Andrew Doyle (Wicklow, Fine Gael)
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We have two groups today, the first being the Irish Dairy Board. I welcome Mr. Vincent Buckley, chairman, Mr. Joe O'Flynn, managing director of consumer foods division, Ms Anne Randles, secretary, and Mr. Bernard Condon, director of dairy trade and ingredients.

Before we commence I must go through the issue of privilege. I bring to the delegates' attention that witnesses are protected by absolute privilege in respect of the evidence they are to give to the committee. However, if you are directed by the committee to cease giving evidence on a particular matter and you continue to do so, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given and you are asked to respect parliamentary practice to the effect that where possible you should not criticise or make charges against any persons or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

I call on Mr. Buckley to make his opening statement.

Mr. Vincent Buckley:

I am accompanied by Ms Anne Randels, Mr. Joe O'Flynn and Mr. Bernard Condon who will help me to answer queries on my presentation and other questions on the Irish Dairy Board.

Our core purpose is to build a profitable route to market for Irish dairy products. Ours is a co-operative owned by our member suppliers, with industry and farmer representatives at board level. We are the exporting arm of the dairy industry. The board was established in 1961 as a semi-State company and became a co-operative in 1973. We have a turnover of €2 billion. It is a multinational company, with over 3,300 employees, of whom 150 are in Ireland, while the rest are based mainly in the United Kingdom, elsewhere in the European Union and the United States. We are the owner of the Kerrygold brand, Ireland's only international food brand. Our business is undergoing a significant transformation in preparation for the removal of milk quotas in 2015 and to meet our Food Harvest 2020 targets, as members will see as the presentation progresses. We are responsible for marketing Ireland's unique selling point - its world class milk which cannot be matched anywhere in the global market. We take great pleasure in promoting a premium food and offer a product that is Irish, pure, tasty and natural.

The next slide shows the level of business done by the company. We export 270,000 tonnes annually, which means that every day 34 containers of food leave our shores or 12,000 containers per annum. Members can see a representative range of our products on the same slide. We have three business platforms - consumer foods, dairy trade and ingredients, and distribution. Consumer foods account for roughly 40% of our turnover. We have subsidiaries in Germany and the United Kingdom which are critical to our business there. Consumer foods represent the branded part of our business. Dairy trade and ingredients are non-branded. They represent the value-added ingredients and formulation side of our business. The distribution company is one the Irish Dairy Board acquired 30 years ago. There is a distribution-wide business in the United States.

The next slide shows that we have three branded product categories, namely, butter and blends, cheese and milk powders. I shall make a brief comment on each of them. Kerrygold is the No. 1 butter brand in Germany, the No. 1 imported brand in the USA and has a retail selling price, RSP, figure of €500 million globally. Kerrygold Extra is one of our most successful campaigns which was launched in Germany in 2009. The product has exceeded our expectations.

On our cheese sector, Pilgrims Choice cheddar is ranked No. 2 in the UK market. Dubliner cheese is also one of our brands which is doing very well in the United States. I have been told that it is enjoying double digit market growth. Another lesser known brand was launched in conjunction with Tesco in recent times. Our milk powders are mainly for sale in African markets.

I shall outline how well our brands are performing. Recent statistics show that in 2010 there was 7% volume growth and 21% value growth. In 2011 there was 5% volume growth and 19% value growth. In 2012 we have set ourselves a target of 7% volume growth.

The next slide indicates the footprint of our export markets. We export to 80 markets around the world and were honoured to have been awarded the title of exporter of the year in 2010. Members can see from the graph that our markets are well positioned all over the world. Our focus for the period 2012 to 2015 is on supporting our commitment to Food Harvest 2020 using the four pillars of operational excellence, value added growth, market expansion, and talent placement and development. We believe our business strategy is working across the board, as is clear from our Food Harvest 2020 implementation update. We are confident that our core markets will continue to deliver strong growth, with significant volumes across our branded range, in the coming years. We are developing new marketing and distribution channels in new markets, for example, in Algeria and Russia. Last year the Minister for Agriculture, Food and the Marine, Deputy Simon Coveney, visited both regions with our team as part of a trade mission and was very successful. The Middle East and north African markets are important to us and there is a great opportunity to develop new market routes for our branded powder products in sub-Saharan Africa in countries such as Democratic Republic of Congo, Angola and Nigeria. Members can question my colleagues on this subject later.

As part of our strategy for developing markets and expanding the demand for milk powder, in the past 18 months we have placed 15 new personnel in market positions in places such as China, the Middle East, north Africa, Russia and Nigeria. We have also embarked on an acquisitions programme. In the past year we have acquired three new businesses - Thiel Cheese and Meadow Ingredients in the USA and The Cheese Warehouse in the United Kingdom. We believe the latter acquisition will give us a figure of roughly 5,000 tonnes and a direct route to market. Our growth targets can be achieved by having offices and sales teams positioned in certain markets around the world. They can also be achieved through having joint ventures, local partnerships, agents, local distribution systems and acquisitions. We realise every market does not have the same fit and that each market has its requirements in gaining a footprint. I have outlined how we will strive to achieve our objectives in these markets.

With regard to value being added through research and development and premium returns, we are investing in new product development, the acquisition of consumer insights and marketing. In order to achieve valued added growth, we must identify customer needs through market research. In recent times we have increased our marketing spend. An additional €7 million was allocated in 2012, while €1.5 million has been spent on our innovation initiatives, including developing our consumer insight capability. As members can see from my presentation, in 2011 we launched 40 new products between the two categories of consumer foods and dairy trade and ingredients. We are enhancing value through co-opetition in respect of Kerrygold Cashel Blue.

As part of the Food Harvest 2020 process, we have three business models. Lean and efficient manufacturing is an important business model that we introduced at three of our UK sites and which resulted in substantial savings. The process has been rolled out across other areas of our business. We are updated at our monthly meetings and know that the lean and efficient business model has resulted in substantial savings. There are a number of projects in train with our members to integrate the supply chain more efficiently. The business transformation or right-sizing business model is crucial to allow us to achieve our goals. We have completed a programme of non-core asset disposal. We have also completed a €65 million capital investment programme in our UK subsidiaries and are actively involved in a market and acquisitions programme. We are busy at board level. We have strengthened our financial capability with a new innovative funding facility that was put in place last year, of which members are probably aware. We refinanced the business which provided for growth and funding for our members in the short to medium term.

As marketeers, we work closely with our members and processors. Many meetings have taken place between both parties to ensure production possibilities are married with market requirements. It is important that we balance production growth and market opportunities.

We have categorised the sales opportunities. The management team has identified the product type that needs to be manufactured and whether it should go through the branded, ingredients or food service channel. Will substantial growth be achieved through either incremental sales in our present businesses, new customers and new routes to markets? What challenges do we face beyond 2015? I will not go into them in great detail, but we see the following challenges: matching sales with production growth; investment will be challenging; substantial investment will be required in plant, personnel, research and development, marketing and acquisitions, to mention just a few. We also see a need to focus on value added products and increased flexibility in manufacturing to respond to market needs. It is vital that processing facilities are flexible to produce the quantities we may need at various times. It goes without saying the base product must be globally competitive. It is vital also that the home environment be conducive to the Irish Dairy Board competing in the global marketplace. Market volatility is a given and managing that volatility will prove challenging. We will develop the sustainability platform, but we recognise that ensuring a comprehensive and cohesive national sustainability platform for Irish dairying to drive Dairy Ireland's unique selling points is crucial.

How can the Government work with us to deliver on our commitment to Food Harvest 2020? Support for investment in processing to meet market needs post the quota environment is vital. Members may be aware of a document launched by the IFA with the help of the processing industry. I see the Chairman has a copy and perhaps other members of the committee have seen it also. Funding of the industry is vital and farmers must invest significantly at farm level. However, it will be very difficult for the farmers of Ireland to fund the processing industry. Therefore, we believe incentives need to be given, as outlined in the booklet to ensure investors will invest in the industry and make it possible for it to develop. We have set out the basis for funding which is urgently needed by the industry. It is not within the scope of farmers and the industry to fund investment.

There needs to be a pro-business support commitment across all Government agencies from national policy formulation to implementation. A pro-business approach is vital.

We stress the importance of Government supported specific trade missions to emerging markets. In many cases, it will require a government to government approach. We wish to impress on members the importance of these missions and the fact that they should be acutely aware of the importance of Government support in that area.

