Written Answers. - Common Agricultural Policy.

Mary Upton

Ceist:

21 Dr. Upton asked the Minister for Agriculture and Food his Department's estimate of the financial impact on farmers in each of the farming sectors of the agreement on the reform of the CAP; and if he will make a statement on the matter. [19009/03]

The impact of decoupling will depend on the form of decoupling to be implemented. As the agreement reached by the Council of Ministers provides for the option of full decoupling and for various partial decoupling options, I will shortly commence a process of consultation with the social partners and any other interested groups and individuals before deciding on which option to implement.

The Commission's proposals on digression of direct payments, which would have reduced direct payments to Irish farmers by €56 million annually, have been withdrawn. The proposals have been replaced by a mechanism, to commence in 2007, whereby the Council will decide what adjustments may be necessary to ensure that the annual expenditure ceilings are respected.

The agreement reached on modulation of direct payments provides for a modulation rate of 3% in 2005, 4% in 2006 and 5% in subsequent years. The first €5,000 per year of a farmer's direct payments will not be affected. Ireland will effectively retain about 85% of modulated funds for use for on-farm rural development measures.

In relation to the milk sector, the agreement provides for a reduction of 4% in the overall intervention price implemented through a 10% reduction in the butter intervention price and a zero reduction in the intervention price for skimmed milk powder. Compensation, in the form of an increase in the dairy cow premium, will amount of 80% of the loss calculated on the assumption that the market price will fall fully in line with the intervention price. On that basis, the net loss is estimated at €14 million a year or about 1% of the farm-gate value of milk output. Of course, this loss can be avoided if the Irish dairy industry replaces intervention sales with sales on higher-priced markets. A crucially important element of the agreement was the extension of the milk quota regime, which was due to end in 2008, until 2014-15.
In the case of cereals, the Commission had proposed a 5% reduction in the intervention price and the abolition of the monthly increments to that price. The agreement reached by the Council was that there would be no reduction in the intervention price and that the monthly increments would be reduced by 50%. The net effect on cereal prices is estimated to be negligible.
The result of the negotiations for Irish agriculture is, I believe, resoundingly positive. The options in relation to decoupling will enable us to determine the system of direct payments most suited to our needs. The arrangements will enable a substantial proportion of the EU's direct payments to qualify as domestic support which has, in WTO terms, "no or at most minimal trade-distorting effects or effects on production" and so protect them from challenge in the current WTO negotiations. As a result, the EU's negotiating position will be considerably strengthened and the security of direct payments to Irish farmers has been significantly enhanced for the future.
In relation to the individual sectors, the outcome was also particularly satisfactory. The small loss in the milk sector of 1% – or one cent per gallon – can be avoided by foregoing intervention and selling our products on higher priced markets. The extension to 2014-15 of the quota regime, which has been crucially instrumental in maintaining dairy farmers incomes in the past, will be of major benefit.
It is clear, therefore, that the agreement reached by the Council on the mid-term review is a good one, both for European and Irish agriculture. It offers a firm basis for the future development of the sector which I intend to exploit to the full for the benefit of our farmers and our rural communities.