COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 8 Mar 2012

Food Safety Authority Annual Report 2010

Mr. Tom Moran (Secretary General, Department of Agriculture, Food and the Marine)and Professor Alan Reilly (Chief Executive, Food Safety Authority of Ireland) called and examined.

Chairman

We are now dealing with the 2010 annual report of the Comptroller and Auditor General, Vote 31 - Agriculture, Fisheries and Food, chapter 26 - pigmeat recall scheme; and the Food Safety Authority Annual Report 2010.

I remind members, witnesses and those in the Visitors Gallery to turn off mobile telephones as interference from telephones affects the sound quality of the transmission of the meeting. I advise witnesses that they are protected by absolute privilege in respect of the evidence they give to the committee. If they are directed by the committee to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given, and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a Member of either House, a person outside the House or an official by name or in such a way as to make him or her identifiable. Members are reminded of the provisions within Standing Order 158 that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits or objectives of such policies.

I welcome Mr. Tom Moran, Secretary General of the Department of Agriculture, Food and the Marine, and I ask him to introduce his officials.

Mr. Tom Moran

I am pleased to be here this morning and as the Chairman can see, I have brought a fairly large team because of the spread of the areas of the Vote. They are: Mr. Philip Carroll, assistant secretary in charge of human resources organisation, animal health and welfare, and corporate affairs; Mr. Martin Heraghty, assistant secretary in charge of the product side, including food and milk; Mr. Tony Burke, who is in charge of the financial control and a number of schemes, including REPS; Mr. Heber McMahon and Mr. Jim Caddle from the finance unit, which deals with the Vote; and Mr. Kevin Smith, who is in charge with payments, such as the single payment, including forestry.

Professor Alan Reilly

I am joined by my colleague, Ms Margaret Campbell, the finance and planning manager at the Food Safety Authority.

Chairman

We are also joined by Mr. Ronan Gallagher from the Department of Public Expenditure and Reform. I ask Mr. Seamus McCarthy, director of audit at the Office of the Comptroller and Auditor General, to introduce the 2010 annual report, Vote 31, chapter 26; and the Food Safety Authority Annual Report.

Mr. Seamus McCarthy

The Department of Agriculture, Food and the Marine administered spending totalling €2.9 billion in 2010, with €1.73 billion processed through the Department's Vote and the balance disbursed under EU direct payment schemes. The schemes and initiatives administered by the Department involved payments to farmers totalling approximately €2 billion in 2010. This included €1.14 billion paid directly to farmers under the EU single payment scheme. Some €324 million was paid under the Rural Environment Protection Scheme, REPS, with €208 million in income support in disadvantaged areas. Grant aid of €298 million was paid under the farm waste management scheme. This was some €98 million more than originally provided in the Estimate for 2010, due to an acceleration of the outstanding scheme payments. The appropriation account indicates that the Department's administration costs amounted to €244 million in 2010, down from €277 million the previous year. The surplus to be surrendered at the end of 2010 was just under €73 million.

Chapter 26 of the Comptroller and Auditor General's report on the 2010 accounts of the public services deals with the financial outturn and management and control of the pigmeat recall scheme initiated at the end of 2008 and which resulted in expenditure being incurred on the Department's Vote primarily in 2009 and 2010. The chapter also reports the results of audit enquiries about the pigmeat traceability system and the food safety inspection regime.

On 19 November 2008, a routine test carried out by the Department under the national residue monitoring programme detected contamination in a pork fat sample. Further tests were carried out and the origin of the contamination was determined to be oil used in the drying process in the course of manufacture of feedstuffs. On 6 December 2008, the Food Safety Authority of Ireland issued a recall from both the domestic and international markets of all Irish pigmeat products sourced from animals slaughtered after the end of August 2008. On 10 December 2008, the European Food Safety Authority issued an opinion stating that, based on its risk assessment, there was no health risk to anyone who had consumed potentially contaminated pork in the three months prior to the recall of all Irish pork products.

Following the recall, two compensation schemes were put in place by the Department. These were the pig and cattle disposal scheme, which provided financial assistance for the removal, slaughter and rendering of pigs and cattle from holdings affected by the dioxin contamination; and the pigmeat recall scheme, which provided financial assistance to primary and secondary processors of pigmeat affected by the recall. Assistance provided under the schemes was subject to European Union state aid rules. During administration of the schemes, the scope of eligible meat products was extended and final EU approval was received in 2009.

At the time the report chapter was completed, the outturn for the schemes was expenditure of €29.5 million under the pig and cattle disposal scheme, and €102 million under the pigmeat recall scheme. There was a contingent liability in respect of €27 million in outstanding claims under the pigmeat recall scheme which were still being examined. The Accounting Officer will be able to provide an update on the scheme expenditure and on co-funding received from the EU.

The experience with the pigmeat recall provides potential lessons that may improve the State's ability to manage such risks in the future and to minimise the costs of future recalls. The report recognises that the pigmeat recall scheme was an emergency measure to address health concerns and to minimise the economic damage that the contamination of meat products could do to Ireland's reputation as a producer of quality food products. Overall, the examination concluded that the Department had coped reasonably well with the administration of the compensation scheme based on incomplete records.

Difficulties encountered by the Department included some uncertainty as to the eligibility of product. In some cases, product sent directly by retailers for rendering could not be verified as being eligible under the scheme. The Department also had difficulty ensuring that the correct valuations were applied by some processors in their claims. The Department carried out valuation audits on 16 claims totalling €35 million and found that half of those claims had been overvalued on submission. Substantial effort was invested by the Department to ensure that anomalies were dealt with and, ultimately, the payment on those claims selected for audit amounted to €31.5 million.

Evidence about the integrity of the product while in transit was not satisfactory in some cases because security seals on consignments were either not in place when product was dispatched for destruction or when it arrived for rendering. The traceability system in the pigmeat sector did not allow for some pigmeat product to be traced back to the farm of origin. This led to a wider recall than might otherwise have been required. While accepting the Department's view that Irish traceability systems comply with EU traceability requirements, the report suggests that it would be useful for the Department to review traceability systems in comparable countries to determine if there are cost-effective methods to improve traceability of pigmeat products. I understand some work has been done in that area.

Primary responsibility for food safety rests with the food business operators which are required to carry out their own safety checks. In addition, testing for residues in food is carried out by the Department or by local authorities under the national residue monitoring programme. The Department's monitoring and testing regime did not pick up the dioxin contamination emanating from affected farms or in slaughterhouses in the period between the end of August 2008 and mid-November of that year. The Department also undertakes inspections under the national feed inspection programme. Overall, the results of inspections suggest a relatively high incidence of non-compliance with feed safety and hygiene regulations. Although the Department stated that many of these instances were relatively minor, the report concludes that there may be a need for the Department to promote an improvement programme based on the key findings of those inspections.

Chairman

I call Mr. Moran to make his opening statement.

Mr. Tom Moran

I thank the Chairman and members of the committee for the opportunity to address them. I have already submitted a brief which details the financial aspects of the Department's Vote, comments on elements of the appropriation account itself and addresses some of the issues covered in the Comptroller and Auditor General's annual report, including the pigmeat recall scheme just referred to.

To set the scene for the discussion, I might take the opportunity to remind the committee of the year in question. It will recall that in 2009 the economic recession and exchange rate movements were the primary factors influencing the market performance of agricultural commodities generally and that this was evident in a combination of reduced volumes and lower prices across the agrifood sector. I am happy to say there was a resurgence of the Irish food and drink and farming sectors in 2010 and that this resurgence continued into 2011. The prospects for 2012 are also promising.

The food and drink sector was a major contributor to the national economy in 2010 with export sales rising by 11%, faster than many other sectors, to reach €7.9 billion. In 2011, there was a further increase in the region of 13%. Over those two years, there was a 25% increase in exports. This increase in 2010 of €800 million on the previous year demonstrates the ability of the sector to adapt to market needs and to compete on a global scale. It also shows the underlying potential of indigenous industries to contribute to an export-led national recovery, vital as we move out of the financial and economic crisis.

There were also positive developments at farm level. Albeit from a low level, aggregate farm income increased by 31.5% in 2010 compared to 2009. Cereals and dairy enterprises showed the greatest operating surplus based on improved prices and increased productivity. The livestock sector also showed strong increases in output value. The beef sector increased by 12.2%, pigmeat by 7.8% and sheepmeat by 7.6%.

A major initiative in 2010 was the development and publication of Food Harvest 2020, the strategic roadmap for the agrifood and fishing sector for the next decade. This industry-led report, which was driven by the Department, set growth targets for the various sectors which included increasing the value of primary output from the sector by 33%, increasing value-added by 40% and increasing exports by 42%. To set the framework for achieving these ambitious targets, a high level implementation committee was established which was chaired by the Minister at the time and it continues to be. This committee, consisting of the CEOs of the major State agencies, has been tasked with driving the implementation process, achieving integrated State action and facilitating industry involvement. From experience to date, it is working particularly well.

The Department continued to operate a wide range of schemes and initiatives which are of direct benefit to farmers and which also contributed to the development of an increasingly vibrant agricultural sector. More than €1.64 billion was paid to farmers in 2010 under the single payment, disadvantaged areas and the rural environmental protection schemes. Approximately 95% of these payments were made within the service delivery targets of the farmers charter and action plan.

A number of new on-farm initiatives commenced in 2010. The agri-environment options scheme, AEOS, was launched in March. This more targeted environmental scheme was designed to promote biodiversity, encourage water management and combat climate change. The scheme offered an opportunity to those leaving REPS to continue to adopt environmental actions.

A range of targeted agricultural modernisation schemes, TAMS, aimed at addressing some of the new challenges identified in the health check was also launched. These included a bio-energy scheme for willow and miscanthus to encourage uptake of the scheme ahead of the planting season which was launched in February 2010. The welfare schemes for pigs and poultry were introduced in June. A sheep fencing-mobile handling equipment scheme was introduced. A dairy equipment and water harvesting schemes were introduced in early 2011.

The public service agreement, also known as the Croke Park agreement, was also introduced in 2010. The Department had already embarked on a rationalisation programme which had led to the establishment of 16 enhanced regional offices and the closure of 42 local offices to provide an improved service to customers using a more cost-effective service delivery model. This process is yielding significant savings both in staff resources and administration costs. From 2008 to the end of 2011, the number of staff in the Department fell by 720 with total administrative savings amounting to €68 million of which €50 million is wages and salaries.

Discussions continued in 2010 on both the broad outline and principles of the CAP reform and the reform of the Common Fisheries Policy. The Commission produced policy papers on both these issues which have been the subject of intensive negotiations during 2011 and 2012. I hardly need to emphasise to this committee that, because the outcome of the CAP reform negotiations will set the policy framework for Irish and EU agriculture for the best part of the next decade, it is vital we get it right.

The Department has been actively engaged in the negotiations from the outset. Our priorities in the negotiations are to achieve a strong and well resourced CAP, the retention of our levels of funding for both direct payments and rural development and maximum possible flexibility for member states to implement the payment systems and transitional arrangements that best suit their own farming conditions.

Throughout 2010 there was a growing awareness of the intrinsic high value of the agrifood and fish sectors in the economy and of their ability to contribute to national development. The international outlook for food availability and prices is underpinned by the need for global food production to increase by 70% to meet expected population demands by 2050. Our aim through harvesting the goals in Food Harvest 2020 is to position ourselves to meet the challenge that presents.

I am happy to deal with any questions the Chairman or members of the committee may have.

Chairman

I call Professor Reilly to make his opening statement.

Professor Alan Reilly

I thank the Chairman for inviting the Food Safety Authority of Ireland to update his committee on its 2010 annual report. In making this submission, I will refer to the Food Safety Authority of Ireland as the FSAI for the sake of briefness.

The primary goal of the FSAI is to protect consumers' health in regard to food. The FSAI was established by law in 1999 as a single, independent, science-based national body with responsibility for the enforcement of food law in Ireland. The FSAI was set up to be independent of the food industry and we operate under the aegis of the Minister for Health. At the same time, we recognise the importance of the agrifood and hospitality sectors to the economy. In particular, we are conscious of the significance to Ireland as a major exporter and tourist destination that we provide reliable, trusted and independent regulation of the food sector.

Our principal function is to take all reasonable steps to ensure that food consumed, distributed, marketed or produced in Ireland meets the highest standards of food safety and hygiene. We are also charged with bringing about the general acceptance that the primary responsibility for safety of food is borne by the food industry across the food chain.

To these ends, we have identified four main roles for the authority which are: enforcing food law; using best scientific advice to underpin all food safety decisions; working in partnership with all stakeholders to gain their commitment to maintain and improve standards; and ensuring that the FSAI is responsive, proportionate and adaptable.

Day-to-day enforcement of food law is carried out on behalf of the FSAI by other State organisations known legally to us as official agencies. These agencies are authorised by the FSAI through a renewable fixed term service contract. All service contracts are published on the FSAI's website. The FSAI co-ordinates the activities of these agencies to achieve the most effective and efficient use of State resources in policing the food chain so as to protect consumers' health and consumers' interests. These agencies are accountable to the FSAI for their food safety programmes, their standards of work and their actions in relation to food law enforcement. The FSAI also audits the agencies for their compliance with the service contract commitments.

The service contract process provides a very practical mechanism for co-ordination and harmonisation of food safety control delivery and allows the FSAI to keep the efficacy of the inspection services nationwide under review. The main official agencies that work under service contract to the FSAI are the Department of Agriculture, Food and the Marine, the local authorities, the Health Service Executive, the Sea-Fisheries Protection Authority and the Marine Institute. Apart from the local authorities, whose food controls are funded by the FSAI, all other agencies fund their food controls from within their own resources.

