting of reductions of, or exclusions from, Community aid, which vary according to the gravity of the irregularity committed.

36 In that regard, it is important to point out that forage areas, set-aside areas and each arable crop area are to be treated exclusively and separately for the purposes of applying Article 9(1) and (2) of Regulation No 3887/92.

37 It follows that each of those categories of area declared by the producer for the purpose of a grant of aid must be considered separately from the point of view of checking compliance with the conditions to be met for the granting of compensatory payments and the legal consequences which result from such an inspection.

38 Consequently, the answer to the question referred must be that Article 9 of Regulation No 3887/92 is to be interpreted as meaning that the maximum area to be considered for compensatory payments for set-aside in accordance with the second and fourth sentences of Article 7(6) of Regulation No 1765/92 should be calculated on the basis of the area applied for, provided that that area is actually under arable crops and does not contain land excluded from compensatory payments by Article 9 of Regulation No 1765/92.

Costs

39 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 (Second Chamber) hereby rules:

On a proper construction of Article 9 of Commission Regulation (EEC) No 3887/92 of 23 December 1992 laying down detailed rules for applying the integrated administration and control system for certain Community aid schemes, as amended by Commission Regulation (EC) No 1648/95 of 6 July 1995, is to be interpreted as meaning that the maximum area to be considered for compensatory payments for set-aside in accordance with the second and fourth sentences of Article 7(6) of Council Regulation (EEC) No 1765/92 of 30 June 1992 establishing a support system for producers of certain arable crops, as amended by Council Regulation (EC) No 2989/95 of 19 December 1995, should be calculated on the basis of the area applied for provided that that area is actually under arable crops and does not contain land excluded from compensatory payments by Article 9 of Regulation No 1765/92, as amended by Regulation No 2989/95.

[Signatures]