I am glad to have the opportunity to speak to this important motion this evening. Although there are clear differences within the House on the motion before us, there are also large areas on which we agree. We are all very conscious of the importance of agriculture in this economy. We know that when farm prices and incomes are under pressure, as they clearly are at the moment, this has important consequences not just for farmers, but for the whole economy. We are all conscious of the risks that are involved in the current GATT negotiations, and the need to continue to press for an agreement which meets Irish and European needs.
So, there is much common ground. In addition, the Government are extremely conscious of the difficulties which farmers are undergoing at present. It is precisely because of this that the Minister, Deputy O'Kennedy, has sought and obtained a number of measures at Community level which are designed to mitigate the effect of the fall in EC and world market prices which has occurred from mid-1989 onwards.
However, before going on to outline what the range of measures which have been taken are, I would like to provide relevant background information to this debate.
Between 1986 and 1989, aggregate farm incomes, as measured by the CSO increased by 50 per cent in nominal terms and just under 40 per cent in real terms. So, although incomes in 1990 are under pressure, we should acknowledge that the income base upon which this pressure is being exerted was the highest in real terms achieved during the eighties.
Over the same 1986-89 period, the increase in prices, as measured by the consumer price index, was less than 10 per cent, which represents an annual inflation rate over the period of just over 3 per cent.
The overall economic policies which ensured this low rate of inflation are of crucial importance to farmers. The same sound economic policies also helped to reduce interest rates in 1987 and 1988. Under the influence of external factors, interest rates rose again in 1989, but it is very heartening to see that rates have fallen again and I look forward to further good news on that front later in the year.
There should be no misunderstanding. A stable macro-economic climate, which can keep inflation and interest rates as low as possible, is one of the main contributions which Government can make to supporting farmers' incomes.
A number of Senators have made the point that the average figure for farm incomes hides a wide variation in incomes within farming. We all know that this indeed is the case. In recent years, it is dairy farmers who have done best. Indeed, the high calf prices which dairy farmers received, particularly in 1988 and 1989, obviously put pressure on margins in beef production. It may be small consolation for dairy farmers, whose income this year is under pressure from a fall in the price of both milk and calves, but it has to be acknowleged that the level of calf prices in 1988 and 1989 were not sustainable. We are moving back to a more normal set of price relationships between calf, store and finished beef animal, and this is a necessary development for beef producers.
I have mentioned that prices have fallen for milk and calves; they have also fallen for beef and sheep. This has already been pointed out by a number of Senators. The reason for these price reductions is that markets for our major-products at EC and world level have changed. The balance between supply and demand is less favourable in 1990 than it was in 1988 and 1989. The reasons for this varies by product. In the case of dairy products and beef, there has been a drop in consumption. The BSE scare in the UK has reduced beef consumption there by 25 per cent. In the case of sheep, there has been, as you know, a major increase in supply, both from Ireland and the UK, to the French market. This extra supply, as well as the weakness in sterling which applied until recently, helped push lamb prices downwards.
Given that these major market changes occurred, it was inevitable that there would be an impact on prices. The Government have taken a considerable number of measures which have sought to minimise the price reductions. Some of these have already been mentioned during this debate. I will briefly list them.
In the beef sector — the sector which has had most difficulty over the past two years — the Government have consistently made it clear to our Community partners and to the EC Commission the importance of this sector to our whole economy. When the new EC beef regime was put in place in early 1989, the EC Council of Ministers formally recognised the relative importance of the beef industry to this economy. It must be acknowledged that the support measures which the EC Commission has introduced since then in the beef sector has kept faith with the recognition.
In April 1989, carcase intervention was introduced and in the autumn of last year, a significant aids to private storage scheme operated. In the course of this year, Ireland has been successful in tendering for beef intervention. During the first full year of operation of the new EC tendering system for beef, Ireland accounted for 47 per cent of the Community total compared to an average of 20 per cent in earlier years. As part of the EC price agreement for 1990-91, the cut in intervention payment delays from 120 to 45 days was also of importance.
More recently, the BSE scare in the UK has had a significant effect on beef markets and prices. Here again, decisive action was taken. The decision to operate the safety net clause for intervention was vital to stop prices falling further and to restore some confidence to the market. In effect this has meant that since 6 June open intervention has been in place in Ireland and the UK.
