Wednesday, 4 March 2015
Dairy Sector: Statements
This is a timely debate. In the coming weeks we will be abolishing the dairy quota regime across the European Union in what is probably the most significant policy change in agriculture for the last 30 or 40 years. It will have a dramatic and positive impact on rural communities and the rural economy for the foreseeable future. Dairy expansion will also bring challenges but we have been preparing for them for some time. We will be providing family farms across the country, from west to east and north to south, with opportunities for sustainable expansion. Farmers will be able to grow their businesses and build on their potential for increasing milk output in a way that is very exciting.
Anybody who doubts the significance of the level of investment being made on the back of this opportunity should drive from Cork city towards Limerick. Driving into Mallow, one will see an investment by Glanbia worth €80 million. This is the biggest investment made in Mallow for many years. Further along the road to Limerick, a similarly large investment has been made in Charleville as part of a joint project between Kerry Group and Beingmate to project infant formula on the Cork-Limerick border. Again, this is the biggest investment that town has seen in many decades. Along the main Dublin road from Cork, Dairygold has invested €60 million in Mitchelstown on the back of dairy expansion. Glanbia has invested €180 million in Belview, County Kilkenny, in the largest ever investment by an indigenous Irish company, to prepare for what is going to happen to the Irish dairy industry starting in three weeks' time. Investments amounting to approximately €1 billion have been made in farms over the last four or five years in preparation for dairy expansion.
In respect of recent reports prepared in anticipation of the likely positive impact of these changes, County Cork is one of the only counties for which a specific report was produced on the impact of dairy expansion between now and 2020. In that county alone, 4,000 jobs and a capital investment of €1.2 billion are expected over the next five years. This is a big deal. For the last three or four years, we have been planning for these dramatic changes in European policy on dairy production. Ireland is going to take advantage of these changes.
Effectively, we have been operating within a straitjacket since 1984 owing to European policy on the volume of dairy we have been allowed to produce. That supply control policy was introduced for good reason at the time, but it is no longer relevant in the context of current global demand for dairy products. We are anticipating and planning for an increase of approximately 50% in volume over a five-year period. There is no other European country that is planning for more than a 15% or 20% volume increase in the same period. Ireland has the natural competitive advantage to take advantage of the opportunity in terms of our production systems, but we need to plan properly and work with farmers, co-ops and the dairy industry as a whole to ensure this is done in a way that protects standards, safety and quality and guarantees sustainability on the journey. I refer to financial sustainability for farmers to ensure they will not become overly indebted, sustainability in terms of the biodiversity that must be protected on farms and the management of the greenhouse gas emissions that will come from increased herd sizes farmers will be managing into the future. It is also about the sustainability of the fabric of rural Ireland which all Members hold valuable. That means protecting the family farm structure in Ireland which is the very heartbeat and fabric of rural communities.
There is no reason small and medium-sized family farms cannot benefit, as well as larger farms. That is why we have needed to plan to the extent that we have for the opportunity that will unfold in the next five to 15 years. We talk about the end game for the Food Harvest 2020 strategy as that is what was put in place by the previous Government, but 2020 is just a point in time. The dairy industry will continue to grow long after that date. It is reasonable to anticipate this. We will soon have figures as we are putting together a set of targets for 2025 which will be in place by the summer. Certainly, it is reasonable to assume that in the next ten to 15 years the dairy industry will double in terms of the volume it produces, but it may happen before then. When one considers what has happened in New Zealand, where the volume of milk produced has quadrupled in the past 30 years, one sees that while our target is ambitious, it is very achievable.
As a policy maker and Minister, the important thing for me is to ensure this happens in a way that is managed and controlled and anticipates all of the problems around price volatility, quality standards and opening new markets. We must plan for the challenges before they arise to make this as smooth a journey of growth and expansion as possible. For that reason, a number of my colleagues, particularly Deputies John Deasy and Michael Creed, have been speaking to me about the need to put a structure in place to monitor progress in the next five years. We are, therefore, going to establish a dairy forum which will be modelled in some ways on the beef forum, although it may be a little less adversarial. Its purpose will be to ensure all stakeholders interested in the expansion of the dairy industry, of whom there are many, are part of the discussion in monitoring progress year on year and month on month. The forum will meet either two or three times a year and I will chair it. I hope that after I leave this office, the Minister for Agriculture of the day will continue to chair the forum as the journey towards dairy expansion develops and delivers the positivity we can expect from the sector.
Nationally, we can conservatively predict that the next five years of dairy expansion will deliver approximately 10,000 new jobs in rural Ireland. This is not an overly ambitious target. We are talking about hundreds of millions, if not billions, in extra investment on the back of this in terms of growth. In a practical sense, we are talking about moving from producing about 5.5 billion litres of milk per year which is what we currently produce to producing close to 8 billion litres of milk per year. That is approximately an extra €1 billion of export value coming from the dairy sector in the next five years. This is an exciting period. It merits and is receiving the attention of all political parties and those interested in and concerned about the future of rural Ireland. It gives them an opportunity to speak and I am delighted that there are so many Members in the Chamber.
I will refer to some of the challenges we face rather than read a long script. I hope Members will raise concerns and questions which I may be able to answer at the end of the debate.
The theme of the Food Harvest strategy is smart, green growth in agriculture. That is as it should be. It is about doing things better and being more innovative than we have been to give farmers the tools, knowledge and skills set to be able to produce a product more profitably and sustainably than in the past. That is why we have seen the roll-out of a dairy sustainability scheme across dairy farms. I expect all 18,000 dairy farms in the country to sign up to the scheme. It will mean that they will be inviting an audit of their farms from a sustainability point of view to help them to build on their businesses in a successful way. We are also encouraging innovation and new ways of doing things through the new Common Agricultural Policy and the new rural development programmes. We are encouraging generational change as the ambition for growth and expansion we are delivering will not be fulfilled where only 6% of farmers are under 35 years of age, as they are. That needs to change and it is changing.
In the last budget we introduced tax changes to provide for a hugely comprehensive agri-tax policy. It includes 23 recommendations, primarily around changing attitudes to the leasing of land to move from a conacre to a long-term lease system. This is essential for dairy farmers if they are to expand and grow their land availability. One simply cannot build a dairy herd while leasing land for 11 or 12 month periods at a time, given the lack of certainty. Instead, we are incentivising in a way that anecdotal evidence suggests is working. Landowners, including those looking to retire from active farming, are now thinking about leasing their land on a five, seven or 15 year lease which will provide the level of certainty dairy farmers and others need to expand. They know that they will have access to land in the medium to long term which will assist them significantly in terms of expansion. Likewise, our treatment of land consolidation from a tax point of view is relevant. I refer to where a farmer sells one piece of land to buy another which is next to his or her farm in order that he or she can build better grazing management systems, which is of particular importance to dairy farms. This is about helping farmers to reorient their farms to facilitate opportunities for growth and expansion if they want to take them.
We have spent quite a lot of time and resources through Teagasc to ensure farmers have business plans for expansion and will not expand on a whim, making the assumption that because they move from 70 to 90 cows they will automatically make more money. It is not necessarily the case that they will. Where farmers move from having fewer than 100 cows to more than 100, they often must look at taking on someone to help with the extra work involved. This may involve a family farm paying a salary for the first time to someone from outside. It changes the economics of the entire farm. Expansion must take place on the back of a professionally put together business plan for growth that any business seeking to expand would put in place.
I have spent quite a lot of time talking to banks in Ireland about the facilitation of dairy expansion and the need for caution to ensure that we do not allow a new generation of dairy farmers in Ireland to get into significant debt which would essentially result in them working for the bank for most of their lives. This has happened in New Zealand and it was one of the big mistakes in that country's growth journey and which we are not going to replicate here. Even though farmers tell me that they would like easier access to money from banks, in actual fact, we need a banking system that is cautious in terms of how it lends to a sector that is planning to expand dramatically.
