Before Deputy Allen called for a quorum I was dealing with figures and giving the price increases achieved by the former Minister for Agriculture, Mark Clinton. The price of milk and beef was increased by 104 per cent and the price of barley by 128 per cent. During the four years of the Fianna Fail administration price increases were as follows: milk, 30 per cent; beef, 30 per cent; grain 22 per cent. This includes the 1980-81 negotiations.
The former Minister spoke of the provision of £400 million for farmers but forgot to tell the House that they introduced a 2 per cent levy which took £16 million from farmers and a disease levy which took £20 million from them. Rates for three years amounted to £30 million, a resource tax amounted to £7 million, tax off stock relief amounted to £1 million and 36,000 farmers compared to 15,000 farmers were liable for income tax, which brought in £7 million. There was also a saving on lime and fertiliser subsidies in 1978 which brought in £4 million. That was a total of £85 million from the farmers' pockets during the four years of Fianna Fail administration. The former Minister now has the audacity to tell us that this only accounted for 2 per cent of farmers' income. That £85 million did not relate to profit. It was taken irrespective of the cost to the farmer. The former Minister went to great pains to tell us of the commitment of Fianna Fáil to agriculture, but he did not produce the goods. The former Minister went to the EEC and negotiated a package from December 1980 until the end of April 1981. When he came back he put it into operation on 20 May as far as lime and the AI services were concerned, a time of the year when the farmers will not require either service.
The purpose of the budget introduced by the Minister for Finance is to set the economy back on the road to economic growth. There should be no misunderstanding as to the serious nature of the economy at the present time. We have more than 125,000 people unemployed, inflation in the first half of this year has been running at an annual rate of over 20 per cent, the Government's current budget deficit before the measures taken by the Minister for Finance would have been £950 million for this year, the total Exchequer borrowing requirement would have reached virtually £2,000 million and the balance of payments deficit would have been £1,500 million. That is the climate in which we had to take over. I would ask the former administration to look back four years to when their then leader, Deputy Lynch, said the economy was in sound condition and that he hoped that, if they were kicked out in five years' time, they would be able to hand it back in the same condition.
These figures show the frightening economic position in which we find ourselves today. We were trying to maintain our living standards artificially through borrowing, much of it in foreign currency, at a level which we have never seen in the history of the State. If this were to be allowed to go on it would place in jeopardy all that has been done in recent decades to create a just and prosperous society.
As the Minister for Finance said in his budget speech, the choice before us is simple: we must either act now in a planned way to begin to put right the imbalances in our public finances and in our external accounts or we will be faced with enforced and severe economic dislocation and contraction which could arise within a matter of a very short time.
As a community we have the ability to bring our economy back under control, and the budget shows the determination of the Government to start on this process straight away. We must do two things. Firstly, we must bring our aspirations and demands into line with the value of what we produce. Secondly, we must expand our production to provide for the needs of our growing population. All sectors of the economy must contribute to a growth in output and the Government must look to the agricultural sector to contribute its full potential in this programme of expansion.
By the standards of modern developed economies agriculture still plays a crucial role in our national economy. Agriculture makes a very substantial contribution to the development of the economy through the direct employment of one in every five of the total number in employment. It also provides employment for a further 25,000 people in factories and processing plants dependent on agricultural raw materials. In addition, employment and output generated in other businesses which service agriculture accounts for a further substantial part of the economy of our rural society. Over recent years agricultural exports, in conjunction with a growing industrial base, have been responsible for much of the growth of the Irish economy. Agricultural exports have had a dual effect on the economy. Firstly, because of their low import content the multiplier effect on income has been higher than for most other industries. Secondly, they earn foreign exchange which provides the means to purchase imports of raw material and oil for further production in the economy as a whole. Furthermore direct agricultural exports generate additional external revenue in the form of the receipts from the guarantee section of FEOGA which are paid in order to support the prices of farm products on external markets. The total balance of payments contribution from the agriculture sector last year amounted to over £1,600 million or some 35 per cent of our earnings from exports.
