It is a great honour to come before the committee today. I wish to warn everyone that there will be a small amount of repetition because I will be making some of the same points as previous speakers. I will commence by making introductions. I am a dairy farmer operating in Ireland but I also have interests in the United States and New Zealand and I do a little work in Chile. Mr. Hurley was dairy editor of the Irish Farmers' Journal for 31 years.
I want to talk about the specific difficulties for dairy farmers in 2015 and place these in the context of ongoing measures. We are of the view that everything fits together. Our first slide shows the price of milk in the period 2005 to 2015. Members can see the level of volatility. In 2009 the price was 22.6 cent, whereas in the previous two years it was much higher. We are of the view that the price in 2015 is going to be way down. Again, in the past two years it was much higher. We do not know what the position will be exactly, but this pattern is likely to be repeated every three, four, five or six years.
We would like to refer to what we term the grass-poor route. When quotas were effectively removed in Northern Ireland in 1995, people brought heaps of stuff onto their farms, racked up their costs and moved away from grass.
Their costs would increase from 30 cent to 35 cent a litre. They will be in deep trouble this year. We are probably advocating for the need to go the grass-rich route, which is probably about 70% to 75% of the diet. It takes a lot of skill on the part of farmers. We want farmers to get help to enhance their skills in those areas.
I refer to specific difficulties for dairy farms in 2015. The superlevy will be perhaps €100 million. There may be a milk price drop of 30% from 27 cent to 23 cent; we do not know. There will be growing debt-to-fuel expansion and tax bills next November will top up on a very good 2014. Many farm families will have serious cashflow difficulties in 2015, in particular if a low milk price year coincides with that, as it did in 2009. Many farmers took two or three years to dig themselves out of a hole. That may or may not happen again. The actions of the Irish State, the Government or State bodies could be considered to alleviate these cashflow problems. Lobbying in Europe has been mentioned. I will leave that to ICOS, the IFA and the ICMSA.
Banks need to be considerably more flexible and I will give two particular examples. The Teagasc funding needs to be maintained, and possibly increased, in terms of upskilling existing farmers and adequately training young farmers coming into the sector. Many people are very happy with the state of training, but I question that quite strongly.
We will be hit periodically by very low milk prices. Do we have the necessary risk management tools in place? The US has wheeled in some risk management tools, to which Mr. Keane referred.
Sometimes it is useful to look back as a possible predictor of the future. I read Des O'Malley's book during Christmas, in which he said he was disappointed with the Irish response to EU membership. I would contend that the facts do not support that statement. In the period 1964 to 1974 Irish milk production jumped by 59% and from 1974 to 1984 it jumped another 76%. In that 20-year period Irish milk production almost trebled. There was hugely enhanced knowledge and cutting-edge world class research at Moorepark.
If we follow sensible policies we can do at least as well over the next 20 years. Looking forward to 2020, an increase of 50% will not be a problem and is very close to being a done deal. Unless policies are sensible, we may end up like New Zealand where 25% to 28% of farms run into problems. We need to ask whether we should put some sensible policies in place. The real challenge is doubling production by 2025 and trebling it by 2030. It is a question of whether we will have a superb dairy industry in the future. We will have a very good dairy industry, but we could have a superb one.
On rebuilding a prosperous Irish rural economy, Dublin is flying ahead, as we all know. Many areas of rural Ireland are still in recession. We have to build on sectors of comparative advantage which can transform the rural economy. In terms of tourism, the Wild Atlantic Way is superb and other ideas like that would be wonderful. A major plank should be a flourishing dairy industry.
What is the major prize? Dairy exports at constant prices could be trebled from €3 billion to €9 billion. Unlike multinationals, which are very welcome, the money generated from exports of dairy products largely stays within the State. It whirls around and creates many jobs.
It is predicted that if we trebled production, the number of jobs in the dairy service sector would double. Dairy farm incomes would increase by €560 million per annum. It is calculated that the rural economy would increase by €4.25 billion every year. It would be a rural stimulus. It would create opportunities for young people to get into farming and for the beef and tillage sectors, which are currently losing money. It is a major prize.
