I am delighted to have the opportunity to discuss details of the most important sector of the economy. I welcome the opportunity to listen to contributions today and next week and my Department, the Minister of State, Deputy Deenihan, and I will take note of the points raised. I propose to review the past 13 months, outline the priorities of the Department, review the commodity sectors in agriculture and how the Department's schemes operate. I will also talk about the future of agriculture in terms of enlargement, the TB eradication scheme and the budget provisions.
The year 1995 was a record one for agriculture in that incomes reached over £2 billion for the first time and it represented the fifth consecutive year where there was a real increase in incomes. To get a nominal increase of over 6 per cent at a time when inflation was 2.5 per cent speaks for itself. When looking at this £2 billion, it is important to note the Department's significant role in the net income to agriculture. It is reckoned that 37p in every £1 of farm income comes in the form of a cheque in the post — direct income aids to premia and headage. If we take into account that an additional £750 million is paid by way of direct market supports, export subsidies, refund arrangements and other price supports, we will see that the total value of the CAP to Irish agriculture is £1.5 billion.
As regards direct payments, there was a problem in the latter half of 1995 with people who did not send in area aid forms. This meant that they were denied their entitlement to suckler cow or ewe premiums, to headage or to special beef premium. In 5,000 cases, applications were late or were not sent. I am delighted that further to my representations to Brussels some £20 million can now be paid to farmers on the basis that their 1994 submissions will suffice. I appeal to farmers to make sure they send in their area aid applications on time each year.
As regards the medium term prospect, we are now moving to an end of the income growth in agriculture through an increase in direct income aids, premium increases, green pound devaluations and headage changes. It is clear that the 1992 CAP reforms have worked their way through the system and that future income growth will come through improved productivity and efficiency and greater attention to cost control and quality at farm gate level.
There are long-term pressures in relation to EU enlargement. Eastern and central European countries have a capacity to produce food at a lower cost. The purpose of the Uruguay Round of GATT will be to intensify competitive pressures. Therefore, our future direction must be to ensure that those efficiency gains take place. In that regard, I will shortly launch the Teagasc advisory service for 1996 and I will pay particular attention to improving competitiveness.
One of my priorities on becoming Minister was to ensure that the Department of Agriculture, Food and Forestry was seen to be exemplary in terms of providing a modern service in relation to payments to farmers. Because there is such a dependence on the cheque in the post for net farm income, it is important that it is paid on time in a consumer friendly way. The Taoiseach launched the Charter of Rights on 20 April last after detailed consultations with the farm organisations and management in my Department. Immediate benefits are already available. All the financial targets in terms of payments have been met in 1995 — some have surpassed the targets. In almost all cases we exceeded 95 per cent payments for individual types of premiums, including the suckler cow and ewe premium, in 1995. The charter sets out detailed timetables for payments.
We want to move towards what was available at the National Ploughing Championships in that a person should be able to go into a local office, feed their herd number into a computer and be told about problems and their entitlements.
Another priority was to ensure that office opening hours would be the same as any other public service office. It was not acceptable that offices were only open from 10 a.m. to 12.30 p.m. From 1 September last offices have been open until 5.30 p.m., like other Departments, although we did have industrial relations hiccups. The telephone service I promised — whereby if one rings the local office and wants to be connected to Castlebar, Cavan, Portlaoise or Dublin, one can do so at the price of a local call — is on schedule to happen by the end of the year. We have reached agreement with the Office of Public Works on the upgrading of the offices. The worst district offices in Tipperary, Roscommon, Enniscorthy and Davitt House, Castlebar will be moving ahead in terms of new or improved offices.
The Government will publish the strategic management initiative at the end of February and each Department must do its own follow-up reorganisation which I will announce shortly. This is an attempt by the senior Civil Service to address reorganisation through executive units. The Department is diverse and employs about 6,500 people between State agencies and within the Department. Securing a better delivery of services will involve more streamlining and that is our intention in that regard.
Moving to commodities, with the exception of sheep, 1995 was an excellent year. The best performance was in tillage where, because of good weather, better circumstances and good market conditions, output increased by 46 per cent. This follows a couple of slack years in which profit was mediocre at best. When I was appointed Minister, the first crisis I had to deal with was in the pig sector. Prices had dropped to about £96 per 100 kilos. Now prices are up to £117 and today's market reports state that Irish pig prices are 5 per cent ahead of the EU average. I am delighted about that.
