Ar an gcéad dul síos, táimid an-bhuíoch as ucht an chuiridh a chur an coiste romhainn. Tá súil agam go mbeidh ár gcur i láthair eolasach agus déanfaimid gach iarracht ceisteanna na mball a fhreagairt.
We were very pleased to be invited to present before the committee today. Our presentation is in two parts and I propose to give the entire presentation. The first part will look back on the previous year in terms of achievements in Teagasc and issues arising for the service. Then, as requested by the committee, I will talk a little about the current situation in the dairy sector. We are also happy to answer any questions committee members may have on other issues of concern.
As Deputies and Senators will know, Teagasc is a science-based organisation which endeavours to support innovation in the agrifood sector with a focus on profitability, competitiveness and sustainability. Teagasc has four goals that it strives to implement. First, we have a very clear focus on the competitiveness of the agriculture and food sector, which makes us somewhat different from comparable organisations internationally whose focus on productivity and competitiveness has slipped somewhat. Our second goal is to support sustainable farming and the environment, while our third goal is to promote economic diversification of the rural economy and to enhance the quality of life of people living in rural areas. Finally, we are very conscious of the substantial moneys that the taxpayer grants each year through the Oireachtas grant-in-aid and we aim to deliver value for public money.
The chart included in our submission to the committee is an attempt to summarise what we consider to be the integrated nature of the organisation, where within one organisation we combine research with advisory or extension services and education services. These are intimately related and our goal is to transmit knowledge for the benefit of farmers and Irish food companies. That is why we see it as critically important that the research is complemented by both the extension and education services.
We deliver the various activities through a series of seven programmes: animal and grassland; crops, environment and land use; rural economy and development; food research; education; advisory; and administration and operations. Since the extensive rationalisation that has taken place within Teagasc, we now have a streamlined structure with three key units within the organisation, namely, the research directorate, the knowledge transfer directorate which is split between advisory and education and the operations directorate. It is a constant challenge to maintain coherence and integration, especially between the research and advisory services.
I draw the committee's attention to some important highlights from last year. I am sure many members are already familiar with some of them but it is useful to give a brief reprise nonetheless. We continued to be actively involved in the promotion of genomics in animal breeding. The committee will be aware of the significant developments that have taken place in the dairy sector and the plan is to extend those to the beef sector, which is much more challenging, and to the sheep sector. A major highlight of last year, after a hiatus of a number of years when the soil survey was suspended, was the completion of the national soil survey, thanks to substantial funding support from the Environmental Protection Agency, EPA. That will be a very important resource in the years ahead. We were actively involved in providing scientific verification for Ireland's sustainability credentials. In particular, in conjunction with Bord Bia we have developed the carbon navigator, which is an aid to farmers to farm sustainably from a carbon perspective. Last year, the Government concluded successful CAP negotiations and Teagasc was extensively involved in providing technical advice during that process.
Despite the difficulties in the advisory services that have been well publicised, Teagasc maintained approximately 43,000 paying clients and we are particularly pleased to point out that there were 13,000 farmers involved in discussion groups throughout the country. In the dairy sector alone, approximately 6,000 of the 18,000 farmers in that sector were members of discussion groups which is a substantial proportion. We continued to work very closely with Ireland's food companies and would interact with about 250 companies on an annual basis, in the sense that this involves a transaction with Teagasc. Of course, we also have a lot of interactions of a more informal nature. We also continued to work very closely with a variety of stakeholders in the beef industry through the Better Beef programme. We have also been involved in supporting the national position in regard to the nitrates action programme and climate change policy. We had a very busy year on the education front and we continue to be very busy in this area, mainly in response to the rural development programme and the measures that were directed at young farmers in particular, which resulted in a substantial increase in the numbers taking part in our part-time agricultural programmes.
In terms of the budgetary position, we have provided a chart which illustrates the evolution of Teagasc's total expenditure from 2008. The most noticeable change is the significant reduction in payroll expenditure. On foot of the implementation of the employment control framework and the moratorium on staffing, the pay bill has reduced by about €26 million over that period. Pension expenditure in recent years has been around the €40 million mark. Unusually for a State organisation, the Teagasc pension bill is paid out of the grant-in-aid and is a substantial component of that.
The most variable element, and the most challenging on a year-to-year basis, is non-pay expenditure. It is important to note that if we were to strip pensions from our expenditure, Teagasc generates some 40% of the remaining expenditure from activities which do not come under the grant-in-aid component. This would include fees from the advisory services, which come to some €11 million per annum. We also have had significant successes on the research front in regard to the winning of competitive tenders and so on.
On the staffing front, as members will see from the slide, there was very little change in the numbers between 2001 and 2009. However, with the imposition of the public sector recruitment embargo, we saw a substantial reduction to the end of last year of the order of 25% across the whole organisation. That reduction was more acute in the advisory services because of the age distribution of staff. The Teagasc map has changed quite radically in recent years in that we have rationalised our office structure substantially. That process is now virtually complete with the exception of the Kinsealy site, which we are in the process of closing and relocating to Ashtown. We hope to dispose of the Kinsealy site in the next year or so. We are down to 52 advisory offices around the country and four colleges which we own and manage on behalf of the State. We also subvent substantially three private agricultural colleges and we have seven research centres.
