Andrew Doyle (Wicklow, Fine Gael)
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I welcome the representatives of the National Milk Agency, Dr. Muiris Ó Céidigh, Mr. Denis Murphy, Mr. Eamonn McEnteggart, Mr. George Kearns and Mr. Michael Kilcoyne. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they are to give this committee. If a witness is directed by it to cease giving evidence on a particular matter and continues to so do, he or she is entitled thereafter only to qualified privilege in respect of his or her evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a person or persons or an 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 they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.

Mr. Denis Murphy:

I thank the Chairman for inviting us to attend today's meeting of the committee. We welcome the opportunity to make a submission on the important issues of the proposed code of conduct for the grocery goods sector, pricing and its impact on primary and secondary suppliers, support for local produce, and labelling. I am joined by the colleagues the Chairman announced, as well as by Mr. Walter Maloney, our distributor representative.

The National Milk Agency was established under the Milk (Regulation of Supply) Act 1994 to regulate the supply of milk for liquid consumption throughout the State. The governing body of the agency consists of an independent chairman appointed by the Minister for Agriculture, Food and the Marine and 13 ordinary members, of whom five producer members are directly elected by registered producers. The four processor members, two consumer members, one distributor member and one retailer member are all nominated by trade organisations and appointed by the Minister. The agency is a unique organisation, representative of all stakeholders in its sector. It is funded by a levy of 0.115 cent per litre on liquid milk purchases at farm and processor level and has a staff of five.

Domestic milk supplies to creameries and pasteurisers last year amounted to 5.2 billion litres, supplied by 18,000 dairy farmers who milked more than 1 million dairy cows. Domestic milk supplies are mainly based on grassland milk production. Milk production follows a highly seasonal production pattern, with almost 60% of supplies produced in the five summer months, that is, April to September, and just over 20% produced in the five winter months, namely, October to February. The manufacture of dairy products for export markets utilises more than 90% of domestic supplies, with less than 10% being utilised for processing for liquid consumption as fresh milk in the home market.

The fresh milk market is the largest consumer market for milk and milk products in the State and requires a year-round supply of more than 11 million litres of high quality fresh milk per week. Irish consumers love fresh milk and have the second highest per capita consumption in the European Union, more than double the European average. The role of the agency is to ensure the availability of this year-round domestic supply of fresh milk for consumers in the home market. Milk produced within the State cannot be sold or supplied for liquid consumption unless it has been purchased under a contract between a registered producer and a registered processor. Such a contract, if it is to be registered by the agency, must provide, in the opinion of the agency's members, adequate compensation for the producer for milk supplied under the contract, taking into account, particularly in the winter months, the economic cost of production of milk of suitable quality. Liquid milk producers registered with the agency are specialist producers who contract to supply milk to registered processors for 52 weeks of the year and whose premises have reached the required quality standards. Last year 1,869 registered liquid milk producers, or 10% of all milk producers, had registered contracts and supplied 15 processors.

A year-round supply of milk for liquid consumption gives rise to additional production costs in the winter months as cows producing milk over the winter, when pasture grazing is not available, require to be fed a high quality forage diet and supplementary protein feeds. Increased labour costs and a substantial management commitment are also a feature of winter milk production. Since the establishment of the agency, registered milk producers have received annual milk prices that were, on average, more than 4 cent per litre higher than the annual prices paid for seasonal milk supplies for manufacturing. Last year the average producer price for milk for processing for liquid consumption was 34 cent per litre, which represented an average differential of 3 cent per litre over the estimated average manufacturing price. Since last year more than 70% of milk supplies for liquid consumption have prices based on compositional manufacturing, plus a winter premium.

There has been no shortage of winter milk supplies for processing for liquid consumption. Even in the most recent prolonged winter period, the margin of safety of winter milk supplies by registered producers has been 21% over total consumption requirements, including imports of liquid milk. Given the bruising outturn for the 2012-13 winter period, however, many registered producers are likely to review their commitment to autumn calving in 2013-14. Accordingly, the above cover could be significantly reduced, particularly in the context of the abolition of EU milk quotas in April 2015.

The agency has no role in milk imports which are specifically excluded from its remit. Since 1995 milk imports into the State from Northern Ireland as packaged fresh milk or in bulk form, for processing and packing into liquid milk in the State, increased from zero to 145 million litres in 2012. Imported milk packaged for liquid consumption amounted to 86 million litres and bulk milk imported for packing for liquid consumption in the State amounted to 59 million litres. The graph in the document circulated to members illustrates that position. Imports of fresh milk now represent more than one in every 4 litres of fresh milk consumed in the State. However, these imports for liquid consumption comprise less than 30% of the total imports of 492 million litres of milk from Northern Ireland that were imported by creameries and pasteurisers and as packaged liquid milk last year.

The agency has no role in retail or wholesale milk prices. Since 1995 the annual average retail price of fresh milk in 1 litre packs has increased by 28 cent per litre, or 36%, to 105 cent per litre, while the liquid milk producer's price for 1 litre of milk has only increased by 1 cent per litre, or 3%.In 2012 the average producer price for liquid milk supplies was 34 cent per litre compared with 33 cent per litre in 1995. Even if the EU dairy premium payment of 3.65 cent per litre paid to eligible milk producers since 2004 is taken into consideration, the producer's return has increased by less than 5 cent per litre, or 18% of the increase in the retail milk price. Since 1998 producers' costs for liquid milk production have increased by approximately 9 cent per litre.

