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Friday, 2 March 1984
Page: 292


Senator CRICHTON-BROWNE(9.37) —We are debating the Live- stock Slaughter (Export Inspection Charge) Validation Bill 1983 which seeks to overcome an alleged loophole in the 1979 Live-stock Slaughter (Export Inspection Charge) Act to enable the collection of export inspection charges in respect of stock passing through abattoirs since January 1983. This Bill arises directly from the Government's decision to increase by 200 per cent the fees charged for export inspection. The inspection charge, in terms of the real cost to the grower, for each head of cattle has risen from $2.40 to $5.40, for each pig has risen from 80c to $1.80 and for each head of sheep has risen from 24c to 54c. The real issue at stake here, in my view, is this Government's action in imposing these huge cost increases on an industry which is already in an extremely precarious financial position in order to pay for an export inspection service that is widely recognised as being hopelessly inefficient and in need of complete restructuring. Even this Government must be aware of the situation. The recently released Department of Primary Industry five-year corporate plan for the export inspection service points that out. It states:

With the meat-processing industry in 1983 in a depressed state, inspection costs can be a serious burden to processors operating close to breakeven.

Despite this the Government is determined to push ahead with these huge increases in inspection charges. Primary industry of course is still the most important single sector in the Australian economy. In the last two years it has accounted for around 43 per cent of Australia's export earnings, compared with, for instance, 26 per cent of total export earnings from manufacturing production . In 1982-83 meat exports were worth $1,678m, some 20 per cent of total rural exports. During that same year meat production was of the order of 2,107 million tonnes. Beef production alone was worth slightly in excess of $2,000m.

Australia is the world's largest single beef exporter. In 1983 beef exports in terms of carcass weight were 782,000 tonnes. Our nearest competitor, Argentina, exported 425,000 tonnes in that year. In 1983 beef exports from our major competitors in the world beef market-Argentina, New Zealand, Uruguay and Brazil- plus our own beef exports totalled 2,214,000 tonnes. Australia contributed 35 per cent of these exports. Total production of these major beef producers, again including Australia, was some 7,119,000 tonnes carcass weight in 1983. Exports of 2,214,000 tonnes from these countries represented 31 per cent of the amount produced. By comparison in 1983 Australia produced 1,420,000 tonnes of beef of which 55.5 per cent or 782,000 tonnes was exported. I think that provides some perspective of the importance of the beef export industry to Australia.

Australia is relying on the rural sector to lead the economic recovery but it cannot do so while this Government insists on increasing taxes and charges. In the same year the manufacturing industry will receive a 30 per cent increase in the real level of assistance which this year will total something like $257.2m. It is worth looking at the effect of such high levels of government assistance to manufacturing industry in terms of its effect on the rural sector. In 1979-80 the National Farmers Federation examined the effect of manufacturing assistance on the major rural industries. It found that during 1979-80 the additional cost of producing each head of cattle, incurred as a direct result of assistance to manufacturing, was $16. For every sheep the cost added by manufacturing assistance was $3.11. These figures are not absolute but they are highly indictative. The Industries Assistance Commission's annual report for 1982-83 estimates that the net subsidy equivalent of government assistance to manufacturing industry in 1981-82 was $5,843m. The National Farmers Federation estimated that some 80 per cent of this would be borne by the export sector of which the rural economy accounts for around 43 per cent. On these estimates the rural sector is bearing a cost burden of $2,009m to support a manufacturing sector which contributes 26 per cent of Australia's total export earnings compared with 43 per cent which is earned from the rural sector.

The increase in export inspection charges will mean that during 1983-84 the Export Inspection Service will cost the meat industry an extra $17.9m. In a full financial year the total cost of the inspection service to the meat industry will be in the order of $40m. The meat processing industry is at the bottom of a severe economic trough and it simply cannot afford additional costs of this magnitude. During the past three years more than 40 abattoirs have been forced to close their doors. In the five years between 1977 and 1982 almost 14,000 jobs were lost in the meat processing industry because of the fall in total beef production over those years. Beef production fell from 2,081,806 tonnes carcass weight in 1978 to 1,523,272 tonnes in 1981-82, a drop of some 26 per cent. The last few years have also seen a decline in cattle herd numbers. 1978 to 1980 cattle numbers in Australia averaged 27.5 million. In 1981 the number of cattle dropped to 25.2 million and by 1983 there were only 22.5 million cattle in Australia, a fall of 8.5 per cent from the 1982 figure of 24.6 million.

