Mr. Seamus O?Donohoe:

I thank the committee for the invitation to discuss the recent closure of TLT International with a view to identifying what safeguards can be put in place to prevent a similar reoccurrence.

The decision by HSBC Bank to appoint a receiver to TLT International was a disappointment to the entire mart sector and, undoubtedly, to our own mart members. While it is likely to put certain strains on the balance sheets of some of our members, the marts in question have the capacity to absorb any losses likely to emerge from the receivership process. The turnover of TLT International was approximately €35 million and represented a relatively small proportion of national mart sales, which involves a throughput of 1.7 million animals a year with a sales turnover value of approximately €1.2 billion. While the receiver has not, as of yet provided a detailed quantification of the debtor schedule for TLT International, our own estimates, derived from informal consultation with the trade would suggest that collective mart exposure to the TLT International receivership is between €3 million to €4 million. Our understanding is that part of the explanation for the variance between the €3 million and €4 million estimate relates to a requirement on the part of the receiver to assess the extent to which some farmers may have recovered stock which had been purchased but not paid for by TLT International.

Undoubtedly, this level of potential loss is an unwelcome shock for the sector. However, any consultations we have had with our membership since this crisis arose would confirm that those of our co-operative livestock marts affected have the capacity to withstand this shock. Anyone familiar with dealing with our livestock mart members over a long number of years would be aware that one of their key strengths has been their willingness and capacity to guarantee to pay all sellers of stock promptly and to honour those payments. As they have consistently done over the past 60 years, our marts are committed to continuing to pay all customers promptly for their stock.

The establishment of the Property Services Regulatory Authority last year with its powers to licence and regulate the mart sector has been welcomed by the Irish Co-operative Organisation Society, ICOS, as it reinforces and underpins the existing commitment and practice on the part of our co-operative livestock marts to guarantee to pay all sellers of stock through the livestock mart system.

The credit policy of the marts has been the subject of much discussion and comment over the past several weeks.

The provision of credit to certain purchasers of stock by some of our marts has been an ongoing challenge for the ICOS marts committee. The issue of credit policy has been the subject of a number of consultations and discussions and indeed regional meetings of our mart members in the last 12 months.

The policy of the ICOS marts committee, particularly under its present chairman, Michael Spellman, has been to seek to advise and encourage marts to move to a policy of not providing credit to purchasers of stock. Given the structure and trading traditions of the mart sector, the acceptance by our marts of such a policy was never going to be achieved overnight. One of the observations of the marts committee has been that it is in those parts of the country with a large number of private and co-operative marts with single mart centre operations competing against one another that some mart boards have found it most challenging to introduce a more prudent credit policy. Those mart operations with a number of sales outlets and larger scale operations have, by and large, been more successful in managing their credit policies.

It should also be pointed out that even where a co-operative livestock mart does have the capacity to enforce a restrictive credit policy, it will continue to have the normal exposure between sales that arise from the fact that even where a cheque has been issued by a purchaser of stock, it will still take five to seven days to clear the banking system. ICOS has examined other forms of security from purchasers that are in use in other sectors and to date, such instruments have proven to be too expensive and cumbersome for our livestock marts. In addition, the general caution now being exercised by our commercial banks with regard to their credit policy for small and medium-sized enterprises has resulted in greater pressure from purchasers of stock for more liberal credit facilities. The business environment which marts are currently encountering with increasing cost pressures arising from every increasing regulatory burdens - be they health and safety, welfare, environmental and more recently, the costs associated with compliance with the licensing requirements of the Property Services Regulatory Authority - is posing problems in respect of the number of individual mart firms currently competing with each other .

ICOS has a clearly enunciated policy in respect of the need for mart consolidation and rationalisation. In many instances, this does not require the closure of mart centres as such as at times, seasonal supplies of stock would require all of the existing capacity available. What is required, however, is the consolidation of a number of mart centres into one co-operative society with a view to achieving economies of scale. This enhances the potential for improved efficiencies and gives co-operative mart boards and management a better capability to introduce appropriate policies around the provision of credit. Without some form of rationalisation and consolidation, the danger is that in some areas of the country, marts will continue to compete with one another on the basis of the level of credit they are willing to offer to purchasers of stock. Ultimately, the role of co-operative marts is to improve price transparency in the cattle sector through providing a live auction system that allows a certain volume of stock to be exported live from this country and in so doing, provide farmers with a very valuable and transparent countervailing force to the dominance of a small number of privately owned beef processing factories in this country.

In conclusion, while ICOS is not in a position to guarantee future outcomes, the past performance of our co-operative livestock marts has been to honour all its transactions with its farmer customers and this is still the stated intention and objective of our livestock marts. My colleagues, Michael Spellman and Ray Doyle who is the ICOS marts secretary, and I will be happy to address and questions and expand on some of the issues raised in this contribution.