Andrew Doyle (Wicklow, Fine Gael)
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I welcome the Fresh Milk Producers group. The committee has had a series of meetings with different stakeholders to discuss the issues regarding the proposed code of conduct for the grocery goods sector, pricing and the impact on primary and secondary suppliers, support for local produce, and labelling.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence you are to give this committee. If you are directed by the committee to cease giving evidence in relation to a particular matter and you continue to so do, 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 the parliamentary practice to the effect that, where possible, you should not criticise nor make charges against any person(s) 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 House or an official by name or in such a way as to make him or her identifiable.

I propose hearing the opening statements from both groups before members put questions in the normal fashion. I call on Mr. Stephen Arthur of Fresh Milk Producers to make his opening statement.

Mr. Stephen Arthur:

I am joined by Mr. Denis Fagan, Mr. Larry Hannon and Mr. Jim Mulhall. We are fresh milk producers and I thank the Chairman for the privilege of addressing his committee. Fresh Milk Producers is the largest liquid milk producer group in the country. We supply Glanbia, which processes milk into well-known brands such as Avonmore, Premier and CMP Milk. Fresh Milk Producers is a family farm structure that has been in existence for 75 years. We have been producing milk for the liquid market since the 1930s. We produce milk through statutory contracts with the National Milk Agency, NMA. The organisation was set up in the 1930s, when there was a serious shortage of milk in the cities. Milk was scarce so they wanted a steady, guaranteed supply of fresh product in the cities. That is the origin of the contract system and how the organisation came into existence supplying milk.

In Ireland, there are two forms of milk production, liquid milk production and manufacturing milk production. Manufacturing milk production involves calving cows in the spring and following the grass growth curve. They are dried off in the autumn and the milk is manufactured into powder for export to foreign markets. Liquid milk production involves milking cows 365 days of the year. They are calved in the autumn and spring. It is important to calve cows over the two sections so that the milk is fresh to go into a bottle. It gives a fresher, better product.

Milk leaves our farms today and it is in a bottle tomorrow. Product milk cannot go into bottles as it is not suitable. In off-peak seasons, one does not get it.

We have been producing milk for years. Our costs just seem to be catching up. The remuneration coming back from the market is not enough to justify the increase in the costs. Costs are rising astronomically outside the farm gate and they are outside our control. Inputs, energy costs and so on are skyrocketing. The amount of money coming back from the markets is not enough to justify where we are on this.

The liquid milk sector in this country is worth €450 million per annum. Approximately 500 million litres of milk is consumed annually. We have the highest consumption rate of milk in Europe per capita. FMP supplies just over 60% of the milk processed into bottles. The consumer demands fresh product on the shelf everyday and that is what we deliver.

Our processor is Glanbia which deals directly with the retailers. It processes the milk and sells it on to the retailers. It has told us it is not getting enough back from the retailers to give us a sustainable price going forward.

Fresh milk is a locally produced product with local markets. Our average farm size is approximately 90 cows - family farms on small land bases. The traditional liquid milk farm would be three to five cows per hectare. It is a system which involves a lot of milking over the winter. Infrastructures are put in for winter milking, including extra feeding systems. It is a high cost and a highly mechanised system of feeding cows. Putting milk out every day comes with a price. Over the past 12 months, we have been getting 1 cent more but our costs, according to Teagasc figures, are approximately 7 cent more.

Why are we in this position? We are not getting a fair whack of the margin coming back from the retailers. It seems to be held by the processor, which is telling us the retailer is holding it, but as far as we can see, it is held by the retailer and the processor and we are not getting it.

This fabulous industry is worth a lot of money to local industries and many families are involved in it. We have a great tradition of producing fine quality milk but as far as we can see, it is disintegrating in front of our eyes. All one has to do is look no further than England to see what is going on. The retailers brought in their own practices of discounting milk - ways to lure people into shops. It has destroyed the liquid milk business in England. It took the fact there was no fresh milk on the shelves for them to realise there was a problem. We have a system which is going down that road. Unless we do something fairly smartly, we will end up in the same boat. It is time we addressed the problem of discounting, loss leading and so on. Milk is too much of a nutritional, healthy and valuable food to lower it to that level.

The current imbalance of power in the food supply is unsustainable for the family farm structure in Ireland. With Harvest 2020, we are all talking about expansion which is brilliant. It is the first time we have had such enthusiasm in farming but whatever we do, we should not destroy or lose our local markets while we look overseas. What kind of message are we sending to the people to whom we are pitching to buy our products if we cannot look after our own markets? It is very important that before we source, we should secure our local market. We have a very important resource under our noses and we have to mind it.

Vulnerable sectors such as the liquid milk sector are under particular pressure from retailers and we will not survive the price war if the Government does not take action. There must be a fair way to redistribute the price through the food chain.

Mr. Vivian Buttimer:

I am a liquid milk producer in west Cork. The other members of my team include Mr. Richard Helen and Mr. Donal Kelleher, who are also liquid milk producers, and Mr. Ciaran Dolan, who is an agribusiness consultant. I thank the Chairman and members for the opportunity to put our case and describe the growing difficulties we are experiencing as liquid milk producers. We are aware of the format and scope of this hearing and are strongly of the view that the concerns and problems of the liquid milk sector, while distinct, are also part of the overall issues being considered by the committee.

The price received by liquid milk producers, relative to the increasing cost of production and, in particular, the cost of winter milk production, is such that the 1,800 liquid milk producers have no, or very little, income. The returns from the marketplace are grossly inadequate given the amount of investment, labour and management inputs into our farms. We are seriously concerned at the growing power and dominance of the multiple retailers and the ever-increasing share of the final price they have captured. The continued downward pressure on price and the pressure they exert on milk processors which determines the price they pay to farmers threatens the very viability of the liquid milk sector. We believe that the current situation is unsustainable and if it is not rectified, it will leave producers with no other option other than to reduce or cease winter milk production.

The format of our presentation will focus mainly on two aspects, namely, a description of the current price-cost squeeze on long-term trends and we will put forward a number of proposals to strengthen the bargaining power of the dairy farmer, in particular liquid milk producers.

