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

Hon CLAYTON COSGROVE (Minister for Building and Construction) Link to this

I move, That the State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill be now read a second time. In speaking to the second reading of this bill, I first wish to thank the Commerce Committee for reporting this bill to the House in a short period of time, although giving full consideration to the public submissions it received. I am pleased to see a majority report back recommending the bill be passed, subject to the incorporation of two additional clauses proposed at the select committee. I will come back to those clauses after briefly reviewing the two key objectives of the bill.

Subpart 1 of Part 2 concerns directions to AgriQuality. This part permits shareholding Ministers to direct the board of AgriQuality not to provide certain services under the Animal Products Act 1999 without risking a breach of Part 2 of the Commerce Act 1986. AgriQuality indicated, in late 2006, that it wished to enter the export red meat inspection market. Currently, Asure is the sole player in that market. As the owner of both companies, the Government wishes to prevent AgriQuality’s entry to the export red meat inspection market, because that would erode shareholder value—in particular, due to the potentially large redundancy costs involved.

I wish to clarify one point in the Commerce Committee report, which states: “If the Government issued a direction under the State-Owned Enterprises Act 1986 to prevent AgriQuality from providing export red meat inspection services without merging the two entities, the Crown might run the risk of breaching Part 2 of the Commerce Act 1986 …”. Inclusion of the words “without merging the two entities” is not strictly correct, as such a direction risks breaching the Commerce Act irrespective of whether the companies merge.

Subpart 2 of Part 2 concerns the merger. This part of the bill enables a merger of AgriQuality and Asure to occur, provided the shareholding Ministers are satisfied that a merger is viable. To enable a possible future merger, legislation is required to remove one or both companies from schedules 1 and 2 of the State-Owned Enterprises Act 1986 and consequentially amend a number of other enactments. The bill enables that to occur.

Public submissions raised concerns that by reducing the prospect of competition in the export red meat inspection market, the bill could result in higher prices and lower service levels than would otherwise be the case. The Government has worked closely with United Future to develop a Supplementary Order Paper that incorporates two new clauses to address those concerns. These clauses provide that, firstly, export red meat inspection prices will be subject to Commerce Commission scrutiny within 3 years of the enactment of the bill; and, secondly, should overseas regulatory authorities in countries responsible for importing a significant majority of our red meat exports change their policy to recognise the private provision of export red meat inspection services, the Crown will review its policy in relation to those services. These amendments, combined with the ongoing constraints imposed by the Commerce Act and Asure’s relatively transparent pricing model for export red meat inspection services, go a long way towards addressing the key concerns raised during the select committee process.

Another concern raised during public submissions relating specifically to the prospect of a merger is that if a merger of AgriQuality and Asure takes place, it will reduce the amount of competition in the provision of TB testing services until such time as the current contracts expire in 2009, potentially resulting in reduced service levels and higher prices after the expiry of the current contracts. Those concerns are mitigated by the fact that any merged company would be obliged to honour its existing contracts, which, I understand, specify price and quality parameters, and by the fact there are other actual and potential providers of TB testing services that are likely to show great interest in the next tender round, due in 2009.

Although the benefits of the merger are still being assessed, preliminary indications suggest that the bill will, firstly, protect and enhance shareholder value through economies of scale and scope, and through reduced risk of costly redundancy; and, secondly, enable a more effective and efficient biosecurity response capability. In short, the bill, by enabling a merger of the two companies should this be viable, will have significant benefits for shareholders and the New Zealand economy as a whole. This bill is critical to maintain and enhance shareholder value in AgriQuality and Asure—companies owned by the Crown on behalf of all New Zealanders. It also enables a more effective national biosecurity response capability.

The main principles of the bill are designed to, firstly, enable shareholding Ministers to direct AgriQuality not to provide export red meat inspection services in competition with Asure; and, secondly, to enable a merger of AgriQuality Ltd and Asure New Zealand Ltd, provided shareholding Ministers are satisfied that that is viable. I commend the bill to the House.

Hon DAVID CARTER (National) Link to this

National will oppose the State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill for the following reasons. This has to be one of the strangest pieces of legislation that Mr Mallard has ever advanced before Parliament. I guess that is not surprising, when one considers his track record on any matter concerning finance. This legislation promotes the merger of two State-owned enterprises, Asure New Zealand Ltd and AgriQuality Ltd, but it does so on very, very spurious grounds. What Mr Mallard is suggesting to Parliament today, through his junior Minister, Clayton Cosgrove, is that this legislation will allow the merger of these two enterprises but that before they decide to merge these enterprises, Mr Mallard will rush away and do a financial analysis to see whether there really is any benefit.

I suggest that that is a real case of putting the cart before the horse. Surely any Minister in touch with his or her portfolio would do the economic analysis first, then, if there were merit in merging the two enterprises, come forward with the enabling legislation. But that is not the way the Government has worked. For those who sat through the select committee process, what has become painfully obvious to all of us is that it has nothing to do with economic benefit to the New Zealand taxpayer by enhancing shareholder value in these two enterprises. It is totally about delivering to the wishes of the Public Service Association (PSA), which is New Zealand’s largest trade union.

At this stage I want to thank Gordon Copeland for the constructive role he played in the Commerce Committee hearings. I am not normally a member of that particular select committee, but I sat through the very hastily arranged submission process, and Gordon Copeland asked some very good questions. In fact, I initially gathered from his questioning that he would be on the side of the angels, would see that there was no merit in this legislation at all, and would support the National Party in voting against it. However, I do understand the closeness between United Future and the current Labour Government, and Mr Copeland has apparently come up with a number of amendments that certainly soften the thrust of this legislation. I was hopeful of seeing those amendments today, but Mr Copeland has just informed me that he has not seen the amendments either, so obviously they have been written by the Government, not by Mr Copeland.

