First-principles review of the APVMA's cost recovery arrangements

 Initial call for submissions has closed.
View initial submissions on the APVMA's cost recovery arrangements.

All stakeholders (including state and territory governments, industry and the community) were invited to provide initial submissions to the Department of Agriculture, Fisheries and Forestry by
21 September 2012.

Objectives and scope

The comprehensive first-principles review of the cost recovery arrangements for the Australian Pesticides and Veterinary Medicines Authority (APVMA) will examine and recommend options to strengthen the financial sustainability, transparency and accountability of the APVMA’s cost recovery arrangements.

The review is focused on the structure of the APVMA’s cost recovery framework. The review does not include consideration of the scope and level of the APVMA’s regulatory activities.

Background

The regulatory framework for managing agricultural chemicals and veterinary medicines (agvet chemicals) in Australia is collectively referred to as the National Registration Scheme for Agricultural and Veterinary Chemicals (NRS). The APVMA administers the NRS in partnership with state and territory government agencies and in collaboration with other Commonwealth agencies. The APVMA is the independent Australian Government statutory authority under the Financial Management and Accountability Act 1997 responsible for the assessment and registration of agvet chemicals and for their regulation up to and including the point of retail sale.

In December 2002 the Australian Government adopted a formal cost recovery policy to improve the consistency, transparency and accountability of its cost recovery arrangements and promote the efficient allocation of resources. The underlying principle of the policy is that entities should set charges to recover all costs of products or services where it is efficient and effective to do so, where the beneficiaries are a narrow and identifiable group and where charging is consistent with Australian Government policy objectives. Cost recovery policy is administered by the Department of Finance and Deregulation and outlined in the Australian Government Cost Recovery Guidelines.

The APVMA is one of a number of Australian Government regulators funded by fees and charges imposed on the industry it regulates. Under the agreement that established the NRS, the Australian Government and all state and territory governments determined that the APVMA should operate on a fully cost recovered basis, which it has done since 1996.

Costs are recovered from the agvet chemical industry through a complex system of application fees, annual fees and levies calculated on the value of sales. While some aspects of the cost recovery arrangements have been periodically examined – mainly as a result of amendments to the agvet chemical legislation and new regulatory activities – the structural robustness of the cost recovery framework as a whole has not been comprehensively reviewed since it was first initiated.

Several issues arise when examining the existing cost recovery arrangements for the APVMA. First, the current splitting of the recovery of application assessment costs between up front application fees (nominally 40%) and an ongoing levy on product sales (60%) has not been evaluated since its introduction.

Second, the current structure of the levy results in a large amount of the APVMA’s operations being funded by a small number of high selling products.
 
Third, costs of some other services, including consents to import, minor use permits and emergency permits, are not recovered directly from beneficiaries or are not recovered in full. Rather, these costs are funded through the levy, which may not be the most efficient and transparent method of cost recovery for these services.

Finally, while the legitimacy of the public funding of some activities, such as the adverse experience reporting program and compliance, has been considered and rejected in previous cost recovery reviews, it is an issue that concerns stakeholders. This review provides a further opportunity to examine this issue.

In light of these considerations, the Government has agreed that a first-principles review of the APVMA’s cost recovery framework will be undertaken, in consultation with state and territory governments and other stakeholders.

Expected Review Outcomes

• A cost recovery approach that covers the cost of all APVMA regulatory obligations and services.
• An evaluation of the alternative cost recovery arrangements that could be adopted by the APVMA, including an assessment of their advantages, disadvantages and compliance with Government’s policy and guidelines on cost recovery, such as:
• • Beneficiary pays – costs are directed toward those who derive a benefit from the activity, alleviating the burden on general taxation
  • Efficiency – cost recovery acts as an important mechanism to ensure the efficient delivery and consumption of government activities and services.
• Development of draft funding/cost recovery proposal that can be released for public consultation.
• Delivery of a final report with recommendations on appropriate options for APVMA’s cost recovery framework.

In delivering the above, the review will consider the APVMA’s cost recovery arrangements from a first-principles basis, including:

• Ensuring that APVMA has a cost recovery arrangement that will provide the resources necessary for efficient and effective operation.
• Consideration of the issues surrounding the APVMA’s reliance on the levy to fund its regulatory activities, its inherent instability (i.e. dependence on sales, which can fluctuate significantly depending on weather, particularly prolonged droughts) and development of alternative approaches that could address these issues.
• Examination of the APVMA’s cash flow and equity and a recommendation on an appropriate level of a cash reserve to ensure business continuity in the event of a shortfall in income.
• Examination of the ways in which the APVMA’s cost recovery arrangements can be used to help it meet the government’s intended policy objectives.

Additionally, relevant issues raised by public consultation on the APVMA’s December 2011 Cost Recovery Discussion paper and 2012 Supplementary Discussion Paper on Cost Recovery of Compliance with Good Manufacturing Practice will be examined.

Governance and Timeframe

The first-principles review will be coordinated by the Department of Agriculture, Fisheries and Forestry and will result in a submission to the Australian Government. The review will also, where necessary, draw on external expertise.

Subject to Government’s decision and making of legislative amendments as required, any changes to the APVMA’s existing cost recovery arrangements would be expected to be in place by 1 July 2015.

Consultation

Initial submissions

All stakeholders (including state and territory governments, industry and the community) are invited to provide initial submissions to the Department of Agriculture, Fisheries and Forestry by 21 September 2012.

In preparing their submissions stakeholders are advised to note the objectives, scope and expected outcomes of the review as outlined above. Stakeholders should consider addressing the following:

• The beneficiaries of the activities and services provided by the APVMA (with a view to informing where cost recovery should be best applied along the supply chain and how much each should contribute).
• How the use of fees or levies can support the efficient consumption of the activities and services provided by the APVMA, including views on the best mix of those mechanisms.
• How to avoid or mitigate exposure due to external factors such as weather.
• How fees or levies could be applied to ensure that they do not result in a disincentive in bringing new products to market.

Lodgement of submissions

All information (including names and contact details) contained in submissions will be published on the department’s website, unless you indicate that you would like all or part of your submission to remain in confidence.  Automatically generated confidentiality statements in emails do not suffice for this purpose.  Respondents who would like all or part of their submission to remain in confidence should provide this information marked as such in a separate attachment.

While submissions can be lodged electronically or in hardcopy, electronic lodgement is preferred.

For accessibility reasons, please provide electronic submissions in a Word or RTF format. An additional PDF version may also be submitted.

• Electronically (preferred):  Either on CD to the postal address below or by email to First-principles cost review team.
  
• Hardcopy Post:

Department of Agriculture, Fisheries and Forestry 
Agvet Chemicals (Domestic & International Policy)
Agricultural Productivity Division
GPO Box 858
CANBERRA  ACT  2601

A request made under the Freedom of Information Act 1982 for a submission marked ‘Confidential’ will be determined in accordance with that Act.

Submissions on draft mechanisms

An invitation for further submissions will follow the development of a new draft cost recovery framework (expected to be released in the first half of 2013). This will underpin the subsequent development of an APVMA cost recovery impact statement.