Grain Producers Australia Response to DAFF First Principles of Cost Recovery at the APVMA

21 February 2014

Department of Agriculture
Agvet Chemicals (Domestic & International Policy)
Agricultural Productivity Division
GPO Box 858
CANBERRA ACT 2601

Grain Producers Australia response to DAFF First Principles of Cost recovery at the APVMA consultation paper

Thank you for the opportunity for Grain Producers Australia to provide a response to the Department of Agriculture, Fisheries and Forestry First Principles of Cost recovery at the APVMA consultation paper[1]. The grains industry represented by Grain Producers Australia(GPA) represents Australia's broadacre, grain, pulse and oilseed producers at the national level. GPA was created to foster a strong, innovative, profitable, globally competitive and environmentally sustainable grains industry in Australia. The objectives of GPA are to establish a strong independent national advocate for grain producers based on a rigorous and transparent policy development process; engage all sectors of the Australian grains industry to ensure operation of the most efficient and profitable grain supply chain; and facilitate a strategic approach to Research, Development and Extension (RDE) intended to deliver sound commercial outcomes from industry research.

GPA in discussion with our consultants has prepared a response to the questions and issues detailed in the consultation paper. GPA contracted Dr Rohan Rainbow of Crop Protection Australia to provide advice on this paper. Dr Rainbow who previously managed the crop protection program for the Grains Research and Development Corporation (GRDC) for over 7 years has also collaborated in this response with Mr Kevin Bodnaruk of AKC Consulting who has managed the GRDC Minor Use program on behalf of the grains industry since 2001. GPA has also consulted with Ausveg the next largest pesticide user after gains on common agvet issues for both industries.

In principle, GPA supports the implementation of a cost recovery model at the APVMA, which recognises that a user pays system and equity of investment and return by commercial companies should be rewarded. However applying these changes to the emergency and minor use programs will result in a significant cost shifting from current investment by commercial companies through the APVMA levy to reliance of investment by agricultural growers and animal industries, particularly through the relevant Research and Development Corporations (RDCs) such as the GRDC for the grains industry. GPA has estimated that the increased cost in annual fees to the GRDC for renewal of 33% of its current 150 minor use permits would be over $370,000 per annum. Based on the DAFF legislative changes to encourage transfer of minor use renewals to label, this additional cost would potentially increase to $1.26 million per annum. Based on the loss of potential new investment of a finite budget for grains minor use investment programs and the loss of industry outcomes based on a detailed benefit costs analysis of investment in minor use of 13:1 benefit to cost[2], this would result in an impacted productivity loss to the grains industry of $4.81 million per annum for permit renewal and up to $16.38 million for registration per annum respectively. This is an additional cost to the grains industry that cannot be accepted. A model that maintains commercial registrant investment in a minor and emergency use program such as the current levy system is required, particularly as many of these companies are beneficiaries of these minor use permits through product sales.

Given the quantum of fees for the minor use program proposed under a fully cost recovered funding model any increase in fees would be damaging to productivity and sustainability of the grains industry. A consistent set fee, at the currently charged level should be maintained or a new model that ensures commercial manufacturer investment equity in this program be proposed. GPA proposes that additional government appropriation is required to provide effective support to a cross industry, RDC led initiative in minor use.

GPA recognises that there are some aspects of APVMA activities that require independence in evaluating risks and impacts of pesticide and veterinary medicines and it is difficult to see that this independence can be adequately maintained and resourced when considering the seasonal impacts of pesticide sales and revenues from registrations which will impact on APVMA revenues. It is recognized that there are some aspects of APVMA activities including compliance, adverse event reporting, chemical review, informing policy, general research, website maintenance, reporting and stakeholder consultation which require independence by the regulator and which require adequate funding for delivery regardless of seasonal impacts on sales or company investment in registrations. GPA sees a clear need for government appropriation in these programs as is the case with Australia’s major agricultural competitors including Canada and the USA.

Agriculture including the grains industry is facing current productivity challenges, which will significantly increase within the next decade. With declining productivity improvement and changes to external factors in managing weed, pest and disease risk, Australia more than ever requires access to new and safer pesticide and veterinary medicines.

Grains, horticulture, viticulture and animal industries are facing significant emerging Biosecurity threats and impact of pesticide resistance. Australia is no longer on the global priority list for pesticide and veterinary medicine commercialization as it was 20 years ago. Some industries in Australia including grains are currently missing out on up to 50% of the potential new technologies which key competitors in Europe and the USA have access to. Australia is experiencing increasing Market failure of investment in agricultural pesticides and veterinary medicines.

Without significant change, Australian agricultural productivity will decline, and emerging industries will struggle to establish and meet multi-cultural consumer demand for an increasing diverse range of foods. A cost recovery model for implementation of an improved approach to minor use and specialty needs of pesticide and veterinary medicines is proposed following consultation with many RDC’s and peak industry bodies. The options for this model are detailed in the following response.