Important as food law enforcement is, achieving high standards of food safety requires complementary strategies. The FSAI has always believed in the promotion and development of a culture of food safety in Ireland by engaging with all those who can directly influence or improve food safety practices. Stakeholders with whom we seek to connect include the food industry and its representative groups, consumer groups and State agencies that can positively influence food safety standards. I believe the FSAI has been a significant party to some noteworthy achievements in recent years, including the reduction in the incidence of human salmonellosis, the virtual elimination of BSE in Irish cattle, a significant reduction in the salt content of processed foods, the introduction of a food allergen alert service for consumers, and the daily supplementation of all infants in Ireland with vitamin D.

Through our management of service contracts with our official agencies, we have clarified the role of each official agency and minimised any gaps or overlaps in the supervision of the food chain. Through this, we have ensured the resources of the State are used to the best advantage. We have worked to guarantee scientific excellence in a spirit of independence, openness and transparency.

The FSAI advises on scientific and technical aspects of legislation and participates in expert working groups of the European Commission on the preparation of EU food regulations. We provide fact sheets, guidance notes, codes of practice and answer around 11,000 queries from the public and industry each year. As Ireland's contact point for the European Commission's rapid alert system for food and feed, we process and assess more than 9,000 notifications every year concerning contaminated foods in circulation in the Single Market.

The FSAI has matured as an organisation in recent years, which was perhaps best evidenced by the swift and decisive handling of the dioxin contamination of Irish pork in 2008. Since this dioxin incident, the FSAI has worked closely with the Department of Agriculture, Food and the Marine on risk assessment of the animal feed sector and is co-operating on the proposed transfer of functions associated with oversight and responsibility for controls on animal feed.

I am keenly aware of the pressing national need to do more with less. In response to Government policy, staff numbers were reduced by just over 10% and expenditure by approximately €1.2 million, around 10% to 11% of our Vote. At the same time, I believe we have worked hard to maintain the same level of service. The FSAI has a unique role to play as the State's food safety regulator. Our aim is that Irish consumers and the consumers of Irish food at home and abroad are fully protected and that confidence is maintained in the safety of Irish produced foods. In pursuit of this aim, we are committed to continuing to maintain and develop a regulatory system that is trusted by consumers, has the confidence of the food sector and is acknowledged both at home and abroad as even-handed and balanced in its actions.

I thank the Chairman for the opportunity to make this statement and I am happy to answer any questions.

Chairman

I thank Mr. Moran and Professor Reilly for their opening statements. May we publish both statements?

Mr. Tom Moran

Yes.

Deputy Eoghan Murphy

I thank Mr. Moran and Professor Reilly and their officials for the updates. Before I address the dioxin contamination incident that led to the pigmeat recall scheme, I would like an update on the numbers employed in the industry, what it is worth in value to farmers, producers and the overall economy, and where it ranks in terms of importance in the agriculture sector.

Mr. Tom Moran

The pigmeat sector is of major importance. It is probably the third most valuable element in the sector. If one takes account of the value added, including the upstream and downstream, the figure is in the region of €1 billion. The actual farm output is in the region of €300 million. The importance of the sector as a user of feed and an integral part of any agri-sector cannot be overstated. An issue such as what we are discussing is not confined to that sector. If one has an issue in the pigmeat sector, as we did, there is a risk, when one is dealing with a food sector, of real and reputational spread into the other sectors. If one could confine the impact to the pig sector, that would be one thing, but there was a real risk at the time of it spreading into the wider food sector, which is worth €24 billion to the economy. The number of employees in the primary processing and marketing of the pig sector is approximately 7,500. All in all, the pig sector is worth €1 billion when value added is included.

Deputy Eoghan Murphy

On 19 November 2008, there was a detection of dioxin in a pork fat sample. Was that a routine inspection or was it detected by chance?

Mr. Tom Moran

It was a routine inspection as part of the national residue testing programme, and it was picked up by the Department's own system.

Deputy Eoghan Murphy

The sample was then traced to a farm in Cork.

Mr. Tom Moran

The Deputy is correct. It was then traced to the feed supplier.

Deputy Eoghan Murphy

How long did it take to trace the sample to the farm in Cork? Did it take a week to trace it?

Mr. Tom Moran

Once the PCB was detected, the trace back took place immediately.

Deputy Eoghan Murphy

Will Mr. Moran give me an idea of how long that took? I want to get an idea of how long that would take. Was that on the same day?

Mr. Tom Moran

It took two days.

Deputy Eoghan Murphy

It took two days to trace it back to the farm in Cork.

Mr. Tom Moran

Yes.

Deputy Eoghan Murphy

It was then traced to the supplier of the feed in County Carlow.

Mr. Tom Moran

Absolutely.

Deputy Eoghan Murphy

How quickly did it take to trace it to the feed supplier in Carlow?

Mr. Tom Moran

Straight away. It took a day.

Deputy Eoghan Murphy

Then the Department had to find the farms that had received feed from that supplier. How long did that take?

Mr. Tom Moran

That took place straight away. The traceability system works in that one is able to go right back from the positive sample to the producer of the feed and back to the farm, and to trace the other farms that were supplied by that producer, and from those farms back to the customer.

Deputy Eoghan Murphy

Is there an electronic database? How do the traceability records allow the Department move so quickly?

Mr. Tom Moran

There is a requirement under EU law in relation to traceability that one can trace immediately one step up and one step back. If one descends upon a feed producer, one knows from his records where his product went and one can trace that straight away.

Deputy Eoghan Murphy

That brought us quickly to identifying the oil that was used.

Mr. Tom Moran

Yes.

Deputy Eoghan Murphy

The Department sent the sample for analysis in York and that was confirmed on 6 December. What happened then? Who made the decision on a total recall of the produce?

Mr. Tom Moran

The FSAI made the decision that a total recall should be carried out and the industry acted immediately in response to that and initiated a total recall of the product.

Deputy Eoghan Murphy

Is that in accordance with a particular protocol that might indicate what needed to be recalled or why one would initiate a recall, or is it up to the judgment of the person in question?

Mr. Tom Moran

The decision to carry out the recall was taken during that weekend by the FSAI. The decision to carry out a total recall was based on the information available on the dissemination of the product, the period between the test and the result and the advantages and disadvantages of not recalling the product. That was the basis of the decision.

Deputy Eoghan Murphy

Was the Minister consulted on that decision, or was it an automatic decision without consultation?

Mr. Tom Moran

No, that was a major decision. Over that weekend, in our own Department, there were serious consultations involving not only the Minister for Agriculture, Fisheries and Food but also the Minister for Health and Children and the Taoiseach.

Deputy Eoghan Murphy

How long did the recall take, once it was decided that there had to be a total recall of the products?

Mr. Tom Moran

Once the decision was taken, when a definitive result came back, implementation began immediately. In the handling of any event such as this, it is key that one is dealing with sharp edges and corners, not woolly edges. The decision was taken to initiate a total recall of all the product produced from a particular date, because on the basis of the risk assessment, that was the date deemed-----

Deputy Eoghan Murphy

That was 1 September.

Mr. Tom Moran

Yes. It was deemed that from then on there was a risk that the product was contaminated. To conclude on that point, we initiated at the same time, in conjunction with Bord Bia, a new labelling initiative that meant that from the Wednesday of that week products that had been produced after the crisis were back on the shelves. We were able to establish a date after which there was a problem and we could say to our markets that products with the new label, with effect from the Wednesday, were completely in the clear. By being able to put a wall on either side of the crisis, we were able to manage our way out of it.

Deputy Eoghan Murphy

I might come back to that in a moment. I am curious about why 1 September was chosen as the date, because I read that the feed delivery was traced back to 1 May of that year. How was the Department able to establish such a sharp date?

Mr. Tom Moran

It was based on a risk assessment by the FSAI. It was decided that that was a date that would stand.

Deputy Eoghan Murphy

So everything from after that date would be safe?

Mr. Tom Moran

Absolutely.

Deputy Eoghan Murphy

Mr. Moran said that by Wednesday we had products back on the shelves with new labelling. For how long were the products off the shelf?

Mr. Tom Moran

Two or three days.

Deputy Eoghan Murphy

It happened that quickly?

Mr. Tom Moran

Yes.

Deputy Eoghan Murphy

The new labelling was to indicate to people that the product was safe.

Mr. Tom Moran

Yes. Over the weekend, while the labelling initiative was up and running, we were working to restart the market. From our own experience and that of other countries, it was clear that when handling a crisis such as that, we needed to go down the road of certainty. Other countries had faced similar difficulties, and have done since. Belgium had had an issue with dioxins prior to that time and, to put it one way, it did not go in that direction. It was not handled in that way. Once there is vagueness around the beginning and the end of a period, consumers and retailers worldwide will make their own decision. They will vote with their feet. If they cannot say that there is a difference between the product before one date and the product after another date, they will not buy it. That is the risk we run. Not only that; the risk is that the problem will run into other sectors if it is not handled correctly.

Deputy Eoghan Murphy

What was the estimated loss to the industry if the product was off the shelves for only a couple of days?

Mr. Tom Moran

Once the decision was taken that products should be recalled, that triggered another set of actions by the Government, which was to initiate funding on the basis of an ex gratia payment. The purpose of that was to ensure the future of the pigmeat sector, which would not have been able to bear the losses. The figure estimated at the time by the industry was 45,000 tonnes of product. The facility - and it was a facility - that was made available was €180 million, plus another €20 million for animals that had to be culled. These things were going on in parallel. We were in discussions at the same time with the European Commission because the question of state aid was raised. We had to get state aid approval and there were many strands of discussions and decisions in those few days. The key objectives were clear: to ensure that food safety was paramount and that the consumer of Irish pigmeat was protected. Once that was achieved and there was no pollution of the reputation of the country, both in the pigmeat sector and beyond, then we could consider the fact that the industry - a viable, profitable industry - had been subjected to a shock it could not withstand, and that gave rise to the decision by the Government to fund on an ex gratia basis the product that was being recalled, thereby keeping the industry going. That also involved European Commission approval and, believe it or not, it actually went to the heads of Government the following week. As it happened, there was a summit of EU heads of Government, which dealt with this and actually commended the Irish Government on its handling of it.

Deputy Eoghan Murphy

What is the reputation of the industry now? Did it incur significant reputational damage, or is it back to being a healthy industry that is well regarded abroad?

Mr. Tom Moran

The reputation of the industry, paradoxically, benefited greatly from this. When dealing with the food sector one will always come upon issues of this nature from time to time - not necessarily dioxin contamination, but animal diseases and so on. The reputation of the sector is based on how we deal with it and the controls we have established. The pigmeat sector benefited enormously and moved on to great things. Initially, our products were immediately banned from a number of countries. Once it was known there was a dioxin issue, third or non-EU countries began to implement bans. Those bans were immediately lifted; they fell away as the industry's reputation was restored and confidence re-engendered in the sector. The pigmeat industry has gone on to much better things. Last year's export figures are up, as is its profitability. It is up and running well again.

Deputy Eoghan Murphy

Export figures are up by how much?

Mr. Tom Moran

About 9%. Employment in the sector was supported and retained; that was one of the key objectives, because there was a high risk involved. Production increased in 2011 by 9%, and the value of exports increased by 18% to €395 million in that one year. In a fairly short period, and without any serious damage to the sector, the intervention worked.

Deputy Eoghan Murphy

The Department is to be commended on how it handled the situation. How much compensation has been paid out to date?

Mr. Tom Moran

The overall figure is €138 million. There have been EU receipts of €18 million, so the net figure is €120 million, which is broken down among the various areas. Approximately €30 million was spent in respect of the culling of animals. The recall scheme itself amounted to the guts of €100 million, or €99 million. The various aspects of the scheme amounted to €138 million, and taking off the amount received from the EU, we have a net figure of €120 million.

Deputy Eoghan Murphy

Are there any payments outstanding?

Mr. Tom Moran

No, unless they are small bits. Our view is that the scheme is now more or less wrapped up.

Deputy Eoghan Murphy

Can we expect something to appear in the 2012 accounts?

Mr. Tom Moran

We will be paying it. This would have been phased. The initial scheme and all the issues around the dioxin event and the establishment of the scheme were short and complicated. Then the implementation of the scheme took a long time because, as the Comptroller and Auditor General outlined, we paid a great deal of attention to ensure each claim we worked through was valid. A considerable amount of work and resources was invested to ensure all the controls were correct. That took a long time.

Let us consider the three different levels. At the start, the pig producers came out. Then the primary processors followed. These are the people who slaughter and produce the primal cuts and the carcases of meat. Then there are secondary processors who use the product. Then there are tertiary processors who use Irish pigmeat in other products. It became a long and complicated scheme which involved heavy use of resources and controls. We are satisfied that we are at the end of the line now.

Deputy Eoghan Murphy

There were problems in terms of paying out compensation. Originally €180 million was earmarked for the compensation scheme. That figure fell to €138 million, which I suppose represents a saving. However, a large quantity of product was destroyed before its eligibility was determined. Why did that occur? What percentage was destroyed? The Comptroller and Auditor General report referred to a large quantity. Why was the material not verified before it was destroyed?

Mr. Tom Moran

One must consider what a recall involves. If one initiates a recall for whatever reason on a given day, the product is simply swept off the shelves. The original facility made available by the Government was €180 million plus €20 million for the cull of the animals. I keep using the term "facility" because at that stage it would have been an estimate. From then on, the operation of the scheme would have involved a balanced approach on our part to try to maximise savings, to achieve the objective of keeping the industry intact and to stay in line with state aid rules which were and remain rather strict.

