2000/286/EC: Commission Decision of 10 November 1999 concerning aid which the Region of Tuscany (Italy) intends to grant in the livestock sector in favour of the Chianina cattle breed (notified under document number C(1999) 3866) (Only the Italian text is authentic)
19. 4. 2000 EN Official Journal of the European Communities L 98/1 II (Acts whose publication is not obligatory) COMMISSION COMMISSION DECISION of 10 November 1999 concerning aid which the Region of Tuscany (Italy) intends to grant in the livestock sector in favour of the Chianina cattle breed (notified under document number C(1999) 3866) (Only the Italian text is authentic) (2000/286/EC) THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Community, and in particular the first subparagraph of Article 88(2) thereof, Having called on interested parties to submit their comments to the aforementioned provisions (1), and having pursuant regard to those comments, Whereas: (4) By letter dated 29 September 1998, the Commission informed Italy of its decision to initiate the procedure laid down in Article 88(2) of the EC Treaty in respect of this aid. The Italian Permanent Representation was informed of the Commission decision to initiate the procedure by letter SG(98) 035729 dated 16 September 1998. (5) The Commission decision to initiate the procedure was published European Communities. The Commission invited interested parties to submit their comments. in the Official Journal the of I. Procedure (6) By letters dated 23 October and 11 December 1998, the Italian authorities submitted to the Commission their comments with respect to the opening of the procedure. (1) By letter dated 5 December 1997, the Italian Permanent Representation to the European Union notified the Commission under Article 88(3) of the Treaty of an aid scheme in the livestock sector in favour of the Chianina cattle breed. (7) The Commission also received comments from interested third parties by letters dated 14 and 15 January 1999. It forwarded given the them to Italy, which was opportunity to express its views. Comments were sent by the Italian authorities by letter dated 12 May 1999. (2) By letters dated 4 March 1998, received on 5 March 1998, and 7 July 1998, received on 13 July 1998, Italy supplementary furnished information. Commission with the II. Description of the scheme and implementation period Description (3) By letter of 28 August 1998, the Commission asked the in view of the summer break, for a Italian authorities, five-working-day extension of the term within which it was due to adopt a decision on the aid concerned. (1) OJ C 390, 15. 12. 1998, p. 15. (8) The aid scheme notified provides for a three-year programme (1997 to 1999) to protect and improve the Chianina cattle breed, a local breed which derives its name from the Chiana Valley, in Tuscany, from which it originated. L 98/2 EN Official Journal of the European Communities 19. 4. 2000 (9) The scheme aims at countering the steady decline which has characterised this breed by preserving and possibly improving its genetic base and by helping stockfarmers to bear the additional costs resulting from rearing this breed as opposed to more productive and viable ones. These data show that, after more than doubling between the numbers of head and cows 1967 and 1990, registered have decreased at annual average rates of 2,7 % and 2,9 % respectively since 1990, from 35 873 and 17 134 in 1990 to 30 021 and 13 635 in 1996. data submitted by to the the overall population of Italian (10) According authorities, this breed has decreased by over 80 % in Italy as a whole in the past 40 years, from 510 000 head in 1954 to 100 000 at present (2). The following table shows how figures in the herd books have developed over the past 30 years: the Table 1 Number of cows and head of cattle registered in the herd book in Italy Year 1967 1968 1974 1976 1978 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Cows registered Head of cattle registered 6 981 7 562 12 307 15 335 14 471 11 030 12 362 13 046 11 583 11 093 12 125 13 677 14 511 15 759 16 412 17 134 16 199 15 551 14 228 13 959 14 072 13 635 14 395 15 592 25 376 31 620 29 838 22 744 25 490 26 899 23 884 22 873 25 002 28 200 29 921 32 246 34 168 35 873 33 528 31 801 29 298 29 767 30 622 30 021 (2) Source: Chianina Association (Associazione di razza). and the strength and resistance (11) The original dramatic decrease witnessed by the breed in the 1950s and 1960s was primarily due to the advent of consequent mechanised farming practices reduction in the number of Chianinas used as draft animals, a purpose to which they are particularly suited owing to their to difficult working conditions. The current decline is essentially due to the high costs sustained by stockfarmers in rearing Chianinas and the low income from this breed compared to other more profitable types of cattle. Most of the holdings are small and located in difficult hilly or mountain areas, which means that there is no scope for economies of to survive, stockfarmers tend to slaughter as many animals as possible before the females reach first calving. This approach results in a reduction of the genetic base and the genetic variability of selection process and the future genetic improvement of the breed. The Italian authorities fear that in the long run this decline might endanger the breed’s actual prospects of survival. the breed and jeopardises scale or cost reductions. In order (12) The measures planned to counter this trend are as follows: M e a s u r e 1: Aid for the establishment of an artificial the insemination following pilot projects: programme with financing for (a) embryos with high genetic the production of potential (taking oocytes from five-month-old heifers and fertilising them in vitro with semen from the best breeding bulls); and (b) implanting the fertilised embryos into breeding cows. The resulting females will be used as a source of oocytes and then as breeding cows and the males as breeding bulls (after genetic testing). the measure is URATA (Unione The beneficiary of the Regionale delle Associazioni Toscane Allevatori), Regional Union of the Associations of Stockfarmers of the Tuscany Region, which will carry out the pilot projects. M e a s u r e 2: Aid for the purchase of breeding bulls of the Chianina breed from holdings listed in the herd book. The aid is in the form of a grant covering 40 % of the investment cost. 19. 