2000/580/EC: Commission Decision of 30 March 1999 on the State aid which the Region of Sardinia (Italy) granted to the milk sector (notified under document number C(1999) 902) (Only the Italian text is authentic)
Date: 1999-03-30
Institutions: European Commission
Subjects: Sardinia, State aid, control of State aid, dairy industry, goats’ milk cheese, interest rate subsidy

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Official Journal of the European Communities

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COMMISSION

COMMISSION DECISION

of 30 March 1999

on the State aid which the Region of Sardinia (Italy) granted to the milk sector

(notified under document number C(1999) 902)

(Only the Italian text is authentic)

(2000/580/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular the first paragraph of Article
93(2) thereof,

Having called on interested parties to submit their comments
pursuant to the provision(s) cited above (1) and having regard
to their comments,

Whereas:

I

PROCEDURE

(1)

(2)

(3)

(4)

(5)

Following a complaint, by letter dated 24 January 1996,
the Commission requested the Italian Government to
notify the aid measures covered by Decision No 47/17
of the Regional Executive of the Sardinia Region of 24
October 1995 (hereinafter referred to as ‘Decision No
47/17’).

By letter dated 1 March 1996, the Italian Permanent
Representation to the European Union notified the
measures in question.

By letter dated 16 October 1996 the Commission
informed Italy of its decision to initiate the procedure
laid down in Article 93(2) of the EC Treaty in respect of
this measure.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communi-
ties (2). The Commission invited interested parties to
submit their comments on the measure.

The Commission received comments from interested
parties. It forwarded them to Italy, which was given the

(1) OJ C 87, 18.3.1997, p. 6.
(2) See footnote 1.

opportunity to react;
letter dated 17 June 1997.

its comments were received by

II

DESCRIPTION

(6)

(7)

Article 16 of Sardinian Regional Law No 9 of 13 July
1962 (hereinafter referred to as ‘Law 9/62’) provides for
the grant of aid in the form of reduced interest rates on
short-term loans for the operation of cooperatives and
producer groups processing sheep's and goat's milk into
cheese. Article 16 provides for a maximum rate of
interest of 2 % to be paid by recipients and a regional
guarantee on loans of up to 80 % of the amount due.
That Law has never been notified under Article 93(3) of
the Treaty. The compatibility of the aid provided for
therein with the common market has never therefore
been examined.

Decision No 47/17 lays down the rules for granting the
aid provided for in the abovementioned Article 16 of
Law 9/62 for the 1995/1996 agricultural year. No infor-
mation has been supplied on the rules of application
adopted for previous years.

(8)

The types of loan concerned are:

(a) operating loans (for cooperatives only) amounting to
ITL 250 per litre of milk with a ceiling fixed on the
basis of production in the previous year;

(b) loans to cover advance payments to members (of

cooperatives and producer groups).

These loans amount to ITL 1 150 per litre of sheep's
milk and ITL 850 per litre of goat's milk.

(9)

The duration of loans can be set by the financial insti-
tute at 18 or 36 months (based, among other things on
the type of cheese produced).

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(10)

(11)

(12)

(13)

The interest rate on the loans is 55 % of the reference
rate fixed by the Government.

The above aid may be received in combination, in the
case of cooperatives, with aid in the form of a refund of
10 % of the rate of interest payable by them where
cooperatives implement a joint marketing strategy (for
example, by forming a marketing consortium or by
means of worker participation agreements)
for more
than 30 000 quintals of product per year.

In its decision to open the procedure, the Commission
noted that Articles 92 and 93 of the Treaty apply to
milk and milk products in accordance with Article 23 of
Council Regulation (EEC) No 804/68 on the common
organisation of the market in milk and milk products (3),
as last amended by Regulation (EC) No 1587/96 (4).

The Commission noted that the legal basis for the aid is
Article 16 of Law No 9/62. Since that Law had never
been notified to or examined by the Commission under
Articles 92 and 93 of the Treaty, the aid cannot be
considered existing aid within the meaning of Article
93(1).

(14) Accordingly, the Commission considered that the aid
measures concerned must be examined in the light of
the criteria laid down in the Commission communi-
cation on State aids: subsidised short-term loans in agri-
culture (crédits de gestion) (5). In principle, those criteria
were to apply to all aid measures applicable on or after
1 January 1996 (Commission letter to the Member
States dated 20 October 1995). After reviewing those
criteria, the Commission doubted that the measure in
fact met them.

(15)

the Commission noted that

the aid
Furthermore,
appeared to be granted on the quantity of milk sent for
processing and therefore appeared to be in breach of
Article 24 of Regulation (EEC) No 804/68 on the
common organisation of the market in milk and milk
products, which forbids any aid the amount of which is
calculated on the basis of the price or quantity of prod-
ucts covered by that market organisation.

