Opinion of the Advocate-General
1 The Schleswig-Holsteinisches Oberverwaltungsgericht (1) (Higher Administrative Court of the Land Schleswig-Holstein) has referred to the Court for a preliminary ruling two questions concerning the interpretation of Council Regulation (EEC) No 1765/92 of 30 June 1992 establishing a support system for producers of certain arable crops, (2) and in particular the first subparagraph of Article 3(1) thereof.
The point at issue is the extent of the powers available to Member States to draw up the regionalization plan provided for by that provision. This question is of some practical importance since the plan affects not only the granting of aid for arable crops or for setting aside land paid to growers under the system introduced by Regulation No 1765/92, but also the amount of such aid.
Facts and procedure
2 Mr Witt, the plaintiff in the main proceedings, is a farmer in the Land Schleswig-Holstein, Germany. For the marketing year 1993/94 he was awarded DM 73 323.93 by the Amt für Land- und Wasserwirtschaft, the defendant in the main proceedings, by way of compensatory payments in respect of cereals, protein crops, oil-seed and setting aside of land.
3 After his objection contesting that decision was rejected, Mr Witt brought an action before the Verwaltungsgericht (Administrative Court) for its annulment and an order requiring the defendant to pay an additional compensatory amount of DM 11 961.
4 He argued in support of his action that the Regulation directly confers upon him entitlement to a compensatory payment greater than the one which had been awarded to him and argued that under the Regulation it was up to each Member State to draw up a regionalization plan which took account of the structural characteristics that influenced yields such as soil fertility. In his opinion, only a division according to Naturräume (natural areas) or disadvantaged zones would comply with the requirements of the Regulation.
5 The defendant contended that the court should dismiss the action, arguing that Member States enjoyed a broad discretion in this matter and that it would have been impossible to distinguish between Naturräume from a legal point of view.
6 By judgment of 6 October 1994 the Verwaltungsgericht dismissed Mr Witt's action.
7 On 18 November 1994 the plaintiff appealed against that judgment to the Oberverwaltungsgericht, which, considering that the result of the case depended on the compatibility of the decision at issue with the first subparagraph of Article 3(1) of the Regulation and being uncertain how this provision should be interpreted, submitted the following two questions to the Court for a preliminary ruling:
`(1) Is a Member State entitled, under the first subparagraph of Article 3(1) of Council Regulation (EEC) No 1765/92 of 30 June 1992 establishing a support system for producers of certain arable crops, to establish separate production regions without indicating the "criteria" used for this purpose?
(2) If Question (1) is answered in the affirmative, is a Member State which, under the third sentence of the second subparagraph of Article 2(2) of Regulation No 1765/92, has designated not its entire territory, but - as in the case of the Federal Republic of Germany - merely particular parts of it as base area regions, entitled in principle, under the first subparagraph of Article 3(1) of Regulation No 1765/92, to establish the whole territory of a particular base area region also as a production region with a uniform average cereals yield? In the situation described, in which cases do "the specific characteristics that influence yields such as soil fertility" require a more extensive division of base area regions into individual production regions with different average cereals yields?'
Law
Community provisions
8 In 1992 the common agricultural policy (`CAP') underwent radical reform including, in particular, the creation or alteration of some systems of aid for arable crops and setting aside of land. This reform was designed to achieve two objectives. The first was to check the rise in the financial cost of the CAP and the second was to prevent over-production by achieving an optimum balance between supply and demand.