Each claim was gone through. While rules existed relating to which product could be funded and what we would compensate for, we had to deal with each claim from each participant on a case by case basis under the scheme. Strict rules were built into this process relating to offsetting any other gains participants might have accrued by withdrawing product. Some product was simply taken off shelves. We had to go back through documentation to match the sales from the factories to the retail sales and to match retail returns and so on. We did this case by case and that is why it took a long time.

Deputy Eoghan Murphy

A large quantity of product was destroyed before the Department was able to verify that it was eligible for compensation under the scheme.

Mr. Tom Moran

I do not have the figures with me but I do not believe it was a large quantity of product. When the scheme was announced, we stated that this product would have to be recalled and destroyed under controlled conditions. A total of 36,000 tonnes of pigmeat was paid for following the initial industry estimate of 46,000 tonnes. Of that total, 20,000 tonnes was on the home market and 10,000 tonnes was overseas in 22 countries. A total of 5,000 tonnes was returned to Ireland for destruction and 5,000 tonnes was destroyed abroad under controlled conditions. I know for a fact that there was no question of a large quantity of product being destroyed and paid for on spec, as it were. We dealt with claims on a case by case basis. If product had to be destroyed for one reason or another, we set about verifying that. Where we were not satisfied that it could be verified, we did not pay. This was why we were able to bring the figure down.

Deputy Eoghan Murphy

Let us suppose someone came to the Department with a claim, stating that they had destroyed a particular quantity and were seeking compensation. If the Department could not verify the quantity or that it came within the right dates or qualified, it did not pay out. Is that correct?

Mr. Tom Moran

No. We did not pay unless we were satisfied it was a genuine claim. The only area of the sector that would have destroyed product which would not have been immediately verifiable was at retail level. Shops would simply have cleared out stock and that product would have gone somewhere. In the greater scheme of things, that would not have been a great quantity.

Deputy Eoghan Murphy

In those cases, were people attempting to defraud the State?

Mr. Tom Moran

No. We were in constant contact with the various players in the industry. We gathered together the retailers on the Saturday night. There was a genuine approach throughout the sector. I was heavily involved in it at the time. There was a genuine belief that this was an emergency that had befallen the State and there was no sense that anyone would exploit it. There may have been some cases where a branch of a retailer had taken product off the shelves and got rid of it. However, we were able to verify that in so far as we could. Where we were unable to verify it, we did not pay.

Deputy Eoghan Murphy

There was a high incident of over-claiming. Is that correct?

Mr. Tom Moran

Yes. That has been picked up. That necessitated ongoing in-depth examination of each claim. We took no given claim as one on which we would simply pay. It was an indication of what the industry or a particular player believed was due to them. However, we went into it in great detail.

Deputy Eoghan Murphy

In May 2009 a third notice was issued asking those who had not already been audited to review their claims. There was a belief in the Department that the claims submitted may have been over-valued, based, I imagine, on what had been audited previously.

Mr. Tom Moran

Sometimes companies will submit claims which, from their point of view, seem valid. They might try to claim total losses arising from the crisis. However, based on state aid approval and the nature of our objective of keeping the industry standing, we would only pay on the value of the product, not the total loss. Companies would have borne losses but we did not pick up the cost of those. We had no intention of picking up those costs.

Deputy Eoghan Murphy

They were trying to claim for them anyway. Does that mean the scheme was unclear in terms of what they could claim for?

Mr. Tom Moran

The terms of the scheme were clear but that did not stop the industry from submitting claims to us which included other losses.

Deputy Eoghan Murphy

Were they chancing their arm?

Mr. Tom Moran

No, I would not put it that way. They claimed they had a total loss. In funding the scheme, we had an objective that in so far as we could, we tried to make ex gratia payments based on value of product recalled. However, we were not picking up any other losses.

Deputy Eoghan Murphy

Some 50% of claims by secondary producers were over-valued, estimated at €35 million. This means one in two people were over-claiming. When the Department issued the third notice asking those who had not been ordered to do so to review their claim, was the Department offering an amnesty to those who had over-claimed in order that they could come back with new figures?

Mr. Tom Moran

No. We were trying to maximise it. It took a good deal of effort. We were investing a considerable level of resources and effort in controlling this and ploughing through the claims. It was nothing like an amnesty. We took the view that as we went through the claims, we would take out this and that and we would not cover such and such and we would cover only the value of the product recalled and destroyed. To ask the claimants to examine the figures again was a practical way of dealing with it.

Deputy Eoghan Murphy

The view of the Department was not that people were trying to over-claim on purpose or intentionally to try to get more money than that to which they were entitled. Is that correct?

Mr. Tom Moran

My impression was that people suffered losses as a result of this and they were trying to be recompensed for those losses. Our objective was to cover the cost of product recalled but not to cover the losses throughout the sector. An ex gratia payment was decided upon in the wake of the recall of a product which was unsafe for human consumption.

Deputy Eoghan Murphy

An inspection scheme was initiated which resulted in substantial disallowances as well. What was the total disallowed figure from the inspections regime?

Mr. Tom Moran

Of our inspections?

Deputy Eoghan Murphy

I understand there were inspections in the Department.

Mr. Tom Moran

As I said, 36,000 tonnes of pigmeat were paid for. The industry estimate was 46,000 tonnes.

Deputy Eoghan Murphy

Did the difference of 10,000 tonnes arise during inspections?

Mr. Tom Moran

It would have arisen after an overall examination as the situation evolved. The Comptroller and Auditor General described the scheme very well in the report. This was an emergency measure that was introduced and devised in a very short period of time because time was not on our side to save the sector. Therefore, the scheme evolved. Even the State aid elements evolved over time.

Deputy Eoghan Murphy

I understand the rush to get products off the shelves. However, if the industry was back in business so quickly after the recall what was the rush to destroy products once they were off the shelves without verifying the figures? What was the rush on the part of the Departments to pay out so quickly, given that people were still in business?

Mr. Tom Moran

They were in business, but they would not have been for much longer. For example, we paid for 36,000 tonnes and €98 million was paid out from the overall scheme for product recall. That amount of money was lost to the sector. It would have been starved of working capital and the ability to continue in business. I can recall the period very well. There were threatened redundancies and people were being let go.

One of the interesting things about the pig sector is that if a processor stops taking pigs into a processing plant an immediate welfare situation arises. Cattle can be left in fields but there is a constant flow of pigs as they reach the required slaughter age off farms. Once the recall was required the industry was in dire need of assistance. It was on that basis that advances were paid in the early part of 2008. We could have delayed making payments and had a different system but there would have been no pigmeat sector-----

Deputy Eoghan Murphy

I can understand advances were necessary to give the industry cash flow to get through the period in question. Full payment on claims was made. In terms of making proper payments and avoiding over-claims, does Mr. Moran feel the Department rushed?

Mr. Tom Moran

I definitely do not because I know from the way the situation was handled the scheme was not rushed. We put proper resources into it and there was central control. If anything, at that stage the industry was quite critical of the delay and was putting a lot of pressure on the Department for payment. We were determined to do things the right way and make sure every single detail was examined until we were happy.

We have a lot of experience of running industry-related payment schemes. Our record shows that we will go down as far as we need to go to make absolutely sure that we are right. The proof of the pudding is the fact that the industry would not be fully happy with the way the scheme was applied. While I said we are close to drawing a line under the scheme, the industry would still say a lot more money needs to be paid out. Our objective was not to cover every loss; rather, it was to get the industry over a period of crisis in order that we would have a pigmeat sector today which is doing well.

Deputy Eoghan Murphy

What is the status of the EU co-funding?

Mr. Tom Moran

The EU co-funded figure is €18 million.

Deputy Eoghan Murphy

Has that been revised down from what was estimated?

Mr. Tom Moran

No, not dramatically. We are in discussions over a very small element with the Commission.

Deputy Eoghan Murphy

It has queried the legitimacy of some claims.

Mr. Tom Moran

Yes, it is querying certain aspects. The figures involved are hundreds of thousands of euro.

Deputy Eoghan Murphy

It was thought that the value added figure was €20 million at one stage but only €5 million has been paid out. Is that right?

Mr. Tom Moran

Yes, the value added figure is €5.057 million.

Deputy Eoghan Murphy

Why is there a difference between what we thought we would have to pay out and what was actually paid out?

Mr. Tom Moran

Initially the industry provided an estimate of the value of the product that had to be recalled. When the product was examined, it was found some had been consumed and some had not been returned to stores because people had thrown it out.

Deputy Eoghan Murphy

It is a pretty significant gap.

Mr. Tom Moran

Yes.

Deputy Eoghan Murphy

The figure of €28 million came from the industry but we examined it and said only €5 million was involved.

Mr. Tom Moran

We are only making payments based on documentary proof that the product fits in with the terms of the scheme. The figure is lower than others might have estimated.

Deputy Eoghan Murphy

It is a good thing for our side but I am wondering why the industry overestimated the figure by so much. There is a big difference between €5 million and €28 million.

Mr. Tom Moran

There is, but value added products are involved. There can be a small amount of Irish pigmeat in another product. The product can become quite expensive, such as in the case of a prepared meal with Irish pigmeat in it. One is dealing with the final value of the product even though the pigmeat element is quite small. If claims were made for such products to be fully compensated for one could see how there would be a difference in the estimates. We are happy with the figure we have. Elements in the industry would still say the game is not over. We have gone as far as we can go.

Deputy Eoghan Murphy

Are there any legal issues?

Mr. Tom Moran

Not on that specific point.

Deputy Eoghan Murphy

Are there any legal issues with any other aspects of the scheme?

Mr. Tom Moran

There are still legal issues involving the source of the contamination in the first place.

Deputy Eoghan Murphy

Is there a liability on our part or theirs?

Mr. Tom Moran

Ultimately, under EU hygiene regulations the liability for any issue like this rests with the food business operator. In this case, the State does not have a liability. There are legal issues involving the cause and the supplier of inputs to the original cause of the contamination.

Deputy Eoghan Murphy

The State licensed the feed manufacturer involved as low risk. Does that bring any liability on our part?

Mr. Tom Moran

No.

Deputy Eoghan Murphy

Has anything changed in the Department's risk determination? The manufacturer took in the oil from elsewhere but the feed resulted in the total recall because of the number of farms and processing plants involved. We signed off on the manufacturer as low risk.

Mr. Tom Moran

When the Deputy says we signed off on the manufacturer, it is a fair point. When an issue like this arises in the food industry one has to determine what lessons can be learned. The use of open flame for drying is high-risk. We took a good number of lessons from the situation. The overall control of feed is something we have addressed. One of the recommendations from the review initiated after the recall was that FSAI would have a seamless role as an outside controller of feed as well as food. Until now that has not been the case. We are awaiting legislation and hope to have it on the Statute Book very soon. In advance of that, we are now working with FSAI. We have changed the risk assessment of feed. Feed, in general, is key to all of the food sector because what one puts into the chain is ultimately what one gets out. This particular type of flame drying feed definitely moves up the risk category. The Department has changed its focus on HACCP. This means that under the hygiene regulations of 2006, every food business operator must have a HACCP scheme in place which identifies the risks and the critical control points. This was a relatively new initiative to be spread throughout the food industry. The Department was mainly involved in checking that such a HACCP programme existed, but based on our experience, this is not quite enough to know. We are now examining the HACCP to ensure the system in place in food businesses reflects the actual case.

As regards the use of oil, changes have been made to the type and grade of oil that may be used in the food sector. That was not the case in this instance. The use of transformer oil mixed in to heat in a food business operation would not have been something we were checking for, I must say. There were other controls with regard to the use of oil - former transformer oil - but it was not something the Department would have been checking for. Clearly, there is no question but that it has been banned since. A number of lessons were learned with regard to that area.

Deputy Eoghan Murphy

Has the contaminated feed from that time been disposed of?

Mr. Tom Moran

At the time the contaminated feed was seized and put under strict legal control. As I understand, it is now being disposed of by being incinerated abroad.

Deputy Eoghan Murphy

Why has it taken so long to dispose of it?

Mr. Tom Moran

I do not know the answer to that question.

Deputy Eoghan Murphy

I take it that it has been stored somewhere at a cost.

Mr. Tom Moran

It has been safely stored. The State is not the owner of that feed but it is strictly controlled.

Deputy Eoghan Murphy

Who is paying for that control and storage?

Mr. Tom Moran

The owner of the feed, the producer of the feed.

Deputy Eoghan Murphy

So it is not a liability on the taxpayer.

Mr. Tom Moran

It is not a liability on the State but the State has control of it.

Deputy Eoghan Murphy

We do not know why it has taken so long to destroy it.

Mr. Tom Moran

I do not know but I will get that information for the Deputy.

Deputy Eoghan Murphy

It seems unusual that this feed would be sitting somewhere.

Mr. Tom Moran

It is under strict control-----

Deputy Eoghan Murphy

If all the product had been destroyed at the time so quickly, why was the feed not destroyed also at that time? Is there an issue about destroying the feed that makes it a separate and more difficult process? Why are we exporting it to be destroyed?

Mr. Tom Moran

It is the responsibility of the feed manufacturer to dispose of that product under legal control. It is not the State's responsibility to take it on and to destroy it.

Deputy Eoghan Murphy

But the responsibility must be timebound.

Mr. Tom Moran

It is not, actually, but the feed is being destroyed as we speak. Arrangements have been made. From my recollection it is going to Germany to be disposed of under strict conditions as a contaminated product.

Deputy Eoghan Murphy

That is interesting.

