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Standing Committee on Economics

WILSON, Mr Tim, Policy Director, Institute of Public Affairs

Evidence was taken via teleconference—

Committee met at 9:18

CHAIR ( Mr Craig Thomson ): I declare open this public hearing of the House of Representatives Standing Committee on Economics and I welcome witnesses, members of the public and the media. The committee is reviewing the Food Standards Amendment (Truth in Labelling—Palm Oil) Bill 2011, which seeks to make the labelling of palm oil more prominent in food and other consumer products. Yesterday's hearing focused on business organisations and government agencies. Many of today's witnesses are from environmental groups and will provide evidence about the status of orangutans in the wild. The committee will also hear from a nutrition scientist, the Institute of Public Affairs and additional industry bodies.

Welcome, Tim. I would remind you that, although the committee does not require you to give evidence under oath, these hearings are legal proceedings 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 a contempt of parliament. Do you want to make an opening statement to the committee before we go to questions?

Mr Wilson : I would like to ask, before I say anything, who else is present so that I know whom I am addressing.

CHAIR: Of course. I am the chair. Also present are Dr Andrew Leigh, Ms Julie Owens, Mr Scott Buchholz and Mr Bruce Billson. So five members of the committee are here. There may be other members who come and go as well.

Mr Wilson : Thank you, firstly, for the invitation to speak to the committee. I am sorry that I cannot be there in person. I previously made a statement to the Senate inquiry, which I have no doubt is available to members. So I do not want to labour too much repeating my statement there, which fundamentally remains my view related to this bill, despite any amendments that were passed in the Senate.

I have provided for the committee—and I am sure they have received a copy of it—a paper that was written on this subject matter between the time I appeared before the Senate committee and now. It goes through a series of concerns that I have about the bill. The first obviously is about the costs of any impact as a result of passage of this bill, if it is going to do what ultimately is the intent of the bill, which is to promote changes in consumer and business behaviour related to palm oil, identifying the fact that it will increase the cost of ingredients in the consumption of manufacturing of particular food products. I have come up with a broad figure showing that that could be an increase of up to 20 per cent on the ingredients that may be included in some manufactured food products.

There is a concern I have very clearly about the precedent that this bill will establish about using legislation and regulations for environmental purposes, particularly related to food-labelling laws being used for environmental purposes rather than what I think most people would accept after considering the matter—that the principal objective of food labelling is to address information asymmetry, particularly related to health and safety matters. If we go down the path of using food-labelling regulation to achieve environmental or political objectives, there is literally no end to the objectives that could be designed. Also, they are very much value based principles, which means that they are not necessarily shared by everybody—not that people do not have a reasonable right to know information on products, but there is a point at which I think most people would accept there is an end to how much information should be provided to consumers. Obviously, in light of the fact that there is the Blewett review that is ongoing, whether the parliament should be taking a separate step—this is more of a political view—of introducing another piece of related legislation which overlaps should probably be brought into question. But that is something for members very much to consider themselves.

The other issue, of course, very much in my space, in trade policy, is the legal dimensions, particularly related to whether it would breach international trade agreements. I have not made much commentary on this, but there was a submission, I note, from a group called World Growth to the Senate inquiry, which attached a legal view from academics at the University of Melbourne going through the different breaches, particularly related to the Agreement on Technical Barriers to Trade as a result of this bill and whether it would have an impact. It is pretty clear that the view is that it would probably breach the technical barriers to trade agreement as well as some aspects of the General Agreement on Tariffs and Trade. Of course, as a consequence not only of that dimension of it but also of the geographically specific nature of the production of palm oil, it would have an impact on potentially our relationships with Indonesia and Malaysia.

There is also, I am sure that members would understand, the potential impact or limitations placed on the committee both in terms of introducing these types of regulations and in terms of whether we would have to consult strenuously with New Zealand in the process, which I note that some of the Blewett review is at least broadly considering, as well as, of course, any issues around state and federal relationships and the extent to which the states have been consulted as to the consequences of the impact of this bill. I will leave my statement at that and refer members back to my statement to the Senate inquiry.