The most difficult area was sheep. From April to August 1995 prices slumped dramatically due to an overhang of hoggets on the market and a number of other factors. However, on a month by month comparison between 1995 and 1994, the drop was as high as 22 per cent. For the first and latter parts of the year — up to March and after September — prices were higher than they had been in the last four years. However, a particular segment of producers lost out and a number of protests and a lobbying campaign took place. Members of this House made strong representations to me about the difficulties being experienced, not least in my own county.
I am pleased, therefore, that, at the December Council meeting, we secured an exclusive package for Ireland which meant that the rural world premium would be extended to all sheep farmers. This is worth about £6 per head and will meet the problems of low level producers who were particularly badly affected by the price decrease. We increased the headage by £1 and £2 on hoggets and mountain ewes and, because of the market drop, we secured a £3 increase in the mainline premium. It all added up to £26 million. The package was difficult to get because in other countries prices had fallen further and they were receiving nothing. In France the Minister for Agriculture was from a lowland constituency and he was anxious to get the rural world premium. The fact that we secured it was a successful outcome.
Over the last 15 years our sheep production has been standing still. Our national average for lamb output is 1.1 lambs per ewe; our quality has not improved and our breeding has remained broadly static. We must address these issues. I visited the Rungis market in Paris and commissioned an An Bord Bia study. It clearly showed that we do not have the consistency of quality which others have. The picture is more precise if we compare our performance with that of the British. In 1990 we exported about 51,000 tonnes of sheepmeat to France, our most important market. France provided sales to Britain of about 55,000 tonnes. In 1994 our exports remained broadly the same while those of the British had shot up to 86,000 tonnes, an increase of 62 per cent. Britain had increased its market share while we stood still.
The An Bord Bia report, which we published in early January, showed that we must adhere to quality. We must look in the long term towards paying for lambs in meat factories on the basis of quality confirmation and low fat as against weight. The lamb classification scheme, which is not a statutory scheme and will not involve a huge bureaucracy or levy, is now being put in place. We will target a number of initiatives with An Bord Bia to move towards more ready cuts, more labelling, racks of lamb and legs of lamb as opposed to just dumping the carcase on the Rungis market at a low price. We are also looking at the German and Spanish markets for opportunities. Teagasc will be asked to try to improve on-farm efficiency and breeding practices.
The beef sector is, at present, my most serious area of difficulty. It is the most important sector in Irish agriculture and is worth £1.5 billion. The majority of farmers, about 100,000, are involved in beef production. Incomes improved last year due to the level of increase in premia. In 1990 the level of premia income to the beef sector was £120 million. That has now increased to £370 million. Cattle prices in 1995 were 10 per cent higher than those in 1992, when premia income was £250 million less. The Commission is strongly of the view that the purpose of premia is to compensate for lower prices. It believes that prices for cattle in Europe in the short and medium term must abate.
The other point to bear in mind is the fact that consumption of red meat and beef is dropping by about 1 per cent per annum; it has dropped by 10 per cent over the last ten years. Following the recent BSE scare in the UK consumption dropped by 20 per cent in six weeks. It will recover but not to its previous level. Germany in 1993 experienced a 20 per cent drop. That is the background to the problems in this sector.
The beef management committee cut refunds by a total of 36 per cent between September and November. We totally oppose this. Ireland is very dependent on third country exports and without these subsidies we cannot service those markets. We have bitterly opposed the Commission's handling of this matter. We believe it has engendered panic in heavy levels of prefixation. It rewarded speculators and we now have the farcical situation that if one wishes to get a licence today one must approach another trader who prefixed at an earlier date instead of approaching the Commission for it. We put forward proposals last October to deal with the problems of speculation, non-transferable licences, shorter validity periods and so forth. Some of these issues were dealt with but not fully. Instead the Commission simply slashed the refunds by 25 per cent across the board in mid-November. That brought it to a standstill.
