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Joint Committee on Agriculture, Food and the Marine debate -
Tuesday, 27 Sep 2016

Brexit: Discussion with Mushroom Industry


I welcome Mr. Gerry Reilly, chairman of the IFA's horticulture committee, Mr. Micheál McGovern, chairman of Commercial Mushroom Producers Co-operative Limited, Mr. Leslie Codd, marketing manager at Codd Mushrooms Limited, Mr. Ronnie Wilson of Monaghan Mushrooms and Ms Rowena Dwyer, the IFA's chief economist. I thank them for appearing before the committee. The plight of the mushroom industry has been raised at the committee in recent weeks. As a result, we decided to invite the witnesses to attend prior to the budget with a view to determining whether we could help to alleviate any of the difficulties facing them.

I remind members, witnesses and those in the public gallery to turn off their mobile phones.

Before commencing, and in accordance with the proceedings, I am required to read the privilege notice. By virtue of section 17(2)(l) of the Defamation Act 2009, 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 they 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 are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any 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 either by name or in such a way as to make him or her identifiable.

I understand that Mr. Reilly will make a short presentation on behalf of the witnesses. It will be followed by questions from members.

Mr. Gerry Reilly

I thank the committee for its invitation to present on our issues. I am joined by Mr. McGovern, chairman of CMP, Mr. Codd of Codd Mushrooms in Tullow, County Carlow, Mr. Wilson of Monaghan Mushrooms and Ms Dwyer, the IFA's chief economist. Along with my role as horticulture chairman, I am the vice chairman of CMP. Mr. McGovern, Mr. Wilson and I provide mushrooms through CMP, which is a recognised producer group under the EU fruit and vegetables scheme.

Codd Mushrooms is one of the biggest suppliers to the domestic trade, supplying all the main retail outlets in the country. We are here today under the leadership of the Irish Farmers Association, IFA, which has vouched its full support for the horticultural sector to help us get through a crisis where 3,500 jobs are in danger. There are already 130 jobs gone and €7 million of exports have been lost.

I will give a brief background to the Commercial Mushroom Producers, CMP. It was established in 1999, following rapid expansion of the industry over the 1990s, which grew to almost 600 mushroom growers by 1996. It was established by mushroom growers as a co-operative to deliver stability in the marketplace by maintaining the consistency of supply and achieving a sustainable margin for producers, along with improving the overall quality of mushrooms. During the past ten years, there has been significant rationalisation of the Irish mushroom industry, during which grower numbers have dwindled from approximately 600 to approximately 60. Today, these growers produce the same amount of mushrooms and we employ 3,500 people. It should be remembered that those jobs are in rural Ireland and in country parishes. Due to CMP's programme of consistent improvements since 1999, the farm gate value of mushrooms has increased despite very stiff competition from Europe and volatile exchange rates.

Currently, the 60 growers produce 70,000 tonnes of mushrooms per year, of which 80% or more, worth €120 million at farm gate, is marketed to UK multiples through a network of marketing agents. For the majority of Irish growers, 100% of their production is exported to the UK. Irish production equates to over 7% of the total mushrooms produced across Europe. We now produce more mushrooms than the Germans, Italians and the English. Only four European countries - the Netherlands, Poland, France and Spain - produce more than Ireland. It takes over 32 million people to consume the mushrooms produced by Irish mushroom growers. We are very proud of that.

We have secured almost 60% of the UK multiple market, and that has been hard earned over the past 30 years. Consumption of mushrooms in the UK is approximately 190,000 tonnes per year. The English produce approximately 50,000 tonnes and we produce 70,000 tonnes in the South and 20,000 tonnes in the North. It must be remembered that mushrooms are a perishable product with a relatively short shelf life, produced 52 weeks per year. The "best before" date is five to seven days after harvesting, so the mushrooms must be sold within one or two days of coming from the farms. There is no viable alternative market for such a highly perishable fresh product and currently the UK is our only market. We send more than 50 articulated lorry loads to the UK, seven days per week, 365 days per year. That amounts to 50 40-foot lorries going out of Ireland every day of the week and year. As a result of the closure of the Russian market, mushrooms from eastern Europe, produced at much lower production costs, are now entering the UK retail market and displacing Irish produce. With regard to the domestic market, growers supplying Irish retailers produce 14,000 tonnes annually, with Codd Mushrooms making up a large part of that. These growers now find themselves competing with growers whose produce would normally be destined for the UK export market.

Since the UK vote to leave the EU on 23 June, the mushroom industry in Ireland has been thrown into turmoil and growers are in loss-making territory, resulting from the sudden and significant weakening of sterling. I will outline why mushroom producers are particularly impacted by the sterling decline. The marketing companies which sell our mushrooms negotiate our contracts in sterling. In addition, mushroom prices are forward agreed, generally for contract periods of up to 12 months and longer in some cases. We mushroom growers are paid in sterling every week.

Twelve months or so ago, when the euro was worth 70p, we would go to the bank with £1 sterling and end up with €1.36. Today, when we go to the same bank, we get €1.16 for our £1 sterling. That is on our total sales figure and this is where it is really hurting.

When the UK retailers agreed contract prices with Irish marketing companies, they knew that we were doing well with an exchange rate of 70p or 72p to the euro, hammered down the prices to match it and subsequently paid us accordingly. Now, however, we have to honour these contracts until they run out. Our marketing companies, along with Commercial Mushroom Producers, are battling with the UK retailers to get new contracts in place, but they are telling us, as growers, that it is a very slow and painful process. Unfortunately, there are many European and Eastern European producers ready to supply the UK and there are no guarantees of getting the prices up. My colleague, Ronnie Wilson, who has been in the UK market for the past 30 years and worked on building up those markets, will articulate later the difficulty of this challenge.

