Live Export

Certification regime ‘completely flawed’: Air-based live exporters

James Nason, June 2, 2014

More livestock exporters have joined the chorus of discontent over Federal Department of Agriculture moves to increase cost-recovery charges for mandatory export certification services.

As reported by Beef Central in recent weeks, the Department of Agriculture is planning to increase export certification fees by around 60-70pc from July 1, saying the increase is needed to recover the full costs it incurs from providing export certification services to industry.

Exporters have expressed anger at the higher charges, arguing that Department should be reducing its charges by making its processes more efficient, and questioning why commercial businesses operating on wafer thin margins should carry the costs of departmental inefficiencies.

The office Federal Minister for Agriculture Barnaby Joyce has not responded to Beef Central’s questions on the issue in the past week, but departmental staff defended the new charges during last Wednesday’s Senate Estimates hearings in Canberra – more below.

One sector of the livestock export industry which is particularly aggrieved at the new fee regime are air-based livestock exporters, who now face increases in mandatory certification fees from $405/hour to $671/hour.

Adam Armstrong of specialist airfreight-based live exporting company Lembiru Exports said that when the Department’s fee regime for livestock exports by air is “completely flawed” and is based on a fundamental lack of understanding of the industry.

He said that when the Department last reviewed export certification charges for air-based exports in 2007, it suggested that air exports required greater out of hours work by departmental certification officers than sea-based exports.

That assumption was not correct at the time, and the Department had shown no evidence that it has worked to improve its understanding of the air-based export industry in the seven years since, despite the fact the industry has doubled in size and increased in visibility during that time.

Mr Armstrong said the principals of Lembiru have significant experience in both sea-based and air-based livestock exports and in their experience the proportion of overtime is no greater for air freight than sea freight.

In Lembiru’s own case, he said, 54pc of the Department’s time was spent on document processing which was not conducted ‘out of hours’. Animal inspection activities accounted for the 46pc of time. This was divided between on-farm inspections by departmental staff, which in Lembiru’s experience only occurred within office hours, and shipment loading, which the company said did involve out of hours time-frames, but no more than sea-based loading, and would not account for more than 25pc of all Departmental hours charged inclusive of document processing.

Mr Armstrong said Lembiru was aware that senior Departmental staff on salaries did not receive overtime, and staff that did earn overtime typically received $70/hour for billed overtime – well short of the $671/hour charge the Department says is now needed to “recover costs” for air-freight certification services from July 1.

Lembiru’s submission challenges several statements made by the Department in relation to its fee structure for air-exporters which it says are incorrect, including that air exports are small and inconsistent and therefore costly to administer.

Mr Armstrong said the Department’s failure to understand the air-export industry meant air-exporters were paying much higher fees than they should.

“In the 2014 cost recovery impact statement there has been no attempt to clarify the accuracy of the 2007 Departmental assumptions. Instead the Departmental approach is to entrench what we believe to be highly contestable assumptions and simply increase the current unsustainable hourly rate by 66pc from $405/hour to $671.80/hour,” the submission notes.

He said the Department’s claim that it needed $671/hour to provide a truer reflection of its costs was “complete nonsense”.

One of the only commercial industry sectors that charged call out rates in the vicinity of $670/hour was the upper echelons of the legal industry, he said, where such charges were well above cost-recovery and included significant profit margins as well.

“An international taxation QC (Queens Counsel) I spoke with commented that his rate of $650/hour allowed him to maintain luxurious offices in three cities, own a Bentley limousine, a Mercedes Sports car, a heritage listed mansion, a ski lodge in Aspen and a lovely little penthouse apartment in Hong Kong.

“If the cost of Department of Agriculture operations is $671.80/hour it is clear that there is gross inefficiency and incompetence occurring at every level of its service provision.”

‘”…The Department also needs to ask itself how it can claim a figure of $671.80/hour is sustainable and internationally competitive. By any measure, this stated claim is absurd.

 

Ag Dept staff defend cost regime

Senior Departmental staff were asked to justify the proposed cost increases at last Wednesday nights Senate Estimates hearing in Canberra.

Labor Senator for the Northern Territory Senator Nova Peris said charges of $671/hour for document processing and a $1/km rate for mileage seemed extraordinary and excessive for a cost recovery exercise.
Department of Agriculture (DoA) deputy secretary Philip Glyde said fees and charges for live animal exports had not been amended since 2009, and the Department was considerably behind covering the costs it incurred in administering full-cost recovery legislation.

The Department was obliged to follow cost recovery policy guidelines, but could not charge any more than what the service costs it to provide.

“The bottom line is, we are constrained from overcharging for a particular service. We can really only charge what the service costs us to provide.”

Matt Ryan, Assistant Secretary, Industry Support Branch, Finance and Business Support division, said the department was currently considering the feedback it had received from industry before the final fee schedule from July 1 is determined.

He said the proposed $1/km mileage rate reflected the costs of providing a national export certification program to the very geographically dispersed livestock export industry across Australia.

Rebecca Irwin, First Assistant Secretary, Live Animal Exports Division, the Department was planning to undertake a broader reform of the cost recovery base for live animal exports within the next 12 months. The DoA had commissioned an internal departmental report by Predicate Partners to improve its understanding of certification issues for livestock exporters.

She said the review had proposed a number of recommendations for reform. Asked if the report was available to the public, Ms Irwin said it was not, but added that the DoA could make it available.

In his questions to departmental staff Liberal Senator for WA Chris Back noted that fees for document processing and administration services ranged from $381.60/hr for companion animals and $405.60/hr for reproductive material to $508.20/hr for horses and $671/hr for live animal exports.

How could such differential rates be charged for presumably the same service, Senator Back asked.

Mr Glyde said it was important to bear in mind that the charging system was designed to capture the full costs of the Department’s certification services. The Department had to find some way of recovering all of its costs under existing legislation, not just the costs involved in providing a specific service.

Another alternative he said would be to charge a higher registration cost up front and then smaller variable costs for each service.

“That is the conundrum that we face in our cost recovery arrangements. Indeed, it is one of the reasons why we will be reviewing our cost recovery arrangements around a number of areas over the next year.”

Mr Ryan said certification costs were different for different user groups because the charges were designed to recover the full costs of providing export certification services for each different group.

“Depending on the markets that those animals might be going to, different requirements and therefore different costs sit behind it. That explains the differential.”

Effectively Departmental officers indicated that while fees of $671/hour for document processing looked excessive on its own, in reality that fee was also designed to capture costs for other services for which charges did not exist.

Department of Agriculture secretary Dr Paul Grimes said the problem the Department faced lay in trying to allocate total costs across all users of the system, not just the direct variable costs of providing a particular service.

“The issue here is trying to capture the full costs and allocate those across users. There are different proxies you could use and the hourly charge rate is one proxy to use for overall use of the system to try to allocate these fees across various users.”

Senator Back also asked why the entire cost of administering the Export Supply Chain Assurance System (ESCAS) should be carried by industry, when clearly whatever benefits flowed from ESCAS did not fall completely on exporters. “Why is there not some shared
responsibility for the cost?,” he asked.

Mr Ryan said that under the Government’s cost recovery policy, “the beneficiary pays”.

“The regulation that is set up is for the benefit of the industry and the costs of providing those regulatory services are passed on to that industry.

“Those costs that you mentioned are other costs that the department incurs to carry out the current regulatory model. The department is undertaking a longer term review over the next 12 months to look at how that model might change which my colleagues have discussed earlier on this evening.”

 

 

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