Chairman

Before we leave that subject, I refer to the Secretary General's comments regarding the risk in the use of open flame burners. I ask Professor Reilly whether concern was expressed by Europe, either at meetings or in writing, to him or to Mr. Moran, about the use of open flame burners.

Professor Alan Reilly

There were reports from Europe about open flame dryers or direct drying with flame and with regard to the fuel. At the moment I cannot remember the specific reports but a number of reports came from specific countries where an examination had been undertaken of this issue. I remember a report from the European Commission which appeared in the review undertaken by the Department of this incident.

Chairman

Therefore, other reports and a report from the Commission were in existence prior to this pigmeat recall and these reports highlighted the danger of food contamination specifically associated with open flame burners.

Professor Alan Reilly

The answer to that question is "Yes".

Chairman

Was the notification given to the Food Safety Authority of Ireland or to the Department?

Professor Alan Reilly

We did not have responsibility for the enforcement of regulations associated with animal feed. The FSAI would not have been aware of those reports until the incident happened. The controls on the animal feed sector were completely outside our remit.

Chairman

However, it was flagged by the European Commission.

Professor Alan Reilly

Yes, there was one report from the European Commission and from what I remember, a German and a Dutch report also had highlighted the risks associated with-----

Chairman

Professor Reilly is the head of the Food Safety Authority of Ireland and, as such, what was his reaction to this information? Did he inform the Department of the reports or of the possibility of contamination? Did the Department then examine the risks involved and take any action as regards regulations or new rules?

Professor Alan Reilly

The reports were issued in 2006 and 2007. The controls associated with animal feeds were not on the radar of the FSAI. We would not have been aware of those reports at the time. The reports came to light after we undertook the review of the crisis.

Chairman

Who received the reports? Europe was highlighting the safety issue in 2006 and 2007, prior to the 2008 issue for Ireland when the pigmeat was recalled. Why did neither the FSAI nor the Department react to those reports? Were these reports just left on a shelf?

Professor Alan Reilly

If the reports were concerning an area of the food chain which was the responsibility of the FSAI as regards controls, we would have been aware of them, but we were not aware of those reports. Those reports would have been discussed at working groups on animal feeds to which the FSAI would not have been a party.

Chairman

Who would have been party to those discussions?

Professor Alan Reilly

Colleagues from the Department of Agriculture, Food and the Marine.

Chairman

Mr. Moran's Department would have been aware of those reports and of the concerns being expressed about these open flame burners in 2006 and 2007. Did the European Commission or any European agency write to the Department regarding these burners?

Mr. Tom Moran

The Department was aware of the concern about these burners and, in light of this information, which arose in and around 2003, the sampling and testing for dioxin was incorporated into the feed inspection programme in 2003 by the Department. It was that very sampling and the incorporation of this sampling into our feed inspection programme that picked this up.

Chairman

What action was taken by the Department to improve the process from 2003 onwards? If the issue was highlighted by the European Commission, or whatever European agency, in 2006 and 2007, why did the Department not react more robustly to ensure a policing or inspection system was put in place to prevent the dioxin issue from arising in the first place? I suggest that in light of so many reports from Europe, the Department should have ensured that sufficient regulation was in place to prevent this occurrence.

Mr. Tom Moran

As I understand, the Department incorporated dioxin testing into the feed inspection programme in 2003 on foot of Commission recommendations. This fact was commented upon in the report on this event, an external report which was chaired by Dr. Patrick Wall. The Department, in fact, introduced dioxin testing into its own regime, and this sampling picked up the presence of PCBs, which are the markers for dioxins. The other aspect is that flame-drying is not, as I understand it, dangerous. It was the use of dioxin-contaminated transformer oil as a fuel which caused the problem.

Chairman

Is that what was indicated in the reports from the European Union?

Mr. Tom Moran

The reports from the European Union requested that attention should be paid to flame-drying processes.

Chairman

What type of inspection regime would have applied in respect of the company in question? Would departmental officials have visited its facility and - in the context of the reports received from the European authorities in 2003, 2006 and 2007 and other correspondence - examined the controls and safety measures in place in respect of the open flame-drying process? How often did the Department inspect the company's operation in order to ensure that it was complying with the regulations?

Mr. Tom Moran

In the context of the feed inspection programme, this company - Millstream - would have been visited once a year. It would also have been required, under the food and feed hygiene regulations, to have a hazard analysis and critical control point, HACCP, programme in place. The latter places the onus for controlling its operation on the company itself. I reiterate that the onus is on the food business operator to ensure that the operation is safe. The purpose of the HACCP is to ensure that operators identify the risks involved. At the time in question, the Department would have visited the company's facility once a year to ensure that the HACCP was in place and that everything was operating correctly. If the operator introduced a form of heating based on imported dioxin-contaminated oil in the interim, that is what gave rise to this.

Chairman

To return to what Deputy Eoghan Murphy said with regard to eligible product, according to the report of the Comptroller and Auditor General, €138 million has been paid out in compensation. In one instance a payment of €2.29 million was made to a processor, even though the Department was not satisfied about the origin of the product that was destroyed. Without using names, will Mr. Moran indicate whether this is a large company?

Mr. Tom Moran

I cannot say without checking. I will, however, check the details. Clearly, the recall was aimed at Irish product.

Chairman

No. I am referring to product that was destroyed but the origin of which was not known. The company involved was paid €2.29 million in compensation. The second example provided by the Comptroller and Auditor General relates to a processor who received €30 million, even though there were doubts with regard to the eligibility of the product. What is the scale of the companies involved in this regard? Are they really big processors? Are they the leading processors in the country? Who made the decision to pay one company €2.29 million and a second €30 million without even knowing whether the product involved was eligible? Are these reasonable questions to ask?

Mr. Tom Moran

I do not believe there was a single payment of €30 million. As to the Chairman's question with regard to whether these are big companies, if he looks at the structure of the pigmeat sector then the answer is "Yes". These are the big, primary processors. From my recollection of the list of companies-----

Chairman

I remind Mr. Moran that the Comptroller and Auditor General made reference to the two figures in question in his report.

Mr. Tom Moran

In the total payment of-----

Chairman

I am trying to establish the size of the companies involved. Mr. Moran has indicated that they are the big processors.

Mr. Tom Moran

Yes.

Chairman

These companies received substantial payments from the State in respect of product whose eligibility for the scheme had not been established. Who made the decision that, even without the eligibility of the meat in question being confirmed, this amount of taxpayers' money could be paid to two different companies?

Mr. Tom Moran

The biggest payment under this scheme would have gone to the largest processor in the country.

Chairman

That was €30 million.

Mr. Tom Moran

Yes, that is the figure. People are aware that Rosderra is the largest pigmeat processor in Ireland. Each claim relating to the scheme would have been examined. In certain small cases, there could have been a commingling of product.

Chairman

I am going to ask Mr. Moran not to confuse me.

Mr. Tom Moran

I apologise if I am doing so.

Chairman

Let us keep matters simple. Some €30 million was paid to one of the processors to which I refer and the Comptroller and Auditor General makes clear in his report that "documents relating to some of the claims processed indicated that the Department officers validating the shipment of the product to the renderers had recorded that the eligibility of the product under the scheme had not yet been established". I am trying to discover why the Department paid the amount in question without the eligibility of the product being established.

I am going to connect this matter to the other question posed by Deputy Eoghan Murphy. In his remarks to the committee on the previous occasion, Mr. Moran named a particular individual and I feel that I can name him now. I refer to Mr. Norman Bradley. Deputy Eoghan Murphy inquired with regard to where the feed was stored. As I understand the sequence of events, the Department insisted that the contaminated feed should be held in this storage area for examination. That is fair enough. Mr. Moran can feel free to confirm this or not but it is my contention that this man would have been arrested if he had not complied because a summons appears to have been put in place. He, therefore, was obliged to make his warehousing facility available to the State in order that the feed might be retained and stored. The feed that was coming in was stored there and the feed already on-site continued to be kept there. I would like to discover whether it was because the Department dragged its heels or for some other reason that the feed in question was only shipped out for disposal in recent times. However, the State will not compensate the man to whom I refer, who runs a small business and who employed 13 people from Millstream and two from his own company on site, for storing the feed. Mr. Moran indicated that the Department does not have a liability in this regard.

If we were to take both natural justice and the fact that this man assisted the State in holding the feed were taken into consideration, the position would be different. The man in question was an innocent party in this and all he was doing was storing the feed and working under Millstream. He assisted the Department but the latter will not consider paying him any compensation. However, the biggest pigmeat processing company in the State received €30 million in compensation from the Department even though it was not sure with regard to the eligibility of the meat to be disposed of. That is extraordinary. Perhaps Mr. Moran might explain the position.

Mr. Tom Moran

I understand the Chairman's question. I will first deal with the issue relating to Norman Bradley. As I understand it, Mr. Bradley had a commercial relationship with Millstream which produced the feed. The arrangement is between Mr. Bradley and Millstream in respect of the liabilities involving the storage of that feed. This is not a matter for the taxpayer because there was no relationship at all between the Department and Mr. Bradley.

Chairman

Until such time as the Department came to his premises and insisted that the feed be retained there while this matter was being dealt with. Forgive me, but it appears that the big man - who received €30 million - is the winner in this case, while the small man, who should have been paid €250,000 in terms of rent, has not even been considered. That is my point. To use another term, he did the State some service by co-operating with the State, as he had to do legally, while this matter was being dealt with. I would have thought that he assisted Mr. Moran's Department. As the European Union assisted the Department to assist the industry, I would have thought that he, too, should have been assisted. I make a comparison between that big processor who got €30 million, the smaller processor who without identifying eligibility either, got €2.29 million, and the audit carried out which found that in a sample audited 50% of claims were overvalued, yet the man who was central to this in terms of assisting Mr. Moran, when he made a claim to the Department, was not considered. I am shocked that Mr. Moran told Deputy Murphy that has been dealt with because I consider that it is far from being dealt with. In making that comparison, I still have not got a satisfactory answer as to why in respect of meat that was not eligible, or could not be verified as being eligible, the processor was paid a substantial amount of taxpayers' money.

Mr. Tom Moran

I will try to respond on that. First, I will deal with the €30 million to which the Chairman referred, and I note that he has made a comparison. On the €30 million that was paid to the largest processor, a reference was made by the Comptroller and Auditor General that at the time that was paid there could have been doubt over the origin of some of the meat. In certain small cases when pigmeat was co-mingled with meat of a different origin, the totality of that product was contaminated and that was one of the issues involved. As I understand it, that is the issue. If there is a doubt about that, I will come back to the Chairman on it. I take on board the question he asked.

Chairman

There is a very clear doubt in my mind. I am not leaving this. We deserve an answer in regard to what the Comptroller and Auditor General has said about €2.29 million having been paid to a processor without eligibility having been established and €30 million of taxpayers' money also having been paid on the basis of eligibility not having been established in respect of the part of the product. It appears that people were dealt with in different ways depending on their size. This small business man who found himself at the centre of this was not even entertained by Mr. Moran's Department and he is now attempting, in some form of other commercial arrangement, to dispose of this product. The question was not adequately answered for Deputy Murphy as to why that product was left there for that length of time and not dealt with.

Mr. Tom Moran

First, the product that was paid for under the recall scheme was paid out under the terms of the scheme. That was the scheme that was audited and in respect of which we paid in line with State aid, which was audited and commented upon. On the issue of non-Irish product, if there was a small amount of it which was co-mingled, I might clarify that for the Chairman.

Turning to the parallel case the Chairman is making in regard to the storage of the contaminated feed, the relationship, not only at that time, between the storer of the feed and the producer of the feed was a commercial one between those two. That feed was deemed to have been contaminated. There was an ongoing investigation of the producer of the feed at the time and up until very recently by the Garda and by the Director of Public Prosecutions. It was made clear, as I recall, only last December by the Director of Public Prosecutions that no charges were being brought against the producer of the feed. Once we had that determination from the Director of Public Prosecutions, the producer of the feed, who is also a pig farmer, was compensated for the animals that were culled as a result of that.

Chairman

Who was that?

Mr. Tom Moran

Mr. Hogg. A substantial sum was paid out in compensation. The advice to us at the time was that until the Director of Public Prosecutions had determined whether charges should be brought that payment should not be made.

Chairman

That was to Mr. Hogg.

Mr. Tom Moran

That payment was made to Mr. Hogg in December.

Chairman

That payment was made to Mr. Hogg for the pigs that were slaughtered. Is that correct?

Mr. Tom Moran

Yes.

Chairman

What has that got to do with Mr. Bradley?

Mr. Tom Moran

The relationship between Mr. Bradley, who had a commercial relationship storing feed on the part of the Mr. Hogg, was a matter between the two of them.

Chairman

No, he had a commercial relationship with Millstream. Is that not correct?

Mr. Tom Moran

Yes.

Chairman

That is different from one with Mr. Hogg.

Mr. Tom Moran

I accept that.

Chairman

I am making the point, which Mr. Moran seems to want to sidestep, that Mr. Bradley should have some form of compensation paid to him because he assisted Mr. Moran and he had to leave the control of his operation to the Department for a period of almost three years. To dismiss him, as he was dismissed, does not sound right to me. When I look at the comparison of the figures that were paid without the meat having been eligible, I think Mr. Moran was not fair-handed in how this compensation package was paid. It seems that the bigger companies got what they wanted without proving eligibility yet the man who assisted the Department was not even entertained. Given that some form of natural justice has to be applied here, I ask that Mr. Moran review his case. To bring in the payment to Mr. Hogg and to confuse the commercial relationship is not doing Mr. Moran or the Department any favours. We know what the relationship was. We know what happened here. Innocents within this were caught. People who did not expect to find themselves caught up in a dioxin scare, even though Mr. Moran's Department was notified in 2003, 2006 and 2007, found themselves caught up in it. I am simply asking for fair play here.

