2000/805/EC: Commission Decision of 11 April 2000 on State aid implemented by France for the pig-farming sector (notified under document number C(2000) 1169) (Only the French text is authentic)
Date: 2000-04-11
Institutions: European Commission
Subjects: France, State aid, control of State aid, infringement of EU law, producer organisation, swine

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Official Journal of the European Communities

L 326/65

COMMISSION

COMMISSION DECISION

of 11 April 2000

on State aid implemented by France for the pig-farming sector

(notified under document number C(2000) 1169)

(Only the French text is authentic)

(2000/805/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 called on interested parties to submit their comments
pursuant
to those provisions and having regard to those
comments,

Whereas:

I

PROCEDURE

(1)

(2)

Following a press article of 11 September 1998
mentioning a French Government decision concerning
aid measures for pig-farmers, the Director-General for
Agriculture sent the French authorities a request for
notification on 15 September 1998.

The French authorities notified the measures referred to
by letter of 2 October 1998, recorded as received on 9
October 1998. A request for further information was
sent on 28 October 1998. The purpose of the letter was
to request documents setting out the technical arrange-
ments to be sent
It drew attention to
Article 88(3) of the Treaty, which prohibits the imple-
mentation of State aid. It also mentioned the principle
that aid which is not compatible with the common

immediately.

is

to be

market
information
recovered.
containing additional details reached the Directorate-
General for Agriculture on 27 November and 1 and 2
December 1998.

Further

(3)

(4)

(5)

(6)

(7)

The Commission initiated the procedure provided for in
Article 88(2) of the EC Treaty in respect of the above aid
measure by letter No SG (98) D/12216 of 22 December
1998.

The decision to initiate the procedure was published in
the Official Journal of the European Communities (1). The
Commission called on the other Member States and
interested parties to submit their comments on the aid
in question.

By letter of 31 March 1999 the Commission received
the comments of the Danish authorities on the initiation
of the procedure by the Commission. France forwarded
its comments by letter of 12 February 1999.

The Commission wrote again to the French authorities
by letters from the Director-General for Agriculture of 1
June and 20 October 1999. The French authorities
replied by letter of 24 November 1999.

II

DESCRIPTION

By letter of 2 October 1998 to the Commission, the
French authorities wrote concerning the arrangements as
follows: ‘Following the crisis in the pig-farming industry,
characterised by a sharp fall in prices and an unprece-
dented level of excess production in the Community, in
to back up market measures decided at
order
Community level, the French authorities have taken a
number of financial and social measures.’ The measures
notified are described below.

(1) OJ C 61, 3.3.1999, p. 7.

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Stabiporc

Carry-over of social-security contributions

(8)

(9)

The French authorities intend to restart the scheme of
advances refundable to the Caisse professionnelle de
régulation porcine (hereinafter referred to as ‘stabiporc’).
The scheme involves paying fully refundable advances to
producer groups to enable them to regularise the prices
for pork pigs paid to pig-farmers belonging to the
scheme. It is therefore intended to regularise pig-farmers'
incomes, which are affected by the crises in pigmeat
production. Stabiporc is a company constituted under
civil law whose purpose is to raise funds from a number
of financial partners in order to provide pig-farmers with
refundable advances. This calls
for agreement and
cooperation among the various partners.

The Commission has already stated a position on the
scheme. Two negative decisions were adopted in the
past (1) concerning aid, deemed unlawful, to be provided
to beneficiaries under the scheme. The rates of interest
on advances granted were well below the market rates
and advances not refunded by producer groups were
defrayed by the Office national
interprofessionnel des
viandes, de l'élevage et de l'aviculture (hereinafter
referred to as ‘Ofival’).

(10)

The arrangements will be adjusted in line with the Euro-
pean Commission's remarks in the decisions it took
previously. As a result:

— the public authorities' contribution will be confined
to authorising Ofival to join the financial partners in
financing a loan amounting to FRF 72 million
(approximately EUR 11 million). In addition, Ofival
will not act as guarantor in the event of debts
outstanding or arrears in payment. Contractual rela-
tions between Ofival and Stabiporc will state expli-
citly that, in the event of debts outstanding or arrears
in payment on the reimbursement of the capital of
and interest on Ofival loans, Ofival will be entitled to
seize sums due, plus interest on late payments, from
producer groups,

i.e.

— the interest rate on loans will be fixed on the basis of
the normal market rate,
the Paris interbank
offered rate (PIBOR) + 0,6 %. The value for PIBOR
used will be the most recent available quarterly indi-
cator. The loans granted to pig-farmers will vary in
duration depending on the economic situation at the
time and in particular on the level of market prices.
At all events, the rate will be fixed for one year and it
will never be less than the reference rate in force for
loans of a duration of one year or less. Loans are
granted to solvent producer groups only.

