JOINT COMMITTEE ON AGRICULTURE, FISHERIES AND FOOD díospóireacht -
Wednesday, 10 Mar 2010

Cattle Grid Payment System: Discussion with Meat Industry Interests.

Chairman

On behalf of the committee, I welcome Mr. Cormac Healy, director of Meat Industry Ireland, and invite him to make his presentation on the new cattle grid payment system. Mr. Ciarán Fitzgerald sends his apologies for being unable to attend due to illness. We are also joined by the following representatives from Bord Bia: Mr. Gerard Brickley, director of meat; Mr. Michael Murphy, director of markets; and Mr. Joe Burke, sector manager of beef and livestock.

I draw witnesses' attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to witnesses appearing before it. 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 House or an official by name or in such a way as to make him or her identifiable.

Mr. Cormac Healy

I thank the Chairman and members of the committee for their invitation to discuss the new quality standard for the beef sector introduced last December.

The development and introduction of the new quality standard for finished cattle is an essential step in underpinning the future sustainability and viability of the Irish beef sector. It represents a major advance in rewarding beef producers for quality cattle which meet marketplace requirements.

It has long been recommended that the industry should introduce better rewards for quality output from the national suckler herd and improve the market signals to beef producers. The new quality standard addresses these issues by increasing the quality differentials and setting out clearly the criteria demanded by the marketplace to give producers direction on the type of cattle and carcases required by customers for Irish beef. The need for such a standard has been recommended by every report on the beef sector.

The new standard is underpinned by the automated carcase classification technology and the quality differentials are based on independent scientific findings of Teagasc on meat yield. In addition to the carcase classification quality differentials, the new regime also introduces a premium for animals that are from quality assured farms and are under 30 months at slaughter. This assurance for the consumer that Irish beef is produced on farms certified under the Bord Bia quality assurance scheme is an essential element in marketing beef.

Before looking at the new quality standard in detail, I will set out the background to its introduction and review some of the changes in the sector and the marketplace that have given rise to the need for this standard as well as making it possible. The Irish beef processing industry has made major strides in transforming itself from a frozen commodity business based on EU intervention and export refunds to a fresh meat business serving high-end retail and food service markets throughout Europe. Over the past decade, the industry has totally rebalanced the Irish beef export profile from one which saw more than 50% of exports destined for third country markets to a position last year where less than 0.5% of exports went outside the Community. Beef exports are now destined for 70 of the top retail chains throughout the UK and continental EU. These customers set a demanding array of product specifications that must be satisfied if business is to be retained. It should be highlighted that this increased penetration of EU retail outlets coincided with a significant improvement in cattle prices to producers. Between 2003 and 2008, cattle prices paid by Irish processors rose by almost 40%.

While the industry purchases whole carcases from farmers, it also sells a wide range of individual beef cuts to the marketplace. Meat yield and yield of saleable cuts are the key determinant of the inherent value of a carcase. The new quality differentials, based on meat yield research work by Teagasc, are an attempt to better connect the purchase of carcases with the sale of individual beef cuts to consumers. The EU direct payment system that operated for many years, whereby animals received the same premium payments irrespective of their quality, significantly diluted the impact of market signalling. We now have a fully automated carcase classification technology for grading carcases. This provides objective and consistent evaluation of the carcase grade.

The grading machines have been successfully operating throughout the industry for more than five years and were introduced following extensive trials and a rigorous approval process under strict EU guidelines. Following the successful introduction of automated grading, which was facilitated by Government grant aid, the departmental graders were withdrawn from meat plants. The carcase classification process remains under the control and supervision of the Department of Agriculture, Fisheries and Food. Concerns have been expressed regarding the maintenance of our national suckler herd and in this regard, the need for a quality payment system that better rewards the quality output from suckling enterprises. For all these reasons, the introduction of the new quality standard is essential.

I now refer to some of the significant studies and reports conducted on the Irish beef industry, and in particular, the recommendations they make in the area of quality determination and quality payment systems for cattle. The report of the beef taskforce, which was published in June 1999, stated:

It is accepted that, in spite of the availability of a substantial suckler cow herd, there has been a general deterioration in the quality of cattle within the Irish beef sector in recent years and it is incumbent on all involved within the industry to reverse this trend. It is also accepted that the most equitable and most effective way of achieving this is to introduce a "payment on quality" system at slaughter plants which would be based on the existing EU carcase classification scheme. Notwithstanding the fact that most cattle are now being bought on a graded basis, it is nevertheless accepted that a more effective payment on quality system for steers is needed in order to ensure that market signals are transmitted to producers and that they are, in turn, adequately rewarded for quality production.

The second report to which I will refer is the AgriVision 2015 report, which states: "beef processing plants [should] strengthen and refine quality related pricing systems to encourage production of high quality carcases, which meet consumer preferences". In the progress report published in 2007, in response to this measure, it was stated:

[The Department of Agriculture, Fisheries and Food] has requested the meat industry to print the classification outcome on the 15-point scale (rather than the 5 point scale) and to reward and encourage breeders by paying for quality. To date a number of meat plants (5 out of 25 using mechanical grading) are providing the full information.

Finally, a more recent report, the beef forum report of December 2008, stated: "Processors and farming bodies should enter into negotiations with a view to introducing a pricing system, based on a clearly defined quality specification grid, that rewards farmers in line with the market demands, for quality carcase".

The most recent of the reports I referred to above is that of the beef forum, which was established by the Minister for Agriculture, Fisheries and Food in 2008. Teagasc presented to the forum its findings on the relationship of beef carcase classification grades with meat yield and carcase value. The details of this independent scientific work were presented to all stakeholders participating in the beef forum, and it was proposed to the forum that this work should form the basis of a new quality standard for finished cattle. It was also a key recommendation of Teagasc that the industry would move to the use of a more refined 15-point carcase classification scale.

I would now like to set out some of the details of the new quality standard. In essence, there are three elements to the new standard. The first relates to carcase classification. I remind the committee that carcase classification is an EU regulatory requirement first introduced by Council Regulation 1208/1981, which sets out the Community scale for the classification of carcases of adult bovine animals. This sets out a common quality standard for carcases throughout the EU. Carcase quality is established based on the conformation, or shape, of the carcase and fat cover. The conformation is designated as E, U, R, O or P — E representing the best and P the poorest — and fat cover is designated as 1, 2, 3, 4, or 5, with 1 being light fat cover and 5 being heavy fat cover.

The new quality standard recently introduced in Ireland involves a refinement of quality determination for carcases. As per the recommendation of Teagasc and in response to the demands of the Department and farm organisations, the industry has moved to the use of the 15-point scale for carcase classification. Each conformation and fat score is now sub-divided into three sub-classes; for example, R-grade animals are now divided into R+, R= and R-, while fat score can be 4+, 4= or 4-. The grading machines have always been capable of this level of refinement in carcase classification. The move to the 15-point scale gives more precise information to producers on the quality of their cattle. It also means that incremental improvement in carcase quality is made more achievable.

The second element of the new quality standard is the widening of quality differentials across the quality spectrum. Under the new quality standard, the differential between a U3 grade and a O3 grade has been increased from 20 cent per kg to 48 cent per kg. The quality differentials are based on Teagasc scientific findings which showed that the value change between each conformation or fat score sub-class is 6 cent per kg. In terms of carcase conformation, the new system has improved the bonuses for better quality animals while at the same time not overly penalising the lower grade animals. In terms of fat cover, the new system discourages under-finished and over-fat cattle. Excessive fat cover is particularly inefficient for both producers and processors. It costs the farmer money to put it on the animal and it costs the processor to remove it in the boning hall.

