Andrew Doyle (Wicklow, Fine Gael)
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The committee will now discuss the report, the Importance of the Cattle and Sheep Sectors to the Irish Economy. I welcome Mr. John Bryan, president of the IFA, Professor Alan Renwick from UCD, who is the author of the report, and Mr. Kevin Kilcline, an economist with the IFA.

I remind the witnesses that they are protected by absolute privilege in respect of the evidence they are to give to the committee. However, if they are directed by the committee 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. They are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a person 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.

I understand Mr. Bryan wishes to make an opening comment before Professor Renwick presents the findings of his report.

Mr. John Bryan:

I thank the Chairman and members of the joint committee for the opportunity to make opening remarks on Professor Alan Renwick’s presentation on the findings of the UCD report, The Importance of the Cattle and Sheep Sectors to the Irish Economy, which was commissioned by the IFA. This is an opportune time for such a discussion because a number of critical decisions will need to be made in the coming weeks and months in regard to the Irish economy and the value of jobs. The Government will have to make decisions in the upcoming budget on the level of support to be provided to the various sectors. Over the next several months critical decisions will be made on 50:50 national co-financing. These decisions will be made in the context of a suckler herd that has already lost 100,000 cows and a large number of farmers who are considering whether to reduce their herds further. We have to use whatever opportunities are available to us to prevent this from happening.

This report quantifies the huge contribution that the cattle and sheep sectors make to the national, local and rural economies. Its figures show that the livestock sector generates €2.3 billion worth of output at the farm gate, which equates to total output of €5.7 billion for the national economy. The sectors support over 100,000 farmers and over 50,000 jobs in the wider economy. The cattle and sheep sectors deliver a real return in every rural parish, generating economic activity and providing employment across the country. Combined, the sectors have an unparalleled reach in terms of their contribution to the rural and wider economy.

The report shows that cattle and sheep farms are low-income enterprises, in which direct payments represent on average over 50% of gross output and between 141% and 177% of family farm income on sheep and cattle farms respectively. These direct payments in the cattle and sheep sectors are delivering excellent value for money, with a strong economic multiplier. A key finding in this report is that each €1 of direct support for cattle and sheep farmers underpins over €4 of aggregate output in the economy. Such findings have underpinned the IFA’s sustained campaigns to secure a positive outcome to the CAP reform negotiations, secure national co-financing under Pillar 2, rural development, for the sectors and to secure support in budget 2014. The message is clear; every euro spent is good value for money and a major stimulus to jobs, exports and the economy. Achieving our Food Harvest 2020 targets could lead to an additional €1.6 billion output and between 5,000 and 10,000 additional new jobs in the economy.

It is critical that the Government shows support for the livestock sector in the upcoming budget. A suckler payment is essential if we are maintain our 1.1 million national suckler cow herd and continue to deliver high quality beef to an industry which secures a premium product in key export markets and food service outlets across the UK and Europe. Confirmation of a suckler payment in budget 2014 will form the basis for a strong payment for the suckler herd as part of the CAP implementation in the years ahead. Similarly, continued support for our 32,000 sheep flock owners across the country is essential. There must be roll-over of the sheep grassland payment in the forthcoming budget, which should be further strengthened as part of the CAP implementation in 2015. Sheep farming is the second most common enterprise on Irish farms and is very important in terms of its economic and environmental contribution to rural areas, particularly in hill and mountainous regions. The Government needs to make a strong commitment to 50:50 national co-financing to support vulnerable sectors in the context of the negotiations on the new CAP programme for 2014 to 2020. The IFA is clear, and Professor Renwick's report will confirm, that any euro spent by the Government will come back as jobs and exports.

Professor Alan Renwick:

I thank the committee for inviting me to address it. I will briefly outline the key findings of the report. I take it that members have had an opportunity to read it and copies of my presentation have been circulated to them.

The purpose of the report was to examine the current economic impact of the cattle and sheep sector in Ireland and to consider the implications of possible scenarios.

On the positive side is the achievement of the Food Harvest 2020 goals. Less positive is the question of what would happen if the sector were to continue contracting.

It is important to remember that this was a short study and dealt with the activity's direct impact, for example, the production of cattle and sheep, processing, the sale of meat, etc. It does not cover what are perhaps some equally important economic, environmental and social outputs from the agriculture sector. For example, it does not deal with agriculture's relationship with providing scenery that attracts tourists or other factors that members might wish to take into account. It only focuses on production.

We reviewed the current numbers in and structure of the industry. In Ireland, there are 4.75 million sheep and 6.6 million cattle. Of the 139,000 farms classified within Ireland, 110,000 have some cattle production and 32,000 have sheep. As Mr. Bryan mentioned, cattle and sheep are prevalent throughout Irish agriculture. It is estimated that 170,000 people are working on specialist sheep and beef farms, representing almost 100,000 full-time jobs. This is a major form of employment.

I have included a graph showing cattle and sheep numbers since just after Irish accession to the EU. Its purpose is to highlight the change in numbers, but also the dramatic influence that policy can have on Irish beef and cattle numbers and the sector as a whole. Once we overlay key policy changes during this period, we can see how dramatic a direct impact they had. The introduction of the sheepmeat regime and new premiums led to a dramatic rise in sheep numbers. The MacSharry reforms of 1992-93 have led to a major decline. We have also witnessed a major growth in suckler cow numbers. They did not decline to the same extent as sheep numbers after the MacSharry reforms, but we have witnessed a decline in recent years. We are using this graph to highlight how policy choices have a direct numerical relationship with the beef and cattle sector.

Something that is clear from the report and the Teagasc data on the national farm survey is that agriculture is a low income sector. I have supplied a table setting out average incomes in 2011 for cattle rearing, cattle other and sheep farms. The average farm family income was approximately €10,500 for cattle rearing, €14,500 for cattle other and approximately €16,800 for sheep. That year was a relatively good one. However, the five-year average to 2011 for cattle rearing, for example, was only €7,819.

The table outlines the market income figure, that being, the gross output from selling the product, excluding payments, minus the cost of production. For all of these systems, that figure is negative and goes as high as minus €5,000 across the five-year average for cattle rearing. Farmers are not getting a return from the market that covers their expenditure. This highlights the importance of support payments. Although it is not shown on the table, support payments average approximately 50% of gross output for these types of farms and between 140% and 147% of income. Obviously, the payment is greater than the level of farm family income for all of these farm types. These are the 2011 figures rather than the 2012, but the picture is not markedly different. The story is still the same.

Farm economics only form one part of the chain. In this study, we examined how activity on the farm fed through the supply chain to the retailer or the consumer. Ireland has approximately 68,000 specialist and 20,000 mixed breeding, rearing and finishing units. We slaughter approximately 1.4 million head at 29 active, export-approved slaughter plants. In addition, there are more than 195 local authority-registered abattoirs, but they only slaughter 70,000 head or so. The majority of animals go through export plants. On average, this year saw live exports of 160,000 head.

