C-292/97

KARLSSON AND OTHILRS

OPINION OF ADVOCATE GENERAL RUIZ-JARABO COLOMER delivered on 26 January 1999 *

1. The present case calls for an examina- European Union. This regulation provides tion of the procedure whereby the system that the Agricultural Office (Jordbruksver- of intervention in the milk and milk ket) is to be responsible for ensuring products sector was introduced in Sweden. compliance with the milk quota rules. Before the highest court in the administra- tive order in that country (Regeringsrätt) the question was raised whether the criteria applicable for the initial allocation to producers of individual reference quantities exempt from the additional levy ('milk quotas') were compatible with Community law and, in particular, with the principle of equal treatment protected by Community law. 3. The first allocation of individual refer- ence quantities for delivery 2 was made, on a preliminary basis, for the period 1 April 1995 to 31 March 1996. This was done in accordance with the criteria which I shall now set out.

Swedish rules on the allocation of milk quotas

4. To be entitled to claim a quota each 2. The basic provisions of Swedish law on producer was required to have made actual the initial allocation of individual reference deliveries of milk continuously between quantities were laid down in Regulation 1 March 1994 and 1 January 1995 (Arti- No 1714 of 1994, 1 which entered into cle 5(1)) and to have met certain environ- force on 1 January 1995, the date of the mental requirements. Where a producer Kingdom of Sweden's accession to the had suspended deliveries during this period

7. Producers who had increased produc- tion meant producers who during the 5. The quotas of holdings which had not reference period had invested in property increased their production during the years in order to increase milk production or 1991, 1992 and 1993 ('normal producers') who, without acquiring land, had increased were calculated according to the average their dairy herd. Under Article 10 of the milk quantities delivered during the same Swedish regulation any producer who had reference period (Article 6). Apart from increased his production was entitled to a this general rule, the Swedish regulation basic quota and an additional quota. The distinguished three other categories of pro- basic quota was calculated according to the ducers to whom three other methods of general method, that is according to the calculating the quota applied. These were average annual quantity of milk delivered 'new producers', 'producers who have during the reference period with the pro- increased their production' and 'ecological viso that increased deliveries during that producers'. period were not taken into account. The additional quantity could consist, at the producer's choice, of the quantity of 7 398 kg of milk for each newly acquired cow, less 25%, or of a quantity of milk for each new cow arrived at by apportioning to the entire herd the average annual quantity delivered during the reference period, again 6. New producers were those who had less 25%. begun to make deliveries during the three years taken as the basis for the calculation (1991, 1992 or 1993). They were entitled to an annual quota (or, rather, a quota per milk year) of 7 398 kg of milk 3 for each dairy cow, less 15%, a reduction described in the Swedish rules as the 'own risk' deduction. At the producer's request the 8. Ecological producers, that is those pro- quota could, in the alternative, be calcu- ducing 'biological' milk, could request that lated on the basis of the general criterion, their quotas be calculated not according to that is on the basis of the average of his the general rule but according to their deliveries during the months of the refer- actual production in 1993 or 1994 (Arti- cle 7). Furthermore, if an ecological pro- ducer wished to accede to the special 3 — According to the Swedish Government this figure represents the average yield per cow recorded during the 1992/93 milk arrangements for new producers or produ- year. cers who had increased their production the

11. Kjell Karlsson and Lars-Göran Gus- tafsson arc milk producers. Natanael Tor- arp was a milk producer until November 1994. They all live in the Jönköping area. 10. Between March and May 1995 the Agricultural Office completed the alloca- tion of individual reference quantities to new producers in accordance with the criteria set out above. Before allocating quotas to producers who had increased 12. By decision of the Administrative their production it estimated the result of Office of 19 January 1995 Mr Karlsson such allocation and concluded that if the was allocated an annual quota of 38 797 allocation were completed in accordance kg of milk. This quantity reflected his with the rules in force the total individual average production in 1991, 1992 and quantities would exceed the total quota 1993. allocated to Sweden. The Swedish Govern- ment then decided to amend the milk quota rules by adopting Regulation No 812 of 1995, which entered into force on 1 July 1995. Under this provision the 'own risk' reductions applicable to the categories of Mr Karlsson, who had made improvements new producers and producers who had to his holding and had increased the increased their production were increased. number of cows from seven to twelve, The reduction for new producers was applied for the additional quota provided increased from 15% to 30% and that for for in the Swedish rules for producers who producers who had increased their produc- had increased their production (see point 7 tion was increased from 25% to 55%. above). By decision of 29 August 1995 the Furthermore, the latter producers were Office granted his application and allo- entitled to an additional quota only in cated him a quota of 48 553 kg. This respect of the proportion of their increased allocation was made in accordance with the

