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1 EUROPEAN COMMISSION Brussels, C(2015) Embargo VISTA illimité(*) Subject: State aid/germany SA (2015/N) Hessen - Preservation of the diversity of genetic resources in agriculture ( animal genetic resources ) Sir, The European Commission ("the Commission") wishes to inform Germany that, having examined the information supplied by your authorities on the State aid scheme referred to above, it has decided not to raise any objections to the relevant scheme as it is compatible with the internal market pursuant to Article 107(3)(c) of the Treaty on the Functioning of the European Union ("TFEU"). The Commission has based its decision on the following considerations: 1. PROCEDURE (1) By letter of 3 March 2015, registered by the Commission on the same day, Germany notified, according to Article 108(3) TFEU, the above mentioned aid scheme. (2) The Commission sent a request for additional information to the German authorities on 28 April 2015 which the German authorities provided by letter of 22 May 2015, registered by the Commission on 26 May On 9 March 2015 a meeting with the German authorities was held. 2. DESCRIPTION 2.1. Title (3) Hessen - Preservation of the diversity of genetic resources in agriculture ( animal genetic resources ). H.E. Frank-Walter Steinmeier Federal Minister for Foreign Affairs Werderscher Markt 1 D BERLIN (*) Ce timbre porte sur l'ensemble des documents qui composent le dossier. Commission européenne, B-1049 Bruxelles Belgique, Europese Commissie, B-1049 Brussel België Telephone: 32 (0)

2 2.2. Objective (4) With the present notification the German authorities wish to introduce an agroenvironmental measure consisting in the preservation of the diversity of animal genetic resources in agriculture. The scheme promotes ways of using agricultural land which are compatible with the protection and improvement of the environment, the landscape and its features, natural resources, the soil and genetic diversity, and the reduction of production costs, in order to contribute to meeting regional, federal and European Union objectives in the area of biological diversity Legal basis (5) Directive on the Hessian programme for agri-environment and rural conservation measures (Richtlinien: Hessisches Programm für Agrarumwelt- und Landschaftspflege-Maßnahmen HALM) Duration (6) From the date of the Commission decision until 31 st December Budget (7) Overall budget is EUR , financed from the national budgetary resources. The annual budget is EUR Beneficiaries (8) Farmers or associations of farmers within the meaning of Article 4(1)(a) of Regulation (EU) No 1307/ exercising an agricultural activity on land that is used predominantly for agricultural purposes and who manage the farm themselves. The beneficiaries are micro, small and medium-sized enterprises within the meaning of Annex I to Regulation (EU) No 702/ with holdings in Hessen and are engaged in the breeding and raising of animals eligible for support. (9) Legal persons, whether governed by public or private law, or business partnerships in which the State has a share of more than 25 % are excluded from the scope of beneficiaries. (10) The number of beneficiaries is estimated to be between 101 and 500. (11) The German authorities confirmed that the aid will not be granted to undertakings in difficulty within the meaning of point (35.15) of the European Union 1 2 Regulation No 1307/2013 of the European Parliament and of the Council of 17 December 2013 establishing rules for direct payments to farmers under support schemes within the framework of the common agricultural policy and repealing Council Regulation (EC) No 637/2008 and Council Regulation (EC) No 73/2009 (OJ L 347, , p. 608). Commission Regulation (EU) No 702/2014 of 25 June 2014 declaring certain categories of aid in the agricultural and forestry sectors and in rural areas compatible with the internal market in application of Articles 107 and 108 of the Treaty on the Functioning of the European Union (OJ L 193, , p. 1). 2

