Simplifying the Menu: Food Regulation in Victoria

Final Report September 2007

Simplifying the Menu: Food Regulation in Victoria

Final Report September 2007

State of Victoria 2007

This report is copyright. No part may be reproduced by any process except in accordance with the provisions of the Copyright Act 1968 (Cwlth), without prior written permission from the Victorian Competition and Efficiency Commission.

Cover images reproduced with the permission of the Department of Treasury and Finance.

ISBN 978-1-921337-11-6

Disclaimer

The views expressed herein are those of the Victorian Competition and Efficiency Commission and do not purport to represent the position of the Victorian Government. Neither the Victorian Competition and Efficiency Commission, Commissioners and staff, nor the Victorian Government accepts any liability to any person for the information (or the use of such information) which is provided in this report or incorporated into it by reference. The information in this report is provided on the basis that all persons having access to this draft report undertake responsibility for assessing the relevance and accuracy of its content.

Victorian Competition and Efficiency Commission GPO Box 4379 MELBOURNE VICTORIA 3001 AUSTRALIA

Telephone: (03) 9092 5800

Facsimile: (03) 9092 5845

Website: www.vcec.vic.gov.au

An appropriate citation for this publication is: Victorian Competition and Efficiency Commission 2007, Simplifying the menu: food regulation in Victoria, final report, September.

State of Victoria 2007

This report is copyright. No part may be reproduced by any process except in accordance with the provisions of the Copyright Act 1968 (Cwlth), without prior written permission from the Victorian Competition and Efficiency Commission.

Cover images reproduced with the permission of the Department of Treasury and Finance.

ISBN 978-1-921337-11-6

Disclaimer

The views expressed herein are those of the Victorian Competition and Efficiency Commission and do not purport to represent the position of the Victorian Government. Neither the Victorian Competition and Efficiency Commission, Commissioners and staff, nor the Victorian Government accepts any liability to any person for the information (or the use of such information) which is provided in this report or incorporated into it by reference. The information in this report is provided on the basis that all persons having access to this draft report undertake responsibility for assessing the relevance and accuracy of its content.

Victorian Competition and Efficiency Commission GPO Box 4379 MELBOURNE VICTORIA 3001 AUSTRALIA

Telephone: (03) 9092 5800

Facsimile: (03) 9092 5845

Website: www.vcec.vic.gov.au

An appropriate citation for this publication is: Victorian Competition and Efficiency Commission 2007, Simplifying the menu: food regulation in Victoria, final report, September.

About the Victorian Competition and Efficiency Commission The Victorian Competition and Efficiency Commission, which is supported by a secretariat, provides the Victorian Government with independent advice on business regulation reform and opportunities for improving Victorias competitive position.

VCEC has three core functions:

reviewing regulatory impact statements, measurements of the administrative burden of regulation and business impact assessments of significant new legislation

undertaking inquiries referred to it by the Treasurer; and operating Victorias Competitive Neutrality Unit.

For further information on the Victorian Competition and Efficiency Commission, visit our website at: www.vcec.vic.gov.au

Disclosure of interests The Commissioners have declared to the Victorian Government all personal interests that could have a bearing on current and future work. Moreover, while the Commissioners confirm their belief that they have no personal conflicts of interest in regard to this inquiry, Alice Williams wishes to disclose that she holds shares in Coles and Woolworths.

About the Victorian Competition and Efficiency Commission The Victorian Competition and Efficiency Commission, which is supported by a secretariat, provides the Victorian Government with independent advice on business regulation reform and opportunities for improving Victorias competitive position.

VCEC has three core functions:

reviewing regulatory impact statements, measurements of the administrative burden of regulation and business impact assessments of significant new legislation

undertaking inquiries referred to it by the Treasurer; and operating Victorias Competitive Neutrality Unit.

For further information on the Victorian Competition and Efficiency Commission, visit our website at: www.vcec.vic.gov.au

Disclosure of interests The Commissioners have declared to the Victorian Government all personal interests that could have a bearing on current and future work. Moreover, while the Commissioners confirm their belief that they have no personal conflicts of interest in regard to this inquiry, Alice Williams wishes to disclose that she holds shares in Coles and Woolworths.

10 September 2007

Mr. John Lenders MP Treasurer Level 4, 1 Treasury Place East Melbourne VIC 3002

Dear Treasurer

VCEC Inquiry into Food Regulation in Victoria

In accordance with the terms of reference received by the Commission on 14 September 2006, we have pleasure in submitting the Commissions final report Simplifying the Menu: Food Regulation in Victoria.

Yours sincerely

Graham Evans AO Robert Kerr Alice Williams Chair Commissioner Commissioner

10 September 2007

Mr. John Lenders MP Treasurer Level 4, 1 Treasury Place East Melbourne VIC 3002

Dear Treasurer

VCEC Inquiry into Food Regulation in Victoria

In accordance with the terms of reference received by the Commission on 14 September 2006, we have pleasure in submitting the Commissions final report Simplifying the Menu: Food Regulation in Victoria.

Yours sincerely

Graham Evans AO Robert Kerr Alice Williams Chair Commissioner Commissioner

VI TERMS OF REFERENCE

Terms of reference VCEC Inquiry into Food Regulation in Victoria I, John Brumby MP, Treasurer, pursuant to section 4 of the State Owned Enterprises (State Body Victorian Competition and Efficiency Commission) Order (the Order), hereby direct the Victorian Competition and Efficiency Commission (the Commission) to conduct an inquiry into food regulation in Victoria.

Background The Victorian food industry is a major contributor to the economy in terms of manufacturing, employment and exports.

The food industry is currently subject to a complex and wide-ranging regulatory environment. Food regulation takes many forms, applying to the production, distribution, preparation, handling, labelling and selling of food. Food regulation is both state-based, and subject to a national framework.

The Victorian Government is committed to national standards and consistent implementation as documented in the COAG Food Regulation Agreement 2002. However, the continued and sustainable development of this important sector of the Victorian economy is dependent on a regulatory regime that yields efficient outcomes in terms of food safety and quality, whilst minimising the compliance and administrative burden on regulated parties and allowing industry to innovate to meet market demands.

The Victorian Government is committed to the development of best practice regulatory regimes. Through its recently-announced Reducing the Regulatory Burden initiative, the Government is seeking to reduce the regulatory burden by cutting red tape for the business and the not-for-profit sectors, and developing new approaches to lower regulatory compliance costs. A comprehensive review of food regulation in Victoria is the first of a series of hotspot reviews to achieve this objective.

The Commissions inquiry into food regulation is expected to investigate ways to simplify the current regulatory environment, clarify roles and expectations for food industry participants at different stages of production, and provide recommendations for best practice enforcement of sound food regulation.

VI TERMS OF REFERENCE

Terms of reference VCEC Inquiry into Food Regulation in Victoria I, John Brumby MP, Treasurer, pursuant to section 4 of the State Owned Enterprises (State Body Victorian Competition and Efficiency Commission) Order (the Order), hereby direct the Victorian Competition and Efficiency Commission (the Commission) to conduct an inquiry into food regulation in Victoria.

Background The Victorian food industry is a major contributor to the economy in terms of manufacturing, employment and exports.

The food industry is currently subject to a complex and wide-ranging regulatory environment. Food regulation takes many forms, applying to the production, distribution, preparation, handling, labelling and selling of food. Food regulation is both state-based, and subject to a national framework.

The Victorian Government is committed to national standards and consistent implementation as documented in the COAG Food Regulation Agreement 2002. However, the continued and sustainable development of this important sector of the Victorian economy is dependent on a regulatory regime that yields efficient outcomes in terms of food safety and quality, whilst minimising the compliance and administrative burden on regulated parties and allowing industry to innovate to meet market demands.

The Victorian Government is committed to the development of best practice regulatory regimes. Through its recently-announced Reducing the Regulatory Burden initiative, the Government is seeking to reduce the regulatory burden by cutting red tape for the business and the not-for-profit sectors, and developing new approaches to lower regulatory compliance costs. A comprehensive review of food regulation in Victoria is the first of a series of hotspot reviews to achieve this objective.

The Commissions inquiry into food regulation is expected to investigate ways to simplify the current regulatory environment, clarify roles and expectations for food industry participants at different stages of production, and provide recommendations for best practice enforcement of sound food regulation.

