Wednesday, 24 June 2009
Dairy Industry: Motion
That Seanad Éireann:
--- recognising the crisis facing the dairy industry and the threat posed to the future viability of the sector;
--- considering milk prices have fallen to a low of 20 cent per litre, significantly short of a break even point for suppliers;
--- noting the value of the dairy industry, with 2008 exports worth in the region of €2.02 billion to the economy;
--- considering the negative contributory factors of an overproduction in milk globally, a fall-off in south Asian market demand and the global economic downturn, which have added to the domestic crisis; and
--- recognising the immense financial pressures on farm families and the consequent danger that many dairy farmers will be forced to abandon production;
calls on the Government to:
--- deliver a comprehensive framework in consultation with industry to bring about the restructuring necessary to deliver long-term viability to the sector;
--- introduce export credit insurance measures in line with other EU member states;
--- seek co-operation from financial institutions in adopting a flexible approach which is cognisant of the current difficulties facing the sector;
--- take real action to bring down input costs for producers; and
--- negotiate more aggressive market support measures at EU level to deliver a price above the cost of production for Irish dairy farmers.
I am pleased to present this Fine Gael motion to the House. It is disappointing that we have to bring the crisis in the dairy industry to the attention of the House once more. I am sure the Minister for Agriculture, Fisheries and Food recognises the profound crisis in the industry. We are speaking about the industry at a time of general economic crisis in the country. Many jobs are being lost in all sectors. There is serious concern about the future of the economy and the sustainability of the way of life enjoyed in rural Ireland for generations. We should recognise the key role the dairy industry plays in sustaining the economy of rural Ireland. Most importantly, from an industrial perspective, it creates jobs in rural Ireland. It forms a major part of Ireland's economic picture and accounts for a significant proportion of our export figures. I note with the gravest concern the scale of the current difficulties in the industry which faces a real crisis of finances and confidence.
Each day those of us who come from rural constituencies listen to the fears of the people of rural Ireland about where the dairy industry is going. Sadly, the facts and figures speak for themselves. The bottom line is the price of milk. Milk is now being sold for little more than 20 cent a litre, which is neither economically nor financially viable. Almost on a daily basis I hear from dairy farmers about their grave personal concerns for the state of their family finances. Many doubt whether the farm family unit can continue to be viable.
Great work has been done in recent years to plan the development of a new generation of farmers. I refer to the establishment of the installation aid grants scheme, for example. Various advisory courses and Teagasc programmes have been designed to assist the next generation of farmers and farm families. However, many believe their sons and daughters have no future in the dairy industry. Herds of dairy animals are being offered for sale on the classified pages of the daily newspapers and, sadly, the Irish Farmers' Journal, as people leave the industry, the land and rural Ireland. The ultimate price is being paid as a result of the current crisis in the industry. All of us, particularly the Minister and his Government colleagues, face a big challenge if we are to ensure programmes, schemes and policies are put in place domestically and at EU level. That is necessary if we are to halt the alarming drop in milk prices and restore confidence and hope in the future of the industry.
This debate is taking place in a multifaceted context. The milk quota regime is one of the main issues to have been debated in this House and at all levels of the Oireachtas in the last ten or 15 years. When milk quotas were introduced in 1983, before I entered politics, they represented a new departure from an agricultural perspective. Huge concerns, worries and objectives were highlighted at the time. The milk quota regime has worked to a certain extent in the last 25 years. It has provided for a degree of certainty and stability and allowed people to plan ahead. However, we are now reaching the end of the regime. The difficulty associated with that process is another source of doubt that will have to be faced by the farming community. A significant degree of long-term planning will be required to that end. The crisis about which we are speaking can be summarised simply. In asking dairy farmers to sell milk for 20 cent a litre we are asking them to do the impossible. Every litre or gallon of milk sold at that price level is being produced at a loss, which is unsustainable in the long term. The Minister needs to recognise the need for the Government and the European Union to seriously step up to the plate by drawing up policies and plans and putting in place a foundation on which we can build. There needs to be a response to the crisis at EU and national levels, as well as at local level in conjunction with the co-operative movement.
I tried to frame my motion in a positive and inclusive manner and I am slightly disappointed that the Government has tabled an amendment to it. I challenge any Senator on the other side of the House to disagree with anything contained in the motion. We are trying to be positive as we call on the Government to respond to the crisis in a realistic manner. For example, we want it to "deliver a comprehensive framework in consultation with industry to bring about the restructuring" needed. We have called on the Government to tackle the issue of export credit insurance and co-operate with the financial institutions. We want it to take action to reduce the input costs of producers and negotiate more aggressive market support measures. The five proposals that form the core of the Fine Gael motion would produce the response required to give hope and confidence back to the industry.
The first part of the motion calls on the Government to reflect on the need for restructuring within the industry in order that it can be viable in the long term. We have all favoured restructuring in the past 20 years. I am aware from the Dairygold experience in north Cork that restructuring can have negative effects such as the streamlining of creameries and co-operatives, as well as job losses. Milk must be processed in a more efficient, cost effective and modern manner. However, it needs to be done in a balanced fashion to ensure the restructuring, while boosting income, does not destroy rural economies in terms of job losses. The Minister has been to and made aware of the crisis facing towns such as Mallow and Mitchelstown which has stemmed from the massive job losses and redundancies in Dairygold on foot of restructuring. While one can argue with some of the policy decisions taken, one cannot argue against the need for ongoing restructuring to ensure competitiveness and economies of scale are achieved. However, it must be done in a balanced fashion, directed, where possible, by departmental thinking. I am interested in hearing the Minister's views on this aspect.
We call on the Minister to progress export credit insurance measures, although I appreciate that he is trying to take steps in this direction in conjunction with his EU colleagues. He knows more than I about the urgency attached to making progress on the issue. Unless progress is made in the near future, the future will remain not only bleak but also devoid of hope for thousands of dairy farmers. I ask the Minister to put an enormous effort into trying to progress the issue.
I believe we speak for all parties in the House in urging the financial institutions, including banks, building societies and credit agencies, to recognise the scale of the crisis in the dairy industry and try to deal in a most generous and flexible fashion with their customers in the industry. I refer to the farmers with whom they do business. There has been a tremendous record of engagement between dairy farmers and the banks, building societies and other financial institutions since Ireland joined the European Union. The co-operation between banks and farmers has resulted in significant developments in the dairy industry, including massive on-farm investment in dairy equipment and modernising dairy farms. Much of the work was grant-aided, which I welcome, by the Minister's Department and the European Union, but, sadly, thousands of dairy farmers are to the pin of their collars in trying to meet their financial repayments. They are facing Armageddon. Flexibility is required from the banks and other financial institutions. At a time when the State and the taxpayer have come to the aid of the financial institutions, we ask but should demand that the financial institutions be flexible, to the maximum degree, with their customers and, in the context of this motion, farming families to enable dairy farmers and the agriculture sector in general to continue to survive. It is in everybody's interests, not least those of the financial institutions, that credit facilities to the maximum possible degree be made available to ensure the viability of the dairy industry.
In the context of the motion, we ask the Minister to tackle input costs for producers. He is very much aware of the increase in the cost of feed and fertilisers in recent years. The rate of increase has probably eased recently, but a graph of input costs in recent years would show a significant and steep upward curve which has caused serious financial difficulty. A meeting of the Joint Committee on Agriculture, Fisheries and Food today considered the issue of product prices, supermarket prices, etc. One of the major difficulties facing farmers is that, at one end of the chain, product prices have fallen dramatically. The prices achieved by farmers, be they dairy farmers or farmers involved in any other sector of the industry, have fallen dramatically, but, on the other side of the chain, input costs have risen dramatically. That equation is not sustainable. A strong engagement by the Minister and his Department is required to bring a degree of balance to the farm input cost side of the equation and to give hope and confidence back to the industry.
I want to reflect briefly on the final part of the motion which calls for market support measures at EU level to deliver a price above the cost of production. It is a simple sentence to repeat but a difficult equation to which to respond. The Minister must accept that we need to take our policy argument and powers of persuasion to a new level on the EU stage to make progress. There has been a tradition at times of extreme crisis in the dairy industry and other sectors of Irish farming, particularly in 1982 and 1983 when the milk quota regime was introduced, of the Minister for Agriculture and the political establishment led by the Taoiseach engaging profoundly at EU level to bring about a resolution and restore hope and confidence to the industry. I hope the Minister and his Cabinet colleagues up to the level of the Taoiseach will take on this challenge to the top echelons of the EU political machinery as help is needed at that level. We need programmes, schemes and support from the European Union to ensure the dairy industry remains alive. I appreciate it is a big challenge, but it is a prize worth seeking. Our industry, its viability, the futures of the tens of thousands who depend on it and the billions of euro worth of exports that flow from it are at risk. I ask the Minister and his Cabinet colleagues to put their shoulders to the wheel and work with the industry, my party, the political establishment and at EU level to stem the tide. When we meet dairy farmers, they are almost devoid of hope. They are genuinely concerned about the future. They see no future for their sons and daughters in the industry. We need to reverse the problems and begin to march forward.
