Denis Naughten (Longford-Roscommon, Fine Gael)
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Question 175: To ask the Minister for Agriculture and Food the steps she is taking to protect dairy farmers' incomes; and if she will make a statement on the matter. [18977/06]

Mary Coughlan (Donegal South West, Fianna Fail)
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Dairy farmers' incomes are made up of the market price paid for milk and direct income support and are influenced by the level of scale and efficiency of individual farm enterprises. The price of milk paid to dairy farmers is a commercial matter between milk producers and milk purchasers and I have no direct role in this area. Milk prices are influenced by a number of factors both internal and external. These include the structure of our domestic dairy operations, the prices paid in international markets for dairy products, the type and final destination of product and the overall operation of the EU market support mechanisms.

The Luxembourg Agreement in 2003 provided that the intervention price for milk products would reduce in the period 2004-2007 and these reductions would be compensated by the introduction of a direct payment. This compensation amounted to 1.2 cent per litre or €60m in 2004, 2.4 cent per litre or €120m in 2005 and 3.6 cent per litre equivalent to €180 million in 2006. This payment, taken together with the market value of milk has resulted in a higher return for dairy farmers up to now.

At EU level, I have consistently challenged the pace and level of reduction in support level implemented by the Commission. In my view it is crucially and strategically important that the EU consolidates its international market share while challenging competition on its domestic market. I have urged the Commission to maintain a competitive combination of aids and subsidies to achieve these objectives.

At national level I strongly believe that if the dairy sector is to maintain a competitive position we must look at increasing the scale of operations, reducing costs where possible, and encouraging a profitable future in the sector based on market returns. The Luxembourg Agreement envisages the retention of milk quotas until March 2015, though a review will take place in 2008. While EU quotas impose an absolute limit on scale at producer level, they will remain in place for the foreseeable future and we need to plan the future within this framework. It is clear to me that progressive dairy farmers recognise that in order to maintain a viable income from their dairy enterprises they will have to increase efficiency and enlarge their holdings.

Bearing these developments in mind, I recently announced changes to the Milk Quota system for 2007 and beyond. These changes are aimed at better meeting the future needs of the industry. I am currently consulting with the main stakeholders in order to agree a more market based system that will deliver the type of structure that will best contribute to more competitive milk production in Ireland.