I welcome the Secretary General of the Department of Agriculture, Fisheries and Food, Mr. Tom Moran, and his officials, Mr. Martin Heraghty, assistant secretary; Mr. Tom Corkery and Mr. Paul Savage, assistant principal officers. The committee is interested in hearing from them on the measures being taken by the Department to deal with the crisis in the dairy sector. Before calling on Mr. Moran to make his presentation, I draw attention to the fact that while members of the joint committee have absolute privilege, the same privilege does not apply to witnesses appearing before the committee. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable. I call on the Secretary General to make his opening statement.
Dairy Sector: Discussion with Department of Agriculture, Fisheries and Food.
Mr. Tom Moran
I thank the Chairman. We are delighted to update the joint committee on the current state of the dairy sector. As members will be aware, the international dairy industry is facing serious challenges. Markets for dairy products are extremely weak across the globe for a variety of reasons, not least the current economic downturn. During 2008 international dairy markets fell back from the record high levels they had reached in 2007. Prices have now returned to far lower levels. We are seeing the effect of these international low level prices finding their way back though the milk chain to primary producers.
In the past year or so we have witnessed extremes of volatility in dairy product prices on an unprecedented scale. This volatility is a symptom of the changed EU policy framework in which we are operating where world market forces have a major influence on the price paid for milk. Members will recall that the Agenda 2000 reform of the Common Agricultural Policy in 1999 agreed to increase quotas, reduce support prices from 2005 onwards and introduce a compensating dairy premium. The mid-term review of the CAP in 2003 implemented these measures from 2004 and extended the quota regime to 2015. In essence, the reform meant a change in the EU budget resulting in a shift from market support to direct income support. For a dairy producing country such as Ireland, which exports the vast majority of its product, this new framework is particularly relevant. Ultimately, the market is the source of income and to maximise income the focus has to be on competitiveness, efficiency and innovation. One of the major challenges in the medium term will be to ensure that Irish farming and the agri-food sector are at the heart of an evolving high value food market, which is focused on quality and innovation. This is at the core of Government strategy, as shown by the National Development Plan 2007-2013, AgriVision 2015 and the partnership agreement Towards 2016.
The AgriVision 2015 plan in particular sets out a series of actions, many of which have been implemented, to develop a competitive, innovative and consumer focused agri-food sector. As part of this overall strategy, the Department provided funding of €114 million towards investment in dairy processing. A total of 19 capital investment projects were approved and awarded Government grant assistance under the fund, which will generate an estimated capital spend of €286 million at full production. The purpose of the fund is to increase the efficiency of the main dairy outputs by supporting the upgrading of plant and buildings. This will assist operators in capturing new business in global markets and in developing new valued added products. By stimulating necessary investment in the sector the fund will help ensure the long-term competitiveness of the dairy industry in Ireland.
At producer level the focus in the milk quota area is on ensuring that the maximum possible volumes of quota are made available to active and committed dairy farmers. This will facilitate the efficiency gains that are necessary in an increasingly competitive market. Domestically, work continues on making the quota regime as simple, flexible and responsive as possible for Irish milk producers. The main vehicle for this is the milk quota trading scheme but there have also been other significant steps in the form of an overhaul of the milk quota regulations.
The milk quota trading scheme has just completed its third year of operation and continues to be implemented successfully. The trading scheme replaced the old milk quota restructuring scheme, and brings a more open-market approach to the transfer of milk quotas. It gives buyers and sellers the freedom to dictate the price at which quota is traded within each co-operative collection area. A total of 375 million litres of milk quota has been transferred to active producers since the scheme's inception and it has continued to contribute to the process of consolidation at producer level.
The new milk quota regulations were also successfully incorporated into the scheme in 2008. The new regulations were the result of a complete overhaul of the domestic milk quota regime that was conducted in 2008. The result was the replacement of SI 94/2000 with SI 227/2008, with effect from 1 April 2008. These new regulations greatly simplify the quota regime and bring the legislative framework into line with modern farming realities. They include the elimination of unnecessary bureaucracy and the provision of greater flexibility in the transfer of quotas. They also introduced new rules for the operation of milk production partnerships that remove obstacles to partnership formation and encourage new entrants to dairying.
From a dairy sector perspective the health check agreement of November 2008 had two key elements, supply control and market support. The agreement essentially provided the framework for the EU milk quota regime leading up to its abolition in 2015. As the committee members will be aware, there was a wide divergence of views among member states in the months leading up to the final negotiations as to the best course of action regarding milk quotas. Commissioner Fischer Boel had made it clear that she would not be proposing the continuation of the quota regime beyond 2015. The question was whether, and to what extent, milk quotas should be increased to provide a so-called "soft landing" ahead of abolition.
Many of our colleague member states argued in favour of annual quota increases of up to 5%, while others were opposed to any increase. We recommended an ambitious approach that would facilitate the maximum possible fulfilment of the production potential in the Irish dairy herd. In that context, the decision to increase quotas by 1% each year from 2009 to 2014 was a good outcome, as was the downward adjustment in the butterfat co-efficient that equates to a further potential 2% rise in quotas in 2009. When the 2% quota increase in 2008 is taken into account, the result is a cumulative increase of 9.3% in Ireland's milk quota by 2014 compared to 2007. This will help our dairy farmers to maximise their production potential and to maximise the natural advantage they possess in the form of a grass-based production system. This in turn will lead to efficiency gains and help to achieve a competitive edge in an increasingly volatile world market.
The Minister recently announced the allocation key for the first of the five annual 1% milk quota increases agreed under the health check. Three quarters of the increase will be allocated to all active milk producers on a permanent, saleable basis. The remaining one quarter will be allocated to new entrants to dairying on a scale designed to achieve viability from the outset. The Department has had discussions on the outline of a scheme with the farming organisations and is currently working on the detailed implementation criteria. It is hoped this process will be completed speedily and that an announcement will be made shortly. It has been suggested that the EU quota increases to all member states are the cause of the current low prices for milk. This is a flawed argument. Milk production in the EU is below the level it was at before the quota increase in 2008 took effect. If EU production is constrained by quotas it will prevent us from benefiting from future upturns in dairy markets. In that scenario the only winners would be our global competitors, of whom there are many.
The other key dairy element in the health check was market support. In the negotiations we strongly defended the view that quota increases must be matched with effective dairy market management measures. The transition to a post-quota EU dairy market, along with current market fluctuations, make this particularly important. We therefore called for the continuation of such measures and, above all, those schemes which are especially important for Ireland. Allied with the liberalisation of quotas, we insisted in the negotiations that critical market supports for the type of dairy products manufactured in Ireland would remain in place. They must continue to function in support of the market to soothe volatility and assist the industry in meeting its competitive challenges.
