Agriculture Industry Governance

Producer Boards

Most of New Zealand’s agricultural and horticultural exports are controlled or influenced in some way by producer boards or licensing authorities. These organisations are creatures of statute, and several of these statutes have been under review in recent years. The ongoing reform of producer board legislation seeks to take into account the evolving nature of producer boards and the changing environment within which they operate.

The marketing of New Zealand’s pastoral exports has been subject to the influence of statutory producer boards1 for most of this century. In more recent years, most horticultural exports have also become subject to the influence of statutory marketing boards or licensing authorities. Approximately 80% of the value of New Zealand’s agricultural and horticultural exports in the year to June 1995 were subject to such influence.

Trading Boards

Three of the ten producer boards are export trading boards. The New Zealand Dairy Board, the New Zealand Apple and Pear Marketing Board, and the New Zealand Kiwifruit Marketing Board (except for exports to Australia) have export monopoly powers. While these boards can allow others to export, they generally handle most of the exports of products for which they have acquisition powers. These three producer boards do not have statutory powers over the New Zealand market. Two more, the New Zealand Hop Marketing Board and the New Zealand Raspberry Marketing Council, have both export market and domestic market monopoly powers. The powers and functions of these latter two boards are currently under review.

Non-Trading Boards

The other five boards, the New Zealand Wool Board, the New Zealand Meat Producers Board, the New Zealand Pork Industry Board, the New Zealand Game Industry Board, and the New Zealand Horticulture Export Authority, are not directly involved in the purchase or sale of their commodities. Their roles are mainly in the areas of licensing exporters, promotion and market development, research, industry support, and quality control, although in the past some of these five non-trading boards have been involved in export trading. These Boards have varying degrees of regulatory and control powers, and have other powers that enable them to carry out industry support and leadership functions.

Name of Board and Act under which it operates Statutory object or functions Power relating to export market Powers relating to domestic market Other powers conferred by statue
Dairy Board*
(Dairy Board Act 1961 - as amended) 		statutory functions include acquiring, controlling and marketing export dairy produce the Act empowers the Board to acquire and market all of NZ’s export dairy produce; it may grant permission for others to export the Board operates a price equalisation scheme between domestic and export markets for certain products *authorise appointment or election of 11 of its 13 directors

*retain money to maintain reserves *control dairy livestock breeding
Apple and Pear Marketing Board (Apple and Pear Marketing Act 1971 — as amended) statutory functions include acquiring, exporting and marketing apples and pears the Act requires the Board to acquire the market all of NZ’s export apples and pears that meet export standards; it can give consent to others to export nil *establish standards *impose levy on fruit acquired

*retain money to maintain reserves
Kiwifruit Marketing Board (Kiwifruit Marketing Regulations 1977 under the Primary Products Marketing Act 1953 — as amended) statutory object is to obtain in

the interests of NZ producers, the best possible long term returns for kiwifruit intended for export

the Act requires the Board to acquire and market all of NZ’s export kiwifruit (except exports to Australia); private traders can export only if acting as an agent of the Board nil *establish standards *retain money to maintain reserves
Raspberry Marketing Council(Raspberry Marketing Regulations 1979 under the Primary Products Marketing Act 1953 — as amended) statutory functions include regulating, controlling and promoting the orderly marketing of raspberries both locally and overseas the Council has the power to purchase, sell, or dispose of raspberries on the world market as it thinks fit; private traders can export only if acting as an agent of the Council the Council has the power to fix quotas for supply to manufacturers and resellers *undertake production and market

*impose levies on growers
Hop Marketing Board(Hop Marketing Regulations1939 under the Marketing Act1936 and the Agriculture (Emergency Powers) Act 1934— as amended) statutory functions include regulating and controlling the marketing, both locally and overseas, of all hops produced in NZ subject to Ministerial approval the Board controls and regulates exports as it sees fit; it acts as the sole agent for hop producers subject to Ministerial approval the Board controls the domestic hop industry including imports *establish standards *arrange shipping and storage

