The Rural and Regional Affairs and Transport References Committee's (RRAT
Reference Committee) 2009 report – Management of the removal of the rebate
for AQIS certification functions –noted that, overwhelmingly, the
submissions to the inquiry and evidence provided by industry representatives
indicated that there were significant concerns about the Government's cost
recovery reform process.
The committee acknowledges that some of the concerns raised by sectors of
the commodity export industry during the 2009 inquiry have been addressed over
recent months, as the six joint industry/AQIS Ministerial Task Forces (MTF's) (meat,
horticulture, grains, dairy, seafood and live animals) work toward agreement on
industry-specific work plans.
The committee also notes, however, that some sectors of the commodity
export industry still have significant concerns about the increased fees and
charges that have come about as a consequence of the removal of the 40 per cent
rebate for AQIS certification functions.
In particular, AQIS' negotiations with the horticulture industry –
through the Horticulture MTF – have failed to reach an agreement. There are also
concerns about the significant impacts the reform process is having on small
manufacturing companies and family-run businesses – a number of which have not
been represented by peak bodies or involved in the MTF consultation process.
Submissions from various sectors of the commodity export industry also expressed
concerns about the impact increased costs will have on the Australian export
industry, including: exporters' ability to remain competitive, the effect on
trade growth in existing markets, and the impact on new businesses looking to enter
Current economic climate
Evidence to the inquiry stressed that the removal of the export
certification rebate was being undertaken during a period of challenging
economic circumstances for many Australian primary export industries. These
- the effect of the global financial crisis on export markets;
- the effect of weather conditions and natural disasters
domestically and overseas;
- the high cost of Australian labour;
- the historically high Australian dollar; and
- the difficulties in accessing certain export markets.
Some suggested their industries were at a 'crisis point' or 'tipping
point' where the removal of the rebate could result in significant negative
For example, the Australian Meat Industry Council (AMIC) characterised the
removal of the rebate as a 'new tax' and suggested that without any offsets to
that cost increase, regional businesses and 'the viability of meat processors
and producers' will be endangered.
Mr John Kelly, Executive Officer, Kangaroo Industries Association of
Australia (KIAA), told the committee that if the reforms proceed as currently
proposed (and the industry did not gain access to the Russian and Chinese
markets) at least 30 per cent of the remaining processing premises would be
forced to close.
The importance of keeping export certification fees and charges to a
minimum was emphasised in a number of submissions. For example, the Department
of Resources, Energy and Tourism's (RET) submission to the inquiry stated that:
Given the strong export focus of the portfolio, RET notes the
importance of keeping fees and charges to a minimum, with rigorous application
of risk management principles required to keep prices down to aid
DAFF told the committee that it was estimated that the reforms to export
certification would result in a total reduction in regulatory costs of around
$30 million across export sectors. However, DAFF conceded that some of these
reduced costs would be picked up by industry as they take up some of the
inspection and auditing functions currently performed by the Department.
Nonetheless, it stated:
Ernst & Young, an accounting firm who undertook an
independent analysis of the potential reform benefits, have indicated immediate
net financial benefits to industry of between $15 and $17 million per annum.
Ernst & Young also identified non-financial benefits including from
increased industry self-management and inspection/audit delivery flexibility,
improved market access arrangements through more effective performance
reporting and data management, and more streamlined IT systems enabling better
practice and improved certification outcomes.
DAFF noted that while several industries 'are not happy with the removal
of the 40 per cent rebate, efficiencies are already flowing from the reforms
(e.g. the $10 million for the meat industry) and will continue to flow as new
service delivery models and accompanying fees and charges are rolled out and
other projects begin to pay dividends'.
Impacts on regional, seasonal and smaller industry participants
The potential impacts of the export certification reforms on regional
companies, smaller companies, and industry participants who operate on a
seasonal basis, was frequently highlighted during the inquiry.
The Australian Horticultural Exporters Association (AHEA), for example,
indicated that remote, small and seasonal producers would effectively be disadvantaged
and noted the vulnerable position of horticultural exports in Australia:
Horticulture is spread around Australia at many out of the
way locations. The product is often highly perishable and doesn't lend itself
to assemblage at centralised facilities as we have in the grain or dairy
industries or the meat industry at meat processors prior to export. Horticulture
likewise doesn`t have the huge volumes to export like some other agricultural
industries and so is unable to amortise the excessive AQIS inspection/
clearance costs against such volume.
Mr Gary Burridge, Chairman of AMIC, told the committee that the
Government's decision to return to 100 per cent cost recovery had been taken
without understanding the implications for jobs, especially in regional
Australia. Mr Burridge told the committee that:
Almost 50 per cent of the red-meat-processing facilities are
located in local government areas with a population of less than 20,000 people.
We are a major regional employer, generating close to 50,000 jobs. The cost
increases as proposed will threaten the viability of a number of regional meat
processors already under pressure from soaring power bills and livestock and
labour shortages, with a carbon tax on the way.
The Community and Public Sector Union (CPSU) argued that further
analysis and modelling was required by DAFF to ensure that the new AMEIS system
and fees and charges regime does not disadvantage sections of the export meat
industry. It noted that the implementation of the new system would require some
flexibility and tailoring to the particular circumstances of establishments.
The CPSU was particularly mindful of the implications for regional communities:
CPSU members employed at those establishments are concerned
that the practical effect of the new Australian Meat Export Inspection System
may be to place smaller plants at a competitive disadvantage to the larger establishments – ultimately leading to the consolidation of export meat processing to large
scale plants, the closure of smaller plants and the loss of valuable and
important jobs from some regional communities.
The Commonwealth Fisheries Association (CFA) noted that premises in
remote locations have been 'paying the same, due to cost equalisation and
despite the travel time, as everybody else in the city or wherever the AQIS
office is'. The CFA suggested that costs for premises in remote locations are 'going
to perhaps triple or quadruple the cost of both registration and inspection'.
The closure of some regionally based and remote processing centres was
characterised as 'inevitable'. 
The CFA told the committee:
There is a real risk that the third-party auditors, which is
the system that AQIS and we are keen to introduce, will focus on the
low-hanging fruit—that is, the metropolitan areas—and therefore the AQIS
inspector will be the one left with the remote areas. The cost will be even
greater, because that will be, in effect, an AQIS inspection.