The Irish Dairy Board is on target to deliver on its commitments under Food Harvest 2020. The transformation of our business is ongoing to meet the new challenges. We are working in close collaboration with our members and developing new products to market through the various channels. Our chief executive is abroad on business dealing specifically with that issue. It is important that we continue to invest in new innovative products to meet the needs of our global markets, our sales team and place more people in the market. That is something we have been doing and will continue to do. We are committed to operating in a sustainable fashion and promoting sustainable production both at farm and company level. We recognise the importance of the dairy industry to the economy and the benefits it can bring to it in term of generating revenue.

I thank the Chairman and members for their attention. My colleagues will answer questions raised and discuss the issues involved.

Andrew Doyle (Wicklow, Fine Gael)
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I thank Mr. Buckley for his comprehensive overview.

Éamon Ó Cuív (Galway West, Fianna Fail)
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I welcome the delegation. We have been given a very comprehensive overview of the work of the Irish Dairy Board. Mr. Buckley or his team might tell us the percentage of the dairy products produced in the country for which his company accounts. Second, we are getting a new dictionary. The word "chillax" was listed in the new dictionary issued last week. I also note the new term used in the presentation - "co-opetition". Will Mr. Buckley explain what it means?

Innovation, new product development, sophistication and meeting consumer demand are key in creating a substantial level of sales. This requires research, development and science. I take it that much of the change in the products the Irish Dairy Board produces is based on scientific input. Is Mr. Buckley satisfied that, as a nation, we are investing enough in the scientific element of product development in order that we have the best quality innovative products to place on the market? I note that he believes the Government should invest in increasing capacity. Is he satisfied, if the capacity is available and the investment in the scientific element of product development is made, that he can achieve market share and profitably on world markets for everything we can produce post the ending of quotas? That would add significantly to national wealth. I know that he has outlined his strategy, but will he elaborate further on this point?

I understand that under state aid rules, there are limits to the amount the Government can give to industries in certain regions. How can it help, either directly or indirectly, in increasing capacity? Is there other assistance available in different regions to increase capacity? In other words, if one invests in different regions, can the Government under state aid rules provide for different levels of assistance? Can assistance be given indirectly, for example, through the provision of basic infrastructure and so on that would be critical in the development of capacity?

Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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I welcome Mr. Buckley and thank him for his presentation, in the course of which he mentioned managing market volatility. Will he elaborate further on that point? Is he referring to competition from emerging developing countries or is the issue wider than this? With the milk quota system due to come to an end in 2015, is he concerned about the free market determining the level of supply?

Many of us with small or medium-sized farms have concerns about the ending of quotas and larger producers coming to the top, which could prove detrimental to smaller producers. It could have long-term effects.

It was mentioned that investment was required in research and development, marketing acquisitions, plant and personnel. Is there a linkage with the board's research and development with Government support or the support of other agencies within the wider agricultural community?

Mr. Buckley has mentioned areas into which the board is trying to break such as China, Russia and so on. China is a huge market which offers huge potential if a breakthrough can be made. Is Mr. Buckley optimistic about the possibility of expanding into these areas? An area of whcih there has been no mention is South America. Mr. Buckley might elaborate in that regard.

Michael McNamara (Clare, Labour)
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Following on from the point made by Deputy Ferris, there is a large white population in the middle of central Asia. Iran is one of the countries to which we have traditionally exported beef, for example. I wonder if any attempt has been made to export to or develop markets in Iran, across the Levant and into the newer states of central Asia, particularly Kazakhstan which has an increasing middle class. Similarly, while Brazil and Argentina are countries which produce a lot of beef, I am not aware that they produce the same amount of milk products. Is any attempt being made to develop markets in South America, other than Chile which has been referred to?

Paschal Mooney (Fianna Fail)
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I am sure I speak for every member when I say the work the Irish Dairy Board has been doing and continues to do is impressive. I know the jewel in the crown is Germany, but I am curious to know if the shamrock has been abandoned as a brand? I am aware there was a court case in Germany, but is the shamrock used elsewhere?

In the context of the key branded product categories, I assume - they might expand on this point - the delegates spend a considerable amount of time on testing various packaging. The Kerrygold butter brand has been hugely successful. I do not believe it has ever been changed since it was first introduced. I was an emigrant in London in the late 1960s and early 1970s when I saw it with great pride. It has been kept, but in the case of the cheese and milk powder products, I am curious to know how the particular colourings were arrived at and whether they have made an impact in selling Ireland, or is the objective just to blend in with other food products?

On investing in new products and finding new markets, are the delegates involved in co-ownership arrangements in any of the markets in which they are involved, or how do they get into these markets? I presume they market test their products and then launch them, but do they have local partners into which they buy or share with? I ask that question because I note they are moving into sub-Saharan Africa to the Democratic Republic of Congo, Angola and Nigeria. There is a company in Zambia called Zambeef Products - I am not sure if the delegates are familiar with it - which is headed up by a Limerick man, Mr. Francis Grogan, who worked either with Bord Bia or the Irish Dairy Board before emigrating to Zambia. I know this because I was a member of a delegation which visited Zambia in 2006 when we were introduced to him. I declare an interest in the sense that following that visit I bought a small number of shares in the company which I watch assiduously. They have not gone through the roof because in recent years the Zambian kwacha has been devalued, but I believe the business is now one of the leading food companies in Zambia and that it has started to expand into Nigeria and other African countries. It has its own manufacturing and distribution networks. It produces chicken and beef products. I do not believe it produces dairy products, mainly because of the type of animal it has, but I do know it is now involved at a local level in retail outlets located across Zambia. I raise this issue, first, because I want to bring it to the attention of the delegates and, second, to highlight the Irish connection.

In terms of having a marketing strategy and trying to break into new markets, obviously the delegates are looking at Africa. We all talk about China, but Africa is increasingly becoming more developed. It is developing a larger middle class with more consumer spending power. The delegates have identified Nigeria in particular in that regard. That is the reason I have focused on that aspect, but in terms of marketing, how do the delegates decide on the packaging for their products? Do they change it often and do they retain it once it proves successful? The food industry is so competitive and the major food companies, Nestlé, Kelloggs and others, are constantly changing their packaging. I know it is expensive to do this, but I am curious to know the delegates' policy position in that regard.

Susan O'Keeffe (Labour)
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I thank the delegates for their presentation and continued work. They say in their summary that the board is on target to deliver on its commitments. Are they on target to delivering on them, regardless of what is mentioned in the previous box in which it is stated it needs various things to be done? Mr. Buckley mentioned the provision of support for investment in processing. Is that a requirement of the board for it to succeed, or does he believe it will succeed in any case?

Mr. Buckley spoke about emerging markets. What is his view on China which has been mentioned a great deal? Has he identified particular markets?

On the Kerrygold brand, it has always amazed me that another brand of similar quality has not emerged. It has been in use for a very long time, but is there scope for another brand? Is Kerrygold a brand that could be used in the promotion of Irish meat, even though it belongs to the Irish Dairy Board? What is Mr. Buckley's policy in that regard?

Martin Heydon (Kildare South, Fine Gael)
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I thank Mr. Buckley for his in-depth and informative presentation. I will make two brief points. In the section, Looking to the Future Together, he refers to funding support for market-led research and development and innovation. Does this suggest he has not received support up to now or that the support provided is not adequate? He might expand on this, while being mindful of the good news announced this day last week by the Kerry Group. Its expansion is very much in the area of research and development.

In summarising Mr. Buckley referred to investment in new innovative products, the board's sales teams and so on, but investment requires money. He might expand on his discussions with the banking and lending institutions.

Mary Ann O'Brien (Independent)
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I thank Mr. Buckley for an excellent presentation. Coming from a small sector of the food industry, I have always admired the brand. One can go into a supermarket in the middle of nowhere in Florida and see that pound of butter on the shelf, which is no mean feat.

One of the delegates might provide greater clarity on the vision for the board's turnover in 2015, 2018 and 2020 with reference to the Harvest 2020 targets. To develop one of Deputy Martin Heydon's questions, does that turnover have a reliance on capital expenditure?

Deputy Martin Heydon is looking to the board to open a research and development centre of excellence in Ireland, he hopes in the Naas area. Why not? I heard Kerry Group representatives being interviewed on radio a few nights ago and it was not just because they loved Ireland that they located here. It was done from a business perspective.

In dreaming the dream is there any chance or aspiration that the Irish Dairy Board might build such a centre in Ireland?

