Joint Committee on Agriculture, Food and the Marine díospóireacht -
Wednesday, 13 Apr 2022

Challenges Facing the Pig Industry: Discussion.

Chairman

Before we begin, I remind members witnesses and persons in the public gallery to turn off their mobile phones. The focus of this afternoon's meeting is the examination of challenges facing the pig industry and fixed-price milk contracts.

On 28 February, legal requirement for mask-wearing in all settings was removed. However, it is still good practice to use face coverings, particularly in crowded areas. Before we begin, I want to bring to everyone's attention that witnesses giving evidence from within the parliamentary precincts are protected by absolute privilege in respect of the evidence they give to the committee. This means witnesses have full defence in any defamation action for anything said at a committee meeting. However, witnesses are expected not to abuse this privilege and may be directed by the Chair to cease giving evidence on an issue. Witnesses should follow the direction of the Chair in this regard and are reminded of the long-standing parliamentary practice to the effect that, as is reasonable, no adverse commentary should be made against an identifiable third person or entity. Witnesses who are giving evidence from a location outside the parliamentary precincts are asked to note they may not benefit from the same level of immunity from legal proceedings as witnesses giving evidence from within the parliamentary precincts and may consider it appropriate to take legal advice on this matter. Privilege against defamation does not apply to the publication by witnesses, outside the proceedings held by the committee, of any matter arising from the proceedings.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against any person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

In this session, we will hear from representatives from the Irish Farmers Association, IFA, and Meat Industry Ireland, MII. The representatives from the IFA are Mr. Tim Cullinan, president, Mr. William Murphy, pigs committee vice chair, and Mr. Tadhg Buckley, director of policy. The representatives from MII are Mr. Philip Carroll, chairman, Mr. Cormac Healy, senior director, and Mr. Joe Ryan, director.

There were developments in the crisis in the pig sector this morning, with the Minister putting a package on the table. Mr. Cullinan wishes to comment on that. We will allow him to add a supplementary to his opening statement.

Senator Paul Daly

Before we start, it is important to put on the record that members are not aware of what was agreed this morning. We have not seen a copy of it.

Mr. Tim Cullinan

There is speculation out there. I will deal with that and go through the original statement. The situation is unusual. We submitted our opening statement.

Chairman

The parts are moving. I met the Minister in the corridor. I understand that a package was proposed this morning. The crisis still exists, though, so we are giving Mr. Cullinan the opportunity to put forward his point of view. If he has details of today's package, we can discuss those as well.

Mr. Tim Cullinan

Absolutely. I thank the committee for inviting the IFA to address it on the issues facing the pig sector. The Irish pig sector is in the midst of a crisis the likes of which it has never experienced before. As losses mount, which Teagasc estimates will be as much as €160 million, many pig farmers are facing an uncertain future. Without State intervention and support, many farmers will exit the sector, leading to job losses and a substantial impact on the rural economies that these farmers heavily support.

The challenges that the pig sector is experiencing are numerous but centre around a massive increase in the overall cost of production, along with a decline in farm gate pig price. Feed and energy bills are overwhelming for farm families that are trying to run their businesses. A combination of factors, all of which are outside the control of pig farmers, have resulted in all pig farmers incurring heavy losses.

I will list some of the factors that have caused the current crisis. Brexit has had a significant negative impact on pig prices. Since the start of 2021, the volume and value of pig output exported to the UK has fallen by 50%. This output was sold onto other markets that were of lower value and incurred had higher transport costs to access. The Covid-19 outbreak caused substantial market disruption, leading to downward price pressure. Processing capacity, in particular in Northern Ireland, was curtailed, leading to a backlog of pigs on Irish pig units, which continues to be the case today. The African swine fever, ASF, also had a negative impact on the pig market. Thankfully, Ireland has avoided direct contact with ASF, but the outbreak in mainland Europe has led to a collapse in European prices and has had a direct impact on Irish prices. In addition, the increase in feed prices since mid-2021 has aggravated the crisis. This has been made all the more serious by the recent geopolitical events in Ukraine. The pig sector is one of the most exposed to feed price increases, as it constitutes the majority of the cost base of a pig farm.

Farmers are being squeezed from all sides and are also facing the added actions of retailers in the domestic market, which are relentlessly pushing down the retail price of their products and embarking on unsustainable discounting to encourage store footfall. The pig sector, while generating significant export value of close to €1 billion annually, is reliant on the home market, predominantly the retail trade, for 50% of all sales.

Our pig industry is one of the most significant sectors of Ireland's agricultural economy, ranking third in size after the dairy and beef sectors. The sector supports more than 8,000 jobs domestically, generating €1.7 billion in output when the primary and value added sectors are accounted for. Based on the most recent national pig census, there are 1.7 million pigs in Ireland, predominantly on fully integrated pig units. The sector has undergone significant consolidation in recent years, with Bord Bia estimating that there are 270 farmers participating in its quality assurance scheme.

The pig sector, unlike the other large livestock sectors, is based on a constant year-round production model. It is a major consumer of Irish-produced compound feed and is a significant contributor to the rural economy, particularly in the four largest pig producing counties of Cavan, Cork, Tipperary and Waterford. It is also one of the few sectors within Irish agriculture that does not receive any direct funding from the Common Agricultural Policy, CAP.

Teagasc estimates that pig farmers are losing an average of €56,000 per month and rising, and that 7% of pig farmers have already been forced into a decision to exit, with a further 20% to 30% at serious risk of failure due to the unprecedented and rapid escalation of feed costs since the Russian invasion of Ukraine. Producers have already incurred exceptional losses and it is expected that, in total, these will exceed €160 million from late 2021 to early 2023.

To prevent the demise of the sector, the IFA, MII and the Irish Grain and Feed Association, IGFA, are jointly proposing the immediate establishment of a pig stability fund. I will outline the key aspects of the proposal, the first of which is to establish, without delay, a State-administered fund to provide an immediate cash injection to pig farmers to avoid the demise of the sector at primary and processing level. This fund would be jointly funded by a State contribution along with a long-term fund sourced by way of a new statutory levy. We should introduce a statutory levy of 90 cent per pig - equivalent to 1 cent per kilogram - on all pigs slaughtered in the Republic of Ireland or exported to Northern Ireland. Based on the 2021 output of 4 million pigs per annum, this would generate a revenue stream of €3.6 million per annum. Over a 14-year payback period, this would constitute a direct farmer contribution of €50 million. The State should commit to fund the farmer contribution of €50 million initially, along with an additional upfront fund from the State of €50 million. The former would be repaid by the revenue from the newly established statutory levy. The levy would be compulsory on all farmers producing finished pigs in the sector. While we acknowledge that this fund would require sizeable State support, the importance and economic value of the sector merits this intervention because, without it, the sector's long-term future and its contribution to the economy are in jeopardy.

Volatility is a constant challenge for pig farmers across the world. The hog cycle, first coined by US economists in the 1920s, outlined the challenges that volatility presented to pig farmers in particular. Due to a shorter production cycle compared with beef, price volatility, while evident in all sectors, tends to be more pronounced in pig farming. However, the current pig crisis is unprecedented in the scale of losses. Teagasc estimates that the industry will incur losses of €160 million at farm level over the 18-month period from September 2021 to March 2023 and that an average 600-sow pig unit will incur losses of €663,000 during this period. This is unsustainable, and without significant State intervention, the sector faces possible collapse.

Since Harvest 2020, cereal prices have more than doubled. Wheat has risen from €185 per tonne to in excess of €430 per tonne, an increase of 132%. Similarly, maize has risen from €175 per tonne to €390 per tonne, an increase of 122%. Initial increases were based on lower world closing stocks and increases in freight prices, but more recently the war in Ukraine has caused significant additional price hikes. Teagasc estimates that feed credit per average pig farm for quarter 1 of 2022 will amount to €497,000. For quarter 2, this is estimated to increase to €594,000. In 2020, this figure averaged at €388,875 for the average-sized pig farm. Therefore, feed credit has increased by 52% over the past two years.

To date, State intervention has amounted to a €7 million support package for the sector.

While welcome, this is in no way sufficient to address the €160 million losses that the sector has identified.

The pig sector is one of the most important sectors in the Irish agricultural economy, supporting 8,000 jobs and making a substantial contribution to the rural Irish economy. The challenge facing the Irish pig sector is unprecedented in scale with Teagasc estimating that 30% of Irish pig farmers are at risk of closure. Closures of anywhere close to this level will have major implications for the sector, both at primary and processing levels. In addition, destocking at this scale could prove difficult to manage from a logistical perspective because it cannot be implemented in a rapid manner. Teagasc estimates that farms with a total of 10,135 sows are now in the process of destocking. The estimated economic impact of this is that: 69 people will lose direct employment; 550 people will lose indirect employment; and 619 people will totally lose their employment. There will be an annual loss of payroll to the tune of €22.3 million. The loss of weekly pig throughput will be more than 5,000 pigs and there will be an export loss of €67 million. The proposed stability fund sets out to address both the short-term and long-term challenges the sector faces. The fund will be part-financed by a substantial contribution from pig farmers and offers a volatility management mechanism to support the long-term sustainability of the sector. Most importantly, this intervention is needed to secure the survival of the sector; without it Irish pig farmers face an uncertain future.

