The MFG is a Federal law which entered into force in 1952 and has since been amended several times, most recently on 31 October 2006. It constitutes the legal frame of the underlying aid measures at issue, and its validity is unlimited in time.

As Germany has indicated, the milk quality tests carried out in Bavaria are funded not solely from milk levy resources but also from the Land budget.

Section 22(1) of the MFG authorises the German Länder to impose a milk levy on dairies based on the quantities of delivered milk. The levies imposed by the Länder amount to up to EUR 0,0015 per kg of milk.

Germany has outlined that the milk levy imposed in the respective Länder is not applicable to imports. By contrast, exports may be subject to the milk levy.

1. 1.

   improving and sustaining quality on the basis of certain implementing provisions;

2. 2.

   improving hygiene during milking and the delivery, processing and distribution of milk and milk products;

3. 3.

   milk yield recording;

4. 4.

   advice to operators on matters relating to the dairy industry and ongoing training of young employees;

5. 5.

   advertising aimed at increasing the consumption of milk and milk products;

6. 6.

   performance of the tasks conferred by the MFG.

1. 1.

   reduce increased structural collection costs in respect of the supply of milk and cream from the producer to the dairy.

2. 2.

   reduce increased transport costs in respect of the supply of milk between dairies where such supply is necessary to ensure the supply of drinking milk to the recipient dairy's sales area, and

3. 3.

   improve quality regarding the central distribution of milk products.

Section 22(4) of the MFG provides that contributions and fees paid by dairies or their associations to establishments in the dairy industry for the purposes set out in paragraph 2 may be offset in full or in part by the revenues generated by the milk levy.

Baden-Württemberg and Bavaria grant financial support in respect of milk quality tests designated in the initiation Decision as sub-measures BW 1 and BY 1. The total funds earmarked (by both Länder combined, including general Land budget resources in the case of Bavaria) amounted to some EUR 9 million per annum.

• fat content,

• protein content,

• bacteriological content,

• somatic cell content and

• freezing point.

The tests referred to in Section 1(1) of the MGV are mandatory for the milk obtained by dairies in Germany (milk buyers).

There are no Länder other than Baden-Württemberg and Bavaria, including those Länder that do not charge a milk levy, that grant financial support for milk quality tests.

• Section 22(2), point 1, of the MFG;

• the MGV of 9 July 1980;

• the MGV Implementing Regulation of 18 May 20046;
• the Communication on the approval of Milchprüfring Baden-Württemberg e.V. [Baden-Württemberg Testing Agency], as amended on 21 July 20047;

• Sections 23 and 44 of the Baden-Württemberg Land Budget Order (LHO);

• Regulation on a levy for milk (BayMilchUmlV) of 17 October 20078;
• Regulation on the charging of levies in respect of the dairy industry of 18 May 20049, repealed by the Regulation of the Ministry of Rural Affairs and Consumer Protection of 14 February 2013 repealing the Regulation on the charging of levies in respect of the dairy industry;

• Sections 23 and 44 of the Bavarian Land Budget (BayHO).

Germany claims that these measures do not constitute aid for the following reasons: The payments are made to compensate the testing agencies for the expenditure they incur in performing public tasks.

The payments compensate for necessary burdens that the Milchprüfringe have to shoulder for performing tasks incumbent to the State. The tests ensure the safety of products with a view to protecting consumers against health hazards and providing the public with high-quality products.

Particularly important are additional tests on raw milk, which go well beyond what is required by the MGV. This allows the testing agencies to operate an inhibitor monitoring system to identify and, if necessary, penalise the addition of inhibitors to delivered milk in a targeted manner in suspected cases. The Commission notes that financial support paid in respect of these additional tests are covered by a separate Decision.

After the Commission had registered all of the measures coming under the MFG as non-notified aid by letter of 2 October 2012, Baden-Württemberg and Bavaria agreed to suspend the reimbursement of costs relating to official milk quality tests that had previously been covered by revenues from the milk levy, Instead, the dairy industry will in future reimburse the costs directly to the testing agencies. Given that the bulk of the milk levy resources in Baden-Württemberg (around 80 %) were being spent on the said official tests of delivered milk, Baden-Württemberg had, for reasons of simplification and reduction of red tape, completely abolished the collection of the milk levy as of 1 January 2013. In Bavaria, however, the suspension of the reimbursement of costs has been offset by a reduction in the milk levy rate.

On the subject of sub-measures BY 1 and BW 1 at issue here, Germany submitted the following comments that had been coordinated between the two Länder concerned.

It deemed that the cost compensation towards routine controls on milk quality to be also lawful beyond the period 2001-2006. By dint of the fact that Milchprüfring Bayern e.V. (‘MPBY’)/Milchprüfring Baden-Württemberg e.V. (‘MPBW’) had carried out the tests, no aid had been granted because there was no favouring of the dairy industry within the meaning of Article 107(1) TFEU. Even if aid had been granted (which Germany refutes), it should have been regarded as existing aid. In any case, Germany argued that the measures BY 1 and BW 1 were compatible with the internal market. It was only for reasons of legal certainty that Bavaria had temporarily suspended levy funding. Likewise, it was only for reasons of legal certainty linked to the specific situation in Baden-Württemberg that levy funding and collection had been completely suspended on 31 December 2012.

