State aid in the agricultural sector

1) OBJECTIVE

To provide a framework for the grant of State aid to the agricultural sector.

2) ACT

Community guidelines for State aid in the agricultural sector [Official Journal C 28, 01.02.2000].

3) SUMMARY

Background. Following the adoption of the 'Agenda 2000' package, and in particular the new policy for rural development, the European Commission wanted to provide a framework for the grant of State aid by Member States to the agricultural sector.

Scope. The guidelines apply to all State aids granted in connection with activities related to the production and marketing of agricultural products falling within the scope of Annex I of the Treaty. They do not apply to State aids in the fisheries and aquaculture sector and aids for the forestry sector.

Application of the rules of competition in the agricultural sector. The rules of competition contained in the Treaty establishing the European Community do not apply to agriculture. The authority of the European Commission to control State aids derives therefore from legislation adopted by the Council. That establishing the common organisation of the markets and rural development provide however for the application of the Community rules of competition. Under those arrangements, aids that may alter the operation of the common market organisations are not permitted.

The rules relating to 'de minimis' aids, the guidelines on State aid for the regions and operating aids to improve the financial situation of beneficiaries are equally prohibited. Only aids that are applied for before work begins and which involve the financial participation of the recipient will be permitted.

For products that are not subject to a common organisation of the market, the Community rules of competition relating to the production of and trade in agricultural products apply. When aids are being granted by member countries, the Commission may formulate comments and the Member States may observe them if they wish.

The Commission seeks to take account also in its analyses of the environmental impact of aids.

Aids for investments. In order to encourage the development of the agricultural sector, aid for investments in agricultural holdings may be authorised. Their objectives must be to lower production costs, improve and redeploy production, improve quality, preserve and improve the natural environment, comply with hygiene and animal welfare standards and promote the diversification of agricultural activities.

The rate of aid is subject to a maximum depending on the region or the recipients and their experience.

Maximum rates of aid for investment within the EU

To be able to receive aid, holdings must be economically viable, comply with certain Community standards regarding animal welfare, the environment and hygiene, save where the aids are intended to facilitate adjustment to newly introduced rules. Market outlets must exist for the products.

Activities eligible for support include the construction and improvement of immovable property, the acquisition of new machinery and equipment and general costs accounting for up to 12% of total expenditure.

Aid for the purchase of production rights may be granted in accordance with the specific provisions of the common organisation of the market concerned.

Aid for the purchase of animals may only be granted for the first purchase of livestock and of high-quality breeding animals. The maximum expenses eligible for support must not exceed the limit set by the Member State under the rules on rural development. These rules may also be applied to investments which are not made by farmers themselves, for example, where equipment is purchased by producer groups.

The maximum rates of aid may vary for certain specific investments.

• For the conservation of traditional landscapes, the aid may represent up to 100% of the costs of conserving non-productive heritage features located on agricultural holdings. In the case of productive assets, the maximum aid may be 60% or 75% in less-favoured regions. In cases where there is an increase in production capacity, the normal rates will be applied but the Commission may authorise aid of up to 100% where traditional materials are used.
• For the relocation of farm buildings in the public interest as a result of expropriation, compensation will not be considered as State aid. Where facilities are dismantled, aid of up to 100% of the costs incurred may be granted. However, if relocation results in more modern facilities being made available or an increase in production capacity, the maximum rate of aid is 40% or 50% in less-favoured regions or 45% and 55% respectively where the beneficiary is a young farmer.
• Where investments exceed the minimum Community requirements for the protection and improvement of the environment, the improvement of the hygiene conditions of livestock enterprises and the welfare of farm animals, the aid rates may be 60% and 75% of the costs in less-favoured regions. In other regions the maximum rates of 40% and 50% will apply.
• Enterprises receiving aid for investments associated with the processing and marketing of agricultural products must be economically viable and comply with Community standards regarding the environment, animal welfare and hygiene. Aids to attain newly-introduced European standards will be permitted.The aid rate may not exceed 50% in Objective 1 regions and 40% in other regions.Eligible expenses include the construction and improvement of immovable property, the acquisition of machinery and equipment and general expenses.If the aid for investment is paid under a regional aid scheme, it may be applied at the rates approved under that scheme.The aids will be granted only if normal market outlets can be found for the products. No aid may be granted for products that imitate or take the place of milk and milk products.Aids for an initial investment in excess of EUR 25 million or where the actual amount of aid is more than EUR 12 million must be notified to the Commission.
• Aids for investments to promote the diversification of farm activities that are not linked to production, processing or marketing of agricultural products, such as farm tourism or the development of craft industries, fall outside the scope of these guidelines. They will be examined therefore in the light of the other rules governing State aids. Where the investments do not exceed the maximum set by the rural development Regulation, the Commission will consider them as aids for investments in agricultural holdings. Aids for larger-scale investments will be assessed as aids for processing and marketing.

