Speech by Commissioner Phil Hogan at Oireachtas Joint Committee on Agriculture

Speech by Commissioner Phil Hogan at Oireachtas Joint Committee on Agriculture

Leinster House, Dublin

23rd June 2015

-  Check Against Delivery –

·  Chairman Doyle, Members of the Joint Committee on Agriculture,

·  I wish to thank Chairman Doyle for the invitation to speak to the committee. It is my honour to be here today to engage with you on matters affecting Irish and European Agriculture.

·  Since I have taken up office in November 2014, I have prioritised engagement with national parliaments, and in particular parliamentary committees on agriculture. To date, I have met with agri committees in 10 different national parliaments.

·  As a former elected representative, I am keenly aware of the importance of reaching out to parliamentarians and listening to their perspectives and feedback on the state of play on the ground.

·  Whereas European agriculture is as diverse as the European climate, from the olive groves of southern Europe to the reindeer farms in the far north, the issues raised by public representatives are often quite similar.

·  Such as how to simplify the CAP? How to ensure a good living for producers so that they can continue to produce their product? How to gain new opportunities for our high quality produce on global markets? These are issues which I am prioritising so it is essential to receive feedback from those who are closest to the citizen – their elected public representatives.

·  I am here today also to update you on a number of the issues of interest to you and your constituents and I will be glad to answer some of your questions immediately afterwards.

(Beef Genomics Scheme)

·  I will start by giving an overview of the Beef Data and Genomics Scheme. The Beef Data and Genomics scheme is an agri-environment-climate measure under the Ireland RDP.

·  A key requirement for any agri-environment-climate measure is that farmers must undertake commitments for a period of five to seven years.

·  The terms and conditions of the Beef Data and Genomics scheme could be revised, but only by way of a modification of the RDP.

·  However, any changes in the terms and conditions would only apply to those farmers who join the scheme after the programme modification has been notified to the Commission.

(Milk market situation and outlook)

·  Of course 2015 has been an historic year for the milk sector, with the ending of the Milk Quotas on the 31st March last. This followed on from a bumper 2014 which saw prices reach new highs.

·  Following this period of record high prices, the milk sector is undergoing a correction as a consequence of global oversupply and weaker demand from important markets such as China and Russia.

·  The Commission has remained attentive to these developments, especially since the introduction of the Russian import ban last summer.

·  The measures deployed by the Commission in recent times have included opening Private Storage Schemes for butter and Skimmed Milk Powder in September 2014. These will remain open until September this year.

·  We have also guaranteed the non-interrupted availability of the safety net (extending intervention period in 2014, and anticipating it in 2015).

·  We have granted targeted support to farmers most hit by the Russian ban in the Baltics and Finland.

·  We have more than tripled the budget dedicated to promotion programmes, in order to expand EU penetration in third countries.

·  We have alleviated the burden of the surplus levy in the 2014-15 quota year by allowing deferred payment in 3-years at zero percent interest.

·  Also, we have enhanced market monitoring in the post-quota era with monthly meetings of the Milk Market Observatory Economic Board.

·  As confirmed by the MMO Economic Board in its last meeting, market sentiment is uncertain, with no clear signs of recovery in the short term.

·  There are two main market fundamentals still potentially of concern:

·  In terms of supply, worldwide milk production has not substantially dropped, with better than expected output in Oceania.

·  In terms of demand, a lifting of the Russian import ban seems more and more unlikely, and Chinese imports are still some 40% down from last year.

·  However, the good news is that the peak of milk production in the EU has passed, the euro exchange rate remains favourable, EU export performance in the first quarter of 2015 has been remarkable and EU stocks seem to be at an appropriate level for this time of the year – for instance, no offers to public intervention have been reported so far.

·  But prudence is needed in these times, and operators in the milk sector have to act responsibly, reacting to market signals. Let's endeavour to produce what the market can absorb.

·  As price pressure is expected to persist in the short term, the Commission forecasts a rather moderate milk supply trend, with 1% overall EU increase in 2015 (which, in the case of Ireland, could be close to 5%).

·  The US Department of Agriculture has also scaled down 2015 projections in the US to +1.3%. Sources point to increases by 0.6% in New Zealand and 2.9% in Australia.

·  All in all, there is about 3.7 million tons of additional milk to be absorbed mostly by importing countries.

·  In the long run, global demand for dairy products remains promising. The EU in general, and Ireland in particular, is in a privileged position to benefit from the new opportunities coming from world markets.

·  In addition, on the supply side, feed prices are projected at lower levels than those observed since 2010.

·  But the sector will be unavoidably confronted with periods of short term volatility, as we are experiencing now.

·  Thankfully, we have a comprehensive toolkit under the CAP to support the dairy sector in this new era.

·  In parallel, the sector itself needs to explore and develop private-initiative tools for risk hedging, such as integrated supply chain contracts, forward contracts, fixed margin contracts and price differentiation according to volumes.

(Origin labelling)

·  Another issue which is subject to debate at EU level at the present time is the issue of Origin Labelling.

·  Origin labelling is both technically complex and politically sensitive. Under President Juncker's "Better Regulation" drive, the Commission is keen to propose new mandatory legislation only where such legislation actually serves a purpose.

·  The consumer interest in origin information on milk and meat categories under the remit of this Commission report can be adequately addressed by voluntary labelling, which avoids imposing unnecessary burden and compliance costs.