From where I sit, this is a crisis. The mushroom business is in free fall. My wife, Mary, and I have invested all we have and 30 years of our lives in the mushroom industry. More than 50 families, including our own, depend on our business surviving what I consider is probably the worst slap in the face since we started in 1988. The impact of Brexit will mean huge losses for every farm trying to stay alive at the moment. As we have seen in recent weeks, three mushroom farms went out of business since Brexit. This volatility in the marketplace cannot be sustained. As I said earlier, and I would like to say it again, 130 jobs are gone so far in the first 100 days of Brexit and €7 million in exports have been lost. This is something we cannot replace quickly.

A significant and longer term market pressure for Irish producers is the foothold that has been gained in the UK retail market by Polish product in recent times. This is worrying as their cost base is only a fraction of ours. For example, their labour rate is 28% of our minimum wage in Ireland. In the mushroom industry, 40% of our costs is labour. It is a huge part of our costs. The Polish producers can produce at 28% of our cost.

The dominant power of the retailers and significant food price deflation in fresh produce have resulted in serious downward price pressure on our mushroom exports, which is now being compounded by the decline in the value of sterling. As I said, mushroom production is highly labour intensive and the threats now faced by the industry could result in significant job losses. I keep reminding the committee that we have 3,500 people employed in the mushroom industry in Ireland. That is, we had 3,500 people employed in the mushroom industry; 130 jobs have been lost.

It will also impact on the tillage sector, as the mushroom industry is a significant purchaser of wheaten straw, and on the poultry sector, as poultry litter is used in mushroom compost. There are several other areas that would also be affected. Take those jobs out of rural and Ireland and see what happens.

In the past, a reduction in production or closure of a mushroom business was generally replaced. If one farmer closed down, another farmer would extend or put on another mushroom house or two. They would take it up. Now, no one has the appetite to build new farms or extend. Therefore, those jobs and that market share is being lost to Eastern Europe and our competitors.

Recently, the IFA has met with Minister of State with responsibility for horticulture, Deputy Andrew Doyle, to impress on him the immediate need - I stress the word "immediate" - to take a number of actions to support our mushroom sector in the wake of Brexit and the weakening of sterling. We also note the recent comments by the Minister for Agriculture, Deputy Michael Creed, acknowledging the particular issues of the mushroom sector and his commitment to provide support to the sector in the budget process.

The IFA has proposed a number of practical measures.

We need a lifeline. We need oxygen. We need to get through a period of time. The Government must act on our proposals to address the short-term impact of the exchange rate volatility and to support cost competitiveness.

We are hoping the committee will help us ensure the Government pays, as soon as possible, the producer organisation, PO, funding that is due to the commercial mushroom producers, CMPs, for the 2015 programme. Given that it is 2016, we want it paid as quickly as possible.

A temporary reduction in the lower rate of employer PRSI from 8.5% to 4.25% must be introduced in October's budget. This would impact directly on employment costs for mushroom producers and other SMEs which have been negatively impacted by the weakening of sterling, and who will not have undertaken hedging or other risk management measures to offset the price decline. This measure existed between 2011 and 2013 as part of the then Government’s jobs initiative. It must be recognised, however, that this will not have an impact on employment costs where employees are on the higher rate of PRSI. The IFA believes, therefore, the Government must give consideration to temporarily reducing the higher rate of PRSI for affected sectors.

The Government must consider other measures to reduce employment costs. In particular, the IFA proposes extending the tax relief measure for start-up companies to existing companies in the mushroom sector. This would be capped at €15,000 per annum, recognising the limitations imposed by State aid rules for the agriculture sector. The Government must immediately introduce the renewable heat incentive scheme. There must be no increase in excise rates on agricultural diesel or other road fuels.

External to the budget process, the IFA believes that there should be no change to the national minimum wage until there is greater certainty on the longer-term exchange rate position between sterling and the euro. We live in a world of uncertainty at the moment. The IFA believes direct support should be provided to mushroom producers through Common Agriculture Policy, CAP, market support measures. The decline of sterling, arising from the UK vote, is a market disturbance which has occurred swiftly and unexpectedly, and has resulted in a significant price fall for the mushroom sector. Over the past year, the European Commission has provided support for exceptional measures for the dairy, pig meat and other livestock sectors. Support must be provided directly to mushroom producers for whom an external political event has had an immediate and negative economic impact.

We hope the committee will support the proposals. It is critical that the threat to the mushroom industry is taken on board as a matter of urgency by the Government and the Minister for Agriculture, Food and the Marine. Action is required at national and EU level to underpin the viability of the mushroom industry.

I thank Mr. Reilly for his detailed and concise presentation and his proposals for aid to his sector. The PRSI proposal seems very practical. Does Mr. Reilly have costings for the proposals such as the PRSI, tax relief and renewable heat incentive? The Irish producers have been under pressure from Polish product in the UK market and we accept that what has happened is outside the producers' control. In the vast majority of cases the contracts have eight or ten months to run and are fixed and agreed in sterling.

If producers can get to the point where the contracts have been renewed and we can help them over this serious hump, does Mr. Reilly think the industry will be able to see off the Polish threat? Mr. Reilly said the number of growers has reduced very significantly over recent years and one worry is that they are losing market share to Polish suppliers who have the same problems with sterling as we have. Irish suppliers have been losing market share. We should persuade the Government to step in and help the industry. Unless we step in, the industry will not survive so it has to get help immediately. I hope when the contracts are renewed the industry will be back to profitability. Will Mr. Reilly comment on the significant threat from the Polish side? Are there costings on the different initiatives to address that threat? I am the Fianna Fáil spokesman on horticulture and I have discussed it with Deputy Charlie McConalogue and Senator Paul Daly. We are fully committed to trying to get these proposals into the budget and into reality.


We will have Deputy Penrose and Senator Paul Daly next and then return to Mr. Reilly for answers. We will then have further questions.

