A single national framework for the regulation of agricultural chemicals and veterinary medicines - funding model

1. The Council of Australian Governments (COAG) directed the Primary Industries Ministerial Council (now the Standing Council on Primary Industries [SCoPI]) to bring forward a proposal for a single national framework to improve the efficiency and effectiveness of the regulation of agricultural chemicals and veterinary medicines (agvet chemicals).
   
   
2. SCoPI is required to deliver a regulatory model, funding model and an Intergovernmental Agreement for the single national framework by December 2012.

Current control–of–use funding

3. Control–of–use expenditure by states and territories for the 2011–2012 financial year is estimated at $14 million with 89.56 FTE human resources utilised. These costs are associated with agvet chemical user licensing and enforcement activities, pre–use risk management, education and training, legislation and policy development, and the monitoring of chemical residues in produce and the environment.
   
   
4. The resources allocated to specific control–of–use activities vary, depending on the jurisdiction. While most states and territories allocate resources to licensing and auditing activities, there is significant variation in the resources allocated to produce and environmental monitoring activities. Many states also do not undertake monitoring on a yearly basis.

Proposed funding model

5. Under the single national framework, the states and territories would continue to be responsible for licensing and for funding licensing and other control–of–use activities. The Australian Government would, in turn, fund a program for enhanced monitoring of chemical residues in produce and associated violation traceback activities.
   
   
6. Although some jurisdictions expressed a preference for a licensing scheme funded by the Australia Government, they acknowledge that the pragmatic option requires the states to continue funding these activities.

7. Current control–of–use expenditure by states and territories is estimated at $14 million per annum with 89.56 FTE human resources utilised. Information on Queensland’s control–of–use activities undertaken by Queensland Health units was restricted to licensing costs as other data (such as monitoring, enforcement, advice and other activities) was unavailable or unknown.
   
   
8. A summary of total 2011 FTEs and control–of–use costs for Australia is provided in Table 1 at Attachment 1. The largest share of FTEs in Australia is with respect to enforcement (28.35%) followed by licensing of permitted users (17.12%) and monitoring of conditions of licences (13.08%). The largest share of total costs (including FTEs, on–costs and overhead costs) of control–of–use activities in Australia is allocated to enforcement (28.73%) followed by services to Government (including policy development) (15.92%) and licensing of permitted users of agvet chemicals (11.92%).
   
   
9. State and territory total budget and FTE allocations for control–of–use activities vary significantly between jurisdictions and are dependent on the year surveyed. For example, some jurisdictions undertake monitoring of chemical residues in produce yearly, while others do so infrequently or not at all. Table 2 at Attachment 1 provides a snap-shot of each jurisdiction’s resource allocations for specific control–of–use activities in 2011.
   
   
10. Queensland costs were reported against different criteria at the program level, including responsibilities for contaminants and policy development associated with significant legislative review processes. Monitoring, traceback and education awareness activities were reported under ‘Compliance’. Queensland is the only jurisdiction to support a Government chemical residue laboratory.
    
    
11. A large percentage of cost for control-of-use activity in Australia is driven by Queensland activities (representing approximately 36.4% of national cost), followed by Victoria (representing approximately 22.9% of national cost). A large amount of the total cost of control–of–use activity is driven by enforcement (28.73%) and of the $4.01 million spent on enforcement roughly $2.07 million is spent in Queensland.
    
    
12. The greatest source of cost of control–of–use activities in Australia (62.98% of total cost) relates to wage and labour on–costs, followed by indirect costs. Table 3 at Attachment 1 shows wage and labour on–costs to be at approximately $8.8 million per annum and indirect costs to be at approximately $4.15 million per annum. Wage and labour on–costs are mainly distributed against enforcement, followed by services to government and licensing. The same emphasis on enforcement can be seen with respect to non–labour operating costs and indirect costs.

13. The proposed single national framework provides for the states and territories to retain responsibility for existing control–of–use activities (including licensing). Under these arrangements, the states and territories would continue to fund these control–of–use activities. The Australian Government, subject to budget considerations, would fund an enhanced monitoring and violation traceback program.
    
    
14. Harmonising jurisdictions’ legislation that pertains to elements of the agvet chemical reform is estimated to be a one–off cost of approximately $203,000 nationally. Whilst there may be additional costs in some jurisdictions, financial and regulatory implications need to be considered as part of the overall national package, with increases in regulatory burden in some areas offset by decreases in burden in other areas.

Licensing and Compliance

15. Funding for costs associated with licensing would be obtained through cost recovery via licence fees (budget funding would also be an option in some jurisdictions). Each state and territory could either agree on a harmonised licence fee or individually set its own fees.
    
    
16. States and territories currently undertake varying degrees of cost recovery for agvet chemical licensing. In some cases, states and territories can also obtain broader cost–recovery by constructing regulatory schemes based on audits (such as Interstate Certification agreements) and other individual compliance activities where the regulated entity pays for a specific activity performed by government that goes toward their compliance with legislation.
    
    
17. Some states and territories expressed a preference for the Australian Government to fund a national licensing scheme. However, Commonwealth cost–recovery guidelines only allow for the Australian Government to collect funds to cover the cost of activities for which it has responsibility. If licensing powers were to be conferred onto the Commonwealth, the cost of implementing a licensing system could be offset through cost recovery arrangements. The Australian Government would set a nationally consistent fee which would cover the cost of direct issue of the licence, its monitoring and compliance. The monitoring and compliance activities could be undertaken by the states and territories, but only the national average direct costs of those activities would be passed back by the Australian Government. Consequently, it is acknowledged that the pragmatic option requires the states to continue funding licensing activities.

18. Under the proposed model, the Australian Government, subject to budget considerations, would provide funding for produce monitoring, sampling and resulting traceback activities where non compliance is detected. Costs associated with other monitoring functions, and resulting enforcement and traceback activities, would remain state responsibilities.
    
    
19. The Decision RIS identifies an Australia–wide produce monitoring program to be costed at $4.2 million (including current allocated funding). This estimate is based on replicating current best practice (the system employed by Victoria) and applying it on a pro–rata basis nation–wide.
    
    
20. Exact produce monitoring costs would depend on the issues targeted, the number of samples taken and required traceback activity. To keep costs low, the program will seek to build on existing industry and government systems.

¹ Queensland costs are reported at the program level rather than the project level and current project costs include contaminants.