In response to Deputy Murphy's question, I ask in the context of the request made by Mr. Bradley, that his case be re-examined in the context of the money Mr. Moran is getting from Europe to resolve this. Mr. Hogg was paid. I understand he was paid at Christmas. Is that correct?

Mr. Tom Moran

Yes. The Christmas just gone.

Chairman

He has been paid.

I will move to the source of the oil. The other matter has not been resolved and I suggest that a way of resolving it is to examine Mr. Bradley's case. I would gladly hear the matter again because it has to be looked at. I ask that this be done on the basis of what I believe is an exposure to the State. I ask for it to be done in the interests of fair play and justice because of the amount of money that Mr. Moran paid from his Department, without eligibility having been confirmed, and on the basis of the Comptroller and Auditor's report that in a sample audited 50% of claims were overvalued. We could argue this all day. I have made my point in regard to Mr. Bradley and Mr. Hogg.

The Department has sourced the oil? As he said, it is case of one step backward, one step forward. Has he investigated back to from where the oil came? Has it been established from where the oil came? The State and Europe have paid out so much money in regard to all this, and the big man got paid, the small man got squeezed, but from where did that oil come? What Garda investigation or investigation by Mr. Moran's Department - which is well able to undertake investigations - has been undertaken? What steps are being taken to find the real source of that oil?

Mr. Tom Moran

I understand the point the Chairman made on the Bradley case. Clearly, if the Chairman is suggesting we look at it again, we will do so, but the legal opinion given to us was that the State does not have any liability there. That is why I mentioned the fact that even though the compensation we paid to the pig farmer was on the basis of the terms of the scheme, the advice, pending the view of Director of Public Prosecutions, was that we would not do so. As soon as we got the DPPs advice - it is correct that we did pay at Christmas because within a short time-----

Chairman

Mr. Moran should not confuse matters.

Mr. Tom Moran

I am not attempting to-----

Chairman

The Secretary General is not very good at taking legal advice. I have examined the Department's accounts and €3.4 million of taxpayers' money was paid out in settlements of various kinds. We will come to that later. I am interested in this particular report where Mr. Moran has not explained to the committee how the Department paid out €32.29 million on the basis of the eligibility not being confirmed, and how he can then deal with another player in the saga, Mr. Bradley, in the way that he did. The Department must review the issue. If the Department was flexible on €30 million, it could surely be flexible on a quarter of a million or expenses or whatever else in terms of that man who stored the food. This issue will not go away.

Mr. Tom Moran

I take the Chairman's point in that regard. We will examine the Bradley case.

Chairman

Could Mr. Moran tell the committee about the source of the oil?

Mr. Tom Moran

The source of the oil was traced to the North. The Department and the Garda were liaising with the PSNI in the North on the origin of the oil.

Chairman

The Department traced the oil back to a company in Northern Ireland that was the supplier. What has the Department done in terms of identifying from the supplier his source for the oil? He got the oil from somewhere.

Mr. Tom Moran

It came from the North.

Chairman

I know it came from the North, but where did the company in the North get the oil?

Mr. Tom Moran

We took that up with the Garda and with its counterpart in the North. We gave them the details and asked them to follow up on the supply of contaminated oil.

Chairman

When was the last time the Department contacted them for a report?

Mr. Tom Moran

I cannot say precisely when we last contacted them.

Chairman

Could we have a letter to follow the performance on the matter?

Mr. Tom Moran

Yes.

Deputy Paul J. Connaughton

I will move away from the topic as I have a few general questions on the Department. Did many staff leave the Department as part of the retirement scheme last week?

Mr. Tom Moran

A total of 189.

Deputy Paul J. Connaughton

What areas did they cover?

Mr. Tom Moran

They were spread throughout the Department.

Deputy Paul J. Connaughton

What effect has their departure had on REPS and AEOS payments? Has any particular sector been more affected than another?

Mr. Tom Moran

No, not particularly. The losses are spread throughout the Department. In recent years staff numbers have reduced by 700. Since 2005 the number of staff has reduced by 1,200. We have been managing the downsizing and restructuring of the Department in recent years. The recent retirements are a continuation of the process. Our aim is to manage the effect of the loss of those people on the Department's operations and minimise any effect it would have by restructuring and reorganising.

Deputy Paul J. Connaughton

I expect that as with most Departments currently, the budget is decreasing and payments will have reduced following the previous budget. Is the rationalisation part of a conscious decision to reduce costs in the Department? While payments to farmers are decreasing, costs in the Department are also decreasing - not only due to the early retirements.

Mr. Tom Moran

Our administrative budget has been reduced dramatically in recent years. We are making considerable savings on the administrative budget of the Department.

Deputy Paul J. Connaughton

Of how much?

Mr. Tom Moran

There was a reduction of €68 million in the past two years. The breakdown of the figures - the number is 186, I said 189 previously - is 44% technical, 38% administrative, 5% in laboratories, 5% veterinary and 6% agricultural inspectors.

Deputy Paul J. Connaughton

Are many farm payments for REPS and AEOS currently outstanding?

Mr. Tom Moran

There are, but we are working through those payments. Before a payment can be made on REPS or AEOS, we must ensure that the eligibility, in particular the land eligibility, is sorted out. We cross-reference with the single payments system. We are working through that. We have paid 27,000 REPS payments out of 31,000. On AEOS, we have paid out a total of 7,000 out of 8,500.

Deputy Paul J. Connaughton

When does Mr. Moran believe the backlog will be cleared?

Mr. Tom Moran

As Deputy Connaughton can see from the figures, we are getting there. The backlog was on AEOS because it was a new scheme. The backlog on REPS is not particularly big. The backlog on AEOS was due to attempts to relate the land area claimed with the single payment areas.

Deputy Paul J. Connaughton

The biggest issue I have come across was the digitisation of maps. Who was taking care of that for the Department? Was it being done in the Department?

Mr. Tom Moran

It is, yes. We have an outside contract for the digitisation of maps. It is a third party supplier. It is not just a question of digitisation; other areas of eligibility were causing the delay with AEOS payments. For example, one of the elements of the AEOS scheme is that there is on-farm capital investment. In order to pay it we need receipts for the capital investment. There were delays in those receipts coming back from farmers. That held up some of the second year AEOS payments. We are making good progress now. The receipts are coming in but we can only pay on receipt of them.

Deputy Paul J. Connaughton

What third party company is involved in the digitisation of maps?

Mr. Tom Moran

It is an outside company called Mallon's.

Deputy Paul J. Connaughton

When maps are sent to it to take care of that job, does the Department have a strict timeframe for when it will get the maps back?

Mr. Tom Moran

We operate on a case-by-case basis. When there was a backlog we asked Mallon's to up its resource supply to ensure there were no delays. It did that. I cannot remember the figure offhand but it did increase the number of people working in that area for us and we cleared a lot of the backlog on that basis.

Deputy Paul J. Connaughton

If an application with maps was sent today, when would the Department expect to get it back? What is the timeframe?

Mr. Tom Moran

Just a couple of days.

Deputy Paul J. Connaughton

Many farmers are frustrated by the system and the fact that when they telephone the Department and speak to an official they are told the maps are gone for digitisation and there is no exact date for their return. Could the system be more streamlined from the moment an application is received to when a farmer gets paid? Could Mr. Moran explain the system from the moment an application is received to when a farmer gets paid? What are the different hurdles encountered?

Mr. Tom Moran

When an application is received by the Department it is checked. Then a check must be done to ensure that the land on which the claim under AEOS is based is reconciled with the LPIS under the single payments system in Portlaoise.

Sometime the map does not coincide, in particular on AEOS, because one of the conditions of the scheme is that if one applies to have one of the species on rich grasses, one can do it on the basis of a split field. That, therefore, presents a difficulty in terms of mapping because one is not using natural boundaries. If one does not have an accurate reflection on each side of the split, one's LPIS - that is the area aid database - is off and if it is not correct then one's single payment is in jeopardy. That is why we must pay such serious attention to that. The Commission pays huge attention to it also. We have moved on. I accept that in particular in the early stage of AEOS we were behind and that was causing difficulty. We had to get the maps right. In regard to LPIS there has been a clean-up of maps in that they were being regenerated and redigitised to make sure that the eligible areas were only those that were covered and that ineligible bits were taken out. A total of 70,000 maps were dealt with in one year - 2010. The AEOS scheme was new and complicated and reconciling the requirements caused difficulties. We have more or less come out of it now. We are getting there, and we are doing our best with it. We have put in resources.

Deputy Paul J. Connaughton

How many inspections of the farmers involved in REPS and AEOS are taking place? How many farmers are being inspected?

Mr. Tom Moran

We are required to do a level of inspection. A total of 1% of inspections are for eligibility and 5% for the various controls. They are selected randomly on a risk basis. There are 30,000 people left in REPS and approximately 130,000 in the single payments system and they are all subject to that kind of inspection. We have to do that. There were 11,680 farm visit inspections in 2009.

Deputy Paul J. Connaughton

The level of inspection is set down by the Commission.

Mr. Tom Moran

Yes.

Deputy Paul J. Connaughton

Are the criteria for those inspections laid down also?

Mr. Tom Moran

Yes.

Deputy Paul J. Connaughton

For instance, how much notice is given to a farmer that an inspection will take place?

Mr. Tom Moran

The notice given has been the subject of debate for a long time. The Commission insists that notice cannot be given regarding certain aspects of the requirements on a farm such as, for example, food safety, cattle tagging and so on whereas a certain amount of notice is allowed in other cases. We try to compact the inspections to ensure farmers get only one inspection. That is the way we do it in practice.

Deputy Paul J. Connaughton

What is a certain amount of notice?

Mr. Tom Moran

It depends on the number of what are called statutory management requirements on the farm to be checked. It could take a couple of hours or a morning to inspect some farms while others might take longer than that.

Deputy Paul J. Connaughton

I understand that when we are drawing down money from Europe it will want to know how the money was spent and that checks were carried out but the problem we often have in farming, and it involves the relationship between the Department and farmers, is that at this time of year there is not a farm in the country that is not busy and an official turning up in the morning looking for X amount of data is causing great frustration within the farming community. If possible we would like to see a more streamlined approach taken. To be honest, if a farmer is not doing what he or she should be doing issues of concern will arise with the Department but is there a system whereby a minimum of 24 hours notice of an inspection could be given to a farmer? If he or she were told that an inspection would take place on his or her farm the following morning, it would at least give them the opportunity to be ready for an inspection. Is that something that could happen?

Mr. Tom Moran

I understand the point. We are not in the business of making life difficult for farmers, and the farming community will accept that, but we must implement the EU system as laid down because when we are drawing down the kind of money we are drawing down strict criteria are set down as to the way those controls are implemented on farms. I admit we took up with the Commission and the Commissioner at length the idea of the notice that could be given to farmers. I fully understand the point the Deputy is making. It makes sense but notice cannot be given in regard to certain aspects of the statutory requirements. The Commission will not accept that, and it has made that clear to us. Where we can and would like to give notice we would do so but when we are trying to compact the inspections into one, that makes it much more difficult.

We are required to do the kind of checks we do, and we do what we are required to do by the Commission as well. We have to carry out cross-compliance checks for 1% of all farmers. We have to do 1% of inspections for all cross compliance. For eligibility - that is, to make sure the farmer has the land required - we have to do checks on 5%. It depends on the size. If we are determining whether the land is eligible, the size of the farm would determine how long one takes inspecting that.

Deputy Paul J. Connaughton

Perhaps from now on the Department would be more engaged with the Commission to see if more flexibility can be given on this issue. In terms of 24 hours' notice, if a farmer has not been doing what he or she should be doing he or she will not get much done in 24 hours anyway but for the farmer who will be busy for the next couple of months, on a practical level this inspection is a huge pain in the you-know-what for him or her. Some balance would be welcome in that regard. Farmers realise where the money is coming from and the criteria they must match but we should move to a system where a certain amount of notice is given that inspections will take place. The Department might continue to push that issue with the Commission where possible.

Has the TB eradication system changed around the country in recent months? If there is TB on my farm is it just me who is locked up or has a new system come in whereby my neighbours are to be locked up as well?

Mr. Tom Moran

In regard to notice of inspections, we have been down that road with the Commission and have worked closely with the farming organisations here as well. They are well aware of the efforts we have put in on that. I understand the point the Deputy is making. It might suit us from many points of view to be able to give notice. We are not trying to catch out farmers. We are implementing the system and the legal requirements on us to draw down the money from Europe and to make sure we can stand over it. We are constantly subject to EU controls on the way we do those inspections. As we speak there are teams here watching it. That happens throughout Europe and it is part and parcel of the system when we are getting the type of money we are getting from the EU. However, I understand the point the Deputy is making.

On the issue of TB, regarding contiguous herds there is a movement restriction in terms of onward sales. I think that is what the Deputy is referring to.

Deputy Paul J. Connaughton

That is for the individual farmer.

Mr. Tom Moran

Neighbouring herds.

Deputy Paul J. Connaughton

For neighbouring herds.

Mr. Tom Moran

Yes.

Deputy Paul J. Connaughton

Can Mr. Moran explain the impact of that?

Mr. Tom Moran

It would mean that if there is a restriction on a particular herd the herds around it would be restricted until such time as the problem is sorted out.

