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REPORT

• AUSTRALIA NEW ZEALAND FOOD AUTHORITY BILL 1996

• AUSTRALIA NEW ZEALAND FOOD AUTHORITY AMENDMENT BILL (NO. 2) 1997

1. THE INQUIRY

1.1 The Australia New Zealand Food Authority Amendment Bill 1996 was introduced into the House of Representatives on 4 December 1996. The Bill passed through the House on 19 March 1997 and was introduced into the Senate on 20 March 1997. On 13 May 1997 the Senate, on the recommendation of the Selection of Bills Committee (Report No.7 of 1997), referred the Bill to the Committee for report by 16 June 1997.

1.2 The Australia New Zealand Food Authority Amendment Bill (No.2) 1997 was introduced into the Senate on 28 May 1997. On 29 May 1997 the Senate, on the recommendation of the Selection of Bills Committee (Report No.9 of 1997), referred the Bill to the Committee for report by 16 June 1997.

1.3 Although the two Bills were referred separately, the Committee agreed to consider them together. Due to the short timeframe for the inquiry, the Committee did not seek formal submissions but did invite a number of organisations to provide written comments on the Bills. The organisations which responded are listed in Appendix 1. A number of industry groups indicated that their views would be represented by the peak body at the public hearing. The Committee considered the Bills together at a public hearing on 5 June 1997. Details of the public hearing are referred to in Appendix 2.

 

2. BACKGROUND

2.1 The Australia New Zealand Food Authority commenced a review of the Food Standards Code in 1993 which was due to be completed by March 1998. As a continuation of this review, the Authority is developing a joint Australia New Zealand Food Standards Code by 1 January 2000. The development of this joint Code will result in a simplified, more generic, less prescriptive and much more effective set of food standards. This joint Code is regarded as absolutely essential to the efficiency and international competitiveness of Australia's food industry.

2.2 However, the timetable for this review has been jeopardised by current provisions of the ANZFA Act which require the Authority to accept all applications for the development or variation of a standard which meet certain basic criteria. The Authority has no control over the number of applications which it is legally bound to handle at any one time. The Authority is obliged to commit all available resources necessary to complete the assessments associated with each of the applications within 12 months, irrespective of the relative public or commercial importance or value of the applications. In practice this has meant that resources have been diverted from more important reform tasks, such as the review of the Food Standards Code, in order to deal with the applications.

2.3 To ensure that the joint Standards Code can be developed by 2000, the Authority is establishing a three-year Standards Review Work Program. The work program will set priorities for food standards review over the next three years and will be agreed to and supported by the food industry, the States, Territories and New Zealand.

2.4 It is envisaged that a specific number of applications will be included in the work program, commensurate with the level of resources available to the Authority. The criteria for the selection of applications for inclusion in the work program will be based on the objectives set out in s.10 of the ANZFA Act, particularly the protection of public health and safety and the provision of food information enabling consumers to make informed choices. Applications which are accepted as part of the work program will continue to be assessed at no charge and within the 12 month timeframe. Applications which cannot be accommodated within the work program due to resource limitations will either have their assessment delayed until they can be included in the work program or they will be accepted and processed on a cost recovery basis through the payment of a fee which the Authority will use to provide the resources required to process the application. [1]

2.5 In addition to the review of the Food Standards Code, ANZFA is undertaking two other major reform projects. The Authority, at the direction of Commonwealth, State and Territory Ministers, is developing uniform national food hygiene regulations. Developing a single version will overcome the current inefficient and ineffective system where each State and Territory has a different set of hygiene regulations. The other major project is a comprehensive, whole of government review of the food and beverage regulatory system to improve efficiency, eliminate unnecessary duplication and costs and reduce the compliance burden currently borne by the industry. This review is in response to the Small Business Deregulation Task Force Report (the Bell Report) and will be considering the broader issues of public and private benefit and the level of contribution by government and industry within the overall regulatory framework. [2]

 

3. THE BILLS

Australia New Zealand Food Authority Amendment Bill 1996

3.1 This Bill makes a number of amendments to the ANZFA Act which will enable the Authority to overcome deficiencies within the current legislation which prevent the Authority having the capacity to plan, manage or prioritise its workload. The Bill establishes the framework for the scheme of partial cost recovery in relation to some applications to vary food standards.