GPA understand that a detailed economic analysis of the full impact of proposed cost recovery changes to GRDC and HAL minor use programs is underway and will be tabled by the 7 March 2014. GPA has concentrated a response mainly to Section 6 of the consultation paper, focusing on Analysis of potential models as this has a significant impact on the GRDC research programs being able to effectively deliver outcomes to the grains industry.

If you would like to discuss any of these comments and suggestions further in detail, please either myself on 0428 504 544 email or Dr Rohan Rainbow on 0418 422 482 or email .

I look forward to receiving further feedback and consultation from the review of these responses.

Yours sincerely

Andrew Weidemann

Chairman GPA

Grain Producers Australia response to DAFF First Principles of Cost recovery at the APVMA consultation paper

On behalf of the grains industry, GPA is grateful for the opportunity to make this submission to the Department of Agriculture’s First Principles Review of Cost Recovery at the APVMA consultation paper. In principle, GPA supports the implementation of a cost recovery model at the APVMA, which recognises that a user pays system and equity of investment and return by commercial companies should be rewarded. However applying these changes to some parts of the minor use program which includes emergency use will result in a significant cost shifting from current investment by commercial companies through the APVMA levy to reliance of investment by agricultural growers and animal industries, particularly through the relevant Research and Development Corporation (RDC) such as the GRDC for the grains industry.

Specific responses to key sections of the consultation paper

Outlined below are comments to those questions for which responses were specifically sought.

4.2. Analysis of Issues and Goals

• Are there any further high level themes, issues or goals that should be considered in analysing APVMA’s cost recovery framework?

The issue of chemical access is a critical one for the grains industry for the cost effective and timely management of pests, weeds and diseases. The understanding of the need for producer access to a broad range of pesticide technologies and the cost efficiencies of registration in a broad number of crops in an original/single application has not been clearly recognised in the consultation paper. The grains industry as does the horticulture industrythrough joint discussions are alarmed over certain assumptions regarding agvet chemical permits that appear to underpin elements of the Consultation Paper. Firstly, the Paper seems to suggest that minor use permits constitute a form of private good, i.e., that those who rely upon a permit are a narrow and identifiable group. The primary industries would contend that once granted permits are available to all persons. In fact, other than for prescribed chemicals, it is virtually impossible to exclude or restrict individuals from relying upon a permit.

The Commonwealth Cost Recovery Guidelines indicate that “Cost recovery through a fee could be appropriate if the applicant were to receive an ‘exclusive capturable commercial benefit”. In the case of agvet chemical permits this is not possible. As an APVMA permit is effectively available to all persons generally, there is no exclusive capturable commercial benefit to be gained by the applicant, i.e., the applicant cannot recoup their costs from those that can use a product under permit.

The second concern relates to a somewhat misguided view around the drivers for minor use and permits. The following statements “ongoing subsidisation of application fees for permits may discourage applicants from registering” and “How could potential registrants be incentivised to apply for registration…. rather than relying on users to apply for permits” suggests some form of market distortion may exist with registrant’s decision making influenced by grower’s seeking minor use permits. The consultation paper appears to overlook the fact that registrants seek to register agvet chemicals in those crops they believe will provide sufficient economic return to justify the investment. There are a large number of products that have been registered in high value horticultural crops, but not in the grains industry, for which these products are registered overseas.

This situation is further highlighted when new chemical registrations are compared between Australia and other international jurisdictions. While the number of new agvet chemicals being registered in Australia is comparable with other markets, the number of different types of crops included on Australian labels is a third that of the USA and Canada demonstrated in table 1. This is a direct consequence of the relatively small size of the Australian market, not the availability of minor use permits inhibiting registrations.

Table 1. Comparison of Recent Agricultural Chemical Registrations in Australia, Canada and the USA (2008 – 2012)

Chemical Type / Australia / United States / Canada
No. of New Chemicals / Av No of Crops per label / No. of New Chemicals / Av No of Crops per label / No. of New Chemicals / Av No of Crops per label
Fungicides / 10 / 7 / 9 / 32 / 7 / 21
Herbicides / 8 / 2 / 7 / 11 / 5 / 11
Insecticides / 7 / 9 / 6 / 25 / 4 / 30
Plant Growth Regulators / 1 / 1 / 0 / 0 / 0 / 0
Total / 26 / 19 / 25 / 68 / 17 / 62

Compounding this problem is that there are rapidly emerging pesticide resistance issues in the grains industry for which there are few alternatives except for a number of new products that have been registered in horticulture. This has resulted in the need for a number of minor use and emergency use permits. It is from these types of situations that a significant portion of permit needs arise as successful pest management is an integral part of improving industry productivity to meet consumer demands.

