Dairy Produce (Miscellaneous Provisions) (Amendment) Bill, 1977: Second Stage.

Minister for Agriculture (Mr. Gibbons)

I move: "That the Bill be now read a Second Time."

An Bord Bainne Co-operative Ltd. are a co-operative society which was, with my full support, set up in 1972 under the Friendly Societies Acts on a voluntary basis by the creamery industry itself to take over the central marketing of dairy products as from 1st February, 1973. Under European Community legislation the semi-State Bord Bainne, which up to then had acted as the central agency for the marketing of our dairy products, could not because of the way they were constituted, continue to perform this role on our accession to the Community.

The then new co-operative Bord Bainne had no initial assets of their own on the strength of which they might arrange the borrowings necessary for them to conduct the business for which they were established. The need for such borrowings—and borrowings on a large scale—arises mainly from the pattern of our milk production here. The bulk of our milk, and, therefore, milk products, is produced over a relatively short period each year from April to August while the marketing of these products by the board is conducted on a fairly even basis throughout the year.

As the board purchase the products from the creameries and other milk processing units on production and must themselves wait for payment until marketing has been completed, expenditure by the board in the months of peak production by far exceeds their income from sales. This gap between expenditure and income has to be bridged by the short-term borrowing of vast amounts of working capital from banks and other lending institutions each year. Under The Dairy Produce (Miscellaneous Provisions) Act, 1973, the Minister for Agriculture was with the consent of the Minister for Finance, empowered to guarantee borrowings by the board for the purchase of dairy products up to a maximum of £20 million at any one time. With the aid of this guarantee the board have been enabled to borrow sums vastly in excess of this amount.

By 1976, however, both milk production and price of milk and consequently of milk products had increased very substantially. As a consequence the seasonal gap between the board's outgoings and income had already increased substantially to an extent that the £20 million guarantee was no longer adequate. Accordingly, my predecessor, with my full support, sought and obtained in the Dairy Produce (Miscellaneous Provisions) (Amendment) Act, 1976, power to increase the maximum amount of the guarantee to £40 million.

The guarantee provision contained in the 1973 Act was, however, intended as a temporary measure designed to give the then new board an opportunity to build up their assets to the point at which they could operate on their own resources without the need for such State guarantee. Accordingly, it was provided in that Act that the period over which the guarantee would be available would expire on 31st December, 1977. The Act of 1973 provided also for the transfer to the Co-operative Bord Bainne of the assets of the semi-State board. These, however, amounted to no more than about £3 million. The need for building up their assets sufficiently to enable them to conduct their financial affairs without having recourse to a State guarantee has frequently been impressed on the board. The board responded initially by doubling, with effect as from 1st January, 1976, the amount of their levy for capital purposes. When they did this, the board at the same time altered the basis of the levy from a fixed rate per gallon of milk to a percentage, 0.6 per cent, of the milk price paid by the creamery. This alteration of course ensures that increases in the price of milk as well as in its volume are reflected in the amount yielded by the levy.

Nevertheless, it is quite clear that the board's own assets, which stood at approximately £6 million at the end of 1976, will be far from being adequate for some time to come. Therefore, it is proposed in the Bill now before the House to extend the period of the guarantee for a further two years after 31st December, 1977.

The board, with the general support of the industry, have been doing an excellent job of work on the marketing of our dairy products, a sector vital to our economy, and in this further Bill the Government are continuing to demonstrate their confidence in this work. I trust, therefore, that the House will readily approve of its terms.

Mr. Bruton

On behalf of the Fine Gael Party I welcome this Bill and I concur with the Minister's statement that Bord Bainne are doing an excellent job in the interests of the dairy industry. It is important that this House and the public at large not resident in farming areas should appreciate the importance to our national economy of the dairy industry and consequently of the work being done by An Bord Bainne for that industry on the export market. There is a very large employment content in the industry, not merely on farms but also in creameries and processing plants. As a producer of dairy products we are somewhat more distant from high concentrations of population where these products are sold than are dairy producers and processers on the Continent and in the United Kingdom, where the consuming population forms a larger percentage of the total population. Therefore, a greater effort in marketing is required by a country such as ours which has problems of distance from the market place to overcome.

I should like to take this opportunity of complimenting An Bord Bainne on the success they have made of their work since they became a wholly selfsupporting co-operative in 1973 and the support given to them in this work by the various creameries. The growth of their work can be well illustrated by stating that their turnover in 1976 was £230 million, a 55 per cent increase on their turnover in the previous year, and all the indications are that the turnover this year will be £350 million approximately, which indicates another increase of almost the same magnitude. The production of milk has been increasing and hence the challenge facing Bord Bainne. In 1976 no less than 675,000,000 gallons of milk were supplied to our creameries as against 510,000,000 in 1970 and the indications are that the gallonage will be up this year 7 per cent on the 1976 figure.

