The taxation and
processing sector participants are subject to a broad range of regulations
including food labelling, planning and zoning, state, territory and local
government fees and charges, and taxation. Stakeholders raised concerns with
the committee that the current inconsistency and duplication in regulation is
imposing costs on their businesses and threatening their ability to remain
competitive. This chapter discusses the issues raised and sets out the
committee's views and recommendations.
The case for reform
has heard first-hand of the challenge that the cost of government regulation presents
to the ongoing competitiveness of food processing sector participants. Their
stories illustrate why reform in this area is of such great importance:
per cent of our operating expenses occur as a direct result of regulation compliance
requirements. It is a significant amount for things like, for example, payroll
tax, local government rates, charges, by-laws, workers compensation,
occupational health, super, all the requirements under the Food Standards Code,
the QA auditsIt is a huge cost to us The one thing we really do want...is to find
some way of having a real level playing field, guaranteeing that products
coming in meet the same standard as Australian businesses are required to meet
to manufacture their product. If that is done, then fair enough.
Australian Food and Grocery Council (AFGC), which represents Australia's $108
billion food, drink and manufacturing industry, identifies reform in this area
as that of greatest importance:
considers regulatory reform the most prominent and important policy lever which
the Government can pull to assist the food industry to meet the challenges it
is now facing. Compliance with regulation is always costly, compliance with
ineffective, inefficient or unnecessary regulation is wasteful in the extreme.
It reduces business profitability directly, undermines investment
attractiveness and diverts funds from innovative activities necessary for
continued competiveness and productivity growth... AFGC... encourage[s] the
Government to re-commit to the COAG business regulatory reform agenda.
AFGC, the Australian Meat Industry Council (AMIC) identified regulatory reform
in the food industry as necessary given the 'deleterious' effect that
regulation can have on business:
reform in the food industry may warrant consideration in instances of free
market distortion or failure, inequitable competition (for land, labour and
resources) with other industries, or those instances where legislation is at
odds within or between jurisdictions. Importantly, the measure of success in
regulatory intervention must be a net improvement from the status quo; poor
regulation causes perverse outcomes for industry and may exacerbate an existing
problem. Government needs to identify and address those areas of regulation
that have deleterious impacts on food production and/or productivity, are
duplicative or ineffectual. Such a review would also allow for the
identification of common areas of regulatory impost, or issues requiring
Government intervention. Additionally, consideration and coordination of policy
to ensure consistency and reduced regulatory burden including duplication of
verification efforts between all parties, and agreed national standards between
industry, Government, commercial clients and consumers remains a key priority.
The ability to ‘describe’ our system to trading partners is of key importance
for Australia on the world scene.
AMIC went on
to explain that they consider environmental standards relevant to land and
water use, transport regulations, education and training, food safety
inspection and land use competition and apportionment as areas that require
regulatory harmonisation between and within state, territory and Commonwealth
The current regulatory
It is acknowledged
by government that the regulatory structure currently governing the food
industry is complex and has the potential to impose significant compliance and
administrative costs on businesses.
In March 2008 the Council of Australian Governments (COAG) endorsed a cross
jurisdictional agenda to reform the costs of regulation to business and to enhance
productivity in areas of shared responsibility.
That agenda was to be overseen by the COAG Business Regulation and Competition
Working Group (the BRCWG).
The National Partnership Agreement to Deliver a Seamless National Economy (the
SNE NP) signed late 2008 'recognises the implementation of the reforms
progressed though the BRCWG'.
The SNE NP
set out a reform agenda of 27 priority regulation reforms, eight competition
reforms as well as reform of regulatory processes.
The 27 priority deregulation areas include matters that were consistently
identified in evidence received by the committee as presenting challenges for the
as did the eight competition reform areas identified in the agreement.
stakeholders acknowledge the impediments to business that government regulation
presents and welcome reforms in this area, there is a concern among some that
the approach being taken is characterised by duplication and inconsistency. Mr
Duncan Makeig, Group Sustainability Director and General Counsel of Lion Pty
Ltd, explained this concern to the committee:
could ask the committee to consider something, it would be to look at the
number of participants in the food processing sector and how they would
participate from a clear understanding of how all of these different government
inquiries interact. There is Minister Ludwig’s Food Policy Working Group, there
is Minister Carr’s Food Processing Industry Strategy Group and there is the
National Food Plan process, as well as this inquiry into the food processing
sector. They all seem to have overlapping mandates.
