C-36/79

JUDGMENT OF 15. 11. 1979 — CASE 36/79

the particular nature of agricultural producers prohibited by the second activity, which results from the social subparagraph of Article 40 (3) of the structure of agriculture. For the Treaty. purpose of granting aid as compensation for the effects of the effects of the revaluation, this nature 3. Neither the EEC Treaty nor Article 1 justifies the Federal Republic of of Regulation No 2464/69 of the Germany in giving priority to the Council nor the Council Decision of

sectors of the agricultural economy 21 January 1974, which was notified which suffered most directly losses of to the Federal Republic of Germany income as a result of the revaluation, and extends and amends Article 1 (3) that is to say the sectors concerned of the said regulation, forbade that with working the soil. Since such Member State to exclude industrial

preference is not arbitrary it cannot calf fatteners from the aid referred to

be regarded as discrimination between in the regulation.

In Case 36/79

DENKAVIT FUTTERMITTEL v FINANZAMT WARENDORF

THE COURT

composed of: H. Kutscher, President, A. O'Keeffe and A. Touffait (Presidents of Chambers), J. Mertens de Wilmars, P. Pescatore, Lord Mackenzie Stuart and G. Bosco, Judges,

Advocate General: G. Reischl

Registrar: A. Van Houtte

gives the following

compensate for those losses, the Council, each budgetary year from 1970 to by Regulation (EEC) No 2464/69 of 1973 inclusive. The Community shall 9 December 1969 (Official Journal, contribute to the financing of such English Special Edition 1969 (II), aid on a decreasing scale as provided p. 527), authorized the Federal Republic by Article 2.

JUDGMENT OF 15. 11. 1979 — CASE 36/79

3. Aid may be granted in the form of keeping livestock must have a certain direct aids to agricultural producers agricultural area and prove a certain in so far as they are not calculated ratio between the head of livestock and

on the basis of the price or the that area.

quantity of the product.

amends the measure authorized by Article 1 (3) of Regulation (EEC) No 2464/69 inasmuch as the Federal 7. In 1974 the turnover of the plaintiff Republic was "provisionally authorized company on sales of calves which it had to grant aid to agricultural producers in fattened was DM 21 394 474,21. In its the form of compensation, paid to the tax return for that year, it claimed aid of producer when he sells his products, DM 641 834,24 (that is to say 3% of its subject to a maximum of 3% of the total turnover) under Article 4 of selling price". The aid as thus amended the Aufwertungsausgleichgesetz. By a may be paid in the same way as is decision of 26 March 1976, the provided in the regulation "either by the Finanzamt (tax office) Warendorf, the buyer or by an agency to be appointed defendant in the main action, refused to by the competent national authorities". grant that aid, on the grounds that the plaintiff company is an industrial under- taking within the meaning of German 5. On 23 December 1969 the German tax law and not an agricultural under- legislature, basing itself on Regulation taking. (EEC) No 2464/69, enacted the Aufwer- tungsausgleichgesetz (Law on com- pensation for the effects of revaluation), 8. After its objection to that decision Article 4 of which authorized agri- had proved unsuccessful, the plaintiff cultural and forestry undertakings, company commenced before the Finanz- within the meaning of Article 24 (2) of gericht [Finance Court] Münster the the Umsatzsteuergesetz (Law on proceedings which constitute the main turnover tax) in conjunction with Article action. 51 of the Bewertungsgesetz (Law on valuation) to reduce the turnover tax (value added tax) by 3%. In order to qualify as an agricultural undertaking 9. By an order of 26 September 1977, within the meaning of the latter the Finanzgericht Münster stayed the provisions, establishments breeding and proceedings and referred the following

