Source: EURLEX
Language: en
Format: md

9 . 4 . 94 Official Journal of the European Communities No C 100 / 9

STATE AID

# C 45 / 93 (N 663 / 93 )

United Kingdo

( 94 / C 100 / 06 )

(. Articles 92 to 94 of the Treaty establishing the European Community )

Commission communication pursuant to Article 93 ( 2 ) of the EC Treaty to other Member
States and fotefested parties concerning die E gland and Wales Milk Marketing Board reorgan ­

ization scheme

In the following letter, the Commission informed the
United Kingdom Government of its decision to open the
procedure .

In the following letter, the Commission informed the give the assurances that they will notify to the
United Kingdom Government of its decision to open the Commission pursuant to Article 93 ( 3 ) of the EC Treaty
procedure . the part of each reorganization scheme dealing with the

transfers of assets before the approval of the scheme by
the relevant Minister .
' By letters of 11 and 15 November 1992 registered on 12
and 17 November 1992 the United Kingdom authorities
communicated to the Commission the proposal of the By letter of 1 February 1993 registered on 3 February
Agricultural Act, which enables the statutory Milk 1993 the United Kingdom authorities communicated to
Marketing Schemes to be terminated . Directorate-General VI their intention to notify the

By letter of 1 February 1993 registered on 3 February

Agricultural Act, which enables the statutory Milk 1993 the United Kingdom authorities communicated to
Marketing Schemes to be terminated . Directorate-General VI their intention to notify the

Commission of those parts of reorganization schemes
dealing with the transfers of the relevant Board's assets
The new legislation provides for the winding up of the before deciding whether the schemes were right to be

Milk Schemes date and approved .

Milk Marketing Schemes by a specified date and
empowers the Milk Marketing Boards ( MMBs ) to
submit up to 31 December 1993 schemes of reorgan ­
ization dealing essentially with the allocation of their
property, rights and liabilities on dissolution . The Act
does not itself directly implement the Board's proposals .
According to the Act, Ministers are required to consider
the schemes submitted and either to approve them or not
to approve them .

The approval of schemes under the Act will enable the
marketing of milk in future within the United Kingdom
to be governed purely by the principles of free compe ­
tition within the rules of the common organization of the
market . The statutory monopoly powers of the MMBs
will be ended and they will cease to have the legal right
to trade in milk ; producers of milk will be free to sell to

any person or organization and milk buyers free to buy
from any producer subject only in either case to the
contracts which those respective parties decide volun ­
tarily to enter into .

By letter of 9 December 1992 Directorate-General VI
communicated to the United Kingdom authorities that,
as the proposed legislation authorizes the Boards to
submit reorganization schemes dealing, inter alia, with
the allocation of assets which may be approved or
rejected by the relevant Ministers and consequently the
ultimate disposal of those assets will be dependent on
state action by the United Kingdom, it had considered
the above letter as a notification pursuant to Article 93
( 3 ) of the EC Treaty . However as the provisions of the
Act concerning the transfer of property, rights and
liabilities were cast in very general terms Directorate ­
General VI asked the United Kingdom authorities to

By letter of 17 March 1993 Directorate-General VI
communicated to the United Kingdom authorities that it
had noted their intention to notify the reorganization
schemes .

By letter of 15 October 1993, registered on 19 October

1993 the United Kingdom authorities notified the
Commission in accordance with Article 93 ( 3 ) of the EC
Treaty the scheme of reorganization submitted to
Ministers by the England and Wales Milk Marketing
Board under the provisions of the Agriculture Act 1993 .
By letter of 3 November 1993, registered on 5 November

1993, amendments to the reorganization scheme were
submitted to the Commission by the United Kingdom
authorities .

The main elements of the reorganization scheme are the
following :

( i ) 1 April 1994 vesting dav ;

( ii ) transfer of certain MMB assets to a single successor

milk marketing cooperative, Milk Marque, on
vesting day ;

( iii ) flotation of Dairy Crest on the stock exchange ;

( iv ) distribution mainly to producers registered with the
# Board during the 1992 / 93 quota year of free shares

in Dairy Crest and certificates of entitlement to
payment in respect of assets passed to Milk Marque ;

No C 100 / 10 Official Journal of the European Communities 9 . 4 . 94

( v ) retention by the Residuary Board after vesting day

of certain assets and liabilities and the performance
by it of certain functions ;

( vi ) restructuring of the ownership of the MMB's

transport assets .

