We are facing a challenge of historic proportions, with the Government having decided on an overall budgetary adjustment of €15 billion over the next four years. The extent of that challenge has to be seen in the context of budgetary savings of €14.5 billion achieved in the past two years. The Government and many agencies and economic commentators have long argued that a return to export-led growth is essential to our economic recovery. At the launch of the Food Harvest 2020 report, the Taoiseach stated:
There is no doubt that export-led growth, with strong linkages to domestic economic activity, will be a key element in our economic recovery. And this is exactly what the agri-food sector delivers to our economy.
The manufacture of food and drink products is Ireland's main indigenous industry, with over 45,000 people employed in 800 companies, of which over 90% are small and medium sized enterprises, over a wider regional spread than other manufacturing industry. The industry produces over one third of our net export earnings from primary and manufacturing sectors. It accounts for over 6% of GDP and approximately 7% of national employment and has a gross annual turnover of €24 billion. More importantly, however, it is embedded in the domestic economy.
Although the sector faces many challenges in terms of international competitiveness and environmental sustainability, enormous opportunities are also opening up in the EU and global food and drink markets. It is particularly encouraging to see that during the first five months of the year the value of Irish food and drink exports, at almost €3 billion, was more than 8% higher than the previous year. Figures published yesterday by the Irish Exporters' Association provide further evidence of the export strength of the Irish agri-food sector. These figures show that a very strong return to growth throughout the year accelerated during the third quarter, when exports grew by 14%, or €214 million. They also point to a very positive trend in growth in exports to the eurozone, with exporters pushing harder for sales outside the sterling area. It is important that we continue to reduce our dependence on Britain, given that it accounts for 45% of agri-food exports. The strong performance of Irish exports in the wider economy was highlighted in IEA figures which showed a 12.8% increase in merchandise exports in the third quarter, with total exports for the quarter up 9.3% on the same period last year.
Last July, the Government launched Food Harvest 2020, a long-term strategy for the agri-food, forestry and fisheries sectors. The committee which drew up the report has shown that Ireland can grow its exports of food and beverages by one third to €12 billion annually. We can increase the value of primary production by our farmers and fishermen by €1.5 billion and value added in processing by €3 billion. The ending of milk quotas in 2015 represents an exceptional opportunity to grow our milk output by an estimated 50%. We can, and must, improve our cost competitiveness by 20% relative to our competitors. We are seeing evidence already of improving competitiveness, with the labour cost of production in Ireland having been reduced while it has continued to rise elsewhere. That improvement in cost competitiveness is being reflected in the more positive way in which operations in Ireland are viewed by international companies.
Given the dependence of the Irish agri-food sector on exports, exchange rates are of particular importance. In that regard, the strengthening of sterling and the dollar against the euro this year to September has helped Irish exports.
The Irish beef and dairy sectors are particularly export-orientated and they make vital contributions, not alone to the national economy but to local economies throughout the country. There are more than 5,000 people employed directly in the beef processing sector, which purchases the output of some 80,000 farmers and exports a high quality, indigenous Irish product with an annual export value of €1.5 billion. Ireland is the largest net exporter of beef in the northern hemisphere and the fourth largest beef exporter in the world. The beef industry has succeeded in transforming itself over the last decade, with more than 99% of Irish beef exports now placed in high value EU supermarkets. Food Harvest 2020 sets a strategy for a 20% growth in the output value of the sector over the next decade and, with the commitment of farmers, processors and the State agencies, I am confident this ambitious target can be met.
The Irish dairy sector has a pivotal role to play in delivering the growth targets. The ending of milk quotas in 2015 represents an exceptional opportunity to grow our milk output. The committee has set a target of a 50% increase in milk production by 2020. This equates to an increase of 2.75 billion litres and would enhance the primary output value of the sector by about €700 million, with further downstream benefits in the form of increased dairy product values, export earnings and employment. In order to achieve this highly ambitious target, which I believe is entirely realistic, it is critically important that the stakeholders in the sector act in a coherent way to increase efficiency and reduce costs both at farm level and at processor level, that processors adopt the most cost effective model to process the additional milk supplies, that new markets are found for the additional milk production and that there is an increased focus on research and innovative product development in order to add value in markets in which we already have a strong foothold.
During next month, Innovation Dublin 2010 takes place, and innovation is essential to everything we do, not least in the agrifood sector. I was pleased, therefore, to announce two recent initiatives aimed at encouraging additional investment in innovation and research, which were emphasised in the Food Harvest 2020 report as "a prerequisite to achieving the growth targets for the agri-food sector". In July, I announced details of innovation funding for small Irish food companies, providing innovation vouchers as an incentive to such companies to explore how innovation can change their businesses for the better, be it through new product development or the improvement of existing processes. I am pleased that over 90 small companies were successful in their applications, many for the first time.
