Future of the Beef Sector in the Context of Food Wise 2025: Discussion (Resumed)

I remind members and witnesses to make sure their mobile phones are turned off completely please. We are meeting to continue our discussion on the future of the beef sector in the context of Food Wise 2025.

From Teagasc, I welcome Dr. Frank O'Mara, director of research and Mr. Pearse Kelly, head of the dry stock knowledge transfer department. I thank them for coming before the joint committee to discuss this very important issue with us today.

I draw attention to the fact that witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to so do, 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 the proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person 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 invite Dr. O'Mara to make his opening statement.

Dr. Frank O'Mara

I thank the Senators and Deputies for the opportunity to address the committee on this very important topic. I wish to convey the apologies of our director, Professor Gerry Boyle. He is unable to attend as he has a meeting outside of the country and is at the airport as we speak.

I will go through my presentation reasonably fast because there is a lot of information that people can have for reference or whatever and afterwards we will have plenty of time for discussion. I will spend a minute or two describing the structure of the beef industry and the challenges facing same. I will focus a lot on the role of technical performance in terms of the profitability of the sector. I will also focus a little on our research and advisory priorities and some of our initiatives that are ongoing or recently started. I will finish by outlining the factors within our remit that impact on the net margin for beef farms.

I will outline the structure of the industry but I will not go into too much detail. I am sure members are familiar with the fact that we have an awful lot of beef farms in this country. The Central Statistics Office farm structure survey shows that in 2016 over half the farms in the country were designated as specialist beef production farms but a good share of the other farms also had beef cattle. Beef production is the biggest sector of Irish agriculture in terms of the number of farms. One can see from the pie chart displayed on the screen that over 50% of farms are specialist beef producers. On the next page there is a chart that displays the size of farms starting with, on the left hand side, farms of less then 10 ha and gradually increasing until one sees on the extreme right hand side the number of farms greater than 100 ha. In general, the distribution is towards the left of the graph so the sector is characterised by relatively small farms that are, on average, 32.4 ha. Nevertheless, the share of agriculture output that comes from the beef sector is very large as displayed in the middle section of the graph on the next page. One can see that over the years it has maintained around one third of the agricultural output of the overall sector and, therefore, beef production is a very important contributor to agricultural output from our farms.

The Irish beef sector faces many challenges and I have listed some that can be viewed on the screen. They include Brexit, which is at the top of the list; climate change, which is very much on everybody's radar these days; and the EU trade deals, which are very important to the sector and could have an impact on the market. Obviously we are coming into the negotiation stage for the next phase of the Common Agricultural Policy, CAP. The outcome is uncertain and potential changes to the distribution of direct income supports is again, potentially, a challenge for certain elements of the sector. The price of cattle is a very important factor for the sector and profitability. In particular, fluctuations in beef cattle prices can cause big fluctuations in income levels for farmers. Like all farmers, beef farmers must cope with severe weather events and their effect on production systems and input costs, which we saw last year with feed costs. Despite all of those challenges the beef sector has a lot going for it. One of the strong points of the sector is its environmental credentials. Irish beef is generally produced in situations of low intensity in comparison with many of the other beef production systems used around the world and these are generally very environmentally friendly. Our beef farmers also have very high participation rates in the agri-environment schemes under Pillar 2. When one compares the sustainability metrics such as the carbon footprint or the water sustainability system they compare very favourably with the systems used in other countries in terms of being environmentally friendly, which is very important in today's world.

Let us consider how the sector is evolving in terms of numbers. A lot of change is happening in the Irish cattle herd at the moment. The next graph shows the change in the number of beef and dairy cows dating as far back as 1980. Pre-quotas we had 400,000 suckler cows and 1.4 million dairy cows but since quotas were introduced we have had a gradual decline over the following 25 years or so in the number of dairy cows. In the late noughties and at the end of that decade the number of dairy cows decreased to around 1 million but at the same time the number of suckler cows increased to over 1 million. Since the abolition of milk quotas, and even before that as farmers were preparing for it, the number of dairy cows started to increase and has moved towards 1.4 million dairy cows. Over the past six or seven years suckler cow numbers have been trending downwards but not at a very rapid rate.

It is not happening at a rapid rate but there has been a reduction of a couple of percentage points every year in the size of the suckler herd, which is now down to slightly fewer than 1 million cows. One of the consequences of this is that an increasing proportion of beef output will come from dairy beef, that is, beef from calves born to dairy herds. The numbers of animals coming through the system may be largely the same, but the proportion coming from the dairy side is increasing. That has been a concern to many people, the worry being that it will lead to a deterioration in carcase quality. It is not just the change in the proportion of dairy beef versus suckler beef that is at play here, but the data also show that the dairy beef carcasses are deteriorating in quality over time. In the table entitled "Deteriorating Carcase Quality in Dairy Beef", the first block of figures relates to the typical beef calf coming out of the dairy herd, which is from an Aberdeen Angus sire and a Friesian dam. The highlighted column shows that, in 2014, almost 12% of those calves were graded O minus or worse, with that proportion rising to 21% in 2018. There are two factors at work here, namely, a decline in the quality of dairy beef and an increase in the volume of dairy beef. It is the same if we look at Friesian sires by Friesian dams and so on up the line; the quality of those calves is also deteriorating, albeit at a slower rate.

This is a significant issue at industry level, to which there have been several responses. One such response is the dairy calf to beef index, which was developed by Teagasc and the Irish Cattle Breeding Federation, ICBF, to help farmers to select sires for dairy cows to breed beef cattle that will be low in calving difficulty, of short gestation and have improved beef characteristics. That index is available to dairy farmers for the current breeding season. Another way the industry has responded is through various players assisting us in setting up a number of research and demonstration farm programmes highlighting the important parameters for dairy beef production. Rearing good dairy beef is not just about genetics but also management. There is a lot to be learned and to teach about how to run a dairy calf to beef system well.

Another significant issue for the industry is the export of live calves, of which there has been a substantial increase in recent years. In the year to date, more than 140,000 calves were exported, a 55% increase on the 2017 figure. All those calves are from the dairy industry and it is an important outlet for some of the lower genetic merit calves coming from that sector. The bulk of the calves exported are male progeny of dairy sire. They are Friesian on Friesian, Jersey on Jersey or Friesian on Jersey, that is, a dairy sire on a dairy cow. We do not have a veal industry in Ireland, which is where most of those calves on the Continent are going, so exportation provides an outlet.

An important issue for the dairy calf export industry is animal welfare standards. Members may be aware of a video that was doing the rounds some weeks ago showing calves being mistreated in France. That type of practice is abhorrent to us and unacceptable to those operating in the sector. For the industry to continue to exist, it will have to eliminate any such instances.

The final issue I will deal with is incomes. The data set out in the table on family farm income, which is from the Teagasc national farm survey, include the direct payments farmers receives. The first block of bars in the table gives the data for the dairy industry from 2011 up to 2017. The second block represents the data for cattle-rearing farms, which tend to be suckler farms. The "Cattle other" group comprises a mixture of finishers, calf to beef and so on. The table also includes data for sheep farmers and tillage farmers. These data illustrate the main difficulty facing the beef industry, which is the low income it generates for farmers. That income is hovering at €10,000 per farm, in comparison with dairy farms, where incomes are varying anywhere from €50,000 to more than €80,000. Of all the challenges facing the sector, this issue of low incomes has consistently been the greatest. Family farm income is what is left over after moneys are paid out to remunerate family labour and give a return on owned land and capital. It is important to note that the beef sector is by far the most diverse of farming sectors, more so than dairy, sheep or tillage. There is a significant diversity in the types of systems farmers operate, a large number of part-time farmers, a broad range in terms of the skills and age profile of farmers and, probably, their motivation. For example, some people have inherited land and do not want to sell it out of the family but have another job. For them, it is important to maintain the land and keep farming it, but profit might not be their ultimate motivation. Of course, everybody wants to make as much money as they can, but other factors come into play in some instances.

We are looking at a stark picture for the beef sector in regard to profitability and income. However, our view is that there are opportunities for committed beef producers. They may comprise a relatively small proportion of the overall number but there are farmers making a net profit per hectare, which excludes direct payments. There is the possibility, therefore, to run a business profitably, and it is Teagasc's view that there is potential for many beef farmers to improve profitability. One of the features of the profitable farms is that they are adaptive and responsive to new technologies, research findings and the messages coming from advisory programmes. The table on page 16 shows net margins, which do not include direct payments. We see that the top 20% of farmers, who are the specialist cattle-rearing farmers, consistently achieve a positive net margin. It is not a big net margin but it is positive. Looking at the next couple of rows down, there is potential for those farms, through efficiency and technology, to improve their net margin.

This is what keeps us committed to the sector, namely, our belief that improving technical performance and stocking rate will improve profitability on farms. The table on page 22 shows the performance of a typical suckler cow that one finds on the national average farm and compares it with the metrics for high-performance farms, which are the top 15% or 20%, that are within the control of the farmer. The number of calves weaned per cow per year on average is 85 per 100 or 0.85. The best performers, however, are achieving a rate of 0.95, which is worth an additional €87 per cow. Age at first calving is 32 months on average, with the better performing farmers calving down heifers at 24 months, which gives a saving of €50 per cow.