One aspect in which banks could improve, in my view, is the rate at which they lend money. Much of the available loan facilities provided to farmers in Ireland involves an interest repayment rate which is significantly higher than the rate for loan to farmers in other European countries. We need to examine this aspect and to ensure sufficient competition in the banking system.
Believe it or not, farmers represent 6% of the Irish workforce and last year, 23% of the value of bank loans were going to primary agriculture, to farmers. It is a case of 6% of the population getting nearly one quarter of the loan facilities currently being signed off by banks.
We have an appetite for growth and a farming community that is up for that. Between 70% and 80% of our farmers are planning for expansion and growth at different levels. The processing sector has invested heavily to make this happen and new pricing models are currently being developed so that we can hedge against the kind of price volatility of which there have been some examples in recent months. Most important, the Government and the sector have invested significantly over recent years, in markets both at home and abroad, to ensure that Ireland can avail of the extraordinary opportunities for expansion and growth that is really only available to Ireland in Europe, given the structure of agriculture in this country and the opportunity for dramatic sustainable dairy expansion over a relatively short period of time. The Government will continue to do everything possible to facilitate that expansion and to help to guide it. We will consult with all stakeholders to ensure we are all in this together and that we anticipate and solve problems together. If we do that, in my view, the next five to ten years will be an extraordinarily exciting period for the dairy sector in Ireland as it will be for many in rural Ireland who will be linked to this industry.
I have a brief question. The Minister indicated that he would provide for a question and answer session at the conclusion of the debate. There are advocates for the industry in the Gallery who would be more than anxious to hear what will happen about the superlevy, which the Minister did not deal with in his contribution.
On a point of information, it is public knowledge what is happening with regard to the superlevy. The Commissioner has announced that the superlevy can be paid over a three year period with interest-free instalments. I am surprised the Deputy did not know this. I have an opportunity at the conclusion of the debate to sum up and I will try to answer any questions from Members. However, I would be very surprised if there is anyone in the dairy industry who does not know what is happening with regard to the superlevy.
I welcome the opportunity to speak in this debate. I was raised on a farm that was confined to quotas since 1983 and having been a full-time farmer for almost eight years under the quota regime prior to coming to this House in 1997, I know at first-hand the difficulties and the significant constraints of the milk quota regime imposed on many family farms over the past 32 years. The date of 1 April 2015 is a date which many family farms across the length and breadth of the country have been eagerly awaiting in order to begin farm expansion. A number of issues need to be dealt with. I refer to Food Harvest 2020 which was initiated by Deputy Brendan Smith and the previous Government and which set the parameters for the expansion of the food industry and the dairy industry in particular, as the date for the abolition of milk quotas approached.
There has been significant investment in co-operatives, in milk processing and in farms. I had a most interesting conversation with an excellent dairy farmer whom I met in Mallow yesterday afternoon. He confessed to being a supporter of the party opposite. We had a great discussion about milk and milk policy and the issues related to new people going into milk production as opposed to the farmers already in milk.
The Minister alluded to some of the issues when he referred to a farmer milking 70 cows who then expands to milking 90 cows and an agenda is to get more money out of milk. However, many issues need to be teased out. I refer to the sound advice from Teagasc and the cost of production. There should not be expansion just for the sake of it, in particular, on family farms. We must ensure that farmers are completely equipped with the best possible information so that they get the most milk out of the number of cows. The number of cows may be important to farmers but the productivity on those cows is important. Some farmers may expand production by 50% or up to 70% and they are borrowing very great sums of money at 5% and 6%. However, they will spend a generation working for the bank in order to pay off those loans. I refer to the price guarantees over a number of years offered by milk processors. I have had many discussions with dairy farmers on this issue. The year 2014 was a very successful year for milk prices. The volatility that was perceived to be in the market has somewhat abated. My concern is to ensure that the farmers are given the best possible advice. The Minister, the Department and Teagasc are looking into a crystal ball in this respect but it is important that the best possible advice is made available to farmers when they are going into a milk contract. The price volatility in the past couple of months reminds me of 2006 when the progressive farmers' conference at the beginning of 2006 was one of the leading farming meetings to be held in January which is the quiet period on dairy farms. They looked at the price volatility during 2006 and they predicted an almost collapse in that price. As it turned out, what happened was almost the direct opposite. I kept saying to farmers to wait and see what would happen over the next while. The point I am making is that there needs to be better research about price volatility although it is not an accurate science. Everyone was saying that the price would collapse down to 24 cent, 25 cent or 26 cent, and farmers were saying they could not produce milk at that price-----
I agree but there needs to be more research undertaken. These things do not happen overnight. I know we are in a global market and what is happening in the United States or in China has an influence. Six weeks ago I thought it was time to ensure a floor price for milk because many farmers would have borrowed money.
Young farmers have been taking the opportunity to produce more milk, as have others who have been farming for 20 years and were not able to do so before. It is always the Holy Grail to be able to produce as much milk as one possibly can. Now, however, some of these farmers are saying they are slowing down production. That issue will need to be examined in the context of prices.
As we go forward into the post-quota landscape, we must focus on our emerging markets, the markets we are looking to under Food Harvest 2020, to ensure we have the best possible security in those markets. We are producing one of the best products in the world on the backs of farmers who have taken on board an enormous volume of regulation in the past two decades. Looking back to 1996, farmers in my part of the country were drying off cows in August and September because of non-availability and many small family farms did not have any income coming in for months at a time. The dairy industry and food industry in general all depend on the farm gate. Farmers, as I said, have accepted huge regulation and have, by and large, almost to a fraction of a percentage, ponied up to those regulations and done the groundwork and investment at farm gate level in terms of upgrading their facilities. Many have spent huge amounts of money, whether on slurry storage facilities, dairy equipment or other upgrade works. They have put massive money into getting their systems right. That is why we have one of the best products in the world and it should be acknowledged by everybody who is buying milk at the farm gate. There has been some debate in regard to the co-operative movements that were set up to protect farmers, some of which are looking at huge profits. There is an issue there but it is for another day. Farmers have adhered to a range of regulations at enormous expense to ensure they have the best possible product and the companies buying it, whether PLCs or co-operative movements, must give fair and accurate prices at the farm gate. There are people making enormous profits on the backs of farmers and that is an issue we must examine.
The Minister mentioned the interest rates that are being charged on farm loans. Farmers come to me constantly saying they are being charged 5%, 6% and 7% rates. These are penal rates. At this stage, it can no longer be about talking to the banks; they must be told these practices are not acceptable. This is a growth industry, an industry that was put on a sound footing over generations. Farmers have heeded the advice they were given and made the necessary investments to improve their product. It is a credit to every farmer out there, whether they are milking 20 cows, 200 cows or more. They have delivered a product of which we can be justifiably proud. We must ensure no farmer is penalised, regardless of how many cows he or she is milking. Everybody must be treated the very same and given the same price per litre of milk in whichever sector they are in.
The Government must do more to ensure banks treat farmers fairly, which is not currently happening. There are many farmers seeking to expand and who, when faced with volatility, are being hauled in by their bank managers or bank liaison people. I spoke recently to a very successful dairy farmer whose family have given their lives to building up a massive business. When they sought to transfer some intergenerational loans because the farm was being taken over, they experienced great difficulties. The banks are not doing what it says on the tin in terms of their function. We in this House, in government and in opposition, should be facing them down and saying this is not acceptable.