The Commission increased the refunds in mid-December by about 14 per cent and the level of prefixation since then has varied per week from about 2,500 tonnes to 7,000 tonnes. The important point is that the overall GATT quota limit for export subsidies by volume is 1.19 million tonnes. Our best estimate is that Europe will require exports of about 900,000 tonnes so there is no GATT pressure. There is no budgetary pressure. The problem is that the level of prefixations was so heavy they were afraid that they would run out of them by the end of the GATT year. The 1.19 million tonnes works out at about 22,000 tonnes per week. It was running at 60,000 and 70,000 tonnes per week so the Commission had to stop it. However, we believed that would work its way through the system. There are heavy penalties for people who do not take out licences beyond the expiry period. There will be another meeting of the beef management committee this Friday. We believe there probably will be an increase in the refunds although it probably will not be enough. The price drop we have experienced has not been reflected in the rest of Europe although the French have had a problem with cows. However, essentially, it is a difficult battle.
I am also fighting a battle about the EU fines which is a political battle with the Commission President and DG6 who decide this issue. The other issue is the deseasonalisation premium, which is the £60 per head we receive in the spring. The qualifying criterion is that we must slaughter 40 per cent of our animals from 1 September to 1 December. We have slipped to 35.8 per cent which means we are no longer eligible. I have to get the threshold lowered to 35 per cent. The problem is that the longer is one's shopping list, the more compromised one is in terms of not being able to secure all things immediately.
I am committed to continuity in live cattle shipments. Last year and this year I signed special regulations relating to the condition of transport of animals so we could seem to have a long-term credible basis for this trade. The Australian rules would apply to long haul traffic and the EU rules would also be implemented.
We must face the reality that there is a surplus of beef production over consumption of the order of 400,000 tonnes per annum. There is also a potential drop in consumption. Ireland has the lowest price for beef and we will, therefore, trigger the point at which the surplus has to be dealt with, hence our dependence on Third World country exports. Live exports have a role to play and are essential to buoyancy in cattle prices. Meat factories have shown that if they can operate in isolation without competition they will have a profit opportunity which they would not otherwise have.
Dairying is our second most important area. There has been buoyancy in milk prices and record milk prices throughout 1995. The world price of milk is about half the European price of milk and that concerns me in the longterm. I have studied the longterm review of the quota which is assured to the year 2000 and beyond. We must look to long-term to ascertain what is in our best interests. The quota system has served us well but, because of the buoyancy of prices, the leasing and purchasing of quotas overheated.
Milk dried up in the restructuring and temporary leasing schemes operated through co-ops. I introduced ring fencing in disadvantaged areas to ensure that people would not be discriminated against. There is a pool of milk in disadvantaged areas that is vital to the retention of the maximum number of family farms on a viable basis. The legislation is now in place and will safeguard that pool of 320 million gallons of milk. In relation to overheating, I introduced a 10 per cent clawback which imposes a penalty on those private leases. We will clamp down on any bogus leases which do not conform to the regulations.
The milk restructuring scheme increased the price to 75p per gallon. Through the hardship schemes and the appeals tribunal we gave additional quotas to 2,000 producers. We paid the fourth and final instalment of compensation to those producers who had a reduction in quota in 1991. I already referred to the comprehensive review of the long-term position of the quota system. I am setting up an advisory group to try to get an industry consensus on that.
We have a perilous situation in relation to super levy. At the end of the December we were 1.92 per cent over quota which translates into a levy bill of £25 million. There are about seven or eight weeks to go to the end of production year and I appeal to dairy farmers to try to stay within the quota. They have individual responsibility for the management of the quota and there is no way around this. Last year people said that we should shuffle some of next year's milk into this year's milk. If we had done that we would be in an even worse situation now relative to 1995.
As I said earlier it was a good year for tillage; 1992 to 1994 were disastrous because our output dropped by 25 per cent. We cut 0.5 million tonnes in grain and became more dependent on imports and more of a deficit nation in the trading of grain. We consume about 3.4 million tonnes of animal feed compounds and import about 2 million tonnes of feed. We need to produce our national base area and national quota — we are short by about 45,000 hectares — and minimise the level of imports. This would give opportunities for more access to feed here from native grain as well as more income opportunities.
We need to reduce setaside. We reduced setaside on a voluntary level from 30 per cent to 15 per cent and have a single rate of setaside at 10 per cent between rotational and non-rotational. That will yield an increase in output. I am determined to get a relaxation of the eligible land rule. Article 9 of the CAP on arable aid seeks to ensure that member states who are under quota would not have to adhere fully to their eligible land rule. If and when we become over quota I would be sympathetic to introducing individual base areas but that is a couple of years away at least.
