Attachment 3

APPENDIX 3_STATEMENT OF PROPOSAL

Setting Fees under the Food Act 2014

Statement of Proposal

Introduction

This statement of Proposal has been prepared to fullfill the Local Government Act 2002 (LGA) and section 205 (2) of the Food Act 2014 (The Act) requirements.

Background

The Act was passed into law in June 2014, replacing the Food Act 1981. A three year transition period to implement the Act started on 1 March 2016.

The Act introduces a risk based regulatory regime that places a primary duty on the persons trading in food to ensure that the food sold is safe and suitable.

The purpose of the Act is to:

· Restate and reform the law relating to how persons trade in food

· Achieve the safety and suitability of food for sale

· Maintain confidence in New Zealand’s food safety regime

· Provide for risk-based measures that:

o Minimise and manage risks to public health

o Protect and promote public health

o Provide certainty for food businesses in relation to how the requirements of this Act will affect their activities

o Require persons who trade in food to take responsibility for safety and suitability of that food

Businesses Affected

As of January 2017, there are 638 registered food related businesses in Lower Hutt City that will be subject to either a Food Control Plan or National Programme risk bases measures. An estimated breakdown of the risk based measure that businesses fall into is as follows:

Risk Based Measure	Number of Businesses
Food Control Plan	474
National Programme level 3	113
National Programme level 2	10
National Programme level 1	22
Exempt (businesses that do not fall under any of the risk-based measure categories and do not require registration i.e. accommodation providers, home based early childhood centres, club premises)	19
Total number of businesses	638

An additional number of premises may be required to register with the Council that were not previously required to register. The most significant sector of this market is the early childhood education centres (ECE’s). There are approximately 99 ECEs in Lower Hutt City (these are subject to National Programme Level 2).

Council to set fees under the Act

Territorial Authorities may, by resolution, fix fees to recover the direct and indirect costs of any of the following functions under the Act:

Registration:

This includes administrative work such as recording food premises details into multiple databases (at the Council and Ministry for Primary Industries), vetting applications to assess the scope of the business and all other supplementary information is accurate, requesting more information from applicants if required and issuing licenses and certificates (notices). There is a need to make this charge variable for some registrations as the Act allows for registration of a number of sites (multiple food businesses) under one application (and one food control plan); for example, a franchised company may to choose to register one plan with one application for 5 sites which may require more than two hours completing the necessary registration tasks for all sites.

Verification:

This includes auditing of food premises, including preparation (booking appointments, preparing the report/checklist for the audit, checking resource and building consents as well as prior history); travel time, actual on site time to carry out the audit, completion of the audit report and updating of two recording systems. Travel time has been averaged across all premises and will be set at 30 minutes per verification. There will be the need to increase the charge for some verifications as some make take significantly longer than 3.5 hours to complete due to the size and scale of a premises. It is also estimated that up to 50% of businesses will require extra time on site to begin with. The time spent above the standard fixed verification charge will be charged on an hourly rate basis. As businesses become more familiar with the requirements of the Act, it is likely that the proportion of business requiring extra time will reduce.

Compliance and monitoring activity:

This will be charged on a per hour basis; however no charge will apply for investigation of complaints that do not result in an improvement notice being issued. This recognizes that the investigation of complaints is a public good, and unless justified by the issuing of an improvement notice, should not penalise the food operator. As part of compliance and monitoring activity, a site visit will be required for every new business to ensure the details provided by the applicant are confirmed, to ensure that the design, construction, and location of the food business would enable the business to produce food that is safe and suitable for human consumption.

Proposal to set fees

The Council is required under the LGA to adopt a Revenue and Financing Policy that provides details on the funding of operational and capital expenditure. During its development, analysis was undertaken with regards to the parts the community contribute towards paying of activities. Food businesses will transition over to the Act over a three year period as of 1 March 2016. During this transitional period, a portion of the businesses will be charged under the Act and the remaining that have not been transitioned will continue to be charged under the existing fees set pursuant to the Health Act 1956 and the Food Hygiene Regulations 1974.