The measures BY 1 and BW 1 did not involve any aid within the meaning of Article 107(1) TFEU because dairies were not favoured by the tests carried out by MPBY and MPBW. In particular, dairies were not spared any costs that they would normally have to bear. It was incorrect to regard costs incurred in maintaining national legal obligations as typical operating costs that the undertakings in question, i.e. dairies, would usually have to bear themselves.

The same must apply when this is applied to paying the costs of milk quality tests. Because powers are allocated on a Federal basis, ‘normal taxation’ in Germany derived solely from an interplay between Federal and Land law. Accordingly, the costs of milk testing did not constitute typical operating costs for dairies.

Federal law did not lay down that dairies have to bear the costs of quality tests. The matter of who bears the costs was determined by neither the MFG nor the MGV. Section 1(1) of the MGV reads as follows: Buyers of milk shall, for the purposes of quality assessment ‘[…] have all delivered milk tested or test it themselves in accordance with Section 2(1) to (8).’

Section 2(8) merely provides that it is not the dairies but authorised testing bodies that carry out the tests. ‘Analyses may only be carried out by an testing body authorised by a competent authority under Land law. The competent authority under Land law may allow the tests to be carried out by the buyer itself.’

Consequently, Federal law (the MFG and the MGV) only stipulated that buyers of milk have a duty to ensure that analyses are carried out. Under Section 10(2) of the MFG, therefore, competence for determining how milk testing is implemented in practice (in particular as regards who bears the costs) lay with the Länder.

It was therefore determined under Land law whether the tests were carried out by a testing body or by the buyer itself. The matter of who was obliged to pay the costs (the buyer or testing body) could also be decided by the Land in question. As a result, different arrangements existed in Germany on the matter of who was required to meet the costs. In accordance with the above-mentioned case law, these formed the reference framework for resolving the question as to which costs an undertaking should ‘normally’ bear.

In Bavaria, therefore, it was MPBY that is entrusted with testing milk. It was the only authorised testing body in Bavaria. It performed public tasks as a neutral testing organisation and was therefore subject to permanent State control. The costs it incurred in this respect were covered in part from the levy charged pursuant to Section 22 of the MFG and in part, as Germany had communicated, from the general budget. Since the Länder have the power to regulate who is required to bear the costs for their particular area, certain undertakings were not favoured within the meaning of Article 107(1) TFEU if quality tests were funded within a given Land entirely or partly by the milk levy. Federal law was not the correct reference framework for determining the matter of who should bear the costs. It was therefore irrelevant that in Länder other than Baden-Württemberg and Bavaria such (partial) funding from the levy did not take place.

Within Bavaria and Baden-Württemberg all undertakings had to bear the costs equally. There was therefore no (selective) favouring of some undertakings over others.

In the alternative, Germany claimed that the sub-measures in question constituted existing aid.

The basis for funding the tests from the revenues generated by the levy was Section 22(2), point 1, of the MFG. The support granted pursuant to that provision was (at most) existing aid and was therefore subject to grandfathering. The support's status as existing aid was undermined neither by any changes nor by any appropriate measures.

Article 1(b)(i) of Regulation (EC) No 659/1999 provided that ‘existing aid’ encompasses aid which ‘existed prior to the entry into force of the Treaty in the respective Member States, that is to say, aid schemes and individual aid which were put into effect before, and are still applicable after, the entry into force of the Treaty’. The MFG was drafted in 1952 and had remained in force largely unamended ever since. The aid scheme had therefore been introduced well before the relevant qualifying date (1 January 1958).

Under the first sentence of Article 108(3) TFEU, existing aid lost its protection under grandfathering and was liable to be notified if the aid was altered. According to settled case law and decisional practice, aid could only be deemed to have been altered within the meaning of the first sentence of Article 108(3) TFEU if it had been significantly amended.

An amendment was only relevant if it affected the essential nature of the aid, if the aid was granted on a different legal basis or if it amended the scope of the scheme. The (possibility of applying) the aid scheme had not undergone any significant amendment since 1958. In particular, Section 22(2) of the MFG, which serves as a basis for the measures at issue here, had undergone only minimal changes, and point 1 of that provision, which is relevant to this case, had remained completely intact. Only point 5 of Section 22(2), which is irrelevant to this case, had been amended.

Amendments to the provisions of the individual Länder did not affect the scope or nature of the measures in question. Indeed, the purposes for which revenues from the levy could be used were stipulated by Sections 22(1) of the MFG. To the extent that individual procedural rules had been amended, this would have altered the existing aid within the meaning of the first sentence of Article 108(3) TFEU only if its compatibility with the internal market had been affected. In the case of Bavaria, the relevant Regulation on a levy for milk (BayMilchUmlV) only regulated details, e.g. concerning the collection of the levy, and the same also applied to Baden-Württemberg. The aspects relevant to the aid's compatibility with the internal market, i.e. the provenance of the funds (the levy pursuant to Section 22(1)) and the purpose for which they were used (Section 22(2)) were, however, already sufficiently set out in the MFG.

The levy rates applied in both Länder had also steadily fallen since 1984. Falling levy rates could not undermine the aid scheme's compatibility.