In the event we managed to maintain the butter and skimmed milk powder intervention schemes intact despite the powerful forces opposing the retention of these schemes. A determined effort was made to introduce tendering for every tonne of butter and skimmed milk powder, SMP, intervened. This would have been particularly difficult for Ireland. The importance of these measures cannot be overstated as they play a crucial role in levelling out the market supply-demand dynamics. They have a vital role in Ireland given our seasonal pattern of production. This is also true for private storage aid for butter where existing arrangements were maintained, although once again there was strong opposition intent on introducing tendering arrangements. The Minister's foresight in fighting to maintain these market supports has been vindicated and they are now being used to deal with the current market weakness. It is worth pointing out that from the outset of the negotiations on the health check, Ireland put major emphasis on the need to maintain these market supports. There was not a great deal of support for this in the early stages of the negotiations, but it was among our priorities.
The causes of the current slump in the diary sector are widely known at this stage. The historically high prices achieved in international markets in 2007 and early last year caused a supply response. Then the turmoil in the international financial and banking sector, and the associated economic downturn, resulted in a world reduction in demand. The combination of these factors led to a very substantial price drop which, from peak to trough, has resulted in a significant reduction in producer prices. As the market situation deteriorated towards the end of 2008 the Minister called on EU Commissioner Fischer Boel to reintroduce the support measures provided for in the health check to help stabilise the dairy sector. The Commission initially responded last November by bringing forward the operation of the private storage scheme for butter. Then, in January, the Commissioner announced the reintroduction of refunds to support the export of dairy products outside the EU. This was an important step and signalled an intention by the Commission to put a floor under the market.
In March this year the intervention schemes for butter and skimmed milk powder were opened which allowed the purchase of product up to set limits at a fixed price. That was the point Ireland had strongly pressed for in the health check. At that time, the Minister met the Commissioner to discuss the market situation. We stressed the importance of continuing to accept butter and SMP into intervention at levels close to the intervention purchase price under the tendering system. What is important about that is that when one reaches the fixed volume of intervention intake and it goes on to a tendering system, there is an in-built risk that prices can spiral downwards. That is because the Commission might fix a price one week that is lower than the fixed intervention price and a certain amount of product is not sold as a result of that. Two weeks later, however, at the next management committee people will definitely tender at a lower price, so there is an in-built spiralling down of the price. That was the worry we had in the health check, which is why we argued for fixed price intervention rather than going straight into a tendering system. The point we argued with the Commissioner, which she did take, was that once one reaches the fixed volume, one does not allow this spiral to take place. In fairness, that is what happened.
The Commission has continued to buy butter and SMP into intervention at prices close to the fixed price. To date, a total of 77,000 tonnes of butter have gone into intervention, with a further 83,000 tonnes into private storage. In addition, 161,000 tonnes of skimmed milk powder have been bought into intervention so far. We have called for the continued use of export refunds at viable levels to move significant quantities of product from the EU. The refunds have been maintained at their current levels since March.
At the Council of Agriculture Ministers in April the Minister raised this issue again with his colleagues. He drew attention to the serious difficulties on the milk market where the severe slump in demand has led to a dramatic fall in milk prices. Ireland instigated a full discussion of the milk situation in that Council and brought it on to the agenda in the first place. In the event, we received support from ten other member states who intervened immediately after Ireland to support the situation. The Minister urged the Commission to continue using the existing measures to support the market and to consider introducing additional methods where appropriate.
Milk featured again on the agenda of the Agriculture Council on Monday of this week. Once again, the Minister reiterated his views to the Commission and the Council. While it is not in this speaking note, I wish to update the joint committee on what took place at that Council. The Commissioner's response was that she was aware of the difficult situation in the milk sector. She indicated that despite quota increases, supply was down 0.5% across the 27 member states and argued that therefore the downturn was not caused by the increased quota. She indicated that the price had stabilised, albeit at an unacceptably low level. The Commissioner argued that the policy on refunds had paid off, to date, and that prices on the world market had begun to lift slightly. Importantly in this week's Council, in response to pressure from Ireland and a number of other countries, the Commissioner said she was open to the idea of continuing intervention beyond August. She indicated that there were legal difficulties involved in that but she is working with the legal services in the Commission to see whether that is possible. She indicated that she was open to the idea of extending APS, private storage for butter, beyond 15 August thus getting further out beyond the peak, which would be useful.
On export refunds, the Commissioner indicated she was willing to continue to monitor the situation but was conscious of not damaging the world market by overly increasing refunds.
As regards export refunds, Ireland has been pressing strongly for a reduction in the free-at-frontier price of cheese. That means there is a limit below which refunds would not be paid if the value of cheese is below a particular level. Because of the weakening of the market that is an obstacle to exporting cheese from Ireland with export refunds. The Commission has indicated that it is actively checking that out, which was welcome for us.
As regards calf feed, there have been calls by a number of member states for the introduction of skimmed milk powder aid for use in the veal sector. The Commission rejected that idea and continues to resist it on the basis that it would cost a great deal and give little or no gain. There is no evidence to suggest that the use of skimmed milk powder in the veal sector would increase. The same quantity would be used but at a lower price, so one would gain nothing for the dairy sector as a result.
Two other points emerged from the Council. First, in response to pressure from several member states, including Ireland, the Commissioner announced the advance payment of 70% of the single payment, bringing it forward from 1 December to 16 October. That is a useful addition which applies to all farming and not just the dairy sector.
Second, monitoring the market is an important point because there had been calls by member states to bring forward the 2010 review of the market. The Commissioner was reluctant to bring forward the review provided for in the health check because data on how quotas had evolved would not be available. However, she undertook to carry out a quarterly review of the market and report back to the Council on that basis.
I have digressed from the script just to bring the joint committee up to date on this week's Council.
The Commission's actions in utilising available support measures have definitely stabilised the market, albeit at a low level. While markets are currently extremely depressed, we will continue to do everything possible at EU level to provide the type and level of supports necessary to assist the market. As the milk price is greatly influenced by forces of supply and demand, support schemes have a limited effect on milk prices. However, it is important to utilise available supports to manage the transition period until we emerge from the current period of turbulence. We can expect to see some supply side adjustments as producers throughout the EU respond to market signals. Realignment of consumption and production across international markets will help restore equilibrium to the markets once more.
Side by side with these international factors, we must do all in our power to make our production and processing costs even more competitive. For our part we have revitalised aspects of dairy policy in Ireland at producer and processor level to meet these competitive pressures, as I outlined. It is important nonetheless to emphasise that the medium-term prospects for global dairy markets are good. Growth in wealth and population is forecast by all international agencies to stimulate strong levels of demand for dairy products and returns will improve commensurately. The Government is committed to ensuring that the dairy sector reaches its full potential. We will continue to maintain close contact with the European Commission to ensure that support measures are activated at levels that will make a real and measurable impact on the market. This will enable us to manage the transition period until demand recovers and the good prospects forecast for dairy markets can be fully realised.
I thank Mr. Moran. We will now take some questions starting with Deputy Creed.
