I welcome the opportunity to return to the Seanad to discuss our most important national industry. The past 14 months have been difficult for certain elements of the agricultural sector. The House of Commons announcement in March 1996 was a watershed causing beef prices to fall substantially and causing problems in many of our traditional markets for beef and cattle.
Farm incomes in 1996 were very close to the record level achieved in 1995 despite a 13 per cent decline in output value in the beef sector. Incomes would have been much lower were it not for the BSE compensation packages which I negotiated last June and October. Some sectors, such as the sheep and pigs sectors, enjoyed very good outturns throughout 1996 while the milk sector held its value at the high 1995 level. Cereal producers had a good year as lower prices were somewhat compensated by a very good harvest.
Revaluations of the Irish green pound occurred on the 8 November 1996, 11 January 1997 and 29 March 1997. This was a new and unwelcome experience for the agriculture sector since it had the effect of a significant reduction in CAP support prices in terms of Irish pounds. However, the regulations provide for a system of aid in such situations and at the Council of Ministers' meeting on 17 and 19 March I secured agreement for the payment, in 1997, of EU funded compensatory aid to producers in the milk, beef, cereals and sugar sectors in respect of the first two revaluations. The compensation will amount to £46.1 million in 1997, £30.7 million in 1998 and £15.4 million in 1999. I am planning for the payment of this compensation to producers in the coming weeks.
In relation to the further revaluation of the green rate, which occurred on 29 March 1997, additional EU compensation aid amounting to £25.4 million in 1997, £16.9 million in 1998 and £8.5 million in 1999 has been agreed. There would be some amendment to these figures if the Irish green pound were to devalue between now and 30 June but it is not clear at this stage whether or not that will happen.
The green rate applicable to the CAP reform premiums, including payments under the accompanying measures, was not affected by any of these green rate revaluations. These premia do, of course, now account for a very significant part of farmers' incomes.
As regards funding from the national Exchequer, I received the agreement of the Government for the payment of £17 million to the beef sector because of the particularly adverse market conditions being experienced by that sector. This represents a significant gesture by the Government at a time when there are very many demands on the Exchequer. The scheme of payments requires Commission approval but my aim is to have payments made as quickly as possible.
The current problems facing beef producers result from a combination of factors, the most important of which are the continuing difficulties on the beef market arising from the BSE problem, the cuts in export refunds to enable the European Union to comply with the GATT Agreement and, as I have already mentioned, the revaluations of the Irish agricultural conversion rate. All of these factors are closely interrelated.
As far as the BSE problem is concerned, the announcement in the House of Commons on 20 March 1996 indicating a possible link between BSE in cattle and CJD in humans precipitated an unprecedented drop in beef consumption right across Europe and created enormous concern in many of our important third country markets. My Department immediately recognised the extent of the problem and, together with An Bord Bia and the diplomatic service, undertook a major diplomatic offensive to protect the position of Irish beef exports both on European and third country markets. High level delegations at official and political level visited all of our major international markets to reassure the authorities there of the safety of Irish beef and beef products. The success of these efforts can be seen from the fact that Irish beef exports to international markets actually increased by almost 40 per cent in 1996 relative to 1995. This stands in sharp contrast to the position following the 1990 BSE crisis, when Irish beef exports fell dramatically and virtually all of our eligible steer beef production was sold into intervention and it took a number of years to recover our position.
Apart from my efforts to keep open important markets, which I will come back to later, I also successfully lobbied the European Commission to introduce emergency intervention measures at an early date in the crisis. The Commission agreed to temporarily waive the 340 kg intervention carcase weight limit and to extend intervention to grade 04 steers. In addition, export refunds were increased by 12 per cent in May 1996 in order to improve the competitiveness of European traders on third country markets. All of these measures helped to provide substantial support for the market at a time when it was most needed and I am satisfied that they prevented a collapse in prices. I also persuaded the Commission, during the autumn and again earlier this year, to maintain the intervention support system at a higher level than the Commission had originally intended. For example, I intervened directly with Commissioner Fischler last December to ensure that grade 04 steers remained eligible for intervention and the intervention weight limit has also been maintained at 360 kg as a result of my efforts and those of my Department. I should also point out that the additional classes which were added to the intervention system at the beginning of the BSE crisis in April 1996 have been removed from intervention in all member states except Ireland and Northern Ireland. This disproves the contention of those commentators who argue that Ireland does not have any influence with the Commission in the management of the beef market.