A whole range of people—30 per cent to 40 per cent—in this
program who are registered do fewer than 10 shipments per year. It is very
difficult to see with the increase in cost, particularly in remote locations,
how they will continue to export. That has an effect to the extent that the
boats who service those particularly processors will now have to go to a bigger
port or wherever.
The CFA highlighted the impact on smaller regional processors, noting
that 'fishermen will still fish their quota [but] they will take the product to
a bigger processing plant'.
The CFA went on to argue that:
This is the issue the government has to confront. When
someone comes along in six months time and says, 'The costs are now too high; I
have to exit from Ceduna or Margate', or wherever it may be, that is the
reality of what is going to happen. That is a commercial reality.
The committee received evidence regarding the detrimental effect the
additional costs are having on a number of export businesses – particularly
smaller businesses and those servicing niche export markets.
For example, Mr John Kelly from the KIAA indicated that the additional
costs of the 40 per cent – which he argued actually adds about 60 per cent to
the company's AQIS bill – have become crippling for the kangaroo industry,
particularly since the loss of the Russian market two years ago.
Mr Kelly told the committee that:
It comes on top of all of these other compliance measures,
which have added about 15 to 20 per cent to overall operating costs – not just
the AQIS bill; the overall operating costs. Industry wore that, in the hope of
getting that market, and we are now asked to take on all these additional AQIS
bills. It is crippling. At the moment some 75 per cent of industry processing
capacity is moth-balled. There are only a few export processing premises left
open. One of those is saying they cannot go on any longer.
Mr Tony Klausner, Managing Director of small manufacturer Spiess
Australia Smallgoods also described to the committee how his business has been
impacted by what is effectively a 1, 297 per cent increase in fees and charges.
When asked about the impact of this increase on the viability of his small
export business, Mr Klausner indicated that:
If we would have known three years ago that this was going to
happen we would not have invested $7 million in building a new export approved
plant. It is literally crippling. It is basically killing our industry. It is
killing all the smaller operators out there that do not export 40-foot
containers on a daily basis.
Similarly, Mr Greg Darwell, Managing Director of Mulwarra Export,
indicated that his business is currently required to pay up to 400 per cent
more in fees and charges than it did for the same level of service two years
Mr Darwell told the committee that his small business is operating in an
incredibly competitive international market:
We have increased raw material costs, freight costs and
insurance costs and now we have unnecessary increases in documentary costs, all
of which we simply cannot pass on to customers if we wish to remain competitive
in the international marketplace. This move by the government to increase costs
will do nothing but reduce the number of exporters, in particular small
Ms Helen Dormon from Dairy Australia told the committee that the dairy
industry had used a two-tiered registration fee structure 'because we wanted to
have user pays so that people who used more certificates et cetera did pay
We have had the discussion with AQIS and others at times
because the concern was that the smaller players, if they were having to pay
more, would be concerned and would mount a display against that. But we have
had no backlash from those smaller players against the increase in fees they have
had to pay with those registrations, because they believe that the service they
are getting in paying those fees warrants it. So the smaller and bigger ends of
town are actually catered for, because as a dairy industry we have recognised
very clearly that we are all vulnerable to the weakest link in the chain...
The committee also received evidence that the removal of the export
certification rebate could discourage smaller producers from registering for
export. It was further argued that a reduction in the number of exporters would
subsequently lead to an even higher level of costs charged to the remaining
For example, the CFA noted that the 'inevitable increase in the annual
registration fee with the end of the government 40% co-contribution and lower
number of registrations to spread it over, will result in continued declines in
registrations'. The CFA also suggested that this could mean '[a] much lower
export volume and less export plants across which to spread costs'.
Mr Brian Jeffriess described this as a 'ratcheting effect' and argued that
it will 'drive up the program cost for each individual who remains in the
Similarly, Mr Alastair Scott from the AHEA questioned the AQIS budget
forecasting where large fee increases were proposed for registered packing
establishments. He noted 'it is not reasonable to expect that the same number
of registered establishments will be registered next year with that sort of fee
Mr Greg Darwell, Managing Director of Mulwarra Export, also argued that
increased costs would stifle new entrants. Mr Darwell told the committee:
I visited a small, 12-month old, boutique smallgoods
processor in the Northern Rivers three weeks ago. Their product is brilliant.
It will work in export markets. But they are 12 months old. They look at the
costs associated with going into the export market and they ask me, 'Can your
business guarantee the volume to be able to recoup these costs?' At the moment
I have to say no. It stops them taking that first step. That is [a] place in a
regional community, with high unemployment, and it has Italian guys in there
now who are producing world-class smallgoods.
AQIS Authorised Officers (AAOs)
A key reform from the Export Certification Reform Package (ECRP) is the
introduction of the AQIS Authorised Officers (AAOs) model for some export
industries. Under the ECRP, AAO's are described as:
... specially trained individuals who are authorised to
perform specific export inspection functions in accordance with Australian
export legislation. When undertaking these duties, AAOs are regarded as
Australian Government officials. They may conduct a range of duties depending
on the commodity and their training qualification.
DAFF noted that the 'AAO concept includes increased training and
assessment standards, police checks, strong management of conflicts of
interest, a code of conduct and values for all AAOs, real time data on
inspection results, and performance and audit history'.
The CPSU raised a number of concerns regarding the role of AAOs. It was argued
that it was a 'major departure from the current tried and tested arrangements where
inspection duties are performed by properly qualified inspectors employed by
government – whose role is to apply the inspection standards set by government'.
In particular, the CPSU noted that the new AAOs would not be independent of
AQIS proposes to address the obvious conflict of interest and
independence issues through seeking to apply the protections and standards of APS
employees to those AAO's as if they were APS employees.
CPSU doubts the effectiveness of that proposal and believes
that consideration should be given to whether legislative or regulatory change
would be required to provide AAO's with adequate protections
The CPSU also argued that:
- unless their concerns were addressed, the introduction of the AAO
role would increase the risk of compromising the inspection standards required
by Australia's trading partners; 
- the introduction of the AAO role would place a practical burden
(recruiting, training and retaining sufficient numbers of skilled staff) and
thereby increase costs for the smaller plants; and
- the proposed model would only deliver savings to the largest of
plants and would actually increase costs on the smaller plants.