Before I came to Ireland, there was something about the nature of its industry that I did not realise, namely, the crucial importance of exports. While we import approximately 46,000 tonnes, some 442,000 tonnes were exported. These figures cover 2010 to 2011, or possibly 2012. Domestic consumption accounts for in or around 85,000 tonnes. The majority of exports go to other countries in the EU.

Farm production leads to widespread activity throughout the economy. One way to show this is what we call the measles map. Coming from Scotland, I found this map interesting in light of the wide distribution of activity in beef and sheep. We have marked factories, livestock markets, approved export points and local authority abattoirs. They are spread throughout Ireland. A similar map for Scotland would show a greater concentration. This is a key issue, as the beef and sheep sector reaches every corner of Ireland in terms of production, further processing and export. It is fair to say that it is probably the only possible economic activity in some regions.

What does all of this activity generate in terms of the wider economy? As Mr. Bryan mentioned, we found that farm output in the beef and sheep sector was approximately €2.3 billion. Using multipliers derived from Dr. Ana Corina Miller's work as part of the Teagasc Walsh fellowship, a valuable study that has enabled us to do this, the €2.3 billion equates to outputs amounting to €5.7 billion or so across the economy. We will revert to this point but, for a number of reasons, the multipliers within the beef and sheep sector are among the highest in the Irish economy. Therefore, every euro generated in farm output from beef and sheep generates well over €2 in the wider economy.

Examining output slightly overestimates the overall impact on the economy, as it tends to double count while going from one stage to the next. If we consider actual contribution to GDP, which excludes double counting, it generates approximately €3.23 billion for the economy. According to our analysis, we have estimated - these figures are difficult to come by - that 45,000 jobs beyond the farm and processing sectors relate to the economic activity of beef and sheep production.

We can consider these figures in another way by relating total output to the amount of support provided to beef and sheep farms. This support is a key component of the incomes of such farms. We estimate that approximately €1.39 billion in support goes to the sector, leading to €2.3 billion in farm output.

This multiplies up to €5.7 billion in terms of economy-wide output. Another way of looking at this is that every euro of support that goes to this sector underpins over €4 of output in the economy. That is an impressive figure but one of the key issues is whether it is better to have this money going to the beef and sheep sectors rather than elsewhere. In the report we have highlighted that, for a number of reasons, it is an effective use of money. This relates to the fact that the beef and sheep sectors have among the highest multipliers in the economy in terms of multiplying up to economy-wide output. In addition, the vast majority of this production is exported and so gives us export earnings.

The study by Mr. Brendan O'Riordan again highlights the importance of agriculture in generating export income. Given that it is so embedded in the economy, a lot of the value is generated and kept within the economy rather than being imported with added value and then re-exported. The basic product is developed here in Ireland.

That was our overall examination of the current economic performance, but we were also tasked with looking at future scenarios. Since I arrived in Ireland, barely a day has gone by without hearing about Food Harvest 2020 and the ambitious growth targets for Irish agriculture. What potential impact would the achievement of these targets in the beef and sheep sectors have on the overall economy? I will not go into detail but clearly a number of assumptions have to be made. Work undertaken by Dr. Ana Corina Miller as part of her fellowship has examined this issue. It is useful to be able to draw on this data.

We are assuming an achievement of increases in volume and value. Unlike dairy where the target is a volume increase of 50%, in beef and sheep it is also expressed as a value increase. Clearly a value increase can be achieved by any combination of price increase and quantity change. We therefore took some figures done by Teagasc through its factory modelling, of potential scenarios to get to Food Harvest 2020. We also examined the multiplier effects of that. For example, Teagasc's estimation of achieving growth in the sheep sector was a decline in numbers but a significant increase in value, whereas for the beef sector it was an increase in numbers and value. Taking those together, we estimated that the increase in output value of beef and sheep farms would be about €234 million with an increase of somewhere between zero and 4,800 jobs. The difference in the ratio of jobs depends on the assumptions about the relationship with employment. We have discussed this matter in the report. This would lead to an increase in output of roughly €407 million in processing and an extra 1,200 jobs. Overall in the economy we estimate this to be about a €1.5 billion increase with anywhere between 5,000 and 10,000 extra jobs. It is not an insubstantial impact if we are able to achieve the positive goals of Food Harvest 2020.

One of the key issues is that the benefits of growth will spread out spatially not only across Ireland because a number of factories are in rural areas, but also across sectors. A large number of other sectors will gain through that growth. The table highlights those sectors where there is an estimated increase greater than €20 million or 100 jobs. For example, we see growth in transport, wholesale trade, animal feed and other sectors including hotels and restaurants. The model highlights those linkages going forward. The agricultural sector is intrinsically linked in our economic system and the impacts are felt throughout it.

In addition to that positive view, we also looked at the potential impact of cuts in supports. There has been a range of actual and potential cuts in supports to the sector. It is clear that so far, these cuts have been proportionally greater on the beef and sheep sectors. This table highlights the direct relationship between cuts in supports and cuts in farm family income. Based on the 2011 income of cattle-rearing farms, a 10% cut in supports would equate to a 13% cut in income. A 20% cut in supports would lead to a 26% reduction in income, while a 30% cut would mean a 38% drop in income.

Considering the five-year period that preceded it, 2011 was a relatively good year. Taking the five-year average, a 30% cut in support would lead to a 53% reduction in income. We have not done any work on the direct relationship between falls in income and numbers but our earlier work on the relationship between policy changes and cattle numbers does highlight the close relationship between the changing economic situation and production.

We then examined some hypothetical changes in beef and sheep numbers, which are not unrealistic given the sort of decline we have witnessed over time. We looked at the impact of a 25% fall in cattle numbers and a 20% fall in sheep numbers. In a sense, we get the multiplier effect working in reverse. Growth of this magnitude would lead to a €4.9 billion growth in output, while we estimate that similar declines would lead to a €4 billion fall in output. Depending on the approach adopted, it would have an impact of between 16,000 and 34,000 jobs.

One of the issues we touched upon but did not discuss in detail is the scale of the industry. If those sort of declines began, would one reach tipping points in certain parts of the country where the beef and sheep sectors are no longer viable? Would it be difficult to maintain haulage firms, vets and input suppliers? Is it getting harder for the industry to fulfil large orders from abroad? One could look at it as a step relationship between each percentage fall which has a percentage output impact. However, one could also say that, potentially, a tipping point could be reached beyond which it no longer becomes viable to have an industry in certain areas. That was the final conclusion of our report.

Deputy Eamon Ó Cuív:

I will start with the comments made by the IFA President, Mr. John Bryan. I take it that he is proposing the reintroduction of an €80 suckler cow welfare scheme next year.

Mr. John Bryan:

We are proposing that the Government should target resources. The most pertinent point made by Professor Renwick was on the tipping point. When one passes the tipping point, the cost of repairing it is huge. We passed the tipping point on sheep and lost 1.5 million sheep. We lost critical mass, so at certain months of the year we are barely able to be effective in France. We have fallen out of that market.

