The main purpose of this Bill is to provide for the transfer of the control of the Industrial Alcohol undertaking from the Department of Industry and Commerce to a company to be established. The Bill, it is true, repeals the Industrial Alcohol Act of 1934, and re-enacts most of its provisions but does so with very little alteration and would, in fact, not be necessary were it not for the decision to effect the transfer to which I referred. As Senators are, no doubt, aware, the carrying on of a commercial undertaking by a Government Department is rarely satisfactory. This Industrial Alcohol undertaking was started as an experiment and during the initial stages of it, when decisions were being made as to the process to be worked, as to the location of the distilleries and as to the arrangements to be made for their construction, it was, perhaps, more suitable that the Minister for Industry and Commerce should be in control so that the Legislature could be advised of the measures taken at every stage and afforded an opportunity of getting information or expressing an opinion concerning them. The distilleries have now been completed, however, and during the coming session they will be working, it is anticipated, to the fullest extent, and the time has arrived, in the opinion of the Government, when a more suitable method of control is advisable. We are, therefore, proposing the establishment of a company which will be set up in accordance with the provisions of the Bill and which will carry on these distilleries in the same way that a privately owned company would. I do not know if Senators desire any detailed information concerning the actual position of the undertaking?
Industrial Alcohol (No. 2) Bill, 1938—Second and Subsequent Stages.
As I have mentioned, the Government decided, in 1934, upon the establishment, as an experiment, of five industrial alcohol distilleries. In that year, as some Senators may remember, and for some time previous to that the price prevailing for potatoes in this country was very low. It was felt that the establishment of some undertaking of this character, which would utilise potatoes as a raw material, would permit of the regulation of the price of potatoes in bad years by providing a market for the surplus that could not be consumed at home and that, in any event, it would be of considerable benefit to farmers in particular localities of the country.
Five distilleries, as Senators may be aware, were established, one in the Cooley peninsula of County Louth, in respect of which special considerations operate because, although potato growing has always been a main feature of the agricultural industry there, it is scheduled as a "black scab" area and potatoes grown in that area are not allowed to be sold in other parts of Ireland. There is another distillery in County Monaghan; there is one in County Donegal and two in County Mayo.
In each of these areas, with the possible exception of County Monaghan, potato-growing is an important occupation of the people, and the establishment of an undertaking which would absorb quantities of potatoes at a reasonable price was considered likely to be of substantial benefit to the people.
There are of course, other considerations which might prompt the establishment of this industry rather than another industry which would use potatoes as a raw material. There are, as is well known, many commercial products produced from potatoes. Those which have received most prominence in this country are starch and glucose, which are used in considerable quantities here and which can be made from potatoes, and also from other vegetable products. I felt there were good reasons to select industrial alcohol for the purpose of this undertaking rather than some other product. Most countries, for different reasons, are engaged in the production of industrial alcohol, and in many countries they have legislation similar to that embodied in this Bill, requiring its use in an admixture with petrol. The considerations which may have prompted the establishment of the industry in various countries may vary, but there are obvious advantages in having available a supply, however small a part it may be of our total requirements, of motor spirit which, in times of difficulty, would permit of a more economical use of the spirit which would have to be imported.
Industrial alcohol mixed with petrol and benzol is also a motor fuel of very high quality. It is superior to ordinary petrol as a motor fuel, and it is selling on its merits as a motor fuel in other countries. In the United Kingdom last year a national alcohol mixture placed on sale as an ordinary commercial undertaking sold to the extent of 9,000,000 gallons, which represents a production far in excess of anything contemplated here. Industrial alcohol is also a commercial raw material. It is used as a raw material in the manufacture of commercial products of one kind or another, but the market for it for that purpose in this country is far short of the contemplated production of the five distilleries.
