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

I am keen to get some answers in relation to some questions that I raised in the first reading of the State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill. You see, there are a number of things I do not understand, and there are things that I need to get my head around in terms of some quite significant issues that concern not only the meat industry but the way in which we conduct an assurance programme, because that is what these two companies, AgriQuality and Asure, are responsible for. There is also an issue in respect of contract work with the Animal Health Board, and my colleague the Hon David Carter has tabled a Supplementary Order Paper on that, which I am sure we will be talking to later.

In the first reading of this particular bill I asked the Minister to outline why these two companies needed to be merged, and why we were debating this legislation. National intends to oppose the legislation unless good reasons are given as to why this is the best way forward. I say to the Minister Trevor Mallard that the two elements that we need to have identified—

💬 Hon Trevor Mallard: The member intends to oppose it anyway.

The Minister should just listen to the question. He needs to explain why this is happening, then assure us that a merger is the best way of resolving that problem. Those are the first two points that we would like some answers on. Let us be quite clear that New Zealand is totally reliant on a robust system that gives assurance that we comply with the Codex Alimentarius code of practice, and that the products that we export are safe, wholesome, and, as I say, meet all of the requirements of Codex Alimentarius. I do not think there is any doubt in regard to that.

The second thing is that we need to be assured that removing competition will improve the service or bring about some cost savings. I say to the Minister that this is where I am totally confused, because if I read the explanatory note of the bill as it was introduced, I see that at the end of the second paragraph it states: “The Government wishes to prevent this competition from occurring as it considers that it would result in a net cost to the Crown as the owner of both AgriQuality and Asure.” I ask the Minister to explain—and I look forward to his response—because this is where I see the contradiction. The Minister himself has introduced a Supplementary Order Paper, and it is almost as big as the bill itself, which I have some real difficulty with. So it seems to me that the legislation was not thought through before it was presented as a bill—that is the only conclusion I can draw from that.

The explanatory note of the bill states that the Crown does not want competition—and I am looking forward to the explanation on that—but the explanatory note at the end of Supplementary Order Paper 120 in the Minister’s name contradicts that position. The explanatory note, which is on page 3, states: “New subpart 4 provides for the Crown to continue to negotiate with its international trading partners in order to allow animal material and animal products examination services to be provided by agencies other than the Crown.” But the explanatory note of the bill itself says that the Government does not want competition—

💬 Hon Trevor Mallard: Are you for or against it, Eric?

I am absolutely, unequivocally for competition as a model that drives both good outcomes and cost compliance, is cheaper, brings about innovation, and reduces significant costs. That is what I am for. I am not for a contradiction that occurs between the bill as tabled, which we debated in the first reading, and the Supplementary Order Paper.

So I say to the Minister that I need to know just why on the one hand he is saying that competition will bring costs to the Crown—I want to get my head around that and understand that—and on the other hand, in new Subpart 4, he is contradicting that position. Is this just some kind of tease or enticement for us to accept the bill, an enticement that the Minister will never enact? I ask the Minister to please respond.

The answer to the first question is a relatively simple one. When we have two State-owned enterprises with a large workforce in one and competition from the other, we have in place a very clear redundancy arrangement. If any significant work shifts from one to the other, then tens of millions of dollars in redundancy gets paid. It could well be the case that the same workers end up working for the other company, or inexperienced meat inspectors end up working for the other company, and the Crown or farmers going forward will bear the cost of that. I think that is not a good cost to bear.

💬 Eric Roy: We will take the risk.

The member says he will take the risk. He might want to take the risk with taxpayers’ money; I do not.

This may not be a very long call. I think the Minister in the chair, Trevor Mallard, raises an interesting point. He says that I may well be prepared to take the risk. At the end of the day, the person—the farmer or the supplier—who supplies the product about which this assurance is given does pay the cost. It is a deduction from the product at the end of the day. That is the very point that I wish to represent to the Minister: that in fact it is the farmers, the suppliers of the stock, who pay at the end of the day, and they have a very clear view that they want competition. I tell the Minister that I am not persuaded that this redundancy thing is a huge issue.