14. The third plaintiff in the main proceed- ings, Natanael Torarp, made deliveries of milk during the period 1991 to 1993. By decision of 19 January 1995 the Agricul- 13. Lars-Göran Gustafsson, who was in the tural Office automatically allocated him position of a new producer, that is one of the corresponding reference quantity. Mr those who had commenced production Torarp then informed the authorities that during the reference period, applied to the he had ceased to produce milk on Agricultural Office for the corresponding 12 November 1994 but that he wished to quota. By decision of 23 March 1995 the be allocated a quota calculated on the basis Office informed him that his application of the years during which he had actually had been successful and allocated him a produced milk. By decision of 29 March quota of 251 532 kg of milk. This amount 1995 the Office, in reliance on Article 5 of represented the quantity of 7 398 kg pro- the regulation on milk quotas (see point 4 vided for in Article 10 of the regulation (see above), withdrew the quota initially allo- point 6 above) for each of the forty cows cated to Mr Torarp and rejected his request on the new holding less the 15% 'own risk' since it considered that none of the special reduction. On 3 July 1995 the Office circumstances required by the rules in force amended the reference quantity allocated governing the allocation of a quota to a

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producer who had interrupted deliveries Community law principle of equal treat- applied. Mr Torarp then informed the ment permit national provisions of a State Agricultural Office that he had decided to which acceded to the Union on I January discontinue production because he had 1995 under which: been seriously injured by a cow and had consequently been forced to sell his herd some days after the accident. The Agricul- tural Office maintained its decision.

Applicable Community law — this quantity was distributed between Member States on the basis of the quantities of milk delivered on their territory during the 1981 calendar year plus 1%, with the exception of the Provisions on the initial allocation of milk quantity intended for the Community quotas reserve set up to meet the special needs of some Member States and certain producers; 16. In order to reduce the imbalance between supply and demand for milk and milk products and the resulting structural surpluses, Regulation (EEC) No 856/84 4 modified the common organisation of the market in that sector by introducing an additional levy payable in certain circum- stances in addition to the existing co- responsibility levy: — each Member State then distributed its guaranteed quantity among its produ- cers and allocated each of them an individual reference quantity, com- monly called the 'milk quota'. Under this new control mechanism, which was applicable with effect from 2 April 1984, milk production was made up as follows:

— a guaranteed total quantity for the 17. Any producer exceeding the reference Community as a whole was deter- quantity was required to pay an additional levy intended to finance the expenditure incurred in marketing the surplus produc- 4 — Council Regulation (EEC) No 856/84 of 31 March 1984 tion. The levy was to be paid by amending Regulation (EEC) No 804/68 on the common organisation of the market in milk and milk products the producer (formula A) or paid by the (OJ 1984 L 90, p. 10). purchaser of the milk and passed on to the

22. This additional levy scheme was estab- lished for a period of five years from 19. Article 3 of Regulation No 857/84 pro- 1 April 1984. The Council subsequently vided that, when allocating the reference adopted Regulation (EEC) No 8 16/92 7 quantities between the various producers, extending the additional levy scheme for a the Member States were to take into further year (from 1 April 1992 to account the special situations of (a) produ- 31 March 1993). cers who had adopted milk production development plans, 6 (b) young farmers and (c) producers affected by exceptional events (natural disaster, destruction of resources 23. Regulation (EEC) No 3950/92 8 exten- 5 — Council Regulation (EEC) N o 857/84 of 31 March 1984 ded the application of the additional levy adopting general rules for the application of the levy referred to in Article 5c of Regulation (EEC) N o 804/68 scheme for seven years and codified the in the milk and milk products sector (OJ 1984 L 90, p. 13). 6 — Pursuant to Council Directive 72/159/EEC of 17 April 1972 on the modernisation of farms (OJ, English Special Edition 1972 (II), p. 324), which introduced a system to improve the 7 — Council Regulation (EEC:) N o 816/92 of 31 March 1992 productivity of farms. Similarly, Article 4 of Regulation amending Regulation (EEC) No 804/68 (OJ 1992 1. 86, N o 857/84 allows the Member States, in certain circum- p. 83). stances, to grant the same favourable treatment to producers 8 — Council Regulation (EEC) No 3950/92 of 28 December realising a milk production development plan after the entry 1992 establishing an additional levy in the milk and milk into force of the regulation. products sector (OJ 1992 L 405, p. 1).