During 1984 the number of cattle is expected to decline by a further 2.2 per cent and the Bureau of Agricultural Economics predicts that it will be 1987 before herd numbers regain the levels of March 1983. This means that slaughterings will also decline especially after allowing for restocking after the breaking of the recent drought. Preliminary estimates by the Bureau of Agricultural Economics puts the number of slaughterings during 1983 at 8 million , more than 2 million below the average annual slaughterings of 10.34 million during 1978 and 1980. In 1982, 9.25 million cattle were slaughtered so in one year alone-from 1982-1983-the meat processing industry has seen a 15.3 per cent decline in the number of cattle slaughtered. This trend is also expected to continue through 1984. The Bureau has estimated a further 6.3 per cent decline this year in calf and cattle slaughterings to 7.5 million. During the next five years meat production is estimated to be 40 per cent below the peak levels of 1978. Between 1978 and 1980 Australia was producing around 1,812,000 tonnes of beef and veal a year. In 1984 it is expected that only 1,375,000 tonnes of beef and veal will be produced, a reduction of 437,000 tonnes. Undoubtedly therefore, there will be a further shutdown of abattoirs and meat processing workers will be laid off. Huge costs increases in the form of export inspection charges in my view can only further exacerbate the problems of an industry already in a very precarious position. In the Adelaide Advertiser of 29 November 1983 Mr Kerin was quoted as saying:

The case of the abattoirs is reasonably weak in my opinion, because the charge will be passed back 70 to 80 per cent to the producer and eventually to the consumer.

That, of course, was an attempt to justify the inspection levy increases. As I have already pointed out, over half of Australia's beef production is exported, so there is very little comfort. It is very difficult to see how beef exporters can pass their costs on to overseas consumers. As Mr Kerin well knows, they do not control the export price of beef. Furthermore, the producers are certainly in no position to absorb any cost increases. The beef industry, of course, has been conspicuously unprofitable in recent years. In 1982-83 farm income for a family beef farm averaged at around minus $1,711. The rate of return on capital investment for beef producers excluding capital appreciation has been negative for every year since 1976, except for the 1979-80 season. In 1982-83 beef producers received an average return on capital investment of minus 3.2 per cent . If the real rate of capital appreciation is included, that is, the measure of capital appreciation adjusted to remove the effects of inflation, the rate of return to beef producers in 1982-83 was minus 6 per cent.

In a letter to the Australian newspaper, published on 21 December 1983, Mr Kerin claimed that the increased charges represented only a small percentage of the average value of the beast for slaughter. This, of course, is quite irrelevant. What should be taken into account is the percentage of the producer' s profit which is represented by the increase in export inspection prices. At a time when profit margins are so narrow, and even negative, there is no logical basis for arguing that producers can sustain any cost increases because they represent only a small part of the value of the beast.

Pig producers are also experiencing very low or negative profits, a situation that is expected to get worse before it gets better. In 1983 pig producers were first faced with increased feed costs which were coupled with a 20 per cent to 25 per cent decline in pork prices, with the result that few, if any, producers were making a return on their investment. Pig slaughterings during 1984 are also expected to decline by 1.4 per cent. However, the final irony for pig producers must be that whilst 85 per cent of animals are killed in export-registered abattoirs and therefore incur export inspection levies, only 2 per cent of pigs slaughtered go for export. Pig producers are therefore forced into the invidious position of paying around $6m a year for export inspection services, while export earnings from pig meat are around $4m a year.

This Government cannot be totally unaware of this anomaly. In 1975 the Industries Assistance Commission's interim report 'Financing Promotion of Rural Products (Export Inspection of Rural Products)' pointed out:

Financing inspection costs by an export levy penalises some types of meat more than others . . . The smaller the proportion of output that is exported the larger is the burden imposed on producers relative to the revenue collected, since the levy depresses not only export prices but also the price received for locally consumed meat.

Clearly, this Government is indifferent to the double burden it is expecting meat producers to carry. Not surprisingly, abattoirs are now starting to hand in their export licences. Two major meat processors in Western Australia, Watsons and George Chapmans, have already done so. No doubt many more will follow. Some States are already considering building pig only abattoirs, at a time when it is recognised that there is over-capacity in the meat processing industry.