I welcome Mr. Moran and his colleagues to the meeting. The dairy industry is the engine of commercial agriculture. Currently, farmers are milking cows morning and evening at a loss. That is the reality which should frame the debate. In the areas of the country in which the dairy industry is most prevalent, one will see that commercial engine of Irish agriculture spluttering and the fact it is stagnant. Market towns throughout the country are substantially dependent on the rural hinterland and the spend in those towns and farm incomes are at a dangerously depressed level.
I do not mean to be in any way offensive to Mr. Moran but if I was a dairy farmer listening to his presentation, I would say it was words and that I have heard them all before.
The political framework to deal with this price fluctuation, which has now dipped so low as to result in loss-making enterprises, was delivered in the reform of the Common Agricultural Policy because it specifically retained the market support measures to deal with that kind of dip in prices. Every dairy farmer in the country is saying that the Commission is playing ducks and drakes with the Department and with the departments in the other 26 member states. There is no tangible return to the farmer or a return so that the farmer may break even, not to mention make a profit. There is no tangible return from all the measures Mr. Moran outlined to enable farmers to meet the cost of feed, fertiliser and their contractors, to put food on the table and to meet bank repayments, if they have invested in the farm waste management scheme or otherwise, from the cheque they receive from the milk processor at the end of the month. The consequences of that are horrendous in the dairy sector. That spills over into many other areas in the economy.
It is a couple of years since the introduction of the dairy investment fund which was the panacea for the processing sector and which was to deliver the most efficient processing sector by way of the €114 million allocated, delivering a total investment of nearly €300 million. A couple of years on, ICOS is trying to organise Milk Ireland to restructure the whole processing industry with no budget to facilitate that. One can only conclude that the policy decisions, if there were any, which underlined the allocation of the dairy investment fund were informed by everything other than what was in the long-term strategic best interest of the sector. Two years on, we acknowledge there are serious structural differences, over-capacity given the seasonal nature of production and that serious measures need to be taken.
How will the Department facilitate and prime the pump to restructure the processing sector given that we have blown the €114 million we had and have achieved very little with it, to deliver the most efficient processing sector and a better return for farmers?
The figures have been published and if one looks at the Irish Farmers’ Journal league table, the average payment is 20 cent to 24 cent per litre. That is the kind of price fluctuation. Many farmers receive less than the average price from their co-operative, and there can be many reasons for that. The Teagasc figures for cost of production show a chasm is emerging between the cost and the price paid.
Given those two factors, not only will we have casualties at farm level, of which there is real evidence, but there will be casualties in the processing sector. What is the Department doing to head off that situation? The political framework is there. The policymakers have delivered. The market support measures have been retained. My interpretation of that is that they have been retained to ensure that during peaks and troughs, we enable farmers to get through the troughs and bring them up to a situation where they can meet their cost of production. However, that is not happening. None of the measures to which Mr. Moran referred, whether aid to private storage or export refunds, is delivering for farmers. There is a danger that the processing sector may not be exempt from the firing line either if this continues for much longer.
At a political level, I am disappointed that Fianna Fáil, in a search for a home in Europe, would align itself with the liberal group. Commissioner Fischer Boel is from the liberal stable in Europe. If one looks at the liberal website, there is clear and consistent hostility to the Common Agricultural Policy. It talks about liberalising the agriculture commodity market, greater access for third countries to European markets and dismantling supports to European farmers.
While Fianna Fáil was aligned with a ragbag of independents and headbangers in the past, it is regrettable that it is now aligning itself with a group which is hostile to the interests of farmers. That is clearly evident. I invite anybody to look at the liberal website in Europe and at the number of resolutions passed which are hostile. That is the reason we are making no headway with Commissioner Fischer Boel and the European Commission on these issues. It is long past time to deal with these issues.
It is all Fianna Fáil's fault. Do not blame Fine Gael.
If one lies down with dogs, one gets up with fleas. That is the problem farmers face.
Is this a political broadcast?
Deputy Creed has the floor.
Deputy Aylward should talk to dairy farmers in his constituency——
I talk to dairy farmers. I was a dairy farmer.
He should feel the pain through which they are going and tell them what he will deliver for them.
I was a dairy farmer.
I was also a dairy farmer. It is a serious problem not only for farmers and processors but for hundreds of thousands of people who are dependent on the food industry in Ireland.
It is not an option to up and relocate to low-cost economies. This sector is here for the long haul but it has been neglected and ignored. We are reaping that whirlwind now because the dairy investment fund was frittered away for political reasons with no strategic objectives informing its allocation. We are now trying to restructure the processing sector with no funds.
What does that have to do with——
It has to do with the fact we have an inefficient processing sector.
Will Deputy Creed speak through the Chair, not to Deputy Aylward?
The Chairman should protect me if I am consistently being interrupted.
The Deputy should speak through the Chair. I ask Deputy Aylward to allow Deputy Creed to continue. Unfortunately, this has turned into a European Parliament election campaign which is sad for the dairy industry and farmers but that is the way some people want to go. The Deputy should continue.
I am making serious points about the industry in Ireland. I made the point that in the reform of the CAP, the policy framework was there and that it was delivered in the negotiations. Deputy Aylward may not want to catch the bouquet when it is flying but it was delivered by the Minister.
The Deputy should speak through the Chair.
The market support measures were retained. The Commissioner is not implementing them in a fashion which is a delivering a tangible return for farmers. We are still getting a price that is less than the cost of production and that is verified by Teagasc figures, which state that the costs of production are in the region of 26 cent a litre. Many farmers are getting less than the average price in their own co-operative areas.
Mr. Moran stated that the medium-term prospects for global dairy markets are good. Earlier this year there was talk of an upturn at the back end of 2009. Has that optimism evaporated at this stage? How can the Department now deliver through the market support measures, which reflect the political intent, a price to Irish farmers that at least meets the costs of production?
Who was a party to the historical negotiations that brought about a scenario which would see the abolition of quotas in 2015? Who were the ultimate deciders of that? Ultimately, was it a decision of the Council of Ministers or of Commissioner Fischer Boel? If it was a decision of the Council of Ministers, was the Minister for Agriculture, Fisheries and Food a party to that negotiation?
We are being told that the capital investment is in the order of €286 million at full production. May I have a breakdown of that figure and how that is disbursed throughout the industry? Is it disbursed primarily into the co-operative movement or to primary producers?
I am trying to get a sense of where we will be post-2015. The current scenario does not augur well because global market prices have collapsed and farmers are producing at below cost. It seems that in a post-2015 scenario with the abolition of quotas one will be left very much to the vagaries of the market. If the global market at that point is in a poor state, I fear there will be a massive reduction in the production from smaller producers here because they will not enjoy the economies of scale to compete at global market prices. I am trying to get a sense of where the debate is now, because Commissioner Fischer Boel will not be in that position in 2015 and there may be a new regime here at that stage as well. The question remaining on every farmer's lips is, will he be able to produce milk competitively and will he derive an income at that time. I suspect there will be a massive reduction in milk production from smaller producers who will not be able to compete. There will be a pyramid where there will be a smaller number of larger producers. I am trying to get a sense of whether that is the ultimate aim or whether that is a policy provision of Commissioner Fischer Boel, the Commission, or the Council of Ministers.
