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JOINT COMMITTEE ON AGRICULTURE, FISHERIES AND FOOD debate -
Wednesday, 18 Feb 2009

Irish Dairy Sector: Discussion.

I welcome the witnesses and inform them that while members of the committee have absolute privilege the same privilege does not apply to witnesses appearing before the committee. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses, or an official, by name or in such a way as to make him or her identifiable.

I now invite each group to make a ten minute submission and first on the list is Mr. Michael Cronin.

Mr. Michael Cronin

I thank the members of the joint committee for inviting me, the chairman of the Irish Dairy Board, to attend this meeting on the Irish dairy sector to discuss the challenges facing the industry. With me are Mr. Joe O'Flynn, managing director of the consumer foods division, and Ms Anne Randles, secretary of the board.

As the committee will hear from other contributors this morning, the Irish dairy sector is facing several challenges and opportunities. As the leading marketer and exporter of Irish dairy products worldwide, serving the interests of Irish dairy processors and milk producers, we will confine our comments to marketing-related challenges facing the sector. Those speaking later will outline the place of the Irish dairy sector in the Irish agri-food economy and in the EU generally.

Fundamental to Ireland's dairy trade dynamic is an understanding of its grass-based, highly seasonal production curve, its small domestic market, surplus output and its peripheral geographical location. Due to this we have a production profile geared towards storable products and greater exposure to the vagaries of volatile export markets, which in the past meant greater reliance on EU market supports.

The shift in the EU's milk policy regime from supply management and market intervention to more direct income support and deregulation is changing the market environment in which we operate fundamentally.

The lowering of intervention support levels and the removal of a large number of supports and aids has exposed the entire European sector to the vagaries of the international dairy markets to a greater degree than in the past. The most obvious evidence of this has been the increased volatility in market returns and consequently the milk price to the farmer. As the committee will be aware, in line with most other commodities in 2007, policy and climate related output restrictions, coupled with sustained demand growth, led to doubling of most dairy product prices during that year.

These high prices, however, soon brought their own response in terms of additional output on the supply side and strong consumer resistance and recession concerns on the demand side. Dairy product prices, as a consequence, fell considerably in 2008, and in some cases to below 2007 levels.

In the past, Irish and EU dairy companies would have been cushioned from the more acute swings in world market prices and currency shifts through the EU export refund and dairy aids schemes. However, the clear policy of the EU now is to step back as much as possible from the market and support farmer income through direct payments, leaving the EU market to operate in closer alignment with the international market. This shift in policy from supply management and market intervention to income support means that there will be much more price volatility with sharper peaks and troughs in the future, leading to more volatile shifts in product and milk prices. Both farmers and industry will need new strategies to cope with this instability and thereby manage the inherent business risk.

The abolition of milk quotas will bring its own marketing related challenges to the sector. Climate change globally and higher raw material costs, including the impact from bio-fuels, are changing milk production fundamentals. Climate change will continue to trigger local fluctuations in milk output globally — Australia is an example of this where sustained drought conditions during the past decade have undermined the growth potential of this major dairy market. This, coupled with the higher costs of non-grass based production systems, also in the EU, will present a competitive advantage to Ireland, particularly in a quota-free environment.

Ireland is well placed to benefit from the abolition of milk quotas by 2015. New opportunities will arise within Europe as production is curtailed elsewhere. However it is unlikely that markets will be found in the EU for all of Ireland's surplus production which means that new markets will be needed abroad.

The Irish Dairy Board is already gearing up to meet the challenge of additional Irish dairy products. We have a comprehensive strategic sales growth plan in place to grow Kerrygold branded sales in key markets, to leverage our network of subsidiaries as routes to market to deliver value and volume growth over the next five years and to develop additional routes to market through organic growth, acquisitions and alliances.

A challenge facing Ireland in the future is to lessen its dependency on butter and increase its output of cheese and whole milk powder, the major ’fat-bearing’ product alternatives. Cheese, in particular, is the product engine of the developed world and the economic growth dairy demand driver in the developing world. Cheese consumption in the developed world is high. As a result, growth is limited, with growth largely confined to the food service and catering sectors. Demand for dairy products generally is more dynamic in emerging markets but it is coming from a much lower per capita consumption base. Much of the growth is these markets is being satisfied by domestic production, for example, in China and India, but there are opportunities in particular for milk powders and cheese.

The 2007 Dairy Investment Fund will be an important factor in accelerating the growth of cheese production in Ireland. Already in 2008, we saw record cheese production in Ireland — up 28% to 163,000 tonnes. This is likely to fall back somewhat in 2009 as intervention opens for butter and skim milk powder due to the poor trading environment. However, the longer term trend in Irish cheese production is positive.

Declining milk output in a number of key European markets, most notably the UK, will afford new opportunities for the Irish dairy sector. The challenge for us is to meet the demands of these markets. Key to this will be greater industry investment in research and development. The level of Irish investment in research and development is low by international standards. What is needed is market driven research and development activity, undertaken in industry centres of excellence, in collaboration with the research institutions.

The seasonality of Irish milk supply and the consequent dependence on storable products both to service branded product requirements, including the Kerrygold brand, and key customers over a 12 month period, is a key challenge for the sector. Increased market volatility has a direct influence on profitability where stock exposure arise on seasonally manufactured product for the brand portfolio and on forward sales or unsold positions.

The switch to greater cheese output will accentuate this further given the longer storage times involved. While there is a comparative advantage for Irish dairy farmers in producing milk from grass, it is difficult to see how seasonality can be avoided. This is all the more reason we believe there is need for an additional, sensibly priced, asset-backed lending structure, to provide the sector with the necessary resilience to withstand potential market shocks which could well be repeated in the future. The Irish dairy sector needs time to transit through this current period of investment and growth; time to bed down the recent capital investment and to allow the marketing arm to develop sustainable value added routes to market in an orderly fashion.

Perhaps the single most important assets of the Irish dairy sector are its clean image and its reputation for high quality and safe dairy products. These are assets which the sector, along with the competent authorities, has worked hard to develop. It is no exaggeration to say that they can be irreparably damaged overnight and negative food stories can remain in the collective memory of the consumer for ever. The Minister recently described the Irish agri-food sector as "Ireland's largest indigenous manufacturing sector" and that it will be "a crucial element in sustaining and reinvigorating our economy". We concur wholeheartedly with the Minister. Central to the success and future development of this sector is its image in the marketplace which has to be unparalleled elsewhere. It is not good enough that we can benchmark ourselves against the rest in terms of food safety and quality control throughout the food chain. We must be world leaders in this field, at a level where others seek to emulate us.

It would be remiss of me not to mention the challenge of a new WTO agreement on our sector. While a new trade liberalisation agreement would appear to be off the agenda for the moment, it is unlikely to have been permanently shelved and for this reason we must stay alert. A new agreement, which would see a substantial lowering of protection from third country imports into the EU and the permanent removal of export refunds, will certainly pose challenges for our industry. They are challenges we must face up to and it would appear that we have bought some time for our industry to reorganise itself and equip itself better in terms of both production and cost efficiencies and in terms of its most suitable product mix for the market.

The Irish Dairy Board believes the Irish dairy industry is facing into a new era in terms of deregulation, greater market volatility, and even more demanding consumers. We are working to ensure we are strategically structured in the most appropriate way for the future. We see our primary function as consolidating the interface with the marketplace and providing a service to our members that demonstrates the effectiveness of such a unified face in what is a rapidly consolidating industry.

We have identified what we believe are the key market related challenges currently facing our industry and will work alone and with our members, our farmer producers and the authorities to ensure these challenges are each met in the most effective and efficient manner possible.

I thank the Chairman for the invitation to address the members of the Joint Committee on Agriculture, Fisheries and Food. My colleagues and I will be happy to answer any questions the Chairman or other members of the joint committee may have arising from this submission.

Thank you for your presentation. I invite Mr. John Tyrrell to make his presentation.

Mr. John Tyrrell

I thank the Chairman and members of the committee for the opportunity to make my presentation. I will make a few points to highlight the importance of the sector. The dairy sector is of vital importance to the economy. The export of dairy products and dairy ingredients accounted for more than €2.3 billion in 2007, more than 27% of our agri-food exports. Agri-food exports are particularly beneficial because the import content of those is very low and, therefore, that accounts for a much higher percentage of our net exports. Milk accounts for around 29% of our gross agricultural output. There are about 20,000 milk producers with an average output of 265,000 litres, which is growing annually. Milk is produced in most parts of the country. An important point is that ownership of the dairy processing and marketing sector is mainly in co-ops and co-op controlled and related organisations. In this regard, Ireland is similar to our main competitors in other well-developed countries, such as the Netherlands, Denmark, New Zealand, the United States, Finland and Germany. That means that dairy producers own or control, and are, therefore, the key beneficiaries of, the industry.

Dairying generates major spin-off economic benefits in rural areas, both from upstream and downstream supplies and services, and the significant spending power it generates. It is an indigenous industry with a long tradition and with important competitive advantages which can be exploited in future.

As regards current issues facing the sector, reference has been made to market volatility, and the dairy market is currently very weak. That is due to weak demand for dairy products in all markets, both in Europe and globally. This is partly because of the fall in overall economic activity linked to the credit crisis. It also coincides with an upsurge in supplies in some key producing countries.

The markets for dairy products hit record levels in 2007, due to a fall in supply in Europe, New Zealand and South America, each for different reasons. At that time demand in emerging markets was strong and therefore supply could not meet demand. As a consequence, buyers rushed in to secure their needs and the market price rocketed. The market peak in autumn 2007 was short and then quickly reversed. One reason for the sudden change in markets is that only 7% of world milk production is traded between countries and, therefore, small swings in supply and demand can have a large impact on prices. This has certainly been the case for the past two years.

Last year saw prices fall below the intervention support equivalent. However, over the past number of CAP reforms, market support mechanisms have been gradually weakened. There are now limits on EU intervention buying — up to 30,000 tonnes for butter and 109,000 tonnes at EU level for skimmed milk powder — before a tender system may be applied. Other market aid schemes have become discretionary or have been eliminated. Export refunds have not been used for almost two years for butter and skimmed milk powder, which is due to very strong markets. However, they were recently re-introduced by the European Commission in a limited way because of the dire state of the dairy market.

Lower prices are a feature of all the main dairy producing countries, and they are causing a slowdown in production. That will reduce the supply-demand gap and, while prices will recover, it is unclear how long this will take. With EU support measures weakened and rapid knock-on effects of surpluses and shortages in the main producing countries, we can expect much wider swings in price volatility in Europe than previously, especially for commodity products. Commodity-type products will be an important part of the Irish industry due to the nature of our production system. The challenge will be how we reduce our exposure to that volatility, while at the same time remaining competitive.

A number of policy decisions have been taken recently. Last November, the EU Agriculture Council took the decision to end the quota system in 2015. Milk quotas will be gradually increased and Ireland will benefit from the reduction in the butterfat adjustment. That gives a clear policy signal to the sector, both at primary and processing levels, about the direction and timetable for that change. The European Commission has pulled back from ongoing involvement in market management and expects that all agriculture sectors will adapt to a more market-influenced future.

Many of our competitors on the Continent have developed from strong domestic markets. However, a number of the main players have created large businesses with scale in order to achieve significant production cost advantages through economies of scale. They are producing a wider product range and wider offering, as well as developing advanced systems of product innovation. Their ambition is to grow on the global market and, in addition, they are seeking a better negotiating position with the concentrated retail sector. They are developing strategies which will secure a sustainable and substantial income for their members, and we must ensure that we are not left behind.

The competitiveness of Irish industry in all areas is affected by cost issues such as energy, regulation and labour costs, which are to some extent within our own control. The dairy sector is exposed to competition in export markets as we export over 80% of what we produce. There is an urgent need for the Government to address such areas which are affecting our competitive position.

