OPINION OF MRS ADVOCATE GENERAL ROZÈS

DELIVERED ON 23 SEPTEMBER 1982 (1)

Mr President,

Members of the Court,

Case 273/81, in which the plaintiff is Société Laitière de Gacé (hereinafter referred to as “the Société”) is, as I stated in my opinion in Case 272/81 RU-MI Sari, very similar to that case although, for the reasons which I gave in that opinion, this case must be dealt with separately. As the Court is aware, in this case the Tribunal Administratif [Administrative Court], Paris, seeks a preliminary ruling from the Court of Justice concerning the validity of Regulation (EEC) No 987/68 of the Council of 15 July 1968 laying down general rules for granting aid for skimmed milk processed into casein or caseinates and of Regulation (EEC) No 756/70 of the Commission of 24 April 1970 on granting aid for skimmed milk processed into casein and caseinates.

I —

That question is submitted to the Court in connection with a dispute between the Société (now taken over by Établissements Maurice Lanquetot & Fils — Deschamps SA), the plaintiff in the main proceedings, and the Fonds d'Orientation et de Régularisation des Marchés Agricoles [Agricultural Markets Guidance and Stabilization Fund, hereinafter referred to as “the Fund”], the defendant in the main proceedings, concerning the legality of the latter's refusal to pay the sum of FF 1326117.29 to the plaintiff.

1.That sum corresponds to the aid for the processing of skimmed milk into caseinates to which the Société claims to be entitled in respect of the 85625 kg of caseinates produced by it in the first half of June 1979 at its factory in Fontaine-Simon (Eure-et-Loir). Caseinates are “alkaline salts or alkaline-earth salts of casein, at least 95% soluble in distilled water”. (2) Casein is “the principal protein constituent of milk, washed and dried, insoluble in water and obtained from skimmed milk, generally by curdling with acid, rennet or other milk-coagulating enzymes”. (3) The Court has heard that caseinates are fairly complex products with widely differing uses. In the first place, caseinates may be used in foodstuffs, for example, as emulsifiers in prepared meats or to give consistency to baby foods. They may also be used for industrial purposes, in particular in the manufacture of floor coverings and glues.

Community aid for the processing of skimmed milk into caseinates was provided for by Regulation No 987/68 of the Council and detailed provisions in that regard were laid down by Regulation No 756/70 of the Commission. The last subparagraph of Article 2 (2) of Regulation No 756/70 laid down, in the version which was in force in June 1979, that in order to qualify for the aid provided for, “caseins and caseinates ... must correspond to the specifications laid down in the annexes.” Those annexes all provide, and have provided since the implementation of Regulation No 756/70 and even earlier, (4) for a maximum water content of 6% for all types of caseinates.

According to results of checks made by the Bureau des Produits Laitiers [Dairy Products Board] of the Service Vétérinaire d'Hygiène Alimentaire [Veterinary Food Hygiene Department] of the Ministry of Agriculture, communicated to the Société on 13 August 1979, the caseinates in question had a water content of 6.6%. The Fund was therefore unable to subsidize their production and notified the Société of its decision by letter of 14 August 1979.

2.By virtue of the manner in which the aid is calculated and paid, the Société's total loss amounted to the high figure indicated. Article 2 (2) of Regulation No 987/68 provides that “manufacturers of casein or caseinates shall include the aid in the purchase price paid to the suppliers of skimmed milk”. The Court has heard that the Société purchased 3339375 litres of skimmed milk from its suppliers, who are farmers, for approximately FF 2 million, inclusive of the aid, and sold the caseinates produced therefrom at the world market price of FF 753500. The difference between those two prices is more or less equal to the amount of Community aid withheld, such aid being calculated precisely on the basis of the difference between the Community price and the world price.

