State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill

Hon CLAYTON COSGROVE (Associate Minister of Finance) Link to this

I move, That the State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill be now read a third time. The purpose of this bill is twofold: firstly, to permit a merger of AgriQuality and Asure, provided that shareholding Ministers are satisfied that it makes commercial and strategic sense for New Zealand; and, secondly, to allow shareholding Ministers to direct the board of AgriQuality not to provide examination services as defined in the bill.

First, I would like to get a few facts straight following some interesting and slightly misguided comments made in the Committee last night. They related to when the bill was before the Commerce Committee and the undertaking by Trevor Mallard, the Minister for State Owned Enterprises, to provide Gordon Copeland with a draft Supplementary Order Paper for his consideration. After the necessary advice was received from officials on Mr Copeland’s suggested wording, the draft Supplementary Order Paper was provided to him for consideration. Mr Copeland was promised a copy of the draft Supplementary Order Paper for his consideration and this was indeed done. It is unfortunate that Mr Copeland considered that the provisions in the Supplementary Order Paper did not meet his expectations. However, the provisions clearly met the expectations of Mr Copeland’s former party, United Future, which voted for the bill last night.

I am pleased to report that good progress has been made in developing the business case for the merger. A working-group established to assess the potential merger of AgriQuality and Asure recently concluded that there is a robust, strategic rationale for the merger. Significant, quantifiable gains are expected from a merger, derived mainly from scale and scope economies and enhanced biosecurity capability. Although the merger is still subject to Cabinet approval and the passage of the bill into law, a strong prima facie case has been established for the merger to proceed.

The second objective permits shareholding Ministers to direct AgriQuality not to provide examination services, and a number of concerns were raised in the select committee. The most significant concern raised in submissions was that by reducing the prospect of competition in the provision of export red meat inspection services, the bill could result in higher prices and lower service levels than would otherwise be the case.

The Supplementary Order Paper adopted last night addresses these concerns. The first addition to the bill, Subpart 3 of Part 2, requires the Commerce Commission to investigate and report on the prices charged for examination services, within 3 years of the commencement of the Act. The second addition, Subpart 4 of Part 2, provides for the Crown to continue its negotiation with international trading partners to permit examination services to be undertaken by agencies other than the Crown. Further, in future, if more than two-thirds, by value, of New Zealand’s red meat exports are made to international trading partners that accept international guidelines on meat hygiene, as set out in the Codex code of hygienic practice for meat, then the Government will permit private provision of examination services.

In conclusion, I am confident that these common-sense amendments have gone a long way to addressing any concerns raised about the bill. This bill is critical for maintaining and enhancing shareholder value in AgriQuality and Asure, companies owned by the Crown on behalf of all New Zealanders. It has the added benefit of improving New Zealand’s biosecurity response capability at a time when New Zealand is becoming increasingly at risk from incursions. I commend the bill to the House.

Hon DAVID CARTER (National) Link to this

The State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill is another kick in the guts for New Zealand farmers. I am surprised that, for a bill that is so important to New Zealand agriculture, a junior Minister, Clayton Cosgrove, has been sent to the House to do the third reading speech on behalf of the Government. I do not think I can recall a contribution at all on this legislation, through the first reading, the second reading, or the Committee stage, by our current Minister of Agriculture, the Hon Jim Anderton. I do not think he has made a contribution at all on this important legislation, which, again, will land heavy costs on our meat producers.

If one had to describe the bill correctly, one would say it was a bill designed by the unions for the unions—a bill designed by the unions for the unions. I said last night in the House, during the Committee stage, that I found it ironic, to say the least, that in the very week the legislation had been originally introduced into Parliament, coincidentally, the Labour Party suddenly found the $850,000 that it had taken from taxpayers in the last election. I raised that point, and Maryan Street accused me of being very improper even to suggest it. So I went back through the submission process and found a very close linkage between the Public Service Association (PSA) and this legislation.

Let me start with a submission from the Meat Industry Association. I guess the first point I should note is the comments made by Bill Falconer, the chair of the Meat Industry Association and a person who has a reputation in New Zealand and overseas as having championed the interests of New Zealand meat producers. Mr Falconer had this to say to the select committee: “I have to say that in 47 years I’ve been in and around Government, I have never seen a major trade organisation be treated so shabbily.” The background to those very strong comments from Mr Falconer is the fact that this legislation, or the concept of this legislation, was first made known to the Meat Industry Association, not by the Minister of Agriculture—not in fact by any Minister of the Crown—but by none other than the PSA when it requested a meeting with the Meat Industry Association. At that meeting, which took place in July last year, the PSA told the industry that a merger between Asure and AgriQuality would take place.