TERMS OF REFERENCE VII

Scope of the inquiry The Commission is to inquire and report upon:

1. the nature and magnitude of the compliance and administrative burdens of food regulation on business, consumers and not-for-profit sector, and whether the objectives of current food regulation are being met;

2. the impact of the current food regulation environment on the competitiveness and trade performance of Victorian industries (including an examination of the impact of inconsistencies between Victoria and other jurisdictions in implementing and enforcing national food standards, and fair trading in the area of misleading conduct);

3. opportunities for reducing or streamlining regulation (including harmonisation of national and state regulations), and the applicability of alternative regulatory models, to:

minimise compliance and administrative burdens; improve international competitiveness; and facilitate investment

whilst still meeting the objectives of current regulation;

4. food regulation to support community activities and expectations (e.g. impact of food handling regulations on community fund-raising events, such as school fetes, cake stalls etc), and appropriate risk management strategies;

5. the flexibility of food standards and labelling regulations to adapt to emerging food technologies and products, and accurately reflect relevant health information; and

6. strategies to reduce the burden of regulation on small businesses operating in the food industry.

In undertaking this inquiry, the Commission should examine both state-based regulations and the coordinated national food regulatory system.

The Commission should take into account any substantive (current or previous) studies undertaken in Victoria and elsewhere including by the Commonwealth and other States, and international best practice that may help it provide advice on this reference.

TERMS OF REFERENCE VII

Scope of the inquiry The Commission is to inquire and report upon:

1. the nature and magnitude of the compliance and administrative burdens of food regulation on business, consumers and not-for-profit sector, and whether the objectives of current food regulation are being met;

2. the impact of the current food regulation environment on the competitiveness and trade performance of Victorian industries (including an examination of the impact of inconsistencies between Victoria and other jurisdictions in implementing and enforcing national food standards, and fair trading in the area of misleading conduct);

3. opportunities for reducing or streamlining regulation (including harmonisation of national and state regulations), and the applicability of alternative regulatory models, to:

minimise compliance and administrative burdens; improve international competitiveness; and facilitate investment

whilst still meeting the objectives of current regulation;

4. food regulation to support community activities and expectations (e.g. impact of food handling regulations on community fund-raising events, such as school fetes, cake stalls etc), and appropriate risk management strategies;

5. the flexibility of food standards and labelling regulations to adapt to emerging food technologies and products, and accurately reflect relevant health information; and

6. strategies to reduce the burden of regulation on small businesses operating in the food industry.

In undertaking this inquiry, the Commission should examine both state-based regulations and the coordinated national food regulatory system.

The Commission should take into account any substantive (current or previous) studies undertaken in Victoria and elsewhere including by the Commonwealth and other States, and international best practice that may help it provide advice on this reference.

VIII TERMS OF REFERENCE

Inquiry process In undertaking this inquiry, the Commission is to have regard to the objectives and operating principles of the Commission, as set out in section 3 of the Order. The Commission must also conduct the inquiry in accordance with section 4 of the Order.

The Commission is to consult with key interest groups and affected parties, and may hold public hearings. The Commission should also draw on the knowledge and expertise of relevant Victorian Government departments and agencies.

The Commission is to produce a draft report for consultative purposes, and a final report is to be provided to me within twelve months of receipt of this reference.

JOHN BRUMBY MP Treasurer 14 September 2006

VIII TERMS OF REFERENCE

Inquiry process In undertaking this inquiry, the Commission is to have regard to the objectives and operating principles of the Commission, as set out in section 3 of the Order. The Commission must also conduct the inquiry in accordance with section 4 of the Order.

The Commission is to consult with key interest groups and affected parties, and may hold public hearings. The Commission should also draw on the knowledge and expertise of relevant Victorian Government departments and agencies.

The Commission is to produce a draft report for consultative purposes, and a final report is to be provided to me within twelve months of receipt of this reference.

JOHN BRUMBY MP Treasurer 14 September 2006

CONTENTS ix

Contents

Terms of reference vi

Contents ix

Abbreviations xv

Glossary xix

Key messages xxiii

Overview xxv

1 Introduction 1 1.1 Background to the inquiry 1

1.1.1 Recent reports 2 1.2 Conduct of the inquiry 3

1.2.1 The Commissions approach 4 2 Rationales and instruments for food regulation 7

2.1 Introduction 7 2.2 Incentives to provide safe food in the commercial sector 7

2.2.1 Characteristics of food safety 8 2.2.2 Market incentives to provide safe food 9 2.2.3 How incentives may be incomplete 12

2.3 Incentives to provide food safety in the not-for-profit/community sector 18

2.3.1 Defining the sector 18 2.3.2 Incentives in the not-for-profit sector 19 2.3.3 Incentives in fund raising activities 19 2.3.4 Incentives in charities 20

2.4 What role for government? 20 2.4.1 Benefits of intervention 21 2.4.2 Costs of intervention 21 2.4.3 Distributional issues 24

2.5 Framework for analysis 24 2.6 Mechanisms to promote food safety 26

2.6.1 Nonregulatory measures 27 2.6.2 Regulatory measures 29 2.6.3 Choosing among instruments 32

3 The regulatory and institutional framework 33 3.1 Introduction 33 3.2 The framework 33

3.2.1 The context 33 3.2.2 National regulators and advisory bodies 34 3.2.3 Victorian legislation 36 3.2.4 Key Victorian regulators and advisory bodies 38

CONTENTS ix

Contents

Terms of reference vi

Contents ix

Abbreviations xv

Glossary xix

Key messages xxiii

Overview xxv

1 Introduction 1 1.1 Background to the inquiry 1

1.1.1 Recent reports 2 1.2 Conduct of the inquiry 3

1.2.1 The Commissions approach 4 2 Rationales and instruments for food regulation 7

2.1 Introduction 7 2.2 Incentives to provide safe food in the commercial sector 7

2.2.1 Characteristics of food safety 8 2.2.2 Market incentives to provide safe food 9 2.2.3 How incentives may be incomplete 12

2.3 Incentives to provide food safety in the not-for-profit/community sector 18

2.3.1 Defining the sector 18 2.3.2 Incentives in the not-for-profit sector 19 2.3.3 Incentives in fund raising activities 19 2.3.4 Incentives in charities 20

2.4 What role for government? 20 2.4.1 Benefits of intervention 21 2.4.2 Costs of intervention 21 2.4.3 Distributional issues 24

2.5 Framework for analysis 24 2.6 Mechanisms to promote food safety 26

2.6.1 Nonregulatory measures 27 2.6.2 Regulatory measures 29 2.6.3 Choosing among instruments 32

3 The regulatory and institutional framework 33 3.1 Introduction 33 3.2 The framework 33

3.2.1 The context 33 3.2.2 National regulators and advisory bodies 34 3.2.3 Victorian legislation 36 3.2.4 Key Victorian regulators and advisory bodies 38

x CONTENTS

3.2.5 The approach to regulationa summary 40 3.3 Features of the regulatory arrangements 41

3.3.1 Consistent and clearly defined objectives 42 3.3.2 Roles and responsibilities 46 3.3.3 Subsidiarity 49 3.3.4 Integration with other legislation 50 3.3.5 Prescriptive or outcome oriented approach 51 3.3.6 Focus on risks 53 3.3.7 Avoidance of unnecessary costs 54 3.3.8 Flexibility 58 3.3.9 Simplicity 59 3.3.10 Compliance and enforceability 59 3.3.11 Performance reporting 61 3.3.12 Transparency 63 3.3.13 Education 63

3.4 Conclusion 64 4 The food sector 65

4.1 Victorias food sector 65 4.2 Changing consumer preferences 69 4.3 International trade opportunities 71 4.4 The importance of innovation 74 4.5 Diverse firm sizes 76 4.6 Diverse supply chains 80 4.7 Trends in business structures, governance and contracts 84 4.8 The location of food businesses throughout Victoria 88 4.9 Conclusion 89

5 Are the objectives of Victorian food regulation being met? 91 5.1 Introduction 91 5.2 Reducing foodborne illness 92

5.2.1 Inquiry participants views 92 5.2.2 Trends in foodborne illness 93 5.2.3 The contribution of specific regulations to reducing foodborne illness 99 5.2.4 Performance reporting by regulators 99 5.2.5 Valuing improvements in food safety 103

5.3 Preventing misleading conduct 104 5.3.1 Inquiry participants views 105 5.3.2 Performance indicators 106

5.4 Implications 107 6 Cost of food regulation in Victoria 111

6.1 What are the various costs of regulation? 111 6.2 Lessons from previous studies 113 6.3 Current costs of food regulation in Victoria 114

6.3.1 Government costs 115 6.3.2 Business costs 118

x CONTENTS

3.2.5 The approach to regulationa summary 40 3.3 Features of the regulatory arrangements 41

3.3.1 Consistent and clearly defined objectives 42 3.3.2 Roles and responsibilities 46 3.3.3 Subsidiarity 49 3.3.4 Integration with other legislation 50 3.3.5 Prescriptive or outcome oriented approach 51 3.3.6 Focus on risks 53 3.3.7 Avoidance of unnecessary costs 54 3.3.8 Flexibility 58 3.3.9 Simplicity 59 3.3.10 Compliance and enforceability 59 3.3.11 Performance reporting 61 3.3.12 Transparency 63 3.3.13 Education 63

