Zijne Excellentie De Heer Steven VANACKERE Ministerie Van Buitenlandse Zaken Karmelietenstraat 15 B - 1000 Brussel

EUROPEAN COMMISSION

Brussels, 10.2.2010 C(2010)935

Subject: State Aid - Belgium (Flanders) Aid No N 34/2010 Limited amounts of aid for primary producers hit by the financial crisis

Sir,

The Commission wishes to inform Belgium that, after examining the information supplied by your authorities on the aid referred to above, it has decided to raise no objections to the aid in question, as it is compatible with the Treaty on the Functioning of the European Union (TFEU)1. The Commission has taken this decision on the basis of the following considerations:

1. PROCEDURE

(1) By electronic notification of 22 January 2010, the Belgian authorities notified a temporary aid scheme for granting limited amounts of compatible aid under the Temporary Framework for State aid measures to support access to finance in the current financial and economic crisis" (hereinafter referred to as the Temporary Framework)2.

(2) Additional information was submitted by e-mails of 25 and 26 January 2010.

1 With effect from 1 December 2009, Articles 87 and 88 of the EC Treaty have become Articles 107 and 108, respectively, of the TFEU. The two sets of provisions are, in substance, identical. For the purposes of this Decision, references to Articles 107 and 108 of the TFEU should be understood as references to Articles 87 and 88, respectively, of the EC Treaty where appropriate. 2 Communication from the Commission - Temporary framework for State aid measures to support access to finance in the current financial and economic crisis, OJ C 83, 7.4.2009, p.1, as amended by Communication from the Commission of 28 October 2009, OJ C 26, 31.10.2009, p.2.

Zijne Excellentie de heer Steven VANACKERE Ministerie van Buitenlandse Zaken Karmelietenstraat 15 B - 1000 Brussel

Commission européenne, B-1049 Bruxelles – Europese Commissie, B-1049 Brussel – Belgium Telephone: 32 (0) 2 299.11.11

2. DESCRIPTION OF THE AID SCHEME

2.1. Objective of the aid scheme

(3) The scheme intends to provide support to the agricultural sector in the Flemish region, which has been severely hit by the financial and economic crisis. It aims therefore at remedying the serious disturbance in the economy of Belgium.

(4) The scheme is expressly based on Article 107 (3) (b) of the TFEU, as interpreted by paragraph 4.2.2 of the Temporary framework.

(5) The Belgian authorities have provided information on the impact of the financial and economic crisis on the Belgian and Flemish economy.

(6) As far as concerns, first of all, the impact of the financial crisis, the Flemish authorities have indicated that the economy has shrunk with 3.9 % in 2009, and that the growth will be nil in 2010. A growth of 2.5 % is foreseen only in 2011. The gross investments have declined in Flanders with 7.3 % and the SME's have difficulties to access credits3. The employment rate has decreased in 2009 by 0.7 %, and the forecast for 2010 is that it will continue to decrease (- 1 %). The amount of open job opportunities has decreased with 20 % in the course of the second trimester of 20094. The number of households suffering from social exclusion and do not have sufficient revenues to lead a decent life has increased in 2009.

(7) As far as concerns the impact of the economic crisis specifically on the agricultural sector in Flanders, the Flemish authorities have communicated data from the Flemish Agricultural Economic Index. This factor is issued twice a year, and aims at getting a view on the economic changes, the trust of the entrepreneurs and the planned investments in the Flemish agricultural and horticultural sector. Since the end of 2008, this factor went downwards (until -9 end 2008 whereas it was positive (+0.5) in the beginning of 2008) due to the increasing costs of energy and other inputs, and the decrease in the price of the agricultural products. In spring 2009, the factor went further downwards (until -22) because of the economic crisis, the decrease in demand of agricultural products and in the prices of the agricultural products. End of 2009, the factor went slightly upwards (up to - 19).

(8) The fragmentation of this index into the different sub-sectors (i.e. arable farming, fruit growers, vegetable growers, fruit and vegetable glasshouses sector, dairy cattle sector, ornamental plant sector, beef cattle sector, pig sector) shows the same trend (exception made of the ornamental plant sector) especially in the sector of the vegetable growers. This negative trend is particularly visible in the investment plans, where there is a significant reduction in the intention to invest.

(9) Belgium has provided other figures showing that the number of bankruptcies in the agricultural and horticultural sector has risen slightly in 2008-20095. A study

3 Source : KeFiKbarometer 4 Source : VDAB 5 Source : FOD Economics, KMO, Middenstand en Energie

2 made by Flanders in the bank sector shows that the terms for payment are delayed and there is a slight reduction in the number of new investment files. This overview of the banks shows that there is no real financing problem for the larger undertakings, but that the smaller undertakings had more difficulties. The situation seemed to be very difficult especially in the pig sector and in the dairy cattle sector, where the prices of the products are very low and/or volatile. If these low prices continue to drag on, these undertakings will have to use their own reserves (capital of the undertaking) and start to ask for supplier's credits.