The new quality standard has also introduced an incentive scheme to encourage and reward producers that supply cattle meeting a number of key marketplace criteria, including quality assured status, age at slaughter and certain movement and residency conditions. It is hoped that this will improve the supply of in-spec cattle and improve the overall marketability of Irish beef. Central to this is the supply of quality assured cattle, underpinned by the Bord Bia beef quality assurance scheme, which is a prerequisite entry condition for dealing with many retail customers in the EU.

There are a number of important points to be made about the new quality standard. The use of the 15-point carcase classification scale, as determined by the automated grading machines, means that producers have a more accurate picture of the quality of their cattle and also means that improvements in quality and therefore in overall value are more achievable. It has been estimated that an improvement in our overall national kill by just one conformation sub-class will be worth approximately €23 million to farmers. Further gains will also accrue from avoiding the supply of under-finished or over-fat cattle, in terms of the value of the animal but also in terms of the farmers' input costs, particularly feed. Securing the additional bonus for in-spec cattle is the producer's own control. Producers can and should be part of the Bord Bia Quality Assurance scheme. Also, the age at which animals are slaughtered is at the discretion of the producer.

The new system greatly improves the level of market signal to producers; it creates an incentive for improving the market suitability of cattle and rewards effort at farm level. It is also important to point out that in the immediate aftermath of the introduction of the new quality standard, when concerns were raised regarding penalties on over-fat cattle, a number of interim changes were made. These interim changes on over-fat 4= and 4+ cattle were introduced to allow producers who already had cattle in the finishing process to market them without being penalised due to excessive fat cover.

The introduction of the new quality standard has understandably received a lot of attention in the agriculture media and a considerable reaction from producers. This is a significant change in the Irish beef sector, but one that MII and many others believe is essential for the future development of our sector. While we fully understand that there will always be apprehension about change and that there are those who do not favour the new system, it is important that the debate is based on facts and that the new quality standard is given the necessary time and opportunity to gain acceptance. In this regard, it is important that the understandable dissatisfaction among producers at the current poor beef price is not wrongly channelled into negativity about the new quality standard. These are two separate issues and must be dealt with as such.

In the year to date, finished cattle prices are down approximately 5% to 8% compared to the first two months of last year. The current weak price is due to ongoing difficult trading conditions in the marketplace. The difficult market conditions that have prevailed in the beef sector over the past 12 months are a reflection of the sustained devaluation in sterling and the impact of the global recession on consumer spending power. Throughout 2009 we witnessed a further weakening of sterling by approximately 12% and an intensification of the impact of the recession on consumer spending and, in turn, beef demand, which was evident in retail sales trends but even more so in the food service market segment. It should be noted that despite the combination of these twin forces, Irish beef processors still managed to deliver a price to producers in 2009 that was just 9% down on the record levels of 2008. The price in 2009 remained above 2006 and 2007 levels.

The simple fact remains that when market conditions permit, Irish beef processors have and will deliver on price to their producer suppliers. The evidence for this is the record prices paid in 2008 and the consistent improvement in cattle prices from 2003 to 2008, which delivered an improvement of almost 40%.

The new quality standard, which has been in place for just three months, represents a positive step forward for the entire beef sector and puts our sector on a better footing for the future. It has greatly improved market signalling to producers and is creating an incentive for the production of cattle that are more suited to the demands of the marketplace and the needs of customers and consumers of Irish beef.

Mr. Gerard Brickley

I thank the Chairman and committee members for the invitation to discuss the exports of live cattle to Britain and their processing in that market. I am joined this morning by my colleagues, Michael Murphy, director of markets, and Joe Burke, sector manager for beef and livestock. With the Chairman's agreement, I wish to focus my statement on three principal areas. I will begin with a brief review of Ireland's livestock and beef sector, then I will refer to the role of Bord Bia in supporting this industry and finally I will address the current issues relating to Irish live exports to Britain.

The Irish livestock and beef sector plays a key role in this economy, with more than 100,000 farms involved in cattle production. Along with primary producers, there are more than 7,000 people employed in Irish beef processing, with a similar number employed in other related businesses. From a supply base of more than 1 million beef cows and 1 million dairy cows, the industry produces more than 500,000 tonnes of beef annually, of which 85% is exported. As a result, Ireland is the largest net exporter of beef in the northern hemisphere and the fourth largest beef exporter in the world. The industry brought in €1.4 billion in export earnings last year.

The profile of Irish beef exports has been transformed over the past decade. As recently as 2000, more than 50% of Ireland's annual beef exports were traded on volatile international markets. However, in the past ten years, Irish beef exporters have been almost exclusively focusing on the higher value consumer markets of the United Kingdom and continental Europe, to which some 99% is now exported. Today, Irish beef is listed with more than 70 high-end retail chains throughout EU markets, which is a higher number than for beef of any other national origin.

Last year, in line with the worldwide economic downturn there was a slowdown in the demand for beef throughout the majority of EU countries. As a result of reduced consumer spending, there was a pronounced move towards less expensive cuts, such as mince and stewing, which had an adverse effect on the demand for steak cuts in particular. Retail sales data suggests that overall beef sales in a number of key markets fell by approximately 4% last year. Beef sales were even more depressed at food service level. The economic downturn, combined with a cumulative 30% depreciation in sterling, has had a major impact on market returns for Irish beef last year, with volume falling by 4% and prices by 9%. Markets remain under pressure as we speak but a tightening supply and more stable demand in Europe offers the prospect of some improvement as the year progresses.

Along with the some 1.6 million finished cattle which are sold to Irish meat companies for processing, Ireland also exports a significant number of live cattle each year. Live exports increased by 94% in 2009 to more than 286,000 head with an overall value in excess of €157 million. The live trade consists of two main components; exports to the continental EU area, which are comprised for the most part of calves to the Netherlands and Belgium and weanlings to Italy and Spain, and the export of forward stores and finished cattle to the UK. This market recorded the greatest increase in 2009, rising by 159%. Almost 80,000 cattle were sent to Northern Ireland and 10,000 to Britain, an increase from 33,000 and 2,000 respectively for the previous year. One of the key reasons for the increase in live exports to the UK was the widening in the differential between prices paid by processors for finished cattle in Ireland compared to Northern Ireland and Britain. The average price paid for standard grade cattle in Northern Ireland was 3.5% higher last year than in the South, compared to only a 1% difference the previous year. Similarly, the differential between the prices paid in Ireland and Britain increased from 3.5% to 10% last year. As a result of higher beef prices, store cattle also achieved higher prices in UK than in Ireland and this made Irish stores or feeding animals more attractive to finishers in that market.

The role of Bord Bia is to promote and develop markets and to drive the success of Irish food and horticulture industry through a range of strategic market development, promotion and information initiatives. We are the eyes, ears and voice of the industry in the international marketplace. We have a staff compliment of some 100 people and operate from nine international locations in addition to operating out of Dublin. Reflecting the pattern and potential for our food exports, six of our offices are located within the EU while our other international locations include New York, Moscow and Shanghai. Our overseas presence enables us provide specialist support to the industry we serve by developing strong relationships with a wide network of buyers and ensuring that we have the most accurate and up-to-date market knowledge.

In the beef sector, Bord Bia is working in partnership with the entire industry and since we are partly funded by levies from the sector, part of our role is to advance a marketing strategy for Irish beef based upon the principles of differentiation and repositioning. 2010 marks the third year of this approach. Irish beef is now listed with more than 70 supermarket groups, as I have already mentioned, and Bord Bia is working actively with these and other customers to develop opportunities to add value to Irish exports. The objective of this strategy is to achieve the best possible returns for beef producers by targeting higher value channels for a greater proportion of our output. Bord Bia is dedicated to building business with existing customers, along with gaining new listings for Irish product.

Similarly, Bord Bia supports the export of Irish livestock by providing up-to-date market information to the live exporters in the form of weekly livestock reports and bi-monthly updates from each of the major markets, as well as regular communication with market offices. In addition, Bord Bia's market offices promote contact with new customers, organise promotional events for Irish livestock, arrange inward buyer visits, attend livestock trade fairs and forecasting meetings, commission market research and organise credit rating and language interpretation services as appropriate on behalf of the sector.

