Report for the Hearing delivered in Case 270/87
I — The relevant provisions
1. Article 10(1) of Regulation (EEC) No 804/68 of the Council of 27 June 1968 on the common organization of the market in milk and milk products (Official Journal, English Special Edition 1968 (I), p. 176), as amended by Regulation (EEC) No 465/75 of the Council of 27 February 1975 (Official Journal 1975, L 52, p. 8) provides that aid is to be granted for inter alia skimmed milk and buttermilk produced in the Community and used for feedingstuffs if those products comply with certain conditions.
2. Pursuant to Article 10(2) of Regulation No 804/68 the Council adopted Regulation (EEC) No 986/68 (Official Journal, English Special Edition 1968 (I), p. 260), Article 1 of which, as amended by Regulations Nos 472/75 of 27 February 1975 (Official Journal 1975, L 52, p. 22) and 876/77 of 26 April 1977 (Official Journal 1977, L 106, p. 24), is worded as follows:
‘For the purposes of this Regulation:
a) “milk” means the milk-yield of one or more cows, to which nothing has been added and which, at the most, has been only partially skimmed;
b) “buttermilk” means the byproduct of the manufacture of butter from milk or cream, even though naturally or artificially soured;
c) “skimmed milk” means milk or buttermilk with a maximum fat content of 1 % ;
...’.
3. Pursuant to the power conferred upon it by Article 10(3) of Regulation No 804/68 the Commission adopted Regulation (EEC) No 1105/68 of 27 July 1968 (Official Journal, English Special Edition (II), p. 379), Article 1(2) of which provides that ‘aid shall be granted only for quantities of skimmed milk mixed with feed milk’.
4. Article 1(4), (5) and (6) of Regulation No 1105/68, as amended by Regulation (EEC) No 2114/75 of 11 August 1975 (Official Journal 1975, L 215, p. 12) and Regulation (EEC) No 1645/78 of 13 July 1978 (Official Journal 1978, L 191, p. 23), are worded as follows:
‘(4) Where skimmed milk and buttermilk resulting from the processing of milk into cream or butter are intended for incorporation in milk for animals and to qualify for aid, they may not be diluted in any way which is not normally part of the production methods used, in particular with water and/or whey.
5) The granting of aid shall be subject to the following conditions being met:
a) ...
b) in the case of buttermilk the defatted dry matter content must be at least 8.00%.
6) However, these minimum values shall not apply in the following cases:
a) ...
b) ...
c) when in the case of buttermilk the dry matter content is for justified technological reasons not less than 4% but less than the minimum specified defatted dry matter content. In such cases the aid which may be granted shall be reduced proportionately to the reduction in the dry matter content.’
5. According to the order for reference, Article 1 of the Netherlands Zuivelverordening (Dairy Regulation) 1968, which, according to its preamble, is intended to implement the aforesaid Regulations Nos 986/68 and 1105/68 in Netherlands legislation, reproduces the terms of Article 1 of Regulation No 986/68.
II — The facts of the case before the national court and the question it has referred for a preliminary ruling
1. Pursuant to the Community provisions referred to above, the plaintiff in the main proceedings, Coöperatieve Melkverwerkingsvereniging DOC wa, a dairy cooperative (hereinafter referred to as ‘the Cooperative’), requested the aid provided for therein for buttermilk produced by it for feedingstuffs.
2. By two decisions dated 24 September and 24 October 1985, the defendant in the main proceedings, the Produktschap voor Zuivel (Dairy Board), which was responsible for the grant of that aid (hereinafter referred to as ‘the Produktschap’), refused to grant the aid requested for the period from 30 June to 13 July 1985 in respect of a quantity of 70840 kg of buttermilk and for the period from 28 July to 10 August 1985 in respect of 79900 kg of buttermilk. From supplementary documents it appears that the reason for those decisions was ultimately that ‘a condensed milk product’ had been added to the buttermilk.
3. By a third decision of 25 October 1985 on the same grounds, the Produktschap demanded the repayment of aid already granted to the Cooperative for the period from 16 to 29 June 1985 in respect of 88320 kg of buttermilk.
4. The Cooperative lodged objections against those decisions which were dismissed. The Cooperative thereupon appealed to the College van Beroep voor het Bedrijfsleven, The Hague.
