Dr. Muiris Ó Céidigh:

I will take the committee through the highlights of the annual report, with a particular focus on the level of contracts we have - that is, who is staying in the business to date, what the reduction has been, what prices have been like and a general overview of the activities of the agency over the past year. Copies of the presentation have been circulated to the committee.

The first graph refers to the classification of registered contracts by type. The committee might wonder what that is all about. There are two basic types of contract registered by the agency. One is year-round, which means that producers will supply liquid milk on a year-round basis for 12 months of the year, which is different from those supplying manufacturers, who only supply it on a spring calving basis. There are also contracts which last for some or all of the winter months - that is, October to February.

In the milk year 2012-13, to which the report relates, we had 1,769 year-round contracts registered. In addition, there were 114 winter-months-only contracts. As of the time of the last annual report, the number of people in the country engaged in liquid milk production stood at 1,883. The issue in regard to that in the run-up to 2015 and the abolition of quotas is whether people will stay in the business. They have the opportunity of choosing whether to go into total spring production, not bothering with liquid milk and moving into manufacturing milk, given that there will no longer be quotas.

The next graph shows that when the agency was established approximately 3,000 contracts were registered. When I first arrived I investigated how many contracts there were and whether the number stated was legitimate. Upon examination, I found there was duplication of contracts, and some people had two or more. We rationalised that in the first two years and the figure decreased to about 2,700 by 1998. There has been a decline, but it has been in terms of numbers rather than volume of milk. There are fewer people engaged in milk production, but the overall supply has remained pretty constant, which was shown in a graph in Mr. Murphy's presentation.

One of the things the Oireachtas empowered the agency to do was to decide whether to register contracts, and one of the requirements was that they provided sufficient compensation to people who were committed to the idea that they would calve not only in the spring but also in the autumn, working throughout the year in order that there would be milk available all year round.

In order to cover that cost and to recognise the extra commitment involved, including the lifestyle commitment, the Oireachtas or the members of the agency would have to be satisfied that the price on the contract represented adequate compensation for the economic cost of winter milk production. We are fulfilling that role. The first column in the graph shows the liquid price since 1995, and the second column shows the manufacturing price, while the third column shows the difference in price. The average differential over 19 years was 4.21 cent per litre. There is quite a range within the figures. The differential figure of 6 cent per litre for 1998 jumps out, as does the 0.8 cent per litre price differential for 2013. The price differential has varied, but the average figure is 4.21 cent per litre. The lowest differential was seen in last year's prices, but that is counterbalanced by its being the year with the highest price for milk generally, at 38.87 cent per litre for liquid milk. Those figures will have changed for the current year.

Prices vary under the contracts and different pricing systems. For the winter months, which we are particularly interested in, the price is 39 cent per litre, while in the summer months the price is 35 cent per litre, giving an average price of 37.5 cent per litre. That is roughly what happened in terms of prices for producers during the period covered by the annual report.

Mr. Murphy mentioned that there was a high degree of concentration at processor level. Ten processors had supplies in the range of under 1 million litres to 20 million litres. Three processors had supplies between 20 million and 40 million litres, while two processors had supplies of over 40 million litres. These two processors are in a pivotal position in relation to the entire industry. That is counterbalanced by the fact that the retail sector is also quite concentrated. The numbers also show that the number of producers involved in the business is beginning to concentrate to some degree.

The fact that there is milk available from Northern Ireland is another factor in the liquid milk business in Ireland. When the agency was established, only bulk milk was imported. In 1997, for example, 16 million litres of milk were imported into Ireland. No packaged milk was imported. The situation has been transformed over the last 15 years or so. In 2013, 57 million litres of milk were imported in bulk, while 89 million litres were imported packaged. This is a real change from the zero position which obtained in 1995.

The ratio of milk imports to liquid consumption may be seen. Packaged milk is depicted in red, while bulk milk is depicted in blue. The rise in the volume of packaged milk is clear. The share of the domestic market for liquid milk that was being taken up by Northern Ireland imports packaged in bulk was 26%. One in every four litres of milk consumed today in the Republic is produced outside the State. The increase in the number of imports over time is shown as a histogram. There has been a progression in the volume of imports, starting in 1995, which has reached a sizable share now. Why has that occurred? It may be because we are moving into a quota-free environment next year, but Northern Ireland has been operating in a quota-free environment since the very beginning. This is because it has the availability of quota for the UK, which allows the possibility of unlimited production. If one takes the base index level for the milk supplies available in Northern Ireland as being 100 for 1993, by 2013 it had increased to 153. That milk has to go somewhere, and we know where it has gone.

Grocery market shares are interesting, not only from the National Milk Agency's point of view but also from the point of view of what is going on generally in Ireland as regards retail matters. If one looks at the number of retailers on the market, the category of "all other" retailers, which represented 17% of the market in 2003, represented 3% of the market in 2013, and it will probably be a smaller figure for 2014. The independent corner shop has largely been wiped out over this period. In one decade, its share has gone from 17% to 3%. The top three retailers have a huge amount of control. Tesco, Dunnes and SuperValu together constitute 70% of the grocery market. This is not the liquid milk market; it is the grocery market. However, it would be pretty much the same for the liquid milk market. If a person is thinking of selling any product in Ireland in the grocery arena, there are three organisations that he or she must deal with to access 70% of the market. That is particularly poignant when it comes to a product such as liquid milk, or any fresh product that is agricultural in nature, where there is a lot of risk. The producers are very much in the hands of a very concentrated set of retail outlets. That has an effect on prices, what the value chain looks like, confidence in the sector, how the producer perceives what value is to be had for its product and whether the product is looked on as a commodity product or a value-added product. There are differing perspectives on this depending on what one is talking about and in relation to how milk is viewed in the State and in other countries around Europe.

It must be remembered, when looking at the annual report of the agency and when having a general discussion on liquid milk, that while in Ireland and the UK we drink fresh milk, on the Continent it is not generally possible to get fresh milk. It is a specialist consumer demand in that part of the world. A person will not get fresh milk readily when having a cup of tea somewhere such as Spain. This is a different product from ultra-high-temperature, UHT, processed milk, and that should be borne in mind when looking at the sector.