The role of state aids in agriculture

Overview of the relationship

between state aids and the CAP

Treaty -art. 87 (1): general prohibition

(…) any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between Member States, be incompatible with the common market.

Application to Agriculture Art. 36 of Treaty limits competition

rules to the extent to be determined by the Council in relation to Agriculture

Exceptions of art 87 not applicable Council may authorize: structural &

natural handicaps + development progs

Council’s powers to create legal instruments-art 37. CMO’s-pillar I. Agri structures & rural dev.-pillar II. State aid rules apply but subordinate

to CAP rules (a stricter approach)

State aid vs. Pillar I. Generally excluded Exceptions provided for in Council

regulations Absence of a CMO

State aid vs. Pillar II Art 51-52 of 1257/1999/EC specific

rules Co-financing exempted Additional state aid to R&D progs Pure state aid: a parallel approach Green box aids also allowed

Provisions of Accession Treaties 1995 Derogations to Finland +

Northern aid 2004 Derogations to some NMS Three-year transition Phase in of direct payments-national

„top-ups”

Top ups - Hungary CNDP scheme Maximum

level of payment (€)

Maximum rate of payment (€/unit)

Maximum level of eligible units (quota)

Beef 13 744 915 145,26 €/head 94 620 heads

Suckler cow 15 234 070 130,21 €/head 117 000 heads

Cattle extensification

10 319 368 48,76 €/head 211 620 heads

Milk 37 836 469 19,43 €/t 1 947 280 tonnes

Ewe 6 934 042 6,05 €/head* 1 146 000 heads

Ewe supplementary

1 260 000 4,20 €/head 300 000 heads

Tobacco - Burley 4 994 764 2774,87 €/ha 1 800 ha

Tobacco - Virginia

14 237 905 3508,42 €/ha 4 058 ha

Energy crops

946 485

a) arable supplement 27 €/ha

b) short rotation coppice 205,79 €/ha

16 000 ha

2500 ha

Arable 324 847 243 91,97 €/ha 3 532 138 ha

Legal categories of state aid (659/1999/EC) Existing aid (authorised or there

are legal grounds for granting) New aid (not existing+alterations)

to be notified or exempted Unlawful aid (put in effect in

contravention of art 87 (3)) Com. may order recovery

Aims of state aid Supplement structural actions

(provide extra funding+green box) Supplement direct payments-NMS

(income support+close in subsidy gap)

Fill in gaps of CAP aid systems (various)

State aid measures I-Structural Farm investments (%) Food processing (%) introduce quality assurance+ quality schemes+HACCP, ISO etc. (%) Young farmers (%) Early retirement (sum) Diversification (%) Training-human capital (%) Agri environment/LFA/POs (sum) Cessation of farming (sum) Compensate losses (sum) Animal and plant health+fallen stock (%) Reparcelling (%) Animal husbandry (high genetic value)(%) Technical aids incl. consultancy (100%) Promotion & advertisement (%) R&D (%) Employment of the disadvantaged-horizontal (%)

State aid measures II-other State aid to agri commodities under

Pillar I (fruits & vegetables PO+nuts+energy crops etc.)

Fiscal aid through general tax system + excise duty

Rescue and restructuring aid Sale of agricultural land Aid to state-owned enterprises

Forms of state aid I Capital grants (expressed in % of

investment costs) Credit subsides + soft loans (short &

investment loans) Cash grants towards costs Direct grants (payments) per ha or

heads of animals

Forms of state aid II- Guarantees

Could affect borrower and lender, both Indirect aid to borrower when state involved unless

-borrower is not in financial difficulty- borrower would be able to obtain credit on the market- linked to specific transaction, not open ended, max 80% covered -market price paid-realistic risk assessment-provision on granting of future guarantees, annual review of terms

A) similar to a credit subsidy (Net present value of cash flow of the subsidy when rate is sub market)

B) guaranteed sum*risk-cost of guarantee

Forms of state aid III- (soft money for state companies) Private investor principle Cash injection Soft loan or open guarantee from state Write off of tax or social security Maintain loss making profile with no market

perspective Purchase of shares (raise stake) of company in

financial difficulty by state Rent land at a sub-market price Forego dividends

Authorisation of state aid Normal authorisation procedure

through notification Exempt from notification (block

exemption) Exempt from notification (de

minimis) Existing schemes put in effect before

accession