Brendan Smith (Cavan-Monaghan, Fianna Fail)

I am glad to have the opportunity to debate the current situation in the dairy sector and to inform the House about the comprehensive set of initiatives taken in recent weeks to emphasise Ireland's strong opposition to the European Commission's management of the EU dairy market.

Both at Council of Ministers and at bilateral meetings with the EU Commissioner for Agriculture and Rural Development and other Ministers, the Minister, Deputy Coughlan, has consistently challenged the progressive reductions that have been proposed by the Commission and the negative effect these proposals are having on the competitiveness of the EU dairy sector. In particular, I am concerned about the impact these reductions in aids and subsidies are having on the ability of the Irish dairy industry to export dairy products to third countries.

At the Council of Ministers meeting of 30 May, the Minister specifically raised this matter and secured the support of a number of other member states with which we had bilaterally raised our concerns and which shared our point of view. During the discussions, the Minister very resolutely argued that decisions at the milk management committee were causing severe pressure on the ability of the sector to compete in international markets, which had been carefully built up over decades and with which the EU dairy industry and Ireland in particular had established a very successful trading partnership.

The Commissioner was told that the reductions in aids and subsidies represented a far too aggressive market management approach by the Commission. The Minister particularly emphasised the recent reductions in casein aid and export refunds for butter and skimmed milk powder. The Minister urged the Commissioner to ensure the delivery of greater market stability in the period ahead when the further institutional price reductions of the 2003 Luxembourg Agreement are due to be implemented. Stability in this period is absolutely essential so that the industry is capable of concluding sales contracts and setting raw material prices in a stable commercial environment as we move into the third quarter of the year.

While the Commission management of the market for dairy products is a factor in determining price signals for raw material producers, it is nonetheless important not to lose sight of the fact that milk price is determined by a number of other factors, including the international market for dairy products, the type of products being produced, their market destinations and the efficiency of production and processing. Producer prices for milk in Ireland have remained stable in recent years despite reductions in intervention prices for butter and skimmed milk powder. These reductions in institutional support prices have resulted in farmers being compensated in 2004 to an amount of €60 million or 1.2 cent per litre. Further compensation of 2.4 cent per litre, amounting to €120 million will be paid this year as part of the single farm payment introduced as a result of the Luxembourg Agreement on the reform of the CAP.

The key for Ireland, and the area we directly influence, is internal competitiveness. Clearly aids and subsidies at EU level are essential ingredients in our relative competitiveness on world markets and we will continue to remind the Commission of this key fact in its market management decisions. We cannot escape the fact that there are internal structural impediments in our domestic dairy sector that need to be addressed so that we remove the factors that inhibit growth and development. These matters need to be addressed in a more purposeful manner at primary and secondary level and in terms of matching product mix with emerging market and consumer demands.

See this speech in context