Bugs in the Economy

It was famous first, of sorts. BASF New Zealand was notified on January 16 that it had Environmental Risk Management Authority (ERMA) approval to conduct trials to establish product’s suitability for managing plant growth in wide range of crops in New Zealand. The trials would also provide data for future application for approval for the product to be commercially released.
The company was the first to be given an approval under controversial new regulatory regime for agricultural remedies and pesticides, but the procedures at time of writing had yet to be tested by an application for the release of new pesticide.
Farm leaders and agricultural chemical companies are apprehensive. They lobbied against the new regime, contending it would increase the costs of compliance and add complexity and uncertainty to the business of getting approvals for agricultural chemicals.
AGCARM, representing 20 of these companies, has sounded warnings about increased compliance costs for the past eight years, while the politicians and bureaucrats shaped the new regulatory environment, enacted the new laws and drafted the regulations.
The Government was not convinced by the compliance cost argument. It told the companies to come back when they could cite real examples.
The new procedures took effect from July 2 last year, when the Hazardous Substances and New Organisms Act (HSNO) and the Agricultural Compounds and Veterinary Medicines Act (ACVM) came into force. Agricultural chemical products must comply with the requirements of both laws, which replaced the Pesticides and Animal Remedies Acts to establish regulatory environment unlike any operating elsewhere in the world. Products must be approved as hazardous substances under the HSNO Act and registered as trade name products under the ACVM Act.
The old process was straightforward. Companies supplied MAF with information about their products; MAF digested it and there was no public hearing process. Trial information required under the Pesticides Act was not made public nor made available to company’s competitors.
ERMA approvals require much the same information, but in greater detail. ERMA also requires the development of risk analysis, public consultation process and public hearings.
Farm leaders now fear companies will shy away and not release new products or upgraded versions of existing products here. This would deprive farmers, orchardists and horticulturists of the latest chemicals, undermining New Zealand’s export competitiveness.
An Institute of Economic Research report commissioned by the Ministry of Agriculture and Forestry was released publicly just before Christmas, when no-one much bothers to read such things. It gives credence to industry concerns, spelling out the productivity benefits of using agricultural chemicals – the use of pour-on drenches and other agricultural chemicals has allowed farming families to significantly increase stocking rates.
Agricultural chemicals have also enhanced New Zealand exporters’ ability to access markets and meet overseas quarantine standards by eliminating pests.
Economic returns to producers are variable, but the generally accepted average rate of return is between $3-$4 gained for every $1 spent on pesticides and their application. For exported horticultural products this return may be even greater.
The report says the aims associated with the legislation, and therefore its probable benefits, are worthwhile, but suggests “it is unclear the extent to which they can be achieved or even measured”.
The cost of typical application process under the old MAF-administered regime was $11,000. The report reckons these fees will become $4000-$5000 to meet ACVM requirements, plus from $500 to $250,000 under HSNO requirements.
On average the costs of supporting trials under the old regime ranged from $60,000-$70,000; under the new regime they are unknown, but the report says: “… the added complexity and locational issues could increase costs well above the previous regulatory regime”, particularly for the HSNO process.
Small cost increases or changes in competitiveness anywhere along the marketing chain have major impacts on the profitability of our farm commodities, and hefty increases in compliance costs would limit the availability of agri-chemical products with new active ingredients in New Zealand, says IER. If competitor suppliers in other countries can get their chemicals at lower cost, New Zealand producers “may be” less competitive in the long run.
The handling of the first application for the release of new pesticide is keenly awaited, to see how the procedures work in practice. If companies don’t bother seeking approvals, we will know the alarmists are right.

Bob Edlin is regular contributor to Management magazine.

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