Suffice to say, though, what was really interesting was that the Meat Industry Association received absolutely no consultation at all from the Government on this legislation. The association was told that that would happen by none other than a visitor from the trade union, the PSA, back in the middle of last year. I will quote something that Mr Bill Falconer, Chairman of the Meat Industry Association, and a well-regarded international figure within our meat industry, said to the select committee: “I have to say that in the 47 years I have been in and around Government, I have never seen a major trade organisation”—the Meat Industry Association—“be treated so shabbily,”. I say to all on that side of the House that it is a shame that that is the way they treat this major export market.

So why does the argument occur that these two State-owned enterprises should be merged? Opposition to the move goes right back to the PSA representing all of the meat inspectors. I say that if this legislation finally proceeds to allow the merger, we will see our meat industry again being held to ransom.

I will refer specifically to clause 10, and signal today in the House that I will be moving an amendment in the Committee stage to delete clause 10 in its entirety. I take the opportunity to explain this to the House today. The Animal Health Board is charged by the New Zealand Government with ensuring that we succeed in obtaining TB-free status by the year 2013. I think the board is doing a very credible job in that area. That therefore requires that it is involved with setting up a TB testing regime for all cattle in New Zealand. Quite recently, the Animal Health Board has been able to competitively tender its TB rounds between both Asure and AgriQuality, thereby achieving significant savings of costs.

Because the board was concerned that the PSA would finally win the day within the Labour Government, when it signed contracts with AgriQuality and Asure it specifically said that it would reserve the right, in the event of a merger taking place, to immediately cancel those contracts and seek more competitive tendering. Clause 10 cancels the Animal Health Board’s ability to do that. Clause 10 states that any contractmust then be maintained, because Mr Mallard and the Labour Government have overridden the sanctity of the contract that the Animal Health Board quite independently negotiated some time ago.

That means we have removed the ability for competitive tendering for TB testing. It means we are now back to having a significant monopoly, in the short term, in administering TB testing. That then means that the costs will go up, and those costs will be borne by the New Zealand farmer. So I will be moving an amendment in the Committee stage. I understand that Gordon Copeland is aware of this issue. I certainly hope he will support my amendment, and I certainly hope that other smaller parties—cognisant of the value of New Zealand agriculture to the economy, cognisant of the value of achieving TB-free status by 2013, and cognisant of the fact that at the end of the day beef and dairy farmers in New Zealand are paying for this service—will also take the opportunity of making sure that we at least, within this legislation, ensure the ability of the Animal Health Board to contract as it likes to the providers of these TB testing services.

As we went through the submissions, we found that they were fulsome, and there were very, very few submissions in favour of the legislation—one of which was quite a substantial one from the PSA, but given the fact that it had announced this move to the Meat Industry Association last year, I suppose that it is not surprising that the industry submissions were totally opposed to the bill. The Meat Industry Association was very disappointed, upon hearing rumours of this legislative change being proposed by the Labour Government and taking the opportunity of writing to the Minister of Agriculture and asking whether it could have a meeting to discuss the issue, that Jim Anderton refused even to meet with the industry. This is something we are seeing happen quite often with Mr Anderton in his other portfolios. He was not prepared to meet with the industry association and try to explain the rationale for rushing the legislation through the House with indecent haste. So I say to Mr Anderton that if he is genuine about working with the industry, then he has to be prepared to front up to it and justify a move such as this.

So overall, National has wholehearted opposition to this bill before Parliament today. National will oppose the legislation. We will certainly support the good work of Gordon Copeland through his amendments, but we stand to vote against the legislation at the end of the day. I will take the opportunity of seeking again the support of particularly Doug Woolerton’s party in making sure that we at least get rid of clause 10, which defies the ability of the Animal Health Board to stick to the sanctity of the contract based on good faith with both these providers.

MARYAN STREET (Labour) Link to this

I rise to speak to the State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill, particularly in the wake of the previous contribution, which was more a form objection than anything else. It was really difficult to discern what the key objections of the National Party are to this legislation.

To give a bit of background, I say that the two State-owned enterprises were created in November 1998 out of the corporatisation of MAF Quality Management’s business units. For the benefit of people listening outside of this Chamber, I say that AgriQuality’s core business is the provision of food safety and biosecurity services, while Asure’s is the provision of export red meat inspection services. The two State-owned enterprises also overlap in their work—for example, in TB-testing services, which the Minister Clayton Cosgrove referred to in his second reading speech, and in biosecurity response services.

AgriQuality advised the shareholding Ministers in November 2006 that it intended to provide export red meat inspection services in competition with Asure. Shareholding Ministers wish to prevent competition in the export meat inspection market, as they consider that competition between the two State-owned enterprises in that area is undesirable and would result in a net cost to the Crown—and I will develop that point a wee bit further in a moment. Therefore, legislation was required: firstly, to mitigate the possible Commerce Act implications of the AgriQuality board’s decision to withdraw its intention to enter the export meat inspection market—and that is the argument around section 2 of the Commerce Act—and, secondly, to enable the possible merger of the two companies at some time further down the track. This legislation does not create that merger, but it creates the possibility of the merger should Ministers decide that this makes sense.

The shareholding Ministers had written to AgriQuality and Asure informing them of decisions taken and inviting them to collaborate to develop a business case for a proposal to merge the two organisations, and they agreed to do that. Let me just explore some of the rationale behind this, because it is important. The Labour-led Government prefers to see State-owned enterprises collaborating and coordinating their activities to provide a quality service rather than competing at a cost to the taxpayer. There was no particular purpose in having two State-owned enterprises competing with each other to provide the same service, and we have not heard any argument from the Opposition to gainsay that. There was no overt or even covert purpose in having these two State-owned enterprises compete with each other.