3.2 The amendments in the Bill will assist with the implementation of the work program and prioritisation of application assessment by enabling the Authority to:

• ensure that the Authority's resources are spent on assessing applications within the work program at no charge to the applicant;
• delay assessing applications which are outside the work program until payment of a prescribed charge or fee, the amount of which will be directly related to the Authority's costs of assessing that application;
• prioritise and direct resources to its agreed work program, and to the food standards matters which are of major public interest and commercial importance; and
• charge for its expertise by marketing its goods and services and to retain any fees and charges.

3.3 The Bill also rewords the existing regulation making power in s.66 of the ANZFA Act to clarify its operation and provide flexibility in the fees regime by:

• clarifying and extending the matters in relation to which fees can be paid;
• stating that any fee paid must not amount to taxation (thus limiting the quantum of the fee to simple cost recovery);
• providing for the waiver, remission or refund of fees; and
• clarifying the interaction between the fee making power and the Authority's power to enter into contracts. [3]

Australia New Zealand Food Authority Amendment Bill (No.2) 1997

3.4 This Bill makes a number of minor policy and technical amendments to the ANZFA Act. The amendments cover three areas:

• They facilitate the cooperative uniform food standards system. They streamline and simplify the assessment process for variations to the Food Standards Code by implifying the applications process for variations, allowing ANZFA to undertake broad food education programs, providing for public access to statements of reasons for ANZFA decisions (rather than being required to publish them in full), setting a time limit on the Ministerial Council (ANZFSC) to respond to an ANZFA recommendation, clarifying the law on the commencement of food standards when they are adopted by States and Territories, clarifying the law relating to the effect of administrative review on statutory time frames, giving ANZFA greater flexibility to fast track matters where appropriate (subject to external review), and conferring limited immunity on ANZFA in relation to its standards work and in relation to its public register;

• They update the ANZFA Act to confer on the Authority the powers and functions of a modern statutory authority, including the ability to market its expertise commercially and to employ staff on its own terms and conditions; and

• They expand the existing regulations power to impose fees for ANZFA services by providing that the regulations may make provision for a penalty for late payment, or a discount for early payment, of fees, and for the refund and remission of fees.

3.5 The ability to market its expertise will extend the revenue raising powers of ANZFA by establishing `arms length' commercial bodies to undertake commercial activities without jeopardising the Authority's independence. However, these revenue raising amendments are qualified so that the Authority's commercial operations are not exercised in a manner which impedes its existing functions, thereby ensuring its regulatory functions remain paramount. [4] The Australian Consumers' Association commented that the operation of such a scheme must be `completely transparent and publicly accountable' with steps taken to ensure that `appropriate safeguards are built into any commercialisation of ANZFA's interests'. [5]

 

4. ISSUES

Cost recovery from industry through application fees and charges

4.1 The provision in the redrafted regulation making power (s.66 of the ANZFA Act) which enables cost recovery from industry by way of application fees to meet shortfalls in the budgetary allocations to ANZFA was opposed by the Australian Food Council (AFC) - the peak national representative body for the processed food and beverages industry in Australia, the Food Industry Council of Australia (FICA) - the peak industry body of food industry associations and the Australian Chamber of Commerce and Industry (ACCI). [6]

4.2 Although the AFC acknowledged that the proposed amendment clearly addressed the charging of application fees by ANZFA and was limited to applications outside an agreed work program, the Council saw the proposal as `the thin edge of the Government's very sharp and very obvious revenue raising wedge'. The Council argued that the amendment simply `transfers the contingent liability of inadequate resources to carry out the task of setting efficient and effective food standards from the Government to the applicant companies, [which was] entirely inappropriate for a function primarily intended to protect public health and safety and provide information to consumers'. [7]