As regards positioning ourselves for the future, there is a need to take decisive steps now, and some of those steps are within the control of the industry itself. We must use our factories to best advantage. There are opportunities to make better use of capacity outside the peak period when all the facilities are needed, and also to gain from the advantage of a wider product range. We need to co-ordinate future investment in order to get best value from the scarce cash resources available. In addition, we need to achieve closer links with the market to guide product development and build longer-term customer links. We need to strengthen the capacity for innovation and product development, as well as the pipeline for new products and product uses. We have taken an initiative to set a course for the future development of the sector.

I wish to address some needs of the sector. Market support measures are currently needed because current markets are exceptional and demand an exceptional response from the European Commission. Prices are now below intervention level and customers are reluctant to buy. To illustrate this point, the Dutch market price for butter is €2,100 per tonne, which is €117 below the intervention price. The Dutch price for food grade, which is the higher standard of skimmed milk powder, is €1,590 per tonne, which is €150 a tonne below the intervention price. Recently that price was even lower in the Netherlands. So there is a need for intervention limits on butter and skimmed milk powder to be waived for the time being in order to underpin the current market. Intervention is closed until 1 March because it is only open for a six-month period — being closed during the winter period.

Prices for producers are at unsustainable levels and co-ops have supported the milk price very strongly in 2008 at levels well above the market return. We estimate that support could have cost the industry something in the order of €100 million in 2008. That is not sustainable.

Currency volatility and lack of access to credit insurance is also making it difficult to do business. We have made representations to the Government on those issues. Emissions regulations are coming down the tracks, with the potential to have a huge negative impact on the sector, depending on how they pan out. We are also in contact with the Government about that issue.

Competition regulation should not stop us from competing with the large-scale competitors both in the European Union and outside it. Some of the competition that is dealing with consolidation can interfere with our ability to compete with large organisations outside the EU. Those regulations and the actions of the Competition Authority should not stop consolidation which allows us to compete in the market and allows a level playing field with competitors and retailers.

On world trade, there is a need to ensure that we do not allow our markets to be undermined before we have had an opportunity to adjust. In any case, access should be on the basis of similar standards to those required within the European Union.

The role of ICOS is to highlight the challenge and lead the debate, which we have done. It is also to inform boards and management and encourage urgent action on the future issues that are facing us. We are stimulating discussions which will lead to decisions and actions. We are also offering options and analyses. We want to ensure that our industry can pursue the benefits of economies of scale, as well as achieving a closer link to the market and managing commodity exposure. These steps are within our control and the ICOS initiative is taken with the intention of achieving that. We are knocking heads together on the issue and are creating a sense of urgency with the objective of achieving action to address those issues.

I thank Mr. Tyrrell for his presentation. I now call Mr. Aidan Cotter to make his presentation.

Mr. Aidan Cotter

I am pleased to be back here for the second month in succession, which reflects the committee's active agenda. There is a lot going on in this industry and we in Bord Bia believe it has a significant potential to contribute to the sustainable economic renewal of the country and particularly the dairy industry, which we are addressing today. Much of the potential rests with the dairy sector.

I thank the committee for the invitation to discuss the industry and the challenges facing the sector over the coming years. I am joined by my colleagues, Ms Tara McCarthy, director of our consumer foods division, and Mr. Padraig Brennan, senior business analyst in our information services division. With the agreement of the committee, I would like to focus my statement on the position of the Irish dairy industry within the overall food and drink sector, the medium-term prospects for the global dairy market, the issues facing the Irish dairy industry and the role of Bord Bia in assisting the development of the sector.

The dairy sector continues to form a central part of the Irish food industry with export revenues in 2008 estimated to have reached some €2.2 billion out of total food and drink exports of €8.16 billion. This leaves the sector accounting for 27% of total food and drink exports. Following an excellent performance in 2007, dairy prices came under considerable pressure as 2008 progressed, reflecting a considerable slowdown in the global dairy market. The weakness of the US dollar and sterling relative to the euro also impacted on European and Irish export levels, which for the year fell by 5%. This weaker market environment has continued into the early part of 2009, which is why we are before the committee today.

The breakdown of Irish exports in value terms focuses on three key product areas, namely butter, cheese and infant formula, which between them account for almost two thirds of exports. The strongest growth in export values over recent years has been evident in infant formula and cheese. In terms of destinations for Irish dairy products and ingredients, the UK continues to account for more than 35% of exports with trade in 2008 worth in the region of €800 million. Trade to other EU countries was valued at around €550 million while the ongoing growth in the volume of infant formula and milk powder exports helped trade to international markets, which account for 35% of exports in value terms.

The recently agreed CAP health check, which allows for a 1% annual increase in EU milk quotas over the next five years, paves the way for their abolition from 2015. For Ireland, this provides the opportunity to boost our output given the competitive nature of our production base, especially given that a number of key member states are unlikely to fill their milk quota over the medium term. However, it is important that any increase in output is guided by developments in market demand. It also highlights the necessity to ensure the industry is in the best possible position to utilise any extra production by having the ability to capitalise on market opportunities as they emerge both globally and within Europe. The capital investment programme that has been taking place in recent years in the Irish dairy sector will generate capital investment of almost €300 million and is helping to bring more flexibility to Irish dairy processing, although challenges remain in terms of being able to alter the product mix to meet emerging demand.

Notwithstanding the undoubted pressure currently being faced by the Irish dairy industry, given the decline evident in prices over the last year, the medium to long-term term outlook remains broadly positive for the global dairy sector helped by income growth in many parts of the world and favourable demographic and cultural trends that have increased awareness of, and improved access to, dairy products. However, considerable volatility is also anticipated in the marketplace. Little change is anticipated in global dairy demand during the first half of 2009. A recent report by Rabobank anticipates some turnaround in demand levels towards the end of 2009 and into 2010 based on what it expects to be a more stable global economy, improved consumer demand, more competitive product pricing and lower stock levels. However, the timing of an economic recovery will be critical.

Some moderation in recent supply growth is expected as producers rein back on investment in response to lower milk prices although further output growth is expected in the short to medium term from both New Zealand and Brazil. In the case of New Zealand, increased switching of land from sheep to dairy production is boosting output. Brazil became a net exporter of dairy products for the first time in 2007 as production growth continued to outpace the rise in local consumption.

The fact that dairy demand was running ahead of supply for much of 2007 meant that some slowdown was inevitable. However, industry commentators suggest that the level of correction evident in demand levels has been excessive and some scope for stronger consumption growth exists.

Projections from Rabobank suggest that global dairy demand will show annual growth of around 1.7% in the 2008-09 period with this figure rising to 2.5% or 16 million tonnes annually in the following three years to 2012. China and India have been accounting for 50% of global growth over recent years and, together with the Middle East, Africa and South East Asia, are likely to be the key drivers of global dairy demand over the medium term. However, markets such as India are increasingly self sufficient while China has similar aims over the longer term. Bord Bia is assessing developments in South East Asia with a view to identifying which markets offer the best prospects for growth.

The rate of increase in EU dairy consumption is likely to be modest, although demand for specialised dairy ingredients is expected to show strong growth. Despite the current level of volatility, the rate of increase in global dairy commodity prices up to 2017 relative to the past ten years is expected to be as much as 60% for some dairy products, according to the most recent OECD agricultural outlook to 2017.

Global stock levels are set to remain at relatively low levels while food demand will continue to become less sensitive to changes in farm gate prices. However, increasingly variable weather conditions are likely to impact on global supplies. The fact that only 8% of world production is traded means that small supply or demand swings can have big effects on the market. The uncertainty surrounding the global economic environment makes the timing of any recovery in demand levels somewhat uncertain and this is likely to lead to ongoing volatility in the marketplace over the short term. This volatility means that processors have to adapt to changed conditions while dairy ingredient users have to manage price fluctuations in balancing the costs of reformulation and recipe flexibility, all of which impact on milk prices.

The issues facing the Irish dairy industry come from two different perspectives. First is the immediate issue of stabilising prices and establishing a solid base for the dairy sector over the coming months and second are the issues that need to be addressed to secure a strong future for the industry. Given the in-depth knowledge of the other organisations present today, I propose, if the Chairman approves, to focus on the medium-term issues.

Among the principal issues facing the sector is seasonality, though Irish seasonality, while a problem for milk processing because it is a grass-based industry, is now considered a potential advantage. Another is the product mix. Seasonality constraints dictate that Ireland must select the best product portfolio-market asset utilisation mix. The crucial questions will be what to produce from the additional quota in the short to medium term and where to invest in the longer term for the post-quota world of the future.

These issues raise some critical questions for the Irish dairy industry, such as how to adapt our product portfolio to changing market needs in light of ongoing changes in policy and global dairy dynamics. Other questions are how to move from commodity products to value added products and what products to produce for which markets following expected milk increases post quota. The principal opportunities will lie in selecting and developing new products, formats and ways to get the dairy ingredients or products to market, compatible with existing capacity.

Recognising these issues and the need within the sector for in-depth information as it plans the future product and market orientation of the industry, Bord Bia has established a dairy research programme in consultation with the dairy industry, including the Irish Dairy Board. In addition, our overseas office network provides a market presence that can translate market information into intelligence that can be used by exporters to guide their business development strategies.

To date research has been carried out on market opportunities for Irish dairy products and ingredients in Europe, Russia and Asia, as well as ad hoc studies that examined developments in the Indian dairy sector and the calf milk replacer market. These studies have highlighted a number of potential opportunities that merit further examination. In terms of the European research, significant potential opportunities were identified for hard or semi-hard and processed cheeses in addition to specialised dairy ingredients. In the hard and semi-hard cheese area, for example, potential export opportunities were identified to the value of more than €600 million by 2012. This figure does not represent a projected growth in exports but rather identifies a potential opportunity for Irish exporters, although seasonality remains a challenge.

From the perspective of ingredients, the largest volume opportunity identified was for whey products, with the potential to boost the value of these exports by more than €150 million by 2012. Significant opportunities were also identified for cheese, butter and casein as ingredients. The feasibility of achieving this potential export growth will depend to a large extent on Ireland's capacity to compete effectively with what are, in many cases, established suppliers. In this regard, issues such as energy and labour costs and sterling volatility all impact on the ability of Irish exporters to compete.

In terms of markets offering good potential, the UK, Germany, France, Italy and Spain showed the best prospects for growth. The aim of our research examining the Russian market was to assist Irish dairy companies in assessing developments taking place in the dairy sector, to identify the export potential and examine the best routes to market. The research found that the widening demand-supply gap means that the Russian market offers good potential to Irish dairy ingredient suppliers, particularly for whey powders and milk protein concentrates. However, developing routes to supply the market remain challenging. Nonetheless, the anticipated growth in Russia's import requirement, combined with rising income levels, suggests that the market will offer opportunities for Irish exporters over the medium term notwithstanding current market challenges. Following this research, Bord Bia, through our Moscow office, has been working with a number of exporters to identify potential business opportunities.

Our research examining the market for dairy ingredients in Asia aimed to help guide Irish exporters on the developments taking place across 11 countries in the region. The research showed that significant potential for growth remains in the ingredients sector although the growing presence of emerging low-cost producers means that competitive challenges exist. Nonetheless, the size of these markets in population terms alone and the fact that dairy consumption levels are expected to show annual growth rates of around 5% in most markets suggest further opportunities exist. The focus of Bord Bia activity in this region is to assess which of these markets offers the strongest potential for growth.

With emphasis on the post milk quota scenario, and the current and developing environment in which the Irish dairy sector has to operate, Bord Bia's strategy for the sector is centred on the industry's requirement for information and knowledge. Given the variable plant, technologies, capabilities and experience of members of the industry, their choice of strategic options will require the highest quality information. Current research studies, such as those mentioned earlier, have been circulated to the industry and mark the first phase of a programme in support of the Irish dairy sector.

The commissioned research programme will be supported by Bord Bia syndicated research purchases on behalf of specific client groups within the industry and customised services for individual companies. Industry requirements are obvious. While data is of value, information and knowledge for strategy development are vital. To this end, the objective of the programme is to develop Bord Bia into the core market information provider for the industry, thus enabling strategic choices through market knowledge.

