2000/386/EC: Commission Decision of 8 December 1999 on the measure which the Netherlands intends to implement concerning rationalisation of pig assembly centres (notified under document number C(1999) 5209) (Only the Dutch text is authentic)
Date: 1999-12-08
Institutions: European Commission
Subjects: Netherlands, State aid, livestock farming, management techniques, swine

L 144/28

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Official Journal of the European Communities

17.6.2000

COMMISSION

COMMISSION DECISION

of 8 December 1999

on the measure which the Netherlands intends to implement concerning rationalisation of pig
assembly centres

(notified under document number C(1999) 5209)

(Only the Dutch text is authentic)

(2000/386/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of Article
88(2) thereof,

Having in accordance with that provision given notice to inter-
ested parties to submit their comments (1), and in the light of
those comments,

(3)

(4)

(5)

Whereas:

I. Procedure

(1)

The Netherlands notified the Commission of the above
measure by letter of 6 August 1998 (registered as
received on 10 August 1998). The Netherlands provided
additional information to the Commission by letter of
29 September 1998 (registered as received on 5 October
1998) and by letter of 3 November 1998 (registered as
received on 5 November 1998). Further information was
provided at a meeting with Dutch Government represen-
tatives on 7 December 1998.

The Commission's decision to initiate the procedure was
published in the Official Journal of the European Communi-
ties (1). The Commission invited interested parties to
submit their comments on the measure.

Having received interested parties'
the
Commission forwarded these to the Netherlands for
reaction and received the Netherlands' response by letter
of 30 July 1999.

comments,

II. Description of the measure

64/432/EEC (2),

checks applicable

Council Directive

The measure is intended to accompany the more strin-
gent hygiene rules which have been introduced for pig
assembly centres in order to prevent the spread of class-
ical swine fever. The amended rules serve partly to
as
implement
amended by Directive 97/12/EC (3), but also contain
additional requirements. In accordance with the second
subparagraph of Article 10(1) of Council Directive 90/
425/EEC of 26 June 1990 concerning veterinary and
in intra-Community
zootechnical
trade in certain live animals and products with a view to
the completion of
last
amended by Directive 92/118/EEC (5), the hygiene meas-
ures were notified as temporary protection measures.
Since the Netherlands wishes to make the measures
permanent, they were also notified (No 98/0392/NL) as
a technical specification under Council Directive 83/
189/EEC of 28 March 1983 laying down a procedure
for the provision of information in the field of technical
standards and regulations (6), as consolidated by Euro-
pean Parliament and Council Directive 98/34/EC (7) and
subsequently amended by Directive 98/48/EC (8).

the internal market (4), as

(2)

By letter of 3 February 1999 the Commission notified
the Netherlands that it had decided to initiate the proce-
dure under Article 88(2) of the EC Treaty.

(1) OJ C 108, 17.4.1999, p. 5.

(2) OJ L 121, 29.7.1964, p. 1977/64.
(3) OJ L 109, 25.4.1997, p. 1.
(4) OJ L 224, 18.8.1990, p. 29.
(5) OJ L 62, 15.3.1993, p. 49.
(6) OJ L 109, 26.4.1983, p. 8.
(7) OJ L 204, 21.7.1998, p. 37.
(8) OJ L 217, 5.8.1998, p. 26.

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All pig assembly centres were closed and their operating
licences revoked following the outbreak of classical
swine fever. In order to reopen, firms must obtain a new
licence, which will be issued only if they satisfy the new
hygiene requirements.

Firms which are prepared to adapt their facilities may
receive investment aid.

plied by a yield factor of 10 (based on the independent
consultant's report) and the estimated value of the inven-
tory.

If the assembly centre is also used for animals other than
pigs, no compensation will be granted for loss of assets:
since collection of other animals can continue,
it is
assumed that no such loss has been incurred.

Firms which are unwilling/unable to meet
the new
hygiene requirements and therefore remain closed are
offered aid for permanently ceasing to operate. The
firms (including their shareholders) receiving this aid
must undertake not to become involved, either directly
or indirectly,

in operating a pig assembly centre.

The inventory included in the loss of assets estimate
must be destroyed. The assembly centre's assets must
not under any circumstances be used for a pig assembly
centre or, during a ten-year period after ceasing to
operate, for an assembly centre for other animals.

