2002/411/EC: Commission Decision of 12 March 2002 on the State aid implemented by Spain for producers of cows' milk considered to be priority producers (Text with EEA relevance)(notified under document number C(2002) 905)
Date: 2002-03-12
Institutions: European Commission
Subjects: Spain, State aid, control of State aid, interest rate subsidy, milk, production aid

1.6.2002

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Official Journal of the European Communities

L 144/49

COMMISSION

COMMISSION DECISION

of 12 March 2002

on the State aid implemented by Spain for producers of cows' milk considered to be priority
producers

(notified under document number C(2002) 905)

(Only the Spanish text is authentic)

(Text with EEA relevance)

(2002/411/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 regard to Council Regulation (EC) No 1255/1999 of 17
May 1999 on the common organisation of the market in milk
and milk products (1) as last amended by Regulation (EC) No
1670/2000 (2), and in particular Article 37 thereof,

Having called on interested parties to submit their comments
pursuant to the Article cited above (3),

Whereas:

I. PROCEDURE

(1)

(2)

By means of a complaint, the Commission was informed
that Spain had implemented an aid for the purchase of
reference quantities by producers of cows' milk. By
letters dated 27 January 1999 and 23 May 2000, Spain
provided the Commission with further information.

the Commission
By letter dated 2 February 2001,
informed Spain that it had decided to initiate the proce-
dure laid down in Article 88(2) of the EC Treaty in
respect of the aid.

(1) OJ L 160, 26.6.1999, p. 48. This Regulation replaces Regulation
(EEC) No 804/68, applicable at the time the aid was paid. Article
23 of Regulation (EEC) No 804/68 laid down that Articles 87
and 88 (former Articles 92 and 93) of the Treaty were applicable
to the sector.

(2) OJ L 193, 29.7.2000, p. 10.
(3) OJ C 87, 17.3.2001.

(3)

(4)

(5)

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communi-
ties (4). The Commission invited interested parties to
submit their comments on the aid.

The Commission received no comments from interested
parties.

By letter dated 11 June 2001, Spain sent a series of
comments.

II. DETAILED DESCRIPTION OF THE AID

(6)

Title, scheme: aid for the purchase of milk quotas.

(7)

(8)

(9)

Budget:
million (EUR 240 404,84).

the planned budget

for 1998 was ESP 40

Duration: the aid scheme was to apply for the 1998/
1999 milk year, although it was suspended on 31
December 1998 pending the Commission Decision on
compatibility with the Treaty.

Recipients: producers of cows' milk falling within the
categories of livestock farmers considered to be priority
producers for the purposes of allocating reference quan-
tities from the national reserve in accordance with Royal
Decree No 1888/1991 of 30 December 1991 estab-
lishing a plan for the reorganisation of the milk and
milk products sector (5).

(4) See footnote 3.
(5) Boletín Oficial del Estado No 2, 2.1.1992, p. 84.

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(10) Objective: to facilitate the purchase of reference quan-
tities by producers of cows' milk considered to be
priority producers in accordance with Royal Decree No
1888/1991.

(11)

Possible effect of the aid: infringement of the provisions
of the common organisation of the market in milk and
milk products.

(12) Aid intensity, eligible costs, overlap with other schemes,
etc: the aid consists of an interest-rate rebate on loans
contracted with financial institutions to purchase refer-
ence quantities from other producers. The terms of the
loans are as follows: duration of 60 months; maximum
eligible amount of ESP 4 million (EUR 24 040,48);
interest rate of 6 % during the first 24 months, then the
rate plus one
average monthly MIBOR one-year
percentage point; a rebate of four percentage points. The
grant equivalent, calculated using the method applied to
investment aid under Council Regulation (EC) No 950/
97 of 20 May 1997 on improving the efficiency of
cost of
agricultural
purchasing the reference quantity. The aid cannot be
combined with other aid for the same type of expendi-
ture.

structures (6),

is 11 % of

the

(13) Grounds for initiating the procedure: the aid granted by
Spain would infringe the provisions of the common
organisation of the market in milk and milk products if
found to be public aid not authorised by those provi-
sions in a field in which the Community has exclusive
competence.

(16) A holding's individual production quota is a means of
production and, as such, may confer the right to aid for
the purchase of reference quantities. In accordance with
point 4.1.1.6 of the Community Guidelines for State aid
in the agriculture sector (9), aid may be granted for the
purchase of production rights only in accordance with
the specific provisions of the common organisation of
the market concerned and the principles set out
in
Articles 87 and 88 of the Treaty.