There has been a very serious decline in cattle numbers during the past year, with numbers dropping by almost 350,000. Cattle numbers are now lower than they were eight years ago in 1972, and farmer confidence earlier this year has not been such as to generate a reversal of this position. The Government's programme for a four year plan of retocking is designed to reverse the serious position which we find our cattle industry in today.
A similar situation has occurred in the case of pigs. The total number of pigs has declined at an annual rate of 2 per cent over the past two years. The decline in numbers has been even more serious in the case of the breeding herd where the rate of decline has been in the order of 6 per cent over the past two years. This now means that the breeding herd in 1980 is now back at the 1972 level in absolute terms.
A slightly different picture emerges in the case of sheep. Even though the total number of sheep in the country has declined continuously since 1972, the breeding herd increased slightly in 1980. But again the actual number of sheep in the country is well below the 1972 level, and the breeding herd is over 300,000 below its 1972 level. These declines in our livestock numbers have had serious repercussions for the processing industries which depend on livestock as their basic raw material.
The meat processing industry is one of enormous significance to the Irish economy, both in its own right and as a vital component of the most important sectors of the agricultural industry. In 1980 output, at the farm gate, of cattle was £712 million, sheep £59 million, pigs £133 million and poultry £49 million. At a time when the European Community places a high value on good quality beef, mutton, lamb and pigmeat, we are basically well placed to supply it. The opportunity for Ireland to obtain through a dynamic meat processing industry progressively improved returns for a growing supply of meat products means that we can benefit even more in the future than we have in the past from the contribution that this industry makes in the areas of employment, farm incomes and the balance of payments. Moreover it is quite apparent that, even allowing for its basic function as a distribution medium for Irish meat products, the Irish meat processing sector is of vital economic significance in its own right as an employer in areas where non-farm employment is at a premium, as a foreign exchange earner and as a vital marketing tool for the primary sector.
The slaughtering, processing and marketing capability of the Irish cattle and beef industry is of vital importance to future economic development. The main growth and development of slaughtering plants in Ireland has occurred within the last 30 years and a major advantage of this has been the construction of efficient plants of economic size located in areas containing the highest numbers of finished cattle. There are now 39 beef slaughtering and processing plants in the country. Since 1972 eight new plants have been established while a few have ceased operations.
The majority of plants have the capacity, equipment and expertise for both slaughtering and deboning of carcases. The capacity for downstream processing of beef into highly value-added products is at present limited to a small number of specialist plants each having a relatively small capacity. It is very much in the interest of the industry to reduce its reliance on the export of beef in carcase form. At present almost 80 per cent of beef is exported in this form. While efforts to achieve an increase in the beef cow herd will be of undoubted benefit to the industry as a whole, there is no question but that the real benefits to the long term stability of industry lie in a commitment by suppliers and processors to add further value to the products for export. Next to exports of live cattle, carcase beef has the lowest value added and employment potential. As already mentioned, most meat plants have at least the ability and expertise to produce boneless beef and this is one area where an effort should be made by all concerned to enhance the value of our exports and, accordingly, our balance of payments. In so doing they can also be of major benefit in increasing employment in the industry. I may mention also that CBF are at present engaged in promoting Irish beef as a consumer product rather than as a commodity. This is a welcome change.
When one takes a look at the figures available at present of cattle slaughterings one finds that in 1974, approximately 1,064,000 cattle were slaughtered. This year there were 1,354,000 slaughtered. That increase may seem large but the very heavy slaughterings of cattle in 1980 may push up that figure somewhat higher than it should be. The drop in the cow herd particularly in the last year-and-a-half represents serious figures as far as the national herd is concerned. We find now that the cow herd has dropped to approximately 1.8 million. In 1974 and 1975 we had approximately 2.1 million in the cow herd. The Government must bear a fair share of the responsibility as far as the cow herd is concerned. While people may find it difficult to believe, the cattle herd is the foundation of our economy, because from that we get the milk and beef so vital to our economy. It would appear that my predecessor has some doubts as to the intention of this Government to implement the £100 subsidy per cow. He can take it that I was responsible for drawing up that package which seems to have annoyed him intensely. Indeed it lost Fianna Fail a lot of seats.
