C-255/95

AGRI AND AGRICOLA VENETA ν REGIONE VENETO

OPINION OF ADVOCATE GENERAL ELMER delivered on 24 October 1996 *

Introduction 3. The basic regulation contains inter alia the following provisions:

1. In this case the Consiglio di Stato, Italy, has referred to the Court for a preliminary T I T L E 01 ruling questions concerning the interpreta­ tion of the Community rules on aid for the extensification of production of surplus products in the agricultural sector.

Set-aside of arable land

The basic regulation

4. Member States shall determine: Article 1b

1. Member States shall introduce an aid scheme to promote extensification for sur- plus products. Surplus products shall be defined as products for which there are con- sistently, at Community level, no normal unsubsidized outlets. (b) the reference period referred to in para- graph 2;

(c) the undertaking to be given by the ben- eficiary for the purposes in particular of verifying that, throughout the entire farm, the area farmed has in fact been reduced.

2. Extensification shall be defined as a reduction of at least 20%, for a period of at least five years, in the output of the product concerned without any increase in other sur- plus production capacity. However, such an increase shall be permitted in proportion to any increase in the utilized agricultural area of the farm.

I-28

AGRI AND AGRICOLA VENETA ν REGIONE VENETO

1. In order to qualify for extensification aid, producers must give an undertaking to make a real reduction in their output of one or more of the products referred to in Annex I ... (d) the undertaking to be given by the ben­ eficiary for the purposes of, in particular, verifying that production has in fact been reduced.' 4 — OJ 1988 L 361, p. 13.

I-29

OPINION OF MR ELMER — CASE C-255/95

Article 4 conversion of production to less intensive methods.

1. The reduction in output shall be ensured by the farmer according to the procedure laid down by the Member States in relation to the normal output of his agricultural The normal annual level of production of the holding on the basis of average annual out- agricultural holding shall be established on put during a given reference period. the basis of technical and economic adminis- trative documents; when the "production methods" method is used the normal annual level of production may be estimated on a flat-rate basis by reference to appropriate technical criteria in the various sectors.

The detailed rules to be determined by the Member States may provide for the follow- ing two methods:

Article 7 (b) for the products affected by extensifica- tion:

Where the "quantitative" method is applied in the beef and veal sector, the reduction in output may be achieved via an equivalent — where the "quantitative" method is reduction in the number of livestock units applied, the average annual output of the comprising the herd. In this case, Member holding, States shall:

— ensure that the livestock that are the sub­ ject of the reduction are slaughtered or exported permanently to a third country;

— see that the remainder of the herd is not subject to any intensification of produc­ tion. 2. In the event of extensification of livestock production, the applicant shall also specify:

Article 9

— the average composition of the grazing stock during the reference period and its annual feed needs, 1. In their aid applications, producers shall provide information ... with particular refer­ ence to:

Under Article 2(1) and (2) of the Decree, aid may be granted on request for the extensifi­ Article 10 cation of production in respect of products listed in Annex I to the implementing regu­ lation. In that connection producers are to undertake to make a real reduction in their output of one or more products for a period of five years. 1. The producer shall undertake on the basis of the rules laid down by the Member States either:

— where the "quantitative" method is Article 4(6) provides that where the quanti­ applied, to reduce output of the product tative method of reducing output provided or products affected by extensification by for in Article 4 of the implementing regu­ at least 20% as compared with the annual lation is applied, the reduction in output for level of output determined during the each of the products in respect of which an reference period, or undertaking is given must be of at least 20% compared with the holding's entire output of that product during the reference period.

5 — GURI, General Supplement N o 48 of 27.2.1990.

Ι-32

AGRI AND AGRICOLA VENETA ν REGIONE VENETO

Article 5(1) and (3) provides that the refer­ in the herd during the reference period. Only ence period to be used in order to verify the reductions in the number of domestic ani­ conversion to extensive methods, with regard mals are permissible. to livestock products, are the years 1986/87 and 1987/88. The period of the undertaking may start to run no earlier than the market­ ing year 1989/90.

I-33

OPINION OF MR ELMER — CASE C-255/95

applied on 31 March 1990 to the Ispettorato 9. The size of the two companies' output in Regionale per l'Agricoltura di Padova the relevant marketing years is shown in the (Regional Agricultural Inspectorate, Padua) table below, where various types of cattle are for aid for the extensification of their pro- included as grown animals. duction, consisting of stockbreeding.

