AMIA's submission to the Rural and Regional affairs and Transport References Committee

The industry structures and systems governing the imposition of and disbursement of marketing and research and development (R&D) levies in the agricultural sector

October 2014

AMIA, PO Box 376, Brisbane Markets Qld 4106

Enquiry Terms of Reference

The industry structures and systems governing the imposition of and disbursement of marketing and research and development (R&D) levies in the agricultural sector, with particular reference to:

  1. an audit of reports, inquiries and reviews relevant to this inquiry;

  2. the basis on which levies are imposed, collected and used;

  3. competing pressures for finite R&D funds;

  4. the opportunities levy payers have to influence the investment of the levies;

  5. the opportunities levy payers have to approve and reapprove the imposition of levies;

  6. the transformation of R&D and marketing into increased returns at the farm gate, including the effectiveness of extension systems;

  7. collaboration on research to benefit multiple industry and research sectors;

  8. industry governance arrangements, consultation and reporting frameworks; and

any other related matter.

Introduction

The Australian Mango Industry Association represent 800 mango growers and associated business through the supply chain.  Australian Mango growers supply Australian and international consumers with great Australian mangoes from September through to March each season.  Our focus is  building our industry so participants have sustainably and profitable futures.

Levies in the Australian Mango industry for marketing and promotion and research and development were introduced for fresh mangoes on the 1st July 2003.  Levies for Plant Health Australia and the Emergency Plant Pest Response were introduced on 1st July 2014.

Current mango levies are:

LevyCents per KilogramCents per 7 Kilogram Tray
Marketing and Promotion1.007.00
Research and Development0.755.25
Plant Health Australia0.0290.2
Emergency Plant Protection Response0.1140.8
Total1.89313.25

Mango levies are collected at the first point of sale, (eg by wholesaler or large retailers/exporters).

The size of the mango crop varies between seasons.  The 5 year average of the crop (2009/10 to 2013/14) is 7.6 million trays (53,000 tonnes).

The levies collected from mangoes raised (5 year average):

Research & Development - $399,000

Marketing & Promotion - $532,000

The levies collected for the levies introduced on 1 July 2014 are expected to raise annually (based on previous 5 year average production):

Plant Health Australia - $15,370

Emergency Plant Pest Response - $60,420

Responses to Terms of Reference

1. an audit of reports, inquiries and reviews relevant to this inquiry;

No response

2. The basis on which levies are imposed, collected and used;

Levies were introduced following the request from AMIA to introduce levies. This followed the clear need to fund research and development  and marketing and promotion activities.  AMIA followed Federal Government levy guidelines and undertook extensive industry consultation to seek industry support prior to the introduction on levies.

Horticulture Australia (HAL) manages levy funds and is responsible for the day to day management of the levy expenditure through the management of projects and activities.  HAL seeks guidance from industry through the Industry Advisory Committee (IAC ) process.  The current Mango IAC comprises of 2 representatives of AMIA and several growers independent of AMIA (that is, not AMIA Board Directors)

Each year there is an annual levy payers meeting where outcomes of key projects and a summary of levy expenditure is explained.   This is also backed by the publication and distribution of an annual industry report which reports on key projects and levy expenditure.

Most projects have project leaders and there contact details are provided with reports, and industry encourages any grower or industry participant to contact the project leader if they are seeking more information on the project or have information or input to provide.

Communication on the outcomes of projects also occurs through industry publications distributed regularly, field days and workshops and biennial conferences.

To improve communication with levy payers, there needs to be greater focus on communication extension activity throughout the life of the project, from project inception through the life of the project.   This needs to be the responsibility of the project leaders, but often the communication and extension component of any project is not undertaken until the project is in the final stages, thereby limiting levy payers involvement and potentially

THE PHA and EPPR levies will be managed by Plant Health Australia.

3. competing pressures for finite R&D funds;

There are constant pressures on accessing limited levy funds. Government (both the Federal, State and Territory governments) are continuing to put pressure on industries to be more self-reliant and undertake activities that were traditionally the reserve of Government Departments.  The demise of extension services is an example of this.  This pressure on industry now extends to biosecurity issues, where State and Territory Governments now expect industry to share costs of previously fully government funded biosecurity related activities (eg Management of exotic pest and disease incursions, Torres Strait Fruit Fly program).

