JOINT COMMITTEE ON AGRICULTURE AND FOOD debate -
Wednesday, 29 Jan 2003

Vol. 1 No. 4

Irish Cattle and Sheep Farmers’ Association: Presentation.

Chairman

I welcome the presentation by the Irish Cattle and Sheep Farmers' Association. I welcome Mr. Charlie Reilly, president, Mr. Eddie Punch, Mr. John Deegan and Mr. Martin Coughlin. I apologise for the delay in meeting you but you will be allowed as much time as necessary to put your case.

Before I ask Mr. Reilly to commence his presentation, I draw to your attention the fact that members of the committee have absolute privilege, but that same privilege does not apply to witnesses appearing before the committee. Members are also reminded of long standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House or an official by name in such a way as to make him or her identifiable.

Mr. Charlie Reilly

My colleagues and I welcome the opportunity to make our presentation to the committee on the future direction of Irish farming. Members will be aware that things are not good on the farm. Three weeks ago a campaign to highlight incomes in farms was undertaken. An excellent job was done and I commend the highlighting of the issue. However, identifying solutions to it will be much more difficult.

The issue of low incomes was addressed three weeks ago and I do not want to re-open that debate. The average annual income in dry stock farming is €7,500. The annual income on cattle farms of 125 to 250 acres is €16,000 to €18,000. Such farms are relatively large and are in no way a part-time operation. This is hardly a reasonable return on either labour or investment. Why is this? The farmer gets only 30% of the price the consumer pays. When Ireland joined the EEC in 1973 the farmer received 75% of the consumer price.

In 1995 farmer borrowings amounted to €1.8 billion, in 2001 it had almost doubled to €3.2 billion, yet incomes are declining. In real terms, farmers' incomes are now lower than in 1973. It takes €14,000 in supports to deliver €10,000 in income. The agri-food report shows that if we continue direct payments we will have approximately 20,000 full-time farmers by 2010. Is this what we want for the future?

Where are we going? We can see two options. We can either stick with what we have and accept that we cannot improve ourselves or embrace change and try to shape it in our own interests. I believe we must opt for the latter. If we do, the Fischler mid-term review is the only show in town. This approximates the ICSA's analysis in the past seven or eight years, especially in the area of decoupled payments. This is at the core of the EU vision for change as outlined by Mr. Fischler.

We need to understand the components of the MGR. The first issue is decoupling, and we are in favour of it as it empowers farmers to engage with the market in determining a return for their labours.

The other part of the mid-term review is modulation. We are opposed to modulation, particularly at the low levels envisaged. We think a far fairer figure at which to start modulation would be the average industrial wage of €24,000 or €25,000.

Another part of the MTR concerns market reforms. This is an issue that applies mainly in the dairy sector, for which it has severe implications. The Minister's stand has to be supported because the issue could have severe consequences if such a stand was not taken.

A further element of the mid-term review is the second pillar and rural development, which presents an opportunity for the farming sector in so far as we have shown ourselves to be adept at devising schemes to draw down moneys through rural development programmes.

Cost compliance is also involved in the mid-term review. It has an impact on environmental, animal welfare and operator safety issues, which are already there. Cost compliance exists because we have to be aware of environmental issues in relation to farming, in addition to animal welfare and health and safety. Therefore, we already have cost compliance. I contend that if it walks like a duck and quacks like a duck, it is a duck.

It is important to emphasise that although the MTR and the WTO are linked, they are separate and will be negotiated independently. This means, for example, that if the MTR did not happen - in other words, if there is no attempt to reform the CAP - the WTO, with all the threats it carries, would still be on the table because those talks will happen anyway. The key issues in the WTO are export refunds, which will be under pressure and, likewise, import tariffs which will also be under pressure. The blue and green box issues and the tactics attaching thereto also arise. Can the REPS payments remain untouched? If we do decouple in that environment, can we negotiate a better situation concerning export refunds and import tariffs? Those are the WTO issues.

In examining the relationship between the mid-term review and the WTO, we must bear in mind factors which include farmers' returns from the marketplace. At present, the farmer is only receiving 30% of the consumer price and that is likely to continue, perhaps to a lower percentage in the direct payments era.