(17) According to Spain, the objective of the aid is in accord-
ance with those pursued by Community rules, in partic-
ular, the restructuring of the milk sector. The aid contri-
butes to the restructuring of the sector by encouraging
mechanisms to promote a degree of mobility of refer-
ence quantities within a particular geographical area, on
the basis of objective criteria. Community rules are
contradictory in that they allow the payment of aid of
100 % for the reallocation of reference quantities but do
not authorise aid at a much lower level pursuing the
same objective.

(18) As regards the Commission's claim that the aid infringes
Article 38 of Regulation (EC) No 1255/1999, which
prohibits aid fixed on the basis of price or the quantity
produced, Spain takes the view that the aid has no
impact whatsoever on prices or on the total quantity
produced, since the quantities produced are fixed for
each milk year and for each Member State and the
intervention prices are the same for all Member States.

IV. ASSESSMENT OF THE AID

Article 87(1) of the Treaty

III. COMMENTS FROM SPAIN

(19) Articles 87 and 88 of the Treaty apply to the milk and
milk products sector pursuant to Article 37 of Regula-
tion (EC) No 1255/1999.

(14)

By letter dated 11 June 2001, Spain put forward the
following position.

(15)

Spain takes the view that, under Article 7(1) of Council
Regulation (EEC) No 3950/92 establishing an additional
levy in the milk and milk products sector (7), as last
amended by Commission Regulation (EC) No 603/
2001 (8), it can be argued that the reference quantities
are a capital asset of the holding. Article 8 of that
Regulation authorises the transfer of reference quantities
between holdings and holders and also permits the
payment of financial compensation for the transfer of
rights to the national reserve. Article 8(b) lays down that
the quantities of milk so released may be allocated to
other farmers in return for payment, made in one or
more annual

instalments.

(6) OJ L 142, 2.6.1997, p. 1.
(7) OJ L 405, 31.12.1992, p. 1.
(8) OJ L 89, 29.3.2001, p. 18.

(20) Under Article 87(1) of the Treaty, any aid granted by a
Member State or through State resources in any form
whatsoever
to distort
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.

that distorts or

threatens

(21)

In this case, the aid gives the beneficiaries an advantage
by reducing the normal burden on their budgets. The aid
is granted by the Member State or using State resources.
The aid is specific or selective in that it favours certain
undertakings or the production of certain goods, specifi-
cally the producers of cows' milk falling within the
categories of livestock farmers considered to be priority
producers in Asturias.

(9) OJ C 28, 1.2.2000, p. 2 (corrected version in OJ C 232,

12.8.2000, p. 17).

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(22)

(23)

(24)

To be covered by Article 87(1) of the Treaty, the aid
must in addition affect competition and trade between
Member States. This implies that the beneficiary of the
aid must carry out an economic activity. According to
consistent case law concerning this provision, trade is
deemed to be affected when the beneficiary undertaking
carries out an economic activity that is the subject of
trade between Member States. The mere fact that the aid
strengthens
inter-
Community trade in relation to other undertakings in
the same field is sufficient ground for deeming trade to
be affected.

undertaking's

position

the

in

In this case, the beneficiaries carry out an economic
activity, milk production, that is the subject of trade
between Member States. Trade between the rest of the
Community and Spain is considerable. In 1999, Spain
imported 435 778 tonnes of cows' milk from the other
to
Member States
them (10).

and exported 195 426 tonnes

Consequently, the aid concerned may affect trade in
cows' milk between Member States, which is what
happens when an aid favours operators active in one
Member State at the expense of those in the others. The
measures in question have a direct and immediate effect
on the cost of production of cows' milk in Spain. They
therefore confer an economic advantage not enjoyed by
holdings in other Member States because they do not
have access to comparable aid. They therefore distort or
threaten to distort competition.

(25)

the above,

In view of
the aid in question must be
regarded as State aid within the meaning of Article 87(1)
of the Treaty.

Possible exceptions under Article 87(1) of

the

Treaty

(26) However, there is provision for derogations from the
principle of incompatibility laid down in Article 87(1) of
the Treaty.

(27)

(28)

The exceptions to such incompatibility, which are set
out in Article 87(2) of the Treaty, are manifestly not
applicable in this case. Neither were they invoked by the
Spanish authorities.

The derogations provided for in Article 87(3) of the
Treaty must be interpreted strictly when regional or
sectoral aid programmes or individual instances of the
application of general aid schemes are examined. They
can be granted only where the Commission can establish
that the aid is necessary for the achievement of one of
the objectives concerned. To allow aid not fulfilling that
condition to benefit under such derogations would be to
permit distortion of competition and of trade between
Member States without any justification in terms of the

Community interest and, consequently, to grant undue
advantage to operators in certain Member States.