Earlier this month, I announced details of a €10 million research call across my Department's three competitive research programmes — the food institutional research measure, FIRM, the research stimulus fund, RSF, and the programme of competitive forest research for development, COFORD. These are significant research initiatives and will have a key role to play in achieving the Food Harvest 2020 targets, for example, for the 50% growth target for milk production in regard to which one of the initiatives under the FIRM programme will provide scientific knowledge to add value to the sector.
We are very fortunate in this country to have many global leaders in the agrifood industry, most of which came from much more humble origins. As if to make that very point, Ireland accounts for an extraordinary 15% of the world market in infant formula production. The fact this industry is located in Ireland demonstrates international confidence in our food safety systems and the huge investment that we have made in food safety and quality. It is no accident that Ireland has dynamic dairy and food ingredients sectors. Thinking globally is the challenge facing the Irish agrifood sector, but one the industry should be well capable of meeting. Our strategy maps a course for the future of the sector and, with over 200 recommendations, is a comprehensive and considered roadmap for the development of Ireland's key indigenous sector.
The Taoiseach pledged the full support of the Government for the effort to realise the vision in the report. I have established and am chairing a very focused high-level group to ensure effective, joined-up implementation, including consideration and prioritisation of how best to pursue the recommendations made. At our inaugural meeting of 16 September, I emphasised to the committee that its key function was to direct and take whatever action was necessary to successfully implement the strategy. At that meeting, we agreed on the processes which will best realise the sector's full potential advance.
In the past few weeks, we acted on one of the key recommendations by establishing a dairy expansion activation group. This small group is comprised of farmers, processors and Teagasc and will address specific actions to be taken to realise the targets for dairy expansion set out in the report. By the end of November, the group will submit an initial road map to the high level committee highlighting the key milestones from the production and processing perspectives, identifying obstacles to implementation and how these should be overcome.
The next four years present the country with a formidable challenge but it is a challenge we are well capable of meeting. The Government has identified the pathway to recovery and will not shirk its responsibilities. We have a responsibility to this country and its citizens and we are committed to the effective discharge of that responsibility. We are conscious of the balance between making the necessary budgetary adjustment of €15 billion over the next four years while also encouraging growth in the economy.
That adjustment will comprise several elements and among those sectors which has a key role to play in achieving the goals of the four year plan, which we will publish next month, is the public service. The Taoiseach referred yesterday to falling staff numbers over the coming years, as the cost of the public service is reduced while service delivery is radically reformed. I am pleased that my own Department has been to the fore in restructuring the efficient delivery of our schemes and services. The reorganisation plan provides for the reduction from 58 to 16 in the number of local offices and, to date, in slightly over one year, ten new regional offices have been established and 22 associated offices have closed to the public. Despite this, services to customers have been maintained and enhanced through business process improvement. When the reorganisation plan has been fully implemented, it will yield savings estimated at €30 million per annum and a reduction of 400 in staff numbers. There are now over 1,000 fewer people working in the Department than was the case a few years ago and it is delivering a better service to its customers.
Ireland is a small, open economy and we all appreciate the value of an export-led recovery. During 2010, we have seen a remarkably strong export performance. The agrifood sector has been at the heart of the performance and the latest figures available for agrifood exports are very encouraging. Our strategy sets the scene for our agrifood, drinks fisheries and forestry sector for the next decade. Getting our future priorities right will be fundamental to growing our most valuable indigenous industry. The report captures the considerable complexity of this sector. It underlines its unique and special position within the Irish economy and it illustrates the potential which exists for this sector to grow even further.
There is a renewed interest in our sector amongst the wider society and a growing recognition of the role it can play in our economic recovery. I welcome the recent national commentary, which has been positive about the potential of the agrifood sector to contribute in a very significant way to our economic recovery. This is an important and welcome change but it also poses a challenge for us to deliver on these expectations. It is a challenge the sector is fully capable of meeting, and one I and my colleagues in Government are determined we will achieve. Only this morning I met representatives of the food industry again. All of them are committed to the Food Harvest 2020 report and believe the targets we have set are ambitious but realisable. We will ensure those plans are implemented.
With regard to the comments of Deputy Tom Hayes, he put before the House wrong figures in regard to payments under the Department's schemes. At this point, 90% of those who applied under our single farm payment scheme and the disadvantaged areas scheme have received payments. We must bear in mind that the earliest date on which we can normally issue a single payment is 1 December. However, I sought permission from the European Union, and was granted it by the Commissioner, to bring forward a 50% advance payment by six weeks.
We have had an enormous amount of work to do this year, with extra mapping requirements laid down by the European Commission and the European Court of Auditors. My Department has the most efficient system of payments within the European Union. It ill behoves Members to put figures that are absolutely wrong on the record of this House. I want to put on record that we will ensure we get the maximum number of payments out to eligible applicants at the earliest possible date. Within a very short period since beginning payments six weeks earlier than usual, we have to date issued payments to 90% of the over 120,000 applicants. That is surely a successful operation by the standards of any Department.