The Council proposes the following fee structure to ensure the recovery of direct and indirect costs incurred by the Council in performing its functions. The proposed fees will come into effect on 1 July 2017 and will only apply to premises that register under the Act. Existing premises that have not transitioned will continue to pay the existing Council fees set pursuant to the Health Act 1956 and the Food Hygiene Regulations 1974

In setting the proposed fees in the fee structure contained in this paper, Council has taken into consideration the four principles under the Act (section 198(2)): equity, efficiency, justifiability and transparency:

Equity

‘Funding should come from the persons using or benefiting from the functions, power or service’

• It is considered equitable to recover the full costs of the Council’s functions under the Act from the direct beneficiaries. The beneficiaries are perceived to be the owners of food premises to which these functions apply. Users of food premises receive an indirect benefit from the functions performed by the Council under the Act. The proposed fee structure does not seek to charge operators for complaint investigations that do not result in the issuing of an improvement notice.

• This approach recognises that general complaint investigation has public benefits and should not be directly recovered from the food operator where a complaint is not justified.

Efficiency

‘Costs should be allocated and recovered so that maximum benefits are delivered at minimum cost.’

• The Council seeks to deliver its functions in the most efficient manner possible and to ensure this efficiency is reflected in the costs to users.

Justifiability

‘Costs should be collected only to meet actual and reasonable costs (including indirect costs).’

• The proposed fees have been determined based on the estimated time to process registration, verification, compliance and monitoring functions relating to food premises operating under the voluntary implementation programme introduced as part of the Food Act 1981. The hourly rate has been determined after analysis of direct costs; such as salary and operational expenditure, as well as indirect costs such as support functions, IS and property costs.

Transparency

‘Costs should be identified and allocated to the tangible service provision for the recovery period in which the service is provided.’

Proposed fee structure

Cost recovery under the Act is different than under previous legislation. All businesses will be required to pay an annual registration fee payable on the anniversary date of their initial registration. Set fees for both registration and verification will be set separately. An additional fee, calculated at an hourly rate will be charged for all additional visits for verification, or compliance and monitoring activities.

The Council has estimated the volumes of registration, verification, compliance and monitoring visits it currently carries out and what it will be as of 1 March 2016 by reviewing its performance data from previous years in line with its current and proposed fee schedules.

The proposed hourly rate fee is in align with Ministry of Primary Industries, Auckland City Council and Wellington City Council, all of which are providing the same service and implementation of the Act. The hourly rate charge reflects the Council’s direct and indirect costs.

Table 1: Proposed fee schedule for administering the Food Act 2014

FUNCTION	FEE (INCLUSIVE OF GST)	TIMING OF PAYMENT
	REGISTRATION
Application for registration of Food Control Plan (FCP) based on a template or model issued by MPI	$310 (includes two hours of processing of application) $155 per hour for every extra hour of registration activities	$310 payable on application Remainder payable on invoice
Application for registration of a business subject to a national programme template	$155 (includes one hour of processing of application) $155 per hour for every extra hour of registration activities	$155 payable on application Remainder payable on invoice
Application for renewal of registration	$155 (includes one hour of processing of application) $155 per hour for every extra hour of registration activities	$155 payable on application Remainder payable on invoice
Application for amendment to registration	$155 (includes one hour for processing of application) $155 per hour for every extra hour of processing the application	$155 payable on application Remainder payable on invoice

FUNCTION	FEE (INCLUSIVE OF GST)	TIMING OF PAYMENT
	VERIFICATION
Verification of a food control plan based on a template or model issued by MPI	$542.50 (includes three and half hours of verification activity) $155 per hour for every extra hour of registration activities	Payable at registration (if verification due within next 12 months) Remainder payable on invoice
Verification of a food control plan based on a National Programme Three (NP3) template	$387.50 (includes two and half hours of verification activity) $155 per hour for every extra hour of registration activities	Payable at registration (if verification due within next 12 months) Remainder payable on invoice
Verification of a food control plan based on a National Programme Two or One (NP2 or NP1) template	$310 (includes two hours of verification activities) $155 per hour for every extra hour of verification activities	Payable at registration (if verification due within next 12 months) Remainder payable on invoice

FUNCTION	FEE (INCLUSIVE OF GST)	TIMING OF PAYMENT
	COMPLIANCE
Issue of improvement notice	$155 per notice (includes one hour of improvement notice activity) $155 per hour for every extra hour of improvement notice activity	Payable on invoice
Application for review of issue of improvement notice	$155 per application (includes one hour of review activity) $155 per hour for every extra hour of review activity	$155 payable on application Remainder payable on invoice
All other Services for which a fee may be set under the Food Act	$155 per hour	Payable on invoice

