JOINT COMMITTEE ON AGRICULTURE AND FOOD debate -
Wednesday, 9 Apr 2003

Vol. 1 No. 10

Scrutiny of EU Proposals.

Chairman

The joint committee has invited officials from the Department of Agriculture and Food to discuss the document on the mid-term review of Agenda 2000. On behalf of the committee, I wish to welcome Mr. Bart Brady, Assistant Secretary General, Mr. Tony Burke, principal officer, Mr. Kevin Smith and Mr. Andy McGarrigle from the Department of Agriculture and Food. I expect we should complete our business no later than 4.45 p.m. Is that agreed? Agreed.

Before asking Mr. Brady to commence his remarks, I wish to draw witnesses' attention to the fact that while members of the committee have absolute privilege, that privilege does not apply to witnesses. Members are reminded of the 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 or in such way to make him or her identifiable.

Mr. Bart Brady

Commissioner Fischler's proposals for the mid-term review, published on 22 January 2003, would represent a radical change in the operation of the CAP. They constitute a number of issues of significance to Ireland, the first of which is a decoupling of direct payments which involves paying farmers the average of what they received in three reference years - 2000, 2001 and 2002 - in the form of a single direct payment rather than being paid for what he produces in any particular year. The second proposal involves degression and modulation which means that all direct payments will be subject to a reduction from 2006 starting at 1% and rising to 19% in 2012. The first 6% of the funds will be transferred to rural development measures - this is known as modulation - while the balance will be made available to meet future EU funding needs.

There are two sectoral proposals in relation to milk and arable crops. The milk proposal involves the bringing forward of the already agreed Agenda 2000 reform by one year from 2005 to 2004 and extending it by two further years, during which there would be two intervention price reductions of 5%, compensated for by an increase in the dairy cow premium. There will also be a quota increase of 1% in each year and the quota regime will be extended until 2014-15. The total intervention price cut of 25% - that is the total of the 10% I have mentioned and the 15% already agreed under Agenda 2000 - will be asymmetrically spread between butter and skimmed milk powder involving a 35% cut in the intervention price for butter and a 17.5% cut in the intervention price for skimmed milk powder. The arable crops proposal involves a reduction of 5% in the intervention price with an increase in direct payments. There are also new rural development measures involving support for farmers who participate in recognised schemes to improve food quality, aid to help farmers meet standards prescribed in EU law for the environment and public health, animal and plant health, animal welfare and occupational safety and assistance for farmers who undertake to improve their animal welfare standards above the norm. These proposals are described in more detail in the documentation we have supplied to the committee.

The effects of decoupling have been examined by FAPRI Ireland, the Food and Agricultural Policy Research Institute. The FAPRI Ireland partnership is comprised of the Department of Agriculture and Food, Teagasc, a consortium of Irish universities and FAPRI at the University of Missouri, USA.

FAPRI Ireland's decoupling study suggests that for some important sectors, decoupling would have a much greater impact in Ireland than is the case for the EU as a whole. For example, Irish beef and sheep production would be likely to decline up to 2010 by 12%, cattle prices would increase by 8%, lamb production would fall by 12%, lamb prices would increase by 21%, the value of cereals output would fall by 4%, farm incomes would rise by 11% and agricultural greenhouse gas emissions would fall by 13%. These are the effects of decoupling only and they do not take account of the other proposals described or the results of the forthcoming WTO negotiations.

The modulation end of the proposal will involve a reduction of €48 million per annum in direct payments to Ireland when the scheme has worked itself through to its full implementation and we will get back from that just under €40 million a year for rural development purposes. The degression element will involve a reduction of €56 million a year when it is fully implemented. On milk, if the intervention price reduction of 10% is fully reflected in farm gate prices, that will involve a loss to Irish agriculture of €28 million a year and the same assumption in relation to the 5% intervention price reduction for cereals, would lead to a loss of €7.5 million a year. That is all I have to say by way of introductory comment. My colleagues and I will be happy to answer any questions.

Deputy Timmins

I thank Mr. Brady and his officials for appearing before the committee.

Mr. Brady will be aware that Fine Gael is opposed to the Fischler proposals, as is the Government, particularly in view of the disproportionate impact they would have on this country. That notwithstanding, there are many individuals who, according to media reports, would have difficulties with the Fischler proposals as they stand - there are anomalies which may impact upon them seriously. However, it is difficult to respond to these anomalies because everything is up in the air. Last summer I met Mr. Fischler and he stated that the proposals would be in place by March. It is now proposed to have them in place by June. According to the briefing document and various reports, it is most unlikely that they will be fully implemented by June. Can Mr. Brady provide an estimate as to when they might be completed, or whether they will come into operation at all? If they do, how different will be the position from where matters stand at present? The various proposals were outlined in the detailed document we received from FAPRI some weeks ago.