Since 1995 the fresh milk supply chain at retail, distribution, processor and producer levels has been changing and consolidating. At retail level, two multinational discount retailers have entered the market. The number of processors registered with the agency has fallen from 20 to 15, while the number of processing plants operated by registered processors for liquid milk has fallen from 30 to 16. Two major processors have sold their liquid milk businesses and one major processor has downsized its involvement in the business. The number of registered producers with contracts has fallen by 41% as more than 1,300 producers exited the fresh milk market. Retail multiples have now become the main distribution channel for fresh milk, with three multiple groups in a dominant position with an 80% share of the grocery market. In fact, five multiple retailers control 92% of the market.

Last September, following the adverse summer weather conditions which reduced the quality and quantity of conserved silage and seemed bound to increase the costs of winter feeding, the agency commissioned an expert report from Teagasc on the increases in the economic cost of milk production in the current EU milk year, particularly in the forthcoming winter months. The report concluded that while all milk producers would incur increased feed costs in 2012, specialist producers of milk for processing for liquid consumption would incur additional feed costs in excess of 4 cent per litre on their milk supplies during the winter months of October 2012 to February 2013. The agency issued a press release and advised producer and processor organisations, together with the major retailers, of the agency's concern that the exceptional increases in the production costs of fresh drinking milk in 2012 were making the production of winter milk supplies for the domestic fresh milk market unviable and unsustainable.

There was no market response to the agency's warning, nor was there a response to street protests by some liquid milk producers aimed at bringing public attention to the crisis relating to liquid milk farms. The agency was the regulator that barked last winter but nobody listened.

The prolonged winter conditions which obtained from 2012 into 2013 depleted winter fodder stocks, emptied silage pits and created an increased reliance on purchased feedstuffs. The cold, wet spring of 2013 and the lack of normal grass growth to date to allow for the grazing of cows has resulted in the current national fodder crisis. The Government intervened in April as the crisis heightened in order to subsidise the transport costs relating to the unprecedented importation of fodder supplies from the UK and France. Serious cashflow problems have now emerged on all grassland enterprises but particularly on liquid milk farms. The confidence of registered milk producers in the all-year-round supply model for liquid milk for the domestic market has been shattered by the increased costs incurred in winter milk production in 2012-2013 and by the absence of any market response to these increases. The future of the all-year-round milk supply model for the domestic liquid milk market is now vulnerable and has reached a tipping point, especially as liquid milk producers review their returns for 2012-2013 relative to those from seasonal milk production for manufacturing and in the context of the opportunity to increase milk output for export markets which will arise following the abolition of EU milk quotas in April 2015. In the absence of adequate price incentives and encouragement for winter milk production for the future, many liquid milk producers are likely to switch their business models to seasonal milk production.

I will now ask Dr. Ó Céidigh, our chief executive, to present the agency's views on the draft code of conduct for the grocery food sector.

Dr. Muiris Ó Céidigh:

I am going to deal with the first issue we were asked to address, namely, the code of conduct for the groceries goods sector. There has been a long delay in the publication of the consumer and competition Bill, which will include the code of practice for the sector. Retailers are now the main distribution channel for fresh milk, distributing 79% of all fresh milk. The catering and door-to-door delivery channels distribute 11% and 10%, respectively. Buying power in the retail and grocery trade is concentrated in a small group of retail multiples. The three largest multiples control 80% of the retail grocery market. The future of the domestic liquid milk market and its supply source is being shaped by the actions of the multiple retailers. To attract customers, retail multiples keep the prices of basic food products, such as fresh milk, at low levels and thus reduce the margins of processors, producers and distributors further down the supply chain. As a result, there is less value added in the chain for all participants with the exception of the multiple retailers. The primary producer who supplies the milk is at the bottom of the supply chain but is at the critical starting point and is continually under pressure and never more so than at present. The processor is also under pressure, as a result of low returns, to exit the home market for liquid milk and will do so if other more profitable export opportunities become available.

The code of conduct must be designed in such a way which will ensure that all stakeholders in the fresh milk supply chain will have adequate margins. In the absence of such margins, product quality will suffer and supply will be endangered. Accordingly, consumers producers, processors and distributors have a direct interest in the proposed code of conduct and how it will impact on the supply chain for fresh milk. The agency has considered the draft code - which will initially be voluntary in nature - and recommends that, if it is to work, it should be on a statutory basis and that a regulator with robust enforcement powers, of both a civil and criminal nature, should be appointed.

The initial drafts of the code have dealt with the issues of payment and promotion including prompt payments; marketing costs; shrinkage payments; wastage payments; limited conditions for payment as a condition of being a supplier; compensation for forecasting errors; no payment for better positioning of goods unless in respect of promotions; and promotions. Many of these have much to do with the relationship between the multiples and primary suppliers but they also have knock-on effects for secondary suppliers. In initial drafts of the code the important provisions to which I refer were implied into the contractual agreement between processors and multiples and, therefore, the only remedy available would be through a contractual action in the courts. The agency is of the view that a civil contractual remedy would be of questionable benefit where there is an imbalance in the relationship. If the code of practice is placed on a statutory basis, however, criminal offences could be prosecuted by the regulator, if one were appointed. That is one of the major arguments in favour of a statutory code.

