OPINION OF ADVOCATE GENERAL

delivered on 18 May 2004 (*1)

(Reference for a preliminary ruling from the Giudice di Pace di Genova (Italy))

(Sugar – 1998/99 Marketing year – Derived intervention price of white sugar for Italy – Deficit areas – Definition of consumption)

1.By this reference for a preliminary ruling, the national court submits to the Court a question relating to the common organisation of the markets in the sugar sector. That organisation includes the fixing of various sugar and beet prices, which are higher for deficit areas than for non-deficit areas. Central to the case is the definition of consumption used in the calculation which must be made by the competent institutions in order to decide whether an area is non-deficit or deficit. The Court is asked whether the fact that sugar incorporated in products processed in a Member State and intended for export was not regarded as being consumed in that State invalidates the regulation, which did not include Italy among the deficit areas of the Community for the 1998/99 marketing year.

2.According to the third recital in the preamble to Council Regulation (EEC) No 1785/81 of 30 June 1981 on the common organisation of the markets in the sugar sector (*2) (hereinafter ‘the basic regulation’), which is applicable in the present case, the objective of that organisation, in addition to the operation and development of the common market in agricultural products, is to ‘ensure that the necessary guarantees in respect of employment and standards of living are maintained for Community growers of sugar beet and sugar cane’ by means of ‘measures to stabilise the market in sugar’. These measures include rules concerning inter alia prices and quotas.

3.As to the price of white sugar, Article 3(1) of the basic regulation provides that an intervention price is to be fixed each year for the non-deficit areas and a derived intervention price for each of the deficit areas. Under Articles 4 and 5 of the basic regulation, minimum prices are to be fixed each year for beet – a raw material from which sugar is produced – which are to be increased for deficit areas by an amount equal to the difference between the derived intervention price for the area in question and the intervention price, such amount being adjusted by the coefficient 1.30.

4.Articles 24 and 25 of the basic regulation provide for the allocation of an A quota and a B quota to each Member State for the production of sugar and isoglucose. Those quotas are to be allocated by the Member States to undertakings according to the criteria established in Community rules. Article 9 of the regulation provides that the intervention agencies designated by Member States are to be required to buy in the sugar produced within the quota limits at the intervention price or the derived intervention price, thus providing an outlet and price guarantee. Finally, Article 26 of the regulation provides that sugar produced outside the quota (C sugar) is not entitled to any guarantee and as a rule must either be exported without entitlement to a refund or sold on the Community market subject to the customs levies applicable to imported sugar.

5.The third recital in the preamble to Regulation (EC) No 1361/98 (*3) fixing the intervention prices for the 1998/99 marketing year (hereinafter ‘the contested regulation’) and adopted under the basic regulation, states that ‘a deficit supply situation is to be foreseen in the areas of production in Ireland, the United Kingdom, Spain, Portugal and Finland’. Article 1 of the contested regulation did not fix a derived intervention price for Italy.

6.In the present case, Mr Roberto Nicoli sold to Eridania SpA (hereinafter ‘Eridania’) his sugar-beet production for the 1998/99 marketing year. In respect of that sale, Eridania paid to the applicant a sum which did not include the increase which would have been applicable if Italy had been classified as a deficit area. Mr Nicoli commenced proceedings against Eridania claiming payment of that increase.

7.On 28 February 2000 the national court referred three questions for a preliminary ruling, which were received by the Court on 7 March 2000. In its reference it set out inter alia the following argument: a Member State which has to import sugar to meet its needs should be regarded as a deficit area and have a derived intervention price fixed for it; if the sugar added in Italy to food products exported to other Member States is treated as consumed in those States, the validity of the contested regulation would appear to be in doubt in the light of the underlying rationale of the notion of deficit status, since Italy might need to import sugar although no derived intervention price is fixed for it; that would result in the invalidity of the contested regulation.

