Report for the Hearing delivered in Case 27/85

I — Facts, legal framework and procedure

A — Facts

1. The applicant, a company incorporated under Belgian law, produces and markets various types of margarine in several Member States under several different brand names. It is claiming compensation for damage which it considers it suffered as a result of the Christmas butter scheme, decided on at the end of 1984 and set up by Commission Regulation No 2956/84 of 18 October 1984 (Official Journal L 279, p. 4). That damage resulted from the fact that the subsidies granted by the Community for the sale of butter at a reduced price affect not merely the sale of fresh butter but also that of margarine. Furthermore, compared to earlier Christmas butter schemes, that set up in 1984 is marked by even greater reductions in prices and covers greater quantities of butter (1.6 ECU per kg for a total quantity of 200000 tonnes, of which 10400 tonnes was marketed in Belgium). That is what led the applicant to bring this action.

2. The Community market in milk products has been marked for several years by considerable overproduction. The only way of dealing with the structural excess of the supply (105.million tonnes for the 1983/84 milk year) over demand (82 million tonnes), other than measures designed to reduce production, is to store the milk in the form of butter or skimmed-milk powder and then to encourage consumption of those products or to promote their export. That imbalance gives rise to a constant and substantial increase in butter stocks, which amounted, at the end of 1984, to more than 1 million tonnes.

3. In order to dispose of those butter stocks, very costly for the Community budget, the Community has undertaken a number of schemes designed to offer butter at a reduced price to consumers or certain categories of them in order to stimulate consumption.

4. It is in that context that the Christmas butter schemes, inaugurated in 1977 and repeated in 1978, 1979, 1982 and 1984, must be placed. The quantity of butter made available, and the price reduction, increased with each scheme. Their effectiveness has been the subject of much controversy and of a special report of the Court of Auditors of 13 April 1982 (Official Journal C 143, p. 1), the conclusions of which included criticism of the ever-increasing cost and limited efficiency of such schemes.

5. In view of that situation, the Commission's report on the agricultural situation in the Community for 1984 stated (page 51) that:

6. That was precisely the purpose of Regulation No 2956/84 of 18 October 1984, Title I of which establishes the 1984/85 Christmas butter scheme and Title II of which provides for a special scheme to promote the export of old butter. The Christmas butter scheme covers 200000 tonnes with a reduction of 1.6 ECU per kilogram. Since the Management Committee did not express an opinion within the time-limit provided for, the Commission adopted the regulation, which entails expenditure of approximately 320 million ECU on the part of the Community for the Christmas butter scheme. The regulation has two aims: to increase consumption of butter and to avoid extended periods of storage.

7. The new scheme gave rise to discontent on the part of manufacturers and sellers of margarine, in Belgium as in the other Member States, who considered that they had suffered a significant loss as a result of the serious disturbance of the market in oils and fats by the sudden offering for sale of a considerable quantity of a competing, substitute product at prices considerably reduced by virtue of Community subsidies. It is for that reason that the applicant company brought the present action for damages. That action takes the form of an application for a declaration of liability. For the period from November 1984 to February 1985, the applicant estimates its loss at BFR 48151281 and points out that that figure will have to be reviewed once the reduction in sales for the period from March to June 1985 is known.

B — Legal framework

1. Article 6 (3) and (4) of Regulation 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), as amended by Council Regulation No 559/76 of 15 March 1976 (Official Journal L 67, p. 9) provides as follows:

2. Furthermore, Article 1 of Regulation No 750/69 of the Council of 22 April 1969 amending Regulation (EEC) No 985/68 laying down general rules for intervention on the market in butter and cream (Official Journal, English Special Edition 1969 (I), p. 204) provides that the Commission is to examine the situation as regards milk products in public storage which cannot be marketed on normal terms during a milk year. Appropriate measures are to be adopted in accordance with the procedure laid down in Article 30 of Regulation No 804/68.

