Oireachtas Joint and Select Committees
Tuesday, 14 May 2019
Joint Oireachtas Committee on Agriculture, Food and the Marine
Future of the Beef Sector: Discussion (Resumed)
We are continuing our discussion on the future of the beef industry. At our meeting before the Easter recess we learned about the Kepak-Glanbia initiative, the programme that was launched towards the middle of April. The joint committee considered that the initiative might have a contribution to make in the overall discussion we were having on the future of the beef industry. With that in mind, we decided to invite representatives of Kepak and Glanbia to come before the committee to discuss the initiative. I thank them for taking up the invitation we extended to them. From Glanbia Ireland I welcome Mr. Martin Ryan, head of the beef division, and Mr. Pat O'Keeffe. From Kepak I welcome Mr. Mick O'Dowd, agri-development manager, and Mr Jonathan Forbes. As they will be aware, the committee is undertaking this initiative of discussing the future of the beef industry. The issue is very topical throughout the country and we consider that the committee has a part to play in the discussion.
Witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to so do, 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 and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or 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, either by name or in such a way as to make him or her identifiable.
I invite Mr. Ryan to make his opening statement. I understand Mr. O'Dowd will also make a contribution.
Mr. Martin Ryan:
I thank the members for inviting us and for the opportunity to contribute to their deliberations on the future of the beef sector. Both Glanbia Ireland and Kepak are delighted to share details with the committee of our collaborative innovation for calf to beef production, the Twenty20 Beef Club. Both companies have worked together to develop a solution that will bring certainty for farm families involved in the production of beef calves, in response to trends in the national herd. This innovation was built with the benefit of Glanbia Ireland's experience in fixed milk price schemes and low-cost finance products, such as MilkFlex and FundEquip, and with Kepak's track record in developing clubs such as the KK club and the Angus producer group. The Twenty20 Beef Club affords members a guaranteed market for their heifers and steers from the time they enter them in the club through a guaranteed pricing formula that will apply at the time of slaughter. In addition, it delivers a production blueprint supported by safe and secure high-quality farm inputs and leading edge technical advice.
For Kepak customers and consumers, the Twenty20 Beef Club will provide a secure and predictable supply of high-quality beef with unrivalled input traceability and provenance through the attributes of a closed loop supply chain. The closed loop assurance includes nutritional products, non-prescription animal health products and fertiliser, sourced and supplied by Glanbia Ireland. From a consumer perspective, this provides absolute traceability regarding key inputs and is the genesis of our ability to pay a very significant club premium. The first year of the programme is a pilot phase during which 6,000 calves will be enrolled on Glanbia Ireland and Kepak supplier farms throughout the Republic of Ireland. Numbers will increase to 20,000 in year 2, with a target of 50,000 from year 3 and subsequent years.
The Twenty20 Beef Club was developed to bring greater certainty and predictability to beef production for all stakeholders in the industry. Some of the benefits are a guaranteed market for club cattle, a predictable pricing structure, targeted reduction in the age at slaughter, management of nutrition, a technical support programme to assist members achieve output targets, targeted improvement in eating quality and environmental management, an advance payment mechanism to support cashflow, and full and final payment on the day of slaughter. The primary objective is to create a new end-to-end model for sustainable beef production. It is anchored in the market. It is farmer-centric and built on a collaborative partnership between two industry leaders. This approach enables Kepak to deliver a premium for farmers from the market.
A key feature of the Twenty20 Beef Club offering is that members can benefit from an optional advance payment package of up to €770 per animal to provide cashflow during the animal's lifetime, which offers farmers a more stable income from beef production. This will be administered and payable upon credit approval by Finance Ireland. Members have the option of selecting a monthly payment per animal of €25 or €35 per head at an APR of 3.9%. Payment can be made from month 3 to month 24, and up to 90% of a club member's registered cattle can qualify. During the pilot phase, the advance payment package is supported by Glanbia Co-op. It is the intention that this finance package will be available to all credit-approved club members after the pilot stage is completed.
I now hand over to Mr. O'Dowd, who will continue the statement.
Mr. Mick O'Dowd:
The Twenty20 Beef Club will be open to dairy farmers, beef finishers or suckler farmers rearing dairy calves sourced from the Glanbia herd and supplying Kepak with finished animals. Glanbia Ireland and Kepak staff will work together and will provide technical farm support to members as the programme develops. This will involve leading edge advice on breeding, nutrition, animal health and welfare, grassland management, and slaughter preparation.
A key target for the club is sustainability, with an ambition to become world leading on environmental standards. It focuses strongly on leveraging science and technology, including genomics, genetic evaluations and greenhouse gas reduction. Eligible calves will have to have a known sire recorded on the AIMS registration system from 2020. Stock bulls must be pedigree registered and genotyped. Some 10% of calves entering the programme must be genotyped to verify breed and parentage. Dairy farmer members must select bulls with a specified minimum Irish Cattle Breeding Federation, ICBF, dairy beef index. All members must be approved and fully compliant with Bord Bia's sustainable beef and lamb assurance scheme and, as such, must be verified members of Origin Green. It targets a reduction in the average age of the cattle at slaughter, which will reduce the environmental footprint of the beef produced.
