Michael Creed (Cork North West, Fine Gael)
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Question 25: To ask the Minister for Agriculture, Fisheries and Food his views on whether the market support measures are adequate to address the crisis facing the dairy sector; the measures he will introduce to address the short-term credit crisis facing dairy suppliers and processors; and if he will make a statement on the matter. [26299/09]

Tony Killeen (Clare, Fianna Fail)
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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.

Additional information not given on the floor of the House

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.

Michael Creed (Cork North West, Fine Gael)
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It has become a predictable process that the Minister for Agriculture, Fisheries and Food issues a press release the week before an Agriculture and Fisheries Council meeting informing us of the current crisis and what he will ask of the Commissioner. After the meeting, he issues another press release stating that because of his intervention, the world and all has been achieved for the dairy sector.

The reality is that for both the producer and the processor there is a real crisis. Farmers being paid per litre of milk 7 cent below the cost of production illustrates their problem. The most recent profit warning by Glanbia is evidence of a crisis on the processing side.

Have the costs of all interventions, such as export refunds and aid to private storage, introduced by the Commission been quantified? Considering we are facing into the CAP post-2013 review, has it been determined whether these interventions are the most appropriate use of public funds to support the dairy sector? For example, has an alternative system been considered that might pay a direct subsidy to farmers to get them through this trough in demand?

Regarding the processors, is there any initiative forthcoming from the Department of Agriculture, Fisheries and Food or the Department of Enterprise, Trade and Employment on the long-promised export credit insurance scheme?

Tony Killeen (Clare, Fianna Fail)
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As the Deputy is aware, I attended the Council meeting in Luxembourg with the Minister, Deputy Smith. I observed at first hand the effort being made by the Minister on behalf of Irish farmers. It is fair to acknowledge that there are significant difficulties in the milk sector at this time. Those difficulties are probably exacerbated by the fact that additional people, who were not previously involved in the sector, got involved in milk production when prices were relatively good in 2007. The Deputy mentioned the possibility of introducing alternative forms of infrastructure. One of the difficulties with that is that it would have to be made up from the start. The initiatives that were taken by the Commission on foot of the proposals made by the Minister, Deputy Smith, are already in place. In some cases, they have been brought forward by a number of months. They have had a positive impact on the removal of produce from the market.

Michael Creed (Cork North West, Fine Gael)
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They have not had a positive impact on the prices being paid to farmers.

Tony Killeen (Clare, Fianna Fail)
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The ultimate aim is to ensure that all of these measures will have such an impact. Farmers often complain that processors are the first to benefit from many of the measures that are taken. Deputy Creed has proposed another intervention on the processors' side. Like all of us, the Minister would like the prices being paid to farmers to increase as quickly as possible. All the indicators suggest that the price of milk, which is entirely cyclical in any event, will return to previous levels in the medium term.

Michael Creed (Cork North West, Fine Gael)
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The Minister of State's words are cold comfort for the producing and processing sectors. The monthly milk cheques being received by dairy farmers are approximately 50% of what they were 12 months ago. The political challenge we face is to ensure the industry can survive the cyclical nature of the downturn and be in a position to take advantage of the upturn in the global markets when it emerges. In light of the severity of the downturn, the reality is that many Irish dairy farmers will be out of business by the end of 2009. Is any initiative being pursued at a political level to prevent that? I acknowledge that initiatives are being ratcheted up at the various monthly meetings. They are not delivering what farmers need, however. If farmers go out of business, jobs outside the farm gate — at food industry and processing levels — will also be lost. If the Minister of State needs evidence of that, he should read Food and Drink Industry Ireland's recent report, which stated that 2,000 jobs have already been lost in this indigenous industry in 2009.

Tony Killeen (Clare, Fianna Fail)
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In my initial reply, I gave the House some information about the availability of credit. Like other Members of the House, the Deputy will be aware of the existence of the Credit Supply Clearing Group, which has had some impact in that regard. As Deputy Creed rightly said, farmers face substantial short-term difficulties. A little over a year ago, many farmers built additional infrastructure on the basis of legitimate expectations arising from the higher price levels of that time. The reality is that we operate in an EU context in the first instance. We also operate in the context of the WTO, which imposes all kinds of rules and regulations to be adhered to. The Deputy will be aware that the price paid for milk to farmers in New Zealand and the United States is considerably lower than the price currently available to Irish farmers. Ultimately, the most effective interventions are those which take produce off the market and ensure that new produce comes on to the market at an enhanced price.