With regard to Irish exports of live cattle to Britain, Bord Bia has been in close discussion with the Irish exporters involved, UK retailers and processing plants, as well as with our counterparts responsible for quality assurance and promotion in the UK. In discussions with five of the major retailers in the UK, the subject of stocking beef from Irish-born animals which had been finished and slaughtered in Britain was raised. The response in each case was that they would be reluctant to change from their current supply arrangement, that is, either British beef, from cattle born, reared and slaughtered in UK, or Irish beef, from cattle born, reared and slaughtered in Ireland. The supermarkets deemed that, because of EU labelling constraints and the public debate on mislabelling in Britain, such a change could be potentially confusing or misleading to their consumers.

By way of background and clarification on this issue, EU law states in the case of beef that the national origin of the product must be identified to consumers. The law specifies that each stage of the production process must be identified. This includes specifically where the animal was born, where it was reared and where it was slaughtered. Only in the event that all these stages occur in the same country can the word "origin" replace "born, reared, and slaughtered". In the UK as in Ireland, the practice engaged in by retailers is that almost exclusively products are born, reared and slaughtered in only one country and, therefore, in practice at point of sale they use the straight forward wording, "Origin: Ireland" or "Origin: UK".

In Britain, the large scale factories processing beef for the multiple retail sector account for approximately 70% of the annual cattle throughput there. This contrasts to the Irish situation in which more than 95% of the cattle are slaughtered by the major slaughter houses. The remaining 30% of cattle in Britain are slaughtered in small or medium sized abattoirs which are mainly supplying beef to retail butchers, food service and manufacturing channels. Bord Bia has been in contact with a large number of these small and medium sized British abattoirs. When questioned on their willingness to purchase Irish-born animals, the majority responded positively and stated that they would be willing to buy these cattle. With regard to the price payable, in most cases the smaller abattoirs tend to return a price which is, typically, 5p per kg to 10p per kg below the price paid by the larger processing plants. Specifications such as farm quality assurance and age restrictions are not as strict in these smaller plants. While many of those surveyed had not yet encountered Irish-born cattle coming from their suppliers, the vast majority stated that they would pay an equivalent price for these animals as for their domestic supplies. In the case of the small number who had already been slaughtering Irish-born cattle, they claimed to have paid the same price for these animals as for British-born animals. On subsequent checking with Irish suppliers this was verified to be the case.

Bord Bia is an organisation dedicated to assisting and securing business for Irish exporters. In beef and livestock, as in the other food sectors, we are working on a strategy of repositioning and differentiating Irish beef and livestock to optimise market returns. We continue to work closely with our key stakeholders, including, farmers, meat processors, live exporters and our parent department, the Department of Agriculture, Fisheries and Food, to add value to this important sector of the economy.

I thank the Chairman and the members of the committee for affording us the opportunity to address it this morning. My colleagues and I are happy to address any questions the Chairman and the committee may wish to ask.

Chairman

Thank you. There is a vote in the Dáil so we will have to suspend the meeting. I ask spokespersons to return to the meeting as soon as possible.

Sitting suspended at 12.10 p.m. and resumed at 12.20 p.m.

Deputy Eamon Scanlon

I thank the witnesses for their presentations. I requested that this issue would be brought to the attention of the committee. I wish to make a few observations on what was said. First, I am conscious of the benefits of the beef industry to this country in terms of exports and jobs created. I come from the north west where most of the farmers produce store cattle. There is an opportunity for these people to sell cattle live to English farmers. Unfortunately there is an issue in regard to these cattle when fed into beef in England. It appears there is a problem with labelling. Surely there must be some way of dealing with the issue. I know a number of farmers in England, one in particular to whom I spoke last week who feeds 1,000 cattle, who has no difficulty selling his lighter cattle — heifer beef — to the smaller abattoirs. When it comes to the bigger abattoirs there is a problem. He has to accept 10p sterling less per kilo for the cattle he is producing. He wants to buy Irish cattle because he is of the opinion they are better and there is a cost in transporting them from Ireland to England. Even allowing for that, he can still make more money by buying Irish stores to feed than buying English cattle. A number of his neighbours who feed between 500 and 1,000 feedlots will buy Irish store cattle. This particular individual buys most of his cattle in Elphin, County Roscommon, and in the surrounding area. He is so frustrated that he has sought and received planning permission to build his own abattoir on his own land because of the difficulty he has experienced in trying to get cattle slaughtered in England.

I understand Mr. Healy has his own agenda and that he operates for the meat plants here. I respect and understand the job he does. While prices were good in 2008, since then farmers here are producing cattle at a loss. That is the reality. I was in the meat business in the 1980s. At that time we paid £1.20 per lb old money for heifers. Today, if people are lucky they get the equivalent of €1 per lb for heifers. There should be competition in the marketplace. At present, there are approximately five people buying beef cattle. In fairness to the farmers who are struggling and trying to produce good cattle, I respect the new grid system and I hope it will be used in the way it was intended to increase payments to farmers rather than reduce payments because at this stage they cannot take any more. They are at their wits' end trying to survive, whether they rear the stores and feed them or buy them and feed them into beef. I believe this trade should be supported.

When an animal is born in Ireland and fed in England, there is a question of labelling but there must be some way of dealing with this issue. We all joined the EU in 1973 when I thought there was a Common Market. People who want to sell their store cattle to farmers in England should be allowed do so. The farmers who buy those cattle, if we are in a real Common Market, should be treated the same as English farmers when they go to sell their stock. It is not that the quality of the English beef is any better; it is not. In fact, it is worse. That is the reason people come here to buy Irish store cattle to feed them on further into beef. I can invite farmers to appear before this committee who explain to the meat industry the reason they buy them. It is not that they love us but that the cattle are good feeding cattle that carry weight and which will gain, unlike the English cattle. I believe that pitch should be levelled in some way, but whose responsibility it is I do not know.

I am disappointed that officials from the Department of Agriculture, Fisheries and Food are not present. They were listed to be present but said they would not attend because it was not their——

Chairman

We were told they have no function in this particular issue.

Deputy Eamon Scanlon

It is an agricultural issue and a very serious one and I am disappointed they are not present.

Chairman

Certainly we can write to them again outlining that the committee wants them back.

Deputy Eamon Scanlon

I would like to know whose responsibility it is to sort out this problem and when something will be done about it.

Chairman

I fully agree with the Deputy. We have all had complaints but Deputy Scanlon was the first to raise this particular issue. It probably affects the Deputy's part of the country more than my part. I was led to believe there were two factories slaughtering Irish cattle and giving the equivalent price in Britain. Whoever controls the offal refused to take it from those two factories and they had to stop slaughtering the cattle in the two particular factories in Britain. It is supposed to be an Irishman who has control over the disposal of offal in Britain and is the sole operator of this business. I do not know if any other member heard that but I have been so informed by a few people. If an Irishman has full control of the disposal of offal, it is outrageous that he refused to take it from two particular factories slaughtering Irish cattle in Britain.

Deputy Martin Ferris

There are a few issues I wish to raise. I thank the witnesses for their presentations which were very informative in regard to the grids and the grading of cattle for consumption. If there is a weakness, it is that there is not a full understanding of the benefits of the type of cattle to which people should be moving towards. I am talking about the small producer of perhaps 20 to 25 cattle on whom many are dependent. For those finishing cattle, there is a mistaken belief that getting as much weight as possible on finished cattle could be detrimental to the grading of them afterwards. They are too fat and there is a cost to put that on. That issue must be understood and people must be educated in that regard.

