Simon Coveney (Cork South Central, Fine Gael) | Oireachtas source

There have been many questions and I would like to try to answer most of them. I will give the official position on the €180 million as I am very annoyed about it. We had a clear understanding with the European Commission that this would not happen, and we intend to fight this vigorously. I believe we will be successful.

My Department received a letter on 14 May from the Commission audit services indicating that it proposed to exclude €181 million from EU funding to Ireland in respect of the direct aid scheme years from 2008 to 2012, inclusive. In effect, this amounts to a 2% flat rate penalty on the funding received for all direct aid in Pillar 1 and Pillar 2 for the five years in question. It should be borne in mind that the amount of EU funds under review is in excess of €9 billion.

My officials attended a bilateral meeting with representatives of the Commission audit services on 25 July 2013 to discuss the finalisation of clearance audits covering five years of payments. During this meeting the Commission audit services was advised that we would review all land parcels in Ireland used for single payments and other direct aids, identifying and excluding all ineligible features. That is what was required as the mapping system allowed us to do so. The process would allow audits to be finalised based on the calculated risk rather than a flat rate correction, which is what the Commission is proposing. My Department reviewed the LIPIS database of 900,000 parcels and submitted the figures for ineligible features to the Commission on 5 February 2014. In other words, the process was completed as agreed. By that time, my Department had already commenced the collection of retrospective amounts from farmers to off-set any calculated bill. I was in constant discussion with farming organisations on this process, indicating that if we did not do this properly, we would be fined a flat rate figure. Many people questioned whether that was a serious threat but everybody knows now how serious it was. That is why we worked as thoroughly as we did, and we had formal and informal discussions about that more than once.

The Commission audit services carried out a conformity clearance audit in March this year to verify the extent of the control work completed on the LIPIS database. Following the audit mission, the Commission auditors confirmed both verbally and by e-mail that the correction would be based on an assessment calculated on risk, as previously discussed and agreed. The imposition of a 2% flat rate correction in the letter of 14 May by the Commission audit services was a complete surprise to me and is neither justified on the basis of the findings of the audit mission nor from the justifications that the Commission have relied upon or on which it has applied the flat rate correction.

I cannot be any clearer than that. This is part of a negotiated settlement and I have spoken directly with the Commissioner about this because of our total surprise arising from this. It comes against all the evidence we have from previous conversations, and it has been made very clear to me that this is part of a process in which we are involved to dramatically reduce any flat rate penalty that may apply to Ireland. We will vigorously defend our position because of the thoroughness we adopted.

That has not been without pain for farmers in Ireland in terms of both disallowances as a result of mapping accuracy and retrospective payments. We will certainly not sit back and allow a situation where we are penalised on the double. The €181 million is just the start of a long discussion. I can assure the committee we will not be paying anything like that if we make our case effectively, which we will.

With regard to milk, it is important to point out that the amount of milk Ireland produces will not dramatically change the world price for dairy. Consider what has happened in New Zealand since the mid-1980s when quotas were introduced in the European Union. In 1984, New Zealand produced the same amount of milk as Ireland. Both countries produced 5 billion litres of milk per year. We are now at approximately 5.5 billion litres while New Zealand produces 19 billion litres per year. New Zealand dominates the traded dairy markets globally. In that period it has quadrupled output and the price of milk is higher now than it has ever been.

The only way one can measure where the price is going in this sector is through what we anticipate global dairy consumption will be and what we anticipate global dairy production will be over the next five to ten years. At present, dairy consumption is increasing by approximately 2% per year and dairy production is increasing by between 1% and 1.5% per year. That suggests that in the longer term we will see strong pricing for milk. However, there will be ups and downs, depending on seasons, how much milk is in storage, Fonterra auctions in the United States, how much milk powder is put on the market and at what time and so forth. People should not panic when they see the milk price dropping by 2 cent per litre, although one does not like to see that. Farmers producing good quality milk are getting 48 cent or 49 cent per litre at present, but that will not be case forever. It will be up and down, and we must plan for that financially.

With regard to the point made by Deputies Deering and Ferris in terms of putting a business plan together and the investment, one of the downsides of the expansion in New Zealand is that many of its dairy farmers are essentially working for the bank, not for themselves. They will be working for the bank until they retire. We do not want a generation of Irish dairy farmers to be in that position five or ten years hence. That is the reason Teagasc is currently holding financial management seminars across the country specifically on dairy expansion and the business plan required for that. Teagasc is telling farmers to put their business plan together on the basis of 28 cent to 30 cent per litre for milk. It is being that conservative. I am not saying prices will go to that level but that we must be very cautious and conservative in the business plans we put together.

In my view, milk prices will be well above that figure. I believe that over the medium to long term there will be incremental increases in dairy prices, but there will be weak and strong periods and we must plan for that. We must look at different pricing models, for example. Dairy farmers should consider locking in 40%, 50% or 60% of their milk for two or three year pricing contracts, which are available now through the big co-operatives, so they can prepare for the volatility that may come. In case anybody thinks we are not planning for this, we are. I have met all the key banks in Ireland - there are effectively only three - and there is a very clear understanding of the banking responsibility here. Dairy farmers need capital to invest in expansion and growth, some of which will be grant-aid assisted through the new targeted agricultural modernisation scheme, TAMS, programme, but the banking system must be cautious as well and insist on proper business plans and efficiently run dairy farms.

On the cost of inputs for dairy farming, we can improve and we are improving. Yesterday, I launched the Carbery greener farm initiative. Over a one year period 20 farmers, by measuring inputs such as fertiliser, water, energy and feed costs, have saved an average of €5,000 per farm. The highest earner is over €10,000 while the lowest was approximately €3,000. There are significant things we can do in terms of efficiencies in running farms and managing more efficiently, both from an emissions point of view and also from an efficiency point of view in respect of inputs and outputs.

For almost five years we have been preparing farmers, processors and markets for a rapidly expanding milk production driven industry over the next five years. The previous Government started it and we have continued it. Yes, there will be some mistakes but I believe Ireland is as ready as it is going to be for the dairy expansion. It will provide a very exciting future for many dairy farmers.

I have a final comment on dairy. Some people have been inaccurately quoting how big our dairy herd will have to grow to deliver on the potential of Food Harvest 2020. There are approximately 1.2 million milking cows in Ireland. We anticipate that the figure will grow by approximately 300,000 between now and 2020, an increase of 20% to 25%. That means we will need 3,000 extra people physically milking cows. The rule of thumb is one person is required per 100 cows. That is the reason we are developing new courses for people who wish to go into the dairy industry, who do not have any land or herds but who wish to work with expanding farmers and their families in terms of increasing herd size and so forth. This is doable, but it must be planned and managed. However, regardless of whether we do that, there will be price volatility and what Ireland contributes to a global milk pool will not determine milk prices one way or the other. New Zealand over the last 30 years is a good example of that.

To refer to the other questions - I do not wish to be accused of ducking any - I agree in principle with what Deputy Ó Cuív said about island farming, but I mentioned it because I was seeking feedback on it.