Deputy Ivan Yates asked this morning to raise on the Adjournment a special item in connection with flour. Permission has been granted. I presume the Deputy realises he has 20 minutes and the Minister has ten minutes to reply.
Adjournment Debate: Flour Imports.
I would like to thank the Chair for his kindness in allowing me to raise this very important matter, which is literally a bread and butter industry and is strategically vital for the continuation of supplies of bread here. It concerns the Irish flour milling industry and the enormous threat to it because of the growing level of imports of flour. I would like briefly to outline the background to this situation. Prior to our EEC entry there was a system here whereby the Department of Agriculture licensed all Irish flour millers and flour producers and voluntary quotas operated. There were effective trade barriers. The price and the production of flour could be controlled and monitored. There was also a tacit, unwritten agreement among different countries that there would not be a cross-border transfer of major shipments of flour. This held right up to our entry into the EEC. With the free trade situation in the Treaty of Rome Ireland's protection system no longer pertained.
In 1982, when imports had apparently been at a level of 1 per cent — they were specialty flours such as Italian flour for pizzas and so on — Britain started to export flour here at alarming levels. The basic reason why this happened was because there are underlying fundamental reasons why they can produce flour cheaper than we can. This has to be realised in trying to deal with this problem. There are companies such as Hay Gate, Spillers, ABS Ltd. and two others in Belfast who are presently exporting. The level is deviating between 11 and 15 per cent of the market share.
The first reason why they can always sell flour cheaper than the Irish flour is in relation to wheat. It takes 1.3 tons of wheat to produce a ton of flour. The basic cost ingredient of flour is wheat. There are two types of wheat, soft wheat and hard wheat. The hard wheat comes from America. Other countries, such as Britain, have deep port facilities which means they have a cost advantage over us. We have to ship the wheat to Rotterdam and then bring it here with obvious extra shipping costs. We have no deep port facilities to allow the straight-forward importation of hard wheat.
Secondly, in relation to the soft wheats, which are grown in the EEC, such as Irish wheat and so on, we have an agreement with Irish farmers who grow wheat that they get paid the full compensatory amount for the cost of imported wheat. In effect, they get the full price. The second reason why Britain have an obvious advantage in selling flour here is that interest rates are cheaper. It is a capital intensive industry. The cost of a stamp, electricity and telecommunications are cheaper in Britain and they have that obvious edge on cost competitiveness here.
The third reason why imported flour will always be cheaper is because at present a price war is going on with flour in Britain. It was announced yesterday amongst retailers in the UK that there is a further escalation of this price war. This means that British flour millers are doing extra marginal cost production, putting on a third shift, where they do not have the prime production costs. They can sell cheaper flour because it is done on an extra turnover basis. We cannot compete on that basis and we must realise it.
That is the reason levels of imports have risen from 1 per cent to 3 per cent and to 15 per cent. The reason for my raising this this evening is the situation in relation to Ranks. We can go from 15 per cent importation of flour to in excess of 50 per cent.
Ranks who are 74 per cent owned by Ranks in Britain have a 32 per cent market share in Ireland. They have mills in Limerick and in Dublin with 300 employees. They are supposed to be closing tomorrow. I understand the Government are having talks with Ranks and certain requests have been made, such as requests for financial assistance, a clampdown on imports and sufficient profit margins to ensure that they can obtain viability. Possibly all or some of these are unacceptable to the Government or unrealisable from the Government's point of view. The situation will then be, with this 32 per cent market share, that there could be a number of inevitable consequences which could be disastrous for our economy, for Irish bakers and Irish flour millers.
Will the Minister ensure that 50 per cent imports of flour are not reached? He can do that by ensuring that Ranks keep operating and milling their flour here or the Government can take whatever steps are appropriate to ensure that Irish flour millers can take up the vacuum from the market and ensure that the extra capacity of other Irish flour millers take up this market share. This would mean, in effect, that there would be cheaper Irish flour because the type of marginal cost production I spoke about earlier in relation to UK flour can be done by Irish flour millers with the extra production and extra turnover. I do not wish to get involved in the negotiations which are going on between Ranks and the Government. I appeal that Ranks do everything possible, in co-operation with the Department of Agriculture and its Minister, to ensure that they keep open.