8.By decision of the President of the Court of Justice of 13 April 2000, the Court stayed proceedings in order to await the outcome of Italy v Council (*4) which concerned the validity of the contested regulation in relation to the classification of Italy as a non-deficit area. After judgment was delivered in that case on 14 March 2002, it was notified to the Giudice di Pace di Genova (Magistrates’ Court, Genoa) by the Court Registry, which asked whether, in the light of that judgment, it wished to maintain its reference for a preliminary ruling. After hearing the representatives of the parties to the main proceedings, the national court decided, by order of 30 July 2002, to maintain the second and third questions, but withdrew the first question. The national court considered that the Court had not dealt with the interpretation to be given to ‘consumption in a particular area’ in that judgment; it therefore also maintained the question of validity ‘not only from the point of view of its statement of reasons, but also and especially in so far as the [contested] regulation did not fix a derived intervention price for all areas of Italy’.

1.(1) Must [the basic] regulation be interpreted as meaning that the classification of an area as a deficit area is to be determined according to a calculation method which treats as being consumed in that area sugar which is incorporated there in a processed product, even if the latter is eaten in another country, or is the classification of an area as a deficit area to be based on a calculation method which does not treat as being consumed in that area sugar which is incorporated there in a processed product but eaten in another country?

2.(2) Is [the contested] regulation valid inasmuch as it fails to fix a derived intervention price for all areas of Italy in accordance with Article 3(1), Article 5(3) and Article 6(2) of [the basic] regulation and contains no statement of reasons in that respect?

II – Legal context, facts, procedure and questions referred for a preliminary ruling

10. The Commission, the Council and Eridania contend that the questions referred for a preliminary ruling have already been answered in Italy v Council cited above. The Council and Eridania thus suggest that an order be made in application of Article 104(3) of the Rules of Procedure, as the questions are identical to questions on which the Court has already ruled. The Council also suggests the possibility that the Court hold the reference inadmissible. In the view of the Italian Government and Mr Nicoli, however, that judgment does not settle the questions referred.

11. On the substance of the case, Mr Nicoli and the Italian Government support the argument of the national court set out in point 7 above. According to Mr Nicoli, if the definition of consumption used in the calculation had included the sugar incorporated in products processed in Italy and then exported, Italy would have been regarded as a deficit area. According to the data provided by the Italian Ministry of Agricultural and Forestry Resources and issued by the Commission, there is a difference of 135 360 tonnes between the sugar incorporated into products processed in Italy and then exported (326 210 tonnes), and the sugar incorporated into products processed in other countries and then imported into Italy (190 860 tonnes). If that difference (135 360 tonnes) had been added to total consumption, Italy would have been regarded as a deficit area for the 1998/99 marketing year, since consumption would have been greater than production. A derived intervention price should thus have been laid down for Italy. The effects of the definition of consumption used are significant for a country such as Italy, which is a major producer and exporter of processed products.

12. Again according to Mr Nicoli, the incorporation of sugar into processed products represents a means of consumption which cannot be neglected when the capacity of a Member State to meet its sugar requirements, which include those of the processing industries, is being assessed. The Italian Government shares that view. It considers that the only important factor for classifying a country as a deficit area is the possibility that it might be forced to buy white sugar from non-deficit countries, which depends upon the total national requirements, including demand from exporting industries. The definition of consumption used by the competent institutions is contrary to the objective pursued by the basic regulation. Using such a definition of consumption constitutes a manifest error of assessment, which entails the invalidity of the contested regulation.

14. On the substance of the case, the Commission and the Council put forward similar observations. The Commission explains that the objective of fixing a higher derived intervention price for deficit areas is to enable deficit areas to be supplied with sugar from non-deficit areas. The derived intervention price allows for a partial compensation of transport charges. The fixing of a derived price is also intended to avoid a decrease in beet production, which would result in an even greater deficit in subsequent marketing years.