As I said at the start and as the Chairman mentioned, there is speculation this morning that a proposal is coming from the Minister that is nothing near the proposal we put on the table to the Government. I want to state clearly again in these Houses that the pig farmers of Ireland are concerned and want to work with the industry to put €50 million of their money on the table to ensure the viability of the sector going forward, albeit I appreciate that funding has to be provided upfront by the Government. A clear commitment with a statutory levy to pay that back is being proposed. We are hearing speculation that a direct fund of €13 million is being proposed for pig farmers. I welcome the funding and I acknowledge in my statement the €7 million that was put forward by the Minister recently, even though €5 million of that will be paid to farmers and there €2 million will be left. What is more worrying for me is the speculation that there is a proposal that for a farmer to be able to access the €13 million or €70,000 per farmer, he or she would have to reduce stock on his or her farm by 10%. This is totally unsustainable, particularly because a farmer might have a chance of surviving by maintaining the stock he or she has. We are at a point where the market is starting to improve. If a farmer made that decision today, those pigs would not be available on the market for another ten months. That is the point at which we believe the market will have stabilised and when there will be a margin in the system for farmers again. We have seen schemes in the past such as the beef exceptional aid measure, BEAM, scheme in 2018 and 2019, which ended up as a mess that the Department is still dealing with. The last thing I want to see happening in the pig sector is something similar to that scheme. It is totally unjustified and I want to clearly put it on record that we will not support any reduction in the sector.

Senator Tim Lombard

I welcome the contribution by the IFA. I also welcome its statement and proposal. It is a unique proposal to impose a levy on the industry. The IFA is not reinventing the wheel. This has happened in other industries, particularly in the insurance industry. Over a period, we have seen different levies put on the insurance industry to help it get over issues and, in time, the industry financed itself.

We are talking in a vacuum here, and it is awkward to do so. There is media speculation this afternoon that there is potential for a 10% cut in the pig herd but we are unsure if that is true or untrue. We are hampered in our negotiations by being in that vacuum. It is 2 p.m. and we were hoping to have that information but we do not and that is unfortunate. Within that vacuum, I want to mention the idea of destocking. We have a scenario where stock is unfortunately being slaughtered. In my part of the world sows are being slaughtered on a continuous basis, particularly in the past ten days, because there is a fear that is the only way pig farmers can deal with the issue. If there was to be a destocking would that not dramatically suppress the price going forward anyway? Would it be counterproductive in how the industry can try to sustain itself going forward?

I mention the scale of losses and Mr. Cullinan mentioned in excess of €150 million in losses. We are proposing to put €13 million plus €7 million onto that. It is a drop in the ocean in the context of where this industry is. The one thing I have learned about this debate is that not alone will the pig industry be under exceptional pressure, the milling industry will also be under pressure. One could argue the point that more millers than farmers were at the protests in recent weeks because of the potential liability that will be out there among several milling platforms, including those owned by co-operatives and the privately owned mills. There is significant pressure on their books regarding how much money is out there. I am very fearful of how the milling industry could survive this crisis, how the pig industry will survive it and how the production industry from that side of the world could survive a crisis in that issue.

I appreciate that I am talking in a vacuum without the information being brought forward. Hopefully the Chairman will have the information from the Minister before the end of the meeting on the proposals and he might be able to clarify what those proposals are. If they are to involve what we are talking about, namely, a €13 million package and a BEAM-style proposal to take 10% off the herd then I would be very fearful of what that will do to the industry. It must be taken into consideration that a completely different funding stream is not being proposed and that the insurance industry has done this before. How bad does Mr. Cullinan think the proposal that is out there at the moment would be? Does he honestly think we will have 300 pig farmers left? What will we be left with after this?

Chairman

I will take Deputy Carthy’s questions and then go back to Mr. Cullinan.

Deputy Matt Carthy

I welcome our guests back to the committee. The mechanism the Department and the Minister in particular have been using is becoming increasingly frustrating. It is a long-standing practice but it has become particularly prevalent where news of a headline scheme is leaked and we are all reading through different newspapers and columns to try to get the pertinent information. Generally speaking, the details of the scheme are then published when all the staff at the agriculture newspapers have gone to bed and there is little scope for questions to be put. In many cases, it is several weeks before the full details emerge, which is not good enough, especially when we are dealing with sectors in crisis, as we are with respect to the pig sector.

I would like to get as much information as the IFA has on how the new package will work from its understanding. One of the key planks of the alternative package that the IFA has put forward was €50 million in loan funding, which I would have thought would be the easiest element for Government to deliver. Yet, it appears there is no reference to that in the Government announcement. Perhaps Mr. Cullinan could report on his engagements with the Minister and Department officials on why there is resistance to that mechanism whereby Government has access to relatively cheap funding. The scheme that was outlined ensure that would be repaid to the taxpayer. As a result, it is hard to see why there would be resistance. Maybe there are practical or technical issues that have been brought to Mr. Cullinan’s attention that would ensure that is the case.

The pig sector is probably the agricultural sector that is most clearly and evidently affected by Brexit.

To date, there has been no move on the Brexit adjustment reserve being used to provide a package. None of the €1 billion Brexit adjustment reserve that we all fought for and welcomed has yet reached farmers, which is scandalous. This is the easiest route to address that. In their negotiations with the Department, have the witnesses seen a mechanism or willingness to use the Brexit adjustment reserve?

We learned about 5% of pig farmers going out of business. Mr. Cullinan referred to 7%, which suggests that more are leaving the sector daily. Will the witnesses outline the real impact on the domestic economy if that trend continues?

The Minister published heads of a paper about a new office for transparency. It is the new name for the food ombudsman, which is the name used instead of the term "meat regulator". Do the witnesses believe that office will be able to assist sectors such as this in the event of future crises?

Mr. Tim Cullinan

In response to Senator Lombard, we are clear about where the industry is heading. Between 7% and 10% of farmers have exited it. The Senator made his point clearly. I quoted figures from Teagasc, a State body, that up to 30% of farmers could exit the sector. Our original proposal is from farmers and industry coming together, which is unique, that we are willing to pay a statutory levy for the next 15 years to ensure the viability of the sector. It is not just about farmers. As the Senator said, there are milling and processing sectors too. The cumulative value of the sector is €1.7 billion in output and 8,000 people employed. It is larger than Intel. If the Minister was able to announce next week that another international company similar to Intel was entering the country, it would be the top headline on the 9 o'clock news. We have a sector which supports 8,000 jobs in rural communities, which we are trying to protect. There will be losses of approximately €160 million, which is serious for farmers. There is an issue with credit on pig farms. They cannot continue to pay for the extraordinary price increases, with the cost of ingredients rising by 130%. We are concerned about this proposal. Like the committee, I sincerely hope that we have a clear decision about it before leaving this evening.

In response to Deputy Carthy, regarding the alternative package, it was frustrating that our farmers had to come to Dublin. We had a protest outside Agriculture House two weeks ago, seeking negotiations about this. There did not seem to be any urgency or concern in the Department, but a belief that the original package of €7 million would resolve a serious problem, which was not the case. Farmers had to come to Dublin and were willing to stay on the street 24-7 until we got a solution. We negotiated with the Minister. Mr. Buckley will speak on the proposal he was involved in negotiating with the Minister's officials. It is important to have clarity on that. The Deputy rightly pointed out the impact of Brexit on the Irish pig sector's exports, with a decrease in the value and volume of pig meat entering the UK market. That had an impact on the sector early on.

As the Deputy said, there is a Brexit adjustment reserve fund of more than €1 billion. We have not heard anything from the Minister or Government about where that funding will go. We have an opportunity to use the fund to offset the losses that we incurred in the UK market. There was a serious issue with the export of live pigs to Northern Ireland in the summer of 2021, which created serious issues for farmers in the South. They lost revenue and were not able to get pigs off their farms for a period. Thankfully, a resolution has been found and the pigs have moved off the farms, which is important, but it was costly.

On the office of transparency, I sincerely hope we will not end up with a quango again. I refer to the beef task force. Grant Thornton was commissioned by the Government to examine the margins in the food supply chain. It failed to do so and the Minister committed to introduce primary legislation for a food regulator to ensure this would never happen again. I sincerely hope it will happen. We have to go much further. I was in Brussels on Monday and am delighted to report that Spain has introduced legislation on below-cost selling. There is no reason that we cannot do so. We recently saw a report from Jim Power that was done on our behalf about compression by discounters and the untold damage they do to the retail sector, the pig sector and other sectors in this country that rely on the retailer. Mr. Buckley might provide an update on funding.

