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Animal Products (Fees, Charges, and Levies) Regulations 2002: Amendment No 2

Proposal

Regulatory Impact Statement

Statement of the nature and magnitude of the problem and the need for government action

The New Zealand Food Safety Authority (NZFSA) through its Animal Products Group is responsible for setting and ensuring compliance with standards for the primary processing and export of meat, game, seafood, honey and other animal products. The Ministry of Agriculture and Forestry's Verification Agency (MAF VA) provides verification (of compliance with risk management programmes) to industry participants. A key responsibility of the MAF VA is to maintain the confidence of overseas authorities in the integrity of the New Zealand inspection service.

The animal product industries are in transition from the Meat Act 1981 (Meat Act) to the Animal Products Act 1999 (Animal Products Act). The Animal Products Ancillary and Transitional Provisions Act 1999 (Transitional Act) provides for the transition between the Meat Act and the Animal Products Act. During the transition period, two concurrent regimes operate. Services to industry are provided by the NZFSA and MAF VA either under the Meat Act or the Animal Products Act or to some businesses under both Acts.

It is Government policy to fully recovery costs from industry that are not met by the Crown. Cost recovery under the two regimes was designed to recover costs at the same level (for similar services) while both regimes are in effect. By the end of the transition period (1 July 2006) cost recovery will be fully under the Animal Products Act. To maintain full cost recovery total revenue to be recovered from industry levies for the NZFSA needs to decrease by $0.375 million in 2003/2004 mostly due to the refund of an over-recovery from the previous year. Total revenue for the MAF VA needs to increase by $0.904 million mostly as the result of the need to recover the cost of salary increases for veterinarians.

Currently a common set of fees, charges and levies operate under both Acts. The fees, charges and levies payable under the Meat Act were altered 1 November 2003 to take account of the changes in revenue required. From that date there will be inequity between the charging regimes preventing full recovery for the NZFSA and MAF VA from industries under the Animal Products Act. It will also mean two separate cost recovery regimes will need to be operated which would increase compliance costs to industry.

Statement of the public policy objective(s)

The objective is to provide fees, charges and levies under the Animal Products Act that recovers the full cost of services provided.

Statement of feasible options (regulatory and/or non regulatory) that may constitute viable means for achieving the desired objective(s)

Status Quo

Services to industry are provided by the NZFSA and MAF VA either under the Meat Act or the Animal Products Act or to some businesses under both Acts.

Currently a common set of fees, charges and levies operate under both Acts. On 1 November 2003the fees charges and levies payable under the Meat Act will change to the new rates listed in the proposed fee section in the Annex. Operators under the Animal Products Act, including those that move from the Meat Act will be subject to the existing fees listed in the Annex. Those fees will not fully recover the costs of MAF VA providing verification functions and will over-recover the cost of NZFSA services. The Animal Products Act provides that any under or over-recovery of cost will need to be recovered or repaid at the time the fees, charges and levies are next adjusted.

Maintaining this option will not meet the policy objective because the existing fees will not recover the actual cost of providing services and administering two separate sets of fees charges and levies is inefficient and will increase compliance costs to industry through having to operate two cost recovery regimes.

Preferred Option

To amend the fees, levies, and charges in the Animal Products (Fees, Charges, and Levies) Regulations 2002 (as detailed in the proposed fees listed in the Annex), to align them with those under being applied under the Meat Act 1981. No changes are being made to cost recovery policy (who is being charged) or charging mechanisms (how they are being charged).

Statement of the net benefit of the proposal, including the total regulatory costs (administrative, compliance and economic costs) and benefits (including non-quantifiable benefits) of the proposal, and other feasible options

Benefit To Government and Industry

The overall benefit to Government and industry is to ensure the full costs of services provided to the industry from the NZFSA and MAF VA are recovered in the same period in which the expenses were incurred.

Industry impacts of increased MAF VA Charges

Cost recovered for verification functions supplied by MAF VA will increase by $0.904 million from $28.317 million in 2002/2003 to $29.222 million in 2003/2004 for verification services supplied under the Meat Act and the Animal Products Act.