I welcome the opportunity to formally second the Fine Gael motion which is timely in the light of the crisis facing the diary sector. I welcome the Minister to listen to the debate and hear the musings and thoughts of Senators on all sides of the House in reflecting on the reality on the ground. Like us, I am sure he has met many farmers who are suffering on a daily basis in the current economic climate. We are dealing specifically with the crisis in and the challenges facing the dairy sector.
I am disappointed that the Government parties decided to table an amendment to the motion which is a reasonable one. It calls on all stakeholders in the dairy sector to ensure a meeting of minds to work out mechanisms to try to assist the sector in these challenging times. We recognise the crisis facing the dairy industry and the threat posed to its future viability. This is accepted across the House.
Milk prices have fallen to a low of 20 cent a litre, significantly short of break-even point for suppliers. A young farmer with whom I spoke today told me he received just over 20 cent a litre, an all time low for him as a producer since 1983. It costs him 27 cent a litre to produce milk through the achievement of great efficiencies. One has to take account of such losses in the business plan of any business or small enterprise. Essentially, farming is a business which needs to pay its way. In this instance, the farmer concerned needs to be able tomake a living for himself and his family.
All the forecasts indicate that for the foreseeable future farmers will run their enterprises at a loss. That will introduce major cash flow problems and problems concerning the viability and financing of farm enterprises. That is the reality. Some farmers who had hired labour had to let them go because they could not afford to pay them. That is one the effects of the crisis. The farmer to whom I spoke has reduced resources with which to run an efficient farm enterprise and can no longer meet labour costs. He has to milk more than 200 cows on his own and has a young family. As Senator Bradford said, the gloom is closing in on such farmers. Many of the people concerned are extremely progressive and have invested in their farms which they inherited, have been in their families for many generations and have contributed enormously to the local rural economy. However, they are now in a position where they have little hope.
The people to whom I refer have been extremely critical of the banks. I ask the Minister and the Government to take up this matter with the banks, particularly in circumstances where conditions are being put in place in respect of guaranteeing and bailing out such institutions. Banks are trying to restrict the flow of cash to farmers and small businesses. On almost a daily basis there are reports about viable propositions which have been evaluated and approved by expert accountancy firms and others being put to the banks, but the latter continue to restrict the flow of cash to these enterprises. This is having a major effect on farmers.
Many of the farmers to whom I have spoken are of the view that if the current trend continues, their businesses could go to the wall within a year or two. As a result of the investment they have made in their farms, they have large mortgages which they must repay. If labour, energy and other related costs are as high as appears to be the case, the dairy sector - an indigenous industry of which we have always been proud and which is responsible for a quality product readily identifiable as being Irish - is in trouble.
I live in County Waterford which is also home to over 790 farmers. The dairy sector is huge and the average quota in the constituency is over 300,000 litres. If these farmers are to suffer, the heart will be torn out of the local economy and the pressure on their families and local shops and other rural enterprises will increase. A large proportion of these difficulties stem from the lack of credit available. Processors are not handing over milk cheques as quickly as they did in the past. In addition, the amount of money on offer from the processors has decreased. One farmer to whom I spoke informed me that his milk cheque for 2008 was €16,000, whereas that which he received for the current year only amounts to €12,000. The processor - Glanbia - takes over €4,000 out of it. In such circumstances, there is very little left for the farmer to run his business and provide for his family. The position is that basic.
There have been delays in the payment of farm investment grants. In addition, the 40-40-20 percentage basis on which such payments are made has given rise to difficulties. Some farmers have received the initial 40%. However, they badly require the next tranche of 40% in order to keep their businesses in operation.
Action is needed in the various areas to which I refer. The banks have a large part to play in this regard. The Government also has a major role to play in ensuring the banks restore the flow of cash to these farmers. If the latter does not happen, many of their enterprises will go to the wall.
Many processors and co-ops have come under fire with regard to the way in which they operate. However, I must point out that in comparison to those enjoyed by retailers, their margins are quite small. This is despite the fact that they carry out much of the work in the form of collecting, processing and pasteurising milk. There are many overheads and energy costs with which they must contend in this regard. They are then obliged to deliver the finished product to retailers, supermarkets, etc. It appears that processors only obtain 16 cent for each litre of milk produced and are expected to pay for all of the various activities to which I refer out of this. The retailers make approximately 53 cent a litre of milk. That is a huge margin compared to those of farmers - the primary producers - and processors.
The Fine Gael motion represents an attempt to try to bring all sides together, in a political sense, in order that we might develop mechanisms - whether nationally, through the European Union or farm organisations working in co-operation with producers, processors and retailers - designed to keep the sector alive. If the current level of unsustainability continues, not only farmers but also processors will go to the wall. Processors are sometimes obliged to make difficult decisions and scale back their operations. The latter is due to viability issues. In the United Kingdom one of the major processors went out of business last year. If the same was to happen here, there would be a major void in the economy. There is no point in producing milk if there is no one available to process it and sell it on to retailers.
At the recent protests in Luxembourg the chairman of the Irish Dairy Board, Mr. Michael Cronin, delivered a stark warning when he stated long-term damage would be done to the dairy sector unless the European Commission continued to support farmers and processors through the current income crisis. His comments represent a serious call for help. The Houses of the Oireachtas and the Government can play a part by lobbying the European Commission to support the farming industry during this critical period. The European Union plays an important role in supporting Ireland's economy and its agri-sector. However, it is imperative that the EU authorities, like politicians in this country, think outside the box in developing mechanisms to try to ensure viability is maintained in the dairy sector. In the current climate farmers cannot afford to be left isolated.
As stated, my main focus is on the banks and the restoration of cash flow. In order that we might navigate our way through the difficulties in which we find ourselves, it is important to ensure the banks will restore the flow of cash to farmers. If the Department makes the payments now due to farmers under the farm investment scheme, this would alleviate, to some degree, the problems encountered.
Other jurisdictions have put in place insurance schemes in respect of milk prices. Under these schemes, when milk prices are high, a levy is taken from farmers who do not receive the same high level of pay for the milk they produce. Subsequently, when there is a downturn - as with everything else, the price of milk goes through cycles - a subvention can be provided. Did the officials in the Minister's Department ever consider putting such a scheme in place? I accept that developing a scheme of this nature involves thinking outside the box, particularly in the context of ensuring viability by imposing a levy when times are good in order that a subvention might be provided when they are not.
I will be interested in hearing the Minister's views on this matter. As parliamentarians, we all have views to which attention must be paid. Many of us represent members of the farming community. It is important that the people concerned have a voice in the national Parliament and that we respond to the difficult plight in which they find themselves.
I move amendment No. 1:
To delete all words after "Seanad Éireann" and substitute the following:
- recognising the current severe downturn in dairy product prices and the direct economic consequences arising for the sector at producer and processor levels;
- mindful of the need to address the issue of competitiveness at farm and factory level; and
- cognisant of the role that EU market management mechanisms play in stabilising the milk market;
commends the Government's
- continuing efforts to secure the best available market management supports at EU level;
- ongoing efforts to extend existing support measures in order to stabilise the market; and
- policy of support for an efficient and cost competitive dairy sector at producer and processor level, and
supports the Minister's efforts at the EU Agriculture Council to
- extend intervention purchases of butter and skimmed milk powder beyond the end of August;
- extend the closing dates for private storage aid; and
- remove the 'free at frontier' price for cheese, that is blocking the use of export refunds for certain cheeses.
I welcome the Minister and look forward to his contribution. I welcome the motion before the House because the matter to which it refers deserves a great deal of attention. The dairy industry and the farming community are experiencing an extremely difficult time, with the price of milk at an historic low . To a degree, we are suffering as a result of the fact that the price of milk reached a record high in 2007. In addition, dairy markets are extremely weak. Turmoil in the international financial and banking sector has also contributed to the difficulties we face. Prices were so high in 2007 that there was an increase in global supply. The recovery in New Zealand milk production following a drought-related decline was also a factor.
In the light of the current low price, everyone agrees farmers face severe difficulties. The position is exacerbated by the fact that producer prices are below the cost of production. It is vital, therefore, that the European Commission's efforts to stabilise the situation should continue and, where possible, be intensified. In recent months the Minister has engaged in a great deal of lobbying at EU level on measures such as export refunds and internal subsidies which have been suspended since 2007 as a result of the high price of milk. During the negotiations relating to last year's CAP health check he argued strongly and, ultimately, successfully for the retention of the dairy market management mechanisms. Since the conclusion of those negotiations, he has repeatedly pressed the Commission and Commissioner Fischer Boel for the early introduction of supports to restore confidence and create a floor for prices.
Following the Minister's intervention, the Commission has, since the beginning of the year, reactivated a range of support measures to help stabilise the dairy market. I have no doubt the Minister will allude to those in his speech, including the storage aid for butter which was introduced two months earlier than normal, as well as the public intervention schemes for butter and skimmed milk powder, SMP, that were opened, which allowed the purchase of product to set limits at fixed prices. Since then, the Commission has continued to buy butter and SMP into intervention and EU prices have stabilised, albeit at a low level. Ireland and other member states continue to stress the importance of continuing to accept butter and SMP into intervention at levels close to the intervention purchase price under a subsequent tender system when the mandatory limits have been reached.