In the suckler area, Bord Bia has spent a fortune getting into Germany. We have lost 100,000 sucklers. Anyone who has spoken to people in any parish in Ireland knows that many of them are at the mental tipping point. It depends which way they go. We are well aware of the current economic climate. We feel that the return of a suckler welfare scheme would promote better practice and provide good value for the taxpayer. If we pass that tipping point, jobs will be lost. That is what we are proposing.

Deputy Eamon Ó Cuív:

Can Mr. Bryan put a figure on it? Is it the ceithre scór, €80?

Mr. John Bryan:

We have suggested to the Government that it should consider a sum of €100.

Deputy Eamon Ó Cuív:

As Mr. Bryan knows, they have not got as far as that on Pillar 2. The co-financing rate is vital. The Minister has said that he will co-finance if there is no EU money left but different parts of the package attract different rates. I accept what Mr. Bryan says, that it needs to be co-funded completely at a 50-50 rate. I also know what Mr. Bryan said about the grasslands scheme.

I read Professor Renwick's report while I was on holidays. We need to look behind the figures and get some clarifications. It outlines cattle and sheep numbers and compares ewes with suckler cows. Of course one ewe is not equivalent to one suckler cow. Both these numbers shot up in the 1980s and up to 1992 - normally they seesaw. Was that a direct increase in production or was it people swapping from dairying into suckler cows and sheep? In other words were people switching to follow the money or was there an increase in the net farming output? Once the suckler cows reached a high number, the sheep numbers fell back again. Were people choosing suckler cows over ewes, allowing for the fact that one suckler cow would replace more than one ewe?

The next page deals with low-income sectors and outlines direct payments and subs. Did Professor Renwick do an analysis by breaking down the direct payment and subs between those that are output related, as suckler cow payment is, and non-output related such as the single farm payment and the DAS? Under DAS a farmer only has to meet the minimum stocking level of a ewe to a hectare which, except on a bad mountain, is no challenge at all. If the direct subsidies were taken out and divided between those that are fixed - in other words not related to what the production is - and those that are variable, such as suckler cow premium, grassland sheep scheme and so on where there is a production element involved, and if the grant that was production related was added to the market income, would it still be at a negative ignoring all grants? If a farmer's sales price and grant related to the number of units he or she has is in a negative, it seems that the more the farmer produces, the more he or she loses money. The other one is fixed and farmers will get it anyway so there is no incentive to produce. My argument has always been that unless the subsidy plus the price a farmer actually gets for the finished animal is greater than the production cost, there is no incentive to increase production and certainly a bank manager would give that advice.

Did Professor Renwick carry out a price-sensitivity analysis? Even the president of the IFA in his pitch admitted that subsidies now have a limit because of decoupling and the single-farm payment. Having worked out how much price on the market could affect production, that minus figure could be converted into a plus figure between a small grant of €100 a head and a decent price.

The next slide gives rise to a big question. Some 75% of all Irish beef goes on to retail; 47% of all the EU beef and they are the two biggest markets by far. We do not know how much the farmers are being robbed by the retailer - it is subject to another bit of work here. Is there space to be made up there? I hear horrendous stories at the moment about the price of cattle in a beef factory in England, but for some magical reason we cannot seem to get cattle on a boat in Dublin and send them three hours across the sea. The cattle can be transported from the far end of the west of Ireland to Dublin with no hassle, but we cannot seem to put cattle on a boat in Dublin to be sent to the nearest factory in Britain. If a few lorry loads started going, I have no doubt the factories belonging to the same people here would come up to the Irish price. How much does price sensitivity as well as subsidy sensitivity work to affect the attractiveness of this as an industry?

The message that comes across loud and clear is that this sector is an enormous economic producer spread throughout the country. It needs support because without critical mass there would be all sorts of problems. I accept what the president of the IFA said that if we cannot supply the market with sufficient cattle and sheep over the long term, we will lose market share because people want a continual supply of high-quality product.

Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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I thank Professor Renwick and Mr. Bryan for their presentations. The decline in the suckler cow as a consequence of the terrible winter, spring and early summer we had is quite alarming. There needs to be an incentive to get people back into that sector in the interests of developing the industry. If a sizeable number of people exit the suckler cow business, it will have dire consequences. A welfare scheme is of enormous importance and I encourage the Government to go down that road. Mr. Bryan mentioned €100 a head for that scheme, which would be welcome. What will be the consequences for meeting the 2020 target if such a scheme is not introduced?

I am very concerned about the effect on the industry of the beef barons and cartels that exist. I have been advised that there is almost €300 of a difference between an animal being killed in the UK versus here. What can be done to tackle that problem? It does not make sense that in some instances the same company is operating in both jurisdictions and effectively discriminating against the Irish producer in favour of the overseas producer.

We got clarification today on a question asked last week on Pillar 1, Pillar 2 and co-funding. We have been told today that member states may transfer up to 15% of funds from Pillar 1 to Pillar 2 and will not be subject to co-financing. The consequences of that can be quite startling. I ask for the witnesses views on that. We are also advised that any funds can also be transferred from Pillar 2 back to Pillar 1. What effect will that have?

Pat Deering (Carlow-Kilkenny, Fine Gael)
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I welcome Professor Renwick, Mr. Bryan and Mr. Kilcline. The report and submission make some interesting observations. I wish to follow on form a point Deputy Ó Cuív made. One chart showed the reduction in cattle and sheep numbers. Cattle numbers have dropped considerably since reaching a peak in 1992, some 21 years ago.

No matter what mart is taking place across the country, there appears to be many suckler cows being sold, and likewise in factories. I think Deputy Ó Cuív was trying to make the following point. Will a subsidy, whether it is €30, €100 or whatever, actually halt the decline in numbers in the country? It is well known that a suckler cow makes no money. At the end of the day, a farmer is in business to make money. If he does not make money, he will not be able to keep going. Will a subsidy halt the decline in the number of suckler cows at the moment? Even if it was €200 per head, would it encourage more farmers to get into suckler cows? In the mid-1990s, sheep numbers went through the roof. Everybody got into sheep overnight. People who knew very little about sheep became sheep farmers and became experts on sheep. When they realised it was not all honey and roses, they had to go the other way, hence the big reduction in sheep very quickly, which has continued. They are obviously very labour intensive enterprises as well, and there is probably an issue in getting more manpower.

Are there any figures available on the age profile and type of farmer who farms suckler cows and sheep, compared with dairying? Perhaps I am wrong in suggesting that these tend to be older and when they get that bit older and less able to handle the manual work, they try to opt out. The cost of production is a big issue. Perhaps it should be examined in some way as well. I am sure there are figures on sucklers cows in particular. It is known that suckler cows generally do not make money, as the cow is being carried for much of the year and the cost of doing that is a big issue.