We have read the report of the submissions to this committee by Mr. Paul Kelly of FDII and Mr. John Bryan, president of the IFA. We fully support the comments of Mr. Paul Kelly regarding the need for the urgent implementation of a statutory code of practice for the grocery sector which should also include a provision for an arbitrator-Ombudsman along the lines already operating in the UK. This undoubtedly would bring about an improvement in the situation and should eliminate or substantially reduce the number and the scope of unfair trading practices. However, it would be rather naive to expect that a statutory code of practice, even with an arbitrator for the food sector, would not, in itself, bring about a level of price increases which is required.

There is a pressing need to strengthen the negotiating position of liquid milk farmers. We will develop this point further as we feel it is an important aspect which the committee may wish to consider.

Mr. Richard Helen:

We feel we have no control over the price of essential feed products. In 2004 soya beans, the main source of protein for milk production, cost €280 per tonne, but that figure has risen to €550 per tonne this year. Our milk price fell in 2009 owing to the liquid milk price being matched with the manufacturing price. These prices were matched to allow processors to buy milk even more cheaply. The price we are now paid has increased slightly, but not by enough to cover our increased costs. In 2013 our price has increased by 1.25 cent per litre, despite the fact that Dr. Joe Patton from Teagasc showed that our costs for feed alone had increased by 4.5 cent per litre. Our price increase was funded by processors without any effect on retailers. Our share of the retail price in 1995 was 43%, but this has fallen to a new low of 31% in 2013. Operating a viable family business on these margins is not feasible and urgent change is needed.

There is broad agreement on the extent of the problem facing farmers generally and liquid milk producers in particular. The price-cost squeeze is not a uniquely Irish problem as dairy farmers in the United Kingdom are facing similar difficulties. The latest reports indicate that UK farmers are experiencing one of the most difficult periods ever as production costs have soared, while milk prices have risen insignificantly. The position of dairy farmers is similar in many northern EU member states. Recent analyses by dairy farmers within the European milk bowl state a farm gate price of 51.5 cent per litre is required. With the liquid milk price averaging a mere 32.5 cent per litre last year, farmers are losing close to 20% per litre when labour costs are factored in. We describe the problem of our fellow farmers in other member states in order to emphasise that this is an EU-wide problem requiring an EU solution or a national solution based on EU legislation.

The appointment of a groceries code adjudicator in the United Kingdom will, undoubtedly, improve the relationship between the major retailers and their direct suppliers. Specifically, the UK legislation does not allow for any form of price setting or consideration of what should be a fair price as far as farmers are concerned, contrary to what some commentators have stated. Therefore, any benefit to farmers will be indirect. Something in addition to the statutory code and an adjudicator is required. EU legislation has changed in recent times to allow farmers to come together, within limits, so as to strengthen their price negotiating position.

Mr. Donal Kelleher:

The facts of the matter are that in the winter just passed our costs increased by 4.5 cent per litre for feed alone. The total cost increase, as Mr. Arthur mentioned, is up to 7 cent per litre. This was flagged by farm organisations and the National Milk Agency as far back as last October. A mere 1.25 cent increase has been granted to us by the processors. Meanwhile, absolutely no money has been forthcoming from the retail trade in the form of a wholesale price increase to processors to cover any part of our additional costs. There are 1,800 of us involved and at farm level we have invested somewhere between €1.2 billion and €1.4 billion. That is the level of our investment in the business, but those who have made an investment in something that is 3 ft. wide by 20 ft. long by 6. ft high, with a refrigerator on the back, have all the power. Approximately 80% of the milk produced goes through the multiples. I have no issue with this, but I do have a serious issue with their not at least acknowledging that we have a problem and bringing something to the table to compensate us for our difficulty.

In the supplier group to which I belong we have lost 20% of the suppliers in the past five years. When I say lost, I mean they moved from liquid milk production to manufacturing milk. In other words, they moved from all-year round to seasonal production, while another 20% have signalled that they intend to do the same. These are not elderly people. Generally, they are aged between 30 and 55 years. That is the age category involved and it is a combination of small, medium-sized and larger farmers. Many of us are third generation liquid milk producers. In my case, both my paternal and maternal grandfathers milked cows in the morning and sold to the consumer before breakfast. It is an industry that is just about to flow down the toilet, so to speak, and it is happening in front of our eyes. I concur with what my colleagues have said. It is time for urgent action. I am not sure what action can be taken within the current law, but something had better happen or our industry will disappear. In actual fact, we are the ones who have an option in that we can move to manufacturing milk production. That is the option we have, but the processing sector may well be wiped out if there is no raw material available for it.

Mr. Ciaran Dolan:

To follow on from what has been said, I wish to focus on possible solutions to the difficulties facing liquid milk producers. Mr. Helen referred to a change in the law. No doubt, the main thrust of the committee's consideration is the relationship between processors and retailers, but I wish to focus on the relationship between producers and processors. In Ireland there has been major consolidation in terms of the number of purchasers of liquid milk. There has also been a change in the corporate structure from a co-operative dominated to a company dominated one. Mr. Helen referred to his colleagues in other EU member states and this issue has been under consideration for a long period, including by the high level group for the milk sector. There was a change in legislation in March 2012. It might be no harm to read an extract from the preamble to the regulations because no farm organisation would be able to write better on the issue of defending farmers' rights. Recital No.14 of regulation 261 of 2012 reads:

In order to ensure the rational development of production and thus a fair standard of living for dairy farmers, their bargaining power vis-a-vis processors should be strengthened which should result in a fairer distribution of value-added along the supply chain. Therefore, in order to attain these CAP objectives, a provision should be adopted pursuant to Articles 42 and 43(2) of the Treaty to allow producer organisations constituted by dairy farmers or their associations to negotiate contract terms, including price, for some or all of its members' production with a dairy.

Our first suggestion is that it would be very useful for the committee to get the view of the Competition Authority on this EU law. I am not criticising the authority, but rather than making an observation on competition law in Ireland, it has shown a strong willingness to use the full force of competition law against farmers who endeavour to strengthen their hand.