There is scope for further action and I am aware the Minister has pressed the Commission on a number of fronts. In the current market situation, where cheese prices have dropped considerably, the free-at-frontier price for cheese that is blocking the use of export refunds should be removed. This is a self-imposed technical impediment that is no longer warranted and is hindering exports of Irish cheddar in particular. Intervention purchases of butter and skimmed milk powder should be extended beyond the end of August, as should the closing dates for private storage aid. Given the ongoing weakness in the market situation, the extension of these schemes would greatly assist the sector and give it a much needed boost. In addition, there is greater scope for exports of dairy products outside the EU and more attractive export refunds which would greatly improve the export potential of the Community. That would be of great benefit in this regard.
Milk quotas have been mentioned, but I believe we must be careful in this regard. There is a suggestion abroad that EU quota increases are the reason for the current low prices for milk. This is not a valid argument and we should be very careful about this. The fact is milk production is below the level it was at before the quota increase took effect in 2008. If EU production is to be constrained by quotas, that will prevent Ireland from benefiting from future upturns in dairy markets and in that scenario the only winners will be our global competitors, of whom there are many.
In the retail sector, over recent weeks we have seen one of the major multiples in this country cutting out Irish brands and introducing its own home brands. A number of foods are suffering from this, such as Dubliner cheese, Brennan's bread, Clonakility sausages and other products produced by the farming community. They are being crammed into small spaces. The information I have is that Kerrygold is vying for room in that multiple's supermarkets while Danish butter and other dairy products are being allocated more space, which is most worrying. I appeal to Irish consumers at this stage. While there may be a short-term gain from getting cheap food, the day will come, if our people are put out of business, when consumers will pay dearly for this. Our farmers will be out of business and we will be importing much more at prices dictated by the multiples. This would be regrettable so we should be very careful in case this happens.
The Minister has done a good job through his negotiations in Europe and brought a number of things to the Commission's attention. He has been consistent in arguing for better prices and supports and through his good offices has been able to get Brussels around to his way of thinking. However, Europe will have to play a bigger role in this to ensure at all times we will have enough food because I believe that in the next few years there will be food shortages and therefore we have to keep the farming community and our dairy producers in business. If not, we will ultimately pay a high price. It might not happen within the next five to seven years but it is definitely on the cards and we should be aware of the dangers.
I again welcome the Minister to the Seanad and look forward to his presentation as I am sure he will have many important points to lay before the House.
I wish to share time with Senator David Norris, with the permission of the House.
The Minister for Agriculture, Fisheries and Food is very welcome and I am delighted to see him. It should be noted that I always call him the "Minister for Food and Agriculture" because I believe food depends on the marketplace and the customer. I have some slight problems with what Senator Carty was saying about Danish butter taking the place of Irish butter on the shelves and apparently blaming the multiples. I believe it is up to the customers who rule the marketplace. We would not have a market otherwise and without a market there would be no producers either. It depends on the customers buying food.
To ensure it is profitable for the farmer to produce, two things must happen. The farmer must either cut his or her costs or he or she must get a higher price for products. I recall being at the Irish Management Institute annual conference in KIllarney in 1985 when Avonmore brought down to me samples of a product, at my request, namely, milk in a carton as against milk in a bottle. I take that as an example of the innovation Avonmore as a producer could come up with at that time. I am a great believe in do it yourself and not calling on the Government to do everything. The history of dairy farming in Ireland is based on various successful co-operatives which started 150 years ago and developed throughout the late 19th and 20th centuries to become the very successful enterprises they are now.
If what Senator Coffey has said is right, that it is costs farmers 27 cent to produce a litre of milk for which they only get 20 cent when they sell it, and I have seen those figures before, then the balance must be found in some way or another but it will not happen by asking the Government to do something about it. I am a great believer in the free market economy and maintain that we have to convince people that this is the way to address our difficulties. I am unhappy when I hear taxi drivers saying the number of taxis should be limited. Before we know it, the grocers will be calling for a limit on the number of grocery stores so that they can get a better living as well. To my mind, a solution must be found which is dependent on the marketplace.
Around the world, however, governments are changing. They are now beginning to support the banks, for example, something they would not have done a few years ago. They are supporting the motor car industry as well, as has been done in America and Germany. I can understand that changes are taking place and the Irish Government has learned that the way to support industry is through reducing tax and encouraging incentives, which seems to me to be a much better approach. The Irish Financial Services Centre is a very good example of what has happened in this regard.
What can the Government do? I welcome the fact that the European Commission decided last Thursday to increase export refunds for butter, skimmed milk powder and whole milk powder. The aim is to reduce pressure on the industry. However, I believe further urgent action is needed to help the industry because it plays such a large part in our economy. I support the call for the more aggressive use of export refunds to sell dairy products outside the EU, perhaps using them as Third World aid. We need to make efforts to restore customer confidence in China. I had the opportunity to be in China last year. It is a massively expanding market but it had a major tainted milk scandal last year. I wonder if the Government, Bord Bia or the National Dairy Council are doing anything to promote Irish dairy products in China. The food industry in Europe is worth nearly €1.3 billion and we need to support the renowned Irish quality dairy producer.
The German Chancellor, Angela Merkel, has just agreed to tax breaks to help farms struggling due to falling food prices. Perhaps we need to consider something along the same line. There are things we can do but let us not ask the Government to do everything; let us do something ourselves.
I was in the United States recently and was impressed by Kroger, a company with 2,000 branches which is conducting an integrated campaign this month to promote the nutritional benefits of dairy:
Joining the National Frozen & Refrigerated Foods Association Movement to recognise June as national dairy month, the supermarket operator is using print, in-store and on-line materials to pitch affordable prices and healthy consumption.
May I say one more thing before handing over to Senator Norris?
There are challenges ahead of the dairy industry, and two particular challenges must be faced up to, one being sustainability. There is little doubt that sustainability will threaten the cattle, meat and, therefore, the dairy industry because of the trends taking place. If the efforts being made ignore that issue, people do not recognise the challenges that face them in this area. Sweden is promoting climate-friendly food choices:
Guidelines for climate-friendly food choices developed by the Swedish authorities recommend citizens to reduce their meat and rice consumption as a way of reducing greenhouse gas emissions. The first of their kind, the guidelines are now being sent out for reactions and inspiration from other EU countries.
There will be European and world legislation changes unless we do something about it.
The other area where there will be change is obesity. There will be legislation, and even if there is not, there will be a strong move. I noticed it in America recently, where they have a far more serious obesity problem than we have in Europe, although we have a major problem here. One of the challenges against obesity is the dairy industry. It can do a lot about it but will have to work very hard to ensure the products it produces are not going to be challenges to the consumers of the future.
I am most grateful to my colleague, Senator Quinn, and I am very pleased he led off the Independent Senators because he has very clear and successful experience in retail. We must listen with attention and respect to what he has to say, although I do not fully agree with him. I am not a great fan of the free market and I do not trust Tesco. I do not believe Tesco has the interests of the Irish nation as one of its primary motivating factors at all and it needs to be watched very carefully. "The customer is king" is a good mantra and has worked very well for Senator Quinn, but the customer has no chance against groups such as Tesco and we must watch that very carefully.
In a situation where farmers get 20 cent for a litre of milk while in the supermarkets it costs €1.70, who is making the money? Where is it going? The public is entitled to know. I would like to know, because it sure as hell is not the farmers. People may be surprised I speak with some passion about the agriculture sector but my grandfather was a farmer in Laois and I know how difficult it was, even for people with fairly substantial farms. I feel great sympathy because this is one of the most important elements in our society. I say so for a number of reasons.
First, the economic impact is very much underestimated. People talk about the pharmaceutical industry. I listened with great interest today to the president of the IFA, a good Laois man I am very glad to say, Mr. Padraig Walshe. In a debate with Professor Alan Matthews of Trinity College, he made the point very effectively that the value added element in agricultural produce, particularly dairy, is a multiple of that of the financial services or pharmaceutical industries. It is much more significant than might appear from the stark figures alone. We must bear that in mind.
More importantly, let us think about food security in every aspect. We are a small island. This is an appalling economic situation. One of my colleagues, Senator Ross, talked about Armageddon in the financial markets and our economy. Yesterday I spoke at a conference at which Professor Dermot McAleese of Trinity College's economics department said he does not know where this is going or where it will end. One thing we always had was food, our capacity to feed ourselves as well as exporting. We would be very foolish to interfere with that in any way and to go the way of many European countries by importing food from hither and yon because it is cheaper. We should not bring in meat from Brazil, where we cannot test the pedigree, as we can with Irish produce. We should be aggressively marketing it to get over the dreadful mistakes that were made in the brand image over the years with beef.