The six-week calving rate is 55% on average. If a farmer can bring that to 80%, there is a saving of €28 and so on. Regarding the average daily gain of calves, there is a difference of €86 between the average and the better-performing farms. Regarding concentrates fed to the cow-calf unit, there is a difference of €52. Therefore, if a farmer is able to move himself or herself from the average up to that better farm cohort, there is an extra margin of €300 to be made per cow.

One might say this is all very well but very theoretical and ask whether farmers are actually doing this. The next two charts I will show illustrate this happening in practice. I refer to one of the programmes members may have heard of, namely, the Teagasc-Irish Farmers' Journal BETTER beef programme, whereby we work with something in the order of 25 to 35 beef farmers, depending on the time. They are usually in the programme for three to four years. We work intensively with them on a programme of improving their technical performance, financial management and so on. We then follow through on the impact of the changes they make to their output and, more importantly, their profitability. The graph on page 23 of our submission shows the cohort of farmers we took into phase 2 of the programme. They started on the programme in 2011 with an average growth margin per hectare of about €550 and, as members can see, an output per hectare of 600 kg of beef. Over the course of the programme they increased this output, through increased stocking rates and better performance, to over 800 kg per hectare. Members will see here that the gross margin on these farms had increased to over €1,000 per hectare. This was not through getting bigger or anything but simply through applying best technology on those farms. They are real farms, farmers' farms, not our farms. We just worked with the farmers. They were mainly suckler beef farmers.

We have another programme called green acres, which concentrates on dairy calf to beef. It follows the same principle: these are farmers' farms and we give the farmers intensive advisory support. I will not go down through all the details of page 24, but members can see that the gross margin on these farms at the start of the programme was €513 and that at the end of it, three years later, the margin was over €1,000. Members can see the net margin improve again by about €500 per hectare. There may have been price movements between these years. This is not corrected for changes in beef prices, and there would have been some element of that, but the vast majority of improvements in both these areas were due to better technical performance. We see this as an area where we can contribute positively to the beef sector by helping farmers to improve their productivity and to try to make a few steps along that ladder of improving their margins. There is nothing secret or magic about the areas on which we concentrate: genetic merit of the animals, reproductive efficiencies, grassland management, which is hugely important, animal health, financial performance and environmental sustainability. I will not go through all the slides in our presentation, but these are just some of the beef sector initiatives we have ongoing or have started recently. They are detailed in the slides we distributed to members. If they wish to ask us anything about the initiatives, we will be very happy to discuss them. This is just to illustrate that a lot of research and advisory activity is ongoing in support of the beef sector.

I will finish with the slide on page 29, which is for us where it is at. How can farmers do things inside their own farm gates to maximise their net margins? Margin is maximised where there is a focus on optimising performance per livestock unit farmed through the key technologies of grassland management, genetics, reproductive performance and animal health. The importance of stocking rate cannot be ignored. If one grows more grass, one must carry more animals to get the value out of that grass. This means operating at a high stocking rate, whatever is appropriate to the land type, labour availability, infrastructure and so on, but one carries the animals that suit one's farm. Overhead costs must match the level of output. Direct payments must be maximised. The investments in infrastructure should allow for efficient use of time and labour on farms, in particular for part-time farmers, but also for full-time farmers. Net margins, obviously, are related to the inclusion or incorporation of the latest innovations coming from research and advice on farm operations. For us, this is the contribution we can make to this sector: trying to make sure that farmers can maximise their return based on how efficiently they run their enterprises. I thank the committee. We are happy to deal with any questions or clarifications.

I thank Dr. O'Mara. I will now take questions from the members, Deputy Martin Kenny, Senator Conway-Walsh, Deputy Cahill, Senator Paul Daly and Senator Lombard, in that order.

I thank Dr. O'Mara for his presentation. It was quite informative. I have a couple of questions. Regarding the suckler sector, I come from a part of the country where the farmers are nearly all small suckler farmers with an average of ten to 15 cows. The key thing is that the cow must be kept all year round, and the only thing the cow produces is the calf. This is one of the problems. I am interested in the better beef challenge. What type of land is involved, and where is the programme being run? Is it primarily being run in the west or in the midlands? Does it aim to get these calves up to a stage at which they are beyond weanlings and sold on to finishers or to finish them off?

Regarding the other sector Dr. O'Mara talked about, the best practice on dairy to beef, some farmers around us are now starting to take in the dairy calves and rear them, usually on contract. As I said, the suckler farmer's biggest cost is trying to keep the cow all year round. If the farmer has 15 cows and only two of them calve, he or she has a big cost keeping that in place. Is it possible to see a future situation in which an alternative model to this kind of structure is developed? The model we have at present is that the suckler cow is kept on the more marginal, more difficult land that may be suitable for dairying, tillage or other things and a very good-quality weanling calf is produced and then sold on to be finished somewhere else. Is there a feasible alternative model to this, not a trial, that can work on that type of land and produce a higher income per hectare? What trials have already been done on this to prove the concept?

The big issue here, of course, is the price farmers can get returned. The prices returned from the factories at present are not meeting the needs of any sector of this. The prices are just not able to provide the level of income required for that level of income to be fed back down the line to the suckler farmer from the beef producer to make either sector viable, the finisher or the suckler. One of the suggestions that has been made is that more emphasis needs to be placed on providing producer groups whereby groups of farmers coming together can get better prices, produce the finished animal and sell it at a higher price. We have had various groups before the committee talking about this and the way in which they would do it. There are questions marks surrounding this, but how much work has been done on this concept? Are we near or could we come to a situation in which we could see farmers on poorer land in the west of Ireland being able to finish their cattle? Is there any model that could be developed in this regard, whereby farmers could finish cattle on such land and perhaps take quality beef calves from the dairy herd, finish them and make a better profit on them than that they are making at present, whereby they must keep suckler cows to produce the calves?

I want to ask the witnesses about how they see things going regarding the growth of the dairy industry and the impact this will have on beef. Beef farmers are particularly concerned about where this will all end. I do commend Teagasc on some of the measures, such as the knowledge transfer scheme and so on. They are hugely important, but unless we sort out where the €2.4 billion connected to the beef industry is going, we will not be able to sort out this problem and will be limited in how we approach it.

Has Teagasc done any models of vertical integration, as have been done with pigs and poultry and other sectors? Why can that not be done with beef? Can the witnesses comment on the beef industry and farming, particularly farming on the marginalised land where I come from, in terms of looking at farming in the west of Ireland as a public good? What supports need to be put in place to really look at farming in the more marginalised areas as a public good in respect of the contribution it makes to rural Ireland and to rural communities? I also wish to ask what the witnesses' relationship is with the beef factories, what role Teagasc can play in the pricing with beef factories and what it is doing about exports, trying to engage with the Chinese market and the replacement of the shortage of pork in that area. I will leave it at that for the moment.

I thank the Senator. I call Deputy Cahill.

I thank the representatives of Teagasc for a most informative presentation. I have a few different questions. The first is about the graph which showed the increased proportion of beef that will come from the dairy herd. Are there figures for four or five years' time? Has Teagasc projected where the dairy herd size will go and what will be the size of the suckler herd? A figure on the graph showed how much live exports have gone up but do the witnesses have a figure for what they expect or what the potential is for the next four to five years of further expansion? While the graph showed there is an increased proportion, I would like to get more meat on those statistics.

The second point I want to make, which is a bit of a criticism, is about the economic breeding index, EBI, to which the witnesses referred. In recent years, little or no value has been put on the index on the beef side. Whether it is on the carcass value of the cow at culling or the value of the calf at sale, there definitely must be a policy adjustment in the calculation of the EBI. At the end of the day, the EBI should reflect the profitability of a farm and if we have a 20% replacement rate for cows, a cow should be replaced every five years. The value on the carcass between a good Friesian cow and a Jersey cross cow has not been in the EBI index and that also needs to be rectified. The negative side of cross-breeding on beef genetics has not been economically evaluated to the extent I would like or that would influence farmers' decisions on breeding.

The third point is on live exports. While I am open to correction, my understanding of live exports is that Jersey crosses are not welcome, whether they are from a Jersey cow or a Jersey dam. The veal units on the Continent do not want these animals and when a number of them got there in the past, their performance put a threat on our whole business relationship with the veal units. Has there been evaluation of those calves? Have they any potential for the veal units or are they an absolute no-go area?

The income figures that were given on the profit per hectare and the increase in recent years where people were involved in various discussion groups, were the real eye-opener for me in that presentation. Is there a breakdown of the figures that were given on farmers involved in knowledge transfer groups and so on as to whether they are full-time farmers or on their acreage? A lot of figures were given on the size of farmers involved in beef production and I would like to know whether there is a co-relation with the knowledge transfer or if the larger beef farmers are getting involved in the knowledge transfer programme. It was clear from the figures that were shown that the knowledge transfer had a huge input into the income per hectare, and at the end of the day, that is absolutely key. The amount of dairy farmers involved in discussion groups and the percentage of beef farmers involved in the same is fairly minute. We have had the beef data and genomics programme, which has an incentive but there was a lot of resistance to it in the past. Have the views of dairy farmers improved as regards participation in that programme? Can Teagasc suggest ways in which we can get a substantial increase in the number of farmers partaking in its scheme?