Provisions applicable on the accession of the Kingdom of Sweden 28. Article 39(1) of the Treaty provides that the specific objectives of the common agricultural policy are: to increase produc- tivity, to ensure a fair standard of living for

26. The Kingdom of Sweden acceded to the European Communities on 1 January 9 — OJ 1994 C 241, p. 21.

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the agricultural community, to stabilise point 16 above), which provides that Mem- markets, to assure the availability of sup- ber States may choose between two for- plies and to ensure that supplies reach mulas when introducing the additional levy consumers at reasonable prices. scheme, and also of Article 5 of Regulation No 3950/92 (see point 21 above), pursuant to which a Member State may, in certain circumstances, make an across-the-board reduction in all the individual reference quantities in that State. Contrary to the latter provision, the Swedish authorities applied different types of reductions to different categories of producers. Analysis of the question referred to the Court

Preliminary question: Community rules on the initial allocation of milk quotas applic- 31. The provisions on which they rely have able to Sweden no relevance to the present case.

allocating the milk quotas, which is dealt situation existing on 31 March 1993, I with in Regulation No 857/84 (see consider that I may state 12 that the only point 18 above). provision of secondary law on the initial allocation of quotas in force at the time of the accession of the Kingdom of Sweden was the one which provides that the total of the individual reference quantities of each Member State is not to exceed its total In any event, after being amended on a guaranteed quantity. 13 number of occasions, Article 5c was vir- tually deprived of its content, with effect from 1 April 1993, as a result of Regula- tion (EEC) No 2071/92. 1 1Thus Regula- tion No 856/84, on which the appellants rely, must be regarded as definitively repealed. 33. Unlike the position in Spain and Portu- gal — which acceded to the Communities while Regulation No 857/84 was in force — the national legislature, in the As to whether the cases of across-the-board absence of Community rules governing reductions provided for in Article 5 of the initial allocation of quotas, was entitled Regulation No 3950/92 are applicable in to adopt its own criteria, which in fact it the present context, it must be said that it did. The situation compared with Austria can be inferred from a mere reading of that and Finland — which acceded to the Union provision that such measures are envisaged at the same time as Sweden — was also in a situation in which the initial quotas different, since each had its own milk quota have already been allocated. Therefore this system, in force since 1974 and 1984 provision, too, has no relevance to the respectively. present case.

through national provisions adopted uni- of Community law, such as the principle of laterally. Their legislative competence can equal treatment. only be residual; it is limited to situations which are not governed by the Community rules and to cases where those rules expressly give them power to act'. 14 Far from constituting an infringement of Arti- cle 5 of the Treaty, the introduction of those criteria for the allocation of quotas meets the obligation which that provision 35. As I have said, in adopting criteria for places on each Member State to ensure the the initial allocation of quotas the Swedish application of Community law and, in authorities were operating in an area in particular, the effective functioning of the which no Community rules were in common organisation of the markets in force, 15 and therefore indisputably com- milk and milk products. For the same plied with Article 5 of the Treaty. 16 I shall reason the adoption and application of therefore confine my analysis of the ques- those criteria for the allocation of reference tion referred by the Regeringsratt to the quantities constitute acts of Community prohibition of discrimination between pro- law and their compliance with superior ducers set out in Article 40(3) of the Treaty. rules of the European order is subject to review by the Court of Justice.

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nity order. Those general objectives serve as participate in the implementation of the guidelines for the application of the com- organisation of the market. 17 mon agricultural policy and to supplement the list in Article 39.

39. The prohibition of discrimination re- ferred to in Article 40(3) of the Treaty, more- over, is merely a specific enunciation of the general principle of equality, one of the First part of the question fundamental principles of the Community order. According to that principle, compar- able situations are not to be treated differ- ently unless such treatment is objectively justified. 18

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(depending on whether formula A or for- treated on an equal basis or that the mula B was used) during one of the three definition of the reference period, having marketing years allowed (1981, 1982 or regard to the structure of the Swedish 1983). market, gave rise to unjustified discrimina- tion. Furthermore, the relatively less favourable situation of new producers and producers who had increased their produc- tion, which I shall analyse immediately below, does not in my opinion have any connection with the reference period cho- 41. To my mind the rule established in sen. Lastly, the choice of average produc- Sweden to determine the reference period is tion over three years rather than one year beyond reproach and perfectly consistent seems, in principle, more capable of reflect- with the obligation to treat comparable ing the actual production capacity of each situations in the same way and the corre- dairy farmer. Accordingly, it docs not in sponding prohibition on treating different- itself give rise to any discrimination. situations in the same way unless there is objective justification for doing otherwise. As the Swedish Government points out, it accorded different treatment to different categories of producers. The classification of producers meets objective criteria. A 43. Consequently, the answer to the first- distinction is drawn between: (a) producers part of the question referred to the Court- who had not increased their production should be that national legislation of a during the reference period; (b) those who State which acceded to the Union on had invested in property during the refer- 1 January 1995, under which, for produ- ence period with a view to increasing their cers who had not altered their production, milk production or who, without making average deliveries in 1991, 1992 and 1993 such an investment, had increased their are adopted as the basis for the award of a herd; (c) producers who had commenced milk quota, is not contrary to Community production during the three years taken as law. the basis for calculation; 19 and (d) milk producers using ecological methods.

