JUDGMENT OF 14. 1. 1981 — CASE 35/80 DENKAVTT NEDERLAND v PRODUCTSCHAP VOOR ZUIVEL

In Case 35/80 REFERENCE to the Court under Article 177 of the EEC Treaty by the College van Beroep voor het Bedrijfsleven [Administrative court of last instance in matters of trade and industry], The Hague, for a preliminary ruling in the proceedings pending before that court between

THE COURT composed of: J. Mertens de Wilmars, President, P. Pescatore (President of Chamber), Lord Mackenzie Stuart, A. O'Keeffe, G. Bosco, A. Touffait and O. Due, Judges, Advocate General: H. Mayras Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts and Issues

I — Facts and written procedure

II — Observations submitted pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC

III — Oral procedure

Decision

First question

Second question

Third question

Fourth question

Costs

I —. Facts and written procedure

1. Article 10 of Regulation (EEC) No 804/68 of the Council of 27 June 1968 on the common organization of the market in milk and milk products (Official Journal, English Special Edition 1968 (I), p. 176) introduced financial aid for skimmed milk and skimmed-milk powder produced in the Community for use as reedingstuffs. The general rules relating to the grant of that aid were laid down by Regulation (EEC) No 986/68 of the Council of 15 July 1968 (Official Journal, English Special Edition 1968 (I), p. 260), Article 2 (1) of which mentions, amongst the products for which aid may be granted, (i) skimmed milk produced and processed in a dairy and sold to farms where it is used as feed and (ii) skimmed-milk powder used in the manufacture of compound feedingstuffs. Article 2a of that regulation, which was inserted by Regulation (EEC) No 666/74 of the Council of 28 March 1974 (Official Journal 1974 L 85, p. 58), provides inter alia that the amount of the aid for skimmed-milk powder shall be fixed within a margin, which as from 22 May 1978 was between 38 and 48 units of account per 100 kilograms, and it lays down, moreover, that for skimmed milk the aid shall bear an appropriate relationship to that fixed for skimmed-milk powder. By Regulation No 1049/78 of 19 May 1978 (Official Journal 1978 L 134, p. 26) the Commission fixed the aid for the 1978/79 milk year at 4.4 units of account per 100 kilograms in the case of skimmed milk and at 43 units of account per 100 kilograms in the case of skimmed-milk powder.

2. Between 1 and 15 December 1978 inclusive the plaintiff in the main proceedings, Denkavit Nederland BV (hereinafter referred to as Denkavit), a manufacturer of compound animal feedingstuffs, used 1171063 kilograms of skimmed-milk powder in its production. The Produktschap voor Zuivel, the body entrusted with implementing aid in the Netherlands, granted Denkavit aid at the rate of HFL 146.32 per 100 kilograms, calculated in accordance with the above-mentioned provisions.

3. By judgment of 22 January 1980 the court before which the appeal had been brought stayed the proceedings and submitted the following questions to the Court of Justice pursuant to Article 177 of the EEC Treaty:

4. In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted by Denkavit and the three associations intervening in its support, all represented by W. Alexander, of the Bar of The Hague, and by the Commission of the European Communities, represented by H. Bronkhorst, a member of its Legal Department, acting as Agent.

II —. Observations submitted pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC

(a). skimmed milk produced and processed in a dairy differentiated from other skimmed milk in a manner to be specified and sold to farms where it is used as feed at a price not exceeding any maximum price which may be fixed;

III —. Oral procedure

1. By judgment of 22 January 1980, which was received at the Court on 28 January 1980, the College van Beroep voor het Bedrijfsleven submitted to the Court, pursuant to Article 177 of the EEC Treaty, several questions on the interpretation of Regulation No 986/68 of the Council of 15 July 1968 laying down general rules for granting aid for skimmed milk and skimmed-milk powder for use as feed (Official Journal, English Special Edition 1968 (I), p. 260) and on the validity of Commission Regulation No 1049/78 of 19 May 1978 fixing, for the 1978/79 milk year, the amount of the aid for skimmed milk and skimmed-milk powder for use as feed (Official Journal 1978, L 134, p. 26).