Additionally, the nutritional programme will incorporate methane-reducing feed additives that will improve feed conversion efficiency and further reduce methane output.
The Twenty20 Beef Club targets increasing beef output and sales value per hectare through improved efficiencies on farm. This focus will increase the proportion of dairy bred cattle meeting market specifications. The pricing model is anchored in the market and will contain the following components: the average quoted price, AQP, as quoted weekly by all ROI processors; a club premium, ranging from 15 cent to 25 cent depending on the AQP applying in the week in question; a club protocol bonus of 12 cent will be paid on all cattle, regardless of grade, meeting the carcase weight specification of 280-360 kg in the first two years - the objective is to increase the number of cattle meeting market specifications through improved breeding and technical support; a breed bonus, which is currently applicable on angus and Hereford, will still apply for club cattle; and a seasonality bonus will be applicable. In April and June, it will be 6 cent while in May it will be 10 cent. At an AQP of €3.75, a Twenty20 Beef Club angus steer slaughtered in April 2021 will qualify for a net price to the farmer of €4.28, while at an AQP of €4, the same animal would earn €4.43 per kg.
In conclusion, we believe the Twenty20 Beef Club delivers a new model for calf-to-beef production; a guaranteed market for members' cattle; a predictable and guaranteed pricing structure; a production blueprint based on leading-edge technical advice; a model to deliver a reduction in environmental impact whilst increasing output; and a product for which the consumer will be happy to pay a premium. We believe this collaborative cross-sector approach demonstrates an alternative and progressive approach to delivering a more sustainable future for Irish beef and dairy production. I thank members very much for the invitation to appear before the committee. There is more detail on the companies behind this new initiative in the material circulated. We are happy to answer any questions.
I am not happy with what is being attempted. While some of the initiatives are welcome, the overall concept of a closed loop is anti-competitive and it is a bad way for two companies to protect farmers' income. It is a very slippery slope for farmers to go down.
Is the quality assurance bonus, which farmers get at the moment for selling cattle from quality-assured farms, an addition to the club pricing structure? There is a reference to the breed bonus. In the heifer and angus schemes, a bonus is paid, which varies depending on the time of the year. Does this bonus scheme replace the heifer and angus schemes? Does it incorporate Friesian cattle? There is a seasonality bonus but angus and heifer schemes in the past have offered bigger seasonality bonuses than in this case. There is a base price for typical club cattle. I have the misfortune of being one of those farmers that finish cattle out of Friesian cows and I can say that R= grade or R- grade are not typical cattle. If I saw an R on a classification sheet now, I would reckon a mistake had been made in the grading because they are as scarce as hens' teeth. It is disingenuous to produce a table of R= and R- grade cattle from the dairy herd.
Do O- grade cattle qualify on this pricing structure? They do not qualify on the quality assurance scheme.
How many cattle from the dairy herd killed in 2018 would meet the requirements of this scheme, taking into account weight restrictions, age and grade? I believe the percentage of Aberdeen angus heifers which get to the carcase weights would be small. A lot more research needs to be done on sexed semen and it has to be promoted more. If our beef industry is to survive, it has to progress rapidly. Teagasc has focused on cross-breeds over the past number of years but this has also put us on a slippery slope and has to be reversed. The presentation states that the consumer wants this but if we went out on Grafton Street or St. Stephen's Green and asked people if they wanted a closed loop for beef production, they would look at us as if we had two heads. It is incredible and disingenuous to tell us the consumer wants this and will pay a premium for it. I have been too long in the business to swallow that. There is a major crisis in incomes from beef farms.
There is an insinuation that other mills producing top-quality rations are somewhat inferior to what is produced by Glanbia merchants and Glanbia mills. I am a board member of another co-operative that has a mill and I brought this up at a board meeting last night. Last year, farmers were under significant pressure in accessing credit and they ran up large bills but this will tie people into a straitjacket by requiring that they deal with just one merchant. Farmers have experience of credit being pulled from under them very quickly and to tie a farmer to one supplier is anti-competitive. I cannot see how anyone could propose it.
More movement restrictions are also being proposed, with only one being allowed in the life of an animal. This puts farmers into another straitjacket and reduces the options they have as they try to make a profit out of the industry. Glanbia will not like me saying this, but for the past couple of years, its price for grain and mill has been consistently behind the average paid by other grain merchants and processors. It pays a top-up after six months or at year end but this top-up is consistently paid out of our own money, that is, the dividend received by the co-operatives. It galls me that the largest processor in the country uses our money to keep pace with other competitors. Now, a scheme has been designed that will force farmers to deal with that business.
We have to change and our beef industry has to change, and I have been to the forefront saying that what we have at the moment cannot continue. In the beef industry at the moment the question is not who is losing money, but who is losing the least money.
