(1)

On 27 November 2009, the Republic of Hungary (hereinafter referred to as ‘Hungary’) presented to the Council a request for a decision in accordance with the third subparagraph of Article 88(2) of the Treaty establishing the European Community, concerning Hungary’s plan to grant State aid to Hungarian farmers for the purchase of agricultural land.

(2)

The land privatisation process which Hungary has been engaged in since the beginning of the 1990s has in many cases led to fragmented or undivided joined ownership of agricultural land, resulting in an unfavourable land use structure and poor economic viability of agricultural holdings.

(3)

In view of farmers’ lack of capital, the high interest rates on commercial loans for the purchase of agricultural land and the tightening up of the banks’ criteria for the granting of loans to farmers in the current crisis, farmers, especially those with smallholdings, have little prospect of taking out commercial loans for investments such as the purchase of land. In fact, as a result of the financial and economic crisis, annual interest rates on commercial loans for the purchase of agricultural land increased from an average rate of 9,5 % in July 2008 to 15,5 % in May 2009, and the average value of collateral required for such loans nearly doubled in that same period.

(4)

In this situation, speculative land purchase by economic operators not engaged in agricultural activity who have easier access to capital is likely to increase.

(5)

State aid for the purchase of agricultural land should help save the livelihood of numerous farming families in the current crisis by creating the enabling conditions for reducing production costs and improving profitability of agricultural production, thus halting the increase in poverty and unemployment in rural areas. As a result of the crisis, unemployment in Hungary rose from 7,7 % in the period from August 2008 to October 2008 to 10,4 % in the same period in 2009, while Hungary’s Gross Domestic Product (GDP) decreased between the third quarter of 2008 and the third quarter of 2009 by 7,2 %. Moreover, Hungary’s GDP at current prices in the agriculture, forestry and fisheries sector fell by approximately 33 % between the first half of 2008 and the first half of 2009 (from Hungarian forint (HUF) 410 828 million to HUF 275 079 million).

(6)

The State aid to be granted amounts to a total of HUF 4 000 million and should benefit approximately 5 000 agricultural producers. It should take the form of:

(7)

It is not permitted to combine State aid in the form of an interest subsidy and a direct grant for the purchase of the same area of agricultural land.

(8)

The Commission has not at this stage initiated any procedure nor taken a position on the nature and compatibility of the aid.

(9)

Exceptional circumstances therefore exist, making it possible to consider such aid, by way of derogation and to the extent strictly necessary to limit the extent of rural poverty in Hungary, to be compatible with the internal market,