2.2 THE PROCESS OF MAKING LEVY ORDERS
The process of applying for a Levy Order is both costly and difficult for most industry organisations in the view of both representatives of organisations and growers. The costs and difficulties arise in several main areas including:
- Identification of potential levy payers
- Designing a ballot paper which complies with the provisions of the Act
- The length of the application process
- Establishing support
2.2.1 Identification of potential levy payers
A number of industry organisations, particularly those which did not levy members under previous legislation, have experienced considerable difficulty, and spent immense amounts of time in compiling lists of potential levy payers. In small industries, where members are personally known to board members, compiling and updating lists may be merely frustrating. In larger industries it is often an extremely time consuming task, as industry organisations are reduced to road-by-road perusal of district maps, regular checking of farms for sale in newspapers and other inefficient methods of identifying potential levy payers.
If lists are not complete and accurate a number of problems can arise, and have done so in some cases.
- The levy application is open to challenge on the grounds that not all potential levy payers were given the opportunity to vote.
- Where existing lists are out-dated, ballot papers have been sent to large numbers of individuals no longer involved in the industry. As most of these are unlikely to advise the industry organisation that they are no longer eligible to vote, the final response rate to the ballot will appear lower than the actual response from current industry members. While the level of support from voters, not the response rate determines whether the Minister will recommend that the Levy Order is made, industry organisations feel that artificially low response rates suggest that the levy is not particularly important to the industry. In addition, unnecessary costs are incurred in sending ballot papers to large numbers of individuals not involved in the industry.
- On-going consultation and reporting to members is constrained if accurate lists of levy payers are not available
Industry organisations generally believe that the provisions of the Privacy Act (1993) preclude collection agents from releasing the names of those from whom they collect levies. An interesting exception to this is the New Zealand Grape Growers Council. The Winemaking Grapes Levy Order specifically requires wineries to supply names and other information about levy payers to a levy collection agent acting for the Council.
The agent aggregates all information and forwards it to the Council without any indication of which winery is supplied by individual growers.
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2.2.2 Ballot paper design
The Levy Order regulations, which establish a commodity levy, must be based entirely on information which is included on the ballot paper (apart from information which is common to all Levy Orders). Consequently, ballot papers must contain a great deal of information including details of the commodity which will be levied, the calculation method, who will collect it and when it will be forwarded, how levy funds may be expended, etc.
Technically, MAF has no role in the application for a commodity levy until the formal application is received by the Minister from an industry organisation. However, it is essential that the technical and prescriptive requirements of the Act with respect to ballot papers be met if the application is to succeed. Consequently, MAF staff are prepared to advise industry organisations on the extent to which draft ballot papers appear to comply with those requirements.
Most ballot papers are submitted to, and returned from, MAF a number of times before reaching the point at which MAF staff are unable to identify any further deficiencies. This is costly and frustrating for industry organisations, which do not appear to be aware that advising on ballot papers is not officially part of MAF's role.
Representatives of a number of organisations considered that they had not been able to obtain sufficient direction on the process at the outset. Thus, despite the fact that the 'Users Guide' is well regarded, many unnecessary mistakes were made. MAF staff note that, on a number of occasions, industry organisations have failed to take advice given by MAF on aspects of the paper which require change and the same advice has been repeated several times. They also consider that time savings might be possible if industry organisations employed professionals to prepare ballot papers as well as legal staff who have had experience in working with the Commodity Levies Act. This, however, would impose additional costs on industry organisations, particularly on small organisations which do not have access to such resources internally.
Because of legal liability implications, MAF is no longer willing to provide definitive confirmation that the ballot paper meets all requirements since it incurred the costs of the second ballot held by the New Zealand Vegetable and Potato Growers Federation. This occurred because re-interpretation of the Act, after the first ballot had failed in one sector, led staff to conclude that advice given before the ballot was incorrect. The Ministry is, consequently, unwilling to provide such advice again. One of the problems for MAF, in assessing ballot papers, is that it does not have access to all the relevant information on the industry until the full application is received after the ballot. Staff may, therefore, be unaware of industry issues which affect some aspects of levy implementation until after that ballot.
Several of those interviewed noted that their organisations were concerned that a ballot in which support is gained may have to be repeated if the ballot paper is subsequently considered to be inadequate. Not only is this costly, but it also reduces the credibility of the industry organisation. Support may, therefore, be more difficult to obtain at the second ballot.
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2.2.3 Processing the application
The processing of the formal application for a commodity levy usually takes between six and nine months. This occurs, in part, because MAF staff must balance work on levy applications with other priorities and, in part, because they believe this period is required to consider fully all aspects of the application. They note that they do "attempt to process each application by the time the organisation wants an order in place".
