Tony Killeen (Clare, Fianna Fail)

The Common Agriculture Policy, CAP, provides a range of measures that can be used to assist the dairy market. These were modified in the CAP reforms of 1999 and 2003. In the CAP health check negotiations last year there was pressure to remove or weaken the support measures significantly. At that time, the Minister for Agriculture, Fisheries and Food, Deputy Smith, fought hard to keep in place the key market instruments and these are now being used to help support the market.

In the EU, export refunds and internal subsidies were suspended since 2007 as prices were at exceptionally high levels. As the market situation deteriorated towards the end of 2008, the Minister for Agriculture, Fisheries and Food called on the Commissioner to re-introduce support measures to help stabilise markets. The first step taken by the Commission following his intervention was to introduce an aid scheme for the private storage of butter a full two months ahead of the normal date. Butter market support was available in January instead of March and the scheme remains in place, already supporting the storage of some 96,000 tonnes of butter at EU level. Also in January, export refunds were re-introduced for butter, cheese, skimmed milk powder and whole milk powder.

In March, public intervention for butter and skimmed milk powder was opened. When the mandatory limits of 30,000 tonnes and 109,000 tonnes, respectively, were purchased at the intervention price, the Minister for Agriculture, Fisheries and Food arranged a bilateral meeting in Brussels with the Commissioner. At that meeting he secured agreement for the continuation of these schemes under tendering arrangements at close to the intervention prices.

To date, some 81,000 tonnes of butter have been bought into intervention, equal to 8% of the butter production in January to June. In addition, some 96,500 tonnes of butter have been stored under the private storage aid scheme. As regards skimmed milk powder, 203,000 tonnes have been purchased into stock, equal to more than 38% of the skimmed milk powder production in January to June this year. In all, an amount of 20,000 tonnes of butter from Ireland and 27,000 tonnes of skimmed milk powder have been funded under these schemes at an approximate value of €60 million to Irish dairy processors.

The reintroduction of export refunds to support the sale of dairy products outside the EU was also an important action. It signalled an intention by the Commission to put a floor under the market and has succeeded in that goal. So far this year, licences to export some 96,000 tonnes of butter and butteroil and 123,000 of skimmed milk powder have been issued. Similarly, licenses were issued in respect of cheese exports for 129,000 tonnes. The support value of this trade amounts to a further €113 million when these products are exported.

While the support measures have had an effect, more can be done. The Minister has called on the Commission to examine other steps that may assist in reversing the downturn and stimulating the market further. For example, intervention purchases of butter and skimmed milk powder will close at the end of August and the private storage scheme for butter in mid-August. The role these private and public storage schemes play is important. Extending them beyond the normal closing dates will be crucial in preventing further market turbulence at a time when supplies would otherwise hit commercial markets.

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While the Minister understands there are legal impediments to be overcome which he has articulated at meetings of the Council of Ministers, the market situation warrants an exceptional response on this occasion.

He has also called on the Commission to adopt a practical approach to the regulation governing the export of cheese from the EU. The so-called "free at frontier" threshold price is not relevant in the current market environment. This is a self imposed technical impediment preventing the use of export refunds in support of cheese exports outside of the Community in the quantities demanded by the market. The Minister has once again urged the Commissioner to remove the free-at-frontier price for cheeses at the earliest opportunity.

The EU Commission's actions in utilising available support measures have helped to stabilise the market. However, as the milk price is greatly influenced by the forces of supply and demand, support schemes have a limited effect on milk prices. The dairy sector downturn has its roots in the supply response that resulted from high prices in 2007 and in the early part of 2008. That situation was then exacerbated by the international financial crisis. This has had a major effect on the demand side. Difficulties with access to credit have worsened what was a cyclical downturn into a major reduction in international demand for dairy products. The market is now carrying surplus stocks as a result.

As regards short-term credit, the Government is acutely aware that the flow of credit to the economy is of utmost economic importance. A consultancy firm has been appointed to clarify the actual availability of credit and its report is due in July. Also, the credit supply clearing group was appointed by the Government to identify credit supply solutions where a pattern of credit blockage to viable businesses has been identified. These groups are working in tandem to identify and arrive at solutions on credit availability and a report is expected to be made available to the Government in early July.

The Minister of State at the Department of Enterprise, Trade and Employment, Deputy Billy Kelleher, has commenced a series of eight regional meetings in the coming weeks with regional representatives of the major banks, business representatives from local chambers of commerce, ISME, SFA, IFA and the Irish Hotels Federation to gather first hand experience of bank lending. Local representatives from the various state agencies, Enterprise Ireland and Fáilte Ireland, will also attend. This will feed into the work of the CSCG and future Government policy.

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