5. Before the national court the Cooperative claimed that in order to qualify for the aid buttermilk must in principle have a dry-matter content of 8%. To achieve that content the following process is applied: ‘After the butter is made, the waste water remaining in the buttermilk is separated from the remaining sweet buttermilk. The condensed sweet buttermilk thus obtained is then remixed with the sour buttermilk residue remaining after the buttermaking. The sour buttermilk itself cannot be condensed’. No objections had been made against this process. The Cooperative maintained that the process involved no unauthorized addition of substances even if part of the quantity of buttermilk concerned is extracted from the buttermilk and remixed with it in condensed form.
6. The College van Beroep concluded that pursuant to Article 1 of the Zuivelverordening no aid is to be granted for buttermilk obtained from the processing of milk when something has been added to that buttermilk.
7. Since those provisions are intended to transpose the Community rules into Netherlands legislation and they use the same formulation, the College van Beroep decided to stay proceedings and refer the following question to the Court of Justice for a preliminary ruling:
‘Must Regulation (EEC) No 986/68 of the Council, in particular the words “to which nothing has been added” in Article 1(a), read in conjunction with the provisions of Regulation (EEC) No 1105/68 of the Commission, be interpreted as meaning that the application of a process which, in order to attain the required dryatter content, involves removing, after the buttermaking, the water that was used in its preparation and that remained behind in the buttermilk from the sweet buttermilk residue separated for the purpose, and subsequently remixing the sweet buttermilk, thus condensed, with the sour buttermilk residue resulting from the buttermaking constitutes the addition of a product precluding the grant of aid pursuant to Article 1 of Regulation (EEC) No 986/68?’
8. The order for reference was received at the Court Registry on 9 September 1987.
III — Written procedure
1. In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the European Communities, written observations were submitted on 16 December 1987 by Cooperative Melkverwerkingsvereniging DOC wa, the plaintiff in the main proceedings, represented by O. C. A. Millaard, Advocaat of Zwolle, and on 17 December 1987 by the Commission of the European Communities, represented by its Legal Adviser, R. C. Fischer.
2. Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any preparatory inquiry. However, it invited the Commission to reply in writing to two questions.
3. By decision of 27 October 1988, the Court assigned the case to the Fourth Chamber.
Observations of the parties
4. The Cooperative points out first that Article 1 of Regulation No 986/68 provides that nothing may be added to milk whereas no such condition is expressly laid down for buttermilk. In any event nothing is added to the milk used by it.
5. The Cooperative describes the procedure it uses as follows: ‘First of all cream is made from the milk received. The cream is then soured after which the cream is churned. The churning yields butter and buttermilk. The butter and the buttermilk are then separated. This buttermilk has a dry-matter content of 8% and a water content of 92%’.
6. ‘The butter is then washed with water. The mixture of buttermilk and water that results contains approximately 4% dry matter and 96% water. The surplus water is then removed from the mixture so that the dry-matter content is raised to 8%. This buttermilk, with the same composition as the original buttermilk, is now added to the latter.’
7. The reason for applying that process is that the consumer obtains buttermilk containing no excess water.
8. The process outlined above is in no way prohibited by the definition of buttermilk contained in Article 1 of Regulation No 986/68. It is only for technical reasons that the butter is washed with water and the surplus water is subsequently removed. It would only be possible to speak of ‘addition’ if some other substance were added but in this case nothing is added to the buttermilk finally obtained. There is thus no question of any addition.
9. The Cooperative therefore proposes that the question referred by the national court should be answered in the negative.
10. The Commission considers that the condition set out in the definition of milk in Article 1 of Regulation No 986/68 as a product ‘to which nothing has been added’ also applies, as the national court notes, to the definition of skimmed milk and buttermilk which are precisely the products derived from milk which qualify for aid whereas milk itself does not.
11. However, that is not the only condition for the grant of the aid in question.
12. According to the definition contained in the abovementioned provision, buttermilk can only be ‘the byproduct of the manufacture of butter from milk or cream, even though naturally or artificially soured’. It follows from that definition that no product that is produced from further processing of the buttermilk thus obtained can be classified as buttermilk; in particular the procedure applied by the Cooperative, which is intended to increase the dry-matter content by condensing buttermilk, is thereby excluded.