*register producers
Meat Producers Board (Meat Export Control Act 1921-22 — as amended) statutory object is to ensure that the producers in New Zealand of stock from which meat is derived to obtain the best possible long-term returns for that stock the Board is actively involved with product promotion; it has unused powers to take control of export meat; it licenses exporters nil *establish grading standards *arrange shipping

*impose a levy on stock slaughtered
Wool Board*(Wool Industry Act 1977— as amended) statutory object is to obtain in the interests of growers the best possible long-term returns for NZ wool the Board is involved with product promotion and research; it has latent powers to acquire all wool for export; it licenses exporters and requires all export wool to be certified nil *establish standards

*control freight, storage

*impose a levy on wool sold
Pork Industry Board (Pork Industry Board Act 1982 — as amended) statutory functions include promoting and assisting with the orderly development of the industry and marketing of its products. The PBAR Bill will insert an object for the PIB.* n/a the Board is actively involved with product promotion *impose a levy on pigmeat producers
Game Industry Board(Game Industry Board Regulations 1985 under the Primary Products Marketing Act 1953 — as amended) statutory functions include promoting and assisting with the orderly development of the game industry and the marketing of its products the Board does not trade; it has latent powers to license exporters of deer products nil *impose a levy on deer and deer products *undertake and control research
Horticulture Export Authority (Horticulture Export Authority Act 1987 - as amended) statutory primary function is to promote the effective export marketing of horticultural products the Authority does not trade; it approves export marketing strategies and licenses exports for horticultural products prescribed under the Act — there are currently 19 prescribed products nil *undertake market research *latent power to levy

The Need for Reform

The ongoing reform of producer board legislation seeks to take into account the evolving nature of producer boards and the changing environment within which they operate.

These organisations are funded by the producers, either through levies or through deductions from payments to producer-suppliers. With the reduction of government involvement, the need for improving the accountability regimes of these organisations to the producers who fund them has grown. In addition to accountability to producers, the need for boards to be accountable to Parliament for use of their statutory powers remains.

During the 1980s and early 1990s, a number of non-trading producer boards became increasingly involved in commercial activities. This gave rise to concern about the connection between the commercial activities of those boards and their regulatory powers, particularly the licensing of exporters. The benefits of these boards’ regulatory powers have also been increasingly questioned, both from within the industries and from outside, and the possible costs of the existence of these powers in terms of deterring investment and stifling innovation have been highlighted.

Reforms in the 1990s Affecting All or Most Producer Boards

The main focus of the changes in producer board legislation during the late 1980s was the withdrawal of direct Government involvement in the industries. In comparison the changes in the 1990s are mainly in the areas of improving the accountability of the boards to the producers who fund them, and focusing their objects, functions and powers to meet future needs. The nature of these changes has meant that initiatives are coming from boards and industries as well as the Government. The changes below are progressively being applied to the producer boards as their legislation is amended.

Performance and Efficiency Audits

Producers need to be provided with sufficient information to assess the performance of the boards that they fund. There is a move to require boards to undertake performance and efficiency audits every five years. Some boards already have this provision in their legislation, for others these provisions will be included when their legislation is next amended.

Financial Reporting

As the boards’ legislation is being amended they are being required to comply with the accounting standards that apply to public companies under the Financial Reporting Act 1993. The requirement for audited annual reports and statements to be laid before Parliament will continue.

Annual General Meetings

As the boards’ legislation is being amended they are being required to hold annual general meetings of producers or suppliers along the same lines as companies are required to hold annual general meetings of shareholders.

Reporting on Use of Statutory Powers

To improve the accountability of the boards to Parliament for the use of the statutory powers granted to them by Parliament, the boards are being required to report on their use of statutory powers in their annual reports.

Directors’ Duties

The Dairy Board Amendment Act 1996 provides for individual directors of the Dairy Board to be subject to legislative duties of care in a similar way as directors of companies under the Companies Act 1993. This is expected to be applied to other boards in the future, and will contribute to the process of making the producer boards more accountable for their actions.

Unlike companies, producer boards have statutory powers and do not have shareholders, so the Companies Act provisions need to be altered to reflect the producer board situation. The Companies Act allows shareholders to bring actions against directors, but because the boards do not have shareholders, complex and contentious questions would arise in establishing who should be entitled to take action.