We need to examine the impact studies already available to us concerning farm incomes. These clearly show that, in terms of impact in the EU, beef production will be down 3%, sheep 4% and sucklers 11%. On the other hand, prices for beef will be up 8% and sheep 12%. The OECD report on the impact for Ireland states that beef production will be down 12%, with a similar figure for sheep, while suckler production will be down 30%. On the other hand, prices will rise by 8% for beef and 20% for sheep. In terms of farmers' income, the overall impact in the EU will be a 4% increase, while for Ireland it will be 11%. In assessing the future direction of Irish agriculture, we cannot dismiss this study. The OECD report has stated that decoupled payments are twice as efficient in delivering net gains to farmers as the direct payments. Surely we should be efficient in delivering net gains to farmers.

Inflation also impacts on farmers. We have a high inflation rate at present, having just exited 2002 - the last year of increases in direct payments, which will now remain static. Coupled with falling farm incomes, inflation is impacting heavily in a direct payments situation. There is no capacity to recover inflationary costs from the market because it is over supplied. In a decoupled area, where the farmer still has the decoupled payment as a single payment, he is empowered to engage with the marketplace in terms of whether he obtains a return for his labour. Therefore, any inflated costs he incurs will be far more recoverable from the marketplace than in a direct payment situation. It is far more likely that increased inflationary costs will be recovered.

The other element of the argument is the sustainability of farming. Two issues spring to mind concerning the arguments surrounding sustainable agriculture. The first of these is the nitrates issue. With the REPS payments system, farmers are forced to produce at a particularly high level. I know the nitrates issue impacts less heavily on dry stock farmers and on other farming areas but, nonetheless, it still has consequences for us all. However, in a decoupled area where there will be fewer animals on the land, it will have a knock-on effect in terms of the nitrates issue and gas emissions.

Part of the FAPRI report indicated that gas emissions will be reduced in a decoupled situation by 13%. It would be preferable to have a situation whereby compliance with our requirements under the Kyoto would be observed through the knock-on effect of decoupling and its beneficial impact on gas emissions rather than have a situation where a coupled scenario is forced on us and where we need to reduce our stock numbers when the rest of the issues around direct payments have not been addressed. That is a significant benefit, bearing in mind the compliance with those two issues down the line.

What do we face in the future? Do we enter into the mid-term review and the WTO? If we go into the WTO with direct payments, they could be targeted and we could end up in a lose-lose situation, whereby the surplus production of beef combined with lower export refunds and reduced import tariff barriers would severely impact on farmer incomes. Eddie Punch might have a few words to say on how our analysis would impact on the debate.

Mr. Eddie Punch

So far we have conducted the debate on the Fischler reforms as if the WTO only applied in the case of a mid-term review being put forward in the way Fischler proposes but, of course, the reality is that the WTO will happen anyway. In that situation, there is the possibility we will suffer some loss of ground in relation to export refunds and import tariffs. If that is combined with the current high levels of production under direct payments, we will suffer particularly badly and there will be no way for farmers to adjust to tackle that situation. On the other hand, if decoupled payments are introduced, the reality is that some production will be dropped but farmers will have the opportunity to change their levels of production relative to the amount of product required by the market.

Having said that, we must also look at the question of how much beef can come in from South America, in particular. It is important to point out that the threat from South American beef is far greater in a scenario where the EU would be, as in recent years, 108% self-sufficient in beef. In that situation, a small import level of beef causes a lot of difficulty, but if there is a scenario where the EU is perhaps slightly less than 100% self-sufficient, the question we must then ask in order to analyse where we are going is, can South America flood the EU market with cheap beef? The case that this might be so has not been well made.

I note Seamus Phelan said at the last presentation that 100,000 tonnes of beef came in from South America paying the top rate of tariff. That is correct, but there is no limit on that quantity. In other words, if they are willing to pay the top rate of tariff, they can bring in as much as they want and so if it is profitable to bring in 100,000 tonnes of beef and pay the top rate of tariff on South American beef, why not bring in 200,000 tonnes or 300,000 tonnes? In fact, if they can pay this in the current situation, then a reduction in tariff rates at the higher level would not make any difference because they are already bringing 100,000 tonnes and paying that tariff anyway.

The case that South America can make up the difference and, in fact, undermine our price if there is reduced production under the Fischler scenario has not been proven. I will give the committee some statistics. In 2001 Argentinean beef production was at 2.5 million tonnes, but in 1990, it was three million tonnes. In other words, they have been falling back in terms of their ability to produce beef. However, there have been increases in Brazilian beef and so the overall situation is one of modest growth in production.