4.3 Reasons advanced by the industry for its opposition to cost recovery by way of application fees or charges included:

• the priority objectives of food standards enshrined in the ANZFA Act as the protection of public health and safety and the provision of information to consumers could be compromised. The Health Department of Western Australia was particularly concerned that if fees were imposed they should be waived for applications which were in the public interest and indeed for those that protected public health and safety [8];
• there is no practical, efficient or equitable way of imposing charges on the entire food production and supply system. The amendments could result in cross subsidising the provision of services to a number of third party applicants;
• the proposed charging system would not lead to better food standards setting due to reluctance to initiate change because of the cost, and has the potential ultimately to inhibit industry competitiveness;
• the industry already contributes substantial resources to, and bears substantial compliance costs from, the development and operations of the regulatory system and the proposed charging system would not only increase those costs but may also damage the constructive relationship between ANZFA and the industry which is essential for sound regulatory outcomes;
• innovation in the industry would be discouraged by the cost of implementing change and the ability of competitors to `free ride' on any regulatory amendment which would place the applicant company at a commercial disadvantage to their competitors;
• charges imposed ahead of essential regulatory reform would rightly be seen as a demand for the industry to pay for its own micro-economic reform, a demand imposed on few other industries let alone one as critical to the Australian community and to the economy as the processed food and beverages industry;
• any charges would inevitably be passed on to consumers as a `tax' on their food purchases; and
• the reputation of ANZFA as an independent and impartial agency could be threatened by the perception of it dealing with applications on the basis of whether people were prepared to pay for them or not. [9]

4.4 FICA raised the question of whether New Zealand organisations could gain product approval without going through the Australian application process, until there are harmonised and uniform regulations applying to both Australia and New Zealand. FICA also expressed concern at the apparent lack of any appeals or formal mechanism of internal review of decisions on appeal within the legislation and whether fees would be levied against current applications or new applications only. [10]

4.5 ANZFA provided the Committee with a copy of the draft regulations which would be made under the amended s.66 of the Act. The Authority emphasised that `the Bill only establishes a framework for the imposition of fees, and this means it can be difficult to appreciate how the fee regime might operate in practice'. [11] The fees or charges themselves will be set by regulations, which are tabled in Parliament and are disallowable instruments.

4.6 The draft regulations provide for three categories of application from Category 1 which would be an application for the variation of a standard method or methods to a Category 3 application which means an application for the development of a standard. The charges proposed in the draft regulations are $1500 for a preliminary assessment then $15 000, $40 000 and $90 000. The charge is based on an average application within the particular category using external consultants to assist the Authority in assessing the application. [12]

4.7 In addressing the industry concerns raised in the evidence, ANZFA advised that the amendments do not introduce broad powers to raise revenue. Attorney-General's Department advice had been sought so that what the legislation provides is a mechanism by which ANZFA can recover certain costs which have to be directly linked to the services provided. Thus applications within the agreed work program will be assessed at no charge. Only applications outside the work program which the applicant wishes to be assessed quickly will be subject to fees, and even then the fee will reflect only partial cost recovery. ANZFA indicated that while the legislation enables fees to be charged under certain circumstances, it is primarily about work management and budget management `to enable the Authority to manage its workload with finite resources.' [13]

4.8 It is ANZFA's expectation that applications that are charged for would concern in the main, industry issues, and not issues affecting public health and safety. The Authority believes `that the proposed system will ensure that most of the priority applications, if not all priority applications, relating to public health and safety will be able to be addressed comfortably within the work program based on the allocation of resources'. [14] Indeed, the Authority did not `foresee any circumstance where an application to vary the code which has any impact on public health and safety would in fact fall outside the work program'. [15]

4.9 In determining the work program, it is ANZFA's intention that a committee would be formally constituted with membership from the Authority, industry and consumer representation and representation from State and Territory governments. The committee would consider applications and priorities and report back to the Authority making recommendations about the work program and priorities. In making recommendations the committee would have regard to the Authority's statutory objectives as listed in s.10 of the ANZFA Act. The final decision about which applications will be included in the work program will be made by the ANZFA Board. This process would be implemented administratively because there is no reference to the work program or the committee in the legislation (although there is a reference to the work program in the draft regulations).

