Dáil Éireann díospóireacht -
Tuesday, 23 Jun 1987

Vol. 373 No. 12

Private Members' Business. EC Farm Price Negotiations: Motion.

Mr. J. O'Keeffe

I move:

That Dáil Éireann calls for the completion of the current round of EC Farm Price negotiations and the attainment of the following objectives:—

1. Reasonable increases for farm products.

2. Protection of the market support system.

3. Full Green Pound devaluation.

4. Total dismantling of MCAs.

5. Measures to encourage the expansion of the beef cow herd.

6. Reclassification of existing less severely handicapped and mountain sheep areas.

I do not think since we joined the European Community have we been faced so late in the year with the failure of the Agriculture Ministers to reach agreement in the annual price review. As a result of that failure losses to Irish farmers have been estimated at £2 million per week. Of course, that loss has continued in recent weeks and will continue until such time as the Ministers finalise their agreement. Even more worrying is that the main concerns in so far as Irish agriculture is concerned appear to be receiving scant attention in the protracted discussions to date.

The purpose of this debate, and my reason for putting down this motion, was to strengthen and reinforce the backbone of the Minister in dealing with his Community colleagues and to permit the Dáil to express its view as to the objectives which, of necessity, must be achieved in the interests of Irish agriculture. The objectives set forth in my motion do not in any way conflict with the basic principles of the Common Agricultural Policy: in fact, quite the contrary.

Despite the problems of the Community budget, the central reasoning behind the Common Agricultural Policy still holds. Since its adoption in 1960 the policy has been based on three main principles: first, the single market with a common price system; secondly, Community preference and, thirdly, common financial responsibility. Looking at the terms of the motion, there is no doubt that a refusal to dismantle MCAs, or border taxes as they are known, or to permit full green currency devaluation, leads to a distortion of trade which conflicts with the principles of a single market.

I know there is much talk in Brussels and Luxembourg about the problems of the Community budget. I am well aware of these problems, having been budget Minister of this country for five years up to the change of Government. This talk has tended to focus on the large proportion of the Community budget which is applicable to the Common Agricultural Policy. This is more a reflection of the reluctance of member states to agree other common policies which would involve joint financial responsibility rather than an indication of the excessive costs applying to the Common Agricultural Policy.

If one examines the situation world-wide, there is State expenditure on price and income support for agriculture in many countries. We see it in the United States, Japan and in most countries with a large agricultural base and indeed in many with a small agricultural base. In making comparisons, it is clear that in international terms the expenditure under the Common Agricultural Policy is not excessive: recently it was estimated at five ECUs per month for each EC citizen. Surely that is not an excessive sum when one considers the contribution which the Common Agricultural Policy makes to the security of food supply for its 320 million citizens. Accordingly, I make no apology for defending the Common Agricultural Policy as a whole or for demanding certain key objectives thereunder for Irish agriculture.

The share of agriculture in Irish gross domestic product is over three times the community average. The percentage employed in Irish agriculture is almost twice the Community average. There is no great need at home to emphasise the importance of agriculture to our economy but, of course, it is essential that that message be repeated loud and clear time and time again in the Councils of the European Community. There can be a tendency there to forget or even down-play the importance of agriculture in so far as it affects a country like ours with such a substantial agricultural base.

In considering the motion clearly from the point of view of prices, an agreement is now both urgent and critical. There is the continuing £2 million a week loss being suffered by our farmers. We have milk intake reaching its highest level. The cereal marketing is due to start on July — that is Wednesday of next week. There is no need for me to emphasise the difficulties of that sector. Anybody with any knowledge of our interest in agriculture is well aware of the traumatic times being sustained by those who are producing in that sector and that is why I highlight 1 July which is the beginning of the cereal marketing year. Obviously the failure of the Agriculture Ministers to reach an agreement is going to impact severely on those involved in that sector and in many other sectors. I have a particular sympathy for those in that sector because of the major difficulties being experienced by them.

One other factor which has to be taken into account is that apart from the continuing losses of our farmers there is the possibility of the Commission taking decisions unilaterally because of the failure of the Ministers to agree. If this abdication of responsibility by the Agriculture Ministers continues, the outcome may be that the Commission may take action without reference to the Ministers at all. That could be a very dangerous precedent. The danger would lie not in the fact that the Commission has ever shown itself to be inimical to Irish interests but rather in the temptation for it to concentrate on those areas where the Council apparently was close to decision. That could mean it would ignore the agri-monetary area and leave us high and dry, in particular in relation to the Green Pound devaluation. That would be an absolute disaster for this country and the Minister must try to ensure it does not happen. From the point of view of community institutions the function of the Ministers is to argue, dispute and discuss and ultimately reach decisions. I know from my own experience at Community level the difficulties which can arise. I am aware that meetings can go on through the night. At one stage I recall being involved in a meeting which at that time set a record of 32 hours for the longest EC meeting of Ministers. Having said that, the institutional position of the Community is that ultimately it is for the Ministers to make their agreements. From the Community point of view and the Irish point of view there is a coincidence of interest and the Minister will have to go back to the negotiating table and keep at it.

I referred to the devaluation of the Green Pound and the possibility of the Commission, in the event of the abdication of their responsibility by the farm Ministers, taking the decision themselves and ignoring that particular area. There is no doubt that the question of a full Green Pound devaluation is of major importance to this country if only to offset the lack of progress on the prices issued and the problems which may result from a reduction in intervention periods. On the issue of the Green Pound devaluation the Minister must take a clear and unequivocal stand. He must be able to convince his colleagues of the justice of the Irish case. I understand there are certain offers on the table involving about 2.7 per cent for animal products and 6 per cent for crop products. Let us be fair about it: they are not good enough and I want the Minister to go back to Brussels reinforced with a view from the Irish Parliament that this is not acceptable. There should be no reason whatever why full devaluation is not agreed even at this late stage. The difficulties being experienced by Irish farmers are such that nothing less can be accepted. If the Minister sticks to his guns he can achieve that full devaluation. Hopefully, he will finish this debate with the voice of the whole of this Parliament totally behind him on that issue.