As I indicated, the largest and most challenging adjustment in staff has been in the area of advisory services. The chart shows the extent of the reduction, particularly from 2008 or 2009 onwards. Remarkably, we have managed to maintain our paying client numbers at in or around 45,000 despite a reduction in front-line advisory staff numbers from around the 400 mark in 2008 to the current figure of 235, a fall of some 32% over the period. There is significant variation around the country, with staff problems more acute in some areas than others. We have particular challenges in Cork, Meath, Mayo, Tipperary, Galway, Clare and Kerry-Limerick, and impending difficulties in some other counties as staff plan to retire in the next couple of years.
On the education front, our staff complement now is 93 or 94, which includes teachers and technician staff to support those teachers. Nonetheless, despite the very difficult staffing circumstances, we have managed to maintain substantial enrolment in our colleges. I mentioned earlier that there is a significant influx of students this year and will be in the coming years because of the rural development programme. We planned to take in an additional 1,000 students in the coming years through distance and part-time education in our regional centres. In fact, based on queries to date, we estimate this figure will be significantly exceeded within the next year or so as the message goes out to young farmers about the significant benefits attached to enrolling in education. However, there are significant staffing shortages across all colleges. We were fortunate last year, on foot of a decision by Government, to be able to take on a large number of contract lecturers to cope with the additional demand. That certainly has helped the situation. We also secured five new additional posts, which have helped substantially to ease the burden in the colleges.
On the research side, we have a smaller number of permanent researchers. We expect those permanent researchers to supervise PhD students and win external research tenders, which enables them to employ highly qualified young graduates on a contract basis. As the slide shows, in terms of a metric of performance, publications output continues to advance and stands at about three publications per year in top international journals. Of course, this is only a crude indicator at one level. We take the view that if our scientists are not publishing in international journals, then the quality of the advice that can be garnered from their knowledge will not be up to acceptable levels. However, as in other sectors, we are facing significant shortages on the research front right across the organisation.
I will conclude this section of the presentation by highlighting some of the challenges and opportunities for Teagasc at this time. We have never experienced more intensive demand for our services than we have in recent years, from both farms and processing. I will refer presently to the situation in regard to dairy farms, where there is growing demand from farmers for support in planning expansion and also from the processing side. As processors gear up to process the additional milk, in particular, there has been a significant demand for research in processing. I already mentioned the challenge we face in regard to staffing. We hope that shortage will be alleviated by the implementation of a spending cap rather an employment cap, but it has not happened yet.
We are looking very carefully at investment for our infrastructural needs. Up to last year, we managed to sell off several valuable assets, which helped us to make necessary investment. We have now come to the end of that process and must find other ways to fund our capital programme. I referred to the exceptional demand for education and the Teagasc green certificate in the past year or so, and we expect that demand to increase, as I indicated, in the next couple of years. In the past year, we took a major step in trying to respond to the demand for a green low-carbon agri-environment options scheme, GLAS, service. To that end, we have entered into a strategic alliance with Farm Relief Services. In the area of food processing, we have committed a substantial increase in investment to Moorepark Technology Limited and plans are well advanced to establish a food innovation hub at Teagasc Moorepark. We also continue to be focused on climate change and sustainability. A particularly significant development in this regard is the establishment of what we are calling a sustainable farm at Teagasc Kildalton.
I turn now to the second area on which the committee asked us to focus, namely, prospects for the dairy industry. The table I am now displaying contains key information in this regard. I ask members to concentrate on the Total Cost row, which is an estimate of the total costs of dairy production extracted from the Teagasc profit monitor. We give the data for the average, for all farms that complete a profit monitor in dairy, and for the top 10% and bottom 20% of farms. I would like to clarify an issue about which there is a great deal of confusion at times. When we talk about total costs, we are excluding family labour, own land and owned capital. That is a very important point to note. Members will see that the average cost is 23 cent per litre, which ranges from a low cost of 18 cent on the top 10% of farms to a relatively high cost of 29 cent on the bottom 10% of farms. This is a key metric in the context of reduced prices for dairy products and volatility of prices.
The committee will notice the substantial range and performance and if we were to extract the data for beef, sheep or cereals there would be the same variation. It is almost a law of nature to some extent. One thing that saves Irish agriculture is that we have relatively low debt. Even for dairy farms with debt, the debt is under €100,000.
We are all conscious of the challenges that dairy farmers face following the removal of quotas plus the major opportunities. One point that continues to be of concern is that so few farms exercise even basic financial management of their farm situation. That is a significant concern particularly in the context of the post quota era. We continually assess farmer intentions in the dairy sector as to likely increases. It is clear from the most recent survey of plans for the period 2015 to 2017 that about 60% of dairy farms are planning to expand. The red coloured line shows that about half of the farms plan to expand by 10% and 20% and another 30% or so plan to expand by up to 10%. When all that is combined, we think that by 2017 the growth of milk according to this analysis would be of the order of 17%.