III

COMMENTS FROM INTERESTED PARTIES

(16) On 5 April 1997 the Commission received comments
submitted jointly by the Federazione degli
Industriali
della Sardegna (the Sardinian Federation of Industry) and
the Consorzio delle Industrie Casearie della Sardegna
(the Sardinian Federation of Cheese Industries). These
comments strongly support the arguments advanced by
the Commission in its decision to open the procedure.
the aid granted by the Italian
They emphasise that
authorities constitutes operating aid which has no long-

(3) OJ L 148, 28.6.1968, p. 13.
(4) OJ L 206, 16.8.1996, p. 21.
(5) OJ C 44, 16.2.1996, p. 2.

term benefit for the sector concerned and should there-
fore be considered incompatible with the common
market. They also emphasise that
the aid distorts
competition within the sector, since the aid is only
granted to certain categories of producers, in particular
cooperatives and producer groups. The two federations
therefore ask the Commission to declare the aid to be
incompatible with the common market and to order the
recovery of any aid paid.

IV

COMMENTS FROM ITALY

(17)

(18)

In their letter of 17 June 1997, the Italian authorities did
not comment
in detail on the issues raised by the
Commission in its decision to open the procedure. They
simply pointed out that the national rules concerned
were adopted before the adoption of the communication
on operating loans, that the aid was not granted as it
was only payable after the event, that payment had been
suspended until the Commission had reached a final
decision, and that the entire matter could be resolved
only when the Commission had adopted a definitive
position on subsidised short-term operating loans.

By telex of 9 December 1998, addressed to the Italian
Permanent Representation, the Commission reminded
the Italian authorities that its decision to open the proce-
dure concerned any aid granted under Article 16 of Law
No 9/62, and not only the aid envisaged for the 1995/
1996 marketing year under Decision No 47/17. The
Italian authorities were invited to clarify their response
accordingly. However, no reply to this telex has been
received.

V

ASSESSMENT OF THE MEASURE

(19) Article 92(1) of the EC Treaty provides that any aid
granted by a Member State or through State resources in
any form whatsoever which distorts or threatens to
distort competition by favouring certain undertakings or
the production of certain goods shall,
in so far as it
affects trade between Member States, be incompatible
with the common market. Articles 92 and 93 of the
Treaty apply to milk and milk products, by virtue of
Article 23 of Regulation (EEC) No 804/68.

(20)

The present measure provides for aid in the form of
subsidised loans to be granted to cooperatives and
producer groups which are involved in the processing of
sheep's milk and goat's milk. The national reference rate
used for the calculation of the interest rate reduction is
the arithmetical mean of the Rendibot rate (calculated by
the Bank of Italy) and the Ribor rate, increased by bank

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commission costs. In November 1998 the national refer-
ence rate was 6,25 %, compared with the reference rates
used by the Commission at that time of 6,18 % for loans
of five years' duration and 5,9 % for loans of one year's
duration. A 45 % reduction in the national reference rate
of 6,25 % clearly results in a rate of interest on the
subsidised loans which is below the reference rates used
by the Commission to determine whether a subsidised
loan contains an aid component as cited in the Commis-
sion notice on the method for setting the reference and
discount rates (6). Such a measure clearly favours the
beneficiaries as opposed to other undertakings which
must either obtain finance from their own resources or
pay for such finance through interest on loans at normal
commercial rates. In so far as producers who do not
have access to subsidised loans have to pass on their
additional costs to their customers, the measure places
the beneficiaries of the subsidised loans at a commercial
advantage. The measure therefore distorts the conditions
of competition. Furthermore, the measure affects trade
between Member States. In this context, the Commission
notes that
the majority of sheep's and goat's milk
produced in Sardinia is used for the production of
Pecorino Romano, Pecorino Sardo and other cheeses.
Furthermore, the modalities for the payment of the aid
depend on the type of cheese produced. There is
substantial intra-Community trade in cheese, amounting
to 1 903 300 tonnes in 1996 on the basis of outgoing
in the same year
volumes.
amounted to ITL 1 305 billion. In addition, while it is
not possible to give precise figures, the Commission is
aware that
intra-
Community trade in Pecorino Romano and Pecorino Sardo,
cheeses, which have received a protected designation of
origin in accordance with Council Regulation (EEC) No
2081/92 of 14 July 1992 on the protection of
geographical indications and designations of origin for
agricultural products and foodstuffs (7), as last amended
by Commission Regulation (EC) No 1068/97 (8). Indeed
in the context of another State aid file, the Sardinian
authorities have indicated that Pecorino Romano is one of
the few products where the island is a net exporter of
foodstuffs.

there is a substantial volume of

Italian cheese exports

(21)

The Commission therefore concludes that the measure
falls within the scope of the prohibition contained in
Article 92(1) of the Treaty.