We were honest with the farming community. We drew up a programme which I believe is the only one that can get us out of the present difficulty. The former Minister can say what he likes but I was glad to hear him admit in this House that he brought £400 million into it which represents 2 per cent only in incomes that had dropped 40 per cent in the last two years. How he could stand over there and make that statement is incredible. That was some performance. I hope, at the end of our four years in office, we will be saying we improved the farmers' position by 40 per cent and not by 2 per cent and that we did not take 40 per cent from them.
Over the period 1970 to 1979 the volume of farm materials used by farmers grew dramatically at an annual rate of nearly 7 per cent. However, the value of farm materials in 1980 declined by almost 5 per cent in value terms and, as prices increased by 9 per cent, this meant a fall of approximately 13 per cent in real terms. A decline of 13 per cent in the volume of inputs, particularly feed and fertilisers, must inevitably reduce farm output in the subsequent year and we shall see this year the effects of this reduction of inputs on the level of farm output.
We have seen also a sharp drop in purchases of new machinery by farmers. Tractor registrations, which had been running at between 11,000 and 12,000 in 1977 and 1978, fell to less than 7,500 last year. Other machinery sales have fallen similarly. This has had serious effects not only on farmers' capacity to produce but on employment and output in the farm machinery industry. We have seen this in a particularly serious way in my constituency, but the Government plans for agricultural expansion should revive our flagging agricultural machinery industry. Government policy will be directed towards reversing this decline in the level of inputs. We will encourage the greater use of lime in areas where it is required. The production of winter feed in the form of silage must be increased, particularly on smaller farms. We will also improve the level of grants given for this purpose.
I should like to point out to the House — and it is right that these figures be put on record — that as far as lime applications were concerned in 1978 they amounted to 1.9 million tons, in 1979 to 2 million tons and in 1980 900,000 tons, in other words, cut in half. I understand that the present figures for 1981 are around 700,000. Therefore lime applications have been reduced by 66 per cent. On top of that, tractor sales are down 60 per cent, farm machinery down 50 per cent, farm building materials down 60 per cent, compound feedstuffs down 15 per cent, cattle feedstuffs down 22 per cent, fertilisers down 15 to 25 per cent. Those are the figures available at present. I heard the Minister last year blaming the awful weather. I am prepared to accept that the weather has been a contributory factor as far as yields are concerned for 1980 and 1981. The greatest problem has been the low levels of inputs for those two years. The previous Government were directly responsible because the farmer had no income. The previous Government predicted a 2 per cent to 6 per cent improvement in farm incomes in 1981. I claim we will be lucky if we get away with line ball as far as 1980 versus 1981 is concerned because I believe there will be a further reduction.
I should like to speak briefly on some aspects of our livestock breeding programme by commencing with the pig breeding area. While numerically our national pig herd has remained fairly stable in recent years the Government are anxious that the ongoing quality improvement measures should not suffer a setback at this time. The Government are determined to ensure that the national breeding programme is maintained and improved. To this end my Department will be importing new blood lines from Scandinavia in the next few weeks.
At present the Department of Agriculture, in consultation with the Department of Finance, are concluding an examination of a recent report on pedigree pig breeding. This is an area of fundamental importance to our pig industry and one on which I shall have more to say in the very near future when I have had an opportunity of examining in detail the various recommendations in that report.
My Department's provision for progeny and performance testing of pigs makes a major contribution to the improvement of quality reflected in the high standard of our slaughtered animals. It works out at present at approximately 96 per cent of grade A's or grade A specials. This is an area to which I attach particular importance. At this stage I am prepared to say that as far as pigs are concerned we can complete with any of our EEC partners. As a matter of fact we can compete with anybody worldwide as far as the conversion of feed and pigs are concerned on quality. It is a happy position to be in.
Likewise in the area of sheep breeding I believe we are all agreed that we must raise the quality of our national flock if we are to meet the rigid requirements of the more lucrative markets of Europe. Here again arrangements have been made for the importation of high class rams which it is hoped will give progeny which are suited to our rearing and fattening conditions and, at the same time, acceptable to our foreign markets.