3 Guidelines for State aid in the agricultural and forestry sectors and in rural areas 2014 to (the "Guidelines"). (12) In line with point (27) of the Guidelines, Germany committed to suspend the payment of the notified aid if the beneficiary still has at its disposal an earlier unlawful aid that was declared incompatible by a Commission decision (either concerning an individual aid or an aid scheme), until that beneficiary has reimbursed or paid into a blocked account the total amount of unlawful and incompatible aid including the corresponding recovery interest Aid instrument (13) Direct grant Description of the aid scheme (14) Hessen has set up several schemes aimed at the promotion of sustainable agriculture and land management. Those schemes are described in the HALM Directive. The schemes are as follows: (A) Support for cooperation in the fields of agri-environment and landscape maintenance (B) Organic farming (C.1) Crops diversification in arable crops cultivation (C.2) Retention of catch crops over the winter (C.3) Integration of naturally accented structured elements of the land parcels (D) Support for particularly sustainable practices on permanent grassland (E.1) Use of pheromone in viticulture (E.2) Maintenance of traditional-style orchards (E.3) Conservation of Hessian steel slope viticulture (G.2) Preservation of the diversity of genetic resources in agriculture (H) Promotion of biodiversity and of small scale habitat conservation in ecosystems. (15) Apart from B and C.1 schemes, which are included in the Rural Development Program (RDP) of Hessen for the period , all other schemes are financed purely from national (federal or regional) funds. The German authorities stated that in addition to the schemes included in the Hessen RDP further schemes have been established in order to sustainably promote an integrated rural development policy. The key argument for these strategic considerations were, on the one hand, the experiences gained from the implementation and evaluation of the RDP for the period and, on the other hand, the Commission recommendations in connection with this. Consequently, the German authorities decided that from a financial point of view it was not reasonable to include in the RDP small scale schemes. This was due to the complex implementation mechanisms required under the rules for the management of the European Agricultural Fund for Rural Development (EAFRD) which are partially un- 3 OJ C 204, , p. 1. 3

4 proportionate to the benefit received 4. Therefore, the German authorities notified those schemes in accordance with the applicable State aid rules 5. (16) The present decision relates to scheme G.2. The notified aid scheme aims at supporting the breeding and raising of rare and endangered local livestock species in Hessen under captive breeding programmes. The livestock species eligible for support are cattle, sheep and goats. The following local breeds are eligible for aid: Rotes Höhenvieh, Deutsches Schwarzbuntes Niederungsrind, Rhönschaf, Coburger Fuchsschaf, Weiße Deutsche Edelziege. (17) The German authorities explained that, even if the notified scheme is not part of Hessen's RDP for , it is designed in a consistent manner with Regulation (EU) No 1305/ and the rural development policy. According to the information provided, the scheme contributes to the priorities addressed in Hessen's RDP for , in particular to EAFRD priority 4(a) (Restoring, preserving and enhancing biodiversity, including in Natura2000 areas, and in areas facing natural or other specific constraints, and high nature value farming, as well as the state of European landscapes). (18) The German authorities explained that the scheme aims to make a major contribution to the conservation of the genetic potential in the agricultural sector by preserving rare and endangered breeds of farm animals. With regard to extensive grassland farming with roughage-eating species such as cattle, sheep and goats, not only the different species but in particular the variety of breeds are closely connected with the presence of different types of grassland and their species composition. The German authorities maintained that they aim to protect grassland which is threatened in terms of both area and diversity. In this regard, special importance is given to endangered local breeds, which due to their very abstemious and hardy nature can keep even difficult-to-reach and other disadvantaged areas (e.g. those with low fodder value) free of unwanted vegetation, while at the same time preserving certain habitat types through selective browsing. Promotion of local species is vital in ensuring extensive, location-appropriate farming and, thus, the preservation of habitats and species deemed worthy of protection. (19) To be eligible for aid, beneficiaries shall run the holding themselves for the duration of the commitment period and shall undertake for at least five years: (a) to keep at least five cattle, ten sheep or ten goats belonging to a breed of livestock eligible for support in each commitment year; Hessen's RDP for the period SA Hessen-Preservation of the diversity of genetic resources in agriculture; SA Hessen Use of pheromone in viticulture; SA Hessen - Maintenance of traditional-style orchards; SA Hessen - Integration of naturally accented structural elements of the land parcels; SA Hessen - Support for particularly sustainable practices on permanent grassland; SA Hessen Support of cooperation in the fields of agri-environment and landscape maintenance; SA Hessen Promotion of biodiversity and of small scale habitat conservation in ecosystems; SA Hessen - Retention of catch crops over the winter; SA Hessen - Conservation of Hessian steep slope viticulture. Regulation (EU) No 1305/2013 of the European Parliament and of the Council of 17 December 2013 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) (OJ L 347, , p. 487). 4