The agency is also of the view that in the context of any contractual termination provision in a contract relating to the supply of milk to a multiple, sufficient notice should be provided in order that account might be taken of the production cycle of the producer panel supplying that milk. It is not just a question of turning off the supply because there is a cycle involved. There should also be a redundancy-type compensation payment similar to that relating to discontinuance for which provision is made under the paid commercial agents directive in order to reflect the cost incurred by producers in developing all-year-round supply capacity.

In the context of how the product is treated in multiple outlets, the use of fresh milk as a loss leader or its sale below cost should be prohibited under the proposed code of practice. The use of milk as a key value indicator to increase both footfall and sales of other products in multiple outlets undermines the confidence of specialist producers in their product by seeing it debased and used as a commodity product and sold at ridiculous prices. They can see their animals on their farms and are then obliged to watch advertisements on television which highlight the low price of milk, which is sometimes sold at prices equal to or just above those of bottled water.

These are the issues which the agency believes should be addressed in the context of the code. Mr. McEnteggart will now comment on pricing.

Mr. Eamonn McEnteggart:

I will be addressing the impact of pricing on primary and secondary suppliers. The Prospectus report on the dairy industry in 2003 placed particular emphasis on the need for movement away from commodity products where possible. Processors of fresh milk have endeavoured to do this by building brands and developing new products. Processors' brands have been undermined by the forceful implementation of retailers own-label brands, which enable the latter to seek tenders for supplies of own label milk and to switch very rapidly between processors and sources of supply.

Own-label products put increased market power into the hands of the multiple retailer. These commercial policies increase the market power of retailers, undermine processors brands, which have great consumer loyalty due to their provenance, and impact adversely on the returns to producers and processors. Over 50% of retail milk sales are now sold as retailers’ own label. Own-label sales of milk in 2 l packs are being sold at a discount of 25% on processors’ brands. As a result, the value added in the fresh milk supply chain has been increasingly appropriated by the retail multiples. Producers who are the first and a critical part in the milk supply chain are unable to pass on increased costs to processors or retailers. Processors are also unable to have their increased costs recognised by retailers. This results in a constant reduction in the overall return to primary and secondary suppliers; a requirement being made on processors to undermine their own brand by demanding them to provide increasing supplies of own-label product to be sold at prices less than the branded product price; fewer branded products being sold; and funds not being available for investment at farm and processor level in marketing, innovation and renewal, which are features of successful business.

In the UK own-label milk sales represent almost 80% of fresh milk sales. When these levels are reached it is then open to the retail multiple to increase the price of their own-label product to the consumer. While no statistics are available on retail margins on fresh milk sales in the State, statistics on margins in the liquid milk supply chain in the UK compiled by Dairyco - a division of the UK Agricultural and Horticultural Development Board - are available. The statistics indicate that between 1996 and 2011 as the UK retail price of milk increased by 13p per litre to 57p per litre, producers got 3.5p per litre while retailers increased their margin by 17.7p per litre, by taking 9.5p per litre from the market and 8.2p litre from the processor. Retailers increased their gross margins from 2.3p per litre to a massive 20p per litre while the processors’ margin was almost halved from 17p per litre to 9p per litre. I will now hand over to my colleague, Mr. George Kearns.

Mr. George Kearns:

I will cover the National Dairy Council's, NDC's, labelling and the logo. The NDC’s logo on consumer packs of Irish fresh milk which states “Farmed in the Republic of Ireland" guarantees the domestic provenance of the milk and has received widespread recognition and support by consumers and is impacting on their buying decisions. One major retailer has a declared marketing and purchasing policy to buy only milk produced in the State, to which it strictly adheres. Other retailers who sell only own-label milk source product either from within or outside the State. Others still source almost all their own-label milk from within the State or all their own-label milk from imported supplies which are packed in the State.

The consumers’ ability to make a decision to support local produce and to buy products produced in the Republic of Ireland is dependent on consumers being able to clearly identify, distinguish and choose between products which are produced within the State and products which are imported from outside the State. A fundamental pillar of the EU market is the free movement of goods and services across the Common Market. That has been of great economic benefit to Irish exporters, to the national economy and to its citizens. There is concern, however, that the consumer is unable to clearly see where a product has been produced. Products should be clearly labelled both as to provenance and content. The requirement is particularly apposite in terms of own-label milk which may be supplied and packed by multiple suppliers with milk sourced both from within and outside the State. Accordingly, the country of origin of the milk and the name of the milk processor should be clearly stated on the pack. Some retailers have been very progressive in this regard in relation to cheese and fresh dairy products and even show the farmer producer on the product label. The EU numerical identification mark, which is compulsory on food product packaging, does not identify the source of the food in the pack and as it is coded is of little use to the consumer in identifying the country of origin of the food stuff. The most relevant legislative provision concerning labelling is the sequence of Irish legislation commencing with the Communities (Labelling Presentation and Advertising of Foodstuffs) Regulations 2002 and various amending regulations. The 2002 regulations concerning labelling were transposed into Irish law by EU Directive 2000/13/EC re labelling, presentation and advertising of foodstuffs.

A basic requirement of the regulations is that the labelling, presentation and advertising of foodstuffs must be clear, unambiguous and must not mislead the consumer to a material degree. In this context, it should be noted that “labelling” shall mean any words, particulars, trademarks, brand name, pictorial matter or symbol relating to a foodstuff and placed on any packaging, document notice, accompanying or referring to such foodstuffs. A number of instances of confusing labelling of fresh milk have come to the agency’s attention and the agency would recommend that the provisions of the above EU regulations be extended to fresh milk.

