National programme of AIMA assistance for 1999. The legal basis for the proposed aid scheme is Article 3(1)(d) of Law No 610/82, which authorises AIMA, ‘using the financial resources at its disposal and based on the situation on the market and according to availability (…), to provide food products to developing countries, designated in agreement with the Ministry for Foreign Affairs and after consulting the national food institute’.

The Italian Unione nazionale dell'avicoltura (UNA) (National Union of Poultry Farmers) had asked AIMA to intervene on the market in order to offset the serious impact of the dioxin crisis on the consumption of poultrymeat.

Initially (see letter dated 17 December 1999), following the refusal of AIMA to purchase 17 000 tonnes of unsold meat, worth ITL 40 billion (approximately EUR 20 million), UNA had proposed selling some of the meat (11 450 tonnes) at reduced prices on the markets of developing countries; the difference between the actual commercial value of the goods and the selling price (approximately ITL 20 billion i.e. 50 % of the market value) would have been covered by AIMA.

After the Commission had stated in its letter dated 18 February 2000 that the aid appeared to be an export refund covering the difference between the price of poultry in the third world and its price on the Italian market (and, therefore, by its very nature incompatible with the common market, with the Community’s obligations under the World Trade Organisation and with the common organisation of the market), the Italian authorities no longer referred, in their letter dated 10 August 2000, to the initial purpose of the aid, but argued that the losses suffered by Italian poultry farmers were the result of exceptional occurrences (rather than normal market risks) and were therefore eligible for the derogation provided for in Article 87(2)(b) of the Treaty.

In their letters dated 21 November 2000 and 28 May 2001, the Italian authorities stress the vital role played by the media during the crisis and claim that the alarm triggered by the media aggravated the sharp fall in the consumption of poultrymeat (29,1 % in June, 10,1 % in July, 16,2 % in August and 5,9 % for the year as a whole compared with a year earlier). The collapse in demand caused a sharp reduction in prices, particularly in June and July (down 30 % and 30,1 % respectively compared with the same months of the previous year). In addition, in order to cope with this situation, Italian producers had to place 4 150 tonnes of chicken in storage in June, 9 271 tonnes in July and 2 595 tonnes in August because they could not dispose of it on the market.

The scheme provides for no compensation for disposing of poultry or poultry products unfit for sale or consumption.

The maximum aid planned is ITL 20 billion (EUR 10 329 138).

The Commission initiated the procedure provided for in Article 88(2) of the Treaty because of its doubts as to the compatibility of the scheme with the common market. These doubts concerned whether or not the aid in question could be viewed as an aid to compensate for losses due to an exceptional occurrence. The Italian authorities referred to Article 87(2)(b) of the Treaty, under which aid to make good the losses caused by exceptional occurrences is compatible with the common market. The notification refers to the dioxin crisis as an exceptional occurrence.

In the cases cited, the Commission approved the compensation paid to producers for losses of income because the losses of market share and the fall in consumption were caused not only by consumer alarm but also by exceptional factors that prevented normal trade in the products concerned (a series of measures taken by the authorities, combined with extraordinary behaviour on the part of consumers and the media). In the above-mentioned decisions, a direct and immediate link could be established between all the facts considered to comprise an exceptional occurrence and the losses suffered by the undertakings concerned.

The Italian authorities have so far been unable to offer convincing proof of a link between the losses of income suffered by agricultural producers and an exceptional occurrence, which would allow the Commission to approve the payment of compensation under Article 87(2)(b) of the Treaty. The rapid spread of alarm among consumers, resulting in a serious disturbance of the market on which Italian poultry farmers operate, the loss of market share and, consequently, a reduction in the normal level of turnover, does not appear, on the basis of the information available, to constitute in itself an exceptional occurrence within the meaning of the Treaty. In addition, there is nothing to show that the national or Community authorities adopted measures to prevent sales.

Even were it to be concluded that the media impact in Italy was greater than in other European countries, because of public sensitivity to questions of food safety and the existence of a strand of public opinion that was very critical of livestock-rearing systems, this would still not demonstrate the exceptional nature of the event.

The Commission looked into why Italian producers had not taken advantage of the situation to increase their sales of poultry products abroad (or even in Italy), since Italy, unlike Belgium, was not one of the countries directly affected by the dioxin crisis.

Another aspect to be clarified is the statement by the Italian authorities that poultry farmers were forced to freeze unsold meat (4 150,8 tonnes in June, 9 271,3 tonnes in July and 2 595,9 tonnes in August). This does not serve to rule out the possibility that the poultry products remaining unsold during the crisis could have been sold at a later date, in which case the losses incurred would be less than those declared during examination of this case. In addition, the Commission was not in a position to establish the quantities of meat remaining unsold due to the fall in demand caused by the fear of dioxin or the extent of overproduction based on an incorrect estimate of demand over the summer.

