Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Rural Affairs and Transport References Committee
07/07/2011
Biosecurity and quarantine arrangements

MINNIS, Mr David Charles, Exporter; Member, Australian Horticultural Exporters Association

SCOTT, Mr Alastair Lascelles Hannay, Executive Member, Australian Horticultural Exporters Association

[18:03]

CHAIR: Welcome.

Mr Scott : I am the managing director of an export company for horticultural produce.

Mr Minnis : I am the managing director of two export companies.

CHAIR: Thank you very much. You have lodged submission 49. Do you wish to make any alterations?

Mr Minnis : No, Senator.

CHAIR: Would you like to make a brief opening statement?

Mr Scott : Yes, we would, Senator. Thank you very much for the opportunity to speak with you this evening. Following on from the document that we have lodged, we would like to give you an overview of the Horticulture Ministerial Taskforce events. The formation of the horticultural ministerial task force for export certification reform was greeted with much enthusiasm by the AHEA and industry members alike when it was formed approximately 20 months ago. The industry participants accepted the minister for agriculture's proposal of a period of review to pursue positive constructive reform, including efficiencies in the AQIS phytosanitary certification process and cost savings in the export pathway process. Accordingly, industry and AHEA members freely offered their time and considerable expertise, knowing that they would not be paid for their input directly but, rather, through compensatory savings and efficiency gains in the future by their export activities. These benefits would be equally enjoyed by the rest of the horticultural industry.

The high hopes for constructive consultation and positive reform soon dissipated, as the AHEA members realised they were being used by AQIS-DAFF to achieve their pre-ordained outcomes. AQIS-DAFF have relentlessly pursued the concept of transferring phytosanitary certification from the government sector to private enterprise, even when this has been pointed out as being inappropriate or not cost-effective. This underlying agenda of AQIS-DAFF during this MTF, coupled with an intransigent approach to consultation and the continued pursuit of outcomes AQIS-DAFF regarded as beneficial, corrupted this ministerial task force and essentially rendered it a waste of time and money, yielding neither constructive, positive outcomes nor savings.

I would like to provide a brief summary of some of the events of concern that transpired during this MTF. With regard to the MTF work plan, we spent much time detailing areas we regarded as those offering considerable improvement and methods to achieve these outcomes. These were ignored and manipulated whenever it suited AQIS-DAFF, thus significant areas of reform that the industry wanted to pursue were not able to be achieved.

Then there was the in-principle agreement between industry members and AQIS-DAFF for the investigation of authorised AQIS officers, or AAOs. The ministerial task force agreed in principle to AQIS-DAFF investigating the AAO model and how applicable it was to horticulture, including its usability in terms of AAOs, who are non-government phytosanitary certifiers. AQIS-DAFF took this in-principle agreement and ignored the fact that the MTF did not agree to the rollout of AAOs that AQIS-DAFF have embarked upon and of which they have advised the general horticultural industry. The ministerial task force was waiting for AQIS-DAFF to be able to deliver assurances that AAOs would be able to provide phytosanitary certification to the all the more sensitive markets, including Japan, South Korea, China and Taiwan, and that those markets would be aware of and accept this new form of phytosanitary certification. This was especially of concern as AQIS had earlier advised that these countries would not accept non-government inspectors under historically approved arrangements for phytosanitary certification. Accordingly, the AHEA were sceptical, as were many other MTF members, that AQIS could deliver on their assurances that these markets would accept the new AAOs. To date, AQIS have not advised that any of these sensitive markets have accepted the AAO model of non-government inspectors. Thus, the rollout of the AAO model by AQIS-DAFF was neither agreed to nor condoned by the Horticulture MTF. The valueless hypothesising by AQIS-DAFF about what will be achieved in the future with respect to AAOs is not sufficient grounds for the MTF to agree with AQIS's rollout of their desired AAOs.

This leads to the next point, which is concern about the proper use of AAOs. Australian Horticultural Exporters Association members harbour the very real concern that, had they not raised concerns about countries not accepting non-government inspectors—that is, AAOs—AQIS might have enabled AAOs to undertake phytosanitary certification inspections in those countries. This could have been the case, as electronic certificates with electronic signatures offer no transparency about the person who performed the quarantine inspection. The basis of this concern stems from the executive manager of the biosecurity food group being made aware that non-government inspectors are performing phytosanitary inspections for vegetable exports to Japan—yet, as far as we are aware, they have done nothing to correct this process that has been advised as being unacceptable to Japan's Ministry of Agriculture, Forestry and Fisheries. Obviously, if foreign national plant protection organisations found out about this unacceptable phytosanitary certification process, of the use of non-government inspectors that they had previously advised as unacceptable, there would be significant negative trade access implications.