The major success last year was the negotiation of the two BSE compensation packages last June and October amounting to £100 million for Irish farmers. By any standards, this was a very sizeable package of aid and it has made a very substantial contribution to relieving the hardship endured by producers arising from the sharp drop in cattle prices following the commencement of the BSE crisis. The June package was worth approximately £70 million to Irish producers and was paid in September and early October. The second compensation package, which was worth £30 million, was agreed in principle by the EU Ministers last October but was not formally accepted by the Council until December. I have already announced the arrangements for the payment of this package and payments should commence this week. The House will recall that I decided, for administrative reasons, to run this scheme together with the agri-monetary compensation package which became available as a result of the revaluation of the Irish green pound last November and again on 11 January.
Many of the current problems in the beef sector stem from the fact that the beef surplus in the European Union is significantly greater than the quantity of subsidised beef which can be exported to third countries under the GATT Agreement. That, in a nutshell, is the kernel of the problem. While I fully recognise that the European Union has to comply with the GATT ceiling, I do not agree that cutting export refunds is the best strategy to achieve this objective.
When the problem first arose in January I succeeded in persuading the Commission to reduce the period of validity of export licences in order to ensure a more orderly approach from the trade to applications for export licences. I hoped this approach would avoid any further upsurge in applications for licences and accordingly the need for action on export refunds. However, this proved not to be the case and there were a number of further occasions when applications reached very high levels. Unfortunately, the Commission believe the most effective way to dampen down demand for licences is to reduce export refunds and they have done this on three occasions since the beginning of the year. As I have already said, I do not share the Commission's view that this is the best strategy and I have suggested instead that a more effective mechanism would be to apply reduction co-efficients as is the practice in the case of tendering for intervention. The Commission is extremely reluctant to adopt this course of action because of its bad experience when it was applied to intervention tendering in the early nineties. On that occasion traders responded to the application of reduction co-efficients by submitting enormous tenders.
Regarding revaluation of the Irish green pound, the strengthening of the punt is a direct reflection of our buoyant economy but, unfortunately, it has a downside in that it reduces the level of support prices available to Irish producers. Members will be aware that the upswing in the value of sterling has also affected the situation. Clearly, in view of the importance of the intervention system and export refunds in supporting the market in the beef sector, particularly in Ireland, the successive revaluations of the Irish green pound combined with reductions in export refunds have imposed downward pressure on cattle prices here.
Fortunately, compensation for this was forthcoming and the European Union has approved two aid packages which I have already detailed to compensate producers for the fall in prices. I am very pleased that the Government acceded to my request to top-up these packages by a further £17 million from national resources. Subject to the approval of the Commission, I intend to use this money to fund a £50 per head payment on all male cattle and heifers slaughtered in the period 1 April — 10 June. Finished heifers sold through marts will also qualify. Because of this applications for heifers will only be processed after 10 June and where two applications are received for the one animal we will make payments to the first owner of the animal. This package reflects the strong commitment of the Government to beef producers.
I also wish to point out that I negotiated a reduction in the trigger of the deseasonalisation premium last June to ensure the retention of this premium for 1997 and future years in the face of strong opposition from many member states who see this premium as a special export subsidy to Irish beef producers. This premium will be worth approximately £20 million to Irish producers this year and is equivalent to 7p per lb. In addition the adjustment which I negotiated to the extensification premium last October will be worth £15 million to producers this year without any reduction in stocking densities or ratios.
The cumulative effect of these various income support measures is significant. The two BSE compensation packages for income losses in 1996 arising from low prices amounted to £100 million. The agri-monetary compensation packages including the £17 million from our own resources are worth approximately £49 million while changes to the DSP and the extensification premium are together worth £35 million. In other words, in the course of the last 12 months I have negotiated a range of measures worth £186 million to beef producers which by any standards is significant and without precedent. Obviously these measures will make a significant contribution to protecting producers' incomes in the course of this year. They are also a clear reflection of a constant stream of activity to deal with the problems in the sector.