It is estimated that the five distilleries will produce 1,000,000 gallons of alcohol per year. When they were originally planned, an output less than that was anticipated, but it has been found that the circumstances in this country permit of the operation of the distilleries for a longer period than in other countries, and consequently the production of a greater quantity of spirit; and furthermore, it is intended to utilise, during the portions of the year in which potatoes are not available, molasses purchased from the Irish Sugar Company, the effect of which will not merely be to increase the quantity of spirit produced, but also to decrease the working costs of the distilleries.
The distilleries commenced operations last year, but they operated only for a comparatively short period. The various distilleries were started one after another, there being an interval of two or three weeks in each case. The first distillery operated was the Cooley distillery, and the last one was the Ballina distillery. The production of alcohol was 414,000 gallons, which was less than half the estimated annual production of these distilleries. There were employed during the campaign period a total of 250 employees. The alcohol produced was sold to the petrol distributors, to be mixed by them with an appropriate quantity of petrol and sold. The price fixed is 3/- per gallon. That price is estimated to be adequate to cover the cost of production in a complete year of operation, and also to meet overhead charges and provide for a return of 5 per cent. on the capital invested in the enterprise. It also includes a margin for contingencies.
The actual estimated cost of producing alcohol and meeting these charges, including interest on capital, is 2/10½. The cost of production last year was, of course, higher than that, because the distilleries were working for a comparatively small part of the year. In giving that figure I have to emphasise that it is merely an estimate. It may prove to be possible to produce spirit at lower price. It is not anticipated that a higher price will become necessary. The price of spirit depends entirely upon the price paid for potatoes and the other raw materials, as well as the cost of labour. The raw materials required are potatoes, barley and coal. When we decided originally to proceed with this enterprise, the price prevailing for potatoes was very much lower; in fact, potatoes in Donegal and Cooley areas were selling at about £1 per ton. That was the price paid for graded potatoes for human consumption. Potatoes are purchased for these distilleries at £2 per ton. That is the price paid for the whole of the produce of the land, and it represents a substantially higher price for graded potatoes. No difficulty has been experienced in securing adequate supplies of potatoes at that price, except in the Ballina area. I do not think the difficulties there are likely to continue. They arose solely out of the fact that the factory commenced so late in the season.
There is no compulsion on the farmer to sell at that price, and the fact that they are selling at £2 when the ordinary market price for graded potatoes is very much higher, is an indication that it pays them to do so. It is a wise policy for the farmers in these areas to maintain the supply to the distilleries, because the circumstances that existed over a number of areas around the year 1934 in respect of the price of potatoes may be reproduced at any time. There is probably no agricultural product in respect of which so great variations of price occur as potatoes.
The amount which has been expended already upon the construction and equipment of the distilleries is £266,000. Land, buildings and roads cost £156,000. The plant and equipment, including the royalty payable to the owners of the process, cost £97,000. Rolling stock, lorries and other miscellaneous equipment cost £13,000. In addition, capital liability has been incurred in respect of the excess of the production costs on last year's working over the estimated normal production costs, and the amount in this connection is £13,000. The interest on fixed capital up to date amounts to £13,000. Further royalties are payable to a firm of engineering experts who have been advising the Government in this matter, royalties which will be payable over four years' production, but which represent a capital liability of £30,000.
The proposal in the Bill is that the Minister for Finance will be issued shares to the amount I have mentioned. The nominal capital of the company has been fixed at £500,000. It will be noted that the figures I have given include no provision for working capital. A cash advance will be necessary, probably to the amount of £30,000, to provide for working capital in the coming season. Against that the Minister for Finance will also get shares in the undertaking. Although the nominal capital has been fixed at £500,000, it is not anticipated that £500,000 will be required on the basis of the present undertaking.
Apart from those provisions which have special relations to this undertaking, the rest of the Bill in its provisions relating to the formation of this company are similar to other measures of a similar kind which have been enacted by the Oireachtas in recent years. Most of the other provisions of the Bill which provide for the acquisition of land, the construction of works and so forth are merely re-enactments of the Act of 1934. It was felt desirable, from the point of view of the Oireachtas, that the 1934 Act should be repealed and these sections brought into this Bill rather than that we should frame merely an amending Act which would have in every section some reference to the Principal Act. I do not know if there is any other point upon which the Seanad would desire information. If there is, I will be very glad to make it available.
