I welcome Mr. Michael Heraghty, assistant secretary general, and Ms BridieO'Neill, principal officer, from the Department of Agriculture and Food, who are with us today to discuss the following EU proposal: COM (2005) 263, a proposal under the Council regulation to reform the EU sugar regime. Before asking Mr. Heraghty to commence his opening remarks, I draw the attention of witnesses to the fact that while members of the committee have absolute privilege, the same privilege does not extend to witnesses appearing before the committee. Members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. I invite Mr. Heraghty to make his opening remarks.
Scrutiny of EU Proposals.
Mr. Michael Heraghty
I thank you, Chairman, and the members for the invitation to appear before the committee again today to discuss the European Commission proposals for reform of the sugar regime. On the last occasion we discussed this topic, which I believe was in December of last year, we only had an outline of the Commission's initial thinking of the shape the reform might take. Matters have moved on considerably since then, as members are probably aware. The Commission's legislative proposals for reform have now been formally presented to the Council and the Parliament and the United Kingdom Presidency is striving to reach political agreement on the proposals at next month's Council meeting ahead of the World Trade Organisation ministerial meeting in Hong Kong in December. In any event, the sugar regime in its current form expires at the end of June 2006 and there is a need, therefore, for a decision on future arrangements to avoid a legal vacuum from next July.
By way of introduction, I would like briefly to recall how matters stood when we discussed the sugar regime last December and then bring members up to date on developments since. The EU sugar regime was established almost 40 years ago but unlike other CAP sectors, it has not been fundamentally changed or reformed in the intervening period. Everybody is familiar with the reasons reform is currently high on the EU agenda. As well as the internal EU pressures to bring sugar into line with the other agricultural sectors, there are also international pressures. These fall under three main headings: the Everything but Arms agreement, the World Trade Organisation Doha development agenda and the ruling by the WTO panel last April against aspects of the EU regime following on a complaint by Brazil, Thailand and Australia. I will come back to the WTO ruling later.
In its communication to the Council and the European Parliament in July 2004, the EU Commission had sketched out its ideas for reform of the sugar regime. The key elements were: a cut of 33% in two stages in the institutional price for white sugar from €632 per tonne to €421 per tonne, and a corresponding two-stage reduction in the minimum beet price from approximately €43 per tonne to €27 per tonne; partial compensation to farmers of 60% for the reduction in price payable in the form of a decoupled direct payment; a cumulative reduction of 2.8 million tonnes, or 16%, in quotas over four years across all member states in order to bring EU production into line with domestic consumption; and quotas for sugar production were to be transferable between member states.
The Commission's ideas were immediately opposed by a number of member states, including Ireland, as well as by the least developed sugar exporting countries. A few member states, on the other hand, felt that the reform proposals did not go far enough. Ireland made clear that the Commission's proposals would have serious repercussions for the Irish industry at both growing and processing level and that they were unacceptable in the form presented. The Minister, along with her colleagues from nine other EU member states, made a joint submission to the Commissioner for Agriculture pointing out the devastating effect the proposals would have both on farms and on the industrial enterprises in the sector.
While the ten Ministers in question accepted the need to modify the existing regime, they argued that the reform should aim at keeping the existing pattern of sugar beet and sugar production on the entire EU territory. They proposed, therefore, that reform should be based on the following principles: an import system from third countries should be put in place, which would ensure predictable and regular import quantities; the price reduction should be significantly less and should be implemented more gradually; the impact of the quota reductions should fall mainly on those member states that are net exporters of sugar; and the transfer of quotas among member states should not be allowed.
The next significant development occurred in April 2005 when, as I mentioned earlier, the WTO appellate body upheld an earlier panel ruling against aspects of the EU sugar regime. To recap briefly, under the WTO rules the EU is limited to exporting 1.273 million tonnes of subsidised sugar annually. Australia, Brazil and Thailand complained that the EU was in breach of WTO obligations by omitting from the calculation of its total subsidised exports of sugar produced in excess of quota, which exported without refunds and which is known as C sugar, as well as 1.6 million tonnes of sugar imported under preferential arrangements with ACP countries and later re-exported. The WTO panel ruled against the EU on both counts, and the WTO appellate body upheld this in its ruling on 28 April 2005. As a direct consequence of that, sugar production in the EU must be cut by 4.6 million tonnes.