Environmental aid. On environmental matters, the European Union (EU) wishes to attain a high level of protection. Environmental aid schemes should be compatible therefore with the general principles of environment policy.

• Aids for investments in the environment will be assessed by analogy with aids for investments in agriculture.
• Aid for agri-environmental commitments is provided for in the rural development Regulation under which Community support is available for agricultural production methods designed to protect the environment and contribute to the upkeep of the countryside. In order to receive this aid, farmers must enter into a commitment for a period of at least five years. Member States may grant additional aid. The Commission will consider the compatibility of the aid in the light of the principles set out in the rural development Regulation.The financial incentives established by the Member States must not exceed 20% of income foregone and additional costs unless a higher rate is essential. Where a Member State decides to grant aid for a shorter period than that prescribed in the original commitment, it must demonstrate that the results obtained will be identical.
• Aid in areas subject to restrictions under Community law is provided for under the rural development Regulation. Costs incurred as a result of the implementation of Community environmental protection law have to be compensated. Aid must only be granted for tasks going beyond good farming practice. Any aid which is granted in breach of the 'polluter pays' principle must be on an exceptional, temporary and degressive basis.
• The Commission does not normally approve operating aids that relieve firms of the costs resulting from the pollution or nuisance they cause. Temporary relief designed to assist the application of national rules which go beyond Community requirements will be approved if it helps offset a loss of competitiveness. It must be degressive and be granted for no more than five years.Aid may be granted also for the development of biofuels.In order to internalise environmental costs, Member States are introducing environmental taxes or levies. At the same time, to ensure that the burden on the agricultural sector is not excessive, other taxes are being reduced. Provided that these measures are applied to the entire agricultural sector and constitute State aid, the Commission will not oppose them. If this type of aid benefits part of the sector only, it must be granted on a temporary and degressive basis, over a maximum of five years. It offsets a loss of international competitiveness and represents an incentive to reduce the use of inputs that have a harmful impact on the environment. Aids for information activities, training and advisory services will be examined in relation to the principles governing aids for production and the marketing of quality and technical assistance. Other environmental aids will be examined on a case-by-case basis in the light of the guidelines on State aid for environmental purposes.

Aid to compensate for handicaps in less-favoured areas. The rural development Regulation prohibits the payment of State aid to farmers to compensate for natural handicaps save in exceptional cases. In that case the State aid is combined with support under the rural development Regulation but must not exceed the maximum amounts specified.

Aid for the setting up of young farmers. State aid to support the setting up of new entrants may not exceed the maximum amounts approved under the rural development rules. In exceptional cases, in order to offset extremely high setting-up costs in some regions, an overrun of up to EUR 25 000 may be permitted.

Aid for early retirement or the cessation of farming activities. State aid schemes to encourage older farmers to take early retirement are permitted provided they are accompanied by the definitive cessation of commercial farming activities. Aid schemes enabling farmers to give up farming for economic reasons will be allowed.

The maximum levels set by the rural development rules may not be exceeded.

Aid for closing production, processing and marketing capacity. Aid schemes for the abandonment of capacity will be permitted if the aid is in the general interest of the sector concerned, if the beneficiary offers counterpart, if the aid is not to be used for rescue and restructuring and if there is no overcompensation for losses. It must form part of a programme for restructuring the sector with a specific timetable and must not interfere with the sound operation of the common organisation of the markets.

The counterpart will generally consist of the termination of the activity. This commitment will also bind any future purchaser.

Where the beneficiary is in financial difficulties the aid scheme will be assessed in the light of the guidelines on the rescue and restructuring of firms in difficulties.

The scheme must be accessible to all operators in the sector. The aid amount is limited to the compensation for the loss in the value of the assets or to meet the social costs required to implement the scheme. An incentive aid may also be granted. The beneficiary sector meets at least half the costs except where capacity is closed under health or environmental rules.

Aid for producer groups. Start-up aids for producer groups are permitted.

Aid allocated to associations or groups qualifying for support under the common organisation of the market will be examined on a case-by-case basis.

Other aids are granted on a temporary and degressive basis to cover the rental of premises, the purchase of office equipment, overheads and miscellaneous expenses.

In principle, the aid amount covers 100% of costs incurred in the first year, reducing by 20 percentage points in each subsequent year for a maximum of five years. No aid may be paid after the seventh year following the setting up of the organisation.

A new start-up aid may be granted, however, if the groups or associations extend their activities to include new products or sectors. It will then be restricted to those activities.

Aids granted to other agricultural associations, such as mutual support or farm services, are not covered by these guidelines.

Producer associations responsible for supervising the use of designations of origin and quality marks may apply for these aids.