Further notes for consideration on Registration & Verification (Audit) Frequencies (refer to Appendix 1 – ‘Explanatory Notes’ for reference)

Options Considered

Option 1

Adopt the Statement of proposal to fix fees to recover the direct and indirect costs of the Council’s functions under the Food Act 2014. This is considered to be the most equitable option ensuring that funding for the Council’s functions under the Act are from users or beneficiaries of these functions and not from rates and other general funding sources. This also aligns with the Council’s Revenue and Financing policy.

This is the preferred option.

Option 2

Adopt an amended statement of fees to partially recover the direct and indirect costs of the Council’s functions under the Food Act 2014.

The option is not in accordance with the Councils revenue and financing policy. The option would mean the full cost of the Council’s functions under the Food Act 2014 would have to be recovered from rates or other funding sources.

This is not the preferred option.

Option 3

Adopt an amended statement of fees that charged all activity on an hourly rate basis with no upfront fixed fee

The option wouldn’t provide any certainty or estimate of the expected charges for the customer and would also have high administrative costs.

This is not the preferred option

Table 2: Advantages and disadvantages of three fee setting options

OPTIONS	POSITIVES	NEGATIVES
OPTION ONE Minimum fixed (minimum) fee based on average time, with the ability to recover additional costs as required. PREFERRED OPTION	• Rewards good compliance & behaviour • Recovers costs for actual work performed • Minimum charge removes risk of not recovering full costs • Consistent with MPI fees and charges methodology • Provides customer guidance on total fees	• Some averaging for some operators • More invoicing than current approach
OPTION TWO Subsidising cost recovery with rates funding to lower the hourly rate.	• Keeps costs for operators lower • Encourages use of Council as preferred verifier when competition is introduced	• Increases costs to ratepayers • Inconsistent with Food Act principle of equity, in that although users of food premises are beneficiaries, the real benefit of safe food premises are the business owners • Lower incentive for operators to be efficient
OPTION THREE Charging by the hour only (no upfront fixed fee).	Possible perceived lower charges by customers	• High administration costs which haven’t been factored into costs • High transaction volume • Uncertainty for operators as to likely total charges

APPENDIX ONE

EXPLANATORY NOTES FOR PROPOSED FEE STRUCTURE UNDER FOOD ACT 2014

Transition Timetable

The Food Regulations 2015, Schedule 1, Part 1, Clause 5 and 6 specify the due dates for registration and transition of existing businesses:

Due dates for registration applications

(3) The operator must apply by the end of—

(a) 31 March 2017, if the business belongs to a food sector listed in the first column of clause 6; or

(b) 31 March 2018, if the business belongs to a food sector listed in the second column of clause 6; or

Table of end dates for authorised transition period

30 June 2017	30 June 2018	28 February 2019
Manufacturers of food for vulnerable populations	Manufacturers of commercially sterilised food products	Manufacturers of vegetable proteins or other protein products
Manufacturers of fresh ready-to-eat salads	Manufacturers of meat, poultry, or fish products	Processors of grain
Manufacturers of non-shelf-stable sauces, spreads, dips, soups, broths, gravies, or dressings	Manufacturers of dairy products	Manufacturers of oils or fats for human consumption
Food service provided to pre-school children (including children under 5 years of age) in a centre-based service setting	Manufacturers of processed egg products	Manufacturers of dry mix products
Processors of nuts and seeds	Manufacturers of meals and prepared foods (not otherwise covered in Schedule 1 of the Act)	Brewers, distillers, and manufacturers of vinegar, alcoholic beverages, or malt extract
On-licence food service sector	Wholesale bakeries	Manufacturers of shelf-stable grain-based products
	Food retail sector where food businesses prepare or manufacture and sell food	Manufacturers of crisps, popcorn, pretzels, or similar snack products
	Processors of herbs or spices	Manufacturers of dried or dehydrated fruit or vegetables
	Retailers that handle food (but do not prepare or manufacture food)	Manufacturers of water-based products including ice, iced confectionery, and iced desserts
	Manufacturers of food additives, processing aids, vitamins, minerals, or other nutrients intended to be added to food	Manufacturers of shelf-stable condiments (including sauces, spreads, and preserves)
	Manufacturers of non-alcoholic beverages	Manufacturers of frozen fruit or vegetables
	Retailers of manufacturer-packaged chilled or frozen food (excluding ice cream, iced confectionery, and iced desserts)	Retailers of hot beverages and shelf-stable manufacturer-packaged foods only
	Manufacturers of confectionery	Extractors and packers of honey
	Bakeries that prepare or manufacture bread or bread products only	Manufacturers of sugar or related products
	Food service sector	Transporters or distributors of food products
		Producers of horticultural food and horticultural packing operations (pack houses)
		Retailers of manufacturer-packaged ice cream, iced confectionery, and iced desserts
		Deemed plan sector