4. 2000 EN Official Journal of the European Communities L 98/3 The aid will be granted to stockfarmers rearing the Chianina breed, registered in herd books and located in the region, who will buy certified breeding bulls. Implementation period of the aid scheme M e a s u r e 3: Aid for the maintenance until first calving of adult female animals of the Chianina breed which: (15) According to the information contained in the original notification sent by the Italian authorities, this scheme involved a three-year programme to run from 1997 to 1999. (a) were born on a holding listed in the herd book; (b) are themselves listed in a herd book; (16) The notified proposal for a Decision by the Regional Council presented by the Regional Executive (Giunta) on 10 November 1997 provided for a budget allocation of ITL 500 000 000 for 1997. For the subsequent years, reference was made to the 1998 and 1999 budgets. (c) calved for the first time on a holding listed in the same herd book. the The aid would take form of a premium of ITL 350 000 (approximately EUR 175) per head. By means of this premium, the Italian authorities hope to encourage stockfarmers to use females as breeding animals rather than selling them or fattening them for slaughter, operations which so far have proven to be more profitable and less risky. By limiting the aid to animals meeting the abovementioned requirements, the Italian authorities aim at increasing the female genetic base of the breed. The aid could be granted to all stockfarmers with registered animals complying with the requirements. (13) In its decision to initiate proceedings under Article 88(2) of the Treaty the Commission expressed strong doubts about the compatibility of Measure 3 with the common market since, on the basis of the information provided by the Italian authorities, the measure seemed to be merely operating aid, the costs day-to-day normally management of their activities, without any proven favourable structural effect on the development of the sector. intended to relieve stockfarmers of associated with the (14) With respect to Measures 1 and 2, on the other hand, the Commission clearly stated that, from the substantive point of view, both measures were in principle eligible for the derogation provided for in Article 87(3)(c) of the Treaty. The Commission decided however to initiate the Article 88(2) procedure with respect to these two measures also, in view of the serious suspicion that the entire applied retrospectively; if this were the case, it would invalidate any positive assessment of the two measures concerned. The entire aid scheme would then in fact lack the element of necessity which guides the Commission in its assessment of State aid cases and it would become nothing more therefore aid operating than incompatible with the common market. notified might scheme and aid be (17) The allocation of ITL 500 000 000 for 1997 to finance measures under the scheme seemed to imply that projects carried out in 1997, prior to presentation to the Regional Council by the Regional Executive of the proposal for a Decision providing for the aid scheme and the relevant funding, could benefit from the measures. In cases be paid aid could in some other words, retrospectively, the expenditure for potential beneficiary was legally entitled to apply for the aid. Under those circumstances, the aid would have lost its character of necessity (3), since the operations assisted would still have been carried out in the absence of aid (or of a legal undertaking by the public authorities to pay aid); constituted operating aid (4) without any structural effect on the sector as a whole and, as such, incompatible with the common market. the aid would have incurred before consequently, (18) To clarify this point, the Commission asked the Italian authorities in a letter dated 9 January 1998 to specify whether the measures in the programme had already been the implementation period specified in the programme notified on 5 December had been amended in the mean time. or whether implemented 1997 in (19) By letter dated 4 March 1998, áthe aid measures provided for the Italian authorities in the replied that programme were not implemented in 1997 and the implementation period initially laid down has not been amendedí. (20) The Commission understood this to mean that no aid had yet been paid but that aid could be paid for expenditure incurred before the potential beneficiaries were legally entitled to aid; the Commission therefore (3) See Judgement of the Court of Justice of 17 September 1980 in Case 730/79 (Philip Morris Holland v. Commission [1980] ECR 2671). (4) See Judgement of the Court of First Instance of 8 June 1995 in Case T-459/93 (Siemens SA v. Commission [1995] ECR 1675). L 98/4 EN Official Journal of the European Communities 19. 4. 