Mr. Seán O'Leary:

We look to New Zealand because that is where the price became the lowest most quickly and that was how it stayed for quite a while. What has been said for some time is that the prices being paid for milk were below the cost of production and that they were unsustainable. New Zealand was more exposed than other countries in that it was exposed to the Chinese market and when that market was closed, it found itself in difficulty. There have been four positive GDT auctions in New Zealand. Obviously, the volumes are a little lower, but it was working hard to try to change sentiment, which is what we were seeking to do in Europe through the use of intervention measures. Sentiment plays such a strong roll in the market and it has changed. We have seen spot prices climb week on week in Europea. Last week they were up, on average, about €30 a tonne across the product range, with the exception of cheese. The market has, therefore, turned around. The next job is to get milk prices to rise.

To return to the issue of contracts, their duration and so forth, it has saved us to a degree with prices coming down. It is the lag effect, but it will probably work against us if prices start to rise. From talking to farmers at the national ploughing championships two weeks ago - members will have heard this also - they are looking to seeing the price start to change next spring resulting in a positive sentiment. I hope that will be reflected in a positive vibe in the market.

In the other big market, the US market, an increase in production in the region of 1.4% on an annual basis is what is being talked about. Demand is increasing in that market also. The currency factor is a plus for us.

The culling rate in New Zealand is quite high. A reduction in the region of 6%, 7% or 8% in this production year is being talked about. If that were to happen, we would see lower production. The overhang of product and the likes of the APS introduced by the Commissioner can play into this also. We will see a gradual price increase, the bottom having been reached, but nobody is saying it will be immediate, rather it will be slow. If farmers receive that positive message, they will react with more confidence. Despite what many have said, I do not think farmers jumped headlong into it. They took account of what was going to happen and what their capacity was within the farmgate to expand. There was pent-up frustration having been held back for 30 years, but, by and large, the plans made over a period a time will stand up to the pressure.

The immediate pressure of cashflow in an expansion mode is something at which we must look. Maybe the brakes have been put on a little bit by this price fall but I think the right supports have to kick in at the right times, that is, from Government, the banks and the processing industry, which has to get itself together in terms of efficiency and benchmarking. With the monitor farms and the greenfield farms, farmers can measure efficiency and not everyone measures up. Where are the efficiency and benchmarking measures within the processing industry and how does one processor measure up against another and against its international counterparts? We need to put focus back on that. Mr. Cashman will deal with the other issue on the price.