Niall Collins (Limerick West, Fianna Fail)
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Question 71: To ask the Minister for Agriculture, Fisheries and Food the additional support measures being put in place to support the dairy sector here. [4932/09]

Brendan Smith (Cavan-Monaghan, Fianna Fail)
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Dairy farmers' incomes comprise the market price paid for milk and direct income support from the EU. Market forces have a significant and increasing influence on the price paid for milk. World market prices determine the returns received by dairy processors and these in turn are reflected in the price paid to farmers. In essence, farm gate prices normally reflect the returns from dairy product sales in international markets. Dairy product prices reached record high levels in 2007 and early 2008, and producer prices also peaked at that time. Since then, international prices have fallen back considerably, although the average Irish producer price for 2008 was similar to the 2007 price. The indications are that markets will remain weak in the first half of 2009.

I made it clear to Commissioner Fischer Boel that a range of supports would help to restore confidence and put a floor under market prices. The Commission initially responded by commencing the 2009 butter private storage scheme two months early. Subsequently, on 15 January, the Commissioner announced further measures to assist the dairy sector, which included a commitment under the intervention system to purchase more than the fixed quantities of butter — 30,000 tonnes — and skimmed milk powder — 109,000 tonnes — if the market situation requires it. In addition, she announced the reintroduction of export refunds for butter, milk powders and cheese, and these were reinstated at the milk management committee meeting on 22 January.

Irish operators can now avail of these refunds and my Department will continue to examine the position and urge the Commission to set the refunds at an appropriate level to support the dairy sector. During the health check negotiations, I argued strongly in favour of keeping critical market instruments in place and using them effectively. These support measures can now be used to respond to price volatility in the current market situation and will help support the dairy sector in Ireland. While we are facing short-term uncertainty, analysis shows that the long-term outlook is bright. The main international forecasting organisations predict global growth in wealth and population in the medium term. This will present new opportunities for high-quality producers such as Ireland, and all areas of the dairy sector can expect to reap the rewards.

One of the major challenges in the medium term is to ensure that Irish farming and the agrifood sector is at the heart of an evolving high-value food market which is focused on quality and innovation. As part of this overall strategy, the Department provided funding of €140 million towards investment in dairy processing. A total of 19 capital investment projects were approved and awarded grant assistance under the fund, which will generate an estimated capital spend of €286 million at full production. In the meantime, I assure the House that I will continue to monitor developments in the dairy sector closely and intervene again with the Commissioner as the market situation evolves and in view of the particular difficulties facing the market at present.

Niall Collins (Limerick West, Fianna Fail)
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Could the Minister clarify the products covered by the export refunds that were recently introduced? In addition, I ask the Minister what he considers to be the general outlook with regard to dairy pricing. How does he feel the dairy investment fund will improve the dairy industry? Could he comment on the benefits of the CAP health check to the dairy sector?

Brendan Smith (Cavan-Monaghan, Fianna Fail)
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With regard to dairy prices, as Deputy Collins knows and as I mentioned in my earlier comments, the dairy market has been volatile and things are difficult for producers and processors at present. We had good prices in 2007 but difficulties arose in 2008 due to the extra supply coming from New Zealand, turbulence in the global financial market and the lack of demand worldwide. New Zealand, which is a big exporter, can benefit from a favourable exchange rate. All of this makes things difficult for Irish and European producers. Prices are low in New Zealand and the US and the recession is reducing consumer demand. As I said, New Zealand benefits from having its own currency which can be devalued when necessary. It is a major exporter. Fonterra, its major processor, is the biggest exporter in the world. Thus, things are difficult for producers in terms of prices, and processors have indicated that the first half of this year will be particularly difficult.

Export refunds are applicable to butter, skim milk powder, whole milk powder and cheese. The Deputy also asked about the health check. This country has a strong dairy industry, notwithstanding the pressures on the market at present. Additional milk quota will be valuable and beneficial to dairy farmers. It will bring extra capacity to the country and will be put to good use.

Michael Creed (Cork North West, Fine Gael)
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I accept that this is a difficult time and many of the problems are dictated by global conditions. What we need is far more aggressive use of market support measures at European Union level. The Minister said that the picture looks difficult for the first half of 2009, which is the peak milk production time for Irish farmers. The Minister will be aware that some processors are talking about a doomsday scenario, with farmers paid in the region of 19 or 20 cent per litre for milk. That is the cost of production. Farmers will not be able to ride out that type of price volatility. Notwithstanding what has been achieved in Brussels, as the Minister has outlined, does he accept the necessity to go back to ensure that a more realistic price can be paid by processors if there is more aggressive use of market support measures?

Brendan Howlin (Wexford, Labour)
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A number of Deputies wish to speak so I ask people to be brief.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
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Deputy Creed is right. The market mechanism measures can take product off the market, thus giving it a boost. During the course of the health check, many countries argued that such measures should be much restricted and that the Commission should decide when they were invoked. We argued strongly for the need for the private storage system, the intervention system and the export refunds. The market management committee is meeting on 19 February. We have indicated to the Commission that we are adamant that there should be a higher level of refund to support the market. We have argued for that. The private storage scheme was brought forward to 1 January. We have argued strongly to the Commission, and will continue to do so, that we need to make maximum use of the market mechanisms that are available in view of the particular difficulties that exist at present.