Are there any additional considerations with respect to these issues, aside from those that have been analysed in further detail in sections 5 and 6 of this paper, which would be relevant in determining the best suited cost recovery model for the APVMA on a first principles basis?

Grains, horticulture, viticulture and animal industries are facing significant emerging Biosecurity threats and impact of pesticide resistance. Australia is no longer on the global priority list for pesticide and veterinary medicine commercialization as it was 20 years ago. Some industries in Australia are currently missing out on up to 50% of the potential new technologies which key competitors in Europe and the USA have access to. Australia is experiencing increasing Market failure of investment in agricultural pesticides and veterinary medicines. Without significant change, Australian agricultural productivity will decline, and emerging industries will struggle to establish and meet multi-cultural consumer demand for an increasing diverse range of foods.

There has been little consideration in the consultation paper of direct comparison of cost recovery models from overseas, particularly Canada and the USA and the potential impact that an Australian cost recovery system being an additional impediment to investment and commercialisation of pesticide and veterinary medicines in Australia. A considerable point of difference for cost recovery of application fees between Australia and overseas will result in consideration of that investment being redirected to competing markets overseas. With considerable market failure of investment resulting in reduced technology access for agricultural industries already occurring, there is significant risk that many of the cost recovery model options proposed could potentially increase this market failure with drastic impacts to agricultural productivity in Australia. There is clearly a need for additional independent economic evaluation of the potential investment impacts that some of the options proposed may deliver, particularly in programs currently addressing market failure including the minor use program.

5.1 General Considerations

•If the APVMA continues to recover costs through a fee and levy model, are there any ways in which the APVMA’s financial stability can be maintained, aside from the use of a financial reserve?

Seasonal variation and impacts due to climatic influence will always be an issue. Reserve funds to manage this variation will continue to be required. Key assumptions that a transfer to upfront fees will reduce these effects are flawed as demonstrated in the 2003-2006 drought where registrant R&D investment and subsequent registration following this period declined significantly, e.g., there were only three new pesticide active ingredients registered in 2006. Also the capacity to meet increased registration need and staff demands in an emergency situation will challenge the up-front fee cost recovery model. The APVMA will continue to require access to reserves to manage seasonal effects.

•If the APVMA’s fees and charges were to be indexed, would you support an automatic mechanism and do you have views on the basis of such a mechanism (e.g. a set split between CPI and WCI)? Are there ways to encourage the APVMA to generate cost efficiencies?

The APVMA should always be looking for opportunities for great efficiencies in its processes. An indexed approach will not encourage this. GPA does not support this.

•Are there any additional general considerations that should be taken into account in determining the best suited cost recovery model for the APVMA, aside from those that have been analysed in sections 4 and 6 of this paper?

The cost recovery model should not stifle industry competition, there are risks that an up-front flat-fee cost recovery model could reduce innovation, or increase market failure in technology delivery of niche industry needs, particularly by smaller companies. This has significant implications for small and emerging industries.

5.2. Avenues for Fee Setting

•Would any of the on the general fee setting mechanisms encourage or discourage you in accessing the APVMA’s services?

Consideration of alternate cost recovery models should be tabled. These include a deferred payment options with a discount being paid for up-front payment associated with reduced administrative costs. This may address some market failure risks by small companies where the potential market sales are unclear and also addresses a mechanism to ensure that seasonal variation such as the drought in the early to mid 2000’s provides a mechanism to adjust company cash flow and ensure the continued flow of registrations and technology delivery which will also smooth annual APVMA workflow loads. Options for withdrawal of a registration and the resulting remaining fees would also encourage product innovation through management of costs related to new market sales risks. Risks of innovation and seasonal impacts would obviously then be shared between the APVMA and he registrant, but will address government priorities of ensuring the best possible incentives for technology access for agricultural industries. The APVMA reserve scheme would need to be in place to support this approach.

Which of the general fee setting mechanisms and their variants would be the easiest to understand and apply in conducting your business?

While options around a full up-front fee cost recovery model would seem appropriate for the majority of commercial registrations, this model does not fit all agricultural industry needs, particularly for growers when it comes to ongoing functionality of an Australian minor and emergency use pesticide program. GPA proposes that this program is de-coupled from the cost recovery program and its funding and operations is discussed with government at a strategic level.

Additionally, we seek stakeholder input on the preferred general mechanism for fee setting from those analysed above and the reasoning as to why it is preferred.

An up-front fee based on cost recovery with up-front discount and deferred payment options is supported by GPA, however the minor and emergency use programs which are currently supported by cross subsidisation by company levy should continue in some form either by levy or by an annual company fee or by government appropriations or a combination of all three. There should also be ability to negotiate payment in extreme circumstances, ie providing flexibility in payment for small industries for emergency situations, especially for existing permit holders in the minor use program.