2000 decided to initiate the procedure with respect to all three measures in the scheme notified, in view of the possible retrospective nature of the aid. limit within which, according to the case law of the Court of Justice (5), it must make known its position on an aid measure notified under Article 88(3) of the EC Treaty. III. Comments from interested parties (21) The Commission received comments from two parties: Toscane URATA (Unione Allevatori), which is also a beneficiary of Measure 1, by letter of 14 January 1999; and COPA (Committee of Agricultural Organisations of the European Union) by letter of 15 January 1999. Regionale Associazioni (22) The position of the two parties is identical. In their letters, both parties stressed the unique qualities of the Chianina cattle breed, the importance of this breed in the economy of marginal areas where stockfarmers are faced with difficult living and working conditions, and the negligible impact of the aid on competition and trade between Member States. Both parties expressed their full support for the initiative undertaken by Italy to protect the breed and counter its decline. these considerations, they called upon the Commission to revise its position and to authorise the programme in its entirety, so that action is taken before it is too late and the Chianina breed becomes endangered. In light of IV. Comments from Italy (23) By letter of 23 October 1998, the Italian authorities sent the Commission Delibera della Giunta Regionale the Regional Executive) No 1205 of 19 (Decision of October 1998 incorporating some of the comments and information requested under the procedure initiated pursuant to Article 88(2) of the EC Treaty. In the same letter, Italy also asked the Commission for an extension of submission of comments. Further comments were submitted by letter of 11 December 1998. the one-month period for the (24) The comments submitted by the Italian authorities in letter of 23 October 1998 focus on four their first points. (25) First, Italy raises an objection of procedure, arguing that the Commission has failed to respect the two-month time the letter validity of Italy maintains that the Commission should have i. e. within two expressed its position by 5 May 1998, months from 4 March 1998, the date of Italy’s reply to the Commission’s request of 9 January 1998 for information. The Italian authorities question additional sent by the additional the Commission on 23 April 1998 asking for written confirmation of the decision not to withdraw Measure 3 from the notified aid scheme, arguing that the letter is not a request for additional information since it merely reiterates a request already made in the letter of 9 January, to which the Italian authorities had clearly replied by letter of 4 March 1998. The 23 April letter does not have the effect of suspending the two-month time limit (expiring on 5 May 1998), and was sent by the Commission only in order to artificially extend the normal deadline. (26) Secondly, the Italian question authorities the Commission’s interpretation of the aid the premium granted for heifers listed in Measure 3: in the herd book and calving for the first time on a holding listed in the same herd book is defined by the Commission as aid for the ámaintenanceí of the animal. the nature of According to the Italian authorities the aid is an áincentiveí to extension of the female genetic base of the breed on holdings listed in the herd book, encouraging those female farmers to rear for ábreeding purposesí genetic for features animals with improvement of the breed. necessary the the possibility (27) Thirdly, the Italian authorities dispute the Commission’s view of the period of implementation of the programme granted and retrospectively for expenditure incurred in 1997. They the first year of claim that 1997 was chosen as implementation of the funding necessary for the first year, reference was made to the 1997 regional budget, that is the budget of the the programme because, aid might that for be (5) Judgements of the Court of Justice in Case 120/73 Lorenz v. Germany [1973] ECR 1471 and Case 84/82 Germany v. Commission [1984] ECR 1451. 19. 4. 2000 EN Official Journal of the European Communities L 98/5 in which the programme was year approval to the Regional Council. submitted for V. Assessment The Italian authorities maintain that, even though it was evident that the programme could not be implemented in 1997, it was not advisable to amend it at that stage, so as the to avoid delaying assessment procedures at Commission. Their intention was to await completion of the procedure initiated by notification to the Commission and, once the Commission had reached a decision, to the implement initial three-year period (i. e. in 1999) and to extend the duration of the implementation period, by Decision of the Regional Council, for the time necessary to reach the three years initially envisaged. It was planned to notify the extension in accordance with the Commission of Article 88(3) of the Treaty. the programme for the remainder of (28) Finally, the Italian authorities question the approach followed by the Commission in assessing the measure, arguing that the Commission should assess the aid as a whole in the light of Article 87(3)(c), and not merely compare the measures with the existing legislation and previous cases. They also recall that a similar measure in the Chianina breed was approved by the favour of Commission in the Integrated Mediterranean Programme for Tuscany (6). Measure 1. 