We would like to speak about the Ernst & Young benefits report. The suggested savings reported by Ernst & Young must be set aside as lacking substantial detail and foundation to be credible. AQIS advised Ernst & Young that an assumption for them to work on was that AAOs would be taken up by at least 80 per cent of the horticultural industry in terms of phytosanitary certification. We know that Japan, South Korea, Taiwan and China will not accept non-government phytosanitary certification inspectors, AAOs. Accordingly, we do not understand how AQIS could suggest such a misleading premise to Ernst & Young. In addition to this, there was not a future fees and charges schedule for Commonwealth AQIS services to be compare with AAO costs of carrying out similar activities.

The AHEA strenuously protested to AQIS to have a meeting with Ernst & Young to discuss their benefits report. It should be noted that the AHEA believes that, without a letter of concern sent to the secretary of DAFF, appendix 2, we would not have been afforded a meeting, as some AQIS members on the MTF were highly obstructive to our organising this meeting.

When industry did finally have a meeting with Ernst & Young representatives regarding their benefits report it became immediately apparent that their forecasted savings were nothing other than hopeful outcomes rather than robust quantifiable assessments. When AHEA members asked AQIS if Ernst & Young could correct or improve their forecasted savings with the benefit of the knowledge they had gained from our meeting, AQIS advised that any improvements to their numerical assessments could not be affected in their report, instead only permitting a statement of constraints. This we regard as most unfortunate as AQIS are condoning and managing a flow of information that is fundamentally flawed and not a basis for optimal decision making.

I would now like to talk about the AQIS budget of expenses. There have been no improvements and efficiencies offering cost savings from a budgetary review. Reductions in the cost of the AQIS budget have primarily come from the removal of services and lowered staffing levels. AQIS manage the review of their budget costs in a way that prevented the AHEA from reviewing the background cost constructs to their budget from the greater pool of AQIS costs and resources. This was unfortunate as there is no way of knowing whether AQIS is managing its pool of staff optimally across areas of relatively easy transfer—that is, the grains program, the horticultural export program, airport passenger quarantine and general quarantine.

AQIS attempted to remove requests for permits on the horticultural export program without discussing it with the ministerial taskforce. AQIS advised that they were not needed in the grain program and were going to be removed from the legislation for horticulture. The AHEA was most concerned that AQIS wanted to do this with no consultation with the MTF. We protested this and advised that if these RFPs were removed we would have no traceability of shipments to non-phytosanitary markets. Without traceability we could not defend Australia's reputation if contamination such as E. coli or Listeria were found in overseas markets—that is, there would be no process to trace whether an issue did actually come from Australia and make corrections if necessary. The AHEA regarded the approach of AQIS in this regard as very short-sighted and had to push hard to have them retained. Regarding fees and charges for future AQIS service delivery, the process of attempting to generate a billing structure that assumed a holistic approach to the horticultural industry in terms of an even and appropriate distribution of costs was impaired and frustrated by the conduct of AQIS. All too often, the forecasted inputs as to likely units of recovery for each designated fee and charge would be changed by AQIS. This essentially derailed for many months industry's efforts to come up with a solution. AQIS doggedly pursued a set of fees and charges they deemed suitable to them, which if permitted to be scheduled would have contributed to declining exports—the price associated with their registered packing establishment fees was far too high—and this would have contributed to payment evasion, resulting in accrued losses year on year to the Horticulture Export Program.

AQIS also advised the ministerial task force when a proposed construct of fees and charges was not to their liking that such a construct was not possible given legislative constraints. This was challenged and, after robust and probing correspondence, the legislative constraints went away. AQIS advised us that, for each hour of inspection or audit, there were four hours of travel. This information was attained by AQIS asking their staff about their work activities and this travel time, which we regard as being more than an inspector takes in getting from one job to the next, is to be socialised as a cost across the program. This is a major consideration forced upon the MTF.

On 29 June this year, AQIS pressured the industry members of the MTF to agree to a model of fees and charges during their meeting. The AHEA protested that this was not sensible as AQIS had not been able to present the MTF with a set of AQIS units invoiced for each category of charges and fees for the year to date 2010-11 that AQIS could assure us was accurate. The AHEA protested that without accurate, most recent historical data it was not professional from a forecasting approach to force the MTF to accept one model of charging over another. Nonetheless, AQIS pursued an outcome, the irony of this being that, while a model that is a construct of charging was preferred, there were no monetary figures agreed as to the individual charges for each category to contribute to the recovery of the AQIS budget expenses.