I refer to the issue of commodification of agriculture. A large part of the morass in which we find ourselves is caused by how milk-derived products have been used as commodities on global markets. I wonder whether there is a view emerging that, for want of a better expression, decoupling commodities from the production process would stabilise markets and allow farmers to retain a foothold in the market. I do not have a firm view on it, but I want to know how the commodities market has affected the prices of milk or milk derived products. It is important to factor that into the process.
I understand a cumulative increase of 9.2% in quota leading up to 2014 is being sold as an assistance to farmers. If ours is a grass-based system and if there is a view emerging within the Green movement that there should be taxation on carbon, or potentially on methane, I wonder how that will affect grass-based agriculture in future and whether it will mitigate the income effects on farmers in 2014. I wonder what kind of economic modelling has been put into effect for the post-2015 period because analysis is hard to come by at present. I fear that large farmers will survive the 2015 scenario but small producers will have to sell-up to a larger producer, and that is something that needs to be analysed.
We had a banking crisis and we now have a farming crisis. There is no secret about that. The dairy industry is the basis of Munster agriculture and I have never seen farmers so despondent. I have seen farmers in tears who cannot meet their commitments where their April milk cheque would not pay their April bills. This is the reality of life.
We can look at all agriculture commodities and what has happened in the EU. We have lost our sugar beet industry, sheep are under threat, beef have suffered from Brazilian imports, the Pacific and South Atlantic countries will destroy Irish agriculture if we do not take some action, and milk is now under threat. There is over reliance on commodity-based agriculture. There is little or no added value, despite all of the investment outlined here today. We have taken the commodity-based route. We hear so much of New Zealand and Fonterra, but I would hate to see the likes of Fonterra in Ireland.
Deputy Creed, with whom I do not want to disagree because he has a good knowledge of agriculture, spoke of Milk Ireland. Milk Ireland will do nothing for dairy farmers. If there is rationalisation of the industry, we will see the likes of Glanbia, Kerry Group and the larger co-operatives shedding their milk into Milk Ireland and holding on to their commodity, ingredient and added-value products. That will mean a lower price for milk because they built their industries out of milk. What I want to see is the strengthening of the Irish Dairy Board in the marketing area. It can do the business. It has done a good job historically.
Our dairy herd will go the way of the pig industry in 1974 and 1975. I know a great deal about the pig industry. The first of those years, after Ireland joined the European Economic Community, was horrendous in the pig industry. The industry just collapsed and we lost 400, 500 or 600 producers across the country.
The dairy industry is on the fast-track to oblivion. I meet farmers who are going to dispose of their herds. I differ with Deputy Sherlock. It is the larger herds that are under attack at present because the farmers cannot manage the costs of them. At the tail end of this year our beef industry will be in a crisis, not because of imports but because of the massive slaughter of the dairy herd. Action must be taken.
We do not have the climate that we are being told we have. Fellows stand up on platforms and deliver big speeches. I refer not to officials of the Department of Agriculture, Fisheries and Food but farmer representatives who tell us about what has happened in another part of the world. We cannot compete. I have travelled to these countries, and the Secretary General, Mr. Moran, was with me. We saw what is happening there. We are not at the races as far as those countries are concerned and we should stop being the big fellow. Far away cows have long horns, but we do not have those long-horned cows.
There is a crisis here of a magnitude we have never seen. It is not a matter of politics. Unemployment in Munster is totally dependent on the dairy and food industries. There is only one chocolate factory left in the county. There were two. I do not know what happened to the second. The highest price in the country is paid by the co-op which sells milk to the Cadbury factory in Rathmore. That is an added value product.
What has happened with regard to Irish cheeses. Before we joined the EEC many people were involved in producing some extremely sophisticated cheeses. What has happened to these people? I blame Enterprise Ireland in this regard because it does not have a clue about the food industry. It is merely concerned with jobs and importing food from other parts of the world to create those jobs. There are many issues that arise which are not being addressed.
Rural areas of Munster drive the dairy industry. I am asking that action be taken. There must be a special arrangement for Irish farmers within the European Union because otherwise there will be massive unemployment. The people who live in the areas and market towns to which I refer do not have jobs. These individuals are involved in manufacturing dairy products. There is an issue that is not being addressed. We must ensure that it is not forgotten.
Investment is necessary but, unfortunately, it is being made too late. Deputy Creed referred to the previous investment in the dairy industry. I do not accept that it was badly handled from a political point of view. However, I accept that the money involved was badly spent. It is difficult to identify the areas on which the funding involved was spent.
Reference has been made to bringing new entrants into farming. Will we ask these people to sit examinations or be interviewed? For God's sake, we must be realistic. There is no point in interviewing them because they have no business being involved in the dairy industry. Some 5 million or 6 million tonnes of milk are produced in this country each year. New Zealand produces approximately 15 million tonnes. We are not at the races in terms of competing in the market. There has been some discussion with regard to the Chinese market. I am sick and tired of attending meetings and listening to this kind of rubbish from farmers. I could name a few of them who have completely misled the country in general and the farming community in particular. I expressed strong views to the effect that the increase in milk quotas would not work and I have been proven right.
I take this opportunity to appeal for something to be done for dairy farmers. The family farms of Ireland are under real threat. Farmers with 40 or 50 cows are going hungry and are not able to put bread on the table. They cannot make repayments, educate their children or afford to live.
Deputy Creed referred to Libertas. I am delighted——
I referred to the liberal group, not Libertas.
I stand corrected. Fianna Fáil has joined the liberal group.
Has Mr. Brian Crowley, MEP, joined it?
We will run our party and Deputy Creed should look after the members of his party.
Members should not mention the names of those not present. Deputy Ned O'Keeffe should be allowed to continue.
The liberal group represents the way forward for Ireland and the Fianna Fáil Party in Europe. Mr. T. J. Maher aligned himself to the liberal group some 15 or 20 years ago.
It is sad that we cannot discuss this issue without bringing politics into it.
Mr. Maher, a former leader of the IFA, was a member of that group 15 long years ago. He brought much success and many benefits to Ireland as a result of his efforts as part of that group. Fianna Fáil's membership of the Liberal Group will lead to there being a much broader base and will prove to be of assistance to this country.
Three other members are offering. Does Mr. Moran wish to reply to the points that have already been raised or does he wish those members to put forward their points as well?
Mr. Tom Moran
If the other members wish to make their contributions, that is fine.
I welcome the officials from the Department. We are discussing the current difficulties in the dairy sector and the collapse in milk prices. I am disappointed by the attitude of Opposition members and, in particular, Deputy Creed who has tried to use this platform to make political gains. The committee always works as a unit and our goal today is to try to remedy the collapse in milk prices. It is not acceptable that anyone should use this committee's proceedings as a way to make political gains. Let us leave the politics outside and instead do what we, as an all-party committee, are supposed to do, namely, try to assist the dairy sector. Fianna Fáil will, regardless of its membership of the liberal group, maintain its commitment to the Common Agricultural Policy and farmers.