If I have the figures correct, farm incomes in this country last year were €2.3 billion, of which only €300 million was generated by agricultural work by the farmers. The other €2 billion was grants from Europe. That is very interesting and tells something about our dependence on these grants. Unusually I am happy to support that. There has been a drop of 25% in farm incomes. That is astonishing. How do people live with this drop? Many farms are supported by families part of whose income is derived from work outside the farm. The farmer may work for a few hours every day on the farm, morning and evening, and then go out and work in the building sector. The building sector has contracted so they can no longer do that. What are they to do?
The prediction is that there will be 20,000 farmers left in approximately 20 years. That is an enormous drop and the majority of those will be big farmers with ranches. I do not particularly want to see that. I saw that happen in Rutland, the part of England to which my uncle, who is Irish, retired. It destroyed the countryside and habitat and led to a reduction in food quality. That is a significant factor.
I was astonished to hear Professor Alan Matthews, a man for whom I have the highest regard, talk about the necessity to take in cheaper foodstuffs. Taking in such products led to Creutzfeldt-Jakob, or mad cow, disease. He also talked about the possible necessity of taking in feed that contains genetically modified products. I ask the Minister not to do that. Laying aside the troubling scientific evidence, we have the situation where we have the possibility of marketing excellent brands as one of the very few countries in Europe, if not the only one, that has no taint of GM. To return to my colleague, Senator Quinn, that is what customers want, marketed properly. They will take the opportunity to buy such food and pay the additional price.
What a pity that in the middle of this very difficult situation, once again the two sides of this House appear to be playing politics. I saw no contentious wording in the Fine Gael motion, with the exception of the word "real" which might be irritating, but the Government should be able to get over irritation.
Fine Gael has offered to delete it. Let us have a composite motion. I do not believe Senator Cassidy presented this. It was the Minister, so he can allow us to have a composite motion and all of us to get behind the dairy industry. Let us not have a vote. I do not want to vote on either side. I would like to vote for the dairy industry in this country.
I wish to deal with a few important points made by earlier speakers. Senator Bradford referred to the possible need to restructure the industry. In recent years the Department had the dairy investment fund, which allowed us to provide new facilities and to upgrade existing facilities and there was better cohesion and synergy. Senator Bradford rightly spoke about the need for rationalisation and that it is not always easy to achieve rationalisation and reorganisation. I agree with him in that regard. There is a need for further restructuring of the industry. However, that needs to come about through partnership and must be led by the industry. One of the major players in the industry recently spoke about the need for further rationalisation and sharing of facilities, and better synergy.
Senators Carty and Coffey also mentioned the difficulty of farmers getting adequate credit supply. I have raised this issue with all the senior agricultural advisers in each of the banks recently. I asked the banking and financial institutions to deal sympathetically and in an understanding manner particularly with dairy farmers. Senators Quinn and Norris spoke about the need for sustainability in the industry. There will be sustainability because we have got an increase in quota. We have the capacity to produce additional milk and dairy products. We are going through very difficult times at present, but the medium to long-term outlook is much more positive.
Senator Quinn mentioned that the world's population will grow considerably. It is estimated by the Food and Agriculture Organization of the United Nations that we will need to double food production by 2050, which will provide Ireland with great opportunities to export more product. Currently we are 900% self-sufficient in beef and we export in excess of 80% of the dairy products we produce. I take the point made by Senators Quinn and Norris about the need to protect the food production base in Europe. We need to deal with our environment and climate change. We cannot allow food production to be restricted in a country where we have a very efficient system. New Zealand and Ireland have the two most efficient food production systems in the world. By definition that means we have fewer greenhouse gas emissions in the production of food than do other countries. At the Council of Ministers I have clearly and consistently stated that under no circumstances should the food production base in Europe be eroded, restricted or reduced. If that were to happen we would end up as a big importer of food into the European Union. We would be taking that food from other continents that are far away where the production systems are considerably less efficient and there would be deforestation to produce more grassland that would do further damage to the environment. We would then be hawking food around the world, which would not be in the best interests of consumers or in the interest of our desire to protect and enhance the environment.
Senator Quinn spoke about the progressive nature of the dairy industry. We have a very progressive dairy sector. We are very fortunate to have a world-renowned research centre at Moorepark in north County Cork. It is regarded throughout the world as the leading research centre in dairy science and at the cutting edge of technology. It is important to have those resources to assist and work with our industry. Thankfully the industry is working together with our universities and research institutions on a partnership basis. We all know it is no good doing research if it does not translate into jobs and wealth creation for the benefit of our country and the industry.
I welcome this opportunity to debate the current state of the dairy sector and each of the contributions made in the debate have addressed the serious issues facing dairy farmers at present. Last November when it became apparent that dairy commodity prices internationally were in decline I contacted the EU Commissioner for Agriculture and Rural Development, Mariann Fischer Boel, to press for the reactivation of dairy market supports. These had been suspended since 2006 because of the historically high milk prices that had prevailed in the intervening period.
The first step taken by the Commission following my intervention was to introduce an aid scheme for the private storage of butter a full two months ahead of the normal date. This meant that butter market support was available in January instead of March and this scheme remains in place. It has already supported the storage of 96,000 tonnes of butter at EU level. Also in January export refunds were re-introduced for butter, cheese, skimmed milk powder and whole milk powder. In March public intervention for butter and skimmed milk powder was opened. When the mandatory limits of 30,000 tonnes and 109,000 tonnes respectively were purchased at the intervention price, I arranged a bilateral meeting in Brussels with the Commissioner. At that meeting I secured agreement for the continuation of these schemes under tendering arrangements at close to intervention prices.
To date 81,000 tonnes of butter have been bought into intervention, equal to 8% of the butter production in January to June. In addition 96,500 tonnes of butter have been stored under the private storage aid scheme. Some 203,000 tonnes of skimmed milk powder have been purchased into stock, equal to more than 38% of the skimmed milk powder production in January to June this year. Some 20,000 tonnes of butter from Ireland and 27,000 tonnes of skimmed milk powder have been funded under these schemes at an approximate value of €60 million to Irish dairy processors. So far this year licenses to export 96,000 tonnes of butter and butter oil, and 123,000 tonnes of skimmed milk powder have been issued which will enable these quantities to avail of export refunds for export outside the Community. Similarly, licences were issued in respect of cheese exports for 129,000 tonnes. The support value of this trade amounts to a further €113 million when these products are exported. Taken together there has been a considerable commitment of EU funds to support the dairy sector.
The purpose of activating these measures is to get product off the market to give a necessary stimulus to the product that is on the open market. However, with the market continuing to show resistance, price returns to dairy farmers in Ireland are now at levels that threaten the very viability of many farm enterprises. While this would be unwelcome at any time, in this recession there is the risk of long-term damage to the food supply chain. I have explained in detail to the Commission why it is difficult for many to understand that in this current severe market downturn we have a self-imposed technical impediment preventing the use of export refunds in support of cheese exports outside of the Community in the quantities demanded by the market. This does not make sense in the current environment and I have once again urged the Commissioner to remove the free at frontier price for cheeses at the earliest opportunity. If we were to succeed in getting this measure changed, it would be particularly important in the export of cheddar cheeses, of which Ireland produces a considerable amount.
I have also stressed the need to examine other steps that may assist in reversing the downturn and stimulating the market further. For example, intervention purchases of butter and skimmed milk powder will close at the end of August and the private storage scheme for butter shortly beforehand. The role of private storage in particular and also intervention is such that their continuation after the normal end dates will be crucial in preventing further market turbulence at a time when supplies would otherwise hit commercial markets. While I understand legal impediments remain to be overcome, the view I have articulated at meetings of the Council of Ministers is that the market situation warrants an exceptional response on this occasion. As recently as Monday night in Luxembourg I again spoke to the Commissioner about the need to implement this measure.
The dairy sector downturn has its roots in the supply response that resulted from high prices in 2007 and in the early part of 2008. That situation was then exacerbated by the international financial crisis. This has had a major effect on the demand side. Difficulties with access to credit have exacerbated what was a cyclical downturn into a major reduction in international demand for dairy products. The market is carrying surplus stocks as a result. Farmers across the European Community and farmers in Ireland in particular are facing very severe difficulties in making ends meet as has been articulated by the previous speakers. Prices are historically low and while the Commission has made every effort to stabilise the situation, there is no real sign that a recovery is in sight.
Over the past year or so we have witnessed extremes of volatility in dairy product prices on an unprecedented scale. This volatility is a symptom of the changed EU policy framework under which we are operating, where world market forces have a major influence on the price paid for milk. The mid-term review of the Common Agricultural Policy in 2003 implemented a series of reforms that resulted in a shift from market support to direct income support. Though these changes were expected to lead to a reduction in the prevailing milk price the opposite occurred and by 2007 we had the international commodities boom that saw prices reach as high as 40 cent per litre and average at 34 cent per litre for the year.
