Oireachtas Joint and Select Committees

Tuesday, 23 June 2015

Joint Oireachtas Committee on Agriculture, Food and the Marine

Agriculture Sector: European Commissioner for Agriculture and Rural Development

5:00 pm

Mr. Phil Hogan:

I was referring to the beef genomics scheme and the fact that it was an agri-environment climate measure. That means that under the regulations farmers must undertake commitments for a period of five to seven years. Changes in terms and conditions would only apply to those farmers who joined the scheme after the programme modifications had been notified to the Commission.

Turning to the milk market, this has been an historic year for the milk sector, with the ending of milk quotas on 31 March. This followed a bumper 2014 which saw prices reach new highs. Following this period of record high prices, the milk sector is undergoing a correction as a consequence of global oversupply and weaker demand in important markets such as China and Russia. The Commission has remained attentive to these developments, especially since the introduction of the Russian import ban last summer.

The measures deployed by the Commission in recent times included opening private storage schemes for butter and skimmed milk powder in September 2014, which will remain open until September this year. We also guaranteed the uninterrupted availability of the safety net by extending the intervention period in 2014 and anticipating it in 2015. We have granted targeted support to farmers most hit by the Russian ban in the Baltics and Finland and have more than tripled the budget dedicated to promotion schemes to expand EU penetration into third country markets. We have alleviated the burden of the surplus levy in the 2014-15 quota year by allowing deferred payments over a three year period at 0% interest. We have also enhanced market monitoring in the post-quota era, with monthly meetings of the Milk Market Observatory economic board. As confirmed by the board at its last meeting, market sentiment is uncertain, with no clear signs of recovery in the short term.

There are two main market fundamentals that potentially are still of concern.

In terms of supply, worldwide milk production has not dropped substantially, with better than expected output in Oceania. In terms of demand, a lifting of the Russian import ban seems increasingly unlikely and Chinese imports are still 40% down on last year. The positive news is that the peak of milk production in the EU has passed, the euro exchange rate remains favourable, and the EU export performance in the first quarter of 2015 has been remarkable. In addition, EU stocks seem to be at an appropriate level for this time of the year. For instance, no offers to public intervention have been reported so far. Prudence is needed in these times. Operators in the milk sector have to act responsibly and react to market signals. Let us endeavour to produce what the market can absorb. As price pressure is expected to persist in the short term, the Commission forecasts a rather moderate milk supply trend with a 1% overall EU increase in 2015 which comes after having close to 5% of an increase last year. The US Department of Agriculture has also scaled down its 2015 projections to 1.3% of an increase. Sources point to increases of 0.6% in New Zealand and 2.9% in Australia. All in all, there are about 3.7 million tonnes of additional milk to be absorbed, mostly by importing countries.

In the long run, global demand for dairy products remains promising. The EU in general, and Ireland in particular, is in a good position to benefit from the new opportunities coming from world markets. In addition, on the supply side, feed prices are projected at lower levels than those observed since 2010. The sector will be unavoidably confronted with some periods of short-term volatility as we are experiencing now. Thankfully, we have a comprehensive toolkit under the CAP to support the dairy sector in this new era. In parallel, the sector itself needs to explore and develop private initiative tools for risk hedging, such as integrated supply chain contracts, forward contracts, fixed margin contracts and price differentiation according to volumes.

Another issue which is the subject of debate at EU level at present is the issue of origin labelling, which is a complex and politically sensitive matter. In the framework of the Better Regulation drive, the Commission is keen to propose new mandatory legislation only where such legislation serves a purpose. The consumer interest in origin information on milk and meat categories under the remit of this Commission report can be adequately addressed by voluntary labelling, which avoids imposing unnecessary burden and compliance costs. Mandatory origin labelling would entail a higher regulatory burden and additional operational costs that could not be justified. In the framework of the Commission's priorities and the benefit of the Single Market, voluntary labelling for dairy products appears to be the most suitable option. Currently consumers may, if they so wish, opt for milk and dairy products where origin information is voluntarily provided by food business operators. Introducing mandatory origin labelling would unevenly impact operators. The burden would be particularly heavy on those located in border regions and in areas that are not self-sufficient in milk, manufacturers of highly processed products, and processors receiving milk from different origins with multiple manufacturing stages. Mandatory origin labelling would also impose more control burden on public authorities and push food business operators to change their sourcing practices.

