CAP Policies: State Aid

22 July 2009
by inadim -- last modified 23 July 2009

The maintenance of a system of free and undistorted competition is one of the basic principles of the European Union. Community policy in respect of State aids seeks to ensure free competition, an efficient allocation of resources and the unity of the Community market, whilst respecting the international commitments of the EU.

Introduction

State aid rules in the agricultural sector are based on three different perspectives. Firstly, the agricultural State aid rules follow the general principles of competition policy. Secondly, State aid rules in the agriculture sector have to be coherent with the Community's common agricultural and rural development policies. Finally, the rules have to be compatible with the Community's international obligations, in particular the WTO Agreement on Agriculture.

These different perspectives have resulted in some legal instruments which are in force only in the agricultural sector. The agricultural sector is defined as the trade in and the production of products listed in Annex I of the Treaty. On the other hand some of the general legal instruments of Community competition policy are not relevant for State aids in the agricultural sector such as the rules on De Minimis aid.

This page offers you the text of the agricultural State aid instruments that are in force at the moment. Furthermore, you will find links to other relevant sites and links to Commission Decisions concerning State aids.

Background

The maintenance of a system of free and undistorted competition is one of the basic principles of the European Community. Community policy in respect of State aids seeks to ensure free competition, an efficient allocation of resources and the unity of the Community market, whilst respecting the international commitments of the European Union.

Article 33 of the Treaty defines the objectives of the common agricultural policy. In working out the common agricultural policy and the special methods for its application, account has to be taken of the particular nature of agricultural activity, which results from the special structure of agriculture and from structural and natural disparities between the various agricultural regions, the need to effect the appropriate adjustments by degrees and the fact that agriculture constitutes a sector closely linked with the economy as a whole.

The entry into force of Council Regulation (EC) no 1698/2005 prompted the initiative to revise, update and consolidate the rules followed by the Commission when assessing proposals from Member States to grant State aid in the agricultural sector and applying one of the exemptions established by art.87 paragraphs 2 and 3 of the EC Treaty. In 2006, following multilateral consultations with the Member States, the Commission adopted new comprehensive Community Guidelines for State aid in the agricultural sector that entered into force on January 1, 2007.

In providing a new clear framework for the different types of State aids allowed, the guidelines take particular account of the new developments in agricultural policy and especially of the need, on the one hand, to improve and promote the quality of agricultural products and, on the other hand, to preserve the environment and the traditional heritage in the countryside.

The starting point for the new guidelines is that any State aid for the agricultural sector must be compatible with the Community's common agricultural and rural development policies and with the Community's international obligations, in particular the WTO Agreement on Agriculture. In particular, any State aid which will interfere with the mechanisms of the common organisations of the market is prohibited because the Member States, when adopting the CMO regulations, have decided to rule out the possibility for unilateral aid measures which interfere with Community support for product prices.

Furthermore, in accordance with the principles laid down by the Court of Justice, State aid must make a real contribution to the development of certain economic activities or certain regions. State aid which is simply intended to improve the financial situation of the recipient, without any counterpart from the beneficiary, can never be considered compatible with the EC Treaty.

In the light of these general principles, the guidelines describe the main types of aid, which the Commission can accept, and the conditions attaching to the granting of the aid. These can be summarised as follows:

• aids for investments on farms can normally be permitted at up to 40% of eligible expenses, or 50% in the less favoured areas; higher rates of aid may sometimes be allowed for investments linked to the conservation of traditional landscapes, the relocation of farm buildings in the public interest, or to the improvement of the environment, animal welfare or hygiene;
• aids for investments in the processing and marketing of agricultural products will from now on be governed by the provisions applicable to State aid in the industrial sector. The aid intensity, however, will be, in general, higher than for the industrial sector
• aids granted in return for agri-environmental undertakings given by farmers and other environmental aids;
• aids to compensate for handicaps in less favoured areas;
aids to help the setting-up of young farmers;
• aids for early retirement, the cessation of farming activities, or the closure of production, processing and marketing capacity;
• aids for the establishment of producer groups;
• aids to compensate for damage caused to agricultural production or the means of production caused by natural disasters or exceptional occurrences, adverse weather conditions or outbreaks of animal or plant disease, and aids granted to encourage insurance against such risks;
• aids to encourage the production and marketing of quality agricultural products, the provision of technical support for producers and the improvement of the genetic quality of livestock;
• aids to grant specific support for the outermost regions and the Aegean islands.
• Natura 2000 payments and payments linked to Directive 2000/60/EC;
• aid for meeting standards;
• aid for advertising of agricultural products;
• aid relating to exemption from excise duties as provided for in Directive 2003/96/EC (taxation of energy and electricity);
• aid for the forestry sector.

In addition to these categories of aid, which are specifically covered in the guidelines, aid may also be granted in accordance with other Community texts for research and development, for rescue and restructuring farms in difficulty, and to support employment.

In practical terms, the treatment at Commission's level of the specific cases related to state aids in the agricultural sector are under the responsibility of the Directorate General of Agriculture.

By state aids on agriculture it should be understood all State aids, including aid measures financed by parafiscal taxes, granted in connection with activities related to the production, processing and marketing of agricultural products.

'Agricultural product' means: products listed in Annex I of the Treaty, products falling under CN codes 4502, 4503 and 4504 (cork products), processed agricultural products where the product resulting from the operation remains such a product and products intended to imitate or substitute milk and milk products, excluding those products covered by Council Regulation (EC) 104/2000 of 12 december 1999 on the common organisation of the market in fishery and aquaculture products).

Source: European Commission