Joint Committee on Agriculture, Food and the Marine debate -
Tuesday, 9 Oct 2012

Review of Food Harvest 2020 Strategy: Discussion

Chairman

I welcome Mr. Paul Kelly, director, and Mr. Shane Dempsey, head of consumer foods, from Food and Drink Industry Ireland, FDII; Mr. Ciaran Fitzgerald, chairman, and Mr. Cormac Healy, director, from Meat Industry Ireland; and Mr. Michael Barry, director, from the Irish Dairy Industries Association. I thank them for coming before the joint committee to discuss Food Harvest 2020. I propose to call each in turn to make his presentation and ask members to put questions after each presentation.

Witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given, and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a person, persons or entity by name or in such a way as to make him, her or it identifiable. 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.

Mr. Paul Kelly

I thank the Chairman and members of the committee for the invitation to appear before them. I commend the joint committee on undertaking a series of hearings on the Food Harvest 2020 strategy. I am joined by my colleagues, Mr. Shane Dempsey, head of consumer foods within FDII, Mr. Michael Barry, director of the Irish Dairy Industries Association, Mr. Cormac Healy, director of Meat Industry Ireland, and Mr. Ciaran Fitzgerald, chairman of Meat Industry Ireland. As the Chairman noted, we each have individual presentations. My colleagues will be dealing with their areas of the food sector.

I will start my presentation by giving an overarching view of the industry. The agrifood sector is by far the most important industry in Ireland, an indigenous industry with wider linkages to the overall economy. One in eight jobs in this economy are linked to agrifood. There are 690 enterprises, of which 94% are small and medium-sized enterprises, which is slightly lower than the European average of 99%. We have a slightly larger number of large companies, but the figure of 94% is indicative of the significant importance of SMEs.

There are two main aspects to the industry. We have a very strong domestic presence and would supply the majority of Ireland's €14 billion grocery sector and associated food service sector. We are very strong in the export market. We exported €9 billion in food and drink products in 2011. This is substantial. Some 75% of our produce goes to other countries in the European Union and the other 25% goes to third countries. Some two thirds of all indigenous exports emanating from Ireland are in the food and drink sector. That shows the importance and export potential of indigenous enterprise. The slightly broader bio-economy, which includes forestry and aquaculture, accounts for 30% of net foreign earnings. These were the findings of a study, Fostering the Smart Green Bio-economy, commissioned by the former Department of Agriculture, Fisheries and Food in recent years. In numerical terms, the bio-economy generated €11.5 billion in purchases in the domestic economy, the significant elements of which would be raw materials from the agricultural production sector as well as services. It has the largest payroll of any manufacturing sector at €1.75 billion. The sector hits above its weight. It would be the largest intra-EU exporter and we would be the largest net exporter of beef, lamb and dairy ingredients in Europe. Compared with many other countries in Europe, the agrifood sector in its broadest sense is much more important to the economy than it would be in other countries. One in eight jobs in Ireland is associated with agrifood whereas one in eight jobs in Germany is in the car industry. That show how important the industry is to Ireland.

The subject of these hearings is Food Harvest 2020, which is a very ambitious growth strategy, especially in respect of exports where it is planned to grow them by 40% to €12 billion by 2020. It is worth going behind that headline number and trying to get a sense of what impact it will have in terms of the wider economy. It will be much greater than export growth in any other sector simply because there are such deep linkages into the wider economy, into agriculture and both the rural and urban economies. The reason is that the direct expenditure as a percentage of sales in the Irish economy is 60%. That compares with 19% for other manufacturing sectors. Every extra euro generated by exports of food has a much greater impact in terms of direct expenditure to the rest of the economy than any other manufacturing sector. We have done some analysis on this and have circulated a report to members, entitled Sharing the Harvest, which estimates that if the export target hits €12 billion, it will result in 30,000 extra jobs throughout the economy. A percentage of them will be in food manufacturing but a much higher percentage will be in agriculture and ancillary services related to agriculture and a certain amount in the wider economy as the wealth flows into the rest of the economy.

Linkages are important. We often hear references to the food chain. That is particularly important to Irish agrifood. This is the only fully integrated industry supply chain of any industry sector in the country. Everything is available in Ireland: raw materials, production, processing, sales, marketing innovation and the corporate headquarters. It is either sold into the domestic market or sold on the export market. That means policy and regulation and the way they are implemented impact on the sector much more than on any other sector. What is happening at farm level has a significant impact on what is happening at processing level, and what is happening at the processing level has a major impact on what is happening at farm level, and so on right up the supply chain. One does not have such deep linkages to the same extent in any other sector in the wider economy.

We see a policy dichotomy in Ireland. The central tenet or vision of Food Harvest 2020 is smart green growth. The strategy was brought together by a combination of industry and the agrifood sector in its broadest sense, both private and public. There was very strong industry participation in the development of Food Harvest 2020 and subsequently in its roll-out and implementation. We are finding that in other parts of Government, we are facing a number of policies which are very much at odds with trying to achieve smart green growth, or else the policies are not being implemented quickly enough to ensure we will achieve certain targets of Food Harvest 2020. I can give some examples.

Let us look at the slides in the PowerPoint presentation. Certain aspects will be developed by my colleagues in their presentation. It is vital we have a sustainable and competitive raw material supply base. What happens at farm level - the production sector of food - is vital.

With its grass-based system, Ireland has certain competitive advantages. It is very important that we maintain these and discover what can be done to improve them. The Common Agricultural Policy and the decisions that will be made in respect of the climate change roadmap will be hugely influential in the context of the sustainability and, more particularly, the growth of the supply base as 2020 approaches. My colleagues, especially those who are involved in the meat and dairy sector, will comment further on those matters.

Another important issue at processing level relates to the fact that State support is necessary in the context of maintaining - and expanding upon - current activities. The food sector is a low-margin entity. Like many other sectors, it has difficulties in the context of access to credit, financing, etc. These difficulties are exacerbated by the low-margin environment that obtains. In such circumstances, there is a need for a degree of State support. Such support has been very successfully implemented across the food sector in recent decades and has had a massive impact in terms of bringing us to the point at which we currently find ourselves.

One of the issues that arises in this regard is the State-aid regime. There are different aspects to State aid but one of the most important relates to the regional aid guidelines. In a nutshell, these set down the intensity or percentage level for industrial grant aid. In the context of capital investment and expenditure on the part of companies, we are very much constrained by existing State-aid rules. However, an opportunity exists in this regard. State-aid regimes are generally run over a six or seven-year period and the current one will come to a conclusion at the end of 2013. Outline proposals from DG Competition in Brussels in respect of this matter have been issued and negotiations are beginning to take place. During the next 12 months we will, therefore, be presented with a very important opportunity to try to reset some of those rules in order to ensure that between 2014 and 2020 the investment aid available to the industry will be increased from current levels. Many people are of the view that this is vital in order that the industry will be facilitated in achieving its expansion ambitions.

As is the case with any industry, manufacturing cost competitiveness is a major issue for the food sector. It is very important in light of our very strong export focus. If our costs are out of line with those of our competitors in other countries, they become embedded in our sector when we are trying to gain access to retail shelves in the UK, France or wherever. Similarly, if our cost base in the domestic market is too high, we run the risk of import substitution. This is because some countries have lower cost bases than that which obtains here. The food sector has an ongoing issue in that Ireland has a small economy which is made up of approximately 4.5 million consumers. As a result, we suffer from a lack of scale when compared to some competitor economies.

This is a consideration which must always be central to what we are doing, particularly in the context of, for example, energy costs. Energy is a very large component of the cost of food production. We must also take cognisance of transport and waste and environmental costs. All of these costs are beginning to go in the wrong direction again. We must monitor the position in respect of each and ensure that the overall cost of doing business is kept under control. There is a direct relationship between cost competitiveness, the maintenance of jobs and the creation of new employment.

The industry has a strong export focus but the domestic market is vitally important. Every food company in Ireland begins operations in the domestic marketplace. It is essential that there be a properly functioning domestic marketplace. My colleague, Mr. Shane Dempsey, head of consumer foods, will discuss this matter in greater detail. However, there are issues relating to the forthcoming introduction of a statutory code of practice for the grocery sector. The legislative programme that is before the committee for the current term includes a Bill designed to facilitate the amalgamation of the Competition Authority and the National Consumer Agency. The latter will contain an enabling provision that will allow the Minister for Jobs, Enterprise and Innovation to sign the statutory code into law. We call on the committee to ensure that the process in this regard will be expedited. It is vital that the statutory code be put in place as soon as possible.

We want to ensure that there is a properly functioning domestic marketplace. All existing exporters in this country started off in that marketplace and those who come after them will do so as well. If we can get matters right in respect of the domestic marketplace, it will give exporters a springboard for future success in markets abroad.

Another issue that would have been discussed before the committee in recent months is that which relates to the reputation of the food industry, particularly in the context of matters such as diet and health. We are of the view that some of the policies that have been put forward by certain Government Departments are very much at variance with what the food industry is doing. However, the food industry has a very strong track record in respect of providing consumers with high-quality information in order that they might make informed choices and making available for consumption high-quality, nutritious and safe foods. Again, another of my colleagues will deal with that matter in greater detail. However, one of our main aims is to ensure that there will be a multi-stakeholder approach to issues such as obesity.

I imagine that everyone present would acknowledge the importance and scale of the agrifood sector in Ireland, which has a very sizeable domestic market and very large export markets. The sector punches above its weight in the context of its performance. The deep linkages it has to the remainder of the economy mean that the expansionary strategy that is Food Harvest 2020 will impact on the broader economy in a more positive way than will export growth in any other sector.

There are certain barriers to growth, to some of which I have alluded. My colleagues will discuss the impact of those barriers at sectoral level in greater detail. However, we are of the view that they can be removed in a very constructive fashion. If this happens, the win for the economy will be in the region of an additional 30,000 jobs.

Chairman

Does Deputy Ó Cuív wish to make his contribution at this point, when Mr. Kelly’s presentation is fresh in his memory?

Deputy Éamon Ó Cuív

Perhaps it might be better if we heard all the presentations in order that we might obtain an overall picture.

Chairman

It makes no difference to me. If members prefer, we will take all the presentations and then proceed from there.

Senator Susan O'Keeffe

If the second presentation is more detailed, then perhaps we might intervene at that stage.

Chairman

Mr. Kelly provided an overview in respect of the entire industry and his colleagues will be providing information with regard to the various sectors. I call Mr. Michael Barry, director of the Irish Dairy Industries Association.

Mr. Michael Barry

I thank the Chairman. I am contributing at this point because it is our intention to outline the position with regard to the primary element of the industry before commenting on the secondary aspects. I would like to provide a very brief overview in respect of the dairy sector and the opportunities for growth within it. I wish to relate what can be a very positive and exciting story and to outline where the challenges exists. There is no doubt that the targets to be achieved and the bounties to be realised are well worth working towards.

