Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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2. To ask the Minister for Agriculture, Food and the Marine his views on the predictions of the Teagasc economics unit and the Irish Dairy Board for a lowering of dairy returns over the next year and the way he proposes to deal with this. [48483/14]

Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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As this question is practically the same as the one the Minister has just dealt with, I will not dwell too much on it.

Simon Coveney (Cork South Central, Fine Gael)
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Yes. I can go into it in a little more detail.

Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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The Teagasc economic unit and the Irish Dairy Board have predicted that milk prices could decrease to as little as 27 cent a litre. This would be unsustainable for many farmers. I refer to many of the smaller producers, rather than the highly intensive producers. How does the Minister hope to deal with the smaller producers who could go to the wall in such circumstances?

Simon Coveney (Cork South Central, Fine Gael)
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It is important to be accurate. Teagasc has stated it thinks the average price next year will be 27 cent a litre. Everybody is predicting that prices will get stronger at the back end of the year, but the price might fall below 27 cent a litre. On the basis of what Teagasc is predicting, this might not be the bottom, but it might not necessarily come to pass. There has been a slight increase in some of the quoted milk prices in New Zealand in the past couple of days, from which I would not get too much encouragement, but we will see what happens. We will see quite a significant price change across Europe in January. However, we will wait and see.

It is not about whether one is a big or a small dairy farmer. Many of the bigger guys have taken on huge debt. While they might have economies of scale, they also have debt management issues. Many highly efficient small dairy farmers who are running very good family operations on 40, 50, or 60 milking cows have done well in the past couple of years. Deputies should not forget that farmers have seen the upside of price volatility in the past two years. The highest milk price ever seen was achieved during that timeframe. We are now potentially looking at the downside of price volatility. That is why we need to consider new pricing models for milk. This is already starting to happen in the industry. If farmers agreed to lock 40%, 50% or 60% of their milk into a medium-term pricing contract, that would take the peaks and troughs out of price volatility. It was very difficult to get farmers to do this in the past couple of years when prices were at an all-time high. They are certainly looking at doing it now. That is happening in grain markets also.

At a domestic level, we need to make sure the banks show the necessary flexibility to keep dairy farmers in business. Over a five year period practically every dairy farmer in the country will be profitable and running a good business. As I have said to Deputy Éamon Ó Cuív, we are pushing hard at European level for the Commission to be open to using the tools available to it. It will be very difficult to use export refunds because it is such an expensive approach. It is very unpopular outside the European Union because it is essentially seen as involving the dumping of produce. Any effort that can be made in terms of intervention pricing and aid to private storage can be of significant assistance in bringing pricing balance and a price floor to the market

Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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I do not disagree with much of what the Minister is saying. All Deputies, including the Minister and me, have shared concerns about the effect of price volatility on weaker producers and smaller farmers. The past two years have been excellent for farmers. Dairy producers, in particular, have had a very good two years. The all-time high achieved earlier this year was a tremendous price for milk. The abolition of the quota will result in many other types of farming enterprise leaving these sectors and entering the dairy sector, but they will have to borrow a great deal of money to do so. The effect of price decreases on smaller producers who are producing at or perhaps below production level is much more magnified. Bigger producers, including those who have borrowed a great deal of money, are better able to sustain their businesses than smaller producers. That is my concern in this regard.

Simon Coveney (Cork South Central, Fine Gael)
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It is important to note that the Common Agricultural Policy has been designed to try to bring income balance to farmers also. This is one of the reasons we have direct payments. I remind the House that the average dairy farmer in Ireland receives a direct payment of €18,000 a year. That is the average payment. Some of the bigger guys receive much higher payments. Teagasc has predicted that the average annual income on dairy farms will drop from €64,000 or €65,000 to €34,000 next year. The €18,000 single farm payment becomes a much more important income support when there is such a significant decrease. We will be offering other supports such as disadvantaged area payments. New environmental schemes will be opening up. A new targeted agricultural modernisation scheme will be specifically tailored for farmers in the dairy sector who want to invest. Young farmers will receive 60% grant aid for this investment. There are, therefore, many supports available. The real challenge is in preparing the market for the dramatic price volatility we are seeing from last year to next year. We need to insulate and help farmers to hedge against this price volatility for the future. That is where Ireland can introduce new pricing models and new thinking, rather than relying on the Commission to do so. The Commission needs to be open to acting on dramatic price drops at European level, as I think it will be.

Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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The Minister mentioned the new pricing model in his initial response and has done so again now. I take it that this model involves processors locking in a certain amount.

Simon Coveney (Cork South Central, Fine Gael)
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Yes.

Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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That would be a very good idea, as it would give an element of certainty to the producer. If one third of what is produced was locked in at a sustainable price, it would assist in having a soft landing in the market and help those who are not able to withstand the volatility of the market. It is something in which I would see a great deal of merit.

Simon Coveney (Cork South Central, Fine Gael)
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I thank the Deputy for being constructive. That is exactly what we are trying to do. For almost two years Glanbia has been encouraging its members to lock a portion of their milk into a pricing model that guarantees a margin for farmers. When it does deals with the customers to which it sells its products on the back of that locked-in price, it locks in a price also. Its big customers - the buyers of powder, cheese and butter, etc. - are also looking to agree locked-in prices in order to take the uncertainty out of this volatile market. The more we can put medium-term and long-term pricing contracts in place, not just in the dairy sector but also in other areas, the better. I met malting barley growers yesterday who were doing the exact same thing. It is great that the IFA is showing such leadership on this issue. Farmers would not lock everything in - they would lock in a portion of their product at a price they would know would be certain for a period of one, two or three years. They can take their chances on the highs and lows of the market after this.

Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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The same happened in the sugar beet industry.

Tom Hayes (Tipperary South, Fine Gael)
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They had contracts.