As previous speakers indicated, the price of milk now stands at 19 cent or 20 cent per litre. Everyone, including the officials who are present, is aware that such a price is not viable for farmers. To make a profit or break even, the minimum price a very efficient farmer wants would be 23 cent or 25 cent per litre. The dairy sector will have no future unless something is done to ensure that the price increases. I accept that there is a worldwide recession and it this is affecting the price of milk and other products that are being exported. However, we must attempt to find a means by which the price of milk might be increased.
I understand that some form of increase will be forthcoming in the autumn. However, as Deputy Ned O'Keeffe stated, some farmers are not able to put bread on the table because they are not making any money. These people cannot pay the co-ops to which they send their milk. We need to take rapid action — whether at national or EU level — to support farmers. If something is not done, they will not remain in farming for much longer. There were some good years — particularly 2007 — for dairy farmers. Unfortunately, however, the position has changed. As a result, we need to change the entire regime.
Reference has not yet been made to multiples such as Tesco. These companies are creaming off too many of the profits from Irish products. Something must be done about it. I do not know whether the Department or the Office of the Director of Consumer Affairs should take action. One can read every day about what Tesco is doing. Its behaviour cannot be allowed to continue. We need to introduce restrictions in respect of these multiples to stop them creaming off the profits. Such restrictions must be introduced as quickly as possible
The situation is serious. Do our guests have any suggestions with regard to how we might support farmers? I agree with the abolition of the quota system. Young farmers do not need quotas. As the EU Commissioner pointed out, there has been a reduction in the level of milk production since milk quotas were increased. The quotas are not the problem, it is the market price. I hope the market will have settled down by 2015. Representatives of Macra na Feirme have informed me that they welcome the abolition of quota systems because this will allow young farmers to have a future in the dairy industry. Will our guests suggest how we might support farmers until the price of milk rises again?
It is clear that the dairy industry is in crisis. However, it is also clear that the support system for farmers and producers is not working. Any support system worthy of the name should at least cover the cost of production. This is particularly true of the system that relates to farming, which is an industry in which people experience good and bad times. Farmers are extremely efficient with regard to the way they produce milk. I come from a farming background and I do not see how they could be any more efficient. A serious challenge exists in this regard. As already stated, our support system is not working. Farmers should not need to produce milk at below cost. A proper support system would ensure this would not happen.
From speaking to farmers on a regular basis, I understand that while they would love to be able to produce milk solely from cows fed on grass, they have been obliged to feed them huge amounts of meal to keep them in good shape and capable of producing milk in any kind of quantity. This will continue to be the case. It is not over yet. We thought we would have improved weather last week, but it did not happen. Farmers are still feeding their cows and must pay for huge amounts of meal. While it is all very well to say we can feed them on grass — a cheap way of production — it is not realistic to think we can produce solely from grass. I would like answers on the issue of support. Does the Secretary General think the support system has been working well and that it is doing sufficient to ensure farmers do not end up producing milk below cost?
I welcome Mr. Moran and his officials. They are here to update us on the current state of the dairy sector. If that is the case, I cannot understand why we are talking about 2012 and 2015. We will not have a dairy sector then. We need to get back to talking about this year — 2009 — because of the huge number of dairy farmers that will leave the industry this year. I see a parallel between the governance of the country and the governance of the dairy sector. Last year the Taoiseach told us the fundamentals were fine and recently said he has seen green shoots. Mr. Moran has mentioned the current difficulties but says we must look to the future of 2012 and 2015. We must get a grip on the situation now. The farmers will not be there by the end of 2009.
I will give Mr. Moran an illustration. When I was in my local pub recently a dairy farmer came in beside me. I said to him that I had not seen him for a while and he said to me: "Tom, a pint of that costs me five gallons of milk." A pint of Guinness costs the equivalent of producing five gallons of milk to a farmer. Mr. Moran spoke about support structures and Deputy O'Sullivan asked if they were sufficient or effective. They are not. Farmers are milking cows morning and evening at a loss. Farmers have come to me with their concerns. I am not playing politics on this. These farmers are genuine people I would back 100%, but they have told me they will not be able to pay their income tax at the end of the year. They paid income tax when they were getting 39 cent a litre for milk last year, but they will not be able to pay it this year.
We must stop looking for these green shoots, because they are not there. We must deal with the present. What will Mr. Moran and the Department do in 2009 to keep dairy farmers and families in dairying?
Correct me if I am wrong, but only 8% of the world's dairy produce is traded internationally. The industry needs market stability. There is no point in having a bumper year in 2007 and then crashing down to where we are now. Over the medium and long term, it seems that a speculative decision taken on the futures market in Chicago has more of an impact than what is happening on the ground. What about the short term? Mr. Moran mentioned that the market support system has only a limited effect. Is it not the role of the Department, both here and at EU level, to consider a better system of market support?
The system that comes to mind is the one used in America — a price insurance scheme. If we had that, then in 2007 people would have paid a premium insurance — at cost plus a percentage — so that when there was a trigger and the world milk price dropped, they would be guaranteed their price. Over a long period, that scheme, like any insurance scheme, would be cost neutral or better. Is it not time to revisit the idea of such a scheme? The EU market support schemes we have in place are ineffective and always have been. All they have led to is either scarcity or surplus — milk lakes and butter mountains. These have earned us nothing, only a bad reputation. Would it not be better to have a system of market supports that reflected the good and bad but which guaranteed price stability for the future?
Mr. Moran or any of his colleagues may now respond.
Mr. Tom Moran
I thank the members for their comments. I am very aware that nobody in the Department would suggest things were good in the dairy sector. We are more conscious than most that the 20 cent a litre price poses serious difficulties for dairy farmers. Dairy farmers in Ireland and Europe are the backbone of full-time family farming, because of the labour intensive nature of their work. Therefore, opportunities for diversification and off-farm employment, even if available, are not open to dairy farmers. When the dairy sector hits a patch like this, it is a serious situation. We are very aware of that. At the same time, even if there is a problem, we cannot disregard the future. We must try to cater for both the present and the future. We must play the cards we are dealt, internationally as well.
Deputy Doyle mentioned the figure of 8% for world trade in the dairy sector. The figure I have is just over 6%, but the Deputy is right on the general issue. It is only a small quantity of milk that is traded in the world, but because of that the market can tip either way, with either good or bad results. Therefore, the situation can change relatively quickly. A major contribution to the significant peak in 2007 was the drought in the southern hemisphere, when production in New Zealand and Australia was down 5%. When this was combined with increased demand, the result was volatility in the market. Also, the reform of the CAP, which moved, broadly speaking, from a system of market support to decoupled direct support, brought fundamental change. This change has taken place in the dairy sector too, although not to the same extent as in other sectors. It has always been a key Irish requirement that during such transition, and beyond, we need support systems to try to deal with this volatility.