The AHEA also highlighted the costs of training, accrediting and
auditing AAOs and suggested that there is a level of uncertainty regarding the
personal liability of AAOs for compliance breaches. Despite being aimed at
transferring costs to private industry, AHEA pointed to the fact that 'AQIS
will still need to sign off on any documentation electronically generated, and
will regularly audit the AAO's'.
Further, Mr David Minnis, AHEA, noted that AAOs must show they do not
have a conflict of interest, limiting the number of persons who can act as an AAO
and indicated that, in the case of the horticultural industry, 'we do not have
people out there ready to be trained'.
The AHEA also raised concerns about the cost of the AAO proposal, and argued
that it 'remains lacking in even basic details and is uncosted and with no
cost/benefit analysis proposed by AQIS'.
The AHEA suggested that the Ernst & Young benefits report on AAOs should 'be
set aside as lacking substantial detail and foundation to be credible'. In particular,
it suggested that this report was based on the 'misleading' assumption that AAOs
would be taken up by at least 80 per cent of the horticultural industry (in
terms of phytosanitary certification) when major markets will not accept
The AHEA also argued that, in comparison to the previous model of
the AAO model of export certification would increase regulation and compliance
costs for industry:
This is because the AAOs are individual agreements for
individuals, whereas AAs are company based arrangements. If an AAO leaves a
company, the company is left with nothing, whereas with an AA—an approved
arrangement—the structure of the phytosanitary certification remains with the
company and thus lessens the rebuilding costs when staff leave. Accordingly,
AAs offer a more straightforward process of bringing in new staff and having
them trained and audited. AQIS have advised industry that no more AAs will be
issued and that they will be phased out if they are not strongly supported.
AAO's and market access
The committee received conflicting evidence regarding whether the
introduction of the AAO model would create efficiencies. Opinions also varied across
the various industry sectors regarding whether the model would be accepted by
Australia's trading partners.
In providing GrainCorp's views on the introduction of AAO's, Mr Phillip
Clamp observed that the AAO model was 'a variation of the approved arrangements
which have been used for 'the best part of 20 years [with] no adverse market
A number of submitters and witnesses, however, expressed the view that the
implementation of the AAO model could prove problematic. It was argued that
there is a risk the model would not be accepted, or could jeopardise exporters'
access to overseas markets.
The AHEA argued that:
This move across to AAO's is being done without knowing which
export markets they can clear produce for. AQIS maintains that once the model
is up and running, they will approach the markets to seek approval. This is a
bit like putting the cart before horse, and Industry has advised AQIS that they
believe the uptake will be quite modest as it has been for Approved
The AHEA also expressed concerns regarding the lack of clarity in
relation to the acceptance of AAOs:
Whether fruit fly free sensitive markets such as those of
North Asia and North America will accept AAO's inspecting produce has not been
clarified by AQIS. There is no country in Asia to our knowledge which employs non
government inspectorial services to clear imports or exports. If they don't
accept this industry self inspection, then the possible savings due to the use
of AAO`s rather than AQIS inspectors is removed.
When asked about the consequences should trading partners decline to
accept AAOs, AHEA's David Minnis agreed that there is likely to be duplication
(in having to have both a government certification and an AAO). Mr Minnis
suggested that this was likely to be the case until trading partners agreed to
the new arrangements AQIS is currently negotiating.
Mr Minnis used the following example to suggest that a resolution to this issue
may take some time:
In the case of Japan, they took 24 years to stop sending
their inspectors to Australia to check AQIS's inspection of our citrus going to
Japan. Now we can have that fruit inspected just by AQIS. That is the sort of
intransigence that we are dealing with in some of these overseas countries.
CGA also expressed concerns about trading partners' acceptance of AAOs,
and estimated it would 'take 3 to 5 years of tough inter-government negotiation
to gain acceptance of AAOs [in some export markets] with the possibility that
they will not be accepted at all'.
In the meat sector, AMIC indicated that the AAO system had resulted in
new requirements being introduced to allow access to some markets. In particular,
the United States requires an 'end-of-chain inspector who was a government
AMIC Chairman Mr Gary Burridge, noted that:
In negotiating market access for the new model with importing
countries, AQIS has had to add a new layer into what is the Australian
inspection system. These people are called 'food safety meat assessors' and
these individuals include increased verification testing. These additions were
not part of the original agreement on the reform and add nothing to the product
outcomes. Industry has been assured that these layers of verification and total
cost can be negotiated away, but industry is concerned there is not a committed
change agent in the department to make this happen.
Mr Burridge also noted that the engagement of food safety meat assessors
'added an additional $22.9 million' and that AMIC had received differing advice
from government regarding the period food safety meat assessors may be
Periods ranged from 12 months to 5 years, however he suggested 'it could be
The committee notes that DAFF has indicated it is committed to the
'successful negotiation, as soon as possible, of removal of the US requirement
for an AQIS meat inspector, a Food Safety Meat Assessor under AEMIS, at the end
of slaughter chain'. However, the committee also notes that DAFF has so far
been unable 'to commit to a timeframe for the successful negotiation'.
The committee also notes that some industry sectors are not confident of
AQIS' ability to complete successful negotiations with overseas markets and
gain acceptance for the new AAO model – at least in the short term.
For example, Mr Greg Darwell from Mulwarra Export, told the committee
that he understands that Electronic Health Certificates are now accepted in
Japan, China and Canada, and that they are close to being accepted in the
United States. Mr Darwell notes however, that exports to Japan, China and
Canada are dominated by the large processor exporters and, as a small business,
China is only one of the 30 plus countries his company exports product to.
Mr Darwell also told the committee that Mulwarra's Chinese importers
still request that a hard copy of Health Certificates are faxed prior to
shipment and that currently there is no electronic Halal Certificate. Mr
Darwell therefore remains unconvinced that a move to electronic certificates
will result in a decrease in costs to exporters. He is also concerned that as
domestic competitors in export markers do not face 100 per cent cost recovery
for similar processes, Australian exporters are placed at a disadvantage.
Mr Darwell also remains concerned that the cumulative costs of Health
and Halal Certificates for each air freight shipment will be significant,
particularly as four or more Health and Halal Certificates may be necessary for
each shipment, at a cost of $49 and $100 respectively.