I wish to take a moment to reflect on that for which 2012 will be remembered. The year started a bit too well in that Ireland was faced with a super levy bill. Up to June, there was strong milk production across the EU but this began to fall away in July. We reached the point where there was just too much butter fat available in the market. At one point we wondered whether the EU would reopen the intervention scheme in respect of the butter market. However, this did not happen. What did occur was a very large usage of the annualised private storage scheme. The latter is an EU-run scheme which seasonal producers such as Ireland have used and depended on for a long period. In summary, a large volume of butter stocks were placed in storage.

The year 2012 will, of course, be remembered for the poor weather. There was too much water in the north of Europe and too little in the south. In addition, there were droughts in America. This story was repeated across the globe. The impact of all of this has been a shortage of fodder and an increase, to record high levels, in the price of grain, concentrates and feedstuffs. As a result of poor weather in northern Europe leading to the production of poor fodder, feed prices have risen and people's profits are being squeezed. We have moved from having a problem with the super levy at the beginning of the year to a position where we are 1.4% behind where we should be in the context of milk quotas as the end of the year approaches.

The dairy industry exports just short of €3 billion worth of dairy products to countries throughout the world.

That is approximately 30% of the output of the agrifood sector in Ireland. It is, therefore, a very significant industry. Approximately 27,000 people are directly employed in it.

We are producing 5.5 billion litres of milk. This amounts to approximately 3% of the overall production of the EU 27. We are achieving this with approximately 1.1 million dairy cows. Our production per cow is below the European average. I refer not only to northern Europe but to the entire EU 27. Our output is 80% of the EU average. Due to quota factors, we are withdrawing animals from milking and stopping them from realising their genetic potential. Therefore, a significant opportunity presents itself to us. We will return to this.

The structure of the processing sector has been discussed at length. While we have many co-operatives, 36, it is realistic to state only 12 of those are involved in processing. When one examines product specificity, one sees a degree of specialisation involving shared processing arrangements between co-operatives. For instance, lactose is produced in just one creamery. We have specialisation in the sector, and there are many co-operatives, but the processing sector is becoming more specialised bit by bit.

Dairy expansion is now possible because of the abolition of quotas in 2015. This is an exciting time. It is the first time in 30 years in which we can actually allow farmers to chase market opportunities. However, if the price is not right, there will be no expansion. If there is no profit, we cannot expect farmers to chase expansionary targets. An expansion of 50% is predicted in Food Harvest 2020 but it is dictated by the performance of the market. If the market can take it, we can produce milk. If not and prices crash, we will not be able to achieve our target. This is the proviso behind the predictions on expansion in the sector.

At the end of this year, there will be another report from the Commission on what it calls a "soft landing". This is the strategy and policy on the abolition of quotas. However, the Commission does not want a big-bang effect such that when quotas disappear in 2015, a vast quantity of milk will be released onto the market to detrimental effect. This must be considered. We do not know whether people will suggest a higher increase in quotas for the last year of the milk quota system. This past year will have frightened many policy makers, who saw the price decrease as far as it did. When this occurred, we started talking about intervention again. Let us wait to see what occurs.

The expansion target of 50% under Food Harvest 2020 indicates that 2.75 billion litres of extra milk could be produced by Ireland. It is approximately 1.5% of Europe's current milk pool. It is not a very significant extra volume of milk in the context of European production.

Are we being optimistic or reckless with figures? I believe not. The global demand for dairy produce is increasing at approximately 4% per annum. This is driven by two factors, namely, global population growth and rising levels of affluence. There is increasing demand for dairy products, especially in developing economies. It is these markets that we are targeting.

Predictions are dangerous. Many predictions suggest that, at best, the world can chase supply by approximately 2% per annum. Therefore, if the world can produce 2% more milk every year, with global demand of 4%, we can be fairly confident about our expansion strategy in Ireland.

Milk price volatility could challenge dairy expansion. This has become a significant issue, especially under the family farm structure. The ability to operate and survive price fluctuations, from extreme highs to extreme lows, must be borne in mind.

The CAP 2020 proposals will have very little impact on reducing the impact of price volatility. This will be a factor in the dairy sector in the future. Supply management is no longer effective. We have seen price volatility, including high and low prices, and we are currently in the middle of a quota system. The day of the quota is gone and this is important to note for our future.

Input prices show similar volatility and feed prices are now beginning to follow the same kinds of movements that apply to dairy prices. However, this may give Ireland a competitive advantage because it does not have an intensive farming system. We have an extensive grass-based farming system that may yet give us an advantage. However, we must consider the impact of national and EU climate legislation. Climate change policies are targeting natural emissions, from the land and animals. The problem is that these policies do not recognise how sustainable and natural our system is. They cannot deal with it. Therefore, we need to consider this. Irish agriculture is the green economy.

My colleague has already discussed the question of what constitutes the food industry. By and large, it is a manufacturing industry. It is a capital-intensive, low-margin industry and it needs to be globally competitive. If it is not, we will not be able to export products regardless of what attributes we ascribe to the sector. Unless we get the price mixture right, we will not be able to gain access to developing markets.

Some 84% of what we are producing is currently being exported. Every additional litre of milk we will produce will have to find a home, and it will not be in Ireland. We will have to export it. Therefore, we need to remain competitive.

Much has been written about the dairy and processing sectors. Let us bear in mind that we are not starting from scratch. We already have a sophisticated processing sector. If we were starting anew, we would probably operate differently. Right now, however, we have a developed, sophisticated industry, but we just need more of it.

With regard to global market opportunities, we are dependent on the economic performance of the Asian sector. If the Asian economy slows down and its buying ability is constrained, it will have a knock-on impact on our ability to find homes and markets for dairy products. However, there is a cost creep in many other global dairy surplus countries, and this could give us a competitive advantage.

Let me share a few thoughts on the Common Agricultural Policy. Our ability to compete globally is intrinsically linked to it. The slide I have presented to members shows what the policy achieves today. The focus is very much on primary processing at farm level. It achieves this through direct payments, supply management, the quota system, market management, as in export refunds, and intervention.

However, the Common Agricultural Policy tomorrow and that which will obtain until 2020 will be refocused. It will be about the rural aspect and the producers and consumers recognising what the consumers want. This implies a very different game because it involves bearing in mind additional factors, including the delivery of public goods, climate change and rural development. It is because of this refocusing of the CAP that we are hearing discussions on greening being sewn into the direct payments considerations. This is why we are having discussions on the CAP at present.

We must determine how the CAP can support our strategy for growth in terms of Food Harvest 2020. I asked how we could deal with price volatility. One measure that can greatly assist is a mechanism such as the retention of annual private storage. I ask the committee members to consider this. We should be seeking an annual scheme rather than one that would be introduced only when prices are weak, as proposed. The latter would only accentuate price volatility. We should be seeking a model like the existing one which currently takes produce over the seasonal peaks of production.

There are proposals for risk management. I refer to insurance schemes and margin insurance schemes. We have examined these and have concluded the insurance products are very expensive and complex. They are financial instruments. Their cost would outweigh any benefit they would deliver. Therefore, we are not convinced they can be a solution for us.

Consider whether the direct payments system insulates against extreme price volatility. This year, many dairy farmers will be dependent on the single farm payment because of the lower prices and higher costs. The big question is whether the safety-net mechanism is fit for purpose. Many would say the intervention price today is at 20 cent per litre, and that this is not sufficient. They are right in that, with current feed prices, this is probably not enough. The problem is that the moment one has a discussion on changing the price, one must fund it from a reduction in the single farm payment. This is a tricky area. I am not entirely sure whether it is an argument one could win.

The European Parliament is proposing that there be temporary supply management when the markets are weak.

This proposal is ill conceived, is a blunt instrument and would not benefit the Irish or European sector.

We must maintain the Single Market's integrity. Given its membership of 27 states and more than 500 million consumers, it is a growing market that we want and we must ensure that it operates as a single market. We do not want renationalisation or mandatory country of origin labelling for dairy products. We want to make it easy for European countries to use our dairy ingredients. Let us not put barriers in front of them.

We need to ensure that greening can give Ireland a competitive advantage. We must appease consumer demands in this regard, but a level of pragmatism and common sense must be applied to the greening aspects of the single farm payment.

We must be careful of schemes introduced at member state level. What would happen if Germany, for example, introduced a subsidised risk management scheme for its farmers while we could not afford to do so? It would create a competitive imbalance and we would be on the hind foot in an important market for our butter and other dairy products.

This is a positive story for the dairy sector. There is an opportunity to expand. We will need to deal with price volatility, but we are not there yet and CAP will not do it. The issue requires more work. National policy needs to do more to support the growth opportunity. Climate and environment policies are key in this regard. The National Economic and Social Council, NESC, recently made a recommendation to the Minister for the Environment, Community and Local Government, Deputy Hogan, concerning the discussions on climate change. It is a major issue and national, EU and global agriculture policies must be careful. The feeding of the world with sustainable food sources must never be compromised. We produce sustainable foods. Taxing methane emissions from animals and soil in Ireland would not be a well conceived idea. We need to return to the drawing board.

We can do better. We need a greater alignment of policy across all Departments. I thank the committee for its attention.

Chairman

I thank Mr. Barry. Before I call on Deputy Ó Cuív, who wishes to speak next?

Mr. Cormac Healy

I do.

Deputy Éamon Ó Cuív

I welcome our guests. The food and drinks industries are significant players in the national economy. Instead of just agriculture, we must examine the cost of all policies if we are to develop these industries. Energy costs were mentioned as being significant. A 10% saving on a 2% cost is 0.2%. If a cost is 30% and a saving of 10% is made, the overall figure is 3%. Is there an industry average for the cost of raw materials, labour, transport and energy? In broad terms, what percentage does each of these represent as a percentage of the overall cost base? I have long argued that, for resource-based industries such as forestry, agriculture and stone, the cost of transporting a product to the factory and so on tends to be a larger factor than it is for companies making microchips, where the cost of transport is insignificant.

Energy costs were also cited as being significant. What is their order of magnitude in terms of the total input costs? Knowing the figure is always useful.

How much of the final cost is accounted for by the cost of raw materials, that is, what the farmer gets? The committee has been considering an issue that has not been raised at this meeting yet, namely, the purchasing power of multinational multiples, the squeeze they can put on manufacturers and primary suppliers and the effects of same on long-term sustainability. If companies with a large clout in the market are not offering viable prices, does it pose a challenge?

We all agree that price volatility presents a considerable challenge, particularly if we are moving away from a dependence on EU subsidies such as single payments, etc. This is an important issue for the world. I noted the comments on the retention of private storage, which is one bet Mr. Barry has against it.

Mr. Barry stated that direct payments insulate against price volatility, in that one gets a certain amount of money before one starts to gain. For an 80-cow or 90-cow farmer, what is the average direct payment per hectare and what is his or her total direct payment? Various proposals have been made for reshaping CAP. It must support productive farmers. Cattle dealers probably did the best out of the last CAP. Someone who sent a large number of cattle to a factory received a ten-year bonus. My understanding is that dairy farmers did not do as well proportionally. I would be interested in Mr. Barry's comments in this regard.