What is the membership of beef farmers in Teagasc? It may be an unfair question to Professor O'Mara, but does he feel that farmers, and beef farmers especially, only have a link with Teagasc for the purpose of filling out forms and to make sure they are involved with the green, low-carbon, agri-environment scheme, GLAS, and various other schemes? Is Teagasc seeing any increase in the participation in these knowledge transfer groups? The figures that showed the improvement the profitability over a short period were startling. We will be arguing here about five or ten cent per kilogram in beef price but the increased efficiency in the graphs shown was very significant. There are some questions. This committee was in Moorepark a couple of months ago and I raised questions then about the focus in our dairy research farms on cross-breeding. Has there been a realignment of that focus or does Teagasc still perceive cross-breeding to be a key part of the dairy research in the future? What are its implications on our beef output and has the evaluation of that increased?

I thank the Deputy. Senator Paul Daly is next.

I thank the Chair, and I thank the witnesses for their presentation and for their attendance. I have a comment on the overall scene. I welcome the presentation and the good work Teagasc is doing, but we are all familiar with the 21:28: 51 model that is going around when it comes to beef, wherein 21 cent of every euro that is spent across the counter by a person buying Irish beef, 21 cent or 21%, is the farmer's cut, while 28% is the processor's cut and 51% is the retailer's cut. While Teagasc has no influence on that and is probably is not in a position to comment on how we could improve that percentage take for the farmer, Teagasc's good work here is in trying to enhance, increase and improve the farmer's profitability within a very small percentage of the overall take for beef. Even for the most efficient farmer out there, we are still talking about increasing his percentage profitability of a very small percent of the overall income that is coming into the beef sector, the vast majority of which is going to the processors and retailers. Teagasc is on a par with the rest of us here, because none of us can address how to increase the farmer's take, but that is basically the bottom line issue here.

I want to tease out some of the processes and production improvements for farmers, and incorporate into that what has been mentioned already. On the increase in the dairy calf numbers, the increase in the proportion of beef that we either will be eating ourselves, or hopefully exporting, is going to come from the dairy herd.

For a farmer who has been rearing sucklers to rear a dairy calf as a substitute, the internal conflict is that beef is sucklers in the heads of people such as myself and Deputy Martin Kenny the further west one goes. When one looks at the promotion material for Irish beef it shows a picture of a lovely Charolais cow with a fine big calf on a lush, green, grass field. We are portraying that Origin Green, grass-fed image. No matter how efficiently we do it, if we move further towards rearing dairy calves to beef there will be a great deal more inputs and more time spent inside on concrete floors, slats and the like. While we might be getting it right in one way, are we running the risk of damaging our image in the long run? Regardless of how efficient we become at producing the dairy bred calf, in the process of doing that could we lose our grass-fed image, which ultimately could be detrimental to selling the beef?

All the figures and tables in the presentation include the direct payment. We can see from the figures how integral an element it is of farmers' incomes. It will not be Teagasc's call or ours as the final decisions will be made further up the chain, but where would Teagasc like to see the emphasis built into the system in the next CAP payments? Will GLAS payments, hopefully, continue? Will there still be knowledge transfer? They are the two schemes other than the direct payment from which suckler farmers, in particular, can benefit aside from rearing beef. Does Teagasc have an opinion on where it would see the most beneficial payment coming to the beef sector, how it would be most beneficial and how it would improve not just the farmers' lot but the production processes in which they are operating?

Continuing on the beef sector and processing, how does Teagasc envisage the larger kill to produce the same amount of beef given the nature of the beast we will be rearing in the future from the dairy herd? What type of image will that portray? Does Teagasc see any advantages in it when it does its sums for the overall bottom line for a farmer at the end of the year if he moves from suckler production to rearing the dairy calf? He will have to rear many more calves than his cows were rearing to produce the same amount of beef. When one balances the two, will the farmer ultimately be better off?

I apologise for missing some of the presentation. I acknowledge Teagasc's great role in trying to ensure there is profitability in beef farming. I have questions on two issues. The industry has seen major movements regarding suckler cows and trends of moving away from suckler cows. In my part of the country, as has been mentioned by other members, the phenomenon of contract rearing of dairy calves for dairy herds has become the more profitable option within the beef industry. Farmers are probably getting paid every month, they are getting a set amount and there is no issue with the marts or the factories. It is becoming a pathway that many people, particularly young farmers, are considering. They are not seeking to go into dairy but they might see an opportunity in going onto the platform of contract rearing. Where does Dr. O'Mara see that in the future of agriculture and the beef industry? Does he think there will be greater movement towards that? On issues regarding bed and breakfast arrangements and the legislation, do we need to examine that and streamlining it to make it easier?

I also have a question about the ability of farming groups to work together as an entity, for example, as producer groups, to get a better price on the factory floor. Has there been much activity in that regard? What role does Teagasc have in promoting and activating the producer group model so there is a conglomeration of multiple farmers working together to get a better floor price and having a power hand when dealing with the entities involved? Where does Teagasc see that in the future in terms of getting a better price for one's product?

They are two key issues. In the industry at present one is seeing large numbers of suckler cows moving off farms and there is a knock-on effect of not having the weanlings. Does Dr. O'Mara have a fear, and I put this question to representatives of the meat industry and they fluffed the answer, that a decade hence the meat industry might be made up of Friesian cull cows and Angus bulls and heifers? Would he have a fear for the industry into the future if that were to be the marketability element of the industry? Where does he see the industry on that type of footing?

I have two questions. I welcome the €100 million rescue package for beef farmers. It is very important to have this money available to make an intervention to support the beef sector. We have been discussing the value of it in the committee. There are many suggestions as to how it might be spent. How might it be best targeted? What are Dr. O'Mara's ideas in that regard for the best outcomes for the beef sector and particularly for the farmers, who are the primary producers, so they have some type of cushion and they are not put off entirely and pull out of suckler or beef farming?

I had another question which I cannot recall just now. I will return to it later.

I was absent for the presentation. I am not a member of the committee but I appreciate the opportunity to contribute. As Senator Mulherin said, the €100 million comprising the commitment of €50 million each from the Government and the EU is welcome. How quickly will it be implemented? Time is of the essence here and I hope that by next autumn we will not still be asking questions about how it will be implemented.

I remember my other question. The Minister and Bord Bia have had success in finding new markets for our meat and increasing live exports. Notwithstanding this, I noted in coverage in respect of the Chinese market that there was concern that the meat processors would not have enough meat to send to it. However, this demand does not appear to help the farmer, the primary producer. This was raised by Senator Lombard as well, but how do we protect them from the volatility of the price they receive given their vulnerable position? I am aware there are EU-wide endeavours to protect the primary producer, recognising the producers' weak bargaining position in the food supply chain. It appears that no matter what good work is done by the Minister and the agencies to find new markets in which to sell, farmers are still in the same predicament of not getting money for the animals they produce.

I have a question before calling on Dr. O'Mara and Mr. Kelly to respond. In your presentation you mentioned that the key challenges in the future are CAP reform and climate change. Climate change is probably the biggest issue in the future. What work or research has Teagasc been doing recently to educate farmers today about the requirements of the future? Regardless of whether we like it, there is no doubt that we are entering a different era from a climate change perspective and we must be ready for that as we move forward. What work has Teagasc been doing to ensure we will be ahead of the pack in that regard?

Dr. Frank O'Mara

Mr. Kelly will answer some of the questions as well. There were many questions about price and the market. We will comment on that as we go through the questions but we do not have any answers on it. It is a huge conundrum.

The big issues for a beef farmer are the price he gets for his cattle and how efficiently and at what cost he can produce those cattle. Our role relates to how efficiently and at what cost a farmer can produce cattle. Getting an adequate return from the market is a job for the beef farmer. They are our clients and we would love them to get more.

Deputy Kenny asked about the BETTER farm beef programme and asked where were the farmers who were on the programme. They are all in every county and on all land types. Variation in performance and profitability arose depending on land type but in all land types, we were able to show an improvement in performance by focusing on technical efficiencies. The Deputy also asked about an alternative model for the suckler cow, while another Deputy mentioned contract rearing. There are alternative models, such as dairy calf to beef, but we see the suckler model as integral for the future of many farmers. This is for various reasons. It does not suit everybody to go into dairy calf to beef farming as it is labour intensive at the rearing phase. Sucklers are a suitable system for many small fragmented farms where there is wetland and so on. It is not a profitable enterprise at the moment but we have to keep working at it. The marketplace has to keep working to produce a viable return for farmers within the system. There is an opportunity in areas such as better grassland management and better fertility.

Price is a major issue. Over the years there has been talk of getting producer groups together and getting farmers together to brand our beef better. These things can play a role but they have not, to date, been hugely significant in the beef or sheep sectors. There are a number of producer groups in the latter sector but, while they work well together, they tend to be localised and do not comprise a large volume of the sheep kill. It is the same in the beef sector. It has to be worked on but it will be slow progress to establish producer groups in such a way as to make a significant impact on the industry.

