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Standing Committee on Economics
18/08/2011

SOUNESS, Mr Richard, General Manager, Food Branch, Department of Agriculture, Fisheries and Forestry

BRAY, Ms Ann, General Manager, Industry and Small Business Policy Division, Department of Innovation, Industry, Science and Research

[10:15]

CHAIR: On behalf of the committee, I would like to welcome representatives of the Department of Agriculture, Fisheries and Forestry and the Department of Innovation, Industry Science and Research to today's hearing. I remind you that although the committee does not require you to give evidence under oath, the hearing is a legal proceeding of the parliament and warrant the same respect as proceedings of the House or the Senate. The giving of false or misleading evidence is a serious matter and may be regarded as contempt of parliament. Welcome to today's hearing. I invite you to make an opening statement.

Mr Souness : Thank you. Just briefly, Chair, the department shares with the Department of Health and Ageing responsibility for food regulatory policy. We certainly have a strong active role in the development of food standards in a policy sense. Our minister is a member of the Australia New Zealand Food Regulation Ministerial Council as well. As a department with an interest in the competitiveness of the Australian food industry, we have some concerns about the potential for significant costs to the Australian food industry with potentially some uncertain outcomes as a result of this bill. We have some potential concerns about precedents that could be set for the food regulatory system, as discussed previously with FSANZ Australia New Zealand.

We need to recognise the Australian food industry's endeavours already with voluntary arrangements in terms of labelling and action in terms of unsustainable palm oil, and also the difficulties, potentially, of enforceability of the outcomes of this bill, and even potential unintended health consequences as well. I would like to leave it at that at this stage.

Ms Bray : As part of the machinery of government changes in September 2010 the department of innovation was given responsibility for food managing industry policy. The department of innovation is working to support a productive, innovative, competitive and sustainable food processing sector in Australia. Therefore, the department has a direct interest in this bill and how it relates to the food processing sector. The Australian Food and Grocery Council and ACCORD, the consumer products group, has advised us that palm oil is used in many products, including cooking oil, margarine, instant foods, snack foods and also non-food products such as toiletries. The Australian Food and Grocery Council has advised us also that it is used in a large number of food and grocery products, and I have heard the number of up to 80 per cent being flagged, but they would need to confirm that.

The department's primary concern with the bill is that it will require food manufacturers to change their existing labels on products, and according to the AFGC this will be a costly exercise for industry. They have estimated a cost of changing labels to between $5,000 and $15,000 per product stock keeping unit. We are also concerned that the bill, as amended, may extend its reach to goods other than foods, and palm oil derivatives as well. We are also concerned that if the states and territories did adopt, through food legislation rather than through a code, we could have different labels for different states. This also making us less competitive in terms of increased costs, and if it is not part of the code again our industry could become less competitive compared to New Zealand and overseas countries. So it has fairly large ramifications for our industry. In general terms, the standard at the moment requires ingredients to be labelled as either animal or vegetable oil, and certain oils—as we have heard—including peanut, soybean or sesame, need to be declared separately to inform consumers who might have an allergy. We also have concerns that, with the bill as it is, no lower limit has been identified. Even one per cent; what is the lowest? How low do you need to go if you are including it to make it part of the label? We are also concerned about how difficult it might be to enforce this bill with regard to the definition of 'sustainable palm oil' labelling. Coles Supermarkets has raised this with our department. Of specific concern is that there is no distinction between sustainable and unsustainable palm oil production. There is little difference in properties in those materials. Therefore, it would be difficult to measure it. Of course, the protection of endangered species is very important, but we think it is ineffective to use food labelling to effect a policy response to environmental and ethical issues of deforestation and wildlife matters. The main objective of food labelling legislation is to ensure the safety and health of the consumers, and we believe that should remain the main objective of food labelling.

The palm oil issue is primarily an environmental and ethical issue and requires a more targeted, immediate and effective response designed specifically for that purpose, in our view. The labelling of palm oil is not such a response. We believe that more support for environmental and international aid measures would be a more effective way to limit deforestation in South-East Asia with the result of potential destruction of the habitat for wildlife.