The establishment verification charges increases detailed in Part A of the Annex apply to 56 Risk Management Programmes for processing of export meat products. These premises range in size from small plants to large processing works. The impact of the increased charges will be distributed in the hourly charge across all users of verification services in line with their actual use.

The Circuit Verification Charge increases detailed in Part B of the Annex apply to 288 Risk Management Programmes not requiring full time MAF verification. They include 140 fish processing premises. Their sizes vary from small operators to large export processing companies. The impact of the increased charges will be distributed in the hourly charge across all users of verification services in line with their actual use.

Fifteen coolstore operators will have an increase of $520 each per annum in annual fees and 140 seafood premises will have an increase of $306 each per annum.

Industry impacts of increased NZFSA Charges

Processors who slaughter game will collectively pay $91,695 more in levies. The cost will be in proportion to livestock slaughtered through a 16-cent increase in the levy per head slaughtered.

Forty-five processors of shellfish have their annual fees increased from $4,493 per annum to $6,146 per annum.

Industry impacts of decreased NZFSA Charges

Collectively operators in the :

• Export Sector will pay $273,647 less in levies
• Local sector will pay $77,730 less in levies

Per head levies for lambs, sheep, cattle, goats and horses have decreased. It is not possible to determine the impact on premises affected as many premises process multiple species of stock in varying proportions.

Overall the seafood sector will pay $158,000 less in annual levies. One hundred and twenty five processors of wetfish (ranging from small business to large companies) have their annual fees reduced from $4,603 per annum to $2,266 per annum.

Statement of consultation undertaken

Sector representatives from the Export and Local Meat, Poultry, Seafood, Cold Storage, Petfood and Game were consulted at sector meetings on the proposed fee, charges and levies. Consulted parties were provided with written budgets and financial statements and follow up letters confirming the results of the consultation.

In general there were no issues raised with the proposed NZFSA charges and levies. Regarding MAF VA charges, there was no significant opposition to the proposals from export and local meat and game processors. The New Zealand Petfood Manufacturers Association and the Poultry Association supported the fee increases. The coldstorage sector strongly proposed that the present rates should be maintained, i.e. there be no increases. The MAF VA responded that the proposed charges reflect the true cost of providing it's services to the sector and that charging a lower fee would involve introducing a subsidy. The seafood sector industry representatives (which represents the interests of both wetfish and shellfish) accepted the need to remove an apparent subsidy from the wetfish sector to the shellfish sector but

noted that some processors of shellfish would be unhappy with the increased charges. However, the NZFSA has not received any concerns from shellfish processors.

The Department of Prime Minister and Cabinet and Treasury were consulted during the development of this paper.

Business compliance cost statement

Apart from proposed fees, charges and levies listed in annex the no other compliance costs have been identified.

The proposed charges and levies will apply to 344 currently registered Risk Management Programmes under the Animal Products Act plus any that transition from the Meat Act or from new businesses.

It is not possible to accurately predict the impact of the changed fees, charges and levies will have on individual businesses. This is because businesses may have more than one risk management programme or under a single risk management programme a business may operate in multiple sectors.

The overall impact of the changed fees and charges is detailed in the RIS.

In order to minimise the impact on business NZFSA and MAF VA will notify by mail or direct contact the new fees, charges and levies to each company and industry representative organisations.