The OECD and FAPRI have looked at the way in which production and consumption of beef will evolve over the coming years on a worldwide basis. In a general sense, they are averaging out at an increase in production and in consumption of the order of 3% globally. In particular, they see strong increases in consumption in countries such as Mexico and that if one puts the two together, there is not great scope for the flooding of the EU market with South American produce.

Furthermore, there is a point in relation to the fact EU beef is at present under pressure by the price competitiveness of South America beef. Part of this, although not all of it, is linked to one factor - the collapse of the Argentinean economy. The particular factor is that the Argentinean peso, which was on parity with the dollar, suddenly fell in value to 25 cents. In other words, with a devaluation of that type, almost no tariff is a threat to the competitiveness of that type of beef. Because their peso is so valueless, any money they get in dollars buys a lot of pesos. However, the opposite point must be looked at when we look at the potential for them to expand. If they wish to expand, they will be dependent on a number of factors, namely, fertilisers, machinery and oils and diesels to drive that machinery. All those are dependent on them being able to purchases commodities, namely, oil, fertiliser and machinery, all of which are denominated in dollars. If the value of the peso has collapsed, one does not have the ability to rapidly increase production, so there is a downside to the peso devaluation in the Argentinean case.

Overall, pain is certainly being suffered as a result of South American imports. However, this is in the context of the EU already being 108% self-sufficient. If we move to a scenario under a decoupled regime where we have a significant - although not a seriously significant - drop in EU beef production, it is not at all clear that South American countries can make up that difference to the extent they will undermine the benefits of a reduced supply of beef from EU producers.

Chairman

I thank Mr. Reilly and Mr. Punch for their presentation.

Deputy Timmins

I thank the ICSA for its submission and presentation. The association has taken a view, like all other organisations, on the Fischler proposals. In every sector there are individuals suited by the proposals and there are members of the ICSA who are not suited. However, it is important that the Minister should listen to the association's view and that it should be given an opportunity to voice the reasons it favours the proposals. I hope he will meet its representatives.

I am always wary of the FAPRI reports and economic analyses. While they are not scientific exercises, assumptions are made. The FAPRI report on Ireland referred to the final 11% decrease in income in 2010 and stated there would not be a change in subsidies or the amount of foodstuffs imported by the EU and the current system in Britain of culling all animals aged over 30 months continues. I do not know whether these are realistic assumptions. The culling of animals in Britain was important because that saved the beef industry here as a result of the level of exports there due to the shortage of beef.

While I dismiss the report on one hand, on the other, it points out that the price of beef would reduce by 8% in the first year and 5% in the second year while sheep prices would reduce by 14% in 2004. Following a bad year, when there was an 8.5% drop in farm incomes, and forecast reductions for the next two years, when will the final 11% decrease occur? Does the ICSA think there will be a flight from the land and that farmers will not stick it anymore? It is predicted that the suckler cow herd will reduce dramatically from 1.1 million to 740,000, a 30% reduction, which will have an impact on the countryside. The people who favour the Fischler proposals are reducing the scale of farming and are on the way out. Will the delegation comment on that?

Mr. Reilly mentioned the 2010 agri-report which stated there would be 20,000 full-time, 40,000 part-time and 40,000 in between farmers, whatever that means. Do the proposals appeal to the ICSA because they are attractive for the membership they represent or should they appeal across the board? I do not ask the ICSA to get into conflict with other organisations. What is the motivation of the food industry, the IFA and ICMSA to oppose the proposals? Is there a recognition that one size does not fit all? The report referred to a 5.1% reduction in employment in the agri-food sector by 2010.

Deputy Ó Fearghaíl

I thank the delegation for its contribution and I congratulate the association on its distinctive voice in the agriculture debate. It is useful that people are articulating a different view from the larger farming organisations. Like Deputy Timmins, I am interested in the ICSA's response to the point raised by Macra na Feirme that the proposals will facilitate farmers winding down in terms of decoupling. I refer to the correlation between that and access to land and the phenomenon of the hobby farmer. Those who have additional capital available to them are buying land and, thus, driving prices upwards for full-time farmers. Is there a fear that the proposals on decoupling will facilitate the hobby farmer and make access to land much more difficult for young potential full-time farmers? In addition, has the ICSA examined the impact of a decrease in production in the processing sector on the economy as a whole? I identify with the position of suckler farmers and the difficulties they have had since 1995 which have resulted in low incomes.

