DELIVERED ON 20 SEPTEMBER 1979 (1)

Mr President,

Members of the Court,

The reference for a preliminary ruling on which I am giving my opinion today concerns the common organization of the market in milk and milk products as established by Regulation No 804/68 of the Council of 27 June 1968 (Official Journal, English Special Edition 1968 (I), p. 176).

Article 3 of that regulation provides that each year a target price for milk shall be fixed for the Community. This target price is ‘the price which it is aimed to obtain for the aggregate of producers' milk sales, on the Community market and on external markets, during the milk year’. It is ‘fixed for milk containing 3.7 % fat, delivered to dairy’.

This price was fixed for the 1978/79 marketing year, which is the year involved in the main action, by Council Regulation No 998/78 of 12 May 1978 (Official Journal No L 130 of 18 May 1978, p. 5) after Council Regulation No 910/78 of 27 April 1978 extending the 1977/78 milk year (Official Journal No L 117 of 29 April 1978, p. 84) had extended the 1977/78 marketing year until 21 May 1979 and hence the target price laid down for that marketing year by Regulation No 872/77 fixing the target price for milk and the intervention prices for butter, skimmed-milk powder and Grana Padano and Parmigiano Reggiano cheese for the 1977/78 milk year (Official Journal No L 106 of 29 April 1977, p. 17). Accordingly the target price after 22 May 1978 amounted to 17.70 units of account per 100 kg or — expressed in lire — Lit 204.26 per kg.

The plaintiff in the main action claims that Italian Law No 306 of 8 July 1975 is incompatible with these rules. It provides, on the one hand, that sales of milk by members of an association may only be effected through the association and in accordance with the rules laid down by it. On the other hand the Law contains provisions concerning the fixing of the selling price for milk at the production stage. On the basis of these the milk price is laid down for each region and each marketing year, in accordance with the criteria laid down in the Law, by agreement between the groups of traders involved (producers, associations, processors, dairy centres). This price is published in the Bollettino Ufficiale Regionale [Regional Official Gazette] and thereby becomes binding on the parties to the agreement. If no agreement can be reached in this way, the Chairman of the Giunta Regionale [Regional Council] appoints a commission presided over by an official of the administration and composed of five representatives of milk producers, four representatives of processors, one representative of dairy centres and two representatives of the dairy and cheese associations. This commission then determines the price which, as laid down in Article 11 of the Italian Law — becomes binding on the parties (‘vincolante tra le partie’) immediately after publication in the Bollettino Ufficiale Regionale.

This procedure came to be applied in the spring of 1978 because no agreement could be reached between the trading groups involved. A commission set up by a decree dated 7 March 1978, to which, however, no representative was apparently nominated by the organization of buyers and consumers, issued a decision on 11 April 1978, published in the Bollettino Ufficiale on 17 April 1978, according to which the milk price up to the end of the year 1978 was to be Lit 260 per litre inclusive of VAT — apparently based on milk with a fat content of 3.5%.

A large number of undertakings in the milk sector have lodged a complaint against that decision in the Tribunale Amministrativo Regionale per il Veneto [Regional Administrative Court for Veneto]. They consider, as has been indicated, that the decision should be annulled because the legal provision on which it is based (Article 11 of the Italian Law) is incompatible with Regulation No 804/68, and it follows that the national legislature no longer possesses the appropriate powers.

The defendant region contested this. In its opinion there is no conflict with Community law as long as the Community bodies have not adopted concrete measures of application for the regulation — apparently an allusion to the belated fixing of target price for the 1978/79 marketing year. It also puts forward the argument that the Community target price amounts to no more than a guideline, which does not deprive the national legislature of the power to take part in determining the actual price.

The Court seised of the case stayed the proceedings by order of 28 November 1978 and referred the following question to the Court for a preliminary ruling under Article 17 of the EEC Treaty:

‘Do Community rules, in particular Regulation No 804/68 on the common organization of the market in milk and milk products read together with the second paragraph of Article 189 of the EEC Treaty, prevent the Italian State from conferring by law upon its administrative authorities power to fix the producer price for milk even if the Community has not fixed the target price for milk pursuant to Article 3 of Regulation No 804/68?’

