Report for the Hearing in Case 217/89

I — Facts and procedure

1. The applicable Community legislation (a) Council Regulation (EEC) No 1078/77 of 17 May 1977 introducing a system of premiums for the non-marketing of milk and milk products and for the conversion of dairy herds (Official Journal 1977 L 131, p. 1) established inter alia a system of non-marketing premiums to be granted on request to any producer who undertook not to deliver milk or milk products from his holding either for a consideration or free of charge for a period of five years (Articles 1 and 2). (b) Council Regulation (EEC) No 856/84 of 31 March 1984 amending Regulation (EEC) No 804/68 on the common organization of the market in milk and milk products (Official Journal 1984 L 90, p. 10) provided for an additional levy payable on quantities of milk delivered in excess of a reference quantity to be determined. That scheme is implemented in each region of the territory of the Member States in accordance with one of the following formulas (Article 1): (i) under Formula A, the levy is payable by every milk producer on the quantities of milk and/or milk equivalent which he has delivered to a purchaser in excess of a reference quantity to be determined (producer formula) ; (ii) under Formula B, the levy is payable by every purchaser of milk or other milk products on lhe quantities thereof delivered to him in excess of a reference quantity to be determined. The purchaser liable to the levy is to pass on the burden in the price paid to those producers who have increased their deliveries, in proportion to their contribution to the purchaser's reference quantity being exceeded (purchaser formula). (c) The general rules for the application of the additional levy are contained in Council Regulation (EEC) No 857/84 of 31 March 1984 laying down general rules for the application of the levy referred to in Article 5c of Regulation (EEC) No 804/68 in the milk and milk products sector. That regulation fixes in particular the reference quantity referred to in the basic regulation (Regulation (EEC) No 856/84), that is to say the quantity exempted from the additional levy. The latter is in principle equal to the quantity of milk or milk equivalent delivered by a producer (formula A) or purchased by a purchaser (formula B) in the 1981 calendar year, plus 1% (Article 2(1)). However, the Member States may provide that on their territory the reference quantity is to be equal to the quantity of milk or milk equivalent delivered or purchased during the 1982 or 1983 calendar year, weighted by a percentage established so as not to exceed the guaranteed quantity (Article 2(2)). Articles 3, 3a, 4 and 4a of Regulation No 857/84, as amended, enable the Member States to take account of certain special situations when fixing reference quantities or to allocate special or additional reference quantities. In the present case, Article 3a, inserted by the amending provision, Council Regulation (EEC) No 764/89 of 20 March 1989, is of particular importance: ‘Article 3a 1. Producers referred to in the third paragraph of Article 12(c): (i) whose period of non-marketing or conversion, pursuant to the undertaking given under Regulation (EEC) No 1078/77, expires after 31 December 1983, or after 30 September 1983 in Member States where the milk collection in the months April to September is at least twice that of the months October to the March of the following year, (ii) who have not received a reference quantity under the terms laid down pursuant to Article 5(4)(b) and/or Article 9(2) of Regulation (EEC) No 1546/88 and/or, with regard to the person to whom the premium is transferred, pursuant to Article 2 of this regulation, shall receive provisionally, if they so request within three months from 29 March 1989, a special reference quantity and provided that such producers : (a) did not cease farming within the meaning of Article 2(3) and (4) of Regulation (EEC) No 1078/77 or transfer the whole of their dairy enterprise before the end of the non-marketing or conversion period; (b) establish in support of their request, to the satisfaction of the competent authority, that they are able to produce on their holding up to the reference quantity requested; (c) undertake to sell milk or other products direct to the consumer and/or to deliver milk to a buyer; (d) undertake, as regards the special reference quantity, not to apply for assistance under any programme for the abandonment of reference quantities until the end of the additional levy scheme. 2. The special reference quantity shall be equal to 60% of the quantity of milk delivered or the quantity of milk equivalent sold by the producer during the 12 calendar months preceding the month in which the application for the non-marketing or conversion premium was made, as determined by the competent authority concerned pursuant to Article 5(1)(e) of Regulation (EEC) No 1391/78, as last amended by Regulation (EEC) No 84/83, and for which the producer has not lost his entitlement to the premium. Where the producer has obtained a reference quantity pursuant to Article 3, points 1 and 2, and/or Article 4(l)(b) and (c), the special reference quantity referred to in the first subparagraph of the paragraph shall be reduced by such quantity. Where the producer has transferred part of his holding during the non-marketing or conversion period: (i) the transferor's special reference quantity as established above shall be equal to 60% of the quantity for which entitlement to the premium has been retained; (ii) the transferee's special reference quantity as established above shall be equal to 60% of the quantity for which entitlement to the premium has been acquired. 3. If, within two years from 29 March 1989, producers can prove to the satisfaction of the competent authority that they have actually resumed direct sales and/or deliveries, and that such direct sales and/or deliveries have attained during the previous 12 months a level equal to or greater than 80% of the provisional reference quantity, the special reference quantity shall be definitively allocated to the producers. Should this not prove to be the case, the provisional reference quantity shall be returned in its entirety to the Community reserve. The level of direct sales and/or actual deliveries shall be determined by taking into account production rate trends on the producer's holding, seasonal conditions and any exceptional circumstances. 4. ...’ (d) Article 9(2) of Commission Regulation (EEC) No 1546/88 of 3 June 1988 laying down detailed rules for the application of the additional levy referred to in Article 5c of Regulation (EEC) No 804/68 (Official Journal 1988 L 139, p. 12) provides that:

‘In cases where the persons liable to pay the levy have commenced operations after the beginning of the reference period, Member States may, for the purpose of applying Formulas A and B, assign them reference quantities on the same basis as indicated in Article 5(4)(b).’

2. The dispute in the main proceedings

The plaintiff in the main proceedings, Josef Pastätter, has a holding comprising 13.54 hectares of grassland under intensive cultivation. In 1981 he was granted a conversion premium calculated on the basis of a quantity of 83110 kg of milk. His non-marketing undertaking expired on 31 December 1984. As from 1 January 1985, he resumed deliveries of milk.

It appears from the documents before the Court that the farm in question comprises grassland which is suitable in the long term only for dairy production. The experiments carried out during the four-year conversion period showed that the farm could not profitably be used for calf and pig rearing.

By letter of 13 September 1984, the purchasing agency fixed his reference quantity as zero, in the absence of any rules treating as special cases farmers who had given an undertaking as to non-marketing or conversion. For the same reason, the competent authorities, by decisions of 12 August 1984 and 25 April 1985, refused to concede the existence of special circumstances or to grant Mr Pastätter an additional reference quantity.

By decision of 10 December 1984, the defendant in the main proceedings, the Hauptzollamt (Principal Customs Office) Bad Reichenhall, dismissed an administrative complaint made by Mr Pastätter against that determination of reference quantity on the ground that the competent professional organizations had not issued a certificate to the effect that exceptional circumstances existed. The complaint made against that decision was rejected by the Oberfinanzdirection München by decision of 21 February 1985. It is against the latter decision that the proceedings now pending before the Finanzgericht München (Finance Court, Munich) were brought.

Considering that the decision to be given depended on the validity of the applicable Community rules, the Finanzgericht München stayed the proceedings and referred the following question to the Court for a preliminary ruling under Article 177 of the EEC Treaty:

‘Is Council Regulation (EEC) No 857/84 of 31 March 1984, as amended by Council Regulation (EEC) No 764/89 of 20 March 1989, valid in so far as the special reference quantity is equal, under Article 3a(2), to only 60% of the quantity of milk or milk equivalent used as the basis for the non-marketing or conversion premium?’

In the grounds of its order for reference, the national court expresses doubts as to the compatibility of Article 3a of Regulation No 857/84, as amended, with the principle of the protection of legitimate expectations, the principle of equal treatment and the guarantee of the right to property in so far as that article provides that the special reference quantity is fixed as 60% of the quantity of milk or milk equivalent delivered by the producer during the period of 12 months preceding the month in which the application for the non-marketing premium was lodged.

3. Procedure before the Court

The order for reference was received at the Court Registry on 10 July 1989.

Pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the European Communities, written observations were submitted by Mr Pastätter, represented by W. Niedermeier, a Rechtsanwalt in Munich, the Council of the European Communities, represented by A. Bräutigam, Principal Administrator in the Council's Legal Department, acting as Agent, and by the Commission of the European Communities, represented by its Legal Adviser D. Booß, and by K.-D. Borchardt, a member of its Legal Department, acting as Agents.

Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided on 14 March 1990 to assign the case to the Fifth Chamber, pursuant to Article 95 of the Rules of Procedure, and to open the oral procedure without any preparatory inquiry.

II — Written observations

1. Mr Pastätter claims that Article 3a(2) of Regulation No 857/84, as amended, is in breach of the principle of equal treatment in so far as it imposes a limit of 60% on the reference production. The German provisions for implementation of the Community scheme impose on producers whose circumstances are similar to those of the plaintiff in the main proceedings, and who happen to have delivered milk in the 1983 marketing year, a reduction of only 2% of the quantity delivered by them in 1983. Moreover, even the large companies whose deliveries exceed 300000 kg of milk are subject to a reduction of only 7.5%. Mr Pastätter points out that in its judgment in Case 170/86 von Deetzen [1988] ECR 2355, paragraph 13, the Court held that where a producer has been encouraged by a Community measure to suspend marketing for a limited period in the general interest and against payment of a premium he may legitimately expect not to be subject, on the expiry of his undertaking, to restrictions which specifically affect him by very reason of the fact that he availed himself of the possibilities offered by the Community provisions. Mr Pastätter states that it is solely because he gave an undertaking not to market milk for a limited period that he has suffered unequal treatment by comparison with other operators in the milk market. Whilst it is true that ‘the overriding necessity of not jeopardizing the fragile stability that currently obtains in the milk products sector’ (see fifth recital in the preamble to Regulation No 764/89) may justify a general reduction applicable to all milk producers with a view to stabilizing the market in milk products, there is no such justification for different treatment of producers who actually sold milk during 1983 as compared with producers who gave up milk production during the reference period in reliance on Community rules which were limited in time. In Mr Pastätter's view, there are no reasonable grounds for treating milk producers who voluntarily waived the right to increase their milk production differently from milk producers who maintained their milk production of previous years or even increased it, with the result that those who did not contribute to the production surplus are penalized. Consequently, Mr Pastätter considers that Regulation No 857/84, as amended by Regulation No 764/89, contains an arbitrary decision in the form of the 60% rule and that the Court should set it aside.

2. The Council observes first that Article 3a of Regulation No 857/84, as amended, entitles the producers concerned to the grant of a reference quantity, by contrast with the measures applicable to producers who undertook investments or have the status of young farmers who, by decision of the Member State concerned, may be granted a special reference quantity but may not claim entitlement to it. Furthermore, it was impossible to use for the producers concerned the reference production used in fixing the reference quantities of the other producers, namely one of the years within the period from 1981 to 1983, since the producers concerned had not produced during that period. It was therefore necessary to rely for the reference production on the most recent figures available, namely those on the basis of which the non-marketing or conversion premium had been based. Since the aggregate quantity guaranteed by Member State is equal to the sum of the deliveries made by the various producers during 1981, it did not seem justified to reduce the individual quantities of the active producers in order to be able to allocate reference quantities to the producers concerned. Consequently, the Council increased the Community reserve to 600000 tonnes. In view of all those circumstances, the most balanced solution seemed to the Council to be to recognize the entitlement of the producers concerned to a reference quantity, but to limit it to 60% of their reference production. The Council then considers the validity of the contested limitation in the light of the principle of the protection of legitimate expectations, the principle of the basic right to property and the principle of equal treatment. As regards the legitimate expectations of the persons concerned, the Council states that, in its judgment in Case 120/86 Mulder [1988] ECR 2321, paragraphs 25 and 26, the Court considered that only ‘total and continuous exclusion... for the entire period of application of the regulations on the additional levy’ was incompatible with that principle. The Council also states that Article 3a of Regulation No 857/84 does not automatically exclude the application of other provisions of that regulation, which make it possible to adjust the reference quantities of producers who are in difficulties. Thus, it is always possible for a producer who has been granted a reference quantity limited to 60% of his reference production on the basis of Article 3a to be given, for example, a transfer of an unused reference quantity pursuant to Article 4a. Similarly, producers who have been granted a special or additional reference quantity under Articles 3 and 4 of Regulation No 857/84 which exceeds 60% of their reference production retain that higher quantity. In those circumstances, the provisions at issue cannot, in the Council's view, be in breach of the principle of the protection of legitimate expectations. That conclusion is reinforced by the fact that the Member States too are required, in applying the discretionary provisions of Community law, to respect the general principles of Community law, such as the principle of the protection of legitimate expectations. As regards the principle of the right to property, the Council considers that Article 3a does not impose an absolute and definitive limitation on the milk production of the persons concerned. They will always be able to increase their production through the grant by the Member State concerned of a reference quantity in excess of 60% pursuant to Articles 3, 4 or 4a or through the grant of a reference quantity additional to the reference quantity granted under Article 3a on the basis of a purchase or lease. The Council adds that the Court has consistently held (see judgment in Case 113/88 Leukhardt [1989] ECR 1991, paragraph 20) that in cimcumstances necessitating ‘the evaluation of a complex economic situation, as is the case concerning the common agricultural policy, the Community legislature enjoys a wide discretion as to the nature and scope of the measures to be taken’. In the present case, there is a limitation on the use of immovable property, in so far as a dairy holding is not able to produce its full reference production. That limitation is dictated by the Community public interest, which is to ensure that market surpluses are not aggravated by the bringing into operation of new production capacity. As far as the principle of nondiscrimination is concerned, the Council considers that the contested limitation is not discriminatory: on the one hand, the producers concerned are objectively in a different situation, as regards their reference production, from that of the producers who delivered milk during the reference year (1981 to 1983); on the other, the limitation is necessary in view of the fragile stability of the milk market. The producers concerned are thus in an intermediate position between the producers who delivered milk during the reference year and those who may, in appropriate cases, benefit from the application of the discretionary provisions of Articles 3 and 4 of Regulation No 857/84. The Council therefore considers that Regulation No 857/84 does not infringe the principle of nondiscrimination because, if its various provisions are judiciously applied, any different treatment of producers which is not justified by objective criteria can be avoided. In conclusion, the Council suggests that it be stated in reply to the question submitted that examination of it has disclosed no factor of such a kind as to call in question the validity of Council Regulation No 857/84, as amended by Council Regulation No 764/89.

