Commission Decision of 18 February 2004 on State aid C27/2001 (ex NN 2/2001) concerning the implementation in France of a programme to control pollution of agricultural origin (PMPOA) during the period 1994 to 2000 (notified under document number C(2004) 415)
Date: 2004-02-18
Institutions: European Commission
Subjects: France, State aid, control of State aid, farmer, investment aid, pollution control measures, pollution from agricultural sources

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II

(Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory)

DECISIONS

COMMISSION

COMMISSION DECISION

of 18 February 2004

on State aid C27/2001 (ex NN 2/2001) concerning the implementation in France of a programme to
control pollution of agricultural origin (PMPOA) during the period 1994 to 2000

(notified under document number C(2004) 415)

(Only the French text is authentic)

(2007/51/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

Having asked interested parties to submit their observations in
accordance with that Article (1) and having regard to those
observations,

Whereas:

I.

PROCEDURE

(1)

Following information received by the Commission on the
existence in France of a programme to control pollution of
agricultural origin (‘Programme de maîtrise des pollutions
d'origine agricole’ — hereafter called PMPOA or
the
programme) the Commission sent a letter to the French
authorities on 24 February 2000 requesting information on
the application of that programme since 1994. By letter
dated 31 May 2000 France confirmed that the PMPOA had
existed since 1994. Additional information was requested

(1) OJ C 179, 23.6.2001, p. 18.

by the Commission by letter dated 11 July 2000. The
French authorities replied by letter dated 26 December
2000.

(2) On 13 February 1991 France notified a State aid relating to
aid for investments in individual pig farms in favour of the
environment. The Commission authorised the aid by letter
of 11 December 1991 (2). In addition, on 20 April 1993, as
part of a part-financed structural programme and in
accordance with Article 29(4) of Council Regulation
(EEC) No 2328/91 of on improving the efficiency of
agricultural structures (3), France forwarded DEPSE/SDEE
circulars No 93-7005 of 2 March 1993 and No 7027 of 5
November 1992 on investment aid in the beef and veal
sector. In accordance with Regulation (EEC) No 2328/91
on 29 July 1993 the Commission adopted a Decision
authorising a Community financial contribution to that
joint measure (4). However,
the national aid was not
notified to the Commission within the meaning of Article
88(3) of the Treaty (5). The French authorities declared that
those provisions, which predated the entry into force of the
PMPOA, had been integrated into it by DEPSE circular

(2) State aid N 136/91.
(3) OJ L 218, 6.8.1991, p. 1.
(4) C(93) 1888.
(5) Cf.

ruling of

Instance of

the Court of First

the European
Communities of 15 September 1998 in Joined Cases T-126/96
and T-127/96, Breda Fucine Meridionali SpA and others v the
Commission, ECR [1998] II-3437. The Court accepted the Commis-
sion's argument that a communication from a Member State could
not be accepted as a valid notification if it did not explicitly mention
Article 93(3) of the Treaty and was not presented to the Secretariat-
General. The measures in question had therefore to be considered as
non-notified.

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(3)

(4)

No 7016 of 22 April 1994. They therefore form the beef
and pig sector components of the PMPOA. That circular
was also not notified to the Commission within the
meaning of Article 88(3) of the Treaty.

By letter of 13 June 1994 France notified a State aid for
investments to protect the environment in the poultry
sector. That scheme, later integrated into the PMPOA as its
poultry sector component, was authorised by the Commis-
sion by letter of 26 April 1995 (6).

dated 8 October 1993 which entered into force on 1
January 1994. The purpose of the programme was to
enable farmers to adapt
their equipment and working
practices with a view to better environmental protection in
general and water protection in particular. The pollution
the programme was water
identified as the subject of
pollution by plant health products and by mineral and
organic fertilisers.

France did not notify within the meaning of Article 88(3) of
the Treaty the agreement of 8 October 1993 creating the
programme, nor any other document describing the
characteristics of the PMPOA relating in particular to the
programme’s
in
particular, was not informed of the participation of water
supply agencies in financing the programme.

financing key (7). The Commission,

(11) The PMPOA particularly sought compliance with Council
Directive 91/676/EEC of 12 December 1991 concerning
the protection of waters against pollution caused by nitrates
from agricultural sources (10) (hereafter called the nitrates
Directive) and the national provisions to introduce a code
of good farming practice.
It related to all production
methods: livestock and crops.

(5) Moreover, in respect of the beef and veal sector, France did
not notify the Commission of the planned investment aids.

(6) No notification regarding young farmers was submitted to

(12)

the Commission.

(7)

(8)

By letter of 11 April 2001 the Commission informed
France of its decision to initiate proceedings as provided for
in Article 88(2) of the Treaty against the PMPOA. The
present Decision concerns only the application of
the
PMPOA in the period 1994-2000.

The Commission decision to initiate proceedings was
published in the Official Journal of the European Commu-
nities (8). The Commission invited the other Member States
and interested parties to submit their comments on the aids
in question. The Commission received no comments from
third parties. France submitted its comments by letter of 21
June 2001.

(9)

Extension of the PMPOA from 2001 was authorised by the
Commission by letter of 30 October 2001 (9).

II.

DESCRIPTION

1.

The aid measure

(10) The PMPOA is the result of an agreement between the
French state and French agricultural trade organisations

(6) State aid N 342/94.
(7) Cf. footnote 5.
(8) Cf. footnote 1.
(9) State aid N 355/2000.

In order to satisfy the legal requirements and to avoid
polluting water resources with animal waste it was deemed
necessary to improve animal housing and to manage liquid
waste. The cost of
the work on housing alone was
indicatively estimated at that time at approximately EUR1
billion up to 2002. An investment programme was
launched; its overall financing plan was: livestock rearers:
one-third of the cost; the State (Ministry of Agriculture and
Fisheries) and local authorities, one-sixth each; water supply
agencies: one-third (11). In return, livestock farmers likely to
qualify for aid had to pay the pollution charge levied by the
water supply agencies.