2. Those questions have been raised in the context of a dispute between a manufacturer of compound animal feedingstuffs and the Produktschap voor Zuivel, which is the national intervention body in the Netherlands entrusted with implementing the Community system of aids for milk. The dispute is concerned with the amount of the aid for skimmed-milk powder granted to the said manufacturer by that body in respect of the quantity of that product used between 1 and 15 December 1978.

3. The national provisions applied in the present case by the Produktschap voor Zuivel are based on Commission Regulation No 1049/78 of 19 May 1978 fixing the amount of the aid for skimmed milk and skimmed-milk powder for use as feed. Article 1 of that regulation fixed the amount of aid to be applied as from 22 May 1978 at 43 units of account per 100 kilograms for skimmed-milk powder and 4.40 units of account per 100 kilograms for skimmed milk. The power to fix the aid for skimmed milk and for skimmed-milk powder was in fact conferred upon the Commission by Regulation No 662/74 of the Council of 28 March 1974 (Official Journal 1974, L 85, p. 51) which extended to the fixing of these aids the procedure known as the Management Committee procedure provided for in Article 30 of Regulation No 804 of the Council of 27 June 1968 on the common organization of the market in milk and milk products (Official Journal, English Special Edition 1968 (I), p. 176).

4. The aforementioned manufacturer appealed against the decision of the Produktschap voor Zuivel awarding it the said aid on the ground, in particular, that that decision was based upon a regulation which contravened Regulation No 986/68 of the Council by providing for a higher level of aid for liquid skimmed milk than for skimmed-milk powder, lacked an adequate statement of the reasons upon which it was based and entailed discrimination in breach of the Treaty.

5. It is in order to decide this issue relating to the validity of Commission Regulation No 1049/78 that the national court before which the appeal was brought has submitted to the Court of Justice in the present reference questions relating to the interpretation of Regulation No 986/68 of the Council.

6. In its first question the national court asks the Court of Justice whether the words appropriate relationship, which occur in the second sentence of Article 2a (3) of Regulation No 986/68, require that the aid for skimmed milk and the aid for skimmed-milk powder must in every case be fixed according to the criterion which is set forth in Article 2 (l)(d) of that regulation and which is based on observance of the relationship which exists between one kilogram of skimmed-milk powder and the number of kilograms of skimmed milk from which the said quantity of skimmed-milk powder may be obtained. That relationship is approximately 10.75 kilograms of skimmed milk to each kilogram of skimmed-milk powder. In putting that question, the national court seeks to ascertain whether, because it fixes for skimmed milk an amount of aid which does not respect the above-mentioned criterion but is equivalent to a relationship of 9.77 kilograms of skimmed milk per kilogram of skimmed-milk powder and thereby confers on skimmed milk an advantage over skimmed-milk powder, Commission Regulation No 1049/78 is contrary to Article 2 (l)(d) and the second sentence of Article 2a (3) of Regulation No 986/68 of the Council.

7. In effect, the issue which the Court is thus called upon to decide is whether the appropriate relationship between the aid for liquid skimmed milk and the aid for skimmed-milk powder which is stipulated for by the second sentence of Article 2a (3) of Regulation No 986/68 is quite simply the fixed relationship laid down in Article 2 (l)(d) of the same regulation.

8. Article 2 (1) provides that:

9. This provisions draws a distinction between two categories of skimmed milk: on the one hand, milk falling under subparagraphs (a), (b) and (c), which is used directly as feed and, on the other hand, the specific products falling under subparagraph (d), namely milk used in the manufacture of compound feedingstuffs.