The aim of this Government is to upgrade the standards of our national flock by pursuing vigorously the breed improvement programme through flock recording and progeny testing. These measures form the basis of selection of animals for future breeding and at the same time identify genetic improvements in growth rate and carcase quality.
Members of the House will be only too well aware that over the past few years there has been an ever-increasing focus on the so-called butter mountain in Europe. Communiqués from Brussels have concentrated on the need for restraint in the operation of measures that would result in increased milk surpluses. Given such a background the House will agree it was invitable that the substantial level of price increases for milk — which was a feature of the seventies — would taper off somewhat. It is quite clear to the Government that there will now have to be greater emphasis on such aspects as increased output from every acre and every cow if the income of the dairy farmer is not to be further eroded.
If I single out two areas — milk recording and progeny testing — in which this objective can be pursued, it is because I attach so much importance to them. The recording of the yield and the composition of the milk of individual dairy cows is a practice which should be widely adopted on Irish dairy farms. It is no accident that milk recording forms an integral part of the dairying industry in all other countries where dairying is so important. In Ireland, however, the picture is not good — approximately 4 per cent only of the national cow herd is recorded. This compares with over 60 per cent in Holland and Denmark and most of the other European countries at about 40 to 45 per cent. Therefore, there is scope for a substantial expansion in milk recording. The dairy farmer who bases his breeding and feeding management decisions on individual cow recordings is sure to improve the genetic quality and yield performance of his herd, thereby attaining a better farm income. The average milk yield in Ireland is somewhere in the region of 700 and 720 gallons per cow while our counterparts are around the 1,000 mark, and it is considerably higher in some of the more developed countries. It is a pity that proper progeny testing has not been carried out and that very little encouragement has been given. Once the programme itself has been put into operation my Department will then tackle the question of milk recording.
We have the framework to carry out the necessary functions. I believe the creameries have the staff and that very little expense would be involved. This whole question was considered recently by a study group representing all the interested organisations. They have produced the most comprehensive, interesting and stimulating report. I am at the moment applying myself to an analysis of the many recommendations made by the group. My initial reaction is that they provide the basis for a greatly expanded and more efficient milk recording service. I will have more to say on this issue after the programme has been put into operation.
As well as increasing the volume of output and as a consequence of achieving a better farm income it is desirable that the genetic merits of our cattle should be raised. This can best be done through the identification and selection of superior sires for use in the breeding herd. It is my intention, with this in mind, to expand the existing programme, when the economy permits, for the progeny and performance testing of both dairy and beef bulls. I will be providing more facilities for the performance testing programme at our area stations and elsewhere. I also hope to provide grants to the area stations towards meeting the capital costs of expanding the progeny testing programme.
One of the most serious difficulties which farmers have to face at present is the payment of interest rates on capital and money borrowed from the lending institutions for farm investment purposes. Total lending to agriculture by these institutions has now reached some £1,200 million at the present time. With farm incomes, before allowing for interest payments, fallen from £836 million in 1978 to £669 million for last year the burden of repayments has become very severe.
At the Council of Ministers earlier this week the Minister for Agriculture received agreement on the provision of an interest subsidy for farmers in the development categories who took out loans for farm investment under the farm modernisation scheme. This subsidy will apply for two years both in the case of loans already incurred in financing eligible expenditure on farm development plans and for a period not exceeding two years in the case of new approved development plans. At the same time, the Government programme for the agricultural industry provides assistance for farmers not in the official development categories. A national scheme for farmers in need who do not qualify under the EEC scheme is being drawn up. Discussions will be undertaken with farm organisations and the financial institutions to work out the details of this scheme. Only if we can overcome the financial problems facing many of our farmers can we expect them to expand their farm output, an expansion which is the foundation of the Government's objectives for the agricultural sector.
I would like to point out, particularly during the past year, that this has been a very serious impediment as far as agricultural development is concerned. While we were in Opposition when Deputy Bruton, was spokesman for agriculture, we tried to make the Government aware of the difficulties in this area. Shortly before the election the Minister for Agriculture ran over to Brussels and came back with a scheme about four days before the election just because he read it in our programme. I have had negotiations with the banks and the ACC and I have in my possession figures which were made available to the Government at that time. It is no credit to them that they did not take any action on this issue.