I welcome the idea of promoting calf to beef systems. It is something that is needed. The straitjacket that farmers are being put into is wrong, however. As a farmer and a public representative, it is a very slippery slope that Glanbia and Kepak are trying to put farmers on. At first glance, the club pricing structure looks very attractive, but when we see what is in the marketplace at the moment, it takes a lot of the gloss off it. At the end of the day, when we would be killing cattle coming from the dairy herd, the percentage that would meet those weight requirements would be very small indeed. This was announced with a fanfare a couple of weeks ago and I was surprised by the silence from different organisations in response to it. There was a lack of critical analysis of the scheme. While having cattle killed at younger ages, trying to have sustainable food production and meeting our climate change targets are all welcome initiatives, a Friesian bullock that is killed at 22 or 23 months of age is just not going to meet those weight limits.
We have been discussing the beef sector for the past couple of months. It is clearly in a lot of trouble and has a lot of problems. Anything that has the appearance of a solution or way forward or that could assist the sector will naturally be welcomed. The type of closed loop system that is proposed is one I know quite well. I used to work in the mushroom industry years ago. I had mushroom tunnels and it was very much a closed loop system. We bought the compost, all the materials, packaging, chemicals and everything from a company and then sold the mushrooms back to the same company, which took the cost of everything out of the final price. We were very much at the mercy of the company. There were good times but there were bad times as well. If we got a bad load of compost, for instance, that produced very low yields, we had great difficulty trying to argue our case. That is one of the problems with the proposal being put forward here. Farmers will look at the prices and may think they are getting a bit of a bonus here, along with the possibility of getting money up front. It is up to €770 or up to 75% of the cattle early on, so the farmer can have a cashflow scenario sorted out. While that looks attractive, many farmers would be very worried about not having the freedom to buy their input from wherever they want or to sell to whoever they want, and that they would be tied in so restrictively. That needs to be dealt with.
The system can work but I do not think it will work in the long term. I do not think it is the solution to the problems we have in the beef industry at present. It may be part of the solution and may work for some farmers who are tied in to an extent. It might possibly work for dairy farmers who are also producing beef or are both customers of and suppliers to the two groups that are here. Other farmers would have serious doubts as to the way forward. The witnesses have a lot of work to do to convince people that this system can work and that it is the solution that was hailed. I know nobody would present it as being the ultimate solution and the witnesses are not doing so. Nothing is the ultimate solution for the beef crisis, unfortunately. Even the prices the witnesses are talking about, with the bonuses added in, go nowhere near making most beef production into a profitable and prosperous industry. Even prices of €4.28 to €4.43 per kilo will not cut it in the long term when we look at the amount of investment that has to go in.
The questions that need to be answered are around that. We need to know how the farmer can be sure he is going to get the proper return and is not going to be over a barrel when it comes to it. The witnesses gave some estimated figures, for example, if there are 6,000 animals in year one, the figure would go up to more than 50,000 animals by years four to five. I would like to see how that is going to work. It will have to be shown to work very well in year one before anyone is going to stay there.
As was pointed out by my colleague, there is also the issue of all the other suppliers that have very good relationships with and work well for farmers. They are in business as well. Farming in the rural community has a kind of micro-economy of its own, in that the farmer, the miller, the veterinary services and everyone around them all depend on each other and work together. When two big companies - scale is important in any business - set up what is in effect a closed system and a closed model, many people in the community would see it as pushing everyone else out.
There is also mention of the inputs and a suggestion that the inputs would all come from within the group. I see that nutritional inputs are included in that. I see reference to a reduction in the carbon footprint by introducing feed additives that would produce less methane. Would the witnesses also be talking about medicines for cattle? Is that part of it? I would like to get details in respect of all of that.
Anything that brings predictability to the situation in terms of the current concerns of beef farmers has to be welcomed. It is a contribution to bringing something forward that it is hoped will make an input in the longer term. People are less likely to be exposed to the vagaries of the market. I can see where it is coming from. I would say, however, that the proposal is inspired by Glanbia. It has tried this before with milk. It is not the first time Glanbia is venturing into this area. Kepak may well see a benefit in it and may have explored it with the farming public or those from whom its buy its product. The issue is the closed loop. It effectively kills competition. If this succeeds, other co-ops from the milk area will probably be rushing in to pair up with other competitors. We will shortly have three or four of the big co-ops with three or four processors. We all have worries about processors at all levels. In the Twenty20 club, as far as I can see, for the animal to get the bonus, the calf has to come from a Twenty20 farm, be reared on a Twenty20 farm, and has to get all its ingredients from one source: Glanbia. I thought prescription medicine was exempted. All the needs and requirements associated have to be got from Glanbia. It shuts out any competition, which is of concern. As Deputy Martin Kenny says, there are relationships built up throughout the whole supply chain that will now be sidelined.
I see the examples there. I am very much attached to the breed bonus and am glad to see it included. It is an excellent idea. I was bemused to see Mr. Goodman Jnr. effectively recognising the importance of breed for market access and penetration. I am sure Kepak and those companies that know more about market than I will ever learn will tell us that if one does not have a quality product, one will not penetrate the high-price markets. I look with interest at that.