If these proposals are brought into effect, there will be certain anomalies. I have an example, namely, a ministerial reply that states that, according to the Commission proposals, a person who sold his or her entire milk quota in 2002-03 will not have any entitlement to a dairy cow herd premium since the premium is to be based on the quota available on the holding on 31 March 2004. What happens to a person such as this? Mr. Brady must know farmers who are retiring - slowing down to let their sons or daughters take over - or indeed people who never farmed for premiums. We have not examined this in detail, but I know that representations are coming in to the Department. What advice would Mr. Brady tell us to give to people who are worried about where they will stand if the proposals are accepted?

The document states that the WTO talks may conclude in 2005. One view is that the Fischler proposals or any recommended changes should be held over pending the outcome of those talks. If this happens, there will be no changes before 2007.

With regard to the FAPRI report, I am aware that the Minister has commissioned a second report which will take into consideration more than just the modulation. Has Mr. Brady any idea when that might be published? I do not know whether Mr. Brady took part in the negotiations, but perhaps he could give us an indication of the mood of other countries and whether the internal difficulties in the EU to do with the war in Iraq have affected the development of these proposals. Some reports in the national media stated that the Irish delegation felt that it was under pressure from the French as a result of the position Ireland was perceived to be taking on the war. Could Mr. Brady comment on this?

Deputy Upton

I thank Mr. Brady and his colleagues for their presentation.

Some elements of the Fischler proposals are inevitable, but I would like the views of the delegation on whether any part of the proposals is likely to be advantageous to Ireland if they proceed as they stand. Given that some aspects will have a definite downside, are there any measures that can be put in place, locally or nationally, to alleviate the problems that might arise generally for the farming community? There is concern that while the Fischler proposals might be satisfactory from the point of view of farmers who are considering retiring, they might have a significant impact on young farmers. Can or should anything be done to address these concerns?

Deputy Wilkinson

I also welcome Mr. Brady and his team. We met at another committee meeting some time ago. While the Government and most of the farming organisations are opposed to the Fischler proposals, I have found that many individual farmers are in favour of them. I am not able to give a percentage, but these individuals exist.

One of the key issues will be how young entrants to farming will be treated if the proposals come into effect. The higher percentage of premiums go to a small number of farmers, so that quite a few farmers are getting €150,000, €200,000 or €300,000. If modulation is started at €5,000, this will bring modulation cuts down to the person who gets €5,000. This figure should be raised by quite an amount. I suggest a figure of €15,000. Does the grant system for rural development cover alternative enterprises? What else does it encompass?

Senator Coonan

I welcome Mr. Brady and his team. The only farmers who seem to be in favour of the Fischler proposals are those who, because of hard times in agriculture, want to get out with some degree of dignity and who feel these changes may enable them to do so. However, the majority of farmers are opposed to them.

In the area of decoupling based on historic payments over three years, what will happen to farmers who incurred the wrath of the Department for minor mistakes or bureaucratic bungling and lost their premium rights in those years or were not paid? How will this affect their historic rights in years to come? Concerns have been expressed about the position of young farmers. This seems to be an effort not only to get rid of older farmers but also to make it difficult for young people to enter farming. It is particularly worrying that they may not necessarily have hereditary rights in respect of farms; that the historic rights that were built up will not be transferred to the individual. Perhaps Mr. Brady could dwell on that a little.

Mr. Brady said that six percentage points are being taken away, in an action reminiscent of borrowing from Peter to pay Paul, as though farmers were now to become a countrywide maintenance scheme. Perhaps he could give us an example of the rural development measures to which these funds are to be transferred. He also said that the balance will finance future market needs. What are these? This is an area of huge concern to the farming community. Members of that community originally signed up to an agreement that was to last until 2007. How does the Department justify this? This is not a review, but a total reconstruction of agriculture. It is unfair to expect farmers to sign up to an agreement that would last until 2006 or 2007 and then ask them halfway through to do a complete about-turn and start on a new programme.

Deputy J. Callanan

I spoke about this issue at the Joint Committee on Enterprise and Small Business. In the area of modulation, the cut-off point of €5,000 is too low. As I said before, until now the largest farmers have received the most money. This is all about Europe. While this is the case, it is difficulty to keep small farmers viable. If about 80% of the money in Europe is going to 20% of the farmers, it is difficult for small farmers to survive. If I owned ten cows, I would not even get €5,000, but someone who has 100 cows would get ten times that. It is difficult for any Department to justify this. Mr. Brady's answer to me on the last occasion on which we spoke was that if we continued along those lines we would end up with the equivalent of social welfare. That is the only way in which this matter can be addressed.