France has by law established a monitoring system whereby detailed information about margins are available. From my experience, it is not possible to talk about a properly functioning market if there is no readily available flow of information, including price and margins. We know from published data that the French supermarket and hypermarkets enjoy a 2% net margin but we have not got a clue what the margin is in Ireland. The French do this and Spain is drafting legislation to do this not just for liquid milk, but across the entire spectrum, so the committee might consider the need for legislation on this to strengthen the hands of both farmers and consumers.

The regulation I quoted from also provides for the sector, at farm, processing and retail levels, and at consumer level, to come together in what is known as inter-branch organisation. That would be very useful in Ireland and a possible home for it would be the National Milk Agency, without interfering with its core activity. We have covered this detail in our submission.

Éamon Ó Cuív (Galway West, Fianna Fail)
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I welcome the witnesses here today. This subject goes way beyond farmers. If there is no fresh milk on the supermarket shelves some winter, many people would ask why we did not see this coming. It is interesting the National Milk Agency was set up in response to a problem.

It was not mentioned but I would like the witnesses to comment on the fact that part of the leverage the supermarket multiples have is the importation of milk that is produced at a lower cost from Northern Ireland. The amount of milk coming in has increased to 26% of the milk now being sold in the liquid milk market.

Why can they produce it at a lower price in the North? I also understand their peak to trough ratio is much lower than ours. Milk production is spread out more evenly over the year. Why is that? If there was a single island economy, with the same cost base North and South, it would not be as easy for multiples to exert pressure.

It was said there is a loss of 9 cent per litre. To me that means in simple terms a producer loses more the more he produces. There is no incentive to produce more; there is an incentive to get out of the business completely. How is that calculated? Does it include the single farm payment and the other grant payments? Is it just the actual production and sale of a litre of milk? Presumably that would include capital write off, where a producer must keep reinvesting in the business. Perhaps that could be explained without going into complex accountancy exercises.

I looked at the National Milk Agency report. It was interesting that between 1995 and 2011, the percentage that goes to the producer has fallen from 43% to 32%, with the figure dipping under 30% in 2009 and 2010. It has fallen from 40% plus at a steady level down to 30% give or take. That is a huge fall. Has that been caused by the importation of milk creating this leverage? How was that allowed? The National Milk Agency looks at the contract and the relationship between the processor and the farmer. Since the 1990s, the power has shifted from the processor to the multiple and those are more powerful now, along with the leverage they enjoy from the imports. Is that where the power has shifted? Is that the reason for the overweening power of the multiple to push down the price?

Does it make a difference that the number of processors has decreased radically? Is it a challenge or is that irrelevant? Is it a major problem that the multiples are now the biggest purchasers and power is concentrated in their hands? We have had the multiples in here and they gave their side of the story, although Dunnes Stores did not come in so we do not know its side of the story.

This committee wants answers; we want to resolve the issue. We can hear the problems but we want legislative proposals to solve them. We will be looking at the issue in depth to see if it is possible within the new EU legislation for us to act. We face the challenge from the Competition Authority that the price for the consumer must be reduced at all costs and it does not matter what the collateral damage is over time, even if that means leaving the consumer without winter milk.

Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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I thank the witnesses for their presentations. Producing liquid milk at a loss of 9 cent per litre cannot be sustained and something must be done to ensure the industry survives. It was said that the deployment of a code of practice adjudicator is very important but it is not enough, and that the producers' negotiating hand must be strengthened by striking a better balance between farmers and processors. Could we expand on that more balanced approach?

The French system of data publication was mentioned, and the fact supermarkets have a 2% margin. Should we take that on board? The committee will try to address the operation of bloc exemptions trying to negotiate directly. What is the best way to go about that?

Pat Deering (Carlow-Kilkenny, Fine Gael)
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I also welcome the witnesses and I agree with everything they said.

As someone who has been a liquid milk producer in County Carlow for many years, I can confirm that everything they said is 100% true, unfortunately. There is no doubt that the liquid milk sector is on its knees at the moment, for all the obvious reasons that have been specified.

It is ironic that we are having this discussion two or three days after Glanbia turned the sod on one of the biggest developments in Ireland for many years. One of the witnesses suggested there is a great deal of excitement about the future of milk production. That is true from one perspective but there is also a great deal of unease about it. Harvest 2020 is coming and there is excitement about that. If things keep going as they are, with regard to the potential for milk production, a number of dairy farmers will be eliminated. There are 1,800 or 1,900 such farmers in this country at present. The ways things are going at the moment, I predict that number will have decreased to 1,000 by 2020.

This committee has had discussions with the large multiples in recent weeks. It has already been mentioned today that milk has been used as a loss leader by most of these multiples for a number of years. When they have been questioned on the matter by members at this forum, they have strenuously denied that they put any pressure on primary producers. They have said time and again that under no circumstances would they pressurise such producers. I would like to hear the producers' opinions on the big issues regarding the multiples. Do they agree that most suppliers feel that practices such as loss leading and discounting are putting them under pressure?

The witnesses will appreciate that dairy farmers come under constant pressure to try to improve quality. New tests are invented on a regular basis. While it is important for milk quality to improve constantly, no extra payments are received when that happens. I would like to hear the producers' views in that regard. I accept that improvements in milk quality are important, but they are not being paid for.

We have been talking about the code of practice for some time at this forum. I would like to hear what the witnesses think of the argument made by the large multiples, which is that the substantial extra cost to them would be passed on to producers. Do they agree than an extra cost would be involved if an independent arbitrator were employed to oversee the practices of the multiples? These companies have argued that they have structures in place to ensure their practices are fully efficient and work well. They have suggested that these changes would cost a great deal of money. I would like to hear the producers' opinions on where that cost would be. Would an extra cost be involved?

The witnesses mentioned that an independent arbitrator has been in place in England since 1 January last. Have they received any feedback on how the new system is progressing in that jurisdiction? Do they think a similar approach could be adopted over here? There has been a great deal of discussion on the respective merits of voluntary and statutory codes of practice. It has been argued that a voluntary system would represent the best way of making progress. How do the producers view the matter? I think a statutory system would be better. Others would argue that the existing EU legislation should be strong enough to encompass all of this. What is the view of the witnesses in this regard?