I am glad to see a fellow Westmeath man presenting the case for the mushroom farmers. He is aware that a significant number of mushroom producers in the Westmeath area have disappeared, so to speak, in the past 12 or 18 months. They were all under pressure prior to this. It is a perfect storm because it is a very perishable product in a volatile market. There was forward contracting when the sterling rate was at a particular level and now it has collapsed so the industry is caught in a bind. The attrition rate will significantly accelerate unless there is intervention. There has to be recognition of that at national and EU level. Apart from all the other measures, the PRSI job initiative introduced by the Government over recent years worked so it can be readily dusted down and brought into play fairly quickly. That will only get the industry so far. There were worrying reports that diesel prices will become equivalent to petrol prices. If that happens, the industry will be gone altogether. I agree there cannot be any increase in excise rates on agricultural diesel over the next 12 to 18 months while people get back on their feet.

If we make a submission to Government on behalf of the industry, we have to know that it is all right to do so on a broad basis and in a generic way. What are the costs involved in each specific measure we are seeking to establish to help address issues in the short term? Is there any reason, with only three months left in 2016, producers have not received their money for 2015? Is it a failure on the producers' behalf to submit the relevant forms? The Department of Agriculture, Food and the Marine makes great play of paying out on time so I am surprised to see the producers are that far behind. There is not a big number of producers; there are only 53. There is no reason for that.

Let us look at the worst case scenario. The industry has lost three or four mushroom companies in recent weeks. If there is no intervention, what does Mr. Reilly see as the future of the mushroom industry in Ireland? How many people are employed in the industry and what impact will there be on employment? There would be a substantial cost to the Exchequer at that level so it would be prudent to include it in the valuation scales and ensure the appropriate aid is given to secure the future of the industry on a short-term basis until this matter is resolved. I do not want to be pessimistic but what concerns me is that the currency could continue on its downward spiral.

Mr. Gerry Reilly


What also concerns me is that people are talking about the British exit from the EU taking two years. It took Greenland, which is a very small country, three years. How long will it take a country to unwind itself where there are hundreds of thousands of agreements and laws?

Everyone will have to wake up and tell the truth. This will be a long-term process.

I compliment Mr. Reilly on his presentation. As Deputy Penrose, a fellow Westmeath man, said, we are quite familiar with the jobs provided by Mr. Reilly in areas and on back roads where one would not see many other businesses operating. I also know from experience how other businesses depend on Mr. Reilly’s and the success of the mushroom business. There will be a knock-on effect and a loss of jobs if action is not taken.

I welcome Mr. Reilly’s report and note with interest the requests it contains. Has the mushroom business taken any action or changed its marketing strategy in any way? As Deputy Penrose said, in a worst-case scenario and if nothing was forthcoming from this side, has the industry a plan B to ride out this storm? The delegation said that there have already been casualties and that existing growers are not extending their operations to take up the slack. If the exchange rate gets worse, does the delegation see a potential scenario over the next 18 months where mushroom growers may not even be able to meet the demands of the contracts already in place for the UK market? Could we end up leaving the market more open to eastern European suppliers?

Mr. Micheál McGovern

The issue of PRSI was raised. As Mr. Reilly stated in his submission, it was a precedent taken by the former Government to support the minimum wage adjustment. We feel this measure could go some way towards getting funding fast into the industry. As Mr. Reilly said, we need measures quickly and now or else we will see further haemorrhaging in the mushroom growing industry.

In costs, it comes to €2.2 million, which represents 10% of the total losses we have suffered from most of the contracts put in place when the sterling exchange rate was 70 pence or so as opposed to where it is now at 87 pence. It is one measure. It would be helpful if it could be incorporated in the higher rate of PRSI. We felt as this measure had been taken before that it would be easier to implement. For one second, however, we do not believe that this is a fix-all for the problem because it represents only 10% of the total losses. If we can get the 10.5% aspect included and ring-fenced for those exporting 85% of our produce to the UK, this would be something further on top of the 10%.

Mr. Gerry Reilly

Mr. Ronnie Wilson has a clear view of the marketplace, having operated in it for the past 30 years. He has built up most of the markets and knows how these guys work.

Mr. Ronnie Wilson

This is a very difficult crisis. There was also a crisis in 2008 and 2009.

We asked our customers for price increases and got them. Back in 2008 and 2009, the big four, as they are known in the UK, were in buoyant humour. They were expanding and making good profits and there was food inflation. Today is a completely different situation with food deflation. During that intervening period, we have seen the growth of the discounters and the big four, who were buoyant in 2008 and 2009, are now in trouble. I could lift up a newspaper and read that if it is not one, it is another that is in trouble. They are not really in trouble but they are in trouble relative to where they were some years ago. They will not countenance price increases and we do not know how we are going to push prices up at the moment. We have been pushing them hard over the past month and they are refusing to budge.

We have the Polish threat. We are not quite sure how big a threat it is. Polish mushrooms formerly went to Russia. As a result of the Russian embargo, these mushrooms are now being pushed further west and Polish mushrooms are flooding the markets of France, Germany and the Benelux countries. Some are coming to the UK. The Polish industry is split into two parts consisting of eastern and western Poland. The industry in western Poland was under some pressure but is now buoyant because the distance from western Poland to the UK is a two-day drive. Only one of the four large British supermarkets purchases Polish mushrooms but we are afraid that this is the tip of the iceberg. We believe the Poles will not offer a threat in the long term because the fresh produce business involves supply lines and the shorter the supply line, the better it is for customers because people are looking for fresh mushrooms. If supply lines are long and the weather changes, there will be a build-up of mushrooms in the stores and the consumer looks at them and says, "End of shelf life; don't buy." We hope that over time, the Polish threat can be overcome. At the moment, we face the discounters and deflation and the concept of cheap food is politically very acceptable.

That is about all I have to say. I am prepared to answer any other questions. The situation is very difficult. If we let the industry go into freefall, that will be a disaster because we are already unable to supply all our contracts. We are purchasing mushrooms in Poland and Holland to service our UK contracts. We can continue to do that for a little while but not for very long.