Before I examine it I would just like to mention that in August 1978 an agreement within the meaning of Article 8 of the Italian Law was in fact reached. It applied to the second half of the year 1978; according to the agreement the producer price for milk was fixed at Lit 270 per litre inclusive of VAT.

In addition the Commission has initiated the procedure under Article 169 of the EEC Treaty in relation to the Italian Law which is at issue in this case. It set out its opinion in a letter of 28 July 1977 and requested the Italian Government to state its position. This was done in a note of 4 November 1977, after the original time-limit had been extended. However, there has not yet been any reasoned opinion of the Commission within the meaning of Article 169 nor have legal proceedings been instituted.

(a) As has been rightly observed by several parties concerned, the last subordinate clause in the question, ‘even if the Community has not fixed the target price for milk pursuant to Article 3 of Regulation No 804/68’ can be disregarded from the outset.

Such was not the situation at the time relevant to the main action; the fixing of the target price was merely delayed, and up to that time the rules from the preceding marketing year, which was extended, continued to apply. It can also be said that the circumstance envisaged in the last subordinate clause in the question could not in fact exist because the fixing of the target price is an essential element in the common organization of the market in milk.

The examination can therefore be restricted to the problem of the powers of the Member States when the Community bodies have fixed a target price for milk.

(b) The Commission is also correct in saying that the question requires to be clarified in so far as it is not in fact really concerned simply with the question whether the Italian State or the Member States may confer upon administrative authorities power to fix the producer price for milk, but whether in fact the Member States may act at all in this sphere. If they may do so then the question by whom the action is to be taken is obviously one of national law; if, on the other hand, they may not do so then it is also pointless to ask whether it is possible to confer the power upon regional authorities.

The Italian Government claims in fact that the principal purpose of the Law is to promote co-operatives. Its main objective is to obtain an agreement on the producer price for milk among the trading groups involved. If this cannot be achieved the procedure for fixing the price is taken over by the abovementioned commission, in which the producers by no means have a majority, but which is rather composed jointly of representatives of the producers and representatives of the buyers and consumers. Even in this second phase, however, prices are not subject to governmental influence, nor is there any question of fixing a price which is to be binding on all. The decision is only binding on those participating in the procedure. And, contrary to other price rules, there are no sanctions. Moreover, no one is compelled to sell or to buy milk under the conditions thus fixed.

I believe that there is no need for us to consider these aspects in more detail; in fact, I would even go so far as to say that it would be improper in principle to do so, as they concern the interpretation of a national law, which — as has been repeatedly emphasized in past cases — is something the Court may not be asked to do in the course of proceedings under Article 177 of the EEC Treaty. To that extent therefore we must abide by the considerations put forward by the court making the reference, from which it appears without any doubt in this case that it assumed that an authoritative, binding decision was made, fixing the producer price for milk on the basis of the Italian Law of 1975.

In addition to this, however, I would like to point out that it is clearly quite proper to take as our starting point the aspects of Community law which we have to apply, as the Court has consistently affirmed that here lies the decisive criterion for determining what considerations will weigh in a decision. The first phase in the procedure for fixing prices provided for in the Italian Law need not be taken into account, as it can obviously be blocked by the veto of one of the parties. In the next phase, however, it is difficult to deny the existence of some governmental influence. It may be assumed in fact that — even in the absence of sanctions — this price fixing is binding, and that because in the commission appointed by authority all the trading groups involved are represented, it applies to all the interested parties — producers and users — and therefore definitely has quite considerable influence on the market.

3. I think it would also be useful in investigating the problem raised in the present proceedings — the compatibility of national price measures taken by a government with the price system applied in a common organization of the market — to present a summary of important points which have been decided in the relevant case-law.

This includes the judgment in Case 51/74 P.J. Van der Hulst's Zonen v Produktscbap voor Siergewassen, judgment of 23 January 1975, [1975] ECR 79. It was stated there in general terms that once the Community has legislated for establishment of a common organization of the market in a given sector, Member States are under an obligation to refrain from taking any measure which might undermine it or create exceptions to it; in doing so they must have regard not only to its express provisions but also to its aims and objects.