Implementation of new fees and
DAFF noted that '[n]ew industry fees and charges would be implemented
throughout the course of 2011-12 to underpin revised service delivery
However, some submitters were concerned the export certification rebate was
being removed before the AQIS fees and charges model was finalised.
The WA Farmers Federation (WAFF) noted the Beale report's finding that
'Australia's biosecurity agencies are significantly under-resourced' and that
these agencies require a funding increase 'in the order of $260 million per
annum – shared between business and taxpayers'.
WAFF argued that one effect of this situation was 'a constant expectation that "industry"
will be required to meet the difference of this underinvestment'.
The issue of air freight costs was of particular concern to some
businesses. The Australian Table Grape Association's submission argued that:
The full impact of full cost recovery of AQIS, including Head
Office costs will place in jeopardy grower's willingness to export, particularly
in the air freight trade of grapes. Particular export markets are only suited
to airfreight, for others it is a way of presenting fruit to the buyers before
they order by sea. AQIS costs for small air freight shipments will prohibit
trade at the current inspection rate of $272 per hour plus tonnage charge plus
document fees plus travel costs.
Mr David Minnis, AHEA, highlighted that volumes for horticultural export
are often small and niche. He also noted that the inflexibility of the new fee
structure may negatively impact air freight:
When you look at the fee structure and you start putting fees
on documents and inspection time, you find that you might sea-freight 10
containers using one phyto, one export permit and two-hour inspections, while
for 800 cartons of grapes to Thailand for a phyto market the costs are exactly
the same...[I]f the fee structure does not allow us to almost cross-subsidise
but to have sympathy for air freight, we will lose it.
Mr Greg Darwell from Mulwarra Export told the committee that his company
predominantly uses air freight to supply products to overseas customers:
Last year we exported in excess of 850 tonnes of chilled
Tasmanian salmon and ocean trout, all by air freight. As such the only AQIS
costs that apply to us are the documentation costs associated with the issuing
of health certificates for meat and seafood primarily, as well as dairy and
horticulture, and halal certificates for meat.
Mr Darwell argued that AQIS should re-examine its charges in relation to
small shipments of air freight and suggested that the Government, through AQIS,
could give consideration to reducing the costs of Health Certificates and Halal
Certificates for shipments that weigh less than 1,400 kilos. Mr Darwell also
suggested that, for these types of small shipments, the fees should be charged
at the old levels.
Mr Brett McDonald, General Manager of Bankstown Cold Store and Homebush
Export Meat Co. Pty Ltd, told the committee that he was in agreement with Mr
Yes, I think that would be a good idea. The standard shipment
I would do for air would be 1,200 kilos. It is what they call a standard AV. It
is one of those airline containers you see as you go past. That is generally
1,200 kilos. As an exporter you try to fill it because the airlines charge you,
say, $3,000 for an AVE. The more meat you put in it, the better the freight
costs come. Sometimes, though, I might only have 200 kilos that has been
requested, and that is when it really hurts.
The apparent lack of transparency in relation to AQIS fees and charges
was another area of concern raised by submitters.
The CFA, for example expressed the concern that DAFF, through setting
cost-recovery fees and charges, was attempting to burden industry participants
with AQIS 'back-office' and overhead costs.
The CFA argued that:
The government process needs to be very aware that full cost
recovery means full accountability and transparency from government. We believe
that this means accepting extra costs where they are attributable to
administrative errors in government. It also means full cost exposure.
The Victorian Farmers Federation's (VFF) submission also questioned the
nature of the costs that were being recovered by AQIS:
The VFF is concerned that the aims of the Beale Review
recommendation for AQIS to move to full cost recovery has not been well managed
by DAFF but rather has looked for an easy way for example by AQIS proposing to
increase Packing shed registration from $330 to $12,300 in a move that is seen
as an attempt by AQIS to recover overhead costs rather than recover the cost of
Mr Brett McDonald, Bankstown Cold Store and Homebush Export Meat Co. Pty
Ltd, argued that:
If the government is convinced that a 100 per cent cost
recovery on my business is the way to go, AQIS need to justify my additional
costs. From my perspective, the new charge is extortionate. The registration
charges in the cold store sector do not even make sense. Why does a large
100,000-pallet cold store owned by an abattoir now pay $10,080 per year, the
same as my 20-pallet cool room with one pallet of export meat in it?
Mr McDonald also pointed to what he sees as an inequity in the new
I read a speech in Hansard where the government's
Shayne Neumann stated that the largest abattoir in Australia will save $6
million over the next three years in AQIS fees due to AEMIS and the $25.8
million assistance package they negotiated. If one big business in the meat
industry can save $6 million then it is not fair dinkum for the same system to
cost my cold storage and meat export business an additional $40,000 in AQIS
The committee acknowledges the comments made by these organisations and
understands their concerns regarding the scaling of fees and charges. The
committee believes that business owners could legitimately have expected that
the removal of the 40 per cent rebate would result in a commensurate increase
in fees and charges. The committee was concerned to hear however, that the AQIS
reforms would result in an increase of over 1,400 per cent for some businesses.
The Customs Brokers and Forwarders Council of Australia (CBFCA) noted
that a lack of key performance indicators did not allow for AQIS (or industry)
to determine whether existing programs are effective. The CBFCA argued that:
These aspects are of particular interest to industry on the
basis of the AQIS fee-for-service which is levied by AQIS in relation to
services that it delivers. In essence those who pay for the service should have
the right to have justified the cost and efficiency to effectiveness of that
service delivery. Industry has no option in relation to AQIS monopoly service
delivery. Such transparency needs to be reinvigorated.
The CBFCA also noted the industry had raised concerns about the
imposition of cost burdens which, they argued, do not meet Productivity
Commission or Department of Finance cost recovery guidelines:
Industry in general and the CBFCA, in particular, have raised
specific concerns on the imposition on industry of cost burdens which, in its
opinion, do not meet the Productivity Commission's report as to appropriate
cost recovery mechanisms nor, in its opinion the Department of Finance's cost
recovery arrangements. These aspects have been referenced in collective
industry consultation with AQIS however issues remain to be resolved. 