(6)

(7)

The aid offered comprises two components: compensa-
tion for loss of income and compensation for loss of
assets.

The compensation for loss of income is NLG 3,75 per
pig-equivalent (1), unless proof can be furnished from
the annual accounts or an accountant's report that the
average income margin per pig-equivalent exceeds
NLG 0,75, in which case the aid may be increased up to
a maximum of NLG 5 per pig-equivalent.

(9)

(10)

This calculation is based on an independent consultant's
report which shows that profit per pig-equivalent varies
from NLG 0,74 to NLG 1,28. The operator's return
from pig assembly activities is therefore assumed to be
at least NLG 0,75 per pig-equivalent. This figure is then
multiplied by five to compensate for loss of income over
seven years — with a correction of about 30 % because
the aid is now already at the recipient's disposal, whereas
the income would otherwise be earned over a number of
years. A higher level of aid may be obtained if it can be
demonstrated that the actual profit margin was higher.

The seven-year period is likewise based on the consul-
tant's report, which compares various compensation
schemes. Given the difficulty of setting an individual
correction factor for each firm, a 30 % average has been
fixed as standard.

(8)

Compensation for loss of assets is based on an indepen-
dent expert's estimate, expressed as the loss of rental
value per m2 actually used for bringing in, collecting,
weighing and transporting pigs, together with the esti-
mated loss of rental value for the washplace and the
office space attributable to the assembly centre, multi-

(1) A pig-equivalent is a unit of account which is used to express the
average number of pigs kept at the assembly centre during 1994,
1995 and 1996, on the basis of which different sorts of pigs can
be compared: a piglet weighing less than 45 kg represents 0,45
pig-equivalent, a pig weighing 45 kg or more intended for slaughter
represents 1 pig-equivalent, a pig weighing 45 kg or more intended
for breeding represents 1,82 pig-equivalent.

The measure, which runs until the end of 2001, can be
extended and payment spread over subsequent years if
revenue from the parafiscal charge is insufficient for
payment in 2001.

The scheme entered into force following its publication
in the Dutch Official Gazette. The Dutch authorities
stated that
the intention was to give operators the
opportunity to take an informed decision on whether or
not
to continue operating. Applications for aid for
ceasing operation had to be submitted by 30 September
1998.

However, the Dutch authorities delayed implementation
pending Commission approval of the aid. The ordinance
on the parafiscal charge is moreover still subject to
approval at national

level.

(11)

The recipients are pig assembly centres.

(12)

(13)

for 1999, 2000 and 2001 is
The estimated budget
NLG 10 million a year. The Ministry will pay NLG 20
million, while the Livestock and Meat Marketing Board
will pay the remaining NLG 10 million out of
the
proceeds from a parafiscal charge on pigs brought to
assembly centres.

The Livestock and Meat Marketing Board will levy the
parafiscal charge on pig assembly centres. The charge,
which is based on the number of pigs brought in, tran-
shipped and transported out,
is NLG 0,40 per piglet,
NLG 0,80 per pig and NLG 1,00 per sow (should the
these amounts can be
proceeds prove insufficient,
increased to maxima of NLG 1,00, NLG 1,50 and
NLG 2,00 respectively). The
charge must not be
included in the price invoiced by the assembly centre to
its customers. The charge does not apply to imported
animals.

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(14)

The procedure was initiated for the following reasons.

In the notification, the Dutch authorities justified the aid
by referring to Commission practice as regards aid for
ceasing production.

The Commission generally regards aid for up to 100 %
of the costs involved in shedding agricultural production
capacity as compatible with the common market (see,
for example, aid measures N547/96, N452/95, N47/95,
N463/93 and N458/94), provided that the following
four conditions are met:

1. the aid must be in the general interest of the sector

concerned;

2. the recipient must do sufficient in return;

3. under no circumstances must the aid scheme serve as

rescue and restructuring aid;

4.

loss of assets and losses resulting from future income
foregone must not be overcompensated.

