adapting farms to health and hygiene standards in accordance with Decree No 54 of 14 January 1997 adopting the Regulation transposing Directives 92/46/EEC and 92/47/EEC on the production and placing on the market of milk and milk products, improving health and safety in the workplace in accordance with Legislative Decree No 626 of 19 September 1994, and subsequent amendments thereto, transposing Directives 89/391/EEC, 89/654/EEC, 89/655/EEC, 89/656/EEC, 90/269/EEC, 90/270/EEC, 90/394/EEC, 90/679/EEC, 93/88/EEC, 97/42/EC and 1999/38/EC on improving health and safety at work, adapting food production control standards in accordance with Decree No 155 of 26 May 1997 transposing Directives 93/43/EEC and 96/3/EC on the hygiene of foodstuffs.

work on building and/or adapting facilities for the treatment of liquid waste, work on building and/or adapting milk-collection and storage facilities, work on building and/or adapting small-scale electrical installations, work on building and/or adapting sanitation facilities, work on building and/or adapting livestock housing, work on building and/or adapting food-collection and storage facilities, the use of building materials that lend themselves to better hygiene.

Aid under the above headings includes planning and construction, the purchase of materials and ‘other costs’ (covered by ‘etc.’ in the notification).

The maximum aid intensities are as specified in Article 7 of Council Regulation (EC) No 1257/1999.

The recipients of the aid are owner farmers, farmers practising farming as their main occupation, and groups thereof, registered with the Campobasso Chamber of Commerce.

ITL 150 million (EUR 77 468) has been earmarked for funding the scheme. The latter is set to last until the funds concerned have been used up.

The aid provided for in the Decision of the Provincial Executive may not be combined with other aid having the same purpose. In this connection, recipients must sign a declaration to the effect that they will not apply for other aid for the same purpose. Regular checks are to be carried out in this respect.

The Commission initiated proceedings under Article 88(2) of the Treaty because it had doubts as to whether the scheme was compatible with the common market. Those doubts were as follows.

By virtue of Article 87(1) of the Treaty, 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, in so far as it affects trade between Member States, be incompatible with the common market.

The measures in question conform to that definition, in so far as they favour certain types of production (basic agricultural production, since the investment is made at primary production level) and can affect trade, given the wide range of products concerned (in 1998, for instance, Italy’s imports and exports of agricultural products totalled ECU 15 222 billion and ECU 9 679 billion respectively; that same year the corresponding figures for intra-Community trade in agricultural products were ECU 128 256 billion and ECU 132 458 billion respectively).

The measure in question thus falls within the definition of state aid laid down in Article 87(1) of the Treaty.

The ban on the granting of state aid is not unconditional. In this particular case the exceptions provided for in Article 87(2) of the Treaty are manifestly inapplicable and indeed have not been invoked by the Italian authorities.

Nor is Article 87(3)(a) of the Treaty applicable, since the aid is not intended to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment.

Regarding Article 87(3)(b) of the Treaty, it should be pointed out that the aid in question is not intended to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State.

The aid in question is not intended to achieve the objectives referred to in Article 87(3)(d) of the Treaty.

In view of the nature of the measure in question, the only exception which may be invoked is that provided for in Article 87(3)(c) of the Treaty, whereby aid 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, may be considered to be compatible with the common market.

The Decision of the Provincial Executive must be examined in the light of the Guidelines since it is aimed at introducing an investment aid scheme in the agriculture sector and was duly notified by the Italian authorities in accordance with Article 88(3) of the Treaty.

The Guidelines are, by virtue of 23.3 thereof, applicable to new State aids in the agriculture sector, including pending notifications by Member States, with effect from 1 January 2000.

Commission Regulation (EC) No 1/2004 of 23 December 2003 on the application of Articles 87 and 88 of the EC Treaty to State aid to small and medium-sized enterprises active in the production, processing and marketing of agricultural products is not applicable in this case because it is not possible, on the basis of the information provided regarding the recipients, to determine in every instance whether the aid is intended for small and medium-sized enterprises which are eligible under that Regulation.