·  Mandatory origin labelling would entail a higher regulatory burden and additional operational costs that would not be justified.

·  In the framework of the Commission priorities and the benefit of the single market, voluntary labelling for dairy products appears to be the most suitable option.

·  Currently consumers may, if they so wish, opt for milk and dairy products where origin information is voluntarily provided for by food business operators.

·  Introducing mandatory origin labelling would unevenly impact operators. The burden would be particularly heavy on those located in border regions and in areas non-self-sufficient in milk; manufacturers of highly processed products; and processors receiving milk from different origins with multiple manufacturing stages.

·  Mandatory origin labelling would also impose more control burden on public authorities and push food business operators to change their sourcing practices.

(Beef Markets)

·  With regard to the beef sector, Irish reference prices are now well above the EU average prices. The good performance of extra EU exports, the improvement of demand in the continent and the tight supply in the UK are the main reasons for the improvement in Irish prices.

·  Ireland is, for the moment, the only EU Member State allowed to export beef to the US. That is good news and given the US internal market situation, where prices are near historic highs due to drought in the main beef producing regions, there is a good window of opportunity for Irish beef.

·  Opening the Chinese market for EU beef is a priority for the Commission. Efforts are being made at all levels and we are making progress. China lifted the BSE ban for Ireland last February. This is a first important step in the Chinese procedure to allow market access. We will continue with the efforts to secure this big new market for Irish and EU exports.

·  China just opened its market to Brazilian beef. Brazil is certainly a big competitor, but China's beef demand is enormous. There is a place for everybody. On the other hand, the need for Brazil to access additional markets is already having an effect: EU imports from Brazil have experienced a significant reduction of 8 percentage points in the first quarter of 2015.

·  The prospects for the near future are positive. Our projections show that 2015 should see a general moderate recovery in EU prices and they should stabilize in 2016.

(Fertiliser prices)

·  I know that farmers are increasingly exposed to the impact that increasing inputs costs such as fuels, other energy costs and fertilizers have on income. I am fully aware that EU fertilizer costs have not followed the decrease in energy prices.

·  However, the main input for the production of fertilizers in the EU is natural gas, not oil, for which prices have not decreased to the same extent as oil. The gas market is segmented at global level, as opposed to the oil market which follows global price trends, and the differences have been exacerbated by the shale–gas "revolution" in the United States.

·  For instance, In EU the gas prices depend mainly on our import demand from Russia (on the basis of 6-9 months contracts) and Norway (normally on spot prices). Since gas prices have only started to decrease in April - in particular, in Germany but not across the EU - they have not resulted in a significant decrease in fertilizers prices in the short term.

·  With regard to nitrogen fertilizers, the EU market is not self-sufficient and imports about 20% of its needs. Ireland buys fertilizers on the EU internal market on the one hand - mostly from Belgium, Netherlands, the UK and Germany - and on the other hand from Russia, Egypt, Iran and Turkey. Most of the imported nitrates fertilizers come from Russia (68%), and Turkey (17%).

·  The decrease in Russian gas prices in April is not yet reflected in fertilizer prices. In the UK, where fertilizers prices follow the UK (NBP) gas prices, we note a slight decrease in granular urea price (from 394 to 388 eur/t), but since January both urea and nitrates are showing an increasing trend.

·  I wrote to my colleague, EU Competition Commissioner Margrethe Vestager, to look into possible anti-competitive practices in the fertiliser and energy sector. Our two services are working together to follow up, closely monitoring agricultural, fertilizers and energy prices in order to detect any possible market disruption.

(Climate Change)

·  2015 is a crucial year in the area of Climate Change, with the Paris Climate Conference, or COP21, set to be a landmark event.

·  The EU has committed to reduce its overall greenhouse gas emissions by at least 40% by 2030, in order to avoid an increase in temperature above 2°C above the preindustrial level.

·  This is a very ambitious target and to achieve it, all sectors have to contribute. Emissions from land, mainly agricultural and forestry land, will also have to be reduced starting from 2020.

·  The Commission is currently working on the question of how to deal with Agriculture and Land Use, Land Use Change and Forestry in the future climate policy framework up to 2030.

·  A stakeholder consultation ran up until June 18th last. A policy proposal will be presented in 2016, based on a solid impact assessment of the different options and COP21 outcomes.

·  The multiple objectives of agriculture and land use and its reduced mitigation potential and higher costs as compared to other sectors need to be acknowledged. We need to strike a balance between the EU's food security and climate change objectives.

·  Encouraging the sustainable intensification of food production is one effective way to achieve this balance.

·  For some Member States, including Ireland, the mitigation potential provided by afforestation is important. The Commission has to work out how to include that in the climate change framework.

·  The Irish Rural Development Programme includes measures, some of which are rather innovative, such as the aforementioned Beef Data and Genomics Scheme, which are needed in future to improve the mitigation and adaptation potential of the sector and at the same time its productivity. These measures have to be assessed and refined as appropriate, to be prepared for the 2030 challenge.

(TTIP)

·  Of course, International trade negotiations in general and the trade deal with the US in particular, known as TTIP, are of key importance for EU agriculture. The US already represents a key outlet for EU agricultural products: it is the destination of 13% of total EU exports.