I will also refer the Court to the judgment in Case 31/74 Filippo Galli, judgment of 23 January 1975, [1975] ECR 47. It was held there that national provisions for regulating prices which interfere with and distort the common machinery of price formation are incompatible with the price system of a common organization of the market. In so far as the Member States are free to regulate prices at the retail and consumption stages, they are bound not to jeopardize the aims and functioning of the common organization of the market. They must also observe the requirements of a uniform market. Since the common price system is designed to facilitate the free movement of goods it precludes national rules which hinder trade within the Community or which are capable of jeopardizing trade.

The judgment in Case 60/75 Carmine Antonio Russi v Azienda di Stato per gli Interventi std Mercato Agricole, judgment of 22 January 1976, [1976] ECR 45 should be mentioned. It was stated there that the objective of the price system in the common organization of the market in cereals is to guarantee to producers a price based on the target price. This objective must not be prejudiced by measures which, although they do not directly influence price formation, affect the conditions obtaining on the market.

Case 65/75 Riccardo Tasca, judgment of 26 February 1976, [1976] ECR 291, which is also relevant here, concerned national maximum consumer prices for sugar. There the Court held that national price rules for the same marketing stages as the system of Community prices run a greater risk of conflicting with that system than rules which are restricted to other stages. In any event, maximum prices such as those concerned in that case are incompatible with the common organization of the market if they jeopardize the objectives and the functioning and especially the price system thereof by preventing the sugar producers from achieving the intervention price.

It remains only to be said that besides the judgment just mentioned, the judgment in Case 154/77 Procureur du Roi v P. Dechmann judgment of 29 June 1978, [1978] ECR 1573

concerning national retail profit margins in the pigmeat market, also contained references to the importance of not impeding intra-Community trade and, especially, hampering the sale of imported products, by means of such national measures.

4. It is therefore important in investigating the present case to review the main features of the organization of the milk market, especially its price mechanism.

I mentioned at the start of my opinion that the organization of the milk market includes a uniformly fixed target price for milk which, because it is the price which producers seek to obtain for the total amount of milk sold in the milk year, is known as the ‘guide price’. In addition to that there are intervention prices for butter, skimmed-milk powder and two types of Italian cheese, which are meant to contribute towards •attaining the target price. Also helping to attain this objective are the import controls created to protect the Community market. The threshold price, which is fixed on the basis of the target price and takes into account the need to protect the processing industry in the Community, also has a rôle to play. It enables levies to be imposed on imports from non-member countries, which correspond to the difference between the threshold price and the free-at-frontier price. Lastly, as this is a saturated market, there are measures for supporting the market and relieving pressures on it. These include aids for private storage, subsidies for the use of milk in animal feed and measures which are taken from time to time to facilitate the disposal on the market of surplus intervention products. Mention should also be made of the refunds or export subsidies uniformly fixed for the whole Community at a level which depends on the prices within the Community and prices in the relevant country of destination.

5. It should not be particularly difficult to find the appropriate answer to the question which has been referred to the Court if these essential features are borne in mind, particularly the fact that the objective in the Community is to attain a certain price level at the producer stage with the aid of special mechanisms in such a way as to bring about as unified a market as possible, and if the basic reasoning contained in the relevant case-law is applied.

(a)It is obviously incompatible with the common organization of the market for national price levels which apply even at the producer stage to be fixed below the level of the target price, for this prevents the attainment of the Community objective — the target price being sought for all producers. Another consequence of that situation, which admittedly does not exist in Italy, is that resort is made more frequently to intervention — because prices are too low — and efforts are made to expand production, which from the Community point of view — I would just mention the co-responsibility levy designed to counteract this — may be undesirable.

(b)The fixing of prices nationally above the level of the target price and the price which would emerge if free play were given to the market forces is equally incompatible with the common organization of the market. There are a number of considerations which support this.

Such a method of price fixing amounts, in fact, to an additional guarantee for the producer which is not provided for by the common organization of the market, in other words, special treatment for milk producers in the country concerned.

It produces unacceptable effects in so far as it prevents the approach to the target price which would otherwise be brought about by encouraging a corresponding flow of trade from Member States with excessive milk production and therefore lower producer prices.