(15)

In the case at issue, however, the Dutch authorities'
proposed rules on ceasing production do not seem a
suitable basis for approving the aid measure. While the
rules relate to voluntary cessation of production, the
firms in the case at issue have already been closed by
law. Granting compensation to closed firms which are
unable to meet hygiene requirements may result in over-
compensation and even adversely affect trade on poten-
tial new markets (or on related markets where they are
already active). The measure thus appears to lack the
incentive
effect which the Commission normally
requires State aid measures to contain before they may
be considered for approval.

Firms which are unable or unwilling to meet the new
hygiene requirements and which permanently cease to
resulting from those
the costs
operate because of
requirements and because of the expected profit are, in
the Commission's opinion, taking a normal business
decision; the new hygiene rules appear to be a normal
business risk. The Commission therefore considers that
particularly compensation for loss of income, but also
any other form of compensation, can be regarded as
overcompensation.

and are sometimes not usable for other reasons either
(because one-off entries or important subsidiary opera-
tions give a distorted picture).

The Commission has doubts about the statistical signifi-
cance of a random sample of just five firms for the
purposes of determining compensation. Given the five
firms' widely differing profit margins, it doubts whether
the minimum profit margin can be set at NLG 0,75
without
this leading to overcompensation for some
firms.

(17)

(18)

the
The Commission therefore takes the view that
proposed scheme is not based on objective criteria and
that resultant overcompensation cannot be ruled out.

the above,

the Commission doubts
In the light of
whether the proposed aid measure is compatible with
the common market and has decided to initiate the
procedure.

III. Interested parties' comments

(19)

The Livestock, Meat and Eggs Marketing Board replied
by fax on 29 June 1999.

(20)

(21)

The Board refers to the circumstances in which the new
scheme was introduced: no provision was made for
transitional arrangements. Although they seek to protect
society's interests and those of the pig sector, the new
rules are disproportionately harmful to a relatively small
group of assembly centres.

In a comparable case concerning pigswill, the Dutch
Supreme Court ruled on 18 January 1991 that there was
a right to compensation. In that case an immediate ban
on feeding kitchen and slaughter waste to pigs was
accompanied by inadequate
compensation arrange-
ments. The Supreme Court ruled that the Minister had
acted unlawfully by introducing the measure without
providing for transitional measures or other compensa-
tion arrangements.

(22) On the basis of that judgment, the Dutch Government is
required to compensate the loss incurred by assembly
centres which have had to cease operating.

(16) Another reason for initiating the procedure was the
method used to calculate compensation for loss of
income. The independent consultant's report shows that
profit per pig-equivalent varies
from NLG 0,74 to
NLG 1,28. This amount is based on the annual accounts
of five of the 48 pig assembly centres in the Nether-
lands. Pig assembly activities are often only a (small) part
of a firm's transport,
trade and export operations.
Annual accounts do not always make it possible to
determine the return from pig assembly activities alone

(23)

that

The Board also points out
the Commission is
entirely mistaken in the view that, since assembly
centres not satisfying the new rules would have had to
close in any case, no aid needs to be granted. The
closure of firms resulting from swine fever was only
temporary. Since all the firms concerned had met the
requirements applying before the outbreak, they could
assume that they would be able to resume operating
after the outbreak. If firms which do not meet the new

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requirements should not be granted aid because they
would have ceased operating anyway, it must be borne
in mind that this is not a voluntary decision and results
from the more stringent hygiene requirements. Based on
the Supreme Court
judgment referred to above and
given the lack of transitional measures, the State is in
any case obliged to compensate the loss.

IV. The Netherlands' comments

(28) Nor can closure be said to be voluntary and permanent.
Without government measures, all assembly centres
would have been able to continue operating. The
Commission rightly points out that it is not possible to
say with certainty whether the operators planned to
resume, but this is irrelevant. All aid schemes for ceasing
production are intended for operators who are prepared
to stop, subject to certain conditions. The underlying
motives for making use of such a scheme are in them-
selves irrelevant (apart from the fact that the aid scheme
must not serve as rescue and restructuring aid). The
proposed aid measure is therefore in accordance with
the policy which the Commission normally applies to
schemes for ceasing production.

(24)

By letter of 5 March 1999 the Dutch authorities replied
as follows to the Commission's letter notifying the Neth-
erlands that the procedure would be initiated.