Mr. Denis Murphy:

That concludes the presentation from the members of the National Milk Agency.

Andrew Doyle (Wicklow, Fine Gael)
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I thank Mr. Murphy and his colleagues for addressing the wider issue and then the four specific points. The presentation was comprehensive and is most relevant following on from the others we have received.

Éamon Ó Cuív (Galway West, Fianna Fail)
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I welcome the witnesses to today's meeting. The annual report which we received also contains useful data and statistics. On page 3 of the 2011 report it is stated that the continued availability of all-year-round milk supplies from registered producers cannot be assured at this level of compensation given the rising costs of winter milk production and the growing attraction of a seasonal milk supply model in a post-EU milk quota environment. Is that still the view of the agency?

The report also states that if the contract is to be registered by the agency it must provide, in the opinion of the agency’s members, adequate compensation to the producer of milk supplied under the contract, taking into account in particular in relation to the winter months the economic cost of production of milk of suitable quality. From what we heard today, the farmers are saying to us that is not happening. In other words, they are not getting paid for the milk they produce and taking all their costs into account they are losing money. Do the witnesses agree that farmers are not getting adequate compensation? That seems to be a theme running through the presentation. What legal powers are available to the agency in overseeing the contracts if it believes there is not adequate compensation. It is no good giving the agency a job to do if it does not have the wherewithal to do it. Should the agency have additional legal powers to ensure we get milk on the shelves every day?

In view of what the witnesses said about 2012 and 2013 on page 5, taking all of the complexities of the modern market into account and the fact that the agency has no input into what comes in over the Border, what is the likelihood that in the next two to three years we could run short at any time of the year for one day or one month?

The next issue relates to an issue I raised previously. The witness said the agency issued a press release advising producers, processors, organisations and major retailers of the agency's concern that the exceptional increases in the production costs of fresh drinking milk in 2012 were making the production of winter milk supplies for the domestic fresh milk market unviable and unsustainable. The agency spends €600,000 a year and when a major crisis occurs, we get a press release. I do not want to be critical but is the agency powerful enough from a legislative point of view, and we are the only ones who can remedy that, to do something or should it be given extra powers? Mr. Murphy was blunt when he stated that the draft code should be on a statutory basis, with enforcement powers, but saying that there should be criminal sanctions is a different matter. That would be a major addition, because time and again I have seen the weaker party with a legitimate grievance and probably good grounds for a court case not going to court. What Mr. Murphy said is interesting.

Mr. Murphy stated that the use of fresh milk as a loss leader or its sale below cost should be strictly prohibited. Does he believe the abolition of the groceries order was a mistake? Should we reverse that decision?

Mr. Murphy spoke about the labelling and I am delighted he said that we could and should do what was proposed. I suggested at a previous meeting that, say, one third of the package would have to identify the processor. I am not talking about a tiny reference one would need a microscope to read. One sees lots of figures and dots on packaging these days, and that is grand if one is educated in it, but I want something that the consumer can see immediately, whether it is milk from Glanbia or whatever. Will Mr. Murphy elaborate on what he said? How large should the processor's name be on the package? I am aware processors get milk from various suppliers, but if it was clearly labelled, processors could advertise that they only use milk sourced from farmers in wherever.

An issue was raised with me that Mr. Murphy did not mention. There is a processor in Donegal who does not come under the agency. He mentioned in his report that two processors do not come under his agency because they source all their milk in Donegal. The allegation made to me is that one of those processors is sourcing some of the milk in the State. If somebody is claiming to source all their milk outside of the State, how does the agency know that? Can the agency check records? Does it have the legal power to go to the remaining processors it does not check and ask to see their books, whether they are getting all their milk in the State and, if that is the case, tell them that they have to have these registered contracts?

Pat O'Neill (Fine Gael)
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I thank witnesses for the presentation. The statistics put before the committee are interesting. Listening to Mr. Murphy, one would believe there is no future for liquid milk production in this country. What does he think is a realistic price margin for liquid milk producers to receive? We dealt with that in the discussion with the previous groups in terms of the tables the agency produced. There has always been downward pressure. I do not know if Mr. Foster wants to comment on that but Mr. Foster represents the retailers. Listening to the presentations from Mr. Murphy and others, it appears the primary producer and the processor believe the major retailers have all the cards in their deck and that they are putting pressure on both the primary producer and the processor. As a retail representative, Mr. Foster might want to comment on that.

I might have misunderstood him but I thought Mr. Murphy said we might be over-producing by 10% in liquid milk production. He mentioned that we are producing 21% of liquid milk and that there might be 10% over-production in that field.

Pat Deering (Carlow-Kilkenny, Fine Gael)
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Regarding the code of practice, I would welcome the witnesses' comments on the draft proposal before us. I raise an issue that the previous delegations mentioned. It was mentioned in this session, and it arose when we interviewed representatives of the different multiples, namely, that the cost of the statutory code of practice being talked about will put everybody out of business. What is the witnesses' view on that? Will it be cost-effective? If there is to be a cost for it, who will pay? Is the independent arbitrator a practical solution? It was introduced in England at the start of the year and the feedback appears to be positive, although it has only been in place for five months. Would that be a way of going forward? Many of the multiples suggested in the past that they will have their own structures in place to ensure there is fair trade and so on, but if an independent arbitrator is in place to ensure that is working, there should not be a major cost involved. I would appreciate the witnesses' views on that matter.