Mr. John Bryan:

I will let Professor Renwick answer some of the technical questions and I will answer the general questions. We are definitely going to have a rise in the world population. I was at a conference in Brussels yesterday where representatives from DG Agriculture and Rural Development and the Food and Veterinary Office were presenting. They spoke about 2 billion extra people to be fed, with 400 million more people in China, 100 million in India and 140 million in Nigeria. The UN has concerns about the capacity of these countries to feed these people. They do not have the water or the agricultural land for it, so there is a huge concern about that. There is a medium and long-term opportunity for Ireland to grow an industry that can feed these people.

The UN reports made the point, which goes back to Deputy Deering's point, that the people of India would starve if food was sold at world prices. Farmers get a substantially higher price for food than the world price in India because they cannot produce it if the input costs are higher and if they were to sell at the same price as a factory farm in the US or South America. There is an acceptance that the price of food in India has to be higher, unless they want widespread poverty. In Ireland, we have a small economy and are under huge economic pressure, but we have a massive asset with our agricultural land and our small population density, compared to much of western Europe, and we have the capacity to create jobs here. However, as Deputy Deering pointed out, there is an innate problem with sucklers and that is why there was a suckler premium and a beef premium in the old CAP system.

I want to go back to Deputy Ó Cuív's point about decoupling. Farmers never mentally decoupled. A man from Monaghan explained this to me at the ploughing championships. He joined BTAP and learned to do his arithmetic, and he figured out that those sucklers are eating more than they generate. He is also taking a 35% cut in his single farm payment over the next number of years. He said that without that 35%, he was not going to keep the suckler cow. He was on €500 per hectare, and he is losing €165. That is the difference and he decided that the cow had to go. Of course it will take more, but we must be realistic and in answer to Deputy Deering's question, €30 would not go far. Sometimes it has given people an element of confidence, and something just short of €100 is essential. If the Minister and the Cabinet do not provide, we will reach a tipping point. I have been travelling to meetings for the last 20 years, and I know they are at the tipping point now. People predicted in 2005 that with decoupling, we would lose 300,000 suckler cows, but I knew we would not lose any because every night I was out, everyone was pulling heifers. Nobody is pulling heifers now. They are all bringing the cow and the calf into the mart and they are worth more without the calf. That is a frightening figure.

Deputy Ó Cuív asked a few very good questions. If the market income plus some level of linkage plus the single farm payment leaves a lad with a family income, he will keep the cow. If the three supports do not leave him with an income, the cow is gone. Farmers have a different way of looking at things. During the building boom, every genius told us to sweat our assets and sell, but most of us did not do that. We could have got €30,000 or €40,000 per acre, but we still have the land because we are a little more pragmatic and we take a long-term view. A farmer does not invest for tomorrow. He invests for three years' time or ten years' time. A man in Virginia explained to me the difference between a Cavan man and a Leitrim man. A Leitrim man likes the cow and says "She's a lovely cow". The Cavan man adds up one plus one, so he will hang her twice as quick. The reality is that most farmers invest long term. I do not build a shed and expect to get paid back next year, but that is what we do. That is why we still own most of the land. If we were like the builders and the developers, we would have sold all our land would probably have lost all our money on bank shares. Instead, we own our land and are long-term investors. We are careful. We are prudent.

Éamon Ó Cuív (Galway West, Fianna Fail)
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With no disrespect to the president of the IFA, the comparison between selling land and increasing or decreasing numbers does not hold.

Mr. John Bryan:

It does.

Éamon Ó Cuív (Galway West, Fianna Fail)
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It does not hold because Professor Renwick's own figures show him the volatility in how the numbers go up and come down. Therefore, people do not take the same view. The argument was put to me about the farmer being happy every year to lose money in the long term, and I said that if the farmer is that foolish, it is unlikely the farmer's spouse is going to be that foolish. If the two of them are that foolish, when they go down to the bank manager, they will------

Andrew Doyle (Wicklow, Fine Gael)
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We are on a bit of tangent here.

Mr. John Bryan:

The basic economics are that European taxpayers pay the single farm payment. They are not the fairy godmother and they want value for money. They want jobs, food security and public goods. I have heard Angela Merkel say on a dozen occasions that she wants value for money. She is not going to pay us to look at the scenery.

There are two groups culpable for the market price between the UK and Ireland, namely, retailers and the processors. We can send cattle to England but we cannot get the same price for them. An Irish animal sent to England and slaughtered there makes about €250 less than one that was born and reared here. However, the same rule applies in Ireland. We have a substantial amount of UK-born animals being slaughtered here that make substantially less. People got carried away and paid too much for calves two years ago, and they imported a lot of UK calves. Those animals now make €150 to €200 less per animal here. The foreign animals in any market always kill at a discount. UK retailers today are running what I do not like to call a scam, so I will call one of the greatest things in the world. They will buy English beef first, any day of the week. I met representatives from Tesco lately and I was told that company policy was to get rid of all the Irish suppliers over a period of a few years and replace it all with British. Anything that comes from us as a secondary product comes in at a discount.

However, it is their stated policy to get our products off the shelves. We could ship the beef tomorrow but it would not be easy to get it onto the shelves. The product must either be Irish quality assured and this means that the animals must be born, reared and slaughtered here or UK quality assured. To get on the shelves in Tesco, Asda, the Co-op and Morrisons, beef must be 100% British and not an ounce of Irish product is being accepted.

I met representatives from Tesco to discuss this matter and I intend to meet their counterparts from Sainsbury's in the coming weeks. I have already discussed the matter to some degree with the representatives from Sainsbury's and asked them to identify the difference. Sainsbury's is quite prepared to take Irish product, particularly at a lower price. It puts premium British beef on its top shelf and other beef below that. There are two hurdles to be jumped. The first is to get UK retailers to pay the same price for Irish beef as they do for UK beef and the second is to obtain greater access. We have access through Larne but, unfortunately, P&O Ferries has informed us that it is bored with facilitating us and that its customers do not like travelling with live exports. We can get cattle to England but we just cannot obtain the same price for the animals as that obtained by our UK counterparts. That is the major difficulty.

I completely accept the point regarding the importance of the sector to the economy. That is the aspect which must be borne in mind. Deputy Deering and others referred to the fact that it is not as simple as people transferring into and out of dairying. Consider, for example, the position of the small, fragmented farms in Senator Comiskey's county of Leitrim. No bank in the world will loan someone there the money to convert their operation to dairying. They have sucklers and sheep. My farm is divided into 15 separate parcels of land, most of which are a couple of miles apart. This means that it is not exactly suitable for dairying. There will be a level of conversion but it is not just as simple as everyone transferring to dairying tomorrow. We should always study the example of New Zealand. This is the best example of the lot. New Zealand increased its dairy quota 400% and reduced its jobs to approximately 20%. The jobs that had previously been on beef and sheep farms were lost and it now takes 550 cows for a farmer in New Zealand to earn what one of his counterparts here would earn by milking 70 cows. I am not sure that the New Zealand model offers a solution. I am of the view that we should try to protect the jobs that already exist here.

