Simon Coveney (Cork South Central, Fine Gael)

No, I have a speech with bullet points but I will speak in more general terms rather than reading a script because Members will find that more useful.

I would like to map out the overall context in which I am planning an ambitious expansion of the food industry, increasing primary food production and adding value to raw products before they are exported from Ireland. All of the growth in the food industry will be accommodated by increasing exports. Up to 85% of all food currently produced is exported and we must persuade consumers or major purchasers to buy it.

Food Harvest 2020, one of the good programmes put in place by the former Government, was drawn up by stakeholders in the industry including farmers, processors, large food companies, academics, my Department and its agencies. This report has more credibility than some documents written by Departments because it is realistically based on what is commercially feasible, providing a good blueprint for growth and expansion in the food sector. Food Harvest 2020 proposes to increase food output by 33%, although my personal view is that is an understatement of what will happen, and to add value to that food product in the region 40%. If achieved, a significant number of jobs will be created in addition to wealth creation within the food sector.

The food sector is a good news story for the economy. While there are some immediate pressures on many of the small food companies - which I hold an optimistic view of - because of what has happened at Superquinn, there is a strong market outside of Ireland that we need to plan to service. The economics underpinning this are simple. In 1960, the world's population stood at 3 billion. By 1990, that figure was 6 billion and now, it is just under 7 billion. Each week one and a half million extra people are on the globe and they need to be fed. Populations are moving from self-contained rural locations into urban ones and demanding to be fed in a different way. Diets are shifting from being carbohydrate-based, such as rice and pasta, to protein-based, such as meat and dairy products, foods Ireland is good at producing. These global trends in food demand will create many opportunities for protein-based food-exporting countries.

Ireland, however, could miss the boat. In the dairy sector due to the milk quota system in place since 1984, New Zealand has overtaken the entire EU in milk trading. In 2000, New Zealand had 19% of the global dairy market while the EU had 38%. In 2012, New Zealand will have 27% of that market while the EU will have 24%. In 1983, New Zealand produced the same amount of milk Ireland did. Now, it produces three times more, some 16 billion litres, while Ireland produces 5.3 billion litres. This highlights the growth potential in this sector. Such growth in dairy output did not happen without some pain, however. Supports for the dairy industry in New Zealand were removed overnight, causing much pain in the industry. We need to learn lessons from this so that when the EU removes the milk quota in 2015, it will be able to provide for the transition. It will be a new opportunity for growth and expansion for the dairy sector in volume and value terms and we must ensure we avail of it in a way that keeps the family-farm structure intact.

This is an ambitious project, which we have a blueprint business plan to deliver, agreed by the industry and policy makers. I am trying to provide the political leadership to set quarterly targets to ensure Ireland's food sector is on the pathway to growth. It will mean the dairy industry must prepare for significant expansion in volume production. It is important the beef industry does not become the by-product of the dairy industry, particularly if suckler cow herds are not supported. There is a danger as the excitement grows in the dairy sector that male calves will simply become its by-product. Currently, half of the beef herd comes from the dairy sector and the other from suckler herds. That balance must be keep intact to ensure Ireland can target the high-end premium beef market abroad; that is the market at which suckler herd beef, as opposed to male calves from the dairy sector, is targeted.

We are trying to up-skill dairy farmers to ensure their farms are efficient and profitable within existing resources and the straitjacket of the quota system. We have expanded and supported farmer discussion groups at which dairy farmers are paid to meet and share information on best practice about eight times a year. The preliminary results of these meetings have been exciting. The dairy farmers in question have seen between 2% and 5% improvement in their farms' profitability, a significant figure in one year. We want to put a similar discussion model in place for the beef sector. When it comes to efficiency there can be a chasm between a good and not-so-good beef farmer. While beef prices are strong, many of the suckler herd farmers are losing money and relying on grant payments - be they single farm payments, disadvantaged area payments, suckler cow premium scheme etc. - for their income. We must move on from this.

Regardless of what sector is in question, the Department is increasingly moving into the realm of trade. I am trying to open up new business opportunities and trade partners for Irish agribusinesses. Already I have promoted lamb exports to Jordan. In the autumn, I will visit North Africa to open political doors for the expansion of an Irish dairy company there. Several weeks ago, we signed a basic trade agreement with China and hope to be signing a memorandum of understanding on food trade. My Department is not just responsible for agriculture and primary food production but also supports and assists the expansion of food trade between Ireland and other countries. Last year, we sold €3.6 billion of food to the UK.