2.2. The nature and form of the aid

(10) The aid will be provided in the form of interest rate subsidies and in the form of guarantees.

(11) The bridging loan is intended for the financing of operational costs (such as the buying of feeding stuff, of fertilizers, of fuel, of seed stocks, of pesticides, …) and aims at ensuring the continuity of the undertaking. A guarantee can be granted on this bridging loan amounting to 80 % of the credit amount for a period of three years. The Belgium authorities confirmed that for the guarantees the aid element will be calculated on the basis of the safe harbour premiums laid down in the annex to the Temporary Framework.

(12) The Belgian authorities have submitted detailed calculations showing that the total actual value of the aid measures was below 15 000 EUR.

2.3. Legal basis

(13) The legal basis for this scheme is the decision of the Flemish government of 24 November 2000 concerning aid to investments and installation in the agriculture6, followed by a ministerial circular to be adopted on that basis.

2.4. Administration of the scheme

(14) The notified scheme will be applied in Flanders only and administered by the Vlaamse Landbouwinvesteringsfonds (VLIF). The VLIF will carry out an investigation to verify that the conditions for receiving the aid have been complied with. Potential beneficiaries of the aid will introduce their demand for aid via a specific form to the VLIF with the necessary annexes.

2.5. Budget and duration of the measure

(15) The notified measure has a total budget of €2.73 million.

(16) Aid can be granted from the date of approval of the present scheme until 31 December 2010.

6 Besluit van de Vlaamse regering van 20 november 2000 betreffende steun aan de investeringen en de installatie in de landbouw, BS, 14.2.2001.

3 2.6. Beneficiaries

(17) The beneficiaries of the notified scheme will be small and medium-sized undertakings active in the primary production of agricultural products. According to the Belgian authorities, the sector of the primary agricultural production in Flanders consists only of SME's. The number of beneficiaries will be between 501 and 1000.

(18) The Belgian authorities have indicated under which conditions the beneficiaries will be allowed to receive aid :

a. The gross operating income is minimum 15 % lower during one year than the previous one-year period or than the average of the three previous periods, on the basis of minimum the same size of the undertaking

b. This decrease in the gross operating income is the consequence of the economic crisis

c. The undertaking possesses its own positive net assets

d. A financial analysis shows that the supplementary credit burden due to the bridging loans could be borne in normal circumstances by the undertaking

e. The income for the operator stemming from non-agricultural activities is less than 10 000 EUR .

f. The production risks have to be borne by the operator

(19) The Belgian authorities have mentioned that these specific conditions mentioned above guarantee that the measure is proportionate.

(20) Only those agricultural producers that were not firms in difficulty7 on 1 July 2008 can benefit from the aid. The aid may be granted to undertakings that entered into difficulties after this date due to the economic and financial crisis.

(21) Apart from these conditions, the Belgian authorities have indicated that the beneficiary of the aid should qualify as farmer according to the VLIF conditions. Furthermore, the farmer should be able to exercise his profession, and the undertaking should be viable. The accountancy should be kept in order, and the minimal prescriptions in terms of environment, hygiene and animal welfare should be respected. The undertaking must dispose of the necessary production and emission rights. The credits of the applicant may not be cancelled.

7 Within the meaning of point 2.1 of the Community guidelines on State aid for rescuing and restructuring for firms in difficulty (OJ C 244, 1.10.2004, p.2) as regards large firms and within the meaning of Article 1 (7) of the General Block Exemption Regulation (Regulation (EC) No 800/2008, OJ L 214, 9.8.2008, p.3)) as regards SMEs.

4 2.7. Sectoral scope, exclusion of export aid and aid favouring domestic over imported products

(22) The scheme is open for all undertakings active in the primary production of agricultural products situated in Flanders.

(23) It does not apply to export aids or aids favoring domestic over imported goods.

2.8. Aid measure

(24) The Belgian authorities have indicated that the measure will be granted according to the temporary framework. De minimis aid which has been received since 1 January 2008 will be taken into account. To this effect, farmers will be required to declare any received de minimis aid since 1 January 2008. A specific form has therefore been established and annexed to the circular.

(25) The Belgian authorities have confirmed that the conditions laid down in section 4.2.2 of the Temporary Framework (as amended) for granting limited amounts of compatible aid to agricultural undertakings will be fully met. In particular :

• The aid shall not exceed €15,000 per undertaking. All figures used shall be gross, that is, before any deduction of tax or other charge;

• Before granting the aid, the aid granting authorities shall obtain from the undertakings concerned a declaration about any de minimis aid (as defined in Commission Regulation (EC) No 1535/2007) or aid granted under this measure received in the period since 1.1. 2008;

• The total amount of de minimis aid and aid granted under this measure per undertaking in the period 1.1.2008 to 31.12.2010 may not exceed €15,000;

• Where the aid granted under this measure is to be combined with other compatible aid or with other forms of Union financing, the maximum aid intensities indicated in the relevant Guidelines or Block exemption regulations will be respected;

• The aid is not fixed on the basis of the price or quantity of products put on the market.