(1) Commission Decisions of 27 July 1994 (Aid C 8/94)

(OJ L 335,
23.12.1994, p. 82) and of 31 October 1995 (Aid C 38/94) (OJ L
114, 8.5.1996, p. 26).

(11)

In order to determine which holdings are eligible for the
carry-over of social-security contributions, the authori-
ties will conduct audits at department level. In order to
assess how real and how serious the difficulties these
holdings are facing are, three criteria will be considered
in particular:

— a significant decline in turnover or a reduction in the
trade margin recorded in 1996 and 1997 and the
first few months of 1998,

— specific

as
increased level of short-term debt,

financial difficulties

shown by

an

— delays in meeting terms of payment for banking or

social-security commitments.

(12)

In the light of the audit findings, holdings experiencing
financial difficulties that are not likely to jeopardise their
viability will be offered the possibility of staggering
payment of their personal social-security contributions
(this will not affect payment of contributions due as
employers). The measure is estimated to cost FRF 6
million (approximately EUR 914 000).

Beneficiaries

(13) Only farmers whose holdings are deemed viable under
the departmental audit findings will be eligible. Farmers
whose payment records in previous years show unjusti-
fied incidents will not be granted loans. The measure
will be available only to farmers whose turnover from
pig-farming accounts for at least 50 % of the total turn-
(35 % for breeders). Lastly,
over of
pigfarms must comply with the terms of their author-
isations or their declarations in accordance with French
Law No 76-663 of 18 July 1976 on establishments
classified for environmental protection.

their holdings

Rules

(14)

Payment schedules may extend for up to two years. The
loans may cover technical and additional agricultural
sickness contributions (AMEXA), old-age pension contri-
butions, family allowance and widows' pension contri-
butions outstanding under the self-employed agricultural
workers' scheme. Payment by instalments will relate
only to the balance of social-security contributions
payable in respect of 1998 after payments on account
have been made, which will represent 15 % to 20 % of
total contributions.

(15) Detailed arrangements for recovering contributions will
be a matter for each separate agricultural social-security
mutual fund. They are responsible for deciding the terms
under which eligible farmers may pay their contribu-
tions without losing social-security cover. Failure on the
part of the farmer to comply with the payment schedule
decided by the fund will lead to immediate suspension
of this facility.

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(16)

(17)

(18)

(19)

In the present case, State assistance is intended to
supplement the benefits normally provided by the agri-
cultural social-security funds, which are not in a position
to offer
facilities for staggering payment of social-
security contributions to all the producers concerned,
given the magnitude of the problems they face and in
view of their concentration in certain regions. The crisis
affecting the pig-farming sector is so serious that many
farmers are facing problems that could have major social
and family repercussions (such as the loss of all social-
security cover). This is why the authorities have decided
to shoulder part of the cost of staggering the payment of
contributions.

Recent investors

This measure consists in relieving pig-farmers of part of
the burden of interest payments on their bank loans.
The arrangements involve taking over 3 % to 5 % of the
volume of loans concluded in 1996 to 1998. The relief
is calculated on the basis of the bank lending alone.

Priority will be given to farmers whose borrowing was
intended to finance initial investments in the industry.
Furthermore, beneficiary farms must comply with the
regulations on the environment. The borrowing base
taken into account for the measure will not include
household loans, real-estate financing or livestock loans.

The French authorities pointed out that arrangements of
this type in favour of recent investors were applied in
the pig-farming sector
in 1993. The Commission
expressed its views on the compatibility of the arrange-
ments in its decision of 27 July 1994 (Aid measure NN
116/93, later C 9/94). According to the French authori-
ties,
the support measures for small producers are
comparable with those for recent investors. The arrange-
ments contemplated will take account of the Commis-
sion's remarks; accordingly:

— the aid must relate to loans taken out to finance

(23)

investments already made,

— the aggregate grant equivalent of any existing aid and
the new aid may not exceed the rates generally
authorised by the Commission. Special attention will
be paid to cases where more than one start-up aid
scheme is applied (start-up loans for young farmers
and start-up allowances) to ensure that the aggregate
grant equivalent complies with Community aid ceil-
ings. Priority will be given to farmers with moderni-
sation loans,

— aid will be granted after readjustment of rates on
new loans to take account of changes in the cost of
borrowing, or should involve agricultural holdings
offering guarantees of viability, in particular where

financial costs resulting from existing loans are such
that the holdings may be threatened and possibly at
risk of bankruptcy.

(20)

The measure is forecast to cost FRF 30 million (approxi-
mately EUR 4,5 million).

(21) As far as Stabiporc is concerned, when it initiated the
procedure for the examination of measures notified the
Commission took the view that State aid for viable
undertakings would be confined to the granting of loans
at the normal market interest rate. This market interest
rate follows the reference rate and stood at 4,30 %
in January 1999. The
(interbank rate for one year)
French authorities have provided evidence that the rate
of interest applied is never below the reference rate in
force for loans of a duration of one year or less. This
measure thus implies no favour and therefore no aid.