The 2007-2013 Guidelines did not address the matter of the compatibility of support for milk quality checks, at least not with the necessary detail. In this context, Germany referred to paragraphs 108 and 109 of the 2007-2013 Guidelines.

Article 16 of Regulation (EC) No 1857/2006, to which paragraph 109 of the 2007-2013 Guidelines referred, was concerned with ‘support for the livestock sector’ and not with milk quality checks in the sense that was relevant in this case. Article 16(1)(b) of Regulation (EC) No 1857/2006 dealt with milk quality checks linked to the breeding of animals. This was apparent from the context of the provision, which stipulated that the exemption extended to aid (up to a rate of 70 %) to determine the genetic quality or yield of livestock. If routine milk quality checks were excluded from this, then this could also only relate to checks that are generally suited to determining the yield of animals. The exception related solely to routine milk quality checks carried out directly on the dairy cow because only such checks could determine the characteristics of the animal in question. In Bavaria, this quality testing on animals was carried out by the Landeskuratorium der Erzeugerringe für tierische Veredelung in Bayern e.V. (LKV), while in Baden-Württemberg it was carried out by the Landesverband Baden-Württemberg für Leistungsprüfungen in der Tierzucht e.V.

By contrast, the milk quality testing carried out by the MPBY and the MPBW that is relevant to this case related to determining the characteristics of the milk itself (and not the genetic characteristics of the cow). The characteristics of the milk in question (e.g. fat and protein content) were relevant to the sale and placing on the market of milk. They did not allow inferences to be made concerning individual animals because they were carried out differently. Samples were not separated so as to be able to identify which cow they came from, but were instead taken from milk tankers. This meant that it was no longer possible to separate the milk according to the cow it had come from because milk from a variety of cows had already been mixed together when the sample was taken.

The 2007-2013 Guidelines should therefore not be understood as meaning that measures implemented pursuant to Section 22(2)(1) of the MFG were incompatible with the internal market. Consequently, the funding of milk quality tests in Bavaria and Baden-Württemberg by means of a levy (BY 1/BW 1) did not fall under the definition of appropriate measures.

In the alternative, Germany also argued that the measures were compatible with the internal market even if they did constitute aid.

It did not result from Article 16(1)(b) of Regulation (EC) No 1857/2006 that it was incompatible with the internal market to grant aid for controls of milk quality. Under that provision, these were not ‘automatically’ compatible with the internal market and thus exempt from the notification requirement. However, the Commission could decide in an individual case that the aid was compatible with the internal market.

Between 5 and 7 February 2014, the Commission received a total of seven letters from interested parties containing comments concerning the support granted in respect of the milk quality tests.

In its letter of 5 February, the MPBY argued that dairies had not in recent years been afforded any advantage by dint of levy funding. It was therefore completely incomprehensible how this long-standing and generally accepted system could distort competition or negatively affect trade between the Member States. In the context of the further procedure, therefore, the measures referred to [in the initiation Decision] under the heading BY 1 should, after re-examination, be regarded as settled.

Under Section 22(3) of the MFG, the funds raised had to be managed separately. They were not allowed to be used to cover the administrative costs of the highest Land authorities and their subordinate departments. They had to be shown in the Baden-Württemberg Land budget under a separate sub-heading, and the budget expressly referred to the fact that they were earmarked for a specific purpose. The revenues from the milk levy were therefore never used for purposes not falling within the scope of the MFG.

Above all, however, in the context of the tasks assigned to it, the MPBW received payments from levy resources which did not exceed the resources funded from the levy. This meant that no State funds — from taxes or other state revenues, for example — were paid to the MPBW but only the revenues accruing from the levy paid by dairies. Instead, Baden-Württemberg had merely taken on the task of organising and distributing the milk levy. The system of quality tests on delivered milk in Baden-Württemberg did not therefore lead to any financial loss to the public purse.

Since Baden-Württemberg had not granted any subsidies in addition to the milk levy and there was not any corresponding financial net cost to the Land budget, it could not have granted any aid ‘in the form of subsidised services’.

Parafiscal charges often formed the basis for systems involving the provision of services that are in the specific interest of those liable to pay them (aspect of group benefit). In such systems, those paying the levy were prima facie identical to those who benefited from the service funded by the parafiscal levy. In the case of parafiscal levies, case law therefore dictated that it must be examined whether the service received corresponds in value to the contribution (levy) paid, i.e. that there is equivalence in terms of the payment and the benefit received.

The level of the levy in Baden-Württemberg was determined according to the specific quantity of delivered milk. Dairy A that delivered twice as much milk for quality testing by MPBW would have to pay exactly twice the levy. This meant that the notion of equivalence in terms of the payment and the benefit received was not undermined.

The competent authorities in Baden-Württemberg had no discretion whatsoever in calculating the milk levy. This system also ensured that there could not be any structural net beneficiaries because all dairies were liable to the levy solely on the basis of the quantity of milk delivered and would receive services from MPBW solely on that basis.

The MPBW therefore assumed that no aid was being granted, or at least no advantage.