I turn now to the question of the MCAs or as they are more commonly known the border taxes. The shortcomings of this system are now becoming obvious. Where there is a shortage of funds in the Community budget the cost of that system is such that it can no longer be sustained. That is an issue that has to be raised and has to be pressed home particularly where the problem of funding is raised as an excuse for lack of action and lack of progress in other areas. This, in fact, is not my main objection to the MCAs, even though it is a serious one. Where there are continuing differences between green rates and official parities, competition is distorted and the whole development of agriculture in the Community is hampered. It is no longer acceptable to have member states who, on the one hand, continue to press for the completion of the internal market and, indeed, very often oppose increases in Community resources, while on the other hand they resist efforts to remove border taxes. That whole stance is contradictory. That contradictory stance must be exposed and pushed home.

I am not against the liberalisation of the internal market but, if it is to apply to industrial goods, there is no reason why we should not have a full free open market for agricultural products and I believe border taxes hamper that development. As I see it, the countries to which I have referred very often want to have their cake and eat it. The principal countries want the full and free movement of industrial goods and capital but they want to maintain a system which enables them to have high prices for their farmers, with imported farm inputs in many cases and those import inputs not being subject to MCAs but rather being paid for at the official rate of exchange.

Before delving into this area on my appointment as spokesman on Agriculture I often wondered why farmers in the richer countries of Europe are doing so much better than those here. Clearly, the system which I have outlined is a major reason. They are protected by border taxes and yet they have the benefit of cheap inputs which in many cases are not subject to those taxes. The whole system obviously discriminates against Irish farmers and, indeed, not just against Irish farmers, but against many others in the Community. It conflicts with the principle of a common price level applicable to all farmers in the Community. I know that the Commission would like to see and end to the MCAs. I want to see the Minister supporting the Commission in their efforts to dismantle the MCAs entirely.

It is essential that the Minister makes a stand in relation to the market support system. Despite temporary difficulties, intervention has proved itself over the years as a bulwark of support for the market and as a guarantee of supply. We now have limitations on excess as well as pressure on price levels at which it operates. In addition, we have restrictions on intervention periods and we have long time periods for payment and we have artifical quality criteria for access. This is coupled with less than enthusiastic support for the export refund system where increases in refunds have not automatically followed a fall of world prices and falls in the value of external currencies. Here again, the protection of the market support system as an essential pillar of the common agricultural policy is very much in our interest and must have the Minister's wholehearted commitment and support.

I have included in my motion a reference to the encouragement of the expansion of the beef cow herd. I should like to see this as a priority objective. I want to see the Minister securing measures to encourage the expansion of the beef cow herd in this country. Nowadays it is fashionable and, indeed, proper to refer to quality as being an essential aim for producers and processors of agricultural goods in Ireland. It is also fashionable, and indeed very proper, to speak of the need for an improvement in our marketing effort. I am totally in favour of efforts to improve our marketing but despite the emphasis we put on quality and marketing we have to face the fact that to maintain farm incomes we must maintain and increase the volume of our agricultural output. This has to be done in an era of quotas on milk and sugar. The reality is that a cutback of 10 per cent in milk means a cutback of at least 10 per cent in our dairy cows, that is 150,000 animals. Furthermore higher milk yields over the next few years will accentuate this trend, perhaps up to 200,000 cows. In output terms it takes at least one and and half beef cows to replace one dairy cow. If we are to lose 200,000 dairy cows we would need at least 300,000 beef cows to replace them if we are to maintain output and more important, income. That is the measure of the magnitude of the problem that confronts us. It is clear that current policy outside the disadvantaged areas will not achieve this objective. At present I understand there are about 450,000 suckler cows, of which only one quarter are outside the disadvantaged areas where there is a reasonable level of grant support. If increasing beef cow numbers is a priority policy, that policy has to be reflected in our efforts to secure support for that priority objective from the European Community. That is why I have included this in the motion. I ask whether the Minister has raised this issue and in what form he has done so and what proposals he has made to meet the situation? This is of course presupposing that he agrees with me that increasing beef cow numbers is in fact a national priority.

I will now deal with the question of disadvantaged areas. I would like to see the review leading to an extension of disadvantaged areas expedited but that is a separate issue to the matter I have tabled in the motion. I do not neglect it. The only reason I have not included it is that it is a matter for us to complete the review at home before we present it to Brussels. The application for reclassification was presented and lodged by the Fine Gael Government early in February last. I am concerned that the Minister appears to be dragging his feet on this issue. Certainly his public pronouncements do not give any confidence to those who are anxiously awaiting reclassification.

However, there is a precedent, a few years ago the Germans were able to secure a similar type of reclassification in the context of the price review. I understand they were able to get a similar application through in the price negotiations within a matter of weeks. This application was lodged by the Fine Gael Government on 4 February last and we have had no result on that application. In general terms the reply from the European Community should be virtually automatic, yet we have no decision. There is an onus on the Minister to fully clarify the situation. When I raised the matter in the Dáil before there was a certain amount of political cross-fire about it. At this stage I ask the Minister to forget the political crossfire. It is in the interest of this country that the reclassification application be completed and I believe now is the time to get it through.

We are seeking that all existing less severely handicapped areas and mountain sheep grazing lands be reclassified and given severely handicapped status. The relevant directive lays down and gives considerable discretion to member states in such a situation. Generally it is for the member state to make a decision in this regard, subject to the approval of the Commission. The last Government made such a decision and lodged their application. I would expect that there would be virtually automatic approval from Brussels. It is now nearly five months since the application was lodged and yet we have had no decision. I feel that the case for reclassification is very strong; in fact I do not believe there is any answer to our application. It is clear that certain areas have been treated unfairly and the application was lodged by the Fine Gael Government in an effort to ensure that that element of unfairness would be removed.

