Oireachtas Joint and Select Committees

Tuesday, 18 June 2013

Joint Oireachtas Committee on Jobs, Enterprise and Innovation

Agriculture Sector: Discussion

4:40 pm

Photo of John LyonsJohn Lyons (Dublin North West, Labour)
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I welcome Mr. Pat McCormack, deputy president and chairman of the dairy committee of the Irish Creamery Milk Suppliers Association, ICMSA; Mr. Shane O'Loughlin, secretary of the Wicklow branch of the ICMSA, and Mr. Michael Kelly, researcher with the Irish sugar beet bio-refinery group.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. If they are directed by it to cease giving evidence on a particular matter and continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They 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, 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 either by name or in such a way as to make him or her identifiable.

This has been an extremely long meeting. We commenced proceedings at 1.30 p.m. and some members have been present throughout the day. Members have informed me that they have read the submissions. For this reason, I ask Mr. McCormack and Mr. Kelly to highlight the main points of their presentations as this will give us more time for questions.

Photo of Paudie CoffeyPaudie Coffey (Waterford, Fine Gael)
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I apologise in advance for leaving in a few moments. Unfortunately, I have an engagement in ten minutes which I must attend. I thank the delegation for coming before the joint committee. I have read the submissions and will read the transcript of the proceedings.

Photo of John LyonsJohn Lyons (Dublin North West, Labour)
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We will also publish the presentations on the joint committee's webpage.

Mr. Pat McCormack:

I, too, am conscious of the time as I have to be in Adare by 8.30 p.m. I hope my departure will not be delayed by clampers.

The ICMSA is pleased to have an opportunity to feed into the proceedings of the joint committee. We were also present in the Visitors Gallery for the previous discussion on the south east during which we heard about education and agriculture. The collaboration between Waterford Institute of Technology and Kildalton Agricultural College has been of great benefit to agricultural students studying at the Kildalton site.

For reasons of time, I will not read the entire submission. I propose instead to highlight some of the main issues. There are 18,000 people employed directly in agriculture, forestry and fisheries in the south-east region, which is twice the national average. The reason is the quality of the land in the region and the ability of its people to produce agricultural products. This message has been reinforced by the investment commitment of €180 million given by Glanbia plc to process milk produced in the region beyond 2015.

The agri-food sector employes 8,000 employees in the south-east region in the areas of farmhouse cheeses, ice creams and meats. Opportunities will also arise for retraining in the area of light engineering to serve the agriculture sector.

Under the ambitions set out in Food Harvest 2020 for the period between 2015 and 2020, the primary duty of stockmen, other than stockmanship, will be the production of raw materials for the food industry. They will also be required to provide other services for farmers which will provide opportunities in the years ahead.

I acknowledge the role of Enterprise Ireland and Leader groups in providing financial and practical supports for individuals who are establishing agri-food enterprises. The south-east region covers only four and a half counties. I am from County Tipperary, half of which is in the south east, while the other half is outside the region. Despite its size, the south east accounts for 22% of the country's milk output.

Reform of the Common Agricultural Policy will have a major impact of farmers in the south east who fear the possibility of convergence of payments. Such a move could undermine the prospects of the Food Harvest 2020 strategy, given that in 2009 direct payments accounted for 123% of farmers' incomes. For this reason, we are concerned about the current proposals.

The abolition of quotas will also present challenges. Mr. O'Loughlin is a supplier to Glanbia which has moved to flatten the peaks and troughs in milk supply by providing back-to-back contracts with purchasers. This move provides stability for the primary producer, the purchaser and, ultimately, the employment structure in the association. We view Wicklow ICSMA as a leader in that regard.

Members of the joint committee feed into the CAP reform process through their contacts with the Minister for Agriculture, Food and the Marine, Deputy Simon Coveney, and the Taoiseach. The Irish Presidency is a critical six month period for CAP reform. The primary producer must be protected under the proposals if employment is to be enhanced and we are to avail of the opportunities that will arise after the abolition of quotas in 2015. As a country which exports 85% of our produce, we are conscious of the various aids available under the Common Agricultural Policy, including aid for private storage. We raised this issue with the Department and I encourage the joint committee to follow up on it. This aid is very important to the dairy sector, given the seasonality of milk supply.

The availability of credit is another issue that is creating serious challenges for our members and industries across the economy. Given the climatic conditions we have experienced in the past 18 months, these are especially serious for farmers. At the end of 2011 farmers owed €1.9 billion, which was €307 million lower than in the previous year. However, the past 18 months have undone much of the progress made in this regard. Merchant credit is also an issue. I have met various merchants in the south east who have expressed major reservations about their ability to continue in the event that credit does not become available and farmers are not given an opportunity to repay outstanding loans over a number of years. Merchants want the banks to function properly because they are currently operating as bankers for individual farmers.

