Mr. Seán O'Leary:

There is a positive outlook for dairy, but there will also be cyclical price and income challenges. World population is growing rapidly, with the equivalent of the population of Germany being born each year. It is projected to grow to 9 billion by 2050. Most of the population growth is predicted to occur in emerging countries and as numbers grow so will the percentage of those emerging populations classified as middle classes. This is important because the emergence of more affluent middle classes always coincides with changes in diet. Consumers in those countries will be ambitious to move from poorer quality vegetable protein to higher quality animal protein, often supported by government health related policies, such as the Chinese school milk scheme.

The long-term outlook as predicted by the Organisation for Economic Co-operation and Development and the Food and Agriculture Organisation, OECD-FAO, market analysts and confirmed by most experts is for demand to grow somewhat more slowly than in the previous decade, at around 2% per annum, with global supplies chasing it at a slightly slower pace. There is huge potential for countries that are capable of producing high-quality dairy products and ingredients efficiently and sustainably to supply this growing demand. Ireland is one of the very few countries well placed to capitalise on this opportunity.

Volatility in milk prices and input costs has, however, multiplied over the last decade. This is a result of much greater levels of trade, the quasi-abolition of market supports in Europe, and the greater prevalence of weather events across the world. Economic and geopolitical events, such as the absence of China from the market, the current low oil prices and the Russian ban on EU food imports, have also played a part in worsening price volatility. Farmers will have to learn to manage the impact that the extreme fluctuation of prices will have on their income in order to supply this growing demand and fulfil the sector’s economic potential.

In respect of solutions for the short and longer term, right now the biggest issue for dairy farmers is cashflow or, more to the point, how their cashflow will evolve over the coming months in the face of low milk prices, high superlevy and tax bills and repayment commitments. Come next spring, we will have the added challenge of lower milk cheques as relatively smaller volumes and lower constituents mean lower milk price value.

The early payment of up to 75% of the basic payment scheme, BPS and rural development programme, RDPwill provide welcome short-term assistance. The distribution of Ireland’s €13.7 million share of the EU targeted aid, which we have called on the Minister to match with national funds as is explicitly permitted by the EU and to distribute equally among all the farmers concerned, will also be of some help.

It is also vital that all rural development programmes be fully funded, and that TAMSis administered efficiently and promptly to allow farmers carry out their investment plans in good time. However, the type of cash flow pressures we are seeing right now will be part of the dairy cycle over the coming years. A suite of policies and instruments must be developed and offered to farmers to help them manage their income for the longer term. The setting up by Minister for Agriculture, Food and the Marine, Deputy Simon Coveney, of the Dairy Forum is welcome in this respect, and it must be used by the Minister to put pressure on all stakeholders – including banks, industry, Government and the EU - to deliver long-term viable solutions to the challenges of farm income volatility.

The €500 million EU aid package voted by Council on 7September, which enhances APS for dairy products, increases promotion budgets and makes €420 million worth of direct payment available to EU dairy farmers, will provide some assistance. However, the EU Commission and Council have shied away from doing the one thing that would actually help put a floor on dairy markets and turn them around faster – increasing the so-called intervention safety net so that it is more in tune with actual production costs. The Minister must keep this issue on the agenda and progress it, not play the EU Commission’s game and wait for markets to recover and leave the issue unaddressed, to cause difficulty again when the next price trough arises.

Banks and other finance providers must come under greater Government pressure to make available to farmers competitively priced, flexible financial products, which allow farmers to take repayment holidays or go on interest=only repayments without re-pricing or re-negotiation costs. The Minister must also seek maximum leveraging of the European Investment Bank funds to support the sector, including farmers.

With all the stakeholders around the table of the dairy forum, we want to see the Minister drive greater engagement from industry around fixed price and margin contracts and other forms of optional price-margin hedging. As yet, too few farmers have access to or even understand the potential value of such contracts to help them manage their business for the long term. A crucial piece in addressing income volatility will be to tackle the EU Commission on state aid rules, in order to increase our ability, at national level, to deliver individualised tax-based solutions.

IFA has proposed a detailed scheme to allow farmers to put away funds in good years, to be returned to their taxable income for investment or in poorer years. Such schemes exist in New Zealand and Australia, and in a smaller, more restrictive way, in France. It is essential that we provide this type of individualised flexibility to assist farmers in managing their volatile income.

With budget 2016 only a few days away, I also take this opportunity to thank members for attending our lobbying session last week. The land mobility initiatives facilitated by last year’s budget decisions are immensely valuable for new entrants and expanding dairy farmers. However, more can be done to facilitate farm investment. I remind the committee of IFA's proposals to encourage lifetime transfers and farm restructuring by phasing transfers through partnerships and to accelerate capital allowances for sole traders, among others.

One element which the forum did not discuss at its inaugural meeting, and which we cannot and must not shy away from, is the need for efficiency benchmarking at processing level, with a view to identifying savings and removing costs, including through co-operation, and even consolidation. This is an exercise which the industry itself must undertake, but it must be part of the focus driven through the dairy forum. Only an optimally efficient dairy processing and marketing sector will be able to deliver on its fullest potential for the Irish economy.

Ireland’s sustainability credentials in milk production, being measured through the Bord Bia sustainable dairy assurance scheme on every dairy farm, and promoted through the Origin Green campaign, must be given the fullest recognition in Paris at the COP later this year.

Liquid milk is facing a particular challenge. One of our team today is our national liquid milk chairman, Mr. Teddy Cashman. He has invited the members to the launch of the IFA Liquid Milk Handbook later this week, and can talk to members later on of the particular concerns we have on the sustainability of specialist, contracted liquid milk suppliers in the post-quota era. Expansion opportunities do not exist outside of exportable milk, and with intrinsically higher feed and labour costs in delivering milk counter-seasonally, there is a real need to reassess payment structures and regulation within the liquid milk chain to secure fresh, locally produced milk supplies for a sector worth over €500 million at retail level.

I will hand back to IFA President, Mr. Eddie Downey.