The extension of the time limit for the guarantee being given by the Minister to loans raised by Bord Bainne is on their own evidence and the evidence of common sense of great importance to them because, as the Minister said, they have to raise very substantial sums in order to carry on their marketing operations. However, the future of the dairy industry rests on many other factors. There is the problem of imports of cheese and butter from outside the Community into the European market, and I take this opportunity of urging the Minister to act in the most decisive manner possible to ensure that the terms of Protocol 18 of the Treaty of Accession are adhered to in relation to the importation of New Zealand cheese to the UK market. The Protocol provides that special arrangements which continue up to 31st December next should not be retained after that date. Obviously there will be pressure from New Zealand to have a further extension of these special arrangements and it is up to the Minister to ensure that such an extension does not occur. We produce approximately 57,000 tons of cheddar cheese and of that 50,000 is sent to the United Kingdom market where our biggest single non-UK competitor is New Zealand. The continuance of New Zealand imports obviously creates problems—indeed, has already created problems—for the cheese industry here and their discontinuance would provide more opportunities for our cheese producers. I urge the Minister, and will continue to do so between now and 31st December, to take the strongest possible measures to ensure these New Zealand imports do not continue and the terms of the Protocol are adhered to.

Furthermore, the diversification of processed products is of very great importance in a situation in which there is an excess of supply over demand in the milk market in the Community and where the consumer needs to be wooed to consume more milk products and thereby provide employment in our dairy industry. Obviously new products appealing to new consumer tastes have an important role to play in this context. The biggest problem is not that of developing these products. The biggest problem is launching them on the market and creating consumer demand for them. This is the job of the co-operative creameries and Bord Bainne and it is one in which they should get maximum support from the Minister. It is equally important to have adequate funds made available to An Foras Talúntais for the development of these products and it is for that reason I would urge the Minister to seek the maximum amount of EEC aid towards the operations of An Foras Talúntais in developing these products. Such diversification would obviously be of benefit not just to this country but to the Community as a whole since an expansion in demand for such products would assist the Community in dealing with its dairy surpluses.

Another matter to which I would urge the Minister to give attention is the development and strengthening of the inspectorate under the various Acts. It is of considerable importance that dairy products should have the reputation of having been throughly inspected by Government inspectors, independent of the producers, whose word is vouched for by a responsible Minister. I would urge the Minister to increase the staff in this sector.

Another very live issue in the industry at the moment is the European Community co-responsibility levy which has been introduced and is applying to all of this country, although I understand there are mountain areas in the Community to which it does not apply. This is a matter which will be discussed on another occasion but I would urge the Minister to ensure arrangements are made as early as possible to use the proceeds of this levy effectively in expanding the market for dairy products and particularly to ensure that a substantial part of the levy raised throughout the Community is used to develop the market for Irish dairy products because we depend as an economy to a much larger extent on our dairy industry than any other of the nine members of the Community. It is important that the measures used should be measures which have the prospect of creating a long-term, continuing and selfsustaining demand for dairy products rather than measures which merely alleviate a temporary situation and, once withdrawn, leave nothing behind them but a disequilibrium in the market situation. Use to create a long-term, increased demand for dairy products is the optimum use and I would urge the Minister to ensure that is the way it is used.

I have one criticism and suggested improvement of the present Bill to offer to the Minister. It concerns the date to which the Minister's power to give guarantees is being extended. It is being extended only to 31st December, 1979, a very short time from the autumn of 1977. We know that An Bord Bainne are engaged in a five-year market development plan. It must be very difficult for the board to plan the financial support for this five-year term when they only have certainty as to the provision of a ministerial guarantee for a little over two years from the present time. I realise that it has been the ambition of both sides of the House to ensure that in the long run An Bord Bainne should be able to stand on their own feet in this matter and the board's efforts, by use of a capital levy, to raise a sufficient capital fund of their own to enable them to be independent in the long run of a ministerial guarantee are to be very much welcomed.