The review of the nitrates directive is another issue facing farmers. We would like the current derogation to be maintained and have approached the relevant authorities in that regard. The south east has the best land in the country and the derogation is necessary to allow us to engage in intensive farming. We would also like the bureaucracy associated with the directive to be reduced. The application process should be simplified, for example, by rolling over derogations for individual farmers rather than requiring them to reapply each year. The ending of the period within which farmers may export slurry on 31 December is also a significant issue for them. If they were allowed to export up to 15 February, many of them could meet the requirements of the nitrates directive without needing a derogation. It is impossible to export slurry from 15 to 30 December as this is a closed period.

The main challenges facing the dairy sector are reform of the Common Agricultural Policy and farm fragmentation. I ask the political parties represented on the joint committee to lobby the relevant Ministers to ensure steps are taken in the budget to facilitate the consolidation of holdings. The milking platform around the parlour is the critical issue for dairy farmers in delivering expansion and further employment opportunities. Price volatility is also a major challenge for us and we seek some form of price stabilisation or relevant market support in that regard.

The Irish Creamery Milk Suppliers Association is involved with the European Milk Board. We seek the establishment of an EU dairy market monitoring agency which would issue early warnings where oversupply appeared to be imminent.

The reality is that even with the abolition, it will be supply and demand. That is a brief presentation. We are willing to take any questions or comments.

4:50 pm

Mr. Michael Kelly:

I thank the Chairman and the committee for the opportunity to present on the committee's strategy report. Given the long afternoon, I do not intend to read my presentation in detail but will summarise it in my own words. It is about the restoration of the sugar industry in Ireland. I advise the committee that I became aware of this initially in 2006 when I was the CEO of Carlow County Enterprise Board and was approached by a number of people regarding their desire to review the decision that had been made and see whether there was an opportunity to restore it. I recommended to the board that we carry out a feasibility study. I propose to elaborate on the findings of that study. The study was drawn up by former senior executives of Irish Sugar, Greencore, scientists in UCD and farmer representatives, and the financial figures within the study, which is available, were verified by the international consultancy firm PricewaterhouseCoopers.

The primary findings of the report are in the conclusion which states that a viable and profitable industry based on sugar beet as the primary raw material and sugar and ethanol as the main products can be established in Ireland. The industry would have very significant employment opportunities during construction and operation and wider benefits for growers, contractors, hauliers and the local and national economy. Some obstacles would have to be overcome before it would become a reality, although these are not considered insurmountable. The report is approximately two years old. Some of the figures quoted at the time would have changed, for example, the price of sugar would have increased. Obstacles is a word one could use but if I were asked what needs to be done now to take this to the next level, one is quite imminent.

Shortly after the report was concluded we met the Minister for Agriculture, Food and the Marine, Deputy Simon Coveney. While he supported our endeavours at the time he clearly stated, and has since stated, that any venture to develop a combined sugar or bio-ethanol production facility would have to be a commercial proposition, financed in total by investors and interested parties and make sound economic sense to be viable and to justify the very substantial investment to build a new facility. Clearly, that was giving us the position of Government at the time. The second issue that needs to be addressed is the quota. Again, historically, in 2005, at the time of the reform, Greencore, which was the holder of the entire Irish sugar quota, availed of the voluntary scheme and dismantled its facilities and ceased production in 2006. In other words, there is no mechanism that would enable us to grow beet and produce sugar. However, under the Irish Presidency, negotiations are ongoing to finalise the Common Agricultural Policy, CAP, reform package that will be in place for the future, including provisions for sugar production in the European Union post 2015.

At the March meeting of the Council of Agriculture Ministers, the Minister for Agriculture, Food and the Marine, Deputy Simon Coveney, as president of the Council, made a compromise proposal that garnered the support of a majority of member states to extend the current quota regime for a further two years until September 2017 when it would finally cease. This is now the formal negotiating mandate for the Agriculture Council as it enters the final phase of the ongoing CAP reform negotiations with the European Parliament and the Commission. We understand that a decision on the overall CAP reform package, including the future of the EU sugar regime, will be sought at the next session of the Agriculture Council beginning on 24 June when it is hoped it can be brought to a successful conclusion before the Irish Presidency ends on 30 June. Clearly, that is a key date from the point of view of the findings in this particular report. We are hopeful that a conclusion can be reached and, if so, planning can take place. Without a quota it is very difficult to engage with investors who will be required. For the proposal to be progressed, presuming we get clarity after the end of June, expressions of interest from farmers will be key. They are going to produce the raw material. Therefore, we need expressions of interest from farmers.

