2000/240/EC: Commission Decision of 22 December 1999 concerning an aid scheme implemented by Spain to finance operating capital in the agricultural sector in Extremadura (notified under document number C(1999) 5201) (Only the Spanish text is authentic)
Date: 1999-12-22
Institutions: European Commission
Subjects: Extremadura, Spain, State aid, agro-industry, farming sector, infringement of EU law

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COMMISSION

COMMISSION DECISION

of 22 December 1999

concerning an aid scheme implemented by Spain to finance operating capital in the agricultural
sector in Extremadura

(notified under document number C(1999) 5201)

(Only the Spanish text is authentic)

(2000/240/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

scheme. In its letter, the Commission gave notice to
Spain to send its comments.

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

The parties concerned having been given notice, in accordance
with the first subparagraph of Article 88(2) of the Treaty, to
submit their comments (1),

Whereas:

I. PROCEDURE

(1)

(2)

(3)

(4)

Government of Extremadura Decree No 35/1993 of 13
April 1993 on the financing of operating capital in the
agricultural sector in Extremadura was published in the
Diario Oficial de Extremadura (2).

The Commission, not having received notification of the
State aid from the Spanish authorities in accordance
with Article 88(3) of the Treaty, sent a letter on 8
February 1999 requesting confirmation of the existence
of the aid and its entry into force.

By letter dated 26 February 1999, the Spanish Perma-
nent Representation to the European Union sent the
Commission the information it had requested in its letter
dated 8 February 1999.

By letter dated 4 June 1999, the Commission informed
Spain of its decision to open the procedure provided for
in Article 88(2) of the Treaty with respect to the aid

(5)

(6)

(7)

(8)

(9)

The Commission Decision to open the procedure was
published in the Official Journal of the European Communi-
ties (3). The Commission gave notice to interested parties
to submit their comments on the aid scheme.

Spain submitted its comments by letter dated 19 July
1999.

The Commission received no comments on the scheme
from interested parties.

II. DETAILED DESCRIPTION OF THE AID MEASURE

Decree No 35/1993 provides for financing to meet
capital requirements for a single marketing year in order
to develop agriculture and food processing in Extrema-
dura.

The beneficiaries are farmers, agricultural cooperatives
and other associations in Extremadura and processing
undertakings in Extremadura signing contracts with agri-
cultural and livestock holdings in the Autonomous
Community for raw materials for industrial processing.

(10)

The aid takes the form of an interest-rate rebate for
loans lasting less than one year, the amount of which
varies depending on the beneficiary.

(1) OJ C 225, 7.8.1999, p. 6.
(2) Diario Oficial de Extremadura No 45, 15.4.1993, p. 1027.

(3) See footnote 1.

(12)

(13)

(14)

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(11) An interest-rate rebate of up to five percentage points is
provided for farmers practising farming as their main
occupation and of up to four percentage points for
other farmers; where there is Community or State part-
financing, the beneficiary must pay a minimum interest
rate of 6 % (4 % for farmers practising farming as their
main occupation).

for in Article 87(3) of the Treaty. It notified Spain that
the aid for farmers and for cooperatives and other asso-
ciations before 30 June 1998 was eligible for the deroga-
tion provided for in Article 87(3)(c) since it was aid for
the development of the sector.

In the case of cooperatives and other associations, an
interst-rate rebate of up to one percentage point
is
provided for the purchase of inputs (with an additional
0,5 percentage points for the purchase of certified plants
and seeds and a further 0,5 percentage points for the
purchase of
fertilisers) and of up to five
percentage points in the case of loans to provide oper-
ating capital for seasonal payments to members.

straight

III. COMMENTS SUBMITTED BY SPAIN

(18)

Spain considers the aid scheme to be a non-discrimina-
tory general scheme, providing reduced-rate seasonal
loans to the whole agricultural sector in Extremadura.
The scheme is applied each year by means of an order
laying down the disadvantaged sectors and subjecting
payment of the aid to the conclusion by the buyer and
the seller of a contract approved by the Ministry of
Agriculture guaranteeing producers a minimum price
above the market price and processing undertakings
raw material meeting minimum quality
supplies of
requirements.

In the case of processing undertakings, an interest-rate
rebate of up to five percentage points is provided for
loans for the purchase of raw materials under contracts
with farmers and for loans to provide general operating
capital, in the sectors laid down each year by an Auto-
nomous Community order.