In terms of the meat industry assurance issue, these people are sometimes contracted in. They are not all employees of each agency; they operate on fixed contracts. Is that not right? The Minister can respond to that question.

💬 Hon Trevor Mallard: No. They are employed by Asure.

Well, then, on the second point of significance, the animal health work, contracts are let for animal health, I think in the vicinity of about $70 million per year now, and we must get that down to the prescribed level of 0.002 percent, or whatever it is—it is absolutely critical that we do that. This is the second element that I have some significant concerns about: we are reducing away the competitive model of delivering that service, and the people out there are contracted. I ask the member to consider the Hon David Carter’s Supplementary Order Paper, which says to separate that bit out. If, in fact, it is an issue that is so significant that it drives the decision-making about the assurance programme under Codex Alimentarius, then separate that argument out and look at it as a separate argument for those agencies that are tendering to do the Animal Health Board work in terms of vector control where there is a TB situation. Can the Minister respond and say whether he is prepared to separate that out, if, in fact, it is an issue on the first point?

Going back to the original point, I think the member is making too much of the question of competition in this area now. There is one supplier. It is a State-owned enterprise. In just about every competitor country there is one supplier, and that supplier is a Government department. The reason is that people internationally, generally—not universally, but generally—require meat to be inspected by a responsible Crown agency or a State—

💬 Hon Members: Certified.

Yes, a certified one. But the requirements from the US and from Europe at the moment—at the moment—are that it be a Crown agency. That does not look likely to change, because people internationally have seen shonky certification—

💬 Nathan Guy: Not from here.

I accept what the member says. That is why when—and I think it is unlikely the member accepts Supplementary Order Paper 120 in my name—and if, there is a shift so that two-thirds of the world accepts private sector certification, we will shift and do it. What we are saying is that we should not hold in place an artificial competition that does not exist, because there is only one supplier at the moment in this particular area.

On the Animal Health Board question, I tell Mr Roy that every time a contract comes up, it attends. That will continue to be the case. There is no change in that area. There is no change if either Asure New Zealand Ltd or AgriQuality Ltd have a contract at the moment; the new company will do it. When it comes to the end of that contract and it is up for tender, there will be, as there is now, private sector competition with it, and that will continue to be the case. So, frankly—

💬 Nathan Guy: So you support this SOP?

No, no; David Carter’s amendment undoes current contracts. His amendment effectively says that Asure has a contract for now, but, because the companies are going to merge, the contract will be taken off it, and I just think that is a nonsense.

Speaking to the State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill, I appreciate the Minister’s being so forthright. It is refreshing and quite candid of the Minister to come out and answer those questions. But I would like to say, as we consider Part 1, that I think it would have been a lot better had the bill gone to the Primary Production Committee. I would like the Minister to tell us why it did not go to that committee, because those organisations, those State-owned enterprises, in effect come before the Primary Production Committee, and we as farmers find it quite challenging to be a third party to a lot of the debate.

Really, when we look at the bill, we look between the lines—to borrow a line from Minister Maharey today—and when we see that the Government wishes to prevent this competition from occurring because it considers it would result in a net cost to the Crown, we look a bit deeper into some of the activities that we know about in relation to AgriQuality Ltd. We want to see why, in fact, the Minister is trying to prevent a State-owned enterprise from going belly up because of the transactions it was involved in, such as Target Pest and things like that.

We do not have a lot of confidence around some of the explanations and trade-offs on redundancies that the Minister speaks about; we look at the side of the debate around meat companies. I pick up some challenges that the Minister, likewise, obviously picks up—for example, that there has to be a measurement of costs going forward, and the Minister talks about the fact that within 3 years there will be a Commerce Commission examination of costs going forward. That can all be forgotten about if the meat companies and the Commerce Commission agree to walk away from it. But I put it to the Minister, as my learned colleague Eric Roy mentioned—

💬 Hon Trevor Mallard: No, he’s not learned; he’s not a lawyer. You’re only learned if you’re a lawyer.