Deputy Paul J. Connaughton

When did that come in?

Mr. Tom Moran

Two months ago.

Deputy Paul J. Connaughton

I have grave issues with it. I come from a farming background and as a farmer I can be doing my job and my business. As we know, the reasons TB occurs are very much outside the farmer's control. For instance, there could be TB on Deputy Murphy's farm but not on mine yet my farm gets locked up because of the problem on his farm. That is very tough on farmers.

Mr. Tom Moran

I accept the point the Deputy is making. The nature of the large-scale diseases such as brucellosis, TB and others involve that kind of balancing of the individual's pain and suffering but the aim is to prevent the spread of the disease. If a breakdown has been identified in a particular herd it makes perfect sense from an epidemiological point of view that while dealing with that and putting that right there would be some control on the contiguous herds around it. I take the point that it is difficult on those farmers but the way in which TB spreads is not necessarily down to the practice of the individual farmer. That might well be the case with brucellosis but it is not the case with TB. We could be talking about, for example, some badger activity or a reason the disease inflames in that particular area. Until the problem is dealt with properly it makes a certain amount of sense to restrict neighbouring farms, and all farmers will benefit on that basis.

Chairman

I remind the Deputy of the time.

Deputy Paul J. Connaughton

On that point, did that come by way of a directive from the Commission or was it an Irish Department decision?

Mr. Tom Moran

As far as I know it is an Irish Department approach. Even though there is pain involved in this, the number of reactors has declined from 40,000 to 18,500 in the past ten years. We are making progress. We have reached the stage where we are brucellosis free, and that did not happen without pain or difficulties imposed on individual farmers but there are gains from having been made brucellosis free because we have been able to reduce costs for farmers, the amount of testing and the number of animals required to be tested. I understand the point but that is the logic behind it.

Deputy Michael McCarthy

With regard to the dioxins, did processors attempt to defraud the scheme?

Mr. Tom Moran

No.

Deputy Michael McCarthy

Was there a suspicion in the Department that people were going to defraud the scheme?

Mr. Tom Moran

There were issues over the interpretation of the State aid but processors would not have been aware of that. I do not believe there was any attempt to defraud the State.

Deputy Michael McCarthy

Is Mr. Moran reasonably happy that controls in the Department in regard to the scheme were particularly effective?

Mr. Tom Moran

Yes. I am happy enough. I note the comments of the Comptroller and Auditor General in that regard. We have audited this ourselves. I am happy that the scheme was applied rigorously.

Deputy Michael McCarthy

It says that in the report. The audit equally suggests that some processors may have, for the purpose of maximising compensation, overvalued their product. Would that be the case?

Mr. Tom Moran

The State aid rules that apply to this scheme were brought in immediately after the crisis, but the State aid conditions evolved over the operation of the scheme as things were becoming clear and settling down, and as the scheme was being administered. Therefore, submissions that were made pertained to a scheme that was differently confined or constrained by an evolved State aid procedure over the period.

Deputy Michael McCarthy

Is the Secretary General reasonably satisfied that the payments were reasonably accurate?

Mr. Tom Moran

Absolutely.

Deputy Michael McCarthy

Were any claims disallowed?

Mr. Tom Moran

Absolutely.

Deputy Michael McCarthy

What grounds are there for disallowing claims?

Mr. Tom Moran

The way in which such a scheme is operated - this would not necessarily be a normal scheme - is such that its terms would be established and applied, after which our inspectorate would inspect each claim as it came in and went out. The inspectorate would examine the books, evidence, etc. In certain cases, if the required documentation were not available to prove something, the claimant would make alternative proofs available. This was done on a case-by-case basis. We stayed very much within the facility that was available and reduced it substantially. The audits that have been carried out internally and externally imply that was the case.

Deputy Michael McCarthy

Is there a figure as to how many claims were disallowed as a percentage of the overall allocations?

Mr. Tom Moran

The value-added claims amounted to €28 million and we paid €5 million. We reduced them dramatically.

Deputy Michael McCarthy

The value-added claims?

Mr. Tom Moran

I refer to value-added products that had pigmeat, Irish pork, in them. We lowered the figure to €5 million. We had to try to strike a balance all the time between meeting the objectives of the scheme and ensuring we spent as little as possible on it and that we adhered to proper governance and control guidelines. That was the guiding principle throughout.

Deputy Michael McCarthy

Were any penalties imposed on those who attempted to overvalue a product?

Mr. Tom Moran

Other than the rejection of claims, no.

Deputy Michael McCarthy

If there was a system of traceability of a certain level, it would make it easier to source the dioxin. What has the Department learned about traceability? Has it considered international best practice? I can imagine a system of traceability where one would be able to go to the farm gate and identify the source of the contamination.

Mr. Tom Moran

The answer to both questions is "Yes". We have learned. The traceability system we have for pigmeat enabled us to deal with the matter in the way we did, as referred to in the earlier conversation. We were able to find where the feed had been, where the pigs went and the processors involved. In light of something like this, we examined our own traceability system and had it externally examined by the inter-agency review group. The latter found that the traceability system in Ireland conforms fully with EU legislation and that it is of the same standard that applies in other countries. Those other countries include the big pigmeat countries such as Denmark and the Netherlands.

One can always devise a traceability system in any kind of food area, such as the pigmeat sector, that would allow one to trace every single thing down to the very last slice of ham one could eat. That could be done technically but one must try to find a balance between doing that and having a sector that is completely uncompetitive, out of business and way off the line by comparison with others in the highly competitive market.

The system we have in place involves tracing from the farm to the factory, tracing batches and so on. It is after this that the product becomes mingled and co-mingled, and then one is into a different scene. The same system is applied in Denmark and Holland. When we examined ours and re-examined it after the incident, it was found that it is up to the highest standard. That is the position.

Deputy Michael McCarthy

In terms of the testing and monitoring regime, who carries out the on-site inspections of factories?

Mr. Tom Moran

Our inspectorate does it in the larger plants. Small plants are inspected at local authority level.

Deputy Michael McCarthy

There would not necessarily be departmental veterinarians carrying out inspections in all cases.

Mr. Tom Moran

Smaller operators fall under the regime of the local authorities. The large major processors are inspected by our own inspectorate.

Deputy Michael McCarthy

How many veterinarians outside the Department are carrying out testing and monitoring of both pig and cattle slaughtering facilities? What is the cost?

Mr. Tom Moran

Outside the Department?

Deputy Michael McCarthy

Non-Department veterinarians are going to abattoirs to carry out inspections. What number are we dealing with? It is like a hospital hiring an agency nurse. What is the cost?

Mr. Tom Moran

One could describe it as outsourcing in many ways. We have a Department-approved panel of approximately 700 private practitioners who carry out factory inspections for us under our regime. This costs in the region of €19 million per year.

Deputy Michael McCarthy

That is €19 million?

Mr. Tom Moran

Excuse me, it is €18 million.

Deputy Michael McCarthy

Is the United Kingdom using veterinarians to monitor and carry out inspections?

Mr. Tom Moran

Different countries have different arrangements. What the vets are used for is set down in EU regulations. One must have them for certain elements of the slaughter process. For other elements, one does not necessarily have to use veterinarians and can use other qualified people. In the United Kingdom, what they call auxiliaries are used in this regard.

Deputy Michael McCarthy

That is a good term. Would it be cheaper to use auxiliaries here than private practice veterinarians?

Mr. Tom Moran

In certain circumstances, it could be.

Deputy Michael McCarthy

Has the Department considered that?

Mr. Tom Moran

Yes, the Department is definitely considering that. It is discussing how best to manage the mix. There are advantages and disadvantages. One beauty of having outsourced private veterinarians is that it offers flexibility. Veterinarians are drawn in for certain shifts on which they are needed but one does not take on all the liability. If auxiliaries are part of one's staff, one has them all the time. We are discussing this at present.

Deputy Michael McCarthy

The inspectors did not identify the dioxin contamination from August to November. This must surely be a source of concern.

Mr. Tom Moran

The dioxin in the feed was picked up through random sampling as part of the overall programme. If there is a period of testing or sampling, it goes without saying that there is another period in which sampling is not done, and that if contamination occurrs, it arises in the latter period.

Deputy Michael McCarthy

Could the contamination have been detected earlier?

Mr. Tom Moran

Let me return to the responsibility of the food business operator to do his own testing. This must be part of the way in which the system would be run. The State's role was to ensure there was a programme of sampling across the sector and it was on that basis that the contamination was picked up. That is why we are able to determine the period when this happened. If the food business operator was doing the relevant sampling, it would have been picked up.

Deputy Michael McCarthy

Have there been changes to that system since the outbreak in 2008?

Mr. Tom Moran

We are now subjecting the food business operator's role to more rigorous checks in terms of having an appropriate fit-for-purpose HACCP arrangement. If there is a proper HACCP system in place it should identify where those risks are.

Deputy Michael McCarthy

The rural development programme runs out in 2013.

Mr. Tom Moran

Yes.

Deputy Michael McCarthy

What talks are ongoing to find a replacement for that? If it is likely that European funding will decrease, will it apply a higher charge in the national budget?

Mr. Tom Moran

The rural development programme post-2013 is part of the CAP negotiations. There are two pillars of CAP funding. Pillar 1 concerns direct payments and market supports, while pillar 2 is the rural development programme. That is part and parcel of the CAP negotiations.

Deputy Michael McCarthy

Are the negotiations specific to the replacement of the rural development programme, and are they ongoing?

Mr. Tom Moran

Yes they are, as part of the wider CAP reform negotiations.

Deputy Michael McCarthy

There would be a fear that eastern bloc countries will get the lion's share of funding. They are probably where we were at one stage. If there is a reduction in European funding when the talks conclude, will there be a higher demand on our national budget or will the allocations, commensurate with the reduction, change accordingly?

Mr. Tom Moran

One can look at it in three layers. The first thing is to ensure that there is a proper amount of money in the CAP budget. That discussion has not yet concluded. The overall CAP budget is at finance and head of Government level ultimately.

Secondly, within the CAP budget we have to ensure two things in so far as we can. First, that the amount of money coming to Ireland, both in pillar 1 and pillar 2, is maintained and is not subject to a reduction. The Deputy is absolutely right to say there is pressure to pull some of the pillar 1 funding across to eastern Europe to even out the issues. That is one of the key elements in the discussions. Second, there is also pressure concerning rural development in pillar 2. There is an unequal division between member states on the funding they get under pillar 2. We would have a particular line of negotiation at the moment, which is to protect what we have on pillar 2 and ensure that any diminution of pillar 1 is a reasonable one because of the disparity between member states.

The third element of the Deputy's question is how, in the event of pillar 2 being reduced, would it place greater demands on the national Exchequer.

Deputy Michael McCarthy

Yes.

Mr. Tom Moran

That is the core of the Deputy's question. Down the road, that is really a matter for the normal Estimates discussions at Government level, involving the Minister, the Department of Finance and ultimately the annual budget. After 2013, however, we will have a pillar 2, a rural development programme. We are confident enough on that. The key is the level of funding in it and what one can do within it. We want to ensure that the programmes tie in with our development of agriculture, including competitiveness.

Deputy Michael McCarthy

Will the abolition of milk quotas impact positively on the incomes of those who are currently involved in the dairying sector? How does Mr. Moran see that shaping up?

Mr. Tom Moran

Yes. The prognosis for milk production in Ireland is in line with our 2020 Food Harvest programme, and could even exceed it. Our aim is to increase milk output by 50% by the end of the decade. We are confident that that will happen. The belief is that in year one we could have a 17% to 20% increase in that figure. The estimated increase in milk output is 17%, as soon as quotas go. The issue is what happens between now and then, which is a problem. Producers have to be extremely careful, particularly now in March, that they stay within quota because we are very much at the edge concerning overall output.

Deputy Michael McCarthy

Has there been pressure from the European Commission about that?

Mr. Tom Moran

The pressure is in the other direction. We have been putting on pressure, along with many other member states, to try to get some kind of adjustment to the stepping out of quotas in terms of a soft landing. As of now, however, there is nothing doing. The Commission is not in favour of reopening that at all and neither are a number of big member states. In conjunction with Luxembourg, Denmark, the Netherlands and Belgium, Ireland has been putting pressure on to pull various levers to try to cause a better soft landing for us. We do not want to go to a position where we have a full quota up to the end and then a free for all. We would prefer to have some kind of staged approach. We have put lots of ideas to the Commission but the key point this March - the last month of the milk year - is that milk output is strong at the moment. We are close enough up at quota. Actually, we are over quota at the moment. I do not know what the figure is but it will be clear next week in the last stages. With the mild weather and the grass growing, producers could be in serious danger of overstepping, so the co-ops and producers are paying close attention to that. The Deputy is right to say it is a challenge.

Deputy Michael McCarthy

In light of the Government's decision to identify Coillte as being on the list for partial sale or some type of sale of State assets, has the Department carried out an audit of Coillte's work?

Mr. Tom Moran

It is not so much an audit of the work of Coillte.

Deputy Michael McCarthy

An evaluation.

Mr. Tom Moran

Yes. The Government has made it clear that it would consider the sale of some assets.

Deputy Michael McCarthy

Selling the trees, not the land.

Mr. Tom Moran

Yes. They have made it clear that they would consider that. Before that consideration could be made - and it is being done in conjunction with the NewERA arrangement - an acceptable evaluation of the assets in question will have to be done. The arrangements are being made at the moment for that evaluation to be done.

Deputy Michael McCarthy

Is Mr. Moran waiting for the evaluation to be done?

Mr. Tom Moran

Yes.