In relation to the most severely handicapped areas and the other areas there is no system of differentiation in some respects. We are talking about the same level of co-responsibility levy, the same level of sheep headage payments and of grants in relation to the farm improvement programme and grants for the western drainage scheme and so on. There is no question of distinguishing between the two, and accordingly what is left is an anomaly in relation to cattle headage. I believe very strongly that that anomaly has to be removed and the quicker the better. It is very clear that many small farmers in less severely handicapped areas are just as deserving of headage payments as similar farmers in more severely handicapped areas but they are excluded under the present arrangements. I believe the system would lead to a far greater administrative efficiency in the operation of the headage schemes generally. I am not sure whether I have to convince the Minister of the need for reclassification. The matter was discussed fully by the last Government, a decision was made, the application was lodged, and it is now purely a matter of completing the approval for the application in Brussels.

In facing a resumption of the price talks we have the first real test of the Minister and of the Government as far as agriculture is concerned. I noted that the Minister for Foreign Affairs approved of the decision of the General Affairs Council, the Council of Foreign Ministers, to exclude from the summit meeting of the Heads of State the questions which are before the farm council. I have some reservations about that decision in the light of the difficulties of the farm Ministers so far in reaching a decision. But if that has the approval of the Minister for Foreign Affairs I presume it is a reflection of his confidence in the ability of his colleague, the Minister for Agriculture, and the other farm Ministers to reach agreement quickly and more importantly to attain the kind of objectives which I have set down in the motion. As I say, this is the first real test of the Minister and of this Government in so far as agriculture is concerned.

We have had a number of changes which I have characterised as being really cosmetic changes. It is a matter for the Government whether they want to make these changes: changing the name of the Department, setting up food offices without money, setting up boards like An Bord Glas and appointing directors. That is a matter for the Government.

Mr. Durkan

Well, the directors.

Mr. J. O'Keeffe

These areas may give the impression of activity but so far they have not put a bob into farmers' pockets and it is very doubtful they will do so in the future. I do not intend to go into that issue in more detail at this stage. It is a matter for another day and we can pass judgment when we see any beneficial results coming from changing the note-paper and the other matters to which I have referred including the appointment of those directors to whom my colleague Deputy Durkan referred. As far as I can see, so far those changes were purely cosmetic but we are talking about something of major importance. What happens in the price talks will have a direct and immediate impact on farmers' incomes, unlike those other changes to which I have referred.

Here then is the real test. I have suggested in my motion a list of objectives with which I felt the Minister could and would have no difficulty in agreeing. Surely the kind of things I am talking about are those the Minister can take fully on board? Surely he accepts it should be a national objective to maintain and improve farm incomes? That brings on board the question of increases for farm products and, more important and perhaps the only route available to the Minister, full Green Pound devaluation. I expect he will have no difficulty with the question of the protection of the market support system or the dismantling of the MCAs. He must accept that these border taxes are not in the interests of Irish farmers or of the Community as a whole.

I feel, too, that the Minister will have no difficulty in supporting my approach in relation to the expansion of the beef cow herd. If he puts as high a priority on that, he must accept that that priority must be reflected in the kind of approach and attitude which he adopts in the Community talks. I have gone into the question of reclassification where the Minister has some explaining to do. It is fairly obvious he is dragging his feet here but the time for foot dragging has come to an end. The time for action has arrived. Surely in the context of the price talks now is the time for action.

I urge the Minister to state his support for the objectives I have outlined and to go back to resumption of the farm price talks in the full knowledge and confidence that in accepting those objectives he will have the full backing of the Dáil. That is the essential point on which I started and on which I will shortly finish. I believe it will strengthen the Minister's hand and reinforce his backbone in those talks to have a vote of the Dáil on the terms of the motion I have tabled. In discussions with his Community colleagues it must be an advantage to him to be able to put on the table the fact that this was fully discussed in the Irish Parliament and that the kind of stand which I hope he has taken and will be taking in the price talks has the support of the Irish Parliament. The list of objectives is such that no reasonable person could quibble with them. I urge the Minister to take them fully on board, to go back to Brussels and to fight for their attainment.

The failure of the Agriculture Ministers to date is creating an enormous problem for the Community in general and for Irish farmers in particular. Whatever decisions were made in relation to the summit, at the meeting of the Heads of State, if that is the strategy decided on by the Government it is fine if it works. I have reservations about it, but the Agriculture Ministers must sit down quickly and our representative on that Council must fight to the end to attain the objectives I have outlined in my motion. If the Minister goes into those resumed talks and fights to achieve these objectives, then he has my full support and, more important, if he accepts this motion here tonight he will have the full support of the entire House in his efforts to attain those objectives.

Minister for Agriculture and Food (Mr. O'Kennedy)

I move amendment No. 1:

To delete all words after "That" and substitute the following:

"Dáil Éireann supports the efforts of the Minister for Agriculture and Food to have the negotiations on EEC agricultural prices for 1987-88 completed as quickly as possible and in a way that best promotes the development of Irish agriculture."

Since the EC proposals on prices for agricultural products and on related measures for 1987-88 were presented in February, they have now been discussed by the Council of Ministers on five occasions, approximately 15 days, most recently in Luxembourg from 15 to 18 June.

First, it has to be remembered that the Council of Ministers adopted wide-ranging restrictive measures in the milk and beef sectors in December last. In addition, the current proposals have to be seen against the Community's chronic budgetary problem and the fact that there will be a very substantial deficit — 4 billion ECU — in FEOGA expenditure this year. In this connection I would point out that the whole position in regard to agricultural expenditure has been changing dramatically. The era of sharply increasing agricultural expenditure has ended and an entirely new and restrictive approach is being followed. This stems partly from the structural surpluses of certain products and partly from the severe pressure on the Community's overall financial resources. While the restrictions on agricultural spending are not welcome from our point of view, the same does not hold good for some other member states. The tight budgetary situation is not unwelcome to them as it assists their efforts to reduce agricultural expenditure.