questions to the Court of Justice for a plaintiff in the main action devoted preliminary ruling under Article 177 of specific arguments in its written obser- the EEC Treaty: vations to the subject of fattening of calves. It alleged that from a structural and economic point of view there is no difference between the industrial "1. Under Community law does the fattening of calves on the one hand and expression 'agricultural producers' in agricultural fattening on the other under Article 1 (1) and (3) of Regulation German tax law. Both the "agricultural" (EEC) No 2464/69 include and "industrial" calf fatteners have to industrial livestock breeders and buy young calves from breeders and keepers within the meaning of obtain mixed, milk-based feeding-stuffs German tax law? from a manufacturer of such feeding- stuffs. The size of the agricultural holding in the case of the "agricultural" fattener is therefore irrelevant to the 2. If the first question is answered in the affirmative: Are Article 39 and fattening of calves, (cf. [1978] ECR the second subparagraph of Article 1320). The plaintiff in the main action 40 (3) of the EEC Treaty and Article claimed that in granting compensation 1 of Regulation (EEC) No 2464/69 for revaluation of the German mark only of the Council or any other to industrial keepers and breeders, the provisions of Community law to be German legislature was infringing the interpreted as meaning that they prohibition of discrimination in Article forbid the Federal Republic of 40 (3) of the Treaty. Germany, as a Member State of the EEC to which Regulation (EEC) No 2464/69 was addressed, in the event of the grant of direct aid by way of 12. In its written observations the compensation for the revaluation of Commission alleged that the revaluation the German mark in respect of agri- affected farmers more than industrial cultural products subject to an livestock keepers. In general a farmer organization of the market, to farming his own land meets his fodder exclude specific classes of agri- requirements at least partly with his own cultural producers — in this case, produce and thus can less easily turn to industrial livestock breeders and imported fodder made cheaper by reva- keepers within the meaning of luation (cf. [1978] ECR 1327). German tax law — from the grant of aid?"

that question are set out in paragraph 17 as follows: 16. It appears from the file in the present case that the Finanzgericht "It appears from the case file inter alia Münster does not consider itself bound that, because they use fodder which is by the operative part of the judgment in mostly their own farm produce, agri- Case 139/77 because it takes the view cultural livestock breeders and keepers that the court relied on inaccurate facts within the meaning of German tax law relating to the fattening of calves. By are subject in particular to the risks order dated 19 January 1979 it once inherent in working the soil. again stayed the proceedings pending before it and referred to the Court under On the other hand, industrial livestock Article 177 of the Treaty the following breeders and keepers within the meaning question for a preliminary ruling of German tax law are not exposed to (expressly limited to calf fatteners): the same risks, as they buy the feeding- stuffs needed for their animals mostly on either the national or the international "Do the EEC Treaty, Article 1 of Regu- lation (EEC) No 2464/69, the Council market, and if their national currency is Decision of 21 January 1974 or any revalued they are able to obtain them other provision of Community law forbid abroad at advantageous prices. the Federal Republic of Germany to exclude 'industrial' calf fatteners within Accordingly, the distinction between the meaning of German tax law from aid agricultural livestock breeders and under the regulation if agricultural calf keepers and industrial livestock breeders fatteners use the same industrially and keepers, which German tax law produced feeding-stuffs for fattening makes by laying down a ratio between calves as industrial calf fatteners?" the head of livestock and the utilized agricultural area and which the Government of the Federal Republic of 17. The order making the reference Germany adopted as an objective, albeit was registered at the Court on 2 March unmodulated, criterion as regards the 1979.

however, they produce red meat which is sold as beef. In addition, the fattening costs are substantially increased if The plaintiff in the main action observes feeding-stuffs from a farmer's own agri- that the question assumes that agri- cultural products are used. cultural calf fatteners use the same in-

dustrially-produced feeding-stuffs as industrial calf fatteners. Citing Cases 104/77 Oelschläger v Hauptzollamt Emmerich [1978] ECR 796 and 131/77 Milac v Hauptzollamt Saarbrücken [1978] 19. The Finanzgericht adds that if ECR 1050 it claims that it is for the "industrial" calf fatteners are agricultural national court making the reference to producers within the meaning of determine the facts in proceedings under Community law and if Community law Article 177 of the Treaty. Therefore, for forbids the exclusion of specifically agri- the purposes of its preliminary ruling the cultural producers from aid by way of Court must rely on the facts found by compensation for revaluation in respect the Finanzgericht in its order making the of agricultural market products, then the reference regarding the feeding-stuffs action succeeds. used for calf fattening.