10. It is only in subparagraph (d) that Article 2 (1) adopts the principle that the aid for skimmed milk and the aid for skimmed-milk powder must be fixed in such a manner as to respect the relationship which exists between a given quantity of skimmed milk and the quantity of skimmed-milk powder which can be obtained from it. That form of drafting shows clearly that the application of that principle does not extend to all categories of skimmed milk but applies exclusively as regards the products expressly mentioned in subparagraph (d), that is to say milk produced and processed in the dairy and used in the manufacture of compound feedingstuffs. It is in fact indisputable that, at that stage of utilization, liquid skimmed milk and skimmed-milk powder must be regarded as comparable products.

11. Accordingly, it is only as respects skimmed milk produced and processed in a dairy and used in the manufacture of compound feedingstuffs that the producer of skimmed-milk powder intended for the same purpose may, by virtue of the provisions of Article 2 (l)(d) of the said regulation, claim that the aid for each of the products should be laid down in accordance with the fixed relationship indicated by those provisions.

12. So far as the products referred to in subparagraphs (a), (b) and (c) of Article 2 (1) are concerned, the criteria which must be taken into account in fixing the amount of the aid cannot therefore be derived from subparagraph (d) of that article. Those criteria are supplied by Article 2a of Regulation No 986/68 of the Council, as amended by Regulation No 666/74 of the Council, which requires that the aid for skimmed milk bear an appropriate relationship to the aid fixed for skimmed-milk powder.

13. The aforementioned Article 2a lists, in paragraph (1) thereof, the factors which must be taken into account in the creation of such a relationship. It appears from that list that the determination of an appropriate relationship between the aids for those products depends upon a complex assessment touching simultaneously on the market situation, trends in prices, the supply situation as regards skimmed milk and skimmed-milk powder and the use of those products for animal feed.

14. That assessment precludes the application of the criterion mentioned in Article 2 (1) (d) of the said regulation, which rests on observance of a fixed relationship between the aids in question. On the contrary, it implies that the Community authorities enjoy a margin of discretion in the matter which permits them to lay down the relationship between the aid for skimmed milk and the aid for skimmed-milk powder having regard to all the market information listed in Article 2a (1) and to adjust that relationship in accordance with the requirements of the common organization of the market to which the products involved are subject.

15. Commission Regulation No 1049/78 is precisely in accordance with those rules. In fact, the first recital in the preamble thereto refers expressly to Article 2a (1) of Regulation No 986/68 of the Council, thus showing that in fixing the aid for skimmed milk at 4.40 units of account per 100 kilograms and the aid for skimmed-milk powder at 43 units of account per 100 kilograms the Commission took into consideration the factors listed in that provision in order to establish between those aids an appropriate relationship within the meaning of the second sentence of Article 2a (3).

16. Moreover, the application of such a relationship between the aid for skimmed milk and that for skimmed-milk powder is not contrary to the prohibition of discrimination laid down in the second paragraph of Article 40 (3) of the Treaty.

17. Indeed, the fact that the fixing of the aid for skimmed milk used as feed must take account of several factors relating to the state of the market for that product, considered in particular in comparison with the market for skimmed-milk powder, in itself precludes a relatively larger aid for skimmed milk than that for skimmed-milk powder from being regarded as involving discrimination as against the latter product since the difference between the two aids corresponds to the needs of the markets in question and the requirements of the common organization by which the said products are covered.

18. For all these reasons the answer to the first question must therefore be that, by the words appropriate relationship, the second sentence of Article 2a (3) of Regulation No 986/68 of the Council does not require that the aids for skimmed milk and for skimmed-milk powder intended for animal feed and lying outside the scope of Article 2 (1) (d) must necessarily be fixed at amounts such that the relationship between those aids is equal to that between one kilogram of skimmed-milk powder and the quantity of skimmed milk from which it may be obtained. Therefore, since it proceeds upon a proper construction of that provision, Commission Regulation No 1049/78 does not display any invalidating factor in this respect.