The delegation has offered its view on the international position but will it outline its views on the national position in terms of the consumption of non-Irish meat products? The Minister appeared before the committee a number of weeks ago and he stated domestic customers consume 65 million tonnes of meat per year, of which 12 million tonnes were imported last year. That is a frightening statistic. I asked the Minister whether there was a need to introduce legislation to address that. The problem is that the catering sector is promoting and selling, unknown to the consumer, meat from God knows where. Is legislation needed to address that?

What is the relevance of everything that has been done in terms of animal health regimes and traceability? Farmers are constrained in what they can do, yet the customer can go into a hotel in Dublin, Cork, Kildare or wherever and consume meat that may have many additives in it and not know where it was produced and what is its history. What are the delegation's views on that?

Senator Scanlon

I welcome the delegation and I strongly support their comments. If the agriculture industry is to have a future, decoupling must take place and that has been my opinion for a number of years. Beef that is imported into Ireland comprises the best cuts that can be bought. While we over-produce to the tune of 80%, we still cannot supply the restaurants and hotels and that is the reason Argentinian and Brazilian beef is imported. Irish striploin, which is the same as Argentinian and Brazilian striploin, commands premium prices and is €1.30 or €1.40 dearer than the imported equivalent. However, the reason the meat is imported is hotels and restaurants are not able to be supplied by domestic producers. Butchers are not selling imported meat and are commanding better prices for Irish striploin.

The future of agriculture will be secured through the Fischler agenda. Area-based payments should not be less than they are currently. I know farmers who are three times over-stocked. They must renew their lands as a result. The nitrogen directive would be easier to handle if the proposals are introduced. They are being robbed in terms of feedstuff and manure to keep the numbers up yet at the end of the day, they still are not able to bring a quality animal to the marketplace. If what is being suggested is implemented, the number of cattle in Ireland will reduce significantly and farmers will feed the number of cattle on their lands that it is comfortable for them to feed and they will have better quality animals to sell in the marketplace.

Deputy Wilkinson

I welcome the witnesses from the ICSA and thank them for their presentation. It was detailed and they presented their views very well.

It is interesting to listen to the two different points of view. Macra na Feirme, which represents young and future farmers, was in attendance previously. Its view was different to that which the witnesses put forward. It is important that the Minister hears the ICSA's detailed presentation.

Many farmers tell me they favour decoupling. I do not want to go over what has been said. Many good points have been made and I agree with most of them. What is the attitude of the ICSA to the effects decoupling would have on the dairy sector? I am aware that it is a different organisation. The ICSA's well thought out presentation has given support and much food for thought.

Deputy Ferris

I welcome the witnesses and compliment them on their presentation. It is healthy that there are different opinions. It is important that everyone engages in the debate on Commissioner Fischler's proposals to allow us to emerge with a position that will advance rural Ireland. This is wider than the farming community. It is about the preservation of rural Ireland.

Having listened to the presentation by Macra na Feirme and those of other farming organisations, the overriding issues affecting the farming community are declining prices and decreased costs which have led to over-production. Any examination will bear this out.

The witnesses from the ICSA outlined at the beginning of their presentation the alarming state of farm incomes. We have seen that issue highlighted in recent weeks. The question is how we advance from here.

Unless there are checks and balances and a structured approach to decoupling, it is possible that it could create greater access to the European market to beef from outside the European Union, especially from South America. What concerns me about beef from Argentina, Uruguay and Brazil is the lack of individual traceability. While there is herd traceability, it does not exist for individuals. I do not understand why Irish farmers and producers are anchored to individual traceability while this does not apply to South American beef. This shows the unequal way in which the farming community in Ireland is treated.

I have seen a video made by one of the farming organisations about tracing Argentinian beef to Irish hotels. This beef had no stamp of origin and I am concerned about this. It must be examined and addressed.

I compliment the witnesses on their contribution because it has informed me and is part of the wider debate that will allow us make up our minds and use whatever influence we have to achieve the right decision. The presentation was very interesting and I compliment the witnesses on it.

Chairman

Is it the intention of the ICSA and other farming organisations to reach agreement among themselves on the mid-term review and what the Minister should do in the best interests of Irish agriculture? All the farming organisations worked together in the tractor blockade. I would like to see them decide on a common policy to try to fight the mid-term review and proposals from Commissioner Fischler. What are the witnesses' views on that?

Mr. Reilly

I will deal with the last question first. No forum is available to the ICSA to allow it, in conjunction with the other farm organisations, express an opinion on the mid-term review and the proposals from Commissioner Fischler. However, the ICSA is part of the Department of Agriculture and Food consultative committee on the mid-term review and its impact on beef, as are the other farm organisations and interests in the beef sector.