(29)

nor

employment,

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

provide

to

(30) Article 87(3)(c) lays down that aid may be regarded as
compatible with the common market if it is intended to
facilitate the development of certain economic activities
or of certain economic areas and does not adversely
affect trading conditions to an extent contrary to the
common interest.

(31)

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

(32)

(33)

(34)

In accordance with point 23.3 of the Community Guide-
lines for State aid in the agriculture sector, illegal aid
within the meaning of Article 1(f) of Council Regulation
(EC) No 659/1999 laying down detailed rules for the
the Treaty (11) must be
application of Article 93 of
assessed on the basis of the rules and guidelines in force
when the aid was granted.

The aid in question, granted in 1998 without being
notified to the Commission, is an illegal aid within the
meaning of Article 1(f) of Regulation (EC) No 659/1999
and must be assessed on the basis of the rules in force at
the time.

The additional
levy introduced by Council Regulation
(EEC) No 857/84 (12), repealed and replaced by Regula-
tion (EEC) No 3950/92, the aim of which is to reduce
the imbalance between supply and demand for milk and
milk products
is
currently one of the basic mechanisms of the common
organisation of the market concerned.

surplus production,

and reduce

(35)

Regulation (EEC) No 3950/92 lays down the degree of
flexibility with which the additional levy arrangements
may be applied by the Member States.

(36) Under Article 5 of Regulation (EEC) No 3959/92,
Member States may replenish their national reserves,
without exceeding the overall quantity,
following an
across-the-board reduction in the individual reference
quantities, in order to grant additional or specific quant-
ities to producers determined in accordance with objec-
tive criteria agreed with the Commission. Without preju-
dice to Article 6(1), reference quantities available to
producers who have not marketed milk or other milk

(10) Source: Eurostat (1998).

(11) OJ L 83, 27.3.1999, p. 1.
(12) OJ L 90, 1.4.1984, p. 13.

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products during a 12-month period may be allocated to
the national reserve and reallocated in accordance with
the first subparagraph. Spain cannot justify the aid on
the basis of that provision since the reference quantities
for the purchase of which the aid was granted were not
from the national reserve, were not made available by an
across-the-board reduction in individual reference quant-
ities and were not the reference quantities of producers
who had not marketed milk or other milk products for a
12-month period.

(40)

(41)

The aid granted by Spain thus infringes the provisions of
the common organisation of the market in milk and
milk products in that it takes the form of a State aid not
authorised by those provisions in an area for which the
Community has exclusive responsibility.

The application of Articles 87, 88 and 89 remains
subject to the provisions of the relevant Regulations. In
other words, recourse by a Member State to Articles 87,
88 and 89 cannot override the provisions of the Regula-
tion governing the market organisation concerned.
Under no circumstances, therefore, can the Commission
approve aid which is incompatible with the provisions
governing a common organisation of the market or
which would impair the smooth operation of
that
organisation.

(42) With regard to the arguments put forward by Spain, the

Commission's position is as follows.

(43) Aid for the purchase of production rights may be
granted only if it complies with the provisions of the
corresponding common organisation of the market. In
this case, the aid granted does not comply with the
provisions of the common organisation of the market in
milk and milk products for the reasons stated. Even if
the aim is not to undermine that common organisation
of the market, that could be its effect (as is that of all
measures that distort the rules governing the operation
of the market of a particular sector).

(44)

(45)

(46)

The milk and milk products sector is being restructured
throughout the Community on the basis of the mecha-
nisms provided for in Community rules, which provide
adequate means without the need for State aid such as
that under consideration.

In addition, in accordance with consistent case law, from
the moment
the Community lays down a common
organisation of the market in a particular sector, it is the
Community that is responsible for finding solutions to
problems under the common agricultural policy. The
Member States must not therefore adopt unilateral meas-
ures, even where they are compatible with the Commu-
nity's common policy (see judgment of the Court of
Justice of 6 November 1990 in Case C-86/89, Italy v
Commission (14)).

Similarly, the aid for the purchase of quotas could force
up their price and distort the smooth operation of the
common organisation of the market. The price could
increase because the vendor of reference quantities,
knowing that
the purchaser will be granted aid to
finance the purchase, could increase the sales price to
take that into account.

