Committee Reports > List of Committees > Joint > 1986 > Committee on the Secondary Legislation of the European Communities (4th Committee) > Report No. 27 - Milk Cessation Scheme

A. INTRODUCTION

1.The Joint Committee has examined the Commission Document - Proposal for a Council Regulation (EEC) fixing compensation for the definitive discontinuation of milk production [COM (85) 583 final]. The proposal provides for the introduction of a Community premium system for the cessation of milk production.

2.This Report was prepared on behalf of the Joint Committee by Deputy Joe Walsh in his capacity as Chairman of the Sub-Committee on Agricultural and Fisheries Matters. The Joint Committee wishes to record its appreciation of Deputy Walsh’s work. In the course of the preparation of this Report the Sub-Committee considered written and oral submissions from the Department of Agriculture, An Foras Taluntais and an oral submission from An Chomhairle Oiliuna Talmhaiochta (ACOT). The Committee also considered written and oral submissions from ICOS, IFA, ICMSA and Macra na Feirme.

The Joint Committee wishes to express its appreciation to all these bodies for their assistance in the preparation of this Report.

B. CONSIDERATION OF THE COMMISSION DOCUMENT ON THE FIXING OF COMPENSATION FOR THE DEFINITIVE DISCONTINUATION OF MILK PRODUCTION COM (85) 583 FINAL

3.The proposal arises from the undertaking given by the Commission at the Council of Ministers meeting on 23 May, 1985 for the introduction of a Community wide scheme for the cessation of milk production.

4.The Commission considers that despite a reduction in deliveries of about 5 million tonnes, there is still an imbalance of 5.2 million tonnes of milk, between the supply and requirement of milk, and further measures are required to reduce Community deliveries.

5.The Commission states that a better balance between supply and demand can be achieved by a Community indemnity to producers who voluntarily undertake to cease milk production with the aim of securing the release of reference quantities totalling 3 million tonnes.

6.The Commission’s aim is to buy up 3% of quotas on a Community wide basis. In Ireland’s case this would amount to about 33 million gallons. The quotas bought up would be abolished and not available for re-allocation. The price proposed for payment to producers willing to give up their quotas is 21P per gallon each year over a 7 year period. In addition, a Member State would be permitted to operate a nationally financed cessation scheme to cover a further 3% of quotas. In the case where a Member State participates in financing a scheme alongside the Community scheme 50% of the total quotas bought up would be frozen with the other 50% available for re-allocation for special category cases including young farmers.

7.The Commission does not consider it possible to differentiate the level of the indemnity according to the regions. Member States may exclude from the programme producers with less than 6 cows. Applicants for the indemnity would be required to cease milk production definitively and completely and to release the whole of their reference quantities. The Commission states that for structural and control reasons and to ensure the efficiency of the scheme in the long term, payment of partial cessation of production is not permitted.

8.The Commission estimates that the direct cost of this measure will be 180M ECU per year while in the long yerm the savings resulting from a reduction in milk deliveries of 3 million tonnes are estimated, for the EAGGF, at 840M ECU per year.

The Commission further states that the extra slaughterings of cows from the dairy herd could have as a consequence additional costs, in the short term, in the beef sector. These additional costs could reach 220M ECUs in 1987 (assuming no change in policy) but they will be followed in subsequent years by savings in that same sector because the reduction in cow numbers will lead to a similar reduction in calf numbers. These savings in the long term for the beef sector should amount to 100M ECU per year. Overall, the releasing of reference quantities amounting to 3 million tonnes will lead to considerable savings for the EAGGF.

C. A NATIONAL MILK RESTRUCTURING SCHEME

9.The Joint Committee was informed by the Department of Agriculture that Ireland has a proposal for a new national milk restructuring scheme financed by the dairy industry which would free quotas (in return for a once-off payment of 75 pence per gallon of quota) and create a reserve from which additional quotas could be allocated to prescribed special category producers. The proposals have been considered by the Commission and are now being re-examined by the Co-operatives/ Dairies in the light of the Commission’s response. It is hoped that a decision will be arrived at shortly.

D. VIEWS OF THE INTERESTED BODIES

I.F.A.

