The allocation of state aid is basically prohibited under Article 107(1) of the Treaty on the Functioning of the European union (hereinafter UFEU), which states that unless otherwise is provided, any aid granted by a Member state or given by states resources in any form which distorts or threatens to distort competition by placing certain companies or production of certain goods in favorable position, is incompatible with internal market, to the extent it affects trade between Member state. There are exceptions from the above mentioned prohibition, provided in the Treaty on the Functioning of the European Union. In terms of agriculture and forestry we should mention provisions of the Article 107 (2) (b) UFEU which provide that state aid, given for the purpose of repairing the damage caused by natural disasters or extraordinary events, shall be compatible with internal market. It is similar with Article 107 (3)(c) UFEU, which provides that Commission may consider that the state aid for improvement of economic development of agricultural, forestry and rural areas, is compatible with internal market, if there are no adverse effects on trading conditions.