Deputy Ó Cuív mentioned one of the most damning statistics set out in the documentation we have received. I refer to the table on page 18 which shows that the retail price of milk increased from 77 cent per litre to 111 cent per litre between 1995 and 2011, but the price received by the producer decreased from 32.8 cent to 35.5 cent over the same period. I think it sums up the problems we face. The figures do not match up. Something has to be done about it.

Martin Heydon (Kildare South, Fine Gael)
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I thank the representatives of the various organisations for coming to today's meeting and making such interesting presentations. I am a suckler cow farmer in south Kildare. I am not a dairy man. I have great respect for anyone who gets up seven days a week to milk cows. The Glanbia plant in Ballytore in my local area employs 120 people in the dairy section alone. According to the 2011 census, Ballytore village had a population of 685. I do not need to elaborate much more on those figures to demonstrate the impact of dairy processing on our local community. There are plenty of dairy farmers all around.

Much of what we heard in today's presentations is not new to me, but it very concerning nonetheless. We need to get to the nub of how we solve these problems. I think everyone here agrees that there are issues that need to be addressed. Do the producers have any information on how much milk is being imported, particularly from Northern Ireland? I was struck by the suggestion made earlier that liquid milk will not survive a price war if action is not taken. We need to talk about the action that should be taken. A code of practice that would prevent below-cost selling and predatory pricing practices is needed as a key part of our approach.

I would like to pick up on what was said about the processor in the middle. Do the witnesses have a sense that the retailer uses the processor as a buffer so that it does not have to deal directly with the producer? When we questioned the multiples at this committee about the horsemeat scandal and other matters, it struck me that it almost suits them to be at such a distance from the primary producer. They claim that their dealings with processors that provide products like milk and meat gives them a knowledge of the cost base. We need to ensure the multiples are more cognisant of the pressures that are faced by individual processors.

What would the producers say in response to what the multiples said at this forum when they were asked about the possibility of an ombudsman being appointed? An independent arbitrator is now in place in England. The multiples argued that such a system would lead to increased costs, particularly if it was mandatory rather than voluntary. They warned us in that respect. Do the witnesses have any views on that? We need to strike a balance between a system that would be overly restrictive on retailers, and thereby have a detrimental impact on consumer costs and consequently on producers, and a system that would mean the large multiples are free to carry on as they do at present. We have very little control over their actions as things stand. As a result, in recent times we have seen plenty of instances of suppliers being squeezed beyond the cost of production.

Tom Barry (Cork East, Fine Gael)
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I apologise for being a few minutes late. The producers are very welcome to this meeting. It strikes me that the liquid milk sector is like a few other sectors that are living on depreciation. One cannot invest constructively for the future if one does not have a sufficient margin. It seems strange that a country which has aspirations to feed up to 50 million people under Harvest 2020 cannot maintain a constructive and solid production base. The argument I have heard in favour of allowing farmers to take very small margins is that they are able to build up on scale. That does not always work, however. I am involved in the tillage sector, where one's efficiency decreases as one gets larger because of land fragmentation and all that goes with it. We need sufficient headroom for investment.

When I got out of milk production in 1991, the price was 28 cent a litre. I have made that calculation by converting back from pounds. Those present will remember that the price was approximately £1 a gallon at the time. Food and milk have been used to keep our inflation figures artificially down. According to the figures we have been given today - I wonder if there is much of a difference between the normal price for milk and the price for liquid milk - the primary producer now receives 33 cent, which is an increase of just 17.8% over 22 years. The inflation figure, if I can call it that, is 0.008% per annum. No industry can survive over a period of two decades and get less than 1% inflation per year.

It is impossible. Obviously the people in milk production are miracle men and women. I do not know how they do it. It is a frightening scenario. If this is to continue for the next 20 years there will be very few solid milk producers left here. Certainly that is not the basis for going forward. It may be that an increase in population will force prices to increase. As we have seen in the tillage industry and in grain prices, 40% of the fluctuation is due to speculation. It is not related to demand at the time. How long more can the industry continue given the ridiculously low inflation level? In 1991 a tonne of fertiliser cost approximately €120, whereas today it costs €340 per tonne. These are the primary issues that are costing us money. A conacre then cost a fraction of what is costs today. We are trying to hold back the tide. What are the witnesses' suggestions for getting a sensible return for the primary producer?

Mary Ann O'Brien (Independent)
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I will be brief. I thank all the four gentlemen who have spoken and look forward to hearing from the three who have not spoken. Most of the questions have been posed very articulately by previous speakers. I have never been a dairy farmer and know very little about the industry. I am like an alien who has arrived in from Mars looking down on this beautiful green country. All the aliens who are looking down must think we are completely mad from the point of view that we are producing a healthy product that everyone loves and needs and everyone consumes every day. I love pictures. The retailer is making 85%, the processor is making 39% and the men who are doing the milking are left with 38%. Clearly 20% of those in the industry have left and another 20% are thinking of leaving. We have reached a pivotal moment in the history of the dairy industry and we are close to a crisis. I apologise that one of my questions is not about today's subject. It is still cold out there, the grass is not growing and no silage is being cut. How is the fodder crisis going to affect the industry? The industry cannot afford anything to go wrong or any push in the wrong direction. Everything must go perfectly on this margin, otherwise those in the industry will not be able to eat. I want to know a little more to educate the likes of me. What is the relationship between the processor and the producer? The producers are very powerful people, we must have milk. I am not au fait with the law in place but surely there must be some way we can help to push for an increase for the industry. At present the retailers are winning, somebody mentioned earlier that it is called footfall. Sometimes there might be half price barbecues because we are coming to that season to encourage us to go in to Tesco or Lidl. However, for 365 days of the year we all go to the shop for the cheapest milk but that has to stop because an industry is dying in front of us.

Andrew Doyle (Wicklow, Fine Gael)
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I thank Senator O'Brien. Somebody's mobile telephone is on. It is interfering with the broadcasting of proceedings.

Pat O'Neill (Fine Gael)
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I thank the Chairman and the gentlemen for the presentation. As most of the questions have been asked there is no point in repeating them. The key point is that in 15 years there has been a 26% increase in imports whether from Northern Ireland or the UK in liquid milk. Is that suppressing the price? There is no point in closing the stable door when the horse has bolted. The problem does not lie with the retailers alone but the processors. The witnesses' tables are very interesting, especially the table on page 15 of the documentation. Table 2.1 which, as Deputy Pat Deering pointed out, shows that the retail price has risen on average to 111 cent per litre where what the producers receives has decreased from 44% to 32%.