In its comments of 7 February 2014, the DHB — Netzwerk Haushalt considered the services provided by muva Kempten in the area of the tests carried out to detect nutritionally relevant constituents to make a vital contribution to the protection of and information available to consumers. The fact that the results of analyses were neutral and not influenced by dairies or the trade, the rapid detection of any harmful contaminants in milk and dairy products and, consequently, the ability to react quickly in a crisis situation were all elements that the DHB — Netzwerk Haushalt appreciated. These measures helped ensure that high-quality food was available to the trade and thus to consumers. The importance of these tests to all consumers could not be overestimated.

In its comments of 6 February 2014, the Nahrung-Genuss-Gaststätten Region Allgäu trade union indicated that Landesvereinigung der Bayerischen Milchwirtschaft e.V. had always been seen as a consumer-protection association. By deciding on how the resources from the levy were to be used, in particular as regards milk quality tests, it could exert significant influence to be exerted on how these tests were carried out.

According to the opinion of the Genossenschaftsverband Bayern e.V., as set out in its comments of 5 February 2014, neither individual farms nor individual milk-processing undertakings could derive any kind of competitive advantage from the charging of the levy. When routine milk quality checks had been partially funded from levy resources in the past, milk-processing undertakings had paid contributions towards the levy and therefore bore the full cost of this co-funding. In other German Länder in which no levy was charged, dairies did not pay any levies, but testing bodies neither received any levy resources.

In its letter of 7 February 2014, the Landesvereinigung der Milchwirtschaft Niedersachsen е. V. (LVN) did not comment directly on the payments granted for the milk quality tests, but it did fundamentally deny the existence of any aid for any of the sub-measures under the MFG.

On the individual issues, the LVN put forward its views that the measures funded by milk levy resources did not involve any loss to the Land budget, that the State did not have any power of disposal or control over the milk levy resources, and that the State did not exercise any control over either the amount of the levy or the content of the measures. Consequently, the payments in question could not be attributed to the State. Moreover, the State neither controlled the level of payments nor was it involved organisationally in the LVN.

It also stated that the LVN was not overseen by state bodies but rather by the Hannover Chamber of Agriculture, a public self-regulating body which therefore did not come directly under the public administration.

• Who decided about the collection and use of the funds?

• If this was a private organisation, how did the State influence this decision?

• From what resources were the payments funded?

• What type of measures were funded?

• From whom were the resources collected?

• Who was responsible for initiating the measure?

Via its legal representatives, the LVN had examined the legal situation in other German Länder and had come to the conclusion that the indicators for the existence of State aid developed by case law were not met, which meant that the MFG could not overall be regarded as comprising an aid element.

According to the LVN, it was the Land associations that decided to collect the levy from dairies. Under the first sentence of Section 22(1) of the MFG, the levy could only be collected in consultation with the Land associations. Under the second sentence of Section 22(1) of the MFG, any increase in the levy had to be requested by the Land association.

The detailed arrangements and amount of the levy were regulated in Lower Saxony and Thuringia by a Levy Collection Regulation [Umlageerhebungsverordnung (UmlErhVO)] which had been issued ‘in consultation’ with the relevant Land association.

The Land association in question also determined how the revenues from the levy, which had to be administered separately (see the first sentence of Section 22(3) of the MFG), were to be used. For this reason, they were in some cases even paid into an account belonging to the Land association (see, for example, Section 3(1) of the Thuringia Levy Collection Regulation). The Land associations thus drew up proposals under their own responsibility in the area as to how the revenues should be used. In Thuringia, for example, this occurred on the basis of applications submitted to the local Land association, the Landesvereinigung Thüringer Milch (LVTM), by its members (see point 6.3 of the Thuringia Working Guidelines [Thüringer Arbeitsrichtlinie]).

According to the LVN, each of the Land associations had the status of a public body. Their statutes made it clear that they considered themselves to represent the interests of their members, who were recruited solely from the dairy industry (including consumer representatives).

In Section 14 of the MFG, Land associations were described as ‘voluntary’ organisations made up of businesses and consumers involved in the dairy industry whose purpose it was to ensure the joint representation of their member's economic interests.

The Land associations were non-State and entirely private bodies that determined the amount and allocation of the milk levy as such on their own responsibility.

Moreover, the benefit enjoyed by the dairy industry was not a drain on the public exchequer because the milk levy was collected from operators belonging to the dairy industry, i.e. the selective ‘advantage’ was offset by a selective burden. This in itself was enough to rule out any preferential treatment or distortion of competition because the ‘advantages’ enjoyed by dairies and milk producers were offset by having to pay the levy.

The LVN also considered State aid not to exist in the event that it related to ‘collective operations’ implemented in the interests of a specific sector and funded on the basis of contributions collected from members of that sector.

The contested measures were intended solely to promote milk as a product and thus the collective interest of the dairy industry. The measures in question also partially protected consumer interests because the two purposes could not be separated from each other owing to the overlapping of interests that existed.

In summing up, the LVN stressed what it considered to be the similarities and differences between various legal cases on the one hand and the MFG on the other.

In the case VaľHor (Decision 2014/416/EU) (result: no aid), as in the case of the milk levy, the funds were collected and allocated essentially by a state-recognised private and voluntary interbranch organisation, the contributions paid by operators within the branch were used to fund collective operations for the benefit of the branch, the possibility provided for by law of state recognition of the private interbranch organisation did not in itself lead to the assumption of public control, the State could not in fact use the funds to support certain businesses, and the interbranch organisation decided itself on how the funds were to be used.

