Oct 292010

Taoiseach, Invited Guests, Members of the Press, Ladies and Gentlemen,

We, as a nation and as a society, face an enormous challenge. Our ability to overcome the current difficulties will test us individually as well as every institution and organisation in the State.   This is a time for new thinking and action.

We in ICMSA most definitely have a role, which will see us contributing to national recovery as well as resolutely defending and promoting the interests of farm families during this difficult time.   Little will be served by focussing on the past – and particularly, the immediate past – which has created this unprecedented problem and becoming preoccupied with the blame game. But it is vital that we learn from the mistakes of the past so that we don't repeat them in the future, and so that the persons who may have broken the law are held fully accountable in the Courts.

The presence of the Taoiseach at our AGM today demonstrates the emphasis that is again being placed on our sector of the economy.   I know that the description of the agri-food sector, in terms of its contribution to the economy, is trotted out quite frequently. But there is little corresponding effort to put it in context.

Our sector is highly export orientated, successfully exporting to over 160 international markets as part of a global food market valued at US$4 trillion. In addition to the 120,000 farmers, our sector directly employs 45,000 individuals with associated employment of an additional 90,000 people.   In other words, 255,000 are employed by the sector.   In addition, and of critical importance given the emphasis on export-led growth, a number of Irish owned firms are among the top 50 of the world's largest food and drinks multinationals.

Once again – and not before time – the national economic focus is on competitiveness and export-led growth.   But the nature and size of the u-turn necessary in economic policy is vast and it will involve a complete overhaul of a system that saw people, in sheltered sectors of our economy, being vastly over-paid for what was – and I'm afraid to say far too often still is – poor or a downright inadequate service.

We farmers, and others in the export sector who are exposed to the international markets, have, by definition, to be competitive and the necessary adjustment we will undergo is usually by way of the reduced prices that directly determine our income. The same process will now have to be applied to the sheltered sector in Ireland and that includes public sector workers – and the professions, in particular.   The time for talking on these matters is finished. The time for fudging these questions is over. Decisive Government action is required on this front to put enterprise – and particularly export orientated enterprise – at the centre of all our endeavours. Unless competitiveness is addressed by, amongst other measures, bringing wage levels down to, for example, that operating in Britain , then the increase in export-led growth from the current levels will not be achieved.   I fully support Enterprise Ireland 's objective to increase the value of indigenous exports by 33 per cent between now and 2015.   The fact is we have no choice. That target has to be met if we are to survive with our economic sovereignty intact.

Farming will play a significant part in that growth. But we should not underestimate the enormous difficulties around an increase of that scale – and those challenges would exist under even the most favourable conditions. Certain truths need to be articulated, up front and loud and clear.

Firstly, if the Government does not bring about a rapid and substantial cut in the cost of doing business, then the increase in export led growth will not occur and even further budgetary adjustments will be required.   This clearly cannot be allowed to happen. But we have to, in a sense, get ahead of the curve here: we would be very naive to think that other economies are not equally addressing their competitiveness.

In this context, I wish to quote two sentences from the recent Forfás report (Making It Happen).

"Over recent years, Ireland 's business costs had increased substantially such that they were considerably out of line with competitor countries and with underlying productivity performance.   As an open economy that is reliant for growth on the performance of its exporting base, ensuring that Ireland is cost competitive internationally is of critical importance."

I said earlier that little is to be gained by focussing on the past unless it is to prevent mistakes recurring. Colm McCarthy, at our AGM last year, listed some of the reasons why our economy was allowed to become so lopsided that we have experienced a near-collapse.   Among these was the absence of serious and critical analysis by the broadsheet media.   I fully agree with him; and looking at our own sector, the analysis done by state agencies, including Teagasc and particularly, our universities on the agri-food sector is either insufficient or simply non-existent.   Why is it that UCD – the biggest university in the state – has now no real competence in agricultural economics? What is their focus on these matters? Given the national importance of the sector and its rediscovered export potential; this is surely a matter of extreme confusion and glaring omission. Who is doing the necessary research? The answer seems to be: nobody. That should be rectified and very quickly.