(29)

(25)

In the Dutch authorities' view, the Commission took
insufficient account of the context surrounding the aid
measure's approval. In the light of the damage caused by
swine fever, tightening up the veterinary and hygiene
rules was seen as a way of preventing such problems in
future. At the same time, the number of pig assembly
centres had to be reduced. The package of measures had
to be introduced as quickly as possible in order to
minimise the risk. Since trade had in any case come to a
standstill because of the outbreak of swine fever, all
operating licences were revoked. Under normal circum-
stances provision would have been made for a trans-
itional period, particularly since investment (in some
cases up to NLG 1 million) had to be raised by firms
which had not been operating for some time and hence
had not been generating any turnover.

(26) A comparison can be drawn with the hygiene regula-
tions introduced on 1 July 1998 to control infectious
diseases, which was also aimed at preventing swine
fever, except for the provisions on washing installations
and disinfection facilities for vehicles in pig slaughter-
houses; since those provisions did not enter into force
until 1 December 1998, pig slaughterhouse operators
were given the opportunity to invest in installations as
required.

(27)

The Commission is wrong to regard tightening up the
hygiene requirements as something separate from the
adaptation policy. Tightening up the requirements with
immediate effect is possible only if the adaptation meas-
ures are approved. The Commission's reference to the
Supreme Court ruling, and to the fact that the free
interplay of market
the aid measure
would not by itself induce potential aid recipients to
adopt a course of action which would contribute
towards achieving those objectives, are not relevant here
since the aid is regarded as necessary because otherwise
it would not be possible to tighten up the requirements
with immediate effect.

forces without

(30)

(31)

(32)

The Dutch authorities notified the following changes to
the compensation arrangements by letter of 27 May
1999. In view of the Commission's comments, 14 firms
were examined more closely and it was found that in a
number of them the profit margin was lower than the
minimum of NLG 0,75 stated in the scheme.

Compensation was revised accordingly to NLG 2,5 per
pig-equivalent (instead of the original NLG 3,75), unless
it can be demonstrated from the annual accounts or an
accountant's report that the average income margin per
pig-equivalent exceeds NLG 0,50, in which case the aid
increased proportionally up to a maximum of
is
NLG 5,75 per pig-equivalent
the original
NLG 5).

(instead of

statements,

the Dutch Government's

By letter of 30 July 1999 the Dutch authorities
responded to the Board's letter. Although the Board
the
supports
Government considers the reference to the Supreme
Court ruling less appropriate. The Dutch Government
questions whether the case now at issue corresponds to
the one dealt with on that occasion by the Supreme
Court. At any event the question of whether the Dutch
Government
is obliged to pay compensation under
Dutch law is not, in the Government's view, relevant for
the purposes of determining whether the scheme is
compatible with the common market.

The Dutch authorities confirm that the ruling referred to
shows that the Government is not free simply to make
regulations more stringent without taking other interests
into account. The Dutch Government takes the view that
tightening up the hygiene rules for assembly centres
does not result in an obligation to pay compensation.
From an administrative viewpoint it regards the lack of a
transitional period as the main justification for the
proposed aid scheme, which is therefore considered to
be compatible with the common market on the basis of
Article 87 of the Treaty.

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V. Assessment of the measure

(33) Article 21 of Council Regulation (EEC) No 2759/75 of
29 October 1975 on the common organisation of the
market in pigmeat (1) (as last amended by Regulation
(EC) No 3290/94 (2)) stipulates that, save as otherwise
provided in that Regulation, Articles 92 to 94 (now
Articles 87 to 89) of the Treaty are to apply to this
sector.

(38)

(34) Article 87(1) of the Treaty is to apply on condition that
the measures provide a firm with an economic advan-
tage which it would not have had in the normal conduct
of its business, that the aid is granted to certain firms,
that the aid is granted by a Member State or via State
resources, and that the aid tangibly affects trade between
the Member States.

(35) According to the judgment of the Court of Justice of the
European Communities of 27 September 1988 in Joined
Cases 106 to 120/87 (Asteris v Greece) (3), compensation
which can be claimed on the basis of national case law
does not constitute aid within the meaning of Article
92(1) (now Article 87(1)) of the Treaty.