20. Pursuant to Article 20 of the Protocol on the Statute of the Court of On the facts the plaintiff claims that Justice of the EEC written observations more than 99% of German calves are

were submitted by the plaintiff in the fattened with milk-based substitute

main action, represented by Dietrich feeding-stuffs. The size of the farm is Ehle and Ulrich C. Feldmann, Advocates therefore irrelevant as regards the at the Cologne Bar, by the defendant in fattening of calves. The calf fattener is the main action, represented by its classified under German law as agri- manager, Mr. Ernst, and by the cultural solely because he has cultivated Commission of the European Com- land. Nevertheless, he must use this for munities, represented by its Legal other purposes (for example the cul- Adviser, Peter Karpenstein. tivation of cereals) which itself has

There is, however, no possible reason to The plaintiff further points out that for justify different treatment of identical calf fattening it mainly has working for it situations. calffatteners (Lohnmäster) who are paid a wage and themselves have agricultural land which cannot, however, be used for calf fattening. Such calf fatteners are thus agricultural livestock keepers within the meaning of German tax law. They The plaintiff challenges the statement of receive a wage for fattening which the Court in its judgment of 13 June constitutes a kind of guaranteed price. 1978 to the effect that the German The wage is based on the average legislature was adopting an objective and income of an "agricultural calf fattener". non-discriminatory criterion for The compensation for revaluation is also distinguishing between agricultural part of the average income. The risk of breeders and keepers on the one hand price fluctuation on the market is borne and industrial breeders and keepers on by the plaintiff. If the employed calf the other "by laying down a ratio fattener in question did not enter into between the head of livestock and the contracts of employment for fattening utilized agricultural area". In that phrase and bore the market risk himself he contained in the grounds of its judgment would also receive compensation for the Court wrongly assumed that agri- revaluation. Regulation (EEC) No cultural livestock breeders and keepers 2464/69 as applied by the German used mostly fodder from their own farm legislature thus "penalizes" the plaintiff produce. This alone ("accordingly") was as an industrial calf fattener for sufficient to justify, in the Court's view, protecting with a price guarantee the the ratio between head of livestock and farmer properly so-called from the utilized agricultural area as a criterion of market risk for calf fattening. distinction.

permissible classification ("Typisie- monetary compensatory amounts in rung"). Calf fattening is a very important Regulation No 974/71 of the Council specific and independent economic sector was implemented. That system was based (the plaintiff estimates its total turnover on monetary compensation which was in the Federal Republic in 1974 at some neutral vis-à-vis products. Therefore 600 million marks) to which such a compensation for currency revaluation criterion cannot be applied, at least if it ought at the latest by 1974 to have been leads, as it does in this case, to placing a neutral vis-à-vis products for fattening class of taxpayers ("industrial" calf calves because the system of monetary fatteners) in a clearly less favourable compensatory amounts, which had the competitive position than that of another same origins and aims as compensation class of taxpayers ("agricultural" calf for revaluation, granted strictly neutral fatteners). compensation benefiting or, as the case may be, burdening all agricultural products.

In the plaintiff's view it is not possible to claim that the Aufwertungsaus- gleichgesetz was an emergency measure. There are no other reasons which could At least it might have been expected that justify not giving compensation for reva- the legislature in 1974, that is five years luation in respect of industrial calf after the Aufwertungsausgleichgesetz fattening. In particular industrial calf entered into force, would abolish the fatteners do not enjoy in relation to agri- quite considerable discrimination be- cultural calf fatteners structural and tween agricultural and industrial calf social advantages which could justify fattening. denying them aid.

produced. It is also possible to obtain the a preliminary ruling the Commission same result with full-cream milk wonders whether, having regard to the supplemented subsequently if necessary wording of the order making the with concentrated feeding-stuffs. The reference, the Finanzgericht does not "agricultural" producer is able to also seek a re-examination of the first

produce full-cream milk on his own farm question put in Case 139/77, that is to by giving part of the land over to dairy say, the concept of "agricultural cows (Milchvieh). If he has sufficient producers" from the point of view of land he thus has the opportunity of Community law, a question on which the choosing between feeding-stuffs he Court has so far not given a definite produces himself and feeding-stuffs answer. Nevertheless, the Commission bought in. There is therefore no reason does not think it is necessary to interpret to depart from the judgment given by the the reference for a preliminary ruling to Court in Case 139/77 since no new facts this effect.

have been raised by the present reference.