I move to minutes of meetings improperly kept. The recording of minutes by AQIS during the ministerial task force was most unprofessional. There were minutes/records made by AQIS or DAFF of comments and outcomes that were simply not correct, in addition to significant omissions of important content. All too often, the AHEA regarded the purpose of AQIS/DAFF generated minutes was to substantiate their own desired position and outcomes, not those of the ministerial task force. The inaccurate recording of minutes became intolerable to the AHEA to the extent that we felt substantial misrepresentations were being detailed. Accordingly, a formal complaint was lodged with the deputy secretary of DAFF. This complaint is proceeding and it is a most undesirable state of affairs for a ministerial task force. There is a letter from DAFF to that effect in appendix 3.

What has been achieved? It is most unfortunate that nothing of merit has been achieved in terms of AQIS budgetary matters and improved efficiencies in the export pathway except for the document 'Market access and market intelligence research project'. AQIS have rolled out AAOs that offer no market access benefits in terms of phytosanitary certification compared with existing approved arrangements. The AQIS rollout of AAOs is in fact a less desirable model for non-government phytosanitary certification for business than the existing approved arrangements. This is because the AAOs are individual agreements for individuals, whereas AAs are company based arrangements. If an AAO leaves a company, the company is left with nothing, whereas with an AA—an approved arrangement—the structure of the phytosanitary certification remains with the company and thus lessens the rebuilding costs when staff leave. Accordingly, AAs offer a more straightforward process of bringing in new staff and having them trained and audited. AQIS have advised industry that no more AAs will be issued and that they will be phased out if they are not strongly supported. Therefore it is reasonable to say that AQIS have instigated a process of increased regulation of phytosanitary certification and compliance costs to industry with their desired rollouts of AAOs for no improvement in market access compared with what was historically available. This, in addition to spending in excess of $1.5 million during this MTF review period, is most alarming.

In short, the horticultural industry would have been better off demanding that the total money made available to the horticultural MTF be remitted to the AQIS stakeholders. Instead, the time of the AHEA and many other industry participants has been wasted over the past 18 months on this ministerial task force process. For the reasons described, AQIS and DAFF essentially hijacked this ministerial task force, ruining its chance of success, and this culminated in discord and distrust between AQIS and DAFF and the AHEA. This should not have happened.

Where to from here? Given that the horticultural ministerial task force's efforts at reform were compromised, the AHEA would like: either that the 40 percent support mechanism for AQIS costs be continued or that all the central office functions, including EXDOC and market access maintenance functions of AQIS be paid for by the Commonwealth government; the unreserved continuation of approved arrangements for phytosanitary certification and process approved arrangements using compliance arrangements that have historically been required, rather than the new version that AQIS desires; and a review of AAOs as to whether they should be dismantled if they cannot immediately demonstrate substantial phytosanitary certification market access to improvements to many new markets that were previously not acceptable with approved arrangements.

CHAIR: Thank you for that short opening statement. Do you barrack for the All Blacks, or is that just—

Mr Scott : Yes—and the Crusaders.

Senator COLBECK: Thank you for your opening statement and thanks for being here. Effectively what you are saying is that you went into this process with a sense in mind of what reforms you might like, but that was not considered by AQIS; they had their own reforms in mind, and you had to go along with them regardless of what you thought?

Mr Scott : That is most definitely the case. In fact, we would say that even with the amount of time that we put into the work plan—where we specifically detailed where we wanted to go, how we wanted to get there and recommended that members be surveyed to see whether what was proposed would be acceptable—it was sidestepped and avoided, and we were rolled over in terms of that process.

Senator COLBECK: So we effectively came out with a more expensive process then we went in with.

Mr Scott : And we have spent a lot of money getting there; that is correct

Senator COLBECK: And have not really achieved anything much.

Mr Scott : We have not improved phytosanitary access to any markets on the basis of what has been forced upon the industry in terms of the rollout of AAOs. There is a little bit of a proviso there: a very, very small segment of the Australian horticultural industry might derive benefits from an AAO if some more markets gained access, but the reality is that, unless you are a very big centralised packing shed, you will not derive the value that is being purported in the Ernst & Young benefits report.

Senator COLBECK: So in a similar circumstance that we heard about earlier in the fishing industry where the remote and small are effectively disadvantaged—

Mr Scott : And the highly seasonal.

Mr Minnis : And seasonal.

Senator COLBECK: And seasonal, so we add another layer again. So the remote, the small and the highly seasonal are significantly disadvantaged as part of this process, in the same way that the fishing industry guys are; that is happening in the same circumstance here.

Mr Scott : That is very much the case here.

Senator COLBECK: So, if you are a small regional producer, think twice.

Mr Scott : Even if you are a large regional producer, but with a very short period of export. They might have two or three months, or less if you are a mango grower or whatever. If you had a smaller window then you certainly would not be able to get the gains that would be necessary for the expenditure to achieve an AAO.