In the negotiations, we have acknowledged that action is required to prevent unreasonable growth in net agricultural expenditure. It is worth noting that in 1986 more than one-third of FEOGA guarantee expenditure in Ireland was accounted for by intervention storage and disposal costs. Another one-third of guarantee expenditure was accounted for by refunds on exports to third countries. While this expenditure indirectly benefits producers, it would be in everybody's interest, not least that of producers, if an increasing proportion of farm income were obtained directly from the market. My primary concern is to protect the interest of the producers.

While Ireland is prepared to contemplate adjustments to the CAP to meet current financial and market realities, I have made it clear that any adjustments must be gradual and must not undermine the viability of the average family farm in the Community. In addition, I have consistently argued that support price levels in some parts of the Community should not be artificially kept below the common price levels by the maintenance of negative MCAs for prolonged periods. I have also indicated that the Community should not continue to stumble from one budget crisis to another or go on endangering its ability to meet its commitments and obligations. I have, accordingly, emphasised the necessity of providing adequate Community budgetary resources and of ensuring that these resources are directed towards the development of a more cohesive and stronger Community through limiting the impact on small to medium-sized producers of any changes in market policy and through devoting more resources in the future to structural action to help such producers.

During last week's meeting the Commission presented compromise proposals which amended their original proposals in a number of important respects. The negotiations on the compromise were carried on mainly under three broad headings. First is the stabilisation measure for oils and fats to which Deputy O'Keeffe did not refer and which is a major element of these negotiations.

Mr. J. O'Keeffe

I did not see it as a national priority.

Mr. O'Kennedy

It is a major element and I will endeavour to explain why it is also a national priority. Second is market and price policy including in particular cereals support and, thirdly, agri-monetary matters. I shall deal with each of these aspects but before doing so I would like to point out that as agreement was not reached last week the negotiations are still open. This imposes certain constraints on me as I do not wish to say anything here which could prejudice efforts to secure further improvements. Neither do I want to confine the House in any way from expressing its views which, as Deputy O'Keeffe suggested, I will use so far as possible in support of my negotiating position and in the national interest. The House will understand that there are certain constraints on me in the process of negotiating at this stage.

One of the most important features of the price package is the proposed stabilisation arrangements for vegetable and marine oils and fats. It is, as the Commission has said, a central essential element of the package and we cannot consider the package without taking account of that. It is important to understand that this is not merely a tax. In all likelihood it will operate as a tax for the first few years but if prices of these oils rise beyond certain levels in the future the arrangement would become a subsidy to moderate the increase.

The importance of this proposal is two-fold, there is the financial aspect and there is the equity aspect. The Community's current financial difficulties are well known. It is very much in Ireland's interest — this is where I have to take issue with Deputy O'Keeffe — that the Community should find a fast and an effective response and should have adequate resources to meet the case we and other member states make.

Mr. J. O'Keeffe

In 1984 there was an inter-governmental agreement.

Mr. O'Kennedy

An appreciable element in those difficulties is the escalating cost of supporting the vegetable oil sector within the enlarged European Community, a sector that includes the various oil seeds and olive oil. The proposed stabilisation measure would make a significant contribution to relieving the Community's budgetary problems at present. It would yield two billion ECUs in a full year and would facilitate greater control of the oils and fats sector which, if no action is taken, could cost 6.5 billion ECUs in a few years. Effective action on the financial side is essential if the cost of supporting the oils and fats market is not to become intolerable. As Deputy O'Keeffe and other speakers understandably stated, we will get more if the Community budget is not entirely over-loaded and strained beyond any reasonable capacity. That is why I say it is an essential element and why the Commission makes the same case.

Mr. J. O'Keeffe

I do not object to it. It is one way of solving a problem but there are other ways.

Mr. O'Kennedy

Without making too much out of it, I find it surprising that this central element in the package was not referred to by the Deputy who is asking for full support for our national position in this instance.

From the equity point of view, we are all aware of the restrictions the Community has imposed on milk. There are milk quotas and a super-levy and, in addition, a co-responsibility levy. Given that milk is severely restricted, it is only fair that competing vegetable and marine oils and fats should be given comparable treatment. Indeed, this has been the Irish approach at Community level for many years and under various Governments. The Commission is satisfied that its proposal conforms to international obligations, particularly as it applies to both imported and domestically produced oils and fats.

From the beginning I asked for an easing of the rate of tax on marine oils and I am glad to say that the Commission has now agreed to this. It is also proposing certain safeguards for third country suppliers who fear that their interests may be affected. The latter would constitute an extremely important concession by the Community. If after the first year the stabilisation mechanism was leading to a reduction in imports and causing injury to third country traditional suppliers, the Community would enter into negotiations to establish, where necessary, compensation for the losses suffered. It would also take steps to prevent the injury from being repeated.

All in all, I see the Commission's approach as logical and reasonable and I have been consistent, and in the forefront of the Council, in my support for the proposal. Failure to adopt it would have far-reaching and unwelcome consequences for the CAP. Despite this, four countries opposed the proposal in the early hours of Thursday morning, thereby effectively rejecting the whole package of which it was an integral part, as stated repeatedly by the Commission who presented the package.

Turning now to the measures under market and price policy, the Council of Ministers took decisions last December which will have far-reaching consequences for the milk and beef sectors which account for about 75 per cent of our agricultural output. The proposals now on the table for these products provide for retention of existing institutional price levels but the partial dismantling of our MCAs would improve producers' returns to a considerable extent.