Mr. Tadhg Buckley

Our proposal was cross-sectoral, involving both the feed and processing industries, which, as the president said, is quite unique. It was built on a dual-funding proposal, with a portion of funding coming from the State and the remainder coming from a loan system, to be paid back by statutory levy. The challenge with the statutory levy is with introducing legislation. We acknowledge that there will be a challenge and maybe a small delay. We will work with authorities to introduce this as much as we can. If we know that a levy process is being put in place and we have an idea of what funding can come from it, that gives the milling industry a lot of comfort about the capacity of farmers, who owe hundreds of thousands of euro, to stay with them and about the provision of credit. It helps financial institutions to ensure that farmers can continue to get support. The real short-term challenge is liquidity, which can only be maintained in the sector through mills providing credit. That is not their core job, which is to provide feed, but they are now providing a substantial amount of credit, as do financial institutions.

If farmers run out of liquidity, it is inevitable they are going to exit.

On the numbers, Teagasc estimates that 10,135 have gone. The impact from an export point of view alone is just under €70 million. Multiply that out and you have a serious problem. As well as that, where you start losing potentially 20% to 30%, which is what Teagasc is saying is the number in jeopardy, then that affects the core competitiveness of the sector in the medium term. If you take that chunk out then obviously your capacity to utilise processing facilities and all that side of it is impacted in terms of the economic capacity as well. It would potentially have a huge, long-term negative competitiveness impact on the sector. At the moment, we have 250 to 300 farmers. Many people say it is a small sector in terms of numbers, but it is the third largest in the context of output. People tend to forget that.

Deputy Matt Carthy

Going back to the levy, Mr. Buckley is speaking about it as if it is still a live prospect. Is that what the IFA has taken from its deliberations with the Department?

Mr. Tadhg Buckley

On the details of the package, all we know is what is in the media at the moment. We do not know where matters stand with the levy.

Deputy Matt Carthy

All right, but did the association get the sense from its discussions with the Department that it was amenable to the option of this type of scheme?

Mr. Tadhg Buckley

In the most recent conversations we had with the Department officials, they said they had been looking at the feasibility of it. If they were going to levy, the key thing they were looking at was how they would introduce it from a legislative point of view. I do not have any update from there on where it sits at this point.

Deputy Matt Carthy

Okay.

Chairman

Senator Paul Daly is next, to be followed by Deputy Martin Browne.

Senator Paul Daly

I welcome the representatives from the IFA. Much of what I was going to say has already been covered.

I would like a little more information on the association's proposed stability fund. If it were to happen and the IFA had that €100 million, how would that be distributed to keep liquidity going? Would it be per pig or per farm? Has the IFA gone that far into how the fund would be distributed if it were to get the money? If it were to happen, or whatever needs to happen to get pig farmers over this hump occurred, how confident is the association that farmers can trade their way out of this going forward? Where are the markets? Is there work being done on replacing the UK market? What confidence is in the sector? We all know about the perfect storm of Brexit, the war in Ukraine, feed and fuel prices, etc. We have no idea when the war will finish or when prices will stabilise again. With that in mind, and assuming pig farmers got over this hump, can the IFA confidently say pig farmers will trade out of the situation they are in? What needs to happen with markets and so on to facilitate such a scenario?

Deputy Martin Browne

I also welcome our guests. Mr. Cullinan knows exactly where we are coming from, namely, that the pig farmer is an integral part of agriculture down in Tipperary. I had questions on the IFA's suggested package but I will leave them for the time being, save to ask how long would it provide adequate assistance for pig farmers. Will the association outline what pig farmers are encountering when they look for credit? In its view, will the increased Government commitment to the sector improve the reception farmers get when looking for credit? Is the IFA experiencing increased pressure from the retail sector to offset the price increases it is experiencing in transport and so on by continuing to depress the prices it is willing to pay farmers?

Mr. Tim Cullinan

I will begin with the Senator's questions. On getting over the hump, the reason we brought these proposals forward was we saw where the sector was at. It is at a very critical juncture and there is a risk of the sector going under. The Senator is right we were in a very difficult situation prior to the war in Ukraine but that has put at least €100 per tonne onto the cost of feed. That has created serious consequences for not just the pig sector but all of agriculture because of fuel and fertiliser costs and we are trying to manage our way through them at the moment. The other question was on how the money would be distributed. The plan here was about getting liquidity back into the system because what we have at the moment is the fact that the money farmers are acquiring when they sell their pigs to the factory is not even covering the cost of feed. The money was going to be used to pay down the debt that had been building up in farms by buying feed. That is where the money would be distributed to. The proposal was we would look at the losses for the first quarter of the year, remunerate farmers for those losses and then look at the situation as the year developed, maybe for the months of May and June. We have seen already a chink of light that the price of pigs to farmers has increased by 20 cent per kilo but already that has been eroded by another price increase in the cost of feed. It is a very difficult situation but a twofold solution is needed here. One part is direct aid and the other is the stability fund that, as I said already, farmers are willing to contribute to themselves. That is where we would see it going. The funding would definitely be used to alleviate the pressure from a cash point of view on farms and ensure farmers can continue to buy feed to feed their pigs.

The Deputy asked how long for the assistance. It is similar. What we wanted to do is assess the losses and get to a point where farmers would get back into a profitable situation. We are all realists here. We do not expect that the State prop up the industry on a long-term basis. One thing about the pig sector is we do not get basic payments or single farm payments. This is the first time the sector has come to the Government looking for direct aid or funding to ensure, as I said, its viability. The Deputy knows that in our county many people are employed in the processing sector of the pig industry as well, along with farming and a lot of grain-growers in Tipperary would be contributing also. The other point he raised was pressure from retailers. There is always pressure from retailers to pay back an increase. We are all hearing about food inflation at the moment and it is very topical but nobody is sustaining the inflation farmers are at the moment, especially pig farmers. It is inflation of 130% or 150%. We need to be clear the price of food must go up to compensate for the massive losses farmers are incurring at the moment. How are we going to get back into a profitable situation? There are a couple of areas there. We have to get more back from the retail sector as 50% of what we produce is sold to it. Again, we have to look at new markets. We have to look at Mexico. There is a substantial demand for pig meat in Mexico at the moment. That is an important market to offset the pig meat that was going into the UK. California is another market where there is an increasing demand for pig meat. Bord Bia and the Minister must continue seeking out new markets because we are an exporting nation, not just in pig meat but in dairy and dairy produce as well.

Deputy Martin Browne

I would like to put one final question. We are all uncertain about the package being leaked in the media at the minute. How much consultation had the IFA with the Department on this package?

Mr. Tim Cullinan

The consultation we had with the Department was on the proposal we came here with today, that is, the €50 million in direct aid and €50 million stability fund where farmers were going to contribute to the levy. It was really a loan we were asking the Government for. It was not direct aid on 50% of the package. They were the negotiations we had with the Department. Like the Deputy says, this is leaked or whatever. We are all reading this in the media this morning but we were not negotiating that package with the Department.

Deputy Martin Browne

It is just every other thing that comes up here is all about consultation. It is the same in this instance. I thank the Chairman.

Chairman

Deputies Fitzmaurice and Micheal Collins are next.

Deputy Michael Fitzmaurice

I thank the witnesses for coming in. Mr. Cullinan talked about 7% of pig producers basically going broke. Why is the figure of 7% being picked as against the 93%? I have talked to the two producers in County Roscommon. Any of them I have talked to so far have said that they are losing phenomenal money. Even pig producers in Tipperary, Cork and other places will tell you that. I ask Mr. Cullinan to explain how he has come up with the figure of 7%?

Mr. Tim Cullinan

As the Deputy is aware, each farmer will have a different set of circumstances and a point where they are within their businesses. The most vulnerable ones will be those who fall off the wagon first. It may be that they have already extended credit for the feed they are buying from merchants. They will be the ones that will be under the most severe pressure at first. This is real; we are seeing it. I have spoken to people at midnight who have had to make the decision to give up. We all know about it here because we are all involved with agriculture in one way or another. Many of the people in this sector have been involved for many years. To have to make that decision, and for the person running the farm to have to come back home to a family and tell them that they have to give it up when they have been doing it for years, is heartbreaking. Most of the people involved in this sector built their businesses from the ground up - from very small units - over the years. It is heartbreaking for us to be here representing those core groups. The worry is that it started at around 7%, and we are now up at around 10%. The figures I referenced are Teagasc figures; they are not mine. If there is not proper intervention, the worry is that we are going to end up losing 30% of the sector. What happens then is that the entire sector becomes very vulnerable and unviable. What we will see then is that we will end up just supplying the domestic market. The whole system will become inefficient and we may lose a processing plant as well. That is the real concern. These are the key reasons why farmers and industry came together and are willing to put their own money on the table to protect the sector into the future.