Farmers are very learned. I want some assurance from the Minister that farmers are involved in that process as well, because at the end of the day they pick up the charges around the costs of inspection, slaughter, and so on and so forth. Where Part 1 talks about animal materials and animal products, it is talking about a very large industry—about a $5 billion or $6 billion industry. It is talking about carcasses being inspected for health reasons so that we give integrity and certainty to the quota markets we have, and about materials, which would possibly be by-products and exports into other countries, that also need certification.

But I come back to that original point: why did the bill not go to the Primary Production Committee? That committee does the financial reviews for these organisations. It would have dealt with the bill in a way that would have given comfort and certainty to the agricultural sector and to the farming community as a whole. Farmers, whether or not we like to admit it, are the biggest players in this field. On that basis, I would really like the Minister to try to answer a couple of those questions, especially the one about why the bill went to the Commerce Committee and not to the Primary Production Committee.

I am happy to do that. The bill went to the Commerce Committee because we have a lot of faith in Gerry Brownlee and his ability to chair, and the House made the decision. Members from within parties, of course, could have substituted from one committee to another if they thought they had the expertise to add value, and their whips agreed with them.

New Zealand First supports the State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill, because this bill gives the opportunity to merge those two State-owned enterprises. Those State-owned enterprises, I might say—and the Minister can confirm this to us—had a court case between them that lasted for 6 months or a year, or something like that. It was quite outrageous. As the Minister has said, the competition that people talk of here as being something dear and wonderful and not to be lost is illusory. This is a situation of a State-owned enterprise competing with another State-owned enterprise that is contracted to a Government agency, and to some other quangos here, there, and elsewhere. So the competition is illusory, and even the Supplementary Order Papers we see in front of us are couched in terms of providing some competition at some time in the future. In the case of the Minister’s Supplementary Order Paper, that will be when two-thirds of the industry agrees to that.

The industries we are talking about are industries that export their product overseas, to countries that do not like the meat they import to be ticked off by a bunch of cowboys down in New Zealand. They want the Government’s stamp. OK, they are happy enough with a State-owned enterprise’s stamp, because they understand that that is a Government stamp. But it is they, not we, who are demanding those things, and I think that it makes a lot of sense to merge the companies, even though this bill does not do that. It gives the opportunity to do that, and I think there are gains to be made here. When there is no real competition, the only other thing to be done is to get the price down, or to get the costs down of the institution that gives the service. That is what I think is in the Minister’s mind here, and we applaud that. Transparency is a great thing. But the smoke and mirrors business of having two State-owned enterprises competing, and then our saying that we have fair competition in the market, is a nonsense.

I know that when it comes to the TB testing contract, some crunching was going on, following a court case, and so on and so forth. There was an advantage to farmers. Because one chief executive officer basically wanted to stick it up the other chief executive officer, farmers received a good deal.

💬 Hon Dover Samuels: See you later—go on, see you later!

R DOUG WOOLERTON: See you later! But I have to tell everybody, including the Animal Remedies Board, that that was going to be a very temporary thing indeed, and I understand from the Minister’s comments that in any case there will be the ability to contract out those things in the future if—

💬 Hon Trevor Mallard: The world changes.

R DOUG WOOLERTON: —the world changes and there is two-thirds agreement to do so. I do not think that anything is being lost here, and I think that this is a genuine attempt by the Minister and the Government to get the cost of delivering those essential services down.

Before I sit down, I want to give some praise to the people who carry out those duties and the meat inspections. Mr King, I am sure, and others will join with me in that. Those people are involved in a particularly skilled job, in not the most wonderful of circumstances. They do not have heaters at every workstation, or anything like that. Often they are looking for shadows on a carcass. It is hugely skilled work, and our exports depend on those people as well as on others in the chain. I could not make this little speech without saying how indebted to those people we are. I know they are paid well, but they have the skills and we rely on them for the integrity of our product. The product is not cheap; it is quite an up-market product by the time it gets to its destination.