Mr Minnis : In fact, the industry has not really widely adopted approved arrangements. If you like, we have had a test case of approved arrangements where premises undertake the inspection and take on the responsibility, and they have not been widely taken up by the industry. So to expect and predict that 80 per cent of the industry will use AAOs is dreaming.

Senator COLBECK: You seem to imply that you were effectively bullied into a process, and that was the track that we were going down anyway.

Mr Scott : Most definitely, and a number of us took significant exception. At the meeting of the 29th, when the Deputy Secretary of DAFF was present, we actually said that we had given only an in-principle agreement to review this. At that meeting, where we covered a number of other issues as to the accuracy of minutes regarding that formal complaint that is in existence, we specifically talked about that in-principle agreement and how we felt that we had been railroaded and essentially abused during this process.

Senator COLBECK: So we have got to the end of the process. We effectively do not have anything agreed. There is a model there, but there are no numbers in it.

Mr Minnis : No numbers.

Mr Scott : That is exactly right.

Senator COLBECK: So nobody knows what the potential fees and charges are likely to be.

Mr Scott : That is correct, yes.

Mr Minnis : So, in the interim, we are now on the fee charges—

Senator COLBECK: So we are back to the 2009—

Mr Minnis : The $272 an hour.

Senator COLBECK: We are back to the 2009 sets of fees and charges that we had a dust-up about.

Mr Minnis : Correct. The benefits study that Ernst and Young did arrived at the AHEA this morning.

Mr Scott : I must say that we got a number of other letters to cover off the letter of concern that the ministerial task force sent to the Secretary of DAFF. We got a letter covering off that last night as well.

Senator NASH: It has been a busy 24 hours for the government, hasn't it?

Mr Scott : It has been very busy. In fact, it was last night at 7.45—in the middle of the State of Origin game, I might add—that that email came through. It was before the game started, actually, but anyway, we were there. That was when it came. So that gives you the idea. We were also very much of the mind that we have raised a lot of issues that we have taken to a very senior level within DAFF, because we do not feel that we were getting the replies from the DAFF people that were present at that ministerial task force.

Senator NASH: It is amazing, the flurry a Senate hearing can occasionally cause.

Senator COLBECK: Yes, it is quite surprising. I just want to go back to the acceptance of AAOs in our markets. So you are fairly certain that Japan, South Korea, Taiwan and China will not accept—

Mr Scott : I can give you the example. In terms of citrus exports to Japan, in Mooroopna there was a Japanese pre-clearance inspector who was there. He saw AQIS inspectors that were contractors. They were not AAOs; they were AQIS contractors. So they are part-time AQIS inspectors. He saw them, queried their roles and said that they are not permitted to do the AQIS inspection of citrus for Japan unless they are directly supervised by a full-time Commonwealth officer. So we say: if you have a subcontractor that is paid and trained by the government yet is still not allowed to do export certification to Japan, how on earth do DAFF, in their wildest dreams, ever think that Japan will let us over the line with a non-government inspector?

We are very concerned about that. That is why a lot of us looked at it and said that if they have to be directly supervised, there is, we believe, absolutely no chance that Japan MAFF will say yes to someone who is actually paid by someone else other than the government.

Senator COLBECK: So it is a bit like the circumstance that we have just heard about in the beef industry where we have transferred all the meat inspectors from AQIS to the meat processors but then we have put another layer in that is equivalent on top of that to keep an eye on them because the Americans will not accept the AAOs. That is exactly the same circumstances.

Mr Scott : That is exactly the same.

Senator COLBECK: It might be that one of your businesses then employs the AAO but we are then going to have a government employed inspector to keep an eye on that person anyway so you are not achieving anything but you are adding cost.

Senator NASH: It's ludicrous.

Mr Scott : There has been a bit of a red herring thrown out there in saying that DAFF are satisfying the International Plant Protection Convention requirements, the IPPC, because what they do is that they look at it and say, 'We can address these.' You can under that IPPC arrangement but that is trumped essentially by memorandums of understanding or bilateral quarantine agreements which you see Australia engaging in particularly for fruit fly host commodities. So when people give this sort of airy fairy response, 'But we're satisfying these requirements,' they are not where you have bilateral quarantine agreements sitting above that because they do trump all of the base requirements that are designated in those IPPC agreements.

Senator SIEWERT: I wanted to go back to the example you were using around the Japanese not accepting the proposed approach. Do you know whether there have been any discussions with some of these countries about how to cooperate or what arrangements they will accept to effect this process?