In 2008 and 2009, the Irish mushroom industry was transformed from a cottage industry to a highly professional and fully invested industry. Most people do not realise that setting up a mushroom farm employing 60 people costs €4 million. There are mushroom farms in Ireland that are really businesses. We do not know where we can go to make the next move. In 2008 and 2009, we invested using producer organisation, PO, money and we created a mushroom industry in Ireland that was able to compete with mushroom industries throughout Europe. The one thing we must do is stop people closing if that is at all possible because contracts will be under threat. UK retailers believe in the Irish mushroom industry. The Irish mushroom industry has served them very well. They are now being let down. These guys expect 100% service levels and if these service levels do not come through, they will look elsewhere. We must stop the industry from going into freefall.


Does Mr. Codd want to make a contribution?

Mr. Gerry Reilly

I deliberately left Mr. Codd until now to discuss the PRSI measures and to take up some of Deputy Penrose's questions on input costs and what we are going to do about them.


There is also the question of the 2015 moneys.

Mr. Gerry Reilly

I might come back to Mr. McGovern to answer that one as he is chairman of CMP.


That is no problem.

Mr. Leslie Codd

To discuss the PRSI situation, we analysed our 225 staff members to see how many were being paid at a point where the lower PRSI rate was applicable. It was only 10%. It may seem very beneficial, but realistically the industry needs assistance on the 10.75% employer's PRSI rate. Mr. Wilson has been using the term "free fall", which is very apt. To put things in perspective, there has been a reduction of probably 17% to 18% in price within the space of a number of weeks. Mushroom growers exist on a very low margin. I imagine growers are used to making a margin of between 5% and 8%. When there is a price reduction of that much, one does what one can, but there is only so much one can do. In fairness to Monaghan Mushrooms and Walsh Mushrooms, they have come in with some assistance, but they can only do so much too because they are also on tight margins. Whatever has been done is all that can be done by the industry. We all run tight ships and do not have waste. We are now at a point where we see very little hope without Government assistance.

I want to touch on another point in the submission, which is the renewable heat incentive. It has been mooted within Government over the past number of years that a renewable heat incentive scheme will start. It has certainly been expected for the past two years. A scheme was introduced in England a number of years ago as well as in Northern Ireland and it has proved very successful in the reduction of emissions and reliance on non-renewable energy sources. I urge the committee to expedite a scheme if it can or, at least, give us the parameters of what levels can be used to assist people to convert to renewable energy. I understand that Ireland will have to pay heavy fines in the next number of years for its inaction in this regard. It is important to do this and it would really help our industry if it were introduced as quickly as possible. I estimate that it could reduce our costs of production by between 2% and 3%. I will answer any other questions.


The last question is on the 2015 moneys.

Mr. Micheál McGovern

In answer to Deputy Penrose, it is traditional that the payment of moneys comes through around the back end of the year. That has happened for the past number of years. There is a mechanism within the PO scheme whereby three to four payments per annum could be made and we would welcome that happening in the near future. It has not happened to date. We are still waiting on our 2015 payment and we urge the Government to make it as soon as possible to stop the haemorrhage.


What kind of money is involved?

Mr. Micheál McGovern

We are looking for a payment of approximately €2 million.


For the next round of questions, I call Senators Pádraig Mac Lochlainn, Michelle Mulherin and Robbie Gallagher and Deputy Martin Kenny.

I was particularly taken by Mr. Wilson's contribution on the challenges of the big four and food deflation. This is a common denominator no matter what sector is before us. We had the various farming organisations here a fortnight ago. Ultimately, there will have to be an intervention around prices at European level.

I would be interested to get Ms Dwyer's view from the IFA concerning what can be done. What are the IFA's proposals at European level? This is not a new issue; it has been around for years. The big multiples and corporations are clearly not paying the prices that are required. One may have an intervention from western Poland, so prices fall and there is a perfect storm when currency issues are thrown in. I would like to know the IFA's proposals to address that.

When one includes issues such as the minimum wage and PRSI, I have a difficulty because there are other interventions by the Department of Social Protection. These include the family income supplement, JobPlus and the back-to-work allowance. These schemes mean that a worker would not incur a cut or loss of any benefits, because they would be supported by the State.

Have the witnesses engaged with Departments on interventions other than the minimum wage? Have they examined such interventions? The mushroom sector is struggling, so there is a clear case for a temporary State employment subsidy for such businesses at this time, as well as for other agriculture sectors. Have the witnesses examined alternatives to not increasing the minimum wage? I certainly think they are warranted.

I welcome everybody and thank Mr. Reilly for his presentation. A number of questions have been asked and I have additional ones. I am not clear about the producer organisation funding. Is this purely Government funding or is it co-funded by the EU? Why is there a delay with it?

Mr. Codd spoke about the renewable heat incentive. Our EU heat and energy obligations guide the direction of Government policy in this regard, but it also requires capital investment by producers. Have some people been doing that, or are any producers and business owners currently sourcing sustainable or renewable energy? Is that commonplace or has it not been possible to do so? Is there an appetite to invest in renewable heating solutions other than conventional ones? Has capital investment occurred and, if not, when might it happen?

At the outset, it was clearly explained that 70,000 tonnes of mushrooms are exported to the UK market annually. It strikes me, and Mr. Wilson touched on this, that Poland is considerably further away from the UK than Ireland is - it is two days away for lorries. With new technology, including packaging and transport solutions, is it possible to seek other markets? Mr. Wilson said he has to take in some Polish mushrooms to meet the demands of existing contracts. Is that a fall-out from producers that have closed? Why has that come about now? Is it as a direct result of closures?

We also have new market issues with beef and other agricultural commodities. Government policy is aimed at finding new markets or assisting producers to find them. We cannot get away from Brexit and I know the mushroom sector is so dependent on the British market, but would it be viable for producers to consider exporting beyond the British market?