Lion Pty Ltd suggested
that these 'complementary activities':
be combined or at least streamlined to ensure that they deliver coherent and
consistent policy and regulatory outcomes. We do welcome them; it is just that
there is a limit to our ability to participate effectively in so many different
The AFGC also
mentioned the COAG reforms and raised concern with the progress that has been
achieved to date:
considers regulatory reform to ameliorate regulatory compliance cost should be
a key government policy area to improve productivity within the food processing
sector... Food regulation was identified as one of many areas requiring reform,
and the Government has yet to deliver a substantive initiative in this area.
One area which stills dogs the food manufacturing sector, along with other
sectors is the lack of cross-jurisdictional alignment of regulations. AFGC
proposes that the current mutual recognition policy derived from agreement
between the Commonwealth, States and Territories regarding interstate trade of
products be extended to services and business practices.
were raised with the committee despite the release of the BRCWG Report Card
on Progress of Deregulation Priorities earlier this year, which stated that
many of the reforms are 'now operational'.
supports cross jurisdictional reform through the COAG reform agenda,
particularly the initiatives outlined under the plan for a National Seamless
Economy. The committee notes however that more progress needs to be made
through this process.
Growth in regulation
and red tape
years the level of regulation and compliance which participants in the food
processing sector are subject to has increased as regulation has continued to
be imposed by the three levels of government—Commonwealth, State/Territory and local
Increasing regulation increases the cost of products and acts as a disincentive
to investment thereby impacting the competitiveness and ongoing viability of
submission to the committee, the Australian Dairy Industry Council (ADIC) identified
the 'expanding' range of regulations and regulatory issues that 'hamper the
commercial performance of Australian dairy businesses in both the local and
- regulation by
national systems with blanket rules;
the trend to
regulated programs requiring actions to 'save' energy, water, or waste, instead
of using marketplace mechanisms;
costs of reporting to authorities for a range of national and state programs;
harmonisation across commodities (for example meat and dairy regulation) and
lack of recognition that many businesses produce multiple commodities;
creep pressuring businesses into over-compliance;
- overlap of
regulations leading to a compliance burden due to duplicative requirements;
- poor or
inconsistent enforcement of existing regulations resulting in patchy compliance
and a playing field that is not level.
The AIDC explained
that regulation regimes should be characterised by:
effective standards and regulations, based on science and risk assessment at
critical points, and strategies to manage risk to protect public health and
of the food chain in its entirety, and recognition of shared responsibility
among all parts of the chain;
of regulatory requirements with business systems such as codes of practice and
quality assurance; [and]
at national and international levels, whenever possible.
It is the
view of the ADIC that undue regulatory imposts reduce the competitiveness of
industry and when 'poorly designed' result in 'higher costs, loss of market
opportunities and/or deterrence of innovation and investment'.