The Commission accordingly expressed doubts about the existence of a link between the loss of income suffered by Italian poultry farmers and an exceptional occurrence and about whether the aid could meet the requirements for approval under Article 87(2)(b) or Article 87(3)(c) of the Treaty (since, as regards the latter subparagraph, the aid did not appear to facilitate the development of a particular economic activity) or those for approval under one of the points of the guidelines.

Under Article 87(1) of the Treaty, any aid granted by a Member State or through state resources in any form whatsoever that distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods is, in so far as it affects trade between Member States, incompatible with the common market.

The measure under examination therefore constitutes state aid as defined in Article 87(1) of the Treaty.

The prohibition on state aid is not absolute. In this case, the Italian authorities invoked the derogations provided for in Article 87(2)(b) of the Treaty, under the terms of which aid to make good the damage caused by natural disasters or exceptional occurrences can be considered to be compatible with the common market.

Since the Treaty gives no definition of ‘exceptional occurrence’, it must be verified whether the dioxin crisis in Italy can be treated as an exceptional occurrence within the meaning of Article 87(2)(b) of the Treaty.

Generally speaking, the Commission cannot accept that the chemical contamination of foodstuffs intended for human consumption constitutes, in itself, an exceptional occurrence within the meaning of Article 87(2)(b) of the Treaty. In fact, the risk of contamination is a consequence of a failure to guarantee the highest quality standards throughout the food chain.

Neither the chemical contamination of products nor the fall in sales was sufficient in itself to conclude that this was an exceptional occurrence, which was the result of significant measures to restrict the marketing and exportation of these products, combined with the sharp fall in sales and prices. The alarm among consumers and their reaction to the dioxin contamination of poultrymeat were only contributing factors to the exceptional nature of the occurrence.

In the case of Italian producers, it should be noted that no measures were adopted restricting the marketing or exportation of products and no restrictive measures were adopted to protect consumer health, since the country was not directly affected by the crisis. The only unforeseeable factor that created disruption on the market was the spreading of alarm among consumers and their reaction to contamination detected elsewhere.

The situation in Italy cannot be compared with that in the countries directly affected by the crisis. The dioxin crisis was declared to be an exceptional occurrence in Belgium, not an exceptional occurrence in itself. As stressed in recitals 37 to 40, neither the chemical contamination of foodstuffs intended for human consumption nor the spread of alarm among consumers constitutes an exceptional occurrence within the meaning of Article 87(2)(b).

The Italian authorities also referred to the first BSE crisis in the United Kingdom. In that case, the extraordinary situation in the beef and veal sector was caused by the total ban imposed on the exportation of live animals and of beef and veal from the United Kingdom to other Member States and to non-member countries. The effects of the market measures adopted in response to the problem of BSE in the United Kingdom were unprecedented. The Commission pointed out that, in the context of the measures adopted to deal with the crisis, that there was a total ban on all British meat and meat products that might enter the human and animal food chain and an unprecedented fall in domestic meat consumption. The fall in consumption was related to the stringent restrictions imposed on the market, which had created a situation that could be described as exceptional.

A major factor that the Commission took into account in recognising that crisis as an exceptional occurrence was the stable and balanced situation on the market for beef and veal before the crisis. However, as shown below (see recitals 54 to 57 below) and as declared by the Italian authorities themselves (see letters dated 28 August and 15 November 2000), this was not the case with the market for chicken in Italy, on which there was already overproduction and falling prices.

In all the cases referred to above, and in particular those referred to by the Italian authorities, the exceptional occurrence occurred in the country concerned and led to the adoption of a series of restrictive, market-control and health measures which contributed to a fall in sales and prices of the products concerned.

In addition, an exceptional occurrence must at least, by its nature and its effects on the operators concerned, differ sharply from the usual situation and the conditions under which the market normally operates. The unforeseeable nature of an occurrence and the difficulty in predicting it can contribute to its exceptional nature, but are not in themselves sufficient to declare it ‘exceptional’ within the meaning of Article 87(2)(b) of the Treaty.

In this case, the alleged fall in sales is no different from other events that determine demand, such as closure of an export market. Such events are just as unforeseeable, but form part of the normal commercial risks to which an undertaking is exposed and are in no way exceptional within the meaning of Article 87(2)(b) of the Treaty.

According to the Italian authorities, Italian producers had no other market outlets, because the crisis had spread well beyond the borders of Belgium and the consumption of poultrymeat had fallen throughout Europe.

However, according to information available to the Commission, intra-Community exports of poultry in June and August 1999 remained at their usual levels and were actually slightly higher than in the previous year. Intra-Community exports in July were higher than the average for 1999 and than in the corresponding month of the previous year. Although this increase was not enough to absorb all the unsold production declared by the Italian authorities, it mitigated the impact of the crisis on producers, allowing them to sell a part of their production on the Community market. The Italian authorities provided no figures to prove the absence of other outlets on the Community market, simply stating that, because of the crisis, the consumption of chicken in all other European countries had also fallen. At the same time, they state that certain countries, such as Denmark, Greece, Spain, Ireland, Austria, Portugal, Finland, Sweden and the United Kingdom, could be taken as reference countries for comparing prices (see recital 7 above) because they were not affected by the crisis. They could therefore have provided an outlet for at least a part of this surplus production.