15. The Commission points out that the Community institutions have broad discretion in this context. There are several methods for assessing the foreseeable deficit in sugar in a geographical area, each with its own advantages and disadvantages. According to the Commission, the fact that Regulation (EC) No 1260/2001, (*6) which replaced the basic regulation, has neither changed the meaning of consumption nor made it more precise confirms the way it is interpreted in practice by the institutions. It is equivalent to the definition used in respect of the other mechanisms of the common organisation of the sugar markets, in particular for the communication of data used for the calculation of production levies and for the management of export refunds, as laid down by Regulation No 779/96 cited above. Finally, the Council and the Commission consider that it is the adoption of the estimation method advocated by Mr Nicoli that would go beyond the discretion of the institutions and constitute a misuse of powers. Such a change, in the absence of any amendment of the basic regulation, would lead to the power to fix a derived intervention price being used for purposes other than those intended by the legislature, with the sole aim of increasing the income of Italian beet growers.

16. At the hearing, the Council and the Commission were asked for a written reply to a question raised by the Court. Those institutions were required to inform the Court whether, according to their forecasts, Italy would have had to be regarded as a deficit area for the 1998/99 marketing year if the calculation of consumption had included sugar incorporated into a processed product in a specific area but which was then exported as being consumed in that area.

III – Assessment

21. The same is not true of the ground of invalidity relating to the definition of consumption, which was not examined in Italy v Council. As the national court states, that case did not answer the question whether sugar incorporated in processed products destined for export must be regarded as consumption and whether the contested regulation should be annulled on account of the definition of consumption used.

22.This is clear from a mere reading of paragraphs 71 to 78 of the judgment. According to the Italian Government, the assessment of the situation should have been based on the quantity of imported raw sugar, with a deduction for exports (the ‘Italian’ method), and not on a method which compares production and consumption in each area (the ‘Community’ method). The competent institutions applied the Community method as from the 1998/99 marketing year, and there was no statement of reasons for that change of method. In this respect, the Court considered that ‘the Italian Government [had] not proved to the requisite legal standard the existence of … a change of method’ (paragraph 72). It then stated that for the two marketing years preceding 1998/99, the Commission and the Council had used the same method as that applied for the marketing year in question in the main proceedings, ‘establishing the ratio between the estimated production and consumption for the coming marketing year’ (paragraph 76). Consequently, it dismissed ‘the plea that no statement of reasons was given for the alleged change in the method of assessment’ (paragraph 78). It seems clear, therefore, that that case does not deal with the interpretation of consumption. The national court has, therefore, rightly maintained its question in that regard, which must now be examined.

23.It should be noted that the basic regulation does not define consumption. It does not even define what is meant by ‘deficit areas’ and ‘non-deficit’ areas, as the legislature has left those details for administrative practice to settle. Only Annex II to the regulation relating to communications in the sugar sector, applicable at the time of the facts in the main proceedings, seems to indicate that sugar incorporated in processed products which are exported to other Member States or to third countries does not form part of the consumption of a particular area. Annex II to the regulation is not, however, intended to give a definition of consumption which must be used to classify an area as deficit or non-deficit, but simply to establish a common model for the communication of data which are used for several mechanisms of the common organisation of the sugar market. It is therefore of no consequence for the question referred.

24.Since the legislation is silent on the matter, it might be thought, as the Council suggested at the hearing, that judicial review of such an administrative practice would be very limited, if not impossible. However, it seems to me that when such choices are made in applying certain legislation, they must respect the objectives of the latter. In this case, therefore, the competent institutions had to respect the objectives of the basic regulation in their choice of the definition of consumption when making calculations prior to the adoption of the contested regulation. It is for the Court to establish whether that was the case.

25.In that connection it is necessary to specify the appropriate degree of judicial review. It is apparent from settled case-law that when implementation by Community institutions of agricultural policy, especially in the sugar sector, involves the need to evaluate a complex economic situation, the discretion which they have does not apply exclusively to the nature and scope of the measures to be taken but also, to some extent, to the finding of the basic facts. In reviewing the exercise of such a power, the Court must confine itself to examining whether the contested act contains a manifest error of assessment or constitutes a misuse of power.

26.That case-law is relevant to the present case, as the definition of consumption used to assess whether areas of the Community are deficit or non-deficit is one of the factors in a complex economic evaluation. The Court must, therefore, respect the economic choices of the competent institutions, not replace their assessment with its own, and limit its intervention to the questions mentioned in the preceding point.