The department also encourages voluntary industry initiatives to address this issue. Many industry players already label palm oil voluntarily on their products. For example, Coles and Woolworths already voluntarily indicate if it is part of an ingredient in many of their home brand products. In addition, the Roundtable on Sustainable Palm Oil was formed in 2004 with the objective of promoting the growth and use of sustainable oil palm products through credible global standards, an engagement of stakeholders, including the oil palm producers, palm oil producers or traders, consumer goods manufacturers, retailers, banks, investors, et cetera. Unilever and Coles Supermarkets are members of that group. That particular group is the main certification body for certified sustainable palm oil. According to that body—the roundtable—certified sustainable palm oil accounts for about eight per cent of the total global production of palm oil.

The Australian Food and Grocery Council believes that by 2015 the majority of palm oil used in Australia will be certified sustainable palm oil. Many industries at the moment consider this a unique selling point and are putting that on their labels voluntarily. This will drive the demand in that area. We also believe that it would be of value to wait for the government's response to the review of food labelling law and policy, which will be expected in December 2011. I think that probably finishes off the department's views on this matter.

CHAIR: Thank you. You both mention costs as an issue. I think the example that was used was that, if states enacted different legislation, there would be different labelling in each state, which would be an additional cost. I understand that. Are you talking about any other cost issues?

Mr Souness : Industry often uses packaging material that incorporates the labelling information. It is not a matter, necessarily, of sticking a label onto a jar any more. The packaging material itself is often quite sophisticated and incorporates the labelling information. To maximise the cost advantages, they will often do large print runs and production runs of packaging material with the label, hold on to that material for quite some time and run it down before they order their next lot. If a requirement came about for a change of label quite early on in that production cycle of packaging and labelling material, essentially that material would no longer be able to be used and the industry would then have to write that cost down.

CHAIR: It is a timing issue. If there were a longer lead time in relation to putting palm oil on labels, that would overcome that particular issue, would it not?

Mr Souness : Traditionally, when Food Standards Australia New Zealand have introduced new labelling requirements the standard has allowed periods of between 12 months and two years for implementation, to allow companies to run down their existing stock.

CHAIR: Are there any other issues of cost that you want to raise?

Mr Souness : Australian Food and Grocery Council are appearing this morning as well, and they can talk more accurately about that. Certainly reformulations that may be necessary and changing supplies can lead to a need to change labels if the label is much more specific, and that could add costs as well. But they are probably best placed to talk about that.

CHAIR: What about the issue of changing the form of oil, depending on the cost of it, which may happen more regularly? They may use palm oil for a period but then, if another oil becomes cheaper, they substitute that. Are there examples of that happening regularly?

Mr Souness : Again, they would have to give you specific examples. Industry will chase down products with functional requirements that they need at a price that helps keep their costs down as much as possible. Palm oil does have some unique functional properties—it is solid at room temperature—which have certain uses as well. Again, the AFGC would be best placed to give specific details.

CHAIR: The other comments you made that I am interested in concerned unintended health consequences. What did you mean by that, and can you give us some examples?

Mr Souness : As I said, palm oil has some unique functional properties. It is solid at room temperature, although it can be fractionated down to some much healthier oils, the high oleic oils as well, which are high in monounsaturates. But to achieve oils that are solid at room temperature you often have to hydrogenate the oils—margarine is a good example of that. The unintended consequence of that is that you can end up with more trans fats in those hydrogenated oils. There are endeavours by both the government and the food industry to reduce trans fats, which are probably the fats of most significance in terms of public health at the moment globally. The industry has a program to reduce trans fats in the oils. If they had to shift to hydrogenated fats to get fats that are

Mr BILLSON: Are you aware that the bill was amended by the Senate? Much of your comment was completely irrelevant to the bill that is here. There is nothing to do with sustainability remaining in the bill; you spent some time talking about that. Would you like to reconsider your submission so that it actually responds to the bill that has come out of the Senate and not the one that went in? It seems as though that submission was about the bill that went to the Senate inquiry—which is fine; I am all for using material that has already been prepared. But the bill has been substantially amended, so the concepts that you were talking about in terms of sustainability/unsustainability are not in the bill any longer. In regard to the issue about the start-up dates being changed, the bill, as amended in the Senate, talks about a 12 months effect for manufactured products. There is no impact on shelf stock and things like that. I certainly think we would benefit from a more up-to-date submission that deals with what is actually in the bill, not what we started with in the Senate. Would you like to come back to us with a freshened up submission?

