I am glad to have the opportunity to speak on the matter of the crisis faced by dairy farmers as a result of the continuing fall in milk prices. With the Chair's permission, I wish to share time with Senator John Paul Phelan.
Milk Prices.
Is that agreed? Agreed.
I appreciate that the Minister of State understands the gravity of the situation and I thank him for his interest in the subject matter. I know he would concur with my view that down through the generations in rural areas, milk was the liquid gold which kept economic activity flowing. Unfortunately recently and in the past six months in particular that liquid gold has very much lost its lustre. The milk price being paid to dairy farmers has fallen to an unprecedented level. Sadly the statistics speak for themselves. A few short years ago milk was making 34 cent to 36 cent per litre. It is now down to 21 cent or 22 cent. Given that the Minister of State has responsibility for food, he will be aware of the rate being paid for the same product in supermarkets by consumers and the gulf between the producer price and what the consumer eventually pays. The gap in those figures needs investigation.
Based on the statistics it is clear that it is not viable for the vast majority of dairy farmers to produce milk at anything like 20 cent or 21 cent per litre. There was a time when almost every farmer in Ireland was a dairy farmer. Then there was consolidation. When the milk quotas were introduced we moved on to a numbers system whereby one or two farmers per townland were involved in the dairy industry. If the current trend continues there will probably be no more than one farmer per parish involved in milk production because the economies of scale will be such that anything smaller would not be viable, which would be tragic. We need to do everything possible domestically and internationally through the EU to protect family farmers and the smaller dairy units and to ensure that a significant number of farming personnel can remain in the dairy industry. We need to recognise that they cannot do so with milk prices of 20 cent or 21 cent per litre.
From the perspective of policy changes, the milk quota era is coming to an end. That is a problem which could become a solution or vice versa. There are problems on the international milk market by way of milk coming in from third countries. There may be difficulties with demand and excessive supply in parts of the equation. However, we need a political and marketing response as well as a strongly planned response at EU level to ensure the long-term viability of dairy farmers and family farms in particular. We must agree that it is not financially possible for farmers to produce milk at 20 cent or 21 cent per litre. Changes are urgently needed to improve matters.
I thank Senator Bradford for sharing his time. I welcome the Minister of State, Deputy Sargent, on this important issue. I come from south Kilkenny which has traditionally been a strong dairy farming area. I was reared on a dairy farm. I compliment Senator Bradford on tabling this timely motion. I grew up in a household where there were nine of us at one time between my siblings, parents and other extended family members. There were 40 cows and 60 acres and we all lived on it. My brother now has a farm of twice that size. He has two infant children and a wife who works full time. Were it not for her work they could not live off the farm, and he milks approximately 60 cows. That is a sign of the way things have gone.
Only a few years ago, the former European Commissioner for Agriculture and Rural Development, Franz Fischler, who was a controversial man in his own right, had a particular view of the European model of farming based on the farm family. That used to be the model that existed in South America and other parts of the world. However, it disappeared following the arrival of the ranchers, which meant that smaller producers could not continue.
Sadly, if the milk price goes down to 19 cent per litre, which is the lowest end of the range being projected, we will see a complete decimation of dairy farms and rural communities. Towards the end of 2007 the price was 36 cent per litre. We are now being told that by the middle of this year it will reach approximately 19 cent or 20 cent per litre. Even Teagasc's figures show that the most streamlined and cost effective dairy farm operation can produce milk at 16 cent per litre. For those people, that price would leave a margin of 3 cent. The majority of small producers do not have the scale to produce at 16 cent per litre. This is likely to lead to the devastation of what has been a way of life for many people, particularly in the southern half of the country and in the hinterland of County Dublin.
I call on the Government to try to do something to ensure that that way of life is not completely washed away and that people who are producing a top quality product can get a price that reflects the effort they put in. Sadly at present the multiples, which are importing milk from across the Border and selling it below the price of milk produced in the Twenty-six Counties, are making huge profit. It is arguable that the processors are also making considerable profits, even though Glanbia announced some redundancies during the week. It seems that the producer is the one to take the hit. They cannot continue to do that for very much longer. There is still time for something to be done. In other European countries export refunds are being examined as potential solutions. I do not necessarily believe that is the solution. However, we need to do something to ensure the long-term survival of the family farm unit. I believe this is an issue that is close to the heart of the Minister of State and that he would like to see it protected into the future.
Ar dtús báire, ba mhaith liom buíochas a ghabháil leis na Seanadóirí Bradford agus John Paul Phelan as ucht seans a thabhairt dom freagra a thabhairt ar an gceist thábhachtach seo. While I did not grow up on a dairy farm like Senator Phelan, I spent much of my summer holidays with my dairy farming relations near Navan in County Meath and I have that level of experience. In this case, rather than looking back, we need to look forward because the situation is changing so quickly.