Our vision is distinctly different to the other two farming organisations. If they are vehemently opposed to decoupling, I do not see how there would be a meeting of minds on this. We are convinced in the arguments we put forward in favour of decoupling because it is something on which we have urged the European agriculture commission to ponder over the past seven to ten years. From that point of view, we are being consistent. We were told when we raised the issue of decoupled payments that they would never happen. They may still never happen, which is unlikely, but at least the issue is on the table. It was not foreseen eight to ten years ago.

On Deputy Timmins's question about what will happen in the next few years, most analyses of farm incomes state that they will decline in the next few years because of the policy framework in which we operate. We have a certain level of production and consumption. We are still exposed to imported products. However, these are likely to be less competitive in future years because, as Mr. Punch explained, the Argentinian currency has been devalued fourfold. This impacts on the cost base of Argentinian farmers. If they were to increase production, even of their non-tariff beef, and Mr. Punch indicated it was decreasing, that would be on the back of an increased cost base. Their beef will be less competitive in future.

It has been suggested that there will be 300,000 fewer suckler cows in a decoupled scenario. I am not so sure that will happen because the Irish farmer's instinct is to produce and he or she has demonstrated this over the years.

There will be a reduction in production. There is no doubt about that. However, it will only be by the amount it is allowed to reduce. That is because there are serious farmers and beef producers out there who are only too willing to produce beef but at an economic return to them. At present there is no economic return, as has been clearly demonstrated. This is despite the increase in direct payments. Unless we get to market-led production, where the farmer is empowered to engage with the marketplace in return for his or her labours, we will not see a significant rise in income levels.

The 2010 report was mentioned regarding the 20,000 full-time farmers, 40,000 part-time farmers and 40,000 others. That is the reality in a direct payment scenario. As a farmer representative I do not want to see that occur but it will happen. I welcome the support of Senator Scanlon for our line of thinking: that if direct payments continue, what is envisaged in 2010 will definitely occur. Farmers will no longer accept the downward trend in income together with high levels of production. That will not happen. The worst fears of the 2010 report will be realised in a direct payment scenario.

Deputy Ó Fearghaíl spoke about decoupling facilitating hobby farming. I reject that in the main on the basis that as in the past, farmers will respond to the market signals when decoupling occurs. There will be market-led production. If the market is viable and can be engaged with, then farmers will produce for it. At present we have production which is premium-led, not market-led. Farmers are losing their interest in that; they are being turned off by it.

There is also a lot of red tape. Red tape was a big issue six or 12 months ago, and still is, but there is less emphasis on it. In a decoupled situation there is little or no red tape, save for cost compliance which is there anyway.

There may be other issues my colleagues can address.

Mr. Martin Coughlin

I will deal with traceability, the dairy issue and the points raised by the Macra na Feirme delegation earlier.

A point that was not made relates to the problems outlined by Macra which are inherent in agriculture today. Those problems are a product of the current system we are in, which is pretty obvious. If a young farmer was handed 100 acres in the morning and he or she wanted to go into suckler farming he or she has to buy cows, which is fair enough, but then he or she must get the quota. That will cost €700. If he or she wants to get into dairy farming he or she has to buy the cows and then get another quota. That is approximately €4 per gallon, so in order to have a viable income based on 16,000 gallons he or she will have to spend €240,000 on a piece of paper. Those are fundamental realities.

I am a cattle farmer. I go to the mart and buy cattle. What is in the Fischler proposals for me? Deputy Wilkinson asked about the dairy industry and how those proposals will impact on it; previous speakers have commented on this.

Let us assume the Fischler proposals never existed. The WTO is going to happen anyway and the 30% decrease in tariffs was going to come about. In relation to the Fischler and the WTO developments, when the Minister goes to Brussels to negotiate, everything goes on the table. I am off the point I wanted to make originally but everything goes on the table. Macra said there would be a flood of beef coming in but, as previous speakers pointed out, there is nothing to prevent 200,000 tonnes of beef being imported. People are quite legally entitled to do that and we cannot stop them under the current system. When the time comes for negotiations to be carried out, everything goes on the table and anything that will impact on Irish farming in any way, particularly imports of beef or chicken from other countries, has to be discussed. Nothing is agreed until everything is agreed - that would be my philosophy and the philosophy I urge the Minister to use.