I will also be interested in knowing the meat people's thoughts on Mr. Barry's comments about mandatory country of origin labelling. There will be conflict. Some industries want labelling because that is their selling point whereas some do not. Does everyone agree on the question or is there an industry dichotomy?

I do not understand where the Commissioner is coming from in terms of the greening component of the proposed CAP. On one level, every farmer must comply with good farming practice. One cannot throw fertiliser around willy-nilly. There is already a greening element. The rural environment protection scheme, REPS, was for super green farmers. Will the new greening element supersede REPS? I do not understand. There will be three levels of greening. For example, standard greening is the good farming practice with which everyone must comply. I would rather see a high standard without a special greening package, but a basic payment for a high standard - good practices, non-pollutants, etc. - would suit Ireland in terms of marketing, sustainability and so on. However, if much of CAP's resources are devoted to greening, what must a farmer do to get the REPS payment? Where does it all fit? This is a valid question, but I do not know the answer to it. Does Mr. Barry have an answer? The average farmer who conforms with good practice should be able to get the full whack of the single payment. There is considerable agreement on this point.

I take it that Mr. Barry's argument is not with combating climate change, but with the way we count the emissions from cows, etc. Genetic work is being done in Australia to try to reduce methane outputs from cows at both ends. Has the Irish Dairy Industries Association, IDIA, proposals on counting emissions in a different way without compromising the need to reduce them? This issue deserves a great deal of scientific analysis.

By virtue of growth, we take in carbon sequestration and so on, although I accept there is a methane issue. In other words, what goes out is a slightly different product than what goes into animals. I have always believed that with the simple mathematics we operate, agriculture was the biggest polluter in terms of methane output and the industry faces strangulation in expansion of the basic industry. We must try to find a way of dealing with the issue and ensuring it does not become a new quota system.

Deputy Martin Ferris

I thank the witnesses for the presentations. We are in uncharted waters from an agricultural economic perspective, and one of the most serious negotiation processes lies ahead, which could have significant long-term effects for the industry. The industry's importance to the Irish economy has become more evident in the past number of years, particularly when we have been in recession in a big way. It is the one sector of our economy that has continued to do well.

I am concerned about the proposed end to quotas and I do not know how that will end, particularly with regard to the milk quota. I have a feeling this will lead to intensification and a reduction in producers, and many farmers will not survive this. Effectively, we will move to a more corporate-oriented farming industry, and I am very concerned about that. What are the views of the witnesses in this respect? The end of the quota system will open the process and lead to an expanded free market, and the consequences may lead to smaller producers not being able to compete as the margins will be smaller. That will lead to an expansion of the social problems in rural Ireland in particular. Will the witnesses expand on the issue?

This year has brought problems home for many of us who come from an agricultural or farming background. I know several farmers who will have no fodder for the winter because of the terrible summer we have had, and they have used much of the winter feed already. Added to this are the fuel costs rising on a weekly basis, as well as higher energy costs. The price of milk peaked at the end of June and beginning of July and has been dropping since. The margins are getting smaller for people who are trying to survive selling the product. What is the view of the witnesses on this aspect?

The delegation discussed a domestic market that is dynamic and competitive, and at the end of the contribution reference was made to a comprehensive grocery sector, inclusive of rent reviews, labour legislation and rates. Does this refer to getting rid of upward-only rent reviews?

Mr. Paul Kelly

Yes.

Deputy Martin Ferris

That would be welcome. There are significant problems with rates, particularly in several areas around the country where rates are extraordinarily high. There are consequences for local government. What is meant by "labour legislation"? Is the delegation referring to eliminating the minimum wage?

Mr. Paul Kelly

No. There is a parallel system involving joint labour committees and the minimum wage.

Deputy Martin Ferris

Okay. Will the witnesses deal with the other issues?

Deputy Martin Heydon

I thank the gentlemen who have given the presentation. It is apt that we are having this meeting today and I hope I will be a allowed to be a proud Kildare man after the great announcement we had this morning from the Kerry Group. There will be 900 jobs as a result.

Chairman

The Deputy could extend gratitude to Deputy Ferris while he is at it.

Deputy Martin Heydon

It was said this morning that it is the first time Kildare and Kerry have had good news on the same day. It does not happen too often. We can see the value of the Kerry Group's investment in the site in Naas, which will create 900 jobs and 400 construction jobs. It will be an investment of over €100 million, which demonstrates the absolute strength of the food industry in Ireland. This is an indigenous company set up 40 years ago. It ties in with much of what we are saying about the importance of the food sector, which is one of the good news stories in the economy. We must do everything we can as a Government and country to support this sector and help it grow.

There are a couple of points regarding Mr. Barry's presentation. The scale in the context of Food Harvest 2020 is colossal; the starting point of the country and its production has dairy exports at 2.7 billion litres. With the proposed increase of 50% in milk volumes, is there a risk that we are putting all our eggs into one basket or leaving ourselves a little vulnerable if we go down the dairy line like this? There was a point that the input cost volatility could be to Ireland's competitive advantage but will the witness expand on that?

What is Mr. Kelly's view on the sugar industry? He is aware of attempts being made to try to get Ireland producing sugar again within a quota system or otherwise if the system is gone by 2015. What impact will be felt by the food and drink industry if Ireland gets back into producing sugar? I am sure it is a key stakeholder in the process.

Deputy Tom Barry

I thank the witnesses for coming in today. They mentioned input price volatility, which is something being felt by all sectors currently. Feed grains have gone from €115 per tonne in early 2010 to €250 per tonne today. There is a significant quality issue in Ireland because of contracts, and the industry should be conscious of that as well, as nobody in the feed industry saw it coming. The witnesses mentioned Asian markets. Although we need them to expand and put growth targets together, we should be constantly moving in the value-added brand sector, as the day will come when the Asian markets will take care of themselves. They will not watch us supply them forever without trying to replicate what we do, so it would be perhaps foolish to put all our eggs in that basket.

My late father got out of milk production in 1991. We received £1 a gallon at that stage, which equates approximately to 28 cent per litre. That is scarily close to what the farmer is getting today, some 21 years later. It seems Irish agriculture has absorbed inflation figures for 21 years as nothing else has. The price of milk from the shelf has increased by 25% and over 21 years one could not begrudge that increase. Fertiliser in 1991 was approximately €130 per tonne and today it is approximately €330 for the same amount, a 60% increase. I know dairy farmers do not use as much fuel as tillage farmers but it is still a significant cost, and that has gone from approximately 21.5 cent in 1991 to approximately 86 cent per litre today, a 409% increase.

We have increased our competitiveness and the single farm payment has been a very important influence. Nevertheless, we cannot continue to produce at the quality we do and not have a fair price for farmers.

That brings me to my next point. I am interested in regional branding, to which Deputy Ó Cuív referred and I would be interested in hearing the witnesses' comments on whether produce should or not should not have an Irish brand.

When the price farmers obtained for milk fell to 19 cent a litre, 2 litres of milk was being sold for €1.19 in our multiples. I purchased a 2 litre container of milk last week for €2.25. Equating the two prices, the farmer should get 36 cent a litre for milk, if the original calculation was correct. We can be sure that the farmer was getting as little as possible at that time. Even allowing for that comparison - which I did not agree with at the time because farmers should have been getting more than 19 cent a litre for milk - that would mean that every farmer today should get a basic price before quality add-ons of 36 cent a litre for milk. That is not happening in the marketplace. It amounts to a 20% deviation in price.

Our farmers are suffering one of the greatest impacts in this area because their product price is not linked to the market price, and I am sure that could be extrapolated across the world. I appreciate we must remain competitive worldwide but the 2020 strategy will not achieve its full potential if we do not guarantee price recognition or linkage to the farmer because that strategy is built on that base. We have to protect the base which is farming. Farmers have suffered as a result of the horrible weather this year. This was meant to be a good year but it rained constantly from July onwards and nobody saw that coming. Thanks be to God for area aid and that the single farm payment scheme is in place to carry the day, which it will do. We need to work with the multiples to ensure they realise that if they constantly extract the last cent from the primary producers, they will vote with their feet. They will retrench and will not expose themselves, especially in these times.

I was interested in Deputy Heydon's comment on sugar. We were promised the price would be €400 a tonne and the figure is pushing close on €900 plus a tonne. I would be interested to hear the witnesses' views on that.

Senator Susan O'Keeffe

I thank the witnesses for their presentations. On the issue of mandatory country of origin labelling, I had understood that all along we were hoping to have a premium for Irish produce and I wonder where that has fallen out of that argument. Perhaps I was not listening or it was not made sufficiently clear but I do not understand how it does not help the Irish dairy sector.

On the matter of pragmatism in regard to greening, on whose behalf is that pragmatism required? Do we need to lower the standards of the greening or to lower margins, or do we need to do both? What did Mr. Barry mean by that?

Deputy Pat Deering

Like the previous speakers, I welcome the gentlemen. Their presentations were very good. I have been a dairy producer for the past 20 odd years and I know of all the difficulties involved in that. How hopeful are the witnesses that we can achieve the Food Harvest 2020 target of a 50% increase in milk production, which is a significant increase? This year farmers have had to face high super levy bills, which will set them back a good deal in terms of their expectations. The soft landing issue must be a serious one for consideration. If farmers have to face high super levies in the coming year, dairy farmers in particular will definitely not be able to achieve the potential that has been set out. I agree with the assertion that this is an exciting time in terms of Food Harvest 2020. There are many challenges but there is great potential to be achieved. However, if farmers have more such set backs they will not achieve that potential.

Chairman

Would either of the witnesses like to respond? I note Mr. Kelly will do so.

Mr. Paul Kelly

I will deal with questions or points that were directed at me as best I can and Mr. Michael Barry might then respond.

I will start with Deputy Ó Cuív whose first point related to the cost base. The best work in this area has been done by the National Competitiveness Council. It produces competitiveness indicators and an annual cost of doing business report every year. It produces very good data and this allows comparisons between different sectors and between sectors in Ireland and overseas. Its methodology generally examines costs excluding the costs of raw materials and it does that largely on the basis that most raw materials are priced on a continental or global basis. If one considers specifically domestically originating input costs, it is as well to leave out the costs of raw materials, but from a food perspective they would be a very significant part of the cost base. If one leaves those out and considers the National Competitiveness Council's numbers for most food categories, one will generally find that labour is the single biggest input, and that reflects the fact that many of the industry sectors are quite labour intensive.

Leaving aside the labour input, the next big components are utilities and the largest of those is energy, which is around 20%. Transport is next and it is around 16% to 18%. Deputy Ó Cuív was correct to point out that relative to other manufacturing sectors, those components would be much greater. Those are two of the difficult pinch points. Given that we are export focused if our energy costs are out of line, that is an imbedded cost when we are trying to compete in markets overseas. Similarly in regard to transport, there is a distance-to-market issue. If we are trying to sell beef or butter into the Italian or German market, it has to be hauled a much longer distance than the produce of the local market producers against whom we are competing. They tend to be the input cost components and that is the reason they tend to be a very strong focus for the industry.