Senator Conway-Walsh asked about the impact of the dairy sector on the beef sector. We are seeing a fundamental change in the beef sector and we are, to some extent, going back to where we were in the past with 400,000 suckler cows and 1.4 million dairy cows. I do not suggest suckler cow numbers will reach that level, in the short or medium term at any rate. At the time we had those numbers there were 70,000 dairy farmers with an average of 20 cows each. Many of them have now got out of dairy and got into sucklers, and they will not be going back to dairy production. The structure of the industry has changed quite significantly. The share of the kill coming from dairy beef will continue its trend over the past couple of years so it is important that we work on the quality of the calf that comes from the dairy herd, as well as continuing to support the suckler herd.

Models of vertical integration are being adopted in factories that are contracted to farmers with feedlots to finish cattle and, in recent years, factories have integrated with suppliers for particular markets. They have a role to play in giving certainty to a producer as regards his margin at the end of the process. Senator Conway-Walsh also talked about the role of farming as a public good. We put up a slide on its environmental performance and beef farming has a strong performance in that area, contributing a lot to biodiversity, good water quality, etc. That is an important facet of the industry.

Senator Paul Daly asked about the CAP. The CAP will try to target people who supply environmental goods to reward then for their contribution. Senator Conway-Walsh asked about our relationship with beef factories and our role in regard to pricing and exports to China. We have no formal relationship with the beef factories but we collaborate with them on various initiatives they take to support producers, such as the Teagasc-Irish Farmers' Journal BETTER farm beef programme, whose advisers are being funded by the three largest meat companies and FPD. We also collaborate with them in research on meat quality through Meat Technology Ireland, an initiative funded by Enterprise Ireland and meat factories to look at the post-farm gate aspects of meat quality. We have no relationship with them in the area of pricing, however, or how they set their prices.

We do not have a significant direct role in exports to China but we support the Department when delegations come to Ireland by bringing them to farms, telling them about the production system and giving them information about sustainability and animal welfare in our industry.

Can the current suckler farming model work profitably into the future? Has it a future? That is the nub of the issue and many of us are beginning to doubt if it has one.

Dr. Frank O'Mara

We think it absolutely has a future because farmers can make money out of it, as illustrated in the programmes to which we have referred. It has always had a lower margin per hectare than dairy, which is what has been attracting beef farmers into dairy. However, because of the fragmentation of some land or the fact that the size of a farm may not allow a large-scale dairy enterprise, not to mention the fact that some farmers work on a part-time basis, there are many farmers for whom beef and suckler production is the most suitable system. We believe that, with the application of the technologies about which we spoke, it can be done profitably, albeit less so than dairy.

We are not, then giving up on the sector.

Dr. Frank O'Mara

That is basically the case, yes. Deputy Cahill asked where the proportion of the beef to the dairy herd might be in four or five years. We do not have a crystal ball but we did an exercise recently in which we tried to model how the dairy and beef sectors would co-evolve in the future. We examined a number of scenarios ranging from a rapid expansion of the dairy sector to the rapid fall of suckler farming, neither of which is the most likely scenario. We will probably see an expansion in dairy cow numbers of between 1% and 2% over the next couple of years, based on what we have seen with heifers on the ground, inseminations, calves born this year and so on.

We are in a slower expansion phase on the dairy side, with a rate of 4% to 5%. On the suckler cow side, the rate in the past three to four years has probably been 2% to 3% per year. Whether it picks up in terms of there being more conversions remains to be seen, but that is the trend. It is a question of whether the trends will remain at that modest level or accelerate in either direction. To me, it looks like we will see a more modest trend in the next couple of years.

Reference was made to the EBI, the visit to Moorepark and so on. I am not an expert on breeding. Perhaps Dr. Kelly might want to pick up on this issue.

On our breeding policy, let me refer to one of the most important herds we have at Moorepark. I was not there on the day members visited, but they probably saw the next generation herd. We are trying to look forward to determine what the average cow might look like in ten years' time. I am not referring to appearance but to how a cow performs. It is one of our flagship herds and a crossbred herd. It is a Holstein herd, but it is not all a Jersey herd by any manner or means. We do not see that the future involves crossbred animals for everybody. A relatively small proportion of the dairy herd is crossbred. The figure is approximately 5% or thereabouts. We circulated information to the effect that the only semen we used in our own cows this year was sexed Jersey semen, with a view to avoiding male Jersey calves or crossbred Jersey calves. We published our approach in the media. My understanding is quite a few farmers followed the practice in the spring.

On Jersey calves and live exports, Dr. Kelly might state whether there is an appetite for Jersey calves, or otherwise, among live exporters. My understanding is that, at this stage of the year, quite a few Jersey calves are being exported because there is a lot of demand for them. Dr. Kelly might know a little more about that matter. I will leave it to him.

I was asked about the BETTER farm beef programme, one of our knowledge transfer programmes, and also the data we published on the dairy calf to beef aspect. I was asked whether larger beef farmers, or others, were involved. To clarify, the data I showed for the better beef programme and the dairy calf to beef programme were for "selected farmers", for want of a better phrase. There were 25 or 30 farmers involved in the BETTER beef farm programme and ten in the green acres dairy calf to beef programme. There was a range of sizes, from medium to large, rather than small. On the wider question of whether our clients are large or small farmers, we have a mixture of clients. Dr. Kelly might refer to the numbers involved in discussion groups for the schemes.

Senator Paul Daly, rightly, pointed out that we were working on a very small part of the cake. Approximately 20% of the retail value is what ends up with the farmer. That is the part in respect of which we are trying to improve profitability. That is a fact, but a mantra from any businessperson is that one should control what one can control oneself and do it well. We work with farmers to help them to control what they can control as best they can. The wider picture and the share of the cake comprise a bigger issue that may be dealt with later.

On what we would like to see in the next CAP, we do not have a particular view on the matter. We provide information and advice for the Government on any scenario it wants us to model, but everyone believes the CAP will probably reflect important issues such as climate change and other environmental issues in its next iteration to a greater or lesser extent.

Senator Lombard referred to the trend away from suckler cows and highlighted the increase in contract calf rearing. I refer to dairy calves being contract reared on beef farms. It has developed as a successful enterprise on a significant number of farms and we see the trend continuing. I do not know what level it will reach, but there are probably 1,000 farms carrying out contract rearing. I do not know whether the number will double, but there is certainly a trend towards an increase. However, it is certainly not for everybody. Not every farmer will want to contract rear, but those who are doing it like the certainty attached to income. For dairy farmers, it is an important outlet or way to reduce the workload on some farms.

Senator Lombard asked whether there were issues that needed to be streamlined. I am not aware that there are particular barriers, legislative or regulatory issues holding things back. The Senator mentioned producer groups, an issue on which we have touched. He asked whether we were afraid that there would not be enough quality cattle around in ten years' time. I do not foresee us not having a significant suckler cow herd in ten years. We will see more dairy calf to beef production, to some extent, and it will be a challenge for the beef industry to ensure it can market all types of animal in the industry.

Senator Michelle Mulherin asked about the figure of €100 million and whether we had suggestions in targeting it. There are many people with many suggestions. There are many farmers who had a tough six or eight months because of beef prices. There will be many ways suggested as to how to cut the cake. I will leave it to the Minister and his officials, in their wisdom, to spend the money wisely and try to ensure the funding will go to those who suffered the biggest losses in the last period.

The Chairman asked about our work on climate change and what we were doing to inform and educate farmers in that regard. With every major event we experience, we highlight important issues to do with the environment. At our last open day in Grange there was a big element on the environment. In our programmes, including the BETTER farm beef programme, and so on we try to highlight environmental issues as much as we can. In agricultural colleges our students are well trained on the subject. Sometimes it can be hard to get farmers to engage on ot. They are much more interested in talking about breeding quality or grassland management, but, as the public debate increases, farmers are becoming increasingly informed and wish to know about the matter and circulate their side of the story. The farm organisations represent them quite well in that regard.

Before we proceed to Dr. Kelly, two members wish to ask questions.

On the sexed semen, do the delegates have percentages for fertility and cost?

I accept that the delegates probably cannot answer my initial question about aid for the beef industry. However, I am concerned. Statistics in the past five years show that in excess of 2,000 families have left the land. There is constant decline. Having attended IFA and beef forum meetings in recent times, particularly on my side of the country where the suckler cow and suckler cow to beef sectors are so big, as mentioned, I note that many farmers are threatening to sell their land or turn it into forestry.

Like everybody else, I accept that there is a place for forestry, but we do not need a blanket of forests all over the place. Quite good land would be used for forestry. We all accept that there is land that can only be used for forestry, which is fine.

Are we not facing a difficult crisis? There are 70,000 people directly employed in the farming sector and this figure does not take into account the number involved in the production of food. I am talking about family farms and contractors, etc. It is a lot of people. The sector is under pressure. Is there a need for extra financial support for it, particularly in suckler cow production, on an ongoing basis as my party has proposed? We all welcome the €50 million from the Government, but it is only a stop-gap measure. A lot of good advice has been given by Teagasc during the years. As advisers to the farming community, do the delegates accept that there will be a need for extra financial support for the sector if it is to survive? If that does not happen, where will it be in ten years?