(22) However, when the procedure was

initiated,

the
Commission considered that the measures consisting in
a carry-over of social-security contributions and the
partial defraying of interest on bank loans constituted an
advantage for pig-farmers. This aid was therefore not
regarded in principle as compatible with the common
market, unless it could qualify under one of the excep-
tions provided for in Article 87(2) or (3) of the Treaty.
On the basis of the information available to it, the
Commission had no evidence enabling it to conclude
that the aid was compatible with the common market; it
would seem to constitute operating aid. More especially,
while the French authorities considered that the scheme
could be covered by the Community Guidelines on State
aid for rescuing and restructuring firms in difficulty (1),
they did not provide information enabling the Commis-
those Guidelines have been
sion to conclude that
followed. The Commission therefore deemed it neces-
sary to initiate the procedure provided for in Article
88(2) of the Treaty.

III

COMMENTS FROM FRANCE

By letter of 12 February 1999, the French authorities
presented their remarks concerning the Commission's
decision to initiate the procedure provided for in Article
88(2) of the Treaty in respect of the aid measure noti-
fied.

(24)

confirmed the

The French authorities
information
provided in the past concerning the Stabiporc scheme,
both as regards its objective (to pay fully refundable
advances to producer groups to enable them to regu-
larise the prices for pork pigs paid to pig-farmers
belonging to the scheme) and the mechanism whereby it
operated (by granting loans at the market rate).

(1) OJ C 283, 19.9.1997, p. 2. These Guidelines have been replaced by

a new version (OJ C 288, 9.10.1999, p. 2).

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(25) As regards the aid by way of carry-over of personal
social-security contributions and the measures for recent
investors, the French authorities broadly confirm the
information provided to the Commission, while pointing
out that the two measures meet the requirements of the
Community Guidelines on State aid for rescuing and
restructuring firms in difficulty.

(26) As regards the carry-over of personal social-security
the
the French authorities
contributions,
measure consists in staggering payment of the balance
of the contributions payable in respect of 1998 after
payment of the payments on account. Having regard to
the criteria in the Community Guidelines on State aid
for rescuing and restructuring firms in difficulty, they
point out the following,:

state that

(a) restoring an undertaking's long-term viability:

an audit of each potential beneficiary conducted at
departmental level by a committee reporting to the
agricultural social-security mutual fund is carried out
to determine which farmers are capable of recov-
ering;

(b) preventing undue distortion of competition in a
sector
suffering from structural excess capacity,
through the irreversible reduction or closing-down
of production capacity:

the Guidelines,

in accordance with the exemption provided for in
point 3.2.5(c)(i) of
for measures
targeting a particular category of products or opera-
tors, where the totality of decisions taken in favour
of all beneficiaries over any consecutive 12-month
period does not involve a quantity of product which
exceeds 3 % of the total annual production of such
products in that country, the Commission, subject to
adherence to all other conditions, will waive the
capacity reduction requirements.

The French authorities assert this principle since the
estimated budget for the measure amounts to FRF 6
total annual production in
million, and 3 % of
France, taking the average for the three preceding
years, represents FRF 780 million in value;

(c) aid in proportion to the costs and benefits of

restructuring:

the measure does not involve the State's defraying of
the contributions. The farmer pays his contributions
in instalments and therefore only enjoys facilities in
payment;

(d) full implementation of restructuring plan and annual

report to the Commission:

the French authorities undertake to meet these two
conditions.

(27) As regards the measure for recent investors, the French
authorities point out that having regard to the criteria in
the Community Guidelines on State aid for rescuing and
restructuring firms in difficulty:

(a) restoring the undertaking's long-term viability:

the audit of each beneficiary conducted by Ofival
seeks to assess the undertaking's capacity to survive
the short-term difficulties. It involves in particular a
detailed analysis of
the loans taken out and the
corresponding amortisation schedules,

(b) preventing undue distortion of competition in a
sector
suffering from structural excess capacity,
through the irreversible reduction or closing-down
of production capacity:

for

the French authorities point
to the exemption
provided for in point 3.2.5(c)(i) of the Guidelines,
since the estimated budget
the measure is
FRF 30 million, and 3 % of total annual production
in France, taking the average of the three preceding
years,
represents FRF 780 million in value and
780 000 pigs (source: Eurostat). A initial estimate by
the French authorities puts the number of pork pig
places under the measure at 60 000;

(c) aid in proportion to the costs and benefits of

restructuring:

the arrangements involve taking over 3 % to 5 % of
the volume of loans concluded in 1996 to 1998.
The loans taken out
in 1996, 1997 and 1998,
particularly those going back furthest in time, were
concluded at high interest rates that are far above
the current rates for borrowing. Rates of 8,5 %,
7,6 % and 7,10 % are accordingly frequent while the
PIBOR currently stands at 3,85 %, which means the
bank is taking 4,5 %. As a consequence, the aid,
which is equivalent to the granting of a sum in
proportion to the amount, only represents a part of
the annual
financial burden, with the producer
bearing the greater part;

(d) full

implementation of the restructuring plan and

annual report to the Commission:

the French authorities undertake to meet these two
conditions.