The issue about the reduction of cost is one I will come back to in a moment, because one of the key premises of the National Party’s opposition was that the prevention of any competition would keep costs high and not allow costs to reduce as one would normally expect to be the case in the event of a competitive market. In considering that point, I put it to the House that competition frequently does two things. Frequently it does indeed lower the cost of services or goods, and a competitive market can ensure a better price for services. But in this instance it was not only meaningless to have two State-owned enterprises compete with each other to deliver price reductions but, I would suggest, also dangerous. It is also dangerous in this instance because competition in the pursuit of lower prices frequently means lower standards and corners being cut. This is an area that is far too important for the export industries of New Zealand, far too important for consumer protection, and far too important for New Zealand’s reputation overseas to allow meaningless competition for the sake of competition only. That is the critical point, and that is the key difference between our position on this side of the House and that of the National Party.

New Zealand’s reputation around the delivery of food standards and the safety of our produce overseas is intimately bound up with this legislation. If we have one State-owned enterprise and the possibility of a merger to make it even more sensible as to how we deliver the standards required to maintain the treaties, agreements, and contracts we have, particularly with the United Kingdom and the United States, then I am very much in favour of ensuring that this remains within the domain of one State-owned enterprise and that competition does not reduce the quality of product we deliver to the international market. It is important to note that the contracts we have, particularly with the United Kingdom and the United States, recognise Government-guaranteed standards. It is the New Zealand Food Safety Authority that verifies the inspection services on our red meat exports. The New Zealand Food Safety Authority is the one that guarantees to our international contract partners the standard and the quality of the produce we sell to them.

Clearly, we do not object in any way to the two amendments Mr Copeland is introducing. The first amendment simply asks that there be a review within 3 years of the passage of this bill. It is always good to make sure that legislation is doing what it was meant to do. The second allows the possibility of competitive tendering should overseas regulatory authorities change their policies to recognise the private provision of export red meat. Should that happen, then, indeed, let us see whether competitive tendering will cut the mustard. At the moment it is not a relevant consideration, because the overseas regulatory authorities require a Government guarantee of quality for the product being sold.

I have one further comment to make. I want to respond to some of the points made about the New Zealand Public Service Association (PSA) by the speaker who resumed his seat a moment ago. The PSA does have an agreement with this Labour-led Government—it is true. It is called Partnership for Quality. The PSA is an independent union. It is the biggest union in the country, as the member who spoke a moment ago said, but it is absolutely committed to quality services within the public sector in New Zealand. Its support of this legislation is based not on any sycophantic kowtowing to a Labour-led Government but on a long-held commitment to the delivery of quality services in the public sector. That is the nature of this Labour-led Government’s agreement with the PSA in the signed Partnership for Quality.

This bill allows for the consideration of a merger at some time in the future. That may be a good thing. I for one, if I were to express a personal opinion, would be very happy to see such a merger occur, because I consider the extent of corporatisation that resulted in these two organisations in the first place to have been something of an atomising process. I commend this bill to the House.

NATHAN GUY (National) Link to this

I rise to take a call on this very important State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill. We have just heard from one of the former trade unionists, who had a real slant on why this bill is good for the unions. What that member failed to mention is what is good for primary production. What is good for the farmer—for the people at the coalface who are actually growing lamb and beef? This merger will surely hike up the costs that will roll on through to those people who are producing a very valuable product for our economy.

It is interesting that these two State-owned enterprises have been split for 10 years now and we have not had a problem at all with any of our quality meat standards around the world. I was fortunate enough in 2000 to go on a Winston Churchill Fellowship to America. I have been through their plants, and our standards in our meat plants here in New Zealand are fantastic compared with America. Our products meet the United States Department of Agriculture standards to a brilliant condition. Our meat processing plants and meat quality standards are at a very, very high level.

So I struggle to see how merging these two identities will be beneficial when we have not had a problem for 10 years. If we were to amalgamate Meridian Energy and Genesis Energy, would we do that in a month? The answer would be no. Here we have a bill that the Government was trying to ram through in about a month, although that has been extended out to 6 weeks. I think that is absolutely shocking. As we have heard from the Hon David Carter, the submitters are really concerned about the panic with this bill. Would we merge Genesis Energy and Meridian Energy without a full economic analysis or a business case? This bill says to me that we will not amalgamate now but that we want to have the provisions to amalgamate. We have not even seen the business case yet. No one has done the numbers to see how they stack up.

So what is the real panic about the bill? I believe—and it has become apparent through the submission process—that when AgriQuality signalled its intention to move into red meat inspection at the end of last year, Mr Mallard came down with a heavy hand and said: “You dare. You dare do that.” He warned AgriQuality and, as a consequence, he may well have breached a Commerce Commission law. Now we have a mad panic to try to get this bill through, because Mr Mallard has come down with a heavy hand on AgriQuality right in the area where he should not be.

It interesting that in 2006 Mr Mallard wrote to all the State-owned enterprise chairs saying: “I think you should diversify and get into a few other areas—so long as it is within your area of business.” On one hand Mr Mallard is saying that they should diversify. Would we want to see Landcorp actually setting up a milk plant with taxpayers’ money and competing against Fonterra? The answer would surely be no. Mr Mallard is out there saying: “Have a go, have a go. Diversify.” Then on the other hand he wants to see State-owned enterprises merged into one identity.

The real concern we have with this bill is that it has been rushed through. It will affect farmers’ bottom lines. I do not think that has been talked about today. We have heard from the trade unionist from the Labour Party movement that it will be wonderful for its people. But it will not be wonderful for the people who are producing the product and who will have to pay higher fees for meat inspections and higher amounts for TB testing. That will roll on and mean that the people buying meat in the supermarket will have to pay higher prices for it.