27.In the present case, if the objective of fixing a higher derived intervention price for deficit areas is really, as the Commission maintains in its observations, on the one hand to enable those areas to be supplied with sugar from non-deficit areas, taking account, in particular, of transport costs, and, on the other hand, to avoid a decrease in beet production, which would lead to an even greater deficit in the following marketing years, it must be acknowledged that the definition of consumption used by the competent institutions seems at first sight to be inconsistent with that objective.

28.The result of the definition of consumption used is that an area can be regarded as non-deficit even if it in fact needs to obtain sugar supplies from other areas of the Community. In such a situation, a higher derived intervention price will not be fixed for that area, contrary to the objective pursued by the fixing of such a price. Such an obvious divergence between the objectives of that aspect of the common organisation of the markets in sugar and the means used to implement it constitutes a manifest error of assessment, unless the competent institutions are able to explain the reasons for their choice.

29.In its observations, the Commission stated that the definition of consumption used for determining whether an area is non-deficit or deficit is the same as that used for the calculation of production levies and in the management of export refunds, without giving any other reasons for the choice made and without explaining why the same definition of consumption should be used in the mechanism at issue in this case. At the hearing, it added that use of the definition of consumption proposed by Mr Nicoli to determine whether an area is deficit or non-deficit could have negative effects on the mechanism of export refunds, which is financed by levies on sugar manufacturers. According to the Commission, if Italy were given the status of deficit area, it would contribute less to the financing of those refunds, whilst receiving more export refunds.

30.However, such arguments are not sufficient to justify such a divergence between the objectives and the implementation of the basic regulation. The fact that a definition of consumption is used for other aspects of the common organisation of the markets in sugar should not mean it must automatically be used to fix a derived intervention price which conflicts with its objective. Nor does the definition of consumption which is appropriate here necessarily have to be the same as that used in the context of applying other provisions of the basic regulation. Therefore, inconsistency between the various mechanisms of the common organisation of the markets in sugar which would ensue, according to the Commission, from the use of the definition of consumption advocated by Mr Nicoli is only apparent.

31.Nor would such a definition, which is better suited to the objective of fixing a derived intervention price for deficit areas, appear to have the negative effects on the mechanisms of production levies and export refunds mentioned by the Commission. I am not convinced by the very technical and unclear argument of the Commission. It has not shown a direct connection between the objective of the fixing of a derived intervention price for deficit areas and the objectives of the other mechanisms mentioned. Furthermore, it has not given a satisfactory explanation as to why the use of a more appropriate definition of consumption for determining the deficit or non-deficit nature of an area would be incompatible with the other mechanisms of the common organisation of markets in sugar. Finally, the Council and the Commission, while drawing attention to the wide margin of discretion which those institutions have in that field, have conceded that it would be quite permissible to adopt the definition proposed by Mr Nicoli.

32.If the objective of fixing a derived intervention price for deficit areas is as stated above and if the non-deficit or deficit nature of an area must be determined ‘by establishing the ratio between the estimated production and consumption for the coming marketing year’, it is illogical not to consider as consumed in an area the sugar incorporated in products destined for export. The logic of the system, particularly of fixing a derived intervention price aimed at stabilising the market in sugar, precludes such an option. In view of the explanations heard by the Court, I consider that Mr Nicoli’s argument must succeed. When it is determined whether an area is a deficit or non-deficit area, the definition of consumption must therefore include the sugar incorporated in products processed in that area and destined for export, with the exclusion of sugar incorporated in products processed in other Member States and imported and consumed in that area.

33.The method followed by the Commission in its reply to the question referred to in points 16 and 17 above shows that such a calculation can be made with the data notified by Member States under the abovementioned Regulation No 779/96, relating to communications in the sugar sector. The data provided by the Commission in reply to the question formulated by the Court show that the contested regulation should be annulled if the Court decides to follow the approach proposed in this Opinion. At the hearing, Eridania challenged the data provided by the Commission in its reply to the question formulated by the Court, but that institution explained that the same data would have been used for the adoption of the contested regulation if the definition of consumption proposed by Mr Nicoli had been accepted.