I turn to the state of the Export Inspection Service. The total cost of the service in 1980-81 was $42.2m. This financial year, 1983-84, the total cost of the service is expected to reach $70.1m. This is an increase of almost $30m during four years when meat production was actually declining and the numbers of abattoirs fell significantly. The inefficiencies of the dual system of meat inspection, whereby State governments are responsible for inspecting meat for domestic consumption and Commonwealth inspectors deal with meat intended for the export market, are well documented. In 1978 the Prices Justification Tribunal report into beef marketing and processing noted the:

. . . universal complaint had to do with the duplication of State and Commonwealth inspectorial services at many abattoirs.

Two very obvious results of the dual inspection service spring to mind immediately. The first problem that arises is that meat intended for the domestic market will incur the higher export inspection levy if it passes through an export registered establishment. As I have already noted, 85 per cent of all meat produced in Australia is processed at an export registered abattoir. Secondly, the dual system necessitates State and Commonwealth inspectors working alongside each other. The ill-feeling between the two groups is such that they even demand separate facilities in the same abattoir. Again, this is a long- standing problem noted by the Prices Justification Tribunal in 1978. It stated:

Abattoirs are burdened with additional capital costs because Federal and State inspectors refuse to share accommodation except for showers and toilets.

This Government is now attempting to restructure the meat inspection service and a five-year corporate plan for the Export Inspection Service has been produced by the Department of Primary Industry. Nowhere does it tackle the over-staffing and misallocation of labour resources that is rife in the Export Inspection Service. This Government has made no progress in overcoming this basic problem. It ought to be remembered that labour costs represent something like 54 per cent of the total cost of the Export Inspection Service. Overmanning was again noted by the Prices Justification Tribunal in 1978. I quote from its report of that year into beef marketing and processing:

The management of some abattoirs expressed the view to us that the complement of Federal inspectors . . . was excessive. Explanation for the seemingly excess number-that is, of inspectors-at some plants ranged from the need to provide relief in the case of fatigue or absenteeism and the necessity to provide for leave entitlements, to the requirement to keep inspectors normally located at seasonal works in Northern Australia in continuous employment . . . Members of the Tribunal became accustomed to seeing a number of meat inspectors sitting in the sun or located in places other than where they would be expected to be, while the beef chain was in motion.

The report also noted that although the number of export licensed abattoirs fell from 460 to 442 between 1974 and 1978, the number of Commonwealth meat inspectors increased from 1,562 to 1,787 in the same period. The explanation given for this increase by the Department of Primary Industry was that it was required to provide inspectorial staff to any processing plant which asked for them. Evidently the situation has not changed. Between 1980 and 1983 the numbers of livestock slaughtered fell by 8 per cent. There was, of course, no decline in the number of meat inspectors. It is quite clear that Public Service pay awards and employment conditions are not appropriate for an industry that is both seasonal and cyclical. Frequently inspectors are required for work in the early mornings for which they receive overtime rates of pay. The meat industry will pay almost $6m in overtime payments for inspection services this year.

For much of the year there is a surplus of inspectors because of the seasonal nature of the industry. This was noted by the report on the cost structure of the Export Inspection Service, which was carried out by Coopers and Lybrand on behalf of the Department of Primary Industry in 1983. This report also expressed the view that if utilisation of staff was unacceptably low, and there would seem to be little doubt that this is the case:

There would be a case for industry not having to meet the full commercial cost of these additional staff.

This report examined the average number of livestock inspected per inspector day , relating to the use of inspectors in the slaughter floor inspection area, who form the substantial part. It found that the average number of cattle inspected in the sample of establishments examined ranged from 45 to 58. However, 30 per cent of establishments were below this average, and only 20 to 36 beasts were examined by an inspector per day. The report also looked at staff utilisation, which it defined as productive time, that is, the total time booked or charged to an establishment in accordance with the staff loading standards for that establishment, divided by available time which is the total time less public holidays, annual leave, sick leave and formal training time.

The report estimated that the total commercial cost of operating the export inspection service, after registration fees, was $62m in 1982-83 which represented a 75 per cent utilisation of field staff. It went on to estimate the revenue effect of an increase in the utilisation percentage, based on a 50 per cent recovery of costs through the inspection levy. The report found that a mere one per cent increase in the utilisation of field staff would benefit the taxpayer and the industry by over $400,000 in one year-a total saving of $827, 000. Over five years a 2 per cent increase in field staff utilisation would save the taxpayer and the industry a staggering $6,475,000. The Coopers and Lybrand study pointed out that the average annual salary of a meat inspector, including allowances, compensation and superannuation in 1982-83 was $26,481. For a veterinary officer the average salary in the same year was $35,317. Superannuation costs for export inspection staff represent some 20 per cent of salary costs-compared with the Australian industry average of 8.5 per cent.