After the Société had contacted the relevant departments — including the Service Vétérinaire d'Hygiène Alimentaire — of the Direction de la Qualité [Quality Control Division] at the Ministry of Agriculture, the director of that division expressly acknowledged in a letter of 24 October 1979 addressed to the director of the Fund that the plaintiff in the main proceedings had acted in good faith since the defective functioning of laboratory equipment was at times difficult to detect promptly. He stated that, in his opinion, “in this case the financial consequences of the incorrect setting of the drier used for regulating the water content of the caseinates constituted a penalty out of proportion to the resultant fall in quality”.

The Société considered that it had thus achieved the primary objective of the Community legislation, namely the processing of skimmed milk into caseinates, and had failed to attain only its secondary objective, namely the promotion of the manufacture of high quality caseinates. On 20 May 1980 it therefore submitted an application to the director of the Fund for aid proportionate to the quantity of skimmed milk which it had actually processed. By letter of 9 June 1980, the director of the Fund rejected the application inter alia on the ground that the Fund was not responsible for interpreting Community law by determining whether the objectives laid down in Regulation (EEC) No 987/68 had actually been achieved by the undertakings in question; the Fund merely applied the rules, which provided for withholding of the aid in its entirety in the event of any lack of conformity of the caseinates produced.

A written exchange of views between the Société's lawyer and the relevant officers of the Commission proved equally inconclusive since the Director-General for Agriculture pointed out, in a letter of 24 September 1980, that “the decision concerning a request for aid is a matter for the competent agency in the Member State in question” and he emphasized, moreover, that “the manufacture of casemates complying with the minimum standard of quality prescribed by the Community legislation constitutes a fundamental condition” for the grant of the Community aid. By another letter of the same date addressed to the Fund, the Director-General for Agriculture again stated that he had no comment to make with regard to the Fund's refusal to pay the aid for the quantity of casemates which had been declared to be substandard.

Meanwhile, on 21 July 1980 the Société brought an action before the Tribunal Administratif [Administrative Court], Paris, for the annulment of the Fund's decision of 12 June rejecting the plaintiffs application for aid, on the ground that that decision was ultra vires, and for an order that the Fund should pay to the plaintiff the sum of FF 1326117.29 with interest thereon. In support of those claims, the Société again argued that the Fund's refusal to grant it the aid provided for by Regulations Nos 987/68 and 756/70 was contrary to the overriding legal principle of proportionality since the aim of those regulations was to encourage traders to process skimmed milk into caseinates, an objective which had been achieved in this case and the lack of conformity noted by the Fund was only very slight and in no way affected the intended use of the product. Accordingly, the Société considers that it should not be deprived of the entire amount of the aid, which is the usual consequence in the case of a trader who has failed to carry out the processing in accordance with an undertaking given to that effect.

II —

Taking the view that in order to determine whether that argument was well founded it was necessary to assess the validity of the regulations referred to, the Tribunal Administratif stayed the proceedings and requested the Court to give a preliminary ruling on the question whether or not Regulations No 987/68 of the Council and No 756/70 of the Commission “contravene the principle of proportionality and whether or not those regulations are thus valid inasmuch as they provide no distinction as to the sanction in the case where skimmed milk is not processed and in the case where after processing the product deviates slightly from the formula laid down in the provisions of the regulations”.

1.The first concerns the reference to Regulation No 987/68 of the Council, which has already been cited. That regulation was adopted pursuant to Article 11 (2) of the basic regulation, Regulation No 804/68 of the Council of 27 June 1968 on the common organization of the market in milk and milk products. That provision makes it incumbent upon the Council to adopt general rules governing the aid for skimmed milk produced in the Community and processed into casein. Regulation No 987/68, the preamble to which states, in the light of the conditions of production, why caseinates and casein are assimilated for the purpose of the grant of aid, merely defines caseinates and provides that the aid paid by the Community may vary according to whether the skimmed milk is processed into casein or into caseinates and according to the quality of those products (Article 3 (l')). However, it does not lay down the standards of quality with which casein and caseinates must comply in order to qualify for that aid.