The French authorities also state that only small and
medium-sized holdings (with between 42 and 200 sows
in production under the breeder-fattener system), gener-
ally employing the farmer and his spouse and sometimes
one employee, qualify under this measure. The beneficia-
ries under the measure therefore fall within the category
of small agricultural enterprises (SAEs) employing less
than 10 annual work units. The arrangements accord-
ingly contribute towards maintaining farmers and their
families in rural areas where jobs are scarce.

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(28)

(29)

IV

COMMENTS FROM OTHER PARTIES

By letter of 31 March 1999, the Commission received
the comments of the Danish authorities, which were
then forwarded to the French authorities. The Danish
authorities expressed their agreement with the Commis-
sion's initial conclusions concerning the three measures
in question, but they pointed out that the measures
would set the French pig-farming sector at an advantage
over industries in the other Member States. They also
said that support for the pig-farming sector can only be
provided through the existing Community arrange-
ments, while noting that the market had been signifi-
cantly stabilised by drawing on the possibilities of aid
under
in
pigmeat.

the common organisation of

the market

(31)

V

OTHER MEASURES ANNOUNCED BY FRANCE

than once to the same beneficiaries, which would be a
breach of the principles laid down in the Community
Guidelines for the granting of
this type of aid. On
several occasions (letters of 11 January, 19 April, 16
June and 14 December 1999), the Commission wrote to
the French authorities to request them to confirm or
deny the information on the new aid measures and to
notify any aid to the pig-farming industry.

By letter of 16 June 1999 the French authorities replied
that the measure concerning the slaughter of piglets had
not been introduced or financed by the authorities and
that it was an exclusively interbranch measure. By letter
of 24 November 1999, they confirmed that at the height
of the crisis, the authorities had announced a series of
measures for the pig-farming industry. However, as the
situation on the market for pigmeat had improved in
spring 1999, thanks in particular to the introduction of
the food-aid programme and the Community manage-
ment
the French authorities
decided not to follow up some of the arrangements
announced. Accordingly,
in addition to the measures
covered by this procedure, the only measure was the aid
for discontinuing activity, notified to the Commission
on 5 July 1999 (see recital 29). No reply has, however,
been provided to date as regards the plan presented on 9
December 1999.

instruments

(refunds),

by

several

followed

in early January 1999,

The Commission's initiation of the examination proce-
dure was
announcements
concerning the implementation of other measures for
the pig-farming sector, which were not, moreover, noti-
fied to the Commission. Thus, according to information
published in France
aid
amounting to around FRF 10 million (approximately
EUR 1,5 million) was granted by the French Govern-
ment in the form of a premium of FRF 2 per kilogram
of pork paid to certain traders, who were supposed to
pass it on to the producers through the slaughterhouses.
On 7 April 1999 the French Agriculture Minister Mr
Glavany announced aid totalling FRF 140 million
(approximately EUR 21,3 million) by way of direct
support for pigfarms. In addition, on 28 April 1999
French pig-farmers announced a measure that involved
withdrawing animals from the market by slaughtering
piglets (80 000 between May and August 1999). Lastly,
on 9 December 1999 Mr Glavany outlined supporting
arrangements for pig-farmers in difficulty to the repre-
sentatives of the national branch organisations. These
the
were to take the form of
arrangements for assistance for the amicable settlement
of bankruptcy proceedings in the pigmeat sector, intro-
duced in spring 1999, notified to the Commission on 5
July 1999 and authorised by the latter under State aid
measure N 405/99 (1).

loans to supplement

VI

ASSESSMENT

(32)

In accordance with Article 87(1) of the Treaty and save
for the derogations provided for in that Treaty, any aid
granted by the Member States 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 is, in so far as it affects
trade between Member States,
incompatible with the
common market.

(33) Article 21 of Council Regulation (EEC) No 2759/75 of
29 October 1975 on the common organisation of the
market in pigmeat (2), as last amended by Regulation
(EC) No 3290/94 (3), provides that, save as otherwise
provided therein, Articles 87, 88 and 89 of the Treaty
are to apply to the production of and trade in pigmeat.

(30)

The Commission wanted a comprehensive view of all
the measures that the French authorities might have
implemented in support of the pigmeat sector, in partic-
ular in order to prevent State aid for rescuing and
restructuring firms in difficulty from being granted more

(34)

The measures notified by France fall in principle under
aid within the meaning of Article 87(1) of the Treaty in
so far as they seek to relieve certain producers of the
economic and financial burdens affecting competitors
who are not in receipt of this assistance.

(1) Commission letter No SG(99) D/8509 of 25 October 1999 to the

French authorities.

