21 July 2016

Productivity Commission's draft Agriculture Regulation report

The Productivity Commission has released its draft report on Regulation of the Agriculture Sector, commissioned in November last year as the Government headed towards the general election.

The Commission was directed as follows
The Australian Government has identified the agriculture sector as one of the five pillars of the economy. It is promoting the economic potential of the sector by removing unnecessary regulatory burdens and promoting improved productivity and global competitiveness. The Australian Government’s deregulation agenda has focussed on reducing Commonwealth red tape. As part of its deregulation agenda, the Government is implementing reforms in agricultural and veterinary chemicals, biosecurity and export certification. However, there is an opportunity for better national outcomes for the agriculture sector by considering regulation at all levels of government. This is particularly applicable in the areas of transport, environmental protection, native vegetation management, land tenure, animal welfare and food safety in which the states and territories have significant responsibility. 
While regulation targets valid objectives, such as protecting consumers from unsafe food, protecting the environment or supporting the export of goods, poorly implemented and administered regulation and the cumulative impact of regulation can have adverse effects on farm businesses. It can unnecessarily restrict farm management decisions and reduce investment. 
Inconsistent and overlapping regulations between jurisdictions can also create adverse effects and raise costs for faun businesses. 
Scope of the inquiry 
The inquiry will focus on regulation with a material impact on domestic and international competitiveness of farm businesses and the productivity of Australian agriculture. 
The inquiry will define priority areas for removing or reducing unnecessary regulatory burdens where doing so will/can contribute to improved productivity for farm businesses as well as the wider economy. 
The inquiry will also review regulation of farm businesses to identify unnecessary restrictions on competition. 
While focussed on the impact of regulation on farm businesses, the inquiry should also consider the material impact arising from regulation imposed along the supply chain such as regulations introduced to meet the requirements of international markets. 
Consistent with its legislative remit, the Commission is to have particular regard to:
• areas of regulation that directly affect farm businesses, including those identified as areas of concern through the white papers on agricultural competitiveness and northern Australia. This includes regulatory arrangements affecting access to new technologies, investment opportunities, land tenure, relevant environmental protection and native vegetation laws, animal welfare and the Exporter Supply Chain Assurance System 
• areas where there is greatest scope to reduce unnecessary regulatory burden and pursue regulatory objectives in more efficient (least cost) ways 
• whether the current level at which matters are regulated (national, State and local) is appropriate and whether there is scope for better coordinated action across governments to reduce unnecessary overlap 
• whether Australia’s farm export competitiveness can be improved by minimising duplication between domestic regulation and importing country requirements 
• relevant regulatory approaches adopted in other countries.
Specific requirements
In undertaking the inquiry, the Commission should:
• identify specific areas of regulation that are unnecessarily burdensome, complex or redundant 
• identify priority areas for regulatory reform 
• provide recommendations to alleviate regulatory burden identified. 
For the purposes of this inquiry, the regulatory issues affecting: 
• marine fisheries and aquaculture industries will be investigated as part of a separate Productivity Commission inquiry into the Regulation of Australian Marine Fisheries and Aquaculture Sectors.
The draft report comments
• Farm businesses are subject to a vast and complex array of regulations. Regulations are in place at every stage of the supply chain — from land acquisition to marketing — and are applied by all levels of government. The number and complexity of regulations affecting farm businesses means that the cumulative burden of regulation on farmers is substantial. 
• The need for regulation is not disputed by farm businesses. In fact, some regulations, such as biosecurity and food safety regulations, were highlighted as providing clear benefits to Australian farmers. Rather, Australian farmers want ‘better’ (or less burdensome) regulation. 
• Some regulations lack a sound policy justification and should be removed. Examples include restrictions on the use of land held under pastoral lease arrangements, state bans on cultivating genetically modified crops, recent changes to tighten foreign investment review requirements for the agricultural sector, barriers to entry for foreign shipping providers, mandatory labelling of genetically modified foods, and statutory marketing legislation relating to rice in New South Wales and sugar in Queensland. 
• Other regulations and regulatory systems need to be reformed so they can more fully achieve their objectives.
− Native vegetation and biodiversity conservation regulations need fundamental change so that risks and impacts are considered at a relevant landscape wide scale. Environmental regulatory decisions also need to take into account economic and social factors. 