Average in reference Intermediate First year of the period Number of grown animals period period of the undertaking

Agri 868.42 529.30 459.95

Veneta 1 124.15 507.63 441.72

Procedure before the Court

14. Agri and Veneta have claimed that a national provision which, where there is a gap between expiry of the reference period and the beginning of the period of the under­ taking, does not simply take account of the size of output during the reference period compared with the output to be achieved during the period of the undertaking, but also takes account of fluctuations in output which occurred during the intermediate 2. If so, is a provision of national law com­ period, in the assessment as to whether aid patible with the Community legislation may be granted for extensification, cannot be referred to above where, in the case of a regarded as compatible with Community reduction in the heads of livestock raised law. during the intermediate period between the end of the reference period and the begin­ ning of the period of the undertaking, it not only excludes those animals from the aid but also provides that they must be excluded from the calculation of the minimum 20% 15. The Italian Government takes the view reduction in output between the reference that the relevant Community provisions period and the period of the undertaking, must be interpreted to the effect that account which is a prerequisite for the grant of the should be taken not only of the size of out­ aid (with the result, in particular, that the aid put during the reference period as compared is not payable even in respect of the actual with the production to be achieved in the reduction in livestock envisaged in the period of the undertaking, but also of fluc­ period of the undertaking, where that reduc­ tuations in output which took place during tion is less than 20% of the average number the intermediate period. If output has been of livestock raised in the reference period)?' reduced during the intermediate period, no

16. The Commission has stated that the Community provisions should be inter­ preted to the effect that account should be taken of reductions in output which In the administration of the scheme for aid occurred during the intermediate period in for extensification, the Member States must connection with the assessment of the extent thus confine themselves strictly to the pow­ to which a producer is entitled to aid, since ers accorded to them in relation to the Com­ the reduction must be a consequence of the munity provisions. The authorities of an producer's undertaking to reduce output and individual Member State are not entitled to constitute a quid pro quo for the payment of introduce criteria for the award of aid other aid. It must therefore be a requirement that than those laid down in the Community the producer actually reduces his output by provisions. 20% in relation to output during the refer­ ence period.

18. Under Article lb(2) and (3)(c) of the Analysis basic regulation, the conditions under which a producer can obtain aid for extensification are that, for a period of a least five years, he reduces his output of the product concerned by at least 20% of output during a reference period fixed by the Member States. 17. In its judgment in Case C-190/91 Lante 6 v Regione Veneto the Court of Justice specified the powers of the Member States in relation to the aid scheme for extensification and stated that:

19. For entitlement to aid there must first be a 'reduction' (see Article lb(2) of the basic regulation). That is emphasized in the imple­ menting regulation by the phrase 'make a real reduction' (Article 3(1)) and 'actual 'Under the Community rules in question, reduction in quantitative terms' (Article 4(1), the Member States' authority is confined to first indent of the second subparagraph). Where the quantitative method is applied in the beef and veal sector, the reduction in out­ 6 — [1993] ECR Ι-67. put may be achieved by 'an equivalent

In order to give the authorities a sure basis for calculating the required reduction, the producer must, in connection with his appli­ cation for extensification aid, provide a cer­ tain amount of information concerning the situation of the holding. Thus it follows from Article 9 of the implementing regu­ lation that producers are to indicate the aver­ age yearly output of the holding in the refer­ ence period, the average composition of the grazing stock during the reference period and its annual feed needs, and the average 20. There must further be a reduction 'of at amounts of feed purchased outside the hold­ least 20% for a period of at least five years', ing during the reference period. Lastly the in the output of the product concerned (see application for aid is to be accompanied by Article lb(2) of the basic regulation). The the technical or economic data on the basis Member States are to determine 'the refer­ of which the average output was determined, ence period for the product concerned, for and the undertaking given by the producer the purposes of calculating the reduction' in order to obtain aid. By comparing all that (see Article lb(3)(c) of the basic regulation). information it can be verified whether the That is amplified in Article 4(1) of the imple­ information on output in the reference menting regulation, according to which the period is correct. reduction in output is to be ensured 'in rela­ tion to the normal output of [the farmer's] agricultural holding on the basis of average annual output during a given reference period'. Under Article 4(2), the reference 21. What is to be reduced by the quantities period to be fixed by the Member States thus calculated is Output of the product con­ must 'be such that it is possible to determine cerned' (see Article lb(2) of the basic regu­ the normal annual level of production of the lation). That expression is not absolutely holding concerned to be used as a reliable clear. By its context, in juxtaposition with basis for calculating the reduction in each the words 'a reduction of at least 20% ...', it producer's output and for verifying, where can be concluded that the term 'output of appropriate, the effect of the conversion of the product concerned' refers to something production to less intensive methods.' quantitative, thus to something which can be