The Government has a significant part to play in the construction of those costs in terms of the way in which the energy market is regulated. We were able to benefit from a large energy users rebate for the past number of years and while that is coming to an end now it would have been very helpful to companies in the very difficult circumstances in which they found themselves in recent years. In rough terms, the food and drink sector would account for about 25% of industrial electricity usage and other companies would use gas and heavy fuel oil as well. Similarly in regard to transport, we have one of the highest diesel and general fuel oil costs in Europe. The energy intensity of the sector means that this causes great difficulties.

Deputy Ó Cuív's next question was on the final cost of production. It is a very detailed chain and it depends on the final product. The more processing that takes place, the more complex it becomes. What is noticeable, and this is something to which we both referred, is that it is a low margin business. That can be seen from public companies in Ireland. When they make their statements to the Stock Exchange, and those figures are publicly available, the margins of the consumer food companies would tend to run in low single digits in percentage terms. Meat historically would tend to run at even lower levels than that. Generally speaking, it is a very tight margin business. Some companies have managed to get past that but generally they would have very significant investments in brands and innovation, although they would be the exception rather than the rule. The profile of the Irish food sector is that it is a very low margin business.

That last point is a natural lead into Deputy Ó Cuív's third point which related to the purchasing power of the multinational retailers, to which a number of Deputies have also referred. We have seen a flow of margin from the producer and the processor in the direction of the retailer. That in large part is down to the consolidation and buyer power they have built up. It is not a uniquely Irish issue - it applies across the world. We talked about the importance of getting our statutory code of practice for the grocery sector over the line. There are legislative measures or codes in place or being actively considered in many other European countries and that is the correct political and public policy response to this very significant issue. It has manifested itself in a number of different ways, two of which are particularly relevant in the context of our discussions. The first is the issue of unfair practices where we see changes to contractual terms and so on. That causes huge difficulties for companies in regard to cashflow and general business planning, and I am referring here to the food manufacturing companies.

In the low margin environment I talked about and in our general credit environment, the problem is particularly acute. It is important, therefore, that we put some degree of legal framework in place to address that in Ireland and in other European countries.

It is also worth noting that there are moves afoot at European level to look at these things. Initially, this will be on a voluntary basis but the intention in the longer term is to legislate for this at a European level. This is something we would strongly welcome and, as an industry association, we would be feeding into that through our European associates.

The issue of cost recovery is relevant, not only at processing level but also at production level. We saw a classic example of this in recent months with the volatility caused by some of the input costs of feed and of the many aspects of energy involved in the processing and production levels, coupled with the inability to recover those costs in the marketplace. The European Commission would refer to this as symmetrical transmission of price through the food supply chain. In other words, the hit is taken hard at the early parts of the food supply chain and it takes a long time before it is passed through. This causes a huge squeeze in the immediate term. As a result of the environment I spoke about, with low margins, poor credit availability and so on, there are serious questions over the long-term sustainability of aspects of the sector. In pure economic terms, this sends a market signal back down along the line to people who must decide whether to expand or get out of the business.

Some of the Deputy's points relate to Mr. Michael Barry. He will cover those shortly. I think I answered Deputy Ferris's question about labour. His other points focus on Mr. Barry's area.

We agree with Deputy Heydon's sentiments on the Kerry Group announcement. It is a positive announcement, in many respects. It proves the job creation potential of the sector. It is also noticeable that the expansion is in the innovation space, which will be particularly important for the overall industry in the future.

I mentioned the extent of the supply chain in Ireland. We are unique in the fact that all the corporate headquarters are located in Ireland. They are in Tralee, Ardee, Kilkenny, Limerick, Cork and all around the country. Every county in Ireland has one or more significant industrial enterprises that is dynamic and has export growth ambitions as well as operating in the domestic market. One cannot say that about any other industry sector.

The sugar industry issue was raised by Deputies Deering and Barry. That is a significant issue. Mr. Michael Barry has talked in detail about the ending of dairy quotas. The quota regime, generally, is going and the sugar quota will go in 2015. There are particularly acute issues for sugar users at present because the price has gone through the roof. As Deputy Barry said, the general price was of the order of €950. Companies with medium to long-term contracts are probably working in that space. If there are changes to a company's production or potential new business, the spot price could be significantly in excess of that and there are significant issues around security of supply. There are short-term issues between now and 2015 regarding the quota regime and allowing some additional sugar in from outside the European Union to lessen some of the pressure points within the marketplace. After 2015, the complete removal of quotas will, perhaps, allow the market within the EU and outside it to harmonise. That could be positive for sugar users.

We could look at the issue of developing a sugar production operation in Ireland from both sides of the argument. A totally free market may present great opportunities, as is indicated for some of the other sectors in the agrifood industry. For something like sugar production which is highly capital intensive and carries long-term risks, a new quota environment may be the route to follow. It is one of these, "on the one hand and on the other hand" issues.

Many of Deputy Barry's other points will be answered by Mr. Michael Barry. Things like cost recovery flow back to some of the way in which the entire food supply chain will be controlled. In the medium to longer term, a grocery sector code of practice, for example, would be beneficial in dealing with some of the issues related to that.

I very much agree with Deputy Barry regarding inflation and input costs. In Europe, we operate in the most highly regulated food production environment in the world. That means the consumer benefits from the highest quality food, in terms of its safety. A huge cost is associated with that production and processing level. At the same time, consumers are getting food cheaper than they ever have. In Ireland, for example, approximately 11% or 12% of consumer spending is on food and alcoholic beverages. A quarter of a century ago, a quarter of our spending was on those items. There is a degree of mismatch there. In the interest of the broad sustainability of the food chain, should consumers be paying more? They should, obviously, be getting value in the products they buy. However, when one considers the range of cost inputs at production and processing level, one must ask if the constant downward pressure on food prices is the right way to go.

Chairman

A division has been called in the Seanad. Do members wish to suspend the meeting?

Senator Susan O'Keeffe

It depends on whether or not there are two amendments. Mr. Barry's answers will be on the record and we can pursue them.

Chairman

Mr. Barry, could you respond to Senator O'Keeffe's questions now?

Mr. Michael Barry

Senator O'Keeffe asked about country of origin. We are proud of "Irish". We want the freedom and flexibility to brand and differentiate ourselves as Irish. The Kerrygold brand is an example of this. That will apply to finished foods we are bringing directly to the consumer. The vast majority of our additional product will be dairy powders such as whole milk and skimmed milk powders and caseins for high value-added products such as infant nutrition and sports nutrition. These products are mission critical.

We do not want mandatory country of origin labelling because we want to make it easy for global customers to use our ingredients, irrespective of the country in which they operate. They will not have those restrictions if they are using powders from New Zealand. That is the thinking behind our argument. We are trying to have jam on both sides of the bread. We want the freedom to use country of origin labelling when we want to. For the majority of our ingredients, we do not want a customer to be obliged to include country of origin. We want to remove those barriers.

Greening is our unique selling point. We are strong on that issue and we are completely committed to addressing sustainability across the food chain. We have systems such as REPS and AEOS and our farms have very good and green metrics. Some of the greening measures proposed by the Commission in the CAP may not be sufficient and would move us back to environmentally unsustainable activities.

That is what I mean about the pragmatism. Deputy Ó Cuív referred to this as well. As regards the type of pragmatism we are talking about, one of the proposals within the CAP discussions is a menu of green activities, so if somebody was involved in a Bord Bia sustainability audit, for example, that would be sufficient to count as that person having complied with the greening requirements, rather than asking them to go through two or three hoops. I agree with the Deputy that it would be terrible and unsustainable if there three or four fellows with clipboards walking around looking for different aspects of greening. That would be really unfortunate. It would not be fair to devise such a system as it would impose a cost on the system.

I will comment briefly on some of the other points raised. Deputy Ó Cuív asked what we have in mind in terms of climate change. It is a very complex issue. The National Economic and Social Council, NESC, report is worth considering. It should be considered by this committee because it is very important. If and when we do greening activities at farm level or within the food processing area, be it a biodigester or the cultivation of micanthus or other such green crops, we do not get credit for it. The credit for that generation goes to other sectors. In an ideal world there would be a balance sheet approach, whereby the emissions from the cow are offset by the savings in emissions from these other activities. That is the type of thinking we are considering. That is not to say we do not want to be part of the effort to address climate change and sustainability. We want to do that, but we need to get into that type of area. There will be a similar type of discussion in the context of water foot printing, which will be a bigger issue for us in years to come. Again, it is a case of looking at what is really sustainable, green and sensible and trying to package it in a way that is accountable, whereby it makes sense to other member states. That is the approach we are taking in this area.

Deputy Ferris mentioned the quota abolition. There is definitely a concern about that. We have had quotas for almost 30 years but, on average, 5% of European farmers per annum left dairy farming. Even within the quota period, 5% of farmers left dairy farming every year. The quotas have not kept farmers on the land. The other issue is that even with milk quotas we have seen milk prices fall to 20 cent per litre for sustained periods of time. That is not a sustainable price either. The supply management part, we believe, failed to become an effective means of protecting family farm income once we changed the other elements of the CAP and let the EU price come down to the world price. Once we set ourselves on that course, the volatility issue arose and many smaller family farms could not sustain themselves purely because they were not generating enough income, so they left.

The Deputy is correct to highlight the social impact of this, because there will be a social impact. I would go further and suggest there is probably a social impact whereby a farmer might have to produce 50% more milk, and do all that additional labour, to get the same income. Deputy Barry quite correctly referred to this. We must be careful because there will be a social aspect to this. How hard can one push people? In terms of the farmer's share of the price, which is built into that same message, look at the example of what happened in the UK. In the liquid milk market in the UK, people pushed it so hard that for a while the UK was importing liquid milk from France. It ran out of milk. The UK suddenly started to worry about whether there would be sufficient volumes of milk to put on the retail shelves. That brought the retailers in the UK into contracts with farmers.

That part of the discussion relates to the comments made with regard to the feed sector. Deputy Barry commented on that. There are lessons for the dairy industry from the contract experience of grain farmers this year. The Deputy was correct about that. The dairy package that was discussed and agreed - it was discussed almost two years ago but is only becoming law now - made a provision for mandatory contracts between processors and producers, but it had an exemption for co-operatives. That was correct, because there is a different rule for how co-operatives deal with their individual members. The CAP is trying to re-write the provisions for mandatory contracts and producer organisations and get rid of those derogations and exemptions for co-operatives. That will be a terrible own goal because it will remove the security and ability of a co-operative to protect its members and suppliers. The Deputy is correct to point that out. Unless we have those derogations and let the co-operatives look after their members, we could walk ourselves into the type of difficulties the Deputy correctly points out have happened within the feed sector. That is a place where nobody wants to go.