The PSA then confirmed that stance in an email sent to all PSA members in Asure, dated 22 June 2006, and signed by Keith Gutsell and Ian Baldick, who I presume are senior executives of the PSA. In that email they stated: “In recent meetings between the PSA and Government Ministers, the Prime Minister, and the NZFSA, the PSA has been informed that the Government will promulgate Government policy stating meat inspection is to be done only by the Government and delivered by one Government agency, Asure.” The email goes on to state: “Make no mistake, this is a major turn-round of direction and delivers far better professional and secure meat inspection services for the future.”

The industry, on hearing these comments and receiving a copy of that email, then wrote to the Minister of Agriculture and requested a meeting. The Minister of Agriculture refused to meet with the Meat Industry Association, because he was not prepared to face its members and discuss the implications of the legislation. So what we find is that, coincidental with the sudden payment by the Labour Party of the $850,000, in comes this legislation, which in effect removes any potential—

R DOUG WOOLERTON (NZ First) Link to this

New Zealand First supports the State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill. We have taken a very close interest in this bill. In supporting it, we believe that rather than supporting an illusory prospect of competition, we are supporting a real move to bring down the cost of the delivery of a service by amalgamating two companies, thus making them more efficient, in what is proposed to be one unit shortly. If true competition does not exist, then we must look at the costs of the monopoly provider, if we want to call it that, and make sure that those costs are as low as possible. That is what is being done here.

Mr Carter and the National Party say, because of some conspiracy theory they have about the Public Service Association, that costs will increase and that the usual—

ERIC ROY (National—Invercargill) Link to this

The debate we are having today is the third reading of the State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill. This is a bill that, if passed after the conclusion of its third reading, will eliminate the competition element from the assurance that we give our meat products in the international market, and it will also eliminate the competition out of certain elements of pest and vector control in New Zealand. The National Party has, through the course of the process of this bill—its first reading, the select committee consideration, and the Committee stage in this House last evening—expressed a number of serious concerns. The principal question we have asked in each case is why it is necessary to have this legislation.

I note that the explanatory note states: “The Government wishes to prevent this competition from occurring as it considers that it would result in a net cost to the Crown …”. There are two elements of that that I wish to explore. When delving into why that was the case, I found that the concern was that there could be a contingent liability about redundancy if one of these agencies took over some of the work from the other. We have been informed that in actual fact there is a contingency fund, should this occur. I understand there is $12 million in that fund. [Interruption] That is correct, and I thank Mr Guy. So why does the Government see a liability, when it has already acknowledged that there could be some inter-movement between two agencies in this area? I have to say that that has proven to be quite a nebulous issue.

But does the Government have any concern about where the costs might fall if competition is removed? They fall squarely on the shoulders of the producer. At a time when the sheep industry is under some stress about the prices it is receiving, should we load on to that industry another element of cost compliance by removing competition from what is a very important part of the process?

That is the first point about this legislation. The case was not proven. The case to do this, the necessity to wipe out the competition, was not proven. I want to extend that a little. This legislation came into the House and has been processed but we have not been told, and were not told, of the process of the development of this legislation. Normally when the Government wants to do something that will advance a cause, it will put out a consultation paper. It will confer with the various players in the industry. My colleague the Hon David Carter related to the House the element of surprise of the major players, in terms of: “Hello? We were not consulted. We did not know.” Again, it is the element of the fact that the case was not proven—that, in fact, it was not necessary.

I am delighted that during the Committee stage last night our concerns about the competition element were listened to, to some degree. I am not very happy about the solution the Minister put up in terms of requiring, after 3 years, a consideration of the competition element and having a trigger that can be effected by either the Minister of Commerce or the Meat Industry Association. That process completely eliminates the producers; they are not represented. I made the case last night that it was a little bit like the Boston Tea Party. The agency that pays for this is the producer, because the cost comes off the product at the end of the line.

There are a number of issues here that we believe are quite fundamental to the way in which we need to do business. It is interesting that a number of State-owned enterprises work in a competition model. This is really a debate about philosophy. We have a Labour-led Government that believes in regulation and we have a National Party, representing the farmers, which says that it believes in a competitive model. Every single element of the production, the selling, and the competition with other forms of protein is, in itself, a very, very intense competition. Then we are having a regulatory approach to quite a high cost in the whole chain of processing, validation, and assurance of that product.

It is of considerable concern to us in the National Party that this is going to increase costs. As I said earlier, those who will be paying do not have a mechanism by which they can force the Commerce Commission to have a look at this. Why would we set up a Commerce Commission to oversee and ensure quality of spending, and the best possible economic process by which these things can be done, if it is eliminated from giving this some scrutiny unless there is a trigger point?