Of course, the long-term solution to the problem is to rebalance the beef market in the European Union. A recent study by the Commission concluded that the measures which the European Union took last October to reduce beef production combined with the destruction of beef from animals over 30 months in the United Kingdom should restore balance to the market at least temporarily from 1999 and that it will be possible to dispose of intervention stocks within the GATT ceiling by 2002. While this study is based on a reasonably optimistic assumption about beef consumption it does nevertheless indicate that there is some light at the end of the tunnel. Clearly, in view of our dependence on market supports and export markets, it is in our interest that market balance is restored as soon as possible. I am very pleased that the measures which as President of the Agriculture Council I piloted through the Council last year have set the framework for restoring the market to balance at least for a period from the end of 1998 to 2001.
I am pleased to have this opportunity of setting out the position regarding beef and cattle exports to key markets since the BSE problem erupted. The beef industry in the EU and worldwide markets were thrown into chaos. Consumption fell to one of the lowest levels recorded in recent times and important third country markets were closed. In a word it was one of the most serious difficulties to beset any product. Given the extent of the BSE crisis the export performance of Irish cattle and beef industry in 1996 was better than expected and the reliance on intervention was on the lower side of projections made at the time. Since 20 March 1996 the Government has, as already outlined, spared no effort in dealing with the situation. The full services of my Department, the diplomatic services, An Bord Bia and other Departments and Government agencies have worked effectively together to protect our most important industry. The net effect of this offensive is that we are trading normally on a wide range of international markets.
Russia is by far the most important third country market for Irish beef. This trade is covered by a veterinary Protocol concluded in November last which, inter alia, categorises counties according to their level of BSE. The dire predictions made at the time have not materialised and the Protocol has worked well. Russian interests have signalled their commitment in the long term to trade in beef from Ireland and a figure in excess of 100,000 tonnes is forecast for 1997. Further discussions with the Russian authorities are envisaged in June when members of the Russian Government, hopefully accompanied by Dr. Avilov, will visit Ireland in order to have the situation reviewed.
Egypt is the largest market for Irish live cattle and our second largest third country market for beef. Imports of live cattle from Ireland were banned in January with provision for a review date after six months. New veterinary requirements were also introduced in respect of beef but agreement was quickly reached on a revised veterinary certificate to accompany beef exports thus allowing that trade to continue.
I travelled to Egypt last week with a view to reopening the live cattle market. The meeting was positive and arrangements are being made to finalise a Protocol which will enable the trade to resume in the near future. It has been suggested that the market would have reopened anyway after the six month period. This was not the case and was not the view of anybody with a knowledge of the situation on the ground. Without concerted high level political pressure a framework for amending the ban would not have been secured.
I visited Libya in July 1996 and met a technical delegation when they visited here in March this year to observe our controls first hand. I am continuing my efforts to have this market reopened and believe that positive results from Egypt will have an important bearing on that market.
Iran is an important, if seasonal, market. Again, considerable effort has been devoted to re-opening that outlet. Technical discussions are continuing with a view to agreeing an acceptable veterinary protocol.
In terms of volume the United Arab Emirates market takes between 6,000 and 8,000 tonnes of Irish beef per year. While Qatar, Jordan and Oman import smaller amounts, they are useful and lucrative outlets and have some strategic value. Following active lobbying the UAE authorities recently lifted their restrictions and a veterinary certificate to accompany beef exports has been agreed. I understand that Qatar will follow suit in the coming weeks. It is to be hoped that this in turn, will be followed by Oman. Jordan has also imposed a ban but it is hoped to establish a joint technical committee to review restrictions.
Regarding BSE, the most immediate issue we have to face is restoring confidence within the industry and thus bringing the market back into balance. I have succeeded in obtaining funds from the Commission to assist in this respect. The hypothesis posed by the UK announcement on 20 March 1996 was whether the new variant strain of CJD could have been caused by the consumption of offals from UK beef before 1989 when the ban on the consumption of such offal was imposed. There is as yet no proof of such a link, but as long as the possibility exists it is my primary concern to protect consumers against any possible risk to human health however remote this may be. To that end I have excluded every bit of those parts of cattle, which laboratory experiments show may carry the BSE agent, from the human food chain. These include the brain and spinal cord. As a result we can guarantee that Irish meat is perfectly safe, having also, of course, undergone an ante and post-mortem veterinary inspection. It is important also to remember that BSE has never been found in muscle meat.