Riverina Citrus noted that although much of the work undertaken by AQIS
is administrative in nature and does not require specialist skills, citrus
growers pay commercial hourly rates for these services. Riverina Citrus also
argued that often the work done does not justify the significant expense and
the group recommended:
... that the fees and charges currently levied by AQIS must
be urgently reviewed and a more modern, competitive and justified pricing
arrangement put into place
Several witnesses commented on the link between the export certification
processes and the domestic market for produce, with many commodities industries
highlighting their reliance on exports in order to be viable. It was also highlighted
that changes to export regimes could also have implications for the domestic
marketplace. For example, Australian Pork indicated that they are dependent on
export facilities to remain viable and under current policy these facilities
are required to pass on an additional layer of costs for domestic product.
Around 85 per cent of all pigs in Australia are processed
through export-certified abattoirs, but only 11 per cent of those are actually
exported. This, of course, means that export certification and its associated
costs apply to almost all of the domestically grown and consumed pork. For us
this is not an issue of export competitiveness; for the pork industry it is
about the competitiveness of the whole industry.
The committee acknowledges the concerns raised by various industry
participants regarding the impact of increased fees and charges. The committee also
notes that there appears to be a belief within DAFF that businesses should be
able to withstand an increase in the cost of certificates. Mr Read told the
I think there was evidence probably a couple of years ago
here from ABARE that about a 2c movement in the Australian dollar basically
subsumes the cost of AQIS. That was at the stage when it was 60c. So in terms
of a $49 certificate charge, when it was $29 three or five months ago,
impacting on the viability of the businesses to export to those markets, I do
not think that is a fair rationalisation whatsoever of what the impact of that
Legitimate costs to government
A disputed issue was whether full cost recovery was appropriate and
whether government should have responsibility for a percentage of the costs of
Mr Gary Burridge from AMIC noted that an independent review of
legitimate costs of government was part of the seven-point plan agreement made
in 2009. The key issue being 'what portion of the total cost of providing
export certification for the meat industry should responsibly be absorbed by
the federal government as part of their community responsibility to ensure
market access, food safety, quality assurance and animal welfare standards'.
However, subsequently, the Council 'were told categorically that the legitimate
cost of government was not part of the agreement'.
AMIC argued that:
There is just cause in our view to argue that Government has
the responsibility to share costs in export certification not only to cover its
own overheads and administrative costs associated with the running of a
Government Department, but for the public good in terms of food safety, market
access, animal welfare, and to provide incentives to implement efficiencies.
In contrast, Mr Phillip Clamp noted his organisation, GrainCorp,
supported the principle of 'user-pays in this area' and did not consider 'we
need government assistance in respect of any subsidisation or socialisation of
DAFF stated that '[a]ll export sectors have raised concerns over the
legitimate costs of government'. It noted that its application of cost recovery
arrangements have been deemed compliant with the Department of Finance and
Deregulation's cost recovery guidelines and therefore only legitimate costs
have been applied to industry for which fees and charges are set to recover'.
However, several submitters highlighted that Australian export
certification fees and charges were higher than those in overseas competitor
DAFF acknowledged that in a number of other jurisdictions the government pays
'the full cost of export certification'.
AMIC stated that 'the competing countries that we are against have their
government pay for their meat inspection services'.
Similarly, Summerfruit Australia noted:
Despite the 40% rebate on AQIS inspection fees, the cost of
quarantine inspections to fulfil protocols imposed by importing countries such
as Taiwan, and other ASEAN countries is far higher in Australia compared to
inspection costs in competitor countries.
In relation to the horticultural industry, the VFF also expressed their
concern that AQIS was proposing 'to impose costly imposts on growers that are
not required by countries Australia exports to' including a proposed
requirement for 'country of origin' labels and inspections of containers to
ensure 'food grade standard'.
The Australian Dairy Industry Council (ADIC) was concerned about 'cost
shifting on to producers for strategies that are fundamental to maintaining
livestock industries and for rural economies'. It stated:
The industry...expects government to cover the costs of those
activities that protect the community and help ensure a viable export food
industry. These costs should not be simply shifted to industry – all parties
need to take responsibility and share the costs appropriately.
Mr John Kelly from the KIAA commented that '[t]he broad food industry
has submitted to AQIS that they believe the AQIS budget should include a
component of government funding to cover 'public good' delivery':
Industry contends that the difference between what should be
charged (46c/head) and what is being charged ($1.06), accounts for additional
non-certification AQIS costs being burdened on industry. We recognise that
these services are most likely a necessary service to the general public but
they cannot be part of the industry cost base.
The Beale Review explicitly referred to cost recovery only applying
to certification costs.
The KIAA submission noted that over the past 18 months, 'the kangaroo
industry has accepted, at AQIS behest, a range of new compliance measures
designed to assist gaining market access to China and Russia'.
KIAA also told the committee that these compliance measures:
... have added some 15-20% to overall operating cost. The
only reason for implementing these was to assist the Federal government in
gaining Chinese or Russian market access, it must be noted that as yet neither
have been secured.
The AQIS fee restructure has added a further 60% to the
annual AQIS bill for kangaroo producers. This on top of the additional
compliance measures discussed above.
Thus in the past 2 years the kangaroo industry has had to
absorb a massive increase in government fees and compliance costs. An immensely
higher cost impost than [any] other sector of the red meat industry.
Mr Kelly also indicated that in terms of his company's export of possum
product to Vietnam:
... we are in a very speculative export initiative. We are
sending one product to one country. We negotiated the market access for that
product. We negotiated the import permits for that product. AQIS had no involvement
whatsoever in establishing that market. We pay AQIS audit fees, we pay AQIS
permit fees. Essentially we are being charged 10 grand a year for nothing. I do
not mind paying a fee, but I am also paying a fee to the state government and
it seems that I am being double dipped for no service at all, basically.
Mr Kelly also argued that in addition to AQIS having no involvement in
his company gaining market access to Vietnam:
There is a public good issue as well, to some extent, I
guess. We have been registered for 12 months and I have so far exported $10,000
worth of product, because I am establishing and developing a new market, I have
made maybe a $2,000 margin on that so far. If I had to pay that registration
fee upfront, I would be well behind and it would be a further impediment to my
decision-making process in wanting to attempt to open a new industry for our
Mr Greg Read told the committee that DAFF is aware of Mr Kelly's
situation and acknowledged that Mr Kelly's business is a 'unique business,
being the possum tier 1 business'.
