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Cost Recovery Proposals under the Animal Products Act 1999

11 Proposed Fees and Charges – Industry Goods

This section proposes the methodologies for recovering industry good costs. Specific options on a sectoral basis are proposed in accompanying annexes.

11.1 Generic Methodology

The nature of industry goods means that they cannot be charged to users in line with use because use by one person does not detract from the use by any other. One issue, therefore, is how to allocate costs fairly and efficiently amongst all users. For primary processors there are three main options for achieving this:

1. Allocate costs evenly amongst all participants. This is current practice for recovering industry (programme costs) from the seafood, shellfish and some secondary processing and stores. It is a low cost mechanism but has equity issues in that small and medium sized businesses are paying the same rates as large business. If the costs are significant they could be a barrier to entry or force small operators out of business.

2. Costs could be allocated to business in line with benefit gained from the use of the services as measured by the size (ie, product throughput) of the business. This is current practice for recovering industry (programme costs) from the meat and game sectors. This option would be more equitable for small and medium sized business, and would impose higher costs on larger businesses. It is a less cost effective mechanism than a uniform charge as there would be higher cost involved in setting up and operating the charging regime and verifying throughput records. This cost could be minimised through setting a threshold where operators below a certain size would pay a fixed fee instead of a levy.

3. Differential annual fees could be set based on the size of a business (large, medium or small). This is current practice for recovering industry (programmes costs) from the dairy and wine industries. This option would be equitable for small and medium sized business, but would impose higher costs on larger businesses. It is a more efficient mechanism than levies but could influence the behaviour of companies at the margin between each of the charging levels.

Secondary processors

The scope and scale of secondary processors makes it difficult to identify a fair and equitable basis for charges - product types, values and throughputs vary enormously making it difficult to identify mechanisms to base charging on. One option is to recover costs from secondary processors by applying a uniform charge and allocating costs evenly amongst all participants. It is a cost effective mechanism but has equity issues for the reasons identified above for primary processors. Alternatively – secondary processors can be charged on size (small, medium, large) but there is difficulty in determining a dominator of size (eg, $ value volume, product type). Overall, the most efficient solution is the one that achieves the highest net benefit.

An alternative option is to recover secondary processing costs as a surcharge on to primary processing costs. This would be a cost effective recovery mechanism as the mechanism would already be in place to charge primary processors. However, this may raise equity issues in determining how much each primary sector would pay, and in the issue of cross-subsidy between businesses.

11.2 Export/Domestic Split

It is proposed that New Zealand standards cost be allocated across all processors whether they are processing for the domestic or export markets. This is because New Zealand standards set the minimum requirement for both export and domestic markets.

Export costs should only fall on those who are involved in processing for export. The mechanisms available are a surcharge for exporters on top of the New Zealand standards charge. Although, it would be equitable to apply such a surcharge in line with product actually exported it may not be feasible, practicable or cost efficient to identify which product will actually be exported at the point of primary processing. A more feasible option may be to apply the export rate to all product processed in a plant that exports. This is not as equitable as charging export product only but would be administratively more efficient to operate.

An alternative option is to recover market access and export standard setting costs through the E-cert (Electronic Certification) regime. A rate could be set in line with tonnages exported and applied to primary or secondary processors (whoever is the last port of call prior to export). Such a system would be administratively efficient and equitable as the charges levied would be in line with the benefits received. However, it is not technically feasible to set up such a system in the short term and an alternative system would be needed for industries not using E-cert or for those that don’t require certification.

It is noted that for industry-initiated provision of industry goods such as those provided by industry representative organisations, the industry’s preferred method is for recovering those costs is a charge based on size, ie, through levies or similar systems.