3.4 Conclusion 64 4 The food sector 65

4.1 Victorias food sector 65 4.2 Changing consumer preferences 69 4.3 International trade opportunities 71 4.4 The importance of innovation 74 4.5 Diverse firm sizes 76 4.6 Diverse supply chains 80 4.7 Trends in business structures, governance and contracts 84 4.8 The location of food businesses throughout Victoria 88 4.9 Conclusion 89

5 Are the objectives of Victorian food regulation being met? 91 5.1 Introduction 91 5.2 Reducing foodborne illness 92

5.2.1 Inquiry participants views 92 5.2.2 Trends in foodborne illness 93 5.2.3 The contribution of specific regulations to reducing foodborne illness 99 5.2.4 Performance reporting by regulators 99 5.2.5 Valuing improvements in food safety 103

5.3 Preventing misleading conduct 104 5.3.1 Inquiry participants views 105 5.3.2 Performance indicators 106

5.4 Implications 107 6 Cost of food regulation in Victoria 111

6.1 What are the various costs of regulation? 111 6.2 Lessons from previous studies 113 6.3 Current costs of food regulation in Victoria 114

6.3.1 Government costs 115 6.3.2 Business costs 118

CONTENTS xi

6.4 Effect on competitiveness and trade 135 6.5 Concluding comments 141

7 Improving the regulatory framework: national issues 143 7.1 Introduction 143 7.2 Beyond food safety 143

7.2.1 Implementation problems 145 7.2.2 A wider review of labelling 150

7.3 The standards amendment process 152 7.3.1 The review of the FSANZ assessment and approval process 153 7.3.2 Will the changes address participants concerns? 154

7.4 Primary production standards 156 7.5 Misleading and deceptive conduct 157

7.5.1 Local government, CAV and misleading and deceptive conduct 160

7.6 Maximum residue levels 161 7.7 Weights and measures 163

8 Improving the regulatory framework: state government issues 167 8.1 Introduction 167 8.2 Clarifying the objectives of food regulation 168

8.2.1 Reducing foodborne illness and protecting public health and safety 168 8.2.2 Preventing misleading and deceptive conduct 173

8.3 Clarifying roles and responsibilities 173 8.4 Fostering a statewide approach to improving food safety 174 8.5 Improving coordination among regulators 176

8.5.1 A single food regulator for Victoria? 8.5.2 Improving coordination among existing regulators 178

8.6 Improved reporting of food safety performance 192 8.6.1 Developing a performance reporting framework 193

8.7 Improving consistency across food legislation 199 8.8 Bread Industry Act 1959 200

8.8.1 Trade Practices Act 200 8.8.2 The bread inputs market today 201 8.8.3 Effectiveness of the Act 201

8.9 Implementation and review of the proposed arrangements 202 9 Improving food regulation: regulatory instruments 203

9.1 Introduction 203 9.2 Strengthening the risk based approach 204

9.2.1 Current risk based classification of food businesses 204 9.2.2 A new risk based classification of food businesses 204

9.3 Registration and licensing 209 9.3.1 Registration of mobile and temporary food businesses 210 9.3.2 Registration system for all food businesses 214 9.3.3 Registration period 217

9.4 Food safety programs 217

176

CONTENTS xi

6.4 Effect on competitiveness and trade 135 6.5 Concluding comments 141

7 Improving the regulatory framework: national issues 143 7.1 Introduction 143 7.2 Beyond food safety 143

7.2.1 Implementation problems 145 7.2.2 A wider review of labelling 150

7.3 The standards amendment process 152 7.3.1 The review of the FSANZ assessment and approval process 153 7.3.2 Will the changes address participants concerns? 154

7.4 Primary production standards 156 7.5 Misleading and deceptive conduct 157

7.5.1 Local government, CAV and misleading and deceptive conduct 160

7.6 Maximum residue levels 161 7.7 Weights and measures 163

8 Improving the regulatory framework: state government issues 167 8.1 Introduction 167 8.2 Clarifying the objectives of food regulation 168

8.2.1 Reducing foodborne illness and protecting public health and safety 168 8.2.2 Preventing misleading and deceptive conduct 173

8.3 Clarifying roles and responsibilities 173 8.4 Fostering a statewide approach to improving food safety 174 8.5 Improving coordination among regulators 176

8.5.1 A single food regulator for Victoria? 8.5.2 Improving coordination among existing regulators 178

8.6 Improved reporting of food safety performance 192 8.6.1 Developing a performance reporting framework 193

8.7 Improving consistency across food legislation 199 8.8 Bread Industry Act 1959 200

8.8.1 Trade Practices Act 200 8.8.2 The bread inputs market today 201 8.8.3 Effectiveness of the Act 201

8.9 Implementation and review of the proposed arrangements 202 9 Improving food regulation: regulatory instruments 203

9.1 Introduction 203 9.2 Strengthening the risk based approach 204

9.2.1 Current risk based classification of food businesses 204 9.2.2 A new risk based classification of food businesses 204

9.3 Registration and licensing 209 9.3.1 Registration of mobile and temporary food businesses 210 9.3.2 Registration system for all food businesses 214 9.3.3 Registration period 217

9.4 Food safety programs 217

176

xii CONTENTS

9.4.1 Assessment of food safety programs 218 9.4.2 Targeting food safety program requirements 221 9.4.3 Simplifying food safety programs 223

9.5 Food safety supervisors and food handlers 226 9.5.1 Impact of the food safety supervisor requirement 227

9.6 Inspections and audits 232 9.6.1 Council inspections 232 9.6.2 Regulatory and private sector audits 235 9.6.3 Private sector audits 237

9.7 Frequency of audits 237 9.8 Food sampling 240 9.9 Summary of the Commissions approach 243 9.10 Effects of the Commissions proposed changes 245

10 Strengthening market incentives 253 10.1 Information and education strategies 253 10.2 Using sanctions to strengthen market incentives 259

10.2.1 On-the-spot fines 261 10.2.2 A star rating system for food services 264 10.2.3 Disclosure of offending businesses 266

11 Local government 269 11.1 Introduction 269 11.2 Issues of concern 269 11.3 What is causing these concerns? 272 11.4 The capacity of local governments 272

11.4.1 Financial constraints and cost recovery 273 11.4.2 Resource sharing and efficiency measures 275 11.4.3 Skill (education, experience and knowledge) capacity 275

11.5 Enforcement 282 11.5.1 Local governments approach to enforcement 282 11.5.2 Risk management strategies 283

12 Community groups and food regulation 287 12.1 Introduction 287 12.2 Overview of the community sector 288

12.2.1 Community groups contribution to social welfare 290 12.2.2 The role of food in supporting community activities 290

12.3 Food safety and food regulation in the community sector 291 12.3.1 Food safety risk at community events and facilities 291 12.3.2 Are all community activities subject to regulation? 293 12.3.3 Jurisdictional overlap 301 12.3.4 Food safety information support for community groups 302 12.3.5 Implementation and enforcement by councils 303

12.4 Effects of food regulation on community activities 304 12.4.1 Cost of meeting Victorian food regulations 304 12.4.2 Broader effects of food regulation 308

12.5 Effects of proposed reforms 311

xii CONTENTS

9.4.1 Assessment of food safety programs 218 9.4.2 Targeting food safety program requirements 221 9.4.3 Simplifying food safety programs 223

9.5 Food safety supervisors and food handlers 226 9.5.1 Impact of the food safety supervisor requirement 227

9.6 Inspections and audits 232 9.6.1 Council inspections 232 9.6.2 Regulatory and private sector audits 235 9.6.3 Private sector audits 237

9.7 Frequency of audits 237 9.8 Food sampling 240 9.9 Summary of the Commissions approach 243 9.10 Effects of the Commissions proposed changes 245

10 Strengthening market incentives 253 10.1 Information and education strategies 253 10.2 Using sanctions to strengthen market incentives 259

10.2.1 On-the-spot fines 261 10.2.2 A star rating system for food services 264 10.2.3 Disclosure of offending businesses 266

11 Local government 269 11.1 Introduction 269 11.2 Issues of concern 269 11.3 What is causing these concerns? 272 11.4 The capacity of local governments 272

11.4.1 Financial constraints and cost recovery 273 11.4.2 Resource sharing and efficiency measures 275 11.4.3 Skill (education, experience and knowledge) capacity 275

11.5 Enforcement 282 11.5.1 Local governments approach to enforcement 282 11.5.2 Risk management strategies 283

12 Community groups and food regulation 287 12.1 Introduction 287 12.2 Overview of the community sector 288

12.2.1 Community groups contribution to social welfare 290 12.2.2 The role of food in supporting community activities 290