(10) OJ L 375, 31.12.1991, p. 1.
(11) According to information available to the Commission — part of it
taken from the water supply agencies’ website (http://www.eaufrance.
tm) — the agencies are public bodies created in 1964 enjoying legal
personality and financial
independence. They operate under the
supervision of the Ministers of the Environment and of the Economy
and Finance and are managed by an administrative council
representing the various water users. The agencies are split up over
six major water regions covering the entire territory of mainland
France: Adour-Garonne, Artois-Picardie, Loire-Bretagne, Rhin-Meuse,
Rhône-Méditerrannée-Corse
and Seine-Normandie. These have
identical structures: a regional committee, a water supply agency
and its administrative council. Their policies are defined by the
regional committee and are based on four major components:
management of water resources, pollution control, conservation of
aquatic environments and monitoring the quality of inland and
coastal waters.
Between 1997 and 2001 the agencies planned aid to finance works
estimated at some €16 billion to conserve water resources and
control pollution. They provide technical advice to local government,
economic operators and farmers and provide them with funding so
that they can undertake the works needed to prevent water pollution
and protect water resources. The agencies are financed by means of
proportional charges
imposed on water polluters, users and
consumers. Those charges are then redistributed in the form of aid
(subsidies and loans) to local authorities, industry and agriculture
(and, more generally, to works contractors) to carry out works such
as water treatment plants, sanitation networks, drinking water
plants, river facilities, studies and measuring networks.

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(13) By memorandum of 24 February 1994 to the relevant
administrative bodies the French ministries of agriculture
and of the environment defined the procedures adopted by
the national monitoring committee responsible for imple-
menting the programme: timetable, financing keys, applica-
tion by rearers.

(14) As regards the programme’s link to the classified installa-
tions, the French authorities stated in the memorandum
that it was in the interests of the rearers to comply with the
provisions relating to protection of water resources in the
ministerial decrees of 29 February 1992 on livestock farms
when work under pollution control contracts was being
carried out.

(15)

the PMPOA followed a

Implementation of
sectoral
approach and was by means of circulars containing the
aid rules from the Ministry of Agriculture and Fisheries to
the regional and departmental prefects. At the request of
the Commission the French authorities sent copies of the
following circulars:

— DEPSE/SDEEA circular No 7016 of 22 April 1994,
‘Aides à la mise en conformité des élevages bovins et
porcins’ [aid for standardising cattle and pig farms];

— DEPSE/SDEEA circular No 7021 of 18 April 1995,
‘Aides à la mise en conformité des élevages avicoles’
[aid for standardising poultry farms];

— DEPSE/SDEEA circular No 7028 of 19 June 1995,
‘Aides à la mise en conformité des élevages’ [aid for
standardising livestock farms];

— DEPSE/SDEEA circular No 7001 of 15 January 1996,
‘Aide à la mise en conformité des élevages. Cas des
jeunes agriculteurs qui s'installent à compter du 1er
janvier 1996’ [aid for standardising livestock farms,
where young farmers set up from 1 January 1996].

(18) With regard to the beef and veal and pig sectors, aid was
also planned for farmers implementing their projects under
a material improvement plan (MIP) in less-favoured areas in
the form of capital aid of 30 % and a loan with a subsidy
equivalent of 15 %. The rates were increased in the case of
young farmers (43,75 % in lowland areas and 56,25 % in
less-favoured areas). For young farmers in the poultry sector
an increase of 5 % via a soft loan was provided for.

(19) DEPSE/SDEEA circular No 7001 of 15 January 1996
amended the aid rates in favour of young farmers setting up
from 1 January 1996. The capital subsidy rate was
increased from 30 % to 35 % in less-favoured areas and
priority rural development areas. No soft loan was provided
for. In other areas the capital subsidy rate was increased
from 30 % to 32,5 %. A supplementary loan having a
subsidy-equivalent effect of 2,5 % was permitted.

(20) To qualify for the aid, farmers had to submit a preliminary
study performed on their behalf by approved experts and
resulting in the drawing up of the farmer’s investment
project. Analyses were used as the basis for the pollution
control contract (see recital 21) and, therefore, for the
definition of the eligible amount for each of the parties
participating in the public financing of the work. The
studies amounted to 2 % of the cost of the investments and
were subsidised at the rate of 50 % by the State and 50 % by
the water supply agencies up to a ceiling of FRF 6 000
before taxes (equivalent to EUR 914).

(21) The pollution control contract was the factor which
guaranteed the farmer that the aid provided for in the
PMPOA would be applied and that any charge by the water
supply agencies would dbe offset. It was a contract of
confidence which of necessity highlighted the existence of
environmental problems on a farm but the purpose of
which was to help resolve them. It was signed by all the
financial partners, including the farmer.

(16) Aid beneficiaries were managers or owners of property for
farming use in the beef and veal, pig and poultry sectors.
the investments was to redevelop existing
The aim of
housing so as to increase storage capacity for animal waste
and improve storage equipment to bring it in line with the
requirements of the nitrates Directive (12).

(17) Financing consisted of a State contribution of 35 % of the
costs in the form of a capital subsidy covering 30 % of the
costs to which could be added a low-interest loan, the
subsidy equivalent of which corresponded to 5 % of the
costs. Participation by the water supply agencies to the
extent of one-third of the costs was not mentioned in the
circulars referred to in recital 15.

2.

The reasons given by the Commission for
initiating the examination procedure

(22) Firstly, the Commission felt that the involvement of the
water supply agencies in the PMPOA was a State aid within
the meaning of Article 87(1) of the Treaty. The water
supply agencies were responsible for one-third of
the
funding of the PMPOA’s investment costs. The Commission
only became aware of their involvement after dissemina-
tion of a report evaluating the management and progress of
the PMPOA drawn up by the Inspectorate-General of
Finances, the standing committee for the coordination of
inspections of the Ministry of Agriculture and Fisheries and
the Conseil Général
for agricultural engineering, water
resources and forests (13).

(12) Details on the subsidised investments can be consulted in the

decision to initiate the procedure.

(13) Report dated 26 July 1999 published in 2000 on the website of the
French Ministry of Agriculture: http://www.agriculture.gouv.fr.