The current system of financing the inspection service by using a slaughter levy provides no incentive for more efficient manpower usage. Poor staff utilisation represents a huge cost for the meat processing industry, and until this problem is tackled, and demonstrable progress in overcoming it is made, it is quite unrealistic to expect the industry to pay more towards the export inspection service, especially at a time when the Government itself is asking for cost restraint from all sectors of the economy.

I have already demonstrated the importance of meat exports to the Australian economy. By imposing additional costs of some $40m in a full financial year, the Government is threatening the viability of one of our major exporting industries . Most of our major competitors do not pay for their inspection services. New Zealand and Canada, for instance, have their export inspection services totally funded by their governments. The cost of converting a live beast to boneless beef in a carton currently accounts for around 20 per cent of the price received for the meat in the United States. The Bureau of Agricultural Economic recently pointed out:

These costs compare most unfavourably with meat processing costs in South America, largely because of differences in plant utilisation labour costs and productivity . . . (the) heavy cost burden . . . can only be supported because we do not have to compete with the major low cost producers. If Australia ever loses its foot and mouth disease free status, or if the South Americans find a way to control the diseases, or if for other reasons the US, Korea and even perhaps Japan, decide to accept imports from these countries, we will find it impossible to compete with our current cost structure.

Mr Kerin has said:

It is the livestock and meat industry which is the prime beneficiary of the meat inspection service-

implying, therefore, that the industry should finance the inspection service. This clearly disregards the fact that it is the entire community which benefits from the export earnings of the industry. Furthermore, there is the point made in the Industries Assistance Commission interim report of 1975 'Financing Promotion of Rural Products (Export Inspection of Rural Products)' which states:

If the export charge were abolished, there would be a transfer of income back to meat producers. . . .These transfers would encourage a flow of resources to the meat industries. This in turn would result in an economic gain to the nation if the . . . additional resources devoted to beef would otherwise have been employed in less efficient industries.

The Commission judged that this would indeed be the case when it stated:

Meat industries (and in particular beef) are, and have been low cost, compared with other industries which are alternative users of the same resources.

So it concluded:

If resources are encouraged to flow into the meat industries through a Government subsidy of the cost of export inspections, there will be a net gain to the Australian economy.

Of course, it can be argued that the cost of inspecting meat which is intended for export will be borne by the Australian taxpayer, as it cannot be passed on to the overseas consumer. Once again, however, we come back to the point made in 1975. By encouraging an efficient, low cost industry which receives a fraction of the government assistance paid to manufacturing industries, which it would be hard to describe in the same terms, there will in fact be a net economic gain to the community. Furthermore, the meat inspection service protects the health of the community and, in that context, benefits the whole community. Even if one accepts the findings of the 1983 Industries Assistance Commission inquiry into the abattoir and meat processing industry which stated that the inspection service was a commercial cost which should be borne by the abattoir, we still come back to the point that the meat industry is being ordered to support a service that is nowhere cost efficient.

Finally, I make the point that the meat industry has not been properly consulted with regard to the decision to increase inspection levies. Indeed, the Australian Meat Exporters Federal Council offered to provide experienced members to make up a finance committee with the export inspection service to examine ways in which the service could be made more cost efficient. In return, it asked the Government to delay the inspection charge increases until this committee had reported. The Government at that time chose to take no action on this proposal. It is interesting to note that the Department of Primary Industry's corporate plan for the meat inspection service, talks about greater consultation with industry, which is listed as a fundamental initiative to improve the inspection service. If this Government had not ignored this and had consulted more widely with the industry before raising the export inspection levy, it would have been better equipped to make a more sensible decision on this issue.

As it is, the meat industry is now expected to make an increased contribution to the costs of running an inspection service over which it has no control. This is equivalent, of course, to taxation without representation. The costs incurred in the inspection service were incurred without an opportunity being given for the industry to identify economies or more cost effective procedures, which all other sections of the industry are required to adopt in order to survive commercially. Mr Kerin, in his statement of 24 August 1983 to the House of Representatives, admitted:

Industry is entitled to be provided with an efficient inspection service if it is paying part of the cost.

If the Government can recognise that fact, surely it must understand that until the meat inspection service is operated as efficiently as the industries themselves are expected to operate, an already struggling meat industry cannot be asked to support the financial burden of increased export inspection levies.