Deputy Michael Fitzmaurice

Would I be correct in saying that there is no point talking about a Brexit fund for the simple reason that for the next six, eight, and perhaps ten months, the pig sector is going to go through a wobbly enough time. After that, the projections are looking fairly good. Teagasc predicted that will happen in February of next year. Whether it is the Brexit fund or a bank, applicants have to be able to show that they will make some money that year. It is governed by Central Bank rules, even though the Government will be backing it up, in fairness. Applicants have to have a business plan or they will not get the money. We have to go with the stability fund. Basically, there is no other choice, or else the sector will be in serious trouble.

Mr. Cullinan spoke about Bord Bia. What new markets have we got? We know that Brexit has been going on for a good few years and we know the dangers involved. What new markets have we got over the past few years? There is another side to the pig sector. There are merchants that supply a lot of meal, to put it simply. Obviously, the credit that some of them give to the pig producers will be getting tighter for the simple reason that they cannot withstand everything with the way the price of meal has gone. Where is the IFA seeing the problems there?

As has been pointed out, no more than the BEAM scheme, farmers' hands are nearly tied behind their backs with all these requirements that when they are given a few pounds, they have to reduce by X amount. Some of the pig producers to whom I have spoken have basically put the sows back in banbh again, to put it simply. According to the IFA's calculations, or maybe those calculations are not available, is there much of that going on? Are the representatives of the IFA meeting the Department again? If we can agree to do so, I recommend that send something today to the Minister to ask him to urgently address this issue. In fairness, the pig producers that I have talked to are pretty desperate at the moment. They need support.

Deputy Michael Collins

I welcome the witnesses. I have one question. The IFA has figures and Teagasc has figures, and Teagasc feeds information back to the Government. I cannot understand why a paltry package of €7 million in funding was provided a month or two ago, given that there is such a crisis in the pig industry. It seems that there could be another €13 million in funding - that is not anywhere near what is needed - with a 10% cut-off for a herd, which is an astonishing situation for pig farmers to find themselves in. Some of them are paying up to 70% more for their feed. I have been talking to those working in the pig industry in west Cork, even as late as last night. Some of them are have gone out of business or are going out of business. It is a very serious situation. The Government is slightly out of touch and the Minister is very out of touch on this issue.

I ask Mr. Cullinan to explain why the pig and poultry industry are outside of CAP payments for their food products which are 100% quality assured, welfare compliant and nitrate compliant? They are also land-based enterprises, due to the fact that all products consumed by the animals are land-based, and all products excreted by the animals are excreted back onto the land.

Mr. Tim Cullinan

I will address Deputy Fitzmaurice's questions first. I did mention Bord Bia. Trade missions will be under way before the end of April. Bord Bia is going on a trade mission to the US and to Mexico, which is welcome. As I said already, there is a demand for pig meat in Mexico. That is important. We always need to be striving for new markets. We were the sector that paved the way in China for many years. How this crisis came about was that the events in China in 2018 and 2019, with ASF, created a massive demand for pig meat all over the world. Thus, the price increased. What happened was that obviously, there was expansion all over the world as well. The Chinese are back producing a lot of pig meat themselves, and that market is more difficult at the moment.

Deputy Michael Fitzmaurice

Was there much of an increase in Ireland, percentage wise?

Mr. Tim Cullinan

Yes. Last year, more than 60% of our exports went into the Chinese market, which is a substantial amount of pig meat. There was a lot of work done with the processing sector in Ireland to develop that market over the years, to give credit from that point of view. A great deal of work was done there. Now, there is a concern around China. Again, the Deputy is right. We need to keep evolving. We need to be seeking out newer markets continuously. That is the nature of the business. It is the same as any other sector in agriculture. The Deputy made the point about credit. He is right. It is very worrying at the moment. It is about farmers having the cash to pay for feed. It is as simple as that. The price that farmers are obtaining for their pigs at the moment will not even cover the cost of feed. Then there are all the other incidental costs after that. Therein lies the problem. The Deputy made the point that many farmers are giving up on going back and rebreeding sows. As I have said, according to the figures we have, 10% of those in the sector are leaving at the moment. If we cannot find a solution to this, we are being clearly told by Teagasc that we could see 30% of the farmers making that decision in the months ahead. That is how serious it is.

In response to Deputy Collins' comments on the funding package, he is right; we always acknowledge any funding that we get from the State. We understand that it is taxpayers' money. However, it just was not enough. We are talking about the enormous amount of credit that is involved in the sector. The number of farmers in the sector is very small. We acknowledge all of that. On the €13 million, if that funding is provided, we will always acknowledge that we are receiving taxpayers' money. However, it is not near the proposal that we have on the table. It is a huge concern for us. The reason that pig farmers have not been receiving CAP payments is because pig farming in Ireland is mainly based on a small number of hectares.

Prior to decoupling, farmers would not have had pigs in fields. Pigs were never included in the commonage farm plan payments anyway. That is not the issue we have. We want to continue running the businesses as we have been doing in the past but we are at a critical juncture and we need to get support from our Government to get the system up and running again.

Senator Joe O'Reilly

I am thankful for the opportunity to say something about this matter. It is good to hear from the IFA president and his team. This is a very serious matter in the county I am from. It is a reasonable estimate that approximately one third of the production in Ireland is based in County Cavan. The witnesses might confirm that. There may be a relatively small number of farmers involved, but this takes in a large number of jobs. These are indigenous and local jobs, with entire communities built around the pig industry and pig farming sector. Schools and shops depend on spin-off effects in small villages and towns. Small farms are sustained because a person with a small farm can work in the pig sector and make a bit of money to supplement that farm and keep it going. The estimated job numbers nationally are 8,000 but there is a much greater economic impact in this.

The IFA president compared this with the likes of Intel. That comparison is absolutely true. Moreover, in the areas we have these jobs, we could not attract other industries and, normally, we could not attract other jobs. We would be dislocating entire communities. The pig farming communities in our county are involved in GAA clubs and myriad other ways of supporting local communities. The implications of this sector failing in a county like Cavan are enormous.

The IFA president indicated is that 50% of the market in the UK has gone but where is the other 50%? Where is that country sourcing product to replace that from the Irish sector? Could we double back on it at all? The milling sector is under enormous pressure. If that sector collapsed partially or fully, even when better days arise, there would be a major structural problem in getting the industry up and going again. Will the witnesses comment on that?

Will Mr. Cullinan or his colleagues explain the position of the Brexit adjustment fund? From their professional work and involvement with Brussels they might know about the fund and who will benefit from it? Surely a county like Cavan, on the border with Northern Ireland and hit by Brexit in myriad ways, with the possibility of losing its indigenous pig industry, is a classic case to benefit from the fund?

It is not popularly understood that €50 million was being offered from the farming sector. It is missed by many people in the news and that must be said again. It was a patriotic and very reasonably structured offer. What is the difficulty there? Where precisely is the difficulty in implementing that loan scheme? It seems to me that such an opportunity should be grasped immediately. As my colleague, Senator Lombard, said, this has been done in the insurance industry and it appears a very reasonable proposition. Where is the difficulty and why can we not do it? Will the witnesses comment on the position of the Brexit adjustment fund? It is right that there would be direct aid and there are stories that there shall be announcements after today's Cabinet meeting. We support sectors in difficulty in this country.

Will the IFA president and his colleagues explain their comment that the markets may pick up next year? Perhaps that could be properly understood by the Government and the people. Surely if there is a prospect for the market improving, it would an absolute scandal and verging on criminality to allow the sector to collapse? I was speaking with a pig farmer the other night; I regularly chat to such people as they are all my neighbours or based around me. This pig farmer named four or five other pig farmers in the area who were in the process of going out of business. That will affect jobs, local shops and schools etc. Will the witnesses comment on that? I thank the Chairman for the opportunity to speak. This is a crisis, and it is not being taken sufficiently seriously in the context of the parts of the country it is hitting.

Mr. Tim Cullinan

I thank the Senator. His first point is relevant. This is not just about 250 farmers but also the communities around them. The Senator is correct and approximately 30% of the pigs are in his own county of Cavan. Cavan, Cork and Tipperary are the three counties that would be affected, predominantly. There are pigs dispersed right around the country as well, however, and we should always be cognisant of jobs in rural communities.

The Senator asked who is displacing Irish pig meat in the UK market. The Dutch and Danes would clearly do this. There is price pressure across Europe. There was a major outbreak of ASF in Germany last year. It put pressure on the European price and they were displacing us in that market. The Senator also asked what would happen if the milling sector collapsed. We are here trying to ensure no industry collapses here. We are a united sector, involving farmers, millers and processors, and we want to ensure everybody can survive. It is why we are concerned about the funding.