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(23) The Commission noted the fact that Article 2 of French
decree No 66-700 of 14 September 1966 on water supply
the agencies were public State
agencies stipulated that
bodies enjoying legal personality and financial
indepen-
dence and that French legislation made it clear that the
agencies were public in nature.

meaning of Article 88 of the Treaty and authorised by it.
The notification obligation was established by Article 1(c)
of Regulation (EC) No 659/1999. The Commission stated
that varying the aid rate appeared per se to constitute an
element modifying the substance of the aid which made
notification within the meaning of Article 88(2) of the
Treaty obligatory.

(24)

In its decision to initiate the procedure the Commission
concluded that, in the light of the legalislation adopted in
France on the water supply agencies and their operating
methods, and the decisions of the Court of Justice of the
European Communities and the Court of First Instance (14),
the water supply agencies were to be regarded as extensions
of the State and that their funding of
investments on
agricultural holdings therefore constituted State aid (15).

(25) The Commission considered that the amounts allocated to
cattle, pig and poultry farmers, including those provided by
the water supply agencies, conferred on those farmers an
advantage from which other forms of production could not
benefit. This was therefore State aid granted by France
which, by distorting or being likely to distort competition
by favouring certain undertakings or production sectors,
was likely to affect
trade between the Member States.
Consequently the measure fell under Article 87(1) of the
Treaty.

(26) The Commission also concluded that the State aid put into
effect by France constituted new aid not notified to the
Commission which could by dint of that be considered
unlawful aid within the meaning of
the Treaty. The
Commission based its arguments on Article 1(f) of Council
Regulation (EC) No 659/1999 laying down detailed rules
for the application of Article 93 of the EC Treaty (16), which
defines unlawful aid as new aid put
in
contravention of the former Article 93(3)
(now Article
88(3)) of the Treaty. The term new aid covers all aid, that is
to say, aid schemes and individual aid, which is not existing
aid, including alterations to existing aid.

into effect

(27) The Commission noted that any aid scheme authorised by
the Commission into which major changes were later
introduced — in this case, relating to the participation of a
public body in the financing of an aid notified to the
Commission, thus significantly altering the financing key
and, consequently, the aid rate — constituted a new aid
which had to be notified to the Commission within the

(14) Cf. in particular: Court of First Instance judgment of 12 December
1996 in Case T-358/94, Compagnie nationale Air France v the
Commission, ECR [1996] II-2109; Court of Justice judgment of 22
March 1977 in Case 78/76, Steinike & Weinlig v FRG, ECR [1977]
595; Court of First Instance judgment of 31 January 2001 in Joined
Cases T-197/97 and T-198/97, Weyl Beef Products BV and others v the
Commission, ECR [2001] II-303; Court of Justice judgment of 30
January 1985 in Case 290/83, Commission v France, ECR [1985] 439;
Commission communication of 26 March 1997 on environmental
duties, taxes and charges in the single market (COM (97) 9 final).
(15) Cf. detailed reasoning by the Commission on the public nature of the
water supply agencies in the decision to initiate the procedure.

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

(28) The Commission then carried out an assessment of the aids
in question in the light of paragraph 23.3 of
the
Community guidelines on State aid in the agriculture
sector (17)
(hereafter ‘the agriculture guidelines’), which
states that any unlawful aid within the meaning of Article 1
(f) of Regulation (EC) No 659/1999 is to be assessed in
accordance with the rules and guidelines in force at the time
the aid is granted.

(29) With regard to the subsidised investments and the form of
aid, the Commission considered that, where the pigmeat
sector was concerned, the type of investment had actually
been continued in the PMPOA and that the investments
corresponded in the main to those notified to and
authorised by the Commission. With regard to the beef
and veal sector, the Commission, even though it had not
examined the aid from the point of view of
the
the time, noted its
Community’s competition rules at
compatibility with those rules when it
initiated the
procedure. With regard to the poultry sector the Commis-
sion noted that the PMPOA included exactly what it had
previously authorised. Lastly, with regard to the scheme in
favour of young farmers setting up from 1 January 1996,
the Commission concluded that
the scheme did not
engender any changes in the scheme as regards the section
on eligible investments, but was restricted to a change in
the form of that part of the aid financed by the State.

(30) The Commission was therefore able to conclude on the
nature of the investments and the forms of aid provided for
by the French authorities that the aids, while tainted with
illegality, had been put into effect in compliance with the
Community competition rules applicable at the time. The
Commission did not therefore object to that aspect of the
aid as applied.

(31) Where the financing key for the aid was concerned, the
Commission noted that, according to the rules applicable at
the time the programme was launched, the ceiling for
investment aid to protect the environment was 35 % of the
eligible costs (45 % in less-favoured areas). The fifth indent
of Article 12(5) of Regulation (EEC) No 2328/91, which
provides for scrutiny of national aids in the light of former
Articles 92 and 93 (now Articles 87 and 88) of the Treaty
and Article 6 of that Regulation, authorised investment aid
to protect the environment provided it did not give rise to

(17) OJ C 28, 1.2.2000, p. 2 and corrigendum, OJ C 232, 12.8.2000, p.

17.

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an increase in production. In its decision on State aid N
136/91, the Commission took account of the fact that it
normally considered as compatible with the common
market an aid rate of 35 % of eligible costs for that type of
aid (45 % in less-favoured areas within the meaning of
Council Directive 75/268/EEC of 28 April 1975 on
mountain and hill farming and farming in certain less-
favoured areas (18). Those aid rates were confirmed in
paragraph 3.2.3 of the Community guidelines on State aid
for environmental protection (19) shortly after entry into
force of the programme.

(35) Since the aid authorised by the Commission for invest-
ments was based on a permitted maximum rate of public
financing of 35 % of their costs (45 % in less-favoured
areas), or 40 % to 55 %, depending on circumstances, from
1 January 2000, the Commission had to conclude in its
decision to initiate the examination procedure that the level
of aids granted under the PMPOA did not appear to tally
with the aid rate it authorised and so all public funding
granted above the authorised ceilings constituted a State aid
incompatible with the Treaty.

(32)

In addition, the French authorities explained the existence
and nature of
those ceilings in the sectoral circulars
applying the PMPOA as referred to in recital 15. They wrote
that the European Union had authorised a derogating rate
of 35 % for public aid to this type of investment linked to
improvement of the environment.