The original proposals for cereals would have meant that intervention would not be available until the spring and that the monthly increments, which are designed to compensate for storage costs from harvest to time of sale, would not apply until then either. This, together with a 2.6 per cent drop in the intervention price, would have meant a very substantial drop in support prices everywhere in the Community but especially in member states such as Ireland with relatively high interest rates. Perhaps even more importantly, it would have left the market without any effective intervention support throughout the most critical time of the year — the months immediately after the harvest. For Irish producers, most of whom have little or no on-farm storage, this would have been far worse than for producers in most other member states. A proposal on moisture content, to be implemented now but actually agreed as part of last year's price agreement, would have further discriminated against Irish farmers.

I am glad to say that following significant pressure from a few countries, principally Ireland and Germany, the nature of the cereals proposal has been very substantially changed in the Commission compromise. Intervention would now be available from October and the a monthly increments from November; intervention would be triggered when the average community market price is below the intervention level; even if intervention were generally suspended, special intervention would take place when prices on an isolated market such as Ireland drop sharply; the formal intervention price would remain unchanged but actual buying in would take place at 93 per cent of the intervention price, and the maximum moisture content for grain to be eligible for intervention may be fixed at 15 per cent rather than the 14 per cent originally proposed.

When the Green Pound change for cereals is taken into account, there would be a net drop in price of about 5 per cent, a somewhat better outcome than last year's. While I would like to see an even better outcome on the actual price level, the new arrangements I have just outlined would represent a considerable improvement on the original proposals introduced by the Commission. We would not be unfairly penalised by the timing of intervention or by the maximum moisture content. Isolated markets such as ours could receive special treatment. On the basis of estimates derived from the experience of recent years, intervention should be generally available during the critical months. If it were not, the reason would be that prices are above the intervention level, which would, of course, be an even better outcome.

The agri-monetary issues, especially the devaluation of our Green Pound and the consequential dismantling of our negative MCAs, are of the utmost importance to us. I wish the Deputy could spend just five minutes with me at Council meetings so that he would see that I have consistently been the strongest promoter of dismantling MCAs in all their forms to the point that the Commission vice-President, whom I have known for a number of years, reminded me that I was the only person who was consistently demanding their total dismantling. He said it was not acceptable that I should say that his proposals, or failure to accept my demands, were unacceptable. I should like to assure the House, and Deputy O'Keeffe, that it is not just a matter of words but of record that I have been the most consistent and strongest promoter of dismantling all MCAs, particularly the negative MCAs which affect our interests.

Mr. Yates

We await the results.

Mr. J. O'Keeffe

I may take the Minister up on his offer.

Mr. O'Kennedy

Fair enough. I welcome the Deputy's support for what I have been demanding. These MCAs — minus 4.3 per cent for animal products and minus 9 per cent for crop products — are made up of what the Commission describe as a natural element dating back to the devaluation last August of the Irish pound and what the Commission called an artificial element of 3 per cent created by the January realignment mainly of the Deutschemark. The Commission's original proposal envisaged the abolition of the natural element only in their terms — I do not accept the terms "natural" or "artificial"— that is, 1.3 per cent for animal products and 6 per cent for crop products. While I have repeatedly pressed for the abolition of the artificial element, as the Commission call it, the Commission have been opposing this because they say, the artificial element arises from the German revaluation of January last and not from anything related to the weaker currencies. However, they have now agreed to a further 1.5 per cent dismantlement in the case of beef. The Commission have also proposed a switchover of 0.5 per cent from positive to negative MCAs and have agreed to an immediate dismantlement of this also.

The result in overall terms then is a 1.6 per cent price increase in the dairy sector, 3.2 per cent in the beef sector and 6.2 per cent for sugar beet and cereals. In the latter case the increase would offset much of the large price cut which would otherwise have arisen. While the proposals as they stand are worth about £50 million to the agricultural sector in Ireland in a full year, I was not satisfied with the extent of the devaluation as negative Irish MCAs would still exist — albeit at low levels, and, accordingly, I opposed that part of the package. There would appear to be a qualified majority for it but the UK indicated that their support was conditional on there being no improvement for Ireland and France. They indicated that if such an improvement were forthcoming they would insist on more. The House will gather from that the complex nature of the negotiations.

The proposals for the dismantlement of future MCAs are also welcome since the process proposed represents the first definite commitment to an automatic elimination of MCAs. I have strongly supported and welcomed that development and it is worth recording that for the first time we now have an automatic procedure for dismantlement of MCAs, though it is not at the pace and in the amounts that we demand. However, it is a move in the right direction. The proposals in this sector are giving rise to major difficulties from Germany, as they would involve automatic reductions in prices to German farmers. This is one of the principal factors preventing an agreement.

There are a number of additional items in the agri-monetary areas to which I should like to refer. Deputy O'Keeffe did not refer to them though they are matters of the most fundamental importance to Ireland. I have been concerned for some time at the absence of MCAs on cooked beef products. The Government are particularly anxious to encourage investment in the food processing industry as a means of creating employment and increasing exports. The meat industry in particular has significant potential for downstream processing. However, up to now MCA subsidies have been available on exports to the UK of uncooked meat but were not available for cooked beef preparations. This anomalous situation discouraged investment in cooked beef facilities and I am pleased that, following my strong pressure, the Commission has now proposed the introduction of MCAs for cooked beef. The proposal represents a significant step forward in the development of the meat sector.

I have also been concerned at the absence of MCAs on jams/marmalades and certain other sugar-based products. Because of this exports of these products to the UK have been uncompetitive in recent times and, indeed, the industries concerned were losing their share at the home market to cheaper imports from the UK. In response to my repeated requests the Commission have now proposed the introduction of MCAs on these products and this should safeguard the future of the industries concerned which have an annual output of £50 million and employ about 1,000. There are problems also for the soft drinks industry where MCAs do not apply and I will continue to press for a similar solution to the problem. I will then be able to say that all those areas, processed products, cooked beef, what we call non-Annex II goods and soft drinks, have been included for the first time to the maximum advantage of a major element of the Government's programme.