I agree with the last comments made by our colleague from the New Zealand First Party, Doug Woolerton. I often agree with comments he makes, and the last one he made about the important role meat inspectors play and the skill they require is absolutely right. Other than that, I disagree—which is a rare thing—with everything he said in his speech.

I would like to challenge one or two of the proposals put forward by the Minister. One is that because the Crown would be exposed through the redundancy law—or through the potential gaming, I guess one would call it, of the redundancy law—between one Crown entity and another if they were to merge under the Minister’s proposal, we therefore should have a new clause in Supplementary Order Paper 120 that stops that from happening. Yes, I guess that for an Associate Minister of Finance who is protecting the Crown’s asset, that is a responsible position. But the first question that springs to mind is whether a private industry company finding itself in the same circumstance—where a merger is to take place between two entities providing the same service—would get that kind of protection. What we see under Part 1 is one standard for the Government and another standard for all the rest of the workforce.

The second point the Minister made, which is also one that our colleague from New Zealand First made, is that two State-owned enterprises are competing with each other, and therefore this concerns some kind of quango or non-competitive environment. Well, that does not show a failure in the structure; it shows a failure in leadership from the Minister and from the chief executives, who are appointed or employed by the Minister. That is what that shows.

Here are the facts. After the reforms of the late 1990s that set up the current structure, meat inspection costs went down. That is what happened; they went down. There is no guarantee now that those same costs will not go back up once the merger puts the entities back together. What assurance can the Minister give us—and I will be pleased to yield to him so he can give us that assurance—that meat inspection costs will not go up substantially under the new proposed structure that is being put forward here today? Those are the reasons why National is opposing this bill here tonight.

I say to the Minister in the chair, the Hon Trevor Mallard, that there are some problems in this current State-owned enterprise structure. We accept that; I do not think anybody denies it. Some problems occur when the situation arises of two State-owned enterprises taking each other to court. There is no doubt that that is not a well-organised way to run a business. But what is the root cause of that? Is it the fact that there are two entities, or the fact that there is a total lack of leadership? So I ask the Minister whether meat inspection prices will go back up, or will—

The CHAIRPERSON (Hon Clem Simich): Can I just say that the question was that Part 1 would stand part. It covers the interpretation section and the fact that it is hoped the Act will bind the Crown. I think we are drifting a lot. We could, at the outset, have had one debate for the whole lot, but we did not.

I was really responding to the proposal put forward by the Minister. It was clearly—

💬 Hon Trevor Mallard: You don’t want to do it in one debate, so we can then have a broad debate? No? OK, it’s the member’s call. It’s just easier.

Part 1 clearly states that it covers the interpretation, and that the Act binds the Crown. In my earlier comments I was talking about the structure, and the fact that the Crown is bound by that structure in its employment obligations. I really am at a bit of a loss to know where I strayed off course, as far as you have suggested I have, Mr Chairman. That having been said, I am happy to come back to the points that are absolutely stated in Part 1 of this State-owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill and talk about the Minster’s Supplementary Order Paper that amends what the bill proposes.

I ask the Minister why we have a Supplementary Order Paper to debate tonight on this section of the bill that is almost as large as the bill itself. We have to ask whether the bill went to a select committee that had no expertise in this topic. Did the Minister himself have any idea of what the hell was being proposed by his officials? Or did the officials go out and consult the industry after the bill had been drafted, only to be told that if they did what the bill proposed there would be some pretty substantial consequences and that they had better go back to their Minister, quick smart, and get a major change to their proposals? These are all questions the Committee would be interested to know the answers of, in the debate tonight. So far we have not had any answers to those questions.

Day after day I come into this Chamber and search for some kind of consistent ideology coming from the Opposition. Finally, today, I found a sliver of ideology, and it is around competition. It is for that reason only, not for any sensible reason, or practical or common-sense reason, that the National Party has chosen to put a minority view in the report of the Commerce Committee and to proceed to oppose this bill.