In addition, in view of the policy of the Commission as regards the application of Article 87(2)(b) of the Treaty in the agricultural sector, any overcompensation of losses must be ruled out.

The compensation mechanism planned by the Italian authorities is based on aid for meat produced and marketed during June and July 1999, calculated on the basis of the difference between the average price in countries not affected by the crisis and the average price in Italy. According to the Italian authorities, this difference was EUR 53,966/100 kg in June and EUR 46,218/100 kg in July. The aid is ITL 21 150/100 kg (or EUR 10,92/100 kg) and ITL 15 400/100 kg (or EUR 7,95/100 kg.

According to the Italian authorities, the poultrymeat sector was already experiencing overproduction and, consequently, producers decided in March to slaughter a percentage of the chickens they had been intending to slaughter in April and May, the aim being to reduce the supply of meat in June by 4,8 %. According to the Italian authorities, because of the dioxin crisis, 10 % of production in June was not slaughtered and marketed but rather was kept until July and August, increasing supplies during those two months. On the basis of the data available to the Commission, the number of chicks being reared increased in February, March and April, leading to an estimated 5,6 % increase in production in June.

A comparison of the data for the slaughter of chickens between May and August 1999 with those for the same months of the previous year shows an increase in the number of chickens slaughtered in May 1999, and therefore in the supply of chickens, of almost 9 %; in June 1999, the supply was down 10 % on June 1998 and in July 1999 the number of chicken slaughtered was almost 10 % up on the figure for the same month in 1998. This upward trend in supplies continued in August 1999 (6,5 %). Assuming that prices follow the supply trend, it can be deduced that prices would have fallen from their April level, when they were already lower than the European average because of overproduction. Consequently, comparing the prices of chickens in Italy in June and July with the average of prices in those countries not affected by the dioxin crisis would lead to an overestimation of the value of chickens in Italy.

Given the variability of prices of chickens in Italy and the downward trend in prices already seen before the dioxin crisis broke, no useful comparison can be made between selling prices in June 1999 and those in June 1998 and any comparison would, in any case, not reflect the overproduction that was already affecting the market for chicken in Italy and the resulting fall in prices already being felt. The statement by the Italian authorities that producers had already taken measures to correct the situation on the market, slaughtering chicks in March that were due to be slaughtered in April and May in order to reduce supplies in June and July, does not tally with the numbers of chicks being reared and, therefore, with estimates for production, which indicate an increase in supplies in June and a small reduction (1,6 %) in July. Any attempt to forecast selling prices in June and July 1999 (compared with prices in June 1998 or prices recorded in other European countries not affected by the dioxin crisis) using these figures would be no more than guesswork.

Consequently, the Commission can conclude that, since consumer alarm does not in itself constitute an exceptional occurrence within the meaning of Article 87(2)(b) of the Treaty and that the method of calculating losses proposed by the Italian authorities could lead to an overestimate of the losses suffered by Italian poultrymeat producers, the measure cannot be considered to be compatible with the common market under Article 87(2)(b).

Even if the aid is examined in the light of Article 87(3) of the Treaty, the only conclusion that can be reached is that it is incompatible with the common market. Article 87(3)(a) does not apply, because 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.

As regards Article 87(3)(b), the aid 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.

As regards Article 87(3)(d) of the Treaty, the aid is not intended to achieve the objectives laid down in that subparagraph.

Aid to compensate for losses of income related to animal diseases is governed by point 11.4. It may include reasonable compensation for loss of profit, taking into account the difficulties involved in restocking the herd or replanting and any quarantine or waiting period imposed or recommended by the competent authorities to allow the elimination of the disease before the holding is restocked or replanted. The compulsory slaughter of animals by order of the health/veterinary authorities, under a plan for preventing and eradicating the animal disease is therefore a necessary condition for granting this aid.

From the notification, it is clear that the health/veterinary authorities issued no order to slaughter animals under a plan for preventing and eradicating an animal disease, since the chemical contamination did not affect Italian undertakings. Consequently, the measure under consideration does not meet the conditions laid down in point 11.4 of the guidelines.

The aid also infringes the rules laid down in Regulation (EEC) No 2777/75, under which only the following measures may be taken in respect of the products specified in Article 1 thereof: measures to promote better organisation of production, processing and marketing; measures to improve quality; measures to permit the establishment of short- and long-term forecasts on the basis of the means of production used; and measures to facilitate the recording of market price trends. In addition, in order to take account of any restrictions on free circulation imposed in consequence of measures to prevent the spread of animal disease, exceptional measures may be taken under the procedure provided for in Article 17 to support any market affected by such restrictions. Such measures may be taken only to the extent that and for such period as is strictly necessary for the support of that market. In this case, none of these measures was adopted in Italy. It therefore follows that any other type of state aid may be granted only under Articles 87 to 89 of the Treaty. As indicated in the previous recital, the aid in question does not comply with the rules governing state aid and, consequently, is incompatible with the common market.