CHAIR: Thank you for that. I will start off with a couple of questions. Given what you have said, what precedents do you see as being implicit, if this bill were passed in its present form, in terms of the way in which we deal with food regulation and food labelling generally? What does this do if this change in the approach is adopted?

Mr Wilson : What would basically and fundamentally be opened is that food labelling in particular but also potentially other forms of regulation could be used for political or environmental objectives. There is literally a host of issues that could be addressed through labelling—whether people like particular types of products that are sourced from particular forestry zones or whether it is associated with particular types of impacts on animal and wildlife, or, even more broadly and very much open to debate, political concerns about wage rates that people are paid in certain countries, generally depending on the level of development of that country.

What I find so incredible about this bill is that it is trying to impose a mandatory value through food labelling which would go through the supply chain and obviously have an impact on industry, but the real impact that I am concerned about is on consumers. Many of these issues, particularly those related to stages of economic development, are open for debate. But there is actually an option that already exists which operates very effectively in the marketplace, even if at times I disagree with the way those organisations conduct themselves in terms of voluntary certification of products. Say, for instance, Fairtrade establishes a certain set of environmental and socio-political factors in voluntary certification of products that identify for consumers who may have a particular type of ethical view about production and in their consumption can have their products branded that way. There is in particular, obviously with palm oil, RSPO, which, as a voluntary mechanism, is one of many ways in which consumers can send market signals back to producers about what they want embodied in their products. But it should remain voluntary.

CHAIR: What in a practical sense, though, is wrong with consumers having information about environmental issues as opposed to just food health and safety issues? Can you take us further as to what the objection is? Does it mean that we would need to have incredibly large labels? What is the problem with consumers knowing these things?

Mr Wilson : There is nothing in principle wrong with consumers wanting to know things that they wish to know. The issue is the extent to which the government should interfere and try to impose regulation which directs consumers to know certain things. Yes, there are practical problems with this in the sense that there are millions of political concerns and environmental concerns, some of which are more or less legitimate—and it is all entirely dependent on what people value—that could be included on food products or other types of non-food products.

I have a particular bent for free trade. I might like a certification standard that is established where a product has a nice big dot that says: 'This is a free trade product.' But I do not believe—partly because it would be directly hypocritical—that the government should attach that because it aligns with my particular values. There are mechanisms through voluntary certification, though, if there is a sufficient market for that.

In relation to environmental regulations, as I said, the problem is that there is a particular concern amongst some people within the community about the impact of deforestation and orangutans and various other things—some of those concerns I think are overstated—and there are inconsistent views out there, even amongst the environmental movement, about it. Unless there is ironclad evidence and substantive direct correlation between what could occur and what consumers might want to know, I have to question the broad argument about whether it should be labelled. But I would certainly be against mandatory labelling, because it would be the parliament imposing that value, based on political objectives, onto consumer behaviour.

There is no ambiguity when it comes down to it about what this bill is ultimately designed to do. It is designed to give a certain amount of information based on certain values which are not necessarily shared throughout the community. But that is actually a secondary issue which has no direct relationship to health and safety—that is not to say that there are not health and safety consequences with the consumption of any product. It is to promote consumer boycotts to drive change in the supply chain on a purely environmental values based proposition which is not shared by everybody. It is questionable for a country, particularly for a developed, wealthy one like Australia, to export its values down the supply chain and impose them on other countries. Of course, this not only sets a bad precedent, because at some point somebody is going to turn around and do the same thing to us, but also, because other countries are at different stages of development, it can look almost like a form of backdoor colonialism in terms of trying to drive change throughout the supply chain.

CHAIR: I have one more question. I am sure people will question you further on some of the things you have raised. I understand you are saying that food regulation should be restricted to health and safety issues and I understand that you are also saying that, in terms of what we have just been having a discussion about, the concern is that—I will use my words—fringe groups will have their way in terms of what is happening here. But surely the parliament is not a fringe group and, if the parliament representing people decide that issues like health and safety should be put there, that is something that is legitimately open to the parliament to do and also certainly it could not be described as a fringe group.