This method of price fixing is also a distorting influence on intra-Community trade. On the one hand it leads quite naturally to an increase in imports and on the other hand it hampers the export of processed products where fresh milk is used for their production — which apparently applies in the case of the two most important Italian cheeses — so that milk from other Member States cannot be used instead. In fact there is evidence of such a development in Italy. I would just mention the development of imports of fresh milk into Italy following the enactment of the Law at issue in these proceedings, as set out in the table produced by the Commission; I would also mention the declaration which has been made by the Italian Government in the proceedings that the export figures for the two most important Italian cheeses remained constant from 1974 until 1977. These economic aspects need not, however, be explained in detail in the present proceedings for reasons which will emerge presently. Consequently, it is also unnecessary to examine in more detail the reference made by the Italian Government to the fact that Italian domestic consumption of milk and milk products has increased in recent years, and there is no need to examine the merits of the argument that the two most important Italian cheeses are in any case mostly produced by cooperatives for which the governmental price fixing here in dispute is of only limited economic relevance because they are composed of agricultural producers.

What must be considered, however, is the effects of the price fixing on the common intervention system. These effects are shown in the fact that a high milk price means high costs for processors, who then obtain too low a return for their products when they sell them to the intervention agencies. They can also be seen in the manner in which it becomes more difficult to reduce the intervention stocks under the normal conditions. In that regard it is not, of course, important that the intervention scheme is hardly used in Italy at all, for there is obviously no question but that this problem must be considered in a Community context and any fragmentation of the scheme ruled out.

(c)Together with the Commission we must go further and accept that the amount of the price to be applied is quite irrelevant and so is also, therefore, the question whether it does in fact lie close to the price which would otherwise have been formed on the market — that means, in Italy, taking into account domestic production which is insufficient and for practical reasons cannot be significantly increased (it covers approximately 60 % of Italy's needs) — which is approximately 20 % above the target price.

There is a practical reason for this. If this kind of inquiry had to be made the national court, which ultimately has to decide on the compatibility of national measures with Community law unless proceedings under Article 169 of the EEC Treaty have been instituted, would be compelled to carry out very difficult investigations which — if they do not actually fall outside the sphere of legal proceedings — must delay the necessary resolution of the question in dispute for an unconscionable time.

Support for this view is to be found in various statements in judgments on the subject delivered by this Court, to which I have already referred. I think it is interesting to note that they covered the inadmissibility of national measures which are capable of jeopardizing the common organization of the markets, unacceptable interference in the common system of price formation or an unlawful prejudicing of the aims and functioning of the common organization of the market. It is also of interest to note that the Court emphasized the requirements of a uniform market and condemned national measures which are capable of jeopardizing trade between the Member States. Therefore, as far as national measures affecting prices are concerned, it has to be accepted that they may jeopardize the common organization of the market and it must be considered sufficient that they present a real danger for the system established by Community law. In the present case this means, particularly because the common organization of the market includes the fixing of a price at the production stage, that even if it is not precisely fixed for the producers within the context of a common organization of the market but also includes ‘recommended’ prices, the Member States must refrain from any price-fixing measures at all in this sphere. Once the fact is recognized that the Community system is so constructed that a guide price may be attained, but is not guaranteed, with the help of certain measures (intervention prices for processed products, rules governing external trade) but that apart from this prices are left to be formed by the free play of market forces, the conclusion must inevitably be drawn that it is incompatible with this fundamental structuring of the common economic policy on the milk market for States to fix prices nationally at a particular level. Otherwise it would be necessary to accept not only the fragmentation of the common market, but also the real danger of discrimination between producers or consumers and the jeopardizing of the objectives of Article 39, in respect of which only Community institutions have the right to instigate proceedings and weigh the arguments of both sides.

6. I would suggest, therefore, in conclusion, that the question which has been referred to the Court by the Tribunale Amministrativo Regionale per il Veneto be answered to the effect that under the system of the common organization of the market in milk, as described in Regulation No 804/68, a Member State may not itself fix the producer price for milk at the national level, or allow it to be so fixed. As the situation is governed by a directly applicable Community regulation, which takes precedence over any national laws, even those passed subsequently, it follows that conflicting national laws must be inapplicable, without there being any need for the national constitutional court to confirm it in the particular instance.

(<span class="note"><a id="t-ECRCJ1979ENA.0900331701-E0002" href="#c-ECRCJ1979ENA.0900331701-E0002">1</a></span>) Translated from the German.