Thank you for giving me this opportunity to address you today.
I propose to outline some of the main events of 2008 as a reminder to the committee of the year in question, to comment on the appropriation account itself, to respond to the issues covered in the annual report of the Comptroller and Auditor General and to refer briefly to some current developments.
The major issues of note in the environment in which the Department operated in 2008 were the dramatic downturn in the global markets, the dioxin contamination of some pigmeat products, the successful outcomes of the EU CAP health check and the fisheries Council negotiations, as well as the 2009 budget which was introduced on 14 October.
In terms of trade, beef exports bucked the overall negative trend for meat in 2008, with export values rising by more than 7% to €1.7 billion. Other meat sectors performed less well with the result that the overall outturn for the meat market was only slightly up on 2007 figures. The dairy sector was negatively affected by the downturn in the international dairy markets which fell back from the exceptional highs which had been achieved in 2007. The effect of reduced prices increased the need for market management measures and so the continuation of the key milk market supports for butter and skimmed milk powder, agreed in the EU CAP health check, was a positive boost for the industry.
Despite the turbulent export environment and challenging currency fluctuations, agri-food exports reached almost €8.16 billion. While this was a reduction on 2007 values, it was a strong performance considering the very challenging global environment in which the industry operated. In terms of foreign earnings, this sector is estimated to account for approximately one third of the net flow of funds from primary and manufacturing industries, due to the high proportion of indigenous raw material and services used and the low net profit repatriation
At the end of November, the Department's national residue testing programme detected the presence of polychlorinated biphenyls, or PCBs, in pork fat. Once the link between PCBs and dioxin was confirmed on 6 December, the Department's food safety contingency plan was activated and all pork and bacon product was recalled. The subsequent speedy and effective control systems introduced meant that by 10 December, sales had resumed of pigmeat products from herds totally unaffected by the contaminated feed. The prompt actions taken by the Department and the FSAI were based on best practice guidelines. Furthermore, independent authoritative bodies and other countries agreed that the corrective actions taken by the Department were correct and a solid indicator of the absolute priority given by Ireland to food safety.
The interaction between the Department and EU bodies during the year achieved positive outcomes. The negotiation of the EU CAP health check concluded towards the end of the year and the final outcome delivered increased milk quotas and milk market supports. In addition, funds to be used for new challenges and new EU funds to be used at national discretion, provided for investments of €170 million from 2009 to 2013.
In the annual fisheries Council negotiations, a 5% increase in fish quotas was secured and agreement was reached on a cod recovery plan to manage fisheries in the Irish Sea. These measures, together with the successful fleet decommissioning scheme, are aimed at achieving the future sustainable development of the sea fisheries sector.
The early budget in October 2008 was a response to the current economic downturn, the difficulties in the public finances and the ongoing budgetary pressures. Some very difficult decisions were required, including the closure of the early retirement scheme, the young farmer installation scheme, reduced rates for the suckler cow scheme and reduced expenditure under the disadvantaged areas scheme.
In so far as the 2008 Appropriation Account is concerned, the Department had substantial gross Exchequer expenditure of over €2.1 billion to cover actual liabilities across a wide variety of schemes and services. When appropriations amounting to €404 million are taken into account, most of which are EU co-funding transfers, net expenditure was €1.7 billion. In addition, a further €1.355 billion in EU funding was dispensed by my Department in 2008, just over €1.3 billion of which related to the single payment scheme.
A substantial proportion of expenditure under the Department's Vote comprises schemes which are subject to external factors such as demand from beneficiaries, market and economic factors, animal disease incidence, and the pace at which capital investment and research projects are completed. Savings arise due to lower than anticipated drawdown on various demand-led schemes. Conversely, the need for additional spending under particular headings can also arise.
There was a number of exceptional budgetary related developments in 2008. Two Supplementary Estimates were approved. The first Supplementary Estimate in September provided an additional €195 million to the Vote to cover liabilities arising under the farm waste management scheme. Total expenditure on the scheme in 2008 was over €413 million and I will comment further on the scheme later. The second Supplementary Estimate added a further €50 million to the Vote in December. This was part of the €200 million emergency measure introduced by the Government to counteract the difficulties that arose in the pig sector following the discovery of dioxins in pig meat.
Savings arose in several areas in 2008. These included €5.7 million in the area of research due to a lower than expected drawdown of funds by beneficiaries. Under subhead C there were savings of €27 million on dioxins and various animal health measures. However, this was offset by a higher than expected spend on compensation paid to farmers for bovine TB reactors and brown rot in potatoes, thus giving a net €16 million saving under this subhead. We had €5 million in savings under subhead D due to lower than expected activity in intervention and other technical market operational costs.
Savings under subheads E, F and G, which cover disadvantaged areas payments, the REP scheme and the early retirement scheme, amounted to more than €31 million and arose largely as a result of the requirement for the Department to complete the necessary administrative checks under REPS before payments could be authorised, as well as a lower than expected take-up under the early retirement scheme. Savings of €9 million arose due to a lower spend on afforestation and fisheries. There was additional spending of €2 million on food aid to assist in relieving the famine in Ethiopia and €1.9 million on the beef and sheep quality assurance schemes.