I apologise if the next slide is slightly technical. It refers to a range in production costs and percentage grazed grass. The axis on the left refers to costs in terms of cent per litre, and runs from low cost at the bottom to high cost at the top. The right refers to situations where there is no grazed grass in the system, which correlates to a very high cost, and on the left it is shown that very high levels of grazed grass correlate to a very low cost.
I draw the attention of the committee to Northern Ireland. When Northern Ireland was quota free, in effect, people put a lot more feed into the system, drove up production costs, considerably increased output and worked harder at a higher level of risk for lower profits. It was madness. The Irish industry is now at approximately 60% grazed grass. Instead of moving to 40% grazed grass, we need to put a lot of effort into ensuring that our farmers move to the left of the axis.
One can ask what the relevance of that is, but it is quite simple. It takes skill. There is a dual challenge in terms of upskilling existing farmers. We need a strong advisory service. Our research is excellent, but we need an increased emphasis, and probably resources, on getting that message out to every interested farmer.
I also want to emphasise the need for excellent skilled young people to come into the industry. About 600 people a year are entering agricultural colleges, which sounds good, but I question the figures. I am aware that the Chairman had the benefit of going through the farm apprenticeship board, as I did, which provided excellent training schemes. In the 1970s, 1980s and 1990s, about 75 highly trained people went through that scheme who were well fit to manage farms. That stopped a number of years ago and is currently being revived. About 16 people a year go through the schemes.
Kerry estimates it needs about 75 people. I do not have estimates for the rest of the country, but the figure of 16 can be compared with a demand which is close to 300. One person is responsible for people coming through the system. There is a need to put some money into the sector. The return will be significant. It is one area in which the State can invest and get a return of well over 100% per year every year.
Banks need to have more flexible policies and I will highlight two such areas. On interest-only periods, Bank of Ireland, which has a clearly stated policy, has said it will grant an interest-only year once in the lifetime of a particular loan. A loan could be for a term of ten or 15 years. As we saw, one can expect years where income is reduced, and over the course of a loan a farmer could easily be hit three or four times by such years. Banks need to be more flexible in respect of interest-only periods. For example, after 2009, during which some farms were wet and milk prices decreased, farmers required two or three years to climb out of that hole.
Sometimes when businesses are basically sound, it is necessary for banks to extend an interest-only period for two years. The State now has a big influence on the banking system.
The second point on banks I would like to highlight concerns the financing of young farmers who do not have hard assets as collateral. Irish banks say they will give an applicant very little money without hard collateral, be it land or property. We all know a particular policy costs the State €60 billion odd. A young Irish farmer finds it very hard to get even €30,000. The banks state one may get more but, from my experience of talking to young people, I understand they are not getting it.
Two young Irish people whom I know very well are in the United States with UMB. US banks tend to be either very big or very small. UMB is the strongest of all the small rural banks. I met its representatives at a fairly high level in the past 12 months. They said they always consider three factors. The first is the person and his or her track record and integrity. The second is the actual project, and the third is collateral. If two of the three factors are very good, the bank goes ahead with the loan. Irish banks are not doing this, except for tiny sums. With regard to future development, we are choking the potential of many very good young people. We need to move on that.
On supporting the introduction of risk-management schemes, I refer members to the last US farm Bill. Reference was made to greater "covering forward" or "fixing forward". Glanbia is doing that to some extent and it should be encouraged more.
In the last US farm Bill, the United States brought in a kind of insurance policy to insure for margins. It does not put more money into farmers' pockets over the cycle but protects the profit margin where there are awful dips. Even in the bad years, it will give one a certain profit margin. We should examine this very seriously. There is no reason we could not implement such a proposal. It should be self-funding.
With regard to the direction Irish farmers should take, when quotas are lifted I hope to God we move left. If we do we will have a very vibrant, strengthening dairy farming industry.
My final message is that we have a considerable comparative advantage in Ireland in terms of producing milk at low cost from grass. More grass means more money in farmers' pockets, more sustainability and more processing and exports. If we follow good policies, we can build a superbly internationally competitive dairy industry for the benefit of Irish farm families and the rural and national economies; let us all play our part.