The Senator also asked about the Brexit adjustment reserve and that fund must be distributed by the end of 2023. The clock is ticking on that. My understanding is that the only funding to which the Minister is committing now is around fishermen and where boats will be tied up. There is a substantial amount of money. The Senator is correct in saying we cannot get as much of our product into the UK market. This is about diversification and we could definitely diversify some of our produce to another market. Bord Bia and everybody else must come on board and have initiatives around that. It is very important.

The Senator also made a point about the €50 million stability fund. We have been very clear and Teagasc has done the calculations. The quantum of money we are speaking about is required. We have a State body indicating that this is the way to do it. I have always said that where there is a will, there is a way. If the Government wants to find a way of doing this, it can be done. We have been very clear coming in here. I was part of the negotiations for a statutory levy in the past. I have heard from the Department that this would require primary legislation but none of the Members in the Oireachtas would object to such primary legislation that would keep a sector alive in Ireland? It is one of the reasons we have heard and these are the obstacles we are currently trying to overcome.

The Senator's final point concerned the potential turn in the market and I am very confident the market will improve. We can look at what has happened globally. There was an increase in the amount of pig meat produced across the world and there was an outbreak of ASF in Europe, particularly Germany and Poland, and there has been a massive reduction in pig production right across Europe. That had an effect of anything up to 3% or 4%, and it might even reach 5%. Traditionally, if we see a reduction across Europe of 1% to 2%, we can see rebalancing in the market. We are now at the point where the industry is ready to turn and it is about getting funding to get us through the cycle. We are coming near to the end of the cycle, which is critical.

The vice chair of the national pigs committee is here and he might want to give his perspective from the farmer's point of view.

Chairman

We are almost out of time but I will give him an opportunity.

Mr. William Murphy

Teagasc predicts that we will be back making profits next year. It is important to note that, as drastic as it is, this is a short-term situation. To bring it back down to farmer level, the average-sized farm in Ireland is predicted to haemorrhage €500,000 this year. For any individual farmer to be haemorrhaging this amount of money is unsustainable. If a farmer goes under we would be looking at the loss of seven jobs on the farm and another 53 indirect jobs. This would also lead to a loss of €6.5 million in exports. It is important to realise that farms of this size are generally sustainable. We have all been through and come out of a hog cycle. These are unprecedented times. We are 30% behind where we need to be to survive in the coming months given the price of pigs. Hopefully this will close in time. Teagasc has predicted it will happen next year but we hope it will come a bit sooner. To give an idea of the level of support today, we have heard about the €20,000 and the €70,000 packages coming to farmers. They will just cover the losses for April and May. We went to the Government looking for an aid package to support us for a year. We are a long way off the mark.

There has been speculation about a reduction in the herd. The farmers who phoned me earlier said that this is a non-runner. Something that has been successful for pig farmers over the years, and a reason we have weathered many storms, is that we have been extremely efficient. This proposal would take away one of our tools as it would leave 10% of our facilities lying idle. These are facilities that cost €1 million. It is not sustainable.

I am slightly disappointed with the lack of understanding the Government has shown in respect of the whole situation. We have failed to address the situation with the level of money that has been offered. Trying to tie in stipulations on a reduction in production on farms is a real misunderstanding of how Irish pig farming works.

Chairman

I thank the IFA for coming before the committee today. This is very much an evolving situation. I am sure we will have further discussions on the packages we are hearing about in the media that will be put on the table. No one can deny that the sector is in dire crisis. The level of loss is unprecedented in any sector in my time. There is a perfect storm with a price that fell due to oversupply followed by the costs of input spiralling out of control. The sector is in severe difficulty. It is a very important sector for the economy. As everyone has said, it is the third most important agrifood sector. We will examine in detail the package that was put forward by the Minister that went to Cabinet this morning. We have media reports but we do not know exactly what is in it or what has been proposed. This is something we will return to in the very near future. I again thank the witnesses for coming before the committee and giving us their views on what needs to be done to save the sector.

Sitting suspended at 2.44 p.m. and resumed at 2.48 p.m.

Chairman

From MII, I welcome Mr. Philip Carroll, chairman, Mr. Cormac Healy, senior director, and Mr. Joe Ryan, director.

Witnesses giving evidence from within the parliamentary precincts are protected by absolute privilege in respect of the evidence they give to the committee. This means witnesses will have a full defence in any defamation action for anything said at a committee meeting. However, witnesses are expected not to abuse this privilege and may be directed by the Chair to cease giving evidence on an issue. Witnesses should follow the direction of the Chair in this regard and are reminded of the long-standing parliamentary practice to the effect that, as is reasonable, no adverse commentary should be made against an identifiable third person or entity. Witnesses who are giving evidence from a location outside the parliamentary precincts are asked to note they may not benefit from the same level of immunity from legal proceedings as witnesses giving evidence from within the parliamentary precincts and may consider it appropriate to take legal advice on this matter. Privilege against defamation does not apply to the publication by witnesses, outside the proceedings held by the committee, of any matter arising from the proceedings.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make any charges against any person outside the Houses or an official, either by name or in such a way as to make him or her identifiable. Parliamentary privilege is considered to apply to utterances of members participating online in this committee meeting when their participation is within the parliamentary precincts.

We have had an outline from the IFA about the seriousness of the situation. We have been lobbied very strongly by the pig sector for a number of weeks. It is under serious financial hardship. We have media speculation and statements about the package announced today and agreed at Cabinet.

The witnesses represent the industry. What I want from them is their perspective on where they see the market going into the future. Do you see prices recovering? What caused the price to collapse in the first place? How long do they think the price recovery will take? Is a correction in supply required to bring about that price recovery? The witnesses have serious insight into those matters. Is there a need to secure markets as a result of Brexit? There was reference to how much market share we have lost in the UK as a result of Brexit. Where can we regain that ground and where are the best markets to try to regain that ground and try to get on a level footing? That is the type of background we would like to get from Mr. Carroll, Mr. Healy and Mr. Ryan, if that is possible.

Mr. Philip Carroll

We can probably address all the issues the Chairman mentioned during the course of the exchanges we will have this afternoon. First, I thank the committee for inviting us to the meeting. We are very happy to be here. MII welcomes this opportunity to contribute to the discussion on the current severe crisis facing the Irish pig meat sector. We have strongly advocated for a Government support package in response to the sector’s submission to the Government in recent weeks. While acknowledging that the Government has sought to support the sector, the package brought to the Cabinet today, insofar as we are aware of the details, falls well short of current losses being incurred. In our view, the Government will have to be open to reviewing supports as circumstances in the markets evolve.

MII is a trade association within IBEC. We represent primary meat processors; we do not represent the secondary meat processing sector. Our members’ processing facilities are located throughout rural Ireland. The primary pig meat processors employ more than 2,000 people directly and many thousands more through linked employment.

The pig sector is facing an unprecedented challenge, with unsustainable losses being experienced due to a major escalation of feed costs. Fuel price inflation is also driving on-farm costs, as well as at processing level, in terms of energy, packaging, transport and deep-sea shipping rates. Over recent years, the sector has faced a series of challenges, including Brexit, ASF, outbreaks in the EU, the Covid-19 pandemic and a turbulent Chinese market. In the fourth quarter of 2021 producers were already contending with rising feed costs pushing them into a loss-making position. However, since the onset of the Russia-Ukraine conflict, we have witnessed an unprecedented and rapid escalation in grain and protein prices, which has crippled the sector. Additional shipping costs further increase feed prices in Ireland compared with those on the Continent. These losses were well documented in the joint IFA, MII and Irish Grain and Feed Association, IGFA, submission to the Minister for Agriculture, Food and the Marine, Deputy McConalogue. Based on independent Teagasc analysis, the pig production sector is currently losing €15 million per month. It is estimated that in the period of October 2021 to March 2022, pig producers will have incurred losses totalling €160 million. While this sector has always endured cyclical economic fortunes, the sector cannot withstand the level of losses it is now encountering. Significant stabilisation and liquidity support is urgently required from the Government.

The sector, although concentrated in structure, is a major employer supporting some 8,000 jobs throughout rural Ireland. It is the third largest agrifood sector after dairy and beef and contributes €1.7 billion in annual output value and almost €1 billion in export earnings to the economy. It is a sector that does not benefit from CAP supports, but if it is to survive, assistance is urgently needed to get producers through this period and to maintain critical mass of the sector so it can recover and continue to contribute positively to the economy in the future, as it has done for decades.

From a market perspective, pig prices have been at a low cyclical level for 18 months now, due principally to the impact of ASF arriving in Germany and significant volatility in the Chinese market, which is a major global importer of pig meat. Despite the challenging market environment, the processing industry has delivered prices to Irish producers that are well ahead of the EU average and the prices in the main EU pig producing member states over the last year. Depressed prices were exacerbated by rising feed costs over last autumn. Since September, the Irish pig price has been 10% above the EU average price and, overall, has been 15% ahead of the price across the seven member states that account for 80% of total EU pig meat production. Processors have done everything possible to support their producer suppliers over this period, something which I believe is recognised by all in the sector. This was acknowledged by Mr. Cullinan earlier.

