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Government Costs Associated with the Implementation of New Food Regulation

Executive summary

Food Standards Australia New Zealand (FSANZ) is an Australian Government agency that develops and administers the Australia New Zealand Food Standards Code (the Code). The Code is implemented and enforced by state, and territory agencies, the New Zealand Ministry for Primary Industries and the Department of Agriculture and Water Resources (for food imported into Australia.

The Food Standards Australia New Zealand Act 1991 requires FSANZ to consider costs in decision-making. As a standard setting body, FSANZ is required to comply with the Council of Australian Governments (COAG) regulatory impact analysis requirements administered by the Office of Best Practice Regulation (OBPR). FSANZ is required to submit a Regulatory Impact Statement (RIS) to the OBPR for all decisions made that would encourage, or force, businesses or individuals to pursue their interests in ways they would not otherwise have done, unless the impact is minor.

The Commonwealth Department of Health contracted FSANZ to develop an activity-based costing model for government costs associated with changes to the Code. The model will form part of the response to the Australia and New Zealand Ministerial Forum on Food Regulation (the Forum) for the Review of Food Labelling Law and Policy.

The project has involved:

  • systematic consultation with all Australian state and territory agencies, the New Zealand Government and a number of local government bodies
  • collection of readily available costing information held by agencies and a number of local government bodies
  • categorisation of the implementation costs associated with changes to the Code to the agencies
  • assessment of this data with respect to estimating costs and benefits associated with a change to the Code.

Regulatory impact analysis of a new piece of legislation estimates the impact of changing from the current conditions (status quo) by considering costs that arise from the regulation being incorporated into the existing food regulatory system. FSANZ has examined relationships between changes to the Code and jurisdictional implementation costs. A subset of jurisdictional implementation costs were considered to be out-of-scope because they were not typically required by the OBPR and did not fit within standard approaches to cost-benefit analysis.

From the range of costs considered, three classes of activities were within scope, namely:

  • development of the implementation strategy
  • physical implementation of the new regulation into the food regulatory system
  • ongoing administration of the regulation.

A Government Implementation Cost Framework (the framework) was developed in order to perform two functions. The first function was to help determine whether the jurisdictions’ costs were material to the regulatory impact analysis and so required expression in monetary terms. The second function was to estimate the size of the jurisdiction’s net cost if necessary. The framework comprised an indicative materiality tool and a costing tool. The project has found a number of consistent factors that influence the jurisdictions implementation costs. These include:

  • whether the industry is presently regulated and the level of that regulation
  • the number of businesses affected by the change
  • the skills and systems that industry may already have in place to manage the new regulatory requirements
  • if food safety plans need to be changed, or put in place, in order to comply with any Code changes
  • whether the changes are required to be legislated or gazetted by the jurisdictions in order to legalise the changes to their food safety system.

If the factors listed above are unlikely to be material to the jurisdiction’s costs then a quick decision can be made to limit research effort to more relevant areas. Increasing the number of the above factors involved increases the likelihood that the jurisdictions’ implementation costs will be a significant component in FSANZ’s regulatory impact analysis and so require in-depth cost review.

Effective models require balance between accuracy, reflection of real-world issues, reliability, and ease of use. The usability of the materiality tool is enhanced by using proxy measures to indicate ‘the complexity of the change to the Code’, and ‘the level of the regulatory sophistication of the affected businesses’.

The costing tool is built around information and data provided during consultation with the agencies. The tool is based on a simplified activity-based costing approach. The values calculated using the model will act as a starting point for further discussions with jurisdictions.

This approach allows costs to be calculated by identifying the activities involved in implementation and assigning a cost to each activity, based on required resources.

It is anticipated that the framework will be refined and developed over time with the collection of improved costing data and increased experience in estimating government costs, and this will assist FSANZ in optimising regulatory design. It is FSANZ’s intention that this ongoing process will take place in close partnership with the food regulators.

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