Industry organisations, however, consider that the time taken to process applications is excessive. Interviewees noted that, in some cases, there have been concerns that required changes would not be advised before annual general meetings at which they must be approved. It has, in at least one case, been difficult to get collection systems operational between the date on which the application was approved and the time when the order was to come into force. Perhaps most importantly, they see the application process as one which absorbs all the time and energy of those within industry organisations for at least a year, often more, at the expense of other initiatives. It is also a time of uncertainty for the organisations.
Particular concerns were expressed that if large organisations, such as the producer boards, apply for commodity levies in the future, applications or reapplications for smaller industries will receive lower priority
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2.2.4 The costs of application
Industry organisations have recorded only the direct costs of applying for Levy Orders which exclude voluntary time and, sometimes, disbursements which have been recorded with general administration expenses. The indirect costs, particularly for those organisations that do not have permanent professional staff, will undoubtedly be considerably higher than the direct costs. The direct costs which have been recorded have been of the order of four to seven percent of the value of a year's levy receipts for larger organisations and 15 to 20 percent for some smaller organisations.
Cutting costs by extending the period between referenda was not, however, favoured by many of those who were interviewed or who attended focus groups during the study. Five years was generally seen as a period which maintained the accountability of organisations to their members.
The cost of applying for a Levy Order may deter "sunrise industries" from embarking on the process and may, therefore, slow the development of such industries. The mohair industry is one which has delayed its Levy Order application because members are concerned about incurring such heavy costs with no certainty that the Levy Order application will succeed. In Australia, fledgling industries are granted a government appropriation to set up research programmes and the level of appropriation reduced as voluntary contributions increase until the time when a compulsory level is sustainable. This is one strategy used to address this issue.
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2.2.5 The level of support
A commodity levy requires the support of 50 percent of voters and of those producing 50 percent of the volume or value of production, or employing 50 percent of a resource devoted to production of a commodity. While the majority of growers, as well as the industry organisations are satisfied with the 50 percent threshold of support required to implement a commodity levy, some issues relating to support require consideration.
Some concerns were expressed that the inclusion of the value/ volume basis of support may give too much power to a few major growers in small industries.
The Act states that voting in the support referendum need not be conducted on the basis that the "the ballot paper indicated was the proposed basis of the levy's imposition" but that "the impact of imposing the levy on that proposed basis will be substantially similar to the impact of imposing it on the basis on which voting was conducted". At the outset, a number of Levy Orders had differing bases of support and imposition. It is now considered that any difference in these bases will mean that the impacts are not "substantially similar". This decision has already caused significant problems for one industry organisation and may for others, as they approach the time of re-application.
The threshold of support required for an industry to seek ministerial permission to use levy funds for activities which are not usually permitted under the Act is specified as "... considerably more than half...". Problems in interpreting this phrase arose during the early years of the Act, when it was also used to describe the required level of support for the levy itself, and would presumably do so again if an industry sought approval to use the levy for such purposes.
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2.2.6 Communication by levying organisations
The majority of producers who responded to the postal survey were satisfied with the consultation undertaken by industry organisations during the Levy Order application process. However, there were some industries where levels of satisfaction were markedly lower. These included industries where there had been a comparatively low level of consultation such as the wheat industry where the Wheat Grains Levy was a continuation of an existing levy for wheat insurance. Satisfaction was low among survey respondents in the summerfruit industry where there had been considerable consultation but a long delay between the start of the process and the second, and final, ballot. There were also significant numbers of growers who were dissatisfied with the initial consultation in industries where the consultation process was extensive and no problems experienced in conducting the ballot. This may well reflect grower "apathy" rather than any failure on the part of industry organisations to provide information and opportunities for discussion before the ballot. This apathy was discussed at a number of focus groups and implicit in the low levels of participation in many of the referenda. It appears to exist to a significant extent in most industries except in some very small industries such as the blackcurrant industry. The arable focus group suggested that there is a much greater awareness of, and support for, the Arable Commodities Levy than was demonstrated in the original ballot. Members attributed this to the very visible activities of FAR, including regular reporting using a variety of media and restricting its levy-funded activities to research and extension that have direct on-farm impacts.
While few industry organisations had consulted specifically with Maori levy payers, this appeared to reflect the fact that few of the industries presently operating Levy Orders have groups of Maori growers which exist as distinct entities. Rather, Maori levy payers had been individually consulted in the same way as other levy payers.
Consultation with collection agents appears in a number of industries, particularly those where levies had been collected previously, to have consisted of a letter informing them of the levy and their role in its collection. Many agents were satisfied with this, but 20 percent of those who could recall the consultation process considered it inadequate and 30 percent of all respondents could not recall it. Comments suggest that a number of industry organisations are not acknowledging the importance of the role of collection agents and treating them as "partners" in the process.
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Senior Policy Analyst
Sector Performance Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
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NEW ZEALAND
Phone: +64 4 894 0690
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