The pig price in recent weeks has increased by approximately 20 cent per kilogram to 170 cent per kilogram. Unfortunately, this does not bridge the gap between feed costs and market price. More support is needed to help bridge this gap through an unprecedented price cost squeeze. We believe that further improvement in market returns will come, but markets take time to adjust, especially across our export markets globally. Processors have worked to secure price increases here on the home market with secondary processors and with retailers. Some progress has been made, but more is needed. However, the home market only accounts for approximately one third of overall output so we are also reliant on export markets to improve, albeit our influence there is obviously lower than on the domestic market. While we believe that the gap between production costs and pig price, largely driven by feed costs, will close over the coming months, the scale of current losses needs urgent external support from the Government to get producers through this period. Producers have already incurred significant losses and face more in the months ahead. They are being forced to exit the sector because of the unprecedented hike in feed costs. Irreparable damage will be done to a sector that is a key element of the Irish agrifood economy.

A comprehensive submission to the Government seeking a stabilisation fund was made in March. This proposed a combination of direct aid from the Government or the EU and an additional element that would be repaid through a producer levy over time. We believe that this is a progressive approach. It needs to be acted upon now.

Again, I thank members of the committee for the opportunity to present here today and call for their support for the pig meat sector.

Chairman

I call Senator Lombard, who will be followed by Deputy Carthy.

Senator Tim Lombard

I welcome the representatives from MII and acknowledge their contribution to this important debate. Will they elaborate on where they believe the market stands? The Chairperson mentioned that. Where do they believe the market will go in the next six or eight months? I realise that this is a crystal-ball matter to some degree. They might also elaborate on how efficient the pig industry is and how competent and capable it is in how it produces its product when one takes the world market into consideration and also when one takes into consideration how much it plays into the European market and how big or small an operator it is in that regard. If one were to believe the media in the last few hours about the proposed 10% cut in our pig herd, what impact could that have on the marketplace in the future from the Irish perspective? Will it have a significant impact on Ireland and what will it do to the impact of the oversupply in the European market, if any?

Deputy Matt Carthy

I thank our guests for attending. In terms of the role of the industry in the current crisis, is it Mr. Carroll's position that the sector cannot pay more than it is currently paying and that there is no further scope for that? Is there a particular reason for there being such a disparity between the prices being paid in Ireland and the EU average? I have more questions, but perhaps I could get a response to that one first.

Chairman

That is bordering on Senator Lombard's question as well. Perhaps the Deputy could finish the questions and then we will go back to Mr. Carroll, or does the Deputy want to deal with that matter first?

Deputy Matt Carthy

Yes, I will get those specifics first.

Chairman

I ask Mr. Carroll to answer the questions from Senator Lombard and Deputy Carthy.

Mr. Philip Carroll

I will go over some of the situation with the markets, and then I will ask my colleague to fill in more of the detail concerning where this aspect is impacting on the current scenario. The first point to address is the scale of our operation relative to the European market. The scale of operations in Ireland represents approximately 1.5% of the total value and volume of the European market. Therefore, we are a relatively small player. We are exporting product into markets such as the UK, about 30,000 tonnes annually, the EU, approximately 45,000 tonnes annually, and Southeast Asia, about 170,000 tonnes annually. This means that significant volumes of exports are going outside the EU and more local markets, such as the UK. Each of those markets, in one way or the other, has shrunk considerably over time and this has led to a substantial amount of market distortion across all these sectors.

Regarding the economy and efficiency of production in Ireland, when we consider the scale of prices delivered by primary meat processors in the market over the past year or thereabouts, we can see that the Irish price has been considerably ahead of the prices paid by other EU producers. We can go into some of the details of those numbers. The context of the scale of the operation here and the necessity of moving our product off this island and into all those markets shows there is a significant differential between the price we are paying and that of others. Our price is ahead of what is paid by our competitors and has been for a significant period.

As far as the European market is concerned, the situation concerning ASF was one of the driving forces for the downturn that has occurred in recent times. The legacy of that situation is still having a hangover effect across the European market. Equally, the Chinese market, which, as I indicated, takes the largest proportion of the total volume of product exported from Ireland - and serving a market so far away has considerable cost implications - has essentially collapsed in respect of price. That has been the case for European suppliers as much as it has been for Irish suppliers. Despite all these prevailing circumstances, we are still in a position where we are leading on price. We are a small player in a global market. We are delivering considerable returns in the Irish market, notwithstanding the pressures which exist and the resources required to allow us to export into those markets.

Turning to the 10% cut mentioned by the Deputy, we must still see whether that materialises in the decisions made by the Government. It does not make any sense to us at all in the context I mentioned, namely, that we have 1.5% of a global market. If we reduce production in Ireland, we will simply allow pig meat to be produced elsewhere. Ours is such a tiny proportion of that bigger market that it is easy to visualise how that much additional production would then emanate from elsewhere. On the role of the industry in this context, I mentioned that the prices have led considerably. We are currently 10% ahead of the EU average price and 15% ahead of the price being paid by processors in the seven or eight countries that produce or process 80% of pig meat in the EU. That has been the response of the pig meat processing sector.

Deputy Matt Carthy

What is the EU average price now?

Mr. Cormac Healy

We will check the current average price for the Deputy. To clarify one point, Irish pig prices in the past 12 months have been 10% ahead of the EU average and, as Mr. Carroll said, 15% ahead of the prices paid in the eight countries that account for most pig meat production. Our prices have been ahead in that context. Even in the last three to four weeks, prices have jumped. We saw a dramatic jump in the German price, which had been at €1.20 per kilogram for many months. I can tell Deputy Carthy now that the average EU price is between €1.85 per kilogram to €1.87 per kilogram. Today, we are at €1.70 per kilogram. During the past 12 months, and especially since September, when feed prices were already beginning to rise, the reality has been that pig producers have been going into a loss-making situation. Throughout that period, our price has been stronger than prices in all of Europe. There has been a jump in the price in the past three to four weeks, and our price has gone up as well. The Deputy asked if we see more happening in this regard. The expectation is that all markets will have to respond to this situation and reflect the level of input cost increases, but this is not happening at the rate we would like it to. Even in those member states where the price has jumped in recent weeks, I do not know if that is sustainable. There has been a response, however.

Returning to the Chair’s initial question concerning the markets, and perhaps we do not need to rehearse everything that has been said already, it was mentioned earlier during the discussion with the representatives of the IFA that prices were at a high globally in 2019 and into 2020. Since then, they have been in a downward spiral globally, across the rest of the EU and here. Two major factors have been driving this trend. The first was the outbreak of ASF in Germany. That had a cascade effect because the country was banned from exporting to many international markets. Consequently, German-produced pig meat was largely confined to the European market. This occurred at a time when production had also increased in response to the higher price being paid in the previous 12 to 18 months. The second major factor was China becoming a disturbed and volatile market in the past two years. Prices paid in China in March were 50% of the level they were at a year ago. There has been a great deal of disruption in that country and that has largely led to the global fall in prices in the past 12 to 18 months.

Moving on to diversification, we are examining this aspect. There was a loss of market in the UK, which was connected to Brexit, as well as to ASF, because cheaper continental product was going into the UK market. We have probably maintained or even slightly increased our position in the EU market, while there has been significant diversification in exporting product into international markets, particularly Asian markets. China is the main market there, but we also export product to Japan, South Korea, Australia, the Philippines and the US. Those are the large international markets we target.

The new markets we are working on and seeking access to include Malaysia, Thailand and Myanmar, even though that is probably very challenging now. Other new markets we have been working on include Mexico, which is one of the biggest pig-producing and pig-importing countries in the world. Its market is largely dominated by imports of US pork products, but we have got access to the Mexican market. The first consignments of our product only went there in recent months. It is a new market, but one we hope we will see expanding.

Deputy Matt Carthy

I have some short questions and I ask for brief responses. I am conscious of the time. We were discussing earlier with representatives from the IFA the potential for what would essentially be a loan scheme, with funds allocated to that scheme being paid back through a levy. Would the witnesses see the meat industry as having the capacity to put money towards such a scheme?

Mr. Cormac Healy

We have sat down with the IFA, the IGFA and millers in the context of this crisis because they are interdependent parts of the sector. The proposal that was put to the Government, and which we are still firmly behind, was a 50:50 split between State assistance and a repayable levy. The proposal is based on a producer levy and it is producers who would get the money from it. Neither millers nor processors would be involved in the contribution to that.

Deputy Matt Carthy

No. I am asking whether the meat industry would, if the Government were open to the proposal but said it needed to get the financing from somewhere, make a contribution. Would the meat industry work in partnership with the-----

Mr. Cormac Healy

The proposal has already been made. In agreement with the IFA, farmers and the pig committee, the repayable element would be funded through a producer levy. I would not change the proposal.