Notwithstanding the efforts of Deputy Cahill, who is an excellent farmer and probably produces very good beef, he is correct about Friesians. I am sure he would produce more of them if he thought he could achieve what was outlined in some of the scenarios. I am a little taken aback but I cannot contradict the representatives of Kepak and Glanbia. I believe Glanbia is more interested than Kepak in ensuring that Friesians get recognition in the markets. I would like that being distilled out. I cannot see how the average quota prices would be achieved. If I am wrong about that, Deputy Cahill is making more money that I thought he was, but in any event I do not believe he is.
In all seriousness, this initiative is a contribution and we cannot pooh-pooh such contributions. Some beef farmers, many of whom I know well, are almost drowning in fatalism at this time. Anything that stimulates them to consider various scenarios is to be welcomed. However, I am concerned about the closed loop aspect. There is no point in saying it is not a concern when it is. Representatives of the Competition and Consumer Protection Commission will appear before the committee in a few weeks and we will explore with them if this concept is anti-competitive or if it stands up to scrutiny in terms of an anti-competitive practice. It is important that would be ironed out and taken out the equation. This does not involve Kepak very much, rather it more concerns Glanbia. I note the structure of its company, and Deputy Cahill pointed out that there are GI readings and so on but often the farmers are being rewarded with their own money within that structure. There point has been raised with us on a number occasions.
I am sure this initiative will be piloted with 5,000 or 6,000 animals. Perhaps we will all be proved wrong and our concerns about the closed loop concept will not be vindicated and will be dispelled. If they are, we will be the first to say we were on the wrong side of the argument. I have concerns about what I believe are anti-competitive objectives contained within this initiative. That is the only concern I have about it. My major concern at this time is the viability of the future of the beef industry. Like Senator Paul Daly, I come from a strong beef producing county. It will be interesting to see how this initiative goes down among the farming population of that county.
I welcome the representatives from Kepak and Glanbia. I also welcome the initiative. We all know the crisis facing our beef industry. It is welcome that somebody is taking an initiative. This initiative in its fruition is very much in its infancy. I find it difficult to see how it will take off or be successful or make any solid improvement for beef farmers in the sector. My reservations are similar to those mentioned by the Chairman and Deputies Penrose and Martin Kenny regarding the closed loop concept. I do not see the need for such a closed loop. If this initiative is supposed be to the advantage of the beef sector and the beef farmer, the only winner from the closed loop concept, as documented in the presentation, will be Glanbia. I can understand why one would want to closely monitor feed inputs with respect to traceability and the turnout of the finished animal but I do not believe the fertiliser spread on the grass that the animal eats has any bearing on the outcome of the quality of the beef, the age at which the animal will be slaughtered or the final carcass weight. That is purely materialistic and commercially aimed towards Glanbia.
I would like the representatives to tell us - I doubt that they will - the arrangement they have among themselves behind the scenes. I cannot see the beef farmer winning. As Deputy Cahill and the Chairman said, with the greatest inputs of genetics and genomics, there is a vast range of Friesian cross animals, especially heifers, that will not be in the 280 to 360 kg category. To get the majority of the rest to that point, it will require massive inputs, which is another plus for Glanbia. Would a farmer who does everything by the book and whose animal, because of its breed, does not make the cut-off point not be far better off paddling his or her own canoe, taking the average quota price and possibly buying his fertiliser and all of his or her inputs a little cheaper elsewhere? Financially, without the bonuses, he or she may possibly have paid top price for all inputs because he or she does not have any say in the matter and is still only getting what he or she would have got from any other meat processor in the particular week. In that scenario the farmer will lose and Glanbia will win. If the farmer does not hit his or her targets - he or she will be advised by Glanbia personnel and employees on what concentrates and their quantities he or she should be using - he or she will probably have massive input costs that he or she might not have had if he or she had been left to make his or her own decisions on inputs. However, if he or she hits the targets and receives the bonus, I do not believe he or she will be winning because of the extra input costs involved. Kepak will not be winning either because it will be paying more than any other meat factory in the same meat market for the same animals in the given week. How are the organisations balancing it between them? Kepak cannot take all of the hit for the love of Glanbia? There must be some arrangement behind the scenes in the operation of the Twenty20 club such that one of organisations is funding the other. I do not know if the representatives are in a position to advise us of that arrangement or give us the information that lies behind the setting up of the club from the two companies’ perspectives, but I would like to hear it to gauge how they are managing it.
I was going to mention the point made by Deputy Penrose about the Competition and Consumer Protection Commission as I agree with him. I would like it to examine the Twenty20 club initiative. I strongly believe it will find it difficult to consider the initiative to be legal in the Irish agricultural market.
It is welcome that the organisations are taking an initiative, but it needs to be done on a larger scale to help to rescue the beef sector. However, in the context of the closed loop concept, this initiative will not be the answer as there is only one winner.
I asked two questions. In the operation of the scheme is there any age limit in the movement of calves? Will there be a fixed price for a calf or will the organisations have an input into the price between the two farmers performing the transaction?
Based on what the representatives have described, I can see many beef farmers taking up the initiative for the sake of certainty and the prospect of a bonus being paid. In the presentation I note the description of the Twenty20 Beef Club as being farmer-centric. However, I share many of the reservations expressed by colleagues. The organisations are not doing it for the good of their health or out of the goodness of their hearts; rather, they are managing two very successful business concerns. The reason they can close the loop is they are operating on such a scale. The reason the club is farmer-centric is farmers do not have the negotiating power of the two organisations.