It would also be interesting if the witnesses were to show what the retailers' margin has been in those 15 years. The reason the witnesses are before the committee and the reason the retailers appeared before the committee was to try to assess certain parts of the food industry. We have asked them all about their margins but we will not get answers in respect of their margins in this country. We have also asked about using fresh produce, whether milk, beef, lamb or vegetables, as a loss leader to try to attract people into the store. That is an issue on which I would like to hear the views of the witnesses. They have all used beer or alcohol or processed products at some stage but to use a fresh product as a loss leader is unfair as it pushes the margins on the primary producer down. I think it all went wrong in 2007 and 2008. It is clear from table 2.1 that from 2006 to 2007 the price of liquid milk increased by approximately 5 cent per litre but suddenly the retailer's margin increased by 20 cent and that has continued. Since 2007 the retailers have got a 20 cent increase whereas the producers only got 0.2 cent. It all went wrong in 2007 and 2008, whether it was due to pressure from the processor in making the producer continue with that price or the retailer putting pressure on the processor to maintain the price in order that they would not have to pay more. I would welcome comments on the issue of using fresh produce as a loss leader as we have to prepare a report on these deliberations. As Deputy Éamon Ó Cuív has said, is the 26% increase in imports of liquid milk the reason the price is suppressed? I am a farmer but not in the dairy area and I met the IFA yesterday. It is not sustainable to produce liquid milk here at present? Would the industry be better off to give up liquid milk production, except for summer production and produce it for product? The people would then see where the country would source its liquid milk.

Andrew Doyle (Wicklow, Fine Gael)
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Thank you Senator O'Neill. I am conscious of the fact that another group is coming in. This is an important matter and a couple of key fundamental points have been made, particularly in respect of the negotiating power of the milk producers. Even with a return to 43% of the retail price, they would be on only about break-even cost. It appears to me from the evidence that has come before us today there is something fundamentally wrong with the pricing structure. Somewhere along the line, either at the top-end retail price or in the cost base associated with production, even at 43% there is no profit in it. That is something to bear in mind. What is the best action to take for the survival of the sector? As Senator Mary Ann O'Brien said this is a very powerful group. It produces a fresh product on a daily basis. Fruit and vegetables are the only items that are akin to the sector and we have seen what has happened in that area. If people become accustomed to UHT milk is that going to be the acceptable norm? That is the scenario I see except for seasonal fresh milk. Perhaps Mr. Stephen Arthur would like to invite any of his colleagues to respond.

Mr. Denis Fagan:

I will begin with Senator Pat O'Neill's question where he said they are using fresh produce as a way of getting people into the shops. We are in a situation where we have to put our cows back in calf nine months after they calve and then they produce the milk for a further nine or ten months. Once the cow goes back in calf the supermarkets are sure of their produce for the next 18 months. That leaves us in a very difficult situation because they always have that buffer.

They are continuing to use fresh milk to get people into the shops. For example, one of the major multiples has used it recently to build market share. Therefore, we know the competition that exists between the major multiples. It forces the others to reduce the price of milk to counteract it. It is getting worse all the time and we are being held to ransom because of the 18 month guarantee of supply they have. Given the winter we have come through, come next autumn when people will be thinking about putting their cows back in calf, there will be many thinking seriously of not doing it. While there is a guarantee of supply for next winter, we could have some serious problems in the business in the following winter.

Some of our producers can move to manufacturing. They many not want to but they could. Others, because of small land bases, may be forced to exit the milk business entirely. If the liquid milk end of their business becomes untenable and they have to get out, they may not have a land base to go to manufacturing and that may force them out of the business altogether. We are talking about families here. Certainly, that is not something that will help the Food Harvest 2020 strategy or help the country as a producing nation.

Mr. Larry Hannon:

I will try to put a face on it. I am farming in south Kildare and we are second generation liquid milk producers. We are passionate about what we do and proud of the quality product we produce. Fresh Milk Producers is involved in negotiating with the processors. The four of us enter talks and negotiate price. It always seems to be a place where one goes in under severe pressure. It never seems to be a place where one goes to negotiate up. It always seems that we have to take less and that the processor and retailer are putting us under more pressure.

What I do is important because we run a family farm and my father is still involved in the business. I hope the next generation will be involved in the business as well. What we do is important to the local economy. If I buy something or put up something, I look to spend my money locally and that is important. Reference was made to the liquid milk plant in Ballytore which supplies much of the country from Cork to Dundalk. That is based beside me and there are 120 jobs there. We are here because we are gasping for air at this stage. We are under pressure and we need something to happen at the top level to filter back down.

We feel vulnerable in the position we are in. If something comes back from the marketplace and someone somewhere in between suggests that we have what we have and they cannot afford to give it to us, then, all of a sudden, we are left with the poor penny again and we have nothing. It is vital that what we are trying to do is backed on a statutory level. The National Milk Agency gives us our contracts and we produce our milk. It looks after that end of it and that is important to us. However, it is important that what we do as farmers is supported up along the line. Statutory backing is important, without restricting us too much. We need support against that background.

We are constantly fighting for sustainability and that is the great problem we have. We are part of a recovery pillar in the country and it is important that the domestic value of the sector continues to be looked on in this way. My milk goes 100 metres to the plant and a further 100 metres to the shop and then the consumer has it. It is milked today and sold tomorrow. It is a business that turns money in the local economy.

I am here to put a face to the problem. I am one of the people struggling but I am passionate about what I do. We produce a quality product and I am proud of what we do as farmers and as Fresh Milk Producers.

Andrew Doyle (Wicklow, Fine Gael)
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There are some questions on imports.