The majority of calves other than sucklers come from dairy herds. There is a tendency within the dairy herds, which I can understand for rotation purposes, especially in a Friesian cow herd, to try to get Friesian heifer calves for replacements. Many of those calves are coming on the market. We are lucky at present as the bull calves are going out of the country and those that are not are being kept on for yearlings and to be finished afterwards. They do well, as do Limousins and other types of types of cattle that are better for that. Another issue that must be got out to suckler herds is the type of calves that suckler herds are put in calf to are beneficial to the beef market.

What I find disturbing in the presentation is the number of live cattle, 286,000, that went out of the country last year. They are going out as forward stores or finished cattle. The point has been made by the two previous Deputies that when that is happening, it is as a result of a cartel and the price structure here. That is hugely detrimental to developing what can be a lucrative market for those finishing cattle. I am aware the farming organisations are putting pressure on the meat factories to get the best possible prices. Unfortunately, in this island, there are two Governments because of partition. Last year 80,000 forward store cattle and finished cattle were sent to Northern Ireland. In an ideal world we would have a single economy and a single market. Something must be done about it.

Mr. Healy mentioned also that some of what is happening in the industry is owing to the effect of the decline in the value of sterling, the volume, the price reduction of 9% and that a lot of mince and stewing beef is being bought because of the recession and so forth. All these factors have become more prevalent as a result.

In general, I would support the grading principles now in operation. There were always allegations in the past about it being a question of one knowing who was doing the grading in the factory. That aspect has been taken out of it because it is being done mechanically now and it is available for people who want to taste it and so forth.

I have no doubt there is room for improvement in this area. There is also a question, in terms of people on the lower grades, of the differential between the price of meat and the price that could be attained, but it is all down to producing the right type of produce. We must encourage farmers to produce the right produce. How do we intend to get that message out across the entire producers' community?

Deputy Christy O’Sullivan

I welcome two important players in the beef industry, but along with my colleague I would have liked to see some officials from the Department attend as well. We are facing a serious position. I do not want to engage in scaremongering but if something is not changed shortly, I can envisage a wipeout of our beef industry. I say that because of the number of our suckler cow herds that are being slaughtered currently. I think it was Mr. Brickley who said that we have 1 million suckler cows in the country. I would question that figure. Mr. Brickley might inform me whether they are up-to-date figures because from what I see throughout the country, and I have been involved in farming for some time and am in touch with farmers throughout the country, the number of suckler cow herds being slaughtered is frightening.

The other issue is the Friesian bull calves being exported and the huge trade to the North of Ireland. They are factors that will have a major impact on our beef processing industry in a few years' time, if not sooner. In light of my comment about exports, what does Mr. Healy believe will be the throughput of beef cattle in our factories, in terms of numbers, two years from now?

If we consider the loss of the factory jobs and the people involved, whether it is the marts, contractors, transport companies, veterinarians, feedstuffs or medicines, it will have a major impact in terms of jobs on our industry here. Time is running out on us and it is something we will have to address rapidly if we are to turn it around because we are in a position now where if measures are not taken immediately, we are in danger of losing it and if we lose it, it will be very difficult to get it back on stream again.

As I said at a meeting of this committee last week, I do not have a problem with the new grading system. It is something we will have to accept because it can be a fair system but my problem with it is that the base price is too low. The cattle being produced from the dairy herds, whether they breed them through Angus, Hereford or whatever, will not obtain anywhere near the top scale, and that is a major problem. Some of the people present might be able to enlighten me on how we will address it.

I could go on but I am aware other speakers want to contribute on this issue. With the Chairman's permission, I may make some points later. This is a serious position for our industry and we either recognise and acknowledge the importance of the industry or forget about it because that is what will happen.

Deputy Michael Creed

I welcome the delegation from Bord Bia and the Irish meat industry. I was in County Meath last night at a meeting with farmers. I was in Clare last week. I have also met many people in my own constituency in Cork and opinion is divided on this issue. In County Meath last night farmers were raging against it. It is water under the bridge at this stage but the mistake made was that the quality payment system, the new grid, was not in operation along with the old one for a period of, say, two years. I know the flip side to that is that if people saw one in operation alongside the other, they would have said they did not want it, but it would have given the industry an opportunity to tailor its feeding and breeding programme in a way that could allow it respond to the requirements of the market as dictated by the grid. In principle I support a quality payments system but that is the weakness.

The other issue Mr. Healy must address is the fact that farmers have a jaundiced view of meat processors. He knows that as well as I do, be that true or false. They are not convinced that this is a revenue neutral issue and believe a stroke is being pulled by the beef industry at the expense of farmers. In particular, farmers finishing cattle that are the progeny of the dairy industry — Friesian bullocks — believe they are being screwed by the system. I would like to know whether the industry will facilitate an independent audit of the current system as a confidence building measure to allow farmers adjudicate further on the matter.

I have also met farmers who are closely aligned to the IFA, who are feeling vulnerable on the issue and have defended it to the hilt. I support the principle of it but the weakness is that it should have been introduced side by side with the old system for a period that would have allowed the industry tailor its response in terms of a feeding and breeding programme.

The beef industry is at a critical crossroads, and reference was made to the drop in suckler cow numbers. The most recent audit showed a 10% reduction in suckler cow numbers, which is a clear sign of farmers voting with their feet by getting out of the industry. That is the conveyor belt system and if it continues, we will have a position similar to that in the sheep industry. The reason there is now a bounce for the sheep sector is because breeding stock has fallen dramatically and demand is fuelling an increase in prices. However, we do not want that to happen in the beef sector because the carnage, so to speak, in the countryside will be immeasurably more than what occurred in the sheep sector. We talk about the numbers directly employed in the industry both inside and outside the farm gate. There is a real danger in that regard.

The other issue that arises is the meat industry entering into contractual arrangements, be they formal or informal, or an understanding with the industry about the possibility of forward buying and guaranteed prices for finished cattle because the best quality weanlings are being exported. If one goes to Ennis mart or any mart in the west, one will be told that is what is happening. A buyer told him he pays €1,500 for 350 kg Belgian Blue cattle and he exports them to Italy and makes money on that trade. All our quality weanlings will be exported and we will be left with an element of the market, much of which will be exported to the UK where there is a tolerance for more fat on meat than in continental markets.

This presents a challenge for Bord Bia and I would like to know its position on this development. Some 54% of our beef exports go to the UK, which is excessive. We should be targeting the premium for the high quality carcase on the continental markets. I am not saying we should have an exit strategy from the UK market, but the level of our beef exports to that market is excessive. Is that a view Bord Bia shares? How do we get to a point where we wean off our dependence on the UK market, if that is an objective to which Bord Bia ascribes, and shift our production patterns to meet a higher specification of carcass quality for the EU market at a time when the best quality cattle are being exported live as weanlings to the Italian market in particular, it being the one with which I am most familiar. That is a real challenge.

I spoke to farmers in County Meath about this and I could hear the desperation in their voices. These are farmers who have raised cattle all their lives. Factory agents are reluctant and nervous about the new system. They will not give a quote or a grading for the purchase of cattle in the farm yard. Farmers who prided themselves on their knowledge of finished cattle feel cheated by the system when they get their dockets back. There is a crisis in this respect.

If the meat industry wants to stop the haemorrhage of raw material and wants to have a quality product in a number of years, it will need to guarantee farmers a margin and a return, perhaps a cradle to grave contract such that a farmer would supply the industry with 100 head of quality cattle and the industry would guarantee that farmer a price and enter into a contract for that guaranteed price now for the delivery of cattle in two years time. That is the kind of certainty for which the industry is clamouring and in the absence of which we will continue to export the best cattle and be left with the poorer grades. That is a real issue and there is a problem as to how to address it.

Why was bull beef not included in the grading system? In the south and south west where the dairy industry is prevalent there are possibly two options for Friesian bull calves, one is export, which is critical and reference was made to the level of exports, which is important, and the other option is the production of bull beef. Why was bull beef not included in the grading system? That is an issue about which many people are concerned. Reference was made to age of animals and whether one can produce bull beef at 16 months or 24 months. It is not included in the grading system, even if this is a way possibly to secure a better price for the progeny of our dairy herd.

