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Changing Australia's Food Standards: It's Pay to Play!

Published: 4 May 2009

By Joe Lederman
FoodLegal Lawyers and Consultants
© Lawmedia Pty Ltd, May 2009

FREE ARTICLE!

Companies that want to change a Food Standard in Australia (such as might be necessary to introduce an innovative food technology) have a choice of paying extra money to get their applications to amend the Food Standards Code processed, or not paying and being left in a long queue. This article discusses the implications of this two-tiered system, and its negative impact on food innovation in Australia, its over-burdening of small but savvy food marketing businesses, and the scope for discrimination by a food agency when it is being placed under financial pressure by governments to generate more income to support its own operations.

Applications to Change the Food Standards Code

New processes to enable any person to apply to amend the Australia New Zealand Food Standards Code (‘Food Standards Code’) came into force on 1 October 2007 and replaced the previous requirements.

Under the changes, any application now must undergo a preliminary administrative assessment, within 15 days of being received by the governing agency Food Standards Australia New Zealand (‘FSANZ’), to determine whether the application conforms with specified statutory requirements. Each successful application is also categorised by FSANZ as one requiring either a ‘General’, ‘Major’ or ‘Minor’ procedure for detailed assessment of the actual proposed change, depending on the nature of the proposed change to the Food Standards Code.

When FSANZ subsequently conducts a full assessment, it must consider the impact of the proposed change in the Food Standards Code and weigh up the benefits and the detriments, using the best available scientific knowledge and a proper assessment process. This process will involve at least one round of public consultation. The Australia New Zealand Food Regulation Ministerial Council (‘the Ministerial Council’) also considers the proposed changes, and has powers that can include requesting that FSANZ undertake further review of a draft amendment, or rejecting the application in whole or in part. Any draft revision for a Food Standard prepared by FSANZ is considered by the members of the Ministerial Council, who can choose to approve or reject the draft or send it back to FSANZ for further review. Applications finally approved by the Ministerial Council are gazetted and implemented as law. 

Fees

Applicants are not compelled to pay for the assessment of an application by FSANZ unless FSANZ considers that the proposed amendment would confer an ‘exclusive capturable commercial benefit’ (‘ECCB’) on the applicant (s 8, FSANZ Act 1991). If FSANZ determines that an ECCB exists, the applicant must pay the full cost of the assessment (calculated by FSANZ) in advance of FSANZ commencing further assessment work. An applicant also has an option of paying the fee even where there is no ECCB but where the applicant may have decided to have the commencement of FSANZ’s full assessment expedited, rather than sticking to the anticipated timeframe that can be provided by FSANZ in its preliminary administrative assessment.

The fees payable vary considerably according to whether the application will be assessed under a ‘Major’, ‘Minor’ or ‘General’ procedure, and according to the number of hours that FSANZ anticipates it will take to complete the assessment. Typically in 2008, FSANZ considered an application for which the work was expected to be up to 175 hours as a ‘Minor’ procedure, full cost to the applicant $18,725 while up to 1050 hours would have been categorised as being under the ‘Major’ procedure, and costing up to $112,350, with surcharges applicable if assessment took longer than 1050 hours. Clearly, these are significant upfront costs just to pay a government agency, especially if it is an advance payment which is potentially vulnerable to becoming lost money “down the drain” if the application does not result in a change in the law.

Timeframes for Assessment

If an applicant chooses not to pay the fast-track fees, the assessment of the application will be placed in the FSANZ “Work Plan”, which comprises a queue for processing all the Applications and Proposals in existence in the FSANZ organisation. The Proposals include FSANZ’s own self-initiated proposals to amend the Food Standards Code. Priority for processing an application that is not being fast-tracked through payment by the applicant is determined by FSANZ according to date of receipt. There is no guaranteed timeframe in which any such “unpaid” application must be assessed. Furthermore, any anticipated timeframe created by FSANZ after the initial administrative assessment is not binding. The FSANZ Act and regulations stipulate timeframes merely as guidelines within which an assessment should be completed by FSANZ. An approval of a draft food regulatory measure is targeted by law to be finalised within 3 months of when the assessment was commenced from when applicable fees were received in relation to an application being assessed under the ‘Minor’ procedure, within 9 months if FSANZ has categorised it as a ‘General’ procedure assessment, and within 12 months if FSANZ has categorised it under the ‘Major’ procedure.

However, FSANZ can extend the time period for Major Procedure applications by up to 6 months, and can ‘stop the clock’ if it needs more information to complete an assessment, or where the applicant has not payed due fees. The timeframe guidelines are not legally binding on FSANZ, and FSANZ is only required to detail in its annual report the reasons why it was unable to stick to any proposed assessment timeframe.