10.In their submission the IFA argues that the proposed Community milk cessation scheme poses a threat to Ireland’s national interest of equal dimensions to that posed by the Super Levy when first introduced. The dairy industry contributes approximately 9% to the gross national product, milk accounts for 33% of Irish gross agricultural outputs and directly gives employment to 11,000 people. Consequently, the IFA points out that it is not only in the interest of the farming Community, but in the national interest as well, that the proposed milk cessation scheme be opposed. IFA states that it is essential that the industry is allowed scope to develop further, as Ireland remains under-developed relative to other countries within the EEC. Milk output in Ireland is six and a half times more important to the Irish economy that the overall economies of the EEC.

11.The introduction of the proposed cessation scheme at a level of 3% would obliterate two-thirds of the increase granted under the Super Levy agreement. The recognition given to Ireland’s special position by the European Commission must be followed up now by seeking a derogation for Ireland from this proposed EEC scheme. It is the IFA’s view that this approach is entirely justifiable because of the vital national interest involved and because of the decision taken by the Council of Ministers on 29 March, 1984 not to reduce the quantities available to Ireland in the years subsequent to the 1984/1985 transitional period.

12.The IFA further states that the introduction of the proposal in Ireland will further fossilise the structure of milk production as it is today, as milk which would normally become available for redistribution will be lost to the country. There is an obvious need for the introduction of a National Milk Restructuring Scheme if Ireland secures a derogation from the EEC Scheme, as individual farmers will be extremely frustrated if they cannot realise the value of what is now a very valuable asset. Equally, many farmers are mid-way through their development plans and they must have the opportunity to secure extra quotas to develop viable units.

13.The IFA feels that the National Scheme must be made more attractive for Irish farmers to take up because when the EEC scheme is introduced that is the end of the National Scheme. There is a very short time for redistributing the quotas of farmers, who for various reasons, ill health etc. are willing to give up milk. The IFA is asking that a tax concession be given on the 75P per gallon proposed in the national scheme in order to make it more attractive to farmers to get out of milk, the 75P per gallon on its own may not prove attractive enough to encourage farmers to discontinue production.

14.The Community has already cut back on production but on the world market, the US, New Zealand and Australia are increasing their output, the EEC has already cut back, the world market it filling that gap, yet the EEC requires further cutbacks, any further cutback should be made by means of a National Milk Restructuring Scheme and not by means of the present Commission proposal. A 3% reduction in quota would reduce exports by £35M and its impact will in the short term be more immediate in Ireland than in other Member States.

ICOS

15.ICOS contends that most Member States favour some measure to reduce the gap between supply and demand of milk and milk products, but have not fully supported the Commission proposal because there is no provision to ensure that the effects will be the same in all Member States. The measure is one of many proposed by the Commission to reduce the surplus stocks of dairy products which are depressing markets for butter. However, the measures already taken by the Commission through the introduction of the milk quota system have resulted in a fall in production of 4.8%. However, the US, New Zealand, USSR, Australia and Eastern Europe are all showing increased production and these increases have more than offset the EEC quantity reductions. Thus, further quota reductions will not necessarily help the world production position.

16.The conditions which gave rise to Ireland’s case for exemption from super-levy have not changed. The importance of dairying is shown in the following three points:-

(a)Dairy output as a percentage of gross agricultural output (1983) = 35.6%.

(b)Agricultural output as a % of G.N.P. (1983) = 18.4%.

(c)Dairy exports as a % of total exports (1983) = 10.75%.

The importance of the dairy industry to the beef sector as a source of supply of calves and cow slaughterings is also significant.

17.In the Council agreement on the 1984/1985 Price Package there was acknowledgement of Ireland’s special case and agreement not to reduce Ireland’s quota at any time in the future and in the event of redistribution of quotas, Ireland would be given first priority for increasing its quota. In its explanatory memorandum on the measures the Commission emphasises that the provision to allow the transfer of unutilised quotas between purchasers means that deliveries not subject to a levy amount to 1% of production and the facility will not be valid after 1985/1986. This would mean that some co-operatives/dairies could find themselves in a position where they would have to pay super-levy even though Ireland as a whole could be below quota.

18.ICOS states that our national quota would be reduced by 3% (35.75m. gallons), assuming there was sufficient applications for the full quantity, which is likely. Job losses could be between 215 and 300. These figures are based on the IDA document “Strategy for development of the agricultural processing industry in Ireland”. June 1982, which estimates that 6-8 extra jobs could be created for each additional 1 million gallons of milk available. The job numbers per million gallons could result in 8-12 extra jobs for milk processed into higher value added products.