The enforcement provisions of the Companies Act are not being applied at this stage. However, other enforcement options exist. These include the ability of a board to take action against individual directors, judicial review of board decisions, boards being subject to the Official Information Act 1982, the ability of the Governor General to remove a director from office for failure to observe a duty to the Board, and the overall accountability requirements to be placed on the boards.

Interface of Producer Board Legislation with Commerce Act

The Commerce Act 1986 is all about promoting competition in the domestic market, whereas producer board legislation is co-operative by nature in relation to export markets. Because of this conflict it is necessary to define the interface between the Commerce Act and producer board legislation. This can be done by exempting certain export related powers of the producer board Acts from Part II of the Commerce Act.

Recent and Proposed Amendments to Producer Board Legislation

The Dairy Board Amendment Act 1996
  • Act, passed in August 1996:
  • repeals the NZDB’s current ownership provision, added in 1992, and replaces it with a share structure;
  • provides for the NZDB to have a constitution on matters relating to shares; and
  • recasts the NZDB’s current dissolution provision to provide for the continuation of marketing activities should the NZDB ever be dissolved.

The Act provides for shares in the NZDB to be owned by cooperative dairy companies in proportion to the quantity of milksolids supplied by companies to the NZDB. Existing suppliers of dairy produce who increase their production, and new suppliers, will be required to purchase additional shares in line with the additional supply. The shares will not have voting rights but can attract a dividend.

The dairy industry has identified that significant investment will be required to enable the NZDB to capture future market opportunities. This investment will be needed to fund working capital requirements, brand building activities, and technology and distribution systems. The Act will provide a means to source the necessary capital from within the dairy industry.

Producer Board Acts Reform Bill (PBARB)

The outgoing Government introduced a Producer Board Acts Reform Bill in July 1996 but this has yet to be referred to a Select Committee. The Bill aims to replace the three Acts governing the Meat, Wool, and Pork Boards with three completely new Acts. The changes are in line with the general move to make boards more independent of the government and more accountable to producers, and there are significant changes to the Meat and Wool Boards’ powers. In addition, the fact that the Acts are being replaced rather than amended provides an unusual opportunity to make changes right through the legislation and bring it into line with the way the boards operate in practice in the current environment.

The boards and industries are generally supportive of the changes in the proposed Bill. In fact, the Wool Board actually wrote to the Government requesting that most of its regulatory powers be removed. Federated Farmers of New Zealand has been supportive of the changes, but some farmers have expressed concern about the proposed reduction of the Meat Board’s powers.

PBARB: Generic Reforms Applying to All Three Boards

Objects

It is proposed that the objects of the three boards be to help attain, in the interests of producers, the best possible net ongoing returns for their industry. For instance, in the case of the Meat Board, the object will be to help attain, in the interests of producers, the best possible net ongoing returns for New Zealand livestock, and for the meat and byproducts derived from that livestock. In addition, in pursuing their objects, the three boards will have to have regard to the desirability of their wider industry making the best possible net ongoing contribution to the New Zealand economy.

The proposed objects are intended to strike a balance between the boards’ accountability to their levy payers, their responsibilities to the wider industry, and the national interest.

Functions

The boards’ main functions are in the areas of:

  • increasing the demand for their industries’ products;
  • conducting or funding research and development;
  • encouraging the adoption of more efficient processes and practices in their industries; and
  • collecting, processing, maintaining and making available information, in order to assist production, investment, processing, product development and marketing decisions.

In the case of the Meat Board, functions will also include controlling exports to those markets where restrictions and/or requirements are imposed that directly affect access of New Zealand meat and meat byproducts.

These functions will only be performed to the extent that they are consistent with the boards’ objects.

Powers

The three boards will retain the powers of a natural person and powers to collect information from their industries.

Each board will also retain power to collect levies from producers. Some commentators proposed that the boards collect levies under the Commodity Levies Act 1990. They consider that this would make the boards more accountable to producers, and more focused in their operations, as there is a five yearly review under that Act. However, this would not guarantee that the boards, which are required to carry out statutory functions, would be adequately funded for the effective discharge of their statutory responsibilities. The out-going Government did not wish to run the risk that organisations established by statute cannot function because of a lack of funds. The accountability provisions that will be included for the three boards in the proposed Bill are stronger than those required by the Commodity Levies Act.