Mr Souness : I do not think the department of agriculture and fisheries included a submission.

Mr BILLSON: A number of the submissions and commentaries have talked about the Greens' bill as it was introduced into the Senate and not the bill that left the Senate and that has come to the House. The bill that is before us now has none of the issues relating to judgments about sustainability/non-sustainability. It is a much more simple, stripped down proposition. The issue about shelf stock and labelling and packaging does not apply either, because there is a 12-month lead-in period and it triggers for date of manufacture. I am grateful for your insights, but the debate has moved on a tad. You might want to resubmit something that deals with what is still in the bill.

Mr Souness : My response to the question was simply about the potential cost implications for industry. It was not in recognition of the bill. I was simply responding to a question about what potential costs were, and making a general statement about the normal approach to food labelling changes.

Mr BILLSON: I appreciate that. But you then went on to talk about what is sustainable and what is not, and definitional issues—which is all gripping stuff. I understand and share your concerns about that. Clearly, the Senate did as well, and that is why that has been filleted out of the bill. I would be grateful for a more up-to-date account, if that is possible.

Ms Bray : Our submission did respond to the later, amended bill. However, if you label palm oil separately to all other oils, you create a view that all palm oil is not good. We know that some is produced sustainably and some is produced unsustainably—

Mr BILLSON: You cannot use the words 'palm oil'.

Ms Bray : Then there becomes an issue in terms of people's view of what palm oil is.

Mr BILLSON: I just do not buy that. Herbal Essence—great stuff. Clairol, thank you. They thought it was so virtuous that they have labelled it 'palm oil' themselves. If consumers have an appetite to know what palm oil is in their food and the products they use, they want to exercise their own judgments about whether that is good or bad. I understand that in many Pacific islands it is a core part of the economy. There are a whole lot of good things about palm oil. There are some concerns about palm oil in a habitat sense, but they obviously cannot be that bad if people choose to offer that 'there is coconut and palm oil in this product'—a more current version than this one, where it does not make that declaration. I would not imagine they would use that language to their detriment. In regard to your point about the codes being developed and the willingness of industries to do that anyway, I am just a tad bewildered. If they are doing that anyway and making a virtue out of it, why would we not be able to use the words 'palm oil' because of what it would conjure up? I do not follow that logic.

Ms Bray : I think the industry would be saying that they are using sustainable palm oil rather than just labelling it as 'palm oil'.

Mr BILLSON: There is no barrier to that.

Ms Bray : No, there is not.

Mr BILLSON: The bill simply says that if you are using palm oil, you do not say it is vegetable oil; you say it is palm oil, so consumers can work out themselves their own purchase choices from that information. If industry wants to go further, they can knock themselves out. I think that is terrific. I do not quite understand how the mere mention of palm oil would set bells ringing—that that is of itself a bad thing, and that that would be a reason not to have palm oil on a label where palm oil is in a product. I just wonder what the rigor is around that argument.

Ms Bray : The food safety laws are there to protect consumers' health and safety.

Mr BILLSON: Yes, which is why there is the food safety part of the bill. As I mentioned earlier, anyone can notify and activate that. I hope that the Parliament of Australia might be able to activate it, just as an average citizen can, and it can go down its process. The other part of the bill deals with a consumer law issue about being upfront about what is in a product. That is, if there is palm oil in it, say there is palm oil in it. They are two separate concepts. I am not certain what the evil is in being just open that there is palm oil in the stuff. Could I ask through the chair that the departments have a look at the cost issue as it relates to the bill that is actually here? If there is some supplementary information that can be provided, particularly about the industry opportunities, I would certainly be keen to read that.

Ms Bray : Certainly.