19.A reduction in dairy exports of at least £50m. per annum will result. The 3% quota reduction will not apply equally to all parts of Ireland and some areas will be more severely affected than others.

20.In many areas there are limited opportunities for alternative enterprises. Cereal growing is not suitable in many parts of the country because of soil conditions. Farm size will not be sufficient to give some farmers a satisfactory income from beef or cereals.

21.ICOS states that the contribution to the co-operatives of each extra gallon of milk is estimated to be at least 10P per gallon, this is a contribution towards the overheads of co-operatives and it is going to be affected.

Macra na Feirme

22.Macra na Feirme is opposed to Ireland suffering any further loss in its national quota. Macra points out that it would be a great economic loss to the country because of the position of the dairy industry in the overall economy of the country. Macra also argues the case for a National Milk Restructuring Scheme, which would be introduced in order to allow people to discontinue in milk but the milk made available to a National Scheme should be allocated to priority categories including new entrants to dairying and suppliers under 25,000 gallons. Macra states that dairying, the most profitable section of Irish farming should not be a “closed shop” but should be available to young trained farmers. A National Scheme would allow for a restructuring of quotas. There is a danger that people on low quotas or new entrants would not be able to pay for the new quotas and consequently these quotas would go to the more established farmers with large quotas.

23.Macra na Feirme further states that they have made the case to the Department of Agriculture, in the various negotiations on the National Scheme, that the Exchequer should make a contribution to this scheme and that the tax provisions in the Finance Bill 1986 should include a special clause to make the National Scheme more attractive than any possible EEC Scheme. Macra is concerned that it has taken so long for the Department to announce a National Scheme and believes that its success will depend on its ability to attract people who wish to discontinue on one hand and its ability to facilitate a restructuring of milk quotas on the other.

ICMSA

24.ICMSA are totally opposed to the provisions of the proposed Council Regulation of the milk cessation scheme applying to Ireland. The arguments, economic, social and regional, advanced by Ireland in the original milk quota debate are still valid. Furthermore, Ireland received a firm assurance that the quota quantities, available to Ireland would not be reduced during the first five years of the quota system. Ireland must now call in the politically and legally binding assurances secured in March, 1984 and demand a derogation to the proposed EEC Cessation Scheme.

25.ICMSA states that it is not feasible or permissible to implement a National Milk Restructuring Scheme to prevent the operation of an EEC Scheme. Ireland is absolutely dependent on a total derogation in order that no reduction in the national milk quota takes place. In addition to the demand for a total derogation ICMSA argues that Ireland should seek, in addition, the following amendments to the milk quota Regulations and other milk regulations.

1.The continutation of a national quota type arrangement for a further three years.

2.Provision to allow co-operatives to implement milk production restructuring programmes, including cessation schemes, in their own areas in accordance with national rules.

3.Abolition of the co-responsibility levy.

4.A return to the objective method of milk price fixing.

An Foras Taluntais

26.An Foras Taluntais states that should the Commission proposal be introduced and the indications from Brussels are that it will, the importance of the National Scheme is obvious, in that the amount volunteered under the EEC measure will depend on the amount which has already been absorbed by an alternative scheme. The level of compensation offered in the Commission proposal for buying out quota, is important. At present the value of a quota ranges between 10P to 15P, the levy has not been severe up to date as our production quota has not been exceeded because of the possibility of substitution between different purchasers in terms of equalisation. This is the last year in which this will happen, according to regulations, consequently the levies will become much more severe in the future. The value of a quota will increase correspondingly, it will be determined by the loss of income to a producer because he must move to a less profitable alternative.

27.An Foras Taluntais states that from their research, this situation will give rise to quotas of 30P per gallon. The Commission proposal is for 21P per gallon over seven years. An Foras feels that it is possible that the scheme could continue for longer than seven years and consequently feels that the rate of compensation is low. The Commission can claim, as it is a voluntary scheme they are proposing, that people need only sell if they are willing to sell, at the price they are offering. In terms of a National Scheme, An Foras feels that if it is worth more to the State, we should be looking at supporting a National Scheme.