The Minister mentioned 150 as the total number of employees.
The number I mentioned was 250.
Would the Minister say how many farmers are engaged in producing the potatoes which are going to be used by these factories?
I could not say the number. The estimated reuirements of the factories this year are 45,000 tons, but I could give no information as to the number of farmers who will produce that quantity.
If we guessed the number at about 2,400, would we be far wrong?
I suppose that would be about right.
I do not think this is a matter in respect of which the Seanad should spend much time. Many people were sceptical of the effects of this policy, but it is definite policy, and I think it is our desire that it should be a success. I missed the first portion of the Minister's speech, and I do not know whether he is in a position to give any indication as to what the increase in the price of petrol is likely to be. It would be a great advantage if we could have that as soon as it is possible to get it, because there are wild and extravagant rumours about which are doing nobody any good. From memory, what the Minister said, that this is very largely in the same form as other Bills creating similar companies, is correct, and from that point of view I do not think there is any reason for us to criticise it. I notice, however, that there is power to acquire land at only one month's notice. That may be a common form of provision—I cannot remember—but it is extraordinarily short notice. In the case of a dwelling house there is three months' notice to be given, but it seems to me that one month's notice of intention to take a person's land compulsorily is far too short. There may be very good reasons for it, but, generally speaking, I think it is not a thing of which we should approve.
It seems to me that I should say a few words in the discussion of this Bill. I always approach these matters with a certain sense of inferiority to the Minister, because he has to take into account social, spiritual and cultural values, whereas I, as an economist, am more interested in purely economic values. I recognise fully that the point of view of the economist is necessarily a somewhat prosaic and pedestrian one, and that there are occasions when the nation has a perfect right to incur economic losses in order to achieve cultural, spiritual and national values; but at the same time I think that, in aiming at those values which stand higher in the hierarchy of values, a nation should take into account what precisely are the economic losses involved.
In a matter of this kind, one of the difficulties is the extraordinary one of measuring what economic losses are incurred in policies like this policy of industrial alcohol and the other policy of beet sugar. In theory, if you could ascertain the national income after the full establishment of these schemes and compare that national income with what the national income would have been if factors of production had been allowed to find their own national direction, without this artificial diversion, the difference between these two national incomes, one actual and the other hypothetical, would be a good enough measure of the economic loss; but apart from that criterion, which may give rise to some controversy and ambiguity, the only rough and ready way that occurs to me of measuring the economic losses involved in these schemes is: what is going to be the loss to revenue account.
If I am rightly informed, the full operation of this industrial alcohol scheme would involve a reduction in the import of petrol of 1,000,000 gallons a year. If I remember rightly, the tax on petrol is 8d. per gallon, and if my arithmetic is correct, 1,000,000 eight-pences is roughly £30,000. I am quite prepared to take an annual loss of £30,000 on revenue account as a rough and ready measure of the economic loss involved in this scheme. That amount of £30,000 a year, capitalised at 5 per cent., is the equivalent of £600,000, and so we may as well face the fact that in putting through this scheme, we are, in fact, adding to the deadweight national debt a sum of money which is at least £600,000. I am not sure that we ought not to go further and take into account also the additional cost to the users of petrol which will result from this mixture, and capitalise their loss also as consumers. In that way, you would probably add substantially to this estimate of £600,000 as the deadweight addition to the national debt.