(22)

The prohibition in Article 92(1) of the EC Treaty is
followed by exemptions in Article 92(2) and (3).

(6) OJ C 273, 9.9.1997, p. 3.
(7) OJ L 208, 24.7.1992, p. 1.
(8) OJ L 156, 13.6.1997, p. 10.

(23)

The exemptions listed in Article 92(2) of the EC Treaty
are manifestly inapplicable given the nature of the aid
measure in question and its objectives. Italy has in fact
not invoked Article 92(2).

(24) Article 92(3) specifies the circumstances under which
State aids may be considered to be compatible with the
common market. Their compatibility with the common
market must be assessed from the point of view of the
Community and not that of an individual Member State.
In the interest of the functioning of the common market
and having regard to Article 3(g) of the Treaty, the
exemptions from Article 92(1) must be interpreted
restrictively.

(25) With regard to Article 92(3)(b), it is considered that the
aid in question is not intended to promote the execution
of an important project of common European interest or
to remedy a serious disturbance in Italy's economy.

(26)

The aid is, moreover, neither intended to achieve nor
suitable for achieving the objectives contained in Article
92(3)(d).

(27) With regard to Article 92(3)(a) and (c) it has first to be
noted that the aid is not granted in connection with
investments. In fact, the aid is granted in the form of an
interest
rate subsidy on short-term operating loans
which may be granted to cooperatives and producer
sheep's and goat's milk
groups operating in the
processing sector. As such, the aid measure must be
considered an operating aid.

(28)

confer only a

It is long-standing Commission policy to prohibit the
payment of operating aids in the agricultural sector. Aids
their
which simply relieve economic operators of
normal operating costs
short-term
economic advantage for the beneficiary which ceases as
soon as the payment of aid stops and are particularly
liable to distort competition. Such aids therefore cannot
be considered either to promote the economic develop-
ment of areas where the standard of living is abnormally
low (Article 92(3)(a)) or to facilitate the development of
certain economic activities or of certain economic areas
(Article 92(3)(c)). Furthermore, the payment of such aids
is likely to interfere with the operation of the mecha-
nisms established by the common organisations of the
market, in the framework of the common agricultural
policy, and to disadvantage producers who are not in
receipt of such aids, contrary to the principle of equality
of treatment laid down by the Treaty. In accordance

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with the jurisprudence of the Court of Justice, and in
particular the judgment of 26 June 1979,
‘one the
Community has, pursuant to Article 40 of the Treaty,
legislated for the establishment of the common organ-
isation of the market in a given sector, Member States
are under an obligation to refrain from taking any
measure which might undermine or create exceptions to
it. (9)’

for

the agricultural sector,

(29) Nevertheless, in recognition of the structural difficulties
which, in a number of Member States, inhibit the access
of the agricultural sector to capital, or which increase
the cost of capital
the
Commission has developed a policy of allowing short-
term subsidised loans to agricultural producers to cover
operating costs provided that certain conditions are
fulfilled. This policy was consolidated in a Commission
communication concerning State aids in the form of
short-term subsidised loans in agriculture (10). Originally
transmitted to the Member States by letter of 20
October 1995, it was intended that the new rules should
enter into force on 1 January 1996. By decision of 27
June 1997, the Commission extended the deadline for
Member States to amend existing aids to comply with
the new rules to 31 December 1996. Subsequently, by
letter of 4 July 1997, the Commission informed the
Member States that
it had decided to suspend the
application of the guidelines. By letter of 19 December
1997, the Commission informed the Member States that
the guidelines would enter into force on 30 June 1998.

(30) Under the new rules, the aid measures in question must
inter alia, the following conditions:

fulfil,

(i) they must not be used selectively to assist sectors or
individual agricultural operators for reasons which
are not exclusively connected with the agricultural
sector as a whole and related activities (in particular,
the seasonal nature of agricultural production and
holding structures);
the Commission does not
authorise aid which is not granted to all operators
in the sector in the administrative unit concerned
on a non-discriminatory basis irrespective of the
agricultural activity (or activities)
for which the
operator needs short-term loans;

(ii) the aid must not exceed the difference between the
interest rate paid by a typical operator in the agri-
cultural sector and the interest paid in the rest of
the economy of the Member State for short-term
loans of a similar amount per operator, not linked
with investments;

(31)

(32)

(33)

(34)

(iii) the amounts of subsidised loans must not exceed
cash-flow requirements arising from the fact that
production costs are incurred before income from
in no case may aid be
output sales is received;

(35)

(9) Case C-177/78, Pigs and Bacon Commission v Mc Carren, [1979]

ECR 2161, point 14 of the decision.

(10) See footnote 3.

linked to particular marketing or production opera-
tions;

(iv) subsidised short-term loans may be granted for a

maximum of one year.