There has been a lot of talk about Food Harvest 2020, enthusiasm for it and so on, but having listened to Mr. Murphy's presentation and the presentations made in the past hour, one wonders if it is aspirational, fantasy or realistic. Will we have the levels of production that were spoken about in 2020? Having heard the facts and figures given earlier, there is no way it will be financially viable to produce milk, particularly winter milk, in 2020 at the current cost. It will not happen, therefore, fewer farmers will produce milk and a shortage will arise. The chance of us reaching those targets by 2020 is fanciful. What are the witnesses' views on that issue?

Michael McNamara (Clare, Labour)
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With regard to the margin producers receive, statistics show that the percentage of the end product price producers receive has dropped considerably. What profit margins have milk producers been operating under for the past month? I do not expect Mr. Murphy to look into a crystal ball but even if normal weather conditions return for the remainder of the year, what profit margins can farmers look forward to, even at this early stage?

With regard to the flexibility the own brand affords supermarkets to change producers, do the witnesses have any advice on whether it would be legal to ban own brand? Would it be anti-competitive? Has the agency obtained or sought any legal advice on that issue?

Mr. Denis Murphy:

On the question about the future of the all year round milk supply model, the position is that it is vulnerable and at a tipping point, but one of the speakers referred to the fact that there is an 18 month buffer in this process. The liquid milk producers put their cows in calf in December 2012. That milk will be available for the winter of 2013. The big challenges facing into the winter of 2013 is whether they will put their cows in calf to provide milk in 2014. That is the year they are heading into the abolition of EU milk quotas.

That is the real threat overhanging it because a number of liquid milk people will consider the option of switching to manufacturing milk, and that is a serious issue at present. As for the legal position regarding the adequacy of compensation and the agency, the contract the agency considers is one that has been negotiated, discussed and agreed between producers and processors. The agency, as such, does not determine the price of milk. It looks at the whole position as to whether the contractual arrangements made are assuring a supply of milk for consumers in the winter period. This situation has materialised in recent years, in that there has been no shortage of winter milk. I believe another member raised this question, but the cover for winter milk supplies has been approximately 20% in the winter period. However, that is based on historical circumstances. The winter of 2013 may change radically the thinking of many liquid milk producers on foot of what they have suffered.

Dr. Muiris Ó Céidigh:

To make it clear how we actually, operate, the National Milk Agency forms an opinion, before it registers a contract, as to whether there is adequate compensation to cover the economic cost of winter milk production. At the outset, we set up, through agreement among ourselves because very diverse interest groups are involved, a set of working guidelines as to how that will be done, and there is a set of parameters for that. We look at this in two stages during the year, the first being in October and thereafter it comes up for renewal in July. Historically, a premium has been paid for the five winter months and members can see the graph in the annual report showing how the liquid milk is attracting higher pay and how this has been consistent since 1995. This is one power we have and the system has maintained itself. However, when one experiences a year such as the one we have had at the end of last year and the beginning of this year, we do not have the power to deal with that type of emergency.

That said, we did not merely put out a press release but wrote to every multiple and processor in the country making the point, because we have no control over retail or wholesale prices. However, we attempted to put into the public domain, as well as that of the processors and the retailers, the point that this issue had arisen. The point was that if they were interested in securing supplies going into 2014, which is the subject under discussion, and in having a domestic supply of fresh milk, this was a matter we wanted them to bear in mind. To this end, we got an independent agency, Teagasc, to produce the Patton report, which we gave to them. We got very little response, comprising responses from two multiples, but nothing indicating they intended to do anything radically different. That is what is happening in that regard.

We have submitted a request on our proposals for additional powers regarding evidence, etc. in order that when we inspect a place, the presumption is reversed. In other words, it is up to them to prove to us that the milk is being used for something else other than liquid. We have inspected the non-registered people and have prosecuted people who have not registered with us. In this context, there were no imports when we were established and this is an issue we are chasing. Moreover, it is an important issue for the agency and for the industry as a whole, particularly for producers.

Deputy Ó Cuív mentioned some other issues, including the groceries order and below-cost selling. I believe the answer to that is we must get rid of below-cost selling, as well as this known value item, KVI, thing, and now there is an opportunity to so do. My other colleagues will want to answer some other questions.

Mr. Denis Murphy:

Mr. Michael Kilcoyne, our consumer representative, may comment on the groceries order.

Mr. Michael Kilcoyne:

In response to Deputy Ó Cuív's question, the position in respect of milk differs somewhat from many other products. We are of the view that the store or the person who sells the milk to the consumer is making a margin of approximately one third of the cost of that litre or 2 litres of milk. Consequently, the producer or farmer, that is, the man or woman who looks after the cows, is getting one third of the price the consumer pays. The processor is getting another third, approximately, and the store or multiple is getting the balance, namely, the other third. However, that store really has very little outlay. The milk arrives from the creamery, is wheeled in by the driver and then collected from the fridge by the consumer who pays for it on the way out. In many cases, that supermarket or store does not actually pay the processor for 90 days in some cases and certainly not for one or two months. Moreover, none of these stores and certainly not the multinationals will tell one what margin they are making. We do not know what profits they are making, and in many cases the consumer does not know from where the product is coming. There are loads of milk products on the shelves that claim to be made in Ireland or to be the product of Ireland and which carry the National Dairy Council label. However, there also is milk available that carries no label and it should be mandatory that the source of origin of that milk, be it from the Republic of Ireland, Northern Ireland or the United Kingdom, be on that label. This is because, at present, we have no evidence that milk is not coming in from the United Kingdom mainland but it should be mandatory that such source of origin would be on the label. It also should be mandatory that these stores should disclose the profits they are making.