One of the things I also want to raise is the weather bombs we have had recently in Northland. When we think about and analyse a State-owned enterprise and a Crown research institute that should be working closer together, the example that springs to mind is the Meteorological Service and the National Institute of Water and Atmospheric Research. The National Institute of Water and Atmospheric Research has a multimillion-dollar supercomputer model that can predict weather bombs—particularly flooding events—12 to 36 hours ahead of the Meteorological Service. But, hello, the Meteorological Service has the contract for weather forecasting, so the National Institute of Water and Atmospheric Research Ltd is hamstrung from putting out this information to the people who really value it in our provincial rural communities. We have there a State-owned enterprise and a Crown research institute. We have Mr Maharey on one and Mr Mallard on the other. There is tremendous infighting there. We do not have that coming into Parliament to be sorted out.

In Asure and AgriQuality, we have two State-owned enterprises that are performing extremely well, and the National Party has a real concern that this legislation is being rammed through at a great rate of knots with very poor consultation. The Minister of Agriculture, Mr Jim Anderton, should be appalled that he would not meet some of the key industry people to even hear their position. National has real concerns with this bill and that is why we are opposing it.

R DOUG WOOLERTON (NZ First) Link to this

New Zealand First supports the proposal to amalgamate AgriQuality and Asure either now or in the future. As the speakers do their stuff, we are starting to hear a few of the underlying problems coming out. I want to reiterate some of the things that Maryan Street said. One of them is that these demands are those of other countries. These demands are those of other Governments that will not deal with private enterprise. They will not deal with private contractors. They will deal with Government agencies—

GORDON COPELAND (United Future) Link to this

On the first reading of this bill—the State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill, which United Future supports—I proceeded on the assumption that Asure New Zealand Ltd was undertaking red meat inspection services, on behalf of New Zealand meat exporters, in a manner akin to what the Customs Service undertakes for imports. I was probably misled by the name “Asure” into thinking it provided assurance to exporters that our vitally important meat exports meet all relevant health, safety, and quality standards as set by the regulators within those markets—the main markets being the European Union, China, and the USA.

However, that has proved not to be the case. The New Zealand regulator is actually the New Zealand Food Safety Authority. That agency sets the quality standards and other standards for our red meat exports. The inspection services themselves are carried out by Asure, and are audited by the Ministry of Agriculture and Forestry. Importantly, the costs involved in providing the services of the New Zealand Food Safety Authority and the Ministry of Agriculture and Forestry are met by the taxpayers of New Zealand, but—and this is an important point—the cost of the actual meat inspections are met by the meat growers themselves. It is Government policy—and this was actually reaffirmed by the Minister in charge of the New Zealand Food Safety Authority, the Hon Annette King, a couple of years ago—that such red meat inspection services can be undertaken only by the Crown. So when those realities became clear to me, it likewise became clear that the effect of this bill will be the deliberate formation of a State-owned monopoly for red meat inspection services.

The bill enables that by overriding the Commerce Act by forbidding AgriQuality Ltd, also a State-owned enterprise, to compete with its fellow State-owned enterprise, Asure, in the provision of meat inspection services. That in itself is contrary to the provisions of the Commerce Act. So in forming this monopoly it is necessary to override the provisions of the Commerce Act. That is unacceptable to United Future. We believe in free and competitive markets, which is why we voted, for example, to bring an end to Telecom’s monopoly over the local loop for telecommunications services.

It is obvious, I think, to anyone who has studied competition law that a monopoly always carries with it the risk that price gouging will follow, and also that quality will drop. In the absence of a competitor, why should a company not try to get from the market the maximum possible price, and why should it care too much about quality? In this particular case, quality will not be an issue. I have no doubt about that, because as I have mentioned we have the New Zealand Food Standards Authority and the Ministry of Agriculture and Forestry auditing the quality of red meat inspections. Nevertheless, the creation of a monopoly, in terms of the price that can be charged, along with the possibility of price gouging, put New Zealand farmers—the producers of our multibillion-dollar meat exports—in an untenable position. They cannot sell meat until it has been inspected, so a monopoly in those services means that they are forced to pay whatever Asure chooses to charge. Asure, in the absence of competition, has no incentive to minimise costs and no incentive to be efficient. That, in our view, is completely unacceptable.

Accordingly, United Future has made its support for the bill subject to two conditions. The first of those is that 3 years from the enactment date, the Commerce Commission will review the position to ensure that the prices being charged conform with the general principles of the Commerce Act. The second is that the New Zealand Food Safety Authority will be authorised to continue to negotiate with New Zealand's trading partners for the competitive supply of export red meat inspection services by private sector organisations. Should those negotiations be successful, the Government will then permit competitive tendering to occur for those services.

I need to give some background as to what has been happening. The Meat Industry Association, in association with the New Zealand Food Safety Authority, has been in negotiations and discussions with our major export markets—the European Union, China, and the United States of America—for some time. The association has been saying that, because of the quality assurance that is already in place through the New Zealand Food Safety Authority and through the Ministry of Agriculture and Forestry, it would make sense to open up red meat inspections themselves to private sector operators. The association is gradually convincing those markets that that could go ahead. If that happens, then of course the association wants competition to come in, for the reasons I have mentioned, so that farmers prices remain reasonable. So we were delighted when the Government saw fit to agree to those conditions, and I will move an amendment to that effect in the Committee stage of the bill.

I am grateful that both New Zealand First and National have signalled that they will give their support to the amendment, ensuring it they will be accepted with wide, cross-party support in this Parliament. This kind of initiative is becoming a bit of a habit for United Future, in bringing some much-needed rationality to the polarisation that sometimes occurs when the two old parties fail to address issues in a reasonable way, and instead go back into their ideological bolt-holes. It is very good from that point of view to be working with people like those from the Greens and the Māori Party, who are also prepared to come to things with somewhat more of an open mind. That is a good initiative.