(37) Article 8 of Regulation (EEC) No 3950/92 stipulates the
actions that Member States may take to restructure milk
production. The list of measures provided for is exhaus-
tive and the regulatory framework therefore provides
Member States with specific and sufficient means to
promote restructuring and an increase in the efficiency
of production structures. The granting of aid for the
purchase of quotas from other producers is not one of
the measures provided for. On the contrary, Article 8(b)
lays down that the Member States may determine on the
basis of objective criteria the conditions under which
producers may obtain,
in return for payment, at the
beginning of a 12-month period, the reallocation by the
competent authority or by the body designated by that
authority of reference quantities released definitively at
the end of the preceding 12-month period by other
producers in return for compensation in one or more
abovementioned
annual
payment.

instalments

to the

equal

(38)

that

together

The common organisation of the market does not just
contain provisions on prices but also includes various
mechanisms and provisions
form a
complete and exhaustive system which, the Commission
has repeatedly affirmed, may not be derogated from and
which, in accordance with the consistent case law of the
Court of Justice of the European Communities, precludes
the Member States from taking measures that infringe or
derogate from it (see judgment of the Court of Justice of
the European Communities of 26 June 1979 in Case
177/78, Pigs and Bacon Commission v McCarren and
Company Limited (13)).

(39)

The common organisation of the market in milk and
milk products is based, as are all the other common
organisations of the market, on the principle of an open
market to which all producers have free access, governed
solely by the instruments provided for by that organ-
isation.

(13) [1979] ECR 2161. Spanish Special Edition 1979, p. 1083.

(14) [1990] ECR I-3891.

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(47) On a previous occasion, the Commission also took the
view that aid in the form of reduced-rate loans for the
purchase of reference quantities was incompatible with
the common market on the basis of Article 87 (former
Article 92) of the Treaty (see Commission Decision 96/
616/EC (15) on aid granted by the Region of Friuli-
Venezia Giulia, Italy). Currently, point 4.1.1.6. of the
Community Guidelines for State aid in the agriculture
sector lays down that no aids may be granted for the
purchase of production rights except in accordance with
the specific provisions of the common organisation of
the market concerned and the principles set out
in
Articles 87, 88 and 89 of the Treaty.

(48)

In the light of the above, the Commission cannot accept
the arguments put forward by Spain.

Conclusion

(49) On the basis of

the

above

and the

applicable
Community rules, the Commission takes the view that,
as
in Article
the derogations provided for
regards
87(3)(a) and (c)
for aid to promote or facilitate the
economic development of certain regions or the devel-
opment of certain activities, the aid in question could
adversely affect trading conditions to an extent contrary
to the common interest.

Deufil GmbH und Co. KG v Commission (17), and of 20
September 1990 in Case C-5/89, Commission v
Germany (18), and require the Member State to recover
the aid granted illegally. The requirement to recover aid,
which is also laid down in Article 14(1) of Council
Regulation (EC) No 659/1999, is necessary in order to
re-establish the previous situation by abolishing all the
financial advantages enjoyed unduly by the beneficiaries
since the aid was granted.

(54)

The aid granted must be repaid in full.

(55)

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, in accord-
ance with the Guidelines on national regional aid (19).

(56)

This Decision does not prejudice any conclusions the
the
Commission might draw for
common agriculture policy by the European Agricultural
Guidance and Guarantee Fund (EAGGF),

the financing of

(50)

The aid therefore infringes Community rules and is
consequently ineligible for any of
the derogations
provided for in Article 87(3) of the Treaty.

HAS ADOPTED THIS DECISION:

Article 1

V. CONCLUSIONS

The State aid Spain has implemented for the purchase of
reference quantities by producers of cows' milk is incompatible
with the common market.

(51)

(52)

The Commission finds that Spain has unlawfully imple-
mented the aid in question in breach of Article 88(3) of
the Treaty. Since the aid in question was not notified to
the Commission, its granting was illegal, given that it
was granted before the Commission could decide on its
compatibility with the common market.

Furthermore, for the reasons set out above, the aid 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.

(53) Where aid is incompatible with the common market, the
Commission must make use of the possibility offered by
the judgment of the Court of Justice of 12 July 1973 in
Case 70/72, Commission v Germany (16), confirmed by
the judgments of 24 February 1987 in Case 310/85,

Article 2

1.
Spain shall take all necessary measures to recover from
the beneficiaries the aid referred to in Article 1 and unlawfully
made available to the beneficiaries.

2.
Recovery shall be effected without delay and in accord-
ance with the procedures of national law provided that they
allow the immediate and effective execution of this Decision.
The aid to be recovered shall include interest from the date on
which it was at the disposal of the beneficiaries until the date
of its recovery. Interest shall be calculated on the basis of the
reference rate used for calculating the grant equivalent of
regional aid.

(15) OJ L 274, 26.10.1996, p. 26.
(16) [1973] ECR 813. Spanish Special Edition 1973, p. 211.

(17) [1987] ECR 901.
(18) [1990] ECR I-3437.
(19) OJ C 74, 10.3.1998, p. 9.

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

Article 3

This Decision is addressed to the Kingdom of Spain.

Article 4

Done at Brussels, 12 March 2002.

For the Commission

Franz FISCHLER

Member of the Commission