measured. But how can output of beef and is different if, during the period or on its veal be measured? As far as I know no expiry, verification can take place that output barometer of output exists which can show a during the period of the undertaking has producer's production of beef and veal at actually been at the level which the producer any given time. Even if an expert can quite has undertaken to achieve. possibly give a qualified estimate as to how much a given herd will produce in the course of a certain period, such an estimate will, like other forecasts, be subject to some uncer- tainty, for example the uncertainty ensuing from the possibility of an infectious disease afflicting the herd. With the application of the quantitative method — which should be seen as a simplified method for implement- ing the real reduction in output — Article 7 of the implementing regulation indicates, as mentioned above, that there should not sim- ply be a reduction in the number of animals 23. The regulations appear to have been in the herd, but that the Member States must drafted on the assumption that there will be also ensure that the remainder of the herd is no intermediate period between the reference not subject to any intensification of produc- period and the period of the undertaking. tion in the period of the undertaking, which The regulations 'cater for' the normal situa- must presuppose verification of the actual tion where the Member States lay down a situation during the period of the undertak- reference period which represents normal ing. output and the producer provides infor- mation concerning his output during that reference period; on that basis the authorities in the Member State calculate the reduction required and when the period of the under- taking begins the producer reduces his out- put which at that point, in normal circum- stances, would quantitatively be more or less the same as during the reference period. The calculation of the volume of the reduction and verification that the reduction has actu- ally taken place do not give rise to any dif- ficulties in the normal situation. Moreover, 22. As far as I can see, there are thus no in the normal situation there cannot be any methods of measurement for 'output of the doubt that the term ' o u t p u t 'refers to average product concerned' other than examining production during the reference period. In how many livestock units have actually been that connection it is worth emphasizing that taken for slaughter in the course of a particu- in all the cases where the regulations do not lar period. That period must thus be a period simply use the word 'output' but further that has already expired and not a future qualify that term, they use expressions which period, so that the period of the undertaking refer to the reference period in terms such as will be when the producer gives an under- 'normal output', 'normal annual level of pro- taking to take, or refrain from taking, steps duction', 'average output' and 'level of out- in order to achieve a reduction. The situation put determined during the reference period'.

24. The average annual output of a holding 26. The question which must be examined in a specific reference period covering several next is whether it makes any difference if a years' output could be regarded as mislead­ Member State has inserted an intermediate ing, for example if output in one or several period between expiry of the reference of the years comprised in the reference period and the beginning of the period of the period has been abnormally low because of undertaking. natural disasters, parasite infestation or dis­ ease in the herd. In my view the Member States must in such cases be entitled, and, in some circumstances, also bound, to lay down rules to the effect that such years should not be taken into account during the reference period or to take account of periods other than the reference period if output for all the years comprised in the reference period was abnormally low because of exceptional cir­ cumstances. Moreover, the Italian Govern­ ment implemented such provisions, since in Article 5(2) of the Decree it introduced a 27. N o explanation has been given as to why rule that the reference period fixed should be the Italian Government did not include mar­ keting year 1988/89 as part of the reference disregarded in cases where there had been period. If it had done so, the problem of the natural disasters, parasite infestations or dis­ intermediate period would not have arisen ease in the herd which had brought about a and, as stated above, it would have been pos­ significant drop in output. sible to disregard an abnormal marketing year for producers affected by exceptional circumstances. According to Article 4(2) of the implementing regulation, the Member States are required to fix the reference period so that it is possible to determine the 'normal annual level of production' of the holding concerned to be used as a reliable basis for calculating the reduction in each producer's output and for verifying, where appropriate, the effect of the conversion of production to less intensive methods. In the circumstances, the possibility cannot be disregarded that the Italian Republic generally regarded market­ 25. The term 'οutput of the product con­ ing year 1988/89 as an abnormal marketing cerned' in Article lb(2) of the basic regu­ year, so that the reference period would have lation must therefore, in the cases assumed been misleading as regards normal output if by the regulation to be normal, and where 1988/89 had been included in it. Support for expiry of the reference period is followed that view is also to be found in the infor­ directly by the period of the undertaking, be mation that it was precisely in 1988/89 that a regarded as referring to the actual output in foot-and-mouth epidemic occurred, which the reference period, possibly adjusted for was the reason why Agri and Veneta specifi­ years with an abnormally low output as a cally had to decrease output in that period result of exceptional circumstances. because of a sharp drop in demand.