The Association has raised this lack of constructive and critical analysis many times and when we look for the analysis necessary to inform our policies, we find it in astonishingly short supply excepting a few individual researchers and academics.   And yet we have some of the highest paid academics and researchers in Europe .   It is vital that proper analysis and research for policy is undertaken and made available at this juncture.   To date, the response from the multitude of agencies has been poor, if non-existent, with the few notable exceptions to which I have already made reference.

ICMSA has been described by some commentators as being too negative – whatever that means. I happily admit that we don't easily go along with the latest fad or apparent consensus. But let me state quite clearly to this AGM: the ICMSA approach to the development of our sector is for the maximum sustainable increase in output over the shortest time period that is consistent with the maximum improvement in farm incomes.

The latest discussion on expansion of milk output in Ireland is at times both superficial and occasionally misleading. It has focussed almost exclusively on production and processing with very little or no attention given to marketing – the crucial matter – and if it continues in that direction then it could end in huge losses for just one group – farmers.

Food Harvest 2020 , which you, Taoiseach, launched, has an ambitious target of a 50 per cent increase in milk output. But this comes with a stated processing investment requirement of €400 million.   At a recent conference in Dublin , Kevin Lane of the IDB, put the overall investment requirement, including market development, at over €800 million.   These are enormous figures and raise fundamental issues about the return on such investment along the lines of how it is to be funded and ultimately paid for.

If I am accused of being overly negative by asking for detailed and serious research on this level of investment, then so be it. I do not want to see a situation where substantial additional investment by Irish farmers – particularly dairy farmers – is undertaken, on top of the existing level of debt, with the prospect of little or insufficient return.   We must avoid a situation like that applying in Denmark where dairy farmers now have average borrowing of over €2.5 million per farm and a growing proportion of Danish dairy farms are technically bankrupt.

I believe that measured and sustainable expansion of milk output is both possible and profitable.   I will return to milk price later on.     It is my firm conviction that co-ops should focus, in the first instance, on facilitating the growth of milk output from existing dairy farms. They should, for example, concentrate on bringing a 60-cow farm up to an 80-cow farm with increases in yield per cow and increased milk constituents.   The advantage of this is that it may require little additional farmyard investment and it takes account of the various and severe restrictions on land.   In my view, insufficient effort and focus has been given to this approach.   A focus on this approach does not exclude new entrants or substantial expansion by existing producers.

Who should pay for the expansion? ICMSA commissioned a report from Dr. Michael Keane of UCC and his conclusions are that to accommodate just a 20% expansion would require an investment in processing and transport of €150 million with an annual recurring cost of €16 million.   Bear in mind that this is a mere 20% expansion. Nonetheless the figures are quite significant, particularly so given the current tight credit situation, the increased costs of borrowing and the reported low investment returns on milk processing.   It is our view that increased costs of milk processing must generally be borne by the individuals who expand over and above normal expansion.   This policy is fair to existing producers and it will keep a solid business and marketing focus on the expansion – a focus which, as I said, has been noticeably lacking to date.

The EU dairy market is definitely moving from a quota-controlled system to something else. What that 'something else' will ultimately be has yet to be decided by the EU Farm Council.   However, we can get some ideas about the likely final decision if we study the conclusions of the High Level Dairy Group.   From a farmers' point of view, the critical issue is: will this secure a viable milk price? A viable milk price is a price that is consistently and significantly over 30 cent per litre, which is about the current price in most Member States.

The current price will hopefully hold over the short term, but it will take some corrective action on the supply side to bring the market into greater balance, as we heard today from Joe O'Flynn.   Thus we arrive at the only question that matters. But, it is a question that only ICMSA is interested in asking.   There is no doubt that Irish farmers can substantially increase output of milk and we can process it. The real question is: can we actually sell it at a price which is profitable and which will give us an income?

