Report for the Hearing in Case C-341/89

I — Facts and procedure

1. The applicable Community provisions

2. The main proceedings

Heinrich Ballmann has a farm with accommodation for 60 cows, including 20 stalls in a new cowshed. Pursuant to the Community provisions concerning the additional levy on milk, he was granted a reference quantity, exempt from the levy, corresponding to the milk production of about 40 cows.

By contract of 15 June 1987, Mr Ballmann leased the 20 stalls in the new cowshed to Berthold Menkhaus, a farmer who has a reference quantity corresponding to the milk production of about 20 cows. According to the lease, Mr Ballmann and Mr Menkhaus are to provide separately for the feeding, milking, insemination and veterinary treatment of their respective cows. Their production is stored in two separate milk tanks. Apart from the general facilities of the cowshed, only the milking machinery is shared; the quantity of milk obtained by each is measured by an electronic gauge.

The Oberfinanzdirektion (Regional Finance Directorate) made it known that, as a result of entering into the lease, the lessee was to lose his status as milk producer under the applicable Community regulations and Mr Ballmann therefore commenced proceedings before the Finanzgericht (Finance Court) for a declaration that the lessee had not lost his status as milk producer by virtue of his entering into the lease and that, consequently, the milk obtained by him should not be set against the lessor's reference quantity.

That claim was dismissed as unfounded by the Finanzgericht, essentially on the ground that the lessee cannot make use of his reference quantity within the lessor's operating unit; Mr Ballmann appealed on a point of law to the Bundesfinanzhof (Federal Finance Court).

Considering that the decision to be given depended essentially on the meaning to be attributed to the term producer under Community law, the Bundesfinanzhof stayed the proceedings and referred the following questions to the Court for a preliminary ruling:

3. Procedure before the Court

The order for reference was received at the Court Registry on 3 November 1989.

Pursuant to Anicie 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted by the Commission of the European Communities, represented by its Legal Adviser, Dierk Booss, and by Klaus-Dieter Borchardt, a member of the Commission's Legal Department, acting as Agents.

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.

By decision of 20 September 1990, pursuant to Article 95 of the Rules of Procedure, the Court assigned the case to the Third Chamber.

II — Written observations submitted to the Court

Written observations were submitted by the Commission of the European Communities.

1. The first question

In the Commission's opinion, the answer to the first question depends essentially on who, under the rules on the additional levy, must be regarded as the producer of the quantities of milk obtained in the leased stalls. Since the definitions in Article 12(c) and (d) of Regulation No 857/84 are framed in broad terms, a producer may be regarded as any person who manages an agricultural holding, the latter characteristically comprising a collection of production units managed by the producer, without the status of producer being conditional upon ownership of the production units in question. As the Court held in its judgement in Case C-5/88 Wachau/[1989] ECR 2609, the transfer of a holding or part of a holding to a lessee does not exclude the existence of a production or marketing undertaking within the meaning of Article 12 of Regulation No 857/84.

The interpretation whereby a lessee of production units may also be a producer for the purposes of the additional levy system is also in harmony with realities and conforms to the spirit and purpose of that system. It is usual, not only in Germany but also in other Member States, for a farmer to lease production units of the most modern type available in order to produce the reference quantity attributed to him. That approach not only allows the farmer to turn his investment to better account but it is also entirely in conformity with the system of guaranteed quantities, since it tends to improve competitiveness and the quality of milk production.

In the light of the foregoing, the Commission rejects as unacceptable the interpretation whereby the status of producer is inseparable from the production facilities for the reference year (1983) on the basis of which the reference quantity was granted, and whereby unprofitable holdings must in due course disappear from the market in order to limit production.

In the first place, the Commission observes that the milk quota system is not intended to eliminate all milk production but rather to ensure production, however limited, under the best possible technical and structural conditions. That objective is compatible with a case where a milk producer, in order to produce the reference quantity attributed to him, moves from his old production facilities to more modern, and therefore more profitable, units which he manages on his own account, under a lease.

Furthermore, that conclusion does not conflict with the principle embodied in the milk quota system of a link between the reference quantity and the land. That principle is intended solely to restrict the free trade in reference quantities and the speculation to which such a practice might give rise (see Article 7(1) of Regulation No 857/84). However, it relates only to circumstances where it is intended to transfer reference quantities, as for example in the case of the sale or leasing of a holding or part of a holding. The principle of the link with the land does not thereby imply that the reference quantity must be produced using the production units which yielded the milk production taken as a basis for fixing the reference quantity for 1983. It follows that the quantity of milk which a farmer obtains from production units which he has leased may in principle be set against the reference quantity allocated to him.

2. The second question

According to the Commission, the second question concerns the specific conditions under which the quantity of milk obtained by the lessee in the leased production units may be set against the reference quantity allocated to him.

Those conditions are affected by the link, provided for in Article 12(c) and (d) of Regulation No 857/84, between the production of milk and the producer's holding. The status of producer implies that the person concerned directs and manages the holding or milk production unit on his own account. That principle derives from the condition essential to application of the system, namely clear apportionment between the persons concerned of the quantity of milk produced on a holding.

Where there is a lease, that apportionment may on occasion prove difficult if the parties are both milk producers, as in the present case. In such circumstances, the decision as to the apportionment of the quantities of milk produced in the production units covered by the lease depends essentially on the terms of the lease and the actual production conditions. In that context, the lessee may have the quantity of milk concerned attributed to him where the leased production units are managed in such a way as to ensure a clear and unequivocal delimitation between the deliveries of milk and records of quantities thereof produced by the lessor and the lessee in their respective production units. It is, according to the Commission, the responsibility of the national court to appraise the circumstances of the present case.

Consequently, the Commission suggests that the Court give the following answer to the questions submitted:

1 Language of the case: German.