9 The entry into force, with effect from the marketing year 1993/94, of Regulation No 1765/92 was part of this reform and introduced a new support system for producers of certain arable crops based on the abovementioned principles. It was thus designed to prevent over-production, to maintain farmers' incomes at a level comparable to that which had existed until then and to ensure a better balance between supply and demand on the world market in arable crops. (3)
10 In order to attain these objectives the Community legislature replaced the previous price support systems, under which artificially high prices were maintained by intervention mechanisms, by new systems based on the principles of controlling supply and reducing prices, accompanied by direct aid to farmers. (4)
11 In concrete terms, the first consequence of the reform of the CAP was to separate partially (the case of cereals) or totally (the case of oil-seed, protein crops and seed flax) market policy from incomes policy. So, administrative support prices were considerably reduced in the case of cereals and abolished in the case of oil-seed, protein crops and seed flax, whose production prices were now to be based exclusively on world market prices. (5) Secondly, this reform led to a radical amendment of the principles governing the award of aid to arable crops. Incomes policy was henceforth implemented essentially through direct aid in the form of compensatory payments made on the basis of the area and yield capacity of the various regions of the Community. (6) In addition, land set-aside constituted, in principle, a precondition for the award of compensatory payments. (7)
12 Two types of support system exist for producers of arable crops: a `general scheme' for producers and a `simplified scheme' for small producers. (8) As regards the general scheme, the intention of the Community legislature to make the award of compensatory payments subject to the strict obligation to set aside a certain amount of land is clearly stated. (9) However, no set-aside obligation is imposed on small producers. (10)
13 Title I of the Regulation is devoted to compensatory payments.
14 Articles 2 and 3 lay down exhaustively the general rules governing the award of compensatory payments.
15 Article 2 thus provides that the compensatory payment is to be fixed on a per hectare basis and is either `regionally differentiated' (paragraph 2, first subparagraph) or established `on an individual basis' (paragraph 3).
16 It is for Member States to choose between these two schemes, although they are still authorized to alter their choice subsequently (paragraph 4).
17 Thus, in specific terms, `regionally differentiated' compensatory payments (11) are only awarded on the basis of an area and an average yield per hectare laid down for each production region. The yield per hectare is calculated on the basis of yields obtained during marketing years between 1986/87 and 1990/91, not taking into account the year with the highest and the year with the lowest yield. (12)
18 The first subparagraph of Article 3(2) of the Regulation states that:
`For each production region, the Member State shall give details of the areas and yields of cereals, oilseeds, and protein crops produced in that region during the five year period 1986/87 to 1990/91. Average cereals and where possible oilseed yields shall be separately calculated for each region by excluding the year with the highest and the year with the lowest yield during that period'. (13)
19 The abovementioned production regions are established by each Member State according to the general procedure provided for in the first subparagraph of Article 3(1), which reads as follows:
`Each Member State shall establish a regionalization plan setting out the criteria for the establishment of separate production regions. The criteria used must be appropriate, objective and provide the necessary flexibility for the recognition of distinctive homogeneous zones, which are of a minimum size and allow for specific characteristics that influence yields such as soil fertility, including where appropriate due differentiation between irrigated and non-irrigated areas. These regions must not cross the boundaries of the base area regions mentioned in the second subparagraph of Article 2'. (14)
20 The role of the Commission in the procedure for drawing up regionalization plans is, according to Article 3(4), to examine them and to ensure `that each plan is based on appropriate, objective criteria and is consistent with available historical information. The Commission may object to plans which are not compatible with the aforementioned relevant criteria, in particular with the average yield of the Member State. In this case the plans shall be subject to adjustment by the Member State concerned after consultation with the Commission.' (15) Under this provision, the Commission takes an active part in determining the areas eligible for the compensatory payments introduced by the contested Regulation.
National provisions
21 Article 3(1) of the Verordnung über eine Stützungsregelung für Erzeuger bestimmter landwirtschaftlicher Kulturpflanzen (Kulturpflanzen-Ausgleichszahlungs-Verordnung) (German decree relating to a support system for producers of certain arable crops) of 3 December 1992 (16) defines each German Land as a base area region.
22 Additional classification of base areas according to production areas for the 1993/94 harvest was left to the competent authorities in each Land. The list of these regions appears in the annex to Paragraph 3(2) of the KVO (the `contested national provision').
23 The base area region and the production area are identical in Land Schleswig-Holstein.
24 The explanation given for this by the Minister for Food, Agriculture, Forestry and Fishery of Land Schleswig-Holstein to the Federal Minister for Food Agriculture and Forestry in a letter dated 16 July 1992 is that `it is not possible to introduce further subdivisions under Article 3(1) of the Regulation ... due to the absence of legally sound delimitation criteria'. (17) Due to the impossibility of creating divisions according to the specific criteria laid down in the abovementioned Article 3(1), the solution adopted by the competent regional authorities in order to determine the production region within this Land was therefore to adopt the objective criterion of the administrative frontiers of Land Schleswig-Holstein.