For a dairy producing country like Ireland, where we export the vast majority of our product, this new framework is particularly relevant. Ultimately the market is the source of income and to maximise income the focus needs to be on competitiveness, efficiency and innovation. One of the major challenges in the medium term will be to ensure Irish farming and the agrifood sector are at the heart of an evolving high-value food market, which is focussed on quality and innovation. This is at the core of Government strategy, as is evident from the National Development Plan 2007-13, AgriVision 2015 and the partnership agreement Towards 2016.
The AgriVision 2015 plan in particular sets out a series of actions, many of which have been implemented, to develop a competitive, innovative and consumer focussed agrifood sector. As part of this overall strategy, the Department provided funding of €115 million towards investment in dairy processing. A total of 19 capital investment projects were approved and awarded Government grant assistance under the fund, which will generate an estimated capital spend of €286 million at full production. Senator Paul Bradford referred to this issue earlier.
The fund's purpose is to increase the efficiency of main dairy outputs by supporting the upgrading of plant and buildings. This will assist operators in capturing new business in global markets and in developing new value-added products. By stimulating necessary investment in the sector, the fund will help to ensure the long-term competitiveness of the dairy industry in Ireland.
Many of these projects have already been completed, while others are close to commissioning stage and the remainder will be progressed over the next year or so. Together, these investments will add to the value of dairy sector output and in turn stimulate new trade opportunities and increase overall output in line with increased farm level output resulting from the easing of supply controls agreed as part of last year's health check.
From a dairy sector perspective, the health check of the CAP agreement last November had two key elements, namely supply control and market support. The agreement essentially provided the framework for the EU milk quota regime leading up to its abolition in 2015. As Senators may be aware, there was a wide divergence of views among member states in the months leading up the final negotiations as to the best course of action on milk quotas. Commissioner Fischer Boel made it clear that she would not be proposing the continuation of the quota regime beyond 2015. The question was whether, and to what extent, milk quotas should be increased in order to provide a so-called soft landing ahead of abolition.
Many of our colleagues argued in favour of annual quota increases up to 5%, while others were opposed to any increase. I adopted an ambitious approach that would facilitate the maximum possible fulfilment of the production potential in the Irish dairy herd. In that context, the decision to increase quotas by 1% each year from 2009 to 2014 was a good outcome. So also was the downward adjustment in the butterfat co-efficient that equates to a further 2% rise in quotas this year.
When the 2% quota increase in 2008 is taken into account, the result is a cumulative increase of 9.3% in Ireland's milk quota by 2014 compared with 2007. This will help our dairy farmers to maximise their production potential and to maximise the natural advantage they possess in the form of a grass-based production system. This in turn will lead to efficiency gains and help to achieve a competitive edge in an increasingly volatile world market. If on the other hand EU production is constrained by quotas, it will prevent Ireland from benefiting from future upturns in dairy markets. In that scenario the only winners would be our global competitors. I referred earlier to the UN Food and Agriculture Organisation's projections in regard to the demand for food up to 2015 when the world will need to double its food production.
I recently announced the allocation key for the first of the five annual 1% milk quota increases agreed under the health check. Three quarters of the increase will be allocated to all active milk producers on a permanent, saleable basis. The remaining one quarter will be allocated to new entrants to dairying on a scale designed to achieve viability from the outset. That has been warmly welcomed by young farmers and their representative organisation.
It has been suggested that the EU quota increases to all member states are the cause of current low prices for milk, but this is a flawed argument. In its report to the Council last Monday, the European Commission said that milk production in the quota year 2008-09 has fallen by 0.6% compared with the previous year and that overall production was 4.2% below quota by 31 March 2009. To attempt to attribute the current market weakness to the additional quota allocated as part of the health check is patently wrong - it is a demand-led problem. The serious problems facing the dairying industry today are linked to the lack of disposable income for consumers worldwide.
At national level the focus in the milk quota area is on ensuring the maximum possible volumes of quota are made available to active and committed dairy farmers. This will facilitate the efficiency gains that are necessary in an increasingly competitive market. Domestically, work continues on making the quota regime as simple, flexible and responsive as possible for Irish milk producers. The main vehicle for this is the milk quota trading scheme, but there have also been other significant steps in the form of an overhaul of the milk quota regulations.
The milk quota trading scheme has just completed its third year of operation and continues to be implemented successfully. The trading scheme replaced the old milk quota restructuring scheme and brings a more open-market approach to the transfer of milk quotas. It gives buyers and sellers freedom to dictate the price at which quota is traded within each co-op collection area. A total of 375 million litres of quota has been transferred to active producers since the scheme's inception and it has continued to contribute to the process of consolidation at producer level.
The other key dairy element in the health check was market support. In the negotiations we strongly defended the view that quota increases must be matched with effective dairy market management measures. The transition to a post-quota EU dairy market, along with current market fluctuations, makes this particularly important. We therefore called for the continuation of such measures and, above all, those schemes which are especially important for Ireland. In the early part of those negotiations we were on our own in defending the necessity to retain those market management measures, namely, intervention, aids to private storage and export refunds. I shudder to think what situation we would be in today if those market management measures were not now available to the European Commission to trigger and activate. During those negotiations last year, however, we fought a lone battle practically right to the end and then we got some support from other member states.
Allied with the liberalisation of quotas, we insisted in the negotiations that critical market supports for the type of dairy products manufactured here in Ireland would remain in place. They must continue to function in support of the market to sooth 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 powerful forces opposing the retention of these schemes. A determined effort was made to introduce tendering for every tonne of butter and SMP 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 the market supply and demand dynamics. They have a vital role in Ireland given our seasonal pattern of production. This is also true for private storage aid for butter where existing arrangements were maintained, although once again there was strong opposition intent on introducing tendering arrangements.
Our foresight in fighting to maintain these market supports has been vindicated and they are now being used to deal with the current situation, as I outlined. I would like to see those measures used more effectively, which is what we have been urging the Commission to do. It is important to utilise the available supports to manage the transition period until we emerge from the current period of turbulence. We can expect to see some supply side adjustments as producers respond to market signals. Realignment of consumption and production across international markets will help restore equilibrium to the markets once more.
It is important to emphasise that medium-term prospects for global dairy markets are good. Despite the current economic turbulence, 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. We will continue to maintain close contact with the EU Commission to ensure support measures are activated at levels that will make a real impact in the market. This will enable us to manage the transition period until demand recovers and good prospects forecast for dairy markets can be fully realised. That support is needed by our dairy industry, from farmers, who are the primary producers, to processors.
In Ireland and other member states the issue of retail margins on food products has become a point of heated debate in recent times. I raised this issue on a number of occasions at the Council of Ministers, most recently last Monday. Last January, there was a discussion on a road map to improve the functioning of the food supply chain. I said then that competition alone cannot act as a sole mechanism to maintain efficient markets. The careful and sensitive use of market management measures can help to maintain balance on the market when appropriate and the use of such mechanisms can assist in the provision of fair returns to producers.
Underlying the debate is the increasing concentration of retail power in the hands of a few large supermarket chains. This is an international phenomenon, which has fundamentally changed the balance of market negotiating power in the food chain. This is one factor, although not the only one, behind the declining share of retail prices which is passed back to producers. While there is always potential for some conflict in any market relationship, there has been a noticeable trend recently towards greater conflict and even allegations of sharp practice. We cannot and should not ignore this. Many of my colleagues on the Council of Ministers also expressed strong views on this matter, and we will keep it on the Council's agenda.
Consolidation at processor level is also necessary to ensure maximum efficiency and to balance the market power of the large retail multiples. Competition policy must be sensitive to this. These difficulties are heightened by the fact that there are many gaps in our information about the market. Information, like negotiating power, is not evenly distributed among the players in the market. This is an area where we can look at ways of ensuring greater transparency and a more open flow of cost and price information from and to all participants in the food marketing chain. At EU level there is a need to give urgent thought to this and to how we might be more active in ensuring markets function well and unfair practices are prevented.
We can all agree on the paramount importance of the European agrifood industry, both in Ireland and across Europe. The European Union must safeguard its production base so that it can meet the future demand of its population for food, feed and bio-energy. While fully recognising that retailers must strike a reasonable balance between granting price reductions to consumers and giving suppliers and producers a fair return, this should not be done at the expense of a viable European agrifood sector. This generation cannot allow the food production base in Europe to be damaged irretrievably so that we end up in future with a huge shortage in the supply of milk and dependent on the importation of milk powder from another continent.
At EU level, all the main support mechanisms have now been activated and we have managed to use these to the maximum possible extent. We have identified areas where there is a need to continue to expand the scope by which these measures can continue to support the market. I will continue to press the Commission to suspend the free-at-frontier price for cheese and to extend the closing date for public and private intervention. If agreed by our colleagues in Europe, these measures will add further value to the measures we have already taken to stabilise the market.