In the context of Deputy Martin Ferris's point on animal weights, we had a meeting with the Minister of State, Deputy Tom Hayes, this morning and informed him about the need to send a signal. I would say the same to Deputy Martin Ferris as I said in reply to Deputy Ó Cuív, namely, that the beef barons rip the system off whenever they get the opportunity. When the weather changes or whatever, they manipulate the price on a collective basis. The more live exports there are - whether calves, weanlings or whatever - the greater the competition. That is why we have put a great deal of effort into opening up north Africa. However, it takes some time to fill a ship destined for north Africa. However, there is still good competition.

Pat Deering (Carlow-Kilkenny, Fine Gael)
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In view of what Mr. Bryan stated, will he indicate whether any potential new suckler scheme should be more focused as opposed to being across the board in nature?

Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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Mr. Bryan referred to New Zealand and the milk quota. Is it his opinion that abolition of the milk quota would not bring about any great benefits?

Mr. John Bryan:

Deputy Martin Ferris asked very pertinent questions in respect of Pillar 1 and Pillar 2. We are stating that the single farm payment underpins production and that taking 15% from it would be a bad move. As he stated, it can be done. The UK Government is going to take 15% from Pillar 1 and transfer it to its own coffers. The money involved will actually be used to pay a subsidy on state forestry. The French Government is in the process of carrying out a large transfer from Pillar 2 to Pillar 1. We have informed the Government that we would not be in a favour of any major transfer. We might agree to a small amount being transferred to underpin a suckler welfare scheme but it should not be more than 3%.

In the context of Deputy Deering's question, we want a focused scheme. We do not believe people should be given money for doing nothing. We believe in higher animal welfare - such as that provided under the suckler welfare scheme - data collection and breed improvement.

The abolition of the milk quota will be of major benefit to the Irish economy. The Food Harvest 2020 targets in respect of milk are modest and I am of the view that we will achieve more than 50% and that we could hit 70%. If we consider the south Leinster and Munster regions, that is, north and south Tipperary, Cork and Waterford, a massive number of heifers are to be found on the farms there. This can assist yield improvement. As a result of the fact that we were constrained by the quota for 30 years, people did not push in this regard and we now have the lowest yields in Europe. The average yield across European countries is more than 150% of ours. Cows in this country will produce more than 5,000 kg. They will produce 6,000 kg or 7,000 kg. In my opinion we will substantially increase milk production and go well beyond the 50% projected. However, I remain of the view that there will be no more than 2,000 entrants. Banks will not loan money to farmers with 60 or 70 acres of land but they will loan it to those who have 250 or 300 acres and a large number of stock. Conversion is not available to small or medium-sized farms as a result of a lack of availability of cash. What will be the result of this? Production will increase in north Kerry but I doubt if it will happen in south Kerry. One cannot generalise but farmers in north and mid-Kilkenny will expand their operations but I do not believe those in the area in which I live will do so. It will happen more on a regional basis.

Andrew Doyle (Wicklow, Fine Gael)
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There is a vote in the Seanad so three of the members will be obliged to leave. I will call on them to contribute when they return.

Mr. John Bryan:

On the other question Deputy Deering asked, I do not believe there was a link to the sheep and the sucklers. As the Deputy stated, Teagasc made a mistake in the 1990s and indicated that 2 million sheep could be grazed almost for free. The Chairman is aware that would never have been possible because there is no such thing as a free lunch. Teagasc also stated that every dairy farmer should have two cows in tow at all times. When there was no grass in the spring, however, they suddenly discovered that this did not work. It might have worked on paper but it was not brilliant advice. They got in fast and they got out fast. We can comfortably sustain an additional 1 million sheep and 1 million suckler cows. That would be good for the economy. Does the Chairman wish to call a halt?

Andrew Doyle (Wicklow, Fine Gael)
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No. The Senators who were obliged to leave will be returning and they have not yet asked questions. I wish to call Professor Renwick to respond on the technical points raised.

Professor Alan Renwick:

The first point related to the growth in numbers and the relationship between suckler and ewe growth. I have to admit that this was before I arrived in Ireland so I can only outline my experience of what happened in the UK with these changes. It was a combination of people moving out of the dairy industry and into suckler cow production. There would have been an increase in numbers but there was also a marked increase in stocking density in both ewe and suckler cows during the period in question. What we found in the UK was that when the relative profitability between sheep and cattle changes, farmers begin to switch between them. This was noticeable after the MacSharry intervention whereby suckler cows seemed to be more profitable. In Scotland, sheep numbers declined while those relating to suckler cows were maintained over the period. There is interchangeability between the systems. Clearly, that interchangeability came about in the context of milk quotas. The abolition of those quotas may well increase the level of interchangeability between suckler cows and dairy.

We did not come up with exact figures or a breakdown in respect of the proportion of the direct payments that emanated from the different potential payments to farms, that is, those which relate to production and those which do not. A question arises as to the price at which this all becomes profitable in its own right. The issue is that we must take into account the fact there is a huge variation in costs of production across the sector. We have been talking about them so far as if they constitute a homogenous group. Clearly, that is not the case, and for some it might well be enough but for others it might not. There is a difference in production costs and systems.

On Pillar 1 and Pillar 2, I am an economist. Economists tend to evaluate things based on the question: "What is the objective?" The real difficulty for us in analysing this is to establish the real objective in the context of direct payments. Some people argue that they are an income support, while others argue they relate to production. Then there is the greening element and whether it constitutes an environmental support or a payment to offset higher welfare sector standards in Europe compared with elsewhere.

We have to be clear about what we want from these payments and then we can begin to evaluate whether we should move one from Pillar 1 to Pillar 2 or vice versa. That is a key issue. When we know that we can say these are our objectives and we can then evaluate the approach adopted as to whether they it will achieve those objectives. That is a key difficulty for us. As economists it is not for us to set the political objectives but it is for us to comment on whether the approaches adopted are the most efficient, effective and equitable way to achieve those. That is a key point. I was pleased to hear John Bryan speak of the association's support for a targeted payment on the suckler side. In Scotland we talked about a contract between the state and farmers. On the one hand, the State will provide support but, on the other hand, farmers have roles and responsibilities. The issue of improving genetics, high welfare and so on are all part of that contract. To tie support to these types of objectives, which I believe society would support, would seem sensible rather than adopting a blanket approach whereby a farmer has cattle and it does not matter what he does he will be given the money in any event. I would support the sensible approach. Those were the main technical questions.