(33) Given that the programme’s financing key provided for a
contribution to investment costs of one-third by the State
and local authorities (equal shares, i.e. one-sixth each), one-
third by the water supply agencies and one-third by the
farmers, and that the contribution by the water supply
agencies constituted a State aid, the Commission concluded
in its decision to initiate the procedure that the aid ceilings
authorised for that type of investment appeared not to have
been respected, for the result of the funding of the PMPOA
by the water supply agencies would have been to increase
the rate of public financing to two-thirds of the investment
costs, i.e. some 66,6 % of the costs incurred. According to
the Commission that was some 31,6 % (21,6 % in less-
favoured areas) more than the permitted rate. A similarly
excessive rate applied to the scheme in favour of young
farmers setting up on or after 1 January 1996 since the
amendments to the scheme related only to the form of the
aid in the part financed by the State and therefore did not
result in an overall increase in the assistance rate in favour
of them.

(34) However, the Commission also considered the fact since 1
January 2000, the date of application of the agriculture
guidelines,
it had been authorising, on the basis of
paragraph 4.1.1.2 of those guidelines, aid rates for that
type of investment of 40 % of costs incurred (50 % in less-
favoured areas). For young farmers the accepted rate was
45 % (55 % in less-favoured areas). That meant
that,
applying these favourable conditions, the excess aid rates
granted in 2000 would have been only 26,6 % (16,6 % in
less-favoured areas) and, for young farmers, 21,6 % (11,6 %
in less-favoured areas), for investments implemented from
1 January 2000 and meeting the conditions set out in the
agriculture guidelines.

the Commission had doubts as

(36) Having examined the information provided by the French
to the
authorities,
compatibility with the common market of
the aid for
investments financed under the PMPOA during the period
1994-2000, in particular in respect of the aid amounts
which had been granted in excess of the authorised aid rates
of 35 % or 45 %. For that reason the Commission initiated
the procedure provided for in Article 88(2) of the Treaty.

(37) The Commission also concluded that the aid rate used by
the French authorities
the holding
analyses was in compliance with the applicable competition
rules.

for arranging for

III.

COMMENTS SUBMITTED BY FRANCE

(38) By letter of 21 June 2001 the French authorities submitted
their comments on the Commission’s decision to initiate
the Article 88(2) procedure against the notified aid.

(39) The French authorities noted the Commission’s

legal
opinion on the public nature of the aid from the water
supply agencies. The authorities stated that the French
government was planning to revise Act No 64/1245 of 16
December 1964 on water resources and their distribution
and controlling their pollution, which defined the under-
the water supply
the operation of
lying principles of
agencies for
in future submitting to
Parliamentary vote the rules for calculating water charges
and the guidelines for financial assistance programmes by
the agencies.

the purpose of

(40) Nevertheless

the French authorities believed that

the
provisions of Article 12(5) of Regulation (EEC) No 2328/
91, subsequently Article 12(3)(d) of Council Regulation
(EC) No 950/97 on improving the efficiency of agricultural
structures (20) could have been used to exceed the intensities
those provisions
of 35 % and 45 %. They stated that
allowed for the prohibition of the aids and the limitations
on exceeding the rates to be waived in the case of certain
investments, including those for environmental protection
purposes.

(18) OJ L 128, 19.5.1975, p. 1.
(19) OJ C 72, 10.3.1994, p. 3.

(20) OJ L 142, 2.6.1997, p. 1.

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(41) With regard to the impact on competition of

the
involvement of the water supply agencies in the PMPOA,
the French authorities believed that the agencies were not
unjustifiably favouring a specific national sector for the
following reasons: The investments were non-productive
so, even at high aid rates, they were a burden on the
finances of the farms and placed the farmers concerned in a
disadvantageous position compared to those not carrying
out such investments. The latter were by far the more
numerous in France. It was the French authorities’ opinion
that the distortion of competition would therefore generally
be to the detriment of the farmers concerned and not to
their benefit.

(42) The French authorities stated that if there were a distortion
of competition with in the light of Article 87 of the Treaty
it could only by comparison with farmers in other Member
States who had carried out similar work, but with financial
aid limited to 35 %, or 45 % in less-favoured areas. They
stated that the existence of such a distortion could really
only be assessed on a case-by-case basis.

(43) The French authorities pursued their argument by claiming
that
the actual aid rates applied to such work varied
substantially from one farmer to the next depending on the
precise rules for applying the programme. They explained
that the rates were very generally much lower than 60 % if
they were calculated using the value of the aid expressed as
a percentage of
in
accordance with Article 7(2) of Regulation (EEC) No
2328/91 and Article 7(2) of Regulation (EC) No 950/97.

the amount of

the investment,

(44) According to the French authorities, the rules for applying
the aid granted by the State as communicated to the
Commission define the general framework for applying the
programme. The water supply agencies decided to adopt
the same list of eligible works but the aid ceilings were not
always the same. For instance, technical limits (in m2 of
covered exercise area, for example) were added locally, both
for the aid from the agencies and for that from the State or
local authorities, and those limits often reduced the
financeable portion of the eligible works. Lastly, certain
water supply agencies applied an overall ceiling on the aid
by amount of nitrogen per livestock unit (UGBN).

(46) The French authorities explained that during work on
improving environmental
farmers
carried out modernisation work. The latter was not eligible
and did not therefore receive aid under the PMPOA.

effectiveness

some

(47)

In the cattle rearing sector, which represented 80 % of the
total number of farms eligible under the PMPOA, the actual
average aid rate was quite low, often between 35 % and
50 %, and also varied greatly according to production
method. That was the result of a large variety of effluent —
liquid, solid and most often mixed — and therefore of
effluent storage in terms of both its nature (slurry or dung
pits) and its capacity, and because of that investments in
storage, land concreted-over and coverage for exercise areas
were subject to technical limits or particularly low financial
ceilings.

(48)

In intensive pig and poultry farms waste storage capacity
was usually adequate to cope with periods when spreading
was banned. In that case works consisted in re-sealing the
pits or existing concrete surfaces or in installing bi-phase
supply systems, reducing pollution at source in pig farms
and improving the management of droppings in poultry
farms. The actual aid rate could in that case be increased to
up to 60 % of the cost of eligible works, as Table 1 shows.
However, the cost of the works was usually much lower
than for the beef and veal sector.