5 of that Programme provided for a premium of ECU 190/200 for each animal born on specific stockfarms upon reaching a certain age. The Chianina was one of the breeds eligible for this aid. The measure was adopted to encourage genetic to improvement projects. framework of stockfarmers take part the in (29) the letter of 11 December 1998, In their additional Italian authorities again drew the attention of the Commission to the specific qualities of Chianina cattle, the economic disadvantages connected to the rearing of this breed, its genetic decline, the limited amount of the aid and the negligible extent of trade in this breed at Community level. (30) The comments sent by the Italian authorities in reaction to the observations from third parties do not add anything new to the observations already sent to the Commission. (6) Decision No 336 of 26 July 1988 Procedures and provisions implementing Regulation (EEC) No 2088/85 IMP for Tuscanyí. Procedure (31) The comments made by the Italian authorities concerning the Commission’s failure to comply with the two-month time limit appear unfounded. spirit normal stated categorically that in which the Italian The letter of 4 March 1998, authorities they were not prepared to withdraw Measure 3 from the notified aid scheme, was in fact followed by a series of telephone contacts between Commission and Italian officials. During the telephone conversations, which took place in characterising the of Commission relationships with Member States, the possibility of amending the programme along the lines suggested by the Commission was discussed, and the possibility of withdrawal of Measure 3 left open by the Italian authorities. Reference to these conversations is made both in the letter sent by the Commission to the Italian authorities on 23 April 1998 (7) and in the reply sent by the Italian authorities on 7 July 1998 (8). cooperation the last (32) As pointed out in the Commission’s letter of 23 April 1998, only in the telephone course of conversation did the Italian authorities clearly exclude withdrawal of the measure concerned. In the light of this the development, it was perfectly Commission to ask for written confirmation of Italy’s final position, which had remained ambivalent till that moment. If the Italian authorities were really convinced that the letter sent by the Commission on 23 April 1998 had no suspensive effect, they should have informed the Commission upon expiry of for a Commission decision (i. e. , in their view, 5 May 1999) of their decision to put the measure into effect as provided for by the case law of the Court of Justice (9) and then the time limit legitimate for did in a (7) It is explicitly stated in this letter that the Italian authorities were asked by telex of 9 January 1998 to provide further information, which they Italian Permanent Representation dated 4 March 1998, and that after this exchange of correspondence, telephone conversations took place between Commission departments and the competent national departments, in the course of which the possibility of amending the programme notified on 5 December 1997 was mentioned. from the letter (8) The position was confirmed in conversations between Commission and Italian officials. (9) Judgements of the Court of Justice in Case 120/73 Lorenz v. Germany [1973] ECR 1471 and Case 84/82 Germany v. Commission [1984] ECR 1451. L 98/6 EN Official Journal of the European Communities 19. 4. 2000 waited for the Commission’s final decision on the aid (10). In fact, the Italian authorities preferred to wait till 7 July 1998 before replying to the Commission’s letter of 23 April 1998, i. e. they waited two months to provide an answer which, according to them, had already been made clear in their letter of 4 March 1998. The Commission never authorised the aid, nor did it give grounds for legitimate expectation that it would do so, nor was this ever an existing system within the meaning the Treaty. The Italian Permanent of Article 88(1) of Representation was the the Article 88(3) Commission’s decision to initiate procedure by letter SG(98) D 035729 dated 16 September 1998, as stated in point 4 above. informed therefore of Substance (33) Article 87(1) of the EC Treaty provides that 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. (34) Article 24 of Council Regulation (EEC) No 805/68 of 27 June 1968 on the common organisation of the market in beef and veal (11) lays down that, save as otherwise provided in the Regulation, Articles 87, 88 and 89 of the Treaty shall apply to the production and trade of the products listed in Article 1, which includes the products covered by the measure at issue. to public specific resources, (35) The notified programme provides for the granting of aid, through agricultural undertakings which will undeniably be granted an undue economic and financial advantage to the detriment of other agricultural undertakings not receiving the same contribution. According to the case law of the Court of Justice, improvement in the competitive position of an undertaking as a result of State financial aid leads to possible distortion of competition compared with other (10) Under Article 4(6) of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of the Article 93 of Commission has 15 working days following receipt of the notice in which to take a decision. the EC Treaty (OJ L 83, 27. 3. 1999, p. 1), (11) OJ L 148, 28. 6. 1968, p. 24. This Regulation was repealed and replaced by Council Regulation (EC) No 1254/1999 of 17 May 1999 (OJ L 160, 26. 6. 1999, p. 21). competing undertakings not receiving such assistance (12). The Italian authorities claim that the amount of the aid is very low and therefore not likely to distort competition. It should be borne in mind, however, that neither the relatively low level of the aid nor the relatively modest the size of possibility of trade between Member States being distorted (13). In the agricultural sector, this is reflected in the Commission communication on de minimis aids (14) which excludes agriculture from the application of the de minimis rule. the beneficiary undertakings rules out (36) The measures do affect trade between Member States: there is in fact substantial intra-Community trade in beef. In 1998, Italy’s imports of beef (15) from all EU Member States totalled 2 372 245 tonnes, while its exports to all In the same other EU states totalled 180 757 tonnes. of value year, ECU 3 226 000, while the value of output for the EU as a whole was ECU 21 465 000 (17). produced cattle (16) Italy to a (37) No specific data are