Duties

Each board will be required to:

  • account to producers, such as through annual general meetings and regional meetings, on its activities and its use of levy monies and other resources;
  • discuss matters relating to board activities or proposed board activities with industry organisations and interests;
  • report to the Minister on its performance of its functions and its use of statutory powers;
  • undertake five yearly performance and efficiency audits; and
  • implement financial reporting similar to companies.

In addition, board directors will be subject to duties similar to those in the Companies Act.

PBARB: New Zealand Meat Board

The New Zealand Meat Producers Board is governed by the Meat Export Control Act 1921-22. Apart from the amendments outlined earlier in this paper, a number of other changes will be included in the new legislation.

  • The Board (to be renamed the New Zealand Meat Board (NZMB)) will comprise 12 directors, up from 11. The NZMB will have six directors directly elected by farmers, four directly elected by processors and exporters, one nominated by the New Zealand Dairy Board, and one appointed by the Minister of Agriculture on the NZMB’s recommendation. The most significant change proposed is having directors elected by processors and exporters. This change is designed to bring expertise from the meat processing and exporting industries to the Board, while also boosting their buy-in to the NZMB’s activities, thereby encouraging industry segments to work together.
  • While the NZMB’s powers will be substantially reduced, it will still have a wider range of powers than the Wool and Pork Boards. As well as its natural person, levy, and information collection powers, the NZMB will have:
  • powers to license exporters (effectively on demand);
  • powers to impose requirements on exports in certain circumstances, including allocation of access to tariff quota markets; and
  • powers relating to the quality of export meat.
  • The current licensing regime will not be retained. However, all persons who export meat will be required to hold an export licence, issued by the NZMB on the provision of basic information. The current restrictive system is being changed on the basis that it may reduce the incentive for exporters to innovate, block out some (potentially innovative) exporters entirely, increase costs, and deter investment in the industry. It is also less transparent than the proposed system.
  • In most markets the ability to increase prices by restrictively licensing New Zealand exporters is constrained by competition from other suppliers, and demand for red meat is sensitive to price because of the availability of substitutes. Changes to export licensing have been proposed on the basis that in most markets, any benefits from imposing disciplines are likely to be outweighed by the costs of stifling and deterring investment.
  • In order to maximise the capture of quota rents, it is necessary to retain powers over exports to markets where importing countries have imposed restrictions. The NZMB will have the power to impose requirements on meat and meat product exports where there are market access restrictions, arrangements or requirements (not being of a hygiene or sanitary nature) imposed by the government of the importing country (such as country specific tariff quotas). Requirements could include restrictions over quantities, timing, or types of meat exported. The NZMB will be required to consult the industry before imposing any such requirements, and will have to be satisfied that the imposition of a requirement is likely to be the most effective and efficient way of dealing with the importing country’s restrictions.
  • As a subset of its powers to impose export requirements, the NZMB will be responsible for establishing and administering mechanisms for the allocation of access to tariff quota markets. In developing an allocation mechanism the NZMB will be required to consult with the meat industry. If any mechanism developed involves the NZMB making an allocation of access (rather than, for example, tendering the access) the NZMB must, in making such an allocation, take into account previous investment, and provide for new entrants.
  • The NZMB will have powers relating to export meat quality (not relating to hygiene or importing countries’ sanitary requirements which are the province of MAF). The NZMB’s powers here may be exercised only where:
  • there is a reasonable likelihood that one or more sectors of the New Zealand meat industry would suffer significant detriment if such powers were not used;
  • the meat industry has been unable to voluntarily implement measures to counter that detriment; and
  • the NZ Meat Industry Association (which represents meat companies) has, after wide consultation within the industry by it and the NZMB, given its agreement to the NZMB using these powers.
  • The Bill provides for the NZMB’s current grading powers to be replaced by the power to establish carcass description systems, with the point of compulsion shifting from point of export to in the works. The NZMB will be required to consult with the meat industry before implementing or amending any carcass description system.
  • Under its current Act the Board can assume control of any export meat, and make directions relating to slaughter of stock from which meat is intended for export. These powers have not been exercised in recent years, and their existence is likely to deter investment and innovation in the meat industry. These powers are repealed in the Bill.
  • The Bill also repeals the NZMB’s transport powers. The rationale for the Board having transport powers in the past was for the industry to have bargaining power with shipping companies. However, in the absence of this provision, exporters could still act together voluntarily to increase their bargaining power. The repeal of this power will enable exporters, acting either individually or collectively, to seek out shipping arrangements that suit their own requirements.
PBARB: New Zealand Wool Board