During the year we secured agreement in relation to the implementation of GATT and CAP reform for the sugar beet sector. There are 5,000 growers with an output of £60 million. I am glad to say production was up 20,000 tonnes, or 10 per cent, on last year to 220,000 tonnes. The six year deal was very satisfactory and there was no price cut. There was a fear that the subsidy for storage of seed quota from one year to the next would be caught but we protected it. There is now a viable basis for people to continue in sugar beet.
The Council of Ministers is currently debating the reform of the fruit and vegetable sector. We account for only one-third of 1 per cent of total fruit and vegetable production in Europe so it is not a major issue for us. However, I will try to ensure that it supports our existing growers and producer groups. We have introduced FIP for horticulture and the guidelines and forms will be available in local Teagasc offices within the next fortnight. My Minister of State, Deputy Deenihan, who has overall responsibility for Bord Glas and the horticulture sector, has established a forum to try to ensure that we can develop a further blueprint for the sector.
I referred earlier to the sustained price improvement in pigmeat. Sow numbers dropped on the Continent through disease and this, coupled with other factors, facilitated a more orderly market development. It is my intention to reinstate the Bord Bia pig levy shortly and to focus on pork and bacon promotion. The reduction of about 20p per slaughter fee on the pig was an exceptional measure because of the weakness of price. Those circumstances have now changed and Bord Bia would benefit from that money.
In the poultry sector we launched a £33 million investment scheme of Structural Funds for the processing sector and the budget also contained a measure to reduce non-auto LPG. I appreciate they have particular problems and I await the poultry meat forum's report. When I became Minister there was a lot of in-fighting between processors, producers and so on. It was an important step to achieve consensus.
Moving away from commodities and on to farm investment, Members will know I had a nightmare situation in relation to CFP where only £3.8 million was allocated in the structural division of funds this year. Following a detailed review of the scheme, we have £20 million in the fund this year. We reallocated money from the inflator, future years and forestry roads and I am pleased to say that all 18,600 applicants will be approved. We are ahead of schedule and I hope that all those who want to be approved will have been approved by Easter and can proceed with the works. We abolished the £30 on farm inspection fee.
REPS has become a huge success story in terms of uptake. This is a very good scheme which comes out of the Feoga Guarantee Fund. It is not part of Structural Funds and is financed on a three to one basis between Brussels and Dublin. When I became Minister there were only 350 applications in REPS. People said it was a bureaucratic nightmare and not worth considering. We now have over 8,500 in the scheme, 1,500 in the process and we envisage another 12,500. We have a facility at European level to go to 40,000. Given that the average payment is about £3,500 and it does not involve a huge modification in farm practice, this is a way to increase farm incomes. I have also relaxed the rule that one had to carry out CFP work within one year of having a REPS plan approved. The requirement is now three years and this will deal with the other problems that were there.
There is also a problem with overgrazing in the mountainous areas of the west. The committee in Brussels agreed to a special package, £31 per ewe taken off the mountain, payable for five years in addition to the REPS payment. If a person with a quota of 1,000 ewes reduced them by half, they would be £7,500 better of in net terms, even when one takes account of the reduced output.
The disadvantaged areas is another matter which I inherited and have been anxious to bring to fruition. The full one million acres of farmland were reclassified more severely disadvantaged which means an extra £4 million in a full year and an average of £1,000 per farmer. There are two remaining issues on the disadvantaged areas. The first is the extension of areas into the less severely disadvantaged. We have had major difficulties with the EU Commission on this issue. There have been legal and technical difficulties regarding stocking rates. Unfortunately, the interpretation we had of the rule was not the correct one and we have had to modify the proposal. I expect to secure agreement from the EU Commission within a matter of days and it is my intention that those areas that will be included for the first time and the disadvantaged areas will have the benefits in 1996. I am making the administrative arrangements for this and will try to publish the list as soon as possible. It will have to go before the EU Council of Ministers and the European Parliament, so the red tape process will take a considerable amount of time.
With regard to rural development, in 1995 the LEADER II Programme was launched with a total investment of £190 million. We obtained extra money from the EU Commission in the latter half of last year for this.