What's the likely future market for Irish dairy products? This is a crucial point – not production or processing. Our key market, whether we call it the European market or the single market, is the market that we must be focussed on. Under current rules of WTO, the EU is the only market which is capable of delivering a price, consistently, of about 30 cent per litre, year-in and year-out.

If we start from that point – which is where we should be starting from – then we come up against the questions that need to be answered both in terms of existing production of milk and our incomes and the potential for a profitable increase in milk production in Ireland .   The first question is; will the EU dairy market be a free market on and beyond 1 April 2015, or will the EU allow individual Member States to deviate from normal competition law – the so-called Block Exemption Rule – and allow arrangements between dairies and groups of farmers in a Member State, which will have the impact of segmenting the market, and making it more difficult for the Irish dairy sector, to hold and gain markets in these Member States?

Based on reports in Brussels just yesterday, the Commission is likely to propose draft EU law on this matter early in December.

Taoiseach, this issue is vitally important to the national interest and the Irish Government must ensure that the Single Market principle is fully adhered to and that there is no nationalisation or carving-up of the market and that applies not just to dairying and the food market generally, but all markets. As an exporting Country we would be the first to meet the pain of this development. I am concerned, that this move will be allowed in some shape, as political pressure is building in France and Germany to agree on mechanisms that will stabilize their dairy markets, by better matching production and demand in individual Member States or regions, based on contracts and changes to EU competition law.

Another feature of the dairy sector and world trade is the relatively small proportion of total dairy production that is traded internationally. Best estimates would suggest somewhere in the region of six to seven per cent.    Thus, a one per cent change in global demand or supply can affect the amount of product available internationally by up to 17 per cent. This change in the volume in the international market can affect prices in the order of 50 per cent.    It is crucially important for us as exporters to understand this relationship and the multiplier impact of a one percent change in supply or demand.   Any sector where a one per cent change in demand can change the price by 50 per cent is definitely a sector which is hard to predict and manage.

We ignore these well established principles at our peril. As milk quotas are abolished – indeed, even before they are finally removed – production will increase in a number of countries, for example, Denmark and Holland will face a super levy this year.   There is no evidence of any significant reduction in milk output in any part of the EU unless there is a substantial reduction in price.

I have painted a picture that is not straightforward or simple, but the plain facts are that the international dairy trade isn't straightforward or simple. And it's wrong and potentially disastrous to pretend it is and plunge headlong into a rapid increase in milk output, which would lead to higher levels of farm and co-op debt, lower farm incomes and bankruptcy.   Our Danish colleagues can teach us a lesson in this regard!

The cost of farming in Ireland is dictated by domestic and international trends. While we have to accept that energy prices are to some extent determined by international trends and despite some recent improvement, electricity prices in Ireland are still higher than can be justified.   The tariff charged to farmers in Ireland is 4.2.cent per unit higher than in the UK and 2.5 cent per unit higher than the average of the EU.   On the industrial side, electricity in Ireland is still above the average of the EU and about 1 cent per unit above the comparable tariff in the UK .

Taoiseach, our message to you today is that the Government, as the single shareholder on our behalf in the ESB, should instruct the ESB to reduce electricity prices immediately and to benchmark Irish electricity prices against the levels applicable in the UK and other EU States.   It is about time we cut through the waffle and gave up the nonsense of trying to create a free market in electricity in Ireland when there will never be a real free market in electricity. The UK market is probably the best indicator we have of a competitive electricity price and a simple comparison shows that our prices are way above what is justified.

The Commission for Electricity Regulation should be abolished and policy decision taken back by the Minister. Please do not insult our intelligence by telling us to shop around for cheaper rates.

Energy constitutes an important input cost in farming and the food-processing sector and the Government must revisit the carbon tax and remove this burden on the enterprise and, particularly, the export-led sector. If this means a higher level of carbon tax on personal consumption then so be it.   These are the choices which can no longer be fudged if we are to aim for that 30 per cent increase in exports.