Australia New Zealand, an international leader in the frozen food industry, similarly
advised the committee that regulatory reform is necessary:
regulatory reform is vital to create business conditions that allow companies
The need for cross
identified that the regulatory environment for food production and processing
in Australia is characterised by inconsistent cross-jurisdictional regulations
in areas such as work health and safety standards, food safety standards,
environmental standards, and road transport regulations, as well as state and
has identified the issue of inconsistent cross-jurisdictional regulation as an
area of significant concern. Participants in the inquiry process repeatedly
identified inconsistent cross-jurisdictional regulations as a 'constant source
of regulatory drag on the Australian economy imposing unnecessary costs on
individuals, industry and governments':
believes the Government should try to reduce the current regulatory burden
created by overlapping cross-jurisdictional regulations by pursuing
harmonisation state by state and where possible between Australian and
The Lakes Entrance
Fishermens' Co-operative Society Ltd (LEFCOL) explained how inconsistent
cross-jurisdictional regulations result in absurd outcomes:
the issues that come up in Fisheries the Offshore Constitutional Settlement
(OCS) would be the one that has caused the most angst & confusion over the
years. The OCS arrangements or lack of are complex, confusing and in some cases
anti-competitive. Unfortunately fish do not understand the OCS and can’t see
lines on a map
Two Commonwealth licensed fishers [are] operating outside 3 nautical miles
adjacent to the VIC/NSW border with Eden and Lakes Entrance as their respective
home ports. They both catch 500kg of Octopus working alongside each other as
incidental by-catch from normal fishing operations, the operator returning to
Eden is free to retain the 500kg yet the operator returning to Lakes Entrance
is only permitted to retain 50kg and forced to discard perfectly good Octopus
for no reason other the OCS rules. These crazy arrangements differ from specie
to specie & state to state.
rules do is force perfectly good seafood to be dumped dead which could be
feeding our nation. ...Given that ideal worlds are unlikely a priority must be
for OCS’s to be renegotiated with all states and a system developed whereby all
catch is managed in a sustainable manner, all jurisdictions who take the catch
contribute to the management costs of the relevant fishery and forced dumping
of seafood is eliminated.
government, in its evidence to the committee, acknowledged the problem of
cross-jurisdictional regulations and explained the steps it was taking to
improve consistency and cooperation in this area:
initiative under the Economic Development Plan the Tasmanian Government will
undertake a systematic sector-by-sector review of the administrative burden of
applying and complying with business regulations. Where appropriate, the
government will engage with other jurisdictions in addressing areas of concern.
health and safety
concerning occupational health and safety (OH&S) differ throughout
Australia. As a result, some participants in the food processing sector have to
manage different legislative provisions depending on the location of their
similar challenges dealing with eight different Occupational Health and Safety
jurisdictions across Australia...and eight Health and Safety (H&S) Acts and
we are impacted in the area of Workers' Compensation. This creates an impost on
the business in having to ensure we are meeting our responsibilities under
these varying regulations.
OH&S requirements as another significant impost on business:
in this country—and rightly we should be doing the best we possibly can for our
staff and our workers—is becoming increasingly difficult, to comply with and
meet all of the requirements. It is becoming extremely costly. Most of the
companies I know now have one, two or three people dedicated entirely to
OH&S. That is a good thing, but perhaps the government could consider
giving us a tax break on it, say 120 per cent instead of 100 per cent. That
would help to alleviate some of the pain of that. It is difficult to compete in
countries and also compete within Australia with countries and companies that
do not comply with the occupational health and safety regulations that we do as
a reasonable player.
government is taking steps to address these inconsistencies, concerns remain
that the legislation introduced (the Model Work Health and Safety Act) does not
extend to workers' compensation.
Further, the committee heard that at least one state is reluctant to comply
with its provisions.
acknowledges that regulation associated not only with occupational health and
safety but also workplace relations and employment impose significant costs on
business. The committee takes the view that these are important matters that
should be regulated by government, but would be concerned if the requirements
result in a burden that impacts the viability of employers. In recognition of
the importance of these matters, the committee considered issues related to
employment in depth in Chapter 2.
heard that differences in transportation infrastructure and fees and charges
throughout the different jurisdictions in Australia were potential impediments to
competitiveness. The potential for inconsistent transport regulation to hamper
business was most clearly identified by Webster Ltd, a Tasmanian based
exporter, in its submission to the committee. Although Webster Ltd identified
that there are many advantages to producing agricultural products in Tasmania (Bass
Strait provides a natural barrier for many pests and diseases), the 'isolation'
that Bass Strait provides puts:
at a commercial disadvantage when it comes to shipping produce to domestic and
recognition of the significant costs involved in shipping produce from Tasmania
to the mainland, the government introduced the Tasmanian Freight Equalisation
Scheme (TFES) in 1976 with the objective of providing Tasmanian industries with
'equal opportunities to compete in mainland markets'.