The Commission states that it does not

prima facie understand the comment to the effect that the action will succeed if

DENKAVIT FUTTERMITTEL v FINANZAMT WARENDORF

Even assuming (contrary, in the argument that there is no difference Commission's view, to the facts) that between the breeding methods used by agricultural calf fatteners use only milk- agricultural and industrial calf fatteners. based substitute feeding-stuffs of the type manufactured by the plaintiff, the difference in treatment between agri- cultural and industrial calf fatteners in

respect to aid is justified on objective grounds. If the two classes of calf fatteners enjoyed the same advantages by reason of the revaluation, the revaluation would cause the agricultural producer In this respect a twofold correction is considerable losses in respect of the necessary. On the one hand neither the produce of his land and of his dairy Commission nor the Court stated that

land. It was precisely products from German veal market do not all come

working the land which decreased in from specialized fattening undertakings; value following the revaluation. far from it. Although the majority of these calves have been bred by agri- cultural and industrial fatteners, a not inconsiderable proportion of the animals however comes from milk producers who have a dairy herd of some size and who Apart from the above considerations the use traditional methods for fattening Commission does not accept the until slaughter the calves which come

JUDGMENT OF 15. 11. 1979 — CASE 36/79

from their herd and are not intended for As regards the amounts of aid granted its replenishment. The proportion of for liquid skimmed milk for use as calves reared by these small farmers who animal feeding-stuffs on the basis of do not specialize in fattening is Article 10 of Regulation No 804/68 on considerable. the common organization of the market in milk and milk products (Official Journal, English Special Edition 1968 (I) p. 176) no distinction was made up to 1978 between feeding-stuffs for calves Whereas specialized industrial fatteners and for other animals. As a result only use only industrially produced milk- the total quantity used for animal based substitutes, agricultural fatteners feeding-stuffs is known. Between 1968 and naturally even more occasional and 1970 it increased for the Community fatteners use to a large extent the milk of the Six to some 6 000 000 tonnes

produced on their own farm. To some annually but it fell between 1970 and extent they use directly the full-cream 1972 to some 3 500 000 tonnes. In the

The Commission greatly regrets that it pig and poultry feed was increased by does not have absolutely precise figures Commission Regulation No 2793/77 of the respective quantities of feeding- (Official Journal No L 321 of 16 stuffs used. The statistics available, December 1977, p. 30) from 1 January however, indicate that at present one 1978, it is possible to determine very third of calves are bred and fattened with precisely on the basis of applications for full-cream and skimmed milk and two aid sent to the competent intervention thirds with industrially produced milk- agencies the amount of liquid skimmed based substitute feeding-stuffs. In any milk used annually in each Member State event it is wrong to claim that "agri- for feeding-stuffs for calves on the one cultural" fatteners use only milk-based hand and for other animals on the other. substitute feeding-stuffs as do For 1978 the total amount of liquid "industrial" fatteners. On the one hand skimmed milk used for animal feeding- some 5% of the production of full-cream stuffs and subsidized by the Community milk in the Community (or some amounted to 4 069 000 tonnes of which 5 000 000 tonnes annually) is used in 2 326 000 tonnes was for calves, or about feeding-stuffs for calves and on the other 60% of the total quantity. hand it is possible to show on the basis of the applications for aid which the Commission receives for the use of

skimmed milk in animal feeding-stuffs that at present in the Community more than 2 000 000 tonnes of skimmed milk

are used each year in feeding-stuffs for calves (in 1978 it was exactly 2 336 000 In view of the fact that even previously tonnes) the greater part of liquid skimmed milk

Ill — Oral procedure

The Commission concludes from the

previous considerations that as regards the exclusion of industrial calf fatteners

from compensation for the revaluation in At the hearing on 4 October 1979 the 1969 the only decisive factor is that there are differences between the methods of plaintiff in the main action, represented by Dietrich Ehle, Advocate at the feeding and that there is no doubt that Cologne Bar, and the Commission of the these differences are quantitatively European Communities, represented by important. its Legal Adviser, Peter Karpenstein, acting as Agent, submitted oral obser- vations.

The Commission adds further that it

would be wrong to claim that only the use of industrially produced milk-based substitute feeding-stuffs allows the The Advocate General delivered his

4 It is right to recall that the main action has already given rise to a reference for a preliminary ruling made by the. same Finanzgericht, which was the subject of Case 139/77 in which the Court gave judgment on 13 June 1978 ([1978] ECR 1317). In that judgment the Court, after examining (pages 1329 to 1331) the origin and substance of the Community rules and the national law in question answered the following questions referred to it for a pre- liminary ruling:

"1 . Under Community law does the expression 'agricultural producers' in Article 1 (1) and (3) of Regulation (EEC) No 2464/69 include industrial livestock breeders and keepers within the meaning of German tax law?