The EU food market is not working properly and is dominated by multinational retailers to the detriment of both farmers and consumers.   It comes as no surprise that the margins being taken by retailers are growing. In Ireland , the retail margin on liquid milk has increased substantially with the result that the share of the retail price that farmers actually receive has fallen from 43 percent in 1995 to 26 per cent last year.

This retail margin and competition in the food sector has received a lot of attention at political level both in Ireland and at EU level.   While the efforts made in Ireland are welcome, the reality is that the Government will not be able to control and regulate this matter in isolation, and that a European wide approach is required. There are numerous reports on the extent of the problem at European level but very little action to repair the enormous damage done to both producers and consumers. That has to change.

Taoiseach, the Government should take the political initiative on this matter at European level.   It is in our national interest as a food exporter to ensure a competitive and transparent food-retailing sector for the benefit of farmers and consumers alike. The key requirement is for the EU to control the action of multinational food retailers and to compel them to fully disclose their margins and prevent the sale of food at a price below the cost of production.

I now wish to turn to the question of farm inspections. We were all shocked at the recent published figures on the cost of one farm visit estimated by the Controller and Auditor General as amounting to €1800. Ireland has gone overboard with zealous implementation of EU regulations where a small group of individuals in the civil service were able to build a whole industry and an unaccountable powerbase on some vague definition of environmental protection.

In addition, a whole raft of non-representative and non-Government Organisations had merely to adopt a name purporting to be concerned about the environment to immediately receive favourable and unquestionable recognition and funding by the Government.

The message should go out to civil servants, public servants and these organisations, that farmers have enough of their arrogance and will no longer put up with insane overregulation and blanket allegations that farmers are wilful polluters. The exact opposite is the case. In point of fact, the Department of the Environment, with its exceedingly poor record on policing its own local authorities, should be the last entity to be in charge of our environment.

We live in a republic where the right to be consulted should be paramount and where decisions which affect us – and which are of a technical and scientific nature – must themselves be based on scientific principals.   The recent approaches on Nitrates and GMOs are good examples of situations where political prejudices and wishful thinking determined the issue at the expense of science.

In relation to GMO, it is a nonsense that we are sticking to the most rigid restrictions on imports of GMO, which actually increases the cost of animal feed by an estimated €60 million in a full year.   We had the situation last year where there were a number of incidents of shipments arriving at EU ports which were found to contain traces of non-authorised EU GMOs resulting in their cargos not been unloaded.

Recent proposals to increases the tolerance level may ease the problem but again and unfortunately it would seem that political ignorance and the perception of the so-called environmentalists has trumped scientific principles. Ireland should adopt a straightforward scientific and commercial approach on this matter. If it is safe in the US and Canada , it is hard to justify why it's not safe in Europe .

The Irish Budget must meet two broad principles in the so-called "adjustment" of up to €7 billion.   Not alone must export-orientated enterprise be exempted, but it must be encouraged. In this regard, there must be no interference with accelerated capital allowances, or other farm tax provisions, because to do otherwise would slow down the pace of expansion which would otherwise occur.

Even at a time where there will be unprecedented pressure on the tax system, measures to encourage even greater land mobility to allow farm consolidation and enlargement are necessary.   In relation to possible new tax measures and charges their impact must be equitable. For example, the proposed new social security charge must operate on the same income base regardless of whether or not the income is earned by a self-employed person or an employee.   The current system is riddled with anomalies to the detriment of the self-employed.

There has been growing commentary in the media that an asset test may be introduced for the entitlement assessment for Higher Education Grants. This would be a significant discrimination against farmers and farm families and I wish to put down a clear marker today, Taoiseach, that ICMSA will not accept this and will challenge any such attempt up to and including Court action if needs be. We cannot throw out equity and fairness notwithstanding the crisis we are in. A farm family with low income who have a farm which has a certain current market value at present cannot be discriminated against on that basis.

We trusted the banks for too long and for too much. Already we see the banks turning against us, their customers; the very people who have rescued them.   The Government has an obligation to ensure comparable EU interest rates apply in Ireland and to not allow the banks to rebuild their business on the backs of farming, the agri-food business and other businesses.