Where industry participants expect continuing or increased services, and Government can no longer offer those services, the expectation then falls on the industry body.  Without adequate funds raised through levies or other means, the industry body is unable to deliver the services.

The mango industry has been fortunate in that mangoes are a key crop for several developing countries, and our Australian researchers, some of who are noted as world leading researchers, are undertaking research through AusAid and ACIAR programs.  This means that these researchers’ knowledge and skills remain in our industry. Without this external funding, this experience would most likely be lost to our industry.

Ideally, it would be an advantage for both industry and Government if Government came to the recognition is that if they can no longer maintain the level of service to rural industries, and expect industry to fill the gaps in service there needs to be more effective methods for industry bodies to fund these activities. Levies are one of these methods and industry endeavours to implement or increase levies needs government support.

4. the opportunities for levy payers have to influence the investment of the levies;

Our industry, in conjunction with Horticulture Australia, has a range of mechanisms that provide opportunity for levy payers to influence the investment of levies. 

These include:

  • Open and transparent industry wide consultation on the development of the 5 year strategic plan with multiple opportunities for all or any grower to contribute.  Advice and feedback is also sought from other sectors of the supply chain, including wholesaler s and major retailers.  In addition, key R&D service providers, such as State and Territory Government Departments are consulted.
  • An open call for levy payers to sit on the Industry Advisory Committee.
  • Annual levy payer meetings where outcomes of key projects and the reporting on financial distribution of levies is reported.  These meetings are held in major production regions
  • Publication and distribution of an Annual industry report where details of project outcomes and financial accounts are reported
  • Staff with both HAL and AMIA are easily accessible by any levy payer who would like input or information on any levy funded activities

5. the opportunities levy payers have to approve and reapprove the imposition of levies;

Once a levy is imposed, it is traditionally set without any time limit for review or a sunset clause.  With most levies which are established as a rate per unit (eg mangoes levies are set at a rate per kilogram) as opposed to an ad valorem rate (percentage of sale price) the buying power of the funds collected through the levy system decreases as inflationary pressures increases .  

Establishing a re-approval process for levies could bring negative consequences.   These consequences include:

  • The failure of researchers to submit research proposals of a long term nature, as the project may only have funding surety until the next time a re-approval process is undertaken.   An example of where this would have negative consequences would be breeding programs for tree crops. These projects are long term and can have time frames of 10 years or longer.  .  New varieties can have transformational change within industry.   Having to repeatedly seek re-approval for a levy would jeopardise the funding of long term projects, which may not be commenced if there was no surety of continued funding.  RDC’s may be reticent to contract long term projects for industry if there is a limit to funding.
  • The costs involved in undertaking the levy consultation process are borne by the industry body, working on behalf of the industry. The industry body incurs the costs involved in the developing the levy business case, undertaking industry consultation and then preparing and submitting the case to implement the levy (assuming there has been industry support for the proposal).  Most industry bodies have limited financial and staffing resources, so committing to undertake a levy process is a significant decision, even for well resources industry organisations.  Undertaking a re-approval process in line with current levy guidelines would be onerous.

6. the transformation of R&D and marketing into increased returns at the farm gate, including the effectiveness of extension systems;

In 2012/13, HAL contracted independent consultants, Michael Clarke, AgEconPlus and Dr Peter Chudleigh, Agtrans Research to undertake a Benefit Cost Analysis of the Mango Industry Development Cluster. This activity is a major project with the Mango R&D portfolio.  The report was finalised on the 18th February 2013.

The report presented the results of economic analysis of investments within the Mango R&D Program of Horticulture Australia. The Program is funded by statutory levies paid by industry participants, with matching funding provided by the Australian Government up to 0.5 per cent of the industry's gross value of production.

The economic analysis was undertake to serve two purposes. Firstly it was to contribute to a process being undertaken for the Council of Rural Research & Development Corporations (CRRDC) that aims to demonstrate through examples the outcomes and benefits that have emerged or are likely to emerge from the 15 Rural Research and Development Corporations (RDCs). Secondly it was to provide feedback to industry levy payers on returns achieved from their investment in R&D.

To serve the first purpose projects needed to be clustered into groups and a random cluster selected for evaluation. Prior to random selection of a cluster, it was made clear that for industry to receive any insight on the worth of their levy investment, the cluster evaluated needed to include the ‘lions share’ of levy investment (for mangoes MG 10016 ‘mango industry capacity building’). To this end the current CRRDC requirement for random selection within an industry was put on hold and the required cluster evaluated. This ‘one off’ change to current CRRDC random selection requirements did not invalidate the intent of the CRRDC guidelines – ‘cherry picking’ did not occur only selection of the cluster which represented the largest share of industry investment.

