Dáil Éireann Debate, Tuesday - 13 February 2018
28. Deputy Jackie Cahill asked the Minister for Agriculture, Food and the Marine the reason he agreed to European Commission plans to remove the fixed price for skimmed milk powder for public intervention stocks in 2018; and whether he will make a statement on the matter. [7417/18]
Amharc ar fhreagraI would like to ask the Minister for Agriculture, Food and the Marine the reason he agreed to the European Commission's plans to remove the fixed price for skimmed milk powder for public intervention stocks in 2018, and if he will make a statement on the matter. There was always a fixed amount of product bought at a fixed price, amounting to 109,000 tonnes. How come the Minister allowed it to be put on a tendering basis for 2018?
I thank the Deputy for the question. As he is aware, the Irish dairy market, following on from broader EU and international trends, is currently in a much improved position compared to the relatively recent past. Of course, we remain extremely vigilant in monitoring the current market and emerging trends, particularly as we approach the peak period for Irish milk production.
While the overall dairy sector is now in a much better place, particularly at the farm gate, the issue of intervention stocks overhanging that particular market remains a cause for concern arising from the significant recourse to this market measure for skimmed milk powder across the EU since September 2015.
There are now approximately 376,000 tonnes of skimmed milk powder in public intervention stocks, effectively overhanging the EU skimmed milk powder market. My Department and I engaged at Council of Ministers meetings and directly with the Commission on recent measures to limit further stockpiling of skimmed milk powder in 2018 without due justification, including the Commission's proposal to reduce the fixed-price ceiling to zero, to which the Deputy refers. I strongly argued that this measure should be specified as for 2018 only to avoid setting a precedent for the longer term. This point was accepted and agreed in the final version of the measure as adopted by the Council through Regulation No. (EU) 2018/147 of 29 January 2018, which came into effect the following day, 30 January.
I have clearly stated previously, at Council of Ministers meetings and elsewhere, that it is imperative that the Commission remains vigilant in monitoring the market and that it have contingencies in place in the event of market volatility re-emerging, particularly in relevant markets, particularly the raw milk, butter and skimmed milk powder markets. In common with the vast majority of EU member states where dairy production is of significance, I recognised that the current position on existing stocks could not be allowed to persist indefinitely and that there is general acceptance that doing nothing is not an option.
It is important to note that this measure does not represent a change to the fundamental provisions of the intervention mechanism, nor to the necessary supports that intervention provides during periods of market volatility. Ireland has welcomed and made use of intervention during such periods of instability. This measure responds and is framed around a very specific set of circumstances, namely, very significant intervention stocks of skimmed milk powder, a significant divergence between skimmed milk powder and butter prices in negative and positive directions, respectively, and a generally more favourable market context in the EU dairy sector, including the farm gate in respect of more recent raw milk returns.
I have clearly stated the system, as it evolves, will need to display flexibility in respect of adapting to market contingencies, including flexibility around proposed skimmed milk powder buying-in prices at tendering rounds, to react to the broader market situation at any given time. The issue of current stocks cannot be disentangled from the issue of managing skimmed milk powder intervention in 2018 and beyond, however. The issues involved, with respect to both market management and sentiment in the sector, are complex and require ongoing careful management.
Given the Commission's status among the world’s biggest players on the skimmed milk powder, SMP, market, and as such its capacity to affect market sentiment, it would be appropriate that it continues to act prudently and responsibly in the disposal of stocks. I am satisfied to date that the Commission has managed those stocks in a prudent manner. My Department has engaged and will continue to engage with the Commission, with other member states, and with national stakeholders on these important issues.
The Minister gave a very comprehensive reply but, unfortunately, I disagree completely with what he said. In fact, the Minister has reneged on his responsibility to Irish dairy farmers. He has allowed the Commission to set the precedent of taking away the floor price from milk. In 2016, only for the fact that all the product that was going into intervention was bought at a fixed price, milk prices would have gone into the middle teens or below that. The Minister has now allowed the Commission to operate a tendering system for the purchase of skimmed milk powder, which means in essence there is no floor under milk prices in 2018.
In 2017 the price of skimmed milk powder never went above the intervention price. In fact, a lot of product was sold by Irish processors under the intervention price rather than put the product into storage. The Minister has now given the Commission a weapon in that it can buy skimmed milk powder at whatever price it wishes, going forward. That is a hugely dangerous precedent to set. I accept there is a lot of skimmed milk powder in intervention and the reports we hear are that the Commission is prepared to sell that at a very low price. The Minister has now given it the weapon to purchase product for intervention at a low price as well. He has fundamentally changed the rules by which price supports operated. It was written in stone that 109,000 tonnes could be purchased each marketing year at a fixed price. The Minister has allowed the Commission to move away from that and it is incorrect for him to say he is not setting a precedent. He cannot expect Irish dairy farmers to accept that because it is unacceptable. We had set a precedent and we have now allowed the Commission to take away the floor price for dairy products.
Deputy Cahill should be cautious in terms of making the point that what I believe to be a prudent measure is removing the floor from dairy prices. I draw his attention to the fact that one of the leading processors in the Irish dairy market has maintained the price for milk in January at the price paid for milk in December. Many processors may only need an excuse to begin to drop the milk price and Deputy Cahill should be careful in the comments he makes.
I will just make a couple of other interesting and relevant points. In the event of increased volatility in the marketplace, these changes do not remove the capacity of the Commission to buy into intervention. It is not closing the door on further intervention.
It is ridiculous in the extreme to argue that a €650 million overhang in the market, which is what the value of those stocks are at the moment, does not impact on the market of itself.
I object to the Minister saying I am trying to talk down milk prices. As a dairy farmer and a man who represented dairy farmers for years that would never be my objective.
It is incorrect of the Minister to say he has not taken away the floor price. It was written in stone that 109,000 tonnes had to be bought at a fixed price. The Minister has allowed that to be taken away. Let us deal in facts here. Climatic conditions and world supply will dictate the price for 2018. Neither the Minister nor I will have any say in where the milk price sits for 2018, but the fact is that he has given the Commission the weapon to allow it to buy product into intervention at any price it wishes. That was never the case heretofore. The Minister has reneged on his responsibility to ensure there was a floor price for Irish dairy products. Hopefully, we will not need that floor price in 2018 but unfortunately we needed it in 2016. Skimmed milk powder never rose above the intervention price in 2017. Now we have given the Commission a mechanism to buy product at whatever price it wishes. In 2016 it took in all the product at a fixed price and that was what kept the floor in the market but that floor is not there in 2018. I hope we will not need it but the issue will be outside my control and that of the Minister and it will depend on world supply. The amount of milk that Glanbia buys in January for manufacturing is very small.
To use a different analogy, if Deputy Cahill was going to Thurles mart with only calf for sale at the mart on that day, that would be fine, but if there are a couple of hundred calves in the pens outside, that will impact on the market price that is available on the day.
If there is an overhang of value worth €650 million in skimmed milk powder on the market, that of itself is an influencer on the market. The response is a prudent one and does not take away the instrument of intervention and there may be further purchases of intervention in 2018. It is a time measured intervention in that it will apply for 2018 only. Anybody who would argue that we should have done nothing and maintained the status quo is wilfully ignoring the fact that skimmed milk powder of that volume and value is of itself an influencer on the market.