Those standards, including those relating to the maximum water content of caseinates, are included in Regulation No 756/70 of the Commission, adopted pursuant to Article 11 (3) of Regulation No 804/68 which provides that it is for the Commission to adopt detailed rules for the grant of the aid.

For those reasons, therefore, the validity of Regulation No 987/68 of the Council cannot be called in question in these proceedings.

2.As in Case 272/81 RU-MI Sari, the use of the word “sanction” strikes me as inappropriate since this is a case of a refusal to grant aid, in other words a benefit which traders are at liberty to apply for, (5) and not a case in which Community legislation imposes any obligations on those concerned. (6)

It is also apparent that the comparison between a trader who has not processed skimmed milk into caseinates at all and a trader who has used it to manufacture caseinates but has failed to comply with a technical requirement is quite irrelevant in so far as the first part of the comparison seems to be merely theoretical. In view of the fact that the aid is paid after the products have been manufactured, it is difficult to conceive of traders purchasing milk from their suppliers at a price inclusive of the aid and subsequently failing to manufacture caseinates, thereby depriving themselves of the possibility of recovering most of their initial expenditure.

Finally, for the reasons already given in the RU-MI case, the question raised cannot be seen in terms of an excessive disproportion between the failure to comply with the legislation in question and the consequences of such failure. In my opinion, therefore, it is necessary to compare the objectives of Regulations Nos 987/68 and 756/70 with the requirement relating to the maximum water content of caseinates, set out in the annexes to Regulation No 756/70, which was not complied with.

The legislation at issue calls for the assessment of a complex economic situation and consequently the Community institutions are allowed a wide margin of discretion. As far as the Court is concerned, therefore, there is a breach of the overriding principle of proportionality only if the requirement of a maximum water content of 6% in the case of caseinates is manifestly irrelevant for the attainment of the objectives of the regulations governing the grant of an aid for the manufacture of those products.

III —

Contrary to the view consistently put forward by the plaintiff in the main proceedings, there are no reasonable grounds to support the argument that the objective relating to quality is subsidiary to the objective relating to production. It is apparent from even a cursory glance at Article 11 (1) of Regulation No 804/68 which provides that aid is to be granted “for Community-produced skimmed milk processed into casein, if such milk and casein products from it reach certain standards

that that interpretation must be discarded. (It is clear from Regulation No 987/68 that that requirement must extend to caseinates.) Furthermore, the Commission intended that the provision subjecting the grant of aid to the fulfilment of requirements as to quality should be strictly applied, being particularly anxious to enhance the reputation of Community products on the world market in the face of competition from nonmember countries. In its original version, Regulation No 756/70 varied the amount of the aid according to the quality of the caseinates. (7) Moreover, every successive amendment to that regulation tightened the requirements as to quality, in particular by abolishing as from 1 January 1972 aid for the protection of caseinates which failed to satisfy the requirements laid down in the annex, which at the time was the sole annex. (8)

Since the provision concerning the water content of caseinates was intended to guarantee the quality of those products, it is necessary to determine exclusively by reference to the objective relating to quality whether that provision constitutes a requirement which is manifestly irrelevant.

The Commission, which relies in particular on a technical report prepared for this case by its expert in the matter, takes the view that water content constitutes an essential factor in relation to the quality of caseinates. It ensures that the product may be stored for long periods without undergoing any deterioration, in particular as far as the taste is concerned, facilitating their use in foodstuffs. The aftertaste of glue which would otherwise appear would make them unsuitable for use as ingredients in numerous foods. The Community provisions now in force or proposed concerning the maximum water content of caseinates — 6% if they are to qualify for aid and 8% to enable them to be placed on the Community market (9) — are, moreover, in conformity with international standard FILIDF 72: 1974 drawn up by the International Dairy Federation and adopted for publication in November 1974, which provides for a maximum water content of 6% in the case of top grade caseinates and of 8% in the case of high grade caseinates. Those standards are even less rigorous than New Zealand standards which prescribe a maximum water content of 4% for top grade caseinates and 6% for high grade caseinates.