13. It is thus not merely a question of whether that result is obtained by first of all separating the buttermilk remaining and condensing and then remixing it with the remaining sour buttermilk since direct condensing of buttermilk also constitutes processing; buttermilk processed in that way cannot therefore qualify for aid.
14. That conclusion is borne out by Article 1(4), (5) and (6) of Regulation No 1105/68 according to which the water content and the dry-matter content resulting from the application of the production technology used cannot be altered by other processing which is, moreover, unnecessary, since even for buttermilk having a dry-matter content of less than 8% but not less than 4% aid is granted at a reduced rate.
15. The prohibition of any further processing of the buttermilk is also justified in view of the inspection techniques used, as is borne out by the difficulties of establishing the facts in this case.
16. The Commission therefore considers that the buttermilk obtained using the procedure applied by the Cooperative does not comply with the conditions laid down for the aid in question. It therefore proposes that the following answer should be given to the national court's question:
‘Buttermilk does not satisfy the conditions laid down for the grant of the aid in question, under Article 1(b) of Regulation No 986/68 in conjunction with Regulation No 1105/68, where it has undergone further processing intended to bring it up to the required defatted dry-matter content, such as a process whereby, in order to reach the required defatted dry matter content, the rinsing water remaining in the buttermilk after the buttermaking is extracted from the sweet buttermilk remaining and the condensed sweet buttermilk thus obtained is subsequently remixed with the sour buttermilk remaining after the buttermaking.’
17. The Commission was invited by the Court to reply in writing to the following questions :
‘(1) What is the object of the specific provisions in question in the context of the scheme of aid for skimmed milk and skimmed-milk powder intended for feedingstuffs?
2) According to the information at the disposal of the Commission, is the process used by the Cooperative in general use in dairies in the Community?’
18. The Commission gave the following reply to the Court's first question:
‘1. The system of aid for skimmed milk and skimmed-milk powder intended for feedingstuffs, which also applies to buttermilk and powdered buttermilk, was set up in 1968 and is governed by Article 10 of Regulation (EEC) No 804/68 of the Council (Official Journal, English Special Edition 1968 (I), p. 176), which is the basic regulation for the milk and milk products sector. As is apparent in particular from the fifth recital in the preamble to the basic regulation, the aid scheme is in addition to intervention measures for butter and fresh cream. It is intended to ensure that the best use is made of milk protein obtained as a byproduct from the making of butter and fresh cream. That is why it applies to skimmed milk and to buttermilk whether in liquid or powder form but not, for example, to whey or powdered whey. Whey is a byproduct obtained during cheese-making, an end-product of high value for which the Community legislature decided that intervention measures were not necessary. In view of the objectives of the aid scheme, it is therefore of fundamental importance that the aid be granted solely to byproducts of butter and cream and that any possibility of substitution of other products be ruled out. The danger of substitution is by no means illusory, particularly as regards whey and powdered whey. The cost of powdered whey is merely a fraction — in the order of one-quarter — of the cost of skimmed-milk powder and buttermilk powder. The whey has a lower value and contains a smaller proportion of milk protein — some of which is removed during the cheese-making — and a higher proportion of other elements (such as lactose and minerals).
2. In the general provisions on the grant of this aid, laid down by Regulation No 986/68, the product at issue in this case, buttermilk, is defined as “the byproduct of the manufacture of butter from milk or cream, even though naturally or artificially soured”. As was pointed out in the Commission's written observations (see point 2.2), it is further necessary, as in the case of milk and other milk products, that nothing has been added to the buttermilk, whether at the final stage or at earlier stages of processing. The definition of buttermilk laid down by the Council is therefore based not on the composition of the product but on the manner in which it is obtained, namely from the manufacture of butter from milk or cream. The reason why the Council refers not to the composition but to the method of production of buttermilk is that its composition is not a sufficient guarantee that the product has indeed been obtained from the manufacture of butter and not in whole or in part by other means, for example from whey or by the addition of powdered whey. The background to the dispute, and in particular the fact that it was initially concluded that whey, either condensed or otherwise, had been added, although that conclusion was later couched in more circumspect terms by the reference to the addition of a condensed milk product, shows that it is often difficult to determine whether or not added powdered whey is present. Both the initial finding and the subsequent circumspect finding were moreover clearly based not on analysis of the product but on observations regardi ng the manufacturing process used.