There are some of my questions and observations. It is a crisis time for the beef industry. Live exports are an important part of the industry. If Bord Bia wants to have a quality product, it will have to address that issue by giving greater incentives to farmers. If that means farmers changing their production patterns, changing breeds, putting in place better management, a role for the Teagasc adviser in this respect etc., that should all have been part of the package rather than this change having been foisted on farmers as a consequence of which they feel desperately cheated and that they are being forced out of business.

Deputy Seán Sherlock

How many companies does Meat Industry Ireland represent? My second question, if it is not too pertinent, is how this new quality standard and grading system has affected the profit margins of the meat industry since it has been introduced. Has there been a significant increase in profits accruing to the meat industry as a result of the implementation of this relatively new grading system? I ask that question because I know one farmer in particular who is getting less of a return since the introduction of this system. There are legitimate questions about this new system.

I apologise for not being here for Deputy Eamon Scanlon's intervention. I know he has a particular expertise in live cattle exports. Therefore, if I repeat questions that have already been asked, I apologise. A monopoly pertains in terms of live cattle exports. If one wants to export live cattle, one has to go through a one or two processors. The trade seems to be controlled by a very small number of operators, one in particular who shall remain nameless. How does that position affect the price that accrues to the primary producer? Is it possible to unlock that monopolistic position to allow for the same level of efficiency in terms of the slaughtering process and for access to markets through the work of Bord Bia? When there is a greater degree of competition in the slaughtering process it is important to ensure that the primary producer can shop around in terms of that market. I would like to hear the views of Bord Bia and Meat Industry Ireland on those points.

Deputy P. J. Sheehan

I welcome the delegation. I have reservations about a number of items discussed. Farmers are baffled enough without having the camouflage of the conditions applying to the classification, E, U, R, O or P imposed on them. I know from having spoken to farmers throughout my constituency that the trust between the farming community and the meat factories is at a very low ebb. To what extent does such grading apply to the meat that appears on our supermarket shelves? I am a firm believer that competition is the live of trade in any walk of life. Meat factories have offered ridiculously low cuts in value for the cattle delivered to them. Prime cattle of a very good quality beef strain have failed to achieve these famous cuts. This classification applies to the shape of the carcase and fat cover. Mr. Healy said that the conformation of the carcase quality is designated with E representing the best quality and P representing the poorest quality. By the time the yardstick is measured, the farmers who produce the cattle will be at a loss to know if they are getting the right grade for their cattle and if they can trust the factories to that extent. The day that the live cattle export would be banned would be a sad day for the farming community. I hope that will never happen.

I noted from one of the papers I had before I left to vote in the Dáil, which I cannot locate now, that small abattoirs in Great Britain are anxious to cultivate a proper trade with the Irish beef farmer. This is an avenue that should be explored to the fullest extent. Beef product claimed to be produced and sourced here is being sold in our supermarkets but some of it was not produced here. There is no guarantee that it is Irish beef. How do we know that beef from Argentina or Brazil is not being smuggled in here and mixed up with our own product?

Farmers are getting very disillusioned. The current weak price is due to ongoing difficult trading conditions in the market place, according to Mr. Healy. Deputy Creed has outlined the great market price available for Friesian bulls in Ireland that are exported to Italy. That will further develop with time, as farmers do not have confidence in the returns they are getting from the factory.

Deputy Andrew Doyle

I welcome the representatives here today. We were at a presentation last week given by McDonalds, at which the company highlighted its importance to the Irish economy, in providing jobs and as a customer for Irish beef. About 8% of all our beef is sold to McDonalds and one in five burgers eaten in Europe is a McDonalds burger. The potential is there to turn that into two out of five if we are already on the right track. Is An Bord Bia trying to cultivate that market even further?

The point was made in the presentation that exports have risen because the premium has increased from 3.5% to 10%, with a follow on from stores. The delegates also stated that there is reluctance to slaughter animals. What happens to these animals and how are they attaining a premium if there is reluctance to slaughter them?

I understood that if the words "origin Ireland" or "origin UK" are on beef, the producer still has to list where the animal was born, reared and processed. I figured this out just from visiting different supermarkets. We wish that amount of labelling was extended to all types of meat, and not just beef. There is huge dependence on the British market. With the sterling devaluation, has there been any intervention been with the EU to help put product into the British market? The sterling devaluation is having a major impact on exports from processing plants here.

The high end weanlings that leave this country are bulls and heifers, and bull beef goes to Spain and Italy in particular. Is there an opportunity to include them in the grading system? Is there an opportunity to work with producers to rear animals on the same diet as those in Italy and Spain, with a view to processing them here and competing in that market? I am not sure if the Italians feel the same way about the origin. If they are reared in Ireland, then surely they can be reared to the same level of quality and standard as they are reared in Italy? We have to start by including bull beef in the grading system.

The point has been made about an independent audit of the system to see if it is having an impact. If we to try to improve the quality of animals going through our processing plants, then we have to work with the advisory service, the genetic people and the farmers to get our product improved.

Beef is a secondary product of the dairy industry. Have any efforts been made to encourage dual dairy and beef breeds of animal in the dairy herd?

Senator John Carty

I welcome the deputation here today. If the live export was not doing well, there would be nobody farming beef in the west of Ireland.

Chairman

It is the same everywhere.

Senator John Carty

Mr. Healy stated that when market conditions permit, Irish beef processors deliver on price to the producer-suppliers. He states that prices improved by 40% between 2003 and 2008. Cattle prices were higher 20 years ago than they are now. That is a fact and the same is true for lamb prices. I sold lambs in 1984 for £65. They are not making anything like that today. I sent beef heifers to the factory a few weeks ago. They got big money, but they did not leave one shilling. The taxman will certainly get nothing from farming operations this year. I thank God I do not have big numbers, but I pity the people who depend on the production and sale of beef. They cannot survive on the returns they are getting.

I have been told that the suckler herd is way down and that a great number of cows have been killed. If that is the case, there will be a shortage of beef and the meat processors will not have raw material to work with. These are the facts and I would like to hear Mr. Healy's comments on them. The proposed grading system may be good, but the farming community is not happy with it.

Deputy Tom Sheahan

I congratulate Mr. Healy on getting this new grading system through for MII, because they are the sole beneficiaries from it. Unlike my colleagues, who welcomed this grading system, I have met farmers and agents who are very sceptical of it. While the IFA was involved in the negotiations, I think the organisation is very sceptical as well. It was based on the EUROP principle. We had a presentation here last week which did not refer to grade E. As Deputy Creed pointed out, that was because all our grade E cattle are being exported and are getting more than €4 per kilo in European markets. One must ask the question, when live exports were up by 100,000 head last year and calves born were down by 50,000 head, why is the price of beef where it is? Can Bord Bia explain to me or to farmers why the price of beef is where it is? As Senator Carty stated, more was being achieved for first stock then there is today. Simply put, there is a cartel in the meat industry.

For Senator Carty's information, factories have at least a month's supply of stock in sheds. They are not dependent on the farmers; they are using the farmers. I was at an IFA meeting recently where it was suggested that stock should be withheld to improve price, but the man sitting at the top table informed the farmers they would have to hold stock back for a month because the factories had enough stock in sheds around the country and would not need it from farmers for a month.

As has been stated in the presentation, 95% of all animals in this country are killed in the large factories. Why is that so? That has been Government assisted. This year millions of euro in grant aid was given out only to export plants. The small abattoir got no look-in.

Deputy P. J. Sheehan

It got nothing.