I do not suggest, and would not, that the supports currently in place are lifting the price for milk to beyond the cost of production so that farmers can have a reasonable return. However, it is clear that a fall has been arrested, although that may not be much good for a farmer getting only 20 cent a litre or worse. The New Zealand price for milk in earlier auctions has been way below that. Therefore, the market supports that are in place have at least had the effect of stopping the fall.
Many speakers touched on the point of what happens after the supports end, both in the long and short terms. Looking at the short term first, when we reach the quantitative limits in intervention or when we reach the end of APS — the private storage scheme — we cannot allow a situation where the market suddenly tips again. Product that goes into intervention must come out some time. Product that goes into APS must also be sold out. Therefore, the Commissioner's response this week of opening the door, in response to the pressure to keep those schemes beyond August and European peak production, will be useful and will help.
I will now deal with some of the specific points raised. I ask the committee to excuse me if I do not pick them up. They are in no particular order.
The point was made about the legal basis for the quota and the reason we are looking forward to a period in 2015. Agenda 2000 extended the EU quotas until 2008. The mid-term review later on in 2003 extended that beyond 2008 to 2015. There is no proposal for quotas to be reinstated or to be continued beyond 2015 and there is no legal basis. If the quotas were to continue beyond that date, it would take a Commission to propose them and it would take a qualified majority vote around the Council of Ministers' table. The prospect of either is very slim so the Department has worked on the basis of quotas ending as stated in 2015. If this is taken as given, then the situation must be managed between now and 2015. Serious analysis is being undertaken by the Department and by Teagasc and FAPRI-Ireland Partnership. One could decide to do nothing until then and fall off a precipice at the end of the quota period but this would not be good for Ireland. The analysis has been that we would be best served by having a soft landing when that period is reached and that is the logic of our decision to go for a gradual increase in quotas. This has been the thinking as part of the health checks. That is the situation on the future of the quotas.
In the period to the end of quotas, the Department has also tried to ensure that the way the quotas are handled in Ireland best allows the dairy sector to realise its potential. This is the reason we took the brakes off partnerships, allow flexibility and put a more market-orientated milk quota trading scheme in place so that not just younger people but also people who are committed for the long term can have access to quota. It will allow those who rightly want to get out of milk — because they may have been long enough at it and have built up a certain value — to trade that quota into the market. That quota trading scheme has worked extremely well. It has provided for a good volume of milk to go from the people who want to get out and realise a value from it and for those who want to come in. We are working on the basis that the quota system will end in 2015 and we are doing things in the meantime to try to ensure that we are ready for that because it would be foolhardy not to do so.
As far as the investment fund is concerned, I do not accept that it is a failed endeavour; on the contrary. Its purpose is to make the processing sector more efficient, to give it the wherewithal to invest in value-added products and to set itself up so that it too will be ready. If the processing sector does not have the right products or efficiencies or is not properly ready, we will be in serious trouble.
There has been merging of co-operatives in Europe and rapid growth in some of the major processors in the northern part of Europe, such as in Sweden, Denmark and the Netherlands. We have to make sure our sector is properly equipped to make the necessary investments. This was the purpose of that investment scheme. It was vastly over-subscribed and there was what was quite an uplifting interest on the part of co-ops in putting money into the system and developing their capacities. The Department provided the money from its Vote and asked Enterprise Ireland to run the scheme and the assessment of projects. Enterprise Ireland has advised and has been aided and abetted by the Department and by outside expertise. There was a rigorous process. The figures for the amount of investment so far are very important. To date, €30 million has been paid out. This year the capital spend will be €50 million to be completed in the coming months. Significant investment is taking place on the processing side. That has to be done and not to do so would be foolhardy. Ireland will have a future in dairy products. That goes without saying.
How much of that is research and development?
Mr. Tom Moran
That is all capital investment, not research and development.
The Deputy may ask supplementary questions later.
Mr. Tom Moran
I cannot remember the exact figure for the number of co-ops that applied but it was quite dramatic. I do not think——
Is that not part of the problem? We need more co-operation and not empire-building by all these co-ops.
Mr. Tom Moran
I was coming to that point.
Please allow Mr. Moran to continue. I will allow members to ask supplementary questions later and in order.
Mr. Tom Moran
There was a total of 19 different investment projects. I take the point made by Deputy Creed about the number of co-ops and that there is need for consolidation. The decision of a co-op or a processor to merge or to share is a commercial matter for the board of the individual entity. It is not a matter for the Department or anyone outside. There has been a serious amount of shared operation throughout the dairy sector already. This will continue where there are facilities that can be shared and proper use made of shared butter manufacturing in one plant and perhaps shared drying facilities in another. The model is in Carberry, for example, where three small co-ops came together to form Carberry Milk——
There are cows at the back of the factory whose milk is not going in there at all.
Please allow the Secretary General to continue without interruption.
Mr. Tom Moran
The idea that somebody could have simply banged ahead and ordered them to merge is not the way it works. This will happen by commercial decision by the dairy industry and it has been happening over the years, as we have all seen. When I was in the milk section of the Department we used to refer to the big six co-ops, all of whom had about 100 million gallons and we have seen how that has evolved. There is evolution taking place in the dairy sector and significant investment is taking place. There is a great deal of forward thinking at processing level in terms of product development and so on.
Commodities were mentioned and it was nicely put as being the "commodification" of agriculture and global markets. Given the seasonal nature of milk in Ireland and the way in which the dairy sector is set up — it is grass-based — and because of the size of our market, small and all as it is, we will always have a certain amount of product which can be stored and exported. These are not all commodity products as such in the denigratory sense of the term. The industry has high-value ingredients which are not commodities as such. The success of the Kerry Group was built on one on the high-end ingredients of milk, on casein, which went largely to the United States as a food ingredient. There are various levels of whey powders and whey concentrates and various grades of milk powder. I would not say that they are all ingredients but we will always have a certain amount of large-scale products, given the nature of the size of the market and the seasonal nature of our milk. This leaves us open to a certain extent to the kind of product fluctuations that are seen on the world market and one cannot argue with that point. However, the opposite is that when milk prices rocketed in 2007, the effect hit Ireland first. The ascent in prices came to Ireland long before it came to other countries such as France where a significant amount of milk goes into fresh products and into a very sophisticated retail market. As one of the members of the committee has pointed out, the impact of retail sector entities on the link between milk processing and the final consumer needs to be considered. This issue was raised specifically and formally by Poland at last Monday's meeting of the Agriculture and Fisheries Council. A number of other member states, including Ireland, spoke strongly on the matter in the broad context of milk prices. The Commissioner spoke at length in response to the points made about the margins being taken from the food sector by the dominant retail entities. The meeting was told that the Commission was actively considering the matter and would follow it up. The Department is pleased that this issue, the effects of which are being felt throughout the European Union, has been raised at such a high level. The price of milk is particularly affected by the dominance of the retail sector. Everyone involved in the Irish milk industry is aware of what has happened to the UK milk industry. Traditionally, a huge proportion of UK milk went into the fresh drinking, or liquid, milk trade. That milk was in the hands of the dominant retail sector. That business has suffered in the United Kingdom. Much of the milk in question, in terms of transfers, is being produced in the North and being delivered for processing in the South, particularly in some of the Northern co-ops. It is a complex web. I take the well made point about the role of the multiple retail sector within the milk trade.