According to the information transmitted by the Italian authorities, the maximum aid intensities allowed are those laid down in Article 7 of Regulation (EC) No 1257/1999, which correspond to those specified at 4.1 of the Guidelines concerning investment in agricultural holdings. The Italian authorities also referred to Measure 4.9 under the Regional Operational Programme, which covers only investment in agricultural holdings.

In the light of these indications and the above-mentioned reference, the following aid rates are applicable: 40 % in areas other than less-favoured areas and 50 % in less-favoured areas with, in both cases, an additional five percentage points if the investment is made by young farmers.

investment in agricultural holdings (4.1); investment in connection with the processing and marketing of agricultural products (4.2); investments to promote the diversification of farm activities (4.3, which refers back to points 4.1 and 4.2).

the investment should pursue one or more of the following objectives: to reduce production costs, to improve and redeploy production, to increase quality, to preserve and improve the natural environment, hygiene conditions and animal welfare standards or to promote the diversification of farm activities; the intensity of the aid must not exceed 40 % (50 % in less-favoured areas). However, in the case of investments made by young farmers the maximum rate of aid rises to 45 % and 55 % respectively; investment aid may be granted only to holdings the economic viability of which can be demonstrated by an assessment of the prospects of the holding and where the farmer processes adequate occupational skill and competence. Moreover the holding must comply with minimum Community standards regarding the environment, hygiene and animal welfare; aid may not be granted for investment whose objective is increased production unless normal market outlets can be found for the products concerned; the eligible expenses cover only: the construction, acquisition or improvement of immovable property; new machinery and equipment, including computer software; general costs, such as architects, engineers and consultation fees, feasibility studies, the acquisition of patents and licences, up to 12 % of the expenditure referred to above; land purchase, including legal fees, taxes and land registration costs; the maximum expenses eligible for support may not exceed the limit for total investment eligible for support set by the Member State in accordance with Article 7 of Regulation (EC) No 1257/1999.

the economic viability of the holdings receiving the aid must be demonstrated on the basis of an assessment of their prospects; the holdings receiving the aid must comply with minimum standards regarding the environment, hygiene and animal welfare. However, where investments are made in order to comply with newly introduced minimum standards regarding the environment, hygiene and animal welfare, aid may be granted in order to reach these new standards; the aid rate may not exceed 40 % (50 % in the case of Objective 1 regions). eligible expenses may include only: the construction, acquisition or improvement of immovable property; new machinery and equipment, including computer software; general costs, such as architects, engineers and consultation fees, feasibility studies, the acquisition of patents and licences, up to 12 % of the expenditure referred to above; land purchase, including legal fees, taxes and land registration costs; aid may not be granted for products for which normal market outlets cannot be found; aids for investments with eligible expenses in excess of EUR 25 million must be specifically notified to the Commission in accordance with Article 88(3) of the Treaty.

By virtue of 4.3 the compatibility of aids to promote the diversification of farm activities must be assessed in accordance with 4.1 where the total eligible expenses do not exceed the limit for total investment eligible for support set by the Member State in accordance with Article 7 of Regulation (EC) No 1257/1999. If that limit is exceeded the requirements applicable are those set out at 4.2 of the Guidelines.

the exact nature of the expenses eligible referred to by ‘etc.’ and a guarantee that the limit of 12 % of the other eligible expenses will be complied with as regards planning costs; the reliability of the criteria used for assessing the economic viability of the recipients; compliance, on the part of the recipients, with minimum environmental, hygiene and animal welfare standards; ruling out the possibility of aid being granted retrospectively under the scheme, i.e. without any incentive effect.

Moreover, the Italian authorities submitted no comment and provided no additional information in response to the Commission letter of 13 November 2001 initiating proceedings.

The Commission has thus not received any additional information which can dispel the doubts it harboured when it initiated proceedings under Article 88(2) of the Treaty.

In the light of the above the Commission feels that the measure notified is incompatible with the Community rules on competition and in particular with Article 87(3)(c) of the Treaty.