Deputy Timmins has already mentioned the other issue, namely, the fact that there are two different dates for dairy farmers. If a dairy farmer opts for 2004, he has no chance of getting back into suckler cows or anything else if he gets out in 2003. Something surely must be done for this type of person. I have spoken about most of the other issues before and I do not want to delay the committee.

Senator Scanlon

I would like to follow on from a question posed by Senator Coonan about farmers who have been in the farm retirement scheme and whose leases are ending in 2003, 2004 and 2005. What will be the position for those farmers whose leases will finish and for farmers who have rented their land during the past number of years? What effect will the Fischler proposals have on these people and what type of payments can they expect to receive? There is quite a lot of good in what is being proposed, but I agree with the previous speakers that the base level of €5,000 is definitely not sufficient and will not be accepted in any shape or form.

Senator P. Callanan

I welcome the officials. We all wish the Minister and the Minister of State in the Department of Agriculture and Food well in the negotiations. We recognise that they have done well in the various negotiations that have taken place to date and we expect them to do well on this occasion. What constitutes well, we do not know and we do not expect them to spell it out either.

I agree with most of what has been said, but I would be concerned if modulation was introduced. A figure of €5,000 has been mentioned. The average payment at present to the lower category of approximately 48% of farmers amounts to in the region of €3,500, while the top bracket of farmers, as Deputy Wilkinson pointed out, get the cream of the payments. A fairer distribution would be desirable in terms of the preservation of rural areas and maintaining a working population base.

I also wish to ask about the early retirement scheme. It has been stated that changes are being made and that people who entered into the early retirement package a number of years ago, and who may still be in it, may find the goalposts being moved. They may find them being moved to the extent that that the user of land could become the owner of the commodity for which the land is used, whether it is cereal production, tillage production or whatever.

One matter on which we must stand firm is that if agreements are made, they should be honoured and maintained. We cannot have agreements made today and broken in two or three years time. It is the same with Agenda 2000. We have a start and finish date for that and should be firm about it. Equally, we should be firm about the early retirement scheme into which people entered in good faith. The EU is now talking about changing it, which is unacceptable, and I hope the Minister agrees with this point. There are other such changes being made in mid-stream and that is unacceptable. I would like to think that our officials and the Minister will stand firm in this regard.

I shall conclude on the issue of young entrants to farming. Something beneficial must be done to keep young people coming into the industry because we do not want an island with good land and a good production base but with nobody to produce from it.

Senator McCarthy

I concur with previous speakers in expressing my appreciation for the attendance of the Department officials. I will be very brief in asking three questions. My first question follows on from points I made previously in debates in the Seanad and at various other fora about the declining incomes generally prevailing in the farming community. Are there any plans for developing alternative rural enterprises, such as agri-tourism or off-farm employment of any description? I would be interested to hear Mr. Brady's reply on that matter.

I also have a concern about the implications of the Fischler proposals in terms of job losses in the food sector. Is there a risk of job losses in the food sector as a result of the Fischler proposals? Is it sustainable to continue to over-produce and create surpluses through intensive farming, given the impact this would have on developing countries in particular?

Chairman

This is a sector that is seldom mentioned. Not many of our commercial farmers are able to offer employment and must instead keep their sons at home, particularly the larger dairy farmers who, to use plain language, have got sweet damn all out of the EU. I have been approached by a number who, in some cases, have two sons engaged in a joint effort to run their farm. We have reached the situation now, or we will under the Fischler proposals, where such farms will not be able to provide a livelihood for two sons but will be too big for one son to run.

It is great to see young people staying at home on the farm. As Members have said, it is very difficult to get young people to enter farming. However, I know three or four farmers who have one or two sons working on the family farm. There are not too many cases of two sons doing so, but young people should be encouraged to enter farming. It will be very sad if those people are shoved out of farming and on to the commercial market to get a job.

Another issue of concern to some people is the over-run of premiums last year. Is there any chance of that being reversed? Nobody can really tell us what are the base years. People are talking about 2000, 2001 and 2002, but there may be a lot of changes in negotiations. Like other speakers, I stress the need for consistency. Agreements have been reached in the past, only for the whole thing to change mid-term. Farmers cannot plan for the future in such circumstances. We know that the Fischler proposals would suit some farmers, but they do not suit the farmers of the country in general. I would like to hear Mr. Brady's views on that.

Senator P. Callanan

I forgot to refer to another matter in which I declare an interest. Cereals have been mentioned. Under the 2000 agreement, cereal growing was the sector of the farming industry that was hit hardest. If there are further reductions, we will lose the industry.