Deputy Éamon Ó Cuív mentioned the concept of "co-opetition". Will the delegates expand on what is meant by it? I may be moving into the territory of Mr. Aidan Cotter of Bord Bia who is due to appear before the joint committee later this afternoon and to whom I greatly look forward to hearing. However, I reiterate the Irish Dairy Board has enjoyed such amazing success and has such an amazing reach worldwide. Imagine if it really engaged in "co-opetition" by mixing the meat and dairy sectors and even the private Kerrygold brand. Imagine if such a mix was possible because, as the professors from Harvard told members one day, when Mr. Cotter had organised a briefing on the Food Harvest 2020 and Pathways for Growth reports, although Ireland is a tiny speck, it is the grass-fed cattle centre of the world. Who else has grass-fed cattle and milk production in such abundance? What if this new word in the dictionary, "co-opetition", could be used and we really were to work together? I would love to hear the delegates expand on these thoughts.

As the board is so important to the country, I would like to hear a little more about its risk assessment policy. What if certain things go wrong in its sector or, imagining the unthinkable, if something were to go wrong in respect of Irish food safety? What level of support does the Irish Dairy Board receive from the European Union?

Andrew Doyle (Wicklow, Fine Gael)
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I will make two points. Senator Susan O'Keeffe made a point on targets. I consider the targets set and "co-opetition" to be linked because unless one has "co-opetition" in developing production capacity and achieving growth, internally and externally, as the board's chief executive officer observed when Food Harvest 2020 was announced, there is not much point in producing more to stand still. This must be done with a view to increasing wealth and export value as opposed to simply growing production because putting all of the money into investment initiatives - regardless of whether it is in the production of stainless steel or anything else - will be a futile exercise unless it brings added value to the sector and the country. This is the challenge. I refer to Senator susan O'Keeffe's other point. The last two slides on the challenges and looking to the future summarise the real challenge to match growth with production, to manage volatility and to receive support from the Government in restrained economic circumstances. One should be mindful of the position on tax relief. In many cases, one hears people simplistically calling for the abolition of tax allowances or breaks when, in fact, they are meant to be jobs and growth stimuli. Consequently, when such allowances are being proposed, one must be careful that this is the end target and that what is proposed is a tax relief investment policy, as opposed to a tax evasion scheme. One should bear this in mind. I invite Mr. Buckley and his colleagues to respond to these questions.

Mr. Vincent Buckley:

Members have given us a detailed list of questions that must be answered. To do justice to them, it would be appropriate to ask the members of our management team to begin to answer them. They should pick out the questions they consider to be specific to their particular area because that is the best way we can get across the information on the business. Consequently, with the permission of the Chairman, I will ask Ms Randles to begin to answer some of them. My colleagues will note the questions that have not been answered.

Ms Anne Randles:

I will take the questions in the order in which they were asked. I apologise if we miss out on a few, but I will answer a few, after which my other colleagues will come in on some of the other areas.

On the first question from Deputy Éamon Ó Cuív on the exports of the Irish Dairy Board, we showed a slide to demonstrate that we account for 60% of total dairy exports. We are a significant exporter of Irish cheese; probably 80% of total Irish cheese exports pass through the Irish Dairy Board. A significant proportion, perhaps 70%, of total butter exports also goes through it. As members can see, it really is synonymous with the Kerrygold brand. While the Irish Dairy Board is less involved on the milk powder side, more than half of milk powder exports still go through it. That is the general profile of our exporting pattern. We are not involved in some areas, the most obvious one probably being the infant formula business outside Ireland. There is a much greater focus on consumer products such as butter and cheese, as well as the dairy ingredients side of these two businesses. The board certainly is the majority exporter, significantly more so in the case of butter and cheese.

The Deputy asked whether, if there were to be the necessary capacity and research and development, we could find markets for the additional products. The message we wish to convey to members is that we certainly can. We believe strongly that we are on target to meet our commitments, which we perceive to be developing the markets for the additional milk that will be produced, as well as the additional dairy products. It is an important focus for us in respect of our strategic plan and we believe we are on track in developing these markets. To be specific, they are probably more the emerging markets, that is, the new areas in which demand is growing most. As to whether there are markets for the products we produce, yes there are. I believe representatives of IBEC appeared before the joint committee last week and gave these figures also. The basic fundamentals of the dairy markets are positive. The message is positive in that overall, globally, growth in demand for dairy products is exceeding supply. In that sense, this is a demand-driven market for us and we believe we can capture these markets for Irish dairy products. While there is greater growth potential through the brand in our core markets, equally we must develop the new markets in the emerging areas. That is the major focus of our strategy, as the chairman mentioned to the joint committee.

There was a question on China and whether there is potential there. There is, undoubtedly, potential there for Irish dairy exports. Perhaps China is known more as a market for whole milk powder. As matters stand, Ireland exports a considerable amount of whey. As for there being potential to grow the market, we perceive it more to be on the branded product side. The main problem is that, unlike New Zealand, Ireland does not have a free trade agreement with China. This puts us at a competitive disadvantage, in that New Zealand has preferential market access which, obviously, puts all non-New Zealand product at a disadvantage.

A question was asked about South America. Our focus is on where there is real growth in demand. We identified this much more in Africa than in South America which, to a large extent, already is supplied from within. Brazil is an obvious case in point, as it is a significant producer of dairy products and more or less self-sufficient. Collectively, were we to take together all of these countries as a region, it is self-sufficient unlike, for example, Africa and Asia, which is the reason the target must be centred on these continents, as opposed to South America.

Mr. Joe O'Flynn:

I will add to that point made on growth potential. Clearly, we have a commitment to build our sales in our existing network within the European Union and North America. We see considerable growth potential. That said, if one considers where most of the basic dairy consumption growth is taking place, it is in emerging markets and being driven by population growth, GDP growth, the westernisation of eating habits and the introduction of dairy products as part of a nutritional programme at school level. China is a particular example in this regard. It is a case in point as its per capita consumption is still very low, at only approximately 30 kg per head. When one considers that the world average is approximately 100 kg per head and that the European figure is closer to 300 kg, there is huge potential in this regard.

As for other regions, while central Asia presents a political challenge in securing market access, Iran, Iraq and other countries in the region offer long-term potential because, as has been noted, they have a tradition of consuming dairy products.

On the concept of "co-opetition" and how we define it, I should probably ask Mr. Aidan Cotter to comment. The Irish Dairy Board views this as collaborating with like-minded players to develop stronger market positions for Ireland Inc. To cite one example, Kerrygold is working with Cashel Blue cheese in the United States market. Cashel Blue is an excellent product that is artisan in character and complements Kerrygold in that provenance and Irish personality are two central parts of the company's brand values. The natural piece - the honesty, if one likes - built into these brand values is of major importance in building our position.

Senator Paschal Mooney asked a question on packaging. To take the Kerrygold brand, we have completely revamped the logo and packaging in the past two years as part of an evolutionary rather than a revolutionary change. Part of the challenge in any exercise of this nature is the need to maintain continuity in terms of brand recognition, given that a consumer will spend five seconds scanning a shelf in passing. The gold foil is symbolic to the extent that it was the starting point of the Kerrygold brand. We have held this position, although we have had many imitators. It is extremely important to retain the identity of the brand.

The other colours, for example, in our powder brands have as much to do with having a visual impact in markets in which literacy levels may not be high. Obtaining ready recognition for one's product is extremely important. That is one observation on the issue.

Paschal Mooney (Fianna Fail)
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I had expected Kerrygold to keep the colour scheme across the products of the Kerrygold brand, rather than creating a new green type which appears abstract as compared to the successful Kerrygold gold colour.

Mr. Joe O'Flynn:

I take the Senator's point. The company has undertaken considerable consumer research. The use of green is interesting in the sense that it is an identity that is of major importance to Ireland Inc. The work done in building the Kerrygold brand has been extremely relevant in that regard. The work Bord Bia is doing on the Origin Green programme is important in terms of Ireland taking ownership of that green space which we can justifiably claim.

A number of speakers raised issues about investment in research and development. We all recognise that the level of investment in research and development in Ireland is probably not adequate. The announcement of investment by the Kerry Group last week was a major plus for the country and the industry. The Irish Dairy Board is a sales and marketing organisation; it is not involved in primary processing. The focus of our innovation thrust is identifying market needs and ramping up investment in developing consumer insights and better understanding category management and shopper behaviour in order that we can better identify areas to which investment needs to be directed.

In terms of primary research, some excellent work is being done in Ireland. The capability in Teagasc and the universities is world class. The industry is seeking to ensure a greater focus on market need rather than basic research at this stage. From our perspective, it is essential to build this capability to gain a better understanding of consumers and ingredient users.

As to whether we have abandoned the shamrock, the Senator is correct that this matter was the subject of a court case in the 1970s. We lost the case.

Paschal Mooney (Fianna Fail)
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It was the wrong decision in my opinion.

Mr. Joe O'Flynn:

A German company has the shamrock registered. We do not use it as a symbol.