DENKAVIT FUTTERMITTEL FINANZAMT WARENDORF

2. If the first question is answered in the affirmative:

Are Article 39 and the second subparagraph of Article 40 (3) of the EEC Treaty and Article 1 of Regulation (EEC) No 2464/69 of the Council or any other provisions of Community law to be interpreted as meaning that they forbid the Federal Republic of Germany, as a Member State of the EEC to which Regulation (EEC) No 2464/69 was addressed, in the event of the grant of direct aid by way of compensation for the reva- luation of the German mark in respect of agricultural products subject to an organization of the market, to exclude specific classes of agricultural producers — in this case, industrial livestock breeders and keepers within the meaning of German tax law — from the grant of aid?"

5 Regarding the first question the Court held that since neither the context nor the objectives of Regulation No 2464/69 demand a restrictive interpretation, it is not out of the question that the relatively broad expression "agricultural producers", which is used in the wording of the regulation, may include production of agricultural products by any method whatever.

7 In giving a preliminary ruling on the questions put by the Finanzgericht the Court held:

"Neither the provisions of the EEC Treaty nor Article 1 of Regulation No 2464/69 of the Council nor the provisions of the Council Decision of 21 January 1974 forbade the Federal Republic of Germany to exclude industrial livestock breeders or keepers from the aid referred to in the said regulation".

8 By its order for reference to the Court in the present case the Finanzgericht put a new question for a preliminary ruling worded as follow:

"Do the EEC Treaty, Article 1 of Regulation (EEC) No 2464/69, the Council Decision of 21 January 1974 or any other provision of Community law forbid the Federal Republic of Germany to exclude 'industrial' calf fatteners within the meaning of German tax law from aid under that regu- lation if agricultural calf fatteners use the same industrially produced feeding-stuffs for fattening calves as industrial calf fatteners?"

9 It must be observed on the one hand that this question, unlike the questions put in Case 139/77, refers not to livestock breeders and keepers in general but only calf fatteners and on the other hand that it assumes the premise, explained in the grounds of the order for reference, that "agricultural" calf fatteners use in fattening the same industrially produced milk-based sub- stitute feeding-stuffs as "industrial" calf fatteners.

10 The correctness of this assumption was challenged by the Commission. In its view, apart from manufactured feed substitutes, "agricultural" calf fatteners also use to a considerable extent full cream milk or skimmed milk which they produce themselves. In this respect the Commission refers to the facts based on the Community system in force since 1969 of aid granted for milk for use as animal feeding-stuffs and to the statistics relating to feeding with full

15 Accordingly, the distinction between agricultural livestock breeders and keepers and industrial livestock breeders and keepers, which German tax law makes on the basis of a ratio between the head of livestock and the agri-

JUDGMENT OF 15. 11. 1979 — CASE 36/79

cultural land used and which the Federal Republic of Germany adopted for the purpose of granting aid under the Aufwertungsausgleichgesetz meets the aim of the regulation.

16 It must be remembered that the fourth recital in the preamble to the regu- lation states : "The aid must be granted only during a specific period, it being possible to ensure the continuation of aid through measures of social or structural policy". It follows from this that the aid contemplated falls within the perspective of considerations of a social nature corresponding to the requirement of Article 39 (2) (a) of the Treaty of taking account of the particular nature of agricultural activity, which results from the social structure of agriculture. For the purpose of granting aid as compensation for the effects of the revaluation, this nature justifies the Federal Republic of Germany in giving priority to the sectors of the agricultural economy which suffered most directly losses of income as a result of the revaluation, that is to say the sectors concerned with working the soil. Since such preference is not arbitrary it cannot be regarded as discrimination between producers prohibited by Article 40 (3) of the Treaty.

17 It follows from all these considerations that the answer to the national court

should be that neither the provisions of the EEC Treaty nor Article 1 of Regulation No 2464/69 of the Council nor the Council Decision of 21 January 1974 forbade the Federal Republic of Germany to exclude industrial calf fatteners from the aid referred to in the said regulation.

in answer to the questions submitted to it by the Finanzgericht Münster by an order of 19 January 1979, hereby rules:

Neither the provisions of the EEC Treaty nor Article 1 of Regulation No 2464/69 of the Council nor the Council Decision of 21 January 1974 forbade the Federal Republic of Germany to exclude industrial calf fatteners from the aid referred to in the said regulation.

Kutscher O'Keeffe Touffait

Mertens de Wilmars Pescatore Mackenzie Stuart Bosco

Delivered in open court in Luxembourg on 15 November 1979.

A. Van Houtte H. Kutscher