25 On 4 August 1992 the Federal Minister for Food, Agriculture and Forestry sent the German regionalization plan to the Commission, accompanied by 37 pages of explanations supplied by the Länder.
26 The Commission did not find anything to criticize about the plan. According to the Commission, the yields per hectare adopted in the various Länder correspond to the figures confirmed by the statistics, both at Länder level and at federal level. (18)
Replies to the questions
First question
27 The national court is asking the Court of Justice, in its first question, to rule whether `a Member State [is] entitled under the first subparagraph of Article 3(1) of Council Regulation (EEC) No 1765/92 of 30 June 1992, establishing a support system for producers of certain arable crops, to establish separate production regions without indicating the "criteria" used for this purpose'.
28 That provision states expressly that each Member State shall draw up a regionalization plan setting out the criteria for the establishment of separate production regions.
29 The wording of the text is clear. Once a Member State opts for a regionalized system of compensatory payment, (19) it must draw up a regionalization plan setting out the criteria for the establishment of separate production regions.
30 The Court should therefore reply in the negative to the first question. It would not therefore be required to rule on the second question, which presupposes an affirmative reply to the first one.
31 However, it seems to me that the purpose of the first question is more specific than its wording would indicate.
32 Indeed, the national court tells us that there is scarcely any doubt that the actual wording of the first subparagraph of Article 3(1) of Regulation No 1765/92 requires Member States to indicate the criteria which enabled them to define the separate production regions. (20)
33 Furthermore, it would seem to me that the national court accepts that the regionalization plan supporting the choices made by the Federal Republic of Germany in designating the base area regions as production regions was indeed sent to the Commission (21) and that it acknowledges that the German competent authorities did indeed adopt certain criteria in drawing it up. In this particular case, it is the quite objective and indisputable criterion of the territorial boundaries of the Land. (22) It is precisely the choice of this criterion which is the subject of its inquiry in its second preliminary question. (23)
34 So, if the Court considers only the strict wording of the question, it will run the risk of not providing the national court with any assistance in resolving the case since it will be replying to a question to which the national court already knows the answer.
35 However, in my view, a second reading of the first question, based on a more detailed analysis of the grounds of the order for reference, is possible.
36 Indeed, having arrived at the two abovementioned conclusions, (24) the national court adds that the criteria in question do not appear in the annex to the contested national provision and that it is indeed this absence of any mention which causes it to doubt the proper application of Article 3(1) of the Regulation. (25)
37 I must therefore conclude (26) that in submitting this question the precise intention of the national court is to ascertain whether the criteria adopted by a Member State for establishing different production regions should appear only in the regionalization plan intended for scrutiny by the Commission and therefore whether the Community regulation allows these criteria to be omitted from the national legislation implementing the Community provisions.
38 I think that paragraphs 3, 4 and 5 of Article 3 of the contested Regulation enable the national court's inquiries to be answered.
39 Paragraph 3 states that: `Member States shall submit their regionalization plan to the Commission by 1 August 1992 ...'. (27)
40 Paragraph 4 states: `The Commission shall examine the regionalization plans submitted by the Member States and shall ensure that each plan is based on appropriate, objective criteria and is consistent with available historical information. The Commission may object to plans which are not compatible with the aforementioned relevant criteria in particular with the average yield of the Member State. In this case the plans shall be subject to adjustment by the Member State concerned after consultation with the Commission'. (28)
41 Paragraph 5 states: `The regionalization plan may be revised by the Member State concerned at the request of the Commission or at the initiative of that Member State in accordance with the same procedure as outlined in paragraphs 1 to 4'. (29)
42 It is evident from the wording of these paragraphs that the regionalization plan is intended for the Commission and that the statement of the criteria to be set by the Member States has no other purpose than to enable the Commission to check the legal basis on which the Member States have identified the various production regions.
43 This interpretation is confirmed by the fifth recital of the contested Regulation, which reads as follows:
`... such compensatory payments should reflect the specific structural characteristics that influence yield and ... the drawing up of a regionalization plan based on objective criteria should be left to the Member States; ... uniform average yields should be established by the regionalization plans; ... these plans must be consistent with the average yields of each region achieved in a given period; a specific procedure should be provided in order to examine these plans at Community level'.
