The Financial Times (UK)
By Esther Bintliff in Paris
August 3, 2009

www.ft.com

French farmers have rejected a demand to repay hundreds of millions of euros in state subsidies that have been ruled illegal by the European Commission.

François Lafitte, leader of Fédécom, the fruit and vegetable producers’ union, said paying back the €330m given to farmers between 1992 and 2002 would bankrupt them.

“Nobody will pay these subsidies,” he said. “Firstly, because the amounts put forward by Brussels don’t add up. Secondly, because it would spell ruin for the industry.”

Mr Lafitte said the subsidies had helped fruit and vegetable producers “face up to competition” from Spain and Portugal.

Between 1992 and 2002, the French state agricultural agency awarded over €330m in grants to help farmers struggling from a crisis of oversupply of French products in the European market. The money was meant to help farmers lower their prices and find temporary storage for surplus harvest.

Bruno Le Maire, France’s new agriculture minister, said the cash would have to be repaid as the subsidies violated European law. “We must act as Europeans,” he said in an interview with Le Parisien newspaper.

In January, the Commission ruled that the subsidies were unlawful and likely to distort competition in the European market. France was ordered to reclaim the original subsidies plus interest.

Mr Le Maire’s predecessor, Michel Barnier, launched an appeal at the European court of justice in April to reduce the amount claimed by Brussels. While the exact figure has yet to be agreed, the new agricultural minister believes the process of reimbursement should begin regardless, warning that if the appeal were lost, France would have to pay even more than the €330m plus interest of €100m-€150m that has so far been invoiced.

The calls for repayment come at a difficult time for French farmers, with prices for fruit and vegetables 30-40 per cent lower than the weekly average of the past five years, according to Modef, the farmers’ union.

Didier Skura, a farmer in Essonne, in the Île-de-France region, said he used to make a healthy income from his fruit and vegetable shop. But in the past year profits have dropped. “At the moment it’s very difficult. Business is terrible because in a recession, people seem to cut down on luxuries like fresh fruit and vegetables.”

Mr Skura became a farmer in 2001, so he believes he will not need to repay any subsidies. “But it will be impossible for my friends who did receive grants. I can’t imagine how they will repay them.”

The subsidies must be paid back by January 2010. Mr Le Maire said he would “do nothing to compromise the future of the industry”.

“I will be very careful to ensure that the situation of each farmers will be analysed on a case-by-case basis, in order to not penalise the most fragile,” he said.

This is not the first time France has been rapped by Brussels for illegal subsidies. In 2002, the European court ruled that France had given illegal financial aid to cognac producers. France admitted the subsidies had been against European law but remains mired in a battle with the cognac producers to reclaim the funds. In both cases, if the subsidies are not paid back, Brussels can order France to pay a fine and daily penalties.

Additional reporting by Nikki Tait in Brussels.

http://www.ft.com/cms/s/0/b35a4600-8055-11de-bf04-00144feabdc0.html?