24 October 2014
To: First Principles Cost Recovery Review Team
Department of Agriculture
By email: FPcostreview@agriculture.gov.au
Dear Sir/Madam,
Submission in Response to the First Principles Review of Cost Recovery at the Australian
Pesticides and Veterinary Medicines Authority
The Plastics and Chemicals Industries Association (PACIA) is the peak national body representing the
business of chemistry in Australia.
Our members include chemicals manufacturers, raw material suppliers, plastics fabricators and
compounders, importers and distributors, logistics and supply chain partners, chemicals and plastics
recyclers, and service providers to the sector. These businesses range from small family-owned
companies and innovative medium-sized enterprises, to leading national and multinational enterprises.
The chemistry industry – comprising the chemicals and plastics sectors - is the second largest
manufacturing sector in Australia:
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supplies 109 of Australia’s 111 industries – about 805 of the sector’s outputs are inputs to other
sectors of the economy;
contributes $11.6 billion to Australia’s gross domestic product;
comprises 5,500 small medium and large businesses nationally; and
directly employs more than 60,000 people.
The local chemistry industry is not only important in its own right, but has a multiplier effect on
productivity and cost saving benefits to the broader economy. Each job in the chemicals and plastics
sector creates five more in related supply chains. The industry’s central role in multiple supply chains
provides benefits that exceed the directly attributable benefit of the industry.
PACIA members approve and register chemicals with the APVMA, as well as import and supply
chemical ingredients for use by other product importers and manufacturers. Our members have a strong
interest in ensuring that the APVMA is an effective and efficient regulator and that cost recovery
arrangements do not result in perverse outcomes. PACIA supports adoption of cost recovery policies
that encourage investment and innovation in Australia’s chemistry industry and do not place excessive
and unnecessary costs on business.
PACIA expects that cost recovery arrangements imposed by the APVMA be consistent with Government
policy and reflect the costs of running an efficient regulator. Further, regulated entities should only be
charged for the regulatory resources that they actually use. Cross-subsidies between companies,
between products, or between classes of companies should be avoided.
On this basis, PACIA has supported the review of the APVMA’s cost recovery arrangements as an
important mechanism to avoid cross subsidies between different products, companies and approval
holders.
PLASTICS AND CHEMICALS INDUSTRIES ASSOCIATION ABN: 77 063 335 615
Level 10, 10 Queen Street, Melbourne, Victoria, 3000 Phone: 03 9611 5400 Fax: 03 9611 5499
PO Box 422 Flinders Lane, VIC 8009 Email: info@pacia.org.au Web: www.pacia.org.au
Issues:
Cost recovery reflects a government policy that entities that create the need for regulation should also
pay for it. While industry does not object to cost recovery as a principle, it must be designed in such a
way that it does not unnecessarily distort efficient operation of markets. Further, costs should only be
recovered to the extent necessary to support the efficient operation of a regulator. It should not be used
as a means of shifting responsibility for funding activities onto industry or other third parties. Industry
stakeholders have previously observed that cost recovery measures can encourage governments and
regulators to be less vigorous in seeking and implementing efficiency measures. Over time, this can
result in systems that are less efficient. Periodic reviews that investigate the policy basis, scope and
extent of cost recovery remain a useful tool to confirm that cost recovery mechanisms are not having an
effect beyond that necessary to meet policy objectives.
Finally, the fact that a particular regulatory scheme is subject to cost recovery should not discourage
policy makers and decision makers from actively seeking to identify and implement measures that
reduce the overall costs of the regulator to industry. Regulatory systems need to encourage and facilitate
investment and innovation in new chemistry and new products.
PACIA notes that the proposed cost recovery framework includes a number of general elements for a
recommended cost recovery structure described on pages 1 and 2 of the paper. These include:

Upfront fees for activities where the direct costs can be reasonably attributed to a specific user of
the service: PACIA supports recommendations to link cost recovery fees to a specific service
used. This would mean that applicants seeking approval of a new product or active constituent
pay the true cost of assessment by the APVMA. Previous arrangements where only 40% of total
assessment costs were initially recovered through application fees resulted in an over-reliance
on levies to recover assessment costs.
Such reliance on levies also meant that high volume, successful and profitable products vastly
over-recovered their initial cost of approval and registration. Successful products therefore
subsidise the assessment costs of unsuccessful products that never generate sufficient sales to
recover their assessment cost.
PACIA does note that upfront assessment costs for products can be very significant, especially
for niche and specialty products that may not have very large potential markets. PACIA would
encourage governments to consider mechanisms that may reduce the initial impact of up-front
fees.