In the case Vent de Colère (C-262/12) (result: aid), unlike with the milk levy, the amount of the charge in question was fixed unilaterally by ministerial decree without the involvement of private parties, there was a state guarantee, the funds were managed by a public body and a state penalty mechanisms were put in place.

In the case Doux Elevage (C-677/11) (result: no aid), as in the case of the milk levy, the funds were collected and allocated essentially by a state-recognised private and voluntary interbranch organisation, the possibility provided for by law of state recognition of the private interbranch organisation did not in itself lead to the assumption of public control, the funds came entirely from contributions collected from economic operators, the State could not in fact use the funds to support certain businesses, and the interbranch organisation decided itself on how the funds were to be used.

In the case Plans de Campagne (T-139/09) (result: aid), unlike with the milk levy, an authority decided on the level of contributions, the income from contributions was topped up by State resources, measures were defined by the State (stamp of the State financial controller, etc.) without involvement on the part of branch committees, the latter had no discretion in applying the measures, and a representative of the Minister took part in committee meetings.

In the case Pearle (C-345/02) (result: no aid), as in the case of the milk levy, funds were used solely for the purposes of the branch in question, an association of a specific branch had asked a public body to collect contributions in order to implement certain measures for the benefit of that branch, and, unlike with the milk levy, a public and not a private professional association played an important role in collecting and allocating the compulsory levy, with the result that Pearle seemed to be more problematic than the milk levy.

Germany did not initially respond to the comments submitted by interested parties in February 2014. Germany responded to an additional opinion of the LVN dated 8 July 2014 by letter dated 3 December 2014, as follows:

In their comments in the formal investigation procedure concerning the milk levy provided for in the MFG, the German Länder in question had focused on two aspects: the consistency of the measures implemented with the material requirements of the State aid rules (in particular as regards their compatibility with the requirements of the Agriculture Exemption Regulation and the current agricultural guidelines), and the question whether there was any ‘favouring’ relevant to the State aid rules within the meaning of Article 107(1) TFEU.

The LVN's comments of 8 July 2014 and the current decisional practice of the European Courts and the European Commission gave rise to the need for additional comments of a fundamental nature concerning whether State aid within the meaning of Article 107(1) TFEU indeed existed, and in particular whether the constituent element of aid being granted ‘through State resources’ applied.

The LVN's comments of 8 July 2014 and an examination of the above-mentioned Judgments at least gave rise to doubts as to whether the element of aid being granted ‘through State resources’ applied in this case and whether, therefore, the collection and allocation of the milk levy constituted State aid. The reasons for this were as follows:

As had emerged from the cases Val'Hor (Decision 2014/416/EU) and Doux Élevage (C-677/11), measures funded and implemented by private interbranch organisations did not constitute State aid. The Land associations for milk that existed in the individual Länder were organisations that could be regarded as comparable to the organisations referred to in Val'Hor and Doux Élevage. State bodies had never been members of these Land associations. They took part in meetings without any voting rights and thus essentially as external guests. The involvement of state bodies in implementing the milk levy or monitoring compliance with the legal conditions set out in the MFG did not alter the fact that the Land associations were the competent body for selecting projects.

In actual fact, it was the respective Land associations that managed revenues from the levy and determined how they should be allocated. No State influence as a result of the ‘monitoring’ or ‘adoption’ of the Land association's proposals by State bodies existed in reality since the latter merely operated as provided for in Section 22(2) of the MFG and sought to examine whether the statutory requirements of Section 22 of the MFG were being met. The levy resources were used in accordance with the proposals which the Land associations themselves made concerning their allocation, a fact which, in accordance with the Judgment of the Court of Justice of 16 May 2002 in the case Stardust Marine (C-482/99), clearly indicated that they were not State resources.

The Land associations were purely private organisations. This fact, together with the observation that the Land associations managed the milk levy and how it was used, was a clear indication that the milk levy should, in line with the above-mentioned case law, not be classified as State aid.

The existence of State aid was further disproved by the fact that the milk levy resources were purely private resources. They were resources derived from the assets of the private undertakings that were required to pay the levy. In the case of the milk levy, there was no State funding or guarantee, in contrast to the situation in Cases C-262/12 (Vent de Colère) and T-139/09 (Plans de Campagne), in which it was found that State aid existed for this very reason.

Moreover, the milk levy was a collective, industry-wide measure which, in accordance with the current legal situation as established in cases Val'Hor (Decision 2014/416/EU) and Doux Élevage (C-677/11), militated against the existence of State aid.

It was also doubtful whether any advantage was conferred by the scheme, something that it would have to do if it were to be assumed to constitute aid. This was because the advantages enjoyed by dairies and milk producers were fully cancelled out or ‘neutralised’ by the levies paid by dairies and thus indirectly by milk producers. This was also confirmed by the Judgment of the Court of Justice of 19 December 2013 in the case Vent de Colère, in which it was also deemed that State aid existed because the costs were no longer met solely by operators in the branch but by all domestic electricity consumers.

It followed from these points, some of which had emerged from a re-examination of the milk levy scheme and from the fact that the German Länder in question were maintaining their current position, that doubts existed as to whether the milk levy system did constitute State aid. This question, and in particular whether the ‘State resources’ element existed, had to be answered by the European Commission.