3. Commission Regulation No 2956/84 of 18 October 1984, Title I of which sets up the 1984/85 Christmas butter scheme, is essentially based on the abovementioned provisions of Regulations Nos 804 and 985/68. The preamble to that regulation states, in particular, that:

C — Procedure

By an application lodged at the Court Registry on 1 March 1985, the applicant company brought an action under Article 178 and the second paragraph of Article 215 of the Treaty for an order directing the Commission, in the name of the European Economic Community, to compensate it for the damage it has suffered through the implementation of the 1984/85 Christmas butter scheme set up by Commission Regulation No 2956/84. It also asks the Court to order the defendant to pay the costs.

The Commission contends that the Court should dismiss the application as being without foundation and that the applicant should be ordered to pay the costs.

Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any preparatory inquiry.

II — Submissions and arguments of the parties

1. Admissibility of the action

2. Substance of the case

It should first be pointed out that the parties admit, to a certain extent, that butter and margarine compete with each other and are substitutes for each other. The Commission does not contest that fact, which was stated in the judgment of 23 February 1983 (Case 66/82 Fromançaisv Forma [1983] ECR 395). The applicant stresses that possibility of substitution and points out that the market shares of butter and margarine are influenced by two factors: the respective prices of the products and consumer preference. Any modification of one of those factors would, by reason of substitution, influence the sales of butter and margarine respectively.

(i) The compatibility of Christmas butter schemes with Community law

The applicant relies on four submissions in support of its action.

First submission: Christmas butter schemes are contrary to the principle of market stabilization laid down in Article 39 (1) (c) of the Treaty and Article 6 (3) of Regulation No 804/68 of the Council of 27 June 1968.

The aim of market stabilization laid down in Article 39 of the Treaty is merely one of a number of conflicting aims which the Community institutions must reconcile, according to the established case-law of the Court, by exercising the discretion which they have been recognized as having both by the Court's case-law and by the provisions of Regulations Nos 804/68 and 750/69. The Commission also gave particular attention to the objective of ensuring a fair standard of living for milk producers and Christmas butter schemes have a direct connection with that objective, since they permit production prices to be supported, as the Court decided in the judgment of 6 December 1984 in Case 59/83 Biovilac v EEC [1984] ECR 4057. Furthermore, the disposal of butter at a reduced price serves in particular to dispose of the stocks built up by the intervention mechanisms and which cannot be stored indefinitely. It is therefore in accordance with Article 6 (3) of Regulation No 804/68, which permits special measures to be adopted if the balance of the market is disturbed, that is to say, to derogate from the principle of market stabilization when the requisite conditions are fulfilled, and with Article 7a of Regulation No 985/68. Schemes such as Christmas butter schemes therefore undoubtedly come within the framework of the organization of the market in milk and the regulation the validity of which is contested has a solid legal basis. The Christmas butter schemes constitute an indispensable extension of the measures on which the intervention system is based by making storage possible under the most rational conditions.

Second submission: The Christmas butter scheme breaches the principle of non-discrimination laid down in Article 40 (3) of the Treaty.

(a) The applicant company claims that by selling Christmas butter, the Commission disturbed the balance of competition and gave rise to discrimination between margarine and butter manufacturers. That situation is discriminatory from two points of view. On the one hand, it permits butter manufacturers to sell their products below cost price, and on the other hand the Commission itself subsidizes such sales in such a way that the financial effects thereof are not borne by the butter producers. In that regard, it must be emphasized that although the producers of butter and margarine are in different situations, that is not due to natural causes. It is the implementation of the common agricultural policy and the choices made in the context thereof which, from the very beginning, led to milk products being sold in the Community at a price significantly above world prices. In that context, a competitive balance was set up between margarine and butter which permitted the two competing industries to maintain their positions on the market. The effect of the Christmas butter schemes was to disturb that competitive balance. Furthermore, it is incorrect to state that sales of margarine have increased to the detriment of butter and that the system of common market organizations at issue gives margarine an advantage over butter. (b) The Commission admits that to a certain extent butter and margarine are substitute products and that selling butter at a reduced price can affect sales of margarine. However, it considers that butter and margarine producers are necessarily in different situations and that the principle of non-discrimination can apply only within the limits laid down in Article 40 (3) of the Treaty. Moreover, it considers that the present structure of the common market organizations at issue entails significant advantages for margarine producers. As regards the common organization of the market in oils and fats (Regulation No 136/66 of the Council of 22 September 1966, Official Journal, English Special Edition 1965-66, p. 221), raw materials are available at world market prices. On the other hand, the price of butter is considerably higher than the world market price, with the effect that for many years there has been a steady increase in sales of margarine to the detriment of butter, in particular because margarine is offered to the consumer at half the price of butter (that claim is contested by the applicant). Thus, the subsidy granted to butter by schemes such as the Christmas butter scheme is in fact merely limited and temporary compensation for a handicap caused by the machinery of the common market organizations at issue and its only result is that subsidized butter can be sold to the ultimate consumer in the Community at prices close to those of the world market. Furthermore, the position of margarine compared to butter has improved since 1969, bearing in mind the differences between those products. It is for that reason, in particular, that it became necessary to take steps to reduce production of milk products, whereas no similar steps have been taken in the oils and fats sector since the proposed tax on oils and fats has not yet been introduced. Thus, not merely is there no prohibited discrimination to the detriment of margarine producers, but the latter have no vested right to the continuance of a competitive advantage which they enjoy.