It will be Bord Bia's role to work with the industry to identify the information required, to source and disseminate it, and to assist the industry in deciding how best to use it. In addition, Bord Bia will work closely with the industry to articulate and communicate Ireland's capabilities internationally in dairy production. As part of this Bord Bia, in consultation with industry, is developing a promotional DVD highlighting the capability of the Irish dairy sector and promoting the key strengths of the industry which will be disseminated to all key existing and potential customers.

There is no doubt that the current market provides significant challenges for the dairy industry and requires co-ordinated activity and support to help the sector deal with them. However, while issues remain, the medium to long-term prospects for the global and European dairy market continue to be broadly positive, albeit with the potential for significant volatility, and present further opportunities for value growth in Irish dairy exports.

The gradual move towards the abolition of dairy quotas in 2015 and the competitive cost base at producer level, combined with considerable capital investment at processor level, provide the basis for an industry that can successfully build its market position globally over the medium term.

I thank the Chairman, and the members of the committee for affording me the opportunity of addressing it today. My colleagues and I are happy to address any questions the Chairman and the committee may wish to ask.

Thank you, Mr. Cotter. Before I call on Mr. Padraig Walshe, president of the IFA, I wish my fellow Meath man Mr. Pat Smith well in his new position. I know he will do an excellent job.

I now call on Mr. Padraig Walshe to make his presentation.

Mr. Padraig Walshe

I thank you and the members of the Oireachtas committee for giving the IFA the opportunity to inform it of the difficulties faced by the dairy sector. I am accompanied by Mr. Richard Kennedy, chairman, Mr. Pat Smith, general secretary designate and Ms Catherine Lascurettes, executive secretary of the IFA, dairy section.

The dairy industry is one of our most valuable indigenous industries. It was worth €2.5 billion in exports in 2007. It employs 9,000 people directly in processing, and an estimated 4,500 more in ancillary services. It must also be borne in mind that there are 20,000 farm families fully employed with a further 10,000 people in the supply sector supplying them. In total as an industry it provides employment for approximately 45,000 people.

At a meeting held this week in Fermoy, a dairy farmer showed me a statement he received in September 1979 for milk supplied to Golden Vale. This statement showed he was paid 26.25 cent per litre. That was 30 years ago. The price which will be paid by co-operatives for January 2009 will range between 20 and 25 cent per litre. The prospects for the rest of the year are extremely poor, with some co-operatives talking about lower milk prices during the year. That means that in 2009 most farmers will not have an income from milking cows.

The Teagasc Dairy Profit Monitor indicates the costs of production on profit monitored farms in 2008. Participants in this scheme are people who volunteer their figures and watch their costs. They tend to be above average farmers. The cost before labour is factored in is 20.85 cent per litre on average for 2008. Teagasc states that an additional 5 to 8 cent per litre needs to be added to those costs to cover the farmer's labour. It is expected there will be a reduction in costs in 2009 of 1.5 cent per litre, but even with that farmers would need a minimum price of 26 cent per litre to make an income from dairy farming. The bottom line is that the majority of farmers will fail to break even in 2009. That is a major loss which will hit farm families directly right across the country, sending a very negative signal.

The Government must play an active part in helping to secure the future of this industry. Challenges to farmers' cash flow from delayed farm waste management grants, REPS payments and unco-operative banks must be dealt with. Targeted use of EU market supports to help sustain viable milk prices when markets are weak must be pursued vigorously by the Minister for Agriculture, Fisheries and Food. Another issue which can be addressed at Government level is the excessive cost of doing business in Ireland, particularly energy and wage costs. The issue of on-farm inspections must also be addressed. Biosecurity in animal feed, an issue which arose before Christmas, must be increased. It is another major worry. The dairy industry barely escaped in that scare.

Low milk prices and continuing high costs are a challenge to dairy farmers' cash flow. For many, their next three to four months' milk cheques are already fully committed to pay input bills in terms of feed, fertiliser, electricity, fuel, and so on. We estimate that of the 17,000 farmers still awaiting payment, up to half could be dairy farmers. The Government must at the very least cover the interest cost and give farmers a letter of commitment laying out the payment schedule in regard to the rest of the money. Without this they will not be able to get credit to carry on their normal farm business. This money must be removed from farmers' balance sheets to allow them to negotiate their normal credit facilities with their banks. Uncertainty is causing extreme anxiety among farmers.

Delays in REPS IV payments are also affecting cash flow for up to 4,000 dairy farmers. These farmers submitted their plans last year as required. The Department for Agriculture, Fisheries and Food has had ample time to approve those plans, so there should be no delay in payment. The current situation whereby more than 8,000 REPS IV payments have not yet been paid to farmers is totally unacceptable. In addition, the removal of the installation and retirement schemes in last year's budget and the suspension of the farm improvement scheme in October 2006 send a very negative signal to young people who want to come into this industry, and it is an industry for young people.

The financial situation of many dairy farmers is further compounded by a less than helpful attitude from banks. Despite positive public pronouncements, in too many situations, banks overcharge farmers and are unco-operative in terms of their financial needs in the face of low milk margins and delayed grants and REPS payments. The same applies to the banks' attitude to funding working capital in the industry. The industry, at both processing and input supply levels, is suffering problems in terms of credit lines. That is an issue that must be addressed as a matter of urgency.

Even allowing for the recently reactivated export refunds, at current EU dairy prices the Irish Dairy Board has indicated that sizeable gaps remain between the price at which EU product can be exported and the lower price at which the product is traded on the world market. It is critical that the Minister for Agriculture, Fisheries and Food press the EU Commission to grant refunds at a sufficiently high level to allow Irish dairy products to be competitive on the world market. The EU has reduced massively its spend on market supports since the mid-term review in 2004. Budgets have clearly been under-used with no recourse to intervention in 2007 and 2008, and zero level for refunds and many other processing aids since the middle of 2007.

The dairy budget for market intervention measures which amounted to more than €1 billion in 2006 came down to under €138 million for 2009, an 86% cut over the period. This reflects slashing of the export refunds and the various skim milk powder disposal aids which were in place. In the same period, the dairy share of the CAP market support budget has gone from 12.5% of the total budget to just over 4%. A strong argument must be articulated by the Minister to reinstate resources under the various dairy budget headings, particularly export refunds and processing aids. There is also an issue with regard to export credit insurance and exchange rate difficulties with sterling, which have surfaced in the past 12 months. We have already presented the Ministers for Enterprise, Trade and Employment and Agriculture, Fisheries and Food with proposals to solve those problems. As yet, there has been no announcement which would allow people to get on with business and solve the problems.

Since last summer, oil prices have fallen from $147 to $35 per barrel. Electricity prices rose last year by more than 30%, on the back of increased oil prices. It is time for the Minister for Communications, Energy and Natural Resources to demand an immediate price reduction of at least 20% in the price of electricity, because it is having a huge effect on the cost of processing and producing dairy products. A similar price cut is essential in gas, which is widely used at processing level in the dairy industry.

While farmers are facing the prospect of not making an income in 2009 it is necessary to reduce all costs in the processing industry, from the top down and including wages. We support the ICOS initiative mentioned earlier, in its efforts to bring the industry together. The urgency of this cannot be overemphasised, especially given the present opportunity for increased supply.

The duplication caused by the Department of the Environment, Heritage and Local Government setting up another inspectorate must be challenged as it breaches an agreement between farmers and a previous Minister. I have already mentioned the food safety issue. We must avoid future food safety crises.

The long-term prospects for the industry are good but there is a huge problem in the short term. Farmers cannot produce milk without an income and this must be addressed. Mr. Cotter referred to the long-term prospects and the work being done on markets. If the industry is to benefit from that long-term investment we need urgent short-term action.

Mr. Jackie Cahill

We cannot underestimate the challenges faced by our dairy sector and we cannot overestimate the importance of those challenges to rural Ireland. We are in serious bother. Much fundamental thinking must be done. An ICMSA delegation addressed this committee on 12 November last and expressed our concern regarding the CAP health check. At that time we warned against the policy being put forward. Unfortunately, we have been proved more right than we wanted to be. The policy pursued is having dire consequences for Irish dairy farmers.

In recent times, a naive view has been pushed strongly by various parts of the dairy sector and adopted by our Minister at the health check negotiations that all our problems will be solved by an increase in milk quota in the lead-up to total abolition. This proposition is as wrong and ill-founded as it is simple. Irish farmers, unfortunately, will be the first to face world market conditions. The world market has two elements: lower milk prices and greater volatility in those prices. We were told that the political wind was blowing against the ICMSA position on milk quotas. Unfortunately, we were right and the so-called soft landing predicted by the EU Commission and the Minister has become a very hard landing for dairy farmers. We saw what was coming but our policymakers did not.

The reality today for dairy farmers is that prices have dropped from a peak of 39 cent per litre to 25 cent per litre in January 2009. Even if prices stay at that level throughout the year, and experts are saying they will drop even lower, that represents a drop in income of €35,000 for the average 55,000 gallon dairy farmer. It is predicted that milk prices will drop to around 20 cent per litre in 2009. We are being asked to produce milk at 1984 prices with 2009 costs. Clearly, this is an unsustainable scenario.

The so-called experts tell us what quota expansion will do for us. At its dairy conference in November 2008, Teagasc predicted that Ireland will have expanded milk production by 23% in 2020, adding €750 million to the national economy. The costs involved in producing that milk, the milk price available at that stage or the infrastructure costs and the money that would have to be spent in farmyards were not mentioned. Given farmers' experience of spending on infrastructure in yards in the past 18 months, any future expenditure will be closely examined.

The Department of Agriculture, Fisheries and Food promised us extra quota and introduced a very complicated quota exchange system to replace the previous quota purchasing system. This new system has merely succeeded in putting an added cost on active dairy farmers. It pushed up the price of milk quota. In some cases, 40 cent per litre has been paid for quota through that exchange, adding an extra layer of cost to the active dairy farmers who wanted to stay in the business.

We have been consistent in highlighting the dangers of the policy being pursued. Supply management is essential if Irish dairy farming and this sector are to survive. Unless supply and market management is maintained dairy farming as we know it in this country is in serious trouble. Supply management is essential for two reasons. First, it brings stability to the market and second, it ensures that prices in Europe are above the world market price. For the past ten years, the average world market price has been 18 cent per litre. The current price in New Zealand, the barometer which usually sets world market price, is between 13 cent and 14 cent per litre. Are people telling us that European farmers, with all our costs, can produce milk at this price? People who believe they can abolish milk quotas and that the EU will, somehow, support prices above world prices are not living in the real world. This type of thinking has got us into the situation we are in. The European dairy industry and dairy markets are better than any market in the world. Our focus must be on that European market because otherwise we will be dependent on export refunds, which is not a long term possibility for survival and is a flawed strategy for this country.

If farmers were asked to choose between a reasonable milk price and retention of quotas they would vote overwhelmingly for a reasonable milk price. Regulations upon regulations have been forced on us by Brussels accompanied by the total abandonment of price supports. This cannot be allowed to continue.

We are told decisions have been made by the EU and cannot be reversed. We are told the die is cast. We were also told that export refunds would never be reintroduced. The Commission has already done a U-turn on that policy and reintroduced export refunds. Although they are at a level which is not high enough to help milk prices, the Commission has at least recognised the need to intervene in the marketplace.

Four key fronts must be attacked in a co-ordinated fashion. The EU must take milk product off an over-supplied market. Costs within the food processing and market sector must be reduced. The cost of doing business at farm and processing level in Ireland must be substantially reduced as part of the national recovery and our Minister must use options under modulation, unused funding and other schemes to support dairy farmers through this difficult period.

Experts vary on the amount of product that must be taken off the market but I will give some figures. In 2003, 420,000 tonnes of skimmed milk powder was used in animal feed in the EU and that is three times Ireland's total production of skimmed milk powder. Last year only a quarter of that amount was used. Clearly there is an internal method here that could be used by the EU to stimulate demand.

Similarly, we feel the quantity of butter exports must more than double and reach 328,000 tonnes, from the current level of 130,000 tonnes. This represents more than double Ireland's total annual butter production and the amount of product that must be moved out of the EU is substantial. Last year the agriculture budget was under spent by around €1.5 billion and we estimate that getting the aforementioned product out of the EU would cost between €750 million and €1 billion this year. This could be done within the current budget and it would be a small price to pay to maintain Irish and European dairy farming.