The WTO dispute settlement body must now arbitrate on what constitutes a reasonable period of time for the EU to bring its regime into line with the panel ruling. A decision on this issue is due on 28 October. The EU is looking for an implementation deadline of 31 December 2006.
Taking account of the WTO ruling in April, the Commission duly came forward with its legislative proposals at the end of June. These are even more severe than we had anticipated and went even further than the July 2004 proposals. There were two key differences: the price cuts were deeper and the proposal for compulsory quota cuts as well as the proposal to allow quota mobility between member states were dropped and replaced by a voluntary quota restructuring scheme for factories. The Commission's overarching objective in presenting these proposals is to develop a sustainable future for the EU sugar industry by enhancing competitiveness and, at the same time, to attain a sustainable market balance between domestic production levels and international commitments.
The key elements of the proposals are a 39% price cut in the institutional price for sugar, a corresponding reduction in the minimum price for sugar beet and 60% compensation to farmers for the price cut. A voluntary restructuring scheme is proposed to encourage factory closures and the renunciation of quota. Focusing on the individual elements of the proposals, in regard to price cuts, the current support price of €631.90 per tonne for sugar is to reduce in stages to €385.50 per tonne from 2008 to 2009. This is a cut of 39% compared to the cut of 33% proposed in the Commission communication of last year.
The minimum price for sugar beetis to be cut over two years from €43.63 per tonne to €25.05 per tonne from 2007 to 2008. This is a cut of 42% compared to a cut of 37% proposed in the Commission communication. Compensation for farmers remains at 60% of the drop in the support price. This is to be paid as part of the single payment scheme. Ireland's proposed financial envelope for sugar is €11 million in 2006 to 2007 and €18 million from 2007 to 2008. For Irish growers this works out at €7.35 per tonne of beet in 2006 to 2007, rising to €12.03 per tonne of beet from 2007 to 2008. In the first year of the restructuring scheme growers who have to cease production because of the closure of a factory under restructuring would receive an additional €4.68 per tonne.
On the restructuring scheme for factories, while no compulsory quota cuts are proposed for the first four years of the new regime, a new element in these proposals is the concept of a voluntary restructuring scheme. This is, in effect, an incentive scheme for factories that wish to cease producing sugar and exit the sector. The scheme which will run for four years provides a high digressive rate per tonne of quota surrendered, starting at €730 per tonne of quota renounced in year one, decreasing to €370 in year four. The scheme will be funded by means of a levy over three years on all sweetener quota, that is, all quota for sugar, isoglucose and inulin. To qualify for funding under the scheme a factory must comply with three conditions, namely: renounce the relevant quota after consultations with beet growers; abandon definitively and totally production in at least one factory, close that factory, dismantle the production facilities and restore the site to good environmental conditions; and facilitate the redeployment of the workforce.
Regarding sugar produced in excess of the quota, which is known as C sugar, an additional 1 million tonnes of quota will be provided to producers of C sugar to replace production of this type of sugar. This will be subject to a once-off charge. Under the proposals, for the future, sugar produced in excess of the quota can be used in the chemical industry or carried forward as part of the following year's quota. It can be disposed of within the EU subject to a charge. Regarding the Everything But Arms agreement, the Commission is adamant that this will not be renegotiated and will be introduced as planned from 2009.
From Ireland's perspective, the proposals are unacceptable. It is unprecedented for the Commission to make proposals which could lead to the demise of an entire sector in a number of member states, including Ireland. The level of price cuts proposed are such as to make sugar beet production in a number of member states, including Ireland, uneconomic. The restructuring scheme, as proposed, is inequitable as the closure of a sugar factory would have huge implications for sugar beet growers and this is not sufficiently recognised. Apart from running counter to the expressed views of many member states, the proposals for price reductions have not found favour either with the least developed countries.
The proposals were discussed by the Council of Ministers for the first time on 18 July and were the subject of a series of technical discussions at working group level during July and September. At Council the Minister strongly emphasised that the price cuts proposed are too severe, that the reforms should be based on a longer lead-in time for the Everything But Arms agreement and that it would be preferable to await the outcome of the WTO meeting in Hong Kong in December before seeking to conclude an agreement on sugar reform.
The Minister is in frequent contact with like-minded ministerial colleagues in other member states who are also opposed to these proposals. She has met the Agriculture Commissioner on a number of occasions to voice her strong reservations. Meanwhile, there has been ongoing contact at official level with other member states and the Commission in regard to the reform proposals.