(49) According to the French authorities, a study covering
20 000 dossiers in the Loire-Bretagne water supply region
showed that the average aid rate was 40 %.

(50) Some of those dossiers related to new structures built under
the programme in cases where for various reasons it was
felt inappropriate to carry out the recommended works on
existing buildings. The French authorities felt that those
cases had to be dealt with separately because in that case the
aid no longer fell under aid for environmental protection,
but instead under modernisation aid as provided for in
Article 7(2)(b) of Regulation (EEC) No 2328/91 and Article
12(4)(c) of Regulation (EC) No 950/97. The amount of aid
could therefore not exceed 35 % or 26,25 % (45 % or
38,75 % respectively in less-favoured areas) of the cost of
the works, depending on whether the farmer could or could
not obtain a material improvement plan. In such cases the
actual aid rate was,
in the examples shown in Table 2,
always well below those rates — column (a) indicating what
the cost of the environmental works would have been had
the buildings been preserved.

(45) Thus, as a result of the different ceilings the actual aid rate
granted, relative to the expenditure agreed by the farmer for
the eligible works, is, according to the French authorities,
always in practice lower than the maximum rates permitted
under the programme.

(51) Work on existing buildings and new structures could also

be carried out on the same farm.

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(52) Lastly, if it was necessary to make the comparison on a case-by-case basis, the French authorities felt that
farmers paying an annual charge to a water supply agency should under all circumstances be excluded
from the scope of the comparison.

Table 1

Examples of actual aid rates for upgrading work under the PMPOA

Farm type

Improvements needed

Total
amount for
works (a)

Eligible
amount for
works (b)

Amount
approved:
State (c)

Amount
approved:
water agency
(d)

Total aid (e)

Actual rate (e/
b)

(in FRF (1)

Sealing and covering exercise
area. Increasing manure capa-
city. Construction of slurry pit.

Mixed farm:
52 dairy cows, 20
sucklers plus
replacements, or
120 UGBN

60 dairy cows and
replacements, or
80 UGBN

Sealing existing pit. Construc-
tion of open pit. Sealing exer-
cise area.

90 dairy cows and
replacements, or
120 UGBN

Creation of slurry. Increase in
capacity of pit. Rainwater sep-
aration. Spreading plan.

Mixed farm: 450
fatstock pigs, 84
fatstock and dairy
cattle, or 115
UGBN

147 sows, 27
boars, 1 840 fat-
stock pigs, or 223
UGBN

210 sows, 1 318
fatstock pigs, or
167 UGBN.

242 000 laying
poultry, or 1 128
UGBN

Increase to 9 months in waste
storage capacity. Coverage of
exercise area. Water fountain
for pigs.

Separate water network. Cov-
ering of runs.

Sealing slurry pit. Drainage
network. Multi-phase supply.

Droppings removal and drying
installation.

(1)

1 FRF = EUR 0,15

334 154

257 372

236 550

236 550

141 930

55,1 %

328 178

328 178

272 038

272 038

163 222

49,7 %

1 220 700

671 020

495 800

495 800

252 780

36,7 %

196 380

188 330

177 225

177 225

115 195

57,5 %

93 180

305 510

16 163

16 163

10 505

34,4 %

100 293

55 375

55 375

55 375

33 225

60 %

1 575 200

547 700

310 930

310 930

186 558

34,6 %

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Table 2

Examples of actual aid rates in the case of the construction of new buildings

Type of farm

Improvements needed

80 dairy cows and
replacements, or
123 UGBN

Construction of straw pens for
all animals. Installation of
gutters.

75 sucklers and
replacements, or
116 UGBN

Construction of open-run
housing. Increase in slurry and
dung storage.

82 sucklers and
replacements, or
134 UGBN

70 sucklers and
renewals, or 110
UGBN

Construction of open-run
housing. Sealing of concrete
areas. Increase in slurry and
dung storage.

Construction of open-run
housing. Sealing of concrete
areas. Construction of slurry
pit.

34 650 laying
hens, or 214
UGBN

Construction of coops. Drop-
pings storage area. Installation
of droppings drier.

Estimated
cost of old
buildings (a)

Total
amount for
works (b)

Amount
approved:
State (c)

Amount
approved:
water agency
(d)

Total aid (e)

Actual rate (e/
b)

(in FRF)

380 120

468 502

328 640

90 880

118 592

25,3 %

280 634

741 807

212 436

111 211

97 094

13,1 %

605 565 1 197 152

437 153

196 951

190 231

15,9 %

160 940

565 612

88 550

6 000

26 565

4,7 %

368 454 2 309 993

368 454

176 454

163 472

7,1 %

IV.

ASSESSMENT

1.1. Existence of a selective advantage financed by State funds

1.

Introduction: Article 87(1) of the Treaty

(53) Article 87(1) of

‘Save as otherwise
the Treaty states:
provided in this Treaty, any aid granted by a Member State
or through State resources in any form whatsoever which
distorts or threatens to distort competition by favouring
certain undertakings or the production of certain goods
shall, in so far as it affects trade between Member States, be
incompatible with the common market.’

(54) Articles 87 to 89 of the Treaty were made applicable to the
pigmeat sector by Article 21 of Council Regulation (EEC)
No 2759/75 on the common organisation of the market in
pigmeat (21). In the beef and veal sector they were made
applicable by Article 40 of Council Regulation (EC) No
1254/1999 on the common organisation of the market in
beef and veal (22). Prior to the adoption of the latter, they
were made applicable in that sector by Council Regulation
(EEC) No 805/68 on the common organisation of the
market in beef and veal (23). In the poultrymeat sector they
were made applicable by Article 19 of Council Regulation
(EEC) No 2777/75 on the common organisation of the
market in poultrymeat (24).

(21) OJ L 282, 1.11.1975, p. 1.
(22) OJ L 160, 26.6.1999, p. 21.
(23) OJ L 148, 28.6.1968, p. 24.
(24) OJ L 282, 1.11.1975, p. 77.

(55) The nature of

the aid must be established for each
agricultural holding having carried out investments under
the PMPOA. The Commission believes that the funding of
the PMPOA has conferred a selective advantage on French
farmers.