It is farmer-centric because it suits and the farmers do not have negotiating power as the witnesses have. If the witnesses proceed as they propose, I do not begrudge any farmer getting the positives that the witnesses have suggested, but if other companies, such as merchants, are going out of business, and the witnesses are the last ones standing, why would they still be benevolent to farmers, except that they have entered into a contract? What happens once that expires? This goes back to the issue of the factories both being big concerns. They have entered into this undertaking and it seems that they are in a dominant position vis-à-visthe other merchants. We are just having a cursory discussion here but I can see how it could end badly. If what the witnesses do could ultimately put these other companies which operate and deal with farmers out of the equation, the farmers would then be at their mercy. That is the kernel of our concerns. We have many issues with multinational retailers because they are so powerful and the small shop has really changed. They are very challenged with regard to food, drink and everything else. All sides have to be looked at. I am interested in how the witnesses will address the anti-competitive suggestions. Some of my colleagues have pointed out how regulated feed, fertiliser and such are. There is an idea that the witnesses are offering something much better. There is a lot of standardisation. Leaving people out of the loop is questionable.
I have to leave to attend a division in the Seanad.
I thank the witnesses for attending to help us with our consideration of the circumstances of the beef sector. What was the motivating factor in establishing the Twenty20 Beef Club between Glanbia and Kepak? I am curious as to how the name was arrived at or what its significance is. How do the witnesses respond to the independent merchants who have expressed their concerns about this? It was alluded to earlier. There are a number of them around the country. Two are in my area - Liffey Mills and J. Grennan and Sons. They are concerned about the impact that this might have on their bottom line, their value in the rural communities that they operate in and the kind of relationships that they have. They have been clear about their concerns that this may be anti-competitive in that it ties in farmers. Having said that, I appreciate that nobody is forcing anybody to enter into this. At the same time, these are the concerns that we are hearing and that need to be addressed. At a time the price of beef is probably the lowest it has ever been, the timing of this is good to address the temptation that people have to think that this will solve all of their problems.
On the companies involved and the potential advantages that Glanbia Ireland has with regard to the fact that 60% of the shares are owned by Glanbia Co-op, it has been suggested that some shareholders might in some way be disenfranchised by this. Will the witnesses refer to that?
Mr. Mick O'Dowd:
I thank members for the questions and comments. I will start with Deputy Corcoran Kennedy's question on the programme. There is a logical flow to it. Our farmers and supply base, whom we talk to regularly, have repeatedly said that they do not have sight of the future potential of the dairy calf at present. The quality coming from the dairy herd has declined somewhat with the rush to focus on milk. Mr. Ryan may address that later. They have also said that there is no predictability about price. They start to feed cattle over two years with no predictability about the price that they will get. They have also highlighted the difficulty of accessing cashflow throughout the production cycle of those animals.
We felt that farmers coming together with our leadership, investing in genetics and raising that standard so that there is a certain threshold that dairy producers have to adhere to will bring more predictability to the performance of that calf. If that is coupled with a technical support package, then the targeted finishing specification for that animal becomes much more predictable for us as a processor. As a result of that, we can then bring more certainty to the farmer at the beginning of the production cycle when they register those calves for the programme. That is the logic of it. By being able to bring that pricing predictability to the farmer, since Finance Ireland is supporting the programme, the farmer can go to Finance Ireland, and once he or she is credit approved, he or she can get finance for each of those animals and have a cashflow coming through throughout the lifespan of the animal. We repay that loan to Finance Ireland and pay the balance to the farmer at the end. That is the logic of it. The Deputy asked about the name of the programme. That comes from a 2020 vision and it has been described by the Minister for Agriculture, Food and the Marine as visionary and pioneering. As Deputy Martin Kenny said, it is a solution but not the only solution, which we realise.
As Deputy Cahill said, this represents 50,000 animals after three or four years. That is our target. It is less than 3% of the overall kill. We are not trying to claim that this programme will solve every problem. We have gone around the country since we launched the programme and run information nights where we have presented for approximately an hour and then fielded questions from an average of 100 farmers at each information night. The questions have been like some of the questions members have asked. We have since been inundated with expressions of interest in the programme. Our target of 6,000 animals in the first year is already oversubscribed. Farmers obviously feel that it is a solution that can help them.
Deputy Martin Kenny mentioned the mushroom industry. This is built on the market. When farmers register calves in the programme, they know that they will always be above the market when they slaughter that animal. That is guaranteed. That is why members will see in our brochure and the statement that we made that, in a falling market, we are supporting the price even more because it is rising from 15 cent to 25 cent.
Deputy Cahill mentioned the R grade. We appreciate that. We know better than anyone the amount of O grade and P grade cattle that comes from the dairy herd. We are doing this programme to try to increase that standard. We are not saying that we will bring every P grade up to an R grade, but through improved genetics and technical support, we fully believe that we will increase the standard. That is for a small cohort of animals in this programme.
The Deputy also asked if the protocol bonus is replacing the quality pricing system.