What is in this for cattle farmers? A member mentioned hobby farming and said this would suit certain types of farmers. I am married with three children and have 250 acres. I am a cattle farmer and according to the man from Macra I am supposed to be retiring but I do not think so. At present one will hear on the radio from time to time that we are not producing the type of beef that is suitable for the retail market, as has been pointed out. Why is that? We produce all these cattle, so what is wrong with them? I am a grazing farmer and I buy 250 cows to graze. When I go to the mart now a dairy farmer will come in with a black and white Holstein animal, what I would call a "razorback". If there were no subsidy nobody would buy the animal; that is the only reason the animal is bought. The problem is when I have the subsidy gathered up and I have waited my 15 months to be paid I then have to sell the animal to either the Dawn food group or Larry Goodman and they will say they do not have a market for it and that the Russians will not even take it. The dairy man, however, has a Holstein which is easy to calve and produces milk and it is a bonus to them to have an animal which can walk into the ring and farmers will pay way over the odds for it because there is a subsidy on the animal.

If one changed the system, the dairy men are not going to go out of milk in the morning. The reality would not be a 30% reduction in suckler animals going through the markets but, over a number of years, far better quality cattle coming out of the dairy herd. This is nuts and bolts stuff and I hope I am not boring the committee. If a dairy man puts his cow to a bull for Aberdeen Angus or Hereford or, heaven help us, a good Friesian, there is a lot more meat on that animal. The farmer is going to produce more meat for the same amount of input that I have to come up with and when I try to sell my animal to Larry Goodman, Larry will say: "Maith a'bhuachaill, we now have something we can sell and I can give you a reasonably good price." Then I can supplant some of the Brazilian beef that is coming in.

That is my analysis. At present we have boxed ourselves in under the current system, which actively encourages the production of bad quality beef. That has not been said but it should have been said a long time ago. The dairy sector has a monopoly on this, which has caused much difficulty for the suckler men. On the other side, the premia are removed from the suckler farmers, all of whom are supposed to be going out of business in the morning. There is no point having a suckler quota if one is not going to get a suckler premium. Under the Fischler proposals, if one had premia in 2000, 2001 and 2002, one will get the cheque in the post. What farmer in the country is not going to try to get the cheque in the post? Let us be realistic about that: they all will. Every year one has people who go out of the business, which happens in every sector, but that is not a retirement package. It is a mechanism by which Irish agriculture must evolve. We must move away from producing food that is subsidised and cannot be sold, which is ridiculous. As the Deputy said, beef is coming in because we cannot produce it and the reason we do not produce it is because the current system actively encourages bad production. It is a bad mechanism.

Chairman

Well said.

Mr. John Deegan

There has been no reference to sheep industry, which has been putting up with New Zealand lamb for a long time. As the Chairman said, the same thing has been happening in the sheep industry as has happened in this market. There is no traceability in regard to New Zealand lamb being imported into this country and I do not know what can be done about the problem. What is happening in regard to Argentinean beef is happening to sheep farmers. It is obvious to everyone from rural areas, particularly those involved in agriculture, that sheep farmers are getting out of the business completely. A man from Wicklow told me that he bought out four farmers recently. He also gave them the tagger, which means the sheep will not go back.

I want to make two points and I hope Members will have some influence over the Minister or Mr. Fischler in this regard. Up to the end of 2002, a certain number of people received a free sheep quota from the national reserve. I ask Members to impress on the Minister that these individuals must be brought back into the system. These are people who have put their money where their mouths are. They have probably obtained a free quota from the reserve, but they have also bought sheep. If they can produce documents showing they bought sheep before the end of 2002, and they got cover from the reserve, these sheep farmers should be allowed to stay in business and be brought back into 2002, even though they will not have lambs until 2003. In order to keep any life in the sheep industry, we must try to look after these people. They spent their money knowing that 2002 would probably be the year that would be used for sheep. These people should be retained because they got in to sheep farming when others were getting out.

I am a suckler farmer and a sheep farmer. I do not think many people will get out of suckler farming. Mr. Coughlin mentioned €700 and today quotas make anything from €500 to €700. The sheep quota is free. Many sheep farmers are going out of business, but I do not think people will give up sucklers if they get that kind of money for quotas.