The net result of this is that subject to those conditions that I have outlined, which will be in my amendment, it will ensure that costs to farmers are minimised, through competition between Government and private sector providers, to the benefit of New Zealand’s vital multibillion-dollar meat exports.

I thank in particular the Meat Industry Association, and also Federated Farmers, Business New Zealand, and the Deer Farmers Association for the very sound submissions they made to the Commerce Committee on this issue. Their arguments were well presented, logical, and reasonable, and I am very pleased that the House seems now to be on track to accept those arguments, which will enable the bill to proceed.

The bill also provides for a merger between AgriQuality Ltd and Asure. The bill does not mandate it; it simply says if a feasibility study, a cost and benefit study, and so forth, support a merger going ahead, then the legal authority will be there for those two State-owned enterprises to become one. United Future has no particular view about that. We would be guided, as the bill provides, by those preconditions being met. It may be that merging these two State-owned enterprises is a move in the right direction. Our position is one of neutrality in that regard.

So really, having addressed the issue regarding the important meat inspections aspect, having assured ourselves that the pathway is there to at least open up the possibility of competitive services for red meat producers—thus ensuring that we continue to maintain our competitive advantage in respect of our meat exports—we are, generally speaking, very satisfied indeed with this bill.

I mentioned earlier that our three main export markets for red meat are the European Union, China, and the USA. It may be, for example, that China is the first major market to agree to the provision of red meat inspections by private companies, something that the Chinese Government—amazingly, given it is still officially a communist government—is now very open to. Should that occur, and when it occurs, those plants that are producing meat exclusively for the Chinese market, for example, with Government support will be able to seek competitive tenders for red meat inspections in those plants. On the other hand, a plant that is producing red meat for, let us say, both the Chinese and the European Union markets may or may not be able to avail itself of those competitive tendering processes at that point in time. One can foresee a situation where China may agree in a year’ s time, but the European Union might be 5 years away, and the USA might be 7 years away. But eventually, I think, because of the logic of the case, it should happen. When it does happen, our red meat producers will be assured of the best possible prices and the most efficient delivery of red meat inspection services, whilst continuing to adhere to the high standards now demanded by those markets—standards that today mean that those markets basically want traceability from the farm paddock right to the plate of the consumer. We will be able to deliver that kind of assurance to our important overseas customers. Thank you.

TE URUROA FLAVELL (Māori Party—Waiariki) “) Link to this

Tēnā koe, Mr Speaker. Kia ora tātou katoa. In preparation for this bill, the State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill,our caucus had a deep and meaningful discussion, with all the members wanting to make this speech. We usually farm out our speeches, but in this caseeveryone except Mrs Turia came at it like a bull at a gate. When I asked Dr Sharples why he wanted to make the speech, he admitted that they had notherd”muchabout the topic. Hone Harawira said that he needed to take some stock, and decided that he was a fence-sitter and would leave it. Mrs Turia suggested that I am a cow because I get to deliver all the good speeches. So here I am to ram home some specific points. In the end, my declaring that I would makethe speech myself was really putting the lambs to the slaughter. All I can say to my colleagues is “grass-ias”. Actually, I made no race of it.

The Māori Party is interested in considering the implications of a possible merger between AgriQuality Ltd and Asure New Zealand Ltd.Last week, in our lead-up to Budget week, we released our Treaty settlement package, which included the proposal to consider joint ventures with State-owned enterprises along with innovative approaches to other forms of development. “Shearing” resources is a good idea. The Maori Party is interested in “moooving” to investigate the full range of approaches to respond to settlement priorities, and a joint venture with a State-owned enterprise is an idea that many of our iwi are interested in. It is not about pulling the wool over your eyes—not at all, Mr Assistant Speaker. What we are interested in is the best interest of the nation.

“Ewe” know, Mr Assistant Speaker, that what we see in the case of AgriQuality and Asure New Zealand is their commitment to succeed as commercial trading enterprises. Clearly, they are committed to making hay while the sun shines.They are required under the State-owned enterprise model to operate as successful businesses, and although they return a dividend to the Crown as a shareholder, they nevertheless operate on a commercial basis.

In the case of AgriQuality and Asure New Zealand we indeed see ample evidence of commercial success and it would be “udderly” silly not to support this.The New Zealand meat industry is, by anyone’s estimations, more than an essential part of our economy. The industry has beefed itself up over time.Anyone who would deny the reliance of our economy on the $5 billion in export revenue earned by the New Zealand meat industry, or the $1.22 billion earned from domestic meat sales over the last year, would have to be more than a lamb sausage short in the great “bah-bah-que” of life.

Of course, Maori feature as the master chefs, the producers, the marketers, the exporters, the meat processors, and, of course, the consumers. There would not be a marae or a Māori home in which the classic cuisine, the all-time favourite boil up, has not appeared on the menu. Surely most have “Hereford” of it before! We know that the annual contribution of Māori primary sector producers to the GDP is now very significant, “paddickularly” when Māori agribusinesses are demonstrating considerable commercial success. There is also significant involvement of Māori working in the plants. Some would estimate it at about 80 percent of the workforce.

We come to this bill, then, aware of the undeniable profits that accrue to the economy from the meat supply chain. The sheer volume—some 24 million lambs, 4.4 million sheep, and 4.2 million cattle and calves are processed and slaughtered every year—is phenomenal. Since the first sheep landed in Aotearoa in 1773, courtesy of Captain Cook, and settlers flocked to this land, we have developed a reputation as a land of milk and honey, primarily due to the export meat industry.