We are saying that because we are investing in it upfront, for the first two years all grades will be entitled to the 12 cent because of our belief that, through the programme, we will raise the standard of production and bring more animals into the category to which this will apply.
On Senator Paul Daly's question on the arrangement, this is a collaboration between the two of us to try to help. We are rooted in agriculture. Our founder had a great link to farming. Our Kepak farm, which this committee visited last year, is used as a knowledge transfer centre for our supplier base, our customers, and Teagasc-led discussion groups. We are listening to farmers, more than 1,000 last year, and one of the things they are saying is that they are looking for big companies to come up with solutions. That is what this is. This is a solution for the industry. It is not the complete silver bullet for the industry, but it is a start. There is absolutely no arrangement between us other than to try to help with a solution, to get more predictability into the system for us, and to bring more predictability to the farmer. These are the opening comments to some of the questions that have been raised, and I am happy to take more.
It does. In case Mr. O'Dowd thinks I am being completely negative, I welcome the finance part with the cashflow. On beef farms, that is a very interesting development and is to be welcomed. Does Mr. O'Keeffe or Mr. Ryan wish to come in here?
Mr. Martin Ryan:
I am just confirming that this is the case. In one of the Vice Chairman's comments in that regard, he mentioned the percentage. As it stands today, one is looking at somewhere in the 20% area, depending on what part of the country one is in, to meet the specification and to get a quality bonus for a Friesian breed cow, whereas for Angus it is probably 50% and for Hereford it is around 60% in terms of meeting the O= or better. It is extended for that two-year period to 100% with the objective of pushing to breed better cattle from the dairy herd and to use a much higher percentage of beef sires on the dairy herd.
We could argue about that for a long time with Mr. Ryan, but with the focus on the solids and everything else on the dairy side, it is going to be very hard to see how confirmation on the beef side is going to be improved dramatically.
Mr. Martin Ryan:
There is no doubt at all that it is a big challenge. We are trying to change the percentage of animals, and that will demonstrate to others how value can be increased. Not everything will be changed overnight. People will breed replacements continually on the economic breeding index, EBI. We may need to put more focus within the EBI on the beef value within it, but that is an industry matter. Given the amount of dairy stock produced today, there is certainly scope to increase the number of beef-sired animals within that.
I have been very critical about the lack of evaluation in the EBI of the beef value of an animal. That has totally disappeared. Ten or 15 years, it would have been possible to pick a Friesian sire at our local AI station that would have had significant beef qualities. Six weeks ago I went through the same brochure. It was next to impossible to pick a Friesian sire that would add anything to the beef side.
Mr. Martin Ryan:
That is correct as it stands today, and that is one of the things we want to set out to try to move. In the first instance, people will shift towards using more beef sires. Then we get to a point where sex semen will play a role but an improvement is required in technology. The next step after that is to try to have a heavier weighting within the EBI on the beef value of the actual dairy offspring, because those animals are transferred to a different farmer. It is looking at it from an industry value perspective as opposed to within the farm gate.
On the closed loop piece, as demonstrated by the premium piece, clearly somebody wants it and is prepared to pay for it. The closed loop to us is certainly fundamental to the programme. It is definitely the genesis of the ability to pay collectively and deliver that premium over the market piece. It is a combination of ourselves, the customer and the processor. It is, substantially, the customer who is making that contribution. That is what they want. That is what purchasers, as in major retailers and others, want.
I had an engagement recently with a company called Eco2 in the UK with regard to what work it is doing on the carbon area in the context of where we are today and the issues in Ireland. By a mile the greatest level of work it is doing is for retailers in terms of looking to produce what it can sell on the market as a lower carbon footprint beef product. That is where its heart and soul is today. The alternative to doing something is to stay where we are. We definitely want to try to avoid that.
From a customer perspective, it is infinitely easier for them to audit one supplier than to audit 20, 30 or 40 in the supply chain. They just find that impossible to do today. The steps we are taking today form, first and foremost, a potential opportunity to build a block chain within the beef industry here. That would certainly add value and markets down the road. Particularly when one goes towards Asia, that is a big requirement in their minds there for the future development of it.
As Mr. O'Dowd highlighted, the number of cattle, even at 50,000 down the road, is about 2.8% of last year's national kill. It is a very tiny piece but it is symbolic. It demonstrates a potential and a different model for people to look at as well.
On the fertiliser piece, and this is the last piece we considered in this regard, not because fertiliser is different or better than anywhere else because it would be substantially the same, the big challenge with fertiliser, which members will come across in their climate debates and others, is to ensure we use the right kinds of fertilisers to manage carbon footprint. There is a huge impact from nitrous oxide in that regard where we slowly release nitrogen and so on.
One of the comments made by Deputy Penrose was to do with prescription medicines. They are not included. Our whole focus in this programme is prevention of the use of medicine through vaccination and other approaches. It is very much about reducing that part.
Mr. Martin Ryan:
Absolutely, yes. We really want to reduce antibiotic use here and improve welfare and health benefits. That is the best and cheapest way of doing it.
