Mr. Edward Carr:

I thank the committee for the opportunity to address it today. I am accompanied by Mr. Niall Matthews, the chairman of Lakeland Co-op and chairman of the Irish Co-Operative Organisation Society's dairy committee, and Mr. Eamonn Farrell from the Irish Co-Operative Organisation Society's dairy policy executive. The Irish Co-Operative Organisation Society, ICOS, is the umbrella body for the Irish co-operative movement, including milk purchasing and processing co-ops. We welcome this opportunity to discuss the future of Ireland’s nitrates derogation.

The Irish dairy co-op sector is strongly committed to improving water quality and supporting environmental best practice across all dairy farms. This commitment is demonstrated by the sector’s increased funding of the agricultural sustainability support and advisory, ASSAP, programme and the development of individual sustainability programmes by dairy co-ops. We welcome the announcement of the new €60 million water quality European Innovation Partnership, EIP, project that will help promote the adoption of measures needed to protect and restore water quality. We recognise the urgent need to improve trends in water quality to meet our obligations under the EU water framework directive.

However, we note that the pace of change is extremely significant with regard to sustainability and co-ops and farmers are travelling on a journey that will take time. Co-ops and farmers are heavily resourcing farm sustainability and water quality is the number one priority for the dairy industry. A further decrease to the nitrates derogation will have devastating economic effects on the agricultural sector. The anticipated economic effects will include a reduction in profitability at farm level, endangerment of investment made at farm and processing level; significant negative implications for the wider rural economy; a driving of land competition and land price inflation; and a reduction in the competitiveness of Ireland’s grass-based production model. A report by Professor Michael Wallace of UCD for inclusion in the ICOS submission demonstrates the significant reduction in farm profitability arising from a further reduction to the nitrates derogation. A dairy farm in band 3 could experience a reduction in net margin of 56%, which is the equivalent of €983 per hectare.

A further reduction in the maximum stocking rate will undermine the competitive advantage of Ireland’s grass-based system, which is based on maximising grass utilisation. ICOS is very concerned that a further reduction in the derogation will drive farmers towards a more global, indoor-type of dairy production. The combination of banding and the reduced maximum stocking rate has already increased pressure on the land market to unsustainable levels with consequences not only for the dairy sector but also for other livestock and tillage farmers. The pressures on the land market will worsen in the event of another reduction in the nitrates derogation. A reduction in farm level profitability in this order of magnitude will have very significant consequences for the downstream dairy processing industry.

Dairy do-ops have supported their farmer members by making the necessary investments in new processing and sourcing new routes to market. Between 2015 and 2022, milk processors have invested €1.6 billion to handle the 3 billion litres of additional milk produced by dairy farmers. In doing so, the dairy co-op sector responded to the very legitimate aspirations of thousands of farm families across Ireland to develop and grow their family farm enterprises following the end of milk quotas. We also acknowledge the comparable investment made by primary producers in their own farm facilities and businesses.

The Irish dairy industry has thrived due to co-operative involvement in the sector. As a result, dairy farmers have benefited from a strong, cohesive and well-structured industry built in the interests of their farmer owners. We are deeply concerned that a further reduction in the derogation will undermine cohesion in the sector resulting in a shortage in milk supply. ICOS calls on the Government, in the strongest possible terms, to safeguard, enhance and protect the investment made by farmers, the processing sector and the State in the Irish dairy sector by securing the long-term future of the Ireland’s nitrates derogation. ICOS calls on the Government to establish an interdepartmental task force, chaired by the Department of the Taoiseach, to properly assess the economic and social implications of a further reduction to the nitrates derogation. In conjunction, we also call on the Government to commission a full impact assessment into the economic and social implications of a further reduction to the nitrates derogation. This assessment should include an analysis of the spatial or regional effects a further reduction will have on the agricultural and rural economy, upstream and downstream.

A further decrease to the nitrates derogation will have huge social implications, with much wider ramifications for rural communities and for the viability of rural-based businesses such as local co-operative agri-retail stores. We are deeply concerned about the social impact a further reduction to the derogation will have on the family farm model and the impact on smaller dairy farms is a particular worry. Of the 2,150 farms directly affected by the reduction from 250 kg N/ha to 220 kg N/ha, 40% of these farms are less than 40 ha in size. A reduction in cow numbers on these farms will put into question their future viability. These are family farms which have been passed on from one generation to the next.

Changes to stocking rates will also mean greater specialisation on dairy farms. This approach runs contrary to our efforts to create a sustainable and viable dairy calf to beef sector. A very legitimate concern is the impact a further reduction in the derogation will have on generational renewal. Unfortunately, huge question marks hang over the future for the next generation. This generation of farmers are well educated in relation to climate change, water quality and the environment. They are embracing new technologies and are willing to adapt to change. However, the constant change in policy is not allowing farm businesses time to deliver the improvements in water quality. Farmers are responding to climate and water quality challenges.