Have producers made a case for the CAP market support measures? Have they contacted the European Commission or the Minister about it? This is happening in other agricultural sectors, but I understand the mushroom sector's dilemma.

There is a problem in the agriculture sector that I call externalising the cost. The supermarkets put the stuff on the shelves and someone else is paying for it. Obviously the producer pays but Government supports and everything else make it cheap, yet they dictate the price. It seems to be a capitalist type of dilemma. It is the open market but it is not a true market because it is supported. Where do we go?

Coupled with that is the astounding amount of food that is wasted and how that feeds into the debate about food production. I was present at a meeting where somebody knowledgeable explained that a funny-shaped tomato is regarded as ugly and does not make grade one although it tastes the same as another tomato. These are the things producers contend with when making the grade and meeting the demands of the supermarket multiples which want the produce to look pretty as well as taste right. Is that sustainable?

I thank the Chairman and committee members for allowing me to sit in on this discussion. I also compliment the committee on its initiative in inviting representatives of the mushroom industry here today. I congratulate them on the success they have made of their industry. They are world leaders in that field and deserve great credit for that and for the 3,500 jobs associated with that industry. I am sure this is a particularly stressful time for everybody in the industry when external factors over which they have very little control can determine the future. I can only imagine what they and everyone employed in the industry are going through.

I know Ronnie Wilson very well. His name has been associated with the mushroom industry in Monaghan and throughout the world for the past 25 to 30 years. He is also a very large employer, one we are very fortunate to have in County Monaghan. Of the 3,500 jobs, approximately 1,000 are in County Monaghan and Ronnie Wilson could be responsible for up to half of those. It is an especially difficult issue for the industry and for a county such as Monaghan. No county is more exposed to this crisis. The words "crisis" and "freefall" have been used here today and they are not overused. It is imperative that Government steps in now to give the mushroom producers a bridge to get over this period and reassess where we are going.

I see two problems, namely, the current threat of the fluctuation in sterling and the threat from Poland. The mushroom producers seem to be more concerned about sterling than Poland. That is welcome. Aside from the sterling issue, where do the witnesses see the mushroom industry going post-Brexit? Are they confident about its future? Given that 3,500 jobs are associated with this industry, we are in crisis and the industry is in freefall, has any Department been in contact with the industry since the Brexit vote on 23 June?

Ms Rowena Dwyer

There were some questions about our position on retail proposals and regulating the sector. As everyone here knows, there are two issues regarding retail regulation the domestic and the EU pictures. The EU picture has a greater impact because of the amount of produce exported throughout the EU.

Our position is very clear. As Members know regulations have been brought in at domestic level to ensure there are contracts between suppliers and retailers, that these contracts are transparent and have fair terms of trade attached to them. Initially, we are saying these contracts have just been brought in. The Competition Commission has been charged with enforcing them. We need to see the Commission being active so as to ensure the types of practices that we all know went on in the past, such as pay for play and pay for shelf positioning and other very unfair terms of practice, will not be allowed to be continued. We would like to see the regulations strengthened further. We have clearly outlined there needs to be an independent ombudsman and the whole issue of below-cost selling needs to be looked at again. Below-invoice selling is still happening. It is as simple as fresh produce being used as a loss leader by retailers to bring in customers and that impacts in the long run on the price the supplier or the producer receives. Up until now, there has been a reluctance at EU level to talk about anything other than voluntary codes of conduct. We, together with other farming organisations in Europe, are very clear that this is insufficient and there must be an EU regulation to try to make the market more transparent. The prices that are received at each level along the supply chain are completely masked at present or are not transparent enough and we need to make that clearer. That will strengthen the bargaining position of suppliers.

Our position at present is about shining light on the various links in the supply chain to ensure that suppliers have a better position in which to bargain to try to get a fair price and return on their produce.

Senator Mac Lochlainn raised the issue of the minimum wage. It is a fair question. The minimum wage is a figure that sets and determines other wages as well. An increase in the minimum wage clearly or bluntly has an impact on increasing labour costs. That is an increase in employment costs, whether it is the direct wage increase but it impacts on other costs, such as PRSI and so on. It is not ideological but a position based on practicality that the costs of employment cannot and should not be increased at this point. The witnesses who have contributed have highlighted the severe pressure the industry is under and therefore it is very much a proposal or statement based on the very difficult position in which the industry finds itself. Instead of being an entrenched ideological position, the position is that an increase in wages is an increase in the employment costs and could jeopardise employment numbers. Unfortunately, the position is as simple as that.

I asked whether the IFA had engaged with the Department of Social Protection on subsiding particular sectors as an alternative to not increasing the minimum wage.

Ms Rowena Dwyer

We have not engaged with the Department of Social Protection on the question of family income supplement. I think the two issues are slightly unrelated. Even if there were an increase in the family income supplement while at the same time there was an increase in the minimum wage, that would be an increase in the employment costs that are being faced by employers at present. The IFA has not engaged with the Department on the family income supplement but I do not think the two issues are directly linked. I think an increase in the family income supplement would be linked if one were looking to reduce the minimum wage.

I referred to the family income supplement as an example.

I also mentioned JobsPlus and the back-to-work allowance. I gave examples of intervention schemes and I apologise if I was unclear. Have the witnesses engaged with the Department about an intervention that would subsidise particular sectors and provide assistance during temporary or long-term crises? I hope the current crisis is temporary.

Ms Rowena Dwyer

I thank the Senator for his question. We are looking at making such proposals. In 2009 and 2010 there was an employer subsidy scheme. Another such scheme should be considered because it would reduce the costs or subsidise the costs of employment. We are aware that it operated for a short period under a temporary EU state aid framework. We have considered existing measures that could be tweaked in the immediate term. I am aware that other sectors of the food industry have looked at whether the employment subsidy scheme that existed in 2009 and 2010 could be reintroduced. The reason the scheme is not to the forefront of our proposals is due to the fact that it existed under an EU state aid framework that no longer exists. I apologise to the Senator for misinterpreting his question.