available at Community level on trade in the breed concerned by the aid. In order to demonstrate that the aid would have no influence at all on trade between Member States, the Italian authorities refer to Chianina beef production of around 3 312 tonnes, but without mentioning the year to which this figure relates. (38) The relevant market which has to be taken into account in the specific case at issue is however the EU beef market as a whole, including all types of beef with which Chianina beef competes or may compete as well as the market in substitute products that could replace Chianina beef in consumers’ buying patterns. Moreover, the Court of Justice has held that aid to an undertaking may be such as to affect trade between the Member States and distort competition where that undertaking competes with products coming from other Member States even if it does not itself export its products. Where a Member State grants aid to an undertaking, domestic production may for that reason be maintained or increased with the result that undertakings established in other Member States have less chance of exporting their products to the (12) See footnote 3. (13) Court of Justice Judgements of 21 March 1990, Case C-142/87, Belgium v. Commission; ECR [1990] I-959, and of 14 September 1994, Joined Cases C-272/92, C-279/92 and C-280/92, Spain v. Commission, ECR [1994] I-4103. (14) OJ C 68, 6. 3. 1996, p. 9. (15) Including live cattle. (16) Includes calves. (17) Source: Eurostat. 19. 4. 2000 EN Official Journal of the European Communities L 98/7 market in that Member State. Such aid is therefore likely trade between Member States and distort to affect competition (18). framework of that Article and of the specific provisions applicable to the case at issue. (39) The Commission therefore concludes that the measures are caught by the prohibition in Article 87(1) of the EC Treaty. (40) The prohibition in Article 87(1) is followed by exemptions in Article 87(2) and (3). (41) The exemptions listed in Article 87(2) are manifestly the aid measure in Italy has not inapplicable given the nature of Indeed, question and its objectives. submitted that Article 87(2) is applicable. (42) Article 87(3) specifies the circumstances under which State aid may be considered to be compatible with the common market. Compatibility with the common market must be assessed from the point of view of the Community and not that of an individual Member State. In the interest of the functioning of the common market, the exemptions from the ban on State aid must be interpreted restrictively. (43) Article 87(3)(a) is manifestly inapplicable since the aid is not intended to promote the development of areas where the standard of living is abnormally low or where there is serious underemployment. (44) With regard to Article 87(3)(b), the aid in question is not intended to promote the execution of an important project of common European interest or to remedy a serious disturbance in Italy’s economy. (45) This aid is not intended to achieve or be suitable for achieving the objectives referred to in Article 87(3)(d). Measures 1 and 2 - Aid for the implementation of projects for the genetic improvement of the breed and for the purchase of pure-bred male breeding stock (47) (48) In its decision to initiate the procedure in Article 88(3) of the EC Treaty, the Commission stressed that in principle it could have adopted a favourable approach with respect to these two measures since, judged on their merits, they both seemed compatible with the common market and could therefore benefit from the derogation provided for by Article 87(3)(c). It is in fact consistent Commission practice, as set out in its letter to the Member States S 75/29416 dated 19 September 1975 (19), to authorise aid of up to 100 % of eligible expenditure for the implementation of artificial insemination programmes of a maximum duration of six years and aid of up to 40 % of the cost of the animal for the purchase of pure-bred male breeding animals listed in herd books. The two measures do not exceed the duration and the aid rate set in that letter and could therefore be considered in principle compatible with the common market. the entire aid scheme. (49) The Commission decided however to initiate the Article 88(3) procedure with respect to these two measures since it had strong doubts as to the possible retrospective the nature of retrospective aspect of the aid would have invalidated any positive assessment of the two measures concerned and the aid would have become nothing more than operating aid, is aid which produces no lasting structural effect on the development of the sector and which, as such, cannot be considered compatible with the common market. If confirmed, that (46) Under Article 87(3)(c) of certain economic the Treaty aid designed to facilitate the development of certain economic activities or of considered compatible with the common market provided that such aid does not adversely affect trading conditions to an extent contrary to the common interest. The notified aid to be assessed within the scheme needs areas may be therefore (50) The information provided by the Italian authorities in their letter of 23 October 1998 (20) has dispelled the Commission’s doubts on the possible retrospective nature of the notified aid scheme, by excluding the possibility that aid will be paid for expenditure incurred before prospective aid; moreover, the authorities have undertaken to notify to the the implementation period. Commission beneficiaries amending decision became eligible the for (18) Judgement of the Court of Justice of 13 July 1988 in Case 102/87 French Republic v. Commission of the European Communities ECR [1988] 4067. (19) Proposals for appropriate measures relating to aids granted by Member States in the livestock and livestock products sector. (20) See point 27. L 98/8 EN Official Journal of the European Communities 19. 