19. In its second question the national court wishes to know whether, in the event of the answer to the first question being in the negative, the Commission in this case, in Article 1 of Regulation No 1049/78, exceeded the margin of discretion which it enjoyed by virtue of Article 2a (1) of Regulation No 986/68 of the Council when fixing an appropriate relationship, within the meaning of the second sentence of Article 2a (3) of that regulation, between the aid for skimmed milk and the aid for skimmed-milk powder.

20. As has already been stated, in fixing the level of aid for skimmed milk and for skimmed-milk powder used as feed, the Commission is bound to take into consideration all the factors listed in Article 2a (1) of Regulation No 986/68 so that the relationship between the two aids may accord with the needs of the market for each product and the requirements of the common organization of the markets in question.

21. Within the context of that assessment, the reasons which are such as to justify the size of the gap to be created between the aid for skimmed milk and the aid for skimmed-milk powder may not be based on the particular position of certain undertakings or groups of undertakings concerned but must stem from the sector concerned as a whole and from a comprehensive assessment of the relationships subsisting in the common market between the one product and the other.

22. On this matter it is not open to dispute, first, that the conditions under which skimmed milk and skimmed-milk powder used as feed are marketed and utilized are not identical, particularly because of the advantages in terms of conservation, storage and quantities required which skimmed-milk powder offers in comparison with liquid skimmed milk and, secondly, that skimmed-milk powder has access to other markets, such as that for feedingstuffs for animals other than young calves under more favourable conditions than liquid skimmed milk.

23. It is also indisputable that skimmed-milk powder may benefit from the advantages offered by the intervention system provided for in Article 6 of Regulation No 804/68, whereas skimmed milk is excluded from access to such a system.

24. Moreover, the opportunity of being offered for intervention, which is available only to skimmed-milk powder, is the source of difficulties in the functionining of the common organization of the market in question since it has precisely the effect of encouraging the processing of skimmed milk into skimmed-milk powder so that it may gain access to the intervention system with the result that it contributes to the aggravation of the financial burden afflicting that system. The figures supplied by the Commission in answer to a written question put by the European Parliament on 23 November 1979 (Written Question No 1150/79, Official Journal C 66, p. 46) reveal precisely that in 1978 the processing of skimmed milk into skimmed-milk powder increased by 8.9% in comparison with the previous year.

25. Therefore, having regard to these factors, it does not appear that in fixing the aids at levels such that the relationship between the aid for skimmed milk and that for skimmed-milk powder for use as feed was 9.77 the Commission committed an obvious error or a misuse of power or that it clearly exceeded the limits of its discretionary power.

26. For those reasons, the answer to the second question must be that in fixing the aids at levels such that the relationship between the aid for skimmed milk and that for skimmed-milk powder for use as feed was 9.77 the Commission did not exceed, in Regulation No 1049/78, the limits of the margin of discretion which it enjoys by virtue of Article 2a of Regulation No 986/68 when fixing the amounts of the aids for those products.

27. In its third question the national court asks whether, in the event of the answer to the second question being in the negative, the last sentence of Article 2 (1) (a) of Regulation No 986/68 must be interpreted as meaning that a maximum price, within the meaning of that provision, must always be fixed for skimmed milk which is sold to farms for the purpose of feed if the relationship between the amount of aid for skimmed milk and for skimmed-milk powder is fixed in such a manner that a relatively higher level of aid is provided for skimmed milk than for skimmed-milk powder and whether, consequently, because it does not fix such a maximum price, Regulation No 1049/78 must be regarded as invalid.

28. Article 2 (1) (a) of Regulation No 986/68 provides that aid may be granted for skimmed milk produced and processed in a dairy and sold to farms where it is used as feed at a price not exceeding any maximum price which may be fixed.

29. As appears from the very wording of this provision, the fixing of a maximum price for the sale by dairies of skimmed milk to farms which use it for feed is only provided for in regard to that tpye of milk and is envisaged as a possibility and not as a necessary condition for the grant of the aid.