Deputy Heydon mentioned that the scale of growth is colossal. He is correct. However, if we did not have a quota factor this year and if we did not try to slow down Irish dairy farmers, Ireland would have increased production by 20%. That is a huge figure, and that is purely on the basis of the capacity. We could have increased our production by 20% this year without the quota. Then there was the weather factor as well. There is a tremendous opportunity there. Are we becoming too dairy dependent? I do not believe so. This does not mean that the dairy expansion will come at the cost of other sectors. There is plenty of room for those. Even if one takes the existing herd, what we are talking about is getting more from that herd, allowing those cows to milk and getting rid of the quota factor. As I said, there is probably 20% more milk there without a quota factor in any case. Our yields are low and much of that is due to the quota factor as well. There is tremendous potential in that area. However, it does not mean that Ireland will become the new New Zealand. There is plenty of room for other farming activities. The Deputy is correct that it is good to have a good mix for a host of reasons. It is important to have dairy, tillage, beef and so forth.

The Deputy posed a question about the volatility and competitive advantage. The feed price in Ireland as a percentage of our total costs is quite small relative to many of our global competitors. When one looks at some of the competitors in other zones and areas, one can see we have that advantage. There were some predictions suggesting the feed prices will stay at these levels. If they do, it may herald an advantage for us. The problem is that we need good weather to get fodder to feed the animals as opposed to having to buy the stuff in the trucks. That is the reality.

Deputy Barry asked about the Asian dependency. It is important because Asia is hoovering up huge amounts of milk. It has become the most significant outlet for New Zealand dairy products. Heretofore, New Zealand was one of our biggest competitors in the European market. Now, it is our big competitor in the Asian market. I do not believe Asia will ever become self-sufficient. Water is the biggest issue. It does not have sufficient agricultural land. It has land and soil depletion issues and water shortages. That is the case even in some of the surplus dairy countries. In Australia today there is a big debate as to whether people should have a shower or leave the water on the farm for the cows to drink. It is as chronic as that, so an opportunity exists for us out there.

I agree wholeheartedly with Deputy Deering that the soft landing is an issue. We must be careful of the soft landing. The ideal situation for Ireland is that there is a phased gradual increase in milk quotas up to quota abolition in the 2014-15 quota year. That would be the right way. It would devalue milk quotas throughout Europe and assist farmers. We do not wish to pay any more superlevies in this country, especially when we have a strategy for growth. It would appear to be counterproductive to levy our farmers with superlevies in 2013 or 2014 and then take the brakes off in 2015. That does not make sense. There is an interesting statistic. Ireland has paid €850 million in superlevy since quotas were introduced. That is the price of an industry investment by itself, so the Deputy is right to be concerned about the soft landing. If we can reach a stage where there is a gradual annual increase, it could help us dramatically.

I hope I have covered all the questions.

Chairman

Perhaps we could have the other two presentations from Mr. Healy and Mr. Dempsey and take questions after that. Senator O'Neill will have a few when he returns.

Mr. Cormac Healy

I will deliver my presentation as quickly as possible. I will cover the meat sector in the context of Food Harvest 2020, the targets and where we are now. I will concentrate on the beef sector but I will refer to the other sectors which I work for as well, the sheepmeat industry and the pigmeat industry.

First, I will give the committee a quick reminder of the targets. In the beef sector, the target is a growth in output value of 40% by 2020.

In the original Food Harvest 2020 report, we talked about 20% but following that, as was done on the dairy side, a beef activation group was set up to look at some of the more detailed needs and requirements in terms of delivering on the target. The first thing that group did was to recognise that world commodity prices, including beef prices, had moved on. Consequently, in terms of achieving a value growth target, a certain amount of it had been achieved through price alone. That activation group equally looked at the possibility of volume growth, both from the dairy sector and the expansion that will take place there with some additional cows in the system and in respect of the important suckler herd and the potential for some recovery in numbers that had been lost in previous years. In terms of the pigmeat sector, an ambitious growth target of 50% has been set and I will touch on that briefly in a subsequent slide. For the sheepmeat sector, there is a growth target of 20% in output value terms but I make the point, to which I will revert, that the sector itself, both at producer and processing levels, believes there is greater potential therein and considers that up to 45% perhaps could be achieved.

Before I go into some of the specifics on the beef sector in particular, I wish to take a look back at the beef sector itself and what has happened over the past decade. It is useful to reflect on that as we look forward to ascertain what is achievable in Food Harvest 2020. If one looks at the sector over the past decade, back in the early 2000s it was a sector that was a frozen commodity beef export business with a heavy reliance on intervention and on exports to international markets outside Europe with the assistance of export refunds. This has changed significantly and it is worth noting that only two weeks ago, we saw the final setting to zero in Europe of beef export refunds. I think this was the first time in the history of the Common Agricultural Policy, CAP, that export refunds in the beef sector were at zero. It is now a sector that is supplying high-quality fresh-chilled product across the United Kingdom and mainland Europe to top retailers and food service customers. Members probably have seen and heard some of these statistics previously but I note one in five burgers sold in McDonald's throughout Europe is made from Irish beef. Moreover, of every 4 kg of beef eaten in the United Kingdom, 1 kg is of Irish origin. We now are supplying in excess of 70 of the top retailers across Europe and Irish beef is stocked by more retailers than is beef of any other origin in the world, which is a significant achievement.

I will move through the graphic displays in my presentation quickly and the slide on view shows the development in exports. The red bars reflect exports to international markets outside Europe with the assistance of export refunds, while the blue bars reflect exports to Europe. Over the past decade, one can see a continual increase in the relevance and importance of the United Kingdom and European markets. Similarly, the graph now on display shows the penetration of retail markets across Europe and again, over the past decade up to 2011, one can see continual growth in the volume of sales going to retail. If one considers that ten-year period, back in 2001 approximately 27 retailers throughout Europe were being supplied, whereas last year, 75 retailers were stocking and selling Irish beef. During that period, significant work has been done in respect of branding and adding value to our beef. This certainly is the case with regard to adding value in terms of product development and new products. More recently, however, there has been work done on branding both our primary beef, in terms of Irish Hereford, Irish Angus etc. and on the processed meat side. On foot of a significant degree of work, while we remain with the core statistic in the beef sector that 90% of the beef we produce is destined for export markets, last year those exports increased by 15% to reach a level in excess of €1.8 billion. To give members an idea of the breakdown of those sales, the pie chart on the bottom of the slide on display shows that almost 50% of our beef exports go to retail, a further 23% to 25% go to manufacturing and the remainder, or just over a quarter, go to the food service sector. The map in the corner of the slide on display gives an indication of the spread of exports throughout the European Union. Obviously, the United Kingdom still remains an important market and still takes approximately 50% of our exports.

When considering this development over the past decade, what has been its impact? One impact has been on the price return from the market, that is, the price return to producers. During the same period I have covered, that is, from 2001 to last year, the beef price has gone from a level of 240 cent per kilogram to an average year-to-date price this year of 410 cent per kilogram. There has been a significant movement in price, a 70% increase, over the decade. The market has delivered, as that period witnessed a move away from intervention and from a reliance on export refunds to third countries to a closer linkage with the marketplace in Europe and the 500 million consumers therein. As I noted, finished cattle prices during that period have increased by 70% and, more recently, have increased by 30% within the last two years to the tune of an additional €700 million being paid to beef producers over the two-year period since January 2011. Certainly in 2005 and 2006, there was a step change in beef price and in the past two years, there again has been a significant move in beef prices to a new level. The gap with the European Union average certainly has been closed to a considerable extent.

However, in a word of caution before I turn to considering some of the recommendations, one cannot ignore the marketplace either and there are always issues there. Since 2008, we have been working against both the severe impact the sterling-euro exchange rate has had on Irish exports and the economic downturn, both here in Ireland obviously and across Europe, which has had an impact on consumption. It has led to a trading-down by consumers, who are being more cautious and are opting for lower-value cuts, etc. Consequently, this has created its own pressures and consumption and sales volumes at retail level are down in the past two years. In addition, there has been a disconnect between what I mentioned earlier, namely, developments in farm gate price and developments in retail price. I have considered this issue in two ways. If one takes the Central Statistics Office's agricultural output price index and its consumer price index since 2006 when that base period was set, the beef consumer price has moved by 8% while the farm gate or cattle price has moved by 35%. The graphic in the middle of the slide on display shows the most recent two years, in which the blue line reflects what has happened at beef consumer price level, while the red line, which has moved on more considerably, reflects what has happened at farm gate level. Consequently, there are pressures within the marketplace at present.

I will turn to Food Harvest 2020 itself and what it means for the beef sector. The beef activation group that was formed just after the original report was produced sat for a short time, three months, and came up with a series of further refined recommendations that were perceived to be important to achieving the targets for the beef sector. Briefly, the group considered the importance of the suckler herd as a bedrock of the beef sector and a platform from which much Irish beef is marketed, as well as the critical nature of the suckler cow welfare scheme to the aforementioned suckler herd. It considered policy issues in respect of the CAP, as well as technical efficiency on-farm and I will revert to some of these issues briefly. The closing of the gap with European prices was perceived to be important in respect of giving the confidence to move on and deliver on the growth targets. It also identified the quality payment system and the role it has played in rewarding quality and I have appeared before the joint committee to discuss that issue in the past. It also identified areas of young bull production, on which I will touch and which may have been something of a newer development in the Irish beef sector, as well as setting important recommendations on breeding and the progress that can be made from the breeding side.

That is copying much of what has been done in the dairy sector, where much progress has been made in breeding and genetics. We hope much of that can be replicated in the beef sector. Animal health is an important area as we must remove some of the underlying disease problems causing inefficiencies on Irish farms. There is also market access to consider.

The suckler cow welfare scheme is particularly important and we want it retained. It is under pressure in the current budgetary climate but it is important to assist and maintain the numbers we have in the suckler herd. The Common Agricultural Policy has already been discussed but we all recognise the issues with securing a strong budget for CAP and Ireland's envelope. I do not believe we will see disagreement on that. There are dangers with regard to a flattening of the single farm payment and we are concerned about that.

It is accepted that "greening" will form some part of CAP in the context of European taxpayers and showing the dividend from an environmental or climate change perspective but the level of budget currently being assigned to it is significant. There must be a re-coupling element and the last CAP reform went too far. We have seen the impact not only in Ireland but across Europe for the livestock sector, including beef and lamb, which have declined since the last CAP review. Do we want a CAP that continues to see a decline in European beef and lamb sectors in Ireland or across Europe? The evidence is that the sectors have declined considerably. Current proposals mean some members are permitted to have 5% re-coupling of budget and others may go to 10%, based on decisions they were forced into in the context of the last CAP.

With regard to the discussion on coupling and greening, if we want to see real sustainability or measures in CAP tackling climate change, why not consider an element like a finishing premium that would encourage finishing animals at a younger age? There is a direct link in terms of carbon output and footprint to the age at which animals are processed, so perhaps that could be considered.