FOOD SECTORS SUBJECT TO FOOD CONTROL PLANS

Food Act 2014 Schedule 1

The following provides a summary of food sectors that are subject to food control plans under this schedule:

(a) food retail sector where food businesses prepare or manufacture and sell food:

(b) food service sector (except for those categories of food service listed below as subject to other risk-based measures):

FOOD SECTORS SUBJECT TO NATIONAL PROGRAMMES

Food Act 2014 Schedule 2

The following table provides a summary of the food sectors that are subject to a national programme under this schedule:

National programme level		Food sector
National programme level 3		Brewers, distillers, manufacturers of vinegar, alcoholic beverages, or malt extract
		Manufacturers of non-alcoholic beverages
		Manufacturers of oils or fats for human consumption
		Manufacturers of food additives, processing aids, vitamins, minerals, or other nutrients intended to be added to food
		Processors of grain
		Retailers that handle food (but do not prepare or manufacture food)
		Processors of herbs or spices
		Manufacturers of dry mix products
National programme level 2		Bakeries that prepare or manufacture bread or bread products only
		Food service provided to pre-school children (including children under 5 years of age) in a centre-based service setting
		Manufacturers of confectionery
		Processors of nuts and seeds
		Manufacturers of crisps, popcorn, pretzels, or similar snack products
		Manufacturers of dried or dehydrated fruit or vegetables
		Manufacturers of shelf-stable condiments (including sauces, spreads, and preserves)
		Manufacturers of shelf-stable grain-based products
		Manufacturers of water-based products including ice, iced confectionery, and iced desserts
		Retailers of manufacturer-packaged chilled or frozen food (excluding ice cream, iced confectionery, and iced desserts)
		Manufacturers of frozen fruit or vegetables
National programme level 1		Extractors and packers of honey
		Producers of horticultural food and horticultural packing operations (pack houses)
		Manufacturers of sugar or related products
		Retailers of hot beverages and shelf-stable manufacturer-packaged foods only
		Retailers of manufacturer-packaged ice cream, iced confectionery, and iced desserts
		Transporters or distributors of food products

FOOD SECTORS NOT REQUIRED TO OPERATE UNDER FOOD CONTROL OR NATIONAL PROGRAMME (EXEMPT)

Food Act 2014 Schedule 3

The following provides a summary of the food sectors that are not required to operate under a food control plan or a national programme under this schedule:

(a) accommodation providers: food for up to 10 guests:

(b) accommodation providers: snacks or breakfasts:

(d) early childhood education service providers who undertake minimal food handling only:

(e) fishing vessel operators who supply food to crew:

(f) food trading: once a year:

(g) food service sector: catering of specified nature:

(h) food service sector: clubs, organisations, and societies (internal):

(i) food service sector: clubs, organisations, and societies (external):

(j) horticultural producers: direct sales of own produce to consumers only:

(k) retailers or direct sellers of shelf-stable, manufacturer pre-packaged food.

Verification (Audit) Frequencies

Food Regulations 2015

90 Frequency of verification of food business and Food Control Plan

(1) The frequency levels for the verification of a food business that is subject to a food control plan and of the food control plan are as follows:

Steps	Frequency of verification
5	18 months
4	12 months
3	9 months
2	6 months
1	3 months

(2) If the result of the initial verification is an acceptable outcome, the verification agency or verifier must carry out verification of the food control plan and food business at the frequency referred to in step 4 of the table in sub clause (1) (the table).