Mr. Denis Murphy:

A question also was raised regarding a Donegal creamery. The position is the agency's inspectors can inspect every liquid milk plant in the State, even those which are not registered with the agency. They are able to determine whether the milk is being imported in bulk or what is the position. Consequently, we have full knowledge in that area. However, to provide additional information to members, the position is that one quarter of the milk being produced in Northern Ireland is coming into the State. Since 1993, the milk supply in Northern Ireland has increased by 50%, whereas the milk supply in the Republic has increased by approximately 3%. Moreover, 80% of that increased supply in Northern Ireland is coming down here either for processing by creameries within the State or into the liquid milk trade. This puts together the picture for members but I reiterate we know exactly what is coming in. The one that can be more difficult for us to track is what is arriving in the form of packaged liquid milk, but we are getting co-operation from processors on that.

Dr. Muiris Ó Céidigh:

To give members an idea of the level of confusion that exists on how milk is packaged, there are instances of brands owned by a particular multiple in which the sources of the milk are from different places, depending on the size of the container.

Pat O'Neill (Fine Gael)
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We found that out.

Dr. Muiris Ó Céidigh:

Mr. Kilcoyne will want to comment on how that affects consumers' rights and the basic intelligence they are entitled to have regarding a product. Another point is the European Union mark only tells one where the thing was processed and not where the contents are from. This can be critical and I am not just talking about milk, as one should know this for all products. In the case of a chicken in a box, the box might be Irish, the chicken might not but yet it might have a processor logo including the letters "IE". That is a problem.

Andrew Doyle (Wicklow, Fine Gael)
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I think it is different with beef.

Mr. Denis Murphy:

Senator O'Neill asked a number of questions. On the future of liquid milk, it is seriously vulnerable at present. There is no dependency in relation to Northern Ireland milk. Deputy Ó Cuív referred to this as well. The Northern Ireland milk could be gone in six months' time. If the position worsens in the United Kingdom, that milk supply could drift over, across the Irish Sea, into the United Kingdom and could be stopped from us. To date, the liquid milk producers in the State have given enough cover in the wintertime. That is part of their commitment. However, their confidence is waning because of the losses they have incurred on their farms.

I was asked about the figure of 10%. The 10% figure is the proportion of the total production of milk in the State that goes into the liquid milk trade. The 20% figure is the cover from registered milk producers for milk supplies in the liquid trade during the winter months. That might clarify that point.

I also was asked how the code of conduct might be funded.

Andrew Doyle (Wicklow, Fine Gael)
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The point has been made continuously by retail representatives that the code of conduct is an unnecessary additional bureaucratic measure that will add to costs. It seems to be one of the main reasons we would not want to bring it in.

Mr. Michael Kilcoyne:

From a consumer point of view, the consumer has never shirked his or her responsibility to pay for regulation. The consumer must be confident in the product that he or she buys, in other words, that the product is what is referred to on the label, that he or she is getting the quality and the truth is on the label.

Those who have dodged that in the past are some of the supermarkets when product, including their own label product, was not what it said on the package. If there is anyone guilty and owes an obligation to the consumer, it is these guys who have operated in selling products under their own brand which were not accurately described on the box. They were not penalised heavily. I believe that they should have to pay the penalty for this regulation and pay the cost of it.

Andrew Doyle (Wicklow, Fine Gael)
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Is it a valid argument that bringing in a statutory code and all that such a code entails would add additional cost, either to be paid for by the consumer or costed down to those further back along the chain?

Dr. Muiris Ó Céidigh:

The cost of running the National Milk Agency, which is a regulatory body, is funded by a levy of approximately one tenth of a cent per litre on milk. How will that add to the price of milk to the consumer? If they were going to do it across all of their products, that defeats that argument.

Andrew Doyle (Wicklow, Fine Gael)
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That is a fair analogy to use.

Mr. Eamonn McEnteggart:

I will address a few questions that were asked. At the outset, however, we are talking about the multiples and their reaction to the cost of a code of conduct. It has been clear from the proceedings today that the only ones who are making money out of the liquid milk business are the multiples. What else would we expect them to say? If they are the ones who are making money and they are happy with the existing system, what else would we expect them to say? Are we going to listen to that? It is a poor reflection on us.

Andrew Doyle (Wicklow, Fine Gael)
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Is Mr. McEnteggart trying to get it on the record?

Mr. Eamonn McEnteggart:

On the issue of Northern Ireland milk, Mr. Murphy addressed the fact that it has grown by 50% in the past ten years. That milk has no home. The milk business in Northern Ireland has not had sufficient funds to build processing capacity on its own soil and has left it on our doorstep. That is a sad reflection on the significant growth in milk production in Northern Ireland.