With regard to the beef sector, Irish reference prices are now well above EU average prices. The good performance of extra EU exports, the improvement of demand on the Continent and the tight supply in the UK are the main reasons for an improvement in Irish prices. Ireland is, for the moment, the only EU member state allowed to export beef to the United States, which is good news. Given the US internal market situation, where prices are near an historic high due to drought in the main beef producing regions, there is a good window of opportunity for Irish beef.

Opening the Chinese market for EU beef is a priority for the Commission. Efforts are being made at all levels and we are making progress. China lifted the BSE ban for Ireland last February, which is a very important step in the Chinese procedure to allow market access. We will continue with the efforts to secure this big new market opportunity for Irish and EU exports. China has just opened its market to Brazilian beef. Brazil is certainly a big competitor, but China's beef demand is enormous, so there is a place for everyone. On the other hand, the need for Brazil to access additional markets is already having an effect. EU imports from Brazil have experienced a significant reduction of eight percentage points in the first quarter of 2015. The prospects for the near future are positive. Our projections show that 2015 should see a general moderate recovery in EU prices and they should stabilise in 2016.

I know that farmers are increasingly exposed to the impact that increasing input costs such as fuel, energy and fertilisers have on income. I am aware that EU fertiliser costs have not followed the decrease in energy prices. However, the main input for the production of fertilisers in the EU is natural gas, not oil, the price of which has not decreased to the same extent as the significant reduction in the price of oil. The gas market is segmented at global level, as opposed to the oil market which follows global price trends. The differences have been exacerbated by the shale gas revolution in the United States. For instance, gas prices in the EU depend mainly on our import demand from Russia, which is on the basis of between six and nine month contracts, and from Norway which normally has on-the-spot prices. Since gas prices only started to decrease in April, in particular in Germany but not across the EU, they have not resulted in a significant decrease in fertiliser prices in the short term.

With regard to nitrogen fertilisers, the EU market is not self-sufficient and imports about 20% of its needs. Ireland buys fertilisers on the EU internal market, mostly from Belgium, the Netherlands, the UK and Germany, and, on the other hand, from Russia, Egypt, Iran and Turkey. Most of the imported nitrates fertilisers come from Russia, which accounts for 68%, and from Turkey, which accounts for 17%.

The decrease in Russian gas prices in April is not yet reflected in fertiliser prices. In the UK, where fertiliser prices follow the UK NBP gas prices, we noted a slight decrease in granular urea price, from €394 per tonne down to €388 per tonne. Since January both urea and nitrates prices have shown an increasing trend. I wrote to my colleague, the European Union Competition Commissioner, Margrethe Vestager, to look into possible anti-competitive practices in the fertiliser and energy sectors. Our two services are working together to follow up and monitor agricultural, fertiliser and energy prices to detect any possible market disruption.

Of course 2015 is a crucial year in the area of climate change with the Paris Climate Conference set to be a landmark event. The European Union has committed to reducing its overall greenhouse gas emissions by at least 40% by 2030 to avoid an increase in temperature above 2° Celsius above the pre-industrial level. This is a very ambitious target, and to achieve it, all sectors will have to contribute. Emissions from land, mainly agricultural and forestry lands, will also have to be reduced, starting from 2020. The Commission is working on the question of how to deal with agriculture and land use, land use change and forestry, or LULUCF, in the future climate policy framework up to 2030. A stakeholder consultation ran up until 18 June last. A policy proposal will be presented in 2016 which will be based on a solid impact assessment of the different options and COP21 outcomes. The multiple objectives of agriculture and land use and its reduced mitigation potential and higher costs compared with other sectors need to be acknowledged. We need to strike a balance between the EU's food security and climate change objectives. Encouraging the sustainable intensification of food production is one effective way to achieve this balance. For some member states like Ireland, the mitigation potential provided by afforestation is important. The Commission has to work out how to include that aspect in the climate change framework.

The Irish rural development programme includes measures, some of which are rather innovative, such as the aforementioned beef data and genomics scheme, which are needed in future to improve the mitigation and adaptation potential of the sector and, at the same time, its productivity. These measures must be assessed and refined, as appropriate, to be prepared for the 2030 challenge.