The final question was on CAP market support measures. We have identified what exists under the single Common Market organisation as a possibility to provide support to the fruit and vegetable sector that has been impacted by a market disturbance. We will pursue the matter. We expect, based on evidence relating to the dairy and pigmeat sectors, that a solution may take time. It is another avenue that we will pursue because we know that not one single measure we have proposed will be sufficient to address the issues of the mushroom sector. We have identified what we hope are practical measures that could contribute to supporting the sector.

Mr. Gerry Reilly

I thank Ms Dwyer. I shall return to the points raised by Senator Mulherin. First, she referred to alternative markets and asked us to bear in mind Polish production. We have an amazing market that took us 30 years to build up. Some 3,500 people work in the sector. Mushrooms account for one third of the horticulture sector. The value of mushrooms at the farm gate is almost double that of potatoes. We have exported mushrooms. The success of the mushroom sector stems from reaching a market of 50 million people and it would be great to go further. Obviously, one learns from an occasion such as this. One will try to expand one's market in the future but we will fight tooth and nail now to hold on to our market and we are here today to secure a lifeline.

The Senator asked why producer organisation, PO, funding has not been paid. Just to put everyone in the picture, producer groups are set up to help the producer get closer to the marketplace. These groups have been set up all across Europe. There is very good funding available of up to €900 million from the budget in Europe. The aim is to get producers of fruit and vegetables closer to the marketplace. I do not know why PO funding is not paid. We have asked for the 2015 money and perhaps the Senator can say something to the right people in order that we might secure it. It is EU money that is policed and administered by the Department of Agriculture, Food and the Marine. I hope we will get a payment soon. Perhaps some of my colleagues would like to comment on the matter.


I suggest that we hear from the next group of questioners first and I shall then come back to the witnesses.

Mr. Gerry Reilly

All right.


The next group is Deputies Martin Kenny, McConalogue and Pringle.

I asked about the renewable heat incentive.


We will come back to that matter afterwards. Is that okay?

I welcome the witnesses. In 1989 I erected three mushroom tunnels with Foxfield Mushrooms so I used to know an awful lot about the mushroom industry. I worked there for many years. I also worked for Walsh Mushrooms and interacted with growers across the midlands and the west. I often visited Mr. Reilly's yard. Therefore, I am very conscious of the sector.

At that time it was an industry in which three to seven tunnels was the average on a farm and farmers would employ a number of housewives in the locality. That was how the system worked. It has matured and developed a lot since then and has grown into a very big business in which there are fewer growers. In a sense, that is what makes it more vulnerable. Many mushroom farmers are heavily indebted, having invested hugely in their businesses, and the current price volatility is putting them under serious pressure.

At the time of the Brexit referendum it was said that the result could have a hugely negative effect on businesses that were exporting to Britain, particularly agrifood businesses. In the mushroom business in the mid-1980s, a person who got 50p for a pound was doing okay, 55p meant he or she was flying but anything below 50p meant that person was in serious trouble. Sterling was always a problem and there was always some fluctuation in the currency.

I fully appreciate the demand for a reduction in employers' PRSI but that could be problematic in the context of state aid rules if it is done for one sector but not for others. While I am not trying to foresee problems, that could be a difficult obstacle to overcome. At the time of the Brexit vote I spoke to the Taoiseach and urged him to go to the European Union and ask that a special fund be put in place for small Irish enterprises which will be very negatively affected by what has happened in another EU state. What happened is not our responsibility but many our businesses will be in serious jeopardy because of it. There is still a case to be made for such a fund and if we structure the request properly, we will get a fair hearing from the European Commission. A fund should be put in place to protect businesses.

We do not know what will happen because Article 50 has not been triggered yet. Once that is triggered we will know where we are going. In the meantime, some structure should be put in place that gets around those EU rules about state intervention in the market. There is a clear reason for such intervention. We have an industry which is already established and employing people. We are not trying to set up something new. The industry is here already and doing very well. There is a strong case to be made by the Irish authorities for a fund to be put in place by the EU to help Irish businesses. The mushroom sector could benefit very much from that.

In the long term the mushroom industry will survive and will continue to flourish and grow. However, it will experience difficulties, as is the case now. Most of the difficulties, as in the example given regarding Poland, are external. While I know that the building boom caused difficulties in terms of wage inflation, most of the factors inhibiting the industry are external. There is a strong case to be made that in the aftermath of Brexit, the European Commission would put a fund in place to support Irish small businesses. Alternatively, the EU could set aside some of the rules around state intervention, given the special circumstances. Those arguments need to be made.

The issue of the use of wood chip was raised and I know that similar issues arise in the poultry industry. There are differences in the cost of production north and south of the Border because farmers in the North can use wood chip boilers, which keeps their costs of production low because the fuel is heavily subsidised. The same issue is relevant to the mushroom industry and such a system needs to be brought in here. It is a clear no-brainer because it ticks all of the environmental boxes. I fully support the delegates in this regard.

I thank the witnesses and apologise for not being here earlier but I had to be in the Dáil Chamber for a priority question.

I do not want to go back over issues that have been discussed. I support the position taken by my party's spokesperson on food and horticulture, Deputy Jackie Cahill.

As indicated by the speakers, 30 years of hard work has gone into building up this business. Temporary issues arise following on from Brexit and there is an onus on us to ensure that the industry is supported through those issues. I thank the witnesses for putting together a good presentation and making concrete suggestions as to what can be done to assist in that regard.

A point I would like the witnesses to flesh out, and it was raised by Deputy Kenny and Senator Mulherin earlier, is the renewable heating incentive, RHI. In terms of the mushroom industry, what is the view of the witnesses on the way that should be structured and introduced, particularly with regard to the size of units that should be able to avail of that RHI?