Deputy Ó Cuív asked a simple question about whether we can cover the rising costs. Deputy McNamara also mentioned it. As a producer, I will tell the committee that over the past 12 months, every liquid milk producer in the country has lost money. It is a simple fact.

Deputy Ó Cuív asked whether there is adequate compensation and he implied that the National Milk Agency has not done its business on a budget of €600,000 to €700,000. That €600,000 to €700,000 is farmers' money that is deducted from their milk cheques every month, and one will travel the European Union and the world to find an agency that has done as good a job in the liquid milk sector as the National Milk Agency. One will not find a liquid milk sector elsewhere in Europe such as there is on this soil. We should be very proud of it and we need to nurture it.

Deputy Ó Cuív asked whether we will run short of milk in the winter months. We may not run short of milk as we know it, but most definitely we will run short of quality fresh milk that is the ideal product to put into the consumer's bottle. That point is often lost in the public media.

We were asked about the cost of the code of conduct. I addressed it earlier. As the producer representative on the National Milk Agency, I will state there is not a liquid milk producer who would not willingly help if he or she thought the only person making money in the business in the current scenario, that is, the multiple, would take part of the burden.

There have been a few sad histories of indigenous businesses on Irish soil. There was a lovely sugar industry. We did not nurture it, we lost it and now we would like it back. There was the beefburger scandal where the frozen beefburger came under undue and unnecessary pressure from the system. We are all aware of the end result, but it was the system that put the pressure on and left it as it was. There was a more exemplary case quite recently in the clothing sector where the primary manufacturers of many of our clothes suffered a loss of life because the pressure the system put on the primary manufacturer was untenable and unsustainable. It should not be allowed happen.

I am a liquid dairy farmer and I am proud to be one. I am here today to ask public representatives for help for the indigenous industry of which we are proud. A little knowledge is dangerous. Public representatives need to be properly informed. I told the committee what happened in Northern Ireland. We look across the water to the United Kingdom and what has happened to the domestic industry there. The committee should get familiar with the situation. We need to nurture the domestic milk industry.

Andrew Doyle (Wicklow, Fine Gael)
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That is what we are trying to do here.

Pat O'Neill (Fine Gael)
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I asked a question.

Andrew Doyle (Wicklow, Fine Gael)
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A couple of points need to be made here. Deputy Ó Cuív asked a specific question. Does the National Milk Agency need more teeth, statutorily speaking? That question is very relevant.

Pat O'Neill (Fine Gael)
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I asked a question of Mr. Foster concerning who represents the retailers.

Éamon Ó Cuív (Galway West, Fianna Fail)
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Could I reiterate what I said? The National Milk Agency's job is to ensure adequate compensation. Two points have been made to us by its representatives present. The first is that liquid milk farmers are not making money. The second is, if I take it on a three to five year basis - taking anything shorter than that is a nonsense because of the cycle - the purpose for which the agency has been set up is to assure milk 365 days a year. When I speak of milk, I refer to fresh milk because there is enough powdered milk in this country to keep us going forever. The agency's job is to ensure the provision of fresh milk 365 days a year. I did not blame the agency. The question I asked was whether the agency needs more power to ensure the compensation which guarantees the supply in the longer term, because one cannot do it on an annual basis. I will put a rider on it as well. Should the agency have extra power to deal with extraordinary situations such as we have at present?

What I said earlier is that we are legislators. I started dealing with the liquid milk farmers in the summer and tried to get an understanding of where the issues were and of what we could do. It is easy to emphasise the problems and a great deal harder to solve them. We need to know what powers can be provided legally without offending competition law to ensure compensation and supply.

Andrew Doyle (Wicklow, Fine Gael)
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Those are the specific points. Mr. Foster might address retailers and Mr. Murphy or Dr. Ó Céidigh might address some specifics.

Pat O'Neill (Fine Gael)
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I asked Mr. Murphy about the fact that liquid milk producers are getting a bonus of 3.65 cent per litre. One notes that there are 365 days in the year. What is a realistic bonus?

Pat Deering (Carlow-Kilkenny, Fine Gael)
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Is Harvest 2020 aspirational fantasy or is it realistic? I ask that as a liquid milk producer.

Mr. Denis Murphy:

On Harvest 2020, much of the research and many of the interviews with farmers on their plans going forward were carried out two years to 12 months ago in the context of very substantial, €100 million plus investments in new liquid milk plants for production for export. The winter of 2012-13 has created a huge blockage in people's thinking and we have had the fodder shortage as well. However, the increase is still there and farmer confidence must be rebuilt to ensure that more milk is produced. Liquid milk producers represent approximately 10% of producers but they produce approximately 16% of the milk. Their confidence has been very badly rattled, but the agency cannot set the producers' price for milk. It is not part of its role. The producers' price for milk is set in the market in negotiations between producers and processors. To date, the intervention of the agency has ensured that there is an adequate supply during the winter. Going forward, however, there can be no assurance. There is a question of whether the press release was adequate but we cannot go down and tell a processor what price he should pay for milk. It is not something we can determine. The members may have to rethink.

Dr. Muiris Ó Céidigh:

There are two aspects to that. While we would love to have additional powers to deal with the situation, there are two sides to the discussion. First, one is sitting in an EU environment in which one cannot price fix. The National Milk Agency does its business by looking at whether supply will be maintained. One of the items in the working guidelines is the question of whether a system is working. If it is, we accept it. Second, there is a history behind the co-operative and processor business in Ireland and they closely guard the relationships with producer panels. Their entitlement is to design their own mechanisms for compensation. By and large, those systems are working.