5 (b) (c) (d) (e) (f) to keep at least the authorised number of livestock on average across the commitment period; to register these animals in a breeding register kept by a breeding association recognised under animal breeding law; to participate with these animals in a captive breeding programme run by the breeding association; to provide the organisation running the relevant and authorised captive breeding programme with all available genetically-relevant data; to participate upon request in programmes aimed at harvesting material to put towards the minimum reserve of the "German Gene Bank for Agricultural Livestock" (Deutsche Genbank für landwirtschaftliche Nutztiere). (20) The German authorities identified the following relevant statutory management requirements of Annex II to Regulation (EU) No 1306/ as applicable to the notified scheme: SMR 4 (rules on food and feed safety), SMR 5 (prohibition on the use in stockfarming of certain substances), SMR 7-8 (rules for the identification and registration of bovine, ovine and caprine animals), SMR 9 (rules on prohibitions concerning animal feeding and animal diseases), SMR 11 (minimum standards for the protection of calves) and SMR 13 (protection of animals kept for farming purposes). The commitments related to the preservation of the diversity of animal genetic resources in agriculture are voluntary commitments going beyond the above mentioned statutory requirements and consist in the obligatory registration of the animals in a breeding register kept by a recognised breeding association (recital (19)(c)), in the obligatory participation of the beneficiary in a captive breeding programme (recital (19)(d)) and in the more extensive notification and reporting obligations on calving and lambing related thereto, which are described in detail in Annex 13 to the legal basis. (21) The German authorities confirmed that the notified scheme covers commitments to rear farm animals of local breeds which are genetically adapted to one or more traditional production systems or environments in the country and which are in danger of being lost to farming. (22) According to the information provided by Germany, the selection of eligible breeds is effected by the Hessen Ministry for Environment, Energy, Agriculture and Consumer Protection on the basis of recommendations of the Technical Advisory Group for animal genetic resources in accordance with the principles of the national programme for conservation and sustainable utilisation of animal genetic resources. The Technical Advisory Group is composed of representatives of Bund, Länder, science and animal husbandry. The information and coordination centre for biodiversity (IBV) at the federal office for agriculture and food (Bundesanstalt für Landwirtschaft und Ernährung) supports the implementation of the national programme by providing documentation, 7 Regulation (EU) No 1306/2013 of the European Parliament and of the Council of 17 December 2013 on the financing, management and monitoring of the common agricultural policy and repealing Council Regulations (EEC) No 352/78, (EC) No 165/94, (EC) No 2799/98, (EC) No 814/2000, (EC) No 1290/2005 and (EC) No 485/2008 (OJ L 347, , p. 549). 5