We believe the potential consequences of the proposals, as presented, in the loss for farmers of an important cash crop, which is also an important break crop in the tillage cycle, allied with the potential loss of employment in sugar processing and ancillary activities, are very serious and the Minister is firmly opposed to them. Negotiations will become more intensive in the coming weeks and the proposals will be considered by the Council of Agriculture Ministers again next week. Given their severity, it is clear these negotiations will continue to be difficult. The Minister has made clear that her overall objective is to ensure a more balanced agreement, which will take into account Irish interests.
I thank Mr. Heraghty and Ms O'Neill for attending today to answer our questions on these proposals. We all agree the proposals, as presented, would wipe out not only our sugar industry but the livelihoods of many of our arable farmers because sugar beet is critical in crop rotation and it is also a significant cash crop. The proposals for a 39% cut in the price of sugar and a 42% cut in the price sugar beet are wholly unacceptable. It is vital that we make the best case possible to the Commission and that we secure a deal that meets the needs of our farmers. That must be our sole objective in this regard.
Will the representatives agree that we do not have an issue with over-production? Has this case been put across to the Commission? I do not understand the reason Ireland should bear the brunt of these cuts when we are not contributing to the surplus sugar that is being exported with subsidy or without subsidy, the C quota sugar.
Regarding the compensation scheme proposed for the factories, the details of which Mr. Heraghty has outlined, there was no mention in his presentation of funds being made available to growers under that category. There seems to be confusion around the idea that some of the large sum of money that will be offered to companies such as Greencore will be passed back to the growers. I note from Mr. Heraghty's comments that it is not the case. Will he clarify the position? Should this proposal proceed and Greencore decide to go down this route, I presume the money will be paid by the Commission via the Department to the companies involved, in this case Greencore. It is difficult for many farmers to accept that a private company, with its operations mainly based in the UK, will receive significant compensation from the EU in respect of winding down its operations here.
The point was also made in the presentation that the restructuring scheme as proposed is inequitable as the closure of the sugar factory would have major implications for sugar beet growers that are not sufficiently recognised. Many of us have been making this argument concerning what we feel was the premature closure of the Carlow sugar factory. The implications were not taken into account. Do the officials feel that because the Carlow plant has been closed it weakens our negotiating position on drawing down compensation and maintaining a sugar industry here?
What discussions have taken place with other like-minded EU countries and their Ministers on putting forward an alternative set of proposals to those of the Commission? Together with other member states, Ireland has a blocking minority and thus has a certain hold on the Commission on this matter. Unless Ireland leads the way and sets out its alternative proposals, the Commission will naturally try to pick off one member state after another until the blocking minority is no longer there. The Commission will then force through the proposals which, even if they are slightly watered down to meet the concerns of the most ambiguous member states, would literally wipe out our sugar industry. Has any progress been made on that matter?
Farmers are concerned about the control of the sugar quota. The Minister has received a decision from the Attorney General that they have no control over that quota. That is causing major concern for many farmers, especially in light of the offer that has been put on the table to Greencore to decommission its facilities. The quota cut of 7.12%, coming when many growers had already filled their quotas, has left a bad taste in farmers' mouths. Farmers are concerned that while the Commission's proposals include consultations with beet growers, there is no provision that agreement must be reached with them. That is a critical issue for many beet growers around the country. Consultation can be as little as sending out a letter in the post to tell beet growers what will happen and inviting them to a meeting at which the representatives of Greencore say they will not budge. They may have fulfilled their commitments on compensation but it will leave Irish farmers high and dry.
I thank Mr. Heraghty and Ms O'Neill for making the presentation which has brought us up to speed on developments. Deputy Naughten has covered most of the questions but I wish to reiterate some points, particularly concerning surplus sugar. As we do not fit into that category, it seems to be unfair that Ireland should be targeted on that basis. We have not been complicit in over-production, yet we are being hammered.
It is interesting that neither Ireland nor the least-developed countries have anything to gain from this proposal. Therefore, one must ask what the driving force behind it is. I would look favourably on some modification and change if the least-developed countries were seen to be benefitting. There would be broad agreement on that. However, because those who are most in need are unlikely to benefit from the proposal, one must ask what are the net benefits and what is the driving force behind it?