I wish, having outlined the situation, to raise some other side issues in relation to the level of flour imports. This serious matter was raised with the previous Minister for Agriculture, Deputy Lenihan, in July 1982 and again in September 1982. I wish bluntly to accuse the former Minister of gross negligence and inaction in this area. This is verified by the fact that in 1982 a member of the European Parliament, Deputy Tom O'Donnell, tabled a parliamentary question asking the Commission what steps were being taken in view of the Irish difficulties relating to flour milling. The reply was that the Commission were unaware of the Irish difficulties. It was not until that matter was raised that there was any action from the Government.
I understand the Minister for Agriculture and his Minister for State in the present Administration are meeting the relevant commissioner on Monday. I also understand that all avenues are being explored in that regard. I wonder if we had had the same commitment by the holders of office in the period between July and September last year, when this matter was first raised, if we would be in this situation now.
With regard to my constituency I wish to declare my personal interest in one of the independent millers, David Moss Limited, who have a turnover of £12 million and have 175 employees. This firm are part of the 27 per cent share of the independent flour millers. They have made an enormous contribution to the local agricultural economy in County Wexford, having bought last year £1 million worth of Irish wheat from County Wexford farmers. In terms of local purchases and spinoff to the local economy the effects of the closure of such a large traditional firm will be devastating. One could not under-estimate the difficulties that would follow in the event of an increase in the level of imports by Ranks or others. The present rate of sale, which is only a breakeven rate and which is unsustainable, is approximately £318 per tonne whereas the import price would be approximately £300 per tonne so that within months most if not all independent flour millers would be put out of existence. In addition there would be a number of small bakers who would be put out of business apart from the number of jobs that would be lost directly in the flour milling industry. There would be also the loss of revenue to local farmers because of their wheat not being bought. Another matter for consideration is the side benefit in relation to the provender millers who engage in the production of compound products for animal feedstuffs. With most flour millers, pollard is a side product. It is an essential ingredient in compound feedstuffs. In the event of a further erosion in the number of Irish flour mills we could be facing a situation in which we would be importing an extra £4 million to £5 million worth of pollard with the obvious job losses in provender milling and the consequential loss to the agricultural sector.
There are dangers also in the present situation in relation to other Irish flour mills engaging in a cut-throat price war whereby in the short term they would reduce interest in an effort to take up the market share in the vacuum situation of Ranks. Such a situation would not be sustainable. It would put independent flour millers out of business. Therefore, I raise the question of the attitude of expediency being adopted by some of these people. I ask the Government to monitor that situation so as to ensure that short-term measures will not supersede the long-term overall advantages of restraint and rational consideration on the part of all existing Irish flour millers.
There is a need for rationalisation in the flour milling industry. There is surplus capacity production and there is an acceptance among the Irish Flour Millers Association of this, but the question is whether the rationalisation that must take place in the next three to five years will take place in a reasoned and orderly way or whether there will be a war of attrition between the bigger Irish flour millers and the importers with the independents being squeezed. That is a question that faces not only the Government but which should concern the consumers also because in such eventuality we would not have supplies of flour during, for example, a strike or a war situation. I am talking of the level of imports exceeding 50 per cent of the market.
I accept that there is no clear-cut area in which the Government can simply introduce legislation or invoke an agreement with other trading partners to ensure that this matter will be resolved but there are some steps that I am asking the Government to take. First, I urge that at EEC level flour be made such a top priority that we would have a situation where in the regular trade-off situation between other member states, whether in terms of beef or of butter, steps be taken to negotiate a situation in which the strategic indigenous flour industry be protected and that direct representations be made to the British Minister with a view to his putting pressure on the British Flour Millers Association to review their position. Their long-term gain on the small Irish market is very limited. There arises the question also of whether our Government should not approach, for example, the appropriate French Minister to ask if the French would be prepared to consider breaking tacit agreements, exporting flour into Britain and undercutting their market by such dumping. That trade-off situation should be examined fully with the Council of Ministers and with the respective Ministers of Agriculture of the other member states.
There must be a direct case made to the EEC Commission in relation to the need for this country to have the capacity, the warehousing storage facilities, to retain essential amounts of flour so as to ensure an essential supply for bread production and baking in the event of an emergency. We must protect this industry because we need bread. If we fail to protect our own flour milling industry we will not have bread in the event of, say, a dock strike, a war situation or a blockage of the seas.
I urge also that the present payment by the Government of a subsidy on the loaf of bread be reviewed and that consideration be given to switching this 15½ pence subsidy per loaf to flour. If this were done it would allow the possibility of a situation whereby measures in terms of regulations at the ports, in terms of technocratic bureaucracy and of technical trade barriers could be addressed in a very discreet manner. We all wish to be good Europeans but there are times when we need to take reasonable and practical steps such as the review of the payments of subsidies or the timing of such payments.