4. 2000 (51) The two measures considered compatible with the common market in accordance with Article 87(3)(c) of the EC Treaty. therefore can be Measure 3 - Aid for the maintenance until first calving of female breeding animals meeting specific requirements (52) The aid covered by the measure concerned is a premium for the maintenance until first calving of female animals of the Chianina breed meeting specific requirements. The aid, which is in the form of a áone-offí premium (ITL 350 000) per livestock unit, is a function of the unit of production and as such is in principle incompatible with the common market. Like aids based on the the quantity produced or marketed, on the price of product or on the means of production (animal feed, etc. ), this type of aid is regarded as operating aid (21), that is aid which simply confers a short-term economic advantage. The objective of this aid is merely to cut beneficiaries’ production costs for the duration of the aid, relieving them of the business costs they normally sustain in the day-to-day management of their business. This aid has no structural effect on the development of the sector and cannot be considered to facilitate the economic development of certain economic activities or of certain economic areas. Furthermore, the payment of such aid is likely to interfere with the operation of the mechanisms established by the common market organisations in the framework of agricultural policy to the disadvantage of producers who are not in receipt of aid. (53) An exception to the strict rule prohibiting this type of aid is however provided for by the Commission letter to the Member States S 75/29416 (see point 48), which authorises the granting of aid at a rate of 30 % for the retention of pure-bred male breeding animals if this is justified by special considerations, particularly of a regional nature (22). (54) The exception clearly refers to the granting of aid for the maintenance of ámaleí breeding animals. Femaleí breeding to which Measure 3 is addressed, are not animals, covered. (21) See footnote 4. (22) See the following aid schemes: N 490/96; N 636/97; N 573/98. It could be argued that the exception should apply áby analogyí to female animals, in line with the Commission’s practice in other cases. However, the very fact that this provision is an exception to the strict rule which prohibits aid based on the unit of production, regarded as operating aid by definition, means that it must be interpreted strictly. The reason for the different approach to male and female breeding animals lies in the totally different nature of the two types of aid: the rearing of high-quality male breeding animals is a major factor in the process of genetic development and therefore in the overall qualitative improvement of the livestock sector. However, the decision to use high-quality male animals, registered in a herd book, for breeding purposes prevents their use for the more lucrative business of meat production. Thus in deciding to use these animals for breeding instead of for meat production the stockfarmer has chosen a costly, high-risk investment that will pay off only in the long term, if at all. It is very expensive to maintain breeding bulls, and their slaughter price is usually extremely low, and insufficient to offset the costs of maintenance. Stockfarmers therefore tend to reduce the number of breeding bulls as far as possible, and to long as possible, with consequent use them for as In eventual deterioration of providing for an exception in the case of these animals, the Commission considered, in the light of all the above considerations, the distortive impact of an aid measure based on the unit of production was more than counterbalanced by the positive effect of such a measure on the structural development of the livestock sector. genetic heritage. that the the to cover livestock unit (55) This reasoning cannot be applied in the same way to female breeding animals. Stockfarmers do not have to choose between two different and mutually exclusive uses. The same female animal can be - and usually is - for breeding and later for milk and meat used first production, with no reduction in value. In this case, a premium per cost of maintenance would constitute aid to stockfarmers to reduce the normal operating costs of their business. Such a premium is caught by the definition of operating aid, which, as explained in point 52, is incompatible with the common market and cannot therefore benefit from the exception provided for by Article 87(3)(c). That is why the exception referred to in point 53 relates exclusively to male breeding animals, and why in this case it must be interpreted strictly, and cannot be applied áby analogyí, in line with the Commission’s practice in other cases, to female breeding animals. The premium for female breeding animals of the Chianina breed is caught by the general prohibition on operating aid which, the reasons outlined in point 52, incompatible by definition with the common market and cannot therefore benefit from the exception provided for by Article 87(3)(c). for is 19. 4. 