Paschal Mooney (Fianna Fail)
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Has anyone heard of the company? Is it still in business?

Mr. Joe O'Flynn:

In terms of turnover, the growth aspiration of achieving a 50% increase in output is realistic. As a business, we have the capability, working in close collaboration with our members, to deal with growth of this magnitude. Growth in turnover will be influenced to a significant extent by the speed of the increase in production. We certainly believe a 50% increase in our Irish turnover within a period of five years is realistic. Approximately 60% of our turnover is generated overseas and we have strong ambitions in terms of this growth.

Mr. Condon may wish to respond on the issue of volatility.

Mr. Bernard Condon:

There is no doubt that volatility is a key issue. Since 2007 the levels of price fluctuations in dairy products were previously unknown. They are being driven by a number of factors. In Europe the reduction, if not abolition, of many of the market protection mechanisms has left us more open to global trade and its impact. Outside this, a considerable amount of milk is being produced in regions or areas in which we may believe it should not be produced. Known as "marginal production regions", these areas are heavily dependent on irrigation and piped water. Any minor weather issue impacts disproportionately on their production, meaning that minor fluctuations in supply and demand can have a disproportionate effect on pricing. This trend is being exacerbated by hedge funds which have identified this volatility as a route to higher margins and become involved in trading dairy products on future markets. The speed of information transfer has also had an impact.

Volatility has become a major issue. Before 2007 the variation in dairy price was minimal, whereas fluctuations in the price of the products we sell can range in any given year from 30% to 50%. That is the world in which we live and it is difficult for us and farmers to build a business against that background. To try to mitigate this volatility, we have become involved in futures trading and now trade on the CME stock exchange in the United States and the Eurex exchange in Europe. The more product for which we can have a brand, the lower the impact of the general dairy trade volatility. We are acting on this issue.

Strategic relationships with customers that work from a milk price forwards or work off fixed milk prices would help us to manage volatility. It is important to note, however, that volatility is a double-edged sword. If we mitigate volatility in terms of the downside, we also do so in terms of the upside. This must be recognised throughout the dairy industry.

We are very interested in South America, not specifically Argentina and Brazil, the markets of which for dairy goods are in surplus, but Venezuela, Mexico, the Dominican Republic and Costa Rica which are very large markets.

We have an office in Mexico and we are expecting to grow our business into that region quite significantly. We are planning to open an office in, as we call them, the "Stans", by which we mean Iran and the surrounding region, which is a very big butter importing region. With the expected growth in butter production in Ireland, it will become a more important region for us.

To supplement the answers on the China question, I am involved in the dairy trade and ingredients side, which is the non-branded element. For our product portfolio, China is a relatively limited opportunity, primarily because of the free trade agreement between New Zealand and China, which makes us uncompetitive for exporting into that market. If we were looking globally at where we see the opportunities, sub-Saharan Africa would have to be top of the list.

On the question of turnover, the Irish business currently turns over approximately €800 million but that is the Irish business alone, which is the Irish dairy product part of our total business. We would see that growing at a minimum to €1.2 billion by 2018 to 2020, although we would actually expect a little more than that.

We are not directly involved in manufacturing so we cannot comment directly on the assistance that individual manufacturers might require to increase their processing capacity. What we can say is that over the milk flush in any given year, there is no excess capacity on the island so every single litre of incremental milk production from 2015 will have to be manufactured in enhanced or new plants. It is a very real investment requirement if we are to grow the business.

Paschal Mooney (Fianna Fail)
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Was there any reference to my African adventure? I am just curious.

Mr. Joe O'Flynn:

I will come back to that. How we go into markets is determined to a significant extent by the state of development of the market. In other words, if there is a formal retail structure established, one may be dealing directly with the retail trade. With many of the markets in sub-Saharan Africa, in the first instance one is dealing with distributors because it is a much less formal market. In many cases one does not have any significant retail structure and in some cases one does not even have a chill chain for products. This, in turn, influences the type of product that goes in there.

If we look at markets like the DRC or Angola, we have a partnership with an in-market distributor. As we evolve, going forward, we are looking at investment in terms of existing businesses within those markets, depending on the state of their development. Initially, it can be at arm's length through a distributor but, as the relationship evolves, we are looking ultimately to evolve to a situation where we are liaising directly with retail trade itself as it evolves.

Mr. Vincent Buckley:

I will wrap up on some of the questions that were briefly touched on. Senator O'Keeffe asked what the State can do to help. We have included that in our slide on the Government working with us. We would be very concerned to have a pro-business attitude in the country, that exporting is made as easy as possible, that there are no obstacles being put in the way and that support for research and development is ongoing.

I agreed with the Chairman when I commented on the investment that is needed in the processing sector. While that investment may not come by way of direct investment from the Government because I recognise the difficult financial situation and the need to balance the books at Government level, tax support would be seen as a stimulus to that industry and would create employment. The Chairman noted that creating employment and making this 50% growth possible will bring in revenue for the country, so we see it as a stimulus that is badly required. I have been asked to make that point today. It is not possible for the processing industry or for farmers to fully fund that sector, a point of which I ask the committee to be conscious.

Deputy Ferris raised the issue of volatility, which has been discussed. He also raised the issue of quotas and the survival of small farmers. The point would be 100% correct if quotas remained in place and we had guaranteed support for the volume that was being produced under quota. Unfortunately, in recent years we have had the worst of all worlds. We had a quota regime and, within that, we were asked to sell milk virtually at world market prices. Even within the quota regime, the number of farmers in milk has been declining. Hopefully, this will not continue at the same fast pace, but I take on board the Deputy's point. If there was price support, quotas would protect farm incomes to a certain point.

Reference was made to central Asia, including Iran. We need to be conscious at our end that our resources are scarce and we cannot be all things in all markets. We must identify the markets that will deliver best for us. When our strategy is drawn up and looked at, perhaps the committee can point out opportunities to me here or there. However, resources can be limited.

The issue of risk assessment was raised. All I can say is that we have a very active internal audit committee which has drawn up for the board a risk assessment policy in terms of business continuity should something happen within the business. We cannot cater for every eventuality but, in so far as we can, there is a policy in place to minimise any potential risk that might arise.

Senator O'Keeffe asked about the requirement for funding in the processing sector and how plans are working in this regard. We are well on target to meet our plans and the requirements of farmers and the processing industry. The snag is that, in developing our plans, we require the processing industry to deliver increased product at the end of the day. We hope that funding at that level will not be a hindrance in terms of growth. We are focused on meeting our 2020 objectives in terms of our requirements as marketers and we are conscious of the fact there may be a hiccup at processing level in terms of the finance commitment that is needed.

I hope we have covered most if not all of the issues raised. There were a lot of questions and if somebody feels we should come back-----

Susan O'Keeffe (Labour)
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I appreciate there were a lot of questions but I would like to come back to Mr. Buckley briefly. In regard to that last question, given what we wanted to tease out with him was how to arrive at the challenges and commitments of Food Harvest 2020, I would like to hear a bit more. If he is saying the Irish Dairy Board is on target to deliver but there is actually a big "but", maybe we should draw that out because part of our remit is to examine the "but", along with all the good things the board is doing that will have it on target.

I asked whether the Kerrygold was finished in regard to whether it has capacity over new products. I also asked if it could be used for Irish beef and my colleague also asked about the idea of the co-opting of the Kerrygold brand in another guise altogether. Specifically, we are here to know whether we are going to reach Food Harvest 2020 targets. It is the opportunity to tell us that we are, but the witnesses could perhaps give us more detail.

Mr. Vincent Buckley:

I will just take one aspect. Certainly, we are on plan to meet our targets but we need to realise we are only a year and half into the 2020 process, which will be an eight to ten year process. We are happy that if we challenge ourselves, we are at the right place at this time, one and a half years into the process. However, we clearly recognise there are significant challenges, which I have outlined under certain headings, and these will need commitment and support on a broader scale. We believe we can meet the challenges but, at the same time, we would not underestimate them.

As a marketing body we are not looking for State aid for marketing. What we are asking for is support in terms of ensuring a pro-business approach and dealing with regulatory obstacles. We seek the full support of the Government in terms of trade missions, which are vital, marketing and research and development, which is crucial for the future.

I am highlighting those issues and I will ask my colleagues to address the other issues or to add further to what I have said in response to Senator Susan O’Keeffe.

Mr. Bernard Condon:

On the specific question of whether Food Harvest 2020 will happen, from a dairy perspective, we have met with all of our members a minimum of four times. They solicited feedback from their farmers on the likely level of increase in milk production. All the indications are that the targets set out will be achieved. We are confident that will be the case. Our role thereafter is to figure out what products the milk will go into and we will have a role also in deciding the products concerned and establishing a route to market for them. We are happy that we are on track in that regard and that the targets will be achieved. The outstanding issue relates to investment by the co-operatives in processing capacity. We cannot comment directly on that because it is their business as opposed to ours.