45. It should be emphasised that in princi- ple the four categories of producer referred to meet objectively defined criteria. As regards the justification for that classifica- tion and, in particular, the different treat- Producers who had increased their produc- ment which it entails, it should be observed tion were entitled to a basic quota and to that, in comparison with what might be an additional quota. The basic quota was called the 'pivotal' category of producers calculated according to the general rule and who have not altered their production therefore gave rise to no discrimination. during the reference period, the Swedish The qualification was that, for the purpose regulation on milk quotas penalises new of calculating the basic quota, increased producers and those who have increased production during the reference period was their production, by applying certain cor- not taken into account. The increased rective factors to their reference quantities, amounts could provide the basis for an while at the same time it favours 'ecologi- additional quota, which, at the producer's cal' producers, whose quantities are not choice, could be either 7 398 kg of milk for reduced even though they commenced or each newly acquired cow, less 5 5 % , or a increased their production between 1991 quantity for each new cow obtained by and 1993. apportioning the annual average deliveries during the reference period among the total number of dairy cattle, again less 5 5 % . Furthermore, the right to an additional quota arose only in respect of the part of the increase which exceeded 1 0 % of the number of cows on the holding prior to expansion. 46. In my view it may be inferred that the penalty imposed by the Swedish rules consists essentially in disregarding any 20 — The quantity representing the average yield per cow potential or actual increase in production recorded in the 1992/93 milk year (see footnote 3).

48. Any restriction of a fundamental right, such as the right to own property, 22for the sake of an objective of general interest The Swedish Government maintains that cannot be either disproportionate or unrea- the prospect of accession meant that 'it is sonable without infringing the principle inconceivable that any producer could have of proportionality. 23 According to the increased his production capacity without being aware of the Community rules applicable in this area. Any increase there- 21 — S e e , in that regard, the first recital 111 the preamble to Regulation No 1950/92. fore occurred in circumstances in which 22 — On the legal nature of (the reference quantities exempt from those concerned were aware of the risk the additional levy, reference should he made to my Opinion of 7 only 1998 in Case C-186/96 Demand v involved, and this was a factor which [had] Hauplzollamt Trier [1998] ECR I - 8 5 2 9 , at p. 85.11. to be taken into account to a certain extent 2.1 — See, inter AHA. Case .5/88 Wachauf v Bundesamt für Ernahrung und Forshortshaft [1989] ECR 2 6 0 9 , para- when the quotas were first distributed'. graph 18.

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The fact that new producers were required to bear lower reductions than producers 51. As I have stated above (see point 36), who had increased their production may, the common agricultural policy does not according to the Swedish Government, be pursue only the aims set out in Article 39 of explained by the national legislature's the Treaty, but, like every Community intention not to penalise excessively young policy, it is governed by all the objectives farmers who were commencing production. of the Community. The schemes for inter- This choice, as well as being objectively vention in production are therefore at the justified, is comparable with the choice same time effective instruments of restruc- made at Community level by Article 3 of turing with a view to those general objec- Regulation No 857/84, which required tives, which must include the protection of Member States, when allocating reference the environment. 24 quantities between the various producers, to take account of the special circumstances of, inter alios, young farmers (see point 19 above).

52. The use of the scheme of the additional levy on milk for restructuring purposes is as old as the scheme itself. Thus Regulation No 857/84 authorised Member States, when allocating individual reference quan- 49. I therefore conclude that the more tities, to take different circumstances into favourable treatment accorded under the consideration: that the producers had Swedish legislation to farmers who have not helped create the surplus milk produc- tion is not contrary to Article 40(3) of the 24 — See Case 240/83 Procureur de la République v Association de Défense des Brûleurs d'Huiles Usagées ('Waste oils') Treaty. [1985] ECR 531.