The common-sense situation that we find ourselves in when looking at these two existing State-owned enterprises has already been explained. If there were to be competition from AgriQuality for the meat inspection services that Asure New Zealand provides, there is likely to be a very substantial contingent liability over redundancies. It would seem to me that if Asure is doing its job adequately—and by all accounts, and especially according to its interim report for the 6 months ended 31 March 2007, it is in fact doing extremely well in its job—then there is no need for additional competition to provide alternative services. There has not been, nor was there represented at the select committee, to my recollection, any submission complaining about current costs and cost structures relating to meat inspection fees and services. There was none, and there is no reason to believe that that should be any different under this legislation. In other words, if members opposite look at Supplementary Order Paper 120, which stands in the name of the Minister, they will see that in fact that issue has been covered.

But it seems to me, also, that the introduction of competition is wrong on two counts here. First of all, what is the sense of having two State-owned enterprises competing with each other? That is an unnecessary waste. The other reason is that, quite frequently, when competition has been introduced into all sorts of facets of life, corners have been cut in order to provide the lowest cost structure. Corners have been cut.

This is one area where, for a whole raft of reasons, corners must never be cut. They must never be cut, in order to preserve New Zealand’s reputation in the export market. They must never be cut, in order to preserve the integrity and the expectations of Treaty partners such as the UK and the United States, with regard to the purchasing of meat products. Further, corners should never be cut in the delivery of inspection services that allow for proper tracing of disease or infection. Such cutting of corners would undercut the integrity of our borders and the protections that are required in order to maintain the quality of our product and the reputation amongst our customers that New Zealand currently enjoys.

The whole purpose of this bill is to avoid unnecessary waste in order to make sure that this slim thread of ideology that the National Party clings to, despite all sensible opposition and sensible arguments to the contrary, should not prevail, and does not apply.

Having heard that thoughtful and intelligent contribution from Maryan Street, I have a question that I would like to ask the Minister. It relates to section 4(1)(a) of the State-Owned Enterprises Act. I think he was the member for Hamilton West when this legislation was passed—

💬 Hon Trevor Mallard: A member of the select committee.

He was a member of the select committee. Well, he will certainly be able to understand that the principal objective of a State-owned enterprise is to be a successful business. I quote: “(1) The principal objective of every State enterprise shall be to operate as a successful business and, to this end, to be—(a) as profitable and efficient as comparable businesses that are not owned by the Crown;”. So how is it that when one is talking about competition, which means—

💬 Hon Trevor Mallard: You are talking about the next part. You are on the wrong part.

I am happy to talk about the interpretation clauses and, in particular, the board of directors of AgriQuality Ltd, which is a State-owned enterprise. This is the fundamental point. It is supposed to operate as though it were a successful business not owned by the Crown. It is doing exactly that. Competition, in terms of the Commerce Act, is to be workable and effective competition. Where is the problem with State-owned enterprises competing? Mighty River Power, Genesis Power, and Meridian Energy compete. It is a fundamental point that the Minister really has to address. It was always intended that State-owned enterprises would, on occasion, compete. Where is the harm in that? If these two State-owned enterprises begin to compete, where is the mischief?

The member who has just resumed her seat said that corners would be cut and there was a risk of negligence. Well, that is easily dealt with. If people do not achieve their statutory or other requirements, they can be sued. But it seems to me to be an odd situation where legislation passed by a predecessor Labour Government to specifically encourage competition between State-owned enterprises is bypassed in favour of this rather odd legislation. It is a simple point. If the Minister could take a call and address it, we could move on.

The question was put that the amendment set out on Supplementary Order Paper 120 in the name of the Hon Trevor Mallard to clause 3 be agreed to.

Amendment agreed to.

Part 1 as amended agreed to.

Part 2 Matters concerning AgriQuality Limited and Asure New Zealand Limited