Mr Wilson : I would not call the parliament a fringe group. The parliament is free to do what it does to the extent that it is restricted by the states and the Constitution. I do not think the parliament is a fringe group, but that does not mean that I think the parliament always makes the best or wisest decision—and I can list numerous policies—but I suspect I might reserve my right to do that for another time.

What the parliament and what good public policy should do in broad principle is establish limitations on the extent to which it sees the role of government to interfere and recognise that, if they are going to go in the marketplace in people's lives broadly—it does not matter which area—what it should not do, unless there is some incredible reason, is nitpick, particularly in a case like this, on particular ingredients in a food product without recognising the fact that they are setting an incredible precedent for how far this could go for other products. Also, the basis and the value judgements that are used to make such a decision can be replicated so easily based on argument rather than a broad principled approach. I think that is what is really clear about this bill. Firstly, I think it is a very political bill, which in itself you cannot always separate obviously from government. But it does not have a broad principle behind it, apart from 'We want to do something about a particular environmental concern.' Then you can see very quickly how it can extrapolate in terms of other social, political or environmental objectives to use regulations and labelling with literally no limitation to achieve these objectives.

CHAIR: Do you think it would achieve the objectives, if it was put there?

Mr Wilson : In many ways, I suspect probably not. It would achieve the objective probably in getting some industries to change the ingredients which would, as I have said, increase the price of food products in particular. But do I think it would drive any significant or radical transformational change in what goes on in developing countries? Not necessarily, because, firstly, there is a lot of ambiguity about whether a lot of these spectacular claims about palm oil are valid. But, even then, we live in a global marketplace and I suspect, apart from us and potentially the European Union, no other country is likely to head down this path any time soon, particularly when voluntary labelling is an effective way to send messages, using a market based approach, through the marketplace to producers if consumers value these products.

Palm oil, it is claimed, has various different negative health consequences, but it also has positive health consequences, depending on who you are, because, for instance, it is vitamin A rich. That actually is an incredibly important quality, if you are in a developing country and you do not have access to lots of nutrient filled food products, versus the alternative where people are saying that it could have an impact, for instance, on developing diabetes later in life. But weighing up a judgement call about whether you should be consuming something to keep a child alive at age two versus the potential consequences if it is part of general food consumption at age 60—those are radically different propositions.

Mr BILLSON: Thank you for your contribution. You have touched on the European and the US circumstances. As I understand it, the US has a greater degree of specificity of the kinds of so-called vegetable oils in their products and that the EU is moving in a direction probably more detailed than what the Senate has arrived at in amending its bill. Do you have any observations on those international comparisons and trends?

Mr Wilson : The only observation I would make is that, firstly, those countries, of course, are entitled to make their own laws based on their precedents. As to whether these laws can be upheld against WTO law, it is quite clear that the Agreement on Technical Barriers to Trade—I think it is article 2.11—with respect to establishing precedents which create an unnecessary restriction to trade is pretty unambiguous. Certainly, if there were going to be a significant policy change in the sense that countries might want to go down this path of separating out palm oil from vegetable oil, it should be done at an international level through appropriate international institutions and standards to make sure that it is done in a way that is consistent. The only issue with that, of course, is that there are lots of countries who will not agree to that, because they can see very quickly not only that this product sets an awful precedent for countries who are major exporters, like Indonesia and Malaysia, but also, of course, it will very quickly be turned around to target other products that may raise concerns amongst particular developed world consumers based on environmental, social or political factors. So whether they actually stand up to scrutiny is very much open for debate and it is another reason why—at least until there is a test case to see whether they stand up—Australia should probably be wary of racing ahead on such a bad precedent policy.

Mr BILLSON: A curiosity that may arise is that exporting Australian manufacturers might be providing a level of information into North American and European marketplaces that is not available or is not needed to be made available in the Australian market and that that might create some additional cost or confusion issues for industry.