The Irish Independent published an article recently on how farmers and consumers were being ripped off in relation to lamb. I cannot understand why Members have not been more vocal about this problem. I know of no farmer who is paid for a 24 kilogram lamb, we get paid for 22 kilogram lambs. I have been saying this for years. I call it rustling because those involved in such behaviour cannot be caught. The factories only pay us for 22 kilograms but, according to the report in the Irish Independent, they sell 24 kilogram lambs to the supermarkets. If we think about the two kilograms that has been rustled, I get approximately €83.20 for my lamb, the factory has got €7 or €8 immediately and then sells it to the supermarket for €99.60. The latter then gets between €224.60 and €238.40 for the sale the lamb to customers.

There is something terribly wrong with this system. Members should be able to do something about this problem. Butchers were mentioned but, in fairness, they are not too bad because they would only make €172.72 on a lamb I sold for €83.20. Deputy Timmins, who comes from the same county as me, referred to what we would lose. These problems must be dealt with. There was a tractor blockade recently because farmers are losing a lot of money and something should be done about it.

Mr. Reilly

I would like to deal with a couple of points which were not dealt with earlier. Deputy Ó Fearghaíl spoke about the impact on processing and the loss of jobs involved. Obviously any loss of jobs is unwelcome, but in terms of processing, irrespective of decoupling or otherwise, a reduction in processing plants is on the agenda.

A question was raised about the need for legislation to deal with non-Irish beef. Given that we export food of the highest standard, there is a difficulty, particularly for farmers, when the standards applied to imported food do not reach our standards. As we operate in an EU environment, perhaps the initiative should come from the EU. As a farming group, if we are required to have this degree of traceability for our produce in relation to both the home and export markets, we should be operating on a level playing field vis-à-vis imported products.

Deputy Ferris referred to the traceability in which we engage, which does not seem to be the case for imported products. This causes a difficulty for farmers because the additional paperwork involved in the traceability system is not reflected in the marketplace. As a farmer, I do not mind adding value to my product in terms of what the market would demand as long as the market will compensate for that. People do not mind engaging in work if they get some return for it. That is all farmers are asking in return for the additional paperwork. If we are to compete with imported products, we should be doing so on a level playing field.

Mr. Eddie Punch

I would like to deal with a few issues. The question was asked how will the overall Fischler package impact on the nation as a whole? The FAPRI report suggests that if we look at the impact on gross national product, food processing will be down 3.5% while agriculture will be up 7.2%. The overall impact combined is positive to the tune of 3.6%. In other words, the gains for farmers will feed through to the economy in general. We cannot go on to have viable rural communities or a viable economy based on agriculture if it is on the backs of farmers. Like everyone else, must get a fair wage for a fair day's work. Unless we get that right, it is not correct to talk about profits in other sectors of the food industry. Farmers must get their fair share of the profits, but that is not happening at present.

To return to the reason the current system works so badly, farmers are in no position to get a better return from the marketplace because overproducing beef without regard to the marketplace means that many farmers concerned merely with the subsidy are inclined to dump their product into beef factories. Because they need the product for the subsidy they give little thought to who will buy it, what market it will be sold in and what price it will make. This creates a problem because quality initiatives by forward thinking food processors trying to break into niche markets are undermined by processors which have a good supply of cattle and can provide meat at a lower price.

A potential advantage of decoupling, which cannot be captured in any impact study, is the possibility that in future better business will be done between factories and farmers because both will be totally dependent on each other. If processors want to stay in business, they will need to identify their markets and put together contracts with farmers. At the moment farmers are very weak in dealing with processors because there is always plenty of stock available. In the present environment there is no hope of implementing the kind of fine ideals brought forward in, for example, the beef task force report. Members will notice that nothing happened as a result of those proposals. This is because under the current subsidy-led system, there is no need to think in that way.

Almost all the criticisms I have heard of the Fischler reforms and the impact studies have been unbalanced. They assume that everything can be blamed on the Fischler reforms but do not consider what might have happened if we did not have them. For example, Deputy Timmins mentioned the ending of the over 30 month scheme in the United Kingdom and said this would probably undermine the gains from decoupling. However, sticking with direct payments will also undermine the price of beef.

Similarly, I hear people say no provision has been made for index linking payments with the Fischler reforms but the same applies to the existing direct payments scheme. Unfortunately, the money is now set out until 2013. It takes €42 billion a year to run the CAP. This will rise to €46 billion by 2013. The agreement was signed, sealed and delivered at an EU summit meeting last November and irrespective of what policy is in place, that is the amount with which we are working in finding policies that will work. We must bear this in mind.

