Michael Moynihan (Cork North West, Fianna Fail)
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Question 26: To ask the Minister for Agriculture; Fisheries and Food in view of the looming milk quota difficulties between now and the end of the milk quota regime, his plans to seek a specific provision from the EU Commission to allow a gradual and orderly expansion of the dairy industry here; and if he will make a statement on the matter. [7842/11]

Simon Coveney (Cork South Central, Fine Gael)
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I will leave aside my notes to answer this question because otherwise I will have to stop half way through and the Deputy will not receive a full response.

There is much concern in the dairy industry about a soft landing for the sector as we approach the end of milk quotas in 2015. There was much concern until a few days ago that there would be a super levy applied to Ireland for over-production of milk in the past 12 months. I am glad to be able to say that is now unlikely, as it looks as if we will be just under quota. Therefore, the many farmers who produced well above quota, some of whom are based in my county, and who took a chance this year are lucky a superlevy will not be applied because many of them would be put out of business if it was.

I want to issue a warning to ambitious farmers. We want to encourage their ambition to increase milk production dramatically after 2015, but there is no political solution to the problem between now and 2015. The solution provided to date by the European Commission is that it will allow a 1% increase in quota each year until the end of the quota system. That is not sufficient for Ireland and the proof is that the cost of quota being traded has not fallen, despite the fact that the regime has only a few years to run.

Ireland is not the only country experiencing this problem. For example, the cost of quota in Denmark is at an all-time high. Some four or five countries in the European Union, one of which is Ireland, want to dramatically increase milk production following the ending of the quota system. We need to try to find a solution that will allow for countries such as Ireland that want to expand and grow a dairy industry and to ramp up capacity to deliver on this objective between now and 2015. I will continue to work with the European Commission to try to bring about a solution. However, farmers must beware because as yet there is no solution.

Michael Moynihan (Cork North West, Fianna Fail)
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There is a serious issue this year and farmers just got away with over-production by the skin of their teeth. Farmers took a chance because there was a view among those involved in the dairy industry this time last year that our national quota would not be reached at any stage before 2015. There are a number of issues, including the problem of capacity for dairy farms which have invested in stock, machinery and parlours, etc. A significant number of dairy stock will come into the system in the next few years and this will cause a serious problem. Even if there is only an average production year weatherwise, we will have a serious issue this time 12 months. I believe the Minister was correct to issue a warning to the primary producer, the dairy producer. However, we must get a system in place to ensure that if we are to reach our targets by 2015, we will be able to cope with the increased capacity in the meantime. The European Union must put a system in place that will allow gradual expansion.

The quota system, for all its faults, has served the industry reasonably well. However, with regard to what will happen post-2015, the industry must be examined to ensure there will be management at European and national level to ensure primary producers will be paid an acceptable price for milk at the farm gate from day one. We will probably reach the target of a 50% increase, possibly more, but we must ensure there will be markets in place and that negotiations will take place at the European Commission and nationally to ensure the place of the product we produce. We must not end up in the situation in which we found ourselves in the 2009-2010 production year when the primary producer was paid a price for milk that more or less only met the cost of production.

Simon Coveney (Cork South Central, Fine Gael)
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There are two issues involved. First, we cannot allow a situation to develop where there will be a dramatic increase in milk production and a collapse in its price because we do not have markets for it. That would be a disaster. This problem needs to be dealt with as part of a soft landing solution in terms of the ending of the quota system. We are working to achieve this through the food harvest implementation body and working with State agencies such as Bord Bia which is working with the industry to find new markets for dairy products such as powder product for baby food in China or new markets in Asia. We are having some success in that regard. We have a mature, developed and experienced dairy industry which has the capacity to increase the volumes of milk purchased and retain high prices for producers, but we need to plan and work together to achieve this.

I have a political responsibility to ensure we attempt to find a political solution in a situation where production in Europe as a whole is under quota but four or five countries are under pressure and want to exceed quota. For example, production in Slovenia is 30% under quota this year, yet Ireland has the capacity to be way above quota but cannot acquire extra quota. In the context of bringing the quota regime to an end, I will try, through forming alliances with other countries with similar concerns, to secure a change in policy that will allow for expansion in the dairy sector pre-2015. However, we do not yet have agreement and are a long way off it. I met the Commissioner a number of weeks ago and he was adamant there would be no change at this stage. Therefore, I would not advise taking a course of action whereby producers would anticipate being allowed to produce milk way above quota and politicians finding a way to solve the problem. We must be very cautious.