Mr Read also told the committee that:
After watching the evidence this morning I will have a
discussion with him around how we tailor that $10,000, like I am talking about
with the poultry sector, to soften the impact of that amount, particularly in
his case. But there is another side to that. When we say 'no' involvement in
market access', I can remember a raft of work that we have done on possums in
places like Canada. The certificates and the systems that sit around the
integrity of the certificates made to those markets all have the training and
the infrastructure sitting in the department to support his business. It is
quite an unfair representation to say that they sit there and we just provide a
bit of a certificate and there is no cost.
The committee notes Mr Read's comments regarding the role DAFF plays in
securing and maintaining export markets. However, the committee also questions
whether the effort involved in both securing and maintaining market access
should be treated as a legitimate cost to government. The committee notes that
it would appear that the Government has made a conscious policy decision to
take a step back from its responsibilities in terms of working for the broader
purpose of 'community good'.
The Industry Working Group on Quarantine (IWGQ) noted that it has, for
many years raised with DAFF the 'inequity of imposing on industry the cost
burdens of what are clearly Government responsibilities (refer Productivity
Commission Report 15)' IWGQ also noted that DAFF has yet to address these
issues despite its undertakings to do so.
Cherry Growers Australia (CGA) also noted that:
Industry's concern regarding perceived cross-subsidisation of
DAFF's administration and community service obligations from income derived
from the export inspection service has not been satisfactorily investigated and
Dr Peter Morgan from the Australian Council of Wool Exporters and
Processors (ACWEP) noted that he genuinely believes that there is a government
cost. Dr Morgan also told the committee that:
I think there are two components: the certification process,
which is a fee for service and should have a fee for it which is appropriate
for the costs of the service, and then there is general work that AQIS does in
resolving problems that come up in importing countries...The costs that I think
are legitimate for the wool industry are the certification costs and the
administrative overheads that are associated with that.
Similarly, AHEA stated that:
There have been no improvements and efficiencies offering
cost savings from a budgetary review. Reductions in the cost of the AQIS budget
have primarily come from the removal of services and lowered staffing levels.
AQIS manage the review of their budget costs in a way that prevented the AHEA
from reviewing the background cost constructs to their budget from the greater
pool of AQIS costs and resources. This was unfortunate as there is no way of
knowing whether AQIS is managing its pool of staff optimally across areas of
relatively easy transfer—that is, the grains program, the horticultural export
program, airport passenger quarantine and general quarantine.
The ACWEP noted that fees for electronically and manually requested Health
Certificates had varied considerably, and substantially increased, since 2008.
It stated that in each case it had been 'assured that the Model used to
apportion costs and to set Fees for the provision of Health Certificate
services was correct'. However, they argued that 'this could not be so, given
the nature of the various changes to the Fees'. It comments that its members
were concerned regarding 'how the various costs are apportioned'.
AMIC noted that a number of reports, and proposed reports, had been
prepared on the legitimate costs of government. These were:
- joint AQIS/AMIC Ministerial Task Force Sub-Committee Independent
Review into AQIS Fees and Charges in the Meat Program, prepared by Ernst
& Young in May 2010;
- Ernst & Young Export Certification – Benefits Realisation
Plan, February 2011;
- joint AQIS/AMIC Ministerial Task Force Independent Review which
was not completed. AMIC noted 'In July/August AQIS advised AMIC that they could
no longer take this aspect of the reform program forward and asked AMIC to
undertake the independent review';
- AMIC Independent Review of the Legitimate Costs of Government.
AMIC also noted that a summary of the three projects implementing the
Independent Review of Legitimate Costs of Government had been provided to the
Minister in March 2011 and have not been released. The findings of the projects
'provided strong evidence on and economic and legal basis in conjunction with
the Governments community service obligations for a Government contribution to
the cost of export certification to what is an uncontested monopoly Government
The committee received considerable evidence regarding the consultation
process undertaken by AQIS in relation to the reform process.
Ministerial Task Force consultation
For some industry sectors it would appear that the Ministerial Task
Force (MTF) model used by DAFF throughout the consultation process has proved
effective. However, the committee also notes the concerns raised by other
industry sectors which suggest that DAFF's commitment to this particular model proved
inflexible and did not allow for effective communication and consultation.
The committee notes DAFF's assertion that since the Ministerial
Taskforces (MTFs) were formed in April 2009 'they have met face-to-face and via
teleconference over 200 times'. The committee also acknowledges that some
industry sectors found the MTF process to be a positive one. However, as noted
above, the committee received mixed evidence in relation to the effectiveness
of the (MTF) process and AQIS' ability to communicate and consult effectively
with all stakeholders.
Mr Phillip Clamp from GrainCorp considered that there had been
significant gains available to industry as part of the export certification
The taskforce deliberations have come up with some
improvements in the service delivery arrangements, some improvements in the
provision of choice and service delivery and they have improved AQIS systems
and processes, including training support mechanisms for AQIS officers and
approved officers undertaking AQIS functions.
The CFA noted that the MTF process had 'worked reasonably well for
seafood'. However, while the Seafood MTF outcomes have 'led to potential cost
savings and reforms...at this stage they are untested and will take time to
achieve, even if they can be achieved'.
However, particular difficulties were highlighted in the activities of
the Horticulture Ministerial Taskforce (Horticulture MTF). For example, some
AHEA members considered 'they were being used by AQIS/DAFF to achieve their pre-ordained
DAFF commented that 'in-principle' agreement had been given to a new
service delivery model (which supported the roll out of AAO's across the
horticultural export industry), but that some members of the Horticulture MTF
had later withdrawn their support.
However, AHEA considered the 'in principle' agreement was only to
'investigate the AAO model' and argued 'AQIS/DAFF ignored the fact the MTF did
not agree to the rollout of AAO's':
AQIS-DAFF have relentlessly pursued the concept of
transferring phytosanitary certification from the government sector to private
enterprise, even when this has been pointed out as being inappropriate or not
cost-effective. This underlying agenda of AQIS-DAFF during this MTF, coupled
with an intransigent approach to consultation and the continued pursuit of
outcomes AQIS-DAFF regarded as beneficial, corrupted this ministerial task
force and essentially rendered it a waste of time and money, yielding neither
constructive, positive outcomes nor savings.
Further, AHEA argued that minutes of the Horticulture MTF had been
'improperly kept' and that the 'inaccurate recording of minutes' has resulted
in a formal complaint lodged with the Deputy Secretary of DAFF.