In addition to this, swift action was taken to avoid trade barriers for beef being established within the EC after France announced an import ban on British beef. The Minister called an emergency meeting of the Agriculture Council on 6 June to deal with the problem and managed to achieve a solution which was acceptable all round. This ensured that unilateral actions were immediately ended. It also meant that what could have been a trade crisis in Europe, which extended way beyond agriculture, was headed off. The resolution of this problem was one of the major achievements of the Irish Presidency.
There is obvious concern among dairy farmers as milk prices have fallen sharply over the past year. Let us be clear about the reasons for this. During 1988 and 1989, world prices for dairy products rose sharply in response to low levels of stocks and relatively tight supply/demand conditions. On the basis of this rising market, the EC reduced certain supports to the dairy sector. During 1989, consumption of butter and certain other dairy products fell and prices weakened. Thus, we reached 1990 with lower market prices for our key dairy products and lower EC supports than had been present 12 to 18 months earlier.
The situation at present is that product markets continue to be weak and there are no immediate signs of improvement. What has changed is the degree of support which the EC is providing to the milk market. Following representations from Ireland, additional support measures were introduced this year, in the form of higher export refunds for butter and higher aids for butter used in the confectionery industry and in the form of concentrated butter and increased subsidies for the use of skimmed milk powder. It is also well known that intervention is being extensively used by Irish processors for butter and skimmed milk powder.
We will continue to press for market support arrangements which will provide an adequate milk price. In the longer term, the key to an acceptable milk price is not only the level of EC supports but a movement away from excessive dependence on the intervention products of butter and skimmed milk powder. I accept that this will take time and money. It will have to be accompanied by further rationalisation of our processing and marketing arrangements for milk, but it is the only way to go in the long-term.
The difficulties in the sheep sector have been referred to by a number of Senators. Again, I accept that there are difficulties but I do not accept that the Government have not been active in trying to solve these difficulties.
To some extent, the sheep sector represents a problem of success. There has been a massive growth in sheep numbers in recent years. Farmers saw an opportunity and responded to it. I believe that they were right to do so. The extra numbers have led to additional output and exports. They have also led to many farmers having a more diversified farming system than they had in the early eighties. Experience has clearly shown that spreading risk for a farmer by having more than one predominant enterprise can be a very sensible approach.
We are moving towards a single market for sheep to be achieved by 1993. The EC market regime which remains until then continues to provide reasonable security for sheep producers. It is clear that the stabiliser regime for sheep could mean that ewe premia in the coming years could be lower than would otherwise be the case but we will be pressing to ensure that adequate levels of support remain for this sector. The decisions taken at the EC price fixing in April of this year point in the right direction, when it was decided that prospective reductions in the ewe premium will be compensated from 1991-92 by increased sheep headage payments in disadvantaged areas.
In addition, the changes in the sheep régime which were agreed last year, provided for a change in the payment arrangements for the ewe premium in 1990. This will mean that the 1989 premium and two-thirds of the 1990 premium will be paid during the current year. This should represent an important assistance to the cash flow situation of many farmers. I am hopeful that the bulk of the ewe premium payments will be made in the near future.
I have dealt with the main product areas which are under pressure. I would now like to move to measures which can broadly be defined as being in the structural area. A number of these measures which have been put in place under EC policy have the advantage of providing payments directly to farmers. As the balance between price support and structural measures has changed within the CAP in recent years, the contribution which direct subsidies make to total farm income has increased. Between 1984 and 1989, using Central Statistics Office figures, the contribution of the net figure for subsidies and levies went from 8 per cent to 11 per cent of aggregate farm income.
An important part of these subsidies is paid under the disadvantaged areas scheme. As you know, the Government have submitted a detailed application to the EC Commission seeking agreement to extend the disadvantaged areas. This would be done by adding new areas to the list of less severely handicapped areas and by designating coastal areas as areas suffering from specific handicaps. In addition, it is proposed that 1.3 million acres, currently designated as less severely handicapped, would be classified as more severely handicapped and that areas now designated as mountain sheep grazing areas would be reclassified as less severely handicapped areas. The rates of payment would also be adjusted. This plan has gone to Brussels. We are hopeful for a favourable result which in turn will lead to increase in headage payments from 1991 onwards.