12.3 Food safety and food regulation in the community sector 291 12.3.1 Food safety risk at community events and facilities 291 12.3.2 Are all community activities subject to regulation? 293 12.3.3 Jurisdictional overlap 301 12.3.4 Food safety information support for community groups 302 12.3.5 Implementation and enforcement by councils 303

12.4 Effects of food regulation on community activities 304 12.4.1 Cost of meeting Victorian food regulations 304 12.4.2 Broader effects of food regulation 308

12.5 Effects of proposed reforms 311

CONTENTS xiii

12.5.1 Simplifying regulation for community activities 312 12.5.2 Supporting education and information for community activities 316 12.5.3 Outstanding issues 319

APPENDICES

A Consultation 321 A.1 Introduction 321 A.2 Submissions 322 A.3 Round tables 327 A.4 Stakeholder consultations 330

B Foodthe regulatory and institutional framework 335 B.1 Introduction 335 B.2 The food regulation framework 336

B.2.1 National food regulation 336 B.2.2 Commonwealth regulation 339 B.2.3 State regulation 340 B.2.4 Improving consistency in Victorian food legislation 359 B.2.5 Other laws relevant to food regulation 363

C Basis for estimated savings 365 C.1 Removing the food safety program requirement for class 2 businesses 365

C.1.1 Assumptions underlying the business savings 365 C.2 Summary of savings from proposed changes 367

References 369

CONTENTS xiii

12.5.1 Simplifying regulation for community activities 312 12.5.2 Supporting education and information for community activities 316 12.5.3 Outstanding issues 319

APPENDICES

A Consultation 321 A.1 Introduction 321 A.2 Submissions 322 A.3 Round tables 327 A.4 Stakeholder consultations 330

B Foodthe regulatory and institutional framework 335 B.1 Introduction 335 B.2 The food regulation framework 336

B.2.1 National food regulation 336 B.2.2 Commonwealth regulation 339 B.2.3 State regulation 340 B.2.4 Improving consistency in Victorian food legislation 359 B.2.5 Other laws relevant to food regulation 363

C Basis for estimated savings 365 C.1 Removing the food safety program requirement for class 2 businesses 365

C.1.1 Assumptions underlying the business savings 365 C.2 Summary of savings from proposed changes 367

References 369

ABBREVIATIONS xv

Abbreviations ABS Australian Bureau of Statistics

ABWI Australasian Bottled Water Institute

ACCC Australian Competition and Consumer Commission

AFGC Australian Food and Grocery Council

AFRG Agriculture and Food Policy Reference Group

AGV Auditor-General Victoria

AIEH Australian Institute of Environmental Health

AMA Australian Medical Association

ANZFA Australia New Zealand Food Authority

ANZFRMC Australia and New Zealand Food Regulation Ministerial Council

ANZSIC Australian and New Zealand Standard Industrial Classification

AQIS Australian Quarantine and Inspection Service

AQS average quantity system

CALD culturally and linguistically diverse

CAV Consumer Affairs Victoria

CFA Country Fire Authority

CIE Centre for International Economics

COAG Council of Australian Governments

CoOL Country of Origin Labelling

CWA Country Womens Association

DAFF Department of Agriculture, Fisheries and Forestry

DFSV Dairy Food Safety Victoria

DHA Department of Health and Ageing

DHS Department of Human Services

DIIRD Department of Innovation, Industry and Regional Development

DPI Department of Primary Industries

DTF Department of Treasury and Finance

ABBREVIATIONS xv

Abbreviations ABS Australian Bureau of Statistics

ABWI Australasian Bottled Water Institute

ACCC Australian Competition and Consumer Commission

AFGC Australian Food and Grocery Council

AFRG Agriculture and Food Policy Reference Group

AGV Auditor-General Victoria

AIEH Australian Institute of Environmental Health

AMA Australian Medical Association

ANZFA Australia New Zealand Food Authority

ANZFRMC Australia and New Zealand Food Regulation Ministerial Council

ANZSIC Australian and New Zealand Standard Industrial Classification

AQIS Australian Quarantine and Inspection Service

AQS average quantity system

CALD culturally and linguistically diverse

CAV Consumer Affairs Victoria

CFA Country Fire Authority

CIE Centre for International Economics

COAG Council of Australian Governments

CoOL Country of Origin Labelling

CWA Country Womens Association

DAFF Department of Agriculture, Fisheries and Forestry

DFSV Dairy Food Safety Victoria

DHA Department of Health and Ageing

DHS Department of Human Services

DIIRD Department of Innovation, Industry and Regional Development

DPI Department of Primary Industries

DTF Department of Treasury and Finance

xvi ABBREVIATIONS

EHO environmental health officer

FRSC Food Regulation Standing Committee

FSANZ Food Standards Australia New Zealand

FSC Food Standards Code

FSP food safety program

FSS food safety supervisor

FSU Food Safety Unit of the Department of Human Services

GM genetically modified

HACCP Hazard Analysis and Critical Control Point system

IPSOS Ipsos Australia Pty Ltd

ISC Implementation Sub-committee of the Food Standards Standing Committee

MAV Municipal Association of Victoria

MCCA Ministerial Council on Consumer Affairs

MQS minimum quantity system

MOU memorandum of understanding

MRL maximum residue limits

NIP nutrition information panel

NTD neural tube defects

NRIW National Reform Initiative Working Group (COAG)

NSWFA New South Wales Food Authority

NZIER New Zealand Institute of Economic Research

OECD Organisation for Economic Co-operation and Development

OPPC Obesity Prevention Policy Coalition

ORR Office of Regulation Review (now Commonwealth Office of Best Practice Regulation)

OSISDC Outer suburban/interface services and development committee

PC Productivity Commission

R&D research and development

xvi ABBREVIATIONS

EHO environmental health officer

FRSC Food Regulation Standing Committee

FSANZ Food Standards Australia New Zealand

FSC Food Standards Code

FSP food safety program

FSS food safety supervisor

FSU Food Safety Unit of the Department of Human Services

GM genetically modified

HACCP Hazard Analysis and Critical Control Point system

IPSOS Ipsos Australia Pty Ltd

ISC Implementation Sub-committee of the Food Standards Standing Committee

MAV Municipal Association of Victoria

MCCA Ministerial Council on Consumer Affairs

MQS minimum quantity system

MOU memorandum of understanding

MRL maximum residue limits

NIP nutrition information panel

NTD neural tube defects

NRIW National Reform Initiative Working Group (COAG)

NSWFA New South Wales Food Authority

NZIER New Zealand Institute of Economic Research

OECD Organisation for Economic Co-operation and Development

OPPC Obesity Prevention Policy Coalition

ORR Office of Regulation Review (now Commonwealth Office of Best Practice Regulation)

OSISDC Outer suburban/interface services and development committee

PC Productivity Commission

R&D research and development

ABBREVIATIONS xvii

RCV Restaurant and Catering Victoria

RIS regulatory impact statement

SES State Emergency Service

TGA Therapeutic Goods Administration

TMAC Trade Measurement Advisory Committee

VCEC Victorian Competition and Efficiency Commission

VFF Victorian Farmers Federation

VPMP Victorian Produce Monitoring Program

ABBREVIATIONS xvii

RCV Restaurant and Catering Victoria

RIS regulatory impact statement

SES State Emergency Service

TGA Therapeutic Goods Administration

TMAC Trade Measurement Advisory Committee

VCEC Victorian Competition and Efficiency Commission

VFF Victorian Farmers Federation

VPMP Victorian Produce Monitoring Program

GLOSSARY XIX

Glossary Act A Bill that has been passed by Parliament, received

Royal Assent and become law

advisory body A Victorian body providing independent and/or expert advice to ministers, regulators or departments to inform regulatory decision making and function as a standing consultative mechanism

business impact assessment (BIA)

A formal assessment of the impacts of a new or amended primary legislative proposal that is expected to have a significant effect on business and/or competition. A BIA is a Cabinet-in-confidence document that assesses the costs and benefits of a legislative proposal to address a clearly defined problem, compares these with feasible alternative solutions, and recommends the most effective and efficient option

codes of practice Rules of practice and conduct that an industry or professional association adopts that may or may not be legally enforceable

competitive neutrality A policy designed to offset or remove any net competitive advantages of publicly-owned businesses resulting from government ownership

cost recovery Specific purpose charges used by government agencies to recoup some or all of the costs of particular government activities

food safety risk management strategy

A council strategy that identifies food safety risks in the municipality and sets out inspection and enforcement strategies to mitigate those risks

food safety program A documented plan developed by a business that describes how it will manage food safety through the identification and control of hazards in the production, manufacturing and handling of food as described in the Hazard Analysis and Critical Control Point (HACCP) system. The plan also specifies the records that the business maintains to demonstrate the implementation of this plan and actions taken to keep food safe.