3. The Commission observes first that Article 3a(2) of Regulation No 857/84, as amended, was adopted to take account of the following circumstances: (i) the allocation of a reference quantity should not undermine the objective of the milk quota system, namely restabilization of the milk sector; (ii) since the grant of the reference quantity was compulsory, it was appropriate at the same time to avoid according more favourable financial treatment to the producers entitled to a reference quantity than to the others, in particular those who could only be granted a special reference quantity on the basis of a discretionary decision by the Member States; (iii) finally, account had to be taken of the Community and national reserves still available. In view of those factors, it seemed appropriate first to fix an aggregate reference quantity for that group of producers. According to the Commission's estimates, the foreseeable applications for reference quantities from the group of producers concerned here would correspond to about one million tonnes. That estimated aggregate quantity could not however be taken into account in its entirety within the milk quota system, but had to be reduced in order to preserve the stability of the market. The view was taken that an additional quantity of 600000 tonnes of milk would not affect the stability achieved in the market. The Community reserve was therefore increased by that quantity. Since the reserve used for the allocation of reference quantities was 400000 tonnes less than the envisaged total quantity applied for, it was necessary to reduce the latter uniformly for all the operators concerned. To that end, their reference quantity was limited to 60% of their last production. The Commission then examines the scope of the principles of the protection of legitimate expectations, the right to property and equal treatment. As regards the principle of the protection of legitimate expectations, the Commission states that, in its judgments in Mulder and von Deetzen, cited above, the Court recognized that ‘a producer who has voluntarily ceased production for a certain period cannot legitimately expect to resume production under the same conditions as those which previously applied’. The fact that the milk producers concerned, on giving an undertaking not to market milk, were required to prove a certain production level, does not entitle them to presume that, on the expiry of their undertaking, they would be able to operate in the market again without restriction and that no new or further measures would have been adopted in the meantime to limit milk surpluses. In the Commission's opinion, the conversion premium is not an adequate basis for expectations as to the maintenance of previous production. The purpose of the premium is to encourage farmers not to market milk or to conven their dairy herds to meat production. The conversion premium was not intended for the improvement of production conditions in the dairy sector and therefore carries with it no guarantee that any previous production level will be maintained. The limitation of the reference quantity to 60% of previous production does not therefore offend against the principle of the protection of legitimate expectations. As regards the principle of the right to property, the Commission states that the Court has consistently held that, in a common organization of the market, the exercise of the right to property may be restricted for reasons of structural and market policy, provided that the restrictions in fact correspond to objectives of general interest pursued by the Community and do not, having regard to the aim pursued, constitute a disproportionate and intolerable interference which infringes upon the very substance of the rights guaranteed (see judgment in Case 265/87 Schröder [1989] ECR 2237, paragraph 15). Those conditions are fulfilled in the present case, since the contested legal situation does not deprive the plaintiff in the main proceedings of his right to property and does not limit his enjoyment thereof in a manner which affects the very substance of that right. Moreover, again by virtue of the case-law of the Court (see Schröder, supra), the Community legislature enjoys a wide discretion which corresponds to the political responsibilities imposed by Articles 40 and 43 of the EEC Treaty. In the Commission's opinion, Article 3a(2) of Regulation No 857/84 is the expression of that political responsibility; it