I do not want to talk at any length on this aspect of Government policy at the present stage because there are reason why it would be more convenient to delay a more serious consideration of all these aspects of Government policy until we have more of the facts available, and especially the facts that will be brought to light when the report of the Banking Commission is available; but I should like to go on record as being utterly in disagreement with these economic policies. I think we should not take on any additional commitments in that way until we have completely explored all the aspects of the policy in question. Of course, the outstanding example of a policy of this kind is the beet sugar business which cost the taxpayer in loss of revenue £1,000,000 a year, which loss, if we capitalised it at 5 per cent., is the equivalent of a deadweight addition to the national debt of some £20,000,000. We might have had some excuse for that kind of thing during the years when the economic war was in operation, but now that that has been happily terminated, I hope we have seen the end of these very expensive economic policies. In the meantime, I want to emphasise the fact that they have, in fact, added to the deadweight national debt sums of money running into tens of millions of pounds which do not appear in the national accounts at all. On the contrary, in so far as they do appear, they appear as assets. They are not assets at all, but sources of continuing loss to the taxpayer and the nation.
The only real argument in the Minister's speech in favour of this industrial alcohol policy is the situation of the Cooley farmers in County Louth. I recognise that they do occupy a difficult position because they are not allowed to send their potatoes to the rest of the country, or even to the rest of their own county, but have been completely dependent on the export market. If you put it to those 2,000 or 3,000 potato growers whether they would rather have a free gift of £600,000 contributed by the rest of the nation or the industrial alcohol factories, I imagine they would plump for the £600,000; and we would be doing a perfectly rational thing, from my point of view, if, instead of going ahead with these factories, which are going to cost the country an additional debt of £600,000, we were to make a present of that £600,000 to the only people who are likely to be the beneficiaries.
Now, with regard to potatoes, I think that is one of the few agricultural products of which by far the greater amount is absorbed by the home market. Surplus potatoes, for the most part, are used in the feeding of pigs and poultry. I think, myself, that it would be a much better policy to encourage further the pig and poultry industry. In the matter of pigs alone, our export to the British market is only a matter of some 300,000 or 400,000 cwts. in the year, whereas other countries, such as Denmark, export something like 6,000,000 cwts. in the year, and, at times, have been even exporting 9,000,000 cwts. Of course, for some years, owing to certain circumstances, our market was restricted; but now that our export market is free once more I would much rather see money being devoted to encouraging the production of pigs and poultry than being used in this perfectly absurd manner. Of course, this policy, although it may have seemed to be good politics, was always bad economics, but I think the time will come when the reverse will be true, and the Government will realise that it is both bad politics and bad economics; and I have no doubt that, in the next general election, the Minister will reconsider his attitude with regard to this and similar policies.
In reference to the point made by Senator Douglas, I may say that no further increase in the price of petrol or motor spirit is contemplated in relation to the price of industrial alcohol. The increase that was made some time ago, to which I have referred, was in consideration of the beginning of the operation of the scheme—that is, in connection with the supply of industrial alcohol to the distributors—and I think that should be sufficient to enable them to recover whatever additional expenses they may have been under in putting this mixture on the market.
May I take it that no further increase would be justified?
No further increase would be justified in consequence of the establishment of these distilleries and the supply of 1,000,000 gallons of industrial alcohol to the distributors. The price of industrial alcohol has varied more than once since industrial alcohol commenced to be distilled. That was in consequence of world changes, and, of course, the price may very again; but the specific increase that was made was designed to recover the original cost, even though it may have been masked by variations in the general price of petrol at the time. I agree with the Senator's observations with regard to the acquisition of land and building, but, in practice, a much longer time has been allowed. The provisions in this Bill are similar to corresponding provisions in other Acts, such as the Liffey Reservoir Act and the Air Navigation and Transport Act, and other Acts of that kind. However, it is not expected that any further use will have to be made of the powers given by this Bill, by reason of the fact that all the land, buildings, and so on, for this company, have already been acquired. These provisions are merely, so to speak, a re-enactment of corresponding provisions of the 1934 Act.