Deputy Tom Sheahan

The small abattoir got no look-in to improve facilities or productivity. I know this from a personal point of view. Government policy has driven it this way, and we have said so here. Both Deputy Scanlon and I tried to push forward this policy whereby small abattoirs would be given grant aid from Government, but that has not happened. All the money has been given to the export plants and it is virtually impossible to achieve an export licence now.

Labelling has been raised by some of my colleagues in the context of Irish beef in Britain. When I was standing behind the counter, we nearly had to name the animal. We had the herd number, the number of the animal, the name of the farmer and the number of the abattoir in which the cow was killed, yet there is Irish beef in Britain and no one knows where it comes from.

When were the representatives of Bord Bia last in Smithfield market? I say this because Scottish beef is taking over. Ireland may be exporting much of its beef but we are still losing market share because Scottish beef is taking a big chunk of the market in Smithfield, of which I can speak specifically. Scottish beef is making big inroads into the supply to Smithfield market.

Deputy P. J. Sheehan

The Aberdeen Angus.

Deputy Tom Sheahan

I will leave it at that for now.

Chairman

I invite the witnesses to reply.

Mr. Cormac Healy

A considerable part of the discussion was directed towards Meat Industry Ireland. I am not sure how best to proceed. I will try to go through the issues as they arose, starting with Deputy Scanlon who spoke of where prices stand at present. Clearly, the industry recognises there is severe difficulty in the farm sector at present on beef prices. It is not in our interest that beef prices are low. It is not in our interest, as companies that are investing in the future of the beef sector, both in facilities and in jobs, that the raw material supply base will walk out from under us, either in the form of live exports or in a decrease in production. I am not at this meeting to speak about restricting live exports. It is an open market and what happens on live exports will happen. As the Deputy stated, I work for the interests of the meat and processing industry, and I want to see the industry continue in this country.

I was asked what the industry is doing about it. Part of the reaction is to try to introduce a better quality standard that rewards quality, effort at farm level and the investment producers have made in breeding. That is part of the process, but I recognise there is a long way to go.

In looking at the overall price situation at present, it is a reflection of what has been happening over the past 12 to 18 months in terms of sterling. For that matter, it is not just about sterling. The movement of the euro is constantly spoken about in reference to sterling, but we are also exporting to Sweden and countries in eastern Europe where currencies equally have gone in the same direction against the euro as sterling, and that has had an impact.

The overwhelming issue that has faced the industry, not only in Ireland but across Europe, is the impact of the recession on consumption or retail spending power, which has seen the competition with cheaper meats such as pigmeat or poultry meat intensify, but also even within beef where we have seen a move down the value chain. As I have described, that is not a structural issue or problem in the beef sector or consumers turning away from beef. It is a factor of a recession and of consumer spending power that one hopes will recover as economies come out of recession and, it is to be hoped, drive demand for higher quality steak cuts that will allow prices to start to rise again.

Senator Carty mentioned the price rise to which I referred. I am referring to the published figures from 2003 to 2008 which saw a continuous climb in prices paid to producers, to the tune of 40% in that period, to a peak. In 2008, the price was at a record level. Certainly there were not the same issues or tensions that have been referred to between producers and processors when there was a good return to the producer, but that was delivered by the processing industry. My point remains that if the marketplace is delivering, the price is paid. Otherwise, that kind of price rise would not have taken place. It coincided with a movement of our exports into European markets as opposed to international markets and third country markets and greater penetration of higher profile customers and retail outlets. That came about through work, certainly by Bord Bia but also by the processing sector in Ireland in finding these markets.

I apologise if I am jumping from one matter to another. Deputy Ferris spoke about the understanding of the new quality standard and raised several related questions. Deputy Sheehan also spoke of the E-U-R-O-P. First, the E-U-R-O-P grading system has been with us for many years and more years than I am involved in this sector. The regulation at European level came about in 1981. Producers are familiar with the E-U-R-O-P. What has happened is that there has been a further refinement of that. For example, an R grade is sub-divided into three. The reason for that is to give a clearer picture because a producer may be at R grade plus and just about to move into the U grade, but if he is just told he is at R grade, he could be at R grade minus, and he would not know the quantum of change he may need to make or exactly where he stands. That was one of the points made by Teagasc in its work in this area.

In terms of the understanding, even from September last, processors started to issue on the payment sheets to producers the 15 point scale to show the graded results in that format, but there is more work to be done. I am aware that there has been a series of meetings, jointly with Teagasc, of farm organisations but also with meat industry involvement.

Deputy Martin Ferris

In that regard, when producers are attaching that to the information leaflet, are they doing it for all breeds of cattle? The reason I say that is that one would probably get a far better grading for a Belgium blue, Limousin, etc., than one would for a Holstein, Friesian, etc. When people go to the factory, they should come back with a list of the consistent grades achieved by the different breeds of cattle.

Mr. Cormac Healy

If a producer brings 20 cattle of mixed breeds to a plant, he will obtain a printout on which will be shown the tag numbers of those animals and the grades achieved. The printout will not indicate the breeds involved but the producer will know which tag numbers refer to cattle of, for example, the Belgian blue or Limousin varieties. The breakdown with regard to breeds is not necessarily recorded at that point.

As already stated, a round of meetings is ongoing. Substantial numbers of producers have attended these meetings, which are aimed at explaining the detail relating to the quality payment system and what is involved in the context of fat and fat cover. As indicated in the presentation, fat is of no benefit to either producer or processor. There is a cost to producers with regard to fattening up animals and there is also a cost to processors who must remove such fat in the boning hall. This fat may then go for rendering to tallow at 30 cent per kilo, whereas the beef is bought at €3 or €2.95 per kilo. The system is inefficient for both producers and processors.

On the quality standard, Deputy Creed inquired with regard to why there might not have been a lead-in time. A dual system — involving the elements of the old and new systems — just would not work. Producers in favour of it would be seeking benefits and better prices. However, those opposed to it would want it never to be introduced.

Deputy Michael Creed

The way it was foisted on them meant they did not have an opportunity to shift their production patterns. I accept Mr. Healy's point but that would have been an easier argument to deflect. At present, people are railing against the new system.

Mr. Cormac Healy

The Deputy has attended meetings and is familiar with the reaction. Equally, however, I have spoken to processors who deal with producers on a daily basis. There is always reference at national level to the existence of major distrust. I accept that there are issues in that regard, but I also understand that the relationships between individual processors and their farmer suppliers are sometimes far better than is generally portrayed. It was never going to be possible to operate a dual system because those who have an issue with it would never want it to be introduced and those in favour of it would state that they were being adversely affected under the new system.

In general, many people are satisfied with this development and see it as a positive for the industry going forward. We must continue to educate people and promote an understanding among them with regard to the new system. Changes have had to be made on payment dockets in order that producers will be aware of the base price and will know if they have qualified for the bonus for being within specifications, etc. Going forward, we will work with Teagasc in the context of finishing and production systems that can allow producers to benefit best under the new system.

Deputy Michael Creed

Even if the two systems were never going to operate in tandem, all of that which Mr. Healy has just outlined should have been done in advance.

Mr. Cormac Healy

It is not as if the move to a quality payment system has never been discussed. Unfortunately, we have been talking about introducing such a system for too long and a great deal of time has been lost. The most recent discussion on it at the beef forum to which I referred reignited the issue. The progress that matters was that Teagasc had carried out the independent work in respect of it and this could be used as a basis for moving forward.

This still does not alter the fact that some of the key issues that were raised following the new system's introduction related to fat. Producers indicated that they had a certain expectation with regard to what would be the position in respect of certain animals in the context of weight and fat cover but that because these animals had by then entered the finishing process, the producers in question had run out of options. Those issues were addressed and interim changes were introduced in order to ensure that animals of grade 4= or 4+ would not be penalised under the new system.

The question of young bulls has been raised at producer meetings, at meetings involving farming organisations and also at this meeting. The original intention was to try to put the new system in place in respect of steers and heifers. Of the national kill of 1.5 million cattle, steers and heifers account for 1.1 million head. They constitute, therefore, the bulk of prime beef production. Premia relating to young bulls are already in place within the price. There is already more contracted business between processors and producers in this area.