ACOT

28.As pointed out by the other farming bodies, ACOT in its submission to the Joint Committee has also stated the vital importance of the dairy industry to the national economy, the arguments made at the time of the Super Levy debate still stand, and the Council of Ministers then recognised the special position of Ireland in relation to dairying.

29.ACOT points out that should the Commission proposal go ahead there will be a reduction in milk output which will result in a very large increase in cow slaughterings, and the value of beef output could be reduced to the extent of £25m.

30.ACOT states that in relation to the National Scheme there is a danger that a number of farmers, within the lower level of quotas, who would find it difficult to pay the full price for quotas being redistributed under the National Scheme and ACOT would possibly have to help them improve their efficiency in milk production.

31.Finally ACOT points out that taking inflation and interest rates into account, over the coming years, it is possible that farmers may see the EEC scheme as more beneficial. Consequently a tax concession in relation to the National Scheme would be a critical factor in having farmers decide between the National and EEC Schemes.

E. VIEWS OF THE JOINT COMMITTEE

32.The reason for the Commission proposal for the definitive discontinuation of milk production ⁽¹⁾ is to reduce the imbalance between the supply and demand for milk and milk products. But the Joint Committee feels that Ireland’s special position in relation to the dairy industry, which was recognised by the Commission in March, 1984, is now under severe threat.

33.At the meetings of the Council Working Party and Special Agricultural Committee, Ireland entered a general reservation on the proposal on the basis that it is contrary to the agreement reached at the Council meeting in March, 1984 when the quotas were first set up and in particular that is in direct contravention of the Council minutes of that meeting which stated that the Council decided, when distributing quantities added to the reserve, that Ireland would be given priority. The reservation was also entered on an even more important basis, that the Council ensured that the passage from the 1984/1985 transitional period, to the definitive period would be so managed as to ensure that the quantities available to Ireland were not reduced in subsequent years.

34.The Joint Committee understands that a reduction of 3% in quotas, regardless of whether it is made across the board or on the basis of buying up quotas from producers on a voluntary basis, will have the effect of reducing our overall quota. Therefore it is contrary to the agreement reached at the Council in March, 1984. The Joint Committee is concerned that in a voluntary proposal, there is no guarantee that each Member State will contribute to the same degree in bringing about an overall reduction, it is possible that certain Member States might take up 3% while others may only take up 1%. The Joint Committee understands that this is a worry which has been highlighted by France, the United Kingdom and Germany, but they accept the proposal in principle. Along with Ireland, Italy, Greece and Spain are totally opposed to it. While the Commission proposal is at present a voluntary scheme, if it does not have the desired effect, the Joint Committee understands that the Commission is contemplating a compulsory scheme.

35.The Joint Committee in its Report on The Application of the Milk Super Levy, ⁽¹⁾ called for the introduction of a milk discontinuation scheme, with State finance and drew attention to the existence of such schemes in other Member States. The Joint Committee understands from the Department of Agriculture that an announcement on such a scheme will be made shortly. The Joint Committee welcomes the introduction of such a scheme, but understands that this scheme will be totally financed by the dairy industry itself.

36.The Joint Committee urges that State aid be forthcoming, possibly by way of a tax concession to those willing to discontinue milk production under the National Restructuring Scheme. It is felt that the Scheme should be made as attractive as possible, so as to ensure that farmers will opt for the National Scheme and ensure the restructuring of quotas so as to benefit new entrants to farming and those with low level of quotas.

F. CONCLUSION

37.In view of the dominant position of dairying in Irish farming, and in the economy as a whole, a fact with which the Council of Ministers was in agreement with in March, 1984, during the Super Levy negotiations when the level of the national quota for the next five years was agreed, the Joint Committee wishes to express its total opposition to the Commission proposal which would have the effect of reducing our national quota. The Joint Committee calls on the Government, and in particular the Minister for Agriculture, to seek a derogation in order that no reduction in our national milk quota takes place and further calls for the introduction of a National Milk Restructuring Scheme without delay.

38.The issue involved in the Commission proposal is of great importance to Irish Agriculture and the Irish economy in general, for that reason the Joint Committee hopes that an early debate will take place in the Dail and Seanad so that the issue involved can be given expression through the political process.

[26 February, 1986.]

(1) COM (85) 583 final

(1) Report dated 31 October, 1984.