Already we see a widening of the gap in interest rates being charged. This is of critical importance to farming. Next to animal feed and fertilizer, interest costs amounting to €400 million per annum is the third biggest cost for Irish farming.   Already Irish overdraft rates are 1.5 percentage points higher than the Euro average and other loans are half a per cent higher.   Unless the banks are prevented from doing so, these margins will grow over time.   The time for taking action is now and the Government should bring in stricter and legally enforceable measures to control the interest charged by banks. Banks are increasingly attempting to encourage farmers to restructure their loans so that banks can charge them a higher interest rate.   Farmer should resist these attempts to increase interest rates and legislation should be enacted if required.

ICMSA has, in conjunction with co-ops, developed a plan to secure farm finance from non-Irish banks in the Euro area if the margins charged by Irish banks move significantly out of line with other countries. The system we are examining would involve farmers 'pooling' their borrowings into €10 million lots with the help of their co-ops, and   financing these 'borrowing blocks' in euro from banks operating in other Member States. Banks should be very well aware that this facility now exists and the day when farmers were tied to the Irish banks is over.   We should bear in mind that every additional 1% in interest rates charged on the total borrowings currently held by farmers, amounts to €50 million annually.

The National budget is not the only budget of immense concern to farmers. Of equal importance is the EU budget and the amount allocated to the Common Agricultural Policy and, in turn, how this amount of funding is allocated to individual Member States.   This will be a major issue for the Irish Government in the next two years in advance of the new EU Budgetary regime due to be applied in 2013.   The Irish Government, in conjunction with other like-minded Member States, should remind all parties that the Single Farm Payment system was introduced to compensate farmers for a reduction in market supports.   We cannot tolerate a cut in these compensatory payments just a few short years after their introduction.   Most farmers have family commitments and repayment commitments based on the current Single Farm Payments and it would be intolerable if the current payments were radically altered, where we would effectively penalise large numbers of farm families, while other people would have a windfall gain.

I am pleased that most individuals – including the Minister for Agriculture – see the necessity to focus the Single Farm Payment on active farmers. This is self-evidently good, given that for a substantial numbers of farmers the Single Farm Payment represents 100 per cent of their incomes.

This is our 60th year and during this period the Association has endeavoured to represent in a constructive way the interests of farm families.   It is probably true to say that farmers, like other members of the community, now face into a very uncertain and occasionally even frightening future.   Building on its experience and the input from elected people and staff, I will endeavour to ensure that the Association remains focussed on the key and critical issues facing farm families and to do this in a constructive and patriotic way.

The current national crisis will change many of the old ways of doing things.   Indeed it will fatally challenge many of our institutions who have been found wanting and who have failed to live up to their obligations.   As a voluntary organisation, we have limited resources and we can only look aghast at the squandering of resources and the poor performance of a whole raft of State Bodies.   In deciding the adjustment that will apply in the agricultural sector, the Government must first look at considerably reducing the public sector overheads in terms of salaries and other costs.   In this regard, I would refer to the recent decision by the UK Government to reduce the number of quangos reporting to their equivalent of the Department of Agriculture from the figure of 92 to 39.

Irish farmers have suffered already considerable cuts in the various schemes without any real reduction in the bureaucratic costs.   In the upcoming budget, any savings which the Government are seeking in the agricultural sector must come from a reduction in salary costs and other costs.

Our sector has the capability of contributing – in a significant way – to national recovery.   How can we do this? In fact, whether we can do this at all depends on fostering a climate that is amenable to doing business in Ireland and on our ability to manage our affairs in a rational and intelligent way. That has not been the case for some time now and the old approaches are recognised as being no longer adequate. In future, we have to ensure that we have sustainable and profitable development for our whole agri-sector. That is the challenge for the Government, the Department of Agriculture and ICMSA. I can promise everyone that we'll do our part and together we'll put our beloved country back on the road to growth and prosperity.

Thank you.