If I have not responded to any of the points made, it is regretted. It is obvious that we have taken strong note of all the points made and will reflect on them in a serious manner. I can take any other questions members may have.
I will allow members to ask a few supplementary questions.
My question about the 9% increase in quotas up to 2014 has not been answered. If carbon-based taxes are introduced at EU or Irish level, will they be offset against income that may be earned by the increase in methane and grass-based production? I suggest this theoretical question needs to be addressed.
Mr. Tom Moran
I have found the notes I took when earlier questions were being asked. I apologise for not answering the Deputy's excellent question before now. It was on the top of my list and I am delighted to answer it now.
The Deputy referred to the knock-on effects of climate change on the agriculture industry, which is an issue we are watching closely. We are giving high priority to the impact of climate change on livestock, particularly in the milk and meat sectors. All of the reports and analyses done recognise that, as things stand, Ireland has the potential to be a major milk producer. Deputy O'Keeffe has mentioned that New Zealand produces 15 million tonnes of milk each year, whereas Ireland produces just 5.5 million tonnes. We could be producing more milk.
The price must be right, however.
Mr. Tom Moran
I accept that. We have the potential to produce more milk competitively. Certain issues such the effect of our actions on climate change will arise if we try to do this. It would have implications for the number of livestock that Ireland, as a country, can carry. It is obvious that beef production would also be affected in such circumstances. I take the point that the price would be expected to be at a level that would provide a reasonable return to producers. I am conscious that it is dangerous to talk about the medium and long term at a time when dairy producers are suffering as a consequence of low prices. Those of us who are responsible for considering future policy have to bear in mind that all international analysts, including those working for the UN Food and Agriculture Organisation and the Organisation for Economic Co-Operation and Development, envisage that global milk consumption will grow in line with increases in wealth, if that ever increases again, and population. The prognosis is that milk prices will increase as we go along. That is not the solution to today's problem, however.
What will happen this year?
Mr. Tom Moran
That is a very dangerous question.
Has Mr. Moran answered all of the questions asked of him?
Mr. Tom Moran
I think so.
I will take a few supplementary questions.
I would like to ask a few questions. Do the officials from the Department agree that the national herd will decrease by half this year, as a result of the crisis in the industry? Farmers are ringing to tell me that the current price of milk in Germany and Holland is 15 cent a litre. I have not made that up. Milk producers in Argentina can make money if the price is as low as the equivalent of 9 cent a litre. This is the market we are in. Farmers need support if they are to stay in business. It is laughable to suggest it is worthwhile to sell or transfer quotas, as the relevant price is 4% less. We must be realistic and admit that the crisis in the industry is not being addressed. The officials should go back to Brussels to explain the Irish situation. I do not agree that we will expand, as the weather has not been good enough. Farmers are still feeding nuts, meal, barley and oats to their cattle. As politicians, we are living in the real world. We are getting it in the neck from our constituents. EU policy has changed because Germany and France want to sell their cars and other industrial goods in South America and New Zealand and we are paying the price.
I seek clarification, for my own information, of what Deputy O'Keeffe said. Is he suggesting milk is being produced competitively in Argentina for 9 cent a litre?
Producers in Argentina are helped by that country's climate and the availability of cheap feed.
They do not have to meet certain standards, for example, those relating to the use of hormones.
I am glad that the retail issue is being discussed and addressed at a high level. I had intended to raise it earlier in the meeting. I would like to focus on a specific question. I have asked Mr. Moran whether he is satisfied that the system in place to support the country's dairy industry serves the purpose for which it is intended. I emphasised that farmers should not be asked to produce milk below cost. I would like him to respond to my concerns.
Mr. Moran used the phrase "soft landing" in his presentation. Farmers are getting 20 cent a litre for milk. Is that what he would describe as a soft landing? Reference has been made to quotas in the context of what will happen in 2012 and 2015, but what does the Department of Agriculture, Fisheries and Food intend to do to support the dairy sector in 2009? I agree with Deputy O'Keeffe that there will be a dramatic reduction in the size of the Irish herd and that many farm families will leave the dairy sector. I cannot accept highfaluting references to increases in the country's milk output if the price being achieved for that milk is 20 cent a litre.
While I agree with Mr. Moran that the country's dairy sector has a future, I suggest it will not be much of a future if farmers are getting just 20 cent a litre. Some system needs to be put in place. Farmers in other countries might be able to produce milk for between 15 cent and 20 cent a litre, but that is not realistically possible in this country as a consequence of the impact of regulations and the cost of feed and other inputs. Dairy farmers need to get 25 cent a litre just to break even. If they do not reach that point, there is no use in talking about the future because there will be no future. Efforts need to be made, nationally or at EU level, to keep the price paid to farmers for milk above the cost of producing it, which is approximately 25 cent a litre. That is why I am looking for price support and having a support system in place to ensure the price of milk does not go below the cost of producing it. That would keep dairy farmers in place. If we do not have that, we have nothing. We are talking against the wind. It is worth nothing and is blowing away.
In a dairy supplement in the Irish Independent yesterday there was a reference to a panel which will examine new entrants to dairy farming. There will be a new three-man specialist panel to interview new young farmers coming into the system. Is this more red tape intended to stop new, young entrants or indeed any age group who wish to begin farming? What is it about? They must now go before a panel to be judged acceptable for the dairy sector. This does not make good reading. I would like to hear the delegates’ views on that.
I shall take up a comment Mr. Moran made about the dairy investment fund. He referred to the west Cork co-ops and the plant just outside Ballineen, which is in my constituency. He said he did not consider it the Department's role to bring co-ops together and tell them to rationalise for more efficiency, that this was something the industry had to do itself. I take an entirely different view. That fund was the carrot that should have been used to say, "Come together, rationalise and we will grant-aid your new production facilities". One could not have picked a better example of a case where heads should have been banged together because, as one looks out the back window of that plant, one is literally looking at cows in a field. The milk is collected there and taken to Macroom, Mallow or the cheese plant in east Cork but the cows are within a hundred yards of that cheese plant. That is an example where banging heads together might have worked to produce a carrot for the dairy investment fund.
If that is still the view of the Department, I would be more concerned about the meat and sheep investment fund announcement made recently. If taxpayers' money is being applied, there must be strategic objectives. That case of Ballineen is an excellent success story for the four west Cork co-ops but there should have been a fifth co-op. There should not have been coercion but the plant should have been encouraged to be part of that process rather than having farmers bearing the cost of transporting milk around the county to other processing plants. That is the problem. If taxpayers' money is being used that thinking should inform the policies which decide who gets grant aid.