− Animal welfare regulations seek to achieve welfare outcomes that (among other things) meet community expectations. However, little is known about these expectations. 
− The process for setting standards for farm animal welfare would be improved by applying scientific principles and evidence through the creation of a national, independent body responsible for building the evidence base on community expectations, as well as for developing national farm animal welfare standards. 
− The standard for the level of gluten allowed in foods labelled as ‘gluten free’ needs review. 
− International evidence could be put to greater use in assessing agricultural and veterinary (agvet) chemicals, reducing the time and cost taken to grant registration. 
• Inconsistent regulatory requirements across jurisdictions make it difficult for farmers to understand their obligations and add to the cost of doing business. A more consistent approach would improve outcomes in the areas of heavy vehicle regulation and road access, and the use of agvet chemicals. 
• Governments could also reduce the regulatory burden on farm businesses by 
− improving their consultation and engagement practices. There is scope to better support landholders to understand environmental regulations, and to reduce duplicative and unnecessary information gathering regarding water management by farm businesses 
− doing more to coordinate their actions, both between agencies and between governments 
− ensuring that good regulatory impact assessment processes are used as an analytical tool to support quality regulation making, not as a legitimising tool or compliance exercise.
The Commission offers the following findings and recommendations
Land use regulation 
Draft Recommendation 2.1 Land management objectives should be implemented directly through land use regulation, rather than through pastoral lease conditions. State and territory governments should pursue reforms that enable the removal of restrictions on land use from pastoral leases. 
Draft Finding 2.1 Pastoral leases offer less security of tenure than freehold land, creating uncertainty for leaseholders and investors. In general, converting pastoral leases to freehold facilitates efficient land use. 
Draft Recommendation 2.2 State and territory governments should: • ensure that, where reforms to Crown lands confer additional property rights on a landholder, the landholder pays for the higher value of the land and any costs associated with the change (including administrative costs and loss of value to other parties) • set rent payments for existing agricultural leases to reflect the market value of those leases, with appropriate transitional arrangements. 
Information Request 2.1 What are the advantages and disadvantages of ‘right to farm’ legislation? Are there any other measures that could improve the resolution of conflicts between agricultural and residential land uses? 
Draft Finding 2.2 Regulation and policies aimed at preserving agricultural land per se can prevent land from being put to its highest value use. A right of veto by agricultural landholders over resource development would arbitrarily transfer property rights from the community as a whole to individual landholders. 
Environmental regulations 
Draft Recommendation  3.1 The Australian, state and territory governments, in consultation with natural resource management organisations, should ensure that native vegetation and biodiversity conservation regulations: • are risk based (so that landholders’ obligations are proportionate to the impacts of their proposed actions) • rely on assessments at the landscape scale, not just at the individual property scale • consistently consider and balance economic, social and environmental factors. 
Draft Recommendation 3.2 The Australian, state and territory governments should continue to develop market based approaches to native vegetation and biodiversity conservation. Where the community is seeking particular environmental outcomes, governments could achieve them by buying environmental services (such as native vegetation retention and management) from existing landholders. 
Draft Recommendation  3.3 The Australian, state and territory governments should review the way they engage with landholders about environmental regulations, and make necessary changes so that landholders are supported to understand the environmental regulations that affect them, and the actions required under those regulations. This would be facilitated by: • recognising and recruiting the efforts and expertise of landholders and community based natural resource management organisations • building the capability of, and landholders’ trust in, environmental regulators. 
On-farm regulation of water 
Draft Finding  4.1 Complexity and ongoing changes in water regulation contribute to the cumulative burden of regulation on farm businesses. However, the diversity of Australia’s river catchments makes streamlining and harmonising regulation difficult. More flexible governance arrangements may be needed to develop locally appropriate regulatory settings for accessing water. 
Draft Recommendation  4.1 The Australian Government should implement the findings of the Interagency Working Group on Commonwealth Water Information Provision to reduce duplicative and unnecessary water management information requirements imposed on farm businesses. 
Regulation of farm animal welfare 
Draft Recommendation  5.1 The Australian Government should take responsibility for ensuring that scientific principles guide the development of farm animal welfare standards. To do this, an independent body tasked with developing national standards and guidelines for farm animal welfare should be established. The body should be responsible for determining if new standards are required and, if so, for managing the regulatory impact assessment process for the proposed standards. It should include an animal science and community ethics advisory committee to provide independent evidence on animal welfare science and research on community values. 