Susan O'Keeffe (Labour)
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Is Mr. Condon saying that his situation is contingent on their investment?

Mr. Bernard Condon:

Absolutely.

Andrew Doyle (Wicklow, Fine Gael)
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As is increasing production. It all hinges on that. Let us be honest; that is the key. The question also arises of who will pay for it. The CEO of the Irish Dairy Board said a couple of years ago that the investment cost of increasing capacity would be €850 million.

In the context of volatility, reference was made to hedge funds and Government support. This might not be possible, but is there merit in a global sense in discontinuing the practice of allowing food commodities to be traded in hedge funds? I ask the question innocently. Food security worldwide is of the utmost importance. Mr. Gill from Bloxham’s has always decried the fact that such a valuable resource could be traded through hedge funds. It is sinful that this is the case because, whatever way it works in terms of short selling, it does not make any sense to allow food commodities to be part of the hedge fund system. There is an argument to be made in that regard from a food security point of view, whether the discussion is held at WTO level or in another forum. We could consider recommending Government assistance or interaction in the area.

Susan O'Keeffe (Labour)
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What percentage of the Irish Dairy Board’s unbelievable turnover does the company spend on research and development?

Mr. Joe O'Flynn:

We are mainly focused on the identification of market need rather than research and development per se.

Susan O'Keeffe (Labour)
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Could Mr. O’Flynn indicate what is spent on market research?

Mr. Joe O'Flynn:

We spend in the order of €3 million per year. On the question of why only Kerrygold has leverage potential and whether it could be used for meat, I will make an observation: developing an international brand is horrendously expensive. In the first instance we must leverage the capability of whatever brands we have to the maximum extent. Consumers consider Kerrygold predominantly as a butter brand but we see potential to leverage that across dairy products. That is a step-by-step process. It would be a huge stretch to extend the brand into meat. I do not say it is impossible but it would not be on the short-term horizon.

Susan O'Keeffe (Labour)
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Is it something the board has discussed, spent any money on or considered, apart from as small talk among themselves? Has research been carried out to suggest that it is a big stretch?

Mr. Joe O'Flynn:

We have done research. We do research on a reasonably regular basis on stretch potential. It does not figure in terms of the consumer's perception of the fit between where Kerrygold is as they see it and the marketing of meat. Who knows what will happen in the longer term, but it will not happen in the short term.

We have brands other than Kerrygold. Dubliner is an extremely successful brand for us. Pilgrim’s Choice is the number-two Cheddar brand in the United Kingdom and is showing double-digit growth this year. We are investing heavily in those brands because we see them as essential in terms of building a route to market for Irish products. Brand is very much a central plank in our strategy for the future.

Susan O'Keeffe (Labour)
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Is it not something the Irish Dairy Board would want to protect, given that meat is not the business of the board? That was never the case and no one asked the board to become involved in it. Is it a case of protection or-----

Andrew Doyle (Wicklow, Fine Gael)
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I am conscious of time. Bord Bia has developed the Origin Green label and there might be synergy between the two. Senator O’Keeffe’s question might be better directed at Bord Bia. The question is whether the Irish Dairy Board is precious about the Kerrygold label only being used for dairy products. It appears that is not necessarily the case, but the cost of expanding it is a challenge way beyond what one would envisage is the best way to proceed.

Mary Ann O'Brien (Independent)
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I have one last question, which I do not think is for Bord Bia. The Irish Dairy Board’s turnover is €2 billion. How many of the board’s products, or what percentage, are processed outside the island of Ireland? It might be difficult to say given that operations extend to different areas.

Mr. Joe O'Flynn:

If we take it in terms of the total business of the group, between 50% and 60% of goods are processed outside this country. Some of that is not Irish and is not dairy product. We pre-pack a lot of Irish product in the United Kingdom and in Germany for logistical reasons. In addition, a substantial volume of non-Irish product is part of the totality of our business.

Andrew Doyle (Wicklow, Fine Gael)
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Are Irish ingredients or those of foreign-based subsidiary companies of Irish PLCs used in the production of those products?

Mr. Bernard Condon:

Our primary objective is to use Irish products where there is a possibility of including Irish ingredients. A portfolio list is required, particularly for retailers in the United Kingdom, for example, who wish to buy British products, so we have to have a full portfolio which includes non-Irish products. That is the reason we are involved with non-Irish products as well.

Andrew Doyle (Wicklow, Fine Gael)
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Okay.

Mr. Vincent Buckley:

At the same time, we will be making acquisitions in other countries and we will push as much Irish product as possible through that route. We are conscious that where processing does take place abroad, in terms of added value, it is only out of bare necessity that it must be seen to take place there.

Susan O'Keeffe (Labour)
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Could the board use that as a vehicle to push the Irish product in with other products?

Mr. Vincent Buckley:

Following the recent acquisition of The Cheese Warehouse, we will ultimately see 5,000 tonnes of Irish cheese going through it, which is not currently being supplied by this country.

Andrew Doyle (Wicklow, Fine Gael)
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I thank Mr. Buckley and his colleagues for engaging with us so openly and giving us a good overview. This is the first time the Irish Dairy Board has had an opportunity to come before the committee and I do not recall its coming before the previous committee of which I was a member.

The Irish Dairy Board is critical to developing the potential of Food Harvest 2020 in the dairy sector. There are three aspects to it: production, processing and marketing. The various aspects must interact and feed up and down because there is no point in developing markets without product, and there is no point in developing products unless one can process them and bring them to market. It sounds simple when one summarises it but it is a considerable challenge. I will suspend the meeting for a couple of minutes to allow the representatives of the Irish Dairy Board to vacate the room and to allow Mr. Cotter and his colleagues to be seated.

Mr. Vincent Buckley:

On behalf of my colleagues I thank you, Chairman, for the opportunity to address the committee. The committee should feel free to contact us if we can be of any help to it in the future.

Andrew Doyle (Wicklow, Fine Gael)
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I welcome Mr. Aidan Cotter, chief executive officer, and Mr. Padraig Brennan, senior business analyst, with Bord Bia to discuss Food Harvest 2020.

I bring to the delegates' attention the fact that witnesses are protected by absolute privilege in respect of the evidence they are to give to the committee. However, if you are directed by the committee to cease giving evidence on a particular matter and you continue to do so, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given and you are asked to respect parliamentary practice to the effect that, where possible, you should not criticise or make charges against any persons or entity by name or in such a way as to make him, her or it identifiable. Will Mr. Cotter make his opening statement?

Mr. Aidan Cotter:

I thank the Chairman and members for the invitation to discuss the performance of the Irish food and drink industry in the market environment in which it is operating and the role of Bord Bia in the context of the targets set out in the document Food Harvest 2020. I am joined by my colleague, Mr. Padraig Brennan, who in addition to being our senior business analyst has taken the lead in developing and implementing our sustainability strategy.

The importance of the food and drink sector to the economy has rarely been more evident than in recent years. It has delivered strong export growth at a time when economies and other business sectors across Europe and beyond have struggled to overcome sustained recessionary pressures. The value of food and drink exports has increased by 25% to €1.8 billion during the 2010-2011 period. This was two and a half times the rate of growth recorded in overall merchandise exports. In 2011, the sector accounted for 25% of the increase in the country's total export revenue.

Growth has been driven by a high return from meat, dairy, beverages and seafood. Exports of prepared foods have felt the brunt of the renewed search for value by consumers. Despite this, however, over the two year period the value of exports in that category has still grown by 10%. In addition to a strong overall performance, an increasing diversification of our export base has been evident in 2011. The value of exports to continental European markets increased by 16%, or €400 million, to €3 billion, with particularly effective performances in the Netherlands, Germany and France, all countries in strong positions to weather the economic challenges. The value of exports to markets outside Europe grew by 20%, or €350 million, reaching almost €2.2 billion. In fact, exports to Asia grew by one third and to China by one half, with particularly strong performances evident in dairy, meat and seafood. Despite these developments, the UK remains our principal export market, accounting for 41% of the total of €3.6 billion. The value of our exports in 2012 is being affected by the continuing volatility in markets - about which we have heard a great deal this afternoon - with dairy product prices still some 25% off the March 2011 peak, as mentioned by the Food and Agriculture Organisation, FAO. However, this volatility has been softened by more favourable exchange rates and relatively strong global demand for meat products. Exports are also being affected by the adverse weather conditions, poor grass growth and the rising costs of inputs, with which farmers across all enterprises have to contend. The situation is most acute in the pigmeat sector, whose exports will rise by 10% this year, but the sharp rise in feed costs have left producers facing an exceptionally challenging financial situation.