3. It was therefore wholly consonant with the foregoing that in the implementing provisions laid down in Regulation No 1105/68 the Commission fixed for buttermilk only a minimum defatted dry-matter content without specifying the composition of that dry-matter content, and in particular did not indicate how much milk protein had to be contained. The Commission itself is therefore maintaining the essential condition that the butter must have been obtained from buttermaking. This is further borne out by Article 1(4) of Regulation No 1105/68, as amended, which provides that “skimmed milk and buttermilk resulting from the processing of milk into cream or butter... may not be diluted in any way which is not normally part of the production methods used, in particular with water and/or whey” (emphasis added). Finally Article 1(6) of Regulation No 1105/68, as amended, confirms that in order to qualify for aid the buttermilk must not have been diluted or condensed or processed in any other way but must be in the state in which it was obtained as a byproduct of the buttermaking process. It provides that in regions where the average minimum dry-matter content is higher than the prescribed limit of 8% that higher value must be used as the maximum value, either for the whole year, or for the period when there is such a divergence. It is further provided that buttermilk having a defatted dry-matter content of less than 8% but not less than 4% is not excluded from aid altogether but may qualify for proportionately lower aid. That latter provision confirms indirectly but undeniably that buttermilk whose dry-matter content has been artificially increased (by evaporation, addition of dry-matter or otherwise), cannot qualify for aid.
4. The reason why aid under this scheme is confined to buttermilk which has not been processed is that any processing of buttermilk involves the risk that its composition be artificially altered, and such alteration cannot always be detected by analysis of the buttermilk in question’.
19. The Commission gave the following reply to the second question:
‘1. The Commission does not know exactly what process is used by the Cooperative in buttermaking. In the buttermaking process a fermenting agent is added to obtain a low pH level and thus sufficient butyric acid to ensure that the butter keeps. When the aid scheme was introduced in 1968, the process generally used in the Community was that outlined in Annex I to the Commission's reply. In that process the fermenting agent is added before churning. As a result only sour buttermilk is obtained. Although that process is still very widespread throughout the Community, recently, in particular in the Netherlands, a process has come to be used whereby the fermenting agent is added only at a later stage, after the butter globules are washed. By this process sweet buttermilk is separated off by the churning while the buttermilk obtained at the last stage of buttermaking namely when the globules of butter are worked together, is sour (see Annex II to the Commission's reply).
2. According to the summary of the Cooperative's arguments by the national court, the Cooperative uses a process which yields sour buttermilk as well as sweet buttermilk, that is to say the so-called Dutch process. The total quantity of buttermilk obtained by the Cooperative using that process apparently does not contain enough defatted dry-matter (less than 8%) in order to qualify for the full amount of aid. For that reason, the Cooperative says, it condenses some buttermilk, more specifically the sweet buttermilk, since the sour buttermilk is not suitable for condensing. Subsequently the condensed sweet buttermilk, which has a dry-matter content of more than 8%, is added to the sour buttermilk, whose dry-matter content is less than 8%, to produce a mixture with a content of exactly 8%.
3. In its observations to the Court, the Cooperative states that the cream is first soured and then churned. The process thus yields only sour buttermilk. The Cooperative further states that the buttermilk yielded from the churning contains 8% dry-matter. That buttermilk therefore directly qualifies for the full amount of aid. It states that a mixture of buttermilk and water containing some 4% dry matter is obtained from the washing stage. That byproduct could therefore just qualify for the reduced amount of aid laid down for buttermilk having a dry-matter content between 4 and 8%. However, the Cooperative subjects that mixture to further processing to bring it up to a dry-matter content of 8% and enable it to qualify for the full amount of aid. It is not clear which process is applied in this case since the Cooperative states that sour milk is not suitable for condensing. It is not on the face of it possible to exclude the possibility that the process in fact consists of the addition of dry matter, for example in the form of powdered whey.
4. For the purposes of this dispute, it is immaterial which of the two processes the Cooperative used for buttermaking since it is common ground that it subjected the buttermilk obtained, or at least part of it, to a further process (condensation, or addition of dry matter or possibly both) in order to increase the defatted dry-matter content. For the reasons given above such processes are not authorized in the context of the present scheme of aid’.
C. N. Kakouris
Judge-Rapporteur
1 Language of the case: Dutch.