Mr. Brady

Before attempting to answer these questions, I should give more background information about what is happening in Brussels. The proposals were presented in January and were discussed at the Council of Ministers at the end of January. At that point, Ministers gave their broad political responses to the proposals. Since then, they have been discussed at the Council meetings in February, March and April. The April meeting took place just yesterday. In between the Council meetings, the proposals have been discussed at committee level where civil servants represent member states and go into the detail of the proposals at some length. That process is not yet finished.

A number of Deputies and Senators raised technical points about base years and about the effect on dairy farmers, young farmers and farmers in the early retirement scheme, some of which we may be able to answer. Mr. Andy McGarrigle has been attending the relevant committee and will attempt to answer them. We may not have answers to other questions because the proposals have not been fully teased out and, in certain cases, the Commission has promised to respond to the difficulties member states have presented at these meetings. We do not know yet what will be the Commission's response to those difficulties. There is a certain amount of uncertainty, particularly on the technical aspects of the proposals. There is obviously uncertainty about the entire matter. It is appropriate to begin with Deputy Timmins's question regarding when the whole business will be completed.

The Greek Presidency aims to have the proposal agreed by the end of June. We believe this will be a difficult proposition. There is a link with the WTO, as Deputy Timmins mentioned, and the most recent deadline, 31 March, for agreement on modalities, or broad rules for the WTO negotiations, has been missed. The next milestone in the WTO negotiations is a ministerial meeting in September in Mexico. There are two schools of thought in the EU in approaching these negotiations. One argues that we should negotiate on the Fischler proposals, reach agreement in June and July and then attend the Mexico meeting, stating "thus far have we decided to go and no further".

The other school of thought argues that if that is done, a base will be created from which we will be pushed by our WTO negotiating partners. Both schools of thought are highly respectable and it is a matter of judgment as to which is the best. We believe the second approach is best. We should not agree on the reform proposals in advance of movement within the WTO.

Deputy Timmins mentioned the final deadline for the WTO of 2005. However, if the deadline for 31 March had been met last week, we would know the shape of the WTO outcome. Nobody is saying we should wait until we know all the details of the WTO outcome before we take decisions on the reform of the CAP. Those on that side of the argument are saying we should wait until we know the shape of the outcome. If one knew the shape of the modalities negotiations, it would be sufficient to tell how far we had to go or may not have to go in CAP reform.

It is difficult to predict what the overall outcome will be of the mid-term review negotiations and it might even be inappropriate to speculate. One of the possibilities that a number of member states have mentioned is that of partial decoupling instead of full decoupling. A large number of member states have mentioned this and there is a distinct possibility that the end product will not be full decoupling but some form of partial decoupling. Again, to speculate what partial decoupling will entail is difficult and inappropriate.

The second chapter of the FAPRI report is expected on 13 May and will be made public on that date. Deputy Timmins referred to the connection with the Gulf War. I saw the press report to which he referred. I can state categorically that there is no such pressure on the Irish delegation arising from the Gulf War.

Deputy Upton asked if any good will come out of the Fischler proposals. Not much good will come out of them as they stand. This is very often the way with Commission proposals in that one has to negotiate back from them. We have a number of precedents for that, when we successfully negotiated back from the Commission's proposals to obtain a very good outcome.

On the question of measures to be put in place to ameliorate any problems that may result from the Fischler proposals, we have not arrived at that point. It would be defeatist to do so. We have not arrived at the point because it would require us to predict the outcome, which we are not able to do.

Deputy Wilkinson mentioned that some farmers are in favour of the Fischler proposals. That is also our information, but we do not know who are those farmers. Deputy Wilkinson mentioned the €5,000 ceiling, which we believe is too low. The Minister for Agriculture and Food has also said this.

The Deputy and others mentioned the distribution of direct payments. It may be that, in the EU as a whole or in certain member states, 80% of direct payments go to 20% of the farmers, but that is not the case in Ireland. In this country 36% of direct payments go to 20% of farmers with the highest incomes. Given that the CAP is not a social welfare policy, but a production policy, that is not a bad outcome. If we were to argue for equity in payments, we would encounter a number of problems. The first of these is the fact that it is not a social welfare policy, it is a production policy. We would also encounter the crucial issue that the EU does not fund social welfare policies. This would, therefore, leave us exposed to the argument of "fund-it-yourself", whereas direct payments are 100% EU-funded.

One could put the position in danger if one argued strongly in favour of a social welfare bent to the policy. Our average farm size is 33 hectares. There are countries in the EU at present that have average farm sizes of seven hectares. If one is into a social welfare policy, I suspect that the farmers in those countries are the ones who would get the lion's share. Ireland, as a whole, could lose out if there are no direct payments which are, in some reasonable way, related to production.