I understand what has already been said concerning competitiveness. One of the requirements to qualify for funding under the restructuring scheme for sugar factories is that we must abandon definitively and totally production in at least one factory. Are we compromised by the fact that that has already occurred? As local industry and farmers have lost out on that account, we seem to be net losers all around. What discussions have taken place with other European countries that would be in a similar situation to ourselves and share the same concerns?
The proposals for the future of tillage farmers in Ireland are frightening and do not only affect beet growers. The knock-on effect for everybody engaged in tillage will be felt if these proposals are implemented. A reduction of 42% is being proposed. Even if that reduction could be reduced considerably through negotiation, it would be fine if beet farmers were making a decent income from beet production. However, the reality is that those involved in beet production are just surviving. The profits do not justify the contribution made by the farming community. As the price of sugar beet has fallen from €43 to €25 per tonne, there is not a hope that anyone could contemplate continuing in the sector. This is effectively a form of blackmail which is removing a part of the rural community. My own county of Kerry, and Cork, Kilkenny, Carlow and Tipperary have been the main beet suppliers, but that industry will disappear if these proposals are implemented.
What was the effect on beet producers in the Carlow area following the closure of the sugar factory there? Are they still continuing to produce beet or did the closure force farmers to give up such production? I hope the Minister will continue to take a strong stand on this matter, otherwise a section of Irish farmers will go to the wall. Where will such farmers go and what will be left for them? An argument can be made for going into biofuel production but my understanding is that if biofuel production was allowed as part of beet production, it would now be discriminated against as there is no support base for it. The Minister should not compromise in protecting beet farmers because otherwise everything will be affected through the knock-on effect on rotary crops.
I welcome Mr. Heraghty and Ms O'Neill to the meeting. Coming from north Tipperary, which is one of the bigger sugar beet producing areas, this matter is particularly pertinent to me and my constituency. In the details of the proposals we see a significant increase in what was initially proposed by the Commission and what is now before us — from a 33% cut in sugar to a 39% cut. Over the next two years, the minimum price for sugar beet is to be cut by a significant percentage. Has the European Commission explained why these percentages varied from those in the original proposal?
Deputy Ferris referred to biofuels. How far have we gone in examining alternatives to sugar beet production? The farming sector will now look to the Department for leadership in finding an alternative. Are farmers to be told just to cease production? In view of the rising cost of fossil fuels, biofuel production should be examined seriously as a self-sustaining alternative. I would be interested to know the Department's view on this.
I welcome Mr. Heraghty and Ms O'Neill. They are not the bearers of great news for the farming community. This is one of the most serious blows agriculture has received for quite a long time. I know there have been many crises, areas that had to be renegotiated and so on but this is extremely serious because sugar beet was one of the better crops. If one looks at cash crops and at this year's very poor grain harvest, farmers were looking seriously at beet, especially those who grow it on a very large acreage, which they have to do to make it viable, given the cost of machinery and so on.
The first proposals would spell the end of the beet industry, which would be a very serious blow to a large part of this country. I do not know what can be done about it but I would say to the Minister, in whom I have great faith, that she faces one of the toughest battles she has faced since she took over. She will need all the support we can give her. The proposals put forward, if accepted, spell the end of beet growing in Ireland, which is a very serious issue.
I appeal to the Minister not to accept this and to go further than we have gone before on other issues to ensure this industry is protected. I cannot say any more about it. I cannot ask questions but there are no questions to ask in respect of what is proposed. It is detrimental to beet growing and I cannot stress enough the seriousness of this to Irish agriculture.
I do not know what was said in my absence but I heard most of the contributions. Mr. Heraghty referred to a reduction of 39% in the price of sugar and a 42% reduction in the price of sugar beet. Taking the sugar content in this country, which would be lower than that in many European countries, will somebody equate for me the reduction to Ireland? How does it fit in? If the level of sugar extraction in this country is over 16% and there is a reduction in the price of sugar of approximately 39% and a 42% reduction in the price sugar beet, will someone marry that for me?
I am very disappointed with what the EU has proposed. I express satisfaction with the attitude of the Minister and the position she has taken relative to the sugar beet crop. Coming from where I do and recognising the importance of beet growing to the farming process, it is critical that this be contained. I express disappointment at the division among farmers on this issue. We should be united on this issue with one interest, that is, protecting the industry. I compliment the Minister on what she is doing and her officials on their understanding of what they are doing but I ask that sugar beet growers stand together.