Mr. Stephen Arthur:

I wish to answer Deputy Ó Cuív's point on the North. He asked about the northern price. What is taking place in the North is there are people there who are getting less of a price than we are getting. The people there are working in a worse situation. They had free arms up there to expand. In the North the theory is that a farmer will milk 100 cows this year and try to milk 200 cows next year with a smaller margin. They got quotas for nothing. It is a typical example of when expansion goes wrong. Farms up there are completely bursting at the seams and full of cows. There are articles in the Irish Farmers' Journal on it every week. There are families milking 250 cows and not even getting paid for it. The situation is worse up there. The processors are buying milk for nothing and selling it down here cheaper than the equivalent product here. On average, Northern Ireland milk prices are running below our prices. Their margin is a minus. We have seen figures coming back from there in minus territory. It comes back to what the committee has said about down here. We are not getting a price to cover even family labour. We are working for nothing. All one need do is consider our situation and what occurred in England. We are about two years behind them. We were five for six years behind.

Andrew Doyle (Wicklow, Fine Gael)
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You might explain what happened in England, Mr. Arthur.

Mr. Stephen Arthur:

What happened in England was that retailers got rid of or burned off the brands and put in their own-brand milk and destroyed the liquid business. The farmers walked out of the industry over there. It is as bad as that in England at the moment. There were agents scouring the south east of Ireland looking for milk to supply health and food services in England as recently as one month ago. That is the position in England. It took French milk on the shelves in a shop, a large retailer in Birmingham, to realise they had a problem. That was what started up the consumer agency over there. They had to hit rock bottom before they realised there was a problem.

I reckon we are less than two years behind England and if we do not do something now we will end up in the same boat. We will be drinking UHT milk in the pudding on Christmas Day and that is a fact. Up to 25% of our milk is coming in, that is, one quarter of what we drink. One in every four litres of what we drink is imported. What message does that send out around the world when we should be feeding the world?

The question of whether we want the system used in France was raised. France has no liquid milk business. One cannot get fresh milk over there. People in France buy milk powder in a box and bring it home to put it in the tea. The French system is a Promar lock-in system. A producer is locked in to a system and pays the margin. There is no flexibility.

I believe we are entitled to flexibility in our business. If we get a good year we should be entitled to reap the rewards because we suffer all the bad years. A structure with a little freedom should be put in place such that if a good year comes we are entitled to get some harvest out of it because, by God, we are getting plenty of bad years.

Deputy Deering asked about milk quality. All these things cost us money to produce quality milk. I presume the Chairman is farming cows. He knows what it costs to get total bacteria count, TBC, tests. It costs money. Unfortunately, the way co-ops and processors work means they want everything at the right quality but they do not want to pay for it. A system is coming in at the moment and the Kerry Group and Lakeland Dairies will bring in a system to pay more for better quality. Glanbia is also considering the idea. Obviously the crowd is going to pull it.

The question of loss leaders is a sad one. Let us consider the approach to milk 75 years ago. It was judged by how fresh it was when one stuck a finger in to test how warm it was. What is milk like now? It is like a CD on top of a newspaper. That is what I compare milk to at the moment. Put a fancy CD in a newspaper and one might buy the newspaper. Now, they are sticking milk inside shops for nothing so that a customer might come in and buy a brush handle or something else that he does not particularly want. That is what they are doing. Retailers are using milk to get people in and to get footfall. It is sad. We have the healthiest food on the planet and we are using it to entice people in to shops to get them to buy something else.

Let us consider the CSO figures that have come out. Milk has not moved anywhere. I listened to "The Ray D'Arcy Show" yesterday. Food, potatoes, beef and everything else has risen in price but milk has not moved. The question answers itself.

Mr. Jim Mulhall:

I thank the Chairman for his time and questions. I am farming on the outskirts of Kilkenny city. I am a third generation milk farmer and I hope there will be a fourth generation. I thank the committee for the questions and I will offer some replies. Mr. Arthur covered some of what I had planned to say. Deputy Ó Cuív asked about the supply of milk and why they can do it cheaper across the water and in the North.

We are all family farmers and interested in family farms and the social structure in rural Ireland. We need to stay in business. Mr. Hannon has said he buys and shops locally; that is how he operates.

We do not need to tell the committee about rural depopulation. In England there are 20,000 fewer farmers today than there were in 1996. Farmers have scaled up to the point where between 400 and 600 cows is commonplace. I was on a farm in Wales last year which had 1,600 cows. The scale has gone bananas. These guys have to survive on a margin of 1 or 2 centilitres. That is how they can supply so cheaply. We could not survive on a margin of 2 centilitres. We operate on an average farm size of 90 cows. We are on a different playing field. Family farms are much smaller here than in the United Kingdom.

Senator Mary Ann O'Brien has suggested we are powerful people, but she must be an alien from Mars if she thinks that. We have absolutely no power. It is a cliché to say we are price takers, but that is what we are. We go to the processor and fight and argue over half cent here or there, but our prices have not inflated during the years. It is soul-destroying. I am a young farmer with a young family and would like to think the next generation will be able to farm. We cannot switch to spring milk production because we work on a small land base - five cows to the hectare. If tradition pays the bills, ours is a traditional liquid milk farm.

We have no problem in producing a high quality product. Liquid milk is the highest quality dairy product one can get. Someone has said the sod was turned at Belview last week. The point is fast approaching where it will be more economically viable for us to export our dairy products than to put them in the shop half a mile down the road. Already 85% of our produce is exported and that figure will expand under Harvest 2020. Where is the logic in the fact that it pays us better, although we talk about food miles and carbon footprints, drying it, putting it in a truck and shipping it to the other side of the world rather than having it collected, boiled, skimmed and put on a shelf half a mile down the road? There is a problem in that regard. I do not know how we will solve it, but many people and families will go broke in the meantime. I thank the committee for its time.

Andrew Doyle (Wicklow, Fine Gael)
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The only country with which we can compare what is happening is New Zealand which has a small population and exports 90% of its dairy products. I know from personal experience that its former town suppliers, as they were called, became the major co-operative, Fonterra. How did they ensure their liquid milk would continue to be available domestically because it is a very competitive business?

Pat O'Neill (Fine Gael)
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I would like Mr. Arthur to clarify one point about what happened in England over two years ago.

Andrew Doyle (Wicklow, Fine Gael)
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We will move on to supplementary questions shortly. The Senator can flag the question now.

Pat O'Neill (Fine Gael)
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Mr. Arthur talked about the change in scale in England over two years and in Northern Ireland. Is that what he sees happening here in 2015, after quotas?