44 The contested Regulation does not, however, contain any provision requiring Member States to set out, in their national implementing legislation, the criteria they adopted when drawing up their regionalization plans.
45 The answer to this question should accordingly be in the affirmative.
Second question
46 By its second question, the Oberverwaltungsgericht asks the Court whether a Member State is entitled to designate the whole of a `base area region' as a `production region'. In addition, it asks the Court in which cases there must be a more extensive division of base area regions into separate production regions.
In raising these specific points the national court is in fact inquiring about the extent of the discretion which Member States have in establishing production regions.
47 The reason given by the competent authorities of Land Schleswig-Holstein for not dividing this `region' into separate production regions and for having the base area region identical to the production region is that there are no reliable statistics on the historical yields of the various Naturräume of the Land. The administrative borders of the Land were therefore taken as the criterion since this was both objective and provided reliable statistics, both regarding the areas of cultivated land and land lying fallow and the average historical yields of the various arable crops.
48 The plaintiff contests this explanation, claiming that there are also reliable statistics regarding the average yields per hectare of arable crops in the various Naturräume (30) over the reference years. At the hearing, Mr Witt's counsel produced documents to prove this. The German Federal Republic contests this argument.
49 I think that the analysis of these documents is a matter for the national court. Furthermore, I do not think that the alleged existence of such statistics should automatically compel the Member State concerned to divide Land Schleswig-Holstein into separate production regions.
50 It is indeed clear from the wording of the provisions and aims of the contested Regulation that a Member State has a broad discretion in defining its production regions.
51 The only precise and clearly binding criterion laid down appears at the end of the first subparagraph of Article 3(1), which states: `These regions must not cross the boundaries of the base area regions mentioned in the second subparagraph of Article 2'. On the other hand, an analysis of Article 3(4) shows that the other factors indicated in the same subparagraph (31) are not binding.
52 For paragraph (4) expressly provides that the Commission is only responsible for ensuring that a regionalization plan is `based on appropriate, objective criteria and is consistent with available historical information'.
53 On the other hand, non-observance of the other criteria mentioned above (32) is not inevitably censured by the Commission.
54 Thus, the second sentence of that paragraph merely states: `The Commission may object to plans which are not compatible with the aforementioned relevant criteria in particular with the average yield of the Member State. In this case the plans shall be subject to adjustment by the Member State concerned after consultation with the Commission'. (33)
55 Secondly, the interpretation of those provisions which I propose is quite in accordance with the objectives pursued by the reform of the CAP carried out in 1992. The Community legislature, as we have seen, (34) wanted to separate market policy from incomes policy. In addition, it wished to make entitlement to aid payable to farmers of certain arable crops closely dependent on the yield obtained in a particular region over a specified period. (35) The regionalization plan submitted by Land Schleswig-Holstein meets these requirements precisely.
56 To conclude, I would say that the broad discretion which a Member State has in establishing production regions is limited only by the express obligation to explain its choice by supplying evidence that it is based on appropriate, objective criteria and is consistent with available historical information (36) and not to include in its regionalization plan production regions whose boundaries cross those of the base area regions. (37)
57 The plaintiff maintains also that the regionalization plan drawn up by the authorities of Land Schleswig-Holstein has resulted in a loss of income for him, which would not have been the case if they had taken as their basis the statistics on the historical yields of the various arable crops which existed for the Land's three large Naturräume. (38) According to the plaintiff, the criteria which he puts forward would have been more appropriate.
58 It is undeniable that implementation of the CAP reform may have affected individual producers differently and it is quite possible in this instance that Mr Witt has suffered a loss of income following implementation of the contested Regulation in Germany. However, the Court has already ruled, in the context of an application for the annulment of the contested Regulation, that these inevitable consequences are not necessarily reprehensible, since `the agricultural policy requires the adoption of common rules which may affect producers differently according to the individual orientation of their production or local conditions; but they may not be regarded as constituting discrimination prohibited by Article 40(3) of the Treaty if they are based on objective rules formulated to meet the needs of the general common organization'. (39)
59 On the other hand, it is indisputable that the administrative criterion adopted by the regional authorities of Land Schleswig-Holstein is an objective criterion and that the statistics on the historical yields obtained in that region, as supplied by the German authorities, are reliable. Indeed, these two factors have not been disputed. In consequence, I must conclude that the Federal Republic of Germany has complied with the obligations laid down in Article 3(1), (3) and (4) of the contested Regulation.