I think we can advance a suitable site, even while awaiting the outcome of the CAP negotiations. Our group is of the view that given the competitive nature of the production of sugar in Europe, we have to be extraordinarily competitive. One of the key fundamentals will be cost of transport. Therefore, this plant has to be central to the growing area - the southern parts of Offaly, Kildare, Carlow, Wexford, east Cork and east Tipperary. Our research identifies that it is somewhere between Carlow and Kilkenny. We are not being specific but we clearly believe it is in the south east and is driven 100% by virtue of the cost of transporting the raw material to the factory. Any particular site must have good road structures and must be central to the heart of beet growing in Ireland.

That is a short summary of the findings of the study. Some of the figures in the study are being updated. Certainly it gives us food for thought. If there are any questions, I will certainly answer them. We see this as an opportunity. It will be a challenge because of our competitors. We are entering an already well-established business. As there is no evidence of a shortage of sugar in Ireland, there are players already in a position to supply Ireland with its quota. However, one of the significant benefits of Ireland having its own industry is that some of our significant employers in the confectionery business would be guaranteed a supply. There is a whole list of reasons we should do this. We have to be realistic also and recognise the challenges that lie ahead and see how, working together, we can make it happen.

Photo of David CullinaneDavid Cullinane (Sinn Fein)
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I apologise to the visitors as we probably tried to cram too much into one day and, unfortunately, we are victims of that. As the Vice Chairman said, we have the presentations and they will be factored into our report. I do not know if the visitors heard the session with the Kilkenny county manager. The whole area of agriculture and Food Harvest 2020 was raised. The visitors have reinforced much of what was said earlier. Everybody agrees that the targets for Food Harvest 2020 are ambitious but realistic and deliverable. If they are to be achieved, we must ensure the infrastructure is in place. If we are to expand milk production - obviously we have opportunities with the abolition of milk quotas - we must ensure the infrastructure is in place to process milk. We have had a positive announcement from Glanbia on the Belview site. That is hugely important for the south east, midlands and the south west in terms of taking the increased milk.

The infrastructure at that level is only part of the jigsaw. Certainly the farmers in the region want their concerns addressed. For example, if they need to expand their herd or their on-farm infrastructure, they will need access to credit and, perhaps, employment supports if they are taking people on.

In their opinion, a range of supports will need to be put in place to aid them in capitalising on opportunities. Our guests mentioned access to credit, but perhaps they will briefly discuss some of these points.

Mr. Joe Crockett, the Kilkenny county manager, referred to the opportunity for the south east to become a leader in food, for example, production, technology, ingredients, etc. What more can be done to support that work? He also mentioned the challenges that could be overcome. For example, if we increase herd size, we increase effluent, which creates problems in terms of compliance with the water framework directive. The nitrates directive is still hanging over us. How important are these challenges in terms of ensuring compliance with the water framework directive on the one hand while continuing the nitrates directive derogation on the other?

The sugar beet industry idea is laudable and I would support it as it would create substantial jobs in the region. There is no point in looking back on the decisions that have been made. We must look forward and determine where to go from here. Serious challenges must be overcome, but the starting point is to ask whether we are serious about going with this idea. We must decide whether we can be competitive and get growers and other players to buy into it. They are the key ingredient, if everyone will pardon the pun. If a decision is made at Government level to the effect that the idea is viable, everything else will flow from it and we will overcome the challenges.

Price competitiveness for beet growers was also mentioned. It is key that the industry be economically viable if farmers are to get a return on their produce. These issues must be examined. Mr. Kelly's group has conducted a feasibility study. If Government agencies make a decision to pursue this opportunity, particularly the bio-refinery element, it will happen. If a positive decision is not made, it will not happen. A Government decision is critical.

5:00 pm

Photo of John LyonsJohn Lyons (Dublin North West, Labour)
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I have two questions, the first of which is for Mr. McCormack and Mr. O'Loughlin and relates to access to finance. As recently as last week, one of the main banks sent an e-mail to all public representatives updating them on how well it was reaching its access to finance targets. Sometimes, it is anecdotally correct to claim that finance is not being provided. From our guests' experience, are banks providing finance to people who are legitimately in a position to access it?

My second question is for Mr. Kelly. What are the employment figures in terms of constructing and operating the sugar beet industry?

Mr. Pat McCormack:

To answer Senator Cullinane, Glanbia has spent €180 million and Dairygold, which is not in the region, has spent €120 million. The Tipperary Co-op has invested heavily in its cheese plant to move forward with its Food Harvest 2020 ambition. I omitted to mention that the Irish Dairy Board had made a significant investment in securing markets for post-2015. As an exporting nation, we need this.