Mr Wilson : That is always true of additional labelling regulations and that is why there has been a recognition, particularly as the global economy has, for want of better words, harmonised and integrated, that the emphasis on international standards has understandably increased because you can have inconsistent labelling depending on the market to which you export. The reality is, as I am sure the good members of this committee will know, that food manufacturing, which a large component of our consumption of palm oil goes into, is a significant exporting industry and it will mean additional costs will go on to manufacturers in Australia, which will make their products less competitive not only in the Australian domestic market but potentially in foreign markets as well, if they do not cop the same regulations. We are not just talking about exports to the European Union and the United States; we are also talking about major exports to mid-tier and developed and developing countries throughout South-East Asia, which is of course a major market for Australian food products now and into the future.

Mr BILLSON: We heard evidence yesterday that the whole product of palm oil is stigmatised, in part from some of the activities that you were referring to earlier and other concerns, yet some businesses are seeing a commercial advantage in highlighting the presence of palm oil and some are going further to promote the virtues of where they have sourced their palm oil—I have spared you the shampoo I had at yesterday's hearing, which had coconut and palm oil emblazoned over it and no suggestion of where it had come from—as an advantage compared to an earlier incarnation of the same product. This struck me as confusing—that there seems to be a mixed view about whether the designation of palm oil of itself is an obstacle to its use, given the behaviour of some in industry where there seems to be a willingness and a hunger to promote it when it suits and therefore share that information but at other times, when it is felt that it does not suit, not share that information with consumers. Do you see a bit of a problem in that line of approach?

Mr Wilson : I do not see a problem in terms of government policy in that approach. I see an issue about whether industry see it as being to their commercial advantage one way or the other to promote products that include or exclude palm oil. I have a very straightforward view on this, which is that, if consumers wanted palm-oil-free products, manufacturers would respond to that and there would be a huge economic market for palm-oil-free products. People would buy them and they would send a message through the supply chain. That is not what this bill is trying to do; it is actually trying to force, through government regulation, that change.

Industry are entitled to do whatever they want to do within reason and within the law and everything else, but sometimes they see an advantage for the product and understandably people respond to it and they should label things based on what they think—if they are smart—will move their products in the marketplace. I do not see that there is anything that should highlight to the committee concerns related to that. I only see that businesses are obviously doing what they always do, which is to focus on their strengths, hopefully, for their sake, and not on their weaknesses.

Mr BILLSON: The bill that came out of the Senate was substantially amended. There are two effective provisions. One that you could argue is a parliamentary notification to FSANZ to get cracking on a food standard that reflects the intergovernmental gymnastics and the glacial process that goes on there—and it has been suggested that that is inappropriate. Do you think it is wrong that the parliament might choose, as any individual citizen or business might choose to do, to activate the FSANZ process?

Mr Wilson : I do not think there is anything fundamentally wrong with the parliament trying to encourage Food Standards Australia New Zealand to act, as long as it is within good policy. What I would say is that you commented that it is a slow process. There is a reason why it is a slow process—not least because good policy should be developed over time and not be rushed, through politically populist bills, through the Senate and then potentially the House, in my view. The whole nature of our Federation and arrangements under a binational regulator naturally encourage a slow process and it is more likely to deliver consistent and substance driven approaches than the alternative.

Mr BILLSON: The second part of the bill, respecting all that has been said about the FSANZ process, seeks to focus on informing consumers by suggesting that, if someone is making a claim about vegetable oil, in order not to mislead they need to be clear and say that it is palm oil. That is outside FSANZ; that is in the consumer law. Do you have any observations about that as an approach to meeting a consumer information appetite or about whether there are any other pathways that you recommend that the parliament and the committee should consider?

