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.