6 information, advisory and coordination services. This includes the continuous recording and documentation of the number of breeding animals in Germany, including the number of breeding females. The endangered status of the eligible breeds is certified by the Technical Advisory Group for animal genetic resources. (23) The German authorities explained that official recognition for a breeders' association requires proof of a person responsible for the breeding work, a socalled breeding manager. The skills and specialist knowledge of the breeders' association to identify animals of the breeds in danger are provided by this person responsible for managing the breeding work. (24) The aid will cover partial compensation to beneficiaries for the additional costs and income foregone resulting from breeding and keeping rare and endangered breeds, as compared to breeding and keeping conventional and profitable breeds. Transaction costs are not covered. The aid amounts are determined according to a standardised calculation model based on data gathered by an independent experts' body, the Association for Technology and Structures in Agriculture (Kuratorium für Technik und Bauwesen in der Landwirtschaft), taking into account several factors, e.g. in terms of production and feed demand. (25) The annual payment amounts to EUR 200 per eligible cow and EUR 30 per eligible sheep or goat. This corresponds, after conversion into livestock unit in accordance with the conversion rates set out in Annex II of the Commission Implementing Regulation (EU) No 808/ as laid down in point (92) of the Guidelines, to EUR 200 per livestock unit (cattle, sheep and goats). The support is calculated on the basis of the livestock population on 1 st July of the relevant commitment year. (26) The commitment period commences on 1 st April of the year following the year in which the aid application is submitted and ends on 31 st March of the fifth year. The aid application shall be submitted before the commitment period has commenced and it includes inter alia: the applicant's name and identification details, the description of the activity, the number of animals to which the commitments relate, the start and end dates of the commitment period and an overview of the commitments. The aid is paid annually upon submission of a payment claim by the beneficiary. (27) The German authorities explained that the undertakings which will carry out the operations under the present scheme will be provided with the necessary knowledge and information through the granting authority, supported by specialized offices. Additional targeted advisory and training offers also exist. (28) Measures under the notified scheme can be combined with other HALM schemes to grow crops or for other land uses. Additionally, the German authorities confirmed that the aid cannot be cumulated with aid received from other local, regional, national or EU schemes to cover the same eligible costs. 8 Commission Implementing Regulation (EU) No 808/2014 of 17 July 2014 laying down rules for the application of Regulation (EU) No 1305/2013 of the European Parliament and of the Council on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) (OJ L 227, , p. 18). 6

7 2.9. Other commitments (29) Germany made a commitment to publish the information required under point (128) of the Guidelines by the deadline set out in point (131) of the Guidelines. (30) The German authorities undertook a commitment to adjust the agro-environmentclimate commitments subject to the present State aid in case of amendment of the relevant mandatory requirements beyond which the current commitments go. 3. ASSESSMENT 3.1. Existence of State aid - Application of Article 107(1) TFEU (31) For Article 107(1) TFEU to apply, the scheme must provide an economic benefit to an undertaking which it would not have received in its normal course of business, the aid must be granted to certain undertakings, the benefit must be granted by a Member State or through State resources and the scheme must be capable of affecting trade between Member States. (32) The scheme in question confers an advantage on its recipients, as it favours only farmers in Hessen by strengthening their position on the market. This advantage is granted through State resources. According to the case law of the Court of Justice, the mere fact that the competitive position of an undertaking is strengthened compared to other competing undertakings, by giving it an economic benefit which it would not otherwise have received in the normal course of its business, points to a possible distortion of competition 9. (33) Pursuant to the case law of the Court of Justice, aid to an undertaking is likely to affect trade between Member States where that undertaking operates in a market open to intra-union trade. 10 The beneficiaries of aid operate in the agricultural sector which is a market sector where intra-trade takes place. Statistical data show that in 2013 German trade with all agricultural products with EU countries amounted to EUR million for exports and to EUR million for imports 11. The sector concerned is open to competition at EU level and therefore sensitive to any measure in favour of the production in one or more Member States. Therefore, the present scheme is liable to affect trade between Member States. (34) In light of the above, the conditions of Article 107(1) TFEU are fulfilled. It can therefore be concluded that the proposed scheme constitutes State aid within the meaning of that Article. It may only be considered compatible with the internal market if it can benefit from any of the derogations provided for in the TFEU Judgment of the Court of 17 September 1980, Case 730/79, Philip Morris Holland BV v. Commission of the European Communities, ECLI:EU:C:1980:209. See in particular the judgment of the Court of 13 July 1988 in Case 102/87, French Republic v Commission of the European Communities, ECLI:EU:C:1988:391. Source: European Commission, Agricultural Policy Perspectives, Member States factsheet-january 2015, Germany. Available at: 7