(19)

Priority is given to sectors producing products with a
local or regional identity or with particular characteris-
tics conferred by their form of production or processing.
The nature of the aid means that it does not affect free
competition in Community trade in other products,
being of purely regional scope.

The Government of Extremadura Ministry of Agriculture
and Trade Order of 29 September 1998 (4) lays down
the following products for the 1997/98 marketing year:
dried figs and fig paste, peppers for the production of
ground red pepper, Iberian swine, olives for the produc-
tion of olive oil and tomatoes for dehydration other
than powdered tomatoes. An interest-rate rebate of five
percentage points is provided for, for a maximum of one
year. The interest rate for loans is the MIBOR 365-day
rate plus one percentage point.

(15)

Ceilings are placed on the aid; for farmers these are
maximum amounts per hectare, product and animal, for
cooperatives the average value of inputs purchased in
the last three years plus 10 % and for processing under-
takings the value of the loan.

(16)

The aid scheme has an annual budget of ESP 107
million and is of indefinite duration.

(17)

letter dated 4 June 1999,

In its
the Commission
informed Spain that the aid scheme (with the exception
of the aid for farmers and for cooperatives and other
associations before 30 June 1998) did not appear to
fulfil the conditions for any of the derogations provided

(4) Diario Oficial de Extremadura No 114, 6.10.1998, p. 7412.

(20) Application of Decree No 35/1993 on the financing of
operating capital in the agricultural sector in Extrema-
dura has been suspended and is due to be repealed and
replaced by another more in accord with the Commis-
sion Communication on State aids: subsidised short-
term loans in agriculture (crédits de gestion) (5) (6).

IV. ASSESSMENT OF THE AID

Article 87(1) of the Treaty

(21) Article 36 of the Treaty lays down that the rules on
competition set out in the Treaty apply to production of
and trade in agricultural products only to the extent
determined by the Council.

(22)

In the case of aid for agricultural products listed in
Annex I to the Treaty not covered by a common organ-
isation of the market (potatoes other than for starch,
horsemeat, honey, coffee, vinous alcohol, spirit vinegar
and cork), Council Regulation No 26 applying certain
rules of competition to production of and trade in agri-
cultural products (7), as amended by Regulation No
49 (8), applies. The only provisions of the Treaty which
apply are Article 88(1) and the first sentence of Article
88(3), and the Commission can therefore only formulate
comments.

(5) OJ C 44, 16.2.1996, p. 2.
(6) By letter dated 4 July 1997, the Commission informed the Member
States of its decision to suspend application of that Communication
and, by letter dated 19 December 1997,
it
would reapply it from 30 June 1998.

informed them that

(7) OJ 30, 20.4.1962, p. 993/62.
(8) OJ 53, 1.7.1962, p. 1571/62.

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(23) All the other products listed in Annex I to the Treaty are
covered by common organisations of the market and the
Regulations laying down those organisations expressly
provide for the application of Articles 87, 88 and 89 of
the Treaty to the production and marketing of those
products.

(24) Under Article 87(1) of the Treaty, any aid granted by a
Member State or through State resources in any form
to distort
whatsoever which distorts or
competition by favouring certain undertakings or the
in so far as it affects
production of certain goods is,
trade between Member States,
incompatible with the
common market.

threatens

(31)

without this being justified by the Community interest
and would allow operators from certain Member States
to obtain undue advantage.

employment, nor

The Commission takes the view that the aid in question
was not designed as regional aid for new investment or
to provide horizontal
to create
compensation
infrastructure
shortcomings
suffered by all the region's undertakings, but as oper-
ating aid for the agricultural sector. Consequently, it is
clearly sectoral aid which must be assessed in the light
of Article 87(3)(c).

for

in

(25)

(26)

There is a significant volume of trade in the products
concerned between Spain and
the
Community: Spain imports 10 290 178 tonnes from the
other Member States and exports 12 648 802 tonnes to
them. The value of this trade is EUR 6 810 477 000
and EUR 10 308 134 000 respectively (9).

rest of

the

The measures concerned could therefore affect trade in
agricultural products between the Member States, since
that trade is affected by aid which favours operators
active in one Member State over those in others. The
measures have a direct and immediate effect on the
production costs of undertakings producing
and
processing agricultural products in Spain. They therefore
give them an economic advantage over undertakings
which do not have access to comparable aid in other
Member States. They therefore distort or threaten to
distort competition.