Despite a slowdown in export values this year, and we do not foresee any growth this year, the underlying trend for Irish food and drink exports remains strongly positive. Recent research from Rabobank suggests that the recent strong surge in global corn and cereal prices is set to have a further upward impact on meat and dairy commodity prices as global output eases in response to higher input prices. These developments will boost Irish exports into 2013 and beyond in an era of high grain prices. Ireland's grass-based meat and dairy enterprises offers a potential competitive advantage relative to other suppliers.

In spite of the overall weakness in the global economy, the growth in Irish food and drink exports over recent years has been helped by favourable global market conditions, strong commodity prices and stability in key currency exchange rates. However, markets have also witnessed significant volatility caused increasingly by unexpected weather events in different regions. In fact, the FAO and OECD regard unpredictable weather conditions as the single biggest reason for the volatility we have been experiencing since 2007. This is set to continue but, nevertheless, the long-term prospects for agricultural commodity remain positive with the latest agricultural outlook of the FAO and OECD suggesting the nominal prices for the decade to 2021 will be 10% to 30% ahead of the average prices in the last decade, with the strongest increases expected in meat and dairy and oils, and we are strong in meat and dairy.

Underscoring such projections are two indisputable facts, an accelerating world population, which members can see in the slide overhead, and a global agricultural base that will struggle to keep pace with the growth in demand. The general increase in the demand for food, which will rise by 40% in 2013, and the growing sophistication in taste of consumers in developing economies must be seen as representing major long-term opportunities for Ireland. In the chart, members can see the map of global buying power has shifted rapidly over the decades from the United States, the EU and Japan to focus on China and India in the decades ahead.

The development strategy presented in Food Harvest 2020 clearly articulated the ambition evident among all stakeholders in the sector and achieving predicted growth of 42% in the value of food and drink exports - to reach €12 billion - undoubtedly requires a co-ordinated effort by all those involved if it is to be delivered. Having gone more than one fifth of the way towards reaching the target, the sector has shown it has both the ambition and the expertise required, and it remains well on track. Bord Bia's work in supporting industry build exports is illustrated by initiatives such as Marketplace 2012, when we brought 500 buyers from around the world to the Dublin Convention Centre in February; and the 4,500 business meetings with 160 Irish food companies. Images of that are on the overhead slide. Working through our Shanghai office, we facilitated a trade mission led by the Minister for Agriculture, Food and the Marine, Deputy Simon Coveney, with five sectorial itineraries across 11 cities and visiting some 13 food factories in China. In fact, exports to China are continuing to grow. Having grown by 50% last year, they have grown by over 40% in the first six months of this year. We also continued to work with 70 leading high-end supermarket and food service customers across Europe on behalf of the beef industry. We work with the Departments of Agriculture, Food and the Marine and Foreign Affairs and Trade to achieve access to key potential markets for the industry in the United States, China and Japan. Bord Bia's own commitment to supporting the growth objectives of Food Harvest 2020 is expressed in Pathways for Growth, the inter-disciplinary five year development programme initiated in 2010, which is based on the report of the same name, also by Professor David E. Bell and Mary Shelman of the Harvard Business School and launched at our leadership summit in 2010. At annual follow up summits in 2011 and 2012, Bord Bia has, following consultation with leaders across the industry, rolled out work programmes for each of the main areas identified in the regional report. We have published three updates on our progress, as can be seen in the slide overhead.

We have focused our efforts on the five areas outlined in the slide and I will mention each of them rapidly. Under the entrepreneurship programme, a collaboration between Bord Bia, Enterprise Ireland and Teagasc led to the launch of Food Works in March 2012, a mentoring and support programme for entrepreneurs. Food Works provides a clear pathway for the development of the next generation of scalable, export-driven food companies. It is envisaged that 15 entrepreneurs will enter the first phase every year and, by the end of 2015, a pool of 45 dynamic start-ups will be up and running.

At least 20 of these are expected to be high potential companies.

The Bord Bia education programme, which commenced in 2009, has developed considerably over the intervening years. Every year the Bord Bia marketing fellowship allows 25 graduates with industry experience to complete overseas assignments for Irish companies as part of their MSc in marketing practice with the UCD Michael Smurfit School of Business. The food export graduate programme involves an 18-month placement of graduates in Irish companies in association with IBEC. The food industry strategic growth programme allows industry professionals to enhance their long-term career opportunities through leadership-defining projects.

A key goal of the education programme is to retain graduates in the industry, developing the next generation of executive talent. Feedback from companies indicates direct and long-term sales benefits from participation in the marketing fellowship programme. While the programme is primarily about nurturing talent, its second year has, to date, generated sales of €7.9 million with €20 million anticipated by 2014. Similar returns are envisaged through the third and fourth programmes.

Our insight and innovation team has expanded in the past 12 months, allowing it to significantly increase the flow of services to Irish companies. Over this time, it has also piloted two crowd-sourcing projects with industry clients, leveraging online communities to seek out deep consumer understanding and insight. In addition, the team has hosted five inspiration expeditions, which help inspire and motivate companies through exposure to new product and service ideas in other markets. Investigation of innovation opportunities for the Irish dairy industry in less developed markets began in 2011, with ethnographic research in South Korea, Indonesia and Vietnam capturing by living with families the lifestyle, food culture and dairy consumption habits of consumers. Research projects conducted over the past year have delivered insight into broad consumer trends in areas of interest to Irish industry, including European sports nutrition, the future of health and wellness and understanding evening meal consumption.

Co-opetition, a word introduced in the early 1990s by professors at Yale and Harvard, is the concept whereby companies that compete in some areas can collaborate in others. We introduced this in the Pathways for Growth programme in 2010. While Ireland is a significant player in the world market as the largest net exporter of beef in the northern hemisphere and accounts for 10% of the world’s output of infant formula, its annual food and drinks turnover is €9 billion, a mere fraction of the turnover of some of the largest food and drink companies in the world. We need to have scale in the marketplace and achieve economies. Co-opetition is designed to get companies to work together at different stages of the supply chain from costs right to the marketplace. Irish food and drink companies increasingly recognise the value of strategic engagement with each other to secure new markets, manage larger contracts and reduce overheads. We have engaged with more than 110 Irish food and drinks companies and developed, assisted or supported 20 individual co-opetition projects in the past year. These covered areas such as promotion, procurement, market access, logistics and mentoring.

In June 2012, Bord Bia launched Origin Green, a national sustainability development programme that is designed to help Ireland become a world leader in sustainably produced food and drink. The programme recognises that sustainability is increasingly becoming a major component of the commercial strategies of leading retailers, food service companies and food manufacturers. Most have set out clear strategies and targets to enhance the sustainability of their supply chain over the coming decade. They view sustainability as helping them boost the efficiency of their supply chain while also driving brand reputation and securing supplies over the longer term.

Retailers are looking for suppliers that can align with their commercial strategies and offer them a point of difference. Bord Bia research with 20 leading customers across Europe highlighted the significant opportunities that exist if the Irish food and drink sector can demonstrate its commitment to delivering continual improvement in terms of sustainability. Origin Green aims to effectively add proof and assurance to our sustainability claims while providing the evidence for which our export customers are looking.

Successfully delivering Origin Green will help the industry create a point of differentiation with key customers that will strengthen business relationships and improve the market position of Irish food and drink products. There is also a strong correlation between the measures needed to improve environmental sustainability and those needed to reduce production costs and improve profitability at both farm and manufacturing level. The Origin Green programme builds on existing work being undertaken at primary production level and it is intended that a target of 75% of Irish food and drink exports will be sourced from signed-up members to the programme before the end of 2014. Origin Green is a voluntary business-to-business programme built upon a commitment from participating food manufacturers to develop a sustainability plan, in conjunction with Bord Bia. Firms will sign up to a new sustainability charter and set out clear targets in key areas such as emissions, energy, waste, water, biodiversity and corporate social responsibility, CSR, activities.

Once approved, successful members will be entitled to use the Origin Green logo as part of their trade marketing, communications and customer relations. Each year, participants will be required to submit independently verified progress reports. Such verification is critical to ensuring marketplace credibility. Bord Bia has retained the SGS Group, the world’s leading inspection, verification, testing and certification company with 70,000 employees and almost 1,400 offices and laboratories worldwide to act as the independent verifier for Origin Green.

