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Does levy funding compromise CCA-MLA’s master-servant relationship?

James Nason, March 6, 2014

PERSPECTIVE

Is it appropriate for Cattle Council of Australia to perform services for the producer service organisation Meat & Livestock Australia in return for much-needed operational funding, or does that recently adopted arrangement compromise the master’s ability to independently oversee its servant?

That question is likely to be one of the key areas of focus as senators from all political persuasions apply scrutiny to levy funding and structural arrangements in the grassfed cattle industry in Canberra tomorrow.

CCA is supposed to be Meat & Livestock Australia’s master but lacks the resourcing to do that job properly.
Over the past five years, Cattle Council’s operating income has averaged $1.392m per year, with an average deficit of $60,000 per annum.

The board members of CCA are all full-time cattle producers who represent their industry as part-time volunteers. CCA has a full-time staff of just five who manage the industry’s representation on 91 committees.

One of CCA’s most important roles is to guide and assess MLA’s performance in the expenditure of grassfed cattle levy funds on R&D and marketing on behalf of producers who pay the compulsory levy.

In contrast to CCA, MLA is extremely well resourced, receiving $160m per year in annual revenue (from grassfed, grainfed and sheepmeat levy funds and matching Government funds).

Given its own resourcing constraints, it is clearly very difficult for CCA to apply adequate scrutiny to, or to exert influence over, MLA and the enormous body of information it brings before CCA.

On that front, a key question for the forthcoming inquiry to consider is how can CCA be resourced.

During recent industry consultations conducted as part of CCA’s restructure process, one thing most groups and individuals appeared to agree upon was that CCA should directly receive at least a portion of the $56m in funds generated annually from grassfed cattle levies to improve its resourcing (some groups want CCA to receive and control the entire grassfed levy, others suggest a percentage of that money – somewhere around $3-$4m/year – should be enough for CCA to improve its resourcing to the standard required to properly oversee MLA’s expenditure of the remaining funds).

For its part CCA says that while it would welcome direct levy income, clearing the legislative hurdles that currently prevent a policy-setting and advocacy organisation to receive funds generated from compulsory levies is difficult, and could take years to achieve it at all. (On that front the senate inquiry process clearly offers a genuine opportunity for such changes to be fast-tracked if an adequate case for direct levy funding for CCA can be made).

In the meantime CCA has instead opted to improve its funding situation by going down the path of accessing levy funding indirectly by entering into service agreements with MLA to perform services such as running consultation meetings with producers around the country in return for levy funds.

CCA says the money it has received via the service agreements with MLA to date has delivered several benefits. For example it enabled CCA to consult directly with over 2000 cattle producers across Australia last year, and attend important trade and market access meetings that it says it would otherwise have been not able to afford to attend. It also enabled the organisation to develop a sophisticated website that allows members of Cattle Council to communicate their ideas directly back to the organisation.

Not everyone agrees that taking levy money via MLA is the most advisable path for CCA to take. Can CCA adequately oversee MLA and crack the whip on it as required, when at the same time it now relies upon MLA for a significant portion of the funding it requires to operate?

Critics argue the master is now beholden to the servant.

CCA has vehemently argued that there is no reason to believe that its funding relationship with MLA will compromise its independence or prevent it from voicing its disapproval if and when the need exists.

CCA chief executive officer Jed Matz recently told Beef Central that the fact CCA was directing MLA to provide levy funds for services and strategic policy development work was a clear demonstration that CCA was exerting greater control over MLA on behalf of producer levy payers.

A big problem for CCA here is simply the perception that a potential conflict of interest now exists and the possibility that is there for its funding relationship with MLA to erode its independence and authority over the organisation.

Public perceptions are critical, and while CCA argues that its position has in no way been compromised, that position has not been helped by its failure to speak out publicly against MLA in recent times on issues where a stern response on behalf of producer levy payers would been justified.

Its response to last year's independent review of MLA's Livestock Production Innovation unit is a case in point.

Early last year, partly in response to ongoing urging by CCA itself, MLA management commissioned a panel of six independent R&D experts to review its systems for investment in on-farm R&D, managed by its Livestock Production Innovation (LPI) unit.

The independent panel's concluding report was scathing in its assessment of MLA’s existing R&D investment systems and said "major changes" were needed if MLA's LPI unit was to effectively adapt and deliver the beneficial impacts industry urgently needs to enhance its competitiveness, productivity and profitability. (See Beef Central’s original article from August 2 last year which first shed light on the report's existence: https://www.beefcentral.com/news/article/3488)

The reviewers spoke to 70 stakeholders across the R&D sector. Among their findings were conclusions that MLA’s policy framework for R&D investment was unclear, did not provide a sound basis for effective research and collaboration, “widespread and substantial dissatisfaction” existed in relation to its processes for selecting and approving projects, there was a lack of transparency, and there had been widespread criticism from stakeholders of a ‘heavy handed gatekeeper’ role of MLA R&D managers and overstepping of their custodial roles.

When the review was completed, MLA declined to release the report publicly for all producers to view, describing it as a management report intended for internal use by management and the board only.

Instead the report’s findings were slowly presented over the ensuing months on a confidential basis to stakeholder groups including CCA, Sheepmeats Council and the Federal Department of Agriculture. The 11 recommendations have since been posted without fanfare on the MLA website, but not the full report – people seeking a copy must email their request to MLA.

MLA’s reluctance to publicly release the full report to producers was curious given that it is a producer service organisation and the report’s findings are of direct relevance to the producer levy-payers who fund it.

That it chose not to release the report fuelled suspicions that it was not comfortable with the findings and was trying to bury them.

In the face of the strong criticism by an independent panel of MLA’s R&D systems, and its reluctance to share the results with all of its producer levy payers, CCA took a soft and uncritical line in response, publicly at least.

When the report’s existence became public knowledge in August, two months after the report was initially handed to MLA, CCA said it would not comment publicly on the report until it had the opportunity to be briefed on the results by MLA at its next meeting, which was being held more than a month later.

After that meeting CCA said it was pleased that MLA had undertaken the review and agreed to form a committee with representatives of MLA and the Sheepmeat Council of Australia to discuss how to progress the reviews 11 recommendations.

Eight months later, there is little evidence that substantive changes have been made to MLA’s LPI program in response to the review’s strong recommendations for change. (A document outlining MLA’s response to the report and each recommendation can be viewed on the MLA website here: http://www.mla.com.au/files/b6715a0a-e0ec-428e-b858-a24a00ed9b64/MLA-response-to-review-of-its-systems-for-investment-in-on-farm-RD.pdf)

In its defence, CCA makes the point that just because it is not criticising MLA publicly does not mean that it is not taking it to task when required behind closed doors.

“Cattle Council does not always speak out publically about MLA, but we do often provide robust feedback and criticism, when appropriate, within the consultative framework that is established,” CEO Jed Matz explained.

“It is not good for the wellbeing of the MLA staff or the image of the company if its own producers publically criticise it. The appropriate forum to provide feedback, especially criticism, is not the media.”

The LPI issue from last year is raised simply to pose the question: is the fact that CCA now accepts direct funding from MLA compromising master/servant relationship?

No doubt these issues will be explored at the senate inquiry into grassfed levies tomorrow, where Cattle Council of Australia, Meat & Livestock Australia, the Red Meat Advisory Council and others will face questions from Senators. 

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