Mr. Pearse Kelly

The BETTER farm beef programme was mentioned, It was covered by Dr. O'Mara. With the programme, we see a range of beef systems. This goes back to some of the issues mentioned by other members, including Senator Paul Daly, regarding which systems are the most profitable, etc. The system under the most pressure - it is used more commonly in the western part of the country - is where suckler cow farmers are rearing weanlings up to seven or eight months and then selling those calves to finishers in neighbouring areas or other parts of the country. There is a big cost in keeping that suckler cow and the value of the calf, or the lack of value, can often have a big impact on profitability. With the likes of the BETTER farm beef programme in the past few years and profit monitor results, we have seen that those farmers with the ability to take on those animals for a little longer and perhaps finish them are more profitable. A high proportion of suckler cow farmers are in a system where they sell calves at a young age. This can be down to land type and the availability of labour and housing on the farm. Dr. O'Mara has shown a graph demonstrating a big increase in profitability, much of which arises from a change of system on a farm to a more integrated process all the way through.

Deputy Cahill asked about live exports and the attractiveness of male crossbred calves from the dairy herd. They only have a certain value. Research from Teagasc in the past ten years has demonstrated that if we compare the Jersey crossbred male calves with Holstein Friesian crossbred male calves, they are worth in the region of €100 per head less in terms of profitability than if the farmer was to hold on to them to finish them. It is a challenge. If the Holstein Friesian bull calf is only worth €40 or €50 in terms of profitability in the market and the others are worth €100 less, the sums do not add up. Veal units on the Continent have the same figures. There is large availability of Holstein Friesian bull calves. Not all of our Friesian male calves are exported and there is a selection that would not be suitable.

Deputy Cahill referred to knowledge transfer and asked if farmers were only interested in the schemes. That is not our experience. Within Teagasc we are operating 300 knowledge transfer discussion groups, in which a little over 5,000 farmers are involved. The previous scheme, the beef technology adoption programme, BTAP, ran for three years. At this stage the majority of the farmers have been in discussion groups for a little over six years within which we have seen significant progress in the level of technology uptake by a significant proportion of farms. We have seen the level of uptake within groups in our profit monitor results. It is a select group of farmers who are first Teagasc clients and then in knowledge transfer discussion groups. That is probably where we are seeing more progress than in national average figures from the national farm survey.

Senator Lombard mentioned contract heifer rearing, an issue also covered by Dr. O'Mara. There is an attractiveness about it, but with respect to profitability, we are only starting to see farmers getting involved in these systems. Our initial analysis is that where farmers become involved in contract heifer rearing to a high level of efficiency, there are similar enough incomes where suckler cow or dairy calf to beef rearing is engaged in to a high level of efficiency. If we are to compare the systems, including contract heifer rearing and dairy calf to beef or suckler cow rearing, we must really compare them at a high level of efficiency. There is similar enough income at the high levels of efficiency.

Deputy Eugene Murphy asked if there was a need for extra support for suckler beef farmers. There are schemes such as the beef data and genomics programme which are worth quite a lot of money to farmers and where there has been a big uptake, but of the approximately 65,000 suckler cow farmers in the country, fewer than half have taken it up. As an advisory service, we pushed both clients and non-clients strongly to take up the programme. The Government also launched a pilot beef efficiency improvement programme, the beef environmental efficiency pilot scheme, which we also encouraged farmers to take up. It is worth €40 per cow and farmers have to weigh the cow and calf to get it. It remains to be seen whether the full funding will be taken up. Only a percentage of beef farmers have taken it up. It is important that when schemes or such support is available for suckler cow farmers, that they be taken up. Efficiency is built into them as a certain amount of work must be done by the suckler cow farmer, but it is important that they be taken up.

Is that beef scheme oversubscribed?

Mr. Pearse Kelly

I have not seen the figures to know whether it has been oversubscribed.

I believe it is, although I stand to be corrected.

Dr. Frank O'Mara

The Deputy asked a fundamental question about ongoing support for the sector. As it is a policy issue, I will not say "Yes" or "No". Profitability is a factor of efficiency on a farm, the price received and direct payments. Senator Mulherin referred to the Chinese market and the great work done by Bord Bia and others in gaining access to it. It is really important. We must also remember that beef is competing with chicken and pork which are much cheaper meats throughout the world. There is only a certain amount that the market will be able to return. We need to try to move up the value chain and get into premium markets to capitalise on the high quality product we have, but there is only a certain amount that can be done. We operate in the area of efficiency and there is much scope on many farms to improve it. For various demographic and other reasons, some would probably be slow to adopt the technologies we advise, but there is a large cohort of farmers whom we believe have the potential to adopt some technologies to improve grassland management or the genetic merit of suckler cows, etc. The schemes mentioned by Mr. Kelly are very important, not just for the income support they provide but also for the improvements they can bring about on farms and the long-term benefits they provide.

There is no doubt that there is a profitability challenge in the sector. When beef farmers with good infrastructure on their land base and good land see the profitability in dairy production, it will be an option for some. If beef farmers do not improve their margins through productivity or the price does not increase, these farms will continue to face an income challenge, unless a support payment or whatever else is provided.

Whether that happens is not a decision for us. It is a sector which has to deal with a big income issue.

Dr. Frank O'Mara

Deputy Cahill asked a question about sexed semen. I do not have the figures off the top of my head. Fertility using sexed semen is lower. We have conducted two large trials with sexed semen. The first was three or four years ago, where fertility was approximately 20% lower than conventional semen, although I cannot recall the figure exactly. Indications were that the process of producing the sexed semen had improved over the years so we conducted another trial last year, in the hope that we would find improved fertility. We found that it had not improved much at all since the previous trial. On analysing the data in detail, there was some evidence that the timing of AI might have an impact on its success rate when using sexed semen, so we felt it was worth doing another trial to examine that. That trial is ongoing on farms in recent weeks. We are examining timing in relation to the onset of heat. We are hopeful but we do not know what the answer will be. That is why we are doing the trial. The fertility might be similar to what one would get in conventional semen. Mr. Kelly might know the additional cost of a sexed straw.

Mr. Pearse Kelly

I do not know the exact figure but it is probably double the cost.

The committee has spent much time on this matter in recent weeks. It is an important issue for the farming sector. Today is the committee's final hearing on the matter. We hope our report will be completed in the next couple of weeks. It is evident from our most recent few meetings that there is no silver bullet for the sector, but we hope to ensure that there might be a roadmap for the sector for the future which might be helpful. We often talk about crystal balls. We hope that the crystal ball may be a little clearer when the report is published. The presentations we have heard today will be invaluable and we thank everyone who has attended. We will suspend to allow the next group to take their seats.

Sitting suspended at 5.22 p.m. and resumed at 5.27 p.m.

I remind members and witnesses to make their mobile phones are completely turned off. We will now discuss the unfair trading practices directive and the future of the beef sector in the context of Food Wise 2025. I welcome Ms Isolde Goggin, chairperson, and Mr. Fergal O'Leary who is a member of the commission, from the Competition and Consumer Protection Commission, CCPC. I thank them for coming before the committee to discuss unfair trading practices. Over recent weeks the committee has held hearings on the future of the beef sector in the context of Food Wise 2025. Anti-competitive practices have been raised regularly during these hearings. The committee wishes to address any concerns that the CCPC may have on the allegations of anti-competitive practices in the beef sector and any observations on the Glanbia-Kepak Twenty20 Beef Club initiative, which the committee dealt with some weeks ago. The committee raised the issue with the CCPC prior to its attendance at today's meeting and we are interested in its observations on this.

I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against 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 House or an official either by name or in such a way as to make him or her identifiable.

I call Ms Goggin to make her opening statement.

Ms Isolde Goggin

I thank the committee for the opportunity to address the committee. I am joined by Mr. Fergal O’Leary, a member of the commission, who has responsibility for the CCPC’s consumer protection division and our advocacy and consumer information functions.

Since we appeared before the committee in October of last year, we have closely followed the progress of the unfair trading practices directive through the European legislative process. We have also followed the committee's debates with interest and we are aware of the wide range of issues, particularly in respect of the beef sector, that have been raised by stakeholders.

My intention in addressing the committee on both these topics is to put forward some lessons from our own experience and some positive suggestions to assist the committee in its work. The directive is vastly different from the existing grocery regulations in respect of which we have a function. In scope and size alone we estimate that it could apply to approximately 10,000 businesses in Ireland. It is a substantial directive. We will offer our considered views as to how the directive may be transposed in Ireland, in such a manner as to address some of the issues raised by stakeholders in this sector.

Before discussing those matters further in detail, I highlight the extensive nature of the Competition and Consumer Protection Commission’s legislative mandate. It has a mandate across the economy to promote consumer welfare. This involves promoting compliance with over 40 competition and consumer protection legislative instruments. We do not specialise in any one sector; rather, we extend across the full scope of the economy. We are aware that there have been concerns and questions about competition law and the Twenty20 Beef Club, as well as concerns about potential anti-competitive behaviour in the beef sector more generally. These two areas are within our remit and it is important that I address them first.