8 3.2. Lawfulness of the aid Application of Article 108(3) TFEU (35) The aid scheme was notified to the Commission on 3 March It has not been implemented before. Therefore, Germany has complied with its obligation under Article 108(3) TFEU Compatibility of aid Application of Article 107(3)(c) TFEU (36) Under Article 107(3)(c) TFEU, an aid may be considered compatible with the internal market, if it is found to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest. (37) For this derogation to be applicable, the aid must fulfil the requirements of the relevant Union State aid legislation Application of the European Union Guidelines for State aid in the agricultural and forestry sectors and in rural areas 2014 to 2020 (38) As regards the notified aid scheme, Part I, Part II, Chapter 1, Section and Part III of the Guidelines are applicable Common assessment principles Contribution to a common objective (39) As described in recitals (4) and (16) above, the objective of the present notified scheme is to introduce an agro-environmental-climate measure consisting in the preservation of the diversity of animal genetic resources in agriculture, in order to contribute to meeting regional, federal and European Union objectives in the area of biological diversity. The notified aid scheme contributes to a common objective in line with points (43) and (44) of the Guidelines. The scheme is a rural development-like measure, which is not included in the Hessen's RDP for Therefore, there is no risk of overlap and double funding is impossible. As described in recital (17), the notified aid scheme can be regarded as fitting into and consistent with the Hessen's RDP for The Commission thus considers that the conditions of point (47) of the Guidelines are met and that the scheme contributes to the objectives of rural development. (40) As explained by the German authorities (recital (18)), the scheme aims to preserve rare and endangered breeds of farm animals, making a contribution to an extensive location-appropriate farming and, thus, to the preservation of habitats and species deemed worthy of protection. Therefore, no negative impact on the environment within the meaning of point (52) of the Guidelines has been identified. Need for State intervention - Appropriateness of aid (41) Since the present scheme fulfils the specific conditions laid down in the Guidelines, as analysed below in Section , and it respects the specific form foreseen for it (as described in recital (24)), the Commission considers, in line 8

9 with points (55), (57) and (60) of the Guidelines that the aid is necessary and that it is granted by means of an appropriate instrument to address the objective of common interest. Incentive effect (42) It follows from recital (26) above that work on the relevant activity will only start after the beneficiary has submitted an aid application to the national authorities and that the aid application includes the elements required under point (71) of the Guidelines. Therefore, the condition of the incentive effect of the aid scheme is complied with. Proportionality (43) According to point (228) of the Guidelines, for local breeds in danger of being lost to farming aid must be limited to EUR 200 per livestock unit. As described in recital (25), the maximal aid amount is respected in line with point (84) of the Guidelines. The aid amounts are fixed on the basis of verifiable standard assumptions of additional costs and income foregone (recital (24)) which respect the relevant requirements of point (93) of the Guidelines. As confirmed by the German authorities in recital (28), the aid cannot be cumulated with aid received from other local, regional, national or EU schemes to cover the same eligible costs nor, in the event of combination of different HALM measures, will it be cumulated to cover the same kind of operations among those allowed under point (228) of the Guidelines. As point (106) of the Guidelines regarding the exclusion of double funding is not applicable to the notified scheme, on the basis of the above the Commission considers that the condition of proportionality is fulfilled. Avoidance of undue negative effects on competition and trade (44) Since the present scheme fulfils the specific conditions laid down in the Guidelines, as analysed below in Section , and does not exceed the relevant maximum aid amount (recitals (25) and (43)), the Commission considers, in line with point (113) of the Guidelines, that the negative effect on competition and trade is limited to the minimum. Transparency (45) Germany has committed to comply with the transparency requirements set out in point (128) of the Guidelines (recital (29)) Specific assessment according to the category of aid (46) Based on the information provided in recital (8), payments are to be granted to farmers or associations of farmers active in the primary agricultural production who undertake agri-environment-climate commitments on a voluntary basis on agricultural land. Therefore, the conditions set out in points (206) and (208) of the Guidelines are met. (47) As described in recital (18), the measure aims to preserve rare and endangered breeds of farm animals and contributes to the conservation of the genetic potential in the agricultural sector and to the protection of habitats and species deemed worthy of protection, thus promoting agricultural practices that make positive 9