The farmers to whom the Senator spoke were right. If a farmer goes from milking 60 cows to milking 100 cows, he or she does not want to spend four hours in the parlour or whatever the case may be. There is a dairy equipment scheme. With the reform of the Common Agricultural Policy, CAP, we hope that an enhanced scheme will be available to farmers under Pillar 2 as we head towards 2014 and 2015. If farmers increase their numbers, they must have sufficient slurry storage facilities. We made a strong case to Teagasc and the Department regarding the nitrates directive. The dairy cow is not permitted to be outwintered. Facilities must be available, even if there is only an eight week winter. In particular, parts of County Kilkenny-----

(Interruptions).

Photo of John LyonsJohn Lyons (Dublin North West, Labour)
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If Mr. McCormack's mobile telephone is beside him, he should push it away. That will sort out the interference.

Mr. Pat McCormack:

Parts of County Kilkenny and west County Cork have shorter winter periods, given the quality of their land. Farmers there could outwinter some of their stock. Capital will be required. Mr. O'Loughlin will take the Chairman's question.

The dairy industry would welcome a return of the beet industry. The sugar industry's by-product would be a significant boost to milk production, particularly in the late third and early fourth quarters. The industry's return would be significant for our Food Harvest 2020 ambition.

Mr. Shane O'Loughlin:

Speaking personally, my bank is working well. I am also the chairman of our local discussion group. Banks have copped on and are lending money when they know they will get it back. They are providing money more sensibly. In 90% of cases previously, farmers tended to borrow sensibly. The banks know that the farmers' businesses have made steady returns.

A number of problems have arisen. For example, some of the legal charges have gone bananas. Legal charges are unrelated to the amount of money loaned or borrowed. Often, banks, and borrowers, solicitors' fees are paid at both ends.

Fees are an issue. The banks are really sucking hard on them. They are reluctant to offer money based solely on a business plan - the capacity to make a return on the borrowed money - and are more concerned with getting deeds into their vaults. This is disappointing. Traditionally in the agricultural sector, borrowed money was repaid without bother. In light of the bad weather this spring, however, my bank of AIB has been conscious of farmers' needs. It has been proactive in our area by approaching farmers before their situations worsened. If feed or an overdraft was required, the bank moved. If a farmer's situation was fine, the bank did not move. Credit should be given where it is due.

Photo of John LyonsJohn Lyons (Dublin North West, Labour)
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There was also a question on sugar beet.

Mr. Michael Kelly:

Senator Cullinane's point on whether we were serious about the proposal was well made. I do not want to quote statistics, but I will put the issue in context. The study went into great detail. Based on a yield of 60 tonnes per hectare, some 24 tonnes per acre, there would be a requirement of 20,000 hectares or 50,000 acres of sugar beet. At an average of ten acres per grower, this would involve approximately 2,000 growers. This is what we need to deliver a significant project. They would need to be high end growers, that is, open to technology. The yields can be increased considerably with the co-operation of Teagasc.

The Vice Chairman referred to jobs. We have concluded that between 400 and 500 jobs would be created during the construction period and approximately 200 people would be employed to operate the plant. Crucially, significant indirect employment amounting to 5,000 jobs would be created among farmers, agricultural contractors, hauliers and input suppliers. It would be a major contributor.

We need a serious commitment from farmers. On the night of the ministerial decision, sugar was the item that held up matters.

This was not anticipated because the focus was on beef and milk, funnily enough. It was sugar that burned the midnight oil, however. This was a kind of deal that was done in respect of 2017. It was not what we were looking for ideally because the exit date was to be in 2015, but there is a lead-in time to make the process work. There is evidence of commitment. The financial commitment is considerable, obviously. The Government and Department must show cause, but not so much in a financial sense as one can offer support in so many different ways. We need that support. Enterprise Ireland has a remit regarding indigenous industry and it has not ruled itself out. The challenge for us is to take this to the next level, including through a farmers' commitment

The process is predicated on a successful conclusion at the end of this month such that we will know the exact position on the Irish sugar industry. Some challenges remain but we are still convinced that, with the commitment and involvement of the key stakeholders, the objectives can be met. At present, there is much publicity over what happened in the past and what we should do again. That does not help in the making of progress because this is about a commercially viable proposition. By getting the key people involved, we can deliver. However, it will not happen today or tomorrow. We are aware that another group, Beet Ireland, decided it will examine the feasibility of the proposal and has concluded it is commercially viable. Realistically, for it to happen, there ought to be one group. We are always available to make that happen.

5:10 pm

Photo of John LyonsJohn Lyons (Dublin North West, Labour)
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I thank everyone for attending. I apologise for the overrun but that is the nature of proceedings here some days. The issues that have been raised today will feed into the report that Senator Cullinane is producing for the south and south east.

The joint committee adjourned at 5.40 p.m. until 1.30 p.m. on Tuesday, 25 June 2013.