The greatest protection we could give our consumers is to eliminate the disease from the national herd. As everybody knows, we depopulate the entire herd, track down the progeny and birth cohorts of the affected animal and slaughter them, and render all the resultant carcases into meat and bonemeal, which we have currently stored pending destruction. The cost is borne entirely by the Exchequer and amounted to £7.3 million in 1996 — a figure which could rise to £12 million this year. These actions will, no doubt, eliminate some potential cases and allay consumer concerns but essentially, if we want to get rid of this scourge, we must eliminate the root cause, that is, the feeding of contaminated meat and bonemeal. I have, therefore, introduced regulations since last October, which I hope will separate entirely the production and use of cattle feed from other feeds in which meat and bonemeal is incorporated. It is now an offence — and I intend to have the full rigour of the law brought to bear on cases — for anybody farming cattle or sheep to have mammalian meat and bonemeal or feeding stuff containing such meal on their premises without a licence. My Department's inspectors are actively carrying out inspections to ensure that these regulations are carried out to the letter.
Testing for the presence of meat and bonemeal in ruminant feed is carried out by the microscopy test, which is the most sensitive test available. Because of the very minute nature of the fragments of bone detected by this method, it cannot distinguish between poultry bone, which poses no risk as far as BSE is concerned, and mammalian bone. I have, therefore, made an order requiring a licence for the use of poultry offal as an animal feed ingredient and I hope by these measures to eliminate any risk of contamination of ruminant feed by mammalian meat and bonemeal. Because of the long incubation period for the disease the results will not show through until four or five years' time.
My Department is committed to the highest possible standards of food safety. Consumers are entitled to be able to rely on the integrity, quality and knowledge that Irish food has been manufactured and produced to the highest international standards of safety and hygiene. Food safety arrangements are extremely effective and I intend that they should remain so. My Department has identified the need for additional safety measures in areas such as animal traceability, quality assurance and residue testing. In this context the safety of beef will be assured through the implementation of the national beef assurance scheme, details of which will be announced shortly.
The enforcement of food safety involves a comprehensive approach by several Departments and Government agencies working together. All of these improvements, together with extensive existing legislation, will ensure that Irish food continues to enjoy a good reputation in terms of safety and quality.
Turning to the dairy sector, let me remind the House that the performance of the sector during 1996 was quite strong against the background of weakening world prices from their historically high levels in 1995. Output in the dairy sector in 1996 was valued at £1.2 billion which was a rise of 6 per cent over 1994. The situation which prevailed in 1995 was one of great buoyancy in the international market for dairy products, contributed to in no small way by demand for butter from Russia. The buoyancy in the market was reflected in prices paid to Irish producers. Milk prices during 1995 and on into 1996 show this clearly.
During 1996 international markets began to weaken as a result of a combination of greater competition from New Zealand and the absence of major Russian purchases. The effects of this are now being passed on to Irish dairy producers as milk prices come under pressure. There are also the effects of currency developments which gave rise to revaluations of our green rate and, in turn, to a weakening of the support and subsidy levels. The fact that this came at a time of greater reliance on these supports meant the effects were even more apparent than might have been the case in different circumstances.
In relation to the revaluation of our green rate, I have already announced the payment of compensation to dairy producers to take account of the effects of the revaluations and arrangements are in place at present to pay an amount equal to approximately 1.9p per gallon to all producers who delivered milk during 1996/97. This will go a good way towards offsetting the negative pressure on milk incomes during the current year. For example, a producer with deliveries of, say, 30,000 gallons would receive in the region of £570. While it is extremely difficult to predict with accuracy how the market situation will develop over the coming year, I think it is fair to say that the likely outturn for 1997 will be considerably better than forecasts made earlier. The EU supports are in place and will function as required during the year.