(3) If the result of the initial verification or any subsequent verification (including any unscheduled verification) is an unacceptable outcome, the verification agency or verifier must, after considering the frequency criteria, increase the frequency of verification to a level set out in steps 3 to 1 of the table.

(4) If the results of 2 consecutive verifications (including any unscheduled verification) are 2 acceptable outcomes, the verification agency or verifier must reduce the frequency of verification to a lesser frequency further up the table.

Subpart 2—Verification of food businesses subject to National Programme

91 Food businesses subject to national programme level 3

(1) The operator of a food business that is subject to national programme level 3 must ensure that the food business’s compliance with the national programme is verified by a verification agency or verifier,—

(a) in the case of an existing business, within 6 months of registration; or

(b) in the case of a new business, within 1 month of registration.

(2) A verification agency or verifier must, after completion of the initial verification, verify the food business’s compliance with national programme level 3—

(a) no more frequently than every 3 months; and

(b) at least once every 2 years; and

92 Food businesses subject to national programme level 2

(1) The operator of a food business that is subject to national programme level 2 must ensure that the food business’s compliance with the national programme is verified by a verification agency or verifier,—

(a) in the case of an existing business, within 1 year of registration; or

(b) in the case of a new business, within 1 month of registration.

(2) A verification agency or verifier must, after completion of the initial verification, verify the food business’s compliance with national programme level 2—

(a) no more frequently than every 3 months; and

(b) at least once every 3 years; and

93 Food businesses subject to national programme level 1

(1) The operator of a food business that is subject to national programme level 1 must ensure that the food business’s compliance with the national programme is verified by a verification agency or verifier,—

(a) in the case of an existing business, within 1 year of registration; or

(b) in the case of a new business, within 1 month of registration.

(2) A verification agency or verifier must—

(a) carry out an initial verification of the food business’s compliance with national programme level 1; and

(b) carry out any subsequent verification in accordance with regulation 94(3) and (4).

94 Frequency of verification of food businesses subject to national programmes

(1) The frequency levels for verification of food businesses subject to national programmes are as follows:

Steps	National programme level 3	National programme level 2	National programme level 1
8			no verification
7		3 years	3 years
6	2 years	2 years	2 years
5	18 months	18 months	18 months
4	12 months	12 months	12 months
3	9 months	9 months	9 months
2	6 months	6 months	6 months
1	3 months	3 months	3 months

(2) If the result of the initial verification is an acceptable outcome, the verification agency or verifier—

(a) must, if the food business is subject to national programme level 3, carry out subsequent verifications at the frequency referred to in step 6 of the table in subclause (1) (the table); and

(b) must, if the food business is subject to national programme level 2, carry out subsequent verifications at the frequency referred to in step 7 of the table; and

(c) must not, if the food business is subject to national programme level 1, carry out any further verifications unless regulation 102 applies.

(a) If the food business is subject to national programme level 3, to a level set out in steps 5 to 1 of the table; or

(b) If the food business is subject to national programme level 2, to a level set out in steps 6 to 1 of the table; or

(4) If, after the initial verification, the result of a subsequent verification (including any unscheduled verification) is an acceptable outcome, the verification agency or verifier must, after considering the frequency criteria, reduce the frequency of verification,—

(a) If the food business is subject to national programme level 3, to a level set out in steps 6 to 2 of the table; or

(b) If the food business is subject to national programme level 2, to a level set out in steps 7 to 2 of the table; or

Registration Frequencies (Food Control Plan)

Food Act 2014

61 Duration of registration

(1) The registration of a food control plan is effective from the date of registration until—

(a) the date that is 12 months after the date of registration; or

(b) a later date specified by the registration authority by written notice to the operator of the food control plan.

(2) Subsection (1) applies unless the registration—

(a) expires in accordance with a condition imposed under section 60; or

(b) is cancelled under section 67; or

(3)The registration may be renewed for further periods in accordance with Part 2 of Schedule 4.

Registration Frequencies (National Programme)

Food Regulations 2015

44 Duration of registration

The registration of a food business that is subject to a national programme commences on the date of registration and ends on—

(a) the date that is 24 months after the date of registration; or

(b) any later date that is specified in writing by the registration authority.