30. To submit, as does the plaintiff in the main proceedings, that such a possibility consists in the application of an appropriate relationship which does not respect the fixed relationship mentioned in Article 2 (1) (d) of Regulation No 986/68 amounts to depriving the second sentence of Article 2a (3) of that regulation of any useful purpose, since the mandatory application of a maximum price whenever the aids in question are not laid down in accordance with a fixed relationship would have precisely the result of introducing into the criteria governing the fixing of the aid for skimmed milk which are laid down by that provision an automatic mechanism which is excluded by Article 2 (1) (a) of Regulation No 986/68 and which is contrary to the principles underlying Article 2a (1) of that regulation.

31. Having regard to these factors, therefore, the answer to the third question must be that Article 2 (1) (a) of Regulation No 986/68 of the Council does not require that a maximum price must always be fixed for skimmed milk sold by dairies to farms which use it as feed whenever the relationship between the aid for skimmed milk and skimmed-milk powder is fixed in such a manner that skimmed milk benefits from a relatively larger aid than that granted for skimmed-milk powder. The fact that Commission Regulation No 1049/78 does not provide for the fixing of such a price does not therefore affect the validity of that regulation.

32. In its fourth question the national court asks, finally, whether Commission Regulation No 1049/78 satisfies the obligation, laid down by Article 190 of the Treaty, to state the reasons upon which it is based.

33. The statement of the reasons upon which this regulation is based must be regarded and assessed in the context of the body of legislation of which this measure forms an integral part.

34. Article 2a (1) of Regulation No 986/68 sets forth the rules governing the fixing of the aid for skimmed milk and for skimmed-milk powder for use as feed.

35. The first recital in the preamble to Commission Regulation No 1049/78 contains an express reference to that provision and thus allows recognition of the criteria which it takes into account both for the fixing of the aid for skimmed milk and for the fixing of the margin to be maintained between that aid and the aid for skimmed-milk powder. The second recital in the preamble to that regulation states that the amounts of aid fixed by the regulation follow from the application of those rules to the present market situation.

36. Placed thus in the context of Regulation No 986/68, within which it takes effect, Regulation No 1049/78 satisfies the requirement, imposed by Article 190 of the Treaty, to state the reasons upon which it is based.

On those grounds, THE COURT, in answer to the questions referred to it by the College van Beroep voor het Bedrijfsleven, The Hague, by judgment of 22 January 1980, hereby rules:

1 By the words appropriate relationship the second sentence of Article 2a (3) of Regulation No 986/68 of the Council does not require that the aid for skimmed milk and that for skimmed-milk powder which are intended for animal feed and do not come within Article 2 (1) (d) must necessarily be fixed at such levels that the relationship between those aids is equal to the relationship between one kilogram of skimmed-milk powder and the quantity of skimmed milk from which one kilogram of skimmed-milk powder can be obtained. Therefore, since it proceeds upon a proper construction of that provision, Commission Regulation No 1049/78 does not display, on this point, any invalidating factor.

2 In fixing the aids at levels such that the relationship between the aid for skimmed milk and that for skimmed-milk powder for use as feed was 9.77, the Commission did not exceed, in Regulation No 1049/78, the limits of the margin of discretion which it enjoys by virtue of Article 2a of Regulation No 986/68 when fixing the aids for those products.

3 Article 2 (1) (a) of Regulation No 986/68 of the Council does not require that a maximum price must always be fixed for skimmed milk sold by dairies to farms which use it as animal feed whenever the relationship between the aid for skimmed milk and the aid for skimmed-milk powder is fixed in such a manner that skimmed milk benefits from a relatively higher level of aid than that granted for skimmed-milk powder. The fact that Commission Regulation No 1049/78 does not provide for the fixing of such a maximum price does not therefore affect the validity of that regulation.

4 Placed in the context of Regulation No 986/68, within which it takes effect, Regulation No 1049/78 satisfies the requirement, imposed by Article 190 of the Treaty, to state the reasons upon which it is based.