(27)

In the light of the above, the aid in question must be
considered to be State aid fulfilling the criteria laid down
in Article 87(1) of the Treaty.

Possible derogations under Article 87 of the Treaty

(28) Derogations may, however, be granted from the prin-
ciple of incompatibility laid down in Article 87(1) of the
Treaty.

(29)

(30)

In the case in question, the derogations provided for in
Article 87(2) clearly do not apply. Neither have they
been claimed by the Spanish authorities.

(36)

The derogations provided for in Article 87(3) of the
Treaty must be interpreted strictly when examining a
regional or
sectoral aid scheme or any individual
application of general aid schemes. In particular, they
can be granted only where the Commission concludes
that the aid is necessary to achieve one of the objectives
of the derogations. Allowing any other aid to benefit
from those derogations would permit damage to trade
between Member States and distortion of competition

(9) Source: Eurostat 1998.

(32) Article 87(3)(c) provides that aid to facilitate the devel-
opment of certain economic activities or of certain
economic areas may be considered compatible with the
common market provided that
such aid does not
adversely affect trading conditions to an extent contrary
to the common interest.

(33)

The aid scheme must be assessed, in particular, in the
light of that provision.

(34)

(35)

The aid takes the form of an interest-rate rebate for
seasonal loans lasting less than one year. The Commis-
sion authorises this type of aid as a measure to promote
the development of the sector, i.e. covered by Article
87(3)(c), provided that it complies with its Communi-
cation on State aids: subsidised short-term loans in agri-
culture (crédits de gestion).

The aid must be granted to all operators in agriculture
on a non-discriminatory basis, irrespective of the agri-
cultural activity for which the short-term loan is
required. However, certain activities or certain operators
may be excluded provided that the Member State is able
to demonstrate that all such instances of exclusion are
justified on the grounds that the problems of obtaining
short-term loans faced by those excluded are inherently
less significant
the agricultural
than in the rest of
economy.

The aid must be limited to what is strictly necessary to
compensate for the disadvantages suffered by agricul-
ture. A Member State wishing to grant subsidised loans
must quantify the disadvantages using the method it
considers most appropriate but always remaining within
the limits of the gap between the interest rate paid by a
typical agricultural operator and that paid in the rest of
the economy of the Member State concerned for short-
term loans of a similar amount, not linked with invest-
ments. By letter dated 19 December 1997, the Commis-
sion informed the Member States that the only possible
interpretation was that
the interest-rate rebate from
public resources for short-term loans in agriculture
could not exceed that difference.

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(37)

The amount of subsidised loans to any beneficiary must
not exceed the cash flow requirements arising from the
fact that production costs are incurred before income
from output sales is received.

(44)

(38) Until the Commission reapplied the provisions of the
above Communication on 30 June 1998 (10), it author-
ised,
in accordance with its usual practice, aid in the
form of an interest-rate rebate for short-term operating
loans provided that the loan was for a maximum of one
year and that
the aid was not granted for a single
product or on a one-off basis (11).

(39)

Therefore, in assessing the above Decree, a distinction
must be made between the period before 30 June 1998
and that following.

The aid granted does not fulfil the criteria laid down in
that Communication, in particular, that the aid must be
granted to all operators in agriculture on a non-discrimi-
natory basis, that it must be limited to what is strictly
necessary to compensate for the disadvantages affecting
the amount of subsidised loans
agriculture and that
granted to any beneficiary must not exceed the cash-
flow requirements arising from the fact that production
costs are incurred before income from output sales is
received.

(45)

The aid is not granted to all operators in agriculture on a
non-discriminatory basis. The Spanish authorities affirm
that the aid scheme is implemented each year by means
of an order stipulating the sectors considered to be
disadvantaged compared with the rest and which are
eligible for aid.

(40)

Similarly, a distinction must be made in the period
before 30 June 1998 between beneficiaries.

(46)

(41)

(42)

The aid granted to farmers, agricultural cooperatives and
other associations meets the criteria laid down by the
Commission for this type of aid. More particularly, it
involved aid in the form of an interest-rate rebate on
operating loans for up to one year and was not granted
for a single product or on a one-off basis. As a conse-
quence, in its letter dated 4 June 1999, the Commission
informed Spain that the aid was eligible for the deroga-
tion provided for in Article 87(3)(c) as aid to promote
the development of the sector.