The payment figure bandied about was most misleading. I am unhappy with and will pursue the question of who owns the sugar quota. I heard what Deputy Naughten said and I am sure his report is pretty authentic. I do not accept quota ownership lies anywhere other than with those who produce. That must be the case.
We urge the Minister — I am sure we are all singing from the one hymn sheet — to do her best against the proposed regime which neither takes into account Irish producers nor the poor in the ACP countries which have a structured entrance into the EU market that is supportive of the poor people. They, like us, resist these proposals. There is a case of standing together on this, irrespective of the World Trade Organisation talks and those other countries. However, that is something for another day.
It is not right to take sugar cane from Argentina, Brazil or any of those countries which is the product of slave labour. I understand sugar production in those countries rests with five families, or owners. Women and children do the work. That is not morally right before God or man. It is time the EU took a Christian approach to this. In the past, the EU has accepted sugar, by way of support, from the ACP countries. We are following a certain obligation in that regard but the other countries are not. It is paramount to Irish farmers that the industry be saved, as was proposed last year.
I welcome Mr. Heraghty and Ms O'Neill. We are not in the business of shooting the messenger but they have given a very fair presentation of the facts as they stand. While I very much welcome any support for or debate on the issue of biofuels, we must try to separate that from the issue of trying to preserve the sugar beet industry. There is an urgent need in this country and throughout Europe, from an agricultural point of view as well as an energy one, to encourage, develop and expand the biofuel sector. I would be its number one fan but I want to keep that issue separate from our attempts to preserve the sugar industry in this country. We all recognise the scale of that battle but we cannot throw out this little sop that if one cannot grow beet in 12 months' time in Mallow, one might be able to get into biodiesel production.
The fact the position has got significantly worse over the 12 month period since July shows the political battle the Government and the Minister in particular, face. If we are to be fair, it is a battle which is not being won. At best, we are just about holding ground — perhaps we are even losing some. Mr. Heraghty spoke about the discussions and the dialogue the Minister is having with like-minded ministerial colleagues, and Deputy Naughten has taken up this issue. Could we pin down who these like-minded colleagues are and which countries are involved? Deputy Naughten referred to the blocking minority. Perhaps we no longer have a blocking minority. If we go to the core of the issue, apart from the expectation of strong support from perhaps Poland and Spain, there might not be anyone else who is willing to walk the plank with us. That is a major problem.
At European level and perhaps domestically we are losing the argument. Recently, I attended a meeting of the Council of Europe which I concede is not exactly the governing regime but it gives a kind of political flavour of where the debate stands. We debated a motion on the Common Agricultural Policy. Of the 50 or so people who remained for the debate and voted on the resolution, I was one of four members out of 50 who voted to support agriculture. During the debate on the Common Agricultural Policy, which was pressed strongly by the British Labour Party members, all the speakers condemned the sugar industry and demanded its reform. They all made the point about the development of the Third World, which is a PR argument we are losing.
If the proposals are introduced, there will be two sets of losers, Irish farmers and ordinary Third World producers. We have a major battle on our hands. I do not think there is currently a blocking minority across Europe because people are almost waving the white flag. When Deputy Wilkinson referred to the need for the Minister to take up the cudgel, we must go back to the era of the milk quota debate when the then Taoiseach, Dr. Garret FitzGerald, and the then Minister for Agriculture, Mr. Deasy, made it a major political issue and toured the capitals of Europe to lobby for the retention of what was necessary for Ireland. This level of political persuasion will be necessary in this case. The Minister alone will not be able to turn the tide. The Taoiseach must become involved. The argument in Europe is being lost because people see this as reform which is necessary from the perspective of economics and opening up markets. We are losing the battle in both of these arguments.
We must recognise the major challenge faced by the Minister. However, we are talking about preserving an industry and preserving a regime which currently allows access and hope to Third World producers. The substitute deal proposed at the July meeting will wipe out most small producers in the Third World and the sugar industry will become the preserve of a few sugar barons. We must get that message across. As we go to the WTO talks, where the access to markets moves centre stage, we must ensure people understand that this set of proposals is not just bad for Ireland, but it is bad for most of the Third World and most small producers.