Deputy Wilkinson mentioned rural development. There are a number of rural development measures in the existing national development plan. Another member referred to on-farm diversification, such as agri-tourism, which is covered in the existing plan. The sort of rural development measures to be funded by this modulation being discussed are the existing measures of farm retirement, agri-environmetal schemes, the REPS - in our case - and forestry. New measures, to which I referred in my introductory remarks, will be added. All of these measures will then be eligible for these modulated funds.

Senator Coonan asked about the balance of moneys intended for future market needs. The Commission has carried out estimates of the budget until 2013. These indicate a deficit in the budget in the year 2009. The Commission also has in mind the bringing forward of further reforms, particularly in the sugar sector. It wants money to cover the deficit in 2009 and any future reforms that may take place. That is the reason the degression proposal has been put forward. We have rejected it on the basis that one does not take money from farmers now to fund possible future deficits.

We cannot be certain that there will be a deficit in 2009. If there are to be future reforms, decisions can be taken then, not now, as to how they can be funded. One does not take an automatic decision and put in place an automatic mechanism to fund reforms that may never happen.

A number of Deputies and Senators mentioned the fact that the Agenda 2000 agreement was to last to 2007, or at least until the end of 2006, and that it is unfair and unhelpful to farmers and the agri-food business to bring forward amendments at this stage. They are absolutely correct in that regard. I have two points to make. The first is that the Agenda 2000 agreement provided for four reviews in particular sectors, including the budget. Those reviews were to take place in 2002 and 2003. The mid-term review is, in part, a response by the Commission to that mandate given to it by the European Council. The other point is that the Commission, under the treaties, has the power of initiative and can make proposals on anything at any time and does not need a mandate. The Commission is within its rights to bring forward these proposals. Having said that, we still oppose the idea of fundamental reform of any kind before 2007. That is the position of a number of member states.

Senator Peter Callanan mentioned cereals reform, which Ireland, and a number of other member states, have opposed. That is all I can say on that matter at present.

The Senator and others referred to keeping young people on the land. It is difficult to say what can be done about that. The attractions of alternative employment are great. There is a great deal of hard work to be done on the land, particularly in dairy farming, and young people do not seem to like that. There is a young farmers' installation aid scheme, which is aimed at keeping them on the land and which offers significant financial incentives. The early retirement scheme also helps in that it encourages earlier retirement so that a young man or woman will not have to wait too long before he or she inherits the land. That said, it is difficult to see what more can be done.

Senator P. Callanan

May I make one observation? It is on the question of early retirement, because that is the one area of land mobility policy that we have been successfully pursuing. If there are changes made which militate against a person taking early retirement, then the transfer of land will not occur as it did heretofore. That is why I was putting the emphasis on that scheme.

Mr. Brady

As I said at the outset, the details of the Fischler proposals are still being teased out in Brussels. The effects of the kind to which he referred are still being teased out there and Mr. McGarrigle will have something to say on that matter.

Senator McCarthy mentioned job losses in the food sector. These will be inevitable if the FAPRI forecasts are correct. At the same time, however, the Senator asked if it was sustainable to continue over-producing. Fischler would say that the decoupling proposals are directed at over-production, that is, taking the subsidy away from the production of animals. The latter will reduce production. They are two sides of the same coin. Jobs in the food sector are based on levels of output from the farm gate. If that is reduced, for whatever reason, there will be job losses. The Chairman said that dairy farmers never got much out of the EU, but I will have to differ with him on that.

Chairman

They might not have received as much as other farmers.

Mr. Brady

They have got nothing by way of premium rights.

Chairman

That is what I meant.

Mr. Brady

The Chairman also mentioned the base years, 2000, 2001 and 2002. I do not see any change in that regard, except where special provisions are made for hardship. There is already a provision that one can go down to the years 1997, 1998 and 1999 in cases of hardship. Overall, however, I do not anticipate any changes in the three year reference period.

Chairman

Every farmer will have a problem because of the fact that the foot and mouth crisis arose during the period in question. Many farmers could not buy cattle that year and their premium rights were calculated accordingly. It is vital that this is taken into consideration.

Mr. Brady

It is already in the proposals and we are working to ensure that the proposals will be adequate for all hardship cases. The instances to which the Chairman referred would be deemed hardship cases.

Mr. Andy McGarrigle

I want to try to deal with the three main issues raised by many speakers, namely, young farmers, the early retirement scheme and the decoupled dairy cow quota or premium. First, as matters stand, if these proposals were to go through, the Department would have to establish what are called payment entitlements for every farmer who was farming in the reference period 2000 to 2002. That is done by calculating the average number of animals that attracted a payment for those three years, in other words the number each year divided by three. That figure is then multiplied by the rate of premia for 2002, which is the highest rate under Agenda 2000. That gives a sum of money in euro which is divided by the average number of hectares that the farmer had for the three-year reference period - forage hectares, arable hectares or whatever - and that gives a number of payment entitlements at a value for each entitlement. A person could, therefore, end up with 50 payment entitlements. The number of payment entitlements is always the same as the average number of hectares the farmer had in the reference period. So one ends up with an asset, as such, comprising a number of payment entitlements with a value attached to each entitlement.