Martin Heydon (Kildare South, Fine Gael)
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Many of the points I intended to raise were made earlier and therefore I will not repeat them. I thank the President of the IFA, Professor Renwick and Mr. Kevin Kilcline for coming before us today. Professor Renwick's point was interesting in that the level of intensity of the farming practice also impacts on production costs. In terms of suckler cows and sheep, cattle and sheep farmers may be engaged in intensive farming or they may have fragmented, poor holdings with low stocking densities and their production costs will be lower. Professor Renwick is right in saying that our goal must be to try to maintain our cattle population. We have to get the balance right. Food Harvest 2020 has the ambitious target of increasing the dairy sector by 50%. If that involves robbing Peter to pay Paul, whereby farmers will leave the beef industry and enter the dairy industry, there will be increases in the latter but we will lose out on the former. It brings to mind the capacity in the country and the point to which we can increase overall production in all the sectors. If we agreed that our goal is to maintain our cattle numbers in particular and improve our sheep numbers, the discussion moves on to the role that the direct payment schemes play. Professor Renwick is right in saying that it would be good for this committee not to take for granted that a suckler cow payment will maintain or increase cattle numbers and that we need to focus on a wider view.

I noted from a slide in Professor Renwick's presentation that from 1994 to 1995, when ewe numbers started to fall - there was a change in the ewe premium - the rural environment protection scheme was in place and I would have thought that sheep and cattle farmers were probably the largest recipients of REPS payments as against farmers engaged in tillage or the dairy sector. Even though REPS payments were introduced for environmental purposes, the income derived from them was in the general wash of farm income, but it did not help farmers to maintain hill sheep numbers. The report is useful for us in focusing on this area. I would support it. It is vital that we have a good suckler cow scheme into the future. I hope that there will be provision for something like that in the budget.

Éamon Ó Cuív (Galway West, Fianna Fail)
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From my practical experience of dealing with farmers for a long time, it defies logic to say that a fixed payment that a farmer receives in any event has the same effect on what a farmer does as a payment directly coupled to production. I would give the example of sheepfarmers who live in hill areas where they have no choice but to engage in sheepfarming. When I moved to the west, initially a grant was given for a lamb and a further grant was given when the lamb went to the factory. The focus of farmers was to produce as many lambs as possible and they were focused on lambing rates. They also wanted to get lambs to the factory because they got a further grant, an extensification grant as it was called at the time. When that was replaced with a ewe premium, farmers adapted fairly fast and decided that the lamb was not important, that it was only by-product and that the main money was is in ewes. Even if a ewe lost a lamb, the big idea was to have as many ewes as possible on the hill and we know how spectacularly successful they were because they managed to over-graze every hill in the west. With or without destocking, now that farmers realise that if they have a ewe to the hectare they will get their payment and unfortunately, given that the price of the final product is a abysmal there is not the drive to have high numbers of ewes because it does not pay farmers.

If we consider the sucker cow or beef premium, it seems there is a huge difference in the way farmers do their calculations. I do not agree with the president of the IFA that farmers are stupid in that they are happy to go along with losing money year after year and that the more cows they keep the more money they will lose. The farmers with whom I deal are much more canny than that. Is there any scientific evidence on this area or have any studies been done? When the beef premium or suckler cow premium is paid on the basis of the number of stock, there is a great incentive to increase one's stock as long as the farm can carry them and that would involve an extra bag of feed in the winter to keep the extra stock. If supplementary feed was less than the premium plus one's sales price, it made sense to keep up one's stock. If a farmer is going to get a grant or nearly 100% of it in any event, although there is not any significant suckler cow scheme in place at the moment, it seems he would lose money on every extra cow he would keep. There are not too many farmers who will swing at that game over the long term. The question is how much of a directly linked subsidy there should be. To ensure the system is profitable, one has to figure out, on average, how much of a subsidy should be linked directly to production to tip the balance in favour of production being profitable - an extra cow giving a farmer an extra bob whereby it would once again be profitable to farm more intensively.

Having been involved in the industry and having ran a business at one stage, I know there a point is reached at which if one produces more one would make less money because overtime rates and so on would tip in. In the case of farming if one loses on the basic stock and if farmers produce more, the stock will become much dearer because there will be less grass and they will have to be fed more meal. It does not seem that anybody in their senses would go that route. Farmers who engage in intensive farming are those who calculate, and develop their farms and keep the accounts. It seems counterintuititive that they would purposely intensify their farms to lose more money. Therefore, it is crucial that suckler cow farming - leaving the fixed income and the fixed costs aside - taking account of variable income versus variable costs, is profitable, otherwise there is no incentive for anybody with any wit or intelligence to increase their production. That is reason I asked if sensitivity studies have been done. I have asked Professor Renwick a question and I believe I should get an answer to it.

Andrew Doyle (Wicklow, Fine Gael)
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I wish to make an observation. This study highlights the value of the drystock sector to the Irish economy, particularly because of the nature of the sector where it is spread all over the country. We rightly claim to have some of the best grazing land in the world and the ability to produce grass. Between two thirds and three quarters of the land is involved in drystock production and between a quarter and a third of it is involved in dairy production. Approximately 15,000 dairy farmers are in the main profitable while between 32,000 and 110,000, not including the 15,000 who in 1995 become involved in drystock farming, are in the main not profitable. If there is to be a shift to dairy farming, the chances are it will be the most profitable of that cohort who will make the move.

We are left with a sector that is very important to the economy but cannot make a profit.

This is all about being self-sustaining. Regardless of the argument about whether farmers are happy not to be making money - I do not think they are - the next generation will certainly not be happy if they are not making money. This industry needs to be profitable in its own right. If it needs support, it needs support. A focused scheme may well help it. Such a scheme will not be of assistance if it does not contribute to increasing production inside the farm gate. That must be the target and the objective in anything we do. The study highlights the importance of the sector to the Irish economy. We need to focus on how to make that sector profitable in its own right. This is where we need to be careful. If all subsidies end up allowing someone else in the food chain to take another swipe at the margin, it is self-defeating. If we do not enable the farmer to increase his production and his efficiencies, while at the same time protecting or improving the margin he gets, we are destined to fail. The committee and other groups along the food chain are doing some other work in that regard. I do not mean any disrespect to Mr. Bryan when I say I would be interested in hearing the opinion of the economists on this aspect of the matter. Those are my observations.

Mr. John Bryan:

I want to clarify a point for Deputy Ó Cuív. Farmers do not think they get the single farm payment for doing nothing. They know that the European taxpayer expects production. Perhaps the people in the Deputy's area do not know that. He should check the Teagasc profit monitors. As I said earlier, subsidies account for more than 50% of gross output, on average, and between 141% and 177% of income on dry stock and sheep farms. It is clear that 90% of people who feed cattle lose some money on it every year. They accept that it is part of the contract. Deputy Ó Cuív should try to read what the Common Agricultural Policy says about production.

Éamon Ó Cuív (Galway West, Fianna Fail)
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Come on. I asked Professor-----

Andrew Doyle (Wicklow, Fine Gael)
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Sorry, I want to get answers from Professor Renwick.

Mr. John Bryan:

There is a clear link between the subsidy-----

Éamon Ó Cuív (Galway West, Fianna Fail)
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The idea that farmers are paying money to increase stock because of some loyalty to the EU defies my understanding of any farmer I have ever met in Ireland. It is outrageous propaganda from the president of the IFA.

Mr. John Bryan:

If the Deputy reads the Teagasc profit monitors, he will find out.