(36)

In the light of the Board's comments and the reference
to Dutch legislation, an examination must be made as to
whether
the measure is actually an aid measure.
According to the information supplied and the refer-
ences to the Supreme Court ruling, the Dutch authorities
are legally obliged to make provision for a transitional
period or a compensation scheme based on the principle
of equality vis-a-vis government encumbrances. The
Supreme Court states that a sudden ban on using
pigswill is not a normal business risk for approved firms
operating in accordance with the rules. Although the
ban on using pigswill is in itself regarded as a lawful
measure from the viewpoint of animal health,
the
Minister is acting unlawfully if no arrangements are
made to give firms the opportunity to adapt or, if that is
not possible, otherwise to offer those firms compensa-
tion. The State must compensate for the loss incurred.
The underlying idea is that the whole pig sector bene-
fited from that measure (less risk of African swine fever),
while for certain pig farmers (who used only pigswill as
feed) the new measures were disproportionately harsh.
In the case at issue, pig assembly centres face dispropor-
tionate difficulty while the more stringent hygiene rules
benefit the whole pig sector.

(37) Although the Dutch authorities consider the Supreme
Court ruling not to be relevant for the purposes of
determining whether the measure is compatible with the
common market, they nevertheless indirectly confirm
that there is a legal obligation to make provision for

(1) OJ L 282, 1.11.1975, p. 1.
(2) OJ L 349, 31.12.1994, p. 105.
(3) [1988] ECR 5515, paragraph 24.

transitional measures or compensation arrangements by
stressing that adaptation policy cannot be regarded sepa-
rately from tightening up the hygiene rules and that one
is not possible without the other.

The Dutch authorities pointed out that the lack of a
transitional period constitutes the main justification for
the proposed aid measure from an administrative view-
point. They demonstrated that
the assembly centres
which do not cease operating can receive investment aid:
at the same time as the measure at issue, the scope of an
investment aid measure is extended to include invest-
ment for adapting facilities. The following amounts may
be granted on the basis of that investment measure:
average NLG 304 000,
maximum NLG 500 000,
minimum NLG 78 000. Under the measure at issue, the
amounts
average
are: maximum NLG 1 738 000,
NLG 741 000, minimum NLG 34 000. According to
the Dutch authorities, the difference in aid amounts is
justified because permanently ceasing production has
more serious consequences than continuing to operate
after adapting facilities. The Dutch authorities also point
out that firms themselves may choose between cessation
and adaptation; since a number of firms have continued
it can be assumed that the aid under the
operating,
investment scheme provides sufficient compensation for
the lack of a transitional period.

(39)

situation (temporary

In the case at
issue compensation is paid only to
assembly centres which permanently cease operating,
while the other assembly centres do not receive the same
compensation although they were nevertheless in the
same
cessation of operation
without provision for a transitional period during which
firms could adapt to meet the new hygiene rules). The
Dutch authorities pointed out that an investment aid
scheme exists for the benefit of firms which wish to
adapt and to continue operating. Both measures together
should therefore be regarded as measures under which
all assembly centres are offered compensation for the
lack of a transitional period for the introduction of more
stringent hygiene rules.

(40) Given the differences between the two measures (inter
alia the amounts of aid which can be obtained), it is
difficult to regard the measures as components of one
and the same compensation scheme. The proposed
measure must therefore be regarded as aid within the
meaning of Article 87(1). All the conditions of Article
87(1) appear to be met: the aid provides firms with an
economic advantage which they would not have had in
the normal conduct of their business; the aid is granted
to certain firms and is funded with State resources;
moreover, the aid threatens to have an adverse effect on

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trade between the Member States by strengthening the
competitive position of the firms concerned compared
with other firms in the Community. An examination
must therefore be made of whether a derogation can be
granted from the general principle whereby State aid is
incompatible on the basis of Article 87(1).

improve quality and limit the veterinary risks, and all of
this in combination with an economically healthy sector.
Reducing the number of assembly centres is regarded as
an essential aspect, since they can also be a source of
disease.

(41)

The ban on State aid referred to in that provision is not
unconditional. The derogations referred to in Article
87(2)(a) and (c) of the Treaty clearly do not apply in this
case. Nor can it be inferred from any of the Dutch
authorities' comments that the purpose of the aid would
be to make good the damage caused by natural disasters
or exceptional occurrences, within the meaning of
Article 87(2)(b). As regards the derogations contained in
Article 87(3), the measure must be examined to see
whether it can facilitate the development of certain
economic activities, within the meaning of Article
87(3)(c). Thus the Dutch authorities' arguments have to
be examined to see whether they are sufficient to make
the measure eligible for that derogation.