Senator Coonan

Does that include animals that were disqualified for payment? What happens those animals?

Mr. McGarrigle

Yes. I think the Senator's colleague, Deputy Timmins, referred to such cases. If, during one of the reference years, someone did not get paid on all animals because of the imposition of a penalty, we are trying to ensure that those animals, if they were eligible, be taken into consideration now. Not to do so would mean that the penalty is being applied forever. Those animals will be taken into consideration in calculating the average.

Those payment entitlements are then established for each farmer and put on a database in the Department. If the system was to be introduced in 2004 - as Mr. Brady said, it is doubtful that it will come in that quickly - or whatever, the intention would be that the farmer would apply, as normal, on his area aid application showing the number of hectares on which he is claiming. Provided that he has one hectare of land for each payment entitlement, he will be paid. It does not have to be the land that gave rise to the establishment of the entitlement; it can be any land anywhere.

Every farmer who establishes a payment entitlement can activate it by submitting an area aid application in the first year of the new system. Thereafter, he will own those payment entitlements and can sell them or lease them out. In other words, they will be an asset. He can only lease them out if he is also leasing out the land, but he can sell them with or without the land. He can give them free to his son or daughter, a young farmer who might be starting out in the industry. He can sell them for a sum of money, whatever he thinks they are worth.

I presume that auctioneers will become involved, just as with suckler cow and sheep quota. One has to get suckler cow and sheep quota if one wants to start up in farming in that area. There are three ways to obtain such quota: by inheriting it from one's parent or parents; by buying it on the open market or leasing it; or by obtaining it from the national reserve. A national reserve will be established under this new arrangement and it will be equivalent to 1% of the payment entitlements that are established. That will be put into a reserve specifically for young farmers who entered farming after December 2000.

Our current difficulty with the proposals for young farmers relates to something of which members are probably aware from media reports. Since there are three reference years, the Commission is saying that to get the average figure, everything is divided by three. For young farmers who started in 2001 and were there again in 2002, the average will be the sum of those two years divided by three, which leaves them on the hind foot immediately. We are arguing with the Commission that in the case of a young farmer who commenced in 2001 or 2002, the average is two years divided by two or one year if he or she started farming only in 2002. That has not yet been agreed but it might be agreed on Monday of next week when the next working party meets. That was one of the problems. Young farmers starting off would be at a loss immediately because their sum of money was divided by three on the basis of a three year average. I believe we can get over that hump.

The other issue is the early retirement scheme. Ireland is probably one of the few member states which has made use of the early retirement scheme, which is part of the rural development measures. The number of people participating currently is approximately 12,000. Obviously, one has to stop farming to participate in the early retirement scheme. Farmers must either lease out their holdings, sell them or give them to their sons or daughters by way of inheritance or, more commonly in Ireland, by way of a lease. Presumably most people do not want to hand over the farm when they retire. They lease it for a number of years to the person concerned.

I do not believe there will be any difficulty with the early retirement scheme from 2004 onwards because every farmer who wants to retire after that date will already have established his payment entitlements, which are worth a lot of money. It is then up to the farmer to do what he wishes. He or she can sell them, give them to their sons or daughters or whoever is taking over the farm, or they can lease them out with the farm. If they are only leasing the farm currently, they will have another asset to lease out by way of these payment entitlements. That is from 2004 but the difficulty currently concerns a farmer who retired say in 1999 and who leased his holding to a non-relative - perhaps the son or daughter was not of age to take over the farm at the time. He has a five year lease starting in 1999 and the land is leased by a non-family member, a neighbour or whatever. The problem now is that, under the current arrangements, the neighbour who is using that land for the 2000-02 period establishes payment entitlements based on that land. When the lease is up he hands the farm back to the farmer who retired. The son or daughter then wants to take over but all he or she has is a farm of land with no payment entitlements. The only option for that young person taking over is to come to the national reserve or, alternatively, to buy payment entitlements on the open market. That is one of the major difficulties for farmers who have already retired and leased out their farm to non-family members.

Another situation arises where a farmer retired in 1999, 2000 or whenever and the son or daughter inherited the land. The Commission has agreed already that any payment entitlements established by the farmer who retired should go to the person who has inherited the land. That is at least a step in the right direction in that if someone inherits land this year from a farmer wishing to retire, he or she also can inherit the payment entitlements once they are established. We have some difficulties with that which we have brought to the Commission's attention, both verbally and in writing, and I have no doubt we will be talking about those difficulties on Monday of next week. They are peculiar to Ireland, mainly due to the fact that we are the main country operating the early retirement scheme.