Third submission: the Christmas butter scheme breaches the principle of proportionality.

(a) The applicant company claims essentially that sales of butter at a reduced price are neither necessary nor appropriate in order to achieve the desired aims, namely to increase consumption of butter and avoid long periods of storage. Consequently, discrimination as between traders is even less justified. If the desired aim is the stabilization of markets in the long term, short-term sales at a reduced price cannot influence the structural causes of the imbalance between supply and demand based on the Communities' price policy. They merely constitute a method of managing butter stocks by means of a rotation of such stocks and in fact merely accentuate the imbalance. If the desired objective is the reduction of stocks, such schemes are condemned to failure because the sale of butter at a reduced price takes place essentially to the detriment of fresh butter which must in its turn be stored. Furthermore, at the end of May 1985, stocks were at the same level as they had been in November 1984. There has certainly been an overall increase in the consumption of butter to the detriment of margarine, but it remains very slight and does not in any event justify the large and disproportionate costs incurred (320 million ECU for a temporary reduction in stocks of about 60000 tonnes) whereas, more importantly, it does serious damage to margarine manufacturers. There are other ways of disposing of stocks, in particular by processing or by exporting outside the Community, particularly by way of food aid. However, the measures adopted by the Commission to reduce milk production are insufficient to absorb butter stocks, which remain too high. Therefore, the continuance of the Christmas butter schemes proves that the Commission is pursuing a policy which it itself admits to be devoid of real benefit and the cost of which for the margarine industry it cannot ignore. (b) The Commission contends that since there is no unlawful discrimination, this submission is without foundation. It admits that the effectiveness of Christmas butter schemes is limited, although the effectiveness of the 1984/85 scheme is satisfactory. However, it considers that it has no other way of disposing of butter. Any additional exports, whether by way of food aid (a policy the relevance of which it is not for the applicant to assess), to State-trading countries or to other non-member countries, are impossible. With regard to measures intended to reduce butter production and consequently milk production, the Commission has done everything possible both to reduce production and to dispose of butter on external markets (inter alia the co-responsibility levy, the premium for non-marketing and for conversion, the guaranteed quantities scheme, reduction of the proportion of fats taken into account in fixing the intervention price). All that remains, therefore, is to seek to increase consumption of butter on the Community market, that is to say, to operate schemes such as the Christmas butter scheme. It cannot therefore be denied that the measure adopted was an appropriate one, in principle, to achieve the desired objectives, that is to say, an increase in sales of butter (which increased by 60000 tonnes out of a total of 200000 tonnes sold at a reduced price) and the reduction and better rotation of stocks, which may be kept for approximately two years (it was possible to reduce the period of storage in respect of 140000 tonnes of butter). Furthermore, the Commission draws attention to the contradictory nature of the applicant's argument. Either any increase in sales of butter will be to the detriment of sales of margarine, which would prove that the Christmas butter schemes are undeniably effective but would demolish a large part of the applicant's argument, or, on the contrary, the increase in the sales of intervention butter is exclusively to the detriment of fresh butter, in which case margarine manufacturers suffer no loss through such schemes. With regard to the allegedly excessive cost of a Christmas butter scheme, the Commission considers that the applicant is not entitled to be consulted on the use of the Community's budgetary resources and it cannot rely on such a submission. A private undertaking cannot set itself up as judge of the appropriateness of Community decisions. In any event, the Commission considers that a trader whose activities are not covered by the rules of a common market organization in the agricultural sector and who cannot rely either on the objectives of the common agricultural policy or on the principle of equal treatment of the agricultural producers concerned in the implementation of those objectives cannot rely on a submission alleging a failure to comply with the principle of proportionality.

