Tony Killeen (Clare, Fianna Fail)

Over the past year or so, we have witnessed unprecedented examples of volatility in dairy product prices. This volatility is a symptom of the changed EU policy framework in which we are operating. Global market forces are having a major influence on the price paid for milk. The mid-term review of the Common Agricultural Policy in 2003 led to a series of reforms that resulted in a shift from market support to direct income support. These changes were expected to lead to a reduction in the prevailing milk price, but the opposite occurred — the international commodities boom caused milk prices to reach as high as 40 cent per litre. Prices averaged 34 cent per litre in 2007 and 2008.

During last year's health check negotiations, there was pressure to considerably remove or weaken the support measures. The Minister, Deputy Smith, fought hard to keep the key market instruments in place. They are now being used to help to support the market. EU export refunds and internal subsidies were suspended in 2007 when prices were at record high levels. When the market situation deteriorated towards the end of 2008, the Minister called on the Commissioner to reintroduce support measures to help to stabilise the markets. The Commission initially responded by introducing — two months ahead of the normal date — an aid scheme for the private storage of butter. This meant butter market support was available in January instead of March. This scheme is still in use. Export refunds were reintroduced for butter, cheese, skimmed milk powder and whole milk powder in January. Public intervention for butter and skimmed milk powder was opened in March. When the mandatory limits of 30,000 tonnes and 109,000 tonnes, respectively, were purchased at the intervention price, this was extended to enable significantly increased volumes of butter and skimmed milk powder to be stored under tendering arrangements. Some 20,000 tonnes of butter and 27,000 tonnes of skimmed milk powder from Ireland have been funded under these schemes.

The reintroduction of export refunds to support the sale of dairy products outside the EU was an important action. It was a signal of the Commission's intention to put a floor under the market. It has succeeded in doing that. These measures have helped to stabilise the dairy market. The Minister and I believe other actions can be taken to help support the market, however. Intervention purchases of butter and skimmed milk powder will close at the end of August. The private storage scheme for butter will end in the middle of August. The extension of these schemes beyond the normal closing dates will be crucial in preventing further market turbulence. At meetings of the Council of Ministers, the Minister has strongly recommended that the closing dates should be extended without delay. He has also called on the Commission to set aside the "free at frontier" threshold price so cheese exports from Ireland can attract export refunds and facilitate trade.

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I have given examples of ways in which the market can be supported by fully utilising the available measures. 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 arose from the excess supply response that resulted from high prices in 2007 and the early part of 2008. That situation was worsened by the international financial crisis. This had a major effect on the demand side. Difficulties with access to credit exacerbated a cyclical downturn into a major reduction in international demand for dairy products. The market is carrying surplus stocks as a result. It will not recover fully until demand picks up. It is important to emphasise that medium-term prospects for global dairy markets are good. Growth in wealth and population is forecast to stimulate strong levels of demand for dairy products. Returns will improve commensurately. The Minister is confident that the sector will recover from this current downturn and achieve its fair share of the annual growth in demand for dairy products predicted by the OECD and others. In the meantime, he will continue to monitor closely the Commission's management of the dairy market. For example, he will call for the full implementation of existing and new measures as appropriate.

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