I am asking the Government also to impose VAT on flour at 18 per cent. Such a move would bring about an immediate reaction of shock and horror since it would have obvious consequences for the users of flour but it would ensure that there would be no VAT on bread. All Irish flour millers could claim a rebate in respect of that VAT but the imposition of the VAT at the point of entry would affect the importers. It would affect the cash flow and would remove the advantages enjoyed by those who are importing flour.
Finally, I reiterate what I consider to be the major consequences of failure to take action in this area either by the Government or by other Irish flour millers, all of whom have an obligation and a responsibility in the new situation of the 32 per cent market share. I urge the Government to ensure that at all costs this market share will not be taken up by imported flour. If that were to happen the implications in terms of bread supply, in terms of the small bakers, in terms of the rest of the flour millers and in terms also of employment and of the farmers who are producing the wheat would be disastrous. That is the simple logical conclusion. The Government must act and ensure that the 32 per cent market share is taken up by Ranks, modernising and continuing in operation, or by other Irish flour millers who have the capacity, the will and the capability to do it.
I thank the Chair for giving me the opportunity to raise this very serious matter. I am aware that other Deputies unsuccessfully tried to raise it earlier this week and I hope the commitment shown by the Minister in meetings with the Irish Flour Millers' Association will be continued and that effective action will result.
I listened with interest to Deputy Yates and agree with many of the sentiments he expressed. As a sovereign State we are very limited in what we can do with regard to flour imports from the EEC. We are arranging a meeting with Commissioner Andriessen, hopefully on Monday, to ascertain whether Britain is breaking the rules, and this investigation is already in progress. Of course we are very concerned about the present situation. I have had several meetings with Ranks, made concrete suggestions and was helpful, but having met Ranks (UK) in conjunction with Ranks (Ireland) I got the impression they were not very interested in staying. It is clear from investigations being made in my Department that we have adequate milling capacity. That is one big worry sorted out.
It is the Government's wish to see all our flour requirements produced within this country. Mr. Breen of the IFA is adamant that this be the case. We can produce our own requirements and have been doing so. Our flour is of top quality and I appreciate the Deputy's concern that nothing must be allowed happen to that very valuable industry, but a lot will depend on our competitiveness.
We cannot ban or restrict flour imports from other member states of the Community. To do so would not only be in breach of the Treaty of Rome, which would undoubtedly evoke a prompt reaction from the Commission, but also could have very serious consequences for our own agricultural exports. This is all the more relevant when it is realised that we export over £600 million worth of beef and dairy products to other member states.
Flour imports have increased from 2 per cent in 1979 to around 14 per cent in 1982. This has come about largely because of price differences. We must put ourselves in the strongest possible competitive position by producing top quality wheat and flour as reasonably as possible and make every effort to get our costings right.
For these reasons I welcome the announcement made yesterday by one of our leading milling groups that they are going to lower their flour prices. In other words, they are making a good commercial decision to take on competition and I, and I am sure, every Deputy in this House wish them every success in facing up to the challenge which imports present. In the final analysis this is the only thing to do. No matter what area in which one is involved, one's best hope of success is to be competitive. The flour we import from Britain will have to be at realistic prices, not dumping prices. The British farmer has to be paid for his wheat and they also face additional transport costs.
Many commentators have suggested that under the Treaty of Rome there are provisions under which we can stop flour imports when they begin to hurt. It is not as simple as that. When we joined the Community ten years ago we accepted not only the benefits which stemmed from membership but also the responsibilities. I have asked the EEC commission to investigate as a matter of great urgency the whole question of these imports which I accept are posing a threat to our flour milling industry. In the agricultural area we are faced with similar threats and, to a greater degree, in the horticultural industry. Some of our producers of fruit and vegetables are faced with almost a blitz situation because of overseas competition. As Minister with responsibility for this area, I will ensure we get a fair crack of the whip.
With regard to my visit to Strasbourg on Monday, I cannot say what the outcome of the investigation will be but it is important that no avenue be left unexplored in our efforts to get a satisfactory solution to this serious issue.
It is a source of great disappointment to myself and to the Government to learn of Rank's decision to close their mills at Phibsboro and Limerick. However, I am aware that the company have had financial problems and that their decision to close was one which they took themselves and is not a matter in which I can interfere.
The Dáil adjourned at 5.30 p.m. until 2.30 p.m. on Tuesday, 8 February 1983.