In the context of young bull production, producers are advised to operate in conjunction with processors in order that there will be a knowledge of when these animals will be produced. Young bulls can be brought into the system but there are issues with regard to a lead-in time. From what I understand of the industry, there will be a requirement for an age cut-off of 16 months. This is in line with the position that obtains in respect of bull beef production on the Continent. It would not be possible to just impose this because the bulls in question are currently within the system.

Additional discussions can take place in respect of this matter and it is possible that Teagasc should carry out further work regarding bulls and how they should function in the context of meat yields. However, a date for their inclusion should be set. The reality is that the production of young bulls is likely to increase, particularly in the context of the economics of the situation.

Deputy Michael Creed

When Mr. Healy refers to young bulls, is he talking about finishing bulls under 16 months?

Mr. Cormac Healy

That is the general specification. In the context of finding outlets in the retail area in respect of young bulls, the specification will be 16 months. That is generally the age at which young bulls on the Continent and in the UK are finished.

Deputy Tom Sheahan

What is the current price per kilo for bull beef on the hoof?

Mr. Cormac Healy

The Deputy has caught me on the hop because I do not know the exact price. Some of my colleagues may have information relating to the reported prices. In general, there has been a premium above the steer price in respect of young bull beef. The current steer price is in the region of €2.96 to €2.98. I would presume, therefore, that the price per kilo for bull beef is somewhat above that.

Deputy Tom Sheahan

It would still not justify what is envisaged. As Deputy Creed indicated, 500 kg Belgian blues are attracting over €3 per kilo on the hoof. How is Bord Bia going to entice farmers into producing bull beef?

Deputy Eamon Scanlon

How many beef factories are in operation here at present?

Mr. Cormac Healy

I apologise, I did not answer that question. There are probably 26, or 26 large abattoirs in operation here at present. I base this on the fact that last week the Department reported that 33,000 animals were slaughtered. These are generally identified as export slaughter houses. There are also smaller slaughterhouses. Under the hygiene package, slaughterhouses, whether large or small, are all entitled to export. There is no differential in terms of the standard. Once a slaughterhouse obtains approval, it can trade in the European market.

A question was posed in respect of Meat Industry Ireland, MII, the membership of which includes ten companies that probably account for in the region of 80% of beef slaughterings.

Deputy Michael Creed

Large numbers of quality cattle are being exported live. As a result, many of the cattle which remain will not make the top grade. Is there a role for more direct contractual arrangements between meat plants and farmers in order that animals that will meet a certain specification and attract the premium price on the market might be produced? This ties in with weaning off our dependence on the UK where many of the over-fat and poorer grade cattle end up because of the demand in that market.

Mr. Cormac Healy

I would not say over-fat because at this point we are in a scenario where fat is purely an inefficiency and no good for either producer or processor.

In terms of the contractual arrangements, in the ideal scenario I have a contractual arrangement as a processing company with a group of suppliers. That is possible where I have some sort of insurance or guarantee that onward I have a contractual arrangement or a guaranteed outlet. A number and range of such arrangements are in existence in the processing industry with groups of producers, be they related to breed or particular markets. Only last week a further scheme was announced with suckler producers through the once bred heifer arrangement. There is a role but building into a substantial part of the business also demands that there are guaranteed outlets at the other side.

Chairman

Is Mr. Healy finished?

Mr. Cormac Healy

I apologise if I have not covered everything.

Deputy Michael Creed

What about an audit of the system?

Mr. Cormac Healy

I have no issue with an audit of the system. The first thing that needs to happen, which we are discussing with the Department, relates to price reporting. Where we are at in Ireland is a first in Europe and the world. All our animals are graded on an automated mechanical grading system, which gives a consistent and objective grade, and they are paid for on a quality basis. We have probably 95% price reporting in this country, which is far ahead of any other member state. One of the things that has to happen first and foremost to better reflect what is happening on the ground with the new system is the price reporting must be modified to apply it on the 15-point scale because it is important going forward that we can see what is U+ as opposed to U-, etc.

There is talk about an independent assessment of it. We are only three months into it and I would like to see an independent assessment of the full quality standard. I do not know the exact amount but, at the moment, 100% of the animals are not being purchased under the quality system. It is a voluntary system and between 70% and 80% of animals are probably purchased under it.

Deputy Tom Sheahan

I compliment Bord Bia on its exhibition in Croke Park a number of weeks ago. It provided a platform for 160 Irish food producers. It was a great success and the board should be complimented on that.

Will Mr. Healy comment on Smithfield and the inroads being made by Scottish beef producers there?

Mr. Cormac Healy

I am not overly familiar with it. It is probably more than a year since I was in Smithfield. As an outlet, not a huge volume of beef in the British market is traded there. There probably are better experts on my side. Smithfield today is not what it was ten or 15 years ago. Scottish beef has evolved into a scenario where it attracts a premium in the marketplace, which we should try to get to as well. I do not dispute the Deputy's point but perhaps the others can say more about Smithfield.

Mr. Gerard Brickley

Clearly we have a serious situation and, bad and all as it is, I take encouragement from the interest of members and the knowledge that they have of the details involved. It is good to see that interest at least because this is such an important indigenous industry, which has the potential to take us out of the current economic malaise.

There were many questions and I have tried to group them. I ask members to remind me if there are questions I do not cover. Mr. Murphy is better qualified to respond to the question on McDonald's.

I refer to last year's economic downturn. In Britain, 60,000 tonnes less beef was eaten last year than the year before, a drop of 5% in total consumption. It is all about supply and demand and that factor affected us negatively. In the first two months of this year, the supply of cattle to Britain and Northern Ireland increased by 2.5% to 3% and the supply of cattle to Irish meat plants was up 13.6%, which is a huge increase on the previous year with no improvement in the market. There has been huge pressure up to now, which we see as more or less over at this point. Hopefully, for the rest of this year — the committee knows as much about demand as I do — it will be a little better than last year and certainly no worse.

We expect Irish supplies no better that equal to last year and within that live exports are up almost 90% on last year at 55,000 head. Last year they were well up on the previous year. I do not suggest that will continue at that level for the year but we expect live exports in total to be higher for this year than last year. That will further reduce the supply available to meat plants. British supplies will be no more than stable for the rest of the year while we expect EU supplies overall to be down by 2% and again this comes back to supply and demand. South American supplies should also be down against this year and if the demand is no worse in Europe than last year – we expect it not to be – then that should result in a better situation for us in the marketplace.

With regard to the price of Irish cattle that are sent to the UK for slaughter, there has been a great deal of rumour and innuendo. We telephoned 80 processing plants in the UK of which 49 said they would have no problem taking Irish cattle. None of them referred to a problem with offal. I do not say it is not there but they did not raise it and they told us they were willing to pay the same price they would for British cattle. I am not trying to hide anything. These plants are in a tier of 30% of production and they do not have access to the multiple retailers.

Deputy Eamon Scanlon

Do they deal with small wholesalers?

Mr. Gerard Brickley

They are smaller but they are much more significant in the UK than they are here. They comprise 30% of production there but only 5% here.

Deputy Eamon Scanlon

That is because we have closed them all down.

Mr. Gerard Brickley

We are very much an export-oriented industry here. To look at the price comparatively, it is 5 pence to 10 pence less than in the bigger plants but neither is there the same emphasis on the weight and age of cattle. They do not have to be quality assured and the trimming specification is lighter. They work on a similar specification to ours here, which is only 0.6% of a difference. It is almost 1% difference here. I do not try to defend anything; I am just trying to explain the parameters. The gap has widened significantly between Irish and UK prices in the past 12 months and I believe that is because supply and demand has gone wrong. When it was the other way around 18 months or two years ago and the Brazilian meat was knocked out of the market and there was a still a strong demand for steak cuts, the Irish price exceeded the EU and UK price at one point.