Seán Sherlock (Cork East, Labour)
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Question 26: To ask the Minister for Agriculture, Fisheries and Food the market supports which will be devised to ensure that milk production is guaranteed at a price to farmers that will ensure the viability of dairy farming; and if he will make a statement on the matter. [26200/09]

Tony Killeen (Clare, Fianna Fail)
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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.

Additional information not given on the floor of the House

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.

Seán Sherlock (Cork East, Labour)
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Does the Minister of State accept that while some farmers made profits that could be described as super-normal in recent years, when historically high prices were being paid for milk, the vast majority of them reinvested those moneys in their farm holdings? Does he agree that the lowest price being garnered in the market at the moment — 20 cent per litre — is completely unsustainable for dairy farmers with small and medium-sized holdings? I take the point the Minister of State made about export refunds. I welcome the extension of the aid to private storage scheme. Is the case in aid scheme in operation at present? What kind of take-up is it enjoying? Is the efficacy of the calf replacer scheme being analysed at present? As part of the overall process of increasing market supports through the EU, will the Minister for Agriculture, Fisheries and Food examine the relationship between producers, retailers and the co-operative movement? It seems to me that the relationship is unbalanced — it is not based on equity. Perhaps the Minister and his colleague, the Tánaiste and Minister for Enterprise, Trade and Employment, should consider introducing legislation on fair trade practices. We need to ensure the multiples act fairly when they designate a price to the primary producer, especially as the primary producer is a price taker.

Tony Killeen (Clare, Fianna Fail)
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The Deputy is quite right to suggest that many farmers reinvested their profits on the basis of their belief that the price of milk, which was historically high in 2007 and 2008, was likely to be maintained in the medium term. To be fair, the indicators at the time suggested that was likely to happen. The Deputy made the point that the current position is unsustainable for a number of producers. It is certainly unsustainable in the long term. All the indicators are suggesting that this is a short-term blip. Farmers and others will be aware that the price of milk has always been cyclical. It has never before decreased as dramatically over a short period of time as it has recently. Nevertheless, it is cyclical. All the indications in relation to future milk prices are very positive. The availability of credit, which is a really important question for farmers in terms of sustainability, is being addressed. The Minister, Deputy Smith, has met the banks on a number of occasions to make that case strongly to them. The Deputy also spoke about the need to increase market supports. Virtually every support that had previously been in place has now been brought back into action. The Department is constantly looking at new ways of addressing the problems mentioned by Deputies Sherlock and Creed and ensuring some benefits accrue to farmers as part of that process.

Seán Sherlock (Cork East, Labour)
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I respectfully suggest that this is not necessarily a short-term blip. This is potentially a structural change in the market. Nobody, up to the EU Agriculture and Rural Development Commissioner herself, can foresee what will happen in the market in the future. Will the Government consider other means of ensuring that primary producers of all hues are guaranteed some kind of fair market price for their produce in the retail multiple sector? I refer to the introduction of fair trade legislation, for example, or the appointment of a retail regulator. Such measures should be introduced as part of a package that includes the market mechanisms being implemented by the Commission.

Tony Killeen (Clare, Fianna Fail)
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I have not addressed the final element of the Deputy's initial question. The relationship between producers, processors and retailers is an important aspect of all of this. There may well be a structural change in the market at this particular time. I have heard that postulated by people who look at the price in New Zealand and the USA, for example. Notwithstanding that, considerable research has been done, not least by Teagasc, which the Deputy will be aware of, which indicates that one of the effects of a low price such as this is that people who increase their production are unlikely to continue and, in fact, are likely to go in the opposite direction. The balance between the availability of the product and the market demand for it is likely to become balanced in the relatively short term in view of the dramatic drop in prices at this stage.

In response to the Deputy's question about fair trade legislation, neither the Government nor anybody else should have their ears or minds closed to any form of initiative that might address what is an enormous difficulty for Irish dairy farmers and one which, even if it were short-lived, has enormous consequences as regards sustainability and incomes.