Seymour Crawford (Cavan-Monaghan, Fine Gael)
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I welcome any support measures. Does the Minister accept that it is pointless to get an increase in quota when we do not have an increased market? Clearly, increased production at European level and elsewhere has affected the price. How can he give such a positive view of the world market when production in the US and elsewhere is constantly increasing? The US, in fact, is now using storage systems to prop up its own market. Can the Minister assure us that he will exert maximum pressure to increase the use of intervention and other measures to underpin the drastic prices available at present?

Brendan Smith (Cavan-Monaghan, Fianna Fail)
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The Deputy pinpoints the particular difficulties facing the market. Additional quota will be useful. The commodity price and this industry have suffered from cycles. We can suffer problems arising from the currency, which can be in our favour at times and against it at others, while in 2007 there was a drought in New Zealand which reduced production there. The US emerged as an exporter and was helped in that by the weak dollar. However, higher feed costs there and the strengthening of the dollar slowed that trend. Undoubtedly, farming practices that increase production or decrease production in any of the major producing countries have an adverse effect on us. There is a limited market.

With regard to the medium term, a couple of years ago we could have discussed the growing affluence of highly populated countries such as India, China and Asia, the changing dietary requirements of people there, the huge growth in population and new markets evolving in those countries for dairy products. That is not as applicable today as it was at that time or a year ago. The only consistent trend is the growth in the world's population. The Food and Agriculture Organisation of the United Nations has produced long-term forecasts on the likely demand for food and has indicated that food production will have to double by 2050. I appreciate that this is no good for the individual farmer who is getting a bad price for milk today.

Seán Sherlock (Cork East, Labour)
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To what extent does the Minister believe that the commodification of dairy products and the fact that they are tradeable commodities has an effect on the markets and on the price of milk for Irish farmers? This should be taken into account. Are there discussions at EU level or within the WTO framework to tackle the fact that commodification is causing great vagaries in prices? That is having an impact on the market here.

John Deasy (Waterford, Fine Gael)
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With regard to the price supports the Minister mentioned and his talks with Commissioner Fischer Boel, what do they mean in a practical sense to a farmer who is offered 19 cent per litre when the farmer's production costs are probably 22 cent or 23 cent? In the last three or four years farmers have been mandated to follow EU directives relating to issues such as waste management on their farms, the nitrates directive and so forth. They have been asked to spend a great deal of money on their farms. In some cases the Department has announced schemes. It allocated €56 million for one of them but thousands of farmers have not even received that money and do not know if they will get it. At the same time that the Minister has imposed this burden on farmers, the processors are offering them 19 cent per litre, a reduction from 29 cent. In the case of some winter milk producers, it is a reduction from approximately 39 cent. The Minister must answer the farmers' questions. How are they to stay in production if that is the price they will be given by the processors? What is the Government going to do about it, considering what the Minister has mandated farmers to do under EU directives? What will the EU do to try to save some of these family farms that are facing non-viability within the next year?

Brendan Smith (Cavan-Monaghan, Fianna Fail)
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In response to Deputy Deasy, the market mechanism measures we discussed previously are European Union wide. Everybody knows the law of supply and demand — if there is over-supply or lack of demand, the producer is, unfortunately, the victim. That is happening with milk production today. We argued within the European Union, with some success, for the retention of aids to private storage, intervention, which is really public storage, and export refunds. We succeeded in having the date brought forward for the implementation of some of those measures. We will argue in the management committee of the European Union next week that the measures should be improved to provide a better baseline price in the industry. Over-supply, lack of demand, currency problems and global recession are all factors in keeping the price down for the dairy producer.

Brendan Howlin (Wexford, Labour)
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We are seven minutes over time on this question.

John Deasy (Waterford, Fine Gael)
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The reality is that in my constituency hundreds of farmers will go out of business. The Minister will have to succeed next week.

Brendan Howlin (Wexford, Labour)
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We must proceed to the next question. The Deputy has made his point very forcefully.

John Deasy (Waterford, Fine Gael)
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Hundreds of dairy farmers will go out of business if this price reduction comes into force.

Brendan Howlin (Wexford, Labour)
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We must proceed to Question No. 72. We have spent more than double the allocated time on this question.

John Deasy (Waterford, Fine Gael)
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Will the Minister please respond?

Brendan Howlin (Wexford, Labour)
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Very briefly.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
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The Deputy is well aware that we do not set the price. Deputy Crawford and I are from a constituency that has a huge dairy sector as well. People are working extremely hard.

John Deasy (Waterford, Fine Gael)
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The Minister mandated that EU directives be carried out. At the same time the farmers are paying this money, they get a price reduction.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
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We do not mandate any EU directive, as the Deputy is aware. He was chairman of the European affairs committee and he knows——

John Deasy (Waterford, Fine Gael)
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I tried to stop it, for this reason.

Brendan Howlin (Wexford, Labour)
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Allow the Minister to reply.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
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Directives are implemented European Union wide; they are not mandated by me or by the Department. We must implement them when the decision is made.

John Deasy (Waterford, Fine Gael)
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Could the Minister not grant aid it?

Brendan Howlin (Wexford, Labour)
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We must move on. We are eight minutes over time on this question.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
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Does Deputy Deasy think——

John Deasy (Waterford, Fine Gael)
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The Minister has allocated €56 million for these farmers. Most of them are not going to get the grant for the waste management scheme. The Minister cannot announce a scheme for waste management and then not fulfil it.