The Société, however, considers that water content is a secondary factor as far as the quality of caseinates is concerned. When the method used to manufacture caseinates involved the use of the spraydrying process — the sole method referred to by the Commission in its technical report — the question of the water content, although not immaterial, (10) lacked the importance which the Commission attributes to it. That method, however, which was widely employed at the end of the 1960s and at the beginning of the 1970s has, to a large extent, been replaced, particularly in order to save energy, by the use of a drying drum to dry concentrate with a 70% water content. In that cylinder-drying technology, now used by the vast majority of dairies in the Community, water content is a wholly secondary criterion.

In the Société's opinion, to state that a maximum water content of 6% is essential in order to guarantee the possibility of storing caseinates for long periods and of using them in foodstuffs is tantamount to disregarding the actual circumstances in which caseinates are marketed. Caseinates for use in food products are not intended to be stored for long periods, as is shown by the fact that those giving rise to this dispute were sold in the days immediately following their manufacture. The decisive factor as regards the quality of a cascinale is its bacteriological properties rather than its water content. Moreover, paradoxical though it may seem, the capacity to retain water is one of the less important criteria applied to determine the quality of that product. The fact that the water content has no bearing on the price of the product when it is sold on the market of nonmember countries, as occurred in the present case, tends further to support that view. To sum up, the Société is of the opinion that a casemate may be of excellent quality yet have a water content exceeding 6% or, conversely, it may comply with that limit yet be mediocre in quality.

Finally, no conclusive indications are to be derived either from the New Zealand standard, in view of the specific technology used in New Zealand, or from the International Dairy Federation standard incorporated by the Commission in its regulations which provided until 1972, as the Court is aware, not only for substantial aid for caseinates with a 6% water content but also for lower aid for caseinates with an 8% water content. In the opinion of the plaintiff in the main proceedings, the requirement of a maximum water content of 6% is therefore quite irrelevant for the attainment of the objective relating to quality pursued by Regulations Nos 987/68 and 756/70.

The argument put forward by the Société is, in my opinion, cogent. It should be observed, moreover, that the Commission has failed to answer the argument based on the irrelevance of water content in the cylinder-drying technique.

For those reasons, I am of the opinion that the Court should rule as follows:

Provided that all the other conditions laid down by Regulation (EEC) No 756/70 of the Commission are satisfied, the requirement prescribed in Annex III (II) (1) to that regulation (as amended by Regulation No 2940/73), at the material time, namely that the water content of caseinates must not exceed 6% if those products are to qualify for the Community aid, is invalid since, being manifestly irrelevant for the attainment of the objective relating to quality pursued by that regulation, it is contrary to the principle of proportionality.

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(1) Translated from the French.

(2) Article I (e) of Regulation No 987/68.

(3) Section I of Annex 1 to the Proposal for a Council Directive on the approximation of the laws of the Member States relating to edible caseins and caseinates — Official Journal. C 50. 24. 2. 1979, p. 5.

(4) See the Annex to Regulation (EEC) No 146/69 of the Commission of 24 January 1969 fixing the amount of aid for skimmed milk processed for the manufacture of casein and caseinates.

(5) Al in Cile 808/79 Pariini [1980] ECR 2103.

(6) Ai. for example, in Cue 122/78 Arnioni [19791 ECR 677.

(7) Article 2 (2) (a) and (d).

(8) Regulation (EEC) No 2814/71 of 23 December 1971; see also Regulations (EEC) No 455/73 of 31 January 1973, No 2940/73 of 29 October 1973, No 3061/73 of 12 November 1973 and No 660/74 of 25 March 1974.

(9) Anne II, II. a, I to the Proposal for a Council Directive on the approximation of the laws of the Member States relating to edible caseins and caseinates, cited above.

(10) That method requires the presence of water in the product to prevent it from adhering to the inside of the tower.