With regard to Senator Johnston's points as to Budgetary considerations, it is quite true that, if purely Budgetary considerations were to be taken into account, this enterprise would not have been started; but it must be remembered that there is probably no form of industrial production at the moment which does not have reactions on the Budget. Any increase in industrial production here, involving a corresponding reduction in imports to this country, must have a reaction on the Budget. It is probably true to say also that, of the various new enterprises started in this country in recent years, this industrial alcohol enterprise is the most problematical, and one of which the ultimate utility is most open to question. However, it is also true that in a large number of countries action has been taken by the Governments concerned to secure the production of industrial alcohol. The motive of these Governments may have been a desire for national self-sufficiency or, more probably, the fear of national insufficiency in a time of war or of national difficulty, and I do not think that can be entirely left out of account. There were, of course, other considerations working in our minds. We realised that there would be some value in having a supply of motor fuel—however small—available in the country; but our main consideration was the desire to have some means of fixing a downward limit to any fall in potato prices. The situation in relation to potatoes in this country is rather unusual. The actual proportion of the total quantity of potatoes produced that is exported, is very small; but small as it is, it exercises a very great influence on price. In fact, the normal export of potatoes in recent years has been substantially less than the quantity of potatoes that will be utilised in these industrial alcohol distilleries. Of course, it is not desired to restrict the export of potatoes in any way; but it is felt that, in these areas that are concerned, particularly, the establishment of these industrial alcohol distilleries will tend to fix the downward limit of potato prices.
If that were the main consideration, I think it would be quite justifiable for us to refrain from operating these factories except when the prices of potatoes were bad or likely to be bad; but there are other considerations to be taken into account. I do not know what importance should be attached to the fact that there is a commercial demand for a motor fuel of this character, but there is no doubt that there is a commercial demand for such motor fuel which is obviously expanding in other countries. It is true that in Great Britain they sold an alcohol mixture at the price of first grade petrol although the cost of producing the mixture was much higher, and on that scale they got a remarkable return which was recorded last year. That may be particularly true with regard to the use of this spirit for certain special purposes, such as long distance aeroplane flights and other activities of that kind. However, whether we were wise or not in starting this enterprise in 1934, the fact remains that it is there now, and it is there now under, probably, the most favourable conditions in which we could have got it. The plant was purchased at a time when costs were very low, and the firm concerned was the well-known Skoda Works, of Prague, and they have given a guarantee of 60 years. Recent inquiries established the fact that similar plant would now cost almost double what we paid for it; also the building were constructed upon a basis favourable to us. Having those plants there now, I think it is worth while carrying them on, and if we are to carry them on I think there can be no question that it is desirable to effect the change in Government control which this Bill contemplates. That is, of course, the main purpose of the Bill. It is open to the Government at any time, of course, to reconsider its decision in relation to this enterprise, to suspend its operations, or to carry them on if it is considered desirable to do so, but I think we ought to have further experience of its work. We do not even know as yet what the costs of the operations will be in a full year's working, and I think we should at least get that information before coming to any definite decision. In my opinion, in view of the fact that capital expenditure has already been incurred, it will always be worth while to carry on the distilleries rather than close them permanently, or adopt the alternative of closing them temporarily at a time when potato prices on the ordinary commercial market are high.
However, I do not want to be dogmatic in any view I express concerning this enterprise. It is one concerning which we deliberated for a long time before deciding to embark upon it, because the considerations to which Senator Johnston has referred were before our minds. We had to contemplate the losses of revenue; we had to consider the possible effect upon motor users of an increase in the price of motor spirit, and to balance those considerations against the advantages —certain national advantages which we saw, and more particularly the advantages to the producers of potatoes in the localities in which the distilleries were established. In the circumstances of 1934 and 1935 we decided on establishing the enterprise. Possibly, if the circumstances now existing had existed then we would not have done so; I mean if potato prices had been as high then as they are now we would not have taken this step, but, having taken it and knowing that the price of potatoes may at any time collapse again, I think it is advisable to keep the enterprise there.