Article 107(1) TFEU lays down that any aid granted by a Member State or through State resources in any form which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods and affects trade between Member States is incompatible with the internal market.

It must be examined on the basis of the available information and, in particular, the comments submitted by the interested parties and by the German authorities whether the milk levy resources constitute State aid within the meaning of Article 107(1) TFEU.

With regard to the measures described above in Section 2 of the present Decision, it is apparent that support is granted on the basis of legal provisions of the German Länder, for which in turn the MFG constitutes the legal framework.

Specifically, the first sentence of Section 22(1) of the MFG provides that the Land Governments, acting in consultation with the Land association or professional organisations, may collect levies of up to 0,1 cent per kilogram of delivered milk jointly from dairies, milk collection centres and creameries. Under the second sentence of Section 22(1) of the MFG, Land Governments may, if requested to do so by the Land association or professional organisations, collect joint levies of up to 0,2 cents per kilogram of delivered milk if the levies provided for under the first sentence are not sufficient for the performance of tasks.

In the case in hand, a levy is collected from private undertakings. Revenues from this levy accrue to the respective Land budget before they are used to fund the various support measures and, under the first sentence of Section 22(3) of the MFG, must be managed separately within it. Under Section 23 of the respective budgetary ordinances (see recital 25), expenditure and commitment appropriations for payments to bodies outside the Land administration to meet specific purposes (subsidies) may only be made available if the Land has a significant interest in the bodies in question fulfilling a given purposes that cannot be satisfied, or not to the necessary extent, without subsidies. This requirement implies the State interest in the measures being implemented.

In response to the arguments presented by the interested parties and by Germany, the Commission finds as follows:

With regard to the LVN's assertion that it is the Land associations that actually decide to collect the levy from dairies (recitals 82 to 86 and 91), the Commission considers that it is the Federal Government that, on the basis of Section 22(1) of the MFG, has empowered the Land Governments to collect a milk levy. That provision stipulates, inter alia, that the milk levy may normally amount to 0,1 cents per kilogram and that the Land Government may increase the levy to 0,2 cents per kilogram if requested to do so by the Land association or jointly by the professional organisations.

In addition, Section 22(2), points 1-6, of the MFG stipulates the purposes for which milk levy resources may be used.

Under the third sentence of Section 22(3) of the MFG, the Land association or professional associations must merely be consulted before the resources are used.

This indicates that, although the State (at Federal level) grants the Land associations certain rights of participation, it has nevertheless established a clear legal framework in that the respective Land governments (or in case of delegation the oberste Landesbehörden) decide on the rates that must be applied in respect of the milk levy and how the resources are to be used. It would not, for example, be possible for the rate of the levy to be increased to more than 0,2 cents per kilogram if the Land associations were to request this or that the resources were used for purposes other than those set out in Section 22(2), points 1-6, of the MFG. Moreover, the duty of consultation in respect of usage of the resources (third sentence of Section 22, paragraph 3 of the MFG) does not in any way require the views of those consulted to be followed. The final decision as to how the resources are to be used lies with the respective Land authorities, i.e. with the State.

This distinguishes this case significantly from the Doux Elevage Case cited by the LVN. Collection of the milk levy and the allocation of the corresponding resources is regulated by the State at two levels, i.e. Federal and Land. In Germany, the legislator has not only granted the Land Governments the power to collect the levy but has also restricted the margin available to dispose at Land level of the resources generated from levies by Federal law. The Land associations are not able to seek to amend the objectives that may be promoted as set out in Section 22(2), points 1-6, of the MFG, for example by submitting a request to that end. A State restriction of this nature did not form part of the facts on which the Val'Hor und Doux Elevage Cases were based.

Moreover, the MFG cannot be understood merely as a means of enforcing purely economic interests of an interbranch organisation. Section 14 of the MFG stipulates, for example, that, if they wish to participate, professional organisations acting for agriculture, dairies and the dairy trade must be represented within it, while an appropriate representation of consumers must also be ensured in the bodies of the association. With these requirements concerning participation and representation, the legislator (and hence the State) ensures that when pursuing the objectives of public nature as referred to in the MFG all interests are represented in the widest possible manner, thus going well beyond the mere promotion of an economic sector.

Thus, the above arguments disprove the LVN's assertion that the milk levy resources are not State resources within the meaning of Article 107(1) TFEU.

This is even truer with regard to the general budget resources used in Bavaria to finance the milk quality tests at issue. These resources constitute likewise State resources within the meaning of Article 107(1) TFEU.

The recipients of payments of State resources are initially MPBW and MPBY. They conduct laboratory tests on the State's behalf. However, these tests are ultimately of benefit to dairies because it is they who are required by law to test the milk delivered to them. The laboratory tests are thus services which MPBW and MPBY provide for the dairies. The dairies may therefore be regarded as beneficiaries of aid granted in the form of benefits in kind. It is beyond doubt that the dairies are undertakings within the meaning of Article 107(1) TFEU. Any possible advantage is granted to ‘certain undertakings’, because there are many other economic sectors other than the dairy sector that do not benefit from the measures in question. The possible advantage being conferred is thus selective.