There are many farmers who have massive opportunities and are prepared to work hard to realise them. At this time of year, from January through to April, they work 24 hours a day, seven days a week to get the work done. Many farmers are feeling the pressure and dealing with stress-related issues. We must ensure every advice and help is available to farmers in all categories. Representatives of farming communities are telling us they are very concerned about people's welfare. We should be conscious of that. We must be stricter on the banks, because what they are doing is wrong, and we must challenge them to tackle the problem. We need to ensure dairy farmers, who are working extremely hard, are getting a fair price, whether from a PLC or a co-operative entity, and are given due recognition for the mighty product they have developed over the generations. Many farmers are looking forward to 1 April but they have a superlevy bill hanging over them. We should challenge the system in that regard. Those levies should not be paid in the first instance.
I thank the Minister for his statement. Like other speakers, I welcome the ending of the quota regime. It provides enormous opportunities, as was identified by the former Minister, Deputy Brendan Smith, when he set about developing a strategy for increased output from this sector of farming. There is undoubtedly a growing demand for our product across the world. The opportunities are there, but there are considerable challenges facing farmers, of which the Minister, Deputy Coveney, is well aware.
The extreme costs of inputs is one of the challenges for farmers. For those who have planned expansion to meet the expected output, there are significant challenges around financing. I fail to see why the superlevy must be paid this year. I accept the Minister would not have told farmers that in advance and that we were coming to the end of a regime. However, an agreement should have been reached that we would not hinder or hamper the capacity of farmers at a time when we need them to invest in their business and expand in a substantial way and when they are challenged by historic loans arising from the requirement to invest in recent years. Some farmers experienced really dire financial straits in that period, when milk prices dropped below the cost of production. They are only getting back on their feet and now they will be hit with a superlevy. Of course it is not the Minister's fault and I am not attempting to put it at his door, but we need to recognise where the market is going. If the Minister explained the situation to a person who has no involvement in farming, he or she would scarcely believe that farmers are to be penalised for overproduction in the year prior to the year in which they are being asked to ramp up production. There is a difficulty in selling that to the wider world and, in the meantime, farmers are trying to cope with it. Collectively, we should all be doing more to assist them.
Milk prices fell in 2014 by 21%, which has tightened margins considerably and placed a very real burden on some farmers. More needs to be done on the superlevy issue. The Minister indicted that the deal which was proposed has been signed. However, it is not really the answer. In fact, it is retarding the capacity of farmers to produce. 2015 probably will not be as bad as was initially projected. Teagasc gave very troubling indications at the very beginning of the year, but that prognosis seems to have been mitigated somewhat based on world prices and issues happening elsewhere. Nevertheless, it will be a bleak year ahead.
It will be for some farmers. People who have to pay back borrowings are experiencing difficulties in their dealings with some of the banks, particularly those that are exiting the marketplace. Danske Bank, for example, is making it very difficult for the farmers it is trying to move off its books. More work needs to be done with the pillar banks to support farmers. The Commissioner, Mr. Phil Hogan, needs to build on his superlevy proposals. EU market supports, especially intervention, must be revalued to reflect the strong increases in product costs. The 2025 strategy must be focused on on-farm profitability and promoting measures to help farmers to cope with income volatility. Access to fixed-price margin contracts or other types of hedging must be promoted.
Taxation measures, such as those proposed by the Irish Farmers Association, IFA, must be enacted to help farmers mitigate income variations in a more flexible way than the otherwise welcome five-year averaging and certainly will be part of that strategy. In addition, banks must be prevailed upon to work much more constructively with this sector. I need not chart out for the Minister the importance of agriculture to both the rural economy and the entire economy of the State. A hell of a lot more buy-in from the banking sector is needed, which, as the Minister is aware, has been bailed out by all taxpayers in the State, including farmers. While there certainly is a need for education and training opportunities in farming best practices, training in financial and budget management also must be provided and this will require the proper resourcing of Teagasc. As the Minister is aware, Teagasc is in regular dialogue with Members of this House, who must continue to support that authority in its efforts to support the industry.
The Minister was right when he stated at the outset that we are living in exciting times. The abolition of milk quotas on 31 March no doubt will be a major change for Irish dairy farmers. While we in Sinn Féin do not call for their retention and realise this is a decision that comes, like many others, from Brussels, we are concerned by the many consequences of this development. It is forecast that there will be a massive increase in production and this could herald a drop in prices. I do not refer to an increase in production in Ireland alone but right across Europe, which could have detrimental effects if it affects the price the farmers are getting. It stands to reason that an increase in production would do this and it could leave more vulnerable those who operate on a more modest level such as the small family farmers with small dairy herds mentioned by the Minister. Where the profit margin is small, a drop in prices could endanger the livelihoods of small farmers. The Department and the advisory bodies have advised farmers to invest and prepare for the abolition of the quota and, as the Joint Committee on Agriculture, Food and the Marine heard recently, banks are really up for making money available for this purpose. It was interesting to hear the Minister state that at present, approximately 23% of the value of bank loans is going into capital investment to prepare for the abolition of the milk quota. As the Minister also mentioned, much of that is based on a business plan worked out in advance. Obviously, to secure one's business plan, one will be operating on the assumption that one's production will be profitable. However, there is no absolute guarantee in this regard.
That brings me to the European Milk Board, EMB, which represents producers across the European Union and which includes the Irish Creamery Milk Suppliers Association, ICMSA, among its members. The EMB is so concerned about the consequences of a drop in price that it is lobbying hard for a cut in production to be imposed across the European Union. It states that supply will be obliged to adjust to demand in circumstances in which EU farmers will be obliged to deal with higher production and to compete with cheaper imports from outside the EU. The EMB goes so far as to propose protectionism for dairy farmers and I seek the Minister's views on that proposal when he responds. The European Milk Board has produced a market responsibility programme, which is designed to deal with impending crises and, all going well, to offset any crisis. It would start by implementing accurate monitoring of production, prices and production costs. The plan is to apply the programme in three phases, the first being an early warning mechanism that would kick in were the price to fall by 7.5%. According to the EMB, what would happen is that private storage would be opened and incentives for extra consumption would be introduced, such as suckler production and milk-fattening of heifers. This would continue until the market index returned to 100. There are many positives to this mechanism but part of it would entail ascertaining how it would work structurally. Only if that failed and were the market index to fall by 15% would the next phase be introduced. That would roll out restraint of supply by giving bonuses for reducing production, levying over-production and, of course, a defined reference period. The third phase suggested by the EMB would mean that production would have to be obligatorily cut back by 2% or 3% for a period, which they suggested could be of six months.
These proposals deserve proper consideration. The Minister has stated his intention to set up a structured dairy forum and I imagine those suggestions which were within its domain would form part of its deliberations because the last thing one wishes to see is overproduction and a cut in prices that again would make the weaker family-farmer producer far more vulnerable. There may be other suggestions and perhaps these proposals need some fine tuning but the Minister should raise these suggestions in Brussels and not allow this risky situation to continue.
All Members realise there are farmers who may not survive the abolition of quotas. In addition, there are larger farmers who, on foot of problems with the superlevy or from previous borrowing, may be heavily in debt. While they may be trying to prepare for what some quarters suggest will be a bonanza, they may be unable to realise the capital borrowing that would be necessary to make them as productive as they could be. The dairy sector is the largest of our food and drink sectors. It is worth approximately €3 billion per year to this economy and is far too valuable to be allowed to swing at the whim of the market into a boom-bust cycle. While I can accept that quotas could not go on forever, at the same time their abolition must be heralded with caution and precaution. The first possibility after this month is an massive increase in production with a consequential drop in prices, leaving those who operate on a more modest level, such as small farmers with small dairy herds, more vulnerable than those who can afford to expand their herds and get credit from the banks to so do. Smaller family farmers are far more vulnerable to the price margins. They are fine when there is a price margin and a credible profit to keep their viability sustained. However, when the margin goes below that, it creates many risks.