Aid schemes will be authorised if the programmes can be adjusted to bring them into line with any change in the common organisation of the markets.

Aid may also be granted directly to producers to offset their contribution to the cots of running the associations and groups.

Aid to compensate for damage to agricultural production or the means of agricultural production. These aids must be paid as soon as possible after the occurrence of the operable event. Unless there is justification, they will not be approved more than three years after the occurrence of the event.

• Aid to make good damage caused by natural disasters or exceptional occurrences.The term 'natural disaster' covers earthquakes, avalanches, landslides and floods. 'Exceptional occurrences' include war, internal disturbances, strikes and, in some situations, major industrial or nuclear accidents and fires. In these cases the aid may cover up to 100% of the damage.
• Aids to compensate farmers for losses caused by adverse weather conditions. Some precipitations are not considered to be natural disasters. They may, however, cause considerable damage. Aids are provided for also in the event of damage caused to the means of production.Where damage is caused to buildings, the aid amount may cover up to 100% of the costs of renewal.These aids are paid to farmers or producer organisations.
• Aid for combating animal and plant diseases. The loss of animals as a result of an animal disease or crops affected by a plant disease does not constitute a natural disaster or an exceptional occurrence. Aids may be granted nevertheless provided they are part of a European, national or regional programme for the prevention, control or eradication of the disease. The objective of the aid measures must be preventive (screening schemes) and/or compensatory. Compensation may be granted representing the value normal of the crops destroyed and the animals slaughtered and for loss of profit.
• Aid towards the payment of insurance premiums. Member States propose insurance cover to producers against the costs arising from natural disasters and similar adverse weather conditions. Aid may be up to 80% of the cost of insurance premiums. The Commission will examine other aid schemes connected with insurance on a case-by-case basis. The company or group of companies that provide the cover must not be imposed as a requirement of the grant.

Aid for land reparcelling. Reparcelling operations contribute to the development of production. Aid may be allowed covering up to 100% of the costs incurred. Where aid for investment is granted under a reparcelling programme the aids established for investments in agricultural holdings will apply.

Aids to encourage the production and marketing of agricultural products.

State aids to improve product quality through the involvement of consultants, the introduction of quality assurance schemes (such as ISO 9000 or 14000) or risk analysis (HACCP), environmental audit and training may be granted provided they do not qualify as operating aid.

The amounts are usually limited to EUR 100 000 per beneficiary over a three-year period or 50% of eligible expenditure in the case of small and medium-sized enterprises, whichever amount is the greater. Aid to cover the cost of quality control measures undertaken by third parties or regulatory authorities only responsible for checking the use of designations of origin, organic certification or quality labels may be granted.

Where control measures are compulsory under Community legislation, the aid may cover 100% of the costs.

In the case of aids intended to cover the costs of control measures undertaken to ensure the authenticity of certificates of specific character and protected geographical indications, temporary and degressive aid may be paid during six years.

Aid for controls on organic production methods will be allowed to cover up to 100% of costs.

The degressive aids may cover 100% of the cost of controls carried out by other bodies responsible for supervising the use of quality marks and labels during six years.

14 Technical assistance. Technical aid to improve the efficiency and professionalism of agriculture may receive funding covering 100% of the costs of activities such as education and training, the provision of farm management services and consultants' fees. This type of aid should be available to all who are interested. Total support may not exceed EUR 100 000, except in the case of small and medium-sized enterprises where it may not be more than 50%, whichever is the greater.

Support for the livestock sector. The aid must be designed to maintain and improve Community livestock. It may cover:

• up to 100% of the cost of establishing and keeping herd books;
• up to 70% for tests to determine the quality or yield of livestock;
• up to 40% for investments in animal reproduction centres and the introduction of certain innovatory techniques;
• up to 30% for the rearing of male animals of high genetic quality.

State aid for the outermost regions and the Aegean Islands. Although the rural development provisions repealed various aid measures applying to the outermost regions and the Aegean Islands, the new rural development measures provide for flexibility and derogations. These aids will be examined in the light of the rural development programmes. The operating aids will also be assessed on a case-by-case basis.

Other types of aids. State aid to agriculture for research and development, advertising, subsidised short-term loans, rescue and restructuring of firms in difficulties and employment is subject to the Community's own rules.

Notification. All new aid schemes and new individual aids must be notified to the Commission. However, aid schemes providing additional financing for rural development measures need not be notified to the Commission if they have been notified and approved by the Commission as part of the programming. Any increase of more than 25% in the amount allocated to a particular measure or increase of more than 5% in relation to the overall amount foreseen must receive Commission approval.

Annual reports. Each year, before 30 June, the Member States must provide a report on all aid paid to the agricultural sector.

Application. The guidelines for State aid in the agricultural sector apply from 1 January 2000.

Last updated: 13.05.2003