GLOSSARY XIX

Glossary Act A Bill that has been passed by Parliament, received

Royal Assent and become law

advisory body A Victorian body providing independent and/or expert advice to ministers, regulators or departments to inform regulatory decision making and function as a standing consultative mechanism

business impact assessment (BIA)

A formal assessment of the impacts of a new or amended primary legislative proposal that is expected to have a significant effect on business and/or competition. A BIA is a Cabinet-in-confidence document that assesses the costs and benefits of a legislative proposal to address a clearly defined problem, compares these with feasible alternative solutions, and recommends the most effective and efficient option

codes of practice Rules of practice and conduct that an industry or professional association adopts that may or may not be legally enforceable

competitive neutrality A policy designed to offset or remove any net competitive advantages of publicly-owned businesses resulting from government ownership

cost recovery Specific purpose charges used by government agencies to recoup some or all of the costs of particular government activities

food safety risk management strategy

A council strategy that identifies food safety risks in the municipality and sets out inspection and enforcement strategies to mitigate those risks

food safety program A documented plan developed by a business that describes how it will manage food safety through the identification and control of hazards in the production, manufacturing and handling of food as described in the Hazard Analysis and Critical Control Point (HACCP) system. The plan also specifies the records that the business maintains to demonstrate the implementation of this plan and actions taken to keep food safe.

XX GLOSSARY

food safety scheme Regulations, based around enterprise-level food safety programs, for specific industries in NSW, based on scientific risk analysis

hypothecation Mechanism that uses the revenue collected from a particular tax to fund a specific type of expenditure. That is, the revenue is earmarked for a specific purpose or use

legislation Laws passed by Parliament, as distinct from statutory rules made under powers delegated by Parliament

notification Informing the NSW Food Authority of basic details such as business type, nature of business, food types handled, physical address and contact details

regulation The imposition of some rules, supported by government authority, intended to influence behaviour and outcomes. The Organisation for Economic Co-operation and Development defines the term as the instruments by which governments place requirements on enterprises, citizens and government itself, including laws, orders and other rules issued by all levels of government and by bodies to which governments have delegated regulatory powers

regulator A government entity (either independent or within a department) in Victoria that draws from primary or subordinate legislation one or more of the following powers in relation to businesses and/or occupationsinspection, referral, advice to third parties, licensing and accreditation or enforcement

regulatory impact statement (RIS)

A public document that articulates the costs and benefits of a regulatory proposal to address a clearly defined problem, compares these with feasible alternative solutions, and recommends the most effective and efficient option. The Subordinate Legislation Act 1994 (Vic.) requires such a statement to be prepared by the responsible government department or agency if the proposal is likely to impose an appreciable economic or social burden on a sector of the public

XX GLOSSARY

food safety scheme Regulations, based around enterprise-level food safety programs, for specific industries in NSW, based on scientific risk analysis

hypothecation Mechanism that uses the revenue collected from a particular tax to fund a specific type of expenditure. That is, the revenue is earmarked for a specific purpose or use

legislation Laws passed by Parliament, as distinct from statutory rules made under powers delegated by Parliament

notification Informing the NSW Food Authority of basic details such as business type, nature of business, food types handled, physical address and contact details

regulation The imposition of some rules, supported by government authority, intended to influence behaviour and outcomes. The Organisation for Economic Co-operation and Development defines the term as the instruments by which governments place requirements on enterprises, citizens and government itself, including laws, orders and other rules issued by all levels of government and by bodies to which governments have delegated regulatory powers

regulator A government entity (either independent or within a department) in Victoria that draws from primary or subordinate legislation one or more of the following powers in relation to businesses and/or occupationsinspection, referral, advice to third parties, licensing and accreditation or enforcement

regulatory impact statement (RIS)

A public document that articulates the costs and benefits of a regulatory proposal to address a clearly defined problem, compares these with feasible alternative solutions, and recommends the most effective and efficient option. The Subordinate Legislation Act 1994 (Vic.) requires such a statement to be prepared by the responsible government department or agency if the proposal is likely to impose an appreciable economic or social burden on a sector of the public

GLOSSARY XXI

subordinate legislation

Statutory rules or regulations made under the authority of an Act

sunsetting Automatic lapsing of a law or subordinate regulation after a fixed period, unless something happens to keep it in place

GLOSSARY XXI

subordinate legislation

Statutory rules or regulations made under the authority of an Act

sunsetting Automatic lapsing of a law or subordinate regulation after a fixed period, unless something happens to keep it in place

KEY MESSAGES XXIII

Key messages The Victorian Government has targets for reducing red tape, and it chose

Victorian food regulation for its first hotspot review of regulation. Victorian businesses and notfor-profit groups face strong market incentives to

provide safe food; many must also meet stringent customer and export requirements that exceed regulated standards. The costs of meeting Victorian regulations are thus relatively low: around $138 million annually for the business sector (a small fraction of food sector turnover) and $613 million for the not-for-profit sector (hospitals, aged care, child care and community activities). These figures exclude the costs of meeting national food standards (such as labelling requirements), and of constraints on innovation. Paperwork costs are felt most keenly by Victorias small food businesses and community groups.

To streamline regulatory requirements and encourage innovation, without undermining food safety, the Victorian Competition and Efficiency Commission has proposed changes at the state and local government levels, and also other changes Victoria should pursue nationally. At state level, the government can reduce regulatory costs by at least $34 million per year, while providing a basis for improving food safety by: focusing regulatory effort on higher risk activities (such as serving food to

vulnerable groups), while lightening administrative burdens for lower risk activities (such as community events involving food)

improving monitoring and analysis to identify and target problem areas implementing a statewide strategy for the provision of information on food

safety issues to business, community groups and consumers. Additional measures that will promote ongoing improvements in the

implementation of food regulation at the state and local levels include: strengthening rewards for good performers with less paperwork and fewer

council inspections, and providing more sticks such as on-the-spot fines clarifying food regulation objectives and implementing statewide

performance monitoring and reporting to ensure objectives are achieved establishing stronger accountability and coordination arrangements for

Victorias food safety regulators (79 councils and the three state based regulators)

helping councils administer food regulation more consistently. At the national level, there is scope to improve the quality and timeliness of

decisions on national standards by: moving to a strategic approach across relevant policy areas and across

governments, so food regulation plays an appropriate role in addressing long term public health concerns

applying best practice regulatory principles to the development of national standards (including labelling and health claims), to foster innovation

improving coordination of consumer protection laws.

KEY MESSAGES XXIII

Key messages The Victorian Government has targets for reducing red tape, and it chose

Victorian food regulation for its first hotspot review of regulation. Victorian businesses and notfor-profit groups face strong market incentives to

provide safe food; many must also meet stringent customer and export requirements that exceed regulated standards. The costs of meeting Victorian regulations are thus relatively low: around $138 million annually for the business sector (a small fraction of food sector turnover) and $613 million for the not-for-profit sector (hospitals, aged care, child care and community activities). These figures exclude the costs of meeting national food standards (such as labelling requirements), and of constraints on innovation. Paperwork costs are felt most keenly by Victorias small food businesses and community groups.

To streamline regulatory requirements and encourage innovation, without undermining food safety, the Victorian Competition and Efficiency Commission has proposed changes at the state and local government levels, and also other changes Victoria should pursue nationally. At state level, the government can reduce regulatory costs by at least $34 million per year, while providing a basis for improving food safety by: focusing regulatory effort on higher risk activities (such as serving food to

vulnerable groups), while lightening administrative burdens for lower risk activities (such as community events involving food)

improving monitoring and analysis to identify and target problem areas implementing a statewide strategy for the provision of information on food

safety issues to business, community groups and consumers. Additional measures that will promote ongoing improvements in the

implementation of food regulation at the state and local levels include: strengthening rewards for good performers with less paperwork and fewer

council inspections, and providing more sticks such as on-the-spot fines clarifying food regulation objectives and implementing statewide

performance monitoring and reporting to ensure objectives are achieved establishing stronger accountability and coordination arrangements for

Victorias food safety regulators (79 councils and the three state based regulators)

helping councils administer food regulation more consistently. At the national level, there is scope to improve the quality and timeliness of

decisions on national standards by: moving to a strategic approach across relevant policy areas and across

governments, so food regulation plays an appropriate role in addressing long term public health concerns

applying best practice regulatory principles to the development of national standards (including labelling and health claims), to foster innovation

improving coordination of consumer protection laws.

OVERVIEW xxv

Overview The food industry employs about 370 000 people in Victoria (14 per cent of the workforce) and generates $6.8 billion in exports (36 per cent of Victorias total exports). Food reaches consumers through supply chains, from primary production, manufacturing, and through retailers, cafs, bars and restaurants (figure 1). A large proportion of the industrys activity takes place in provincial Victoria and is spread across 86 000 large, medium and small businesses.