2000 EN Official Journal of the European Communities L 98/9 (56) The Italian authorities have contested the Commission’s interpretation of the measure as aid for the maintenance of the animals, as described above. They have stressed that the aid should be rather seen as an áincentiveí designed to áorientí producers towards rearing female than for meat animals for breeding purposes rather production. In this connection, it is worth recalling that orientation of production, as well as income support, is one of common organisation of the markets which, as repeatedly held by the Court of Justice, are complete and exhaustive systems excluding any power on the part of the Member State to take measures to jeopardise them (23). In this respect, any aid interfering with the mechanism of the market organisations automatically excludes the applicability of the exceptions provided for in Article 87(3). likely to derogate from them or the objectives and tasks of the Applicability of Regulation (EEC) No 2078/92 in accordance with Community criteria. (57) A derogation from the above prohibition could have been claimed by the Italian authorities if the aid was granted for animals belonging to a breed in danger of extinction, In this case, the aid would fall within the scope of Council Regulation (EEC) No 2078/92 of 30 June 1992 on agricultural production methods compatible with the requirements of the protection of the environment and the maintenance of the countryside (24). The protection of endangered breeds is recognised as one of the actions which may contribute the purposes of the Regulation, namely the protection and improvement of genetic diversity. Measures of this type may therefore be eligible for part-financing or for State aid within the meaning of Article 10 of the Regulation, which authorises Member States to implement additional aid measures where the aid is granted on different terms from those laid down in the Regulation or the amounts exceed the limits stipulated therein, provided that the aid measures comply with the objectives of the Regulation and with Articles 87, 88 and 89 of the Treaty. achievement of to the (58) Compatibility with the objectives of the Regulation is to the same criteria set at be assessed on the basis of Community level to establish whether the breed is in danger of extinction for part-financing purposes. The Commission regards a breed as being in danger of of Regulation (EEC) extinction for No 2078/92 whenever the number of breeding female animals is below the ceilings listed below (25): the purposes (23) See Judgement of the Court of Justice of 18 May 1977 in Case C-111/76 (Officier van Justitie v. Beert van den Hazel, [1977] ECR 901). (24) OJ L 215, 30. 7. 1992, p. 85. (25) See Commission document VI/3768/98 on Programmes to protect genetic diversity of endangered breeds of farm animals and plant varieties under Regulation (EEC) No 2078/92í. Table 2 Breeding females per breed Bovines Equidae Sheep Pigs Breeds with stable populations 5 000 5 000 7 500 2 000 Breeds with decreasing populations Breeds with increasing populations 7 500 7 500 9 000 9 000 4 000 4 000 6 000 6 000 and when in addition the total number of breeding females is below the following: registered in the herd books Table 3 Breeding females registered in herd books Bovines Equidae 1 000 1 300 Sheep 2 000 Pigs 600 (59) According to the data submitted by the Italian authorities and reported in Table 1, in 1996 the number of female breeding animals registered in the herd book was thirteen times the Commission ceiling. Even if all female breeding animals were registered and therefore if this figure were representative of the entire female breeding population, the figure for 1996 would be twice that set to define endangered breeds. The Chianina breed is therefore not in danger of extinction and does not fall within the scope of Regulation (EEC) No 2078/92. if the current (60) The Italian authorities do not dispute that the breed is not yet in danger of extinction. They maintain, however, trend continues unabated and no that action is taken now to counter it, there is a risk that it may subsequently be in danger. That is why they believe that the Commission should not merely examine the scheme in the light of existing legislation and precedents, but rather assess it on a broader view on the basis of Article 87(3)(c) and regard this measure as one to facilitate the development of the sector without affecting trade to an extent contrary to the common interest. (61) With respect to the fears expressed by the Italian authorities about possible extinction of the breed, data submitted by the Italian authorities and reported in L 98/10 EN Official Journal of the European Communities 19. 4. 2000 that Table 1 show (as mentioned in point 10) the Chianina population has decreased since 1990 at a yearly average rate of around 2 %. However, the same table also indicates that this decline followed some 30 years of dramatic increase of the breed, whose population almost doubled from 1967 to 1990. To support their argument, the Italian authorities have also submitted projections (26), showing that, if the current downward trend continues at the same pace, in the year 2004 the number of registered females will drop to 10 780 (from the current 13 635). Italian In making authorities do not take into account the effect of the two aid measures on which the Commission has already expressed a favourable opinion in principle, nor do they mention that their figure would, in any case, still be 10 times the Community ceiling. calculation, however, this the (62) As to the observations concerning the Commission’s approach in assessing the measure, it should be recalled that Article 87(3)(c) is itself an exception to the general prohibition of State aid laid down in Article 87(1). It must therefore be interpreted strictly and applied only when the Commission is fully satisfied that all the criteria laid down in the Article are met. Measures 1 and 2 of the notified aid scheme, which pursue the same objective as Measure 3, meet all these requirements and have in fact been authorised by the Commission. Operating aid such as that provided by Measure 3, however, does not meet the criteria, by definition, and cannot therefore be authorised. (66) or costsí losses incurred (63) The Italian authorities have not provided any sound argument to refute the Commission’s assessment of the aid as operating aid. They have never