There is also a problem that for many processed products — the so-called non-Annex II goods such as biscuits and chocolates — the MCA system applies in a haphazard and uncertain way. MCAs may be eliminated or reintroduced for these products following twice yearly reviews even when relatively high MCAs, and hence large price differences, apply to the basic products from which they are made. The Commission's compromise in response to my request would abolish this anomalous system and replace it by arrangements under which MCAs would apply whenever the amount involved is above a small minimum threshold figure. This is a much more clear cut and definite system and will be of considerable benefit to the industries concerned, especially while the UK continues to have high MCA levels.

The compromise also provides for a number of other points which I have been seeking — the buying up of milk quotas for resale and the temporary leasing of milk quotas on a flexible basis which I know the House supports. The first of these was, in fact, agreed last year but it had not been possible to get real action on it until we pressed it in these year's negotiations. I do not wish to make any triumphant points about that beyond saying that it represents the common interest. However, it is important to point out that we have succeeded in having it introduced. In addition, the arrangements now envisaged for sweet cream butter, both salted and unsalted, are more satisfactory than what was originally proposed. I have also secured the agreement of the Commission to examine our request for the extension of the producer group regulation to Ireland and for the inclusion of harvesting and ancillary equipment for horticulture and potatoes in the categories eligible for FEOGA investment aid.

Deputy O'Keeffe's motion mentions the expansion of the beef cow herd and the reclassification of some of the disadvantaged areas. In the light of the EEC constraints on milk, production, I am sure everyone will recognise the need for a dynamic programme for the expansion of the beef cow herd. I believe such a programme is of vital importance in order to maintain farm income. It would certainly contribute towards increasing our beef output, which is an essential element in the recovery of the economy, with the consequential impact on employment and export earnings.

The prices proposals contain no special measures on beef. The reason for this is that major changes in the beef arrangements were agreed by the Council of Ministers in December last. These involved, unfortunately, a weakening of the intervention system for beef and were designed to achieve a significant reduction in the cost of supporting the beef market. Against this background it is not realistic to expect that the price package would include measures to encourage beef production and people should not delude themselves into thinking that it would. We must therefore rely on our own efforts and I propose to make considerable efforts.

In this connection I have already taken steps to see what can be done to maintain and expand the national cow herd. On my instructions months ago officials of my Department had discussions with representatives of one bank and then with representatives of the Irish Banks' Standing Committee about the introduction of a scheme of low interest loans for the farmers involved. I will now meet the committee in the immediate future — I mean the immediate future — and it is my intention to meet also with the other parties concerned as soon as possible with a view to formulating an acceptable financial package to meet what is the common interest of Members and the farming sector.

I did not think I would be dealing with the reclassification of disadvantaged areas in the context of price negotiations but I feel I need once again to clarify the situation. A submission was lodged with the European Commission by the last Government on 4 February 1987 to reclassify to more severely handicapped status all the existing less severely handicapped areas as well as areas where mountain sheep headage grants are paid.

There are, however, major problems which have to be faced. In the first instance, no provision was made in the budget prepared by the previous Administration to meet the very substantial costs that would arise. It is a fact of financial life that any additional costs that are incurred have to be financed in full by our own Exchequer in the first instance. The recoupment which subsequently comes from FEOGA is only paid in the year following expenditure from the national budget. Thus, the reclassification proposal would cost £30 million in the first two years of operation of which only £7.5 million would be recouped from the Community. This has to be seen against the background of our budgetary situation.

A second problem is that the Commission has recently and formally made it clear to us it is not prepared to agree to the type of across-the-board reclassification proposed by the previous Government. So much for what Deputy O'Keeffe said. Maybe he did not know this when he said it was purely a formality. It is far from it. They say that such an arrangement would not meet the terms of the relevant EEC directive which requires that headage payments, or compensatory allowances as they are described, must reflect the severity of permanent natural handicaps in the regions concerned. This rules out the payment of the same rates of headage grants throughout all our disadvantaged areas, and so the proposal put forward by the previous Government is not acceptable in its present form. We are re-examining the matter but in any event it is not something for inclusion in the current price negotiations. I hope we can be honest enough with each other to acknowledge that fact.

Mr. O'Keeffe

How did the Germans do it?

Mr. O'Kennedy

Turning back now to the price proposals proper, I believe these have been substantially improved during the discussions. I regret the negotiations are not complete as the likely outcome involves some gains for Irish agriculture and the Irish economy, although not of the order Deputy O'Keeffe said. One would assume from his remarks that everything that was asked for from day one was granted. We should not engage in that kind of illusion. The reasons they are not yet complete are partly the fact that the original proposals were tabled much later than usual and partly because of the major political problems caused by two of the proposals — the oils and fats stabilisation measures and the agri-monetary measures. As matters stand, it is clear there would not be a qualified majority for the stabilisation measure which is opposed by Germany, the United Kingdom, the Netherlands and Denmark.

While different countries have objections to various elements in the package, it looks as if there would be a qualified majority for all the other items in it. However, Germany has made it clear that the proposed future agri-monetary system and the price reductions for cereals and rape seed are completely unacceptable. The big political problems involved have still to be resolved and may be considered by the European Council next week. In any event, the prices package will have to be considered again by the Agriculture Ministers; I hope this will be done immediately after the European Council. Certainly, I will be doing all in my power to get a speedy settlement and to see whether further improvements may be possible.