Reflecting the food industrys importance, the Victorian Government has chosen food regulation as the first major area of regulation to undergo a hotspot review to identify opportunities to streamline the regulatory burden without undermining overall policy objectives. This inquiry originated from the Victorian Governments Reducing the regulatory burden initiative, which was launched in August 2006. This initiative aims to cut red tape for the business and not-for-profit sectors, and to develop new approaches to lower regulatory costs.

In September 2006, the government directed the Victorian Competition and Efficiency Commission to undertake an inquiry into Victorian food regulation. The key aims of the inquiry are to:

examine ways to reduce the regulatory burden for business and the not-for-profit sectors without undermining the objectives of food regulation

look at strategies to reduce the regulatory burden on small food businesses and community activities such as cake stalls and ftes

examine aspects of the national framework governing food safety regulation, and assess the capacity of food standards and labelling regulation to adapt to emerging food technologies.

In undertaking this review, the Commission looked at the arguments for government regulation of food safety, as well as the nature of the problems that food regulations seek to address. It also identified the current costs of Victorian food regulations to businesses and community activities. It then examined policy options to identify and evaluate measures that could reduce these costs without undermining food safety. In the process of identifying opportunities to streamline regulation, the Commission has also pointed to areas for improving the implementation and enforcement of food regulation to enhance the safety of food produced and sold in Victoria.

OVERVIEW xxv

Overview The food industry employs about 370 000 people in Victoria (14 per cent of the workforce) and generates $6.8 billion in exports (36 per cent of Victorias total exports). Food reaches consumers through supply chains, from primary production, manufacturing, and through retailers, cafs, bars and restaurants (figure 1). A large proportion of the industrys activity takes place in provincial Victoria and is spread across 86 000 large, medium and small businesses.

Reflecting the food industrys importance, the Victorian Government has chosen food regulation as the first major area of regulation to undergo a hotspot review to identify opportunities to streamline the regulatory burden without undermining overall policy objectives. This inquiry originated from the Victorian Governments Reducing the regulatory burden initiative, which was launched in August 2006. This initiative aims to cut red tape for the business and not-for-profit sectors, and to develop new approaches to lower regulatory costs.

In September 2006, the government directed the Victorian Competition and Efficiency Commission to undertake an inquiry into Victorian food regulation. The key aims of the inquiry are to:

examine ways to reduce the regulatory burden for business and the not-for-profit sectors without undermining the objectives of food regulation

look at strategies to reduce the regulatory burden on small food businesses and community activities such as cake stalls and ftes

examine aspects of the national framework governing food safety regulation, and assess the capacity of food standards and labelling regulation to adapt to emerging food technologies.

In undertaking this review, the Commission looked at the arguments for government regulation of food safety, as well as the nature of the problems that food regulations seek to address. It also identified the current costs of Victorian food regulations to businesses and community activities. It then examined policy options to identify and evaluate measures that could reduce these costs without undermining food safety. In the process of identifying opportunities to streamline regulation, the Commission has also pointed to areas for improving the implementation and enforcement of food regulation to enhance the safety of food produced and sold in Victoria.

xxvi SIMPLIFYING THE MENU: FOOD REGULATION IN VICTORIA

Figure 1 The Victorian food supply chain

a Includes some non food items such as cotton and wool. b Excludes tobacco manufacturing turnover, which is estimated to account for 3 per cent of food, beverage and tobacco turnover, based on 1999-2000 figures. c Includes turnover by hotels and clubs.

Why regulate food safety? There are strong market incentives for food businesses to produce food that is safe for human consumption. The loss of reputation from an incident can devastate a business. And each business in the chain of supply has a crucial interest in ensuring its supplies are safe. However, there are at least three reasons that governments may sometimes need to intervene to increase the safety of the food supply:

(1) Consumers have less information than producers have about the safety of the food being consumedthat is, consumers cannot necessarily tell before they purchase food whether it has been produced or handled safely. A long

xxvi SIMPLIFYING THE MENU: FOOD REGULATION IN VICTORIA

Figure 1 The Victorian food supply chain

a Includes some non food items such as cotton and wool. b Excludes tobacco manufacturing turnover, which is estimated to account for 3 per cent of food, beverage and tobacco turnover, based on 1999-2000 figures. c Includes turnover by hotels and clubs.

Why regulate food safety? There are strong market incentives for food businesses to produce food that is safe for human consumption. The loss of reputation from an incident can devastate a business. And each business in the chain of supply has a crucial interest in ensuring its supplies are safe. However, there are at least three reasons that governments may sometimes need to intervene to increase the safety of the food supply:

(1) Consumers have less information than producers have about the safety of the food being consumedthat is, consumers cannot necessarily tell before they purchase food whether it has been produced or handled safely. A long

OVERVIEW xxvii

lead time between exposure and illness may occur, and samples of the contaminated food or beverage may not be available, thereby compounding problems in linking foodborne illness to the precise cause. These traceability problems can dampen market incentives to ensure food is safe and can undermine the confidence of domestic and foreign consumers in food safety.

(2) Consumers, businesses and community groups may lack appropriate knowledge about how to choose, handle, store and prepare food correctly. Some new start-ups and small businesses with a high turnover of casual staff may face particular challenges. They may also be unaware of, or understate, the risks of contracting or causing foodborne illness. Governments may have a role to play in providing these groups with information that can help them to identify and manage food safety risks appropriately.

(3) Outbreaks of foodborne illness may cause third party impacts. The sale of unsafe food by one business can damage the reputation of others. If businesses do not account for the effects on other businesses when deciding how much to spend on food safety, they may spend less than is desirable from a communitywide perspective. Threatened export sales are an example of third party impact, and maintaining access to international markets is sometimes presented as a reason for government intervention to encourage food safety. It appears to be particularly significant for some products (such as meat exports).

Governments have also intervened via food regulation to restrict misleading and deceptive conduct in relation to food. For consumer choice and markets to work effectively, purchasers need to be able to rely on information that businesses provide on labels and in other forms of advertising. Regulation that governs misleading and deceptive conduct thus needs to work effectively for food products. Also important are the incentive and capacity for businesses to solve the information deficiencies and complexities facing consumers.

Notwithstanding these broad arguments, the case for government intervention relies on its benefits outweighing the costs to the community. Introducing more stringent regulations when the risk of foodborne illness is low will add to business costs and have an impact on consumer prices and choice without providing offsetting benefits. Implementing extra regulation will also require government resources that may yield larger benefits if employed elsewhere. This implies there is an efficient level of food safety that balances the communitys interests in access to safe food but at a reasonable price.

While increasing food safety has been a traditional focus of food regulation, there is debate about the extent to which food safety regulation can and should be used to achieve broader public health objectives, such as reducing the prevalence of obesity, diabetes and heart disease. This is a more challenging issue

OVERVIEW xxvii

lead time between exposure and illness may occur, and samples of the contaminated food or beverage may not be available, thereby compounding problems in linking foodborne illness to the precise cause. These traceability problems can dampen market incentives to ensure food is safe and can undermine the confidence of domestic and foreign consumers in food safety.

(2) Consumers, businesses and community groups may lack appropriate knowledge about how to choose, handle, store and prepare food correctly. Some new start-ups and small businesses with a high turnover of casual staff may face particular challenges. They may also be unaware of, or understate, the risks of contracting or causing foodborne illness. Governments may have a role to play in providing these groups with information that can help them to identify and manage food safety risks appropriately.

(3) Outbreaks of foodborne illness may cause third party impacts. The sale of unsafe food by one business can damage the reputation of others. If businesses do not account for the effects on other businesses when deciding how much to spend on food safety, they may spend less than is desirable from a communitywide perspective. Threatened export sales are an example of third party impact, and maintaining access to international markets is sometimes presented as a reason for government intervention to encourage food safety. It appears to be particularly significant for some products (such as meat exports).

Governments have also intervened via food regulation to restrict misleading and deceptive conduct in relation to food. For consumer choice and markets to work effectively, purchasers need to be able to rely on information that businesses provide on labels and in other forms of advertising. Regulation that governs misleading and deceptive conduct thus needs to work effectively for food products. Also important are the incentive and capacity for businesses to solve the information deficiencies and complexities facing consumers.

Notwithstanding these broad arguments, the case for government intervention relies on its benefits outweighing the costs to the community. Introducing more stringent regulations when the risk of foodborne illness is low will add to business costs and have an impact on consumer prices and choice without providing offsetting benefits. Implementing extra regulation will also require government resources that may yield larger benefits if employed elsewhere. This implies there is an efficient level of food safety that balances the communitys interests in access to safe food but at a reasonable price.

