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General Court: FresQ was not in charge of sales

General Court: FresQ was not in charge of sales

In a judgement dated 16 September 2013 the General Court ruled that the Commission was right to withdraw from Community funding the almost 21 million euros in CMO subsidy received by FresQ. The reason for this withdrawal was that FresQ did not satisfy the requirements for recognition. Specifically, FresQ was not in charge of sales for a number of growers.   

CMO FresQ is a cooperative for fruit and vegetable growers. In this capacity FresQ was recognised as a producer organisation (PO), also referred to as a grower’s association, in the sense of the Common Market Organisation (CMO) in the vegetable and fruit production sector. The aim of the CMO is to strengthen the competitiveness and market-orientation of vegetable and fruit producers. A key role is reserved in this for recognised POs. In order to be eligible for recognition and subsequently remain recognised, a PO must satisfy certain recognition criteria. The most important criterion is that the PO must be in charge of the sales of the products its members grow.

The case In 2007 the Commission carried out investigation at FresQ and a number of its members in relation to recognition. The Commission ascertained in this investigation that FresQ allowed several sales subsidiaries to perform the sale of the products produced by the members. The Commission also ascertained that, unlike the sales subsidiaries, FresQ’s members were independent structures that:

  • retained their own identity towards their customers;
  • arranged their own sales and advertised for themselves (their own brands);
  • sold their own production, that is to say, retained their own commercial contacts and negotiated with them.

With regard to this last point, it emerged that the sales employees were officially seconded to the sales subsidiaries. In actuality, however, the sales employees were employed by the member, to which they were consequently accountable. This grower also paid the sales employees. The sales employees seconded to the various sales subsidiaries could consult each other. It was the members, however, who ultimately decided on their own price for their ‘own’ products which were sold to their ‘own’ customers. The day-to-day exchanges among the sales employees were therefore not regarded as ‘sales’ in the sense of the CMO Regulations. Furthermore, these exchanges did not have any consequences for the actual sales (prices) of the members.

Since certain members of FresQ were selling their own production, the Commission concluded that FresQ did not satisfy the recognition criteria. Consequently the Commission decided to withdraw from Community funding the approximately 21 million euros in CMO subsidy FresQ had received. The Netherlands did not agree with this conclusion and appealed the case to the General Court.

Evidence of irregularity According to the General Court, the Commission does not need to prove that conduct took place in violation of the recognition criteria. It suffices that the Commission proves that there are serious and reasonable doubts. The member state must subsequently prove that the Commission’s allegations are incorrect. The reason for this reversal of the burden of proof is that the member states are the parties best in a position to gather and verify the information needed for approval of the CMO subsidy.

Being in charge of sales With reference to the France v. Commission judgement, the General Court confirmed that the key duty of a PO is to sell the products its members grow. According to the General Court, selling products means that the PO can decide the terms and conditions of sale and, more specifically, the price. Although the selling may be outsourced, the PO must retain and exercise effective control of these sales. The degree to which this control must be retained and exercised is, incidentally, the subject of the dispute in the Fruition case.

The General Court agreed with the Commission that the distinction between a grower and a sales subsidiary of a PO is purely formal and artificial if the grower’s employees are seconded to the sales subsidiary and in that context are only responsible for that grower’s sales and only follow the instructions of that grower. Furthermore, according to the General Court, growers cannot be permitted to join a PO exclusively with the intention of participating in determining the sales prices of products, while the PO is not, in practice, responsible for that.

The General Court found that the Commission had proven that there were serious and reasonable doubts about whether FresQ satisfied the recognition criteria. The Netherlands failed to refute this. In particular the Netherlands failed to prove that the selling of the products by FresQ’s sales subsidiaries, which were actually formed by only one grower, took place under FresQ’s supervision and management.

Acting in violation of the recognition criteria and CMO subsidy A CMO subsidy can only be granted to a recognised PO. A PO that does not satisfy the recognition criteria is not eligible for a CMO subsidy therefore. It is not important here whether the PO is recognised by the member state or has had this recognition withdrawn. A PO that does not satisfy the recognition criteria simply may not receive any CMO subsidy. The Commission was therefore right to withdraw the costs of FresQ from the Community funding.

The Netherlands finally took the position that not all of FresQ’s costs should have been withdrawn from the Community funding. After all, this would hurt all the members of FresQ, while conduct in violation of the recognition criteria only took place with respect to a number of members. The General Court did not agree with this reasoning. It was established that FresQ had acted in violation of the recognition rules and as such none of the costs were eligible for Community funding.

Conclusion The judgement shows how important it is that a PO be in charge of sales. If it is not in charge, the recognition criteria are not satisfied and the PO cannot be eligible for a CMO subsidy. The fact that recognition has not been withdrawn does not alter this fact. Control of sales is now firmly on the agenda of the Dutch regulator, the Product Board for Horticulture (PT). The PT will not hesitate to suspend recognition if this control is lacking. Even the ultimate sanction, withdrawal of recognition, will be used. Cooperative Batavia U.A. experienced this first hand. The PT revoked its recognition at the end of 2011 on account of a laundry list of deficiencies. In a decision dated 6 September 2013 the CBB confirmed that the PT was able to withdraw recognition.

Eric Janssen, lawyer specialising in CMO law

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