The Court of Justice decided ( see the judgment of 22
March 1977 in the Steinike case ) that "a measure
adopted by the public authority and favouring certain
undertakings or products does not lose the character of a
gratuitous advantage by the fact that it is wholly or
partially financed by contributions imposed by the public
authority and levied on the undertakings concerned ."

In the case in question, the assets of MMB have been
partly created by obligatory contributions and have been
used to the advantage of the MMB members ; such assets
are therefore deemed to have come from State resources
and are thus the result of an aid within the meaning of
Article 92 ( 1 ) of the EC Treaty which has been granted

in the past .

The new legislation will change the arrangements
concerning the assets . These assets will in effect be trans ­
ferred to Milk Marque and to milk producers . This
transfer depends entirely on the approval of the Minister
for Agriculture who has absolute discretionary powers as
to the allocation of the assets . The transfer therefore .
constitutes a new aid to Milk Marque and milk
producers within the meaning of Article 92 ( 1 ) of the EC
Treaty and is of a kind to affect trade between Member

States, given that the product concerned is traded heavily
within the Community .

With regard to the aid in the form of a transfer of
certain MMB assets to Milk Marque, this aid could be
viewed as facilitating the passage of the MMB scheme to
a free market .

Nevertheless, the information at the Commission's
disposal causes it to have doubts as to the compatibility
of the measure with the principle of the " open market "
as developed by the Court of Justice .

In this context, the reorganization scheme proposes that
the MMB assets transferred to Milk Marque involve the
issue of certificates of entitlement to all producers
registered with the Board in the period 1992 / 93 . The
certificates which are not transferable, would be
redeemable, in the case of producers who choose not to
join Milk Marque, on the fifth anniversary of the end of
the Milk Marketing Scheme, subject to Milk Marque not
deciding upon an earlier date . The repayment of the
nominal amount is to be subordinated to the interests of

other creditors . Consequently investment by non-joiners
in Milk Marque would be unsecured and deferred to the
interest of other creditors and subsequent loans created
by that organization . Under these conditions the rate of

interest envisaged, 7 % per year, to accure from the first
anniversary of vesting day after the first interest free
year, seems to the Commission not to constitute normal
market conditions for what would essentially be an
investment of risk capital .

The Commission therefore considers that, on the basis of
the arguments just described, non-joiners of Milk
Marque would be forced investors to the new
cooperative with their funds working for Milk Marque
as the certificate of entitlement would be redeemable
only on the fifth anniversary of the end of the Milk
Marketing Scheme . Furthermore, non-joiners would be
further penalized as they would not receive any interest
for their capital for the first year .

Moreover, it seems to the Commission that the new
cooperative would not operate on a truly voluntary basis,
as non-joiners would be discriminated in relation to
joiners . Producers may prefer to join the new
cooperative in order not to forego any of their economic
interest in the assets transferred to Milk Marque . These
arrangements seem to be contrary to the " open market "
principle which has been developed by the Court of
Justice in a number of decisions and notably in Pigs

and Bacon Commission / McCarren Company Ltd Case

177 / 78, 1979, ECR, p . 2161 .

The Commission draws close analogies between that case
and the case of non-joining producers of the successor
cooperative to MMB .

In the McCarren case, an organization through which
bacon producers were obliged to market their produce
was re-organized so that nominally producers were free
to market through it or not according to their choice .
However, the levy / bonus system which was retained had
the effect of penalizing any producer who decided to
market their produce independently .

The Court of Justice in that case held that to inflict

" financial disadvantage " on any producer in these
circumstances was an act incompatible with the common
organization of the market .

In the current case the Commission sees no reason to
distinguish a " one-off " penalization of non-joining milk
producers from the continued practice in the McCarren

case .

Consequently, it seems to the Commission, on the basis
of the information currently available to it, that the reor ­
ganization scheme dealing with the transfer of the MMB
assets to Milk Marque constitutes an infringment of the
common organization of the market for milk and dairy
products as established by Council Regulation ( EEC ) No

804 / 62 of 27 June 1968 .