The New Zealand Wool Board (NZWB) is governed by the Wool Industry Act 1977. Apart from the proposed generic amendments listed earlier, the proposed Bill will contain a number of amendments specific to the NZWB.

  • The NZWB will comprise six directors elected by farmers by direct election on a ward basis and four directors with relevant expertise appointed by the Minister of Agriculture on the recommendation of the NZWB itself. These replace three directors appointed by the Government, and the position held by the Director-General of Agriculture.
  • The NZWB will retain powers of a natural person, levy powers and information collection powers. The NZWB will also retain some powers over the quality of wool exports, similar to those proposed for the NZMB.
  • The NZWB’s power to control and influence the transport of wool; power to license operators to receive, store and appraise wool; power to license wool exporters; and power to compulsorily acquire and market wool will be repealed.
  • The NZWB has been licensing wool exporters permissively, which has led to compliance costs for exporters but few benefits. The NZWB’s powers to compulsorily acquire and market all wool have never been used, and cannot be invoked without a referendum of growers. Repealing these powers is designed to remove any indirect effects on commercial behaviour, such as deterring prospective entrants to, and investors in, the wool industry.
PBARB: New Zealand Pork Industry Board

The New Zealand Pork Industry Board (NZPIB) operates under the Pork Industry Board Act 1982. The NZPIB’s statutory powers are limited, and almost all of New Zealand’s pigmeat production is supplied to the domestic market. Apart from the proposed generic amendments listed earlier, the proposed Bill will contain amendments specific to the NZPIB relating to the directorship of the NZPIB and administrative matters.

The NZPIB will have five directors elected by pork producers, and at least two and no more than four directors recommended by the NZPIB.

The NZPIB’s powers of a natural person, levy powers and powers to collect information will be retained.

New Zealand Kiwifruit Marketing Board: Industry Review

The New Zealand Kiwifruit Marketing Board (NZKMB) is governed by the Kiwifruit Marketing Regulations 1977, under the Primary Products Marketing Act 1953. The NZKMB was established in 1988, with substantial grower support, in response to a dramatic fall in orchard profitability in the 1986 to 1988 seasons. The primary function of the NZKMB is to organise and control the export marketing, other than to Australia, of kiwifruit produced in New Zealand.

In 1992 the NZKMB significantly overestimated the value of the 1992 crop and overpaid growers early in the season, leading to the NZKMB incurring a debt of around NZ$93 million. In response to this situation the kiwifruit industry initiated a three stage review. Stage one of the review resulted in the formation of a national organisation of kiwifruit growers, New Zealand Kiwifruit Growers Inc, to represent the interests of kiwifruit growers, and to which the NZKMB was to be accountable. Stage two, a marketing study, recommended options for export marketing strategies and provided the basis for considerable industry consultation. This consultation constituted the third stage of the review, which resulted in a final report being completed in November 1995. The report recommendations were in three main areas.

  • "Corporatisation" — the NZKMB would be established under its own Act of Parliament, with grower ownership and a share structure. There would be eight directors of the new NZKMB, six appointed by New Zealand Kiwifruit Growers Inc and two appointed by the NZKMB for their commercial expertise. The NZKMB’s marketing functions would be performed by a wholly owned marketing company which would be free to focus on commercial marketing without interference from the industry, but would be directly accountable to the new NZKMB.
  • "Collaborative Marketing" — the NZKMB would be enabled to work with other organisations in exporting kiwifruit. A committee of the new NZKMB would be responsible for receiving and processing applications, and making recommendations to the new NZKMB.
  • "Operational Restructuring" — the point of supply between grower and marketer would be more flexible than permitted under the current Kiwifruit Marketing Regulations, with growers taking more responsibility for onshore activities such as coolstorage and transport.