Partial and full subsidisation of fees where necessary to prevent perverse outcomes: PACIA
does not support subsidisation of fees in an environment where costs are fully recovered from
industry. Perverse outcomes occur because of the high regulatory burden (in terms of cost and
time) associated with registering agricultural chemical products. This has been a policy decision
taken by government when establishing the regulatory scheme. Similarly, a desire to ameliorate
these burdens for some types of applications is also a policy decision. As such, any
subsidisation of fees for these types of applications should come from public revenue sources. It
would be inappropriate for a cost recovery system to use industry funds to overcome policy
failures. This would result in reinstating existing cross-subsidisations that have been addressed
by recommendations to implement full up-front application fees.
Application fees for emergency use permits and minor use permits are generally sought by
chemical user groups rather than by product registrants. It is not appropriate for these
applications to be subsidised by product registrants. While arguments may be made that product
registrants may receive additional product sales from the use of essential and minor use permits,
these additional uses may result in additional responsibilities on registrants to manage their
product.
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An annual levy for activities where it is not practical to attribute individual costs (such as
compliance monitoring, investigation, enforcement and other general activities): While PACIA
does not in principle oppose appropriate levy mechanisms to resource these activities, there are
some aspects of the proposed levy system that may have undesirable consequences. These
include:
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o Tiering the rate at which a levy is payable based on product sales during the preceding
year. PACIA would welcome further discussion with industry stakeholders regarding the
justification for differing rates of levy being payable. Without a clear understanding of the
logic behind any recommendation, PACIA may not be able to support any
recommendation that resulted in different rates for different products; and
o Exempting products that do not generate sales greater than a threshold. PACIA
understands that the costs of collecting revenue for some products that generate very
low sales may exceed any levy collected. This would make it counter-productive to
collect that product levy. Where that occurs, the APVMA could consider other
mechanisms to record the levy due, and only seek to collect levy once sales of the
product meet the threshold for collection. Unpaid levies below the collection threshold
could be carried forward to future years until total sales hit the collection threshold.
PACIA is keen to receive more information about recommendations for the levy. Currently, the
APVMA collects both an annual registration fee to maintain a product on the agricultural
chemicals register. Secondly, the APVMA also collects a levy charged on the annual sales of
products. The proposed construction of the annual levy proposed in the first principles review
remains unclear.

Implementation of government funding for the APVMA’s activities in informing policy: PACIA
supports this principle and notes that it is consistent with the Government’s cost recovery policy.

Maintenance of the APVMA’s financial reserve to support financial viability: While the financial
viability of the APVMA remains critical to its operations, PACIA does not see maintenance of a
financial reserve as an essential feature of the agency’s cost recovery arrangements. Properly
constructed cost recovery arrangements should ensure that the APVMA has the necessary
funds to complete its functions.