On the price issue that was raised by a good few people, I can assure them we will have a competitive price proposition here, because without it, it does not work for anybody: not for us, not for the farmer, and not for Kepak. Like some of the other schemes we had, they were all oversubscribed and we never had people pulling out of them because they were set up for them.
Glanbia co-op, as mentioned by the Deputy, is effectively a farmer co-op with a farmer board. It is run by farmers for farmers. We might be big but we are not a multinational company operating just-----
Mr. Martin Ryan:
No more than the farmer, whether he decides to go in here or not, he is entitled to make his decision. This is an optional programme that will suit certain people for different reasons, and it is a small percentage of the total market.
Mr. O'Dowd has covered some of the areas, but the important piece was to do with quality and breed. That is applicable to all of the cattle that qualify on the weight basis during that two-year period rather than the percentages that are there today.
There is no desire or approach around looking at other millers or anything else like that. We are trying to find a model that will help the value of a dairy calf and help a beef producer get a return on rearing them. We see that as quite a challenge today. We are trying to bring some certainty and clarity to that. It is for a small percentage of the cattle population. Depending on how it goes, others may follow suit and others may have other initiatives around this.
A number of the other issues were covered a few times. There was a question about the age of the calf. There is no limit regarding what point a calf can move at. It was one movement at any time in its life. If a dairy farmer normally keeps his calves for nine months, a year or a year and a half and another farmer finishes it from there, that is not an issue. There is no restriction around that.
On the price of the calf, we have no involvement in setting the price. It is between the farmers. It is always a challenge to make sure the market has a fair price. We reckon the fairest way of handling that is through the farmers. Just as we will send all members of the club the weekly ROI price quoted, what we will do is also send them the prices of calves from the marts to give them an indication of where the price is at.
That covers most of the key points.
Mr. Pat O'Keeffe:
On the general comment about the Glanbia schemes, it was mentioned that Glanbia had tried schemes like this previously. The fixed milk price schemes were launched. They are voluntary schemes. We are now on scheme No. 13 and over 20% of the milk in the Glanbia pool is fixed by farmers voluntarily. If a scheme is not attractive when it is launched, no farmer will sign up. We have 4,500 farmers and they make independent choices.
Deputy Cahill said he was surprised at the lack of critical analysis. There was certainly critical analysis at the information meetings we mentioned. The interesting thing I discovered is that, after the critical analysis, the farmers asked many hard questions about the price of inputs. To be assured they would be getting value, they signed the form after the meeting. Ultimately, this is not a short-term programme. If the farmers perceive that they are not getting value and a return at the end of the programme, they will opt out after a period. We will be the losers. Glanbia and Kepak have set out on a journey with ambitious targets, and those targets will not be reached if the programme does not work for farmers. Farmers will sign up for calves this year in the pilot, and if the pilot works for them, they will continue in the programme. If it does not, they will move their business elsewhere.
A number of the members mentioned the private merchants. We operate in 21 counties and in all those counties there are strong, private, independent merchants and other co-operatives competing for farmers' business. It is to the betterment of farmers that they are there. They have invested in their business, the dairy herd has expanded, the dairy processors have invested in milk processing capacity and the private merchants have invested. At every Glanbia council meeting there is comment on the pricing. There is great competition in the market. This programme for 6,000 or 20,000 calves will not change the competition that exists across the 21 counties. We fully respect that.
Mr. Martin Ryan:
I wish to add a comment on Deputy Cahill's query about the age of the Friesians. Obviously, meat is required 12 months of the year, so it is important that there is a range in which animals are slaughtered. While the upper end will be 30 months, we anticipate that there will be a range operating there, particularly with some heifers coming from suckler farmers at 20 months and some of the Friesians the Deputy mentioned being 27, 28 or 29 months to get them to the required level of finish.
The fodder crisis and credit were mentioned. Glanbia, being a farmer co-operative, showed its true colours during that period and gave a massive extended credit facility, an extended credit scheme, to farmers, which they will be working off over the next couple of years. We have been very fair in that regard.
Mr. Mick O'Dowd:
Deputy Cahill also asked if the consumer wants this. Not all consumers want it. Consumers are driven by many different things, and as an exporter of 90% of our beef, we are consistently looking for differentiators in the market. There are consumers who are very driven by the environment and by consistency in eating quality. We feel we can bring all of the different attributes into it through this. It was mentioned that there was an insinuation against other merchants. There absolutely was not. It is because of the consumer-led drive for additional attributes to the beef that we are trying to bring a product to them, and this is the way we feel we can do it for a cohort of cattle.
I repeat that this is a small percentage of the overall kill from which we are trying to produce a package that can go to a customer. That is what is driving it.
I wish to make another point. From talking to our supply base - more than 10,000 farmers are supplying us - and from the beginning of our discussions with Glanbia, we wanted to have a solution for the suckler industry as well. Again, it is not the perfect solution but it is an effort to raise the output from those suckler herds. For suckler farmers who are prepared to finish their progeny under the programme and to take in a minimum of 25 calves from the dairy herd, all of their progeny are eligible under the pricing structure we have outlined. We feel it is a start to bringing a solution to that industry as well.