In as much as market price is critical and will send confidence to producers, much can be done behind the farm gate and progress should be made in that area in the beef sector. Some projects have been covered by the BETTER beef farms area and a new discussion group has been established by the Minister. We must see progress behind the farm gate in technical efficiency. I often refer to the statistic that in the sucker herd, there are 78 calves per 100 cows each year, which is not good. If progress can be made on this to a modest extent, even where there would be 85 calves per 100 cows, there would be significant benefit to the producer's bottom line. Equally, there would be more animals in the system as well. We must focus on the area and the issue is not all about price or the market.

We will always refer to the market access point and maximising our options in the market has the goal of maximising the return possible from that market. In beef we have target markets; we want access to the US, Chinese and Japanese markets. We would have been in markets in Japan and the Persian Gulf in the past but we remain locked out because of legacy issues from the BSE days.

Quality assurance is an absolute priority and a prerequisite of the top customers throughout Europe. We must have all producers involved in quality assurance schemes, which have an important sustainability dimension tied in. That is a very positive development which we will rely upon for Irish food and agriculture. Producing what the market requires is important; grass-fed prime beef from steers and heifers is the unique selling point of Ireland and our tradition. More recently there has been some movement to young bull production, although I accept that is producer-led and considers the type of returns that could be achieved. It is not where Ireland's processing sector will see its future in Irish beef sales in the European market. We must also focus on other parameters, including age, weight etc., that I do not need to explain in detail.

There is significant potential in the beef sector. We have increased cow numbers from the dairy sector but we hope to see some recovery in suckler cow numbers. There has been evidence of a stabilisation of numbers and some rebuilding of the beef herd. Technical performance can also be improved and with the increased number of calves, much of the industry, working in conjunction with Teagasc, is considering new production systems for beef from the dairy herd.

The beef activation group report indicated that annual beef slaughterings in Ireland can move to 1.8 million or 1.85 million head and beyond, and with that there will be a jobs dividend, which has been referred to already and is included in the overall figures from Food and Drink Industry Ireland. European beef production is falling and that trend looks set to continue. People are talking about almost a 5% reduction in European beef production, and we are the major suppliers into that market of 500 million people. That is where we have strong ties and that market is on our doorstep. There is also a growing global population with protein demand following, which will keep our key competitors in South and North America focused on other regions of the world. There is a strong message and story around sustainable production. There is significant advantage to be gained from technical efficiency on Irish beef farms.

I will touch briefly on the sheepmeat sector. The growth target set for the sheep sector in Ireland was 20%, and the sector has come through significant decline over the last decade. Since 2005 we have lost 1 million ewes from the breeding flock, bringing it down to just over 2 million. In the past two years, with positive price development, we have seen a recovery and we hope the flock can grow to 3 million ewes again. The farmers and industrial partners considered submissions to Food Harvest 2020 and they believe there is more potential than the 20% figure indicated by the report.

Sheep enterprise is shared on most livestock farms in Ireland, and there is not a large number of specialist sheep producers. There is potential for the sheep sector in that respect. Technical efficiency may help in this regard, and recently there has been developments with Sheep Ireland on a breeding programme. There has been assistance from farmers and processors in that regard. We must have a renewed focus on quality in the area and international market access will be critical.

There is a 50% growth target set for pigmeat in Ireland. Much of this was to come from improved technical efficiency, specifically with regard to the number of pigs produced per sow per year. Ireland led the way in this respect in Europe for many years but we fell behind in the past five or six years. Progress is being made, especially in the past two or three years.

Another aspect was the potential to add a further 150,000 sows to our sow population. It is important to point out that considerable progress has been made in the pigmeat sector. I appeared before this committee in the past when we examined the aftermath of the dioxin contamination but since December 2008 significant progress has been made. The volume in terms of the numbers processed in the country has increased by 19% from the base period considered in Food Harvest. Prices have increased by 25% but of all sectors this one is still under critical pressure because of the price of feed and the reliance on feed.

Exports of Irish pigmeat to international markets since the base period, which was 2007 to 2009, have increased by more than 100%. Therefore, huge progress has been made. There are some immediate challenges. We are in the middle of a major feed crisis for the pigmeat sector but the price has responded.

Another issue is the sow housing legislation, the welfare legislation, which will come into effect on 1 January next, and it is one to which Irish producers are significantly responding. A grant system was announced by the Government and the take-up of it has been considerable. We are working our way towards being in compliance and have no option other than to be in compliance. Significant progress is being made on that.

Market access remains critical. It has been shown that once markets have been open internationally pigmeat is supplied to them. Of all of the markets, the home market is particularly important to the Irish pigmeat sector. We have lost some of the premium in the home market and that is an issue for us in an area that is under particular focus at present. The sector at farm level and processor level has been meeting with Bord Bia to discuss those issues.

I thank the members for their time and hope I did not continue for too long.

Chairman

I will call Mr. Dempsey to make his presentation following which I will take questions from members.

Mr. Shane Dempsey

I wish to describe the consumer food sector, the ambitious goals set out in Food Harvest 2020 for the sector and the challenges, some of which have been mentioned, that consumer food companies face in achieving these targets. Essentially, prepared consumer food companies produce the products that are to be found in the middle aisles of the supermarket. They cover a series of categories including beverages, ambient, confectionary, cereals, ready-meals and other convenience foods.

The Food Harvest 2020 strategy states that the continued development of value added foods on the home and international markets is key to delivering a sustainable agrifood economy. The idea is that the stronger the cadre of consumer food companies we can create over the next decade, the more value we can retain from the projected output increases of the dairy and meat sectors envisaged in Food Harvest 2020. In addition, because the sector processes a great deal of our domestic raw materials, it supports wealth and employment across communities and towns throughout the country. Our goal must be to take the vibrant SMEs and consumer food companies and create some more international companies and many more exporting companies. That behoves the Government to ensure that conditions are right in the domestic economy to facilitate this growth.

The slide shown here will give members a sense of the diversity of the companies within the consumer food sector. They will note some of the globe's leading food brands alongside Ireland's most well known brands and food companies. In addition, Ireland has a thriving artisan and food micro-enterprise culture. These are prepared consumer food companies and they provide huge growth potential for the future. The commonality between all these companies is the domestic grocery sector and be they international or artisan companies, they require a healthy grocery sector. Indigenous companies use the sector as a springboard for export growth, as my colleague, Paul Kelly, said. Equally, the Irish offices of global companies such as Mars, Nestlé and Coca-Cola also require a healthy sector to generate the sales required to retain investment in jobs in Ireland similar to the investment we talked about in regard to the Kerry Group earlier.

This sector, like many others, is suffering greatly. In 2008 when the downturn started to really bite and sterling depreciated by upwards of 20%, the sector underwent structural changes. The FDII estimates that in the 2008 to 2009 period more than 3,000 jobs were lost in consumer foods. In addition to those job losses, we saw a further downsizing of the footprint of international food companies here and the pressure in the sector remains intense. Consumer sentiment is down and when it is down prepared foods companies suffer greatly.

The third slide outlines the Food Harvest 2020 strategy and how it envisages that prepared consumer food companies will contribute to the ambitious targets within a sector that is called the value-added food and beverage sector. This category includes four main pillars, namely, the infant formula, functional foods, beverages and prepared consumer foods. The strategy predicts that this cohort will achieve a growth of around 40% working off a 2008 baseline. We in the Consumer Foods Council have worked to identify and put figures around the consumer food sector but it is a diverse and dispersed sector. The figures we have come up with we believe understate the strength of the sector and members will note it boasts 265 companies, employs 12,500 people, has a gross output of almost €9 billion and exports of €1.4 billion. It is quite a strong sector and has a good solid base to build a sustainable agri-economy, as envisaged in Food Harvest 2020.

In 2011, the Consumer Foods Council, at the request of the Department of Agriculture Food and Marine's high level implementation committee, sought to establish deliverables specifically for the prepared consumer foods sector and they are outlined on the slide. Those are a 40% increase in output, employment growth of 3,000 net and a 2% increase in business expenditure on research and development. We believe those targets are achievable on the condition that Government and State agencies work with industry to deliver a number of policy interventions in the short term. For me, the success of Food Harvest 2020 should be measured by the number of food SMEs we can transform over the next decade into international companies of scale with diversified export markets and internationally recognised brands. That should be measurement.

The key Government action required if we are to achieve the vision set out in the Food Harvest 2020 is that the Government needs to support the sector by providing access to finance for food companies. Simply put, there is a market failure in the provision of access to finance for prepared consumer food companies. Due to the traditionally longer term returns from investment in food companies, sources of finance such as venture capital are not available to food companies. That in addition to the general lack of available credit, which every sector is experiencing, means that finance is not available for companies willing and trying to expand.

The FDII believes that a sector specific development fund should be established by Government. There are approximately 70 State-run development funds at present but the majority of them are sector specific and focused on technology and high technology sectors. None is focused specifically on food. If we are serious about food and building a sustainable agri-economy, the Government should establish this fund and insist that existing and upcoming development funds have food industry expertise and that they are incentivised to invest in food companies. In addition to supplement these actions, a strong suite of personal taxation incentives should be put in place to increase investment in food companies, and I can outline those at a later date if the committee is interested.

As Mr. Paul Kelly and a number of my colleagues have said, the domestic grocery sector is the springboard for growth for consumer food companies. Unfortunately, the domestic grocery sector is in intensive care at present and its prognosis is not good. This is due to the imbalance of power in the sector, which Deputy Ó Cuív and others have mentioned. Large retailers are also suffering but they are able to offset the costs and risks of this recession back onto suppliers and producers. The introduction of a statutory code of practice and an adjudicator is essential so that all stakeholders can benefit from the grocery sector now and into the future. Without a grocery sector code of practice, retailers will be able to continue to abuse their de facto dominant position.

With a sector in such difficulty and with such low margins, it is vital that the Government does everything in its power to reduce costs and boost competitiveness. Future policies, such as VAT increases, the mooted packaging tax or any other consumption taxes are to be avoided. These would have the effect of further depressing consumer sentiment.

At present, we are seeing many retailers draping themselves in the Irish flag to monetise the consumer's admirable desire to buy Irish and support local jobs. This is a disingenuous practice and it should not be allowed. The Government should insist that large retailers meet a number of concrete criteria before they can claim to support Ireland or the Irish food supply base in their advertising and marketing. Full compliance with the code of practice should be the basic requirement, but retailers should also be made to prove to Government or a Government agency that they abide by prompt payments legislation by paying all their suppliers within 30 days before they can utilise the Irish flag or make such claims. This is vital for small businesses that are suffering and cannot afford to extend the credit terms demanded by retailers.