Deputy Michael McCarthy

Finally, I wish ask Professor Reilly of the Food Safety Authority about consumer health and advising people on healthy diets. What has been done to educate citizens about the dangers, or correct levels, of salt content in foods?

Professor Alan Reilly

Since 2003-04, we have been focusing on raising awareness in the general food industry of issues associated with salt and health. In particular, we have been looking at the intake of salt in the Irish population. We have been working with manufacturers to try to get salt levels down in foods. We have had a considerable success in terms of reducing salt in processed foods.

According to some of the data going back to 2003-04, the levels of salt in white, wholemeal and soda breads have been reduced by about 20%. The levels of salt in things like cornflake-base cereals have been reduced by 57%. We have been working closely with the industry and have been getting buy-in from the industry. The industry has been publishing its commitment to salt reduction. It has been a successful programme for processed foods.

The overall level of salt in the Irish diet has been reduced by 13.6%. Those data come from the Adult National Survey which was carried out in 2010. We can point to a certain level of success with that overall programme of reducing salt in foods and the subsequent reduction of salt in the Irish diet.

When we started this programme in 2003-04, we estimated that the amount of salt added at the table, from salt cellars, and in cooking was in the region of 15% to 20%. We found that 25% to 30% of the total salt intake is at consumer discretion. It is a big job to get the message to consumers to reduce their levels of salt intake. We have been working with the Department of Health, as well as the Safe Food programme and the Health Service Executive, HSE, to get out the general message of the need to reduce salt intake in the Irish diet.

Deputy Michael McCarthy

What are the priority areas in achieving salt reduction?

Professor Alan Reilly

It is a question of continuing to work with the industry so as not to regress on any of its targets. There is only a certain amount the industry can do with respect to salt before one starts compromising the safety of products. There is a big challenge in getting the message out to consumers to reduce the levels of salt added during cooking and at mealtime.

Deputy Michael McCarthy

Professor Reilly maintains this should be 30%.

Professor Alan Reilly

Between 25% to 30% of salt intake in the Irish diet is added at the discretion of the consumer.

Deputy Michael McCarthy

What role has the Food Safety Authority of Ireland in food labelling? There are some works of fiction when it comes to various food labels. Irish smoked salmon, for example, can mean imported salmon that was smoked in Ireland. The same goes for many imported foodstuffs that are processed here. This is a real issue, particularly given coastal areas' economic dependence on agrifood, marine and tourism related activities. We do have excellent food products. Bord Iascaigh Mhara, BIM, for example, has a fine operation in west Cork which examines value added products and gets them abroad. This in itself is a good way of sustaining jobs in the social economy. What role does the authority have in food labelling?

Professor Alan Reilly

We have overall responsibility for enforcing the regulations associated with food labelling. We do that through service contracts with various agencies. As regards the type of scenario to which the Deputy referred, such as species substitution or mislabelling, it is our responsibility to detect that and take appropriate action when we do.

In the past, we have carried out surveys of food labelling such as fishery products sold at retail level and mislabelling of fish sold in fast food restaurants. A lot of fish sold as cod in these restaurants is not cod at all.

Deputy Michael McCarthy

The deep fried fish sold is often not cod.

Professor Alan Reilly

It is not cod. It is in batter which makes it hard for the consumer to see what type of fish it is.

Deputy Michael McCarthy

Are sanctions or penalties imposed on outlets found to be intentionally mislabelling food products?

Professor Alan Reilly

Yes, we have taken cases against companies that have mislabelled. For instance, we took a case against a company claiming a product was smoked wild Atlantic salmon when it was in fact smoked farmed Norwegian salmon.

Deputy John Deasy

Of the 31,000 farmers in the rural environment protection scheme, REPS, up to 27,000 have been paid. There are 8,500 farmers in the agri-environment options scheme, AEOS, of which 7,000 have been paid. Over the next several years, farmers will be dropping out of REPS. The question asked of me by the IFA and others concerns the certainty of the stream of funding for AEOS.

Mr. Tom Moran

Funding is in place to cover the existing AEOS 1 and AEOS 2. The Deputy is correct that there has been much discussion over AEOS 3 and some form of an environmental scheme to deal with some of the candidates coming out of REPS. No decision has been taken on that yet. The Minister for Agriculture, Food and the Marine is considering his options having regard to the overall financial ceiling imposed on the Department over the next several years.

Deputy John Deasy

Can Mr. Moran give us any more certainty on this?

Mr. Tom Moran

No, I am not in a position to do that.

Deputy John Deasy

Several groups are actively pursuing the resurrection of the Irish beet industry, with mass meetings held in the south in particular. I get both sides of the debate. Some argue there is a business case to be made, particularly with the price per tonne for sugar now. Others say if the price drops, there would be no business case. The figure being used for a possible capital injection to get the industry back up again is approximately €400 million. The issue has gone to Europe, with MEPs issuing press releases about having met Commissioners on the matter.

Several years ago, Mr. Moran was asked about the resurrection of the sugar industry. His response, while not dismissive, was quite negative. Has the State examined resurrecting the sugar industry? Is the State in a position to provide some capital funding to invest in a new industry?

Mr. Tom Moran

There is currently a quota regime for sugar production. Part and parcel of the reform proposals for the Common Agricultural Policy is that this quota regime will end, as it will with milk production. The price of sugar is extremely high. As a food producing country with a serious food processing sector, apart from consumers, high prices for sugar do not suit us. We would prefer if the quota regime were to go. This would, in turn, allow the redevelopment of a sugar industry in Ireland. That would be a commercial decision for whoever is thinking of investing in it. I know several feasibility studies have been carried out, two of which were prominent. As the Deputy said, the price of sugar will be a key determinant of the viability of that project. Any commercial backer would have to have regard to the prognosis for sugar prices.

I am not in a position to say there will be State investment in such a project as that is a policy decision. It would, however, be down the road as the quota regime is still in place. Our Department has nothing in its projections to aid the investment or development of a sugar industry. It would be a commercial decision by those involved. Were the State to go down the road of doing that, it would have state aid implications. This determines what can be done in terms of capital investment in a plant of that nature.

Deputy John Deasy

We all know about the level of growth in the agrifood sector. I represent a rural constituency in which beet amounted to nearly half the income for some dairy farmers. Beet was a good earner and this is why they are interested in growing it again. I understand departmental officials are in discussions with farmers and the IFA but will we simply have to wait and see what happens to the new quota regime or will the Department look at it after someone takes a commercial punt?

Mr. Tom Moran

We are not sitting around and doing nothing. We are actively pushing the development of a legal framework which would allow that to happen. We support, for example, the abolition of sugar quotas. I would not put the argument in quite the same way as the Deputy but investment in beet will be a commercial decision. Beet was a fabulous cash crop and its profitability during the good times was second only to milk. It was the most profitable of the ground crops by far.

Deputy John Deasy

The big ticket item is CAP reform. Negotiations are ongoing and Mr. Moran referred to the replacement of the quota regime with "maximum possible flexibility for member states to implement the payment systems and transitional arrangements that best suit their own farming conditions". When the draft document on CAP reform was leaked from the Commission last year, it caused alarm in my constituency. Large dairy farms are a feature of County Waterford and east County Cork. To say the formula proposed by the Commission did not suit large farms in constituencies like mine is to put it mildly. What is our current position on the negotiations? Perhaps Mr. Moran can explain the line we are taking.

Mr. Tom Moran

That is a tall order but I will do my best.

Deputy John Deasy

Mr. Moran gave us an up beat assessment on milk production and said the end of the quote regime would be staggered as opposed to coming to a point and having an open ended situation. I understand where he is coming from.

Mr. Tom Moran

The need for flexibility on the part of member states is key because introducing a flat rate over the timespan and manner proposed by the Commission would result in a serious diminution in single payments in some cases and increases in others, depending on the average payment base over the years. That average payment would be totally based on farming activity.

Our position is that the Commission cannot simply impose a flat rate system on our agricultural system because it would militate against productive farming in certain parts of the country where farmers have developed high levels of single payments for various historical reasons. That would be the case in Deputy Deasy's constituency. The priority in our negotiations with the Commission is to protect the envelope. One takes the CAP to get the budget and manages the pressure for the single payment to flow eastwards. Once we have the envelope we are allowed to manage it in a certain way, albeit in an EU context, and can we revert that. It goes without saying that a certain degree of adjustment up or down will be required because the Commission will not be able to implement the proposals without concessions. However, the Commission's proposals are untenable as they stand and I agree with the thesis implied in the Deputy's question.

Deputy John Deasy

I will make a macro point. Waterford's rural hinterland is rich but if farm incomes were not increasing in rural Waterford, we would be in an awful situation. If the formula contained in the Commission's draft proposals is implemented there will be enormous economic consequences not only for farmers' incomes but also for the towns and villages throughout the county at a time when businesses are collapsing and people are emigrating.

Mr. Tom Moran

I agree with Deputy Deasy. This is what underlies Ireland's approach to CAP reform. It is a fundamental plank of our negotiating position. It will probably fall to us to put the issue to bed while we occupy the Presidency in 2013.

Chairman

The Department has compiled a list of legal costs and compensation. A settlement of €1,885,861 was paid following a High Court hearing on storage of animal by-products. How did that case emerge? Was it brought forward by the special investigation unit? Why was the Department required to pay almost €2 million?

Mr. Tom Moran

That settlement relates to meat and bonemeal owned by the Department. The facility in which it was being stored caught fire. We had to take responsibility for that fire.

Chairman

Was it not insured?

Mr. Tom Moran

The owner claimed damage for loss of property and income as a result of the fire.

Chairman

Did the Department insure the product?

Mr. Tom Moran

I do not think so. The Department does not normally insure products of that nature.

Chairman

Why? By not insuring it the Department left the State open to a settlement of almost €2 million.

Mr. Tom Moran

The cost was borne by the Department but the case was managed by the State Claims Agency.

Chairman

I understand that but if I stored goods which gave rise to a risk of that kind, I would purchase insurance cover. Is Mr. Moran saying the State does not insure any such properties or goods?

Mr. Tom Moran

I understand the State carries its own insurance.

Chairman

So there is no separate cover. It cost the State €2 million.

Mr. Tom Moran

It cost the State €1.8 million to settle that.

Chairman

The second payment amounting to €509,832 was made in settlement of two cases arising from High Court proceedings under the milk quota regime.

Mr. Tom Moran

That was settlement relating to the allocation of quota way back in 1994 to the category of farmers that were called development farmers who were participating in a scheme of investment.

Chairman

Did they take the case?

Mr. Tom Moran

They took the case. They had invested and entered a scheme in which they projected a milk quota increase and when they did not get the increase when quota were there, they took the case and it was settled on that basis.

Chairman

Going through the cases, the total settlement bill is €3.4 million. For example, legal costs totalling €62,000 were paid arising out of a consultative case stated in the High Court against the Registrar General of Fishing Boats.

Mr. Tom Moran

I do not have the note on that. Can I come back to the Chairman on that?

Chairman

Mr. Moran can come back to me on any of them. A sum of €3.4 million is substantial. In some cases, legal costs are referred to whereas, in others, no legal costs are mentioned. Who were the Department's legal representatives? Were one or a number of firms retained? Does the Department go to competitive tender for legal representation in such court cases? How is it done?

Mr. Tom Moran

In all cases, in the event of action being taken against the Department, we avail of the services of the Chief State Solicitor who, in turn, engages counsel and progresses the case in that way. We have our own legal unit to advise the Department but when we are involved in actions such as this, it is via the Chief State Solicitor and we are guided-----

Chairman

These payments are for the legal costs of the other parties. Can Mr. Moran give more information on these?

Mr. Tom Moran

Yes, I will send a list. I understand why the Chairman is concerned but I assure him that every case taken against the Department is taken seriously. We only settle a case when we are absolutely happy-----

Chairman

Separate to this, are there other cases ongoing through the special investigation unit of the Department? Are cases that were settled relating to that unit not included under this heading? In other words, are its legal costs included under this heading?

Mr. Tom Moran

Yes. In the event of the special investigation unit uncovering a breach of conditions or whatever else, that would be taken up with the DPP, the Garda and so on and take its course as a normal State prosecution.

Chairman

Are those costs under a heading such as this?

Mr. Tom Moran

The costs of the special investigation unit are covered under the normal administrative costs of the Department.

Chairman

I refer to the newspaper article by Louise Hogan in the Irish Independent on 27 February regarding a company that intends to sue the State over a laboratory blunder which led to a factory closure. Did Mr. Moran see that report? How exposed is the State in this regard? It has to do with ASM Alternative Feeds Limited. Would Mr. Moran like to comment on that?

Mr. Tom Moran

I would be wary about commenting on a specific case when there is a threat of legal action. All I can say is that the issues involved the State Laboratory and record keeping and traceability on the part of the individual company.

Chairman

Did the company not close down?

Mr. Tom Moran

The company chose to close down.

Chairman

Is the Fleury case ongoing or has it concluded?

Mr. Tom Moran

The Fleury case is ongoing. I do not have the details with me of where precisely the case is.

Chairman

Will Mr. Moran let us know please?

Mr. Tom Moran

I will indeed.

Chairman

I do not want to delay the meeting, given we are here since 10 a.m., but there are issues to which we must return. I would like some detail on Horse Racing Ireland, HRI, Horse Sport Ireland, HSI, and so on and I will return to this at a later session. How many equine agencies does the Department fund? Once they are funded, how do they account for their spend to the Department?

Mr. Tom Moran

HRI is a commercial semi-State body within our remit. HSI is under the Department of Tourism, Transport and Sport and the contribution made to it by our Department is approximately €1.5 million. The third horse entity within the remit of the Department is the National Stud, which we do not fund. It is a commercial semi-State body.