The aid granted to processing undertakings consisted of
an interest-rate rebate on operating loans for up to one
year and was not granted for a single product or on a
one-off basis and therefore fulfilled the criteria applied
by the Commission to this type of aid before 30 June
the aid is limited to undertakings
1998; however,
signing contracts with agricultural and livestock hold-
ings in Extremadura for raw materials for industrial
processing. This requirement constitutes a restriction on
the free movement of goods between the Member States
and a breach of Article 28 of the Treaty in that proces-
sors using raw materials from other Member States are
ineligible for the aid. It constitutes a restriction on the
introduction of products from other Member States,
which will not be purchased by processing undertakings
in Extremadura eligible for the aid. The aid could there-
fore adversely affect
trading conditions to an extent
contrary to the Community interest and is consequently
not eligible for any of the derogations provided for in
Article 87(3) of the Treaty.

(47)

(48)

(49)

(43) After 30 June 1998, the Commission Communication
on State aids: subsidised short-term loans in agriculture
(crédits de gestion) applies to the aid.

(50)

The aid is not limited to what is strictly necessary to
compensate for the disadvantages affecting agriculture.
On the contrary, the Decree fixes the interest-rate rebate
on seasonal loans, of between 0,5 and 5 points, on a
discretionary basis according to the beneficiary.

The aid scheme provides for no measures to ensure that
the subsidised loans granted to a beneficiary do not
exceed the cash-flow requirements arising from the fact
that production costs are incurred before income from
output sales is received.

in the case of

the aid for agricultural
In addition,
processing undertakings in Extremadura, what is stated
in recital 42 regarding the requirement to sign contracts
for raw materials with holdings in the region also
applies.

the

The aid must therefore be considered to be operating aid
incompatible with the common market. Such aid has no
sector
lasting effect on the development of
concerned, since its immediate effects disappear with the
measure itself. (See the judgement of the Court of First
Instance of the European Communities of 8 June 1995
in Case T-459/93, Siemens SA v Commission (12)). On the
other hand, a direct consequence of such aid is an
improvement in the production and marketing oppor-
tunities of the operators concerned compared with other
operators not receiving comparable aid (both within the
country and in the other Member States).

Consequently, with the exception of the aid granted
before 30 June 1998 to farmers, agricultural cooper-
atives and other associations, this aid scheme is ineligible
for any of the derogations provided for in Article 87(3)
of the Treaty.

(10) See footnote 5.
(11) Precedents: aid N603/93, N377/91, N29/91, N394/92, NN90/93,
N109/94, N768/93, N423/93, N218/93, N108/92, N598/93 and
N644/92.

(12) [1995] ECR II-1675.

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(51) Moreover, account must be taken of the fact that this aid
for agricultural products listed in Annex I to the Treaty
(with the exception of that for potatoes other than for
starch, horsemeat, honey, coffee, vinous alcohol, spirit
vinegar and cork) is for products subject to a common
organisation of the market and that the powers of the
Member States to intervene in the operation of those
organisations are limited,
their being the exclusive
responsibility of the Community. The Court of Justice
has consistently held that the common organisations of
the market must be considered comprehensive and
exhaustive systems which preclude the Member States
from adopting derogations or measures which conflict
with them (see, inter alia, the judgement of 26 June 1979
in Case 177/78, Pigs and Bacon v McCarren (13)). The aid
must therefore be considered to infringe the common
organisations of the market and, therefore, Community
rules.

Conclusion

In the light of the above and the applicable Community
rules, the Commission takes the view that, as regards the
derogations provided for in Article 87(3)(a) and (c) for
aid to promote or facilitate the economic development
of certain regions or the development of certain activi-
ties, the aid granted before 30 June 1998 to processing
undertakings and that granted after that date to farmers,
agricultural cooperatives and other associations could
adversely affect trading conditions to an extent contrary
to the common interest. In particular, the aid granted
after 30 June 1998 does not comply with the Commis-
sion Communication on State aids: subsidised short-
term loans in agriculture (crédits de gestion).