60 I therefore propose that the Court should answer the second question as follows: Article 3(1) is to be interpreted as meaning that a production region may include the whole of a base area region and that the taking into account of criteria such as that of the `specific structural characteristics which influence yields', calling for an additional classification of the base area regions into separate production regions having different average cereal yields, is justified only if this criterion is more appropriate.
Conclusion
61 In the light of the foregoing I propose that the Court give the following answer to the questions submitted by the Schleswig-Holsteinisches Oberverwaltungsgericht:
(1) The first subparagraph of Article 3(1) of Council Regulation (EEC) No 1765/92 of 30 June 1992 establishing a support system for producers of certain arable crops is to be interpreted as authorizing a Member State to establish different production regions without indicating the "criteria" used for that purpose in the national legislation implementing the Community provisions.
(2) In circumstances such as those of the present case, the first subparagraph of Article 3(1), cited above, is to be interpreted as meaning that a Member State which has designated not its entire territory but merely particular parts of it as its base area regions under the second subparagraph of Article 2(2) of the aforementioned Regulation may designate the base area region also as a production region, without further division. Taking into account the criterion of `specific characteristics that influence yields', which requires a more extensive division of base area regions into individual production regions with different average cereal yields, is justified only where that criterion is more appropriate.
(1) - Hereinafter `the Oberverwaltungsgericht'.
(2) - OJ 1992 L 181, p. 12, `the Regulation' or `the contested Regulation'.
(3) - Second recital in the preamble to the contested Regulation.
(4) - Ibid.
(5) - Paragraph 17 of the Commission's observations.
(6) - Fifth recital in the preamble to the contested Regulation.
(7) - Ibid., 13th recital. `Compensatory payment' should be taken to mean `aid for arable crops or land set-aside'.
(8) - Ibid., 11th and 12th recitals, and Article 8.
(9) - Ibid., 13th and 14th recitals.
(10) - Ibid., 16th recital, and Article 2(5).
(11) - This was the scheme chosen by the Federal Republic of Germany.
(12) - These yields are also referred to as `historic yields'.
(13) - Emphasis added.
(14) - Emphasis added.
(15) - Emphasis added.
(16) - BGBl. I 1992, p. 1991 (`the KVO').
(17) - Paragraph 8 of the Commission's observations.
(18) - Paragraph 9 of the Commission's observations.
(19) - See above, points 15 to 19 of this Opinion.
(20) - Ninth paragraph of point II of the translation of the grounds of the order for reference.
(21) - Ibid., paragraph 5 of point I of those grounds.
(22) - See point 24 of this Opinion.
(23) - See point 46 et seq. of this Opinion.
(24) - Lack of ambiguity in the wording of the Community text and establishment of a regionalization plan on the basis of certain criteria, the lawfulness of which it queries.
(25) - Fifth, sixth and ninth paragraphs of point II of the grounds of the order for reference.
(26) - In their observations, the Federal Republic of Germany and the plaintiff seem to arrive at the same conclusion.
(27) - Emphasis added.
(28) - Emphasis added.
(29) - Emphasis added.
(30) - Namely Marsch, Geest and Obstholsteinische Hügelland.
(31) - Stated in point 19 of this Opinion.
(32) - Ibid.
(33) - Emphasis added.
(34) - See point 11 of this Opinion.
(35) - See point 17 of this Opinion.
(36) - Article 3(1) and (4), quoted in points 19 and 40 respectively.
(37) - Article 3(1) in fine.
(38) - The existence of these statistics is disputed by the Federal Republic of Germany and the Commission states that it has no knowledge of them.
(39) - Judgment in Case C-353/92 Greece v Council [1994] ECR I-3411, paragraph 25.
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