Under Section 1(1) of the MGV, the dairies, as commercial buyers of milk, are required to have all delivered milk tested or to test it themselves. As when they test it themselves, in which case the costs necessarily have to be borne by the dairies, the costs arising when milk is submitted to a testing body for testing is to be regarded as typical operating costs which are normally borne by the undertakings in question, i.e. the dairies, as the parties required to perform the analyses under the national scheme. The Commission therefore assumes that the dairies in Baden-Württemberg are granted an advantage from milk levy resources and in Bavaria from milk levy and general budgetary resources as a result of being refunded the costs of laboratory tests from levy resources, an advantage which, as explained in recital 136, has a selective impact.

In this context, it should also be examined whether the laboratory tests carried out are related to economic activities.

Section 1(1) of the MGV is the basis of a requirement for the dairies to carry out tests. This requirement is coupled with an obligation to assume the costs of carrying out tests, i.e. the costs of laboratory tests incurred by the milk testing agencies (see recital 137 above). This clearly results from the fact that the performance of tests is a pre-requisite for dairies being allowed to sell the milk that has been tested. Undertakings have to bear themselves the costs incurred to market their products as typical operating costs. Accordingly, in Länder other than Baden-Württemberg and Bavaria, in which the MGV is equally applicable, the dairies in question are not refunded these costs from milk levy resources, i.e. they are not spared them and consequently have to meet them. The sale of milk by dairies is undoubtedly an economic activity. By having the costs of the analyses refunded from levy resources, the dairies in Baden-Württemberg and Bavaria are thus exempted from costs that they would normally have to meet themselves in exercising economic activities.

With regard to Germany's claim that Federal law is not the reference framework for determining the matter of who should bear the dairies' costs and therefore cannot be the basis for any selectivity (recitals 31 to 38), it is found that the requirement to carry out tests that gives rise to the obligation to meet the costs thereof is ultimately regulated by Federal law, i.e. in Section 1(1) of the MGV.

As stated above, Section 1(1) of the MGV requires dairies to carry out tests on the milk delivered to them (see also recitals 139 and 142). The same MGV, in Section 6, grants certain powers to the Länder, in particular as regards sampling under Section 2 of the MGV. These powers should not, however, stand in the way of the MGV (Section 6 of the MGV).

In the same context, on the matter of the demarcation of powers between the Federal and Land authorities, Germany referred to Section 10(2) of the MFG (recital 37). This provision states that the Land Governments may issue rules provided that the Federal Ministry has not itself issued rules. As indicated above, the competent Federal Ministry has in fact done so by means of the MGV. Although the Land Governments are authorised to collect levies under the first sentence of Section 22(1) of the MFG, at the same time the MFG limits the autonomy of the Länder by setting limits on the amount of the levy and the measures that may be supported under Sections 22(2), points 1-6, of the MFG.

The Commission further takes the view that the existence of a selective advantage cannot be refuted by claiming that the dairies have already paid the value of the tests carried out by means of the milk levy. Indeed, the Commission rejects the claim made by Germany and the MPBW that the levy corresponds to the actual economic cost of the services provided in return (recital 39). As is apparent from Chapter 2.6. of the Decision, a variety of different sub-measures are funded by the milk levy. It is in the nature of the sub-measures that the benefit which each individual undertaking derives from specific sub-measures is not necessarily equivalent to the levy amounts previously paid. Additionally in the case of Bavaria, the measures at issue are not only financed from milk levy resources but also from additional resources stemming from the general budget for which reason a ‘compensation’ is ruled out.

The Commission thus finds that the dairies in Baden-Württemberg and Bavaria obtain a selective advantage as a result of being refunded the costs of milk quality tests from levy resources.

The measures being assessed in this Decision are designed to support activities in the agricultural sector, in particular the activities of dairies. As described above, trade in the products of dairies does exist within the Union. The Commission therefore takes the view that the measures at issue affect trade between the Member States.

In view of the substantial level of trade in agricultural products, it can therefore be assumed that the sub-measures in question distorted or threatened to distort competition and affected trade between Member States.

According to Article 108(1) TFEU, the Commission must, in cooperation with Member States, keep under constant review all existing systems of aid. To that end, the Commission can obtain from Member States all information necessary for the review of existing aid schemes and, if necessary, issue a recommendation on appropriate measures.

Article 1(b)(i) Regulation (EC) No 659/1999 defines existing aid as all aid which existed prior to the entry into force of the Treaty in the respective Member State and is still applicable after the entry into force of the Treaty.

According to Article 108(3) TFEU, all new aid has to be notified to the Commission and it cannot be put into effect before it has been approved by the European Commission (standstill obligation).

According to Article 1(f) of Regulation (EC) No 659/1999, new aid put into effect in contravention of Article 108(3) TFEU is unlawful.

On the basis of the MFG and in the context of the powers conferred on them, the competent Federal Ministry and the German Länder (see recital 24 above) have adopted implementing measures which constitute the legal bases for the measures being assessed in this Decision. With the exception of the MFG itself (which is only a framework law and an enabling act for Land schemes, but which provides for no right to financial support), the German authorities have not presented any information demonstrating that a legal basis issued before 1958 was still applicable in its original version during the period of investigation. The applicable regulations under which the levy is collected date from 2004 (Baden-Württemberg) and 2007 (Bavaria) respectively (see recital 24). The legal bases for the use of resources are the Budget Orders of the Länder, which, as far as the expenditure purpose is concerned, solely need to comply with the frame of Section 22(2) of the MFG. Bases on this, the Land authorities authorise in each respective budgetary year the expenditure of resources per expenditure act. The measures in question therefore constitute new aid that should have been notified pursuant to Article 108(3) TFEU. Because Germany has not at any time notified the aid scheme at issue, it is unlawful (Article 1(f) of Regulation (EC) No 659/1999).

