As the Deputies are aware, pig prices are a function of the supply and demand dynamics in the market place and the Department does not intervene in the relationship between pig producers and processors. However, it is evident that the recent increase in cereal prices is having a significant impact on pig producers and this fact cannot be ignored. In tandem with this are difficulties in obtaining credit from feed mills and general cash flow issues and this is putting the sector under considerable pressure. The Minister is acutely aware of these pressures and, with many producers being constituents of his, he is reminded of the problems on a daily basis.
Following a difficult year in 2009 prices began to recover early last year. This continued in the second quarter of the year to the extent that year on year prices exceeded 2009 levels in early July 2010. This recovery continued and, while the usual seasonal decline following the end of the barbecue season was again experienced, it was not to the same extent as in previous years. As a result, annual prices remained above 2009 levels and are still over 8% ahead with the price stabilising in recent weeks. Currently the Irish producer price, at €130.01 per 100 kilos, stands at over 95% of the EU average. In general, Irish price movements over recent years have mirrored those of the EU as a whole.
While returns have improved in recent months and are forecast to improve in the medium term, the biggest issue for producers at the moment remains feed costs, most notably cereals and compound feed. The volatility currently being experienced in cereal prices has come about due to a number of factors. In recent years the shift in production towards ethanol has resulted in upward price pressure on quantities produced for animal feed and human foodstuffs.
Extreme weather events during 2010 in Australia and Russia have led to restrictions in output and a reduction in stocks. These issues, together with exchange rate fluctuations and significant increases in transport costs, although falling in recent months, have made for uncomfortable times for livestock producers, who are among the largest consumers of cereals. Pig producers are especially affected by the increase in cereal prices since June 2009, given that cereals account for 75% of feed. This is reducing margins to below the long-term average, a situation which may have an impact on production decisions in both the short and medium term. Difficulties in maintaining credit facilities with suppliers and banks are exacerbating this situation. Officials in my Department met with the IFA before Christmas to discuss these issues. A number of proposals were discussed and my Department is following these up with various parties including Bord Bia and Teagasc.
Teagasc has prepared a development strategy for the pig industry, which identifies the issues facing the sector and makes certain recommendations. The pig industry strategy steering group, which includes representation from my Department and all sectors of the industry, has been established for the purpose of furthering those recommendations. This group has identified and continues to prioritise and promote actions needed to ensure a viable sustainable future for the pig sector. These recommendations were incorporated into the Food Harvest 2020 report which was published in July 2010. This group also recently wrote to me highlighting credit as the most immediate short-term issue facing the sector.
Bord Bia has put in place a number of relevant marketing and promotion initiatives. On the Irish market, a series of promotional campaigns have commenced and focus on building awareness and loyalty to the Bord Bia quality mark. These will underline the quality of Irish pigmeat and will communicate its origin. A customer reassurance programme will continue in export markets. This will entail a continued direct Bord Bia contact with customers, placing key information about the Irish pigmeat industry in context and demonstrating the integrity of Irish health controls; a trade communications programme designed to position the capability of the Irish pigmeat sector and the safety and quality measures in place to influence key decision-makers in the retail, food service and manufacturing sectors; and a programme to maximise international market access for Irish pigmeat products has been established. This will involve communications activities designed to build confidence among national authorities and opinion formers in markets, based around Ireland's health controls.
In an attempt to tackle the issue of input costs, the European Commission recently opened tenders for wheat and barley to be sold from intervention in an attempt to curb feed price increases. These tenders were fully subscribed and there are indications that similar exercises will be undertaken in the future.
The problems currently being experienced in the pig sector are not unique to Ireland. Prices in most member states recovered during 2010 but at a lower rate than in Ireland, while the subject of input costs affects pig producers Europe-wide. Issues affecting the pig sector have been raised at various EU fora, from management committees to the special committee on agriculture to Council of Ministers level. A Pig Reflection day was organised under the auspices of the Belgian Presidency in early December at which a wide range of issues were discussed. Chief among these were the downward pressure on margins caused primarily by the significant increase in input costs and the ongoing weakness in prices. The cost and availability of animal feed, the impact of GMOs, and the level and type of assistance that should be made available to the industry were also discussed. Many member states, including Ireland, called on the Commission to take some remedial action, specifically in the form of re-introducing export refunds.
The Commission is not convinced of the necessity to take measures to address the difficulties in the pigmeat sector. It has dismissed calls for export refunds on the basis that EU prices are close to world market price, and considers that aids to private storage will simply result in the release of stocks in the spring, as prices begin to recover. As the Deputies know, the State's commitment to the banking sector through the guarantee scheme and NAMA is influenced by the need to ensure credit for viable Irish businesses.
Recent figures from the Central Bank confirm that lending has picked up in the SME sector and this includes agriculture and forestry which in quarter three of 2010 accounted for €4.4 billion, representing 6.5% of the total outstanding lending to SMEs, or 13.5% of the core SME total. This is the third largest share of core SME lending. In the first three quarters of 2010, agriculture and forestry was the recipient of more new core SME lending than any other sector, for example, 23.9% or €511million. The Minister for Agriculture, Fisheries and Food, Deputy Brendan Smith, is meeting with the Irish Banking Federation tomorrow to impress upon it the necessity of getting its members to improve the credit flow to pig farmers, millers and the sector generally. A particular problem has arisen as a result of some producers not being in a position to repay the normal credit extended by feed millers, while both they and the millers have indicated that they are unable to replace this with bank credit. The Minister will raise this with the banks tomorrow and impress upon them the importance of finding viable solutions to assist pig producers at this time. This is ultimately in everyone's interest, including that of the banks.