These timeframes do not include the time it takes FSANZ to commence an assessment after the initial administrative assessment has been completed. Furthermore, a draft food standard is not gazetted straight after it is approved by FSANZ. It then takes additional time for the Ministerial Council to review the draft and potentially order up to two reviews of the food standard if it believes the draft is deficient in some area (clause 3(e) COAG Food Regulation Agreement (2002). As a result, even a ‘General’ procedure “paid” application can be expected to take more than 9 months from the date the application is filed to its gazettal date.

Case Studies: Paid and Unpaid Applications

FoodLegal’s analysis of the timeframes of FSANZ’s assessment of applications reveals the significantly longer time that it takes for a FSANZ full assessment to commence if an applicant is not required to pay an ECCB fee or does not choose to pay for an expedited process. For example, FoodLegal has noted that “paid” applications A1005, A1012, A1015, A1018 and A1019 were all assessed under the ‘General’ procedure. Between them, it took a minimum 4 days and a maximum 34 days, at an average of 16 days from when the preliminary administrative assessment was completed and the day when the full FSANZ assessment process was commenced.

In contrast, “unpaid” ‘General’ procedure applications A1007, A1010, A1016 and A1020 are each expected to commence their full assessment process nearly 12 months after the completion of their preliminary administrative assessments (according to published anticipated timelines).

While the total time it takes for a successful application to be gazetted varies widely according to the complexity of the proposal and whether the Ministerial Council orders a review, there is a clear gap between the relative expediency of “paid” applications and the time taken to process “unpaid” applications.

Among applications received after 1 October 2007, all four which have been assessed by FSANZ and referred to the Ministerial Council have been “paid” applications, and two have been gazetted (A1001 and A1003) were finalised in 2 years and 4 months and under 11 months, respectively, from the date of the initial application. Meanwhile, “unpaid” application A490 was received on 12 August 2002, and is still awaiting a response from the Ministerial Council due May this year after a process that, so far, has taken about 7 years!

As an aside, it should be noted the likely outcome of A490 will hopefully be a positive outcome: the reversal of a requirement to label the processing aid isinglass as a fish ingredient on a beverage product even though it was well known from scientific studies more than 7 years ago that isinglass is a collagen substance that does not cause an allergic reaction for consumers of the beverage. The isinglass was used as a filter through which wine or beer can be processed. It ought be noted that the failure to exempt isinglass as a non-allergenic substance (despite being sourced from a fish) meant that its supplier was forced to shut down operations in Australia. The case illustrates just how easy it is for a standard-setting agency to have a serious affect on those whose livelihood comes from food manufacturing.

Implications

There is a clear and significant time advantage in submitting a “paid” application to FSANZ. The ‘pay to play’ system in force serves to favour those applicants who can afford to pay the FSANZ fee, typically exceeding $100,000, to expedite the application. This clearly disadvantages smaller food companies who anecdotally are at the more innovative end of the food industry spectrum and yet lack financial resources to pursue a “paid” application. ­­­­These applicants must rely on a protracted FSANZ assessment timeline that discriminates in favour of large companies.

Foreign food companies have expressed their surprise to FoodLegal that Australia has this two-class system that favours those who are prepared to pay substantial sums upfront to the governing agency that oversees the food standards. It carries the odium of a system that one might have expected to operate only in countries where corruption has taken hold. The detail of the money being exchanged to change Australian food standards is not readily available and as this is not openly disclosed many people are not aware that this is happening and would disbelieve that such a system is acceptable to any democratic government let alone for Australia.

There does not seem to be any express justification given for the expediting fee, which ensures priority treatment will be given only to those applicants who can afford it. The ECCB assessment fee is justified on the basis that applicants should have to pay for an amendment from which they will derive commercial benefit. However, the nature of the assessment consultative process means that other companies are given notice of a proposed change, and they can then ready themselves to also benefit from the proposed amendment, in the absence of sufficient intellectual property protection for the application.

It should also be noted that this fast-track fee system seems quite unique amongst government “user-pays” systems within Australia. For example, whilst there is provision in the Building Act 1975 (Cth) for applicants to pay to fast-track applications to vary that Act, the cost is nowhere near as high as involved in Food Standards Code amendment applications. FSANZ would counter that it needs the money to cover the cost of its staff in handling a consultative process “professionally”, and the literature review research time required from FSANZ experts in the approval process. However, governments that expect a food regulatory agency to bear its own costs are creating a system that has or will become more vulnerable to outside manipulation at the behest of those who are footing the food regulatory agency’s bills. Such a system might, in fact, be said to reveal the low priority and poor regard afforded by governments to independent scientific assessment of food in this country.

Essentially a ‘pay to play’ system runs contrary to basic notions of democracy. Australia ought not be allowed to become a society over-regulated by an over-powerful government agency governed by principles of plutocracy rather than judging the applications on merit.  At the least, what is desirable are streamlined processes where the government agency has an appropriate level of funding from the government, which does not create a discriminatory system that weighs heavily against the innovators in Australian food manufacturing.