Turning to the broader picture, an examination of future policy for the EU dairy regime is about to get under way within the Council of Ministers. The existing quota regime is in place until the year 2000 and it is necessary to consider the most suitable policy framework for the period thereafter. It will be a long process but one which must be given all the time and consideration it deserves. The pivotal position occupied by milk within the CAP and its importance to the economies and rural societies of member states, will ensure that any changes to the existing regime will be considered very seriously. There are external forces which may impact on how the EU conducts its dairy policy, such as WTO and the likely enlargement of the European Union. What is needed now is calm deliberation and analysis of all the options so that all concerned within the industry, at farm level and beyond, can plan their operations for the years ahead with the maximum certainty.
The current development strategy for the food industry covers the 1994 to 1999 period and is proceeding satisfactorily. A key feature of the strategy is its integrated nature. In addition to capital investment, support is provided for research and development, marketing and promotion, and human resources. Committed public expenditure under all measures up to the end of 1996 totalled some £105 million from national sources. The strategy is subject to a current midterm review. I regard this as a very important exercise that will allow account to be taken of changes in the industry's environment and appropriate adjustments to be made to the support mechanisms. My aim is to ensure that the industry will have the capacity and capability to respond to future opportunities.
Numerous factors will influence future developments in the food sector. These include those relevant to agriculture such as further trade liberalisation, CAP adjustments, EU enlargement and the single currency. In addition to taking account of such factors, the industry must also remain responsive to trends at retail and consumer level. Such trends may well include increased emphasis on animal welfare and environmental concerns, increased purchasing power in the hands of multiples, and an increased role for the catering sector in overall consumption. These, allied to continuing priority for safety and quality, are likely to be the critical considerations.
The food industry has shown its resilience in the face of challenges and its responsiveness to opportunities. The growth in the consumer foods and food ingredients sectors is indicative of its adaptability to changing demand. Such adaptability will remain a key success factor. I am confident that the integrated and cohesive nature of the current development strategy will help to ensure that it is retained.
Last year was a good one for tillage, with grain growers achieving excellent yields for spring barley, winter wheat and high quality malting barley. I was very pleased to see that the good result of 1995 was surpassed and that national production recovered to over the two million tonne mark for the first time since CAP reform, which is a very encouraging outcome. It is worth noting that this was achieved while we remained some 52,000 acres below our national base area. The output value of the 1996 crop is estimated to be £130 million. When arable aid payments of some £90 million are added we see a very satisfactory outcome for growers again in 1996.
It is most important that we continue to aspire to production levels which will ensure our self-sufficiency in grain. The single set-aside rate of 5 per cent, which I was able to have adopted during our Presidency, and the continued facility of eligibility transfers within holdings should, given favourable weather conditions, help to maintain or even increase production again this year.
I am aware of concerns expressed by producers about the possibility of an overshoot of the national base area, which would give rise to penalties under the arable aid payments system. In keeping with the commitments given in Partnership 2000, I am seeking a change in EU regulations which would enable the targeting of penalties only at producers who contribute to any overshoot of the national base area. My Department is at present drawing up a register of grain growers in anticipation of the necessary legislative changes being adopted. This register would contain an area which, for existing producers, would receive either total or partial protection from penalties.
Approximately 23,000 hectares of ware potatoes were planted in 1996, an increase of 2.6 per cent over the previous year. It proved to be yet another difficult year for producers. The availability of old season potatoes from refrigerated stores, coupled with imports and the delayed maturing of first earlies, had an adverse affect on prices obtained in 1996 by early potato growers. Crop yields were generally satisfactory. However good yields throughout Europe adversely affected producer prices and many growers were obliged to dispose of stocks at uneconomic prices. Average prices obtained in the September 1996 to May 1997 period were approximately 40 per cent down over the same period in the previous year.
There is urgent need for reduced plantings in 1997 throughout Europe if supply is to match demand. It is reckoned that total EU plantings must be reduced by 7 per cent to 1.45 million hectares if growers are to achieve reasonable returns.
Our seed potato industry, which is small in comparison with some other member states of the EU, is facing a formidable challenge to produce and supply adequate quantities of the varieties demanded by growers and consumers. Seed producers must increasingly be prepared to enter into binding contracts with ware potato growers to underpin successes already achieved. The fact that Ireland is recognised under the EU seed potato regime as a high grade seed area should assist further development of our seed potato industry. The recent increase in the acreage of foundation and super elite stock grown for certification is a promising sign and should lead to an increase in the area grown for seed certification in 1997.