Fourth submission: the contested Christmas butter scheme is vitiated by a misuse of powers.

(a) The applicant company In reality, this submission is close to that alleging an infringement of the principle of non-discrimination and a submission alleging that the Commission did not have powers to adopt such a measure. It may be formulated as follows. In Regulations Nos 804 and 985/68, the Council gave the Commission powers to adopt measures to ensure the disposal of butter stocks and not to increase consumption of butter. An increase in the consumption of butter can certainly be a means of achieving the objective of disposing of stocks but it cannot infringe the rule laid down in Article 6 (4) (a) of Regulation No 804/68 according to which the intervention system is to be so applied that the competitive position of butter on the market is maintained. Thus, measures adopted to ensure the disposal of butter stocks must be neutral from the point of view of competition. That is not the case where massive aid is granted to butter, giving it an artificial competitive advantage compared to margarine. The Commission therefore acted for a purpose other than that for which the powers and authority had been conferred on it. It deliberately disturbed the competitive balance which has existed for 10 years between butter and margarine in order to improve rather than to maintain the competitive position of butter to the detriment of margarine by authorizing and financing sales at a loss, that is to say, by granting a considerable amount of aid to butter. (b) The Commission replies that it acted unquestionably within the limits of the powers conferred on it by the Council (Article 6 of Regulation No 804/68 and Article 7a of Regulation No 985/68). According to the Commission, the idea that the competitive position of butter on the market is to be maintained means that all appropriate means are to be used to ensure that that product is competitive compared to products which may be substituted for it and not that the measures concerned must be strictly neutral from the point of view of competition with those products. The Commission adds that improving a depressed position (that of butter) clearly amounts to maintaining the position of that product. It emphasizes particularly that the applicant's analysis is falsified by the fact that it takes account only of the competitive position of butter and margarine over a very short period of time, related to the implementation of a limited measure. However, the protection and improvement of the position of an agricultural product must first of all be assessed in isolation, and not principally in regard to the position of possible competing industrial products, in order to ensure that the objectives of the common agricultural policy are respected. The objective laid down in Article 6 (4) (b) of Regulation No 804/68, which states that the initial quality of butter in so far as possible [is to be] preserved, implies clearly that the retention in stock of old butter until it can no longer be used is to be avoided and the most rational storage possible is to be ensured. That implies in particular that stocks are to be limited as far as possible solely to the needs created by seasonal variations. However, it is clear that schemes such as the Christmas butter schemes, which are designed both to increase consumption and reduce and rotate existing stocks, are in perfect conformity with that objective. The Commission points out in that regard that the average age of butter in public storage increased considerably in 1983 and again in 1984. The average age went from 3 months in 1982 to nearly 9 months in 1983 and 14 months in 1984. In principle, a considerable range of outlets is available for the most recent butter and its disposal is easier and less costly. Furthermore, the period of time during which butter may be stored, even in refrigerated warehouses, is limited to approximately two years. It is therefore always better, where equal quantities are involved, to keep the most recent butter possible in public storage. In that regard, schemes such as the Christmas butter scheme undoubtedly fulfil the objective of preserving the initial quality of the butter and of holding stocks on the most rational basis possible. The Commission concludes from all of the foregoing that by adopting Regulation No 2956/84, Title I of which sets up the Christmas butter scheme, it was pursuing at least one of the objectives defined in the basic regulations governing the sector at issue, namely the objective of a sound management of butter stocks by reducing and renewing them. Consequently, the submission alleging a misuse of powers is totally without foundation.

(ii) The measure of damages

1 Language of the Case: French.