Getting credit has its own risks and there are many who already have borrowed to expand their enterprise and increase their production without having any guarantee about how the industry will develop in the near future. The Minister made the point that banks have indicated their intention to look favourably on the sector for borrowing for capital investment. Some farmers think they may get rich quickly but they could go broke equally as quickly. Members should consider the huge disparities in income that were evident one and two years ago. In addition, I recall the projections made by Teagasc in the fall of last year, which suggested farmers might be getting a price as low as 27 cent per litre. While that projection sent shock-waves, Teagasc has revised its position subsequently.
It is the job of the Government to take some control of this situation and it cannot be allowed to turn into another disaster for Irish farmers. Projections under Food Harvest 2020 indicate that Irish milk production could increase by up to 50% in five years. However, a recent Bank of Ireland report suggested it might be 30%. Whatever the projections, it is clear there will be an expansion in production over the next five years, depending on how everything goes. I have mentioned the superlevy and the concerns it will cause to those who will be obliged to pay it. Some people who may be obliged to meet their superlevy penalty also may be attempting to borrow to improve their enterprises and therefore will find themselves in a precarious position. There already have been appeals by the Irish Dairy Board to the Minister to talk to the EU about getting this superlevy reduced, if not abandoned. In his opening remarks, the Minister stated it cannot be abandoned and that he will not be allowed to so do. I would not give up on that because its imposition will inhibit investment for some. A crisis could result with the combination of the superlevy imposition and the uncertainty about prices in the short term, coupled with the borrowings of those who have tried to rise to the occasion and expand.
While dairying is the most valuable of the food sectors, worth more than €3 billion per annum, there also is concern that the biggest and most valuable market, China, to which the Minister has brought several delegations, is not yet secured for Irish farmers. In this regard, given the access afforded to New Zealand and so forth, one would be competing with them, which could create its own difficulties.
The value of exports has increased by 8% by the weakening of the euro. It is likely to take some time before producers feels the trickle-down effect of this, however. Sinn Féin believes a price structure should be put in place to protect the most vulnerable in the sector.
The processors too have a role. They cannot be allowed to call the shots without any intervention from the Minister. Many of the processors were once co-operatives owned by the farmers but are now plcs. A stable contractual price with the producers would be desirable, if not even essential, for the abolition of quotas not to create chaos in the sector. The introduction of a guaranteed minimum price for production up to a certain level with the rest going by market trends might be an option. There could be a 50-50 split on this to afford some guarantee to farmers facing into this new scenario. Some processors have indicated they might look favourably at such an option. This is an opportunity for co-operatives to negotiate with farmers on a fixed-price structure which would be a welcome move.
An essential feature of all this will be planning and caution for what is going to happen. There could be a tsunami of milk coming our way. We must ensure the small farmers who have played their part in building a fine reputation for Irish dairy produce abroad do not drown in it. We are hopeful that new markets in Asia will open up to Irish dairy produce, boosting the milk producers of this island.
We are hopeful too the opportunity will be taken by the Government and the dairy processing industry to create more jobs here at home. The Minister indicated 10,000 jobs could be created out of the increase in the milk quota. If handled properly in a structured way, with precautions to protect the producer, this could very well be the case. Those co-operatives which have become multinational operations should be encouraged to look to their own country for labour, as well as developing and expanding their operations here rather than going abroad to set up factories. It is well-known, as well as saddening, that many of the plcs are chasing cheap labour. The end of quotas should bring new prosperity to those in rural areas, including to those not directly involved in agriculture. These are people who have often been forgotten and who are the most likely to have to emigrate. We all know the stories of small towns and villages hard-pressed to field a football team. It is an old story but a new one too. Many of those in the Skype generation want to come home. The end of milk quotas, along with a bit of patriotism and encouragement to the large indigenous dairy companies, could result in healthy job creation in rural areas.
Jobs in the processing and manufacturing of dairy produce are all under our own control, as well as the raw materials involved, the skills and the expertise. They should not be jobs here today and gone tomorrow because of cheaper labour somewhere else. Real industrial development in Ireland will begin with the agrifood sector. The forthcoming increase in milk production could be the start of a new focus on the sector which will bring benefit to all our people. It has to be structured with incentives in place. Above all, we have to keep as many of our 18,000 milk suppliers active. To allow otherwise would be to fail and contribute to the decline of our rural population with the social consequences associated with that.
While I give this development a cautious welcome, I have concerns around the weaker and smaller family farm. The Minister stated 6% of our dairy milk producers are under 35 years of age, an alarming statistic. Incentives such as the early retirement scheme for farmers, installation aid and so forth tried to address that terrible age imbalance in the wider farming communities. We need to look again at how we can encourage younger people to be more active in farming. I am aware from presentations from the Minister that the agricultural colleges cannot cope with the large number of entrants, which is good news. The possibility of exciting times for the sector lie ahead. Sinn Féin wants to see this working to the advantage of the greater common good. In that light, we will be giving our support to the Minister’s endeavours to ensure a positive outcome for the dairy sector which every Member wants.
I welcome the opportunity to contribute to this debate this evening. As I do not have a background in farming, Members will have to pardon my ignorance on some matters.
Only last year at the agriculture committee and in the House there was much discussion about how positive the end of the milk quotas would be in 2015. There was going to be no downside, only an upside for the dairy sector. Several weeks before the end of the year, however, the commodity price for milk collapsed on international markets and, next, we were overrun with doom and gloom, crises and predictions that 2015 will be a bad year for farmers. It shows the vagaries of the market and how prices can fluctuate. This will be a feature of the dairy sector for the next several years.
There are some positives in this change which are to be welcomed on a national basis. However, I come from Killybegs, a fishing port. In the 1970s, there were up to 90 boats fishing from there. Today, there are only 25, mainly due to rationalisation and increased capacity. I know more ex-fishermen than fishermen in Killybegs now. Will this be a feature of the dairy sector over the next several years? Of the 18,000 dairy farmers, 6,000 produce 60% of the milk. I cannot see any other way but that there will have to be some rationalisation in the sector. Some farmers will, through no fault of their own, end up being squeezed out, as will others through their inability to significantly increase production and maximise their income. While preparing for the positives to the end of the milk quotas, we should also be preparing for this development. The Minister outlined the significant investments in the sector planned to take place in the south to gear up for this increase in production. At the same time, we will see a change in the farming and dairy sectors where some farmers will have to move out and farms will have to increase in size and capacity to be able to avail of extra production.
Prices too will settle out at a lower rate than they have been over the past several years. Quotas are ending right across Europe. In every other European country, dairy farmers are gearing up to increase production and to capitalise on the ending of quotas. This will bring on pressures on price. It was outlined that we are at an advantage in this regard because of our predominantly grass-based production which helps keep costs down. Several weeks ago the Positive Farmers group made a presentation to the agriculture committee on how farmers could maintain and increase their margins positively by becoming more grass rich in terms of production.
I always understood that our agricultural sector was already very grass rich and that was one of its big selling points. I am wondering how much more capacity there is to improve on that for the dairy sector. Perhaps the Minister could expand a wee bit on this in his response. In order to be able to maintain incomes and avail of the benefits of increased production, farmers have to be able to increase the amount of grass they are using in production while keeping their input costs lower. I do not want to see a situation where farmers have to endlessly increase production just to stand still and that is a real risk following the end of the quota regime.