Annex: Proposed Fees and Charges

Part A Establishment Charge

	Proposed fee	Existing Fee	Percentage Change
A Basic hourly charge on export and game sectors For each hour normal time (but not penal time hours or 1½ or double time hours) spent by a verifier in verification functions for -
(a) export sector	$25.48	$21.00	21%
(b) game sector	$25.48	$21.00	21%
B & C Hourly charges for verifiers - all sectors including the game sector 1. Veterinary verifier- (a) non-shift rates:
per hour	$50.81	$48.45	4.9%
per hour at 1½ time	$67.79	$65.18	4%
per hour at double time	$90.38	$86.91	4%
(b) shift rates No change to current rates
(c) penal rates the relevant rates specified in paragraphs (a) and (b), plus an additional rate of	$19.72 per hour per verifier for penal time worked at penal rate 0.5	$17.79	10.8%
	$39.43 per hour per verifier for penal time worked at penal rate 1.0	$35.58	10.8%
(d) reserve rate	$39.43 per hour	$35.58	10.8%
2. Supervising veterinary verifier (a) non-shift rates:
per hour	$55.26	$53.59	3.1%
per hour at 1½ time	$68.46	$65.83	4%
per hour at double time	$91.28	$87.77	4%
(b) shift rates No change to current rates
(c) penal rates the relevant rates specified in paragraphs (a) and (b), plus an additional rate of	$21.94 per hour per verifier for penal time worked at penal rate 0.5	$20.28	8.2%
	$43.87 per hour per verifier for penal time worked at penal rate 1.0	$40.56	8.2%
(d) reserve rate	$43.87 per hour	$40.56	8.2%

Part B Circuit charge

	Proposed fee	Existing Fee	Percentage Change
A Basic hourly charge on primary processors who slaughter or dress animals other than fish (a) lambs, sheep, bobby calves, pigs, cattle, horses, goats, and deer, for each hour spent by a verifier in verification function b) game	$13.25	$11.19	18.4%
B Basic hourly charge on secondary processors (other than processors of fish and operators of coolstores or other storage premises) (a) for game processors, for each hour spent by a verifier in verification function (b) for all other processors, for each hour spent by a verifier in verification function	$13.25	$11.25	18.4%
C Annual charge for coolstores or other storage premises, and for processors of fish (To be pro-rated on a monthly basis where verification contract for less than a full year)
(a) coolstores or other storage premises, per coolstore or other premises	$770.00	$250.00	208%
(b) primary processing (including on a fishing vessel) of fish other than bivalve molluscan shellfish	$475.00	$169.13	180%
(c) primary processing of bivalve molluscan shellfish	$1,328.83	NC	0

D Monthly charge for fishing vessels Charge per vessel (in addition to any relevant charge under item C)	$18.00 per month	$14.09	28.5%
E Hourly charges for verifiers (for all verification activities) (1) non-veterinary verifier:
(a) non-penal rates: per hour	$72.34	$67.34	7.4%
per hour at 1½ time	$92.58	$82.61	12%
per hour at double time	$123.44	$110.15.	12%
(b) penal rates the relevant rate specified in paragraph (a),plus an additional rate of	(i) $30.86 per hour per verifier for penal time worked at penal rate 0.5	$27.54	12%
	$61.72 per hour per verifier for penal time worked at penal rate 1.0	$55.08	12%
(2) veterinary verifier: (a) non-penal rates: per hour	$86.38	$85.04	1.5%
per hour at 1½ time	$113.65	$109.15	4%
per hour at double time	$151.53	$145.53	4%
(b) penal rates the relevant rate specified in paragraph (a),plus an additional rate of-	(i) $37.88 per hour per verifier for penal time worked at penal rate 0.5	$36.38	4%
	(ii) $75.76 per hour per verifier for penal time worked at penal rate 1.0	$72.77	4%

Part C - NZFSA Programme Charges

	Proposed fee	Existing Fee	Percentage Change
Levies per head where animals slaughtered and dressed (GST exclusive)
Lambs, bobby calves, goats	$0.10 per head	$0.12	-16.6%
Sheep	$0.11 per head	$0.12	-11%
Pigs	$0.25 per head	$0.21	19%
Cattle, horses	$0.69 per head	$0.72	-4.1%
Deer	$0.83 per head	$0.67	24%
Ostriches and emus	$5.00 per head	$5.00	0%
Other species (other than fish)	$0.20 per head	$0.20	0%
Annual levies for fish
(a) primary processors of fish other than bivalve molluscan shellfish	$2,266 per annum	$4,603	-51%
(b) primary processors of bivalve molluscan shellfish	$6,146 per annum	$4,493	37%