Good morning everybody. I thank Senator Lombard for his question. The compensation scheme package is dealt with in section 68 of the draft Bill. In particular, subsections (3) and (16) set out the heads of compensation and the definitions of how this compensation will be calculated. The farmers would have concerns under all heads. I appreciate there are constraints of time here this morning, so I will just give an overview of the points. If there is time, I will try to answer the questions.
The initial part, the most focused part of the compensation, is in relation to the unrealised profits and net asset value. The unrealised profits terminology effectively is earnings before interest, tax, depreciation and amortisation, which is effectively adjusted profit. The Department of Agriculture, Food and the Marine, in the proposals, in subsection (16) is suggesting that the compensation package be calculated on an average of the profits for the last five years, that is, the years 2016 to 2020, inclusive. That is not acceptable to the farmers because that reflects a period in the down cycle in the industry when losses were incurred. The graph which we furnished demonstrates that. We have sent the committee a graph showing the combined profitability of the three farms over the period 2016 to 2020, inclusive, which shows that it tends to go in cycles of approximately five years. The period the Department suggests the compensation should be based on coincides with a loss-making cycle. That is evident from the graph furnished and from the financial statements which were furnished to the Department back in mid-March of this year.
The farmers are arguing that the average earnings should be calculated over a longer period of ten years, which would recognise the cyclical nature of the industry. That would give a more fair calculation of the average profitability in that period. For example, if the period the Department is suggesting is taken into account, it would give a negative figure which means the figure on which the compensation would be calculated would be a nil figure. Over a ten year period, it would give a more positive figure. In fact, the farmers would argue that a more reflective period of their profitability would be the years 2011 to 2015, inclusive, which was a profit-making period. The reason for suggesting that would be a better period is that the evidence is that the upcoming period, which is the current year 2021 onwards, is going to be a period of sustained profitability.
In support of that, we have obtained correspondence from two of the prominent four auction houses in Europe, one in Helsinki and one in Copenhagen, which have confirmed that in 2021 to date, the prices of fur have increased by 150% and 127%, and the evidence is that that will continue to increase. Second, a research study has been carried out by a senior adviser in the University of Copenhagen, giving evidence that the fur prices, again, in 2021 have increased. That research was concluded in May of this year, so it is very recent. The evidence is that the prices will continue to increase. In addition, with the Danish cessation of operations, there is a shortage of supply in the global fur market so again, the Irish farmers would have been in a position to take advantage of that. The Department has insisted it will not consider speculative future trading. However, we will submit that the evidence is that the period 2021 onwards is likely to be a sustained period of profitability for the farmers and should be considered, rather than the five years from 2016 to 2020, inclusive, which did not give any prospect of the farmers getting any compensation for the loss of their farms.
The alternative calculation that has been put forward is a net asset basis. What the draft legislation is suggesting is that that be based on the accounting book value of the assets, which again the farmers cannot accept because if, for example, an asset has been written off for accounting purposes, the legislation suggests they would get a nil compensation for that asset, whereas the market value of the asset could be significantly in excess of that. The farmers would argue they should get the market value for their assets.
The third aspect would be the compensation to employees. It is suggested in the draft legislation that the employees get statutory redundancy only, which the farmers consider to be a very unfair compensation to these employees who have been very loyal and contributed to the operation of the farms over many years. Statutory redundancy generally arises in insolvency situations where the employer cannot afford to pay anything higher than that and, in general, this is usually paid by the Social Insurance Fund, because there are deficits in these failing companies. In most negotiated close-downs agreements are reached whereby employees receive enhanced benefits, and we believe this is a case where this should be taken into account. It has been suggested by the Department that any enhancement of the redundancy payment should be funded by the farmers from their compensation. That is considered to be inequitable.
The next heading of compensation is for the demolition and clean-up costs of the farms. The Department proposes that each individual farmer obtains three independent quotations and that the Department will accept the lowest of those three quotations, subject to a cap of a maximum €50 per square metre for the demolition costs. The farmers do not consider this realistic, because it is important to ensure that whatever compensation is paid allows the farmers to do the demolition and clean-up in a safe and environmentally-friendly manner. For example, buildings in some of the farms have asbestos and it is very important that this is disposed of safely, with no environmental negative impact.
The draft legislation also specifies that only those building which are used exclusively to house mink should be part of the compensation scheme. We would submit that any other buildings which are essential for the fur farming business and which do not have an alternative commercial use should also be included in the compensation scheme. If there are any buildings which it is agreed may have an alternative use, that any adaptation costs should be covered by the compensation scheme. Due to the location of the farms there will be extreme difficulty setting up alternative businesses and generating alternative employment for employees.
On the culling costs of the animals and the disposal costs, the Department has suggested that it costs 35 cent per animal for the culling and disposal of the animal. The farmers have examined this and they estimate a figure of between €4 and €5. Further discussion and negotiation is needed on this issue.
Finally, there is a suggestion that the compensation scheme would cover reimbursement to the farmers for professional fees incurred solely after the legislation had been enacted. We do not consider this to be reasonable because the farmers have engaged with the Department over the last number of months and have incurred costs in meeting the requirements of the Department, so it seems unfair and inequitable that they should not be covered for those costs which have been reasonably incurred.