Chairman

HSI received €1.38 million in 2010 and €1.28 million in 2011. How does it account for that spend to the Department or does it account for it to itself?

Mr. Tom Moran

That is the umbrella body for the sport horse of the equine sector and the contribution we make relates to breeding activities because breeding is still within our remit.

Chairman

How does it account for the spending of the money to the Department?

Mr. Tom Moran

Can I come back to the committee on that?

Chairman

Is HSI just given the money and that is it or must HSI account to the Department for that spend? Mr. Moran can come back on it if he wishes.

Mr. Tom Moran

I would rather come back on it.

Chairman

How much does the Department give HRI?

Mr. Tom Moran

HRI and Bord na gCon are both funded through the Horse and Greyhound Fund, which is funded through----

Chairman

How much is in that?

Mr. Tom Moran

Some €57 million.

Chairman

For both industries?

Mr. Tom Moran

Yes. It is broken up on an 80:20 ratio.

Chairman

How is that accounted for?

Mr. Tom Moran

The Exchequer funds the difference and that has increased over the past couple of years.

Chairman

Does HRI come back to Mr. Moran to explain how it spent the money?

Mr. Tom Moran

Yes.

Chairman

Where are those accounts? Are they accounted separately?

Mr. Tom Moran

It is a separate set of accounts.

Chairman

When are they produced? Do they form part of this Vote?

Mr. Philip Carroll

They do not form part of the Vote but they are submitted in the normal way to Dáil Éireann. I can get the Chairman the date for the latest submissions.

Chairman

Are they the two main equine agencies?

Mr. Tom Moran

Yes.

Chairman

Are there others?

Mr. Tom Moran

We provide a relatively small amount to the Irish Equine Centre.

Chairman

Will Mr. Moran let me know how that is accounted for?

Mr. Tom Moran

We will send a note that incorporates the various arrangements relating to all the equine aspects.

Chairman

The Department developed a number of properties in ports, some of which are rented. How many are subject to upward-only rent reviews? Has the Department renegotiated the rents downwards because of the economic downturn? Has the Department received requests from tenants regarding the upward-only reviews? Where are the properties located and what are they used for?

Mr. Tom Moran

When the marine brief came over to us, it came with six main fishery harbours, including Howth, Dunmore East, Killybegs, Rossaveal and Castletownbere. Those ports are the property of the State and buildings within them are part of that arrangement.

There is a separate arrangement for rental and a review process is available to deal with rents.

Chairman

Has the Department reduced many of the rents?

Mr. Tom Moran

We have gone through a certain amount of reviews when the leases came up.

Chairman

Has the Department reduced many of the rents?

Mr. Tom Moran

I cannot say offhand whether we have reduced them or not.

Chairman

Mr. Moran might let the committee know, given the upward-only rent issue and the pressure on the Department's tenants. I just want to find out what is going on.

Mr. Tom Moran

I understand fully and I will come back to the committee on that.

Chairman

There was significant infrastructural development in some of the harbours mentioned by Mr. Moran. I would like to know whether they are generating value for money for the State; whether all the properties are in use; if not, what the Department's plan is for them; and what action it has taken to lease the properties.

Deputy Eoghan Murphy

I hope to address to two other bodies under the Department's remit, the first of which is Coillte. I acknowledge it was discussed earlier. What is the organisation worth to the State as a revenue vehicle and in the context of the assets it holds?

Mr. Tom Moran

I touched on this earlier. I refer the Deputy to the annual report and accounts of Coillte in the past. The valuation of the company in light of the Government's decision to consider selling certain assets is ongoing but that value is not-----

Deputy Eoghan Murphy

Is an estimate available?

Mr. Tom Moran

No, I am not in position to comment. I can refer the Deputy to the annual report but the value of the assets that could be under consideration is being worked on at the moment.

Deputy Eoghan Murphy

Does Coillte make a profit?

Mr. Tom Moran

Yes.

Deputy Eoghan Murphy

What profit did it make last year, for example? Has Mr. Moran those figures?

Mr. Tom Moran

The profit in 2010 was €32 million.

Deputy Eoghan Murphy

How was that profit generated? Is it through sale of land?

Mr. Tom Moran

Coillte is a multifaceted company, which has a number of operations, including industrial wood panel plants and so on, and land sales are included in the profits.

Deputy Eoghan Murphy

Are its accounts presented in such a way that it is clear for anyone to see where profits comes from and there is no confusion?

Mr. Tom Moran

Yes. It is a limited company under the Companies Acts and it presents its accounts accordingly.

Deputy Eoghan Murphy

When did it last pay a dividend to the State?

Mr. Tom Moran

Last year.

Deputy Eoghan Murphy

And before that?

Mr. Tom Moran

The last dividend before that was in 2008.

Deputy Eoghan Murphy

How large was the dividend?

Mr. Tom Moran

It was €2.6 million. The dividend last year was €10 million and it was requested specifically by the Minister.

Deputy Eoghan Murphy

When he requested that, was it paid immediately?

Mr. Tom Moran

It was not paid immediately but it was paid.

Deputy Eoghan Murphy

Did Coillte not want to pay the dividend in the first instance?

Mr. Tom Moran

It was not a question of Coillte not wanting to pay it. It had views as to whether it was appropriate in terms of its financial management and cash flow and so on, but it paid.

Deputy Eoghan Murphy

Did it think it did not have the money?

Mr. Tom Moran

Like any business, it is trying to manage the reinvestment of funds and the year-on-year development of what it is at. The Minister had a view that €10 million was appropriate in light of its figures.

Deputy Eoghan Murphy

Is the profit reinvested in the company every year?

Mr. Tom Moran

Yes.

Deputy Eoghan Murphy

When did the Minister request the dividend?

Mr. Tom Moran

It was requested in June and paid in September.

Deputy Eoghan Murphy

Was Coillte not in a position to pay the dividend initially?

Mr. Tom Moran

It was not a question that the company was not in a position to pay it. Between June and September, it had to make whatever arrangements it had to make to rejig its finances to ensure the dividend was paid.

Deputy Eoghan Murphy

What arrangements did Coillte make? How did it rejig its finances?

Mr. Tom Moran

I do not know.

Deputy Eoghan Murphy

Would the company have spent all its profits by June last year when the dividend was requested? Did it have the money?

Mr. Tom Moran

I do not know. I could not comment on the internal finances of Coillte but the Minister felt it was appropriate that the shareholder would get a dividend and he put a figure of €10 million on it. Coillte paid that a little over two months later.

Deputy Eoghan Murphy

Were Coillte's accounts sent to the Department? Are they reviewed by the Department?

Mr. Tom Moran

It is a limited company, which is separately audited under the Companies Acts.

Deputy Eoghan Murphy

Does the Department go through its accounts to see what it is doing?

Mr. Tom Moran

No.

Deputy Eoghan Murphy

Does the Comptroller and Auditor General do that?

Mr. Tom Moran

No, it is separately audited under the Companies Acts.

Deputy Eoghan Murphy

The dividend, therefore, was paid in September. Does Mr. Moran have an indication of the operating profit for 2011?

Mr. Tom Moran

No.

Deputy Eoghan Murphy

If Coillte had to restructure its finances in the summer-----

Mr. Tom Moran

I did not say it had to restructure its finances

Deputy Eoghan Murphy

Did Mr. Moran not use the word "rejigged"?

Mr. Tom Moran

What I am saying is the Minister made a request in June for a dividend and put a figure of €10 million on it and, in September, Coillte paid it.

Deputy Eoghan Murphy

Is it correct to assume Coillte was not forthcoming with the money initially and did not-----

Mr. Tom Moran

No, I would not assume that.

Deputy Eoghan Murphy

But it was in a position by September to pay it.

Mr. Tom Moran

It was in a position to pay the €10 million in September.

Deputy Eoghan Murphy

Was it in a position to pay in June?

Mr. Tom Moran

I honestly do not know.

Deputy Eoghan Murphy

With regard to Coillte's board, has the Minister a role in appointing board members?

Mr. Tom Moran

Yes, the Minister appoints the chairman and the board with the consent of the Minister for Finance.

Deputy Eoghan Murphy

What is the term of office for board members? Is it two years?

Mr. Tom Moran

No, it is five years.

Deputy Eoghan Murphy

Are any board members up for replacement?

Mr. Tom Moran

Yes.

Deputy Eoghan Murphy

Is Mr. Moran comfortable with the expertise in the organisation with regard to forestry, particularly among board members and people serving at executive level?

Mr. Tom Moran

Clearly, there is huge expertise in Coillte in regard to forestry. It was set up to take over the management and handling of the State's forestry land. It manages an estate of 442,000 ha. There is great expertise in the company relating to forestry and wood. I would not comment on the qualifications or otherwise of the board. That is not for me to comment on.

Deputy Eoghan Murphy

Does Coillte receive financial assistance from the State?

Mr. Tom Moran

No.

Deputy Eoghan Murphy

Not even, say, for putting in a bike trail.

Mr. Tom Moran

No, it is a commercial semi-State that funds itself. It borrows with State approval and so on and it generates money and reinvests it.

Deputy Eoghan Murphy

What would it borrow for if it is generating a profit?

Mr. Tom Moran

For reinvestment, capital investment and ongoing development of the company.

Deputy Eoghan Murphy

How much more than its profits does it reinvest?

Mr. Tom Moran

For example, Coillte has two large panel board plants. It bought one of them in Clonmel in 2006. This type of business needs to be developed, invested in and kept up to date. Investment must be made as in any other business.

Deputy Eoghan Murphy

Does this borrowing arrangement happen through the NTMA? Permission is required to borrow. Does the State borrow on its behalf?

Mr. Tom Moran

There is a borrowing limit as is the case for most commercial semi-States and it can borrow within this. The board runs the company on behalf of the shareholders. The State puts a limit on borrowing and the company operates within this.

Deputy Eoghan Murphy

If it wants to break this limit it must seek approval from the Minister.

Mr. Tom Moran

It would have to seek approval from the shareholders.

Deputy Eoghan Murphy

When was the last time this happened?

Mr. Tom Moran

I think it was two or three years ago.

Deputy Eoghan Murphy

What was it for? How significant was the breach?

Mr. Tom Moran

I cannot remember offhand but I can come back to the Deputy.

Deputy Eoghan Murphy

I would be interested in any information.

Mr. Tom Moran

No problem.

Deputy Eoghan Murphy

I wish to ask about China, where very positive developments have occurred recently. Does the Minister plan to visit China? What would a visit include in terms of agreements to be signed or built upon?

Mr. Tom Moran

The Minister plans to visit China on 15 April. He will lead a large delegation from the agrifood sector and other sectors. We are trying to push a number of key issues with China, apart from the obvious which is to get it to buy more of our food given the demand it has and will continue to have. It is a huge market for dairy products and baby food, of which we produce 10% of the world's product. Our beef is banned in China and we cannot export it to there.

Deputy Eoghan Murphy

Why is that?

Mr. Tom Moran

Because of BSE.

Deputy Eoghan Murphy

Is there any chance the ban might be lifted?

Mr. Tom Moran

One of our priorities is to try to move it along.

Deputy Eoghan Murphy

How is it looking?

Mr. Tom Moran

We are engaged in detailed negotiations at present on what China requires, what we can offer and what reassurances we can make. We are quite happy that we can reassure China but it is a slow enough process. I will not make any promises that we will be successful. It is high on our list given the population and the increasing demand for protein of all types.

Deputy Eoghan Murphy

I imagine if the ban were lifted the potential would be significant.

Mr. Tom Moran

There is no question that there would be potential. The main potential is with regard to milk products, such as powder and baby food, and also pigmeat. Beef has a certain potential. As Chinese society develops, with a greater move towards city dwelling, there is a greater demand for meat proteins. We believe, as does our industry, that opportunities exist through this. We are doing what we can to lift the ban.

Deputy Eoghan Murphy

I believe a memorandum of understanding was signed last summer when the Chinese Minister for agriculture was here.

Mr. Tom Moran

That is right.

Deputy Eoghan Murphy

Is it planned to sign another such memorandum or to sign further agreements separate to a possible lifting of the ban on beef?

Mr. Tom Moran

The normal way one does business with China is in the framework of a memorandum of understanding. The one we signed last summer in Dublin to which Deputy Murphy referred is a very useful framework in which one can do other things. One reason the Minister is going to China with a huge delegation from the food industry is to further agreements and make any progress we can. An area we would like to develop with China is to exchange expertise. It has serious concerns about food safety because of the increase in demand and its history, particularly with regard to dairy products. In the discussions that took place during the visits of the Chinese Minister for agriculture and Vice President food safety featured as an issue for China. It looks to Ireland as a country which can deliver food safety through its systems. It is very interested in this and we see it as a way of developing the relationship. The most straight down the middle relationship one wants with a country whose population is increasing by 7% to 8% a year is to export one's products there and we are doing this also.

Deputy Eoghan Murphy

I thank Mr. Moran and I wish him good luck with the trip.

Chairman

To conclude matters, I suggest we note the 2010 annual report on the Food Safety Authority of Ireland. With regard to Vote 31 and chapter 26, Mr. Moran must clarify a number of issues for us. We would appreciate if he comes back to us as quickly as he can. We will hold them over because the committee may make recommendations arising from the Vote and chapter 26. We will revisit these. Is that agreed? Agreed. I thank the witnesses for attending.

The witnesses withdrew.

The committee adjourned at 1.45 p.m. until 10 a.m on Thursday, 15 March 2012.