Éamon Ó Cuív (Galway West, Fianna Fail)
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I met the milk producers last summer. We need to guarantee that there will be fresh milk on the shelves 365 days a year. I am convinced that unless farming is based on making a profit on everything produced, it is not sustainable for family farmers. I asked about the position in the North because it was said to me it was the lever being used by the retailers to put pressure on the processors who, in turn, would put pressure on the primary producers. I accept what the delegates are saying about what will happen 18 months ahead, but are they guaranteed they will have fresh milk three years ahead? The answer is "No". There are only 1,900 suppliers. If half of them were to pull out, that would be curtains in the supply of fresh milk, unless we could get it from the North or Britain. The remaining 1,000 farmers would not be able to scale upwards that fast. It might be thought that the suppliers are in a powerful position, but we know they are not because we know that what they are telling us is true. Where is the angle? What is the leverage being used to get us into the farcical position where farmers are losing money on every litre they produce, which is totally unsustainable into the future?

Mr. Vivian Buttimer:

We met Deputy Éamon Ó Cuív last August and explained our situation. At the time we were facing into a bleak winter. In 1995 we were getting just shy of 33 cent a litre; in 2004 we were getting just over 32 cent and in 2012 just shy of 34 cent. In 17 years there has been a shift of roughly 1 cent and a bit. That cannot continue. In 2004 when we were getting 32 cent, we were paying €280 for one tonne of soya beans. In 2012 when we were getting 34 cent, we were paying €530 a tonne, a rise of almost 50%. That wipes out our winter bonus. That is not even the main cost, it is the extra cost.

I know a dietician who allowed me to use his name; I gave literature on him to Deputy Éamon Ó Cuív. He has been my dietician for the past 20 years. In his view the situation of Northern Ireland milk producers is not great. They have serious debts and they are in a similar position. Their industry was created on the bones of the disaster in mainland Britain. That is how they increased and it is spreading to the Republic. I do not believe in a voluntary code because we have a code of sorts already, yet when we politely told the multiples at the end of last summer that we were facing a problem, it fell on deaf ears. We cannot protest as a group of farmers. We are tied and the multiples know this.

Mr. Donal Kelleher:

Deputy Éamon Ó Cuív mentioned the decrease in the number of processors. Kerry Group exited liquid milk production, apart from its last remaining outfit, Killarney Dairies, which accounts for only approximately 12% or 14% of its original liquid milk pool. That is very frightening for such a great and strong organisation and it probably shows how sick the liquid milk industry is in this country. I assume that is why it exited because if there was money in it, Kerry Group would stay. That bothers me somewhat. That fewer players are involved in the business could have two effects - those who are left might say they would sell their product better to the multiples because there are fewer of them, but then they could be accused of colluding which no doubt some genius would assert, even if they were not. From our point of view, as primary producers, were we to have more purchasers in the marketplace, it might create more competition. There are several angles. I am not saying it is good or bad, but it worries me that Kerry Group exited the business. I cannot speak for it, but I can only assume that it knows, as the rest of us know, that there is not enough money to be made in this business to stay in it.

New Zealand and town milk suppliers were mentioned.

I read something recently about Australia having similar problems. The multiples have now realised they have created a problem for themselves and consumers in Australia and are trying to find methods of fixing the situation to ensure they have supply all year round.

We talk of bank contagion. The previous speaker mentioned the situation in the UK. In the 1990s things were flying. There was deregulation, following which it had two good years. The supermarkets realised how to manage the situation. They waited in the long grass and waited for quotes to come in. They took their time and realised companies would try to outbid each other, and they would be able to have things their way.

They introduced private labels. A huge volume of milk is sold under private labels. The current price is €1.49 for two litres which, by any standard, is low enough. Multiples have their labels. When they renew contracts every 12 months they can say they are not supplying brand-name milk, rather, private-label milk is being supplied. The consumer does not know from where the milk comes and does not need to know.

Multiples have the option of telling a supplier a quote is too high and they can get milk from outside the State or from somebody else for much less. There is continual downward pressure, despite what they might say. I appreciate that is the free market but, whether we like it, we are at the receiving end. We have a certain relationship with the supermarkets. The IFA liquid milk committee, of which I am a member and was chairman in the past, meets multiples a couple of times a year to outline our situation. The current incumbent outlined the situation we faced publicly and privately to all supermarkets.

The increase in cost was established as a matter of fact by Mr. Joe Patton of Teagasc who runs a farm in Johnstown Castle specifically established to emulate a liquid milk farm. He does not do book work; he has on-farm experience. He has quantified the figures, which showed that we got nothing. We got 1.25c which the processors provided out of their coffers. The wholesale price that retailers pass back to processors did not move and has not for the last number of years. If I were to continue the discussion, I am sure another organisation of the State would haul me over the coals for doing so. I gather I am under privilege.

Andrew Doyle (Wicklow, Fine Gael)
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Once you do not identify individuals.

Mr. Donal Kelleher:

That is part of the problem.

Andrew Doyle (Wicklow, Fine Gael)
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I do not want to intervene too often. What the witness has said is the nub of the problem. Given the EU regulation being cited and the response from certain agencies to us, one could conclude that part of the problem and, therefore, the solution lies in that point.

Mr. Donal Kelleher:

I will finish on one last point.

Pat O'Neill (Fine Gael)
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Do not name anybody.

Andrew Doyle (Wicklow, Fine Gael)
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I did not.

Mr. Donal Kelleher:

The discounting of milk is a disease. Somebody decides to have a special offer and sells milk at €1.29 or whatever to get footfall. The problem is that if such an offer lasts for one week, other retailers wonder if they should follow. They may decide to do so two weeks later, and tell processors the wholesale price is not sustainable because they have to follow the downward trend. The next thing that happens is that the whole market collapses. We are then hauled in to be told the prices we have agreed will have to be reviewed because the market has moved from X to Y and there is a problem. Ultimately, we end up paying the price and if we say anything about it we are again hauled over the coals.

Andrew Doyle (Wicklow, Fine Gael)
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I want to conclude this session in 5 minutes. I will allow Mr. Dolan and Mr. Arthur to speak.