Bord Bia will promote, communicate and develop trade awareness of the Origin Green programme among buyers, international media and relevant stakeholders in key export markets. An international targeted communications programme is under way to build awareness of Origin Green and Ireland as a source of sustainably produced food. In September, Bord Bia hosted 31 journalists from across Europe on a dedicated two-day sustainability itinerary. At the end of this week some 15 Irish food and drink companies will participate at SIAL Paris, the world’s largest food and drink trade show, under Bord Bia’s Origin Green banner for the first time.

The response from the food and drink industry to date has been very positive with some 70 companies registered to participate in the programme. Between them they represent more than 50% of Ireland’s food and drink exports. Over the past week, the first five companies have received formal approval to become full members of Origin Green with a further 15 expected between now and the end of the year.

Origin Green will also act as the means of communicating the sustainability programmes being rolled out at farm level through Bord Bia’s quality assurance programmes. Since May 2011, over 29,000 members, 91%, of Bord Bia’s beef quality assurance scheme have participated in a sustainability - a carbon footprint - survey, developed by Bord Bia in conjunction with Teagasc, as part of their regular farm audit. Ireland is the first country to assess the environmental performance of farms on a national scale, making it a world leader in this regard. The audit results provide a unique selling point for Irish beef in key export markets. From a farmer’s perspective, reducing carbon footprint improves efficiency and thereby enhances profitability.

Similar farm level programmes are planned across the entire range of primary agricultural production. A pilot programme for the dairy industry was initiated in 2011 and a national scheme, equivalent to that operational in the beef sector, will be implemented in 2012 and 2013. Work is under way to complete a pilot programme for Irish poultry with other meats, grain and horticulture to be included in this programme over the coming 12 months. The development of Origin Green to build Ireland's brand reputation around green credentials is one of the four key strategic priorities for Bord Bia over the next three years. In addition, we will be focusing on enhancing competitiveness, promoting exports and building a vibrant domestic market for the agrifood sector.

The export prospects for the Irish food and drink sector remain positive over the medium to long term with price levels for agricultural commodities set to increase further. However, volatility in the international marketplace is likely to pose ongoing challenges. The Irish food and drink sector is well placed to avail of opportunities as they emerge in developing markets while it has also shown a strong ability to further enhance its position in developed markets across Europe, which leave it well placed to deliver on the targets set out in Food Harvest 2020. Bord Bia’s pathways for growth programme, developed in conjunction with industry, will work to equip the industry with the necessary talent, market insight and marketing ability in pursuit of these targets.

I thank the Chairman and the members of the committee for affording me the opportunity of addressing them today. My colleague, Mr. Padraig Brennan, and I are happy to address any questions. Before we do, I would like to show a short audio-visual clip featuring Saoirse Ronan who worked for us pro bono to promote the Origin Green programme to our stakeholders.

Mr. Aidan Cotter:

There are two versions of the film. The one playing is aimed at stakeholders. We want to encourage farmers and processors to sign up to the sustainability charter. The film provides that encouragement and explains what constitutes sustainability. The other version of the film is for use in the marketplace. It is meant for presentation to buyers and explains what we are doing in the context of sustainability, outlines our sustainability charter and highlights our ambition to become a world leader in sustainability.

Andrew Doyle (Wicklow, Fine Gael)
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I call Senator Mary Ann O'Brien who is anxious to pose her questions.

Mary Ann O'Brien (Independent)
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I hope members do not mind indulging me, as I must attend another meeting. I do not really have questions to pose. I have been a customer of Mr. Cotter since 1993 and would not be where I am today were it not for Bord Bia. I could spend an hour telling members what it is like working with it. I was in a great deal of trouble in 2008 and I am aware that whether one's situation is good or bad and regardless of the nature of one's needs, Bord Bia is a vibrant, expansive and ever-changing organisation. It is run like a cut-throat business by Mr. Cotter and I cannot find enough superlatives to describe what it does. Mr. Cotter has provided the committee with an extremely condensed version of what he does. It would be great if the various members of the committee - if there was room for all of us - could be invited to attend next year's Pathways for Growth food and drink leadership summit. There has been a long, step-by-step process and it is amazing to consider the amount of work Mr. Cotter and his wonderful team have done.

Paschal Mooney (Fianna Fail)
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I endorse everything Senator Mary Ann O'Brien said. I am familiar with the outstandingly impressive work done by Bord Bia. I am curious about the new players in the Irish market and the engagement Bord Bia has had with them. I refer, for example, to Aldi and Lidl. What has Bord Bia done to encourage them to increase the number of Irish food products on sale in their stores? I would pose a similar question to Tesco, the dominant player in the market.

In the context of the promotional film we have been shown, it is obvious that the type of thing to which Mr. Cotter refers is not advertised on television. I accept that television advertising is extremely expensive. Newspaper reports indicate that small artisan food producers seem to be able to have their products stocked in the unlikeliest of places, for example, in stores such as Harrods of London, etc. Is it part of Bord Bia's work to assist such producers in this regard? At the weekend it was reported that a company in Sligo was selling Irish seaweed products into China. These may be cosmetics, but I am pretty sure they are food products.

Mr. Cotter referred to the position globally. There has been a great deal of discussion in recent weeks about weather patterns and how they may affect food prices. Is this a positive or a negative for the consumer? Mr. Cotter seems to suggest the volatility in weather patterns has led to an increase in food prices and that this is a good development.

Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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I thank our guests for their presentation. It has been stated Irish food and drink companies increasingly recognise the value of strategic engagement with each other. Are such companies co-operating or collaborating with each other, particularly in the context of research and development? The successful delivery of Origin Green will help key players in the industry to strengthen each other. What will be the effect of genetically modified, GM, material in this regard? A move towards GM potato production is taking place in this country which is practically GM-free and uncontaminated by pollen as a result. Will the introduction of GM methods have an impact on how we market our produce?

Susan O'Keeffe (Labour)
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I thank our guests for their continued efforts and the presentation they have made to the joint committee. I appreciate that it was only possible for them to provide a condensed amount of information on the activities in which Bord Bia was involved.

In the context of the sustainability charter, are our guests satisfied that the targets they have set are appropriate? Do they expect these targets to change in the coming years? What do they expect of food producers and companies which have yet to sign up to the charter? I accept that everyone cannot sign up from day one, but what is our guests' prediction in respect of those to whom I refer?

Like Senator Paschal Mooney, I am curious about Bord Bia's role in the case of small artisan producers. While I accept that such producers will never be major exporters, they are very important to local communities in terms of the employment they create. In some instances, they also provide encouragement for farmers in terms of diversification. What is Mr. Cotter's view?

Michael McNamara (Clare, Labour)
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Does Bord Bia play a role in the European Union region or in terms of area of origin classifications?

Burren lamb is one example, but there is scope for more. Bord Bia may not have a role in the recognition and development of such areas of origin, but I ask if it views such recognition as being beneficial for marketing purposes. It may be helpful to link food products with internationally known tourist areas such as the Wicklow Mountains, the Burren and Lough Corrib for its fish products.

Andrew Doyle (Wicklow, Fine Gael)
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It may not be fair to ask this question of Bord Bia. I refer to the announcements made by Kerry Group and others last week, but it should be noted that Olhausen, a small company over 100 years old, closed down. It was not an export brand and depended entirely on the domestic market. Equity in the food chain is an issue which has come before the committee and has been mentioned by the Agriculture Commissioner in the context of CAP reform. While I do not know the details and the reasons for the demise of the Olhausen company, we have to be concerned that retail practices here may have had a profound or negative impact on it. Does Bord Bia attempt to engage with the major distributors and retailers in order to secure fair prices for all those involved at every stage of the food chain?

Mr. Aidan Cotter:

Senator Paschal Mooney has asked if Bord Bia engages with some of the more recent entrants into the Irish retail market. He mentioned Aldi, Lidl and Tesco in this regard. We engage with these retailers. Our members use the Bord Bia quality mark which is promoted widely by retailers, with which we work closely. This year we have been working with Tesco on a supplier development programme involving 16 Irish food companies and are working at three levels. One of these companies is focusing on expanding beyond its local area, another is expanding nationally within the Tesco retail chain, while the third is moving from selling nationally to selling to Tesco in the United Kingdom. Working with Tesco, the third largest food retailer in the world, to advance the interests of these Irish food companies has proved very successful. It is an important potential stepping stone into the international marketplace for Irish companies. Aldi and Lidl are very significant players in international and European markets. While they are discount retailers, many Irish suppliers regard them as very stable customers in terms of returns and doing business with them. We regard them as important outlets for Irish food and drink products and do everything possible to work with them to increase the penetration rates of Irish food products.