Mr Scott : Prior to AAOs being the AQIS desired approach we had in existence and we still have in existence what are called approved arrangements. They let us do phytosanitary certification under some strict guidelines and compliance arrangements to some markets. So what we did is that we said to AQIS, 'Go and ask those countries whether they will accept our approved arrangement model.' They came back and said, 'No, they wouldn't.' This is what really frustrates a number of us and that is why we said in our opening address that we were concerned about the cloak essentially offered by electronic phyto certs. What we were concerned about was that, when they were knocked back on the AAO models, AQIS then came up with this authorised AQIS officer. We felt that that was really putting a badge and a fancy name to an approved arrangement and that it was really belittling the intelligence of a lot of these trading partners to suggest that we could slip round the sides of what they had already said no to. As I say a number of us harboured a very grave concern that AAOs could be enabled and that foreign countries really would not know whether electronic phytosanitary certificates were raised.

Senator SIEWERT: So since the process of the example you used where the Japanese officer had issues, has there subsequently been further engagement with, for example, Japan about the process?

Mr Scott : We do not know whether there have been any engagements in that regard. All we know is that the initial requests in terms of non-government inspectors were rebuffed.

Senator SIEWERT: Thank you. I just wanted to go to the recommendation that is in your submission that you have just finished with, No. 1 where you say:

Either the continuation of the 40% support mechanism or all the central office functions (including exdoc) and market access maintenance functions of AQIS paid for by the Commonwealth government.

Have you done an assessment of that cost? You have been through fairly clearly some of the examples but what cost would you say it is? You say 40 per cent or this, so how much is that?

Mr Minnis : In these figures provided by AQIS, biosecurity group and DAFF is $1.9 million; central office is $1.2 million; and, if we included the export program services like the ex-stock general manager, there is another $580,000 there. So we are talking about $3½ million to $3.7 million of a $7.2 million program.

Senator SIEWERT: So it works out at about that—

Mr Minnis : It is about 50 per cent.

Senator SIEWERT: Right. So you were going for the cheaper option for the Commonwealth.

Mr Minnis : And part of the problem of $272 per hour is that it reflects the high overheads—the high head office costs. As an industry, we only export 310,000 tonnes of fruit and vegetables. We are not a wheat industry or a meat industry. That is part of our problem: our volumes are relatively small compared with other industries.

Senator SIEWERT: That is where I wanted to go to next. You started touching on the seasonal aspect of your industry, in particular. When you look at the costs, what percentage cost of your operations—because it is seasonal—does this process have? Is it a higher percentage cost because it all comes in one hit? Is that the issue?

Mr Minnis : There is down time. Increasingly we are being forced into being seasonal suppliers to the northern hemisphere, so the rush period is from November through to May. Then in the winter months it is vegetables and citrus. Citrus is very substantial but it is an easier product to inspect because it is provided in volume and there are not a lot of packing sheds. So there is considerable AQIS down time in the winter months while in summer they are quite busy. You are right, there is a disproportionate spread of activity over the year.

Also, one of the things that concerns me—and I made this point in the paper—was that air freight is very important to us. We are the only country that can serve Asia overnight by air. When you look at the fee structure and you start putting fees on documents and inspection time, you find that you might sea-freight 10 containers using one phyto, one export permit and two-hour inspections, while for 800 cartons of grapes to Thailand for a phyto market the costs are exactly the same. So I have costs over 10,000 cartons and costs over 800 cartons. If we are not careful, and if the fee structure does not allow us to almost cross-subsidise but to have sympathy for air freight, we will lose it. Chile, Argentina and South Africa cannot air freight overnight like we can—any shortfall in the market we can supply overnight.

Senator SIEWERT: I want to make sure I understand that. In other words, the costs are very high for air freight and it will be prohibitive for you to get into those niche markets that you are air freighting into.

Mr Minnis : If we are not careful. If the AQIS fees are to the extent that they are proposing they will keep us out of the market.

Mr Scott : I think we need to get some perspective here. If you are a seasonal operator and AQIS had been able to get up the model that they wanted to—they were going to be charging $12,000 for a registered packing establishment. We looked at that and said: '$12,000? That is so high that it is actually a disincentive to be a registered packing establishment.' For a lot of countries that we supply to you actually have to pack the product in a protocol arrangement in a registered packing establishment. That is why when the forecasted numbers that AQIS kept giving us to put in their budget kept changing all over the place we said: 'Hang on a moment. If you up it like that it is not reasonable to expect that the same number of registered establishments will be registered next year with that sort of fee as were this year with $550.' So all sorts of anomalies like this came through, and that was when we said that with that sort of approach you will incur losses year on year as people keep falling out. These are the sorts of issues—and this is elementary economics—that we have really struggled with in this process.

CHAIR: I am going to go eventually to Senator Sean Edwards, who will ask his first question in these processes.