I have been looking at the practices that would be required. The outline refers to fertiliser, feed and time of weaning. It is all the good husbandry and best practice we should see happening on the farm. I assume that advisers will be part of this package. Will the witnesses contract Teagasc or the like to talk to farmers or will they employ advisers to work with farmers to meet these standards and to check that the standards are being met? There will be a cost involved in that regard as well and the farmer somehow or other will pay that cost down the line.
My experience of it, and I have been on both sides of it, is that when one is working with a group like this and one has advisers going around working with farmers, what one is talking about is creating specialists. Glanbia and Kepak want to have a group of specialists who can produce a special product for them and will do that within the group. Some farmers who are not up to that standard will fall away in time and others will stay. Farmers have a fear of the feedlot scenario, that the witnesses will have a specialist category that will produce the best of the product they want under their conditions, and that the others will fall aside, will not get the price and ultimately will fall out of the system and fall away from farming. That concern must be addressed.
As far as I can see, the witnesses are talking about a producer group. This is a farmers' producer group in all but name. It is not being organised by the farmers but by Glanbia and Kepak. The farmers are working to a particular standard, getting a particular price and using particular inputs. They are basically working in that model. At present, there is funding available for producer groups. Has that been examined by the witnesses or by the farmers?
I apologise that I had to slip out earlier and perhaps my question was asked, but is there much interest in this initiative at present? As a Glanbia supplier, any initiative that will help the beef industry must be welcomed. Obviously, there might be some issues that could be teased out further, but if we carry on as we have been over recent times, we will end up in difficulty. There is an old saying that if one keeps doing the same thing, one will always get the same result. We have seen that over time. The beef industry must change and diversify over the next period so it can be sustainable for the future. Hence the discussions in that regard in this committee over the past month or six weeks.
For many years I have seen that dairy farmers are more keen to use technology to progress. Tillage farmers use it to a lesser extent, but dairy farmers are particularly keen to use technology.
We have seen the results of that technology in recent times. Do the delegates agree there is a requirement for education in some parts of the beef sector in that regard? My view is that it should be a key focus of the meat industry to educate, bring farmers along and ensure they have confidence in the future.
Will the delegates indicate whether there has been much interest in their initiative and if they expect to be able to fill the quota for this year? Looking to the future, do they intend to sell their message and programme? If they have filled their quota by the end of the year, will they assess where they are after year one and go from there?
Mr. Mick O'Dowd:
The pilot phase quota of 6,000 has already been oversubscribed. The expression of interest form was for the purpose of expressing interest in the programme for the years 2019 and 2020. We are well on the way to filling the 2020 quota.
Deputy Martin Kenny asked some important questions about our objectives. The club technical team comprises people from Kepak and Glanbia coming together to help and support the farmer, at no extra cost to the latter, throughout the life span of the animals registered with the club. Our KK club was developed in the late 1990s and is still going strong with more than 50 members. The club approach is what we have always encouraged and strived for, building loyalty and supporting our farmers throughout the production cycle of their animals. We see this programme as being very similar. We hope in year one to have 100 to 150 farm members, with the average number of cattle per farmer likely to be in the region of 50 to 55. That is the typical number that has come back via the expression of interest form. On that basis, we expect a club membership in year one of 100, rising towards 1,000 by the time we hit our target of 50,000 animals per year.
Mr. Martin Ryan:
On the advisory aspect, what is really motivating us to provide a good specialist technical advisory service is the evidence from the profit monitors on the calf to beef programmes which show an enormous difference between average income and the top one third. There is huge scope for improvement in that regard. The main reason a person might fall out of beef production is the lack of being able to drive his or her output figure. With reference to the 513 farms in the profit monitor of the calf to beef programmes in 2017, the difference in output per hectare between the average and the top one third was 362 kg. The difference in value of output per hectare was €855. That is an enormous gap which must be closed if people are to produce beef sustainably, which is the objective of the technical team. A large part of it is driven by good grassland management, more than by anything else. The objective is to get good lifetime performance from cattle and keep costs under control. That is the angle from which we are coming and we will have a number of specialist advisers working to that end. In addition, we have had discussions with some of the Teagasc specialists. There will be room for their involvement where there are specialist skills that can be used. We will have workshops and particular farms we will visit to demonstrate those skills. That is a critical aspect of our work because there is a great deal of low-hanging fruit. To translate the figures into costs per kilogram of live weight, the difference between the top one third and the average in the calf to beef systems is 50 cent. It is a serious difference. Our goal is to ensure all of the available potential is harvested.
I thank the witnesses for attending to give us an insight into the initiative. I wish them well with it. This forms part of our ongoing discussion on the future of the beef industry, which I am sure they are following closely. We will have a number of further engagements in the coming weeks, with representatives of Teagasc, Bord Bia and the Competition and Consumer Protection Commission due to appear before the committee. We hope to have a report in early June outlining a clear pathway for the future of the beef industry, which is an important sector in agriculture. It is important that it has a sustainable future.
I again thank Pat O'Keeffe, Martin Ryan, Mick O'Dowd and Jonathan Forbes, for appearing before the committee. I also thank Mr. Forbes for the hospitality he showed when we visited 18 months or two years ago.