Ms OWENS: On that issue of the labelling with palm oil, my understanding of the bill is that because it cannot be enforced at state level or in New Zealand we might get inconsistencies in the labelling. As a consumer, if I picked up two bottles that were made this year—one from Queensland and one from New South Wales—one might say 'contains palm oil' and one might not. I might pick up the one that does not have it, because I think it does not contain it, but actually it might contain more. As a consumer, I am wondering how a bill which does not enforce consistency makes me more powerful as a consumer.

Ms Bray : That is true.

Mr Souness : It does throw up the complexity. I think we heard from FSANZ of the potential implications depending on how states respond to a standard that might be developed for palm oil labelling that does not sit in the food standards code, and how states would respond to that. The other challenge I point out is for the Australian Quarantine and Inspection Service, which enforces the food standards code at the border. Its legislation enables it to enforce the food standards code. But if a palm oil labelling standard was outside the food standards code—and, as Mr McCutcheon said, just placed on their website—then it would not be possible to enforce that at the border with an imported product.

Ms OWENS: I have a similar issue. I actually do care about food labelling a great deal, and I pay a lot of attention to labels. If this bill is adopted by some states and a product must say 'contains palm oil' even for trace elements, is there something in this bill that requires the label to say how much there is? Or would something that has 0.2 per cent palm oil and something that has 30 per cent palm oil have the same labelling?

Mr Souness : Any provision, any food standard, of this nature needs to take into account the level of detection—the ability to detect the substance in question in the food as well. As we said previously, there may be some issues about that. Palm oil is broken down into a whole range of subordinate products that are used in the food, cosmetic and other industries. The ability to identify that in the product may be problematic. When you start breaking down palm oil into constituent chemicals, is that considered to be palm oil as well? So some definitional problems could arise, and also some monitoring and detection issues.

Ms OWENS: Again, consistency applies internationally as well. Is anything going on internationally that would affect what we do with palm oil over the next four or five years?

Mr Souness : I am not aware of any similar provisions overseas. I have not looked actively for that. But I work in that international space as well, and I am not aware of any similar provisions. The issue might arise: is it enforceable at our international border? That may throw up challenges.

Ms OWENS: Some food ingredients or additives are always flagged on a label—peanuts, for example: 'may contain trace elements of peanuts', which is obviously for safety reasons. Is there any other element—food ingredient, if you like—which is flagged at all levels, other than for reasons of allergy? Is this a one-off or are there other cases?

Mr Souness : From my recollection, it probably would be a good question for FSANZ. Allergens would be the main ones—so dairy products, eggs, peanuts and other nut products, etcetera, as well. I think allergens are the main ones.

Ms OWENS: This would be the first one that you can think of which would apply at all levels?

Mr Souness : Yes.

Ms OWENS: For reasons other than health and safety?

Mr Souness : That I can remember at this point in time.

ACTING CHAIR ( Mr Ciobo ): The Chair has just had to step outside, and I have assumed his role as deputy chair. Can I just ask a couple of questions? You commented earlier on the costs on industry, saying that there may be a cost associated with people substituting other products if palm oil is identified as being an ingredient. You also commented there might be a cost to industry as a consequence of reformulation of product on the same basis. I find that counterintuitive. Does that not just indicate that there is a level of consumer demand, therefore, to know about the inclusion of this product? If it is at such a level as to warrant reformulation and concern about product substitution, then does that not entirely underscore the reason why this may be necessary?

Mr Souness : Certainly it is clear that the industry, even at this stage, is responding to consumer concerns as expressed. We are seeing industry already voluntarily label some of their products with palm oil. Kellogg's is probably a good example of that. The industry is also responding through other initiatives to try to shift to a more sustainable certified palm oil. As I said in my opening statement, industry is already undertaking voluntarily initiatives that respond to market pressures they are feeling through consumer concerns. Food and Grocery Council will probably be able to better comment on that. That seems to be working quite effectively at the moment.

ACTING CHAIR: That was all very interesting, but in no way did it address my question. Could I ask you to address my question?