I wish I had the solutions, but I do not. I am simply trying to highlight the political task at hand and the absolute necessity for the task to be taken on board, not just by the Minister but at prime ministerial level. We must strive to ensure that the sugar industry is preserved in this country. While I welcome the talk about biofuels, diversification and so on, it is a separate issue for a separate day. Where sugar was grown in Ireland, we must ensure that it will continue to be the case.
I thank Mr. Heraghty and Ms O'Neill for their presentation. Many of my questions have been asked already but I would like to make one or two observations. I do not come from a beet-growing part of the country but I have watched with interest the situation over the past year or 18 months. I am concerned about the farmers involved because one sugar factory was closed in the past 12 months. The Commission is suggesting that at least one factory should be taken out of production. Unfortunately, Ireland is down to one factory and I would like to know what that means for it. Greencore has sabotaged the sugar industry in this country, particularly if it owns the quota. Surely the farmers who grow the beet are the people who should own the beet quota and the funding that will accrue from it.
I do not know what can be done at this stage. The Minister, Deputy Coughlan, is doing her best to try to resolve the issue. If farmers cannot grow sugar beet at the price proposed, there will be no sugar factory in this country, and who will benefit from this?
Mr. Heraghty
I noted all the questions and comments which underline the seriousness of the proposals for Ireland. This view is shared by the Minister and the Department. We realise how serious the proposals are and we are approaching the issue in that context. The matter is getting priority.
Deputy Naughten and Deputy Upton asked whether it was fair that Ireland should bear the brunt of these proposals. I agree we should not do so. It was one of the points put forward by the group of ten Ministers in reaction to the initial Commission communication. This set of proposals goes far beyond the principles followed by the Commission in previous CAP reforms. In this case, there is much more focus on competitiveness, which was not the case in previous CAP reforms, when the focus was on the multifunctionality of agriculture and the need to preserve agriculture throughout the community. As I said in my opening statement, this is unprecedented. It was one of the points raised in the original reaction to the Commission communication.
The ownership issue was raised by Senator Scanlon and a number of other members. The Commission stated that the quota is a mechanism to regulate the market. This view was backed up by the legal advice given to us. The question of ownership came to the fore when the question of transferability of quotas was live following the publication of the Commission's previous communication. There is less focus on it now because the Commission is talking about the renunciation of quota. While it is almost avoiding the ownership issue, it has stated that a quota is a mechanism to regulate the markets. This is backed up by the legal advice available to us.
On the compensation scheme which a number of speakers raised, as the proposals stand, there is no provision for compensation from the restructuring fund for sugar beet growers. The restructuring scheme is for factories. Factories will qualify for the fund if they fulfil certain conditions, including the renunciation of the quota.
Deputy Ferris and other members referred to Carlow. The closure of the Carlow plant was a commercial decision for the sugar company. If we consider that in the context of the proposals, including how Carlow might have been considered in the context of the current proposals, the reality is that the closure of a factory must be accompanied by a renunciation of the quota. If it were possible to have Carlow included in the proposals as they now stand, it would still mean renouncing quota in respect of Carlow. This is something we would have had to consider. We would not want to renounce the quota.
On the LDCs to which Deputy Upton referred, these were before the agriculture Council in September. They made it clear that they are totally against the proposals put forward by the Commission. The view in the initial stages was that the sugar regime was damaging to the least developed countries. That view has been turned around, as the least developed countries themselves have made clear.
We are moving towards an intensive period of negotiation. The current Presidency is making a big effort to reach an agreement at the November Council. We have taken a different view on this. We do not believe it is necessary to arrive at a decision in advance of the WTO ministerial meeting in Hong Kong in December. Nonetheless, there is pressure from the Presidency and the Commission to have agreement in advance of the WTO December meeting.
As I said in my statement, in the run-up to this we have maintained contact with like-minded member states. Senator Bradford asked about this group. A group of ten member states, comprising Greece, Italy, Ireland, Spain, Portugal, Hungary, Lithuania, Finland, Latvia and the Czech Republic, is opposed to this. We were opposed to it at the most recent Council discussion and remained opposed to it at discussions at working and technical group level. The opposition still exists. The Minister has maintained contact with a number of these member states and met the Italian Minister for Agriculture last week. A further meeting of the group of ten opposing the proposals will take place next week.