(2) OJ L 282, 1.11.1975, p. 1.
(3) OJ L 349, 31.12.1994, p. 105.

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Stabiporc

(35) As far as Stabiporc is concerned, the French authorities explained that the State aid for viable
undertakings (1) will solely involve granting loans at the normal market interest rate. The French
authorities provided evidence that the rate of interest applied is never lower than the reference rate in
force for loans not exceeding one year in duration. Furthermore, the contracts governing relations
between Ofival and Stabiporc will explicitly mention that should amounts not be paid or delays arise
in payment in connection with the reimbursement of the capital and interest of the Ofival loan,
Ofival will be entitled to seize the sums due, plus interest on late payment, from the producer
groups. Under those conditions, the possibility of any advantage, and consequently aid, may be
discarded. The Commission therefore concludes that the Stabiporc scheme and the detailed arrange-
ments for its application as they are currently contemplated by the French authorities comply with
the provisions of the Treaty in so far as the scheme comprises no element of aid in accordance with
Article 87(1) of the Treaty. At all events, if loans providing for more favourable conditions than
these were to be contemplated in the future, the French authorities should inform the Commission.

(36)

The French authorities are requested to present an annual report to the Commission setting out the
details of the way the scheme operates, and in particular the advances paid during the financial year,
the interest rates applied, the amounts reimbursed and/or in arrears, the balances of advances, etc.

Carry-over of social-security contributions and recent investors

(37)

(38)

The purpose of these two measures is to relieve certain producers of economic and financial
burdens; this would give them an advantage over competitors who are not in receipt of this
assistance. As a consequence,
the measures distort or threaten to distort competition in the
abovementioned way and as a result they fall within the definition of State aid in Article 87(1) of the
Treaty.

The aid is likely to affect trade between Member States in so far as it favours national production
over that of the other Member States. The pigmeat sector is especially open to competition at
Community level, and therefore in France, and it is consequently very sensitive to any measure
favouring production in any country.

(39)

The following table shows the volume of trade in pigmeat between France and the other Member
States.

Imports from EU-14
(1 000 ECU)

1998

1999

Tonnes — carcase weight

1998

1999

Pigmeat

899 584

821 979

524 935

532 044

Agricultural produce
covered by WTO

18 644 780

19 007 811

Total

185 465 865

194 409 593

Exports from EU-14
(1 000 ECU)

1998

1999

Tonnes — carcase weight

1998

1999

Pigmeat

763 029

682 965

431 625

395 877

Agricultural produce
covered by WTO

25 430 299

25 670 810

Total

178 384 485

188 441 594

(1) ‘Viable undertaking’ means any undertaking not experiencing economic difficulties within the meaning of the Commu-

nity Guidelines on State aid for rescuing and restructuring firms in difficulty.

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1998

EUR-15

France

France/EUR-15

Current prices and current exchange rates

Pigs
(1 000 ECU)

21 263

2 844

13,4 %

Total final (agricultural) production

213 467

46 187

21,6 %

(40) However, there are exceptions to the principle concerning the incompatibility of State aid set out in

Article 87(1) of the Treaty.

(41)

(42)

The exceptions to the principle of incompatibility laid down in Article 87(2) clearly do not apply.
Moreover, the French authorities did not claim they did.

The exceptions provided for in Article 87(3) of the Treaty must be interpreted strictly when any
regional or sectorial aid programme or any individual case of application of general aid schemes is
being considered. They may in particular be allowed only where the Commission is able to establish
that the aid is necessary to achieve one of the aims in question. Allowing such exceptions to apply to
aid not meeting that condition would be tantamount to allowing trade between Member States to be
affected and permitting distortion of competition that has no justification having regard to the
Community interest and, by the same token, undue advantages for the operators of certain Member
States.

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

(44) More specifically as regards the measure concerning the carry-over of social-security contributions,
according to the decisions of the Court of Justice (1), payment facilities in respect of social security
contributions granted in a discretionary manner to an undertaking by the body responsible for
collecting such contributions constitute State aid for the purposes of Article 87(1) of the Treaty if,
having regard to the size of the economic advantage so conferred, the undertaking would manifestly
have been unable to obtain comparable facilities from a private creditor in the same situation
vis-a-vis that undertaking as the collecting body. At no time have the French authorities claimed that
such carry-overs do not fall within the scope of State as aid referred to above. Furthermore, the
Commission does not have any information allowing it to conclude that the measure in question
does not fall within the scope of State aid.

(45)

The aid must be assessed in particular in the light of those provisions and of the special provisions
governing the case in point.

(46) When it initiated the procedure, the Commission held that, in so far as the beneficiary undertakings
were profitable establishments not covered by any restructuring or rescue plan, the exception
provided for in Article 87(3)(c) (first part of the first phrase) could not be entertained. None the less,
the French authorities subsequently took the view that the aid must be considered in the light of the
Community Guidelines on State aid for rescuing and restructuring firms in difficulty.