Mr Greg Read, DAFF, noted that initially the Horticulture MTF was a very
constructive and workable consultative forum. He also acknowledged, however,
... post that March period, for whatever reason, in terms of
the model, in terms of the fee and in terms of the process nothing was seen as
able to be taken forward. The fees model put forward by AHEA was not supported
by particularly the citrus and other tonnage exporters within the hort sector,
so it was not a model we could take forward in that regard. It was also that we
do not have the legal powers in terms of tonnage fees to give effect to that
sort of model, so it was one that did not give us a lot of scope or opportunity
to sit down and go through in detail what other charging alternatives we had.
Frankly, we as the department were open-minded as long as we could bring equity
and transparency as part of that process as best we could.
The committee remains concerned as to the number of AQIS clients who are
unaware of the scale of the fee changes that may be applicable to their
business. DAFF appears to be unable to provide this information to the
committee which is also disturbing. Evidence provided to the committee
demonstrates the reality of this concern. When asked whether they had been
advised of any potential cost increases for dairy and fish, Mr Gabor Hilton,
representing Oxford Cold Storage and the Refrigerated and Transport Association
of Australia (RWTA) stated: 'we did not even know about it. As far as we knew,
that was going to be unchanged'.
Similarly, Mr Tony Klausner, Spiess Australia Smallgoods stated:
Mr Klausner – We received a letter dated 26 September
signed by Greg Read from AQIS. We received the letter on 4 October, and that
was the first time – basically three days after the introduction of AEMIS after
that whole thing was signed off.
Acting Chair – So you had no understanding of what was
going to happen as far as the costs to your business until after the process
Mr Klausner – That is right. I may say here as well
that I have written proof and confirmation that all the smallgoods manufacturers
in the greater Sydney area are in the same position as I am.
Ministerial Task Force consultation
process – confidentiality
Some submitters indicated that they had been requested to respect the
confidential nature of the consultation process and suggested that this had
discouraged MTF members from consulting more widely with their respective
industries. The committee is concerned that this emphasis on confidentiality may
have limited the scope for the dissemination of information to all stakeholders
and discouraged wider debate regarding the issues under discussion.
AMIC's submission, for example, indicated that:
While in close discussion and consultation with Government
for over two years on the reform process, it was only on May 11, 2011 that that
it was confirmed by Government that they would not provide any contribution to
the cost of export certification post July 2011. Prior to that we had respected
the confidentiality requested of us and had not entered into any public debate
on the issue.
CGA described the consultation process surrounding the AQIS reform as 'inadequate
with limited communication at peak industry body level',
and noted that the consultation process was subject to confidentiality:
... the Horticultural Ministerial Task Force has been
suppressed in communication with industry due to the imposition of
confidentiality restrictions on Task Force Members.
The appropriateness of the Ministerial
Task Force consultation model
During the committee's inquiry, criticism was levelled at AQIS regarding
the adequacy of the consultation process. Members of several industry sectors
suggested that because the consultation and communication was specifically
focused on peak industry bodies (through the sole use of the MTF process) the consultation
process was neither adequate nor inclusive.
The committee also heard from submitters who suggested that throughout
the consultation process, the MTF model had not allowed for the complete
consideration of all the key issues of concern to specific industry sectors.
For example, representatives from the dairy sector highlighted the
emphasis placed on the meat sector during the consultation, and noted their
concerns that efficiencies reform may not reflect the special needs and
requirements of the other MTF commodity groups. 
Ms Helen Dormon commented:
Our concern was that we did not find ourselves corralled into
a meat model which would not actually achieve the dairy outcomes because of the
differences in the scale of operations... There was a lot of discussion in the
beginning about moving to the big end of town, which is meat, and getting a
meat system sorted out. Then there is the tendency we have had in the past
which, once we have a meat model, is just to roll it out for everybody. That
has been a concern of ours.
Similarly, representatives from the pork industry argued that they were
being inappropriately grouped by AQIS with the 'red meat' sector in relation to
export certification reforms.
In negotiating the new AEMIS model with international
markets, AQIS have failed to distinguish between the red meat and pork models,
with the result that they now expect us to move to a more costly AEMIS model,
completely unnecessarily and for absolutely zero benefit. The new fee structure
for AQIS export certification services, to apply under the standard AEMIS, will
add, we estimate, between $250,000 and $400,000 in additional costs for each
pork export-certified abattoir.
The committee received evidence regarding a lack of communication from
AQIS regarding the reform process. The committee also heard that a significant
number of businesses had received little or no information regarding the
consultation process being undertaken by the various MTF's. Specifically,
representatives of several small export businesses indicated that they had been
unaware of the consultation process being undertaken by the Meat MTF and that
they had received notification from AQIS (about the increased fees and charges)
several days after the start of the new scheme.
The committee also notes that there are a number of industry sectors, organisations
and businesses that were not included in the negotiations, or represented by
any of the six MTF groups.
Dr Peter Morgan from the ACWEP told the committee that wool industry had
been excluded from the MTF process and was being considered as part of the Meat
MTF.  He noted that
the wool industry had initiated 'just about all the discussions' with AQIS and
would have preferred to 'see much more consultation'. Further he noted that
'[w]e are not part of any of the groups, so we are not privy to any of the
Mr Daryl Young, Manager of Australian Agricultural Commodities Pty Ltd,
told the committee that the ECRP Work Plan had noted that, particularly in
respect of resources, 'small-container exporters, container packing facilities
and small-parcel exporters would be consulted'. Mr Young went on to say:
From my point of view, that has not happened. Within the
terms of AQIS's role, the definition of 'industry' includes some of the
governing bodies. From my knowledge, only one of those parties – Rod Wolski – would have any experience on the physical side of grain packing and the
logistics that might be involved in moving that forward. From a number of
incidents that have happened and which I am quite happy to talk about later it
is clear that there has been a lack of real industry involvement in this whole
process, which is not effective or efficient in trying to get a model that is
going to work in the long term.