What we are faced with now is a landscape in which fast responses are required. As raised at the NDC conference last week, the industry must consider some immediate response mechanism or a mechanism for removing immediate risk from the system. The producers along with the processors carry a great deal of risk. The rotten thing about the job of a producer is the level of risk he or she faces. That is the difficulty. How one resolves it in terms of framing a power is not something I can give direct answers on here. It is a difficulty and what the committee is saying is true. The processors have their views on the matter also.

Mr. Denis Murphy:

On the question of whether a premium should be paid, the system for the past 18 years has provided a premium over manufacturing milk prices. Last year, some of the major processors introduced a change to link the price for liquid milk to the actual manufacturing price base plus a winter premium. That premium is now something over 3 to 3 and a half cent per litre. We will again commission Teagasc to examine the cost of winter milk production arising from the disaster we have had in 2012-13 to see what costs have been incurred and to consider the levels of compensation for liquid milk production in the winter period. We need to look at that.

Dr. Muiris Ó Céidigh:

There is a further aspect on the legislative side. It gives some degree of confidence to liquid milk producers that the State has introduced a statutory guarantee that a premium must be paid in the winter months to pay for liquid milk. If we look around the rest of the islands, milk is just treated as milk. That is why we have the situation in Northern Ireland where people are not doing well at all. Here, we recognise that there is something to protect and that protection is important.

Éamon Ó Cuív (Galway West, Fianna Fail)
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Now that there is a devolved Administration in Northern Ireland, will this issue be open to an all-island approach? Will there be a National Milk Agency on a 32-county basis?

Mr. Denis Murphy:

It is a possibility. Certainly, the Northern Ireland situation is becoming quite unusual. As some of the people attending the committee today have said, Northern Ireland producers have developed their scale and are approximately three times larger than producers in the Republic and they have absolutely enormous borrowings. They are now looking at marketing opportunities without processing facilities.

Éamon Ó Cuív (Galway West, Fianna Fail)
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They seem to be in the situation of a person who is on a treadmill regarding cashflow and just keep producing more and more to keep going.

Mr. Denis Murphy:

That is right. They have built up their scale. It should be remembered that they have had their Harvest 2020 because they have increased production by 50% over 20 years. They are already there and I do not foresee a massive expansion in Northern Ireland.

Mr. John Foster:

I represent on the board the interests of RGDATA, which is the small-retailers organisation. RGDATA made a submission to the joint committee in March. We have spoken about the three main players in retail who have an 80% share of the market. We spoke in an earlier report about the fact that grocery prices are 18% higher in Ireland than in the United Kingdom. Given that they have an 80% share of the market, the three main players must take much of the responsibility for the fact that prices are higher here. I very much accept Mr. Kilcoyne's point that the profits should be revealed. There is no doubt that a great deal of the money is leaving the State.

Next time there is a milk war, the first thing members should do is to walk down the minerals section of any large supermarket and look at the mixer shelves. When the price of milk goes down, they will see the price of tonics and ginger ales increase from perhaps €1.09 to €1.50.

That very same day, whatever is taken off milk and other milk products will be added to another product such as soft drinks. This is a common practice among all stores.

Pat O'Neill (Fine Gael)
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It is interesting Mr. Foster represents a different group than the milk producers.

Andrew Doyle (Wicklow, Fine Gael)
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The point is the 11% of what is charged still remains with the store.

I agree it is dangerous not to have been fully briefed on the full picture. After three hours of deliberations today, the committee is trying to bring itself up to speed on this matter. I hope the representatives of all the organisations present will accept that. As they can see, this has been done in a collegiate and cross-party fashion to extract the best out of this process. Frankly, it would not be worth our while if it was turned into a political football.

Deputy Ó Cuív made an interesting observation about a Northern Ireland dairy company. The committee might recommend that our colleagues in the agriculture committee in the Northern Ireland Assembly examine this matter with regard to liquid milk. This is a matter that brings in the issues such as the decimation of the family farm structure, the future of rural communities, animal welfare, etc. We should notify the Assembly’s committee of our concerns about this development because it is really a divide-and-conquer technique.

When I asked earlier for a short answer as to whether liquid milk supplies were stable or unstable, the unanimous response was they are unstable. With abolition of quotas and the seasonal manner in which the supply chain is planned, the committee has highlighted this issue that is coming down the tracks. For those who want to continue to make profits out of fresh milk, they should take notice. They have been warned of the implications of not retuning a fair price to the primary producer and, to be fair, the processors.

Today, we had hearings for the past three hours from those involved in the sector. It is interesting we have not mentioned subsidy once, except about a return to a subsidy for producers in New Zealand to make it attractive to supply milk to local shelves. We do not want to go down that route. The committee spends much time talking about schemes and grants but in this case we are talking about a return from the commodity to the producer and processor. This is a commodity that needs a fair market return. It does not need support from the taxpayer, other than that a reasonable price is returned through the supply chain.

It was suggested earlier that the committee would invite the relevant statutory agencies in this sector to present to it which we will do. On foot of that, we will be writing up our report which will be laid before both Houses of the Oireachtas and put into the public domain.

I thank the delegations for attending and Members for their constructive contributions and lines of questioning.