2.9. Monitoring and reporting, business secrets, language waiver

(26) The Belgian authorities confirm that the monitoring and reporting obligations laid down in Section 6 of the Temporary Framework will be respected (e.g.: detailed records regarding the granting of aid must be maintained for 10 years; before 31 October of each year during which the Temporary Framework is applicable, a report on the measures put in place should be provided).

(27) The Belgian authorities confirm their acceptance that the Commission decision is adopted in the English language, due to exceptional circumstances.

5 3. ASSESSMENT UNDER COMPETITION RULES

Legality of measure

(28) By notifying the aid measure before putting it into effect (see par. (16)), the Belgian authorities respected their obligations under Article 108 (3) of the TFEU.

Presence of aid within the meaning of Article 107(1) of the TFEU

(29) Under Article 107(1) of the TFEU, 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, insofar as it affects trade between Member States, is incompatible with the internal market.

(30) The aid at issue is financed out of State resources and benefits certain undertakings (cf. point (22). Pursuant to the case law of the Court of Justice, aid to an undertaking is deemed to affect trade between Member States if that undertaking operates in a market open to intra-Union trade8. The mere fact that the competitive position of an undertaking is strengthened compared with other competing undertakings, by giving it an economic benefit which it would not otherwise have received in the normal course of its business, points to a possible distortion of competition9. The beneficiaries of the aid at issue operate on a market where intra-Union trade takes place10. The aid measure could therefore distort competition and affect trade between Member States and consequently constitutes aid pursuant to Article 107(1) of the TFEU.

Compatibility of aid pursuant to Article 107(3)(b) of the TFEU

(31) Having established that the measure involves state aid within the meaning of Article 107 (1) of the TFEU, it is necessary to consider whether the above mentioned measure can be found compatible with the internal market.

(32) As described under paragraph above, the recent developments in the Flemish economy point to an overall downturn when compared to previous periods (see par. (6)). The data provided by the Belgian authorities and based on the Flemish Agricultural Economic Index point as well to a downturn in the agriculture sector, due in particular to the decrease in the demand of the agricultural products and to a decrease in the prices of the agricultural products.

(33) The granting of the aid at stake aims at supporting those undertakings that have an increased financing need due to the current crisis, as underlined by the information provided by the Belgian authorities (cf. paragraph (9)). The measure

8 See, in particular, judgment of the Court of 13 July 1988, Case 102/87, French Republic v Commission of the European Communities, ECR 1988, p. 4067. 9 Judgment of the Court of 17 September 1980, Case 730/79, Philip Morris Holland BV v Commission of the European Communities, ECR 1980, p. 2671. 10 In 2007, the part of Belgium in the total intra EU export of agricultural products amounted to 9.5 % and to 4.5 % of the total extra EU export.

6 at stake aims at providing support for the farmers to cover part of their operational costs.

(34) By adopting the Temporary Framework, the Commission indeed acknowledged (section 4.1) the "seriousness of the current financial crisis and its impact on the overall economy of the Member States". The Commission concluded "that certain categories of State aid are justified, for a limited period, to remedy these difficulties and that they may be declared compatible with the internal market on the basis of Article 87(3)(b)." The Commission in its Communication of 28 October 2009 furthermore recognized increased difficulties for farmers to obtain credit as a consequence of the financial crisis and extended the scope of section 4.2.2 ("Compatible limited amount of aid") of the Temporary Framework by introducing a separate compatible limited amount of aid possibility for undertakings active in primary agricultural production.

(35) The Commission considers that the macroeconomic data for the Flemish economy including the whole agriculture sector justifies the introduction of a specific scheme for undertakings active in primary agricultural production.

(36) The notified measure has been designed to meet the requirements of the additional category of aid ("Compatible limited amount of aid") described in section 4.2.2 of the Temporary Framework as amended.

(37) The Belgian authorities confirmed that the scheme is open to all undertakings active in the primary production of agricultural production (cf. paragraph (22)). The limitation to SME's is justified by the specific structure of this sector, as presented in paragraph (17) above.

(38) By excluding firms in difficulty on 1 July 2008 from the scope of the scheme (cf. paragraph (20)) it is excluded that aid is granted to agricultural producers already in structural difficulties before the beginning of the current crisis.