It is, however, as well to be realistic. The room for manoeuvre is very limited because of both the budgetary and the market situations. Some of what is implied in the motion is not realistic and certainly takes no account of what has been decided in recent years. We have been asked to protect the market support mechanism. Naturally that is our aim but do not forget that the greatest weakening ever of market mechanisms took place in the past few years — the introduction of the milk quota system in 1984, the decision to reduce quotas last year and to weaken the intervention systems for milk and beef. No further changes are being made in these sectors this year. Indeed, the introduction of flexibility in milk quota transfer arrangements will be a clear improvement. We have been asked to secure reasonable price increases. Again that is our aim, and for our main two products we look like securing that aim. It is true that a net price reduction is inevitable in cereals, but that continues a process begun last year and, in fact, represents a smaller price reduction.

The package is shaping up to be a reasonable one which would give real benefits in terms of the levels of price support being fixed and the maintenance of most of the existing systems unchanged; the introduction of new arrangements for cereals significantly better than those originally proposed; and improvements in other areas not least of which are in the area of MCAs on processed products. There are, of course, areas where we would like to see more progress and I will continue to press for more improvements wherever there is a realistic prospect of obtaining them. That is why I am asking the House to pass the amended motion supporting the negotiating efforts to date and calling for a quick settlement. That settlement looks like being worth £50 million or so to Irish agriculture in a full year, and perhaps £40 million in balance of payments terms. In times of low inflation these are not insignificant figures.

I welcome the fact that this motion will allow me to go to Europe and tell the Commission that this is the view of all the Irish people. I would not like anybody to get the impression that before this motion was introduced by the Opposition I was less than enthusiastic in promoting these views in Europe. I can only leave it to the record of the proceedings of the Commission to demonstrate who was the most enthusiastic and constant supporter in putting forward the views of his country. I do not believe anyone has been more enthusiastic than I have been.

Mr. McCoy

I welcome the opportunity to discuss this motion. Deputy O'Keeffe said if there was not a quick resolution at the meetings in Brussels the Commission had said it would manage the market, taking account of the market and budgetary situations. This means that if a decision is not taken before 1 July the Commission will manage the market in such a manner as to achieve the result already proposed. If this were to happen it would mean that the influence of the Agriculture Ministers would be greatly eroded and their input would be greatly diminished.

This motion calls for "the completion of the current round of EEC farm price negotiations and the attainment of the following objectives: (1) Reasonable increases for farm productse...". The important word here is "reasonable". We must recognise that there is a surplus in many of the farm gate products produced in Ireland. We must also recognise the need for market management. Another course to take would be unfettered production and to allow market forces to obtain. We have seen the results of this in other countries — beef at 40p a pound in South America, milk at 25p a gallon in New Zealand and grain at £70 a tonne in the United States.

We believe the diversification within the price support structure which we will get from Brussels in future is the only answer to an increased top price to the farmer at the farm gate to compensate him for his real production costs and to give him a viable standard of living. I was interested to hear the Minister say—

It is worth noting that in 1986 more than one-third of FEOGA guarantee expenditure in Ireland was accounted for by intervention storage and disposal costs. Another one-third of guarantee expenditure was accounted for by refunds on exports to third countries.

This means that two-thirds of the EC grant-in-aid to farm gate production does not find its way back to the farmer in the way it was intended. The reality is that we are producing in surplus commodities which the Common Market does not want any longer in the form in which they are being produced. We must now solve our own problems and we cannot adopt the attitude that the Minister will bring home the bacon every year. We cannot expect that all will be well if we do not have an input ourselves. There must be a change in emphasis and attitude and, indeed, in the dairy industry there has been a move to further rationalise very large co-operatives so that they will be able to diversify into products which will not gobble up the EC subvention in storage and which will give a market return in products which the consumer requires.

I welcome a move in the last week to do the same in relation to the beef sector. There may be shortcomings in regard to our knowledge about the deal but the thrust of the idea is good, whereby a company are looking at the long term future recognising that a lot of research and development must come from within private companies if we are to be successful in selling our products.

Various speakers have highlighted the problem in regard to raw materials, cutbacks in milk quotas and the milk cessation scheme and said that the shortages will reduce the cattle herd by about 150,000 animals per annum. That is a daunting prospect as well as the fact that we have the highest calf mortality in Europe. If we put our minds to it we could easily make up the shortfall in cattle numbers next year and the following year if we put more emphasis on the rearing of calves. The Minister and the Department should give serious consideration to this problem. We are now rearing 70 per cent of our calves and this could be increased to 90 per cent if we provided the educational resources required to enable farmers to rear calves properly. Perhaps calves are marketed when they are too young. Whatever the reason, we are shooting ourselves in the foot on the very first rung of the ladder.

We must stand by the market support system because it is the very essence and spirit of the EC and the Treaty of Rome. It was intended to be one market for 320 million people. Most Members supported the Single European Act which was intended to support the concept of one market and, if we support that, how can we then turn around and fragment agriculture by introducing direct income aids which would suit countries with strong economies and low surpluses in dairy and agricultural produce generally? It would militate greatly against Ireland which has about six to one in surplus agricultural products and, generally speaking, a very open economy which could not afford direct income aid. I appeal to the Minister to resist strongly any such move in this regard.

The Common Agricultural Policy is continuously eroded, as Deputy O'Keeffe said, by a reduction in the subvention to cold storage costs, a restructuring of intervention for beef and milk, increased standards for wheat, many of them artificial, and longer payment times for dairy products. There is a clear warning to us from Europe that we continue at our peril to produce intervention products. The warning is clear in the treatment given to us this year by FEOGA in that we secured a very large EC grant towards updating and equipping processing plants. There is an implicit message for Irish agriculture that we must move out of intervention products with the help of the EC. Of course, that is more easily said than done and it will take a tremendous effort on the part of those in food processing to ensure that this happens.

In looking for the full Green Pound valuation, Ireland has had increasingly to depend on a partial devaluation every year to get a real increase in farm incomes because of the high interest rates and because our costs were very high visà-vis our counterparts in Europe. Our national currency has been under continuous pressure against European currencies. While the continued devaluation of our own currency has certainly helped processing and export companies to sell their products abroad, it has not helped the farmer because the Green Pound devaluations have never been in line with national devaluation and there is always a time lag of about six to 12 months.