Senators Paschal Mooney and Susan O'Keeffe asked about artisan foods. We regard artisan foods as one of the great success stories of the Irish food and drink industry. In many ways, such companies provide a halo across the whole food and drink industry because of their high quality products, the premium position they occupy and the passion they show in the production and distribution of their products. I suggest the greatest profile for artisan foods is provided by the Bloom gardening and food festival held in the Phoenix Park every June over the bank holiday weekend. A total of 55 artisan producers show their products during a very successful five-day period. Artisan food producers have ambitions. The Senator referred to their presence in Harrods and Selfridges in London. Bord Bia carried out a significant promotion campaign for Irish specialty food producers in Selfridges earlier this year, most of which were artisan food producers. It was a very successful promotion and a very suitable campaign for these small businesses to show their wares, earn an income and seek future business.

Bord Bia administers small business grants for businesses with a turnover of between €100,000 and €3.5 million. In the current year it has grant-aided approximately 190 small businesses. These are very important grants for businesses which are innovative and creating new products for new markets. We work closely with small businesses. I refer to our website, bordbiavantage.ie, which contains information for anyone wishing to start a business on how to develop financial management systems and so on. It provides signposts for businesses to guide them towards the further assistance available.

Senator Paschal Mooney asked about global weather patterns. Unpredictable weather conditions are the single most important factor behind the volatility in the marketplace. However, long-term food prices are driven upwards in meeting the requirements of an expanding global population which is growing by 80 million every year. The middle class category is growing by 150 million a year and this class has shifting dietary habits, as we heard. On the other hand, there is the inability of the global marketplace to maintain supply to match that demand.

The Chairman asked about a fair return for producers. We have witnessed the end of the era of cheap food. Retailers and others will have to pay more for the volume of food products they require, while producers will have to be rewarded sufficiently. We have entered a new era in food production where the opportunities for the food industry are perhaps unparalleled.

Deputy Martin Ferris asked about co-operation and collaboration. This is happening in many areas along the supply chain. For example, groups of growers are coming together to combine their purchases of inputs in order that they have greater bargaining power to reduce their input costs by comparison with larger players. I showed a slide which the Deputy may not have seen. It showed the level of collaboration between the Irish Dairy Board and Cashel Blue following the launch of the co-operation project in 2010. It is also evident in what we call the China hub launched in April during the visit to China of the national delegation led by the Minister for Agriculture, Food and the Marine, Deputy Simon Coveney. We have expanded our office facility in Shanghai to include representatives of six other food companies, four of which are in the seafood sector. They share the same facility. There are meat companies which collaborate with each other because they operate in different sectors. They are sharing knowledge and resources and working together as one in the marketplace.

There was a question about Origin Green and the impact of GM foods.

What we have seen in recent time is the scientific trials that are being undertaken by Teagasc under the approval of the EPA. We would be confident that the safeguards that are in place during these scientific trials will be sufficient to ensure there is no risk to the reputation of Irish food and drink. As we all know, scientific trials like this take place and have been taking place for a very long time right across the European Union without an apparent impact on their food industries. They are scientific trials. As there is no production of GM foods in Ireland, there is no threat in that regard at present.

Senator Susan O'Keeffe asked about the sustainability charter and the targets set in it. We have sought that 75% of our food and drink exports would come from Origin Green members by 2014. In so far as this is a voluntary programme, 100% would come from such members by 2016. We have found at farm level where we are rolling out a sustainability survey, very significant acceptance of this among farmers. We have done a carbon footprint of 29,000 farms to date. There is no other country in the world that has been conducting carbon footprint on farms on what is, in effect, a national scale and a process of measurement feedback and continuous improvement. All of these farms must sign a permission for Bord Bia to access the AIM database operated by the Department of Agriculture, Food and the Marine so that we can access online the number of animals that have entered and left that farm and the number of animals that are on the farm, which is a key input into accessing the carbon footprint. The uptake by Irish farmers has been extremely encouraging and we expect that to be replicated right across the primary production sector. We are quite confident this will happen.

At the processing level we have 70 companies with an excess of 50% of our food and drink exports already signed up. SGS Ireland was only appointed as a third party verifier in September. Next week at SIAL all of the companies operating under our stand with the Origin Green logo are signed up members of the Origin Green programme. We are confident, without much work on our part, the companies are very enthusiastic about this programme. They recognise that this is an opportunity to set Irish food and drink apart. We have always been recognised for our green credentials. We are a warm, friendly and welcoming people. The caretakers, custodians and protectors as they are described in this video, who look after our farms have always done so through the generations. We are putting metrics and objective measurement around this and can then go out into the marketplace and sell it. This is perhaps one of the most important initiatives taken by the industry in recent times. This can project us in a fashion that differentiates us from everyone else in the marketplace.

Deputy McNamara asked about protected designation of origin and protected geographical indicators. We have limited uptake of these designations of origin in this county. That relates to the fact that they are more traditional, more accepted and recognised as a part of the southern European countries, particularly areas such as Italy, France, Spain and Portugal. We would like to see more of these designations of origins, recognising the high quality products that our artisans are producing. There is work under way by our Department of Agriculture, Food and the Marine and we provide any support that we can to promote this. We would welcome an increased penetration of these designations because they offer a major endorsement to the artisan producers for their products.

The Chairman referred to Olhausen, which is a very old and long-established company in the Irish food industry. It was a member of our quality assurance scheme and we were very concerned when it got into difficulty. It is clearly a very competitive marketplace. Retailers and food service operators are dealing with consumers who are shopping around from brands towards private labels. There is significant pressure from the consumer on one side and the retailers on the other and the distribution of power is not always perceived to have the equitable share that it might rightly have. The market decides in the world we live in. As I said the era of cheap food is at an end. Producers will have more power as we go forward and the world struggles to keep pace with the growth in demand.

Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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I was very interest in Mr. Cotter's earlier remark that we are entering an era when cheap food will no longer be the norm. Does he base that on the fact that we are coming to the end of subsidies for what we are producing?

Mr. Aidan Cotter:

There has been a significant amount of change in the Common Agricultural Policy in the decades since it began. In the global marketplace and World Trade Organisation the requirements are that subsidies that are in place should not act as an incentive or a disincentive to production. What we have in place is largely recognised as something that is there to protect the family farms we have in Europe in comparison with the very large ranch-style farming that we see in areas such as South America. The small family farm in Europe would find it very difficult to compete with the large ranch farms. This is a choice that Europe makes to protect the traditional established system of farming we have had. I think it is important that it is maintained and that the policy of channelling supports towards productive farmers is important for us being able to achieve the targets set out in Food Harvest 2020.

Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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There is a serious worry at present about the Common Agricultural Policy and the possible outcomes of that debate from a national as well as European perspective. The survival of the family farm goes beyond economics and is essential for the maintenance of the social fabric of our society. It is our job as legislators, whether in government or in opposition, to try to ensure we get the best possible deal to ensure the survival of the family farm.

As I see it, Europe is in crisis, we are in economic difficulties, and austerity is raging. People have less and less money in their pockets. Unless there is a support mechanism for farmers to produce food at an affordable level, we will be entering very dangerous territory. It was mentioned that hedge funds were investing in food production. That will present difficulties. It would mean that human survival would be controlled by the market.

Mr. Aidan Cotter:

With the permission of the Chair, may I add that e-clip does portray the importance of family farming in Irish conditions. That is an appealing part of what we offer as a food and drink producer. It shows Irish farmers through the generations. I think it is something, in addition to the clean, green environment, that we must continue to strive to protect. It is the people themselves in the family farm system that completes the real picture that we can sell internationally.

Andrew Doyle (Wicklow, Fine Gael)
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Senator O'Keeffe raised the issue of sustainability in that the family farm model is probably the best way of ensuring sustainability. We only got the video clip prior to the meeting. It is available and I will ensure that all members have it. I regret that we did not have a chance to view it prior to the meeting.

It will be all the more interesting to hear it as well as see it. I thank Mr. Cotter and Mr. Brennan for appearing before the committee. Today we had delegations from both the Irish Dairy Board and Bord Bia. Agriculture is dependent on these two bodies to drive the sales and marketing of Irish food production capacity. Production, processing and marketing are the three keys to the industry.

Senator O'Brien gave Bord Bia a ringing endorsement of its value to her company and other similar companies, both large and small.

The committee would appreciate being kept abreast of update No. 3 of Pathways for Growth. If the committee secretariat were informed of the proposed date of the presentation they could inform members who may wish to attend it.

I thank the members for attending and giving of their time. Today's proceedings have given us a clearer idea of potential opportunities as well as possible hurdles that we can highlight in our report. We can flag the challenges for the Minister's attention.