While increasing food safety has been a traditional focus of food regulation, there is debate about the extent to which food safety regulation can and should be used to achieve broader public health objectives, such as reducing the prevalence of obesity, diabetes and heart disease. This is a more challenging issue

xxviii SIMPLIFYING THE MENU: FOOD REGULATION IN VICTORIA

because the dividing line between a food safety issue and broader public health objectives is often unclearfor example, consuming a small amount of a food that is high in saturated fats may pose little or no health risk for many people, but consuming a lot of high fat foods over a prolonged period contributes to obesity, and an increased risk of developing type 2 diabetes and heart disease (areas of increasing concern in Australia).

Food regulation All three levels of government share responsibility for developing and administering food regulation, but within a framework that endeavours to harmonise regulatory requirements facing a widely dispersed and varied food industry. A complex food regulation framework exists (figure 2), whereby the Commonwealth and state governments jointly develop national food standards, which are embodied in the Food Standards Code. These standards are given force through state legislation that allocates, in Victorias case, significant enforcement responsibility to local government.

Victoria has two principal streams of food safety regulation. The first applies to the sale of food, which is governed by the Food Act 1984 (Vic.). The second applies to the primary production, manufacture, transport and sale of meat, seafood and dairy products, which are regulated through industry-specific Acts.

The 79 councils administer the Food Act with its objectives of ensuring food is safe and suitable for human consumption, avoiding misleading conduct and giving effect to national food standards. The Food Safety Unit of the Department of Human Services (DHS) also has some regulatory responsibilities, along with its policy advisory role. Dairy Food Safety Victoria (DFSV) regulates the dairy sector and PrimeSafe regulates meat and seafood. Consumer Affairs Victoria regulates misleading conduct, as does the Australian Competition and Consumer Commission.

xxviii SIMPLIFYING THE MENU: FOOD REGULATION IN VICTORIA

because the dividing line between a food safety issue and broader public health objectives is often unclearfor example, consuming a small amount of a food that is high in saturated fats may pose little or no health risk for many people, but consuming a lot of high fat foods over a prolonged period contributes to obesity, and an increased risk of developing type 2 diabetes and heart disease (areas of increasing concern in Australia).

Food regulation All three levels of government share responsibility for developing and administering food regulation, but within a framework that endeavours to harmonise regulatory requirements facing a widely dispersed and varied food industry. A complex food regulation framework exists (figure 2), whereby the Commonwealth and state governments jointly develop national food standards, which are embodied in the Food Standards Code. These standards are given force through state legislation that allocates, in Victorias case, significant enforcement responsibility to local government.

Victoria has two principal streams of food safety regulation. The first applies to the sale of food, which is governed by the Food Act 1984 (Vic.). The second applies to the primary production, manufacture, transport and sale of meat, seafood and dairy products, which are regulated through industry-specific Acts.

The 79 councils administer the Food Act with its objectives of ensuring food is safe and suitable for human consumption, avoiding misleading conduct and giving effect to national food standards. The Food Safety Unit of the Department of Human Services (DHS) also has some regulatory responsibilities, along with its policy advisory role. Dairy Food Safety Victoria (DFSV) regulates the dairy sector and PrimeSafe regulates meat and seafood. Consumer Affairs Victoria regulates misleading conduct, as does the Australian Competition and Consumer Commission.

OVERVIEW xxix

Figure 2 Food safety regulatory frameworka

Natio

nal

food

stan

dard

s

National standard setting

Australian New ZealandFood Regulation Ministerial

CouncilFood Standards AustraliaNew Zealand (FSANZ) Subcommittees

Setspolicy

Advice

Minister for Health

Food Safety Unit inDepartment of Human

Services

Councils

Food businesses notregulated by PrimeSafeor DFSV, includingretail outlets, hospitals,supermarkets,restaurants, schoolcanteens, childcarefacilities, market stalls.

Minister forAgriculture

Department ofPrimary Industries

PrimeSafe

Dairy Food SafetyVictoria

Meatabattoirs, processing (includingpet food), transport vehicles,butcher shops, retail (uncookedpoultry).

Seafoodproduction/harvest, wholesale,processing, boat, transport,retail (uncooked seafood)

Dairyfarmer, carrier,manufacturer,distributor,milk broker

AQIS accreditation forexporters

Food SafetyCouncil

Memorandum ofunderstanding via MAV

and AIEH

Third partyauditing

License,inspect,enforce

License,inspect,enforce

Optional for class 2food businesses

Only for dairyfarmers (otherdairy businessesare audited byDFSV)

Statewide strategy,guidance,advice

Register,inspect,enforce

Primary

production

standards

Secretariatsupport

Technical advice

Victorian food safety framework

Strategic advice

Minister for Stateand RegionalDevelopment

Whole of Government Consultative Group

a This regulatory framework is supported by general provisions covering misleading and deceptive conduct (administered by the ACCC and the CAV), as well as specific provisions in the Food Act that councils administer.

OVERVIEW xxix

Figure 2 Food safety regulatory frameworka

Natio

nal

food

stan

dard

s

National standard setting

Australian New ZealandFood Regulation Ministerial

CouncilFood Standards AustraliaNew Zealand (FSANZ) Subcommittees

Setspolicy

Advice

Minister for Health

Food Safety Unit inDepartment of Human

Services

Councils

Food businesses notregulated by PrimeSafeor DFSV, includingretail outlets, hospitals,supermarkets,restaurants, schoolcanteens, childcarefacilities, market stalls.

Minister forAgriculture

Department ofPrimary Industries

PrimeSafe

Dairy Food SafetyVictoria

Meatabattoirs, processing (includingpet food), transport vehicles,butcher shops, retail (uncookedpoultry).

Seafoodproduction/harvest, wholesale,processing, boat, transport,retail (uncooked seafood)

Dairyfarmer, carrier,manufacturer,distributor,milk broker

AQIS accreditation forexporters

Food SafetyCouncil

Memorandum ofunderstanding via MAV

and AIEH

Third partyauditing

License,inspect,enforce

License,inspect,enforce

Optional for class 2food businesses

Only for dairyfarmers (otherdairy businessesare audited byDFSV)

Statewide strategy,guidance,advice

Register,inspect,enforce

Primary

production

standards

Secretariatsupport

Technical advice

Victorian food safety framework

Strategic advice

Minister for Stateand RegionalDevelopment

Whole of Government Consultative Group

a This regulatory framework is supported by general provisions covering misleading and deceptive conduct (administered by the ACCC and the CAV), as well as specific provisions in the Food Act that councils administer.

xxx SIMPLIFYING THE MENU: FOOD REGULATION IN VICTORIA

How effective is food safety regulation? Victorias food supply appears to be generally safe, based on the available data. Official statistics, while subject to some major gaps, show about 250 people were reported to have been affected in an outbreak of foodborne illness in 2006, down from 780 in 2005 (figure 3). These figures understate the true extent of foodborne illness in Victoria, given the way an outbreak is defined (two or more cases) and also underreporting of outbreaks. The degree of underreporting can be gauged by considering the number of people affected by salmonella and campylobacter (two bacteria commonly implicated in food poisoning incidents). In 2006 Victorian doctors notified over 7000 cases of salmonella and campylobacterone Australian study suggested around 80 per cent of these cases might have been food related.

Figure 3 Outbreaks and people affected by food related illness, Victoria (per million population)a

0

50

100

150

200

250

300

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

No.

of p

eopl

e af

fect

ed

0

1

2

3

4

5

6

No.

of o

utbr

eaks

No. of people affected No. of outbreaks a The number of outbreaks and people affected per million population are calculated by dividing the DHS data by Victorias population (accessed from the Australian Bureau of Statistics).

These data are hard to reconcile with estimates of the costs of foodborne illness in Australia. A recent study estimated that the total cost to the community of foodborne illness in Australia is around $1.2 billion per year. This figure was based on another study that claimed around 5.4 million people are affected by foodborne illness each year. If spread evenly across Australias population, these figures imply there could be approximately 1.3 million cases of foodborne illness in Victoria each year, imposing a cost on the community of around $400 million per year. The difference between this estimate and the official statistics may be due to nonreporting of a large number of relatively minor food related cases of gastroenteritis.

xxx SIMPLIFYING THE MENU: FOOD REGULATION IN VICTORIA

How effective is food safety regulation? Victorias food supply appears to be generally safe, based on the available data. Official statistics, while subject to some major gaps, show about 250 people were reported to have been affected in an outbreak of foodborne illness in 2006, down from 780 in 2005 (figure 3). These figures understate the true extent of foodborne illness in Victoria, given the way an outbreak is defined (two or more cases) and also underreporting of outbreaks. The degree of underreporting can be gauged by considering the number of people affected by salmonella and campylobacter (two bacteria commonly implicated in food poisoning incidents). In 2006 Victorian doctors notified over 7000 cases of salmonella and campylobacterone Australian study suggested around 80 per cent of these cases might have been food related.