There is consequently no need to discuss Germany's assertion that sub-measures BW 1 and BY 1 do not fall under the definition of appropriate measures (recitals 49 to 56) because that assertion is based on the assumption that the sub-measures constitute existing aid, which, as explained above, is not the case.

Aid granted between 28 November 2001 and 31 December 2006 for the purpose of refunding the costs of milk quality tests was examined by the Commission on the basis of the Community guidelines for State aid in the agricultural sector (2000-2006) and approved as being compatible with the internal market in the context of the Decision of 17 July 2013 (C(2013) 4457 final) (recitals 162 to 165 of the positive Decision).

Under Article 107(3)(c) TFEU, aid to facilitate the development of certain economic activities or of certain economic areas may be considered compatible with the internal market, where such aid does not adversely affect trading conditions to an extent contrary to the Union interest.

Aid granted since 1 January 2007 will be assessed in the light of the 2007-2013 Guidelines.

In the initiation Decision, the Commission expressed doubts as to whether aid granted in connection with milk quality tests since 1 January 2007 can be regarded as compatible with the internal market (recitals 166 and 167 of the Decision).

As already indicated in the initiation Decision, the Commission considers that aid towards routine controls of milk does not meet the conditions of paragraph 109 of the 2007-2013 Guidelines, as read in conjunction with Article 16(1) of Regulation (EC) No 1857/2006. Indeed, the latter provision expressly stipulates that aid involving the refund of the costs of such routine controls cannot be compatible with the internal market.

Contrary to the view expressed by Germany in its comments (recital 53), the Commission takes the view that the costs of ‘routine controls of milk quality’ referred to in Article 16(1)(b) of Regulation (EC) No 1857/2006 also cover the costs of carrying out the milk quality tests at issue here. Although 16(1)(b) specifically states that aid for the ‘costs of tests performed by or on behalf of third parties, to determine the genetic quality or yield of livestock’ is compatible with the internal market,

The explicit negative exclusion in Article 16(1)(b) of Regulation (EC) No 1857/2006 in relation to support towards routine controls of milk quality has in the view of the Commission to be understood in a broader manner, because this provision stresses the legislator's intention to exclude such support from the compatibility with the internal market.

Controls of milk quality relate to the quality of milk as such, i.e. to the microbiological characteristics of the milk. However, these characteristics are not directly related to the genetic quality or yield of livestock. The microbiological characteristics specifically include those that are established by means of the milk quality tests (e.g. fat or somatic cell content).

In this respect, the Commission recalls the general prohibition of granting aid laid down in Article 107(1) TFEU. Exceptions from this general ban are provided for in Article 107(2) and (3) TFEU, applied in conjunction with compatibility rules in the form of regulations, guidelines, etc. For the period 2007-2013, no such compatibility provision existed for the routine controls of milk (independent from a certain quality and not for the purpose of improving the quality). These provisions typically stipulate express compatibility with the internal market for a given set of circumstances. However, here for the period 2007-2013. Instead, Article 16(1)(b) of Regulation (EC) No 1857/2006 stresses the legislator's intention to rule out expressly the compatibility with the internal market. Already Section 13.3 of the Guidelines 2000-2006 stipulated that the range of controls undertaken routinely during the production process had increased substantially, and the cost of such controls had become a normal part of production costs, and that because of the direct impact of the costs of quality control on production costs, such aids present a real risk of a distortion of competition. Albeit according to the same provision, aid could be granted in respect of controls undertaken by or on behalf of third parties, such as the competent regulatory authorities, or bodies acting on their behalf. Under the Guidelines 2007-2013, the legislator has, taking into account the risk of competition distortion, declared aid towards routine controls of milk quality as incompatible with the internal market. In the light of this clear legislative decision, there is no scope for any declaration of compatibility based on Article 107(3)(c) of the TFEU.

The fact that the Commission has regarded the milk quality performed during the period 2001-2006 as compatible with the internal market cannot, as Germany claims (recital 60), automatically lead to the aid in question continuing to be compatible with the internal market in the subsequent period of 2007-2013. It is apparent from Article 108(1) TFEU that the internal market is progressively developing and that the Commission by further developing State aid guidelines and other State aid rules (e.g. block exemption Regulations) may take account of this development to guarantee the functioning of the internal market. It is in the nature of compatibility provisions that are limited in time, as is the case with the Guidelines issued in the area of agriculture, that a subsequent State aid guidelines respectively Block exemption regulations do not necessarily maintain the provisions of the previous rules.

In the light of the above, the Commission concludes that the aid granted in the period 2007-2013 in connection with milk quality tests, funded in the case of sub-measure BW 1 entirely from milk levy resources and in the case of sub-measure BY 1 from the milk levy and general budgetary resources, is incompatible with the internal market.