Professor Alan Renwick:

I can respond directly to Deputy Ó Cuív by telling him that when we compiled the figures in this report, we did not work out the exact difference between the market income with the variable payments and the costs of production. A number of associated issues arise on foot of the Deputy's question. We have to understand the difference between economic returns and accounting terms. It may well be that farmers are not taking account of the full cost of their resources - their own labour and their land, etc. When we provide for such matters when calculating our farm income figures, we show that they are making a loss. If farmers are thinking about cash income, they might not think they are making a loss. As economists, we would argue for long-term sustainability. It is important that the opportunity cost of their labour and their resources is factored in.

The point about the profitability of this sector comes down to the distribution of costs. It is difficult to cite a figure at which suckler cow farming becomes profitable because that figure would be different for virtually every business. It would depend on circumstances like stocking levels, etc. It is clear that a balance must be struck between encouraging those who want to expand and allowing them to do so, and dealing with those who are not in a position to expand. The trouble is that if one is not careful to ensure the payment is not set too high, one might be in danger of fossilising the sector. I do not think a fossilised sector would be particularly helpful because it would not allow those who are looking to improve in areas like genetics and welfare to go forward. The need for balance in this regard has to be considered.

Reference has been made to the relative profitability of the dry stock and dairy sectors. We have a more profitable dairy sector. Logic would support the argument that when quotas are removed, those who have the skills, the facilities and the capital access to turn to the dairy sector might well do so. There is probably some truth in the suggestion that there is a strong correlation between those in the dairy sector and the more profitable and productive dry stock producers. They are probably on the better land, etc. Perhaps this change will exacerbate the issue. A greater proportion of farmers would be involved. The question of what to do also arises in this context. When people say "let them make milk" - farmers should be allowed to transfer to the dairy sector because it is more profitable - it sounds like a cohesive argument in pure economic terms. If that happens, however, this country will be at a greater risk of relying on a single commodity. A diversified industry is needed.

As our report highlights - this was reinforced at last week's Bord Bia sustainability conference - there is significant value in the desire that is associated with Irish beef as a brand. It can add a great deal of value. The problem is that we have something that is very valuable but is predicated on low or almost negative income. It is difficult to know how to do our best to improve the economics of that without fossilising the industry. I am sorry to say I do not have a direct answer today. We need to think about it.