Andrew Doyle (Wicklow, Fine Gael)
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I would like Professor Renwick to respond to the simple point I made, which is that anything we do will be self-defeating unless the sector can stand on its own two feet with the help of the additional support measures it implements to prime the industry, and the points made by Deputy Ó Cuív and others.

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.

Mr. Kevin Kilcline:

I would like to make a general comment on the reference in Professor Renwick's report to sheep production numbers since the MacSharry reforms of 1992. The June and December livestock surveys for the first years of the grassland sheep scheme, which involves a premium payment for the ewe, have shown that there has been a year-on-year increase in sheep numbers since the introduction of the scheme. This shows that offering an incentive gets a reaction in terms of production.

Professor Alan Renwick:

We were also asked why numbers went down after the MacSharry reforms. I do not think the effect of the extensification payments to farmers, in effect encouraging them to destock, should be discounted. Those payments probably outweighed some of the others. I included these figures in my original graph, but they must have got lost somewhere. Extensification payments had a big impact after that period.

Andrew Doyle (Wicklow, Fine Gael)
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There were some destocking measures as well.

Professor Alan Renwick:

Yes.

Pat O'Neill (Fine Gael)
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I apologise to our guests for having to leave to vote in the Seanad Chamber. I thank Professor Renwick, Mr. Bryan and Mr. Kilcline for attending today's meeting. I would like to ask about a matter that may have been dealt with while I was absent. The graph relating to sheep numbers and the MacSharry reforms makes interesting reading. Mr. Bryan will recall that when the sheep sector was going well, all the dairy men suddenly got into sheep. There was a photograph in the local newspapers of one of the biggest dairy men in County Kilkenny buying the four champion rams at a sale in Kilkenny. He is not involved in sheep production anymore. I do not know whether anybody has asked about the graph which suggests that every €1 of support underpins approximately €4 of output in the Irish economy. I presume that is an average figure. Has a survey of the micro aspects of this matter been done? Has that statistic been broken down to indicate whether somebody who receives support of €100, €200, €300 or €400 per hectare is putting more into the economy than someone who receives support of €50 per hectare?

Michael Comiskey (Fine Gael)
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I thank both delegations for their presentations. I apologise for having to leave while the debate was ongoing.

I am sure we missed a good bit when we were out. It is crucial that we have something to support the suckler cow. I would support it all the way. It is very important that we keep the numbers there. After the very difficult winter and spring we had, we see the numbers dropping throughout the country. If they are not supported, it could go the same way as sheep have gone and numbers could fall to a level from which it may not be possible to recover. Farmers are not really looking that much at the economics of it. Mr. Bryan spoke earlier about the Cavan man and the Leitrim man and how the Leitrim man liked livestock farming. That is probably part of the problem. I have seen Leitrim farmers in difficult winters outside the marts buying bales of hay. Older farmers should be looking after themselves but they were still there buying bales of hay because they wanted to feed and look after the animals. It is built into them and unless things get very bad, they will not just walk away on economic grounds. If there is anything reasonable and any incentive there, they will stay with it.

There are two schemes that underpin them. The beef technology adoption programme, BTAP, helps younger farmers in particular - certainly farmers under 40. They are attending talks and classes, picking up a bit of information and using and breeding better quality bulls. If there was a suckler scheme there like the one we had before, it would be very positive for the entire industry because the quality would continue to be good. Likewise, many younger farmers have an interest in the sheep scheme. That is the way to go because we must incentivise them and keep them at it.

Andrew Doyle (Wicklow, Fine Gael)
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I think Senator O'Neill had a direct question about the figures.

Professor Alan Renwick:

If I understand it properly, it is a very interesting question. We did not break it down to look at the relative contribution. It is a question of proportionality. Assuming production levels have remained roughly similar since the historic payments were put in place, that is, the most productive ones who got the highest payments are still the most productive farms, those in the higher level are probably adding greater amounts to output and the economy than those at lesser levels. However, it does not allow for changes that could have occurred in the ten years since the payments were based. Proportionately, it is an interesting question, particular with redistribution a likely outcome. Are those with €100 suddenly going to act like those who have €200 if they get an extra €100? That is a difficult question to answer. Intuitively, they know they are not going to expand production to the same extent that was there before but sometimes we must say that we do not have the evidence. We do not have the evidence regarding the direct relationship between payment and production. It is likely that those with higher payments are producing more output and, therefore, contributing more to that overall output than those on the lower payments, notwithstanding changes that have occurred.

Pat O'Neill (Fine Gael)
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In respect of its value to the economy, does this mean that if one gives €1 to somebody with a per-hectare payment of €100, one will get the same value one would get if one gave €1 to someone with a €500 per-hectare payment?

Professor Alan Renwick:

That depends on the relationship between their support and production. If we are saying it is a one-for-one relationship, one is probably getting more value from the higher payments at the moment. I might have misunderstood this.

Pat O'Neill (Fine Gael)
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Can we quote Professor Renwick?

Professor Alan Renwick:

I am not sure. It depends on whether their production changes from it. If one simply moves some money from those receiving €400 to those receiving €100 and the production of those with €100 does not change, one is clearly not getting value in terms of that output. One might be helping their income and their income will also lead to a multiplier effect in the economy but one will not be having these impacts on output. What we need to know is whether the person getting €100 is thinking if he has €200 now and changes the system will he get more. One would then have more understanding of the overall impact on output. If it is simply an income shift with no consummate change in output, one is unlikely to have that gain.

Andrew Doyle (Wicklow, Fine Gael)
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Deputy Ferris had a question.

Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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To return to a reply I received from Mr. Bryan about the milk quota. He referred to the fact that the quota system will be very beneficial but also that for people looking for finance to develop their sector, the smaller farmer will not be on a level playing field. I think he said that a person with about 250 acres will have no problems going to the bank and getting loans but that somebody with 75 acres will basically be wasting their time. I have serious concerns about that. In many parts of the country, the size of dairy farms would be between 75 and 90 acres. If they cannot compete, the future looks very bleak for those farmers if they cannot get the finance to enable them to develop their sector. The one thing about a quota system is that farmers have a certain assurance regarding what they are going to get. When that is gone, it may make it very difficult for them to survive and I would be concerned about it.

Mr. John Bryan:

Senator O'Neill asked a pertinent question. The Department carried out an analysis that has shown that the people with a single farm payment greater than the average, which is above €250, have double the stocking rate of the people today. We have the reference figure from 2000 to 2002 but if one superimposes the map on today, the people who have the higher payments still have double the average stocking rate. In respect of the people who tended to have the stock - and it pertains to most people's parishes - very little changes and people tend to have the same sheep, get rid of a few sheep and get a few sucklers. We made the point that Teagasc did not give great advice when it told all those men to get into sheep a few years' ago. It was not good because they busted their way in and busted their way out again. As Professor Renwick says, there is a link to the economy in respect of output. If they have double the output, they are making a greater contribution to the economy.