Information Request5.1 The Commission is seeking feedback on: • the most effective governance structure for an independent body tasked with assessing and developing standards and guidelines for farm animal welfare • what the body’s responsibilities should include (and whether it should make decisions or recommendations and if the latter, to whom) • what processes the body should use to inform and gauge community values on farm animal welfare • how such a body should be funded. 
Draft Recommendation  5.2 State and territory governments should review their monitoring and enforcement functions for farm animal welfare and make necessary changes so that: • there is separation between agriculture policy matters and farm animal welfare monitoring and enforcement functions • a transparent process is in place for publicly reporting on monitoring and enforcement activities • adequate resourcing is available to support an effective discharge of monitoring and enforcement activities. State and territory governments should also consider recognising industry quality assurance schemes as a means of achieving compliance with farm animal welfare standards where the scheme seeks to ensure compliance (at a minimum) with standards in law, and involves independent and transparent auditing arrangements. 
Access to technologies and agricultural and veterinary chemicals 
Draft Finding  6.1 There is no economic or health and safety justification for banning the cultivation of genetically modified (GM) organisms. • The Office of the Gene Technology Regulator (OGTR) and Food Standards Australia New Zealand (FSANZ) assess GM organisms and foods for their effect on health, safety and the environment. Scientific evidence indicates that GM organisms and foods approved by the OGTR and FSANZ are no less safe than their non-GM counterparts. • The successful coexistence of GM and non-GM crops is possible and has been demonstrated both in Australia and overseas. This means that if there are any market access or trade benefits (including price premiums for non-GM products), they would be achieved regardless of whether GM crops are in the market. 
Draft Recommendation 6.1 The New South Wales, South Australian, Western Australian, Tasmanian and Australian Capital Territory governments should remove their moratoria (prohibitions) on genetically modified crops. All state and territory governments should also repeal the legislation that imposes or gives them powers to impose moratoria on the cultivation of genetically modified organisms by 2018. The removal of the moratoria and repeal of the relevant legislation should be accompanied by the provision of accurate information about the risks and benefits to the Australian community from genetic modification technologies. State and territory governments, the Office of the Gene Technology Regulator and Food Standards Australia New Zealand should actively coordinate the provision of this information. 
Draft Recommendation 6.2 The Australian Pesticides and Veterinary Medicines Authority should make greater use of international evidence in its assessments of agricultural and veterinary chemicals (including by placing greater reliance on assessments made by trusted comparable international regulators). Reforms currently underway in this area should be expedited. 
Draft Recommendation 6.3 The Australian, state and territory governments should expedite the implementation of a national control-of-use regime for agricultural and veterinary chemicals (which includes increased harmonisation of off-label use provisions), with the aim of having the regime in place in all states and territories by the end of 2018. 
Information Request 6.1 How well does the regulatory framework for technologies and agvet chemicals perform? Are the institutional arrangements and regulatory objectives underpinning the OGTR and APVMA appropriate and up to date? What improvements could be made? 
Information Request 7.1 Participants raised concerns about farm trespass, particularly as trespass can increase biosecurity risks. What strategies could be used to discourage farm trespass? Are existing laws for trespass sufficiently enforced in relation to farm trespass? 
Draft Finding  8.1 Despite the commencement of the Heavy Vehicle National Law and the establishment of the National Heavy Vehicle Regulator, there remain significant variations and inefficiencies in heavy vehicle regulation, including delays in processing road access permits. 
Draft Recommendation 8.1 States and territories that are participating in the Heavy Vehicle National Law should increase the number of routes that are gazetted for heavy vehicle access. Permits should only be required in locations where there are significant risks to public safety or infrastructure that must be managed on a case by case basis. There are arrangements in South Australia to allow road users to propose and undertake road route assessments for gazettal, and in Queensland to fund road assessments and gazettals on both state and local roads. These arrangements should be considered for adoption in other jurisdictions or expansion in respective states. 
Draft Recommendation 8.2 The Australian, state and territory governments should pursue road reforms to improve the efficiency of road infrastructure investment and use, particularly through the introduction of road-user charging for selected roads, the creation of Road Funds, and the hypothecation of revenues in a way that incentivises the efficient supply of roads. 