The objective of these proposals is to retain a co-operative, single-desk structure while:

  • improving marketing performance, mainly through the marketing company concentrating on operating commercially in overseas markets, and the NZKMB working with growers and postharvest operators to improve the efficiency of onshore handling; and
  • improving the accountability of the NZKMB to growers.

The final report of stage three of the industry review was presented to the Government and to growers in November 1995. Kiwifruit growers showed their support for the review recommendations in a referendum held in December 1995.

The NZKMB and New Zealand Kiwifruit Growers Inc have formed an Industry Change Group to implement the review recommendations. Many changes can be made under the existing Kiwifruit Marketing Regulations 1977. The changes made for 1996 include:

  • setting up the separate marketing company as a subsidiary of the NZKMB;
  • appointment and election of new directors for the NZKMB (by the methods currently specified in the Kiwifruit Marketing Regulations) and for the marketing company;
  • assessment of collaborative marketing proposals from private organisations; and
  • trial contracts with growers, to investigate different allocation of responsibilities between growers and the NZKMB.

Some changes, such as clarification of the NZKMB’s ownership, issue of shares, and compulsory changes to onshore operational structures, would need legislative changes.

Implications of Changes for Industries

Many of the recent and proposed changes to producer board legislation put more responsibility in the hands of farmers and growers. AGMs, for example, will be ineffective if farmers do not participate. While turnouts at AGMs to date have been encouraging, it remains to be seen how effectively farmers will hold the boards accountable. Other industry participants will also have to take more responsibility. In the meat industry, for example, the Meat Industry Association will have greater input into decisions on the Board’s use of its statutory powers. Further, the reduction in the Board’s role will mean that processors and exporters will be able to make more decisions for themselves. If the results are poor, they will be less able to blame the Board. As the reforms take effect it will be necessary to monitor the extent to which industries are taking up the responsibilities they are being given.

Commodity Levies

Industry organisations can use the Commodity Levies Act 1990 to obtain approval to collect compulsory levies from producers of commodities, to provide funds for specified purposes.

Currently, 20 levies are in place. They are on arable commodities, asparagus, avocados, berryfruit, blackcurrants, blueberries, eggs, export squash, farmed deer products, fresh tomatoes, fresh vegetables, herbage and amenity seeds, orchard fruit, pipfruit, potatoes, processing tomatoes, processing vegetables, summerfruit, scallops harvested in the southern scallops fishery, and winemaking grapes.

Organisations can spend the money they collect under a commodity levy order on activities which benefit levy payers (producers of the commodity on which a compulsory levy is imposed). Such activities include research and development, promotion, maintaining quality assurance programmes and the day to day administration of the organisation.

Given that these levies are compulsory, safeguards have been written into the Commodity Levies Act 1990. Each year the organisations collecting commodity levies must table copies of their annual report before Parliament. MAF checks these reports to ensure that the organisation is spending the levy money on matters permitted by the Act and by the levy order.

Despite a large number of successful levy applications, organisations seeking levies have expressed frustration with the process. They have found the Act costly and time consuming to comply with. In addition, a significant amount of MAF officials’ time has been taken up with assisting organisations to meet the Act’s requirements.

The costs mostly arise from the safeguards in the Act, including the need to hold a referendum of potential levy payers. While safeguards are necessary, given that compulsory levies are effectively taxes, organisations have found the existing provisions difficult to understand. This has led to significant compliance costs. For example, in preparing satisfactory ballot papers for referendums, organisations have needed substantial advice from their lawyers and MAF.

Most organisations that have successfully used the Commodity Levies Act to obtain funding could meet the compliance costs because they were previously funded by compulsory levies under other legislation. In future, many organisations seeking new levies may find it difficult to meet the costs of applying for levies, as they will not have had a history of compulsory levy funding.

The high number of compulsory levies now in place is an issue for some primary producers. Orchardists, in particular, may be paying levies to several different organisations. So far, most ballots of producers have been successful. It remains to be seen whether this trend will continue, and whether producers will vote to renew levies at the end of their five year terms.