53. Thus, in so far as the promotion of dairy farms employing 'ecological' produc- tion methods may contribute to the protec- tion of the environment, the relatively more favourable treatment accorded to that type of holding is justified by the general interest of the Community. Furthermore, the Swed- ish provisions are perfectly consistent with the spirit of Article 130t of the EC Treaty, Third part of the question which provides that the environmental protection measures adopted by the Com- munity 'shall not prevent any Member State from maintaining or introducing more stringent protective measures'. 56. The third part of the question concerns the compatibility with Community law of a provision whereby producers who, after making deliveries of milk before the Mem- ber State joined the quota system, have, for 54. I consider, therefore, that the more reasons outside their control, not delivered favourable treatment accorded under the milk throughout the necessary qualification Swedish regulations to certain farmers who period for the award of a reference quantity produce milk according to ecological meth- are refused a quota. ods is not contrary to Article 40(3) of the Treaty.

55. The answer to the second part of the 57. Unlike the other two questions exam- question referred to the Court should be ined above, the third question deals not that Article 40(3) of the Treaty does not with matters relating to the allocation of preclude national provisions of a State individual reference quantities but with the

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59. I consider, first, that the interpretation of the national criteria on eligibility for a 58. As formulated, the question strikes me quota on an exceptional basis where the as rather surprising, since the national general requirements have not been met is a court itself, in its account of the applicable matter for the competent legislature, in this domestic law, recognises that 'if the under- case the Swedish State, within the discre- taking has discontinued supplies of milk in tion which it must be recognised as enjoy- that period, it may, if it applies to the ing in such matters. It is for the national Jordbruksverket, nevertheless be awarded a court to determine whether those criteria quota if the interruption was caused by a have been correctly applied in a specific circumstance outside the undertaking's case, taking into account, where necessary, control or if there are other special circum- the purpose and objectives of the provi- stances ' (see point 4 above). sions. 2 5

60. For the remainder, apart from the particular circumstances of M r Torarp, The Swedish Government observed at the the question of the compatibility with the hearing, without being contradicted by superior principles of the Community order those representing M r Torarp, that M r and, in particular, with the prohibition in Torarp was refused a quota because he Article 40(3) of the Treaty of a provision had no intention of resuming milk produc- pursuant to which a given producer may be tion but intended to 'lease' the quantity deprived of a reference quantity on the awarded. ground that, owing to circumstances out- side his control, he has not made deliveries during the period of eligibility, may in my

The provisions in Article 3a of Regulation No 857/84, 28 which allows the allocation of a special reference quantity to certain producers who had been unable to obtain a milk quota because they had not made deliveries or direct sales during the refer- 61. As in the Erpelding case, the possible ence period, follow the same logic. Arti- infringement of Article 40(3) in the present cle 3a(3) provides that the definitive allo- case has its origin in the difference in cation of such a special quota is to be treatment consisting in the fact that the subject, inter alia, to the producer showing applicable provision could have the effect to the satisfaction of the competent author- that a producer who had not made deliv- ity that he has actually resumed produc- eries during the period of eligibility was tion. 29 refused a reference quantity and thus penalised in comparison with those who had made deliveries during that period. As stated in the Erpelding judgment, such an effect is justified, however, by the need to limit the number of years which may be taken as reference years, in the interests of 63. The answer to the third part of the both legal certainty and the effectiveness of question referred by the Regeringsrätt the additional levy system. The resulting should therefore be that Article 40(3) of difference in treatment is therefore objec- the Treaty does not, in the case of a State tively justified and may not be regarded as which acceded to the European Union on discriminatory within the meaning of the case-law of the Court of Justice. 27 28 — Inserted hy Council Regulation (EEC) No 764/89 of 20 M a r c h 1989 a m e n d i n g R e g u l a t i o n N o 8 5 7 / 8 4 (OJ 1989 I . 8 4 . p. 21. 26 — Case 84/87 Erpelduig v Secrétaire d'État a l'Agriculture el 29 — The validity of this requirement was recently recognised by a la Viticulture [1988] ECR 2647. the Court in Case C-374/96 Vimlerbruveen v liniititztu- 27 — Idem, paragraph 30. lamt Berlefeld [1998] ECR I - 8 3 8 5 .

— for producers who have not altered their production, average deliveries in 1991, 1992 and 1993 are adopted as the basis for the award of a milk quota;

— producers who have commenced or increased production of milk during the reference period must accept a reduction in their reference quantity, unlike producers whose production circumstances have not altered in that period

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and producers of ecologically produced milk, and that reduction is determined differently for producers who have commenced production than for those who have increased production;

— producers who delivered milk before the State's accession to the EC's milk quota system but who — for reasons outside their control — have not delivered milk throughout the necessary qualification period for the award of a quota are refused a reference quantity.