Deputy Matt Carthy

I understand that part, but the levy would be used to repay the funding stream.

Mr. Cormac Healy

Yes.

Deputy Matt Carthy

In order to have that funding stream in place, would the industry be in a position to work with the Government and financial institutions to provide the funding in the first place?

Mr. Cormac Healy

I do not believe it would be. Its resources should be going towards pig prices and developing markets. The proposal is to work with the Government to try to find a long-term loan arrangement. The Ireland Strategic Investment Fund, ISIF, has been mentioned in that context. That is where we will work.

Deputy Matt Carthy

My next three questions are interlinked, so I will ask them together. Slaughter capacity was the starting point of us being made aware of the potential crisis in the pig sector. I first became aware of the crisis when factories in the North indicated that they could not take southern stock due to labour shortages. Has the issue of capacity been addressed in the intervening period? I also noted commentary about the availability of departmental veterinary staff at plants affecting capacity. Has this issue been resolved? Can Mr. Healy say with confidence that MII's members are in a position to ensure that we have a free-flowing market that addresses these elements of the crisis?

Mr. Cormac Healy

I cannot comment on the Northern processors other than to say that Northern Ireland had a significant increase in domestic pig output, which was probably prioritised for processing capacity. Last year, there was approximately a 5% increase in processing throughput in the Republic. The situation has been managed as best as possible. There have been times of tightness due to labour issues, including availability. The industry is continuing to work through those issues. There is a constant pipeline, with pigs coming off farms every week, so the industry has to work closely with suppliers. It is doing so. The pig sector has increased in size over the past decade and the industry has constantly invested to ensure it is ahead of that increase.

I am unaware of any veterinary shortages or issues at this point in time.

There is capacity. Short-term changes often pose problems. A processor needs to invest, build up and ensure there is a market outlet. There may have been some element of this over the past 12 months with pigs that used to go to Northern Ireland suddenly being unable to. In an overall sense, though, we processed 5% more pigs last year, which was a considerable achievement, given the tightness in terms of labour.

Deputy Matt Carthy

I have a broader question, which I also put to the IFA, on the heads of the Minister's Bill on an office of transparency and fairness for the sector. What might the impact of that office be on the meat industry and has Mr. Healy concerns that it could lead to greater regulation of his sector?

Mr. Cormac Healy

Maybe it will lead to a full understanding of what we have been saying for some time about where margins are across the supply chain. We will work with the office. We are aware of the general scheme of the Bill that has been produced. The reality is that, for the past 12 months, Irish pig meat processors have been paying well ahead of their European counterparts. Delivering the strongest price possible is what the industry needs to be about, and the figures show that it has been delivering ahead of the major competitors. Regardless of whether there is another Bill, market conditions will determine that. Our continuing development of new markets is the most important thing for the price that is delivered and the sector's viability.

Deputy Matt Carthy

I thank Mr. Healy.

Deputy Michael Fitzmaurice

I thank the witnesses for attending. What is the pig industry's throughput in factories? When pigs were dying in China, it opened a large market for us. By how much have Irish farmers increased production since then for throughput to the processors for export, for example?

Mr. Cormac Healy

Last year, 3.6 million pigs were processed in plants in the Republic. In 2018, that figure was just short of 3.4 million, so there has not been a significant increase in recent years. Over the past decade, there has been a good increase in productivity levels in the pig processing sector. Much of that has been down to the work of farmers in terms of genetics and the development of their breeding and management processes. This has given rise to a situation where they have increased the number of pigs per sow per year, which has driven the increase in productivity. According to Teagasc's figures, there are approximately 145,000 sows. That number has remained largely constant or even contracted a little over the past decade. The real gain has been through breeding, management and pigs per sow per year.

Deputy Michael Fitzmaurice

When the price of pig meat was at its height because of a shortage during the crisis in China, how much did it cost per kilogram? Mr. Healy stated that it had increased by 20 cent in the past two weeks. Is that right?

Mr. Cormac Healy

Correct.

Deputy Michael Fitzmaurice

To what does that equate per pig? Is it an 80 kg or 90 kg pig?

Mr. Cormac Healy

An 80 kg pig.

Deputy Michael Fitzmaurice

That would be €16, so.

Mr. Cormac Healy

In recent years, pig prices reached approximately €1.90 or €1.95. That was the highest point ever.

Deputy Michael Fitzmaurice

Is Mr. Healy saying that it is €1.75 now?

Mr. Cormac Healy

It is €1.70 in Ireland now.

Deputy Michael Fitzmaurice

What are MII's market projections for the coming months? Various things have been said. For example, Teagasc has stated that it could be next February. What is MII's view of the markets?

Mr. Cormac Healy

There are two dimensions to this issue. The cost of feed is a major aspect and has placed pressure on production levels. We would need to look into a crystal ball to know how feed price will evolve. We hope that, through developments in this year's harvest and so on, we will see a stabilisation in feed prices and some of the volatility and uncertainty dissipating. Due to the disruption and volatility caused by the war, feed prices are probably at a premium. We hope to see prices standardising. Nevertheless, Teagasc's figures suggest that, due to the cost of feed, the break-even price needs to move towards €1.90 to €2. We still have a way to go in terms of the market price. We hope to see an easing of feed prices. The market price would have to respond.

Deputy Michael Fitzmaurice

Mr. Carroll said we account for 1.4% or 1.5% of European pig meat production. It will probably come down to supply and demand. I remember Mr. Healy being in here before when cattle prices were depressed and cattle aged over 30 months could not be taken or there had to be three movements or whatever. We see a totally different sector now and nearly anything that stands will be taken. Does the worldwide pig sector need to balance itself out or are there big extra numbers throughout Europe? Mr. Carroll talked about Denmark and other places. Is that a factor?

Mr. Cormac Healy

The chairman pointed out that annual pig meat production in Europe is over 23 million tonnes. We produce about 300,000 tonnes in Ireland annually so we are less than 1.5% and anything we do will not influence it. There are a number of dominant markets around the world that will dictate what happens. China is the major importer of product and the EU is a significant global player that exported in the region of 6 million tonnes last year, which gives it a big influence. Then there are North and South America. We expect to see some easing in production across the EU in response to what has been a difficult price and cost situation. There will be some response in easing production. Production is back considerably in Germany as well and they are operating well below their normal throughput levels, which should help to stabilise matters.

I mentioned China and you hear talk about Japan and South Korea as well and they are still struggling with Covid and the pandemic. Members have all heard about the new lockdowns in China in recent times and it is still causing disruption in the food service and in demand there. It has to be expected that prices and imports in China will increase as the year progresses. I stand to be corrected on this but I think that domestic production in China is operating below the cost of production. Their retail pig price is 50% of where it was one year ago, as is the piglet price. Import prices are about 30% below where they were one year ago so there has to be a level of price recovery. They cannot continue to produce below the cost of production and hopefully the rising tide will lift all boats. The US remains strong in its domestic demand and their price has been strong. Some of those farmers are far less impacted by the feed cost issue we have in Europe. The reality is we have an additional feed cost again in Ireland because we have to get the material, including the grains and protein, across. That is an added cost in the context where we all know that transport costs are increasing dramatically.

Senator Paul Daly

I will make three quick points. First, Mr. Healy mentioned prices and said we have been ahead of the European average for the past year but at the moment we are €1.70 per kilogram and the European average is €1.87. Why can we not keep with the European average? What is influencing that?

Second, farmers are vulnerable once the input costs go up because they are price takers. For example, if I am feeding pigs and the pig is fat then the pig has to go but I am told the price on the day. If I am making coffee cups and my input costs go up I will sit down and assess my input costs and put my margin on it. I will not sell the cup unless I am given what I need to cover my costs. With that in mind, the day has to come when the end user, the consumer, will have to carry some of the flak. It cannot be the farmer at all times. What kind of downward pressure are the retailers and MII's customers putting on it to maintain the current price? What kind of contracts is MII tied into with the people it is supplying that it cannot pass on some of this to the next layer? I know it is hard enough with inflation but the farmers should not be carrying the can for the end user and consumer. The CAP was a cheap food policy but that day is long gone. How come the market cannot be regulated to try to get part of what is being lost onto the product and to get the price up to where it needs to be? Is there serious downward pressure being put on MII by the big multinational retailers? Is MII tied into price contracts? Why is the situation like this? If it is a coffee cup or any product other than a farm product, the producer adds the additional costs to the end price and the customer takes it or leaves it. I hope I explained the question I am asking correctly. I know we are price takers and that has always been the kernel of farmer problems. The day will have to come when someone else will have to start carrying the can. Can MII, in its position between the two sides, influence that? If not, why not?