was adopted in the context of the discretion attributed to the Community legislature. That provision is based on the conclusion that the present market situation allows an increase of a maximum of 600000 tonnes in the Community reserve to be distributed among the Member States, without the balance of the market being significantly disturbed. As regards the principle of equal treatment, the Commission concedes that the plaintiff in the main proceedings is placed at a disadvantage by the limitation of his reference quantity to 60% of his previous production as compared with all the other producers who, before the adoption of Regulation No 764/89 and during the period of validity of Regulation No 857/84 as now in force, received a reference quantity for the calculation of which no 60% limitation was imposed. In the present case, the operators concerned are, on the one hand, the producers referred to in Article 2 of Regulation No 857/84 who, during the calendar year taken as the reference period, that is to say, 1981, 1982 or 1983, delivered or sold quantities of milk or milk equivalent and, on the other, the producers referred to in Articles 3 and 4 of Regulation No 857/84 who, in the exceptional circumstances listed, may be granted a special reference quantity. However, the Commission considers that this difference of treatment is justified in both cases because the situations are not comparable. By contrast with the producers referred to in Article 2 of Regulation No 857/84, those covered by Regulation No 764/89 did not deliver milk during the reference year taken into account for the grant of a reference quantity. The reference quantity claimed by those producers was not therefore included in the total guaranteed quantity used as a basis for the milk quota system. It was necessary, in fact, to design for the latter producers a new system of allocation using a different reference period from that applicable to the other producers which, whilst taking account of the objectives of the existing milk quota system, releases additional quantities so that it is possible to grant the producers concerned the necessary reference quantities. The unfavourable treatment of the producers covered by Regulation No 764/89 as compared with those who, admittedly, likewise did not deliver any milk but to whom there may be granted a reference quantity not subject to the 60% rule pursuant to Articles 3 or 4 of Regulation No 857/84, is also based on the fact that two non-comparable groups of producers are involved. Whilst the producers covered by Regulation No 764/89 may claim entitlement to a given reference quantity, the second group of producers is not entitled, strictly speaking, to any reference quantity but may be the subject of a decision in that regard on the part of the competent authorities in the Member States. In those circumstances, the Commission considers that the situation of the producers covered by Regulation No 764/89 is specific to them, thus clearly distinguishing them from the producers previously covered by Regulation No 857/84, so that derogations are not only justified but also inevitable. The provisions adopted cannot therefore be regarded as giving rise to objectively unfounded discrimination between producers; on the contrary, they achieve a fair balance between the conflicting interests of the Community, on one hand, and, on the other, the producers covered by them. Consequently, the Commission suggests that the answer to be given to the question from the national court is that examination of it has disclosed no factor of such a kind as to call in question the validity of Council Regulation No 857/84 of 31 March 1984, as amended by Council Regulation No 764/89, with respect to the fact that the special reference quantity provided for in Article 3a(2) is equal to only 60% of the quantity of milk or milk equivalent used as a basis for calculation of the non-marketing or conversion premium.

III — Reply to a question put by the Court

At the Court's request, the Commission furnished statistical details of the trend in the volume of milk production and deliveries in the Community by farm. It also stated, in reply to a question put to it by the Court, that, in most of the Member States, there was more than one rate for the various groups of products of which production was ‘normal’. On that point too it provided more detailed statistics.

M. Zuleeg

Judge-Rapporteur

1 Language of the case: German.