29. The construction of the rules for which the Commission and the Italian Government argue, in a situation such as that in this case, where there was an intermediate period, means that if a producer in an intermediate period has actually already reduced his out­ 30. The Commission's view can also be put in relation to output during the reference tested by examining the converse situation, period, he cannot obtain aid to maintain that where output in the intermediate period is reduction during the period of the undertak­ taken as being abnormally high. Thus, at the ing. Even if the producer thus actually pro­ hearing, the Commission replied that a pro­ duces 20% less beef and veal during the ducer who, during the reference period, had entire period of the undertaking in relation produced an average of 100 grown animals to output during the reference period, per marketing year and who, in the interme­ according to that construction he is not diate period, had increased output to 150 entitled to obtain aid, since output at the grown animals, would be entitled to support time when the period of the undertaking if he simply reduced output during the begins is not further reduced. period of the undertaking to 130 grown

Ι-40

AGRI AND AGRICOLA VENETA ν REGIONE VENETO

32. In support of its argument that fluctua­ tions in the period between the expiry of the 31. It must further be pointed out that the reference period and the beginning of the aim of the aid scheme for promoting exten­ period of the undertaking can be taken into sification is to adapt output of, in this case, account in the assessment as to whether a beef and veal, to the needs of the market, producer is entitled to aid, the Commission since there is surplus production of those has stated that there is a close connection products. A requirement that the reduction between entitlement to aid and the undertak­ should relate to output in a particular mar­ ing under the agreement to reduce output keting year, in which, by chance, the level of during the period of the undertaking. In the output in a particular region or Member Commission's view it must be carefully veri­ State, as a result of various circumstances, fied that when the period of the undertaking appears in that particular year abnormally begins the producer reduces his actual pro­ high or low, is incompatible with the aim. In duction by 20%. The Commission thus order to achieve the desired result, it must stated that if a producer had already reduced necessarily be the holding's normal output his output by, for example, 20% in the inter­ that is regulated. By that means too equal mediate period, it must be a requirement that treatment is ensured not simply for the indi­ when the period of the undertaking begins vidual producers, but also for the producers he must further reduce his output by 20% of in the various Member States. A situation output in the reference period in order to be might be imagined where beef and veal pro­ able to obtain aid Otherwise, in the Com­ duction in an individual Member State in a mission's view, there would no longer be any marketing year constituting an intermediate question of the producer, under the agree­ period amounted to only 40% of normal ment entered into, giving a quid pro quo for output because of an infectious disease. A the aid paid to him.

A producer whose herd is by chance affected by disease and must be slaughtered receives, for example E C U 100 000, which presum- ably more or less corresponds to the value of the herd and hence to the assets of the hold- ing. An equivalent farmer who has a healthy herd will therefore also have holding assets of a value of E C U 100 000. If both produc- 34. It was suggested in the course of pro- ers have reduced their herd to 80% of their ceedings that it would be unreasonable if a previous output, or have restocked accord- producer whose reduction in output during ingly, on the interpretation proposed they the intermediate period was due, for will both have holding assets in the form of a instance, to foot-and-mouth disease in the herd representing E C U 80 000 besides the herd, and who had already obtained aid for E C U 20 000 cash corresponding to the value the purchase of a new herd to replace the of the herd which no longer forms part of one that had been slaughtered, could obtain the output. From a financial point of view aid for extensification merely by maintaining the reduced herd has in both cases the effect an output that was 20% lower than in the that the income generated by production is reference period and thus omitting to restock 20% lower than previously, but in exchange

I-42

AGRI AND AGRICOLA VENETA ν REGIONE VENETO

both receive the said aid which should enable that the arable land withdrawn from produc­ them to continue to derive a reasonable tion must represent at least 20% of the income from the holding. arable Und referred to in paragraph 2 on the farm concerned. That formulation makes it clear that it is the land cultivated during the reference period which must be reduced, not land which might have been cultivated at any other time. Under that interpretation the two producers are treated absolutely equally, which would not be the case on the interpretation for which the Commission argues.

Ι-43

OPINION OF MR ELMER — CASE C-255/95

production must be interpreted to the effect that a beef and veal producer who has already reduced his output during the period between the expiry of the reference period and the beginning of the period of the undertaking is entitled to aid provided his production in the period of the undertaking is actually 20% lower than average output during the reference period.

I-44