I draw to the attention of the committee the diagram at the top right hand side which depicts the trend in milk deliveries. A point worth making is that the food harvest base is from 2007 to 2009. Between that base and last year there has already been a significant increase in milk production of the order of 15%, which is already in the bag, so to speak. We reckon that over the next three years - beyond that it becomes a bit fanciful - there will be another 17%. Our view is that it will not be that difficult to achieve the 50% increase. In the box at the bottom of the same page we show what it might mean in terms of the additional number of cows which is of the order of 333,000. Substantial additional investment will be required. We reckon there will be larger farms and certainly farms will specialise to a greater degree, as we have already seen. There may also be some increase in on-farm and off-farm employment and certainly more land will be used for milk production.
Price volatility is a constant refrain in the agricultural sector. The chart illustrates this quite well. We have gone back a long way to illustrate the point here. Taking the period from 1992 up to 2006, it is clear that milk price on average is around 28 cent per litre with a fairly narrow range of fluctuation of about plus or minus 2 cent. We move into a new era of volatility from 2006 up to the current year. From 2006 to the current year, it is clear that the level of milk price increases on average to 32.5 cent but the fluctuation also increases to about plus or minus 6 cent per litre. We are pencilling in a figure for this year of about 27 cent on average. I would not want to be held to this because it is rather like backing the horses at Cheltenham. These are average annual prices. Roughly we are looking at a fall of about 8 cent to 10 cent or somewhere around that from last year's average. Given the data I presented earlier on the cost of production, the implications are very clear, particularly for the high cost producers.
On coping with volatility, the chart tries to tell a story about how farmers can cope with volatility. The problem is illustrated in the chart quite well. The blue line shows the fluctuating milk price in schematic terms and the dotted lines indicate the different price ranges.
A low cost producer is in a much stronger position to withstand volatility but clearly a high-cost producer, as indicated by the red dotted line, will face severe competitiveness challenges. In terms of managing volatility a longstanding refrain of Teagasc is that cost control is essential; the data speak for themselves. The lower cost farms are more resilient.
It is important that farms try to build up a cash reserve. In other countries there are mechanisms in place to assist them to do that, in Ireland it has to be done on a voluntary basis. We are doing that in the Kilkenny greenfield farm. Those who are familiar with that farm will see how we are dealing with volatility there by building up a cash reserve. We cannot emphasise enough the importance of cash flow budgets, not only for the farm expense but for the household expenses, particularly in the current year. The processors can assist by having a significant portion of the milk locked into a contract. I am speaking here only about price volatility but volatility can arise in other areas also, not least, the weather.
Dr. Tom O'Dwyer heads up our dairy knowledge transfer programme. In the current year we are trying to focus on the concept of resilience. I think of this as the ability of a farm to bounce back in terms of if it gets a shock how prepared it is to recover. This is where having a low cost base is critically important. We have held several seminars at the beginning of the year around the country to focus on cash flow management. Clearly discussion groups are a huge support to farmers in the current situation and for the future. Farmers learn more from each other than they will ever learn from an external facilitator or adviser - that is no criticism of the adviser. It is just that people extract much greater value from the examples and experience of their peers.
We continue to push the idea of the profit monitor. We think it is essential that as many farms as possible maintain a profit monitor. We have a number of documents that we consider would be of assistance to farmers in the planning process. As I have stated, we have had a series of spring seminars around the country, the response to which has been huge. I attended a number of them. What came as a surprise to me was the way farmers engage with a simple cash planning exercise. When simplified, we found a huge engagement at that level.
I draw the attention of the committee to a final initiative we are desperately trying to implement in the current year as we see a huge demand for this. We are being bombarded by farmers who want assistance with expansion, yet there is a staff restriction in place. Despite that we have put together a creative response. We are planning to set up a national team that can work with a local adviser to help a farmer draw up a physical plan and a financial plan that could be used to draw down funding from financial institutions. We are encountering delays with that at the moment because of the shortage of key staff but, hopefully, that will be resolved in the not too distant future.
In summary, our approach to dairy expansion is that the resilient farm is the farm that will be sustainable in the long run. In simple terms that is the farm that strives to minimise costs in the system. We are very conscious of the advice we give in the current circumstances. I do not know what it is, maybe it is a psychological trait in us all, but there seems to be a drive to expansion before farmers take adequate account of rectifying deficiencies in their farms.
We have a simple phrase in this context, "better before bigger" but it is a hard message to get across. It is if the dog has been left off the leash in that farmers just want to tear off out the field. We recognise that responding to volatility is a relatively new issue for dairy farmers, unlike their counterparts in other enterprises who have had a long-standing battle with price volatility. We see a role for stakeholders and the industry and have had a number of joint programmes with the dairy co-operatives. They are a very good way of enabling industry to put together measures and programmes that will support their milk suppliers.
I have already outlined the challenges with regard to cash flow. Cash is king in the farming business and it is a question of trying to manage it. Finally, the big challenge for us is to try to assist farmers to expand sustainably from an environmental point of view and more particularly, from an income point of view. We want the young farmer who expands today to still be in business 20 years or 30 years from now and to be able to pass on that farm to the next generation.