On the Twenty20 Beef Club, we have received a small number of complaints about this arrangement and are examining them carefully. However, this type of agreement which is a vertical agreement, that is, an agreement between players at different stages in the food chain, generally is permissible under Irish and European competition law. Specifically there is the vertical block exemption regulation in European law which exempts from competition law scrutiny vertical agreements where the market share of both the buyer and the seller is under 30%. It is only when it goes above 30% that one starts to have concerns. There might be sectors where, for instance, there are many parallel agreements that absorb the entire market and where the benefit of the block exemption potentially could be withdrawn by the Commission, but in general competition agencies are much more concerned about horizontal agreements, that is, agreements between players at the same stage in the market. We never give a clean bill of health and say, "There is nothing to see here." We will continue to make inquiries and look at complaints we receive, but at this point we do not have grounds to be concerned that a breach of competition law has occurred. We will continue to monitor its impact and if at any future stage we have concerns, we will take action.

There have been allegations about the existence of a cartel in the beef processing sector. Under Irish and European law, a cartel is an agreement between competitors to fix prices, limit output or share markets for their own benefit. It is a serious breach of the law, so much so that it carries a burden of proof similar to that for other crimes such as theft or murder. Anyone convicted of such a crime can face a maximum sentence of ten years' imprisonment. The serious nature of this type of crime frames how we investigate allegations of a cartel. An allegation does not provide a sufficient basis for us to open an investigation or obtain a warrant from a judge in order that we can search the premises of businesses suspected of being involved. We have a team of experienced senior investigators, including serving and former gardaí, whose roles are to examine the evidence and establish lines of inquiry in investigating potential cartels. We also have a dedicated cartel immunity phone number to enable anyone who has been part of a cartel to come forward with evidence in return for immunity from prosecution. To date, the CCPC’s criminal investigations team has examined a number of complaints and followed various lines of inquiry in the meat processing sector. So far, however, we have not uncovered evidence of a cartel.

Let me comment on prices. There is sometimes a feeling that because there is a market price, a common price among buyers and sellers, that it is evidence of a cartel. It is not; prices being in line is not enough. In markets which are very transparent - there are many such markets - prices tend to converge at a market level. Let me give an example. If one walks down Moore Street, the price of apples is going to be pretty much the same at the top of the street as at the bottom. The reason is all buyers and sellers can see the prices being charged. If a seller was to put up the price, he or she would lose market share because nobody would buy from him or her. If a seller was to reduce his or her prices, he or she knows that all other sellers would see that he or she had done so and that they could also reduce their prices,meaning that everybody would lose money. One tends to have convergence where prices are very transparent. That seems to be the case in the beef market. We have not uncovered any evidence of a cartel, but as with all sectors, we will continue to examine every complaint we receive. We would welcome information or evidence of this nature from anyone. A member of our investigations team is available to meet anyone in any location at any time. We do not take allegations lightly, but it is important to stress the need for tangible evidence, that is, evidence of collusion, the fact that people have come together to agree on prices, when it comes to dealing with such a serious crime.

We are aware of broader concerns about sustainability and viability in farming that are being widely discussed and debated in the sector. We listened with great interest to the end of the discussion with the representatives from Teagasc. The concerns obviously include farm income levels; farmers’ lack of power and limited ability to negotiate the price they get for their products; and a lack of transparency to see who is profiting in the food chain. These issues do not fall within our remit, but as they are all inter-related, I would like to offer our considered views on how some of them could be addressed in the transposition of the directive.

On the agriculture sector generally and the directive, in particular, it is important to consider the context. The characteristics of the agriculture sector, about which all members know a great deal more than I do, including its vulnerability to extreme weather conditions, imbalances between supply and demand and price and income fluctuations, mean that market instability is a common feature and a concern for all farmers. The majority of those who have appeared before the committee have pointed to relatively low bargaining power as one of the major issues in the sector. It has often been cited as a competition problem. We understand the desire to address the imbalance for farmers, but in our view the way to redress it is not through competition law. Attempts have been made to use exemptions from competition law to rebalance bargaining power in the sector such as by allowing vertical agreements and the development of producer organisations; however, the issue remains prevalent in the sector. The directive has also been put forward as a solution to the problem, but if the aim is to address the imbalance in farmers' power in the market, it is our considered view that, as it stands, the measure is unlikely to succeed. Many of the people to whom it has spoken have also expressed that view.

I turn to some suggestions as to what would help. Power imbalances are best addressed before contracts are signed, rather than trying to address them after the fact. To be successful, a dedicated body is required to provide real support for the sector. A critical component will be providing advice for individual farmers. Farmers need to know what is and is not allowed and to whom they can go when they have a problem.

Members will be aware that the directive requires the appointment of a competent authority or authorities. Across Europe there has been a wide range of views expressed on how the directive will be implemented and whether there should be a stand-alone body or whether various organisations should be given specific mandates. The appointment of more than one competent body is allowed for in the directive. For instance, one body may provide support, while another receives complaints. We are unaware whether such an arrangement is being considered here.

In a number of sectors, including telecoms, financial services and energy, a sectoral specific body is given a remit to ensure specific rules are adhered to. The body will have access to industry information and contacts. It can build expertise in the sector in order that it can see market trends or issues as they develop and take preventive steps or alter the rules in order that they reflect new market dynamics, as they develop. Because the legislation is industry specific, it can be both proactive and responsive and entirely focused on the sector and its needs. A body dedicated to it would develop the information structures and relationships needed to provide real support for the sector. If such a sectoral regulator or office was to be developed, its functions could include devising and implementing a strategy to support farmers in the context of CAP reform, advising on commercial and economic development of the sector and overseeing implementation of future European legislation. For instance, last week details of the EU proposal for more market transparency in the EU's food supply chain were announced. If progressed, it would require a body to capture price and market data and correlate them

It is in the nature of this industry to move quickly. Issues need to be addressed as they arise. Farmers cannot wait for lengthy investigations and face the uncertainty of legal challenges. The CCPC’s investigations are and will continue to be evidence-based and mostly retrospective. This means that they take time. We do not act or secure outcomes for individual businesses or consumers; we are not an ombudsman. Our role is to enforce the law. Under the current grocery regulations, we have not, to date, received sufficient information from suppliers to establish that a breach of the regulations has occurred or is occurring. We believe farmers, in particular, want someone on the ground who is focused on the farming sector exclusively and can act quickly on their behalf, including by offering some adjudication, rather than adopting an enforcement approach after a breach of the directive has occurred. To do this effectively, alternative approaches such as engaging in mediation or arbitration, as in the EU code, should be considered. The role of the competent authority for this directive requires a dedicated organisation on the ground, with specialised expertise, knowledge and the ability to build confidence across the sector. In return, we believe complaints about breaches and other issues would be more likely to be forthcoming.

The Competition and Consumer Protection Commission has been in existence in various forms for a very long time. We are not naive about the significance of this measure and the cost of establishing a dedicated sectoral regulator. We have not come to this conclusion lightly.

However, considering the nature of this market, the issues surrounding sustainability and viability and our experience of engaging with this sector, if the objective is to rebalance power, a substantial and more interventionist response is required.

I would like to use the last few minutes of my time to highlight some points we believe need to be considered in the transposition of the directive in Ireland, including the decision on the most appropriate competent authority or authorities. The scale and scope of the directive are vastly different from the existing grocery regulations. We estimate that the Irish legislation could apply to 10,000 traders in the food supply chain and their direct relationships with suppliers. This compares to the 22 grocery undertakings and their direct supplier relationships that are within the scope of the current regulations. There are orders of magnitude in the difference. The expanded scope will have significant cost implications and consideration needs to be given to how such a regulatory regime would be funded. Our initial ballpark estimate is that, to achieve the aims of the directive successfully, a minimum of 40 staff would be required. The necessary skill sets would include investigators, economists, legal advisers, supply chain experts and auditors. To outline a tangible benchmark for the cost, the work of the Groceries Code Adjudicator in the UK costs £2 million per year, although we understand the adjudicator does not necessarily use all of that amount every year, and is funded by a levy on the much smaller number of retailers - ten - within its scope.

A further complication is that the directive applies to commercial relationships, regardless of the place of establishment of the supplier or buyer. In the context of Brexit, this has significant implications for Ireland more than any other member state, given the interconnected nature of the Irish and UK agrifood sectors. The mechanism to promote compliance with the directive needs to be considered carefully.

The legal basis for the directive lies in Article 43(2) of the Treaty on the Functioning of the European Union which relates to the CAP and its objectives, including the safeguarding of farmers' ability to make a reasonable living. We recognise and acknowledge the importance of such objectives. Unfortunately, they can and, on occasion, will conflict with consumers' interests and welfare. It should also be said the original proposal was significantly expanded in the final directive which extended it to all actors in the food chain. We note that large processors and manufacturers are requesting that the regime be further expanded upwards to address their issues with buyer power. In contrast, others believe the directive does not go far enough and have stated a ban on below cost selling is required. That is a measure the CCPC would strongly oppose. In our view, banning below cost selling would not guarantee better prices for food producers. Instead, it would guarantee higher profits for retailers and higher prices for consumers.