(42) As noted above, the Dutch authorities refer to Commis-
sion practice regarding aid for ceasing production (see
recital 14). The Commission nevertheless expressed its
doubts about this argument, given the lack of incentive
effect, on the basis of which it initiated the procedure
under Article 88(2). In its judgment in Case 730/79
(Philip Morris v Commission) (1), the Court of Justice of
the European Communities agreed with the principle
that aid which a Member State grants to firms is eligible
for the derogations contained in Article 87(3) only when
the Commission is able to establish that the aid contri-
butes towards achieving one of the objectives (specified
in those provisions) which the aid recipient would not
be able to achieve on its own under normal market
conditions (see also Commission Decision 89/661/EEC
— Alfa Romeo (2)). Were an exception to be made for
aid which in no way contributes towards achieving such
an objective or which is not necessary for that purpose,
this would mean that firms in certain Member States
would benefit unfairly just from a strengthening of their
financial position, a situation which could adversely
affect
and distort
justification on grounds of
competition, without
Community interest as required by Article 87(3).

trade between Member

States

(43)

The Dutch authorities have various objectives in this
case: they wish to tighten up the hygiene requirements
and at the same time reduce the number of pig assembly
centres (closing 35 out of 48) so that the remaining
ones can operate on a larger scale, which will help to

(1) [1980] ECR 2671.
(2) OJ L 394, 30.12.1989, p. 9.

(44) On initiating the procedure, the Commission pointed
out that firms which are unable or unwilling to meet the
new hygiene requirements and which permanently cease
operating appear
to be taking a normal business
decision. Aid for ceasing operation in such circum-
stances cannot in principle be accepted, since the new
hygiene rules count as a normal business risk.

(45)

Ceasing to operate because the hygiene rules have been
tightened up must nevertheless be seen in the context of
a broader policy aimed at reducing veterinary risks by
limiting the number of assembly centres and thereby
contributing towards the sector's development.

Aid is granted for investment aimed at adapting facilities
to the new hygiene rules, but such aid by itself would
certainly not be sufficient to achieve the supplementary
objective of
reducing the number of pig assembly
centres, an objective which also helps to reduce the
veterinary risk. This animal health aspect justifies the aid
for permanently ceasing production.

The aid measure must be assessed in the context of a
dual policy under which aid is granted both for adapting
facilities and for permanently ceasing production. In that
context
the assembly centres clearly had the choice
between adapting their facilities or permanently closing
down in the same way as if they had not been closed
owing to a government measure. The aid clearly consti-
tutes an incentive for the firms to follow a certain course
of action (closure) which they would not otherwise have
followed. The aid can therefore be regarded as a measure
with incentive effect.

(46)

The other conditions governing Commission approval
for aid for closing production capacity appear to have
been met in this case:

1. The aid must be in the general interest of the sector
concerned. The aid benefits the whole sector.

2. The recipient must do sufficient in return. Recipients
are required to cease all assembly centre operations.

3. Under no circumstances must the aid scheme serve as
rescue and restructuring aid. No aid is granted on the
basis of the firm's financial situation.

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4. Loss of assets and losses resulting from future income
foregone must not be overcompensated. Under the
amended compensation scheme, which is based on a
much larger group of firms (14 out of 48), consider-
ably lower (minimum) compensation is granted, so
there is no question of overcompensation.

(47) On the basis of the above, the Commission considers
that the aid measures proposed by the Dutch Govern-
ment facilitate the development of economic activity in
the sector. The measure therefore falls under Article
87(3)(c) of the Treaty,

HAS ADOPTED THIS DECISION:

Article 1

The aid measure which the Netherlands intends to implement
concerning rationalisation of pig assembly centres is compat-

ible with the common market within the meaning of Article
87(3)(c) of the Treaty.

The aid measure may therefore be implemented.

Article 2

This Decision is addressed to the Kingdom of the Netherlands.

Done at Brussels, 8 December 1999.

For the Commission

Franz FISCHLER

Member of the Commission