There is a huge political commitment to advance these issues and at the European Council last week, Irish concerns were raised by the Taoiseach. Chancellor Angela Merkel and the Taoiseach both spoke about the particular difficulties facing the dairy industry in their respective countries and throughout Europe. It was important the issue was raised at that meeting owing to the importance of the industry to so many people in all our rural and some of our urban communities. At the meeting of the Council of Agriculture and Fisheries Ministers last Monday, I raised these concerns for the fourth consecutive meeting. The Government is committed to supporting the dairy sector and has not been found wanting in the past with policy initiatives and financial investment. I have every confidence the sector will recover from this current downturn and achieve its fair share of the annual growth in demand for dairy products that is predicted by the OECD and other forecasting institutions.
I am glad to have had the opportunity to contribute to this debate. It is of great importance to our farming sector. At the request of Senators Carty, Coffey and Bradford, I will raise again with the banks the need to ensure an adequate supply of credit is continued to our farmers. The Department and I maintain ongoing contact with the chief agricultural advisers to our main financial institutions. I spoke to representatives of the two main financial institutions very recently and again highlighted to them the difficulties facing the sector at the moment and the need for the banks to be as reasonable as possible in working with the industry through these difficulties. As has been said by all the other speakers, we are in a difficult situation but there will be good days ahead. We have a very vibrant, innovative, active dairy sector in our country. Our processors are doing their research, aided and supported by the State through Moorepark, our institutes of technology and the likes of UCC and UCD. We all know the value of the dairy science department in UCC over many years. There has been a huge investment in research and development over recent years, which has been of great importance to the industry.
While I thank the Minister for that exposé on the dairy sector, it is disappointing he did not address the motion before the House. He spoke about many issues concerning the dairy sector. We all recognise its importance and the serious situation it is in. What part of the Fine Gael motion does the Minister disagree with? It calls on the Government to deliver a comprehensive framework in consultation with the industry to bring about the restructuring necessary to deliver long-term viability to the sector. I presume the Minister is not in a position to provide such a framework for the industry. The motion also calls for the introduction of export credit insurance measures in line with other EU member states and seeks co-operation from financial institutions. The Minister has indicated this is taking place, yet the motion is being opposed. It also calls for action to bring down input costs for producers. Has the Minister a problem with this proposal? Finally, it calls on the Government to negotiate more aggressive market support measures at EU level to deliver a price above the cost of production for Irish dairy farmers. I have to assume the Minister opposes these measures or is incapable of acting on the recommendations in the motion put forward by Senator Bradford and the Senators on this side of the House.
The Minister stated that the Government would continue to maintain close contact with the European Commission. That is not very profound and does not convince me we will get results. He claimed he raised this issue on a number of occasions at meetings of the Council of Ministers. There is also a condemnation of certain practices in the retail sector. The problem is that words are no good to the dairy sector. Action and real measures will lift the sector out of its current situation. We do not have a structural problem in the sector but a conjunctural problem that arises from the high price of dairy products in 2007 and the resultant increase in production. The resultant cyclical effect has caused a downturn in demand and a price which is now half the level of 40 cent per litre in 2007 and below the cost of production. The long-term sustainability of the industry is at stake. Since it is a cyclical or conjunctural problem, there is an onus on the Government and on the European Union to resolve it and assist the sector.
We recognise that the problem in the dairy industry is part of the broader economic trouble worldwide. The issues of credit, demand and food scares in China have all played into the collapse in demand. There is an onus on the EU and the Government to ensure the Common Agricultural Policy plays the role it is supposed to do, which is to even out the extreme volatility in prices. It is in the nature of agricultural markets to be cyclical, and counteracting this is the exact purpose of the CAP. The deregulation of the sector, in which the Government has acquiesced, is one of the roots of the existing problem. It is not providing the appropriate mechanisms to ease the extreme fluctuations in price. That is the position in which we find ourselves and is the cause of the problems dairy farmers and the general dairy sector face.
The chairman of the Irish Dairy Board, Mr. Michael Cronin, clearly pointed out the long-term damage that will be done to the sector if the necessary supports are not provided. Intervention for skimmed milk powder and butter, the private storage aid scheme and the reintroduction of export refunds has played a role in stabilising the market to some extent. However, it has not done what it was supposed to do - putting an effective floor on prices above the cost of production.
There is a danger if we do not have effective measures at EU level. Member states will provide aid to their own dairy sectors at the level of farming and dairy processing. The is a fear of the re-nationalisation of the CAP in the dairy sector. This was pointed out by the president of the ICMSA who expressed concern about this issue. A recurring theme when there are problems in the agricultural sector is that countries that can afford to subsidise their agricultural sectors will do so. We in Ireland, however, will be unable to do so and, ultimately, will lose competitive advantage. This is one reason the Government must be more effective in securing measures at EU level to assist the markets.
The Minister has mentioned that supermarkets in the retail sector are not playing their part. The reality is that prices to producers have dropped dramatically but prices at the retail level have not dropped dramatically. The margins are extreme. It is not a question of a code of practice; it is a question of applying the rules of competition and the abuse of market power. There is a disjunction between competition policy as traditionally applied and the fact that each of the supermarkets in this country has less than what is regarded as a dominant position. This creates a problem but, nevertheless, supermarkets at retail level have a disproportionate effect on the return to farmers and are taking a disproportionate margin compared with what is returned to the dairy farmer. The Council of Ministers has asked for a study on the functioning of the food chain.. This is an issue that must be addressed more effectively by the Government.
The IFA has set out its case very clearly, as have the Irish Dairy Board and the ICMSA. There is a consensus that we have a major problem in the dairy sector. To suggest that everything that can be done is being done is not good enough. We need effective action from the Government and we need results.
All Members in the Chamber agree that producers receiving prices that are below the cost of production is unacceptable. Measures must be found to counteract that and ameliorate the situation. The motion places too much emphasis and onus on the Government through the mechanism of the Common Agricultural Policy in particular. The Minister has highlighted the measures taken to improve the situation and those he intends to take. We must examine all the structural factors to achieve the long-term sustainability of the dairy sector and milk production in this country. This must examine the medium-term and long–term situation. We have had considerable changes and reform in the Common Agricultural Policy already and those changes will become more marked in the future. The structural changes required refer to the lack of competition that has moved into both ends of the market in terms of the processing and retail of dairy products.
Growing up in Cork city, there was a strong duopoly in competition, with Cork Milk Producers and Ballinahina Dairies. Cork Milk Producers was subsumed by Mitchelstown and its dairy was closed. Ballinahina Dairies was taken over by the Kerry Group and its dairy has been reduced to depot status. In the meantime, door-to-door deliveries have become a thing of the past. Smaller dairies are unable to deliver to small corner shops and most people's access to milk supplies is through the multiple stores which are operating a cartel.
Other speakers, including Senator Quinn, referred to sustainability. The supermarket multiple nearest to my house in Cork city is a German chain and the milk on sale there comes from Monaghan. Senator O'Brien might be happy about this but it is not sustainable that the local milk production is not supported to such a degree. The consumers lose out because of the additional environmental, social and economic costs that accrue. Other supermarket chains source milk in Northern Ireland, taking account of the sterling differential, which is another uncompetitive aspect adding to the difficulties of milk producers.
We must get back to multiple points of sale for milk products and having those points as locally sourced as possible. In an open, competitive environment, that is easier to do than it sounds and the more we can do this the better. We must diversify for long-term sustainability in dairy production. The milk element will always be the largest element of it but we can produce other dairy products such as cheeses and yogurts and we can use whey in biodiesel, as happens at Carbery Milk Products, Ballineen, as Senator McCarthy knows. The more we use the milk that is produced to get the maximum value out of the quota, with the maximum panoply of goods and services, the better it will be for local milk producers. We need a policy that will put that in place.
The farmers' market is an obvious point at which to do this and the work done by my colleague, the Minister of State at the Department of Agriculture, Fisheries and Food, Deputy Trevor Sargent, has increased their existence and popularity. This will help to some extent with the by-products. It will have little effect on milk sales because that requires pasteurisation and other processing models. We must encourage more points of sale and more direct access by the consumer to the product where it is closest to the producer. The distance in terms of competitive aspects and the processing of dairy products and its sale has the biggest impact. We can concentrate on what the Government is doing and not doing and on the Common Agricultural Policy but if we are not dealing with the commercial realities of what is being produced and how it is sold, we are ignoring the bigger picture. This does not help the lot of the producers.
There are other structural problems. A friend of mine is a milk producer in Fermoy. He tried to get the maximum value from his milk quota by producing farmyard cheeses. There are obvious difficulties in how we deal with health regulations and the production of cheese compared with how this is dealt with in other European countries. We place additional constraints. Agricultural facilities, such as farmyards, are exempt from rates. If someone starts a farmyard enterprise based on dairy products to create value added through the production and sale of cheese, this is subject to rates from the local council. In terms of starting a business and getting it off the ground-----
Collectively, it is a point we should raise, especially in a time of economic downturn, when we should encourage small, locally based industries. These constraints are unnecessary, unhelpful and have the opposite effect that they should have.
