KEY POINTS:
The commerce select committee's report on its hearing into the State-Owned Enterprises (AgriQuality and Asure) Bill was released on Friday after the fastest turnaround in memory, less than six weeks after it was introduced.
As the Meat Industry Association (MIA) chairman Bill Falconer told the select committee, if
one wasn't aware of the background, one would wonder what on earth was going on. The average person could be forgiven for wondering why it is so important.
It's important because Trevor Mallard, Minister for SOEs, tried to prevent competition between two Government agencies by forbidding one of them from entering a particular area of business - meat inspection - while at the same time providing for the agencies to merge, if their boards agreed.
Either way this would preserve the mandated monopoly of meat inspection by Asure, contrary to the provisions of the Commerce Act, which the bill explicitly ensures do not apply in this instance.
The select committee has recommended that the bill proceed with a commitment secured by United Future to an amendment providing for a Commerce Commission review of the market for meat inspection services and for the NZ Food Safety Authority (NZFSA) to continue negotiations with trading partners to recognise alternatives, such as private-sector providers.
Meat inspection was a function performed by MAF until it split into policy and regulatory units, both still part of the ministry, and commercial units in 1998. The commercial business unit, MAF Quality Management, was divided into two SOEs, AgriQuality and Asure, with Asure acquiring responsibility for employing the meat inspectors, all members of the PSA.
AgriQuality has concentrated on building an international business providing integrated quality assurance services from farm to fork, as well as carrying out Tb testing and disease eradication programmes. But the one missing piece of its quality assurance service has been meat inspection, which is why it has been trying to gain approval to provide an alternative service for several years.
It kept coming up against a ministerial brick wall until November last year when the Minister for Food Safety, Annette King, reconfirmed Government commitment to the provision of meat inspection by Government-owned agencies, including SOEs and CRIs, which appeared to open the door.
However, Trevor Mallard slammed it shut again when he told AgriQuality to stick to its core business, strange advice when meat inspection is just that and only last June he was encouraging SOEs to diversify into new areas.
Last year the PSA advised its members and the MIA it had reached agreement with the Government to preserve Asure's meat inspection monopoly. The MIA was disappointed to be informed of Government policy in this way by a trade union and wrote to Jim Anderton, Minister of Agriculture, asking for clarification which does not appear to have been forthcoming. In his recent submission to the select committee, Bill Falconer states: "We were stunned that the Government could take such a profound decision without consultation ... and that the PSA should have been given or assumed the task of briefing the industry".
So the first question which arises is why the Government was so committed to protecting one small SOE that it found all the reasons it could to stop any new entrants into meat inspection, while specifically removing the threat of the Commerce Act.
We can only assume its relationship with the PSA is more important than commercial principles and concern for the meat industry, which processes and markets $5 billion of meat exports each year, equivalent to 30 per cent of primary-sector revenue and 17 per cent of New Zealand's exports. This is hard to fathom when 2007 is designated Export Year, but then this Government hasn't shown much understanding of exporters' woes.
The second question is why meat inspection must be a Government-delivered service in the first place. It always has been historically and US and EU regulatory authorities have insisted on meat inspection and verification being performed by a Government agency. In fact less than a year ago the overseas authorities finally approved the provision of these services by an SOE rather than a Government department. NZFSA has since continued the process of persuading our overseas partners to accept the concept of private providers as permitted under New Zealand law and under the Codex Alimentarius standards of the World Health Organisation.
The Government is clearly sticking to its belief that New Zealand's international reputation for food safety is dependent on maintaining strict control of meat inspection, although it clearly won't always need to be delivered by a Government agency. Overseas authorities, and indeed New Zealand, have been moving away from mandatory inspection to acceptance of food assurance processes, for which NZFSA provides the framework.
The bill to permit the merger of AgriQuality and Asure would in theory change nothing apart from removing an anomaly. It is therefore largely unnecessary, although it will remove the stupidity of having two small SOEs, originally set up with different roles, which are allowed to compete in peripheral areas like Tb testing, but not in the one which is important, meat inspection. The merger will lock in the monopoly to the detriment of the meat industry which will be forced to pay the price regardless of performance, whereas at least until recently Asure's position was tempered by the knowledge AgriQuality was breathing down its neck. The MIA's submissions to the select committee were not designed to prevent the merger, but to avoid a permanently mandated Government monopoly of services its members have to pay for.
The best outcome would have been for the Government to accept that there must be competition and allow AgriQuality to enter meat inspection, and longer term for NZFSA to continue discussions with overseas authorities to allow private service providers. However the select committee appears to have achieved the next best outcome with its recommended amendments.
The worst outcome would have been for this dog's breakfast of a piece of legislation to proceed and to end up with one Government-owned monopoly providing meat inspection services for our second biggest export earner.
Let's now keep our fingers crossed that the amended bill passes its second reading.
* Allan Barber is a business consultant and meat industry commentator.