The TFES, however, does not extend to shipping costs for export bound goods.
Although previously Tasmanian producers could access export markets directly,
that service is no longer available and goods bound for export must first be
shipped to the mainland.
informed the committee that the Bass Strait portion of the entire cost of
shipping a container from Melbourne to Antwerp is 32 per cent.
went on to explain to the committee that in addition to the high costs of
freight between Bass Strait and the mainland that are not covered by the TFES,
the reforms proposed by the Coastal Trading Bill 2012,
as well as the introduction of a Port Licence Fee by the Port of Melbourne to
enable it to pay an annual port licence fee to the Victorian Parliament, are
placing further pressure on their ability to compete.
Cator, Chief Executive Officer of Greater Shepparton City Council, also
expressed concerns that the current transport situation is affecting the
competitiveness of the food processing sector. Mr Cator explained his concern
with road transport and the adequacy of infrastructure to support increasing
road transport movements as well as regulations to enable heavier loads:
our industries more competitive we need to move to larger transports. From a
previous life in the City of Wodonga and dealing in that area with the
transport industry—and I am sure it is the same here in the city of Greater
Shepparton—I think that to go from B-doubles to super B-doubles or some
combination of those could provide up to a 30 per cent efficiency for those
industries. Again, that is a huge benefit to the industries. Currently we are
dealing with issues on freeways, but in the Wodonga instance a $40 million fix
to the Hume Freeway would allow super B-doubles from Melbourne into the Wodonga
area. So, again, not for a great expenditure, we could have significant
improvements to the efficiencies of our trucking industry.
The AFGC commented
on the regulatory inconsistencies affecting transport of food and grocery items
and how the national seamless economy was yet to deliver reform in the
50 per cent of truck movements in Australia carry food and grocery items as
their load, yet we have different regulatory arrangements for truckloads in
different states and territories, meaning that there is a fundamental
inefficiency in the supply chain for the movement of trucks around the states
cited the constraints of Australia's transport and infrastructure systems as
impacting on the competitiveness of the meat export business:
example is the maximum road weight limits in New South Wales. These limits
significantly impact on high mass density products like red meat. Forty-foot
refrigerated containers now make up the bulk of international container
transport systems. Loading a 40-foot container with frozen meat cartons in New
South Wales exceeds the road weight limit. This results in inefficient trucks
and container utilisations, adding costs and significantly impacting on competitiveness.
We are global suppliers and we should have a uniform, globally competitive
national transport system.
explained that the problems are not limited to road transport but that there
are also problems with rail which are costing business, which if not addressed
will threaten the ongoing viability of some communities:
trains to the port and we cannot go into deep ports at present because they are
fixing the train line. But to take a container 1 kilometre costs us $300. I saw
a bill yesterday for one container with waiting time of $360 on top. That is
not good enough. They can heap the costs back onto us. I know this is a New
South Wales situation and I have a problem with the states. There are six
departments running trains—too difficult. That could be streamlined. It is not
a matter of spending a lot of money; it could be organised with better
has received evidence that the current regulatory regimes that apply to the
food processing sector are damaging the industry. Submitters consistently
identified growth in environmental regulation in the areas of water usage and
energy and waste usage as areas of concern, particularly as they have seen
instances where unnecessary duplication is occurring across the different
levels of government.
Lion Pty Ltd
provided an example of where such duplication has arisen:
example, currently in Victoria all large businesses or businesses that reach a
certain energy and water usage threshold are required to submit Environment and
Resource Efficiency Plans to the Victorian EPA. This is in addition to the
Federal Government's Energy Efficiency Opportunities program and National
Greenhouse and Energy Reporting System. These programs then overlap with the
National Pollutant Inventory requirements at both a state and federal level.
that the continued development of duplicate regulation, which is occurring at a
time when many businesses are 'firmly focussed on delivering environmentally
sustainable solutions'; will hamper the ability of businesses to create efficiencies
in the supply chain. They suggest that a 'review and rationalisation' of the
many pieces of environmental legislation 'would allow the business to firmly
focus attention on delivering supply for the long-term'.
notes that increased environmental regulation is occurring at the same time as
many industry participants, who by nature are energy intensive, are
experiencing rising input costs. The committee, like industry, is concerned by
these developments, particularly as food processors are likely to suffer
further imposts, either directly or indirectly, from 1 July 2012 when the carbon
tax takes effect.
notes that the issue of cross-jurisdictional regulation is on the COAG agenda.