Deputy Timmins

Let me respond to the point made by Mr. Coughlin. Quality is most important. Every report on the beef industry in recent years has emphasised the importance of quality. Nevertheless, I recognise the fact that quality of our beef has deteriorated for the reasons Mr. Coughlin pointed out.

Mr. Deegan referred to the anomaly of those who have bought a quota. If the Fischler proposals are given effect, they will create many anomalies regarding, for example, those whose claims did not reach the Department before 31 December. These situations must be looked at and I hope they will be treated with leniency.

Mr. Coughlin referred to the Fischler proposal regarding premia for the years 2000, 2001 and 2002. When Mr. Fischler was here, he gave the impression that 2002 would not be a reference year. There is also the option of taking the years 1997, 1998 and 1999 while the Minister has the option of looking at a regional base. That is in the small print. There are many who never seek premia. There are many points at which we must look. If the representatives of the Irish Cattle and Sheep Farmers Association know of any other points to be considered, I hope they will send them to us.

The relationship between the farmer and retail butcher was mentioned. When there is a concentration of economic power, the producer always loses out. There is a role for politicians to look at this matter. The 2010 report refers to partnership which might overcome this problem but we must remember that the history of agriculture is littered with failed co-operatives.

Chairman

Senator Callanan wanted to make a quick comment.

Senator Callanan

I did but I think I may be as well off not saying it. I am still in the business of farming. While I agree with most of what has been said by the delegation, I have difficulty with some of it.

I identify totally with Mr. Coughlin. Only two weeks ago at this committee I said a beef animal was not four legs, a head and a tail. Producers have lost out on the production line. Farmers are all guilty in this. We cannot walk away from that responsibility. We have helped processors. We had plants of our own at one time and collapsed them.

I have a question for Mr. Reilly who is in favour of decoupling and opposed to modulation, although he qualified that opinion slightly. He is playing games again. Let us hit the nail on the head. One is either for modulation or one is not. We have walked away from our problems in the last 30 or 40 years. Whether from beef intervention, breeding, or four legs, a head and a tail, we are happy to draw the bounties, headage payments and premia, which amount to about €548. However, we are then squeezed in the marketplace and vacate it. While I agree with the principle expressed by Mr. Reilly, I am concerned about market vacation. We must produce a proper product. The Holstein breed is not a proper product but merely a by-product of the dairy industry. I have no problem in saying this. I say to Mr. Reilly that he must hit the nail straight on the head regarding modulation.

Mr. Reilly

I apologise for not being clear enough.

Senator Callanan

Do not apologise.

Mr. Reilly

The Irish Cattle and Sheep Farmers Association is opposed to modulation, particularly at the low figure envisaged. A much fairer figure at which to star would be the average industrial wage, roughly €25,000.

Senator Callanan said decoupling would cause production to fall and that we should not get out of markets. We do not have to get out of them. The nice thing about the Fischler proposal is that it empowers the farmer and gives him or her the choice. A stick is not wielded over him or her to produce a certain level of animals in order to receive a certain payment. It is his or her choice. Anyone engaging in an economic activity for a return can choose the level at which he or she will produce. If a shovel manufacturer knows he or she has a market for ten shovels, he or she may, in a particular year, produce 12 shovels with the speculative notion that he or she will sell them but he or she will not continue to produce 12 shovels annually, year in year out. Decoupling empowers the farmer to make those decisions for himself or herself. At present the stick is wielded over him or her and he or she must have a certain number of cattle in order to draw a certain level of payment. This does not allow good farming practice or good product marketing to take place because there are retention periods. We all know that last year was a very difficult year, weather wise. Anybody caught up in suckler cow retention during the very wet months of June and July knows that to their cost because they were not able to offload cattle. A lot of the silage ground that would provide winter fodder for this time of the year was actually eaten off. That would not happen in a decouple situation because a person could decide that he or she was carrying too much stock and sell. In other words, that decision is not part of retention periods or whatever.

Chairman, I thank you for the opportunity to address the committee. We were given this opportunity in the past and we hope that the decisions which the committee makes will reflect our presentation today.

Chairman

I thank Mr. Reilly and his colleagues for their presentation and for their response to the points raised by the members of the committee. As a near neighbour of mine, I am aware of the enormous time and effort which Mr. Reilly puts into his organisation and I am sure the other members are also aware of that. I wish to give you a guarantee that you are welcome to come to this committee at any time. I hope you found this meeting helpful. I thank you all again for your contributions.

Sitting suspended at 6.52 p.m. and resumed at 6.54 p.m.