9 . 4 . 94 Official Journal of the European Communities No C 100 / 11

The commission deems any aid incompatible within the
meaning of Article 92 of the Treaty if the conditions for
its grant are contrary to another provision of
Community law . The aid to Milk Marque seems
therefore to the Commission to be incompatible with the
common market .

Moreover, the reorganization scheme and documents
( Annexes to the reorganization scheme ), sent to the
Commission, do not allow it to ascertain if all the assets
to be transferred to Milk Marque have been taken into
account when placing a value on the transfer . For
example, the Commission was unable to find in the
Annexes to the reorganization scheme any valuation for
intellectual property or the value of the transport depots
which were bought by the MMB on 4 October 1993, i.e .

after the valuation of the assets to be transferred to Milk
Marque undertaken on 30 September 1993 . To
overcome this problem, the Commission requires infor ­
mation that would enable it to ascertain whether all of
the assets to be transferred to Milk Marque had in fact
been taken into account for valuation purposes .

Furthermore, the valuation was undertaken on the basis
of the " net book value of assets " which is not necessarily
the same as the market value .

It is obvious that the omission of any asset to be trans ­
ferred to Milk Marque results in the transfer being
undervalued . By the same token, in so far as the asset
valuation does not reflect the market value of the said

assets, but instead a lower value, the new cooperative
will receive a net financial gain . As a result of any such

undervaluation, due either to the omission of assets
# and / or a valuation at below market value, the compen ­

sation represented by the certificate of entitlement that is
to be awarded to producers who do not join the new
cooperative will be reduced in comparison to those
producers who do join Milk Marque . The cost of this
advantage will be borne solely by those producers who
do not become members of Milk Marque . They will thus
suffer a financial disadvantage similar to that observed in
the McCarren case .

The Commission, on the basis of the information
available to it, therefore considers the aid to Milk
Marque to be incompatible with the common market . It
cannot therefore benefit from any of the exemptions
provided for in Article 92 ( 3 ) of the EC Treaty and so
the Commission has decided to initiate the procedure
provided for in Article 93 ( 2 ) of the EC Treaty with
regard to this measure .

In the light of the above remarks and under the
conditions of this procedure, the Commission hereby
gives the United Kingdom Government notice that it
should submit its comments within a month of the date

of this letter .

Moreover, the Commission would like to draw the
United Kingdom Government's attention to the fact that
it is giving notice to the other Member States and
interested parties by means of a communication in the

Official Journal of the European Communities to submit
their comments .

Concerning the aid in the form of distribution of shares
in Dairy Crest and of any surplus which may remain
with the Residuary Board the Commission has no
objection to raise .

Indeed the Commission takes the view that the decision
of the United Kingdom authorities to distribute the
existing assets inter alia among producers who have been
beneficiaries of the former arrangements and who have
not been subject to normal market conditions for many
years represents an aid to permit the transition from the
MMB monopoly arrangements to a free market in which
each milk producer will be able to pursue his business on
a free and voluntary basis .

Furthermore the Commission considers that the
arrangements for the distribution of Dairy Crest's shares
are not contrary to the principle of the " open market "
and consequently are not contrary to the common
organization of the market for milk and dairy products

( Council Regulation ( EEC ) No 804 / 62 of 27 June 1968 )
in contrast to the transfer of assets to Milk Marque .

Consequently, the Commission deems the distribution of
Dairy Crest's shares and of any surplus which may
remain with the Residuary Board, which is an integral
part of the removal of the MMB, to be consistent with
the desire to open up the milk market in England and
Wales in accordance with basic principles of the
Community . The Commission therefore considers that
the aid in question may qualify for the derogation of
Article 92 ( 3 ) ( c ) of the Treaty, as it may be deemed to
facilitate the development of the milk sector without
affecting trade to an extent contrary to the common
interest .'

The Commission hereby gives the other Member States

and interested parties notice to submit their comments on
the measures in question within one month from the date
of publication of this notice to :

Commission of the European Communities,
200 rue de la Loi,
B - 1 049 Brussels .

The comments will be communicated to the United
Kingdom .