I apologise for coming in late. I represent a county where dairy farming used to be important. "Used" is the correct word. Good dairy herds are being sold every day now because people are in desperation. They cannot meet their bills, can see no future and are simply disposing of their dairy herds. The Chairman knows that only the other day another herd was sold in Carnaross in my own county. That is what is happening. These are not old people and they had intended to be in dairying for generations. It is extremely urgent that we get something done about this situation at European level. It is absolutely imperative that something should be done.
I refer to the issue raised by Deputy Creed. Concerning the dairy fund, there was an opportunity to take action in the industry and that opportunity was not utilised. This is not like what Deputy Creed said about the need to bang heads together. North of a line from Galway to Dublin, the entire industry was in favour of having a joint venture at a plant in Lough Egish. That would have been an ideal situation for that area, even for milk from Northern Ireland. However, that issue was ignored at the time. That was a major failing and should be looked at again before that plant is wound down. We must look for alternative ways of using our milk. We can go into a supermarket and see water, a product that is sucked up out of the ground and put into a container, used as a major promotion while milk is given the ridiculously low price of €1.06 for two litres to encourage people into the shop. This is ridiculous and young farmers and the industry are being put out of business.
Mr. Tom Moran
I thank the Chairman. I have a couple of points to make specifically to Deputy O'Sullivan. He asked whether farmers should be asked to produce below cost. Clearly the answer is "No". Ultimately, the price of milk is a commercial matter and a function of what a processor can achieve in the market, given a combination of its product mix, its efficiencies, its marketing outlets and its route to market. The EU Common Agricultural Policy has a number of supports in place which act as a safety net beneath that. Therefore, nobody is suggesting that even intervention price equivalent on milk, for example, is sufficient. Our view would be strongly much the same as the Deputy's on milk prices. I would not even stop at 25 cents a litre but would be in favour of the full return from the market being considerably above that price in order to give a reasonable return on the capital and on labour on the farm.
There is no question of our being satisfied. As to what the Department is doing to try to ensure the current crisis is addressed, we have led the charge throughout the health check and in recent Councils to make sure the Commission not only uses the supports it has on its books but that it changes and amends them. We were heartened this week by the Commissioner's undertaking to push intervention beyond the end date and use it to the maximum. We have taken a very strong view on export refunds. Our view is that export refund is a very useful offensive tool on the part of the EU to place product on the world market.
If they were not there what would be the price of milk at present?
Mr. Tom Moran
If the supports were not there the chances are the price of milk would be considerably lower, at or below the worst of the New Zealand price. That is a key point. We advocated that refunds be used offensively and aggressively and that certain markets be targeted and fully used. There is ongoing pressure on the Commission to ensure this. We have been trying to build alliances and have succeeded with a number of countries, right across the 27 member states, to make sure they buy into the same way of thinking. Believe it or not, ten different countries gave support after the Minister spoke at the Council when we led the charge about milk. I am not saying the outcome in terms of milk price at farm level is brilliant but that price would have been considerably lower in the absence of the structures that were there.
Deputy Sheahan——
On that point, any support system, if it is so termed, must ensure we do not go below the cost of production. That is what I was trying to get across. The support system is not working. It may be there but is not working and the proof of it is that farmers are now producing milk below cost.
Mr. Tom Moran
I understand the point being made. It must be said that in the context of Agenda 2000 and the mid-term review the move away from market support to direct payments, etc., involved looking at the way intervention prices were applied at EU level. They might have been set at safety net level rather than at a level to attract in product, as happened in the mid 1980s when there was almost 1 million tonnes of skimmed milk powder in store.
The first thing to do in a crisis is stop the fall, to at least prevent a further dip. We do not say the measures put in place are sufficient. We continue to put pressure on the Commission to use the supports to head off the milk price in a different area. As one approaches the end of the New Zealand season, which is where we are now, the product is gone off the market because of the cycle that country is in. We will simply have to see how the autumn develops.
I have answered Deputy Sheahan's point about what we are doing in 2009. Responsible people must continue to look ahead, even individual farmers, while considering the existing crisis. I have outlined that we are trying to ensure that the supports available are used to the full, that they are used imaginatively, aggressively and where there is the possibility of changing and adapting them that it would be pushed out in terms of dates. Supports that are not being used currently, which are on the books and are available, should be brought in as appropriate. We have allied ourselves with several other countries on that point.
Is there any way the price of milk could drop further?
Mr. Tom Moran
The price of milk paid by processors to producers is a commercial matter between them.
Is the answer "Yes" or "No"?
Mr. Tom Moran
I am not a processor. The Department does not buy milk. That is a commercial matter between the processor and the supplier.
Supply and demand.
Mr. Tom Moran
That is the case and there are many actions that processors take vis-à-vis their marketing strategy, the products they make and the areas into which they sell. As the Chairman knows, a huge bulk of our hard cheese is sold in the United Kingdom.
That is why the retail——
Mr. Tom Moran
We are talking retail but also sterling. We know the issue there. It is not a matter for the Department, as it does not set the price of milk. It would not be appropriate for me to comment on prices paid by private entities or co-operatives to individuals.
One last point, lest I be accused of deliberately leaving out Deputy Aylward's question on new entrants, what is going on there is that 25% of the first 1% of the new quota quantity that is being applied in Ireland is being given to new entrants, with the full agreement of the farming organisations. The mechanism being put in place is to ensure that young farmers who will make full use of it get their hands on quota. It is no more and no less than that. I assure Deputy Aylward we do not intend to have much red tape. If he identifies red tape, we will be the first to get the scissors.
I read in the newspapers about the supplement.
Mr. Tom Moran
l accept that.
What does Mr. Moran envisage the Commissioner doing on the multiples and the retail sector? What can we do to force their hands to stop them taking an unfair share of the product we produce? They are so big they can dictate the price and increase their own profits. Can we do anything about them so that the producer, the processor and consumers can gain rather than the multiples?
Mr. Tom Moran
That comes specifically within the area of competition. It is ultimately a matter for the Competition Authority and the regulatory authorities. As to what can be done, the Commissioner made the point this week that transparency within a market is hugely important, so that people know precisely what is being passed on and what is not.
We know what they are taking but we cannot stop them.
Mr. Tom Moran
I do the shopping, so I know the price of milk in shops as well as on farms. In an idle moment in a supermarket I do my own calculations. I am well aware of what is going on, as is the Department and the Minister. He has met retailers and has been impressing on them the importance of the agriculture and food sector in Ireland. It has huge economic importance in Ireland, more so than in many other countries. It is vitally important in rural areas because that is where the employment is based. It is not a sector that can be taken for granted. Its contribution to exports makes it stand out from other sectors. The importance of the food sector to the economy and Irish life is something that should not be underestimated. Even in a weak time like this we will need to make sure it is nurtured and developed and realises its full potential.
On behalf of the joint committee, I thank the Secretary General and his officials for attending today's meeting.