Mr Brett McDonald, Bankstown Cold Store and Homebush Export Meat Co. Pty
Ltd, told the committee that when he had asked an MTF member for an update on
the reform process, he had been told "Don't worry, the minister is going
to look after small business". Mr McDonald suggested that far from being
'looked after', it appeared that small businesses had been overlooked. Mr
McDonald told the committee:
I suggest that the AEMIS reforms and the fees and charges
stand for the big slaughter establishments and big business. It appears to me
AEMIS is what they wanted and negotiated, and they can have it. The talks AQIS
had with big industry were only always about the inspectors, vets and overtime.
How my small business crept into it with 800 per cent increases I believe is a
government oversight. AQIS should consult with small businesses in my industry,
understand our situation and design a fair charging system that does not
destroy small business.
Mr Gabor Hilton, representing Oxford Cold Storage and RTWA, also
expressed concern about a lack of consultation with small businesses,
particularly given his membership of an industry association:
The only thing I wish to state is that we have no idea about
the discussion between the meat industry and AQIS about the changes in the
system towards full recovery. The first time we heard about it was in July this
year. We are very upset that our industry association, which has over 200
members, has not been consulted by AQIS at all. We seem to be on the mailing
list when we get AQIS notices and bills, but when it comes to consultation they
seem to miss us altogether.
During the committee's inquiry, DAFF indicated that it had noted the
concerns raised by many industry representatives regarding consultation, and
acknowledged 'that whilst current consultative frameworks have been extremely
effective, consideration should be given to broadening the scope of these
The committee also notes that DAFF has also stated it would 'undertake a
review of the current export industry consultative committees with respect to
terms of reference and scope of membership, in very close consultation with the
existing membership of these committees'.
The committee also notes DAFF has made the commitment to consult with
those sectors of industry and businesses that have not been represented by
industry bodies or involved in the MTF process (including those in the cold
stores and poultry sectors). The committee also notes that DAFF proposes:
... delaying those invoices until we actually go through the
consultative process in the next two weeks and develop the models for each of
those sectors so that we can then retrospectively fit these charges to the most
sensible model for those sectors.
The committee was also told that DAFF is proposing to develop a model
for those industry sectors, and retrofit it in a cost sense back to 1 October:
... So that deals with all those structural things. In terms
of the certificates themselves at that end, the certificate charge has not
moved since 2009. It is a 2009 fee; it has not moved. What has moved is that 40
per cent had been overlaid to that. But if we can find other smart ways within
the system to offset a bunch of costs, and equally keep the strategy as I
alluded to earlier, which we are driving forward on, on reform on those
certificate costs, there will be compensating balances there.
The committee acknowledges that DAFF proposes to consult with these
industries with a view to developing an appropriate model. The committee notes
however, that DAFF's proposal does not appear to have come about as part of a
thoughtful and planned response to these issues, but rather, as a result of
having to provide an expedient solution to the problem.
Efficiencies and reform
A number of submitters were concerned that the reform of export
certification fees and charges was proceeding without substantial efficiencies
or cost savings being identified.
Others commented that, in their industries, there were no easy cost-reductions
or efficiencies to be identified.
Other submitters suggested that AQIS had only achieved efficiencies by cutting
Many submitters considered the move to full cost-recovery for export
certification by AQIS (without a corresponding improvement in the systems and
processes used by AQIS) would significantly disadvantage exporters.
A number of submitters expressed frustration regarding the progress
towards achievement of reform of AQIS service export fees and charges.
Citrus Australia commented that progress had been 'slow' and noted 'the
mounting pressure to find 40 per cent saving in a relatively short time is
Citrus Australia is committed to working in partnership with
the Australian government in identifying and implementing reforms but seeks a
commitment to retain the 40 per cent rebate until reforms demonstrate
equivalent savings and efficiencies.
The National Herd Improvement Association of Australia (NHIA) noted that
it is supportive of the need for AQIS to be adequately resourced. However they
also stated that:
... [they] are not in favour of underwriting the current
inefficiencies inherent in AQIS especially when it comes to areas such as
document processing and the current poor state of the ANIMEX system.
The NHIA also argued that:
If this move is about cost-recovery, and the new charges are
based on real costs, then AQIS should be investigating the possibility of
sub-contracting some of this work to organisations that have lower costs.
The AHEA made the following comments on AQIS' proposed reforms:
The return to 100% full cost recovery and AQIS fee and charges
increases on 1 July, goes against the spirit of the bipartisan agreement
between Government and industry which was dependent on the achievement of
meaningful AQIS reforms. Such reforms should have resulted in savings of as much
as 40 % of AQIS total costs.
At this point it is questionable as to whether AQIS have in
fact identified any increased efficiencies and/or cost reductions as they were
required to do when there was bipartisan agreement to full cost recovery.
DAFF noted that it was 'committed to ensuring that a culture of reform
extends past the life of the ECRP' and would 'continue to work with export
industry sectors to ensure regulatory involvement is the minimum required to
meet the needs of government, industry and trading partners'.
A number of submissions and witnesses argued that a full cost recovery
was inappropriate in a situation where a government agency had a service monopoly
as there was no incentive for further improvement or efficiencies.
Riverina Citrus commented:
AQIS monopoly in export certification, no incentive to
innovate, drive down costs or find efficiencies.
Exporters have no say in the charges levied by AQIS and there
is no attempt to justify escalating fees. Many farmers and exporters are
beginning to ask why compliance tasks undertaken by AQIS shouldn't be
scrutinised and open to tender.
If government expects 'User Pays' from exporters, surely
there should be an expectation that their services are open to competition?
Perhaps the future is a range of private compliance providers that are
accredited by DAFF for example. 
Some support was also expressed for new opportunities to utilise private
sector third party services for export certification.
The Tasmanian Farmers and Graziers Association provided the committee with a
paper prepared by Primary Industry Biosecurity Action Alliance for the
Tasmanian Government. The paper noted that '[t]hroughout the globe government
services are being discharged to commercial providers who can deliver services
more cost effectively without compromising the integrity'. It requested the
Tasmanian Government review all fee-for-service activities and look at options
for other service providers to potentially deliver the services. The paper
In countries such as New Zealand most of the quarantine and
biosecurity services have been discharged to independent entities. In some
cases service providers include local councils and other specific regional service
With our high costs of production compared to our
international competitors, as well as our high costs of freight compared to
many mainland producers it is vitally important that all costs be minimised. It
is important that any change of service provision does not compromise the
integrity of our international obligations nor minimise the service delivery.
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