34.At the hearing, the Council and the Commission dwelt upon the fact that the definition of consumption challenged by Mr Nicoli had been used in the past and that the Italian Republic had not demurred. Their objection does not appear to me to be well founded. Even if that were the case, it should not prevent Mr Nicoli from challenging a measure which affects him and which he considers to be contrary to the basic regulation. The Court is not called upon here to settle a dispute between a Member State and an institution. In any event, the rights of individuals cannot be affected by a possible agreement given by a Member State to a particular political solution. I would also recall that in Van Gend en Loos the Court stated that ‘[t]he vigilance of individuals concerned to protect their rights amounts to an effective supervision in addition to the supervision entrusted by Articles 169 and 170 [of the EC Treaty, now Articles 226 EC and 227 EC] to the diligence of the Commission and of the Member States’.

35.I would like to make it clear that, in annulling the contested regulation for the abovementioned reasons, the Court would not be substituting its assessment for that of the competent institutions. Although the latter have broad discretion in this field, the assessment which was made in this case is vitiated by a manifest error. The Court would remain within the confines of its task, since the definition of consumption used could be maintained if the basic regulation were amended so as to remove the contradictions noted. Even though the rules in this matter are neither particularly transparent nor clear, the Court must nevertheless review the validity of Community measures with the means available to it. In the present case the definition of consumption chosen when the contested regulation was adopted does not reflect the objective of fixing a derived intervention price. There is no rational link between the means and the objective and the inconsistency was not justified by any other cogent reasons. The proposed solution is thus limited to a finding that the definition of consumption used is incompatible with the objective of fixing a derived intervention price as required by the basic regulation.

36.The requirement for a rational link between the objective of the basic regulation and the means chosen to achieve it is an indispensable condition of validity. Such requirement permits the Court to review whether there is a sufficient relationship between the objectives stated and the chosen means. If it were unnecessary to establish such a link, individuals would be deprived of protection where such choices are made, in so far as they would be unable to monitor the relationship between the measures adopted and the objectives pursued. The role of the Court in this area is also to ensure that the political choices of the institutions are clear and transparent and that they can be challenged by individuals and reviewed at their request. In those circumstances, the legislature can, moreover, adopt new rules, which would be rather clearer as regards the choices made and the means to implement them. By its intervention, the Court indirectly promotes greater transparency in the legislation regarding the common agricultural policy, and such transparency is necessary for industry and farmers, as well as for consumers and citizens. In this area and others such intervention is essential to ensure the proper working of the mechanisms of political responsibility in a democratic system.

IV – Conclusion

37.In the light of the foregoing, I propose that the Court should reply to the Giudice di Pace di Genova as follows:

Council Regulation (EC) No 1361/98 of 26 June 1998 fixing, for the 1998/99 marketing year, the derived intervention prices for white sugar, the intervention price for raw sugar, the minimum prices for A and B beet, and the amount of compensation for storage costs, is invalid in so far as it does not fix a derived intervention price for all the areas of Italy.

1 – Original language: Portuguese.

2 – OJ 1981 L 177, p. 4.

3 – Council Regulation of 26 June 1998 fixing, for the 1998/99 marketing year, the derived intervention prices for white sugar, the intervention price for raw sugar, the minimum prices for A and B beet, and the amount of compensation for storage costs (OJ 1998 L 185, p. 3).

4 – Case C-340/98 [2002] ECR I-2663.

5 – OJ 1996 L 106, p. 9.

6 – Council Regulation of 19 June 2001 on the common organisation of the markets in the sugar sector (OJ 2001 L 178, p. 1).

7 – Regulation No 779/96.

8 – See, inter alia, Case C-289/97 Eridania [2000] ECR I-5409, paragraph 48; and Case 138/79 Roquette Frères v Council [1980] ECR I-3333, paragraph 25.

9 – Case C-340/98 Italy v Council, cited above, paragraph 76.

10 – See the third recital in the preamble to the basic regulation, quoted in point 2 of the present Opinion.

11 – Case 26/62 [1963] ECR 1, at p. 13.