As we approach 1 March, the main production time of year, intervention is probably the best option for our produce. The Minister must get an assurance from the European commission that the intervention price will not be reduced once the 30,000 tonne ceiling for butter and 109,000 tonne ceiling for skimmed milk powder is reached. This is essential to prevent any further undermining of milk prices. The problem relating to butter is greater than that relating to skimmed milk powder. Ireland should seek the reintroduction of regulations allowing subsidised butter to be used in pastry and ice cream schemes. We are aware that at the last health check these regulations were abolished by the Council of Ministers but in this economic environment such matters should be revisited; it is essential that these supports be reintroduced.

The price supports today do not support milk prices above the costs of production and this does not make businesses sustainable. Market supports, as they are currently being used, are not working for us. This must change and the Minister must deliver on his commitment. The Department, co-ops and Teagasc all stated that new ways must be found to deal with price instability in the absence of quotas. None of these organisations have to date put forward any proposal to deal with instability and the old solution of cutting milk prices still prevails. Dairy farmers cannot survive such a policy.

There is scope for rationalisation and sharing facilities at processing level; all possible savings must be made this year. ICOS is trying to get greater co-operation in the industry at the moment and this should be supported. Any costs that can be removed from processing facilities must be removed.

The cost of doing business here is 20% out of line with Europe; for example our electricity costs at least 20% more than the EU average. Such matters must be addressed if we are to survive the new economic environment. Costs increased dramatically for farms in 2008, particularly fertiliser and energy costs but in late 2008 and early 2009 global fertiliser prices fell rapidly. For example, urea fell in price in the UK from £445 per tonne in October 2008 to £226 in December 2008. The Competition Authority should examine the fertiliser market in Ireland and ensure competition operates effectively in the marketplace.

There are other initiatives the Minister can undertake to help dairy farmers. The farm waste management grant issue is of great concern to all farmers; it creates massive cash flow problems and financial institutions are putting serious pressure on farmers. Our position is that a grant should be paid in full within the charter of rights and this means all farmers should be paid by mid April. If the Minister cannot deliver this he must meet interest payments to banks; inspections should not delay payments. The availability of working capital is a related matter and the Government must work with banks in the interests of the wider economy.

Some farmers have not received a rural environment protection scheme, REPS, payment in more than two years despite commitments to pay in late September 2008 and, subsequently, in January 2009. Many farmers have still not received payment and this adds to cash flow problems. The Department must resolve the matter immediately.

The Minister has access to substantial unused single farm payment funds and modulation funds. The ICMSA has proposed to him that a proportion of the unused funds should be used in 2009 to provide a direct support payment to dairy farmers. Given income pressure on dairy farmers, the ICMSA believes the Minister should deliver on this. He is likely to have at least €15 million in 2009 if an EU proposal on unused CAP budget funds is accepted. He will have at least €17 million in 2010 from modulation funds. The ICMSA proposes that the Minister should use these funds for dairy farmers as EU regulations have identified them as occupying a category that can benefit from such funds. The unused funds and modulation funds provide the Minister with a means to provide direct support to dairy farmers at little or no cost to the Exchequer; the funding involved comes from the EU.

I thank the Chairman for the opportunity to put our views before the committee. The problems Irish dairy farmers face today are immense but they were predictable, given the policies pursued by policy makers. Farmers are paying a heavy price for the failure of those policies. We must go back to basics to allow the Irish dairy sector to survive. I hope policy makers will see the error of their ways and help us to build a future wherein Irish dairy farmers can prosper.

I thank all of the delegates for their presentations; they only went five minutes over the allotted time, which is very good.

I welcome all of the delegations here following a recommendation by Deputy Edward O'Keeffe. It is opportune that we should have this meeting because the dairy sector is facing its most challenging year. This fact was starkly put in context by the president of the IFA when he referred to prices received in 1979 and today.

I have a few comments and observations but I will first refer to cash flow difficulties, an issue that arose since our last meeting and which was mentioned by some of the delegates. We can come back to this matter later. I do not expect to get political agreement on it but with regard to payments due, the committee should speak with one voice on the issue of interest payments accruing due to deferred payments. The committee should communicate with the Minister immediately to seek to have interest payments covered while payments are delayed.

Mr. Tyrrell of ICOS referred to the fact that in 2008 the processing sector had sustained the price of milk above the cost of processing to the tune of around €100 million. This puts the situation for producers in stark contrast because it would not be sustainable for the processing sector to do this again in 2009. In many respects primary producers are in last chance saloon because they may be asked to carry the can for the collapsed price in 2009 if measures are not taken to ensure a price that is above the cost of production. To put it simply, the prices being discussed will put thousands of dairy farmers out of business in 2009 and there will be a knock-on consequence of this for the viability of the processing sector.

At a political level we must acknowledge that family farm structures in the dairy industry cannot withstand the current volatility in dairy product prices; this applies to both Ireland and Europe generally. More aggressive market support measures must be made available and this is the minimum required at a political level. This meeting gives us an opportunity to deal with some of the structural issues that bedevil the Irish industry and we must examine international best practice.

For example, we have considerable capital investment in the industry but utilisation of plant is still in the region of 60% or 70% while international best practice is at least 90%. The State gave assistance through the dairy investment fund. Have we delivered better efficiency through that fund? Is there a sufficient level of co-operation between the various co-ops, or plcs, or are we all empire building? Are people insisting on building their own cheese plant or processing plant with grants from the dairy investment fund? We need to take a more long-term strategic view of the industry. The consequences of that will be a decline in the number of processors. In the context of increased production, we will need a far higher level of co-operation and possibly one or two super processing plants.

Mr. Cotter made an interesting observation about product mix. He speaks about the need to change our product portfolio to meet changing needs. We have an excessive dependence on commodities, perhaps reflecting the historical support that was available through intervention. However, we are now in a world market. Is it Mr. Cotter's view that the industry, to market itself and sell its product, needs to move towards branded product? Kerrygold is probably the most successful dairy brand in the world. What degree of co-operation exists between the Irish Dairy Board and Bord Bia? I fear we are all well-intentioned but not strategically focused. What level of co-operation exists between the Irish Dairy Board, Bord Bia and individual co-ops on marketing budgets and strategic analyses of emerging opportunities for branded products rather than commodities? Is that where we need to go?

Is the current structure of the Irish Dairy Board what is needed to deal with the industry? Its board composition must sometimes give rise to conflicts of interest. Some board members come from the plc sector and may have differing interests. Is it time for a strategic look at the structure of the Irish Dairy Board, in conjunction with all its constituent members? Should its marketing role dovetail with Bord Bia?

We are in the last chance saloon. The processing sector took the hit last year. Farmers may be in a position to ride out the next 12 months but if we have not applied the necessary efficiencies in the processing sector, such as economies of scale, appropriate investment and co-operation rather than empire building, we will not survive a third year. Processors will go to the wall if they are asked to sustain the level of support referred to by Mr. Tyrrell, but neither can farmers sustain it. One solution, at the political level, is to give effect to the Treaty of Rome commitments on the family farm structure, which is so dear to our hearts. Otherwise we must dismantle our high cost production system with its high environmental and welfare standards and compete with New Zealand and the United States and allow BST to assist in production. If we are to give effect to our commitment to the family farm structure we must have more aggressive market support measures.

However, there are things outside the political realm which need to be done. Those are the issues to which I have referred and on which I would like the witnesses to comment.

I join in welcoming all the contributors. Mr. Cotter said 8% of world production is traded so that supply and demand swings can have big effects on the market. To what extent, post 2015, will the commodities market affect the Irish dairy sector? If we are currently trading at €2.2 billion, does Mr. Cotter see a significant variation in that figure after 2015 or is there, necessarily, a correlation between the two?

How much of the €2.2 billion, which is the dairy sector's contribution to food exports, filters down to the primary producer? If one compares prices in 1979 with current prices and considers the present system of regulation, one must accept that the primary producer is a net loser. How do we develop a model of agriculture which will deal with the potential abyss of 2015? What structures can we put in place to ensure that the family farm can continue? I would like to hear the views of the farming organisations on this question.

If there is to be greater consolidation of the dairying sector in 2015, it follows that there must be consolidation of farm holdings. Hundreds of farms will cease to exist and will be consolidated into a new structure with a small number of large producers. If there is another possibility I would like to hear it, but that is how I see things developing if we are to compete with countries like New Zealand in the global market.

The New Zealand model is not based on the family farm. The product is sold into a single milk market. Is that the system we want to see in Ireland and is that where we are going? Is there a disjoint between what the co-operatives, or plcs, are saying and what the primary producers are thinking? If the farmer is the price taker from the co-operative, which he owns and in which he has an active stake, does the farmer not control the price? That thought has occurred to me in the recent past.

There has been much talk of volatility. How do we guard against it in the abyss of 2015? What mechanisms can be used to ensure the incomes of family farms as pledged in the Treaty of Rome? Farming organisations say the future is not bright. How can politicians ensure that a long term view of the future of agriculture is taken? I am speaking of a 20 year and not a two or three year view. I see the point Mr. Cahill is making about reducing quota in terms of guaranteeing a price for the present, but is that sustainable in the long term? A farmer might derive an increase in price per litre now if there is a reduction in quota, but what is the scenario for the same farmer in 2015? That is the question I am trying to grapple with in terms of how we take political responsibility for what needs to happen in agriculture in the future and how we can maintain the comparative advantage in terms of production. I could go on but I do not want to hog the meeting.

Do the witnesses wish to reply now? There are many questions there.

There is a vote at 1.30 p.m.

All right. I will take contributions from Deputy O'Keeffe.

I welcome the delegation. I am concerned about the future of the dairy industry and I must say I am opposed to increasing quota. Ireland's quota has been generous over the years. It has served the dairy industry and the Irish farmer well and saved the family farm, which is the basis of our agricultural economy. I went to an open day at Moorepark in 2007 to listen to the president of the IFA and many other intelligent farmers who promote themselves as models of Irish agriculture at a production level. There was talk that day about the new gold. I sat back in the front row — I am not usually somebody who sits down at these events, but I had to sit and listen to that rubbish. Within 12 months we had a new crisis in the dairy industry because of exports coming from America, including butter and milk powder.

To be fair to all the organisations here, the model organisation that has served the dairy industry well over the last number of decades is the Irish Dairy Board, led by Noel Coakley. Mr. Michael Cronin, who is here today, is a fellow Corkman. Anything that came out of the dairy board, which was formerly An Bord Bainne, in terms of market assessment was usually very accurate. I regret that the chief executive is not here today. We have the policymakers here but we do not have the people who could give us the details of what goes on. I also welcome the representatives from Bord Bia. A wonderful opening statement was made by Mr. Aidan Cotter, who is a local parishioner of mine. There is a predominance of Cork people here. The presentations this afternoon were well researched and documented. I also welcome the other organisations, led by ICOS.

I do not know where one would start, but we are in real trouble. There will be a massive exodus from dairy production this year because farmers will not be able to meet their costs and their repayments. Massive amounts of money have been put into the dairy industry over the last number of years and there have been major borrowings from Irish banks. Mr. Walshe referred to banks' not being generous. It is understandable, because many farmers are already in difficulty and not able to meet their obligations. What will happen this year? We are talking about 17 cent per litre for milk. That is the price I am hearing about. I milk cows fairly regularly and I know a lot about the industry. We heard about the threat of the WTO, and the US stockpile has not been mentioned here. I read in a document recently that New Zealand is already warehousing in an attempt to lower the surplus for this year. The situation is serious for Irish dairy farmers. We have a very small production level of 5,000 tonnes plus. That was gold in our way. Enlargement of the quota was mentioned, but there was no basis for enlargement. Costs are being brought in.

We hear about the restructuring of the dairy industry. We have learned a lot in the last few weeks and months. The Chairman has given great leadership in this regard. We spent weeks discussing the issue of dioxins. However, if we had only one bacon operation in this country there would be nowhere to kill the pigs and perhaps cattle as well. We cannot afford to have over-rationalisation of the dairy industry. We could have a salmonella scare or another dioxin scare which would close down the whole industry. We must be very prudent in rationalisation. People talk to us standing on platforms and using a particular terminology about people who want to do that business, but they have to be careful and prudent in their judgment.