Senator NASH: We look forward to that. I shall not be very long. I just want to take you to the letter that you received last night during the State of Origin. Obviously the Deputy Secretary and the Acting Executive Manager attended one of your meetings where all this was raised, and then you have received this letter saying that there is going to be a formal investigation. When the Deputy Secretary and the Acting Executive Manager were at that meeting, what sort of sense did you get from them that they were taking you seriously, that they were listening to your concerns? I am just trying to get a sense of how you felt when they were in the room with you.

Mr Scott : I was dialled into that teleconference. There were three other people who were there. When the discussion revolved around the misreporting of minutes, the inappropriate rollout of AAOs and that only the in-principle agreement was given, I asked someone exactly that after the meeting. I said, 'How was the Deputy Secretary when everyone started singing from the same hymn sheet that these were the concerns?' Their reply was that she had an 'ashen' look. That was coupled with the fact that one of the people did clearly say at that meeting that the in-principle agreement that we gave for AAOs was very much on the basis that AQIS would come back and achieve the market access that they said that they would.

Senator NASH: Yes. That makes perfect sense. Otherwise, why would you agree?

Mr Scott : Why would you? Otherwise, we would have looked and said, 'This isn't going to work.' We have been told, 'Oh, we only want positive people around us.' That is the thing that we can get from AQIS now. We took umbrage to that and said that we are positive people but the reality is that we are not going to stick our heads in the sand either.

Senator NASH: Very quickly, I know that it says that she informed you that a formal investigation into these matters would be instigated. Did she give you any undertaking whatsoever as to a conclusion date for that process—of when you were going to—

Mr Scott : No. That came about because we had a very terse meeting with a ministerial taskforce. It would be fair to say that I referred to the minutes of one of those meetings as 'an orchestrated litany of lies'. We were basically told, 'Don't use that sort of language at an MTF' et cetera, and we said, 'Well, that's how bad we feel they are', because there were many sets of minutes that were inappropriate. I have had correspondence with the integrity unit of DAFF and this is being looked into. They have asked me for my written comments and I have said that I will forward them next week. We do not know how that process will unfold. We understand that it is being reviewed by a division within DAFF, so a complaint about DAFF is being reviewed by DAFF. We always finds those sorts of processes—

Senator NASH: Unusual.

Mr Scott : of concern. But we will reserve a judgment on that until we see how more of it is rolled out.

Senator NASH: All right. When you do receive that advice on whatever findings have been made, could you supply that to the committee, if possible?

Mr Scott : Yes, we can do that. I have no issue with that at all.

Senator NASH: That would be great. Finally, do you have any confidence that there can be a resolution to this in some way, shape or form where both industry and the government are going to be happy with the outcome?

Mr Scott : In terms of a charging outcome, I believe that we can come to a resolution there. The problem that we had was that we got monumentally stuffed around by some very poor forecasting figures, which, given that I have a background in forecasting from another life, so to speak, we looked at and we said, 'It is inappropriate to have a model and then get your data and shove it into the model.' What we pursued them for was the data to be entered to build an appropriate model. That process was not enabled. I believe that we can and will come to a solution as to what is an appropriate charging model. That enormously depends upon, and is affected by, the socialisation fees and percentages that I referred to in my opening address. Obviously, where we are expected to cover off those socialised expenses it significantly affects the model of fees that we will come up with. I think we can do that. In terms of AAOs, we really do not see one iota of benefit. In fact, we feel that we have been saddled with a lemon.

CHAIR: I would now like to launch the new inquiring, incisive mind of the committee, Senator Sean Edwards, and his first question.

Senator EDWARDS: Thank you, chair. No pressure! Thank you, gentlemen. I appreciate the other people who are still here and their evidence this morning as well. This is first my week in this building and my first day on this inquiry. Could you tell me whether there is a link between a registered establishment and an AAO. I presume that a business that does not want to have an AQIS inspector at $272 an hour but has an accredited person on staff can utilise that person. Is that right?

Mr Scott : That is correct.

Senator EDWARDS: What is the cost of getting somebody accredited in a business, and is that fairly uniform across fishing, horticulture and those areas?

Mr Scott : From my experience of having an approved arrangement in my business, the expenses that we would expect in terms of just audit fees from AQIS—and we are talking about just government fees here; we are not talking about the cost of that person's salaried time—

Senator EDWARDS: I am interested to know what it costs you to get a person accredited to do the job that AQIS used to do.

Mr Scott : To get them up and running, the estimate is between $10,000 and $15,000. For the to do compliance going forward, you would expect it to be in the vicinity of $4,000 to $7,000 in terms of audit fees and process. And that is very much on the basis they get everything right, because, if you do not get it right, you keep on getting audited and audited and audited until you do get it right. The issue that we also have, which we pointed out at length—and which I must say we were very much ignored over—is that the foreign countries that we are now sending products to are increasingly sending interception reports back to Australia on pests that they find on the products. When you have that, if you have an AAO or an AA, it will essentially precipitate a noncompliance and that will suggest that you have an audit. And when you have an audit, typically you do not get out of it for less than about $600 or $700 a time.