Some farmers have asked me about the compensatory allowance scheme in the disadvantaged areas. That scheme is not affected. It is not known as a direct payment. It is a rural development measure worth €230 million per year to disadvantaged areas. It is also payable to dairy farmers in disadvantaged areas since Agenda 2000. That scheme will not be affected by these proposals. The scheme continues as it is, as will the early retirement scheme, the rural environment protection scheme and the forestry scheme, all of which are rural development measures.

The decoupled dairy cow premium, as it is now known, was part of Agenda 2000. A dairy cow premium was due to be introduced in 2005 but the Commission wants to bring the new proposals forward to 2004 and to decouple it from milk production. It is saying that the farmer who gets the dairy cow premium must have a milk quota at 31 March 2004, which is the current milk marketing year starting 1 April this year, and he or she must be supplying milk. The quota can include the farmer's own quota and any quota that he or she has leased from another farmer. He or she establishes a dairy cow premium which is worth 3.9 cent per gallon of milk in 2004, rising to 19.3 cent per gallon in 2008, and that includes a national envelope. The national envelope in the milk sector is €13.6 million in 2004 going up to €67 million for 2008. If that farmer has a 40,000 gallon milk quota, it is multiplied by 3.9 cent and that figure is divided by the number of hectares of land the farmer has, giving a payment per hectare based on the milk quota. That payment per hectare is added to the single payment I mentioned earlier. Many dairy farmers would have beef premiums, for example. In fact, all but 2,000 of them are in the beef premia system in particular or even the slaughter premia system. The dairy cow premium is added to the per hectare premium, in other words, the farmer gets an increased per hectare premium by virtue of having an entitlement to the dairy cow premium.

I do not specifically deal with the milk side but my colleagues tell me that the difficulties are that they must be producing milk. It is not good enough to have the quota in March 2004, but what happens to the farmers who were not allowed to produce because their animals were affected by brucellosis, TB or whatever? They have held on to the quota with a view to coming back into milk subsequently. We hope the Commission will address that problem, which arises through no fault of his own or force majeure.

The other difficulty, which again goes back to the early retirement scheme, concerns farmers who have retired and who have leased their milk quotas to neighbours for a certain number of years. They do not have it at 2004 and they are not active farmers but, as I said already, the farmer who has the milk quota on lease will establish a dairy cow premium based on that lease quota. Once the dairy cow premium is established, it is payable to the farmer regardless of whether he or she continues in milk production. He or she can sell the milk quota because it is completely divorced from production. The farmer can sell it or dispose of it whatever way he or she wishes and continue to draw the dairy cow premium.

The last issue relates to the foot and mouth disease outbreak in 2001. It is true that some farmers could not buy animals in 2001. It is also true that many farmers could not sell animals in 2001, and they are the lucky ones. They had more animals than they normally would have. We are going to have to deal with those people who can make the case that, but for foot and mouth disease, they would have had X number of animals more than what they had originally. They can say that their entitlement is based on 2000 and 2002 divided by two and leave out 2001. In other words, we have to take account of difficulties like that and any extra entitlements that arise owing to those difficulties will come from the national reserve.

Deputy Timmins

I will not delay the committee. With regard to the penalties, is it the case that a farmer who suffers from the beef overshoot this year will only lose their entitlement for this year? Perhaps this was mentioned earlier but would someone who never claimed premia be able to get a payment based on the hectares and number of animals they have? They might have sold those animals on and never claimed. Are they totally out in the cold? There are people in that situation.

Mr. McGarrigle

They can get payment entitlements at a cost. They can purchase them and continue drawing down each year. There are people who did not draw down suckler cow premium because they did not have suckler cows or who did not draw down beef premium because they were dairy farmers who did not keep animals.

Deputy Timmins

What about a person who did not bother with the premium? Mr. McGarrigle knows the point I am making. Those people sold the stock and did not claim but got the price at the market or whatever. They will lose out completely.

Mr. McGarrigle

They will not lose out because they did not gain from the premium system; they will not lose anything. They will be in the same situation they were in previously. They can lease payment entitlements from another farmer and use their lands to activate their entitlements.

Deputy Timmins

They are losing because they would have got the premium payment in the sale price when selling on to the next person who claimed.

Mr. McGarrigle

Yes, one could argue that.

