Mr. Paul Kelly:

I thank Senator O'Reilly. First, looking at the flour issue, the Senator is correct. There is no industrial milling capacity in the Republic of Ireland. There is one mill but it is largely doing consumer packs. For the big bulk tankers that are required to deliver to the main bakeries around the country, it all has to come in from outside Ireland.

There are two mills in Belfast. They would supply a significant amount of flour to the South. Obviously, under the protocol, no tariffs apply. That is all fine. There is not much scope for additional supplies from them. They are running at capacity.

The majority of our flour comes from Britain, and a small amount comes from the Continent. Obviously, that which comes from the Continent will not face the tariffs.

The problem is the particular specification for flour. The likes of sliced pans, in the main, require a lot of high-protein Canadian wheat. The tolerance levels in the rules of origin essentially mean that one can have non-originating raw materials up to a maximum of 15%. "Non-originating" means they come from outside either the EU or the UK. In this case, they come from Canada. If one exceeds that 15% tolerance, one loses the preferential tariff access, in other words, the full tariff applies. In the case of flour, the tariff is €172 per tonne.

It is one of those rules of origin issues. The unique circumstances in Ireland are that we simply do not have a domestic alternative in terms of milling capacity for flour, and to source from the Continent, we run up against two problems. One is costs, which are anywhere between €800 and €1,000 extra for each tanker-trailer to be brought from the Continent, as opposed to bringing it from Britain. Second, everybody will know that if they go into a bakery or the bakery section of a supermarket in Germany or France, it is quite different to what is seen here in Ireland. The flour that is produced there is made, naturally enough, for the specifications of the bakeries in those countries, so getting the exact flour specification we require here is very difficult. Therefore, we are looking for a derogation for a period of time so our supply chains can be reconfigured. What we would ultimately like is for the unique circumstances to be recognised to allow us to continue to source the flour we are sourcing, without the impact of the tariff.

As I said, it is equivalent to roughly 50% of the cost of flour in the first place. The ESRI was commissioned to do some work by the Competition and Consumer Protection Commission back in 2018 and it estimated that, in the event of a full tariff on cereals and breads, this would equate to about 9% on consumer prices. That is roughly what we are talking about.

On the second point in regard to milk, I would preface my remarks by saying that dairy, in particular, is a classic example of the all-island or all-Ireland economy because of the mixed milk pool we have. By and large, the protocol is working and it is allowing processing to continue very efficiently. Approximately 9%, or 800 million litres, of the milk processed in the South comes from Northern Ireland, so it is a significant component and, obviously, for the processors close to the Border, the percentage is much higher. There is no particular issue when the product is being sold in the UK or in the rest of the EU, or domestically here in Ireland. The concerns we have are twofold. Under the rules of origin in other free trade agreements, if one meets the rules of origin, preferential tariff status applies and, typically, that means there are no tariffs and one can sell tariff-free into those countries that the EU has a free trade agreement with. Unfortunately, the way those free trade agreements are written currently means mixed milk is considered to be non-originating, so it will not be able to avail of those preferential tariff agreements in those free trade agreements. On the other hand, for other markets where the EU does not have a free trade agreement, for example, China, there is no issue per sebecause a tariff generally applies. That will apply regardless because there are no rules of origin because there is no free trade agreement.

The second point is that we are now discovering that although the European Union has market management tools to deal with difficult times, such as private storage aid and intervention relief, it looks like mixed milk will be problematic in that context as well.

What we are seeking in both instances is that all of that mixed milk would be considered to be wholly obtained from the Single Market. In our view, that is no different to the way Northern Ireland was treated within the protocol as regards being part of the Single Market in the first place.