Whatever settlement is arrived at next week, there should be a certain element of restrospection with regard to our position. We were over-optimistic this year in stating that a 6 per cent to 8 per cent increase in farm incomes can be expected. Perhaps it is possible over last year's figures but, when you take the 2 per cent cessation scheme and the 4 per cent voluntary scheme into account, it is obvious there will be a reduction of at least 6 per cent to 7 per cent this year in our national milk quota. That represents a lot to farmers whose incomes have been restricted in many ways. If we have to accept the low level of increase now offered the full devaluation of the Green pound is most important.

The Minister referred to the policy in relation to oils and fats which is being introduced to fund CAP. While it will achieve its stated aim of raising revenue, there is a danger in the longer term to the GATT trade agreements. We will be treading on the toes of trading partners like the United States who are very large customers for Irish proteins and other semi-processed foods. We cannot continue to have different mechanisms every year to cope with the same problem. We must grasp the nettle and solve the problem ourselves.

I welcome the Minister's statement on the introduction of MCAs on cooked meats. In my own constituency, a company manufacturing corned beef and cooked meats have had a very difficult time lately trying to export their products. In my own town there has been a similar situation in that a soft drinks company have been under tremendous pressure due to cheap importation of soft drinks from Britain where there is a great difference in the sugar price content and no MCAs on the imports. We talk about restrictive practices and below cost selling but with regard to supermarkets Irish manufacturers are having to compete with imports at about half their manufacturing costs, especially in the soft drinks area, due to the difference in the cost of sugar, which is the major raw material.

A total dismantling of the MCAs would bring the full benefit from a devaluation and would maximise the return to farmers. At the moment, because of our national currency weakness and the national currency strength especially of countries like Germany, the MCAs which are supposed to act as an export tax are acting as an export subsidy. That is because over a number of years there has been a gradual decline in the strength of our money in the European Monetary System. This is causing a great distortion of trade and will not help the stated aim of the Government of creating jobs in the manufacturing industry. I strongly urge the Minister to see if he can arrange for the dismantling of the MCAs in this area.

Deputy O'Keeffe also spoke about measures to encourage the expansion of the beef cow herd. One of the main measures is the allowing of a reclassification. Item No. 6 in Deputy O'Keeffe's motion is in relation to existing less severely handicapped and mountain sheep areas. That would help greatly but it is not the real key. There are so few beef cows located outside the disadvantaged areas, proportionately speaking, that the reclassification, although desirable, will have a minimal effect. The real answer, which must be recognised, is that the beef cow herd enterprise is not one of profitability and does not attract farmers to it. It would be best to look at it in isolation because it is of vital importance to the agricultural industry. It should be looked at especially where there are people going out of milk. The Minister has said he is looking for a decision in the EC whereby the milk quota could be leased to younger farmers or put into flexi-milk.

The beef cow herd should have a guaranteed minimum profit level commensurate with other farm activities. There should be some provision of Euro-currency or low interest money to make up the difference and to attract people into that type of industry. When a person goes out of milk, the sheep industry is a far more attractive activity. There is a premium every year. We are asking people to get into beef but there is a very low profit level and a very low guaranteed income level in it. There must be some type of interest subsidy or inducement to get people to go into this most vital industry.

The reclassification of the existing less severely handicapped and mountain sheep areas has been on the agenda on a number of occasions this year. It is my contention that we should have found the money in the Estimates this year to allow us to proceed with this. The Minister has said there are difficulties in Europe and that it is not only a matter of the money. I contend that if we had the money there would be no problems in Europe; that is the real situation. The EC recognise Ireland's position and I cannot see how it would say it cannot allow this reclassification even though it understands how much Ireland depends on it, or even though it would help our beef cow herd, with which the EC is in full agreement.

It appears to me the rules are being changed every year and at every negotiation. It is the big boys who change the rules. There are situations which were thought unbelievable, unattainable and downright ridiculous but which are now accepted as the order of the day, as part of the EC day-to-day policy. We should have been able to find that £14 million. It is the one bone of contention I have regarding the Estimates outside the Euro-currency. That £14 million, of which £7 million would have been repatriated the next year, would have given us an injection of £7 million. Very few companies can bring £7 million into the country by way of earnings every year. This was an opportunity we passed up.

In conclusion, I congratulate Deputy O'Keeffe for bringing this timely motion before the House. These matters need to be discussed. We must put far more emphasis on agriculture if we are going to get the jobs out of it that we need and expect. Agriculture is our natural resource; we are talking about it but we need to do a lot more about it. I welcome the Minister's reply. there are many positive aspects to it. There is the matter of marine fats and oils, although I have a certain amount of reservation about these due to the severe budgetary constraints in the EC. If we go down the road of bringing in this measure this year, will we be looking for something extra next year?

I welcome the assertion by the Minister when he stated:

The compromise also provides for a number of other points which I have been seeking — the buying up of milk quotas for re-sale and the temporary leasing of milk quotas on a flexible basis. The first of these was in fact agreed last year but it had not been possible to get real action on it until we pressed it at this year's negotiations.

I do not know who brought that in or who pressed it but the matter is very urgent. There are many young farmers, especially in dairying, who are now left in a position where they cannot expand their herd or increase their income. Their quota is too low and any move from any side that would relieve that is to be welcomed. We should look to our counterparts in Britain who refused to enter the milk cessation scheme. They handled their situation far better than we did in an area where milk is not of the same importance. We sometimes tend to be too much the good Europeans without watching out enough for ourselves.

An Ceann Comhairle

Deputy Durkan. Will the Deputy now move the Adjournment of the debate?

Debate adjourned.