We are concerned about the absence of consultation. We are concerned about the fact that the case that this actually needed to be done was not proven. We believe, in principle, in competition giving us the best possible price. Right now we have a situation in the rural community where there is a significant shift in land use because it is perceived—and at the moment it is real—that there is a much higher return from other forms of pastoral farming: namely, dairying. I would have thought that this Government would have some consideration for dealing with the issues that improve the viability of an industry that is under some stress at the moment, instead of loading another cost on to it. I relate to the House that although Fonterra has been reasonably coy about the number of conversions in the pipeline, I am reliably informed that there will be 32 new conversions in the Southland province in this coming year, and another eight considerable extensions to existing property—so some 40 properties have been—

MARYAN STREET (Labour) Link to this

It is a pleasure to rise to speak in this debate, and, hopefully, to inject a few facts into some of the discussion. It seems to me that, in terms of the State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill, the National Party is bent on defending the idea of competition, even though currently there is no competition in the area of meat inspection services.

Why is there no, or little, competition in this area? It is because our major trading partners who receive our meat products require the Government guarantee of quality and standards that is provided by the Food Safety Authority’s accreditation of Asure New Zealand. That is how the process works. Our major trading contracts—and I cite the United Kingdom and the United States in particular—absolutely require a Government guarantee of quality. That guarantee has been vested in the Food Safety Authority, which is the accreditation body for Asure New Zealand.

I want to make two points about the fact that the shareholding Ministers wish to prevent competition from occurring between two State-owned enterprises—two State-owned enterprises that may merge at some point in the future, if that is considered to be the most efficient thing to do. First of all, as the previous speaker said, there was concern about a net cost to the Crown. An earlier speaker said that this liability was already provided for, and therefore should not be of concern to the shareholding Ministers. This side of the House takes a different view on how taxpayers’ money ought to be spent. Because there may be provision for liability does not mean that that provision should be squandered or expended where such expenditure might be avoided. I would have thought that most taxpayers would get some kind of relief from the fact that the Government was behaving responsibly with their money and was not incurring additional cost if it could be avoided.

A second issue arises in respect of the admission of competition in this area. In the explanatory note that the previous speaker, Eric Roy, referred to, he will see that one of the reasons given was that it could result in a weakening of New Zealand’s overall biosecurity response capability. What does that mean? Well, let me put it really simply for the Opposition. In the last decade or so we have seen outbreaks of such things as mad cow disease. There have been concerns about how nation States might best protect their biosecurity arrangements and make sure their response to biosecurity threats could be as swift and effective as possible. If that capability and that response are to be spread across two organisations rather than one, then there is a further risk of complication, which will slow down a response—

KEITH LOCKE (Green) Link to this

The Green Party has had somewhat mixed feelings about this bill, but we do agree with the previous speaker, and with Doug Woolerton, that competition in the area of meat inspection is not necessarily beneficial. It can easily drive down the quality of the product and make it difficult to ensure that there is not some damage to, or disease in, the meat that is sent to market. When the previous speaker spoke on the question of whether competition is always good, my friend Doug Woolerton yelled out “Air New Zealand”, and I think that is a case in point. The wages and conditions of workers at Air New Zealand were driven down as a response by Air New Zealand to competition, and I am scared that there will be a driving down of quality and a driving down of the conditions of workers if competition is allowed in this case, even though it would be between two State-owned enterprises.

If we look at the meat industry, we see that that has happened a lot in the past. I used to work in the meat industry for a few years, and the workers were pretty regularly under attack as there was competition between the meat companies for product—beef, mutton, and lamb—coming in from the farmers. The competition was often based on driving down the wages of workers. I think the Public Service Association, which covers many of the workers in meat inspection, is worried as well that that will happen if there is competition.

Eric Roy talked about the problems the meat industry is having at the present time. That is true; meat prices have been down. We read articles in the papers about PPCS being in a difficult position, in debt, and things like that. We can see that that is a situation where, if there is a competitive environment in meat inspection, the meat companies might put pressure on these competing meat inspection services to come forward with a lower price. How would that be achieved? It would be achieved by putting the meat through more quickly, with less quality in inspection, and perhaps with lower wages for the staff involved. The lower the wages go, the less skilled the workers are, and then there are problems. As indicated before, it is quite important, if we are to provide guarantees and to coordinate with others around the world in terms of preserving safety in food standards and preventing diseases from going around the world and perhaps taking hold in New Zealand, to have a real quality inspection system.

The reason why the Greens have mixed feelings on this legislation is that one of the problems in merging these two State-owned enterprises is that we then have a monopoly State-owned enterprise and we do not necessarily think that that is the best form of organisation for a monopoly. We would favour a Crown-owned entity where, at least, there is more openness, more ability for the Government to step in, and where there will not be purely commercial criteria operating. We have seen the problem with some State-owned enterprises recently. For example, the Solid Energy State-owned enterprise has gone really over the top in spying on protesters. The Minister Trevor Mallard had to criticise Solid Energy for putting spies in protest groups.