When we spoke during the first reading debate on this bill a mere month ago, we spoke in favour of the possibilities of achieving economies of scale. There was “farm” more here than “meats” the eye! We considered the possibilities that a merger could yield—benefits such as lower operational costs and higher profits. As the Commerce Committee report noted, bringing the two key entities of the meat industry together under one stand shepherds in the distinct possibility of a strengthened link between meat inspection services and other components of the meat supply chain. Now, this is really cutting to the chase.

The Māori Party anticipates that with such a high level of expertise and cooperation we should expect to see improved information flow, innovations, and use of resources; better coordination of skills, experience, technology, and infrastructure across the food and agriculture markets; scale-related efficiencies from having a single national service provider; and additional revenue opportunities from offering integrated quality assurance services to the wider food industry, amongst other factors. We supported the first reading knowing that AgriQuality and Asure New Zealand are currently the only entities that are able to, in practical terms, provide export red meat inspection services. Competitors get slaughtered or left cast.

It would seem from all probabilities that a merger could maximise the commercial and non-commercial ownership benefits of both. With the market success of these two State-owned enterprises, then, how major will be the impact of this bill in preventing the State-owned enterprise AgriQuality from providing export red meat inspection services? What provisions might be needed to ensure that AgriQuality will not be in competition with Asure prior to any merger, or are we just flogging a dead horse? What precisely will be the ramifications of the net cost incurred to the Crown as the owner of both AgriQuality and Asure if some competition were to occur? Would we be milking the system or creaming off the profits?

Those are the sorts of questions we have fielded. Although it would appear to be very good business sense for the business case of AgriQuality to not be in competition with Asure New Zealand, we know that there are some concerns associated with the ante and post-mortem meat inspection services, the downstream impacts for the global food safety regulatory environment, the implications of virtually creating a Government-sanctioned monopoly on the provision of meat inspection services, the risk of rising costs for purchasing such services, and wider precedents attached to the management of State-owned enterprises.

We also note with frustration the all-too-familiar concern about what the Meat Industry Association described as the “extraordinary haste” of the process of receiving and hearing submissions and reporting back to the House, and the lack of involvement in a process spanning some 4 years. Well, welcome to our world. We note that such concerns have led United Future to submit additional clauses to guarantee, by way of review, that the prices charged will conform with the general principles of the Commerce Act. We are also aware that a number of the submissions received described concerns that the bill did not contain either a business compliance cost statement or a regulatory impact statement. The submitters views were that they had not been given sufficient information on the impact of the bill.

We in the Māori Party are among the list of groups who were not offered the opportunity for consultation on this bill—a process that began in 2003, yet raced through the House in a timetable of a month. We bring to this bill a prevailing interest in a genuine progress index, which weighs up the costs, measures the benefits against the deficits, and leads us to consider other questions. Although we recognise that primary beef and sheep production are key features of our wealth, we also know that that wealth is dependent on the exploitation of our natural capital—our soil, our water, and our air. We will continue to support this bill at its second reading, but we intend to carry out our own consultation within the sector in order to consider our final position, and to shed some light on the concerns before this bill comes back to the House. Kia ora tātou.

DAVE HEREORA (Labour) Link to this

Kia ora, Mr Assistant Speaker. I take this opportunity to stand and take a call in the second reading debate of the State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill. Before I go on to my comments, I want to thank the previous speaker for his rendition and his attempt to pull the wool over our eyes by shearing the Māori Party policy on the hoof.

The Labour Government prefers to see State-owned enterprises collaborating and coordinating their activities to provide a quality service rather than competing at a cost to the taxpayer. The bill will prevent direct competition between the two State-owned enterprises in delivering export red meat inspection services.

I think it might be good sense to talk about the issue of competition and the fear of a monopoly. I think back and recall that in the late 1960s and throughout the 1970s, particularly within the meat industry, we were seriously faced with being locked out of the European market. To be phased out of that international market in terms of our red meat exports would have been a huge blow to us as a country.

I recall vividly that at that time the meat companies gathered together, along with the freezing workers, to analyse the problem and ensure we maintained the opportunity to export to the European market. Both groups set up a committee that was tasked with ensuring that we were able to meet the various standards required, particularly by the European market. The conditions that the committee placed on upgrading the entire export plant were huge. The conditions not only referred to ensuring confidence in the inspection of our red meat but also to the handling of meat, the manner in which it was stored, and to the whole plant in terms of cleanliness and standards that were required.

It took about 3 years during the 1970s for us to get those plants up to a standard that was acceptable to the European market. I recall very clearly travelling to the Moerewa freezing works, Hellabys in Auckland, the Southdown freezing works, and the freezing works in Horotiu and Rangiuru as a part of our own internal inspection to ensure that we were meeting those standards, and to make sure that those workers, particularly the freezing workers, were up to the level and standard of meat handling required by the European market.

We managed to do that, and as part of the ongoing inspections from the European market they came regularly, like clockwork, every 3 weeks to every plant to ensure that the plants were delivering those standards to their requirements. I use the chillers as an example. In those days chillers were buried in concrete. If a chiller buried in concrete was not covered by any white substance, then it would be shut down. Hence the plant would be shut down. That was a real threat at the time, and there had to be some genuine attempt to ensure we gave the European inspectors confidence that we were able to deliver on the standards they wanted. We went through that process in the 1970s.

Also, as a part of the strategy, I suppose, with the meat companies, we lifted our standard beyond their standards. We had to, to ensure we delivered. We found that there was a subtle change to the second tier of the meat inspection criteria through the State-owned enterprises being formed—I think that was in 1998—to perform separate functions. Asure was set up to deliver meat inspection to the meat industry, and AgriQuality was established to provide auditing of food production systems, laboratory testing—including TB testing—and stock movement control.