We recently visited the agricultural committee in Stormont and heard a presentation on the dairy sector in the Six Counties. It effectively has not had quotas for the last twenty years. Because the UK did not use up its full quota, there was extra quota available for Six Counties farmers. They increased production to take up that slack and are suffering from very severe price pressures and input costs. I saw comparisons whereby the cost of feed was over €1,000 per hectare in the North and about €260 per hectare here in the South. That leads me to think that we already have very grass-rich production, and I wonder how much more can be squeezed out of increasing production in that way.
Inevitably, there will have to be rationalisation within the sector. The tradition we have in our dairy sector of the small family farm providing an income for a family will change, although I do not know by how much, and that presents challenges. Progress always brings change, as does increasing production and production methods. We have to try to minimise those changes and if the big selling point for our dairy sector is that it is based on green, grass-led production, how does that marry with the rationalisation that will take place? There could be in the region of a couple of thousand farmers who would end up out of dairy production and possibly out of farming completely. There will be other opportunities for other jobs in the rural sector because of the investments that are taking place but it is something that will have to be managed and will lead to change across rural Ireland.
The Minister has been fairly active in terms of things the Government can do, and the dairy forum will help to smooth out some of those problems. Taxation measures have been brought in and increasing the five-year averaging, which allows farmers to ease out their taxation bill, will help them to compete. I would be worried about how we are pressing the banks to be flexible. If we are relying on the banks we are in big trouble. The experience people have of banks across the country is not that they are there to serve the interests of those who are in debt. The banks have always looked favourably on lending to farmers because they have assets that can be leveraged against debt. When those assets come under pressure we will really see what faith the banks have in the sector. I hope it will work out okay but we cannot set too much store in the banks to look after people.
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.
I appreciate the willingness to have this debate on the Irish dairy sector. It is very hard to encapsulate in ten minutes what is going on because a great deal is happening. The Minister was struggling to cover everything given the amount of information on what is going on in the industry right now.
Deputy Creed and I asked for this debate because even though an enormous shift will occur at the end of the month in our domestic dairy industry, my experience here is that when it comes to agricultural issues, they are not dismissed in any way but they tend not to inspire as much political interest as the likes of the sale of Aer Lingus, for example. That is fair enough as farming is not for every political correspondent. It is not their area of expertise but if one spends a little time looking at what is about to happen in our dairy industry and what the implications are for the entire country, people might agree this is very significant and that it requires very careful management because of the financial potential alone.
To a certain extent, the Minister probably pre-empted much of what Deputy Creed and I are going to say because he pretty much accepted the proposal for the new structure and a new forum for the dairy industry to be created. Perhaps I will give an idea as to how we arrived at that point and why we believed it was important for that to be set up. However, we appreciate the Minister's comments.
When it comes to rural Ireland, in many parts of the country, agriculture is the predominant industry. It is the only show in town and it is the mainstay of our rural economies. Over the past couple of weeks, I noticed many people writing about the demise of rural Ireland and, to a certain extent, I have seen that in Waterford also. What interests me in a county like mine, which has, by and large, 752 large dairy operations, is the enormous potential for rural Ireland if it is the case that milk production increases by 50% between now and 2020. That is an estimate but according to some of the people I met over the past few weeks that 50% figure is conservative. It depends on who one asks but that has been put to us in our meetings with different people are say it could be a much higher.
In terms of job creation, the study Cork Institute of Technology did mentioned a figure of 4,000 jobs in Cork alone, which gives one an idea of the kind of figures one is talking about when it comes to jobs.
When quotas were introduced in the early 1980s, there were a lot more dairy farmers than there are now. I listened to Deputies Tom Fleming and Pringle give the statistics. They are pretty astounding figures and the contrast between where we were back in the 1970s and 1980s and where we are now is stark. The figure was 65,000 in 1983 while it is 17,000 or 18,000 now. Deputy Pringle is right that one of the challenges, which I think is being dealt with, is to keep as many people in this business as possible. The steps are being taken and what can be done is being done but the Deputy is right when he says that keeping as many people as possible in this business is the major challenge for us. If one looks at where the figures were and where they are now, they are stark.
One of the critical factors in milk, which started to emerge in the mid-2000s with the ending of key supports from Brussels, is volatility. Suddenly with supports being withdrawn, we saw milk prices go up and down and the trend has continued. In 2009, we were back down to 19 cent per litre while a couple of years ago, we were at 40 cent per litre. We are in the high 20s now and maybe the figure will be 30 cent per litre soon.
In the discussions Deputy Creed and I had over the past few weeks, it was agreed that there will be volatility which will, and almost has to, continue. We asked how we are prepared to manage that volatility or how can we react as best we can as an industry and country in the most efficient way possible. Somebody in the IFA said to me it is about capitalising on our competitive advantage, which is correct.
When the decision to have this debate was finally taken, we decided to meet different farming groups dealing with dairy producers, including the Irish Farmers Association, processing groups and also the banks, which are critical in the post-quota era. It is fair to say the banks are ready and willing. Collectively, they have identified the Irish dairy sector as one which has incredible growth potential and are financing it accordingly. Deputy Dooley said we need to encourage the banks to lend. One cannot stop them at this point. We met AIB and Bank of Ireland and they are competing. If anything, the new forum will need to take a look at their lending practices over the next three years and keep an eye on that. There is no stopping the banks when it comes to lending as they see this as a good bet and a massively growing industry.
Critical elements for the offering of credit, such as low farm debt, are good compared to other countries. There is sufficient farm efficiency across the dairy sector to allow for expansion and the financial requirements that go with that. Notwithstanding issues such as superlevy payments, the dipping of milk prices recently and certain tax considerations, the banks made it clear to us that in their opinion, the fundamentals for a large expansion of the dairy sector are in place. To make a long story short, they are in serious competition with each other to get a piece of an expanding industry which they have analysed. Their conclusions are similar that there will be volatility but if managed correctly, the gains massively outweigh the downside.
The most productive meeting we had was with the Irish Farmers Association and I thank Elaine Farrell, Rowena Dwyer and Catherine Lascurettes, the head of the dairy section. I will mention two points from that meeting and explain why we proposed a new oversight structure for the dairy sector. I refer to the issue of fixed milk price contracts. Glanbia is the leader in this area and is opening up Belview tomorrow. In my area of the south east, 15% to 20% of Glanbia suppliers have taken up the contracts and the scheme is now its fifth year. In some respects, banks are more likely to give credit when that kind of financial underpinning is in place. However, these fixed milk price contracts are not the norm and have not worked everywhere for various reasons. They are an example of the variances that exist in the relationships between the different co-operatives and their customers. Others have expressed the view that the co-operative scene is slightly fragmented in some respects.
I also refer to the level of collaboration and information throughout the dairy sector.
The IFA is a very good example of this, working with Teagasc and the banks to hold seminars and workshops around the country. That dynamic is occurring and the elements for increased production, such as the new technology centres, have been put in place. I can be critical. I looked at this sector. I am not being critical in any respect. The Minister has done a very good job. What we are proposing and what he has accepted is just something that could assist in this.
I do not see any weaknesses so far in this strategy. We are talking about a centralised and structured oversight system for the dairy sector to manage the volatility we expect to occur, the value this industry has for rural Ireland and the potential gains we will accrue across the board. The other organisational change that leads us to believe that would be a constructive step is the sizeable number of people within the Department dealing with milk quota issues. They should be used to co-ordinate and assist in managing the growth and change in the sector. Their institutional expertise would be maximised by incorporating that kind of expertise into a structure that manages the type of volatility we expect to see, for example, in the superlevy discussions the Minister mentioned earlier. This structure could deal with the policy aspects that come up in the next five to ten years efficiently and quickly. We talked about the Minister chairing this new forum. Our idea was to have the Secretary General chair it, but that is a better idea. Our idea was to call it the dairy industry partnership, but the Minister can call it anything he wants. Our idea would be that this would evolve. Once put it in place, one of the roles of that forum would be to evolve over time as the industry changes and to react to volatility if it occurs. The idea is simple, to bring all the players in the sector together. It would meet on a quarterly basis and include all the groups from the dairy sector - co-ops, the banks, the IFA, other farmer representative groups, etc. We will have little control over the global markets, but if such a group were formalised within the sector, it would assist in managing the volatility, the unknowns and the uncertainty by identifying the changes and trends that will occur in the dairy industry in the years ahead. There will be no quangos, no new budgets, just a reorganisation of the sector to fit the completely new environment the dairy industry finds itself in.