MAF Quality Management (MQM) Independent Scoping Review

MQM, the largest MAF business, is responsible of delivering a range of risk management services to ensure local and export markets for New Zealand’s primary produce are open for expansion. These services are delivered according to standards and specifications established by the MAF Regulatory Authority.

In recent years the future organisational form of MQM has been under review. These functions have been reviewed primarily because the current risk management systems have been in existence for some considerable time and the environment in which they are undertaken has changed significantly. The changes which have impacted on MQM’s functions are as follows:

  • the international agricultural trading environment has changed dramatically as a result of the GATT Uruguay Round Agreement and the Sanitary and Phytosanitary Agreement;
  • government funding for the provision of the services has been reduced; and
  • the introduction of user charges has heightened demands for greater efficiency in their delivery.

In considering proposals for future organisational forms for MQM over a period of years, Ministers have been concerned to be assured that the international market would find the changes acceptable, and that under any proposed changes they would be able to fulfil their accountabilities. By early 1995 it was believed that changes to MQM and a movement away from direct government control would be acceptable to New Zealand’s key agricultural markets although these authorities would want to review and approve any changes that were decided.

Cabinet subsequently directed that:

  • there should be an independent scoping review;
  • the review team should investigate and provide recommendations on practical and viable options for the most cost-effective delivery of the functions currently performed by MQM; and
  • the review should take place during the latter half of 1996.

Cabinet also directed officials to undertake a pre-scoping study covering the following functions performed by MQM:

  • meat inspection services;
  • the provision of quarantine facilities and services;
  • the animal health surveillance system; and
  • emergency disease response programme for animals.

The purpose of the pre-scoping study was to provide a basis for decisions on which the independent scoping review of MQM could proceed.

The prerequisite reviews focussed on clearly establishing the functions for which the Government has a responsibility, either by way of providing or purchasing services (e.g. animal health surveillance) or by being accountable for outcomes (e.g. safe food). Changes in current systems which may potentially impact on organisational forms for MQM in the future have been identified during the process and will need to be considered further by the independent review.

The reviews have been undertaken on the basis that the key agricultural security and market access roles for which Ministers are accountable, would not be compromised while at the same time seeking to develop arrangements which will permit the independent review team maximum flexibility in considering options for delivery of functions currently performed by MQM. The reviews therefore sought to clarify :

  • which functions the Government must continue to have performed under its direct control in order to satisfy its accountabilities;
  • which functions need to be maintained in some form of Crown ownership for reasons relating to technical credibility, potential conflicts of interest, and because they require the use of coercive powers, or because Government ownership is needed to assure market access; and
  • which functions can be purchased on a contestable basis either by the Government or by third parties in order to improve efficiency.

The work done to date has reached the following preliminary conclusions:

  • the performance of key functions (standard setting, control of systems, contract management, certification and audit) should probably remain under the direct control of the Government;
  • ownership of some specialist functions (reference diagnostic services and specialist veterinary skills) should probably remain with the Crown;
  • it is possible to consider changing the delivery arrangements for a number of functions through introducing contestability for their delivery;
  • changing delivery arrangements should generate efficiency gains and increase flexibility for the purchasing Minister (or third party, in the case of meat inspection and quarantine stations), but places a greater reliance on contracting;
  • suitable contracting arrangements could support the purchase of services by the Government from third parties without compromising quality, reducing accountability or exposing the Crown to excessive risks; and
  • there would need to be a transition period during which specifications and contracting skills are improved/developed before delivery can be made available to competing suppliers (including MQM).

The outgoing Government has agreed on the composition of the review team to conduct the independent scoping review. The team comprises Brian Roche (Chair), Brian Chamberlin and Rob Thompson.

An agreed timetable and process for the completion of the review is:

Early September Independent review commences;
Early November Independent review team makes interim report to Ad Hoc Ministers;
End November Draft final report provided to Officials Consultative Committee;
Mid December Final Report presented to Ad Hoc Ministers; and
February/March Papers to Cabinet proposing future form or forms for delivery of functions currently provided by MQM.

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