We viewed that as a second tier to implementing our own standards, but the importance of that second-tier introduction was to ensure that our meat inspection was maintaining that standard and quality required by those markets. To do that, Governments had to have some management and a watchful eye and control over that process. We heard earlier from other speakers that that is done through the New Zealand Food Safety Authority, and we are now enjoying the safety of our red meat exports and the confidence of European and international markets. There is safety and confidence—we have no problem dealing with them, because they have confidence we are delivering to their standards. The fear with the creation of competition and the issue surrounding a monopoly is that it may damage that standard. It may lower that standard, thus putting us back into the awful situation where we may be faced with having to lose that export market. That is the last situation, obviously, that we want to find ourselves in.

So this bill is designed to ensure we prevent direct competition between the two State-owned companies in delivering export red meat inspection services. The bill also authorises the shareholding Ministers to issue a direction to AgriQuality preventing it from providing export meat inspection services. It enables more effective and efficient biosecurity response capabilities, which is a must, and it enables a merger of the two companies should that be viable to benefit shareholders and the New Zealand economy.

In the very short time I have participated in the Commerce Committee’s hearing of evidence from submitters, I took note of the concern, particularly from the Public Service Association, that a change could bring about a reduction to meat inspectors’ terms and conditions of employment. I do think we need to be conscious that we maintain—particularly if there is a transfer of undertaking—the opportunity for those meat inspectors to enjoy the same terms and conditions of employment. This bill is designed to ensure that they stay within those ramifications—those limits—and that they enjoy the confidence of being assured that their terms and conditions stay in place. Also, I do not think we should put ourselves into a situation where we become vulnerable and might be faced with redundancies that may cause an extra cost if we were to look at another opportunity or option. Without specific legislation, the Minister cannot order a direction to AgriQuality to prevent it from providing export red meat inspection services. The competition between both companies may erode shareholder value through potentially high redundancy costs, as I mentioned. The legislation is required to allow for a possible merger, providing that shareholder Ministers are satisfied that such a merger is viable.

I also want to talk about the position taken by United Future, as noted in the report of the Commerce Committee. United Future made two points in the amendments it put forward. The first is: “That three years from the enactment date the Commerce Commission will review the provision of meat inspection services to ensure that the prices charged conform with the general principles of the Commerce Act 1986.” It appears that we do not have a major problem with that. I think we should have an opportunity to review it, and I am sure there should not be any problem supporting that. The second point is: “Notwithstanding this Act, the New Zealand Food Safety Authority is authorised to continue to negotiate with New Zealand’s trading partner or partners for the recognition of the competitive supply of export red meat inspection services by organisations other than the Crown. Should such negotiations be successful, the Crown shall permit competitive tendering to occur for those services.” That primarily relates to the option that the bill provides, as time progresses, of merging, if that is the case. I think the bill before us is a good bill. It provides some confidence and some security in our red meat inspection. I commend it to the House. Kia ora.

LINDSAY TISCH (National—Piako) Link to this

National’s position is well known. We will be voting against the State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill, as previous speakers have said. However, we will be supporting Gordon Copeland’s amendments. We think they are a desirable move, and we will be supporting them during the Committee stage.

The bill provides a mechanism to prevent two State-owned enterprises—AgriQuality Ltd and Asure New Zealand Ltd—from competing against one another in the provision of red meat inspection services. It is interesting that in June last year the Minister for State Owned Enterprises talked of flexibility and of how there needs to be competition. Yet AgriQuality Ltd did exactly what the Minister said last year should happen—it signalled its intention to move into the field of meat inspection—and now this bill comes along to prevent that from happening.

The Government is also considering in the bill the possibility of merging AgriQuality and Asure to maximise both their commercial and their non-commercial ownership benefits. The business case for a merger still has to be established. The economic benefits from a merger are expected to come from the establishment of a single, integrated provider of services related to primary sector food safety and biosecurity. That provision of the bill expires 2 years after the date of assent.

National opposes the bill. We believe in competition. We oppose the bill but will support, as I mentioned, Gordon Copeland’s amendments on behalf of United Future. I mentioned earlier that last year the Minister for State Owned Enterprises wanted to move away from Asure’s monopoly on red meat inspection, and said that there should be the flexibility for State-owned enterprises to be able to compete. Already, in the energy sector, we have State-owned enterprises that compete. In the North Island we have Genesis Energy and Mighty River Power on the Waikato River, and in the South Island we have Meridian Energy. These three State-owned enterprises are State generators that compete in the energy market. So why can we not have competition within the meat inspection area? It is about providing meat inspection services to the meat industry, which is a $5 billion a year export market and is very important to New Zealand’s economy.

AgriQuality took up that challenge last year to move into the market of meat inspection. Unfortunately, this bill will stifle that initiative and not allow it to happen. Clearly, the Minister thinks that competition is duplication. That is not something we subscribe to. National considers that the loss of competition is not in the primary sector’s best interests—that it could lead to lack of innovation and an increase in the costs of red meat inspection—

MOANA MACKEY (Labour) Link to this

I am happy to take a call on the second reading of the State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill. I agree with the previous speaker, Lindsay Tisch, that the Meat Industry Association Chairman, Mr Bill Falconer, is indeed a highly regarded individual. I was most pleased to read his comments about the amendments to the bill, which he says take away the bulk of the industry’s concerns. That is very good news and I thank Gordon Copeland for the amendments he brought to the House.

This is a very important bill. I was not a member of the Commerce Committee, but I am a member of the Primary Production Committee, which has dealt with the financial reviews of AgriQuality Ltd and Asure New Zealand Ltd over a number of years. Asure has come before the select committee on a number of occasions. I think AgriQuality has come before the select committee every year for about the last 5 years, at least. They are certainly two organisations that we on the Primary Production Committee know very well. Of course, I also used to work for AgriQuality Ltd. It is an organisation that I have quite a bit of knowledge about.

