Trevor Sargent (Dublin North, Green Party)

Ar dtús báire, ba mhaith liom buíochas a ghabháil leis na Seanadóirí Bradford agus John Paul Phelan as ucht seans a thabhairt dom freagra a thabhairt ar an gceist thábhachtach seo. While I did not grow up on a dairy farm like Senator Phelan, I spent much of my summer holidays with my dairy farming relations near Navan in County Meath and I have that level of experience. In this case, rather than looking back, we need to look forward because the situation is changing so quickly.

The international dairy industry is currently facing significant challenges. Markets for dairy products are extremely weak across the globe as a result of a variety of causes, not least the current economic downturn. While dairy product prices hit an all-time historic high in 2007 and into the early part of last year, prices have now returned to far lower levels and we are seeing the effect of these international low level prices finding their way back though the milk chain to primary producers.

In the past year or so, we have witnessed extremes of volatility in dairy product prices on an unprecedented scale. At their peak, prices almost doubled in value and as a consequence of this and the ensuing supply response, prices have now returned to a level below their peak before the boom began. It is important to stress that the slump in demand for dairy products has many causes. The historically high prices achieved in international markets in 2007 and early last year caused a supply response. The subsequent turmoil in the international financial and banking sector has had the opposite effect and caused a reduction in demand, effectively leading to a very substantial price drop, which, from peak to trough, has resulted in a significant reduction in producer prices.

For these reasons we have consistently pressed the EU Commissioner for agriculture and rural development, Mariann Fischer Boel, whom I expect to meet next week, to bring forward market management supports for the sector in this time of difficulty. The House will recall that the health check negotiations concluded in November dealt specifically with supply control and market support in the dairy sector as one of the key areas of reform. In these negotiations we were particularly concerned to secure an expansion in dairy farm output and to release the constraints that exist on Irish dairy farmers in meeting the demands of global dairy markets. This was a particularly crucial issue for Ireland in terms of providing a framework within which dairy farmers could achieve a greater level of commercial scale ahead of the eventual abolition of milk quotas in 2015. In this regard we were particularly pleased with the outcome which will secure growth of some 9% in additional milk output for Ireland before quota abolition in 2015, after which further growth will be possible as supply controls are finally lifted. Allied with the liberalisation of quotas, we also insisted in these negotiations that critical market supports for the type of dairy products manufactured here in Ireland would continue to function in support of the market to soothe volatility and assist the industry in meeting its competitive challenges. In the event, we managed to maintain the butter and skimmed milk powder intervention schemes intact despite the powerful forces opposing the retention of these schemes.

A determined effort was made to introduce tendering for every tonne of butter and skimmed milk powder intervened. This would have been particularly difficult for Ireland. The importance of these measures cannot be overstated as they play a crucial role in levelling out the market supply-demand dynamics and play a vital role in Ireland given our seasonal pattern of production. This is true also for private storage aid for butter where existing arrangements were maintained though once again a powerful opposition was intent on introducing tendering arrangements. The success we achieved in maintaining these measures fully intact is now much in evidence.

In November, following pressure from Ireland and some other member states, the Commissioner announced her intention to bring forward the opening of the private storage aid scheme for butter in January, two months ahead of the normal date of 1 March, in recognition of the difficult trading situation. However, it had become clear that the early introduction of APS for butter would not in itself be sufficient to stabilise the market, which has continued to deteriorate in the meantime. Following further pressure from my colleague, the Minister, Deputy Brendan Smith, a further package of measures was announced in January. This included the reinstatement of export refunds for butter, skimmed milk powder, whole milk powder and cheese.

The introduction of these measures in recent weeks has not to date provided the level of stimulus required in the market. However given time and further adjustments in the level of support which my officials will be seeking in Brussels next week, the scope of these market measures provide part of the remedy the sector needs at this critical juncture. We can also expect to see some supply-side adjustments as producers respond to market signals.

As we come to the point of low production in Oceania, Australia and primarily in New Zealand, together with lower levels of output in the EU and elsewhere, a realignment in consumption and production across international markets will help restore equilibrium to the markets once more. Side by side with these international factors we must do all in our power to make our production and processing costs even more competitive. For our part we have revitalised aspects of dairy policy in Ireland to meet these competitive pressures. In particular, the Government has allocated a sum of €114 million in support of capital investment in 19 new projects across the dairy processing sector. These will generate an estimated capital spend of some €286 million when fully completed. The purpose of the fund is to increase the efficiency of the main dairy outputs by supporting the upgrading of plant and equipment. This will assist operators in capturing new business in global markets by developing new value added products. On the quota side we have transformed the allocation process through the introduction of the milk quota trading scheme and through legislative measures to secure more flexible approaches to quota transfers and to the establishment of milk production partnerships.

Although markets are currently extremely depressed and we will do everything possible at EU level to provide the type and level of supports necessary to support the market, it is important none the less to emphasise that the medium-term prospects for global dairy markets are extremely good. Growth in wealth and population is forecast to stimulate strong levels of demand for dairy products and returns will improve commensurately. The Government is committed to ensuring the Irish dairy sector reaches its full potential and we will maintain close contact with the EU Commission to ensure support measures are activated at levels that will make a real impact in the market so the good prospects forecast for dairy markets will be fully realised.