Regular monitoring and adjustment of fees and charges in line with changes in expenditure
rather than automatic indexation: PACIA supports this element as an important feature of cost
recovery policy. Automatic indexation increases risks that actual costs become delinked to the
fees and charges placed on industry.
PACIA has made specific recommendations regarding each of the APVMA’s activities – and the
recommended funding model – in the attachment to this submission.
Process and timing
The general features of the cost recovery arrangements proposed are based on out-of-date cost
recovery policies. PACIA expects that any assessment of the APVMA’s cost recovery policies must be
conducted against current government policy, and expects that any government response to the First
Principle Review will be consistent with current cost recovery guidelines.
Additionally, PACIA notes that other activities currently being conducted by Government may have a
significant impact on the APVMA’s cost recovery activities. Critically, new legislative measures to
improve the efficiency of the APVMA’s registration and approval processes have been implemented in
2014. Further, the APVMA’s activities to develop a risk-based assessment framework are likely to have a
significant impact on the way that a number of product classes are assessed. The impact of these
reforms must be considered when the Government prepares its response to the basis of the APVMA’s
cost recovery.
Conclusion
Cost recovery is a useful tool to fund government regulatory activities. However, cost recovery
arrangements must be carefully designed to avoid undesirable and perverse outcomes. PACIA looks
forward to working with the Government as it develops its response to the first principles review to
ensure that the proposals deliver improvements in accountability, transparency and reduced costs that
APVMA stakeholders are seeking.
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ATTACHMENT: Response to Specific Elements of Cost Recovery Model
Activity
Recommended Model
PACIA Comment
Registration and Approvals
Product and Active Constituent Registrations and Approvals
Applications
for
product An upfront application fee is charged based on the average cost Support
registration, approval of active of assessing an application of that type or module.
constituents and major variations,
minor changes requested by
applicants
Minor changes required by the An upfront application fee is charged based on the average cost Support,
provided
appropriate
APVMA
of assessing an application for minor changes.
safeguards are in place to ensure that
minor changes do not impose
unnecessary costs on registrants
Permits
Permits for possession and An upfront application fee is changed based on the average cost Support
export and extensions
of assessing an application for a permit for possession and
of export permits
export.
For permit extensions, an upfront application fee is changed
based on the average cost of assessing an application for a
permit extension.
Minor
use
permits
and An upfront application fee is charged as a small contribution to Do not support. Entrenches an
extensions of minor use Permits
the cost of assessing a minor use permit or a permit extension, undesirable cross subsidisation and is
with most of the costs being recovered through a specific inconsistent with cost recovery
identifiable tiered annual flat levy that is charged on all registered guidelines.
products.
Emergency use permits and A specific tiered annual flat levy is charged on all registered Do not support. Entrenches an
extensions of emergency use products to recover the costs of assessing emergency use undesirable cross subsidisation and is
permits
permits and permit extensions.
inconsistent with cost recovery
guidelines.
Research permits and extensions An upfront application fee is charged based on the average cost Support
of research permits
of assessing an application of that type or module.
For permit extensions, an upfront application fee is charged
based on the average cost of issuing an extension of the permit
for each applicable module.
Miscellaneous
permits
and An upfront application fee is charged based on the average cost Support
extensions of miscellaneous of assessing an application of that type or module.
permits
For permit extensions, an upfront application fee is charged
PLASTICS AND CHEMICALS INDUSTRIES ASSOCIATION ABN: 77 063 335 615
Level 10, 10 Queen Street, Melbourne, Victoria, 3000 Phone: 03 9611 5400 Fax: 03 9611 5499
PO Box 422 Flinders Lane, VIC 8009 Email: info@pacia.org.au Web: www.pacia.org.au
Activity
Application advice
Pre-application advice
Recommended Model
PACIA Comment
based on the average cost of issuing an extension of the permit
for each applicable module.
An upfront standard fee is charged for each request for advice
based on the average cost of administratively processing the
request and issuing an estimate of the likely fee in providing the
requested advice.
An hourly rate is charged for conducting research, obtaining
further information from the requestor and the provision of advice.
The applicant would also be charged the hourly rate for any
additional advice sought beyond the initial request.
Where pre-application advice is sought in relation to an
application that has a subsidised fee (being for a minor or
emergency use permit), the upfront fee and hourly rate should be
subsidised in a consistent manner.
The fee charged is not rebated on submission of an application.
Partially Support.
PACIA
supports
applicants
contributing the full cost of services
that they receive from the regulator.
PACIA does not support industry
funds being used to support minor, or
emergency use permits sought by
users.
Other Market Activities
Certificates of Export
An upfront application fee is charged based on the average cost Support
of assessing an application for Certificates of Export.
Consents to Import
An upfront application fee is charged based on the average cost Support
of assessing an application for Consents to Import.
Monitoring ongoing compliance with regulations and investigation and enforcement
Manufacturing standards of Agvet chemicals
Compliance with standards for For Australian manufacturers of veterinary medicines, an upfront
the manufacture of veterinary application fee is charged for a licence to manufacture based on
chemicals (such as the current the average cost of assessing an application. An additional
Manufacturing Licence Scheme specific categorised annual levy is charged based on average
(MLS) and the Overseas Good cost to confirm compliance for manufacturing processes differing
Manufacturing Practice (GMP) in complexity. For any variations to licences, an additional fee is
Scheme)
charged if the APVMA determines that an audit is required. This
additional fee is based on the average cost of reviewing the
audit.
For veterinary medicines manufactured overseas, the local
registrant of the product is required to pay a tiered annual flat
levy based on the average cost to confirm compliance for
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Activity
Recommended Model
manufacturing sites outside Australia.
Compliance with standards for A specific annual flat levy is charged on each registered
the manufacture of agricultural agricultural chemical product.
chemicals (such as the current
agricultural chemical products
Quality
Assurance
(AgQA)
Scheme)
Other compliance, monitoring, investigation and enforcement activities
Regulation of the supply of An upfront application fee is charged based on the average cost
particular products (such as the of assessing an application for a licence to supply a particular
current
Hormonal
Growth product.
Promotant Scheme (HGP))
A flat tiered annual licence renewal levy charged to licence
holders to recover the full cost of maintaining the scheme.
System for the public to provide A specific tiered annual flat levy is charged on all registered
feedback on agvet chemicals products.
(such as the current Adverse
Experience Reporting Program
(AERP)) and programs for the
APVMA to conduct reviews of
registered chemicals (such as the
current
Chemical
Review
Program)
and
undertake
compliance and enforcement
action
General activities
Website, annual report and A specific tiered annual flat levy is charged on all registered
corporate
publications, products
consultative
committees,
presentations and seminars and
the
information
publishing
scheme.
PACIA Comment
Support
Partially support.
Do not support tiering of annual
licence renewals as not directly
related to the cost of providing the
service.
Do not support.
Approval holders already have legal
obligations to provide feedback to the
APVMA. The government should
consider the appropriateness of public
funding to facilitate public reporting of
adverse experiences.
Partially support.
These activities are done for a variety
of purposes, and many are not
directly related to the registration or
monitoring of products. Some are
related
to
proper
governance,
accountability
and
transparency
processes required by governments.
Government should consider whether
it may be appropriate for some of
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Activity
Recommended Model
Informing
policy
(including Government appropriation.
Senate
estimate
hearings,
Questions on Notice, Ministerial
briefings)
Research
(i.e.
Principal A specific tiered annual flat levy is charged on all registered
Scientists)
products. The levy charged is offset by any government
appropriation provided to the APVMA for specific research
activities.
PACIA Comment
these general activities to be funded
by a government appropriation, or for
costs to be shared between
registrants and public funds.
Support
Partially support.
Research may be conducted for a
variety of purposes. Research is likely
to only ever be relevant to a subset of
registered products and may impose
costs on registered products that have
no relation to research being
conducted. Further research that is
requested by Government to address
a particular issue should be funded by
government through an appropriation
rather than through use of industry
funds.
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