The point I am trying to get across concerns the essence of the motion. I can understand that it is a response to the current difficult position of many milk producers but it is very narrow in what it states. It argues that the difficulty is with the Government and the Common Agricultural Policy but it is far more than that. There are deep structural commercial policy issues and there are other constraints in how we encourage people-----
I welcome this important debate. It addresses the concern which exists but it also needs to consider the wider picture. Having this debate will help to open many of those avenues. I am a member of the minority party in the Government with a particular view on sustainability and food production, and the focus in both the Government amendment and the original proposal is too narrow. They do not consider the longer-term view or look at sustainability in its wider aspects.
I would like to conclude by using my own words. As this debate progresses, I hope that more of us participating in the political process will take the opportunity to look at the wider picture. The dairy industry, milk production and rural Ireland needs us to do so.
I welcome this debate and I welcome the Minister of State, Deputy Killeen, to the House. We are all well aware of this matter and the crisis in the dairy sector has rightly commanded headlines not just in the national media but in the international media in recent days, not least because of the protest in Luxembourg last week.
In listening to the protestors and members of our own delegation from the IFA speaking about the hard-pressed dairy industry and the financial restrictions and challenges faced by farmers, we all too often forget that farmers are subject to income levies and farming took a particular hit in last October's budget. We saw then the abolition of the installation aid and early retirement schemes. I evidenced one example in this House where one household on the night of the budget on 15 October 2008 lost €30,000 as the head of the household had died and the estate had not been sorted out legally. Applications for both schemes had been submitted but they fell dead that night to add to the distress of the household and create an additional financial burden. All too often we forget that.
The accounts given by those at the protest indicated they were struggling to meet household bills and educational costs for children. We can consider attempts made by the Minister for Education and Science to reintroduce fees in some format and this is a significant worry for people in this industry. They are subject to this fear in addition to the challenges facing their sector.
The Minister, Deputy Brendan Smith, spoke about asking the banks to be cognisant of this and give latitude to people. It is appropriate that the Minister of State, Deputy Killeen, is present when I make this point. There are people in the fishing industry in west Cork who are on interest-only loans for boats, which reflects the type of pressure people are under. Farmers are also under this pressure. Asking a bank to be merciful is a bit like saying that we should go to Knock and pray for better conditions for dairy farmers. Leaving something to a bank's discretion, according to evidence, will not deliver the goods for those who are poor or in significant financial difficulty.
I wish Mr. Padraig Walshe well in his presidency of the European farmers' union, Copa. He stated that the European Commission bailed out the banks and the automobile association and that it is now time it bailed out dairy farmers. The Government must indicate to the banks that there should be an element of quid pro quo. The compliant taxpayer has recapitalised banks and bailed them out and it is not that much to ask that banks look sympathetically at individual cases involving farming or fishing families or where there is difficulty with financial debt in household budgets so that there should be some form of quid pro quo.
It is the least we would expect from banks in the current climate. We should not forget that farmers are also subject to income levies. I raised the matter of fuel costs on the Order of Business today. The average price for a litre of petrol is now €1.20 and for diesel it is approximately €1.08 or €1.09. There was a significant jump in the averages in May, and the tax and duty take by the State is 72 cent for petrol and 60 cent for diesel. That is a significant mark-up. The Government can initiate revenue-neutral schemes to give people a break and protect farmers subject to such costs. There has been a significant increase in fuel costs with the VAT take being increased to 21.5%.
When the mid-term review and health check were agreed, dairy markets were stabilised at intervention level but that is far below what was envisaged. Circumstances have changed dramatically and I have a few direct questions for the Minister on the talks at the European Commission. What progress has he made to date? I suggest that we gain more support in response to the current crisis.
Many good points have been made in this debate on all sides of this House and it is most important we extract a deal that can bail out the dairy industry. We should consider aggressive alternative measures to achieve that. If it can be done with the automobile association and the banks, we can surely do it for dairy farming.
Gabhaim buíochas leis an Seanadóir Mac Cárthaigh. Cuirim fáilte roimh an Aire Stáit. Dúirt Samuel Johnson ní hamháin go mbronann talmhaíocht saibhreas ar thír, ach gurb í an talmhaíocht an t-aon saibhreas amháin gur leis an tír í, chun an fhírinne a rá. Bíonn daoine ag gearán agus ag déanamh neamh-aird ar thábhacht na talmhaíochta d'eacnamaíocht na tíre seo. Níl aon saineolaí eacnamaíoch talmhaíochta ag an ESRI faoi láthair, mar shampla. Nuair a bhreathnaíonn tú air, is é tionscal an bhia an t-aon tionscal ceart atá faoi smacht ag Éireannaigh agus ar a bhfuil gnóthaí móra idirnáisiúnta, ar nós Kerry Food Ingredients agus Glanbia, bunaithe.
Agriculture continues to be of major importance to Irish life and I noted Samuel Johnson's comment that agriculture not only gives riches to a nation but the only riches she can call her own. Although people discount the economic contribution of agriculture, and the ESRI does not have an agricultural economist on its payroll, agriculture and food are vital to our national economy. The food industry is one of the few significant industries in Ireland which is largely controlled by Irish firms and one of the few sectors where we have large multinational enterprises such as Kerry Foods and Glanbia.
The statistics remain impressive and this morning's debate involving the president of the IFA was most illuminating. Although there have been attempts to downplay the economic contribution of agriculture, where one considers that for every job in food manufacturing there are four related jobs in the wider economy, this speaks for itself. Ultimately, the strength of the food sector depends on the survival of Irish family farms, without which we would have no food industry. We can be certain that there will be fewer dairy farmers in business at the end of this year than at the beginning because they have been forced out by costs, prices and, to some degree, Government indifference.
The great American liberal, Jim Hightower, once stated that it was still possible to make a small fortune in farming but the trouble was that one needed to start out with a large fortune. This is a sentiment many dairy farmers would agree with, as this year milk prices have plunged to 1983 levels while supermarket prices remain at the 2009 level. According to the IFA, farmers are now selling milk at between 4 cent and 7 cent less than the cost of production. There is an onus on everyone to respond to this crisis at Government, EU and co-operative level. We need a floor price for milk at EU level and we should tackle the cost of doing business in this country. It is 25% more expensive to run a business in Dublin than Belfast and we need the industry to step up to the market co-operative level and pay a decent price to farmers.
The current collapse in milk prices is not the only issue. The decision by Tesco to begin to source grocery goods directly from the UK and to slash the space allocated to Irish brands on its shelves in Ireland will have a potentially disastrous impact on the Irish food sector. We need to debate that very soon. There should be a fair deal for hard-pressed Irish consumers but not if the price of it is to be permanent Irish job losses.
I wish to share my time with Senator Ellis. I welcome the Minister of State, Deputy Tony Killeen. It is great to see him in such form and fighting fit. We all wish him well. I welcome the opportunity to discuss this urgent issue affecting the agriculture sector. The Minister is working so hard for the dairy sector but these are difficult times with milk prices as low as 20 cent per litre.
I welcome the decision taken at last Friday's management committee in Brussels for the common organisation of agricultural markets. The committee decided to increase export refunds for butter, skimmed milk powder and whole milk powder and to accept into intervention all quantities of butter and most quantities of skimmed milk powder offered while maintaining the intervention purchase price.
The Minister said the milk market situation would be discussed at next Monday's Agriculture and Fisheries Council meeting and that he would press hard for the prolongation of the public and private storage schemes which are due to end in August. He also intends to press for the removal of anything that would block the export of cheese products outside the EU and for a more aggressive level of support for the export of butter products. The dairy industry is of huge benefit to the Irish economy with exports worth in excess of €2 billion.
Following the Minister's consistent intervention, the European Commission has, since the beginning of the year, restarted a range of support measures to help stabilise the dairy markets to support the export of dairy products outside the EU and has signalled its intention to put a floor under the market. This is truly an exceptional market situation and an appropriate response is warranted.
There is scope for further action and at this week's EU Agriculture and Fisheries Council, the Minister pressed the European Commission on a number of fronts. In addition, there is greater scope for exports of dairy products outside the EU and more attractive export refunds which would greatly improve the export potential of the EU and which would be of great benefit. The Taoiseach contributed to this important debate and the fact that it took place at all is an indication of the seriousness with which the issue of milk prices is now being taken right across the EU.
There is no doubt farm families are under serious financial strain. The key issue for the Irish dairy industry currently is to get the dairy markets back on track. This can best be achieved by enacting all the support mechanisms available under the Common Agriculture Policy. To that end, I welcome the steps taken by the Commission so far to stabilise the situation and I encourage it to continue its efforts to stabilise and stimulate the market even further. As was said, dairy farmers face a serious situation and are probably losing money producing milk. I am delighted to speak on this motion.
We all welcome the opportunity to discuss this matter. It would be no harm if we had a debate on the entire agriculture industry before the House rises for the summer because the industry is facing chaos which is not all caused by farmers or the EU. In many cases, it is being caused by the people being supplied by the primary producers. The multiples are taking margins which are totally unacceptable from the producers' and the processors' point of view and they are squeezing the daylights out of them.
The other issue is inputs which are 15% to 20% higher in this country than in Europe. That cannot be sustained in the dairy or beef industries. Something must be done to see what action can be taken with the people taking the ridiculous margins at the expense of primary producers.