(47)

If aid schemes for rescuing and restructuring are to be approved, the beneficiaries must be small and
medium-sized enterprises in accordance with the Community definition. Small agricultural enter-
prises (SAEs) are those employing no more than 10 annual work units. The French authorities state
that the beneficiaries under the measure for recent investors are SAEs. No details are given as regards
the measure for the carry-over of personal social-security contributions. If the measure also covered
enterprises other than SMEs, the French authorities should have notified the measure in respect of
each individual beneficiary.

(1) Judgment in Case C-256/97 Déménagements-Manutention Transport SA (DMT) [1999] ECR I-391.

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(48)

In accordance with the Community Guidelines on State aid for rescuing and restructuring firms in
difficulty, this type of aid must comply with the following conditions.

(a) Existence of financial difficulties

(49)

(50)

(51)

(52)

In accordance with the Community Guidelines for this type of aid, the Commission deems that an
enterprise is in difficulty ‘where it is unable, whether through its own resources or with the funds it
is able to obtain from its owner/shareholders or creditors, to stem losses which, without outside
intervention by the public authorities, will almost certainly condemn it to go out of business in the
short or medium term.’

It cannot be concluded from the information provided by the French authorities that the beneficiary
undertakings are in financial difficulty within the meaning referred to above. The French authorities
actually contemplate granting aid to holdings that are in awkward financial situations which do not
jeopardise the holdings' viability.

(i) Thus, as far as the first type of aid is concerned (carry-over of personal social-security contribu-
tions), the measure seeks to prevent any undesirable effects, such as the loss of all social-security
cover that could arise from the farmers' failure to pay their contributions.

While the Commission agrees that the situation currently affecting the sector is likely to put
certain producers in an awkward situation, it considers that the fact that one of the conditions
for entitlement to the aid is the undertaking's viability means that the scheme is in direct conflict
with the Community rules applicable to firms in difficulty. The producers concerned may be
going through a difficult phase, but their survival does not appear to be in jeopardy as a result of
these difficulties, and State intervention is therefore not justified.

(ii) The way the second measure (recent investors) is applied does not imply that all the producers in
question are facing a situation that could condemn them to go out of business. The Commission
refers to the description of the measure in recitals 17 to 20 and recital 27 for the French claims.

The Commission therefore takes the view that the Community Guidelines on State aid for rescuing
and restructuring firms in difficulty are not adequately applied in the case in point. In their letter of
12 February 1999, the French authorities seek to show that certain conditions for this type of aid are
met, without however targeting the beneficiaries who are eligible under the Community rules. The
Commission's misgivings regarding the individual beneficiaries'
financial status have not been
dispelled as far as the situation prior to the initiation of the procedure (recital 46) is concerned.

The Commission wishes to point out, moreover, that the arguments put forward by the French
authorities at the time of the original notification and those presented once the procedure had been
initiated appear to contradict each other. The former do not give the impression of a situation that
can still force the undertakings out of business and the aid is not even described as measures for
rescuing and restructuring the firms concerned. The latter suggest that the undertakings are facing
economic difficulties when they state that the aim of the audit is to assess the farm's capacity to
survive the current difficulties. But no argument is put forward to back up this statement and
support the conclusion that the condition as to the existence of financial difficulties is thus met. The
short-term nature of the difficulties, according to the French authorities, is such as to corroborate the
Commission's arguments in recitals 49 and 50.

(b) Restoring an undertaking's long-term viability

(53) Aid for restructuring must be linked to a viable restructuring or recovery plan, which together with
all the necessary details; must be submitted to the Commission, and validated by the latter. The plan
must enable the undertaking's competitiveness to be restored within a reasonable timescale. The
plan, the duration of which must be as limited as possible, must comprise a market study covering a
series of points as set out in Annex I to the Community Guidelines. In addition, the undertaking's
viability must mainly result from the internal measures laid down in the plan and it cannot therefore
be based on external factors over which the undertaking has practically no influence, such as market
trends.

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(54)

(55)

The French authorities point out that for both measures, audits are performed on each potential
beneficiary with the aim of determining the farmers whose situations can actually be restored
(recitals 26 and 27).

Even assuming that the condition under (a) is fulfilled, the Commission considers that the informa-
tion provided does not prove that this condition is actually met. Audits of holdings are not the same
as restructuring plans. The former only serve to ascertain the economic situation of the holding and
at most to determine its degree of solvency, but it cannot ensure the restoration of the holding's
long-term viability. Audits are therefore confined to preventing holdings not viable at the present
time from qualifying for aid, but they have no effect, via any action plan, on the long-term viability
of many undertakings in a climate of production surpluses and cyclical crises. The aid measures
notified by France are de facto similar to rescue aid to the extent that they are intended to provide an
immediate response to a situation of economic crisis besetting many producers, but no restructuring
is undertaken under a plan or guaranteed by the measures proposed. According to the Community
Guidelines, rescue aid is temporary assistance that makes it possible to keep an ailing firm afloat for
the time needed to work out a restructuring or liquidation plan and/or for the length of time the
Commission needs to be able to reach a decision on that plan.