Our role is focused on the welfare of consumers. It is an important job. We are aware that there is a body of work ahead in the transposition of this legislation and while we fully respect the fact that our role can be and is changed by the Oireachtas, we believe in the work we are doing across every sector of the economy and wish to be allowed to continue it. If we were to be given the role of competent authority for the directive, there is little doubt that it would drain resources and focus from across the organisation and our ability to work on consumers' behalf would be seriously compromised.

For all of these reasons, we strongly ask the committee to consider our view that a dedicated sectoral body is required. It should be empowered not only to enforce the directive but also to deliver ongoing regulatory interventions to improve the welfare of farmers. Given the transposition deadline and the fact that the committee's work is coming to a close, a decision on the issue needs to be made as a matter of urgency. The alternative would be unlikely to achieve the desired change in the sector.

We will, of course, continue to do our part in this and all other sectors. It includes continuing our work to ensure compliance with the existing grocery regulations. We would also be happy to work with any body designated with a role in the sector. We have previously worked closely with other bodies in the setting up of new regulatory systems and are ready to provide assistance in any way we can.

I thank the Chairman. We are happy to take questions and expand on our views.

I thank Ms Goggin for her informative presentation. Deputy Cahill was the first member to indicate.

I thank Ms Goggin for her presentation which was informative and detailed. We are discussing the beef industry and its profitability in the future. Primary producers believe that, although there are loads of regulations, none of them protect them or looks after their interests.

Ms Goggin mentioned the Twenty20 Beef Club. If I understand her correctly, she is saying it is not large enough to be deemed to be anti-competitive. Does its size matter? Is a practice not anti-competitive, irrespective of the percentage share of the market?

The allegation about the operation of a beef cartel has been beaten to death for many years. If someone asked 100 farmers whether they believed there was a cartel, 99 would say "Yes". Ms Goggin stated a common price was not sufficient evidence of a cartel, but these operators are selling into different markets and getting different returns. It is more than a coincidence that, on a Friday evening or Monday morning, someone will have the same price quoted by all of the factories. The primary producer is convinced that there is a cartel. There was a time when a producer could ring various factories and get different quotations. That situation has evaporated during the years. There is no point in approaching a different processor now because there will be no difference in price. While I accept Ms Goggin's statement that a common price does not signify the existence of a cartel, the primary producers know that the processors have different markets and returns and that it is difficult in the extreme to explain to a farmer producing a beef animal that there is no cartel. The primary producer has seen competition investigations into farm organisations' activities and finds it difficult to understand why a similar investigation is not being carried out into how factories determine their prices on a Friday evening or Monday morning.

I am thankful for Ms Goggin's explanations in her presentation of the CCPC's mandate, powers and so on. It is good information for us to have. Fianna Fáil members will take it away and discuss it. As it is helpful, we welcome the presentation. I have raised two issues that, from the primary producer's point of view, I would like to see being debated.

Has the CCPC received complaints directly of price fixing by meat processors? Has it received complaints from any of the farm organisations or individual farmers? Has it investigated any such claim? At what point will the CCPC take the initiative and investigate? Every farmer believes price fixing is occurring in the case of most meat processors. When farmers roll up at their respective meat processors on a Monday morning, everyone is given the same price. It is not like Moore Street where everyone is within viewing distance. Information is being shared. Even if it is being done in a loose fashion, farmers are the losers.

I welcome the comprehensive and detailed presentation. It is one I will take away and study in detail. It contains so much information that, until I analyse it, there seem to be few questions left that need to be asked.

I would like a further comment on the reported cartel operating within the beef industry in terms of price fixing or communication within the sector before prices are advertised or announced. There is a line of thought that prices do not need to be fixed too much in the sense that, although they are named differently, many of the processors quoting prices are under the one umbrella. The CCPC plays a role in the case of mergers, acquisitions and takeovers.

We are talking about the beef sector, so when in that particular sector, for example, would the commission call stop? An evident takeover of an industry by an individual company gaining more and more power has not happened yet. When a person owns the job lot, he or she does not need communication with his or her competitors, because that person does not have that many competitors. He or she can name the price and does not need to fixed it at all. The person sets it and names it, and people have to take it because of that person's power. There have been a number of takeovers and mergers in recent years, all of which the CCPC would have been consulted about at the time and none of which, from memory, it stopped or even flagged issues with. I am open to correction on that. How big would one ownership within a certain sector need to be before the commission would flag it as being a possible breach? Where or when would the CCPC shout stop, and do the witnesses not think they could or should have shouted stop already in some instances within the beef sector?

Deputy Eugene Murphy has a question.

It is really a repetition of what the previous three speakers have said. I was reading this before, and like others I have to say it is a very productive document in terms of what the commission is offering and suggesting. I appreciate that, and it goes to great lengths to explain the seriousness of cartels within the law if they are found to be in practice and if they do exist.

In terms of the Twenty20 Beef Club, the CCPC has received a small number of complaints. Is it possible to say how many complaints it has got at this stage? I have been going to farm meetings, Beef Plan Movement meetings, IFA meetings, and farmers come up to me individually who are convinced that this cartel exists. Either Deputy Cahill or Senator Paul Daly referred to the Friday evening and Monday morning price. When one checks it, it does, for people like us, look like there is some fixing going on. There is no question about it, as other speakers have said. The farming community is utterly convinced of this price fixing, and this is where we are fixed. The commission does not think it is not serious enough to be investigated. Speaking on behalf of the people we meet in our constituency offices and counties, when they show us prices and comparisons, we just have to get this feeling that there is something going on there. How many complaints have been received, and what can we do for those people? The document goes into a lot of explanation, but what can we do for those people who feel they are being blackguarded by these factories?

I thank the Deputy. There is no doubt that Ms Goggin's presentation is very helpful. In her last paragraph she straight away gives us one recommendation for our report, in my opinion, which is very helpful from our point of view. She recommends that a dedicated central body is required and I probably speak for everybody in our committee when I say that everybody would be in broad agreement in that regard. It is possibly one way forward in addressing some of the issues that Deputy Murphy and others have highlighted. Will Ms Goggin give a bit more feedback regarding that dedicated central body? How would she see that structured going forward?

Ms Isolde Goggin

I thank the Chairman. I am going to start by addressing Deputy Cahill's question about what is large enough and whether size matters. I might ask Mr. O'Leary to deal with the questions about the cartel. This is a genius question because it goes to the core of competition law and the difference I spoke about between vertical and horizontal agreements. Size does not matter in a cartel. All cartels are illegal. Any kind of cartel is a criminal offence and it does not matter whether it is big or small. In vertical agreements one looks at the effect of the agreement. When looking at competition law, it always says that agreements which have the object or effect of preventing, restricting or distorting competition are illegal. It is about object or effect. Cartels are object restrictions, as we call them, so they are always illegal regardless of how small they are or if a person says he or she did not mean to do it. They are always illegal.

Regarding agreements which have an anti-competitive effect, vertical agreements are generally considered not to have an anti-competitive effect until they go above a certain market share threshold. They are generally efficiency enhancing. They make it more efficient for the producer and the supplier. There is more certainty because there is a contract, and that is a big issue as well because it tries to iron out some of the volatility. That is where the European Commission has what is called a safe harbour in its vertical block exemption regulation, Regulation No 320/2010. If the market share of the upstream and downstream, the producer and supplier, are both below 30%, then it is okay, and in that case size does matter. Agreements that cover a lesser part of the market are generally not considered to be a problem, unless there were three or four agreements that sewed up the entire market and nobody could come in at either level. Many people spend their time looking at the effects of those kinds of vertical agreements. Looking at the statistics in the Twenty20 Beef Club, if all the predictions and market share forecasts came true, they might get up to 5% in a few years, and that is not a level that would trigger our concerns.

Mr. Fergal O'Leary

If I might add on the beef club, we know that other suppliers are thinking about similar initiatives. From our point of view, as Ms Goggin said in the statement, it is not a concern at the moment, but the bigger it gets, the more attention it would get from us. We are not saying that everything is always fine into the future, and we will continue to monitor that. I would have thought that any company the size of Glanbia would have taken legal advice itself before implementing such a scheme because our reputation does precede us, and if it was seen that it was even close to the margins, it would expect to hear from us.

On the cartel, I have read an awful lot from testimonies in front of this committee and newspaper reports, and spoken to farmers myself, and I agree with the sentiment that farmers feel very hard done by. I agree as well that 99 out of 100 of them would say there is price fixing going on. I can say from the CCPC point of view that we have had complaints. Senator Mulherin asked about that. We had one in 2016, four in 2017, and one in 2018. That one in 2018 was anonymous, but I can guarantee this committee that we looked into each and every one of those thoroughly. Cartel investigations are the lifeblood of our organisation. We had a successful case before the courts earlier on in the year and we want to have these cases successfully brought about because of what they do for us in terms of motivating staff and our reputation. As Deputy Cahill said, we have looked at issues in the agriculture sector, so there is no sector that we will not look at, but from a value for money to the taxpayer point of view, we have to have some evidence to go after it. I would say to this committee and the Senators' and Deputies' contacts that if they have information, as was said in the statement, we will meet them at any location at any time and we will look into any kind of evidence we receive. That one complaint from 2018 was anonymous, and we still looked into it and spent a lot of time on it. We want to do that, but as Ms Goggin has highlighted, this is a market with a lot of price information out there. It is published in the newspapers and in agriculture at a certain time. Ms Goggin made the comparison with Moore Street. We have a cost comparison website where one will find every mortgage rate in the country. The information is out there, but that does not necessarily mean there is a cartel.