Other significant initiatives include the £35 million agri-tourism programme, involving grant aid of £10 million and a £4 million grant aid package for the sport horse sector. These initiatives, together with the county enterprise boards, the partnership companies and special assistance for horticulture and other alternative enterprises, will provide a framework for exciting development and job creation in rural areas over the coming years. However, there is a problem with poor quality and high volume in the sport horse sector and we are now aiming at quality rather than quantity.
One of my priorities for 1996 is in the area of forestry. Approximately 7 per cent of the land of Ireland is planted; the EU average is 24 per cent. We have the most favourable climate for forestry production in the EU, together with 1 billion hectares of land that can produce a higher income from forestry than from agriculture. The premium and forestry grants, both from the EU, are in place and are tax free. We must get the marshy land planted. In addition, we must have a long-term strategy for marketing and growing timber and for ensuring that it is a successful, integrated industry.
I will be bringing to Cabinet in March, and publishing, a 20 year strategy for the forestry sector — the first of its kind. However, we are already seeing some of the downstream jobs in the Masonite plant and the OSB factory in Waterford, which will open shortly. These will create 2,000 to 3,000 jobs in wood pulp processing, tertiary processing with the wood industry and sawmilling in addition to direct industry jobs.
The A to Z of forestry will be dealt with in this strategy, including planning permission and environmental impact assessments. I am aware of the unpopularity of forestry among residents in some areas. We want to have an orderly development of forestry, not arbitrary, indiscriminate planting, and we will try to facilitate this.
There is another problem in that Coillte is virtually a monopoly raw material supplier to sawmills. There has been a huge debate among sawmill owners that there has been an unfair log allocation and pricing system. I hope to be in a position to announce, as part of the strategy, a new deal between the Irish Timber Council and Coillte with regard to the sawmilling sector in order to provide a transparent, independent and fair basis — a market led basis — for selling timber.
I had a special focus on the food industry in 1995 due to the launch of the National Food Development Strategy. It involves public sector investment of £283 million over five years and, including the private sector, a total of £640 million. We hope to increase output by the turn of the century from £9 billion to £12 billion and to create an extra 5,000 jobs. It is a three pronged strategy between Bord Bia on the marketing side, Forbairt on the company development and research side in terms of research grants, and Teagasc to build up a State bank of food research to help small companies and to keep us linked in at an international level. I established a new national committee involving these organisations, chaired by the Secretary of my Department, Mr. Michael Dowling.
In the latter half of last year I topped up the money to Bord Bia to provide an extra £15 million, £7.5 million this year and next year, in terms of assistance. I am aware of the currency difficulties. While this is not a currency scheme, it may provide some assistance to those who sell it on the UK and European markets.
We must look at the long-term issue of rationalisation in the food industry, in addition to aspects such as involvement to scale and food processing, to which I will turn my attention this year. Notwithstanding this, I wish to highlight the event called Horizons which will take place between 11 and 13 June. This will be the largest ever shop window for Irish food. It will be a superb international exhibition, a £3 million event and the first of its kind. It will take place at the RDS and linked to it will be an international food conference and seminar. Top international speakers will be involved and the event will bring in 250 to 300 buyers. Our top 100 companies will be involved and it will be a superb opportunity to show the totality of Irish food — for example, its green image in terms of our extensive grassland base of production.
With regard to the budget, in a full year the VAT refund is worth £9 million to unregistered farmers. The PRSI benefits will assist the competitiveness of the food industry. They are reckoned to be worth approximately £3 million in cost reductions. For all agri businesses which are not paying the 10 per cent profits tax, the reduction from 38 per cent to 20 per cent on the first £50,000 of income will be of benefit, especially to smaller companies.
I am conscious of the fact that, under the quota system, etc., young farmers and new entrants are having difficulty with quota and lamb prices. I am anxious to promulgate and support land leasing, especially long-term leasing. At present, tenants of commercial property have all the rights after three and five years. This is not the case with land. An elderly person who wants to retain the land in the family may not be able to farm it to its maximum output. Leasing is the long-term option. Even though there is shared milking in New Zealand, they have devised a number of career structures for people who do not own land. We must do this here and tax exemptions will provide a real incentive to farmers who own land and who, for reasons of ill health etc., cannot work it.