(56) The Commission believes that, contrary to the claims of the
French authorities in their comments, the non-productive
nature of the investments does not cancel out the impact of
the advantage of the aid in purely financial terms, since it
takes over a cost normally incurred by the beneficiary, thus
placing the latter at an advantage vis-à-vis competitors who
do not receive such aid.

(57) Moreover, even assuming that such non-productive invest-
ment could initially be a financial burden on the farms by,
according to the French authorities, placing the farmers in
question at a disadvantage by comparison with those not
carrying out such investments, it is no less true that those

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investments comply with a precise legal obligation and that,
in the end, all the farmers concerned must carry out such
an investment in order to avoid committing an infringe-
ment.

1.2.

Impact on trade

(58)

In order to establish whether the aid which is the subject of
this Decision falls within the scope of Article 87(1) of the
Treaty we must firstly establish whether it is likely to affect
trade between the Member States.

(59) The Court of Justice has ruled that when an advantage
granted by a Member State strengthens the position of an
undertaking compared with undertakings competing in
intra-Community trade the latter must be regarded as
affected by that advantage (25).

(60)

It appears that the aid which is the subject of this Decision
is likely to affect trade between Member States in so far as it
favours national production to the detriment of production
in other Member States. The sectors in question are
particularly open to competition at a Community level and
therefore highly sensitive to any measure in favour of
production in one or other Member State.

(61) Table 3 shows trade between France and the other Member
States in the products concerned during the first year after
the PMPOA entered into force.

2.

The illegality of the aids in question

(63) Article 1(f) of Regulation (EC) No 659/1999 defines
unlawful aid as new aid put into effect in contravention
of Article 88(3) of the Treaty. In accordance with Article 1
(c) of that Regulation the term new aid covers all aid, that is
to say aid schemes and individual aid, which is not existing
aid, including alterations to existing aid.

(64) Any aid scheme authorised by the Commission to which
major modifications are subsequently made — in this case,
relating to the involvement of a public body in the
financing of the aid notified to the Commission signifi-
cantly altering the financing key and, therefore, the aid rate
— constitutes a new aid which must be notified to, and
authorised by, the Commission within the meaning of
Article 88 of the Treaty.

(65) The Court of Justice has held that the obligation to inform
the Commission of plans to grant or alter aid as provided
for in the first sentence of Article 88(3) of the Treaty does
not apply solely to the initial plan but also covers
subsequent alterations to that plan; such information may
be supplied to the Commission in the course of
the
consultations which take place
initial
notification (26).

following the

(66) The notification obligation is established by Article 1(c) of

Regulation (EC) No 659/1999.

Table 3

Beef and
veal

Pigmeat

Poultry

(67)

525 000
1 664

463 000
860

85 000
170

796 000
2 368

361 000
669

389 000
863

France/EU 11

Imports — 1994
Tonnes
ECU million

Exports — 1994
Tonnes
ECU million

It must be noted that inclusion of an information sheet in
the list of aids drawn up by the French Ministry of
Agriculture merely has an informative value and cannot be
described as a notification for the purpose of the Treaty.
Moreover, the information in it makes no reference to the
involvement of
the water supply agencies in the pro-
gramme but states that the State’s contribution is 35 % of
the cost of the investments.

1.3. Conclusions on the nature of the aid within the meaning of

Article 87(1) of the Treaty

(62) The measures examined in this Decision constitute State aid
within the meaning of the Treaty because they provide
beneficiaries with a financial advantage from which other
the Commission
sectors cannot benefit. Consequently,
concludes that the measures fall within the scope of Article
87(1) of the Treaty.

(68) The Commission has not been able to assess

the
involvement of
the water supply agencies in the pro-
gramme or the impact that their involvement could have
had on public assistance to the investments concerned.
More specifically, it was not able to examine the possible
impact that the involvement of a public body in financing
the aid was likely to have in terms of
the aid rate.
Consequently,
the aids actually granted by the French
authorities did not necessarily comply with the conditions
authorised by the Commission for State aids N 136/91 and
N 342/94.

(25) Court of Justice judgment of 17 September 1980 in Case 730/79,
Philip Morris Holland BV v Commission, ECR [1980] 2671, paragraph
11.

(26) Court of Justice judgment of 9 October 1984 in joined cases 91 and
127/83, Heineken Brouwerijen BV v Inspecteur der Vennootschaps-
belasting, Amsterdam and Utrecht, ECR [1984] 3435.

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(69) Variation of the aid rate constituted per se a factor altering
the substance of the aid which made notification within the
meaning of Article 88(2) of the Treaty obligatory.

heritage conservation within the meaning of Article 87(3)
(d).

(70) With regard to the beef and veal sector,

the French
the
authorities had not notified the Commission of
investment aid. They claimed, however,
that once the
Commission deemed the scheme eligible for a Community
financial contribution they were justified in deducing that it
was compatible with Community rules. Article 12(5) of
Regulation (EEC) No 2328/91, which applied at that time,
stipulated that aid for investment in the protection and
improvement of the environment was authorised provided
that it did not entail an increase in production and that it
complied with Articles 92 to 94 (now 87 to 89) of the
Treaty. That included the obligation to notify all State aid
schemes within the meaning of the former Article 93(3) of
the Treaty, all the more so as the conditions applied to the
aids in 1994 were not the same as those communicated to
the Commission in 1991.

(75) Article 87(3)(c) of the Treaty stipulates 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. To be entitled to that derogation, the aid
must contribute to the development of
the sector in
question.

(76) Turning to the investments subsidised and the form of the
aid,
the Commission concluded when initiating the
procedure that the aid, while tainted with illegality, had
been put into effect in compliance with the Community
competition rules applicable at the time. The Commission
has no cause to call into question that part of the aid as
applied.

(71)

It is clear from the above that the State aids put into effect
by France were new aids not notified to the Commission
and hence unlawful within the meaning of the Treaty.

(77) Therefore, the resultant examination of the compatibility of
the aid only concerned the aid rates applied by the French
authorities.

3.

Examination of the compatibility of the aid

(72) Article 87 of

the Treaty does, however, provide for
exceptions, even though some of them are clearly not
applicable, particularly those provided for in paragraph 2 of
invoked by the French
the Article. They were not
authorities.