The dairy industry in this country has not moved with the times. It can say what it likes and while it has done a bit of extra processing and there has been a slight bit of added value, it is frightening to read the figures on the amount of money that has gone to butter and skimmed milk powder production. We are not moving with our competitors across the world. The Irish dairy industry is asleep and it will have to accept that. If it is to be competitive, give producers a reasonable price and compete in the marketplace, it will have to up its game very quickly.
The major co-operatives of ten or 15 years ago are now plcs. The problem is that they will squeeze the primary producers to create margins to keep the Stock Exchange happy. The best paying groups as far as dairy farmers are concerned are the few co-operatives left. They pay better prices to primary producers than the large multiples because they are not squeezing them and are at least trying to give something back to them.
The Minister is doing everything in his power to get aid by fair or foul means in Europe. However, we are funding an industry, the processing and inputs end of which will have to be upgraded. This is a warning sign for agriculture as far as this country is concerned. If something is not done to enable us to become producers for the high-end market in every sector, we will not be able to compete in the long term and sustain our farmers. If we are going to be bulk commodity producers, we will not be able to compete against the New Zealanders or the other countries.
I saw on one of the international television stations the other day that a new unit for 40,000 cows is being set up in China. Imagine the production capability of that unit if it is run properly. We will have to move our dairy and agriculture industries into the higher end market and we will have to deal with the multiples about the margins they are taking at the expense of farmers.
I disagree with Senator Ellis that the dairy industry is asleep. The industry and its farmers are being squeezed by the retail multiples and others. I found it hard to take IBEC's call this week that an ombudsman is needed to protect supermarkets and the multiple outlets when they are squeezing farmers.
I want to bring to the Minister of State's attention that Cadbury's Ireland announced it is cutting 200 jobs in its factories in Rathmore, County Kerry, and Coolock, Dublin. Deputy Tom Sheahan and I have been trying to get some information from the Tánaiste's office and elsewhere about the impact of these redundancies at local level.
Last year farmers received 39 cent per litre for milk but this year it is 20 cent per litre. The price for milk paid to farmers has dropped by 50% in the past two years, yet an industry that uses milk in its production is still cutting jobs. It is unacceptable that the recession is being exploited to cut jobs in places like Rathmore or Coolock. These cuts will go straight to the heart of the local economies. They are all just in the interests of higher profits while farmers and workers are screwed with local communities losing out.
Will there be an investigation into why Cadbury's Ireland must cut these jobs? I do not accept at a time when its most significant cost, milk, has dropped by 50% that it is acceptable for it to cut jobs. Politicians, the Government and the trade unions care about employment and unemployment. However, no one else cares. It is unacceptable industry tries to screw everybody else to increase its bottom line. I want some hope to be given to people in Rathmore and Coolock and for Cadbury's to explain why it is cutting jobs in these areas.
I apologise. The supplementary budget saw the suspension of the young farmers' installation grant, cuts to the suckler cow welfare scheme, the fallen animal scheme and others. Dairy farmers work very hard, milking twice with little chance for holidays. It is outrageous they are being offered 20 cent per litre for milk when it costs 27 cent per litre to produce. An office for fair trading should be established, absorbing the Competition Authority and the National Consumer Agency, to oversee a code of practice for supermarkets and going some way to alleviating the crisis in the dairy sector.
I agree with him that a full debate should be held on the future of the dairy industry in the House. I compliment the co-operative movement on the support it gives to the dairy industry and the price it pays for milk compared with that paid by the retailers.
I hope the Government will continue the intervention prices for butter beyond 31 August. Butter should be allowed to be used in commercial production of pastry and ice cream as it has never been cheaper. Skimmed milk powder should be allowed to be used in calf milk replacer. The aid to private butter storage regime should also be extended beyond 15 August. No farmer or small business can get leasing from the banks. The Government must address this to ensure credit flow for both farmers and small businesses.
My family has been engaged in dairy farming for some time. The family-run farm is the EU model for farming. However, it cannot be sustained because of the volatility in world dairy markets. Expecting farmers to accept 20 cent a litre for milk when it costs them 27 cent a litre to produce it is unsustainable. Irish dairy farmers cannot compete with the New Zealand or US industries which are producing like factories.
The European Commission and EU agriculture Ministers must show the world market that the dairy industry is important at EU level to protect food supply. This week Irish farmers were disappointed the Minister for Agriculture, Fisheries and Food, Deputy Smith, did not seek supports for them at the EU Council meeting in the same way his French and German counterparts did, which is unusual. At an Irish level we need to negotiate more aggressive market support measures to protect our dairy industry. Will the Minister of State set up an ombudsman for the whole food industry? It is clear that at retail level the intimidation of producers and farmers is ridiculous. The multiple retailers have too much power.
I thank Senator Bradford for allowing me to sum up on this important debate and I thank all Senators for their contributions to it. I am involved in some relief milking at home myself, so if I were not here I would probably be in a milking parlour.
While this House and others often play lip service to rural development, the most effective key to development is to keep as many viable family farms in operation, as Senator Healy Eames pointed out. It is regrettable the Government is not fully supportive of family farming.
The backbone of rural Ireland is the family farm. It affects every other aspect of rural community life whether it is the local shop, school or pub. Every social facility in a local rural community stems from the fact that people are employed on the land and can earn a living from it. As prices stand, dairy farmers cannot earn a living. The average price paid for milk is half what it was several years ago, making it below the cost of production. The Department of Agriculture, Fisheries and Food has calculated the cost of production for the largest operations is approximately 17 cent per litre. For the average small and medium-sized dairy farm, it is much higher at just over 25 cent per litre.
Studies by the European Union have predicted milk production will migrate in the Union. Many milk producers in the southern part of the Union will go out of production while it will increase in the northern part. I am concerned the Irish dairy industry will suffer the same fate as the Irish sugar industry.
Although sugar production and dairying probably were perceived to be the two most successful farming sectors, the former was allowed to be sacrificed on the altar of world trade. Moreover, even though we sold our producers down the Swanee, there now is a scarcity of sugar on the world market. Unless the Government takes direct action immediately, the same will happen to dairy farmers. Many hundreds of them have given up already and I could provide a list of small producers from my home locality of southern County Kilkenny who have gone out of business within the past 12 months, as well as many more who are considering so doing.
It is time for the Government to take direct action and that is what this Fine Gael motion seeks. There is a short-term glut on the global market at present which, combined with the credit problems faced by many dairy producers who built new operations to conform to EU directives, who are being squeezed by the banks in respect of their borrowings and who are selling produce below the cost of production, has created the perfect storm for such individuals. Many of those concerned will go out of business unless the Government takes some definitive action immediately. This is the reason I am especially disappointed. The Government's amendment was unnecessary because the Fine Gael motion is all-inclusive. It does not even criticise the Government greatly although I would have preferred to have criticised the Government to a far greater extent than does this motion. I do not understand the reason the Government parties failed to agree to a cross-party motion that could have been agreed on without a vote.
As previous speakers have observed, the Government's decisions in recent budgets have had a particularly detrimental effect on agriculture and farming. The installation aid grant was mentioned, as was the abolition or suspension of the early retirement scheme as well as the other cuts that affect everyone, including farmers, such as the income levy and similar recent cutbacks. I call on the Government to take urgent action but can discern no sense of urgency either in what has been discussed in the debate or in the actions of the Minister for Agriculture, Fisheries and Food thus far to ensure as many people as possible can remain viably employed in dairy farming throughout Ireland in future. I agree with Senator Ellis's point on the cost of inputs, which is the reason the Fine Gael motion included a specific point calling on the Government to try to do something to reduce such costs. I note the Government parties did not mention it in their own amendment, which is rather disappointing. I urge the Minister of State and the Members on the Government side to support the Fine Gael motion.
The Dail Divided:
For the motion: 24 (Dan Boyle, Martin Brady, Larry Butler, Ivor Callely, John Carty, Donie Cassidy, Maria Corrigan, Mark Daly, John Ellis, Geraldine Feeney, Camillus Glynn, John Gerard Hanafin, Terry Leyden, Marc MacSharry, Brian Ó Domhnaill, Labhrás Ó Murchú, Francis O'Brien, Denis O'Donovan, Fiona O'Malley, Ann Ormonde, Kieran Phelan, Jim Walsh, Mary White, Diarmuid Wilson)
Against the motion: 22 (Ivana Bacik, Paul Bradford, Paddy Burke, Jerry Buttimer, Ciarán Cannon, Paudie Coffey, Paul Coghlan, Maurice Cummins, Pearse Doherty, Frances Fitzgerald, Dominic Hannigan, Fiona O'Malley, Michael McCarthy, Nicky McFadden, Rónán Mullen, David Norris, Joe O'Toole, John Paul Phelan, Eugene Regan, Brendan Ryan, Liam Twomey, Alex White)
Tellers: Tá, Senators Camillus Glynn and Diarmuid Wilson; Níl, Senators Maurice Cummins and Paul Bradford.
Amendment declared carried.