Saturday, September 13, 2014

Refining the role of government in the Australia–Indonesia live cattle trade

Going back in time, the Export Control Act 1982 was established to protect responsible exporters and consumers following a meat substitution scandal in 1981 involving a rogue exporter. Aspects like exporters paying Australian Quarantine Inspection Services (AQIS) directly, with some of these costs passed on to consumers through higher prices, were appropriate in this case. Further arrangements enforced by the AQIS have emerged over recent years. But these arrangements have appeared rushed and lacking in evidence-based policy analysis or forethought on appropriateness. For example, AQIS pushed for the stunning of cattle in Indonesia when it was not required by the relevant international organisation, the World Organisation for Animal Health, or fully practiced in Australia.

Improvements in animal welfare standards in developing countries can be driven by developed countries through trade. But this is not happening in the Australian live cattle trade which is from a developed to a developing country. The existence of alternative suppliers — including other developing nations without strict demands on animal-welfare standards — means that Australia has very little leverage. It is not necessarily more government involvement in the trade that is needed but more evidence supporting an increased trust and reliance on more cost-effective industry approaches, driven by joint-interest and suitable policies.

The current government approach of trying to address non-trade issues with trade policies is indirect and inappropriate. Other issues of concern relate to the current Australian Position Statement on the Export of Livestock (APS) which is under review.

First, the Australian government has very little power once cattle are unloaded but is shifting animal-welfare responsibilities onto exporters, many with little such power.

Second, some arrangements de-privatise the trade (for example, deaths are measured on ship rather than on a consignment basis), diminishing property rights and traceability.

Third, World Organisation for Animal Health standards are based on general performance criteria rather than the costly APS prescriptive regulations focusing on detailed inputs and processes with few incentives to lower costs. Also, restricting processes could be disputed under WTO-rules.

Finally, there appears to be few clear roles or responsibilities for regulatory actions, and a lack of national consistency with other regulators like the states.

Another problem is that there are minimal benefits as the Australian government, at an economic and overall animal-welfare cost through losing market share, tries to exceed international standards in a misguided attempt to minimise animal-welfare impacts. The Australian trade is one of the most animal friendly in the world and having its market shares replaced by less animal friendly trade due to higher costs will only lower overall animal welfare. Moreover, this approach gives scant attention to Australian society’s trade-off between animal-welfare and production. A further problem with the heavy government involvement is the trade’s vulnerability to non-trade issues like the phone hacking of the Indonesian President’s family, unlike more private sector trades such as the more significant wheat trade.

The Australian cattle industry is rightfully upset about increasing government fees that are justified on delivering reputed animal-welfare benefits to Australian society. But only Australian producers, exporters and others in the supply-chain pay for these more general benefits, many directly and others, like Indonesian consumers, indirectly through market forces.

There are better ways than heavy government involvement. Increased private-sector involvement through-joint ventures could expand control and lower uncertainty, providing opportunities for an efficient beef supply-chain in a growing regional market. Elders, a large vertically-integrated livestock exporter, set acceptable standards (which the government tried to mimic with a costly prescriptive-approach) and was successful. This was because Elders’ interests to be a responsible investor and uphold high standards of animal-welfare aligned. There was also an underlying threat of stronger regulations and public disapproval of poor behaviour. Greater private-sector involvement, driven by self-interest that matches the interests of society rather than a vocal minority, could allow governments and responsible companies to avoid costly bureaucratic control through a ‘social licence’ being given to operate without such controls. Scarce government resources could then be focused on the longer-term objective of helping ‘non-licensed’ firms in Indonesia improve standards based on approaches of companies with a ‘social licence’.

Accepted labelling of sustainable meat production could also improve animal welfare and allow the market to deliver on society’s animal-welfare values. This is the case in egg production with its government classification and RSPCA endorsements of specific production labels. Australian consumers favouring free-range egg production bear the costs of this preference directly through premium prices which provide a signal of society’s preferences. A World Wildlife Fund and an industry push to endorse sustainable meat production, like in forestry, would need government partnerships to be acceptable in international trade where ‘G2G’ (government to government) is important.

Current government involvement appears too large, pushing Australia out of the trade with increasing prescriptive bureaucratic demands that have been ineffective and offer few incentives to lower associated costs — which are being unfairly imposed on exporters and indirectly on Indonesian consumers. Refining the government’s role, allowing greater and more cost-effective private-sector involvement through joint-ventures, government-facilitated ‘social-licence’ and labelling are all necessary measures to address the current costly situation.

Dr Ray Trewin is Visiting Fellow at the Crawford School of Public Policy, The Australian National University.


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