We also imported food worth €2.7 billion from the United Kingdom, much of it liquid milk from Northern Ireland. This valuable trade relationship with our nearest neighbour allows food producers to tap into a large population which this country lacks. Ireland, North and South, is an island of 6 million people which produces sufficient food to feed 36 million people. By 2020, we intend to produce enough food to feed 50 million people. In light of population increases and demands for a different type of diet, an issue to which I alluded, I do not envisage any problems with market demand.

How does European agricultural policy fit in with the issues I have raised? Regardless of whether we like it, food production and farming are reliant on European policy. For this reason, the Food Harvest 2020 plan must be in sync with European policy. This gives rise to a number of dangers as limitations being imposed on Ireland could rein in the potential for growth and expansion in Food Harvest 2020.

I propose to speak for a few moments on the Common Agricultural Policy because farmers would like to know what the current position is and what are the potential threats and opportunities of the CAP. Until about six months ago, most people believed the budget available in the European Union to support the Common Agricultural Policy would be cut dramatically. There was a strong political view, one I have never shared, that spending 40% of the European Union's budget on agriculture and the food industry did not make sense in the context of the many other challenges the Union faced. The agricultural budget is the Union's only economic sectoral budget. All other EU budgets provide support for domestic budgets, for instance, in research and development, regional policy, infrastructure development and so forth. The European Union's agriculture budget is different, however, as it supports an industry by promoting food security and production in the EU.

There has been a political realisation in Europe that the issue of food security, namely, investment to ensure the continent can feed itself in future, has moved up the food chain - Senators should excuse the pun. Europe's reliance on food imports to feed consumers is unsustainable. For example, it is not sustainable to continue to import 70% of the fish consumed in the European Union. Many of the countries from which we currently import will experience food crises in the not too distant future. Events, such as the decisions by Russia and Argentina to effectively ban exports of grain and beef, respectively, will be repeated elsewhere. Food producers in both countries are now required to supply the domestic markets before exports can take place. The number of such cases will continue to increase in future and we will have more bilateral trade agreements such as those signed between Brazil and China.

The assumption that Europe can simply import its additional beef requirements from Brazil does not make sense when one examines trends in the beef trade. The European Union must move on from its luxury position of being able to produce as much food as it likes in a sustainable manner and import the rest from wherever it is available, whether chicken from Thailand or beef from Brazil. The reason Europe must move on is that there will be competition to access food resources and food producing countries will have options available to them as to where they can sell their food. We should not assume Europe will continue to enjoy current levels of buying power and dominance in the years ahead.

This is the reason the Common Agricultural Policy is much different from the policy being debated ten or 15 years ago when the purpose of the CAP was to deliberately limit supply to keep prices for European food produce high. That was the correct approach at the time given the higher cost of producing food in the European Union where traceability, animal husbandry, disease control and other standards and regulations are much more stringent than elsewhere. The higher cost of producing the quality food we, in Europe, insist on having forced the European Union to create an artificial internal market for food in terms of price and value. While this has been a successful approach, the economics of food have changed as a result of demand being driven up and food prices outside the European Union. In some cases, external food prices now exceed food prices in the EU.

The debate continues to focus on identifying how we can maintain price stability in the European Union to ensure primary producers are paid a fair price for their produce, the Union contributes to feeding the world and sufficient food is available for the population of the EU as it finds it more difficult to access food products on other markets. The debate has changed owing to a growing realisation of the importance of food production. Countries such as Ireland, which exports 85% of what it produces, predominately to other European countries, will have an important role to play in meeting the food security challenge facing the European Union.

On 20 June, the first draft of the financial perspectives - essentially the European budget - for a seven-year period beginning in 2013 showed that the allocation of funds for the Common Agricultural Policy will remain more or less intact. I would love to claim credit for this decision and say the new Government changed the position of the European Union on retaining the CAP budget. However, it is the bigger picture that is changing the way in which the CAP budget is perceived. Taking inflation into account, the budget will reduce in real terms year on year. However, under the current proposals the amount Ireland will receive under the Common Agricultural Policy in terms of single farm payments and under the second pillar, which consists of support schemes such as the Leader programme, will be maintained in each of seven years covered by the CAP.

I am reasonably pleased with the draft financial perspectives. They are a good starting position. Ireland will make a strong case for increasing the CAP budget, taking account of inflation, through the period of the next CAP and while an agreement to this effect has not yet been reached, we will fight for that position. If an agreement on the draft financial perspectives for the Common Agricultural Policy had been done six or eight or 12 months ago, the starting position would have been significantly worse because at that time the amount allocated for the Common Agricultural Policy was expected to be reduced by 25% or 30%.