Deputy Timmins

They will lose out completely. If I have 100 acres and the farmer beside me has 100 acres, when I sell mine off I get €500 a head more than the person who keeps them throughout the year. We still end up getting the same amount because he is getting less for his animals plus a premium payment, while I am getting more for my animals since time began. However, next year I will lose out. The other farmer will get his premium and I will get nothing. The price will be straight across the board, the same as heretofore. The person who did not farm them will lose out. This is a very big anomaly, probably the biggest that exists.

Mr. McGarrigle

That will be a difficulty with the price of animals in years to come without the premium system. The question is what price one gets for animals——

Deputy Timmins

The point I am making is that the person who claims the premium and who has historical entitlements will have additional money each year while in my example, a person who does not farm in this way for premia or make a claim will lose out.

Mr. McGarrigle

That is right.

Chairman

I was one of the people who bought a lot of those cattle and lost money on them. That is the difference. The person buying was losing money.

Deputy Callanan

I thank the officials for these detailed explanations. Many people got the impression they would not have to lease land any more but the officials seem to suggest this will depend on the amount of area aid for which one applies each year. Will that have to be applied for every year?

Mr. McGarrigle

Yes.

Deputy Callanan

Also, will one be confined to where one cuts grass or can I, as grass or suckler cow farmer, decide, for example, to turn my farm into a golf course?

The officials mentioned milk and I might get the figures from them later. The biggest loser seems to be the dairy farmer who is getting out this year and still has a quota but gets no entitlements. Why are there two different reference years?

Mr. McGarrigle

The Commission's answer to the last question was that the decoupled dairy cow premium is not coming in until 2004 so they went for the most obvious reference date, even though they went back a number of years for the other reference date. In the Commission's view, the most appropriate date is March 2004.

Deputy Callanan

What would the Department advise?

Mr. McGarrigle

My advice to anybody thinking of getting out of milk this year is to wait until 2004 and then get out. That is all the advice I can give at present.

I mentioned establishing payment entitlements and farmers have a number of payment entitlements at a certain amount each. However, to activate those an area aid application must be submitted each year with the equivalent number of hectares attached. One has to have a hectare of land per payment entitlement. Under the new rules, farmers are supposed to be free to farm in whatever way they wish. If one is a grass-based farmer one could conceivably begin to plough one's land and grow potatoes or cereals. One may do whatever one wishes but changing it to a golf course would mean it would be no longer farming land. It can be used for anything except forestry or orchards, what are termed permanent crops. It can be used for any activity except permanent crops.

Deputy Carty

There are farmers who produce nothing but heifers and bring them right through to beef. They were getting only headage and a slaughter premium. Will they lose out or where will they be included? There were no premia for female animals.

Mr. McGarrigle

There were no premia for female animals and there is no headage for them now either, it is an area-based compensatory allowance. Were they getting the slaughter premium or did they sell off to be fattened?

Deputy Carty

Some would have got the slaughter premium and that is all they would have got.

Mr. McGarrigle

If they got a slaughter premium they would have a payment entitlement based on the slaughter premium. It is known as a special entitlement and one does not need land to activate it. These farmers would have had land because they would have been in the compensatory allowance scheme. However, if one is outside the disadvantaged areas and involved only in the slaughter premium one would not have had area aid for the reference period. There is a special payment entitlement for the slaughter. The answer is yes, they would get a special payment entitlement for the slaughter premium, the average they would have had over the three year period.

Deputy Carty

In some years was that not lower than the beef premium?

Mr. McGarrigle

They will get it at the 2002 rate, which is the highest rate negotiated under Agenda 2000. Nobody will lose out on the rate being lower; they will get the highest rate for every scheme, the 2002 rate.

Mr. Brady

I overlooked one of the chair's questions about the overrun of special beef premiums last year. We made a submission to the Commission with suggested solutions and we have met the Commission with a further meeting to take place. It is difficult to say what the outcome will be but we are working on the case.

Senator Scanlon

In relation to agriculture, farmers had cattle, with TB or whatever, taken to Henshaw's for slaughter and the Department has decided to reimburse those farmers. This was a Dublin factory that went into liquidation and a number of farmers were not paid for their cattle. I understand the Department is to reimburse them. Do any of the officials know about this?

Mr. Brady

I know nothing about that and I do not know if my colleagues do.

Chairman

It is not part of the brief but agreement has been reached on this. I have had word from the Minister on that and the farmers will be contacted in the future to present their documents.

Deputy Timmins

Will Mr. Brady tell us what solutions he has put forward on the beef overshoot?

Mr. Brady

That was done by our beef division. I saw them some time ago but the details were quite complicated and I cannot remember them. My powers of recall are not sufficiently good.

Chairman

I thank Mr. Brady and his colleagues for attending and responding to our queries. They are welcome and I am sure we will have them back in the future.

The joint committee adjourned at 4.10 p.m. until 3 p.m. on Tuesday, 15 April 2003.