We had a lot of talk today about the Minister and all the negotiations he undertook, but he had in his possession last August certain figures and he came here on numerous occasions, misled the House and said there were 3,500 farmers in difficulties. The figures I have in my possession today suggest a far higher figure. I suggested that figure to the Minister and I asked him what did he base his figure on. He said he based it on some report drawn up by ACOT. When I checked with ACOT I was told they had no figures in regard to that issue. They said they took samples in certain areas to see what the problem was but they had no genuine figures. The figures were in the ACC and in the banks but the Minister did not take any action.
The reason why some of our programme was not announced yesterday is that the Minister and I are currently engaged in consultations with the banks and the ACC. This is the valve from which can be released the expansion as far as agriculture is concerned in the coming year. There is no use in releasing that valve next March or April, as the previous Minister did. Action has to be taken now. I hope this announcement can be made around the first week in September although I hope it will be a little sooner. There are many problems but the previous Government stand discredited on that issue. They made no attempt to relieve the situation. The Minister ran over to Brussels just before the election and when he returned he called the farming organisations together and told them that we had got a great deal. This only represented 22,000 development farmers. What about the other 150,000, the commercial farmers? Some said they were well off but I know commercial farmers who have only 60 to 70 acres and have very high commitments. It is vital to our economy that the people in financial difficulties for the last two years should be relieved because their importance to the economy can never be under-estimated. Fianna Fáil under-estimated it. It was rather interesting to hear the figure of 3,500 which they bandied around during two debates in this House. That was the only figure the Minister had but I know if he asked for the reports from the ACC or from the banks he would have the figures. I hope the announcement can be made by the first week in September. This will be a rather expensive scheme but I believe we have the commitment from the Minister for Finance and the Government and that is what is important. I do not want to blame the previous Minister for Agriculture because he had no commitment from his Government and that is the reason why the scheme was never put into operation and no steps taken to alleviate the position.
I would like to deal with the inflation situation. The period 1970-78 was the most prosperous in the history of Irish agriculture. The outstanding factor giving rise to this new prosperity was the unprecedented increase in output prices which took place both immediately prior to and after we joined the EEC. The rise in agricultural prices over the whole period, 1970-78 was over 280 per cent. This compares with a rise in input prices of 244 per cent, and consumer prices of 169 per cent. During this period, there-fore, output prices kept ahead both of input prices and of general inflation. The result was an increase in income from self employment in agriculture in normal terms of 360 per cent. In real terms this represented an increase of some 70 per cent. On a per head basis real farm incomes doubled in this period.
In 1979, however, the tide turned. The rise in agricultural prices in that year was only 5.9 per cent while the rise in input prices at 12.6 per cent was more than double this rate. During 1979 the consumer price index rose by 13.3 per cent. The downturn which commenced in the agricultural economy in 1979 continued on into 1980. Once again, the prices and production environment were not conducive to agricultural expansion. Product prices actually fell by some 3 per cent compared with 1979, while input costs continued to grow sharply, with energy costs the major factor. Inflation was considerably higher and interest rates reached very high levels. These increases in expenses resulted in a drop in family farm income of 9½ per cent in nominal terms. Adjusting for the increase in the consumer price index, this represented a drop of over 23 per cent in real terms, and after allowing for a change in numbers employed in agriculture the fall in real terms was 22 per cent.
Thus over the two years, 1979 and 1980, there was a decline of almost 40 per cent in farm incomes in real terms. This substantial fall in the purchasing power of agriculture, which is such a significant sector of the Irish economy, has had serious repercussions on the sectors linked to agriculture. A depression in farming severely hits local business, including the food industries and industries supplying farm inputs. Only by getting inflation under control can conditions be created under which agriculture will expand and prosper.