Taking all of the foregoing into account, the final outturn for 2008 resulted in an overall gross saving on the Vote of €40 million. However, it should be noted that this saving included a sum of €9.1 million which was the Department's share of a corrective budgetary adjustment introduced by the Government in July 2008 to help public finances. A further €15 million in savings related to the emergency measures introduced in December 2008 to deal with dioxins in pigmeat. The Department endeavours to forecast expenditure as accurately as possible and to provide in the annual Estimates for anticipated demand under the various schemes we operate. Ultimately, however, expenditure depends on the variables I have mentioned.
The annual report of the Comptroller and Auditor General covered several issues, the first being the operation of the organisational review programme, ORP, in the Department. I welcome this new initiative by the Comptroller and Auditor General to comment on wider structural and management issues within Departments. I understand the Department of Agriculture, Fisheries and Food was the first selected for such comment. It was also among the first to be examined by the ORP, the public service modernisation initiative under the auspices of the Department of the Taoiseach, which is quoted in some detail by the Comptroller and Auditor General and referred to in his statement.
The ORP review found that the Department was particularly strong in its ability to meet future challenges and to develop a strategy for the sector. It also found that the Department has a strong focus on customer service, an innovative use of information and communications technologies and a strong and beneficial relationship with the agencies under our aegis. On the other hand, it identified challenges facing the Department and made a number of recommendations on how to improve organisational and management performance. It is vital that the Department manage its delivery of services as efficiently and effectively as possible. I will comment in some detail, therefore, on this aspect of the Comptroller and Auditor General's report.
In response to the findings of the ORP, the Department developed an action plan comprising 29 separate action points which focuses on continuing to improve in those areas in which the ORP found it to be strong and working on those areas where it identified the need for development. Good progress has been made in implementing the action plan. The Department is committed to its engagement with all external stakeholders, both traditional and new, through various committees and focus groups, including the recently established 2020 consultation process. A new human resource strategy has been prepared which outlines how the Department will address the efficient management of staff resources, improve human resources practices and develop internal leadership. In addition, the Department has strengthened its focus on outcomes and outputs and has intensified the role of its management services division in addressing efficiencies and cost effectiveness of its business areas.
Outside of the ORP process the Department has been proactive in seeking improved efficiency and effectiveness. An efficiency review group was established in October 2008 to facilitate a strategic approach to budgetary decision-making, while addressing the structural changes necessary to enable the Department to fulfil its wide-ranging remit. The deliberations of this group facilitated the completion of the ORP action plan and the Department's submission to the special group on public service numbers and expenditure programmes.
Since 2006 the Department's internal management services division has completed 11 reviews of the performance of business units within the Department. A further three are at finalisation stage, with three additional reviews commencing recently. A steering group, made up of senior management and chaired by me, monitors the implementation of these reviews and of the Department's value for money programme. We are currently progressing a comprehensive restructuring of the local office network which involves the closure of 42 offices and the retention and expansion of 16 regional offices to provide an enhanced service to the Department's customers. This restructuring process will result in an overall reduction of 400 full-time equivalent staff across all streams, with savings in the order of €30 million being realised on completion of the plan. To date, 19 offices have been closed and replaced with nine enhanced regional offices. The entire process is due for completion by the end of the year.
In the last five years the Department has reduced staff numbers by some 1,000. When account is taken of the decentralisation of staff to Portlaoise and the relocation of staff to Backweston, overall the Department will have redeployed and relocated well over 2,000 staff in the period 2005 to 2010. In this context, the incentivised scheme of early retirement and the moratorium on recruitment and promotions in the public service, as well as the findings of the report of the special group on public service numbers and expenditure programmes, are having and will continue to have a significant impact. As I said, I am conscious of the need to make the most efficient use of both financial and non-financial resources and to match those resources to our needs. This is an area to which I will continue to devote particular attention.
The second aspect of the Department's administration referred to by the Comptroller and Auditor General is the Department's management information framework. This is a key support to management decision-making and should be perceived not as a single entity, but as a comprehensive integrated system comprising organisational activities, reporting processes and daily interactions between all internal management levels across the Department. It provides essential information and input and takes account of Government policy, financial constraints, economic and social considerations and the concerns of interest groups in respect of the management decision-making process.
As a core function, the process entails formal reporting processes between operating divisions and Department management as well as the provision of ongoing performance reports to the Department of Finance. An integral component of the financial management process is the use of the modern, standards-based, fully integrated commercial accounting system. This is an on-line, real-time accounting system and allows for reporting on both a cash and accrual accounting basis through which the annual accounts are produced in accordance with Department of Finance requirements. The system is the basis for the efficient processing of all Department transactions, including the disbursement of substantial European Union funds.