There is a further adjustment to the CAT, extending the 75 per cent relief. There was a specific problem with the farm retirement scheme in that when some people retired they transferred stock which created a tax liability. We are exempting this, which should deal with the problem. In addition there was a specific problem regarding social welfare under REPS. For small farmers on unemployment assistance from 1 October, the first £2,000 will be exempted from the means test.
I made changes to the installation aid during the year. I abolished the upper ceiling of man work units and introduced more flexibility for people at the smaller end, including part-time farms. I am anxious to keep this under active review. There was a catch in the scheme regarding the under 35 year rule in that one had to be under 35 years of age at the end of the production year, a year after the transfer. This has now been changed to the date of the transfer because there were people who were 34 years of age caught out.
Enlargement of the EU is a serious long-term issue. We will seek a transition period so that applicant countries can join our club and absorb our rules. There will be veterinary, market and other difficulties. The problem is that output costs in these countries are approximately 10 per cent of our costs, they have approximately one-quarter of our spending power — the EU average — and they cannot, therefore, conform with the CAP as it is. It would blow the budget. Commissioner Fischler produced an assessment for the Madrid summit which showed that a radical reform, moving towards world prices, would break farmers. Ireland could not afford this in terms of direct income payments. In order to absorb Poland and the other countries, which are not homogeneous, into the community we could not afford to keep going as we are. The conclusion is that we must continue with the process of CAP reform but have a transitional period so that we can preserve it.
The most serious threat to Ireland is the renationalisation of the CAP. There is no doubt that the French or German Governments could afford to compensate their farmers. Spain, Portugal and Ireland, with a higher dependence on agriculture and a higher proportion of their workforces in agriculture, cannot afford this. We must ensure that the political commonality of support for agriculture is retained throughout the CAP rather than through national measures.
The TB and brucellosis programmes and eradication schemes were the most controversial and conflict ridden areas in 1995. I inherited a scheme that was agreed in principle with the social partners regarding rotation and a three year deal with Brussels. The vets refused to work it, despite the fact that we had offered them more money than the total amount of EU money involved, and it would have involved no reduction in levies. Essentially that could not work and we had to go back to the drawing board. What we have come up with is the most radical restructuring scheme ever — those are not my words, I think everyone is agreed on that. It is a three year scheme which involves the participation of everyone through a TB forum to fine tune the system and make it work. It devolves responsibility for TB onto farmers, which means the annual test will be paid for by farmers and organised through the DVO, using the farmer's choice of vet. The farmer will pay for the test and the levies will be reduced by £18 million, from £28 million to £10 million; the reduction is from £7.30 to £2.50 per animal slaughtered or exported, and from 1.3 pence to 0.5 pence per gallon of milk. We reckon the net saving to farmers, between what they will now have to pay for the test and what they previously paid in levies, is about £4 million. I am paying for the new animal tags, which in 1996 will cost £3 million, and the abolition of pre-movement testing, which cost farmers about £4 million, will also be a saving. I have also arranged that the reduced levies which will be paid from now on will only go into a compensation fund, so they will not go towards administration costs.
I have now secured the agreement of all four farming organisations — the IFA, the ICMSA, Macra na Feirme and ICOS. It is impossible to get full agreement on TB, as it is a most contentious area. There are so many individual cases of hardship it is a most emotive area. However, to get that level of agreement is a great achievement. Today and yesterday there are detailed and extensive discussions in relation to the IVU. I appeal to vets for their co-operation. My Department has entered those talks in good faith and I hope they participate shortly. The IVU will have an executive meeting this week. I hope that issue can move on and that we can all move together on a three year programme.
The final eradication of TB will depend on a technological breakthrough — a blood test which is foolproof for diagnosis, or a vaccine. I think such a blood test is not far away and will happen within three years. That will provide a basis for final eradication.
I thank Senators for their kind attention. As I said at the outset, I consider this as much a listening as a speaking exercise. I hope I have stimulated a basis for thought and provoked an opportunity for people to comment on their fears and aspirations for the sector. I am absolutely committed to development in this area. It is by far Ireland's most important indigenous industry; 86 per cent of its output is produced from Irish raw materials. Because the entire community is dependent upon agriculture it is in all our interests that we all work together to ensure our future growth and prosperity.