I wish to say a few words about the Transatlantic Trade and Investment Partnership, TTIP. International trade negotiations in general, and trade deals with the US in particular, are of key importance for European agriculture. The United States already represents a key outlet for EU agricultural production and is the destination for 13% of our exports. This negotiation offers opportunities and challenges. In any scenario, the Commission is determined to defend and promote the EU's interests and, crucially, agriculture. I for one am personally and directly involved. I have visited Washington twice to engage with the US Administration, the US Congress and farm sector stakeholders. My key message to the US side has been clear and consistent, that the EU is strongly committed to having a deal with an appropriate balance and respect for our sensitivities.

TTIP will offer new market opportunities for EU agricultural products through the reduction of both US tariffs and non-tariff barriers in areas such as dairy, food preparations, prepared meats, sugar confectionery, chocolates, fruit and vegetables, beverages and juices. The reduction of non-tariff barriers is expected to bring the most benefits in TTIP. According to the impact assessment, most barriers relate to sanitary and phyto-sanitary measures. For example, there is currently an obligation to respect US grade A requirements for fresh dairy products. The measures are very stringent and hinder EU exports. The EU is seeking equivalence for EU production methods. The United States lifted the BSE ban for the export of Irish beef and the EU is still waiting approval for other member states, as well as for EU sheep and goat meat. The United States is currently approving individual member states, a process which is lengthy and unfair. The EU should be recognised as a single entity.

To allow EU producers to compete fairly in the markets of the United States and to provide quality products, TTIP negotiations must also bring enhanced protection for a selected number of EU geographical indications.

This is matched on the US side, where consumers are taking a greater interest in the origin of products.

The TTIP is a challenge owing to the differences between the United States and European Union production structures, environmental standards and approaches to food safety. EU sensitivities, for example, in the case of meats, must be respected. These elements will be taken into account to define the level of market access that can be granted in each sensitive sector.

Overall, the TTIP must be balanced and reasonable and the 28 member states must approve it. This means there must be appropriate quotas for sensitive products such as meat. It also means that a balance must be struck between key interests, with gains on both sides, and sensitive sectors protected. An acceptance of our respective legitimate choices with regard to environmental or health standards, including for GMOs, anti-microbial treatments and hormones, needs to be a part of any deal.

With regard to the TTIP process, working in parallel to address different areas in the negotiations is essential. For example, in regard to talks on tariffs where agricultural products are a key US interest, they should move at the same pace as those on the European Union's key interests, for instance, the talks on procurement, services, regulatory convergence and rules, including geographical indications. The European Union has made ambitious first tariff offers, but it has still received nothing in return in our key areas of interest. This is in the context of US difficulties in embarking on meaningful concessions before finalisation of its fast-track TPA procedure and the deal it is trying to do with the Pacific countries through the TPP. The bottom line is that substance should dictate speed and the step to a final deal should only be considered in that context.

The TTIP's overall result must be balanced between reasonable key interests that respect the sensitivities of some of our products, with acceptable quotas for these products. The TTIP will not affect our respective food safety standards such as for hormones and GMOs or in other areas. The Commission continues to pay great attention to transparency in trade negotiations to respond to increasing public attention and concerns.

With regard to the timing for the conclusion of the talks, this is an important year. We are ready to make as much progress as possible in 2015, but it is unlikely the process will reach a conclusion by the end of the year. The sequencing on the US side appears to be the adoption of the trade promotion authority which is due to occur before the end of June; finalisation of the Trans-Pacific Partnership and the TTIP later in 2015. Therefore, there is a short window of opportunity before the US elections get into full swing.

It has been a pleasure to update members on the latest state of play at EU level on agricultural matters. As can be seen, despite short-term volatility in agricultural markets, there is much to hope for in a world in which the population will reach over 9 billion by 2050. Demand for the high quality agricultural produce of the European Union is the hallmark of what we are trying to achieve. It will only increase in a world in which the middle class is growing by 150 million people every year. Ireland is positioning itself well to meet this demand. Nevertheless, we must remain vigilant in terms of short-term market and political challenges. I am committed to working with the committee throughout my mandate, in the interests of EU citizens, rural dwellers, producers, consumers and the agrifood sector as a whole.