However, given that in practice little seems to have changed, the committee
takes the view that all state and territory governments need to take action and
make all efforts to ensure momentum is maintained to bring the COAG agreements
to fruition in a timely manner. The committee highlights the importance of
providing the most cost efficient and seamless operating environment for
businesses, particularly in relation to transport.
is aware of the work undertaken by Infrastructure Australia in response to the
withdrawal of direct export services out of Tasmania, the Deegan Report, and
notes that the government has committed to the continuation of the TFES. The
committee urges the government to give the highest priority to the remaining
recommendations of the report, ensuring that Tasmania has access to the most
cost competitive freight system, which is a vital component of a healthy economy.
is concerned at the cost of transporting goods from Tasmania to the mainland,
particularly those bound for export where there is no local export service
recommends that all state and territory governments develop a definitive
timeframe for the Council of Australian Governments reform agenda for a
National Seamless Economy and actively engage to ensure that momentum for
implementation of the reforms is maintained. In particular, the committee urges
participants to ensure movement on the integrated transport reforms, including
reforms to the heavy vehicle registration process.
recommends that the government expedite those recommendations of the Deegan
Report which have not been rejected to position Tasmania to have access to a
globally competitive freight system.
Taxes—state and federal
taxation is imposed by the federal government; however, businesses incur 'taxes'
from state and local government through levies and charges such as stamp duty
and payroll taxes. The committee heard that the cost of administering these
regimes to business in the food processing industry is 'enormous' given that
these businesses are relatively labour intensive.
In fact, it was put to the committee that:
businesses would have at least one dedicated member/employee to deal
exclusively with the paper work associated with taxation and employment.
the inquiry, the committee heard time and again that state payroll tax is a
'significant cost...and a significant barrier to maintaining a competitive and
viable local food and beverage manufacturing industry' and that more needs to
be done to 'reduce the burden on local manufacturers'.
Industry Advisory Group (FIAG) is of the view that:
taxes like payroll and stamp duty act as a deterrent for business investment,
particularly when it is a disincentive for employment or business acquisition –
both are counter intuitive to the competiveness and future viability of the
the view of the FIAG that the burden of 'inefficient taxes' acts as a 'disincentive
for employment' and as it is not incurred in offshore facilities places foreign
competitors at an advantage:
taxes like payroll tax act as a detriment for business involvement,
particularly when it acts as a disincentive for employment. Payroll tax is just
another burdensome tax on business. It increases the cost of labour units in
the business. That business is a labour-intensive business. It is a cost that
is not borne by our competitors overseas. Australian live animal exports to
markets like Indonesia and the Middle East are processed in facilities that do
not incur such taxes, further destabilising the level playing field for our
submission, Coca-Cola Amatil called on the government to abolish state payroll
tax for the manufacturing sector.
to the inquiry suggested that the cost of complying with tax obligations at a
federal and state/territory level increases prices and reduces competitiveness.
In light of this, concerns were raised with the committee about the impact of
the carbon price:
introduction of a carbon tax, dependent on how it is applied could see a loss
of many food processing businesses unable to absorb additional cost while
remaining competitive with imported produce from countries not applying a similar
Greenham, Executive Chairman, HW Greenham and Sons Pty Ltd spoke about the
effect of the carbon price and the implications for his business. He advised
that although the emissions of his business will be below the limit where the pricing
regime applies, increased costs will arise from increases in inputs such as power.
