Tom Fleming (Kerry South, Independent) | Oireachtas source

With the abolition of the milk quota, the Irish dairy sector will be given an opportunity to pursue efficiencies through increased volumes and will hopefully assert itself on the world stage. Farmers and their co-operatives are gearing up for an increase in milk supply in the order of 50% by 2020 and are making the investments necessary to produce and profitably process and market this milk. Ensuring that farmers and processors will have the capacity for this increase will be challenging. Our international competitors, particularly those in the southern hemisphere, benefit from low-cost milk production on huge farms and from processing on a similarly massive scale.

The Irish dairy industry has operated within an EU quota system since 1983. Milk prices were relatively stable but this did not prevent a dramatic reduction in numbers of milk suppliers, with a drop from about 65,000 in 1983 to about 18,000 at present. Farmers need changes in such areas as taxation, hedging and access to credit to help cope with price volatility, especially in the shorter term. There is a huge potential for return for investing in upskilling farmers and there should be greater and more targeted resources for training and placements for aspiring young farmers. Lower milk prices in 2015 will hit the Irish dairy industry, the farmers' cash flow and the general rural economy by up to half a billion. These are very disturbing and alarming statistics. I am sure the Minister will agree that the European Commission really has not done too much to give us a soft landing. They previously gave assurances in that respect but it did not happen.

Milk volumes will inevitably rise. The systems and farm land are in place to boost output above 5 billion litres per annum. The global demand for dairy products will rise with the development of a new middle class and shift towards a western diet in emerging economies. This will create more demand for our dairy and beef products including cheese, butter and other products. The price of raw milk after 2015 cannot be guaranteed by anyone and will be totally dependent on supply and demand, both of which will undoubtedly be volatile. Without quotas, supply will swing around as the price moves. Demand will rely on economic factors in parts of the world where growth rates and foreign exchange rates fluctuate in a rapid fashion.

The cost of money after 2015 is not known. It is at record lows worldwide at present as central banks continue to adopt an emergency stance towards the financial sector. On the law of averages, I cannot see how the rock-bottom interest rates of the past four years will last for the next 20 years. That means the cost of money will rise, which will have implications for debt. There are also some other immediate downturns. For instance, the dairy markets are expected to be depressed for the first half of 2015. Fertiliser is expected to rise in cost by anything up to 7% or 8%. On a litre basis, the net margins are to fall by 82% in 2015, which will leave an average of €0.02 for a litre of milk. Young farmers starting out are most vulnerable. I would ask the Minister to intervene with the banks with regard to access to money at reasonable rates. With the sharp plunge in incomes, the farmers need co-operation from the banking sector and money lenders.

On the positive side, in the medium to long term, Ireland is well placed to capitalise on the quota changes as our grass-based methods of production allow us to produce milk cheaper than most competitors. While New Zealand and the US are expected to increase production by 2020, Europe as a whole is only expected to deliver a modest growth rate, allowing Ireland to benefit through some price deflation. This is expected as Europe opens up to markets and we are well established internationally as an innovator of dairy based products. Companies like the Kerry Group and Glanbia are world leaders in food and ingredients.

Despite the success of the Irish dairy industry in cultivating new products and markets, there are still obstacles that need to be removed because of the limits in the trade agreements between other countries. For example, New Zealand has a bilateral agreement with China since 2008 which, effectively, prohibits Irish milk producers trading there. There is potential for further development of niche premium quality dairy products for the huge Chinese consumer market, in particular, rather than focusing on the bulk selling of milk. The Irish Dairy Board launched a Kerrygold brand of UHT milk product, which has been developed specifically for the Chinese market in recent years, with the involvement of Lakeland Dairies. Glanbia launched a new whey protein brand for the infant formula market in China. The volume of dairy ingredients exported to that market is 9,000 tonnes. Bailey's Irish Cream Liqueur, another global brand, is a huge success and it is a big asset for the Irish dairy industry that it is growing at such a rate.

It is vital there is consolidation and more co-operation in the existing co-operative sector of the Irish dairy industry if we are to compete competitively internationally. Teagasc is playing a key role at producer level and is working closely with farmers to improve their efficiency levels and the quality of the product by focusing on animal health, nutrition and breeding issues, moves which will also lead to more cost-competitive production. Encouraging better farming also has a knock-on effect on Ireland's sustainability agenda as Bord Bia markets our green product credentials worldwide.

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