Third, I have spoken to the IFA and they have already told us that 7% of the farmers are gone already with the potential for 20% or 30% to leave. That is all sows that are going out of circulation and out of the system. Can MII see a day coming when it will not be able to meet its contracts if this continues much longer? Will the pig meat be available to fulfil the contracts MII has if the worst case scenario of 20% to 30% of the pig farmers going out of the business came about? That would be a serious amount of sows out of production. Could it come to a point where, irrespective of getting new markets, MII will struggle to meet the contracts it has?

Chairman

I will take Deputy Michael Collins's questions before I go back to the witnesses.

Deputy Michael Collins

Some of the questions I wanted to ask have been asked already so I have only three questions. First, Mr. Healy is saying the EU average is €1.85 to €1.87 per kilogram and MII is paying €1.70 per kilogram. That is my assumption and that was only €1.50 up to two weeks ago. How is it MII has been able to pay that extra 20 cent over the past couple of weeks? Why was this not paid to pig farmers earlier when they were struggling severely at that time? Second, as touched on by Deputy Carthy earlier, how can MII, one of the largest players in the industry, not financially contribute in any shape or form towards a bailout plan? It is a no-brainer that it would be involved in some way. Third, why has MII not used its position to collect a levy from the retailer to contribute towards the bailout plan? That could be similar to the levy that is there for the IFA and it could be brought in instead of this levy being put on pig farmers. I would appreciate it if the witnesses could answer those questions.

Chairman

Before I go back to the witnesses I call Senator Joe O'Reilly.

Senator Joe O'Reilly

I share the concern of my colleagues about the fact that the price is below the European average so the witnesses might elaborate on that again. One of the things that made pig farmers fit to cope and deal with volatility was economies of scale. If we reduce the herd by 10% would they lose those economies of scale? On the capacity question, my understanding from some primary producers is that they were finding it hard to get their pigs processed for a good part of this year. Did MII have problems in capacity with its staffing or whatever at different points? If not, why am I hearing that? I am interested in the point about the markets. When does MII see an expansion of the markets happening and where? Could MII put a timeframe on that? It would seem to me to make no sense that we would not support the sector if MII and the IFA are fit to tell us that there are pending improvements and new markets. Surely it is important to tide the sector over to reach that point. It is important that it go out into the news that this potential is there.

Mr. Cormac Healy

I will address some of those points and my colleagues might follow on. Senator Paul Daly talked about the average EU price and the gap with the price in Ireland and Senator Joe O'Reilly has referenced it as well. It is just a point of timing as much as anything. We have come through a period, as I said earlier, when the processing sector here was paying well above what any competitors were paying.

There was a support level to producers. As I said, we have gone through the last 12 months were the Irish price paid to Irish producers was above what was being paid by our competitors. It was above them. Only in the past three or four weeks have prices started to rise in the EU in Germany, the Netherlands and Spain. Only in those last few weeks have they started to increase the price to producers. That will, hopefully, drive on the European market and we will avail of that. I am not party to all aspects of the business but the price increase in recent times was largely driven by work with the Irish market and the domestic scene with retailers domestically and secondary processors. Much of our product goes to secondary processing. It was, therefore, engagement and a push to increase prices through the chain that allowed for an increase. There will be follow-on but as we said, we are not influencers of the market either in terms of our scale of production being less than 1.5% of the EU. There is significant resistance everywhere to trying to get prices increased. If we look at the consumer price index, CPI, figures, as I did yesterday in this context, the 12-month figures to March are still just showing a 3% increase in meat overall. We know there have been significant increases across other sectors be it beef, lamb etc. There have been significant price increases in terms of raw material but overall meat inflation thus far up to March of this year was only at 3%. If I look at those figures, the pork element was even a reduction on the 12-month period.

Therefore, yes, there is much resistance to price increases. Obviously, if we were to try to extract all of the price that is needed here now to go back to producers from the domestic market, we would see some serious inflation in the Irish markets. We must, therefore, look at export markets and international markets. It takes a bit more time for that rising tide to come through and deliver it. The view is that with the inflation that has taken place in the cost of production across the board in Europe, Ireland and elsewhere, it is going to have to drive prices everywhere and then we get to benefit from an increased return from the market.

In terms of volume, various questions were asked around whether we have issues with the supply of contracts etc. Senator Joe O'Reilly also talked about the impact of a 10% reduction in output here. At the moment, what that 10% reduction would do is to undermine the efficiency of individual pig farms and pig units. If somebody is trying to stay in this business, the last thing he or she wants to be doing is putting 90% less product through and adding to his or her overhead. I think it will have an efficiency impact and it would not be something of which we are at all supportive. As we also said at the beginning, it is completely meaningless in terms of the impact, or thinking that it will have any impact, on European or global markets. It makes no sense.

I will hand over to Mr. Carroll to address Deputy Michael Collins's questions.

Mr. Philip Carroll

I might comment on some of the things Mr. Healy said. Deputy Michael Collins raised the issue of the processing sector perhaps in some way contributing to paying into a levy. In terms of the scheme that was put forward by the IFA, ourselves and the millers, first of all, that was not one of the objectives of that scheme. What the producers wanted to do through the IFA was establish a levy that would trigger an investment by the State comparable to the value of the levy, which would be repaid over a period of 14 years and the total value of that fund, which is €100 million, would be set out upfront by the Government initially with a view to having 50% of that repaid.

Now, given that the value of that levy would be returned to the primary producer, the core responsibility of processors in the chain right across this, and Senator Joe O'Reilly mentioned this issue as well, is delivering the best possible market price. Deputy Michael Collins referred to that in the context of the 20 cent increase that was introduced quite recently. The same applies to that. If we look back over the last period, say, to February 2021, given that we have 1.5% of the output at EU level, Ireland has consistently delivered the best price over that period week after week, month after month. Only in a very short period and narrow window in the last few weeks has that price been exceeded at European level. What we have actually done is narrowed that gap as well.

Given all the complexities of trade, the additional costs we face and the fact that we do not have an internal market that has scale, and bearing in mind that for 1.5% of the EU market, 30% of that goes on the Irish market, we have very little influence on the market. The influence we have, however, is to pressurise as much as we can to get a better return from the secondary sector and retail sector etc. That in itself will only deliver a portion of that gap in between, however.

There has been a little bit of a focus in some of the discussion around that price and the price that has been paid whereas the reality, which evolved out of the discussion, is that paying a price at €1.70 was a substantial price to be paid in the pig meat market until we arrived at the situation where we had a massive increase in the input cost at farm level. That response then needs to come from the market but it will only come from the European market. It is not going to come in a decisive way from what is delivered on the Irish market by higher value contracts from secondary processors and retailers. It will only come from the European market. That is beginning to be delivered but we have to see where that lands. Mr. Healy has given the committee an indication of where that might need to land in order to meet those additional costs that primary producers are facing.

On the other issue around the 10% reduction, which Deputy Michael Collins may have mentioned and which Senator Joe O'Reilly certainly did, the key issues we spoke about are where it makes sense on any scale to introduce that type of reduction given the scale of operation we have at the moment with 300,000 tonnes against 23 million tonnes. If we are not careful, we will get our industry swallowed up by the might of the European industry. Picking up 300,000 tonnes is not significant if one is already producing 23 million tonnes. We have to be careful that we do not reduce our competitiveness space further than the way in which it has currently been eroded by the high input prices. Bear in mind that we cannot capture the value of that erosion in input costs from our domestic market. That is a massive challenge. If there is a provision in the conditionality around the fund that is now about to be announced, it cannot include that provision. It simply makes no sense at any level at all. All it simply does is deprive those who are producing efficiently and makes them produce inefficiently. I do not know if there were any other questions.

Mr. Cormac Healy

Senator Joe O'Reilly asked a question about capacity in the earlier part of this year. As I said, the industry here has invested and built up its capacity as the sector and farmers have invested and increased output. What can happen at times is that there is a short kind of almost unannounced or unexpected change in flow. Certainly, last year and perhaps into this year, maybe not all of the pigs going to Northern Ireland were getting up there. Largely, I think it is down to the fact there were perhaps processing issues in Northern Ireland, but their domestic production has increased and that was given priority. As I said, the industry here had a 5% increase in slaughterings last year and will probably have 1.5% or 2% this year so it is getting through them.

There are simple things. For example, you could have an additional bank holiday and that is a day out of production, probably involving 14,000 pigs. Suddenly, the list of producers are back for another week. Things like that can happen. Short-term changes in supply can be an issue, whereas the longer-term development and growth certainly will be met by the capacity and the investment.

Chairman

I thank the witnesses from Meat Industry Ireland for coming in today. They gave us a very useful insight into an industry that is not so often under the microscope. It is the dire financial situation that they find themselves in that has brought it to the top of the political agenda. How we get the pig sector back on an even keel is an issue on which there will be ongoing discussion. I thank Mr. Carroll, Mr. Healy, and Mr. Ryan for coming in to us. We will now suspend to allow the final witnesses to come in.

Sitting suspended at 3.40 p.m. and resumed at 3.48 p.m.