Mr Greenham has been informed by the power companies that the cost increase and
their energy bill will go up by around 18 per cent or around $160,000 per year
on a current bill of around $950,000.
found that although industry participants generally understand the rationale
behind the introduction of the carbon price, they would like to see some form
of government assistance in recognition that local products will be less
competitive against imports from countries that do not impose the same level of
tax or regulation on their food industries.
participant submitted that it would like to see government support targeted 'so
that the competitive balance is not tilted in favour of products with a larger
from the carbon tax, or free permits, or compensation for the additional cost
caused by the tax (not just directly, but including the increased energy costs),
should be provided to industries or individual businesses that can demonstrate
that the increased cost will make them less competitive against substitutes
that produce substantially higher carbon emissions. The food processing
industry should receive targeted relief on that basis.
of smaller processors were shared by larger companies such as Campbell
Arnott's, Lion Pty Ltd and Coca-Cola Amatil Ltd.
Arnott's identified that the impost of the carbon price will affect its ability
to compete with overseas manufacturers:
seeing the carbon tax starting to have an impact on our forward fiscal
projections from the next fiscal year. I think it has been modelled by the AFGC
that it will have about a 4½ per cent impact on operating profits across the
industry. As a manufacturer we believe that, with the work we have done on
sustainability and conservation, we will fall below those thresholds. But [in
respect to] our utility suppliers it is something to keep an eye on. It when
you add those taxes up you are not having a level playing field against some of
the offshore manufacturers you have to compete with...
Lion Pty Ltd
considers that the introduction of the carbon price will result in
administrative costs for the business as it seeks to comply with the its
proposed carbon price mechanism and its complexities alone will impose a heavy
regulatory burden on the food industry. This burden will be apparent to the
food industry in the form of increased requirements around data gathering
processes, quantification of cost impacts and quantification of supply chain
impacts which will likely require detailed review of all relevant procurement
contracts involved in the production of food.
Government should be wary of amplifying this impending burden with additional
regulation where there are already feasible self-regulatory options.
Amatil, like Campbell Arnott's, Lion Pty Ltd and other processors who gave
evidence to the committee, is also concerned that the carbon price will drive
up costs and thus impact its competitiveness:
remains concerned that the Government’s Clean Energy legislative package
(carbon pricing) creates an additional burden on local manufacturing, driving
up costs relative to our international competitors where such burdens do not
exist or are subsidised.
Department of the Treasury, however, did not share these views and explained
that their modelling has shown the impact of the carbon price will be smaller
conclusion of the Treasury modelling is that, at a broad sectoral level,
structural changes due to carbon pricing will be much smaller than other
impacts, such as ongoing changes in the terms of trade or consumer tastes.
While some emission intensive parts of the economy will undergo structural
change, the modelling finds that the bulk of the economy will be largely
unaffected... Overall, the modelling finds that less emission-intensive
industries, such as food manufacturing, are more competitive and grow faster
with domestic carbon pricing than in the global action scenarios.
Department of the Treasury also suggested that pricing emissions will slow
growth in coal and gas production which in turn will have benefits for the food
processing sector by lowering the exchange rate and:
other trade-exposed industries, such as food processing, more competitive.
Slower productivity growth in carbon-intensive sectors will also slow wages
growth and costs of production in other parts of the economy.
challenging environment currently facing the food processing industry, the
committee considers that wherever possible government should seek to remove
additional or duplicated regulatory imposts and ensure that despite the challenges,
all participants are competing on a level playing field.
notes that some of the revenue from carbon pricing is spent on industry
assistance. Of particular relevant to the food processing sector is the Clean
Technology Investment Program for manufacturing businesses, which provides
government co-investment into new capital which lowers energy costs and
is heartened by the commitment that has been made through COAG by the state,
territory and commonwealth governments to implement reforms that will lead to a
national seamless economy. However, the committee takes the view that progress
of these forms is taking too long and further delay may cause further
participants in the food processing sector to exit the industry.
is particularly concerned by the imposts of transportation regulation, state
and territory payroll taxes and the carbon price.
recommends that following the introduction of the carbon price on 1 July 2012,
the government monitor:
- how the big emitters pass on the costs into the food supply chain;
- the profitability of businesses in that supply chain, including
to farm gate.
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