We have had other cases where State-owned enterprises have got a little bit out of control; New Zealand Post went a little bit funny for a while. The Green Party position is that a Crown-owned entity would be a better model. Quality can be preserved with a publicly owned service; we saw that for years when the Ministry of Agriculture and Forestry inspectors were running the show. The ministry was, in essence, a monopoly. We had very good meat inspection through that service. That is the background we are working from.

I know how easy it is to lower quality; I have worked on the chain and I have worked as a meat grader, and I know that meat can be pushed through a bit too fast. The meat might not be graded properly or the meat inspectors might let certain diseases through by not paying sufficient attention. So I think it is important that we have the quality guaranteed by a transparent public body and, as was indicated, public bodies are recognised around the world, too. People want a Government sign-off internationally when we export our meat and do not want to be reliant on a private agency.

It is good that there was that Supplementary Order Paper to add in a role for the Commerce Commission; that gives some control over the situation. But the Green Party would certainly prefer a Crown-owned entity. Therefore, rather than vote for the bill, the party has decided to abstain to make the point that it thinks there is not enough openness in the system when it is a State-owned enterprise. Thank you.

HONE HARAWIRA (Māori Party—Te Tai Tokerau) Link to this

Kia ora, Mr Deputy Speaker, kia ora tātou e te Whare. Me moe tātouitēneiwā!

[Greetings, Mr Deputy Speaker, and greetings to us in the House. We should go to sleep now!]

It is interesting to hear what some of the other parties think about this bill. Some have called it pandering to the Public Service Association (PSA), hush money for supporting political power, and a reward to the unions for helping to pay off Labour’s overspending, and others say all it will do is to destroy competition. All of that seems to be worlds away from the reality of meat inspection and from the working lives of—there used to be thousands; I do not know whether there still are—people who work in the meat industry, and from major iwi interests in many successful sheep and cattle farming enterprises. Today the Māori Party would like to focus on the impact this bill will have on the Māori farming sector, on the implications of a possible merger of AgriQuality and Asure New Zealand, and on whether opening up the meat inspection services to competition will actually enhance their quality.

We know that only people employed by the Crown can be meat inspectors, and we have to ask what is wrong with that. Does is really matter if there is no competition for meat inspection services? There is a suggestion to open up tendering for the inspection services to the private sector. I have to ask why we would do that, when nearly all of our trading partners insist—for obvious reasons—that any of our meat is Government-approved, and when the inspection services are set up in that way.

We are happy that the Commerce Commission is to review the cost of those services and that the commission will report on whether their prices are in line with the Commerce Act. But I would signal a note of caution about that, because last week we saw an excellent example of what happens when independent bodies report back to the Government on things that it may not want to hear. I am talking here, of course, of the Waitangi Tribunal. It tabled two reports that were critical of the Government’s flawed processes, incompetent officials, and divisive tactics, to which the Minister responded with typical ministerial non-enthusiasm. That was hardly the proactive response the tribunal was looking for, so we are not holding out very much hope that the reaction will be any different here. That is not to take anything away from the quality of the work being done by the Commerce Commission, chaired by the excellent Paula Rebstock, the New Zealand Herald’s 2006 New Zealander of the Year. We have no doubt that the commission will not shirk from the challenge of reviewing the cost of the services. But, as with the tribunal, the issue is not about how good its reporting is, how sound its recommendations are, or how substantial its findings are, but about whether the Government wants to hear the message.

We also note a submission from the chairman of the Meat Industry Association, which stated that it was stunned that the Government could take such a profound decision without consultation with it, and that the PSA should have been given or assumed the task of briefing the industry. So we are happy to see that the association will have a say as to whether the investigation and review procedures will take place.

This is an important bill, and this is an important industry, which markets more than $5 billion of meat exports each year—fully 17 percent of all our exports. Māori are key players in this industry, and we believe that it is in their interests, and in the best interests of the nation, that key quality controls, assurance processes, and standards are adhered to in the meat inspection services. On those grounds, the Māori Party will be supporting this bill.

NATHAN GUY (National) Link to this

I rise to take a call on the State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill. It is a complete nonsense bill—complete nonsense! I was here for the first and second readings, and I sat here and listened throughout the Committee stage, and I have heard all of the excuses from the other side of the House. Those excuses do not sit easily with us on this side of the House. When one thinks about it, one realises that competition is a good thing. We should not be scared of competition; we should embrace it. I cannot see how this bill will actually achieve very much at all. Costs are going to go up at the farm gate.