(56)

Restructuring plans must principally serve to programme measures to be undertaken to restore the
competitiveness of holdings within a reasonable time. Accordingly, given the type of undertakings
targeted and the environment in which they operate, the Commission considers that restoring the
viability of the undertakings affected cannot be guaranteed simply by relieving their short-term
financial burden following a financial audit.

(c) Preventing undue distortion of competition in a sector where there is structural excess capacity by reducing

or definitively closing down production capacity

(57)

(58)

The French authorities refer to the exemption for the agricultural sector provided for in point
3.2.5(c)(i) of the Guidelines (point 5.4(c)(i) of the new Guidelines) for measures aimed at a particular
category of products or operators. Where the totality of decisions taken in favour of all beneficiaries
over any consecutive 12-month period does not involve more than 3 % of the total annual
production of such products in that country, the Commission, subject to compliance with all other
conditions, will waive the capacity reduction requirement (recitals 26 and 27).

The Commission has no objections regarding the data provided with regard to the measure for
recent investors. However, those relating to the measure concerning the carry-over of social-security
contributions relate solely to the proportion of the aid as compared with the figure of 3 % of total
national production. The important point for the exemption referred to in point 57 is the quantity of
products to which the aid applies as compared with annual production. The data provided do not
specify, however, the number of animals covered by the aid. Given this lack of information, the
Commission is not in a position to verify compliance with this condition.

(59)

Even if one were to agree that in purely arithmetical terms, and in the light of the figures that France
may submit, this condition is likely to be met, the Commission is not always in a position to waive
this requirement because the conditions referred to under (a) and (b) are not met.

(d) One time,

last time principle

(60)

Even assuming that the condition under (a) is met, any failure to comply with the condition in (b)
puts observance of this principle in jeopardy. The lack of a plan for restoring viability raises doubts
as to the long-term recovery and viability of the undertakings, all the more so as the implementation
of schemes notified in a climate of overall, cyclical crisis in the pig-farming sector provides no
guarantee that in the future the same holdings will not be faced once more with situations of
short-term financial difficulty that could induce the State to come to their assistance again.

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(e) Aid must be in proportion to the costs and benefits of restructuring.

(f) Full

implementation of the restructuring plan and annual report to the European Commission

(61) Any failure to meet the conditions in points (a), (b) and (d) makes an assessment of compliance with
these two conditions pointless. As regards point (e) more specifically and in order to limit the
amount and rate of the aid to what is absolutely necessary, the Commission points out that the aid
beneficiaries must make a significant contribution to the restructuring plan by mobilising their own
resources or through external financing obtained at market conditions. This point is not raised by
the French authorities. On the other hand, the French authorities' undertaking to meet the condition
in point (f) calls for their compliance with the other conditions mentioned as a precondition for
acceptance.

(62) As regards the compliance of the scheme under consideration with the principles outlined, the
Commission considers that the French authorities have not satisfactorily demonstrated the ‘difficulty’
of the economic situation facing all the holdings targeted. Even had they, despite the Commission's
requests at no point in the procedure did they submit a plan for the recovery of the undertakings
concerned. As a result, the aid could only temporarily relieve certain producers' lack of liquidity,
without ensuring that the measures necessary to ensure their long-term competitiveness were taken.
The impact on competition is not offset by the existence of any clear plan for the future. The
Commission has also not been apprised of the size of the undertakings covered by the measure for
the carry-over of social-security contributions. This conclusion regarding the scheme does not
prejudge the assessment of any individual cases, not notified by the French authorities, that meet the
requirements of the Guidelines.

(63)

Furthermore, as regards the French authorities' comment in recital 19, the Commission points out
that the positive decision of 27 July 1994 (Aid NN 116/93, later C 9/94) was adopted on the basis
of criteria (1) that ceased to apply to the agricultural sector on 1 January 1998 (2) for purposes of
determining whether this type of aid is compatible with the common market.

(64)

The French authorities are of the opinion that the criteria in the Guidelines are fulfilled while they
emphasise the measure's slight impact in terms of distortion of competition.

(65) However, in accordance with the Community Guidelines, the basic principle governing this type of
aid is to authorise restructuring aid only in cases where it can be shown that granting such aid is not
contrary to the Community interest. This will only be possible on the basis of strict criteria and the
assurance that any distortion of competition will be offset by the benefits arising from the survival of
the undertaking and, where appropriate, by sufficient compensation for the competitors.