Another key issue for consumer foods companies is branding. Reputation is a huge part of that. These are vital selling points for consumer foods companies. The obesity crisis is a major societal challenge for Ireland. However, the Government must ensure that its approach to obesity does not damage the reputation of Irish food companies. We believe one can address the obesity issue by working and engaging with industry to achieve health objectives. Where the Government or its agencies do not engage with industry on these issues, bad policy generally follows. I do not need to remind the committee of the Broadcasting Authority of Ireland's, BAI, recent creation of a children's advertising code that will ban the advertising of cheese to children, a key population group that suffers from calcium deficiency. Food and Drink Industry Ireland, FDII, made many attempts to meet the BAI to discuss this issue but we felt our submissions were generally ignored.

The Department of Health is currently examining a proposal to introduce a 10% excise duty on soft drinks. The committee should make no mistake that this is the thin end of the wedge. The Minister for Health has informed industry that he will attempt to tax other nutrients such as fat, saturated fat and sugar in general. Unfortunately, there is no evidence that such taxation, whether on a nutrient or product basis, reduces obesity. In our view, tax is a fiscal measure affecting wealth and not health. In addition, this would be a regressive tax affecting people who spend a higher proportion of their household budgets on food and, generally, come from lower socioeconomic groups. In other European countries, such as Denmark and Italy, the political systems have unanimously agree to rescind taxes on saturated fat and sugar.

The solution to obesity is too complex to be solved by a tax or advertising ban. It will only be solved through collaboration between all stakeholders, including industry and Government. I ask the committee, as policy makers, to insist on policies that engage with industry and do not damage the sector's competitiveness.

The Department of Agriculture, Food and the Marine has invested more than €7 million of taxpayers' money for the Irish universities nutritional alliance to carry out world class health population research into the Irish population. This is the envy of the rest of the world. However, these data are being actively ignored by the Department of Health and other Government agencies tasked with creating health policy. This should not happen. These data are considered world class and should be the basis for our health policy.

The consumer food sector is fast moving and must adapt to rapidly changing consumer demand. Innovation, therefore, is the lifeblood of the consumer food sectors. However, spending on research and development and innovation in the sector is low, despite the availability of generous grants. Our members tell us uptake is low because the engagement process is too cumbersome for small companies. We propose that the Government task Enterprise Ireland with appointing an innovation network manager who would focus on connecting food companies with available appropriate funding. This model has worked in other sectors, such as software and tech.

The prepared consumer food sector is eminently placed to deliver growth. The industry has a clear strategy to align with Food Harvest 2020 goals. Part of this is an alignment with Enterprise Ireland, Bord Bia and other State agencies. That is key. We ask the committee to support the sector, across the issues I have mentioned, in its plans for growth.

Chairman

Thank you, Mr. Dempsey, for a thought provoking presentation. I regret that more members were not present. This was largely because of a Seanad debate. You have certainly given us food for thought, if you will pardon the pun.

Deputy Martin Heydon

I thank the witnesses for their presentations.

Mr. Cormac Healy said one cannot ignore the marketplace. He presented figures for the increase in beef prices to the consumer as opposed to cattle prices and said there was a deviation there. Would he accept that the increase in cattle prices is from a very low base? Mr. Healy says this disparity has been an issue since 2006. Does he feel the farmgate price needs to drop further, considering it has been slipping back in recent times, or would he acknowledge the considerable gap between what the consumer pays and what the producer gets?

I also thank Mr. Shane Dempsey for an interesting presentation. He speaks about the importance of genuine collaboration with the industry on the obesity issue, and I accept his point about taxation. Does he think there is not genuine collaboration at present? What does he consider needs to be done in this area?

Senator Pat O'Neill

I apologise for having to leave the meeting to vote in the Seanad. However, I heard most of the presentations.

One of the targets of Food Harvest 2020 is to produce an extra 2.75 billion litres of milk, which is a 50% increase in production. Mr. Healy said that because of the constraints of the quota regime our milk production is now below the EU average. How many more dairy cows will be needed to produce the extra 2.75 billion litres of milk? Could I have an answer to that question before I ask the next one?

Mr. Michael Barry

It is a very fair question. If the price of feed continues at the current rate, our expansion model will be one of more cows and low inputs. If the price of feed normalises or comes back it will be more attractive for farmers to expand yields.

The current thinking from Teagasc is close to a 20% increase in the herd. If one takes it there are approximately 1 million cows at present, that could be as many as 200,000 cows. The feed is the key issue.

The other side of that is the question of where land prices will go. If there is a limitation on land and if the price of feed has started to come back down, that would suggest it is easier to retain one's herd size and go for extra production. One is talking about expanding production. The Senator has asked a very important question. The European average lactation length is approximately 300 days. In Ireland today, we are milking an average of 260 days. There are 40 days extra production that could be taken from the current herd, and that is where we will get much of our expansion. If we have the opportunity to do that by calving them earlier and keeping them a little longer towards the end of the year, it will give a flatter production curve. There will be less of a demand for investment requirements in terms of stainless steel. That would mean it would not be necessary to have 200,000 extra animals to achieve the goals. One could probably do it with half that number.

Senator Pat O'Neill

The follow-up question for Mr. Barry relates to the 40% increase in beef production. Let us take the figure of 200,000 extra cows. Unless we go into genetics and all the calves are one sex, there will be 100,000 extra dairy male animals. How will that fit into the production of beef and the 40% increase in production? I have a fear about quotas disappearing in this country. Mr. Barry expressed it with regard to the suckler herd, that we will see a major decrease in that herd. Land is a finite resource. If it is lucrative to go into milk production, although nobody can predict what the world market will be, will we see a drive to stock every piece of land that comes on the market with black and white breeds, to the detriment of the suckler herd? I mean no disrespect to Holstein or black and white breeds. There could be an extra 100,000 male dairy-type animals coming into the beef herd. How will we achieve our targets for 2020 if that happens?

Chairman

Have you any more questions?

Senator Pat O'Neill

I will ask them again. I want that question answered first.

Chairman

In fairness, everybody else has questions.

Senator Pat O'Neill

I know, but I am anxious to get that figure. I will ask more questions later.

Chairman

I will allow that question to Mr. Barry.

Senator Pat O'Neill

Will I continue my questions?

Chairman

Yes, please, so we can bank the questions.

Senator Pat O'Neill

Some 90% of our beef is exported. I am amazed that the figure for Germany is only 15,000 tonnes. I thought Germany was one of our major competitors. Does the 90% include live export of animals or is the value for beef carcass or finished product included?

Deputy Heydon raised a point. This is a public forum and what is said is on the public record. Mr. Barry produced a slide showing that finished cattle prices are up by 70% from 2001 to 2012, with a more than 30% increase in two years. Deputy Heydon raised the issue of the base from which they were increasing. One has often heard the phrase, "Lies, damned lies and statistics". We can all produce statistics to prove anything. I can produce statistics. With regard to the 70%, one could say there was only a 35% increase in the nine years prior to 2010. That is a statistic. I remember farmers, and I was one of them, demonstrating outside meat factories about the price they were being paid for beef. That was in the last ten years. It proves that the base price the statistic is coming from is very low. Mr. Barry says we are closing the gap on the EU average. We might be closing that gap but we still have one of the lowest prices per kilo of beef in the EU.

The slide Mr. Barry produced relates to price increases. I would like to see the slide relating to the cost base and how every industry's cost base has increased. Over the last five or six years the input costs in farming have been enormous in the context of that increase. Perhaps I should have left this meeting and gone to get the information on how much the inputs of farmers have increased. It is unfair to put it on the public record that the price of beef has risen by 70% over 11 years, with a 35% increase over the last two years, without also referring to the fact that costs have also risen by nearly an equal amount.

Chairman

The fact that you made that point will also go on the public record.

Deputy Pat Deering

To follow the previous remarks about beef prices and the comments of Deputy Heydon and Senator O'Neill, there has been a very welcome increase in the past number of years. However, beef production is at a crossroads at present. Perhaps I am being pessimistic, but a bubble has been created. The costs now are quite prohibitive. If a farmer goes to the sales tomorrow morning to buy replacements, he or she will have to pay a substantial amount of money to replace what he or she might have sold. There are also the input costs afterwards which, as has been mentioned, are prohibitive. This is a disincentive towards achieving the hoped for 40% increase in production under Food Harvest 2020. I might be pessimistic in that regard. The price increase is welcome but it is coming from a low base. It is a fact, however, that the cost of production is coming from a higher base now than previously discussed. As mentioned earlier in respect of dairying, the cost of feeding this winter will be enormous compared with previous years. Any kind of feed is more than €300 per tonne, which is very serious. I believe beef production will be reduced rather than increased because of this situation. What are the witnesses' opinions on that?

Senator Susan O'Keeffe

I apologise to Mr. Healy for having to step out and miss his presentation. When he talked about the beef sector he did not talk about inputs. I do not know whether that is relevant. I know how hard it is to try to decide which parts to discuss, but in the interests of setting the record straight about what is happening in the industry, it might be useful to shed some light on that.

My colleague, Senator Mary Ann O'Brien, asked me to convey her apologies for her absence but she asked me to ask a question about the fair trade legislation. It is probably best directed to Mr. Dempsey. She asked what that legislation might comprise. Mr. Dempsey gave us quite a clear picture of that. Could his notes or presentation be made available, in light of the fact that some members of the committee are not present? The slides are available but the witness obviously elaborated, so would that be possible? Some of what he said is challenging and interesting. Senator O'Brien wanted to know if Mr. Dempsey's organisation would be conducting a detailed briefing in advance of the grocery competition authority legislation this term. She also wanted to know why the Lily O'Brien's logo was missing from the slide. As she said: "Never miss an opportunity for a plug." Who could blame her?

The issue I wish to raise with Mr. Dempsey is obesity. Clearly, it is an issue that will tax all of us over the coming years. He is right to say it is a complex issue. In many ways, that word could also be taken to mean that the things being offered as solutions, such as a fat tax, sugar tax and so forth, are not attractive to the industry. His default position is, therefore, that it is a complex issue: "We do not like that solution so we will call it complex and wait for a different solution that suits us better." It is something on which every side, including the political one, will have to collaborate. I accept that. However, there has been a great deal of evidence to show that some taxes work.

I do not suggest the imposition of a blanket tax because I agree with Mr. Shane Dempsey that this is complex. Nevertheless, I note the Seanad Public Consultation Committee held hearings on cancers and on how it is an undisputed fact that in the case of 30% of cancers, lifestyle changes can contribute enormously to the prevention of those so-called common cancers. Moreover, lifestyle is largely down to diet and exercise. As the food industry knows all this, I get the impression it is slightly out of step on the health issue and is waiting for a solution that would be more cost-effective for the industry. I wonder about that and about whether we are genuine about caring about obesity and the enormous cost it has across the board for all taxpayers.

As for whether the industry must take more of a lead in this regard, I have been paying attention to this issue and believe the industry has, in a sense, been waiting and therefore opts for the word, "complex" to enable it to sit back and wait. I also agree with Mr. Dempsey that it must be based on scientific fact and so on. However, as my colleague, Senator O'Neill, referred to damned statistics, lies and so on, while there is of course a body of evidence to suggest such taxes do not work, there also is a body to suggest they do. While Mr. Dempsey has rightly pointed to the ones that show they do not work, I rightly suggest a body of evidence exists to support them.