On that point, is transparency a bigger issue on the whole as part of the problem? There would be a perception, rightly or wrongly, that it is not transparent enough, compared with the dairy industry, for example.

Mr. Fergal O'Leary

Transparency is an issue, and it works both ways. If there is perfect transparency, then there is a convergence in price, but the difficulty here is that there is not transparency in terms of margins, and that is where a lot of the interest is. From our point of view, coming back to the unfair trading practices, UTP, directive, the directive has been put forward as a way to address the buyer power of a lot of small farmers.

However, we do not think, as the directive is currently detailed, that this rebalance will happen. This is where we come to additional measures, more scrutiny and the idea of the sectoral regulator.

I want to go back to the Twenty20 Beef Club for a minute. Major concerns are being raised by individuals with us regarding inputs. Glanbia, as Mr. O'Leary correctly said, is a large company with a strong reputation. It is unusual that it still feels it necessary to force the participants in the scheme to buy all their inputs from it. There are many other co-operative and private merchants, most of them of a far smaller scale, that, in the view of the merchants who have presented to us, have been very much put at a competitive disadvantage. While this is probably beyond the CCPC's remit, Glanbia has a mechanism whereby it gives co-operatives bonuses at the end to redistribute its profits. Private merchants are making the case to us that they are small businesses and are finding it hard to compete with this big corporate beside them that has various mechanisms of trying to disguise the price it is paying, and here it is now forcing its customers into a scheme and tying them into it for a period. Anyone who goes into it for six months forgoes all the advantages of coming out of it. It is not the end price that is the be-all and end-all of this scheme; it is the fact that the inputs are being completely controlled by a large player.

Does Mr. O'Leary have any further comment on that?

Mr. Fergal O'Leary

This is the issue that comes to the nub of the vertical exemption in that the idea is that the benefits for some will outweigh the cost to competition, or the restriction of competition, by allowing people to be locked in, and this is where the size of it is very important. Some people - and we have seen the commentary on this - think this is evidence of new thinking in the sector that is very welcome and might be useful for some farmers, whereas the opposite in terms of this restriction has already been cited as a problem. From our point of view, as long as it stays relatively small and does not go over a certain amount, there is no concern at present, but-----

So one can sin a little but not a lot.

Mr. Fergal O'Leary

Very nicely phrased.

Mr. O'Leary is using the argument of the final output being a maximum, if participants meet all their targets, of 5% of the beef industry. Regarding the point Deputy Cahill made, how far back down the trading curves or trends does the CCPC go to examine this? To buy into this scheme and produce the 5% of the beef if all targets are met, one must buy all one's inputs, including unrelated inputs, and all the on-farm products one would normally buy from a co-operative or similar-type supplier from Glanbia. While it might only, therefore, be an end product of 5% of the beef, if there are other activities on one's farm, which can include fertiliser and not just one's inputs into the production of the beef, which is part of the package, one must buy everything and it will be far greater than 5% of the agricultural trading turnover within the sector that will buy into the scheme we are talking about in the competition between different mills or co-operatives. The overall or final beef production is only 5%. However, to get there, by virtue of the fact that one must tie into all one's inputs on one's farm if one is in the scheme, it will be far greater than 5% of the trading value of farm to co-operative or farm to supplier.

Mr. Fergal O'Leary

In parts of the analysis we certainly would not look just at the output or the end point; we look at the inputs as well. That is absolutely important, but again, from what we have seen to date - and this is where we are slightly restricted in what we can say about it not being fine forever - looking at both the output and some of the inputs, we still do not see them going over the thresholds.

Ms Isolde Goggin

I want to go back to the point about a sectoral regulator and what it might do. To an extent, this goes back to a previous job I had when I was the telecommunications regulator before joining the CCPC. I would put a sectoral regulator down to four main strands: information gathering; advice; mediation and arbitration; and enforcement. Information gathering is important because it is important for people to know what is going on in the industry, which relates to the point about digging down into the levels and what happens at the levels that are not transparent and where we do not see all the prices being quoted. I put that as a function of the regulator because one must have statutory powers to look for that information. When I was in ComReg we used to publish a quarterly bulletin of the main statistics in the industry. They were provided to us by the industry but we had to make sure that everyone provided them in a format that we could use and that was comparable so we did not get one format from one crowd and a different format from something else. We had to be able to collate the statistics to make a coherent whole. Mr. O'Leary made the point that it is important that farmers get this advice before signing the contracts. The danger with all these things - and we see this to an extent in the existing grocery regulations - is that the imbalance is such that in the case of a big retailer and a small supplier, the retailer is the one with all the lawyers, the corporate staff and so on and it will go in and put a 300-page contract down on the table and say, "Here is where you sign." That is not a negotiation in any meaning of the word, so there must be people who know what their rights are in respect of the directives and, from our point of view, the kinds of producer organisations that are permitted by exemption from competition law under the latest round of the CMO regulation. That kind of thing should help farmers to build scale and to be able to work together.

Then there is mediation and arbitration. There will be rows and matters that will need to be sorted. I made the point earlier that we are not an ombudsman and that we do not do that kind of work. We take cases to court but we do so on behalf of the State, not on behalf of an individual. We say, "The law was broken here so, on behalf of the State, we are intervening." However, this is not to get something back for particular consumers. There is in some areas of consumer law a right to a compensation order but not in the competition law sphere.

Enforcement is a backstop because ultimately one must have a big stick. That is what I would recommend as the functions of a regulator.

Would the witnesses see this as a costly operation?

Ms Isolde Goggin

It is as long as a piece of string, is it not?

Mr. Fergal O'Leary

If we look at the situation-----

Someone has to pay at the end of the day.

Mr. Fergal O'Leary

Absolutely, and they do. Looking at the situation across the water, there is a lot of this. There is the information, the adjudication and the investigations, and as we said in the statement, this costs £2 million per year. However, the scope is smaller. Something like this proposal, as we said, would probably involve 40 people. However, one would need a period of implementation and then escalation. When we get new functions, as we do, we first build a common level of understanding across a particular sector in order that everyone understands the rules. We spend probably a year or two doing that, after which everyone knows the rules. Then we start into the enforcement side of it, so this kind of regulatory model is something that is done over a period. The difficulty with this directive, though, is that it is hugely complex in what it allows. Ten areas are blacklisted such as payment after 30 days or payment after 60 days. Then one gets into a list of, I think, six areas that are called greylisted. They are only allowed if they have been agreed in advance. Again, each individual entity that will be under the onus of these regulations will have to understand what is and is not allowed. This is a significant educational challenge and will take a couple of years to do. Then there are issues such as mediation - who one goes to and what kind of information one needs before going to them. Afterwards there is the idea of enforcement. From our point of view, looking at this, we do not believe an impact analysis for Ireland has been carried out yet, so this is all still open to scrutiny, but one needs people in regional locations across the country.

They need to advise people on what is or is not allowed, and when there is a well-founded problem, who to go to and what can be offered in terms of mediation or redress.

My question about mergers and acquisitions was not addressed.

Ms Isolde Goggin

I apologise. Mergers are looked at on a case-by-case basis. The bigger ones go to the European Commission, so the Slaney Foods International and Dawn Meats deal would have gone to the EU because it was over a certain threshold. The test is whether there is a substantial lessening of competition, and that involves looking at many factors, including the strength of buyers and sellers, as well as how much competition exists and might be introduced. I am reluctant to say how many players would be enough because we and the European Commission do a lot of very detailed scrutiny on every merger that comes in. There have been industries where what is called a four to three merger has been permitted, where, for example, there used to be four players and, say, the number one player buys the number four player. That would be looked at differently from the number one player buying the number two player, because then the two strongest players would be coming together. Sometimes a market with three strong players would be more competitive than a market with four not so strong competitors.

I cannot give a figure for the number of competitors and market share because it depends on how easy it is to enter and exit the market. I am sure the Senator knows that a great deal of scrutiny goes into this and that the decisions that are published, such as the one I mentioned, are very complicated assessments of the market. We blocked the merger of Kerry and Breeo a while back, which we lost, but that was based on a very detailed dig into all the different sectors and products involved. I am sorry there is not a "Yes" or "No" answer but it takes a lot of scrutiny and it depends on the type of market.

I thank Ms Goggins and Mr. O'Leary for their very informative presentation today. We will hear plenty more on the matter as we move forward so this will be very useful when we compile a report in the next couple of weeks.

The joint committee adjourned at 6.15 p.m. until 3.30 p.m. on Tuesday, 11 June 2019.