Senator EDWARDS: So that is $6,000 or $7,000 annually?

Mr Scott : That is right.

Senator EDWARDS: And that is whether it is apple's, grapes or what have you, and no matter what size your business is?

Mr Scott : That is right. You have audits every year and you have to have an AA approved officer for each product. So if you export tomatoes, you have got to be certified and audited and checked off for tomatoes. If you do rockmelons as well, you will have an audit for this product and that product and every other product, and that will happen by market.

Senator EDWARDS: Is there a separate cost for each of those accreditations?

Mr Scott : Definitely. They are totally separate units in terms of process.

Mr Minnis : And they have got to have their own manual for each product.

Senator EDWARDS: I am getting the picture. In the event of a breach, where the AAO has not carried out their function properly, who is liable and what are the penalties?

Mr Scott : The AAO is liable—

Senator EDWARDS: Personally?

Mr Scott : Personally. There has been an enormous amount of horse-trading going around in terms of when we have actually tried to pin down AQIS and DAFF over these issues as to exactly what would constitute a significant breach and what would not—and those documents are now just being rolled out. Perhaps the irony of it all is that they are simply rebadging the approved arrangement documents with an AAO badge over the top and rolling that out for a lot of it. Basically, they are just rebadging an old process with some additional compliance.

Senator EDWARDS: But if I export vine cuttings in my business to New Zealand which is phylloxera-free, and the cuttings carry phylloxera, and I am the AAO, what is my penalty?

Mr Scott : We do not know whether in fact you would stand to be personally liable for issues in that regard.

CHAIR: I will just deal with a procedural matter. Senator, I think you should probably declare an interest as an exporter.

Senator EDWARDS: Yes, of wine, not of vine cuttings.

Mr Minnis : One thing that occurred to me while you were talking about AAOs and horticulture is that, unlike the meat industry, we do not have people out there ready to be trained. There were lots of meat inspectors around who took up AAO positions but that is not the case in horticulture. Also, you have to show that you do not have a conflict of interest to be an AAO, such as if you are a director of a company—and this is different from the AAs that are in existence now—or a senior manager. I have four traders operating in my business. Those four traders would have a conflict of interest as senior managers, doing an authorised officer activity, to inspect that product under the documents that have been released by AQIS. The irony is that under approved arrangements, where they have been audited and checked and so forth, there is not an issue.

This is what we are talking about—the enormous burden of compliance. For a company like mine—and we have pretty good experience; we export a lot of product out of New Zealand as well—we see two different quarantine processes working and we say that it is just farcical.

CHAIR: Finally, thank you very much for your evidence. I will get Senator Urquhart on the record by asking her if she would like to ask a question.

Senator URQUHART: The only question I was going to ask—and I declined to ask a question a moment ago but thank you very much, and thank you for your input—

CHAIR: This is also a maiden question.

Senator URQUHART: was in relation to the response that you got dated 6 July. Does that refer to one meeting? You said you were not happy with the minuting of a number of meetings. Is this specific to one meeting or is it a number of—

Mr Scott : That is an interesting point you raise because I read that letter and thought, 'That is a very interesting letter because it actually purports to cover off on three events.' When it covers off on the three events it says that it is a reply on behalf of Dr O'Connell but it does not cover off the letter of concern of a whole list of issues that we raised with the secretary. When I read it I felt that it was a letter that was sent in haste so that they could say then that those matters had been covered off and letters had been sent.

Senator URQUHART: I was not clear because I gathered from what you said earlier that you had raised the minutes, or concerns with the minuting, on a number of occasions.

Mr Scott : And we have. I think that while there was a formal complaint with respect to a specific set of minutes, we have actually tied in some other minutes to say that this is the level of adjustment that is needed to bring balance to them.

Senator NASH: Senator Urquhart, you will be able to get some clarification from the department tomorrow I would expect.

Mr Minnis : We have a whole trail of correspondence back to last December showing where we have been unhappy with the arrangements and with what has been happening.

Senator URQUHART: Is that in any of the correspondence that you have provided?

Mr Scott : Some of it is but otherwise I was going to send you a dossier that you would look at and say, 'Dear, oh dear.' In the event that you would like any additional information, we would certainly be happy because our experience within the MTF is that there have been a lot of grey areas and the use of a lot of grey areas. What would seem to be an appropriate answer has actually often turned out to have no substance to it.