The issue of alternative proposals was raised. The alternative proposals put forward by the group of ten were the proposals I mentioned in my statement, namely, that the price reduction should be significantly less and the impact of the quota reduction should fall on those member states that are net exporters of sugar. This comes back to the issue of C sugar. It is now a negotiating decision as to how to progress this position further. That decision will be taken over the next couple of weeks as negotiations proceed. We have a Council meeting next week and there will be a further meeting of the group of ten next week, in advance of the November Council.
Reference was made to biofuels and I agree that this issue should be treated separately. Our priority is to preserve a viable sugar beet industry in Ireland. Nonetheless, from an agricultural perspective the Department has looked at the biofuel development issue in terms of feeding into policy development which is being led by the Department of Communications, Marine and Natural Resources. That is not just based on sugar beet but includes fuel from other crops such as wheat, oilseed rape and forestry. We are looking at that, but it is separate from the task in hand. We have called for research proposals under our research stimulus fund in the area of non-food use for crops. This is being examined separately from the task in hand, namely, the sugar reform proposals.
I mentioned that in the restructuring fund as it stands there is no provision for payments to growers, only factories. We have concerns about the equity of this. I mentioned in my statement that if the restructuring fund leads to a situation where growers have no outlet, this should be taken into consideration.
Deputy Hoctor made a point with regard to the difference between the current proposals for the 39% reduction and the 33% reduction mentioned in the Commission communication. The reason the proposals are more severe is the result of the WTO panel finding that there will, effectively, be in excess of 4 million tonnes of sugar that will have to be disposed of or taken out of the equation. That finding caused the Commission to bring forward more severe proposals.
Senator Callanan raised a technical point about the extraction rate. The European Union uses a standard 13% extraction rate that has been traditionally used by it in determining the conversion between sugar beet and sugar. It is 13% rather than 16%.
I hope I have covered most of the points on which questions were raised. There was a question on the issue of consultations. Many of the details of these proposals remain to be fully fleshed out. What the definition of consultations means precisely is one such issue. This is subject to ongoing discussions and negotiations.
I want clarification on the extraction rate. The rate here is approximately 16% or 17% and in other countries it is much higher. I wonder what the basis of the 39% reduction mentioned is, as against the 42% of sugar beet. I hope Mr. Heraghty understands my question and that I am explaining it correctly.
Mr. Heraghty
The standard EU extraction rate used for the conversion process is 13%. I think the Senator based his question on the 16% rate used here. The European Union has traditionally used a 13% extraction rate.
The details of the operation of the restructuring fund have still to be worked out in terms of clarification on the issue of consultation and how the money will be channelled to the member states. This is subject to ongoing discussions. I hope I have covered most of the points raised.
Thank you. Senator Browne has a question.
As I come from Carlow, I have a few basic questions. Mr. Heraghty half answered the question on the ownership of the quota. Who owns the quota? Is it the growers or the company? We are all asked this question at every meeting.
Is the Department aware that planning permission has been granted for a rail depot in Carlow? This is a white elephant. This has gone to An Bord Pleanála and God knows when approval will be granted. The rail depot will be built eventually, but I cannot see it being ready for next year's campaign. It was meant to be ready for this year's campaign but that will not happen. There is a question mark over whether it will be done for next year's campaign. David Dilger told me at a previous meeting of this committee that he saw no future for beet growing outside the Cork area. Why, then, is Greencore building a rail depot when it has said that it sees no future for beet growing outside the Cork area?
Recently there was an article in the newspapers on the KPMG stockbroking firm stating that this year would be the last season for beet growing. I understand KPMG is owned by Dermot Desmond who also has shares in Greencore. The statement is, therefore, significant. Is it possible or imminent that we will have a sugar industry in Ireland which will not necessarily use beet being grown in the country but rather imported sugar cane? Have negotiations to that effect taken place with Greencore?
What is the Department's official policy on whether people should accept a buy-out or continue with growing? People in counties Carlow, Kildare and Laois and regions furthest distant from Cork must ask themselves difficult questions since they are faced with significant transport costs and the fact that Mr. Dilger has not given any cast iron guarantees that the beet industry is secure in his hands or in Greencore's hands. It is vital that the Department have some advice available to farmers. I am aware the farming organisations and beet growers are split on that issue because it is a very difficult question to answer.
