I am disappointed at Senator Ryan for blaming agriculture for pollution. He is wrong to blame the farming community, as farmers everywhere have made great strides to clean up the environment. Many generations of farmers have looked after the environment and will continue to do so.
While many sectors will grow under the Santer proposals, there is still no specific increase in finance for the areas. The Santer proposals are an extension and acceleration of the MacSharry CAP proposals, which involved direct compensation for income cuts, but with certain limits, overall in some cases, per hectare. While the direct payments system is an efficient method of supporting farmers' income, it is more expensive in budgetary terms than price supports and the CAP budget becomes a limiting factor.
It is apparent that the Commission envisages that CAP direct payments will not apply to farmers in new member states on the grounds that they will not suffer sufficient price cuts. The Commission intends to offer some structural aid instead, which is obviously necessary. However, the applicant countries are unlikely to accept that a cereal farmer on one side of a national border should receive approximately £300 per hectare in direct payments under the CAP while his counterpart on the eastern side of the border receives nothing, although both sell their produce at world market price levels. Enlargement on the cheap as envisaged by the Commission may be difficult to achieve, with significant implications for the cost to the CAP budget in the long term.
A further major implication for Irish agriculture is that the Santer proposals in the beef and cereals sectors will cut prices to below the cost of production. This has serious implications for farmers in the long term. When prices are lower than production costs, the direct payment becomes more than 100 per cent of net farm income. Non-production would then be more profitable for many farmers, unless a link between payments and production is maintained. The concept of a direct payments system for non-production would be seen as rural dole funded by Brussels and would be vulnerable in political and budgetary terms.
However, it should be noted that the Santer proposals in the beef and dairy sectors have not gone for full decoupling in terms of area payments. The link between the direct payments and livestock numbers is to be retained in these sectors. Even where the link with production is maintained, cutting prices to below production cost equivalent would inevitably result in low cost-low output agriculture, with implications for the food processing and farm input sectors, the service sectors to agriculture and the Irish economy.
It is a matter of concern that the proposed 20 per cent cut in cereals prices has serious implications for grass-based agriculture. Cheaper cereals will make grain-based livestock and milk production more competitive than grass-based production. The proposed 30 per cent beef price cut and 20 per cent cereals price cut implies a rapid erosion of export refunds after 2001. Ireland also has a disproportionately high dependence on export refunds for beef and dairy products which means the adjustment process will be greater and more costly.
The Santer proposal that member states introduce differentiation of direct payments has many worrying implications. It means that an envelope of money is provided for each sector in each member state. The national government will then decide the rate of payment per hectare or per animal and the individual ceiling on the payment per farmer. If governments interpret CAP direct payments as mainly income supports, then front loading is likely, with serious implications for commercial agriculture. The social agenda will supersede the long-term commercial agenda. This could be the first step to renationalisation of funding of the CAP direct payments. The accompanying measures are already on a co-financing basis. CAP direct payments could be supplemented from national budget resources. The consequences of this for Irish farmers are self-evident.
If Irish grain prices post-2000 are tied to the intervention price of £75 per tonne, all growers will experience a serious reduction in income because of a shortfall in direct payments. Income reduction will be more serious for winter growers of high yielding crops because of a further movement away from support on a tonnage basis to an area basis where average yields are the basis of payment.
The Santer dairy proposals are not as severe as those relating to beef and cereals. The proposals suggest a 10 per cent price cut to be compensated by direct payments. These are costlier for the budget than the current market supports and are bound to be more vulnerable politically. They are short on specifics and assessing their impact on dairy farmers' incomes involves making many assumptions. Santer proposes that direct payments will be subject to a maximum per farm limit, although no figure is given for this ceiling. He also indicates that the amount of dairy cow premium will vary, depending on national average milk yields. Stocking density criteria are not mentioned in the dairy package but would be coherent with environmental concerns and precedents in CAP Reform 1.
An intervention price reduction on beef of approximately 30 per cent is severe. Aids to private storage will be favoured over intervention where possible. Increased direct premium payments will be necessary, particularly for the suckler cow and special beef premia. The price cuts will reduce Irish prices from over 84p per pound to over 59p per pound, a price drop of 25p or £200 per head on the average steer. A 30 per cent drop will cut output in the beef and livestock sector. The increased level of premium payments will be worth approximately £265 million, leaving a net loss of in excess of £88 million.
With the cost of beef production at 80p per pound, a beef price of 60p per pound is well below the cost of production. No farmer can stay in production below cost. Due to Ireland's dependence on market supports such as intervention and refunds, this level of cuts would impact more severely here than in any other member state. If refunds are cut severely, will Ireland still be able to sell beef to our main markets in Russia and North Africa? There is no compensation for price cuts on heifer beef in these proposals.
According to farmers, the Minister's and the Government's priorities on the Santer beef and livestock proposals should be the protection of Ireland's largest agricultural sector, involving over 100,000 livestock producers, the maintenance of the beef price above the costs of production, the maintenance of a meaningful market price support system and the restoration of balance to the EU beef market through increased consumption and reduced production to support beef prices. It is important to secure full premium compensation for any production or price cuts.
Protecting the EU beef budget for beef and livestock farmers is also important, as is eliminating discrimination against the intensive grass based steer beef producer in favour of less intensive cereal based bull beef production. Our suckler cow beef herd must be protected and premium compensation for heifer beef producers must be secured. That sector of beef production has suffered more than most. It is important to ensure that farmers remain in production during the year through the maintenance of deseasonalisation payments for winter finishers. Equality of premium payments on livestock must be secured.
The Santer proposals do not make much mention of the sheep sector but if the price of beef is cut by 30 per cent it will have a knock on effect on sheep production and lamb prices, thus posing serious implications for that sector.
The Santer proposals for the beef and cereal sectors would cut costs to below production levels and when that happens farmers can no longer remain in production. I urge the Minister for Agriculture and Food, Deputy Walsh, and his Ministers of State, Deputy O'Keeffe and Deputy Davern, to make every effort to ensure that farmers can stay on the land. Farmers themselves will take steps to ensure that no one can point the finger at them over pollution. Farmers have been caretakers of the environment for generations and will continue to be so.
I wish the Minister of State well. I have no doubt that in negotiating this package of proposals he will ensure to the best of his ability that the interests of the farming sector are looked after.