What has ruined the dairy industry is the influx of a particular scene. We had a strong co-operative structure that gave farmers good leadership and did well for Irish farmers in the dairy industry, but we have lost a lot of this. It is practically all gone. Instead we have plcs, whose first loyalty is to the dividend and the pension fund, and the pension will not take precedence over the payment of the dividend. There are contradictions. If Kerry or Glanbia shares go down to €1 there will be panic, so farmers must suffer to maintain the image. There are quite a number of contradictions in all of this. The long-term outlook is bleak. I know about the industry because I milk 150 cows and calve cows myself. I work from dawn to dusk as a politician but I get a bit of time for fresh-air work as well. I oppose the extension of quotas and I support the ICMSA's stand on that. I say this as a family farmer with two or three sons farming jointly.

I do not understand why it is proposed to increase the quota. At Moorepark we were told dairy was the new gold. Prices were going to go through the roof. That lasted for a few weeks or months. Many answers have been given here today and that is why I proposed that the representatives be brought in. Leadership is very important. There is no point in going down a cul-de-sac by telling us we will get a large quota which will end in 2015. We should be defending ourselves but we have not done that.

Mr. Michael Cronin

A couple of questions were directed towards the Irish Dairy Board. First, it was remiss of me not to mention that our chief executive could not be here today as he is on a business trip to the USA. As I said, however, we have Joe Flynn, the head of our consumer and foods division.

A couple of points were made by Deputy Creed, who is from my own part of the world. With regard to the structure of the board, I believe in the board as a structure and as a business that has been very effective and has done great work for Irish dairy farmers, as Deputy O'Keeffe said earlier. The board is made up of representatives of each processor and of farmers, who are the real owners of the board. The head of the ICMSA is represented, as is the dairy committee of the IFA, and ICOS is also represented. It is not a perfect structure — no structure is perfect — but the board does much good work on behalf of Irish dairy farmers. I believe in the model, which is an unusual one. It is one of the only dairy boards left in the world. It can continue to work on behalf of Irish dairy farmers but it has more work to do in the future. There is no doubt there is a commitment to do that.

The strategy aspect was mentioned. The board continually considers its position and how it can best improve the selling of Irish dairy products for its membership. Like Deputy O'Keeffe, I am a firm believer in the co-op movement. I represent a smaller dairy co-op. In its present structure it can continue to be an effective payer for milk. Deputy Sherlock mentioned farmers in this regard. They have a great say in the way co-ops pay for milk. Members can come down to my own area tomorrow night and see what happens when we try to reduce milk prices. It will be a challenge. Farmers have a great say if they are part of a co-op system. I believe in that system.

There is much talk about rationalisation of the industry. Certainly that will happen and there will be more of it, but there is already co-operation between co-ops of which I am part. As a smaller co-op we co-operate with about eight different co-ops. In the bigger societies there is a lot of co-operation and I have no doubt this will continue. The aim of every society is to be in a position to pay the best possible price for milk.

That is my input into the questions that have been asked, although I may not have not covered all of them.

Mr. Padraig Walshe

I agree with Deputy Creed's point about cashflow. I emphasised this earlier and it needs to be re-emphasised. It is a major issue.

On the utilisation of plant, I support the ICOS initiative. Three years ago when I took over as president we proposed to put the €100 million fund in place, which the Government did. However, it could have been better spent. With some of the points Mr. Cotter made earlier regarding developments in various cheeses etc., there may be need for further capital investment in the industry and it will be very difficult to get that in the present climate.

Deputy Edward O'Keeffe spoke about the great leadership given in the past and it was in a very different climate. Most of the plant put in around the country was put in with FEOGA funds, which cost the industry here little or nothing. It is a very different climate in terms of what is available today and any investment in the industry will be funded within the industry because at European level it would be a state aid issue.

Deputy Sherlock referred to the pressure on the family farm regarding volatility and the New Zealand scenario. I have been in New Zealand a few times and have seen the operations out there. There is no way Ireland can ever aspire to compete on the same level as New Zealand on scale, and we should not attempt to go there. New Zealand was conquered in the last 150 years and the land divided out in large blocks. There is such a history of land division in this country that we can never aspire to having the large blocks of land in this country that exist there.

Often one does not get the full story from commentators coming from New Zealand. Land mobility is very good in New Zealand and 10% of the land changes hands very frequently, every year or every few years. There is no capital gains tax or stamp duty in New Zealand so it is a totally different ball game regarding mobility of land and people can see themselves moving up a ladder. We put proposals to the Government and it responded with land leasing initiatives to encourage people to lease land on a long-term basis and enable people to put larger blocks of land together.

Globalisation is affecting volatility. Mr. Tyrrell referred to the WTO and the effect it can and will have. Globalisation has brought the financial crisis and the problems out there to our doors. I will not go into that any more; I am sure there is enough of it going on in these Houses. There was the melamine scandal in China, and consumption there has disappeared overnight because of another food scandal. We in Europe must protect ourselves from such problems. Globalisation can mean food is allowed to cross borders and there is no equivalence in standards, to which some people referred.

People asked what we can do regarding policy. We must insist at European level that the same standard is applied to imports into Europe as to farmers within Europe. I have said it here before: in Europe we apply the highest standards in the world to our production systems and farmers, yet we apply the lowest standards in the world to our imports. It is not good enough and one cannot expect production to continue in Europe unless the same standards are applied across the board.

Deputy Edward O'Keeffe referred to my speech in Moorepark in 2007 and our policy on the quota regime. With respect, the Deputy worked hard as a young man and established a significant quota, and more power to him. He had a significant farm to hand on to his three sons. There are many young people whose fathers were not as well-educated as Deputy O'Keeffe and who did not have as substantial a milk quota as the Deputy. Those young people are well-educated and have farms where they could produce much more milk and are very frustrated by the quota system.

We fully supported the quota system until the Commission decided to maintain the quota system but withdraw the market supports. That is the worst of all worlds. If the quota system were maintained with the full market supports in place and protection against cheap imports into Europe I would say the quota system should be continued and maybe quotas should be cut to keep milk prices to farmers up. We have been there in the past. However, the Commission decided to remove the barriers to cheap products coming into Europe and end the intervention system, export refunds and the internal supports referred to earlier regarding calf milk replacement and pastry and ice cream schemes, which were using up substantial volumes of product in Europe. We are trying to farm and compete with cheap imports with both our hands tied behind our backs while the quota system puts restraints on people. It is time for a fresh approach.

Deputy Sherlock asked what can be done in a policy area. In ten to 20 years politicians will go back to the drawing board to see what can be done to regenerate food production in Europe. I have said this here before. The politicians who set up the CAP had seen a Europe that was hungry and vowed that it would never be hungry again. Bureaucrats and politicians in Europe today cannot imagine a situation where a supermarket shelf would be devoid of product but it will take something like that to frighten them into putting policies in place to ensure we have top-quality food produced again in Europe to feed the people. We are in danger of European food production slipping dramatically if the policies I referred to are not implemented. These include insisting on the same standards for product coming into Europe as product produced in Europe and applying animal welfare, environmental and veterinary standards.

Nobody in the world applies the same standards as we do in Europe. I do not object to those standards. As farmers we have gone along with them 100%. If that is what the European consumer wants, that is what the European consumer gets. However, with the poor labelling on product, consumers know less about the product they eat than ever before. A housewife would need a magnifying glass and a dictionary to understand the information on some of the labels. We have worked with Bord Bia to establish the Q mark as an Irish brand to assure the consumer that a product is Irish. However, there are many issues around labelling and, as legislators, members should be much more active on ensuring consumers are aware of what they are eating.

Mr. Jackie Cahill

I want to focus on what Deputy Sherlock said. He asked what will happen in 2015 and that is where we have to look to. We must examine what has happened in other European countries. Scale has not worked in any other European country. UK dairy farms have all the scale they want but will probably be 11% under quota this year with no potential at any stage in the future to fill their quota again. Denmark is down to fewer than 4,000 dairy farmers and has an average quota of 1.1 million litres with an horrendous debt level for its farmers and no possibility of ever getting out of that debt. The debt is being passed from one generation to another. The Netherlands is the same.

Decisions have been taken in Brussels that in 2015 quotas will expire. That decision is wrong and the onus is on us as lobbyists, and members as policy makers, to have that decision changed. Some say politicians do not change their minds, but policy decisions have been changed in the past and will be changed again in the future.

The EU was founded on food security. Mr. Walshe said that in ten to 20 years politicians will go back to the drawing board, but if we wait those ten or 15 years, our dairy farmers and industry will be gone. We need food security now in Europe. We are not fond of supply management, and I would like to produce extra milk, but as an Irish and European farmer I need price supports to be able to compete on the world market. The only way we can get price supports is through supply management. We have to get them to go back to the drawing board. If any good comes from this income crisis we are facing it may make the politicians and policy makers rethink the policy they are pursuing. If that is not re-examined, by the time they see that the policy is wrong so many of us will have gone out of business it will make no difference to us. There are roughly 20,000 farmers milking cows at present. Do we want to have a country with only 2,000? What good will that be to rural Ireland or to the processing and agri-food sector? It will be no good.

We have seen this in other European countries. The UK is substantially under quota. It is worried about its supply of fresh milk this year. The decisions that have been made in the health check are wrong and the onus is on us as lobbyists and the committee members as policy makers to get them reversed before it is too late for our industry.

Mr. John Tyrrell

Deputy Creed asked about utilisation of plant and referred to the utilisation of dairy processing facilities at 60% or 70% in Ireland versus more than 90% elsewhere. That can be explained by the seasonality of our milk production. We do not have to use the factories all year round because most of our milk is produced in the May, June and July period. Every facility is used during the peak period. Clearly, they are not fully utilised outside that period. That is the reason for the difference. Every facility works to capacity during the peak period. That is an issue we must face. It is a feature of the Irish industry as our grass based production system is part of our competitive advantage.

Deputy Creed also asked about the dairy investment scheme, whether it has been used to encourage co-operation or if we are parochial in how it has been applied. It is important to remember that strict criteria were applied to that scheme. It had to operate within EU state aid rules and some of those rules required a cap on the maximum investment in any project. It was €25 million for an investment in an individual project. There has been significant use of it by the industry and there have been explorations in terms of people collaborating and so forth but, because of the capital investment limit, it was not possible to take it further. The investment scheme aim was to improve value and to improve the investment of the scheme but not for consolidation. If consolidation had been its central theme, it would have required a different shape and getting EU approval for that was not possible in those circumstances. The scheme is on target. Substantial investment has already been made by the industry in cheese and powder facilities and other added value and updating facilities. The scheme and the investment will be completed by 2010. There have been two years of investment under way and it is well on target to be completed.

Deputy Sherlock asked what politicians need to do and about the 20-year view. That is what we are trying to focus on — the industry focusing on the longer term view of ten or 20 years and having a consensus on it. To a large extent there are a number of things within our power and influence that are separate from the market. It is our industry. Deputy O'Keeffe asked about conflicts within the industry. There is a very strong co-operative influence. Co-operatives are controlled by their farmer members and, through the boards, they make the decisions. The industry itself can control a number of the things that happen. That is what we are trying to facilitate. It is important that politicians also form a view and participate in that debate.

Deputy O'Keeffe also made the comment about being prudent in seeking rationalisation. He is absolutely right. It is not a matter of copying what was done in New Zealand or elsewhere but what is right for Irish conditions and our circumstances. That is what we are trying to do. When one considers what is happening elsewhere, there is an impression that just one big co-operative is dealing with it in Denmark, New Zealand or wherever. Certainly, that is the case in some countries but we must be conscious of what our competitors are doing not to copy them but to be aware of it so we can do what is right for us. We need an industry debate and our president, Patrick McLoughlin, and I are facilitating that very actively so we can achieve the right thing. We are not necessarily saying it is one, but if one is the conclusion, fair enough. However, we want to have a debate so we can arrive at the right conclusions for that.