In connection with the changes in VAT announced on Tuesday by the Minister for Finance in the budget, the Minister has agreed that because of the importance of agriculture to national production and exports the flat rate VAT refund for farmers will be raised to 1.5 per cent to offset any increase in VAT on farm inputs. Further, the Government have also stated their commitment to provide VAT relief for agricultural contractors. The Government wish to encourage and maintain agricultural contractor services throughout rural areas. The effective VAT rate charged on them will be reduced from 10 per cent to 3 per cent as from 1 September. The Deputy opposite made a great point about the amount of inflation the Government measures would cause in agriculture but he forgot to state that the clawback to agriculture has been increased to 50 per cent which will offset any extra charges on agriculture. I think he suggested a figure of £40 million in a half year and £90 million in a whole year and so the clawback will be complete. The question of agricultural contractors is important but Fianna Fáil charged 10 per cent VAT on them. They are important to the industry and had the 10 per cent remained it would have done serious damage to the contracting sector which is vital to the industry.
The Government are committed to encouraging necessary capital investment in farming. Emphasis will be placed on promoting investment of the most productive kind. Many farms still have a fair proportion of land which is not giving a proper return. Much of this land could be brought to full production by draining and other forms of reclamation. When farmers are considering development of their holdings that is where they should first look so as to expand output and improve income. Proper stocking and utilisation of reclaimed land can bring an almost immediate benefit to farmers. At any time, but especially when resources are scarce, both at farming and national level it is important that all farm investment should be carefully planned. Advisers have a special responsibility in this regard. The end result of the investment in terms of output and income must be carefully worked out so as to determine the nature and scale of the investment that can prudently be undertaken. The lending agency also must accept an appropriate degree of responsibility in relation to the facilities they provide for farmers. In the past they have not been as careful as they should be. When things are going well and farmers can show a very good profit that is all right but unfortunately that does not apply when you get a bad Government. Let us hope we do not get another bad Government such as we had for the past three years.
So far as this Government are concerned, farmers are assured that funds will continue to be provided in the future to encourage investment. Extension of the western drainage scheme to cover an additional 125 acres will ensure the continuity of the scheme for some years. Expenditure under the farm modernisation scheme has reflected the high level of capital investment being undertaken by farmers. Subject to what I have said about the need for establishing priorities as regards investment and the need for planning, it is expected that grants under the scheme and the other associated capital grant schemes will continue to inject something like £40 million a year into farm development.
There has been a reduction in the area under potatoes. In 1960 it was about 70,500 acres; in 1970 it was down to 40,000 acres and in 1980 it was still at 40,000 acres. Consumption of potatoes, particularly in the fresh state, has also been going down and these are general tendencies I understand in developed countries. Consumption of processed potatoes is increasing consistently and this country has been importing appreciable quantities. In 1980 imports of processed potatoes and potatoes for processing totalled about 20,000 tonnes. There is a growing market covering many possible products and I would encourage interested persons to look closely at this area now that our national marketing and processing programme for the potato sector has been cleared in Brussels. I understand there are now no problems regarding the European market. With the possible exception of the export of seed potatoes I think we have never used the market for consumption. The import of potatoes for processing should be a pointer to our growers who have now set up a board and I would encourage them to contract with areas of consumption in our own State. It is regrettable to see imported potatoes coming on our own market. Since we are ordinarily about self-sufficient for human consumption in the fresh state, imports were confined to our requirements between 20 and 1,500 tonnes from 1975 to 1979 until the EEC trade was opened up with the implementation in May 1980 of Community plant health regulations which also provide for some third country trade. In the summer of 1980 approximately 12,000 tonnes were imported under the new regime. We in Fine Gael brought to the notice of the then Minister the importation of potatoes where third countries were concerned and, to give credit where it is due, he brought in an order prohibiting the importation of potatoes from third countries. That was a necessary development and one which will be followed up by this Government to ensure that the markets at home are available to our growers. I accept that as far as EEC countries are concerned we have not authority to stop any imports of potatoes but I appeal to growers to contract with outlets in our own State. That should not be too difficult because they are an easy product to handle.
In my limited time, although tempted to go into other areas, I wish to bring to the notice of the Minister some of the performance that took place, particularly in his last year.