(66)

The measures proposed by the French authorities come in direct response to the crisis situation in
the pig-farming sector following the collapse of pigmeat prices throughout the Community (recital
7). The Commission is of the opinion that in a situation of this sort, any measure favouring any
particular undertaking is likely to create particularly serious distortion of competition in a sector as
sensitive and subject to such permanent excess capacity as the pig-farming industry, and that other
Community undertakings in the same situation could be especially affected. Accordingly, only
measures adopted under the Community agricultural policy and, more specifically, under the
common organisation of the market concerned could ensure that the overall interests of the players
on that market are taken into account. In this connection it should be remembered that recourse by
a State to Articles 87, 88 and 89 of the Treaty cannot take precedence over the Regulation governing
the organisation of the market in question (3). The application of those Articles continues to be
subject to the provisions of the Regulations concerned. The Commission cannot approve aid
measures which, by nature (4), are incompatible with the provisions governing the common organ-
isation of a market or which hamper the proper operation of the market organisation concerned.

(1) Criteria applied by the Commission for financial charges on loans being paid off

for investments already made

(SG(89) 343/2, 7.3.1989).

(2) Date of entry into force, for this sector, of the Community Guidelines on State aid for rescuing and restructuring

firms in difficulty.

(3) Judgment of the Court in Case 177/78 Pigs and bacon Commission v McCarren and Company Limited [1979] ECR-2161.
(4) See recital 69.

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(67) Accordingly, in the light of the information available, bearing in mind the crisis situation under
which the measure was taken and mindful of the pressures exerted on several Governments in the
Community to take national measures to assist the sector, the Commission is of the opinion that the
aid contemplated — is tantamount to a response to a call for help prompted by the crisis affecting
the pig-farming industry and cannot be regarded as forming an integral part of a real restructuring
plan for the undertakings concerned. As a consequence, the Commission must conclude that the
measures contemplated cannot qualify under the derogation provided for in Article 87(3)(c), which
provides that aid to facilitate the development of certain economic activities or of certain economic
areas may be considered to be compatible with the common market where such aid does not
adversely affect trading conditions to an extent contrary to the common interest. As a consequence,
the measures constitute operating aid that is not compatible with the Treaty.

VII

CONCLUSION

(68)

(69)

The measure notified by France that consists in restarting the scheme of advances refundable to the
Caisse professionnelle de régulation porcine (Stabiporc), under the conditions now contemplated by
the authorities in that country, does not constitute State aid within the meaning of Articles 87, 88
and 89 of the Treaty.

The aid schemes that consist in carrying over social-security contributions and granting aid for recent
investors do not qualify under the derogation provided for in Article 87(3) of the Treaty, since they
do not meet all the conditions laid down in the Community Guidelines on State aid for rescuing and
restructuring firms in difficulty. As a consequence, they are not compatible with the Treaty and
cannot therefore be implemented.

(70) Where aid is not compatible with the common market, Article 14 of Council Regulation (EC) No
659/1999 of 22 March 1999 laying down detailed rules for the application of Article 88 of the EC
Treaty (1) provides that the Commission is to decide that the Member State concerned is to take all
necessary measures to recover the aid from the beneficiary. Such reimbursement,
involving the
cancellation of all the financial advantages from which beneficiaries of the aid granted unlawfully
have benefited unduly since the date of granting of the aid, is necessary to re-establish the situation
applying previously.

(71) However, since the measures notified have not been applied to date, as confirmed by the letter of 24
November 1999 from the French authorities stating, with regard to the measures taken in response
to the pig-farming crisis, that the only measure finally decided was the aid for discontinuing activity,
notified on 5 July 1999 (C 405/99) and that no rescue or restructuring aid was granted, no decision
need be taken to recover the aid,

HAS ADOPTED THIS DECISION:

Article 1

1.
The measure notified by France that consists in restarting the scheme of advances refundable to the
Caisse professionnelle de régulation porcine, under the conditions contemplated by the authorities in that
country, does not constitute State aid within the meaning of Articles 87, 88 and 89 of the Treaty

The aid schemes that consist in carrying over social-security contributions and granting aid for recent
2.
investors cannot qualify under the derogation provided for in Article 87(3) of the Treaty and as a
consequence they constitute operating aid that is not compatible with the Treaty.

France shall be required to cancel the aid schemes referred to in Article 1(2).

Article 2

France shall inform the Commission, within two months of notification of this Decision, of the

1.
measures that it has taken to comply therewith.

Article 3

(1) OJ L 83, 27.3.1999, p. 1.

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The French authorities shall send the Commission an annual report providing details of the way the
2.
scheme of advances refundable to the Caisse professionnelle de régulation porcine operates, including in
particular the amounts paid in advance in the course of the financial year, the rates of interest applied, the
amounts refunded and in arrears, the balances of the advances, etc. Those details must include the
information needed by the Commission to ascertain that the undertakings that have benefited under the
scheme are viable within the meaning of the Community Guidelines on State aid for rescuing and
restructuring firms in difficulty.

This Decision is addressed to the French Republic.

Article 4

Done at Brussels, 11 April 2000.

For the Commission

Franz FISCHLER

Member of the Commission