Expenditure on the new proposals together with the existing expenditure under the disadvantaged areas scheme will attract 65 per cent Community recoupment when fully implemented and, when account is taken of the abolition this year of the off farm income restriction, total expenditure when the current proposals are fully implemented will increase headage payments from £60 million to £100 million a year. In addition, the new designated areas will benefit from increased investment aids, exemption from the milk co-responsibility levy and the special supplement to the ewe premium I mentioned earlier.
The payments under the structural policy of the CAP are just part of a wider reorientation of Community spending — which fit into the 1992 programme and the increased spending in the less economically advanced parts of the Community. The enlarged EC Structural Funds will be an important part of our national investment in the period up to 1993. The various operational programmes which will determine how these funds are to be spent are in the course of being approved. Many of these will have a direct impact on rural areas.
The operational programme for the control of farmyard pollution has already stimulated significant investment by farmers. Between 1989 and 1990, an estimated £200 million will be invested by farmers, much of it on pollution control.
The operational programme on rural development, which will provide support for agri-tourism new enterprises and agricultural training and education will be approved later this year. In addition, the various operational programmes for infrastructure, industry, human resources will each have a positive impact on economic growth, and will provide in many rural areas additional income and employment opportunities.
Increasingly in the future, everyone, whether at Government or at farm level, will have to become more conscious of looking at the income issue for farmers in a wider context than just what is earned from farming. As the results of household budget survey clearly show, farm households have diverse sources of income, just as do non-farm households. It will be one of the challenges of the nineties to expand the range and contribution of these non-farm income sources to farm households. This is why we need to have a more diversified rural economy and why the increased EC Structural Fund spending should work towards this objective.
I would now like to turn to some of the longer-term issues Senators have raised. One of the central issues is the current round of GATT negotiations. Ireland has strongly supported the Community position in these negotiations, which is being ably directed by Commissioner MacSharry. We accept that we are working towards lower overall agricultural support levels in all countries in the expectation that this will lead to balanced markets and a more market oriented trading system.
During the Irish EC Presidency, the Agriculture Council was fully involved in developing and maintaining the Community's negotiating position. The Council unanimously confirmed the Community's global approach at its meetings in April and June, declared that the basic principles of the CAP were not negotiable and stressed that full credit should be obtained for past reform measures. The Council also decided that Agricultural Ministers will continue to be involved to the greatest possible extent in the negotiations. The European solidarity which we were able to bring about through unanimous decisions — never an easy achievement at the Council of Ministers — was a major factor in resisting the American demands for elimination of agriculture supports in the EC and the fact is that for the first time ever at the Houston meeting last week the Americans have dropped their demand for elimination of support and have recognised the need for a balanced and global approach which has always been the EC position. The negotiations can now continue and the contribution of our Presidency will have been seen to have been very significant.
We will continue to follow the GATT negotiations with great attention, as clearly the outcome of these negotiations is of fundamental national importance. We are prepared to negotiate to achieve a more sensible and coherent world trading order for agriculture. This would benefit all GATT members. We are not prepared to negotiate away the principles or mechanisms of the CAP.
A number of Senators stressed the uncertainty which prevail in agriculture at the moment. Questions were asked about the future of the milk quota system. The question was posed as to what is the overall policy towards the agricultural and food sector.
There are indeed some major uncertainties about the future. We do not know for certain what will be the future of the milk quota regime. The Commission is required to produce a report on milk quotas during 1991, with a view to assisting a decision on future policy post 1992. The current Irish view on this issue is that the basic milk quota system will remain, though perhaps in a more flexible form. There are aspects of the beef regime which are also due to be reviewed this year and, of course, the whole sugar regime will be renegotiated over coming months as well. We would expect that the arrangements for cereals would in any event fall to be revised also.
At the wider level of policy, the outcome of the GATT negotiations will obviously be of importance. Even though we cannot predict the precise outcome, we know that there will be lower support and protection levels in the 1990s than applied in the 1970s and 1980s. Our knowledge of the movement of EC policy points us in this direction anyway.
So we are somewhat at a policy crossroads. In the light of all of this, the Minister set up a policy review group within the Department in November 1989. This group have had consultations with a wide spectrum of interests in the industry. They are due to submit their report to the Minister later this year.
The future is clearly going to be competitive for Irish farmers. We know that we have the advantages of good quality food, a relatively clean environment and a low cost of production for our major products. We have opportunities to diversify our rural economy, through tourism and other industry. It will not be easy to meet the challenges which the nineties will pose for us, but we have no other option than to rise to them.