The international dairy industry is currently facing significant challenges. Markets for dairy products are extremely weak across the globe as a result of a variety of causes, not least the current economic downturn. While dairy product prices hit an all-time historic high in 2007 and into the early part of last year, prices have now returned to far lower levels and we are seeing the effect of these international low level prices finding their way back though the milk chain to primary producers.
In the past year or so, we have witnessed extremes of volatility in dairy product prices on an unprecedented scale. At their peak, prices almost doubled in value and as a consequence of this and the ensuing supply response, prices have now returned to a level below their peak before the boom began. It is important to stress that the slump in demand for dairy products has many causes. The historically high prices achieved in international markets in 2007 and early last year caused a supply response. The subsequent turmoil in the international financial and banking sector has had the opposite effect and caused a reduction in demand, effectively leading to a very substantial price drop, which, from peak to trough, has resulted in a significant reduction in producer prices.
For these reasons we have consistently pressed the EU Commissioner for agriculture and rural development, Mariann Fischer Boel, whom I expect to meet next week, to bring forward market management supports for the sector in this time of difficulty. The House will recall that the health check negotiations concluded in November dealt specifically with supply control and market support in the dairy sector as one of the key areas of reform. In these negotiations we were particularly concerned to secure an expansion in dairy farm output and to release the constraints that exist on Irish dairy farmers in meeting the demands of global dairy markets. This was a particularly crucial issue for Ireland in terms of providing a framework within which dairy farmers could achieve a greater level of commercial scale ahead of the eventual abolition of milk quotas in 2015. In this regard we were particularly pleased with the outcome which will secure growth of some 9% in additional milk output for Ireland before quota abolition in 2015, after which further growth will be possible as supply controls are finally lifted. Allied with the liberalisation of quotas, we also insisted in these negotiations that critical market supports for the type of dairy products manufactured here in Ireland would continue to function in support of the market to soothe volatility and assist the industry in meeting its competitive challenges. In the event, we managed to maintain the butter and skimmed milk powder intervention schemes intact despite the powerful forces opposing the retention of these schemes.
A determined effort was made to introduce tendering for every tonne of butter and skimmed milk powder intervened. This would have been particularly difficult for Ireland. The importance of these measures cannot be overstated as they play a crucial role in levelling out the market supply-demand dynamics and play a vital role in Ireland given our seasonal pattern of production. This is true also for private storage aid for butter where existing arrangements were maintained though once again a powerful opposition was intent on introducing tendering arrangements. The success we achieved in maintaining these measures fully intact is now much in evidence.
In November, following pressure from Ireland and some other member states, the Commissioner announced her intention to bring forward the opening of the private storage aid scheme for butter in January, two months ahead of the normal date of 1 March, in recognition of the difficult trading situation. However, it had become clear that the early introduction of APS for butter would not in itself be sufficient to stabilise the market, which has continued to deteriorate in the meantime. Following further pressure from my colleague, the Minister, Deputy Brendan Smith, a further package of measures was announced in January. This included the reinstatement of export refunds for butter, skimmed milk powder, whole milk powder and cheese.
The introduction of these measures in recent weeks has not to date provided the level of stimulus required in the market. However given time and further adjustments in the level of support which my officials will be seeking in Brussels next week, the scope of these market measures provide part of the remedy the sector needs at this critical juncture. We can also expect to see some supply-side adjustments as producers respond to market signals.
As we come to the point of low production in Oceania, Australia and primarily in New Zealand, together with lower levels of output in the EU and elsewhere, a realignment in consumption and production across international markets will help restore equilibrium to the markets once more. Side by side with these international factors we must do all in our power to make our production and processing costs even more competitive. For our part we have revitalised aspects of dairy policy in Ireland to meet these competitive pressures. In particular, the Government has allocated a sum of €114 million in support of capital investment in 19 new projects across the dairy processing sector. These will generate an estimated capital spend of some €286 million when fully completed. The purpose of the fund is to increase the efficiency of the main dairy outputs by supporting the upgrading of plant and equipment. This will assist operators in capturing new business in global markets by developing new value added products. On the quota side we have transformed the allocation process through the introduction of the milk quota trading scheme and through legislative measures to secure more flexible approaches to quota transfers and to the establishment of milk production partnerships.
Although markets are currently extremely depressed and we will do everything possible at EU level to provide the type and level of supports necessary to support the market, it is important none the less to emphasise that the medium-term prospects for global dairy markets are extremely good. Growth in wealth and population is forecast to stimulate strong levels of demand for dairy products and returns will improve commensurately. The Government is committed to ensuring the Irish dairy sector reaches its full potential and we will maintain close contact with the EU Commission to ensure support measures are activated at levels that will make a real impact in the market so the good prospects forecast for dairy markets will be fully realised.
I thank the Minister of State. Has the Senator a question?
We will return some other day.
The Seanad adjourned at 3.05 p.m. until 2.30 p.m. on Tuesday, 17 February 2009.