It is ironic that sugar will now be transferred back from Cork to Carlow and stored in the sugar silos on the Greencore site. I am also aware that Greencore is currently dismantling equipment on its Carlow site. My point is that Greencore has very different plans and I am not certain if the Department is in tune with them or is being told everything. I do not have confidence in the Department, based on what I learned when Mr. Dilger telephoned the Department three days before the final closure to explain what was to happen at the board meeting the following Wednesday, yet the Department seemed to have done nothing and did not react. Is the Department happy to see the beet industry disappear? Its answers with regard to the bioethanol issue are far from convincing and I am more confused now than when I arrived at the meeting.
Mr. Heraghty
On the ownership issue, the Commission has confirmed the quota is not an asset; it is not owned by anybody but is simply a mechanism for regulating the market. This was confirmed by the legal advice available from the Attorney General.
I understand it is the case that the Commission intends to compensate the factory for handing back quota. Is it not correct that the Commission is prepared to pay the factory if it hands back quota to the Commission?
Mr. Heraghty
No. As the proposal stands, the Commission is prepared to compensate the factory for factory closure and a number of other conditions and renunciation of the use of the quota.
The Commission is paying them for it.
Mr. Heraghty
It is paying them for a number of things that are set down.
One of which is the quota.
Mr. Heraghty
Yes, one of which is the renouncing of the quota.
That is the answer.
Mr. Heraghty
It is about the renunciation of the use of the quota but not the ownership.
In reality that is the answer. As the Department stands, it is facing these proposals for reform of the sugar regime. We are dealing with those proposals and trying to obtain the best outcome possible for the sugar sector generally. There are obviously commercial decisions which are for Greencore and the Sugar Company. The Department would not be directly involved in many of the areas referred to by the members in terms of the rail depot and issues of that nature because they are commercial decisions——
The Department should be aware of them.
Please continue, Mr. Heraghty.
Mr. Heraghty
The Sugar Company will make commercial decisions. The Department is facing the reform proposals and both it and the Minister will deal with these reform proposals to try to achieve the best outcome possible in terms of the preservation of the sector. Issues such as the rail depot, for example, are issues for Greencore and the Sugar Company and not for the Department.
On biofuels and bioethanol, the Department's priority at the moment is trying to preserve and deal with these reform proposals as best it can but it has been considering separately the issue of biofuels in general, not just using sugar beet but also wheat and oilseed rape and the forestry area. This is being considered from an agricultural perspective to see what possibilities exist. This follows on the general CAP reform and the possibilities for opportunities for farmers.
It is not just focused on sugar. As far as sugar is concerned, the Department's focus is on the reform proposals in order to achieve the best outcome from Ireland's point of view. It is a difficult task. The Department is also considering the area of biofuels without focusing exclusively on sugar beet. In that context we have put out a call for research into the area of the non-food use of crops. However, our focus at present is on the reform proposals.
I will allow a supplementary question from Senator Browne.
On a point of clarification, Carlow sugar factory is closed but in one way it is still partially open. In terms of compensation, how is it regarded by the EU? Could Greencore have jeopardised compensation by closing it in advance of the talks? Is there a danger it will not be compensated? It seems Mr. Heraghty is saying the quota will stay the same even when there is now only one factory instead of two. Obviously when the quota reduces, compensation will follow. Mr. Heraghty seems to be saying the compensation will follow to Greencore, which means the growers will not get anything.
Have any negotiations taken place with the Department on the importation of sugar cane? If Greencore took a commercial decision tomorrow morning to import sugar cane and cease beet growing in the country, which could happen, would the Department have any views, or would it sit idly by like before?
Mr. Heraghty
To clarify the restructuring scheme, no compensation can be paid unless the factory closes, the quota is renounced and the other conditions are met in terms of what happens with the factory, bringing it back to a greenfield condition and making provision for the workers. Any factory closure must also have a renunciation of quota attached to it.
In answer to the Senator's other point, the Department has had no discussions with Greencore about the processing of sugar cane or anything of that nature. We are dealing with the proposals currently before us to ensure the best outcome from the negotiations which lie ahead of us.
The Department has no blueprint, basically. From whose point of view will it be the best outcome?
Mr. Heraghty
The best outcome from the point of view of all of the sector, from growers and from the people employed in the sugar plant.
Those people are gone now.
On behalf of the committee I thank Mr. Heraghty and Ms O'Neill for attending and responding to the variety of questions asked by members. This concludes the committee's scrutiny of EU legislative proposal COM (2005) 263. The clerk to the committee will prepare a draft report of our discussions today for the next meeting. Is that agreed? Agreed.