Certainly one of the concerns that has been raised over a number of years is the idea of two State-owned enterprises coming into the same market together. I do not believe that this ensures real competition in that area, and let us not forget that this is a unique area. It is not really an open market. A lot of what we can and cannot do in this area is dictated by international agreements and international regulatory authorities that prefer to recognise Government authorisation schemes. It is also true, though, that the Government is not in any way opposed to the private sector being involved in this, but it would need to be accepted by the overseas international regulatory authorities that decide whether our processes are good enough to allow our products to be imported into their countries. That is the most important thing. The last thing that anyone in this House, across the board, wants is for our export markets to be affected. So we do need to tread very carefully.

But let us be quite clear that this is not open slather in the open market right now, anyway. What we are asking is where is the sense, the logic, and the value for taxpayers’ money in having two State-owned enterprises―two taxpayer-owned enterprises―going into the same area. This is not an uncommon problem in the sector. Great changes happened in this sector in 1998. AgriQuality split away from MAF Quality Management into its own company. One might have thought that at that stage people would anticipate some of these problems arising. My understanding is that at that stage, the meat inspectors all worked under one ministry. What we have seen since then, with the splitting off and the corporatisation of this area, is big problems when contracts are lost by one company and picked up by another, with workers potentially being laid off, and redundancies being paid out of that taxpayer investment, only to be then picked up by the other State-owned enterprise and re-employed. I do not think there are many people out there who would think that is a good investment of taxpayer money at all.

Of course, this legislation also deals with a possible merger of AgriQuality and Asure. It is by no means certain and a lot of water will go under the bridge before that happens. It is certainly not a new idea. It has been kicking around for a long time. AgriQuality, through its annual reports and statements of intent, has made no bones about the fact that it has been very keen on a merger with Asure for a long time. It sees a lot of strategic value in that because, after all, AgriQuality works on the premise of “from the farm to the fork”. It has a fantastic network across all the farms of New Zealand―a great database. I am sure the services provided by Asure could be greatly enhanced by the intellectual property that AgriQuality already owns. I think that over time we have seen a continuing overlap of the services that these two organisations provide.

Last year, the select committee visited Asure in the process of its financial review. I have to say that it is an enormously impressive organisation. The service that it provides really is first class. Of course it is not just the inspection of the meat that is carried out. There is also inspection of the plants in order to ensure that we never face barriers into overseas markets because of the quality of the product and the quality of the plants that the meat is going through. When one goes there to see the work that is carried out, one realises, as the staff in the plants go over thousands and thousands of carcasses looking for a single speck of dust, just how efficient and just how careful they have to be in carrying out that work.

When we visited the plant, we talked to meat inspectors who were on the floor while they were having their break. They told us that it is a constant concern to them that they may be shifted from one organisation to another with very little notice. Often these contracts are handed over quite abruptly. It is a very work-intensive area. When they have a lot of work going through they work very, very long hours. Certainly, they relayed their concerns that, in terms of their job security, they were constantly worried about contracts being handed over. They accepted that that was an important part of that process and that those services needed to be tendered out, but they felt that this was made even harder in the knowledge of the fact that it was another State-owned enterprise that was tendering against them. The question about whether that was appropriate was being asked even back then.

Coming back to the United Future amendments, I think they are very sensible. It is important that, if we come down to one organisation and if Asure is the only organisation carrying this out, we can have an assurance from it that the prices are not going to spiral because we now have this enormous monopoly. I have seen Asure staff come before our select committee; I have seen their work ethic and the work they carry out in their business, and how seriously they take their commitment to the primary production sector. They really do see themselves as a very important part of that sector. They hold enormous respect for it, as the rest of us do. They appreciate, as the rest of us do, the importance of that sector to the New Zealand economy. I think it is unfair to suggest that they are suddenly going to want to strip—to gorge—the sector of cash and to damage the sector in any way. Any one who has visited Asure and who has talked to its board and its management team would be able to say that the commitment of Asure staff to this sector is undeniable, and that they are not out to rort the sector for every cent they can get. But I still think it is wise to have prices subject to Commerce Commission scrutiny, and I am sure that that will be welcomed by many members in the House.

The second amendment just reiterates that the Crown will permit competitive tendering for services if those overseas authorities that we talked about recognise the private provision of export meat inspection services. I think it is important not to put the cart before the horse here. It is important that we continue to get our product into overseas markets. If overseas regulatory authorities are not going to accept private provision of these services for any reason, then that has to be the guiding factor in any decision by the New Zealand Food Safety Authority to allow private provision in that area. As we know, the New Zealand Food Safety Authority is negotiating with overseas authorities to gain acceptance of these private sector operations. I think that would be a good step forward and I welcome the amendment that makes it explicit that there is nothing precluding that from happening. It is important also to point out that it has been questioned that the quality of this meat inspection might suffer if there is a monopoly—if Asure New Zealand only is carrying it out. Of course, this is audited by the New Zealand Food Safety Authority and by the Ministry of Agriculture and Forestry, and the quality will not drop in relation to that.

One final thing is TB testing, which is one of the concerns that has been raised again if there is to be a merger of AgriQuality and Asure. There is a lot of water to go under the bridge before that happens, but a lot of the contracts to 2009 are set. The conditions in those will remain the same, and there are already actual and other potential private providers of this service who could come into the TB industry. So it is not really comparing apples with oranges to compare the meat inspection industry with the TB testing industry.

I reiterate that I think these were inevitable pitfalls in the corporatisation of this sector. They should have been thought of at the time and we are working through them now. Both AgriQuality New Zealand Ltd and Asure New Zealand Ltd definitely view themselves as an integral part of the primary production sector. They both work very much as a cog in that wheel, and I think any suggestion that they would be out to sabotage the sector is grossly unfair.