I will briefly refer to a number of issues arising from the Common Agricultural Policy and Senators may ask for greater detail in the question and answer session. As there are many more member states in the European Union than at the time the previous policy was agreed, demands are correctly being made to have the funds available under the CAP redistributed. In other words, some countries are doing much better than others under the current Common Agricultural Policy. Central and eastern European countries, in particular, are demanding equalisation and refusing to agree a budget for the next CAP until such time as equalisation is provided. There will, therefore, be a redistribution of funds from countries which are doing well from the budget to countries which are not doing so well because they have only recently joined the European Union. Ireland agrees that this change is necessary and has done considerable work to produce an equation which would enable the Commission to measure how countries are faring in terms of the first pillar, that is, the single farm payment, and the second pillar, that is, other funding provided under the CAP.

Essentially, what we have been proposing is that one should calculate single farm payment on the basis of eligible area. This country is more or less on the mean or average payment. It was slightly under it according to a calculation some months ago but more recently it was slightly over it in terms of current pillar one, single farm payments. It does not appear that we are facing any significant shift out of this country to compensate countries that have not done as well traditionally. That is good news, and it is testament to the good work of the economists in my Department who have worked hard to convince the Commission on how best to calculate who is doing well and who is not.

The second and more sensitive issue for this country is redistribution of funds within member states. A lot of countries now argue that we should forget the history of how single farm payment has been calculated and distributed and that we should simply give a payment on the basis of hectarage. In simple terms, one would get a certain amount of money per hectare farmed to support one's income to reflect the fact that producing food in Europe is more expensive than producing food in other parts of the world. That would cause considerable problems for this country because the way in which single farm payment has developed and is now calculated is based on previous headage payments, area payments for arable farmers and premium payments received by farmers. The most productive farmers in this country generally get the most in terms of single farm payment. One would see a significant redistribution of money from the productive agricultural areas in terms of yield per hectare to the less productive parts of the country in terms of supports. Perhaps some people want that but it will generate a big debate within the agricultural community.

What we are seeking at the moment is flexibility. Once a national envelope of funds is decided by the European Commission, we seek that the Government be able to decide the most appropriate way to spend the money within the country to pursue the goals we have for agriculture and food production in terms of expansion, growth and added value as well as its social responsibilities to keep people on the land in parts of the country that do not have the capacity for growth and expansion, such as large parts of the disadvantaged area in the west, north west and south west. I would like to have the flexibility to do that. It would be totally inappropriate for the European Commission to decide how money is redistributed in this country.

The other controversial element of the Common Agricultural Policy debate is what is called a "greening element". What the Commission is currently moving towards - we will see the colour of its money at the beginning of October when we have a draft document to consider - is that single farm payment would be broken into two payments, that people would get two thirds of their payment automatically and they would get the remaining third as long as they were abiding by certain environmental standards for farming. The Commission is developing an insistence on sustainable farming that is sympathetic in terms of climate change and sustainability arguments. What we do not know currently is the threshold that will be put in place for farmers to meet in order to get their full payments but it appears that what many farmers currently do will qualify them for the payment. For example, if one is a dairy farmer, a percentage of one's holding may have to be under permanent pasture because that is a good carbon sink. If one is an arable farmer one may be required to have a rotation plan or a break crop between wheat, barley and other cereals, which is what many farmers do already. What we have said to the Commission is that it should bring its greening proposals forward but it should keep them simple, make it simple to understand and simple for governments to enforce and it must also ensure it is not too expensive from the perspectives of time or bureaucracy for farmers or business people.

I am conscious of the time. It is 12.15 p.m. and I wish to provide for a full hour of questions and answers. The opportunities for this sector, despite the challenges we currently face for many food suppliers, is a very exciting one. We have a basis for growth which has been put in place over many years. We have some of the best food companies in the world with bases outside of this country. They already have a foothold in many markets that can be the basis for expansion and growth in those markets. We must build on that to ensure our primary producers, as well as the food companies that employ so many people, are given the opportunity to exploit the extraordinary growth in demand for the kind of premium foods we can produce on this island. That can be a real driver of growth in the economy because of the number of people employed and the communities it supports. We are talking about more than 200,000 people in that regard.

I will speak in more detail about the fishing sector and the opportunities for seafood in due course. I invite questions on the food and agrifood sector.