The issue of the percentage of beef going to the UK market compared with the Continent was raised. We have put some thought into this area. For the past five or six years, we have worked with processors on the premise that the more customers we can get in the most possible markets, the more bargaining power that gives us. Naturally, we work on all products with Britain first because it is next door, it is our best and biggest market and we use the same language but the problem is sterling. It is a big problem at the moment. This year we have been meeting processors and going through lists of customers with whom we can build business and whom we can target for new business. All our emphasis is on the European Continent because if we can shift more product onto the European Continent this year, we tighten the supply on the UK and the retailers there will have to pay more for it. That is the strategy. I do not think it will be a dramatic shift this year but we are certainly trying to move more onto the Continent.

Deputy Eamon Scanlon

Mr. Brickley admits in his presentation that Irish cattle are discriminated against in England.

Mr. Gerard Brickley

They do not have access to the primary retail, yes.

Deputy Eamon Scanlon

They are discriminated against in the factories because there is a reduced payment. It is not a question they will not be slaughtered but there will be much less paid for them, even though their quality is much higher. Under EU law or under some law should those cattle not be treated the same as any other food product that goes into any other EU country? Can CBF or Bord Bia sort out this problem as it is causing difficulties for many people?

Mr. Gerard Brickley

I apologise, I meant to address that point. The multiple retailers are the largest single group of buyers and they are the most dominant in the market. They have a system whereby they currently identify two origins, origin Ireland and origin UK. This is a simple system and they want to maintain it. We have approached them and asked if they would consider an alternative because British farmers, fatteners, now have fewer cattle going through the system. Their own supplies are declining and they need throughput. They have declined our suggestion and have told us they are happy with their current system as it is simple and they know it works. They do not wish to go through all the separate labelling system associated with our suggestion.

Another speaker made the point about origin. It can be stated that a beast is born, reared and slaughtered. The word "slaughtered" is not a word many people want to put on a meat pack to sell to customers and this is one of the reasons the multiple retailers picked the simple option of "origin". There is an exception to the rule which allows one to use "origin" only if all the process happens in one country. This is their favoured option at the moment. As supplies tighten and we know they will tighten further in Britain over the coming years, we see it as a viable option that the UK retailers will probably move in this direction. They will probably come to the conclusion that their farmers do not have sufficient supplies and they will look to Ireland for more supplies of live cattle which they will feed on in Britain. They would regard this as a lot more domestic than some of the other options such as beef from South America. I do not know when it will happen but the minute one of the retailers tells one of the factories supplying them that they want that product, then it will happen and it will not happen before that, in my view.

Chairman

Mr. Murphy wishes to comment. We are very tight for time at this stage.

Mr. Michael Murphy

Our team abroad is very focused on building business with both existing and new customers. We focus on building business with certain customers such as McDonald's and the larger retail chains. It is not so very long ago that Irish beef was only used in two countries within the McDonald's chain and now it is used in seven countries. Last week we sat down again with McDonald's Europe to align our quality systems to their planned future system for the next five years. At the moment our quality assurance system is regarded by McDonald's as the best on their ranking compared with any other market in Europe. It is a matter of understanding where those customers are going in the future and nearly being there before them. We are focused on specific customers to deliver business in the future.

Deputy Andrew Doyle

On that point, Bord Bia works with Meat Industry Ireland in the processing and preparation of that food and it is then exported through Irish plants. Is the Irish beef processed here for McDonald's systems using Mr. Healy's members' plants?

Mr. Michael Murphy

McDonald's will buy from a number of different suppliers here in Ireland and to very specific specifications and work with them on their quality schemes. The final processing is done in the UK and on the Continent.

Deputy Michael Creed

I wish to ask Mr. Brickley a question. I welcome his comment that there will be an attempt to reduce the dependency on the UK market. The obvious question is what is the target because I would like to come back next year and say we have a strategy and ask whether we have met the target. If we are at 54% is it a case of getting it down to 50% or down to 40% over a period of time? Do we have targets? There must be a target set in order to have an objective. Mr. Brickley probably has access to far better expertise than my ramblings but I think it likely there will be a weak sterling policy for the foreseeable future in the UK, which will put us at a competitive disadvantage. It would seem to be a right strategy to have but any strategy has to be underpinned by targets.

Mr. Gerard Brickley

We have targets but not for the figure the Deputy is looking for because he is looking for country-based targets. When we re-did the current beef strategy three years ago, we completely changed our policy because beef is no longer sold as complete carcasses to customers in individual markets. It is now sold as three cuts to one customer, two cuts to another customer, five cuts to someone else, one cut to this person and McDonald's will take the mince, and so on. We listed out all of the European customers — we know most of them. We listed the current volume they are taking and which ones are the better customers. We categorised them into six categories: premium retail; high quality retail products; standard retail — normal retail; discount retail; quick-service restaurants such as McDonald's; and down the line to wholesalers at the other end. We decided we could reasonably shift over a five-year period a total of 60,000 tonnes of our product from the lower value channels into the higher ones across markets. This is our target. This year we are asking each plant for its customer list so that we can work with the plants to develop the continental European markets. We will just do a maintenance, so to speak, on the British market because we cannot ignore them as they are the number one market for us. A very clear target exists and we are monitoring it.

Deputy Michael Creed

A total of 60,000 tonnes?

Mr. Gerard Brickley

Sorry, there is a proviso on that figure as it is based on a similar volume total production in five years' time but it does not matter, we are still following it. I do not have the figure to hand but the growth is about 40% of that achieved in three years and given that last year was a terrible year in terms of trying to bring product up to premium, that is a good performance so far. I can provide those figures to the Deputy as they are all available.

Mr. Cormac Healy

The committee has discussed the role of live exports and I am not here to argue for or against them as I understand that they have a role. We are in the processing industry and every 100,000 animals going out as live export is the equivalent of two meat plants and 400 or 500 jobs. That said, I understand they have a role and there is competition in the marketplace and I do not have an issue with that. Figures for live exports go up and down. In the past five years they have gone from 186,000 to 250,000 and back down to 200,000 and 150,000 and last year rising to 280,000. The year they were at their lowest ebb we paid our highest prices in payments to producers. The industry is slaughtering 1.5 million to 1.6 million cattle and it has a commitment to this sector. We want to work with everyone, including the committee, to look at some of the issues. We fear some of the live export figures because the live export trade is an exodus of material from the industry, from value-added creation, because exports of beef last year were probably €1.4 billion in value. We need to ensure that we can keep them here and this will depend on the producer getting a price. There is no other way they will be kept here and there are issues about processing costs. We have higher processing costs here than any of our competitors in Europe and these are issues we would like to discuss with the committee at some point.

Deputy Michael Creed

I have a question about the level of control of Mr. Healy's members on the total kill in the UK.

Mr. Cormac Healy

I am not familiar with it.

Deputy Michael Creed

Is this information readily accessible?

Mr. Cormac Healy

I do not know. I do not have any dealings with the UK in any fashion so I am not sure.

Deputy Michael Creed

Mr. Healy represents the Irish plants, the big players in the Irish processing industry, many of whom would also have plants in the UK. What is their kill in their UK plants as a percentage of the total kill in the UK? Is that figure readily available?

Mr. Cormac Healy

I have never seen or sought it. My concerns are for my members and my operating facilities here in Ireland.

Deputy Michael Creed

Is it possible to get it?

Mr. Cormac Healy

I can ask for it on behalf of the committee.

Chairman

We would appreciate that. On behalf of the committee, I thank Mr. Healy, Mr. Brickley and their colleagues for their presentations and for answering questions.

The joint committee adjourned at 1.55 p.m. until 11.30 a.m. on Wednesday, 24 March 2010.