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

​​​​​​​​​​​​​​​View submissions on the final report​ on the APVMA’s cost recovery arrangements. 
All stakeholders were invited to provide submissions to the Department of Agriculture by 24 October 2014.

Previous Consultation - Initial call for submissions, invitation to comment on the consultation paper and invitation to comment on the final report have closed.

Objectives and scope

The comprehensive first-principles review of the cost recovery arrangements for the Australian Pesticides and Veterinary Medicines Authority (APVMA) is examining, and will make recommendations on, 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 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, in 2012 the department was asked by the Government to undertake a first-principles review of the APVMA’s cost recovery framework, 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 is considering 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 are being examined.

Governance and Timeframe

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

Subject to the Government’s decision and making of legislative amendments as required, any changes to the APVMA’s existing cost recovery arrangements are expected to be in place by 1 July 2016.

Consultation

Initial submissions​

All stakeholders were invited on 6 August 2012 to provide initial submissions to the Department of Agriculture by 21 September 2012.

Submissions on the consultation paper

On 22 November 2013 a consultation paper  Word [1 MB] was released seeking views from all stakeholders (by 21 February 2014) on an analysis of potential options for cost recovery of the various activities of the APVMA. The consultation paper provided an opportunity for stakeholders to raise alternative options or to comment on the paper’s discussion of the advantages and disadvantages of identified options. Twenty six submissions were received.

Submissions on the final report

On 1 September 2014 a consultant’s final report  PDF [886 KB] was released seeking views of all stakeholders (by 24 October 2014) on the consultant’s independent recommendations for changing the APVMA’s cost recovery arrangements. Nine submissions were received.

Publication of submissions

All information (including names and contact details) contained in submissions has been published on the department’s website, unless the authors indicated that they wanted part of theirsubmission to remain in confidence. Automatically generated confidentiality statements in emails did not suffice for this purpose. Respondents were advised that if they wanted part of their submission to remain in confidence they were to provide this information marked as such in a separate attachment.

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