I am glad of the opportunity to make a short contribution to this debate. The time allocated for it is relatively limited and as I indicated at the outset, it is a pity we did not make provision for a question and answer session, because there are a number of questions that need to be addressed and in which the industry would be very interested. The introduction of the milk quotas in 1983-----
I will summarise them at the end and I hope the Minister will address them. The introduction of the milk quota in 1983 came at a very inopportune time for Irish agriculture. For a number of years after our entry to the EEC, we simply were not sufficiently developed for such restriction. The increase in the New Zealand level of production since 1983 graphically illustrates the degree of disadvantage rural Ireland was placed at because of the introduction of the superlevy in 1983. The same explanations for its introduction that will be advanced now were also given then - the assured market supports, the issue of curtailing overproduction and the capacity of the market to take the production at the time. They are all the issues that were teased out across this floor at the time.
Deputy Brendan Smith, as Minister for agriculture, was the instigator of Food Harvest 2020, which set out the roadmap for the expansion of agriculture, with dairying identified as a clear growth area. The context for it is the growth in world population, the growth in the buying potential of the middle classes in new markets, which the Minister has been endeavouring to identify and to pursue through a decent marketing strategy. Last year was a relatively good year for milk prices. Prices softened in the middle of the year and into the tail of the year there was a steady decrease and there was decreased demand for reasons I will come to later. Unfortunately, the predictions for milk prices in 2015, particularly the quite dismal predictions we had early on in the year, which hopefully will not materialise, will have profound implications for people who have borrowed heavily to invest in the expansion and development of their farm enterprise, not to mention the significant investment decisions processors have taken around the country.
Approximately 17,000 dairy farmers are facing a superlevy bill of €88 million. Every 1% of overproduction represents a €15 million bill for the dairy industry. Let us think about that figure for a moment. Some €88 million will be taken out of an industry that is making significant repayments. Various speakers have mentioned the interest that the banks, particularly AIB and Bank of Ireland, are taking in the expansion potential of the dairy sector. Farmers who are locked into repayment commitments in those circumstances will receive a bill for tens of thousands of euro. When will this have to be paid? Are we talking about a payment date of November 2015? The Commissioner for Agriculture and Rural Development has been talking about it being paid over a three-year period. Any farmers reading the front page ofThe Farming Independent last Tuesday must have sat down and asked themselves where the clarity was on this matter and what their position would be at the end of 2015. In 2015 we will have the bill of €88 million coming collectively to individual dairy farmers. We are going to have a significantly increased farm taxation bill.
We do not know what the figure will be yet. We do not know it will be €88 million. It will be less than that, but it will be a big figure.
Overproduction of 1% is €15 million. If it is 3% or 4% the sums are relatively easy to do. They are the ballpark figures we are talking about. In a debate like this we must take the more extreme figure because it will be the most penal for the industry. Individual farmers will be faced with this. They will also be faced with an increased income tax bill. The income levels for 2014 were such that individual farmers are going to have the accounts dropping in from the Revenue Commissioners saying that they will have to pay additional money come next October on the basis of their production figures for 2014. In many ways, the background to this debate is 2014, the perfect storm. There was a weakened global dairy market position and we had a period of good weather and good prices with increased milk production in every region of the world. Irish dairy farmers produced a record 5.6 billion litres of milk in 2014, 4.5% more than in 2013. It was the perfect storm - falling prices, the Russian ban, world oversupply and a big tax bill on 2014 profits. In late 2014, Chinese demand dropped to a very low level when the Russian ban came into effect.
We must deal with the statistical position of the industry and the problems that are facing individual farmers on the ground. I have only a limited time to finish. There are a number of issues we need to address regarding the superlevy bill. I said earlier that 1% represents €15 million of a bill. We need clarification as to when it is going to be paid. Is it going to be paid over a three-year period? If it is going to be paid over a three-year period, is a processor going to pay it or is the Department going to pay it with the recovery of that money from individual farmers over that period? Who will have to pay the interest accumulation on the borrowings, or will they be factored into the final bill?
The front page of the Farming Independentsets out the uncertainty in the industry. Tonight is an opportunity for the Minister to clarify the position.
Earlier this year we debated the butterfat adjustment. The 2% figure would have represented a saving of €30 million for the industry. Where is the possibility of a butterfat adjustment due to our exceptional circumstances?
We are glad to see progress being made on the various issues, for example, the investment in processors. We are also delighted that the industry is expanding at such a rate. However, we must remember something. Expansion and intensification bring their own problems that individual dairy farmers milking 20 or 25 cows 20 years ago did not have. The phrases "BVD", "IBR", "neospora" and "salmonella" were not in the veterinary dictionary at the time, but they are common currency today. They are the challenges that individual farmers will have to meet on a daily basis.
The superlevy regime is extraordinary when one thinks about it, particularly the fact that we have not been able to negotiate a soft landing in the changeover.
On 31 March, we will be in a superlevy bill situation. On 1 April, we will be in a different environment. It makes no logical sense to have such an arrangement for the end of a period at a time when we are talking about-----
-----and, hopefully, an increased demand for dairy products in the range of markets that have been mentioned. I am glad to be in a position to say that they are coming on stream. However, it is extraordinary that such a bill would drop into the Irish dairy industry at that time and in those circumstances. I would appreciate if the Minister addressed my few points when he replies.
When I hear Fianna Fáil talking about a soft landing, I must confess that it puts a shiver up my spine. I hope that Fianna Fáil's history with soft landings is not replicated in the dairy industry post quota.
When the history of the Irish agricultural sector, particularly its dairy industry, in the late 20th and early 21st centuries is written, there will be an interesting chapter on the quota regime. In the early 1980s when I began cutting my political teeth, one of the hottest topics in politics was the introduction of quotas and the carnage they inflicted on farmers who were participating in, if memory serves, the farm modernisation scheme. Bureaucracy built up and there was political and legal uncertainty. There were Mulder quotas and High Court, Supreme Court and European court rulings. In light of the figures outlined by Deputy Tom Fleming, there was carnage when economic opportunity collapsed. Prior to the introduction of quotas, there were 65,000 dairy farmers. Today, there are only 18,000.
As we face into a new dawn for the industry post quota, many have spoken about consolidating the number of dairy farmers at approximately 17,000 or 18,000, but we must be more ambitious. With the quota going, 400 or 500 new entrants are lining up and have invested significantly in recent years. The tragedy of quotas was the economic opportunity lost to the country. The Minister, Deputy Coveney, referred to an anticipated €1 billion of additional export value to the dairy industry under Food Harvest 2020. That is significant, but the industry has lost many farm families along the way. The countryside is littered with milking parlours that have been decommissioned because of this lost opportunity. We must be ambitious for the sector and maximise opportunities.
