The role of state aids in agriculture Overview of the relationship between state aids and the CAP

Treaty -art. 87 (1): general prohibition (…) any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between Member States, be incompatible with the common market.

Application to Agriculture Art. 36 of Treaty limits competition rules to the extent to be determined by the Council in relation to Agriculture Exceptions of art 87 not applicable Council may authorize: structural & natural handicaps + development progs

Council’s powers to create legal instruments-art 37. CMO’s-pillar I. Agri structures & rural dev.-pillar II. State aid rules apply but subordinate to CAP rules (a stricter approach)

State aid vs. Pillar I. Generally excluded Exceptions provided for in Council regulations Absence of a CMO

State aid vs. Pillar II Art of 1257/1999/EC specific rules Co-financing exempted Additional state aid to R&D progs Pure state aid: a parallel approach Green box aids also allowed

Provisions of Accession Treaties 1995 Derogations to Finland + Northern aid 2004 Derogations to some NMS Three-year transition Phase in of direct payments-national „top-ups”

Top ups - Hungary

Legal categories of state aid (659/1999/EC) Existing aid (authorised or there are legal grounds for granting) New aid (not existing+alterations) to be notified or exempted Unlawful aid (put in effect in contravention of art 87 (3)) Com. may order recovery

Aims of state aid Supplement structural actions (provide extra funding+green box) Supplement direct payments-NMS (income support+close in subsidy gap) Fill in gaps of CAP aid systems (various)

State aid measures I- Structural Farm investments (%) Food processing (%) introduce quality assurance+ quality schemes+HACCP, ISO etc. (%) Young farmers (%) Early retirement (sum) Diversification (%) Training-human capital (%) Agri environment/LFA/POs (sum) Cessation of farming (sum) Compensate losses (sum) Animal and plant health+fallen stock (%) Reparcelling (%) Animal husbandry (high genetic value)(%) Technical aids incl. consultancy (100%) Promotion & advertisement (%) R&D (%) Employment of the disadvantaged-horizontal (%)

State aid measures II-other State aid to agri commodities under Pillar I (fruits & vegetables PO+nuts+energy crops etc.) Fiscal aid through general tax system + excise duty Rescue and restructuring aid Sale of agricultural land Aid to state-owned enterprises

Forms of state aid I Capital grants (expressed in % of investment costs) Credit subsides + soft loans (short & investment loans) Cash grants towards costs Direct grants (payments) per ha or heads of animals

Forms of state aid II- Guarantees Could affect borrower and lender, both Indirect aid to borrower when state involved unless -borrower is not in financial difficulty - borrower would be able to obtain credit on the market - linked to specific transaction, not open ended, max 80% covered -market price paid -realistic risk assessment -provision on granting of future guarantees, annual review of terms A) similar to a credit subsidy (Net present value of cash flow of the subsidy when rate is sub market) B) guaranteed sum*risk-cost of guarantee

Forms of state aid III- (soft money for state companies) Private investor principle Cash injection Soft loan or open guarantee from state Write off of tax or social security Maintain loss making profile with no market perspective Purchase of shares (raise stake) of company in financial difficulty by state Rent land at a sub-market price Forego dividends

Authorisation of state aid Normal authorisation procedure through notification Exempt from notification (block exemption) Exempt from notification (de minimis) Existing schemes put in effect before accession