(39) Only such agricultural holdings can benefit from the aid which are affected after 1 July 2008 by liquidity problems and consequently at the time of application lack the necessary securities to obtain a conventional working capital loan.

(40) Even though the notified measure is proposed at regional level, it is considered to be necessary, proportional and appropriate to remedy a serious disturbance in the entire Belgian economy. In fact, Flanders represents a very substantial part of Belgium's GDP (57.5%) and population (57.8%). On 20 March 200911 and on 3 June 2009, the Commission already adopted two general schemes12 in the context of the Temporary Framework, which were applicable to Flanders only. In those decisions, the Belgian authorities submitted extensive material to substantiate the above-mentioned facts, in particular to prove the interdependency between the economy of the Flemish region and the entire Belgian economy. The Commission therefore refers to those decisions to justify why a regional scheme is appropriate in the case of Belgium.

11 http://ec.europa.eu/community_law/state_aids/comp-2009/n117-09_en.pdf 12 http://ec.europa.eu/community_law/state_aids/comp-2009/n068-09-fr.pdf

7 (41) As far as concerns more specifically the agricultural sector, the value of the production of the Flemish agricultural and horticultural undertakings amounts to 75 % of the total value of the Belgian agricultural production13. The part of the Flemish undertakings in the Belgian agrobusiness complex14 amounts to 63 %. The gross added value of the agricultural sector in Flanders amounts to 70 % of the Belgian gross added value.

(42) The measure at stake can therefore be reasonably anticipated to produce effects across the entire Belgian economy.

(43) The Commission accordingly considers that the notified measures is, in the context of the general limited amount of the two aid measures already put in place (see par. (40), necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State and meets all the conditions of point 4.2.2 the Temporary Framework as amended. In particular,

• Footnote 20 of the Temporary framework mentions that the premiums set in the annex to the Temporary Framework may be used as benchmark to calculate the compatible aid element for guarantee measures falling under point 4.2 of this framework. In view of the information submitted by Belgium under par. (11), this requirement is complied with.

• The maximum aid amount will not exceed the cash equivalent of €15,000 per undertaking (point 4.2.2 (h)); as mentioned in par. (12), this requirement is fulfilled.

• The measure is granted through an aid scheme in line with point 4.2.2 (b);

• The aid granting authorities will obtain from the undertakings concerned a declaration about any de minimis aid or aid granted under this measure received during the current fiscal year and will check that the total aid will not exceed €15,000 per undertaking during the period from 1 January 2008 to 31 December 2010 (point 4.2.2 (g), first sentence)15. As indicated in par. (24), farmers will have to submit a form stating this condition is fulfilled. Where the aid granted under this measure is to be combined with other compatible aid or with other forms of Union financing, the maximum aid intensities indicated in the relevant Guidelines or Block exemption regulations will be respected. Thus, the cumulation rules with de minimis aid and aid for other purposes are respected (in particular point 4.2.2 (g) and point 4.7);

• Firms in difficulty (situation of 1.7.2008) are excluded from eligibility under the scheme in compliance with point 4.2.2 (c);

13 Source : Land- en tuinbouw in Vlaanderen 2009, Vlaamse Overheid, Departement Landbouw en Visserij 14 Agrobusinesscomplex refers to the direct and indirect joined economic activities which are linked to the production, processing and marketing of an agricultural product, including the undertakings which deliver services or which are the suppliers of this sector. 15 The Commission notes the relevant commitment given by the Dutch authorities (cf. paragraph (24).

8 • The measure applies to undertakings active in the primary production of agricultural products. Aid under this measure is not fixed on the basis of the price or quantity of products put on the market (point 4.2.2 (h));

• Export aid and aid favouring domestic over imported goods and services are excluded (point 4.2.2 (e)).;

• In line with point 4.2.2 (f) aid may be granted until 31.12.2010;

• The monitoring and reporting rules laid down under point 6 of the Temporary Framework will be respected.

(44) For these reasons, it may be concluded that the notified measure is in conformity with the Temporary Framework as amended and that it can be considered to be compatible with the Treaty on the basis of Article 107 (3) (b) TFEU.

(45) The Commission furthermore notes that the Belgian authorities accepted that the decision is adopted in the English language, due to exceptional circumstances.

4. CONCLUSION

(46) In view of the foregoing, the Commission has accordingly decided to consider the aid compatible with the internal market under Article 107(3)(b) TFEU.

If this letter contains confidential information which should not be disclosed to third parties, please inform the Commission, giving your reasons, within fifteen working days. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site:http://ec.europa.eu/community_law/state_aids_nl.htm Your request should be sent by registered letter or fax to:

European Commission Directorate-General for Agriculture and Rural Development Directorate M Office: Loi 130 5/120 B-1049 Brussels

Fax no: 0032 2 296 7672

Yours faithfully, For the Commission

Dacian CIOLOŞ Member of the Commission