Mr. Aidan O'Driscoll:

My opening statement will be relatively short. I am sorry but it covers much of the ground already covered by the Comptroller and Auditor General. Nevertheless, I ask the committee to bear with me.

The Department's gross allocation for 2015 was €1,260 million, including a capital carry-over of €18 million from 2014. Towards the end of 2015, the Department sought a Supplementary Estimate, which provided funding to address the exclusion by the European Commission of €67.6 million from EU funding of various agricultural schemes for the seven-year period 2008 to 2014, to which I will return again. It transferred savings in certain areas of the Vote to fund expenditure under the fisheries harbour scheme, the areas of natural constraint, ANC, scheme, the world food programme and a top-up to the EU market volatility payment, as well as providing an increase of €39 million in the Department's permitted net expenditure to deal with a Commission decision, applying to all member states, to delay payment of some of their expected 2015 rural development receipts.

Gross expenditure in 2015 was €1,264.6 million, and appropriations-in-aid were €438.7 million, resulting in a net expenditure of €826 million. Gross expenditure savings amounted to €60.5 million and €12 million of the capital saving was carried over into 2016. When the Supplementary Estimate was under consideration in late 2015, we were confident expenditure levels would be lower than the original provisions under some subheads, so some €36 million was transferred as part of the supplementary to other areas of the Vote. Our view at the time was that it would not be prudent to reduce allocations further, given the outstanding potential requirements, particularly in the agri-environment schemes, food safety and research. In retrospect, given the eventual savings, it may be that less funding could have been requested by way of a supplementary allocation. However, receiving the additional allocation did allow us to fully address a number of new pressing needs without compromising our existing schemes.

The Department is exceptional, as alluded to by the Chairman, in also being responsible for large EU payment schemes which do not appear on the Vote. In 2015, these amounted to expenditure of €1.2 billion. The total expenditure by the Department, though the Vote and the fully funded EU schemes, therefore, amounted to more than €2.4 billion.

During 2015, the agriculture and food sector continued to play a vital role in Ireland's economic recovery. Food and drink exports reached €10.8 billion, marking growth of more than 51% since 2009. As this export figure does not include things like hides and skins and forestry, the total export figure from the sector was well north of €11 billion.

The year 2015 was also marked by a number of major policy and operational developments, including the implementation of new Common Agricultural Policy, CAP, schemes following the 2013 CAP reform, the adoption of the new co-funded €4 billion rural development programme and the €240 million seafood development programme, publication of the new overarching sector strategy Food Wise 2025, publication of a new forestry strategy and, crucially, the abolition of EU milk quotas. The implementation of a large range of new schemes and measures was a major challenge for the Department but one to which our staff responded with great commitment and skill. Among the new schemes implemented in 2015 were the new basic payment scheme, greening payment and young farmer top-up, which together accounted for the €1.2 billion I have already mentioned; the green low-carbon agri-environment, GLAS, scheme, two tranches of which were opened to 38,000 beneficiaries in 2015; the new organic farming scheme; the beef genomics programme, which is a very innovative programme focusing on delivering accelerated genetic improvement in the national herd to deliver both environmental and economic sustainability; and the new targeted agricultural modernisation schemes, TAMS II, investment support vehicle, which includes the young farmer capital investment scheme, the dairy equipment scheme, the animal welfare, safety and nutrient storage scheme, the low emission slurry spreading scheme and the pig and poultry scheme. Many schemes were opened in 2015.

As noted in Chapter 7 of the Comptroller and Auditor General's report, milk quotas in the EU were abolished on 31 March 2015. Milk production in Ireland in 2015 was 6.6 million tonnes, an increase of 13.3% on the 2014 annual total. The vast majority of this increase was in the post-quota timeframe, bearing in mind that it ended on 31 March.

While farmers continued to make substantial efforts over recent months to manage their supplies, the ending of the milk quota regime saw significant production over quota in the 2014-2015 year, the final year of the quota regime, resulting in a levy being incurred by Irish producers amounting to €71 million. Facilities for farmers to pay the bill in instalments and to help them to deal with the cashflow challenge were put in place by the Department following European Commission agreement. It was pressure from Ireland and several other member states which led to the system being put in place.

The Department was required to pay the superlevy in full to the European Commission by the usual deadline of 31 November 2015 with the terms of the scheme requiring farmers to repay minimum one third payment each year between 2015 and 2017. The Department paid almost €71 million, of which €35.6 million had been collected from producers with the remainder sourced from funds the Department had on deposit. Just over 2,700 producers opted to pay levies of €16.7 million to the Department upfront by 1 October 2015. They elected not to use the provision to defer their payments. The remaining 3,700 producers paid €18.9 million to the Department by 1 October 2015 and agreements were signed with those farmers to repay the balance of €35.6 million in 2016 and 2017.

A second issue in the Comptroller and Auditor General's report relates to a large EU expenditure disallowance in 2015. In mid-November, the European Commission adopted a decision to exclude a total of €278 million from 18 member states. The net Irish disallowance amounted to €67.6 million from EU funding of various agricultural schemes for the seven-year period, 2008 to 2014, inclusive. This consisted of two elements, namely a €64 million exclusion for the period 2008 to 2012 and a €3.6 million exclusion for 2013 and 2014. It represented 0.57% of the €12 billion in EU funding for these schemes in this seven-year period. The exclusions related mainly to Commission findings that some aspects of Irish control systems were insufficiently robust at excluding ineligible land from payments to farmers in EU funded schemes.

This decision was the outcome of a prolonged process which began with a proposed exclusion of €181 million for the five years between 2008 and 2012 suggested by the Commission in May 2014. The Department opposed the application of the proposed flat rate correction and sought a hearing with the EU Conciliation Body. The Conciliation Body acknowledged the amount of work done by the Department in reviewing over 900,000 LPIS, land parcel identification system, parcels to identify and exclude ineligible areas to calculate the risk to the fund.

The report of the Conciliation Body in early 2015 concluded that the Commission and the Department should continue discussing the matter with a view to settlement. The implication of this moved us away from the idea of a flat rate correction. During the year, the Department undertook considerable additional work at the request of the Commission to give assurance to the calculated risk and was subject to a further verification audit by Commission officials. The reduction of over 60% in the final correction clearly indicated the Commission's acceptance of the Irish approach.

From 2008 to 2016, the total EU disallowances incurred by Ireland amounted to 0.79% of agricultural expenditure. This compared with an average of 2.74% for all member states. These figures are an update on those in figure 7.4 in the Comptroller and Auditor General's report.