At the end of 1996 detailed discussions took place with the various social partners on a new national programme, following which agreement was reached on Partnership 2000, to which the farm organisations are signatories. This agreement addresses three essential economic and social challenges: maintaining an effective and consistent policy approach in a period of high economic growth; significantly reducing social disparities and exclusion, especially by reducing long-term unemployment; responding effectively at national, sectoral and enterprise levels to global competition and the information society.
The primary objective of macro-economic policy is identified as to secure and strengthen the economy's capacity for sustainable employment, economic growth and social inclusion. In this regard it was agreed that fiscal policy should incorporate the following: an action programme on social inclusion involving extra expenditure of £525 million; tax reductions of £1 billion; annual growth in gross current supply service expenditure to be kept as close as possible to 2 per cent in real terms; and a general Government deficit of not more than 1.5 per cent by 1999, and a debt/GDP ratio of 70 per cent by the same year.
Partnership 2000 includes a chapter on action to develop agriculture, food and forestry and a section on rural exclusion, which elaborates policy on a wide range of issues. It also contains a number of commitments on special tax relief for agriculture, as well as for general taxpayers and business.
The 1997 budget implemented the following agriculture tax measures which are, together, worth over £25 million a year to farmers. The flat rate VAT refund for farmers was increased from 2.8 per cent to 3.3 per cent. A special capital allowance provision will allow farmers to write off 50 per cent of expenditure on necessary pollution control investment in year one with the balance written off at 15 per cent per year for six years and 10 per cent in the final year. This is worth £800,000 in 1997 and £2.5 million in a full year. Farmers will also benefit from the increase in agricultural relief from capital acquisitions tax from 75 per cent to 90 per cent of the value of land, buildings, livestock and machinery transferred by gift or inheritance. The existing 25 per cent stock relief — for income tax — which was due to come to an end has been extended for a further two years to April 1999. Young farmers will benefit from the extension of two measures which were due to lapse and which are, together, worth £5 million in a full year. These are the extension for a further two years to April 1999 of 100 per cent stock relief for young trained farmers and the extension of the special stamp duty relief for young trained farmers for three years to December 1999.
In addition, farmers will benefit from the general taxation reductions, including: the reduction in the standard rate of income tax from 27 per cent to 26 per cent and the widening of the standard rate band by £1,000 for married couples; the increase in the personal allowances by £500 for a married couple and other allowances; and the increase in the income tax exemption limit to £8,000 for a married couple under 65 years of age.
Agri-business will also obtain benefit from the budget, including reductions in corporation tax to 36 per cent and 28 per cent for small companies on the first £50,000 of company income; the earnings limit for the lower, 8.5 per cent, rate of employers PRSI has been increased; the reduction in the tax wedge on personal incomes should assist firms to recruit; and new firms will benefit from the provision of relief for expenses that arise before a company commences trading.
Before I conclude, I want to say a few words about the outlook for the future. With regard to the remainder of 1997, it is difficult to give an accurate assessment of likely outturn for the full year. As Senators will be aware, 1997 prices for both cattle and milk are behind 1996 levels. Sheep producers enjoyed record prices during the first three months of the year and, although these then dropped back as is traditional for post-Easter slaughterings, recent prices have again stabilised. Pig prices were back on the very high 1996 levels but have recently been rising and are expected to continue to rise because of an outbreak of classical swine fever on the continent. Present cereal prices are also down. On the other hand, I believe that the record levels of direct payments made in 1996 can be matched in 1997, and perhaps even increased, while input costs are likely to fall.
The record shows that this Government has shown strong loyalty and support to the agricultural sector, especially the beef sector, during difficult times. Considerable progress has been made in preparing the sector for the challenges which lie ahead, and particularly that we have a dynamic market-led food industry.
I thank the Members of the House for their patience. Unfortunately, I must attend a series of meetings this evening and I can only stay for some of the debate; but my colleague, the Minister of State at the Department of Agriculture, Food and Forestry, Deputy Deenihan, will be present. He will conclude the debate and report any observations made.