This is where I totally disagree with Deputy Ó Cuív. REPS, the disadvantaged areas scheme, the suckler cow scheme and the single farm payment are all income. It is the gross income - output of one's stock whether it is sheep, sucklers or dairy - that is the issue. The farmer adds it all together. He does not divide it up and put it into different pockets. When REPS was closed own, it put huge pressure on people. There have been cuts to the disadvantaged areas scheme and the suckler welfare scheme. There are men killing cows. Our Kerry chairman said at the last council that he knows of lads loading two cows into a box to bring them to the market not because they have decided they are not profitable but because they cannot pay their debts. It is a simple matter of paying their debts which is why the combination of REPS, AOS or disadvantaged areas all add to farm income. That must be borne in mind, which is why we are so strongly supportive of the need for 50-50 co-finance. If the farmer can afford to feed his family, he will still keep the cows. It might be a joke but it is the reality. Half of the people I am looking at here have stock at home, including the Chairman. They will not get rid of that stock unless they have to so from that perspective, it is a combination of income. If a lad is already milking 60 or 70 cows, he has invested in the milking parlour over a period of years. If he is milking 60 or 70 and wants to go to 100, he will have no bother getting the finance but to move from a green field with 30 or 40 sucklers, one is probably talking about €100,000 for a milking parlour, so that it is a lot of money in any man's figures.

There will be conversions but not every farmer will convert, be they in Kilkenny, Carlow or Leitrim. Some people will not be able to get the money while age will be a factor with others. For others, it is a matter of lifestyle. Certainly, there will be an increase in production which is why we are saying it is so important to do everything we can to make the suckler herd and sheep flock more profitable because many farmers will continue and it is good for the economy. We can carry out breed improvement and improve animal welfare where there can be an effect greater than what is put in. The reality is that if 9 billion people on the planet have to be fed, food prices must rise.

As Senator O'Neill probably knows, extensification of farming was one of the reasons I got out of sheep. I was losing more than I was getting in premium payments. I had forgotten that.

Pat O'Neill (Fine Gael)
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Mr. Bryan got into politics.

Mr. John Bryan:

What we must remember is that in the 1980s, the relativity between dairy and beef farming was about 1: 1.25, today it is 4:1. There is no reason to believe that in ten years time the relativity of dairy to beef farming will be 4:1. More than likely, the return on beef will come up substantially. It must if beef production is to continued. When I started farming in the 1980s, and the Chairman will remember this, a dairy cow was worth about 1.25 suckler cows or about one acre of beet. The relativities have changed. In all probability that will change again. One should never plan everything on the current trends. We may get a few bob from the suckler cows yet, Senator O'Neill.

Pat Deering (Carlow-Kilkenny, Fine Gael)
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Does Professor Renwick have figures on the age profile of farmers in the sheep, beef, dairy and other farm sectors?

Professor Alan Renwick:

I do not have them to hand, but I suspect that the Deputy's intuition is correct, that the age profile of those involved in sheep and beef farms would be higher than those in dairying. Given the requirements of dairy farming, the fit is better with a younger person.

The Chairman raised the issue of markets, to which I did not respond. We have tended to focus on policy, but a key issue is what the market can sustain in making beef production profitable. There are key challenges, relating to market structure, a fair distribution of value through the chain and ensuring there is sufficient competition, something which Mr. Bryan has touched on. In my first presentation in Ireland, when I said farmers should be looking to the market more, I was then set a series of homework by Justin McCarthy, the editor of the Irish Farmers' Journal on what consumers would have to pay for beef to justify a return if support payments were to be ignored. I understand his inference. We are talking about considerable price rises for consumers of beef. There is a danger that one may price beef out of the market. One is in a difficult situation. One may get a higher price for the product but people may eat less of it. If one is exporting the product to a wider range of people, however, more people will eat it.

Andrew Doyle (Wicklow, Fine Gael)
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I see the point, but the margin along the food chain is the key. If one looks at the output figures nationally, the output of beef is a little higher than dairy output and yet the primary producer is not garnering an income from the sale of the product in the marketplace. The figures are available which support this. That is not sustainable in the long-term. This study is very important in terms of feeding information into the implementation group that will oversee the targets in Food Harvest 2020. The report identifies and highlights the threat to the sector. That is very important. If I were to make a suggestion, it would be that this report needs to feed into the implementation bodies' strategy for the dry stock sector. We will publish a report on the margins in the grocery sector. We are limited in what we can do, but it is all part of the policy. The support measures which are in the form of direct payments are aimed at improving efficiencies and productivity inside the farm gate and the ability to make a profit from the market That is what must happen in the long-term. In all likelihood the next Common Agricultural Policy will focus on the market more than on income support.

Pat O'Neill (Fine Gael)
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We know that not every acre of land in the country is suitable for producing milk. Should the suckler herd fall below a certain level, it will impact on the throughput of factories. The relationship of suckler cows versus dairying is probably 50:50, but if there is a drive towards dairy farming, when does it become uneconomic for us to maintain a suckler herd in the country?

Professor Alan Renwick:

That is the €20,000 question. Clearly there is the possibility of tipping points. There are high fixed costs associated with processing and all the way through the chain. Factories must maintain a throughput. Over-capacity is problematic. As I said, one cannot have a situation in which the veterinary surgeons and the hauliers cannot make money. I do not know the answer. We have not looked at a figure at which the cost of production per unit becomes so high it becomes invalid.

There was some concern that we were reaching that point in the sheep sector. There were prior discussions on the situation, in which they were not able to get the throughput to meet the markets. One could suggest that one was getting near the tipping point. I regret that I do not have a figure.

Andrew Doyle (Wicklow, Fine Gael)
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I will allow Mr. Bryan a brief comment.

Mr. John Bryan:

There are a few excellent examples, not of the tipping point but of how changes in the single farm payment have affected production. Of the old 15 member states, 11 stayed historical and four went to a flat rate. England, not the rest of the United Kingdom, and Germany were two of the countries that went for a flat rate, and the suckler herd halved. Ireland, which stayed historical, has held its suckler herd, as has Scotland. France, Belgium and Austria all coupled their suckler herd but held their numbers. That is a clear message for Ireland. If one has a €500 per hectare single farm payment and it halves, the cows must go. In the countries that stayed historical, the cows survived. The cow numbers also survived in the countries which coupled. In the countries that went for the flat rate, however, the cows went. There is a very clear lesson for Ireland. If we want to retain the jobs and exports, we must target the payment as best as we possibly can.

Andrew Doyle (Wicklow, Fine Gael)
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There are a number of dry stock and sheep farmers in the room. We have a vested interest in these sectors. I thank Mr. Bryan, Professor Renwick and Mr. Kilcline for attending today's meeting and contributing to it. We will consider the report on the importance of the cattle and sheep sector to the economy. I am not trying to prejudge the decision of the joint committee but it should feed into the work of the implementation body and the targets in Food Harvest 2020 for the beef and sheep sectors.