Bernard Durkan (Kildare North, Fine Gael)
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85. To ask the Minister for Agriculture, Food and the Marine if he is satisfied that smaller dairy farmers can compete effectively in milk production in the aftermath of the allocations of milk quotas. [2693/16]

Simon Coveney (Cork South Central, Fine Gael)
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Ireland is strongly positioned as a competitive producer of dairy. It has enviable natural resources, adaptable and resilient producers, a strong international reputation, an effective dairy processing sector and a strong core of research infrastructure and expertise. A recent report from Bord Bia estimates that Irish dairy exports increased by 4% to €3.24Bn in 2015. Some 42% or €1.36 billion went to international markets beyond our traditional UK and EU partners’ markets. This represents a very strong performance against the background of somewhat depressed international dairy markets during 2015. The Deputy will be aware that prevailing market conditions and in particular the price of milk and dairy commodities is determined by supply and demand factors at international level. Production decisions are taken by producers taking these prevailing market conditions as well as their efficiency of production and price of inputs into account. In an increasingly global market environment, prices for raw milk and dairy commodities will be dictated by the market and by supply and demand factors at Irish, EU and global level. Similarly, input prices are increasingly dictated by factors beyond our borders. In such circumstances efforts at farm level to increase efficiency represent a factor where the farmer can exert greater control. The work of Teagasc is invaluable in this respect. Furthermore, efforts at both farm and processor level to produce higher value products for high value export markets also represent a boon against volatility in commodity production markets. Research and investment is also very important for Ireland in continuing to punch above our weight, to continue to sell our products on premium markets and shelves across the world, to continue to find new customers and to maximise the economic return from our quality produce.

Food commodity markets including dairy markets have been characterised by significant levels of volatility for a number of years prior to the abolition of dairy quotas and this trend has continued throughout 2015 and into early 2016. Such volatility was a fact of life in advance of the abolition of quotas and will remain so in the current quota free environment. The key challenge for the future is how we seek to mitigate this volatility.

Factors contributing to global price volatility in 2015 included the Russian Ban and the softening of Chinese demand on one side, coupled with increased production among key global producers including the EU on the supply side. The longer term demographic and demand perspectives remain positive, but 2016 will be a challenging year.

At producer level, while the Irish dairy sector is cost competitive, we must always strive for improvement. With respect to the aforementioned factors affecting efficiency, farmers of all sizes, large and small, can drive their profitability by increased efficiencies across a range of factors, from animal health to breeding, from soil management and fertiliser use to financial management and an appreciation of costs and margins. In fact the mantra in the run up to quota abolition from my perspective has always been to get better before getting bigger and this remains very much the case.

With respect to indebtedness Teagasc figures indicate that Irish farmers have relatively low levels of indebtedness compared to counterparts in competition countries. In ongoing interaction with banks I have been assured that they will remain vigilant on the issue of liquidity and cash-flow, particularly if prices continue to deteriorate into spring 2016, and that they will be facilitative in the measures available and in their dealings with dairy farmers.

EU market supports, including intervention, are available to operators, the dairy package agreed by the Council of Ministers in December 2015 included an additional direct payment to dairy farmers, and my Department will continue to provided support to the sector through Rural Development Schemes such as TAMS, and by providing funding to bodies such as Teagasc, AHI and ICBF to improve efficiency at farm level.

The long-term fundamentals of the global dairy market are strong but there will be significant challenges this year. I am confident that the Irish and EU dairy sector is well placed to gain from the opportunity presented by expanding global demand whilst simultaneously addressing the aforementioned challenges with a particular focus on the challenges of price volatility.