It is however obvious to me, and probably to An Bord Bainne, that although this levy has been increased since 1976 at present rates of income it will not be sufficient to allow the board to dispense with ministerial guarantees for at least five years from now. Therefore, I do not understand why the Bill does not provide for the extension of this guarantee at least until 31st December, 1982. The fact that it is not extended beyond 31st December, 1979, means that An Bord Bainne must rely on short-term finance to a much greater extent than would be healthy for them. Finance extending for less than 12 months is clearly unsatisfactory for the sort of dairy marketing operation in which An Bord Bainne engage in financing their entire operation. There is a place for short-term finance but it should not be the only type of finance available to An Bord Bainne.

For instance, cheddar cheese produced this year, because of the necessity for it to mature, will not be sold until next year and the financing of those stocks must be carried by An Bord Bainne over two marketing years. Secondly, the board are engaging in investment companies abroad concerned in the distribution of dairy products and the purchase of equity in such companies, I submit, should be financed by long-term finance because the return from such investment will itself be long-term, not short-term. Thirdly, it is a fact that the board never reach the stage at any time of any year in their present operation where they do not need loans from banks. They have a minimum continuing lending requirement of approximately £30 million. That being so, it is desirable that this £30 million core of lending requirement should be financed by long-term loans. The banks prefer it that way and the interest rates are more favourable in the case of long-term loans than they are in the case of short-term loans.

I wish to draw the Minister's attention also to certain defects in the wording of the 1973 Act in relation to the types of guarantee which may be given by the Minister. I ask him to consider, if not in this legislation—although it may be possible—certainly in legislation in the near future, steps to remedy these deficiencies. There are two defects, first, the use in section 6 (1) and elsewhere in section 6 of the term "loan" rather than "liability". It has been represented to me that certain matters for which the board may wish to obtain the Minister's guarantee could not, under a strict definition of the term, be construed as loans. Three or four basic situations are covered by this statement. The board, from time to time, have to obtain performance guarantees from the EEC in order to pre-fix export refunds or to pay moneys in advance of certain other actions being completed. In essence, when the board enter into a contract for the provision of dairy products over a period to third countries they do not know what the level of the refunds obtained by the board from the EEC over the full extent of that contract will be. This is because the level of refunds will vary with the movement of currencies and of dairy products and prices over the contract period. It is desirable for certainty on the part of An Bord Bainne in their operations to be able to prefix the rate of restitution obtained. This involves them in expense which, I understand, is not covered by the term "loan".

They also have to provide bid bonds to third countries, to which they are offering a tender of supply, that the bid or the tender will not be withdrawn prior to the closure. Obtaining a bond to this effect from the bank who will act as a third party or a guarantor between the board and the third country wishing to purchase their products is a facility which, strictly speaking, does not come within the term "loan" as envisaged in the 1973 Act.

Furthermore, the obtaining of foreign exchange dealing facilities, which are obviously very important for the board, I understand, does not come within the term, nor do operations involving the use of bills of exchange. I would urge the Minister to consider carefully between now and Committee Stage whether it would be possible to substitute for the term "loan" where it appears in section 6 the wider term "liability" which would include loans as well as the matters I have mentioned.

There is another phrase in the 1973 Act which could be improved to the benefit of the board and their operations. Section 6 (5) states

Moneys obtained by the Society on foot of a loan guaranteed under this section shall be used solely by the Society for the acquisition in the course of its ordinary business of dairy produce.

I understand the use of the phrase "acquisition in the course of its ordinary business of dairy produce" does not necessarily in all cases cover the sort of expense incurred by Bord Bainne for which a loan might be obtained for which the Minister's guarantee would be appropriate. In a strict interpretation, it does not cover such things as storage and marketing as distinct from acquisition. This is a matter to which the Minister perhaps should also give attention.

There is a third matter to which I should also like to draw the attention of the Minister in respect of section 6 of the Principal Act. Section 6 (7) provides:

The Minister shall, as soon as may be after the expiration of every financial year, lay before each House of the Oireachtas a statement setting out with respect to each guarantee under this section given during that year or given at any time before, and in force at, the commencement of that year—

(a) particulars of the guarantee,

(b) in case any payment has been made by the Minister under the guarantee before the end of that year, the amount of the payment and the amount (if any) repaid to the Minister on foot of the payment,

The requirement is that that information be given in respect of each guarantee and that it be given at the end of each financial year. My information is that the provisions in respect of putting this information before the Oireachtas and in the Dáil Library have not been complied with fully. I should like the Minister to give an assurance that they will be complied with fully in future.