10 contribution to the environment. It follows that point (209) of the Guidelines is complied with. (48) According to point (210) of the Guidelines, the aid shall cover only those voluntary commitments going beyond the relevant mandatory requirements. The German authorities identified the applicable mandatory requirements and specified the voluntary commitments (recital (20)), confirming that the present aid scheme covers only those commitments. The conditions of point (210) of the Guidelines are therefore complied with. (49) The German authorities explained (recital (27)) that the undertakings which will carry out the operations under the present scheme will be provided with the necessary knowledge and information as required under point (211) of the Guidelines. That condition is therefore fulfilled. (50) The commitments are undertaken by the beneficiaries for a period of at least 5 years (recital (18)). The requirement laid down in point (212) of the Guidelines is therefore met. (51) Points (213) to (215) of the Guidelines are not relevant for the present aid scheme and therefore not applicable. (52) As confirmed by Germany (recital (21)), the present scheme covers commitments to rear farm animals of local breeds which are genetically adapted to one or more traditional production systems or environments in the country and which are in danger of being lost to farming, in line with point (216) of the Guidelines. (53) Since the eligible species under the notified scheme are cattle, sheep and goats (recital (16)), the condition of point (217) of the Guidelines is complied with. (54) According to point (218) of the Guidelines, local breeds are considered as being in danger of being lost to farming if the following conditions are fulfilled: a) the number, at national level, of breeding females concerned is stated; b) that number and the endangered status of the listed breeds is certified by a duly recognised relevant scientific body; c) a duly recognised relevant technical body registers and keeps up-to-date the herd or flock book for the breed; d) the bodies concerned possess the necessary skills and knowledge to identify animals of the breeds in danger. Since the German authorities provided that information to the Commission, as described in recitals (19), (22) and (23) above, the Commission considers that the conditions of point (218) of the Guidelines are met. (55) The aid will cover compensation to beneficiaries for part of the additional costs and income foregone resulting from the commitments they made and it will be granted annually (recitals (24) and (26)). The requirements laid down in point (221) of the Guidelines are therefore complied with. 10

11 (56) Since the scheme does not include transaction costs (recital (24)), points (223) to (225) of the Guidelines are not applicable. (57) According to point (228) of the Guidelines, aid for local breeds in danger of being lost to farming must be limited to EUR 200 per livestock unit per year. As Germany intends to grant annually EUR 200 per livestock unit (recital (25)), the condition concerning the aid amount is complied with. (58) The Commission notes that, in line with point (724) of the Guidelines, the German authorities made a commitment to adjust the agri-environmental-climate commitments subject to the present state aid in the case of amendments of the relevant mandatory requirements beyond which the current commitments go (recital (30) above). (59) Pursuant to point (719) of the Guidelines, the Commission only authorizes schemes of limited duration. Aid schemes other than those benefiting from cofinancing under Regulation (EU) No 1305/2013 and its implementing regulation should not apply for more than seven years. It follows from recital (6) that this requirement is met. (60) The Commission notes that undertakings in difficulty are excluded from any support (recital (11)) and that Germany will suspend the payment of the notified aid if the beneficiary still has at its disposal an earlier unlawful aid that was declared incompatible by a Commission decision (recital (12)) in line with points (26) and (27) of the Guidelines. (61) On the basis of the above, the Commission considers that the requirements regarding the compatibility of aid for agro-environmental-climate commitments are fullfilled. 4. CONCLUSION The Commission has accordingly decided not to raise objections to the aid on the grounds that it is compatible with the internal market pursuant to Article 107(3)(c) TFEU. If any parts of this letter are covered by the obligation of professional secrecy according to the Commission communication on professional secrecy and should not be published, please inform the Commission within fifteen working days of notification of this letter. If the Commission does not receive a reasoned request by that deadline Germany will be deemed to agree to the publication of the full text of this letter. If Germany wishes certain information to be covered by the obligation of professional secrecy please indicate the parts and provide a justification in respect of each part for which non-disclosure is requested. 11

12 Your request should be sent electronically via the secured system Public Key Infrastructure (PKI) in accordance with Article 3(4) of Commission Regulation (EC) No 794/ , to the following address: For the Commission Phil HOGAN Member of the Commission 12 Commission Regulation (EC) No 794/2004 of 21 April 2004 implementing Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty (OJ L 140, , p. 1). 12

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