Mr Souness : The industry will respond depending on the pressures they are feeling—

ACTING CHAIR: I am asking you, as the department, about a basic principle. That principle is: if there is a level of angst that it would require reformulation, a level of angst that it would require product substitution, does that demonstrate that there is an aggregate level of consumer demand—at whatever point it might be; whatever percentage of total aggregate demand is out there—that would indicate a heightened level of consumer sensitivity around this which of itself underscores the need for this particular item to be indicated on the label? I am not asking you how industry is responding; I am not asking you what initiatives they might be taking. I am asking you whether or not that principle applies.

Mr Souness : There is a heightened level of awareness in consumers that industry is responding to. As to whether that supports the bill, I do not think I am in a position to comment.

ACTING CHAIR: I am just asking you to comment on my question, which I am not getting an answer to. Is there a reason you do not want to answer my question?

Mr Souness : I am not clear on the question in terms of—

ACTING CHAIR: I am happy to restate the question as many times as I need to. The question is this: if there is a heightened level of consumer awareness about the inclusion of palm oil to such a point that it would cause industry to be concerned about substitution away from their products that contain palm oil, or would warrant industry reformulating their products that contain palm oil, does that not underscore that there is a level of consumer interest in this that perhaps would warrant the inclusion of that ingredient on the label?

Mr Souness : Does that underscore the need or the desire to have that in the bill? It could do.

ACTING CHAIR: With respect to this issue, you may or may not be in a position to answer this. I note today that Malaysia has announced they are suspending the importation of live cattle exports from Australia into Malaysia. Is the department concerned that this is in some way related to this inquiry?

Mr Souness : I am not aware of any move by Malaysia to ban importation of live cattle, so I cannot comment on that question.

Dr LEIGH: I want to follow up on the issue as to what is happening in other countries. I understood that the European Union was moving with a fairly long lag time—a three-year period. In general, when standards are changed, what do you regard as an appropriate time period for a phase-in for industry?

Mr Souness : Again, Food Standards Australia New Zealand would be better placed to answer that question. But as I said earlier, traditionally for labelling changes, 12 months to two years has been allowed for stock to be run down.

Dr LEIGH: Why is it a period as long as that? I suppose a lot of people would say two years seems glacial to make a change. Why is two years sometimes regarded as appropriate?

Mr Souness : It is to do with the extent of change across industry. My recollection is that, where labelling changes have been more narrowly focused on a particular sector, then shorter periods have been allowed than where it is much broader. Some companies may carry stock for many, many months. We import a lot of our packaging materials that are already prelabelled product. The tetra brick-type products are ordered from Scandinavia and the lead time there could be six to nine months for new stock. I believe it is based on industry feedback, if it is a broad provision, depending on their requirements on packaging and labelling.

Dr LEIGH: Just to follow-up on an issue that Ms Owens raised, if a change to the labelling regime were to be inconsistently applied, and so products from certain states have that label and products from other states did not have it, could that undermine consumer confidence in the labelling system itself?

Mr Souness : It could well do. Inconsistency is never a good arrangement with consumers. It only leads to confusion.

Ms OWENS: Mr Ciobo quite rightly said that there is a lot of community concern at the moment. Our food standards initially were about safety, then increasingly about health, and now increasingly about preventative health. In my electorate alone I know that people are now concerned about palm oil, genetically modified foods, halal, whether there is nanotechnology, whether it is fair trade, whether it is sustainable fishing. Do you see any mechanism in our food standards, in our labelling regime, that would start to deal with those kinds of community concerns in any real way? Is it the right place for it?

Mr Souness : It is probably better to refer to the recent review of food labelling that Dr Neal Blewett undertook. That review report has been presented to the government—or governments, because it was commissioned by state and territory governments as well as the Commonwealth. It is currently being considered. I think it has 61 recommendations—that included consumer value labelling—that the government is currently looking at in terms of a response.

ACTING CHAIR: Thank you for your attendance here today. If you have been asked to provide additional material, would you please forward it to the secretariat as soon as possible? You will be sent a copy of the transcript of your evidence, to which you can make corrections of grammar and fact.