I should like to make a brief reference to guarantees in general. A guarantee which is the Minister, on behalf of the Government, underwriting a loan obtained usually but not in all cases by State companies, and not in this case a State company, is an undertaking that if that company defaults in the payment of the loan the Minister, on behalf of the Exchequer, will step in and make the repayment. It is important that there should be monitoring on a long-term and continuing basis of the liability which the Exchequer and the taxpayers are entering into in respect of such guarantees. At present individual Ministers give or extend guarantees to State bodies under their care, or other bodies under their care. It is important that adequate central monitoring of the movement of the total liability of the Exchequer in respect of all Departments should be carried out in one place.

I know it is the function of the Minister for Finance to do this. It is important that it should be done because there has been a considerable growth in the overall contingent liability of the Exchequer under guarantees in general. The amount of loans guaranteed by the State in March, 1972, was £267 million. The amount guaranteed on 31st December, 1976, was £652 million, a very significant growth. More significant still is the fact that, within that total, there has been a much more rapid growth in the guarantees given by the Minister to loans raised overseas as against loans raised within the State. In 1972 the comparison was £204 million loans raised internally as against £63 million raised externally. The present situation is: £375 million internal loans as against £277 million external loans. If this trend continues we can expect there will be more external loans guaranteed by the Minister than internal loans.

Obviously moneys owed outside the State in currencies other than our own and which may be rising in value at a more rapid rate are less desirable, if that is the case, than loans raised internally. Therefore I urge the Minister, in conjunction with his colleagues, to ensure that the development of contingent liabilities under guarantee of the Government is adequately monitored in the years ahead. I conclude by welcoming this Bill.

Mr. Bermingham

I should like to congratulate Deputy Gibbons on his appointment as Minister for Agriculture. He has a deep knowledge of agriculture and I wish him well. We in the Labour Party welcome this Bill as do members of the Fine Gael Party. This had to be done at this time. Time is running out for the guaranteeing of loans to Bord Bainne. Bord Bainne have been doing a fine job in marketing our dairy produce in EEC countries and throughout the world. The board were essential when they were established and they have done a very good job. With rising costs in different markets they must have the necessary finance to cope with the general expansion of our dairy products.

The dairying industry is one of the few sections where we are showing we have real potential for an increase in productivity and an increase in output in money and material terms. There are many new methods of cheese making and other dairy products and it is essential that Bord Bainne should have the wherewithal to cope with this situation and to continue the good work they have been carrying on in selling dairy produce, especially abroad.

The Bill is essential and, consequently, I do not need to say much about it. While it is intended to introduce a levy to cover the cost to Bord Bainne I believe that will not happen for some time. I hope our dairy industry will continue to expand but it will not be possible for Bord Bainne to operate without these guarantees. The suggestion by Deputy Bruton that the period be extended to five years should be investigated but that is only a minor complaint.

Mr. D'Arcy

Like the previous speakers, I welcome the Bill which is here of necessity. Over the past four or five years Bord Bainne have acted as a great pillar for the milk producers. They supplied the necessary finance to ensure that co-ops paid on time. With the vast increase in milk production in recent years I doubt if any other organisation could have given such a good service to the agricultural community. I should like to draw attention to the change in EEC policy. I do not think the Minister should support any move to encourage the farming community to change from milk to beef, a policy being promoted by the EEC. We have learned to our detriment what happens when such changes take place. A lot of money has been invested by the farming community in milking parlours and increasing their milk herds and any move to pay the proceeds of a levy of 0.9p together with a subsidy to those who change from milk to beef should not be supported because in the long term it will only add to the already huge bill for borrowing by our farmers.

Milk production has reached the stage where farmers are getting a return for the money invested. Bord Bainne should now be engaged in the field of research as well as promoting the sale of dairy products. In Canada and America research bodies have investigated the possibility of extracting more products from milk. That research is being financed by the respective Governments. The Minister should encourage such research here because I believe that in the coming years there will be a huge increase in milk production. We have heard a lot about "milk mountains" in Europe but it is worth noting that due to the tremendous work by Bord Bainne we added very little, if any at all, to that mountain. As a result of the work of the board in the last two years we did not contribute to the "milk mountain".

Farmers are now being asked to pay 0.9p per gallon of a levy and it should be remembered that this will amount to a lot of money for those living on uneconomic holdings. It will amount to £5 per cow or, to a man with 30 cows, approximately £3 per week. It is a direct tax and that is the way the farming community are looking at it. While in Brussels recently I discussed this matter with officials and their attitude was that the "milk mountain" must be reduced in the short term. Four years ago there was a lot of talk about a "beef mountain" but the extraordinary thing is that the "beef mountain" disappeared overnight. However, as a result of the action taken by the EEC then, many farmers suffered huge losses. I hope the Minister will ensure that we do not have a massive swing from milk to beef over the next four or five years.