Figure 3 Outbreaks and people affected by food related illness, Victoria (per million population)a

0

50

100

150

200

250

300

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

No.

of p

eopl

e af

fect

ed

0

1

2

3

4

5

6

No.

of o

utbr

eaks

No. of people affected No. of outbreaks a The number of outbreaks and people affected per million population are calculated by dividing the DHS data by Victorias population (accessed from the Australian Bureau of Statistics).

These data are hard to reconcile with estimates of the costs of foodborne illness in Australia. A recent study estimated that the total cost to the community of foodborne illness in Australia is around $1.2 billion per year. This figure was based on another study that claimed around 5.4 million people are affected by foodborne illness each year. If spread evenly across Australias population, these figures imply there could be approximately 1.3 million cases of foodborne illness in Victoria each year, imposing a cost on the community of around $400 million per year. The difference between this estimate and the official statistics may be due to nonreporting of a large number of relatively minor food related cases of gastroenteritis.

OVERVIEW xxxi

Whatever the true extent of foodborne illness in Victoria, consumer surveys indicate that Victorian consumers have confidence in the safety of food. The latest available survey of consumer confidence by DHS found 94 per cent of Victorians surveyed in 2005 were extremely confident, very confident or confident that the food they buy and eat in Victoria is safe.

What impact has food regulation had on food safety in Victoria? In short, there is no reliable way to estimate the contribution of food regulation to food safety. Despite the introduction of stricter regulations in 1997, the available data on foodborne illness do not show any clear trends. Comparisons with other states are also inconclusive. And there is no way of knowing what would have happened in the absence of changes in regulation.

The lack of public reporting by regulators compounds difficulties in assessing the contribution of regulation to food safety outcomes: councils, PrimeSafe and DFSV provide little public information about their food safety achievements or even their activities. Councils have legal obligations to inspect all registered premises (around 45 000) and to undertake food sampling programs. In practice, however, some councils target high risk areas with their inspection activity, which means businesses and community activities judged to represent a low risk are inspected less frequently than once per year.

With little information collected, it is difficult to judge whether regulatory effort is being directed where the risks (and associated potential social costs in terms of adverse food events) are largest. The Commission made a similar point about food regulation in its 2005 inquiry into regulation and regional Victoria, following on from the Auditor-Generals comments in 2002 about the absence of performance reporting by councils. In a follow-up report in 2005, the Auditor-General noted progress in this area since 2002 has been limited. This is a disappointing situation.

Given the current state of performance reporting and evaluation, it is not possible to assess the contribution of market incentives to the safety of Victorias food supply. But there are reasons to believe that the market imperative to provide safe food is an important driver of food safety outcomes:

A business that fails to provide safe food will incur significant costs from the loss of reputation domestically and overseas. As the Department of Primary Industries noted, food safety is a condition of entry into, and survival in, the marketplace (sub. DR144, p. 1). In the business and community sectors, food safety outcomes are determined by the day-to-day behaviour of food handlers, as well as the quality and safety of production and distribution processes. Councils cannot constantly monitor safety practices in each of Victorias 45 000 registered food premises.

OVERVIEW xxxi

Whatever the true extent of foodborne illness in Victoria, consumer surveys indicate that Victorian consumers have confidence in the safety of food. The latest available survey of consumer confidence by DHS found 94 per cent of Victorians surveyed in 2005 were extremely confident, very confident or confident that the food they buy and eat in Victoria is safe.

What impact has food regulation had on food safety in Victoria? In short, there is no reliable way to estimate the contribution of food regulation to food safety. Despite the introduction of stricter regulations in 1997, the available data on foodborne illness do not show any clear trends. Comparisons with other states are also inconclusive. And there is no way of knowing what would have happened in the absence of changes in regulation.

The lack of public reporting by regulators compounds difficulties in assessing the contribution of regulation to food safety outcomes: councils, PrimeSafe and DFSV provide little public information about their food safety achievements or even their activities. Councils have legal obligations to inspect all registered premises (around 45 000) and to undertake food sampling programs. In practice, however, some councils target high risk areas with their inspection activity, which means businesses and community activities judged to represent a low risk are inspected less frequently than once per year.

With little information collected, it is difficult to judge whether regulatory effort is being directed where the risks (and associated potential social costs in terms of adverse food events) are largest. The Commission made a similar point about food regulation in its 2005 inquiry into regulation and regional Victoria, following on from the Auditor-Generals comments in 2002 about the absence of performance reporting by councils. In a follow-up report in 2005, the Auditor-General noted progress in this area since 2002 has been limited. This is a disappointing situation.

Given the current state of performance reporting and evaluation, it is not possible to assess the contribution of market incentives to the safety of Victorias food supply. But there are reasons to believe that the market imperative to provide safe food is an important driver of food safety outcomes:

A business that fails to provide safe food will incur significant costs from the loss of reputation domestically and overseas. As the Department of Primary Industries noted, food safety is a condition of entry into, and survival in, the marketplace (sub. DR144, p. 1). In the business and community sectors, food safety outcomes are determined by the day-to-day behaviour of food handlers, as well as the quality and safety of production and distribution processes. Councils cannot constantly monitor safety practices in each of Victorias 45 000 registered food premises.

xxxii SIMPLIFYING THE MENU: FOOD REGULATION IN VICTORIA

Evidence gathered during this inquiry suggests many firms have safety standards that exceed regulated standardsfor example, a number of respondents to a survey on business food safety costs reported that they do more than required by current food regulations (see below).

The review of industry structures, supply chains and contractual arrangements in the food industry done for this inquiry, shows that the food industry has developed complex relationships that help to improve food safety outcomes. Major supermarkets, for example, closely monitor the safety of food supplied to them. There is thus less need for regulation to promote food safety when industry arrangements are working effectively.

Despite the importance of markets to determining the overall safety of Victorias food supply, there are some shortcomings that need to be addressed. Some businesses do not respond to the market incentives because they lack skills, they underestimate risks or they face short term pressures (such as profitability, poor facilities and staff turnover). These problems can result in food safety standards falling below necessary levels. It is hard to estimate the proportion of businesses needing closer regulatory oversight. The City of Melbourne reported that approximately 40 per cent of the almost 3000 food premises in its municipality were found, in the past three to four years, to have breached the food safety standards during the initial inspection and to have required follow-up visits. Approximately 4 per cent of all businesses inspected had a serious enough breach to require immediate remedial action. Most of these businesses are followed up until compliance is satisfactory. In a small percentage of cases, however, the City of Melbourne prosecutes businesses: the council reported that in the two years to 2007 it initiated 11 prosecutions and deregistered one business. To the extent that this experience is representative, it suggests that regular inspections are important to promoting compliance with food safety requirements, but that a small proportion of businesses need stronger forms of enforcement.

Several councils informed the Commission that they have the capacity to identify the likely good and bad performers in terms of food safety, and thus can target their regulatory activities at the latter. With councils facing challenges in acquiring the resources and skills to undertake food safety regulation, the regulatory framework must allow resources to be targeted at major problem areas and shifted as priorities and risks change.

Approaches to managing risks The challenge for regulatory authorities is to identify and target regulatory resources at those areas where risks are greatest. In this context, risk has multiple dimensions. It relates not just to the type of food but also to factors such as the number of people potentially at risk and the strength of market and other

xxxii SIMPLIFYING THE MENU: FOOD REGULATION IN VICTORIA

Evidence gathered during this inquiry suggests many firms have safety standards that exceed regulated standardsfor example, a number of respondents to a survey on business food safety costs reported that they do more than required by current food regulations (see below).

The review of industry structures, supply chains and contractual arrangements in the food industry done for this inquiry, shows that the food industry has developed complex relationships that help to improve food safety outcomes. Major supermarkets, for example, closely monitor the safety of food supplied to them. There is thus less need for regulation to promote food safety when industry arrangements are working effectively.

Despite the importance of markets to determining the overall safety of Victorias food supply, there are some shortcomings that need to be addressed. Some businesses do not respond to the market incentives because they lack skills, they underestimate risks or they face short term pressures (such as profitability, poor facilities and staff turnover). These problems can result in food safety standards falling below necessary levels. It is hard to estimate the proportion of businesses needing closer regulatory oversight. The City of Melbourne reported that approximately 40 per cent of the almost 3000 food premises in its municipality were found, in the past three to four years, to have breached the food safety standards during the initial inspection and to have required follow-up visits. Approximately 4 per cent of all businesses inspected had a serious enough breach to require immediate remedial action. Most of these busi