Many issues were raised and we could discuss them further but those are the immediate comments that come to mind.

Mr. Aidan Cotter

Deputy Creed asked about the degree of co-operation between Bord Bia and the Irish Dairy Board. We regard the effectiveness of Bord Bia as an organisation as being as good as the effectiveness of its partnership with the industry, its producers and processors. That clearly applies in the case of the Irish Dairy Board as with everybody else. There are clear links that go back over time. Noel Cawley, who was mentioned by Deputy O'Keeffe, sits on our main board, although he is no longer chief executive of the Irish Dairy Board. Joe O'Flynn sits on our consumer food subsidiary board, so there are formal links between the two organisations. In addition, the level of co-operation at an informal level is very good. Without wishing to talk about our county too much, Joe was in the same class as me in school and I am a neighbour of Deputy O'Keeffe.

Our investment since the end of 2007 in the dairy sector, in consultation with the various members of the dairy industry and particularly with the dairy board, has been investing in strategic analysis, which is the area the Deputy particularly emphasised. That has set off the programme of research into Europe, Russia, Asia and in regard to India, calf milk replacer markets as well. That is just the first phase. We are continuing with that in consultation with the industry.

Deputy Creed also mentioned moving towards branded products. It is extremely important that the industry continues on a path of differentiation in the marketplace. The greatest protection against volatility is to differentiate in the marketplace. However, branding requires enormous investment and an industry that can afford the reinvestment required. Kerrygold is the best asset the industry has in the marketplace. It was launched in the early 1960s, a time when there were no strong brands in the market, private label was hardly invented and retailers did not have much power. The Kerrygold brand is very strong. It is one of the few Irish brands that has the international reach we desire. It is important that the brand is leveraged to the greatest extent possible in the future in whatever area of business the dairy board is competing.

Deputy Sherlock asked where today's €2.2 billion of exports will lie by 2015. Certainly, the real potential in the food and drink sector in terms of exports must require a huge contribution from the dairy sector. We envisage it requiring significant growth, if the industry as a whole is to make progress. Obviously there will be a great deal of change between now and 2015 in the areas of the world where markets are growing fastest. In markets such as India and China there are programmes for self sufficiency and if the growth in self sufficiency is successful it will mean that the 8% of world production that is traded will probably decline, if anything. With regard to the volatility we might face, it is really a matter of how successful the dairy industry can be in differentiating itself in the marketplace, whether that is through the branded route to market or through competing in terms of specialised dairy ingredients and other products.

Just as Deputy O'Keeffe is working day and night milking his cows, I assure the committee that Bord Bia will continue to put as many hours as possible into our effort to support the industry into the future.

Mr. Richard Kennedy

As a dairy farmer with, I hope, a successor on the way to farm at home with me, much of what I am hearing today is related to the long term rather than the short term with regard to what this committee can do to keep my son dairy farming after me.

Deputy Sherlock mentioned the political responsibility of this committee. There are a number of things that can be done in the short term. First and foremost, we need to go to Brussels. The quota will cease in 2015 as a result of the mid-term review and the decisions taken at that time. However, there were allowances made in the mid-term review that support systems could be used up to 2013. Those support systems have not been used in recent times. They can be used and they can be meaningful in the short term to get us over the hump we are in at present. That is important.

I never want to see happen again what happened before Christmas. There is political responsibility in terms of bio-security. Before Christmas we came within a hair's breath of losing the dairy industry. Mr. Cotter mentioned the matter of infant formula. There are distinguished companies in this country which have come in here on the basis of our traceability and our food security and it is critical that what happened does not recur. Without question, what happened was avoidable and it should never happen again.

As Mr. Walshe mentioned, there is a regime of inspections at farm level and there is traceability. I would not object to those measures. They are good measures obviously, if there is a bit of reason applied, because they give us a competitive advantage. However, it is alarming that something that should have been monitored by the State was not monitored and that should not happen again. Those two measures can be taken in the short term.

Deputy Creed mentioned that the milk price was supported last year by the industry. As a dairy farmer, I would contend that in the previous year the opposite probably happened. I accept that was good, but Deputy Creed made the point that as a family farmer, I may be in a position to ride out this year with a bad price. I certainly will not be in that position. Deputy Sherlock spoke about the abyss. I am an optimist and think we need not wait until 2015 for it.

On the positive side, we in this country have a competitive advantage. We have the potential for young people to become involved in dairy production. With our grass-based industry, we have an opportunity if we use the European supports that are within our remit. The Minister has that asset. The political pressure is not forthcoming to get those supports back in play and we need them back in play.

On the argument about a quota system, the decision on the quota system was taken in the mid-term review. There was unanimity at the Council of Ministers and at the Heads of Government and we had to play the card that was put in front of us in terms of looking for extra quota. All I can say is that on my family farm, without family farm partnerships and with a quota exchange, I would not have a young fellow farming.

Mr. Pat Smith

I want to make two points. First, it is important that we play today's game given that 2015 is a long time away for those who wonder from where they will get an income out of farming this year. From the committee's perspective, there have been three points made: payments to farmers, both the farm waste management and the REPS, should be made as soon as possible; there is a need to remove cost out of the system by way of electricity and such like; and going to Europe to try to get the necessary supports as a short-term measure to deal with the issue.

A point which has not been made relates to retailers. Farm incomes in real terms have dropped by 35% in the past ten years. Nobody else in society has had to carry that type of drop. That is occurring, more or less, in tandem with the increasing dominance of retailers right across Ireland and the EU, and the profits that they are taking out of the system. In the future this committee has a responsibility to lobby for and put in place a code of practice to deal with that dominance.

I shall preface my comments and questions by saying that, unfortunately, coming from south Kerry, I do not represent farmers with 150 cows. The average farmer may have 50 cows and many such farmers have made representations to me.

I note the definite difference between the two delegations. One is speaking about today, whereas the other is speaking about the post-quota era of 2012 to 2015 and even as far as 2017. There are farmers in my constituency who will be gone out of business this year. Speaking of living on a whim, all that will keep them in business this year is eight months' grazing time, if they get it. Normally, in my part of the country we do not even get eight months' grazing time. If they get it, that is the best chance they have of staying in business this year. These farmers must pay more than the top price for manure at their local creamery and they are finding the going difficult.

Taking the delegations in order, the Irish Dairy Board, as the leading marketer and exporter of Irish dairy products worldwide serving the interests of Irish dairy processors and producers, spoke of its foreign offices. There was also reference made to Ireland, "the food island", needing to strive to be the best. I would contend that New Zealand would be a world leader in grass-based production and there is nothing wrong with saying we can learn from them. There needs to be more investment in research and development. We can learn from New Zealand and we should do so.

The Irish Dairy Board's primary function is in consolidating the interface with the marketplace and providing a service to the members. Mr. Michael Cronin stated that it sees its "primary function as consolidating the interface with the marketplace and providing a service to our members". That struck me as like Cardiff going out playing Arsenal the other night where they were hoping to keep them scoreless and got hammered four nil. If we are going out with an approach of trying to consolidate having lost market share, there is not much hope of gaining market share with that mentality. I would suggest there should be a more pro-active approach. When looking for export market share, we should go with our chest out and not take a defeatist attitude of consolidation.

Bord Bia also made reference to emphasis on the post-milk quota scenario. We must keep what we have in production. That needs something now, not post-2012 or 2015. Bord Bia is assessing developments in South-East Asia. I wonder how long that is going on and what benefits there have been from it to date. We must look at new markets. With the production in Europe and what is happening in the United States and in New Zealand, we must look elsewhere.

Mr. Tyrrell commented that market volatility coincides with an upsurge in supplies in some key producing countries. To my mind, that is a defeatist attitude. In my constituency there is Liebherr Ireland which has gone to three shifts making its product. China took it on. Every continent is taking the company on in crane building, and yet its books are full until 2011 or 2012. There is a downturn worldwide in every sector. Because of its product and workmanship, Liebherr Ireland is driving on. Its workforce has increased by 200 in the past couple of months just to fill those orders.

I compliment the ICMSA and the IFA because it is about now. We are speaking of 20,000 dairy farmers. Many farmers in my area have between 50 and 70 cows. They will disappear if something is not introduced immediately to help them. There is no point in talking about post-quota if they are gone. Rather than 12 families milking 50 cows in an area we shall have the equivalent of five Deputy O'Keeffes milking 150 or 200, and that is not what we are about.

(Interruptions).

That is certainly not what I am about, in representing the people of Kerry South who wish to stay in dairy farming.

As a commentator in Cork put it one night, Deputy O'Keeffe keeps cows but cows do not keep Deputy O'Keeffe.

I thank the various organisations for their presentations. One thing that particularly drew my attention was Mr. Aidan Cotter's call for co-ordinated and active support in dealing with the current situation. There is no doubt that dairying and even the wider farming industry is in difficulty and has been for quite some time. The situation is not getting any better and in many instances is growing worse. I would like Mr. Cotter to elaborate on a co-ordinated approach. Is he talking strictly about all the sectors working together in conjunction with national with elected representatives, to sustain the industry and ensure it continues to be viable? From a political viewpoint does he envisage Government and Opposition working together to secure from Europe the best possible scenario for those currently involved in the industry? There should be two approaches, one at national and the other at EU level. It is in everyone's interest that this succeeds and that we can maintain the viability of the 20,000 currently involved in dairy production.

I have some difficulties with Mr. Jackie Cahill's position on the quota. In saying that, I refer to Mr. Michael Cronin's presentation where he said that declining milk output in several European markets, most notably the UK, could afford new opportunities. The decline in milk output in those countries offers Ireland new opportunities. I am very concerned about young farmers starting up, such as those instanced by Deputy Tom Sheahan, with between 35,000 and 70,000 gallons. They must have an opportunity to increase their quota so that they can be viable. We can all protect our own little patch, but that is a narrow view. We have to look to the future and the welfare of younger people coming into the industry and ensure they have the opportunity to be viable.

One of the most difficult issues affecting all sectors, is the farm waste management grant. I appeal to both bodies here today, the farming organisations in particular. Deputy Sheahan and I spoke about this earlier, as probably other Deputies did. Thousands of farmers were given instructions to have their premises completed by 31 December, when they would be paid forthwith. I know people paying huge interest in the banks who were told the payment would be spread over a three-year period. There is no security about the accumulating interest, which will continue. Many people who are paying between €5,000 to €10,000 a year in interest on money they have borrowed and who will not be paid for three years, face the prospect of going under. Then there are the double standards where people have been paid — I welcome the fact that they have been paid — while others will not be paid. There is an obligation on all of us, particularly the farming bodies, to challenge this in the courts if the money is not paid, in the interest of those farmers who do not have certainty, giving the accumulating interest on the money they have borrowed. I have taken legal advice on this.

Another issue raised by almost everybody is the cash flow situation, which affects farmers, small businesses and so forth, especially if they are working on bank credit. Pressure must come, particularly from Government Deputies, in the negotiations with the banks so that they must be cognisant that they have a major responsibility, having failed all sectors of our society in the manner in which they have behaved. Deputy Edward O'Keeffe knows full well what Anglo Irish Bank did to Kerry beef and lamb. Both of us were involved in that.

They were generous in the past.

We need to put political pressure on the banking system so that the banks are reasonable and fair to farmers trying to survive in very difficult times. I refer to the co-ordinated approach we have to adopt. We must work together to try to get ourselves out of this volatile and dangerous situation. If we do that, both politically and with all the sectors working together, we can work our way through this, as we have to.

Mr. Walshe has to depart and might want to say a few words.

Mr. Padraig Walshe

Unfortunately, I have another commitment to attend to. I must apologise for that, if that is all right.

I thank Mr. Walshe and call Deputy O'Sullivan.

Having heard today from some of the main players in the industry, I am extremely worried about every aspect of farming. All these aspects depend on each other and if the mainstream goes, everything else will follow.