I agree with the suggestion made by Deputy Bruton that the period of time be increased from two to five years. Any organisation with such huge commitments abroad must have a sufficient period of guarantee. I can see no risk involved in guaranteeing the board for at least five years. We must have a system of monitoring such a guarantee and in this regard it is essential that Government representatives work in conjunction with the accounts staff of such an organisation. It is not easy to assess accurately how the accounts stand because the majority of accounts are at least nine months behind in time.

Minister for Agriculture (Mr. Gibbons)

I wish to thank the House for the support given to the proposal. I should also like to thank Deputy Bermingham for his personal greeting. In his general welcome for the Bill Deputy Bruton made reference to the EEC situation and the fact that imports of New Zealand cheese will cease at the end of the year. Our position on that is very simple: that is what the law says and that is the Irish position. We cannot accept the changing of the protocol which gave this concession at the time of our accession, and that of the United Kingdom, for the strictly limited period ending on 31st December.

Since the legal position is so clear—there is no dispute between parties about what our position ought to be—we should leave the subject there because in my view the continuous agitation of this subject would tend to strengthen the belief that there is possibly some substance in the New Zealand claim that an extension similar to that given at the Dublin Summit should be given in the case of New Zealand butter. This is regretted. The general position with regard to butter is that even at the end of the extended period there was still a very large amount of New Zealand butter on the Community market—speaking from memory 215,000 tons of New Zealand butter were legally saleable within the Community at that time. The position with our cheese is different and is as I have already stated it.

The vigour with which Bord Bainne have applied themselves to their allotted task—being the marketing agent of the dairy industry—has been commended by Deputy Bruton, Deputy Bermingham and Deputy D'Arcy. I agree that the commendation they gave Bord Bainne for this performance is well deserved. I have every confidence that in the coming period the board will continue the active and vigorous selling practices that brought about the position where the Irish contribution to the mountains Deputy D'Arcy referred to is very small indeed. We have contributed nothing to the butter mountain and a very negligible quantity of skimmed milk powder. Therefore, the amount of responsibility we had in the creation of these surpluses is quite small.

I agree with Deputy D'Arcy's conviction that there should not be a feeling on the part of Irish dairy producers that there should be a running down, a restraint or a control of the expansion of the Irish dairy herd. The cattle industry is the basis of Ireland's wealth and all parties by their contributions to this debate recognise this.

The existence of reconversion schemes, as they are called, within the EEC might very well apply to some people in our farming community who, for reasons of age, illness or something like that, might want to convert from active dairy farming to the less demanding dry stock farming or calf suckling. For that reason the scheme should be available. I accept Deputy D'Arcy's main point that it should not be an item of national policy that we reverse or in any way restrain the development of our dairy industry. It is worth saying in passing that I have always believed there should be a secondary herd complementary to the dairy herd, as well as the expanding herd to provide a market for the calves coming from the dairy industry.

Deputy Bruton, Deputy D'Arcy and Deputy Bermingham referred to the incidence of the co-responsibility levy which was accepted by the Council of Ministers last April. I say that in no sense of personal criticism of my predecessor, Deputy Clinton, who resisted this because it was a tax on production for this country which hardly subscribes to the embarrassment of the skimmed milk powder or butter mountains. Deputy Clinton's protestations at that time were overruled and that is still the position now. The legal and inescapable position is that this levy must be met. Commissioner Gundelach has not yet informed us of his proposals with regard to the expenditure of the proceeds of the co-responsibility levy. It will be our wish that we get as big a part of this levy as we are entitled to and that it is spent on the development of new products and the enlargement of the dairy products market.

Speakers in to-day's short debate made this point and I agree with them. They also made the point that the guarantee being given to Bord Bainne should be extended to five years. The two years plus guarantee embodied in the Bill was already accepted by the former Government and in my view the guarantee is of very substantial value to Bord Bainne. The situation can be kept under constant review and there is no intention on the part of this Government, any more than there was on the part of the previous Government, in any way to run out on the dairy industry. That is not the situation at all.

Deputy Bruton referred to the requirement to put on the table of the House, as the 1973 Act requires, details of the guarantees backed under this Bill and the other Bills it extends. I want to tell the House that I will undertake to see that this obligation is adhered to. I again thank the House for the contributions made.

Question put and agreed to.

Committee Stage ordered for Tuesday, 18th October, 1977.

Dáil Éireann debate - Wednesday, 12 Oct 1977