This issue will be key to the manner in which the industry develops in the near future. As a food scientist, I am old enough to remember when someone came to talk to us as students in University College Cork about the idea of food additives and flavourings and how novel that was at the time. I am showing my age but that was at a time when it was almost a new thing to add things to food. I am not quite that old but am old enough to understand that as we have raced away with technology, which has brought enormous benefits in respect of food, there is a down-side that is obvious in the supermarkets. Some food with fat and sugar is cheaper and there is a real danger that this is not the direction in which we should be going. I do not expect an answer straight away - I do not believe there is one - but I wish to ascertain the degree of responsibility in this regard the representatives of the food industry believe themselves to have. Does it have 20% or 50% responsibility in respect of how we as a community should proceed into the future? In the interest of the health of everyone present at this meeting and of that of their children and so on, how should we proceed and where does the food industry sit in that regard?

Senator Pat O'Neill

Mr. Cormac Healy stated the European beef herd is reducing. Can he provide members with a reason for this?

Chairman

As I am conscious that members may end up being called to a vote, I intend to bring in the witnesses. Notwithstanding the presence of only four members, the ball has been hopped back fairly to the witnesses' side of the net to respond to some challenging questions. Mr. Cormac Healy should respond first, followed by Mr. Shane Dempsey.

Mr. Cormac Healy

I will try to go through all the questions. First, Deputy Heydon made some comments about the interaction between farm gate price movements and the retail price and asked me whether I felt, from an industry perspective, that farm gate prices had to fall further because of the aforementioned disconnect. I showed the trend on both price lines in the context that we are in a difficult climate. There are difficult economic situations, austerity measures, etc., within many of the marketplaces in Europe into which we are selling and consequently, there is pressure on price. It is not that market prices can increase indefinitely, as one must bear in mind the external factors. In response to the Deputy's question, I do not believe that farm gate price must come back but it is a factor that market price cannot continue to increase without taking account of marketplace realities. Apart from the economic downturn, the other major pressure one meets going into the marketplace - this has been discussed at length previously - is retail power. One of our strong points, in terms of future sustainability for our current market reach, is that we are servicing the retail sector, that is, to consumers and the top retailers. Nevertheless, as this joint committee has heard, there are challenges in dealing with retailers and in trying to press through price increases that are needed.

In touching on some of Senator O'Neill's points, I do not for one moment discount or ignore the fact that input costs have increased. Equally, my brief at this meeting is to outline what has happened in the beef processing sector over the years. It is very easy to throw mud at something but it is important to note - as I tried to encapsulate in some of the slides - there has been a significant transformation in the sector over the past decade. It has moved from a lower-priced commodity frozen base to one of which we now should be proud, involving top-quality fresh Irish beef going to European consumers. Moreover, this is a sustainable transformation because that market exists and in the context of so doing, although one does not often hear about it, there has been significant price movement. While I accept that input costs have also unquestionably increased for producers, in response I note we also must focus on on-farm productivity and technical efficiency. There are areas in this regard where progress can be made. Several of the larger processors in the industry have been involved in a scheme with Teagasc and the Irish Farmers' Journal, namely, the Better Beef Farms programme. These farms have shown the kind of improved gross margin that can be achieved by a focus on usage, on maximising the usage of grass, by increasing output and keeping a handle on cost. It is also in our interest that farmers make such progress and improve the bottom line.

A point was made about the target and whether the 40% was achievable. One point I wish to clarify is the target is in respect of growth in value output and not purely in terms of volume growth. It does not suggest a 40% growth in volume. Mr. Michael Barry can come in on this but the dairy sector is contemplating a volume increase of 50%, while the beef sector targets pertains to a value of output increase. Consequently, it is a combination of price increase, the value of our actual product, as well as the premiumisation of Irish beef sales, in addition to some increase in volume. This leads me to Senator O'Neill's observations on the 100,000 dairy male calves. There will be that number, if not more. I believe Mr. Michael Barry referred to approximately 200,000 extra cows and there probably will be that increase in any event. Processors are already working with Teagasc and farmer groups to study different production systems to identify what will best fit an increased volume of black-and-white animals in the country and what will best get those to market. The aim is to identify at what age and what will work for us in terms of a sustainable production system in the future with a view to retaining those animals in Ireland, to processing them here and to providing the jobs required to process them.

Mr. Michael Barry can intervene in this regard but not every farmer in Ireland will be milking cows after 2015 and not every acre of land in Ireland will be suitable for dairying. The Senator made the point that every piece of land that comes up will go the dairy route. However, there are logistical issues in this regard in respect of fragmentation of land and land parcels. The dairy man will want the land next door, as opposed to several miles down the road. In that context, we are confident there is and will continue to be a significant beef sector in Ireland. Moreover, we believe there can be significant suckler cow numbers. There will be a challenge and we must see how this all plays out. There will be an increase in dairy cow numbers but equally, we believe this does not need to be at the expense of suckler beef output.

I again refer to some of the progress regarding efficiency that can be made on farms. If I may take up another point, the Irish finished cattle beef price is not the lowest or indeed one of the lowest in Europe, it is one of the highest. For much of this year, the Irish finished cattle beef price was running in excess of 100% and up to 107% or 108% of the European average beef price.

That is European Commission data, which is on the record. That is important to point out. It is important to highlight that Irish beef prices have moved on to a new platform, driven by opportunity and demand in the marketplace, the positioning of Irish beef and the work which has been done over the past decade in positioning Irish beef in Europe.

There was a question on why EU beef production is falling. As one moves to southern Europe, one sees it is not a grass based but a feed and a feedlot based system, so they have felt price pressures in their system. The actual change in CAP structures and decoupling in many member states has driven an exodus from the beef sector. Another factor, which will always be at play, is that in Europe, two thirds of the beef produced comes from the dairy herd. It is not like in Ireland where we have a 50-50 split at the moment between dairy cows and suckler beef cows. In Europe, 66% of overall beef production comes from the dairy herd. One will have seen a continual decline in dairy cow numbers with the improvement in productivity, etc., over the years. That always has an in-built impact on the dairy herd.

I did not mention imports. We have addressed them before, so one is right to ask what has happened but I am not sure whether that is from an Irish or an EU perspective. In Ireland, there is not a major beef import issue. As I said, of the beef we produce, we export 90% of it. Beef imports into the European Union have declined in recent years and that has been a factor in the price movement. The price movement in Ireland would not have been possible without movement in other parts of Europe as well. Imports of beef into Europe from South America, in particular, have dropped considerably over the past two to three years partly because of veterinary and disease restrictions but equally because of tightening in supply from supply states in South America. At this point in time, it is less of a factor in the trade.

Chairman

A vote has been called in the Dáil and there are three Deputies here who must vote. I do not want to cut the witnesses short nor do I want to delay them for 15 minutes to respond to a few questions. Mr. Barry wants to come in briefly. I will then call Mr. Dempsey. We will try to get through the questions if that is possible. I do not want to rush the witnesses but if they are happy enough, we will continue.

Mr. Michael Barry

Let us not underestimate the possibilities and opportunities from genetic improvements. Some 15 or 20 years ago, Ireland was dependent on imported genetics. We have now become a world leader in genetics and the world of sexed semen is now a commercial reality. There is a tremendous opportunity there. We will see a decline in dairy farm numbers and a new activity which will open up in the coming years is contract rearing of dairy herd replacements. That will be a critical opportunity and a very interesting enterprise for farmers. There are good opportunities there and again it is a positive outlook.

Mr. Shane Dempsey

There has been engagement with the Department of Health and other health professionals but the collaboration has been piecemeal to date. A policy objective is created and the food industry is brought in to comment on it. It is not part of an overall coherent whole of society approach to deal with the complexity to which I will address shortly. We are trying to establish a collaborative platform with the Department of Health and with the Government. Industry and FDII members have committed to putting significant resources into research and other initiatives, including reformulation to address the obesity issue wherever they can.

We have seen the impact of the BAI's advertising regime. Taxation will be another disaster if it is brought in. We ask to be brought into the process earlier. We have bona fides and have done a huge amount in terms of reformulation. Some 80% of my members have reformulated. They have spent millions of euro on that and on a producing healthier, or as it is termed "better for you" products and variants. They have essentially removed transfat from all their products. The salt reduction programme is considered a huge success by the FSAI. Individually, they spend millions of euro supporting healthier initiatives. We have bona fides there.

We are asking to be brought into the process earlier. We can help to create health policies that achieve health objectives without damaging the competitiveness. We are asking for a responsibility-type deal which members might have seen in the UK, or a version of that.

I would say to Senator O'Keeffe that we would be delighted to utilise the Lily O'Brien's logo. We will talk to her colleague about membership at a later date.

Senator Susan O'Keeffe

A fair question.

Mr. Shane Dempsey

When we say complexity, we get accused of obfuscation. If one takes the example of a 10% tax, due to the market, the conditions in the market and retailer buying power, the economists believe one may get a 7% increase in price to the consumer. That may or may not be passed on to the consumer by the retailer; they will set the price. The products in question may be offered in deals, so the consumer feels no different. If it is passed through at a full 10%, one may get substitution effects where certain people pick different products or replace or downgrade on brands for lower quality products. In terms of complexity, if the price is too high, one may drive black market and cross-Border shopping. That leads to economic damage and job losses. Job losses and long-term unemployment are also a predictor for obesity and other non-communicable diseases. Overarching all of that, 60% of people do not drink soft drinks.

There is huge complexity. We need to bring everybody into the room at the outset to create a whole of society response. That is not view asserted by the industry but by the WHO, the CMO himself and other individuals.

In regard to fair trade legislation and a briefing, we would be happy to do that and to talk to any groups.

Chairman

I thank the witnesses. The meeting has been very informative and thought-provoking. Next week, Bord Bia and the Irish Dairy Board will attend the committee. The farm organisations have been in attendance. I see a common sense of purpose between the producers and the processors in fighting the distortion in the market. It has been a common theme in all four presentations. It gives an extra sense of purpose to our advocacy as parliamentarians to have that code of practice brought in on a statutory basis.

The committee has highlighted the obvious collision course between climate change objectives and Food Harvest 2020. We must look at the statistics, the one in eight versus the one in eight in heavy steel production. Our statistics nationally from agricultural output will be skewed heavily. I refer to the 20% under production, or under EU average, which is probably 30% under production given that we can produce more within the existing herd, which does not mean any greater output of greenhouse gas emissions. There is much information here which we intend to bring, by way of a report, including our findings on the whole process, to the Minister. We would be happy to submit it the witnesses. I again thank the witnesses.

Senator Pat O'Neill

I thank Mr. Healy for the other statistic on the average beef price.

Chairman

The Senator was determined to get a word in.

The joint committee adjourned at 5.10 p.m. until 2 p.m. on Tuesday, 16 October 2012.