Mr. Ciaran Dolan:

I thank the Chairman. The code of practice is what legislators make it to be. The issue of whether it is voluntary or statutory is, to a large extent, immaterial. If we use the UK experience as a template - I do not suggest the Oireachtas be bound by that - we should note it is specifically prohibited to get involved in price and is confined exclusively to processor and retailer. It has nothing to do with farmers. Should any benefit arise, it will not be in the area of price fixing and will be indirect.

I understand, given the nature of the very limited scope of the UK legislation which will only apply to seven or eight retailers with a gross turnover of £1 billion, the cost is in the order of a few hundred thousand pounds. We can spend a lot of time fine-tuning the extent of the problem. There is no doubt that over time the position of liquid milk producers in Ireland will get worse.

The issue of whether the situation in Northern Ireland will pan out may be up for discussion. The matter has been dealt with at European level for the best part of five years. In the absence of anything else, there has been a retuning of balance in terms of competition law in favour of dairy farmers and liquid milk farmers. We should explore the possibility of doing that as a means of strengthening the position of liquid milk producers.

We should not import what is being done in France. I can never get to the bottom of what is done there. Under French law retailers are compelled to disclose information. The members of the committee, as legislators involved in public policy, would not be begging retailers to give them information, rather, they would be compelled to disclose it. If information on producers involved in collective or individual negotiations was disclosed, processors, retailers and consumers would be better informed.

It is important for Ireland, as a major exporter of food, to ensure that there is no substantial dilution of EU competition policy. It is important that the committee bears that in mind, if I may say so. We may want to undermine EU competition policy pertaining to the domestic market only to find we will have difficulties in exporting and getting our products on the shelves of other member states. We need to be careful of that. EU competition policy protects our industry.

We should also ensure, with a more positive or proactive approach, to push this process at European level. There is a danger that in the absence of an EU initiative each individual member state will implement its own domestic law. We could find that we are excluded from prime shelves. In the absence of anything else, it is worth exploring how we can improve the information flow as a basis for a more rational, informed negotiation, and then clarify the law with regard to the EU change which has been brought about.

Andrew Doyle (Wicklow, Fine Gael)
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On that point, Commissioner Cioloş has mentioned equity in the food market chain, as did the previous Commissioner. It is on the agenda at an EU level from the point of view of return to farmers.

Mr. Stephen Arthur:

To clarify the Chairman's point on what is happening in New Zealand, milk was worth more to export than to keep locally. The government had to introduce a subsidy to supply milk to local shelves.

On Senator O'Neill's question on what is happening in England, there were family farms and then deregulation took place which led to factory farms. The structure in Ireland involves family farms. We do not have big tracts of land. Companies in England buy tracts of land, put 2,000 cows on them and work for one cent a litre. They do not even see the cows and have three or four people working for them. Here an average liquid milk farm comprises a father, wife and children who run the firm. It is a family enterprise.

A speaker at a conference some years ago said the best unit one can have in farming is the family farm. Our land structure is designed for family farms.

On the question of what may happen in 2015, anyone in a position to change will change because the milk will be worth more in powder form and if exported to China. Scale in terms of dairy farm health has not worked, either nationwide or worldwide. What we have works. A statutory code of conduct would be of long-term benefit to the consumer. The fodder crisis is having a significant impact this year, but milk farmers have faced a crisis for the past ten years and it looks like it will continue. It is very important that we accept and protect what we have.

Éamon Ó Cuív (Galway West, Fianna Fail)
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This is a very important issue. We know where we want to go and we want to protect what we have, namely, the family farm producing fresh milk every day of the year to be placed on shop shelves of Ireland. I do not think anyone on this committee would disagree with that aim. What is stopping this happening? The price is being pushed down and farmers are leaving the milk sector as a result. One of the challenges we face is that there are four players - the consumer is the fourth, although we have not spoken very much about him or her. The consumer wants cheaper everything and anything. However, if he or she thought that it was cheaper not to have fresh milk available 365 days of the year for his or her cornflakes but to use UHT milk instead, he or she would decide to pay a little more to be guaranteed fresh milk. There is, therefore, a need to inform and educate consumers.

The second issue is what will happens if Northern suppliers suddenly find the British market is more lucrative than the market in the Republic and leave a gap in supply. How likely is this to happen which would result in UHT milk being on the shelves instead of fresh milk? That is the issue that will put the consumer on the side of the farmer when he or she realises they are both on the same side because the farmer has to survive. How unstable is the combined British and Northern Ireland milk market in continuing to provide 26% of our fresh milk? If that supply was to suddenly disappear, would milk suppliers here be able to make up the difference?

Andrew Doyle (Wicklow, Fine Gael)
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Is it stable or unstable?

Mr. Vivian Buttimer:

Unstable.

Andrew Doyle (Wicklow, Fine Gael)
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I do not mean to rush this part of the meeting, but I have a duty, as Chairman, to allow in another group which is waiting patiently to make a contribution. In these hearings we are dealing with four issues. The other three are pricing and the impact on primary and secondary suppliers; support for local producers; and labelling. These issues are very pertinent to the individuals whom the delegates represent. I made the point before the meeting that we were not directly dealing with the code of practice. I do not mean to simplify the issues involved, but processing fresh milk is the most basic of processing procedures. It takes a lot of sophisticated equipment and investment, but it is straightforward, with a 24 hour turnaround time or less and next-day delivery. Therefore, there can only be a certain amount of intervention by the processor and the distributor. When all of this is taken into account, there is still an underlying issue with regard to the overall price. That is the reason I spoke about the situation in New Zealand and Australia because I know for a fact that they had to introduce a method to support a continuous supply of fresh product because domestic consumers in New Zealand would not tolerate UHT milk. It is a farce and rather like saying we will produce beef for export and use a beef substitute at home. We have had enough of this and it may be an unfortunate example to use. My point is, however, that it would be completely unacceptable if good quality beef was not available in this country, one of the world's largest exporters of beef. The same applies to milk. Members of the committee have summarised the core issues involved in their questions and we need to take the information supplied on board. We have invited representatives of the Competition Authority and the National Consumer Agency to attend and the value of that invitation has been confirmed by this discussion. I thank all the delegates for their attendance.