Information from the original project proposal, milestone reports, the final report and other relevant documents were assembled with assistance from Horticulture Australia. Discussions were held with HAL Program Managers and relevant researchers.

The analysis provides a description of the constituent project backgrounds, objectives, activities, costs, outputs, outcomes, and benefits. The benefits were described in a triple bottom line context. Some of the potential benefits were then valued in monetary terms. 

The Present Value of Benefits (PVB) and Present Value of Costs (PVC) were used to estimate investment criteria of Net Present Value (NPV) and Benefit-Cost Ratio (B/C Ratio) at a discount rate of 5% real. The PVB and PVC are the sums of the discounted streams of benefits and costs. The discounting is used to allow for the time value of money, and the discount rate of 5% is that specified in the CRRDC guidelines. The Internal Rate of Return (IRR) was also calculated.

The analysis was undertaken for total benefits that included future expected benefits.  A degree of conservatism was used when finalising assumptions.

Sensitivity analysis was undertaken for those variables where there was greatest uncertainty or for those that were thought to be key drivers of the investment criteria.

Some identified benefits were not quantified mainly due to:

  • A suspected, weak or uncertain scientific or causal relationship between the research investment and the actual R&D outcomes and associated benefits

The magnitude of the value of the benefit was thought to be only minor

This project undertakes a range of activities, including communication and extension.  With the reduction of State and Territory Govt Department extension services (example:  In Queensland, extension officers servicing the mango industry have dropped from 3 to 1)in the past 5 years and the loss of research staff due to tightening budgets, there is a significant gap. 

7. collaboration on research to benefit multiple industry and research sectors

With limited R&D funds, collaboration can be challenging due to:

  • our industry has a range of unique issues specific to mangoes.  .  eg there are only a few pests and diseases that impact on other tree crops. Most mango diseases are specific to mangoes. 
  • While we do share production practices with a range of other tree crops, the extent of each practice is unique to mangoes.  While tee crop industries undertake similar practices (eg pruning, irrigation management, crop nutrition) each practice is specific to each crop, and often each variety within each crop.  While general information can be transferred between crops,  information has to be tailored to each crop.  Research outcomes in one crop are usually not transferable to another crop.
  • With limited funds, industry can only fund the highest priority issues, which are usually industry specific.  

8. industry governance arrangements, consultation and reporting frameworks

AMIA  is not directly involved in levy investment decisions, currently 2 of its directors are members of the IAC and AMIA undertakes the secretariat activities of the Mango IAC.

AMIA is established as a company limited by guarantee, and as such abides by ASIC rules.  It has a Board of 8 Directors who are growers or representatives of growers.   All Board positions are voluntary.    AMIA members have the opportunity to vote for Directors and Directors positions become vacant every three years. AMIA encourages a process of Board renewal .  For example, at the 2014 AGM 2 new Directors came on to the Board, so the Board maintains a mix of experience and industry knowledge with new skills.   

AMIA is responsible for the processes leading up the introduction of a levy, but once the levy is  introduced, it is  managed by HAL.    We work closely with HAL and maintain a sound professional relationship. Both organisations work to maximise the benefits of levy payers investments.

9. any other related matters

It is important that the strong link between the levy payer and the direction of levy investment remains.  Without this link, the support for levies could diminish.  The reporting on levy funded projects and activities must be maintained and strengthened.  Industry involvement in the levy investment decision making processes needs to be maintained.

A key desired outcome of this enquiry would be simpler and streamlined process involving the  introduction or change in levies.   This streamlining process should not only apply for R&D and M&P but importantly for EPPR levies, which can need to be collected to fund the management and eradication of exotic plat pest incursions.

Recommendations

  • Streamline processes for levy introduction/changing levy rates

  • If there is to be a re-approval process for levies, ensure the process is streamlined, and not onerous on the industry body.

  • Ensure the time period between re-approval  times are long enough so the process does not negatively impact on research 

As industries seek to become more globally competitive and maximise returns to their members, there needs to be recognition that industries need to be supported in their efforts to deliver to expectations, that is, Government and industry.