Mr. Padraig Walshe made a very important point on costs. We all know the price of milk. Looking into the future, it will not be as we might have hoped. It is impossible for any producer to stay in production if he or she does not make a profit. That is common sense. The point made by Mr. Walshe on competing with imports coming into Europe is very relevant because it is well known that Ireland has one of the strictest production regimes in the world, yet we have to compete on the open market with products that are not subject to the same production strictures. This is very important and something we shall have to consider in depth, given the very tight situation we find ourselves in as regards the production of milk in particular, for the future. The same situation obtains right across the board for farming in general.

In west Cork we have four co-ops and a processing company, Carbury Milk, yet we are paying the highest price for milk in the country. That gives me a small degree of hope for the future. I do not know how it is being done, but that is what is happening.

It has been brought to my attention in recent weeks that Carbury, which produces some fantastic products, and is a major asset for the whole industry, is selling cheese at €2,300 per tonne. That same tonne of cheese, retails for approximately €10,000. As Mr. Smith has pointed out, something is seriously wrong. Farmers are expected to produce milk at 20 cent per litre. Cheese has been mentioned more often today than any other product. We might ease the pain somewhat if we investigated practices in that regard because somebody is making serious profits at the expense of farmers.

Not long ago banks were writing to farmers to offer large investments in agriculture. Farmers would approach their banks to ask for €50,000 and would be given €100,000. Now, however, they are being refused money for everyday requirements such as fertiliser purchases or to pay for work done on their farms. Cash flow is important for every business. The Government parties, of which I am a member, should insist that banks act properly in helping farmers. Members of this committee can work together in that regard.

The price of energy is a serious problem. The chief executive officer of the ESB appeared on television last Sunday morning and made a good case for his business in the absence of anyone who could contradict him. However, I would like to see him challenged on the price of energy because this is a major issue for businesses.

I welcome the representatives of the farmers organisations, co-operatives and agencies which are trying to sell our products and promote the dairy industry abroad. As someone with a background in dairy farming, I recognise that the prices mentioned today are simply not viable. If we do not do something about price support for the sector, the 20,000 farmers currently operating will not survive. We will end up with 6,000 factory farms instead of our present system. If the primary producers in this country do not produce milk, the bodies represented by the witnesses before us will no longer be needed. We must increase the price of milk to what is reasonable for both consumer and producer.

I have an open mind on quotas, although the ICMSA does not agree with the proposals made in that regard. The quota system curtailed farmers who wanted to expand. Big farmers were at an advantage because they had more money and greater opportunities for increasing their quotas than smaller farmers. According to Macra na Feirme, young farmers faced particular problems. The 1% lead-in until 2015 and the abolition of the system is positive in some aspects provided that farmers receive price support through export funding or intervention. We do not want to return to the situation that obtained in the 1970s and 1980s, when every shed was full of intervention beef and butter and even the ships in the harbours were laden with produce. I understand spare capacity in Europe is down to one day's supply if food production is interrupted. We should at least have one month's supply, although we do not want to end up selling butter to Russia for half nothing. Price supports and controls are needed.

Despite the current recession, predicted annual growth in the dairy industry is between 1% and 2.5% over the longer term. The world's population will continue to increase in the next 50 years and our grass-based farming methods can allow us to take advantage of this. We need to build up the industry, however, and the Minister for Agriculture, Fisheries and Food must seek support from Europe for farmers while prices remain low. We have an opportunity to reduce the cost of labour and energy. Perhaps we need to follow the example of the banks by examining what co-operative executives are being paid. I do not mean to offend anyone but is it right that a farmer should receive 20 cents per litre when senior executives are receiving bonuses of €1 million? While I believe in the co-operative system, I fear it may have moved in the direction of the stock market and away from farmers' interests. We need to find a balance of interests.

If primary producers do not receive sufficient money for their products, they will not survive. Farming can remain a viable industry for this country but it needs support and everyone must get a fair share of what is produced.

I shall be brief because other speakers have covered many of the issues. I always seem to end up as the last speaker. Perhaps it is because my name is near the end of the alphabet. The only person who would speak after me is the former Minister for Agriculture and Food, Joe Walsh.

He always looked after the Deputy.

I welcome the witnesses and the positive approach they took in presenting their case. I regret that the president of the IFA, Mr. Padraig Walshe, is not here because I intend to speak in his favour. He argued in no uncertain terms that the current difficulties do not arise due to global issues. The latter appear to have settled to a certain degree. The situation pertaining to the farming community here is a shocking indictment of the present Government and Minister for Agriculture, Fisheries and Food, who insisted that farmers who participated in the waste management scheme——

Deputy Sheehan——

Please allow Deputy Sheehan to continue.

Farmers were told that unless they sent their invoices to the Department before 31 December, they would be withdrawn from the scheme.

From where would Deputy Sheehan get the €500 million?

Deputy Aylward, please allow Deputy Sheehan to continue without interruption.

From the ten people who bailed out Anglo Irish Bank.

A Member

The Opposition would take money off the trees at the moment.

It would not grow so quickly.

I will adjourn the meeting if members continue to interrupt.

I have a question which perhaps Mr. Richard Kennedy will respond to. Where is the famous charter of rights negotiated a few years ago by the Irish Farmers Association with the Minister for Agriculture, Fisheries and Food?

It is not mentioned.

Is this a political speech?

It has been breached by the Minister who has not honoured his commitment to pay unfortunate farmers who borrowed €150,000 or €200,000 and who worked 22 hours a day for two months in inclement weather to finish the projects. These people are now being told it will be three years before they get final payment of the grant. Who is codding who?

Is this a Fine Gael broadcast?

No interruptions, please.

I put that question to my colleagues on the opposite side of the House. I have been a Member of Dáil Éireann for almost 26 years and during every debate on agriculture I have advocated the necessity to provide adequate quota to allow Irish dairy farmers to make an adequate living from milk production. Deputy O'Keeffe stated previously he is against abolition of the quota system. For the past 35 to 36 years I have advocated that we not put all our eggs in one basket or create a cuckoo. When the cuckoo lays her eggs in a small nest and they hatch, the rest of the birds——

There are a few cuckoos around here.

The Deputy should keep to milk.

Young farmers have for the past 25 years been crying out for extra milk quota.

They were doing so when it was 30 cent a litre or €1.50 a gallon.

Deputy O'Keeffe should allow Deputy Sheehan to speak. Nobody interrupted him when he was speaking. I must as Chairman be fair to all speakers.

The Deputy should give his advice to his Minister and not Deputy Sheehan.

Please allow Deputy Sheehan to continue without interruption.

Deputy O'Keeffe is a pessimist rather than an optimist.

Do not refer to Deputy O'Keeffe. Deputy Sheehan should make his remarks through the Chair.

Farmers should be given an opportunity to gear themselves up for the abolition of the milk quotas. A great deal of positive information was conveyed here this morning by each of the spokespersons, including Mr. Jackie Cahill of the ICMSA.

The ICMSA has for years fought for the provision of an adequate quota to every dairy farmer, where possible. Now, when we have an opportunity to do so, we find young farmers have given up the land. They were driven off the land owing to the lack of provision of adequate quotas that would ensure they could make a living out of milk production. It is all right for Deputy O'Keeffe to say——

Do not refer to Deputy O'Keeffe. Please direct your remarks through the Chair.

Deputy O'Keeffe referred to me.

He should not have done so. I will have to put manners on him. Please have respect for our witnesses.

The witnesses before us seem positive we can sustain the challenge provided we get the right treatment from the Minister and the Department of Agriculture, Fisheries and Food. Young farmers can be encouraged to remain in milk production if they are no longer to be subject to quotas or to fines for exceeding the quota. We must ensure there is a level playing pitch if milk producers are to have an opportunity to rise to the challenge. The witnesses are unanimous in the view that this can be done with proper assistance from the Department of Agriculture, Fisheries and Food.

Not at 17 cent a litre.

Deputy Sheehan has lost the mantle, I am coming in last.

I welcome the delegations and thank the Chairman for organising this meeting and allowing me to speak briefly, given that I am no longer a member of this committee.

Much has been said. The presentations by the service organisations were excellent. Equally, the farming organisations have represented farmers well. Mr. Kennedy used the word "optimist". Those of us engaged in farming must be optimists, otherwise we would not be around for long. I include in that regard the Chairman. We are optimists and will remain so through the ups and downs.

I would like to address one or two issues not mentioned. I am not pessimistic. I want to ensure the correct policies are adopted. Europe is the policy driver for Ireland and many other countries. I and many others have contended that for the past few years Europe was going in the wrong direction in terms of the WTO talks. When the WTO talks commenced, there was a different regulatory system in place. The current system is different. Issues such as climate change, sheep and famine are on the agenda.

We are not following a prudent policy in Europe in terms of food safety. We must ensure Europe operates the food safety policy introduced under the Treaty of Rome, which is more vital now than it was then. I do not wish to labour this point. However, I make the case that the World Trade Organisation talks must be abandoned from a food production rather than industrial or commercial point of view.

Much has been said about farming. Farming is about only one thing, namely, producing food for society. Society is being punished by transnational and multinational companies, bottomline people, experts on economies and money people who are dealing with rampant capitalism which is cannibalising itself. That is the world we are living in. It is absolutely essential that Europe puts in place a policy in regard to self-sufficiency in food. We do not need to import food from all areas of the world. In many cases we do not know the quality of this food.

I would like with the Chair's indulgence to refer to one other matter. Most industries in this country are suffering financially. The main driver of wealth creation in this country today is food production. The sooner this is realised, politically and otherwise, the better. I ask that the Chairman arrange a special meeting with Teagasc. I am more than concerned about the approach Teagasc is adopting to the REPS planners and support for farming communities. If we are serious about ensuring the survival of rural Ireland and the family farm, we need the service provided by the advisory service or Teagasc — call it what one likes. I emphasise that the planners——

Teagasc representatives will appear before the committee after we have completed our work programme.

I am delighted to hear that. It is essential that it be done quickly because Teagasc personnel will have their meeting shortly and decisions will be made. I am not sure whether this must become political, as well as going to Teagasc. One can adopt one's own approach to it but the fact of the matter is——

The Senator should stick to the issue we are discussing.

Those involved in the REPS paid their way.

We know but we are not discussing the REPS today.

They paid money for Teagasc. It is in constant contact with the farming community, on which we all share a common view.

I will allow a quick supplementary question.

I am here to talk about milk production, the reason for holding this meeting. Life is short. I was at a funeral in mid-Tipperary this Sunday when a farmer who knew me well told me that the price of milk would be 17 cent plus VAT in his co-operative this year. I made a calculation using this figure and found it was less than the return on unemployment assistance for a man who would lose his job in the building sector.

It is no good talking to me about what will happen in 2015. I have been involved in dairy production and come from one of the biggest dairy parishes. We hear about New Zealand. There is an old saying in rural Ireland that faraway cows wear long horns. The industry has changed a lot in the past ten or 11 years and become overdependent on commodities. We heard about China and baby food. Where is our chocolate crumb manufacturer, added value cheese and yoghurt? Why can we not model our industry on the Danish industry, the model of the world? Talking of New Zealand, I have been there twice and did not come back very impressed. I discovered that some small co-operatives were paying a leading price and that there was a queue to get into them. We also hear about Fonterra.

Let us be practical. We have learned a lot in this country in the past five years. The Government is in real trouble because it was too optimistic. A little pessimism is good, although Deputy P. J. Sheehan does not worry about it. I attended the Joint Committee on Finance and the Public Service on several occasions when we talked to the Royal Bank of Scotland and its representative, Mr. Mark Duffy. It could not do enough for Ireland. We had two fine banks, although I will admit they would want the cat and the dog as security, as well as the family and children, but they served the country well. Royal Bank of Scotland is in real trouble in the United Kingdom and has brought another bank with it. I do not want the dairy industry to go down that route. A little pessimism would do no harm.

I want an answer from the panel as to how I can produce milk this year. Although I will probably survive, there is no hope this can be done. There will be an exodus from milk production. Factories will not be able to kill cows. I am meeting farmers from many places who tell me they are in trouble. All farmers have other difficulties. It is not all bank-related, it is related to income. The panel can talk about what will happen in 2015 but many farmers will be retired by then. I want an answer. I regret the day I went to Moorepark and this whizz-kid stood up and talked to me.