Mr Wilson : I am going to restrict my comments around that because I do not have a firm view one way or the other. What I would say, though, is that there are already substantial provisions within the Trade Practices Act and other pieces of legislation so that, if manufacturers are making false or misleading claims, they are clearly breaking the law. The issue here really is that the extent to which manufacturers do what they do is because international standards basically support the idea that that is how oils, under the label of vegetable oils, should be presented; and I am against the idea that we should be seeking to arbitrarily amend that, because of all of the consequences I have outlined already.

Mr BILLSON: So essentially you are pro Blewett pathway on this issue?

Mr Wilson : I am ultimately pro the marketplace making a judgement based on this and introducing voluntary labelling, if it sees that it is appropriate, and that is the extent to which I am prepared to say I am pro anything.

Dr LEIGH: Thank you very much for giving evidence today, Mr Wilson, and for your very detailed submission. I want to ask you about two issues. The first goes to figures 2 and 3 in your submission. Figure 2 has charts of various palm oil substitutes and then figure 3 shows the trend between non palm oil and palm oil. But isn't it a little misleading to show that trend widening? Really what matters is not the gap between palm oil and the average of non palm oils; it is the gap between palm oil and the next cheapest substitute, which is much smaller than the 20 per cent figure you are using in your report.

Mr Wilson : To be brutally honest, this was written some time ago, so I cannot remember the exact details in terms of numbers. I do not think it is misleading; it is trying to point out that, if you take away palm oil, looking at the other comparable oils that are used, there is a clear price difference between them. Yes, some of them are higher and some of them are lower and I cannot recall, based on when I put this together, what the prices of the different ones were. But it was really just to show a trend. But, as I recall—and I would have to go back and check this—broadly, some of them were significantly higher.

Dr LEIGH: That is certainly true. But you are a free-market think tank, so you want to think like a free marketeer, which is that you buy the next cheapest thing.

Mr Wilson : If consumers are price sensitive and manufacturers therefore respond to that, yes, that would be part of it. Again, it was to try to demonstrate more of a trend—because I would not make a judgement call. It is not just that products are purchased based on cost; as you would know, Dr Leigh, it is also based in this case on taste and their capacity to be a like product. There may be particular components of an oil that may vary in terms of what it may do in chemical processes and everything else. I have to say that I have not actually indulged in comparing the oils in that regard in terms of their capacity to be used in terms of broader factors.

Dr LEIGH: That point is well taken. I was not quibbling with the notion that the other oils tend to be more expensive, merely with the size of the gap.

Mr Wilson : Yes.

Dr LEIGH: The other issue that you raised was the technical barriers to trade treaty. I am looking at article 2 of TBT and, just on the face of it, I cannot see how labelling palm oil would breach that treaty. Can you talk me through this? Which part of article 2 should I be looking at? Which words should concern me?

Mr Wilson : I am just referring to my notes. That is why I said at the time that I was not 100 per cent sure whether I had got it right when I said it was article 2.

Dr LEIGH: It is article 2 where the substance seems to be. I just cannot work out which wording there would raise the concern.

Mr Wilson : As I said, I am trying to find it in my notes.

Dr LEIGH: So 2.2 goes through the legitimate objectives: national security, deceptive practices, animal and plant life, health, the environment. Surely palm oil labelling would fit within one of those.

Mr Wilson : I am more than happy to answer that question, but could I take it on notice and provide you with an answer?

Dr LEIGH: Absolutely; yes. Thank you very much.

Mr Wilson : There are plenty of provisions, but I will just go through and make sure I get the sections absolutely accurate in order to refer them to you.

Dr LEIGH: Thank you; I appreciate that.

CHAIR: Thank you, Mr Wilson, for your contribution today; we really do appreciate it, and for making yourself available. A copy of the transcript will be sent to you. If there are any errors or omissions, please get back to us as quickly as you possibly can; that will be greatly appreciated. Once again, thank you for your contribution today.

Mr Wilson : Could I just ask one question, because I am not 100 per cent sure about this? There is no member of the Greens party present at this hearing, is there?

CHAIR: There is a member of the Greens who is on this inquiry but who is not present here today.

Mr Wilson : Right; okay. Thank you.