In its letter of 19 December 1997, the Commission
emphasised the need for strict and literal compliance
the aid must be
with point
limited to the interest rate differential between short-
term loans in the agricultural sector and short-term
loans in other economic sectors.

(ii) above, namely that

Before the adoption of the abovementioned communi-
cation, the Commission, on the basis of its policy in
force, would consider the aid measure compatible with
the common market if it fulfilled two negative criteria
(the subsidised loans should not be for more than one
year and should not be granted for a single product or a
single operation).

It is therefore necessary to examine the aid measures in
the light of the criteria set out above for short-term
operating loans for the agricultural sector.
In their
written observations, the Italian authorities have also
suggested that this is the appropriate basis for the assess-
ment of the aid. In this context,
it is appropriate to
distinguish between aid for the 1995/1996 marketing
year, and other aid which may have been granted on the
basis of Article 16 of Law No 9/62.

The detailed conditions for the payment of aid for the
marketing year 1995/1996, were fixed by Decision No
47/17 (see points 8, 9 and 10 of this Decision).

It is clear from the detailed conditions laid down for the
payment of the aid that the loans do not meet the
conditions set out at points 30(i) and (iv) above.
In
particular, aid is granted on a selective basis, in respect
of a particular type of product only (products produced
from sheep's and goat's milk) and only to certain types
of producers, namely cooperatives and producer groups.
Thus not only producers of other types of product, but
certain categories of producers of the same product are
excluded from the benefit of the aid. They therefore
receive no State support to offset seasonal and other
disadvantages. Furthermore, the duration of the loans
exceeds one year. The aid measure must be considered
incompatible with the communication. In so far as the
duration of the loans exceeds one year, the aid is also
incompatible with the policy previously applied by the
Commission in this field.

Furthermore, having regard to the detailed conditions
laid down for payment of the aid, which appears to be
granted on the quantity of milk sent for processing, and
in the absence of any comments from the Italian author-
ities on this question, the Commission maintains the
view that the aid is in breach of Article 24 of Regulation
(EEC) No 804/68.

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suspended after the opening of the procedure, there is
no need to order the repayment of the aid in question,

HAS ADOPTED THIS DECISION:

Article 1

The State aids in favour of cooperatives and producer groups
in the sheep's and goat's milk sector granted by the Sardinia
Region for the 1995/1996 marketing year on the basis of
Article 16 of Law No 9/62, as implemented by Decision No
47/17 of 24 October 1997 are incompatible with the common
market.

Italy shall withdraw the aid referred to in Article 1.

Article 2

Article 3

Italy shall provide the Commission, within two months
following notification of this Decision, with full details of all
other aids which have been granted on the basis of Article 16
of Law No 9/62 for periods before the 1995/1996 marketing
year.

Article 4

inform the Commission, within two months
Italy shall
following notification of this Decision, of the measures taken
to comply with it.

This Decision is addressed to the Italian Republic.

Article 5

Done at Brussels, 30 March 1999.

For the Commission

Franz FISCHLER

Member of the Commission

(36) As regards aids which may have been paid under Article
16 of Law No 9/62 for marketing years prior to the
1995/1996 marketing year, it must be noted that the
Italian authorities have not responded to the Commis-
sion's decision to open the procedure under Article
93(2), neither have they responded to a reminder sent
by the Commission. As a consequence the Commission
lacks the information necessary to take a final decision.

Justice of 14 February 1990 (11),

(37) Accordingly, acting in accordance with the judgment of
the Court of
the
Commission has decided to order Italy to provide full
details of all aids which may have been granted under
Article 16 of Law No 9/62 covering a period prior to
the 1995/1996 marketing year. The information to be
imple-
provided shall
menting decisions defining the rules for payment of
such aid, together with details of the budgetary provi-
sions allowed in each year.

include copies of all Regional

VI

CONCLUSIONS

(38)

(39)

In so far as Law No 9/62 and Decision No 47/17 were
adopted and brought
into effect without prior noti-
fication to the Commission, the Commission finds that
Italy has unlawfully implemented the aid in question
contrary to Article 93(3) of the Treaty.

Furthermore the Commission finds that
the aids in
favour of cooperatives and producer groups in the
sheep's and goat's milk sector granted by the Sardinia
Region for the 1995/1996 marketing year on the basis
of Article 16 of Law No 9/62, as implemented by
Decision No 47/17, fall within the scope of the prohibi-
tion under Article 92(1) of the Treaty and do not qualify
for exemption under Article 92(2) or (3). The aid in
question is therefore incompatible with the common
market.

(40) However, because the Italian authorities indicate in their
reply to the opening of the procedure that the aid for
the 1995/1996 marketing year was not granted since it
was to have been paid retrospectively but payment was

(11) Case C-301/87, French Republic v Commission, [1990] ECR 1-307.