I thank the witnesses for the presentations. My estimation is that if all these measures were implemented, they still would not offset the reductions this year. The witnesses estimate the potential losses this year at €10 million. Therefore, even if all these measures were implemented, they still would be looking at a loss of over €2 million this year alone. While this may be temporary, there is no sign of the decline of sterling reversing or levelling off. What is the IFA's long-term view on the exchange rate? What impact will that have in terms of improving the position? Even if all these measures were put in place, there would still be a crisis. Also, it seems from what Mr. Wilson said earlier that the potential for opening up new markets within the European Union does not exist, given the distances they have to travel and the challenges with regard to the Polish mushroom producers.

Any CAP market support measures would have to be introduced on an EU-wide level to ensure it benefited the Polish producers, which would improve their competitiveness in the English market also. That could be of significant benefit in the future, and it could be arranged in such a way that it would benefit Irish producers more than Polish ones.

On the estimate of the reduction in employer PRSI, the witnesses said that €2.5 million a year could be saved. They stated also that labour costs are 40% of the production costs. Given that the farm gate market value seems to be approximately €150 million, that €2.5 million means that all the labour costs are at the lower employer PRSI level. That appears to be a low cost, low wage industry.

The Department of Social Protection was mentioned earlier. It might be worthwhile talking to it about the difficulties workers experience when they are put on short time in that they can no longer access social welfare benefits, which will be a significant measure in terms of the witnesses.

Given that 80% of production is going into the English market, and will do for the foreseeable future, and that Brexit will happen, do the witnesses believe we should consider our future within the European Union if we will be exporting 80% of mushrooms into a market outside the Union?

If this question has been asked already, I apologise. Will the witnesses outline the interventions already made by both Monaghan Mushrooms and Walsh Mushrooms?

Mr. Gerry Reilly

I thank Deputy Kenny for his comments. As a fellow mushroom grower, he understands our plight. I mentioned earlier that the Department has been a huge support for all mushroom growers. It is the reason we are in this position today. Mr. Codd might go into detail again on the way the RHI would affect mushroom growers and the position on the size of units. Ms Dwyer might outline the IFA's long-term view on sterling.

Mr. Leslie Codd

Senator Mulherin and Deputy McConalogue asked about the RHI incentive. I can inform the Senator in response to another very good question she asked that Irish mushroom producers have embraced renewable technology in line with the scale of their mushroom production units. The decision each producer makes on whether renewable technology is worthwhile depends on whether the price of oil and the price of wood, which is the used biomass, is high or low in the year in which that decision is made. I changed to renewables on my farm in 2007 because it was beneficial for me at the time. At the moment, it would not be beneficial for me to do it because of the price of oil. It would not really make as much financial sense as it did a number of years ago. The incentive for large-scale farms is reasonably okay. When the gap between oil and wood is large, the smaller farms would really need an incentive before they would consider converting over. The capital cost is quite large.

The Senator asked whether it would be difficult for farms to finance such a conversion. A farm producing €100,000 of product each week could be looking at a capital cost of €200,000. If the RHI scheme was in operation and farms were getting a reasonably fixed amount of aid on their heat for 15 or 20 years, based on the number of kilowatt hours they use, it would be very bankable. I do not think it would be a problem for small and large producers to embrace this. I know that the levels which should be paid in respect of various ages and scales of heating systems are up for discussion. The scheme that was introduced in Northern Ireland was probably a little over-generous. A scheme like the UK scheme would be better. I understand that there is some wastage of heat in the North. Nobody wants to see that. People who are interested in embracing renewables have made submissions on the scale at which that should be done in each industry and the level of grant aid that should be provided for each scale of boiler.

Ms Rowena Dwyer

I would like to make a few points about sterling. I will try to be brief. There is no predicting what way sterling is going to go. The only thing one can say is that the risks would be on the down side. I will explain what I mean by that. The reality is that the economic impact of the Brexit vote has not yet filtered into the consumer economy in the UK. It is a case of steady as she goes. Obviously, the market has priced in a negative outlook for the UK economy. That is what we saw with the sudden depreciation. Now we seem to be sticking at a level of between 86p and 87p to the euro. Until the negotiations start and we see how they proceed, we will not know whether there will be further weakening of sterling. I have to say at this point that sterling would not be expected to bounce back positively in the short term. There is potential for sterling to weaken further over the short to medium term. It has been suggested that given our presence in and reliance on the UK market, it might be possible to go into another market at some point. Having listened to the presentation today, I would like to say two things in response to that. It took many years to build up our market in the UK.

While there are competitive forces and so on at play, I know it is a market the mushroom sector will not give up easily. Those involved will work very hard to protect it. Not only that, in common with the rest of the agricultural sector, the position that the IFA and farmers have taken following the Brexit vote is that the industry needs support to promote our produce on the United Kingdom market. That would enable us to maintain, as far as possible, the share we have with consumers, as well as provide support to look to new markets. The issue is that these things will take time.

What has been presented today is the immediate impact on an important industry in Ireland. This industry is extraordinarily innovative and has a positive future, but it is facing immediate challenges. It needs support to maintain feasibility in the short term and to allow it to work on the market share in the United Kingdom as well as on diversifying into other markets. That is not something that can be done in the immediate term.


Deputy D'Arcy asked a question on savings already secured. Can the Deputy remind me of the context?

It related to interventions.

Mr. Gerry Reilly

It related to interventions from marketing companies. I will call on either Mr. McGovern or Mr. Wilson to comment briefly on what the marketing companies are doing.