4.10 In response to the suggestion that New Zealand industry may not be subject to the payment of an application fee, ANZFA advised that the effect of the regulations are that the New Zealand governments exempt from paying an application fee, but that New Zealand industry would be treated in exactly the same way as Australian industry.

4.11 In relation to the draft regulations and the operations of the work program ANZFA indicated that the fees in the regulations would be maximum fees with no retrospective application. If an application proved to be less complex than originally envisaged, the Authority would have the power to remit or refund part of any charge paid or to be paid under the regulation. Any decision by the Authority in relation to the categorisation of an application and the refund or remittance of fees would be subject to external review by the Administrative Appeals Tribunal. ANZFA also confirmed that there was no opportunity for the Authority to cross-subsidise other activities because the legislation provides that it may only raise fees in relation to the services provided. [16]

Necessity for the power to impose fees

4.12 A major issue discussed at the public hearing was the necessity for providing ANZFA with the power to impose fees on applications falling outside of the work program in the first place.

4.13 There was general acceptance by ANZFA and the industry that the review of the Standards Code will result in a decline in the number of applications on a long-term basis due to the introduction of simpler, generic standards and with application no longer having to be made in respect of every minor amendment to a standard. [17]

4.14 ANZFA and the industry were also of the view that at current funding levels there would be very few, if any, applications that would fall into the fee for service category. [18] The industry representatives indicated that they had conducted surveys of their members to determine likely application numbers in the near future, with the result that the level of applications was unlikely to vary in the next few years. [19]

4.15 Why then was the power to impose fees required? ANZFA responded that the resources it currently spends on processing applications (which it is statutorily obliged to do) have been drawn from other projects, especially the review of the Food Standards Code. The Authority emphasised that there is considerable uncertainty as to the number of applications which may be lodged year to year and that the legislation `is against the contingency that we get more than that [an average of about 30 applications a year]. What we do not want to have happen is that, if we get more than that, that that again, as it has done in the past year, impacts on our ability to deliver the food standards reviewand to start welding together all three levels of government and all agencies into a single national safe food system'. [20] As Ms McCaughey, the ANZFA Chairperson, commented `I am very uncomfortable in presiding over a business in which I have no control over the amount of demand that is going to be put on the resources that I am responsible for.' [21]

4.16 ANZFA acknowledged that additional funding had been received for the review of the food hygiene regulations, which was a separate issue. The Authority indicated that the Bill was `not about the funding for the hygiene project but about quarantining the funds that we have received for dealing with the hygiene project rather than facing the real possibility that it might need to be bled off to deal with applications. It is about quarantining those funds rather than the quantum of them'. [22]

Management improvements and resource prioritisation

4.17 The management improvements and regulatory reforms contained in the two Bills were largely endorsed by the industry. The AFC particularly noted the introduction of an indicative time of six months within which the Australian Food Standards Council should make decisions on ANZFA recommendations. The AFC advised that the industry had long been concerned that while the legislation set time limits for the completion of inquiries by ANZFA, there were no such time limits on the Standards Council to make decisions which frequently took longer than six months, with the worst case being a 23 month delay. [23]

4.18 However, while opposing the application fee provisions of the Bills, the AFC believed that an important residual management issue needed to be addressed namely the ability of ANZFA to prioritise the use of its resources to ensure the completion of the review of the Australian Food Standards Code leading to the development of a comprehensive Australia New Zealand Food Standards Code by the year 2000.