Senator NASH: Mr Scott, if you could provide the committee with that dossier, that would be very useful, thank you.

ACTING CHAIR ( Senator Colbeck ): I just need to apologise for the chair, who has been called away.

Senator XENOPHON: I know we are over time, but I have just one line of questioning. At page 6 of your opening statement, you said:

On the 29th of June AQIS/DAFF pressured the industry members of the MTF to agree to a model of fees and charges during their meeting.

I think that in response to Senator Colbeck's line of questioning you said you were bullied. What do you mean by that? Can you elaborate on that.

Mr Scott : I am speaking from the AHEA's perspective here. What I mean is that there were three models—and, when we say 'models', they were charging versions—that were put in front of us. As the lead speaker for the AHEA, I objected to the fact that they were pressuring us for the acceptance of a model when they had not given us the year-to-date figures for the specific charging for this year that has just been. Anyone that has a good understanding of forecasting knows you gather the most recent data, look at historical data, work trends and then take into account some seasonal events and so forth, and you work some averages and that sort of thing to get that. What happened, it would be fair to say, is that I was overridden in that regard by AQIS, or a member from DAFF, and they said, 'Look, what's important here is that we have a model; we want the approval of a model.' My words were, 'This conduct is unprofessional in terms of forecasting approaches.' What happened was that they said, 'Well, that might be the case, but we want to agree to a model.'

Senator XENOPHON: Was it a 'take it or leave it' attitude?

Mr Scott : No, it was one of those situations where I would say that the other people that were in the MTF do not have the same sort of background that I do in terms of model building, forecasting and that sort of thing, and they probably felt that it was okay to be driven in that direction.

Senator XENOPHON: Thank you.

Senator NASH: Can I just add one very last thing, Mr Scott. I just want to get right the wording of what you said then. You said it was 'unprofessional in terms of—'

Mr Scott : Unprofessional in terms of good forecasting process to have a model and try and fit the data to a model. Whenever we built forecasting models, we always gathered as much accurate data as we could and then built our forecasts around that. The important thing to bear in mind is that we doggedly pursued AQIS for the year 2010-11 data. The thing was that that data was very, very difficult to get. Even when they did give us a set of data, they said that we should not use it because they were not 100 per cent sure of its accuracy. As you can imagine, we blew up over that in the meeting and said, 'How can an organisation now know what it is invoiced for the year just through its simple accounting procedures?'

Mr Minnis : Their excuse was that a lot of these invoices had not been paid. So what?

Mr Scott : So, as you can imagine, we were very, very frustrated by this process. We were also frustrated by the fact that AQIS or DAFF were then coming out and saying, 'These are the units that we want you to use within our forecasted model.' We turned around and said, 'How can you say that about your use of these units?' In terms of phytosanitary certificates, about 13,000 or 14,000 from memory, off the cuff—maybe a few more but not a lot more—were raised this year, and in their forecasted model they were suggesting that there will be 21,900 for next year. We said, 'How on earth do you get to that figure when the previous year, which was around 20,000, we had an exchange rate that was in the 80s and now we are at US$1.07?'

Senator NASH: What did they say? Did they have an answer?

Mr Scott : 'These are our figures.' They said to me on a number of occasions: 'These are our figures, and we're comfortable with them. You don't understand the processing.' With the greatest respect, I have a master's degree in commerce, and my major was building forecasting models.

Senator NASH: So you have an inkling!

Mr Scott : So the reality was that I looked at it and thought, 'Dear, oh dear, oh dear.' That was why I looked at it and was so absolutely ropeable with what I saw was producing a set of figures to affect a dataset that, at the end of the day, would explain away some of the potential losses that might be incurred in the system in the coming year. When you want to tell a nice story to the minister for agriculture as to what a wonderful job you have done with the ministerial task force, the last thing you want to be doing is showing a massive dud budget deficit in terms of what your likely collection basis is.

Senator XENOPHON: You are misleading the committee, aren't you? You did not say to yourself, 'Dear, oh dear, oh dear,' did you?

Mr Minnis : But what was relevant about the figures for this year that has just finished is, of course, that the dollar is at US$1.05 and we had the wettest summer since 1974, so exports were well down. So we needed those figures to see the trend. There was this prediction of 21,000, and the dollar is not going to change. Get real!

Mr Scott : So we suggested that they should take the data for the year before, add it on to this year's data, divide it by two and get what is called a moving average—a pretty simple way of forecasting these units, really. It came up with such different figures that we were scoffed at.

ACTING CHAIR: I think we might have to draw it to a close if there is nothing further. I think we have done pretty well this evening. Thank you, gentlemen, for your evidence. We will resume tomorrow morning. Thank you to the committee. Thank you to Hansard. See you in the morning.

Committee adjourned at 19:01