Draft Recommendation 8.3 The National Heavy Vehicle Regulator, road managers, and relevant third parties (such as utilities and railway companies) should ensure that requirements for moving oversized agricultural machinery are proportionate to the risks involved. To achieve this they should, wherever possible, make greater use of gazettal notices or other exemptions for oversized agricultural machinery, and issue permits for oversized agricultural machinery that are valid for longer periods and/or for multiple journeys. 
Draft Finding  8.2 The road safety remuneration system (including the Road Safety Remuneration Tribunal) imposed costs on businesses, including farm businesses, without commensurate safety benefits and its abolition will reduce this burden. 
Draft Recommendation 8.4 The Australian, state and territory governments should review the National Heavy Vehicle Regulator (NHVR) as part of the planned review of the national transport regulation reforms. The review should fully assess concerns over inefficiencies in heavy vehicle regulations, and identify ways in which new funds allocated following the abolition of the Road Safety Remuneration Tribunal could best be used by the NHVR to improve road safety in all states and territories. 
Draft Finding 8.3 Privatisation of major ports has the potential to increase economic efficiency, provided appropriate processes are followed to ensure that the public interest is protected through structural separation, regulation or sale conditions. Increasing the sale price of ports by conferring monopoly rights on buyers is not in the public interest. 
Draft Recommendation 8.5 The Australian Government should amend coastal shipping laws by 2018 to substantially reduce barriers to entry for foreign vessels, in order to improve competition in coastal shipping services.  
Draft Recommendation  8.6 Arrangements to support the biofuel industry — including excise arrangements and ethanol mandates — deliver negligible environmental benefits and impose unnecessary costs on farmers and the community. The Australian, New South Wales and Queensland Governments should remove these arrangements by the end of 2018. 
Food regulation 
Information Request 9.1 The Commission is seeking information on whether the new country-of-origin labelling system would deliver higher net benefits to the community as a voluntary system rather than as a mandatory system. 
Draft Recommendation 9.1 Food Standards Australia New Zealand should remove the requirement in the Food Standards Code to label genetically modified foods. 
Draft Recommendation 9.2 Food Standards Australia New Zealand should review the standard for the level of gluten allowed in foods labelled as ‘gluten-free’, taking into account scientific evidence, international standards and risks to human health, and set a maximum allowable parts per million level for foods to be labelled ‘gluten-free’. 
Information Request 9.2 The Commission is seeking information on the costs and benefits of egg stamping relative to alternative traceability systems for eggs (such as labelling on egg cartons and requiring food businesses to keep records). Are there examples where the source of an outbreak of salmonellosis caused by eggs could not have been traced in the absence of egg stamping? 
Information Request 9.3 The Commission is seeking information on whether there are opportunities to further reduce the burden of regulatory food safety audits while still achieving regulatory objectives, and if so, where these opportunities lie. 
Competition regulation 
Draft Recommendation 11.1 The New South Wales Government should repeal the Rice Marketing Act 1983. 
Draft Finding 11.1 Statutory marketing of potatoes in Western Australia has reduced consumer choice and increased the price of potatoes in Western Australia. The Western Australian Government’s plan to deregulate the industry will allow potato production in that state to respond to changing consumer preferences and reduce the cost of potatoes for consumers. 
Draft Recommendation 11.2 The Queensland Government should repeal the amendments made by the Sugar Industry (Real Choice in Marketing) Amendment Act 2015. 
Draft Finding 11.2 Existing competition regulation and oversight is adequate for managing the risk of supermarkets abusing market power in their dealings with farm businesses and wholesale merchants. Suggestions to amend exemptions that allow collective bargaining under section 45 of the Competition and Consumer Act 2010 (Cwlth) are unlikely to increase collective bargaining by farm businesses. 
Foreign investment in agriculture 
Draft Recommendation 12.1 The Australian Government should increase the screening thresholds for examination of foreign investments in agricultural land and agribusinesses by the Foreign Investment Review Board to $252 million (indexed annually and not cumulative). 
Draft Recommendation 12.2 The Australian Government should set application fees for foreign investment proposals at the level that recovers the costs incurred by the Foreign Investment Review Board in reviewing proposals, and should closely monitor the fees to ensure no over- or under recovery of costs. 
The way forward 
Information Request 14.1 The Commission is seeking feedback on possible strategies and governance arrangements for improving the incentives for policy makers to use regulatory impact assessment processes as an analytical tool to support the quality of regulation making, rather than as a legitimising tool or compliance exercise.