Mr. Micheál McGovern

When the UK referendum result emerged, Commercial Mushroom Producers, CMP, devised a strategy. Sterling was losing value at an unprecedented rate. CMP formed a policy that involved the industry coming together to try to do what it possibly could to save itself in light of the free fall. In fairness, most of the industry has come together and given support. The marketing companies have given reasonable support, as much as they possibly can within the lines of their profit margins. One has given price support per kilogram. Another extremely good measure was price support in light of currency devaluation. The subvention did two things. First, it got money to growers immediately. Second, it was the first action to put a little confidence back in to the industry from the grower point of view. These actions and the actions of others from the supply base were necessary. They are holding the growers for a term. However, as Mr. Reilly had said, we have already lost three units and 150 jobs. Unfortunately, six more companies are not in a good financial position. I hope it will not happen but if we do not get some measures together quickly enough, we could lose a further 300 jobs. Action is needed now rather than what could or should happen. Deputy Martin Kenny referred to getting intervention from Europe. That is definitely a positive proposal and something that certainly should be done with a total push behind it. However, as we all know, when we go to Europe we are talking about time, and time is not on our side. We need assistance now. That is the reason we are coming up with these measures. These are measures we believe can be delivered in a relatively short time. Deputy Penrose made a comment in this regard. It is not enough to plug the full gap. The full haemorrhage is approximately €22 million, as someone said earlier, from where most contracts were negotiated to where we are now with the exchange rate. Of course, it is not enough but we have to start somewhere. We need to continue building and get confidence and keep the confidence for growers to hang in there. They have the sure and certain knowledge that our product is good enough to stand up to scrutiny in any supermarket. Certainly, the product is not a problem. It is a question of what we can do until we sail out of this storm. We need whatever help we possibly can get now or else we will have further haemorrhaging.


I thank Mr. McGovern very much. We have had a very good defence and a picture painted of the whole industry and the issues that exist.

We invited our guests here today to see if things could be done in advance of the budget. As a result of what we have heard, I propose that the committee make a submission to the Ministers for Agriculture, Food and the Marine and Finance in the coming days so that the information provided to us would feed into the budgetary process. We will decide on that process over the next while. I thank our guests for coming before the committee and for their presentation.

Mr. Gerry Reilly

May I offer my thanks to all the committee's Deputies and Senators as well? It is encouraging for us to see that the committee has such a knowledge of our plight. We need help from all of the members, from the Government, from the Department and especially from ourselves in order to get our own business trim. We need to really work on it. I very much thank all of the members.

Mr. Micheál McGovern

There was one area of self-help mentioned in respect of which we can certainly take action, namely, the idea of lean thinking or lean principles. If we were fit to get an allocation in the region of €2 million to further the lean thinking that needs to be done within our sector to remove all costs, it would certainly be another major boost to our quest to ensure the sector is sufficiently robust to withstand any other further crisis that may arise. That is one measure we would appreciate the committee taking into account as well.

Mr. Leslie Codd

There was one unanswered question, asked by either Deputy Pringle or Deputy Penrose, regarding the lower rate of PRSI and the large amount of staff who are on it. I would imagine I am similar enough to the other producers. Last year, our average pay per employee was just under €23,800. Some 10% of our staff would come in under €375 per week but the vast majority of all mushroom producers' workers would be earning well over that amount. The Deputy was doing an addition and a division of staffing numbers compared to 40% of turnover going towards labour, but it equates to only a small percentage of staff working on mushroom units who are earning on the low PRSI rate.

The €2.5 million saving on 40% of the €150 million farm-gate price which represents the sector works out at 4.25% of the 40% labour cost.

Mr. Leslie Codd

Did Mr. McGovern give that amount?

Mr. Micheál McGovern

Yes. It was based on a sample of farms. We concentrated on the 8.5% because it was a measure introduced in the period 2010-2011. It was seen as a means by which we would get funding into the sector quickly, particularly if it could be implemented. I am aware that there is an issue - from an administration point of view - whereby any change in PRSI rates must apply to a wide range of sectors to which the relevant tax band applies. I suggested earlier that we should perhaps be looking at sectors which export 80% or 85% of their produce to the UK as a reason for their being supported. Yes, it will take the 10.5% rate, and it still needs to be "boxed-in" - if I dare use the term - to try to get a way where we can funnel this other rate of PRSI into the exporting sector. Of course, it will take more than the 8.5% to do it but there is a precedent in this regard. That is one measure by means of which we could get funding quickly. That is the real reason we are doing it. The other measure must come after.

Does the €2.5 million to which Mr. McGovern refers relate to the reduction of 8.5% down to 4.25%?

Mr. Micheál McGovern

Yes, together with a subvention within the 10% rate. The latter applies to many growers in the context of paying their staff.

Is the €2.5 million a combined reduction of the higher rate and the lower rate?

Mr. Micheál McGovern

Yes. There is a calculation in there for the 10.5% as well.

Is Mr. McGovern only seeking a reduction in the lower rate?

Mr. Micheál McGovern

Yes, because the precedent is there.

Ms Rowena Dwyer

If I could come in on that-----


I would like to wrap this up.

Ms Rowena Dwyer

Absolutely. However, to clarify, as Mr. McGovern stated, the precedent is there. The committee might note that in our presentation we reflect the fact that some mushroom enterprises - probably quite a few - pay some of their employees at the 10.75% rate of PRSI and, as a result, there needs to be a further look at whether a measure can be applied to growers who are affected and whose employment costs are not solely within the lower 8.25% rate of PRSI.


I will allow Mr. Wilson to make a brief comment.

Mr. Ronnie Wilson

I will mention another possibility that would be very supportive of the industry but cost very little. The industry requires flexibility in respect of its labour. We work many unsocial hours. If would be advantageous if it could be possible for us to have a permit scheme to bring in harvesters from non-EU countries and eastern Europe. At present, one or two of the growers that have stopped working have done so because of the currency issue. However, labour difficulties have also been an element in that decision.


We can include that suggestion in our submission as well. I thank the witnesses for their attendance and presentation today.

Sitting suspended at 6.52 p.m. and resumed at 6.55 p.m.