Decoupling production from direct payments in the reformed Common Agricultural Policy will reduce the incentive to produce and presents a threat to the beef and grain sectors, the Irish Cooperative Organisation Society (ICOS) conference was told yesterday.

Michael Dowling, head of agri strategy in AIB, told ICOS delegates that because the payments being made to farmers were not index-linked, they were certain to reduce.

Outlining the benefits and deficits, Mr Dowling, a former secretary general of the Department of Agriculture, said the changes offered no threat to milk supply but added that beef production and cereal production in the new era would face threats.

He said that while all sectors faced tougher competition, sugar beet was most vulnerable.

Beef was also facing tougher competition because it was doing so in what he termed a deficit market.

Mr Dowling said the policy environment needed to be stabilised and scale was essential at farm, processing and marketing levels.

He also called for barriers to rational development of the market to be removed and in that context, the rigidity of the milk quota system to be examined.

The chairman of the Irish Dairy Board, Michael Cronin, predicted that there would be a fall in the prices dairy farmers received for their milk and they should plan for that.

However, Irish producer prices were still higher than those being received elsewhere in Europe and Irish farmers had major economic advantages in producing milk; he expected that many European farmers would give up their quota, he said.

In the long term, said Mr Cronin, there was the possibility of milk quota being traded across national boundaries and there was a possibility of Irish farmers being allowed to produce more milk than now.

However, there was going to be a dramatic fall in the number of Irish dairy farmers in the next four or five years with the present level of 24,000 possibly falling to half that.

Dairy farms would have to become larger and more efficient and he believed Irish farmers had the capacity to adapt more quickly than other European farmers.

Speakers at the annual conference had called for a fresh look at the control non-milk producer shareholders now have over co-operatives and indicated that the so called "dry shareholders" were beginning to outnumber the producers in dairy co-ops.

The director general of ICOS, the umbrella body for the co-op movement, said that the issue was being addressed in some co-operatives where voting power was based on the trading links the shareholder had with the cooperative.