(73) With regard to the derogations provided for in Article 87(3)
of the Treaty, these must be interpreted strictly during the
examination of any regional or sectoral aid programme or
of any individual case of the application of general aid
schemes. They may be granted only if the Commission can
establish that the aid is necessary for the realisation of one
of the objectives in question. Allowing such derogations to
apply to aids which do not involve such a quid pro quo
would be tantamount to permitting interference with trade
between Member States and distortion of competition that
has no justification in the light of Community interest and,
by the same token, undue advantages to operators in
certain Member States.

(74) The Commission is of the opinion that the aids in question
are not intended to promote the economic development of
a region in which the standard of living is abnormally low
or in which where there is serious underemployment within
the meaning of Article 87(3)(a) of the Treaty. Nor are they
intended to promote the execution of an important project
of common European interest or to remedy a serious
disturbance in the economy of a Member State within the
meaning of Article 87(3)(b), or to promote either culture or

(78) The Commission noted when initiating the examination
procedure that under the rules applicable at the time the
programme entered into force the ceiling for aid for
environmental protection investments was 35 % of costs
incurred (45 % in less-favoured areas).

(79) Nevertheless, the French authorities believe that Article 12
(5) of Regulation (EEC) No 2328/91, later Article 12(3)(d)
of Regulation (EC) No 950/97, could have been used to
exceed the rates of 35 % and 45 %. According to the French
authorities those rules permit derogations from the aid
prohibitions and restrictions on exceeding those intensities
in the case of certain investments, including those intended
to protect the environment.

(80) The Commission initially noted that the fifth indent of
Article 12(5) of Regulation (EEC) No 2328/91, which
provides for national aid to be examined for compliance
with Articles 92 and 93 (now 87 and 88) of the Treaty, and
with Article 6 of the same Regulation, authorised aid for
investments intended to protect the environment provided
they did not result in an increase in production. The
Commission believes it is proven that the investments
targeted by the aid in question did not bring about an
increase in production since they were exclusively intended
for the protection of the rural environment (in particular,
the storage and treatment of waste).

(81) With regard more specifically to the permitted aid rate, the
Commission, in its decision addressed to France on State
it normally considered as
aid N 136/91, noted that

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compatible with the common market a rate of 35 % of
eligible costs for that type of aid (45 % in less-favoured
areas).

in the case of

a maximum of 40 %, or 50 % in less-favoured areas.
However,
investments made by young
farmers within five years after setting-up, the maximum
rate of aid was increased to 45 %, or 55 % in less-favoured
areas.

(82) Those aid rates were confirmed by the Community
guidelines on State aid for environmental protection shortly
after the PMPOA was put into effect. Paragraph 3.2.3 of
those Guidelines stated that as a general rule aid for
investment could be authorised up to
environmental
specific levels. The second paragraph of
footnote 14
explained that ‘for investments covered by Article 12(1)
and (5) of Council Regulation (EEC) No 2328/91 […] the
maximum aid level is 35 %, or 45 % in […] less-favoured
areas […]. These maximum aid levels apply irrespective of
the size of the enterprise. Consequently, the maxima may
not be increased for SMEs as provided for below in this
section. For investments in Objectives 1 and 5(b) regions,
the Commission reserves the right, on a case-by-case basis,
to accept higher aid levels than the above, where the
Member State demonstrates to the satisfaction of
the
Commission that this is justified.’

(83) Regulation (EEC) No 2328/91 was repealed by Regulation
(EC) No 950/97. Article 12(2)(e) of the latter stipulated that
Member States could grant aid to investments intended for
‘the protection and improvement of
the environment,
provided that such investments do not entail an increase in
production capacity’. Article 12(3) stipulated that ‘in the
case of individual or associated holdings which satisfy the
conditions of eligibility laid down in Articles 5 and 9, aids
for investments which exceed the amounts laid down in
Article 7(2) and (3) and 11, are prohibited’. However,
pursuant to point (d) of the second subparagraph of Article
12(3) that prohibition applied only to aid intended for ‘the
protection and improvement of this environment’.

(87) Paragraph 4.1.2.4 of the agriculture Guidelines stipulated,
as an exception, that where investments resulted in extra
costs relating to the protection and improvement of the
environment, the improvement of hygiene conditions of
livestock enterprises or the welfare of farm animals, the
maximum aid rates of 40 % and 50 % referred to in point
4.1.1.2 could be increased by 20 or 25 percentage points
respectively. Thus,
the increase could be granted for
investments aimed at ensuring compliance with the
recently introduced minimum standards, subject to the
conditions in Article 2 of Commission Regulation (EC) No
1750/1999 of 23 July 1999 laying down detailed rules for
the application of Council Regulation (EC) No 1257/1999
on support
from the European
Agricultural Guidance and Guarantee Fund (EAGGF) (27). It
had to be strictly contained within the limits of
the
additional eligible expenditure needed to realise the aim in
question and must not concern investments having the
effect of increasing production capacity.

for rural development

(88) The entry into force on 23 January 2004 of Commission
Regulation (EC) No 1/2004 on the application of Articles
87 and 88 of the EC Treaty to State aid to small and
medium-sized enterprises active in the production, proces-
sing and marketing of agricultural products (28) changed the
legal situation on the case in question. The Regulation
authorises, under certain conditions, aid to small and
medium-sized agricultural holdings while exempting them
from the notification obligation under Article 88(3) of the
Treaty.

(84) Article 12(2) and (3) of Regulation (EC) No 950/97
stipulated that Articles 92 to 94 (now 87 to 89) of the
Treaty applied to those aids. That is tantamount to a
reversion to the competition rules applicable at the time, i.e.
Community practice as already cited in the decision on
State aid N 137/91, and to the conditions contained in the
Community guidelines for environmental protection.

(89) The French authorities explained that the beneficiaries of
the investment aid under the PMPOA during the period
1994-2000 were small and medium-sized enterprises
within the meaning of Article 2(4) of Regulation (EC) No
1/2004.