(56)

The aid granted before 30 June 1998 to processing
undertakings and that granted after that date (with the
exception of that for potatoes other than for starch,
horsemeat, honey, coffee, vinous alcohol, spirit vinegar
and cork), for the reasons given above, is incompatible
with the common market, since it is covered by Article
87(1) of the Treaty but is not eligible for any of the
derogations provided for in paragraphs 2 and 3 of that
Article.

(57) Where aid is incompatible with the common market, the
Commission must make use of the possibility offered by
the judgement of the Court of Justice of 12 July 1973 in
Case 70/72, Commission v Germany (14), confirmed by the
judgements of 24 February 1987 in Case 310/85, Deufil
v Commission (15), and of 20 September 1990 in Case
C-5/89, Commission v Germany (16), and require the
Member State to recover all the aid granted illegally
from the recipients. The requirement to recover aid is
also laid down in Article 14(1) of Council Regulation
(EC) No 659/1999 of 22 March 1999 laying down
detailed rules for the application of Article 93 of the EC
Treaty (17)
(now Article 88). Recovery is necessary in
order to re-establish the previous situation by abolishing
all the financial advantages enjoyed unduly by the bene-
ficiaries since the aid was granted.

(58)

The Commission recommends that the Spanish Govern-
ment abolish the aid for potatoes other than for starch,
horsemeat, honey, coffee, vinous alcohol, spirit vinegar
and cork.

The aid (with the exception of that for potatoes other
starch, horsemeat, honey, coffee, vinous
than for
therefore be
alcohol, spirit vinegar and cork) must
considered to infringe the common organisations of the
market. In addition, the aid for processing undertakings
infringes Article 28 of the Treaty.

The aid must therefore be considered to be operating aid
incompatible with the common market and an infringe-
ment of Community rules and is consequently ineligible
for any of the derogations provided for in Article 87(3)
of the Treaty.

(59)

(60)

The other aid granted before 30 June 1998 to
processing undertakings and that granted after that date
to farmers, agricultural cooperatives and other associa-
tions and to processing undertakings must be repaid in
full.

Repayment must be made in accordance with Spanish
law. The amounts to be repaid must include interest
from the date the aid was granted to its actual recovery.
The interest must be calculated on the basis of the
commercial rate, taking as a reference the rate used to
calculate the grant equivalent of regional aid (18).

(52)

(53)

(54)

V. CONCLUSIONS

(55)

Since the aid in question was not notified to the
Commission in accordance with Article 88(3) of the
Treaty, its grant was illegal, given that it was granted
before the Commission could decide on its compatibility
with the common market.

(13) [1979] ECR 2161.

(61)

This Decision does not prejudice the conclusions the
Commission may draw, if necessary, for the financing of
the common agricultural policy by the European Agri-
cultural Guidance and Guarantee Fund (EAGGF),

(14) [1973] ECR 813.
(15) [1987] ECR 901.
(16) [1990] ECR I-3437.
(17) OJ L 83, 27.3.1999, p. 1.
(18) OJ C 74, 10.3.1998, p. 9.

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HAS ADOPTED THIS DECISION:

Article 1

The aid granted before 30 June 1998 to processing undertak-
ings and that granted after that date to farmers, agricultural
cooperatives and other associations and to processing under-
takings under the State aid scheme implemented by Spain by
means of Government of Extremadura Decree No 35/1993 of
in the
13 April 1993 on the financing of operating capital
agricultural sector in Extremadura, with the exception of that
for potatoes other than for starch, horsemeat, honey, coffee,
vinous alcohol, spirit vinegar and cork, is incompatible with
the common market.

Recovery shall be immediate and in accordance with the
2.
procedures laid down in Spanish law, provided that
these
permit the immediate and effective implementation of this
Decision. The amounts to be repaid must include interest from
the date the aid was made available to the beneficiaries to its
actual recovery. The interest must be calculated on the basis of
the reference rate used to calculate the grant equivalent of
regional aid.

Article 4

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

Article 2

This Decision is addressed to the Kingdom of Spain.

Article 5

Spain shall abolish the aid scheme referred to in Article 1.

Article 3

1.
Spain shall adopt all measures necessary to recover from
the beneficiaries all aid referred to in Article 1 which has been
granted illegally.

Done at Brussels, 22 December 1999.

For the Commission

Franz FISCHLER

Member of the Commission