We are talking about the quota system. You are——

You come from a fishing village. You only know about mackerel and lobster——

Your constituent up in the Galtees——

Members should, please, speak through the Chair.

——the lack of a quota——

The Deputies should show a little respect for our guests.

Deputy Sheehan only knows about lobster and mackerel.

Have a little respect for our guests. I call Mr. Cahill.

Mr. Jackie Cahill

As our position on quotas has been raised by several speakers, I want to clarify the matter clearly. In the run-up to the health check, our position on milk quota stayed the same and has been consistently the same throughout. It is that if the market is able to absorb extra quota, it should by all means be included in the system. However, it is as obvious as the noses on our faces that the market is not able to absorb extra product. Product is piling up in the system which it is not possible to sell. The decisions were taken on the basis that the market would be able to absorb that extra product. I want to give one statistic which proves dairy farmers agree totally with our position. In the last quota exchange only one in 20 dairy farmers bid for quota. Some 95% of dairy farmers decided they did not want quota, they wanted a price.

Deputy O'Keeffe has asked how we will survive. I just do not know. Unless there is intervention in Brussels, the reality is we cannot survive. One cannot produce milk at a loss. If we believe we can get all the milk quota we want and not have proper supply management, we are living in cloud cuckoo land. I do not want supply management. I paid super-levy bills. I want price supports. If we learn anything from the mess we are in as regards milk markets, it is that, as Irish and European farmers, we must have price supports. If that brings change, so be it, but let us learn from the mistakes we have made.

Mr. John Tyrrell

To come back to points raised by Deputy Sheehan about the perception that perhaps this group of backbenchers were referring to what would happen in the longer term, I was not referring to what would happen in 2015, other than that the decision on quotas had been taken. I have emphasised the need for decisive action. I have pointed out that the industry has many of these issues within its own control in terms of influencing the structure and the need for action at European Union and Government level. We need to start preparing immediately for what will happen in the future.

With regard to the point that has been discussed on extra quota, it is important to recognise that extra quota does not mean extra production. Extra production will occur if it makes sense. The prices in prospect in 2009 are atrocious, which is a reflection of what is happening in the market. There is an imbalance between supply and demand. Although I do not know when it will be corrected, it will be; I hope we will begin to do so before the end of 2009. That is the reality. This is not to be defeatist but realistic. We know there has been extra production in parts of New Zealand, the United States and parts of South America. The downturn in demand reflects the economic crisis which was not anticipated a couple of years ago. We have seen markets fade away in the emerging economies in Europe and Asia.

We must begin to take these steps. There are many things the industry can do on which it should work as a priority. It should also try to influence matters at a political level with the Commission and the Government to achieve the support measures required.

I understand the president wants to make a supplementary comment.

Reference was made to preparations for what would happen in 2015. From speaking to people in my area such as the 50-cow man, the policy seems to be to get rid of the small man and have more 150 to 200 cow units. Policy is even dictating that there should be partnerships.

It is 400 or 500 cows.

Is this part of the preparations that the panel is undertaking?

Mr. John Tyrrell

It is not the intention to drive this to have a 400 or 500 cow person. It is to ensure we have viable holdings for those involved in the sector. We know what the policy will be in 2015; therefore, we must begin preparing now. The road map is in place. The increase in quota will be gradual until then. We know where the market support measures are. The decisions have been taken; therefore, we have to start preparing because there is significant change on the way. Anybody will be able to produce milk from 1 April 2015. We must make sure we are well positioned well in advance of that date because, effectively, quotas will be gone long before date.

Mr. Patrick McLoughlin

With regard to Deputy Tom Sheahan's point on the 50-cow man, at the time quotas were introduced there were almost 90,000 suppliers but this has been reduced to 20,000. In January 2007 the industry was predicting a drop of 6 cent a gallon. The exodus was apparent at that stage and it will happen again if the current climate continues.

One issue which no speaker raised is that the succession rate within the farming community is dire. It is not a question of having €20,000. Once the present generation, including Mr. Cahill, Mr. Kennedy and I, are gone I question the number of successors there are likely to be. What is predicted is not attainable. The committee stands to save a farmer with 50 cows. However, it is not a question of saving such a farmer, it is a question of having a viable future. There is criticism from backbenchers about the need for a vision for the future. Unless there is a vision for the future the industry will not survive. There must be change. Everyone, including those in the Houses and others, must partake of that change and ensure there is a viable, sustainable industry.

Deputy Sherlock asked if New Zealand will be classified as one large unit or two separate units. If one raises the matter of New Zealand one had better keep an eye on the exit, because the majority of farmers here would run one out. That is because of the Internet auction system introduced this year which undermined us. The overhang of product, especially in New Zealand, is a situation to which everyone has referred. Exchange rates allowed the USA to flood the market with product in the past two years. We are paying for that now. However, at the time there was no question about the standards to which Mr. Walshe, Mr. Kennedy and others have alluded. The standards were never questioned, whether it related to BSE, hormone free or anything else. Price was the only thing in which anyone was interested.

Does the delegation not believe we can learn from New Zealand, given that it is grass-based and it produces milk at 12 cent?

Mr. Patrick McLoughlin

I will put it this way: some very positive elements can be taken from the New Zealand system and this is also the case in other parts of Europe. We are trying to compile such information and make a presentation to our representatives. We are trying to build for the future.

Mr. John Enright

We have been discussing the issue of instability and what can be done. The issue of price support from Brussels is critical. The Minister has modulation funds available to him this year and will have in future years. It is expected that they are worth approximately €15 million this year, that they will be worth €17 million in 2010 and will rise eventually to €42 million. It is important to point out that is EU funding not Exchequer funding. The European Commission has stated under the draft regulations that dairy farming is a specific category and there is an option to support it under that funding. We argue this money should be used to assist dairy farmers at present. That will not solve our problems, but it will be of assistance and we will make a strong case that the modulated funds should be provided to the dairy sector.

Mr. Richard Kennedy

I will directly answer Deputy P. J. Sheehan as regards the charter. Obviously, the charter of rights for farmers has been broken with the proposed payment system, there is no question about that.

The charter of rights has been broken.

Mr. Joe O’Flynn

I refer to Deputy Tom Sheahan's point regarding the Irish Dairy Board. We certainly do not mean to be defeatist in referring to our role in consolidating the interface with the marketplace. Our point is that the real competition is not in Ireland. We export 80% of our produce and the real competition is in the international marketplace. We must all wear the Irish jersey to maximise the benefit to the industry. Much progress has been made in segments of the business in this regard. We have much about which to be optimistic. Kerrygold is a strong brand in that it has an extensive international presence. We have successful investments and routes to market for various products, notably the cheese sector in the United Kingdom. We have excellent products produced from the grass-based system. The grass-based system gives us a marketing advantage, which is recognised and it is the basis of the Kerrygold brands. It is in a premium position from a consumer perspective.

It is true that there are challenges, but there are also opportunities. International demand is weak. Mr. Cotter referred to a recent analysis by Rabobank suggesting that demand in 2008 and 2009 has been growing at 1.7% per annum. However, production is growing in excess of 2%. Rabobank projects that demand will recover to 2.5% per annum from 2010 given the growth in population and GDP.

I accept the current difficulties arising from the global recession are a problem. However, the longer term projection for dairy is positive. There is a serious difficulty. Everyone recognises this and European Commission support is essential in terms of working through the current difficulties. I fully support a number of points made already in that regard.

A number of speakers referred to the funding issues in the industry. They may be very relevant on the farmer side, but they are equally relevant on the industry side. We are experiencing a problem in terms of the banks placing very tough constraints which control credit availability. This is at a time when the industry needs additional funding. Why is that required? Reference has been made to the industry investment programme which the Government supported and which everyone around this table supports. However, that has created a requirement for substantial investment in facilities which require funding in turn.

There has been a substantial switch to cheese production which is a very positive development in terms of getting the product mix right. However, cheese has a long maturation period. Therefore, the working capital requirements for cheese production are substantially higher. We seek additional competitively priced, asset backed lending instruments such as stock financing and invoice discounting. In other words, we urge the banks to bring more flexibility to the table to support the development of the industry.

I refer to the disparity between the price of cheese coming out of the factory and the retail price, which is on the programme again. Is it possible to control that?

Yesterday morning on the radio, I heard the president of the IFA discuss the difference in the price of lamb at the farm gate and the retail price.

We are dealing with dairy issues now.

I am simply referring to the matter.

It is impossible to leave the lamb sector out of it.

It is a serious matter if a tonne of cheese coming out of the factory costs €2,300, but is retailing at €10,000.

Someone in the middle is receiving an awful lot of money.

There is something seriously wrong here.

I invite Mr. O'Flynn to refer to that issue.

When is the dairy industrial recession to end and when will we be away from the 17 cent and back where we should be at the cost of production? I suggest 17 cent is approximately half of what the price should be. I know the business. I live in the biggest dairying parish in Ireland. There are 300 cows there. I am going to invite Deputy Sheehan for a weekend.

I refer to Deputy O'Sullivan's argument. There is a price of between 17 cent and 20 cent per litre for milk and we have discussed the farm gate price for one tonne of cheese compared to the retail price. Someone in the middle is getting a great deal more money. I have tried to make that point.

I wish to know when the recession will end.

The family farmer and prime producer receives 20 cent per litre and someone is getting five times that amount of money between the time it leaves the factory gate and reaches the retail sector. There is something seriously wrong somewhere along the line.

Mr. Joe O’Flynn

I will offer my view on that matter. Let us consider the margin processors have taken as part of that value chain, and the margin taken by the Irish Dairy Board. I am fairly sure those margins have not increased in ten years. The strength of the retailer has had a dramatic impact on value in the overall chain.

Someone else should feel some pain and keep the farmer going.

Mr. Joe O’Flynn

We cannot do anything about it. We have to take the pain.

I asked for how long does Mr. O'Flynn see the recession lasting?

Mr. Joe O’Flynn

The reality of the retail sector across Europe is that in any market three or four buyers have control and, consequently, significant strength.

Therein lies one of the problems.

Please allow Mr. O'Flynn to answer.

He has given the answer.

I see my son in his small supermarket in Goleen selling Clona milk from west Cork and there are other products on the shelves. The same lorry delivers Ellen Vale, imported from Northern Ireland, which sells for 40 cent less than the Clona milk produced in Clonakilty.

There is something wrong.

Ellen Vale flies off the shelves. The housewife dominates the market.

Does anyone have an answer to that question?

I asked a question and while I know that the experts present do not have a crystal ball, when do they see the dairy recession levelling off? I have to meet farmers tomorrow night to talk about grants and the REPS and this will be relevant too.

Mr. Joe O’Flynn

It is a difficult question to answer. There is a surplus of milk on the world market and demand is weak because of recessionary pressures. Until balance is restored we expect it will not change until the latter half of 2009, based on indications in the marketplace.

I watch the market and I am told New Zealand will pump out milk and take the extra accommodation for product storage and that production in the United States will expand further. Brazil was mentioned. Its industry is moving in the same direction with sheep, pigs, grain and beef. Mr. O'Flynn and his colleagues came here to paint a positive picture to get us on their side but I do not accept it. I am a realist. For the past five or six years we were nearer to heaven than somewhere else but we are now in the real world and farmers are in financial trouble. This has nothing to do with the banks, rather it is due to the cost of production. The price is wrong. God help those getting 17 cent in north Tipperary for milk.

Mr. Joe O’Flynn

Everybody on this side of the fence recognises Deputy O'Keeffe's point. Output in the United States has grown by close to 3% per annum in the past five years, a massive increase. The latest projections for 2009 are that the United States will move towards negative numbers for the first time in a decade. There are changes taking place in the supply-demand balance. The question is whether they will happen fast enough.

There are stockpiles of corn gluten feed all over the place, including Iowa. I have seen them. I do not think we are in business. The delegates will be back.

I thank them for coming, their comprehensive presentations and answering members' questions.

The joint committee adjourned at 2.35 p.m. until 11.30 a.m. on Wednesday, 4 March 2009.
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