(85) The Commission, on the basis of the provisions applicable
in 1994-1999 as described in this Decision, can only
conclude that the maximum aid intensity applicable to the
aid in question was 35 % of costs incurred (45 % in less-
favoured areas) and that, therefore, aid granted in excess of
those intensities was not
in compliance with those
provisions.

(86) However, where the year 2000 and aid for investments in
agricultural holdings are concerned, paragraph 4.1.1.2 of
the agriculture Guidelines, which applied from 1 January
2000, stipulated that the maximum rate of public support,
expressed as a volume of eligible investment, was limited to

(90) Article 20(2) of Regulation (EC) No 1/2004 stipulates that
individual aid and aid schemes implemented before the date
of entry into force of this Regulation and aid granted under
those schemes in the absence of a Commission authorisa-
tion and in breach of the notification requirement of Article
88(3) of the Treaty are to be compatible with the common
market within the meaning of Article 87(3)(c) of the Treaty

(27) OJ L 214, 13.8.1999, p. 31. The second paragraph of Article 2
stipulates that where investments are made in order to comply with
newly introduced minimum standards regarding the environment,
[…] support may be granted in order to reach these new standards.
In this case, a time period may be provided for the fulfilment of these
minimum standards, where such a period is necessary to solve the
specific problems in reaching such standards and where this period is
in accordance with the specific legislation concerned.

(28) OJ L 1, 3.1.2004, p. 1.

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and be exempt if they fulfil the conditions laid down in
Article 3 of that Regulation, except the requirements in
paragraph 1 and paragraph 2(b) and (c) of that Article.

(91) Article 3(3) of Regulation (EC) No 1/2004 stipulates that
aid granted under the schemes referred to in paragraph 2 of
that Article is to be compatible with the common market
within the meaning of Article 87(3)(c) of the Treaty and
exempt from the notification requirement of Article 88(3)
of the Treaty provided that the aid fulfils all the conditions
of the Regulation.

(92) Article 4 of Regulation (EC) No 1/2004 contains the
conditions which have to be respected in the case in
question, i.e. in the case of an unnotified investment aid
scheme in favour of small and medium-sized enterprises.

(93) Thus, under Article 4(1) of Regulation (EC) No 1/2004, aid
for investments in agricultural holdings in favour of the
production of agricultural products is compatible with the
common market and exempt
from the notification
obligation if the gross aid intensity does not exceed 50 %
of eligible investments in less-favoured areas and 40 % in
other areas.

(94) However, if the investments result in extra costs linked to
the protection and improvement of the environment the
maximum aid intensities of 50 % and 40 % may be
increased by 25 and 20 percentage points respectively.
This increase may only be granted for investments which go
beyond the minimum Community requirements in force, or
for investments made to comply with newly introduced
minimum standards. The increase must be limited to the
extra eligible costs necessary and must not apply in the case
of investments which result in an increase in production
capacity.

(95)

In the case in question it is clear that the investments are
aimed at protecting and improving the environment and
the applicable environmental
legislation is the nitrates
Directive. This was adopted in 1991 and could not
therefore be described as new legislation in 2000.

Directive was only adopted in 1997 and that the actual
initial obligations imposed on livestock rearers on the spot,
transposing that programme, are subsequent to that date.
Even if it seems clear that France did not exercise due
diligence in transposing the Directive and that it should
have adopted the necessary provisions within time limits
long since passed (29), it cannot be denied that the initial
obligations of which the livestock rearers were aware were
much more recent.

(97) Moreover, unlike some other Community rules, the Nitrates
Directive
contains no precise obligations
to which
economic operators had to agree without
the prior
the
intervention of
Directive contain time limits within which installations
have to be adapted.

the Member State. Neither does

(98) For that reason, the Commission maintains its opinion that,
in the light of the particular circumstances surrounding the
nitrates Directive, the obligations on the rearers could be
deemed to be new rules within the meaning of Regulation
(EC) No 1/2004. Any other interpretation would have the
effect of penalising rearers because of France’s omission to
take legal action.

(99)

It is the Commission’s opinion that investments in non-
vulnerable areas within the meaning of
the nitrates
Directive, where the conditions required by the Directive
do not apply, could in any case benefit from the higher
rates because less exacting rules than those envisaged in
that Directive apply and the planned work goes beyond the
minimum requirements existing in those regions.

(100) Turning to investments to be realised in vulnerable areas,
the Commission, while remaining consistent to its reason-
the rules
ing already expressed on the new nature of
imposed on the rearers, must conclude that an increase in
the aid rates could be applied in the case in question. The
rates could therefore be set at 60 % of investment costs, or
75 % in less-favoured areas.

(101) Given that the figures provided by the French authorities
show that the level of the aid never in practice exceeded
60 % of incurred costs the Commission believes that the
aid granted during the period 1994-1999 under
the
PMPOA can be authorised.

(102) In the light of the reasons given, the Commission considers
the notified measure to be compatible with Community
rules, in particular with Article 87(3)(c) of the Treaty.

(96) The Commission has already expressed its opinion on that
problem as part of State aid N 355/2000, in authorising the
continuation of the PMPOA from 2001 to 2006. In line
with the arguments invoked at the time, the Commission
today insists that it cannot ignore the fact that the initial
implementing the nitrates
French action programme

(29) It should be noted that as the result of infringement proceedings
brought against France the Commission took France to the Court of
Justice for incorrect application of the nitrates Directive. The Court
held against France for failure to take the appropriate steps to
identify waters affected by pollution and consequently to designate
the corresponding vulnerable zones (Court of Justice judgment in
Case C-258/00, Commission v France, ECR [2002] I-05959).

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V.

CONCLUSION

(103) The measure consisting in the grant of aid to investments
in favour of farmers under the programme to control
pollution of agricultural origin (PMPOA) during the period
1994-2000 may benefit from the derogation provided for
in Article 87(3)(c) of the Treaty,

HAS ADOPTED THIS DECISION:

Article 1

into effect by France to finance
The State aid scheme put
investments by farmers under
the programme to control
pollution of agricultural origin (PMPOA) from 1994 to 2000

is compatible with the common market under Article 87(3)(c) of
the Treaty.

Article 2

This Decision is addressed to the French Republic.

Done at Brussels, 18 February 2004

For the Commission

Franz FISCHLER

Member of the Commission