Bernard Durkan (Kildare North, Fine Gael)
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To ask the Minister for Agriculture, Food and the Marine the extent to which he expects incomes in the dairy sector to fluctuate in the future; and if he will make a statement on the matter. [56261/12]

Simon Coveney (Cork South Central, Fine Gael)
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Volatility in dairy prices is caused by imbalances of supply and demand in international markets, which are cyclical in nature. Dairy farmers’ incomes are comprised of the returns they receive for their milk from processors and their EU support payments. As some 85% of Irish dairy production is exported, mostly to other EU countries, the price of milk in Ireland is ultimately determined by supply and demand on world and EU markets. Since the 2006 reduction in CAP market supports to a safety net level the milk price in the EU has become more volatile and this price fluctuation can be expected to continue.

However, growth in global population and wealth is forecast to stimulate strong levels of demand for dairy products. Against that background, I believe that prospects and opportunities for the dairy sector will expand significantly over the coming years. From 2015, Ireland will be free to produce milk to take advantage of the increasing demand for dairy products and through the Food Harvest 2020 report the industry has set itself an ambitious target for a 50% increase in milk production by 2020. The best way to deal with market instability is to develop a competitive dairy sector that can deal with the challenges and benefit from the opportunities that a global market provides.

A key element of this market strategy is to optimise the already positive green image of Ireland in order to create a point of differentiation for Irish dairy products on international markets. In this context, stakeholders are at present engaged, through Bord Bia, in technical discussions to establish a dairy sustainability and quality scheme, while at processing level, Bord Bia’s Origin Green Programme is providing a vehicle for industry to commit itself to sustainability targets by reducing energy inputs, minimising overall carbon footprint and mitigating the impact on the environment. This pro-active approach to environmental sustainability has a strong resonance with procurement strategists in the many multi-national food companies who are interested in using Ireland as a source of high quality food ingredients and processed products.

The industry itself has a responsibility to focus its efforts on market and product development and to mitigate the impact of price volatility. Supported by Government, the Irish dairy sector has succeeded in positioning itself as a major international player, and in recent months we have seen industry announcements in relation to the development of supply arrangements between Irish companies and multinational players in third countries, and the development of value added products which can maximise the value of our dairy output. For my part I have been working on a number of fronts to prepare the industry for the move to a quota free environment. I have been endeavouring to raise the profile of the Irish dairy sector in third country markets, for example through trade visits to the US and China.

At farm level my Department, in conjunction with Teagasc, has been working, through research activities and through the Dairy Efficiency Programme, to develop the skills and knowledge necessary to reduce costs on farm and improve efficiency, in order to better equip farmers to deal with volatility in dairy markets. In this context I am confident that following quota abolition, co-ops and their members will develop the kind of robust contractual arrangements which will secure supply into the future.

Underpinning all of this, I will continue to negotiate strongly to ensure that the post 2013 CAP continues to provide effective support for Irish farmers and that market supports will remain in place to provide a safety net to protect against the worst extremes of price volatility.

Taking all this into account, I am confident that the collaborative efforts of Government, the processing industry and milk producers will ensure a thriving and sustainable dairy sector that can use the opportunity afforded by the abolition of quotas to fully leverage the natural advantage of Ireland’s grass-based production system. My Department and its agencies will continue to play their part in providing an appropriate framework to support the development of this critically important industry.