quantified áadditional by income stockfarmers, nor have they indicated any proportional relation between such costs and the planned premium. In the original notification, the Italian authorities simply defined the amount of the premium as áappropriateí; in their letter of 11 December 1998 they make a general reference to the fact that the aid would cover at least 50 % of the aforementioned additional costs. No further detail is given. The Commission can only note that the premium of EUR 180,76 envisaged by the Italian authorities for a breed which is not clearly in danger of extinction would be almost 50 % higher than the premium provided for by Regulation (EEC) No 2078/92 (EUR 120,8) for endangered breeds. (64) Moreover, the economic arguments submitted to explain the difficulties faced by Chianina stockfarmers and justify the granting of the premium are of a very general nature (general weakness of the livestock sector at national level, environmental structural factors, lack of quality assurance systems and of strategies for the commercial ádiscriminatoryí system of promotion of Chianina beef, lack of economies of stockfarms, scale, conditions of aid within the framework of the 1992 CAP reform). They depict a situation of structural weakness in the livestock sector at national and regional level which cannot be invoked by the Italian authorities as a reasonable justification for granting aid under a scheme whose favourable impact on the sector as a whole they have been unable to demonstrate, and which they cannot prove will not have a distortive effect vis-à-vis those stockfarmers who are obliged, faced with the same difficult living and working conditions, to survive with their own means and skills. (65) Finally, the aid, to justify the granting of the Italian authorities mention a similar scheme authorised by the Commission within the framework of the Integrated Mediterranean Programme for Tuscany in 1988 to 1992. In that case, a contribution of ECU 190/200 per livestock unit was authorised for a certain number of local breeds, including Italian authorities there is no reason why a different approach should be adopted in the case at issue. the Chianina. According to the a specific establishing It will be remembered that the aid scheme concerned was authorised by the Commission on the basis of a specific Regulation (27) part-financed programme in favour of specific regions within the framework of the common agricultural policy and not on the basis of the competition rules laid down in Article 87 to 89 of the EC Treaty. In the present case, however, the scheme was notified by the Italian authorities to the Commission pursuant to Article 88(3) of the EC Treaty and is therefore to be assessed solely on the basis of Articles 87 to 89 of the Treaty. Consequently, it could be authorised only if it were considered compatible with the common market according to the articles in question, not on the basis of other provisions not applicable to the specific case at issue. VI. Conclusions the compatible with (67) The above considerations lead to the conclusion that Measures 1 and 2 of the notified aid scheme may be common market considered according to Article 87(3)(c) of the Treaty, since the doubts on the retrospective nature of the aid scheme that had induced the Commission to initiate the Article 88(3) procedure two measures have been dispelled by the Italian authorities. Those authorities must notify the Commission of the decision amending the programme implementation. against these (26) Letter from the Italian authorities of 11 December 1998 (see point 29). (27) Council Regulation (EEC) No 2088/85 of 23 July 1985 concerning the Integrated Mediterranean Programme (OJ L 197, 27. 7. 1985, p. 1). 19. 4. 2000 EN Official Journal of the European Communities L 98/11 (68) Measure 3 of the aid scheme is incompatible with the common market and cannot therefore benefit from any of the exceptions to Article 87(1) of the Treaty, HAS ADOPTED THIS DECISION: Article 1 The premium of ITL 350 000 (approximately EUR 175) first 1. per livestock unit granted for the maintenance until calving of adult female animals of the Chianina breed which: (a) were born on a holding listed in the herd book; (b) are themselves listed in the herd book; The aid for the purchase of breeding bulls of 3. the Chianina breed listed in a herd book, in the form of a grant to cover 40 % of the cost of the investment, is compatible with the common market subject to the amendment of the period of to avoid the payment of any retrospective aid. implementation referred to in Article 3, Article 2 Italy may not implement the aid scheme described in Article 1(1). Article 3 Italy shall amend the period of the aid measures referred to in Article 1(2) and (3) so that no aid is granted for expenditure incurred before the date of notification of the aid to the Commission. implementation of (c) calved for the first time on a holding listed in the same herd book, Article 4 is incompatible with the common market. The aid for the establishment of an artificial insemination 2. programme providing for the financing of the following pilot projects: (a) the production of embryos with high genetic potential (taking oocytes from five-month old heifers and fertilising them in vitro with semen from the best breeding bulls); Italy shall inform the Commission, within two months following notification of this decision, of the measures taken to comply with it. Article 5 This Decision is addressed to the Republic of Italy. (b) implanting the fertilised embryos into breeding cows, Done at Brussels, 10 November 1999. is compatible with the common market to the amendment of the period of implementation referred to in Article 3, to avoid the payment of any retrospective aid. subject For the Commission Franz FISCHLER Member of the Commission