When the history is written, one of the interesting anecdotes will tell of farmers' endeavours in the environment of capped production to grow their industry. Reference has been made to the farming organisations. It was part and parcel of the work of any public representative to apply to tribunals for additional quota on behalf of dairy constituents. Some of the Minister's officials are present. I wish to pay tribute to all of the officials in the Department who gave sterling service to the industry at a time when the glue that bound policy together was quotas. With representatives from the IFA, Mr. Michael Slattery, Mr. Con Scully of the Irish Creamery Milk Suppliers Association, ICMSA, and various others, we used to send out applications for additional quota. Farmers would fill them up, we would send the farmers to talk with people, we would talk to the Minister and we would try to secure 1,000, 1,500 or 2,000 gallons here, there and everywhere. It is a credit to the ingenuity and endurance of those involved in the dairy industry at the farm gate that, in such a difficult environment, they grew that industry by hook or by crook and through lease, purchase and every other policy instrument available to them. Their commitment to investing in it puts those who have survived to this juncture on a par with business people in any sector.
It is because of that acumen and ability that the processing sector has equally prospered, as they are the same people who populate the boards of our dairy co-ops the length and breadth of the country. I take my hat off to them. When it was not the sound bet for the banks that it might be today, these people were prepared to put their money where their mouths were and invest in their industry.
The fundamental ambition for the industry must not be to consolidate around the 17,000 or 18,000 farmers, but to remember the 65,000 who had ambitions in the early 1980s to be part and parcel of the dairy industry and to try to reopen opportunities for them. I welcome the fact that there are new entrants, but we can facilitate even more.
I wish to make a number of points on the expansion in the dairy herd, although I am conscious that the clock is ticking more quickly than I would like. If managed through the advisory service, for example, there is a significant opportunity to create an alternative model for beef production. If policy in the dairy sector has been inextricably linked with quotas for too long, policy in the beef sector is inextricably and almost exclusively linked with the suckler cow. The suckler cow has played a tremendous role in improving quality, but there is a need to develop a model of beef production that is parallel to suckler cow and bull beef production and is tied into the opportunity presented by the expansion in the dairy herd.
What is the hallmark of the global dairy market in the post-quota era? That the tenor of this debate has been largely positive is welcome. The positivity is well founded. If one considers the market, one's first conclusion must be that it is growing by approximately 15 billion litres annually. That is three times what Ireland produces in any year. One could say that much of the growth in the market is far removed from us geographically, but we are well positioned with our low cost base to tap into it.
When Teagasc published its report last year, a cloud gathered over the industry and there was a bit of uncertainty. The message that dairy farmers know better than anyone else is that, post quota, volatility will be at the heart of the industry. It is a question of managing that. Like Deputy Deasy, I thank the Minister for taking on board our suggestion of a dairy industry partnership. Farmers and processors have established track records. The Irish Dairy Board should also be involved, as should the banks. Its membership should not just include the Glanbias and Dairygolds, but be representative of all processors. Farmers' representatives should be included, as should the advisory service.
They can track trends and anticipate global developments, including political developments, for example, in the Russian market and outline what policy measures need to be put in place in that regard. They can anticipate consumer trends and analyse how the processing industry needs to shift if necessary. That is the advantage of such a partnership. The Deputy referred to the beef forum. This would be more of a partnership because it has a more harmonious construct than the forum, which is understandable given who owns the processing plants. Farmers have a stake in processing and that is why this could be much more productive.
Much comment has been made about banks. I met bank officials along with Deputy Deasy in anticipation of the debate and average figures were trotted out. Average debt is low at €24,000; average debt in the dairy industry is low at €62,000; and average debt among those in the industry who have borrowings is low at €92,000. I am not worried about average debt but I am worried about individual cases because that is where the problems arise. We need to explore the possibility of providing cheaper credit to the dairy sector, although I welcome the availability of Strategic Banking Corporation of Ireland funding, which is cheaper. Our money is expensive in an international context and it should not be. The banks must be included in this partnership because we need to be prudent about lending. We need to be better dairy farmers before we are bigger dairy farmers. There was almost a headlong rush into expansion because of an artificial deadline created by quotas ending in early 2015. A farmer can expand at any time but the prudent time to do so is when he has maximised the output of his current operation and has potential to expand. Perhaps the necessary rein on the enthusiasm of banks to lend could be provided within that partnership and could encourage farmers to be better before they are bigger. Deputy Kirk made a constructive point about cash flow problems on farms and banks are key to solving that this year. Cash flow issues will arise because of the super levy, preliminary tax liabilities and falling incomes. The Minister needs to work with banks in that regard.
There is a legacy issue primarily, although not exclusively, in the agriculture industry in Cork, relating to the withdrawal of the ACC banking operation. A substantial number of farmers in the county find that their capacity to borrow is restricted. The ACC has surrendered its licence and these farmers cannot get credit from other banks without moving their banking facilities lock, stock and barrel. They could do that at the risk of losing the lower cost of funds they currently enjoy. I find it incredible that a bank can surrender its licence and operate in such a cavalier fashion towards its remaining clients. The Governor and the Central Bank should examine this, given it is putting a handbrake on development in the sector, particularly for a handful of farmers in Cork.
Cork County Council commissioned a study, to which Deputy Deasy referred, which was carried out by CIT. The council has no axe to grind and there was no political agenda. The impending change is perceived by the researchers as a win win scenario with caveats inside and outside the farm gate, with growth in jobs. That is what this is about for the economy and rural Ireland, in particular. There is potential for 4,000 jobs in Cork alone. We need to manage the volatility. The partnership structure, which is key to this, is the way to do that with all the stakeholders on board.
I wish to share time with Deputy Naughten.
I welcome the opportunity to contribute and I also welcome the Minister's announcement earlier that he anticipates the creation of 10,000 jobs following this regime change. This will be welcomed by everybody in rural Ireland, which has not experienced the best of fortunes over the past few years. He said that on the Dublin road out of Cork, there is a €80 million plant and on the Limerick road, there is a €130 million plant but, sadly, he did not make announcements relating to when he took the Boyle road out of Carrick-on-Shannon or the Roscommon road out of Ballinasloe. I did not hear any announcement relating to the west and I would like an emphasis to be put on that.
Farmers travel from various counties to compete for large tracts of land used by beef farmers and they use mobile units for milking. That has put pressure on local farmers in all the western counties and I hope the Minister will take this on board.
There seems to be a move towards having bigger farms but I am very much in favour of always protecting the family farm. According to farmers, they were basing their borrowing on a milk price of approximately 28 cent a litre. A few months ago, it was anticipated the price per litre would drop during the first six to eight months of this year but, luckily, the devaluation of the euro is probably saving the day but I urge caution in this regard. I have said to farmers all over the country that they should be prudent in their borrowing because we do not want a return to the 1980s. In New Zealand following the abolition of quotas, there were significant farm repossessions and marriage breakdown. This was because farmers went head first into expansion because they thought they landed the lotto. We need to make sure the changeover is handled in an orderly fashion and farmers are protected at all times.
The Minister referred to the increased milk production that will result but something else will suffer because the cow will not milk twice as much as she did last year. There will probably be 50% more dairy cows in the country and, therefore, more land is needed for that. We must consider what we are getting rid of to provide for the increased production. He also talked about more efficient production. In Cork, a cow may go out to grass in February but it could be April or May before a cow will go out in the west. We have to make sure there is a regional balance to production. If there are more cows producing more milk, will we be playing into the beef barons' hands? In recent years, the more cattle that were in the country, the greater the capacity they had to press the button in their factories when they were ready for killing and this enabled them to drop their prices and screw the farmer. I am worried about this. Calves born out of the dairy herd must continue to be exported. Teagasc told every farmer a few years ago to hold on to bull beef because that was the way forward. We held on to them and our pockets were emptied. I urge the Minister to look at this.
