FURTHER scrutiny of proposed cost hikes the Federal Department of Agriculture is planning to impose on livestock exporters has raised new questions about the justification for the scale of the charge increases.
As reported by Beef Central last week the Department of Agriculture and Water and the Environment has unveiled plans to increase fees for an annual livestock export license by more than 300 percent from $25,000 per year to more than $100,000 per year.
It is also planning a raft of additional cost increases which are designed to recoup from exporters the cost the Department incurs to regulate the industry.
A ‘Cost Recovery Implementation Statement’ outlining the planned cost increases shows the costs incurred by the Department to regulate the industry in 2017-18 totalled about $8.5 million.
Under the proposed new charges, that will gradually increase over the next three years to almost $24 million in 2023-24.
That cost is to be shouldered by the industry’s licensed livestock exporters, of which there are believed to be about 19 in total.
In its cost recovery implementation statement the Department says it is working to reduce red tape for all exporters and to improve the efficiency and effectiveness of its services under a $222m Federal Government investment designed to achieve greater efficiencies.
The quoted figures raise the question – how does the Department reconcile an overall $15 million, 180 percent increase in the charges it will impose on the live animal export industry over the next three years, from $8.5m to $24m, with its stated aim over the same period of achieving efficiency gains for industry?
Further questions surround a stated efficiency gain which the Department says will be a direct result of the reforms it is introducing.
The Department says that when it first started looking at renewing its cost recovery schedule in 2018-19, it projected that the costs it would incur from regulating the live animal export division would be in the vicinity of $28 million in 2023-24.
After taking into account the direct impacts of its planned reforms, the Department says that projected cost will reduce by $4.7 million to $23.7 million by 2023–24.
In the same document the Department states that one of its significant regulatory reforms has been to introduce the Independent Observer program, which was forecast to cost $4.371 million in 2020–21 before being suspended due to COVID-19.
Some exporters have interpreted that to mean that the cost efficiency gains the the Department is claiming relates largely to the cessation of the Independent Observer program, a saving which was effectively forced on the department by COVID, and does not reflect actual efficiency gains borne from systemic reforms.
Department of Agriculture response
The Department of Agriculture, Water and the Environment responded to Beef Central’s inquiries on these issues with a statement saying it is expanding cost recovery for the regulation of many Australian export industries.
“Cost increases for the live export industry have been far greater than those in other sectors for several reasons,” the statement said.
“These include incidents (such as on the Awassi Express during 2017) that made it clear there was a need—and a public demand—for greater scrutiny of the industry.
“The Moss Report into Regulatory Culture and Capability supported this conclusion with 31 recommendations that were accepted by the department and supported by the Australian Government.
“The recent changes to industry regulation that have been introduced are the direct result of the independent Moss Report, public demand and Australian Government policy.
“They include new regulatory touch points, the introduction of independent observers on ships and the development of science-based standard setting.
“Additionally, regulatory costs for the live export industry have been under-recovered for many years and to a significantly greater extent than other industries. Between 2011–12 and 2019–20 the arrangement accumulated a $30.4 million deficit. For 2019–20 the deficit was $12.2 million.
“The fees outlined are not designed to recover that deficit.
“The department employs around 80 people to manage around 9944 consignments per year and cost recovery for regulation of these consignments is split proportionately between different industries.
“There were 569 consignments of livestock in 2019–20—over 2.3 million head exported; there were an additional 9375 consignments of non-livestock exported for the same period.
“The department works closely with industry to implement regulatory standards that meet the requirements of industry, community and our international trading partners.
“Departmental regulation is held to a high standard and accountable to the Minister, the government through the public Senate Estimates process and the Australian public.”
Cost hikes ‘unjustifiable’
Under cost recovery arrangements an industry is effectively beholden to paying the costs borne from decisions the Department makes in terms of the staffing and resourcing levels it directs towards servicing and regulating each industry.
The level of resourcing the Department of Agriculture has directed at regulating the livestock export sector has increased for a variety of reasons in recent years, particularly in the wake of the 2018 public outcry over the Awassi Express heat stress event which caused thousands of sheep deaths on a journey to the Middle East in 2017, and subsequent calls for greater regulatory oversight of the industry.
Exporters have told Beef Central that while they accept the need for the industry to be effectively regulated, the size of the new cost hikes is being perceived as an attempt by the Department through stealth to regulate the entire sector out of business, regardless of the impact that outcome would have on thousands of cattle producers and businesses who are directly reliant on the sector, not to mention many overseas trading partners.
“We’re not complaining about having to be regulated, we all accept that,” one exporter commented privately to Beef Central.
“It is like if a local council said your council fees are going up from $2000 this year to $8000 next year, but you have no recourse, and there is no responsibility on the council to explain or justify that decision.”
Another asked: “Where is the much talked about efficiency benefit from the $222m Federal Government investment? The cost recovery implementation statement refers to the investment delivering ‘more cost-effective services’, but fees are going up fourfold.
“The same document says ‘the government has an obligation to justify the prices it charges’. Any reasonable person would expect a department demanding a fourfold increase in fees would be required to clearly step-out the basis for such a massive increase.
“They could start by explaining how the average salary received by department staff members is approaching $200,000 per annum.”
Paying the price for a ‘bloated bureaucracy’
Livestock shipping charterer Wellard in a statement to Beef Central said it strongly supported best practice regulation of the industry.
However live exporters, and their sheep and cattle suppliers, were paying the price for “a very bloated bureaucracy” which was accountable to nobody and continued to expand even when the volumes of exports had contracted by a quarter.
“By our estimates there are 180 staff regulating 243 shipments last calendar year…that is a staggering three staff for every four shipments,” the company statement to Beef Central said.
“Sheep and cattle producers, and their political representatives, should be absolutely alarmed by this fee hike, because it does threaten the viability of the live export industry.
“When you compare the fees charged to the live export industry to those charged to the meat industry, it is particularly revealing and provides an insight into the size of the bureaucracy regulating live export.
“If these charges are adopted, next financial year meat exporters will pay $550 for an export licence but live exporters will pay $65,988 for an export licence. A Food Safety Meat Assessor is charged out to abattoirs at $132/hour but inspection of livestock for export is $584/hour.
“And by 2023/24, the gap is even more staggering. An export licence will be $609 for an abattoir, but $106,551 for a live exporter. And carcase/animal inspections will be $148/hour for an abattoir and $940/hour for a live exporter.”
One exporter told Beef Central that based on current trading volumes, its direct cost of regulation under the proposed fee hikes would increase from around $300,000 in a single year to more than $1.2 million, a figure which did not also account for the signficiant costs exporters incurred to comply with the ESCAS program and doesn’t include the statutory levy of more than $500,000.
“it is pretty massive for one company to absorb, and that is happening across all exporters”.