Despite having invested significantly in developing the management information framework, the Department remains fully committed to improving its operational and management process. We have engaged proactively in the strategic management initiative and business planning process. We introduced a formal process to oversee the implementation of recommendations emerging from the value for money process. Nevertheless, I accept the comment in the Comptroller and Auditor General's report that whereas the Department has access to comprehensive information, it does not always carry out sufficient analysis and comparisons of costs and outcomes to aid decision-making. In this context, the Comptroller and Auditor General makes specific reference to the cost of inspections carried out by the Department. The Department is currently using the management information framework system to undertake an analysis of the cost of inspections and will examine the data closely to ensure inefficiencies are identified and addressed. If this exercise proves worthwhile, my intention would be to look in the same way at other aspects of the Department's administration.
The Comptroller and Auditor General acknowledges that the Department prepares the annual outcome statement in accordance with Department of Finance instructions. However, he has a number of recommendations as to how the process can produce more relevant, transparent and useful data. Again, the Department has been to the fore in developing and presenting annual output statements and we will certainly examine carefully the Comptroller and Auditor General's recommendations with a view to improving our statements.
I will now address the issues raised by the Comptroller and Auditor General in his comments on the farm waste management scheme and the farm improvement scheme. There has been discussion at official level in this regard and the Comptroller and Auditor General's report records the Department's detailed official response. Both of these schemes formed important measures to bring about significant improvement and modernisation of Irish farms, as well as contributing to the protection of the environment. The farm waste management scheme had the objective of reducing water pollution by nitrates from agricultural sources and preventing further such pollution. This measure had to be introduced in the light of Ireland's obligation to comply with the requirements of the nitrates directive. Had Ireland not implemented the directive to the European Commission's requirements, there was the very real prospect of heavy fines being imposed by the Court of Justice. In addition, failure to implement the nitrates directive would have had serious implications for continued EU funding of CAP schemes in Ireland and payment of the single payment in particular. This would have had very serious implications for the incomes of Irish farmers. The European Commission also made it clear at the time that continued funding of CAP rural development measures in Ireland, that is REP schemes, disadvantaged areas, early retirement and forestry, was contingent on the satisfactory implementation of the nitrates directive. Having regard to all of the factors, there was no option but for us to invest substantially in farm waste storage facilities. It should also be said that the scheme was a major driver of investment in our agriculture and food sector and succeeded in putting in place the fundamental infrastructure on which to base future growth and development, which will be key to the wider economy in the years ahead.
This is the background against which the scheme was introduced and the Comptroller and Auditor General's report has presented a detailed account of how the scheme was implemented. The issues raised regarding the farm improvement scheme focus, in the main, on the manner in which the Department managed, and in particular, closed the scheme when the limit of the financial limit had been reached. The Comptroller and Auditor General concludes, in the case of both the farm waste management and farm improvement schemes, that cash limits and additional selection mechanisms should be considered as a means for better managing commitments and ensuring optimum value for money.
I am happy to report that a radical overhaul and reform has since been introduced and that all new schemes introduced will be subject to cash limits, careful evaluation of scheme applications and the application of selection criteria to ensure better targeting. The "first-come, first served" principle to grant approvals has been dropped by the Department for all future schemes. Predetermined selection criteria, designed to identify and channel grant aid to targeted recipients will apply in selecting those applicants who will be approved for grant aid. This approach will ensure the targeting of schemes towards particular groups of farmers with a view to obtaining optimum value for money. The new agri-environment options scheme, AEOS, as well as the suite of new on-farm investment schemes that recently have been approved by the Commission, that is, the pig welfare, poultry welfare, sheep handling and fencing, water harvesting and dairy equipment schemes, will be implemented on this basis. This approach also will guarantee that in future, the financial ceilings fixed for schemes cannot be exceeded.
To conclude, the unfavourable global economic and financial conditions, coupled with reduced national and international consumer spending, continues to make for a difficult and demanding operating climate for the agriculture, food, fishery and forestry sectors. In addition to the practical issues of managing finances and implementing schemes and activities to best effect, the Department continues to plan to meet ongoing and future challenges. In February, a major initiative to draw up a long-term strategy for the agrifood, forestry and fisheries sectors was launched. A broadly based 2020 strategy committee has been established, chaired by Dr. Seán Brady, to lead the process and a web-based public consultation preceded it. The committee is to report by 1 June 2010.
The Common Agricultural Policy will undergo significant change from 2013 and an intensive series of bilateral meetings have taken place already over the last year with colleagues from the European Commission and other member states. While the formal communication from the Commission was not expected until later this year, this informal phase of negotiations, where ideas are exchanged and the main policy options are formulated, is extremely important. At a sectoral level, the Government reiterated its commitment to the Irish food and drinks industry at the recent Bord Bia food and drink summit held in Farmleigh. The Government's view that the agrifood sector will remain one of our most important industries and has a key role to play in Ireland's economic recovery was evidenced by the theme of the summit, "Building Ireland's Largest Indigenous Industry".
I am happy now to take any questions the Chairman or members of the committee may have.