I also urge him to incentivise young farmers as much as he can. Some young farmers have missed out on the upcoming change. He should examine their position again because we need young farmers. We used to have 300,000 farmers but we are down to 120,000. I ask him to make sure the beef sector and the sucker cow sector are not taken apart.
I thank Deputy Fitzmaurice for sharing time. There is a perception that the dairy industry is focused on Munster and south Leinster but with the exception of that part of the country, particularly because of its longer growing season, dairy production is probably more efficient in the west than anywhere else in Europe.
This seems to be ignored in discussions on dairy expansion. It is time for people within the industry, government, farming organisations and agencies such as Enterprise Ireland to take off the blinkers and recognise that there is huge potential for the development of the dairy industry in the west and north west. Scale is an issue and that will be a challenge but we need to support the development of projects such as the cheese project proposed by the creameries in the west and north west. They wanted to come together to develop a cheese manufacturing facility.
Sadly, the Minister at the time, Mary Coughlan, did not facilitate that project to allow it to go ahead. I think it would have had a huge impact in our part of the country. It has been projected that milk supply will grow by between one quarter and one third in the west and north west. That will be supported by the Aurivo plant in Ballaghaderreen. As a result of the significant investment that has been made at the plant, the company now supports 150 milk manufacturing jobs in the area and exports to 50 countries around the world.
It is planning to make a new investment of €45 million over the next five years. Such projects and companies in the west of Ireland need to be supported by the Government and by the various agencies through investment. We need to ensure the dairy sector is supported because it has more potential than any other sector of the agriculture industry to bring cash back to rural communities and farm families.
I am delighted to have an opportunity to participate in this discussion on the real opportunity that exists for Ireland in this sector. When the curtain came down on milk production in Ireland 30 years ago, it stifled people in rural areas, particularly young farmers who wanted to get involved in milk production. We are now facing a new dawn that will bring huge opportunities for many people in rural Ireland who are yearning and crying out to get involved in milk production. I returned to my constituency in County Tipperary on a Wednesday night six weeks ago to meet approximately 300 young farmers who had gathered in a hall to try to get information on the grants that are available and on how to get involved in this growing industry. Deputy Creed mentioned that approximately 3,000 jobs could be created in Cork. I believe between 1,500 and 2,000 jobs will be created in Tipperary simply as a result of the expansion of the dairy industry. Deputies will be familiar with the announcements made by Dairygold and Glanbia, which is opening a new facility tomorrow. Two weeks ago, Arrabawn launched a €30 million programme of investment involving Teagasc, the dairy co-operatives and the University of Limerick. This will involve undertaking further research on the whole dairy industry and looking into the future to check what the markets are.
When an industry like dairying is on the crest of expansion, it must consider where it can sell its products, such as the various ingredients that are made from the milk that is produced on the land of Ireland. On the basis of my experience in the Department of Agriculture, Food and the Marine, I have no doubt that there are huge opportunities across the world for milk exports. The Irish Dairy Board is now working with the co-operatives to try to develop the growing middle-class market in South Africa. There are opportunities in the Chinese market and throughout the world. In January 2014, I stood in a supermarket and saw a German housewife picking out Irish butter above any other butter. She did so because it is produced from an environment that is second to none. Ireland is established right across the world as having a clean environment and producing a unique type of butter and milk. That is what we should be standing up for. We are on the crest of a huge opportunity for this country. Rather than knocking this country and talking about its disadvantages, we should see the opportunities and seize the challenges that exist for it.
There are certainly signposts of which we should be aware. I agree with those who spoke earlier about the dangers of over-enthusiasm. In the past, people got involved in over-borrowing. We saw it in the 1980s, when people borrowed too much and interest rates went higher. I caution young people, in particular, about the need to be careful and prudent and to cost what they are doing. We do not want to revisit the mistakes of the past. We have a good story. We are producing a high quality product that we can market all over the world. The source of that product is the family farm, which we want to protect. This Government has stood solidly behind the protection of the family farm, the people on the land and the many rural communities that depend on agriculture. As I said, we have to be very careful about the dangers of over-borrowing and over-expansion. Deputy O'Reilly asked me to mention the recent expansion of Lakeland Dairies in his part of the world, where land is poor and farming is difficult. That company announced last week that it intends to create 83 jobs, with another 180 jobs in the construction phase.
That is what is happening in County Cavan and in every part of this country. Deputy O'Reilly and others are committed to that. We want to support the industry. It sends out the wrong signal to be negative about it. Those who talk about the demise of rural Ireland should focus on the great opportunities that exist. We need to stick together. We have a good industry, a good environment and a good climate. All I want to say in support of the Government's position is that this is a good project. I hope it can be replicated in many other areas of agriculture and the country more generally. If we can do that, we will be doing a very good job for our country.
I am delighted to have an opportunity to speak at this exciting time of significant change in Irish agriculture. I think it is a scandal that the agriculture spokesman of the main Opposition party has not participated in this debate. It points to the way Deputy Ó Cuív approaches this issue. While there might not be very many cows in Connemara, I am surprised he has not thought it worth his while to be here for this debate.
I am very disappointed that he has not participated in the debate. As for the comments of Deputy Fitzmaurice, I think it will be a long year between now and the general election if we are going to have to listen to people whose political motivation is to talk down rural Ireland.
I was struck by the contrast between the Deputy's contribution and that made by Deputy Naughten, who represents the same constituency. As a beef and tillage farmer, I know that any farmer would wish to be free of market supports and to be able to make a living by producing top quality produce for the market. The Government has worked to create such an environment. It has worked tirelessly to bring an end to the quota regime and this will happen in the coming weeks.
Many Opposition speakers have concentrated on the challenges and risks that will be presented by this abolition, for which we pushed. I would like to mention some of the massive opportunities that exist, and not just for the primary producer. A new Glanbia plant will be opened tomorrow as part of the expansion of that company. Dairygold and the Kerry Group are also expanding. This will lead to the creation of value-added jobs - top-quality jobs for our graduates - that are linked to food and drink exports. Irish graduates who had gone abroad to work in places like Holland are coming home to work for the Kerry Group in my county of Kildare. That is an example of the positive impact these good quality jobs are having in regional and rural parts of Ireland.
It is phenomenal that approximately 10,000 jobs are to be created in this sector in the next five years. As the Minister pointed out, Ireland is the only country that is targeting 15% growth in 2015 and year-on-year growth up to 2020. I have always said we do not need to reinvent the wheel when it comes to fixing our economy and improving how things operate in Ireland. We need to get back to what we are good at. The dairy industry is a perfect example of an area on which we should concentrate because we have the climate, the topography, the top quality grassland and, most importantly, the expertise among our farmers, who know how to produce more high quality dairy products into the future.
Our strong international reputation for high standards of quality safe food is absolutely key. As some of the farming organisations are represented in the Gallery this evening, I would like to take this opportunity to ask farmers who tend to complain about the inspection regime that is in place to understand that this system exists to protect them and safeguard the reputation we now enjoy. I accept that dairy farmers are less likely to do this than other farmers. It is because we have those higher standards that our beef sector, for example, is able to access markets like China and the United States before any other European country. That is in the best interests of primary producers.
I would like to refer to the 2007 and 2009 baseline figures for dairy market exports. In those years, we produced dairy products worth almost €2.2 billion. That figure had increased by almost one third to €3 billion by 2013. It is worth mentioning the dairy growth targets for the period between 2013 and 2020 in this context.
In 2007 and 2009, almost 5 billion litres were produced, in 2013, 5.5 billion litres, and the target for 2020 is 7.5 billion litres. This is a phenomenal target and with it come huge opportunities and challenges. The per capita consumption of dairy products in developing countries is expected to increase by 1.2% to 1.9% per year with the further globalisation of diets.