4.19 Given that an objective of the new Standards Code will be to provide simpler, generic standards, the introduction of the new Code in the year 2000 should limit the number of applications beyond that date. The AFC therefore argued that `it is likely that the resource issue is primarily one of providing sufficient resources to get over the hump created during the next three years by the commitment to complete the review'. [24] As the completion of the Standards Code review is an absolute priority for the industry as well as for government, the AFC conceded that `there may need to be some form of safety valve to deal with an overflow of applications should it arise'. [25]

4.20 The format proposed by the Government is to impose a fee on applications outside the agreed work program and then buy the additional resources required to process them. The AFC believes that this proposal `provides a built in incentive for ANZFA to push particularly complex or detailed applications into the additional, fully funded category'. [26] The AFC proposed as an alternative safety valve to defer consideration of lower priority applications until capacity exists to deal with them. The Council suggested that this proposal should be combined with a commitment by the Government to maintain ANZFA funding in real terms until the Standards Code review is completed, the establishment of a priority work program on at least an annual basis preferably within the Act rather than by regulation, and review the deferral power in 2000 when ANZFA's longer term resource requirements will be more predictable. [27] FICA also believed that the work program should be `spelled out' in legislation and not left to regulation. [28]

4.21 ANZFA responded to this proposal that it should be able to defer lower order priority applications and consider them beyond the 12 month statutory time frame, by acknowledging that it had considered this possibility, but `very quickly came to the view that that 12 month statutory time frame is one of the strengths of the Authority's processes. It actually requires us to come to a conclusion within a timely manner [I]ndustry, consumers and governments can be reassured, can have some confidence that an outcome will be delivered within 12 months'. [29] ANZFA also indicated that the 12 month time was probably one of the strongest selling points in setting up the joint authority in its negotiations with the New Zealand government.

 

5. Recommendation

5.1 The Committee reports to the Senate that it has considered the Australia New Zealand Food Authority Amendment Bill 1996 and the Australia New Zealand Food Authority Amendment Bill (No.2) 1997 and recommends that the Bills proceed.

Senator Sue Knowles
Chairman
June 1997

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Footnotes

[1] Summarised from Minister's second reading speech, Explanatory Memorandum to the Bill and ANZFA written comments.

[2] Transcript of Evidence pp.23,24 (ANZFA). See also FICA submission p.1.

[3] Minister's second reading speech, Explanatory Memorandum to the Bill and ANZFA written comments.

[4] Explanatory Memorandum to the Bill and ANZFA written comments.

[5] Australian Consumers' Association written comments, p.1.

[6] AFC submission p.1, FICA submission p.2, Transcript of Evidence p.24 (AFC), p.27 (FICA), p.34 (ACCI).

[7] AFC submission p.2.

[8] Health Department of Western Australia written comments, p.1.

[9] AFC submission pp.3-4; FICA submission p.4, Transcript of Evidence p.25 (AFC), p.26 (FICA); Effem Foods PL written comments.

[10] Submission p.5 and Transcript of Evidence pp.26-27 (FICA).

[11] ANZFA written comments p.4.

[12] Transcript of Evidence p.39 (ANZFA).

[13] Transcript of Evidence p.22 (ANZFA).

[14] Transcript of Evidence p.21 (ANZFA).

[15] Transcript of Evidence p.36 (ANZFA).

[16] Transcript of Evidence pp.36-38 (ANZFA).

[17] Transcript of Evidence p.20 (ANZFA), p.31 (AFC).

[18] Transcript of Evidence pp.21, 42 (ANZFA), pp.25, 32 (AFC).

[19] AFC submission p.7; Transcript of Evidence p.32 (AFC), p.33 (FICA).

[20] Transcript of Evidence p.44 (ANZFA).

[21] Transcript of Evidence p.21 (ANZFA).

[22] Transcript of Evidence p.44 (ANZFA).

[23] Transcript of Evidence p.25 (AFC). See also FICA submission p.3.

[24] AFC submission p.7.

[25] AFC submission p.7 emphasis added.

[26] AFC submission p.7.

[27] Transcript of Evidence pp.25-26, submission pp.7-8 (AFC).

[28] Transcript of Evidence p.27 (FICA).

[29] Transcript of Evidence p.37 (ANZFA).